French judges have put the Swiss branch of HSBC under official investigation over allegations that Britain’s biggest bank helped wealthy clients avoid taxes.
It was revealed on Friday that the unit had been mise en examen, the equivalent of being charged, for “illicit financial and banking practices”. The move comes as yet another blow to the international bank just days after it faced charges of fraud and money laundering from the Belgium authorities and, in a separate case, was hit with almost £400m in fines for allowing traders to rig foreign exchange markets, along with five other banks.
“We confirm that HSBC Private Bank (Suisse) SA has been placed under formal investigation by French magistrates who are examining whether the bank acted appropriately between 2006-07 in relation to certain clients of the bank who had French tax reporting requirements, as well as in relation to the way the bank offered its services in the country,” said HSBC Private Bank. “We will continue to co-operate with the French authorities to the fullest extent possible,” it added.
Le Monde newspaper reported on 3 November that French financial authorities had new documents claiming staff at the bank, with the knowledge of their bosses, had suggested certain wealthy French clients set up offshore front companies in Panama or the British Virgin Islands to escape their fiscal obligations in France.
The inquiry into HSBC Private Bank had opened last year after a former employee at the bank handed over documents to French judges relating to around 3,000 individual accounts held by alleged French fiscal residents. Le Monde said it had seen the report by the gendarmerie suggesting HSBC Private Bank had helped clients in an “organised” manner, to avoid a total of $5bn (£3.2bn) in taxes.
Police went on to interview more than 80 witnesses, including bank clients and former employees as part of the investigation into suspected fiscal fraud during 2006 and 2007.
Investigators were particularly interested in alleged moves by the bank to help clients avoid a new tax, known as the ESD – the European Union Savings Directive - which came into effect across all EU states in July 2005. The ESD, the first common direct taxation policy across the EU, applies to individuals who are resident in a member state and benefit from savings income paid to a bank account in a different country. All EU countries are required to disclose interest earned by a resident of an EU country to ensure interest is fully declared in their country of residence. Some non-EU countries also agreed to introduce similar measures, but some countries, including Switzerland, objected because of the threat to banking secrecy.
Investigators say that in January 2005, the HSBC Private Bank “explicitly” warned clients of the impending tax and advised there were “numerous tools and structures exist” for avoiding it. HSBC Private Bank is also under investigation in Belgium, where its Swiss branch is also being investigated for “aggravated fiscal fraud”, and in Switzerland.
Countries around the world are trying to crack down on undeclared funds held in offshore havens, after the global financial crisis strained government budgets and made the need to maximise tax receipts more pressing. France and Switzerland agreed in June to co-operate more closely on French efforts to crack down on citizens with hidden Swiss bank accounts to root out tax dodgers.
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