Britain’s tax authority failed to tell Downing Street about evidence of serious misconduct at HSBC’s Swiss arm despite being asked to vet Stephen Green, the executive chairman of its parent bank, over his suitability to join the House of Lords as a government minister in 2010.
The Guardian has established that Her Majesty’s Revenue and Customs confirmed only Green’s personal compliance with UK tax laws while clearing him for the peerage. It did not inform the government that it was in possession of thousands of secret account files from the Swiss bank, which implicated HSBC in major tax evasion and other potential criminal offences.
Asked why he took no steps to pass on the allegations contained on the so-called “Swiss disc”, Dave Hartnett, HMRC’s then head of tax, said: “HMRC is asked to provide an indication of reputational risk for appointments of peers in relation to their tax compliance history only.”
Hartnett played a key role in shaping HMRC’s handling of the Swiss data, which had been passed to the UK by the French tax authorities. He went on to work for HSBC as a consultant when he retired in 2012.
The revelation will intensify the pressure on both HMRC and the government to explain why the bank has faced no criminal investigation in the UK, where it is headquartered. While the agency found more than 1,000 tax evaders among the almost 7,000 UK clients of the Swiss bank, only one individual has been prosecuted. Around £135m has been recovered in tax repayments, a lower figure than in other European countries.
The agency’s current chief executive, Lin Homer, is due to face the Commons public accounts committee, chaired by the Labour MP Margaret Hodge.
One of the key questions HMRC is likely to face from committee members is whether there was a decision, as Hodge put it on Monday, to “go easy” on HSBC. In February 2010, Hartnett, as head of tax, paid an as yet unexplained visit to HSBC. He officially registered that he ate a sandwich lunch there, but has not disclosed what he talked about.
As the French authorities told HMRC about the Swiss disc in early February, this raises the question as to what the purpose of the lunch was, and who instigated it.
Following the publication of the leaked HSBC internal files by the Guardian and international news outlets this week, the UK tax agency now appears to have changed tack and is reviewing the decision not to pursue the bank.
“The French authorities have today confirmed that they will provide all assistance necessary to allow HMRC to exploit the data to its fullest,” Homer said in a statement to the Guardian on Monday night.
She added that HMRC would ask the Washington-based International Consortium of Investigative Journalists, which worked with the Guardian, for access to all available files.
“We are examining whether we have all the same data as the International Consortium of Investigative Journalists, and are asking the ICIJ for any data that we have not already been given.”
Homer’s statement reveals that officials originally believed they were obliged to keep the contents of the Swiss disc secret not only from Treasury ministers and the prime minister, but from all other British agencies and regulators, such as the Serious Fraud Office or the Financial Conduct Authority.
“HMRC received the HSBC data under very strict conditions, which limited our use of it to pursuing offshore tax evasion and prevented us from sharing the data with other law enforcement authorities. Under these restrictions, we have not been able to seek prosecution for other potential offences, such as money laundering,” the statement said.
Yet Hervé Falciani, the original source of the HSBC leaks, has previously said that he and the French authorities had always been willing to cooperate fully with other national tax agencies, but that the British had never approached them for help.
Prosecutors in the US, Spain and Belgium have been working closely with French investigating judges and police officers for several years.
Documents obtained by the French daily Le Monde illustrate just how cooperative French magistrates have been with prosecutors abroad. They show that in 2014, Belgian judiciary police used depositions gathered by French magistrates from HSBC customers and employees to question David Garrido, the head of legal at HSBC Private Bank (Suisse) SA.
Both France and Belgium have been preparing criminal cases of money-laundering against HSBC and its bankers, without any apparent legal restrictions. HMRC sources said that the decision by unnamed officials not to pursue the bank was based on an “interpretation” of the double taxation treaty between the UK and France.
Homer’s statement also disclosed that only three individuals had ever been proposed for prosecution by HMRC, out of the 1,100 HSBC tax evaders their research eventually identified.
“HMRC passed evidence on three individuals on the HSBC list to the Crown Prosecution Service, and the CPS considered that there was sufficient evidence to mount a successful prosecution in only one of the three cases.
“As far as we are aware, only a handful of cases from the HSBC list have been brought by other countries for tax evasion and none have yet been brought for money laundering, so the UK is not out of step with our international partners.”
She said that £135m had been recovered from HSBC clients based in the UK: “In a small number of cases, HMRC will institute criminal investigations into serial tax evaders and those who deliberately conceal information from us. But in most cases, disclosure and civil fines are the most appropriate and effective intervention, and that is how we have approached the receipt of data from leaks and whistleblowers, including the Swiss HSBC data that was shared with HMRC in May 2010.”
In a subsequent overarching tax deal with Switzerland, Hartnett went on record saying it was unlikely any bankers would be prosecuted, due to lack of evidence.
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