The documents show for the first time that rather than acting as a passive party to the tax schemes of its clients, HSBC Suisse proactively contacted clients to market techniques that would have effectively sabotaged the tax treaty deal.
The bank’s activities around the treaty, which related to the EU-wide European savings directive (ESD), form the core of the criminal investigations into HSBC’s activities in France and Belgium, both launched due to the leaked documents.
The treaty, signed in 2003, allowed EU citizens to carry on hiding billions in anonymous Swiss accounts. But in return, Swiss banks such as HSBC’s would be obliged to collect some tax from each of their secret customers.
This “withholding tax” on the income from savings interest, initially 15%, would then be handed over in bulk to Britain and other EU states, to compensate them for losses caused by anonymous tax dodgers.
But HSBC came up with a “vehicle” that enabled customers to avoid the tax by exploiting a key loophole in the treaty: ESD only applied to individuals’ savings, not companies.
So the bank offered to transfer all of a customer’s secret cash into a corporate account with no genuine trading activity.
This would technically belong to a shell company, set up in such secretive offshore havens as Panama or the British Virgin Islands. To be doubly sure, the company itself in turn could, for a further price, even be registered as technically owned by an offshore trust or foundation, generally in the tiny principality of Liechtenstein, where details of the trust deed could be kept completely secret. The customer would be written in as the “beneficiary” of the trust, but not the legal owner of the company.
In return for paying several thousand pounds in annual fees to the bank, the rich clients could carry on enjoying the secret fruits of their cash, tax-free. One such BVI sham entity was even wittily named Alter Ego Ltd.
According to the notes in the HSBC files, the bank’s Swiss staff were remarkably explicit about the purpose of the scheme. Recording a conversation with a client, one banker noted: “ESD, for now will pay the 15%. We discussed the possibilities for not paying. She will think about it.”
Scores of these “solutions” were marketed by Swiss bank managers throughout 2005, the files show.
In one case, a British businessman from Deal in Kent and his financial adviser turned up in Geneva in October 2005, two among many such visitors.
The English family had the equivalent of more than £1m hidden in FLAMINGO 22, a numbered Swiss account. The bank now needed their signatures on a card, in order to purchase HSBC’s latest tax-avoidance plan.
The family signed up to the device in October 2005: “He … asked us to transfer the … current account balance to Future Investments and Development SA … a Panamanian Company that he, and his co-account holders, have arranged to be created in the context of ESD.”
Another typical entry concerned a diamond dealer from Stoke Newington, north London. The client “will come to ZH [Zurich] on 15.06.2005 to establish a new company with Audina Treuhand and will sign new docs for a new a/c … new B.V.I to be opened by Audina Treuhand as ESD solution”, the bank noted. The Liechtenstein agency, Audina, eventually set up a company called Derbe Ltd for him, not in the BVI but in Samoa, an even more obscure offshore jurisdiction.
His personal account, codenamed 35666 ZZ, was emptied while Derbe Ltd by the following year held the equivalent of £770,000.
The terse leaked notes show HSBC clients passively accepting to be party to the new structures after bankers proposed them: “Explained in details how ESD works; client accepted to establish a new off-shore company for this purpose and signed all necessary documentation,” one records for a Hatton Garden jeweller with £15m.
Another example explains the structure the bank proposed for a British client: “A new Liberian Company that we shall open for ESD reasons, as the client is Greek and UK resident … transfer all assets from the named accounts to the Corp. account” it notes for a retail heiress with £8m.
Other UK clients did much the same. “We discussed the ESD and they have decided to establish a … Panamanian company, to establish an account and to receive these assets, and on which they will have individual signing power,” one notes. “Long ESD discussion… Client has signed a letter, to transfer assets from account to BVI company,” states another.
Former tax inspector Richard Brooks said the files show that the bank “was actively encouraging them not to pay their tax bill … finding ways to get round new rules introduced in 2005 to tackle tax evasion. It was saying, ‘OK you don’t have to play along with those, we’ve got another product for you that will allow you to carry on evading tax.’”
Other notes from the dozens of examples within the files show that clients from Greece, Spain and Israel were offered the same loophole, with companies incorporated in Liberia, Panama, the British Virgin Islands and other jurisdictions.
HSBC is now facing criminal charges in Belgium and criminal investigation in France on the allegation that it “knowingly promoted serious and organised tax fraud” in connection with its ESD schemes.
The bank would not comment directly on the Guardian’s evidence, but in a statement it has admitted various forms of wrongdoing occurred in its Swiss subsidiary. It said regulatory expectations have nowadays “dramatically shifted”. Banks are now expected not to facilitate “any form of non-compliance with tax obligations”. HSBC current leadership, the bank said, “fully welcome and support these reforms”.
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