Close Close

Financial Planning > Tax Planning

HSBC List Shows Putin Allies, Drug Lords Used Swiss Secrecy

Your article was successfully shared with the contacts you provided.

The private-banking unit of HSBC Holdings Plc made significant profits for years handling secret accounts whose holders included drug cartels, arms dealers, tax evaders and fugitive diamond merchants, according to a report released Sunday by an international news organization.

HSBC is among a handful of banks to face criminal prosecution in recent years for its role in a Swiss banking system that allowed depositors to conceal their identities, and in many cases dodge taxes or launder ill-gotten cash. The report, prepared by the Washington-based International Consortium of Investigative Journalists, revealed for the first time the massive sweep of HSBC’s private-banking arm as of 2007, when it controlled $100 billion in assets and served a swath of wealthy depositors.

HSBC shares fell 2.2% to 607.10 pence at 2:23 p.m. in London, giving the bank a market value of 117 billion pounds ($178 billion).

The report is based on a list of HSBC clients from around that time that a onetime employee took from the bank and turned over to European officials, sparking tax investigations from Argentina to France, Belgium and Greece. While some of the list’s names have emerged before, Sunday’s report drew from a more comprehensive list of accounts associated with more than 100,000 people and legal entities from more than 200 nations, ranging from the legitimate to the illicit.

“These revelations confirm that banking secrecy has been used to avoid taxation,” Vanessa Mock, a European Union spokeswoman for tax affairs, said Monday.

‘Radical Transformation’

Depositors included royal families and convicted cocaine dealers, ambassadors and terror suspects, entertainers and elected officials, corporate executives and athletes. To these and other clients, the bank actively promoted its accounts as an efficient way to hide assets from tax collectors, according to the report.

HSBC, in a written response to the report, said its compliance efforts had been insufficient. It pointed out that the bank had undergone “a radical transformation” since 2007 and now enforced far more stringent reporting requirements.

Stephen Green, former chief executive officer and chairman of HSBC, told the BBC he won’t comment on the bank.

“HSBC has initiated numerous initiatives designed to ensure that its banking services are not used to evade taxes or launder money,” according to the statement. London-based HSBC operates in more than 70 countries and has a private-banking unit located in Geneva.

Putin Ties

The report said the bank held deposits for controversial figures such as the political operative for the late Haitian President Jean-Claude “Baby Doc” Duvalier, who was accused of embezzling hundreds of millions before fleeing his country, as well as fugitives like diamond dealers Mozes Victor Konig and Kenneth Lee Akselrod, whose names appear on the wanted list run by Interpol, the international police agency.

Other depositors have appeared on U.S. sanction lists, including Russian oligarch Gennady Timchenko, a billionaire whose close ties to Russian President Vladimir Putin put him in the U.S.’s sights after Russia annexed Crimea. Anton Kurevin, a spokesman for Timchenko’s Volga Group, declined to comment.

Disclosures about HSBC’s clients are the latest blow to the Swiss private banking system, which once offered near- impenetrable privacy to depositors. Most countries don’t forbid citizens from holding offshore accounts, and many are used for legitimate purposes. Among many entertainers who held accounts, according to the report, was rock star David Bowie, a Swiss citizen. It didn’t accuse him of wrongdoing. A spokesman for Bowie didn’t respond to e-mails seeking comment.

Diplomatic Pressure

Steps to improve transparency and information sharing between the EU and Switzerland — which isn’t part of the EU — have been adopted by the Organization for Economic Cooperation and Development as well as the Group of 20 countries, the EU’s Mock said. The measures “we hope by 2018, at the latest, will put an end to tax evasion and fraud via the use of secret bank accounts,” she said.

The accounts also attracted depositors eager to shield their money from creditors, ex-spouses, political opponents and law-enforcement agencies. Over the past several years, investigations by the Internal Revenue Service and U.S. Justice Department have used the threat of criminal prosecution and financial sanctions to pressure UBS Group AG and Credit Suisse Group AG to pay fines and turn over the names of thousands of depositors. Diplomatic pressure persuaded the Swiss government to enact stricter reporting regulations.

Drug Cartels

The HSBC leak began as a rogue operation by a computer technician, Herve Falciani, who left the company in 2008 with five disks of confidential information. A self-described whistle-blower, Falciani provided details on the 100,000-plus accounts to French Finance Minister Christine Lagarde, now head of the International Monetary Fund. She passed details from the cache — which came to be known as the Falciani List or Lagarde List — to governments around the world.

When some account holders’ names emerged during the financial crisis, the narrative of banks helping the wealthy avoid taxes fueled political tensions, especially in Europe where many governments were preaching austerity and slashing social services.

Investigators in various European countries have said the information in the leaks has helped them collect billions of dollars in unpaid taxes. The IRS, which according to French officials also received the HSBC depositors lists, has declined to say how much in unpaid taxes it has recovered from HSBC depositors. In 2013, however, HSBC reached a $1.9 billion deferred-prosecution deal with the Justice Department to resolve claims it enabled Latin American drug cartels to launder money.

Royal Accounts

The ICIJ report also found that HSBC was a popular bank among royalty. Its clients included King Mohammed VI of Morocco, dozens of members of the Saudi royal family and Prince Salman bin Hamad Al Khalifa of Bahrain.

Chakib Laroussi, a media affairs adviser at Morocco’s court, said he wasn’t authorized to comment. On Wednesday,, a Moroccan news site seen as aligned with royal perspective, published Le Monde queries about the king’s accounts and cited a foreign exchange regulator saying they are “perfectly legal and authorized.”

Bahrain and Saudi Arabia have no taxes to avoid, and it’s legal in both places to hold foreign accounts. A spokesman for the Bahraini government said the crown prince’s only connection to the HSBC account was through a minority investment in a regional hedge fund that deposited money there. He didn’t control the fund’s financial activities, and the Swiss account didn’t provide any tax advantage, the spokesman said.

Industrial Espionage

Falciani has become a divisive figure in Europe and is called “the man who makes the rich tremble” by the French press. The Swiss government accuses him of trying to sell the purloined account information in Lebanon and is attempting to extradite and prosecute him on charges of industrial espionage and violating bank secrecy laws. Falciani has said his prosecution was part of an “agenda” by the Swiss government to protect banks.

The ICIJ, which partners with publications around the world, said it got access to the depositor list through its collaboration with the French newspaper Le Monde, which obtained them from sources in the French government.

HSBC now accepts that part of its responsibility as a bank is to help ensure that its clients are law abiding and paying taxes and to close the accounts of those who aren’t, according to its statement.

“As a result of this repositioning, HSBC’s Swiss private bank has reduced its client base by almost 70% since 2007,” HSBC said.

– With assistance from Jake Rudnitsky in Moscow, Souhail Karam in Cairo, Glen Carey in Riyadh, Robert Hutton in London and Rebecca Christie in Brussels.

— Related on ThinkAdvisor:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.