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February 09, 2015 at 09:05 AM
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.
