You’d be forgiven for wondering why banking scandals seemingly occur more frequently than your morning train or bus to work. This time the spotlight focuses on the self-proclaimed ‘world’s local bank’ HSBC, which this weekend took out adverts in a raft of Sunday newspapers to apologise for the behaviour of its Swiss subsidiary – which has helped its super-rich clients avoid paying millions of pounds in taxes in their country of residence.
The story moved forward this morning when it emerged that a row has erupted at the top of the government just 80 days from the General Election. Chancellor George Osborne came under pressure from business secretary Vince Cable, a Liberal Democrat in the Coalition, to prove that allegations against the Swiss arm of HMRC, which were passed to HMRC when the Coalition came to power in 2010, has been properly investigated. The documents have since been leaked to the BBC’s Panorama programme, which broke the story last week.
Ironically coinciding with Oscar and Grammy season, leading Hollywood actors and music legends were notable mentions in the documents, which suggest HSBC’s private banking arm offered Swiss accounts to its wealthiest customers allowing them to avoid the taxes.
According to the BBC, the ‘black’ accounts involved 106,000 clients in 203 countries, and the details were stolen in 2007 by whistle-blower and former HSBC computer specialist Herve Falciani, who fled his Geneva base to release the documents to authorities in France. The US-based International Consortium of Investigative Journalists (ICIJ) reports that around 7,000 clients are from the UK with a total of $21.7 billion (£14.22bn) in account assets.
An apologetic HSBC confirmed it is “co-operating with relevant authorities” and admitted its Swiss arm was subject to significantly lower standards of compliance and due diligence than the rest of its business, following its purchase in 1999. Since then, however, HSBC says it has made amends by tightening its processes and security.
Having a Swiss bank account, or any other offshore account, is not illegal and there is no suggestion of any wrongdoing by the celebrities drawn into the row.
But the scandal does little to alleviate the suspicion and lack of trust felt by much of the public towards banks and the City, as well as millionaires. The legs of the issue run from the financial world into politics. Notably, the bank’s chairman at the time, Stephen Green, now Lord Green, was later appointed as trade minister in David Cameron’s government. Following the outrage that met the Prime Minister’s appointment of former News of the World boss Andy Coulson as his spin doctor over the hacking scandal, this latest revelation could derail Tory hopes of winning the election.
Both the Tories and the Labour Party have benefited financially from donors with the Swiss HSBC accounts, according to the Guardian. Labour has benefited from cash and gifts in kind worth over £500,000, as well as a loan for £2m, while the Conservatives have raised over £5m.
Who knew what and when? [dropshadowbox align=”right” effect=”lifted-both” width=”280px” height=”” background_color=”#e8dff1″ border_width=”1″ border_color=”#dddddd” ]Whistleblowing and corporate responsibility
Michael Woodford, worked for the Olympus Corporation for 30 years before becoming the president in 2011. He was fired after probing into a questionable set of Olympus’ acquisitions and a related record-high $700 million management consultancy fee. After probing deeper into the issue he uncovered a $1.7 billion accounting fraud. After he was squeezed out of his job because of his scrutiny, Woodford decided to break the silence by sharing his story with the Western press, fearing for his own life but at the same time firmly believing that he was acting in the long-term interest of the company. [/dropshadowbox]
The Financial Conduct Authority’s (FCA) chief executive Martin Wheatley told the Treasury Committee on Tuesday that he was “not aware” of his organisation being informed regarding the alleged tax evasion and claimed the bank had since cleaned up its act.
“The allegations are about a Swiss unit of the bank, based on events of predominantly 2005-2007,” he told MPs on the Treasury select committee. “We are very closely monitoring the ability of the bank overall … and we think significant improvements have been made.”
HMRC said it was prevented by an international agreement from sharing information about HSBC’s possible involvement in tax evasion. Additionally, the Taxman’s boss, Lin Homer, denied there was any evidence of HSBC assisting tax evasion, when questioned by the Committee’s Margaret Hodge on Wednesday.
Whether HSBC will be subject to any punishments is yet to be seen, but the bank could face criminal investigations in the US, France, Belgium and Argentina. Barack Obama’s attorney general Loretta Lync, for example, has not ruled out prosecuting the bank over tax evasion connected to its Swiss subsidiary if there is sufficient evidence.
Philippa Foster Back, Director, Institute of Business Ethics will be dealing with speaking on many of the issues discussed in this article at AAT’s Annual Conference on May 15. Take a look at the full programme for the day and book your place by clicking here.
Jermaine Haughton is a journalist and digital media professional.