A data leak revealing details of some of HSBC’s wealthiest clients has made headlines around the world over the weekend, detailing how the private bank assisted clients with tax evasion and denied governments in their home countries billions of dollars of revenue.
“Old-wealth families” are among the private banking clients HSBC helped evade tax, according to the International Consortium of Investigative Journalists (ICIJ), as well as celebrities, politicians and people associated with arms trafficking, blood diamonds and bribery.
Data covering the personal and financial details of more than 100,000 people and legal entities connected with HSBC was obtained by a company insider and leaked first to French authorities and other governments worldwide, before it landed in the hands of a group of journalists from 45 countries working as part of the ICIJ.
The accounts held more than $100 billion, and details were obtained between late 2006 and early 2007.
Celebrities such as David Bowie and Tina Turner have been associated with the revelations, but have been quick to distance themselves from any wrongdoing. Current and former politicians from countries including the UK, Russia, India, Kenya and Liechtenstein were also among the clients involved.
Among the revelations is that bank employees discussed measures to avoid clients paying taxes in their home countries, including holding accounts in the name of offshore companies.
The public backlash has been swift and widespread, with the revelations leading news agendas worldwide, while HSBC and the hashtag #SwissLeaks were both trending on Twitter.
A four-page statement released by HSBC in response to the allegations has outlined where the bank went wrong, and the steps it has taken in the meantime to improve compliance. The bank had initially asked the ICIJ to destroy the data.
Ultra-high net worth individuals that appear on the list include Victoria’s Secret owner Lex Wexner, and the Israeli diamond-dealing family the Steinmetzes (2,000 HSBC clients included in the data leak were part of the diamond industry). Neither has responded to the revelations at this stage.
UK businessman Richard Caring was also among the clients whose data was leaked, but a representative for the restaurant and fashion magnate said his use of offshore funds was conducted “under widely used and accepted tax principles”.
Client details were initially obtained by IT worker Herve Falciani, who passed the details on to French authorities in 2008. HSBC has described Falciani’s actions as a “blatant violation of Swiss law”.
“HSBC has no record of [Falciani] ever escalating any concerns to his line management, or using the whistleblowing hotline that was in place at the time of the theft,” the bank said in a statement. It suggested Falciani may have had a financial motive for downloading the data, and raised the possibility some of the data had been manipulated.
Governments worldwide have accessed the data since the breach. In the UK, home to more of the listed account holders than any other country, the British tax office said 3,600 of the 5,000 names it received were “potentially non-compliant” and a report to the House of Commons in September 2014 found the tax office had recovered £135 million in taxes from people on the list. In Spain, ICIJ reported, £220 million has been recovered, and in France, £188 million.
In its statement addressing its failures, HSBC said, in the past, private banks had assumed responsibility for tax payment rested with its clients. “Swiss private banks were typically used by wealthy individuals to manage their wealth in a discreet manner,” it said. “Although there are numerous legitimate reasons to have a Swiss bank account, in some cases individuals took advantage of bank secrecy to hold undeclared accounts.”
The bank also talked about shifting industry expectation. It said previously it had only been required to avoid facilitating tax evasion or non-compliance, now it was expected to assist tax authorities to pursue tax evaders.
In January 2011, HSBC said, new management “fundamentally changed the way that HSBC is structured, managed and controlled”. Until December 2010, Lord Stephen Green had been chairman of HSBC. Green went on to become minister for trade and investment in the UK government, despite tax authorities being aware of HSBC’s activities. The government has now been forced to defend his appointment.
The bank has also said it acquired Republic National Bank of New York and Safra Republic Holdings in 1999, which were not fully integrated in HSBC “allowing different cultures and standards to persist”.
The bank points out since 2010 the Swiss private bank has exited US resident client business entirely, and has withdrawn from markets where it cannot conduct due diligence on its clients to a satisfactory standard.