The revelation in leaked bank files that HSBC’s Swiss banking arm has helped wealthy customers put millions of dollars worth of assets out of the reach of the tax authorities confirms the way in which the use of tax havens has become commonplace.
In the globalised modern world, the vast majority of wealthy individuals and medium-sized and large corporations habitually seek ways to avoid taxes.
As Richard Murphy, Christian Chavagneux and I researched for our book, Tax Havens: how Globalization Really Works, we discovered that tax havens are an integral node of globalised capitalism. They are just part of the way business is conducted these days. And the leaked HSBC files are a prime example of this in action.
According to the leaked files, HSBC maintained 30,000 accounts holding almost $120 billion of assets in its Geneva branch between 2005 and 2007. The files appear to show that the largest proportion of account holders were Swiss, holding altogether about $31 billion. They also show 8,883 UK citizens holding $21.7 billion, 1,138 Venezuelans holding $14.7 billion, Americans holding $13.7 billion, French with $12.5 billion, Israelis with $10 billion and even the Palestinian authority had 55 holders with $150m.
Lessons to be learned
There are a number of lessons to be learned from these leaks. First, foreign nationals of many countries are allowed to maintain accounts in foreign banks, but typically they are required to declare those accounts on their tax return. Only their national inland revenues would be able to confirm if they had done so.
Considering that HSBC Geneva did not provide a particularly competitive savings rate, and the report prepared by the International Consortium of Investigative Journalists which reveals the secret Swiss accounts, presents a picture of secrecy and deception, it is not unreasonable to suspect that a good portion, if not the vast majority of these accounts, have had something to do with reducing their clients' tax obligations.
Second, the large proportion of Swiss account holders should not necessarily be interpreted to imply that these are genuinely Swiss nationals. I suspect that the proportion of foreign nationals taking advantage of HSBC’s private banking in Switzerland was even bigger than the figures suggest. This is because many foreign nationals have residency in Switzerland or own Swiss companies and so may have been logged for HSBC internal purposes as Swiss nationals.
Third, although this is the biggest leak so far, it does not mean that HSBC was the only or even the largest recipient of capital flight and tax services in Switzerland during those years. HSBC is a big player in the private banking business, but so are UBS, Credit Suisse, Barclays and a host of other banks. Switzerland is the world’s centre of the private banking industry with reputedly more than $2 trillion in assets.
The leaks confirm that much of what this industry has to offer is helping clients reduce their tax bills, by hook or by crook. UBS has admitted aiding American citizens to evade paying tax in 2010 and paid a large fine to the Justice department. Remarkably, UBS has confirmed it is now under fresh investigation to discover whether it has continued to do so ever since. Other Swiss banks have made similar admissions of guilt and paid fines in the US, as indeed, did Israeli banks.
Fourth, the leak refers to the activities of the HSBC Geneva branch, but what about HSBC Zurich? Though there has been no leak from here, it involves a leap of faith to believe HSBC Zurich would have acted any differently.
HSBC’s response to the scandal implies that the behaviour revealed by the leaks was common to the Swiss private banking business. Responding to revelations of misconduct at its Swiss bank, HSBC said:
In the past… Private banks, including HSBC’s Swiss private bank, assumed that responsibility for payment of taxes rested with individual clients, rather than the institutions that banked them. Swiss private banks were typically used by wealthy individuals to manage their wealth in a discreet manner.
This is tantamount to HSBC admitting that its compliance procedures in Switzerland were inadequate, as well as those in the rest of the Swiss banking industry. The assumption that it was the clients' business to ensure they do not evade and avoid taxation, not the bank’s, was wrong. Following the leak, HSBC has admitted as much in its response, which pointed to a difficult integration of acquired private banking assets in the country:
Too many small and high-risk accounts were maintained (following the acquisition). We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank… were significantly lower than they are today.
The bank has also said that it has “completely overhauled its entire private banking business” since January 2011.
Fifth, as with the case of the tax scandal before this one, the Luxembourg files, an important political figure has been associated with these revelations by the media. Then, it was the current president of the European Commission, Jean-Claude Juncker who was prime minister and finance minister when dozens of multinational corporations were setting up tax evasion structures in Luxembourg.
Now, Conservative peer Stephen Green is in the firing line. As the man in charge of the bank at the time, he has been publicly criticised for either knowingly allowing this to take place or simply not knowing what was going on. Either way, Europe’s political class is strongly implicated by the series of recent leaks – either as consumers of the banking sector’s tax services or as the cheerleaders of these practices.
Last but not least, as in previous cases of such leaks, the person most likely to suffer from the leak is the whistleblower himself. Hervé Falciani, the former HSBC systems engineer who revealed the information. He has been on the run from Swiss authorities since breaking Swiss bank secrecy laws and is living under protection.