tag:theconversation.com,2011:/id/topics/hsbc-files-14890/articlesHSBC files – The Conversation2015-06-09T15:50:49Ztag:theconversation.com,2011:article/430242015-06-09T15:50:49Z2015-06-09T15:50:49ZInstead of laying off thousands of staff, HSBC should focus on becoming a model bank<p>HSBC, Europe’s largest bank, is making headlines again. It wants to shed up to <a href="http://www.bbc.co.uk/news/business-33058957">25,000 jobs</a> globally, of which some 8,000 are expected to be in the UK. Why? The bank is seeking cost reduction of about US$5 billion a year and the cuts are supposed to revive the bank’s fortunes by enabling it to pay <a href="http://uk.reuters.com/article/2015/06/09/uk-hsbc-strategy-dividend-idukkbn0op0m120150609?mod=related&channelname=businessnews">higher dividends</a> to investors.</p>
<p>HSBC has not exactly been a well-run bank in recent years. Its <a href="http://www.theguardian.com/business/2015/feb/11/hsbc-files-timeline-from-swiss-bank-leak-to-fallout">operations in Switzerland</a> enabled many to avoid taxes on a vast scale – and are still subject to inquiry across the globe. In 2012, it <a href="http://www.bbc.co.uk/news/business-20673466">paid US authorities</a> US$1.9 billion to settle allegations involving drug kingpins and rogue nations. </p>
<p>The bank has been fined by the UK authorities for rigging <a href="http://www.thisismoney.co.uk/money/news/article-2830731/banks-braced-heavy-forex-fines-rbs-barclays-hsbc-expected-hit-fines-250m-each.html">foreign exchange markets</a>. It has paid a US$43m fine to the <a href="http://www.reuters.com/article/2015/06/04/us-hsbc-tax-swiss-iduskbn0ok1g220150604">Swiss authorities</a>. </p>
<p>It is also subject to tax investigations in <a href="http://www.theguardian.com/business/2015/jun/02/hsbc-expands-boardroom-ahead-of-expected-20000-job-cuts">Belgium</a>, <a href="http://www.bbc.co.uk/news/business-31799402">Argentina</a> and <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11525185/hsbc-under-french-criminal-investigation-over-swiss-tax-evasion.html">France</a>. And it is under investigation in the US for fixing prices in the <a href="http://europe.newsweek.com/hsbc-embroiled-new-price-fixing-scandal-309156">precious metal markets</a>.</p>
<p>Perhaps instead of shifting its HQ and laying off thousands of staff members (mostly in its retail banking arm), HSBC should focus on becoming a model bank.</p>
<h2>Regulation, regulation, regulation</h2>
<p>Following the 2007-2008 financial crisis, along with other banks, HSBC has been supported by the state through a variety of warranties. In return, the UK has levied additional taxes in the form of a bank levy. </p>
<p>But now HSBC is complaining about the regulatory overkill <a href="http://news.sky.com/story/1498881/uk-bank-levy-what-is-it-and-who-does-it-hit">in the shape of this levy</a>. The bank is particularly unhappy about the UK government’s proposals to <a href="http://news.sky.com/story/1487141/hsbc-hits-fresh-hurdle-over-ring-fence-plan">ringfence</a> or separate retail banking from the more risky investment banking. This is a measure put in place to reduce risky operations and possibly avoid another costly crash – but it also curtails the profits enjoyed by banks. </p>
<p>HSBC has responded by saying that it is now considering <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11560190/hsbc-launches-review-into-whether-to-leave-the-uk.html">relocating</a> its head office away from London (to Asia, which has fewer regulations). Of course, it will retain most of its retail and other business in the lucrative UK market, a major financial centre.</p>
<p>One response to HSBC’s threats of relocation is that it shows that big business has no loyalty to any place, community, nation state or customers. Its main concern is profits and little else. Leaving in pursuit of profit, HSBC is inflicting cuts on employees who have remained loyal to it through troubled times. It is now trying to hold the government to ransom by demanding lower taxes and lighter regulation, with the threat of job losses and related economic turbulence.</p>
<p>Some might even welcome HSBC’s possible departure from the UK. Of course, even if HSBC moves its HQ, its branches in the UK will still need to be regulated and depositors would continue to benefit from the state-sponsored depositor protection scheme, which safeguards £85,000 of savings by individuals.</p>
<h2>Where to next?</h2>
<p>Wherever HSBC decides to move its headquarters, its business would need to be regulated because the banking industry is regulated everywhere. As the industry has a <a href="http://www.bloomberg.com/ss/07/12/1217_bailouts/index_01.htm">habit of getting into difficulties</a>, any bank would want a lender of last resort – a regulator that has the capacity to bail it out in the event of another crisis. And contrary to popular belief, HSBC received <a href="http://www.newstatesman.com/2010/12/financial-british-money-fed">state support</a> in the 2007-2008 crisis. These considerations leave out smaller countries and tax havens as they simply do not have the required capacity to support banks in times of crisis. </p>
<p>In the post-banking crash environment, no state can afford to offer light-touch regulation. HSBC would not relocate its head office to the US because its US$1.9 billion money-laundering settlement in 2012 was made <a href="http://www.theguardian.com/business/2012/dec/11/hsbc-fine-prosecution-money-laundering">under a deferred prosecution deal</a>. As a result, US regulators would likely load the bank with extra checks and compliance costs.</p>
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<img alt="" src="https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/84396/original/image-20150609-10726-1pb8kk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Moving its HQ to Hong Kong could be easier said than done.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bluebulgaria/4358964993/in/photolist-7DbQqR-8spZX2-5FdMmX-6k1mWY-4CU65D-9DnoRa-aktesv-b8kQ6g-9DnSRc-5QjHeN-5v2tRZ-7bkGcJ-9Dnnr8-5rXDVH-4CYkef-9DqHZL-9DqGSh-9DqN9S-6g2r3b-6fXfDz-8QVNsZ-28Cij-69KMGo-4BPqpu-4aPFXP-5YXPEF-9DqMpo-6Q7avh-eqnyv-iy18Vz-6qMgiP-6qRrHh-9tc6mL-4ye5sm-5QfhRX-aCSJ5h-aCTofu-aCPwZi-aCT5j9-aCQVtp-aCTpoL-aCUNFJ-aCTr5w-aCTnT9-aCSJw1-aCPdTi-aCTmdG-aCQV6k-aCQUEM-aCQX7n">countries in colors via flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<p>There has been talk of HSBC relocating its HQ <a href="https://uk.news.yahoo.com/hsbc-cutting-staff-10-pct-more-emphasis-asia-063804418.html#sWRwETa">back to Hong Kong</a> where it was until 1993. But, now that Hong Kong is under China’s jurisdiction, HSBC would have to comply with Chinese rules and regulations. Considering banks cannot operate across borders without the assurance that local regulators will cooperate with other countries, it will have to be confident that China maintains good relations with the rest of the world. It would be interesting to know what due diligence work HSBC has done about this possibility.</p>
<p>I have an additional suggestion for HSBC executives. How about focusing on being more responsible. Considering a great deal of the bank’s profits were lost to fines for various misdemeanours, this might be a more ethical way of boosting them. </p>
<p>To facilitate this, the bank could change its governance structure, empower employees and elect directors that invigilate the bank’s operations. It could also silence its critics by making tax returns publicly available. This way HSBC could become a model of good behaviour and resurrect its reputation. In the longer run, it is cheaper than paying fines and bearing the costs of relocation.</p><img src="https://counter.theconversation.com/content/43024/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Prem Sikka is director of the Association for Accountancy and Business Affairs (AABA), a not-for-profit organisation.</span></em></p>HSBC: Instead of threatening governments try becoming a model bank.Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/387942015-03-13T11:06:19Z2015-03-13T11:06:19ZIgnorance in HSBC top brass shows if banks are too big to fail, they’re too big to manage<p>Without going over the depressing details again, a series of past and present managers and board members at HSBC have claimed that <a href="http://www.theguardian.com/business/2015/feb/23/hsbc-chief-paid-7m-pounds-last-year-profits-slide-tax-avoidance-apology">they don’t know what all their employees actually do</a>. Given the salaries of those crying crocodile tears, and the <a href="https://theconversation.com/hsbcs-swiss-tax-scandal-is-part-of-a-global-pattern-of-avoidance-37437">huge level of tax avoidance</a> their organisation has encouraged, it’s not surprising that they have faced incredulous hostility. </p>
<p>Margaret Hodge, chair of the Public Accounts Committee, has been <a href="http://www.theguardian.com/business/2015/mar/09/hsbc-stuart-gulliver-rona-fairhead-margaret-hodge">groaning and raising her eyebrows</a>. </p>
<p>But what if they actually don’t know?</p>
<p>HSBC has around 6,600 offices in 80 countries and around quarter of a million employees. Just think about that for a minute. Imagine that everyone in Stoke-on-Trent was employed by the same company. Then imagine all those people dispersed around the world, working in different languages, legal systems, employment practices and cultures. Is it really practical to imagine that anyone at the top could know what all these people are doing?</p>
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<img alt="" src="https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=727&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=727&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=727&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=914&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=914&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74784/original/image-20150313-7075-1xf4kv6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=914&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Raised eyebrows: Margaret Hodge.</span>
<span class="attribution"><span class="source">PA/PA Wire</span></span>
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<h2>Small is beautiful</h2>
<p>It seems to me that one of the issues that lurks behind the carnival of banking scandals is scale. When chief executives express their insistence on changing the culture of their organisation, and blame some bad apples for what they perceive has gone wrong, we should really be asking some different questions. If banks were smaller, would they be easier to manage? Would they be easier for us to manage?</p>
<p>In 1973, Ernst Schumacher published his iconic collection of essays: <a href="http://www.theguardian.com/commentisfree/2011/nov/10/small-is-beautiful-economic-idea">Small is Beautiful</a>. His key argument is that “giganticism” – of whatever form – is a problem, and that we need to organise economies on a human scale. </p>
<p>The argument obviously applies to organisations too. We are confronted now by businesses which are colossal – the size of small countries – and which operate globally. Walmart employs 2.1m people. Foxconn, which makes Apple products, employs 1.2m. Tesco employs nearly 600,000 staff.</p>
<h2>Responsibility</h2>
<p>Large organisations like to talk about corporate social responsibility, but what does responsibility mean at that sort of scale? When we tiny humans talk about responsibility, we might refer to our families, to friends and neighbours, to people whose faces we know and whose trust we hold. For people, responsibility is a small thing, something felt in the body as we worry about letting people down, or smile when we remember someone’s thank you for something that we did.</p>
<p>But how can a corporation of a quarter of a million feel responsibilities – and if it operates in 80 countries, then who is it responsible to? At the Public Accounts Committee, the CEO of HSBC, Stuart Gulliver, the former CEO of global private banking, Chris Meares, and Rona Fairhead, an independent non-executive director, all claimed that they didn’t know – much to Hodge’s disdain. </p>
<p>But it’s hardly surprising really, given the scale of the responsibilities that they are being paid to take on. And the “heads must roll” incantation simply offers more well-compensated sacrifices to the behemoth and does nothing to actually address the underlying problem. </p>
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<figcaption><span class="caption">HSBC bosses deny knowing everything that went on under their watch.</span></figcaption>
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<h2>A radical suggestion</h2>
<p>This isn’t to suggest that Hodge is wrong – and that she should let evidence of corruption and stupidity pass unremarked. But I would also like to see discussion of some much more radical suggestions for dealing with banks – and all big organisations. </p>
<p>For a start, there seems to me to be no good reason not to break up organisations into manageable chunks, and probably to insist that these parts should only operate within one tax jurisdiction. This would go along with another simple step, which would be to say that no company can hold shares in another company. That way, size will become a pathology; an evasion of responsibility, rather than an excuse to build a bigger skyscraper.</p>
<p>This might sound terribly radical – and no doubt the apologists for huge corporations will explain why efficiencies of scope and scale are achieved through size. But we can list on the other side of the scale all the problems of giganticism – including tax avoidance, a race to the bottom for wages and worker’s rights, sickening salaries for chief executives, and so on. </p>
<p>After all, if HSBC’s top dogs – Gulliver, Meares, Fairhead et al – don’t know what’s going on, then how the hell can the rest of us? Too big to fail clearly also means too big to manage.</p><img src="https://counter.theconversation.com/content/38794/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martin Parker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With more than 250,000 employees, spread over 80 countries, how can HSBC’s bosses know everything going on?Martin Parker, Professor of Organisation and Culture, University of LeicesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/376632015-02-20T15:18:52Z2015-02-20T15:18:52ZWhy scandals aren’t bad for business in the long term<figure><img src="https://images.theconversation.com/files/72628/original/image-20150220-21904-17pt2of.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Too big to fail?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/eepaul/6593764401/in/photolist-4NNfg2-c2N8v5-jRafKZ-gtX4g-eVkSuY-6DfvYr-asikbk-2YE2hH-5m8tVn-9g7u9m-9NWUfG-b3EM62-b3EMEM-b3ELr8-6kinyc-99af8Z-p6XvRk-ea86tD-5EzqbQ-ecDJuM-nTkrnk-8SKYgK-c2NvpY-cKzpoh-79tLMy-eaGygK-xH2cm-aWAhK-eaGyb8-2McoxL-aLAbSg-99cNWu-bo1PLy-ghakW-79tLqS-b3ERwn-3MmL9j-4nX7GQ-4nT44F-4nT2ck-edENxB-E5QRK-E5QRG-E5QRL-E5QRM-bnZZdL-c2NvoE-c2Nvmu-4faJJf-bt48Do">Paul Wilkinson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>HSBC has been receiving a lot of bad press recently, but it doesn’t seem to be hurting its <a href="http://seekingalpha.com/article/2928506-should-you-be-bottom-fishing-on-hsbc">stock performance</a>. Should we be surprised by this? My research into corporate scandals shows that they tend to hurt companies in the short term, but have no long term impact. </p>
<p>The questions raised over HSBC’s Geneva subsidiary will likely affect the company in the short term. There are always investors who value ethics and they will penalise the bank for <a href="http://www.bbc.co.uk/news/business-31516416">reports of money laundering and assisting wealthy customers avoid tax</a>. Then there’s the reputational damage of having its offices searched, as a result of these charges, and the potential fines that could be incurred if found guilty. It may well have to close some businesses, refuse some customers, sell some assets and restructure the firm. All of these cost money that will adversely affect the bank’s asset base.</p>
<p>But HSBC is a “too big to fail” bank. The ripple effects of closing it would be devastating. So in the long run, this scandal is unlikely to affect it. In fact, research I’ve done into the long term effect of corporate scandals on share prices shows that they can even lead to better performance in some circumstances.</p>
<h2>Scandals in the past</h2>
<p>A paper recently <a href="http://www.tandfonline.com/doi/abs/10.1080/00036846.2014.995361#tabModule">published in the Journal of Applied Economics</a> looked specifically into the effect of improper conduct, gross misbehaviour or failings by CEOs on stock market performance. Colleagues in the US and I looked at 80 corporate scandals between 1993 and 2011 involving financial or non-financial misdemeanours – breach of contract, bribery, conflicts of interest, fraud, price fixing and other white-collar crimes, as well as personal scandals such as a CEO having an affair, lies on CVs and harassment cases.</p>
<p>While the HSBC scandal that’s taking place right now is not centred on its CEO but the company’s practices more broadly, there are some parallels in terms of the effect that scandals have on businesses – and why HSBC will probably be fine in the long term. </p>
<p>Our investigation into scandals involving CEOs showed that investors react unfavourably to the announcement of corporate scandals. We found that share prices plummeted between 6.5% and 9.5% in the month after the misconduct was made public, collectively costing shareholders an average of US$1.9 billion per scandal-hit firm.</p>
<p>Clearly, investors value ethics and they place a premium on it. Thus, when something unethical comes to light, the company loses that premium and its share price drops instantaneously to reflect that loss.</p>
<p>The point of respite for investors, however, is that the damage is confined to the short run. In the long run following a scandal, the stock price performance of the firms we studied went on to match the performance of other similar firms that were scandal free.</p>
<p>Nonetheless, it requires more than a scandal to bring down a corporation. Unethical people are replaceable and unethical practices can be reformed. Companies can carry on after these people are replaced and show that safeguards are in place to prevent similar things from happening again.</p>
<h2>Corrective actions</h2>
<p>Our study showed that the operating performance of many scandal-hit firms went on to be better than other similar but unaffected firms in the years following the scandal. The corrective actions taken by the scandal-hit firms seems to benefit investors in the long run.</p>
<p>Companies respond to scandals by putting safeguards in place. HSBC have had a head start in this. As soon as the reports of its private banking failings surfaced, the bank was <a href="http://www.theguardian.com/business/2015/feb/08/hsbc-responds-revelations-misconduct-swiss-bank">quick to inform the public</a> that it has “completely overhauled its entire private banking business” and made reforms to meet strict new standards.</p>
<p>These kinds of responses allay investor fears and avoid further drops in a company’s stock price, ensuring that they rebound to the levels of their rivals. This is what we found in our study. Three years on from scandals, the share-price performance of firms matched those that had not been affected by scandals. </p>
<p>In general, corporate scandals can act as a catalyst to implement changes that benefit investors. We found that, if anything, the 80 companies in the study – including Apple, Hewlett Packard, IBM, JP Morgan and Yahoo – actually showed an improved operating performance in the years after a scandal.</p><img src="https://counter.theconversation.com/content/37663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Surendranath Jory has previously received funding from the British Academy.</span></em></p>HSBC has been receiving a lot of bad press recently, but it doesn’t seem to be hurting its stock performance. Should we be surprised by this? My research into corporate scandals shows that they tend to…Surendranath Jory, Lecturer in Finance, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/377702015-02-18T16:49:33Z2015-02-18T16:49:33ZPeter Oborne resignation shines a light on the dark arts of business journalism<p>Peter Oborne’s <a href="https://opendemocracy.net/ourkingdom/peter-oborne/why-i-have-resigned-from-telegraph">attack on the management of the Daily Telegraph</a> for downplaying the latest HSBC scandal raises interesting insights into a wider malaise within business journalism. On one side stands The Guardian, helping to expose widespread tax evasion, and on the other the Daily Telegraph management, accused of deliberately suppressing the story for commercial interests. Which best represents the state of financial and business journalism in the UK?</p>
<p>In research I carried out for my forthcoming book on corruption and collusion in business journalism, I found that the Telegraph carries more business coverage than any of its competitors. A newspaper like the Telegraph is trusted by its readers, they expect it to tell the truth and because business news is so central to the paper’s offering, if Oborne is correct then what we are seeing is a betrayal of their trust. Why should they trust it again? How much more is driven by commercial pressures? </p>
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<span class="attribution"><span class="source">The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>It’s no secret that the traditional business model of newspapers has broken down. Papers were always a dual product, a combination of editorial which attracted readers, and a platform which attracted advertising because of a newspaper’s circulation. However, falling circulation has reduced the attraction for advertisers which has resulted in falling revenues and cost-saving measures. This is why advertisers are keenly fought over, with the danger that they can influence editorial decisions.</p>
<p>Faced with financial constraints and the challenge posed by digital delivery platforms, newspaper owners have responded by cutting costs. As the most expensive element of a newspaper is the editorial, it is journalists who have borne the biggest brunt in terms of lost jobs. My forthcoming research shows employment in the UK’s mainstream print sector shrank by between a quarter and a third from a baseline estimated in 2001 of 55,000-60,000 jobs to around 40,000 in 2010. </p>
<p>In an interview for my book, the Guardian’s online editor, Julia Finch, told me: </p>
<blockquote>
<p>Because of the reporting timescales we tend to cover companies reporting their results, all we can do these days is report results, analysis takes longer and is more expensive. More demands on the journalist and less time to actually do the checking. This is going to get far worse because of the economics of the media industry.</p>
</blockquote>
<p>Due to the increased volume of work and the limited amount of time available to produce stories, journalists have changed from a hunter-gatherer of stories to data processors. Increasingly this means having to rely on external sources for both the source of the stories and their content. </p>
<h2>We need better business journalism</h2>
<p>Why does this matter? We need critical financial and business journalism because of the way our relationship with business has changed. Over the past 30 years the power of the state and the trade unions, which used to protect society from the predatory activities of business, has rapidly diminished.</p>
<p>At the same time, politicians have rebalanced the economy. Services that were once provided by public sector have been outsourced to private companies. Many of these are multinational corporations owned by offshore shareholders. </p>
<p>We live and work in a global economy – Amazon, Starbucks, Google are major household names everywhere and while we might welcome their services we have learnt there is a cost. There has been outrage at the tax avoidance schemes carried out by many of global companies and HSBC is only the latest example.</p>
<p>In the past, it has been business reporters in newspapers who have been at the forefront of exposing these activities, thereby demonstrating the importance of such reporting. But what happens when companies have enough sway to affect that reporting?</p>
<h2>Safe conduits</h2>
<p>My experience in financial journalism provides too many examples of journalists colluding with businesses in order to present a positive or less critical aspect. Such “safe conduits” possess impeccable credentials and are trusted by business to become the channel through which their opinions are expressed. </p>
<p>The conduits are also used by pro-business lobby groups and think tanks to act as cheerleaders for political and economic causes that they argue affect business interests.</p>
<p>Business journalism matters because it helps dictate the political agenda. The so-called “<a href="http://www.telegraph.co.uk/news/worldnews/europe/10986255/Our-drive-to-cut-red-tape-is-working-both-at-home-and-in-Europe.html">war on red-tape</a>” and the <a href="http://www.theguardian.com/money/2014/jan/26/labour-50p-tax-rate-what-you-need-to-know">50p tax campaign</a> are issues that started in the business pages and which were then translated into legislation. Increasingly this means that policy on key issues are decided not through democratic institutions but in the boadrooms of UK plc in the service of their own interests. </p>
<p>It has to be asked whether such an uncritical acceptance of business is either healthy or good for business. What type of friend is it that does not hold you to account when you do wrong, applauding misdemeanours and dubious practice as being essential business activity? What kind of friend let you precipitate an economic crisis or seeks to excuse or apologise for behaviour that might elsewhere be regarded as criminal? </p>
<p>If our newspapers reported on politics or politicians in such an uncritical fashion, we would quickly dismiss it as propaganda. Peter Oborne’s resignation has been the wake-up call we needed about the undue influence business has on journalism.</p><img src="https://counter.theconversation.com/content/37770/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Butterick is affiliated with the Labour Party.
</span></em></p>Peter Oborne’s attack on the management of the Daily Telegraph for downplaying the latest HSBC scandal raises interesting insights into a wider malaise within business journalism. On one side stands The…Keith Butterick, Director, Centre for Communication Research, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374412015-02-12T12:19:14Z2015-02-12T12:19:14ZUntil we fix our economic system tax evasion will continue<p>There has been an <a href="http://www.theguardian.com/news/2015/feb/09/hsbc-files-bank-swiss-arm-tax-international-response">international outcry</a> over the leaked HSBC files, which provide evidence that the bank’s Swiss arm helped wealthy clients put millions of dollars worth of assets out of the reach of the tax authorities. Naturally, politicians from all parties have responded by committing to holding anyone found guilty of tax evasion <a href="http://www.independent.co.uk/news/business/news/hsbc-leaks-david-cameron-faces-grilling-over-party-links-with-scandalhit-bank-10037157.html">accountable for their actions</a>. </p>
<p>There has also been <a href="http://www.independent.co.uk/news/business/comment/james-moore-hsbcs-scandal-spotlights-the-inertia-of-hmrc-10035136.html">disbelief and growing scrutiny of government</a> watchdogs, such as Britain’s tax authority HM Revenue & Customs (HMRC) for failing to properly investigate the matter. <a href="http://www.theguardian.com/news/2015/feb/09/hsbc-files-bank-swiss-arm-tax-international-response">According to Danny Alexander</a>, the Liberal Democrat chief secretary to the Treasury,:</p>
<blockquote>
<p>We quite rightly prosecute and often jail people guilty of damaging our society through conventional crime and antisocial behaviour. The way we treat systematic tax evasion should be no different. If that means jail for offenders and those that conspire with them, then so be it.</p>
</blockquote>
<p>Such calls to punish elites are indeed laudable and urgent. Yet this issue runs deeper than a few bad apples. Instead it touches on the fundamental problems of corporate power and political plutocracy plaguing our economy and politics. While punishing privileged wrongdoers may be just and feel good, this should not distract from the larger need to change the very system giving birth to these actions.</p>
<h2>Getting tough on corporate crime</h2>
<p>The revelation that the bank <a href="http://www.icij.org/project/swiss-leaks/explore-swiss-leaks-data">helped thousands of wealthy citizens</a> to avoid paying billions in taxes is too big a revelation for any political party to ignore. Yet, despite having the leaked data since 2010, HMRC have only prosecuted <a href="http://www.bbc.co.uk/news/business-31248913">one tax evader from the list of 1,100 clients</a> identified by them as not paying their taxes.</p>
<p>Politicians joined across the aisle in condemning corporate tax evasion. Not surprisingly, however, this shared anger has turned into a political game of finger pointing. The leader of the Liberal Democrats, <a href="http://www.independent.co.uk/news/business/news/hsbc-scandal-nick-clegg-accuses-labour-of-letting-the-banks-run-riot-10033640.html">Nick Clegg accused the former Labour government</a> of “letting the banks run riot” under their rule. Meanwhile, <a href="http://www.independent.co.uk/news/business/news/hsbc-scandal-nick-clegg-accuses-labour-of-letting-the-banks-run-riot-10033640.html">Labour leader Ed Miliband</a> blamed the present coalition government, pointedly asking: “We need to know why HMRC apparently did not act, apart from at the margins, on the information that they seem to have been given about what was going on.”</p>
<p>Meanwhile, it is troubling that the government was failing properly to investigate the elite customers of HSBC, all the while cracking down on poorer benefit cheats. This contradictory treatment of the haves and have nots did not escape notice. To this effect,<a href="http://www.theguardian.com/news/2015/feb/09/hsbc-files-bank-swiss-arm-tax-international-response"> MP Margaret Hodge said</a>:</p>
<p>“If this had been benefits scroungers, they would have been queuing around the courtrooms to have their court appearances. Because it’s relatively well off people, there’s only one person who’s been taken to court. We want to demonstrate to others that you will not get away with avoiding or evading your tax.”</p>
<p>These sentiments reflect the belief that there are two systems of justice – one for the rich and one for the poor. The government’s commitment to investigating the scandal is symbolic of their efforts to show that no one, no matter how wealthy or power, is above the law.</p>
<h2>Just a few bad apples?</h2>
<p>Present is a broader popular desire to hold economic and political elites criminally accountable for their socially harmful actions. This goes beyond one scandal or the nefarious behaviour of certain financial actors. Politically, this can also be seen, for instance, in growing calls to <a href="http://www.telegraph.co.uk/news/politics/tony-blair/11328177/Tony-Blair-could-face-war-crimes-charges-over-Iraq-War.html">arrest notable Western leaders like Tony Blair</a> for “war crimes” for their role in the invasion of Iraq.</p>
<p>However, there is an underlying danger of focus being put on punishing the “few bad apples” and avoiding more systematic changes. This public finger pointing distracts attention from a more profound need to change the ideologies and systems of power that give rise to any offences being committed in the first place.</p>
<h2>Tackling the causes</h2>
<p>What is required is something greater than just punishing elites. These necessary punitive measures must be matched with an equal commitment to decreasing the underlying factors driving tax evasion and avoidance. In the same way that benefit fraud is often regarded as a <a href="http://www.telegraph.co.uk/news/politics/10541766/David-Cameron-the-great-reformer.html">failure of the welfare system</a>, tax evasion and avoidance should be viewed in the context of a broken system of economics pursued by the present UK government.</p>
<p>Austerity has <a href="http://www.taxjustice.net/2015/01/23/austerity-tax-dodgers-best-friend/">directly contributed</a> to tax evasion and avoidance. Within Europe <a href="https://www.opendemocracy.net/peter-rossman/austerity-corporate-tax-evasion-and-human-rights-why-anti-austerity-movement-needs-som">these policies</a> have made it easier for corporations to use offshore accounts and base themselves in countries with lower tax rates, rather than closing tax loopholes. </p>
<p>And in Britain, <a href="http://www.ibtimes.co.uk/uk-tax-gap-widens-austerity-lack-avoidance-law-1466606">austerity measures have led to cutting funds for HMRC</a> and laxer tax avoidance laws, thus limiting the ability of tax authorities to regulate and punish tax offences. This is especially troubling in light of the fact that <a href="http://www.taxresearch.org.uk/Documents/PCSTaxGap2014.pdf">according to one recent report</a>, the UK will lose approximately £73.4 billion from tax evasion in 2013 and 2014 alone, more than triple the government’s official estimate of £22.3 billion.</p>
<p>The HSBC scandal should be a wake up call that this challenge is much more significant than stopping a few corporate bad guys. Instead, it is an indictment on the growing corporate influence and economic ideology of austerity that created the conditions for tax evaders and avoiders. As <a href="https://theconversation.com/hsbcs-swiss-tax-scandal-is-part-of-a-global-pattern-of-avoidance-37437">Ronen Palan has argued</a>, “the HSBC Swiss tax scandal is part of a global pattern of avoidance”.</p>
<h2>Changing the system</h2>
<p>The rightful indignation over HSBC is a welcome reaction in a political climate that all too often excuses the worst excesses of the most privileged, while condemning those of the most marginalised. Yet, in this heightened emotional atmosphere, there must a concerted effort to not let this opportunity for fundamental change go to waste. To forego political and economic transformation for the satisfying but empty gesture of corporate show trials.</p>
<p>This is not to say that those responsible for tax evasions should not be prosecuted to the fullest extent of the law. Yet we must also look beyond just making it harder for those on top to take advantage of a system that already favours them. We must change the very playing field itself.</p>
<p>Politicians tactically playing into this popular anger are just as threatening as those they once supported and now increasingly condemn. When the dust settles, they will likely revert to championing the elitist conditions that permitted these actions.</p>
<p>It is not enough, then, to just put privileged abusers of the system on trial. It is also necessary to put the system itself on trial. The recent anti-austerity movements in Greece and Spain exemplify this crucial challenging of austerity as well as the financial and political regimes which support such policies. Across Europe and the world, the HSBC scandal similarly shows the importance of changing the corporate system not just punishing its criminals.</p><img src="https://counter.theconversation.com/content/37441/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Bloom does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There has been an international outcry over the leaked HSBC files, which provide evidence that the bank’s Swiss arm helped wealthy clients put millions of dollars worth of assets out of the reach of the…Peter Bloom, Lecturer in Organisation Studies, Department of People and Organisation, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374312015-02-11T06:51:43Z2015-02-11T06:51:43ZHSBC scandal: the UK’s strict rules on bank customers were abandoned at the border<figure><img src="https://images.theconversation.com/files/71613/original/image-20150210-24664-1qpypyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Happy to Serve the Baddest Customers!</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-175256162/stock-photo-london-december-a-branch-of-hsbc-december-london-england-founded-in-in-hong.html?src=csl_recent_image-2&ws=1">Martin Good</a></span></figcaption></figure><p>The UK is no slouch when it comes to protecting against financial crime. It follows the <a href="http://www.anti-moneylaundering.org/EU_Chart.aspx">relevant European directives</a>, which require that banks have sufficient anti-money-laundering controls in place to prevent criminals opening and using accounts to launder money or fund terrorism. </p>
<p>It is also a member of the <a href="http://www.fatf-gafi.org/">Financial Action Task Force (FATF)</a>, an inter-governmental organisation that was created in 1989 to combat these kinds of criminal activity and protect the integrity of the international financial system. </p>
<p>Despite all this, the UK-based HSBC found itself at the centre of an investigation for alleged criminal activity in 2011, <a href="http://www.bloomberg.com/news/articles/2012-12-11/hsbc-agrees-to-pay-1-92-billion-in-money-laundering-settlement">culminating in</a> a fine for nearly $2bn (£1.3bn) from the US authorities. </p>
<p>The alleged activities investigated by the US authorities included laundering money for Mexican drug cartels and for sanctioned nations such as Iran and Sudan. The <a href="http://www.theguardian.com/business/2012/dec/11/hsbc-fine-prosecution-money-laundering">firm blamed</a> insufficient compliance policies and procedures in its Mexican arm for these failures and promised to get its house in order. </p>
<p>And this week, it <a href="http://www.marketwatch.com/story/hsbc-sheltered-100-billion-linked-to-dictators-arms-dealers-2015-02-09">has been revealed</a> in leaked accounts that in the years leading up to 2010, the bank’s Swiss private-banking arm also had a host of unsavoury characters on its books. They included arms dealers, dictators and their families, blood-diamond traffickers, and hundreds of other clients who were allegedly helped to shift chunks of money out of their country of employment to avoid tax liabilities. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71614/original/image-20150210-24697-xjqci0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">With so much international cooperation, how is money laundering even possible?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&search_tracking_id=NF-Cpg0FeFrllChjNFGWVA&searchterm=money%20laundering&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=133938344">Stockdonkey</a></span>
</figcaption>
</figure>
<h2>Industry rules for opening accounts</h2>
<p>According to the UK financial services regulator, the Financial Conduct Authority (FCA), the process by which customers open bank accounts <a href="http://www.fca.org.uk/consumers/financial-services-products/banking/your-rights/opening-an-account">should be</a> “a simple and efficient” one. </p>
<p>A potential customer will be asked to provide the bank with documents verifying their identity and address <a href="http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/systems/aml">as part of</a> the FCA’s requirements. The bank will perform a credit check to ensure the potential customer is creditworthy (universal practice, though not actually legally required). </p>
<p>The UK’s banks <a href="http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/systems/aml">are also</a> required to carry out various additional checks to prevent criminal activities ranging from money laundering to terrorist financing to sanctions evasion, bribery and corruption, fraud and tax evasion. This would include identity checks, fraud database checks, and questioning on the source of funds where an account has been opened with a large amount of money. </p>
<p>And banks have to determine whether an applicant falls into the “special category of client” list, which includes non-residents, high net worth individuals, high-profile politicians, clients in high-risk countries and companies offering foreign exchange services. </p>
<p>On top of this, <a href="http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/systems/aml">banks must</a> monitor their customers’ business activities and report anything suspicious to the <a href="http://www.nationalcrimeagency.gov.uk/">National Crime Agency</a>. Additionally HMRC publishes a list of financial sanctions targets in the UK, which lists people and entities that have had restrictions placed on their financial activities by the government. </p>
<p>Banks will use software to carry out this monitoring, though the activities of account holders in the “special category” might be checked regularly by a dedicated relationship manager – looking for large deposits and withdrawals, to give one obvious example. </p>
<h2>Control over choice of customers</h2>
<p>A financial institution can refuse to open a bank account for a customer, and does not have to give a reason why – <a href="http://www.legislation.gov.uk/ukpga/2010/15/contents">so long as</a> it doesn’t discriminate on grounds of race, sex, religion, disability or sexuality. </p>
<p>The main reasons to decline business, other than illegality, are adverse information such as poor credit history or fraud markers; certain business sectors a bank wants to avoid for commercial reasons; and a fear that the client could end up damaging the bank’s reputation. </p>
<p>Accounts that have been opened can also be subsequently closed for the same reasons. For example in 2004, following the airing of a <a href="http://www.theguardian.com/uk/2004/jul/20/race.world2">BBC documentary</a> which showed British National Party (BNP) followers confessing to racist hate crime, <a href="http://news.bbc.co.uk/1/hi/business/3901621.stm">Barclays closed</a> a number of accounts linked to them. At the time the BNP claimed this was due to pressure from a national newspaper which threatened to run a national campaign against the firm unless the accounts were closed. </p>
<p>On the reputational question, another high-profile case has been RBS’s involvement with producing oil from Canada’s tar sands. It was the butt of a long and loud campaign from environmentalists on the subject. </p>
<p>This may be some distance from Mexican drug cartels, but RBS chairman Sir Philip Hampton <a href="http://platformlondon.org/2013/02/12/rbs-stopped-financing-tar-sands-spoiler-no/">still felt obliged</a> to make public the fact that the bank had not lent money to these projects for a number of years (albeit some campaigners disagreed over the semantics). </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71615/original/image-20150210-24664-qh51qf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">High-profile battle: RBS’s tar sands involvement.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/ricjl/4560669400/in/photolist-8ux2JV-7W28Uo-7VXUfH-7X1C83-7X1AAQ-7WXrjB-7WXpJx-7X1DJY-7WXnXD-7X1EdN-7X1BCG-7WXrU8-7X1G2Y-7WXtG4-8uA3HS-bUaaZF-7WXpm4-7X1GvL-7X1FEb-7WXuax-8zfzVW-bFeA7L">Ric Lander</a></span>
</figcaption>
</figure>
<p>Equally, banks’ reputations can be at risk for refusing or withdrawing business. HSBC itself came under fire in the summer of 2014 for closing the accounts of customers with ties to Iran and Syria, for instance. The firm <a href="http://4bitnews.com/uk/hsbc-shameless-racial-profiling-targeting-syrian-refugees/">was accused of</a> racial profiling when it undertook systematic account closures with little explanation, some of which had been open for a number of years or were held by students or refugees. But in the end, the complaints went nowhere – perhaps highlighting the wide discretion that banks have in this area. </p>
<p>In short, banks have a great deal of control over who they choose to take on as customers, and they all have scrupulous checks and balances in place to avoid people who are criminal or undesirable. </p>
<p>During my time with HSBC for example, which included a period working in branches, there was a lot of emphasis on due diligence and regular anti-money-laundering training. Front-line staff were trained to identify individuals that may pose a risk, though ultimately these were passed to a specially trained team to be dealt with. Whatever the conclusion on HSBC’s practices turns out to be, I never saw anything amiss at the front end. </p>
<p>Having said all of this, we have to bear in mind that the current HSBC case is about events that took place at the Swiss subsidiary. While the UK division is accused of facilitating (and possibly even encouraging) the hiding of money to avoid UK taxes, those seeking to open bank accounts are only subject to the rules in the country where the account is held. Switzerland notoriously permits far greater secrecy for its bank customers than most other countries. </p>
<p>So in the end this is a story about how the standards that UK companies are expected to follow at home are not necessarily followed abroad. It ends up making a mockery of all the strict rules about customer handling at home when it is possible to behave so differently in other jurisdictions nearby. HSBC is trying to counteract this with the introduction of global standards to ensure that the highest level of security compliance is followed in every jurisdiction in which it operates. All eyes will be watching closely to see if it works.</p><img src="https://counter.theconversation.com/content/37431/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Claire worked for HSBC from 2001-2014</span></em></p>The UK is no slouch when it comes to protecting against financial crime. It follows the relevant European directives, which require that banks have sufficient anti-money-laundering controls in place to…Claire McCafferty, PhD candidate, Edinburgh Napier UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374272015-02-11T06:26:33Z2015-02-11T06:26:33ZDon’t trust your bank? Here’s how it could win you back<figure><img src="https://images.theconversation.com/files/71617/original/image-20150210-24700-z6xoqa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Heart of the matter. Banks at Canary Wharf.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/simon__syon/14484123911/in/photolist-nMYd6k-fWBWPh-o59wzn-9fGv9b-dMitnn-nM2Y41-7WzcRJ-ewtqLZ-7Wz8mj-kjEJfZ-8NcXUZ-pMifga-d6WdBd-HVgw3-o4UVqk-nK21A1-nU7rcs-nP6EGE-eGTsGY-eKk97r-auEFeT-eWG2yN-funbMS-fqMQEp-2o3Urh-on9xH4-o79d8y-ffeacq-gJhaMg-owkCSq-dxe2wJ-o4pQRE-56mk7Y-a6X1yv-nMXeCo-bdGExt-9cQni7-w3Qh3-g9phjT-nPL5tB-6C81Ws-5WGRwm-cjK9LE-dq5KBy-8KHFfR-fa4eKa-cjK799-i8hBf3-cjK5b5-pBRGPW">Simon & His Camera</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>If we’re looking for ways the global banks can rise to the ethical challenge highlighted by the leaked files from banking giant HSBC, we could do worse than look at one of the few institutions to emerge from the financial crisis with any credit.</p>
<p>Smaller players, such as <a href="https://www.triodos.co.uk/en/personal/?gclid=CPXnk6aq18MCFWTHtAod2CUAmg">Triodos</a>, actually flourished during the recession by essentially offering an alternative foundation for banking, located in the very values that many bigger banks claim, in their rhetoric, to aspire to.</p>
<p>Part of HSBC’s <a href="http://www.theguardian.com/business/2015/feb/08/hsbc-responds-revelations-misconduct-swiss-bank">defence this week</a> has been to argue that it has now “put compliance and tax transparency ahead of profitability”. </p>
<p>The sector has some convincing to do, however. A recent survey of the general public from the <a href="http://www.ibtimes.co.uk/tax-dodging-supply-chain-bullying-mean-uk-businesses-face-crisis-trust-1487143">Forum of Private Business</a> found that more than three-quarters of respondents think big firms put profits before ethical standards. That finding supports a survey of investment professionals by the CFA Institute, which found 63% saying the lack of ethical culture at financial firms is the biggest reason for the lack of trust in the industry. </p>
<p>It’s also worth recalling <a href="http://www.gallup.com/poll/180260/americans-rate-nurses-highest-honesty-ethical-standards.aspx">Gallup’s honesty and ethics survey </a> conducted in January, in which just 23% of Americans said bankers had high or very high ethical standards. The Wall Street Journal has <a href="http://blogs.wsj.com/moneybeat/2015/02/02/what-banks-are-doing-to-improve-their-culture/">given us the lowdown</a> on US banks’ efforts to embed a new culture, but the recent revelations make it look like the rhetoric is outrunning the reality. </p>
<h2>Beyond banks</h2>
<p>And it’s not just about the banking sector. Trust in big business is under pressure worldwide.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71619/original/image-20150210-24679-1oi5qh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Trust is earned.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/quoimedia/6974093892/in/photolist-gvBsgZ-96mGg-8Go8TA-8fCCEE-fPr5w7-daQLSd-hqHA2j-5UDSxP-bvTt3B-6j5PP4-5Le7P5-qk6qux-pYAAty-4uxtDM-bCh499-6jW6XY-cnhnwJ-9K7SSM-4NJuef-7PjGZv-9goPoY-8M5rk3-dNmC5T-qttvEz-9nJETF-8Y52QF-ahHaxy-a3X8Rq-51q6Gk-FsSYk-788phJ-61HUgE-fk9ZxJ-ncfUaa-6462u5-dHXpM3-gqovGU-bKMGMk-dJcz7W-4LcbSs-LBmTo-8K85s-6pQBWa-2Bjh9-4LcqSf-7Y2hx2-6k1npy-hqnmD-fFoLe-KqFQP">QUOI Media Group</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Take Canada, where a recent study revealed a startling annual drop in public trust in business. The Trust Barometer survey from PR firm Edelman found that 47% of Canadians <a href="http://www.huffingtonpost.ca/2015/02/03/business-trust-survey-canada_n_6604714.html">now say they trust business</a>, down from 62% last time around. This may be explained by people’s mistrust of some technological innovations such as fracking (a 36% trust score) and genetically modified foods (23%). Many also didn’t trust the pace of innovation – the sheer rate of change. Strip out the relatively well-trusted family businesses, and the overall score for big corporations was just 41%.</p>
<p>Trust does not grow quickly and easily; it isn’t easily won back. If a bank finds itself in the headlines for behaviour from five years ago, then regardless of its defence, this will affect on how customers trust it today.</p>
<h2>Agents of change</h2>
<p>The world’s second largest bank has said it has sought to make cultural changes, <a href="http://www.theguardian.com/business/2015/feb/08/hsbc-responds-revelations-misconduct-swiss-bank">that it has “fundamentally changed”</a>. It is not alone. Business ethics are now part of the new rhetoric of most financial institutions. Many claim to be making game-changing transformations internally – becoming more transparent, capping bonuses and fat cat pay levels, developing honest and more ethical internal working environments, replacing small print with pain speaking with their customers. The surveys above suggest that, not only have they a long way to go yet, but they have yet to even arrest the decline.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=173&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=173&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=173&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71610/original/image-20150210-24700-lu4jm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Lloyds has set aside billions of pounds to cover mis-selling accusations.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/ell-r-brown/4585298378/in/photolist-7ZbRsA-a2oN6j-8XLxy2-97tA6K-drvQfn-e6gtzE-7xyvAA-7xuPPc-2yPMYB-ezF3vM-bpEvCj-71WDSo-8kAwWu-n23Phm-eugoxh-ac55u-ac1Rk-9hMP3H-n22n5c-eudg4H-7rUiVJ-9eWgZY-63FLCS-aTVoQ-8qU6CL-7L4KVm-e2XMpX-7KZHb8-ehcQSY-eh76CX-7MZRS9-boumQK-71WDWW-fPTwi8-71WDk9-71WDB7-gBELu9-71WDFA-ietpvH-aNYfYX-71WDuY-71SCzK-hXXoDf-a3WgTg-hLB1Fy-a3Z8Kh-fFT6wB-hZ7qHj-j5MMLL-nnGct2">Elliott Brown</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>It doesn’t help that the parts of the banks which deal with you and I and the rest of the public have become embroiled in <a href="http://uk.reuters.com/article/2015/02/03/uk-lloyds-compensation-idUKKBN0L71WM20150203">scandals of their own</a>. One report, by the think tank <a href="http://www.theguardian.com/business/2014/nov/26/banking-toxic-culture-generation-clean-up-thinktank">New City Agenda</a>, estimated that over the past 15 years the retail operations of banks had incurred over £38 billion in fines for mistreatment of retail customers. </p>
<p>This is often referred to as the <a href="http://www.thisismoney.co.uk/money/markets/article-2839913/Toxic-culture-Britain-s-banks-generation-fix-cost-staggering-38-5bn-fines-compensation-according-hard-hitting-report.html">“toxic culture”</a> of high street banking. And the reason it is so hard to fix for so many is that the change needed is at the fundamental level of core values, the purpose that defines the business in the first place.</p>
<p>Where that <a href="https://theconversation.com/fixing-the-hole-in-the-heart-of-corporate-capitalism-35515">primary purpose is profit maximisation</a>, then it soon becomes internally and externally equated with licence to do whatever it takes to win. Such extreme ethics lead to the very problems that have, and continue to beset the financial sector. </p>
<h2>New models</h2>
<p>Not all banks blundered through the financial crisis; not all are mistrusted. And it comes down to that core purpose of the institution.</p>
<p>Triodos may not yet be a household name, but the global financial crisis helped raise its profile. Not only did the business not require bailing out, it <a href="http://www.director.co.uk/MAGAZINE/2014/12-December-2014-January-2015/The-glistening-bank-68-04.html">had money to lend when other banks were curbing all loans</a>. </p>
<p>At the heart of Triodos is <a href="https://theconversation.com/conscious-capitalism-how-to-make-the-most-of-the-kindness-in-business-34848">the idea of conscious business</a>. As an innovation researcher, what I find interesting in this example is that we have an alternative model here. Many banks now offer what they claim to be ethical products. Yet their core business model remains unchanged, the old hierarchy largely unchallenged, the model of innovation largely designed behind closed doors via a macho approach to leadership. </p>
<p>Now this is not an advert for Triodos. But you have to wonder – and if you believe the survey numbers, most people do – if those that caused the problems are really the most likely source of a solution. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=305&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=305&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=305&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=383&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=383&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71621/original/image-20150210-24679-1hakazg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=383&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Seville office of Triodos Bank.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/triodosbankspain/8023243858/in/photolist-dwZVXe-dBdZUZ-dBjt87-dBjsby-dBjrSo-dBjs1q-dBjrA1-dBjqwY-dBjqqq-dBdYug-dBe1VF-kG3emr-ddZdKN-cDoKAA-7kg86y-aqdVdz-ddZdSE-ddZemv-ddZdNN-ddZeei-6M6ida-92b7Lk-apZ9g4-dSgBfR-dSgCnV-ddZe8T-ddZe74-jMx9gZ-ddZdCQ-ddZdFb-ddZeqv-ddZdMo-de1476-apZ8MD-apZ8xT-aq2PnW-cA7qtj-aqdUZZ-fMm3sv-fMCBeC-fMkZz4-fMkX9r-fMkW62-fMkVEi-fMkTra-dSnbZG-cxD7Aj-cA7yHo-den9oK-den8oN">Triodos Bank España</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Forgive the jargon, but it might be time for an <a href="http://www.forbes.com/sites/henrychesbrough/2011/03/21/everything-you-need-to-know-about-open-innovation/">“open innovation”</a> approach. What that involves is sharing information and breaking down barriers between departments and organisations. It is a methodology which lends itself towards trust because, by its nature, trust is required for it to happen. It is rooted in the sharing of risk and reward. And some financial institutions (as well as their customers) are <a href="http://www.ideaconnection.com/open-innovation-success/Bank-Queuing-Problems-Solved-by-Open-Innovation-00163.html">beginning to see some benefits from trying it</a>. </p>
<p>Banks should focus on being conscious with money, understanding the impact on all parties of making financial decisions – and being more aware of consequences. Triodos benefited through the banking crisis from high levels of trust in both its borrower and lending base. </p>
<p>People like you and I who deposit money in a bank and trust them with it, are not only customers, but are the very people who make it possible for the bank to lend to others. Viewed from this perspective, this should create a more open culture of partnership, not simply a dead-eyed money supply chain. If banks can rebuild on this model, then openness and trust are not mere cultural features, but become foundation stones for the bank’s purpose and operation.</p><img src="https://counter.theconversation.com/content/37427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Levy owns shares in CATS3000 Ltd</span></em></p>If we’re looking for ways the global banks can rise to the ethical challenge highlighted by the leaked files from banking giant HSBC, we could do worse than look at one of the few institutions to emerge…Paul Levy, Senior Researcher in Innovation Management, University of BrightonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374372015-02-10T14:30:03Z2015-02-10T14:30:03ZHSBC’s Swiss tax scandal is part of a global pattern of avoidance<figure><img src="https://images.theconversation.com/files/71616/original/image-20150210-24700-apm26q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Accused of helping clients avoid millions in tax.</span> <span class="attribution"><span class="source">JuliusKielaitis / Shutterstock.com</span></span></figcaption></figure><p>The <a href="http://www.theguardian.com/business/2015/feb/08/hsbc-files-expose-swiss-bank-clients-dodge-taxes-hide-millions">revelation</a> 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.</p>
<p>In the globalised modern world, the vast majority of wealthy individuals and medium-sized and large corporations habitually seek ways to avoid taxes.</p>
<p>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.</p>
<p>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.</p>
<h2>Lessons to be learned</h2>
<p>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.</p>
<p>Considering that HSBC Geneva did not provide a particularly competitive savings rate, and the report prepared by the <a href="http://www.icij.org/project/swiss-leaks">International Consortium of Investigative Journalists</a> 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.</p>
<p>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.</p>
<p>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 <a href="https://www.bcgperspectives.com/content/articles/offshore_business_recovered_challenges_remain/">world’s centre of the private banking industry</a> with reputedly more than $2 trillion in assets.</p>
<p>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 <a href="http://money.cnn.com/2009/02/18/news/companies/ubs/">aiding American citizens to evade paying tax in 2010</a> and paid a large fine to the Justice department. Remarkably, UBS has confirmed it is now under <a href="http://www.bbc.co.uk/news/business-31349135">fresh investigation</a> to discover whether it has continued to do so ever since. Other Swiss banks have made <a href="http://www.theguardian.com/business/2014/may/19/credit-suisse-plead-guilty-criminal-charges-us-tax-evasion">similar admissions of guilt</a> and paid fines in the US, as indeed, did <a href="http://www.wsj.com/articles/israels-bank-leumi-to-pay-400-million-to-settle-tax-evasion-allegations-in-u-s-1419288205">Israeli</a> banks.</p>
<p>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.</p>
<p><a href="http://www.theguardian.com/business/2015/feb/08/hsbc-responds-revelations-misconduct-swiss-bank">HSBC’s response to the scandal</a> 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:</p>
<blockquote>
<p>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.</p>
</blockquote>
<p>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 <a href="http://www.theguardian.com/business/2015/feb/08/hsbc-responds-revelations-misconduct-swiss-bank">difficult integration of acquired private banking assets</a> in the country:</p>
<blockquote>
<p>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.</p>
</blockquote>
<p>The bank has also said that it has “completely overhauled its entire private banking business” since January 2011.</p>
<p>Fifth, as with the case of the tax scandal before this one, the <a href="https://theconversation.com/luxembourg-a-tax-haven-by-any-other-name-33919">Luxembourg files</a>, an important political figure has been associated with these revelations by the media. Then, it was the current president of the European Commission, <a href="http://www.theguardian.com/business/2014/dec/09/-sp-luxembourg-tax-files-how-junckers-duchy-accommodated-skype-and-the-koch-empire">Jean-Claude Juncker who was prime minister and finance minister</a> when dozens of multinational corporations were setting up tax evasion structures in Luxembourg.</p>
<p>Now, Conservative peer Stephen Green is <a href="http://www.bbc.co.uk/news/business-31248913">in the firing line</a>. 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.</p>
<p>Last but not least, as in previous cases of such leaks, <a href="https://theconversation.com/whats-luck-got-to-do-with-it-everything-if-you-are-a-banking-whistleblower-34689">the person most likely to suffer</a> from the leak is the whistleblower himself. <a href="http://www.icij.org/project/swiss-leaks/whistleblower-thief-hero-introducing-source-data-shook-hsbc">Hervé Falciani</a>, 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.</p><img src="https://counter.theconversation.com/content/37437/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronen Palan participated in a research program funded by the Norwegian Research Council entitled Systems of Tax Evasion and Laundering (STEAL). He is also senior advisor to a charitable organisation called Tax Justice Research.</span></em></p>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…Ronen Palan, Professor of International Politics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/373762015-02-10T06:42:20Z2015-02-10T06:42:20ZWinston Churchill’s simple answer to the HSBC tax scandal<figure><img src="https://images.theconversation.com/files/71486/original/image-20150209-24660-x49itg.jpg?ixlib=rb-1.1.0&rect=1%2C35%2C1022%2C676&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ringing the changes on tax avoidance</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/9731367@N02/7134294207/in/photolist-bSr87x-7gnbiN-FEBNn-7DqTEi-mMfmxi-9p7dNM-biaYZP-eebxNq-biaWZ4-7Ff4Av-9mu7MM-5vNnwp-jcktAs-4cZQaF-9VwGaa-biaMc2-axuhRV-4rjUcM-9ABqgL-bPLRLH-bz5zDq-m7rSri-cxtNp-biaH2x-7PopTc-ahxhw9-xNhig-a1w2xS-biaDRz-biaAS2-dM3ZSU-9VxbfZ-bASdkj-9VwzJV-nmKg73-bDw2PE-6UxmGp-ir8LWg-mnnL7y-e9jR4-7P8bpB-exDgp3-bgfFKc-biaW1z-bqAhJ1-9VzXJ9-5g3poz-9Vzsr7-obN1p-o5bh9S">Philip Taylor</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The <a href="http://www.bbc.co.uk/news/business-31248913">revelation on the BBC</a> and in the Guardian that British bank, HSBC, the <a href="https://www.gfmag.com/awards-rankings/best-banks-and-financial-rankings/worlds-50-biggest-banks-2012">second biggest in the world</a> has allegedly helped UK residents sidestep taxes through a Swiss subsidiary should really come as little surprise. More of a shock might be that the solution has been with us for decades.</p>
<p>Tax legislation – and its enforcement in the UK over the past 30 years – has been based on the following school of thought: that the government’s fundamental economic role is to let the unchecked forces of international capital and supply and demand reign supreme. This will, according to the mainstream neo-classical economic theory, allow for the best allocation of limited capital, as well as for the lowest prices and the most efficient output of goods and services. </p>
<p>Providing the state does little except uphold free competition where it can, the theory is that all businesses will evolve to purely serve the consumer in an increasingly stable, prosperous and free society.</p>
<h2>Electoral imperatives</h2>
<p>This week’s news follows other revelations about <a href="https://theconversation.com/the-uk-should-look-closer-to-home-before-crying-foul-over-luxembourg-leaks-34180">what has been happening in Luxembourg for years</a> and the 2013 <a href="http://www.financialsecrecyindex.com/">finding by the Tax Justice Network</a> about UK dominance in the global tax evasion/tax avoidance industry. But it is only because of the desperate need by UK politicians to show that “we’re all in this together”, that this has suddenly captured so much political and public space. We are, of course, less than 100 days before the <a href="https://theconversation.com/uk/topics/uk-general-election-2015">most important election</a> in a generation.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71488/original/image-20150209-24675-17kinra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Towering example.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/singapor3/2262599353/in/photolist-4rWpXF-6UX5en-7awNPi-oZ3VpC-S6Qw7-75ivJn-3fwmC-asikbk-9JzjU8-5yQ1gb-s6ptt-5Hdic-75NGY9-ppZEHM-pj8UkN-6DfvYr-7wvTof-79FKyn-8J5WSY-4q6G65-6Bm34W-6VwJ9M-kBHNLB-5m8tVn-7cR1zd-c2N8v5-eaGygK-2YE2hH-ed18BC-aQi7Wg-usFkP-eaGyb8-acVcQf-XGWKt-4hhmXc-acVe73-7ZzaR-7pPca1-7pPbXu-7pKi5n-7pKhRn-7pKhDR-agQPCP-qzwAjv-9g7u9m-ozSYk-6q9rzY-kS3zvg-qzyjAF-4duG2X">Gyver Chang</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>What continues to be the real and unresolved issue facing UK PLC is that, regardless of tax havens and other tax avoidance opportunities – and even though <a href="http://www.telegraph.co.uk/finance/budget/9944515/Corporation-tax-falls-to-20-per-cent-in-fourth-consecutive-Budget-cut.html">UK corporate tax rates have fallen</a> three times since 2010, private and public debt and income inequality continues to rise across the country. The political parties might argue the toss about whether <a href="http://www.ft.com/cms/s/0/fefd56d2-a152-11e4-8d19-00144feab7de.html#axzz3RGgA7aW9">wages are edging higher</a>, but this should be only be viewed against the <a href="http://www.pieria.co.uk/articles/the_risk_of_deflation_in_2015?utm_source=Pieria+Subscribers&utm_campaign=9ffb4c72b9-Newsletter_15_23_2013&utm_medium=email&utm_term=0_deda1ba8c1-9ffb4c72b9-70891289">looming risk of deflation</a> to add to our financial concerns. </p>
<p>It all seems very different from the <a href="http://lyceumbooks.com/pdf/PeoplesBritishIslesIII_Chapter_11.pdf">political maturity and consensus</a> ushered in by World War II. Why have the most prominent UK politicians seemingly refused to learn from the way that approach fed a rapid and sustained increase in economic growth, income equality and social progress in the UK between 1945 and the mid-1970s?</p>
<h2>Churchill’s plan</h2>
<p>Perhaps one of the principal leaders of the post-war UK consensus offers a time-honoured solution to improve the tax take from Britain’s richest individuals and public companies and to finally destroy the notion that tax is <a href="http://www.theguardian.com/business/2007/aug/21/usnews">“only for little people”</a>. In 1909, Winston Churchill, during the first <a href="http://www.etsu.edu/cas/tahg/pictures/Industrial/documents/Capitalism%20in%20the%20Gilded%20Age.ppt">“Gilded Age” of monopoly capitalism</a> and plutocratic socialism, saw the need for a simpler, fairer and easier tax system to avoid the following blight on social progress. </p>
<p>As <a href="http://www.landvaluetax.org/current-affairs-comment/winston-churchill-said-it-all-better-then-we-can.html">he explained</a>:</p>
<blockquote>
<p>Land monopoly is not the only monopoly, but it is by far the greatest of monopolies – it is a perpetual monopoly, and it is the mother of all other forms of monopoly. Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public.</p>
</blockquote>
<p>As Churchill, Adam Smith, John Stuart Mill and many others have pointed out time and time again, those who own the land skim precious limited capital from everyone else, without any effort or skill. A simple-to-administer land value tax, achieved in Taiwan as part of socially progressive economic policy to <a href="http://www.tax.taichung.gov.tw/webpad/webpad.aspx?EpfJdId9UuCPR1RnYsHaJXhVTBOSTNUs">transform a broken people in a few years</a>, is today’s solution to recoup this levy on every form of wealth and enterprise in the UK.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=323&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=323&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=323&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=406&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=406&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71507/original/image-20150209-24691-1tpzm1h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=406&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Churchill in the shadows.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/patersor/2873651548/in/photolist-L67jg-L65xk-L67Gx-L5Phw-L66QV-L63VV-L5MQU-L5Qbs-L63sM-L64Lk-L5QSd-8N1kd2-4gQAnp-GnPwr-sv6Wp-6RWHw9-6eWdeu-KbEmr-5nWdum-mJAbYr-mJAeuP-b4KD9R-7L5h9h-ghPK4S-HypzZ-dH6d5M-dQZmSf-dQTNda-dQZn2d-9zY72R-6Mq52N-9hvgsc-8NwESx-8NKEPz-pcSXwp-6cKyXE-6cKyDN-8Y1s75-6LkXdq-mcHEa-2b4Gc-nwW8D-eoFHrs-3cdUW-31u8e5-7SBXYA-enVSAt-eovyhm-6eD5qj-tnBWp">Richard Paterson</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>Land value tax remains the simplest, fairest, least avoidable and easiest to administer tax on unearned income and wealth, one which the major UK parties will now not even discuss. Surely a better political consensus is needed for a modern Britain than discredited neo-liberalism built on protecting the wealth of the few. </p>
<p>Even the largest banks, such as HSBC, have to compete in a global tax avoidance industry. They are just one of many international financial institutions that have a legal responsibility to <a href="https://theconversation.com/fixing-the-hole-in-the-heart-of-corporate-capitalism-35515">maximise profits for their shareholders</a>. One way to make this fairer and to honour the sovereignty of the UK parliament to levy national taxes is land value tax. But where is the voice of Churchill in today’s “Gilded Age”?</p><img src="https://counter.theconversation.com/content/37376/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Winship does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The revelation on the BBC and in the Guardian that British bank, HSBC, the second biggest in the world has allegedly helped UK residents sidestep taxes through a Swiss subsidiary should really come as…Jonathan Winship, Lecturer in Accounting and Finance, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.