The HSBC Scandal: Industrial Scale Tax Evasion

This week revelations on BBC’s Panorama have sparked an explosive scandal: HSBC, the UK’s largest – and the world’s second largest – bank, has been caught facilitating industrial-scale tax evasion, committed by some of its wealthiest clients.

Thousands of leaked bank account files obtained by the International Consortium of Investigative Journalists, the BBC, The Guardian and others show that between 2005 and 2007 the bank’s Swiss arm colluded with clients to conceal money and whole bank accounts from their respective domestic tax authorities, whilst also marketing aggressive tax avoidance schemes for its wealthiest customers.

The accounts involved were worth an estimated $119bn.

In addition, the Swiss subsidiary has been found to have offered its services to so-called “high risk” clients (i.e. criminals), such as international arms traffickers, those connected with blood diamonds and bribery, and those with links to the toppled dictatorships in Northern Africa.

HSBC has a precedent three years ago. In July 2012, it was revealed that the bank’s US subsidiary had helped Mexican drug cartels, along with organisations and states on UN blacklists, to launder billions of dollars.

$7bn had moved between the Mexico and US divisions of HSBC, while the bank’s staff themselves admitted that the majority was from drug-trafficking. In fact, HSBC’s anti-money laundering director testified that he thought “60% to 70% of laundered proceeds in Mexico” had gone through the bank! It was already being discussed in the US senate two-and-a-half years ago that HSBC was facilitating corrupt practices through its accounts, in particular in relation to criminal cartels and pariah states. The result? A $1.9bn slap on the wrist (amounting to less than 0.1% of the HSBC’s total assets) and the resignation of the bank’s head of compliance – no further action.

According to ICIJ, the Swiss subsidiary of HSBC handled the accounts of 2,642 Mexican customers worth a total of $2.2 billion dollars. The list of Mexicans clients was released by Univision Communications, an American Spanish-language broadcast network that participated in the investigation along with ICIJ and the French newspaper Le Monde.

Named in the Swiss private bank subsidiary of HSBC were Carlos Hank Rhon (businessman), Federico Said Camil Garza (father of actor Jaime Camil), Luis Téllez (former director of the Mexican Stock Exchange), Alfredo Elías Ayub (former director of the Federal Electricity Commission), Eugenio Ebrard (former CEO of Walmart for Mexico), Moisés El Mann Arazi, (construction tycoon), Enrique Vilatela (a banker who served the Mexican government from 1975 to 2000) and Guillermo Prieto Treviño (former director of the Mexican Stock Exchange and current president of the Mexican Association of Automobile Dealers), who told Univision that all his income has been reported to Mexico’s Ministry of Finance. Carlos Hank declined to comment on the accounts.

The list of Mexicans of the Swiss bank also includes the partner of a major financial group, with about $168 million dollars; a renowned ophthalmologist, with $111 million dollars; an entrepreneur of the textile industry, with $95 million dollars; the founders of an internet and cable television company, with two accounts of $74 and $75 million dollars each, and a renowned filmmaker, with $50 million dollars.

Óscar Molina, chief of the division of Large Taxpayers of Mexico’s Tax Administration Service (SAT), said it’s important to understand that those listed are not necessarily tax evaders.

Chief executive of HCSB’s Swiss bank, Franco Morra, said that the unit “began a radical transformation in 2008 to prevent its services from being used to evade taxes or launder money. New senior management have comprehensively overhauled the business, including closing the accounts of clients who didn’t meet our high standards and ensuring we have strong compliance controls in place.”

Molina concluded stating that the new disclosures are a reminder that “the old business model of Swiss private banking is no longer acceptable.”