Special service at HSBC may help some Swiss bank account holders to escape penalty by tax office

MUMBAI: A special service provided by HSBC Geneva may help some Swiss bank account holders to escape penalty and prosecution by the Indian tax office. The British bank had advised and helped them to hold unaccounted wealth through complex structures that have no apparent links with resident Indians. Money was parked in accounts of investment companies with HSBC Switzerland, but the names of Indians, whose money was being held, neither figured in the list of shareholders nor employees of these outfits.

Instead, HSBC employees served as directors on the boards of these investment companies while the shares of the companies were held, on behalf of the Indian clients, by a separate set of firms nominated by the bank. An agreement — that was never disclosed and possibly would never be — said that the shares were ‘held in trust’ by certain firms for the Indian clients. Such an agreement, which ensures that the true owners of the bank accounts remain behind a veil, is legally enforceable under Swiss law.

Legal Deftness

“Quite a few individuals hold money through such investment companies specially formed for the purpose. At least three have recently received confirmation from Swiss authorities that the information that is being shared with New Delhi mentions these companies as account holders and not the individuals,” a person familiar with the development told ET.

Unlike Yash Birla — whose name along with six others were disclosed this week by Switzerland — there is a reason why names of these Indians will not be published by the Swiss authorities in the official gazette.

The seven names that appeared in the gazette are among those individuals who did not give their consent to the Swiss government for sharing bank details with India.

However, the HSBC account details of persons who had given consent would be directly sent to the Indian finance ministry and would not be published in the gazette.

Earlier this year, the Indian finance ministry approached Switzerland seeking information on 50-odd HSBC account holders. Since Swiss law requires the government to take an individual’s consent before sharing data with another government or foreign agency, the Swiss authorities, through HSBC Geneva, reached out to Indian clients for their consent.

The account holders were also told that in the absence of a consent their names would be disclosed in the official gazette. Nevertheless, a majority of the account holders did not comply. However, some of them (who had invested through investment companies) asked the Swiss government to spell out the nature of the information that would be shared with New Delhi before giving consent.

“Based on the communication from Switzerland, these account holders have learnt that Switzerland would share the names of the investment companies because technically it is the investment companies that have accounts with HSBC Geneva and not the individuals…Following this, three persons in Mumbai have given their consent.

Their names will neither appear in the Swiss gazette nor in the information shared with India,” said the person. ‘Committed to Exchange of Information’: HSBC Responding to ET’s request for comment on the practice of holding funds through investment companies, an HSBC spokesperson said, “HSBC does not condone tax evasion.

We have no appetite for business with clients or potential clients who do not meet our financial crime compliance standards….We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards, including those where we had concerns in relation to tax compliance.”

In the email reply, the HSBC official further said, “We are also fully committed to the exchange of information with relevant authorities and are actively pursuing measures that ensure clients are tax transparent, even in advance of a regulatory or legal requirement to do so.”

Broadly, there are three ways how Swiss bank accounts are held. First, it could be a direct numbered account in an individual’s name. Second, it could be a trust having an account with a Swiss bank with the individuals named as beneficiaries of the trust. And, the third and more complex arrangement involved the investment company route: here, a discretionary trust set up — may be in another tax haven — holds shares of an investment company that opens account with a Swiss bank.

Since the investment company is the account holder, the name of the trust and its beneficiaries never appear upfront.