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UPDATE 3-HSBC admits Swiss bank failings over client taxes
February 9, 2015 / 1:16 PM / 3 years ago

UPDATE 3-HSBC admits Swiss bank failings over client taxes

* Media reports say HSBC helped wealthy dodge taxes

* List of rock stars, Hollywood actors, royalty

* U.S. could revisit 2012 agreement -law enforcement official (Adds implications for U.S. investigations of HSBC, paragraphs 4-10)

By Steve Slater, Joshua Franklin and Aruna Viswanatha

LONDON/ZURICH/WASHINGTON, Feb 9 (Reuters) - British bank HSBC Holdings Plc admitted failings by its Swiss subsidiary in response to media reports it helped wealthy customers dodge taxes and conceal millions of dollars of assets, shedding light on the extensive legal problems that still dog the world’s second-largest bank.

The International Consortium of Investigative Journalists (ICIJ), which coordinated the reporting, said a list of people who held HSBC accounts in Switzerland included soccer and tennis professionals, rock stars and Hollywood actors.

Reuters could not independently verify any of the names listed by the ICIJ. Having a Swiss bank account is not illegal and many are held for legitimate purposes.

U.S. prosecutors are investigating whether HSBC helped Americans evade taxes, and it is unclear when any charges or a settlement could materialize.

U.S. authorities are also probing whether HSBC manipulated currency rates. A U.S. law enforcement official said on Monday that the investigations could prompt the Department of Justice to revisit a 2012 deferred prosecution agreement with the bank.

The agreement was connected to a $1.9 billion settlement that allowed HSBC to avoid criminal charges that it helped move hundreds of millions of dollars in illicit drug money through the U.S. financial system.

“It is quite possible that the (agreement) may be reopened as a result of the bank’s activities on either or both the tax evasion and foreign exchange manipulation front,” said the U.S. law enforcement official, who requested anonymity because the investigations are ongoing.

A spokesman for HSBC declined comment on the investigations.

Under the terms of the 2012 agreement over anti-money laundering lapses, HSBC was obligated for five years to both fully cooperate with prosecutors on any other investigations and commit no crimes after it signed the deal.

If prosecutors decide the bank is in breach of the agreement, the bank could face harsher penalties to resolve the other probes.

The tax investigation dates back to at least 2010, as part of a broader inquiry into Swiss banks that helped wealthy Americans hide money oversees, and any information known to prosecutors before the deal would not implicate it.

Multiple banks are also under investigation in the currency probe, which was made public in 2013. U.S., Swiss, and British civil authorities fined six banks in November including HSBC $4.3 billion for failing to stop traders from trying to manipulate the largely unregulated $5-trillion-a-day foreign exchange market.

SWISS CLIENTS

The newly released HSBC Swiss client list included royalty such as Morocco’s King Mohammed, politicians, corporate executives including former Santander chairman Emilio Botin, who died last year, and wealthy families, the ICIJ said. A spokesman for the Moroccan royal palace declined to comment.

Uruguayan soccer player Diego Forlan, who was also on the list, on Monday denied evading taxes by hiding money in Swiss accounts with HSBC.

The documents also listed arms dealers, people linked to former dictators and traffickers in blood diamonds, and several individuals on the current U.S. sanctions list, including Gennady Timchenko, an associate of Russian President Vladimir Putin. Timchenko’s Volga Group declined to comment.

“We acknowledge and are accountable for past compliance and control failures,” HSBC said late on Sunday after news outlets published the allegations about its Swiss private bank.

The Guardian and other media cited documents obtained by the ICIJ via French newspaper Le Monde.

HSBC said that its Swiss arm had not been fully integrated into HSBC after its purchase in 1999, allowing “significantly lower” standards of compliance and due diligence to persist.

The Guardian asserted that the files showed HSBC’s Swiss bank routinely allowed clients to withdraw “bricks” of cash, often in foreign currencies which were of little use in Switzerland.

HSBC also marketed schemes which were likely to enable wealthy clients to avoid European taxes and colluded with some to conceal undeclared accounts from domestic tax authorities, the Guardian said.

The reports began a political debate in Britain ahead of a parliamentary election in May. Margaret Hodge, a senior opposition Labour Party lawmaker, said British tax authorities had done too little and that a panel of lawmakers would open an inquiry.

“All the other countries have collected much more,” Hodge told BBC Radio on Monday. “We are never assertive enough, aggressive enough to protect the taxpayer.”

David Gauke, a Conservative lawmaker and a junior minister in the finance ministry, criticised HSBC and said the case lifted the lid on poor banking behaviour at the time.

The HSBC client data were supplied by Herve Falciani, a former IT employee of HSBC’s Swiss private bank, HSBC said. HSBC said Falciani downloaded details of accounts and clients at the end of 2006 and early 2007. French authorities have obtained data on thousands of the customers and shared them with tax authorities elsewhere, including Argentina.

Switzerland has charged Falciani with industrial espionage and breaching the country’s secrecy laws. Falciani could not be reached for comment on Monday but has previously told Reuters he is a whistleblower trying to help governments track down citizens who used Swiss accounts to evade tax.

HSBC said it was cooperating with authorities investigating tax matters. Authorities in France, Belgium and Argentina have said they are investigating.

HSBC said the Swiss private banking industry, long known for its secrecy, operated differently in the past and this may have resulted in HSBC having had “a number of clients that may not have been fully compliant with their applicable tax obligations.”

Its private bank, especially its Swiss arm, had undergone “a radical transformation” in recent years, it said in a detailed four-page statement.

HSBC shares closed 1.6 percent lower on Monday, in line with a drop in the broader European banking index.

HSBC’s Swiss private bank was largely acquired as part of its purchase of Republic National Bank of New York and Safra Republic Holdings, a U.S. private bank. (Additional reporting by Tom Miles in Geneva, Mark John in Paris and Andrew Osborn in London; Editing by Alexander Smith, Keith Weir, Jane Merriman, Grant McCool)

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