Will HSBC Deal Come Back to Haunt Loretta Lynch?
Three years ago, then-U.S. Attorney of the Eastern District of New York Loretta Lynch crafted a soft-touch deferred-prosecution deal for Europe’s largest bank, HSBC, which had only been caught in the largest drug-money-laundering case in history.
Today, as Lynch awaits approval for the Attorney General job, HSBC is in the news again. This time, the global mega-bank is being exposed in a massive scheme to help wealthy clients avoid taxes. This is from the New York Times:
In a report released on Sunday, the International Consortium of Investigative Journalists… said that secret documents revealed that bank employees had reassured clients that HSBC would not disclose details of their accounts to tax authorities in their home countries and discussed options to avoid paying taxes on those assets.
This story traces back to a leak of files apparently stolen by a former HSBC IT employee named Herve Falciani in Switzerland in 2007.
Taken out of Switzerland, the files were then shared with authorities in France, Spain, the United States and Britain. The monster cache of info about wealthy tax avoiders came to be referred to as the “Lagarde List,” after Christine Lagarde, who was the French Finance minister at the time the information first began to be circulated.
What HSBC’s Swiss unit was doing went far beyond passive bank secrecy. The bank was actively helping its wealthiest clients avoid paying taxes in their home countries, sometimes using highly creative methods – a sort of criminal advice service, if you will. The Guardian details one such instance:
In one case that illustrates the bank’s conduct, a wealthy British client, Stoke City football club director Keith Humphreys, frankly told his HSBC manager that his father’s $430,000 (£280,000) Swiss account was “not declared” to the U.K. tax authorities.
Humphreys, whose wealth originated from the sale of a local supermarket chain, explained that one HSBC manager had already advised how to extract undeclared offshore money via a credit card.
“The credit card is thus used to enable the Humphreys family to make withdrawals from ‘cash points’ when they are outside the U.K.,” he said.
The paper went on:
On clinching arrangements in London, the bank manager wrote: “We subsequently repaired to the Ritz, for a very enjoyable lunch.” Humphreys told the Guardian his father eventually had to repay about $224,000 (£147,000) for evading tax due to the U.K.
Countless similar examples are appearing the in the press. The numbers being thrown out are incredible. The Swiss arm of the bank at its height apparently hid as much as $120 billion. The bank unit was essentially, as one observer described it, a “tax avoidance and tax evasion service.”
This HSBC story is an incredibly explosive one when one takes into account the recent regulatory history of this company. The bank has been a central player in two recent lurid criminal scandals, one involving the rigging of currency markets, the other the aforementioned case involving money-laundering.
Both cases involved historically enormous schemes to profit from illegal banking activities. HSBC has set aside $378 million to pay fines for its role in the Forex scandal, in which it was one of a handful of banks whose currency traders ripped off their clients in a variety of ways, for instance using inside client info to make prescient bets seconds before a currency’s price was set.