Bank is alleged to have helped wealthy clients avoid taxes
By Danica Kirka
Associated Press
LONDON (AP) — First there was money laundering. Then foreign-exchange rigging. Now tax evasion.
HSBC, Europe’s biggest bank, has endured a string of scandals and paid billions in penalties to regulators around the world. But recent revelations that its Swiss private bank helped the wealthy evade taxes are raising new questions about whether big banks like HSBC have become too vast to manage — and who should be accountable when things go wrong.
Lawmakers on the U.K. Parliament’s Treasury Committee peppered HSBC Chairman Douglas Flint and Chief Executive Stuart Gulliver on Wednesday with questions about personal accountability amid allegations that its Swiss private bank helped wealthy clients, including as many as 1,000 Britons, evade taxes. There were times the hearing sounded as if it should be held in a confessional, framed with words like contrition, atonement, morality and shame.
Flint and Gulliver did not quite beg for forgiveness for past wrongs. But they got close.
“We are suffering from horrible reputational damage,” Flint acknowledged. “A bank lives on its reputation. No bank wants to associate itself with activities behaviors or clients that would do it damage.”
Flint and Gulliver have publicly apologized for HSBC’s conduct before, stressing that the Swiss issue was an historical one and that the bank has taken steps to ensure proper practices. HSBC has “no appetite” to help tax evaders, the bank said in an open letter published in national newspapers.
The scandal broke this month when reporters mined a trove of leaked documents from 2005-07 for details of 30,000 accounts at the Swiss private bank that held almost $120 billion in investments. The information was turned over to French authorities by a former bank employee.
HSBC isn’t the first bank to be hit with allegations it helped clients avoid taxes as governments sought to boost revenue and balance budgets ravaged by the financial crisis.
Swiss banking giants UBS and Credit Suisse have both agreed to fines in the U.S. on allegations they conspired to help Americans evade taxes. U.S. banking behemoths JP Morgan and Citigroup are being investigated by the U.S. for manipulation of foreign exchange markets, among other things.
“If you think this is just HSBC, then you are mistaken,” said Louise Cooper, a former Goldman Sachs stockbroker who writes the financial blog CooperCity. “HSBC is just the bank to get caught as the French whistleblower happened to work there.”
Tax evasion is only the most recent scandal to hit HSBC.
In 2013, the bank agreed to pay U.S. authorities $1.9 billion to settle charges that its practices enabled Latin American drug cartels to launder billions of dollars. U.S. and U.K. regulators in December fined it another $618 million for failing to prevent manipulation of foreign-exchange markets.
HSBC executives acknowledge that the bank’s sheer size and rapid growth before the financial crisis led to control issues.
HSBC acquired much of its Swiss private bank when it bought Republic National Bank of New York and Safra Republic Holdings in 2009.
“The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist,” the bank said in a report this month. “With hindsight, it’s clear that too many small and high risk accounts were maintained and the business was stretched over more than 150 geographical markets.”
Founded 150 years ago as the Hong Kong and Shanghai Banking Corp., HSBC now has more than 6,100 offices in 73 countries. Under Gulliver’s leadership, HSBC has simplified its organizational structure and reduced its workforce by about 17 percent to 257,000.
Its size has raised question over whether it, like other large banks, has just became too unwieldy.
“If they’re too big to fail, they’re too big to control,” said Crawford Spence, a professor of accounting at Warwick Business School. “But are they too big to bludgeon into corporate responsibility?”
On a conference call with reporters this week, Gulliver said society now holds public companies to a higher standard than other large institutions, such as the military. He argued essentially that top executives shouldn’t be held responsible for the actions of individual employees, just as generals aren’t expected to track the actions every solider in the trenches.
He tried to backtrack from the comments during Wednesday’s testimony, but made it clear that he was taking responsibility for making it right from now on.
“I’m responsible for cleaning it up,” he said.
The CEO was dragged into the scandal last weekend, when the Guardian reported that Gulliver himself had an account at the Swiss private bank.
Gulliver said he opened the account through a Panamanian company to protect his privacy because other executives at HSBC’s Hong Kong offices were able to see what colleagues were earning. He insisted he’s paid all his taxes and said the Panamanian structure was closed. His salary and bonuses are now public.
But top bankers may find themselves increasingly under the focus of regulators. Writing in the Financial Times, Andrew Bailey, the Bank of England’s deputy governor for prudential regulation, outlined legislation that would increase the power to take action against senior managers who don’t take reasonable steps to avoid problems such as tax evasion.
“We do not seek to collect scalps, or to make examples of individuals,” he wrote. “Success will be well-governed companies, where senior management know what is expected and run their firms responsibly.”
