A group of journalistic institutions, including the Guardian, Le Monde, the BBC, and the International Consortium for Investigative Journalists, just published a huge story on global tax evasion through private Swiss bank accounts based on leaked documents from HSBC’s Swiss subsidiary, HSBC Private Bank.
It’s hard proof that the world’s elite keep a lot of money away from the prying eyes of their respective countries’ tax collectors by keeping private accounts in Switzerland, which the country’s bankers are legally bound to keep quiet about. There are about 30,000 documents from the years 2005-2007, with assets totalling about $US120 billion.
These aren’t new documents, they were leaked to the French government in 2010 and shared with various governments around the world. The US Department of Justice fined HSBC $US1.92 billion — a record, at the time — back in 2012 after receiving the documents. Matt Taibbi wrote a long piece in Rolling Stone about it in 2013.
But this appears to be the first time journalists have had access to the full trove of documents. According to the various reports, there are a lot of things like this (from the Guardian’s post):
In one memo, an HSBC manager is recorded discussing how a London-based financier whom the bank codenamed “Painter”, and his partner, could cheat on Italian tax. “The risk for the couple is, of course, that when they return to Italy the UK tax authorities will pass on information on them to the Italian tax authorities. My own view on this was that … there clearly was a risk.”
HSBC’s Swiss bankers routinely handed over large sums of cash to visiting clients, asking few questions, the files show. The bank said it had since tightened its controls. “The amended terms and conditions allowed the private bank to refuse a cash withdrawal request, and placed strict controls on withdrawals over $US10,000 [£6,600],” its statement said.
The bank’s official response is that, while it takes full responsibility, its Swiss subsidiary basically operated on its own until the last couple of years. It was acquired in 1999, included in a deal for HSBC to acquire the Republic National Bank of New York and Safra Republic Holdings SA, another private bank. The bank’s statement says the Swiss subsidiary, “focused on a very different client base and had a significantly different culture to HSBC. The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist.”
So why does this matter?
For one thing, if you’re rich and you want to avoid paying taxes, there are legal and illegal ways to do that. There’s a giant industry devoted to finding (and creating!) the legal ways to do it. The evidence in these documents seems to show that this isn’t what HSBC was doing. It was pretty clearly advising its clients on the illegal ways to do it, which mostly have to do with pretending the money you have sitting in Switzerland doesn’t exist.
On the other side, these documents name the names of the people who were using these services.
The bank also was pretty lax about background checks. Well-known international criminals — drugs, arms, blood diamonds, etc — could come into the bank, put down some cash, and open an account without anyone asking too many questions about where the money came from.
If you believe that global inequality is rising, and that it’s mostly because the wealthy are getting wealthier, then this is a big problem. The role of taxes in society is to redistribute wealth, and every dollar in a secret Swiss tax shelter account is a part of a dollar that isn’t being spent on roads or schools or healthcare somewhere else. (Places like Greece, which would really use the tax revenue right about now.)
That said, there is a lot of money and power in the world demanding these kinds of services. HSBC isn’t the only private bank operating like this, and shutting down its operation isn’t likely to mean that wealthy individuals who are committed to finding any and all ways to avoid paying taxes suddenly have a change of heart — although according to Le Monde, the French are taking 72 individuals to court over what’s in the documents, and “most of the French taxpayers whose identity was revealed in the Falciani lists have since regularised their tax affairs.”
Global tax avoidance crackdown
There is a relatively serious global movement to crack down on tax avoidance being led by the Organisation for Economic Cooperation and Development (OECD). It has been working with the finance ministers of the G20 nations to come up with some global guidelines for tax reform and reporting. And it’s sort of working.
Because of the OECD’s pressure on corporate tax reform, Ireland killed the popular double Irish tax loophole last year.
More importantly to this story, there’s something called the Convention on Mutual Administrative Assistance in Tax Matters, which is basically just an agreement between countries, including Switzerland, to share important financial information with one another. Swiss banking has been conducted in secret, by law, since 1934.
The Guardian writes:
By 2018, Switzerland has committed to automatic exchange of information about individual accounts, taxes, assets and income along with 50 other nations… This information exchange [has] been trumpeted as the end of banking secrecy.
Even with this agreement, though, Swiss banking law hasn’t changed that much. Don’t count on this as the end of secret Swiss bank accounts.