Swiss Leaks: Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers

Gerard Ryle, Will Fitzgibbon, Mar Cabra, Rigoberto Carvajal, Marina Walker Guevara, Martha M. Hamilton and Tom Stites, Swiss Leaks: Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers. International Consortium of Investigative Journalists. 8 February 2015. “HSBC Private Bank (Suisse) continued to offer services to clients who had been unfavorably named by the United Nations, in court documents and in media as connected to arms trafficking, blood diamonds and bribery. HSBC served those close to discredited regimes such as that of former Egyptian president Hosni Mubarak, former Tunisian president Ben Ali and current [2015] Syrian ruler Bashar al-Assad…. The bank repeatedly reassured clients that it would not disclose details of accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country. Bank employees also discussed with clients a range of measures that would ultimately allow clients to avoid paying taxes in their home countries. This included holding accounts in the name of offshore companies to avoid the European Savings Directive, a 2005 Europe-wide rule aimed at tackling tax evasion through the exchange of bank information.”

Secret documents reveal that global banking giant HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws.

The leaked files, based on the inner workings of HSBC’s Swiss private banking arm, relate to accounts holding more than $100 billion. They provide a rare glimpse inside the super-secret Swiss banking system — one the public has never seen before.

The documents, obtained by the International Consortium of Investigative Journalists via the French newspaper Le Monde, show the bank’s dealings with clients engaged in a spectrum of illegal behavior, especially in hiding hundreds of millions of dollars from tax authorities. They also show private records of famed soccer and tennis players, cyclists, rock stars, Hollywood actors, royalty, politicians, corporate executives and old-wealth families.

These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks.

The leaked account records show some clients making trips to Geneva to withdraw large wads of cash, sometimes in used notes. The files also document huge sums of money controlled by dealers in diamonds who are known to have operated in war zones and sold gemstones to finance insurgencies that caused untold deaths.

HSBC, which is headquartered in London and has offices in 74 nations and territories on six continents, at first insisted that ICIJ destroy the data.

Late last month, after being informed of the full extent of the reporting team’s findings, HSBC gave a final response that was more conciliatory, telling ICIJ: “We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today.”…

How the offshore banking industry shelters money and hides secrets has enormous implications for societies across the globe. Academics conservatively estimate that $7.6 trillion is held in overseas tax havens, costing government treasuries at least $200 billion a year.

“The offshore industry is a major threat for our democratic institutions and our basic social contract,” French economist Thomas Piketty, author of Capital in the Twenty-First Centurytold ICIJ. “Financial opacity is one of the key drivers of rising global inequality. It allows a large fraction of top income and top wealth groups to pay negligible tax rates, while the rest of us pay large taxes in order to finance the public goods and services (education, health, infrastructures) that are indispensable for the development process.”

The secret files obtained by ICIJ — covering accounts up to 2007 associated with more than 100,000 individuals and legal entities from more than 200 nations — are a version of the ones the French government obtained and shared with other governments in 2010, leading to prosecutions or settlements with individuals for tax evasion in several countries. Nations whose tax authorities received the French files include the U.S., Spain, Italy, Greece, Germany, Britain, Ireland, India, Belgium and Argentina….

In many instances the records do describe questionable behavior, such as bankers advising clients on how to take a range of measures to avoid paying taxes in their home countries — and customers telling bankers that their accounts are not declared to their governments.

The reporting by ICIJ and a team of media organizations from 45 countries go deeper into the dark corners of HSBC than a2012 U.S. Senate investigation, which found that the bank had lax controls that allowed Latin American drug cartels to launder hundreds of millions of ill-gotten dollars through its U.S. operations, rendering the dirty money usable….

The documents obtained by ICIJ are based on data originally smuggled away by a former HSBC employee-turned-whistleblower, Hervé Falciani, and handed to French authorities in 2008. Le Monde obtained material from the French tax authority investigation into the files and then shared the French tax authority’s material with ICIJ with the agreement that ICIJ would pull together a team of journalists from multiple countries that could sift through the data from all angles.

ICIJ enlisted more than 140 journalists from 45 countries, including reporters from Le Monde, the BBC, The Guardian, 60 Minutes, Süddeutsche Zeitung and more than 45 other media organizations….

Many of the accounts were held by companies in offshore tax havens such as the British Virgin Islands, Panama or in the remote Pacific island of Niue, rather than by the individuals who owned the money. Thousands more used de-identified, numbered accounts….

The documents raise new questions about past public statements by HSBC that staff did not help customers engage in tax evasion…. In [one] instance, an HSBC employee wrote this note in the file of Irish businessman John Cashell, who would later to be convicted of a tax fraud in his native country: “His pre-occupation is with the risk of disclosure to the Irish authorities. Once again I endeavoured to reassure him that there is no risk of that happening.” Cashell did not respond to requests for comment….

The files show that some European customers were given advice on how to avoid a withholding tax on bank savings that came into effect in European Union countries in 2005. Switzerland had agreed to implement the tax — called the European Savings Directive, or ESD.

But the ESD pertained only to individuals, not to corporations. The files show HSBC Private Bank seized on this loophole to market products that transformed individuals into corporations for tax-reporting purposes….

The documents raise questions about why there were investigations in some countries and not in others — and whether some investigations were less than painstaking.

For instance, some of the most extensive material relates to the bank’s U.K. clients. Initial investigations by French tax authorities identified more than 5,000 British clients linked to $61 billion in HSBC deposits — more clients and more money than from any other country….

An analysis by ICIJ shows that almost 2,000 of HSBC clients who appear in the files are associated with the diamond industry. Among them is Emmanuel Shallop, who was subsequently convicted of dealing in blood diamonds.

Blood diamonds, or conflict diamonds, are terms used for gems mined in war zones that are later sold to finance further war. Diamonds mined during the recent civil wars in Angola, Cote d’Ivoire, Sierra Leone and other nations have been given the label.

“Diamonds have a long history of being linked to conflict and violence,” said Michael Gibb of the international human rights group Global Witness. “The ease with which diamonds can be converted into tools of war, when not sourced responsibly, is astonishing.”

The documents show that HSBC was aware that Shallop was under investigation by Belgian authorities at the time it was helping him.  “We have opened a company account for him based in Dubai. … The client is very cautious currently because he is under pressure from the Belgian tax authorities, who are investigating his activities in the area of diamond fiscal fraud.”

Rick Edmonds, Meet ICIJ–The biggest, toughest investigative unit you may never have heard of. Poynter, 24 February 2015. “Even for an investigative team with global reach and huge ambitions, the last month has been extraordinary for the International Consortium of Investigative Journalists. Two weeks ago Sunday, a joint investigation with “60 Minutes” on tax avoidance and money laundering at the Swiss private bank British giant HSBC aired. Since then, Swiss authorities raided the bank for evidence of fraud, HSBC apologized in full-page ads in Britain and a prominent journalist at The Telegraph went public with his resignation, claiming the conservative daily downplayed the story as a favor to a prominent advertiser. A week after the Swiss Leaks report, ICIJ won a George Polk award in the business category for a pair of 2014 projects, one on offshore investments by Chinese elites including parking their money in New York City real estate and the other revealing how Luxembourg operates as a tax avoidance haven.

Update: Juliette Garside, HSBC pays out £28m over money-laundering claims. The Guardian, 4 June 2015. HSBC has been ordered to pay a record 40m Swiss francs (£28m) and been given a final warning by the Geneva authorities for “organisational deficiencies” which allowed money laundering to take place in the bank’s Swiss subsidiary.

The settlement means the Swiss will not prosecute HSBC or publish the findings of their investigation into alleged aggravated money laundering. But Geneva’s chief prosecutor, Olivier Jornot, cautioned that the bank was on notice, saying: “This is an excuse which will only apply once.”

Announcing the biggest financial penalty ever imposed by the Geneva authorities, Jornot launched a stinging attack on his own country’s financial laws, adding his voice to a growing a number of Swiss politicians and campaigners calling for reform of the country’s secretive banking system.”