Banking Giant Helped World's Wealthiest Hide Billions in Taxes

HSBC, the world's second largest bank, helped some of the richest people in the world stash away billions in assets to avoid taxes. The Swiss arm of the British banking giant encouraged wealthy clients to hide their fortunes from governments and other taxing authorities and helped to make their transactions untraceable.

A group of media organizations, including the BBC, The Guardian, Le Monde, and the International Consortium of Investigative Journalists obtained documents revealing the complex tax dodge scheme.

The documents reveal that HSBC's exclusive Swiss bank allowed rich clients to withdraw bricks of cash in various foreign currencies to hide such transactions. The bank also conspired with clients in creating undeclared "black" accounts to hide their wealth from domestic taxing authorities. Moreover, this service was marketed by HSBC bankers to uber-rich clients, including wealthy heirs, unethical financiers, business executives, Hollywood stars, European royalty and even global crime figures.

In one recording obtained by journalists, an HSBC Swiss banking manager gives advice to a British financier and his partner, showing them how they could use their account to cheat on Italian taxes. Another document reveals that HSBC bankers were assisting "blood diamond" dealer Emmanuel Shallop with hiding his income from Belgian tax authorities and evading taxes. Other memos show that bankers turned a blind eye to a client withdrawing numerous cash bundles of Danish Kroner, while acknowledging that the activity was illegal.

The obtained files cover three years, 2005-2007 and reveal the activities of more than 30,000 secret bank accounts containing nearly $120 billion in assets.

HSBC has admitted to "past failures," but says that it has reformed.

"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," the bank said in a statement. HSBC also said that it is "cooperating with relevant authorities."

According to HSBC, the Swiss banking arm had not been fully integrated with the parent corporation after it was acquired in 1999. Reportedly, the problems with the Swiss banking division had not been rectified until 2011.

US considering charges

HSBC is now being investigated by authorities in the U.S., France, Belgium, and Argentina, based, in large part, on the recently obtained documents. In Great Britain, where HSBC is based, there is no present investigation.

Private offshore bank accounts and tax havens are not illegal in themselves, however they're often used to unscrupulously hide income and assets from domestic governments to illegally evade taxes. 

HSBC has been investigated for money laundering for the past several years. Indian and Argentinian authorities aggressively went after the bank recently, revealing fake receipts and dummy accounts to facilitate tax evasion. In both 2003 and 2010, U.S. banking regulators ordered HSBC to clean up its act in regards to money laundering.

In Nov. 2012, it was reported that HSBC had set up offshore accounts for suspected drug-dealers and other criminals. In Dec. 2012, HSBC was penalized $1.9 billion, the largest fine under the Bank Secrecy Act, for violating laws designed to protect the U.S. financial system.

The most recent news will undoubtedly amplify calls for banking reform in the U.S. and abroad.

Yesterday, the U.S. Department of Justice said that it is considering criminal charges against HSBC. It has been investigating HSBC and its Swiss banking operations for five years.

Sen. Elizabeth Warren called on prosecutors to "come down hard" on the bank if it is determined the government that they colluded with tax evaders.