Tuesday, 14 November 2017

French Regulators Hit HSBC for €300 million for Tax Evasion, With More to Follow

Today’s short post serves to review the recent movements of French regulators aiming to crack down on large-scale tax evasion taking place in and through its jurisdiction. Le Parquet National Financier (PNF) are France’s largest financial regulator in terms of financial-based crime, so equivalent really to the Serious Fraud Office in the U.K., and we looked at their work recently here in Financial Regulation Matters with regards to their investigation of Airbus and its potential involvement in widespread bribery. Today, however, we will review their recent work with regards to tax evasion, which is particularly pertinent given the recent ‘Paradise Papers’ scandal which will be the focus of tomorrow’s post.

For HSBC, one of the world’s largest and most widespread banks, this specific problem today stems from the group’s Swiss Private bank arm, and relates specifically to claims that it helped wealthy clients evade taxes – it was claimed that more than €1.6 billion’s worth of assets were a part of the scheme. The scheme was uncovered and revealed by a ‘leaker’ – Hervé Falciani was convicted in absentia late last year for ‘aggravated industrial espionage’ – in 2009 by way of a seizure of a multitude of documents from his computer. The documents, we now know, were particularly damning, so much so that today HSBC ‘accepted the alleged facts of the case’ outright and has agreed to pay €300 million to settle the issue, which comes on top of an inconsequential £28 million fine from Swiss authorities for ‘organisational failings’ seems as tax evasion technically is not illegal in that country. Of course, the Bank is adamant that accepting the facts does not mean that the Bank is guilty of wrongdoing, which is the standard line, but it is unlikely that the other countries that have also initiated investigations based upon the ‘leak’ will be deterred by the refusal to accept guilt – in fact, it will likely be the opposite, with American, Spanish, Belgian and Argentinian authorities rumoured to be developing similar cases against the Bank. Yet, in reality, today’s news should come as no surprise, as HSBC is, unfortunately for them, beginning to become synonymous with this type of behaviour. In 2015 the British elements of the Bank came under pressure for their failings, and last year were considered fortunate to have escaped criminal prosecution from the HMRC regarding negligence over the monitoring of illegal activities. Also, in a previous post in Financial Regulation Matters in March this year, we looked at how the bank is consistently linked to these schemes, particularly in reference the ‘Global Laundromat’ scandal which has not really received the attention it surely deserves. Yet, whilst HSBC is synonymous with these aspects, the PNF are also focusing on another major player in the field: UBS.

In March, it was reported that the PNF were attempting to settle with UBS for more than €1 billion for the very same crime – assisting wealthy clients evade tax authorities. However, commentary at the time suggested that the figure was so high that UBS really had no choice but refuse to settle, with the consequence then being that the Bank was facing criminal charges which could see it fined up to €4.9 billion. This is an interesting development, because whilst UBS’ local rival Credit Suisse settled with US regulators for $2.5 billion in 2014 and UBS settled for only $780 million and a DPA (deferred prosecution agreement), it appears now that the PNF have UBS in their sights and are attempting to land a serious blow in the fight against tax evasion, which is to be welcomed. There has not been much development in this story of late, but this case and its obvious complexity may see the story drag on for a few more years at least –one thing is for sure, and that is the revelations stemming from this case could be particularly damaging for UBS.

Ultimately, the move by the PNF today signals an intent which is both required and timely. In conjunction with other efforts in Europe, the U.K., and the U.S., this push to use legal powers to bring criminal actors to account is welcomed, although the UBS case is probably of particular importance if it does conclude with a near €5 billion fine for UBS – the reason is that raising the bar will hopefully raise the bar for their regulatory counterparts across the world, so the illegal act of assisting in tax evasion can become a very costly business indeed. Whilst $300 million is small change for a Bank like HSBC, this can be seen as an aperitif for the big case against UBS, and on that basis we can say that today’s settlement represents somewhat of a success, particularly if other authorities begin to take action against HSBC like they are rumoured to be doing – these are interesting times for the regulation of tax evasion.


Keywords – HSBC, UBS, Tax Evasion, PNF, France, Banking, Switzerland, Fraud, Industrial Espionage, @finregmatters.

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