It has been described as the “biggest banking leak in history” – not least by the various European media outlets, including the BBC, that have been publishing some of the details this week. But where have the hundreds of thousands of files, which apparently detail industrial-scale tax evasion, come from? And what is the wider significance of the leak? Finally, where can we expect this scandal to go next?
Where did this come from?
One individual: Hervé Falciani. In 2009 this Franco-Italian systems engineer for HSBC’s Swiss private bank handed over a list of more than 100,000 HSBC clients to the French Finance Minister at the time, Christine Lagarde.
The Greek crisis was beginning and Athens had just revealed that its budget deficit was far bigger than it had previously reported. So Ms Lagarde sent a list of the Greek names on the list to the Athens government in order to put pressure on the country to tackle rampant tax evasion.
She also shared information on what became known as the “Lagarde list” with other governments around the world, from the US, to Belgium, to Argentina. The British government received the information on British tax evaders in 2010.
Some of the big names have dribbled out before. But now the huge sweep of HSBC’s clients and activities are laid bare. Clients included royalty, ambassadors, entertainers, corporate executive, athletes and dictators.
All of human life seems to be there – so long as they are rich. And the files point not only to illegal tax evasion by the rich, but also money laundering by criminals too – apparently facilitated by HSBC.
Why does it matter?
Tax evasion is illegal. But at a time when many countries are still emerging from economic crisis and austerity policies are being imposed on ordinary people, the fact that wealthy elites have been evading tax is still more inflammatory.
The secret bank accounts also support the claims of researchers that the true wealth of the very rich is not reflected in the official statistical surveys. Wealth inequality in Western countries could be more extreme than it appears in the official data.
On a more prosaic level, the data highlights the apparent laxity and sloth of the UK legal and tax authorities relative to other countries. According to Parliament’s Public Accounts Committee (Pac), France had recouped £188m in unpaid tax as a result of the Lagarde list by last Summer. Spain had retrieved £200m. But HMRC has so far recouped just £135m, despite the fact that a fifth of the funds in the HSBC Swiss bank belonged to British-based clients. And just one individual, out of 1,100 identified UK evaders on the Lagarde list, has been prosecuted here in the UK. “You are left wondering as you see the enormity of what has been going on, what it actually takes to bring a tax cheat to court,” the Pac chair Margaret Hodge said yesterday.
The affair matters for HSBC’s reputation too. It was very much an establishment institution. Prince William did work experience at its private bank arm in 2005.
HSBC was not forced to tap the British taxpayer for funds to stay afloat in the financial crisis. But a major fine in 2012 from the American authorities for laundering Mexican drug money tarnished that reputation for probity. And the squalid detail of this data cache of bad behaviour could shatter it for good.
What don’t we know?
HSBC was certainly not the only Swiss bank that facilitated tax evasion by clients. Credit Suisse last year pleaded guilty to the same offence in America and paid a huge fine. UBS, another giant Swiss bank, paid a US fine in 2009 to avoid prosecution on similar charges.
But unlike with HSBC, we don’t know who the clients of those two banks were, or how much they held in those accounts, or what the scale of the avoidance was.
Switzerland is not the only European nation that stands accused of facilitating evasion. A technician smuggled a disk of damning material out of Liechtenstein’s LGT Bank, which is owned by the principality’s royal family, in 2008 and sold it to the German secret services. There were a number of prosecutions of wealthy Germans resulting from the data, and Liechtenstein was pressured into signing a series of tax transparency treaties with other states. But the full details of the evasion uncovered were never made public. And, of course, there are banks in tax havens all around the world. It is reasonable to assume what we have learned from the HSBC files is merely the tip of a mountain of evasion.
What happens next?
In a statement released yesterday, HSBC said it has beefed up its compliance procedures and overhauled its reporting requirements at its Swiss arm. It added that it has slashed client numbers by 70 per cent.
The bank is still facing criminal investigations in the US, France, Belgium and Argentina. But, strangely, not in the UK, even though the bank is headquartered here. There will probably be political pressure for that to change.
Pressure will grow for more prosecutions of the named evaders too. The Pac is due to question HMRC tomorrow on the subject. It promises to be a stormy hearing. HMRC said in a statement yesterday that it has systematically worked through all the Lagarde data and has collected all the unpaid money it possibly can. It added that the decisions over whether to bring prosecutions were made by the Crown Prosecution Service.
There could be further political ramifications too. Stephen Green was chief executive of HSBC through the evasion exposed by the leak. He was made a Conservative life peer in 2010 and appointed a trade minister by the Coalition the following year, despite the fact that the Prime Minister, or those around him, must have known about the Lagarde list. Labour yesterday demanded to know why Lord Green’s appointment went ahead.
Switzerland is likely to face a harsher international climate too from now on. The country claims it is overhauling its banking secrecy laws, but reform remains a work in progress. The scale of Swiss-facilitated evasion that has been dragged into the light means public pressure in many countries for full global banking transparency is likely to intensify.
Profile: Herve Falciani
The dual French-Italian national, dubbed the Edward Snowden of banking, fled Switzerland for France on 22 December 2008. Safely across the border, he downloaded a huge cache of confidential information from his previous employer, HSBC’s private bank in Geneva, and passed the data to the French legal authorities.
The Swiss demanded Mr Falciani’s extradition, but France refused. Mr Falciani testified behind closed doors to parliamentary committees in Paris about the evidence of tax evasion, by wealthy elites from across the world, that he had put in their lap.
The French press named him “the man who makes the rich tremble”. Saying he feared for his life, Mr Falciani left France for Spain in July 2012. In Barcelona he was arrested under a Swiss arrest warrant and detailed for five months. However, Madrid also refused to extradite him. Now back in France, Mr Falciani has a security detail provided by the French government. Much of his story sounds fantastic. He claims he was kidnapped in Geneva back in 2007 by Israeli secret services searching for financial information on Lebanon’s Hezbollah. He is said to wear disguises and reportedly considers himself “part James Bond ... and part disappointed idealist”.
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