Facing a multi-nation probe for “alleged tax evasion, money laundering and unlawful cross- border banking solicitation”, global giant HSBC today said it has been served summons by the Indian tax department.
The bank said it is being probed by tax authorities in many other countries as well with regard to alleged irregularities by its Swiss banking unit and there could be “significant” amounts of fines, penalties and/or forfeitures imposed on it.
Separately, the UK-based bank said it has also received “subpoenas and requests for information” from the US and other authorities with respect to certain US-based clients of an HSBC company in India.
This case relates to some NRIs facing investigation in the US for alleged violation of the American tax laws.
A leaked list of over one lakh account holders in HSBC’s Swiss banking unit, including 1,195 Indians, recently became public, prompting authorities in India and many other countries to launch their investigations to ascertain whether these accounts had illicit money stashed abroad.
Giving an update on the case in its annual report published today, HSBC said it is cooperating with the relevant authorities, while adding that it was possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.
“Based on the facts currently known, there is a high degree of uncertainty as to the terms on which they will be resolved and the timing of such resolutions, including the amounts of fines, penalties and/or forfeitures imposed on HSBC, which could be significant,” it added.
With regard to India, the bank said earlier this month a public prosecutor in Switzerland commenced an investigation of HSBC Swiss Private Bank, and “the Indian tax authority issued a summons and request for information to an HSBC company in India”.
The bank’s group chairman Douglas Flint said that the recent disclosures about historical practices at Swiss bank “remind us of how much there still is to do”.
Last week, the Swiss police conducted raids at HSBC’s Geneva offices in connection with their probe into suspected money laundering operations.
Besides India, HSBC said, various tax administration, regulatory and law enforcement authorities around the world, including in Belgium, France, Argentina and Switzerland, are conducting investigations and reviews of HSBC Swiss Private Bank in connection with “allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation”.
The bank said that HSBC Swiss Private Bank has been placed under formal criminal examination by magistrates in both Belgium and France.
It said: “In February 2015, HSBC was informed that the French magistrates are of the view that they have completed their investigation with respect to HSBC Swiss Private Bank and have referred the matter to the public prosecutor for a recommendation on any potential charges to be brought, whilst reserving the right to continue investigating other conduct at HSBC.
“In addition, in November 2014, the Argentine tax authority filed a complaint alleging an unlawful association between HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain current and former HSBC officers, which allegedly enabled HSBC customers to evade Argentine tax obligations.”
HSBC further said that “in light of the recent media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings”.
With regard to the long-running probe in the US, the bank said it “continues to cooperate in ongoing investigations by the Department of Justice and the US Internal Revenue Service regarding whether certain HSBC companies and employees acted appropriately in relation to certain customers who had US tax reporting obligations.
“In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ.
“In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had previously been authorised.”
It said, “The DoJ has requested additional information from HSBC Swiss Private Bank and other Swiss banks regarding the transfer of assets to and from US person-related accounts and employees who serviced those accounts.
“HSBC Swiss Private Bank is preparing this data, in a manner consistent with Swiss law. Other HSBC companies have received subpoenas and requests for information from US and other authorities, including with respect to US-based clients of an HSBC company in India.”
In November 2014, HSBC Swiss Private Bank had reached a final settlement with the SEC relating to cross-border brokerage and advisory services provided by HSBC Swiss Private Bank and its predecessor entities to US resident clients between 2003 and 2011.
Flint said that “the recent disclosures around unacceptable historical practices and behaviour within the Swiss private bank remind us of how much there still is to do and how far society’s expectations have changed in terms of banks’ responsibilities.
“They are also a reminder of the need for constant vigilance over the effectiveness of our controls and the imperative to embed a robust and ethical compliance culture.
“We deeply regret and apologise for the conduct and compliance failures highlighted which were in contravention of our own policies as well as expectations of us.
“In response to, and in parallel with, the tax investigations prompted by the data theft more than eight years ago, we have been completely overhauling our private banking business, putting the entire customer base through enhanced due diligence and tax transparency filters.”
“Our Swiss Private Bank customer base and the countries we serve are now both about one-third of the size they were in 2007,” Flint said, while adding that HSBC was already taking various measures to foster greater transparency.
“We cannot change the past. But, looking to the future, we can and must reinforce controls and provide demonstrable evidence of their effectiveness. This forms part of our commitment to Global Standards, to ensure that we will never knowingly do business with counterparties seeking to evade taxes or use the financial system to commit financial crime.”