Compliance

HSBC Pays More Than $350 Million To Settle Probe At Swiss PB

Josh O'Neill, Assistant Editor, 16 November 2017

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A source close to the process at the Swiss private banking arm of HSBC talked to this publication about how and why the breach happened.

HSBC will pay €300 million ($353 million) to terminate a long-running probe into its Swiss private bank which found it had helped French clients evade taxes.

The French government's investigation found that “numerous” French taxpayers had not declared to tax authorities assets booked at HSBC's Swiss private bank, which had also provided services “to conceal their assets,” the lender said earlier this week in a statement. 

“HSBC is pleased to resolve this legacy investigation which relates to conduct that took place many years ago,” the bank said. 

The agreement is the first under a French system introduced last year allowing companies to settle without any finding of guilt, HSBC said, adding that the investigation “has been dismissed”. 

The case dates back nearly 10 years when Herve Falciani, a former IT employee at the bank, in 2008 leaked client data that has since triggered investigations in several countries. 

Falciani has said he is a whistleblower looking to help governments track down those who used Swiss accounts to sidestep taxes. In 2015, a Swiss court sentenced him to five years in prison for industrial espionage following a trial he did not attend. 

A different world
Governments globally are clamping down on tax evasion in a bid to cool public anger at the idea that the world's wealthiest people may not be paying their full due. 

Switzerland was once renowned as a safe-haven for secret assets because its Banking Act, introduced in 1934, made it illegal for a native bank to reveal details of account holders. But in 2015, the Alpine State inked a deal with the European Union to align Swiss banking practices with those of the bloc, in effect ending the secrecy that EU-resident clients of Swiss banks had enjoyed in the past. Under the arrangement, Switzerland and EU countries will automatically exchange information on the financial accounts of each other's residents from next year.

HSBC was operating in a “different era” a decade ago, and it was for this reason it was caught in authorities' cross-hairs, a source close to the process at its Swiss private bank told this publication. 

“This was a period when the bank operated completely differently today,” they said. “This stemmed from a data theft more than 10 years ago, when secrecy laws were still around. [HSBC] has done a lot to simply its model, it has learned lessons from the past. It is not the same bank it once was.”

The source, who asked to remain anonymous, explained that at the time of the breach, HSBC's Swiss private bank was serving more than 150 markets outside of Switzerland, but now focuses on just 20 “priority” jurisdictions. The unit is “very much” geared toward high net worth clients, and the threshold to open an account is $5 million. 

In its statement, HSBC said the settlement “notes the significant repositioning” of its Swiss private bank since the incident.

This has included “refocusing and reducing” its client base, reinforcing its compliance function, and employing “enhanced global policies on tax compliance”, the lender noted. 

HSBC is not the only lender to have felt the heat turned up by authorities at its Swiss banking arm, though. 

Rival UBS, the world's largest wealth manager, is yet to agree on a settlement in a similar case in France and now faces trial following a probe into allegations it assisted its wealthy clients in evading taxes. 

In 2015, Royal Bank of Scotland was forced to shell out €23.8 million to German prosecutors to settle an investigation into the Swiss arm of its private bank, Coutts. The same year, RBS sold Coutts' Swiss operation to Union Bancaire Privée following revelations of the probe. 

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