Tuesday, February 17, 2015

'Methinks the witness doth protest too much'!



If you read any of the main Sunday papers, you cannot have helped seeing a whole page advertisement taken by HSBC, and purporting to be a letter to ‘All HSBC Customers, Shareholders and Colleagues’.

This is an amazing piece of self-promotion which roughly translated goes along these lines;
“...Dear gullible suckers, the recent media exposee of our past tax evasion facilitation services, and some of the truly awful people we have been acting for has been a painful experience.

“...Well, I say, painful, but what I really mean is ‘extremely embarrassing’.

“...But I want to assure you that all that grubby nonsense is in the past now and the standards by which we operate today were not the way we did things back then.

“...Having been caught up to our armpits in sleaze and corruption, we must apologize for getting caught, etc, etc, etc.

What is so horrible about this piece of ‘special pleading’ is that Stuart Gulliver thinks that this shameful piece of doggerel will meet all the needs of his customers and shareholders, and that now, everything can go back to being business as usual. 

This is precisely how the City of London works, and it should be a salutary lesson to anyone who still harbours any doubt about the mafia-like nature of the way in which the banking and financial sector comports itself.

Whenever problems arise, the banker’s first instinct is to deny everything and to continue denying everything while refusing to make a statement about the matter of concern.

You will already have seen how Lord MouthStrictlyClosed of Green dealt with the BBC reporter from Panorama. He carried on walking with his patrician nose very firmly in the air, making no statement and denying everything, saying he was unable to talk about HSBC.

Why was he so silent? Because some reptilian lawyer had no doubt advised him that at this stage of affairs, silence was in his own best interests, on the basis of ‘never justify, never explain’.

Well, Lord ‘IHaveNothingToSay’ may well have to face a grilling later from the SFO, and if they use their special powers under Section 2, which will compel his noble Lordship to answer questions, he may find the experience a little less to his liking.

Stuart Gulliver wants his customers to believe that things have totally changed at HSBC. He talks about how HSBC’s Swiss Private Bank has completely ‘overhauled its business, cutting the number of accounts by 70%.

This may well be true! A brief examination of the fall in profits in the Swiss Bank since 2008 will give some indication of the money they were earning out of facilitating other people’s tax evasion in the past.Top of Form
Bottom of Form

HSBC's Swiss private bank has seen a steep drop in profits since 2008 and even fell to a loss in 2013, showing how problems in the business have hit the British bank's bottom line as well as its reputation.

Its Swiss private bank lost $291 million in 2013, the last set of published full-year results, and only scraped a $14 million profit in the first-half of 2014. HSBC is due to release 2014 full-year results on Feb. 23.

HSBC had to shamefacedly adopt the second prong of the ‘deny all knowledge of wrong-doind and cover up what you don’t want made public’ policy this weekend by finally admitting failings in compliance and controls in its Swiss private bank after media reports alleged it helped wealthy customers conceal millions of dollars of assets in a period up to 2007. The way to do this is to make a very guarded apology but then say that the problem was not as bad as reported.

The Swiss arm's profits have fallen steeply every year since 2008, when they peaked at $553 million and represented 6 percent of HSBC's total earnings.

The same year HSBC said it began a radical transformation of its Swiss private bank to prevent it being used to evade taxes or launder money. Swiss-based banks have been under fire for helping clients avoid taxes for several years, prompting a clampdown across the industry.

HSBC has said it has shed clients who did not meet new stricter standards and has spent more on compliance. It said there were a large number of client withdrawals in 2013, the year the Swiss private bank dropped into the red.

HSBC, which had 10,343 Swiss accounts at the end of 2014, compared to more than 30,000 in 2007, this week said past compliance and controls had failed, but said its Swiss business had since been transformed.

The Swiss private bank was effectively built from its $10 billion purchase in 1999 of Republic National Bank of New York and Safra Republic Holdings, banks controlled by Lebanese financier Edmond Safra.

From a $100 million profit in 2002, the first year that results were broken out, the Swiss bank's profit grew steadily until its 2008 peak. The business made a total $3 billion profit in the decade to the end of 2012, according to Reuters calculations.

The other amazing statement in the week-end letter is the sentence which reads;

“...HSBC has been putting in place tough, world class financial crime, regulatory compliance and tax transparency standards, enforced by a team of over 7,000 compliance professionals...”

Oh well, that’s ok then, we can all now sleep peacefully in our beds, secure in the knowledge that HSB has recruited an army of high-class sleuths and investigators to make sure that nothing like this ever happens again!

Do you want to know why it happened in the first place?

Because quite simply, HSBC have always failed to provide the necessary degree of compliance controls necessary to control their bankers. They had laughed in the face of repeated acknowledgements that the banking industry was little more than a gang of Mafiosi, running roughshod over the provisions of the Financial Services Act, the Financial Services and Markets Act, the Anti-Money laundering legislation, and any other laws which sought to demand a higher standard of financial probity, transparency and legitimacy.

Putting it simply, for many years HSBC had deliberately failed to implement a proper effective compliance control operation inside the bank. They had cynically set up an operation which provided high net worth clients who wanted to evade paying taxes with the means to achieve those ends, and they earned a great deal of money from them. It was only when a French employee downloaded the information concerning the identity of these people that the world finally discovered what HSBC had been up to.

Of course, other British banks have their Swiss outlets as well, Barclays, RBS, Standard Chartered, to name but a few. No doubt we can take comfort from the knowledge that their compliance controls are possibly a lot more robust than those at HSBC!

For Stuart Gulliver to have to make this form of institutionalised ‘Mea Culpa’ in all the newspapers must have been a very humiliating experience indeed.

But perhaps we wouldn’t need these breast-beating moments if the British Banking sector was so much more transparent. We still don’t know how this is all going to fall out for HSBC.

But that has always been their way, and you may have noticed how the regulator connives with the banks to keep the knowledge of their wrongdoing away from the public eye and ear.

Whenever the FCA takes action against one of these banks, the investigation is always carried out confidentially, and then, only at the end of the case, sometimes many months later, do a few selected facts get reported in broad detail. The banks will eventually negotiate some broad-based settlement because it enables them to pay a reduced penalty, and gain the benefit of a confidentiality agreement.

If you knew that your bank had been engaged in some serious wrongdoing, you might conceivably want to write to the Chairman or CEO expressing your concern at the egregious behaviour. If enough people did this, the bank might begin to take notice, but all the time the information about the wrongdoing is kept confidential, you are none the wiser, which is of course how it is meant to be.

But none of this deals with the real criminal activity which underpins the criminal activities which HSBC were offering.

This latest set of revelations about the behaviour of HSBC confirms how much more like an organised criminal enterprise they have become, but this time, the wrongdoing has been carried out with a complete lack of attention being paid to the criminogenic detail of the activity, which has simply been ignored. This is the true test of the level of cynicism and disregard for the law which HSBC have demonstrated.

Let me explain.

Tax evasion is a crime, it is a fraud on the Revenue. If a bank knows or even suspects that its systems and services are likely to be used by clients for the perpetration of a criminal offence, they should take all steps to close those loopholes as quickly as possible.

In the HSBC case, the bank was providing facilities for clients to hide money offshore in Switzerland, and it is safe to say that they knew or ought reasonably to have suspected that some if not most clients would use these facilities to evade tax in the UK. Thus those who used the systems were engaging in money laundering, while those who facilitated the money laundering were aiding and abetting the commission of the offence. This provision applies to every single employee of the bank, not just the managers or the senior officials.

Under the money laundering regulations, they should have been making disclosures to SOCA every time they suspected that a client was evading tax.

Indeed, failure to report in accordance with Part 7 of Proceeds Of Crime Act where the relevant information or other matter has been obtained through the course of work in the regulated sector is a criminal offence which can be committed by any individual (Section 330), or by the MLRO (Section 331). There is a similar offence for MLROs outside the regulated sector in Section 332.

Quite how the employees of HSBC could argue that they did not suspect that clients were evading tax is not clear, they did not need to categorically know for a fact that tax was being evaded, mere suspicion alone is enough. Nor is it enough for an employee in the regulated sector to say ‘well I did not address my mind to the problem’, because under the objective test of knowledge, they would be held to be deliberately turning a blind eye to the likelihood, so they would be caught by the law.

In any event, HSBC’s Swiss bankers aggressively marketed a device that would allow its clients to avoid a new tax introduced under a treaty Switzerland signed with the EU, the HSBC files reveal.

The documents show for the first time that rather than acting as a passive party to the tax schemes of its clients, HSBC Suisse proactively contacted clients to market techniques that would have effectively sabotaged the tax treaty deal.

So, I call upon the SFO and the Police to act dynamically and commence an investigation of HSBC’s breaches of the Money Laundering laws which they have committed in this exercise. At the same time, whenever HSBC Suisse facilitated the evasion of US laws by US citizens, or transferred US dollars unlawfully, they will have been guilty of tax evasion. If these actions have caused US laws to be broken, it is to be hoped that the relevant US Authorities should commence proceedings.

It is to be hoped that these revelations will be the beginning of the end for HSBC’s era of criminogenic conduct and behaviour. Like other banks they have engaged in an era of criminal wrong-doing and they have been found out, time after time, relying on their ‘protected species’ status to protect them. It is now up to the UK criminal authorities to bring procedures against them that will finally bring home to the main board the error of their ways.

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