GRC Professional - February 2015 Edition

WHAT WENT WRONG? HSBC LEAK EXPOSES TAX RISK The leak involving HSBC’s secret Swiss accounts is another damaging blow to a banking industry still reeling from the fallout from the financial crisis. What impact will the incident have? Is tax an emerging regulatory risk? Daniel Sheehan. The bank repeatedly reassured clients that it would not disclose details of accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country. ONE THING THAT EMERGED CLEARLY from the G20 held in Brisbane last year was that governments were determined to do more to clamp down on tax evasion. Increasingly, in a global environment of slow growth, governments are concerned about their fiscal positions and are looking at ways to close revenue shortfalls. Following the G20 event in Brisbane, Chinese authorities said they would tighten their monitoring of foreign companies, in order to prevent them from avoiding tax. The official Xinhua news agency, citing tax officials in the country, reported that China would monitor profit levels of foreign companies comprehensively to make sure that they are not using tax avoidance techniques. In Australia, Treasurer Joe Hockey has also threatened to crack down – though actual progress has been slow. While, as is often in the case in regulatory matters, the US has led the world in enforcement action. Credit Suisse pled guilty to a criminal charge for its role in helping Americans evade taxes. US Attorney General, Eric Holder, said Credit Suisse will pay more than $2.5 billion as part of an agreement with US authorities. In this environment, the latest leak could not have come at a worse time for HSBC, or the banking industry more widely. Documents, obtained by the International Consortium of Investigative Journalists (ICIJ) via the French newspaper Le Monde, lifted the lid on $100 billion worth of secret Swiss bank accounts. According to the ISCIJ, HSBC Private Bank (Suisse) continued to offer services to clients 20 GRC Professional • February 2015 who had been named unfavourably by the United Nations in court documents and in the media as connected to arms trafficking, blood diamonds and bribery. HSBC served those close to discredited regimes, such as former Egyptian President, Hosni Mubarak, former Tunisian President, Ben Ali, and current Syrian ruler Bashar al-Assad. Clients who held HSBC bank accounts in Switzerland include former and current politicians from Britain, Russia, Ukraine, Georgia, Kenya, Romania, India, Liechtenstein, Mexico, Lebanon, Tunisia, the Democratic Republic of the Congo, Zimbabwe, Rwanda, Paraguay, Djibouti, Senegal, Philippines and Algeria. The bank repeatedly reassured clients that it would not disclose details of accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country. Bank employees also discussed with clients a range of measures that would ultimately allow clients to avoid paying taxes in their home countries. This included holding accounts in the name of offshore companies to avoid the European Savings Directive, a 2005 Europe-wide rule aimed at tackling tax evasion through the exchange of bank information. It is not yet known if HSBC will face more legal problems, as a result of the leak. In 2012, HSBC agreed to pay more than $1.9 billion to settle US criminal and civil investigations, and entered into a five-year deferred-prosecution agreement for sanctions and money-laundering violations.

GRC Professional - February 2015 Edition | Page 22