HSBC: an update from Great Britain

They have been two stormy weeks for the British multinational banking and financial services company with files being leaked showing that the organisation has broken the law to help some of its wealthy clients all over the world evade tax using secret HSBC accounts in Switzerland. The HSBC now faces an investigation by the Financial Conduct Authority and, possibly, other bodies.

 Geneva, Switzerland A HSBC logo is pictured behind the flag of the canton of Geneva at a Swiss branch of the bank in Geneva February 18, 2015. Geneva's public prosecutor searched the premises of HSBC Holdings PLC in Geneva on Wednesday and said it had opened a criminal inquiry into allegations of aggravated money laundering. HSBC, Europe's biggest bank, apologised to customers and investors on Sunday for past practices at its Swiss private bank following allegations that it helped hundreds of clients dodge taxes. REUTERS/Denis Balibouse

It seems like the scandal was bound to happen since 2007, when a HSBC whistleblower, Herve Falciani, hacked into its clients’ files and then fled to France in order not to be prosecuted for breaking the laws protecting Swiss banks secrecy. The data he obtained included a list of the bank’s wealthy clients across the world. In 2013 French authorities, to which Mr Falciani had given the data, concluded that 99.8% of the citizens on that list were probably evading tax. Mr Falciani says he sent an email in 2008 to HM Revenue and Customs (HMRC), the department of the UK government responsible, among other things, for collecting taxes, in which he informed them of the data he possessed on British citizens. While the department claims not to be in possession of this email, the text was uncovered by Le Monde about a week ago. Anyway, in 2010, 1,100 people out of the 7,000 British clients included in the list were found to be tax evader by the HMRC, yet as of today only one of them has been prosecuted. In fact, the HMRC has prioritised collecting money from tax evaders rather than pursuing criminal cases, allowing for immunity deals for those who confess to serious tax fraud and paid the amount due plus a penalty. This policy principle has been in place for almost a century (it seems to date back to a statement made by Sir William Joyson-Hicks, then financial secretary to the Treasury, in 1923).

However, the HMRC’s choice has been strongly criticised; for instance by Balls, Labour’s shadow chancellor, who has written a letter to George Osbourne, who is in charge of overseeing the HMRC, asking him to justify this policy. On Friday, Mr Osbourne has told an audience at the Tate on the Southbank in London that he does not think it would be right for a chancellor of the exchequer to direct prosecutions against individuals or individual companies, pointing out that tax evasion prosecution is not his job. However, some of the critics, such as the Guardian’s journalists David Leigh and Karen McVeigh, observe that tax-dodging and benefit fraud are treated very differently with those guilty of the first crime can pay their way out of the punishment, while the those cheating to obtain in benefits (who, arguably, are generally not wealthy) are sentenced to serve time in jail.

The blame game is being played at all levels and it is difficult to discern who knew what and when. On Wednesday, the chief executive of HMRC, Lin Homer, and several top officials will appear before the Commission Treasury committee. Douglas Flint, chairman of HSBC Holdings, will also be giving evidence.

In the meantime, less than a week ago a journalist of the Telegraph has resigned to protest the newspaper’s censorship of the scandal in order not to lose sponsorship from HSBC. Finally, on Sunday Danny Alexander Liberal Democrat chief secretary to the treasury has announced he will propose to make organisations encouraging or facilitating tax evasion face the same penalties as evaders themselves in order to create a disincentive to favour this practice.

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