HSBC claims Swiss client list slashed since 2007

The recent raid of HSBC’s Geneva private bank offices by Swiss prosecutors investigating claims of “aggravated money-laundering” was a further blow to the bank, facing criminal investigations over tax evasion allegations in countries including the US, France, Belgium and Argentina. 

The scandal erupted after recent press reports alleged the bank helped wealthy people dodge taxes, while hiding millions of dollars for arms dealers and blood diamond traders. These were based on former IT worker Hervé Falciani’s leaked details about thousands of clients dating back to 2007.

In an internal paper, sent by the bank to PWM, HSBC has admitted it is “accountable for past control failures”, and that “Swiss private banks operated very differently from today”, when “in some cases individuals took advantage of bank secrecy to hold undeclared accounts”. 

The bank also stated it has taken “significant steps over the past several years to implement reforms and exit clients who do not meet strict new HSBC standards,” adding the Swiss branch slashed its client base by almost 70 per cent since 2007. 

“The use of client data stolen from private banks is one of the tools used by governments to exert pressure on private banks and their non compliant clients so as to encourage them to regularise their tax situation,” believes Shelby du Pasquier, head of the Banking and Finance Group at Geneva lawyers Lenz & Staehelin. 

More such leaks are expected in the near future, he believes, as governments ramp up pressure to raise tax revenues.

However this type of leak refers to ‘legacy’ business, he says, and does not reflect the current book of private banks whose current client base is now mostly tax compliant. 

“The actual implementation of an international automatic exchange of information should eventually flush out the whole matter, and allow private banks to move forward with their new tax compliant business model,” states Mr du Pasquier. 

Questions remain for those jurisdictions that do not apply automatic exchange of information, mainly around the documents required from clients in order to assess their tax status. 

“This is still a technically unresolved question where you can adopt [either] very rigorous or more lax standards,” says Professor Teodoro Cocca, chair for Wealth and Asset Management at the University of Linz and adjunct professor at the Swiss Finance Institute.

How much prospective clients are affected by such scandals is also open to question. If the fine is not high enough to put the bank at risk of insolvency, it will have little impact, expects Mr Cocca. 

“Generally speaking, clients seem not to care a lot about the clean record of their bank,” he says.