By Kim Willsher in Paris From The Guardian

French magistrates examining whether the bank helped wealthy clients avoid a new tax, the European Union Savings Directive

French judges have put the Swiss branch of HSBC under official investigation over allegations that Britain’s biggest bank helped wealthy clients avoid taxes.

It was revealed on Friday that the unit had been mise en examen, the equivalent of being charged, for “illicit financial and banking practices”. The move comes as yet another blow to the international bank just days after it faced charges of fraud and money laundering from the Belgium authorities and, in a separate case, was hit with almost £400m in fines for allowing traders to rig foreign exchange markets, along with five other banks.

“We confirm that HSBC Private Bank (Suisse) SA has been placed under formal investigation by French magistrates who are examining whether the bank acted appropriately between 2006-07 in relation to certain clients of the bank who had French tax reporting requirements, as well as in relation to the way the bank offered its services in the country,” said HSBC Private Bank. “We will continue to co-operate with the French authorities to the fullest extent possible,” it added.

Le Monde newspaper reported on 3 November that French financial authorities had new documents claiming staff at the bank, with the knowledge of their bosses, had suggested certain wealthy French clients set up offshore front companies in Panama or the British Virgin Islands to escape their fiscal obligations in France.

The inquiry into HSBC Private Bank had opened last year after a former employee at the bank handed over documents to French judges relating to around 3,000 individual accounts held by alleged French fiscal residents. Le Monde said it had seen the report by the gendarmerie suggesting HSBC Private Bank had helped clients in an “organised” manner, to avoid a total of $5bn (£3.2bn) in taxes.

Police went on to interview more than 80 witnesses, including bank clients and former employees as part of the investigation into suspected fiscal fraud during 2006 and 2007.

Investigators were particularly interested in alleged moves by the bank to help clients avoid a new tax, known as the ESD – the European Union Savings Directive – which came into effect across all EU states in July 2005. The ESD, the first common direct taxation policy across the EU, applies to individuals who are resident in a member state and benefit from savings income paid to a bank account in a different country. All EU countries are required to disclose interest earned by a resident of an EU country to ensure interest is fully declared in their country of residence. Some non-EU countries also agreed to introduce similar measures, but some countries, including Switzerland, objected because of the threat to banking secrecy.

Investigators say that in January 2005, the HSBC Private Bank “explicitly” warned clients of the impending tax and advised there were “numerous tools and structures exist” for avoiding it. HSBC Private Bank is also under investigation in Belgium, where its Swiss branch is also being investigated for “aggravated fiscal fraud”, and in Switzerland.

Countries around the world are trying to crack down on undeclared funds held in offshore havens, after the global financial crisis strained government budgets and made the need to maximise tax receipts more pressing. France and Switzerland agreed in June to co-operate more closely on French efforts to crack down on citizens with hidden Swiss bank accounts to root out tax dodgers.

IMAGE: Geneva skyline. Photograph: Alamy

For more on this story go to: http://www.theguardian.com/business/2014/nov/21/hsbc-switzerland-private-bank-tax-french-investigation

 

Related story:

HSBC – the world’s favourite illicit bank?

By George Turner, c/o Wrapper Towers From Tax Justice Network

Taken from “a week in tax justice $41

HSBC Switzerland has been charged by French authorities for “illicit financial and banking practices”.

This comes after the company was placed under investigation last year following the leak of the so-called Lagarde List which is said to contain the names of thousands of HSBC clients with Swiss bank accounts.

According to the Guardian, the investigation has found that the HSBC private bank helped clients in an organised manner evade an astonishing $5bn in taxes. Yes $5,000,000,000.

If French authorities are planning a wider inquiry into “illicit financial and banking practices” at HSBC Switzerland, they may well like to get in touch with their colleagues in Britain, or as they are known in France, Le Hog Roast.

Currently the UK’s Supreme Court is hearing a rather interesting case about whether a Saudi prince is required to sign a witness statement and give evidence before a court in the UK. The prince argues that Saudi royal protocol prevents him from giving evidence in court. Mr Justice Vos disagrees, so does the High Court of Appeal.

We can see why the prince may be reluctant. The case concerns a major fall-out between a Lebanese businessman Mr Almhairat and Prince Abdulaziz bin Mishal bin Abdulaziz Al Saud, the nephew of the Saudi king.

Mr Almhairat and Prince Abdulaziz set up a company in the United Kingdom known as Fi Call, which used shell companies in the Seychelles and British Virgin Islands. (Are you paying attention, Djanogly?)

Almhairat alleges that Prince Abdulaziz used Fi Call to launder money for Hezbollah, amongst others. Prince Abdulaziz alleges Mr Almhairat stole money from Fi Call.

Mr Almhairat produced a series of transcripts of conversations and emails that should make very interesting reading for everyone. They can be found in the Judgement of Mr Justice Vos here.

In particular, the French magistrates may want to look at this passage of Mr Vos’ judgement, which is a transcript of an alleged conversation between the father of Prince Abdulaziz and Mr Almirat featuring HSBC Switzerland:

 

Mishal: Well, I had an idea. You know that I move huge amounts of money for people like our friends the Mubaraks. We’ve been doing this business for years. We can move money for anyone, including the Iranians, because nobody dares to challenge us.

   Faisal: Yes, Your Royal Highness.

   Mishal: Although I have very good connections with HSBC, we sometimes need to explain what this money flowing through our personal account and Al Shoula’s account is about. I believed that if I acquired a telecom company, we could use for money laundering and provide an explanation of the flow of cash through our accounts. When Abdulaziz told me about your company I told him to go ahead. I gave him $40 million to enter the company.

   Faisal: We did receive £1 million from Your Royal Highness into the company’s account with HSBC, but the bank closed this account after the transfer.

   Mishal: Yes, I know. HSBC are sensitive about my money flowing through their onshore accounts. They prefer that I keep my money in offshore accounts in Switzerland.

   Faisal: I understand.

   Mishal: Keep me informed about the company. Abdulaziz is in charge but, as you know, he spends a lot of time with Moroccan bitches. You’re aware that I’ve been building this huge business and I should make sure it is taken care of. Help my son and you’ll get our protection.

   Faisal: I’m honored, Your Royal Highness”.

 

The Princes strongly deny all of the allegations against them. They claim that the transcripts are fabrications. Still, the French investigations may well want to request the court documents.

For more on this story go to: http://www.taxjustice.net/2014/11/24/offshore-wrapper-week-tax-justice-41/