HSBC Bank. The world's Most Scandalous Bank?

Multinational bank HSBC is known for its financial scandals, as much as for its global banking networks.

“Those are my principles, and if you don’t like them… well, I have others.” US comedian Groucho Marx (1890 – 1977)

A quick look at HSBC’s advertising webpage makes for an interesting and informative read, about this rather iconic banking brand name, stating the huge successes of their airport marketing campaign. The underlying theme of the campaign, which was launched in 2011, is to reflect the forces that will shape commerce and the world of the future.  “The creative themes are drawn from the core business lines of our Commercial Banking, Global Banking and Markets and Wealth Management businesses,” their marketing narrative goes on to say. Further, it states, “Their creative themes are drawn from the core business lines of our Commercial Banking, Global Banking and Markets and Wealth Management businesses.”

HSBC, which was founded in 1865, is a British financial institution of truly global proportions and it has developed a global network of more than 6,200 offices in 74 countries and territories.

The question is…has their “Wealth Management” business gone too far – in managing the wealth of the wealthy, as far as its principles or perhaps lack of, are concerned?

HSBC is no stranger to international scandal – from Libor Rates rigging to money laundering to the alleged destruction of Indigenous Lands. As recently as 2012 HSBC was embroiled in a money laundering expose for the laundering of vast sums of money from an al-Qaida linked Saudi bank.

A report presented to the Senate’s Permanent Subcommittee on Investigation in July 2012 detailed HSBC subsidiaries transporting billions of dollars in armoured vehicles, clearing suspicious checks, and assisting drug cartels in buying planes through Cayman Island accounts.

At the hearing David Bagley, HSBC’s head of compliance, resigned in front of the committee stating that, “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.” In the wake of the investigation and 335 page report HSBC was fined $1.9 billion.

Also, in July 2012 the news broke that HSBC, along with RBS, JP Morgan, Deutsche Bank and other banks were involved with manipulating the London Interbank Offered Rate (LIBOR) giving off a false impression of credit and providing them with a hefty profit.

HSBC has also found itself at the forefront of serious allegations from indigenous rights activists. The Rainforest Action Network has detailed how an HSBC financed company is forcing the development of oil palms on the lands of indigenous communities in Papua New Guinea.

HSBC financed the palm oil company Kuala Lumpur Kepong (KLK) recently claimed ownership of three land development licenses within traditional indigenous lands.

KLK brought in palm oil seedlings and is believed to have begun planting seeds without permission. KLK has been used of using slave labour in Borneo and child plantations in Sumatra.

The UK’s Guardian Newspaper Unleashes a new Tsunami of Allegations against HSBC

Late on Sunday afternoon the UK’s Guardian newspaper unleashed a new tsunami of allegations, leaked by whistleblower Herve Falcianl, about how its Swiss-based subsidiary helped its clients dodge taxes and hide millions.

This huge cache of information was leaked to a specially selected consortium of European newspapers – including the UK’s Guardian, which published the first article of its findings late on Sunday afternoon, in the UK.

The Whistleblower – the Edward Snowden of Swiss Banking’s Largest Secrets Heist

According to Bloomberg Business, On Feb. 1, 2008, a man and a woman boarded a plane in Geneva and flew to Beirut. Over the next week, they visited managers at four Lebanese banks. The man, who identified himself as a Lebanese national named Ruben El Chidiak, told the bankers that he ran a consulting firm and had valuable information to sell.

However, Ruben El Chidiak was not his real name. His real name is Hervé Falciani, who worked as a systems engineer at the Geneva-based private banking unit of HSBC (HBC).

The bank would later discover, to their horror that he had in fact carried out one of the biggest security breaches in Swiss banking history, obtaining details on the accounts of some 24,000 HSBC private-banking clients.

The account data later was passed along to tax authorities in European countries—including France, Spain, and the U.K.—who have used it to collect more than €1 billion ($1.34 billion) in back taxes. Falciani says the data has also provided leads for ongoing investigations of corruption, money laundering, and terrorist financing. The Geneva bank provided an “open door” for such illicit activity, Falciani told a Spanish court earlier this year.

Towards the end of 2008 he slipped out Geneva  and has been skipping from one European country to the next, ever since: constantly staying  just one step ahead of the Swiss prosecutors, who have accused him of massive data theft – a charge which could earn him up to three years in prison, should the Swiss authorities manage to capture him.

He initially went to Spain, where the Spanish authorities refused to cooperate with the Swiss prosecutors – refusing their requests for extradition. In fact he was praised, by a Spanish prosecutor as a whistleblower. He later moved to France, last summer in 2014, where he has testified (behind closed doors) to various French parliamentary committees.

It has been said that, combined with his computer-geek like knowledge of computer credentials and good looks that he is a cross between Edward Snowden and Robin Hood. The French magazine “Le Point” has portrayed him as “The man who makes the rich tremble.”

A story of claim and denial: similar to that of Edward Snowden’s, with the NSA

Falciani, who has dual French and Italian citizenship, joined HSBC in 2000 in Monaco as a computer specialist. After being transferred to Geneva to work on a document-management system, he says, he discovered that clients’ account information was not being adequately safeguarded. He says he alerted his superiors, but they ignored him. “The bank was working mainly to protect its own profitability,” he says.

The fact that Falciani attempted to alert his superiors – without success or action bears many similarities to that of Edward Snowden’s claims that he had tried, in vain, to alert his superiors. A claim which the NSA have vigorously denied ever since Snowden fled the US and ended up being given political asylum in Russia.

HSBC disputes Falciani’s claim. “We do not have any record or knowledge of any previous attempts made by Falciani to alert his line manager or the bank’s management,” says David Bruegger, a bank spokesman in Zurich. Bruegger says the bank has safeguards “designed to prevent clients from abusing our services for tax evasion,” and that the bank ends relationships with clients who are “not tax-compliant.”

Falciani says that his job did not give him access to client accounts, but that other employees shared his concerns and began leaking account data to him in 2006. HSBC, however, states that its internal investigation showed that Falciani alone took the information.

Falciani says he tried to pass the data to Swiss law-enforcement authorities to demonstrate the weakness of HSBC’s control systems, but was thwarted because they refused to protect his anonymity. He then contacted intelligence services in several other countries, he says, because he “had started having doubts about Swiss justice.”

Falciani’s Mossad Meeting?

In a claim, which has never been substantiated – one evening in the summer of 2007, Falciani says, he was out walking along a street, in Geneva, when some men jumped out of a van and forced him to get in, and took him to the basement of a deserted building.

He says that they told him they were Mossad agents and were asking him for his help in ensuring that HSBC would not “continue its practices.” The men didn’t say specifically what they were concerned about, but Falciani says he later suspected they were worried about hidden sources of terrorist money. Falciani says he agreed to help, although he says he had no way to verify whether the men actually worked for Mossad.

So, what about that trip to Lebanon?

Bloomberg Business’s article goes on to state that, according to Falciani, it was the Mossad agents who proposed the Beirut trip. They said that if Lebanese banks learned that HSBC account secrecy had been compromised, they would alert law-enforcement authorities and “draw attention to the bank.” He says the agents suggested that he enlist the help of a Lebanese-born woman named Georgina Mikhael, who had recently started working at the bank as an IT contractor, without telling her the real purpose of the trip.

The Guardian’s report states how HSBC helped its wealthy clients dodge paying taxes – the concealing millions of dollars and the doling out of bundles of untraceable cash.

According to the material leaked to the Guardian and other (selected) media outlets: HSBC’s Swiss banking arm helped wealthy customers dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash and advising clients on how to circumvent domestic tax authorities, according to a huge cache of leaked secret bank account files.

The HSBC files, which cover the period 2005-2007, amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets.

The Guardian then goes on to say that, quote, “The revelations will amplify calls for crackdowns on offshore tax havens and stoke political arguments in the US, Britain and elsewhere in Europe where exchequers are seen to be fighting a losing battle against fleet-footed and wealthy individuals in the globalised world.”

It also went on to say how one British millionaire  Richard Caring, British clothing tycoon and restaurateur, stepped out of his Geneva bank on a warm September day in 2005 with 5m Swiss francs in cash – the equivalent of £2.25m ($3.4m) – enough to fill a suitcase.

The numbered bank account is now illegal in most western countries, but it remains a key part of Switzerland’s fabled banking secrecy.

A depositor’s true identity will be known to only a select group of employees, and in order to withdraw cash or make a wire transfer, the account holder is asked for a codeword.

At HSBC’s Swiss bank, codenames – Painter, Mr Shaw, Captain Kirk and, in a nod to the Tintin books, Capitaine Haddock – were also used to disguise the identity of some clients.

Over the following decades, the Alpine vaults have sheltered the fortunes of families escaping not only the Holocaust, but they have also provided a hiding place for looted assets.

The latest leak, made by a whistleblower in 2007, covers the cache of files of 106,000 clients in 203 countries.

The BBC states that

More than half on the list are men, but the most common profession listed on bank details is “housewife” – a term that is also used with unusual frequency on other countries’ lists and which is not only used to describe married women, but also businesswomen, architects and even princesses.

High-profile figures on the list include the now-deceased former head of Santander, Emilio Botin – whose family have had to pay 200m euros ($226m; £148m) to the Spanish government.

Ekho Moskvy, Russia

In Russia, Magomed Vakhayev, the first deputy chair of the committee for security and fight against corruption of the State Duma, which is the lower house of the Russian parliament, has called for checks into the origin of the HSBC accounts allegedly belonging to Russian officials.

“Of course, I think that if such facts exist they will be investigated [by anti-corruption committee],” he told Gazprom-owned Ekho Moskvy radio. “It is important because they did not earn the money abroad. They clearly had the intention to keep the money in foreign banks rather than invest them in our companies and organizations,” he said.

The Current Criminal Investigations into HSBC

The bank now faces criminal investigations in the US, France, Belgium and Argentina, but not in the UK, where HSBC is based.

HSBC said it is “co-operating with relevant authorities”.

Treasury minister David Gauke has defended the government’s actions on tax avoidance in the House of Commons after Labour MP for Birmingham Ladywood Shabana Mahmood tabled an urgent question.

He insisted that the Treasury approach has been “very successful”, saying it has sought prosecution for “serial tax evaders” and raised extra tax revenue.

Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities. And while tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.

The scandal, however, as a result of Sunday evening’s publication in the Guardian, which is now rocking HSBC, as well as, former and current British officials has only just begun – with claims, denials and counter claims being traded in the House of Parliament on Monday.

The big question that the British public will want to know however is this…will there be any prosecutions? Are heads going to roll?

Bearing in mind that while there are investigations, of (possible) illegal activities, by HSBC, going on in other countries: there is still no investigation being opened up here in the UK.

by Victor Romain

Related Columns

The Worlds three Most Successful Forex Traders Ever

Whether you are new to trading Forex or an old hand at the currency markets, you are likely to share one key aspiration. One way to improve is to learn by example and to look at some of the most successful Forex traders in the world. In this article, you will learn about what the top Forex traders in the world have in common and how those strengths helped them to make huge profits. While you may have read about the statistics thrown around; suggesting that the ratio of successful Forex traders to unsuccessful ones is small. There are at least a couple of reasons...

The Pound Tumbles in delayed reaction

The Pound Tumbles in Delayed Reaction, as May gets Green Light from Parliament to Trigger Article 50. This has, so far, been a mixed week of good and bad news for Theresa May. The good news was that on Monday of this week she received the green light from parliament to trigger Article 50. The bad news was, however, very bad news indeed, after Scottish First Minister Nicola Sturgeon signalled the start of a legal process for an independence referendum. This quickly resulted in the pound tumbling against all of its Group-of-10 peer currencies...


Forex Awards live updates from iFX EXPO Asia 2017

Here today at iFX EXPO Asia 2017, taking place in Hong Kong, FX industry experts are gathered to answer burning questions. How to market electronic brokerage and succeed in China? What are the hottest trends in todays Forex trading when it comes to technology? How to deal with new regulatory demands imposed on forex brokers? What new opportunities does MetaTrader 5 give to FX business operation? These and many other hottest issues are now being discussed by forex industry professionals at the Hong Kong Exhibition...

Will 2017 be the Beginning of the End of the EU?

The UK is not going to leave the European Union. Of course, not. We are inextricably wound up with Europe. In terms of culture, history and geography, we are a European nation. Nick Clegg, British Liberal Democrat politician - 2010 to 2015 in the David Cameron coalition ministry. A special report on the current state of the EU and what could be in store, for the EU in 2017 - post Brexit and Trump and the rise of the EU populist movements, by Victor Romain, for Invest Ratings....


A Roundup of the Main Business News Headlines of 2016

Our moral economy went bankrupt long before our financial one. - Steve Maraboli, Unapologetically You: Reflections on Life and the Human Experience. A lot of crazy things have happened this year and I believe that I could be right in saying that many years down the road from now - many people are going to be talking about 2016. The history books will surely be looking back at 2016 in awe. This year also saw in some of the most surprising and, at the same time disruptive and seismic changes in the world of politics...

Warren Buffet backs low cost funds

EFTS - Exchange Traded Funds are quickly becoming the darlings of the financial world and are, in fact, even coming to dominate it. What used to be a relatively niche sector, is now rapidly becoming one of the biggest games in town - they now even have Warren Buffet blessing and seal of approval. Trading in Apple shares is worth over 3 billion pounds a day. However, that pales into insignificance with the 14 billion pounds, which is traded daily in the shares of State Street SPDR 500 fund. Today, the buying and selling of ETF accounts for almost 90%...