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HSBC and the Erosion of Accountability

On February 9, the world was shocked by revelations of a wide array of illicit and questionable activities connected with bank accounts in the Swiss branch of HSBC, HSBC Suisse. These revelations came to light after The Guardian, Le Monde, The International Consortium of Investigative Journalism (ICIJ) and more than 40 other news organizations released information on over 100,000 documents, covering HSBC accounts between 2005 and 2007. The release of these files continues the ongoing conversation over bank regulation but also has sparked a conversation about the accountability of public institutions in the United Kingdom. Specifically, the files reveal a connection between the Conservative Party (Tory) and HSBC clients and a lack of initiative by Her Majesty’s Revenue & Customs (HMRC) under the Tory Government to prosecute them. After the scandal came to light, prominent journalist Peter Oborne resigned from leading Tory-sympathizing newspaper The Telegraph. Oborne’s decision raised some pertinent questions about the accountability of the press in the UK and its relationship with the government.

In order to understand the implications of the HSBC files, the documents themselves must be analyzed. This article will cover some of the highlights; for more information, the ICIJ’s page and The Guardian’s ongoing coverage are good resources.

For anyone who has seen The Wolf of Wall Street or watched enough James Bond movies, the idea that Swiss bank accounts are secretive is well known. The reason is The Swiss Banking Act of 1934, which establishes that Swiss banks are statutorily mandated to protect the privacy of their clients, including from tax authorities, foreign authorities and even the Swiss government itself. The only way to breach the privacy is by obtaining a subpoena from a Swiss judge, which strictly defines what information the bank is to give. This law applies to all banks, including Swiss branches of foreign banks like HSBC, and it makes Swiss banks ideal places for storing large sums of money that clients wish to keep secret from authorities of any kind. Indeed, for HSBC Suisse, this was exactly the case.

In 2007, Hervé Falciani, an IT expert working for HSBC Suisse, hacked into the records of the bank, stealing over 100,000 documents and fleeing to France. French authorities, following through on a Swiss warrant, arrested him. However, they agreed to grant Falciani asylum in exchange for access to the documents he stole, aiming to use the documents to prosecute French tax evaders. In 2010, under Finance Minister Christine Lagarde (now the IMF chief), the French government released previously confidential lists of the illicit activities to other countries, including Greece, Spain, the United States, the UK, Belgium and Argentina. These documents revealed instances of tax evasion, frequently intentionally aided by HSBC. In one case, HSBC proactively contacted their wealthiest clients to inform them of ways to skirt an EU tax policy change. There are also many instances of clients withdrawing huge sums of cash, likely leading to untaxed transportation of these blocks across national borders without paying taxes. The documents also revealed HSBC’s involvement in money laundering and holding accounts for people involved in other illicit activities, such as a lawyer helping a Nigerian president with a corrupt gas deal, blood diamond dealers, Eastern European corrupt oligarchs, arms dealers, cyclist dopers and Latin American drug cartels.

The vast majority of illegal activity tied to HSBC Suisse involved tax evasion. The UK, however, has chosen not to pursue the individuals responsible with any degree of urgency. The United States, Argentina, Belgium, Greece, Spain and France, have all used the released documents to prosecute tax evaders on a fairly large scale. Britain, on the other hand, has only followed through with one prosecution and regained a meager £135mn from tax evaders, despite HMRC claiming that over 1,000 of the people on the list evaded taxes. This has led to outrage by opponents of the Tory government, especially in light of who is included on the list. Large Tory donors make up a large chunk of people on the list, and in total they have donated £5mn to Tory campaigns. Zac Goldsmith, a Tory MP, and many peers also hold HSBC Suisse accounts. While simply holding a Swiss bank account cannot be used as an assumption of guilt, many of these peers, as well as Goldsmith, have held or currently hold what is called “non-dom” or “non domicile” status, a remnant of the British colonial system that allows many to legally not pay taxes.

Two even more suspicious connections between the Tory government and HSBC exist. The first is Lord Fink, former treasurer of the Tory party and currently a Tory peer, who has admitted to “vanilla, bland” efforts to reduce the taxes he paid, justifying it by claiming that everyone was doing it. Regardless of whether or not that is true, as a public official, and one of the highest in one of the nation’s largest parties, Fink has a higher degree of responsibility than most. The second connection is Stephen Green. During the time that the files detail, Green was working at HSBC as Chief Executive and then Chairman. (Note: he was working for the HSBC Group, not specifically HSBC Suisse.) Later, when the Tory party entered into government, Green became Minister of State for Trade and Investment, a prestigious Cabinet position. Additionally, during his vetting process for peerage in the House of Lords as a government minister, HMRC failed to inform the Tory government of HSBC Suisse’s misconduct while Green was at the helm. Green’s case highlights a shortcoming on the government’s part as well as the revolving door between prestigious Tory government positions and the banking industry. Such an arrangement is especially dangerous because it discourages government officials from going after large banks for fear that they may squander future employment opportunities. The situation leaves British political actors held more accountable to moneyed interests than to the country at large.

Normally, the free press would make up for some of the lack of accountability by blowing the whistle on the shady pursuits of politicians. To these ends, the work that The Guardian, Le Monde, ICIJ, BBC, 60 Minutes and other news agencies around the world have done to bring this scandal to light in the first place is remarkable. However, HSBC Suisse’s actions have shined a light on The Telegraph’s failures to hold HSBC accountable. In light of the HSBC revelations, The Telegraph largely neglected to report what was making headlines in every other major newspaper in the UK. Instead, The Telegraph failed to report the story the first day, only briefly mentioned it the second day and buried it deep on the third day. This failure to cover the story led to the resignation of Chief Political Editor Peter Oborne. Oborne contends that while the HSBC files were the final straw for him, the organization had ignored anything negative on HSBC for years. Oborne claims this began when the newspaper was purchased by the Barclay Brothers in 2004. HSBC had become a huge advertiser, and with this, the advertising side of the paper and the editorial side lost their separation. In 2012, The Telegraph received a tip about clients holding HSBC accounts in Jersey. The paper’s investigative team followed up with some investigation, releasing several articles, but after that, the investigation was shut down by the Barclays Brothers’ lawyers. The lawyers also directed the team to destroy all communications and documents related to the investigation. In his letter, Oborne asks, “Would Her Majesty’s Revenue and Customs have been much more energetic in its own recent investigations into wide-scale tax avoidance, had the Telegraph continued to hold HSBC to account after its 2012 investigation?” News outlets have the tools and resources to carry out investigations that individual citizens cannot, and when they receive tips or information, they have an obligation to their customers and to society to follow up on the information and report where it leads. The media is thus a vital part of a thriving democracy, and the failure of one of the most prominent newspapers on the Tory side to report major stories threatens that democracy.

The revelations about HSBC leave many questions unanswered, and their importance lies not primarily in the actions of HSBC itself, but in the reaction to the scandal by the Tory government, HMRC and The Telegraph. The scandal highlights the failure of public institutions – those in which people should feel confident placing their trust – to ensure accountability at all levels. The UK and international observers should not soon forget this scandal, instead encouraging repair of the eroded accountability of both the media and the government.

About the Author

Matthew Dudak '18 is the Data Editor for Brown Political Review.