HSBC Private Bank (Suisse) (HSBC Switzerland) has entered into a deferred prosecution agreement (DPA) with the US Department of Justice (DoJ) after it admitted to conspiring with US taxpayers to evade taxes.
As part of the agreement, HSBC Switzerland will pay $192.35m (£146.2m, €174m) in penalties, according to a DoJ statement.
The DoJ said: “HSBC Switzerland admits, between 2000 and 2010, it conspired with its employees, third-party and wholly-owned fiduciaries and US clients to defraud the US with respect to taxes, commit tax evasion, and file false federal tax returns.”
In 2002, the bank had approximately 720 undeclared US client relationships with a total value of more than $800m.
When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately $1.26bn in undeclared assets for US clients.
Hold institutions to account
“HSBC Switzerland conspired with US accountholders to conceal assets abroad and evade taxes that every American must pay,” said Stuart Goldberg, acting deputy assistant attorney general of the DoJ’s tax division.
“Banks, asset managers and other financial firms enable such crimes – and we will hold these institutions to account, right along with the taxpayers that use them to facilitate and disguise illegal activities.”
Concealing offshore assets
The court documents also showed the bank helped US clients conceal their offshore assets and income from US tax authorities.
The DoJ said to conceal its clients’ assets and income from the Internal Revenue Service, the bank employed a variety of methods.
These included:
- Relying on Swiss bank secrecy to prevent disclosure to US authorities;
- Code names and numbered accounts; and
- Maintaining accounts in the names of nominee entities established in tax haven jurisdictions such as the BVI, Liechtenstein, and Panama, to conceal the client’s beneficial ownership of the accounts.
In a bid to attract more US clients, and maintain existing relationships with US clients, HSBC Switzerland bankers took trips to the US.
Between 2005 and 2007, at least four HSBC Switzerland bankers travelled to the US to meet at least 25 different clients.
Prior investigations
In early 2008, US criminal investigators looked into UBS in relation to tax and securities violations in connection with it maintaining undeclared accounts for US clients.
This sparked HSBC Switzerland to begin a “series of policy changes to restrict its cross-border business” with US citizens. However, the bank did not immediately cease the business.
The DoJ added: “In fact, some HSBC Switzerland bankers assisted clients in closing their accounts in a manner that continued to conceal their offshore assets, such as withdrawing the contents of their accounts in cash.”
Penalty structure
The $192.35m penalty against HSBC Switzerland is made up of three parts.
First, HSBC Switzerland has agreed to pay $60.6m in restitution to the IRS for the unpaid taxes.
Second, it has agreed to forfeit $71.85m to the US, which represents gross fees (not profits) the bank earned on its undeclared accounts between 2000 and 2010.
Finally, the bank has agreed to pay a penalty of $59.9m.
Co-operation and the DPA
According to the terms of the DPA, HSBC Switzerland will co-operate fully with the tax division and the IRS.
The DPA also requires HSBC Switzerland to disclose information it may later uncover regarding US-related accounts, as well as to disclose information with the DoJ’s Swiss Bank Program relating to accounts closed between 1 January 2009 and 31 December 2017.
Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow HSBC Switzerland to “demonstrate good conduct”.
The agreement provides no protection for any individuals.
‘Massive tax evasion scheme’
“Taxpayers and financial institutions each have the most basic responsibilities to pay taxes and report suspicious activity regarding financial transactions,” said Don Fort, chief at IRS Criminal Investigation.
“When financial institutions devise a massive tax evasion scheme and actually facilitate the activity, they not only must be held accountable, they must take actions to ensure this behaviour will not happen again.
“The integrity of our nation’s tax system depends on voluntary compliance and fair, consistent enforcement of the law.
“We owe it to all Americans to hold financial institutions accountable just as we would hold individual taxpayers accountable.
“The DPA shows that engaging in this type of behaviour has consequences.”
