French Court Denies HSBC’s Appeal in Fraud Case

On February 1, a Parisian court denied London-based bank HSBC’s appeal of allegations that it helped customers dodge taxes. Last year, France formally launched a tax fraud investigation of the bank.   The investigation was launched after HSBC, the world’s second largest bank, discovered that a handful of its private Swiss branch’s clients were making large, frequent cash withdrawals. These suspicions were all but confirmed by files leaked to various news outlets detailing atypical, risky transactions completed by HSBC’s Swiss branch.

According to the files, the bank regularly allowed foreign clients to withdraw large sums of rarely used foreign currencies and promoted ways for their wealthier clients to evade European taxes and conceal millions of dollars of assets using undeclared “black” accounts. The untraceable cash allowed clients to avoid tax returns.

Former British tax inspector Richard Brooks said, “If you withdraw cash from a bank in Geneva or Zurich, there’s no trail of that over here. Most rich individuals will get their accountants to fill in their tax returns. They’ll be working from their banking records. But there’s nothing for your accountant to see.”

The leaked files concern about 30,000 accounts, which amounts to almost $120 billion worth of total assets. This evidence forced HSBC to admit to its improper control of its Swiss branch, but the bank continues to deny any prior knowledge of the fraudulent activities. Many of the involved clients, including Arlette Ricci, the Nina Ricci perfume heiress, deny any wrongdoing and have stated that the money was slated for large personal expenses, such as buying a boat or paying hospital bills.

According to The Guardian, the French interest stems mainly from HSBC Swiss’s purposeful efforts to market a tax scheme that would allow its clients to undercut a tax treaty signed between Switzerland and the European Union in 2003. This treaty, known as the European Savings Directive, forced Swiss banks like HSBC to collect a tax from their EU citizens who used the anonymous Swiss accounts to hide billions of dollars in assets. However, HSBC offered their customers a loophole. Since the ESD only applied to individuals’ savings, not companies, HSBC Swiss transferred their customers’ secret cash into corporate accounts without any evidence of a trade.

This illegal tax-dodging scheme is what ultimately convinced the French financial state prosecutor to request a criminal trial for HSBC’s Swiss branch. HSBC was offered a plea deal that would have eliminated the need for a trial, but the bank refused to pay the €1.4 billion fine.

In addition to the French investigation into both HSBC’s Swiss branch and the parent company as a whole, Britain’s Financial Conduct Authority (FCA) looked into the bank’s internal practices but decided in January 2016 not to take formal regulatory action against HSBC. The FCA said in February 2015 that the leak of the bank account details “has served to reinforce the importance of firms operating with the right culture across all of their operations.”

Denying HSBC’s appeal will allow the trial proceedings to unfold as planned.