After being hit by several probes and charges pertaining to helping clients evade taxes by its Swiss unit, HSBC Holdings plc (HSBC) has finally admitted wrongdoing. In response to media reports which accused the bank of aiding wealthy clients to evade taxes and obscure assets worth millions of dollars, HSBC said, "We acknowledge and are accountable for past compliance and control failures."
Media reports were spurred by documents obtained by the French newspaper Le Monde from the International Consortium of Investigative Journalists (“ICIJ”). These documents, based on a list of HSBC clients, were extracted from the bank and handed over to the European law enforcement authorities by a one-time employee, Herve Falciani.
Depositors at HSBC‘s Swiss unit included royal families, convicted drug dealers, ambassadors, terror suspects, elected officials, corporate executives and athletes.
These files described incidents where HSBC‘s Swiss private banking unit regularly permitted its clients to withdraw a large amount of cash (mostly in foreign currencies), marketed schemes that enabled wealthy clients to avoid European taxes and colluded with clients to hide clandestine accounts from domestic tax authorities. The HSBC files, covering the period 2005–2007, shed light on some 30,000 accounts holding assets worth roughly $120 billion (£78 billion).
Nonetheless, in its statement, HSBC acknowledged that the Swiss unit was not fully integrated with the company after its purchase in 1999. This led to “significantly lower” standards of compliance and due diligence than that are in place presently. According to the bank, “HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level.”
Further, it was not until 2011 that actions were undertaken to align the Swiss unit with HSBC’s global standards. Notably, since then, the Swiss unit has undergone substantial changes, and at 2014-end, the number of accounts in its Swiss private bank has declined more than 65% from the 2007 level to 10,343.
HSBC is fully cooperating with the law enforcement authorities that are investigating the tax matters. Moreover, the company is already facing criminal investigations and charges in France, Belgium, the U.S. and Argentina, owing to the leakage of files. However, to date, no legal action has been taken by the U.K. against the bank.
In our opinion, the leakage of documents and subsequent acknowledgment of aiding tax evasion will surely dent HSBC’s reputation in the global arena. The company continues to face revenue pressure owing to slow economic recovery across the world. Now with such allegations being imposed on the company, its bottom line is bound to suffer a further hit.
Currently, HSBC carries a Zacks Rank #3 (Hold). Some better-ranked foreign banks include GrupoFinanciero Galicia S.A. (GGAL), Banco Santander, S.A. (SAN) and CorpBanca (BCA). While GrupoFinanciero Galicia sports a Zacks Rank #1 (Strong Buy), both Banco Santander and CorpBanca carry a Zacks Rank #2 (Buy).
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