Did Obama and Cameron require HSBC to aid the prosecution of Tax Frauds?

By William K. Black
(Cross posted at Benzinga.com)

I have explained in prior columns that HSBC is not only a criminal enterprise, but also a recidivist of epic proportions.  The U.S. and the U.K. have refused to prosecute not only HSBC, but even its officers who directed the frauds and covered them up from the U.S. government.  The U.S. Department of Justice (DOJ) claimed that one of the reasons it failed to prosecute was that HSBC gave it “immediate, full cooperation.”

I describe elsewhere why DOJ’s claim is untruthful.  HSBC, in fact, continued its crimes for at least 15 years according to DOJ and deliberately deceived the U.S. government to prevent its crimes from being discovered.  The fact that DOJ’s most senior officials felt the need to lie about HSBC simply confirms that they know that their actions are reprehensible.

In this column I simply ask reporters to ask DOJ a line of questions.  The primary question is whether HSBC, as part of its “immediate, full cooperation” committed to providing full assistance to the U.S. and the U.K. in detecting, investigating, and prosecuting tax evasion involving HSBC.  Tax fraud, of course, is simply an example of the many kinds of fraud that HSBC aided or committed in addition to the three forms of felonies that were the subject to the settlement (money laundering, evading sanctions on nations (e.g., Iran), and evading sanctions on terrorists groups).

My question about tax fraud and evasion involving HSBC is prompted by recent stories about tax fraud involving Greece, Switzerland and Jersey (the UK channel island and tax haven).  The Wall Street Journal ran an article on December 15, 2012 entitled “EU Tax Chief: Greece Could Generate EUR10 Billion by Reducing Tax Evasion—Report.”

“Greece could increase its budget revenues by about 10 billion euros ($13.2 billion) annually if it cuts down tax evasion, European Union’s tax chief told a Greek newspaper Saturday.

Greece’s “shadow economy” accounts for about 24% of Greek gross domestic product, according to a study by Margarita Tsoutsoura of the University of Chicago Booth School of Business. Tax dodging costs Greece about EUR28 billion a year, an amount equivalent to roughly 15% of economic output, the study says.

In the past, efforts to crack down on cheating by small entrepreneurs and the self-employed have drawn little support from a public that widely believes the root of the problem is the rich and not ordinary Greeks.”

While the author does not make the point, the article (if the data are accurate) demonstrates that the EU has an enormous problem with tax cheating.  Greece is said to lose 28 billion euros (15% of GDP) annually to tax fraud and the EU tax chief says that if it reduced the fraud to the EU average it would only lose 18 billion euros.  That implies that the EU’s average loss to tax fraud is a bit over 9.6% of GDP, roughly $15.5 trillion, or nearly $1.5 trillion.  The EU has recently announced a high priority enforcement initiative against tax evasion, and given a similar estimate on revenue lost:  “Around €1 trillion is lost to tax evasion and avoidance every year in the EU.”

The EU report:  “EU gets tough on tax evasion – 11/12/2012” emphasizes the need to crack down on tax havens.

These EU estimates, of course, are exceptionally rough.  The EU and U.S. tax authorities would find it exceptionally helpful to have insider expertise on how banks assist their customers evade taxes.  HSBC could provide invaluable assistance not only with regard to the criminals it assisted directly to evade taxes but also more generally how the schemes work.  HSBC has special expertise in this area because of its notorious record in aiding and abetting tax fraud, often by exploiting criminogenic tax havens.  The New York Times recently discussed a whistleblower’s claims that HSBC was aiding tax evasion through the Channel Island tax haven of Jersey.

November 12, 2012, 12:53 pm

HSBC’s Multiplying Legal Issues

By PETER J. HENNING

“It went from bad to worse for HSBC last week. The bank added $800 million to its reserves to help address potential money-laundering charges. And it is also confronting more trouble after a whistle-blower pointed to questionable accounts at its subsidiary in Jersey, a tax haven.

Further adding to its woes, a whistle-blower provided to Her Majesty’s Revenue and Customs, Britain’s tax authority, information about more than 8,000 accounts held at HSBC’s subsidiary in Jersey, the largest island in the English Channel. According to a report in The Daily Telegraph, the accounts contain about £669 million and several account holders have criminal connections.

While a majority of the accounts are held by British citizens, nearly 4,000 belong to citizens of other countries. One report indicates more than 100 Americans held accounts, so there is a good chance of a new investigation in the United States into what HSBC might have done to help shield clients’ assets from tax authorities.”

The most notorious cases of suspected tax evasion by Greek elites also used HSBC and were revealed by a whistleblower.

 

October 27, 2012

“List of Swiss Accounts Turns Up the Heat in Greece”

By RACHEL DONADIO and LIZ ALDERMAN

 “Last week, former Finance Minister George Papaconstantinou told lawmakers that he had asked Greece’s financial crimes unit to investigate about 20 Greek citizens thought to hold large deposits at the HSBC Geneva branch after French authorities forwarded him the list of names in October 2010.

But he said the Finance Ministry’s legal adviser had warned that the list was a problem because a HSBC employee had illegally leaked it.

A former Greek culture minister, several employees of the Finance Ministry and a number of business leaders are on a list of more than 2,000 Greeks said to have accounts in a Swiss bank, according to a respected investigative magazine. The Greek magazine, Hot Doc, published the list on Saturday, raising the stakes in a heated battle over which current and former government officials had seen the original list passed on by France two years ago — and whether they had used it to check for possible tax evasion.

Hot Doc said its version of the list matches the one that Christine Lagarde, then the French finance minister and now the head of the International Monetary Fund, had given her Greek counterpart in 2010 to help Greece crack down on rampant tax evasion as it was trying to steady its economy. The 2,059 people on the list are said to have had accounts in a Geneva branch of HSBC.

Questions about the handling of the original list reached a near frenzy in Athens last week as two former finance ministers were pressed to explain why the government appeared to have taken no action on the list. The subject has touched a nerve among average Greeks at a time when the Parliament is expected to vote on a new 13.5 billion euro austerity package that could further reduce their standards of living.

The publication of the list is likely to exacerbate Greeks’ anger that their political leaders might have been reluctant to investigate the business elite, with whom they often have close ties, even as middle- and lower-class Greeks have struggled with higher taxes and increasingly ardent tax collectors.”

Naturally, the Greek government, while studiously refusing to investigate the elite Greeks with overseas accounts with HSBC, aggressively sued “Hot Doc” for making public some of the elites on the list.

So I return to my question:  as part of the HSBC settlement, did Obama and Cameron’s officials require HSBC to blow the whistle on tax frauds?  Did they require HSBC to provide them with a full intelligence briefing on how the networks of tax evasion and tax havens function?

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

Follow him on Twitter: @williamkblack

3 Responses to Did Obama and Cameron require HSBC to aid the prosecution of Tax Frauds?

  1. Hi Bill…I am your humble fan, and reader of Naked Capitalism….thought you might enjoy the following, which I also sent to NC:

    http://econintersect.com/b2evolution/blog2.php/2012/12/17/the-strange-case-of-the-trillion-dollar-coin

    Q: “Far from the field of battle, a group of hobbits, centered in a small village at the edge of the known world (the University of Missouri – Kansas City), live in an alternative universe called Modern Monetary Theory. In this universe money has become disembodied from all connection to tangible assets. Conveniently they have provided a magic window to their universe at their website New Economic Perspectives.”

    Does Bill Black know he’s a hobbit??

    The Strange Case of the Trillion Dollar Coin
    December 17th, 2012
    in Op Ed, syndication
    Send feedback »
    Balanced Budgets, Seigniorage and The Strange Case of the Trillion Dollar Coin
    Written by John Slater
    In the Fiscal Cliff negotiations both Democrats and Republicans accept at face value the assumption that a balanced budget is:
    A. A really good thing
    B. Necessary for the survival of the Republic
    C. The 11th Commandment
    What happens if they are wrong?

    Follow up:
    This holiday season the latest movie version of The Hobbit by J.R.R. Tolkein is vying with the Fiscal Cliff Part Two for viewer attention. In Tolkein’s world, the forces of evil or modernity represented by the World of Men have brought great destruction (collateral damage) to the formerly idyllic world of Middle Earth. The hero of the story, a hobbit named Bilbo Baggins, is able to steal a magic rock called the Arkenstone, which holds promise to return the world of Middle Earth to its former idyllic state. To do so the forces of good must band together to defeat the evil of the new order.
    The current struggle over federal budgets bears some similarity to Tolkein’s world. In his view both sides of the debate would be on the wrong side of history, threatening to bring great destruction upon the little people as they engage in a titanic battle for control of the kingdom.
    To the right side of the field the combatants pine for the return to a world of order where a dollar was convertible into shiny gold pieces that Gollum, Tolkein’s caricature of selfish greed incarnate, would give his soul to possess. Most of the players on the right understand that modern governments are not going to surrender their sovereignty to an arbitrary precious metals based monetary standard. Thus they are focused on balancing the federal budget as their closest viable alternative.
    On the left side of the field, the warriors are anxious to maintain their control of the populace by doling out silver pieces to more and more of their constituents. Unfortunately silver tarnishes quickly, particularly when alloyed with base metals, and even the warriors of the left generally acknowledge that there is a risk of accelerating inflation if they go too far in this direction. Since neither side is willing to tax the general populace to support the social programs of the left or the global armed presence favored by the right, they are increasingly dependent on continued budget deficits at a historically unsustainable rate. Rogoff and Reinhardt, in their seminal treatise, This Time is Different, have provided ample historical evidence that similar episodes have generally not ended well.
    Since the deficits can only be sustained through borrowing or the creation of new money, the Federal Reserve has fallen into a state of monetary capture in which it has now committed to create $85 billion in new money monthly for the foreseeable future to fund the deficit and governmentally supported housing finance programs. Since this is roughly the amount of the budgetary shortfall, it is not a stretch to conclude that we have now reached a form of full deficit monetization.
    Chairman Bernanke has assured us that this time really will be different because he holds in his vest pocket a secret plan for controlled exit from the program of monetization, beginning when unemployment again hits 6.5%. This he believes will keep inflation within a projected 2% annual boundary. His only caveat seems to be that he needs some help from Congress and the administration to bring the deficit under control at just the right time so that the monetization will no longer be needed when the time comes to implement the plan. Best of luck on that one.
    Rather than battle to the death, the warriors are busily searching for a large vat of silver polish through tax increases for the “bad guys” who make too much money and cuts to the budgetary priorities supported by the other team. They hope that by shining the silver a bit the public will be satisfied that the world has returned to normal so that they can race home to join their families and friends for the upcoming winter solstice feasts. Within a few months the warriors will come back to the table to fight the next battle over the federal budget ceiling, the primary lever wielded by the right in their quest to protect the value of the dollar.
    Far from the field of battle, a group of hobbits, centered in a small village at the edge of the known world (the University of Missouri – Kansas City), live in an alternative universe called Modern Monetary Theory. In this universe money has become disembodied from all connection to tangible assets. Conveniently they have provided a magic window to their universe at their website New Economic Perspectives.
    The MMTers dare to utter the heretical view that money is not intended as a store of value, but instead that it is a tool to be used by government to facilitate the exchange of goods and services and to assure the society’s resources are being productively employed. They also generally believe that there are massive underutilized resources that can be put to productive work so long as sufficient fiscal support is thrown at the problem. In general they believe that we are in what Keynes called a Liquidity Trap and that in such a state government can provide almost unlimited stimulus without creating an inflationary crisis. The corollary is that failure to provide such support will condemn millions of Americans to continued unemployment or underemployment.
    Given that background it’s time to introduce you to the Trillion Dollar Coin and Platinum Coin Seigniorage. Participants in the Fiscal Cliff debate assume that government can only fund itself through taxation or borrowing. From the time money was invented, however, sovereigns have concluded that there is a far easier path, through the manufacture of money itself.
    Seigniorage: a government revenue from the manufacture of coins calculated as the difference between the face value and the metal value of the coins. -Merriam-Webster.com
    Modern hard money advocates seem to assume that a gold standard is equivalent to the valuation of a currency based on the commodity value of underlying precious metals into which the currency is freely convertible. In the real world that has rarely been the case. For most of human history money has been worth what the sovereign deemed it to be. It costs the U. S. government about thirty cents to make a Presidential dollar coin. The difference between that cost and the one dollar face value is seignoirage. The trade is even better in the case of $100 bills which only cost the government about ten cents to print and which are shipped all over the world by the billions. Governments throughout history have funded their operations on similar profits from the issuance of currency.
    Today governments can be much more efficient in their generation of seignoirage. While the U. S. still profits handsomely by printing and shipping $100 bills to countries like Zimbabwe, these profits pale in comparison to the Federal Reserve’s ability to fund trillion dollar annual federal deficits with electronic entries of ones and zeros in its virtual ledger books. The most profligate third century Roman Emperor would be green with envy.
    But there’s a catch. Laws on the books limit the government’s ability to finance itself by placing a limit on the amount of federal debt that can be issued, even if the debt is being issued to an arm of the government, the Federal Reserve. Thus every year or so Congress gets to hold the government hostage. Using the budget ceiling as a lever Congress can wrest concessions from executive branch ranging from grand bargains on entitlements to pork barrel spending in local Congressional districts. This occurs notwithstanding that Congress has already authorized/instructed the executive to spend the money in budgets previously adopted by Congress.
    While the Treasury has always had the option of issuing coinage to pay its bills, the 1.4 trillion plus dollar coins that would be needed to generate sufficient seignoirage to cover the deficit would weigh approximately 1,543,235 tons and nobody wants those things anyway.
    That’s where the hobbits of MMT land come in. An enterprising Bilbo Baggins has discovered his Arkenstone in an obscure statute passed by Congress to satisfy the desire of the hard money crowd for precious metal based U. S. coinage. 31 USC § 5112 (k) provides that “The Secretary (of the Treasury) may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”
    While this provision was clearly adopted to satisfy the demands of collectors and bullion hoarders, on its face the statute would enable unlimited issuance of very large denomination coins with virtually infinite seignoirage. According to its advocates, by having the Treasury issue as few as five platinum coins, each with a face value of a trillion dollars, and using them to repurchase and extinguish large amounts of federal debt currently held by the Federal Reserve, the President could eliminate the constraint of the debt ceiling for the remainder of his term in office.
    For the moment this issue remains in the realm of the theoretical. The concept is so alien that even commentators of the most liberal bent hesitate to take it seriously. Yet some are speaking seriously about other approaches to the debt limit that would entail even more naked usurpations of executive power, including this gem:
    “the ‘you and whose army’ theory that even if the President breaches the debt ceiling, no one could do anything about it because they would have no standing to sue” – New Economic Perspectives 12/13/12
    It appears that there is serious discussion afoot aimed at pressuring President Obama to engineer a transfer of power to the federal executive branch comparable in scope to the historical shifts engineered by Lincoln and Franklin Roosevelt during previous times of great crisis in America. This topic has gotten little coverage to date in the serious economic and political press. Don’t doubt for a minute that we’ll begin to see such suggestions in spades should the Republicans stand firm when the debt ceiling issue again comes to the fore in early 2013. There will be tremendous pressure to give the President unfettered authority to spend all budgeted funds. Since the Congress seems incapable of adopting a budget, does this mean that all defacto spending authority will soon be transferred to the executive branch?
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  2. Here in the UK we live in a criminal state. The government is currently pushing legislation through Parliament (The Justice and Security Bill) to ensure ‘closed’ ie secret trials for politicians accused of complicity in facilitating the torture and degarading treatment of detainees (rendition). Amnesty International has described the legistlation as ‘straight from the pages of a Kafka novel.’ and has warned that the bill will ‘allow the government to throw a cloak of secrecy over wrongdoing.’
    We have a criminal media system (News International) a criminal banking system (HSBC\Barclays\Standard Charter), and now a government that has excused itself from the rule of law. Criminality is now embedded in the system.

    Meanwhile the poor face draconian sentences if they are caught stealing the necessities of life.

  3. AussieF: you may need to have a full-scale revolution in the UK. You haven’t had to do that since Cromwell. But now that the government is asserting the that your new noblemen (politicians, bankers) are above the law, you might need it. It is just barely possible that you will be able to throw them out of office in favor of (for instance) the Green Party before they abolish elections. If they start restricting the franchise, or pushing electronic “voting” machines so they can silently steal the elections, then you know it’s time for revolution.