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”

 “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