HSBC Holdings Plc admitted that it helped hundreds of American clients hide more than $1 billion in assets from the Internal Revenue Service and agreed to pay $192.4 million to resolve a decade-long U.S. tax investigation.
Prosecutors filed a charge of conspiracy to defraud the U.S. against a unit of the bank, HSBC Private Bank (Suisse) SA, but agreed to drop it in three years if it abides by a deal submitted Tuesday in federal court in Fort Lauderdale, Florida.
From at least 2000 through 2010, HSBC Switzerland “assisted U.S. persons in concealing their offshore assets and income from U.S. tax authorities, evading their U.S. tax obligations and filing false federal tax returns with the IRS,” according to the conspiracy charge.
The settlement follows years of Justice Department and IRS battles against Swiss banks, taxpayers and enablers over undeclared accounts, which led to settlements with dozens of banks. It also caps a decade in which HSBC, an Asia-focused lender, entered into two other deferred-prosecution agreements with the U.S. and spent heavily on improving internal controls. For the past two years, the Bank of England has warned HSBC that it hasn’t done enough to tackle concerns about handling risks including financial crime and staff conduct.
“HSBC Switzerland conspired with U.S. account holders to conceal assets abroad and evade taxes that every American must pay,” said Stuart M. Goldberg, the acting deputy assistant attorney general in the Justice Department’s Tax Division.
In a “statement of facts,” HSBC Switzerland admitted that it helped 720 U.S. clients hide $825 million in assets from the IRS. The amount of undeclared assets rose to $1.26 billion in 2007, before dropping by half three years later. HSBC Switzerland offered a variety of traditional Swiss banking services that helped clients cheat the IRS, including advising clients to withdraw less than $10,000 to avoid reporting requirements, and providing credit, debit and travel cards to access funds.
Many banks have made similar admissions. UBS Group AG said in 2009 that it helped thousands of clients cheat the IRS and paid $780 million, and Credit Suisse Group AG reached a $2.6 billion deal in 2014. Another 80 Swiss banks avoided prosecution by agreeing to pay $1.37 billion in penalties and voluntarily disclosing their wrongdoing as part of a Justice Department program.
HSBC has been caught up in other scandals as well. In 2012, the bank paid $1.9 billion in penalties, admitting that it failed to prevent Latin American drug cartels from laundering money and violated U.S. sanctions against Iran. Within a year, its reform efforts met resistance from leaders of HSBC’s U.S. investment-banking unit — some of whom mounted a campaign of bullying, foot-dragging and discrediting in-house watchdogs, according to a court-appointed monitor.
Soon after that deal expired, the bank agreed in early 2018 to pay about $100 million to resolve an investigation into rigging of currency rates. Later that year, the bank agreed to pay $765 million to settle allegations that it sold defective residential mortgage-backed securities.
In the tax case, HSBC bankers told clients not to receive bank statements in the U.S. mail or carry them back from Switzerland. The bank used wholly owned or affiliated companies to offer people in tax-haven countries to serve as trustees or directors of shell companies that helped hide the true owners of accounts. From 2005 to 2007, at least four bankers on the North American desk traveled to the U.S. to advise existing client and troll for new ones at events like Design Miami.
On numerous occasions from 2002 through 2006, bankers used an HSBC Switzerland account to purchase art at auction for a client, known as Client 1, according to the statement of facts. On another occasion, bankers used it to pay for a luxury vacation package provider.
In 2008, as the U.S. crackdown on offshore tax evasion took root, the bank began forcing U.S. clients with undeclared accounts to close accounts. But bankers helped clients close accounts “in a manner that continued to conceal their offshore assets,” according to the bank’s admissions.
HSBC has undertaken “substantial remedial measures and extensively cooperated” with the Justice Department, according to the agreement. It contacted the Justice Department in December 2008, conducted an internal investigation, and reported its misconduct.
“We are pleased to resolve this legacy matter,” said Alex Classen, the chief executive officer of HSBC Private Bank (Suisse), who attended the Tuesday hearing. “Over the past decade we have strengthened our compliance function, enhanced our control framework and put in place a comprehensive client tax transparency policy.”
In recent years, the bank quintupled the number of employees assigned to spot suspicious activity to 5,000, upgraded its technology and, in 2016, hired Jennifer Calvery, the U.S. Treasury Department’s top anti-money-laundering official, to oversee its efforts.
Still, the tax case was left unresolved for at least eight years. In 2011, the IRS went to court to seek information about Americans with accounts at HSBC India from 2002 to 2010. Through 2010, about 9,000 U.S. residents had nonresident Indian accounts of $100,000 or more, and only 1,391 disclosed them to the U.S. in 2009, the IRS said in court filings. The clients had deposits of almost $400 million.
In 2013, a New Jersey businessman who cooperated with prosecutors avoided prison after admitting he conspired with five HSBC bankers to hide Indian bank accounts from the IRS. Several other HSBC clients were convicted of tax crimes.
HSBC Switzerland has effectively exited the U.S. market, and now has fewer than 5,000 accounts in total, a decrease of more than 85 percent since the late 2000s, according to the agreement.
— With assistance from Greg Farrell and Yalman Onaran
