The US Department of Justice is considering bringing criminal charges against HSBC and its executives as part of its investigation into whether the bank’s Swiss subsidiary helped US clients evade taxes.
Democratic senator Elizabeth Warren called on prosecutors to “come down hard” on HSBC if the bank is found to have colluded with tax evaders on Tuesday.
Her intervention came as US government officials with knowledge of the DoJ’s investigation provided the Guardian with new details about the inquiry.
Renewed focus has been placed on the long-running investigation into HSBC Switzerland by the department, after a huge leak of secret bank data – passed to the DOJ’s tax division almost five years ago – was obtained by the Guardian and other media.
It shows that HSBC Switzerland helped some clients conceal millions of undeclared assets, and has immediately raised questions on Capitol Hill about the response from prosecutors and tax authorities.
US government officials said the investigation is not merely looking at HSBC’s US clients, and could also result in criminal indictments against the bank itself. “That has not been ruled out,” one official said, when asked if HSBC or its executives could be criminally indicted. “It is certainly something that is under consideration.”
The same official described the investigation as “very active”, but did not provide a timeline for its completion, nor give an indication of the likelihood of criminal charges against the bank. The official declined to say which, if any, bankers might face charges.
Any criminal US prosecution against HSBC or its executives would be a massive blow for Europe’s biggest bank. HSBC was made to pay a $1.9bn fine in 2012, in a deferred prosecution agreement over money-laundering with Mexican drug cartels and breaches of US sanctions.
Under that deal, HSBC controversially escaped criminal charges and kept the banking charter that enables it to operate in the US.
The most prominent political critic of that 2012 settlement was Warren, who is renowned for her campaign for accountability for big Wall Street institutions.
“The government comes down hard on individuals who break the law time after time, and it should do the same for large financial institutions,” the Massachusetts senator said in a statement to the Guardian on Tuesday.
“The new allegations that HSBC colluded to help wealthy people and rich corporations hide money and avoid taxes are very serious, and, if true, the Department of Justice should reconsider the earlier deferred prosecution agreement it entered into with HSBC and prosecute the new violations to the full extent of the law.”
Warren’s intervention will further stoke the scandal in Washington, where members of the Senate banking committee are preparing grill a representative of the Federal Reserve on Tuesday over how much regulators knew about US tax evasion connected to HSBC Switzerland.
The hearing comes as the public disclosure of the HSBC Swiss data – the biggest leak in banking history – reverberated across the globe.
In Britain, where HSBC is headquartered, prime minister David Cameron was forced to the defend of the bank’s former chairman Stephen Green, who Cameron later made a trade minister. A British parliamentary committee also pledged to re-open an investigation into HSBC.
In Belgium, where HSBC Switzerland is under investigation over tax fraud allegations, a judge is considering issuing international arrest warrants for directors of the Swiss division of the bank. In Denmark, the government said it would seek the names of its citizens who may have used Swiss bank accounts to avoid domestic taxes.
And in France, which has also launched an investigation, the prime minister, Manuel Valls, said he was determined to fight tax evasion and would continue to take action at home and on a European level.
HSBC has admitted wrongdoing by its Geneva-based subsidiary, and insists it has taken significant steps in recent years to tackle out tax evasion by subsidiary banks. “We acknowledge and are accountable for past compliance and control failures,” the bank said in a statement .
However, international pressure on the bank is growing, even in Switzerland, where the country’s former foreign minister, Micheline Calmy-Rey, said an investigation into the revelations “would be the least that could be done” .
However, it is developments in Washington and New York – where there has been long-simmering resentment over the treatment of banks in the wake of the financial crisis – that may alarm HSBC’s senior executives most.
HSBC Switzerland’s internal files, leaked by an IT technician Hervé Falciani, were first obtained by French authorities and then shared with the US in 2010. They cover the Swiss subsidiaries activities over the period 2005 to 2007.
The DoJ has a policy of declining to confirm or deny the existence of its investigations. However, the officials confirmed that receipt of the data on a CD escalated an investigation that had already been launched by the DoJ’s tax division in Washington.
The investigation into whether HSBC Switzerland helped US clients dodge taxes – which is still taking place – eventually overlapped with inquiries by other DoJ divisions running further, separate inquiries into HSBC and other subsidiaries around the world. Those included the inquiry into whether HSBC’s lax oversight were exploited by Mexican drug cartels, and the investigation into whether HSBC was helping clients sidestep US sanctions against Cuba, Sudan and Iran.
According to US government officials, who provided information to the Guardian on the condition of anonymity, when prosecutors sought a deal with HSBC in 2012 the over money-laundering and sanctions breaches, they did not include evidence of tax evasion connected to Switzerland because that investigation was “proceeding on a different timeline”.
The settlement was eventually negotiated by Loretta Lynch, now Barack Obama’s current nominee for attorney general. Signed in December 2012, it imposed the almost $2bn fine, and committed HSBC to a five-year reform plan, overseen by an independent monitor.
Under the terms of the deal, HSBC is obligated for five years to both fully cooperate with prosecutors on any other investigations and commit no crimes after it signed the settlement.
Because the practices at HSBC Switzerland now under investigation pre-date the 2012 deal, it is unlikely they will yield grounds for reconsidering the deferred prosecution agreement.
HSBC made this point in a statement to the Guardian: “The DPA is a signed agreement that can only be ‘scrapped’ if HSBC breached it,” it said. “Conduct from 2005 to 2006 or indeed any conduct before December 2012 cannot be a breach of the DPA.”
However, a separate DoJ inquiry, unrelated to tax evasion, does cover more recent activity and could have a bearing on whether HSBC is perceived to be complying with its 2012 settlement. That other investigation, the government officials said,looks at whether HSBC and several other banks manipulated the foreign exchange rate, and could cover more recent activity.
In any case, the 2012 settlement has no bearing over whether prosecutors decide to bring criminal charges against HSBC or its bankers over any perceived collusion in tax evasion by the Swiss subsidiary.
The fact government officials are signalling the HSBC – and not just its clients – could face future prosecution is a significant development.
Back in 2012 Warren another other senators – Republicans and Democrats – complained that HSBC was let off the book by the deferred prosecution agreement.
“How many billions of dollars do you have to launder for drug lords, and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?” Warren famously asked a Senate banking committee hearing.
Warren’s comments on Tuesday followed those of Sherrod Brown, the Ohio senator and ranking Democrat on the Senate banking committee, who has also told the Guardian he will be be seeking answers from US regulators and authorities, including the Internal Revenue Service.
“I will be very interested to hear the government’s full explanation of its actions – or lack thereof – upon learning of these allegations in 2010,” he said on Sunday.
British, French and Spanish tax authorities have publicly disclosed the number of HSBC Swiss clients investigated as a result of the leak and the total sums recovered. In total the three countries have recovered more than $825m from taxpayers who had not declared their assets in Geneva.
However in Washington, the IRS is refusing to disclose any information about investigations or recovered assets stemming from the leak of HSBC Switzerland data.
On Monday, the Guardian revealed how HSBC’s Swiss subsidiary repeatedly provided its clients with large cash withdrawals – often a warning sign to bankers – in their currency of choice. Some of the clients admitted to the Guardian they were dodging tax. HSBC says it now seeks to operate “strict controls” on withdrawals of more than £6,600 .
The disclosure about large cash withdrawals was the latest in a series of revelations based on the leaked HSBC Swiss files , which were obtained through an international collaboration of news outlets, including the Guardian, the French daily Le Monde, CBS 60 Minutes and the Washington-based International Consortium of Investigative Journalists.
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