HSBC facing probe for ‘abetting’ tax evasion

Globally, HSBC reported a pre-tax loss of $858 million in 2015 compared with a profit of $1.73 billion in 2014. Photo: AP

Mumbai: While declaring its earnings for the year ended December 2015, international lender HSBC Holdings Plc on Monday said it continues to face a tax inquiry in India for allegedly abetting tax evasion. The lender said it has received notices from the tax department in recent months and is cooperating with the authorities.

An investigation by the International Consortium of Investigative Journalists (ICIJ), whose findings were published in February 2015, showed that HSBC may have helped clients conceal nearly $100 billion in Swiss accounts to avoid taxes.

The list included 1,195 Indians and it prompted probes by local tax authorities on whether they had repatriated money abroad to evade tax in India.

“In India, in February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC entities received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and its Dubai entity for abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC entities show why such prosecution should not be initiated,” HSBC said as part of its disclosures while reporting its results.

“With respect to each of these ongoing matters, HSBC is cooperating with the relevant authorities in a manner consistent with the relevant laws,” it added.

The government has stepped up its fight against black money, allegedly stashed in Switzerland, in recent years and there have been apprehensions the “illicit wealth” might have got shifted to other places such as Dubai.

However, experts ask whether it is right to hold the bank responsible for any wrongdoings on the part of its customers.

“To my mind, it may not be, unless it is established that the bank had the intent or awareness of such wrongful acts on the part of the customer, including tax avoidance, material disclosures alerts, any flow of capital without adequate regulatory approvals or within the legal framework of the jurisdiction. It needs to be examined whether the banks could be held responsible,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP.

For the year ended December 2015, HSBC reported a decline in profit before tax from its India business. Globally, HSBC reported a pre-tax loss of $858 million in 2015 compared with a profit of $1.73 billion in 2014.

The bank’s annual report, which gives a break-up of earnings across different regions, showed the bank reported a pre-tax profit of $606 million from its India business in 2015, 13.4% lower than the $700 million in pre-tax profit reported in 2014.

The decline came due to a fall in earnings from the global banking and markets division whose pre-tax profit fell 46% to $238 million from $442 million in 2014. Global banking and markets is the biggest division for HSBC in India and includes earnings from investment banking and treasury operations.

The bank also reported a decline in pre-tax profit from its commercial banking business in India to $97 million from $121 million a year ago.

The bank’s loan book in India stood at $8.04 billion at the end of 2015, compared to $7.23 billion at the end of 2014.

The bank disclosed that it was also being probed by tax authorities from other countries, including Argentina, Belgium and France, in relation with alleged abetment of tax evasion and money laundering through its Geneva branch. The bank said that it was cooperating with the authorities and said there could be significant financial impact due to these probes.

With regard to another probe in the US relating to Indian-origin clients, HSBC said that it is also cooperating with the department of justice (DoJ) and the Internal Revenue Service.

The probe relates to whether certain HSBC firms and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who had US tax reporting obligations.

HSBC said it produced records and other documents to the DoJ through its Swiss arm.

In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had previously been authorized.

“In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings,” the lender said.


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