France widens HSBC Swiss bank inquiry to global holding company

By The Guardian

French prosecutors have expanded their investigations into the activities of HSBC’s Swiss subsidiary to include its global holding company, the bank has disclosed.

Authorities completed an investigation into HSBC Suisse for alleged tax-related offences earlier this year, turning over a file to prosecutors to make a formal decision.

The bank said on Thursday that prosecutors were now investigating HSBC’s global holdings company and had set bail at €1bn (£724m). In the previous investigation, bail was set at €50m. In a short statement announcing the investigation on its corporate website, HSBC says it will vigorously contest the proceedings.

“HSBC Holdings plc believes the French magistrates’ decision is without legal basis and the bail is unwarranted and excessive,” it says. “It intends to appeal and will defend itself vigorously in any future proceedings.” A spokesman for the French financial prosecutor in Paris confirmed the move had been taken to place HSBC Holdings PLC under formal investigation, which means the inquiry could now continue for months.

The financial prosecutor did not provide details of the exact charges faced by HSBC nor confirm any details of whether HSBC refused a deal to enter a guilty plea. The €1bn bail was imposed as part of standard procedure “to ensure payment of any damages and interests that might be decided by any future trial”.

The expanded investigation continues to centre on activities in HSBC’s Swiss subsidiary in 2006 and 2007, which were revealed last month in the HSBC files project, led by the International Consortium of Investigative Journalists and published by the Guardian, Le Monde, the BBC and dozens of other outlets.

The project was based on leaked documents that revealed large-scale patterns of wrongdoing at the bank, including enabling tax avoidance and evasion, handing out bundles of cash to clients without question, aggressively marketing tax avoidance products and providing accounts to the friends and families of dictators.

HSBC has repeatedly and publicly stressed that it has reformed its Swiss branch and its wider structure since those activities took place and that there was new management in place.

The new French investigation, however, dashes hopes in the bank that legal action would be confined to HSBC Suisse. The Guardian understands that a key part of the broader inquiry will look into the senior managers overseeing HSBC Suisse in 2006-07.

During this period, Clive Bannister and Chris Meares – both UK citizens – were in charge of HSBC’s global private banking operation, which included the Swiss bank, while HSBC Suisse itself was led by the Swiss resident Peter Braunwalder.

Meares appeared before the UK parliament’s public accounts committee last month alongside the bank’s present chief executive officer, Stuart Gulliver, and the former head of the audit committee, Rona Fairhead.

During the heated evidence session, Meares told MPs that, as head of global private banking, about 20% of his time was spent on the Swiss bank, but he insisted that none of that bank’s activities had been detected by the group’s regulatory systems. “None of it was picked up and flagged to me, sitting in London, to say that we had an issue.”

Pushed repeatedly by MPs, Meares replied that while he took “fairly direct” responsibility for the practices of the Swiss bank, he distanced himself from the actions of particular employees. “I do not take fairly direct responsibility for the individual actions of people in Switzerland that I was not aware of what they were up to.”

A Conservative MP on the committee, Stephen Hammond, said that iMeares was “a wholly unreliable witness” in his opinion. All three executives have since left HSBC and none are individually named by the French prosecutors. A spokeswoman for HSBC said no current executives had been named by French authorities. HSBC is understood to be cooperating with the investigation, including providing documents where requested.

The bank rejected an earlier plea deal with French authorities which may have spared it the ordeal of a public prosecution at the expense of a record €1.4bn fine, Le Monde reported in March.

HSBC is facing a number of legal investigations around the world over the activities of its Swiss subsidiary. A declaration in its latest annual report details formal investigations in Belgium, France, Argentina, Switzerland and India.

Magistrates in Belgium are formally investigating HSBC Suisse, while Swiss authorities carried out a dawn raid on the bank’s offices in that country in February.

In November, Argentina’s tax authorities “filed a complaint alleging an unlawful association between HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain current and former HSBC officers, which allegedly enabled HSBC customers to evade Argentine tax obligations”.

India’s tax authority has issued a summons and requested information in relation to a HSBC subsidiary in that country.

HSBC, which has its headquarters in London, faces no UK criminal investigation. The British tax authority, HMRC, investigated the HSBC Swiss accounts of more than 6,000 UK residents and found more than 1,000 were suspected to have been engaged in tax evasion. To date, only one has been prosecuted.

In France, about 70 wealthy households have been formally investigated as part of separate inquiries into tax evasion through HSBC’s Swiss private bank.

Arlette Ricci, the heir to the Nina Ricci fashion and perfume fortune, went on trial in Paris earlier this year accused of hiding more than $22m (£15m) from French tax authorities via a bank account at HSBC’s Swiss arm. The state prosecutor recommended Ricci be sentenced to two years in prison plus a two -ear suspended sentence and a €3m fine. The judges will return their verdict on Monday in what is regarded as a test case related to the Swiss banking scandal.

Ricci, 73, a psychoanalyst and writer, was on trial alongside her daughter and accountant. They all denied charges of tax fraud and money laundering