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HSBC settles French tax probe for $352 million as OECD looks at new ways to tackle tax, fincrimes

Friday, November 17, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
November 17, 2017

One of the world’s largest banks has agreed to pay $352 million to settle a tax probe by French authorities that originated more than a decade ago when an employee in Switzerland stole data on thousands of clients.

HSBC this week negotiated the deal to settle charges it proactively aided clients of its private Swiss bank to evade taxes payable to France, according to media reports and a bank statement, another black eye for an institution that, in recent years, has made several high-profile hires to strengthen its financial crime compliance defenses.  

The long gestating settlement started as an investigation based on data found by French authorities as far back as 2009, when they raided and searched the home of Herve Falciani, a former information technology employee of HSBC’s Swiss banking arm.

Falciani later absconded to Geneva, with French authorities attempting to find evidence he stole thousands of bank files covering clients with accounts in 2006 and 2007.

The hefty penalty for tax violations keeps the spotlight on the lengths banks, law firms and professional services firms will go to keep the wealthy and elite as clients and help them safeguard their riches from home country tax officials.

The settlement comes just weeks after the release of the “Paradise Papers,” a new leak of millions of records tied to exclusive offshore services firm Appleby and the tactics it used to help the rich, famous and politically-connected hide their ownership interests and shield their wealth from the prying eyes of tax authorities. To read ACFCS coverage of the Paradise Papers, please click here.

In all, the 13.4 million records in the Paradise Papers, released by a consortium of journalists starting Sunday, reveals new details on more than 120,000 people, including 120 politicians and many of the largest companies in the world, like Apple, Nike and Uber, describing how the offshore services sector uses anonymous corporate ownership structures to squirrel away an estimated $9 trillion.

But while the leak illustrated the creativity of groups to evade taxes, watchdog groups, like Organization for Economic Cooperation and Development (OECD), also displayed their own acumen in the steps coordinated, cooperating countries can take to detect and prevent a wide array of financial crimes, including tax evasion, money laundering and corruption.

As the Paradise Papers fervor hit its zenith, more than 200 tax crime and economic crime experts from around the world met in London to analyze and strategize new ways to tackle tax and economic crimes more effectively at the Fifth OECD Forum on Tax and Crime.

OECD tackles tax, broader range of financial crimes

The forum brought together experts on tax, customs, anti-corruption, anti-money laundering, policing, and prosecution, to “take stock of the threats posed by tax crime, the progress made in combating it, and the priorities for action,” according to the group.

The conference identified five priorities for action:

  1. Ensure that professional enablers help people pay the tax they owe, and play their part in tackling tax crime.
  2. Step-up the level of international and cross-government co-operation to build a comprehensive and global response to tax crime.
  3. Learn the lessons from around the world about how best to respond to tax crime by implementing the OECD's Ten Global Principles.
  4. Strengthen our ability to collaborate globally and by building capacity to share intelligence and data quickly and securely.
  5. Build capacity in all countries - including developing countries - to combat financial crimes so that there can be no hiding place for tax criminals.

The group also published two key reports to help global investigators, jurisdictions and stakeholders better uncover, counter and report potential tax crimes.

The first report on fighting tax crime sets out the 10 essential principles for effectively fighting tax crimes, covering the “legal, institutional, administrative, and operational aspects necessary for putting in place an efficient system for fighting tax crimes and other financial crimes.”

The report, culled from countries around the world, will allow jurisdictions to “benchmark their legal and operational framework, and identify areas where improvements can be made," with the future goal of adding country specific details, according to the OECD. To read the report, please click here.

The second report, focusing on overcoming domestic and international cooperation, details how 51 countries tackle domestic inter-agency cooperation in fighting tax crimes and other financial crimes including, for the first time, “cooperation with authorities responsible for the investigation and prosecution of corruption.”

Properly sharing information and maximizing the strengths available to various investigative authorities, or the lack thereof, is one of the largest impediments to successful investigations and prosecutions of complex, international financial crime rings.

The report also identifies successful strategies based on countries' experiences of inter-agency c-operation in practice and makes recommendations for how co-operation may be improved, including better, more targeted sharing of information with the private sector, which, in turn, allows them to target resources and create richer intelligence and more meaningful suspicious activity reports that could more quickly create or buttress ongoing investigations.

To read the full report, please click here.

HSBC works to improve AML controls with new blood

HSBC is also seeing how it can better cooperate and coordinate its financial crime compliance departments to better counter criminal groups after paying a historic $1.9 billion penalty in late 2012 for broad and longstanding AML failures, including sanctions snags.

Since then, the bank has worked to improve compliance countermeasures by improving systems, staffing and bringing in some of the biggest names in the sector, including the former head of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), Jennifer Shasky Calvery, who is currently the bank’s Global Head of Financial Crime Threat Mitigation.

The bank has hired other top AML compliance professionals with deep backgrounds in complex government financial crime investigations and has partnered with technology and artificial intelligence firms to better parse big data and find connections to disparate, risky transactions and entities.

But in the latest tax settlement, authorities investigating HSBC had help when the data purloined by Falciani was obtained by the International Consortium of Investigative Journalists (ICIJ), the same group behind the Paradise Papers and its predecessor, the Panama Papers.

The data, which covered accounts holding more than $100 billion, uncovered the bank’s dealings with clients, including those ostensibly engaged in activities that included tax evasion, bribery and arms dealing, according to the ICIJ.

The investigation originally focused on whether HSBC’s Swiss banking unit had actively assisted its clients to illegally avoid paying taxes worth $1.9 billion in the years covered by the data.

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