A global bank, run for three years by an ordained Church of England priest turned Tory trade minister is exposed as having facilitated tax dodging through its Swiss operation on a massive scale. Previously, it managed to rack up losses in excess of $50bn on subprime loans in the US before being hauled before the Senate over allegations that it laundered billions for Mexican drug barons.
The Hong Kong & Shanghai Bank Corporation came into being in 1865, its driving force being a Scotsman, Thomas Sutherland, who worked for the shipping firm, P&O, and who spotted a large requirement for banking services in a Far Eastern market that was being opened up to Western interests with some assistance from British gun boats.
HSBC, as it is now known, was a distinctly colonial entity which evolved into a major global player despite suffering the rude interruption in the form of marauding Japanese soldiers. Following the fall of Hong Kong, Malaya, and Singapore, most of the bank’s Asian staff were chucked into concentration camps.
At the end of the war, the old colonial days were soon gone for good, but the bank adapted, thriving on the back of a reviving Hong Kong economy. In 1992, it acquired the Midland bank. By the turn of the century, HSBC was a thriving business.
Its investment banking arm was run by Stephen Green, one of an increased number of Church of England priests working in civilian occupations. Green published a book in 1996 called Serving God? Serving Mammon? As a young man, Green spent a year as a volunteer in an East End hostel for recovering alcoholics, yet by the early noughties, he was raking in several millions a year as executive director of investment banking at HSBC, which he joined in 1982. The following year, Green bagged the top job at the bank, around the time it was embarking into a disastrous foray into the US home-lending market.
Its $15bn purchase of Household International propelled HSBC into the position as one of America’s biggest subprime lenders. According to a report by Reuters last summer, the bank eventually wracked up losses of $60bn in bad loans, though, somewhat surprisingly, HSBC still has between $7bn and $10bn in surplus capital in its North American operation following an extensive programme of disposals. The best thing that can be said is that HSBC extricated itself early on from a subprime-loan disaster that helped trigger the financial meltdown in 2007.
Even worse was to come. By 2005, HSBC was facing accusations in the media that it was involved in facilitating money-laundering on a massive scale. In December 2012, the bank agreed to pay almost $2bn to settle the scandal after key executives were hauled before a high-profile US Senate committee. The inquiry subsequently reported that the bank had failed to monitor the movement of $38 trillion in funds across borders. It stood indicted of engaging in dodgy dealing with a Saudi Arabian bank called Al Rajhi, which has what can be best described as a murky reputation.
It accused the bank of allowing rogue states and drug cartels to launder billions. The committee chairman, senator Carl Levin — a high-profile critic of Irish tax practices — had this to say: “In an age of international terrorism, drug violence, and organised crime, stopping illicit money flows is a national security imperative.”
Now, a new twist to the tale, with the revelations concerning HSBC’s Swiss subsidiary, courtesy of the Washington DC based International Consortium of Investigative Journalists. The revelations came courtesy of a whistleblower who got his hands on large amounts of confidential data. British clients alone are alleged to have parked assets worth $22bn in Switzerland, away from the taxman. French clients held another $12.5bn in HSBC accounts. The French government has launched a criminal investigation into HSBC.
Predictably, many rich Greeks have been nailed, adding fuel to the fires of the Syriza government which has been under the cosh in recent days. Stephen Green, now a member of the House of Lords, stood down some time ago as trade minister. Yet again, questions are being levelled at British Prime Minister David Cameron over his judgement in appointing Green to a position in the government.
Cameron previously hired Andy Coulson as his top PR guru despite a growing file of charges stemming from his time as managing editor of the News of The World.
The Tories have shipped some damage over all of this, increasing the likelihood of political instability after the May general election. A political crisis in Britain could spell bad news — and not just for that country’s economy.
Near neighbours like Ireland will look on with trepidation. A weakening in Cameron’s position could spell trouble. The revelations come as a time when the gap between Europe’s wealthy, its ‘coping classes’ and its impoverished, grows ever larger and when popular pressure to rein in high- earning elites is growing. Already, the family of the former chairman of Spanish banking conglomerate Santander, the late Emilio Botin, have paid an estimated €200m to settle outstanding taxes.
Closer to home, household names including actress Joan Collins and top trainer Aidan O Brien have been mentioned in connection with HSBC accounts. The British taxman has reportedly entered into around 1,000 settlements, but the revenue service is under fire for taking just one criminal prosecution.
The Economist sounded an optimistic note last week, suggesting that “as companies share more information, opportunities to squirrel away cash abroad will continue to narrow.” America’s Foreign Account Tax Compliance Act (Fatca ) is beginning to bite, while the EU is increasing the pressure on member states to share financial information. More than 80 countries have agreed on a common reporting standard under the umbrella of the OECD. Change is in the air, but we have been here before. Twenty years ago, money-laundering legislation promised a new dawn for banking. We all know what happened then.
HSBC is steeped in history but cannot seem to avoid scandal and now finds itself accused of massive instances of tax dodging, writes Kyran FitzGerald
After the war, the bank adapted, thriving on the back of a reviving Hong Kong economy