Swiss Bank HSBC Agrees to Pay $192 Million Penalty for Encouraging Tax Evasion Among Wealthy Americans

Major Blow to Swiss Banking Secrecy

HSBC Private Bank has agreed to pay a staggering $192 million in penalties after admitting to encouraging wealthy Americans to hide over $1.26 billion in assets from tax authorities. The Geneva-based bank entered into a deferred prosecution agreement with the Department of Justice on Tuesday, following an investigation that spanned nearly a decade and exposed HSBC’s involvement in tax evasion schemes between 2000 and 2010.

HSBC’s Tax Evasion Scheme

According to court documents, HSBC bankers traveled from Switzerland to the US to “recruit new U.S. clients to open undeclared accounts,” using codenames, numbered accounts, and offshore networks in tax havens such as the British Virgin Islands, Liechtenstein, and Panama. This scheme allowed wealthy Americans to conceal assets abroad and evade taxes.

Massive Tax Evasion Scheme

The Department of Justice described the scheme as “a massive tax evasion scheme” that enabled wealthy Americans to conceal assets abroad and evade taxes. “Banks, asset managers, and other financial firms enable such crimes - and we will hold these institutions to account, right along with the taxpayers who use them to facilitate and disguise illegal activities,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg.

Investigation Details

The investigation was based on a trove of leaked HSBC documents obtained by French newspaper Le Monde, which were shared with a team of 140 reporters from 45 countries. The secret files covered account details associated with over 100,000 individuals and legal entities up to 2007.

Reforms and Penalties

HSBC acknowledged that its compliance culture and standards of due diligence in its Swiss private bank had been significantly lower than they are today, but stressed that it has since reformed and cut a number of clients featured in the leaked files. The Internal Revenue Service Criminal Investigation chief, Don Fort, hailed the agreement as a message to financial institutions that they would be held to the same standards as individual taxpayers when it comes to enforcing the law.

Penalty Breakdown

The $192 million penalty is split into three parts:

• More than $60 million in restitution to the IRS for unpaid taxes
• Almost $72 million to account for gross fees earned on undeclared assets
• A $59 million penalty

Under the terms of the agreement, HSBC Switzerland will avoid prosecution provided it continues to demonstrate “good conduct” for the next three years.