Tax Analysts -- French Prosecutor Seeks Criminal Trial Against HSBC

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Worldwide Tax Daily

MARCH 16, 2015 French Prosecutor Seeks Criminal Trial Against HSBC Stephanie Soong Johnston

The French financial state prosecutor on March 10 requested that the Swiss private banking arm of HSBC Holdings PLC face trial on criminal tax evasion charges following an investigation into an alleged tax fraud scheme involving thousands of French taxpayers, according to media reports citing an unnamed judicial source.

The bank reportedly has a month to respond to the prosecutor's request, then French magistrates will decide whether to hold a trial.

"This is a normal step in the judicial procedure and the outcome of the matter is not determined as of today," HSBC told Tax Analysts March 13. By press time, the French financial state prosecutor's office had not responded to a request for comment.

According to French newspaper Le Monde, HSBC refused to take a plea deal that would allow it to avoid trial in exchange for a €1.4 billion fine.

HSBC confirmed on November 21, 2014, that France is investigating its Swiss private banking arm "in relation to certain clients of the bank who had French tax reporting requirements" for 2006 and 2007. The bank's activities came under scrutiny after the International Consortium of Investigative Journalists released information on nearly 60,000 files from HSBC's Swiss private banking branch as part of its Swiss leaks project in February. The data includes account information for more than 100,000 individuals and offshore entities from more than 200

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countries between 1988 and 2007. (Prior coverage .)

The source of the Swiss Leaks data is thought to be Hervé Falciani, an ex-HSBC employee who allegedly stole the data and gave it to French authorities in 2008. Then-French Finance Minister Christine Lagarde turned over the data to her counterparts in the EU and United States, setting the stage for investigations into the tax affairs of many individuals over the past several years. (Prior coverage .)

Milan Patel of Anaford AG in Zurich called the French prosecutor's request "an interesting twist," noting that the consortium's Swiss Leaks project may have influenced the move because the French government must show it's taking action. "They just can't ignore it," he said.

The situation between France and HSBC is similar to the situation between the United States and Swiss banking giant UBS AG, he added. The U.S. Justice Department filed criminal charges against UBS for helping about 17,000 U.S. clients evade taxes on about $17 billion in undeclared assets. The bank ultimately entered into a deferred prosecution agreement with the U.S. under which it had to pay a $780 million fine in exchange for the DOJ dropping the criminal charges.

Bradley Birkenfeld, the former UBS banker who acted as a whistleblower for the U.S. government, served 31 months in prison after his 2009 conviction for conspiring to defraud the United States, but received a $104 million whistleblower reward. (Prior coverage .)

Because the U.S. had Birkenfeld and a trove of information on UBS's activities, it was hard for the U.S. to focus only on the account holders. Eventually, it had to start looking at the bank itself, according to Patel. "Similarly, all this data came from [Falciani], so how can the French government not do anything with that, not just against the account holders but also the bank itself?" he asked. That information "was a big break" for France, he said.

Patel said the French prosecutor's request doesn't bode well for other Swiss banks that have conducted similar cross-border business with French clients. He speculated that banks in Geneva will be heavily affected because they tend to work more with French clients than do banks in Zurich, which often work more with German or Austrian clients, and Lugano, which has more Italian clients.

While it's unlikely HSBC will collapse as the result of a criminal trial in France, the bank has taken a reputational hit. "Certainly, this is a black eye for HSBC," Patel said.

HSBC's problems aren't just with France. For example, Belgium filed charges in November against HSBC's Swiss banking arm for fraud, money laundering, and providing illegal financial services after authorities accused the bank of helping Belgians move money from Swiss bank accounts to holding companies in the British Virgin Islands and Panama. (Prior coverage .)

The bank's clients are also under investigation in such countries as Argentina , Brazil , India, and even Malta, and the U.K. recently reached an agreement with France to share Swiss bank account data stolen from HSBC .

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Tax Analysts Information Jurisdiction: France Subject Areas: Tax avoidance and evasion Compliance Financial institutions Information disclosure Information reporting Author: Stephanie Soong Johnston Institutional Author: Tax Analysts Tax Analysts Document Number: Doc 2015-6252 Tax Analysts Electronic Citation: 2015 WTD 50-6

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