HSBC Agrees to Pay $192 Million for Role in Illegal Swiss Bank Accounts

Posted: 12 December 2019 4:43 pm

Bank at night.

The last major bank to shelter American funds from US taxes in Switzerland has pleaded guilty to the US Department of Justice.

For many years, Switzerland was the banking haven of choice for the uber-rich. Due to the nation’s banking secrecy, it was easy to establish bank accounts that are virtually invisible to the United States’ and other nations’ regulators. This era, however, may have come to an end.

On Tuesday, HSBC agreed to pay $192.35 million in penalties to the US Department of Justice for its role — between 2000 and 2010 — in sheltering funds from the Internal Revenue Service. During this period, HSBC issued false tax returns, failed to disclose deposited funds from American account holders, and knowingly defrauded the federal government.

“HSBC Switzerland conspired with U.S. accountholders to conceal assets abroad and evade taxes that every American must pay,” Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Department of Justice’s Tax Division said, per the Justice Department’s press release detailing the agreement. “Banks, asset managers and other financial firms enable such crimes – and we will hold these institutions to account, right along with the taxpayers that use them to facilitate and disguise illegal activities.”

In addition to relying on Swiss banking laws to avoid having to report account information from American-held accounts, HSBC used pseudonym-named and numbered accounts to cloak account holders and maintained accounts in other high-banking secrecy hotspots like Liechtenstein and Panama.

This settlement follows the trend where the Justice Department extracted large settlements from other Swiss banks, such as $780 million from UBS in 2009, $2.6 billion from Credit Suisse in 2014, and $547 million from Julius Baer in 2016.

Authorization to compel other nations to release financial data for American citizens comes from the Foreign Account Tax Compliance Act. The bill allows the United States to sue foreign corporations that may have this information and refuse to voluntarily share it with American regulators.

“Taxpayers and financial institutions each have the most basic responsibilities to pay taxes and report suspicious activity regarding financial transactions. When financial institutions devise a massive tax evasion scheme and actually facilitate the activity, they not only must be held accountable, they must take actions to ensure this behavior will not happen again,” Don Fort, Chief, IRS Criminal Investigation, said.

“The integrity of our nation’s tax system depends on voluntary compliance and fair, consistent enforcement of the law. We owe it to all Americans to hold financial institutions accountable just as we would hold individual taxpayers accountable. Today’s DPA shows that engaging in this type of behavior has consequences.”


Many may find this to be hypocritical in retrospection. In the absence of Switzerland, the United States has emerged as the tax haven capital of the world. It is exceptionally easy to hide money in shell companies in Delaware, Nevada, and Wyoming, where banking secrecy laws make it difficult, if not impossible, to identify or stop laundered money.

“While the United States has pioneered powerful ways to defend itself against foreign tax havens, it has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion,” the Tax Justice Network wrote in its Financial Secrecy Index 2018. The report found the United States to be the second-worst tax haven in the world, behind Switzerland.

“It is currently a jurisdiction of extreme concern for global transparency initiatives: instead of agreeing to join and comply with the emerging global standard of multilateral information exchange, the OECD Common Reporting Standards (CRS), it has stuck with its own FATCA model… which does not appear to mesh with the CRS despite technical similarities. Washington’s independent-minded approach risks tearing a giant hole in international efforts to crack down on tax evasion, money laundering and financial crime.”

Worse, while the United States insists that other nations share their banking information with American regulators, the US has steadfastly refused to reciprocate, except with a select number of allies. The United States, for example, convinced over 100 countries and jurisdictions to sign the Common Reporting Standard, which automatically shares financial information for tax purposes. To date, the United States has not signed the CRS.

While FACTA does require some information reciprocality, it does not require the same types or amounts of information to be shared. So, it is easier to launder money into the United States through a shell company than it is to do the same in France. It is arguable this blindspot was intentional to encourage foreign investments in the United States.

“How ironic — no, how perverse — that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” a lawyer at a Zurich law firm wrote following the United States’ refusal to sign the CRA. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”

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