The banking giant admits failings

Banking giant HSBC helped wealthy clients across the world evade hundreds of millions of pounds worth of tax, the BBC has learned.

Panorama has seen accounts from 106,000 clients in 203 countries, leaked by a whistleblower in 2007.

The documents include details of almost 7,000 clients based in the UK.

HSBC admitted that some individuals took advantage of bank secrecy to hold undeclared accounts. But it said it has now "fundamentally changed".

The bank now faces criminal investigations in the US, France, Belgium and Argentina.

HSBC said it is "co-operating with relevant authorities". But in the UK, where the bank is based, no such action has been taken.

Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities. And while tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.

India's Finance Minister Arun Jaitley has said that all Indian names on the list will be investigated, although he cautioned that some accounts might be legitimate. A current inquiry looking into more than 600 people who hold accounts overseas, will now be widened to look into the current list of names.

The French authorities concluded in 2013 that 99.8 percent of their citizens on the list were probably evading tax.

The thousands of pages of data were obtained by the French newspaper Le Monde. In a joint investigation, the documents have now been passed to the International Consortium of Investigative Journalists, the Guardian newspaper, Panorama and more than 50 media outlets around the world.

The documents include details of almost 7,000 British clients - and many of the accounts were not declared to the taxman.,

HM Revenue and Customs (HMRC) was given the leaked data in 2010 and has identified 1,100 people who had not paid their taxes. But almost five years later, only one tax evader has been prosecuted.

HMRC said £135 million in tax, interest and penalties have now been paid by those who hid their assets in Switzerland.

But the chairwoman of the Public Accounts Committee, Margaret Hodge MP, said: "I just don't think the tax authorities have been strong enough, assertive enough, brave enough, tough enough in securing for the British taxpayer the monies that are due."

HSBC did not just turn a blind eye to tax evaders - in some cases it broke the law by actively helping its clients.

The bank gave one wealthy family a foreign credit card so they could withdraw their undeclared cash at cashpoints overseas.

HSBC also helped its tax-dodging clients stay ahead of the law.

When the European Savings Directive was introduced in 2005, the idea was that Swiss banks would take any tax owed from undeclared accounts and pass it to the taxman.

It was a tax designed to catch tax evaders. But instead of simply collecting the money, HSBC wrote to customers and offered them ways to get round the new tax.

HSBC denies that all these account holders were evading tax.

Richard Brooks, a former tax inspector and author of The Great Tax Robbery, said: "I think they were a tax avoidance and tax evasion service. I think that's what they were offering. They knew full well that people come to them to dodge their tax liabilities."

The man in charge of HSBC at the time, Stephen Green, was made a Conservative peer and appointed to the government.

Lord Green was made a minister eight months after HMRC had been given the leaked documents from his bank. He served as a minister of trade and investment until 2013.

He told Panorama: "As a matter of principle I will not comment on the business of HSBC past or present."

Treasury minister David Gauke defended Lord Green's appointment on BBC's Radio 4. "I am not aware of any evidence that suggests that Lord Green was involved in this sort of activity", but said he did not know whether anyone asked him about HSBC prior to his government appointment.

But Hodge said: "Either he didn't know and he was asleep at the wheel, or he did know and he was therefore involved in dodgy tax practices.

"Either way he was the man in charge and I think he has got really important questions to answer."

Meanwhile, HSBC said it has completely overhauled its private banking business and has reduced the number of Swiss accounts by almost 70 percent since 2007.

In a statement, the bank said: "HSBC has implemented numerous initiatives designed to prevent its banking services being used to evade taxes or launder money."

The bank said it now puts compliance and tax transparency ahead of profitability. But Panorama has spoken to a whistleblower who said there were still problems with tax dodging at HSBC private bank when she worked there in 2013.

Standard Chartered Plc will shift its retail banking focus to affluent clients from ordinary customers and urge them to bank online as part of a broader restructuring led by embattled CEO Peter Sands, a senior executive told Reuters.StanChart's retail business is one of the first divisions the Asia-focused lender has targeted with cuts, announcing last month it would axe 4,000 retail jobs or 5 percent of its global workforce and close 80-100 branches.

The costs cuts and the shift to wealthy clients in Asia, the Middle East and Africa come as Sands, who some investors would like to see replaced, is under increasing pressure to revive the bank's fortunes after a troubled two years.

"We're steering away from clients who just want a personal loan to those who'll buy multiple products," Karen Fawcett, global head of retail clients at StanChart, told Reuters in an interview on Monday.

The bank's retail division contributes 30 percent of its revenues. Affluent and business customers represent just one fifth of its 10.4 million retail clients but account for about half of the division's profits.

Revenues from those clients have grown by 10 percent in recent years, compared with zero growth for revenue from less wealthy customers, Fawcett said.

Amid calls from some of the lender's top investors to stand down, Sky News reported on Friday that Sands had told senior staff on an internal conference call last week that succession planning has already begun.

Fawcett said she had not been present on the call. "Peter is a very competent chief executive and he is running the bank," she said.

On the impact of cost cuts, Fawcett said she was aiming to reduce the division's cost-income ratio from 67 percent to 65 percent by the end of the year, and ultimately to 55 percent.

By comparison, HSBC Holdings had a cost efficiency ratio of 64.5 percent for its retail division, according to its 2013 annual report.

In addition to previously announced closures in South Korea, the bank has closed many branches in Pakistan. Most other markets will also see a few closures, Fawcett said, adding that some branches will be relocated.

Another key time-saving initiative will be the rollout of an iPad-based platform for recruiting new clients in 10 markets this year and another 10 markets in 2016, she said.

StanChart's Hong Kong shares ended down 1.4 percent. They have lost more than a third of their value in the past 12 months.

Banks' default loans dropped 12.45 percent in the last quarter of 2014 after rising in the three previous quarters, much to the relief of the central bank.

On December 31 last year, the banking sector's bad loans stood at Tk 50,155 crore or 9.69 percent of its total lending.

In contrast, on September 30, the sector's bad loans were Tk 57,291 crore or 12.6 percent of the total outstanding loans.

The sector started the year with Tk 40,583 crore of bad loans, which then rose to Tk 48,172 crore in the first quarter, Tk 51,345 crore in the second quarter and further more the following quarter.

The upward trend prompted the central bank towards the end of last year to direct the banks to take strong measures to address the situation.

Subsequently, banks went on strong recovery drives in the last quarter and also conducted rescheduling and write-offs, Bangladesh Bank Deputy Governor SK Sur Chowdhury said.

The banks realised Tk 3,064 crore in the fourth quarter of 2014, which is up almost 45 percent over the previous quarter.

The central bank too had a part in the drop in classified loans: it intensified its monitoring of the banks' default loan situation, pushed banks to pay more attention to realising loans and put pressure on them to create a good lending culture in the country, Chowdhury said.

“Plus, the political situation was calm last year, so the businessmen could pay the loans on time.” 

Between September and December, the bad loans of the four state-owned commercial banks plummeted 20.88 percent and private banks 16.97 percent.

The five specialised banks though saw their bad loans swell 7.17 percent during the period. The foreign banks' bad loans too increased, by 4.15 percent.

The central bank, in a statement, tipped the classified loans to shrink further in the coming quarters once the large loan restructuring policy comes into effect

As many as top 61 big borrowers collectively owe commercial banks a whooping Tk53,000 crore, and each of them borrow more than Tk500 crore from different lenders, as per a list the central bank prepared.

These borrowers account for 25% of total large loan of Tk2,15,000 crore, which also accounts for 34% of the total loans and advances of Tk6,34,000 crore as of September last year,  according to the Bangladesh Bank data.  

Of them, 21 are loan defaulters, making up 25% of entire default loan valued Tk20,000 crore, it revealed.    

Bangladesh Bank estimated the loan amount borrowed by individual large borrowers with over Tk500 crore each, but it has not any actual statement about the exposure of groups, according to a central bank source.

Beximco Limited, the country’s industrial conglomerate Beximco Group’s flagship company,  is the biggest borrowers and loan defaulters as well, borrowing around Tk3,300 crore from a consortium of 10 lenders, the data said. 

S Alam Group came second taking loan of around Tk6,000 crore in the name of its seven companies having loan exposure of over Tk500 crore each. 

The global recession that affected many of large borrowers, political instability and misuse of banking system with developing cozy relationship, leading to thousands of crores of bad loans or non-performing loans, officials say.

The steep rise in bad loans in the past few years has forced the central bank to come up recently with strong measures to ensure banks do not sweep bad loans under the carpet giving facilities to restructure loan both for the defaulters and non-defaulters. 

On January 27, the central bank had approved a restructuring bad loan policy under which a big borrower would get a maximum of 12 years to repay loans above Tk500 crore. 

“We have seen that globally reputed banks across the world had to close shops due to bad debts because of a few individuals. But now with increasing bad loans by some willful defaulters, the threat looms large over banking sector. It needs to be addressed before it is too late,” said a banker.

He said those who were willful defaulters and took illegal means should be brought to book.

NCC Bank Managing Director Hafiz Ahmed said big loan restructuring for long term is a mismatch between assets and liabilities, as maximum deposits are of short term. 

“Repayment failure of large loan is a serious threat for the banking sector, reducing banks’ capability   to provide fresh loan for long term in future,” he said. 

The veteran banker criticised the big loan restructuring policy and said the central bank’s move will encourage loan defaulters and discourage the good borrowers.  

Among some of the policies, a big borrower can have the facility only once but has to apply for it by June 30 this year and if a borrower fails to repay two instalments consecutively, he will forfeit the facility, and his fate will be decided as per the bankruptcy law. 

Though interest rate on the restructured loan would be fixed by the bank, it has to be more than the aggregate amount of the bank’s cost of funds and 1% interest rate, according to policy. 

The other large borrowers having exposure over Tk500 crore to multiple banks and non-bank financial institutions are – BRAC, Nitol Motors, Grameen Phone, S Alam Edible Oil, Shah Cement Industries, Ananda Shipyard, C.P Bangladesh, Abul Khair Steel, KSRM Steel, S Alam Vegetable Oil, Abdul Monem Sugar Refinery, Pacific Bangladesh Telecom, Abdul Monem, Grameen Shakti, Anwer Khan Modern Hospital, Marrine Vegetable Oils, Mohammed Elias Brothers, IFAD Autos, Zaber and Zubair Fabrics, S Alam Refined Sugar Industries, Rupayan Housing, Best Holdings, Powerpac Mutiara Keraniganj Power Plant, S A Oil Refinery, Western Marine Shipyard, Bashundhara Paper Mills, Rising Steel, Bangladesh Agricultural Development Corporation, Jamuna Builders, BSRM Steel, The ACME Laboratories, Airtel Bangladesh, Samannaz Super Oil, Mother Textile, BURO Bangladesh, BARAKA Patenga Power, Nurjahan Super Oil, KYCR Coil Industries, PFI Securities, Navana Real Estate, Bashundhara Industrial Complex, Abul Khair Tobacco, Abul Khair Limited, Kabir Steel Re-Rolling Mills, Yasmin Spinning Mills, GPH Ispat, Zubair Spinning Mills, Siddique Traders, S Alam Trading Company, S Alam Cold Rolled Steels, Zaber Spinning, NBL Securities, Max Spining Mills, S Alam and Company, Noman Composite Textile, Deshbandhu Sugar Mills, Banglalink Digital Communication, Dhaka Trading House, Project Builders. 

A central bank official said to recover the bad loans through restructuring is important as many countries like India have adopted such policy.  

To defend the loan restructuring policy for defaulters, BB Governor Atiur Rahman earlier said it was formulated for the sake of country’s economy and employment. “The defaulters, though, get preference from the central bank repeatedly on excuse of the political unrest but so far good borrowers, who maintain their loan repayment regular even after facing the same difficulties, did not get any favour.” 

In its latest monetary policy statement, the BB said the central bank firmly discouraged the abetting of habitual and willful loan repayment defaulter.

It also created room for helping out recovery of genuine businesses distressed by circumstances beyond their control with realistic debt restructuring in line with international best practices, the monetary policy said. 

Britain's biggest bank helped wealthy clients cheat the UK out of millions of pounds in tax, the BBC has learned.

Panorama has seen thousands of accounts from HSBC's private bank in Switzerland leaked by a whistleblower in 2007.

They show bankers helped clients evade tax and offered deals to help tax dodgers stay ahead of the law.

HSBC admitted that some individuals took advantage of bank secrecy to hold undeclared accounts. But it said it has now "fundamentally changed".

The documents, stolen in 2007 by computer expert Herve Falciani working for HSBC in Geneva, contain details of more than 100,000 clients from around the world.

Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities. And while tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.

The French authorities assessed the stolen data and concluded in 2013 that 99.8% of their citizens on the list were probably evading tax.

The thousands of pages of data were obtained by the French newspaper Le Monde. In a joint investigation, the documents have now been passed to the International Consortium of Investigative Journalists, theGuardian newspaper, Panorama and more than 50 media outlets around the world.

The documents include details of almost 7,000 British clients - and many of the accounts were not declared to the taxman.

HM Revenue and Customs (HMRC) was given the leaked data in 2010 and has identified 1,100 people who had not paid their taxes. But almost five years later, only one tax evader has been prosecuted.

HMRC said £135m in tax, interest and penalties have now been paid by those who hid their assets in Switzerland.

But the chairwoman of the Public Accounts Committee, Margaret Hodge MP, said: "I just don't think the tax authorities have been strong enough, assertive enough, brave enough, tough enough in securing for the British taxpayer the monies that are due."

HSBC did not just turn a blind eye to tax evaders - in some cases it broke the law by actively helping its clients.

The bank gave one wealthy family a foreign credit card so they could withdraw their undeclared cash at cashpoints overseas.

HSBC also helped its tax-dodging clients stay ahead of the law.

When the European Savings Directive was introduced in 2005, the idea was that Swiss banks would take any tax owed from undeclared accounts and pass it to the taxman.

It was a tax designed to catch tax evaders. But instead of simply collecting the money, HSBC wrote to customers and offered them ways to get round the new tax.

HSBC denies that all these account holders were evading tax.

Richard Brooks, a former tax inspector and author of The Great Tax Robbery, said: "I think they were a tax avoidance and tax evasion service. I think that's what they were offering. They knew full well that people come to them to dodge their tax liabilities."

The bank now faces criminal investigations in the US, France, Belgium and Argentina. HSBC said it is "co-operating with relevant authorities". But in the UK, where the bank is based, no such action has been taken.

The man in charge of HSBC at the time, Stephen Green, was made a Conservative peer and appointed to the government.

Lord Green was made a minister eight months after HMRC had been given the leaked documents from his bank. He served as a minister of trade and investment until 2013.

He told Panorama: "As a matter of principle I will not comment on the business of HSBC past or present."

Treasury minister David Gauke defended Lord Green's appointment on BBC's Radio 4. "I am not aware of any evidence that suggests that Lord Green was involved in this sort of activity", but said he did not know whether anyone asked him about HSBC prior to his government appointment.

But Ms Hodge said: "Either he didn't know and he was asleep at the wheel, or he did know and he was therefore involved in dodgy tax practices.

"Either way he was the man in charge and I think he has got really important questions to answer."

Meanwhile, HSBC said it has completely overhauled its private banking business and has reduced the number of Swiss accounts by almost 70% since 2007.

In a statement, the bank said: "HSBC has implemented numerous initiatives designed to prevent its banking services being used to evade taxes or launder money."

The bank said it now puts compliance and tax transparency ahead of profitability.

But Panorama has spoken to a whistleblower who said there were still problems with tax dodging at HSBC private bank when she worked there in 2013.

Sue Shelley was the private bank's head of compliance in Luxembourg. She said HSBC did not keep its promise to change. "I think the verbal messages were great but they weren't put into practice and that disturbed me greatly," she said.

It was her job to make sure HSBC followed the rules, but she said she was sacked after raising concerns. She has since won a tribunal hearing for unfair dismissal.

The revelations have also caused a political row.

Mr Gauke has urged Ed Balls, City minister in 2007, to make a statement about the last Labour government's handling of tax evasion.

"It is for the City Minister in [the] years up to 2007, Ed Balls, to make an urgent statement about what he knew about all this and why the then government allowed tax avoidance and evasion to take place on such a scale.

Since 2010 we have closed many of the loopholes exposed in this report and specifically taken action to get back money lost in Swiss Bank Accounts."

But Labour's Rachel Reeves, shadow work and pensions secretary, defended the Labour party against accusations of inaction against tax evasion when it was in power.

"This behaviour by HSBC wasn't unearthed until 2010 so it's not something Ed Balls [City minister in 2007] or the last government could have done anything about," she told Radio 5.