Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

HSBC: One of the ATMs available to tax evaders

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Major breaking news this weekend is the extent of shady dealings at HSBC’s subsidiary in Switzerland. Lots of dirty money accepted for deposit at the bank and lots of assistance provided to money launderers and tax evaders.

HSBC says they have cleaned up their act since 2008.

2/8 – The Guardian – HSBC files show how Swiss bank helped clients dodge taxes and hide millions – Part 1. Large volume of leaked files show a HSBC subsidiary in Switzerland actively helped clients evade taxes.

Activities allegedly include actively and aggressively marketing tax evasion schemes to clients and allowing existing client to withdraw “bricks” of currency so the clients can move untraceable money in untraceable manner. One time it was 5M in Swiss francs. For another customer it was $US100K per transaction to a named US surgeon so he could move cash back to the US.

This isn’t ancient history. The files cover the timeframe of 2005 through 2007. HSBC allowed the Swiss sub large autonomy until around 2008, at which point HSBC started to supervise the sub, according to the article.

2/9 – The Guardian – Cash pilgrims and bricks of money: HSBC Swiss bank operated like cash machine for rich clients– Part 2.  You can tell a story through statistics, such as Credit Suisse running a full service money laundering subsidiary since 1910 that will set up shell corporations to facilitate laundering and prepare all the needed fake documents. Or that the $2.5B fine for doing so cuts into the profit margin of the Credit Suisse tax evasion product line, but does not turn it unprofitable.

Or, you can tell a story using specific examples. Part 2 of The Guardian’s series takes that approach. It tells of specific customers taking specific amounts with the explanations or lack thereof documented in the files.

Like the customer who said don’t call me, make all contact with my cousin.

Like the perfume heiress who pulled £60K from her account in €7 per transaction.

Like a named doctor convicted of sports doping, of whom the article said his:

…offshore funds came from illegal doping of racing cyclists, withdrew a total of €265,000 in cash in the course of the year, claiming it was to buy a boat and to pay hospital bills for his daughter.

Back at the overall level, we see the picture of a bank with the cultural values that provide the service of never making direct contact with a customer. As an intentional service.

From the article:

HSBC says it has since banned its Swiss “hold mail service” under which it kept all correspondence and made no giveaway phone calls.

The HSBC staff did have standards though. They would not actually carry currency across national borders. Customers had to do that themselves.

Previous settlement for full service money laundering

Do recall that HSBC previously paid a $1.9B find for money laundering. My previous comment on that settlement:

With the hand-delivery of unreported cash in the US, it reminds me of the full-service laundering facilities of HSBC who helped unidentified parties from South America move $7B of currency (yes billions) into the US, including (if I recall correctly) the go-the-extra-mile, service-with-a-smile step of helping their customers load bales of currency in the back of vehicles.

Loading bales of unreported currency into the trunk for the known purpose of transport across the border: Okay.

Actual courier duties: Not okay.

Article also asserts that HSBC’s sub knew that some of their customers were making money by running drugs.

More articles

2/9 – Wall Street Journal – HSBC Hit by Fresh Details of Tax Evasion Claims – Catchup coverage of the major lead discussed above. Quotes from HSBC executives assert the bank cleaned up its compliance starting in 2008. Article says a dozen Swiss banks are still under investigation by DoJ.

Learning for me from the WSJ article is another illustration of how one newspaper covers a massive scoop by a competitor.

2/8 – International Consortium of Investigative Journalists – Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers – Much more background. A group of over 140 journalists from more than 50 media outlets have been working on the data.

Scope of participants in the numbered account world include drug runners, blood diamond merchants, dictators, people on the US sanctions list, alleged financiers to Al Qaeda, arms dealers, and even major donors in the US political world.

Looks like we will see lots more coverage.

Question for auditors

If you’ve read this far in my post and you are an auditor, ponder this:

Consider the concept of ‘tone at the top’ and corporate culture. How can you possibly audit a bank which has a subsidiary that is intentionally flouting all manner of international laws?

Written by Jim Ulvog

February 9, 2015, 8:34 am at 8:34 am

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