Here's a surprise: People apparently used Switzerland's famous bank secrecy laws to hide huge piles of cash from the taxman. The list included politicians, wealthy business operators, celebrities of various types, dictators and dealers in illicit arms, drugs and blood diamonds. And some major banks aggressively pursued the lucrative business.
This was widely known and so blatant that the embarrassed Swiss finally had to do something about it. But that doesn't mean the revelations about the egregious actions of one bank – the Swiss arm of global giant HSBC – are any less shocking.
Thanks to a whistle-blower, a vast trove of documents covering activity between 2005 and 2007 in about 30,000 accounts holding a combined total of close to $120-billion (U.S.) has been available to various governments since 2008. The documents have prompted prosecutions for tax evasion and millions of dollars in settlements. Britain alone has recovered £135-million ($205-million).
HSBC overhauled the Swiss operation, which it claims failed to meet its compliance standards. But that didn't happen until 2011.
Now, the startling details have been made public by the International Consortium of Investigative Journalists and several news outlets, including Le Monde, the Guardian and the BBC.
HSBC first tried to get the consortium to destroy the documents. When that failed, the bank fell back on a version of the "rogue" defence so beloved by the financial industry when the public learns that great results were directly tied to less than upright behaviour.
"We acknowledge and are accountable for past compliance and control failures," HSBC declared Sunday.
After HSBC acquired the private Swiss bank in 1999, assembled from assets sold by billionaire banker Edmond Safra, it was not fully integrated into the parent. As a result, "significantly lower" standards and due diligence were left unchanged, the bank said. (Translation: The profits were rolling in, so why mess with a good thing?)
The vast scope of illegal activities highlight once again why fines – even huge ones – may not be enough to deter bankers from behaving badly when the siren call of easy profits beckons.
HSBC had plenty of company in the lucrative business of helping clients to evade onerous taxes and skate around regulations designed to prevent money-laundering and enforce financial sanctions against rogue regimes. The leading culprits have paid hefty fines, but not a single executive has been charged.
In late 2012, HSBC coughed up more than $1.9-billion in penalties to settle charges of laundering cash for Mexican drug cartels and violating U.S. laws barring dealings with clients in Iran, Sudan, Cuba, Libya and Myanmar.
At the time, the bank's chief executive declared: "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again."
This followed earlier penalties for lax oversight of customer activities.
But these have become just another balance sheet item, part of the cost of doing business. A better deterrent would be charges against the bankers directly involved in the shady dealings and the bosses who looked the other way.
So far, the only person facing charges in the Swiss case is the whistle-blower, Herve Falciani, a former IT staffer, for industrial espionage and breaking Swiss secrecy laws. He left the country in 2008.
The bank itself may soon face the legal music for the misdeeds of its Geneva crew. Ohio Senator Sherrod Brown, ranking Democrat on the banking committee and no friend of the big banks, wants to know why HSBC hasn't faced tax evasion charges.
A Belgian judge looking into the activities of the Swiss unit is so annoyed with the lack of co-operation from the group's directors said that he may issue an international arrest warrant.
So far, though, British authorities have been quiet about the latest scandal to envelop the London-based global bank. But then, this is the government that handed a peerage to Stephen Green, HSBC's chief at the height of the bank's worst prefinancial crisis behaviour.