HSBC’s Swiss Tax Files of Eight Years Ago Come to Spook Gulliver

(Bloomberg) — Fresh details showing how HSBC Holdings Plc helped wealthy clients avoid taxes have come to haunt Chief Executive Officer Stuart Gulliver.

It’s about eight years since computer technician Herve Falciani took five disks of confidential information from Europe’s largest bank, sparking investigations worldwide. A report from the Washington-based International Consortium of Investigative Journalists on Sunday revealed for the first time the depth of HSBC’s handling of secret accounts for an array of criminals.

“Gulliver must be absolutely squirming,” Christopher Wheeler, an analyst at Atlantic Equities LLP in London, said by telephone. “I suspect he doesn’t feel they’re bang to rights, but would love to put it away because we were talking about this two or three years ago.”

HSBC’s private-banking arm profited for years by handling secret accounts for clients, from arms dealers to drug cartels, according to the report. Gulliver’s efforts to clean up the bank by spending billions of dollars on compliance and internal controls in the wake of scandals are being overshadowed by the revelations, which have spurred a political outcry.

“We are never assertive enough, aggressive enough, and I think just determined enough to actually protect the taxpayer,” Margaret Hodge, the Labour lawmaker who heads Parliament’s Public Accounts Committee, told BBC Radio 4’s “Today” program Monday. “We should be much more assertive in defending the U.K. taxpayer’s interests.”

Hodge’s panel will question U.K. tax officials in a Feb. 11 hearing in Parliament.

Arrest Warrant

The bank’s former and current managers face an international arrest warrant if the bank doesn’t co-operate effectively with the tax probe, Belgian prosecutors said Monday.

The report refers to HSBC’s private banking arm as of 2007, when Gulliver was head of the bank’s securities unit and former CEO Stephen Green was chairman. Gulliver became CEO in 2011. HSBC has increased compliance staff to 6,000 from 1,500 over four years and is spending an additional $500 million to $1 billion, the bank said in August.

HSBC, in a written response to the report, said its compliance efforts had been insufficient and that the bank had undergone “a radical transformation” since 2007 and now enforced far more stringent reporting requirements.

‘Pour Smoke’

“Past scandals pour smoke on the investment case and leave the outcome a little bit opaque for shareholders,” said Chris White, who helps to oversee about 3.2 billion pounds ($4.9 billion) including HSBC shares at Premier Asset Management Plc in Guildford, England. “The shares are fundamentally quite cheap, but there remains uncertainty about the regulatory outlook and the fines which will be coming its way.”

HSBC declined 1.9 percent to 609 pence at 3:31 p.m. in London trading. The stock has fallen 2.9 percent in the past 12 months.

A self-described whistle-blower and former information technology worker, Falciani, stole client account details from HSBC’s Geneva office in 2008 and passed them to French Finance Minister Christine Lagarde, now head of the International Monetary Fund. She provided details to governments worldwide.

French magistrates charged HSBC’s Swiss private-banking unit in November with money laundering through tax fraud and illegal bank and financial marketing. That came a month after Belgian prosecutors also charged the bank’s Swiss unit, accusing it of illegally helping wealthy clients in the country dodge hundreds of millions of euros in taxes.

HSBC said it would cooperate with the authorities on both occasions.

Don’t Help

“From a credibility perspective the reports don’t particularly help the company,” Gary Greenwood, an analyst at Shore Capital said. “From an investment case perspective, it’s a question of if there is litigation on the back of this from the tax authorities” and how clients feel about the disclosure, he said.

The bank is also among a group of Swiss lenders subject to a U.S. criminal tax-evasion probe. Credit Suisse Group AG agreed in May to pay $2.6 billion in penalties and pleaded guilty to helping Americans cheat on their taxes, making it the first global bank in a decade to admit to a crime in a U.S. courtroom. UBS Group AG avoided prosecution in 2009 by paying $780 million and handing over the names of U.S. account holders.

“We’re sort of tail-end Charlie in the process” of the investigation, HSBC Chief Financial Officer Iain Mackay told analysts at a meeting in May. “They’re going after the big guys first.”

To contact the reporter on this story: Richard Partington in London at [e-mail] To contact the editors responsible for this story: Simone Meier at [e-mail] Jon Menon