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Swiss tax claims threaten HSBC deal with US prosecutors

Published:Wednesday | February 11, 2015 | 12:00 AMBy Martin Arnold and George Parker in London, Gina Chon in Washington
FILE - In this July 30, 2007 file photo, the HSBC building is seen in the docklands, London. (AP Photo/Kirsty Wigglesworth, File)

The US Department of Justice is considering scrapping a deal that shields HSBC from prosecution for earlier infractions as the agency investigates allegations that the bank colluded in tax-dodging by clients of its Swiss operation.

The biggest London-listed lender was this week forced to admit that its Swiss private bank may have held accounts for tax-dodging customers after account details of more than 100,000 of its clients were leaked to news organisations.

The revelations - including claims that HSBC's Swiss unit handed large, untraceable bricks of cash in foreign currencies to clients and colluded with them to conceal "black" accounts from tax authorities - have provoked a political storm in several countries.

In the UK, a Treasury minister said the law might need to be changed to allow the authorities to prosecute senior bankers who "colluded" in tax evasion.

Danny Alexander, Treasury chief secretary, suggested that there was a gap in the law: "Financial institutions who are proven to have colluded with tax evaders should face the full force of the law. If that means a change in the law, or new powers for regulators, that is what we will do."

HSBC is one of about a dozen banks being investigated by the DOJ as part of a broad probe into banks in Switzerland that allegedly helped clients avoid US taxes. Credit Suisse pleaded guilty in the case last year and paid a US$2.6bn fine.

But HSBC could be in more trouble because of its multiple run-ins with the US authorities. In 2012, the bank agreed to pay US$1.9bn and entered into a deferred prosecution agreement over money-laundering allegations related to countries under US sanctions, such as Iran, and Latin American drug cartels.

The DOJ is still investigating whether HSBC helped clients avoid US taxes, and, separately, whether the bank manipulated foreign exchange markets. The

latest disclosures could prompt officials to reopen the deferred prosecution agreement and possibly scrap it. The DOJ could also choose to impose other penalties - or none at all, people familiar with the case said. The agreement did not limit the DOJ in the tax probe.

However, an HSBC insider said: "There is no basis to revisit the deferred prosecution agreement."

The latest revelations could put additional pressure on the DOJ to be tough on HSBC in the pending probes. "The recent revelations about HSBC's efforts to shield individuals from the laws of the US and other nations are just the latest in a long list of troubling misdeeds," said Maxine Waters, a US congresswoman.

HSBC said in a statement: "We acknowledge and are accountable for past compliance and control failures." It added: "We have taken significant steps over the past several years to implement reforms and exit clients who do not meet strict new HSBC standards."

(c) The Financial Times Limited 2015