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Too big to manage? HSBC's chiefs grilled over tax scandal

Published:Friday | February 27, 2015 | 12:00 AM
The building of HSBC France headquarters on the Champs Elysees in Paris, Monday February 9, 2015. French prime minister Manuel Valls reacted Monday after details of some 30,000 accounts with US$120 billion of assets were analyzed by the French daily Le Monde, The Guardian in Britain, the BBC and the Washington-based Consortium of Investigative Journalists.

First there was money laundering. Then foreign-exchange rigging. Now tax evasion.

HSBC, Europe's biggest bank, has endured a string of scandals and paid billions in penalties to regulators around the world. But recent revelations that its Swiss private bank helped the wealthy evade taxes are raising new questions about whether big banks like HSBC have become too vast to manage and who should be accountable when things go wrong.

Lawmakers on the UK Parliament's Treasury Committee peppered HSBC Chairman Douglas Flint and Chief Executive Stuart Gulliver on Wednesday with questions about personal accountability amid allegations that its Swiss private bank helped wealthy clients, including as many as 1,000 Britons, evade taxes. There were times the hearing sounded as if it should be held in a confessional, framed with words like contrition, atonement, morality and shame.

Flint and Gulliver did not quite beg for forgiveness for past wrongs. But they got close.

"We are suffering from horrible reputational damage," Flint acknowledged. "A bank lives on its reputation. No bank wants to associate itself with activities, behaviours or clients that would do it damage."

Flint and Gulliver have publicly apologised for HSBC's conduct before, stressing that the Swiss issue was an historical one and that the bank has taken steps to ensure proper practices. HSBC has "no appetite" to help tax evaders, the bank said in an open letter published in national newspapers.

The scandal broke this month when reporters mined a trove of leaked documents from 2005-07 for details of 30,000 accounts at the Swiss private bank that held almost $120 billion in investments. The information was turned over to French authorities by a former bank employee.

HSBC isn't the first bank to be hit with allegations it helped clients avoid taxes as governments sought to boost revenue and balance budgets ravaged by the financial crisis.

Swiss banking giants UBS and Credit Suisse have both agreed to fines in the US on allegations they conspired to help Americans evade taxes. US banking behemoths JP Morgan and Citigroup are being investigated by the US for manipulation of foreign-exchange markets, among other things.

"If you think this is just HSBC, then you are mistaken," said Louise Cooper, a former Goldman Sachs stockbroker who writes the financial blog 'CooperCity'. "HSBC is just the bank to get caught as the French whistle-blower happened to work there."

Tax evasion is only the most recent scandal to hit HSBC.

HSBC executives acknowledge that the bank's sheer size and rapid growth before the financial crisis led to control issues.

HSBC acquired much of its Swiss private bank when it bought Republic National Bank of New York and Safra Republic Holdings in 2009.

"The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist," the bank said in a report this month. "With hindsight, it's clear that too many small and high-risk accounts were maintained and the business was stretched over more than 150 geographical markets."

Founded 150 years ago as the Hong Kong and Shanghai Banking Corp, HSBC now has more than 6,100 offices in 73 countries. Under Gulliver's leadership, HSBC has simplified its organisational structure and reduced its workforce by about 17 per cent to 257,000.

Size raised questions

Its size has raised question over whether it, like other large banks, has just became too unwieldy.

"If they're too big to fail, they're too big to control," said Crawford Spence, a professor of accounting at Warwick Business School. "But are they too big to bludgeon into corporate responsibility?"

On a conference call with reporters this week, Gulliver said society now holds public companies to a higher standard than other large institutions, such as the military. He argued essentially that top executives shouldn't be held responsible for the actions of individual employees, just as generals aren't expected to track the actions of every soldier in the trenches.

He tried to backtrack from the comments during Wednesday's testimony, but made it clear that he was taking responsibility for making it right from now on.

"I'm responsible for cleaning it up," he said.

- AP