Yesterday I covered some of the things related to banking secrecy that are missing in the overall media discussion around the HSBC Files. Today, I’ll try to answer why you’re seeing so few criminal investigations and why you’re unlikely to see many successful convictions. I’ll tackle it from a UK perspective because that’s where we have the abundance of material, but the same issues that affect UK officials will affect all national authorities who try to go after the people whose names can be found in the files.
First of all it’s good to start off with some perspective. The HMRC has been widely criticised in the UK for a lack of general enthusiasm in going after the UK nationals in the HSBC Files, but it's fair to say that the HMRC is between a rock and a hard place.
The HSBC Files, according to reports, contained around 6000 UK names. Once they had gone through them and taken out duplicate accounts what they had left were around 3800 names. Yet there are very few criminal investigations ongoing. Why is that?
Yes, it’s obvious based on the reports that there have been some naughty individuals on the list and so far the HMRC has managed to collect back taxes from around 1000 of them, which makes around 30%. But that would indicate that around 70% of the names have actually been tax compliant. I know this doesn’t make for juicy headlines, but it’s good to bear that in mind. So let me repeat it: The vast majority, at this moment in time, appear to have been tax compliant…ish
It’s actually not that difficult to believe: Private banks rarely pay interest on current accounts and if clients had only cash and equities in their accounts and the equities were buy and hold with no sales (capital gains tax sets in when there is a realised capital i.e. a sale). Where's the tax liability? (I'm no UK tax expert so feel free to correct me if I'm wrong in the comments section below)
For the sake of debate let's agree that there are some very, very naughty individuals on the list, then the UK authorities need to ask themselves (I’m sure they have) if they want to collect back taxes or do they want convicitions. Collecting back taxes in the form of coming to a settlement with individuals on the list is far, far easier and far, far more profitable than going to court. I believe the UK authorities have done the smart thing and gone for the tax income rather than convictions.
Consider what they have at the moment. They have a list of names and details of about 1000 accounts that are potential targets for investigation. That information has, from a legal perspective, been gathered illegally. After all, Mr. Falciani stole privileged information and then distributed it to authorities. So the real question here is how well will information gathered illegally stand up in a criminal trial in the UK? One thing is for sure though, chasing a criminal conviction will be long and expensive with an uncertain outcome.
There’s also the question of muscle here. There’s only one country that has enough muscle to put banks inline quick fast and in a hurry. They’ve actually already done it and the rest of the world has them to thank. That’s the USA. With their Patriot Act the US is able to kill any bank it wants by cutting off access to the US dollar (I’ve written about this in detail previously here). Even if the UK could cut off access to the British pound it really wouldn’t matter that much, even though the Brits did build an empire powered with cups of tea, warm beer and bad sausages while wearing some very snazzy uniforms, the pound as a currency really isn’t that vital to any Swiss bank's existence.
So don't be surprised at the lack of convictions and criminal investigations, you're unlikely to see many of them in the UK or any other country for that matter, although there will probably be a few sacrificial lambs for the sake of public consumption.
To read my first article on the HSBC Files click here.
In my next article I will discuss how banking secrecy has changed and whether the events described in the HSBC Files are still possible today.