Banks & regulators must counter tax cheats and stay business-friendly

THE scandal that has erupted anew over HSBC's apparent role in helping clients evade taxes through Swiss bank accounts is one that has played out several times in the recent past in the financial industry.

In 2009, UBS paid US$780 million to settle a tax evasion probe by the US Justice Department. In 2012, Standard Chartered Bank agreed to a US$340 million fine with the New York State Department of Financial Services for hiding transactions with Iran. Last year, it agreed to another US$300 million fine over its failure to tighten anti-money-laundering controls. Even for HSBC it is déjà vu, albeit arguably a far more damaging one. In 2012, it was fined US$1.9 billion by the United States for its role in helping to launder drug money in Mexico. The current revelations, which stem from documents stolen by a former employee, chronicle dealings in its Swiss subsidiary dating back to pre-2007, when employees evidently facilitated tax evasion and money laundering. Unlike other incidents, this time the client list was made public. So far it is a veritable who's who spanning 200 countries and includes politicians, entertainers and corporate executives, some of whom may well have maintained legitimate tax-compliant accounts.

In a lengthy response, HSBC said the compliance culture and standard of due diligence in its Swiss bank and the industry in general were "significantly lower" in the past than they are today. It said it is accountable for "past compliance and control failures". Its mea culpa, however, is unlikely to assuage the public outcry and the intense pressure to bring it to heel. In a number of countries, there are calls for regulators to launch fresh investigations into HSBC dealings. The issue is one with potentially widespread industry repercussions and should put other institutions on guard as it raises the likelihood that more whistleblowers will emerge. More than that, client confidence is at stake as the wholesale release of clients' names raises questions about an institution's data security and risks tarring even legitimate accounts with the same brush.