HSBC is in the television cross-hairs for its Swiss private bank's past activities. The bank argues it has already pushed big changes through.

Yesterday, domestic UK headlines were dominated for several hours by last night’s BBC Panorama documentary saying how HSBC’s private banking operation in Switzerland allowed thousands of clients to dodge taxes. From the amount of column inches devoted to this, one might even suppose this was a new story and a devastating piece of information. Except that it isn’t new at all to those of us tracking this industry every day.

From 2006 to 2007, a former employee of the Hong Kong/London-listed banking group’s Swiss business, Hervé Falciani, “systematically and deliberately downloaded details of accounts and clients”, the bank said in a lengthy explanation of what has happened. That act, it said, was “a blatant criminal violation of Swiss law". Falciani is accused of attempting to sell the data to Lebanese banks under a false name, as the Swiss Attorney General stated late last year. (To view a report on his case, see here.)
 
A court case is still going on; the behaviour of Falciani raises questions of whether a bank employee who wants to be a “whistleblower” in Switzerland can really do so without being hit by the country’s long-standing bank secrecy laws. But it also raises the point – not often heard in the mainstream media – about the need for a distinction to be drawn between legitimate client privacy and secrecy. After years of attacks and controversy, it is still pretty clear that the need for such a distinction is not widely understood – privacy is not a trivial matter.

HSBC says it has done a lot to clean up its act since 2008, including a sharp cut in the number of booking centres, thereby reducing risks of accepting hot money. It adds that in 2007 its Swiss private bank had 30,412 accounts, and that number at the end of last year had shrunk to 10,343. As for assets under management, the private bank in Switzerland previously had total client assets of $118.4 billion. At the end of 2014, that number had been actively managed down to $68 billion, a significant drop.

Judging by the reactions of some legislators, though, this is hardly enough. Margaret Hodge, chair of the UK House of Commons Public Accounts Committee, who has grilled banks about offshore accounts, said on the BBC television news yesterday that the public will expect many more people who dodge taxes via offshore accounts to be harshly punished than is the case at present. Even discounting political bias or perhaps misguided distrust of offshore accounts, she has a point. It is not enough for tax dodgers to be caught – there must be seen to be consequences so that such conduct stops.

It is, by the standards of these things in my experience, relatively unusual for a bank to go to such lengths as HSBC has done in explaining what it has done to change in the last few years. As HSBC says, in the past, it was the responsibility of clients using Swiss private banks to obey the law. Banks were happy, as it were, to book the money and not ask questions. With many clients seeking to keep their riches away from prying eyes (sometimes for entirely legitimate reasons), there were also abuses. HSBC says it is fully committed to exchanging information and ensuring clients are open about tax, even ahead of legal or regulatory requirements to do so.

By way of background, before the acquisition in 1999 of Republic National Bank of New York and Safra Republic Holdings, a US private bank, HSBC had a small private banking activity focused mainly on group clients. The Swiss private bank was largely acquired through this transaction. The Republic/Safra business focused on a very different client base and had a significantly different culture to HSBC, the bank said in its account of developments. “The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist. 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,” HSBC said.

In light of events over the past six or seven years, that final sentence by HSBC is an understatement. But it is also clear that the bank has, long before any television documentaries, realised that past practices are unacceptable and must stop to protect its reputation. Swiss private banking has been through a torrid time, as the UBS and Wegelin sagas, among others, demonstrate. We are now in a period when, after such a big data leak, there are likely to be stories for months, even years to come, on how X or Y was dodging tax via a Swiss bank account. This is to be expected. But without minimising the importance of this issue, it would perhaps be a good idea if people did not treat this behaviour as having only come to light yesterday.