The HSBC Scandal: One rule for the rich and another for everybody else?

Last week saw the leak of documents presenting the names of approximately 130,000 potential tax evaders that used the Geneva branch of HSBC. The documents were obtained through the collaboration of news outlets such as the Guardian, Le Monde and BBC, as well as the International Consortium of Investigative Journalists. Given the ongoing promotion of austerity by European governments and its detrimental effect on the provision of public services, the way in which such a tax scandal has been overlooked is rather appalling, considering that tax evasion has deprived governments of revenue to be used in providing these services.

Given the leaked bank account files, HSBC is accused of having helped the customers dodge taxes, as well as concealing assets and making untraceable payments. Furthermore, HSBC advised these customers on circumventing tax authorities in their respective countries.

HSBC’s past is not free of scandals. Previously, HSBC has facilitated sanctions evasions, the laundering of drug money and terror-financing in relation to a number of states ranging from Saudi Arabia to Mexico. ‘We acknowledge and are accountable for past compliance and control failures’, the bank said in a statement. The statement added that the Swiss arm of the bank had not been fully integrated following its purchase in 1999, having led to ‘significantly lower’ standards of compliance.

Meanwhile, the HM Revenue and Customs (HMRC) in the UK admitted to having received about 7,000 names back in May 2010. A mere £130 million has been recouped, with only one individual being prosecuted to date. Ed Miliband, leader of the opposition and the Labour Party, has stated that the HMRC’s approach to tax evasion and avoidance will be reviewed if Labour comes to power. Stressing that the UK tax authority needs to ‘do a much better job’, Miliband also accused the coalition government of ‘shrugging its shoulders’ on tax evasion, leading to a loss of £34 billion in UK public finances.

In addition to staunch Labour opposition, the scandal has embarrassed the Conservatives in several other ways. Lord Stephen Green, former boss of the HSBC, resigned from his position as chair of TheCityUK’s Advisory Council, as the scandal coincides with his time in charge of the bank. Green had served as David Cameron’s trade minister from 2011-2013. Furthermore, Cameron has been challenged over the strong links between HSBC and the Conservative Party, given that the Electoral Commission has demonstrated that three senior bank figures have donated a sum of £875,000 to the party in recent years. Cameron has not disputed the donations.

A Downing Street spokeswoman stated that neither Green nor any other Conservative ministers had ‘any knowledge that HSBC may have been involved in wrongdoing in regard to its Swiss banking arm prior to the reports of the last couple of days’.  Cameron dismissed Miliband’s claims that he is ‘up to his neck’ in the scandal, reminding Miliband that Green was previously appointed as the head of Gordon Brown’s business advisory council. He added that the Labour Party ‘did nothing about tax transparency, nothing about tax dodging, nothing about tax avoidance’ in the 13 years it controlled the Treasury.

Nonetheless, Miliband’s campaign is likely to continue its focus, with increased intensity, on the idea that Britain risks ‘having one rule for the rich and powerful and another for everybody else’, as the leader stated regarding the bank scandal. Miliband has recently focused on tax evasion in his election campaign, targeting UK offshore dependencies, such as Jersey and Bermuda. He stated that if Labour wins the general election, they will have six months to adopt transparency measures, or will face blacklisting. The Conservatives will continue to label Miliband as anti-business, and highlight that Miliband’s concerns are mere rhetoric, given his inaction in previous Labour administrations under Tony Blair and Gordon Brown, in which he served in several ministerial roles. Nonetheless, the timing of the leak is likely to make it more damaging for Cameron and the Conservatives in the lead-up to the General Election in May.

The scandal has also had considerable impact in the US. Lawmakers are expected to question whether HSBC and its executives in the US should be prosecuted, as well as the rigour of the Internal Revenue Service (IRS) investigations into undeclared US assets in Switzerland. Moreover, the confirmation of the appointment of Loretta Lynch, Barack Obama’s nominee for attorney general, is being delayed in the Senate as Republicans seize the opportunity to question Lynch’s role, as the US  attorney for the Eastern District of New York, in negotiating a settlement with HSBC employees which involved a money laundering deal with Mexican drug cartels and terrorist organizations in 2012.

Undoubtedly, the HSBC scandal is yet another example among many of how illegal acts in the financial sector are overlooked. We have once again been reminded that the lines between government and financial malpractice are rather blurred.

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