The HSBC Buccaneers

Glen Newey

Austeritarian politics minds less about balancing the books than cutting the state. It aims to bear down on public spending but also distrusts tax, particularly on the well-off. Austeritarians bang on about the debt while failing to plug revenue holes.

Labour muddied the issue last week by merging it with the question of toxic party funding. At prime minister’s questions Ed Miliband attacked Tory donors including Lord Fink, who’d benefited from HSBC’s newly exposed Swiss tax scamming. Miliband apparently saw this as a chance to brand the Tories as high-rollers contemptuous of the fisc. The tactic was doubly doomed. First, another HSBC tax-refugee client, Lord Paul, has donated to Labour, and Labour’s trade union sponsorship let the Tories play to the public view that all politicians are equally grasping. In a raucous PMQs, Miliband failed to land a glove.

Second, the scandal happened on Labour’s watch. When the whistleblower Hervé Falciani realised that HSBC depositors were using its Swiss branch to dodge tax abroad, he contacted revenue authorities in several jurisdictions, including the UK. In 2008 the Treasury had other worries. As crunch ground towards crisis, it was drafting plans for emergency bank recapitalisation. HSBC, whose portfolio of bad assets fell far short of the Lloyds and HBOS exposure, successfully held out against the government’s proposal to take a public equity stake in it. Most of HSBC’s business was overseas, but it had a significant market share (21 per cent) in the UK banking sector: the government needed HSBC more than the other way round. Alistair Darling said that ‘the key was to get capital into the banks that needed it – primarily RBS and HBOS... but at the same time to persuade a bank like HSBC, which had no obvious need for more capital, to join the scheme.’ RBS and Lloyds/HBOS apart, post-crash compliance was voluntary in Britain, unlike in the US, a factor that one study blames for the UK’s much higher bailout costs as a share of GDP, since the scheme had to cover bigger risks.

Meanwhile last week, the Public Accounts Committee chair, Margaret Hodge, was sticking it to Lin Homer, the chief executive of Her Majesty’s Revenue and Customs. Homer denied seeing the alert Falciani sent to HMRC on 18 March 2008; UK customers’ deposits with HSBC’s Swiss branch totalled £21.7 billion. Homer is no stranger to administrative incompetence. As Birmingham’s chief executive and returning officer in the 2004 local elections, she failed to spot industrial-scale postal vote rigging, designed to stop Labour councillors getting ejected in the anti-Iraq war backlash; fixers lugged bundles of votes to the count in plastic bags. With HSBC’s Switzerland depositors, the bags held ‘bricks’ of cash denominated in non-Swiss currency. The bag-carriers include the familiar Playmobil set of minor royalty, hedge-fund plutocrats, rock and film stars, conflict-gem dealers and restaurateurs.

Last summer the PAC noted that ‘the government is owed a massive amount of money but it has failed to take a strategic cross-government approach to managing that debt and getting more money paid to the exchequer.’ It estimated unpaid debt owed to HMRC at £15 billion. It now uses private collector firms to scare small-fry debtors into coughing up. Not that that’s been a runaway success: in 2012-13 HMRC wrote off £3.5bn of tax-credit debt as ‘uncollectable’. Meanwhile, HMRC goofs on such big projects as clamping down on tax-haven dodges. Recently it cut a deal with the Swiss banks to get at ‘black money’ deposited by UK clients there, only to see most of the cash shunted next door to Liechtenstein, where HMRC had concluded a parallel but fiscally much laxer settlement. That may have leeched as much as £3bn.

When it got Falciani’s email in 2008, did the government, mindful of being on the back foot over the bailout, decide to go softly on HSBC’s buccaneering approach to tax? Not necessarily. HMRC’s ‘sweetheart’ deals, sewn up in recent years with firms like Starbucks, Vodafone and Goldman Sachs, are well documented. The government’s lead negotiator, Dave Hartnett, was the HMRC permanent secretary for tax until 2012, and would have been responsible for investigating Falciani’s allegations. Vodafone owed the exchequer £6 billion, which after a reported 48 meetings between Hartnett and Vodafone’s accountants, Deloitte, shrank to £1.25 billion. According to another whistleblower, Osita Mba, who worked on Goldman Sachs’s tax accounts, Hartnett also wrote off more than £10 million of accumulated interest on Goldman’s tax arrears. Since retiring from HMRC, Hartnett – proving the adage that there’s always life on the other side of the table – has landed jobs with Deloitte and indeed HSBC, whom he advises on ‘financial risks and crime’. For his pains Mba was raided, at HMRC’s behest, by officers acting under the anti-terrorism Regulation of Investigatory Powers Act.


  • 17 February 2015 at 4:57am
    farthington says:
    I say, what a jolly good system! Is this the modus operandi that goes by the name of 'the rule of law'?
    Let's export our principled principles to those countries with a corrupted governance who warrant only our permanent condescension.
    Meanwhile, in Brussels, if tax is an option, presumably so also is a member state's flouting of Maastricht.
    Bring it on.
    In the meantime, Shaxson's 2011 Treasure Islands should be a compulsory re-read.
    Esp the chapters on the City.
    So what hope Britain as long as it is essentially run in the interests of the spivs and the tax evaders?
    Time to cleanse the temple of the money-changers.
    No wonder Scotland wanted to secede from this whorehouse.

  • 17 February 2015 at 11:55am
    frmurphy98 says:
    Goodness. Harsh words, farthington. Extremely harsh.
    But so very true.

  • 17 February 2015 at 10:21pm
    Mat Snow says:
    Not for the first time, I am perplexed that Dave Hartnett seems not have faced any official investigation for corruption. Am I missing something here?

  • 18 February 2015 at 12:19pm
    Simon Wood says:
    I worked at "Honkers and Shankers", as old colonial hands call HSBC, for two months, high up in the clouds in Foster's Canary Wharf tower. After a while, I stopped having sandwiches at my desk for lunch and took and hour's stroll outside instead, discovering the old Seaman's Mission in Limehouse where the Situationist International once met and the excellent market in Poplar, a place once peopled by those with a nose for an opportunity such as Harry Redknapp, the cockney football manager.

    The lifts were extremely rapid and silent. In a building of 7,000 people, you heard a lot of different snippets of conversation in those lifts in the few seconds you spent being shot imperceptibly skywards or lowered to the good earth.

    Through my own contacts and initiative, I spoke at length to an HSBC lifer and at the other end of the scale to a young lad, fresh from Kent University with an IT degree, who wrote algos for traders. The buccaneers, he told me, would say things like "I lost £XXX million on your algos the other day." He told me the loss would not be picked up for donkey's years, so it wasn't urgent or an emergency.

    He told me of flying to Hong Kong for a long weekend where his algo-bunny mate showed him the enticements. Already the owner of a house in east London, he said he thought he'd soon be Honkers-bound, which made me think that the brightest bunnies sought out the most tax-advantageous countries to work in as soon as they'd learned the ropes.

    I also got the impression that HSBC was shedding people in an organic way, lik dead skin. A lot of the oldies I met couldn't hack it in the rapidly changing world of banking. Those who thrived were both adaptable and thick-skinned and were able to wheel out the word, the positive response, "Cool!" at every opportunity, about anything.

    Indeed, as a dreamer wandering around in the hope of poetic moments, I myself was soon tramping the Walworth Road once again, amongst all the vibrant people of my own manor, incredibly glad to be alive.

  • 20 February 2015 at 3:55pm
    ander says:
    A superbly perceptive and charming comment.

  • 28 February 2015 at 8:06pm
    Timothy Rogers says:
    In addition to cuddling up to the big fat political fish in order to ensure their immunity from various types of fraud or malfeasance prosecutions, HSBC also tried to fleece their own little-fish customers when they operated a chain of “retail’ savings banks here in the US. I speak from personal experience on this. Back in the late 90s my wife, a hard-working nurse for a public health agency set up an IRA. For years she let it just chug along in the bank’s own CD issues, which at the time she started, paid out about or 4 or 5% and were under FDIC protection. Sometime around 2007 when she went in to renew the CD, she was advised to talk to the bank’s investment counselor, who used the usual gabble about how “we will increase your returns by putting together an investment package that balances risks and rewards, etc.”. She took the brochures, and I showed them to a friend of ours who worked for one of the old brokerage houses in NY. He read all the fine print, noting that the “structured investment package” into which her savings would be transferred not only did not guarantee the advertised “estimated return rate” but also stated that not even your principal was guaranteed. He also noted that, though nobody was talking about it, such packages had a large component of tawdry mortgage securities, saying, “Don’t do it”. Had she taken HSBC’s advice her savings from a ten-year period would have probably been decreased by 30 or 40% during 2008-09. The counselor was actually angry when she backed out of the deal, saying she had wasted his time. They never tell you about when they waste your money.

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