ThePanama Papers revelations have thrust HSBC Holdings Plc into a familiar position and led tofresh calls for change at the top of the global giant, but an analyst and abarrister said it is too early to determine the scale of the papers' fallout.
from Panamanianlaw firm Mossack Fonseca have illustrated that banks across the world, but particularlyin Europe, established corporate entities based in countries with reputationsfor lax financial regulation, such as the Seychelles, the British VirginIslands and Panama. Of the banks that used the law firm to set upoffshore entities, HSBC's Monaco and Swiss units were the fourth- and fifth-most prolific. In all, HSBCand its affiliates are said to have created more than 2,300 offshore companieson behalf of clients since the 1970s.
HSBCwas reported April 5 to have lobbied to Mossack Fonseca on behalf of Rami Makhlouf, aSyrian businessman and cousin of the country's president, Bashar al-Assad. Thelaw firm's compliance department noted in early 2011 that Makhlouf had been ona U.S. sanctions list since 2008, but the U.K.-based bank vouched for him, andMossack Fonseca ceased doing business with Makhlouf's firms only in Septemberthat year.
Thepapers also show that HSBC's former CEO, Michael Geoghegan, used offshorecompanies to minimize his tax liabilities, including while he was still at thebank, The Guardian wrote April 7.
Theuse of offshore subsidiaries is not illegal, and there are legitimate reasonsfor holding money offshore, but the mechanism can make it easier to evade taxor even hide the proceeds of crime.
JohnMann, a Labour member of parliament who sits on the Treasury Select Committee,said that should the allegations arising from the Panama Papers prove accurate,bankers at HSBC and elsewhere should be held accountable.
"Thereshould be resignations at the top of HSBC," Mann wrote in an email toS&P Global Market Intelligence.
ButLaith Khalaf, a senior bank analyst at Hargreaves Lansdown in Bristol, U.K.,said that although skeletons are likely to emerge from banks' closets, there isno suggestion yet that any lender did something illegal in working with MossackFonseca. He noted that the U.K.'s Financial Conduct Authority has set an April15 deadline for lenders and other firms to complete initial investigations intowhether they are linked to the revelations.
"TheFCA has asked banks to detail their involvement, but that is an ongoing process.It is very premature to ask for people's heads," said Khalaf. The filesrepresent "an overarching risk" for the banks because of the closescrutiny they invite, but he warned that suspicions are not enough. "HSBC[executives] are innocent until proven guilty," Khalaf said.
ForHSBC and in particular HSBCPrivate Bank (Suisse) SA, the Panama Papers are not the firstawkward revelation in recent years. A trove of data originally removed byformer employee Hervé Falciani in the mid-2000s was published in February 2015in what became known as SwissLeaks. Several countries have pursued legal actionagainst HSBC and its subsidiaries over the tax evasion allegedly detailed inthe data cache.
Thebank also agreed inDecember 2012 to pay $1.92 billion to settle U.S. allegations that enabled Mexicandrug lords and others to evade money laundering and terrorist financing laws. U.S.officials said April 1 that a monitor installed as part of the agreementremains "unable to certify that the bank's compliance program isreasonably designed and implemented to detect and prevent violations" ofthose laws, according to Reuters.
Focus on banks, campaignersays
RobertPalmer, a campaigner and bank policy analyst at anticorruption charity GlobalWitness in London, said scrutiny should focus on banks rather than on MossackFonseca, which is not an essential part of the offshore industry. "MossackFonseca is a relatively small company. They are just glorified paperpushers," he said, adding that many other providers of similar servicesare likely to be working at the behest of global banks.
"Theseoffshore firms get clients with the help of banks onshore. Their businessreally comes from banks," he added. "Banks need to do a much betterjob at assessing risk, going beyond a ticking-the-box approach."
JolyonMaugham QC, a London-based barrister specialized in finance, said in aninterview that although political pressure against the U.K. government and HSBC"is certainly ramping up," it's too early to say whether HSBC seniordirectors should feel compelled to resign. "Depends what turns up,"he said, referring to the investigations into the Panama papers.
Maughamadded that the government might have to review the "tolerant regulatoryregime" that is part of the U.K.'s offer to the international financialcommunity.
HSBCsaid in a written statement that it cannot comment on individuals "even toconfirm or deny they are customers. We work closely with the authorities tofight financial crime and implement sanctions. Our policy is clear thatoffshore accounts can only remain open either where clients have beenthoroughly vetted, where authorities ask us to maintain an account for thepurposes of monitoring activity, or where an account has been frozen based onsanctions obligations."
Thebank did not respond to questions about whether it is expecting a newregulatory intervention following the Panama Papers revelations. Ittold The Guardian in connection withthe Makhlouf report that: "The allegations are historical, in some casesdating back 20 years, predating our significant, well-publicized reformsimplemented over the last few years."