HSBC Was Active in Shell Company Referrals, Leak Report Alleges

Panama Leak Reports World Leaders' Hidden Billions
  • Bank said among those that referred clients to Panama firm
  • Credit Suisse, UBS said active in creating shells since 1977

A trove of leaked documents casts HSBC Holdings Plc into a harsh light, as a consortium of investigative journalists said it found the bank was among the most active in registering shell companies that move money around the world on behalf of rich and politically connected clients.

HSBC and its affiliates accounted for more than 2,300 of the 15,600 shell companies that Mossack Fonseca, a Panama law firm, helped form for clients of hundreds of international banks, according to findings released by the International Consortium of Investigative Journalists.

Journalists working with the consortium pored through millions of pages of documents leaked from the firm to piece together what they alleged was a global web of shell companies that helped hide wealth of world leaders and criminals, among others. The records outlined the creation of more than 200,000 offshore companies in all, the group said.

While companies that shield owners’ identities can be used legally, they can also be tools for hiding assets, laundering funds or evading taxes. The U.S., among other countries, require banks doing business in the country to perform certain levels of due diligence on their clients to understand who the beneficial owners of such structures may be.

500 Banks

More than 500 banks in all requested that Mossack Fonseca and a predecessor firm create shell companies for their clients from 1977 through the end of 2015, according to the ICIJ. They included Credit Suisse Group AG, UBS Group AG, Experta Corporate & Trust Services SA and Coutts & Co. Trustees, according to a summary compiled by the group.

The banks, in comments, denied any wrongdoing. Others included Banque J. Safra Sarasin Luxembourg SA, which declined to comment.

Still, the revelations may complicate relations between banks in developed countries and those in still developing countries said Peter Hahn, a professor at London’s Institute of Financial Services.

“Leading bank chairs and CEOs will have a tough night’s sleep worrying and wondering about whether their organization have touched these deals regardless of whether their activities were legal or not or how long ago they happened,” Hahn said.

Fighting Crime

HSBC, in a statement, said it works closely with authorities to fight financial crime and implement sanctions.

“Our policy is clear that offshore accounts can only remain open either where clients have been thoroughly vetted (including due diligence, ‘Know Your Customer,’ source of wealth, and tax transparency checks), where authorities ask us to maintain an account for the purposes of monitoring activity, or where an account has been frozen based on sanctions obligations,” the bank said.

As of now, regulators haven’t accused the banks of any wrongdoing related to their business with the Panamanian law firm. Still, the disclosures could be problematic for HSBC, which entered into a deferred prosecution agreement with the U.S. Department of Justice in 2012, paid $1.9 billion and admitted to conduct that violated U.S. sanctions laws and anti-money laundering statutes.

UBS and Credit Suisse are in a similar spot. Last year, a UBS unit pleaded guilty to one count of wire fraud related to the manipulation of benchmark interest rates. Credit Suisse pleaded guilty in 2014 to helping U.S. citizens dodge tax payments. As part of their settlements with the Justice Department, the banks pledged full cooperation with any investigation into other possible misconduct.

‘No Interest’

UBS and Credit Suisse, in statements, said they conduct business in full compliance with applicable law and regulations. “We have no interest in funds that are not taxed or derive from unlawful activities,” UBS said.

“For Credit Suisse, it is key that its clients use structures only for legitimate purposes” such as organizing the wealth of families with a range of assets in different countries,” Credit Suisse said.

Societe Generale SA denied it refused to communicate details about the identity of its clients with asset-holding companies to regulators. Societe Generale has ‘‘a proactive policy with regard to the fight against fraud and tax avoidance,” the bank said in an e-mailed statement Monday.

Coutts said it is committed to the highest standards of regulatory compliance, including tax laws, anti-money laundering regulations and international sanctions. “We require all clients to be tax compliant as a condition of receiving our products and services,” it said in a statement.

Experta Investigates

Experta, in a statement, said it is investigating the basis for the allegations and that when it has helped clients set up offshore structures for wealth-planning purposes, it has always been “within the existing national and legal frameworks.”

Panama-based Mossack Fonseca has branches in Hong Kong, Miami, Zurich and more than 35 other places around the globe, the ICIJ said. In written comments to the consortium, the law firm said it “does not foster or promote illegal acts” and that the group’s allegations that it provides shareholders with structures “supposedly designed to hide the identity of the real owners are completely unsupported and false.”

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