Government passive as banks connive at tax avoidance

hq_hsbc09:25 Monday 9th February 2015
BBC Radio Cambridgeshire

PAUL STAINTON: Has enough been done to clean up the banking industry? First it was bankers’ bonuses. Now it’s emerged banks have actually been helping clients cheat the country out of millions of pounds in tax. BBC1’s Panorama programme has seen details of thousands of accounts from HSBC’s private bank in Switzerland which show bankers helped some clients evade tax altogether, and offered deals to help tax dodgers stay ahead of the law. The details which were from 2007 were leaked by a whistleblower. HSBC admits some individuals took advantage of bank secrecy to hold undeclared accounts, but it says it has now fundamentally changed the way it does business. Here to explain what happened in detail is Justin Urquhart Stewart from Seven Investment Management. Justin good morning.
PAUL STAINTON: Just take us through the highlights here, or the lowlights if you like, of what happened.
JUSTIN URQUHART STEWART: Very lowlights. Well we go back to the days in that particular time when a lot of the banks, particularly the faux private banks, ie the clearing banks who put a smart label on the front and said we’re now a private bank, went out and bought other little banks. And they bought this one called Republic, another called Safra. And both of those did have a slightly suspicious reputation for (unclear) looking after high net worth people’s money. And of course these banks were then bending over backwards to offer anything and everything to these people, just to get hold of their assets. And this is where you get into the murky world of trying to give people advice on tax. Are you trying to avoid tax, which is legal, or are you trying to evade tax, which is illegal? But even if you’re trying to avoid them, is that socially responsible, the right thing to do? I think most of us would actually turn round and say no it’s not. But none the less, and now we’ve gone and got the records coming out, which actually show they weren’t just avoiding tax, but actual specific measures were being taken to help people evade, illegally, doing so. So the next stage after that is, and it’s been going on for some time, HSBC, which is a very reputable bank, has taken action, and probably has cleared all of this up. But you can see now by the fact this makes such a noise when a whistleblower leaks the documents, that actually it’s the confidence that needs to be returned. And this is really important to Britain, because actually financial services, in fact all the financial services including accounting, legal work and things like that, it’s worth £55 billion of our exports over a year. So we need to be seen to be acting properly, and to be operating so that people will actually start trusting us.
PAUL STAINTON: And without this whistleblower, would we have ever known? That’s the question, isn’t it?
JUSTIN URQUHART STEWART: Well it is. The answer is we knew the underlying issues in terms of there were concerns over the banks, but the actual sheer scale of this is quite remarkable. The answer is we would never have known that. And I think this is then going to cast the light onto other banks as well, to see what’s going on. Because it’s still not perfect now. What you will find is an awful lot of those same private banks have either shut down, reduced, got rid of a lot of their clients, and actually said they’re not giving advice at all. It’s gone diametrically the opposite way. But have they actually made sure it won’t happen again? Well it remains to be seen. The problem is with someone like Switzerland, if you than say well let’s have an agreement with Switzerland to make sure that this doesn’t happen, everything gets declared, then the dirty money goes elsewhere. And this isn’t just dirty money in terms of actually just people trying to put away a few pounds. Some of this could be related to terrorism, to ISIS. We know they’re very sophisticated with their financial controls, drug money and things like that. So this a crime. The fact that it’s a white collar crime is irrelevant. And we’re far too polite in this country about white collar crime. If it’s a crime, then the police should turn up, you’d be stuffed in some handcuffs and carted away, just as you see in the States, to humiliate and embarass people, and realise that this should be taken very seriously, and it’s not a matter of saying well no-one’s actually lost anything here. Yes they have.
PAUL STAINTON: Trouble is they’re not being carted off, are they? Eleven hundred people were identified here from this information. One, one person prosecuted.
JUSTIN URQUHART STEWART: It is pathetic. And so we need to have a regulator which is going to be not just baring teeth, but using those teeth. We need better international regulation. But it’s all very well asking for that regulation, because if you don’t say well let’s shut down the deals we’ve got with Switzerland, then it goes off to somewhere else. It goes to the Cayman Islands. It goes to another place. So you’ve always got to try and make sure to try and have an international arrangement. But in my view, and certainly when I went to business school donkeys years ago, we were always taught we had three people we had to serve. One was the client. Two was that awful work stakeholder, the people involved in the business, the staff, the shareholders. And three, society. So actually you do have that awful phrase of moral compass. You do actually have a duty to behave properly. And if that means actually telling people that you should be paying tax, not avoiding tax, then that’s probably the right way to behave. But at the same time you have to bear in mind that that is perfectly legal. It’s the evasion that’s illegal.
PAUL STAINTON: Richard Brooks is with us as well, former HMRC investigator and author of the Great Tax Robbery. He features in tonight’s Panorama programme. Richard, very kind of you to join us this morning. Thank you. I read somewhere the other day that there’s ten times as many people investigating dodgy benefit claims as there is dodgy tax affairs. Is that true?

RICHARD BROOKS: That sounds about right. And certainly if you look at the results, the discrepancy is even greater. Last (unclear) shows there were about nine thousand prosecutions of fraudulent benefit claims every year. Off shore accounts, we’ve seen in a decade or so just one, and that person got a fine, when hundred of so-called benefit cheats are being put in prison every year.
PAUL STAINTON: So the Government’s got its priorities wrong somewhere, hasn’t it? There’s millions and millions and millions if not billions of pounds here that we could be coining in.
RICHARD BROOKS: That’s right. It’s economically illiterate really, because they’re not using the deterrent power that they have. The best way of policing crime and offshore tax evasion in particular is to show people the consequences of breaking the law. They’re not applying that. They’re just not using that power, which is a great shame. And it’s also another aspect of inequality in society, one of the big issues of the day. There’s great economic inequality, and now what we see is there’s also inequality before the law. Rich cheats are simply not pursued in the way that poorer cheats are.
PAUL STAINTON: And do you get the feeling that this is coming about because of the whistleblower. And as Justin said, we probably wouldn’t have heard that much about it. And do you get the feeling it’s endemic within the banking industry, this sort of thing, particularly six or seven years ago?
RICHARD BROOKS: Yes I do. I think that in the era of the light touch regulation, bankers felt that they simply weren’t going to be caught.
PAUL STAINTON: So the successive government really are to blame for this, aren’t they?
RICHARD BROOKS: Yes. I think the previous government has a lot to answer for. If you look at what it did in terms of offshore tax evasion, it simply set up a series of what it called disclosure facilities, where you could come clean. They were basically amnesties, where you paid your tax and a very small penalty and got away with it. And in that climate the bankers simply didn’t feel under any threat. If you look at the documents that have been leaked, if you see some of the comments in there, they’re so casual about breaking the law. They talk about an undeclared account as if that’s some technical status, and not something illegal.
PAUL STAINTON: Has it changed? Have the banks changed? Have their spots turned to stripes?
RICHARD BROOKS: I think we don’t know. The problem is it’s all very secretive. It’s secretive partly because the Government has ensured it remains secretive. In 2011 this government signed an agreement with the Swiss government which in exchange for a few quid, said that we won’t expose any tax evaders, and we won’t prosecute the bankers who are setting up the scams for them. So they buried it. And I don’t think we know. I know in the Guardian this morning they had some comments from a whistleblower in HSBC who said that the culture still wasn’t great in 2013. So the jury is out.
PAUL STAINTON: What needs to be done? What does the Government have to do Richard? Right now, what need to be done to make sure this money is not going? This could be paying for schools. It could be paying for nurses and improving the Health Service, which is a bit rickety to say the least.
RICHARD BROOKS: Yes. Absolutely. What it needs to do is show that it’s serious. So that if you are rich and you have a choice over whether to pay your tax or hide your income, you choose to pay it, and not have any more worries, and get on with your life and just do the sensible thing. And it needs to, specifically in the case of this HSBC affair, I think that the whole thing needs to be handed over to the Serious Fraud Office, because the Revenue are conflicted. They failed to prosecute anybody. They’re not really capable of going after the bankers. And I think that the SFO are looking at Libor and (unclear) and all sorts of other banking crimes. And they ought to put this one in their portfolio as well.
PAUL STAINTON: Richard, lovely to talk to you. Thank you for coming on. Richard Brooks, former HMRC investigator, author of the Great Tax Robbery. He’s on the Panorama programme tonight on BBC1 just after eight. And you also heard from Justin Urquhart Stewart from Seven Investment Management. The synopsis basically, successive governments have failed when it comes to getting tax off the very rich. And even as late as 2013 some people very very uneasy about the way banks were doing things. HSBC say they’ve changed their practices, but you heard from Richard ther, just a couple of years ago it still wasn’t great.