4 Ways HSBC's Shady Schemes Helped the Rich Avoid Taxes

By Brittany Lyte on 20 February 2015 0 comments

Fugitive diamond dealers, convicted drug lords, terror suspects, royal families, famous athletes, and allies of Vladimir Putin are among the controversial figures HSBC helped hide money from the taxman by setting up and managing 1,000s of secret Swiss bank accounts. The bank now faces criminal prosecution for its role in not only allowing, but advocating that select wealthy clients hide their identities (and in some cases huge amounts of illicit cash) in order to skirt taxation. It's the latest in a string of shady Swiss banking busts, and one that could result in a hard crackdown on offshore tax havens.

Read on for our step-by-step guide to how the world's second-largest bank got away with helping people avoid paying their taxes — and why you can't do the same.

1. Aggressive Marketing

To drum up business, HSBC promoted its tax dodging strategization services. For example, the bank alerted select wealthy clients about a scheme it masterminded for the purpose of helping depositors avoid a new tax levied in 2005 on the Swiss savings accounts of EU citizens. Since the tax applied only to personal savings accounts, HSBC offered to transfer clients' monies into a puppet corporate account it created so that those monies wouldn't be subject to the tax. The likelihood of your bank setting up an ingenuine account to help you avoid paying your taxes is slim to none.

2. A 1934 Swiss Law

Most western nations outlawed anonymous banking long ago. But the practice is alive and well in Switzerland, where banking secrecy is supported by a 1934 law that makes it punishable by three years in jail for a banker, current or former, to make public the identity of a depositor. Instead of legal names, HSBC's secret accounts were tied only to numbers and code names like Captain Kirk. Just a select few within the banking giant's Swiss branch knew the true identity of its depositors.

3. Untraceable Banknotes

When you use untraceable banknotes, there's no paper trail to set off the IRS or other authorities. With this knowledge, HSBC reportedly made untraceable cash available to its depositors, and then allowed those depositors to make large cash withdrawals — a major red flag in legal banking operations that would normally result in a denial of the request to make a withdrawal. Some of these withdrawals were in amounts as large as $100,000.

If you tried to make a cash withdrawal in the amount of $100,000 — or even $10,000 — your bank would almost certainly block the transaction. But HSBC never did. In fact, the bank encouraged such transactions. In one example, the Guardian reports that wealthy HSBC clients in Paris would use the bank to exchange the illicit proceeds from big drug deals in the city for untraceable cash.

4. Tip-Offs

Chances are that your bank would advise you on how to comply with the law — not on how to skirt it. But HSBC clearly wasn't playing the role of typical bank. In fact, it tipped off its clients when they were on the verge of making a transaction that might catch the attention of the taxman. In many cases, it would then suggest an alternative way to make that same transaction while staying under the radar. A surgeon from the U.S., for example, said HSBC's Swiss bank gave him "bricks" of $100,000 in notes so he could secretly send them home in a series of envelopes. Wiring the money, the bank advised him, would "create a trail for U.S. authorities," the Guardian reports.

The super-rich get all sorts of benefits you and I don't. HSBC's tax-dodging strategies are just the latest example.

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