Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
By Ben Stupples
HBSC Holdings Plc, the U.K.’s largest bank by market capitalization, has made a $773 million allowance within its accounts for ongoing tax authority investigations, according to its 2016 annual report.
London-based HSBC said Feb. 21 that it is the focus of investigations in the U.S., France, Belgium, Argentina and India on claims of tax fraud, money laundering, and illegal cross-border activity.
In the annual report, the bank said it has total provisions of $2.4 billion for legal settlements and regulatory fines. The “most significant” amounts relate to the tax investigations and currency market manipulation.
For 2016, HSBC Feb. 21 reported a 62 percent drop from last year’s pre-tax profits, to $7.1 billion.
“Due to uncertainties and limitations of these estimates, the ultimate penalties” from the tax-related investigations “could differ significantly from the amount provided,” HSBC said Feb. 21. “In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations.”
While the $773 million set aside for the investigations represents around 10 percent of HSBC’s 2016 pre-tax profit, it adds to Chief Executive Officer Stuart Gulliver’s battle to reverse five years of declining revenue as he also attempts to reduce the bank’s expenses and operations across 60 jurisdictions.
The announcement of the provision also follows the bank’s warning in its half-year report last August over the potentially “significant” impact on HSBC from ongoing investigations into Mossack Fonseca & Co., the Panamanian law firm at the heart of the Panama Papers data leak.
An HSBC spokeswoman declined Feb. 21 to provide further comment on the bank’s provisions for the investigations.
David Grinsztajn, a Paris-based banking analyst for equity research company AlphaValue SA, told Bloomberg BNA in a Feb. 21 e-mail that the risk that HSBC faces from the investigations is “before all” else “financial,” citing the example of possible additional fines imposed by the tax authorities.
HSBC did not provide an amount that it had set aside for the tax investigations in its 2015 annual report.
Most of the tax authority investigations concern HSBC’s private banking subsidiary in Switzerland, which was the focus of a journalistic investigation after a whistle-blower leaked a cache of 60,000 files that showed how HSBC had helped wealthy customers hide their assets to avoid paying tax.
In the U.S., the Department of Justice and the Internal Revenue Service are investigating whether the bank’s Swiss subsidiary and an HSBC company in India committed any wrongdoing with certain U.S. taxpayers.
In India, meanwhile, the Swiss branch and a Dubai subsidiary face prosecution on claims of helping four “Indian individuals and/or families” evade tax, according to HSBC’s 2016 annual report.
Most recently, in October 2016—following a formal criminal examination into tax-related offenses from the data leak—HSBC and the Swiss subsidiary received a brief from France’s public prosecutor. The prosecutor recommended that a judge refer the French authorities’ investigations to a trial.
In its annual report, HSBC said it is cooperating with the “relevant authorities” on the investigations.
HSBC and its worldwide subsidiaries accounted for more than 2,300 shell companies registered through Mossack Fonseca, according to the International Consortium of Investigative Journalists. These shell companies helped wealthy individuals to hide their financial assets and avoid tax.
“HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co.,” HSBC said in its annual report, repeating the August 2016 warning. “Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
As part of the results, HSBC announced that the Financial Conduct Authority, the U.K.’s financial watchdog, is investigating the bank for failings around money-laundering and financial crimes.
In a statement accompanying its results, HSBC Group Chairman Douglas Flint said 2016 will be remembered for “significant and largely unexpected economic and political events.”
The uncertainty created by these events—such as the U.K.’s decision to leave the European Union—influenced investment activity and contributed to a “volatile” financial market, he added.
On Feb. 21, HSBC’s shares dropped the most in 18 months in London trading after it also reported fourth-quarter profit that missed estimates on a surprise drop in revenue. In response to the results, the bank said in a statement it will boost cost-cutting measures and extend a stock buyback.
To contact the reporter on this story: Benjamin Stupples in London at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
HSBC Holdings plc 2016 annual results are at http://www.hsbc.com/investor-relations/group-results-and-reporting?WT.ac=HGHQ_Hb1.1_AR2016_On
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)