Legal hassles continue to haunt HSBC Holdings plc . After being fined for foreign exchange rate manipulation last week, the company’s Swiss private banking unit – HSBC Private Bank NV/SA – has been hit by tax fraud and money-laundering charges by the Belgian law enforcement agency.
The Belgian investigating judge, Michel Claise, accused HSBC unit of assisting more than 1,000 wealthy clients (including diamond merchants) in moving their money to off-shore tax havens since 2003. These rich Belgian clients are actually subject to 35% tax of interest earned on the money kept in the Swiss branches of HSBC.
However, in order to avoid paying such taxes, Swiss HSBC employees advised the clients to transfer the money to off-shore companies. These companies, based in Panama and the British Virgin Islands, exist solely for tax-evasion purpose. Hence, this led to a loss of hundreds of millions of euros in tax revenue.
The judge also accused HSBC of practicing illegally as a financial intermediary, as its Swiss unit does not have a license for providing financial services in Belgium. Nonetheless, the company is fully co-operating with the investigating agencies.
HSBC had first identified the investigation in its August filing, stating that Belgian and French law enforcement agencies are probing into the business conducts of its Swiss private bank, pertaining to the above-mentioned matter. Further, the company anticipated incurring significant penalties owing to such charges.
Additionally, HSBC is under investigation by the U.S. regulators too, over similar charges involving American clients. Notably, the U.S. prosecutors have already settled such charges with Credit Suisse Group N (NYSE:CS) and UBS AG (NYSE:UBS).
In our opinion, the on-going probes will surely dent HSBC’s reputation in the global arena. The company continues to face revenue pressure owing to slow economic recovery across the world. With such allegations being imposed on the company, its bottom line would take a further hit. Nevertheless, fast resolution of such issues will likely restore investors’ confidence in the stock to some extent.
Currently, HSBC carries a Zacks Rank #3 (Hold). A better-ranked foreign bank is The Royal Bank of Scotland Group plc sporting a Zacks Rank #1 (Strong Buy).