The documents that Arvind Kejriwal released last week, which he claimed were leaked witness statements recorded by income tax officials in the course of a raid, raise serious questions about the Indian entity of the Hongkong and Shanghai Banking Corporation (HSBC). While the bank has refused to comment on any specific details, the government has refused to acknowledge Mr Kejriwal’s charges and only said it was taking action against all individuals named in the list pertaining to black money given to it by France in June of 2011. However, this is not quite enough. The problem is clearly larger than these particular individuals. The very suggestion that a major bank may be systematically aiding what appears to be – if the supposed witness statements are to be believed – little more than tax-evading hawala transactions requires a clear and visible regulatory response. Anything less would lead to a major loss of faith in India’s regulatory capacity. Unfortunately, while the banking regulator – the Reserve Bank of India – has long sat on HSBC’s request to extend its branch network, it is yet to address these concerns directly.
How does the procedure that the three high-net-worth individuals who feature in Mr Kejriwal’s documents describe differ from hawala? All three, apparently, independently told the tax authorities as to how they managed from Delhi to open, operate and get back cash deposited in accounts in HSBC’s branch in Geneva. If the documents released by India Against Corruption are to be believed, all that is required is a phone call to HSBC, which will then depute its officers to open the account, collect cash in rupees, have it deposited abroad in a currency of your choice, operate it under your instructions — and then pay you cash in rupees, as and when required in India. None of the beneficiaries needed to go out of India to open or operate an account. If the charges are found to be true, this is a blatant case of flouting money laundering laws.
HSBC has been accused in other jurisdictions of similar acts. In the United States, the bank has admitted that a fine for a violation of federal anti-money laundering laws could cost it around $1.5 billion, and might lead to criminal charges — damaging the bank’s reputation and forcing it to set aside a further $800 million to cover a potential fine for breaches in anti-money laundering controls in Mexico as well as other violations. The provisioning was on top of $700 million it put aside in July. A US Senate report in July criticised HSBC for letting clients shift potentially illicit funds from several countries, including India. The size of the fine expected by HSBC dwarfs every other similar case, including the previous record set by ING Bank, which agreed in June to forfeit $619 million to resolve allegations that it illegally moved money on behalf of sanctioned entities in Cuba and Iran.
Clearly other jurisdictions have moved quickly to push offshore banks to disclose tax dodgers’ details. It is not yet clear whether New Delhi has moved as swiftly — and, if not, why not. And the RBI, too, should disclose the results of its own investigations, if any, into HSBC’s banking practices in India.