Tax Avoidance catches Heiress out

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Posted in:Banking and Finance|April 16, 2015 | Join the mailing list

A Paris court on Monday found the heiress Arlette Ricci of the Nina Ricci perfume and fashion business guilty of tax fraud in a high-profile trial prompted by the leaked list of people who used the services of HSBC bank in Switzerland.

This case could set a precedent for the other approximately 50 French nationals potentially facing trial for tax avoidance following the same leaks. The court ordered Arlette Ricci to pay €1 million in fines and serve three years in jail, two of them suspended.

Ricci was globally one of thousands of suspected tax evaders on the original list of accounts at HSBC Switzerland that was obtained by French authorities from a former HSBC employee, Hervé Falciani, in 2010.  In the latest banking scandal for HSBC, nicknamed
"Swissleaks", HSBC’s Swiss private banking unit is being pursued along with scores of wealthy individuals whose names appeared on the Falciani lists.

HSBC Holdings Plc was officially “mis en examen” (the French equivalent of being charged), and ordered last week to post a bail bond of €1 billion euros to cover possible fines. Whilst HSBC has maintained it was a move that was legally groundless, The Guardian
has reported that the Geneva-based branch of the bank is accused of having hidden around €5 billion for nearly 9,000 wealthy French customers. HSBC’s Swiss subsidiary is also individually being pursued by French magistrates who suspect it of large-scale tax

Why does this matter to us in the UK?

Tax evasion is illegal. But at a time when many countries are still emerging from economic crisis and austerity policies are being imposed on ordinary people, the fact that wealthy elites have been evading tax is still more inflammatory.

Britain unveiled new laws to crack down on tax evasion in March of this year, one of which will make large corporations criminally liable for failing to prevent economic crime within their organisations. Evading tax using offshore arrangements would also be
made a "strict liability offence", meaning that pleading ignorance could no longer be used as a defence against criminal prosecution.

The UK government is counting on raising billions of pounds by reducing tax evasion to help it erase a hefty budget deficit. Tax evasion is already illegal in Britain but the new laws will also make it explicit that those assisting tax evaders will be open
to punishment. Tax avoidance, in contrast, is not illegal.

HSBC was certainly not the only Swiss bank that facilitated tax evasion by clients. Credit Suisse last year pleaded guilty to the same offence in America and paid a huge fine. UBS, another giant Swiss bank, paid a US fine in 2009 to avoid prosecution on similar
charges. However unlike with HSBC, we don’t know who the clients of those two banks were, or how much they held in those accounts, or what the scale of the avoidance however the leaking of this information will give rise to that information.

This ruling in France could open the floodgates for the banks criminal investigations in the UK as even though the bank is headquartered here there haven’t been many criminal investigations to date. BBC Panorama reported that HMRC, who have had possession of
the leaked lists since 2010, have allowed individual tax avoiders to “voluntarily” settle their debt with no further prosecution. To date, only one person has been prosecuted in the UK for tax avoidance under the leaked list although there will hopefully be
political pressure for that to change. We could yet see a criminal prosecution of HSBC in the UK but it is most likely that the UK and the world will wait to see the French verdict.

If there are any issues in this update or more generally that you would like to discuss, please contact
Alison Loveday
or one of our Banking and Financial Regulatory team on 0161 833 9211.

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.)

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