UK clients of HSBC Geneva were allowed to make 'Liechtenstein disclosures’

Thursday, 12 February 2015

The majority of UK-domiciled clients of HSBC Private Bank Geneva exposed by the so-called 'Falciani leak' were allowed to use the Liechtenstein Disclosure Facility (LDF) to pay their back taxes and penalties, the Chief Executive of HM Revenue and Customs has revealed.

In 2007, Hervé Falciani, a former employee at HSBC stole large amounts of the bank's client data which later came to be seized by the French authorities. In 2010, France's then Finance Minister, Christine Lagarde, authorised the data to be passed to other national tax authorities, including HM Revenue and Customs. More than 6,000 UK residents were named on the list, which HMRC calls 'the Lagarde list'; HMRC has used the data to pursue tax evaders.

The recent disclosure by UK news agencies such as the BBC and The Guardian, of some of the bank’s more prominent clients has caused controversy leading the UK parliament’s Public Accounts Committee to call in HMRC Chief Executive, Lin Homer, for questioning yesterday. Homer told committee members that the Liechtenstein Disclosure Facility was offered to UK clients on the Lagarde list and in the vast majority of cases HMRC recovered back taxes from them.

The LDF, which was introduced in 2009 under the former Labour government, grants taxpayers general immunity from prosecution, with typical penalties of 10 per cent plus interest on ten years' back taxes – substantially lower than the maximum penalty of 200 per cent.

In theory, the LDF is not available to individuals who are already under investigation for tax evasion. However, according to Homer, HMRC actively invited the clients identified on the Lagarde list to make disclosures through the facility. She estimated that nearly half of the 1,100 on the list who have paid their back taxes, did so because they were offered the LDF alternative.

Since HMRC began enforcement action against individuals on the list in October 2011, it has recovered some GBP135 million from them (a fact first reported last July). Unsurprisingly, many turned out to be exempt from paying UK tax on their Swiss accounts because they were resident non-domiciled individuals (non-doms) who only pay UK tax on income remitted to the UK.

Only one UK resident on the list, Michael Shanly, has been prosecuted, though Homer told the committee that her staff had identified 150 cases which could be considered for criminal prosecution. Another 500 were considered serious but not meeting the criteria for criminal prosecution, which requires proof of intent to defraud the tax authorities. Approximately another 400 were pursued for disclosure and settlement.


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