Closed Live: MPs quiz HSBC bosses on tax

HSBC’s chief executive Stuart Gulliver is due to appear before the Public Accounts select committee at 3:15pm amid a scandal over its role in alleged tax-dodging by clients of the company’s Swiss private banking arm

He will be joined by Chris Meares, former chief executive of HSBC Global Private Banking, and Rona Fairhead, a non-executive director of HSBC where she is a member of the financial system vulnerabilities committee as well as the nomination commitee. Ms Fairhead is a former chief executive of the Financial Times Group.

By Mark Odell and Jim Pickard

Good afternoon and welcome to our coverage of this Public Accounts select committee hearing. Stuart Gulliver is appearing before MPs, albeit a different group of legislators, for the second time in less than two weeks. If his last outing is anything to go by – in front of the Treasury Select committee – he will expect a tough time but equally he will be even better prepared than he was last time. This is how Martin Arnold, the FT’s banking editor, reported on his last appearance:

Have you dodged tax? Are you a fat cat? Why haven’t you resigned? These are some of the questions that MPs put to HSBC’s top two executives on Wednesday at a hearing over the Swiss tax evasion scandal that has enveloped the bank.
While Stuart Gulliver, HSBC chief executive, and his chairman, Douglas Flint, were repeatedly pressed on whether they were to blame for the scandal, MPs with an eye on the general election asked tough questions but failed to land any decisive blows.

and here’s the full story from February 25

Right sorry after some technical problems we can now access the committee hearing

Gulliver is dealing with the issue of his own account with the HSBC Swiss private bank which he had structured via a Panamanian holding company. He assures the panel he had “no tax advantage” from parking money in Switzerland through a Panamanian company. There was “no nefarious reason whatsoever”.

Margaret Hodge, the chair of the committee, points out that Panama has been identified by the OECD as having the least protection in the world against money laundering.

Hodge is raising questions about someone called “Mossack Fonseca” who she says is the agent that helped set up Gulliver’s Panamanian company and has some of the most “vile and unsavoury clients in the world’ – she says Fonseca’s clients include Syria’s president Assad

Gulliver tells Hodge the “characterisation she has just made is inaccurate” after she asks him why other clients of the HSBC should trust the bank if he deals with his own financial affairs in this way

This may sound obscure but Mossack Fonseca is a highly controversial element of the Gulliver story. His account was set up in the name of Worcester Equities, a group based in Panama, according to the Guardian. The directors of this group included “Mossack Fonseca”, “First Corporate Director”, “Third Corporate Director” and so on. Hodge says that his clients are “some of the most unsavoury characters in the world” from Syria and Zimbabwe. She suggests that Fonseca had worked for a “bagman” for President Assad of Syria and as a “bagman” for President Mugabe of Zimbabwe.
You can read this article in Vice for more of the details that Hodge appears to be referring to.

Hodge asks sardonically why Gulliver couldn’t put his money in a building society in the North of England. He replies that he lived in Hong Kong at the time. She suggests that there must be perfectly good building societies in HK.

Gulliver admits there has been “reputational damage” to HSBC from adverse publicity in recent weeks.
Gulliver is being pushed by one of other members of the committee whether, given that “reputational damage” has been caused to the bank, that he should stand down as chief executive

Gulliver says his continued position as chief executive of the bank is an issue for the board and that he would like to “finish the job he has started”

The Tory MP pressing Gulliver very hard – and asking why he hasn’t resigned – is one Stephen Phillips QC, MP for Sleaford and North Hykeham. “Do you not keep documents for your tax affairs from 17 years ago?” he asks.

When asked why he won’t step down, Gulliver refers to the “35,000 excellent colleagues” at HSBC that he couldn’t bear to let down by departing. Surely, by definition, they can’t all be excellent.

Attention has now switched to Meares, former head of global private banking, who tells MPs he was “not accountable for the individual actions of the individuals in Switzerland”.
Meares has been retired for three and a half years, he says. He is now “relying on reports in the press” to know what is/was going on, he claims.

However, Meares does say that any “control failures” at the private banking division between 2006 and 2011 were under his watch. But “none of it was picked up and flagged to me sitting in London that we had an issue”, he protests.
Hodge asks if Meares is “the fall guy”…”I’m giving you a great opportunity to defend yourself.” She says his bosses, Gulliver, sitting next to him, and Douglas Flint, the group chairman, who faced MPs at the end of February, said he was the fall guy

Meares is now clarifying that he takes responsibility for control failures that “MAY” have happened.

Here is a picture of Meares:

He is asked to answer “yes or no” as to whether he takes responsibility for what happened at the private bank. There is a long, long pause.
Here is a pic of Meares in front of the panel as he is being grilled:

The MPs don’t really get a yes or a no, in fact It seems that Meares is taking responsibility at a “global” level but not an “account” level: that appears to be the pinhead on which everyone is dancing.

Meares fails to answer a question about whether HSBC private bank was marketing “avoidance” schemes. But surely they were, given that avoidance is legal, asks MP Stephen Phillips? Meares replies that the UK private bank was involved in some film finance schemes. “So the answer to that question is yes.”

We are facing another technical problem, hopefully service will resume soon

The two HSBC executives say that in 2012 they had 14,868 “hold mail” accounts – now there are only a dozen. Hold mail accounts are controversial because they are used by those who do not want their bank details to arrive where they live.

Gulliver is now taking the committee through the rationale behind the acquisitions of a number of private banks around the world that built up the business pre-2010. He says since then have been reducing the number of clients in the Swiss bank down from 30,000 to 10,000

Previously – during the technical glitch – Meares said he was unaware of clients taking “bricks” of millions of pounds of cash out of HSBC’s private bank in Switzerland

A counter-blast on Twitter from David Buick, City veteran:

https://twitter.com/truemagic68/status/574955996684115969

Sorry more technical glitches

we’re back in the room and Mears says: “If an individual failed to tell us in London they had an HSBC Swiss bank account, then we didn’t know”

Now up is Rona Fairhead, head of the BBC Trust, who has been a non-exec director of HSBC since 2004. She is also a former chief executive of the Financial Times Group.

Fairhead, who was a member of the bank’s audit committee until 2010, is being pressed on whether she asked enough questions about a big increase in profits at the Swiss bank between 2006 and 2007. She says that incentive plans are now based on more long-term performance – but she would have looked at whether these were “genuine” profits at the time.

She is asked whether the committee asked the question about whether “evasion and avoidance” was behind the profit performance of the private bank

Fairhead insists the committee was “absolutely unyielding” but wouldn’t have expected tax evasion to be going on so was not looking for it

Now she is being asked about the “highly problematic” hold mail accounts. She says the Swiss private bank was less than 2 per cent of HSBC so we have a much wider agenda. She says she can’t recollect, we might have covered “hold mail” but says she “can’t remember”

Fairhead says she made sure that staff were “on top of” the risks. “Everything we did would have been in line with policy,” she says. But asked about the controversial “hold mail” accounts she says she could not have been expected to know anything about them. The bank was dealing with “billions” of transactions ever year, to be on top of that level of detail was down to the executives – not non-execs.
At the time the board believed that all the “oversight”, “people” and “policies” were all in place.

Fairhead says the integrity of the bank was “assumed to be of the highest standard” and says her and her fellow directors were “horrified” when the extent of the tax avoidance was revealed

Hodge has cut Fairhead off a couple of times and called some of her answers “nonsense” – now we have Stephen Hammond, the Conservative MP, move the questioning back to Meares and is asking about how many times he met the executives of the Swiss bank. He says it was about once a month but says he can’t answer whether those executives knew what was going inside the Swiss bank. “I can’t categorically say yes or no”

Hodge to Meares: “Didn’t you wonder why people had private accounts in Switzerland”? – silence from Meares, followed by laughter in the committee room

Stephen Hammond, the Tory MP who was just asking quesions, previously worked at Dresdner Kleinwort Benson and Commerzbank, and remarked that the organisations he had worked in seemed to have better checks and balances in place than the HSBC executives suggests were in place at the bank in terms of oversight of the Swiss bank

Amyas Morse, head of the National Audit Office, suggests that HSBC’s controls “couldn’t possibly work” if Meares did not have even “basic information” about private clients.

Meares says two staff members reported to him from Switzerland, meeting every quarter at board meetings – or even every month. They would not have known what individual clients were doing, however. Stewart Jackson, a Tory MP, jokes that they were not in Switzerland for the cheese and chocolate.

Fairhead is now being asked about her remuneration. Fairhead says she is paid £334,000 for her role chairing HSBC’s North American division. That is less than the previous chair, she says. There is laughter as she clarifies that she doesn’t work 75 to 100 days a week and that this the amount of time she spends working for HSCB annuall. She has other non-exec directorships as well as the job as the head of the BBC Trust

When Hodge suggests she can’t believe Fairhead can fit all those jobs in, she answers: “I am invariably working weekends.”

Gulliver says he in the process of trying to “derisk and change the firm” – this is the same line he took in front of the Treasury select committee last week. He is being pressed again on the “hold mail accounts”, who are the “people reporting to Mr Meares”

Meares is saying that “hold mail” was something done by all Swiss banks and had been going on for half a century. There was no reason for a “red flag” given that tradition.

Gulliver says that just because someone has a hold mail account it doesn’t mean their tax affairs are “not in order”

Meanwhile John Mann, a Labour member of the Treasury select committee, has accused the Tories of blocking moves to make Stephen Green – former ceo and Tory minister – give evidence to his committee, according to the Guardian.

Fairhead says she was “horrified” to discover what was happening.
Hodge snaps back: “It happened under your watch.” Austin Mitchell, a veteran Labour MP, muses that Fairhead appears to be getting “money for jam” for her non-executive role.

MPs are now focused again on executive pay and Gulliver says he has lost £1.75m because of HSBC’s failures in the foreign exchange business. He says the problem with the tax avoidance issues is that it is “so far back” and says it is “frustrating” that they can’t use claw backs against people who were in the bank “at that time”

He says there are only about 38, or 30 per cent, of the client relationship managers still at the bank’s Swiss private bank who were around at the time, ie back in 2005, and they have all been positively vetted and were not involved in any wrongdoing

He adds: “Most people just left or were managed out…no evidence of any particular person being sacked.”

Now Austin Mitchell, MP, is pushing Fairhead on HSBC’s role in money laundering for Mexican drug cartels. She says in the audit committee when issues were identified they put all the measures in place to sort things out and got feedback that it had been addressed. She said the revelations were “shocking” at the time.

Or as Jim Pickard puts it:

Beautiful use of euphemism from Fairhead when asked about practices in HSBC Mexico such as money laundering.

The Justice Department has previously said that HSBC’s Mexico division became the “preferred financial institution for drug cartels and money-launderers”. Fairhead says that when Grupo Financiero Bita was bought in 2002 it needed to be “massively re-mediated.”

Hodge says Fairhead is “completely seduced by structures”.
Here is some background on HSBC’s compliance nightmare in Mexico.

The MPs are now wondering why HSBC hasn’t demanded the fees back from their external auditors. Gulliver is back to explaining how he is simplifying the bank, addressing accusations that HSBC is not too big to manage

Gulliver insists he is not blaming the previous ceo (Lord Green) because he says “it would only be appropriate to talk about the time when I was in control”. But he says he has moved the bank from an overly loose “federation” to “central control”.

Last week, Andrew Bailey, the Bank of England’s chief banking regulator, said he would hold HSBC’s top executives “feet to the fire” to ensure the group is simplified and its risk controls are improved. Full story here

Gulliver insists he is not blaming the previous ceo (Lord Green) because he says “it would only be appropriate to talk about the time when I was in control”. But he says he has moved the bank from an overly loose “federation” to “central control”.

Hodge then reminds Gulliver that despite him talking about his Swiss/Panama account being “17 years ago” he only shut it down four or five years ago.

One FT reader, PL Murray, says:
This is more like the name and shame exercise in the cultural revolution in China a long time ago…..

Fairhead is now addressing the issue of the data theft that led to the disclosure of the alleged tax evasion at HSBC’s Swiss private bank. She says the committee “immediately” got an independent investigator to go over the specific accounts to ensure they were not aiding tax evasion

Here is a picture of Fairhead in front of the committee:

Alan Rusbridger, editor of the Guardian, on Twitter:

https://twitter.com/arusbridger/status/574976124637351937

Gulliver looking contrite as Hodge reads out some of the leaked internal memos from HSBC Swiss banking executives which she says demonstrates their role in deliberate tax avoidance

Hodge calls this “tax avoidance on an industrial scale” and accuses Meares and Fairhead of incompetence. “I don’t believe you didn’t know, Mr Meares”, she says as Meares insists he didn’t know any of the detail

Meares says he worked for 30 years for HSBC and “I have never had my intergrity doubted or my honesty.”

Meares is asked if he stopped any aggressive marketing avoidance schemes when he ran the private banking division. He cites a 2009 film finance scheme that was stopped. Other than that, apparently not.

Hodge is now turning back to Fairhead and goes for the TV soundbite clip when she asks Fairhead if she is “incredibly naive or totally incompetent” if she didn’t know about the tax evasion that was going on in the private Swiss bank. She says she should either resign or be sacked as chair of the BBC Trust. Fairhead interrupts her to “categorically deny” that she knew anything about tax evasion and then goes on to say she was put in place a lot of corrective measures

Gulliver is very much reading from a prepared script as he replies to questions about customers withdrawing “bricks” of used banknotes. He says there was an “approval hierarchy” making it hard for anyone to just walk out of a bank with unlimited bundles of cash.

He adds: “Please do not assume that someone withdrawing that amount of cash is avoiding tax” – he admits is does raise red flags

He is asked how it can be considered anything other than suspicious if someone withdraws £5m in cash. He says: “If you are a Middle Eastern client with £5bn in cash with us and you withdraw £5m in cash then that might be quite normal.”

Stephen Hammond, Tory MP, says Hodge comments about Fairhead were “unfair” – but he suggests that Meares was an “unreliable witness” – the look on Meares’ face says it all – he looks totally puzzled

And that’s it in terms of questioning of the HSBC trio. The committee was due to hear from Edward Troup, the tax assurance commissioner at HM Revenue and Customs next but Hodge declares the hearing at an end and offers a rushed apology to Troup and says he will be called at a later date. Guess he had nothing better to do than sit around waiting to give testimony. He’ll be looking forward to being called again no doubt.
That was a pretty heated session with Fairhead and Meares coming in for some particularly heavy criticism. But all three were well prepared and the MPs made little progress in trying to get someone to take the blame for the alleged tax evasion at the private Swiss bank.