Mr Gulliver's travails

HSBC did not feel the need to apologise in India too

Last Sunday, Stuart Gulliver, the chief executive of global bank HSBC, made a public apology, which was carried in full-page advertisements in several newspapers in the UK. He basically admitted to weak systems in the Swiss private bank that the group owns, which resulted in that entity assisting several people evade taxes in their home countries. He assured his audience that such laxity was a thing of the past and that the bank had taken firm steps to ensure non-recurrence. This act of contrition, well-meaning as it may be, rings hollow in India. The bank has been at the centre of the black money and tax evasion scandal that has been playing out over the past few years, in the wake of a former employee blowing the whistle on these practices. A cross-country journalists' initiative to identify the account-holders in the discredited institution resulted in the naming of over 1,00,000 of them worldwide, with about 1,000 in India. The Indian list, which included a few familiar names, was published in the Indian media last week. Investigative processes have been set in motion and will take their own time to play out. Meanwhile, however, the whole episode raises a number of uncomfortable questions about both banking practices and regulatory supervision.

Why, for instance, was Mr Gulliver's apology only in Britain, and not elsewhere? HSBC has a relatively large presence in India and, presumably, at least some of the 1,000 named people were facilitated by the Swiss operation in their tax evasion. In fact, this newspaper has reported that the income-tax department may also file a complaint against HSBC Geneva for abetting in tax evasion. If Mr Gulliver were sincere, he would have asked for the apology to be carried prominently in the media in all the countries in which tax evasion was alleged to have been aided and abetted. In fact, the apology itself is an explicit admission that the allegations are true. Surely, they cannot be so only in the UK and not in any of the other countries from which the account-holders originate? For a bank that reportedly told UK regulators that it would move its headquarters to Hong Kong to take advantage of a more favourable regulatory environment, such "home country" bias rings rather hollow. HSBC must act to rectify the situation by going global with the apology.

On the regulatory side, the entire episode highlights both the lack of harmonisation across national regulatory regimes and the difficulties that regulators face in cross-border co-ordination. Switzerland promises that major reforms in its banking secrecy laws will contribute to much greater transparency and tracking capabilities. These claims will be put to the test as respective governments pursue legal courses of action. However, it is not just Swiss laws that are under scrutiny here. From the Indian perspective, questions about how some or all of the named account holders took their money out without it showing up anywhere during the supervisory process must be addressed. A few years ago, a number of Indian banks were exposed in a sting operation, which showed employees offering helpful suggestions on how to get around regulations in moving large amounts of cash. Inquiries were initiated and penalties imposed, but these were so small as to hardly be an effective deterrent against violations by target-driven employees. This side of the equation also needs looking into.