HSBC condemns past practices as pressure grows over Swiss accounts

By Steve Slater

LONDON (Reuters) - The head of HSBC's private bank has told staff past practices that may have allowed some clients to dodge taxes are unacceptable, with the company facing pressure on both sides of the Atlantic over its conduct.

HSBC this week admitted failings in compliance and controls in its Swiss private bank and faces investigation by U.S. authorities and an inquiry by British lawmakers after media reports said it helped wealthy customers conceal millions of dollars of assets in a period up to 2007.

Adding to HSBC's discomfort, British Business Secretary Vince Cable questioned how quickly its Swiss business stopped such practices, saying he was troubled by claims they "may have continued much more recently".

HSBC has been in the spotlight after the media published allegations based on information supplied by Herve Falciani, a former employee of the bank.

Details that have emerged on the HSBC Swiss bank account holders were only "the tip of the iceberg," Falciani told French daily Le Parisien on Tuesday. Tax authorities have had access to much more data than media, he added.

The reports have renewed scrutiny on the world's second biggest bank, which was fined $1.9 billion two years ago by U.S. authorities for lax controls that allowed criminals to launder money. It was also hit with a $618 million penalty by regulators in November for alleged manipulation of currency markets.

HSBC and Swiss-based banks have been under fire for helping clients avoid taxes for several years. HSBC said past compliance measures and controls failed, but said its Swiss business had since been "transformed" and client accounts had been closed.

It sought to drive home that message to its staff.

"The practices and the banking model of that time are no longer acceptable," Peter Boyles, chief executive of HSBC's Global Private Banking since December 2012, said in a memo.

"Our clients want to know that we have changed and the past practices they read about in the papers have no place in our modern private bank," a person familiar with the contents of Boyles' memo told Reuters.

Boyles told staff the bank had "absolutely no appetite" to do business with people who are evading taxes.

GULLIVER'S TROUBLES

The issue adds to headaches from the past for HSBC Chief Executive Stuart Gulliver, who took over four years ago and admitted to lawmakers in February 2013 that HSBC's structure "was not fit for purpose for a modern world".

HSBC has been criticised as being too big and complex, and had a structure that put too much power in the hands of country heads and not enough in central command.

Gulliver has said a restructuring he implemented in 2011 may have appeared trivial to outsiders but it was the biggest organisational change in the firm since it was founded in 1865.

A risk for Gulliver is that the U.S. Department of Justice re-opens its 2012 deferred prosecution agreement with HSBC, which could stiffen penalties or sanctions on it.

Chirantan Barua, analyst at Bernstein, said the most damaging impact could be on management time and resources.

"If you were to find lapses in the system in the last year Stuart (Gulliver) would be in serious trouble, but none of this you can blame on him."

HSBC shares dipped 1.7 percent on Tuesday.

One British lawmaker said the issue showed that banking still needed further reform after the financial crisis.

"Clearly much more still needs to be done," said Andrew Tyrie, the head of a panel of UK politicians who watch over financial issues.

"The spirit may be willing - particularly at the top - but the flesh remains weak," Tyrie added.

(Additional reporting by Huw Jones and Andrew Osborn in London and Ingrid Melander in Paris; Editing by Alexander Smith and Keith Weir)