MUMBAI: HSBC on Monday admitted to lapses in the past in its private banking business in response to a leak which revealed that some of the offshore accounts in its Swiss branch were used for tax evasion. The bank said that weaker compliance standards pertained to business before 2008.
Bankers feel that most of the unaccounted money may have moved out as 70% of HSBC's private banking accounts were closed after regulations were tightened.
"HSBC's Swiss Private Bank began a radical transformation in 2008 to prevent its services from being used to evade taxes or launder money. New senior management have comprehensively overhauled the business, including closing the accounts of clients who did not meet our high standards and ensuring we have strong compliance controls in place," Franco Morra CEO, Private Bank Switzerland, said in a statement.
"We have no appetite for business with clients or potential clients who do not meet our financial crime compliance standards. These disclosures about historical business practices are a reminder that the old business model of Swiss private banking is no longer acceptable," he added.
According to bankers, offshore accounts by Indian residents would be illegal only if they were opened before 2004. In February 2004, the RBI allowed Indians to open, maintain and hold foreign currency accounts for the purpose of receiving remittances from India. HSBC has said that since 2008 the number of client accounts have come down by nearly 70%.
Banking sources said that for the Indian government, accessing the funds would be a challenge.
Tax authorities have not yet been able to get a confirmation from HSBC that there is money from India lying in its accounts. To obtain cooperation the government would need to provide proof that the accountholders are subject to Indian tax laws.
In November last year, the I-T department won a major victory when the Income Tax Apellate Tribunal ruled that discretionary trusts abroad, which are operated by others but the beneficiaries are Indian citizens can be treated as undisclosed or unaccounted income.
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