The FT has reported this morning that:
HSBC has warned that it could pay at least $1.5bn in penalties over alleged tax evasion and money laundering at its Swiss private bank, casting a shadow over Stuart Gulliver's final day as chief executive.
The estimate underlines how the outgoing HSBC boss has struggled to get to grips with the string of scandals thrown up by a number of ill-judged acquisitions dating back to before he took over in 2011.
They added:
The warning about further penalties came after HSBC agreed to pay €300m in November to settle an investigation by the French public prosecutor into allegations it helped clients evade taxes in 2006 and 2007. HSBC said it had $604m of provisions outstanding at the end of December relating to its private bank, which is being investigated in several countries, including the US, Belgium, Argentina, India and Spain. But it said “management's estimate of the possible aggregate penalties” could exceed $1.5bn, which a spokesman described as a worst-case scenario.
Most worrying though was this comment:
Mr Gulliver said that after multibillion-dollar investments in compliance and controls “HSBC is in a stronger and a better position today to protect itself and therefore the banking system from bad actors than it was in 2010”.
What this shows is that after all this time HSBC thinks itself the victim and that it is merely paying the price of having customers who evaded. Apparently they still cannot see that they, as deliberate supplier of the structures that exploited bank, corporate and tax haven secrecy were responsible for the wholly foreseeable consequence of their use. Thankfully it seems that regulators can see through the charade and are imposing the penalties on those most responsible for the curse of tax evasion - which is those who supply what I have for a long time called corruption services.
But that still leaves questions to be asked.
The first is that if HSBC still does not get this, after paying billions in fines already and expecting to pay billions more, why is it fit and proper to hold a banking licence?
The second is to ask where the moral leadership is in this issue? Instead of playing the victim why isn't it driving the process of reform to deliver transparency? It's years since I first began writing about this story. Despite social attitudes changing enormously in the world at large since then there is not a hint of real change at HSBC, who still do not seem to think they did anything wrong bar getting caught. And again I ask, why are they still considered fit and proper to hold a banking licence?
And third, where is the parliamentary enquiry on this? If any other company admitted it was expecting to pay $1.5 bn in fines there would be an enquiry. So why not into this? To put it another way; why isn't parliament asking why HSBC is still considered to be a fit and proper person to hold a banking licence?
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[…] I suggest parliament has more questions to […]
I think there’s another possible interpretation of this –
“Mr Gulliver said that after multibillion-dollar investments in compliance and controls “HSBC is in a stronger and a better position today to protect itself and therefore the banking system from bad actors than it was in 2010”.”
Which, as Andy Crow alludes to, centres on the identity of the bad actors. This could mean the bank’s customers who wanted them to facilitate tax evasion… but it could equally mean individual employees (or hopefully ex-employees) of the bank who provided that facility.
If the “bad actors” include the latter, then the bank could quite reasonably be saying “we need to be better at cleaning house cos there are too many mavericks”. Now, there are rocks that are easily thrown at that statement… how in the name of the wee man could you NOT know what your bankers were doing? Where is the governance? Why were your compliance controls so lax? How can we have comfort that they’re any better now? That sort of thing.
Beware though, because what we’d be saying there is that the bank is guilty of not controlling it’s people, resulting in a terrible outcome. In effect, that’s what we’ve spent most of the last few weeks saying about Oxfam. The conclusion there was that Oxfam shouldn’t be blamed for the actions of a minority of its employees. So, you know… sauce for the goose…
I’m not saying that’s definitely the case, but if we go down the road of calling for HSBC’s head on a plate, we should be aware of the really quite huge potholes in that road.
Hang on
Oxfam staff did not do this in furtherance of Oxfam’s goals
HSBC staff did do this for HSBC profit
Oxfam got rid of the staff and acted to make change
Did HSBC?
The comparison is fine but shows Oxfam in a very fair light
And its critics in a very poor one
Richard
I agree with all of that, but you can bet there will be some commentators who will make the comparison between HSBC and Oxfam not to attempt to damn or condone HSBC, but merely to score points on this blog.
The counter argument would be that individual bankers always act in their own interests – they make deals to increase profit with a view to increasing their own bonus. Corporate wellbeing is a side effect of that.
We don’t know if HSBC have dealt with any maverick staff – that’s a question I’m asking. Given the frequency with which people in the financial sector move jobs, I’d guess they probably haven’t dealt with them… but I just don’t know.
Oxfam appear to be genuinely contrite and have sought positive change. HSBC claim to have improved, but with less contrition. I’m bereft of facts eitherway!
All I’m saying is I’m waiting for the usual suspects to rear their heads shouting “hypocrite”. I’ve got my popcorn at the ready for when they do 🙂
They will
“……that individual bankers always act in their own interests — they make deals to increase profit with a view to increasing their own bonus. …..
I don’t think that’s how Mr Mainwaring behaved when he was running the branch at Warmington on Sea. 🙂
“….Corporate wellbeing is a side effect of that……” I suggest you mean ‘lack of corporate wellbeing’, Geearkay (?)
It seems that white collar crime is still something that can be settled with money – and lots of it.
Custodial sentences have to be implemented instead and there is no difference in my view between what a drug dealer and HSBC have been up to in my opinion (because it results monetary profit for both) and that also means that HSBC ‘s assets (or the assets of their Directors) have every right to be seized as they were acquired from the earnings of false, illegal and corrupt practices.
Pilgrim Slight Return says:
“It seems that white collar crime is still something that can be settled with money — and lots of it…”
Well it sounds like a lot of money, but is it ? An earlier suggestion in this, or another thread, is that fines are increasingly seen as the cost of doing business.
Prison is expensive. We need to ‘turn’ these people. They need community service sentences fund raising for social enterprises.
Agreed – it’s the cost of doing business and it’s not their personal money. It’s not the directors who get fined.
Nothing will change until the directors at banks are hit personally, in the wallets and with custodial sentences. As has been pointed out, the US and Iceland have been much tougher compared to the UK. I don’t expect anything to change as long as the Tory party gets most of its funding from the finance sector
And I love the idea of them having to do comminity service. Ideally with ‘banker’ in big letters on their jackets!
“Mr Gulliver said that after multibillion-dollar investments in compliance and controls “HSBC is in a stronger and a better position today to protect itself and therefore the banking system from bad actors than it was in 2010”.”
Which ‘bad actors’ would those be ?
Is this yet more evidence of the world of entertainment creeping into the structures if our society. 🙂
But seriously, if after all these hefty fines the bank is still doing well the fines weren’t big enough. And we know damn well that “investments in compliance and controls” means becoming more adept at gaming a new set of rules.
Banks too big to fail are too big.
The bad actors are allowed to get away with it here as they’re the only actors in the game. In Germany, as an obvious example, you have the Sparkassen network of small local community banks as welcome alternmatives. We need actors like that on our stage here. Incidentally I understand the ECB is trying to kill them off by demanding they comply with a level of regulation wholly impractical for their circumstances. Let’s wish them well. Hampshire is attempting to set up a local bank, they’re applying for a license, last I heard. We should keep an eye on developments and encourage the same in our own localities.
Bill Kruse says:
“…. the Sparkassen network of small local community banks …….
“Hampshire is attempting to set up a local bank, ……”
Good luck with that one, Bill. I’m sure there’s much scope for bringing money closer to the people who use it. (As opposed to piling it up and squirrelling it)
Here in Scotland, RBS is fighting public opposition to branch closures. The sooner they close their branches the sooner there will be a gap in the market for smaller players to emerge. The opposition to branch closures is based on the mistaken popular belief that these are a social good on the local economy rather than a sink hole into which money disappears and is whisked away never to be seen again.
We should celebrate and facilitate their disappearance from our High Streets. We’ve lost two already. Hoo- hoo- ray ! Ironically they are both ‘Scottish’ brands – RBS and Clydesdale – about as Scottish now as ….. Macdonalds(?)
I am not going to comment on the particular issue raised here, but make a general point about regulation and the law in the banking and financial sector in the UK; or rather less a point (in the spirit of not shirking something more robust, even if it has flaws) than to offer eight proposals for reform of the law and regulation of the UK financial sector (for I think we have all had enough – it seems to me that fines have turned transgression into a mere ‘cost of doing business’ rather than a penalty):
1) Bring the criminal law into the centre of the financial regulatory framework.
2) Apply regulatory fines only for minor or non-repetitive offences. Apply the criminal law to major offences.
3) Do not under any circumstances allow free public funds to be used to pay fines. If necessary a structured loan should be set up with a rate of interest well above the miscreant institution’s borrowing rate, with an exit for immediate repayment.
4) Establish a new statutory Fraud Act that actually works in the Financial Sector.
5) Use the criminal law rigorously where appropriate, and put people in jail.
6) Define a Bank. Define it clearly and narrowly (now that is tough!). Penalise transgression, but reward exemplary banking standards through the taxation system.
7) Prohibit the most volatile, dangerous forms of derivative (certain CDS activities, re-hypothecation etc.) and monitor new derivative developments very, very closely.
8) Fund the resources on a scale that entails serious regulation. ‘Open for business’ in the UK too easily becomes open to transgression (the proof is the Crash, 2007-8, and its long aftermath of failure).
I am sure others will have much better proposals, but I have the advantage – for this moment – of having declared them.
I like them
Might I share them as a post?
Of course. I seem to remember that Robert Haldane, BofE wrote a paper/lecture “The Dog and the Frisbee” in late 2015. I wrote an article discussing it on Bella Caledonia in December, 2015. I borrowed my eight points from seven I used in that article (which is mine).
Noted!
Thanks….
John S Warren says:
“…..it seems to me that fines have turned transgression into a mere ‘cost of doing business’ rather than a penalty):…..”
That point had also occurred to me. Rather like the (possibly apocryphal) motorist who endlessly pays parking fines rather than use a car park.
A good list. Maybe add in a financial transactions tax which would inhibit some of the dysfunctional trading behaviour
Its Andy Haldane, Chief Economist at the BofE. A good guy and a lot more radical than one might expect. Check out his paper on how banks create money, and his interview with Rachel Botsma on trust on YouTube
Apologies; written in too much haste. It is indeed Andy Haldane. Thank you.
The various points raised have been regurgitated for over 40 years to my certain knowledge. We need no additional criminal or civil law nor do we need to define what a bank is any more than we need to define what an engineering company is. As the bank or any corporate body is a legal entity it is that which is held accountable and by and large not the people who run it. A bank does not launder money, it does engage in fraud, it does not make mistakes nor does it mismanage itself. That is done by people and officers of the bank or institution consequently they should be held legal responsible as part of the same legal entity. There should be no divorce of responsibility. If you are a ships captain or officer and run your ship aground through negligence or criminal intent it is highly probably you will go to jail. Not many ships run aground. So if a bank requires a license those required to run it should also be licensed and legal tied to that license and directly responsible as part of that legal entity.
Mr Craig,
Delighted that your understanding of the concept of a bank is complete. Please share your knowledge. Provide us with a (definitive and robust) definition of a bank.
Thank you in anticipation.
The UK regime regulates deposit-taking as the core regulated banking activity in which only deposit-takers are “credit institutions” under EU law. “Accepting deposits is a regulated activity if money received by way of deposit is lent to others or any other activity of the person accepting the deposit is financed out of the capital of or interest on money received by way of deposit” Article 5 RAO.
Other regulated activities include, among others:
Issuing electronic money.
Investment-related activities including dealing (as principal or agent) in, arranging deals in, managing, safeguarding and administering and advising on certain investments.
Consumer lending and related actives.
Lending secured by a mortgage over UK residential property.
Administering or providing information in relation to a specified benchmark (currently LIBOR, ICE Swap Rate, Sterling Overnight Index Average, Repurchase Overnight Index Average, WM/Reuters London 4pm Closing Spot Rate, LBMA Gold Price, LBMA Silver Price and ICE Brent Index, although the Treasury has power to specify other benchmarks.
There are further refinements in defining banks by type. Universal, commercial, retail. investment, private and state owned. There is little equivocation in what a bank is licensed or regulated to do the problem arises with the implementation and that is down to people’s two main drivers fear and greed and an absence of legal accountability.
I do not think this works. It is a list, not a definition. This does not cover all activities that could be undertaken, or new types of product; innovation. The Bank is a legal persona, but in your approach, you are simply trying to move responsibility toward individuals (I do not object to a concern with individual responsibility but it begs the question, and it fails on two fronts: it does not answer my question, and as a matter of plain fact it has failed as a policy prescription – scarcely anyone in the UK banking sector since the Crash – with miniscule exceptions – has been found guilty of a crime in the UK, or even charged).
But rather than enter into an arid and question-begging debate about lists, let me ask a single, and I hope useful question that attempts to grapple with the underlying conceptual problem: how do you distinguish between insurance and banking in your framework?
We are being obtuse. Any firm is defined by what it does and in the case of banks by the regulators and regulations set up within any given jurisdiction. To reiterate the core function of any bank and from which everything else flows is “Accepting deposits as a regulated activity if money received by way of deposit is lent to others or any other activity of the person accepting the deposit is financed out of the capital of or interest on money received by way of deposit” Article 5 RAO. So no matter what it does within whatever structure market or type of bank it chooses to be regulated as, there will always be a party and counter party from the basic depositor bank relationship to the most esoteric of derivatives.
The bank or any company is not a person and has no persona. it is a legally constituted entity and any culture or character is given to it by the people who are paid to run and its success or failure is directly dependent on them. The bank cannot be negligent, fraudulent or incompetent only those that run can be that. Consequently they cannot pass the responsibility for such failures to the entity which is controlled by them. Simple analogy if you wish to run a Public house you need a licence and if you mismanage that licence you stand a very good chance of having said licence revoked losing your livelihood or ending in prison depending on what caused the revocation. Until people running banks and corporations are held directly and legally responsible for their actions no amount of regulation, micro management or “definition” will make much difference and that applies to insurance companies as well. There have been at least 45 banking crisis/failures/recessions in the last 255 years and those responsible in the main walked free.
The only common ground between banks and insurance companies is that both are financial intermediaries and investors. Insurance companies do not create money, are liquidity rich, they match asset to liability duration therefore leverage is not a problem and by and large they are not interconnected in the market place as banks are. Their failure rate is relatively easy to predict the main causes being insufficient reserves, under pricing, overstated assets, fraud, and impairment. These risks are all actuarially discernible therefore if any insurance company continues to operate without addressing these issues then those responsible are criminally negligent and should face prosecution.
“The bank or any company is not a person and has no persona. it is a legally constituted entity…”
Frankly I do not even know what that means; nor can I follow the logic. Here is what the ‘legal persona’ of a company means to me. The legal personality of a company is a principle of company law. This was created by the House of Lords in Salomon v A Salomon & Co Ltd (1897). Before that companies were essentially avatars, behind which there were “real people”, as suggested in one authority’s description. The Law Lords decision in Salomon established the legal relationship between the company and members; producing two completely separate legal entities, or legal persons. Lord Macnaghten (Salomon case) declared: “the company is at law a different person altogether from the subscribers to the memorandum”. Today, the principle still stands. Professor Brenda Hannigan observes in a current standard company law text, “the company must be treated like any other independent person with rights and liabilities appropriate to itself” and “Equally the company can sue and be sued….” (Company Law, Oxford: OUP, (2009); Sect.3-10, p.55).
I just try to keep it simple, avoid tedious lists that explain almost nothing that is to the actual point; and candidly I still cannot find anything in your comments that looks like to me like a genuine attempt at a definition. I didn’t claim it was easy.
John S Warren says:
“The bank or any company is not a person and has no persona. ….”
Thank you for chapter and verse on the Company as a Person in law, John. That was my belief from something I had read ages ago.
[…] there is both mismanagement and misjudgement by HSBC on its role in facilitating tax […]
I recall a conversation with the audit head of a largish International Bank, in which he made the wise observation that all the manuals and procedures were of little use if the values of the organisation, the message from the top, encouraged people to behave differently. At the time they had a pretty sound and ethical CEO.
Meanwhile the likes of Barclays and HSBC continue to have problems. A mole in Barclays suggests that little has changed in terms of values and messages from the top. A relatively junior Barclays trader is serving 14 years for his role in Libor. His managers and directors who set the culture in which his behaviour was the expected norm? All have gone completely untouched.
It’s all about gaming whatever rules are created as Andy says. More rules just means more gaming. Until you fundamentally change the culture and values
I gather HSBC are well established in the Orient and thus are regarded as a necessary interface between the growing financial authority of China and the greedy grasperinos of The City of London. Expect nothing which isn’t cosmetic to happen, therefore. There’s too much money to be made, too many deals to get underway, too many bridges to build. I doubt anyone in finance or politics are going to care about muddy history given that context. Pragmatism rules.
Why limit your opprobrium to HSBC whose alleged malfeasance only came to light because of the HSBC hacker Falciani and the famous disc. I have no doubt that if the same criminal intrusion was applied to any bank’s wealthy customer data it would yield exactly the same result as they are all competing in the same cess pool for the same type of customer who wish to avail themselves of the same services.
Having worked for an international bank (in IT), I can tell you that they are on a hiding to nothing. The elite want Harrods service at Tesco prices. Not a model for good shareholder returns.
As a result these banks go after less greedy customers (or maybe you could say more gullible ones) like NGOs (like Oxfam) and religious organizations. But now the elite is gunning for organizations like Oxfam with the total power of the ugly captured Conservative Party ably supported by the totally compliant BBC.
Endgame.
End of this game, no doubt. We must try to shape the new one more to our liking.
[…] A commentator called John Warren made this comment in the blog yesterday, in response to comment on HSBC: […]
You are obviously only choosing to understand that which supports your own fallacious arguments. At its simplest a bank or company is not a person ie human. It is granted juridical rights as an artificial person with legal rights and name but of itself is totally dependent on those who run it and is incapable of any interaction on its own behalf. Salomon V Salomon established that a company is a separate legal entity and thus a juristic person in the eyes of the law which of itself is an ambiguous statement being a person and entity a concept you seem to have no trouble understanding. However a company cannot sue or be sued only those acting on its behalf can engage in such actions. The Salomon case confirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was a one person Company. It was a bad decision as Salomon’s case upheld fraud and the evasion of legal obligations and has continued to do so since. Any company can be considered as an avatar particularly since the decision.
I do not know how you attempt to define anything or if if you are aware how such a process works but if you are attempting to give a degree of distinctness or make a statement as to the exact meaning of anything how do you propose to do so other than by listing attributes necessary for such a definition to have meaning. The more narrow or precise you wish that definition to be the longer the “list” will become. My attempts at a definition are a trifle more explicit and honest than any of the nebulous statements offered by you so far
With respect Jim, first your style is not endearing and, second, making up what the law said is not a useful basis for argument.
My style is appropriate to the tenor and tone of Mr Warren. I take exception to the claim I have made up what the law said I definitely have not
Salomon transferred his business of boot making from a sole proprietorship, to a company incorporating himself and his family. The transfer was paid to Salomon by way of shares, and debentures with a floating charge on the assets of the company. When his business failed and went into liquidation, Salomon’s right of recovery against the debentures stood prior to the claims of unsecured creditors liquidation. The liquidator alleged that the company was sham, an agent of Salomon, and therefore, Salomon being the principal, was personally liable for its debt.
The Court of Appeal, declared the company to be a myth, and that Salomon had incorporated the company contrary to the true intent of the then Companies Act, 1862, and that he had conducted the business as an agent of Salomon Ltd, and would be responsible for the debt incurred
The House of Lords on appeal, unanimously held that, as the company was duly incorporated, it was an independent person with its rights and liabilities appropriate to itself, and that “the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are”. Illogical tosh and as such means any company can be set up for fraudulent purposes or to evade legal responsibilities. This created what is considered by many as a legal fiction and the “corporate veil” between the company its operators and owners was established. So until this is reversed my contention is that regulation is never going to work as intended.
However as my style is causing offence it will be the last post I make
But Jim, you must see that you are actually denying what the law is
It may be wrong, but deal with it as it is or your argument fails
Richard qUestions your style, by which I suspect he’s refering to the nature of what you have to say.
From my point of view I’d appreciaite some paragraph breaks. A solid rectangle of text is hard work. It’s like the equivalent of a rant without pause for breath.
With all due respect, I am obliged to say that I find your exposition of your case garbled and confusing. Even if you have a point to make, it is not well made. Furthermore, it is not an argument that proves that my contention about legal persona is wrong, simply by claiming it was a “bad decision”. First, it established my case whether you like it or not: second, again with all due respect you provide no rigorous argument to support your argument, and offer no authoritative sources; which leaves us to conclude that you consider you are the sole authority, simply by claiming to be. Forgive me, but that will not do.
I think you may have dug a hole for yourself and are struggling to extricate yourself, but that is ony my opinion, and it is entirely up to you. For myself, I am happy for readers to draw their own conclusions about the merits of our relative arguments, but I have to confess that what began as an interesting, rational discussion about facts and concepts is fast becoming merely tiresome.
I agree with you John
For some one who likes to keep it simple I will reiterate in the simplest terms possible. People run companies. Companies do not run themselves and as such cannot interact without the input of humans. The “persona” of companies as you put is a fiction. See my reply to Richard Murphy.
I have never claimed to be the sole authority on anything but what is apparent is that neither are you and if you require authoritative sources to confirm the legal fiction of your “persona” simply pick up any legal text book on corporate law which I was forced to study as part of my degree course aeons ago.
The only hole would appear to be the one you are permanently in but perhaps once you climb high enough you will see the light as it is a simple concept. People run companies and as such they are driven by human emotions namely fear and greed which is responsible for all sorts of actions and promotion of self interest. A company irrespective of the legal fiction in which it exists is merely a vehicle for them so unless you control them regulation is never going to work as intended.
This discussion I hope is now over as it has reached levels of banality i have not seen for some considerable time
Jim
What you say is true, of course: people do run companies
But the law gives those people very different rights and responsibilities to the rest of the population.
You can’t pretend then that this is just a matter of people: if we are to retain limited liability (and I think we will) you have to embrace what it means too or discredit your own argument
You may need to compromise a bit. Your core argument has merit. Your delivery is wrong.
Richard
For those interested in a bit more detail, a paper just out from Wharton Uni on Tom Hayes, the Barclays guy who got a long jail sentence whilst his superiors got away Scot free.
http://knowledge.wharton.upenn.edu/article/libor-scandal/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2018-02-22
I have little or no confidence that there will not be further incidents as long as nothing has fundamentally changed both in culture and structure