Sixth largest FX dealer fined $192 million for tax evasion in the US

The last thing the Tier 1 FX interbank dealers need right now is more large penalties for transgressions.

Over the past five years, the largest institutions which handle over half of the world’s FX order flow at Tier 1 level have been subjected to regulatory fines, massive penalties for fixing FX benchmarks and lengthy litigation over alleged rigging of the soon to be defunct LIBOR.

Dubious tactics such as illicit inside discussions on messaging terminals between traders, whilst the banks use their legacy single dealer platforms to conduct last look execution on their liquidity takers as they show them disdain by making the prime brokerage market very constrained by refusing to offer counterparty credit unless a $50 million balance sheet can be displayed has led to these banks slipping down the market share table and being given over to non-bank market makers such as XTX Markets which is now the number one FX dealer in the world.

Today, HSBC, the world’s largest FX dealer by market share, has been handed a $192 million fine by the US Department of Justice for the avoidance of tax by its Swiss division.

The US Department of Justice filed a charge of conspiracy to defraud the United States against HSBC Private Bank (Suisse), but agreed to drop the charges in three years if the bank abides by the terms of the deal, according to court documents.

The US Department of Justice filed a charge of conspiracy to defraud the United States against HSBC Private Bank (Suisse), but agreed to drop the charges in three years if the bank abides by the terms of the deal, according to court documents.

The department said HSBC Private Bank bankers would travel to US cities including Miami to scout for clients.

The HSBC deal is the latest in a string of cases involving Swiss-based banks. Lenders including UBS and Credit Suisse have paid out billions of dollars after conspiring to help rich Americans dodge taxes.

The tough stance taken by US authorities over the last decade has helped pressure Switzerland to end the banking secrecy that had allowed offshore clients to hide money in Swiss accounts.

The Swiss government now has deals with many counties to provide information about accounts held by foreigners in the country.

Some HSBC Private Bank bankers continued cross-border business with US clients even as authorities began investigating Swiss banks for tax-dodging schemes, the Department of Justice said.

“Some HSBC Switzerland bankers assisted clients in closing their accounts in a manner that continued to conceal their offshore assets,” said US prosecutors.

In 2009, UBS agreed to pay $780m in fines, penalties, interest and restitution for helping wealthy Americas conceal assets from US tax authorities. Credit Suisse paid $2.6bn in a similar deal in 2014.

“Today the Swiss subsidiary operates under new management,” chief executive Alex Classen said in a statement.

“We have strengthened our compliance function, enhanced our control framework and put in place a comprehensive client tax transparency policy.”

HSBC paid €300m in 2017 to settle a separate tax evasion investigation by French authorities after a former employee leaked client data that triggered investigations in several countries.

Banks such as HSBC are increasingly concentrating on their core business of interbank dealing, as it is the most revenue generating and least resource consuming activity that they conduct.

As the non-bank market makers gradually take over the stronghold that has been maintained by the Canary Wharf-based dealing divisions of British, American, French, Swiss and German giants, perhaps banks should look at their corporate structure so that their institutionalised legacy does not become completely eroded by the well-oiled and slick non-bank rivals that are totally aligned with our industry and have a clean copybook.