Governments are partly to blame for turning a blind eye as banks exploited legal loopholes to stash billions of dollars in Swiss accounts, according to the tax watchdog.
Commissioner for Revenue Marvin Gaerty was speaking to Times of Malta in the wake of revelations showing how HSBC used its Swiss private bank to help clients around the world dodge tax authorities in their own countries.
The revelations known as Swiss Leaks were made by the Washington-based International Consortium of Investigative Journalists (ICIJ). They included information on $687 million held by HSBC for 71 Maltese clients in Geneva. A single Maltese client held $630 million.
Mr Gaerty said the European Services Directive introduced in 2004 only covered individuals and certain financial products.
The directive was eventually changed last year to include companies (known in financial jargon as ‘legal persons’).
“These were loopholes everyone knew existed and I am sorry to say governments and the EU are partly to blame because they knew what banks were doing was wrong but possible,” Mr Gaerty said.
He said last year’s changes meant that banks were obliged to know who the ultimate beneficiary and individual owner of an account was.
The European Savings Directive was intended as a tool to counter cross-border tax evasion. It allowed information about foreign resident individuals receiving savings income outside their resident State to be collected and exchanged.
But for 10 years it did not cover companies and the HSBC private bank in Switzerland is accused of having advised clients to avoid taxes by creating companies.
The international group of investigative journalists has cautioned that not all HSBC Swiss account holders have necessarily avoided taxes or used the accounts to deposit ‘dirty’ money.
But banking practices prior to 2008 indicate HSBC profited from illegal activity by offering services to clients who had been unfavourably named by the UN in court documents and in the media as connected to arms trafficking, blood diamonds and bribery.
Mr Gaerty said he would be seeking information from the ICIJ, the Swiss and French authorities and HSBC on the Maltese account holders. “We will then carry out our own investigation to see whether the money was declared and whether taxes were paid.”
The list of account holders was secretly extracted by a former HSBC employee in 2007 and passed on to the French authorities.
The questionable accounts date back to before 2008 and in Malta’s case a significant spike of new Swiss accounts occurred in 2003.
Mr Gaerty said the 2003 phenomenon was likely caused by Malta’s imminent entry into the EU, which may have prompted individuals with money abroad to transfer it to Switzerland.
He said Switzerland was obliged to cooperate since it was a party to the directive.
Switzerland had been granted a transition period in 2004 during which banks gave clients the option to retain non-disclosure but pay a withholding tax that increased progressively over the years.
Mr Gaerty said the decision by some account holders to continue paying high tax rates in Switzerland rather than benefiting from a minimal withholding tax in Malta was a clear indication the money was undeclared.
“It is very possible the money was undeclared and physically taken out of Malta in different batches,” Mr Gaerty said.
He described the use of a multi-layer system to hide the identity of the eventual beneficiary.
Account holders would normally be identified only by a number, with the client profile being known only to a handful of bank employees. The account holder would probably be a company and the shareholders a trust fund.
Finance Minister Edward Scicluna said the government was adamant in wanting to weed out tax evasion. “Our next step will be determined by the information we obtain,” he said, adding Switzerland was obliged to cooperate.
Malta Financial Services Authority chairman Joe Bannister said no regulatory action could be taken because the bank in question was based in a foreign jurisdiction.
He also pointed out the matter was tax-related and so fell outside the MFSA’s remit. “One must keep in mind it is not illegal to keep an offshore account as long as the money would have been declared and taxes paid,” he said.
Who has $630m in Switzerland?
The identity of the Maltese HSBC client who holds $630 million in a Swiss account was not revealed by the international group of investigative journalists.
It is not known whether this particular client is an individual or a company.
Commissioner for Revenue Marvin Gaerty said it is likely the account is linked to an intermediary, who would manage the wealth on behalf of clients.
Sources within the financial services sector said there were a handful of Maltese individuals who had the potential to amass such wealth but insisted it could very well be that the account belonged to a company registered in Malta.
“It could be the ultimate shareholders are not even Maltese but the shell company holding the account is registered in Malta,” a source said.
A broker said the account could also be an “omnibus account” held by an intermediary or institution on behalf of various clients.
According to the ICIJ, 24 of the 71 clients linked to Malta were Maltese passport holders.
The only Maltese name that has cropped up so far in the Swiss Leaks list is that of former Enemalta chairman Tancred Tabone. He was identified in one of the news reports on the ICIJ website.
No indication was given as to the amounts he held with HSBC’s Swiss bank but his lawyers have declared that his affairs were regular and the bank was authorised to issue details.
Mr Tabone is undergoing court proceedings in connection with the oil procurement scandal.
When giving evidence in court in February 2013, former Enemalta oil consultant Frank Sammut – who is also charged with corruption – had testified that he split oil commission money with Mr Tabone and had this delivered to a Swiss bank account. It is unclear whether this account is the same one identified by Swiss Leaks.
Mr Tabone denied the charges, insisting the money in the Swiss account was used to go on holidays.