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Hervé Falciani -- The SwissLeaks Whistleblower

Posted on December 21, 2015 by William Hoke

Most people with undisclosed Swiss bank accounts have, by definition, something to hide. Secrets, however, sometimes don't remain secret, especially when they involve someone else's money. While disclosing the names and financial details of Swiss bank account holders has recently come into vogue, a whistleblower may have just as murky a past as some of the people he seeks to expose.

Alejandro García/EFE/Newscom (ALEJANDRO GARCÍA/EFE/Newscom)In Switzerland Hervé Falciani was recently convicted in absentia of industrial espionage against his former employer, the private banking unit of HSBC Holdings PLC. He was, however, acquitted of data theft and violating Swiss banking secrecy laws. Despite his conviction, the jury of public opinion is still out on whether Falciani acted out of a self-proclaimed concern for the public good or his own personal gain.

Falciani denies having taken the data, which he claims was instead passed along to him by other bank employees who were equally concerned. He also says he tried to alert Swiss law enforcement officials to lapses in the security of HSBC's confidential account information, as well as the bank's alleged encouragement of tax evasion, but was rebuffed because the officials refused to protect his anonymity.

Falciani's account of what happened, while engrossing, might appear to strain credulity at times. Whatever the truth behind his version of events, the fact remains that he took a sledgehammer to Switzerland's vaunted edifice of banking secrecy, exposing both HSBC and thousands of its foreign clients to significant monetary penalties, if not criminal prosecution.

HSBC client information from Falciani's personal computer has found its way to tax authorities around the world, prompting investigations into the financial affairs of thousands of the bank's customers, as well as the filing of criminal charges against a former Greek finance minister. As well traveled as the HSBC data have been, Falciani's own peregrinations appear to have been lifted from spy novels, with the lead character wearing disguises, moving about with bodyguards, assuming a false identity to enlist Beirut bankers in his cause, receiving safe passage for a Geneva rendezvous, and even claiming to have been abducted by agents of Israel's Mossad.

Falciani has been either detained or arrested in three countries and has helped authorities in a number of others with their investigations of HSBC account holders. After the investigations began, Falciani actually returned to Switzerland at least once. According to a deposition he gave in France, Falciani said he met at the Geneva airport with Swiss prosecutors under a safe passage and was told he would get a suspended sentence in exchange for pleading guilty to various unspecified charges. Falciani declined the offer and could spend five years in prison, if he ever returns to Switzerland.

Falciani was presumably not surprised by the guilty verdict. "I'll be convicted, but I'll turn the page," he told the French newspaper Le Monde last December. "I'm going to apply for a name change, disappear, to have a normal family life."


Liaison in Lebanon

Falciani's remarkable tale began in Monaco in 2001, when the Italian-French citizen started work as a computer specialist at a branch of HSBC. In 2006, after his transfer to Geneva, Falciani said he became concerned first about the security of HSBC's confidential data, and then about the possibility that the bank's systems encouraged tax evasion.

Falciani traveled to Lebanon in 2008 with a co-worker in a confusing episode for which he used an assumed name and set up a dummy company to supposedly tempt various Beirut banks with an offer to turn over the names of wealthy individuals with Swiss accounts. The idea, according to Falciani, was to get at least one of the Beirut banks to trigger an alarm that the Swiss authorities would take seriously. At least that part of the plan worked. One of the banks alerted the Swiss Bankers Association.

Falciani would later tell Business Week that the Beirut trip had been proposed by Mossad agents, who had grabbed him off of a Geneva street the year before and taken him into the basement of a deserted building. Falciani said that, without explaining their reasons, the men asked for his help in ensuring that HSBC "did not continue its practices." The plan was supposedly to tip off the Lebanese banks that HSBC's account secrecy had been compromised. The Beirut banks, in turn, would alert law enforcement authorities and "draw attention to the bank." Falciani said he agreed, suspecting that the men were concerned about terrorists using HSBC accounts to finance their activities.

Falciani, who had reportedly used his HSBC account to pay for the tickets to Lebanon, was tracked down and arrested upon his return to Switzerland in December 2008. After questioning, he was released by the Swiss authorities, who later said they had no grounds to take him into custody at that time. Although Falciani agreed to return for further questioning the next day, he instead fled to France. Falciani was later arrested in France, where authorities seized his computer and learned the nature and extent of the information that it contained.

Switzerland demanded the return of both Falciani and the data. It got only the latter, and then only in copy form. Meanwhile, French authorities kept the original disk and began investigating countless French citizens for tax evasion before passing on details about foreign HSBC account holders to their countries of residence.


Greek Reticence Not Shared

Not every country that received the data took advantage of the treasure trove. In 2010 French Finance Minister Christine Lagarde (now managing director of the IMF) provided information about HSBC's Greek account holders to her counterpart in Athens, Giorgos Papaconstantinou. But instead of actively investigating people on the "Lagarde list," Papaconstantinou effectively ignored it. When one of Papaconstantinou's successors learned about the information in 2012, the Lagarde list suddenly resurfaced, but without the names of three of Papaconstantinou's relatives, which had mysteriously disappeared. In 2015 Papaconstantinou was convicted of tampering with evidence, but acquitted of breach of duty for failing to act on the information provided by Lagarde.

While cash-strapped Greece may have been slow to take advantage of the data windfall, many other countries have shown no such reticence. France, Spain, Italy, Belgium, India, Argentina, and Brazil, among others, are all reported to have initiated investigations that, so far, have collectively resulted in billions of dollars being added to government coffers.

Although the vast majority of people on Falciani's computer are largely unfamiliar, some are well known, nationally or internationally. Perhaps the best known so far is cosmetics heiress Arlette Ricci. By the time French authorities had finished looking into her financial affairs, Ricci was fined €5 million and sentenced to one year in prison, while her daughter was placed on probation after being found guilty of fiscal fraud. Ricci's lawyer was also sentenced to probation for bankruptcy fraud.

While the IRS has not disclosed how much, if anything, it has collected from HSBC account holders exposed through the data leak, the bank signed a deferred-prosecution agreement (DPA) with the Justice Department in 2010, in which it agreed to pay $1.9 billion to various federal agencies for activities related to money laundering, bank secrecy, and economic sanctions. The DPA did not, however, address any tax-related crimes in which HSBC might have been involved. In February 2015 Sen. Elizabeth Warren, D-Mass., said that the DOJ should "come down hard" on HSBC if the bank is proved to have colluded with tax evaders.


Motivation

According to the BBC, Falciani said it is crucial for people to "speak the truth and point out systemic problems," adding that his former employer had "created a system for making themselves rich at the expense of society, by assisting in tax evasion and money laundering."

Swiss prosecutors claim that it was Falciani who was looking to enrich himself, claiming in the press release announcing his indictment that he had traveled to Lebanon with the intent of "cashing in on this data." (Press release available at https://www.news.admin.ch/message/index.html?lang=en&msg-id=55629.) The HSBC employee who accompanied Falciani to Beirut said he turned to Western intelligence agencies only after he had been rebuffed by the Lebanese banks.

It's not clear what, if any, financial reward Falciani ever received for turning over the HSBC data. French authorities have denied paying him anything. The German state of North Rhine-Westphalia said in 2010 that it purchased a CD containing stolen bank data on 1,500 German taxpayers who allegedly hid assets in Switzerland. While the name of the seller was not revealed, the press reported at the time that Falciani had been paid about €2.5 million for the disc. Later news accounts put the figure as high as €4 million. Falciani's lawyer did not respond to Tax Analysts' requests to interview his client for this article.

In an article by the International Consortium of Investigative Journalists -- which in February 2015 published information from 60,000 HSBC accounts -- Falciani discussed his motives in vaguely worded fashion. "I'm not a white knight, but there is something beautiful and exhilarating about establishing the truth," he said. "It carries you through the bad times. I don't have to worry about a retirement that I won't have. I don't have the risk of tomorrow. I can concern myself with something more: we are useful."

Whatever his motive, by launching a direct assault on Swiss banking secrecy, Hervé Falciani has made an invaluable contribution to the cause of tax transparency, in Europe and around the world.


William Hoke is a reporter with Tax Notes International.
E-mail: william.hoke@taxanalysts.org