Regulators tipped off about bank years before fraud exposed

BSI bank, created 139 years ago as Banca della Svizzera Italiana, is based in the Italian-speaking region of Ticino Keystone

UK regulators received a tip-off that the London unit of Swiss bank BSI was helping clients hide wealth offshore years before US prosecutors exposed its role in “massive” tax fraud, a Financial Times investigation has found. 

The Financial Services Authority, as it was then known, and HM Revenue & Customs, the tax authority, told the informant at the London office of Lugano-based BSI that they would follow up on the 2008 warning, correspondence seen by the FT shows. But they took no public action over the financial secrecy services that the bank was providing – and there was no indication that they took any private action. 

The banking secrecy techniques revealed in internal BSI documents seen by the FT offer the latest glimpse of how City bankers have helped clients move money around the world incognito. At an anti-corruption summit in London today, David Cameron, prime minister, hopes to broker a global statement of intent to combat graft, a campaign that gained momentum after last month’s release of the so-called Panama Papers. 

But with many of the most prolific offshore centres based in semi-independent British territories such as the British Virgin Islands, the summit has turned attention on the UK’s own role in the systems that facilitate tax evasion and other financial crime. Hundreds of billions of criminal dollars are laundered annually through UK banks, the National Crime Agency estimates. 

The BSI files offer a glimpse of the secrecy services that the Swiss bank’s London office provided to clients from Russia, eastern Europe and the Middle East as well as Britons. Among them were several people connected to ENRC, the Kazakh mining house, including relatives of the group’s oligarch founders, the documents show. 

ENRC’s scandal-plagued six-year London listing ended in 2013, shortly after the Serious Fraud Office announced a corruption investigation into the group. ENRC has denied wrongdoing. Its successor company did not respond to questions from the FT. 

At the time of the 2008 warning, BSI had already decided to close its London office, internal documents show. But it told clients it would go on serving them as before. Generali, the Italian insurer that was the bank’s owner and a joint venture partner in its London office, maintained its presence in the City. 

“No comment”

BSI said it was prevented by Swiss law from answering the FT’s questions on clients of its London office. “We do not comment on our interactions with the authorities. But we can confirm that BSI is strongly committed in [anti-money laundering] controls and co-operates with the authorities if and when requested.” 

The documents also show the bank’s London office offered services that legal experts say can be used to facilitate tax evasion and money laundering. These techniques include the use of companies registered in secretive tax havens to disguise the identity of account holders. 

The FSA in 2005 privately criticised the bank over how it vetted clients, according to people familiar with the matter. But no public action followed the detailed tip-off the watchdog received from the BSI employee in 2008. HMRC and the Financial Conduct Authority, as the City watchdog is now known, declined to answer questions on how they had handled that warning. The FCA said it “cannot confirm or deny any investigation”. 

By contrast, the US has aggressively pursued Swiss banks that helped Americans hide their wealth offshore. In a deal announced in March 2015, BSI became the first of some 80 banks to avoid prosecution by reaching settlements with the justice department. 

It agreed to pay a $211m penalty and to hand over the names of clients who were liable to pay US tax. Stuart F Delery, a senior justice department official, said Swiss banks had “facilitated a massive fraud on the American tax system”. 

Generali, which had been a joint venture partner in BSI’s UK business and the group’s owner, sold the bank to BTG Pactual of Brazil following the US settlement in 2015. BTG this year agreed to sell the bank to Switzerland’s EFG International. They all declined to comment. 

Copyright The Financial Times Limited 2016