It is embarrassing enough that HSBC CEO Stuart Gulliver was caught keeping £5 million in a Swiss bank account. But once you know why that money was in there, the situation looks even more ridiculous.
No one is saying Gulliver used his Swiss bank account to evade paying taxes, of course.
But his customers did just that, and the Swiss unit of his bank helped them do it. (Tax authorities in France, Spain, and the UK have since recovered over £500 million in unpaid taxes from those with HSBC Swiss bank accounts.)
But Gulliver did not do any of that. "I've never paid less than the marginal UK tax rate," he said Monday.
Gulliver's pre-2009 pay was funnelled into that Swiss bank account through a Panamanian company called Worcester Equities Inc. Even if you assume there is nothing suspicious about the management of an international bank — resident in both the UK and Hong Kong — paying itself via a Panamanian shell company, it still looks really weird.
And it reflects on Gulliver's judgement that he didn't stop to think how that might look to the public.
An extremely useful Bloomberg story explains that, under the explanation given by HSBC, Gulliver did not get any tax advantage for this complicated arrangement. Mark Summers, a Geneva tax lawyer, told Bloomberg" "In this case, it doesn't look like a structure that a Hong Kong resident, or UK non-domiciled resident would have needed. There isn't an obvious tax advantage."
Rather, the reason it was done, Gulliver says, was to keep his colleagues from finding out what he earned, as the Evening Standard noted Monday:
Mr Gulliver, who was awarded £7.619 million in pay, bonuses, share incentive schemes, pension top-ups and benefits last year, said the structure was put in place earlier in his career to prevent colleagues finding out how much he earned rather than reducing his tax bill.
Ignore the question of why Gulliver's compensation might need to be kept a secret from his fellows. Concentrate on the fact that most companies manage to handle their payroll in a way that lets staff keep their salaries confidential.
But not at HSBC! Here, according to Bloomberg, was the situation at HSBC in Hong Kong regarding staff pay — HSBC traders could look up one another's bank accounts, (emphasis added):
In Hong Kong in the 1990s, HSBC's computer system in the trading room allowed employees to access co-workers' bank accounts, Gulliver said. He and colleagues opened Swiss accounts to prevent one another from seeing the size of their bonuses. Opening it through the Panamanian shell company provided further privacy, he said.
"Being in Switzerland protects me from the Hong Kong staff," he said. "Having a Panamanian company protects me from the Swiss staff because people are interested in what their colleagues are paid. Why is it Panamanian? That’s the structure that the private bank was putting people into in those days.”
Again, even if we sympathise with Gulliver and assume he absolutely was not evading taxes, you still have to question his judgement: HSBC's trading room had a bonkers system that allowed anyone to look at everyone else's accounts, and so the solution to the problem was ... to set up a Panamanian company with a Swiss bank account attached?
By doing so, Gulliver has illustrated the precise problem at the heart of Swiss banking: The only reason to have a Swiss bank account is to make sure no one can see what you're really being paid.
