French magistrates open formal criminal probe into HSBC unit

HSBC Holdings has been placed under criminal investigation by French authorities and made to post €1bn bail over allegations that its Swiss private banking arm helped clients avoid taxes.

The banking group said it was told by French magistrates on Wednesday that it would be subject to a formal criminal investigation in relation to the conduct of its Swiss private bank in 2006 and 2007.

The investigation comes five months after HSBC's Swiss private banking arm was placed under formal investigation by French magistrates. The bank was also asked to deposit a bail bond of €50m.

But HSBC said in a statement on Thursday that it believed the French magistrate's decision was "without legal basis" and that bail was "unwarranted and excessive".

"It intends to appeal and will defend itself vigorously in any future proceedings," the bank said.

One person close to the situation said the appeal is because the holding company does not directly conduct private banking, nor is it a credit institution.

Although the French authorities have completed their investigation of the Swiss unit, recommending that it stand trial, the final decision is now in the hands of the public prosecutor.

UBS was also made to post €1.1bn bail to French investigators last year to cover a potential fine for alleged money laundering, as one of a number of probes into the Swiss lender's cross-border wealth management business.

The latest development comes after a torrid few months for HSBC, which has come under fire for alleged tax-related wrongdoings.

The bank is also being investigated over tax evasion allegations in several other countries, including the US, Belgium and Argentina.

The issue escalated after Swiss prosecutors raided HSBC's private bank in February as part of their investigation into claims that the bank helped customers launder the proceeds of drugs, arms trafficking and terrorism.

France started to investigate HSBC's Swiss private bank after leaked documents handed to the government by former IT worker Herve Falciani in 2008.

The historic allegations came to light this year following a comprehensive report into the scandal by the International Consortium of Investigative Journalists.

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