Anyone following current business and finance news will no doubt have caught a whiff of what the world’s press is calling the HSBC scandal, though like me, you probably aren’t familiar with all the details.
You may not even know what HSBC stands for which is the Hong Kong & Shanghai Banking Corporation, an institution whose roots go back as far as 1865. According to Wikipedia HSBC’s current standing is thus:
“HSBC Holdings plc is a British multinational banking and financial services company headquartered in London. It is the world's second largest bank. It was founded in London in 1991 by the Hongkong and Shanghai Banking Corporation to act as a new group holding company. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. As such, the company refers to both the United Kingdom and Hong Kong as its "home markets".
HSBC has around 6,600 offices in 80 countries and territories across Africa, Asia, Europe, North America and South America, and around 60 million customers. As of 31 December 2013, it had total assets of $2.671 trillion, of which roughly half were in Europe, the Middle East and Africa, and a quarter in each of Asia-Pacific and the Americas. As of 2012, it was the world's largest bank in terms of assets and sixth-largest public company, according to a composite measure by Forbes magazine. HSBC is organised within four business groups: Commercial Banking; Global Banking and Markets (investment banking); Retail Banking and Wealth Management; and Global Private Banking.”
The current scandal concerns the thorny issue of tax avoidance whereby the corporation stands accused of assisting its customers, specifically large corporates, of secreting monies away in its Swiss arm in order to thwart revenue collection in their countries of business.
And in a new twist today the Geneva offices of HSBC’s Swiss private bank were raided by Swiss authorities looking for evidence of alleged money laundering and reports that staff also helped hide money accrued from dodgy arms dealing and sales of ‘blood diamonds’.
The information on which authorities are now acting is contained in e-files stolen in 2007 by HSBC's former computer specialist, Hervé Falciani, who said he was alarmed at how "banks such as HSBC have created a system for making themselves rich at the expense of society, by assisting in tax evasion and money-laundering".Falciani fled to France and gave the files to the French police. The information was leaked to the French newspaper Le Monde, and then to the International Consortium of Investigative Journalists, who lifted the lid on the names last week.
Meanwhile some of the mud flying around in the fallout has been thrown at various governments and individual politicians who are accused of having known about the stolen information and colluded in a cover-up in the intervening past 8 years. Commenting on the unprecedented raid, Swiss Attorney General Oliver Jornot said: ‘What we are looking for today is not yet proof. What we are looking for are all documents, all information which will then allow us to make an analysis.’ He added that Swiss law did not allow an investigation based on stolen evidence but his office could investigate if it secured the evidence itself.
And whilst much of the fall-out from the exposé seems far away from us here, there is now a regional aspect after the South African Sunday Times published a list of names of wealthy South Africans who have reportedly stashed away 23 Billion Rands in HSBC Swiss accounts. This has led to the South African Revenue Service (SARS) becoming involved. SARS Service Executive Vlok Symington confirmed that SARS was "analysing" the information. "Early indications are that some of these account holders may have utilised their HSBC accounts to evade local and/or international tax obligations," he said.
HSBC in South Africa has countered by saying the list of names was obtained illegally and making a complaint in the offending newspaper. In a three-page letter sent to Sunday Times last week, their lawyers Cliffe Dekker Hofmeyr said the list of South African clients was "stolen from HSBC". The lawyers said it would be a "breach of confidentiality" to publish the names, especially as this would lump these people together with crooks and tax dodgers and demanded that no details should be disclosed to anyone, ever.
Now it is not illegal for South Africans or indeed most other citizens in other countries on the stolen HSBC lists to hold Swiss bank accounts. And I must confess to thinking that that was what having a Swiss bank account was all about – to stash away profits, inheritances and even ill-gotten gains away from the prying eyes of tax collectors and nosey parkers. If it’s not Switzerland it’s the Cayman Islands or some other recognised off-shore tax haven where bank account holders are known to enjoy complete confidentiality and money movements are none of the authorities’ business.
In Switzerland this complete confidentiality was first ratified in 1934 under The Federal Act on Banks & Savings Banks and has been a subject of Swiss banking pride ever since. However, under mounting international pressure the current Swiss government is unstitching part of that antique confidentiality quilt. Last year it signed up to an international agreement on automatic sharing of tax information and last month unveiled draft legislation to fulfil this obligation. Currently such details are only given on formal request from a foreign government but if the proposed regulations are ratified then potential tax issues such as property ownership would be automatically flagged up and some information such as account holders’ names, account numbers and bank balances would be shared with certain as yet undetermined governments.
All of which of course brings up the thorny issue of the difference between tax avoidance and tax evasion, the former being perfectly legal though morally questionable, the latter being against the law. And in light of the proposed new Swiss banking policies a lot of account holders must be feeling extremely nervous, be they innocent or slightly less so. For my own part I wish I was in the happy position of having such fat and obscene profits that could warrant considering a secret off-shore account but at least I have the moral high ground, meaning that as I remain scot (or tax) free I will also always be a free Scot.
STUART WHITE is the Managing Director of HRMC and they can be reached on 395 1640 or at www.hrmc.co.bw
The world in which we live is a criminally unequal one. In his iconic 1945 allegorical novella, Animal Farm, a satire on the facetiousness of the then Soviet Empire’s crackbrained experiment with a command economy, the legendary George Orwell in my view hit the nail squarely on the head when he said all animals were equal but some animals were more equal than others.
That’s the never-ending dichotomy of the so-called First World and its polar opposite, the so-called Third World as Orwell’s cleverly-couched diatribe applies as much to the tread-of-the-mill laissez faire economics of our day as it did to Marxist-Leninist Russia a generation back.
Even as the Nation of Israeli braced to militarily take possession of the Promised Land, General, its top three senior citizens, namely Moses, Aaron, and Miriam, were not destined to share in this god-conferred bequest. All three died before the lottery was won.
Financial Reporting (Amendment) Bill, 2020 and Accountants (Amendment) Bill, 2020 were expeditiously passed by parliament on Thursday.
What are these two Bills really about? The Bills are essentially about professional values that are applicable to auditors and accountants in their practice. The Bills seeks to basically enhance existing laws to ensure more uprightness, fairness, professional proficiency, due care, expertise and or professional technical standards.
The Financial Reporting Act, 2010 (FRA) establishes the Botswana Accountancy Oversight Authority (BAOA), as the country’s independent regulator of the accounting and auditing profession. BAOA is responsible for the oversight and registration of audit firms and certified auditors of public interest entities.
In the same vein, there is the Accountants Act, 2010 establishing the Botswana Institute of Chartered Accountants (BICA) which is responsible for the registration and regulation of the accounting and auditing profession. This consequently infers that some auditors have to register first with BICA as certified auditors, and also with BAOA as certified auditors of public bodies. So, the Bills sought to avert the duplication.
According to Minister Matsheka, the duplication of efforts in the regulation of auditors, which is done by both BICA and BAOA, creates a substantial gap on oversight of certified auditors in Botswana, as the two entities have different review procedures. He contends that the enforcement of sanctions becomes problematic and, thus, leads to offenders going Scot-Free, and audit quality standards also continue to plunge.
The Financial Reporting (Amendment) Bill, 2020, in the view of the Minister, brings the oversight and regulation of all auditors in Botswana under the jurisdiction of the Accountancy Oversight Authority and that Bringing all auditors within one roof, under the supervision of BAOA would therefore reinforce their oversight and significantly enhance accountability.
He also pointed that the Bill broadens the current mandate of the Authority by redefining public interest entities to include public bodies, defined as boards, tribunals, commissions, councils, committees, other body corporate or unincorporated established under any enactment.
This covers any company in which government has an equity shareholding. In order to enable the process of instituting fitting sanctions against violation of its provisions, the Bill clearly lays down acts and lapses that constitute professional misconduct.
This Bill further strengthens the sanctions for breach of the Act by public interest entities, officers, firms, and certified auditors. Reinforcing the law with respect to such sanctions will act as an effective deterrent for breach of the Act.
The Accountants Bill also strengthens the current mandate of the Institute by making it obligatory for those who provide accountancy services in Botswana to register with the Institute, and for all employers to hire accountants who are registered with the Institute.
The Minister reasons that in line with the spirit of citizen empowerment, this Bill proposes reservation of at least 50% of the Council membership for citizens. This, he says, is to empower citizens and ensure that citizenries play an active role in the affairs of the Institute, and ultimately in the development of the accounting profession in Botswana.
The Bills come at a point when Botswana’s financial sector is in a quagmire. The country has been blacklisted by the European Union. Its international rankings on Corruption Perception Index have slightly reduced. According to recent reports by Afro Barometer survey, perceptions of corruption in the public service have soured and so is mistrust in public institutions.
Rating agencies, Standard Poor’s and Moody’s have downgraded Botswana, albeit slightly. The reasons are that there continues to be corruption, fiscal and revenue crimes such as money laundering and general unethical governance in the country. There are still loopholes in many laws despite the enactments and amendments of more than thirty laws in the last two years.
One of the most critical aspect of enhancing transparency and accountability and general good governance, is to have a strong auditing and accounting systems. Therefore, such professions must be properly regulated to ensure that public monies are protected against white color crime. It is well known that some audit firms are highly unprincipled.
They are responsible for tax avoidance and tax evasions of some major companies. Some are responsible for fraud that has been committed. They are more loyal to money paid by clients than to ethical professional standards. They shield clients against accountability. Some companies and parastatals have collapsed or have been ruined financially despite complementary reports by auditors.
In some cases, we have seen audit firms auditing parastatals several times to almost becoming resident auditors. This is bad practice which is undesirable. Some auditors who were appointed liquidators of big companies have committee heinous crimes of corruption, imprudent management, fraud and outright recklessness without serious consequences.
There is also a need to protect whistleblowers as they have been victimized for blowing the whistle on impropriety. In fact, in some cases, audit firms have exonerated culprits who are usually corrupt corporate executives.
The accounting and auditing professions have been dominated by foreigners for a very long time. Most major auditing firms used by state entities and big private sector companies are owned by foreigners. There has to be a deliberate plan to have Batswana in this profession.
While there are many Batswana who are accountants, less are chartered accountants. There must be deliberate steps to wrestle the profession from foreigners by making citizens to be chartered. It is also important to strengthen the Auditor General. The office is created by the constitution.
The security of tenure is clearly secured in the constitution. However, this security of tenure was undermined by the appointing authority in many instances whereby the Auditor General was appointed on a short-term contract. The office is part of the civil service and is not independent at all.
The Auditor General is placed, in terms of scale, at Permanent Secretary level and is looked at as a peer by others who think they can’t be instructed by their equivalent to comply. Some have failed to submit books of accounts for audits, e.g. for special funds without fear or respect of the office. There is need to relook this office by making it more independent and place it higher than Permanent Secretaries.