The Swiss authorities on Tuesday confirmed Mediapart’s exclusive report that a former HSBC employee who exposed the existence of tens of thousands of tax evading accounts held at the bank in Geneva has been arrested in Spain pending extradition to Switzerland, where he is wanted for breaching banking secrecy.
Mediapart first revealed the arrest of Hervé Falciani, 40, a former IT engineer for HSBC, who in 2008 wrote to tax authorities in France, Britain and Germany offering details of the accounts held with the Swiss arm of HSBC’s private banking operations, in a report published late Monday.
The Swiss federal justice office (OFJ) on Tuesday confirmed the information, saying Falciani, who holds dual French and Italian nationality, was arrested by Spanish police on July 1st. "The Swiss representation in Madrid deposited a formal extradition request with Spanish justice authorities on July 5th," an OFJ spokeswoman added. "It's now up to Spanish authorities to decide."
The exact details of his arrest are still unclear. Sources close to the case told Mediapart he was arrested after an identity check carried out on a Barcelona-bound boat he was travelling on.
Falciani is wanted in Switzerland for alleged ‘violation of banking and commercial secrecy’, ‘unlawful extraction of data’, and ‘economic intelligence’.
Falciani, who fled Switzerland for France in 2008, has admitted passing on confidential data of HSBC clients to the French authorities, who have since opened investigations into alleged tax dodging by individuals. But the investigations have been undermined by Swiss police findings that the data files were deliberately tampered with after they were seized as evidence, amid suspicions that the French authorities were involved in protecting a number of account holders from exposure. Meanwhile, the actions of the bank itself in the alleged tax-avoidance scam have not been the object of any judicial scrutiny in France.
HSBC claim Falciani had leaked the details of 24,000 of its wealthy clients. However, acting upon a request from the Swiss authorities, in January 2009 French police searched Falciani’s home in southern France, to where he had directly fled from Switzerland, and found data concerning 127,000 HSBC accounts, including those of 8,231 French tax exiles.
Falciani claimed he acted out of duty as a citizen. "If you discover that [...] offshore structures have no other aim than to avoid taxation and that the sole legitimacy of these structures is that purpose, what would you do?" said Falciani in an interview in 2009 with French TV channel France 2 . "You either play ostrich or you try to find out."
Contacted by Mediapart, a Swiss justice office spokeswoman said the four year-old investigation into Falciani “is only concerned with the existence, the provenance and the nature of the data [concerned] and not their contents”.
Falciani joined HSBC’s private banking operations in 2000, and was based in Geneva from 2006 where he served as an engineer for the bank's computerized data systems. He claims that from that same year, he alerted the Swiss authorities about HSBC’s alleged involvement in a sophisticated system of tax fraud by its clients. “I worked on the Hexagon system that allowed for internal transfers from one account to another without leaving any traces,” Falciani said in an interview in July 2010 with Italian business daily Il Sole 24 Ore. “If one cancels out an order [of transfer], no-one can find whether the order ever existed,” he continued. “If one erases the data on a server ‘X’ and duplicates them on a server ‘Y’, there is no trace of the data on the first server. And one server could be in Switzerland and the other in Hong Kong, a proper labyrinth. If no-one inside the bank is ready to help with [enquiries by] the justice services, the investigations are bound to fail.”
The mystery of the missing names
The Swiss federal prosecutor’s department first began its investigations into Falciani in May 2008, and he was questioned for the first time on December 22nd that same year. At the time, he was suspected, along with another HSBC employee, of having attempted to sell confidential data to several Lebanese-based banks. At the end of the day’s questioning, he was ordered to return for further questioning on December 23rd, although he was not placed in custody. He decided to immediately flee Switzerland for the south of France, after which the Swiss authorities issued an international arrest warrant against him and requested the cooperation of the French authorities in furthering their investigations.
In their cooperation request, the Swiss omitted to mention the existence of computerized client data files in Falciani’s possession, but referred to his alleged “electronic interception of fax messages”. Falciani set up home close to Nice, and it was only during the search of his residence that the truth emerged.
In an interview with Mediapart published earlier this year, chief public prosecutor of the French Riviera city, Eric de Montgolfière, explained that was the moment when the French authorities discovered information held by Falciani “was about tax evasion”.
“In the HSBC data there were clearly names that served the purpose of hiding others,” Montgolfière said.
The data files soon became the centre of a suspected high-level cover-up in France. All of the information found in Falciani’s possession was passed by the Nice public prosecutor’s office to the budget ministry. In 2009, the then budget minister, Eric Woerth, publicly revealed that he had in his possession the identities of 3,000 French citizens who had evaded tax through their Swiss accounts. He invited all those who believed they may be included on the list to voluntarily contact the French tax authorities to settle their affairs by December 31st or face consequent penalties and prosecution.
For those close to the case, Woerth’s claim of 3,000 names was unaccountably short of the real total of 8,231. “On our side, we had more than 8,000 names concerning French citizens, and at least ten times more concerning foreign citizens,” prosecutor Montgolfière told Mediapart. “Why were these 3,000 revealed? It didn’t help us.”
One of the names found on the original complete list was Patrice de Maistre, then wealth manager for L’Oréal heiress Liliane Bettencourt. But all mention of Maistre, a close acquaintance of Woerth, had mysteriously disappeared from the list held by the budget minister – like many others. “The account was completely immobile, and was no longer in activity, but [it] interested a certain number of people in high political circles,” Montgolfière said.
Woerth, who was subsequently forced to leave government after being cited in two separate and ongoing investigations into corruption, has never offered an explanation of the disappearance of Maistre from the list.
Woerth and Maistre are currently the subjects of a separate and wide ranging judicial investigation in France into a series of suspected corruption scams involving the finances of Bettencourt, whose fortune is estimated by Forbes to total 17 billion euros, making her the wealthiest woman in Europe. Both men have been placed under investigation – a legal status one step short of being charged – on separate counts that include fraud, money-laundering, influence peddling and illegal political party funding.
Evidence discovered in 2010 during the investigation into the affairs of Bettencourt revealed the existence of secret tax-dodging Swiss accounts held by the 89 year-old matriarch herself. She was subsequently ordered by the French tax authorities to pay just under 78 million euros in penalties.
Evidence tampered with in France
Falciani's computer files upon which the data was stored had originally been sent by Montgolfière, following the raid on Falciani’s home, for analyses by the French gendarmerie crime research institute, the IRCGN. It wasn’t until January 2010 that the French authorities finally sent the Swiss justice services a copy of the files. These were copies of data stored on hard discs, and as such carried no digital evidence of their authenticity.
In May this year, weekly French news magazine Le Nouvel Observateur revealed how a subsequent Swiss federal police (PJF) examination of the copies handed over by the French, which were subjected to a technical analysis, found that the data had been modified. It quoted the PJF report, which read: “We have found differences concerning the contents of diverse files sent [to us] by the IRCGN, even though they should have been, on every account, the same […] the fact that the contents were modified is a deliberate act, the mobile for which escapes us.”
Contacted by Mediapart, Swiss federal prosecutor's office spokeswoman Jeannette Balmer confirmed the report. “The Confederation’s prosecutor’s office, in the framework of a letters rogatory procedure, requested that the French authorities provide a copy of the computer data seized in France,” she said. “The analysis by the federal judicial police showed that the information had been modified since there existed differences concerning the contents of diverse files sent by the French authorities, whereas they should have been the same.”
The Swiss police report, quoted by Le Nouvel Observateur, detailed that the files sent to them had been modified “since the date of the search of Hervé Falciani’s home, on January 20th 2009.” This by implication meant they had been altered by the French investigators, which would be tantamount to illegal tampering of evidence that is part of a judicial investigation.
The findings by the Swiss police have been taken up by lawyers representing those French clients of HSBC who have, as a result of Falciani’s revelations, been targeted by the French tax authorities. They have filed lawsuits for “falsification and forgery” and “attempted fraud”, a move which resulted in the opening of a judicial investigation into the complaints in January. “The fiscal authorities always base themselves upon extracts from Falciani’s bank files,” one of the lawyers, Vincent Ollivier, told Mediapart. “Our suit concerns the manipulation of these files, because that appears to have been established by the Swiss police.”
If Hervé Falciani, who was never subjected to detailed questioning in France, is extradited by Spain to Switzerland, the affair may yet explode into a far larger, wide-ranging scandal of major repercussions. It is unknown whether he has kept archived – non-manipulated - copies of the secret operations of HSBC, which a US Senate investigation last week slammed for having served as a money-laundering conduit for "drug kingpins and rogue nations". The billion-dollar question is whether the Swiss would allow any such evidence offered by Falciani to emerge in public.
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English version: Graham Tearse