Last month saw further disclosure of 1,195 account holders in HSBC Private Bank in Geneva, Switzerland, with Indian addresses. Whilst that by itself connotes no manner of wrongdoing, given the information now resides in the public domain, the following potential risks emerge for banks, account holders and fiduciaries engaged in putting together the structure.

  • The absence of distinction between proper and improper accounts. In other words, it is not unlikely that several legitimate account holders and their banks and fiduciaries in turn will be the subject matter of regulatory scrutiny by the regulatory agencies and the Special Investigation Team constituted by the Supreme Court of India.
  • Where reliance was placed by the account holding bank or fiduciary on the source of wealth checks of a correspondent bank (whether in India or overseas) or even otherwise, it is likely that information in relation to pending tax and exchange control regulatory proceedings in India was not sought or obtained.
  • The risk of being enjoined to regulatory proceedings in India as a facilitator of tainted transactions, as has already been the case with a few international banks and intermediaries.

The Government of India is facing the heat of the Supreme Court monitoring this investigation, as well as a reinvigorated opposition on the back of the recent Delhi election results. Swift enforcement actions are likely to commence on a variety of account holders who are now in the public domain, both in relation to accounts in HSBC Private Bank, as well as other overseas holdings. Accordingly, the following mitigation measures should be considered.

  • In light of the matters in the public domain concerning investigation of overseas bank accounts, the standards of continuing due diligence will involve looking afresh at the profile of the clientele and establishing conclusively for current and historic accounts that their books were not tainted with the aforementioned types of proceeds.
  • The only defence against being a wilful abettor to the offences made out against the account holder may be demonstrating continuing due diligence and adherence to strict monitoring standards prescribed by law.
  • Cooperation with and reporting to jurisdictional regulators under the Egmont Principles are likely to be necessary at the earliest if any wrongdoing is discovered in the current or historic accounts post the stage of continuing due diligence.

It is possible that one of the above risks identified may resonate with those who may have had an interface with the tax/exchange control authorities in India.