Whistleblower? Thief? Hero? Introducing the source of the data that shook HSBC

Then – on the condition that he return the next day for more questioning – they let him go.

And go he did. Renting a car, Falciani picked up his wife and daughter and drove straight to France. There he began downloading vast amounts of HSBC data that he had stored on remote servers and that has since been causing havoc for wealthy people the world over who use offshore accounts to hide money from taxation: client names and account holdings as well as notes about the bank’s conversations with them.

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That day was the pivot point in a long, strange journey for Falciani, a colourful figure who has since moved from country to country on the lam from Swiss authorities – and possibly from criminal elements who mean him harm. He presents himself as a whistleblower and has attracted wide media attention; he even ran unsuccessfully for the European Parliament. He has been known to use an assumed identity, to wear disguises, and to appear in public with bodyguards. He has been jailed – and indicted: In December, the Swiss attorney general charged Falciani with data theft from HSBC, saying his intent was “cashing in.”

Falciani’s HSBC data trove ended up first in the hands of authorities in France, which then indicted London-based HSBC for illegal direct marketing to French nationals, money laundering and facilitating tax fraud.

This picture of Hervé Falciani, now 36, was taken in Nice in December 29. He is a French and Italian citizen. (Source: Getty Images)

The French authorities shared the data with other countries, including the US, and it is being used in tax probes and attempts to recover evaded taxes all around the world. The French newspaper Le Monde obtained the data as well, and shared it with the International Consortium of Investigative Journalists (including The Indian Express).

HSBC posted bail and confirmed that French magistrates were investigating “whether the bank acted appropriately between 2006-07 in relation to certain clients of the bank who had French tax reporting requirements, as well as in relation to the way the bank offered its services in the country.”

It also said it will “continue to cooperate with the French authorities to the fullest extent possible.”

Criminal prosecutors in Argentina and Belgium are also investigating the Swiss unit of London-based HSBC, one of the world’s largest banks, and some of its customers. In addition, in Greece the former finance minister Giorgos Papaconstantinou faces criminal charges of breach of trust, doctoring an official document and dereliction of duty growing out of his alleged failure to act on the list when he received it and his alleged removal of the names of three relatives from the list.

Switzerland, however, is continuing its pursuit of Falciani. The Swiss attorney general charged him with data theft from HSBC on December 11, 2014, accusing him in a press release announcing the indictment of compiling “data and information on the Bank’s clients that was both personal and financial in nature, thus creating complete client profiles with the intent – as is the hypothesis of the (Office of the Attorney General) – at least in the initial phase in Lebanon, of cashing in on this data.”

Whatever Falciani’s original intent – whether to sell the data and enrich himself or to use it to expose wrongdoing – his timing couldn’t have been better. Thedata landed in the hands of French officials a year into the Great Recession, the longest and deepest since the Depression. Many European nations, desperate for revenue, were also facing a popular backlash against tax evasion that sheltered the earnings of the extremely rich and shifted the tax burden to those less able to pay. While some countries, including the US, did very little with the data initially, others recognised it as a way to recover money for their treasuries.

Clashing stories on what happened

It all began in 2006, when Falciani, who holds citizenship in both France and Italy, was transferred from HSBC Monaco to HSBC Private Bank in Geneva.

There, according to his telling of the story to French authorities, he wanted to improve oversight of the Geneva bank’s activities and better protect client data. But, he says, he met resistance.

Falciani said he had helped put systems in place in Monaco “allowing us to discover fraudulent activities by someone there who was prosecuted,” and that he hoped to do the same thing in Switzerland. “I wanted to put in place an IT project that would allow better checks of the bank’s activities. …I worked with others in a group called ‘change the bank,’ but this was against another group called ‘run the bank,’ which wanted to do things without being monitored,” he said in a deposition in France in June 2013.

“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,” he said in a July 2013 interview with Der Spiegel. He said that HSBC had a division to help hide client identities and transactions. “For example, a bank might bring in intermediary companies, sometimes at multiple levels, and make sure business isn’t conducted through the bank’s own accounts.”

He also described the bank recruiting customers from abroad. “These branches invite their clients to sporting and cultural events, where they meet intermediaries who explain how to get money to Switzerland without having to physically transport it across the border.”

Falciani said he alerted bank officials to data problems at the bank. But an investigation by the Swiss police said that assertion wasn’t supported either by anyone at the bank or any other evidence.

“HSBC has no record of HF ever escalating any concerns to his line management, or using the Whistleblowing hotline that was in place at the time of the theft,” HSBC said in a statement to ICIJ. The bank also described measures it has put in place to “ensure that HSBC has a robust anti-money laundering and sanctions compliance programme.”

Falciani also said that he went to Swiss authorities about the data problems in 2006. But he maintains that Swiss authorities declined to work with him because he wanted to retain his anonymity to protect himself and his family. After that, according to Falciani, he made attempts to interest authorities in other countries about the data and the wrongdoing it revealed.

The bank and Swiss officials tell a different story: that Falciani stole the data and hoped to profit from it, first by shopping it to banks in Lebanon and then by offering it to authorities in countries outside of Switzerland.

Falciani also claims that “official contact was made with the American judicial authorities from 2007. With the IRS, from April 2008.” Those claims have not so far been corroborated.

Selling data in Lebanon

In February 2008, Falciani went to Lebanon with Georgina Mikhael, with whom he had been working at HSBC and who had helped him create a Hong Kong- based company called Palorva. The company claimed on its website that it could help banks recruit wealthy customers by data mining. According to the Swiss police report, the company’s name was an acronym for the words in English: Project and lay over the risk via ambition.

According to The Wall Street Journal, the website also sported this motto: “Business is the art of extracting money from another man’s pocket without resorting to violence.”

Mikhael and Falciani, who was married, had a romantic relationship according to the Swiss police report. That relationship has since ended.

Together they called on several banks that had representatives in Lebanon, using business cards that referred to Falciani as the sales manager, using the alias Ruben Al-Chidiack. The Journal, attributing the information to officials of the banks, reported that the couple offered to sell data to the banks but evaded questions about how it had been obtained. Mikhael, who subsequently identified Falciani to Swiss police as the person who had taken the data, has also said Falciani was trying to sell the data.

“He said the only reason he went to work at HSBC was to steal a large sum of money,” Mikhael told Business Week. He needed the money for a divorce, she said.

“Georgina thought we were going to settle in Lebanon,” Falciani said in the 2013 deposition in the French case. “I let her think I had the same idea. I never made her think I would sell the HSBC files.” Instead, he maintains that the sales calls were a ruse that would “create an alert that would get back to the Swiss authorities…like an alert about the vulnerability of banking secrecy.”

The couple’s sales calls did trigger an alert. One bank posted an alert on the website of the Swiss Bankers Association that someone was offering to sell “data on clients of various Swiss banks.” The Office of the Attorney General in Switzerland noticed and opened an investigation.

This was in 2008. In its announcing the charges against Falciani six years later, the attorney general’s office said that criminal proceedings against another former HSBC employee had been dropped due to a “marginal” role. The release did not name the other employee but spoke of a “Franco-Lebanese national” who had a personal relationship with Falciani and accompanied him to Lebanon; Mikhael is Franco-Lebanese.

‘Tax evasion: client list available’

Once Falciani and Mikhael returned from Lebanon, they contacted European tax authorities and intelligence agencies, offering “the client list of one of the world’s largest wealth management banks,” according to Swiss police reports. “Tax evasion: client list available” was the subject line in the emails, according to The Wall Street Journal, which also noted that the emails didn’t ask for money.

Falciani went even further with French officials. Using the Al-Chidiack alias, he contacted Jean-Patrick Martini, an official at the National Directorate of Tax Investigations and offered an encrypted list containing the personal information on seven HSBC clients based in France, including the amount of their wealth in US dollars. There was some back and forth about the data before they met in person.

“At our first meeting I kept my distance and had trouble ‘getting him,’” Martini said in a deposition. “The second time I went with a psychologist and understood he had serious information…. Clearly this man, who wouldn’t give his name, wanted to know that we could use this data.”

After his run-in with Swiss police in HSBC’s Geneva offices, Falciani revealed his identity to his French contacts. On Christmas Eve 2008, a few days after Falciani fled, he called again to tell them of his arrival in France, Martini said. He added that he and Falciani met in Nice a few days later, “and he gave me everything.”

Meanwhile, Swiss authorities were closing in. On January 20, 2009, the prosecutor’s office in Nice, responding to a request from Swiss authorities, ordered a search of Falciani’s father’s home, where he had been staying. Falciani told the Nice police that he had been in touch with Martini and that some of the material that the Swiss wanted to take was “relevant to France,” in the words of Nice’s chief prosecutor, Eric de Montgolfier.

In a deposition in the French court case, the prosecutor said he decided that was a good enough reason to say no to Swiss authorities. “We could resist giving the material back to the Swiss because it contained things that seemed to be against France’s national interest,” said de Montgolfier.

The French then set to work on what they had, which was a mass of data (nearly 600 files with a size of more than 100 gigabytes) that took time to put in useable form. French tax authorities noted in a memo that it was “necessary to rebuild and reanalyse relationships between clients and their files using various code tables, which had to be first decrypted.”

And, with that, they had help from Falciani, who from that point on would appear in a variety of disguises, frequently accompanied by bodyguards, resisting attempts by Swiss authorities to extradite him, sometimes expressing fear for his life in his frequent interviews with journalists.

Once France had assembled the data in a usable form, authorities began sharing shorter lists with other European countries, including Great Britain, Italy, Spain, Belgium and Greece, of HSBC clients who might be liable for taxes in those countries.

Cat-and-mouse game

As all these events were unfolding, Falciani was continuing his own odyssey. In February 2012, that included a cat-and-mouse game with the Bern prosecutor and the Switzerland’s federal prosecutor, according to Falciani. “I met them at the Geneva airport. I had a safe passage for several hours. If I pleaded guilty to several things, they would give me a suspended sentence,” he said in a deposition in a French court case against HSBC and the French clients. The deal never came together.

Later that year, in an account that so far has not been corroborated, Falciani said in an interview with the Spanish newspaper El País that he started working with US Department of Justice officials on June 1, 2012. They warned him, he said, that the US Senate “would be launching serious allegations against HSBC because of its lax money laundering and terrorist financing controls, and that the bank would be prosecuted. I was told that from then my life would be in danger. I had two choices: start a new life in the United States or travel elsewhere to buy some time.”

There were, indeed, hearings based on a report by the House Permanent Subcommittee on Investigations in July 2012, entitled “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History,” but according to a subcommittee aide, none of the data that Falciani had taken from the bank was provided to the committee or used in the investigation.

Subsequent to the Senate investigation, in July 2013, HSBC agreed to pay US$1.9bn to settle federal charges that it had enabled money laundering by Latin American drug cartels.

According to Falciani, US officials told him that “the only safe place in Europe would be Spain.” On July 1, 2012, he was arrested in Barcelona, where he had sailed from Sète, France, and jailed for five and a half months under a Swiss arrest warrant. He was released from jail on December 18, while Switzerland continued to seek his extradition.

Spain’s National Court granted conditional freedom to Falciani because he was aiding European countries in tax investigations and demonstrating a positive attitude. But the court prohibited Falciani from leaving Spain and required him to report regularly to a police station.

On May 8, 2013, the same court denied Switzerland’s request that Falciani be extradited, saying that the charge of violating bank secrecy laws was not a punishable crime in Spain. The court noted that he had turned over records to competent authorities and was helping authorities pursue tax evasion.

Falciani returned to France from Spain and began working with French officials to put the data to work, tracking down tax evaders and providing other countries with similar tools for their own uses. He was still looking over his shoulder.

“I am weak and alone,” he said in an interview with Canwest News Service, now known as Postmedia News of Canada, which noted that he said so “as three round-the-clock bodyguards provided by the French government looked on with hard stares.”

In Falciani’s version of events he is part James Bond, evading dangerous, powerful opponents and working with government intelligence agents, and part disappointed idealist, shocked by the reality he encountered in the bank he once worked for.

It’s a tale he has recounted frequently – if not always consistently.

Mossad enters the story

The Canwest story also noted that Mikhael was pursuing a defamation lawsuit against Falciani in France “stemming from his contention that he was kidnapped by Mossad secret agents in Geneva who were seeking bank information about people with Hezbollah ties,” including Mikhael, who says she has no Hezbollah ties and is a Christian.

The alleged 2007 Mossad incident has been mentioned in stories about Falciani that suggest no doubts in Falciani’s mind about their identities. “He has been on the run from Swiss police for six years, claims to have been kidnapped by agents from Mossad and has sparked the biggest tax evasion investigation in history,” wrote the Sunday Times of London.

But in an interview with Business Week, he was more nuanced. The story said he recounted that he was walking in Geneva “when some men jumped out of a van, forced him to get in, and took him to the basement of a deserted building. They identified the selves as agents of Israel’s Mossad intelligence service, he says, and asked if he would help them ensure that HSBC ‘did not continue its practices.’ The men didn’t say specifically what they were concerned about but Falciani says he later suspected they were worried about hidden sources of

terrorist money. Falciani says he agreed to help, although he says he had no way to verify whether the men actually worked for Mossad.”

The story went on to report that Falciani said it was the Mossad agents who proposed the Beirut trip, hoping that Lebanese banks would alert law- enforcement officials that the bank’s account secrecy had been compromised. Falciani is adamant in his protests that he was never out for the money. And at least one French official deposed in the French court case against HSBC agreed. Falciani “was clear he didn’t want money,” said Martini, a tax inspector who met with him to discuss the data in late 2008, before Falciani fled Switzerland for France.

“He didn’t even want to talk about it,’’ Martini was quoted as saying. “He didn’t ask us for anything and said he was acting out of his civic duty. He said there was fraud, that the bank was complicit in a lot of irregularities and that it needed to stop. I always thought he was acting out of civic duty.”

He added that without Falciani’s help the French would have had a hard time pursuing cases. “He helped us massively.”

Disillusionment with banks

Today Falciani styles himself as a spokesman for all whistleblowers. In the past year he has appeared more relaxed, showing up for meetings on a small scooter, which he folds and tucks under his arm. He was employed for a time by the French Institute for Research in Computer Science and Automation, a national research institution focusing on computer science and applied mathematics. More recently, he told Le Monde that he is unemployed and doing short-term contract work.

He is also involved in a nonprofit that hopes to create a platform that will make it easier and safer for whistleblowers to speak. (ICIJ Director Gerard Ryle is one of five directors of the nonprofit, which is registered in France).

When Der Spiegel interviewed Falciani in July 2013, he was asked why he went into banking.

He cited growing up in Monaco, where the financial sector was a big employer, and added: “When I was young, I thought banks were there to protect the assets of people who had justified concerns, because of their experience under communism for example. At HSBC, I quickly learned they were there for something else entirely.”

Did he think banks would change, as they have often promised to? “No, I don’t. Just the fact that they face international competition ensures that banks will continue to offer wealthy clients ways to evade tax authorities.”

His many interviews clearly have not set well with Swiss authorities. “Sometimes hailed as a hero abroad, the Franco-Italian national is now to answer for his alleged crimes before a Swiss court,” said the announcement of the indictment.

“The Swiss Criminal Procedure Code does not exclude the possibility of holding a court trial of the accused person in absentia.”

“I’ll be convicted, but I’ll turn the page,” he told Le Monde and ICIJ last December. “I’m going to apply for a name change, disappear, to have a normal family life.”

He sounded alternatively wistful and proud. “The only time I’ll get official recognition is when the Swiss convict me,” he said. “I would have liked a term, a nickname – the informer, the insider – that would have been my real medal, the real sign of respect for all the risks I’ve run. Today I’ve got nothing.”

“I’m not a white knight, but there is something beautiful and exhilarating about establishing the truth. It carries you through the bad times,” he said. “I don’t have to worry about a retirement that I won’t have. I don’t have the risk of tomorrow. I can concern myself with something more: we are useful.”

(Contributor: Tom Stites) – ICIJ