Egypt is the 20th country with the most private dollar accounts at the Swiss subsidiary of the HSBC, with up to approximately $3.5 billion in Egyptian client accounts from 1988 to 2007, leaked documents from the bank have shown.
The bank helped clients from over 200 countries to hide millions of dollars from tax authorities, among other illegal behaviours, during this same period.
Some 700 Egyptian clients maintaied 1,478 accounts at the Swiss arm of the bank, according to documents leaked by a former HSBC employee in 2008. The documents were passed on to French newspaper Le Monde and other media outlets, including the Washington-based International Consortium of Investigative Journalists (ICIJ), in early 2014. The story started making international headlines on Sunday.
HSBC have told ICIJ that they "acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today.”
It is not yet clear whether the Egyptian owners of these private dollar accounts could be guilty of tax evasion, or other forms of illicit financial flows.
"The case will be studied," Egyptian finance ministry spokesman Mesbah Qotb told Ahram Online. The government is looking into "legal schemes to deal with it."
"This will depend on the agreements between the Swiss and the Egyptian [governments], as well as international legal efforts," he said.
Egypt has a bilateral agreement with Switzerland that does not explicitly state coordination between the tax authorities of the two countries, Hany El-Housseiny, a tax expert at leftist political party Al-Taggamou told Ahram Online.
The agreement signed in 1987 does however allow the Egyptian tax authority to claim funds lost through tax evasion, if the Egyptian government can prove fraud or intentional tax evasion with documents in court.
Tax law loopholes
The text of the tax law does not allow the Egyptian tax authority to track or request details of offshore private accounts, El-Housseiny said. But amendments to the Egyptian tax law in effect since July 2014 have opened the door for a more international approach to tracking the taxes on the cash outflows.
The tax law has already put many restrictions on banks that attempt to help in evading taxes, making it harder for such transactions, accounting professor at Ain Shams University Osama Abdel-Khalek further said. This makes the Egyptian clients at Swiss HSBC more likely to be linked to illicit financial flows other than tax evasion, he said.
Egypt lost around $3.8 billion in illicit financial outflows each year from 2003 to 2012, Global Financial Integrity, Washington-based research organization, reported in 2014.
The Egyptian economy has been battered by four years of political turmoil since the 2011 uprising. Since the ouster of former president Hosni Mubarak in early 2011, the government has been struggling to fix state finances weakened by a fall in investment and tourism.
Since Abdel Fattah El-Sisi took office as Egypt's president in July 2014, income tax has been temporarily raised on the wealthiest, property tax introduced and energy subsidies slashed, raising prices by up to 78 percent.
If all Egyptian clients at Swiss HSBC had practiced tax evasion, Egypt would have lost around $1 billion, or 30 percent of the amount of money in the accounts, Abdel-Khalek estimated.
The report said that the maximum amount of money associated with a client connected to Egypt was $856 million in 2006-2007, at a time when GDP per capita in the country was $1,800.
Illicit outflows in the Mubarak era
Mubarak-era trade and industry minister Rashid Mohamed Rashid was one of the profiles listed on the leaked documents, as he held up to $31 million in 10 bank accounts with the bank in 2006-2007, ICIJ reported on Monday. The investigative journalist consortium said that Rashid did not respond to their repeated requests for comment.
Rashid and his daughter were referred to court in Egypt in March 2014 on charges of illicit profiteering and transferring $71.4 million to Cyprus, but neither attended. Interpol requested the arrest of both Rashid and his daughter.
After the 2011 revolution that ousted Hosni Mubarak and his regime, Rashid was convicted in absentia in two other cases on charges of graft and squandering public funds while in office.
Egypt has been attempting to retrieve $767 million of illegal gains deposited by Mubarak's regime in Switzerland for around four years. The process has been delayed as the Egyptian authorities failed to reach legal evidence against Mubarak and his family amid political turmoil, Swiss authorities say.
Swiss law requires Egyptian authorities to produce legal evidence proving that the deposited funds are the result of criminal acts before the money can be returned.
Former president Mubarak has so far managed to come off lightly in most of the cases filed against him since his ouster. The longtime autocrat was acquitted in one corruption case linked to selling gas at well below international market rates to Israel, had his charges dropped in a case linked to killing protesters, and escaped a third case of illegal profiteering via the illegal possession of villas in Sharm el-Sheikh through the expiry of a ten-year statute of limitations.
He and his sons are currently awaiting retrial in a fourth case related to embezzling public funds allocated for the upkeep of presidential palaces.
Switzerland has struggled in recent years to shrug off its decades-old image as a haven for ill-gotten gains by seizing the assets of deposed dictators and agreeing in 2009 to soften strict bank secrecy to help other countries catch tax cheats.