* Bank currently under investigation over tax allegations
* Report attacks "weaknesses" in French fraud fight
By Lionel Laurent and Emile Picy
PARIS, July 10 (Reuters) - France needs to beef up itsmethods for fighting tax evasion, according to a parliamentaryreport on a tax probe into HSBC that revealed $5billion of undeclared assets across thousands of accounts.
The report, published on Wednesday, looked at why it tookFrench authorities more than four years to begin aninvestigation into HSBC after receiving leaked data on clientsat HSBC's Swiss arm.
It said there had been good progress on tracking down fundsbut called on the French authorities to tackle "weaknesses" inthe fight against tax evasion.
"The case of the HSBC list has shed light on the weaknessesin our legal arsenal in the fight against systematic tax fraud,"lawmaker Christian Eckert wrote in the report on behalf of theNational Assembly's finance committee.
France, like countries across the world, is cracking down ontax after the financial crisis, which has put government budgetsunder strain and increased the need to maximise tax receipts.
The country began a formal investigation into HSBC in Aprilover whether it sold products designed to avoid French tax.
An HSBC spokesman was not immediately available for comment.
OPERATION CHOCOLATE
The parliamentary report described a variety of legal,technical, diplomatic and procedural issues that began almost assoon as former HSBC employee Herve Falciani leaked five DVDs ofdata to the French tax authorities in Dec. 2008.
There were internal obstacles over the different remits ofthe tax authorities and the prosecutor's office, which in 2010transferred responsibility for the case from the Mediterraneancity of Nice to Paris.
The sheer size of the client list, which ran to 65 gigabytesover several formats, meant it took a year to extract the namesbehind each client account, according to the report, in aproject dubbed "Operation Chocolate."
After the client names were extracted it was found thatthere were $5 billion in undeclared assets.
Diplomatic setbacks also put investigators at adisadvantage. The report said Switzerland could not be countedon to give assistance because the Swiss had made Falciani a"casus belli."
Eckert, a leading figure on the parliamentary financecommittee, said in the report there was no evidence of anytampering with evidence or pressure to scrub any names off thelist.
The report made no comment on the probe into HSBC. It saidthat since 2010, the tax authorities had begun to chase down thelargest accounts and had sufficient time to track down and taxall funds where applicable without a need for urgency.
Falciani was questioned by French lawmakers, includingEckert, on July 2 to help tighten proposed rules against taxevasion.
Falciani, a Franco-Italian, was in France after takingrefuge in Spain from Swiss authorities seeking his extradition.