* Report attacks "weaknesses" in French tax evasion fight
* France investigating HSBC over tax allegations
By Lionel Laurent and Emile Picy
PARIS, July 10 (Reuters) - France needs to beef up its methods of fighting tax evasion, according to a parliamentary report on a probe into HSBC that revealed $5 billion of undeclared assets in thousands of Swiss bank accounts.
The report, published on Wednesday, looked at why it took French authorities more than four years to begin an investigation after a former HSBC employee gave them a list of people who held money at the global bank's Swiss arm.
"The case of the HSBC list has shed light on the weaknesses in our legal arsenal in the fight against systematic tax fraud," lawmaker Christian Eckert wrote in the report on behalf of the National Assembly's finance committee.
France, like countries across the world, is cracking down on tax after the global financial crisis put government budgets under strain and increased the need to maximise tax receipts.
The country began a formal investigation into HSBC in April over whether it sold products designed to avoid French tax.
French lawmakers, including Eckert, questioned ex-HSBC employee Herve Falciani on July 2 as part of their inquiry.
Falciani, a Franco-Italian, is living in France after taking refuge in Spain from Swiss authorities seeking his extradition on charges of data theft.
An HSBC spokesman declined to comment on the report, reiterating the bank's view that Falciani had stolen the client data. However, he said the bank would study it.
The report described a variety of legal, technical, diplomatic and procedural issues that began almost as soon as Falciani gave five DVDs of data to the French tax authorities in Dec. 2008.
There were internal obstacles over the different remits of the tax authorities and the prosecutor's office, which in 2010 transferred responsibility for the case from the Mediterranean city of Nice to Paris.
The sheer size of the HSBC client list, which ran to 65 gigabytes over several formats, meant it took a year to extract the names behind each client account, according to the report, in a project dubbed "Operation Chocolate."
After the names were extracted it was found that there were $5 billion in assets that had not been declared to French tax authorities.
Diplomatic setbacks also put investigators at a disadvantage. The report said Switzerland could not be counted on to give assistance because it was seeking Falciani's extradition.
Eckert, a leading figure on the parliamentary finance committee, said in the report there was no evidence of any tampering with evidence or pressure to scrub any names off the list.