HSBC under threat of US tax fraud investigation

Officials said, on 26 January 2011, that the US Federal authorities were considering whether to serve a broad legal summons on HSBC to ascertain whether it sold tax evasion services to scores of wealthy American clients.

The legal action was being considered after a federal indictment in US District Court in Newark of Vaibhav Dahake, an affluent client of an unidentified international bank on charges of conspiracy to defraud the US by keeping hidden bank accounts in India and the British Virgin Islands from about 2001.

Dahake was born in India and became a naturalised US citizen in 2006. He is a principal of an information technology business in New Jersey. The indictment said the unnamed bank had identified wealthy Indian-Americans as clients for undeclared offshore banking through NRI Services, a US division of the bank. The New York Times said officials who had been briefed on the matter said that the international bank was UK-based HSBC, which has private banking operations around the world.

According to court documents, Dahake received “an unsolicited letter advertising bank accounts in India that paid high interest rates” from the international bank in 2001. The indictment cited five unidentified bankers – three Americans and two Indiana – as unindicted co-conspirators.

One of these advised Dahake to transfer money between his accounts in smaller amounts “to stay below the radar” of rules requiring banks to report to US customs officials transfers of $10,000 or more, while others advised him not to file required forms to the Internal Revenue Service (IRS) declaring the money, telling him that money transferred between the BVI account and the India account would not be processed through the US banking system, further evading scrutiny.

One of the bankers further told Dahake that he did not have to worry about bringing his money from the India account back to the US because, according to court papers, the IRS “would be looking for undeclared accounts maintained in the Caribbean rather than in the Far East,” and his ownership of and the structure of the BVI account would be unknown to authorities. The international bank, the papers said, also advised Dahake about holding money in Singapore and Hong Kong.

The New York Times said it was not clear how many client names would be covered under a summons, which would have to be issued by the IRS and enforced by the US Justice Department. Last August, authorities dropped a similar summons against Swiss bank UBS that had sought to require the bank to disclose the names of as many as 52,000 wealthy American clients.

On 24 January, the IRS said that it would soon announce a new amnesty programme aimed at encouraging wealthy Americans with hidden offshore bank accounts to come forward, declare their money and pay taxes owed in exchange for reduced fines and penalties.