US says HSBC in India helped rich tax dodgers

Saturday, 9 April 2011 00:35 - - {{hitsCtrl.values.hits}}

(Reuters) - The U.S. Department of Justice said that HSBC in India helped potentially thousands of Americans dodge taxes, broadening the government’s probe of banks suspected of helping tax dodgers beyond UBS AG.

The government requested permission to get information from the bank about American residents who may be using HSBC India accounts to evade federal income taxes, in a filing on Thursday with the San Francisco federal court.

The court documents allege HSBC lured clients with the promise of secrecy.

“Prospective clients were told that, as a foreign bank, HSBC India would not disclose the accounts to the IRS (Internal Revenue Service),” the government said in court documents.

The government -- which is clamping down on tax evasion as it battles a huge budget deficit -- wants authority to serve a “John Doe” summons on HSBC to obtain the names of an unknown number of people who may have engaged in tax fraud. Prosecutors employed the same strategy in its case against Swiss bank UBS.

HSBC said in a statement it has not seen the summons, but the bank, “does not condone tax evasion and fully supports the U.S. efforts to promote appropriate payments of taxes.”

The United States has been probing other banks after UBS AG paid $780 million and admitted it helped Americans stash assets overseas tax-free, although it has not targeted other banks officially in court documents until now.

Tax officials have been combing through 18,000 accounts gathered in a tax amnesty program last year and 4,000 more that UBS handed over to end the U.S. government’s civil tax probe.

“This is consistent with their plan to extend into other countries,” said David Gannaway, a former IRS special agent who now helps wealthy clients come clean with the agency. “They are looking for which bank has U.S. operations to take them into a country where they believe there is a lot of noncompliance.”

The government previously moved against HSBC clients, but those cases have not pursued the bank itself.

Tax authorities have said they are moving beyond Europe to Asia and other jurisdictions following the close of the UBS case.

HSBC has been soliciting clients of Indian origin living outside India since at least 2002 through a unit called NRI Services, or Non-Resident Services Division, the court documents said.

Thousands of clients in the United States have such accounts, often targeted specifically at high net worth individuals, the government said.

HSBC dubbed its service for the wealthiest as “premier,” touting its “relationship banking without boundaries,” the government said.

Taxpayers must disclose the existence and pay taxes on funds held in foreign financial accounts. Recent legislation enacted by the U.S. Congress will require foreign banks to take a more active role in pushing U.S. clients to account for income held abroad, or face fines.

In January, the U.S. government indicted a New Jersey man for conspiring to hide accounts in India and said five bankers, identified as working for HSBC by people familiar with the probe, helped him do so.

The New Jersey man in that case, Vaibhav Dahake, is an Indian native who became a naturalized citizen of the United States.

“Dahake is not an isolated incident,” the government said in its filing.