Newark, New Jersey: HSBC Holdings Plc bankers conspired with a New Jersey businessman to help him hide his bank accounts in India from the US Internal Revenue Service (IRS), according to an indictment and people familiar with the matter.
Vaibhav Dahake conspired with five bankers of one of the largest international banks in the world, which has headquarters in England, according to his indictment on Wednesday in federal court in Newark, New Jersey. London-based HSBC, Europe’s largest bank by market value, is the bank, according to people familiar with the probe. They requested anonymity because the US justice department hasn’t identified the conspirators.
Dahake of Somerset, New Jersey, is the first taxpayer charged in a crackdown focusing on whether HSBC helped clients with Indian accounts hide assets from IRS. He’s accused of conspiring with two bankers in New York, one in Fremont, California, and two in Thane, India. He faces as long as five years in prison.
“Bankers should encourage their clients to comply with the law, not advise them on how to break it,” Paul Fishman, the US attorney in New Jersey, said in a statement.
Juanita Gutierrez, a bank spokeswoman, said in an emailed statement: “HSBC does not condone tax evasion and fully supports US efforts to promote appropriate payments of taxes by US taxpayers.
“We investigate all allegations of employee misconduct vigorously and take appropriate action if breaches to HSBC policies are found,” she said.
Dahake’s attorney, Lawrence Horn of Sills Cummis and Gross in Newark, said in a statement: “It is most regrettable that the US attorney and the department of justice decided to indict my client, Dahake. It is most important for everyone to recognize that an indictment is merely a charge.” He said his client is cloaked with the presumption of innocence until proven guilty.
A widening tax crackdown has led to criminal charges against UBS AG, the largest Swiss bank, two dozen former clients, four former bankers and two advisers. In December, a former UBS banker pleaded guilty to conspiring with a Swiss banker to encourage US clients to hide their assets from IRS at Basler Kantonalbank, a smaller Swiss bank. A Virginia surgeon with an HSBC account also pleaded guilty as part of the crackdown.
According to the indictment, the unidentified bank operated a US division called NRI Services, which marketed offshore banking services to US citizens of Indian descent. Through the services, the bank encouraged US citizens to open undeclared bank accounts in India, according to the indictment.
Dahake, a native of India who became a US citizen in 2006, filed false tax returns that hid ownership of and income from undeclared accounts in India, as well as the British Virgin Islands, according to the indictment.
His British Virgin Islands accounts didn’t pay interest, and the bank solicited him to open accounts in India that paid high interest rates, according to the indictment.
In 2001, he met a banker in New York who touted the advantages of an Indian account, including that no US forms were required, he did not have to provide a social security number, the account was not taxable in India and no form 1099 reporting the interest income would be filed with IRS, according to the indictment.
In transferring funds, the banker advised that Dahake should send multiple checks of $10,000 (Rs4.5 lakh) rather than one large one so that he could stay below the radar, according to the indictment.
Two other US bankers also told him that the bank would not file 1099 forms with IRS, the indictment said. Last April, Dahake was talking with a banker in Fremont, California, and asked if the bank would issue 1099 forms, according to the document. The banker stopped speaking in English and said in Hindi that Dahake shouldn’t discuss the forms on the phone, it said.
HSBC closed its NRI offices in New York and Fremont last June, according to Gutierrez. She declined to say whether any employees had been terminated or disciplined.
Last February, Andrew Silva, a Virginia surgeon, pleaded guilty to conspiring with an HSBC banker and a Zurich attorney to hide a $250,000 account from IRS by smuggling 26 cash payments to the US.
Silva was sentenced to four months of home detention, fined $20,000, and forfeited $211,200. Felix Mathis, a Swiss lawyer, was indicted in July on charges that he helped Silva hide assets from IRS and smuggle cash. His case is pending.
“It is very important to the US department of justice and the IRS to move forward against a non-Swiss, non-European foreign account case,” said Josh Ungerman, a tax lawyer at Meadows, Collier, Reed, Cousins, Crouch and Ungerman in Dallas.
“They want to send a message that they’re not just going after UBS and Swiss accounts,” Ungerman added.
The justice department has been actively looking at this now for months, said Steven Toscher, a tax attorney at Hochman, Salkin, Rettig, Toscher and Perez in Beverly Hills, California, who said he represents a number of taxpayers in the probe.
“It appears that the justice department is looking at whether HSBC offered banking services to help Indian-Americans evade US taxes,” Toscher said.
UBS avoided prosecution by paying $780 million and admitting it helped Americans evade taxes. It also disclosed secret data to IRS on more than 4,000 accounts. That prompted 18,000 Americans to disclose secret offshore assets to tax authorities last year in a bid to avoid prosecution.
On 16 November, IRS commissioner Douglas Shulman said the agency has been scouring the vast quantity of data from those voluntary disclosures and other sources.
“The data mining has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisers and promoters from around the world,” he said.