HSBC Clients Scrutinized in US Tax Evasion Probe

Wednesday, 07 Jul 2010 03:27 PM

 

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The Department of Justice has opened a criminal investigation into whether some HSBC Holdings PLC clients may have failed to disclose offshore accounts, lawyers familiar with the probe said.

The London-based bank has become the latest focus of a widening federal probe into U.S. citizens believed to have stored billions of dollars of assets in offshore accounts to avoid scrutiny by domestic tax authorities.

HSBC clients have received a June 21 letter from Kevin Downing, a senior litigator at the Justice Department who oversaw the UBS probe, that says they are subjects of a criminal investigation. Reuters obtained a copy of the letter.

A Justice Department representative did not immediately return an email request for comment.

Last year, Switzerland's UBS AG admitted to criminal wrongdoing for helping U.S. clients evade taxes. It agreed to pay a $780 million penalty and hand over details on more than 250 client accounts, and later agreed to disclose names of 4,450 wealthy U.S. clients to tax investigators.

Tax lawyers said the letter received by HSBC clients resembles similar correspondence in the UBS case.

While Downing's letter does not mention the bank by name, it was intended for a client with an HSBC account, according to a lawyer who has a client who received it. That lawyer asked not to be named because the probe is not public.

Another lawyer said two HSBC clients who have contacted him held their funds in offshore accounts in India, totaling more than $1 million each.

"It was not a friendly letter," said that lawyer, Robert McKenzie, a partner at Arnstein & Lehr LLP in Chicago.

Gareth Hewett, an HSBC spokesman in Hong Kong, declined to comment, but said the bank "fully supports government moves for appropriate disclosure by its citizens" and "does not condone or assist tax evasion."

Downing's letter was earlier reported by Bloomberg News, which said the probe also reaches to HSBC clients with accounts in Singapore, citing three people familiar with the matter.

"The IRS had scored a very important victory against UBS, and is using that victory as leverage against other banks," said Asher Rubinstein, a partner at Rubinstein & Rubinstein LLP in New York, who does not have clients who received the letter but has represented UBS clients.

Rubinstein said he was not sure whether Singapore offered bank clients any greater ability to keep accounts secret. "It is a signatory to various tax information exchange agreements with foreign governments," he said. "You can bet Singapore is going to help other countries in criminal tax investigations."

In his letter, Downing advised recipients not to destroy or alter documents related to their overseas accounts, saying this could constitute obstruction of justice.

Recipients who had already retained counsel were advised to contact the Justice Department, Downing wrote.

One lawyer said IRS agents have visited three of his clients to discuss offshore bank accounts they had with HSBC.

This lawyer declined to be identified or to name his clients because the investigation is not public.

Several lawyers who have represented UBS clients said they expect the government to pursue its tax evasion probe for many years, likely targeting clients at many banks and accounts in several countries.

"It is important from the government's perspective to send a message that UBS was not a blip on the radar screen, but the beginning of a sustained enforcement campaign," said Peter Hardy, a partner at Post & Schell in Philadelphia. "It's not just Europe, and it's not just UBS."

© 2014 Thomson/Reuters. All rights reserved.

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