Asian banks up their antenna as HSBC tax dodge probe hots up

The US Department of Justice’s announcement that HSBC India may have helped potentially thousands of Americans dodge federal income taxes surprised many commentators, given that India is far from being a tax haven. But lawyers say it seems likely that private banking units across Asia are now on red alert for similar investigations into their businesses.

“It is likely US authorities are pursuing a tip about HSBC India and believe they can use the investigation to get the attention of the Asia banking community,” said William McGovern, a former Securities &Exchange Commission lawyer.

Prosecutors are using the same “John Doe” summons strategy with HSBC they used in their case against UBS AG. UBS ultimately settled government charges against it by paying $780 million and agreeing to hand over nearly 5,000 client names to the United States. UBS disclosed the client names to US authorities last year, and the case prompted many private banks to tighten up their policies for dealing with American clients.

The US Internal Revenue Service (IRS) and Justice Department have been zeroing in on Asia for the past year, after money began leaving Europe amid the UBS crackdown.

“You follow the money and Asia’s where the money is,” said Jay Krause, a Hong Kong-based partner at law firm Withers.

Several private banks in Singapore, Asia's largest wealth management centre, already will not take on US clients because of the risk of becoming embroiled in this kind of investigation.

Most Asian and European private banks in Asia do not take US clients and if they do, there are numerous restrictions on the products that can be sold.

US officials are now examining some 18,000 account names gathered from the latest amnesty program, which cut penalties to encourage tax avoiders to come clean.

Eight offshore banks are under grand jury investigation around the world, according to the Justice Department.

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