US tax authority seeks names of HSBC India customers

The request, from the civil tax division of the Justice Department, is part of a widening investigation into private offshore services sold by Swiss and Swiss-style banks that helped wealthy Americans avoid income taxes by hiding money offshore.

The lawsuit is an indication that the federal authorities are broadening their scrutiny to include countries and regions beyond tax havens like Switzerland, Liechtenstein, Singapore and much of the Caribbean. India is not usually thought of in that category and does not appear on lists compiled by research groups and government agencies. The lawsuit shows that tax evasion “is not Swiss-centric”, Newark-based Sills Cummis & Gross business crimes and tax litigation departments chairman Lawrence S Horn said. ”It shows that the IRS is moving east.”

Federal authorities filed a similar request on Swiss banking giant UBS in 2008. The government dropped the lawsuit last August after the Swiss government agreed to turn over the names of 4,450 American clients as part of a broad investigation into the bank’s offshore private banking services. The bank also paid $780 million to settle criminal accusations that it had defrauded the IRS by allowing wealthy Americans to hide billions of dollars in taxes in secret offshore bank accounts.

Pressure on HSBC, threatens to expose more layers of Swiss-style banking secrecy, a tradition that began in the Middle Ages and that has spread around the world.

Last July and September, the Justice Department mailed “target” letters to around 50 Indian-Americans with offshore bank accounts, telling them that they were under scrutiny for suspected offshore tax evasion through accounts in India, Horn said.

Credit Suisse and Swiss cantonal banks are also under scrutiny. New York-based white collar criminal defense layer Robert Katzberg said that the pressure on HSBC showed that “the fallout of the UBS scandal, which still has far to go within Switzerland, has spread to other countries.”

The request, made in court papers filed in the Federal District Court in San Francisco, seeks to force HSBC’s main United States affiliate, HSBC Bank USA, to turn over details of accounts held by wealthy Americans from 2002 through 2010 through the bank’s affiliate in India, HSBC India.

Approval from a federal judge is required before the Internal Revenue Service can issue the summons. HSBC Bank USA operated representative offices for HSBC India under the name NRI Services — NRI stands for Non-Resident Indian — in New York and Fremont, California, according to court documents. The offshore private banking services were offered to people of Indian origin living outside of India.

In a statement, HSBC said that “while we haven’t seen the summons, HSBC does not condone tax evasion and fully supports the US efforts to promote appropriate payment of taxes by US taxpayers.”

It continued, “While complying with the law in all the jurisdictions in which it operates, including India, HSBC cooperates with requests from US authorities.” Itadded: “We have been engaged in a constructive dialogue with US authorities. We hope any ‘IRS Summons’ issues can be resolved expeditiously.” A bank spokeswoman, Juanita Gutierrez, declined to comment further.

HSBC is one of the biggest banks for clients from India, China, Hong Kong, Singapore and elsewhere in the East, according to top tax lawyers. In 2007, the bank said in a press release announcing the opening of its NRI office in Fremont, that it served more than 160,000 non-resident Indians worldwide.

The release announced a “new banking solution” for nonresident Indians “that allows the NRI community to conduct cross-border banking transactions.” In 2003, after the technology bubble, Merrill Lynch estimated that there were 2,00,000 millionaires of Indian origin in the United States alone, part of the explosion of wealth among Indians in recent years.

In January, federal prosecutors indicted a former HSBC client, Vaibhav Dahake, who was born in India and became a naturalized American citizen in 2006. Dahake, according to court papers, told prosecutors that HSBC had sought out wealthy Indian-Americans for undeclared offshore banking services through NRI Services.

The bank was not identified in the papers but was confirmed at the time as HSBC by people close to the matter. Dahake, according to his indictment, told prosecutors that his banker had told him that no United States disclosure forms were required, that the account was not taxable in India and that no forms reporting the interest income would be filed with the IRS. Holding a foreign or offshore account is legal, but American citizens and residents must file annual disclosures with the IRS for accounts with more than $10,000.