Fifth HSBC India Customer indicted for tax evasion this year

A federal grand jury in San Jose, California, last week indicted Ashvin Desai of San Jose on three counts of tax evasion, two counts of willfully aiding the preparation of materially false tax returns and three counts of failing to file Reports of Foreign Bank and Financial Accounts (FBARs), the Justice Department and Internal Revenue Service (IRS) announced.

According to the indictment, Desai, the owner of a medical device company, his wife and his two adult children maintained millions of dollars in undeclared bank accounts in India at The Hongkong and Shanghai Banking Corporation Ltd. (HSBC). During 2009, Desai maintained approximately $8.8 million in his undeclared accounts at HSBC in India. Desai attempted to evade his income taxes for tax years 2007-2009 by filing false tax returns that failed to report $1,306,810 of interest income, and that falsely reported that he did not have an interest in, or signature authority over, bank accounts located in a foreign country. Desai also prepared false tax returns for his children for tax year 2009 that failed to report approximately $189,000 of interest income paid by HSBC in India, and that falsely reported that the children did not have an interest in bank accounts located in a foreign country.

The indictment further alleges that during 2009 Desai closed an account he maintained at HSBC in England and directed that the funds from that account be transferred to a bank account maintained at HSBC in Dubai in the name of one of his children, and that, for tax years 2007-2009, Desai failed to file FBARs to report his foreign bank accounts to the Department of Treasury.

As alleged in the indictment, United States citizens have an obligation to report to the IRS on Schedule B of their United States Individual Income Tax Return, Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign county in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained. They further have an obligation to report all income earned from foreign financial accounts on the tax return and to pay the taxes due on that income. Separately, United States citizens with a financial interest in, or signatory authority over, a foreign financial account worth more than $10,000 in a particular year, must also file an FBAR form with the Treasury disclosing such an account by June 30 of the following year.

Each tax evasion charge carries a maximum penalty of five years in prison and a $250,000 fine. The false tax return charges each carry a maximum penalty of three years in prison and a $250,000 fine. The failure to file an FBAR charges each carry a maximum penalty of 10 years in prison and a $500,000 fine.

While an indictment is merely an allegation and Mr. Desai is presumed innocent, several other HSBC India clients this year have been indicted and subsequently pled guilty to tax evasion.

This case is being prosecuted by Senior Litigation Counsel John E. Sullivan and Trial Attorney Melissa S. Siskind of the Justice Department’s Tax Division. Mr. Sullivan, who has also previously prosecuted several other Swiss bank customers, is leading prosecutions in numerous HSBC India tax evasion cases. The Justice Department’s Tax Division seems to be replicating its 2009 prosecutorial successes against UBS Swiss bank customers again with HSBC India account holders.

Earlier this year, the U.S. District Court for the Northern District of California issued an order authorizing the Internal Revenue Service to serve a “John Doe” summons requesting information from HSBC regarding U.S. residents who may be using accounts at HSBC in India to evade federal income taxes. If HSBC produces these records, which is likely, it may be too late for U.S. taxpayers with undisclosed HSBC accounts to take advantage of the IRS Voluntary Disclosure Program for offshore accounts. The IRS says there are 9,000 high net worth Indian US residents who maintain at least $100,000 in their bank accounts in HSBC India but few of them have disclosed details of their accounts.

The Desai indictment and HSBC summons should persuade offshore accountholders who cannot decide whether to disclose past foreign account noncompliance to the IRS via the IRS Voluntary Disclosure Practice (VDP) program, which remains in effect after OVDI’s expiration, for protection against civil (and criminal) penalties. In light of recent indictments, quiet or no disclosures are not viable options for such individuals. Our law office, which represents many taxpayers throughout the U.S. and around the world with undisclosed offshore accounts, believes that the recent indictments and large penalties should encourage more U.S. taxpayers with undisclosed offshore accounts, especially held at HSBC, to come forward before the government contacts them.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

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