HSBC Bank Expects Significant Penalties from US Government for Violations

Global bank HSBC has said it may face “significant” penalties from the US authorities with regard to an ongoing probe into suspected tax evasion by the US-based clients of its Indian unit, among other cases.

The US tax department is investigating possible evasion of federal income taxes by the American residents of Indian origin through use of their accounts with HSBC India.

HSBC said in a regulatory filing last night that it is cooperating with the US Department of Justice and the Internal Revenue System (IRS) in their probes into whether certain HSBC companies and employees acted appropriately in relation to certain customers with US tax reporting requirements.

The disclosure was made by UK-based HSBC as part of an update of the ongoing “regulatory and law enforcement investigations”, along with the bank’s first quarter results.

About the case involving its Indian unit, the banking giant said that HSBC Bank USA in April 2011 had received a ‘John Doe’ summons from the IRS, directing it to produce records with respect to US-based clients of an HSBC Group company in India.

In the US tax parlance, the ‘John Doe’ summons is one issued by the Internal Revenue Service to a third party to provide information on an unnamed, unknown taxpayer with potential tax liability. The unnamed person is addressed as ‘Jon Doe’ in such summons.

“We have cooperated fully by providing responsive documents in our possession in the US to the IRS,” it added.

About another case, HSBC said it had also received in April 2011 a subpoena from the US markets regulator SEC, directing HSBC Bank USA to produce records related to HSBC Private Bank Suisse SA’s cross-border policies and procedures and adherence to US broker-dealer and investment adviser rules and regulations when dealing with US resident clients.

“HSBC Bank USA continues to cooperate with SEC,” it said.

HSBC said that “based on the facts currently known in respect of each of these investigations, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution or for us to estimate reliably the amounts, or range of possible amounts, of any fines and/or penalties.

“As matters progress, it is possible that any fines and/or penalties could be significant,” HSBC added.

Way back in 2011, the US Justice Department had said that the IRS was demanding from HSBC Bank USA about the US residents who may be using accounts at HSBC India “to evade federal income taxes”.

Through the John Doe summons, IRS had asked HSBC USA to produce records identifying US taxpayers with accounts at HSBC India, many of whom were believed by the government to have hidden their accounts from the IRS.

HSBC’s is one of at least 11 banks under investigation by U.S. prosecutors investigating offshore tax evasion.  Since 2009, at least 84 people have been charged with tax crimes by the U.S., including two dozen offshore bankers, lawyers and advisers. Over a dozen HSBC clients were charged. More than 38,000 Americans avoided prosecution by entering the IRS amnesty program (OVDI/OVDP) in which they paid back taxes and penalties while disclosing the banks and bankers who helped them hide offshore accounts.

Patel Law Offices has consulted with dozens of HSBC clients regarding their offshore asset compliance issues. 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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