A federal grand jury in San Jose, California, last week indicted Ashvin Desai of San…
HSBC Customer Avoids Jail in Tax Evasion Case
A New Jersey businessman who cooperated with prosecutors avoided prison after admitting he conspired with five HSBC Holdings bankers to hide his Indian bank accounts from U.S. tax authorities.
Vaibhav Dahake, 46, was sentenced to one year of probation yesterday in federal court in Trenton, where he pleaded guilty in April 2011. Prosecutors said he played a vital role in helping gather information about London-based HSBC, the largest European bank by assets. Absent his cooperation, Dahake would have likely been sentenced to some jail time. The U.S. is probing whether HSBC India helped Americans hide money from the Internal Revenue Service.
Publicity over Dahake’s case helped spur 33,000 Americans with accounts at various banks to avoid prosecution through an IRS amnesty program and to pay $5 billion in taxes, federal prosecutor Scott McBride told U.S. District Judge Freda Wolfson. The program lets taxpayers repatriate assets by paying back taxes and penalties, and disclosing offshore accounts and bankers.
Dahake’s cooperation “revealed many others that were involved in acting in a similar fashion in a very large scheme involving these undeclared bank accounts in India,” Wolfson said. “The extent of his cooperation was virtually unparalleled in similar tax matters.”
Dahake, of Somerset, New Jersey, faced as long as five years in prison. U.S. prosecutors cited Dahake’s indictment in April 2011 in persuading a federal judge in California to allow the IRS to serve a so-called John Doe summons on HSBC for information about Americans with accounts in India.
Dahake was the first taxpayer charged in a crackdown focusing on those HSBC India accounts. He admitted he conspired with two bankers in New York, one in Fremont, California, and two in Thane, India.
Since 2008, prosecutors charged at least 86 people in their crackdown on offshore tax evasion, including two dozen bankers, lawyers and advisers. Several HSBC clients were charged.
McBride said Dahake was “certainly the right guy at the right time for this large-scale investigation.” Before his indictment, he was debriefed extensively, providing “many documents and much information that was extremely useful to us.”
Dahake first laid out details of the scheme to prosecutors on Oct. 13, 2010, and signed a cooperation agreement a month later. Dahake later made surreptitious phone recordings and agreed to be indicted to spur publicity.
Before he was sentenced, Dahake apologized to the judge and the IRS. Dahake had previously paid $2.3 million in back taxes, fines and penalties.
In Dahake’s indictment, prosecutors said the bank operated a U.S. division called NRI Services that marketed offshore-banking services to U.S. citizens of Indian descent. Through NRI, the HSBC “encouraged U.S. citizens to open undeclared bank accounts in India,” according to the indictment.
Dahake, a native of India who became a U.S. citizen in 2006, filed false tax returns that hid ownership of, and income from, undeclared accounts in India, as well as the British Virgin Islands, according to the indictment.
His British Virgin Islands accounts didn’t pay interest, and the bank solicited him to open accounts in India that paid “high interest rates,” according to the indictment.
In 2001, he met with a banker in New York who touted the advantages of an Indian account, “including that no U.S. forms were required, he did not have to provide a Social Security number, the account was not taxable in India” and no Form 1099 reporting the interest income would be filed with the IRS, according to the indictment.
In transferring funds, the banker advised, Dahake should send multiple checks in the amount of $10,000 rather than one large one so that he could “stay below the radar,” according to the indictment.
Two other U.S. bankers also told him that the bank wouldn’t file 1099 forms with the IRS, according to the indictment. In another instance, Dahake was talking with a banker in Fremont and asked if the bank would issue 1099 forms, according to the document. The banker stopped speaking in English and said in Hindi that Dahake shouldn’t discuss the forms on the phone, according to the indictment.
HSBC closed its NRI offices in New York and Fremont in 2010, according to the bank.
Dahake clearly provided the government useful information that will lead to more prosecutions. While new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.
Patel Law Offices has consulted with hundreds of clients regarding their offshore 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.