Tax Law Center Blog

Last month, HSBC Holdings agreed to pay $1.92 billion in fines to U.S. authorities, which is the largest collective settlement in the Treasury Department’s history. The penalty assessment was based upon HSBC’s conduct in violation of the Bank Secrecy Act and other U.S. sanctions.

This penalty assessment does not merely flow from a single act but rather a systematic failure to implement and enforce protocols and compliance measures. The Financial Crimes Enforcement Network determined that HSBC: 1) lacked an effective anti-money laundering program reasonably designed to manage risks of money laundering and other illicit activity, 2) failed to conduct due diligence on certain foreign correspondent accounts, and 3) failed to detect and adequately report evidence of money laundering and other illicit activity.

To reach a fair result, in a deferred prosecution agreement with the Justice Department, the Bank acknowledged its failures and has agreed to take steps to fix the problems. The Bank will retain a compliance monitor and launch a global review of its “know your customer” files, which will cost an estimated $700 million over five years. Know your customer (KYC) refers to due diligence activities that financial institutions must perform to ascertain relevant information from their clients for the purpose of doing business with them. In the AML area, specialized software such as name analysis and risk scoring algorithm software are used to identify potentially suspicious or risky customer accounts, which create “alerts” then tapped for further investigation.

For persons with undisclosed foreign accounts, KYC procedures means the likelihood of discovery is all the greater. Once the IRS identifies an individual for investigation then the Offshore Voluntary Disclosure Program (OVDP) is no longer an option. Only through the OVDP is a person virtually shielded from criminal prosecution and the threat of incarceration. According to Senator Carl Levin, who led the Senate inquiry, “the HSBC settlement sends a powerful wakeup call.” Increased transparency and intergovernmental cooperation is a priority with the rise of a global economy. This can be seen through bilateral agreements such as the adoption of the Foreign Account Tax Compliance Act (FATCA) between the United States and the UK, Denmark, Mexico, and many other nations.  FATCA is expected to lead to the disclosure of thousands of US persons with foreign accounts.

Our law office, which represents many taxpayers throughout the U.S. and around the world with undisclosed offshore accounts, believes that FATCA and recent 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.