Tax Law Center Blog

An Indian-American businessman on Tuesday pleaded guilty to conspiring to defraud US tax authorities by hiding his bank accounts in HSBC India, a case which has led the IRS to probe NRIs holding accounts in the bank.

Vaibhav Dahake, 44 of Somerset, New Jersey pleaded guilty before US District Judge Freda Wolfson to an indictment charging him with one count of conspiracy to defraud the IRS and concealing undeclared bank accounts in India, a statement by the US Department of Justice said.

“Those who still think they can hide their assets and income offshore to evade taxes need to rethink their strategy,” John A. DiCicco, principal deputy assistant attorney general of the Justice Department’s tax division, said in a statement. The department “is committed to prosecuting such individuals.”

Dahake was the first taxpayer charged in a crackdown focusing on whether HSBC helped clients with Indian accounts hide assets from the IRS. He admitted conspiring with two bankers in New York, one in Fremont, California, and two in Thane, India.

The indictment 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 bank “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.

He faces a maximum sentence of five years in prison and a $250,000 fine, or twice the amount of financial gain accrued to him or loss to the IRS. Dahake, of Somerset, New Jersey, faces as many as five years in prison after pleading guilty to his indictment. Dahake, who was indicted in January this year, is scheduled to be sentenced on July 22, 2011.

Additionally, Dahake has agreed to pay a 50 per cent civil penalty for failing to file reports of foreign bank or financial account (FBAR) relating to his undeclared bank accounts for the calendar years 2004-2009, during which the accounts had the highest balance.

We expect that HSBC will disclose its customer list, which will become a target list for the IRS. HSBC customers are strongly recommended to seek legal counsel immediately and consider entering the IRS’ new offshore amnesty program.

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 legitimze) foreign accounts.