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New Jersey Businessman Indicted as HSBC Investigation Continues

According to a Reuters report, bankers with HSBC conspired with a New Jersey businessman to hide bank accounts in India and avoid detection from the Internal Revenue Service. The indictment is another indication of the widening probe into offshore accounts, and into HSBC, by federal investigators. Vaibhav Dahake, who has been a U.S. citizen since 2006, faces one count of conspiring to defraud the IRS for having maintained the Indian accounts from 2001 to 2010.

Pushing Clients to Offshore Accounts

The indictment accuses the bank, which is not named in the document, of running a division called NRI Services. This division, according to a Bloomberg report, marketed offshore accounts to clients of Indian descent.

The indictment notes that Dahake met with an HSBC banker in 2001 to discuss the advantages of the Indian accounts. Dahake was told that no U.S. forms or Social Security number would be required to open the account, that it was not taxable in India and that the interest would not be reported to the IRS. According to a Justice Department press release on the case, Dahake was also advised to transfer amounts under $10,000 to avoid detection and "stay below the radar."

Though the bank is not named in the indictment, the London-based HSBC does, however, run a division called NRI Services. The New York Times also cites sources close to the investigation confirming HSBC as the bank behind the accounts.

Widening Probe

The Dahake indictment is another example of the focus by investigators into offshore accounts. Nearly one year ago, a Virginia surgeon was convicted of conspiring with a Swiss attorney and HSBC bankers to hide over $250,000 from the IRS. According to The New York Times, Dr. Andrew Silva attempted to smuggle the money into the U.S. by mailing cash to himself in amounts under $10,000. Silva received four months home confinement, forfeited over $200,000 and was fined $20,000.

The New York Times reports that the IRS is giving those individuals with offshore accounts until August 31st of this year to report offshore activities. While there are penalties associated with the voluntary disclosure, they are far less than a person would normally face. According to the Times report, the IRS will require individuals to pay a 25 percent tax in the year with the highest account balance from 2003 to 2010.

The tax is significant but is far less than the 50 percent penalty usually associated with offshore accounts. There are also significant fines, and criminal penalties normally associated with those accounts which are not assessed under the new voluntary disclosure program. Participants will, however, have to pay back taxes, interest and delinquency penalties.

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