February 8, 2017
Department of Justice Examining HSBC’s Offshore Activity
In 2008, the Justice Department began an investigation into HSBC, the London based bank. According to The New York Times, the investigation centers around HSBC’s sale of offshore tax services to American citizens. These offshore services are suspected, by the Justice Department, of hiding billions of dollars for clients, who did not pay taxes on the income generated from the accounts.
The Times also reported that some of HSBC’s clients are individually under investigation for evading taxes. The Justice Department sent letters to several clients informing them that they are subjects of criminal investigations, though no grand jury has yet been convened in the case.
Prosecutors are also reviewing “suspicious activity reports” previously filed by HSBC.
According to the Internal Revenue Service (IRS), a financial institution is required to file a suspicious activity report when the funds involved come from illegal activity or disguise funds from illegal activity; the transaction appears to serve no known business or lawful purpose; or the financial institution suspects it is being used to facilitate criminal activity. The IRS touts suspicious activity reports as one of its best weapons against money laundering and other financial crimes.
Looking for Similarities to UBS
Authorities are looking for patterns similar to those involving UBS. Last year, UBS paid a $780 million settlement in conjunction with tax evasion charges. According to the IRS, UBS helped wealthy American clients avoid paying taxes through offshore accounts from 2000 to 2007. At the time, UBS also agreed to turn over information on 250 accounts to the Department of Justice. Recently, the Swiss Parliament approved turning over data on 4,450 additional accounts potentially involved in tax evasion.
One of UBS’s bankers, Brad Birkenfeld, blew the whistle on the offshore operation. In an interview with Bloomberg, Birkenfeld detailed how bankers for UBS would help clients avoid complying with U.S. securities laws by having advisors set up shell companies with countries that have favorable tax laws.
Through using encrypted laptops and falsely stating on travel forms that they were in country for pleasure and not business, bankers were able to help the company and clients avoid the scrutiny of regulators. Though he contends he helped the government prosecute his case and sought whistleblower protection, Birkenfeld was sentenced to 40 months in prison for his role in the operation. He has asked President Barack Obama for a pardon.