European and US regulators continue
to send banks strong signals that cracking down on undeclared
assets remains high on authorities’ agenda.
Swiss bank Julius Baer has agreed
to make a one-off €50m ($72m) payment to German authorities to end
investigations against the bank, and employees, regarding
undeclared assets of persons who are subject to taxation in
Germany.
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The investigations were prompted by
disclosures from German clients and data acquired and collected by
authorities on undeclared assets held by Julius Baer.
German authorities had launched a
concerted effort to gain the details of German residents and in
some instances had been rumoured to pay bankers to acquire
sensitive client information.
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By GlobalDataJulius Baer is the first Swiss bank
to come to an agreement with German regulators and may prompt other
Swiss banks to settle with German authorities as Germany represents
one of the key European markets for most Swiss wealth managers.
The Baer settlement follows news
that the US Department of Justice (DOJ) has launched legal
proceedings to force HSBC to hand over tax details of wealthy US
Non-Resident Indian (NRI) clients who held accounts in its Indian
bank.
The US Internal Revenue Service
(IRS) wants to file a John Doe summons to obtain information about
possible tax fraud by US clients of Indian origin with more than
$100,000 in HSBC India accounts.
Although the investigations are
focused on HSBC clients in the affluent segment, and not the
private bank specifically, it signals the next phase in US
regulators’ efforts to crackdown on US residents using foreign
wealth managers to hide taxable assets.
Vaibhav Dahake, an HSBC client, was
one of two HSBC clients charged this week in separate cases with
conspiracy to defraud the US by using undeclared accounts in India
to evade income taxes.
IRS allege tax evasion
advice
Dahake was named in US court
documents that alleged employees of HSBC Holdings, and its
affiliates operating in the US, told clients that accounts
maintained in India
would not be reported to the IRS.
The HSBC probe follows UBS’s
high-profile wrangle with the IRS over the names of 4,450 US client
accounts which was concluded late last year.
The UBS case led to the Swiss bank
agreeing to hand over client account details that has led to
approximately 150 grand jury investigations of UBS clients being
initiated, the IRS said.
Of these 150 investigations, 26
cases have led to charges, with 4 awaiting trial and 22 guilty
pleas.
HSBC in ‘constructive
dialogue’
An HSBC spokesperson said it was
engaged in a constructive dialogue with US authorities and hoped
any IRS summons issues could be resolved expeditiously.
“While we have not seen the
summons, HSBC does not condone tax evasion and fully supports the
US efforts to promote appropriate payment of taxes by US
taxpayers,” the bank said in a statement.
“While complying with the law in
all the jurisdictions in which it operates, including India, HSBC
co-operates with requests from US authorities,” the statement
added.
The HSBC investigation will focus
on transactions between 2002 and 2010 stemming from NRI accounts
opened by a representative office of HSBC India in New York and
California.
Although HSBC India closed the
offices in June 2010, the IRS alleges NRI clients may still access
their accounts at HSBC India from the US.
Second IRS tax amnesty to
end 31 August
“NRI clients have told IRS
investigators that NRI representatives in the US assured the
clients they could invest in accounts at HSBC India without paying
US income tax on interest earned on the accounts, and HSBC would
not report the income earned on the HSBC India accounts to the
IRS,” the DOJ said in a statement.
In February, the IRS launched a
second voluntary tax amnesty designed to allow US citizens to bring
offshore money back into the US tax system. Participants in the
second amnesty, which closes on 31 August, face a 25% penalty.
Nearly 18,000 US taxpayers have declared untaxed assets to the
IRS in the 18-month period to February 2011, estimated by US
regulators to be worth hundreds ofms of dollars.
