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US investigating Indian-origin tax evaders

April 15
21:48 2011

Tax authorities claim HSBC encouraged Indians living in the US to set up hidden accounts back in India

NEW JERSEY: Vaibhav Dahake, a Somerset, NJ, businessman man had admitted and pleaded guilty to conspiring to conceal undeclared bank accounts in India, US Attorney Paul J. Fishman and Principal Deputy Assistant Attorney General John A. DiCicco of the Justice Department’s Tax Division announced April 11.

Dahake, 44, pleaded guilty to an Indictment charging him with one count of conspiring to defraud the IRS. He entered his guilty plea before US District Judge Freda L. Wolfson in Trenton federal court.

At sentencing, Dahake faces a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the amount of financial gain to the defendant or loss to the IRS. Additionally, Dahake has agreed to pay a 50 percent civil penalty for failing to file Reports of Foreign Bank or Financial Account relating to his undeclared bank accounts, for the calendar year, from 2004 through 2009, during which the accounts had the highest balance. Sentencing is scheduled for July 22, 2011.

In a larger investigation related to similar cases, the United States has asked a San Francisco court to allow the IRS to access HSBC India bank account records to identify Indian origin US residents who may be tax evaders.

The US Justice Department is seeking an order from a federal court in San Francisco authorizing the Internal Revenue Service (IRS) to request information from HSBC Bank USA, about US residents who may be using accounts at The Hong Kong and Shanghai Banking Corporation in India (HSBC India) to evade federal income taxes.

The government filed a petition with the court to allow the IRS to serve what is known as a “John Doe” summons on the bank. The IRS uses a John Doe summons to obtain information about possible tax fraud by people whose identities are unknown. If approved, the John Doe summons would direct HSBC USA to produce records identifying US taxpayers with accounts at HSBC India, many of whom are believed by the government to have hidden their accounts from the IRS.

It has reportedly been found that at least 9,000 Indian Americans were holding accounts in HSBC’s India branch with more than $100,000 in deposits.

According to documents filed with the government’s petition, on Jan 26, 2011, a grand jury in Newark, NJ, indicted Vaibhav Dahake, charging him with conspiracy to defraud the United States by using undeclared accounts in the British Virgin Islands and at HSBC India to evade his income taxes. According to those documents, employees of HSBC Holdings plc and its affiliates operating in the United States assured Dahake that accounts maintained in India would not be reported to the IRS.

According to documents filed during the guilty plea proceeding: Dahake admitted that from 2001 through 2010, he maintained undeclared bank accounts in India that he failed to report on his federal income tax returns.

In 2001, Dahake received from HSBC an unsolicited letter advertising bank accounts in India that paid high interest rates. Dahake subsequently met with a banker, employed by the bank’s New York office, who advised Dahake that one of the advantages of opening up a bank account in India was that he would not have to supply the bank with his social security number.

After Dahake decided to open an account in India, the banker advised him not to send one large check, but to send five checks, each in the amount of $10,000, in order to “stay below the radar.”

During 2003 and 2004, Dahake wire transferred additional funds from the British Virgin Islands to his undeclared bank account in India. In connection with these wire transfers, a second banker employed by HSBC in New York advised Dahake that he could conceal his undeclared accounts by converting funds from US dollars into either British pounds or Euros before wire transferring them. The banker told Dahake that the funds would not be transferred through the US banking system because the international bank had correspondent banks in Europe and around the world that handled transactions in different currencies.

During a subsequent trip to India, Dahake had a telephone conversation with a third banker, employed by the international bank in California, regarding how to conceal the repatriation of funds from India to the United States. The banker advised Dahake that he and his wife should not withdraw more than $18,000 collectively to avoid coming back into the United States with over $10,000 each.

In 2006, Dahake faxed a letter to the international bank in India instructing it to issue him five bank checks, each in the amount of $9,500, and to send the checks via courier to his residence in New Jersey. A banker employed by HSBC in India had advised Dahake to purchase multiple checks in that amount when repatriating funds from India to the United States.

Following the publication of news reports that Swiss bank UBS AG had entered into a deferred prosecution agreement with the US Department of Justice, Dahake advised the banker in California that he was considering repatriating all his money from India to the United States.

In response, the banker told Dahake he had nothing to worry about because the international bank would not be issuing Forms 1099 on the accounts in India, and that the IRS would be looking for undeclared accounts maintained in the Caribbean rather than in the Far East.

The banker also advised Dahake that the international bank operated banks in both Singapore and Hong Kong and that the banker could introduce Dahake to bankers in those countries if Dahake wanted to move his funds there.

Individuals who physically transport, mail or ship – or cause to be physically transported, mailed, or shipped – currency, checks, and other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States are required to file a FinCen Form 105, Report of International Transportation of Currency or Monetary Instruments (a “CMIR”), with the Bureau of Customs and Border Protection.

United States law prohibits individuals from structuring the importation or exportation of currency, checks and other monetary instruments if the purpose of the structuring is to evade the requirement to file a CMIR for transactions exceeding $10,000.

US Attorney Fishman stated: “New Jersey businessman Vaibhav Dahake admitted today that he conspired to hide his assets from the IRS by stashing them in India. As all taxpayers prepare to file their annual returns, we remind them and their financial institutions not to cheat their fellow citizens by defrauding the IRS.”

“Those who still think they can hide their assets and income offshore to evade taxes need to rethink their strategy. The Department of Justice is committed to prosecuting such individuals, and U.S. taxpayers who honestly report their income and pay their taxes can take comfort in that fact,” said John A. DiCicco, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division.

“This is another step in our ongoing effort to pursue hidden offshore assets – no matter where they are located,” said IRS Criminal Investigation Chief Victor S.O. Song. “We are continuing our work to crack down on offshore tax evasion. Through our efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax evasion, and you can expect us to use all of our enforcement tools to stop this abuse.”

U.S. Attorney Fishman and Principal Deputy Assistant Attorney General DiCicco commended the special agents of the IRS, under the direction of IRS Criminal Investigation Chief Victor S.O. Song, who investigated the case.

The government is represented by Assistant U.S. Attorney Stacey A. Levine of the U.S. Attorney’s Office Health Care and Government Fraud Unit in Newark; and Senior Litigation Counsel John E. Sullivan and Kevin M. Downing of the Department of Justice’s Tax Division.

Meanwhile, the government alleged that, according to HSBC’s website, in 2002 HSBC India opened a “representative office” at an HSBC USA office in New York City to enable “Non-Resident Indians” (NRIs) living in the United States to open accounts in India. In 2007, HSBC India allegedly opened a second representative office at an HSBC USA office in Fremont, CA, purportedly “to make banking transactions more convenient for the NRI community based in California.”

Although HSBC India closed those offices in June 2010, the government alleges that NRI clients may still access their accounts at HSBC India from the United States. According to the petition documents, NRI clients have told IRS investigators that NRI representatives in the United States assured the clients that they could invest in accounts at HSBC India without paying U.S. income tax on interest earned on the accounts and that HSBC would not report the income earned on the HSBC India accounts to the IRS.

“The Department of Justice is committed to ensuring that all US taxpayers meet their obligations to declare and pay taxes on foreign bank accounts,” said John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division. “The ability to hide accounts in foreign countries is rapidly dwindling. We will continue working hand-in-hand with the IRS to enforce the tax laws against those who are using offshore accounts – wherever they are located – to evade taxes.”

“The IRS continues to focus its attention on international tax evasion,” said IRS Commissioner Douglas Shulman. “This summons request is focused on obtaining more information to help us determine if additional actions are needed. As I’ve said all along, our international efforts are not about just one country or one bank – it’s about our wider effort to ensure compliance with the nation’s tax laws.”

Federal law requires US taxpayers to pay federal income taxes on all income earned worldwide. US taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

SRIREKHA CHAKRAVARTY
India Post News Service

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