HSBC Client Avoids Prison for Hiding Bank Accounts From U.S.
By David Voreacos - May 22, 2013 11:06 AM ET
A New Jersey businessman avoided prison after admitting he conspired with five HSBC Holdings Plc (HSBA) bankers to hide his Indian bank accounts from U.S. tax authorities, getting credit for helping prosecutors.
Vaibhav Dahake was sentenced to one year of probation today in federal court in Trenton, New Jersey, where he pleaded guilty in April 2011. Prosecutors said he helped gather information about London-based HSBC, the largest European bank by assets. The U.S. is probing whether HSBC helped Americans use accounts in India to hide money from the Internal Revenue Service.
Dahake, of Somerset, New Jersey, faced as long as five years in prison. U.S. prosecutors cited his January 2011 indictment in persuading a U.S. judge in California to allow the IRS to serve a so-called John Doe summons on HSBC for information about Americans with accounts in India.
Dahake was the first taxpayer charged in a crackdown focusing on whether HSBC helped clients with Indian accounts hide assets from the IRS. He said he conspired with two bankers in New York, one in Fremont, California, and two in Thane, India. His indictment helped the IRS collect $5 billion from 33,000 taxpayers, prosecutors said at today’s hearing.
Since 2008, U.S. prosecutors charged at least 86 people in their crackdown on offshore tax evasion, including two dozen bankers, lawyers and advisers. Several HSBC clients have been charged. Another 38,000 Americans avoided prosecution through an IRS amnesty program that let them repatriate their accounts by paying back taxes and penalties and disclosing their offshore accounts and bankers.
The Dahake 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.
His British Virgin Islands accounts didn’t pay interest, and the bank solicited him to open accounts in India that paid “high interest rates,” according to the indictment.
In 2001, he met with a banker in New York who touted the advantages of an Indian account, “including that no U.S. forms were required, he did not have to provide a Social Security number, the account was not taxable in India” and no Form 1099 reporting the interest income would be filed with the IRS, according to the indictment.
In transferring funds, the banker advised, Dahake should send multiple checks in the amount of $10,000 rather than one large one so that he could “stay below the radar,” according to the indictment.
Two other U.S. bankers also told him that the bank wouldn’t file 1099 forms with the IRS, according to the indictment. Last April, Dahake was talking with a banker in Fremont and asked if the bank would issue 1099 forms, according to the document. The banker stopped speaking in English and said in Hindi that Dahake shouldn’t discuss the forms on the phone, according to the indictment.
HSBC closed its NRI offices in New York and Fremont in 2010, according to the bank.
The case is U.S. v. Dahake, 11-cr-00042, U.S. District Court, District of New Jersey (Trenton).
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