UBS – HSBC – IRS VOLUNTARY DISCLOSURE PROGRAM

DAILY BUSINESS REVIEW , July 26, 2010 reports:

The Justice Department and Internal Revenue Service are moving beyond UBS — and that’s bad news for the rest of the international banking industry.

The newest target of U.S. authorities appears to be HSBC, the London-based retain bank prominent in Asia.

“It appears that it is indeed the next bank in what is likely a series of banks that will be targeted by the IRS,” said Miami tax litigator David Garvin. “Since June of this year, there has been at a minimum 15 or more clients of HSBC who have already received letters from the United States government and are being investigated for tax evasion.”

Other HSBC clients are seeking legal consultations, concerned they will be caught up in another tax-evasion dragnet, lawyers said.

There is an estimated $700 billion in untaxed wealth in Asia, Garvin said. The owners are required to report taxes in the country where the businesses are domiciled as well as their home country. The IRS plans to beef up its overseas operations with 800 new agents, most of them heading to the Pacific Rim.

Not surprisingly, there is a South Florida component, as there was in the UBS case. A tax case against two HSBC customers is set for trial Sept. 7 in Fort Lauderdale federal court.

The HSBC probe shows how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland and UBS. The largest Swiss bank paid a $780 million fine for hiding assets of U.S. taxpayers, often in Caribbean accounts.

About 15,000 taxpayers filed for amnesty under an IRS program to disclose offshore holdings to keep from being prosecuted, and 16 UBS clients have been charged with tax crimes.

But South Florida tax attorneys say it’s unlikely there will be such a large fine for HSBC, which is cooperating with authorities. While UBS refused to release the names of its U.S. customers, HSBC is releasing not only names but customer service audio tapes.

“HSBC has more leeway in cooperating, and it may not be breaking any laws of any particular jurisdiction by cooperating with the Department of Justice,” said attorney Martin Press, a partner at Gunster in Fort Lauderdale.

But it hasn’t been all strawberries and cream between the bank and investigators.

“The IRS appears to be suspicious that HSBC tipped their customers to what was about to happen,” Garvin said. “It let their better customers do what actors term ‘exit stage right.’ ”

A lot of tax attorneys said many of those already targeted are just confused about reporting income in two countries.

Kevin Packman, a partner at Holland & Knight in Miami, said the Justice Department is lumping in those who simply did not know the international reporting rules on income tax with the true tax scofflaws.

“I look at this stuff as low-hanging fruit. The size of the account should not matter. Whether it’s $1 million or $15 million, the focus should be on intent and willfulness,” he said. “I have people who failed to report accounts with $100,000, and they are being treated the same way as those who intentionally evaded tax.”

Packman said an HSBC client who got a “subject letter” from the Justice Department already came forward under the voluntary UBS amnesty to disclose his HSBC holdings.

“It’s troubling that one side did not know what the other side was doing,” he said. “I was certainly stupefied. You’d think they would be working in conjunction.”

He declined to discuss the specifics of the case.

For those who wanted to hide foreign assets, HSBC could be the perfect vehicle. It prides itself on its brick-and-mortar operation with branches throughout the world.

The bank founded in Hong Kong in 1865 is doing everything it can to avoid becoming the next UBS by cooperating with U.S. authorities.

While UBS said it cooperated with U.S. authorities, it cited Swiss bank secrecy law when withholding the identities of U.S. account holders and didn’t produce an indicted executive.

“HSBC is interesting because they have taped a number of their customers who are just patently discussing during the taped conversation the best ways to open accounts with HSBC and avoid the reporting requirements to the IRS,” Garvin said.

One of the first signs the bank was targeted was when father-son developers Mauricio Cohen Assor and Leon Cohen Levy were charged in April with pocketing $33 million in a New York hotel deal in 2000 without paying taxes.

The Cohens ended up in Fort Lauderdale federal court.

An IRS agent testified about the Cohens’ business with HBSC, which is described in the complaint only as “one of the largest international banks.”

AUDIO TAPES

HSBC audio tapes allegedly have the elder Cohen talking to a staff member about hiding millions of dollars in the names of relatives, according to court documents. Paul Calli and Michael S. Pasano, partners at Carlton Fields in Miami who represent the Cohens, claim the Justice Department is carrying water for a French bank suing the father and son over an unresolved loan.

DAILY BUSINESS REVIEW, August 12, 2009  reports:

The fate of 52,000 American clients of Swiss banking giant UBS, believed to be holding nearly $15 billion in secret accounts, is contained in details of a settlement agreement reached Wednesday between Swiss and U.S. negotiators.

And experts say one thing is inevitable — indictments of UBS clients that have been hiding money from the U.S. government in Swiss accounts and potentially the professionals that helped them, including lawyers and accountants.

The U.S. has sought the names of suspected American tax evaders as UBS and the Swiss government have resisted, arguing that to do so would violate Swiss banking confidentiality laws.

Details have not been released, but Swiss and U.S. negotiators told a Miami federal judge they have initialed agreements.

“It will take a little time for the agreements to be signed in final form,” Stuart Gibson, senior litigation attorney for the U.S. Justice Department’s tax division, told U.S. District Judge Alan Gold in a conference call. “When the final documents are signed, the parties will file a stipulation of dismissal.”

Zurich-based UBS agreed in February to pay $780 million in penalties in exchange for deferred prosecution on charges it aided tax evasion and released about 300 names at the time.

Three UBS clients have pleaded guilty in Fort Lauderdale to hiding their assets from the IRS. Clients have been allowed to come forward under an amnesty program.

Following Wednesday’s announcement, speculation turned to how many UBS clients will be prosecuted, how many names will be released and whether they will ever be made public, and the effects on international banking.

“The United States government could get additional names and what we’re going to have is the Swiss taking the position that they’ve determined there are additional violations of Swiss law. That will free them up to give the information necessary,” said David Garvin, a Miami criminal defense attorney.

“Whether it’s going to be all of the names remains to be seen. I will be a little surprised if it is all of them, but it could be a substantial portion.”

Garvin said a settlement would likely include a political way for the Swiss government to try to keep intact its bank secrecy laws while appeasing the U.S. and deterring Swiss bankers from promoting what are perceived as illegal tax shelters.

He said that prosecutors would likely start with biggest offenders.

“The whole policy behind voluntary compliance is that you go after the most egregious, the most high profile, the one that you anticipate there is no way you can lose, and then you make an example of those,” Garvin said. “Then you put fear into everybody else so that they voluntarily comply. The rest you hit with a civil fraud penalty of up to 75 percent and you teach them a lesson that way, but you don’t need to put everybody in jail.”

The UBS case comes against the backdrop of President Obama’s campaign promise to target wealthy Americans and corporations who hide assets in offshore tax havens. The case reached the highest levels of both countries’ governments: U.S. Secretary of State Hillary Clinton and Swiss Foreign Minister Micheline Calmy-Rey discussed the issue recently in Washington.

Despite clear diplomatic repercussions with Switzerland, the Justice Department had threatened the February deal could be in jeopardy if UBS does not cooperate by releasing names.

Though many foreign accounts are legitimate if reported, others are tax dodges that cheat the U.S. government of an estimated $100 billion in revenue annually — a matter of special urgency in an ailing economy.

UBS courted wealthy Americans to hide their assets through shell corporations. A UBS banker, Bradley Birkenfeld, pleaded guilty to helping wealthy Americans evade taxes and has cooperated with prosecutors. He is scheduled to be sentenced Aug. 21 in federal court in Fort Lauderdale.

Another UBS banker, Raoul Weil, was indicted and declared a fugitive, and a third who ran the now-shuttered cross-border business, Martin Liechti, was held by the U.S. as a material witness for several months last year.

The Government Accountability Office issued a report in January that found 83 of the 100 largest publicly traded U.S. corporations reported subsidiaries in countries listed as tax havens.

At least 40 countries have been identified as tax havens by the international Organization for Economic Cooperation and Development, which claims the clandestine global network stretches beyond the Caribbean, Panama, the Isle of Man and Liechtenstein to the financial centers of Southeast Asia.

Obama said he wants to tighten the tax code to eliminate a break that allows companies to defer taxes on profits earned overseas as long as those earnings are put back into the foreign subsidiary. Business groups have criticized the plan, saying a crackdown on firms with money abroad could hurt foreign competitiveness.

Obama, though, has said such companies shirk their obligations to the United States and are benefiting from a tax code written to benefit the rich and powerful at the expense of American workers.

“There are a lot of people who wanted this absolute privacy, who for good or bad reasons were relying on the Swiss never disclosing anything. They don’t have that comfort anymore,” Vazquez-Bello said. “Bankers are telling me that the money is moving to Singapore.”

BLOOMBERG, July 7, 2010 reports:

The Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the Internal Revenue Service, according to three people familiar with the matter.

One client got a letter from the Justice Department in late June that said prosecutors had “reason to believe that you had an interest in a financial account in India that was not reported to the IRS on either a tax return” or a Treasury Department report disclosing foreign accounts, according to copies read to Bloomberg News by lawyers who have seen the letters.

UBS avoided prosecution last year by admitting it aided tax evasion from 2000 to 2007, paying $780 million, and agreeing to disclose secret account data on more than 250 clients. It later agreed to disclose data on another 4,450 clients.

Seventeen UBS clients, two bankers and three alleged enablers of tax crimes have been prosecuted since the bank signed the deferred prosecution agreement. Another 15,000 U.S. residents sought to avoid prosecutions last year by disclosing offshore accounts.

IRS Commissioner Douglas Shulman said last October his agency was scouring those disclosures “to identify financial institutions, advisers and others” who helped taxpayers cheat on taxes. He said the IRS is hiring 800 people in the next year and increasing staff in eight overseas offices, including Hong Kong. It also will open offices in Beijing, Sydney and Panama City.

Several weeks ago, Downing toured Singapore, Hong Kong and Beijing, meeting with regulators and bankers about offshore tax prosecutions. He spoke to tax lawyers at a conference sponsored by New York University on June 18.

“We just took down the largest private wealth management bank in the world,” Downing said, referring to UBS. “Do you really think we’re going to have trouble doing the next one?”

He referred to his tour in Asia, saying: “Neither the banks nor the governments want to have a UBS-type situation. They want to do it nice and quiet. They don’t want to be the focus of attention. The Department of Justice and IRS are devoting a ton of resources to this issue.”

The Justice Department has charged three HSBC clients with tax crimes in the past year.

A Virginia surgeon, Andrew Silva, was sentenced to two years of probation after admitting he hid assets at HSBC from U.S. tax authorities and smuggled more than $200,000 in cash to his home when the bank said it would close his Swiss bank account.

Two Miami Beach hotel developers, Mauricio Cohen Assor and his son Leon Cohen Levy, were indicted on charges of hiding more than $150 million in assets from the IRS, including accounts held at HSBC. They have pleaded not guilty and face a Sept. 7 trial in federal court in Fort Lauderdale, Florida.

ASSET RECOVERY WATCH, July 13, 2010 reports:

After wresting $780 million from Swiss banking giant UBS, the United States has begun targeting accounts in Asia held by customers who may owe US back-taxes. The Department of Justice and Internal Revenue Service are using suspicious activity reports and voice recordings provided by British banking giant HSBC to track offshore wealth to Singapore and India.

The US Department of Justice has widened its investigation of banks and their customers suspected of using offshore accounts to keep money hidden from US tax authorities and has begun focusing on accounts in Asia, according to three individuals familiar with the probe.

The US investigation is aided by evidence provided by HSBC, the British-based multinational bank, involving the financial institution’s own customers with accounts ssets in India and Singapore. HSBC handed over to the Department of Justice (DOJ) more than 50 audio recordings of phone calls with clients whom the US suspects of tax evasion. The calls took place in early 2010 and were placed by the clients to their personal HSBC advisors. On the calls, clients are said by those familiar with the investigation to have received advice about how best to transfer assets across borders without paying taxes.

SAR review an important step Another key lead for US law enforcement consists of the suspicious activity reports (SARs) filed by financial institutions each year.

While the SAR review process has remained a somewhat clandestine affair — only certain public sector entities are permitted to see the filings DOJ sources say investigators have begun to comb through piles of SARS filed by HSBC in the past year, and has already used one such report as evidence in a tax evasion case.

The latest development in the current investigations came June 21 when the DOJ sent a letter to at least 15 HSBC clients with assets and accounts throughout Asia. According to two DOJ sources and one HSBC customer, the letter indicated that those clients were targets in a criminal investigation of suspected tax cheats and the financial institutions that assist them.

The letter was signed by DOJ tax lawyer Kevin Downing, the same senior attorney who headed the probe into Swiss banking giant UBS, which led to 17 prosecutions and fines of $780 million, along with thousands of voluntary disclosures from US citizens who feared their accounts would be exposed. The letter closely resembled correspondence sent to UBS clients in fall 2009 as the US and Swiss governments worked on an agreement which eventually yielded the names of 4,450 clients.

HSBC clients targeted “You won’t see as many people turning themselves in this time,” said one DOJ official familiar with the UBS and HSBC investigations. “This time they are more likely to call the bluff, which means we can’t bluff. We have to go after them.”

Like the current HSBC effort, the UBS investigation began with a modest number of targeted clients (500) and a few tersely worded letters informing investors that they should “be advised that you are a subject of a criminal investigation being conducted by the Tax Division.”

“The thought is that HSBC can mirror the methodology of [the] UBS [case] and their assets can be tracked similarly,” said one source. “But the hope is that they would just turn themselves in.”

This week, a spokesman from the DOJ refused to comment publicly on the investigation, and calls left for HSBC spokespeople in the bank’s New York and Hong Kong offices were not returned. HSBC issued a statement last week saying, in part, that it “does not condone or assist tax evasion.”

‘A long war’ expected “What the US is going to do now is knock on the door of banks in all countries shielding US citizens’ assets,” said Michael Weinstein, a former DOJ trial attorney who prosecuted white -collar criminals. “The UBS case was simply the opening salvo in a long war.”

As the Swiss and US governments went back and forth over the release of the 4,450 UBS names, — a final deal was approved by the Swiss parliament on June 17 — thousands of US citizens with offshore UBS accounts stepped forward, opening their bank records in an attempt to avoid penalties or charges of tax evasion. While the IRS has offered no formal amnesty to these individuals, those who have come forward have generally avoided prosecution. However, the IRS has continued to levy late fees and penalties against them for failing to pay their taxes.

The US focus now is on HSBC and Asia. Singapore in particular has become an alternative refuge for tax evaders wary of storing their wealth in Switzerland, and several of the DOJ letter recipients last month had inherited family estates in India.

India is not generally viewed as a secrecy haven, but Singapore, Malaysia and Hong Kong have actively fought international calls for tax transparency.

During a recent tour of Singapore, DOJ attorney Downing told a group of regulators that the US has no problem pursuing unpaid taxes around the world.

“We just took down the largest private wealth management bank in the world,” he said, addressing regulators and the media, referring to UBS. “Do you really think we’re going to have trouble doing the next one?”

Downing added: “Neither the banks nor the governments want to have a UBS-type situation. They want to do it nice and quiet. They don’t want to be the focus of attention. The Department of Justice and IRS are devoting a ton of resources to this issue.”

HSBC eyed for possible illegal advice While HSBC has appeared to cooperate with the current investigation, a source in the DOJ said it is investigating whether HSBC prompted a flurry of transfers by illegally advising customers to secretly funnel their assets to other banks or back into the US. HSBC shuttered its offshore private banking services in 2009 when the US began to dog UBS.

If Switzerland falters as the world’s premier tax haven, East Asia is home to a wealth of potential successors. Singapore and Hong Kong collectively hold $700 billion in offshore wealth, about one-third of the amount suspected to be held in Switzerland, according to the 2010 Boston Consulting Group Wealth Report. Singapore has steadfastly defended its banking secrecy laws, which critics say encourage “hot money” stashes of ill-gotten assets.

Of the UBS and HSBC investigations, Aan IRS agent recently told Reuters, “There are going to be more such cases” because “there’s a lot of talk about money being moved from Switzerland into Asia.”

So far in 2010, the Justice Department has charged three HSBC clients with tax crimes. Andrew Silva, a surgeon from Virginia, was sentenced to two years of probation after admitting he hid assets at HSBC from US tax authorities.

Two Miami Beach hoteliers, Mauricio Cohen Assor and his son Leon Cohen Levy, were indicted on charges of hiding more than $150 million in assets from the IRS, including accounts held at HSBC. They have pleaded not guilty and face a Sept. 7 trial in federal court in Fort Lauderdale, Florida.

REUTERS – THE ECONOMIC TIMES, July 7, 2010 reports:

After forcing Switzerland’s top bank UBS to its knees for helping US residents dodge taxes, US authorities are moving on other banks and countries used to hide clients’ cash.

Washington inflicted a tough lesson last year on Switzerland by forcing the world’s biggest offshore banking centre to lift its treasured bank secrecy and slapping a $780-million penalty on UBS.

The Department of Justice is now going after other offshore centres like Singapore, which have attracted undeclared money that left Switzerland, and has opened a criminal inquiry into Asian clients of Britain’s HSBC Holdings Plc, Europe’s No. 1 bank.

Banks in Singapore and Hong Kong hold estimated offshore wealth worth $700 billion against Switzerland’s $2 trillion, according to the 2010 Boston Consulting Group Wealth Report.

“There are going to be more such cases,” a US Internal Revenue Service source told Reuters. “There’s a lot of talk about money being moved from Switzerland into Asia.”

Swiss lawmakers last month backed a key tax treaty enabling UBS client tax cheats’ data to be handed over to the IRS, ending months of uncertainty that had threatened the recovery of the world’s second-largest wealth manager.

The IRS source said Kevin Downing, the Justice Department litigator who led the UBS tax investigation, is the IRS agent in charge of the Asian probes, including a criminal probe into whether some HSBC clients failed to disclose offshore accounts.

The bank has declined to comment.

HSBC’s position is complicated by the fact that one of its ex-employees in Switzerland stole details of tens of thousands of the bank’s Swiss-based accounts that wound up in the hands of French authorities and could be shared with tax officials in other countries.

While UBS boss Oswald Gruebel can finally focus on attracting new money after Swiss parliament’s backing for the US deal, wealth managers guilty of helping US clients to hide money should be very worried about the IRS’ next step.

“What the US is going to do now is knock on the door of banks in all countries shielding US citizens assets,” said former US Justice Department prosecutor Michael Weinstein. “The UBS case was simply the opening salvo in a long war.”