In honor of our tax day, it is worthwhile to review the government’s continuing efforts against foreign bank account holders.  The Justice Department recently filed a lawsuit seeking the names of Americans believed to be hiding funds in bank accounts at HSBC in India. The lawsuit seeks court authorization  to serve what is known as a “John Doe” summons on HSBC’s main U.S. affiliate, HSBC Bank USA, in order to obtain information about bank accounts held by Americans at HSBC India. 

In its suit, the government alleges that HSBC provided banking services to “non-resident Indians” living in the U.S., and that HSBC representatives assured customers that HSBC would not report any income on these accounts to the IRS.  It is estimated that there approximately 9,000 individuals residing in the United States who have accounts at HSBC in India, with deposits totaling nearly $400 million.

A federal judge in Miami approved a similar request in 2008 to serve a “John Doe” summons on Switzerland’s largest bank, UBS AG. That summons eventually led to the landmark Deferred Prosecution Agreement between UBS and the U.S. which was announced on February 18, 2009. Under the terms of that agreement, in return for avoiding criminal prosecution, UBS agreed to pay $780 million in penalties, admitted it helped taxpayers hide money in Swiss accounts, and provided the IRS with the names of more than 250 of its U.S. account holders who were suspected of committing tax fraud. UBS eventually turned over to the U.S. information on nearly 5,000 of its U.S. customers.

The Justice Department’s suit against HSBC confirms the government’s widening probe of international tax evasion by U.S. taxpayers through the use of offshore bank accounts. In a press release, IRS Commissioner Douglas Shulman stated that “[t]he IRS continues to focus its attention on international tax evasion,” and added, “[a]s 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.”

According to the Justice Department, its enforcement efforts in the offshore area have been highly successful to date:

• 150 grand jury investigations of UBS clients have been initiated, of which 26 cases have been charged, with 4 awaiting trial and 22 guilty pleas having been entered.

• a number of foreign nationals who helped clients hide assets offshore at UBS and other banks have been indicted, resulting in four clients and one adviser being charged and convicted, and another eight bankers, lawyers, and financial advisers being charged and awaiting trial.

• grand jury investigations have been opened into eight additional offshore banks across the world.

On February 8, 2011, the IRS announced its 2011 Offshore Voluntary Disclosure Initiative, a second amnesty program designed to encourage taxpayers to comply with U.S. tax laws and avoid possible criminal prosecution. The initiative will be available only through August 31, 2011.