CBS News, in conjunction with the International Consortium of Investigative Journalists, published a report regarding HSBC and its clients’ activities in managing Swiss bank accounts. Key to the story is a purported list of HSBC clients including client names, client locations, client account values and, perhaps most damning, notes regarding client meetings with HSBC representatives.
The crux of the story is this: Clients interested in evading taxes and reporting obligations allegedly worked with HSBC to seek cover under Switzerland’s supposedly strict bank secrecy laws. HSBC reportedly did more than just hold the money in its accounts. Instead, HSBC representatives are alleged to have actively assured its clients that Swiss law would protect the client from having to worry about disclosure of the account itself or the income associated with the account.
Such assurances turned out to be false. A former employee of the bank secreted a database containing information of more than 100,000 clients holding over $100 billion in HSBC accounts. Over 4,000 of these clients are purported to be American citizens, residents or otherwise have some connection to the United States. For these clients, the consequences may be disastrous.
For the uninformed, proving a violation of federal law requiring the reporting of foreign bank accounts is rather straightforward. The government must prove the individual was a U.S. Person (which includes citizens and residents), had a bank account in a foreign jurisdiction holding more than $10,000 in cash and that the individual failed to report the account to the government. Having all of these elements present exposes the individual to significant fines.
An additional element can increase the stakes tremendously. If the government can also prove the individual’s failure to report was willful, significant civil penalties in excess of the accounts’ value may be imposed as well as the possibility of prison time.
Willfulness can be fairly difficult to prove. Rarely is there is a “smoking gun” where the taxpayer has stated they operate the accounts to purposefully avoid detection by the government. Usually, willfulness must be proven through circumstantial evidence whereby the culmination of that circumstantial evidence paints a picture of purposeful evidence.
With the HSBC database, proving the individual’s “willful” state of mind in respect to the accounts is essentially a slam dunk. One example in the story is of a New Jersey realtor that is described in the database notes as seeking assurances from HSBC “that her assets would be well hidden from U.S. tax collectors.” Such information enormously strengthens the government’s hand in securing a guilty plea or conviction.
There may be a sliver of good news for these individuals where they may be able to escape the crippling civil penalties and prison time. Under the 2014 version of the Offshore Voluntary Disclosure Program, these individuals may still be able to come forward. The civil penalties would be significant (up to 50% of the highest balance) but still far better than the stacking of penalties that can occur outside this Program. Even if denied acceptance to the Program, it is a point in the individual’s favor that they came forward before the government found them.
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