US Targets HSBC Over Secret India Bank Accounts

The U.S. Justice Department on Thursday asked a federal court to force HSBC Holdings PLC (HBC, HSBA.LN, 0005.HK) to reveal the names of U.S. customers suspected of having secret bank accounts in India.

The move opens up a new front in the U.S. crackdown on tax evasion and comes days before the April deadline for taxpayers to file individual returns. Previous cases focused on Americans with Swiss bank accounts.

In court documents, the Justice Department said HSBC bankers told prospective clients that, as a foreign bank, HSBC's India operations wouldn't disclose their accounts to the Internal Revenue Service. Armed with that knowledge, U.S. customers 'have been able to maintain these foreign accounts with reasonable confidence that the IRS would not discover them,' government lawyers alleged.

Thousands of U.S. taxpayers of Indian origin have opened up accounts with HSBC in India since 2002, when the bank allegedly began soliciting their business, according to the U.S. government. It asked a San Francisco court to allow the IRS to serve a so-called 'John Doe' summons against the U.K.-based bank's U.S. unit, HSBC USA, to get the names of its U.S. clients with Indian accounts.

U.S. law requires U.S. taxpayers to declare their global income and any foreign bank accounts with more than $10,000 during that tax year.

According to court documents, HSBC informed the IRS last September that at least 9,000 U.S. 'premier' clients-high-net-worth customers-had deposits with HSBC's Indian bank. The government said 2009 bank figures showed that U.S. resident premier clients had Indian deposits of nearly $400 million.

U.S. officials said that as of 2009, U.S. taxpayers had only disclosed 1,921 accounts in India. The IRS is seeking client information on premier accounts as well as standard accounts maintained for less-wealthy customers.

The government's long-running probe against secret bank accounts led Swiss banking giant UBS AG (UBS, UBSN.VX) to admit in February 2009 to conspiring to defraud the U.S. government of billions in taxes by helping wealthy Americans hide assets. The bank paid $780 million in a deal to avoid prosecution and eventually released the names of more than 4,000 U.S. clients.

In February, the IRS announced a new leniency program that offers reduced penalties to tax scofflaws that voluntarily report their offshore accounts. The agency offered a similar one in 2009 in the wake of the U.S. case against UBS that brought in more than 15,000 disclosures.