India's silence on US tax evasion cases says it all
Moneylife Digital Team 29 June 2011

The US is exerting more pressure on banks to cooperate with the authorities in tax evasion cases. While the Indian authorities knew about possible tax evasion in the money being remitted from abroad, they have kept silent fearing backlash from NRIs and PIOs

In yet another tax evasion case, the US justice department has indicted an Indian and a client of Hong Kong and Shanghai Banking Corp (HSBC) for hiding more than $8.7 million in offshore accounts and filing false income-tax returns. While the number of tax evasion cases are going up on the continuous pressure from the US authorities, there is complete silence from the Indian authorities.

According to a senior banker, who requested anonymity, everyone knows that a lot of money coming into India from non-resident Indians (NRIs) or from persons of Indian origin (PIOs) may not be accounted for tax purposes in the country of origin. However, the moment the Indian government initiates any action in this matter, the remittances from NRIs and PIOs would drop dramatically. This may be one reason, why the country is not too keen on signing any international treaties on tax evasion, the banker said.

It is also hard to imagine that the US will get serious co-operation from the Indian government for tracking its relatively small pool of tax-evaded money sitting in Indian banks, when it is doing nothing to bring back billions of dollars of money stashed overseas by the richest Indian businessmen, politicians and bureaucrats. (Read more Tax evasion: Broken trail

On Tuesday, the US Justice Department indicted Arvind Ahuja, a neurosurgeon and US citizen on four counts of hiding the accounts, which held $8.7 million as of 2009, and four counts of filing false tax returns, failing to report more than $1.2 million in interest income, Reuters news agency reported.

The report quoted Dan Webb, Dr Ahuja's lawyer, as saying that the federal government had made a colossal mistake by taking this action and that they would fight these allegations. Mr Webb was quoted as saying that Dr Ahuja had interest-bearing accounts and the (HSBC) bank failed to issue documents that stated his interest income. Once Dr Ahuja became aware of the interest income that was not reported to him by the bank, he paid all taxes owed, plus interest and late payment penalties, the lawyer said.

Reacting to this case, a spokesperson for the bank said, "HSBC does not condone tax evasion and fully supports the US efforts to promote appropriate payment of taxes by the US taxpayers. While complying with the law in all the jurisdictions in which it operates, HSBC cooperates with requests from US authorities."

In April, the US department of justice said that HSBC Holdings Plc's subsidiary in India had helped US taxpayers stash funds abroad. The justice department also served a summons, commonly known as a 'John Doe summons', on the bank to hand over names of their US clients. A John Doe Summons is any summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified.

According to a report by Bloomberg, more than 200 participants in the US Internal Revenue Service (IRS) Voluntary Disclosure Program have been approached by IRS-CI and the DOJ for information about their offshore bank accounts. The report says that investigators are focusing on offshore accounts held at Swiss banks (HSBC, Credit Suisse, Julius Baer, and small cantonal banks) and Israeli banks (Bank Hapoalim and Bank Leumi le-Israel).

Two years back, UBS AG was criminally charged for helping Americans evade taxes. In February 2009, the bank avoided prosecution by paying $780 million, admitting it fostered tax evasion, and agreed to give data to the IRS on more than 250 accounts. UBS later handed over data on an additional 4,400 accounts to resolve a civil suit by the IRS.

Since 2007, when the investigations into offshore tax evasion began, the US has criminally charged at least two dozen UBS clients with tax crimes, as well as four UBS bankers, two HSBC clients, and four other offshore enablers, Bloomberg reported.

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