Justice Department Looking Into HSBC Clients with Undeclared Offshore Holdings

The United States Justice Department has started issuing notices to certain HSBC clients it believes may have undeclared offshore holdings, a form of tax evasion in this country.

Contrary to popular belief, holding money in offshore accounts is not illegal in the United States. The problem is you must report that you have such accounts if the value exceeds $10,000 and pay tax on any gains relevant to the accounts. The tax is due because Americans are taxed on their income and gains regardless of where they occur in the world.



The IRS struck it rich when an insider at UBS blew the top on Americans holding undeclared offshore accounts in Switzerland with the bank. The investigation resulted in the first real serious cracks in Swiss banking secrecy laws and a flood of new tax revenues as the offshore clients came back onshore to pay back taxes, penalties and interest. The shear size of the money being hidden seems to have spurred the government to look for similar issues at other banks.

HSBC apparently is one of those banks. The prosecutor in the UBS case, Kevin Downing, has sent a letter to numerous HSBC clients that mirrors the one that was sent to UBS customers before the government started bringing criminal charges. The government seems to be using the UBS result as leverage to get the wealthy illegally hiding money to come clean.



Will the government effort work? Well, it is certainly going to make a dent in the shell known as offshore banking. That being said, it is hard to believe it could put an end to the problem. There are numerous ways to hide money offshore and numerous ways to cover one’s identity. Ultimately, the government representatives know this. I think what they are really seeking is to create an environment where people are under the impression they can’t go offshore without running a huge risk.

HSBC clients undoubtedly are realizing this now!

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