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HSBC to drop United States clients amid tax evasion probe

In our last post we discussed the ongoing United States crackdown on offshore tax evasion and its impact on Credit Suisse, one of the world's largest banks. The bank faces criminal charges for allegedly assisting American tax evaders and the fine against the bank could be as high as $1 billion. The proceedings against Credit Suisse have captured the attention of many other international banks and at least one major bank has decided to dump its American customers banking abroad.

HSBC Holdings PLC announced that it would cut ties with its American clients banking offshore. These clients are not completely booted from the bank, but they can no longer take advantage of wealth-management services from locations outside of the United States. The clients impacted are HSBC's "private clients," a group of wealthy individuals who some say must have at least $5 million in assets to qualify for the bank's services. These clients have 30 days to close their accounts.

The impacted accounts may total around $100 million, but the bank decided that this sum was not large enough to risk drawing the ire of the U.S. Justice Department or the IRS.

HSBC's decision comes after the January prosecution of an American businessman who pleaded guilty to hiding money in offshore accounts maintained by HSBC in India. Another taxpayer was indicted for filing false tax returns and using HSBC to hide almost $9 million in offshore accounts. That client pleaded not guilty.

The bank plans to cooperate with the government's new strict reporting requirements, making it likely that several of the bank's private-clients will take advantage of the Offshore Voluntary Disclosure Initiative before it ends at the end of the month.

Source: The Wall Street Journal, "HSBC Acts on Offshore Cash," Dan Fitzpatrick, Evan Perez, Laura Saunders, 7/20/11

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