An Indian-American businessman on Tuesday pleaded guilty to conspiring to defraud US tax authorities by hiding his bank accounts in HSBC India, a case which has led US Internal Revenue Service to probe NRIs holding accounts in the bank.
Vaibhav Dahake, 44 of Somerset, New Jersey pleaded guilty before US District Judge Freda Wolfson to an indictment charging him with one count of conspiracy to defraud the Internal Revenue Service (IRS) and concealing undeclared bank accounts in India, a statement by the US Attorney's Office, District of New Jersey said.
Dahake, who was indicted in January this year, is scheduled to be sentenced on July 22, 2011.
He faces a maximum sentence of five years in prison and a $ 250,000 fine, or twice the amount of financial gain accrued to him or loss to the IRS.
Additionally, Dahake has agreed to pay a 50 per cent civil penalty for failing to file reports of foreign bank or financial account relating to his undeclared bank accounts for the calendar years 2004-2009, during which the accounts had the highest balance.
"New Jersey businessman Vaibhav Dahake admitted today that he conspired to hide his assets from the IRS by stashing them in India. As all taxpayers prepare to file their annual returns, we remind them and their financial institutions not to cheat their fellow citizens by defrauding the IRS," US Attorney Paul Fishman said.
The guilty plea comes just four days after the US Department of Justice sought a federal court order requiring HSBC Bank to provide information about US residents, particularly non-resident Indians, who may be using HSBC India accounts to evade income taxes.
In its petition to a San Francisco court, the Justice Department had cited Dahake's case, saying he conspired to defraud the US by using undeclared accounts in the British Virgin Islands and at HSBC India.
The US government asked the court to allow the IRS to serve a 'John Doe' summons on HSBC under which the bank would have to produce records identifying US taxpayers with accounts at HSBC India, many of whom are believed by the government to have hidden their accounts from the IRS.
"Those who still think they can hide their assets and income offshore to evade taxes need to rethink their strategy.
The Department of Justice is committed to prosecuting such individuals," Principal Deputy Assistant Attorney General of the Justice Department's Tax Division John DiCicco said.
According to documents filed, Dahake was helped by five HSBC employees in concealing his accounts in India in order to avoid paying taxes in the US.
Dahake admitted that from 2001 through 2010, he maintained undeclared bank accounts in India that he failed to report on his federal income tax returns.
The accounts were maintained at a "large international bank" which was headquartered in England and maintained offices throughout the world, including in India, Singapore, Hong Kong and the US.
Dahake received an unsolicited letter from the bank in 2001 advertising bank accounts in India that paid high interest rates.
He subsequently met with a banker, employed by the bank's New York office, who advised Dahake that one of the advantages of opening up a bank account in India was that he would not have to supply the bank with his social security number.
After Dahake opened an account in India, the banker advised him not to send one large cheque but to send five cheques each in the amount of $ 10,000, in order to "stay below the radar."
During 2003 and 2004, Dahake wire transferred additional funds from the British Virgin Islands to his undeclared bank account in India.
In connection with these wire transfers, a second banker employed by the international bank in New York advised Dahake that he could conceal his undeclared accounts by converting funds from US dollars into either British pounds or euros before wire transferring them.
The banker told Dahake that the funds would not be transferred through the US banking system because the international bank had correspondent banks in Europe and around the world that handled transactions in different currencies.
During a subsequent trip to India, Dahake spoke with a third banker, employed by the international bank in California, regarding how to conceal the repatriation of funds from India to the US.
The banker advised Dahake that he and his wife should not withdraw more than $ 18,000 collectively to avoid coming back into the US with over $ 10,000 each, the court documents said.
In 2006, Dahake faxed a letter to the international bank in India instructing the bank to issue him five bank cheques, each in the amount of $ 9,500, and to send the cheques via courier to his residence in New Jersey as advised by a banker.
Following publication of news reports that Swiss bank UBS AG had entered into a prosecution agreement with the US Department of Justice, Dahake advised the banker in California that he was considering repatriating all his money from India to the United States.
In response, the banker told Dahake he had nothing to worry about because the IRS would be looking for undeclared accounts maintained in the Caribbean rather than in the Far East.
The banker also advised Dahake that the international bank operated banks in both Singapore and Hong Kong and that the banker could introduce Dahake to bankers in those countries if Dahake wanted to move his funds there.
IRS Criminal Investigation Chief Victor Song said authorities will continue to crack down on offshore tax evasion and pursue hidden offshore assets "no matter where they are located."