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Under Fatca, financial firms around the world are required to report to the IRS information on clients who are US taxpayers. Photo: AFP

Hong Kong and HSBC under scrutiny as US cracks down on American tax cheats

US authorities are stepping up their investigation of tax evasion across Asia, with one recent case involving HSBC Holdings and Hong Kong providing an example of how wide the net is being cast to catch American tax cheats.

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US authorities are stepping up their investigation of tax evasion across Asia, with one recent case involving HSBC Holdings and Hong Kong providing an example of how wide the net is being cast to catch American tax cheats, lawyers say.

Officials with the US Internal Revenue Service were now stationed in overseas jurisdictions, including the American consulate in Hong Kong, gathering information, said Travis Benjamin, the head of tax practice at law firm Deacons.

"We're seeing greater activity of foreign tax authorities, not only those of the US, in investigations and information gathering in jurisdictions across Asia, including Hong Kong and Singapore," Benjamin said.

With the Foreign Account Tax Compliance Act (Fatca) taking effect since July last year, US authorities would increase their investigations of international tax evasion by US taxpayers in Hong Kong, said Peter Chen, a partner at Zhong Lun, a Chinese law firm.

Under Fatca, financial firms around the world are required to report to the IRS information on clients who are US taxpayers.

HSBC and Hong Kong were part of an international web of suspected tax evasion announced on the website of the US Department of Justice last month.

The IRS had been authorised to issue summonses requiring HSBC Bank USA National Association (HSBC USA) to supply information on alleged US tax evaders who were suspected of using international offshore services provider Sovereign Management & Legal to hide overseas assets, the department said.

Unnamed banks in Hong Kong and Panama were suspected to have worked with Sovereign Management, and HSBC USA held US correspondent bank accounts for these banks, the department disclosed.

These accounts were likely to have records of financial transactions between Sovereign Management and its US-based clients, it said.

The IRS would also issue summonses to US logistics giants FedEx, DHL and UPS, as well as the Federal Reserve Bank of New York, Western Union Financial Services and Clearing House Payments to provide information on suspected tax evaders, the department said.

The IRS investigation has determined that Sovereign Management used FedEx, UPS and DHL to correspond with US clients, and Western Union to transmit funds to and from clients in the US. None of the companies have been charged with wrongdoing.

"We may require clients to provide information relating to their status and provide their consent to the provision of information, in accordance with Fatca regulations," said an HSBC spokesman.

The IRS learned that Sovereign Management helped US clients evade taxes as a result of leads obtained from a US Drug Enforcement Agency investigation of online narcotics trafficking, the justice department said.

This article appeared in the South China Morning Post print edition as: HK and HSBC under scrutiny as US widens net
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