Asia private banks get US amnesty warning

Private banks in Asia could well be next under the spotlight as US authorities step up their campaign to clamp down on tax avoidance, according to Latham & Watkins.

The US law firm hosted a press conference yesterday in Hong Kong, the Asian city which along with Singapore is believed to be at the forefront of closer scrutiny as the US taxman follows the money trail, chiefly from private banks in Switzerland.

“I think it is reasonable to expect that places [in Asia] with particularly strong private banking networks [will be targeted for investigation],” Harvey Kelly, a New York-based consultant at AlixPartners' financial advisory practice, told the conference.

The US justice department and the Swiss government agreed an amnesty programme beginning in August last year to declare account details of US clients. The amnesty window closed in December last year, by which time more than 100 Swiss banks had cooperated, disclosing information about US client accounts.

Consultancy PwC has estimated that more than SFr350 billion ($270 billion) in net assets under management from foreign-domiciled private clients has been transferred from Swiss private bank accounts over the past six years.

Of this, it estimates that just SFr100 billion is related to fine payments in the context of declaration of untaxed money. The rest has been transferred to other jurisdictions, it reckons.

“Now they [US authorities] are sitting on a whole lot of information as to where the Swiss money ended up or at least where it went next,” said Kelly. “I think they are going to use that to form their judgments as to the priorities on where [the investigation] goes next.”

Kathryn Keneally, the outgoing assistant attorney-general at the US justice department who is set to join DLA Piper’s global tax practice in New York this month, has previously said the Swiss amnesty programme helped the US to follow the money for account holders who moved cash to other jurisdictions. “This will let us know where the money went and where to look next,” she has said.

Latham & Watkins speculated at the conference that the next US amnesty would be with Asian jurisdictions. It noted that private banks that agreed to participate in the programme would be required to disclosure their methods for attracting US persons as account holders in the first place.

Any found guilty of harbouring US tax dodgers could have to pay a penalty of 20-50% of the aggregate undisclosed account under non-prosecution agreements such as were in place for Swiss banks.

While banks would then not be subject to prosecution, the publicity generated through fines from the US justice department would act as a deterrent for banks accepting untaxed assets from US persons.

However, the conference heard that the amnesty programme could also run in conjunction with undercover criminal investigations by both the US inland revenue service and US justice department to detect tax cheats.

Between September and October this year the two departments jointly announced that three people based in the Caribbean – two investment advisers and one lawyer – had been sentenced to between 14 and 30 months in prison for conspiring to launder and conceal funds through the use of offshore accounts in the Cayman Islands.

A statement from Richard Weber, chief of IRS criminal investigation, read at that time: “This reinforces our commitment to investigate and prosecute criminals worldwide who conduct illegal financial transactions, launder money or attempt to conceal the true source of their income in order to evade paying taxes. This should send a clear message to those involved in this type of crime: we will find you.”