Government’s Double Standard: A Closer Look at the “HSBC Files” Scandal

Here’s a quick quiz. Which of the following activities can get a bank in trouble with the U.S. government?

  1. Lying to clients about the value of assets sold to them?
  2. Conspiring to manipulate markets?
  3. Bribing public officials?
  4. Helping U.S. citizens with tax evasion?

The answer is (d). Getting involved with tax evasion is about the only thing the U.S. government seems to care about when it comes to the behavior of “too big to fail” banks. And even then, such tax evasion penalties that result lead to minimal consequences.

That’s because despite all the public hoo-ha, the banks aren’t really the government’s primary concern — they’re more worried about you and me. After all, when a former tax official says something like “There are very few reasons to have an offshore bank account, apart from just saving tax,” individuals with offshore interests can rest assured that the system is biased against us … and only us.

Case In Point: The “HSBC Files”

You’ve probably heard about the scandal erupting around the “HSBC files,” with the bank’s Swiss subsidiary involved in some offshore dealings.

In 2007, a computer technician at HSBC’s Swiss subsidiary hacked into his employer’s files and extracted evidence that the bank was helping individual depositors avoid tax in their home countries. He then fled to France, where he turned the files over to tax officials. The French then shared them with other countries, including the U.S., UK, Greece, Spain, Belgium and Argentina.

Some U.S. clients were involved. Although the IRS has never admitted that it is scrutinizing individual taxpayers based on the HSBC files, investigations by the British paper The Guardian suggest that several U.S. residents have been convicted and penalized for hiding assets and income via HSBC accounts.

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But here’s the odd thing … the U.S. has known about the HSBC files since 2010. In an unrelated case, the U.S. levied a $1.9 billion fine against HSBC in 2012, widely regarded as a slap on the wrist. But the deferred prosecution agreement concluded at that time didn’t mention tax evasion or the bank’s Swiss banking division … even though the U.S. had received the “HSBC files” two years earlier.

You Call This Fair?

That suggests that the U.S. government is much more concerned about the behavior of U.S. taxpayers than that of the banks that help them evade taxes. The IRS uses its legal powers to scare people wanting to bank offshore, not to punish the banks. For the IRS, it’s enough that the banks stop accepting American clients, which is what HSBC’s Swiss subsidiary did.

Our position on taxes is unequivocal: Pay what the law requires you to pay, no more and no less. Complying with U.S. tax laws means reporting all of your worldwide income as well as your offshore financial accounts. By all means fight the tax system legally and politically, but don’t break the law.

But it’s becoming more difficult to sustain that ethical stance. It’s increasingly obvious that U.S. tax enforcement is biased against individual taxpayers. Consider the following:

  • U.S. taxpayers must declare and pay income tax on their worldwide income. U.S. corporations, however, are exempted from income tax on foreign earnings until they are brought into the U.S.
  • The IRS is more likely to prosecute and penalize individual taxpayers than corporations (or banks). For example, Foreign Account Tax Compliance Act (FATCA)  penalties can amount to significantly more than the entire value of undeclared foreign assets — not just the tax due.
  • Knowingly assisting a U.S. taxpayer to hide income and evade taxes is a violation of U.S. law. Yet no HSBC employees were charged by U.S. authorities as a result of the “HSBC files,” which have been in the Justice Department’s possession for at least five years.

Don’t get me wrong: We don’t support confiscatory taxation. But it’s increasingly clear that the coercive power of the U.S. government is being directed selectively — against individual U.S. taxpayers who choose to bank offshore. Corporations and banks, however, get a pass. That is fundamentally unjust, which adds insult to the injury of excessive taxation.

How to Invest Offshore and Avoid Tax Evasion Penalties

If you’re a U.S. citizen or resident, it’s legal to have an offshore bank account, an offshore asset protection trust or family foundation, or an international business corporation. It’s also legal to purchase offshore life insurance and annuities that allow deferred taxes, and to invest in offshore mutual and hedge funds, precious metals, valuable collectibles and real estate.

But do any of these things while trying to protect your privacy, and you immediately become the target of suspicion. The bankers, on the other hand, get off pretty much scot-free. That’s because the goal of U.S. tax enforcement is clearly to discourage individual U.S. taxpayers from exercising their legal rights to bank and invest offshore.

Don’t let their lies scare you. Get yourself a good attorney who specializes in offshore investing, and go right ahead — exercise your rights. We support you all the way.

Kind regards,
Ted Baumann Sovereign Investor
Ted Baumann
Offshore and Asset Protection Editor