Hong Kong Is New Target of U.S. Crackdown on Taxes

by David Voreacos, Carlyn Kolker, and Alan Katz

Hong Kong is a new target of U.S. prosecutors pursuing a global campaign against evaders of federal taxes, spurred by data acquired in their crackdown on Swiss banks.

Prosecutors are trying to determine what role financial professionals in Hong Kong play in tax evasion, according to people familiar with the matter. They are examining how much taxable money was moved to the former British colony that returned to China in 1997, whether accounts were based there in name only and what banks were involved, the people said.

The push follows the government’s success in penetrating Swiss bank secrecy and learning from insiders how UBS AG helped Americans evade taxes. UBS, the largest Swiss bank by assets, avoided prosecution by agreeing in February to pay $780 million and disclose account data on 250 clients. In August, it agreed to supply information on another 4,450.

“They must have reason to believe this is a target-rich environment and a very significant amount of tax evasion is going on there,” said Peter Zeidenberg, a former federal prosecutor now at DLA Piper LLP in Washington.

Since the February settlement, prosecutors have won guilty pleas from six UBS clients who described a web of bankers, lawyers and advisers who helped conceal income and assets. All six hid money in shell companies outside Switzerland. Four used Hong Kong corporations, including toy salesman Jeffrey Chernick.

Probes Beyond Switzerland

Debriefings of Chernick started probes of financial institutions in Switzerland and beyond, “in particular tax- haven jurisdictions such as Hong Kong,” prosecutor Michael Ben’Ary said Oct. 30 at Chernick’s sentencing in Florida.

“From the public statements at the Chernick hearing and elsewhere, the government has made it very clear that they are interested in other secrecy jurisdictions, especially Hong Kong,” said Douglas Tween, an attorney for Chernick, 70.

Chernick told prosecutors he hid sales commissions in an $8 million UBS account in the name of a Hong Kong corporation.

Hong Kong is already changing its laws to implement the Organization for Economic Cooperation and Development’s efforts to enhance tax transparency, said Katherine Kwong, a spokeswoman for the government’s Financial Services and Treasury Bureau.

These changes would help “significantly enhance Hong Kong’s position as a transparent tax jurisdiction,” she said yesterday.

Global Tax Standards

The OECD has a so-called gray list of countries that haven’t complied with global tax standards. Hong Kong announced in February it would put forward legislation to meet them, according to Pascal Saint-Amans, who heads the tax competition division at the OECD. Singapore exited the list today after signing its 12th agreement to share tax information.

The UBS clients who used Hong Kong corporations told prosecutors how their bankers and lawyers helped them set up offshore corporations so their assets would be hidden in accounts that didn’t bear their names, court records show.

Roberto Cittadini, a retired Boeing Co. sales manager, told a federal judge in Seattle Oct. 5 that he didn’t report income from a $1.86 million UBS investment account nominally owned by a Hong Kong corporation.

He said Swiss banker Hansruedi Schumacher and Zurich lawyer Matthias Rickenbach helped him with the account. Schumacher is a former NZB Neue Zuercher Bank manager who once ran the cross- border business for Zurich-based UBS, according to court papers. Both men were indicted Aug. 20 in federal court in Fort Lauderdale, Florida.

Read the rest of the article

November 14, 2009

Copyright © 2009 Bloomberg