HSBC clients face US criminal probe

THE US has launched a criminal investigation into taxpayers who may have evaded taxes through HSBC accounts in India and Singapore.

The Justice Department probe was revealed by tax attorneys close to the matter.

The agency is looking into whether taxpayers may have violated federal criminal laws by failing to report that they had a financial interest in, or signature-authority over, a financial account located in a foreign country, according to a Justice Department letter obtained by Dow Jones Newswires.

The letter doesn’t mention the bank by name, but the attorney who provided it confirmed that the recipient is an HSBC Holdings offshore-account holder. The DoJ said in the letter that it had “reason to believe” the person had an interest in a foreign account that wasn’t reported to the Internal Revenue Service on either a tax return or a special tax form used to report foreign accounts.

“You are further advised”, the letter concludes, “that you are the subject of a criminal investigation being conducted by the Tax Division”. It is signed by Kevin Downing, a senior litigation counsel at the DoJ.

Robert McKenzie, a partner at Arnstein & Lehr in Chicago, said he has had calls from two prospective clients with HSBC accounts in India.

The DoJ and HSBC declined to comment.

The development didn’t come as a surprise to tax lawyers who have worked closely on the UBS AG tax-evasion case over the past year. The Internal Revenue Service and DoJ conducted a wide-ranging investigation into whether Americans with UBS accounts in Switzerland used the accounts to evade US taxes by not reporting income on the assets in the accounts.

The IRS and DoJ have been saying for months that their efforts to target Americans with undeclared accounts are “not just about UBS”, said Scott Michel, an attorney at Caplin & Drysdale in Washington. Given the information the agency has obtained from about 15,000 voluntary disclosures, potential whistleblowers and informants, it is “utterly unsurprising” that the probe appears to have expanded to another world-wide institution, Mr Michel added.

Bryan Skarlatos, a partner at law firm Kostelanetz & Fink in New York, said he had spoken to several people who were approached by the IRS or DoJ about their accounts at HSBC. These people had HSBC accounts in several countries around the world, he said.

Goldman clients may sue for $15m

GOLDMAN Sachs in Australia faces a potential $15 million lawsuit by former clients who have claimed the investment bank misrepresented complicated derivatives contracts that forced them to buy bluechip stocks at over-the-market odds.

Law firm Slater & Gordon said yesterday it was investigating allegations of misleading and deceptive conduct against Goldman Sachs JBWere Capital Markets.

The investigation surrounds the Goldman Sachs-designed “buy below the market” options contract sold to the bank’s wholesale clients in 2007.

Slater & Gordon’s practice group leader, Van Moulis, said clients had approached the law firm and claimed they were sold the contracts as a protection against a sudden downturn in the equities market.

It was claimed the product was marketed as similar to an “American call option”, but Mr Moulis said it was a rolling futures contract. Attempts at mediation with Goldman Sachs had been unsuccessful.

“It’s a derivative-based product that was marketed and described by the bank as an option,” Mr Moulis said.

“But when you read the fine print it’s a futures contract which locks the client into buying the underlying stock at a certain strike price.

“When the market plunged, the clients were told they were obliged to buy the stock at the higher strike price.

“This particular product was marketed widely across the Goldman Sachs client base.

“It was a home-grown product.”

The potential Slater & Gordon case, which has not yet been filed in court, follows similar action against Goldman Sachs that has been taken by the former chief executive of Merrill Lynch in Australia, Greg Bundy.

Goldman Sachs in Australia refused to comment.

Nothing wrong to Storm clients: BoQ

HUNDREDS of clients of the collapsed Storm Financial, backed with loans by the Bank of Queensland, were cast adrift yesterday by the regional institution over responsibility for their losses.

A day after the Commonwealth Bank admitted it had “done wrong” for many of its customers, after granting margin loans for Storm Financial funds, the Bank of Queensland said it had done nothing wrong.

In a strongly worded statement, the Brisbane-based institution said it had moved to correct “significant misinformation” in the media over its dealings with more than 300 customers who it bankrolled to invest in Storm Financial products.

The statement follows possible legal action by law firm Slater & Gordon, representing scores of Bank of Queensland customers granted loans ahead of Storm Financial’s collapse this year.

Slater & Gordon negotiated an “accelerated resolution process” with the CBA, which could see many of its customers cleared of debt within months. Former High Court judge Ian Callinan will oversee the process.

“The Bank of Queensland is still pretending it doesn’t know what Storm is,” Slater & Gordon lawyer Damian Scattini said on Wednesday.

But the Bank of Queensland said yesterday it did not offer margin loans and customers who were being advised by Storm Financial were instead funded by mortgages against property.

“There is no evidence of improper or dishonest practices or conduct by the bank in connection with Storm clients,” the bank’s statement said. “There is no evidence that the bank has engaged in any misleading and deceptive conduct or unconscionable conduct in relation to its lending to Storm clients. All loan files are secured by residential property.”

At the close of trading yesterday, the Bank of Queensland had risen 22c, to $8.46, after releasing the statement defending its conduct. The Bank of Queensland said most of the 319 customers involved in Storm were paying their loans back. But it had approved 14 of the 15 applications for hardship assistance made by Storm clients, in relaxing the terms of the repayments.

“The bank appreciates that a number of Storm Financial customers have been negatively impacted by the downturn in the sharemarket and are suffering financial stress as a result,” it said. “The bank continues to encourage any BoQ customer who is experiencing financial hardship to contact the bank about how it can help.”

Under the agreement between the CBA and Slater & Gordon, which is representing about 1500 Storm clients, the CBA will review each customer’s loan – often extended to those with limited equity and income – and enter negotiations for a settlement of their debt.

Any customer who has already reached a settlement with the CBA will be given a chance to renegotiate. But the CBA warned the agreement did not represent an open cheque book if the loan structure for a customer was found to be sound.

theaustralian.news.com.au

Nothing wrong to Storm clients: BoQ

HUNDREDS of clients of the collapsed Storm Financial, backed with loans by the Bank of Queensland, were cast adrift yesterday by the regional institution over responsibility for their losses.

A day after the Commonwealth Bank admitted it had “done wrong” for many of its customers, after granting margin loans for Storm Financial funds, the Bank of Queensland said it had done nothing wrong.

In a strongly worded statement, the Brisbane-based institution said it had moved to correct “significant misinformation” in the media over its dealings with more than 300 customers who it bankrolled to invest in Storm Financial products.

The statement follows possible legal action by law firm Slater & Gordon, representing scores of Bank of Queensland customers granted loans ahead of Storm Financial’s collapse this year.

Slater & Gordon negotiated an “accelerated resolution process” with the CBA, which could see many of its customers cleared of debt within months. Former High Court judge Ian Callinan will oversee the process.

“The Bank of Queensland is still pretending it doesn’t know what Storm is,” Slater & Gordon lawyer Damian Scattini said on Wednesday.

But the Bank of Queensland said yesterday it did not offer margin loans and customers who were being advised by Storm Financial were instead funded by mortgages against property.

“There is no evidence of improper or dishonest practices or conduct by the bank in connection with Storm clients,” the bank’s statement said. “There is no evidence that the bank has engaged in any misleading and deceptive conduct or unconscionable conduct in relation to its lending to Storm clients. All loan files are secured by residential property.”

At the close of trading yesterday, the Bank of Queensland had risen 22c, to $8.46, after releasing the statement defending its conduct. The Bank of Queensland said most of the 319 customers involved in Storm were paying their loans back. But it had approved 14 of the 15 applications for hardship assistance made by Storm clients, in relaxing the terms of the repayments.

“The bank appreciates that a number of Storm Financial customers have been negatively impacted by the downturn in the sharemarket and are suffering financial stress as a result,” it said. “The bank continues to encourage any BoQ customer who is experiencing financial hardship to contact the bank about how it can help.”

Under the agreement between the CBA and Slater & Gordon, which is representing about 1500 Storm clients, the CBA will review each customer’s loan – often extended to those with limited equity and income – and enter negotiations for a settlement of their debt.

Any customer who has already reached a settlement with the CBA will be given a chance to renegotiate. But the CBA warned the agreement did not represent an open cheque book if the loan structure for a customer was found to be sound.

theaustralian.news.com.au