Tax Evasion by Americans Could Land Foreign Banks in Hot Water: Report

April 13, 2011 Updated: April 13, 2011

Tax evasion by Americans who use overseas bank accounts and financial services to hide their wealth from the U.S. government has prompted the Justice Department to look into fining foreign banks for violating U.S. law, a New York Times report revealed on Tuesday.

The Times, citing a government official and a private lawyer both on the condition of anonymity, said the Department of Justice could apply a penalty to banks who have American clients that hold foreign assets and who are potentially evading taxes.

The banking law called Foreign Bank and Financial Accounts, or Fbar, requires the disclosure of overseas bank accounts and money owned by US taxpayers.

Traditionally, lawyers and the government have only applied this stipulation—punishable by a 50 percent account balance fine—to US.. residents and citizens, but authorities are now exploring the possibility of that overseas financial institutions can violate Fbar, the Times report noted.

Among the banks being investigated are Credit Suisse and HSBC, and one expert in the matter told the Times that overseas Swiss and Swiss-style banks are subject to Fbar.

“Under my reading of the Fbar rules, if the government can prove that a financial institution willfully caused an Fbar violation, the government could seek a penalty on the financial institution, no matter where in the world it is based, for up to 50 percent of the balance of all accounts in question,” former federal prosecutor Jeffrey Neiman told the newspaper.

Tax evasion by Americans has been a prickly subject for federal officials over the past few years. In 2010, the US and Switzerland, came to an agreement over the disclosure of American-owned offshore bank accounts amid years of scrutiny over Swiss banks that was highlighted by the US government’s investigation and civil suit against the Swiss bank UBS.