Court Gutters Privilege Case for Foreign Accounts

PHILADELPHIA (CN) - Business owners cannot use privilege to shield offshore bank accounts that drew scrutiny from U.S. tax authorities, the Third Circuit ruled.

The July 17 decision comes at a contentious time for HSBC, which reached a $1.9 billion settlement with the Department of Justice in December on charges that they let drug cartels launder nearly $900 million. The Hong Kong-based financial conglomerate also faces sanctions in Europe for advertising tax-evasion practices.

In the case at hand, the Internal Revenue Service had sought a summary regarding previously undisclosed foreign accounts Eli and Renee Chabot maintained at HSBC.

A federal judge shot down the Chabots' claims that granting the IRS such a summons would violate their Fifth Amendment rights against self-incrimination, and a three-person panel for the Third Circuit affirmed Friday.

Judge Jane Restiani opened the decision by noting its alignment with the findings of six other circuit holdings.

"The government conditions voluntary participation in foreign banking on maintaining records and reporting information regarding foreign bank accounts," Restiani wrote.

The ability to hold such money oversees, she said, is predicated on individuals reporting that very money, a situation that would become untenably paradoxical if it was afforded a constitutional exemption.

HSBC directly advertised its off-shoring services to its clients in order to evade taxes. In 2005, the Irish Times reports that the chief operating officer of HSBC Private Bank sent a letter to customers saying: "You should be aware of different options that exist to attenuate the economic effect of this tax."

HSBC is one of many banks facing penalties and sanctions in Europe for facilitating tax-evasion among customers, most recently with David Gauke, the British treasury minister, announcing proposals new sanctions on Friday.

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