Hong Kong has found itself in the spotlight as a popular haven for offshore tax evasion schemes originating in the U.S., reports the South China Morning Post.
Shell companies and bank accounts set up in Hong Kong were implicated in nine of sixteen publicized tax evasion cases brought against American clients of financial services firm UBS.
Accounts involving other countries include Panama, Singapore, the Cayman Islands, the British Virgin Islands, Mexico and Liechtenstein, but entities in Hong Kong formed the majority of the cases.
"We found out that UBS bankers and Swiss lawyers were recommending to the US clients to open up Hong Kong corporations and Hong Kong bank accounts,” said Kevin Downing, a US government lawyer prosecuting the UBS cases, at a University of Hong Kong forum on Friday, “as almost a second curtain of secrecy to conceal the accounts and offshore assets from the Internal Revenue Service."
Previously, many companies were formed in the Caribbean. "In the course of investigation against UBS, we found out a lot of the Caribbean money made its way into Switzerland, made its way into Hong Kong,” added Downing.
Last February, UBS paid US$780 million in a settlement on charges of helping American clients dodge taxes. UBS also agreed to provide detailed account information of nearly 4,450 UBS clients to US prosecutors, but the supplying of that information has been held up in litigation in Switzerland, reports the Post.
Hong Kong is at risk for illicit activities, due to the convenience of and low cost of forming corporations, says the Financial Action Task Force, an intergovernmental agency charged with combating money laundering and terrorist financing in various countries.
Despite Hong Kong’s stringent laws against money laundering and terrorist financing, it is simple and inexpensive to form a corporation here without setting foot in the city. For about HK$5,000, hundreds of company registration firms are available to handle the necessary paperwork and annual reports, and will supply a secretary, office address and mail-forwarding service.
There are various ways to conceal a person’s real identity from appearing on the paperwork. Local people can also be provided to serve as nominees and officers in the company, and Hong Kong’s laws allow other companies to be shareholders.
Legally, Hong Kong cannot provide tax information to the U.S. for civil tax matters, since there are no information-sharing treaties between the two countries. Nevertheless, each jurisdiction can provide assistance on criminal investigations, including felony tax investigations.
Financial institutions in Hong Kong are also keen to cooperate, and will soon be supplying information about their American clients to US authorities. Earlier this year, U.S. legislation was passed, requiring foreign institutions, trusts and corporations to provide information about their U.S. clients.
Companies failing to comply will be slapped with a 30 per cent levy on their income from U.S. financial assets.