Last month saw further disclosure of 1,195 account holders in
HSBC Private Bank in Geneva, Switzerland, with Indian addresses.
Whilst that by itself connotes no manner of wrongdoing, given the
information now resides in the public domain, the following
potential risks emerge for banks, account holders and fiduciaries
engaged in putting together the structure.
The absence of distinction between
proper and improper accounts. In other words, it is not unlikely
that several legitimate account holders and their banks and
fiduciaries in turn will be the subject matter of regulatory
scrutiny by the regulatory agencies and the Special Investigation
Team constituted by the Supreme Court of India.
Where reliance was placed by the
account holding bank or fiduciary on the source of wealth checks of
a correspondent bank (whether in India or overseas) or even
otherwise, it is likely that information in relation to pending tax
and exchange control regulatory proceedings in India was not sought
The risk of being enjoined to
regulatory proceedings in India as a facilitator of tainted
transactions, as has already been the case with a few international
banks and intermediaries.
The Government of India is facing the heat of the Supreme Court
monitoring this investigation, as well as a reinvigorated
opposition on the back of the recent Delhi election results. Swift
enforcement actions are likely to commence on a variety of account
holders who are now in the public domain, both in relation to
accounts in HSBC Private Bank, as well as other overseas holdings.
Accordingly, the following mitigation measures should be
In light of the matters in the public
domain concerning investigation of overseas bank accounts, the
standards of continuing due diligence will involve looking afresh
at the profile of the clientele and establishing conclusively for
current and historic accounts that their books were not tainted
with the aforementioned types of proceeds.
The only defence against being a
wilful abettor to the offences made out against the account holder
may be demonstrating continuing due diligence and adherence to
strict monitoring standards prescribed by law.
Cooperation with and reporting to
jurisdictional regulators under the Egmont Principles are likely to
be necessary at the earliest if any wrongdoing is discovered in the
current or historic accounts post the stage of continuing due
It is possible that one of the above risks identified may
resonate with those who may have had an interface with the
tax/exchange control authorities in India.
If you have any questions about the topics discussed in
this Alert, please contact Saionton Basu in Duane
Morris' London office, any of the attorneys in our India
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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