HSBC India Client Sentenced Ever So Lightly Given Facts and Trial Conviction Rather than Plea (7/12/14)

Ashvin Desai, an offshore account taxpayer, who was previously convicted after tiral was sentenced to six months in prison and six months and one day of home confinement.  See DOJ Press Release, here.  See DOJ Press Release, here.  I reported the jury conviction at this blog:  HSBC Depositor Convicted (Federal Tax Crimes Blog 10/12/13), here.

Key excerpts (most of the press release, I bold face some it it):

Ashvin Desai, of San Jose, California, was sentenced yesterday to serve six months in prison and six months and one day of home confinement for concealing more than $8 million in foreign bank accounts, the Justice Department and Internal Revenue Service (IRS) announced.  Prior to yesterday’s sentencing hearing, Desai filed with the court a document indicating that the IRS has assessed and demanded payment of a Reports of Foreign Bank and Financial Accounts (FBAR) penalty against him for $14,229,744. 

In October 2013, a jury convicted Desai, a medical device manufacturer, of failing to report his family’s foreign bank accounts to the government on tax returns and FBARs.  The jury also found that Desai failed to disclose more than $1.2 million in interest income generated by these accounts between 2007 and 2009.  Desai was sentenced by U.S. District Judge Edward J. Davila. 

 According to the evidence presented in court, Desai controlled several foreign bank accounts at HSBC in India and Dubai, including accounts held in the name of his wife and adult children.  Desai invested the funds in these accounts in certificates of deposit, which earned interest at rates as high as nine percent.  Desai funded these accounts by mailing checks from the United States and by transferring money from other undeclared bank accounts in Singapore and the United Kingdom to his family’s accounts in India.  Desai also sold medical devices abroad, and, on at least one occasion, directed that his customer wire funds directly to his undeclared HSBC India account. 

 Between 2007 and 2009, Desai paid approximately $17,000 in taxes.  However, Desai owed an additional $357,783 in taxes to the IRS on his unreported interest income.  Desai’s deposits into his foreign accounts also far exceeded the income he disclosed on his tax returns each year.  In 2008, for example, he deposited nearly $1.1 million into foreign accounts while only reporting income of $115,810.91 on his tax return. 

 The evidence at trial demonstrated the steps Desai took to conceal his family’s foreign accounts from the government.  In addition to failing to report his accounts on tax returns and FBARs, Desai also directed the bank not to mail bank statements to his house.  On one occasion, Desai wrote an email in which he asked an HSBC banker: “Why are all the statements coming to Home address?  I thought we had a different arrangement.”

I am seeking some detail on the sentencing and, if I get it, may post more.  In the meantime, my comments are:

1. From the objective indicators above, Desai's attorneys did a helluva job in getting this sentence, given that he did not plea.  What would have been the sentence had he pled?
2. Considering the indicated high balance of around $8 million and the reported FBAR penalty of over $14 million, I presume the IRS asserted multi-year willful penalties which, apparently, he has not paid.  I would presume that, unless the IRS backs off, there will soon be some litigation in which the Excessive Fines Clause will again be in play.  However, just superficially, it looks like his facts may be worse than Zerner's.  And, same question as #1:  what would the penalty have been had he pled.  (Readers will recall that, on pleas as reported, the maximum FBAR penalty has been 50% in the single high year.
3. Note that he funded the offshore accounts by mailing checks.  Of course, had he wired the money from U.S. banks, a record and argument for his transparency to the U.S.  But, he chose a stealth way to fund the offshore accounts.  Not good in terms of willfulness -- both for income tax and for FBAR.
4. Be careful what you email your enablers.  This advice may be a bit late, but perhaps persons considering opting out or certifying nonwilfulness may want to review the emails to the enablers that may wind themselves into the Government's hands.