July 9, 2020

John Doe summons served on Wells Fargo has implication for Cayman


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cibc-firstcaribbean-bankPioneer of IRS ‘John Doe’ summonses to speak at OffshoreAlert Conference

From OffshoreAlert

Two days ago, the IRS obtained a court order that allows them to serve Wells Fargo Bank with a ‘John Doe’ summons as part of a criminal investigation into suspected tax evasion by clients of FirstCaribbean International Bank. The news has sent shockwaves throughout the Caribbean, where FCIB is one of the region’s biggest banks.

At next week’s OffshoreAlert Conference in Miami Beach, the former head of the IRS’ offshore investigations unit who pioneered the use of ‘John Doe’ summonses as a method of investigating tax evasion will discuss this and other investigative methods used by the IRS.

In a session entitled ‘My Experiences Leading the IRS Investigation into Offshore Tax Structures’, Dan Reeves will impart his knowledge from serving for 35 years as an IRS Agent before retiring last year.

Although he is precluded from discussing specific cases, Dan will talk about the development of the IRS’ offshore programs, difficulties he and his team encountered along the way, and how they overcame numerous obstacles, including jurisdictional issues.

The OffshoreAlert Conference aims to provide attendees with information about international finance that will help them make better-informed decisions, whether they are clients, providers of investigators of financial products and services.

Professionals involved in the areas of tax, law, funds, company administration, compliance, regulations, investigations, and asset recovery will benefit from attending this event.

The conference will take place at The Ritz-Carlton, South Beach in Miami Beach, Florida on May 5-7, 2013. Full information about the event can be viewed at www.OffshoreAlertConference.com.

See related story below from Accounting Today

wells_fargo_bank_nyc_40IRS to Serve Summons at Wells Fargo Seeking Identities of U.S. Taxpayers with Offshore Accounts at CIBC FirstCaribbean Bank

A federal court in San Francisco has entered an order authorizing the Internal Revenue Service to serve a summons seeking information about U.S. taxpayers who may hold offshore accounts at Canadian Imperial Bank of Commerce FirstCaribbean International Bank, seeking records of FCIB’s U.S. correspondent account at Wells Fargo.

The order, signed Monday evening by Senior District Judge Thelton E. Henderson, will allow the IRS to identify U.S. taxpayers who hold or held interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account.

Under a petition filed by the Justice Department, the court granted the IRS permission to serve what is known as a “John Doe” summons on Wells Fargo. The IRS uses John Doe summonses to obtain information about possible violations of federal tax laws by individuals whose identities are unknown. The John Doe summons approved by the court will direct Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account.

According to the declaration of IRS Revenue Agent Cheryl R. Kiger filed in support of the petition, FCIB is based in Barbados and has branches in 18 Caribbean countries. While FCIB does not have U.S. branches, it maintains a correspondent account in the United States at Wells Fargo Bank.

A correspondent account is a bank deposit account maintained by one bank for another bank. Financial transactions involving U.S. dollars flow through U.S. banks. Therefore, foreign banks that do business in U.S. dollars, but have no office in the U.S., obtain a correspondent account at a U.S. bank in order to engage in such transactions. These transactions leave a trail in the U.S. that the IRS can access through the records of the correspondent bank accounts. These correspondent bank accounts have records of money deposited, money paid out through checks and money moved through the correspondent account by wire transfers. All of this information the IRS can obtain through a John Doe summons issued to the U.S. bank holding the correspondent account.

“This summons marks another milestone in international tax enforcement,” said IRS Acting Commissioner Steven T. Miller in a statement. “Our work here shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.”

As alleged in Agent Kiger’s declaration, the IRS learned that U.S. taxpayers were using FCIB to help them keep their offshore accounts undetected by the IRS and not to pay U.S. federal income tax on money placed in those offshore accounts. Kiger’s declaration describes her review of the information submitted by more than 120 FCIB customers who participated in the IRS’s Offshore Voluntary Disclosure Program. According to the Kiger declaration, many of the FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.

“The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade U.S. taxes,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, in a statement. “This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”

A deliberate failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

In a similar case in January, the U.S. District Court for the Southern District of New York entered an order authorizing the IRS to serve a John Doe summons on UBS AG, seeking records of Swiss bank Wegelin & Co.’s United States correspondent account at UBS, which will allow the IRS and the Justice Department to determine the identity of U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions to evade federal income taxes.

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See also related story:

U.S. Demands Wells Fargo Records To Identify Tax Cheats Using Caribbean Havens

Opening yet another front in their war against offshore tax evasion, U.S. enforcers have served  a “John Doe” summons on  Wells Fargo WFC +0.26% Bank requiring it to turn over records that could identify any U.S. taxpayers who held accounts from 2004 through 2012 at CIBC FirstCaribbean International Bank Limited (FCIB), which operates in 18 Caribbean countries, including such notorious tax havens as the Cayman Islands.

Wells Fargo provides correspondent bank services to FCIB, so Wells would have served as a conduit for transfers to and from FCIB accounts to U.S. accounts, corporations and individuals.  U.S. District Court Judge Thelton E. Henderson of the Northern District of California  granted a Department of Justice petition to serve the John Doe summons in an “ex parte” proceeding yesterday—meaning the government was able to keep the summons secret until it was served.  Ancel Martinez, a spokesman for Wells Fargo, said today that the bank intends “to fully comply with the terms of the summons.” (Update: After this story was posted, Martinez e-mailed an official statement : “We will review the summons and respond as legally required.” Asked if that meant Wells hadn’t decided yet whether to comply or to challenge the summons, Martinez couldn’t/wouldn’t say. He indicated, however, that the later statement was drafted by Wells’ lawyers.)

FCIB was formed in  2002 when the Canadian Imperial Bank of Commerce and Barclays Bank PLC combined their Caribbean  operations.  In 2006, CBIC, Canada’s fifth largest bank, bought out Barclays and now holds 91.5% of publicly traded  FCIB, which provides a full range of banking and trust services.  CBIC spokesman Kevin Dove said the Canadian bank is reviewing the summons and not yet  ready to comment.  (Update: In a statement e-mailed at 5:30 P.M., Debra King, Director of  Corporate Communications at CIBC FirstCaribbean said:  “We are committed to complying with all laws and regulatory requirements. We are working with Wells Fargo, our correspondent bank, to understand the nature of the order. It is our intention to cooperate with authorities in accordance with the respective laws of all jurisdictions involved.”)

In an affidavit supporting the summons, Internal Revenue Service Agent Cheryl R. Kiger said the IRS has been investigating one taxpayer who used FCIB accounts to transfer tens of millions of dollars of unreported income in and out of the U.S. and that at least  129 other taxpayers have fessed up to previously secret FCIB accounts as part of the IRS’ Offshore Voluntary Disclosure Program. Kiger identified a variety of tax evasion ploys used by FCIB customers. For example, she wrote, two taxpayers, one of them the owner of a U.S. taxicab company, admitted they had set up offshore insurance companies in the Cayman Islands, claimed business tax deductions for the  “premiums’’ paid to those companies, and then used FCIB accounts to get access to the excess premiums, without reporting them as income.  Another taxpayer, a permanent resident of the U.S,  told Kiger he had diverted  his commissions from U.S. consulting work to a Bahamian corporation using an FCIB account.  She also ticked off a series of criminal cases, involving everything from healthcare fraud to kickbacks for U.S. Army contracts in Iraq and Kuwait,  in which U.S. citizens had used FCIB accounts for laundering ill gotten gains.

As Kiger noted in her affidavit, because of the risk of money laundering through correspondent accounts, the U.S. Patriot Act, passed after  9/11, requires banks like Wells Fargo providing correspondent services to to establish procedures to detect and report known or suspected money laundering activity.  In addition to documents that  might lead to the identification of U.S. taxpayers, the John Doe summons asks for all reports produced by Wells’ own internal money laundering watchdog system and  any communications it might have had with FCIB as a result of that system.

In January, the government used a similar John Doe summons to UBS AG to get information about the U.S. customers of Swiss bank Wegelin & Co., to which UBS provided correspondent services.  Wegelin, Switzerland’s oldest bank, never had any official operations in the U.S., which it had believed  allowed it to flout U.S. laws. Instead, earlier this year, it was forced to shut its doors after pleading guilty to facilitating tax evasion by U.S. taxpayers and paying a $58 million fine. UBS itself escaped prosecution back in 2009 when it entered into a deferred prosecution agreement with DOJ requiring it to pay the U.S.  $780 million in fines, penalties and restitution and turn over the names of thousands of U.S. account holders. Meanwhile, the U.S. is still investigating other foreign banks from Switzerland and elsewhere.  In March, for example, Israel’s Bank Leumi announced  it was taking a $91 million charge to  cover DOJ investigations of its U.S. customers.  Presumably, that expense will ultimately include a stiff fine for Bank Leumi, which is believed to be cooperating now with U.S. prosecutors.

In a statement, IRS Acting Commissioner Steven T. Miller hailed the Wells Fargo summons as a “milestone in international tax enforcement.” He added that it “shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.” Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, cited the summons as an indication of “the many tools available to us to pursue this activity wherever it is occurring” and urged those still hiding accounts to “get right with their country and their fellow taxpayers before it is too late.”   As of December, the IRS had collected more than $5.5 billion from 39,000 taxpayers who have entered the OVDP program, which protects participants from criminal prosecution if they pay stiff fines and disclose all their accounts. Once the government is auditing a taxpayer of has his name, however, he isn’t eligible for the OVDP.

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