Saturday, November 16, 2013

Targeting Offshore Accounts The U.S. Government Is Now Seeking Information Directly From U.S. Banks

Laura Saunders for the Wall St Journal writes: In a fresh assault on undeclared offshore accounts, two federal courts have approved the issuing of summonses to five U.S. banks in connection with transfers made on behalf of two foreign banks, officials announced this week.

Citigroup's +0.38% Citibank unit andBank of New York Mellon BK +0.88% have been ordered to turn over information about U.S. taxpayers who might have evaded taxes by holding undisclosed accounts at Switzerland's Zuercher Kantonalbank,ZGLD.EB -0.12% or ZKB.


Citibank, J.P. Morgan ChaseJPM +0.86%HSBC Holdings ' HSBC Bank USA and Bank of America BAC +0.84% have been ordered to turn over similar information in connection with accounts held at the Bank of N.T. Butterfield & Son and its affiliates in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland and the United Kingdom.
The "John Doe" summonses allow the Internal Revenue Service to obtain names or other information for taxpayers in a certain group, such as tax evaders holding secret offshore accounts, based on evidence that such a group could exist.
The summonses also seek information about U.S. taxpayer accounts held at other foreign banks that might have used ZKB or Butterfield's U.S. "correspondent" accounts. A correspondent account is typically maintained by an overseas bank without U.S. branches to serve U.S. clients.
In a statement, ZKB said that the bank was aware of the summonses, calling them "standard requests" in tax investigations, and noted that they weren't issued to the bank itself.
A spokesman for Butterfield, which was established as a private bank in 1858 in Bermuda, wrote in an email that the bank hasn't been contacted by U.S. authorities about the matter and added, "We intend to cooperate fully with authorities and our correspondent banks in regards to this matter, whilst adhering to the laws of the jurisdictions in which we operate."
A spokeswoman for HSBC wrote in an email that the bank "cooperates with requests from U.S. authorities" while "complying with the law in all jurisdictions where it operates."
Spokesmen for BNY Mellon, Citibank, J.P. Morgan Chase and Bank of America declined to comment.
A John Doe summons played an important role in the U.S. pursuit of Swiss banking giant UBS UBS +0.05% and U.S. account holders at the bank in 2009, which pierced the decades-old veil provided by Swiss bank-secrecy laws.
Experts say the recent moves by U.S. authorities seemed timed to put further pressure on Swiss banks, which face key December deadlines in a program offered by U.S. officials to settle allegations that they helped U.S. account holders evade taxes. Banks that enter the program might have to pay large penalties and turn over U.S. taxpayer account data, but they would avoid prosecution.
A spokesman for the IRS declined to comment.
To support their requests involving ZKB and Butterfield, U.S. officials disclosed that the IRS's limited-amnesty program for taxpayers with undeclared offshore accounts included 371 secret accounts held at ZKB and 81 at Butterfield or its affiliates.
They also argued that U.S. taxpayers with secret offshore accounts often gain access to their funds via transfers through correspondent accounts. In a fresh assault on undeclared offshore accounts, two federal courts have approved the issuing of summonses to five U.S. banks in connection with transfers made on behalf of two foreign banks, officials announced this week.
An IRS declaration filed with the court provided examples of 10 unidentified taxpayers who held secret accounts at Butterfield and later confessed them in the IRS's limited amnesty program, with details of how the accounts were opened and maintained.
According to the declaration, two of the taxpayers were sisters who had money wired to them in the U.S. through a correspondent account at Bank of New York.
"Correspondent accounts are the Achilles' heel of offshore banking, and they can open a window into almost any bank in the world," says Daniel Reeves, a retired senior IRS official who led the agency's civil investigation into UBS.
Scott Michel, a lawyer at Caplin & Drysdale in Washington who has handled many offshore-account cases, says gathering information through John Doe summonses of correspondent accounts is likely to be efficient.
"The IRS is showing that it can tap vast data pools without having to worry about bank secrecy laws in other countries," he says.
—John Letzing contributed to this article.

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