John Doe Summons Issued to Wells Fargo for Records of CIBC FirstCaribbean International Bank Correspondent Account (4/30/13)

DOJ has announced, here, that a district court approved John Doe Summons for records of CIBC FirstCaribbean International Bank's correspondent account at Wells Fargo, N.A. The goal of the summons is to "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."

The correspondent account and its use in tax enforcement in the context of offshore banks is described as:

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.

As best I understand it, through the correspondent bank, the offshore bank without any other U.S. presence can service U.S. customers for some of their needs.  But, the U.S. bank establishing the correspondent  relationship -- in this case, Wells Fargo -- has a U.S. presence which means that it is subject to U.S. process, including a John Doe Summons which can be used to ferret out information of the offshore bank's customers using the relationship.  The use of such correspondent bank relationships to service U.S. customers needs is the weakness in offshore banks' claims of impregnability to U.S. tax and law enforcement because they have no U.S. presence.  A similar JDS was issued to UBS's U.S. branch for records of its correspodent relationship with Wegelin  & Co.  See prior coverage on the Wegelin related JDS.  IRS Issues John Doe Summons to UBS (All Over Again) (1/28/13; updated 2/2/13), here.

The IRS agent's declaration asserts:

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.

Addendum:  If the investigation is a grand jury investigation rather than an IRS administrative investigation, the grand jury subpoena can be used, although it would be a general grand jury subpoena rather than one specially authorized by statute.  The general grand jury subpoena can effectively mimic the John Doe Summons in terms of the information and documents it will flush out and thus might be called a John Doe Grand Jury Subpoena.  Here is a discussion from  the FBI website from an article y Douglas Leff, Taking the Profit Out of Crime (April 2012), here, footnotes omitted:

9) Correspondent bank accounts: Virtually all foreign banks maintain correspondent accounts, also known as interbank accounts, in the United States to conduct American dollar transactions on behalf of their customers. These simply are accounts opened at U.S. banks in the name of a foreign financial institution. Even without jurisdiction over a foreign bank, investigators can serve a grand jury subpoena and receive records of any checks or wire transfers that cleared through the U.S. correspondent account on behalf of the foreign bank. By learning the senders or beneficiaries of these transactions, the investigator can determine the likely beneficial owners of the foreign account, as well as other foreign and domestic accounts involved in the money laundering cycle. And, where forfeitable funds are traced to a financial institution in a country that will not cooperate with the United States, DOJ can authorize the use of Section 981(k), a Patriot Act provision, which permits the seizure from a U.S. correspondent account of a sum equivalent to the amount of criminal proceeds laundered to the foreign bank. The U.S. correspondent bank relinquishes the money and provides the foreign bank with the seizure warrant so that the foreign bank can recoup the amount seized from its correspondent account by taking the same sum from its account holder. The foreign bank usually is not complicit in the money laundering but is subject to the seizure based on its role in holding the money launderer’s funds overseas. The Section 981(k) seizure authority can often be obtained within a few weeks.

The Court documents related to this filing are:

1. US Petition for FCIB JDS.pdf, here.
2. US Petition for FCIB JDS - Declaration.pdf, here.
3. US Memo in Support of FCIB JDS.pdf, here.
4. US Notice in FCIB re No Service to Others.pdf, here.
5. Order to Serve FCIB JDS.pdf, here.

Here are some more excerpts from the IRS agent's declaration (note that the following are all quotes, but are not indented so that the quotes within these quotes can be indented):

8. As reported in a 2001 investigative report published by the Minority Staff of the Senate

Permanent Subcommittee on Investigations entitled Correspondent Banking: A Gateway For Money Laundering:

Correspondent banking is the provision of banking services by one bank to another bank. It is a lucrative and important segment of the banking industry. It enables banks to conduct business and provide services for their customers in jurisdictions where the banks have no physical presence. For example, a bank that is licensed in a foreign country and has no office in the United States may want to provide certain services in the United States for its customers in order [to] attract or retain the business of important clients with U.S. business activities. Instead of bearing the costs of licensing, staffing and operating its own offices in the United States, the bank might open a correspondent account with an existing U.S. bank. By establishing such a relationship, the foreign bank, called a respondent, and through it, its customers, can receive many or all of the services offered by the U.S. bank, called the correspondent.  

Today, banks establish multiple correspondent relationships throughout the world so they may engage in international financial transactions for themselves and their clients in places where they do not have a physical presence. Many of the largest international banks located in the major financial centers of the world serve as correspondents for thousands of other banks. Due to U.S. prominence in international trade and the high demand for U.S. dollars due to their overall stability, most foreign banks that wish to provide international services to their customers have accounts in the United States capable of transacting business in U.S. dollars. Those that lack a physical presence in the U.S. will do so through correspondent accounts, creating a large market for those services.

 U.S. Correspondent Banking in International Money Laundering: Hearings Before the Senate Permanent Subcommittee on Investigations, S. Hrg. 107-84 at 287 (Feb. 2001) (Report by the Minority Staff on Correspondent Banking: A Gateway For Money Laundering)  http://www.hsgac.senate.gov/download/report-private-banking-and-money-laundering-a-case-study-of-opportunities-and-vulnerabilities

9. The Correspondent Banking Report went on to describe the special dangers of "nested"foreign correspondent accounts:

Another practice in U.S. correspondent banking which increases money laundering risks in the field is the practice of foreign banks operating through the U.S. correspondent accounts of other foreign banks. The investigation uncovered numerous instances of foreign banks gaining access to U.S. banks - not by opening a U.S. correspondent account - but by opening an account at another foreign bank which, in tum, has an account at a U.S. bank. In some cases, the U.S. bank was unaware that a foreign bank was "nested" in the correspondent account the U.S. bank had
opened for another foreign bank; in other cases, the U.S. bank not only knew but approved of the practice. In a few instances, the U.S. banks were surprised to learn that a single correspondent account was serving as a gateway for multiple foreign banks to gain access to U.S. dollar accounts, U.S. wire transfer systems and other services available in the United States.

ld at 310. It is the experience of the IRS that offshore banks that utilize correspondent accounts at a U.S. bank may also allow other offshore banks use of the correspondent account.

* * * *

23. According to the FCIB website, FCIB maintains a correspondent account with Wells Fargo Bank, NA (formerly Wachovia Bank) ("Wells Fargo"), SWIFT Code *"'**"'**NNYC and ABA Code *****5092, which maintains its headquarters in San Francisco, CA, in the Northern District of California. Based on my experience, I know that through this correspondent relationship, FCIB could wire funds from the Caribbean to the Wells Fargo Correspondent Account in the United States and, in tum, wire funds from the Wells Fargo Correspondent Account. to other accounts located in both the United States and overseas. FCIB also had the ability to issue checks drawn on the Wells Fargo Correspondent Account. Checks drawn on a correspondent account function like any check drawn on an account at a U.S. financial institution and could be deposited, or cashed for U.S. dollars, at other financial institutions. Based on my experience, I know that a correspondent account can also serve as a means of moving funds into the foreign respondent bank, in this case FCIB. Based on my experience, I also know that offshore banks, such as FCIB, also sometimes allow other offshore banks to use their 25 correspondent accounts in the United States.

* * * *

26. The correspondent account records requested in the John Doe summons will contain information needed to identify U.S. taxpayers with undisclosed accounts at FCIB and at the other banks FCIB may have permitted to use its U.S. correspondent account. For example, client names and other identifying information may be contained in payee or note lines or in endorsements on checks; on payee or note lines, signatures, or endorsements on deposited items; or on originator, beneficiary, or instruction fields on wire transfer records.

27. Because of the heightened risk of money laundering through correspondent accounts, the U.S.A. Patriot Act and related regulations impose certain obligations on U.S. financial institutions such as Wells Fargo that house correspondent accounts for foreign financial institutions to guard against money laundering. As explained in the Bank Secrecy Act/Anti-Money Laundering Handbook ("Examination Manual"), published by Federal Financial Institutions Examination Council:

Due diligence policies, procedures, and controls must include each of the following:

• Determining whether each such foreign correspondent account is subject
to [Enhanced Due Diligence].
• Assessing the money laundering risks presented by each such foreign correspondent
account.
• Applying risk-based procedures and controls to each such foreign correspondent account reasonably designed to detect and report known or suspected money laundering activity, including a periodic review of the correspondent account activity sufficient to determine consistency with information obtained about the type, purpose, and anticipated activity of the account.

Examination Manual, Foreign Correspondent Account Recordkeeping and Due Diligence - Overview (www.ffiec.gov/pdf/bsa_aml_examination_manual2006.pdf). The summons also requests reports produced by Wells Fargo's anti-money laundering system in connection with these due diligence requirements, as well as documents reflecting the results of investigations of such exceptions, including communications with FCIB. Such exception reports and investigation results may contain information relevant to the identification of U.S. taxpayers with undeclared accounts at FCIB and the other banks using its correspondent account.

THE SUMMONS REQUEST

ATTACHMENT TO JOHN DOE SUMMONS TO WELLS FARGO BANK, NA

As correspondent bank for CIBC FirstCaribbean International Bank Limited (FCIB), please provide the following records of each correspondent account of FCIB, its predecessors, subsidiaries and affiliates (including CIBC Bank and Trust Company (Cayman) Limited, CIBC Trust Company (Bahamas) Limited, FirstCaribbean International Bank (Bahamas) Limited, FirstCaribbean

International Bank (Barbados) Limited, FirstCaribbean International Bank (Cayman) Limited, FirstCaribbean International Bank (Jamaica) Limited, FirstCaribbean International Bank (Trinidad and Tobago) Limited, and FirstCaribbean International Wealth Management Bank (Barbados) Limited) at Wells Fargo Bank, its subsidiaries and affiliates for the period January 1, 2004, through December 31, 2012:

- bank statements
- front and back of deposit slips and deposited items
- front and back of checks
- wire transfer orders and confirmations and other similar records of all wire transfers into and out of the account indicating the originator, originator's bank, beneficiary, beneficiary's bank, intermediary banks, ordering party, date and amount, and any reference information for parties to the transfer.

You need not provide any Traveler's Checks or Traveler's Check documentation. In addition, please provide all exception reports produced by your AML system related to the correspondent accounts of FCIB, its subsidiaries and affiliates and, for any such report for which an investigation was undertaken, all documents reflecting the results of that investigation, including communications with FCIB.

In addition, if you provided other correspondent banking services for FCIB during the period January 1, 2004, through December 31, 2012, including, but not limited to, loan participation assistance, data processing services, portfolio analysis and investment advice, federal funds trading, securities safekeeping, arrangement of purchases and sale of securities, and investment banking services, please provide a copy of the contract or other written agreement for provision of such services or otherwise identify and provide a description of such services.