IRS Gets New John Doe Summonses for Bank of Butterfield & Son Ltd. and Affiliates (11/13/13)

The IRS has obtained John Doe Summonses to U.S. banks regarding both ZKB and The Bank of N.T. Butterfield & Son Ltd., a Bermuda bank with subsidiary offices in Cayman Islands (see Wikipedia entry here).  As previously reported in this blog, JDS were issued to  Citigroup Inc's Citibank NA and Bank of New York Mellon Corp.  New John Doe Summons to U.S. Banks for Information About Correspondent Offshore Banks (Federal Tax Crimes Blog 11/10/13), here.

The DOJ Tax press release is here (I just cut and paste for now and will link it later; bold facing in the body of the release is provided by me):

COURT AUTHORIZES IRS TO ISSUE SUMMONSES FOR RECORDS
RELATING TO U.S. TAXPAYERS WITH OFFSHORE BANK ACCOUNTS

Five Banks Directed to Produce Records for Accountsat Zurcher Kantonalbank, The Bank ofN.T. Butterfield & Son Limited and Affiliates 

TUESDAY, NOVEMBER 12, 2013 

WASHINGTON -- U.S. District Judge Kimba M. Wood of the Southern District of New York entered an order on Nov. 7, 2013, authorizing the IRS to issue summonses requiring Bank of New York Mellon (Mellon) and Citibank NA (Citibank) to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (collectively, ZKB) in Switzerland; and U.S. District Judge Richard M. Berman of the Southern District of New York entered an order today authorizing the IRS to issue summonses requiring Mellon, Citibank, JPMorgan Chase Bank NA (JPMorgan), HSBC Bank USA NA (HSBC), and Bank of America NA (Bank of America) to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively, Butterfield) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom. U.S. Attorney for the Southern District of New York Preet Bharara, Assistant Attorney General for the Justice Department's Tax Division Kathryn Keneally, and Acting Commissioner of the Internal Revenue Service (IRS) Danny Werfel made the announcement today. 

In these actions, the Court granted the IRS permission to serve what are known as "John Doe" summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses approved today direct these five banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield and their affiliates, including other foreign banks that used ZKB and Butterfield's U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients. 

"These cases once again demonstrate the department's resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes," said Assistant Attorney General Keneally. "These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations. U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it's too late." 

"Today's action show that the use of foreign banks for tax evasion remains a high investigative priority of this office and U.S. citizens should understand that loud and clear," said U.S. Attorney Bharara. "By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes." 

"International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law," said IRS Acting Commissioner Werfel. "These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on U.S. soil." 

IRS Offshore Voluntary Disclosure programs and initiatives enable U.S. taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income. To date, U.S. taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. In addition, a number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted failing to report income earned from their offshore accounts on their federal tax returns. The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have done the same in violation of federal tax law. In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers and others to hide at least $423 million from the IRS in secret Swiss bank accounts.

Per the articles below, those were authorized by Judge Kimba Wood.  Per the article below, the new summonses expanded the summonses to include Mellon, Citibank, JPMorgan, HSBC, and Bank of America apparently for their correspondent records of The Bank of N.T. Butterfield & Son Ltd.

One take away from this is the taxpayers who have not yet implement an effective strategy to resolve the problem should proceed promptly as this tidal wave washes over the world of banking.  This juggernaut is not likely to slow down anytime soon.

The articles and excerpts are:

David Voreacos, Citigroup, BNY Mellon Records Sought by IRS in ZKB Tax Probe (2) (BloombergBusinessweek 11/12/13), here.

U.S. District Judge Kimba Wood in Manhattan signed an order Nov. 7 allowing the Internal Revenue Service to serve summonses on Citibank and BNY Mellon. The banks allowed ZKB to get access to the U.S. banking system through correspondent accounts, according to Bharara’s suit, filed on behalf of the IRS. 

* * * * 

Butterfield Order 

U.S. District Judge Richard Berman in New York signed an order today authorizing the IRS to issue summonses requiring five banks to produce information about undisclosed accounts at The Bank of N.T. Butterfield & Son Ltd. The order also covers affiliates in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the U.K., Bharara said in statement. 

Taxpayers made 81 voluntary disclosures about accounts at Hamilton, Bermuda-based Butterfield. 

“These John Does summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations,” Assistant Attorney General Kathryn Keneally said in a statement.

* * * * 

Clients Discouraged 

“ZKB employees discouraged U.S. clients from disclosing the existence of their ZKB accounts to U.S. authorities,” according to the complaint. 

The bank advised American clients not to maintain account records in the U.S. The clients “called ZKB employees collect or used prepaid calling cards to avoid having the calls appear on their phone records,” according to the complaint. ZKB also allowed U.S. clients to use code names and sham entities to conceal their ownership of accounts. 

ZKB told clients it was a safer bank to hold undisclosed accounts than UBS because it had no offices in the U.S., saying the U.S. government couldn’t apply the same pressure to turn over foreign accounts, according to the complaint.\ 

ZKB also offered correspondent services to other Swiss banks that also held undeclared accounts for U.S. taxpayers, according to the complaint.

Robert W. Wood, IRS Issues John Doe Summonses To Citibank, Chase, BoA, Mellon, HSBC---Tax Prosecutions Coming (Forbes 11/13/13), here.

In this case, the John Doe summonses direct the various banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield, and their affiliates.

That includes other foreign banks that used ZKB and Butterfield’s U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients. In short, the IRS is going to collect data on individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong. And while it will take the IRS time to collate and process it, you can bet the IRS will put the information it acquires to good use. 

At the same time, the IRS is pointing to its Offshore Voluntary Disclosure Program. The IRS warns U.S. taxpayers to come forward before it’s too late. In fact, the IRS notes that one person’s disclosure often reveals data about someone else. 

The IRS says it already knows of a number of U.S. taxpayers with beneficial ownership and control over funds at ZKB and Butterfield’s. The IRS believes there are others. Besides, in December 2012, three ZKB employees were indicted for conspiring with U.S. taxpayers to hide $423 million from the IRS. The IRS banks on a combination of information sources.

Addendum 11/16/13:

Laura Saunders, Targeting Offshore Accounts (WSJ 11/15/13), here.  Excerpts:

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. 

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.