Friday, December 19, 2014

New Direction for John Doe Summonses to An Enabler's Service Providers Subject to Summons Power (12/19/14)

USAO SDNY has issued a press release titled "Court Authorizes Irs To Issue Summonses For Records Relating To U.S. Taxpayers Who Used Services Of Sovereign Management & Legal, Ltd., To Conceal Offshore Accounts, Assets, Or Entities", here.  The JDS Order was signed yesterday by the judge in SDNY.  Key excerpts:
In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House, and HSBC USA. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these eight entities to produce records that will assist the IRS in identifying U.S. taxpayers who, from the years 2005 through 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity. 
* * * *\ 
Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets. 
As a result of a DEA investigation of online narcotics trafficking known as OPERATION ADAM BOMB, the IRS learned that Sovereign was involved in assisting U.S. clients with tax evasion. During the IRS’s investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them. 
The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.
I infer from this action that the US for some reason is unable to blast this information out of Sovereign.

From the multiple John Doe Summonsees and the likely considerable effort to follow the leads that will be generated, it would appear that the Government believes Sovereign is a major enabler in offshore evasion.


  1. What most readers probably don't realize is that the tax burden placed on citizens of various Cantons vary by a factor of up to 400%. A family with an income of 150,000CHF in Zug would pay 5k in taxes to the Canton, while in Geneva the same guy would pay 21k! Fribourg is one of the worst as are all the French speaking ones, so it is no surprise that this guy wants to punish those who live in efficiently run low tax tax Cantons. To make matters worse, Zug has to pay money to Geneva every year (ausgleich) despite Geneva's blatant profligacy.

    As usual we have to listen to the tax eaters who say things like:

    “It’s essential that the tax office is given more powers so that it can
    investigate suspected cases of fraud,” says Georges Godel, finance
    minister for canton Fribourg.

  2. Sounds like this may have been a failed quiet disclosure.

  3. A quiet disclosure that is not true and correct creates more problems than it could hope to solve. I tell my clients and accountants helping them that they had better get the amended returns right, whether in OVDP or attempting a quiet disclosure. Good quiet disclosures just are not prosecuted. (Why is a long discussion that I can't do right now, but if you look through all the cases where the taxpayer attempted to get some benefit from a quiet disclosure you will find that the taxpayer really and intentionally screwed up the quiet disclosure.)

    Jack Townsend

  4. Thank you Jack. Your comment should have been shouted from the rooftops. Many were scared into OVDP. You were one of the first and most vocal to cite QD as a viable option IN CERTAIN CASES.

  5. Don't believe everything you read in the government's propagandist press releases boys and girls. The vast majority of what they put out there range between assumptions, exaggerations and outright lies. Remember, the purpose is to scare all the little sheep into obedient little lines. They pick out a few to make examples of, it's just that simple. Ask yourself why the government bangs its chest so loudly on indictment and plea press releases, but unless the case ends in incarceration or is high profile, you can barely find a peep about the sentence. The vast majority of FBAR sentences have been probation. Even the ones ending in incarceration have for the most part been minor. Look at Bloomberg who just got 14 days. Good luck finding the press release about that (or Schiavo or Gabella or Rudolph who all got probation).

    Point is, you're only reading one side of the story here, the government's and we already know they have an agenda with all this meaning it's not objective and it's not all of the information. The OVDI press releases were a great example of this. Every place you looked used terms like criminal prosecution taken off the table, but that was far from the truth. The fact was it was never off the table. The way the OVDI worked was you gave up all your constitutional rights and protections and the government then made a decision about whether or not to prosecute you using the information you gave them. Without an assurance of immunity from prosecution, there was really no upside to OVDI. Maybe the case referenced above was a messed up quiet disclosure, but my money is on that the government looked at deposits, called them taxable income when they very well may have loans, bank transfers, investments in non taxable instruments, return of capital or a dozen other things. Just because they say it in the press release, that doesn't make it true gang.


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