Two Cayman Island Banks Plead Guilty to Tax Evasion Conspiracy

Putting American Taxpayers in Jeopardy

Over the past several years, the war against hidden offshore accounts has appeared to the public as having been raging substantially solely in Switzerland. The proliferation of the Swiss Bank Program has allowed the IRS to gain an upper hand in the fight against Swiss banks offering financial services to U.S. residents that are considered to be illegal by the Department of Justice. Recently, the Swiss Bank Program stopped accepting new applicants and it now appears that the Justice Department has shifted its prosecutorial focus to other jurisdictions where banks may be helping Americans hide their money in secret accounts.

According to a Department of Justice press release, Cayman National Securities Ltd. (CNS) and Cayman National Trust Co. Ltd. (CNT), two Cayman Island affiliates of Cayman National Corporation, which offer various types of trust and investment brokerage services to clients around the world, including U.S. residents, plead guilty to charges related to tax evasion conspiracy, last week. The guilty plea came in front of U.S. District Judge Thomas P. Griesa in a federal court for the Southern District of New York. As a part of the plea agreement between the banks and the Department of Justice, the banks have agreed to turn over incriminating documents implicating U.S. residents in the violation of Foreign Bank Account Reporting (FBAR) laws. In addition to agreeing to disclose account-holder information through treaty channels, the banks agreed to pay a combined penalty of over $6 million.

According to the IRS, the banks intentionally sold financial products to U.S. residents that the banks knew to be a vehicle for violating FBAR laws. The bank’s illegal activity included directing U.S. residents to open accounts in the name of sham Cayman Island business and trusts. Additionally, the banks were reported to have failed to report the correct beneficial owner information as required by their Qualified Intermediary (QI) agreement with the IRS. Finally, after the banks were aware that the IRS was investigating their banking practices as they related to foreign bank accounts, remedial measures were not taken to rectify the illegal activity and secretive accounts continued to be maintained.

United States FBAR laws require Americans to disclose any signature authority or ownership interest in foreign bank accounts with a high balance of $10,000 or more in any given year. For each year that a taxpayer fails to disclose the existence of their foreign bank account, they are at risk of being sentenced to up to five years in a federal prison and face penalties of up to 50% of the high value in the undeclared account. Sentences for violating FBAR laws can be devastating to the defendant and their family.

tax evasion cayman islandsTaxpayers who have foreign bank accounts and have not yet disclosed their existence to the government should take this story as a final warning. Over the past several years, the federal government has been utilizing an appreciable amount of resources in an effort to bust FBAR violators. When a taxpayer is examined and the IRS believes that they may have violated FBAR laws, their file is commonly passed along to the IRS Criminal Investigations Division. Investigators will typically interview the taxpayer and ask a series of potentially-incriminating questions. One of the biggest mistakes a taxpayer can make in this situation is to go forward with an investigation without a criminal tax defense attorney to represent them. As soon as a taxpayer receives notice of an examination or learns that they are being investigated, they should contact an experienced tax attorney. A tax attorney is the only tax professional that has been trained in Constitutional law, criminal defense, and criminal tax procedure. They can help ensure that you do not make any incriminating statements or voluntarily hand over information that you are not required to, allowing authorities to build up a stronger case against you.

The IRS has established a program for taxpayers with undeclared foreign bank accounts to come forward and get right with the government without facing time in a federal prison. The Offshore Voluntary Disclosure Program (OVDP) allows taxpayers to disclose the details surrounding their foreign bank account, pay a penalty, back taxes, and interest in exchange for an agreement not to be prosecuted by the government. That being said, the OVDP is time sensitive and the IRS has indicated that it will not last for much longer. In addition, the OVDP is not available to taxpayers who are already being investigated by the IRS for any tax-related matter, which evidences the need to consult with a tax attorney as soon as possible to avoid being criminally prosecuted for FBAR violation.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers in a myriad situations including those under examination, investigation, or those who are engaged in full-blown civil or criminal tax litigation. Attempting to go up against the IRS, Department of Justice, or state taxing authority alone is not worth running the risk of spending a significant time in a federal or state prison. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation and be sure to visit our YouTube channel for helpful tax information.