The U.S. District Court for the Southern District of New York has authorized the IRS to issue summonses requiring five banks to produce records relating to the U.S. accounts they hold at certain institutions located abroad. The goal is to identify taxpayers who are trying to hide money overseas as a way to avoid federal taxes, the DOJ said Tuesday.
The summonses will be sent to Bank of New York Mellon, Citibank NA, JPMorgan Chase Bank NA, HSBC Bank USA NA and Bank of America NA.
The banks were asked to disclose information about U.S. taxpayers holding interests in accounts at Zurcher Kantonalbank (ZKB) in Switzerland and The Bank of N.T. Butterfield & Son Limited located in Bahamas, Barbados, Cayman Islands, Guersney, Hong Kong, Malta, Switzerland and the United Kingdom.
The DOJ’s announcement did not refer to potential Foreign Corrupt Practices Act violations, but to make such allegations, the DOJ often needs to cut through bank secrecy laws to obtain evidence of bribery.
In 2008, a report from LGT Bank in Liechtenstein described how secret offshore accounts were being used for bribery, offering details about accounholders at the bank, an institution run by the royal family of that tiny country. In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers to hide at least $423 million from the IRS in secret Swiss bank accounts.
The IRS offers Offshore Voluntary Disclosure programs to enable U.S. taxpayers to voluntarily disclose their previously undisclosed foreign accounts and income and minimize their tax liabilities and criminal prosecution chances.
Legislators are also trying to help. In 2008, then-senator Barrack Obama introduced the Stop Tax Haven Abuse Act, an effort that has been taken up by Senator Carl Levin (D-MI), whose bill offered in September this year would authorize special measures to stop offshore tax abuse. It would shift some of the burden to the U.S. taxpayer to report on the flow of his or her money to and from any offshore entity as well.
Additionally, the bill requires SEC-registered corporations to disclose their tax payments on a per country basis, the creation of anti-money laundering programs for private funds to screen high-risk clients, and the use of Foreign Bank Account Reports and Suspicious Activity Reports by the IRS to flag unreported foreign accounts.
In Tuesday’s court order, the IRS was granted permission to issue what are called “John Doe” summonses on Mellon, Citibank, JPMorgan, HSBC and Bank of America. These summonses are used to obtain information about possible tax fraud by individuals whose identities are unknown.
The summonses show the determination of the IRS in finding evaders using offshore accounts, even if the person hiding the money overseas has chosen a bank with no offices in the United States, said IRS Acting Commissioner Danny Werfel.
Julie DiMauro is the executive editor of FCPA Blog. She can be reached here.