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Court OKs IRS summonses for FedEx, UPS, DHL in Sovereign Management probe

>A federal judge in Manhattan Friday authorized the Internal Revenue Service to issue summonses requiring Federal Express Corporation, DHL Express, United Parcel Service, Inc. and others to produce information about U.S. taxpayers who may be using the offshore services of Sovereign Management & Legal, Ltd to evade U.S. taxes.

U.S. District Judge Vernon S. Broderick also approved so-called John Doe summonses for Western Union Financial Services, Inc., the Federal Reserve Bank of New York, Clearing House Payments Company LLC, and HSBC Bank USA.

The IRS uses John Doe summonses to seek information about possible tax fraud by individuals whose identities are unknown.

The John Doe summonses announced Friday direct the eight entities to produce records that could help the IRS identify U.S. taxpayers who, from 2005 through 2013, used Sovereign’s services to hide assets and evade U.S. taxes.

Sovereign helps clients form anonymous offshore companies, trusts, and foundations. The entities then open bank accounts and hold other assets. Sovereign uses entities in the Bahamas, Panama, the Seychelles, Belize, Mauritius, and others, according to its website.

Federal law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.

Manhattan U.S. Attorney Preet Bharara said Friday: “By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who conceal their foreign assets in order to dodge their legal responsibility to pay taxes.”

Sovereign also provides mail forwarding, virtual offices, re-invoicing, and nominee directors of the clients’ entities.

The IRS learned through a DEA investigation of online drug sales that Sovereign was involved in assisting U.S. clients with tax evasion, the DOJ said.

“During the IRS’s investigation of Sovereign’s conduct,” the DOJ said Friday, “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 also learned that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients. And it uses Western Union to transmit money to and from clients in the United States, the DOJ said.

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 also “likely to have records of financial transactions between Sovereign and its clients in the U.S.,” the DOJ said.

After it issues the John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes, the DOJ said.

The U.S. district court’s order is here.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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