A federal court in San Francisco has entered an order authorizing the Internal Revenue Service to serve a summons seeking information about U.S. taxpayers who may hold offshore accounts at Canadian Imperial Bank of Commerce FirstCaribbean International Bank, seeking records of FCIB’s U.S. correspondent account at Wells Fargo.
The order, signed Monday evening by Senior District Judge Thelton E. Henderson, will allow the IRS to identify U.S. taxpayers who hold or held interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account.
Under a petition filed by the Justice Department, the court granted the IRS permission to serve what is known as a “John Doe” summons on Wells Fargo. The IRS uses John Doe summonses to obtain information about possible violations of federal tax laws by individuals whose identities are unknown. The John Doe summons approved by the court will direct Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account.
According to the declaration of IRS Revenue Agent Cheryl R. Kiger filed in support of the petition, FCIB is based in Barbados and has branches in 18 Caribbean countries. While FCIB does not have U.S. branches, it maintains a correspondent account in the United States at Wells Fargo Bank.
A correspondent account is a bank deposit account maintained by one bank for another bank. Financial transactions involving U.S. dollars flow through U.S. banks. Therefore, foreign banks that do business in U.S. dollars, but have no office in the U.S., obtain a correspondent account at a U.S. bank in order to engage in such transactions. These transactions leave a trail in the U.S. that the IRS can access through the records of the correspondent bank accounts. These correspondent bank accounts have records of money deposited, money paid out through checks and money moved through the correspondent account by wire transfers. All of this information the IRS can obtain through a John Doe summons issued to the U.S. bank holding the correspondent account.
“This summons marks another milestone in international tax enforcement,” said IRS Acting Commissioner Steven T. Miller in a statement. “Our work here shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.”
As alleged in Agent Kiger’s declaration, the IRS learned that U.S. taxpayers were using FCIB to help them keep their offshore accounts undetected by the IRS and not to pay U.S. federal income tax on money placed in those offshore accounts. Kiger’s declaration describes her review of the information submitted by more than 120 FCIB customers who participated in the IRS’s Offshore Voluntary Disclosure Program. According to the Kiger declaration, many of the FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.
“The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade U.S. taxes,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, in a statement. “This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”
A deliberate failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.
In a similar case in January, the U.S. District Court for the Southern District of New York entered an order authorizing the IRS to serve a John Doe summons on UBS AG, seeking records of Swiss bank Wegelin & Co.’s United States correspondent account at UBS, which will allow the IRS and the Justice Department to determine the identity of U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions to evade federal income taxes (see
