Cayman financial firms plead guilty to $130 million tax conspiracy
NEW YORK, USA -- In the first conviction of a non-Swiss financial institution for US tax evasion conspiracy, two Cayman Islands financial institutions pleaded guilty in Manhattan Federal Court on Wednesday to conspiring to hide more than $130 million in Cayman Islands bank accounts.
The Cayman Islands companies admitted to helping US taxpayer-clients hide assets in offshore accounts, and agreed to produce account files of non-compliant US taxpayers.
Cayman National Securities Ltd (CNS) and Cayman National Trust Co. Ltd (CNT), two Cayman Island affiliates of Cayman National Corporation, which provided investment brokerage and trust management services to individuals and entities within and outside the Cayman Islands, including US taxpayers, each pleaded guilty to a criminal Information charging them with conspiring with many of their US taxpayer-clients to hide more than $130 million in offshore accounts from the US Internal Revenue Service (IRS) and to evade US taxes on the income earned in those accounts.
CNS and CNT entered their guilty pleas pursuant to plea agreements requiring the companies, among other things, to produce through the treaty process account files of non-compliant US taxpayers who maintained accounts at CNS and CNT, and pay a total of $6 million in financial penalties.
“The guilty pleas of these two Cayman Island companies today represent the first convictions of financial institutions outside Switzerland for conspiring with US taxpayers to evade their lawful and legitimate taxes,” said US Attorney Preet Bharara. “The plea agreements require these Cayman entities to provide this office with the client files, because we are committed to finding and prosecuting not only banks that help US taxpayers evade taxes, but also individual taxpayers who find criminal ways not to pay their fair share. We will follow them no matter how far they go to hide their accounts, whether it is Switzerland, the Cayman Islands, or some other tax haven.”
“Today’s convictions make clear that our focus is not on any one bank, insurance company or asset management firm, or even any one country,” said Acting Deputy Assistant Attorney General Stuart Goldberg of the Justice Department’s Tax Division. “The Department and IRS are following the money across the globe – there are no safe havens for US citizens engaged in tax evasion or those actively assisting them.”
“The veil of secrecy has been lifted from what was once a common place for criminals to hide their money offshore,” said Chief Richard Weber of the Internal Revenue Service – Criminal Investigation (IRS-CI). “The IRS and DOJ work aggressively to require banks to follow the laws and not turn a blind eye to criminal activity. When individuals and entities hide behind shell corporations and numbered bank accounts, they are not only cheating the US government, they are cheating the honest taxpaying citizens who are obeying the law and doing the right thing.”
According to the information, statements made during the proceedings on Wednesday and other documents filed in Manhattan federal court, including the statement of facts to the plea agreements:
From at least 2001 through 2011, CNS and CNT, which are both located in Grand Cayman and organized under the laws of the Cayman Islands, assisted certain US taxpayers in evading their US tax obligations to the IRS and otherwise hiding accounts held at CNS and CNT from the IRS (undeclared accounts). CNS and CNT did so by knowingly opening and maintaining undeclared accounts for US taxpayers at CNS and CNT. Specifically, and among other things, in furtherance of a scheme to help US taxpayers hide assets from the IRS and evade taxes:
• CNS and CNT opened, and/or encouraged many US taxpayer-clients to open accounts held in the name of sham Caymanian companies and trusts (collectively, structures), thereby helping US taxpayers conceal their beneficial ownership of the accounts.
• CNS and CNT treated these sham Caymanian structures as the account holders and allowed the US beneficial owners of the accounts to trade in US securities.
• CNS failed to disclose to the IRS the identities of the US beneficial owners who were trading in US securities, in contravention of CNS’s obligations under its Qualified Intermediary Agreement (QI) with the IRS.
• After learning about the investigation of Swiss bank UBS AG (UBS), in or about 2008, for assisting US taxpayers to evade their US tax obligations, CNS and CNT continued knowingly to maintain undeclared accounts for US taxpayer-clients and did not begin to engage in any significant remedial efforts with respect to those accounts until 2011 and 2012.
The sham Caymanian structures that CNT set up for US taxpayer-clients included trusts, which were nominally controlled by CNT trust officers, but which in fact were controlled by the US taxpayer-clients; managed companies, for which CNT ostensibly provided direction and management services, but which in truth were shell companies that served only to hold the assets of the US taxpayer-clients; and registered office companies, which were shell companies for which CNT simply supplied a Caymanian mailing address.
CNS treated these sham Caymanian structures as the account holders and then permitted the US taxpayer-clients to trade in US securities, without requiring them to submit Form W-9s, which are IRS forms that identify individuals as US taxpayers, as CNS was obligated to do under its QI obligations for accounts held by US persons that held US securities. CNS and CNT agreed to maintain these structures for US taxpayer-clients after many of them expressed concern that their accounts would be detected by the IRS.
In or about April 2008, it became publicly known that the US Department of Justice was investigating UBS for assisting US taxpayers to evade their US tax obligations. Thereafter, despite the public disclosure of the UBS case, and CNS’s awareness of it, CNS continued to assist US taxpayer-clients in concealing their accounts from the IRS by, among other things, failing to require them to complete Form W-9s.
Likewise, up through at least 2010, CNT continued to rely on account opening documentation that, rather than barring the creation of non-tax compliant structures, simply assigned higher “risk” points to such structures. In or about June 2011, CNT hired a new president, who spearheaded a review of CNT’s files. In the course of that review, not a single file was found to be complete and without tax or other issues. Moreover, with respect to the structures that had US beneficial owners, CNT’s files contained little, if any, evidence of tax compliance.
At their high-water mark in 2009, CNS and CNT had approximately $137 million in assets under management relating to undeclared accounts held by US taxpayer-clients. From 2001 through 2011, CNS and CNT earned more than $3.4 million in gross revenues from the undeclared US taxpayer accounts that they maintained.
As part of their plea agreements with the US Attorney’s Office for the Southern District of New York, CNS and CNT have agreed to cooperate fully with the investigation of the companies’ criminal conduct.
To date, CNS and CNT have already made substantial efforts to cooperate with that investigation, including by: (1) facilitating interviews that the office conducted of CNS and CNT employees, including top level executives; (2) voluntarily producing documents in response to the office’s requests; (3) providing, in response to a treaty request, unredacted client files for approximately 20 percent of the US taxpayer-clients who maintained accounts at CNS and CNT; and (4) committing to assist in responding to a treaty request that is expected to result in the production of unredacted client files for approximately 90 to 95 percent of the US taxpayer-clients who maintained accounts at CNS and CNT.
In connection with their guilty pleas, CNS and CNT have agreed to pay the United States a total of $6 million, which consists of the forfeiture of gross proceeds of their illegal conduct, restitution of the outstanding unpaid taxes from US taxpayers who held undeclared accounts at CNS and CNT, and a fine.
