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Sovereign Management In Panama Now Under DOJ/IRS Investigation.

Important announcement to U.S. taxpayers that opened offshore bank accounts through a company called Sovereign Management & Legal, Ltd. Based in Panama, the company offers to help Americans open offshore bank accounts with nominee corporations. Knowing that many people who do take these actions are also committing tax evasion, the IRS and Justice Department obtained a John Doe summons from a federal judge. The IRS hopes to find Americans who used Sovereign to open accounts.

Federal Court Approves U.S. Government Issuance Of John Doe Summonses

A Federal Judge recently approved the Internal Revenue Service’s issuance of what is known as a “John Doe” summons to several entities in the U.S who utilized the services of Sovereign Management & Legal Ltd. (“Sovereign”). These entities include FedEx, DHL, UPS, Western Union, the Federal Reserve Bank of New York, Clearing House Payments Company LLC and HSBC USA. According to Sovereign’s website and the government’s Petition filed with the U.S. District Court for the Southern District of New York, Sovereign provides Offshore Banking, Corporation and Trust services. The U.S. government alleges that U.S. taxpayers used those services to conceal ownership of assets held offshore to evade U.S. taxation.

A “John Doe” summons may be issued when the government is unsure of the exact identity of the person(s) for whom they are seeking the information. These summonses seek information that the government cannot procure through the Foreign Account Tax Compliance Act (“FATCA”) and serves as the latest effort in the IRS’s recent push to achieve global tax compliance from its citizens. FATCA, enacted by Congress in March of 2010, requires foreign financial institutions to report certain information about U.S. taxpayer held foreign financial accounts or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In the context of offshore financial holdings, the government has recently issued John Doe summonses to a number of financial institutions requesting account information for U.S. taxpayers with ownership or signature authority over foreign accounts without knowing the names of the specific taxpayers whose information it is seeking. For a John Doe summons to be approved, the government is required to make a showing in court that (1) the summons relates to a particular person or ascertainable group, (2) there is a reasonable basis for believing that such person or group may have failed to comply with any provision of the internal revenue law, and (3) the information sought is not readily available from other sources.

The Federal District Court found that the government met its burden with respect to these requests. For example regarding the courier companies named in the Summons, the government believes that the John Doe summonses will assist them in identifying U.S. clients of Sovereign through records of shipping services between Sovereign and taxpayers in the U.S.

HSBC USA is among the entities named in the government’s Petition because of its correspondent bank accounts held at the bank by HSBC Hong Kong and HSBC Panama. The correspondent account provides banking services to the foreign bank that does not have a U.S. branch so that the foreign bank may reach U.S. customers. The government alleges that HSBC USA’s records relating to the correspondent accounts will assist the government in determining the identity of Sovereign’s clients who held accounts with HSBC Hong Kong and HSBC Panama through wire transfer information and cancelled checks retained by HSBC USA.

The government’s Petition further requests authority to issue summonses to gather wire and electronic fund transfer information from the New York Federal Reserve, Western Union and Clearing House Payments Company. According to the Petition, the New York Federal Reserve Bank maintains the primary electronic funds transfer system for domestic U.S. fund transfers, Western Union also facilitates transfers of funds, and the Clearing House Payments Company operates the main electronic funds transfer system for processing international U.S. dollar funds transfers made between international banks. All of these sources are believed to contain information relevant to discovering the identities of U.S. taxpayers hiding assets offshore through services allegedly provided by Sovereign.

The John Doe summons has already proved to be a powerful tool to help the IRS gather information, including names and account information of U.S. taxpayers with foreign accounts or other foreign financial interests. The IRS has used the John Doe summonses to target individuals with foreign accounts who are hoping to “wait out” the IRS and thus avoid making a voluntary disclosure as well as those intending to avoid future reporting requirements. Once a taxpayer is on the IRS’s radar, IRS Criminal Investigation will no longer clear them to come into compliance under the protections of a voluntary disclosure program.

Services Offered By Sovereign Management That Could Facilitate Tax Evasion By U.S. Taxpayers.

Curious about the services offered by Sovereign, I visited their website.

One of the services offered by Sovereign is an “anonymous offshore ATM / debit card”. Long associated with tax evasion, offshore debit cards are a popular way for people with hidden assets to repatriate their money into the United States. Transferring money into your U.S. account would leave a paper trial but an anonymous debit card allows one to spend money in the United States and make ATM withdrawals with very little paper trail.

Sovereign advertises that their cards have neither a name imprinted on them nor encoded in their magnetic strips.

Of course, to open a foreign bank account most foreign banks want to see a passport. Sovereign has that covered too. For a fee, Sovereign offers “aged” offshore shelf corporations that already have bank accounts. Why present a passport when you can buy a company “off the shelf” that already has an offshore account?

Still need more anonymity? Sovereign offers “nominee director service”.

Worried that you might lose control of your funds or your offshore shelf company? Sovereign has an answer for that too. Their nominee directors come with undated resignation letters.

Sovereign advertises that for a mere $3,500 you can own a ready made Nevis corporation owned by a Panamanian foundation, complete with bank account. An aged company or one with nominee directors is extra, of course.

While none of these things alone are illegal, the IRS considers them to affirmative acts of tax evasion. Unless you have some valid business purpose, having a nominee entity will at a minimum get you audited and if you get caught with an unreported foreign account, you could land in jail.

Is There A Risk Of Getting Caught?

Absolutely! In the case of Sovereign, because they are located in Panama, their customer lists are beyond the reach of the Justice Department. The courier companies however can be subpoenaed and they carry checks and incorporation papers back and forth to Sovereign. Likewise the major credit card companies and ATM networks can be subpoenaed for the financial transactions flowing through their institutions. If you have not reported your foreign income and you have not disclosed your foreign bank accounts, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Program (OVDP) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in San Francisco, Los Angeles, San Diego and elsewhere in California qualify you for OVDP.

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