Cayman National Securities and Cayman National Trust will pay $6m (£4.2m, €5.4m) in forfeitures and fines, the Cayman News Service reported on Wednesday.
The affiliates of Cayman National Corporation provided investment brokerage and trust management services to individuals and entities in and out of the Cayman Islands.
The US Department of Justice (DoJ) said it would follow tax evaders “no matter how far they go to hide their accounts, whether it is Switzerland, the Cayman Islands, or some other tax haven”.
In another blow to the jurisdiction’s attempts to fight its ‘tax haven’ label; a DoJ press release said the subsidiaries pleaded guilty to charges of conspiring with many of their US tax paying clients to hide more than $130m in offshore accounts from the Internal Revenue Service (IRS).
Details released
The pleas were entered in line with agreements requiring the companies to release the details of non-compliant clients’ accounts.
“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 Preetinder Singh 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.”
Wide focus
Acting Deputy Assistant Attorney General of the DoJ’s Tax Division, Stuart M. Goldberg, said the convictions show the focus is not on any one institution or even any one country.
“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,” he said.
Richard Weber, chief of the IRS Criminal Investigation Division, said, “The veil of secrecy has been lifted from what was once a common place for criminals to hide their money offshore. 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.”
Sham companies
Cayman National Securities and Cayman National Trust have admitted that from as early as 2001 through to 2011 they assisted some US taxpayers in evading their tax obligations and did so by knowingly opening and maintaining undeclared accounts.
The affiliates admitted to encouraging clients to open accounts held in the name of sham Caymanian companies and trusts, concealing their beneficial ownership of the accounts.
Cayman National Securities (CNS) and Cayman National Trust (CNT) treated the sham Caymanian structures as the account holders, allowing the real owners to trade in US securities and did not disclose the identities of the owners to the IRS.
US authorities said the sham structures included trusts, which were nominally controlled by the Cayman National affiliates officers but were in fact controlled by the US taxpayers.
These were shell companies that served only to hold the taxpayers’ assets, for which CNT and CNS supplied mailing addresses.
Review
Around June 2011, CNT hired a new president who spearheaded a review of the firm’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.
CNS and CNT earned more than $3.4m in gross revenues from the undeclared US taxpayer accounts that they maintained, the DoJ said.
