Cayman firms fined $6M for helping tax dodgers

| 09/03/2016 | 38 Comments
CNS Business

Cayman National

(CNS Business): Two subsidiaries of the Cayman National Corporation have pleaded guilty to helping clients evade taxes in a US Department of Justice crackdown on tax cheats. Cayman National Securities and Cayman National Trust entered guilty pleas Wednesday in a New York federal court. The two entities will pay US$6 million in forfeiture and fines, prosecutors said. The US Department of Justice 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 offshore services as it attempts to fight the ‘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 $130 million in offshore accounts from the Internal Revenue Service.

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 pleas were entered in line with agreements requiring the companies to produce the details of non-compliant clients’ accounts 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 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. 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.”

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the DoJ’s Tax Division  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.”

Cayman National Securities and Cayman National Trust have admitted that from at least 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.

The Cayman National Corporation subsidiaries, CNS and CNT, treated these sham Caymanian structures as the account holders, allowed the real owners to trade in US securities and failed to disclose to the IRS the identities of the owners who were trading.

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 assets of the taxpayers for which the two subsidiaries of the Cayman Bank supplied mailing address.

In 2008 when it became publicly known that the Department of Justice was investigating UBS for assisting taxpayers to evade their US tax obligations, the two Cayman National affiliates continued helping clients conceal their accounts from the IRS.

In or about June 2011, Cayman National Trust 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.

CNS and CNT earned more than $3.4 million in gross revenues from the undeclared US taxpayer accounts that they maintained, the DoJ said.

As part of their plea agreements the two financial firms have “made substantial efforts to cooperate”  by producing documents and responding to requests, the justice department said.

In its annual report published at the end of last year, the corporation said it was expecting to part with some $5 million in fines to the US authorities in relation to what it called “past wrongdoing” by two of its companies, Cayman National Securities and Cayman National Trust Company.

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Category: Finance, Financial Crime

Comments (38)

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  1. Anonymous says:

    CIMA has no oversight over tax matters, so, other than the concern for solvency of its licensees, what else are they supposed to do in this situation? The way I understand it, US FATCA was put in place to catch tax evaders and our financial services institutions are obliged to report to the US IRS. While situations like this are embarrassing, this is the deal our Government has cut with the US Government when they agreed to sign up for FATCA. At least we know it is working for the US Government, but how do you deal with the reputational damage to Cayman as a jurisdiction they way these are being framned in the news media. The moral blame seems to be put squarely on Cayman as a jurisdiction rather than the US tax evaders themselves.

    I haven’t read the indictment or details of the DoJ case but perhaps a legislative carve out from CRPL is needed to expose the names of the US tax evaders in such situations? It would allow the news to be reported in these situations as “CNC exposes tax evasion by client Mr X…”, where Mr X is no longer able to hide behind our confidentiality laws.

  2. Soldier Crab says:

    This sounds like another example of an exercise in extra-territoriality by the USA. Unless the CNB subsidiaries are registered as US companies how can any US court claim jurisdiction?
    If these ‘fines’ are paid then the US will see it as another successful bullying operation and go for more on a future occasion. It is time the local banks and Government told them to ‘go fly a kite’.

  3. Richard Edward Arch says:

    Question: Are we going to see a number of heads rolling down Elgin Avenue?.
    Suggestion: Legislation needed – any institution found harbouring such practices should be “FINED” a similar amount of any charge applied overseas and that amount be assigned to funding of Caymanians that are experiencing financial hardships – particularly foreclosures on their homes.
    Signed: Embarrrrasssed.

  4. Anonymous says:

    tax evasion in cayman?????….never!

    • Perry says:

      where is the so called accountability that is suppose to be evident in the private sector. It seems that the civil service has better accountability these days

  5. Anonymous says:

    As long as they are also willing to go as far as Delaware to find tax cheats, that’s OK.
    They never will.

  6. Anonymous says:

    The level of incompetence among those commenting are absurd. Firstly, the comments are directed towards to the Bank when the article explicitly states that it was the Fund and Trust companies which are structures that are known for having inherent AML risk. Secondly, the financial services regulator does conducts audits but I’m sure that the contents of their reports are confidential. Due to the structure of our regulatory framework there is not an enforced fining aspect, however it does not mean that action was not taken. Instead of playing the blame game, perhaps we could move to becoming more educated on the repercussions of this event as well as the Local and international corruption scandals and how we can move forward as a country in an ever changing environment.

    • Anonymous says:

      There is no level of incompetence in telling the truth. There is obvious willful blindness in this sad saga. Clearly those at the top structure of the company were not willing to tell the Board of these matters u till it hot them in he face. If at the peak of this malfeasance in 2008/2009 assets under management were at the level disclosed, every one in the company was probably tapping themselves on the shoulder for a job well done. A time line of who as in charge and who was on the Board during the 2001 to 2012 and a review of their track records will no doubt paint a clearer picture. Sadly the shareholders have been in e position to question the Board but it is evident they have been duped.

      • Anonymous says:

        I believe the chairman has been at Cayman National as a director since 1970s and the absentee CEO has been there long before 2001 as part of senior executive management. The question is do they regret being caught or found out or fined or do they truly regret being aware of/involved in such activities? Shareholders need to know what is their attitude towards regulatory compliance and good corporate governance. How do they deal with Presidents when wrong doings are discovered? What is their strategy to improve the ever declining but mostly stagnant share price? What is strategy to improve return on assets and on equity? Ask questions shareholders. You own the company!!

    • Anonymous says:

      You comment is absurd. Puting the business in separate boxes run by the same people should not provide an excuse for CIMA.to avoid its responsibility. What bank do you think the money passed through? A lack of enforcement only ensures that this will be repeated.

  7. CYNICAL says:

    This sort of news is always damaging, but particularly when the global compliance boys OECD/IMF/FATF etc are likely to ask the same questions about CIMA as the CNS commentators – not the sort of attention we want to draw on ourselves. And globally, the uninformed might translate ” Cayman National Bank” into the island’s Central Bank – the Government bank – and all that might imply.
    We also need clarification on the $6 million. Some reports suggest this is just CNC paying back some of the profit or revenue they earned on these deals – and that in addition they may be liable for tax revenue lost by the US, and be fined as well.

  8. Anonymous says:

    Question for CIMA: have you EVER done a compliance audit on one of your local Class A banks? It appears you only pretend to regulate the banks and that you never go beyond whatever paperwork they hand in to you. Is this on purpose or is it incompetence or what?

    • Anonymous says:

      What’s surprising in all of this is that the signs have been on the wall for quite some time,, big cash cow and low profits in the first instance, practically unknown Chieftain who was never around,, like an MI5 spook, poor products, obsolete service quality, a lot of fluff and no buff in the banks customer service, firing of caymanians for opening their mouth, . And where was the internal Compliance process and that of CIMA. Looks like the cookie is crumbling while the board is playing blind man bluff or is it that they too are incompetent or was there willfull blindnes. Board, CEO, CIMA and shareholders need to get their act together on this yet another smack on the face of Cayman mess sorted out.

      • Anonymous says:

        Hold up the CEO said that other Banks are being investigated, guess that puts Cayman National,in an acceptable class eh! That statement says a lot about the Management competence.

  9. Anonymous says:

    When will the shareholders and trusted members of the board going to waken up and question the leadership of the CEO of CNC. His record is appalling. This fine, the Turks and Caicos disaster, the Windsor Village fiasco, further upcoming lawsuits etc, etc, etc. If his leadership and decision making continues company shares will become worthless.

    • Anonymous says:

      If you have note noticed the shares of CNC are already pretty much worthless with a market price if USD$1.80. The only attractive feature is that the dividend yield is close to six percent. This will soon change as they have not declared the interim dividend in Oct 2015. Lets see what n the board has to say at the AGM on March 17, 2016.

      The management needs to be looked at within those entities as it seems it they can do as they please with little to no accountability.

  10. The Bitter Pill says:

    Move along. Nothing to see here. Just a group of honest Caymanians on the board and on staff who got hoodwinked for a decade by some rascal expat to be named later, no doubt. But don’t worry shareholders, the ship has been righted and the dividends of this well-run company will start rolling in soon. It’s all good. We swear. Cross our hearts and hope to die, stick a needle in our eye.

  11. Anonymous says:

    At some stage CIMA have to step up and take responsibility for all these issues to our Island. Over the past 5 years Cayman have had issues steadily. A few very embarrassing to say the least. CIMA is yet to say a word. I have not seen any of their workers/ heads being sanctioned for the sloppy jobs. Yes I said it “SLOPPY JOBs”. People of the Cayman Islands we deserve answers. This is our children’s future. I am not taking away from what CNC did. CIMA come on!!!! Be professionals, step to the table with common sense, take care of our shores , your being paid well to do so!

  12. Bob says:

    I may be a bit more sympathetic to the Cayman banks if they had a clue as to what they’re doing. The level of incompetence at all banks on island together with their archaic systems leave the whole Cayman banking industry in drastic need of an overhaul. If anybody wants to open an bank (or even better an online bank fitting of the 21st century) then please hurry up and do so.

    • Anonymous says:

      Caledonian Bank did this. They were innovative and changed the way banking was done in Cayman. Look what they got for their troubles…

  13. IRS says:

    Let’s see what the IRS does with the individuals involved behind these accounts. And now also let’s see if CNB gets a John Doe Summons like First Caribbean and Butterfield. Then the IRS has the US persons by the short and curlies and there is no immunity for special treatment under the amnesty programs once the IRS “knows” about you… And that includes accounts held at John Doe banks… You used to be able to run but not hide. Rapidly it is getting to where you cannot even run, let alone hide… Whole lotta shakin’ goin’ on…

  14. Anonymous says:

    And once again shame brought on the Cayman Islands with your own and not an ex-pat in sight to blame! What else will crawl from under that carpet that things get pushed under?!!!

  15. Anonymous says:

    Hmmmm sounds like big time corruption with so many so called professionals as staff wow! Shameful indeed.

  16. Anonymous says:

    1. The level of fines by the US Authorities appears to be low given the allegations;
    2. What does CIMA have to say about this? Were Cayman laws broken as well?

    • Anonymous says:

      Please the level of fines was low because they gave up all the ms,es of the clients they were complicit with. Now as for CI!A, certainly Cayman AML laws have been broken. The problem is that there probably has been some white washing already done with the excuse it was past mistakes and I won’t do it again. Fire the chiefs of the Trust and Funds Mamagement and the CEO however not before they are prosecuted.

  17. SKEPTICAL says:

    Two immediate thoughts. Who were the directors of these companies during the period this activity occurred. But, perhaps more importantly, why were the issues of non-compliance with laws and regulations, never picked up during CIMA on site inspections – over a period of at least ten years.

  18. Anonymous says:

    No dividends again! Chuh! Poonyroot!

  19. Anonymous says:

    Seriously embarrassing for the jurisdiction, especially as this group is 100% home grown.

    As the primary regulator does CIMA have anything to say or do? Anything at all?

  20. Anonymous says:

    And those helped can’t hide from God? Great pretend christans

  21. Anonymous says:

    Oopsie!

  22. Anonymous says:

    its just too bad criminals under a corporate vale just get fined and don’t actually go to jail

    • Anonymous says:

      What? They don’t see anything wrong with helping their customers hide their assets from their own governments. They are up to their necks in religion.

  23. Merdoff says:

    A question, why didn’t CIMA picked these issues up in one of their annual inspections? I am a bit concerned that CIMA really isn’t doing what the authority is supposed to do. Aren’t they supposed to regulate the banks?

  24. Anonymous says:

    Will any heads roll? This is a black eye for the Cayman Islands and the board of directors of CNC

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