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by Shawn Cumberbatch

FirstCaribbean International Bank was one of the affected financial institutions

One of the local banking sector’s worst fears has hit home.

In an action linked to efforts to crack down on taxpayers who might be evading paying income taxes and violating revenue laws, the United States Justice Department today announced it had received US court authorisation to get information on accounts more than 120 Americans have at CIBC FirstCaribbean International Bank.

The US Internal Revenue Service is alleging that these individuals were “using FCIB to help them keep their offshore accounts undetected by the IRS and not to pay US federal income tax on money placed in those offshore accounts”.

And in response to news of the investigation via its US partner bank Wells Fargo N.A., the Barbados-based lending institution Director of Corporate Communications, Debra King, said her organisation it would be cooperating with authorities in accordance with the various laws involved.

Barbados TODAY understands the action is part of enforcement efforts related to the new American Foreign Account Tax Compliance Act, which came into force in January, and about which Minister of Finance Chris Sinckler voiced concern last week. That legislation is administered by the Internal Revenue Service.

Justice Department officials announced that late yesterday a federal court in San Francisco “entered an order authorising the Internal Revenue Service to serve a John Doe summons seeking information about US taxpayers who may hold offshore accounts at … FCIB”.

“The order was signed by Senior District Judge Thelton E. Henderson. The IRS summons seeks records of FCIB’s United States correspondent account at Wells Fargo N.A., which will allow the IRS to identify US taxpayers who hold or held interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account,” the American said.

“Pursuant to a petition filed by the United States, 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 internal revenue laws by individuals whose identities are unknown. This John Doe summons directs Wells Fargo to produce records identifying US taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account,” it added.

Justice Department and IRS officials told the court in a declaration that “although FCIB does not have US branches, it maintains a correspondent account in the United States at Wells Fargo Bank N.A.”.

The action by the American officials was prompted after 120 FCIB customers participated in the IRS’s Offshore Voluntary Disclosure Programme. The IRS court declaration said “many” of these people “may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States”.

In a statement sent to Barbados TODAY when contacted this evening, King said: “We are committed to complying with all laws and regulatory requirements.”

“We are working with Wells Fargo, our correspondent bank, to understand the nature of the order. It is our intention to cooperate with authorities in accordance with the respective laws of all jurisdictions involved,” she added.

In a joint statement with the IRS issued today, Assistant Attorney General for the Justice Department’s Tax Division, Kathryn Keneally, said the two organisations “are committed to global enforcement to stop the use of foreign bank accounts to evade US taxes”.

“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,” she said.

IRS Acting Commissioner, Steven T. Miller, added: “This summons marks another milestone in international tax enforcement. 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 US soil.”

American officials are banking on getting the FCIB information by gaining access through Wells Fargo, which maintains correspondent accounts for FCIB.

“A correspondent account is a bank deposit account maintained by one bank for another bank. Financial transactions involving US dollars flow through US banks. Therefore, foreign banks that do business in US dollars, but have no office in the US, obtain a correspondent account at a US bank in order to engage in such transactions,” the Justice Department and IRS said.

“These transactions leave a trail in the US 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 US bank holding the correspondent account.”

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