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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