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Justice News

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Friday, December 19, 2014

Court Authorizes IRS To Issue Summonses For Records Relating To U.S. Taxpayers Who Used Services Of Sovereign Management & Legal, Ltd., To Conceal Offshore Accounts, Assets, Or Entities

Preet Bharara, the United States Attorney for the Southern District of New York, David Hubbert, the Deputy Assistant Attorney General for Civil Trial Matters in the Department of Justice’s Tax Division, John Koskinen, the Commissioner of the Internal Revenue Service (“IRS”), and Anthony D. Williams, the Special Agent in Charge of the Drug Enforcement Administration’s Los Angeles Field Division (“DEA”), announced that U.S. District Judge Vernon S. Broderick signed an order yesterday in Manhattan federal court authorizing the IRS to issue summonses requiring Federal Express Corporation a/k/a FedEx Express (“FedEx Express”); FedEx Ground Package System, Inc., a/k/a FedEx Ground (“FedEx Ground”); DHL Express (“DHL”); United Parcel Service, Inc. (“UPS”); Western Union Financial Services, Inc. (“Western Union”); the Federal Reserve Bank of New York (the “FRBNY”); Clearing House Payments Company LLC (“Clearing House”); and HSBC Bank USA, National Association (“HSBC USA”), to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by using the services of SOVEREIGN MANAGEMENT & LEGAL, LTD. (“Sovereign”), to establish, maintain, or conceal foreign accounts, assets, and entities.

In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House, and HSBC USA. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these eight entities to produce records that will assist the IRS in identifying U.S. taxpayers who, from the years 2005 through 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity.

Manhattan U.S. Attorney Preet Bharara said: “This action demonstrates our Office’s commitment to pursuing tax evaders who use offshore service providers to avoid their U.S. tax obligations. By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who conceal their foreign assets in order to dodge their legal responsibility to pay taxes.”

Deputy Assistant Attorney General David Hubbert said: “This summons action is but the latest step in the Department of Justice’s efforts to identify and hold fully accountable U.S. taxpayers who have sidestepped their tax obligations by hiding money overseas. The world is getting smaller for tax cheats, and we will work with our partners at the IRS to vigorously enforce the nation’s tax laws against those who seek to avoid paying their fair share.”

IRS Commissioner John Koskinen said: “The IRS remains committed to continuing our priority efforts to stop offshore tax evasion wherever it is found. We have made tremendous progress in this area, working cooperatively with other agencies. The John Doe summons remains an important tool in our efforts to find international tax evaders and those who help them.”

DEA Special Agent in Charge Anthony D. Williams said: “The DEA has a longstanding commitment to sharing information with our federal, state, and local partners. Issuance of these summonses exemplifies how outstanding investigative results can be derived from a culture of interagency cooperation.”

According to the allegations set forth in the documents filed in support of the petition, and other information in the public record:

Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets.

As a result of a DEA investigation of online narcotics trafficking known as OPERATION ADAM BOMB, the IRS learned that Sovereign was involved in assisting U.S. clients with tax evasion. During the IRS’s investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them.

The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.

Federal law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.

This case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant United States Attorney Joseph N. Cordaro is in charge of the case.

Sovereign Management John Doe Summonses Order
 

14-384
Updated May 15, 2015