US tax blitz on offshore credit cards

An insider turns supergrass and now the IRS will turn offshore havens into hell
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The Independent Online

American Express and Mastercard have been ordered by a judge to identify to the US Internal Revenue Service (IRS) their customers who hold cards issued through the offshore tax havens of Antigua, the Bahamas and the Cayman Islands.

American Express and Mastercard have been ordered by a judge to identify to the US Internal Revenue Service (IRS) their customers who hold cards issued through the offshore tax havens of Antigua, the Bahamas and the Cayman Islands.

The two international credit card companies are required to hand over records of those clients' accounts under the terms of the court order, which is part of a massive crackdown on tax evasion.

The judgement is unprecedented and is causing major concern for the big credit companies as it involves card accounts held in jurisdictions outside the US.

The ruling follows evidence that mainstream credit and debit cards issued by offshore banks have been extensively used for money laundering and tax evasion.

According to the Miami- based Offshore Alert newsletter, the IRS took court action after the former Cayman Island banker John Mathewson turned "supergrass" and revealed how credit and debit cards were used in tax scams.

Mathewson, 72, ran the Guardian Bank in the Caymans until his arrest for money laundering in July 1996. After revealing the methods used in the scams he received a non-custodial sentence in the American courts.

Offshore Alert editor David Marchant said: "This court decision re-emphasises the need for offshore territories to attract clean international business, as opposed to simply providing facilities for the criminally-minded to launder money.

"More offshore centres should take their lead from Bermuda, which is not only the most successful offshore centre but also the cleanest."

The IRS's success in obtaining the order is likely to spur it to apply for other similar orders for other offshore jurisdictions.

The British Inland Revenue will be watching with interest. Antigua and the Bahamas are former British colonies and the Cayman Islands remain a British dependency.

The IRS intends to cross-reference the information obtained from the two card companies with the tax returns filed by cardholders to find tax fraud. Some 400 agents have been assigned to the investigation.

IRS court documents claimed that at least $70bn of US tax money was lost each year to offshore tax havens.

The IRS petition for the ex parte order in the US District Court in South Florida states that American Express and Mastercard holders have failed to declare their offshore accounts. It reads: "A reasonable basis exists for believing that such individuals may fail or may have failed to comply with provisions of the internal revenue laws.

"Moreover, the information sought cannot be obtained from the offshore banks as Antigua and Barbuda, the Bahamas and the Cayman Islands do not currently have information-exchange treaties with the United States that would allow the Internal Revenue Service to seek the requested information in connection with a tax investigation."

Antigua, the Bahamas and the Cayman Islands were targeted because they are among the most popular offshore entities for tax evaders.

The petition continues: "The Bahamas and the Cayman Islands have been identified in virtually every report on the involvement of offshore jurisdictions in banking and finance."

The IRS is even more scathing about Antigua, describing the island as "an unregulated jurisdiction allowing those engaged in financial crimes to employ any type of monetary structuring desired".

 

* The Panama-based Harris Organisation, which owns several British plcs, has had its suspension order overturned by the Supreme Court.

Two weeks ago the Independent on Sunday reported that Panamanian regulators, the Comisión Nacional De Valores (National Securities Commission), have issued a suspension order against the Harris Organisation after complaints from investors.

The order would effectively have closed down THO's Panama operations. But THO has since successfully appealed. The Court ruled the suspension order should be subject to a full court hearing where the evidence could be tested.

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