NoSSN - Taking Aim at Tax Havens, I.R.S. Seeks Credit Card Slips

Taking Aim at Tax Havens, I.R.S. Seeks Credit Card Slips
October 20, 2000

Taking Aim at Tax Havens, I.R.S. Seeks Credit Card Slips
By DAVID CAY JOHNSTON

The Internal Revenue Service, struggling against Caribbean havens it
suspects of draining away at least $70 billion a year in personal
income tax revenue, has set its sights on a new target — the
credit card slips of suspected tax evaders.

The agency has asked a federal judge in Miami to issue summonses for two
years' worth of records of MasterCard and American Express card
transactions in the United States that were billed to bank accounts in
Antigua and Barbuda, the Bahamas and the Cayman Islands.

Using the Internet and other outlets, banks in those nations openly
solicit tax evasion in ways that the I.R.S. says have proved
attractive to corporate executives, business owners, doctors and
other wealthy people in the United States.

Americans can legally move their assets offshore but are required to
notify the I.R.S. of those transactions and to pay taxes on their income
worldwide. Some Caribbean countries offer an alluring tax haven, however,
because they impose no income tax and do not generally cooperate with
I.R.S. efforts to track down incomes.

But Americans who shelter income offshore face the problem of putting
their money to use. That is where a credit card or charge card billed to
an account at a Caribbean bank comes in handy, investigators say.

Banks in tax refuges issue MasterCards and Visa cards, which can be
used anywhere to draw cash and to pay expenses. The bill is then paid
automatically from the bank in the tax-haven country, leaving no record of
income or spending except for the transaction reports from the networks
that MasterCard, Visa and American Express operate.

Credit cards with $1 million monthly charge limits are being offered by
some of these banks, according to documents filed by the I.R.S. in United
States District Court in Miami. A federal judge there is expected within
days to decide whether to issue the summonses requested by the I.R.S.

MasterCard International, which like Visa licenses banks to issue
credit cards, said yesterday that it would try to cooperate with the
government, but might not have the records the I.R.S. seeks. A
spokeswoman, Sharon Gamsin, said MasterCard would also weigh the privacy
interests of customers in deciding whether to fight a summons, if it is
issued.

Ms. Gamsin said she did not know of any banks that had been dropped
from the MasterCard system for helping tax evaders. The company's
contract, she added, requires member banks "to comply with all local
laws." It is not a crime in the Caribbean tax-haven countries to help an
American citizen evade American tax law.

The charge-card unit of American Express declined to comment
yesterday on how it would respond to the court action.

Visa, the other big credit card issuer, was mentioned in the court
papers, but the I.R.S. is not seeking its records. Officials would
say only that the scope of the investigation was widening.

John Buchanan, one of the I.R.S. managers supervising the campaign
against tax evasion, said the request for credit card records was
part of a widening inquiry into tax evasion using offshore banks. He said
the agency was stepping up its efforts both to combat such evasion and to
educate people that Congress taxes their worldwide income.

The $70 billion estimate of lost tax revenue was in an affidavit by
Jack A. Blum, a Washington lawyer who has long experience
investigating drug dealers, money laundering and tax evasion for the
United States Senate and other clients. He said that figure was his low
estimate. If the $70 billion proves to be correct, it means that close to
a dime of each dollar individual Americans pay in federal income tax is
used to make up for offshore tax cheating.

The Organization for Economic Cooperation and Development in Paris
and the United Nations have tried in recent years to ascertain the
extent of worldwide tax evasion through offshore accounts. They say
they can only guess that in total it runs in the hundreds of billions of
dollars.

Joseph C. West, an I.R.S. special agent, said in an affidavit seeking the
payment records that "credit, charge and debit cards are a common and
purportedly a nontraceable method of accessing offshore funds in any
location where the card is honored."

The request for records relies heavily on evidence supplied by John
Mathewson, a Chicago executive who set up Guardian Bank in the Cayman
Islands, which was used by more than 1,000 Americans to evade taxes. Mr.
Mathewson, 72, a convicted money launderer who received probation in
return for helping convict his bank's customers, told investigators that
95 percent of his customers used credit, charge and debit cards.

"Mr. Mathewson advised that he promoted the use of credit/debit cards so
that his clients could covertly access funds stored in the Cayman
Islands," Mr. West wrote in his affidavit.

That affidavit also described a mechanism used by the Royal Bank of
Canada to routinely help wealthy Americans set up accounts overseas
and arrange for them to get American Express cards.

A Royal Bank spokesman in Toronto, Joe Konecny, confirmed that the
bank helps some big clients obtain American Express cards, but said
he was unaware of any evidence that it was helping Americans evade
taxes. The bank is an investor-owned corporation, not a Canadian
government agency.

A variety of Web sites feature the logos of MasterCard, Visa and
American Express and describe ways to get around United States tax
laws.

The Web site of the Travelers Holding Company in the Bahamas, for
example, notes that Americans must report assets being moved
offshore, but adds that "there are several ways to establish an
offshore account" without having to inform the I.R.S.

The site of Corporate Trust Services (Caribbean) Ltd. in Antigua says
under the heading "tax avoidance" that "although there is in the United
States the legal requirement to report holdings in offshore companies to
the local tax authorities, no matter how restrictive these rules may be a
greater tax savings may be achieved by the use of an offshore company."

All three credit and charge card companies said they were unaware
that their logos were being used in advertisements soliciting tax
evasion.

Mr. West said that the charge slips sought by the I.R.S. would
advance a number of investigations, including one into 77 stock
brokerage accounts established in tax-haven countries, 66 of which
use charge cards for access to funds in the accounts.

He said the I.R.S. was also investigating a Medicare billing
technique involving the use of an offshore bank to evade taxes on the sale
of medical devices to the government at huge markups.

Follow these three "Maxims" for Tax Freedom!

Rule 1. Protect Property and Earnings!
Rule 2. Get Educated!
Rule 3. Take Action!?*

?* You should not attempt rule number 3 until you have successfully
completed rules 1 and 2!

Protecting property and earnings is imperative!

Protecting property and income includes:
- Inheritance Planning
- Estate Preservation Planning
- Entity Restructuring
- Judgment Proofing
- Lawsuit Exposure Elimination
- Discreet Investing
- Proper Property Management
- Tax Liability Elimination
- and overall financial privacy planning

For more information on this topic send an email to
protection@taxfreedom101.com

"The agency that is so strict on the way Americans keep their books cannot even pass a financial audit." -- Ted Stevens, Republican Senator
from Alaska

DISCLAIMER: The data on this website is the collaborative experience, contributions, and research of various websites, legal books, tax documents, researchers, associates, attorneys, CPA's, etc. and does not constitute legal advice. The primary purpose of this site is education. We do not advocate any specific course of action. What you do with this information and any course of action you decide to take, if any, is entirely your responsibility.

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