Cayman Finance Firms Guilty of Hiding Funds for U.S. Clients

Two units of a Cayman Islands financial institution have pleaded guilty to helping U.S. clients hide money as the U.S. crackdown on tax evasion reaches beyond Switzerland, officials said Wednesday.

Cayman National Securities and Cayman National Trust, affiliates of Cayman National Corporation, admitted in a U.S. federal court to conspiring with U.S. clients to hide more than $130 million in offshore accounts from the Internal Revenue Service and to evade taxes on income earned from those accounts, authorities said.

It was the first conviction of a non-Swiss financial institution for tax-evasion conspiracy, the U.S. Justice Department, the IRS and the U.S. district attorney in Manhattan said in a joint statement.

Under plea agreements, the two companies in the notorious Caribbean tax haven must pay $6 million in penalties and provide the files of non-compliant U.S. taxpayers to the office of Preet Bharara, the U.S. attorney for the Southern District of New York.

"We are committed to finding and prosecuting not only banks that help U.S. taxpayers evade taxes, but also individual taxpayers who find criminal ways not to pay their fair share," Bharara said in the statement.

"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."

Between at least 2001 and 2011, the companies helped U.S. clients hide funds in the accounts of Cayman-registered shell companies and trusts. The clients could trade in U.S. securities from those accounts without reporting the activity to the IRS.

The tax-dodging scheme earned more than $3.4 million in gross revenues for the two firms. At their peak in 2009, they had about $137 million in assets under management relating to the sham accounts.

Since 2009, when Swiss bank UBS was fined $780 million for helping U.S. clients avoid taxes, the United States has considerably strengthened its battle against tax evasion.

Under the Foreign Account Tax Compliance Act that took effect in July 2014, the banks of about 110 countries must turn over account information on U.S. clients to the U.S. government, or face a 30 percent withholding tax on the bank's U.S. earnings.

A two-year disclosure program with Swiss banks closed in January with 80 banks agreeing to provide information on clients hiding their assets from taxes in exchange for non-prosecution.