Repent! You Cayman Tax dodger: "U.S. Tax-Fraud Probe Opens View Into World of Offshore Banking
By MICHAEL ALLEN
Staff Reporter of THE WALL STREET JOURNAL
NEWARK, N.J. -- Thanks to a penitent former Cayman Islands banker,
U.S. authorities say they have opened an unprecedented window into the
murky workings of the offshore-banking world, in a long-running
investigation that could yield dozens of tax-fraud indictments in coming
years.
The investigation centers on Guardian Bank & Trust (Cayman) Ltd., a
defunct Cayman Islands bank, and its former owner, John M. Mathewson,
a U.S. citizen who operated from the Caribbean island for more than a
decade. Federal agents arrested Mr. Mathewson at his San Antonio home
in 1996 on charges that he laundered money for a U.S. ring that sold illegal
cable-TV converter boxes.
Mr. Mathewson's response staggered federal officials: He handed over a
Rolodex listing all the bank's depositors, numbering more than 1,000,
along with the names of the shell corporations they hid behind. He also
gave agents a computer listing of bank transactions going back 14 months,
offering a gold mine of data about U.S. citizens who banked offshore,
some of them presumably seeking to evade U.S. taxes or break other
laws.
'Most Important Cooperator'
To date, the U.S. has convicted or indicted more than a dozen individuals
who banked at Guardian, and Mr. Mathewson has aided prosecutions in
New Jersey, New York, Florida, Pennsylvania, Ohio, California and
Nebraska, according to documents presented at his sentencing hearing
Monday.
"He is the most important cooperator for the government in the history of
tax-haven prosecutions, without a doubt," says John J. Carney, an
assistant U.S. attorney on the case.
U.S. District Judge Alfred Lechner called Mr. Mathewson's cooperation
"unparalleled," before waiving federal-sentencing guidelines Monday and
ordering him to serve five years' probation and to pay a $30,000 fine. Mr.
Mathewson's guilty pleas in separate indictments in federal courts in
Newark, Brooklyn and Miami could have netted him up to 57 months in
prison, under sentencing guidelines.
The case has also exposed fault lines in the relationship between the U.S.
and the Cayman Islands, a British dependency with more than $500 billion
in deposits, making it the world's fifth-largest banking center. Caymanian
authorities declined to help U.S. agents decode the encrypted Guardian
bank records, and in fact the government-appointed liquidator of the bank
sued the U.S. to try to recover the tapes. U.S. prosecutors prevailed, but
it took them a year and a half to crack the code, with Mr. Mathewson's
help.
Firing Broadsides
Speaking at his sentencing, Mr. Mathewson, now 71 years old and
appearing frail, fired broadsides at the Cayman government and banking
establishment. "The Cayman Island government is knowingly aiding and
abetting tax evasion by citizens of the U.S. and other countries," he said,
contending that "95 to 98%" of the money on deposit there comes from
U.S. clients. "The truth is that without the U.S. client, there wouldn't be a
banking industry in the Cayman Islands."
Juerg Kaufmann, executive director of UBS (Cayman Islands) Ltd., a
Cayman unit of UBS AG of Switzerland, calls Mr. Mathewson's claims
"wildly exaggerated," and says that more than 90% of deposits in Cayman
banks are short-term, interbank funds booked by "on-shore" banks.
It isn't illegal for U.S. citizens to maintain bank accounts in offshore tax
havens, but they must report to the Internal Revenue Service that they hold
such accounts, and must pay U.S. taxes on all income received from them.
Because that's the case, say tax consultants, it often doesn't make any
sense legally for an American to hold money in an offshore account.
It's clear from legal papers filed in Mr. Mathewson's case that he went well
beyond the law in helping his clients. According to an indictment here, he
helped members of a cable-piracy ring disguise intended bribes to the
security agent of a cable-television concern and set up foreign corporations
to "lend" clients their own money for real-estate purchases. The clients
would then repay the loans to themselves, fraudulently taking deductions
for mortgage interest payments and not reporting the income. Prosecutors
say Mr. Mathewson also issued Visa credit cards to depositors in the
name of shell corporations to enable them to make purchases in the U.S.
without leaving a paper trail.
Hard-Core Criminals to Doctors
Court papers show Guardian's clientele ran the gamut from hard-core
criminals needing to launder money to doctors, businessmen, and even a
New York-area golf pro. One of the first to be prosecuted was Dr. Jeffrey
Lavigne, a flamboyant New York surgeon who treated hemorrhoids and
advertised on the subway as "M.D. Tush." Eric Bernstein, an assistant
U.S. attorney in Brooklyn, says Dr. Lavigne helped prosecutors make
their case against Mr. Mathewson, and was sentenced to five years of
probation.
The banker then aided prosecutors in a series of other cases, including one
against Mark Vicini, a New Jersey computer executive, who pleaded
guilty in 1997 to evading $2.2 million in taxes. He was sentenced to five
months in jail, five months home detention, and a $60,000 fine, and also
had to repay back taxes with interest and penalties.
Mr. Mathewson also helped in the prosecution of Bartholomew D'Ascoli,
a New Jersey orthopedic surgeon who deposited $394,000 with
Guardian. Last August, Dr. D'Ascoli pleaded guilty to tax evasion, and
was sentenced to eight months in prison, and a $15,000 fine.
Many more cases appear to be in the works. "As a direct result of Mr.
Mathewson's cooperation, there are now several dozen ongoing
investigations of Guardian depositors by the IRS," wrote Nanette L. Davis,
a trial attorney in the Justice Department's tax division. "Some of those
investigations are criminal in nature; others will be handled by the IRS's
Examination Division." |
