Folks with Panamanian bank accounts may soon be getting some official-looking envelopes in the mail, as the Justice Department recently served John Doe subpoenas on FedEx, DHL, Western Union and a number of other shipping and wire transfer companies. These summonses require the targets to turn over any documents or material relating to their business with Panama-based Sovereign Management and Legal, Ltd.

With typical government bravado, Deputy AG David Hubbert warned that “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.”

Sovereign first drew the government’s watchful eye as part of Operation Adam Bomb, a DEA investigation into online narcotics distribution. Ever since the infamous “Christmas on the Isthmus” in 1989, Panama has had the reputation, deserved or undeserved, as being a hotbed for narcotics smuggling, money laundering and tax evasion. But what was the bridge between general suspicion and U.S. District Judge Vernon Broderick’s signature on a blanket subpoena?

Alarm!

There were a number of business practices at Sovereign that were enough to send the good people at 1111 Constitution Avenue into DEFCON 3.

Sovereign offers its customers an anonymous ATM/debit card which, according to advertisements, have no name on the card or embedded in the magnetic strip. The only reason you would want one of these bad boys is if you wanted to conceal your spending from someone. It could be a government auditor, an NSA spook, your spouse or your business partner.

Preferred customers at Sovereign, which is anyone whose check cleared, are eligible for nominee director service. Said director can manage your account and business affairs while you maintain plausible deniability. Apparently, the nominee directors came with undated resignation letters, so if they ever get out of line, you can pull the plug.

No passport? No problem! Sovereign can set you up with an “aged” offshore shelf corporation that already has a bank account.

In fact, a good portion of Sovereign’s website is devoted to tax havens involving reduction, deferral and elimination. It’s replete with buzzwords like “offshore protection,” “business triangulation,” “financial outsourcing” and “private annuity contracts.”

It’s important to note that all these things are legal. It is also legal for a man to take out a million dollar life insurance plan on his wife, have a chat with her lawyer about her will, and take her scuba-diving even though she does not know how to swim. But, you can bet that all of these facts would be used against him at a criminal trial if she doesn’t show up for work Monday morning.

The phantom debit card, shelf company and other account features are all affirmative acts of fraud according to the IRS. And, the more bricks government prosecutors can put in the wall, the stronger the wall becomes.

Building a Case

John Doe subpoenas give the government sweeping power to investigate alleged criminal activity. In most civil or criminal cases, a judge would never sign a warrant to search records of unnamed individuals, but the IRS uses them quite often in offshore tax evasion matters. Two years ago, the Justice Department seized records from Wells Fargo to investigate Canadian-owned First Caribbean National Bank. No indictments have been issued.

Once revenue agents have reviewed the documents and identified affirmative acts of fraud, the next step is typically a target letter. This document is generally the first indication that a grand jury inquiry is in progress. A subpoena usually follows shortly thereafter.

If you receive a target letter, do not assume that the matter will “blow over” or that you can appear before the grand jury and “explain things.” Talk to a lawyer straightaway, and open negotiations with the prosecutor. Perhaps a plea agreement can be worked out before the prosecutor discovers all the evidence against you. Or, the attorneys may arrange for you to present documents to the grand jury, as opposed to a personal appearance which exposes you to questions from the government attorney.

In a future post, we’ll discuss other aspects of an investigation and indictment.

Original Post By:  Michael DeBlis