Bank Records Sought in Offshore Tax Inquiry

A federal judge gave the government permission to seek data from five Wall Street banks on American clients suspected of hiding assets at an unrelated Caribbean bank.

Judge Richard M. Berman of the United States District Court in Manhattan told the banks â€" Citigroup, Bank of New York Mellon, JPMorgan Chase, HSBC and Bank of America â€" to produce details about American clients wh may be evading taxes through the Bank of N.T. Butterfield & Son Ltd.

Butterfield has offices throughout the Caribbean, including the Cayman Islands, and in Switzerland, among other offshore havens.

The judge’s order came after a similar one was issued on Nov. 7 by Judge Kimba M. Wood, also of the federal court in Manhattan, to Bank of New York Mellon and Citigroup regarding clients with accounts at Zuercher Kantonalbank, or ZKB, a major regional bank in Zurich. ZKB is one of more than a dozen Swiss and Swiss-style banks under criminal investigation by American authorities for enabling tax evasion by American clients.

Both orders authorized the Internal Revenue Service to issue broad requests, known as John Doe summonses, on the banks, that order them to turn over broad client data.

Neither order accuses the Wall Street banks of any wrongdoing. The five banks could not be reached for immediate comment.

Federal prosecutors suspect that an unnamed number of Americans may have used the five Wall Street banks to access money held secretly offshore, where it went undeclared to the I.R.S. The five banks are suspected of having offered so-called correspondent banking services to Butterfield and ZKB, court records show.

Such services, a standard and legal practice throughout the global banking system, normally allow foreign banks without offices in other countries such as the United States to use interbank ties with banks in the United States to facilitate money flows for clients. Correspondent banking services came under a spotlight last year when federal authorities indicted Wegelin & Company, Switzerland’s oldest private bank, for enabling tax evasion by wealthy Americans. As part of that indictment, U.S. authorities seized more than $16 million from Wegelin’s correspondent bank, the Swiss giant UBS, in Stamford, Conn., through a separate civil forfeiture complaint.

“Nearly every Swiss bank - indeed nearly every bank in the world - has a U.S. correspondent account at a major U.S. bank for processing US dollar transactions,” said Scott D. Michel, a tax lawyer at Caplin & Drysdale in Washington. “The accounts provide a road map of leads and information pointing to possible U.S. account holders.”

He added that “we can surely expect many more of these John Doe summonses to hit the New York banking community as the I.R.S. continues to chase the unreported foreign accounts as well as the Swiss banks now under investigation.”

The United States attorney in Manhattan, Preet Bharara, whose office oversaw the preparation of the orders for the summonses, said Tuesday that “these actions show that the use of foreign banks for tax evasion remains a high investigative priority of this office.”