A high-profile businesswoman accused of using Cayman Islands bank accounts to dodge more than $7 million in taxes is seeking to challenge the use of information obtained by the U.S. Internal Revenue Service through a tax information exchange request.
Cheryl Womack, a Kansas City businesswoman who has a home and permanent residency status in the Cayman Islands, is accused of opening at least 19 bank accounts and organizing a series of trusts and nominee companies in the territory to hide income from the IRS.
Ms. Womack has been charged with one count of attempting to interfere with the administration of IRS laws and nine counts of making false statements to a government agency.
While the allegations relate to a significant tax-avoidance scheme, there are no formal tax evasion or tax fraud charges on the 10-count indictment. On that basis, her lawyers have outlined plans to contest the use of a Tax Information Exchange Agreement between the Cayman Islands and the United States to obtain evidence against her.
The challenge could have broader implications for how TIEAs – essentially a search warrant for foreign documents and bank records – are used in criminal tax investigations in the Cayman Islands.
In a court filing last week, attorneys acting on behalf of Ms. Womack, accuse the government of intentionally restricting access to the agreement to prevent scrutiny of the “improper execution” of the TIEA.
The filing requests full disclosure of the TIEA application to Ms. Womack’s defense team, suggesting that some of the evidence against her could ultimately be inadmissible.
“TIEA applications may only be executed on the Cayman Islands to investigate or prosecute criminal tax evasion, and TIEA application must include a truthful representation regarding the charges in the United States,” Ms. Womack’s attorneys wrote in an application for a court order for the full agreement to be made available to the defense.
In the court filing, the lawyers argue that if the information about Ms. Womack’s bank accounts was obtained on the basis that she was likely to be charged with tax evasion, then it should not be used in any court action.
It states, “TIEA applications are similar to applications for a search warrant in that, before evidence can be obtained pursuant to a TIEA, strict procedural requirements must be met to ensure that the rights of the individual under investigation-and the rights of a sovereign nation-are protected.”
Ms. Womack is accused of using various nominee companies in the Cayman Islands, including a business called Lucy Limited, to conceal income from the IRS.
The indictment alleges she exercised complete ownership, custody and control over Lucy Limited and its assets, which included a wine collection stored in the basement of her Kansas home.
She is said to have sold approximately half the wine collection at a profit at an auction in New York, and arranging for the income to be wired to Lucy Limited’s accounts in the Cayman Islands, gaining access to the funds through a series of fraudulent business agreements.
Last week’s court filing focused on how authorities gained access to information about Ms. Womack’s Cayman accounts through the TIEA application.
It says such applications have specific requirements for how information can be obtained and how it can be used, including that the information gathered can be used only in tax evasion cases.
Up to now, the lawyers say, the government has not released a copy of the agreement to the defense, allowing only restricted access.
In earlier court documents, Ms. Womack’s legal team has indicated that she may change her plea but only on a “limited basis.” They requested disclosure of the TIEA on Wednesday to help prepare their case – that aspects of the evidence should be “suppressed” in any sentencing hearing or trial.
They add that the original basis for requesting permission for information on Ms. Womack’s bank accounts came from evidence obtained from a computer stolen by a former employee of the businesswoman, potentially making it inadmissible.
Ms. Womack has owned and operated multiple Kansas City businesses, including venture capital firm VCW Holding Co. LLC. She sold several of her companies in 2002 for about $35 million.
A press release issued by Cayman Enterprise City in February 2013 identifies Ms. Womack as the CEO of WAT Ltd. in Cayman’s special economic zone, and links to a website about a waste-to-energy company.
In an earlier court hearing, Ms. Womack, who was indicted last December, sought to challenge the confiscation of her passport, arguing that she needed to make a trip to the Cayman Islands to discuss a waste-to-energy business deal. Politicians in the territory said they knew nothing of the trip or any deal with Ms. Womack.
In 2013, an information request by the Australian tax authorities was successfully challenged in the Cayman Island Grand Court. Since the Cayman Islands Tax Information Authority failed to notify the companies involved of the jurisdiction making the request and the general nature of the information sought, producing the information infringed on their rights to “a fair and public hearing” and their “rights to privacy” under Articles 7 and 9 of the Cayman Islands Bill of Rights, the Grand Court ruled.
According to the judgment, the Cayman Islands Tax Information Authority had also failed to ensure that the information requested by the Australian Taxation Office related only to tax years and taxable periods after July 1, 2010, as prescribed by the tax information exchange agreement.
However, despite the judgment, an Australian federal court allowed the records obtained from Cayman to be admitted as evidence in the Australian proceedings. The Australian court considered the Grand Court decision a matter of domestic Cayman law that did not affect the lawfulness of the Australian tax office receiving the material.
Cayman Compass journalist Michael Klein contributed to this story.