The Bank of N.T. Butterfield & Son Ltd. has made provision for the payment of US$4.8 million, recorded during its financial year which ended Dec. 31, 2015, against the possibility that it could be required to make a settlement payment as the result of an ongoing U.S. federal investigation into tax evasion.
According to explanatory notes attached to the Bermuda-based bank’s 2015 financial statements: “Management believes, at this stage, a provision of US$4.8 million … is appropriate based on the methodology used in similar settlements for other financial institutions. As the investigation remains ongoing at this time, the timing and terms of the final resolution, including any fines or penalties, remain uncertain and the financial impact to the bank could exceed the amount of the provision.”
When bank officials were asked for comment Monday, Butterfield Bank (Cayman) Ltd. Deputy Managing Director Mike McWatt referred the Cayman Compass to the year-end financial statement documents.
In November 2013, the U.S. Attorney’s Office for the Southern District of New York announced the issuing of what were called the “John Doe summonses” to U.S. financial institutions with which Butterfield Bank had correspondent bank relationships.
The John Doe summonses sought “to obtain information about possible tax fraud by individuals whose identities are unknown,” according to a U.S. Department of Justice press release from Nov. 12, 2013. The summonses required five banks operating in the U.S. to produce that information in connection with undisclosed accounts at Butterfield Bank and its affiliates in the Bahamas, Barbados, the Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland and the U.K.
Butterfield bank made a brief reference to the ongoing investigation in its year-end financial statements for 2014:
“There are actions and legal proceedings pending against the bank and its subsidiaries which arose in the normal course of its business. Management, after reviewing all actions and proceedings pending against or involving the bank and its subsidiaries, considers that the resolution of these matters would, in the aggregate, not be material to the consolidated financial position of the bank.”
The financial statements for 2015, released late last month, provided more detail: “The bank has been fully cooperating with the U.S. authorities in their ongoing investigation. Specifically, the bank has conducted an extensive review and account remediation exercise to determine the U.S. tax compliance status of U.S.-person account holders. The review process and results have been shared with U.S. authorities.”
The U.S. authorities involved have not commented regarding adequacy of the US$4.8 million estimates in the bank’s financial statements, according to Butterfield.
In addition to the US$4.8 million provision, Butterfield reported it had spent about US$3.8 million on the internal review and account remediation program described in the notes to the financial statements.
The reports in the Butterfield Bank financial statements were released about three weeks before Cayman National Corp.’s affiliated trust and securities management businesses pleaded guilty to conspiring with American taxpayers to hide US$137 million in assets managed by those companies from the U.S. Internal Revenue Service.
Cayman National Trust Co. Ltd. and Cayman National Securities Ltd. have agreed to forfeit US$6 million as part of the deal. In addition, the companies agreed to turn over account information on the alleged tax evaders whose accounts they managed.
Cayman National Corp.’s shareholders were informed of the pending court action last year in the company’s 2014/2015 fourth quarter financial statements ending Sept. 30, which identified the US$6 million settlement. Those statements were released in December 2015. Cayman National Corp. is the parent company of Cayman National Bank, as well as the trust and securities businesses.
A statement released last week by the Cayman Islands Monetary Authority indicated the authority has been “assured” that the guilty pleas by Cayman National Trust Co. Ltd. and Cayman National Securities Ltd. should have “no adverse impact on the solvency of Cayman National Bank.”
Cayman Islands Bankers’ Association President Mark McIntyre said Monday that he did not wish to comment on behalf of the association with regard to any particular bank operating in Cayman. Mr. McIntyre said local banks were doing everything they could at the moment to maintain correspondent banking relationships with U.S. financial institutions.
In April 2013, a U.S. federal court authorized the IRS to serve a John Doe summons seeking information about U.S. taxpayers who may hold accounts at CIBC FirstCaribbean.
The summons seeks the records of FCIB’s correspondent banking account at Wells Fargo.
The Department of Justice said the summons would identify U.S. taxpayers who have accounts at CIBC FirstCaribbean and other financial institutions that used FCIB’s Wells Fargo correspondent account.
The Butterfield and CIBC FirstCaribbean summonses were issued in response to 81 Butterfield and 129 CIBC FirstCaribbean U.S. account holders admitting, as part of various IRS Offshore Voluntary Disclosure programs, that they had not disclosed these accounts in the past.
Compass reporter Michael Klein contributed to this story.