By JEFFREY GOLD Associated Press Writer
NEWARK, N.J. (AP) - The secrecy surrounding banks in the Cayman Islands, where for years wealthy Americans have used offshore accounts to avoid taxes, has been laid bare with the help of a former banker.
The probation sentencing of John M. Mathewson, 71, on federal conspiracy and money laundering charges has led to an unprecedented look at how Cayman banks operate, prosecutors say.
Records provided by Mathewson, who was sentenced Monday, could result in tax evasion charges against 1,500 U.S. citizens and net as much as $300 million in back taxes.
Caymen banks ``have proven over the past several decades to be one of the greatest allies'' of U.S. criminals, including drug traffickers, Assistant U.S. Attorney John J. Carney said in court documents.
The fallout from the takeover of the Guardian Bank & Trust Limited, however, is likely to be more modest than the collapse of the Bank of Credit and Commerce International, a Cayman Island bank that used fraud to cover up its insolvency.
BCCI, which had 1.3 million depositors and operations in 70 nations, dwarfed Guardian, which had some 2,000 mainly American clients. However, the Guardian case demonstrated that the secrecy of one of the world's largest financial depositories could be pierced.
A consultant who has worked in international banking and spoke on the condition of anonymity disputed the view of U.S. authorities who suggested that the 500 banks in the tiny British colony exist mainly to illegally hide American money.
Most of the banks on the Caribbean island are based in either Europe or the United States, and they do not accept Americans as clients, leaving just a handful of Caymanian banks, such as Guardian, for such accounts, the consultant said Tuesday.
Most are merely offices with no services for individuals, the consultant said. Nevertheless, the Cayman Islands rank in the top half-dozen of world banking centers, by deposits.
Mathewson, a U.S. citizen now living in San Antonio, Texas, could have received a five-year prison term, but got probation because of what U.S. District Judge Alfred J. Lechner Jr. called ``unparalleled'' cooperation with U.S. authorities.
That assistance, over the past three years, included providing the FBI and the Internal Revenue Service with computerized records of Guardian Bank and continuing grand jury testimony. This could result in up to $300 million in taxes and penalties being collected, with $50 million received so far, his lawyer said. Authorities could not confirm those figures.
The island government issued no response by Tuesday regarding the Guardian case, despite repeated requests for comment.
Guardian operated for nine years before Cayman authorities closed it in early 1995 and had it liquidated for serious irregularities.
It is not clear whether its run as a tax haven is due to a failure of oversight, legislation, or some combination, said Stephen M. Feldhaus, an international tax lawyer based in Washington, D.C., who said he has done work in the Caymans since 1975 for businesses and investment funds.
Such clients make legitimate use of banks with Cayman offices, acknowledge offshore accounts on their U.S. tax forms, and are the bulk of the industry there, he said.
Mathewson had been arrested in 1996 in Texas following an undercover FBI operation targeting a group that pirated cable television signals and used Guardian to cloak bribes paid to an industry insider, court documents show.
Authorities did not realize Mathewson had Guardian's records until he offered the backup computer tapes. Many of Guardian's U.S. clients were illegally attempting to hide legitimate income, but some also are believed to be sheltering ill-gotten gains, prosecutors said.
The Mathewson case is based in Newark because the nationwide
cable piracy probe was handled by the FBI office here.