Attorney-Client Privilege, John Doe Summons, and Sovereign Management & Legal


Will the attorney-client privilege protect you from a John Doe summons?

Popular belief seems to suggest that attorney-client privilege covers everything. Well, I hate to be the bearer of bad news, but it really doesn't. A recent summons on the part of a New York judge has brought this reality home. According to Kevin McCoy of USA Today:


"The multiyear federal crackdown on wealthy Americans who duck taxes by hiding income and assets offshore is targeting a Panamanian legal services firm suspected of arranging anonymous banking services."


A Manhattan federal judge on Friday approved special summonses for Sovereign Management & Legal. The approval also covered summonses for Federal Express, DHL, UPS, Western Union, the Federal Reserve Bank of New York, Clearing House Payment and HSBC, firms and institutions Sovereign may have used to send funds to its clients.


Investigators use the so-called John Doe summonses when they suspect a company may be facilitating illegal activity but do not know the names of the firm's clients. The summonses demand that the recipients disclose the identifying information and data.


What will summoning these firms accomplish?

This order, which approved the special summonses for Sovereign Management & Legal LTD., does not give the U.S. jurisdiction in Panama. Instead, it allows the U.S. to peek into the domestic operations of FedEx, DHL, UPS, Western Union, the Federal Reserve of New York, Clearing House Payment, and HSBC. Instead of going in with guns blazing, the United States government is taking a much more tactical (some would say sneaky) approach by craning their neck over the shoulder of Sovereign Management to see what their clients are up to.


For instance, if a package was overnighted to a person in the U.S. from Sovereign Management & Legal, then FedEx would have the record and would then share that information with the Department of Justice. With that information in hand, the DOJ now has a great lead on who may have had business with Sovereign, and they now have a name to commence a criminal investigation against.


As another example, if money was wired through Clearing House Payment to a U.S. person from Sovereign Management & Legal, the Department of Justice again has a way in. They have a name, which is all it takes for them to start a formal investigation.


The people first impacted are unlikely to be tax evaders

So here's the twist: people intentionally evading taxes tend not to have incriminating documents sent to them or suspicious payments wired to their U.S. addresses. If one were intentionally evading taxes using Sovereign Management & Legal, that U.S. client would typically meet in Panama City (or somewhere else outside of the U.S.). It's more probable that they would load up a credit card, take some cash in hand, or send money to another country or related entity. You better believe that they wouldn't leave a trace of their affairs stateside or ever have anything wired or overnighted to them at a U.S. address. Things are kept secret for a reason.


More than likely, the names these summonses uncover will be those who actually weren't trying to evade taxes — they didn't know enough to NOT have money or information sent to them stateside. Or maybe they inherited the accounts and never bothered to report either the accounts or the income. Why? There's a whole host of reasons, but chances are they didn't think that they were breaking the law.


Note: For those who weren't willfully evading taxes, they may still be accepted into the Streamlined OVDP even though Sovereign Management & Legal is on the IRS OVDP FAQ 7.2 list of banks.


Sovereign Management & Legal claims communications are protected by attorney-client privilege. Doesn't that offer some level of protection?

Sovereign Management & Legal of Panama City has this on their webpage (or they do as of this writing):

One of the advantages of using Sovereign for all of your offshore needs is that we can offer a “one-stop-shop” – all protected via attorney-client confidentiality.


Unlike other smaller offshore firms in our industry, we offer complete privacy because we offer all of our services from in-house. Offshore incorporations, offshore investments/brokerage services, offshore banking introductions, etc. can all be done under one roof without going through several different firms, thus keeping all of your information confidential and private.


In addition to Panama’s strict business and banking privacy laws, you are protected by attorney-client privilege since all your personal information will be closely guarded by our law firm.


Additionally, our lawyers are well-suited to act as an efficient buffer between clients and certain offshore assets from which, for asset protection and privacy reasons, clients need to be at a safe “arms length.”


I want to be very clear about this – I am not concerned with laws detailing attorney-client privilege in Panama. As a U.S. citizen, the only relevant law that one should be concerned about is U.S. law. Regarding U.S. law, there is one general rule on attorney-client privilege: if your attorney is helping you commit a crime, all privilege is lost. Just like that, it's gone forever. Of course, it's extremely possible that you may not have thought you were breaking the law. But if your name comes up on a John Doe summons, the Department of Justice will assume you were willful. Once that assumption is in place — if you're not already in an Offshore Voluntary Disclosure Program (OVDP) — it's an uphill battle trying to prove otherwise.

The Sovereign Management & Legal lion, if it represents attorney-client privilege, will likely be run over by the Department of Justice. And it's not like you can just go down to the pound to get new one.


Not only will attorney-client privilege offer you no protection at all, the fact that you sought out a bank that asserted it had  "lawyers are well-suited to act as an efficient buffer between clients and certain offshore assets….” could be taken as circumstantial evidence of the specific intent necessary to prove a charge of tax evasion.


Tax compliance is not for everyone

We never try to tell people that they have to comply with U.S. taxes. Because the truth of the matter is that you don't. Not everyone gets caught, and even those the IRS knows about — for whatever reason — aren't always charged. You do have a choice. If you want to evade U.S. taxes, just be 100% sure you're willing to take the risk.


If you aren't 100% sure that you can handle getting caught, take a look at what various OVDPs entail. It may not be as bad as you thought. Once again, you may still be able to get into the Streamlined OVDP if you were not willful. Learn about what willful means and learn more about the Offshore Voluntary Disclosure Programs to make sure that you have all of the information necessary to make an informed decision.


If you have had any type of involvement with Sovereign Management & Legal, take a deep breath and consider your options. Help is always available and every situation can be made better. Don't hesitate to reach out if you're feeling overwhelmed and uncertain. There's an incredible amount of information and moving pieces to be aware of, and sometimes that can feel stifling. Just keep your head up and take things one step at a time.