MasterCard International and American Express Co. got sucked more deeply into the Internal Revenue Service's effort to crack down on illegal offshore bank accounts Monday when a federal judge signed an order granting the tax agency access to the two companies' transaction records.
United States District Court Judge Adalberto Jordan gave IRS authorities permission to seek MasterCard and American Express transaction records for U.S. taxpayers who used cards either issued or paid by banks in Antigua, Barbuda, the Bahamas, or the Cayman Islands. The IRS has said that transaction receipts are the only way of linking account holders to offshore assets that they are trying to shield from U.S. taxes.
MasterCard and American Express have both said that they routinely cooperate with the government, but both said that they are not sure what the IRS is looking for.
"While we process credit card transactions, we don't maintain information that can identify individual cardholders," said Sharon Gamsin, a MasterCard spokeswoman. "When we are served the summons, we will review and evaluate whether we have and are able to provide the requested information."
Judy Tenzer, a spokeswoman for American Express, said her company does not have bank partners in those countries that issue American Express cards. The company will be speaking with the IRS soon "to get a better understanding of what they are looking for," she said.
Jack A. Blum, a Washington lawyer and an expert in tax havens who is working as a consultant to the IRS on the case, said the judge's ruling was a big victory. "This is the beginning of a serious effort to solve the offshore tax haven problem," he said. "The truth is, you couldn't have tax havens working unless they related to what was going on onshore. There will be financial trails back to the U.S., and the issue of enforcement is figuring out what those connections are."
In its petition for permission to issue summonses, the IRS argued that the very existence of an offshore account in a tax haven country was suggestive of tax avoidance. Banks in tax haven countries operate under strict secrecy laws. The banks then issue credit cards to their deposit account customers and pay the credit card statements from account funds. Both statement and payment information is kept secret from U.S. authorities.
In his brief to the U.S. district court, Mr. Blum estimated that tax haven bank accounts cost the U.S. Treasury more than $70 billion a year in lost taxes.
Mr. Blum said the issue of cardholder privacy is not relevant to the matter at hand. "The government will treat this data with much higher confidentiality than anybody else ever would. To say this is an assault on privacy is loony."