2009 Safety, Security and International Affairs

John C. McDougal

Spearheaded the IRS Office of Chief Counsel’s efforts to stamp out the use of offshore accounts to commit tax fraud.

For years, tax cheats have set up offshore bank accounts, thinking it would keep them out of reach of U.S. tax law enforcers. John McDougal is an Internal Revenue Service (IRS) special trial attorney who is making scofflaws think again, unraveling complicated international financial networks and recovering millions of dollars in the process.

His colleagues say McDougal is an innovative thinker whose team took a simple idea and transformed it into a campaign that challenged the seemingly impenetrable veil of secrecy around offshore accounts and gradually raised the risks of hiding money offshore to the point where large numbers of offshore tax evaders are now turning themselves in. This relentless campaign has most recently contributed to forcing a recalcitrant foreign bank to reveal the identities of hundreds of offshore account holders. Offshore tax evasion, a 2008 Senate report said, costs the U.S. Treasury $100 billion per year.

“There are a number of people who do this work and contribute, but without John’s personal and direct involvement, I don’t think we would be where are today. We have far exceeded expectations,” said Dan Reeves, an IRS internal review agent and offshore compliance technical advisor who has worked with McDougal since 2000.

McDougal’s team’s approach was simple: If foreign tax havens were not forthcoming with information about their depositors, perhaps going after U.S. companies that process financial transactions for Americans with foreign bank accounts would yield results. For that he needed the help of John Doe.

McDougal and his colleagues at the IRS and the Department of Justice (DOJ) reasoned that they didn’t need to know the identity of depositors to seek information linking them to foreign accounts. They took a little used device called a “John Doe summons” and used it to get data about financial transactions involving offshore funds that flowed through record systems of U.S. credit card associations, merchants, credit card processors, electronic payment companies and banks.

From there it was a matter of following leads from the transaction information to find U.S. taxpayers with offshore accounts who had failed to report their holdings in their annual IRS tax returns.

Perhaps the most successful of the John Doe summonses was issued in 2008 to Swiss banking giant UBS AG for information relating to U.S. taxpayers with secret Swiss accounts. The summons was instrumental in the Justice Department securing a settlement under which UBS admitted engaging in a scheme to help U.S. clients hide income from the IRS, revealed the identity of hundreds of depositors and agreed to pay a $780 million penalty. Tens of thousands of additional names are still being pursued by IRS and DOJ in a contested summons enforcement proceeding against UBS in federal district court.

The John Doe summonses also have led to negotiations toward enhanced banking transparency between U.S. authorities and other countries including Switzerland, Lichtenstein, Andorra and many others that have long traditions of bank secrecy.

“John is considered a national resource. He works on high profile assignments and is the top lawyer working on the infamous UBS cases,” said Stephen H. Kesselman, Deputy Chief Counsel at the IRS.

“He really has done a public service. The public has to pay more money when dishonest people don’t pay their share. John, in particular, makes sure people get a fair shake and goes after major evaders. It makes the tax burden on all of us fairer,” added Thomas R. Thomas, another IRS lawyer who has worked with McDougal.

But McDougal’s public service goes beyond the IRS. McDougal was detailed for 18 months to serve as an investigator on the staff of Sen. Carl Levin of Michigan. He was instrumental in the drafting of Levin’s “Stop Tax Haven Abuse Act” and became a trusted counselor to the senator.

It was at McDougal’s suggestion that Levin sponsored legislation that included language to set up an electronic federal tax lien registry that would save the IRS $150 million and free up IRS personnel to focus on other forms of enforcement. He also contributed to the 2006 report that quantified offshore tax evasion losses at $100 billion annually.

McDougal has ensured that his legacy at IRS will go beyond his creative approaches to nabbing tax cheats. He helped design and conduct training programs to school the next generation of government attorneys and agents around the country in effective techniques of tax evasion sleuthing.

Prior to his work on offshore tax evasion, John McDougal served for more than 25 years as a federal tax attorney, including 15 years as a Special Assistant United States Attorney prosecuting dozens of criminal cases and breaking up illegal tax schemes in relative anonymity. But for the hundreds of criminals he’s nabbed, and the thousands of others now feeling the pressure of IRS’s offshore initiatives, John McDougal is no John Doe. He’s the man who brought them to justice and ended their criminal ways.