The Manhattan District Attorney, the Securities and Exchange Commission (SEC)
and the US Internal Revenue Service (IRS) are jointly probing a tax-shelter plan
run out of the Isle of Man.
The scheme, devised by one of America's biggest banks and used by two billionaire
donors to George Bush's election campaign among others, is being probed for
possible breaches of securities and anti-money-laundering rules.
The investigating bodies believed that up to $100m (£55m) of tax was
saved through one scheme alone, and as much as $700m in taxes may have been
avoided over an 11-year period. The scheme involved executives and corporations
handing over stock to trusts that they declared they neither owned nor controlled.
When the options were cashed in, no tax was payable. However, the IRS changed
the rules in 2003 to say that tax should be paid anyway.
In the previous 11 years, tax schemes were marketed by Bank of America to at
least 42 corporations.
Earlier this year the Manhattan District Attorney, Robert Morgenthau, started
probing allegations that some of these trusts were controlled by the people
passing on the stock options. Both the IRS and the SEC have now joined in this
They have contacted the regulators on the Isle of Man asking for information
on one particular scheme used by two Texan billionaire brothers, Charles and
The duo, who made their money in computing and retailing, not only gave over
$200,000 to President Bush's re-election campaigns, but also bankrolled TV adverts
attacking his rivals, John Kerry and Senator John McCain.
Sam Wyly describes himself as "the entrepreneur's entrepreneur" and
came to prominence when he unsuccessfully tried to oust the board of Computer
Associates in 2001 - only a year after the brothers sold their Sterling Software
business to the group for $4bn.
The Isle of Man authorities have passed documents to US investigators relating
to 20 different entities linked to the Wyly brothers that are registered in
the Irish Sea tax haven. One, Devotion Ltd, is a holding company with two directors
and no employees; it is run, according to SEC filings, from a remote farm on
the island. Another director, who lives in a terraced house, signed a transfer
document for $25m. At one point, Isle of Man entities owned 20 per cent of the
shares in Sterling Software, as well as 12.8 per cent of another Wyly group,
Michaels Stores, and 42 per cent of a third, Green Mountain Energy.
The Isle of Man authorities have said they are co-operating fully with the
US investigations, as has Bank of America. A spokesman for the Wyly brothers'
lawyers said "they felt they only did what was appropriate".
The US authorities said they could not comment on ongoing investigations.