The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE family trust of a once-jailed gaming kingpin, represented by the Opposition's leader, have seen the US courts reject their claim of 'Bahamian legal supremacy' over a $50 million tax battle.

Judge Jan Dubois, sitting in the eastern Pennsylvania federal court, rejected the Kaplan Family Trust's argument that it should recognise the Bahamian Supreme Court's July 6, 2017, Order that its assets did not belong to the family patriarch.

She also ruled that the Supreme Court ruling "did not have jurisdiction" over the US government, in the shape of the Internal Revenue Service (IRS), because it did not participate in the Bahamian proceedings.

The Kaplan Family Trust, for which Bahamas-based Equity Bank & Trust acts as trustee, thus lost its first effort to overturn the IRS levies against its assets. Philip Davis QC, the Opposition's leader, acted for the trust in Supreme Court proceedings that took place after the May 10 general election, playing a key role in obtaining the July 6 Order.

The trust and its underlying investment company, Nineveh Investments, have been seeking to prove that their assets neither belong to, nor are controlled by, once-jailed family patriarch, Gary Kaplan. The IRS had previously imposed levies on these assets in a bid to collect on multi-million dollar tax liabilities owed by Mr Kaplan in his personal capacity. Recalling the background to the dispute, Judge DuBois wrote: "Kaplan's tax obligations stem from the sale of his shares in BetOnSports, an overseas gambling operation, in public offerings in 2004 and 2005.

"In anticipation of the public offerings, Kaplan settled two trusts based in the Isle of Jersey, to which he transferred his shares in BetOnSports. During the public offerings, the trusts sold Kaplan's shares in BetOnSports for approximately $97 million, which Kaplan invested in bank accounts in Switzerland and the Isle of Jersey.

"In 2010, Kaplan settled the Kaplan Family Trust (KFT) under the laws of the Bahamas as a successor to the two trusts based in Jersey. Plaintiff Nineveh Investments is a Bahamian corporation that serves 'as the underlying company for KFT's financial assets'."

The IRS levies stem from a US court ruling in 2014 that Mr Kaplan's sale of BetOnSports had produced taxable income, prompting Nineveh and his family to launch a multi-jurisdictional legal bid - encompassing the US and the Bahamas - in a bid to overturn the sanctions.

"[Nineveh] also filed suit in the Bahamian Supreme Court, a trial-level tribunal, against Kaplan for determination of 'the rights of the discretionary beneficiaries' of KFT," Judge DuBois found. "The United States was invited to 'participate' in the Bahamian proceedings, but declined to do so.

"On July 6, 2017, the Bahamian Supreme Court issued an Order ruling that the levied assets 'do not form a part of the personal assets of Gary Kaplan'.Plaintiff now asks this court to adopt the July 6, 2017 Order."

The case highlights the frequency with which Bahamian law is coming into conflict with that of other countries, especially the US, and the increasing frequency of court battles involving other nations seeking to collect on taxes they claim are owing.

Judge DuBois found in favour of the US government's argument that Nineveh had "not carried its burden of proving the substance of Bahamian law" sufficiently to enable the US court to rely upon and adopt it.

"Although Rule 44.1 allows this court to consider the July 6, 2017, Order by the Bahamian Supreme Court, that Order provides no evidence of the substance of Bahamian law," she ruled. "It simply recites that court's findings without quoting or discussing the law it purports to apply.

"Plaintiff has provided no other evidence of the substance of Bahamian law and, consequently, has failed to carry its burden of adequately proving foreign law."

This rejected Nineveh's argument that, because it was a Bahamas-domiciled corporation, Bahamian law was "the only 'state' law" that could determine whether Mr Kaplan had an interest in the assets targeted by the IRS

And Judge DuBois also threw out its contention that the Bahamian Supreme Court Order be adopted under "principles of international comity" because the US government had been invited, but refused, to take part in the proceedings here.

"The court agrees with the US with respect to the issue of comity. Critically, the US was not subject to the jurisdiction of the Bahamian Supreme Court and was not a party to those proceedings," she ruled, noting that the US government has never consented to being sued overseas.

"Consequently, the Bahamian Supreme Court did not have jurisdiction over the US, and the US was not obligated to 'participate' in those proceedings as a party or otherwise. Adopting the July 6, 2017, Order would subject the US to a proceeding to which it did not consent."