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Hiding US citizen cash in offshore accounts is uncovered and punished.
Israel’s Largest Bank, Bank Hapoalim, has admitted to conspiring with US taxpayers to hide $7.6 billion and has agreed a fine of $875 million for its sins.
Bank Hapoalim (Switzerland) and Bank Hapoalim B.M. (Israel) agree to pay nearly $875 Million and an entry of criminal charges against Bank Hapoalim B.M. for conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service (IRS).
The money will be paid to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services. It is the second-largest recovery by the DOJ in connection with its investigations into offshore U.S. tax evasion by foreign banks.
Manhattan U.S. Attorney Geoffrey S. Berman said:
“Israel’s largest bank, Bank Hapoalim, and its Swiss subsidiary have admitted to not only failing to prevent but to actively assisting U.S. customers to set up secret accounts, to shelter assets and income, and to evade taxes. The combined payment approaching $1 billion reflects the magnitude of the tax evasion by the Bank’s U.S. customers, the size of the fees the Bank collected to provide this illegal service, and the gravity of the illegal conduct.”
Principal Deputy Assistant Attorney General Richard E. Zuckerman said:
“The Department of Justice continues to aggressively prosecute banks and other financial institutions that help U.S. taxpayers conceal their income and assets in offshore bank accounts. Today, Bank Hapoalim is being held accountable for its conduct – it has admitted to its crimes and will surrender all fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”
IRS-CI Chief Don Fort said:
“Offshore tax evasion is a top priority for IRS Criminal Investigation and we are wholeheartedly committed to bringing offenders to justice. Today’s resolution serves as proof that financial institutions engaging in tax fraud face dire criminal and financial consequences for their behavior.”
BHBM and BHS have agreed to fully cooperate with further investigations into hidden bank accounts. Assuming BHBM’s continued compliance with its agreement to identify hidden accounts, the US Government has agreed to defer prosecution of BHBM for a period of three years, after which time the charge against BHBM will be dismissed.
BHBM is Israel’s largest bank and operates primarily as a retail bank with approximately 250 branches throughout Israel and more than 2.5 million accounts.
In addition to retail banking services, BHBM offered private banking services for onshore and offshore customers through its retail branches and its Global Private Banking Centre.
BHBM also wholly owned Poalim Trust Services Ltd. (BVI entity), which provided trust formation and management services. Outside Israel, BHBM owned BHS, a Swiss subsidiary that provided private banking. BHS is headquartered in Zurich and at times during the prosecution period had branches in Geneva, Luxembourg, and Singapore.
BHBM also had branches in New York, Miami, the Cayman Islands, the United Kingdom, and Jersey. It is likely investigations into entities in those jurisdictions will/are being conducted.
From at least in or around 2002, and continuing until at least 2014, the Bank conspired with employees, U.S. customers, and others to:
(1) defraud the United States with respect to taxes;
(2) file false federal tax returns; and
(3) commit tax evasion.
Employees of BHBM and BHS assisted U.S. customers in concealing their ownership and control of assets and funds held at the Bank, which enabled those U.S. customers to evade their U.S. tax obligations, by engaging in the following conduct:
- Assisting U.S. customers with opening and maintaining accounts in the names of pseudonyms, code names, trust accounts, and offshore nominee entities;
- Opening customer accounts for known U.S. customers using non-U.S. forms of identification;
- Enabling U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of the Bank’s agreements with the IRS;
- Providing “hold mail” services for a fee, avoiding any correspondence regarding the undeclared account being sent to the U.S.;
- Offering back-to-back loans for U.S. taxpayers to enable them to access funds in the United States that were held in offshore accounts at the Bank in Switzerland and Israel; and
- Processing wire transfers or issuing checks in amounts of less than $10,000 that were drawn on the accounts of U.S. taxpayers or entities in order to avoid triggering scrutiny.
At least four senior executives of the Bank, including two former members of BHS’s board of directors, were directly involved in aiding and abetting tax evasion of U.S. taxpayers.
The Bank is now required to cooperate fully with ongoing investigations and affirmatively disclose any information it may later uncover regarding U.S. accounts. The Bank is also required to disclose information consistent with the Department of Justice’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009, and Dec. 31, 2019. The agreements provide no protection from criminal or civil prosecution for any individuals. A worrying three years for anyone who was involved in this as the US authorities seek to recover taxes and prosecute those evading tax.
Both the penalty and fine amounts for BHBM take into consideration that the Bank, after initially providing deficient cooperation through an inadequate internal investigation and the provision of incomplete and inaccurate information and data to the US Government, thereafter conducted a thorough internal investigation, provided client-identifying information, and cooperated in ongoing investigations and prosecutions.
The Bank further implemented remedial measures to protect against the use of its services for tax evasion in the future.
The time it took to complete this investigation allowed the executives at the helm of the bank and aware of this scandal to avoid prosecution, something that has to change to motivate executives to ensure proper processes and to prevent criminality.