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Department of Justice Enters into Non-Prosecution Agreement With Israeli Banks

Call John Hanamirian for a confidential consultation about your situation at 856-793-9092 if you believe that this may impact you or your business. Israel Banks -- Leumi, Mizrahi, Hapoalim

Under the terms of a non-prosecution agreement with the United States Department of Justice (DOJ), Israel’s Bank Leumi has admitted that it helped over one thousand five hundred (1,500) United States bank account holders potentially evade income and other taxes. As one of the larger banks in Israel, Bank Leumi has offices in New York, Florida, Illinois and California.

The settlement is costly, but represents an important resolution for the Bank, concluding sensitive issues with the Department of Justice. The settlement also reflects that the Department of Justice is continuing from jurisdiction to jurisdiction with its effort to track down foreign bank accounts and other assets otherwise unaccounted for by United States taxpayers.

According to the Department of Justice and Internal Revenue Service Releases, the Bank Leumi Group will pay $270 million in fines to the IRS and an additional $130 million to New York’s Department of Financial Services. This settlement follows the more recent UBS and Credit Suisse cases and this resolution nearly mirrors the Swiss bank UBS deal with admissions of wrongdoing and a deferred prosecution agreement from U.S. authorities.

The Department of Justice had filed a conspiracy charge against Bank Leumi, but has agreed to defer prosecution for two years and if Bank Leumi meets the terms of the agreement, they will not be prosecuted. Bank Leumi has admitted that it put customer money in tax havens and helped clients create false tax returns over a 10-year period. Bank Leumi also admitted it helped clients hide assets under assumed names and numbered accounts, used loans to get access to undeclared money, and moved undeclared assets. Bank Leumi must turn over the names of more than 1,500 U.S. account holders and must help the U.S. in other investigations.

Consistent with the UBS charges, prosecutors charged Bank Leumi and Bank Leumi admitted that various Bank Leumi units were able to serve wealthy U.S. clients by conducting meetings in hotels and other locations in New York, Los Angeles and Miami to discuss accounts they couldn’t talk about in Bank Leumi USA physical branches. The Bank gave clients back-to-back loans secured by accounts in Israel, Switzerland or Luxembourg. Clients typically paid a one (1) percent fee for the loans. The Releases state that Bank Leumi USA issued loans of that nature to 205 clients from 2002 to 2010.

Bank Leumi Group’s parent company is Bank Leumi le-Israel, B.M. and there are subsidiaries in seven countries and more than 13,000 employees. Other subsidiaries entering into the deferred prosecution agreement include The Bank Leumi le-Israel Trust Company Ltd.; Leumi Private Bank S.A., a Switzerland-based subsidiary; Bank Leumi (Luxembourg) S.A., a Luxembourg-based subsidiary; and Bank Leumi USA, a full-service commercial bank with offices in California, Florida, Illinois and New York.

Of the $270 million to be paid to the U.S., $157 million is a penalty for U.S. taxpayer accounts held at Leumi Private Bank in Switzerland. Bank Leumi Luxembourg and Leumi Private Bank must cease to provide banking and investment services for all accounts held or beneficially owned by United States taxpayers. According to the Statement of Facts, from 2000 - 2011, Bank Leumi helped United States clients conceal their assets offshore by:

  • surreptitiously sending private bankers from Israel and elsewhere around the world to the United States to meet secretly with United States clients at hotels, parks and coffee shops to discuss their offshore account activity;
  • assisting United States clients in using nominee corporate entities created in Belize and other foreign jurisdictions to hide their undeclared accounts by concealing the United States client as the true beneficial owner of the account;
  • using the Bank Leumi le-Israel Trust Company as a nominee account holder for United States clients with accounts in Israel to conceal the U.S. client as the true beneficial owner of the account;
  • maintaining United States clients’ undeclared offshore accounts under assumed names or numbered accounts to conceal the United States client as the true beneficial owner of the account;
  • providing hold mail services so that correspondence and other account information would not go directly to the United States client to make it more difficult to connect the client to the secret offshore account;
  • extending loans to United States clients from Bank Leumi USA that were collateralized by the assets in those clients’ offshore accounts, so that the clients could leverage their offshore assets to obtain and use capital in the United States while keeping their foreign accounts secret and undetected from the United States government; and
  • after the Department of Justice’s investigation into UBS and other Swiss banks’ criminal conduct in aiding United States taxpayers to evade their taxes became public, the Bank Leumi Group opened and maintained accounts for United States taxpayers who left UBS and other Swiss banks due to the investigation in an effort to continue to avoid detection by the United States government.

As part of its agreement with the Department of Justice, Bank Leumi Group provided the names of more than 1,500 of its U.S. account holders.

It all represents one more confirmation that when it comes to U.S. taxpayers, with FATCA and with the global transparency the IRS and DOJ have enforced, there is no more bank secrecy.

Please contact HLF Lawyers, a tax litigation boutique, to learn more about this investigation and settlement. Attorneys seeking co-counsel should contact John Hanamirian at 856-793-9092 or via e-mail from this website.

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