Israel’s Bank Leumi will pay a total of $400 million in fines after admitting to helping US persons to evade taxes, according to US authorities.

Israel’s Bank Leumi will pay a total of $400 million in fines after admitting to helping US persons to evade taxes, according to US authorities.

The bank will pay $130 million amount to the New York State Department of Financial Services and pay $270 million to the US Department of Justice, the two organisations said in separate statements. The bank was also ordered to terminate and ban individual senior employees who engaged in misconduct, and admit its violations of law for conducting an illegal cross-border scheme to assist US clients in evading federal and state taxes.

Bank Leumi will also install an independent monitor, selected by the DFS, to conduct a comprehensive review of the Bank's compliance programs, policies, and procedures.

The DoJ said: “A major Israeli international bank admitted that it conspired to aid and assist US taxpayers to prepare and present false tax returns to the Internal Revenue Service by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.”

“A deferred prosecution agreement between the Bank Leumi Group and the Department of Justice was filed today in the Central District of California that defers prosecution on criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service,” the DoJ continued.  “This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10-year period and included an array of services and products designed to keep US taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States,” it said

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

Bank Leumi Group will pay the US a total of $270 million, the DoJ said. Of this total payment, $157 million represents a penalty for US taxpayer accounts held at Leumi Private Bank in Switzerland.  (The $130 million paid to DFS makes up the $400 million total.)

Other actions
The actions come on top of other settlements involving foreign banks, notably Switzerland’s UBS, which in 2009 settled criminal and civil charges of aiding US persons to evade taxes.

Explaining the background to the Leumi case, the DFS said that from at least 2000 through 2011, Bank Leumi-Israel and its subsidiaries, including Bank Leumi USA, a New York State-chartered bank, “knowingly and wilfully” aided and assisted US clients, including New York clients, in opening and maintaining undeclared accounts in a foreign country, concealing their offshore assets and income from the Internal Revenue Service and other federal and state authorities, and filing false tax returns and other documents with such authorities.

Bank Leumi-Israel helped such clients through schemes such as a “hold mail" service for about 2,450 US accounts, whereby every statement of account, notice, or other document associated with the account would be held abroad at the foreign bank and would not be sent to the customer's address in the United States. It also operated "assumed name" and "numbered" accounts, where the name of the account holder would not appear on any correspondence or account statements, and the bank would accept wire transfers using these assumed names or numbers in lieu of actual customer names. It referred US clients to outside lawyers and consultants who would establish and maintain offshore corporations in jurisdictions like the British Virgin Islands, Panama, and Belize, to nominally hold the undeclared accounts and hide their true tax status from U.S. authorities.

It also suggested to US clients they should open accounts through Bank Leumi Trust in order to add an "extra level of secrecy" to the account.

To allow tax evasion, Bank Leumi offered several products to US clients who maintained funds in undeclared accounts abroad, which enabled the customers to gain access to the funds without repatriating the funds or creating a paper trail that would disclose the existence of the undeclared accounts to the US authorities.

For example, Bank Leumi USA also offered, marketed, and serviced standby letter of credit-backed loans that were secured or collateralised by a letter of credit from Bank Leumi-Israel or a foreign affiliate, which letter of credit was in turn backed by funds in the customer's undeclared account at Bank Leumi-Israel or a foreign affiliate.

Bank Leumi USA received interest payments on the SBLC loans and the foreign affiliate separately collected a "guaranty fee" or "commission" for the issuance of the letters of credit, which together amounted to about 1 per cent of the loan amount.

Leumi's comment

"Naturally, signing these arrangements remove a cloud of uncertainty that has weighed heavily on Leumi Group's business operations. The completion of the investigations by the aforementioned authorities, alongside implementation of global regulatory requirements, will enable Leumi to continue focusing on its business activities while strengthening the Group's core business and allocating maximum resources to achieve the Group's strategic goals," Leumi said in a statement.

"As part of the arrangement, the Leumi Group is obligated to continue implementing a stringent compliance policy in order to confirm that the Group is acting in accordance with The Foreign Account Tax Compliance Act (FATCA). The arrangement mentions that the fine to be paid to the DOJ has been significantly reduced as a result of Leumi Group's cooperation with U.S. authorities throughout the investigation. According to the arrangement with the DFS, the Leumi Group will pay a civil monetary fine in the amount of US $130 million to the DFS. As part of the arrangement, Bank Leumi USA (BLUSA) will appoint a monitor for a period of one year, who will be selected by the DFS and will be authorized to examine the Bank's compliance with U.S. laws and regulations. Leumi has already made provisions in its previous Financial Statements that cover the fines to the aforementioned authorities, and therefore no additional provision is expected in respect of the arrangements with the DOJ and the DFS," it continued.

"The arrangements relate to the responsibility of the Leumi Group only, in accordance with US laws. The arrangements do not grant any exemption to officers or employees of the group, nor do they bind officers or employees of the Group. In the past two years, the Bank has adapted itself to vast changes that have taken place in the private banking world and is acting in accordance with new regulatory demands, both in Israel and abroad, including strict implementation of the "white money" policy, as is customary in today's banking world. Within this framework, the Bank closed several overseas branches and representative office, sold its Swiss business operations and made organizational changes in its private banking operations," it added.