The Tax Times: Bank Hapoalim Admits to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts

According to DoJ, Bank Hapoalim (Switzerland) Ltd. plead guilty today April 30, 2020 and criminal charges were filed 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 (the IRS).

BHS’s Chief Executive Officer appeared on behalf of the bank to enter the guilty plea before U.S. District Judge Mary Kay Vyskocil.

As part of today’s resolutions, along with resolutions entered into with state and federal partners, Bank Hapoalim B.M. (BHBM), Israel’s largest bank, and Bank Hapoalim (Switzerland) Ltd. (BHS), its Swiss subsidiary, agreed to pay approximately $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services.

Today’s resolution is the second-largest recovery by the Department of Justice in connection with its investigations since 2008 into facilitation of offshore U.S. tax evasion by foreign banks.

“Today’s Resolutions And Payment Of $874 Million Make Clear That Tax Evasion Cannot Be Taken Lightly,”
said Deputy Attorney General Jeffrey A. Rosen.

“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.”

“Israel’s largest bank, Bank Hapoalim, and its Swiss subsidiary have admitted not only failing to prevent but actively assisting U.S. customers to set up secret accounts, to shelter assets and income, and to evade taxes,” said U.S. Attorney Geoffrey S. Berman of the Southern District of New York. 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.”

"There Is No Excuse For A Foreign Financial Institution To Unlawfully Assist Wealthy Americans In Flouting Their Responsibilities To Pay Their Taxes," said IRS Criminal Investigation Chief Don Fort.

“With today’s guilty plea, Bank Hapoalim is taking responsibility for their role in deliberately breaking the law and undermining the integrity of this nation’s tax system. 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.”

According to documents filed today in Manhattan federal court:

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 Center.

BHBM also wholly owned Poalim Trust Services Ltd., 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.

From at least in or about 2002, and continuing until at least in or about 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.

Under today’s resolutions, the Bank is required to cooperate fully with ongoing investigations and affirmatively disclose any information it may later uncover regarding U.S.-related 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.

BHBM will pay a total of $214.38 million, which has three parts and BHBM has agreed to pay a penalty of $100,811,585. BHS will pay a total of $402.53 million

This Agreement Marks The Third Time An Israeli Bank Has Admitted To Similar Criminal Conduct And Subsequently Turned Their Clients Over To The IRS For Prosecution.

The Bank Leumi Group (in December 2014) and Mizrahi-Tefahot Bank Ltd. (in March 2019) entered into DPAs with the Department of Justice admitting that they conspired with U.S. taxpayers to prepare and present false tax returns to the IRS by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.

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