In a significant move against international tax evasion, Bank Hapoalim B.m., Israel’s largest bank, and its Swiss subsidiary, Bank Hapoalim (Switzerland) Ltd., have been brought to justice by the U.S. Department of Justice. The announcement, made by top officials including Deputy Attorney General Jeffrey A. Rosen, details a guilty plea from the Swiss subsidiary and criminal charges against Bank Hapoalim B.M. for their involvement in a massive scheme to defraud the U.S. government.
The banks stand accused of conspiring with U.S. taxpayers to conceal a staggering $7.6 billion in income across more than 5,500 secret Swiss and Israeli bank accounts, deliberately shielding these assets from the Internal Revenue Service (IRS). This landmark case represents one of the largest recoveries by the Department of Justice in its ongoing crackdown on offshore tax evasion facilitated by foreign banks since 2008.
As part of the resolution, Bank Hapoalim B.M. (BHBM) and Bank Hapoalim (Switzerland) Ltd. (BHS) have agreed to pay a combined sum of approximately $874.27 million to U.S. authorities. This substantial payment, distributed among the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services, underscores the severity of their actions and the U.S. government’s commitment to combating offshore tax evasion.
Deputy Attorney General Jeffrey A. Rosen emphasized the gravity of the situation, stating, “Today’s resolutions and payment of $874 million make clear that tax evasion cannot be taken lightly. A fair tax system requires even-handed compliance, and honest conduct by all participants in the system.”
Principal Deputy Assistant Attorney General Richard E. Zuckerman further reinforced this message, asserting, “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.”
U.S. Attorney Geoffrey S. Berman of the Southern District of New York highlighted the active role of the banks in facilitating tax evasion: “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.” He further noted that the nearly $1 billion settlement 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.”
IRS Criminal Investigation Chief Don Fort stated firmly, “There is no excuse for a foreign financial institution to unlawfully assist wealthy Americans in flouting their responsibilities to pay their taxes. 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.” He emphasized the IRS’s dedication to pursuing offshore tax evasion, adding, “Today’s resolution serves as proof that financial institutions engaging in tax fraud face dire criminal and financial consequences for their behavior.”
Superintendent Linda A. Lacewell of the New York State Department of Financial Services also commented on the importance of tax compliance, particularly for institutions operating within New York. She stated, “DFS will not tolerate such behavior from banks that operate in the State of New York,” underscoring the collaborative effort with federal partners in bringing this case to resolution.
Details of the Tax Evasion Scheme
The scheme, which spanned from at least 2002 to 2014, involved Bank Hapoalim B.M. and its Swiss subsidiary actively assisting U.S. clients in concealing their assets and income from the IRS. The methods employed by the bank included:
- Secret Accounts: Assisting U.S. customers in opening and maintaining accounts under pseudonyms, code names, and through offshore nominee entities, making it difficult for U.S. authorities to trace the true account owners.
- Non-U.S. Identification: Opening accounts for known U.S. clients using non-U.S. forms of identification to further obscure their U.S. tax obligations.
- Evasion of Securities Reporting: Enabling U.S. taxpayers to bypass U.S. reporting requirements on earnings from securities, violating agreements the bank had with the IRS.
- “Hold Mail” Services: Offering “hold mail” services for a fee, ensuring that no physical correspondence related to the undeclared accounts was sent to the customers’ U.S. addresses, minimizing paper trails and detection risks.
- Back-to-Back Loans: Providing back-to-back loans to U.S. taxpayers, allowing them to access funds held in offshore accounts in Switzerland and Israel within the United States without directly repatriating the offshore assets and triggering reporting requirements.
- Structuring Wire Transfers: Processing wire transfers and issuing checks in amounts less than $10,000 to avoid triggering automatic scrutiny and reporting thresholds, a tactic known as “structuring.”
The involvement in this elaborate scheme extended to senior executives within Bank Hapoalim, with at least four senior figures, including former board members of the Swiss subsidiary, implicated in aiding and abetting U.S. tax evasion.
Penalties and Remedial Measures
The financial penalties imposed on Bank Hapoalim are substantial and multifaceted. Bank Hapoalim B.M. is obligated to pay a total of $214.38 million, encompassing:
- Restitution to the IRS: $77,877,099 to cover unpaid taxes resulting from the conspiracy.
- Forfeiture: $35,696,929, representing the gross fees earned on undeclared accounts between 2002 and 2014.
- Penalty: $100,811,585 as a further punitive measure.
Bank Hapoalim (Switzerland) Ltd. faces even steeper penalties, totaling $402.53 million, including:
- Restitution to the IRS: $138,908,073 for unpaid taxes.
- Forfeiture: $124,628,449 in gross fees.
- Fine: $138,998,399.
Beyond the financial penalties, Bank Hapoalim B.M. has entered into a deferred prosecution agreement, requiring them to cooperate fully with ongoing investigations, disclose any further information regarding U.S.-related accounts, and implement robust remedial measures to prevent future misconduct. This includes disclosing information related to accounts closed between 2009 and 2019, consistent with the Department of Justice’s Swiss Bank Program. It is important to note that these agreements offer no protection from criminal or civil prosecution for any individuals involved.
The Federal Reserve System and the New York State Department of Financial Services have also imposed additional measures, including consent orders, remedial steps to ensure ongoing compliance with U.S. law, and further civil monetary penalties.
A Pattern of Conduct
This case marks the third instance of an Israeli bank admitting to similar criminal conduct related to assisting U.S. taxpayers in tax evasion. Bank Leumi Group in 2014 and Mizrahi-Tefahot Bank Ltd. in 2019 previously entered into deferred prosecution agreements with the Department of Justice for similar offenses. This pattern highlights a concerning trend within the Israeli banking sector regarding offshore tax evasion.
The successful prosecution of Bank Hapoalim B.M. and its subsidiary underscores the unwavering commitment of U.S. law enforcement agencies, including the IRS-Criminal Investigation and the Department of Justice, to pursue financial institutions that facilitate tax evasion. This case serves as a stark warning to banks worldwide: assisting U.S. taxpayers in hiding assets and income offshore will be met with severe consequences. The message is clear: financial institutions must uphold their responsibility to ensure compliance and prevent their services from being used for illegal tax evasion schemes.
