Several weeks ago, a Jewish foreign resident from Europe went to his branch of First International Bank of Israel and asked to withdraw a large sum of 10 million shekels ($2.7 million).
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Citing technical reasons, the bank asked him to return in another day, but when he did so he was in for a surprise: He was asked to sign a declaration that the account and all the money in it had been reported to the tax authorities in his home country and he had paid everything that was due on it.
The man refused and then came the next surprise: The bank refused to let him withdraw his money. He explained that he didn’t speak Hebrew and wanted the declaration to be read and translated by a lawyer. He reminded the bankers that he was a client of long standing and had been told when he opened his account that he would not be asked questions like that. It was all to no avail.
His lawyer, who asked not to reveal his or his client’s names, said the man in fact was aware that Israel is taking a tougher line on tax evasion and wanted to move his money to a more tolerant location, like Singapore.
FIBI isn’t the only bank taking a hard line on the matter. One tax consultant, who also spoke on condition of anonymity, said he also had a client who wanted to withdraw money from his Bank Leumi account to invest in real estate. But he was also turned down – and the property deal fell through – because he refused to sign a tax declaration.
What the two foreign residents suffered was a small skirmish in a war on “black” capital being mounted by Israel and other governments. A main weapon is the exchange of financial information on taxpayers (see story on this page). In that context, the United States has enacted the Foreign Account Tax Compliance Act, or FATCA, which requires overseas banks to provide U.S. tax authorities on their American account holders. Banks that refuse to risk being subjected to sanctions by their U.S. counterparts.
No doubt many Diaspora Jews who have deposited money in Israel over the years were doing so to escape taxes. But attorneys and tax consultants says Israeli banks are clamping down on clients in an inconsistent and often arbitrary manner.
In the absence of any clear directives from the supervisor of bank at the Bank of Israel, the banks are setting their own internal policies – and refuse to reveal what they are. None of the banks approached by TheMarker this week was prepared to allow an expert in the matter be interviewed or quoted.
Nevertheless, one banker was ready to admit off the record that his institution had imposed severe restrictions on the bank accounts of foreign residents who refused to sign a tax declaration. The bank won’t let them transfer money out of the account or accept money transferred from another bank, add or remove a joint account holder, change the name on the account or withdraw more than $10,000.
Another banker, also speaking anonymously, said clients who declined to sign the declaration had their accounts frozen. They can only withdraw money via a banker’s check written out in the name of a specific individual, among other conditions.
“The banks are, in fact, holding the money of foreign residents hostage as a way of forcing them to sign the declaration. It looks like they are running ahead of the law,” says Uri Goldman, an attorney with Goldman & Company.
He warned that new immigrants, who until now have been exempted from reporting to their banks the source of their funds for the first 10 years they live in Israel, may now have to report. “That completely violates the exemption that was promised them,” he says.
Yair Benjamini, a tax specialist at the law firm Epstein Rosenblum Maoz, said that vis a vis American citizens the banks now do have a right to demand the declaration, but they are making the same demand of Europeans and Canadians, even though no such requirements are yet in force for them.
“It’s very problematic, especially when they make these demands of foreign residents, Jews who have had accounts with them for decades and brought money to Israel, the Jewish State, exactly for the purpose of hiding it from the authorities overseas,” said Binyamini.
Even if the banks are on legally shaky ground in freezing accounts, Benjamini contends they are not concerned because they know the client won’t sue. Taking the bank to court would bring them to the attention of the tax authorities, which they have been trying to avoid to begin with, he says.
FIBI said about its policies that they were taken “with the support and encouragement” of the banks supervisor and are in line with policies of other institutions in Israel. “If a client reuses to respond to the bank’s demands to sign the declaration, his account won’t be blocked or frozen” FIBI said, declining to comment on the specific client who claimed his account was in fact frozen.