Foreigners with accounts at Israel’s Bank Leumi have received letters telling them they must keep at least $50,000 in the bank at any given time as Israeli and global banks face heightening scrutiny from tax authorities.
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The letter gives account holders 30 days from receipt to ensure they have cash or cash equivalents in their accounts or close the account.
Leumi, which agreed in 2014 to pay $400 million in penalties to the United States and New York State over allowing clients to evade U.S. taxes, is the first Israeli bank to set a minimum, but other banks – some of which are also ensnared in similar tax probes – are expected to follow.
Leumi, Israel’s second-largest bank, said it was acting under orders from the Bank of Israel.
“The bank took the decision following the letter guidance of the supervisor of banks regarding compliance risks of customers,” it said in a statement. “We will continue to provide the best service in conformity with the Bank of Israel.”
The rule apparently applies to Israeli citizens living abroad, some of whom have already asked the Bank of Israel to issue a clarification on the matter. The bank has told them that it’s examining the issue.
The $50,000 figure is the minimum the United States requires banks and account holders to report to American tax authorities under the U.S. Foreign Account Tax Compliance Act, or Facta. Europe is moving closer to a Facta-like law as well, and the minimum reporting figure is expected to be the same.
Leumi’s move comes as governments crack down on widespread tax evasion, an issue that resurfaced again this month when documents attesting to offshore companies set up in Panama were leaked to the media.
Banking industry sources said Wednesday that Leumi sought to avoid an entanglement in any tax-evasion probes in the future. The bank assumes that at least some account holders with less than $50,000 are not paying taxes because the amounts are too small to be worth reporting.
“There are various reasons to assume that a substantial majority of the foreign-resident accounts in Israeli banks who are not American aren’t reporting to the tax authorities in their home countries,” one source said.
Since Rakefet Russak-Aminoach took over as Leumi CEO in 2012, she has adopted a strategy of managing accounts whose sources can be verified and where holders can show they have paid taxes due. Leumi has downsized its international private-banking business and now focuses more on commercial banking in the United States and Britain.
That marks a sea change from the years 2002 to 2010 when U.S. authorities said the bank turned a blind eye to tax evasion by clients. Bank Hapoalim and Mizrahi-Tefahot Bank are both in the midst of similar probes as Leumi underwent and will probably face substantial penalties.