As part of a settlement reached last week on an investigation by the U.S. Justice Department into over allegations that Bank Leumi helped U.S. clients to avoid taxes in the United States, the bank committed not only to give American authorities the names of U.S. clients who allegedly concealed assets with Bank Leumi in the United States. It also committed to provide a list of bank customers who left the bank after American authorities launched their investigation of the bank’s practices, a list that includes details as to the banks where the clients’ funds were transferred.
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That list could potentially cause problems for other Israeli banks operating in the United States. According to the list, between 2010 and 2012, $212 million in American customers’ assets were transferred from Leumi to accounts at other Israeli banks in the United States. Of that, $126 million was transferred in 2011, the year the investigation against Leumi became public. Israel Discount Bank group was the largest recipient of assets transferred from Leumi between 2010 and 2012.
It should be pointed out that one cannot infer that all of these funds were transferred from Leumi to other Israeli banks to avoid the payment of taxes, but the American investigators came to believe that 60% to 70% of the bank’s American clients had evaded taxes, meaning that they had not reported the existence of the assets in the accounts to the U.S. Internal Revenue Service.
Leumi agreed to pay $400 million to settle two separate investigations into whether it helped its American clients evade U.S. taxes. It will pay the U.S. Department of Justice $270 million and another $130 million to the New York State Department of Financial Services. Of the $270 million, $157 million is a penalty for U.S. taxpayer accounts held at its private bank in Switzerland. U.S. efforts to crack down on Americans using offshore banks to evade taxes have largely focused on Swiss banks.
The investigation of Israeli banks started in 2011, two years after Swiss bank UBS was fined $780 million and had to hand over client data to the United States. In May, Credit Suisse agreed to pay more than $2.5 billion in penalties for helping Americans dodge taxes. Investigations are also pending against Israel’s Hapoalim and Mizrahi-Tefahot banks.
It can be assumed that most Leumi customers who moved their funds elsewhere did so in 2010-11, after Leumi began to limit services that served the interests of tax evaders. Leumi stopped permitting customers to maintain accounts in fictitious names, stopped allowing numbered accounts in which the identity of the account holder was not disclosed, and later threatened customers with the prospect that their accounts would be frozen if they did not provide documentation that the assets had been declared for tax purposes.
At that point, some of the bank’s customers initiated proceedings to voluntarily disclose their assets to American tax authorities. Others transferred them to other banks, while yet others withdrew their funds and invested them in real estate in Israel. With reporting from Reuters.