Documents Detail How Leumi Aided Clients to Evade U.S. Taxes

Bank said to have agreed to hand over names of clients who moved money out of accounts after probe began.

Sivan Aizescu
Sivan Aizescu
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Galia Maor and Eitan Raff, former CEO and chairman of Leumi, respectively.
Galia Maor and Eitan Raff, former CEO and chairman of Leumi, respectively. Credit: Eyal Toueg
Sivan Aizescu
Sivan Aizescu

New documents obtained by The Marker yesterday, in connection with Bank Leumi’s settlement with U.S. and New York State authorities, shed new light on how the bank helped Americans evade U.S. taxes and raise questions about the extent of Leumi management’s involvement in the affair.

In one of seven cases appearing in the documents prepared by U.S. authorities, a Leumi client living in Beverly Hills, California, and holding a secret account in the bank’s Luxembourg unit, flew to meet two Leumi bankers in the tiny European duchy five years ago.

According to the document, the senior of the two bankers brought a German cellphone with him containing the number of Leumi’s Luxembourg bankers and explained that it would enable the client to make anonymous calls. The document stated that the client used the cellphone over the next two years.

The new revelations come a week after Leumi, Israel’s second largest bank, agreed to pay $400 million to settle two separate investigations into whether it helped its U.S. clients evade taxes. As part of the settlement, Bank Leumi Luxembourg and Leumi Private Bank will cease to provide banking and investment services for all accounts held by U.S. taxpayers.

The lender, which is accused of aiding tax evasion over the years, also fired some senior employees who engaged in misconduct and agreed to have an independent monitor review its compliance programs.

U.S. efforts to crack down on Americans using offshore banks to evade taxes have largely focused on Swiss banks. But lenders in other countries are also under scrutiny – among them Israel’s largest bank, Bank Hapoalim, and fourth-placed Mizrahi-Tefahot.

TheMarker has learned that Leumi agreed last week to turn over the names of clients who left the bank after the tax investigation began in 2011. The list of clients Leumi will be providing the authorities dates from 2010 through 2012, when clients moved some $212 million out of Leumi to other Israeli banks.

The information is likely to be used by U.S. investigators against the Israeli banks. Not all of the clients who moved to different banks are suspected of trying to evade taxes, but U.S. authorities estimate as many as 70% were.

Meanwhile, the financial daily Globes reported yesterday that Galia Maor and Eitan Raff, who were CEO and chairman of Leumi during the years the bank is said to have aided clients in evading taxes, denied any knowledge of U.S. tax evasion.

“Any statements and admissions whatsoever, if any, included in the settlements with the authorities concerning allegedly deliberate assistance to U.S. taxpayers in tax evasion, were not with the consent of the officeholders of the Leumi Group,” said attorney Ram Caspi, who represents them and other former Leumi executives, according to Globes.

In another instance, the documents obtained by TheMarker recount how a Leumi client from Hollywood travelled to Switzerland in September 2008 to move his Swiss bank account to Leumi’s Swiss unit.

Leumi opened a numbered account for the client, without any name appearing on it. Bankers instructed the client not to bring any documents back to the United States that would provide evidence that he had opened the account. One banker even warned the client against getting mail from Leumi Switzerland at his home, in order to avoid alerting the authorities to the account and preserving its secrecy.

In another case, a California resident who had opened an account at a Tel Aviv branch of Leumi in November 2007 was helped by Leumi bankers in Israel and the United States to open a second account at Leumi’s Los Angeles branch eight months later. The L.A. account was used to grant the client a $7 million loan against the unreported money he had deposited in Tel Aviv.

In the documents, which were appended to the settlement Leumi reached with the authorities, the U.S. Justice Department alleges that, until 2009, Leumi’s Israel-based bankers would fly to the United States to meet clients, but refrain from holding meetings with them at any of the bank’s U.S. branches or offices. It asserted that the clients were known by the authorities to be evading U.S. taxes, and that the purpose of the meetings was to relay information on their accounts.

The Justice Department further asserted that Leumi bankers were aware they were helping their clients avoid paying taxes.

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