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Monday
Dec292014

Bank Leumi fined $400 million, bans former U.S. compliance chief from compliance role

Israel's Bank Leumi will pay $270 million to resolve federal charges and $130 million to settle New York regulators' allegations that it helped U.S. taxpayers hide assets and income in unreported accounts in Israel and around the world.

Under the settlement with the New York Department of Financial Services (DFS), Bank Leumi USA agreed to ban its former chief compliance officer from conducting any activities related to compliance. The employee is currently chief administrative officer.

The DFS settlement also requires Bank Leumi "to terminate and ban individual senior employees who engaged in misconduct, install an independent monitor, selected by DFS, to conduct a comprehensive review of the bank's compliance programs, policies, and procedures."

In 2008, the DFS said, Bank Leumi USA's CEO appointed an employee with no compliance experience to be the chief compliance officer. The employee held the post until 2010 and approved parts of the tax evasion scheme.

Bank Leumi Group entered into a deferred prosecution agreement with the DOJ. Prosecutors filed the DPA in federal court in Los Angeles last week.

Bank Leumi admitted criminal conduct over a 10-year period. The scheme was designed to conceal U.S. taxpayer accounts in Israel, Switzerland, Luxembourg and the United States, the DOJ said.

Federal law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign bank accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.

Bank Leumi is one of Israel’s biggest banks. It has subsidiaries in seven countries and more than 13,000 employees. 

Subsidiary banks included in the federal deferred prosecution agreement are The Bank Leumi le-Israel Trust Company Ltd., Leumi Private Bank S.A. (Switzerland), Bank Leumi (Luxembourg) S.A., and Bank Leumi USA, an FDIC-insured commercial bank with offices in California, Florida, Illinois, and New York.

New York financial regulators said Bank Leumi-Israel helped U.S. clients conceal accounts by:

  • "Hold mail" service for about 2,450 U.S. accounts, whereby every statement of account, notice, or other document associated with the account would be held abroad at the foreign bank and would not be sent to the customer's address in the United States
  • "Assumed name" and "numbered" accounts, where the name of the account holder would not appear on any correspondence or account statements, and the bank would accept wire transfers using these assumed names or numbers in lieu of actual customer names
  • Referring U.S. clients to outside lawyers and consultants who would establish and maintain offshore corporations in jurisdictions like the British Virgin Islands, Panama, and Belize, to nominally hold the undeclared accounts and hide their true tax status from U.S. authorities, and
  • Suggesting U.S. clients open accounts through Bank Leumi Trust in order to add an "extra level of secrecy" to the account.

The DOJ settlement requires Bank Leumi Luxembourg and Leumi Private Bank to stop providing banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.

Bank Leumi Group cooperated with investigators, the DOJ said.

During the ten-year scheme, Bank Leumi sent private bankers from Israel and other locations to the United States. They met secretly with U.S. clients at hotels, parks, and coffee shops to discuss their offshore accounts, the DOJ said.

The bank also gave loans to U.S. clients from Bank Leumi USA against assets in the clients' nominee offshore accounts. That allowed the clients to leverage their offshore assets "to obtain and use capital in the United States while keeping their foreign accounts secret and undetected from the U.S. government," the DOJ said.

In 2008, the DOJ announced criminal investigations into UBS and other Swiss banks for aiding U.S. tax evasion. Bank Leumi viewed that as an opportunity to land more clients. It opened and maintained accounts "for U.S. taxpayers who left UBS and other Swiss banks due to the investigation in an effort to continue to avoid detection by the U.S. government," the DOJ said.

As part of its agreement with the DOJ, the Bank Leumi Group turned over the names of more than 1,500 of its U.S. account holders. The bank also agreed to disclose information to the DOJ about its cross-border business and give testimony and information as part of other investigations.

The New York DFS said a private banker who worked at Bank Leumi-Israel for over 25 years wrote to a supervisor in 2011, "Nearly every client who has an account with us has used the bank as a tax haven, and is aware that by not declaring his account in the U.S. is committing an offense, [and] we have by virtue of the services we provided assisted the clients with what they wished to achieve."

Some employees involved in the U.S. tax evasion scheme have already left the bank. Bank Leumi also agreed to terminate the current head of Bank Leumi Trust who was a regional manager during the tax evasion scheme, the DFS said.

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The DOJ's December 22, 2014 release is here.

The New York Department of Financial Services' consent order In the Matter of Bank Leumi USA, Bank Leumi Le-Israel, B.M. dated December 22, 2014 is here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.