A Los Angeles businessman pleaded guilty Monday to using undeclared bank accounts at Bank Leumi and other Israeli banks to hide $21 million and avoid paying U.S. taxes.
Masud Sarshar owned and operated Apparel Limited, Inc.. It designed, made, and sold clothes.
Sarshar signed a plea agreement admitting one count of conspiracy to defraud the United States and one count of obstructing the internal revenue laws.
The plea agreement requires him to serve 24 months in prison and pay more than $8.3 million in restitution to the IRS. He also agreed to forfeit half the money that went into the accounts.
For decades, at least two relationship managers from Bank Leumi and a second (so far unnamed) Israeli bank helped Sarshar hide millions of dollars.
Between 2006 and 2009, he diverted more than $21 million in untaxed business income to the undeclared bank accounts.
The accounts earned more than $2.5 million in interest.
Sarshar didn't report on his individual and corporate tax returns any of the diverted money or the interest from 2006 through 2011.
He also stipulated in his plea agreement to a civil penalty for not declaring the foreign bank accounts. The penalty will be 50 percent of the highest balance in the accounts.
Caroline Ciraolo, head of the DOJ's Tax Division, said, “The message of this case is clear: There are no safe havens" for tax cheats or those who help them.
Relationship managers from Bank Leumi and the second Israeli bank visited Sarshar often in Los Angeles.
At his request, neither bank sent him account statements by mail. Instead they provided account information in person.
The DOJ said a relationship manager "loaded electronic copies of Sarshar’s Bank Leumi account statements on a USB drive, which she concealed in a necklace worn during her trips to the United States."
To keep the foreign accounts secret, Sarshar sometimes met with the bankers in his car.
Bank Leumi created “back-to-back” loans for Sarshar.
The DOJ said,
Through back-to-back loans, which Bank Leumi made to Sarshar through its branch in the United States . . . , Sarshar was able to bring back to the United States approximately $19 million of his offshore assets without creating a paper trail or otherwise disclosing the existence of the offshore accounts to U.S. authorities.
The bankers told Sarshar to get Israeli and Iranian passports so their banks' compliance departments wouldn't flag him as a U.S. citizen.
After the compliance departments still flagged Sarshar as a U.S. citizen, the bankers told him to transfer his money to a third Israeli bank, which he did in late 2011.
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In 2014, Bank Leumi paid $400 million to settle DOJ and New York charges that it helped U.S. taxpayers hide assets and income in unreported accounts in Israel and around the world.
The bank paid $270 million to resolve federal charges and $130 million to settle the New York regulator's allegations.
Under the New York settlement, Bank Leumi USA agreed to ban its former chief compliance officer from the bank's compliance activities.
The New York settlement also required Bank Leumi to fire or ban a number of senior bankers and install an independent monitor.
In 2008, Bank Leumi USA's CEO appointed an employee with no compliance experience to be the chief compliance officer. The CCO served until 2010 and approved parts of the tax evasion scheme.
Bank Leumi entered into a deferred prosecution agreement with the DOJ that was filed in federal court in Los Angeles.
The bank admitted a 10-year criminal scheme to conceal U.S. taxpayer accounts in Israel, Switzerland, Luxembourg, and the United States.
Bank Leumi is one of Israel’s biggest banks. It has subsidiaries in seven countries and more than 13,000 employees.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.