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Bank Leumi Enters Into Non-Prosecution Agreement With DOJ; Agrees To Release More Than 1,000 U.S. Account Holder Names



In order to avoid a fate similar to UBS, Bank Leumi recently admitted to engaging in some tax “hanky panky.” One of the largest banks in Israel, Leumi admitted that it helped U.S. taxpayers evade their taxes. How so? By helping these individuals to hide their income and assets in offshore accounts in Israel and in other parts of the world.

This did not come without a price – a steep one. To account for its criminal conduct, Bank Leumi Group will pay the IRS a whopping $270 million in fines and an additional $ 130 million to New York’s Department of Financial Services. The terms of the deal are strikingly similar to the one that UBS entered into a while ago with the United States – an admission of wrongdoing in exchange for immunity from prosecution. This is what is referred to colloquially as a “deferred prosecution agreement.”

What precipitated all of this? A criminal investigation that culminated in the U.S. Department of Justice (DOJ) filing criminal charges against Bank Leumi. What are the allegations? That Bank Leumi conspired to assist its U.S. accountholders in preparing and presenting false tax returns and other documents to the IRS. By the terms of the agreement, DOJ has agreed to defer prosecution for a period of two years.

Now for the admissions. Bank Leumi admitted that it placed money belonging to its clients in tax havens and helped clients create fictitious tax returns for over a decade. It further admitted to helping clients conceal their assets under fictitious names and numbered accounts, use loans to get access to unreported money, and transfer unreported assets.

As part of its agreement with DOJ, Bank Leumi must provide the names of more than 1,500 of its U.S. account holders. But the information-sharing requirement doesn’t end there. Bank Leumi has an ongoing obligation to disclose information to the government regarding its cross-border business and provide testimony and information regarding other investigations.

This is a groundbreaking development that marks the first time in history that an Israeli bank has admitted to criminal wrongdoing.

Bank Leumi le-Israel is Bank Leumi Group’s parent company. As one of Israel’s largest banks, it has subsidiaries in seven countries and more than 13,000 employees. Other subsidiary banks entering into this deferred prosecution agreement include The Bank Leumi le-Israel Trust Company Ltd.; Leumi Private Bank S.A., a Switzerland-based subsidiary; Bank Leumi (Luxembourg) S.A., a Luxembourg-based subsidiary; and Bank Leumi USA, a FDIC-insured, full-service commercial bank with offices in California, Florida, Illinois, and New York.

Of the $270 million to be paid to the U.S., $157 million represents a penalty for U.S. accounts held at Leumi Private Bank in Switzerland. Bank Leumi Luxembourg and Leumi Private Bank must discontinue providing banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.
According to Deputy Attorney General James M. Cole,

“The Bank Leumi Group recognized that the writing is on the wall for offshore banking, and cooperating with the government’s investigation was the only way to proceed.”

“This deferred prosecution agreement demonstrates both that the Justice Department will hold financial institutions accountable for their crimes, and that we will be fair in recognizing extraordinary cooperation.”

According to the statement of facts, from at least 2000 through 2011, Bank Leumi helped U.S. clients conceal their offshore assets by:

• secretly sending private bankers from Israel and elsewhere around the world to the United States to meet privately with U.S. clients at hotels, parks and coffee shops to discuss their offshore account activity;

• assisting U.S. clients in using nominee corporate entities created in Belize and other foreign jurisdictions to hide their ureported accounts by concealing the U.S. client as the true beneficial owner of the account;

• using the Bank Leumi le-Israel Trust Company as a nominee account holder for U.S. clients with accounts in Israel to conceal the U.S. client as the true beneficial owner of the account;

• maintaining U.S. clients’ undeclared offshore accounts under assumed names or numbered accounts to conceal the U.S. client as the true beneficial owner of the account;

• providing hold mail services so that correspondence and other account information would not go directly to the U.S. client to make it more difficult to connect the client to the secret offshore account;

• extending loans to U.S. clients from Bank Leumi USA that were collateralized by the assets in those clients’ offshore accounts, so that the clients could 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; and

• after the department’s investigation into UBS and other Swiss banks’ criminal conduct in aiding U.S. taxpayers to evade their taxes became public, the Bank Leumi Group 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.

If history is any indication, relying upon bank secrecy is foolish. History has repeated itself once again, causing disappointment to yet another group of vulnerable U.S. taxpayers. In the same way that UBS customers were duped into believing that their account information was safe with the Swiss banking giant, so too were Bank Leumi customers given false assurances.

It is true that the UBS customers didn’t have anything to worry about, at least until UBS became the target of a criminal investigation that posed a threat to its very survival. At that moment, it decided to do whatever was necessary to save its own hide.

In one fell swoop, UBS threw its U.S. customers under the bus, turning over the names and accountholder information of thousands of U.S. taxpayers. Bank Leumi’s response to the sword of Damocles hanging over its head was entirely predictable: do whatever is necessary to guarantee its survival, even if that means betraying the trust of its loyal clients. In doing so, Leumi took a page right out of the UBS playbook.

The takeaway is this. The waiting game is a dangerous one to play. In fact, it’s not a whole lot different than playing a game of Russian Roulette. Those who think they can wait until they hear the IRS’s drums beating and their guns going off in the distance before acting are sadly mistaken. Indeed, like the last grain of sand passing through the bulb of an hourglass, to the extent that the IRS already knows who you are and that you are hiding an offshore account, any hope of participating in the Offshore Voluntary Disclosure Program may have been all but lost.

Original Post  By:  Michael DeBlis

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As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.

Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.

   

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