Times of Israel Article on the Current State of Israeli Banks and U.S. Tax Evasion (7/31/18)

Simona Weinglass, Why are Israeli banks asking customers where their money comes from? (Times of Israel 7/21/18), here.  Excerpts:

Israelis with business interests abroad report being summoned to their local bank, being asked to explain how they earned their money, and, if unable to provide satisfactory answers, having their bank account closed. 

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The reason for these changes, Supervisor of Banks Hedva Ber told a conference in December, is that three of Israel’s major banks have come under criminal investigation over the past seven years by the US Justice Department for allegedly helping thousands of US citizens launder money and evade taxes — a fairly devastating state of affairs that has garnered remarkably little public attention. 

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Bank Leumi admitted wrongdoing in 2014, agreeing with the US Justice Department that it had conspired to aid and assist a minimum of 1,500 US taxpayers to prepare and present false tax returns to the US Internal Revenue Service by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. According to a US Justice Department press release, Bank Leumi’s “criminal activity” spanned over a decade from at least 2000 to 2011, during which time Leumi also provided “hold mail” service for approximately 2,450 US accounts whereby bank statements were held abroad and not sent sent to the customer’s address in the United States. To avoid prosecution, Bank Leumi agreed to pay $400 million in fines to the US and New York State governments. 

Meanewhile, Bank Hapoalim and Bank Mizrahi are still being investigated by the Department of Justice and the numbers of customers involved and size of the fines are expected to be on a similar scale. 

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‘Switzerland for Jews’ 

Israeli banks for many years provided essentially the same services as Swiss banks did, minus the banking secrecy laws. 

“Israel has been Switzerland for Jews,” Ronen Bar-El, an economics professor at Israel’s Open University, told The Times of Israel. 

Shuster said that when the investigation is over, the Department of Justice will issue a press release that dryly says something like “the bank agrees that it has violated these statutes of US law and it is agreeing to pay a fine of X million dollars.” 

There will be little drama and it is very unlikely that any of the bank executives will face jail time. Nevertheless, the reason for Israeli banks’ extra caution in vetting customers’ sources of income is so as not to further anger the Department of Justice and to keep the penalty they have to pay to a minimum. 

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As of this writing, the US government probe has extended to about 100 banks (most of them Swiss) and about 50 individuals. More than 50,000 people have come forward though the voluntary disclosure program and the IRS has collected more than $11 billion to date, said Shuster.