Thursday, April 30, 2020

Bank Hapoalim Enters Guilty Plea to Conspiracy for Assisting U.S. Taxpayer Hide Accounts and Taxable Income (4/30/20)

DOJ Tax has this announcement: Israel’s Largest Bank, Bank Hapoalim, Admits to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts: Bank Hapoalim (Switzerland) Pleads Guilty and Bank Hapoalim B.M. Enters into Deferred Prosecution Agreement for Criminal Misconduct; Agree to Pay Nearly $875 Million, here.  The charges thus pled are: “conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret.Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service (the IRS).”

Key excerpts are:
As part of today’s resolutions, along with resolutions entered into with state and federal partners, Bank Hapoalim B.M. (BHBM), Israel’s largest bank, and Bank Hapoalim (Switzerland) Ltd. (BHS), its Swiss subsidiary, agreed to pay approximately $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services. Today’s resolution is the second-largest recovery by the Department of Justice in connection with its investigations since 2008 into facilitation of offshore U.S. tax evasion by foreign banks. 
* * * * 
Today’s resolutions include agreements with BHBM and BHS (collectively, the “Bank”) under which the Bank agreed to accept responsibility for its conduct by stipulating to the accuracy of extensive Statements of Facts. BHBM further agreed to refrain from all future criminal conduct, implement remedial measures, and cooperate fully with further investigations into hidden bank accounts. Assuming BHBM’s continued compliance with its agreement, the Government has agreed to defer prosecution of BHBM for a period of three years, after which time the Government will seek to dismiss the charge against BHBM.  
According to documents filed today in Manhattan federal court:
BHBM is Israel’s largest bank and operates primarily as a retail bank with approximately 250 branches throughout Israel and more than 2.5 million accounts. In addition to retail banking services, BHBM offered private banking services for onshore and offshore customers through its retail branches and its Global Private Banking Center. BHBM also wholly owned Poalim Trust Services Ltd., which provided trust formation and management services. Outside Israel, BHBM owned BHS, a Swiss subsidiary that provided private banking. BHS is headquartered in Zurich and at times during the prosecution period had branches in Geneva, Luxembourg, and Singapore. BHBM also had branches in New York, Miami, the Cayman Islands, the United Kingdom, and Jersey.
From at least in or about 2002, and continuing until at least in or about 2014, the Bank conspired with employees, U.S. customers, and others to: (1) defraud the United States with respect to taxes; (2) file false federal tax returns; and (3) commit tax evasion. Employees of BHBM and BHS assisted U.S. customers in concealing their ownership and control of assets and funds held at the Bank, which enabled those U.S. customers to evade their U.S. tax obligations, by engaging in the following conduct: 
•  Assisting U.S. customers with opening and maintaining accounts in the names of pseudonyms, code names, trust accounts, and offshore nominee entities;
•  Opening customer accounts for known U.S. customers using non-U.S. forms of identification;
•  Enabling U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of the Bank’s agreements with the IRS;
•  Providing “hold mail” services for a fee, avoiding any correspondence regarding the undeclared account being sent to the U.S.;
•  Offering back-to-back loans for U.S. taxpayers to enable them to access funds in the United States that were held in offshore accounts at the Bank in Switzerland and Israel; and
•  Processing wire transfers or issuing checks in amounts of less than $10,000 that were drawn on the accounts of U.S. taxpayers or entities in order to avoid triggering scrutiny. 
At least four senior executives of the Bank, including two former members of BHS’s board of directors, were directly involved in aiding and abetting tax evasion of U.S. taxpayers. 
Under today’s resolutions, the Bank is required to cooperate fully with ongoing investigations and affirmatively disclose any information it may later uncover regarding U.S.-related accounts. The Bank is also required to disclose information consistent with the Department of Justice’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009, and Dec. 31, 2019. The agreements provide no protection from criminal or civil prosecution for any individuals. 
BHBM will pay a total of $214.38 million, which has three parts. First, BHBM has agreed to pay $77,877,099 in restitution to the IRS, which represents the unpaid taxes resulting from BHBM’s participation in the conspiracy. Second, BHBM has agreed to forfeit $35,696,929 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2014. Finally, BHBM has agreed to pay a penalty of $100,811,585. 
BHS will pay a total of $402.53 million, which also has three parts. First, BHS has agreed to pay $138,908,073 in restitution to the IRS, which represents the unpaid taxes resulting from BHS’s participation in the conspiracy. Second, BHS has agreed to forfeit $124,628,449 in gross fees to the United States.  Finally, BHS has agreed to pay a fine of $138,998,399. These payments were approved by Judge Vyskocil today in connection with BHS’s plea and sentencing. 
Both the penalty and fine amounts take into consideration that the Bank, after initially providing deficient cooperation through an inadequate internal investigation and the provision of incomplete and inaccurate information and data to the Government, thereafter conducted a thorough internal investigation, provided client-identifying information, and cooperated in ongoing investigations and prosecutions. The Bank further implemented remedial measures to protect against the use of its services for tax evasion in the future. 
The Board of Governors of the Federal Reserve System is also announcing today that it has reached a resolution with BHBM, by which BHBM has agreed to a consent order, certain remedial steps to ensure its compliance with U.S. law in its ongoing operations, and a civil monetary penalty of $37.35 million. Additionally, the New York State Department of Financial Services is announcing a similar resolution by which BHBM has agreed to a cease and desist order and a monetary penalty of $220 million.
JAT Comments:

1.  Bank Hapaolim was a Category 1 Bank and  thus ineligible for the DOJ Swiss Bank Program.  Category 1 was for foreign banks already under investigation when the Swiss Bank Program was announced.

2. Here are the results of the Banks costs in my spreadsheet.  Key caveats:  (i) my figures do not include amounts payable to the Government for tax or tax related (such as fines, etc.); thus payments to the Federal Reserve, to the States or to other governmental agencies are not include; (ii) it has been a while since I checked the sheet out, but it does include the Bank Hapaolim numbers; maybe I can find some time in the pandemic to make sure all entries have been made and the calculations are correct.  (Too bad that the Government does not make such calculations available.)

Financial Institution Summary
Treaty requests 15
John Doe Summonses 14
Criminal Matters
   Criminal (incl Investigations and Prosecutions) 28
   Guilty Plea 6
   Forfeiture 11
   Deferred Prosecution Agreement ("DPA") 10
   NonProsecution Agreement ("NPA") 88
IRS Financial Institution List (OVDP Offshore 50%) * 122
Total Costs (Fines, Restitution, Other Penalties, etc.) $6,912,654,180
US DOJ Swiss Bank Program Number Resolved Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) * 19 12 $4,982,299,035
   U.S. / Swiss Bank Initiative Category 2  87 81 $1,412,083,990
   U.S. / Swiss Bank Initiative Category 3 13 $0
   U.S. / Swiss Bank Initiative Category 4 8 $0
Swiss Bank Program Results 127 $6,394,383,025
Amount of Total Swiss Bank Program by Addendum 4 $48,400,000
* Number and Number Resolved may not be same as DOJ and IRS numbers because counting related entities 
Recoveries from Swiss Financial and Related Institutions in Swiss Bank Program Categories 1-4 $6,394,383,025
Other Recoveries from Offshore Financial and Related Institutions  $518,271,155
Recoveries from All Offshore Financial and Related Institutions $6,912,654,180
Amounts above do not include payments to the Federal Reserve or other government or state agencies)
Foreign Bank & Bank Related Other than Swiss
    Bank Leumi & Related $270,000,000
   Liechtensteinische Landesbank AG  (LLB-Vaduz) $7,525,542
   Cayman National Securities Ltd. $3,000,000
   Cayman National Trust Co. Ltd. $3,000,000
Total $277,525,542
Sum of Swiss Bank Program and Other $7,190,179,722

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