Bank Leumi and Mizrahi-Tefahot Reportedly Under U.S. Criminal Investigation (2/19/13)

I reported Saturday on a plea agreement involving a U.S. customer of Bank Leumi (Bank B in the plea agreement) and Mizrahi-Tefahot Bank (Bank A in the plea agreement).  See New Plea Agreement Involving Israeli Banks (2/15/13), here.  Today, a Bloomberg reporter, David Voreacos, follows through his early news report on that plea with a new report, perhaps implicit in the earlier one, that these banks are getting focused attention of U.S. criminal tax enforcement authorities and specifically a federal grand jury.  See
David Voreacos, Bank Leumi, Mizrahi Clients Said to Aid U.S. Tax Probe (Bloomberg 2/19/13), here.

As usual, readers should read Mr. Voreacos' entire article.  Here are some excerpts that caught my attention.

Dozens of U.S. citizens who used offshore accounts to avoid taxes have helped the federal government in a criminal investigation of two Israeli banks, Bank Leumi Le-Israel Ltd. and Mizrahi Tefahot Bank Ltd., two people familiar with the matter said. 

* * * * 

“Those two banks are under investigation for making loans to permit their depositors to repatriate undeclared, offshore assets to the U.S.,” said Robert Fink, a tax attorney at Kostelanetz & Fink LLP in New York who represents clients who have come forward. “The focus is on undeclared foreign bank accounts on which income has been earned that has not been reported to the IRS.”

* * * * 

Since then [the UBS debacle in 2009], at least 11 banks have been the subject of U.S. criminal investigators, including Mizrahi; Leumi, Israel’s biggest bank; Credit Suisse AG, the second-largest Swiss bank; and HSBC Plc, Europe’s largest bank. 

* * * * 

Orit Reuveni, a spokeswoman for Leumi, said in an e-mail that the bank is “within the scope of a U.S. inquiry into tax matters involving U.S. customers,” and that it is cooperating with the probe.  

* * * * 

“Unfortunately, too many taxpayers got involved with foreign bank accounts and those who have not taken advantage of the voluntary disclosure program are facing the prospect of criminal prosecution,” said Toscher [Steven Toscher, Zvi Sperling's attorney, and a good one too], of Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills. 

The Justice Department and IRS have gone beyond the information gleaned from taxpayers, he said. 

“Given the quality of information the government has, it appears that they’ve gotten it from sources other than the voluntary disclosures,” he said. 

* * * *

Neiman and other lawyers said prosecutors will probably resolve the Leumi and Mizrahi investigations by filing charges and agreeing to drop them if the banks meet certain conditions, as they did in the UBS case. The Justice Department has filed dozens of such deferred-prosecution agreements in corporate cases in the past few years. 

“Those investigations will culminate in separate deferred- prosecution agreements where each bank will pay a significant fine and agree to cooperate with the U.S. government,” said Bryan Skarlatos, a law partner of Fink. “The government would like them to turn over client information, but I don’t know if that will be the ultimate result of the cooperation.” 

The Justice Department and IRS are “hoping prosecutions like this one against Bank Leumi will cause more customers to make voluntary disclosures,” Skarlatos said. “We’re going to see more prosecutions and voluntary disclosures involving unreported bank accounts in Israel.”

According to the article, a -- perhaps not the, but certainly a -- focus of the attention are so-called back-to-back loans, described in the article, used to make the offshore funds available to the U.S. depositors.

U.S. clients of these two banks with tax or FBAR noncompliance should join the IRS voluntary disclosure program ASAP (if they have not earlier done so).   Even if they are relatively clean (focus on relatively), they probably should join and consider opt out when the time comes.  And, of course, the message that the Government wants is that there will be other banks who may be targeted.  Remember, that the IRS threatened in the 2012 OVDP FAQs, that it can name banks at which time it is too late to get in the program.  It has not done that to date, so that U.S. depositors of banks may be lulled into some sense that it won't.  That may be a bad decision.