Haaretz Article On New DOJ Entity Prosecution Policies and Isreali Banks (12/5/18)

A couple of days ago I wrote on new DOJ entity prosecution policies announced by DAG Rod Rosenstein.  New DOJ Policies for Prosecution of Entities and the Individuals Within Them Most Responsible (Federal Tax Crimes Blog 11/30/18), here.  Following through on that item with respect to offshore banks and their principal individual actors (officers, agents and other individual partners in crime), Haaretz has this article:  Michael Rochvarger, Bad News for Israeli Bankers: The U.S. Has a New Policy on Corporate Crime (Haaretz 12/5/18), here.  In the context of foreign banks and their individual actors that means that, although corporations and other juridical entities, cannot be jailed, individuals can, particularly those who are principal actors in the scheme.  Of course, with respect to principal individual actors for foreign entities (such as Swiss and Isreali banks), effectively prosecuting the principal individual actors can be a problem, but one that is sometimes not surmountable.  For example, Raoul Weil of UBS was extradited to the U.S. and tried, albeit with acquittal.  See On Foreign Enabler Indictments, Sealed Indictments and INTERPOL Red Alerts (Federal Tax Crimes Blog 6/29/16), here.  And, as I noted yesterday, principal individual actors for entities involved with the Panama Papers fiasco were indicted and extradited to the U.S.  Enablers and Taxpayer Related to Panama Papers Disclosures Indicted (Federal Tax Crimes Blog 11/5/18), here.

Here are some excerpts from the Haaretz article (bold-face supplied by JAT):

The main message Rosenstein relayed was that agreements would be difficult to reach unless the executives involved are required to personally pay fines and even be forced to resign if they are still in their jobs. 

“It is important to impose penalties on corporations that engage in misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing,” he said 

But Rosenstein went on to say: “The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes. So we revised our policy to make clear that absent extrao rdinary circumstances, a corporate resolution should not protect individuals from criminal liability. 

Our revised policy also makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.” 

Among Israeli bankers, the new policy is most relevant to Eldad Fresher, the CEO of Mizrahi since 2013. Before and during the year the alleged tax violations occurred, he was chairman of the bank’s Swiss unit and head of its financial division, responsible for international activities. Dan Lubasch, Mizrahi Switzerland’s CEO since 2011, may also be affected. 

Most of the senior Hapoalim executives connected with the alleged affair have left the bank, but a number of middle managers who remained now find themselves in the Justice Department’s crosshairs. 

Of the three Israeli banks that have been investigated, only Bank Leumi has settled — agreeing to pay a $400 million penalty four years ago. That, however, may not be a good barometer for what Hapoalim will have to pay, on top of the threat that individual executives will also face penalties. 

In August, the Justice Department offered Mizrahi — Israel’s third-largest bank, but much smaller than Leumi and Hapoalim — a settlement that included a $342 million fine. 

Mizrahi rejected it, but also opted to set aside another $116.5 million in its second-quarter financial report, in expectation of a future penalty. Until then, its provisions had amounted to just $162 million. Meantime, the two sides are negotiating. 

At Hapoalim, the provisions connected with the probe have reached $365 million, with total costs, including legal fees, of 2 billion shekels ($540 million). It’s not clear when the bank will settle with U.S. authorities.

Readers will recall that the U.S. DOJ Swiss Bank Program announced in 2013 provided for resolution of most Swiss' banks' criminal exposure with payments of fines, but did not resolve the criminal exposure for the principal individual actors.  The original press release, here, provided:

The program does not address current or future investigations and pending cases concerning bank employees, financial advisors and other individuals. The department will address each of these cases only with the individual's counsel, in a manner that gives consideration to the particular facts and circumstances of each case. In those cases in which indictments are pending, any resolution will also require addressing outstanding issues with the court. Counsel for banks currently under investigation, individuals who have been indicted, or bank employees who are concerned about whether they have potential criminal liability should contact the department's Tax Division or the prosecutors handling their case if they wish to seek resolution.

Any unresolved criminal exposure could be affected by the new rules, even if the banks have otherwise resolved their corporate level exposures.  In this regard, the criminal statute of limitations for tax crimes and conspiracies related to tax crimes is six-years and that period is suspended during any period that "the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States."  Section 6531, here (bold-face supplied by JAT).

I was talking with a reporter yesterday about the indictments related to the Panama Papers disclosures where sealed indictments were obtained as the Government set about in secret to gather up as many of the defendants as they could in foreign countries.  I speculated that there are likely other sealed indictments related to the Panama Papers and other instances of offshore enablers.  Even if the Government cannot force those people into the custody of the U.S., they might unsuspectingly (if foolishly) attempt to come into the U.S. for some reason and will then learn that there is a sealed indictment permitting the Government to take them into custody for trial.