Bank Leumi

Credit Suisse, More Secret Bank Accounts and the Israeli Connection

February 28, 2017 By Asher Rubinstein, Esq.

In 2014, Credit Suisse pleaded guilty in U.S. federal court to facilitating tax fraud by Americans via secret bank accounts in Switzerland. This was among the largest guilty pleas ever by a foreign bank, and Credit Suisse agreed to pay $2.6 billion in fines to the U.S. and New York State. (Our previous report from 2014 is here, along with a Bloomberg Businessweek article that quoted Asher Rubinstein in 2014.) Now, Credit Suisse is again facing similar allegations, this time for the bank’s “Israel desk” facilitating tax fraud by Israeli-Americans.

The current accusations stem from the Department of Justice prosecution of Dan Horsky, who held joint U.S. and Israeli citizenship and kept millions of dollars in cash and stock accounts at unreported Credit Suisse accounts in Switzerland. Mr. Horsky pled guilty, cooperated with DOJ and provided information about Credit Suisse that could result in a new prosecution or punishment of Credit Suisse. Following the 2014 guilty plea, a new prosecution will likely have severely negative results for Credit Suisse and other U.S.-Israeli taxpayers with unreported secret bank accounts at Credit Suisse and other banks.

We have written extensively about non-compliant foreign accounts in Switzerland, Israel and other jurisdictions around the world. There is a limited opportunity to bring such accounts into U.S. tax compliance, but only if the IRS does not already know about the accounts. If Credit Suisse, as part of an investigation, settlement, fine or penalty, reveals the names of its account holders to DOJ, it would be too late for the account holders to make a pre-emptive disclosure in order to avoid prosecution, severe penalties and even jail. Banks have routinely disclosed the identities of their account holders in order to settle charges of facilitating tax fraud, including UBS, Credit Suisse and Bank Leumi.

If you have unreported foreign accounts, commonly known as secret bank accounts, contact us to discuss your options.

Will Bank Hapoalim Be the Next Foreign Bank to Fall to DOJ/IRS?

February 3, 2016 By Asher Rubinstein, Esq.

We are seeing signs that the US Department of Justice and the IRS are gearing up their investigation and possible prosecution of Israeli bank HaHapoalim for tax fraud. The basis of such a tax fraud charge is that Hapoalim offered banking services to US taxpayers designed to hide accounts and income from the IRS. In December 2014, another Israeli bank, Leumi, paid a fine of $400 million to DOJ and New York State to avoid criminal charges based on the very same conduct. As part of this settlement, Leumi also gave the names of 1,500 account owners to the US government. We’ve known for years that Israeli banks such as Hapoalim, Leumi and Mizrachi Tefahot were under examination by US authorities, much the same as Swiss banks, for offering “secret” banking services. Now it appears that the US government investigation of Hapoalim is entering a more critical phase.

In recent weeks, we have seen the IRS investigators from the Criminal Investigations (CI) Division of the IRS request interviews of clients who had accounts at Hapoalim. Such interviews are usually used to build a case against a foreign bank. At the same time, Hapoalim is freezing accounts owned by American clients and is requesting clients sign and return IRS Forms W-9 and waivers of banking secrecy. When banks do this, they usually do so before handing over files, documents and information about their clients to DOJ and IRS. If the clients do not comply, their funds are frozen.

US taxpayers with accounts at Hapoalim must take action on two levels. First, they must address whether their Hapoalim accounts are US-tax compliant. If not, for instance, if the accounts were not disclosed on the FBAR form and/or IRS Form 8938, and/or if income (interest, dividends, capital gains, etc.) was not properly reported to the IRS, the clients should seek advice from US tax counsel on the various options to come into US tax compliance. Second, the clients have to deal with the foreign bank and navigate through the forms requested, taking careful note of the risks and liabilities of the bank reporting the accounts and account owners to DOJ and the IRS. Of course, un-freezing the funds at the bank is a crucial concern as well, but this goal must be addressed in tandem with the bank’s request for signed documents and waivers and the risk of the bank reporting the client to the US government.

We have experience in representing clients with accounts at Hapoalim, other Israeli banks, and banks around the world. We have been successful in advocating on behalf of these clients, to rectify account freezes, obtain documents and information from banks, and advise clients on their options to come into US tax compliance.

If you have an account at Hapoalim or anywhere else in the world, contact us for a confidential discussion.

2013 Year End Notes, Part 3: Offshore Considerations

December 13, 2013 By Asher Rubinstein, Esq.

During 2013, the IRS and U.S. Department of Justice (DOJ) continued to successfully attack offshore banking “secrecy”. The IRS’ success against UBS and other banks eroded Swiss banking secrecy, effectively ending “going offshore” to hide money from the IRS. Going offshore for asset protection from civil creditors, however, is still viable and effective, but must be tax-compliant.Continue Reading

Israeli Accounts on the IRS Radar: More Offshore Prosecutions

June 21, 2012 By Asher Rubinstein, Esq.

Two weeks ago, I wrote The Next Wave of IRS Offshore Account Enforcement: Israeli Banks Under Scrutiny. In that article, I discuss the IRS and Department of Justice (DOJ) expanding their global scrutiny of undeclared foreign banking to include accounts at Israeli banks.

This week, DOJ announced indictments against three Israeli-American tax preparers for helping their clients hide monies from the IRS, including moving money to Israeli banks, and using foreign corporations to hide income.

The DOJ press release, “Three Tax Return Preparers Charged with Helping Clients Evade Taxes by Hiding Millions in Secret Accounts at Two Israeli Banks”, can be found here.

Additional reports:

“Tax Shelters: Why Israel Could Be the Next Switzerland“, CNBC.

“Israeli Tax Preparers Snared. Indictment Shows the U.S. Is Broadening Pursuit of Secret Offshore Accounts“, Wall Street Journal.

According to the CNBC report, “the indictment revealed the existence of a grand jury that is almost surely going after much bigger fish.” Further, “the new case is just the beginning of a potential series of indictments, which may snare some of the wealthy American clients who have hidden money in Israel, many for generations. That’s likely to be politically controversial . . . .”

Over a year ago, in my article “IRS Targeting Undeclared Accounts in Israel for Tax Fraud“, I discussed the IRS moving beyond accounts in Switzerland and focusing on accounts in Israel. My most recent article, The Next Wave of IRS Offshore Account Enforcement: Israeli Banks Under Scrutiny, discussed the current state of the inquiry into Israeli banks and non-compliant offshore accounts.

In light of the IRS and DOJ enforcement efforts against offshore accounts that are not tax compliant, owners of such accounts should meet with qualified tax attorneys to discuss their situation and their available options. Please contact us for a confidential and privileged discussion about your situation.

Update on Offshore Banking: Danger of Prosecution Increases

July 19, 2011 By Asher Rubinstein, Esq.

There have been many important recent developments regarding offshore banking. The cumulative result of these recent events is the continued eradication of offshore banking secrecy for accounts that are not tax compliant and the consequent increased risk of discovery and prosecution.

1. Additional Criminal Prosecutions For Undeclared Foreign Accounts

The US Department of Justice (DOJ) continues to criminally prosecute taxpayers with undisclosed foreign bank accounts. Please see our recent post here for details. This latest wave of criminal prosecutions appears to be timed to give additional incentive for taxpayers to take advantage of the IRS Offshore Voluntary Disclosure Initiative (OVDI), which runs until August 31, 2011.

Acceptance into the OVDI results in lower penalties and the avoidance of criminal prosecution. On the government’s side, it brings foreign funds back into the US tax system and avoids using governmental resources for investigating and then prosecuting the tax non-compliance. Thus, the OVDI can benefit both the government and the taxpayer.

2. Credit Suisse And Other Foreign Banks Under IRS And DOJ Investigation; HSBC and Bank Leumi Warn Clients To Become Tax Compliant

We have known for a long time that Credit Suisse, like UBS before it, has been the target of a US government investigation for assisting US clients in hiding foreign funds from taxation. This week, Credit Suisse revealed that it received a letter from the US Department of Justice officially alerting the bank that it is the target of a criminal tax investigation. Credit Suisse, along with Bank Julius Baer, Wegelin Bank and the regional Swiss Cantonal banks, are all under investigation for aiding and abetting US tax fraud.

In February 2011, four Credit Suisse bankers were indicted in the US for assisting Americans to hide income from the IRS. The Department of Justice stated that “the conspiracy dates back to 1953 and involved two generations of US tax evaders including US customers who inherited secret accounts.” The allegations also included a charge that a Credit Suisse banker suggested that non-compliant funds be transferred from Switzerland to a bank in Israel in order to avoid detection by the IRS. Tracing noncompliant funds from Swiss banks to Israeli banks is indicative of the expanding global scrutiny and effectiveness of the investigations. (For our article on Israeli banks under scrutiny, please click here.)

The investigations are not limited to Swiss banks. Banks of all sizes, in many other countries, are being targeted. HSBC is also facing similar allegations, and is the subject of a federal court summons to reveal the identities of account holders with undeclared accounts in India. (For our articles on Indian banks under scrutiny, please click here and here.) Also this week, HSBC sent a letter to its US clients urging them to bring their accounts into tax compliance. The letter provided details about the IRS Offshore Voluntary Disclosure Initiative. Last year, Bank Leumi, an Israeli bank, sent similar letters to its US clients with foreign accounts. Liechtensteinische Landesbank in Liechtenstein, Bank Leumi and Bank Hapoalim in Israel are also under investigation by the IRS and US Department of Justice.

Those are the foreign banks whose investigations are public. We have reason to believe that many additional banks in various foreign countries are also being investigated by the IRS for similar activities. To facilitate the investigations, the IRS has opened field offices in Australia, Panama, China and Hong Kong. From the many thousands of voluntary disclosures thus far, the IRS and DOJ have compiled an extensive database of foreign banks and individual bankers, attorneys, trustees and other service providers who are under investigation for facilitating tax fraud. DOJ prosecutes both the foreign service providers and the US account holders who did not disclose the foreign accounts.

In light of DOJ’s success in obtaining account information from UBS and the eradication of Swiss banking secrecy over the past few years, we anticipate that HSBC and Credit Suisse will have little ability to withstand a DOJ information subpoena and/or criminal indictment. This is underscored by the decision this week by the Swiss Federal Supreme Court (see 4. below) that the disclosure of secret UBS bank account data to the IRS in 2009 was lawful.

The resulting conclusion is that owners of non-compliant foreign accounts, whether at Credit Suisse or elsewhere, should apply for acceptance into the OVDI before they are discovered. The OVDI expires on August 31, 2011.

3. FATCA Reporting Requirements For Offshore Assets Are Delayed

The Foreign Account Tax Compliance Act (FATCA), which was signed into law in 2010 as part of the HIRE Act, imposes additional reporting requirements on US taxpayers with foreign holdings, and also obligates foreign banks to report account information to the IRS. FATCA’s reporting requirements were scheduled to commence in 2013. This week, the IRS announced a delay in the beginning dates of these new requirements. The new requirements will be phased in over 2014 and 2015.

It has been reported that these delays reflect the many negative comments received by the IRS on the new reporting requirements. Foreign banks and taxpayers alike have commented that these disclosure requirements are very burdensome. Many critics of FATCA predict that the new laws will result in many foreign financial institutions no longer doing business in the US, and a resulting decline in US investments from abroad.

4. Swiss High Court Affirms That UBS Revealing “Secret” Banking Information Was Lawful

Also this week, the Swiss Federal Supreme Court upheld the 2009 disclosure of UBS bank account information to US authorities, notwithstanding that the disclosure violated Swiss banking secrecy laws. The Swiss court ruled that the disclosure was lawful because it was necessary to avoid an economic catastrophe that would have ensued if UBS had not disclosed the account information.

Even if the Swiss high court had held the opposite way, i.e., that provision of account information to the IRS was improper, the incriminating information has already been in the possession of the IRS and US prosecutors for months, and has formed the basis for multiple prosecutions (see point 1, above). Had the Swiss court ruled the other way, it would have had no practical effect on these prosecutions or given the US defendants any relief. It might have, however, given the US account holders a cause of action to sue UBS in Swiss courts. But now, it appears that even that road is dead.

Further, this ruling should be scary to US taxpayers with accounts at Credit Suisse, Julius Baer, Wegelin, the Kantonal banks and other Swiss banks, because essentially, the Swiss high court has given its blessing to the end of Swiss banking secrecy.

5. No Settlement Between US And Switzerland On Offshore Banking

Last month, we wrote that the United States and Swiss governments were in negotiations toward ending US investigations of numerous Swiss banks for hiding assets from US taxation. Under such an agreement, the US would not prosecute the Swiss banks, and the banks would provide information to the US about Americans with non-compliant accounts and pay large penalties. This week, we learned that the negotiations have ceased after the US stated its lack of interest in pursuing a settlement.

Given the expanding offensive of the IRS and DOJ against Credit Suisse and other banks (see point 2, above), this latest twist is not surprising. Clearly, the US has significant leverage against Swiss banks. From over twenty thousand voluntary disclosures, the US has a mass of information implicating many Swiss banks and individual bankers for their roles in tax fraud. Credit Suisse has a significant presence in the US – – employees, branches and valuable assets within the US, plus a lucrative US banking license. The same US presence and vulnerability compelled UBS to settle with the US in 2009 and avoid criminal prosecution. With such momentum and continued leverage on its side, no wonder the US is flexing its muscles and walking away from a settlement.

6. Whistle Blowers Are Still A Threat To Offshore Accounts

We reported earlier this year that account information from Swiss bank Julius Baer had been copied by a Julius Baer employee and would be made public, via Wikileaks. This followed the purchase by the German government of supposedly secret account data from an employee of LGT Bank in Liechtenstein, and the provision of stolen HSBC data to the French government.

This week, it emerged that one disc containing the Julius Baer data was blank and the other disc did not contain incriminating bank data. Nevertheless, we’ve known for months that Julius Baer is already “on the radar” because many Americans accepted into the IRS Voluntary Disclosure Program have disclosed their Julius Baer accounts. For Americans who did not disclose their Julius Baer accounts, immediate disclosure via the OVDI is strongly advised. Once the IRS gets the name of an account holder from any source (audit, whistleblower, investigation or otherwise) a voluntary disclosure is too late and criminal prosecution is likely.

As a footnote, this week it was also revealed that Hans Kieber, the LGT banker who stole account data, sold it to the German government and has been in hiding ever since, recently testified to authorities in Australia about undeclared offshore bank accounts. As we’ve written, the revelation of bank account data by whistle blowers remains a serious threat to offshore bank secrecy.

Conclusion

The above developments further highlight the withering of offshore banking secrecy and the serious enforcement efforts by the IRS and DOJ against foreign banks and US taxpayers with noncompliant foreign accounts. The OVDI deadline is August 31, 2011. Bringing noncompliant foreign accounts into tax compliance is very strongly recommended.