Will Bank Hapoalim be the next foreign bank to fall to DOJ/IRS?

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.

Please also see the following articles on this topic:

Did You Receive a Letter from a Foreign Bank, Urging You to Report Your Account?

With Israeli Bank Accounts Under IRS Scrutiny, Israel is Becoming the IRS’ Most Severe Enforcer of FATCA

The Next Wave of IRS Offshore Account Enforcement: Israeli Banks Under Scrutiny

 

 

Credit Suisse Pleads Guilty; Asher Rubinstein Quoted in Businessweek

As we’ve previously written, Credit Suisse had been under investigation by the U.S. Department of Justice (DOJ) for the past few years for facilitating tax fraud by U.S. clients with “secret” Credit Suisse accounts in Switzerland.  On May 19, 2014, Credit Suisse pleaded guilty to the charges and agreed to pay a fine of $2.5 Billion to Federal and New York authorities.  Credit Suisse was allowed to stay in business, which had been an open issue, since a bank which pleaded guilty to a federal crime could have its banking license cancelled.  It is very likely that DOJ and the IRS will now proceed against American taxpayers with undisclosed Credit Suisse accounts.

Asher Rubinstein was quoted in Bloomberg Businessweek on the end of Swiss banking secrecy.  Please see:  http://www.businessweek.com/articles/2014-05-20/the-end-of-the-swiss-bank-account-as-we-know-it

For additional articles on Swiss banking secrecy and Offshore tax issues, please see the following:

 

 

If You Have an Unreported Foreign Account, You Really Should Be Thinking about Tax Compliance

 

If You Have an Unreported Foreign Account,
You Really Should Be Thinking about Tax Compliance

by Asher Rubinstein, Esq.

If you have a foreign account that you have not declared to the IRS, you really should be giving thought to how to bring the foreign account into compliance now.  It will only get more difficult to keep the account open, to access your offshore funds, and to keep the IRS from discovering the account. And, when the IRS does eventually discover the account, it will only get more expensive to correct the non-disclosure and defend against a tax fraud prosecution.

Foreign Banks Are Freezing and Closing Accounts and Limiting Access to Your Money

If you don’t bring the foreign account into IRS compliance, you will have problems trying to access the funds. Many foreign banks are simply freezing the accounts of Americans until the account holders provide signed IRS Forms W-9 or otherwise demonstrate evidence of U.S. tax compliance. If you provide a W-9 to the bank, the bank will likely share your identity and your banking information with the IRS.

We have had many clients tell us that their foreign bank has frozen their account, and they request that we intervene to get the bank to release their money. While we can often assist in that regard, the larger issue is: what are you going to do about the IRS finding the account?

In addition to freezing accounts, many foreign banks are simply closing the accounts of Americans, or of foreign nationals suspected of having a U.S. address or a U.S. tax nexus. These banks do not want to deal with the IRS and with U.S. compliance burdens. These banks are concluding, as a business matter, that it makes better sense for the banks to cease offering banking services to people with a U.S. nexus.

We have assisted clients in keeping open their compliant foreign accounts, and we have assisted other clients in locating new foreign banks to take their compliant foreign funds. If you have an undeclared foreign account, and your bank is telling you to leave, you will have to anticipate the successor bank asking the same sort of “know your client” and source of funds inquiries, and asking you to sign a IRS Form W-9. It is getting harder and harder to simply leave foreign Bank A and move the account to foreign Bank B. Very few foreign banks remain willing to take your non-compliant funds.

You Will Have Difficulty Getting Your Money Back to the U.S.

Wiring the funds back to the U.S. is not advisable. A sudden wire transfer of a large dollar amount into a U.S. account would likely lead to the receiving bank asking questions about the wire transfer, the source of funds, and whether the funds are tax-compliant. Banks will not ignore their due diligence and “know your client” obligations, no matter how friendly you might be with your banker. The compliance and legal risks to the bank are too significant.

Moreover, an inbound wire transfer could cause the bank to file an SAR (Suspicious Activity Report) with the U.S. Treasury Department, and there is no requirement that the bank even let you know that it is filing an SAR. Even if you try to deposit a foreign bank check and avoid a large wire transfer, the U.S. bank will likely ask the same questions.

Finally, even assuming that you can get your foreign funds safely back into the U.S., you still have to worry about the IRS discovering the past non-compliance when the funds were offshore. As discussed below, the IRS is interested in the past history of the non-compliant foreign account, even if that account is now closed.

Your Options Are Limited as to Where to Keep the Funds Outside the U.S.

As noted above, it will not be easy for you to simply find a new foreign bank, one that will overlook the fact that your funds are not U.S. tax compliant, one that will not ask you to sign a Form W-9, one that is not concerned about FATCA (the Foreign Account Tax Compliance Act) which will require the bank to report information to the IRS.

FATCA is a U.S. law, passed in 2010, which reaches overseas and requires all foreign banks and financial institutions to automatically report to the IRS (without IRS subpoena or request) information regarding their American client accounts. Essentially, every foreign bank becomes an agent of the IRS. If a foreign bank or financial institution does not agree to FATCA reporting, then the U.S. will penalize it by withholding significant amounts of U.S.-source income. Recently, many countries have signed on to FATCA, including Spain, Italy, Norway, Germany, Mexico, the UK, Ireland and Switzerland. Many other countries (some seventy five around the world) have announced that they are negotiating FATCA deals with the U.S., including South Africa, Singapore and Liechtenstein.

People suggest to us that foreign jurisdictions still exist which could act as shelters for non-compliant assets. We hear that certain countries are “the next Switzerland”. Since 2008, when UBS became the target of DOJ’s civil and criminal prosecution, the flow of funds exiting Switzerland for Singapore, for example, has been significant.

However, no reputable financial jurisdiction (including Singapore) would risk its financial reputation to harbor non-compliant accounts. Singapore makes a significant amount of money from legitimate international banking and would not jeopardize this by being “blacklisted” as an uncooperative tax haven, as it was a decade ago. To this end, Singapore has recently announced that it is in talks with the U.S. on a FATCA-type of agreement. In addition, a new Singapore regulation requires banks to identify all accounts that may harbor the proceeds of tax evasion, and close them. Failure to abide by this new law will result in criminal charges for the Singaporean bankers.

Virtually all reputable financial institutions around the world – – at least the credible, stable ones, i.e., places one would want to bank because of safety and stability – – will report to the IRS. Nations “off the grid” may welcome dollars, but one must ask whether depositing assets in an unsafe or unstable jurisdiction is a prudent move. Is it worth it to move money from the first world to the third world in order to avoid the IRS, if the risk of losing the money is significant?

Finally, even assuming that you find a new harbor for your foreign assets, there will almost certainly be a paper trail of where your assets went. The last bank statement from your prior account will show an outward transfer. That will be a road map for the IRS once it obtains the statement by subpoena, summons, treaty request or settlement agreement.

Closing the Account May Not be Enough

Merely closing a foreign account is not a viable solution, because DOJ and IRS never limit their investigations to only current accounts. In the case of UBS, DOJ’s John Doe Summons sought banking records back to 2000. In the case of Liechtensteinische Landesbank, DOJ requested records back to 2004. In the case of Julius Baer, the investigation goes back to 2002. DOJ’s request to Liechtenstein trust companies and other fiduciaries sought records back to 2001.

In other words, closing an account today does nothing to remedy the non-compliant past, and DOJ and the IRS focus on past non-compliance. In addition, a wire transfer or bank check from the foreign account to a U.S. account (or account elsewhere) creates an easy trail back to the foreign account, and also gives rise to due diligence, “know your client” and source of funds inquiries by the recipient bank. Using the non-compliant funds to buy real estate or other assets also creates a trail and does nothing to undo the non-compliant past, which will be the focus of the IRS investigation.

The Era of Bank Secrecy is Over

It seems that with every passing year, bank secrecy continues to decrease and the risk of discovery increases. In 2013, the following events occurred:

Switzerland agreed to a settlement with the U.S. Department of Justice (DOJ) whereby almost all Swiss banks will begin to report bank account data to the U.S. without a need for court orders or government-to-government treaty requests.

– Liechtenstein agreed to sign a global treaty allowing for increased bank transparency and automatic exchange of tax information. It is also expected that Liechtenstein will sign on to FATCA.

– All reputable countries are agreeing to the exchange of information and banking transparency. In 2013, Luxembourg agreed to automatic exchange of bank depositor information beginning in January 2015. Likewise, Austria, the last remaining EU member holdout, agreed in 2013 to share banking data.

– The U.S. Department of Justice has sent summonses and requests for banking information to the following: Bank Julius Baer, the Liechtenstein Foundation Supervisory Authority, CIBC First Caribbean International Bank, Bank of Butterfield, HSBC and others. DOJ is investigating many Swiss banks, Israeli banks, banks in Luxembourg, the Caribbean and elsewhere. IRS and DOJ are not stopping at Switzerland. U.S. investigators are paying particular attention to “leaver accounts”, i.e., the accounts of those people who leave Swiss banks in favor of banks elsewhere, in an attempt to continue to evade the IRS. It should be noted that under the 2013 Swiss-U.S. settlement agreement discussed above, Swiss banks are required to identify “leaver accounts” specifically, and report them to DOJ.

In 2014, foreign banks will begin to report information to the IRS under FATCA.

The Window of Opportunity to Come Into Compliance Could Close Anytime

It is possible to bring your foreign assets into tax compliance by disclosing the assets to the IRS before the IRS learns of those assets, and to participate in a partial amnesty program known as the Offshore Voluntary Disclosure Program (“OVDP”). If the IRS learns about your foreign assets (through any means, including from a foreign bank or foreign government, as a result of an audit or investigation, or even because of a whistle blower such as an ex-spouse or adversary), then the IRS will not accept your disclosure and the full weight of tax fraud penalties will apply, including criminal prosecution. If accepted into the OVDP, such consequences can be avoided, although back taxes, interest and penalties will be due.

However, at any time the IRS can “close the door” on the opportunity to voluntarily disclose a foreign financial asset and to participate in the OVDP. Under the most recent terms of the Voluntary Disclosure Program, the IRS merely has to announce that account holders at any specific bank under investigation are precluded from making a voluntary disclosure. The significance is that U.S. clients can no longer wait for an announcement of a DOJ summons or a treaty request before they decide to come forward. The door to come forward can be closed by the IRS much earlier and without warning. That is a new variable in the opportunity to make a voluntary disclosure. It increases the risk of prosecution and it creates more immediate pressure to come into tax compliance. Timing, once again, is everything, and the IRS can close the door at any time.

Conclusion

The common theme through all of the above is that if you have a foreign account or other asset that is not U.S. tax compliant, it will only get more difficult to keep the IRS from discovering the account, to maintain the account in a safe and secure institution, and to access your funds. Now is the time to consult with U.S. tax counsel on what to do about your offshore assets, how to minimize your exposure, how to bring the assets into compliance, and how to safely access your money.

New Banks Revealed to Be Under IRS and DOJ Investigation for “Secret” Foreign Accounts

By Asher Rubinstein, Esq.

Two additional Swiss banks, Bank Frey and Pictet & Cie, are now “officially” under investigation by the U.S. Department of Justice for aiding tax fraud by U.S. taxpayers with Swiss accounts.  These two banks now join the list of banks around the world publicly known to be under IRS and DOJ investigation, which includes Credit Suisse, Julius Baer, Liechtensteinische Landesbank, Bank Leumi, Bank Hapoalim and HSBC.

The two new additions to the list are not a surprise.  Banking secrecy once offered in Switzerland was not confined to big banks like UBS, but was available at banks of all sizes, including the local Cantonal banks and small private banks.  Moreover, the offshore voluntary disclosure programs offered by the IRS in 2009, 2011 and 2012 resulted in over thirty thousand U.S. taxpayers coming forward and, in exchange for lower penalties and no criminal prosecution, revealing the banks, bankers, lawyers and other providers of under-the-tax-radar banking services.  Thus, it was inevitable that the IRS and DOJ would get to Bank Frey and Pictet sooner or later.

What is surprising is that the list of foreign banks “officially” under IRS and DOJ scrutiny is fewer than two dozen.  We believe that there are many, many more banks, around the world, being investigated, yet many investigations remain unpublicized.  That will change with indictments, subpoenas and requests for information under the many Tax Information Exchange (TIE) treaties signed by the U.S. and foreign countries.  With the exception of banking in a handful of countries such as North Korea and Zimbabwe (which we do not recommend), we believe that there is no foreign jurisdiction that is impervious to the reach of the IRS and DOJ.

There is still an opportunity for taxpayers with non-compliant foreign accounts to come into compliance, and the opportunity even exists for those with accounts at Bank Frey and Pictet.  The most recent Offshore Voluntary Disclosure Program (OVDP) is still being offered by the IRS.  However, there are two important points to note.  First, the IRS can close the OVDP at any time.  The IRS has not stated how long the OVDP will continue to be offered.  Second, “the IRS may announce that certain taxpayer groups that have or had accounts at specific financial institutions will be ineligible due to U.S. government actions in connection with the specific financial institution.”  (IRS OVDP FAQ 21).  This means that the IRS could close the OVDP to U.S. taxpayers with unreported accounts at Bank Frey and Pictet, while leaving the program open to people with accounts at other offshore banks.  According to one report, the Swiss Financial Market Supervisory Authority (FINMA), has already communicated with Pictet and Frey regarding transmission of banking information to U.S. investigators.  Of course, once the IRS obtains foreign account information about a taxpayer, then that taxpayer’s OVDP application will be rejected.  The OVDP window may not be open for long.

For additional background, please see our articles here.

Israeli Accounts on the IRS Radar: More Offshore Prosecutions

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.

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