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.