As previously published in Forbes by Jason B. Freeman on April 30, 2020.
The Department of Justice just notched another victory in its now decade-long effort to crack down on unreported offshore bank accounts—and the banks that facilitated the practice. Over the past ten-plus years, the U.S. government has prioritized the investigation and prosecution of taxpayers that willfully failed to report foreign assets or utilized “secret” offshore bank accounts to commit tax evasion. Today, it announced an agreement with Bank Hapoalim (Switzerland) and Bank Hapoalim B.M. to pay approximately $874 million to U.S. authorities as part of an overall resolution of charges that they facilitated and assisted U.S. tax evasion by their account holders. The settlement marks the second largest monetary recovery since the government’s crackdown on illegal offshore banking started in 2008. As part of the process, the banks turned over information on some 3,454 U.S. accounts that held a total of nearly $3.2 billion in assets, a move that will likely lead to prosecutions of some account holders in the months ahead.
The DOJ issued a press release announcing the guilty plea of Bank Hapoalim (Switzerland) Ltd. and the entry of criminal charges against Bank Hapoalim B.M. for “conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service.” Bank Hapoalim, which is the largest bank in Israel, entered into a deferred prosecution agreement, admitting to conspiring with U.S. taxpayers to commit tax evasion by hiding income and assets in offshore bank accounts. The filings detail Bank Hapoalim’s admission to providing private banking and asset management services to U.S. taxpayers and assisting those taxpayers in the evasion of U.S. tax obligations, as well as hiding accounts from the IRS.
The bank offered private banking services to offshore customers, including trust formations and management services through its subsidiary. Bank Hapoalim, through its private banking services, assisted U.S. clients in concealing assets and income from the IRS. Among other strategies, the bank assisted U.S. clients by opening and maintaining accounts using code names, encryption, offshore entities, and trusts, as well as facilitating the creation of offshore entities and issuing “back-to-back” loans that helped U.S. citizens access funds while concealing their offshore assets. These tactics are common so-called “badges of fraud” in the international tax context.
According to court filings, the US government first initiated a criminal investigation into Bank Hapoalim’s activities in Switzerland back in 2011. Today’s activities and agreements marked the culmination of that investigation. Notably, the deferred prosecution agreement requires Bank Hapoalim to “truthfully and completely disclose all information with respect to the activities of BHBM, its subsidiaries, officers, and employees, and others” relating to the government’s investigation. As a result, expect to see further government scrutiny focused on U.S. citizens who held undisclosed accounts at Bank Hapoalim. Although the IRS has disbanded its Offshore Voluntary Disclosure Program, foreign account holders may still have a narrow window to take advantage of the IRS’s voluntary disclosure practice if their identifying information has not already been disclosed to the IRS. That practice provides some account holders with a limited avenue to avoid potential criminal prosecution.
U.S. law does not prohibit a U.S. citizen from owning an offshore bank account. Indeed, there is nothing inherently illegal or improper about holding an offshore account, and the majority of offshore accounts are held for entirely legitimate and proper reasons. But owning an offshore account comes with important and stringent IRS reporting obligations—and the failure to fulfill those reporting obligations can subject an account holder to serious penalties and, where the government believes that the violation is willful or fraudulent, even criminal prosecution.
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