Bank Leumi to Pay $400 Million in U.S., N.Y. Tax Probes

By David Voreacos and Greg Farrell Dec 22, 2014 3:36 PM PT

Bank Leumi Le-Israel Ltd. (LUMI) agreed to pay $400 million and admit it helped American clients evade taxes for a decade, in a case showing that U.S. prosecutors and New York regulators are extending their probes of offshore tax evasion beyond Switzerland.

The Justice Department filed a conspiracy charge today against Bank Leumi, Israel’s second-largest lender, and four units. The U.S. agreed to defer prosecution for two years, and the bank admitted it unlawfully helped clients hide assets from the Internal Revenue Service, according to court documents.

The company will pay $130 million to New York’s Department of Financial Services, fire the head of its trust subsidiary and improve its compliance program. The accord is part of a seven-year U.S. probe of offshore tax evasion that has predominantly focused on Switzerland.

“Bank Leumi knowingly opened and maintained undeclared accounts that aided and assisted U.S. taxpayers in concealing their offshore assets and income from U.S. taxing authorities,” the Tel Aviv-based bank said in a 20-page statement of facts filed today in Los Angeles federal court.

The U.S. probe has already led to charges against UBS Group AG, the largest Swiss bank; guilty pleas by Credit Suisse Group AG (CSGN)’s main bank subsidiary and Wegelin & Co., Switzerland’s oldest private bank; and criminal investigations of about a dozen Swiss banks. About 100 Swiss banks seek to avoid prosecution by disclosing how they helped Americans dodge taxes.

Deferred Prosecution

As part of the deferred-prosecution agreement, Bank Leumi admitted it helped clients hide assets under assumed names or numbered accounts, use loans to get access to money not declared to the IRS and move undeclared assets from UBS. It will provide the names of more than 1,500 U.S. account holders and help in other investigations.

The company “recognized that the writing is on the wall for offshore banking,” Deputy Attorney General James Cole said in a separate statement, noting the firm’s “extraordinary cooperation.”

Prosecutors charged the parent firm, a trust subsidiary, and units in the U.S., Switzerland and Luxembourg. To serve wealthy clients, private bankers met U.S. taxpayers “in hotels, parks and coffee shops” -- typically in New York, Los Angeles and Miami -- to discuss accounts they couldn’t talk about in Bank Leumi USA branches, the bank admitted.


Bank Leumi USA gave clients access to undeclared funds through “back-to-back loans” secured by accounts in Israel, Switzerland or Luxembourg, according to the statement of facts.

Clients typically paid a 1 percent fee for the loans, which Bank Leumi USA issued to 205 clients from 2002 to 2010.

Private bankers and managers knew the loans allowed clients to get at their money “without directly repatriating the funds or creating a paper trail that could potentially disclose the existence of the undeclared accounts to U.S. authorities,” according to the statement of facts.

Bank Leumi
admitted its compliance program was poor. It advised clients to avoid an IRS program encouraging U.S. taxpayers to disclose their offshore accounts in exchange for reduced penalties and a full accounting of who helped them hide their money, according to the statement of facts.

The bank entered into a consent order with Benjamin M. Lawsky, the superintendent of the Department of Financial Services, that also outlined misconduct. It agreed to hire a monitor for one year to oversee its enhanced compliance program.

‘Tax Haven’

In 2011, a private banker who spent a quarter century at the bank wrote to a supervisor: “Nearly every client who has an account with us has used the bank as a tax haven, and is aware that by not declaring his account in the U.S. is committing an offense,” according to the consent order.

“Bank Leumi employees engaged in a series of egregious schemes -- including creating complex, sham loan arrangements -- to help its U.S. clients shirk their responsibility to pay taxes,” Lawsky said in a statement.

Credit Suisse’s main bank subsidiary agreed to pay $2.6 billion after pleading guilty in May to charges of helping Americans cheat on their taxes. Of the total settlement, $715 million went to Lawsky’s office.

The case is U.S. v. Bank Leumi, 14-cr-731, U.S. District Court, Central District of California (Los Angeles).