The Department of Justice has just won another victory in its ten-year effort to crack down on foreign bank accounts that are not reported – and the banks that facilitate the practice. Over the past ten years, the US government has prioritized the investigation and prosecution of taxpayers who deliberately failed to report foreign assets or use foreign “secret” bank accounts to carry out tax evasion. Today, announced an agreement with Bank Hapoalim (Switzerland) and Bank Hapoalim B.M. to pay around $ 874 million to the U.S. authorities as part of the overall resolution of the costs they facilitate and help the U.S. tax avoidance by their account holders. This settlement marks the second largest monetary recovery since the government’s crackdown on illegal offshore banking began in 2008. As part of the process, banks submitted information on 3,454 US accounts that held a total of nearly $ 3.2 billion in assets, a move likely will lead to the prosecution of several account holders in the coming months.
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. to “conspire with US and other taxpayers to hide more than $ 7.6 billion in more than 5,500 Swiss and Israeli secret bank accounts and the revenue generated in this account from the Internal Revenue Service.” Bank Hapoalim, which is the largest bank in Israel, signed a deferred prosecution agreement, acknowledging conspiring with US taxpayers to avoid tax by hiding income and assets in foreign bank accounts. The submission details Bank Hapoalim’s receipts to provide private banking and asset management services to U.S. taxpayers. and assist taxpayers in avoiding U.S. tax obligations, and conceal accounts from the IRS.
The bank offers private banking services to overseas customers, including trust formation and management services through its subsidiaries. Bank Hapoalim, through its personal banking services, helps U.S. clients. in hiding assets and income from the IRS. Among other strategies, banks help US 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 help US citizens access funds while hiding their foreign assets. This tactic is commonly called “fraud badge“In the context of international taxation.
According to a court filing, the US government first started a criminal investigation into the activities of the Hapoalim Bank in Switzerland in 2011. Today’s activities and agreements mark the culmination of that investigation. In particular, the deferred prosecution agreement requires Bank Hapoalim to “disclose all information honestly and completely in connection with the activities of BHBM, its subsidiaries, officers and employees, etc.” relating to government investigations. As a result, hope to see further government surveillance focused on US citizens who have undisclosed accounts at Bank Hapoalim. Although the IRS has dissolve the Offshore Voluntary Disclosure Program, foreign account holders may still have a narrow window to utilize the IRS voluntary disclosure practices if their identifying information has not been disclosed to the IRS. The practice gives a limited number of road account holders to avoid the possibility of criminal prosecution.
U.S. Law does not prohibit U.S. citizens to have an overseas bank account. Indeed, there is nothing inherently illegal or improper about holding accounts abroad, and most accounts abroad are held for reasons that are entirely legitimate and reasonable. But having an account abroad is accompanied by important and stringent IRS reporting obligations – and failure to fulfill those reporting obligations could expose account holders to severe sanctions and, where the government believes that the violation was intentional or fraudulent, even criminal prosecution.