Israel’s largest bank and a Swiss subsidiary agreed in federal court in Manhattan on Thursday to pay $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services to settle offshore tax-evasion charges.
At the same time, Bank Hapoalim B.M. and its wholly owned subsidiary, Hapoalim (Switzerland) Ltd., agreed to pay more than $30 million to the United States to resolve a federal investigation into their roles in laundering bribes and kickbacks to the world governing body for soccer.
As part of the tax-evasion settlement, Bank Hapoalim B.M. admitted the firm conspired with U.S. taxpayers and others to hide more than $7.6 billion in 5,500 or so secret Swiss and Israeli bank accounts -- along with the income it generated -- from the IRS.
“The vast majority of New Yorkers follow the rules and pay their taxes, thereby contributing their fair share towards critical state and federal government operations and public services,” said Supt. Linda A. Lacewell of the New York State Department of Financial Services.
“There are some, however, who went to great lengths to avoid paying their share,” Lacewell said, “and Bank Hapoalim offered a whole array of services to U.S. citizens, including New Yorkers, that knowingly facilitated their tax evasion.”
BHBM operates primarily as a retail bank, with approximately 250 branches throughout Israel and more than 2.5 million accounts. Next year marks the 100th anniversary of its founding.
In addition to retail banking services, BHBM offered private banking services for onshore and offshore customers through its retail branches and its Global Private Banking Center, the Justice Department said. It had branches in New York, Miami, the Cayman Islands, the United Kingdom, and Jersey.
BHBM also owned Bank Hapoalim Switzerland (BHS), a private subsidiary headquartered in Zurich that had branches in Geneva, Luxembourg, and Singapore, federal authorities said.
For about 12 years, beginning in 2002, the bank conspired with U.S. customers and others to hide income from the IRS, the Justice Department said, by:
- Assisting U.S. customers with opening and maintaining accounts in the names of pseudonyms, code names, trust accounts, and offshore nominee entities;
- Opening customer accounts for known U.S. customers using non-U.S. forms of identification;
- Enabling U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of the Bank’s agreements with the IRS;
- Providing “hold mail” services for a fee, avoiding any correspondence regarding the undeclared account being sent to the U.S.;
- Offering back-to-back loans for U.S. taxpayers to enable them to access funds in the United States that were held in offshore accounts at the Bank in Switzerland and Israel; and
- Processing wire transfers or issuing checks in amounts of less than $10,000 that were drawn on the accounts of U.S. taxpayers or entities in order to avoid triggering scrutiny.
At least four senior executives of the bank, including two former members of BHS’s board of directors, were directly involved in aiding and abetting tax evasion, the Justice Department charged.
BHBM will pay a total of $214.38 million to resolve the charges. Of that, BHBM has agreed to pay $77,877,099 in restitution to the IRS, which represents the unpaid taxes resulting from BHBM’s participation in the conspiracy.
BHBM also agreed to forfeit $35,696,929 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2014, federal prosecutors said.
BHBM also has agreed to pay a penalty of $100,811,585, they said.
BHS will pay a total of $402.53 million, which also has three parts, the Justice Department said. First, BHS has agreed to pay $138,908,073 in restitution to the IRS, which represents the unpaid taxes resulting from BHS’s participation in the conspiracy. Second, BHS has agreed to forfeit $124,628,449 in gross fees to the United States. Finally, BHS has agreed to pay a fine of $138,998,399.
In exchange for the federal payments, the U.S. government promised to not bring criminal charges against Bank Hapoalim B.M. or Hapoalim (Switzerland) Ltd. in both cases, provided they cooperate with all requirements.
That includes “implementing remedial measures to protect against the use of its services for tax evasion in the future,” a release issued by the Justice Department said.
A U.S. District Court judge in Manhattan approved the agreements on Thursday.
(The Board of Governors of the Federal Reserve System also announced Thursday that it reached a resolution under which BHBM has agreed to pay a $37.35 million civil monetary penalty and take certain steps to guarantee that it complies with U.S. law. The New York State Department of Financial Services announced a similar resolution under which BHBM has agreed to a cease and desist order and a monetary penalty of $220 million.)
The bank and its subsidiary also agreed to forfeit $20.7 million and pay a fine of $9.3 million to avoid being charged criminally in the soccer case, Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division said Thursday.
"For nearly five years, Bank Hapoalim employees used the U.S. financial system to launder tens of millions of dollars in bribe payments to corrupt soccer officials in multiple countries," Benczkowski said.
“Today’s resolution marks another successful chapter in this district’s effort to hold accountable those corporations and individuals who participated in a bribery scheme that corrupted international soccer,” U.S. Attorney Richard P. Donoghue of the Eastern District of New York added.
Bank employees agreed to launder bribes and kickbacks paid to officials with Fédération Internationale de Football Association (FIFA) and other soccer federations in exchange for broadcasting rights for sports marketing executives, federal authorities charged.
The wrongdoing continued even after employees reported it, they said.
According to the Justice Department:
“From approximately Dec. 10, 2010, to Feb. 20, 2015, BHBM and BHS personnel conspired with sports marketing executives, including executives associated with Full Play Group S.A. (Full Play), a sports media and marketing business based in Argentina, and others, to launder at least $20,733,322 in bribes and kickbacks to soccer officials.
“In exchange for those bribes and kickbacks, the soccer officials awarded or steered broadcasting rights for soccer matches and tournaments to the sports marketing executives and their companies.
“Full Play executed the illegal payments from accounts at BHS and BHBM’s branch in Miami, Florida, which were held in the names of Full Play subsidiaries and affiliates.”
Full Play was charged along with others with racketeering conspiracy, wire fraud, wire fraud conspiracy, and money laundering conspiracy last month in a superseding indictment returned in the Eastern District of New York.
BHBM and BHS also admitted that they conspired to launder money for Luis Bedoya, who at various times served as the president of the Federación Colombiana de Futbol, a vice president of the Confederación Sudamericana de Fútbol (CONMEBOL), and a member of FIFA’s executive committee, the Justice Department said.
The non-prosecution agreement relies upon “thorough and complete cooperation and other substantial remedial efforts” by and from both BHBM and BHS, the government said.
That includes closing Bank Hapoalim (Latin America) S.A. and BHBM’s branch in Miami. BHS is also in the process of closing its operations, federal prosecutors noted.
The agreement announced Thursday is part of an investigation led by the FBI’s New York Field Office and the IRS-CI’s Los Angeles Field Office.
Trial Attorney Michael P. Grady of the Bank Integrity Unit of the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) and Assistant U.S. Attorneys Lauren Howard, Brian D. Morris, and Samuel P. Nitze of the U.S. Attorney’s Office for the Eastern District of New York prosecuted the case.
Former MLARS attorneys Kendrack D. Lewis of the Justice Department’s Civil Division and Maria K. Vento of the U.S. Attorney’s Office for the Western District of North Carolina, the Criminal Division’s Office of International Affairs, and the government of Switzerland provided significant assistance, the justice department said.
Special agents of IRS-Criminal Investigation produced the tax evasion case, handled by Assistant Chief Todd A. Ellinwood and Senior Litigation Counsel Nanette Davis of the Tax Division and Assistant U.S. Attorneys Sagar K. Ravi and Timothy V. Capozzi of the U.S. Attorney’s Office for the Southern District of New York.
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