Admitting it advised and helped its clients avoid paying US taxes, Israeli bank Mizrahi-Tefahot agreed to pay $195 million as part of a deferred prosecution agreement.
As one of the largest banks in Israel, Mizrahi-Tefahot caters to high-wealth clientele around the world, providing financial services and wealth management advice. Through its branches and subsidiaries, Mizrahi-Tefahot operated in Switzerland, the US, London, and the Cayman Islands.
According to a five-year federal investigation, Mizrahi-Tefahot defrauded the US and the Internal Revenue Service (IRS) by opening accounts whereby US taxpayers could hide assets, wealth, and income offshore—out of reach and unreported to the IRS.
Notes Assistant US Attorney Tracy Wilkison, “For over a decade, this Israeli bank, through its employees, engaged in conduct designed to hide its clients’ funds so they could avoid paying U.S. income taxes. Mizrahi-Tefahot solicited customers in Los Angeles and other U.S. cities to open offshore accounts with the hope they would never be linked to the American clients. As a result of this criminal conduct, the bank will surrender fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”
Among the practices carried out by the bank in the ten years between 2002 and 2012 include:
- Waiver of requirements for US taxpayers to provide appropriate financial forms as required by the IRS
- Solicit illegal transactions from high wealth individuals in major US financial centers
- Structure financial transactions and loans to allow US taxpayers to access money held offshore and abroad without disclosure to the US
- Held financial agreements and related correspondence outside of the US for its clients, in order to ensure the secrecy of accounts from US authorities
Negotiations between the bank and US authorities have been ongoing. Mizrahi-Tefahot last fall rejected a fine of $342 million. In hindsight, although the $195 million price tag is hefty, the deferred prosecution agreement does not significantly impact the bank or its operations.
Whether this well-publicized agreement actually halts these illegal offshore tax crimes remains to be seen. It may reduce the amount of tax fraud or spawn more intricate secrecy processes around foreign bank accounts.
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