Israeli Bank Gets Penalized $195M DOJ Offshore Tax Fraud Penalty
The U.S. DOJ deferred prosecution agreements are starting to really bear fruit.
Recently, Mizrahi-Tefahot Bank Ltd., agreed to a penalty in the amount of $195M.
- What was the Scam?
- What is a Hold-Mail Agreement?
- What is a Deferred Prosecution Agreement?
- Deferred Prosecution Agreement?
- How is the Penalty Broken Down?
- Has the IRS Contacted You?
- Are you Under Submitting to a Disclosure in Israel
What was the Scam?
Like most scams, it involves greed and an intent to avoid taxes. In this particular case, the bank sent representatives to many of the large metropolitan areas, including Los Angeles amongst others — and solicited investors into the scam.
The banks would advise their representatives to open up accounts under false names and execute “hold-mail agreements” for a fee that the bank would then collect.
What is a Hold-Mail Agreement?
This is very common in the world of offshore banking.
Customers do not want to be reminded that they may not be in full compliance with U.S. tax law.
This is human nature.
Therefore, the bank uses this to their advantage, and for a fee (or as part of the scam) offers the service of “non-service,” (aka avoiding sending the customer bank statements or other financial statements.)
The bank holds those pesky annual statements (read: admissions of guilt) so that you are not constantly reminded of your possible fraud
We say “possible fraud,” because there are clients who wholeheartedly did not realize they were doing anything illegal or attempting to defraud the U.S.
What is a Deferred Prosecution Agreement?
A deferred prosecution agreement is when the Department of Justice enters into an agreement with foreign financial institution, in which instead of being immediately prosecuted (which does happen and may result in a jail sentence) the institution enters into a deferred prosecution agreement — for the bank to cooperate with the U.S. government.
The Foreign Financial Institution that guaranteed you that your money would be safe, has now turned against you.
They are going to rat you out to the IRS.
And, to add insult to injury the institution is going to potentially freeze your money, and will only agree to release the money after you agree to acknowledge (in writing) to the “new department” at the foreign institution tasked with handling these matters, that you were aware you committed a crime…
…so that the IRS ends up taking the money from you anyway, along with launching a possible criminal investigation against you.
Deferred Prosecution Agreement
In part, the Bank acknowledged that:
‘Beginning in 2002 and continuing until 2012, assisted or otherwise facilitated a number of U.S. taxpayers in maintaining undeclared accounts at one or more of the MTB ENTITIES’ branches by:
(1) opening and/or maintaining foreign nominee bank accounts for certain U.S. clients holding U.S. securities, which enabled those U.S. taxpayers to evade U.S. reporting requirements on earnings from securities, in violation of MTB’s Qualified Intermediary Agreement (“QI Agreement”) with the IRS; and
(2) referring U.S. beneficial owners of accounts to outside advisors to set up offshore entities to act as nominee account holders, which enabled those U.S. taxpayers to conceal their beneficial ownership in the accounts;
Opened accounts for known U.S. customers using nonU.S. forms of identification, which enabled U.S. taxpayers to avoid being identified as U.S. persons;
Maintained customer accounts without copies of the required identification and account opening documents, in violation of MTB internal bank policy, which enabled their U.S. customers to avoid being identified as U.S. persons;
Entered into “hold mail” agreements with U.S. customers whereby MTB and UMBS employees held bank statements and other account-related mail in their offices in Israel and Switzerland, and by doing so enabled documents reflecting the existence of the offshore accounts to remain outside the U.S.;
Failed to block, in a timely manner, trading in U.S. securities in certain non-compliant accounts controlled by U.S. customers without obtaining the proper IRS Forms W-BBEN and/or W-9 per MTB’s QI Agreement with the IRS; and
Until 2008, provided U.S. customers at MTB-Los Angeles access to and use of their funds held in non-U.S. MTB and UMBS accounts through back-to-back loans, while excluding any record of the U.S. customer’s offshore pledge accounts at MTB or UMBS, which allowed certain U.S. customers to take advantage of Israeli and Swiss privacy laws and not disclose their pledge accounts to U.S. tax authorities.
How is the Penalty Broken Down?
The Penalty was broken Down into 3 parts:
- $118M in Fines
- $24M in Disgorgement
- $53M in Restitution
Golding & Golding, A PLC
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