They have entered into a deferred prosecution agreement (DPA) with the US Department of Justice and will pay $195m (£147m, €173m) to the US.
The payment consists of:
- Compensation in the amount of $53m in regard to the loss to the US as a result of the criminal conduct;
- Disgorgement in the amount of $24m, which links to fees paid to the bank by US taxpayers with undeclared accounts from 2002 to 2012; and,
- A fine of $118m.
“Mizrahi-Tefahot’s admission of guilt and agreement with the US to pay significant penalties and pay over the fees earned from knowingly assisting tax evading Americans reflects the continuing efforts of the tax division to end the criminal role of international financial institutions in perpetuating offshore tax fraud,” said principal deputy assistant attorney general, Richard Zuckerman.
“A financial institution is not a faceless entity but is the embodiment of the acts of its bankers, relationship managers and all employees.
“When a bank’s employees, at any level, facilitate US tax fraud, the bank facilitates tax fraud and will be held responsible,” he said.
Mizrahi-Tefahot admitted that, from 2002 until 2012, its bankers, relationship managers, and other employees defrauded the US (specifically the Internal Revenue Service (IRS)) by conspiring with US taxpayer-customers and others.
The bank’s employees opened and maintained bank accounts in Israel and elsewhere around the world, and “violated” Mizrahi-Tefahot’s Qualified Intermediary (QI) Agreement with the IRS, which enabled US taxpayers to hide income and assets from the IRS.
The DPA said employees were:
- Assisting and referring US customers to professionals to open and maintain accounts at Mizrahi-Tefahot and UMBS in the names of pseudonyms, code names, Mizrahi Trust, and foreign nominee entities in offshore locations; such as St Kitts and Nevis, Liberia, Turks & Caicos, and the British Virgin Islands (BVI);
- Opening customer accounts at Mizrahi-Tefahot and UMBS for known US customers using non-US forms of identification, and failing to maintain copies of required identification and account opening documents;
- Opening and maintaining foreign nominee bank accounts for certain US clients holding US securities, enabling them to evade American reporting requirements on securities’ earnings;
- Entering into “hold mail” agreements with US customers, where Mizrahi-Tefahot and UMBS employees held bank statements and other account-related mail in their offices in Israel and Switzerland, and aided the existence of the offshore accounts to remain outside the US;
- Providing US customers at Mizrahi-Tefahot’s Los Angeles branch, until 2008, use of their funds held in offshore Mizrahi-Tefahot and UMBS accounts through back-to-back loans, while excluding any record of the offshore pledge account at its Los Angeles branch to take advantage of Israeli and Swiss privacy laws and prevent disclosure of the funds to US tax authorities;
- Failing to meet requirements of Mizrahi-Tefahot’s QI Agreement; and
- Sending “roving representatives,” to the US to solicit new customers and to meet with existing US customers in Los Angeles, California, New York, and other locations in the US for the purposes of opening accounts and reviewing and managing existing customers’ offshore accounts.
Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company will cooperate fully, subject to applicable laws and regulations, with the US, the IRS, and other US authorities, according to the terms of the DPA.
The DPA provides that Mizrahi-Tefahot will ensure that all of its overseas branches and other companies will comply with Foreign Account Tax Compliance Act (Fatca).
It also requires Mizrahi-Tefahot and its subsidiaries to disclose certain material information it may later uncover regarding US-related accounts, as well as to disclose certain information consistent with the DOJ’s Swiss Bank Programme, with respect to accounts closed between 1 January 2009 and October 2017.
Prosecution against the bank for conspiracy will be deferred for an initial period of two years to allow Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company to comply with the DPA’s terms.
During the relevant period, Mizrahi-Tefahot had branches in California, London and the Cayman Islands; where, in 2014, the the branch surrendered its license and was closed.
UMBS had one branch in Zurich, Switzerland.
Mizrahi Trust Company, a fully owned subsidiary of Mizrahi-Tefahot, operated under the regulatory authority of the Bank of Israel.
Collectively, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company provided private banking, wealth management, and financial services to high net worth individuals around the world.