(Bloomberg) New York’s banking regulator will ask for more than $300 million to settle an investigation into whether Bank Leumi Le-Israel BM helped Americans evade taxes, a person familiar with the matter said.
Benjamin Lawsky, head of the state’s Department of Financial Services, is seeking more than what the bank set aside to resolve a criminal investigation by the U.S. Justice Department. In June, Leumi said it allotted 950 million shekels ($254 million) for the federal matter, which would make it the first Israeli bank to settle a tax probe with the U.S.
Lawsky has taken a similarly aggressive approach with other banks. As part of a guilty plea in May by Credit Suisse Group AG’s main bank subsidiary, his office secured $715 million of the $2.6 billion penalty.
“Lawsky has certainly raised the stakes,” said Bruce Zagaris, an attorney at Berliner, Corcoran & Rowe LLP who specializes in international tax matters. “It has complicated the effort to settle, because in some cases Lawsky’s office has different views than the feds.”
Lee Neumann, a spokesman for Tel Aviv-based Bank Leumi, said the company wouldn’t comment beyond its August disclosure that the Department of Financial Services was investigating. Caitlin Ferrell, a spokeswoman for the Department of Financial Services, declined to comment.
Key Juncture
The Leumi probes are part of a seven-year U.S. crackdown on offshore tax evasion. About 100 Swiss banks are seeking to avoid prosecution by disclosing how they helped Americans dodge taxes, and 73 of those firms wrote to the Justice Department on Oct. 21 to object to terms of a proposed non-prosecution agreement.
Dozens of Americans who used offshore accounts to avoid taxes have helped the U.S. investigate Leumi and another Israeli institution, Mizrahi Tefahot Bank Ltd., according to court records. Several people with accounts at those banks have been prosecuted for using loans obtained in Los Angeles that were secured by accounts in Israel that weren’t declared to the Internal Revenue Service.
Benny Shoukron, a Mizrahi spokesman, declined to comment on the probe.
Lawsky’s lawyers have told representatives of Leumi that the bank’s conduct, while much smaller in scale than Credit Suisse’s, is troubling because the loans allowed U.S. clients to avoid paying taxes while still giving them access to their funds, according to the person, who asked not to be identified because the negotiations aren’t public.
Lawsky’s Leverage
Lawsky, the banking superintendent since 2011, has leverage over Leumi because it holds a New York banking license and he can threaten to revoke it for violations of the law. He has used that power to extract other settlements.
In August 2012, he struck a $340 million accord with Standard Chartered Plc after threatening to pull its license. The London-based bank was accused of evading U.S. sanctions laws by stripping the names of Iranian clients from billions of dollars in wire transfers. Lawsky required the bank to hire an outside monitor to oversee the controls for handling transactions with sanctioned nations.
Lawsky’s settlement with Credit Suisse also required the bank to hire a monitor.
In settling a sanctions case this year, BNP Paribas SA agreed to pay a total of $8.9 billion to the Justice Department and other regulators, including $2.24 billion to Lawsky’s Department of Financial Services.
“In trying to resolve parallel investigations, banks have to be able to navigate a complicated landscape involving not only criminal and civil issues, but administrative and regulatory ones as well,” said Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division.
Deferred Prosecution
U.S. prosecutors and lawyers for Leumi are discussing a deferred-prosecution agreement, in which the Justice Department would file charges and later dismiss them if certain conditions are met, according to people familiar with the matter who requested anonymity because they weren’t authorized to discuss the case publicly. Such agreements involve a statement of facts outlining a corporation’s conduct.
The bank said in June that it sought to resolve its legal liability for activities on behalf of U.S. taxpayers from 2002 to 2010. Leumi is “working towards a resolution” with the Justice Department “in accordance with the outline and the sum” proposed by the federal agency, according to its statement.
In the probe of offshore accounts, prosecutors have charged more than 70 U.S. taxpayers and three dozen bankers, lawyers and advisers. The IRS has sponsored offshore voluntary disclosure programs since 2009 that brought in at least $6.5 billion in interest, taxes and penalties and prompted more than 45,000 Americans to reveal offshore holdings.
When a Mizrahi banker was indicted in Los Angeles in April, Deputy Attorney General James M. Cole said it resulted from “an ongoing and extensive investigation into the use of undeclared bank accounts in Israel.”
That banker, Shokrollah Baravarian, went on trial this week.
—With assistance from Shoshanna Solomon and Yaacov Benmeleh in Tel Aviv.
