Posted on Mar. 19, 2020

by WILLIAM HOKE, Contact Author

Bank Hapoalim, Israel’s largest financial institution, said it expects to pay $870 million to end investigations by U.S. authorities into allegations that the bank helped clients evade their U.S. tax obligations.

"Recently, the bank group and . . . the [Justice Department] and bank regulatory teams handling the investigations have extensively negotiated the terms of resolutions which, once approved by the U.S. authorities and the bank group and finalized, would resolve the investigations," Hapoalim said in a March 18 filing with the Tel Aviv Stock Exchange. 

The bank said the proposed settlement, which would be part of a deferred prosecution agreement, includes the signing of a consent order with the New York Department of Financial Securities and an enforcement action with the Federal Reserve System. 

In recent years, Hapoalim has been steadily increasing its provisions for a settlement with U.S. authorities. In March 2019 it booked an additional charge of $246 million, bringing the total to date to $611 million, to cover a possible resolution of the dispute.

In 2015 Hapoalim started responding to requests for information and documents made by the Justice Department, the New York Department of Financial Services, and the Federal Reserve. The following year, Hapoalim said its Swiss unit was not eligible to participate as a Category 2 bank in the Justice Department's Swiss bank program, which allowed qualifying financial institutions to enter into non-prosecution agreements in exchange for the payment of a fine and promises of future cooperation in identifying account holders and parties that enabled their evasion of U.S. taxes. In September 2017 Israel’s central bank told financial institutions under its supervision to scale back their foreign activities after investigations by U.S. authorities. The following month, Hapoalim announced the termination of its Swiss subsidiary and the sale of the unit’s assets. 

Neither the Justice Department nor the New York Department of Financial Services responded by press time to requests for comment about the proposed settlement. 

Dave Wolf of the Dave Wolf & Co. Law Firm in Jerusalem said that while it’s unclear whether Hapoalim’s settlement offer will be accepted, fiscal exigencies related to the COVID-19 pandemic might influence the decision. “This case is dragging out so long and the IRS is understaffed and needs funds,” he said. “It may have been in [Hapoalim’s] thoughts to try to settle now, as the IRS needs money more than ever with the current crisis.” 

Hapoalim is the last major Israeli bank to settle its dispute with U.S. authorities. In March 2019 Mizrahi-Tefahot Bank Ltd. agreed to pay $195 million as part of a deferred prosecution agreement with the Justice Department. In 2014 Bank Leumi paid a fine of $270 million and also entered into a deferred prosecution agreement.

Wolf said Israeli banks have significantly changed their practices to limit future exposure to tax investigations by the United States and other countries. “From being lax a few years ago about hiding money for Jewish clients overseas to today, local banks are [now] extremely careful — even paranoid — about accepting money from abroad,” he said. “They have also closed or consolidated foreign branches or operations abroad, such as in Mexico, the USA, and Switzerland.” 

Hapoalim also said it will pay $30 million to end a U.S. investigation into the bank’s alleged role in a wide-ranging bribery and kickback scheme involving FIFA, the governing body for international soccer. In 2015 the Justice Department indicted several high-ranking officials of FIFA and regional soccer organizations, as well as sports marketing executives who were allegedly involved in making more than $150 million in illegal payments to secure lucrative media and marketing rights to international soccer tournaments.