Crackdown on Israeli Banks and U.S. Expats

Israeli banks are being investigated by the U.S. government, and American expats are feeling the heat.

The year 2007 marked the beginning of a major shift in world banking. It began with the UBS scandal and the dismantling of Swiss bank secrecy laws, and continued with the enactment of FATCA (2010) and proliferation of international collaborative tax investigation efforts.

After UBS, tens of thousands of U.S. taxpayers started coming forward with their previously unreported foreign assets in order to avoid criminal prosecution and to lower their IRS penalties. Information gleaned from a number of Offshore Voluntary Disclosure Program (OVDP) records then led the tax authorities to investigate banking practices in other countries.

Banking on Israel

By 2011, three Israeli banks were under investigation: Bank Leumi, Bank Hapoalim, and Mizrahi Tefahot. Before the U.S. commenced its investigations, Israeli banks assisted their clients with tax evasion in the same way the Swiss banks did – in a recent Times of Israel article, Ronen Bar-El, an Israeli economics professor, was quoted as calling Israel a “ Switzerland for Jews .”

By 2014, Bank Leumi admitted to having helped more than 1,500 U.S. taxpayers evade U.S. taxes by hiding their non-U.S. income in Israel and elsewhere, and holding bank statements instead of sending them to their customers’ U.S. addresses.

Not any longer. The Department of Justice is still investigating Bank Hapoalim and Bank Mizrahi, and Bank Leumi has agreed to pay fines of $400 million to the U.S. federal government and to New York State.

U.S. expats in Israel subject to onerous banking procedures

Many U.S. citizens who reside in Israel have either been caught for nondisclosure or have voluntarily come forward with their foreign income and assets. The others – whether or not they have something to hide – have been subject to onerous banking procedures both in the U.S. and in Israel.

In addition to FBARs and the reporting of foreign business interests, expats in Israel are now being subjected to increased scrutiny. In the past, Israeli banks asked few questions of their customers. Today, however, they are grilling them on the sources of their income:

  • U.S. citizens are required to provide their U.S. passport and social security numbers (and to fill out U.S. Form W-2) in order to open a new Israeli bank account.
  • They risk having their accounts closed if they do not reveal the source(s) of their income.
  • Large money transfers into a client’s Israeli bank account may be rejected.

Note that it is also difficult for U.S. citizens living in Israel and other countries to open or make changes to their U.S. bank account from abroad, including doing something as straightforward as transferring title to a Revocable Living Trust!

Living abroad and haven’t filed?

Never wait for the U.S. government to find out about your noncompliance – the penalties are always less if you come forward yourself. If you haven’t filed any of your FBARs and/or reported foreign income on your annual tax returns, you need to see a lawyer immediately. Steve Moskowitz and his legal team at Moskowitz, LLP have extensive experience working with U.S. expats throughout the world and can help minimize your tax penalties with or without litigation.

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