On April 30, two announcements by the U.S. Department of Justice disclosed that Israel’s largest bank, Bank Hapoalim B.M. (BHBM), and its Swiss subsidiary, Bank Hapoalim (Switzerland) Ltd. (BHS), would pay a total of approximately $904 million in multiple resolutions with federal and state agencies, regarding two separate investigations into tax-evasion facilitation and a money-laundering conspiracy associated with the Fédération Internationale de Football Association (FIFA) soccer bribery scandal.
Tax-Evasion Facilitation
First, the U.S. Attorney’s Office for the Southern District of New York and the Justice Department announced that BHBM and BHS had entered into multiple resolutions with the U.S. Department of Justice and other agencies “for conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service (the “IRS”).” In connection with its resolutions with the Justice Department, BHBM and BHS agreed to pay approximately $874.27 million — which included restitution to the IRS, fines, penalties, and forfeiture – to the U.S. Department of the Treasury, the Federal Reserve Board, and the New York State Department of Financial Services.
Under the terms of the resolutions with the Justice Department, BHS agreed to plead guilty to a criminal information charging BHBM and BHS with conspiracy to defraud the United States and the IRS, to file false federal income tax returns, and to evade federal income taxes for the period from 2002 to 2014. BHBM entered into a deferred prosecution agreement (DPA) under which it agreed “to refrain from all future criminal conduct, implement remedial measures, and cooperate fully with further investigations into hidden bank accounts.“ As part of thee resolutions, BHBM and BHS agreed to pay a total of $616.91 million in restitution, forfeiture, and fines.
According to the Justice Department, from at least 2002 to at least 2014 employees of BHBM and BHS assisted U.S. customers in concealing their ownership and control of assets and funds held at BHBM and BHS (the “Bank”), which enabled those U.S. customers to evade their U.S. tax obligations, by engaging in six specified types of conduct:
- “Assisting U.S. customers with opening and maintaining accounts in the names of pseudonyms, code names, trust accounts, and offshore nominee entities;”
- “Opening customer accounts for known U.S. customers using non-U.S. forms of identification;”
- “Enabling U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of the Bank’s agreements with the IRS;”
- “Providing “hold mail” services for a fee, avoiding any correspondence regarding the undeclared account being sent to the U.S.;” and
- “Offering back-to-back loans for U.S. taxpayers to enable them to access funds in the United States that were held in offshore accounts at the Bank in Switzerland and Israel;” and
- “Processing wire transfers or issuing checks in amounts of less than $10,000 that were drawn on the accounts of U.S. taxpayers or entities in order to avoid triggering scrutiny.”
The Department also stated that “[a]t least four senior executives of the Bank, including two former members of BHS’s board of directors, were directly involved in aiding and abetting tax evasion of U.S. taxpayers.”
In announcing the resolutions with BHBM and BHS, the Justice Department stated that the fine and penalty amounts
take into consideration that the Bank, after initially providing deficient cooperation through an inadequate internal investigation and the provision of incomplete and inaccurate information and data to the Government, thereafter conducted a thorough internal investigation, provided client-identifying information, and cooperated in ongoing investigations and prosecutions.
For example, according to the DPA, the Justice Department
uncovered evidence of the criminal misconduct of a BHS senior executive and board member in July 2016 through its own investigation, with no assistance from the Bank. In addition, the Bank provided unreliable data to the Department regarding, among other things, the identification of U.S. related accounts at BHS, and did not engage an external accounting firm for the purpose of assisting in providing data to the Department until May 2017.
The DPA further stated that the Bank “failed to take adequate steps to preserve email, in that the Bank did not retain all available email records, and certain relevant email boxes were deleted up through mid-2016 and certain relevant back-up tapes were deleted up through mid-2018.”
In addition to the Justice Department resolutions, the Federal Reserve Board settled with BHBM, imposing a civil money penalty of $37.35 million. Although BHBM neither admitted nor denied any statements by the Board concerning the Bank’s conduct, the Board stated in its order that from at least 2002 through 2014, BHBM “offered certain products and services that U.S. taxpayers used to conceal their assets from U.S. tax authorities, including back-to-back loans offered through [BHBM’s U.S. branches.]” (Back-to-back loans, the Board explained, frequently involved a loan from the U.S. Branches to a U.S. taxpayer that was secured by an undeclared offshore account owned or controlled by the same taxpayer at BHBM or [BHS] . . . .” These back-to-back loans “allowed U.S. taxpayers to access the economic value of the undeclared offshore funds without actually transferring them to the United States, preventing a paper trail that could alert U.S. tax authorities to the funds.”)
Finally, the DFS, in coordination with the Board, imposed an additional penalty of $220 million on BHBM and BHBM’s New York branches. The DFS noted that the penalty amount in part reflects BHBM’s “initial failure to meet expectations for cooperation” with DFS investigations:
During the initial phase of DFS’ investigation, the Bank, through its then-lead outside counsel, conducted an internal investigation, but it involved only a limited review of the Bank’s operations, and, as a result, some of the information the Bank provided to DFS later proved to be incomplete and therefore inaccurate.
Money-Laundering Conspiracy
Second, the U.S. Attorney’s Office for the Eastern District of New York and the Justice Department announced that BHBM and BHS had entered into a non-prosecution agreement (NPA) under which BHBM and BHS “agreed to forfeit $20,733,322 and pay a fine of $9,329,995 to resolve an investigation into their involvement in a money laundering conspiracy that fueled an international soccer bribery scheme.” In particular, BHBM and BHS “admitted that they, through certain of their employees, conspired to launder over $20 million in bribes and kickbacks to soccer officials with Fédération Internationale de Football Association (“FIFA”) and other soccer federations.”
Based on a statement of facts to which BHBM and BHS stipulated,
from approximately December 10, 2010 to February 20, 2015, BHBM and BHS personnel conspired with sports marketing executives, including executives associated with Full Play Group S.A. (“Full Play”), a sports media and marketing business based in Argentina, and others, to launder at least $20,733,322 in bribes and kickbacks to soccer officials. In exchange for those bribes and kickbacks, the soccer officials awarded or steered broadcasting rights for soccer matches and tournaments to the sports marketing executives and their companies.
Even though BHS compliance personnel “repeatedly rais[ed] concerns about certain payments made to soccer officials from the accounts associated with Full Play, BHBM and BHS failed to take action,” and “the banks’ relationship managers continued executing illicit bribe and kickback payments on behalf of Full Play.”
Note: On their face, these two cases involve different categories of criminal conduct. Taken together, however, they illustrate the importance of maintaining consistently effective compliance programs across all areas of financial crimes. They also indicate, unfortunately, that any company or financial institution under investigation needs to have a clear understanding of the scope and methodology that outside counsel propose for their internal investigation, and should validate that methodology and internal-investigation findings before those findings are submitted to law enforcement or regulatory agencies.
Dipping Through Geometries 