Bank Leumi hit with $400 million US fine

Leumi is one of three Israeli banks caught up in the US tax evasion probe swissinfo.ch

Bank Leumi has been made to pay the price for aggressively poaching tax cheating clients from Swiss banks that were under United States investigation. The Israeli bank was fined a total of $400 million (CHF393 million) by the US authorities for tax evasion offences.

Leumi, that has a private banking arm in Switzerland, was among 14 Swiss or Swiss-based banks under active investigation by the Department of Justice (DoJ). Credit Suisse was fined $2.6 billion earlier this year after admitting similar offences, but on a larger scale.

Leumi set up various “egregious schemes” designed to help US citizens dodge taxes, including “complex, sham loan arrangements”, New York State Department of Financial Services (DFS) superintendent Benjamin Lawsky said in a statement.

“What’s worse, when certain Swiss banks began to put the brakes on this type of misconduct, Bank Leumi instead hit the accelerator even harder – viewing it as a ‘golden opportunity’ to pick up new business,” Wall Street’s top financial regulator added.

The same charge has been levelled at other smaller banks in Switzerland that provoked US ire by actively poaching tax cheating clients from larger competitors that had fallen under DoJ investigation.

Switzerland’s oldest private bank, Wegelin, was a prime example of this practice and paid the ultimate price of going bust last year under the weight of US prosecutions.

For its role in the international web of tax evasion crimes, Leumi was fined $270 million by the DoJ and a further $130 million by the New York regulator. Several senior employees have also been fired whilst the bank has agreed to allow a DFS monitor to review its compliance programmes, the regulator said in a statement.

In a statement, Leumi welcomed the end to the legal proceedings which it said had removed “a cloud of uncertainty that had impacted the operations of Bank Leumi”.

Leumi’s Swiss-based private banking arm announced in July that it had entered into a “strategic partnership” with Julius Bär that would entail it handing over most of its clients to the Swiss bank.

The US probe into Swiss banks or Swiss-based foreign banking subsidiaries that aided and abetted tax cheats took off in 2009 with the prosecution of UBS. The active criminal investigation has since widened to 14 banks, including two other Israeli branches of Hapoalim and Mizrahi-Tefahot.

Big Swiss brand names such as Pictet and Julius Bär are also included on the DoJ prosecution hit list.

In addition, more than 100 Swiss banks signed up to a non-prosecution pact last year that would allow them to avoid the criminal courts in exchange for cooperation with the US authorities.