Bank Leumi will pay NIS 950 million to the US Department of Justice. The bank will make the payment as part of a settlement in the investigation against it on suspicion of aiding tax evasion by its customers in the US, the bank announced today [Sunday].
The investigation focused, according to a previous report by the bank, on "suspected violations of U.S. law, including tax and securities matters." In other words, the U.S. Department of Justice examined whether American customers violated their obligations under U.S. tax laws, and whether the banking services provided by Bank Leumi branches in the U.S. were instrumental in helping them do so.
The amount that Bank Leumi will pay requires it to set aside NIS 460 million in the current quarter, after it had already set aside NIS 490 million in previous reports. The bank clarified that this provision will significantly affect its performance in the second quarter of 2014. In the first quarter of this year, the bank recorded a net profit of NIS 625 million, and in the second quarter of 2013, it earned NIS 474 million. Therefore, this provision is expected to bite off at least two-thirds of the quarterly profit.
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The US Department of Justice is not the only body examining Bank Leumi's actions in this context. The bank previously reported that the Securities and Exchange Commission (SEC) is examining whether the bank or its representatives acted in violation of US securities laws. The Internal Revenue Service (IRS) is also examining the issue. The bank clarified today that negotiations with these authorities have not yet been concluded and therefore additional payments may be necessary.
Leumi is the first bank expected to reach a settlement with the American tax authorities. In addition to it, Mizrahi Bank and Bank Hapoalim are also at the heart of an investigation into American tax licenses.
Commentary: Taxes in the US – an amorphous concept
In contrast to the Dankner affair, which made headlines and subjected the bank's CEO, Rusak Aminoch, to harsh public criticism, the American customers' affair is passing relatively quietly and is of no interest to anyone beyond the confines of the economic press, even though it will cost the bank about a billion shekels, more than six times the write-off of Dankner's debts, which amounted to only 150 million shekels.
The explanation for this is provided by Irit Avissar, from the newspaper Globes. "American customers" is a very amorphous concept, unlike Dankner, who is known and recognized in every household in Israel. Also, suspicion by the US authorities of failure to report to the tax authorities is much less disturbing to the Israeli public, and much less absorbing than debt cancellation, the meaning of which is clear to everyone, Avissar explains.
