Bank Hapoalim’s bad day: $904M in tax evasion, FIFA fines

On Thursday, the Department of Justice (DOJ) announced Bank Hapoalim B.M. (BHBM) and Bank Hapoalim Switzerland (BHS) pleaded guilty 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, as well as the income generated in these accounts from the Internal Revenue Service (IRS). The total penalty associated with the misconduct approached $875 million.

“Bank Hapoalim and its Swiss subsidiary have admitted not only failing to prevent but actively assisting U.S. customers to set up secret accounts, to shelter assets and income, and to evade taxes,” said U.S. Attorney Geoffrey Berman of the Southern District of New York. “The combined payment approaching $1 billion reflects the magnitude of the tax evasion by the Bank’s U.S. customers, the size of the fees the Bank collected to provide this illegal service, and the gravity of the illegal conduct.”

According to court documents, between 2002 and continuing until at least 2014, the bank conspired with employees, U.S. customers, and others to defraud the United States with respect to taxes, filing false federal tax returns, and committing tax evasion. BHBM and BHS employees assisted U.S. customers in concealing their ownership and control of assets and funds held at the bank, enabling those U.S. customers to evade their U.S. tax obligations.

Compliance failures

At 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, the DOJ states. Court documents describe involvement by the compliance department as well that allowed the tax scheme to continue.

“In some cases, BHBM personnel failed to take appropriate steps to prevent certain U.S. clients leaving Swiss banks from transferring funds to BHBM in order to continue their evasion of U.S. tax obligations,” according to the deferred prosecution agreement. “BHBM acknowledges that it had compliance deficiencies that prevented it from effectively managing the risks posed by its cross-border banking business with U.S. customers. These compliance deficiencies enabled U.S. customers to avoid their U.S. tax obligations, and information technology weaknesses hindered BHBM’s ability to identify all U.S. accounts.”

Additionally, court documents filed by the Federal Reserve state, “BHBM lacked adequate enterprise-wide risk management and compliance policies and procedures sufficient to ensure that the Firm’s back-to-back lending compliance activities complied with safe and sound practices and applicable internal policies.”

Settlement details

As part of the resolutions, the bank will pay a total of approximately $874.27 million to the U.S. Treasury Department, the Federal Reserve, and the New York State Department of Financial Services (NYDFS). The resolution marks the second-largest recovery by the Department of Justice since beginning its investigations into facilitation of offshore U.S. tax evasion by foreign banks in 2008.

BHBM will pay a total of $214.38 million, including $78 million in restitution to the IRS; a forfeiture of $36 million to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2014; and a penalty of $100.8 million. BHS will pay a total of $402.53 million, including $138.9 million in restitution to the IRS; a forfeiture of $125 million in gross fees to the United States; and a penalty of $139 million.

Under its settlement with the Federal Reserve, the bank has agreed to a consent order, certain remedial steps to ensure its compliance with U.S. law in its ongoing operations, and a civil monetary penalty of $37.35 million. Under its settlement with the NYDFS, BHBM has agreed to a cease and desist order and a monetary penalty of $220 million.

Regarding the penalty and fine amounts with the DOJ, the agency said it took 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.” The bank further implemented remedial measures to protect against the use of its services for tax evasion in the future.

The bank must also disclose information consistent with the DOJ’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009, and Dec. 31, 2019. The agreements provide no protection from criminal or civil prosecution for any individuals.

Additionally, BHBM and BHS agreed to refrain from all future criminal conduct, implement remedial measures, and cooperate fully with ongoing investigations and affirmatively disclose any information it may later uncover regarding U.S.-related accounts. Assuming BHBM’s continued compliance with its agreement, the government has agreed to defer prosecution of BHBM for a period of three years.

FIFA scheme

BHBM and BHS on Thursday also entered a non-prosecution agreement (NPA) with the DOJ and agreed to a $30 million settlement—including a $9.3 million criminal penalty and forfeiture of $20.7 million in funds—for conspiring with sports marketing executives to launder at least $20.7 million in bribes and kickbacks to soccer officials with Fédération Internationale de Football Association (FIFA) and other soccer federations in multiple countries from 2010 to 2015, according to admissions in the statement of facts stipulated to by BHBM and BHS as part of the agreement.

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. Among those involved included sports marketing executives with Argentina-based sports media and marketing business Full Play Group, which was charged on March 18—along with U.S. broadcasting company 21st Century Fox and Spanish Sports Media Company Imagina Media Audiovisual—in a superseding indictment in the Eastern District of New York with racketeering conspiracy, wire fraud, wire fraud conspiracy, and money laundering conspiracy.

According to the NPA, red flags raised by the bank’s compliance department went ignored. “Notwithstanding the repeated concerns raised by BHS compliance personnel about certain payments made to soccer officials from the accounts associated with Full Play, BHS failed to take action,” the DOJ said. “Instead, the banks’ relationship managers continued executing illicit bribe and kickback payments on behalf of Full Play.”

BHBM and BHS also admitted they conspired to launder money for Luis Bedoya, who at various times served as the president of the Federación Colombiana de Futbol, a vice president of the Confederación Sudamericana de Fútbol, and a member of FIFA’s executive committee. BHBM’s Miami branch and BHS allowed accounts controlled by Bedoya to be used to receive illicit bribe and kickback payments. Bedoya pleaded guilty to racketeering conspiracy and wire fraud conspiracy in November 2015 in the Eastern District of New York.

As outlined in the agreement, the government said its decision to enter into the NPA with BHBM and BHS was premised upon the banks’ “thorough and complete cooperation and the banks’ other substantial remedial efforts,” which have included closing Bank Hapoalim (Latin America) and BHBM’s branch in Miami.