Bank Leumi Said to Avoid Guilty Plea in Settling Tax Probe

Jun 09, 2014 4:58 pm ET

(Updates with deferred prosecution in fifth paragraph.)

June 9 (Bloomberg) -- Bank Leumi Le-Israel Ltd. said it’s in advanced talks to settle a U.S. investigation into whether it helped Americans evade taxes, and two people familiar with the matter said the deal won’t include a guilty plea.

The bank, Israel’s second-largest, said it set aside 950 million shekels ($275 million) to resolve the probe. Leumi’s settlement will involve matters related to its Swiss unit as well as those outlined in criminal charges against several taxpayers in federal court in Los Angeles, said one of the two people. Both requested anonymity because they weren’t authorized to discuss the case publicly.

Leumi would be the first Israeli bank to settle a tax probe with the U.S. Justice Department, which secured a guilty plea last month from Credit Suisse Group AG’s main bank subsidiary and a $2.6 billion penalty. The settlement would resolve Leumi’s activities on behalf of U.S. taxpayers from 2002 to 2010, the Tel Aviv-based bank said yesterday in a statement.

Leumi is “working towards a resolution with the DOJ, in accordance with the outline and the sum proposed by the DOJ,” according to the statement. The bank said it increased second- quarter provisions by 460 million shekels, which will “significantly affect” its quarterly results.

Prosecutors and lawyers for the bank are discussing a deferred-prosecution agreement, in which the Justice Department would file charges and later dismiss them if certain conditions were met. The accord, which probably would be filed in Los Angeles, isn’t imminent, one of the people said. Such agreements involve a statement of facts outlining a corporation’s conduct.

U.S. Crackdown

The Leumi case comes amid a U.S. crackdown on offshore tax evasion that picked up in 2009 after UBS AG, the largest Swiss bank, avoided prosecution by paying $780 million and handing over the names of 4,700 U.S. account holders.

More than 70 U.S. taxpayers and three dozen offshore enablers were charged, and 106 Swiss banks and 43,000 U.S. taxpayers applied to the Justice Department to avoid prosecution by disclosing in detail how the evasion worked. The data, compiled by the Internal Revenue Service, strengthened the U.S. hand against banks.

Dozens of U.S. citizens who used offshore accounts to avoid taxes have helped the government investigate Leumi and another Israeli bank, Mizrahi Tefahot Bank Ltd., people familiar with the matter said last year. Several people with accounts at Leumi and Mizrahi have been prosecuted in Los Angeles.

Prosecutors said the account-holders gained access to their money through loans from Los Angeles branches using offshore funds as collateral.

When a Mizrahi banker was indicted in Los Angeles last month, Deputy Attorney General James M. Cole said it resulted from “an ongoing and extensive investigation into the use of undeclared bank accounts in Israel.”

Dena Iverson, a Justice Department spokeswoman, didn’t return a telephone call seeking comment.