Banks worldwide swing into action to comply with U.S. law enacted under the Hire Act in March 2010.
“Leumi, Israel’s biggest bank, is requiring U.S. clients to declare their deposits to the IRS, amid heightened scrutiny of offshore accounts by U.S. authorities. The bank is asking its clients to declare that they are not U.S. clients, or to reveal their accounts to U.S. authorities, according to a letter to clients obtained by Reuters. “We operate in every place and at all times in accordance with the legal and regulatory guidelines,” a bank spokesman said. The Leumi letter comes as authorities prepare to implement the Foreign Account Tax Compliance Act, putting pressure on foreign banks to be accountable for U.S. clients, with penalties if they do not.
Other foreign banks are sending clients similar warnings, according to private attorneys. “Most banks will have to do this sort of thing,” said Scott Michel, a lawyer for wealthy clients with cases before the IRS. Last week the U.S. Justice Department asked a judge to dismiss its criminal case against UBS AG, after the Swiss bank met the terms of deferred prosecution agreement reached last year over charges it helped tens of thousands of Americans hide assets abroad. UBS admitted it actively lured U.S. clients with the promise of tax secrecy, and paid $780 million to settle the criminal probe. The winding down of the UBS case has revived speculation over which banks U.S. authorities will target next. Clients of HSBC Holdings Plc, Europe’s biggest bank, received letters in June from the U.S. Justice Department notifying them that they are targets of a criminal probe. The IRS is still working through data on 15,000 accounts it received through its voluntary disclosure program, an amnesty-like program that ended last October.
“Leumi has a presence in the United States and thus is vulnerable to the full range of U.S. government enforcement efforts as used in the UBS case — criminal investigation, civil summons service and enforcement,” Michel said. Leumi’s U.S. headquarters is in New York, but it also has branches in Florida, California, and Illinois. The bank has $200 billion in total managed assets. IRS officials have said they are turning to Asia and Latin America, as funds flow out of Switzerland following the UBS probe. “No longer will a bank turn a blind eye to whether their customer is a U.S. taxpayer,” said Bryan Skarlatos, a lawyer for wealthy individuals whose firm has clients that have received the letter. Skarlatos said Leumi is sending disclosure forms to U.S. clients or those it believes could have some U.S. connection, and it is using disclosure as a condition for the clients staying at the bank. “It’s an extra level of due diligence. Some banks may say we don’t want U.S. customers,” he added.