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Israeli banks urge America clients to close Israeli
accountsIsrael banks aiming to avoid conflict with Washington in
wake of new U.S. banking regulations.
By Raphael Ahren | Mar.09, 2010 | 2:29 AM
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Obedient to intensifying U.S. gov ernment pressure to crack down
on offshore tax evaders, in January Israeli banks began ordering
clients theyidentify as "Americans" or "U.S. tax residents" to c
lose investment accounts they hold in Israel. It is apparently an
anticipatory measure, aheadof changes in U.S. law. Local banks are
apparently responding to changes in American regulations as their
legal counsels interpret them.
The Bank of Israel hasn't handed down instructions to the banks
on the matter, which doesn't fall under its purview.
In February, for instance, Bank Mizrahi-Tefahot informed clients
that as a "result of current U.S. regulations" it can no longer
prov ide"securities services to U.S. persons," and explained the
termination procedure. "You are receiving this letter because you
are identified in ourrecords as a customer who may be a U.S.
person, within the meaning of the applicable regulations," Mizrahi
wrote. T he letter said that c lientswho fall into this category
have until April 7 to tell the bank how to dispose of their
holdings, adding that the bank will continue to provide"banking and
non-securities services, including deposit accounts and CDs as well
as foreign currency , checking and credit card services".
"If we do not receive your instructions by March 16, 2010, we
may liquidate the securities in your account," Mizrahi warned.
Local finance professionals agree that the situation is likely
will evolve as the Americans develop and implement new banking
guidelines, butdiffer in their assessment of the possible
consequences for U.S. citizens living in Israel.
"Theoretically, any American who has an account here could be
affected by the changes," Aaron Katsman, a Jerusalem-based
financial
consultant who specializes in English-speaking clients, said.
"They won't be able to hold stocks. T hey could have deposits here,
but that's aboutit."
Americans in Israel are left with "with very few options," added
Philip Braude, CEO of Beit Shemesh-based financial planning company
AngloCapital Limited. His suggestion: "Take the money back to
America. I f you're an American you should be investing in
America." He agrees thatthe current situation is murky, with
Israeli banks aiming to avoid conflict with U.S. authorities.
"The bank aims to comply with legal and regulatory requirements
and constantly reviews the serv ices offered to its clients to
adapt them to thechanging regulatory environment," Bank Hapoalim
spokeswoman Ofra Preuss to ld TheMarker. She declined to
elaborate.
Bank Leumi spokesman Aviram Cohen said that while he could not
discuss the bank's customer relations policies, its business
decisions are"based on legal standards."
What is not under contention is that American citizens must file
annual tax returns with the Internal Revenue Service even if they
live abroad,hold dual or multiple citizenships and pay taxes to
another country.
While the U.S. has not instructed Israeli banks to close acc
ounts held by American nationals, the IRS is widely ex pected to
ask foreign banks todisclose information about U.S. account holders
at some point.
The IRS "does not comment on pending legislation," agency
spokesman Bruce Friedland told TheMarker. He said that U.S.
citizens may bank inIsrael "so long as they appropriately report
the existence of accounts, report the income from the accounts and
pay the tax on the incomegenerated from the accounts."
Braude, of Anglo Capital Limited, points out that even if the
bank is not specif ically aware that a particular customer hold
U.S. citizenship, thatfact would not help them in a court of law.
The bank could not argue that it did not know the client was
American, he said: Israeli identity cardsindicate place of birth,
and banks obtain a copy of the document when opening an
account.
The problems Americans face in Israel are part of the fallout
from a tax evasion scandal involving Switzerland's biggest bank,
UBS. In 2008 theU.S. accused the Zurich-based bank of helping
wealthy Americans to evade taxes. In response, UBS announced it
would stop providing cross-border private banking services to
American clients. Last month the Swiss bank UBS agreed to pay $780
million to avoid being prosecuted bythe American authorities. It
also disclosed the names of some account holders.
It's perfectly legal for U.S. citizens to own stocks outside the
U.S., Jerusalem wealth manager Katsman explained. However, he
added, manypeople open accounts abroad for the express purpose of
dodging tax payments. "Since the U.S. is desperate to get any kind
of revenue possible,because things are tough there and they're
running huge deficits, this is one of their ways: to make American
citizens either pay huge fines orrepatriate the money back to
America."
America has a weapon: It could withdraw the licenses of U.S.
branches of foreign banks if it suspects collusion in tax
evasion.
"Israeli banks have branches in the U.S. and they know [the
U.S.] would make it very hard for them to operate if they don't
give them the sameinformation that UBS gave them," Nir Amikam, head
of research at Wareham Investment Bank, told T heMarker. "I don't
know if it makeseconomic sense, I guess it depends on how much
money [Americans have in Israeli banks]," he added. "The banks are
probably thinking thatit's not as much as they themselves are
making by having branches in the U.S."
Finance professionals estimate that U.S. residents hold several
billion dollars in Israeli investment accounts.
"The banks here in Israel, and all around the world, just took a
business decision: They're not going to deal with Americans having
stocks andbonds portfolios here because they don't want to take any
risks," an investment advisor in one Israel's leading banks told
TheMarker. However,she added, she believes that at present only
U.S. residents are directly affected by the banks' decision.
Americans living in Israel would not beasked to liquidate their
stoc ks and bonds portfolios, in her opinion.
"We definitely think that in the next two or three y ears,
there's going to come a point when America will stop and declare:
OK, we're happynow," said Dylan Shub, principal of T el-Aviv -based
Fortress Capital Management. At that point we'll be able to
understand exactly what has tohappen and what we need to do."
Since the American authorities have not yet clarified what
guidelines they might implement in the future, it is likely that
Israeli banks will take
further preemptive measures to avoid any conflicts with the U.S.
authorities, several finance professionals agreed.
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