Why is Bank Leumi telling foreigners to close their accounts? Why is a staggering 22% of Israel’s economy off the books

Times of Israel

As the US cracks down on tax evasion, Israel’s flourishing decades of money laundering for Diaspora Jews are being exposed. It’s part of a financial malaise that runs deep, and that harms all law-abiding Israelis

All over the Diaspora, owners of holiday apartments in Israel were surprised this past spring to receive a letter from Bank Leumi.

“Dear Customer,” it read, “We wish to inform you that in light of the increased exposure of Israeli banking corporations to compliance risks deriving from cross-border banking activities, and in accordance with Bank of Israel instructions in this matter, the Bank has concluded that it will not continue to maintain accounts of foreign residents with a balance of less that $50,000, or the equivalent thereof.”

Recipients of the letter were then instructed to either pony up the extra cash to bring their account to $50,000 or close their account altogether.

As one observer told The Times of Israel, “Bank Leumi has caused an uproar among Brits [and other foreign residents] with apartments in Israel who open accounts with Israeli banks in order to run things such as service charges or maintenance. No one would place that sort of sum in a current account that paid no interest.” [...]

But the mild storm casts light on a larger issue, the fact that Israeli banks, including but certainly not limited to Leumi, for decades helped Diaspora Jews evade taxes and launder money on a major scale, helping to attract organized crime to the country and contributing to the high cost of living.

“Israel has been Switzerland for Jews,” Ronen Bar-El, an economics professor at Israel’s Open University, told The Times of Israel. “Bin Laden [September 11 and the subsequent US-led crackdown on global money laundering] put the brakes on our business of laundering money for Jews.” [...]

In 2014, Bank Leumi admitted it had conspired to aid and assist a minimum of 1,500 US taxpayers to prepare and present false tax returns to the US Internal Revenue Service by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. According to a US Justice Department press release, Bank Leumi’s “criminal activity” spanned over a decade from at least 2000 to 2011, during which time Leumi also provided “hold mail” service for approximately 2,450 US accounts whereby bank statements were held abroad and not sent sent to the customer’s address in the United States. To avoid prosecution, Bank Leumi agreed to pay $400 million in fines to the US and New York State governments. A US government investigation into Bank Hapoalim and Bank Mizrahi is ongoing.

The US Department of State’s 2012 International Narcotics Control Strategy Report listed Israel as a “major money laundering country… whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking… or other serious crime.” [...]

In fact, said Avichai Snir, a lecturer in economics at the Netanya Academic College, money laundering for Jews abroad has been an Israeli government policy since the early days of the state.

“Israel has been a shelter for black money since its establishment,” he told The Times of Israel, adding that Israel’s early leaders had ideological, as well as practical, motives for such a policy.

“There was an idea that it’s a good thing to help Jews hide their money from Soviets and the Poles, because otherwise those regimes will steal from them,” explained Snir.

“But at the same time, a lot of American, Swiss and French money got hidden here as well.”[...]

Just as bad, said Snir, is the culture of tax evasion within Israel. Twenty-two percent of Israel’s economy is off the books. This includes everything from babysitters and plumbers working without receipts, to foreign workers and Palestinian construction workers being paid in cash, to tax-evading landlords, not to mention the proceeds of theft, extortion, prostitution and narcotics.[...]

According to Snir, FATCA and the attendant tougher banking regulations caused many Diaspora Jews with Israeli bank accounts or Swiss bank accounts to quickly pull their money out and invest it in real estate, partially contributing to the marked spike in Israeli housing prices over the last several years.

But by far the biggest problem with Israel’s tax evasion and money laundering culture, stressed Bar-El, is the encroachment of the mafia into our daily lives. Israeli streets are generally safe and the violent crime rate is much lower than in a country like the United States, he said, but this could change due to a lack of willingness by the police to tackle economic crime.

Even today, thousands of Israelis wake up every morning and go to work stealing money from victims abroad in the mafia-linked fraudulent binary options and forex industries, which have inexplicably been allowed to flourish here over the last decade, as detailed in a series of exposés published by The Times of Israel in recent months.[...]

But if Israel does not crack down on tax evasion and other economic crimes, the future could be very bleak.

“That’s what this Bank Leumi fine was about, and that’s why we have the anti-money laundering authority,” said Bar-El. “If we let economic crimes continue to grow, we will turn into a criminal nation.”