Israeli banks urge American clients to close Israeli accounts

[scandal 951]

While this article comes from an Israeli news source and is particular to local Israeli banks, my guess is that the same pattern is probably repeating in other countries throughout the world. Following the UBS settlement with the IRS regarding Swiss offshore accounts used by Americans as tax shelters, my guess is that banks everywhere will be looking to indemnify themselves from any liability due to their US account holders non-reporting of US taxes.

http://www.haaretz.com/hasen/spages/1155130.html

Israeli banks urge American clients to close Israeli accounts

By Raphael Ahren

Tags: Israel news, Israel finance

Obedient to intensifying U.S. government pressure to crack down on offshore tax evaders, in January Israeli banks began ordering clients they identify as "Americans" or "U.S. tax residents" to close investment accounts they hold in Israel. It is apparently an anticipatory measure, ahead of 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 provide "securities services to U.S. persons," and explained the termination procedure. "You are receiving this letter because you are identified in our records as a customer who may be a U.S. person, within the meaning of the applicable regulations," Mizrahi wrote. The letter said that clients who 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, but differ 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. They could have deposits here, but that's about it."

Americans in Israel are left with "with very few options," added Philip Braude, CEO of Beit Shemesh-based financial planning company Anglo Capital Limited. His suggestion: "Take the money back to America. If you're an American you should be investing in America." He agrees that the 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 services offered to its clients to adapt them to the changing regulatory environment," Bank Hapoalim spokeswoman Ofra Preuss told 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 accounts held by American nationals, the IRS is widely expected to ask foreign banks to disclose 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 in Israel "so long as they appropriately report the existence of accounts, report the income from the accounts and pay the tax on the income generated from the accounts."

Braude, of Anglo Capital Limited, points out that even if the bank is not specifically aware that a particular customer hold U.S. citizenship, that fact 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 cards indicate 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 the U.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 by the 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, many people 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 or repatriate 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 same information that UBS gave them," Nir Amikam, head of research at Wareham Investment Bank, told TheMarker. "I don't know if it makes economic sense, I guess it depends on how much money [Americans have in Israeli banks]," he added. "The banks are probably thinking that it'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 and bonds 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 be asked to liquidate their stocks and bonds portfolios, in her opinion.

"We definitely think that in the next two or three years, there's going to come a point when America will stop and declare: OK, we're happy now," said Dylan Shub, principal of Tel-Aviv-based Fortress Capital Management. At that point we'll be able to understand exactly what has to happen 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.

[mawilson 2,133]

Israeli banks suck anyway.

[scandal 951]

Israeli banks suck anyway.

:thumbs:

Leumi, Hapoalim, Discount, Mizrahi -- I've never seen such blatant goniffs as Israeli banks. The concept of no-fee checking accounts, such as available in the US, simply does not exist. They're all equally bad there, lending me to believe that there is massive collusion between them all.

[mawilson 2,133]

:thumbs:

Leumi, Hapoalim, Discount, Mizrahi -- I've never seen such blatant goniffs as Israeli banks. The concept of no-fee checking accounts, such as available in the US, simply does not exist. They're all equally bad there, lending me to believe that there is massive collusion between them all.

Yep. Plus their savings accounts are more like CDs - you have to lock your money away for a period of time.

[mawilson 2,133]

I'm not even going to mention their dubious mortgage practices... such as tying loans

to the dollar index so that the principal amount in shekels fluctuates with the dollar rate,

but only when it works in their favor.

[SMR 368]

Yep. Plus their savings accounts are more like CDs - you have to lock your money away for a period of time.

I don't know really anything about Israeli banks. But do you know of any American banks that actually offer a meaningful interest rate on accounts that don't lock your money away? Yes, you can have a savings account that you can move money in and out of freely. But the interest rate on such accounts is usually around .02%. So, unless you put a huge amount of money into them, you are literally getting pennies. And if you have a huge amount of money available to put into them, then I would recommend getting a CD or some other investment strategy that gives you a better interest rate, even if you have less liquidity.

[NickD 203]

You do have the option to put your money in a Venezuelan bank account, with only one minor inconvenience. Once you put it in, you can't take it out.

[Ban Hammer 13,656]

You do have the option to put your money in a Venezuelan bank account, with only one minor inconvenience. Once you put it in, you can't take it out.

[scandal 951]

I don't know really anything about Israeli banks. But do you know of any American banks that actually offer a meaningful interest rate on accounts that don't lock your money away? Yes, you can have a savings account that you can move money in and out of freely. But the interest rate on such accounts is usually around .02%. So, unless you put a huge amount of money into them, you are literally getting pennies. And if you have a huge amount of money available to put into them, then I would recommend getting a CD or some other investment strategy that gives you a better interest rate, even if you have less liquidity.

I have a Savings Account at HSBC, no locks or holds, can withdraw at any time, no fees. I'm currently getting 1.10% on my funds there. That sucks, but in the current environment where the Fed has rates at zero, I'm not complaining too much. I just got this email from them a few days ago:

Thank you for saving your money with HSBC. We wanted to let you know that your Online Savings Account rate was adjusted to 1.10% APY* as of February 26, 2010.

With no monthly fees or minimums* and a rate that is more than 4x the National Statement Savings Average±, your Online Savings Account remains a competitive option in the marketplace.

Thank you again for being an HSBC customer.

Sincerely,

Andy Ireland

Executive Vice President

Head of Premier & Advance Banking and Wealth Management

HSBC Bank USA, N.A.