Bank account holders in Israel: Pay attention and beware of criminal offenses

Israeli banks pass on information about accounts that they suspect belong to residents of foreign countries, and do not really live in Israel.

By ELI DORON
The tax authorities know (photo credit: REUTERS)
The tax authorities know
(photo credit: REUTERS)
Recently, Israeli and foreign banks have sent threatening letters to new immigrants, foreign residents or those who are financially involved in foreign operations. Have you not received such a letter yet? It may well be that it is already on the way to you. The banks, it seems, have hardened and exacerbated positions, and now demand to know what your tax residency definition is, while at the same time threaten to transfer the information they have collected about unsuspecting citizens to financial entities abroad.
As if that’s not daunting enough, many banks in Israel are also making it difficult for new immigrants, rejecting overseas money transfers and demanding information on money sources. The banks’ new approach, it is important for you to know, will not change in the near future. It is here to stay, and we need to adjust ourselves to the changing reality.
The reason for the significant change in the conduct of the banks is that last July, an information exchange agreement entered into by the State of Israel with 53 other countries came into force, meaning a flow of mutual information on bank accounts and assets between the various countries and financial institutions. This cooperation, which in effect creates international financial transparency, allows various authorities in the world access to more information than ever before, and they can combine data with each other and, accordingly, increase enforcement. Now the banks in the signatory countries are supposed to know the “residency state” of each account holder in their branch, and in accordance with records in the banking system – and even report to the residency state of that account holder about the existence of the account, which is deposited there.
If in the past a person could hold an account abroad and live in Israel – and no one would know about it – today things are different. Sooner or later, this information will be passed on to the tax authorities in Israel. The opposite is also the case; Israeli banks pass on information about accounts that they suspect belong to residents of foreign countries, and do not really live in Israel.
THESE INTERNATIONAL agreements put the banks under a duty to study and inquire about every client of the bank, and then to report. So the banks have become, against their will, gatekeepers of the tax authorities. It should be noted that in the documents for approval of residency required by the bank to sign the account holder, it is explicitly stated that incorrect reporting is a criminal offense. It seems that those who suffer from the new situation are new immigrants, who find it difficult to transfer their money from overseas accounts to Israel. It is important to understand. It’s not just about bank accounts and money transfers. Israeli authorities are also seeking clarification on ownership of assets or businesses conducted in a foreign country.
Anyone who has encountered such a situation must understand: Failure to report a source of income is not only a matter of concern for a financial fine that can amount to large sums of money, but it is also a criminal offense. Quite a few new immigrants, including immigrants from countries such as France, Russia, Switzerland and many others, are currently faced with a simple dilemma regarding bank accounts or their assets in Israel and the country from which they emigrated. Some have even tried other actions to prevent a situation in which the bank will report to the original country from which they emigrated. Actions done with a sense of helplessness “to save the situation,” but most of these people acted without knowing that these actions are borderline or illegal and even criminal.
So what’s to be done? If you have received such an appeal, do not ignore it. The bank will presume that as long as it is not otherwise reported, the information in its possession is the correct information and it will pass it on to the tax authorities. The fact that this is a criminal offense exacerbates the need to take active action, rather than waiting and hoping that the secret will not be “revealed,” as the authorities increase the scrutiny and enforcement.
Of course you don’t have to raise your hands either. The right move will be to contact taxation specialists who can conduct a process with you vis-à-vis the bank or the tax authorities to settle the matter, take the necessary action to reduce tax exposure, neutralize tax offenses and eliminate problems subject to the money-laundering law, of course with full transparency. Until the matter is settled, it is also advisable to refrain from operations with funds, accounts or assets abroad.
The writer is a taxation specialist and partner in the office of Adv. Doron, Tikotzky, Kantor, Gutman, Ness, Amit Gross & Co.