As if the headache of the investigation by US authorities were not enough, Bank Hapoalim (TASE: POLI), managed by CEO Arik Pinto, discovered two days ago that Canada was also taking aim at it. Canadian website "thestar" published a report that the Canadian authorities were looking into suspicions that Canadian citizens had used Bank Hapoalim in order to evade taxes.
The report was based on documents presented in court indicating that the Canada Revenue Agency (CRA) was asking three Canadian banks for records of accounts connected with Bank Hapoalim and transactions conducted by customers, including money transfers to the Israeli bank. CRA is asking for all of the transactions conducted over the past six years.
Stephanie Henderson, a CRA unit manager, issued a statement saying that CRA was aware that Canadian taxpayers had previously used Bank Hapoalim's services to conceal income and assets and protect their activity from the tax authorities. Bank Hapoalim apparently learned about the matter from the media. The bank responded to the reports by saying that it had "not received any enquiry from the Canadian authorities in the matter, which is unknown to us."
The reports in Canada indicate that one significant source that led the authorities to examine transactions conducted by Canadian customers at the bank was the customers themselves. Henderson said that in April 2015-March 2017, as part of a voluntary disclosure plan, 114 Canadian citizens had provided information relating to Bank Hapoalim. These revelations included $59 million in unreported income that resulted in the payment of $17 million in taxes.
In the framework of the worldwide crackdown on tax evaders, the tax authorities (including in Israel) are offering a voluntary disclosure program enabling people to admit to tax evasion in return for an exemption from criminal proceedings (in most cases). It appears, however, that the disclosure proceeding is not only a revenue source for the tax authorities, but also a source of information for discovering activity at the banks themselves. In other words, banks have to take into account that when their customer enters a voluntary disclosure proceeding, he also indirectly exposes them and "informs" on them.
The proceeding also works in the other direction, of course. After the US authorities forced banks worldwide to report the accounts of their US customers, the CRS standard is now going into effect. This standard facilitates exchanges of information between countries about the accounts of foreign citizens, with the information being provided by the financial institutions. Israel also wants in on this standard, and to be part of these exchanges of information. The result is that the banks are being forced to provide information about foreign customers and the customers are exposing the banks in voluntary disclosure proceedings. The primary beneficiary of all this "squealing" is of course the tax authorities. It will therefore come as no surprise if the current case turns out to be simply one more example of cases involving banks in various countries.
Unlike the US
Despite the depiction of a war of all against all in informing, matters should be considered in their proper proportions. There are problems with the authorities in the US, and there are problems with the authorities in other countries. As befits the world's largest superpower, the US is very aggressive in matters pertaining to the struggle against tax evasion. This matter was part of the agenda of former US President Barack Obama's administration. The US used all the means at its disposal, levying heavy fines against many banks around the world, including Israeli ones. This is unquestionably unpleasant and a headache, but even if an investigation against Bank Hapoalim does develop in Canada, and even if we see investigations against Israeli banks in other countries around the world, it will not be with same force or on the same scale. It should also be kept in mind that the volume of activity by foreign citizens at banks in Israel is substantially less than the activity there by US citizens.
The reports in Canada have not come at an especially good time for Bank Hapoalim. The bank is already the subject of an interminable ongoing expensive investigation by the US authorities into suspicions that it helped customers evade taxes.
The timing of the investigation is also unfortunate for Bank Hapoalim controlling shareholder Shari Arison, who is currently in advanced talks for recruiting foreign investors in the Bank Hapoalim controlling core. Three investment institutions are involved, at least one of which is Canadian. It is not clear whether such a report will have a negative impact on the negotiations, but it will certainly not have a positive one. On the other hand, it should be kept in mind that at least one of the prospective investors is from the US (the University of California pension fund). If it is willing to invest in a bank under investigation by the US authorities, it is certainly also possible that the affair will not deter the Canadian investor.
Published by Globes [online], Israel Business News - www.globes-online.com - on November 15, 2017
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