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Israeli Treasury wants prison for FATCA non-compliance

The Finance Ministry proposes fines and up to 7 years imprisonment for bank employees keeping information from the US.

Foreign Account Tax Compliance Act (FATCA) ,    TAX ,    Financial

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/ Irit Avissar and Adrian Filut/ 

The Ministry of Finance wants to levy fines and up to seven years imprisonment on financial institutions and their employees who fail to comply with the US Foreign Account Tax Compliance Act (FATCA). Sources inform ”Globes” that the ministry has drawn up an amendment to the Income Tax Code to implement the tax information sharing agreement with the US.

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“Globes” has obtained a copy of the draft bill, which proposes that institutions which do not comply with the reporting requirements about their customers will be considered as criminal offenders and will be penalized accordingly. The bill proposes levying fines against banks, insurance companies and investment houses that not provide the necessary reports about their American customers and declarations that the assets managed have been reported to the Internal Revenue Service (IRS). The bill also proposes up to one year in jail.

In cases in which it is proved that an employee of the financial institution knowingly helped a customer, and did not demand the declarations, the penalty could be up to seven years in jail. Seven years imprisonment is the maximum penalty for a person violating Article 220 of the Income Tax Code. The bill proposes adding FATCA violations to the list of violations under this article.

Ministry of Finance sources say that the bill is still being drafted, and that changes were possible in the severity of the penalties. “The maximum penalty might not be seven years, ” said a top ministry official, but added, “Violating the law will likely result in criminal sanctions so that the law will have teeth.”

However, legal sources are critical of the pending legislation. “The bill far exceeds the FATCA rules, and in practice requires Israeli banks to gather information about all their foreign resident customers with accounts at a bank in Israel, ” Gideon Bar-Zakkai, former Tax Authority deputy general for legislation told “Globes”. “The bill seeks to relay on OECD requirements for exchanging information, but anyone who examines its demands might be startled by the over-obedience in the bill, under which Israel is asked to do far more than asked.”

“The way the bill is written now in effect proposes not just giving authority to the seeker of information, but apparently sets sweeping and binding provisions for gathering and delivery of information, against harsh sanctions, ” he adds, and warns, “Economically, Israel is liable to be hit hard by this measure, because we rely on Jewish capital from the world being invested here, and it might be withdrawn.”

Published by Globes [online], Israel business news – 




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