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Bank Leumi Investors Decry Shady Dealings
Mar 9, 2015 | Courthouse News Sevice
By Chris Fry
Israel's largest bank helped procure sham loans for clients and advised them to dodge taxes in other ways, a shareholder class action says. -
Bank Hapoalim Sets Aside Cash to Cover U.S. Probe Costs
Mar 10, 2015 | Bloomberg
By Yaacov Benmeleh and David Wainer
Bank Hapoalim B.M., Israel’s largest lender by assets, and competitor Mizrahi Tehafot Bank Ltd. were ordered by the regulator to set aside a combined 291 million shekels ($72 million) to cover the potential costs of a U.S. tax probe. -
Overview: US-Swiss Tax Dispute
Mar 10, 2015 | Blick
The Swiss banks in Category 2 of the US tax amnesty program will be able to deduct the possible fines they are facing from their taxes, that is, the losses will be borne by Swiss citizens. -
No Place for an Independent Commission
Mar 9, 2015 | Globes (Hebrew)
By Don Sosunov
Under the plea formulated with the US legal offices, Bank Leumi admitted to helping its US clients evade tax, in that it allowed them to hold undeclared accounts at the bank and to use certain product and services all with the purpose of filing false tax reports. -
Why won’t creditors foreclose on Israeli tycoon who owes $1.2 billion?
Mar 10, 2015 | Haaretz (English)
By Eytan Avriel
It has been three years since the start of the write-off wave that the country’s tycoons sought from the public’s savings (in part in the form of pensions invested in their companies).
Bank Leumi Media Monitoring 03/10/15
English Language Press
Swiss German Language Press
Israeli Press
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Bank Leumi Investors Decry Shady Dealings
Mar 9, 2015 | Courthouse News Sevice
By Chris Fry
Israel's largest bank helped procure sham loans for clients and advised them to dodge taxes in other ways, a shareholder class action says.
Michael Porat, a citizen of Israel, filed the 57-page complaint against Bank Leumi and various international subsidiaries in New York County Supreme Court. Sixty-one individuals allegedly associated with those entities are also named as defendants.
The March 3 complaint comes just months after Bank Leumi paid the U.S. government $270 million in fines under a nonprosecution agreement.
Uncle Sam had charged the bank with "conspiring to aid and assist in filing false tax returns and other documents with the IRS," in a scheme that the government claimed went on for over 10 years at the bank's branches in Switzerland, Luxembourg and the United States.
Porat's case fleshes out how this conduct allegedly occurred between 2000 and 2011.
The "illegal cross-border banking business" in question willfully aided and assisted U.S. clients "in opening and maintaining undeclared accounts in a foreign country, concealing their offshore assets and income from the Internal Revenue Service and other governmental authorities, and filing false tax returns and other documents with such authorities," according to the complaint.
Approximately 2,450 U.S. accounts received a "hold mail" service from Leumi, "whereby every statement of account, notice, or other document associated with the account would be held abroad at the foreign bank and would not be sent to the customer's address in the United States," Porat says.
Leumi also had a practice of "referring U.S. clients to outside lawyers and consultants who would establish and maintain offshore corporations in jurisdictions like the British Virgin Islands, Panama, and Belize, to nominally hold the undeclared accounts and hide their true tax status from U.S. authorities," the complaint states.
Sham-loan transactions allegedly served to facilitate the illicit banking practices as well, letting U.S. taxpayers access "their funds while simultaneously concealing their assets and evading their U.S. tax obligations."
Porat says Leumi always routed its so-called participation loans trough one of its international outfits, usually in Switzerland or Luxembourg.
Leumi eventually evolved these participation loans into "standby letter-of-credit loans" after an executive at their bank called them "cleaner" in a memo and said that the loans "did not require Bank Leumi USA and the foreign affiliate to correspond regarding the profits generated from the loan or to transfer money to the foreign affiliate to compensate it for participating in the loan," the complaint states.
Two Leumi executives allegedly touched upon in the conversion effort in an email. Porat says one executive justified the switch by writing that "the authorities could claim that in a participation sale we cooperate with the client in 'hiding' loans," but with SBLC loans the bank remains "clean."
"Private bankers and managers at Bank Leumi USA and Bank Leumi were aware that the SBLC Loans allowed the U.S. taxpayers receive the economic benefits of the funds in the undeclared accounts without directly repatriating the funds or creating a paper trail that could potentially disclose the existence of the undeclared accounts to U.S. authorities," the class alleges.
Leumi continued issuing these shame loans despite the FDIC crackdown in 2008 targeting UBS and Mizrahi Bank, Porat says.
After Leumi received a cease-and-desist order for these types of loans, Bank Leumi USA took steps to require applicants full names and addresses on the loans, according to the complaint.
An adviser to Bank Leumi-Luxembourg allegedly argued against the policy change, however, stating that "[c]ustomers do not want their names to appear on official documents, such as an SBLC" and the change "will have a major impact on our business."
In trying to obtain customers formerly with UBS and Mizrahi, Leumi circulated an email about a "golden opportunity to contact customers who you know have accounts in banks in Europe," Porat says.
The email also allegedly suggested that Leumi "urge the private bankers to 'suggest that [clients] transfer their accounts' to Bank Leumi for 'understood' reasons."
Porat says that one of the bank's longtime private banker "wrote to a supervisor in 2011 that 'nearly every client who has an account with us has used the bank as a tax haven, and is aware that by not declaring his account in the US is committing an offense, [and] we have by virtue of the services we provided assisted the clients with what they wished to achieve.'"
Insisting that Bank Leumi USA and its executives "facilitated and played a central role in the illegal tax evasion scheme," Porat says the evidence "conclusively" demonstrates a continuation or expansion of such practices "despite receiving knowledge of improper and deceptive practices involving the cross-border tax evasion scheme."
The class seeks damages for breach of fiduciary duty. It is represented by Richard Spiers with Cohen, Milstein, Sellers and Toll -
Bank Hapoalim Sets Aside Cash to Cover U.S. Probe Costs
Mar 10, 2015 | Bloomberg
By Yaacov Benmeleh and David Wainer
Bank Hapoalim B.M., Israel’s largest lender by assets, and competitor Mizrahi Tehafot Bank Ltd. were ordered by the regulator to set aside a combined 291 million shekels ($72 million) to cover the potential costs of a U.S. tax probe.
Hapoalim set aside 196 million shekels and Mizrahi 95 million shekels after the demand from Israel’s bank supervisor, the two lenders said in separate e-mailed statements Tuesday. Hapoalim said it hasn’t had a claim filed against it and isn’t conducting any negotiations with U.S. authorities, though it is undertaking internal reviews of its U.S. clients. Mizrahi also said that it isn’t in any talks with authorities in the U.S.
The provisions come after Bank Leumi Le-Israel Ltd. agreed to pay $400 million in December for helping American clients evade taxes. Probes into tax evasion have already led to the criminal investigation of about a dozen Swiss banks, including UBS Group AG and Credit Suisse Group AG.
Leumi said last month it’s seeking court approval to set up an independent panel to study the implications of its settlement with U.S. authorities, including whether damages and bonus clawbacks should be sought from current or former employees.
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Overview: US-Swiss Tax Dispute
Mar 10, 2015 | Blick
- The Swiss banks in Category 2 of the US tax amnesty program will be able to deduct the possible fines they are facing from their taxes that is, the losses will be borne by Swiss citizens. This was concluded in a study conducted by the tax experts of the legal firm Walder Wyss, which also advised Swiss banks in the tax dispute. The study was published on the legal website Weblaw.
The study clearly states that any fines imposed on the banks in the context of the tax dispute are deductible from direct federal income tax and from cantonal taxes on profit. No law can prevent this. “Our conclusion may come as a shock to some Swiss citizens,” the lawyers said, “but there is no way to avoid the costs from indirectly impacting the tax payers.” In other words: If the banks pay less in taxes, everyone else pays more, Blick concludes.
The 106 Swiss banks that have signed up for Category 2 of the US Program, recognizing that they may have violated US law, are expected to be ordered to pay between 5 to 10 CHF billion by the US Department of Justice..
http://www.blick.ch/news/wirtschaft/die-buerger-zahlen-mit-id2723727.html
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No Place for an Independent Commission
Mar 9, 2015 | Globes (Hebrew)
By Don Sosunov
Under the plea formulated with the US legal offices, Bank Leumi admitted to helping its US clients evade tax, in that it allowed them to hold undeclared accounts at the bank and to use certain product and services all with the purpose of filing false tax reports.
Bank Leumi is required to pay an unprecedented fine of USD 400 million, of which USD 130 million is to the US department of financial services (DFS) and about USD 270 million to the US legal authorities. It was also agreed that Leumi will be examined by the US securities Exchange commission (SEC) and it is possible that future fines may be imposed on the bank.
In light of public pressure to sue officers of Bank Leumi, the board took an exceptional decision to establish an independent commission that will examine whether or not to sure the executives including the former chairman Eitan Raff and the former CEO Galia Maor, along with other directors connected to the affair.
The bank filed this “clever” request last week to judge Khaled Kabub at the Tel Aviv District Court. This was done in the hearing to approve the derivative claims. The bank requested that it be allowed to set up an independent commission. The request stated that is would conclude within 4 months from its establishment its findings in a report, and the findings will be passed on to the board to adopt.
I agree with the prevailing general position that the commission will result in better decisions, however not that the commission should be seen as a model in establishing proper corporate governance, as it is claimed.
Three and a half years after the commencement of the investigation and three months after signing the agreement, it appears that Leumi’s decision to set up a commission to examine the liability of the officers is surprising wasteful and too late.
· Bank Leumi has already admitted to the crime and the commission is trapped and cannot argue the non- existence of the violation, the added value will thus be minimal.
· The law is clear, the fact that a person acts on behalf of the company is not enough to release him from liability. Leumi claimed responsibility for the provision - it follows that the officers are responsible for the violations, since they acted on its behalf.
· Judge Kabub himself has stated that corporate law does not have similar provisions parallel to US law regulating the activity of the special claims commission on behalf of the company. The establishment of the commission, should it be allowed, will be an exception and not the rule.
· Even if it is suitable to bring this into Israeli law it doesn’t seem the current issue necessarily fits and the timing doesn’t help.
· The appearance of the committee is also not good. It included Prof Sharon Hannes, the doctorate advisor of Judge Kabub, who wrote opinions on how to reach an agreement with the US.
· Second is the retired judge Uri Goren , previously President of the Tel Aviv central district court. He was in charge of, among other things, appointing Judge Kabub to the Economic Department.
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Why won’t creditors foreclose on Israeli tycoon who owes $1.2 billion?
Mar 10, 2015 | Haaretz (English)
By Eytan Avriel
It has been three years since the start of the write-off wave that the country’s tycoons sought from the public’s savings (in part in the form of pensions invested in their companies). This paper has crafted dozens of pieces on the topic, and the public has become acquainted with terms like business concentration, debt rescheduling and haircut.
It seemed as if the Israeli capital market had adopted a key principle: If a creditor, tycoon or businessperson doesn’t pay a debt and come up with a fortune through a debt-rescheduling and recovery plan, he’ll lose control and the company will be run by creditors.
This approach didn’t come easily. A number of tycoons tried, sometimes successfully, to impose haircuts on their creditors and still maintain control, including of their corporate jets, salaries and benefits. In 2009 they led a campaign to use taxpayers’ or savers’ money to rid the tycoons of part of the debt. The campaign in the tycoons’ newspapers failed, partly because of TheMarker's coverage.
But as requests for debt rescheduling proliferated, along with public pressure on institutional investors not to give in, the capital market demanded its version of social justice. By the time Moti Zisser’s Elbit Imaging collapsed, the public had insisted that he lose control.
And when the courts were called on to decide on Nochi Dankner’s IDB group, he chose to hand it over to creditors and others who could inject money.
The same principle began to filter into relations between the tycoons and their bankers. Bank Leumi CEO Rakefet Russak-Aminoach tried to write off 150 million shekels ($37.5 million), but the outcry on social media headed it off. At this point, the idea that tycoons will get that kind of break without losing control of their companies seems impossible, as long as the public is aware of the situation.
Different rules
But there is one exception, and that is Eliezer Fishman, for whom the rules seem different. He remains in control of a real estate, retail, media and energy empire, but why? Here are some questions and answers.
What is his debt load and what are the circumstances?
He has personal debts of between 4 and 5 billion shekels, almost all owed to Israeli banks. These aren't the debts owned by his publicly traded companies Jerusalem Economy, Industrial Building and Mirland Development, but personal debt in family companies.
Banks Hapoalim and Leumi are each owed about 1.7 billion shekels, Israel Discount Bank about half a billion shekels, Mizrahi Tefahot between 300 and 400 million and Union Bank between 200 and 300 million. These are much larger sums than what Dankner owed.
If those are the debts, what assets does Fishman have?
The banks acknowledge that his assets are 1 to 2 billion shekels less than his debt and the creditors therefore know that their chances of receiving everything owed are slim. Fishman’s assets include shares of publicly traded companies, real estate, shares in the Yedioth Ahronoth newspaper, the Globes business daily, retail chains, gas stations and a firm that serves Brazil's cellular telephone sector.
In recent years, the banks began to record debt from Fishman as uncollectible. TheMarker obtained the numbers, coming in at about half of Fishman’s personal debt, or between 2 and 3 billion shekels. In the last quarter alone, the banks made provisions for about 400 million in uncollectible debt. In the case of smaller Union Bank, provisions for Fishman’s debt wiped out nearly its annual profit.
So what is uncollectible debt exactly?
It’s not like a haircut suffered by creditors. The banks are still full creditors of Fishman’s, and they will only be written off in the event of a debt-rescheduling agreement. Several weeks ago, Fishman and businessman Beny Steinmetz sought such a deal with Leumi, but the bank backed off over concerns of public pressure.
In any case, when banks provision for uncollectible debt, they drop the debt from their assets and thus reduce their profits. Since the public holds most of the shares of the big banks, the public feels the pinch.
If the banks have already recorded Fishman’s debt as uncollectible, why don’t they take over his companies?
That’s the major question with every such provision. The banks say they don’t like to do so because they don’t know how to manage companies. And in the case of Fishman’s deal with Leumi, he would have to consent to asset sales.
The banks could take over the companies and have professionals do the managing. Certainly someone other than Fishman and his children must be capable of running his real estate and retail firms. The banks do the same thing when they foreclose on homes or stores.
Confrontation adverse
So why don’t they in Fishman’s case?
This is only conjecture. Maybe they don’t want a confrontation with Fishman, just as they didn’t want one with Dankner. Fishman is part of the club that the banks also belong to.
Maybe they’re wary of offending Fishman in part due to his media holdings, including Globes. Maybe the banks believe that after a few rounds of debt rescheduling, Fishman will find his feet, or maybe they’re simply afraid togo to court and break up his empire. That could involve disclosure of his past loans and how the banks handled them.
So who’s at fault?
The two main players who have been dealing with Fishman’s debt are Russak-Aminoach and Bank Hapoalim CEO Zion Kenan, but they’re simply the latest generation of bank heads to inherit Fishman’s debt.
Previous bank CEOs boosted Fishman’s credit to about 4 or 5 billion shekels, and after things went awry, they didn’t address the problems. Fishman has been in trouble for years.
And then there’s David Zaken, the Bank of Israel’s banking supervisor. He’s well aware of the numbers and the agreements with Fishman, as well as Fishman’s influence on the banking sector. He must have pressured the banks to set aside uncollectible funds, and to do it over several years so as to moderate the effect on profits.
But that’s half the task. He didn’t pressure the banks to eliminate the debt and break up the Fishman group, and the debt ballooned.
So what happens now?
If Fishman were just another bank customer, it would be simple. The banks would foreclose on the assets and put them up for sale. After making doubtful-debt provisions, they probably wouldn’t lose another penny and maybe even would profit.
How? If the assets are sold for more than the value of the bank’s secured interest, the banks can recover part of their losses.
But Fishman is no ordinary customer. He puts obstacles in the way of asset sales and demands more than accepted market value.
The banks have already recognized the debt as uncollectible. Fishman is in tough straits and in practice the assets are already the banks'. But Fishman is still managing them.
Bank Leumi Media Monitoring 03/10/15
English Language Press
Swiss German Language Press
Israeli Press
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