Twenty-four employees, past and present, of Bank Hapoalim's
Hayarkon Street branch in Tel Aviv (535) were arrested Sunday
in what officials called the biggest money-laundering case in
the history of Israel, thought to involve as much as billions
of dollars in the past year alone.
The branch's former manager, Motti Cohen, was among those
suspected of involvement in the massive schemes. Customers
involved included some of the billionaire "oligarchs" from
Russia who have business interests in Israel.
Police froze 180 suspected accounts held by 18 customers at
the branch with some $375 million. Money came from outside
the country into those accounts and then was quickly sent on
out of the country. Many customers of the branch —
about 200, mostly business people — are expected to be
questioned. The branch, which only handles foreign customers,
had effectively become a money-laundering station for
hundreds of businesses worldwide, said police.
Ma'ariv owner Vladimir Gusinski, a customer at the
branch, is likely to be questioned. His Tel Aviv offices were
also raided. Israeli ambassador to London Zvi Hefetz was once
Gusinski's representative in Israel and the press speculated
that he may also be under suspicion. Hefetz has strongly
denied any connection to the affair, and sources close to
Hefetz said that no one has questioned him or asked to
question him about the affair.
The case was brought under an anti-money laundering law that
went into effect two years ago that requires both banks and
their customers to report transactions above a certain
amount. In some cases, large sums of money would flow into an
account and within a few minutes flow back out in smaller
amounts to shell companies around the world, in order to hide
the original source of the funds.
A second technique was to break up large sums of money into
smaller amounts deposited in separate accounts in the bank,
technically enabling businessmen to avoid the rule requiring
the bank to report cash transfers of more than NIS 1 million
from overseas or NIS 50,000 from inside Israel. A third
method was for the businessman to deposit a large sum, take
out a loan of the same amount from the bank and then use the
"clean" borrowed money overseas.
Bank Hapoalim executives promised full cooperation with the
investigation and with the central bank. The suspected money
laundering appears to be limited to the branch and does not
implicate the company's senior management, the Bank of Israel
said Sunday.
Whether or not senior management at Bank Hapoalim, which is
Israel's largest bank, would be implicated in the scandal was
the main concern of stock market analysts. Market
professionals don't expect major financial damage to the bank
since the bank management seems to be in the clear.
The stock market reacted negatively to news of the
investigation but without hysteria. Foreign investors have
bought heavily into Bank Hapoalim in recent months, as
Israeli banks are cheaper than their foreign counterparts,
analysts said. More than 40 percent of the company is now
owned by foreign institutions and the overseas interest has
helped boost shares by 29 percent since October.
The investigation was launched a year ago following a routine
check by the Bank Comptroller, who is in charge of
investigating illegal monetary transfer and laundering. The
police worked closely with the Bank of Israel's Supervisor of
Banks.
Bank Hapoalim's official announcement said that the bank knew
of money-laundering suspicions at its Hayarkon branch since
the beginning of 2004.
Senior executives including Chairman Shlomo Nehama, CEO Zvi
Ziv, and head of finance Abraham Harel held a conference call
with financial market analysts both in Israel and abroad. The
bank's financial exposure is minimal, they asserted,
amounting to merely a few million dollars.
"I believe its impact on the bank will only be short term,"
Ziv said. "There is no fraud or theft."
Nehama added that "this is about credit of just a few million
dollars that may be confiscated."
The official bank announcement said that upon receiving
information of suspicions of money-laundering in early 2004,
the bank's legal advisor and its head of risk management
approached the police and shared the information they had.
The police told them they were already investigating the
matter, but they did not tell them about the scope or
substance of the investigation. Bank Hapoalim said that the
police warned them against revealing any information about
the investigation to anyone at the bank — including to
controlling shareholders, board members, and other senior
executives — including the very existence of the
investigation.
They were also directed not to take any action that could
disrupt the investigation, not to conduct their own
investigation, and to limit internal audit procedures at that
particular branch.
The Israel Police may also open a money-laundering
investigation into another Israeli bank, Ha'aretz
reported. Police investigators suspect that money-
laundering may have occurred at a branch of this second bank
using the same methods applied at Hapoalim's Hayarkon Street
branch.
Police officials hope the case will deter others from
laundering money in Israel, which until now has been viewed
as a "money-laundering paradise."
Sources involved in the probe were quotes as saying that they
had solid evidence against businessman Vladimir Gusinski who
may be charged with failing to report some transactions.
Proving full-fledged money-laundering is difficult, as it
requires proving that the funds came from criminal activity.
This, in turn, entails widespread investigations overseas and
cooperation with overseas authorities which are not practical
for the Israel Police since they require extensive manpower.
Therefore, police are focusing mainly on the requirement that
clients and bank clerks report any transactions over a
certain sum to the authorities.
