Israel's Bank Leumi to Pay $1.6 Million Over Unregistered U.S. Business

The bank managed over $500 million in securities for U.S. customers while failing to register as required by U.S. law.

People walk past a branch of Bank Leumi in Tel Aviv in this February 18, 2009 file photo.
People walk past a branch of Bank Leumi in Tel Aviv in this February 18, 2009 file photo. Reuters

Bank Leumi will pay $1.6 million and admit to wrongdoing to settle civil charges that it provided investment advice and solicited investments from U.S. customers for over a decade without registering with federal regulators, U.S. authorities said Tuesday. The U.S. Securities and Exchange Commission said Leumi maintained “several hundred securities accounts” and managed over $500 million in securities for U.S. customers without registering as required by U.S. law.

A probe of claims that Leumi helped U.S. customers evade taxes between 2002 and 2010 resulted in a $400 million fine in 2014 to U.S. authorities.

In 2015, Leumi set aside about $5 million in connection to the latest probe. Now that it has resolved the allegations for $1.6 million, it will enable the bank to recognize a $3.4 million profit. 

In another legal development involving Leumi, the country’s second-largest lender, about a month ago, Tel Aviv District Court Judge Chaled Kabub approved a settlement proposed by the bank in connection with shareholder derivative suits filed against Leumi relating to allegations that the bank helped U.S. customers evade tax. Derivative suits involve claims brought by shareholders on the bank’s behalf, generally against a third party. In this instance, the settlement includes a payment by Leumi’s insurers to the bank itself of $92 million, including $26 million from a Leumi subsidiary that is an insurance company. 

The settlement will put an end to suits against Leumi and its employees over the case and is expected to enable the bank to record a gross profit of about $66 million. (The sum does not include taxes and other expenses.) The resolution of the matter also provides that the bank’s former chairman, Eitan Raff; its former CEO, Galia Maor; and the former head of Leumi’s international division, Zvi Itzkovitch, will collectively return 5.1 million shekels ($1.3 million) representing a portion of the bonuses that they received. There has been no final decision, however, by Israeli Attorney General Avichai Mendelblit regarding whether any criminal charges will be filed against anyone at the bank.