Israel Discount Bank, which owns 72% of Israel Credit Cards-Cal Ltd. - better known to Israelis as Visa Cal - is thoroughly examining the financial operations of the credit card firm. Discount is also conducting an audit of its subsidiary's own auditing and control systems. The First International Bank holds the remaining 28% of ICC-Cal.
- Police: One of Israel's central credit card companies guilty of Internet fraud
- Prosecutors may indict credit card issuer Cal, six people for fraud
The examination, it seems, also includes an audit of Visa Cal's doubtful-debt provisions in its financial statements, as well as an examination of expenses repaid to Visa Cal executives based on their expense reports.
These investigations come on top of the examination into the credit-card issuer's international credit-card clearing operations; the new investigations started after the firing last November of two top executives at Visa Cal's international clearing subsidiary. This unit operates in Internet transaction clearing.
The two senior executives were the subsidiary's CEO, Steve Greenspan, and the chief financial officer. Along with the firings, Visa Europe imposed sanctions on ICC-Cal, which was fined 9 million euros.
Visa Europe also threatened to withdraw ICC-Cal's permit for international clearing and possibly even kick it out of the Visa organization.
The audit is expected to last until the beginning of March.
Risky businesses: Gambling, pornography
ICC-Cal subsidiary Cal International cleared international online transactions in risky sectors such as Internet gambling and pornography as well as nutritional supplements and drugs. Visa International guidelines restrict canceled international online transactions to 2% of total transactions. Excessive cancelations of supplement purchases were what netted ICC-Cal the fine and warning.
One of the issues now being looked into is the dating of invoices for various operations. But a draft version of the audit report has still not been prepared.
Other issues being looked into are the company's risk-management mechanisms in the clearing sector.
Discount's internal auditor, Shlomo Pitchon, who also serves that function for Visa Cal, is conducting the examination. Pitchon was to have retired a few months ago but agreed to extend his term at the request of Discount CEO Giora Offer and new bank chairman Joseph Bachar.
Offer, along with Deputy CEO Israel David and ICC Chief Executive Boaz Chechik, will fly in the next few days to Visa's European headquarters to report on the examination.
A few weeks ago representatives from Visa Europe visited Israel.
Names bandied about
Sources say that Chechik might lose his job as a result of the probe. One banking industry source said over the weekend that it would be natural that any CEO with such a long list of failures on his watch should be shown the door.
Discount is adamant in saying that it has no candidates to replace Chechik, and denies that David is a candidate. Nonetheless, names are being bandied about for the CEO job.
Former Discount chairman Shlomo Zohar, who was forced out at the end of 2009 by the bank's owners, was in charge of preparations for a possible ICC-Cal initial public offering. Analysts believe that ICC-Cal is gearing up for a share issue at a company valuation of between NIS 2.5 billion and NIS 3 billion.
A significant portion of ICC-Cal's growth and profitability improvement comes from its international clearing business, especially transactions on Internet porn and gambling sites as well as pharmaceutical purchases, including impotence drug Viagra.
The report by Visa Europe last November said 90% of the irregularities concerning canceled transactions were for purchases of nutritional supplements.
ICC-Cal is the only Israeli company that engages in international clearing in these sectors.
The higher risk associated with such transactions has two main sources. On the one hand, customers are more likely to regret and deny such transactions. On the other, the businesses that engage in them are less likely to be legitimate.
ICC-Cal's local credit card competitors, LeumiCard and Isracard, have said they do not intend to venture into these sectors.