Attorney General to Examine Bank Leumi's U.S. Settlement

Forming team to examine implications of the bank's $400-million settlement with U.S. authorities, which ended an investigation into how it helped American clients evade taxes.

Bloomberg

Attorney General Yehuda Weinstein said Sunday he is forming a team to examine the civil and criminal implications of Bank Leumi’s $400-million settlement with U.S. authorities, which ended an investigation into the bank’s helping American clients to evade taxes.

Weinstein’s office said the team may decide to intervene in lawsuits that have been filed against current and former Leumi executives, including its former CEO Galia Maor and former chairman Eitan Raff, in connection with the settlement.

A Justice Ministry source stressed yesterday that, at this point, Weinstein’s office was only conducting an examination, not an investigation. The source cited the sensitivity and wide-ranging implications of a criminal probe, which could undermine Leumi’s banking relationships with institutions overseas.

As a result, the attorney general would open a criminal investigation only if the upcoming examination found that Leumi violated Israeli law, said the source, who asked not to be named.

Short of a criminal probe, Weinstein’s opinion could nevertheless have a significant influence on the civil suits now being brought against the bank and its executives.

Bank Leumi shares closed up 0.6% to 13.33 shekels ($3.40) in Tel Aviv Stock Exchange trading. Leumi said it supported the decision to form the legal team and said it would cooperate. “The bank is confident that it did not violate Israeli law,” said Leumi.

The suits filed against Leumi come in the wake of a settlement that the bank – Israel’s second largest – reached with the U.S. federal government and New York State on December 22. The British insurer Lloyds has since agreed to cover 60 million shekels of the settlement, which amounts to just 3.3% of the total cost to the bank, while the executives who led Leumi at the time would be freed of any liability.

The settlement and compensation offered by Lloyds have elicited controversy. Two shareholders have filed suits, asserting that Maor, Raff and other Leumi executives should bear the blame and cost of the settlement.

Meanwhile, the Jewish Colonial Trust, the bank’s legacy shareholder, and the Finance Ministry are both demanding that the settlement be approved by shareholders.

Weinstein came to his decision after a meeting yesterday with the State Prosecutor’s Office, Justice Ministry officials, the police, the Israel Securities Authority, the Tax Authority, the Banks Supervisor and the Anti-Money Laundering Authority, among others.

“As part of its examination, the team will have to investigate how much the bank in Israel was aware of the criminal aspects of the activities that were done, and if it acted in Israel to support illegal activities that were done overseas,” said the Justice Ministry source.

If the team – which will be headed by Paul Landes, the head of the Anti-Money Laundering Authority, and spend about two months conducting its examination – were to decide to bring criminal proceedings, the Leumi executives would not be able to enjoy insurance coverage for the damages.

Among other things, the team will examine whether the bank filed false reports to Israeli authorities, or engaged in other violations while it helped its U.S. clients evade taxes for the better part of a decade.