Prosecutors May Indict Credit Card Issuer Cal, Six People for Fraud

Investigation alleges that executives used Cal to clear billions of shekels in online gambling and other illicit transactions.

Bloomberg

The State Prosecutor’s Office said Tuesday it was weighing an indictment against Cal Israel Credit Cards and six businesspeople, including Cal’s former CEO Boaz Chechik.

Chechik and the others are being called for a final hearing before prosecutors make their final decision on whether to issue indictments for allegedly helping gambling and pornography websites overseas offer credit card payment services worth billions of shekels, the State Prosecutor’s Office's economics division said in a statement.

“Cal itself as well as its former CEO Boaz Chechik and former vice president Steve Greenspan are suspected of aggravated fraud, false entries in corporate documents, bribery and violations of the Prohibition on Money Laundering Law,” the office said.

The Bank of Israel’s banks supervisor, David Zaken, thus ordered Cal to cease any dividend payments out of concern that Cal may be liable for severe financial penalties. Cal, which issues Visa, MasterCard and Diners Club in Israel, is 72% owned by Israel Discount Bank and 28% by First International Bank of Israel.

Nevertheless, shares of the two banks rose in Tel Aviv on Tuesday. Discount closed 1% higher at 6.75 shekels ($1.71), while FIBI climbed 1.5% to 53.96.

An indictment would be a severe blow to Cal; it would be the first ever against a major financial institution in Israel.

Cal said it was studying the prosecutor’s announcement and would explain its position later. “We believe that the prosecutor, after studying the matter in context, will accept our view and decide against filing an indictment against the company,” it said.

Navit Negev, who is representing Chechik, said in a statement that prosecutors would ultimately conclude there was no case.

“All of Boaz Chechik’s activities were in accordance with the law and done with the best interests of the company only,” she said. Greenspan’s attorney Yael Grossman said she would present her case at the hearing and expressed confidence prosecutors would “make the right decision.”

The police’s 433 unit, which began investigating the affair in December 2011, alleges that the fraud and other violations occurred in two areas.

In the first, between 2006 and 2009, Cal and the six executives cited by prosecutors defrauded the international credit card issuers MasterCard and Visa by fraudulently offering credit card clearance services to online gambling businesses. Investigators say the business became so big that in 2008 the company formed a new unit Cal International to handle it.

“It is suspected that as of 2007 the two companies processed payments for gambling sites (including U.S. gamblers) by false coding, classifying them as supposedly legitimate business activities, approving businesses as customers without proper identification procedures and other fraudulent activities,” the state prosecutor’s economics division said.

In the second area, prosecutors said they believed that Chechik and associate Albert Alhadaf, helped by Greenspan, took bribes from Canadian businessman Nathan Jacobson, who engaged in online payment processing through a company called Paygea.

Police allege that in exchange for providing Cal services to Paygea, Alhadaf was given a controlling stake in the company and a share in the profits. Paygea cleared credit card payments for online sales of products and services like nonprescription drugs, pornography and dating sites, all of which are at high risk for canceled transactions.

Chechik and Greenspan allegedly developed a sophisticated system for covering up the dubious transactions and high cancellation level from the international credit card issuers and intimidated Cal employees into cooperating. Four of the company’s risk managers quit in protest.