Antitrust Watchdog's Case Against Israeli Banks Ends in a Whimper

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The Antitrust Authority’s flagship case against the country’s banks for allegedly coordinating customers’ fees is apparently slated to end with only a 70 million shekel fine for the banks, under a deal in the works between current Antitrust Commissioner David Gilo and the banks.

The investigation was launched by Gilo’s predecessor Ronit Kan in 2009. If Gilo’s deal with the banks goes through, this means that one of the trustbuster’s largest cases will ultimately be buried.

Under the deal in the works, the Antitrust Authority would toss out the finding from 2009 that the banks maintained inappropriate relationships by passing along information about their fees. In exchange, the banks would pay the state a fine of 70 million shekels, although they could choose to pass on that money to their household and small business customers instead.

The banks would also be given a window of time to settle the class-action suits they’re facing in the affair. Any money paid to settle the class-actions would be deducted from the 70 million shekel fine. Fees paid to lawyers would not count against the fine.

The Antitrust Authority apparently agreed to the banks’ request to cancel the finding that the banks had maintained an improper relationship in response to an appeal they filed to the antitrust court. The banks had hired a battery of lawyers, who assailed the trustbuster’s findings from several angles and hinted that the case against their clients was weaker than the Antitrust Authority thought. Among other claims, the banks argued that the data they had passed to one another was already public.

The case was passed on to arbitration, which did not succeed, but the arbitrator had hinted to the Antitrust Authority that it might want to back down from its stance. The trustbuster refused, and the case went back to court. As the case progressed, the Antitrust Authority was pushed into direct talks with the banks, in an attempt to bring the matter to an end with an agreed-upon fine.

The case relates to alleged offenses that occurred for eight years, until 2004, at which point the investigation became public. At the time, the trustbuster did not have the authority to fine the banks; the law granting that authority was passed only in 2011. The 70 million shekel figure is the maximum sum the Antitrust Authority could impose on the banks had that authority existed in 2004.

Under the agreement in the works, Israel’s two largest banks, Leumi and Hapoalim, would pay 24 million shekels apiece, and three smaller banks, Discount, Mizrahi Tefahot and Beinleumi (FIBI), would pay the remainder. The banks’ revenues from fees total 15 billion shekels a year, so the fine would equal less than half a percent of this. As another point of comparison, the fine equals about 1% of the banks’ annual net profit.

Given the length of the alleged offenses, the fine seems minimal − the banks have much more to gain by violating antitrust laws than they have to lose by paying the maximum fine the Antitrust Authority is permitted to levy. On the other hand, this is an unprecedented sum relative to what the banks have paid to settle class-action suits in the past.

However, such a settlement could be problematic for the parties who filed the current batch of class-action suits against the banks. Should the trustbuster drop its claim that the banks violated antitrust laws, the suing parties will have to prove on their own in court that the banks committed these violations.

The Bank Leumi building in Jerusalem. Holdover from the era when the state controlled the banks.Credit: Emil Salman

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