The U.S. investigation into how Israel’s Bank Hapoalim allegedly helped its clients evade U.S. taxes is likely to stretch out longer than the bank had hoped and cost its tens of millions of shekels more.
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The bad news emerged in the bank’s latest round of discussions with the U.S. Justice Department, after which Hapoalim concluded it would have to retain the U.S. accounting firm Deloitte Touche to help it assemble the information Washington demands as part of the probe.
Hapoalim has set aside some 1 billion shekels ($280 million) for the probe this year, most of it against future penalties, but 250 million shekels goes for attorneys’ fees. So far the bank has relied on the Israeli law firm Gornitzky & Co. and the American firm Kobre & Kim, but the Justice Department hasn’t been satisfied with the results.
Bank Leumi, Hapoalim’s biggest rival, settled with the U.S. authorities two and a half years ago for $300 million. Leumi retained Deloitte Touche from the start of the investigation. Mizrahi-Tefahot Bank also signed on a big name firm, KPMG Somekh Chaikin, when the United States launched a probe into the bank.
In addition to the Justice Department probe, the bank is also being investigated by the New York State Department of Financial Services. Discussions with New York authorities have progressed as far as those with U.S. officials, but sources close to the probe say Hapoalim will probably be saddled with about the same penalties as Leumi. In any case, they said, it is unlikely Hapoalim will reach a settlement before the end of this year.
Hapoalim and Deloitte Touche declined to comment. On Sunday, Hapoalim shares ended down 1.3% at 23.83 shekels.
Hapoalim and other Israeli banks are also being investigated by the United States and New York for their alleged role in facilitating bribes paid to officials of the world soccer federation FIFA. The investigation that began two years ago is looking into money laundering and racketeering by FIFA officials, some of whom had accounts at the bank.
So far, Hapoalim has not made any provisions for penalties that might arise from the case.
Despite the prospects for hundreds of millions of shekels in penalties in connection with the two probes, Hapoalim convinced Israeli banking regulators that it had enough capital to cover the costs and won approval to increase the ceiling for dividend payments to 40% of net profit from 30%. The bank is determined to raise the level to 50% later this year.
The bank and the Arison Group – the investment vehicle of controlling shareholder Shari Arison – have denied allegations that Hapoalim has restricted lending in order to increase dividends. Hapoalim sources say that the bank has sufficient capital and that it will resume lending growth eventually.