Former Hapoalim CEO Ziv Testimony May Hurt Danny Dankner's Defense

'The thing with Danny was,' Zvi Ziv told the fraud squad, 'that he deceived me right from the start in the hope that I'd resign.'

Barring any last minute change, the trial of former Bank Hapoalim chairman Danny Dankner will begin Thursday in Tel Aviv District Court.

Dankner has been charged with fraud, money laundering and violations of proper bank management practices by placing himself in a conflict of interest, in several instances, between his duties as bank chairman and his ownership role in the failed Elran Investments.

One testimony that could help Dankner's case is that of former Hapoalim CEO Zvi Ziv, who has tried to explain the business logic behind certain decisions. His testimony, however, could entangle Dankner from other directions.

Ziv's testimony was given to police over three separate days starting in February 2010 at the offices of the national fraud investigation unit. When asked about his own resignation from the bank in March 2009, he explained: "The reason can be placed in two contexts, the first being the relationship with Dankner. It was clear that if I didn't resign, I'd start reading in the papers that I'm not wanted, and that's something in principle I committed myself to: I don't want to be like others who have read in the newspaper that they're not welcome.

"The thing with Danny was that he deceived me right from the start in the hope that I'd resign," Ziv told the fraud squad. "He led me to resign without saying that that is what he wanted. As Danny kept harping on the crisis concerning the streamlining process, I formulated compromise proposals for moving forward and addressing his wishes on the matter, but he came to me at a certain stage and told me 'we don't get along and can't continue this way.' This was before the financial statements went out - the 2008 annual report. I said I wouldn't resign because of the report so as not to be blamed afterwards for the mess. I told him, 'Give me another two quarters so I can say I got the bank out of the mess and put it on a firm footing, and then I can go quietly.' He then told me that he can't promise it won't leak out. It was then that I understood he wanted me out right away.

"I consulted with a friend who suggested I resign immediately, saying you never know who Danny might chat with," Ziv continued. "I told Danny that if I resign I intend to say exactly why I'm resigning, namely that we disagree about plans and authority."

Ziv said he didn't know Dankner before the latter became Hapoalim chairman. That was because Ziv was in retail banking, a part of the business that the board of directors rarely concerned itself with. Nevertheless, he termed his relations with Dankner "very good," saying that even when the latter was chairman he treated managers as equals.

'Disappointed in Danny'

"He had the habit of interfering in things that weren't in his authority, but until things reached the point where I had to resign, this wasn't intolerable. In the end I was disappointed in Danny because he did things in contradiction to what he said," Ziv maintained. As an example, he cited Dankner's interference in Ziv's decision to appoint new division managers, a decision he said was the prerogative of management, not the board. "On this matter I couldn't surrender because if I had I wouldn't be able to manage the bank. I saw this as a serious intrusion and refused to agree," he said.

According to the indictment against him, Dankner ran parallel negotiations with Rafi Berber, who was his partner in the company Elran Investments, and with the other Hapoalim directors, regarding Barber's compensation for his role in the deal for Hapoalim to buy Turkey's BankPozitif. Dankner then owned a stake in Eldan, which stood to profit from Hapoalim's acquisition.

"We all knew Elran, which was a well-known public company. Members of management and I knew Danny held 6% in it," Ziv said when asked by investigators if he knew about the conflict of interest. "The Dankner family holdings are so extensive that everyone had interests in everything - [but] we didn't know everything, the management board and I."

He gave as an example RP Capital, in which Elran had a large stake. Hapoalim paid RP $25 million for handling the negotiations for the bank's acquisition of BankPozitif.

"As to the matter of RP, we read in the newspapers, to the best of my memory, after we had completed the deal with Rafi Berber that RP had co-invested with Elran in projects in Eastern Europe," said Ziv.

He was also asked about how much private business Dankner conducted from his office on the seventh floor of Bank Hapoalim's headquarters, a distance of 20 or 30 meters from Ziv's office, a proximity that aroused concerns among Bank of Israel regulators in 2006.

"I didn't know anything specific, but Danny was always hosting meetings connected with Dankner family business," Ziv answered. "I assume, because I saw in the hallway from time to time various members of Danny's family, or someone I knew who wasn't connected to the bank."

But Ziv said he didn't see anything improper about it. "There's nothing preventing, as I understand it, the chairman of the board being an investor in any company. I believe it's preferable that he not be a director of a public company."

Report and recuse

But he added: "He certainly needs to report every business discussion he has with a customer or on a matter in which he has a personal interest. Certainly if he is negotiating with Berber on bringing in RP to Elran, he needs to recuse himself from negotiations between him and the board of Bank Hapoalim." But Ziv noted that Dankner told him he was not a director of Elran.

Hapoalim's management understood that RP should have been removed from the BankPozitif deal. "The initiative to force Berber out, in fact, came from us," Ziv recalled. The bank understood it would have to pay Berber compensation in excess of the $5 million committed to him under the contract, but Ziv said he instructed managers to take a tough stance in negotiations.

"We started the talks and we received all kinds of promises from Berber that he would talk to Dankner directly - I think that once or twice Berber was at Dankner's office at Bank Hapoalim and complained," said Ziv. "A dynamic was created such that we needed to stand tough in negotiations and the deal would be concluded in Dankner's office."

Ziv and Dankner agreed that the latter would conclude the talks, basing his offer on what professionals at the bank thought fair. The final figures - $25 million - Ziv said "was a little on the high side but it gave us the goods that we wanted, which was Berber's exit from the transaction with no extra costs to follow."

Regarding the second indictment against Dankner, which alleges that he fraudulently received a 5 million euro loan from DHB Bank, which was controlled by BankPozitif's Turkish shareholders, on the basis of a false statement that he had 50 million euros in personal assets. Prosecutors assert that Dankner didn't report the loan to Hapoalim.

In a further alleged conflict of interest, prosecutors say Dankner arranged a loan from Hapoalim worth 10 million euros to Halit Cingillioglu, Pozitif's controlling shareholder at the time of the acquisition. Ziv said he was concerned that if the bank didn't approve the loan it would create another crisis with the Turkish entrepreneur.

"I didn't think that he treated us fairly as a partner, and I said this to Danny many times," said Ziv. "Danny had good relations with Cingillioglu, and the later used to say 'Danny's my friend and it's with him I closed the deal,' as if it were an agreement between brothers."