Israeli Court Orders ex-Bank Leumi Execs to Repay $1.35m in Bonuses

Judge approves settlement of shareholder derivative suit involving allegations that Leumi assisted American customers in evading taxes.

Bank Leumi's U.S. headquarters. Leumi is one of three Israeli banks embroiled in tax-evasion cases in the U.S.
Bloomberg News

The Tel Aviv District Court has approved a settlement of a shareholder derivative suit against Bank Leumi, one involving allegations that the bank assisted American customers in evading taxes.

Among the provisions of the settlement is one requiring three former bank officials to return a cumulative sum of 5.1 million shekels ($1.35 million) in bonuses they had received. This provision relates to extra compensation paid to the former chairman of the bank’s board, Eitan Raff; former CEO Galia Maor, and the former head of Leumi’s international and private banking division, Zvi Itzkovich. Raff is to return 1.7 million shekels, Maor 2.6 million and Itzkovich 800,000 shekels.

In 2014, Leumi agreed to pay $400 million to the U.S. Department of Justice and New York state to settle two separate investigations into whether the bank helped its U.S. clients evade taxes through its Swiss offices.

Shareholder derivative suits involve suits filed by shareholders on behalf of the corporation in which they hold stock, and which seek to force certain actions to be taken purportedly in the interest of the corporation itself. The settlement approved on Tuesday by Tel Aviv District Court Judge Khaled Kabub includes a payment that the bank will receive from its insurers in the sum of $92 million, of which $26 million is from an insurance subsidiary of the bank itself.

In approving the settlement, Kabub said he was persuaded that the settlement was in the best interest of the bank in putting an end to proceedings and generating damage compensation now rather than drawing out the case further. The settlement is expected to result in gross profits to the bank of about $66 million (not including taxes and certain expenses).

The separate settlement the bank made with American authorities committed the bank to accepting special oversight of the bank’s operations from officials from the State of New York to ensure that the bank is abiding by U.S. regulations, and that it has drawn the proper lessons from the case.

American regulatory officials visited Israel recently and met with employees of Leumi. The employees said they felt threatened by the encounter, noting that it felt like an interrogation. As a result the chairwoman of the bank’s workers’ committee, Miri Rubino, has barred employees of Bank Leumi from cooperating with the U.S. officials.

Two other Israeli banks, Bank Hapoalim, the country’s largest lender, and Mizrahi Tefahot are currently under investigation by U.S. authorities.

With reporting by Reuters.