Regulators at Odds: Will Eliahu's Casino Gambling Put Migdal Purchase on Hold?

Discussions are currently being held over his request to buy a controlling share in Migdal.

Should a man who goes to casinos be allowed to control the country's biggest insurance company? The Bank of Israel, the Finance Ministry and the Justice Ministry are debating just that question, as Shlomo Eliahu looks to take control of Migdal Insurance.

Finance Ministry Insurance Commissioner Oded Sarig apparently wants to give Eliahu permission, while the central bank and the Justice Ministry apparently have not yet formulated their positions.

Shlomo Eliahu - Michal Fattal - 15032012
Michal Fattal

A representative for Eliahu stated in response: "Eliahu has been managing public money responsibly for more than 50 years. Over these 50 years, he proved his reliability beyond any doubt. The law has always been his guide."

The regulators are debating Eliahu's eligibility, given that he regularly gambles at London casinos and was also investigated for alleged money laundering. No charges were filed, but the Tax Authority did impose financial sanctions on Eliahu.

Discussions are currently being held over his request to buy a controlling share in Migdal. While Sarig has primary authority to approve the acquisition, the opinions of the Justice Ministry and the central bank are likely to bear considerable weight in the decision.

Eliahu does not deny gambling, which he describes as a social activity. He visits legal casinos and bets small amounts, relative to his wealth, he notes.

He told an interviewer in the 1990s, "I'm a member of two or three [gambling clubs in London]. A London casino club is a closed club that lets members enjoy themselves late into the night. The [Jewish-]Iraqi elite in London meet at these clubs after the Sabbath ends. That's how I see friends in London. Sometimes I'm tempted to gamble a bit, a few thousand dollars, nothing more. I don't gain or lose."

Two years ago Eliahu came under investigation by the national fraud squad of the Israel Police for allegedly shifting large sums of foreign currency abroad without reporting it. The police said that over the years Eliahu flew abroad while carrying more than 70 bank checks totaling NIS 80 million.

Eliahu was not charged because he proved that the money had been reported to the income tax authorities. In addition, his lawyer obtained a legal opinion stating that these were not bank checks but standard checks, in which case the reporting obligation is on the bank, not the client.

State Prosecutor Moshe Lador decided not to charge Eliahu. The matter of the checks was passed on to the Tax Authority's sanctions department, which is believed to have fined Eliahu.

The size of the fine is expected to be made public next month as part of the Tax Authority's biannual report on its sanctions.

The question of whether to approve Eliahu's acquisition is a matter of principle, because it comes down to whether regulators should go by the letter of the law or the spirit, and make decisions that lie in the gray area.

For instance, the Bank of Israel forced Bank Hapoalim to oust chairman Danny Dankner without providing a clear justification for its demand. Only afterward was a criminal investigation of Dankner's relationship with the bank initiated. That is an example of acting within the gray area.

Eliahu, for his part, never requested permission to take control of Bank Leumi, in which he owns a minority stake, possibly because he feared he would be turned down. But the central bank did let him buy control of Union Bank, even though his gambling hobby was public knowledge.

In contrast, the Finance Ministry's insurance regulator believes decisions need to be made openly and transparently, and firmly based on the law. The regulator believes that as long as Eliahu has not broken the law there is no reason to block him from buying Migdal, even if his behavior is controversial. Furthermore, Eliahu has been managing Eliahu Insurance for decades, and the company is solid and stable, the regulator reportedly noted.