The US investigation of Bank Leumi (TASE: LUMI) for aiding its customers in tax evasion officially ended yesterday two years after the bank signed its main settlement with the US Department of Justice and the New York State regulator.
Bank Leumi yesterday announced that it had reached a settlement with the US Securities and Exchange Commission (SEC). The bank will pay a $1.6 million fine for providing brokerage and investment consultation services without a license.
The fine is far from the $400 million in fines paid by Bank Leumi to other US regulators, and is probably less than the bank expected.
In its first quarter financial report, Bank Leumi provided $5 million for this investigation at the instruction of the Bank of Israel. Now that the fine has proved to be lower, it will post a $3.4 million recovery in its next financial report.
According to the SEC, the violations took place in 2002-2013, when Bank Leumi provided brokerage and investment consultation services without a license. The SEC added that at the height of this activity, funds in the relevant accounts amounted to $537 million, and that there were 711 such accounts in 2009-2013.
The SEC accused Bank Leumi of providing its US customers with these services through meetings with customers by the bank's employees during trips by the latter. The SEC said that at least 11 employees had taken 65 trips to the US in 2002-2009, during which 245 meetings were held with new and existing customers.
SEC documents list some of these journeys. For example, in 2007, one of the bank's employees traveled to Los Angeles, where he held 76 meetings leading to $21 million being changed from short-term to long-term deposits and the purchase of $6 million in bonds. The SEC noted that the bank began to realize the problems with this business as early as 2008.
After consulting with specialists in the sector, Bank Leumi began to reduce its business and risk. In 2009, the bank's employees were forbidden to travel to the US for the purpose of providing these services. Despite this change in attitude, the SEC asserts that Bank Leumi did not completely halt its violations, which are therefore considered to be deliberate.
The SEC also said that over the years, the bank toughened up its handling of accounts in which unlicensed consultation and services were provided, but these measures were not severe enough. In 2011, three years after the bank realized the potential problem, most of these accounts still existed, some connection was maintained with the customers, and the bank's employees were not sufficiently aware of these accounts.
Pressure from US customers to close these accounts increased in 2011, until the number of such accounts fell to 100. The last account was closed in 2015.
This settlement brings to an end US investigations that proved very expensive for Bank Leumi. For Bank Hapoalim (TASE: POLI), the amount of its fines is still an open question, as for Mizrahi Tefahot Bank (TASE:MZTF), which provided $42 million for the matter in its financial report. Both banks may have to provide additional sums in the future.
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2016
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