Israel Police are investigating a huge fraud estimated at some NIS 200 million. This morning, the police and the Israel Tax Authority arrested nineteen people suspected of perpetrating a series of crimes of fraud, tax evasion and money laundering in the context of the provision of manpower services.
Trading in the shares of S. R. Accord Ltd. was suspended on the Tel Aviv Stock Exchange pending the announcement of a "material event". The company is controlled (82%) by Adi Zim. Zim is among those arrested. S.R. Accord is a non-bank credit company that specializes in check discounting. Its share price plunged about 50% on the resumption of trading. Zim acquired control of S.R. Accord in 2014. In 2012, together with his brother Rani Zim, he sold Zim Direct Marketing, through which the brothers owned supermarket chain Mahsanei Kimat Hinam, to Yeinot Bittan. S.R. Accord reported financing revenue of NIS 49 million in 2015 and a net profit of NIS 34.4 million. Up until today, its share price had risen 12.5% since the start of the year and by 25% in the past twelve months. Less than two weeks ago, Zim sold 6% of the shares in S.R. Accord in a NIS 14 million off-floor transaction.
The arrests were made as part of a combined investigation by a joint team of the Israel Police, the Israel Tax Authority, the National Insurance Institute, and the regulation and enforcement administration in the Ministry of the Economy. Searches were carried out this morning at the houses and offices of the suspects, and documents were seized.
The suspicion is that manpower services businesses and authorized currency services companies, one of them traded on the Tel Aviv Stock Exchange, combined to create a systematic mechanism of false reporting, exaggeration of the value of transactions, production and offsetting of fictitious invoices, and currency exchange, to produce fraudulent profits and to defraud the Tax Authority and the National Insurance Institute, as well as the regulation and enforcement administration in the Ministry of the Economy, which is the regulator for manpower services.
The type of fraud under investigation originates in manpower companies that use foreign workers without work permits, to whom they pay a pittance. In order to set off their expense, they set up straw companies that issue to them fictitious invoices for other services, and for exaggerated amounts. The fraud can also involve claiming government subsidies for employing people from development areas. Checks issued to the straw companies are discounted by check discounting and foreign exchange companies, which use various kinds of false accounting to conceal the transactions, thus laundering the manpower company's illegal revenue.
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2016
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