REFERENCE. ISRAELI BANK HAPOALIM ACCUSED OF MONEY LAUNDERING

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MOSCOW, March 18 (RIA Novosti) - On March 6, 2005 the Israeli police searched Office 535 of Hapoalim, a major national bank, to officially seize scores of documents and detain 22 employees, half of them later arrested on suspicion of involvement in fraudulent activity. Some of the arrested managers had been in charge of services rendered to customers of Russian and French origin.

Hapoalim's Office 535 clientele consisted largely of foreigners, dual citizens, and descendants from the former USSR. The police froze about $372 million in deposits.

Incorporated in 1921, today Hapoalim is Israel's leading bank valued at $4.5 billion. The bank manages assets worth about $60 billion and runs 41 branches worldwide, ten of them in New York, including Signature, an American subsidiary. Within hours after the reports about the police raid reached the stock exchange, the bank's shares fell by 3.4%.

Gil Kleiman, a spokesman for the Israeli police, said all arrested Hapoalim's employees were suspected on aggregate of 80 illegal financial transactions. One suspicion, he said, was that they, while overseeing their customers transferring large sums of money from abroad, failed to report these transactions to the authorities in defiance of the law. Kleiman said the money-laundering scheme was believed to be worth hundreds of millions of dollars.

Concealed verification of the bank's clearance of possible money laundering charges began more than a year ago after a routine check of the Bank of Israel. The police put an undercover agent into the bank to find evidence for any fraudulent activity going on inside the institution.

The Israeli financial watchdog argues the bank's employees have overseen customer-ordered transactions of large and controversial cash sums from overseas. Then, laundered through one of Hapoalim's legal accounts, the money would be forwarded to another branch, primarily in a Western European country. One of the arrested managers was Keren Lalum, the manager in charge of Hapoalim's French desk.

Money was also laundered through loans. Borrowing from an Israeli office, customers subsequently pulled the money out of Israel.

In compliance with the latest amendments to the Israeli financial action legislation, $10,500 is the minimal amount of a transaction to be reported to the authorities, while the lower limit for a justification as to where and from whom the money came is $2,100. In defiance of law, Hapoalim managers silenced down transactions and did not require justification papers from customers, which was the initial reason for suspicions of fraud.

The bank performed most transactions for Vladimir Gusinsky, an exiled Russian businessman. On the very day of the police search at the bank, the international crimes department of the Israeli police also searched and seized documents in offices belonging to Gusinsky as a partner in Maariv Publishers.

According to the Israeli police, action might also be taken against Zvi Heifetz, Israel's Ambassador to the UK. The law enforcement authorities would wish to hear his account of investments he had made through Office 535 when he had not been an official.

Prior to his appointment as Ambassador, Heifetz had managed 22 companies in Israel and was involved in Gusinsky's operations, holding a share in his concern Media-Most.

Documents seized in the police raids expanded the list of those suspected of money laundering. Apart from Gusinsky, such businessmen as Arkady and Mikhail Chernoy, Boris Berezovsky, and Badri Patarkatsishvili also ended up on the black books. Among about 200 people suspected of fraud, the police plan to question 45 "suspicion against whom is the strongest."

The Israeli law classifies money laundering as a criminal offense punished by up to 10 years in prison or by a fine of about 3 million shekels (around $706,000). Awareness of the criminal history of the money or other assets suffices for a conviction.

The official theory is that Hapoalim was far from the only entity that covered up money laundering schemes involving, notably, money illegally pulled out of Russia and CIS member states. Bank Hapoalim Trust Co and United Mizrahi are also under investigation, along with the bank's employees and customers. The police have questioned Mizrahi CEO Eli Yones who was Hapoalim's chief executive officer at the time of suspected wrongdoing.

Upon finishing the investigation in Hapoalim's Israeli offices, the police will begin questioning customers, where they will possibly need help from foreign law enforcement authorities. Since the first reports of the investigation, several European law enforcement agencies applied to their Israeli peers for information concerning possible money-launderers, while the French police provided the numbers of accounts at Hapoalim's French branch, which could have been used for committing financial crimes. On his part, current Hapoalim CEO Zvi Ziv said the bank was willing to cooperate with the police and had nothing to conceal. According to the CEO, to make sure that the investigation ended as soon as possible was in the bank's best interests.

It also seems to be so for the Israeli leadership, for the scandal undermines the country's image. Only in June 2003, when Israel adopted a law against money laundering and created a special service to counter financial fraud, did Financial Action Task Force eliminate the country from its black books. The money laundering monitoring regime in Israel was lifted three months later.

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