Israel banks saw NIS 70m outflow of foreign deposits amid regulatory crackdown
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Israel banks saw NIS 70m outflow of foreign deposits amid regulatory crackdown

Investigations by US regulators into tax evasion by foreign customers of Israel banks led to the outflow of funds, Israel’s banking supervisor says

Hedva Ber, Supervisor of Banks at the Bank of Israel, far end, right, at a press conference in Tel Aviv, May 24, 2017 (Courtesy: Shoshanna Solomon)
Hedva Ber, Supervisor of Banks at the Bank of Israel, far end, right, at a press conference in Tel Aviv, May 24, 2017 (Courtesy: Shoshanna Solomon)

Israeli banks have decreased their activities abroad and there has been a “dramatic” drop in the number of deposits held by foreign residents in Israeli banks, the banking regulator at the Bank of Israel said on Wednesday.

Speaking at a press conference in Jerusalem as the Bank of Israel published its Annual Survey for 2017 of Israel’s banking system, Hedva Ber, the supervisor of banks, said that almost NIS 70 billion ($19.5 billion) worth of deposits by foreign residents have left Israel’s banking system in the past 10 years.

“Some Israeli banks are still under investigation by US authorities,” she said, emphasizing that the investigations relate to events in the past and not the present. The consequences of these investigations have been internalized by both the Israeli banking regulator and the banks themselves, she said, leading to a sharp drop in deposits by foreigners at the banks.

The Israeli banking system has seen a “dramatic drop in the amount of deposits foreign residents are injecting in the Israeli banking system,” she said. “A decline of 54%, almost NIS 70 billion, in deposits that have left the Israeli banking system in the past few years, as a result of tighter requirements by the banks and the banking supervisor” regarding money laundering and tax evasion, she said.

“This is a very big change which also has macroeconomic implications, because the drop is so dramatic,” she said.

US authorities targeted three Israeli banks with investigations regarding tax evasion by customers. In 2014, Bank Leumi Le-Israel Ltd. agreed to pay some $400 million to US regulators to settle a criminal probe after admitting it helped US taxpayers hide assets. Investigations by US regulators into Bank Hapoalim Ltd. and Bank Mizrahi-Tefahot Ltd. are ongoing.

Bank Hapoalim Ltd. said earlier this month that it set aside an additional provision of NIS 60 million ($17 million) to cover a possible future settlement with US authorities, bringing the total amount set aside for a possible settlement to $365 million, Reuters reported. The bank said talks with the US Department of Justice and New York State authorities are ongoing and said it is hoping for a conclusion sometime in 2018. Bank Mizrahi-Tefahot has set aside some NIS 162 million in provisions for the investigation so far, according to Globes.

Banks have also closed many of their branches and representation offices abroad as a result of the investigations, Ber said. “Just a few years ago they had activities in many countries around the world.”

Bank Leumi has closed down units in Switzerland, Luxembourg, and Latin America, for example, and Hapoalim closed units in London and Latin America, among others.

The “significant closure” of most of the activities of the banks abroad is because banks have understood that “there are big regulatory risks in operating abroad, control from far is complicated,” and they are “not interested in being involved in long and expensive investigations,” Ber said.

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