Mizrahi-Tefahot Bank rejects $342 million US fine to settle tax evasion probe

Board of directors of Israel’s third largest lender says any amount to be paid to US authorities should be ‘significantly lower’

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

A Bank Mizrahi branch in Jerusalem (Miriam Alster/Flash90)
A Bank Mizrahi branch in Jerusalem (Miriam Alster/Flash90)

The board of directors of Israel’s Mizrahi-Tefahot Bank Ltd., the nation’s third-largest bank, has rejected a $342 million offer by the US Justice Department to settle an investigation into the lender allegedly helping US citizens evade taxes.

In a filing to the Tel Aviv Stock Exchange late Tuesday, the bank said that it received a notice from the US Justice Department that it is willing to close the investigation if the bank agrees to pay a fine of $342 million.

The letter from the representative of the US Justice Department stated the amount without any indication of how it was reached, the bank said in the filing. The letter also included a draft factual document that could be used as a basis for a Deferred Prosecution Agreement, with the aim of negotiating the terms of an agreement, the filing said.

The board of directors instructed the bank’s attorneys to inform the US authorities that they reject the offer, saying that any amount to be paid to the US regulators should be “significantly lower” than the amount suggested. To date, the bank has set aside some $45 million to cover a potential settlement with the US authorities.

“The bank is studying the significance of the offer and its implications, and also its impact on the financial results of the bank for the second quarter of 2018,” the filing said.

US authorities targeted three Israeli banks with investigations regarding tax evasion in the US 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.

As of February, Israel’s Bank Hapoalim had set aside some $343 million for the investigation, warning that the overall exposure could be even higher.

The investigations have caused Israeli banks to decrease their activities abroad, and there has been a dramatic drop in the number of deposits held by foreign residents in Israeli banks, the Bank of Israel has said. In the past 10 years, almost NIS 70 billion ($19 billion) worth of deposits by foreign residents have left Israel’s banking system, according to central bank data.

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