• Tallman

Discount bank loan to finance the vessel requires re-examination

Updated: Apr 24

Interpretation: Discount Bank Borrowed 1 billion NIS, as part of the Defense Ministry's deal to finance the acquisition of thyssenkrupp vessels ● Serious indictments against the deal makers require the bank to review the loan cancellation ● Former money laundering authority chairman: "The bank should demand clarifications and explanations related with the deal "

The bribery indictment - which is pending against thyssenkrupp's agent in the vessels deals, Mickey Ganor - requires Israeli Discount Bank to reconsider the loan it granted to finance the craft acquisition deal, as the Bank which should avoid funding money laundering and corruption deals. This emerges from discussions with lawyers and subject matter experts, regarding the 1 billion NIS loan that the bank granted to finance the arms deal.

Experts say the bank could embarrass its other stakeholders, such as foreign substantial shareholders, correspondent banks, and regulators associated with its overseas operations, if it does not act now to re-examine the loan - and if in the future it will emerge that the loan money was actually used for the alleged bribery deal with thyssenkrupp .

This is all about a 248 million Euro loan granted by Discount for the purchase of four navy vessels from thyssenkrupp by the Israeli Ministry of Defense, which also bears the financing costs of the loan. The loan money is earmarked for financing one-third of the deal signed in 2015. The rest of the amount is to come from the gas royalties, which the ships purchased were supposed to secure its drilling and refining rigs.

By next year, the Ministry of Defense should already begin repaying the loan to the bank. However, if Discount finds that the borrower's money has also been used for bribery, it should consider canceling the loan and demand its immediate repayment.

In response to Israel's time request, the following comment was made by Discount Bank:

"Discount Bank has granted a loan to the State of Israel / Ministry of Defense, with the approval of the Accountant General. Discount bank acts according the law, and we request avoiding mentioning the Banks name is this manner”.

The complex loan, whose money was transferred to thyssenkrupp , but the state is the one that carries its financing expenses, was approved by the former Accountant General of the Finance Ministry, Michal Abadi Boyangu, who even gave police testimony as part of the 3000 affair.

Serious indictments

Ten days ago, it was decided to make serious indictments subject to a hearing, against a long line of people involved in the vessels deal (ships and submarines).

Among the defendants are the represtative of the German shipyard, Genor; cousin of Prime Minister Benjamin Netanyahu, Adv. David Shimron; and former Chief of the Army, Admiral (ret.) Eliezer Merom (Cheney).

Attorney Yehuda Shaffer: "If there is an overpayment that someone pays to someone else's pocket, then the bank should definitely make sure that there are no funds that you are not allowed to transfer. In such a deal, there is concern about over-prices, and fake invoices."

The suspicions that the thyssenkrupp vessels deal and the Ministry of Defense have been tainted with corruption have risen long ago. As early as the first time Israel turned to the bank last summer, Discount made it clear that all it was interested in was repaying the loan.

Indeed, the risk that the loan money will not be repaid to the Bank are slight, since it is in fact a loan given to the Ministry of Defense. "The transaction itself is not necessarily invalid, because you are buying something important and real. But the price may be excessive, and may include bribes, so the bank should demand clarifications and explanations to make sure there are no “dirty” funds inside the deal," says Attorney Yehuda Shaffer, former head of the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA).

Scheffer emphasizes that he addresses the fundamental question of how a bank should conduct a situation in which it turns out that a loan granted was also used for bribery. "If there is an overpayment that someone pays to someone else's pocket, then the bank should definitely make sure that there are no funds that you are not allowed to transfer."

He said, "In such a deal, there is concern about excessive prices and fake invoices. If you think there is an illegal component in the transaction, the bank's compliance officer is expected to report suspicious money laundering activity as soon as he finds out, and then the police can provide the bank adequate conduct guidelines. "

"The bank is supposed to act to locate money laundering”

To understand which standard clauses relate to bribery in loans of this kind, we contacted a British lawyer specializing in international banking and transactions.

According to the lawyer, who requested to remain anonymous: "The contract should include clauses that prohibit the company or people on its behalf from engaging in activities that violate bribery, corruption or money laundering laws. And to actively check if there are any such violations."

The lawyer concludes by saying that in case there is evidence of such prohibited activity, the bank should claim a breach of the agreement and withdraw the loan.

David Shamron asked Mickey Ganor to transfer $80,000 by Discount Bank, but the bank refused to transfer the amount to Shimron's account for this purpose. The reason: The reason for the money transfer was not approved by the bank's compliance officers.

As far as foreign shareholders are concerned, if Discount does not act now to reconsider the loan, the Bank may be in conflict with the shareholder's policy to reduce exposure to corruption. Among other things, the intention is for the Blackrock Investment Bank, which holds slightly more than 4% of Discount, and whose anti-bribery and corruption policies prohibit involvement in transactions and transfer of funds that allow bribes or corrupt funds, to any entity or public figure.

Blackrock states in their investment policies that they take these bans into account as part of their due diligence to business partners. In addition, they try to reduce their clients' exposure to investments that have a risk of involvement in corruption.

When asked if Blackrock approached Discount to demand clarification on the deal, Blackrock asked not to comment.

The Bank of Israel also refused to comment to this specific loan, but referred us to the relevant sections of the Proper Banking Management Regulations, which stipulate conditions for credit approval. For example, the bank should monitor the borrower's integrity and reputation over the lifetime of the loan, "recognize it", and ensure that it has a reputation and is not involved in fraudulent activity or other offenses.

"This can be done in a variety of ways," these instructions say. But in this case, no effort is required: the prosecutor's office has already reported to the public a week and a half ago that thyssenkrupp's agent is charged with bribery for the transaction funded by the bank, subject to a hearing.

When does a bank comply with the KYC instructions

We contacted some of the directors at Discount, but they have refused to address the issue. One reiterated the claim that the bank's problem is only the risk of repayment, and that the rest is unrelated to it. The IMPA referred us to the Justice Department, where they declined to comment.

In another contract with the indictment parties that appear in this case, the Bank was already implementing the "Know Your Customer" directives when applying for a loan.

The indictment states that Attorney David Shamron sought to transfer $80,000 to Mickey Ganor through Discount Bank, but the Bank refused to transfer the amount to Shimron's account for this purpose.

The reason was that the transfer of funds did not satisfy the bank's compliance officer. For this reason, Ganor and Shimron worked to transfer the funds from Shimron's account in Credit Suisse to the account of a company owned by Ganor in Hapoalim Bank.

Hapoalim Bank also requested documents that clarify the nature of the transaction, but received letters from Shimron and Ganor stating false representations, and the transfer was approved, according to the indictment. For that reason, it is said further, the two are suspected of violating the Money Laundering Law.

The third largest bank in Israel

Discount market value is over 18 billion NIS, and is the third largest in Israel.

Like Leumi Bank, Discount has also been operating without a controlling stake for the past six years, and those who elect the directors of the Bank are major institutional investors from Israel and abroad, including Harel, Altshuler, Blackrock and Lazard.

Canceling the loan for thyssenkrupp and the Ministry of Defense is not an obvious thing, as it requires putting a red traffic sign on the state. Businesses with the state are considered to be the most profitable and lucrative, though early repayment of the loan could jeopardize the arms vessels deal and impinge on national security, allegedly (although the need for ships was questioned too, as they were intended to secure thw gas rigs).

The new CEO of the Bank, starting earlier this month, is Uri Levin, who for the past two years has served as CEO of Discount New York, and should be well acquainted with the overseas authorities' sensitivity to corruption and money laundering in the banks that Discount is working with.

Large corporate executives usually strive to clear the stables upon entering the job, and banks are talking about actions such as provisions for doubtful and lost debts or layoffs. Now, Levin's should also handle this particularly hot potato.

Website clarification:

The original article might have seemed like Discount bank had loaned the loan directly to thyssenkrupp as opposed to the procedures. That was not the intention of the article - and it was re-edited to refine what it said.

Published by By Omer Sharvit, December 12, 2019, on “THE TIMES OF ISRAEL”


Subscribe to Our Newsletter

  • LinkedIn
  • White Facebook Icon

© 2023 by i-AML