Mizrahi Tefahot Bank (TASE:MZTF) has reached a settlement with the US Justice Department regarding the alleged assistance it gave to customers in evading tax. The Israeli bank will pay the US authorities $195 million, 40% less than the $342 million fine that the Americans initially demanded.
The bank has already set aside $162 million for the investigation, so that it will need to set aside a further $33 million in the financial report that it must publish before the end of the month. Mizrahi Tefahot will also incur several tens of millions of shekels in legal and accountancy costs in the matter.
Mizrahi Tefahot CEO Eldad Fresher said, "The end of the investigation will allow the bank to focus on the targets of its strategic plan including a return during the year to distributing dividends."
Under the terms of the settlement, Mizrahi Tefahot has accepted responsibility under US law for the actions of certain former employees who acted in contravention of the policies of the bank and its management. According to the bank's statement these were not senior managers but employees in private banking and customer relations who behaved unacceptably between 2002 and 2012.
Mizrahi Tefahot has also undertaken to implement a new tax and money laundering measures program, most of which has already been put into place.
The US investigation has cast a shadow over the bank for some years. Mizrahi Tefahot, controlled by the Wertheimer and Ofer families, has invested major resources in the investigation. Six months ago, when the US authorities first announced a $342 million fine, the bank was compelled to halt its dividend distributions to shareholders and set aside part of the amount. The money set aside hit the bank's capital adequacy ratio and forced it into swift action to improve it.
Mizrahi Tefahot is expected to announce a capital adequacy ratio of more than 10% at the end of 2018 and should meet its 2017-2021 strategic targets.
The US authorities opened investigations against many Swiss-based banks eight years ago for allegedly helping US customers to evade taxes. Three Israeli banks - Bank Leumi (TASE: LUMI), Bank Hapoalim (TASE: POLI) and Mizrahi Tefahot were among those caught up in the probe. Leumi was the first to reach a settlement four years ago, paying a fine of $400 million. Now Mizrahi Tefahot has ended the affair but Hapoalim's negotiations on the matter are still ongoing. Last week Hapoalim announced it was setting aside an additional NIS 920 million on the matter, meaning it has now set aside NIS 2.3 billion.
After Leumi reached its settlement with the US authorities, former senior executives were forced to return bonuses of a relatively modest NIS 5 million and Israel's Ministry of Justice began an investigation although to date no indictments have been issued.
Published by Globes, Israel business news - en.globes.co.il - on March 13, 2019
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