ISRAEL AT THE CENTER OF MAJOR MONEY LAUNDERING

UNCLAS SECTION 01 OF 02 TEL AVIV 001637

SIPDIS

E.O. 12958: N/A
TAGS: PREL PTER EFIN ECONOMY AND FINANCE COUNTERTERRORISM
SUBJECT: ISRAEL AT THE CENTER OF MAJOR MONEY LAUNDERING
SCANDALS


1. (U) Summary: Recently, Israel has been the nexus of
several high profile money laundering cases. The cases
illustrate a continuing need for effective bank supervision
and the ongoing level of money laundering associated with
criminal activity. On March 6, The International Crimes Unit
(ICU) of the Israeli National Police raided Bank Hapoalim,s
international and private banking branch, and its trust
company, in what was described as the biggest money
laundering scandal ever in Israel. The police froze over 180
accounts with more than $376 million, and some 24 employees
were detained, including the manager and four senior
executives. Customers of the branch are expected to be
investigated in the coming days. According to press reports,
the operation came to light with information the ICU obtained
more than a year ago. In addition, the police on March 16
arrested an Israeli citizen, Yaron Bolondi, in connection
with "one of the largest robbery attempts in British
history." According to press reports, hackers planned to
steal about $450 million from a Japanese bank in London, and
then launder part of the funds through a bank account in
Israel registered to Bolondi's company. End Summary.

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The Basics
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2. (U) The International Crimes Unit (ICU) of the Israeli
National Police on March 6 raided a Bank Hapoalim branch on
Hayarkon Street in Tel Aviv. So far, 180 accounts have been
frozen with $376 million of unknown origin, and the ICU is
investigating 80 separate incidents of money laundering
involving 200 clients. The head of the ICU, Brigadier
General Amichai Shai, told the press that the police had
"convincing evidence against 45 of the 200 customers." Some
of the clients include leading Russian oligarchs who also
have business interests in Israel. Yoav Lehman, Supervisor
of Banks at the Bank of Israel, admitted that an
investigation had been going on at the bank for the past year
concerning alleged suspicions of money laundering "in
extremely large amounts," reaching hundreds of millions of
dollars.


3. (U) The ICU also searched the head office of the bank and
the homes of some of the bank staff, seized thousands of
documents, and arrested more than two dozen bank employees,
including the manager. The manager, four senior officials,
and 17 employees may have cooperated with the affair.
According to press, workers at the bank, who were often
commended and compensated for their superior performance,
failed to report suspicious movements carried out in the
bank,s accounts to the Israel Money Laundering Prohibition
Authority (IMPA),nor did they identify the customers or the
source of money. Yehuda Shaffer, Director of the IMPA, told
Ynet on March 7 that the intention of the employees was not
to report to the authorities, and that the prison sentences
for this could be up to 10 years.


4. (U) The ICU did not rule out the possibility that the
bank's senior management at the national level would be
interrogated if there was any suspicion that they had any
knowledge of activities at the Hayarkon branch, which only
handles foreign customers. The ICU is also investigating a
branch in Paris which has been suspected of money laundering
in the past.

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The Money Chain
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5. (U) The three primary methods of suspected money
laundering the police uncovered were pipeline accounts,
"splitting up," and back-to-back (B2B) transactions, or loan
and cover. Businessmen deposited large sums of black money,
possibly obtained through criminal acts, from bank branches
abroad to the accounts of straw individuals at the Hayarkon
branch in Tel Aviv, and then withdrew the funds the same day
-- sometimes within minutes -- or a few days later to return
it to straw companies overseas. The straw individuals and
companies helped obscure the route of the funds. The
businessmen also practiced "splitting up," referring to
splitting up the transactions into amounts under NIS 1
million to avoid reporting to the IMPA, possibly with
guidance from the bank employees. With B2B transactions, the
businessmen deposited millions of black dollars into accounts
at the bank, and the bank would then grant them loans up to
the amount deposited. The businessmen would subsequently
transfer the clean loan funds abroad, and the debts to the
bank would be covered by what remained in the accounts or by
other sources of funding.

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Millionaire Vladimir Gussinsky
is Again a Suspect...
--------------


6. (U) Vladimir Gussinsky, an Israeli-Russian citizen who is
part owner of Maariv, is thus far the most senior suspect in
the money laundering scandal. According to reports, the
police raided his office in Tel Aviv and seized documents as
part of the investigation under suspicion that he transferred
millions of dollars to the bank without reporting the source
of the money. The police suspect that this money may be from
criminal activity. Gussinsky has been arrested and accused
of money laundering several times since 2000 by Russian
authorities, but he has never been convicted. He maintains
he is a victim of "political persecution" and that the
Russian government is trying to control his independent news
media. Yediot Economic Editor Sever Plotsker, however,
commented on March 7 that the police raided Gussinsky's
office because the police had to reach "the money launderers
themselves, the really heavyweight criminals." The Israeli
Ambassador to the U.K., Zvi Hefetz, has also been mentioned
in connection with the story.
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A Stain on the Israeli Commercial Banking System
-------------- ---


11. (U) Media pundits, although not particularly concerned
with Bank Hapoalim's stability because it is the largest bank
in Israel, noted that the investigation is a blow to the
Israeli banking system as a whole. Yediot's Plotsker wrote
that Israel's banks will be forced "to function under a dark
cloud," and will have to repair the damage done to the
reputation of the banking system.

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Israeli Citizen Connected to British Robbery Case
-------------- --------------


12. (U) The Israeli Police National Fraud Unit on March 16
arrested Yaron Bolondi on suspicion of fraud and attempted
money laundering in connection with "one of the largest
robbery attempts in British history." According to press
reports, various individuals around the world planned to
electronically steal NIS 2 billion, approximately $450
million, from the Sumitomo Mitsui Banking Corporation's
London branch, and launder the money through accounts in ten
different countries. Investigators said at least one of the
accounts that would have been used was registered to
Bolondi's Waro Fuel Marketing company.


13. (U) Bolondi was allegedly going to launder about $41
million of the stolen funds in Israel, but according to press
reports, Bolondi's lawyer said his client thought the request
to launder the money was a joke. Bolondi maintains he does
not know the people involved in the affair. According to
press reports, Israel is cooperating with the British
National Hi-Tech Crime Unit on the investigation. British
detectives are currently in Israel participating in Bolondi's
interrogation.

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