In short: this page documents criminal proceedings, investigations and regulatory action involving United Mizrahi Bank and Bank Tefahot between 1990 and 2004, as described in the banks’ own prospectuses and reports filed with the Israel Securities Authority. Nothing here is a third party’s allegation: every statement is taken from a document the bank itself filed and signed, and the pages relied on are attached below as PDFs.

Why this source

A prospectus and a periodic report are documents a reporting corporation is required by law to produce, reviewed by its auditors and legal advisers. When a bank writes in its own prospectus that it was convicted of a criminal offence, or that it is under investigation, that is not a private person’s accusation but the corporation’s own disclosure. It is also the only place where proceedings from these years survive: most of them pre-date the digital publication of Israeli case law and do not appear in the online databases.

1. The bank’s conviction in the bank-shares regulation affair

On 31 December 1990 the State Attorney filed indictments in the Jerusalem District Court against several Israeli banks and bankers in the bank-shares regulation affair, among them the bank, the person who was its CEO at the relevant time and the person who was its deputy CEO. The indictment covered three separate subjects: directors’ offences, false advice, and false reports and prospectuses.

Judgment was given on 16 February 1994. Under it the bank was convicted of an offence under section 415 of the Penal Law — obtaining a thing by deceit in aggravated circumstances — only, and only as to the specific cases set out in an appendix to the indictment, concerning the giving of false advice. It was acquitted of the remaining offences. The two executives were also convicted on some of the counts against them.

On the sentence and the fine, the prospectus gives two versions that do not sit together. The body of the prospectus says sentence was passed on 13 April 1994 and imposed a fine of NIS 1 million. The financial statements inside that same prospectus say the fine was imposed on 30 April 1994 and stood at NIS 1.4 million, included in the 1994 loss from extraordinary operations. We give both as they are written and do not choose between them.

The bank paid the fine and did not appeal. The two executives appealed to the Supreme Court, and on 28 February 1996 judgment was given: one of them was acquitted of the directors’ offences, and the sentences imposed on him and on the other were left standing.

The conviction is not buried in a footnote. It appears on the first page of the 1998 prospectus, among the warnings to investors.

2. Borrowers’ insurance: from a police investigation to a civil track

This is the central thread of the 1990s. The mortgage banks, Bank Tefahot among them, sold their borrowers life and building insurance as a condition of the loan and received commissions from the insurers. The authorities examined this on several tracks at once.

In early 1997 the deputy Supervisor of Insurance instructed insurers to stop paying the mortgage banks, Bank Tefahot among them, commissions for borrowers’ life insurance from 1 January 1998. Bank Tefahot disputed this in a letter of 3 April 1998, saying its activity was lawful and rested on legal opinions.

In the 1998 prospectus the bank writes that the possibility cannot be excluded that the dispute with the Supervisor of Insurance over the lawfulness of the mortgage banks’ insurance business would also be expressed in criminal proceedings against Bank Tefahot.

In 1999 the periodic report describes the State Attorney’s position: it considers that there are, on the face of it, suspicions that the mortgage banks are engaged in insurance brokerage contrary to various enactments; the Commissioner’s investigation had ended, and prosecution was being considered. The interim statements to 31 March 1999 say the material was referred to the Tel Aviv district attorney (taxation and economics) for consultation before a final decision, expected within a few months.

In December 1999 the Antitrust Commissioner notified Bank Tefahot that he was considering using his power under section 43(a) of the Restrictive Trade Practices Law, 1988, to determine that certain provisions in building-insurance policies in 1994-1996 constituted restrictive arrangements.

In 2000 the bank’s documents carry the most explicit statement: the authorities’ affidavit in reply mentions that there had been a police investigation against Bank Tefahot and eight insurance companies on suspicion of a restrictive arrangement regarding borrowers’ building insurance. On the findings of that investigation the Commissioner decided not to take criminal enforcement, holding that the appropriate route was a determination under section 43. The 2001 periodic report repeats this and adds that the Commissioner had begun those proceedings, and that the bank intended to appeal any such determination to the Restrictive Trade Practices Tribunal.

3. A contradiction worth showing as it stands

The 1998 periodic report quotes a response from the prosecution stating that no police investigation whatsoever was conducted against the mortgage banks in 1997, as had been alleged in a petition.

The authorities’ affidavit of 2000, as described in the bank’s financial statements to 30 September 2000, says there had been a police investigation against Bank Tefahot and eight insurers.

Both statements are in the bank’s own documents, about two years apart. They may be reconcilable — if the investigation opened after 1997, or if different proceedings are meant. We do not know, and we do not say either is false. Anyone relying on one of them should read both.

4. The VAT assessment, and how it ended

A VAT assessment for 1994-1996 was issued to Bank Tefahot’s consolidated insurance company. In October 1999 the VAT authorities rejected the objection; the amount demanded, including interest, linkage and a fine, appears in the 1998 report as NIS 9,466 thousand and in the report to 30.9.2000 as NIS 10,128 thousand.

The 1998 prospectus adds that at the date of publication the VAT authorities were investigating the VAT liability of Bank Adanim and other mortgage banks on the insurance question.

The matter did not stay open. The financial statements to 30 September 2000 record that during September 2000 the consolidated company and the VAT authorities reached an agreement which was given force of judgment, and under it the VAT authorities cancelled the assessment. Presenting the investigation without that ending gives a partial picture.

5. The Supervisor of Banks before the Standard Contracts Tribunal

In December 2002 the Supervisor of Banks applied to the Standard Contracts Tribunal against Bank Tefahot, to annul or vary provisions in the form of guarantee the bank issues under the Sale (Apartments) Law — the guarantees given to apartment buyers — arguing that the guarantee contained unduly disadvantageous terms.

This is regulatory action initiated by the banking regulator against the bank, not a customer’s claim.

6. An alleged restrictive arrangement in direct-debit clearing

In June 2002 a claim and an application to certify it as a class action were filed against Masav and six banks, the bank among them, in the amount of some NIS 967 million. The plaintiff alleged that the defendants breached their duties by creating a restrictive arrangement as to the clearing of direct debits, and unlawfully limited themselves as to the price, that is the fee charged.

An amount claimed is not a liability. It is what the plaintiff asked for, not what was awarded.

7. A criminal investigation into a borrower group, and the Accountant General dispute

A dispute arose between the bank and the Accountant General at the Ministry of Finance over a group of companies that received state-guaranteed credit from the bank under the Encouragement of Capital Investments Law, together with investment grants through the bank. The group’s debts at 30 April 1998 came to some NIS 117 million, and it had received grants of some NIS 72 million.

In May 1997 the bank’s internal audit department examined compliance with Investment Centre procedures and made findings about the bank’s dealings with companies in the group. In August 1997 the Accountant General suspended payments. In April 1998 he wrote that in his view the bank had not acted as required, and that the bank had breached duties of trust towards the State.

In that context the prospectus states that in the course of a criminal investigation into the borrower group’s business, one of the bank’s officials was questioned under caution, and the bank handed investigators various documents as required of it.

In April 1998 the Accountant General limited the State’s claim against the bank to USD 25 million, without the State waiving any of its contentions. The bank rejected the contentions. The 1998 periodic report records that the State sought leave to file counterclaims of some NIS 106 million, and that in February 1999 it was granted leave to defend the two claims the bank had filed.

8. Class actions and a tariff cap, 2003

The financial statements to 30 June 2003 describe three further matters.

In August 2003 a claim and an application to certify it as a class action were filed against the five large banks, the bank among them, alleging breach of the Banking (Service to Customer) (Proper Disclosure and Delivery of Documents) Rules.

In July 2003 a claim and an application to certify it as a class action were filed in the Tel Aviv District Court against Bank Tefahot, other banks and the Director of Customs and Stamp Duty, in a total amount of NIS 300 million.

On 20 August 2003 the Supervisor of Insurance notified insurers that he intended to approve insurance tariffs through mortgage banks such that the minimum loss ratio would rise gradually from 57% — a regulatory cap on the profitability of the very insurance at the centre of the investigations.

What is not on this page

The filing binder these documents come from effectively ends in 2004. It contains nothing on modern enforcement: not the 2019 deferred prosecution agreement with the US Department of Justice, not recent Israel Competition Authority decisions, and no Bank of Israel financial sanctions. Those are documented elsewhere on this site.

It is also worth saying what this page is not. It does not say the bank is committing offences today. Several of the proceedings described here ended in nothing — the antitrust investigation ended with a decision not to prosecute, and the VAT assessment was cancelled. We report those too.

The source documents

Every page the article rests on is attached as a trimmed PDF, cut from the original filings to the Israel Securities Authority (binder 119807949). The scanned image is the authoritative document and was not altered; a text layer produced by automatic OCR was added so the files can be searched. That layer contains errors, particularly in figures, and is not a source for quotation.