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Newsdesk March 11, 2005

Israeli Bank Investigated

Israel’s largest bank, Bank Hapoalim, launched a major damage-control effort this week to reassure international markets of its stability after 24 employees of a high-profile Tel Aviv branch were arrested as part of a major money-laundering investigation.

Police said that the branch, which caters to a small number of affluent clients, had knowingly allowed hundreds of millions of dollars to pass through, in violation of money-laundering laws. Many of those suspected of laundering funds through the branch were said to be wealthy immigrants from the former Soviet Union. In all, police froze 180 accounts belonging to 45 of the branch’s 200 clients.

Hapoalim representatives, in conference calls with financial analysts, emphasized that the frozen assets came to a fraction of the bank’s total holdings. “There is a great deal of interest right now in the investigation, but I believe its impact on the bank will only be short term,” CEO Zvi Ziv said in a statement. “There is no fraud or theft.”

Bank officials said the implicated assets totaled just $60 million. The bank is capitalized at some $4.6 billion.

Police were also said to be investigating the bank’s largest shareholder, Shari Arison, who sold some 10% of her bank holdings a month ago for $100 million. Bank Hapoalim is said to have known of the investigation for at least a year.

Police describe the case as the largest money-laundering investigation since the Knesset adopted new reporting rules in August 2000. Israel was one of 15 nations threatened with sanctions in June 2000 by the finance ministers of the G-7 industrial nations, after the nations were listed by the Organisation for Economic Co-operation and Development as centers of international money-laundering and financial crime. Money laundering, or passing cash through a bank to mask its origins, is seen as key tool of drug cartels and terrorist groups.

Israel was removed from the list in 2002 after establishing its Money Laundering Prohibition Authority, which spearheaded the Hapoalim probe.

Particular attention was focused this week on billionaire Russian Israeli businessman Vladimir Gusinsky, co-owner of the Ma’ariv newspaper group, and on his former Israeli business representative, Zvi Hefetz, currently Israel’s ambassador to London. Both men were called in for questioning, though police said that no charges were drawn up. In interviews, both denied any wrongdoing.

Gusinsky, formerly Russia’s most powerful media mogul, fled Moscow in 2000 after being arrested on embezzlement charges. Critics have insisted the charges were politically motivated, part of a nascent campaign by Russian President Vladimir Putin to silence opponents. The European Court of Human Rights ruled his arrest illegal last year. The Israeli investigation was expected to lend new credibility to Russia’s charges against Gusinsky.

Bush Taps Boschwitz

President Bush named a Jewish former U.S. senator as ambassador to the U.N. Human Rights Commission. Rudy Boschwitz is expected to take a leave of absence from the board of directors of the American Israel Public Affairs Committee to serve the new post. He was first elected to the Senate as a Republican from Minnesota in 1978. He lost the race for a third term in 1990 to the late Paul Wellstone. In his new post, Boschwitz will represent the United States at a six-week session in Geneva. The meeting has often become a forum for anti-Israel rhetoric and resolutions.

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