Israel and the Law: U.S. Federal Reserve Levies Fine against Israeli Bank

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Israel and the Law: U.S. Federal Reserve Levies Fine Against Israeli Bank

By Kenneth R. Kahn

The U.S. Federal Reserve (Fed), along with the Federal Deposit Insurance Corporation (FDIC) and the superintendent of banks for the state of California, have announced a cease-and-desist order and the assessment of a $400,000 civil penalty against an Israeli bank for illegally laundering money in the United States. By accepting the order and agreeing to the fine, the bank has obviated the need for a public hearing that would have put its activities into the public record and given the media an opportunity to look into the source of the currency passing through the bank, and the use to which it eventually was put.

The cease-and-desist order was issued against the Los Angeles branch of the United Mizrahi Bank, Ltd. of Tel Aviv as a combined notice of charges and of hearing and notice of assessment of a civil money penalty.

Failure to Comply

The Federal Reserve accused the bank of failing to comply with the Currency and Foreign Transactions Act (31 U.S.C. 5311 et. seq.) and accompanying regulations issued by the Department of the Treasury (31 C.F.R. 103.11 et. seq.), known as the Bank Secrecy Act. Specifically, the bank branch is charged with engaging "in practices related to their failure to develop and implement internal compliance procedures, their inadequate processing of cash transactions, the failure to maintain adequate records relating to such transactions and to report suspicious transactions to the appropriate law enforcement agencies, and management deficiencies."

On Sept. 12, 1993, the board of directors of Mizrahi adopted a resolution authorizing Yair Hacohen, vice president and general manager of the Los Angeles branch, to enter into the cease-and-desist order on behalf of the bank. The bank agreed to comply with each and every provision of the order. The bank also waived its right to an evidentiary hearing in order to prevent the taking of evidence which would have appeared on the public record. The bank also waived any rights to contest the order, a judicial review, and to challenge provisions of the order.

As in the ADL spy case in San Francisco, the federal authorities in Los Angeles clearly revealed their distaste for pursuing the matter by not bringing any criminal charges against the bank or its board of directors. Instead, they allowed the bank, without any admission or denial of wrongdoing, before the taking of testimony or the admission of evidence, to agree to the terms and provisions of the cease-and-desist order and pay the civil monetary penalty. …