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Bank Scandal Hits Israel

July 11, 1974
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An emerging bank scandal took on political ramifications today and reactivated a long-standing feud between former Finance Minister Pinhas Sapir and Moshe Zanbar. Governor of the Bank of Israel. Sapir, who has retired from the government and was elected chairman of the World Zionist Organization and Jewish Agency Executives last month, insisted on appearing before the Knesset Finance Committee which is looking into the failure of the Israel British Bank.

The Bank of Israel announced Monday that it was taking over Israel British and planned to close it down in 10 days to protect its depositors. The government is also probing possible criminal acts by the bank’s owners and has taken legal action to prevent them from leaving the country until the investigation is completed.

But the government was criticized in opposition quarters today for seizing the bank and preventing its purchase by two larger Israel banks, the Bank Hapoalim and Bank Hamizrachi. The deal fell through, however, when the two purchasers discovered obligations involving millions of dollars that the Israel British owners had failed to report.


Sapir appeared before the Finance Committee to refute allegations that he was partly responsible for the deterioration of the Israel British Bank. He conceded that the bank’s owners, the Williams group, were large contributors to the so-called Sapir Foundation, a charitable fund run by ex-Finance Minister Sapir when he was in office.

But he rejected claims that he might have been privy to the bank’s difficulties because of that relationship. At the same time. Sapir criticized Zanbar and the Bank of Israel for investing 30 million Deutsch marks of Israel’s foreign currency in the Israel British Bank’s London branch instead of in larger institutions such as the Bundesbank, the U.S. Federal Reserve Bank or Chase Manhattan.

Sapir said he had written to Zanbar early in the year asking him to coordinate investments of Israel’s foreign currency with the Finance Ministry. “I did not receive an answer to that letter until my last day as Finance Minister,” Sapir said.

Finance Minister Yehoshua Rabinowitz and Justice Minister Haim Zadok told the Finance Committee that the government had no choice but to allow the Bank of Israel, Israel’s national bank, to take over Israel British. Zadok indicated that the bank still may be sold to Bank Hapoalim, Israel’s second largest bank and Bank Hamizrachi which ranks fifth. The Bank of Israel has assured Israel British depositors that they can withdraw their money up to IL 50,000. But larger customers were told they would have to prove non-involvement in the bank’s tangled affairs.

Rabinowitz and Zadok met, with Zanbar later today to determine whether the Bank of Israel will honor the failed bank’s overseas obligations. Banking sources believe they will be honored if only to preserve Israel’s credibility on the international banking market.


Meanwhile, the government is checking several possible offenses by the Israel British owners: inaccurate reports to the Controller of Banking; funneling customers’ deposits to companies owned by their bank; mortgaging bank deposits with a Swiss bank while declaring itself free of mortgages; and the establishment of fictitious companies registered in Vaduz, Lichtenstein, in violation of Israel’s foreign currency laws.

The Israel British Bank was founded in the 1930s by Polish Jewish immigrants as the Immigrant Bank. It was purchased in 1938 by the late Nahum Zeev Williams and on his death passed into the hands of a group headed by members of his family. The group is closely associated with the Mizrachi movement–religious Zionists–which may account for the sharp criticism of its takeover today by members of the National Religious Party.

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