A council pension fund has shares worth nearly £7 million in an Israeli bank fined for tax evasion and conspiring to launder kickbacks to football officials in a Fifa corruption scandal, The Ferret can reveal.
The scandal involved marketing rights for the Copa America – the South American football championship.
The US Department of Justice said that Bank Hapoalim admitted to conspiring with US taxpayers to hide more than $7.6 billion from the tax authorities in more than 5,500 secret Swiss and Israeli bank accounts.
Bank Hapoalim has pleaded guilty to criminal conduct and agreed to pay $875 million to the US authorities in a deferred prosecution agreement. LPF said it was “disappointed” at the development and would “engage” with the bank.
Critics of Bank Hapoliam are now calling on Lothian Pension Fund calling on it to stop investing in the company.
LPF has 967,246 shares in Bank Hapoalim which were worth £6,194,29, according to its last financial statement. Both Tayside Pension Fund and Falkirk Pension Fund previously had shares in Bank Hapoalim but sold them.
The Fifa bribery case and Copa America dates back to 2015. Fourteen people were indicted in connection with an investigation by the FBI and the US Internal Revenue Service (IRS) into wire fraud, racketeering, and money laundering by Fifa, football’s international governing body, and other sports industry officials.
The Copa America is one of the most watched sporting events in the world. In 2011, it was estimated that over five billion people watched the tournament.
Since 1986 all commercial rights to the football tournament have been largely controlled by a firm called Traffic Sports.
In 2015 the US Department of Justice accused Traffic Sports of securing its exclusive rights to the Copa America by bribing officials at Conmebol – the South American Football Confederation – for the past 30 years.
It was alleged that executives of Traffic and associated firms paid bribes to two Conmebol presidents, and up to nine other presidents of national football associations, including the then-presidents of the Brazilian and Argentine associations.
The owner and founder of Traffic Sports, Jose Hawilla, admitted his part in extortion, fraud, bribery and money laundering and agreed to forfeit $151 million of illegal earnings.
The US Department of Justice has now announced that Bank Hapoalim BM and its Swiss subsidiary, Bank Hapoalim (Switzerland) Ltd, have agreed to pay nearly $875 million for their roles in the scandal.
They become the first financial institutions implicated in the Fifa scandal to reach a resolution with US prosecutors.
The scheme took place through the banks’ Miami branch from 2010-15, with many of the payments tied to marketing rights for the Copa America.
The US Department of Justice said that from around 2002 until at least 2014, Bank Hapoalim conspired with employees, US customers and others, to defraud the US with respect to taxes, file false federal tax returns and commit tax evasion.
Israel’s largest bank, Bank Hapoalim, and its Swiss subsidiary have admitted not only failing to prevent but actively assisting US customers to set up secret accounts, to shelter assets and income, and to evade taxes. Geoffrey S Berman, US Attorney
US Attorney Geoffrey S Berman of the Southern District of New York, said: “Israel’s largest bank, Bank Hapoalim, and its Swiss subsidiary have admitted not only failing to prevent but actively assisting US customers to set up secret accounts, to shelter assets and income, and to evade taxes.”
Don Fort, IRS criminal investigation chief, said that with its guilty plea, Bank Hapoalim was “taking responsibility for their role in deliberately breaking the law and undermining the integrity of this nation’s tax system”.
He added: “Offshore tax evasion is a top priority for IRS criminal investigation and we are wholeheartedly committed to bringing offenders to justice. Today’s resolution serves as proof that financial institutions engaging in tax fraud face dire criminal and financial consequences for their behaviour.”
Bank Hapoalim was blacklisted by the UN in 2017 for its role in illegal Israeli settlements in the West Bank and East Jerusalem. The UN named firms then for acting in violation of “internal law and UN decisions”.
Critics of these companies argue that pension funds should exclude “unethical” investments from their portfolios and abide by ethical principles. The funds point out, however, that they are legally bound to secure the best returns for investors.
In 2018 Falkirk Pension Fund sold its shares in the bank, as reported by The Ferret.
The Scottish Palestine Solidarity Campaign (SPSC) has written to Lothian Pension Fund calling on it to disinvest from the bank. It accused the fund of investing in a company that had been “involved in corruption”.
SPSC’s Ian MacDonald said: “These revelations follow the publication in February 2020 of the UN Human Rights Office list which names and shames 112 companies, of which Bank Hapoalim is one, that are complicit in Israel’s violations of international law and the human rights abuses that inevitably result from these in the Occupied Palestinian Territories.
“LPF publicly states a commitment to ‘responsible investment’ and that ‘engagement’ with companies on environmental, social and governance matters is its main approach to achieving this. It is a commitment that is clearly not realised in relation to companies such as Bank Hapoalim.
“A number of the 11 funds in Scotland had investments in Bank Hapoalim but both Falkirk and Tayside have now sold off all shares, leaving LPF as the only local authority fund in Scotland continuing to invest in the company.”
The SPSC also pointed out that Bank Hapoalim’s share price had fallen recently.
Simon Watson of Unison (Scotland), acknowledged that pension funds are restricted by the law and that they must make good returns on investments to pay members’ pension. But he also called on LPF to divest from Bank Hapoalim, arguing that firms found guilty of corrupt practices are not just unethical, but have a financial risk.
“Pension funds should be reviewing any investments linked to firms facing regulatory action in other parts of the world because unethical behaviour can also hit Scottish workers in the pocket,” he said.
“Local government pension funds should take notice of the views of their members, and must take into account the risks involved in any investments. This includes risks of reputational damage and financial loss when investing in high risk areas,” Watson added.
Unison has a clear policy on Palestine, he argued, explaining this was designed to support ethical investment and for “examining the investments of their members’ pension funds with a view to calling for disinvestment from companies…involved in the occupation.”
Watson continued: “A number of Scottish local government pension funds, including Tayside and Falkirk, have disinvested from Bank Hapoalim, which invests in the Palestinian occupied territories. Unison would urge other funds to review similar investments as well.”
Scottish Green MSP, John Finnie, said: “No one wants to see their money used to prop up corruption, fraud and illegal occupations. If those that run Lothian Pension Fund cannot recognise that and urgently switch its investments to ethical alternatives, then quite frankly it needs a change of leadership.
“We saw recently how Strathclyde Pension Fund tried to claim divestment didn’t work, but institutions around the world are recognising the need for change, and as more and more people become aware of where their pensions funds are invested this kind of morally bankrupt practice cannot continue.”
This isn't the first time that the Lothian Pension Fund has been linked to investments in companies that are profiting from oppression and conflict, but it should be the last. Andrew Smith, Campaign Against Arms Trade
Andrew Smith of Campaign Against Arms Trade said: “Local authorities are public bodies that spend public money, they should be setting the best possible example and promoting the best practices – not just in the services they provide, but also in how they invest public money.
“This isn’t the first time that the Lothian Pension Fund has been linked to investments in companies that are profiting from oppression and conflict, but it should be the last. It’s long past time time for it to do the right thing. If it wants to set an example, then its long past time for the local authority to sell these shares and adopt an ethical investment policy.
Lothian Pension Fund said: “We’re naturally disappointed with these developments and, as shareholders, and in line with our responsible investment and stewardship obligations, we are starting the process to engage with the management team at Bank Hapoalim to ensure that any and all deficiencies in systems and controls, oversight and culture are identified and put right and that such events will not be repeated.”
Bank Hapoalim did not reply to our request for a comment.
The company’s Code of Ethics states: “Our foremost consideration in any decision or business action should be obeying the law. Banking services are subject to extensive regulation, in all areas of decision making that pertain to our activity.
“We must therefore be familiar with all of the laws and standards related to our work and to the fulfilment of our roles at the bank. The bank takes the necessary measures against employees found to have acted in violation of the law, procedures, or the guidelines in the code of ethics.”
This story was published in tandem with the Sunday National.