Israel-British Bank

Israel-British Bank was controlled by businessman Nahum Ze'ev Williams, and his son-in-law, Yehoshua Ben-Zion, served as its managing director for many years.[1] The bank was a subsidiary of a British bank, a structural fact that later complicated its liquidation by necessitating parallel proceedings in Israel and London.[2]

The institution grew to be Israel's fourth-largest bank.[3] At its height, it had tens of thousands of customers and substantial operations that included trading on the stock exchange and international trade in gold and silver.[4] Its activities also included commodity-futures transactions and large purchases of shares in the American mining company Gulf Resources Chemicals.[3] A 1974 archival item catalogued by the National Library of Israel in the Dan Hadani Archive documents the institution under the name "The Eretz Israel - Britain Bank in Tel Aviv."[5]

Bank of Israel oversight concerns regarding the bank dated back to 1968.[3] After the banking supervisor found that companies in the Williams group owed tens of millions of pounds without adequate collateral, agreements were reached to halt further large loans and to eliminate the group's credit entirely by the end of 1974.[3] A 1969 Bank of Israel inspection reportedly uncovered what were described as "extremely serious findings."[3]

In the years that followed, the Williams group undertook large futures-market commodity transactions and attempted to gain control of the American mining company Gulf Resources Chemicals through substantial purchases of its shares on the New York Stock Exchange.[3] To finance these activities, the bank extended large loans to the group in 1972–1973, totaling, by one account, $47 million.[3] In the week before the bank's collapse, Ben-Zion reportedly told the banking supervisor, "We have no difficulties"; two days later, he said, "We have liquidity difficulties," and requested assistance.[3]

The bank collapsed in July 1974 after the Williams group failed to repay loans extended by it.[3] The collapse engaged the prime minister, finance minister, and governor of the Bank of Israel.[4] The Israeli government decided to guarantee depositors' funds, and the Bank of Israel took control of the bank and appointed a liquidator; an investigation into the circumstances of the collapse was also opened.[1] A proposed sale of the failing institution to Bank Hapoalim and Mizrahi Bank reportedly fell through at the last moment.[3]

A central element of the affair involved three deposits totaling $38.5 million that the Israeli bank had placed with the Swiss Popular Bank, also known as Volksbank.[4] The Swiss bank refused to return the funds and filed a monetary claim against the Israeli bank.[4] The deposits were subsequently found to have been pledged against loans made by the Swiss bank to Williams's companies, which ran into difficulties and failed to repay; Ben-Zion disputed that the funds were pledged, but his claim was rejected.[6]

A Tel Aviv District Court convicted Ben-Zion of most of the offenses attributed to him.[7] In a Knesset debate on the collapse, Finance Minister Yehuda Rabinovitz reported that the court's judgment described activities leading to the bank's failure, including speculative operations conducted through corporations outside Israel that were controlled by the bank's managers.[7]

A Supreme Court judgment concerning the bank had been issued in October 1972.[7] Rabinovitz also recounted that Bank of Israel officials met with the Justice Minister in March 1973 to consider action against Ben-Zion, and that an Attorney-General's Office legal opinion in April 1973 concluded that neither the Supervisor of Banks nor the Governor of the Bank of Israel held the authority to dismiss him.[7] According to Ynet's account of the Shamgar Commission's May 1975 conclusions, Ben-Zion's unlawful activity was the primary cause of the bank's collapse, while inadequate Bank of Israel supervision was a contributing factor; the commission found that the Finance Ministry had acted properly.[3]

The liquidation of Israel-British Bank extended over three decades. Creditor claims totaled approximately $250 million, of which $132 million were approved.[2] The largest claim, reported as roughly 90 percent of the claims, belonged to the Bank of Israel, which had guaranteed account holders' and depositors' funds and thereby became their primary creditor.[2]

Liquidator Joseph Milo realized a range of bank assets, including its investment company, Eliaz Winery in Binyamina, the Nahum Tower office building in Bat Yam, land, and industrial holdings.[1] Milo also reached a settlement with the Swiss Popular Bank under which it dropped its claims and returned funds to Israel; one report gives the recovery as 9 million Swiss francs, while another describes it as $9 million.[1][4] Because the bank was a subsidiary of a British institution, liquidation proceedings ran in parallel in London, and the two liquidators initially filed claims against each other before agreeing on rules for realizing and distributing assets.[2] Their final cash-basis accounting was completed in July 2006, clearing the way to conclude the Israeli proceedings.[2] By that point, creditors had received dividends equal to 57 percent in real terms—approximately $75 million.[2]

The bank's collapse generated sharp debate in the Knesset. Finance Minister Rabinovitz stated that the government and the Bank of Israel were not responsible for the London bank and would not bear its losses, and that the Governor of the Bank of Israel had stated he did not regard former Finance Minister Pinhas Sapir as responsible for the collapse.[7]

The Shamgar Commission was tasked with examining the circumstances of the collapse and recommending organizational and legislative measures for bank supervision, with its findings to be brought before the Knesset Finance Committee.[7] A motion to place the matter formally on the Knesset agenda was not adopted, and a proposal to transfer it to a committee did not pass.[7] The State Comptroller's report on the Bank of Israel noted that, in its 1977 accounts, the Bank of Israel's "other accounts" included 168 million Israeli pounds across various accounts, among them sums paid in connection with the collapse.[8] The affair ultimately led to legal changes and increased Bank of Israel supervision of private banks.[4]

The documentary record contains significant variation in the figures associated with the misconduct and collapse. A 2003 Globes account identifies three Swiss deposits totaling $38.5 million, while a related report states that the funds had been found to be pledged.[4][6] A 2004 Globes account reports a conviction for stealing $25 million.[1] A 2006 Globes report describes a $39 million embezzlement.[2] Ynet reports $47 million in loans to the Williams group and characterizes the conviction as being for stealing $47 million.[3] The reports address different matters—including the Swiss deposits, sums characterized as theft or embezzlement, and total loans to the Williams group—so the figures should not be treated as interchangeable.[2][1]

MK Avraham Katz, in the Knesset debate, alleged that the state had paid approximately 250 million Israeli pounds—mostly in foreign currency—to the bank's creditors, and raised questions about oversight and political responsibility; these were parliamentary allegations, not independent accounting findings.[7] Ben-Zion continued to maintain his innocence. In 2003, he announced plans to seek a retrial, arguing that newly obtained documents showed the $38.5 million transferred to Switzerland had not been pledged, although his earlier contention that the funds were unpledged had been rejected.[6] He also argued that realized assets demonstrated that the bank and its subsidiary had been profitable; the Bank of Israel rejected that broader claim.[4]