Deutsche Bank’s Israel CEO Detained Over Alleged Tax Fraudby and
Laptops and mobile phones seized after search of bank offices
Bank says it’s cooperating with tax authorities on the enquiry
Boaz Schwartz, Deutsche Bank AG’s chief executive officer in Israel, was detained over alleged value-added-tax violations involving the company’s clients, the latest setback in the German firm’s attempts to end years of legal issues and misconduct.
Schwartz, suspected of misreporting 550 million shekels ($146 million) of transactions, was detained Tuesday, a day after tax authorities raided the bank’s local offices, seizing executives’ laptops and mobile phones, according to a statement from the Israel Tax Authority. He was freed under condition by Judge Karen Miller of the Jerusalem Magistrate’s Court.
The transactions, which began in 2011, were reported as if conducted by foreign residents, avoiding the 17 percent VAT that Israelis must pay, the tax authority said. Deutsche Bank said it’s cooperating with the investigation and that it acts in accordance with the law and strict legal advice, both in Israel and abroad.
The arrest is the latest scandal to beset the lender struggling to settle lawsuits and rebuild confidence after misconduct costs helped tip Frankfurt-based Deutsche Bank into two years of losses. Legal cases that date back many years cost the company “reputation and trust” in addition to about 5 billion euros ($5.4 billion) since John Cryan took over as chief executive officer in July 2015, the CEO said in an advertisement in German newspapers this weekend, blaming the “misconduct of a few” employees for the transgressions.
Deutsche Bank had 9 million euros of revenue in Israel in 2015, which produced a pretax profit of 5 million euros, according to the lender’s annual report. The firm employed 11 workers in the country at the end of 2015, the report shows.
Schwartz joined Deutsche Bank in 1997 to establish the corporate finance practice in Israel, according to a biography provided by the bank. He holds an MBA from Wharton and PhD in Finance from the Booth School of Business at Chicago University, according to his LinkedIn profile.
Tax evasion allegations have beset Israel’s largest banks in recent years, forcing lenders including Bank Hapoalim Ltd. and rival Bank Leumi Le-Israel Ltd. to pay millions of dollars in fines to authorities after accusations they helped U.S. clients evade taxes.
Israel has gotten much tougher on tax evasion in recent years, according to Guy Flanter, a former state prosecutor who now specializes in white-collar defense. Authorities will need to go through the seized computers and phones to determine the evidence, and it could be months before any indictment is handed down, if at all, he said in an interview.
Ofer Elboim, a senior partner at Shekel & Co. Law Offices in Tel Aviv, said services provided in Israel to a foreign resident or company are free of VAT, and a firm can even seek reimbursement for related costs on which it paid the tax.
Those are the type of transactions in question in the Deutsche case, said Elboim. However, he said, a company must pay VAT if an Israeli citizen or company benefited from the transaction, even if the primary client is foreign. Elboim isn’t involved in the case.
“It’s very complicated given the legal and financial matters to consider,” Elboim said. “Framing the Deutsche case as criminal instead of civil is quite an aggressive stance taken by the tax authority. Most of the time, these things are resolved by paying back-taxes.”