Recently, indictments were handed down against Russian-born Israeli businessman Arkady Gaydamak and a number of senior Bank Hapoalim employees. Poalim Trust Services helped Gaydamak purchase a Dutch company, Thermphos, through front man Nachum Galmor. Authorities believe the purchase violated money-laundering laws. All of the accused parties deny wrongdoing.
No one knows the source or true extent of Gaydamak's fortune, which is often estimated in the billions of dollars, but the French authorities, and possibly others, suspect that he made it selling arms to Angola in violation of an international embargo. Thus Gaydamak has a good reason to seek to hide his ownership of assets, since foreign governments may seek to block them.
The context of the money-laundering laws is as follows: Hiding the source of money can be a legitimate business tactic. It may be used for competitive reasons (to hide a firm's entry into a new market from actual or potential competitors), to sidestep a seller's reluctance to deal with a particular party, etc.
However, this tactic is also an essential tool for organized crime and terror organizations which are required to hide the source of their income. In recent decades nations around the world have reached the conclusion that the benefit from deterring these groups outweighs the cost of deterring legitimate subterfuges, and very strict money-laundering laws have become the norm.
We can't deal here with the legal questions, which are beyond the scope of this column, but the incident raises two business ethics questions for the bank and its employees: Even assuming no conviction can be obtained for the deal, was it too daring in testing the limits of the law? Contempt for the law can be considered an ethical breach even if perpetrators manage to stay beyond the reach of the law.
Are subterfuges of this nature unethical irrespective of their legal status?
In order to address these questions, let us note that the parties are accused of three distinct types or levels of wrongdoing. The accusations are: The bank aided Gaydamak in hiding his identity. Since there are legitimate reasons for this, there is no inherent ethical breach involved. Of course if there are laws they need to be obeyed, particularly laws with an obvious public benefit like deterring crime and terror. But the act in itself should be considered moral as far as the law allows. As far as contempt for the law is concerned, I think it depends on the kind of law. Testing the limits of the law is easier to justify when it comes to tax avoidance that when it comes to laws meant to protect public safety, so there is a limit to how daring a subterfuge we can countenance.
The bank helped Gaydamak hide money from inappropriate activities. This is the essence of money laundering. This is a reproachable act without regard to the law. Naturally there are different levels of "inappropriate," and each financial institution has both the right and the responsibility to define what kind of activities it will not cooperate with. However, if Hapoalim had a well-founded suspicion that Gaydamak was hiding earnings from gun-running, they should have avoided actively helping him. This doesn't mean that banks should avoid providing ordinary banking services to shady characters; enforcing the law is the job of the police and the prosecution, not of private parties like banks. But there is a big difference between agreeing to provide services and between active and even daring efforts to aid wrongdoers.
Bank employees forged documents to help Gaydamak in his subterfuge. I can't see how this is ethically justifiable.
In my opinion, the State of Israel and Israeli financial institutions need an extra degree of sensitivity on these issues. Many Jews bear resentment towards the "gnomes of Zurich," a figurative expression for secretive and amoral banking practices. The feeling is that this attitude was of substantive help to the Germans in their war against the Allies and the war against the Jews. As a result, I think our institutions need extra care not to adopt a similar amoral attitude towards their clients.
As the facts of the case come to light in the coming months, we will be able to judge if indeed Bank Hapoalim and its employees adequately fulfilled their legal and ethical responsibilities.