�Katherine Bur­ton and Alan Katz

Bloomberg Businessweek (North America) - - Markets/ Finance -

with U.S. sanc­tions rules. Five went through. The mal­ware dis­abled a prin­ter in Bangladesh that would have spit out a list of com­pleted trans­fers, slow­ing de­tec­tion.

The money moved to the Philip­pines ac­counts, where it was then cashed out or passed on to sev­eral local casi­nos, where the trail goes cold. The Sri Lankan trans­fer was even­tu­ally negated be­cause of a typo. Me­ga­banks have taken heed. Jpmor­gan Chase has cut the num­ber 27.5 of its em­ploy­ees with ac­cess to Swift, and the Bank of Eng­land has in­structed in­sti­tu­tions it over­sees to beef up se­cu­rity. “If you don’t take this threat se­ri­ously, it will hap­pen to you,” says Avi­vah Li­tan, a cy­ber­se­cu­rity an­a­lyst at Gart­ner.

Banks in the de­vel­op­ing world need to do even more. Many have flim­sier fire­walls than ma­jor banks and don’t fol­low the high­est se­cu­rity mea­sures rec­om­mended by Swift, say ex­perts. That in­cludes us­ing a sec­ond piece of ex­ter­nal ver­i­fi­ca­tion, such as an eye or fin­ger­print scan, to sign in to a bank’s com­put­ers. Swift also rec­om­mends that mul­ti­ple peo­ple be in­volved in the mes­sag­ing process, such as one per­son to cre­ate the mes­sage and an­other to ap­prove and au­then­ti­cate it.

Swift is con­sid­er­ing mak­ing such se­cu­rity mea­sures manda­tory. It may also in­tro­duce pat­tern recog­ni­tion soft­ware to iden­tify sus­pi­cious be­hav­ior, sim­i­lar to what credit card com­pa­nies use to de­tect fraud. Yet changes will take time, and the poorer banks us­ing Swift will prob­a­bly al­ways lag on im­prove­ments needed to keep up with scam­mers.

In the mean­time, the hacked banks have tried to lay blame on big­ger, richer in­sti­tu­tions. The Bangladesh­i bank said the New York Fed should have caught the fraud­u­lent trans­fers. The Ecuadorean bank, Banco del Aus­tro, sued Wells Fargo, where it has an ac­count, say­ing the U.S. bank is partly to blame for the theft. The New York Fed and Wells Fargo both say they fol­lowed in­struc­tions au­then­ti­cated by Swift; Wells Fargo re­funded al­most $1 million. A con­gres­sional com­mit­tee has opened an in­quiry into the Bangladesh in­ci­dent and the New York Fed’s re­sponse to the at­tack.

The breaches will likely spark in­ter­est in find­ing other ways to make in­ter­na­tional pay­ments. “But it’s go­ing to take years,” Mccune says. And when even the safest tech­nol­ogy is used to link up vast numbers of fal­li­ble hu­mans around the globe, hack­ers are likely to find an open­ing. “What­ever se­cu­rity bar­ri­ers we have, they can even­tu­ally be pen­e­trated,” says Hank Uberoi, head of Earth­port, a Lon­don­based global pay­ment firm that’s build­ing an al­ter­na­tive net­work. “And if you can get in­side, you can cre­ate havoc.”

million Peak daily num­ber of Swift mes­sages sent by fi­nan­cial in­sti­tu­tions The bot­tom line Many banks around the world have vul­ner­a­ble se­cu­rity. That could erode faith in the sys­tem of cross-border pay­ments.

Yet these moves have had lit­tle dis­cernible im­pact on over­all for­eign in­vest­ment: Bloomberg cal­cu­la­tions show the per­cent­age of non-is­raeli share­hold­ers in nine pub­licly traded Is­raeli com­pa­nies tar­geted by ac­tivists for ties to oc­cu­pa­tion or Jewish set­tle­ments in those ter­ri­to­ries has risen steadily over the past three years.

For­eign in­vest­ment in Is­raeli as­sets more broadly has also grown, hit­ting a record $285 bil­lion, nearly triple the to­tal in 2005, when the boy­cott, di­vest­ment, and sanc­tions move­ment, or BDS, was started by a group of Pales­tini­ans. Boy­cotters and di­vesters in­clude those who reject the Jewish state’s ex­is­tence, as well as those who specif­i­cally want to pres­sure it to change poli­cies to­ward Pales­tini­ans in the West Bank and Gaza Strip. Some tar­get Is­rael gen­er­ally, while oth­ers fo­cus on spe­cific com­pa­nies and groups they see as linked to oc­cu­pa­tion. The Methodist fund, for ex­am­ple, pointed out that it still in­vested in sev­eral Is­raeli com­pa­nies.

Yoel Naveh, chief econ­o­mist at Is­rael’s Min­istry of Fi­nance, ac­knowl­edges that some in­sti­tu­tions are pulling their in­vest­ments. But they’re more than off­set by oth­ers that are fun­nel­ing money in. “We don’t have a prob­lem with for­eign in­vest­ment in Is­rael— on the con­trary,” he says. Last year, non-is­raeli investors poured about $3.8 bil­lion into Is­raeli star­tups, the high­est level in a decade, ac­cord­ing to IVC Re­search Cen­ter. And for­eign­ers spent an ad­di­tional $5.9 bil­lion ac­quir­ing Is­raeli com­pa­nies.

For some money man­agers, Is­raeli as­sets are at­trac­tive in a world of slow eco­nomic growth. The na­tion’s econ­omy is ex­pected to ex­pand 2.8 per­cent this year, com­pared with 1.8 per­cent for the U. S. and the Euro­pean Union. Still, calls to 30 fund man­agers who own shares in the nine tar­geted com­pa­nies yielded two will­ing to speak, and they in­sisted on not be­ing named. One says that while some investors in Europe may be con­sid­er­ing di­vest­ment, oth­ers in China and else­where sim­ply want to own well-man­aged com­pa­nies with high div­i­dend yields and healthy bal­ance sheets. Both man­agers ar­gue it’s not clear what con­sti­tutes busi­ness com­plic­ity in Is­rael’s oc­cu­pa­tion.

Among the in­sti­tu­tional investors that have said they were avoid­ing some Is­raeli com­pa­nies is Nor­way’s $862 bil­lion sov­er­eign wealth fund, which ex­cluded Tel Aviv-based Africa Is­rael In­vest­ments from its port­fo­lio in 2014. In the same year, Pen­sioen­fonds Zorg & Welz­ijn, the sec­ond-largest Dutch pen­sion fund, black­listed sev­eral Is­raeli banks. New Zealand’s Gov­ern­ment Su­per­an­nu­a­tion Fund also re­moved Africa Is­rael In­vest­ments and con­struc­tion com­pany Shikun & Binui from its in­vest­ment op­tions.

Ac­tivists say they’re not wor­ried that the in­vest­ment im­pact has been small so far. A few Euro­pean com­pa­nies have with­drawn from the Is­raeli mar­ket fol­low­ing pres­sure cam­paigns, and So­das­tream In­ter­na­tional re­lo­cated op­er­a­tions out of the West Bank, al­though it cited com­mer­cial rea­sons. Mean­while, the BDS move­ment has scored vic­to­ries on the cul­tural front. Singer Lau­ryn Hill last year can­celed a Tel Aviv con­cert and ap­peared in a video with Pales­tinian ac­tivists. Some stu­dent groups have pushed to ban Is­raeli hum­mus from cafe­te­rias.

“BDS isn’t just work­ing,” said Omar Bargh­outi, a co-founder of the cam­paign, in an e-mail. “It’s work­ing far bet­ter and spread­ing into the main­stream much faster than we’d an­tic­i­pated.” Last month, Is­raeli au­thor­i­ties banned Bargh­outi, who lives in Is­rael, from trav­el­ing abroad. He ar­gues that the move­ment’s strength is in its “in­di­rect, pal­pa­ble psy­cho­log­i­cal im­pact on the main­stream Is­raeli psy­che about the coun­try be­com­ing more ‘iso­lated’ from the world.”

What most worries Is­rael’s de­fend­ers is that for­eign­ers will qui­etly choose to avoid en­gag­ing with the coun­try sim­ply to avoid con­tro­versy. Shlomo Maoz, chief econ­o­mist at S.M. Tel Aviv In­vest­ments, says the move­ment may have an eco­nomic im­pact fur­ther down the road. “BDS now is not a big threat,” he says. “But when stu­dents go to col­lege in Amer­ica, the U.K., and see anti-is­rael BDS protests, and then go to be fund man­agers in five, seven years—then it could be a prob­lem.” �Sang­won Yoon

Is­raeli as­sets have been at­trac­tive to investors, but a grow­ing move­ment has some in­sti­tu­tions pulling away.

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