What is the Prohibition on Money Laundering Law?
The Prohibition on Money Laundering Law was enacted on August 17, 2000 as part of the war against money laundering and for the prevention of actions originating in criminal activity. The Prohibition on Money Laundering Ordinance, which applies to banking corporations, was issued in January 2001 and became effective on February 17, 2002.
What is money laundering and why fight it?
Actions made in assets originating in crime, designed to hide or camouflage the source of such assets, its location and the identity of its owners, to immerse it in legitimate assets and to prepare it for re-use.
Law-enforcement agencies in many countries (USA, Canada, the UK, European countries, Australia, Japan and others) have concluded that blocking the options for criminals to "launder" or "purify" their money is an important tool in the fight against terror organizations, drug crime and organized crime.
In order to be successful, the countries agreed on the need for international standards and legislation to enable co-operation between governments, law enforcement agencies and financial institutions. Israel joined this effort, following measures taken by the banks in accordance with the Bank of Israel's initiative.
The law in Israel - the Prohibition on Money Laundering Law
The law primarily prohibits any actions involving assets originating in criminal activity, designed to hide the source and the identity of owners of such assets. Anyone involved in a money laundering transaction is committing a criminal felony and is subject to punishment set forth in the Law.
The Law includes a list of offences, including:
Offences regarding money laundering
Illegal arms trade
Copyright infringement, etc.
Violations of the Income Tax Act (Ordinance)are not included on this list. However, certain tax violations, pursuant to the VAT Law, 1975, the Customs Act (there is an act and an ordinance) and the Import and Export Act (Ordinance), 1979, are included.
In order to combat money laundering attempts through the financial system, the Law requires providers of financial services - including banks - to obtain and verify identification of anyone seeking to open a bank account or to conduct transactions through the bank, and requires banks to report certain actions to an information repository at the Israel Money Laundering and Terror Financing Prohibition Authority, established for this purpose in the Ministry of Justice.
Money laundering and foreign trade
In accordance with sections 8(a) (6) (7) of the Prohibition on Money Laundering Ordinance (Obligations of Identification, Reporting and Record-Keeping of Banking Corporations for the Prevention of Money Laundering and Financing of Terrorism) - 2001 (hereinafter: “the Ordinance”), the Bank is required to report to Israel Money Laundering and Terror Financing Prohibition Authority. (hereinafter: “the qualified authority”) on the deposit of all checks drawn on a foreign financial institution and the payment of checks presented for collection by a foreign financial institution in an amount equal to at least NIS 1 million, and on the transfer from Israel to overseas or from overseas to Israel through an account of an amount equal to at least NIS 1 million. Such operations with financial institutions in a country or territory, which is defined by the Ordinance as a high risk country, will be reported to the qualified authority for an amount equal to at least NIS 5,000.
According to section 10(2) of the Ordinance, the Bank is exempt from reporting a transfer operation from Israel to overseas or from overseas to Israel if it was made with respect to the import and export of goods to Israel, except for operations with a high risk country or territory, provided that the bank has received documentation on the nature of the transaction, the identity of the counterparty to the transaction and the amount (bill of lading and invoice) or a declaration from the owner/s of the account regarding the nature of the transaction and its amount.
The Bank has an obligation to report to the qualified authority if it has not received the documentation or declaration as required by the date the account is credited or the funds transferred.
Payments and receipts for a transit transaction / goods in transit
Payments and receipts in a transit transaction / goods in transit, documentation or various declarations have no significance, and the authority treats them like any payment/receipt in foreign currency that does not exempt the bank from reporting objectively.
For more information see the Bank of Israel website (this link leads to an external website, for which the bank is not responsible) and the Israel Money Laundering and Terror Financing Prohibition Authority website (this link leads to an external website, for which the bank is not responsible).
The information provided here is for general explanation purposes only and should not be relied upon for determination of legal rights and obligations.
What are the methods of action?
Banks are required to obtain from any person seeking to open a bank account or to change ownership of a bank account (or to conduct any transactions not recorded in any client account) information, which was mostly required even prior to the Law (name, ID, passport, address, other beneficiaries in the account, persons authorized to act in the account).
Clients are also required to certify whether the account is opened for them or for another person, in order to verify the true beneficiary of the account. For accounts opened for corporations, clients are also required to provide the names of controlling shareholders of the corporation.
Banks are required to provide the Israel Money Laundering and Terror Financing Prohibition Authority with two types of reporting:
Reporting by transaction value
Automatic reporting, with no discretion exercised by the bank, of certain transaction types whose value exceeds a specified threshold. These are not transactions which raise concern of being related to money laundering, but in view of accumulated experience in other countries, the legislative body has decided that these should be reviewed by the Israel Money Laundering and Terror Financing Prohibition Authority.
Here are some examples:
Reporting of unusual actions
Banks are required to report to the Authority regarding other client actions which the bank deems to be unusual, in view of information in its possession, that is to say, transactions that deviate from normal action patterns for such accounts.
Here are some examples:
A decision to report an action as "unusual" is not taken lightly and is made by qualified persons at the bank. The Law requires the bank to appoint an officer in charge of compliance with the Law, whose roles include formulating testing and inquiry procedures for making a decision on any required reporting of unusual actions.
Beneficiary Declaration form
The Prohibition on Money Laundering Law requires banks, among other things, to obtain a declaration from all account holders (individuals and corporations) as to whether they manage the account for themselves or for others (beneficiary/beneficiaries*).
In order to comply with the provisions of the Law, the "Beneficiary Declaration" form must be completed and signed in original form. Corporations are also required to declare who their controlling shareholders** are, if any, and to list their names and ID numbers.