AML in Israel

Israel was among the 15 nations initially classified as “non-cooperative” in the global fight against money laundering when the OECD Financial Action Task Force (FATF) established its blacklist in 2000. However, since then, Israel has taken significant steps to combat financial crimes by enacting stringent regulations and strengthening the enforcement of anti-money laundering legislation. In December 2018, Israel became a full member of the FATF, reflecting its commitment to combating money laundering effectively. As a result of these efforts, the Israeli government now seizes over US$25 million annually.

The Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) serves as Israel’s Financial Intelligence Unit. Established in 2002 in accordance with the Prohibition of Money Laundering Law of 2000, IMPA spearheads the fight against money laundering and terrorist financing within Israel. Its primary objective is to safeguard the security and integrity of the country’s financial system.

IMPA fulfills its responsibilities by monitoring and analyzing the financial intelligence database, which incorporates information from reporting financial institutions, government agencies, and data shared by peer Financial Intelligence Units (FIUs) in other countries. IMPA extracts and evaluates data from this database to identify suspicious entities engaged in money laundering or terror financing and to identify emerging trends, methodologies, and typologies.

In combating money laundering and terrorist financing, IMPA collaborates closely with various national law enforcement and security authorities, including the Israel Police, the Israeli Tax Authority, the State Attorney’s Office, the Israel Security Agency, and banking sector regulators. Recognizing the transnational nature of these illicit activities, IMPA also engages in collaboration with international FIUs worldwide.

IMPA operates as an independent intelligence authority following the concept advocated by the FATF and the Egmont Group of FIUs. It is an administrative organization without investigative powers, acting as a bridge between the banking industry and law enforcement agencies conducting investigations. IMPA only shares information with law enforcement agencies when it is deemed relevant to money laundering or terrorist funding investigations, ensuring the protection of privacy rights while preventing the abuse of financial institutions and other stakeholders for money laundering purposes.

The Money Laundering Prohibition Act, 5760-2000

In the year 2000, the Prohibition of Money Laundering Act was enacted, aiming to equip authorities with more effective tools to combat serious and organized crime while aligning with the global standards established by the FATF.

Requirements for Identification and Customer Due Diligence (CDD) under the Law

Financial institutions are obligated to establish policies and processes for conducting customer due diligence (CDD) and implementing the CDD procedures to assess the level of risk associated with their clients. The CDD process involves analyzing the nature of the customer’s business and engaging in ongoing monitoring of their financial transactions to identify any suspicious activity. For instance, a bank is prohibited from opening an account for a customer who acts on behalf of an undisclosed or unnamed third party if the customer fails to provide information about this third party. Furthermore, financial institutions are required to continuously perform due diligence on high-risk client accounts using enhanced CDD measures. This includes assessing the customer’s financial background, understanding the source of funds, and scrutinizing the types of transactions conducted.

Prohibition of Terrorist Financing Act, 5765-2005

The Prohibition of Terrorist Financing Law was established in 2005 to acknowledge that the State of Israel has been actively engaged in the fight against terrorism since its inception. This law was enacted to ensure that Israel remains aligned with other countries combating international terrorism and to ensure that Israeli legislation adheres to the international standards set by the FATF.

The law encompasses offenses related to terrorist financing and introduces administrative and judicial measures to enhance the capacity to combat terrorism financing in all its forms. It supplements the offenses specified in the Defense Regulations (1945) and the Prevention of Terrorism Ordinance (5708-1948).

Under the authority granted by the Prevention of Money Laundering Law, 5760-2000, and the Fight Against Terrorism Law, 5776-2017, the Minister of the Treasury has issued the Anti-Money Laundering Order (AMLO) after consultation with the Ministries of Justice and Public Security.

According to the AMLO, a “financial services provider” is defined as an individual or entity that is required to obtain a license to engage in financial asset-related services, as specified in the Supervision of Regulated Financial Services Law. However, this definition excludes those who solely provide ATM services. The term “financial asset” also includes “virtual currency” for licensing purposes, as outlined in sections 11 and 12 of the Financial Services Supervision (Regulated Financial Services) Law, 5776-2016.

The legislation stipulates that any act, excluding credit granting, performed within a profession that involves the replacement, management, or security of financial assets necessitates obtaining a license. The Minister of the Treasury is authorized by the law to establish a Supervising Authority, in accordance with section 29 of the Prevention of Money Laundering Law, to manage, process, and safeguard security information derived from reports received under the Prevention of Money Laundering Law and the Fight Against Terrorism Law.

The AMLO further defines “virtual currency” as a digital unit of value that can be digitally traded, transferred, and utilized for payment or investment purposes. It imposes requirements on financial services providers dealing with virtual currency, including the obligation to identify, register, and report regular and occasional activities to the Supervising Authority. These activities encompass receiving services amounting to up to 5,000 Israeli shekels (approximately US$1,615) from the same service provider within a six-month period, or up to 50,000 Israeli shekels for certain conditions that require service providers to ensure the receipt of original signatures from recipients acting on behalf of others, as well as conducting in-person identification of first-time service recipients under specified circumstances.