Israel

CENTRAL AUTHORITY FOR REPORTING

Israeli Money Laundering Prohibition Authority (IMPA).

ARE LAWYERS COVERED BY ANTI- MONEY LAUNDERING LEGISLATION?

Under certain conditions.

Law 5760 of 2000 does apply directly to lawyers.

LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES

Anti Money Laundering Law, 5760, 2000 (AML) prohibits the laundering of monies sourced from offences related to, among others: drugs, arms, prostitution, gambling, bribery, murder, auto theft, forgery, and violations of intellectual property rights such as patents, copyright, etc. Section 3(b) states that the holding, sale, receipt, transfer, brokerage, etc of property or the giving of false information with the intent that a reporting by financial services providers will not take place, or with the intent to avoid the obligation to report when entering or leaving Israel, or with the intent to cause an incorrect report by financial services providers, or with the intent to cause an incorrect report regarding entry into or exit from Israel is an offence. The Israeli Supreme Court¹has held that the offence in Section 3(b) concerns any property and does not differentiate between legitimate monies, not originating from or used for the offences specified in the AML, and illegitimate monies, originating or used for such offences.

Anti Money Laundering Order (Identification, Reporting and Record Keeping Obligations of Bank Corporations), 5761-2001, enacted by virtue of Section 7 of Law 5760-2000 details obligations imposed on banks regarding identification, reporting and record keeping in relation to the bank’s clients and their accounts.

The above Order decrees that in opening a trust account for a client, the lawyer must disclose the identity of the beneficiary of the account.
This disclosure, however, is not required if the lawyer opens a special “lawyers expense deposit” account, provided the account’s balance by close of every business day does not exceed NIS 300,000, and that no single transaction in the account exceeds NIS 100,000. Any one lawyer may open only one account of this kind.

Prohibitions and Obligations under the Prohibition on Money

Laundering Law, 5760-2000

Prohibition of Money-Laundering: In August 2000 a new Prohibition on Money Laundering Law (“PML”) (unless specified otherwise, all references to “sections” shall be to sections of the PML) was passed by the Knesset, prohibiting laundering of monies sourced from offences related to, among others: drugs, arms, prostitution, gambling, bribery, murder, auto theft, forgery, and violations of intellectual property rights such as patents, copyright, etc.

1.1. Transactions with Property Originating From an Offence

Under Section 3(a), the holding, sale, receipt, transfer, brokerage, etc. of property originating from, or used for, such offences, with the intent to conceal the source, owners, location, movements, or acts relating to such property, or with the knowledge that such property is related to such offences, is an offence punishable by fines of up to NIS 4,040,000 and imprisonment of up to 10 years. The Law allows the forfeiture of property of a person convicted in a money laundering offence (Section 21).

1.2. Transactions or False Information In Respect of Any Property

Under Section 3(b), the holding, sale, receipt, transfer, brokerage, etc. of property, or the giving of false information - with the intent that a reporting under Section 7 (i.e. reporting by financial services providers) will not take place, or with the intent to avoid the obligation to report under Section 9, when entering into or leaving Israel, or with the intent to cause an incorrect report by financial services providers, or with the intent to cause an incorrect report regarding entry into or exit from Israel - is an offence to be punished equally with the offence under Section 3(a).

Unlike Section 3(a), Section 3(b) does not refer to property “originating from, or used for, the offenses specified in the PML”, but only to “property”. Hence, the Israeli Supreme Court², held that the offense in Section 3(b) concerns any property. As a consequence, the offense in Section 3(b) does not differentiate between legitimate monies, not originating, or used for, the offenses specified in the PML, and illegitimate monies, originating or used for such offences.

Moreover, the District Court³ held that the for the “intent” requirement to be met, it will suffice to prove that a person knew of the bank’s duty to report a certain transaction (e.g. transaction which exceeds NIS 200,000), and that he has carried out one of the acts listed above (e.g. five withdrawals from his account in the amount of NIS 199,000 each) in order for the bank’s reporting not to take place. The Court ignored the fact that the defendant did not intend to thwart the reporting to the Money Laundering Authority, but to the tax authorities.

1.3. Holding, Selling, Receiving, etc. Illegitimate Property

1.3.1. Under Section 4, the holding, sale, receipt, transfer, brokerage, etc. of property⁴ by a person who knows, or suspects, that the property was originated from, or used for, offences specified in the PML, is an offence punishable by fines of up to NIS 2,020,000 and imprisonment of up to 7 years. The Law allows the forfeiture of property of a person convicted in the above offence (Section 21).

1.3.2. As to lawyers, Section 4 creates a serious dilemma, since it may also relate to the holding of monies by a lawyer in his clients’ trust account. Any lawyer who suspects that his client’s monies, which he holds as a trustee, are monies originating from, or used for, offences specified in the PML, theoretically may be charged with a criminal offence. However, it must be noted that the PML provides that a lawyer shall act in accordance with Section 90 of the Bar Association Law, 1961, dealing with attorney-client privilege, notwithstanding the provisions of the PML⁵. Therefore, if the lawyer invokes the privilege, he may avoid criminal liability in connection with the holding of monies in his trust account.

2. Reporting obligations applicable to the general public

Section 9 stipulates reporting obligations, applicable to the general public. Persons entering into, and leaving Israel, are required to report sums held by them, which are in the amount of NIS 80,000 or more, and new immigrants are required to report sums imported by them in the amount of NIS 1 million or more.

A person, who is in breach of the above obligations, may be sentenced to an up to 6-month imprisonment or may be fined at the amount of up to NIS 202,000 or up to ten times the sum not reported, whichever the higher (Section 10). A Sanctions committee, appointed by the Governor of the Bank of Israel or by the authorized Minister under the law, is entitled to fine such person at an amount of up to NIS 101,000 or up to five times the sum not reported, whichever the higher (Section 15).

3. Duties of financial services providers

3.1. In 2001 and 2002 Anti-Money Laundering Orders were enacted by virtue of Section 7, imposing duties of identification, reports and registration on financial service providers such as: banking corporations, provident funds, portfolio managers, insurers and insurance agents, exchange members and the postal bank.

Financial services providers, who are in breach of the duties and obligations specified in the orders, may be fined by the above committee (see Section 2 above) at the amount of up to NIS 2,020,000 (Section 14(a)).

3.2. Under the Prohibition on Money Laundering Order (Identification, Reporting and Record Keeping Obligations of Bank Corporations), 5761-2001 (“the Order”) detailed obligations were imposed on banks regarding identification, reporting and record keeping in relation to the banks’ clients and their accounts. A judgment handed down in September 2005 by the District Court⁶, established that the duties of the bank corporations concerning reporting to the Money Laundering Authority, are duties dependant on the banks’ employees. Hence, if a bank employee does not report a suspicion that he has regarding money laundering, to the person responsible on behalf of the bank for the performance of the reporting duty, the bank’s employee may be criminally liable under Section 3(b) of the PML.

As to lawyers, the above Order decrees that in opening a trust account for a client, the lawyer must disclose the identity of the beneficiary of the account.

This disclosure, however, is not required if the lawyer opens a special “lawyers expense deposit” account, provided the account’s balance by close of every business day does not exceed NIS 300,000, and that no single transaction in the account exceeds NIS 100,000. Any one lawyer may open only one account of this kind.

4. Implementation to date regarding banks

On 4 April 2004 the Banking Corporations’ Sanctions Committee regarding the Prohibition on Money Laundering⁷ announced its decision to impose a fine on five Israeli banks, the highest of them in the amount of NIS 1,000,000, and the lowest, in the amount of NIS 100,000. Six more banks were sent written warnings.

"In the beginning of 2007 three Israeli intelligence bodies joined forces to create a crack anti-money laundering unit. Agents from the Israel Money Laundering Prohibition Authority, the police and the Tax Authority will combine skills to tackle money laundering and terrorist financing."⁸

IN ADDITION TO THESE LAWS, IS THERE ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS CURRENTLY IN PLACE?

No information available

UNDER WHAT CIRCUMSTANCES IS A LAWYER UNDER THE OBLIGATION TO REPORT?

Any lawyer who suspects that his client’s monies, which he holds as a trustee, are monies originating from, or used for offences specified in the AML, should report his suspicions.

LAWYER RESPONSIBILITY/LIABILITY

Section 4 of the AML created a dilemma for lawyers. If they do not report their suspicions, they may be accused of a criminal offence. However, if they do report their suspicions, they may be exempt from liability under section 4, but will then be liable to their client under Section 90 of the Israel Bar Association Law, 5721-1961, for breach of attorney-client privilege.

CLIENTS IDENTIFICATION AND VERIFICATION

No information available

LAWYERS PROSECUTED FOR MONEY LAUNDERING OFFENCES

No information available

Information provided by:

Hilla Shie, ROSENBERG, KEREN-
POLAK & CO., Advocates,
Haifa, Israel

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Sources

1 B.S.P 1542/04 State of Israel v Tova Adar and Zion Adar (judgment dated February 18, 2004).
2 (Civil Appeal) I.E. 9796/03 Haviv Shem Tov v. State of Israel (judgment dated February 21, 2005) and B.S.P.1542/04 State of Israel v. Tova Adar and Zion Adar (judgment dated February 18, 2004).
3 (Criminal Case) T.P. 132/03 State of Israel v. Shlomo Ben Moshe Gueta (judgment dated October 9, 2005).
4 Under Section 4, “property” is one of the following: certain assets, such as securities, real estate, expensive stones, etc., whose value is at the amount, or exceeds the amount, of NIS 120,000, and monies, which exceed the amount of NIS 400,000.
5 Section 24(c)
6(Criminal Case) T.P. 344/04 State of Israel v. Yisrael Schor )(judgment dated September 15, 2005).
7 The Committee is headed by the Supervisor of Banks, and its other members are the IMPA’s (Israel Money Laundering Prohibition Authority) Legal Counsel and the Head of Prohibition on Money Laundering, Banking Supervision Department.
8 Helen O´Gorman, “Israel creates joint intelligence center”, 14 March 2007, www.complinet.com.