Israel

Last updated: 12/01/2016


CENTRAL AUTHORITY FOR REPORTING

The Israel Money Laundering and Terror Financing Prohibition Authority ("IMPA").

IMPA was established in 2002 as a financial intelligence unit (FIU) acting in accordance with the international rules concerned with the combat against money laundering prescribed by the FATF and is overseen in Israel by MONEYVAL.

IMPA is an independent Intelligence Authority. As such, IMPA is an administrative unit that does not have investigative powers.

IMPA performs its mission in coordination with the Israel Police, the Israel Security Agency and the financial sector Regulators, and assists them in fulfilling their missions and enforcing the AML/CTF regime.


OTHER ANTI-MONEY LAUNDERING REGULATOR(S).


ARE LAWYERS COVERED BY ANTI- MONEY LAUNDERING LEGISLATION?

Until very recently, there was no legislation in Israel applicable specifically to lawyers in their capacity as such. Lawyers were subject to the legislation related to Anti Money Laundering as any other individuals.  

The most important legislation related to Anti Money Laundering is the Prohibition on Money Laundering Law, 5760 – 2000 (the: "PML") which set forth various offenses that are applicable to lawyers as to any other individuals.

As of 2nd September 2015 (the: "Commencement Date"), however, 3  legislation documents which set forth duties and obligations related to Anti Money Laundering and Terror Financing and are applicable specifically to lawyers, in their capacity as such, became effective simultaneously. Such legislation brought upon a dramatic change to the previous Anti Money Laundering regime applicable to lawyers in Israel.

The three legislation documents are as follows:

(I)                 Amendment No. 13 to the PML (the: "Amendment")

(II)               Prohibition on Money Laundering Order (Obligations of Identification and Records Keeping by Business Service Providers for Avoidance of Money Laundering and Terror Financing) - 2014(the: "Order"); and

(III)             Amendment to the Israeli Bar Association Rules (Ethics)- 2015 (the: "Ethic Amendment").

The Amendment imposes certain duties and obligations upon lawyers (as well as accountants) which lawyers are bound to comply with, before they provide "Business Service" to a client.

The term "Business Service" includes any of the following services:

(i)                  Purchasing, selling or long period leasing of Real Estate;

(ii)                Purchasing or selling of a business;

(iii)               The management of the client property, including, management of monies, securities and Real Estate and management of client's accounts in Banking Institutions, Stock Markets, Insurance Companies, Provident Fund's management companies and the Postal Bank;

(iv)              Receipt, holding or transferring of monies for the purpose of establishing or management of a corporation;

(v)                The establishment or management of a corporation, business or a trust for another; 

The Order which was issued by the Attorney General pursuant to the Amendment set forth the concrete duties and procedures which a lawyer has to follow in order to comply with the Amendment.

Simultaneously, the Ethic Amendment was enacted and provided a new ethic rule applicable to lawyers. In accordance with this ethic rule (the: "Ethic Rule"), a lawyer must not perform a Business Service (as defined above) if he evaluates, based upon Section 2(c) of the Order (which provides guidelines for such evaluation) that the risk level for money laundering or terror financing associated with the Business Service is high.

Following the Amendment, any lawyer that intends to provide a Business Service as defined above is obligated to follow the specific concrete procedures set forth under the Order.

The duties under the Order, which shall be further discussed below, do not apply to in – house councils who provide legal services to their employees and not to any acts under the supervision of the courts, including, receivership proceedings, liquidation of companies, guardianship or estate administration and not to any services provided to the state of Israel or its agencies.

Under the Amendment, if the Regulator suspects that a lawyer violated the Ethic Rule, he may apply to the Israeli Bar Association and require that an administrative procedure will be initiated against such lawyer, on condition that the Regulator will specify in his application to the bar only the details that raised the suspicion of the Regulator.

Another sanction which may be imposed against lawyers, that did not follow the provisions of the Order, is monetary sanctions in accordance with Chapter 5 of the PML. The Amendment authorizes the Attorney General to convene a committee which will be authorized to impose monetary sanctions of up to NIS2,260,000 on lawyers that did not comply with the provisions of the Order. 


LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.

Prohibition on Money Laundering Law, 5760-2000; the PML. As mentioned above, lawyers were not originally mentioned in the PML and thus were subject to it as any other individuals and not in their capacity as lawyers. As of the Amendment, lawyers are subject to the PML in their capacity as such and must comply with certain duties applicable to lawyers before they provide Business Service.

The duties and obligations applicable specifically to lawyers under the Amendment and the Order are addressed in details in the answers to the questions provided below.

The following is the list of offenses under the PML which are applicable to lawyers as well as to any other individuals:

Section 3(a) of the PMLsets forth that any person who is undertaking a property transaction, with property that was either obtained directly or indirectly through the commission of an Offence, ("Offense" for this purpose is any offense indicated in the First Supplementary to the PML), or was used to commit an Offence, or facilitated the commission of an Offence, or against which an Offense was committed ("Prohibited Property"), with the object of concealing or disguising its origin, the identity of those owning the rights therein, its location, movements or a transaction in it, shall be guilty of a crime punishable by ten years imprisonment or a fine of up to  NIS4,520,000.

Section 3(b) of the PMLsets forth that a person who performs a property transaction or delivering false information, with the object of preventing certain reporting duties provided under section 7, 8a or 9 to the PML, or to cause incorrect reporting under the aforesaid sections, shall be liable to the same penalties prescribed in subsection 3(a).

Section 4 of the PMLsets forth that any person who is undertaking a property transaction in the knowledge that the property in question is Prohibited Property, of a type and worth to the amount listed in the Second Supplementary to the PML, shall be guilty of a crime punishable by seven years imprisonment or a fine of NIS2,260,000.

As mentioned before, all the above sections of the PML are applicable to any individuals, including, lawyers as of the legislation of the PML in 2000.

  • Prohibition on Money Laundering Order (Obligations of Identification and Records Keeping by Business Service Providers for Avoidance of Money Laundering and Terror Financing)– 2014- The Order.  As mentioned above, the Order was issued by the Attorney General in pursuant to the amendment. The Order set forth concrete rules which lawyers have to comply with before providing Business Service to a client. Such duties include conducting of a due diligence inquiry, check whether the client is listed in the Black List provided in the Regulator web site, making of a risk evaluation and record keeping.
  • The Israel Bar Association Rules (Ethics) - 1986. As mentioned above, in accordance with the Ethic Rule enacted under the Ethic Amendment, a lawyer must not perform a Business Service if he evaluates, based upon Section 2(c) of the Order (which provides guidelines for such evaluation) that the risk level for money laundering or terror financing associated with the same Business Service is high, otherwise he is in violation of the Ethic Rule and thus subject to administrative proceedings.  
  • Prohibition on Money Laundering Order (Identification, Reporting and Record Keeping Obligations of Bank Corporations), 5761-2001(Banking Order), enacted by virtue of Section 7 of the PML, it details obligations imposed on banks regarding identification, reporting and record keeping in relation to the bank’s clients and their accounts.

The Banking Order decrees that in opening a trust account for a client, the lawyer must disclose the identity of the beneficiary of the account. However, the Banking Order provides a partial exemption from registering a beneficiary if the account is a special “lawyers expense deposit” account which a lawyer may open for his clients, and on condition that the balance in the account at the end of every business day does not exceed NIS 300,000, and no single transaction in the account exceeds NIS100,000. A lawyer may only open one account of this kind.

The following is a list of legislation related to Anti Money Laundering and Terror Financing which do not impose specific obligations upon lawyers:

[Links to such legislation may be found here: http://index.justice.gov.il/En/Units/IMPA/Legistlation/Pages/Default.aspx]

  • Prevention of Terrorism Ordinance No. 33 of 5708-1948.

  • Combating Criminal Organizations Law, 5763-2003.

  • Prohibition on Terrorist Financing Law, 5765-2004.

  • Prohibition on Money Laundering (Obligations of Identification, Reporting and Keeping of Records by Insurer and Insurance Agent) Order, 5762-2001.

  • An Ordinance to Prohibit Money Laundering (Requirements Regarding Identification, Reporting and Record-Keeping by Provider of Currency Services) Order, 5762-2002.

  • Prohibition of Money Laundering (Obligations of Portfolio Managers to Identify, Report and Retain Lists for the Purpose of Preventing Money Laundering and Financing Terrorism), 5770-2010.

  • Prohibition on Money Laundering (Obligations of Identification, Reporting and Keeping Records of the Postal Bank to Prevent Money Laundering and Terrorism Financing) Order, 5771-2011.

  • Prohibition of Money Laundering (Provident Fund and a Company Managing a Provident Fund Requirements Regarding of Identification and Record-Keeping) Order, 5762-2001.

  • Prohibition of Money Laundering (Obligations of Stock Exchange Members to Identify, Report and Retain Lists for the Purpose of Preventing Money Laundering and Financing Terrorism), 5770-2010.

  • Prohibition on Money Laundering (Financial Sanction) 5762–2001.

  • Prohibition on Money Laundering (Modes and Times for Transmitting Reports to the Data Base by Banking Corporations and the Entities Specified in the Third Schedule to the Law) Regulations, 5762-2002.

  • Prohibition on Money Laundering (Rules for Conduct of Database and Protection of Information Therein) Regulations, 5762-2002.

  • Prohibition on Money Laundering (Modes and Times for Transmitting Reports to the Data Base by Banking Corporations and the Entities Specified in the Third Schedule to the Law) Regulations, 5762-2002.

  • Prohibition on Money Laundering Regulations (Rules for Use of Information Transferred to the Israel Police Force and the General Security Service for Investigation of Other Offenses and for Transferring it to Another Authority), 5766 – 2006.


ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

Visiting lawyers are subject to local law regarding anti money laundering as any other individuals and not as lawyers. To be able to practice law and qualify as a lawyer in the State of Israel, a person must be a member of the Israel Bar association. Therefore, visiting lawyers not admitted to practice law in Israel are not subject to the legislation with respect to lawyers under the Amendment.


LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

There is currently no money laundering guidance for lawyers. Since the Amendment became effective only recently, it is expected that the Israel Bar Association will publish guidelines soon.


IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

Yes. Following the enactment of the Amendment and the Ethic Rule, the Israel Bar Association is authorized to conduct administrative proceedings against lawyers that did not comply with the Ethic Rule. It is expected that the Israel Bar Association will play an important role in imposing anti money laundering regulations upon lawyers that provided Business Services without complying with the provisions of the Order. 


DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

In accordance with Section 2 of the Order, before a lawyer provides Business Service to a client, the lawyer has to identify the client and perform a KYC procedure by having the client fill in the form provided in the First Supplementary to the Order (the: "KYC Form").  

In such KYC Form the client is required to provide his identification details, including his profession and if he has a business - the nature of his business. If the client is a corporation, it is required to provide the names of the controlling persons of the corporation as well. In addition, the client has to provide details regarding the Business Service he requires and the source of funds to finance the same service.

The client has to further check the box indicating the exact Business Service he requires (1 of the 5 alternatives indicated above) and provide certain other details which relate to the Business Service he requires. If, for example, the client requires the creation of a trust, he would have to provide the name of the trust, the place of establishment of the trust, the purpose of the trust, the type of trust, the location of the asset contributed to the trust, the scope of monetary activity with respect to the trust, the trustees, the Settlor of the trust, the protector and the beneficiaries.

In the case that the Business Service is required for another person, his identification details have to be provided as well.

Once the client fills in the details as required under the KYC Form, the lawyer has to confirm that the client appeared before him and signed the KYC Form.

In case it is not reasonably possible to identify the client face to face, the lawyer can identify the client by use of video conference technology.

After the client fills in the KYC Form, the lawyer has to review the form and make sure that the details and documents provided thereunder are reasonable. If the lawyer finds any details or identification certificates not reasonable, the lawyer has to run the KYC procedure again or investigate with the client the issues which are unreasonable to him.

Following the execution of the KYC Form including the client's signature on the declaration thereunder and in accordance with Section 2(c) of the Order, the lawyer must evaluate the risk for Money Laundering and Terror Financing associated with the Business Service in question and update the date of his foregoing evaluation in the KYC Form.

The evaluation of the risk for Money Laundering and Terror Financing has to be based on the client's characteristics, the nature of the Business Service required, the source of funds used to finance the Business Service, the reasonableness of the details provided in the KYC Form and further information provided in the Regulator's website.

The Fourth Supplement to the Order provides certain circumstances which may indicate that the Business Service required is in high risk for Money Laundering and Terror Financing, and thus the lawyer has to consider such circumstances in his evaluation of the risk.

The circumstances provided under the Fourth Supplement include the following:

(i)                  A client who is a PEP.

(ii)                A client from, or to the knowledge of the lawyer is, transacting with, a country or a territory as provided under the Second Supplement to the Order (i.e. Iran, Algir, Afghanistan, the Palestinian Authority, Luv, United Arab Emirates, Malesia, Morocco, Sudan, Somalia, Pakistan, Tunis, Lebanon, Egypt, Syria, Saudi Arabia, Jordan, Iraq, Gaza Strip, Yamen and any other country as published in IMPA's website).

(iii)               A client who performs activity in cash in large sums without any explanation or business reason.

(iv)              A client with respect to whom the lawyer suspects that he is connected to criminal affiliates or terror activists even without the lawyer presenting questions to the client or investigate any facts.

(v)                A client who requires Business Service without any explanation or business reason.

(vi)              A client with respect to whom, the lawyer thinks that he is in high risk for Money Laundering and Terror Financing, by virtue of his profession or information which was brought to his knowledge.

(vii)             A client who requires the provision of Business Service related to funds which the Lawyer has certain suspicions regarding their source.

(viii)           A client who refuses to provide certain details required from him under the Order.

 

For avoidance of doubt, the lawyer is not required to document his risk evaluation in writing, but only to confirm in the end of the KYC Form that he made the risk evaluation and provide the date upon which he made the same risk evaluation. If the lawyer, however, decides to document his evaluation in writing, such documentation will remain confidential and the Regulator may not require the lawyer to provide this documentation to him.

Following the above mentioned execution by the client and review by the lawyer of the KYC Form and the application of the risk evaluation, and prior to the provision of the Business Service to the client, a lawyer must check whether the name or the identity number of his client (or the beneficiary of his services or any controlled person of a client company) appear in the "Black List".

The "Black List" is a concentrated list of terror groups and terror activists and is provided in the following link: http://index.justice.gov.il/Units/FBPS/Obligations/Pages/List.aspx.

To conclude his Due Diligence procedure, the lawyer has to comply with the record keeping duties imposed under Section 3 of the Order. In accordance with such section 3, a lawyer must identify the client and obtain certain documents from him which he is obligated to record in his files for a period of 5 years.

If the client is an Israeli resident individual, the lawyer has to obtain and record his identification card or his Israeli passport or his driving license or a certified copy of the foregoing documents.

If the client is a foreign resident individual, the lawyer has to obtain and record his foreign passport or a certified copy of which.

If the client is an Israeli Corporation, the lawyer has to obtain and record an updated printout from the Israeli Companies Registrar with the company's details or the Certificate of Incorporation of the company or a certified copy of which.

If the client is a foreign corporation- the lawyer has to obtain and record any document that indicates the registration of the corporation from the applicable registrar in the country in which the corporation is registered. If no such public registrar exists in this country the lawyer must obtain an approval from an attorney in this jurisdiction that no such registry exists.


DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

As mentioned above, Lawyers are required to evaluate the level of risk for money laundering and terror financing associated with the Business Service in question, in accordance with the information provided to them in the course of the due diligence process described above. If the information provided to them by the client is not reasonable or raises certain suspicions, they are required to either extend their due diligence until they are satisfied that there is no risk for Money Laundering or Terror Financing or otherwise refrain from providing the Business Service.


ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Yes, the KYC Form, further provides an inquiry regarding Foreign Politically Exposed Persons (PEP). In addition, a lawyer who intends to provide a Business Service to a PEP, has to consider that the provision of Business Service to a PEP is considered one of the circumstances that indicates high risk for money laundering and terror financing and therefore he must evaluate such risk accordingly. 


ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

 Yes, the provision of Business Services to the state of Israel or its agencies does not require any due diligence.

In addition, there is a simplified due diligence requirement for Public Institutions (i.e. any local municipality and the International Zionist Organization, the Jewish Agency, Keren Hayesod and Keren Kayment Le'israel). The Order provides (in the Third Supplement) a special KYC Form which requires much less details and is applicable only to Public Institutions clients.

Furthermore, if the client is one of the following institutions, the declaration provided by it in the end of the KYC Form does not have to relate to the controlling persons of such entity:

  • Banking Institution;
  • Stock market member;
  • Portfolio Manager;
  • Insurer and Insurance Agent;
  • A company which managers provident funds;
  • Monetary Service Provider;
  • Postal Bank;
  • Statutory Institutions;
  • Public Endowment registered with the Endowments Registrar;
  • A Rabbinical Public Endowment that was given a certain approval;

ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.

No


WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Under the Amendment a lawyer is not required to report suspicious transactions. If the lawyer evaluates that the Business Service required by the client is in high risk for anti-money laundering or terror financing, he has to refrain from providing such Business Service, but he is under no duty to report such transaction.


DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?

As mentioned before, lawyers are not required to report "suspicious transactions" but only to refrain from providing a Business Service which they evaluate is in high risk for money laundering or terror financing, after they complied with the due diligence requirements under the Order.

In addition, Section 2(f) of the Amendment provides that the Amendment and the Order do not circumvent in any way the Attorney-Client privileges. This is becoming relevant when the Regulator demands certain documentation from the lawyer which may be under such privilege.

In accordance with the Amendment, if the lawyer is required to provide certain documents that he believes are under the attorney client privilege, he may put the documents in a sealed envelope and give it to the Regulator who would have to bring such documents before a judge to review and decide whether it is confidential or not.


DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

No. Lawyers are not under any duty to report suspicious transactions only to refrain from carrying on transactions which they evaluate are in high risk for money laundering and terror financing.


ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

See answers to questions above.


IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.

Currently no tipping-off prohibitions are applicable to lawyers.


DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.

There are no specific restrictions on accepting clients, as long as the lawyer complied with the provisions of the Order described above and evaluated the risk for anti-money laundering and terror financing correctly and in accordance with the information he is required to obtain. Obviously, if the lawyer evaluates that the risk for anti-money laundering is high, he has to refrain from carrying on the Business Service he is required to provide.


ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE.

Yes. A lawyer has to check every six months that his clients or the beneficiaries of his Business Service are not listed in the Black List.

With respect to "Existing Clients" (i.e. a clients to whom a Business Service was rendered at least once in the preceding year or twice in the preceding 4 years), lawyers are required to identify them only in the first time a Business Service is required, unless, the client requires a Business Service which is materially different from the one which was already provided to him, in which case the lawyer has to re- apply the due diligence procedure.


DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.

This is to be examined following the legislation of the Amendment.


HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

No information available.


HAS THE FINANCIAL ACTION TASK FORCE (FATF) OR A FATF-STYLE REGIONAL BODY CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

In December, 2013 MONEYVAL published a summary report regarding the major anti-money laundering and counter-terrorist financing measures (AML/CFT) that were in place in Israel at the time of the 4th round on-site visit (9-16 March 2013) and immediately thereafter.   The summary report was not a full assessment against the FATF 40 Recommendations 2003 and 9 Special Recommendations 2001, but intended to update readers on major issues in the AML/CFT system of Israel.

The report concludes that there were no reporting obligations upon lawyers, notaries and other independent legal professionals and accountants in Israel (Recommendation 13).

This report was used by IMPA to justify the legislation which followed under the Amendment and the Order as described above. 



Information provided by:

Information provided by:

NIV GOLDSTEIN, ROSENBERG ABRAMOVICH KEREN-POLAK, Advocates

Tel: +972-(0)3 608 1451 
Niv@rosak-law.com

 

Notes: 

  1. (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).
  2. (Criminal Case) T.P. 132/03 State of Israel v. Shlomo Ben Moshe Gueta (judgment dated October 9, 2005).
  3. 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.
  4. Section 24(c).
  5. (Criminal Case) T.P. 344/04 State of Israel v. Yisrael Schor, (judgment dated September 15, 2005).
  6. 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.