The Prohibition of Money Laundering Law, 5760-2000
The Prohibition of Money Laundering Law was enacted in 2000. The aim of the Law is to provide additional tools for the authorities in their fight against serious and organized crime, and in addition striving to comply with the international standards prescribed by the FATF.
The Law is focused on Four Levels:
The Law and the Orders impose an AML regime on the Israeli financial sector. The Law obliges the financial institutions to appoint a corporate compliance officer i.e., a person in charge of fulfilling the obligations of the financial institution. These include the identifying of customers, conducting on-going due diligence, record keeping and reporting of currency transactions and unusual activities to IMPA. The objective of these obligations is to prevent money launderers from placing the proceeds of crime into the legitimate economic and financial system and to enable effective and conclusive investigation by law enforcement authorities of offence of serious crimes and money laundering. In this framework, for the first time in Israeli legislation, an active role was imposed on entities in the private sector (e.g. Banks, Money Service Providers, Portfolio Managers, Insurance Companies) regarding their obligation to identify, verify and report to IMPA.
The Law sets a penalty of 7 or 10 years imprisonment for criminal offences of money laundering. The severity of the penalty is an expression of the legislators’ moral view that considers money laundering as an activity which provides criminals with a significant motivation by enabling them to benefit from their crimes, and therefore it must be condemned and punished gravely. The penalty for an offence of money laundering is imposed in addition to the punishment of the offender for perpetrating the serious crime of which he is found guilty. Such an offence is defined as a “predicate offence”.
3. Assets Recovery
The Law enables the State of Israel to confiscate “prohibited property”, according to the principle that assets derived from crime or used in the perpetration thereof should be returned to the state. Confiscation is not a substitute for the punishment imposed for the conduct of the serious offence (imprisonment or fine), but it is imposed additionally. The Court may order criminal confiscation of such property derived from an offence or which has served in the perpetration of the offence. Additionally, under certain circumstances, the Court may order civil confiscation (in the absence of a criminal proceeding), when the offender cannot be brought to trial (e.g., when he is not in the jurisdiction of the State of Israel), or when the property was found only after the conviction.
4. International Collaboration
The Law empowers IMPA to collaborate and share intelligence information with counterpart FIUs. Cooperation of this type provides assistance to the law enforcement authorities, particularly in cases of serious trans-national crimes and organized crime networks by providing additional information through secure international intelligence gathering tools.
Requirements of Identification and Customer Due Diligence under the Law
Financial institutions are obligated to set policy and establish procedures for customer due diligence (CDD), to conduct the CDD process and to define the degree of risk of the customers. The CDD process includes the analysis of the nature of the customer’s business as well as on-going monitoring of his financial activities in order to identify unusual activity. For example, a banking corporation is not allowed to open an account for a customer who is actually acting on behalf of an undeclared or unidentified third party if the customer did not give the information regarding the third party. A financial institution is also obligated to perform on-going due diligence in respect of customers’ accounts classified as high risk by using enhanced CDD, including analyzing the customer's financial background, and determining the source of funds, the types of transactions, etc.
Record Keeping – Financial institutions are obligated to maintain records of all of the customer's identification and verification documents, transaction documents as well as the documentation of the monitoring procedure of the customer's activity. Financial institutions must retain records for a period of at least seven years.
Reporting Obligations to IMPA
Reporting Obligations of Financial Institutions - Section 7 of the Law authorizes the relevant Ministers to define, in an Order, the obligations of financial institutions in order to prevent money laundering and to identify financial transactions that may be part of money laundering.
Cross Boarders Reporting Obligations – Section 9 of the Law requires a Customs declaration from every person who carries cash money or assets that are equivalent to cash (e.g., bank drafts and travelers' checks), when he enters or exits the State of Israel. The declaration is obligatory if the total value carried by such a person exceeds the reporting threshold. This threshold stands currently at NIS 100,000 (except for the "Erez" crossing to the Gaza Strip where the threshold stands at NIS 12,000). This threshold may be reduced to NIS 50,000, as indicated in the draft order currently awaiting the approval of the Constitution, Law and Justice Committee of the Knesset. A person who fails to submit a declaration, or falsifies one, may be subject to an administrative sanction or to criminal proceedings.
Penalization of Money Laundering Offences
Sections 3 and 4 of the Law prescribe the principal offences:
Section 3(a) of the Law defines the main offence of money laundering as a transaction in 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. The penalty in respect of this offence is up to 10 years imprisonment.
"Prohibited Property" is defined as property derived directly or indirectly as a result of committing a predicate offence as detailed in the first Schedule to the Law, (e.g., murder, gambling, bribery, financing of terrorism), or that was used to facilitate the commission of a predicate offence, or a property that was merged with prohibited property as stated above.
Section 3(b) of the Law defines "money laundering" as a property transaction in any property or providing false information in order to prevent a report or to cause an erroneous report to IMPA. According to the Law, the property that was subject to such intent to avoid reporting does not necessarily have to be a prohibited asset. The penalty in respect of this offence is up to 10 years imprisonment.
Section 4 of the Law prescribes the prohibition of a property transaction with the knowledge that the property is prohibited property of a type and value listed in Schedule 2 (e.g., works of art, precious stones and metals etc. from the value of NIS 150,000 or 'monies' from the value of NIS 500,00). The penalty in respect of this offence is 7 years imprisonment. As part of the proposed amendment to the Prohibition of Money Laundering Law it is intended to expand the definition of prohibited property in Schedule 2to all types of property from the value of NIS 50,000.
The Law authorizes the Courts to order, in addition to any other penalty, the confiscation of the offender's property in an amount that equals the value of the property derived from the offence or property that was used in the commission of the offence or property that enabled it or was designated for such purpose, as well as property gained as proceeds of the offence or resulted from the commission of the offence, or that is designated for such a purpose. The conceptual justification for this is that a right in property which was obtained as a result of an offence must not be acquired by the offender and that he must not be allowed to benefit from his crimes.
The Court may order the confiscation of property in civil proceedings in cases in which the property has been obtained, directly or indirectly, by execution of an offence under Sections 3 or 4 of the Law (or as remuneration for such an offence or where an offence under those Sections has been committed with use of this property), and the person suspected of committing the offence does not reside in Israel or cannot be located, and therefore it is impossible to submit an indictment against him, or when the property has been discovered after the conviction.
An administrative sanction is one of the measures taken against the breach of the AML/CFT obligations applied on financial institutions to identify and report and against any person who fails to comply with the obligation to declare cash when entering into or departing from Israel.
Prohibition of Financing of Terrorism Law, 5765-2005
The Prohibition of Financing of Terrorism Law was enacted in 2005 in view of the fact that the State of Israel is positioned in the forefront of the war against terrorism since its establishment. Accordingly, this Law was intended to bring the State of Israel in line with the other countries engaged in the combat against international terrorism and to ensure that the Israeli legislation meets the international standards set by the FATF.
The Law includes offences related to the financing of terrorism and administrative and judicial tools for enhancing the capability of waging war against the financing of terrorism in its various aspects. This legislation supplements the offences prescribed in the Defense Regulations (1945) and in the Prevention of Terrorism Ordinance, 5708-1948. The provisions of the Law include, inter alia, the following:
* A definition of an act of terrorism which clarifies inter alia that retrospective financial reward for an act of terrorism is also a prohibited act of financing of terrorism.
* The authority to designate an international terrorist organization even if its activities are not related to Israel. Similarly to the requests of Israel from countries worldwide that they should act against financing of terrorism also where the acts of terror themselves are perpetrated in the Middle East, thus Israel is also committed to take action against the financing of terrorism wherever it may be performed, even in a case in which no link to Israel exists.
* The definition of certain criminal offences:
1. Engaging in a transaction in property with the intent to facilitate, promote or finance the commission of an act of terrorism, or provide a financial reward for the commission of an act of terrorism or with the intent to facilitate or promote or finance an activity of a designated terrorist organization or of a terrorist organization. The penalty for this offence is up to 10 years imprisonment.
2. Engaging in a property transaction that may involve the facilitation, promotion or financing of the performance of an act of terrorism, or financial reward for the performance of an act of terrorism even if the recipient of the reward is not the person who committed the act of terrorism or intended to do so, and also a transaction in a terrorist’s property or in property that is the direct reward for an act of terrorism, or the direct profit from terrorist’s property. The penalty for this offence is up to 7 years imprisonment.
3. A failure to report to the Authorities by a person who has sought to perform a property transaction and had reasonable grounds to suspect that the property was intended for the financing of terrorism. The penalty for this offence is up to 1 year imprisonment.
* An obligation to report information about such occurrences, concurrently, to the Israel Police and to IMPA.
* The Prohibition of Financing of Terrorism Law provides a wide scope of authority for confiscation as detailed below:
1. Mandatory confiscation following conviction of an offence under Sections 8-9.
2. Authority for confiscation after conviction, of property of a person convicted of financing terrorism including property that was transferred to another person without consideration.
3. Authority for confiscation following conviction, under Sections 8-9, of property connected with the offence.
4. Confiscation of property in a civil proceeding in absence of a criminal proceeding.