AML Regulations in Israel—One of the Strictest Jurisdictions in the World

Israel is a great global fintech destination, home to some of the world’s famous unicorns including eToro, Payoneer, Lemonade, Rapyd, Pagaya, Earnix, Tipalti, Hippo, Fundbox and Melio. At the same time, Israel bears heavy money-laundering and terrorist financing risks due to its geography. 

According to Israel’s Authority for the Prohibition of Money Laundering and Terrorist Financing, money laundering for organized criminal activity rose in Israel 12.2% in 2021. One recent high-profile case includes a Franco-Israeli gang laundering criminal proceeds through multiple bank accounts in the EU, China, and Israel.

Israel’s regulators are constantly on the lookout for financial crime, with the FATF calling the Israeli FIU one of the most efficient in the world in its Mutual Evaluation Report.

So, let’s dive into the anti-money laundering details of Israel.

Who’s affected?

In Israel, almost all financial service providers* have to comply with the country’s AML regulations, including:

• Banks
• Insurance companies
• Stock exchanges
• Portfolio managers
• Investments advisers
• Trading platforms
• Currency service providers
• Virtual Asset Service Providers (VASPs)
• Money Service Businesses (MSBs)

*Financial service providers are not the only obligated institutions to which AML regulations apply. 

Who’s the regulator?

1. The Bank of Israel. This institution performs general supervision of the financial system.

2. The Israel Money Laundering and Terror Financing Prohibition Authority (IMPA). Established in 2002 in accordance with the Prohibition of Money Laundering Law of 2000, the IMPA is a financial intelligence unit (FIU) which leads the fight against money laundering and terror financing in Israel. The IMPA works with a number of 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. It also collaborates with FIUs all over the world.

In 2018, following the successful completion of its Mutual Evaluation, Israel became the 36th member of the Financial Action Task Force (FATF) and since then adheres to a risk-based approach. The FATF has since found that Israel is one of the top three countries in terms of AML/CTF regimes, with the IMPA considered one of the top two FIUs in the world.

What are the main regulations?*

1. The Prohibition on Money Laundering Law, 5760-2000
2. The Counter-Terrorism Law, 5776-2016
3. The Anti-Money Laundering Order (Duties of Identification, Reporting and Record-Keeping of Money Service Businesses and Credit Service Providers for the Prevention of Money Laundering and Terror Financing) 5778-2018
4. The Prohibition on Money Laundering (The Banking Corporations’ Requirement regarding Identification, Reporting, and Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order, 2001
5. The Proper Conduct of Banking Business Directives no. 367 (E-banking Directive).

*non-exhaustive list of regulations

How to stay compliant

Israel’s AML/KYC regulations require all financial service providers to conduct a number of due diligence measures, including:

• Identification and verification procedures—Customer Due Diligence—regarding the person receiving the service (natural or legal person)

Customer Due Diligence (Banking Corporations’ Requirements)

Customer Due Diligence (CDD) is the process of collecting and verifying information about a customer during onboarding. This includes the customer’s name, address, and other personal data.

For an individual who is a resident:

– an identity card or a certified copy of it.

– a banking corporation shall authenticate the identification particulars vis-à-vis the population registry, shall compare the date of issue of the certificate shown in it with the date of issue of the last certificate recorded in the population registry in the Ministry of the Interior.

For an individual who is a foreign resident:

– a foreign passport or laissez-passer, or a certified copy of it, the banking corporation shall compare the identification particulars with another document bearing a photograph and identity number;

– in the absence thereof—a document bearing a name or identity number and also an address or date of birth.

– <…>

For a corporation registered in Israel in the matter of recording of the identification particulars of the corporation (such as name, company number,  date of incorporation):

– the registration certificate or a certified copy of it (if one of the said particulars does not appear in the certificate, the recording of the particulars shall be effected in accordance with an attorney’s certification).*

– the banking corporation shall obtain and retain the following

documents or photocopies of them:

(a) a certified copy of the corporation’s registration certificate;

(b) certified copies of the corporation’s foundation documents establishing the corporation;

(c) an attorney’s certification of the corporation’s existence, its name and identity number; alternatively, the banking corporation may authenticate the corporation’s registration vis-à-vis the relevant registers.

(d) a certified copy of a resolution of the competent organ in the corporation to open an account, or an attorney’s certificate that such a resolution was duly passed;

(e) a certified copy of a resolution of the competent organ in the corporation as to the authorized signatories in the account, or an attorney’s certificate as to the authorized signatories in the account;

*attorney means someone licensed to practice law in Israel. 

– <…>

For a corporation that is not registered in Israel in the matter of recording of the identification particulars of the corporation (such as name, company number,  date of incorporation, address):

– a document attesting to its registration or a certified copy of the said document insofar as

such particulars appear in the document (if one of the said particulars does not appear in the document, the recording of the particulars shall be effected in accordance with an attorney’s certificate);

– the banking corporation shall obtain a document attesting to the corporation’s registration and documents as set forth in points  from (b) to (e) (see, Corporations Registered in Israel Subsection).

– for a corporation incorporated in a country in which there is no registration in respect of corporations of its type—the banking corporation shall obtain a certificate from an attorney that there is no registration in the country of incorporation; the banking corporation shall retain these documents or photocopies of them.

(Source)

Online identification, according to the E-banking Directive:

Identification of applicant  (including the authorized signatory in case of a corporation)may be carried out through one of the following methods:

a) Based on the applicant’s ID card that is presented to the bank when opening the account, while using technology for remote face-to-face identification and authentication, as detailed in Section 27a of the Directive (by notifying the Banking Supervision Department in advance).

b) Based on the applicant’s ID card and an additional identifying document issued by the State of Israel, that bears the customer’s name, ID number and date of birth, that were presented when opening the account, together with:

(1) Use of video conferencing technology

(2) Execution of a bank transfer through an account under the name of the online-account applicant, at a banking corporation in Israel in cases according to E-banking Directive.

Apart from customer identification and verification, companies must also conduct:

• Transaction monitoring
• Reporting on transactions in cases established by AML regulations 
• Sanctions and PEP screening
• Ongoing monitoring
• Record-keeping
• Appointing a Money Laundering Officer to be responsible for overseeing the implementation of the above mentioned obligations.

Penalties

Sanctions differ depending on the category of the offense and other supplemental circumstances.

For example, according to Prohibition on Money Laundering Law, 5760-2000, a person undertaking a property transaction with the intent to conceal or disguise its origin, the identity of the rights’ holders therein, its location, movements, or a transaction in it, shall be liable to imprisonment for up to ten years or to a fine of twenty times that stated in Section 61(a)(4) of the Penal Law—NS 202,000.

FAQ

• What is the AML law in Israel?

  The key AML law in Israel is the Prohibition of Money Laundering Law, 5760-2000.

• Is Israel a high risk country for AML?

  According to FATF, “due to its geographic location, Israel faces a particularly high terrorist financing risk from sources outside Israel, while fraud, tax offences, organised crime, public sector corruption and the use of cash are among the sources of money laundering risk for the country. Israel has successfully identified and understood these risks, which is reflected in the country’s anti-money laundering and counter terrorist financing (AML/CFT) policies and activities.”

• Is Israel FATF compliant?

  Yes. Israel has been a FATF member since 2018 and follows its Recommendations.