Title: Israel’s Anti-Money Laundering Laws: A Comprehensive Guide for Banks

Israel’s banks play a significant role in the global fight against money laundering and terrorism financing. This comprehensive guide outlines Israel’s anti-money laundering (AML) and countering financing of terrorism (CFT) regulations as outlined in the Proper Conduct of Banking Business (12/23) by the Supervisor of Banks. Please note that only the Hebrew version is legally binding.

Chapter A: General

1. The Importance of AML/CFT Compliance Israel’s banking institutions face the critical importance of AML/CFT compliance in maintaining public trust in the banking sector and safeguarding national values.

2. Risk-Based Approach A risk-based approach is the cornerstone of effective AML/CFT compliance. This approach allows banks to allocate resources efficiently and implement risk mitigation measures as required by the Financial Action Task Force (FATF) recommendations.

Chapter B: Corporate Governance

1. Role of the Board of Directors boards of directors play a crucial role in overseeing the management of AML/CFT risks. They are responsible for approving an AML/CFT policy, monitoring its implementation, and assessing its effectiveness annually.

2. Senior Management Senior management is responsible for developing and implementing an AML/CFT policy, assigning resources to the AML/CFT Officer, and identifying and assessing the risks facing the bank.

3. AML/CFT Officer The AML/CFT Officer is part of the second line of defense in a banking corporation. Their role includes ensuring the bank’s compliance with its AML/CFT obligations, maintaining lines of communication with the internal audit function, and reporting to the competent authority.

Chapter C: Risk Assessment

1. Comprehensive Risk Assessment A bank must conduct a thorough risk assessment to identify and analyze the ML/FT risks they face. This assessment will inform resource allocation for risk management and help maintain effective controls.

2. Regular Reviews and Updates A bank’s risk assessment must be reviewed at least annually and updated when circumstances change, allowing the bank to stay current with developing threats and emerging risks.

Chapter D: Risk Mitigation - Know Your Customer (KYC)

1. Risk-Mitigation Strategies Mitigation strategies for AML/CFT risks must be consistent with the bank’s risk assessment. This chapter provides factors for banks to consider when developing KYC policies and procedures.

Risk Factors

1. Customer-Related Risk Factors

   • Customers opening accounts under irregular circumstances
   • Non-residents with no linkage to Israel
   • Cash-intensive businesses
   • Corporations with complex structures

2. Country and Territory-Related Risk Factors

   • High-risk jurisdictions
   • Sanctions
   • Documented levels of corruption or criminal activity

3. Product, Service, and Delivery Channel-Related Risk Factors

   • Private banking
   • Third-party payments
   • Transfers from unknown sources.

By following these guidelines and implementing effective risk management strategies, banks in Israel can maintain their role in the global fight against money laundering and terrorist financing.