Financial Crime World

Israel’s Fintech Hub Faces Money Laundering Challenges: AML Regulations and Compliance in the Jewish State

Israel, a vibrant global fintech hub, is home to unicorns like eToro, Payoneer, Lemonade, and more. However, this strategic location also exposes Israel to significant money laundering and terrorist financing risks. Here’s an overview of Israel’s AML regulations, compliance, and key challenges.

Money Laundering Risks in Israel

According to the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA), money laundering cases in Israel rose by 12.2% in 2021. Some of the most notorious money laundering cases involve the Franco-Israeli gang, which laundered criminal proceeds through multiple bank accounts in the EU, China, and Israel.

Who’s Affected?

Nearly all financial service providers in Israel, such as banks, insurance companies, stock exchanges, portfolio managers, investments advisers, trading platforms, currency service providers, Virtual Asset Service Providers (VASPs), and Money Service Businesses (MSBs), must adhere to Israel’s AML regulations. This also applies to non-financial institutions in sectors like real estate, gaming, and casinos.

Who’s in Charge?

The Bank of Israel oversees general financial system supervision, while the IMPA serves as the financial intelligence unit, leading Israel’s fight against money laundering and terrorist financing.

Key Legislation

  1. Prohibition on Money Laundering Law, 5760-2000: Establishes penalties for money laundering offenses in Israel.
  2. Counter-Terrorism Law, 5776-2016: Imposes penalties for terrorist financing and related offenses.
  3. Anti-Money Laundering Order, 5778-2018: Implemented to reinforce the Prohibition on Money Laundering Law and comply with FATF standards.
  4. Prohibition on Money Laundering for Banking Corporations, 2001: Applies to banking corporations and their compliance with AML laws.
  5. Proper Conduct of Banking Business Directives no. 367 (E-banking Directive): Ensures e-banking transactions comply with AML regulations.

Staying Compliant

To maintain regulatory compliance, Israeli financial service providers must conduct extensive due diligence measures, such as:

  • Customer Identification and Verification: Verify the identity and address of customers and beneficiaries.
  • Transaction Monitoring: Monitor transactions for suspicious activity and report any findings.
  • Sanctions and PEP Screening: Check customers against OFAC and other relevant sanctions lists and PEP lists.
  • Record-Keeping: Maintain accurate and detailed records of transactions.
  • Appointing a Money Laundering Officer: Designate a responsible officer to oversee AML policies and operations.

Penalties

Violating AML regulations in Israel can result in criminal and administrative penalties, including:

  • Imprisonment: Up to ten years for individuals (according to the Prohibition on Money Laundering Law, 5760-2000)
  • Fines: NIS 202,000 (≈$61,200 USD) for corporations (according to the Prohibition on Money Laundering Law, 5760-2000)

FAQ

  1. What is the Israeli AML law?

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

  2. Is Israel a high-risk country for money laundering?

    • According to FATF, Israel faces high risks from terror financing and money laundering, mainly from sources outside the country.

  3. Is Israel FATF-compliant?

    • Yes, Israel became a FATF member in 2018 and follows its Recommendations.