An Analysis of Israel's Anti-Money Laundering Regulations: One of the Strictest Jurisdictions in the World

1. Who is Affected?

In Israel, almost all financial service providers must comply with the country's anti-money laundering regulations, including:

Banks
Insurance companies
Stock exchanges
Asset management companies
Investment advisors
Trading platforms
Money service providers
Virtual asset service providers (VASPs)
Money service businesses (MSBs)

In addition to these financial service providers, anti-money laundering regulations also apply to other types of institutions, such as lawyers, accountants, real estate agents, and other professionals involved in large monetary transactions, who may also need to comply with anti-money laundering regulations.

2. Who are the Regulators?

Bank of Israel ------ This institution oversees the financial system as a whole.
Israeli Anti-Money Laundering and Terrorist Financing Authority (IMPA) ------ Established in 2002 under the Prohibition of Money Laundering Law of 2000, this is a financial intelligence unit (FIU) that leads the fight against money laundering and terrorist financing in Israel. IMPA collaborates with various national law enforcement and security agencies in Israel, including the Israel Police, Israel Tax Authority, National Prosecutor's Office, Israel Security Agency, and banking regulators. It also works with financial intelligence units globally.

In 2018, after successfully completing its mutual evaluation, Israel became the 36th member of the Financial Action Task Force (FATF) and has since followed a risk-based approach. Subsequently, FATF found that Israel ranks among the top three countries in terms of its AML/CTF regime, with IMPA recognized as one of the top two financial intelligence units in the world.

3. What are the Main Regulations?

Prohibition of Money Laundering Law 5760-2000
Anti-Terrorism Law 5776-2016
Anti-Money Laundering Order (Identification, Reporting, and Record-Keeping Duties for Money Service Businesses and Credit Service Providers to Prevent Money Laundering and Terrorist Financing) 5778-2018
Prohibition of Money Laundering Law (Banking Companies' Requirements for Identification, Reporting, and Record-Keeping to Prevent Money Laundering and Terrorist Financing) Order, 2001
Banking Proper Conduct Directive No. 367 (Electronic Banking Directive).

4. How to Maintain Compliance?

Israel's anti-money laundering / Know Your Customer (AML/KYC) regulations require all financial service providers to conduct a series of due diligence measures, including:

Identity confirmation and verification procedures for the person receiving services (individual or entity) ------ Customer Due Diligence.
Customer Due Diligence (CDD) is the process of collecting and verifying customer information during the onboarding period. This includes the customer's name, address, and other personal data.

For resident individuals:

Identity card or a certified copy thereof.
Banking companies should compare identity information with the population registry and compare the issuance date of the proof document shown with the last issuance date recorded in the Ministry of Interior's population registry.

For foreign resident individuals:

Foreign passport or permit, or a certified copy thereof; the banking company should compare identity information with another document that has a photo and identity number;
If these documents are not available, a document containing the name or ID number along with the address or date of birth must be provided.

For companies registered in Israel, regarding the recording of the company's identity information (such as name, company number, date of establishment):

Certificate of registration or a certified copy thereof (if any information is not shown on the certificate, it should be recorded based on the lawyer's certification).*
The banking company should obtain and retain the following documents or their copies:

Certified copy of the company registration certificate;·
Certified copy of the foundational documents of the company;·
Lawyer's certification of the company's existence, its name, and identity number; or the banking company may verify the company's registration against the relevant registry.·
Certified copy of the resolution from the authorized body within the company to open an account, or a lawyer's certificate confirming that the resolution has been properly passed;
Certified copy of the resolution from the authorized body within the company regarding the account signatories, or a lawyer's certificate regarding the account signatories.* A lawyer refers to a lawyer licensed to practice in Israel.

For companies not registered in Israel, regarding the recording of the company's identity information (such as name, company number, date of establishment, address)· proof of its registration or a certified copy of that document, as long as this information is shown in the document (if any information is not shown in the document, it should be recorded based on the lawyer's certification);

The banking company should obtain proof of the company's registration and the documents listed in points (b) to (e) (see the subsection on registered companies in Israel).

For companies established in countries where their type of company is not registered, the banking company should obtain a lawyer's certificate proving that there is no registration in the country of registration; the banking company should retain these documents or their copies.

Identity verification of the applicant (including the company's authorized signatories) can be conducted through one of the following methods:

Based on the identification document presented by the applicant to the bank at the time of account opening, while using remote face-to-face identity verification and authentication technologies, as detailed in Section 27a of the directive (with prior notice to the bank's supervisory department).
Based on the applicant's identification document and an additional identification document issued by the State of Israel containing the customer's name, ID number, and date of birth, all presented at the time of account opening, used together:

(1) Video conferencing technology

(2) In accordance with the electronic banking directive, by executing a bank transfer through an account under the name of the online account applicant at a banking company in Israel.

In addition to customer identity confirmation and verification, the company must also conduct:

Transaction monitoring
Reporting transactions as required by AML regulations
Screening for sanctions and politically exposed persons
Ongoing monitoring
Record-keeping
Appointing a money laundering prevention officer to oversee the execution of the above obligations.

5. What are the Penalties?

Penalties vary depending on the type of crime and other additional circumstances.

For example, under the Anti-Money Laundering Law (5760-2000), anyone conducting property transactions with the intent to conceal or disguise their source, where the identity of the rights holder, their location, movement, or the transactions therein may be concealed, could be sentenced to a maximum of ten years in prison or fined twenty times the amount specified in Section 61(a)(4) of the Penal Code ------ 202,000 new shekels.

6. Does Israel Comply with FATF Regulations?

Yes, Israel has been a member of the Financial Action Task Force (FATF) since 2018 and complies with its recommended regulations.

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