Israel looks to join int'l anti-money laundering task force

Dr. Shlomit Wagman-Ratner

A Financial Action Task Force (FATF) delegation visits Israel this week to consider Israel's application for membership.

"Israel is working tirelessly to upgrade its standing as a regional leader in the struggle against money laundering and financing of terrorism through persistent regulatory changes and a more effective regime. Up until now, these measures have achieved results, and the reforms instituted have won praise over the years from the professional organizations responsible for assessing what is done in this area. More than a few gaps remain in need of correction, however. I believe that in view of our professional experience, the time is not far off when Israel will be able to take its place in the forefront at the side of a few leading countries, and to participate in designing policy and setting rules applying to all the countries in the world," Israel Money Laundering and Terror Financing Prohibition Authority head Dr. Shlomit Wagman-Ratner told "Globes," ahead of the arrival this week of a special delegation from the Financial Action Task Force (FATF), which is leading the international struggle against money laundering and financing of terrorism.

The visit is part of the process of Israel's accession to FATF, and is designed to show the delegation the commitment by Israel's political leadership and senior government officials to the international struggle against money laundering, financing of terrorism, and financing of proliferation of weapons of mass destruction, as well as Israel's commitment to the process of joining the organization. The delegation members visiting Israel are on the highest level, including FATF president Je-Yoon Shin from South Korea, executive secretary David Lewis from the UK, and senior representatives from a number of the organization's member countries, including the UK, Spain, Italy, and Hong Kong.

Wagman-Ratner: "The visit is an essential condition for Israel's accession to the organization, and its success is therefore of decisive importance. If the visit is successful, it will be a milestone for joining the most influential organization in the field, which sets the rules for all countries governing the struggle against money laundering and financing of terrorism, including non-member countries. Israel can thereby consolidate its international status in this area, and be included in the circle of makers of global policy in the matter, rather than simply being subject to their dictates.

"In addition, joining FATF will improve the reputation of the country in this realm, and give Israel a significant quality certification, which will help the economy and the business sector, and position Israel as a more attractive place for investment. Furthermore, joining the organization will upgrade cooperation between Israel and other countries in finance, intelligence, and legal assistance. Israel will be able to assume an active role in the international struggle against money laundering and financing of terrorism."

Binding standards

Joining FATF is a momentous step for Israel in the war against money laundering and undeclared capital. The organization is a leading inter-governmental agency founded in 1989 by the G7 countries. Its goal is to develop and promote policy in the struggle against money laundering and financing of terrorism on both the national and international levels. FATF currently has 34 member countries and two regional organizations. Member countries include the US, Canada, UK, France, Russia, China, Japan, South Korea, the Netherlands, Belgium, Switzerland, Norway, and Spain.

FATF sets standards that are binding on all countries in the struggle against money laundering and financing of terrorism. Among other things, the organization's recommendations require that countries make money laundering and financing terrorism criminal offenses, list the legislative changes required to empower seizure and confiscation of assets, call for imposing active obligations on financial institutions and providers of business services, and address supervision of financial institutions, the adoption of UN Security Council resolutions, and local and international cooperation.

In order to verify that countries are complying with the organization's recommendations, every country is periodically audited. The audits are conducted once every few years by a number of regional organizations authorized by FATF for the purpose, called FATF-Style Regional Bodies (FSRBs). Israel has been an active observer in the Council of Europe regional organization since 2006, and since joining, has undergone two international audits for checking its implementation of the FATF recommendations in 2008 and 2013.

In May 2012, Israel submitted an official applications to join FATF, initiated and led by then-Israel Money Laundering and Terror Financing Prohibition Authority head Adv. Paul Landes, together with the Ministries of Finance and Foreign Affairs. Over the years, a complicated professional and diplomatic process has been conducted in the matter, because the organization's policy is not to accept new countries as members. In 2014, however, the organization decided to open its ranks to additional countries, and invited a limited number of countries that passed an initial selection, including Israel, to begin the process of joining the organization.

In order to get the accession wheels rolling, Israel sent FATF a letter signed by the then-Ministers of Finance and Justice in 2014, expressing the commitment of Israel's political leadership to act in accordance with FATF's regulations, and to do everything required in the accession process. The next stage in the process, which was delayed by the early dissolution of the previous Knesset, is a visit by the delegation scheduled for this week. Later, after the visit's success has been successfully concluded, Israel will be invited to be an FATF observer, and in 2017, FATF, in cooperation with the regional organization of the Council of Europe (Moneyval), will conduct a comprehensive audit of the money laundering and financing of terrorism prohibition regime in Israel. Successfully passing this audit is a material condition for Israel's accession to FATF.

Substantial deficiencies

The planned visit will include meetings on the most senior levels in Israel, including the Ministers of Justice and Finance, Attorney General, Governor of the Bank of Israel, head of the Israel Tax Authority, Israel Security Authority chairman, State Attorney, Supervisor of Banks, Supervisor of Capital Markets, Insurance, and Savings, Ministry of Justice director general, Ministry of Finance director general, acting Ministry of Foreign Affairs director general, head of the Israel Police Investigations and Intelligence department, head of the Israel Police Lahav 433 National Fraud Unit, head of the Israel Money Laundering and Terror Financing Prohibition Authority, security agencies, and many other senior officials.

What are your expectations from the visit?

"The delegation is coming to assess the degree of commitment on the part of the political leadership and senior government officials to the international struggle against money laundering, financing of terrorism, and financing weapons of mass destruction, and the state's commitment to the process of joining the organization, which includes comprehensive international auditing.

"In view of the lengthy processes Israel has been carrying out in recent years in order to improve its standing in this area, we believe that during the visit, we can display the country's profound commitment and great progress made by the professional agencies in recent years, together with substantial achievements that they have led. We also hope that the visit will be a platform for bolstering cooperating between the professional agencies in Israel and the organization's bodies that will aid us in the accession process."

How does Israel stand in the struggle against unreported capital and money laundering?

"The most recent audit in Israel in 2013 showed extremely significant progress in the system for prohibiting money laundering and financing of terrorism, including both the technical aspect of conforming to the recommendations and in increasing awareness and effectiveness of prevention and punishment in these areas. This achievement is the result of a lengthy period during which great efforts and resources were invested in this sphere, with cooperation between the enforcement agencies, financial regulators, the Money Laundering and Terror Financing Prohibition Authority, and the private sector, which combined to create in-depth changes needed in this area.

"At the same time, the audit also pointed out substantial deficiencies. Some of these have already been redressed. For example, duties have been imposed on lawyers, accountants, and precious stones traders. A significant part has not yet been satisfactorily corrected. For example, no regime has been imposed on non-bank loans and other non-financial entities. In addition, it is necessary to improve the regime for currency changing, address regulatory gaps for all the financial entities, eliminate the threshold for a violation under Section 4 of the law, etc.

"It is also necessary to adapt the regime in Israel to changes that have been made in the global standard, such as adding tax violations to source violations (under the Prohibition on Money Laundering Law, E.L.-W.) and extending the arrangements concerning the identify of beneficiaries. These challenges are awaiting us, and Israel is engaged in a constant effort to address them, particularly in light of the upcoming international audit, which will strongly emphasize the question of the regime's effectiveness."

Essential cooperation

The FATF rules require countries to treat tax violations as source violations under the Prohibition on Money Laundering Law. In order to meet this requirement, an amendment was inserted into the Prohibition on Money Laundering Law as part of the Economic Arrangements Bill, and is slated to become binding legislation in the near future. What significance does this have in the struggle against unreported capital and money laundering, and how will it affect Israel's international status?

"The FATF recommendations, which were amended recently, explicitly require that severe tax violations be classed as source violations for purposes of the Prohibition on Money Laundering Law. Therefore, if Israel does not add them to the sources violations, it will be subject to significant international condemnation, which will affect its international status and rating in the audit scheduled for the near future - a condition for becoming a membe of the organization. Morally, there is no justification for 'ordinary' violations between two private parties being source violations, while tax violations - which are in effect theft from the public treasure and from all of us - are regarded as less important.

"With respect to the international sphere, in the past decade, agencies, organizations, authorities, and countries all over the world have been clearly signaling that their patience in the matter of tax evasion and countries that do not cooperate in this area has run out. From a broad international perspective, failure to cooperate fully and comprehensively in this area is already not a real option, and is liable to cause real damage to the country. We believe that Israel will act proportionately and judiciously in this matter, as is being done in most countries in the world."

Ministry of Justice director general Emy Palmor adds, "Israel regards playing a key role in determining global policy on money laundering and financing of terrorism as of supreme importance. I am convinced that the delegation members will be favorably impressed by Israel's willingness to take part in the global struggle against money laundering and financing of terrorism and its commitment to do whatever is necessary for acceptance in the organization and effectively implement the recommendations. During its visit, the delegation is scheduled to meet with Israeli government officials on the highest level from both the political and professional echelons, who will emphasize this commitment."

Published by Globes [online], Israel business news - - on November 1, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Dr. Shlomit Wagman-Ratner
Dr. Shlomit Wagman-Ratner
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