Israeli banks restricting foreign customers who won't waive secrecy

Dudu Zaken
Dudu Zaken

The banks are apparently complying strictly with new Bank of Israel directives meant to combat tax evasion.

In recent years, banks in Israel and abroad have raised their levels of vigilance in relation to overseas customers, following tighter regulation in this area, designed particularly to combat tax evasion through bank accounts outside the customer's country of residence.

Israel has also come into line on this. Three months ago, Supervisor of Banks David Zaken published directives to the Israeli banks on how to deal with overseas resident customers. Among other things, such customers are required to declare that the money in their accounts has been reported as required to the tax authorities in their countries. Another important clause requires that customers should sign on their agreement to waive banking confidentiality vis-a-vis overseas regulatory authorities. This allows the bank to transfer information on their customers to overseas authorities without asking the customer's permission, and perhaps even without their knowledge.

The banks have begun to implement these directives, and to require customers to sign this problematic consent. It has caused raised eyebrows on the part of customers, who are not keen to sign it, and are wary of the implications. Some of the banks, however, are apparently determined to abide by the supervisor's instructions, and from information that has reached "Globes" it emerges that they have started to apply sanctions on customers who have refused to sign.

"Some of the banks say unequivocally that unless the consent is signed, they will stop activity in the account," Adv. Leor Nouman, head of the Tax Group at S. Horowitz & Co., told "Globes". The Bank of Israel has allowed the banks to apply sanctions, such as refusing to allow cash withdrawals or the opening of a new account, and freezing activity on the account, if the customer refuses to sign the declaration as required. "There are customers who have become stuck in the middle of a real estate deal or a deal for purchasing shares, and who cannot complete the deal because the bank has frozen their account," adds Nouman.

What's your view of this demand on customers?

Nouman: "This is a demand that materially changes the status of the customer. On the other hand, customers have to realize that they can't fight this or ask for a relaxation, because it's a matter of a demand from the Bank of Israel."

It should be pointed out that the demand for a waiver of banking confidentiality is not a whim on the Bank of Israel's part, but is in line with demands that exist all over the world when it comes to dealing with foreign residents, and with the Standard for Automatic Exchange of Financial Account Information in Tax Matters published by the OECD last year. The standard aims to establish a common language between countries on this issue, and to make it easier for them to transfer information between them on foreign banking customers in each one.

"Customers should understand that signing the confidentiality waiver does not mean that their information is automatically transferred overseas. Nevertheless, when Israel officially adopts the OECD convention, which is due to happen in about three years' time, then there may be some kind of flow of information. What is certain is that the system for transferring data will be more sophisticated, and anyone who does not put their affairs in order with the relevant tax authorities in time will find they have a big problem on their hands," says Nouman.

Published by Globes [online], Israel business news - - on June 23, 2015

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

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