About one in six new immigrants or returning Israelis in the years 2008-2012 whose files were examined by the State Comptroller’s Office were suspected of involvement in money laundering.
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That was one of the findings of last week’s comptroller’s report in a chapter on Israeli law entitling new immigrants and returning residents to a 10-year tax exemption on income earned abroad.
Since it joined the Organization for Economic Cooperation and Development four years ago, Israel has gradually tightened conditions for immigrants and returning Israelis taking advantage of the exemption.
But a proposal by the Finance Ministry to close the loophole in the Budget Arrangements Law 18 months ago failed to pass the Knesset. Meanwhile, the OECD itself said last year that the exemption Israel grants is inappropriate.
Last week, finance ministers and tax chiefs from 51 countries, including Israel, signed an agreement to automatically swap tax information, which Germany’s finance minister said heralded the end of tax evasion via secret bank accounts.
The State Comptroller – in a report last week that deals with tax issues, such as suspected tax evasion by powerful rabbis – warned that Israel was therefore falling short of global benchmarks. “The exemption does not meet international standards of transparency and exchange of information, and there is a concern that Israel would be provided funds derived from crime,” it said.
The comptroller acknowledged that the exemption was aimed at encouraging Diaspora Jews to immigrate and for Israelis to come back home, but it said the broad exemption from reporting had created an incentive for people to launder money.
“This threatens to hurt society and the economy,” the comptroller said. “Israel doesn’t live in a vacuum. It must join the global battle against money laundering and tax avoidance by taking steps to increase transparency and the exchange of information.”
Comptroller Joseph Shapira urged the Finance Ministry, Tax Authority and Money Laundering Prohibition Authority to step up enforcement to prevent money earned in violation of the law from entering Israel. The comptroller said Israel must also align its disclosure requirements with international standards.
It said the Tax Authority must lobby for a law that would empower it to require new immigrants and returning Israelis to disclose their capital and other assets they bring to Israel. The law should also require new immigrants and returning Israelis to file income tax reports like other Israeli citizens.
The comptroller also urged the Ministry of Immigration and Absorption to join in the effort, saying it should be turning over information on new arrivals to the tax and money laundering authorities That would allow financial regulators to systematically vet new immigrants and returning Israelis for suspected misuse of the exemption.