The Justice Ministry and Israel Money Laundering and Terrorist Financing Prohibition Authority (IMPA) are working to amend the current money-laundering law. They hope to introduce many changes, which they say are required to fight the problem. One of the most dramatic is reducing the amount that will require a financial check to just 50,000 shekels ($12,830). The proposed amendment will now go to the Ministerial Committee for Legislation in its next step toward the statute book.
At present, the money-laundering law currently puts a cap of 500,000 shekels on money and 150,000 shekels on possessions – only amounts above this can arouse suspicion from the authorities. Possessions include art, religious artifacts and Judaica, vehicles, boats and aircraft, precious stones and metals, stocks and antiquities. The Justice Ministry is seeking to cancel the distinction between types of possessions and lower the limit to 50,000 shekels.
Ministry officials say that according to recommendations by international bodies, they should not be limiting money-laundering crimes of this kind by possession or amount. Moneyval, a European organization that monitors how countries observe international standards in the fight against money laundering and terror funding, tracked Israel from 2008 to 2013, and found that this was a deficiency that needed amending.
However, the Israel Bar Association strongly opposes the new amendment. It sent a position paper that Yael Grossman and Gil Dachoach – the cochairs of the bar’s anti-money-laundering committee – wrote to the deputy attorney general and IMPA, claiming that the “proposed 50,000 shekel ceiling is too low, and would have negative consequences for the broader public, traders and service providers – including lawyers – who carry out deals worth more than 50,000 shekels and put themselves at risk of committing an offense.”
The Public Defender’s Office also opposes the amendment, believing that it doesn’t meet the law’s declared goal of focusing on serious offenses and organized crime. In a position paper penned by the office’s Anat Horovitz and Moran Carmon, the two warn that setting the limit at the relatively low amount of 50,000 shekels is liable to put undue burden on everyday traders.
“Take, for example, someone who wants to buy a secondhand car worth over 50,000 shekels and arouses suspicion of a ‘nonkosher’ purchase (even if the suspicion is unfounded). He will be forced to perform an extensive check to rule out this suspicion,” Horovitz and Carmon write in the position paper. “In the opinion of the defender, the limit should be much higher. In the same way, someone who sells a car for this amount will have to authenticate that the source of the buyer’s money isn’t from money laundering.”
Adapting to international standards
It’s not the only proposed change to the money-laundering law. The legal memorandum includes a number of changes the Justice Ministry and IMPA say are needed, including past proposals the Knesset previously rejected. Additional changes, related to money laundering in relation to tax violations, are being advanced separately by the Finance Ministry.
Justice Ministry officials hope the amendment will achieve two goals: First, streamlining and improving the fight against money laundering; and second, adapting the existing legislation to international standards. An international inspection conducted in Israel demanded some of the proposed changes to improve Israel’s observance of international standards.
However, Grossman and Dachoach say “the scope of the [current] money-laundering prohibition law is already broad, and the punishments it sets are already very heavy. The proposed changes would broaden its scope even further and hurt the trading and service-providing public that have no contact with the core of money-laundering offences, and the law should not be applied to them.”
The Public Defender’s Office believes the proposed changes will affect the status quo and expand the law’s application and influence far beyond the “drug dealers and organized criminals” the law was originally intended to combat.
“If the amendment is adopted, activities considered legitimate today will become forbidden and have the most serious criminal implications of money laundering,” stress Horovitz and Carmon in their position paper. They say the ministry’s explanation does not specify any need for making enforcement more effective, and does not describe any difficulties in the current situation, “certainly not the kind that you can’t find a more appropriate solution for.”
One of the main changes outlined regards Section 4 of the law, which sets a prison term of seven years for anyone knowingly making an illegal transaction involving a possession. This section has an exception, whereby knowledge does not include turning a blind eye. If the person conducting the action didn’t know the property was nonkosher but only suspected as much, this would not be considered an offense. However, Justice Ministry and money-laundering prevention authority officials believe there is no justification for this exception.
From the beginning, when the anti-money-laundering law was enacted in 2000, this exception was introduced out of fear of over-expanding the definition of a criminal offense. The fear was undermining daily trading life, in light of the obligation to conduct checks on the public. However, Justice Ministry officials thought the exception was a mistake at the time. According to them, the fact that turning a blind eye was made a legal exception created an anomaly between money-laundering offenses and the rest of criminal legislation, because all other criminal offenses that demand awareness do include turning a blind eye.
The Bar Association, however, argues that the exception was there for a reason, and it opposes its repeal. “The character of money-laundering offenses is different than the character of all other criminal offenses, in that the public’s knowledge and understanding regarding the nature and scope of money-laundering offenses is limited,” stress Grossman and Dachoach in their position paper. “If the amendment is made, it will unreasonably expand the scope of applying the law, will hurt trading life and will put a disproportionate burden on the public to look into every suspicion regarding the source of money coming from the other side of a deal,” they state.
According to the two lawyers, the result will be especially serious if the repeal is made in tandem with lowering the financial limit to 50,000 shekels.
Another amendment is in regard to Section 3 of the law. This section sets prison time for anyone who makes a possession transaction in order to conceal legal status or source. The memorandum relates to Section 3b, in which even if the property is kosher, submitting false information will carry a punishment of 10 years in prison.
Justice and IMPA officials decided to reduce this punishment to five years, but it will remain 10 years for prohibited property. However, the Bar Association stresses that five years is still an excessive amount, and the Public Defender’s Office – which believes the proposed amendment does not solve the existing problem – concurs. According to its position paper, the amendment sets “a very severe punishment that is out of proportion regarding permitted purchases.” The paper also emphasizes that even today, when the punishment for this offense is already 10 years, the courts tend to act with extreme caution and hand down sentences of several months at most for these offenses.
Hurting attorney-client confidentiality
Another change deals with the powers of the business service supervisor – a recently established body in the Justice Ministry. The supervisor’s job is to enforce a new order that went into effect last September, according to which lawyers and accountants must familiarize themselves with their client and determine whether the action he asks them to conduct involves money laundering. The supervisor is authorized to conduct visits to the offices of lawyers and accountants, to request documents and convene a committee that is able to levy financial sanctions in cases where lawyers violate the order.
This is a dramatic change for the law firms. Yet Justice Ministry and IMPA officials believe the change is not enough to fight money laundering. They now want the supervisor and his assistants to be able to hand over information and documents they discover during the course of their work to enforcement and investigation officials. Currently, there is a confidentiality obligation prohibiting the transfer of such information. However, according to the new amendment, in cases where the supervisor receives a request from an investigatory body, or in cases in which he suspects a criminal offense was committed, he can hand over the documents in his possession.
The Bar Association opposes this change, too. It claims the change would damage attorney-client confidentiality. “It is unreasonable to harm the damage to this confidentiality by handing over information from the supervisor to investigative authorities,” Grossman and Dachoach argue. They suggest that in cases of serious criminal offenses, a request to remove confidentiality will be submitted to the court, and it will be subject to the same mechanism regarding documents that are seized from lawyers’ offices when attorney-client privilege is invoked.