Countries/Jurisdictions of Primary Concern - Israel-West Bank/Gaza

Bureau of International Narcotics and Law Enforcement Affairs
Report

Israel

Israel is not regarded as a regional financial center. It primarily conducts financial activity with the markets of the United States and Europe, and, to an increasing extent, with Asia. Criminal groups in Israel, either home-grown or with ties to the former Soviet Union, United States, or EU, often utilize a maze of offshore shell companies and bearer shares to obscure ownership. Israel’s illicit drug trade is regionally focused, with Israel more a transit country than a market destination. The majority of money laundered originates from criminal activities abroad, including “carousel fraud,” which takes advantage of international value-added tax loopholes. Proceeds from domestic criminal activity also continue to contribute to money laundering activity. Electronic goods; liquor; cigarettes; cell phones; and pharmaceuticals, especially Viagra and Cialis, have all been seized in recent smuggling operations. Officials continue to be concerned about money laundering in the diamond industry, illegal online gaming rings, retail businesses suspected as money laundering enterprises, and public corruption. The government adopted the recommendations of the committee established by the Director General of the Prime Minister’s Office to explore the possibility of reducing the overall supply of Israeli currency in circulation, as part of an effort to combat both counterfeiting and money laundering activity.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/

Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: NO

criminalizATION OF money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Are legal persons covered: criminally: YES civilly: YES

Know-your-customer (KYC) rules:

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO

KYC covered entities: Banking corporations, credit card companies, trust companies, stock exchange members, portfolio managers, and the Postal Bank

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 47,856: January 1 - November 4, 2014

Number of CTRs received and time frame: 1,334,236: January 1 - November 4, 2014

STR covered entities: Banking corporations, credit card companies, trust companies, members of the Tel Aviv Stock Exchange, portfolio managers, insurers and insurance agents, provident funds and the companies who manage them, providers of currency services, money services businesses, and the Postal Bank

money laundering criminal Prosecutions/convictions:

Prosecutions: 60: January - November 2014

Convictions: 21: January - November 2014

Records exchange mechanism:

With U.S.: MLAT: YES Other mechanism: YES

With other governments/jurisdictions: YES

Israel is a member of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Israel_en.asp

Enforcement and implementation issues and comments:

Money service businesses will be required to implement customer due diligence (CDD) requirements as of March 20, 2015. As of July 15, 2015, dealers in precious stones will be subject to CDD requirements and, as of July 15, 2016, to suspicious transaction reporting (STR) requirements. Per an Order enacted by the Ministry of Justice on November 17, 2014, lawyers and accountants will be subject to CDD requirements as of September 2, 2015.

In fall 2014, the Government of Israel established an interagency group tasked with promoting advanced electronic means of payment as a means of reducing the overall supply of currency in circulation as part of an effort to combat both counterfeiting and money laundering activity. The team includes representatives from the Bank of Israel, the Prime Minister’s Office, the Ministry of Finance, the Israel National Police, the Israel Tax Authority, the Israel Antitrust Authority, the National Cyber Bureau, the Israel Money Laundering and Terror Financing Prohibition Authority, and the National Information Security Authority. Following testimony from both public entities and the private sector, the team will report on its recommendations in June 2015.

Israel’s “right of return” citizenship laws mean that criminal figures find it easy to obtain an Israeli passport without meeting long residence requirements. It is not uncommon for criminal figures suspected of money laundering to hold passports in a home country, a third country for business, and Israel.

Israel’s Financial Intelligence Unit, under the Ministry of Justice’s Israel Money Laundering Prohibition Authority, cooperates closely with the two bodies responsible for enforcement: the Israel Tax Authority’s Anti-Drug and Money Laundering Unit, and the Israel National Police. Israel cooperates on legal assistance and on extradition requests.

 


 

West Bank and Gaza

The Palestinian Authority (PA) provides most governance, services, and security in “Area A” zones of the West Bank. The PA provides some governance and services in “Area B” zones of the West Bank, in which Israel retains security control. The PA has limited access to approximately 60 percent of the West Bank designated as “Area C,” which remains under full Israeli civil and security control. The PA also has little ability to work in the Gaza Strip, which has been under de facto Hamas control since the 2007 coup, although with the formation of an interim government of independent officials in June 2014 under the Fatah-Hamas reconciliation agreement, ministries based in Gaza are supposed to be under the control of technocrats. Security apparatuses in Gaza remain under the control of Hamas.

There are 17 banks operating in the West Bank and Gaza, seven local and 10 foreign, working through a network of 252 branches and offices. There are also 275 money changers in both the West Bank and Gaza, and nine specialized lending institutions.

The Palestinian economy is primarily cash-based. Hawala networks, both licensed and unlicensed, are widely used for legitimate as well as illicit purposes. There is little data available on the extent of money laundering in the West Bank or Gaza. Minor narcotics trafficking and narcotics-based money laundering are present, principally in Palestinian areas that fall outside of the PA’s security control. Within territory located in Area A, narcotics trafficking and use are not major problems. PA security forces, however, have no effective control outside of Area A in the West Bank, which increases vulnerability to smuggling of consumer goods. Bulk cash smuggling, intellectual property rights violations, and counterfeit currency cases also have been reported. Trade-based money laundering, customs fraud, and other forms of value transfer allow criminal organizations to earn, move, and store supporting funds and illicit proceeds under the guise of legitimate trade. Currently, PA officials consider trade-based money laundering and customs fraud are among the largest money laundering threats to the PA.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/

DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: NO

CRIMINALIZATION OF MONEY LAUNDERING:

“All serious crimes” approach or “list” approach to predicate crimes: List approach

Are legal persons covered: criminally: YES civilly: YES

KNOW-YOUR-CUSTOMER (KYC) RULES:

Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES

KYC covered entities: Banks and other depository and lending institutions; money service businesses; financial leasing providers; funds transfer services; payment issuers; financial guarantors; trusts, and trust and company formation and service providers; foreign exchanges; securities and portfolio companies, managers, and intermediaries; insurers and insurance agents; the Future Contracts Trading Exchange Regulation Authority; real estate agents and brokers; dealers in precious metals and stones, high-value goods, and antiquities; attorneys and accountants; nominee shareholders; and entities providing a registered head office or commercial, store, mailing, or administrative address for a partnership or legal entity or arrangement

REPORTING REQUIREMENTS:

Number of STRs received and time frame: 51 in 2014

Number of CTRs received and time frame: 384,774 in 2014

STR covered entities: Banks and other depository and lending institutions; money service businesses; financial leasing providers; funds transfer services; payment issuers; financial guarantors; trusts, and trust and company formation and service providers; foreign exchanges; securities and portfolio companies, managers, and intermediaries; insurers and insurance agents; the Future Contracts Trading Exchange Regulation Authority; real estate agents and brokers; dealers in precious metals and stones, high-value goods, and antiquities; attorneys and accountants; nominee shareholders; and entities providing a registered head office or commercial, store, mailing, or administrative address for a partnership or legal entity or arrangement

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

Prosecutions: 57 in 2014

Convictions: 3 in 2014

RECORDS EXCHANGE MECHANISM:

With U.S.: MLAT: NO Other mechanism: YES

With other governments/jurisdictions: YES

The PA is an observer to the Middle East and North Africa Financial Action Task Force (MENAFATF), a FATF-style regional body. The Palestinian Authority has not undergone a mutual evaluation.

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The PA has effective laws and regulations to address money laundering, notably Anti-Monetary Laundering Law #9 of 2007 (AML Law). However, the penal code (which is Jordanian law) is outdated, and most of the predicate offenses for money laundering are not felonies under this law. The PA currently has no laws to specifically address terrorism, terrorist acts, or terrorism financing, per se, but amendments to the AML Law to include terrorism, terrorist acts, and terrorism financing currently are under consideration by the Cabinet and, once approved, could be signed into law by executive decree. Presently, cases considered terrorism are investigated and prosecuted under another specific crime and within the existing penal code, for example, crimes against the state, possession of illegal weapons, and conspiracy.

The PA submitted documents to accede to the UN Convention Against Corruption (UNCAC) on April 2, 2014, and according to the United Nations, the Convention entered into force on May 2, 2014. Although compliant with the UN Convention against Transnational Organized Crime and the 1988 UN Drug Convention, the PA has not sought to become a signatory of these conventions. The PA is currently not in compliance with any UN convention related to terrorism, terrorist acts, or terrorism financing and does not implement UNSCRs 1267 or 1373.

KYC in the West Bank and Gaza is controlled by the AML Law and the Palestine Monetary Authority Law #2 of 1997. The PA has a very effective supervision and regulatory compliance function for financial institutions and non-financial businesses and professions (DNFBPs). The Palestine Monetary Authority (PMA) is an independent agency of the PA. The PMA is responsible for supervision and regulatory compliance of financial institutions and precious metal dealers. Recently, the PMA implemented effective controls over licensed money service businesses. The remaining DNFBPs are supervised by the Palestine Capital Market Authority.

The Financial Follow-Up Unit (FFU) is a fully functional financial intelligence unit with 12 employees and a computer system linking it with all 17 banks licensed to operate in the PA. The banks file both suspicious transaction reports (STRs) and currency transaction reports (CTRs) electronically through this system. The number of filed STRs increased in 2014, while CTRs decreased slightly over the past year. The FFU also has developed an Unusual Transaction Report, covering transactions that have not been articulated as suspicious but bear closer scrutiny. Although the FFU has adequate staffing, authority, and equipment, its full operational effectiveness has not been realized due, in part, to restrictions in AML Law #7 of 2007. Article 31 restricts information sharing between the FFU and any law enforcement agency, with the exception of the Attorney General’s Office. The restrictions on information sharing have compromised the FFU’s ability to disseminate information and minimized the FFU’s function and ability to support law enforcement.

Prosecutors within the Attorney General’s Office (AGO) are the chief investigators in the PA, holding all the powers of an investigative judge. The prosecutors’ lack of manpower and investigative experience has slowed the successful prosecution of AML cases. In response, the PA has formed a multi-agency task force, under which the AGO prosecutors will delegate authority to law enforcement agencies and to the FFU to more thoroughly investigate cases before they are brought before judges. Although the task force is intended to increase information sharing among law enforcement agencies and the FFU, meetings have been held on an ad hoc schedule. Despite the noted problems, the number of prosecutions remained consistent between 2013 and 2014. At the close of 2014, in addition to the three convictions, eight cases were still under investigation, and 38 non-guilty verdicts had been reached. The PA continues to struggle to conclude AML cases primarily due to the limited capacity of police to investigate and document financial crimes appropriately.