The State of Israel is adding Lawyers and Accountants to the list of AML and Terror Finance "Gate Keepers," as of September 2, 2015
Israel has taken slow but steady steps in its implementation of anti-money laundering laws and regulations, most of the time as a reaction to negative reports it has received from international organizations, such as Moneyval (the EU's committee of experts on the evaluation of anti-money laundering measures and the financing of terrorism). Moneyval has ruled that Israel is not executing the AML regime as it should, thus allowing money laundering criminals to exploit the lack of a tight regime to launder illicit funds. Because of the implications in not abiding with the international standards, Israel's Justice Department has enacted additional amendments and new regulations to the original law. These amendments and regulations have broadened the closed list of predicate crimes (an offense whose proceeds may become the subject of any of the money-laundering offenses), and added additional "Gate Keepers" to the list of the private sector's financial and non-financial service providers, which are a key element in the implementation of AML and the terror finance regime.
The FATF (the Financial Action Task Force), is an inter-governmental body that was established in 1989 by the member states of that body (including the EU, US, the Russian Federation and China). FATF’s purpose was to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The implementation of AML standards on DNFBPs (Designated Non-Financial Business and Professions) was recommended by FATF in 2003, as part of the "40 Recommendation" report. Recommendation No. 12 refers to the implementation of the AML regime (i.e., identification, client due-diligence and reporting obligations) DNFBPs, as well as the financial institutions that implemented the regime since the 1990's.
Since 2003, the EU and most OECD states have applied the AML regime to DNFBPs. These businesses and professions include non-financial businesses that may be in a position to receive illicit funds or assist in structuring legal structures for the purpose of money laundering or terror finance. These businesses include casinos, real estate agents, dealers in precious metals, and attorneys and accountants.
Although Israel passed the Prohibition of Money Laundering (the AML Act) in 2000, it has only now managed to pass an amendment to the AML Act that implements the regime on attorneys and accountants, after engaging in a long and ferocious battle with the Israeli Bar Association, that has been trying to cancel or at least postpone the implementation of the AML regime on attorneys in Israel. The result of the excruciating debates between the Israeli AML Authority and the Bar Association is a one-of-a-kind DNFBP AML regime that exempts attorneys and accountants in Israel from reporting to the authorities any suspicions they may have regarding a client and/or suspicions concerning the source of the client's capital.
The AML Regime does require attorneys and accountants, who provide their clients with specific business-related services (e.g., purchase or sale of real-estate, purchase or sale of a business, the establishment or management of a corporation and managing assets or bank accounts on behalf of a client), to identify the client's personal information and to perform a standard Know Your Client (KYC) procedure, using a standard form that was jointly drafted by the Justice Department and the Bar Association. Should an attorney or accountant believe, after they've examined the client's information, that there is a high risk the client is seeking the services for money laundering or terror finance purposes, the service provider must decline the client's request and may not provide the client with the requested service. As part of the new regime, providing the service in such a case is an ethical offence, and the service provider may face a disciplinary hearing with the Ethical Committee of the Bar Association, with sanctions that range from financial sanctions, and in extreme cases suspension and even disbarment.
Only time will tell if the new regime, in which clients of attorneys and accountants will need to provide information and sign forms relating to their identity and to the source of their capital, will actually assist in combating AML and terror finance. In any event, there is no doubt that Israeli attorneys and accountants must bear additional expenses in implementing the new regime.
Boaz Feinberg is a partner and head of the Tax and AML Department at ZAG/Sullivan. Mr. Feinberg is a member of the AML Committee at the Israeli Bar Association and provides assistance to attorneys with the correct implementation of the new AML regime on DNFBPs.