Strasbourg, 22 August 2008 MONEYVAL (2008) 01 EUROPEAN COMMITTEE ON CRIME PROBLEMS (CDPC) COMMITTEE OF EXPERTS ON THE EVALUATION OF ANTI-MONEY LAUNDERING MEASURES AND THE FINANCING OF TERRORISM (MONEYVAL) DETAILED ASSESSMENT REPORT on ISRAEL 1 ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM Memorandum prepared by the Secretariat Directorate General of Human Rights and Legal Affairs (DG-HL) 1 Adopted by the MONEYVAL Committee at its 27 th Plenary Session (Strasbourg, 7-11 July 2008). All rights reserved. Reproduction is authorised, provided the source is acknowledged, save where otherwise stated. For any use for commercial purposes, no part of this publication may be translated, reproduced or transmitted, in any form or by any means, electronic (CD-Rom, Internet, etc) or mechanical, including photocopying, recording or any information storage or retrieval system without prior permission in writing from the MONEYVAL Secretariat, Directorate General of Human Rights and Legal Affairs, Council of Europe (F-67075 Strasbourg or [email protected]). 2 TABLE OF CONTENTS I. PREFACE.................................................................................................................................................... 7 II. EXECUTIVE SUMMARY........................................................................................................................ 8 III. MUTUAL EVALUATION REPORT .................................................................................................... 15 1. GENERAL .................................................................................................................................... 15 1.1 General information on Israel ................................................................................................... 15 1.2 General Situation of Money Laundering and Financing of Terrorism...................................... 19 1.3 Overview of the Financial Sector and Designated Non-Financial Businesses and Professions (DNFBP) ............................................................................................................................ 21 1.4 Overview of commercial laws and mechanisms governing legal persons and arrangements... 28 1.5 Overview of strategy to prevent money laundering and terrorist financing.............................. 30 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES................................... 36 2.1 Criminalisation of money laundering (R.1 and 2) .................................................................... 36 2.2 Criminalisation of terrorist financing........................................................................................ 40 2.3 Confiscation, freezing and seizing of proceeds of crime (R.3)................................................. 43 2.4 Freezing of funds used for terrorist financing (SR.III) ............................................................. 46 2.5 The Financial Intelligence Unit and its functions (R.26, 30 and 32) ........................................ 51 2.6 Law enforcement, prosecution and other competent authorities œ the framework for the investigation and prosecution of offences, and for confiscation and freezing (R.27 and 28)................ 63 2.7 Cross Border Declaration or Disclosure (SR IX)...................................................................... 75 3. PREVENTIVE MEASURES - FINANCIAL INSTITUTIONS ............................................... 80 3.1 Risk of money laundering / financing of terrorism................................................................... 84 3.2 Customer due diligence, including enhanced or reduced measures (R.5 to R.8)..................... 84 3.3 Third Parties and introduced business (Recommendation 9).................................................. 108 3.4 Financial institution secrecy or confidentiality (R.4).............................................................. 109 3.5 Record keeping and wire transfer rules (R.10 and SR. VII) ................................................... 110 3.6 Monitoring of transactions and relationships (R.11 and 21)................................................... 115 3.7 Suspicious transaction reports and other reporting (Recommendations 13, 14, 19, 25 and SR.IV) 119 3.8 Internal controls, compliance, audit and foreign branches (R.15 and 22)............................... 127 3.9 Shell banks (Recommendation 18) ......................................................................................... 132 3.10 The supervisory and oversight system - competent authorities and SROs / Role, functions, duties and powers (including sanctions) (R. 23, 29, 17 and 25).......................................................... 134 3.11 Money or value transfer services (SR.VI)............................................................................... 151 4. PREVENTIVE MEASURES œ DESIGNATED NON FINANCIAL BUSINESSES AND PROFESSIONS ..................................................................................................................................... 153 4.1 Customer due diligence and record-keeping (R.12) ..................................................................... 154 4.2 Suspicious transaction reporting (R. 16)................................................................................. 155 4.3 Regulation, supervision and monitoring (R. 24-25)................................................................ 156 4.4 Other non-financial businesses and professions/ Modern secure transaction techniques (R.20) 157 5. LEGAL PERSONS AND ARRANGEMENTS AND NON-PROFIT ORGANISATIONS. 158 5.1 Legal persons œ Access to beneficial ownership and control information (R.33) .................. 158 5.2 Legal Arrangements œ Access to beneficial ownership and control information (R.34) ........ 162 5.3 Non-profit organisations (SR.VIII)......................................................................................... 164 6. NATIONAL AND INTERNATIONAL CO-OPERATION ................................................... 169 3 6.1 National co-operation and co-ordination (R. 31 & R.32) ....................................................... 169 6.2 The Conventions and United Nations Special Resolutions (R. 35 and SR.I) ......................... 172 6.3 Mutual legal assistance (R.32, 36-38, SR.V).......................................................................... 174 6.4 Extradition (R. 37 and 39, SR.V)............................................................................................ 176 6.5 Other Forms of International Co-operation (R. 40 and SR.V)................................................ 178 7. OTHER ISSUES......................................................................................................................... 182 7.1 Resources and Statistics.......................................................................................................... 182 8. TABLES ...................................................................................................................................... 183 Table 1. Ratings of Compliance with FATF Recommendations ....................................................... 183 Table 2: Recommended Action Plan to improve the AML/CFT system.......................................... 191 9. COMPLIANCE WITH THE SECOND EUROPEAN UNION ANTI-MONEY LAUNDERING DIRECTIVE .............................................................................................................. 198 10. LIST OF ANNEXES ....................................................................................................................... 210 4 LIST OF ACRONYMS USED AF Asset Forfeiture AML Law Anti-Money Laundering Law AML/CFT Anti Money Laundering and Countering the Financing of Terrorism BOI Bank of Israel CCOL Combating Criminal Organisations Law, 5763-2003 CDD Customer Due Diligence CETS Council of Europe Treaty Series CFT Combating the financing of terrorism CID Criminal Investigations Division CPO Criminal Procedure Ordinance (Search and Seizure) [New version] (1969) CTR Cash Transaction Reports DDO Dangerous Drugs Ordinance [New Version] (1973) DNFBP Designated Non-Financial Businesses and Professions EAE (team) Economic Assault Enforcement team ESW Egmont Secure Web ETS European Treaty Series [since 1 January 2004: CETS = Council of Europe Treaty Series] FATF Financial Action Task Force FIU Financial Intelligence Unit ILAL International Legal Assistance Law (1998) IMPA Israel Money laundering and Terror Financing Prohibition Authority IN Interpretative Note IP Israel Police ISA Israel Securities Authority IT Information Technology KNESSET Israeli Parliament LEA Law Enforcement Agency ML Money Laundering MLA Mutual Legal Assistance MOF Ministry of Finance MOJ Ministry of Justice MOU Memorandum of Understanding 5 MLPD Money Laundering Prevention Directorate MSB Money services business NCCT Non-cooperative countries and territories NIS New Israeli Shekel PEPs Politically Exposed Persons PMLL Prohibition of Money Laundering Law PTFL Prohibition on Terrorist Financing Law SRO Self-Regulatory Organisation STRs Suspicious transaction reports SWIFT Society for Worldwide Interbank Financial Telecommunication TF Terrorist Financing UAR Unusual Activity Report 6 I. PREFACE 1. In January 2006, the Committee of Ministers of the Council of Europe (the Ministers‘ Deputies) accepted the application of Israel, not being a member State of the Council of Europe, to join the terms of reference of MONEYVAL as an —active observer“ participating