DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS ISRAEL: PHASE 2 REPORT ON THE APPLICATION OF THE CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN INTERNATIONAL BUSINESS TRANSACTIONS AND THE 1997 RECOMMENDATION ON COMBATING BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS This report was approved and adopted by the Working Group on Bribery in International Business Transactions on 11 December 2009. TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................................. 4 A. INTRODUCTION ................................................................................................................................ 5 1. The On-Site Visit .................................................................................................................................. 5 2. General Observations............................................................................................................................ 5 (a) Economic System ........................................................................................................................ 5 (b) Political and Legal Systems ......................................................................................................... 6 (c) Implementation of the Convention and the Revised Recommendation ...................................... 7 (d) Cases Involving the Bribery of Foreign Public Officials ............................................................ 7 3. Outline of the Report ............................................................................................................................ 9 B. PREVENTION, DETECTION AND AWARENESS OF FOREIGN BRIBERY ............................... 9 1. General Efforts to Raise Awareness ..................................................................................................... 9 (a) Government Initiatives to Raise Awareness ................................................................................ 9 (b) Private Sector Initiatives to Raise Awareness ........................................................................... 10 2. Reporting and Whistleblowing ........................................................................................................... 11 (a) Duty to Report Crimes ............................................................................................................... 11 (b) Whistleblowing and Whistleblower Protection ......................................................................... 13 3. Officially Supported Export Credits ................................................................................................... 15 (a) Awareness-Raising Efforts ........................................................................................................ 15 (b) Detection and Reporting of Foreign Bribery ............................................................................. 15 4. Official Development Assistance (ODA) ........................................................................................... 16 5. Defence Exports.................................................................................................................................. 16 (a) Awareness-Raising Efforts ........................................................................................................ 17 (b) Detection and Reporting of Foreign Bribery ............................................................................. 17 6. Foreign Diplomatic Representations .................................................................................................. 18 (a) Awareness-Raising Efforts ........................................................................................................ 18 (b) Detection and Reporting of Foreign Bribery ............................................................................. 18 7. Tax Authorities ................................................................................................................................... 19 (a) Non-Deductibility of Bribes ...................................................................................................... 19 (b) Awareness, Training and Detection ........................................................................................... 22 (c) Sharing of Information and Duty to Report Foreign Bribery .................................................... 23 8. Accounting and Auditing .................................................................................................................... 25 (a) Awareness and Training ............................................................................................................ 25 (b) Accounting and Auditing Standards .......................................................................................... 25 (c) Internal controls, supervisory boards and audit committees ..................................................... 27 (d) External Auditing ...................................................................................................................... 28 (e) Duty to Report Foreign Bribery ................................................................................................. 30 (f) Accounting and Auditing of the Public Sector .......................................................................... 30 9. Anti-Money Laundering ..................................................................................................................... 31 (a) Reporting Requirements ............................................................................................................ 32 (b) Typologies and Guidelines ........................................................................................................ 33 (c) Sanctions for Failure to Report .................................................................................................. 33 2 C. INVESTIGATION, PROSECUTION AND SANCTIONING OF FOREIGN BRIBERY AND RELATED OFFENCES ................................................................................................................................ 34 1. Investigation and Prosecution of Foreign Bribery .............................................................................. 34 (a) Law Enforcement Authorities ................................................................................................... 34 (b) Prosecutors ................................................................................................................................ 35 (c) The Conduct of Investigations and Prosecutions ....................................................................... 36 (d) Investigative Techniques and Bank Secrecy ............................................................................. 39 (e) Mutual Legal Assistance and Extradition .................................................................................. 40 2. The Offence of Foreign Bribery ......................................................................................................... 43 (a) Elements of the Offence ............................................................................................................ 43 (b) Defences and Exemptions from Prosecution ............................................................................. 45 (c) Jurisdiction ................................................................................................................................ 47 (d) Limitation Periods and Delays in Proceedings .......................................................................... 52 3. Liability of Legal Persons ................................................................................................................... 53 (a) The legal basis for liability of legal persons in Israel ................................................................ 53 (b) Vagueness in the law and exercise of prosecutorial discretion ................................................. 57 (c) Uncertainty as to the number of prosecutions and convictions of legal persons for intentional criminal offences .................................................................................................................................... 58 4. The Offence of Money Laundering .................................................................................................... 60 (a) Scope of the Money Laundering Offence .................................................................................. 60 (b) Sanctions for Money Laundering .............................................................................................. 61 (c) Enforcement of the Money Laundering Offence ....................................................................... 61 5. The Offence of False Accounting ....................................................................................................... 61 (a) Offences against the Tax System ............................................................................................... 61 (b) Offences against the Securities Law .......................................................................................... 62 (c) Government Companies Law .................................................................................................... 62 6. Sanctions for Foreign Bribery ............................................................................................................ 63 (a) Criminal Sanctions