## 1. Recommended Action Plan to Improve Compliance with the FATF

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---

### Introduction and methodology
- Report type: Report on the Observance of Standards and Codes (ROSC) for the FATF 40 Recommendations and 8 Special Recommendations on Combating the Financing of Terrorism.
- Prepared by: staff of the International Monetary Fund and an independent anti-money laundering expert (IAE) not under the supervision of Fund staff.
- Assessment used: comprehensive methodology approved by the Fund/Bank Boards and the FATF.
- Information base and mission dates: based, with a few exceptions, on the information available at the time of the mission - November 26-December 10, 2002.
- IAE contributors: Kiyotaka Sasaki (MAE), Margaret Cotter (LEG), and Jack de Kluiver (U.S. Justice Department). Portions attributable to the IAE are shown in italics in the source.

### Main findings — overview
- Since an initial 2000 FATF review, Israel has made significant progress and is recognized to have a comprehensive AML/CFT legal and institutional framework.
- Key legislative and institutional developments:
  - Prohibition on Money Laundering Law (PMLL) enacted in August 2000 addressing money laundering as a criminal offence and customer identification, record-keeping, and reporting requirements.
  - Numerous regulations promulgated to implement the PMLL.
  - In 2001, orders issued to banks, members of the stock exchange, portfolio managers, insurance companies, provident funds, and the postal bank to require customer identification, record-keeping, and submission of UTRs and CTRs.
  - Israel Money Laundering Prohibition Authority (IMPA) became operational as Israel’s FIU in January 2002 and began receiving UTR and CTR reports in February 2002.
  - IMPA joined the Egmont Group of Financial Intelligence Units in June 2002.
- Assessment identified areas to be strengthened despite an extensive framework and high level of awareness.
- Amendment to the PMLL in May 2002 extended AML/CFT requirements to currency service providers.

### A. Criminal justice measures and international cooperation
- Terrorism financing (FT)
  - Israel has long criminalized terrorism financing and has ratified and implemented the Vienna Convention and United Nations Security Council Resolution 1373.
  - Israel’s ratification of the United Nations Convention on the Suppression of the Financing of Terrorism came into force in February 2003 (signed July 2000).
  - Authorities believe current law (including laws dating from 1945 and 1948) already criminalizes financing of terrorism; amendments to the PMLL are planned to provide additional criminal provisions prohibiting the financing of terrorism and to make obligations to report regarding terrorist property more explicit and permanent.
  - Planned provisions would address terrorist acts directed at non-Israeli interests.
- Palermo Convention
  - Ratification not expected immediately but is close; “All steps necessary for ratification to be effective, and any domestic legislation necessary for full implementation, should be undertaken as soon as possible.”
- Money laundering criminalization and thresholds
  - Money laundering is criminalized, but one major offense contains a substantial monetary threshold.
  - Section 4 of the PMLL criminalizes acquisition, possession, and use of criminal proceeds without a showing of concealment but contains “a substantial monetary minimum” (for monies at about $80,000 over a three-month period).
  - Section 3 of PMLL criminalizes conduct without a threshold.
  - Recommendation: re-evaluate use of two thresholds (one monetary, another for other assets) and consider an all-serious-crimes approach or all serious crimes over a specified penalty-plus-list approach to predicate crimes; at minimum, every offense under Israeli law with a maximum deprivation of liberty of four years should be set forth as a predicate offense.
- Confiscation, seizure, and forfeiture
  - Legal framework for seizure and forfeiture is complex; statutory provisions exist in a number of laws.
  - Criminal proceedings: seizure and forfeiture generally available, but secondary issues include a 90-day limitation for provisional freezing before indictment and procedures/standards for restraint-order hearings.
  - PMLL’s civil forfeiture provisions are narrowly drawn, making civil forfeiture largely unavailable.
  - Recommendation: comprehensive civil forfeiture scheme (as under consideration through amendments to the PMLL) would support effective AML/CFT in practice.
  - Review of confiscation/restraint mechanisms is occurring in some areas and contemplated in others.

### FIU (IMPA): processes for receiving, analyzing, and disseminating intelligence
- Functions and capabilities
  - IMPA collects CTR and UTR information, maintains and proactively analyzes information to identify targets and new ML or FT typologies, and acts as a privacy filter permitting dissemination to law enforcement or intelligence agencies only for financial information likely associated with criminal activity.
  - Law enforcement investigators cannot review CTR and UTR information themselves and must rely upon IMPA analysis.
- Operational statistics and concerns
  - Through the first 10 months of operation, IMPA referred only 32 UTRs to law enforcement, which is less than 10 percent of UTRs filed.
  - IMPA has timely executed dozens of requests for CTR or UTR information from law enforcement.
  - IMPA participation in Egmont and MOUs with another 10 foreign FIUs enables cross-border exchange of financial data.
  - IMPA appears well funded with a very professional and qualified staff.
  - Concerns:
    - Utility of information captured by CTRs is dubious due to unusually high reporting thresholds for currency transactions.
    - High percentage (37 percent of all CTRs filed) of transfers abroad have been put into the CTR database.
- Tipping-off protections
  - PMLL and associated orders contain provisions prohibiting financial institutions from tipping-off customers when information is reported to IMPA, but in some instances provisions are limited in scope and merit review for effectiveness.
  - BOI indicated post-mission that an amendment to the Banking Order is under consideration to address assessors’ concerns in the context of banking.

### Law enforcement and prosecution
- Investigative agencies
  - Police and Customs Service are authorized to investigate ML cases (Customs only for customs-related ML offences).
  - Israel Security Agency has primary responsibility for FT intelligence gathering.
  - Agencies have created dedicated AML/CFT enforcement programs with full-time personnel and resources; Police’s AML unit is a headquarters unit coordinating investigations, training, and liaison.
- Prosecution resources and capability
  - Currently, 24 prosecutors who specialize in tax and economic crimes prosecute most ML and FT cases in the Tel Aviv District Office of the state attorney’s office.
  - There are currently less than 10 ML cases under consideration.
  - The 500 prosecutors in other state attorney’s offices may handle ML cases but are encouraged to consult the specialized Tel Aviv Unit.
  - Expectation of a dramatic increase in ML investigations and asset forfeiture cases due to the wide array of predicate offenses listed in the PMLL.
  - Identified needs: wider ML and asset forfeiture prosecutorial expertise in other offices and more ML and asset forfeiture training than presently available.
- International cooperation
  - Israel’s Legal Assistance Law permits providing a full range of legal assistance even in the absence of dual criminality or a treaty.
  - Laws and procedures for extradition for ML and FT offences meet international standards.
  - Israeli courts empowered to enforce foreign forfeiture orders in drug and money-laundering matters; in late January 2003 this was extended to include terrorism and terrorism-financing crimes.
  - Recommendation: prioritize legislation permitting enforcement of foreign forfeiture orders; consider extension to permit sharing of property forfeited in domestic matters.

### B. Preventive measures for financial institutions
- Scope of coverage and supervisory arrangements
  - AML legislation applies to: banking corporations; members of the stock exchange; portfolio managers; insurers and insurance agents; provident funds and companies managing provident funds; the postal bank; and providers of currency service.
  - Seven orders issued to financial sectors require customer identification, record keeping, and submission of UTRs and CTRs.
  - Supervisory authorities: BOI for banks; Israel Securities Authority for securities firms; MOF for insurance, currency service providers and provident funds.
  - Supervisors have sufficient power to act against institutions failing AML/CFT obligations and have issued regulations, circulars, and letters to enhance compliance details.
  - BOI, MOF, and Israel Securities Authority have initiated onsite inspections focusing on AML/CFT compliance using inspection manuals developed for AML/CFT compliance.
- Coordination and information-sharing constraints
  - Despite multiplicity of responsible institutions, there appears to be strategic coordination and effective initial implementation.
  - Cooperation constraints:
    - Under current sector-specific laws, the governor of BOI and the Commissioner of Insurance of MOF may share only criminal information.
    - BOI may share information with foreign supervisors with a letter of consent from banks; plan amendments to permit similar cooperation with foreign supervisors are in development.
    - Chairperson of Israel Securities Authority may share information with supervisory and other authorities, domestic and foreign, within discretion.
  - Recommendation: consider amendments to laws to widen possibilities for sharing/cooperating with domestic and foreign supervisory authorities regarding individual matters.
  - Authorities established working groups in January 2003 composed of representatives from relevant authorities responsible for AML/CFT to improve coordination.
- Insurance sector coverage gap
  - MOF’s order for customer identification, record keeping and suspicious activity reporting is limited to life insurance, thereby excluding nonlife insurance activities.
  - Recommendation: assess risks of ML/FT to nonlife insurance business and consider application of AML legislation to nonlife insurance transactions.
- Monetary thresholds and reporting practices
  - Weakness across financial sectors: monetary thresholds limit reporting of unusual transactions in sample lists within orders.
  - Example: for banking, atypical transactions and wire transfers lacking appropriate information are deemed suspicious only if in excess of NIS 200,000 (approximately $43,000).
  - These thresholds may signal to financial institutions that unusual transactions below thresholds need not be reported.
  - BOI indicated post-mission that such thresholds are being reconsidered.

### UTR guidance, dissemination, and supervisory feedback
- UTR submissions have a short history "since February 2002".
- The IMPA and supervisors have:
  - Recognized the importance of providing guidance and feedback to financial institutions.
  - Disseminated information on trends in ML typologies on a number of occasions.
  - Planned to issue guidelines as more UTRs are accumulated at IMPA (example: the Commissioner of Insurance issued a circular on "January 1, 2003").
- Recommendation: Maintain awareness of financial institutions by issuing guidelines and through offsite and onsite supervision.

### Record-keeping requirements and monetary thresholds
- Under most sector orders, financial institutions must maintain documents for transactions of "NIS 50,000 (approximately $10,750) or more", and those underlying UTR reports.
- Concern: Monetary threshold may impede availability of records to trace proceeds and prosecute cases because money laundering operations include related transactions, both large and small.
- Recommendation(s):
  - Re-evaluate the threshold to ensure records are always available for tracing proceeds and prosecution.
  - Maintain all transaction records, or at least all those in excess of a very nominal amount, for AML/CFT purposes.
- Status: "The threshold is currently under consideration by the BOI."
- Additional: Monetary thresholds are noted as problematic with respect to record-keeping; elimination of monetary thresholds in lists of unusual transactions set forth in orders is listed in the Recommended Action Plan (Table1).

### Banking sector weaknesses and planned legislative changes
- Two specific weaknesses for higher-risk banking sectors:
  1. Under "Section 15(a) of the Banking Order", customer identification requirements are not applied to overseas entities of Israeli banks if AML legislation exists in the host country, regardless of the robustness of that regime.
     - Recommendation: Banks should be required to apply the higher standards to overseas entities in host countries with weaker AML regimes.
     - Related recommended action in Table1: "Have foreign branches of Israeli banks apply the higher standard between Israel and host jurisdiction for customer due diligence and record keeping."
  2. No explicit integrity requirements for managers and directors of banks.
     - Status/Planned action: "The BOI plans amendments to banking legislation to establish explicit integrity requirements for managers and directors at banks in the coming Knesset session."
     - Related recommended action in Table1: "Require integrity standards for managers and directors at banks, as planned."

### Nonprudentially regulated sectors (currency service providers)
- To implement PMLL in "April 2002", the MOF issued an order requiring:
  - Currency service providers register with the MOF.
  - They conduct customer identification, record keeping, and CTR and UTR reporting to IMPA.
- Oversight:
  - The registrar at the MOF conducts oversight to ensure compliance with PMLL through offsite monitoring and onsite inspections, but not for prudential purposes.
  - Currency service providers are subject to the same AML/CFT regime applied to prudentially-regulated financial institutions.

### Summary assessment against the FATF 40+8 Recommendations and selected recommended actions
- Overall judgment: "Current measures in Israel to prevent ML/FT are extensive and, for the most part, adequate as a framework for AML/CFT, and Israel complies well with the FATF 40+8 Recommendations."
- Shortfalls identified are "not significant and are largely in the process of being addressed by the authorities."
- Selected recommended actions include:
  - Review and revise transactions records maintenance requirement with monetary threshold.
  - Institute measures to ensure insurance and securities firms document findings regarding possible UTRs, not just filed UTRs and CTRs, in writing and keep findings available for regulatory reviews.
  - Eliminate monetary thresholds in lists of unusual transactions set forth in orders.
  - Update and enhance tipping off prohibition in the law and associated orders.
  - Ensure all financial institutions have AML/CFT programs covering internal policies and procedures, including internal audits and employee training.
  - Ensure all financial institutions have screening procedures for high standards in hiring employees.
  - For banking and insurance sectors, widen possibilities for sharing and cooperation with both domestic and foreign supervisory authorities.
  - Review to ensure the Commissioner of Insurance may share information for purposes of all criminal matters.
  - Supplement guidance and training programs for life insurance sectors on (i) ML/FT techniques, methods, and trends, and (ii) explanations of laws and requirements.
  - Review restrictions relating to the enforcement of foreign forfeiture orders on a benefit/burden basis.
  - Implement requirement in "Regulation 411 relating to funds transfers."
  - Strengthen provisions relating to banks giving enhanced scrutiny to wire transfers that lack complete originator information.
  - Ratify the Palermo Convention, "as planned, as soon as possible."
  - Harmonize domestic law to implement conventions, including separate permanent legislation that addresses the financing of terrorism, "as planned."
  - Reconsider thresholds for money laundering criminal offenses that do not require showing of concealment, and the existence of two threshold amounts.
  - Strengthen the knowledge standard for Section 4 offenses "as planned."
  - Review, fine tune, and enhance mechanisms under Israeli law for pre-trial restraint, confiscation, and seizure with focus on enhanced civil forfeiture, time limitations for restraints, and procedures for hearing third-party rights.
  - Provide IMPA access to law enforcement databases or provide law enforcement with access to IMPA’s database.
  - Set up regularly scheduled monthly or quarterly meetings on AML/CFT for representatives of IMPA, the Police NML, Customs, Security Agency, and relevant prosecutors.
  - Have state attorney’s office invest more resources on training prosecutors in ML/FT and asset forfeiture.
  - Have the Police and state attorney’s office develop computerized methods to track ML investigatory and prosecutorial data.
  - More consistency in the supervisory approach for AML/CFT issues between financial sectors through closer coordination among relevant authorities.
  - Assess risks of ML/FT to nonlife insurance business, with consideration of application of AML legislation to nonlife insurance transactions.

### Authorities' response and position on FIU model
- Israel:
  - Welcomes the assessment that it complies well with the FATF 40+8 Recommendations and that it has a comprehensive legal and institutional framework for AML/CFT.
  - Notes the regime is "constantly being examined, reviewed, and updated."
- On FIU access to law-enforcement:
  - Israel provided detailed comments, emphasizing that the choice of FIU model depends on country-specific circumstances.
  - Israel adopted an administrative FIU model following study of international models.
  - Advantages cited for the administrative FIU model:
    - Balances privacy protection and the need to combat ML/TF.
    - Relies on FIU specialization and professionalism in analyzing data and reports.
    - Enables the FIU to disseminate selective valuable information to law-enforcement agencies and foreign FIUs.
    - Provides significant value-added to potential investigations by a strong filtering process.
    - Promotes "a climate of trust" between financial institutions and the FIU, improving quality and quantity of reports.
    - The Israeli FIU is a member of the Egmont Group and has been asked to share its experience with colleagues from other countries.
- Implementation stance:
  - Israel appreciates the recommendations and intends to study them carefully.
  - Some recommendations had already been noted by Israel prior to the mission and concrete plans to address these issues have been formulated or are under preparation.
  - Other suggestions will be assessed for specific relevance to the Israeli system using cost-benefit and risk-based principles, and examined for their justification under those principles.

*IMF staff report content unit _cr05211, paragraphs 26–33.*

### 1.  Recommended Action Plan to Improve Compliance with the FATF..........................12

### 1.  Recommended Action Plan to Improve Compliance with the FATF..........................12

### Introduction and methodology
- Report type: Report on the Observance of Standards and Codes (ROSC) for the FATF 40 Recommendations and 8 Special Recommendations on Combating the Financing of Terrorism.
- Prepared by: staff of the International Monetary Fund and an independent anti-money laundering expert (IAE) not under the supervision of Fund staff.
- Assessment used: comprehensive methodology approved by the Fund/Bank Boards and the FATF.
- Information base and mission dates: based, with a few exceptions, on the information available at the time of the mission - November 26-December 10, 2002.
- IAE contributors: Kiyotaka Sasaki (MAE), Margaret Cotter (LEG), and Jack de Kluiver (U.S. Justice Department). Portions attributable to the IAE are shown in italics in the source.

### Main findings — overview
- Since an initial 2000 FATF review, Israel has made significant progress and is recognized to have a comprehensive AML/CFT legal and institutional framework.
- Key legislative and institutional developments:
  - Prohibition on Money Laundering Law (PMLL) enacted in August 2000 addressing money laundering as a criminal offence and customer identification, record-keeping, and reporting requirements.
  - Numerous regulations promulgated to implement the PMLL.
  - In 2001, orders issued to banks, members of the stock exchange, portfolio managers, insurance companies, provident funds, and the postal bank to require customer identification, record-keeping, and submission of UTRs and CTRs.
  - Israel Money Laundering Prohibition Authority (IMPA) became operational as Israel’s FIU in January 2002 and began receiving UTR and CTR reports in February 2002.
  - IMPA joined the Egmont Group of Financial Intelligence Units in June 2002.
- Assessment identified areas to be strengthened despite an extensive framework and high level of awareness.
- Amendment to the PMLL in May 2002 extended AML/CFT requirements to currency service providers.

### A. Criminal justice measures and international cooperation
- Terrorism financing (FT)
  - Israel has long criminalized terrorism financing and has ratified and implemented the Vienna Convention and United Nations Security Council Resolution 1373.
  - Israel’s ratification of the United Nations Convention on the Suppression of the Financing of Terrorism came into force in February 2003 (signed July 2000).
  - Authorities believe current law (including laws dating from 1945 and 1948) already criminalizes financing of terrorism; amendments to the PMLL are planned to provide additional criminal provisions prohibiting the financing of terrorism and to make obligations to report regarding terrorist property more explicit and permanent.
  - Planned provisions would address terrorist acts directed at non-Israeli interests.
- Palermo Convention
  - Ratification not expected immediately but is close; “All steps necessary for ratification to be effective, and any domestic legislation necessary for full implementation, should be undertaken as soon as possible.”
- Money laundering criminalization and thresholds
  - Money laundering is criminalized, but one major offense contains a substantial monetary threshold.
  - Section 4 of the PMLL criminalizes acquisition, possession, and use of criminal proceeds without a showing of concealment but contains “a substantial monetary minimum” (for monies at about $80,000 over a three-month period).
  - Section 3 of PMLL criminalizes conduct without a threshold.
  - Recommendation: re-evaluate use of two thresholds (one monetary, another for other assets) and consider an all-serious-crimes approach or all serious crimes over a specified penalty-plus-list approach to predicate crimes; at minimum, every offense under Israeli law with a maximum deprivation of liberty of four years should be set forth as a predicate offense.
- Confiscation, seizure, and forfeiture
  - Legal framework for seizure and forfeiture is complex; statutory provisions exist in a number of laws.
  - Criminal proceedings: seizure and forfeiture generally available, but secondary issues include a 90-day limitation for provisional freezing before indictment and procedures/standards for restraint-order hearings.
  - PMLL’s civil forfeiture provisions are narrowly drawn, making civil forfeiture largely unavailable.
  - Recommendation: comprehensive civil forfeiture scheme (as under consideration through amendments to the PMLL) would support effective AML/CFT in practice.
  - Review of confiscation/restraint mechanisms is occurring in some areas and contemplated in others.

### FIU (IMPA): processes for receiving, analyzing, and disseminating intelligence
- Functions and capabilities
  - IMPA collects CTR and UTR information, maintains and proactively analyzes information to identify targets and new ML or FT typologies, and acts as a privacy filter permitting dissemination to law enforcement or intelligence agencies only for financial information likely associated with criminal activity.
  - Law enforcement investigators cannot review CTR and UTR information themselves and must rely upon IMPA analysis.
- Operational statistics and concerns
  - Through the first 10 months of operation, IMPA referred only 32 UTRs to law enforcement, which is less than 10 percent of UTRs filed.
  - IMPA has timely executed dozens of requests for CTR or UTR information from law enforcement.
  - IMPA participation in Egmont and MOUs with another 10 foreign FIUs enables cross-border exchange of financial data.
  - IMPA appears well funded with a very professional and qualified staff.
  - Concerns:
    - Utility of information captured by CTRs is dubious due to unusually high reporting thresholds for currency transactions.
    - High percentage (37 percent of all CTRs filed) of transfers abroad have been put into the CTR database.
- Tipping-off protections
  - PMLL and associated orders contain provisions prohibiting financial institutions from tipping-off customers when information is reported to IMPA, but in some instances provisions are limited in scope and merit review for effectiveness.
  - BOI indicated post-mission that an amendment to the Banking Order is under consideration to address assessors’ concerns in the context of banking.

### Law enforcement and prosecution
- Investigative agencies
  - Police and Customs Service are authorized to investigate ML cases (Customs only for customs-related ML offences).
  - Israel Security Agency has primary responsibility for FT intelligence gathering.
  - Agencies have created dedicated AML/CFT enforcement programs with full-time personnel and resources; Police’s AML unit is a headquarters unit coordinating investigations, training, and liaison.
- Prosecution resources and capability
  - Currently, 24 prosecutors who specialize in tax and economic crimes prosecute most ML and FT cases in the Tel Aviv District Office of the state attorney’s office.
  - There are currently less than 10 ML cases under consideration.
  - The 500 prosecutors in other state attorney’s offices may handle ML cases but are encouraged to consult the specialized Tel Aviv Unit.
  - Expectation of a dramatic increase in ML investigations and asset forfeiture cases due to the wide array of predicate offenses listed in the PMLL.
  - Identified needs: wider ML and asset forfeiture prosecutorial expertise in other offices and more ML and asset forfeiture training than presently available.
- International cooperation
  - Israel’s Legal Assistance Law permits providing a full range of legal assistance even in the absence of dual criminality or a treaty.
  - Laws and procedures for extradition for ML and FT offences meet international standards.
  - Israeli courts empowered to enforce foreign forfeiture orders in drug and money-laundering matters; in late January 2003 this was extended to include terrorism and terrorism-financing crimes.
  - Recommendation: prioritize legislation permitting enforcement of foreign forfeiture orders; consider extension to permit sharing of property forfeited in domestic matters.

### B. Preventive measures for financial institutions
- Scope of coverage and supervisory arrangements
  - AML legislation applies to: banking corporations; members of the stock exchange; portfolio managers; insurers and insurance agents; provident funds and companies managing provident funds; the postal bank; and providers of currency service.
  - Seven orders issued to financial sectors require customer identification, record keeping, and submission of UTRs and CTRs.
  - Supervisory authorities: BOI for banks; Israel Securities Authority for securities firms; MOF for insurance, currency service providers and provident funds.
  - Supervisors have sufficient power to act against institutions failing AML/CFT obligations and have issued regulations, circulars, and letters to enhance compliance details.
  - BOI, MOF, and Israel Securities Authority have initiated onsite inspections focusing on AML/CFT compliance using inspection manuals developed for AML/CFT compliance.
- Coordination and information-sharing constraints
  - Despite multiplicity of responsible institutions, there appears to be strategic coordination and effective initial implementation.
  - Cooperation constraints:
    - Under current sector-specific laws, the governor of BOI and the Commissioner of Insurance of MOF may share only criminal information.
    - BOI may share information with foreign supervisors with a letter of consent from banks; plan amendments to permit similar cooperation with foreign supervisors are in development.
    - Chairperson of Israel Securities Authority may share information with supervisory and other authorities, domestic and foreign, within discretion.
  - Recommendation: consider amendments to laws to widen possibilities for sharing/cooperating with domestic and foreign supervisory authorities regarding individual matters.
  - Authorities established working groups in January 2003 composed of representatives from relevant authorities responsible for AML/CFT to improve coordination.
- Insurance sector coverage gap
  - MOF’s order for customer identification, record keeping and suspicious activity reporting is limited to life insurance, thereby excluding nonlife insurance activities.
  - Recommendation: assess risks of ML/FT to nonlife insurance business and consider application of AML legislation to nonlife insurance transactions.
- Monetary thresholds and reporting practices
  - Weakness across financial sectors: monetary thresholds limit reporting of unusual transactions in sample lists within orders.
  - Example: for banking, atypical transactions and wire transfers lacking appropriate information are deemed suspicious only if in excess of NIS 200,000 (approximately $43,000).
  - These thresholds may signal to financial institutions that unusual transactions below thresholds need not be reported.
  - BOI indicated post-mission that such thresholds are being reconsidered.

*Report prepared by IMF staff and an independent anti-money laundering expert; assessment based primarily on information available at the time of the mission (November 26-December 10, 2002).*

### 26.      In addition, a list of examples of UTRs contained in a number of orders by

### _cr05211 - 26.      In addition, a list of examples of UTRs contained in a number of orders by

### UTR guidance, dissemination, and supervisory feedback
- UTR submissions have a short history "since February 2002".
- The IMPA and supervisors have:
  - Recognized the importance of providing guidance and feedback to financial institutions.
  - Disseminated information on trends in ML typologies on a number of occasions.
  - Planned to issue guidelines as more UTRs are accumulated at IMPA (example: the Commissioner of Insurance issued a circular on "January 1, 2003").
- Recommendation: Maintain awareness of financial institutions by issuing guidelines and through offsite and onsite supervision.

### Record-keeping requirements and monetary thresholds
- Under most sector orders, financial institutions must maintain documents for transactions of "NIS 50,000 (approximately $10,750) or more", and those underlying UTR reports.
- Concern: Monetary threshold may impede availability of records to trace proceeds and prosecute cases because money laundering operations include related transactions, both large and small.
- Recommendation(s):
  - Re-evaluate the threshold to ensure records are always available for tracing proceeds and prosecution.
  - Maintain all transaction records, or at least all those in excess of a very nominal amount, for AML/CFT purposes.
- Status: "The threshold is currently under consideration by the BOI."
- Additional: Monetary thresholds are noted as problematic with respect to record-keeping; elimination of monetary thresholds in lists of unusual transactions set forth in orders is listed in the Recommended Action Plan (Table1).

### Banking sector weaknesses and planned legislative changes
- Two specific weaknesses for higher-risk banking sectors:
  1. Under "Section 15(a) of the Banking Order", customer identification requirements are not applied to overseas entities of Israeli banks if AML legislation exists in the host country, regardless of the robustness of that regime.
     - Recommendation: Banks should be required to apply the higher standards to overseas entities in host countries with weaker AML regimes.
     - Related recommended action in Table1: "Have foreign branches of Israeli banks apply the higher standard between Israel and host jurisdiction for customer due diligence and record keeping."
  2. No explicit integrity requirements for managers and directors of banks.
     - Status/Planned action: "The BOI plans amendments to banking legislation to establish explicit integrity requirements for managers and directors at banks in the coming Knesset session."
     - Related recommended action in Table1: "Require integrity standards for managers and directors at banks, as planned."

### Nonprudentially regulated sectors (currency service providers)
- To implement PMLL in "April 2002", the MOF issued an order requiring:
  - Currency service providers register with the MOF.
  - They conduct customer identification, record keeping, and CTR and UTR reporting to IMPA.
- Oversight:
  - The registrar at the MOF conducts oversight to ensure compliance with PMLL through offsite monitoring and onsite inspections, but not for prudential purposes.
  - Currency service providers are subject to the same AML/CFT regime applied to prudentially-regulated financial institutions.

### Summary assessment against the FATF 40+8 Recommendations
- Overall judgment: "Current measures in Israel to prevent ML/FT are extensive and, for the most part, adequate as a framework for AML/CFT, and Israel complies well with the FATF 40+8 Recommendations."
- Shortfalls identified are "not significant and are largely in the process of being addressed by the authorities."
- Table1 summarizes higher-priority recommended actions; Table2 contains other recommendations to further enhance the AML/CFT regime.
- Selected recommended actions (from Table1 and Table2) include:
  - Review and revise transactions records maintenance requirement with monetary threshold.
  - Institute measures to ensure insurance and securities firms document findings regarding possible UTRs, not just filed UTRs and CTRs, in writing and keep findings available for regulatory reviews.
  - Eliminate monetary thresholds in lists of unusual transactions set forth in orders.
  - Update and enhance tipping off prohibition in the law and associated orders.
  - Ensure all financial institutions have AML/CFT programs covering internal policies and procedures, including internal audits and employee training.
  - Ensure all financial institutions have screening procedures for high standards in hiring employees.
  - For banking and insurance sectors, widen possibilities for sharing and cooperation with both domestic and foreign supervisory authorities.
  - Review to ensure the Commissioner of Insurance may share information for purposes of all criminal matters.
  - Supplement guidance and training programs for life insurance sectors on (i) ML/FT techniques, methods, and trends, and (ii) explanations of laws and requirements.
  - Review restrictions relating to the enforcement of foreign forfeiture orders on a benefit/burden basis.
  - Implement requirement in "Regulation 411 relating to funds transfers."
  - Strengthen provisions relating to banks giving enhanced scrutiny to wire transfers that lack complete originator information.
  - Ratify the Palermo Convention, "as planned, as soon as possible."
  - Harmonize domestic law to implement conventions, including separate permanent legislation that addresses the financing of terrorism, "as planned."
  - Reconsider thresholds for money laundering criminal offenses that do not require showing of concealment, and the existence of two threshold amounts.
  - Strengthen the knowledge standard for Section 4 offenses "as planned."
  - Review, fine tune, and enhance mechanisms under Israeli law for pre-trial restraint, confiscation, and seizure with focus on enhanced civil forfeiture, time limitations for restraints, and procedures for hearing third-party rights.
  - Provide IMPA access to law enforcement databases or provide law enforcement with access to IMPA’s database.
  - Set up regularly scheduled monthly or quarterly meetings on AML/CFT for representatives of IMPA, the Police NML, Customs, Security Agency, and relevant prosecutors.
  - Have state attorney’s office invest more resources on training prosecutors in ML/FT and asset forfeiture.
  - Have the Police and state attorney’s office develop computerized methods to track ML investigatory and prosecutorial data.
  - More consistency in the supervisory approach for AML/CFT issues between financial sectors through closer coordination among relevant authorities.
  - Assess risks of ML/FT to nonlife insurance business, with consideration of application of AML legislation to nonlife insurance transactions.

### Authorities' response and position on FIU model
- Israel:
  - Welcomes the assessment that it complies well with the FATF 40+8 Recommendations and that it has a comprehensive legal and institutional framework for AML/CFT.
  - Notes the regime is "constantly being examined, reviewed, and updated."
- On FIU access to law-enforcement:
  - Israel provided detailed comments, emphasizing that the choice of FIU model depends on country-specific circumstances.
  - Israel adopted an administrative FIU model following study of international models.
  - Advantages cited for the administrative FIU model:
    - Balances privacy protection and the need to combat ML/TF.
    - Relies on FIU specialization and professionalism in analyzing data and reports.
    - Enables the FIU to disseminate selective valuable information to law-enforcement agencies and foreign FIUs.
    - Provides significant value-added to potential investigations by a strong filtering process.
    - Promotes "a climate of trust" between financial institutions and the FIU, improving quality and quantity of reports.
    - The Israeli FIU is a member of the Egmont Group and has been asked to share its experience with colleagues from other countries.
- Implementation stance:
  - Israel appreciates the recommendations and intends to study them carefully.
  - Some recommendations had already been noted by Israel prior to the mission and concrete plans to address these issues have been formulated or are under preparation.
  - Other suggestions will be assessed for specific relevance to the Israeli system using cost-benefit and risk-based principles, and examined for their justification under those principles.

*IMF staff report content unit _cr05211, paragraphs 26–33.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05211.pdf_