Publications

Foreign Residents’ Banking Activity

Lior Pick & Co. Legal Offices
November 12, 2014
January 9, 2019

On 11.19.2014, the Supervisor of Banks issued a draft of instructions concerning foreign residents’ banking activities. The provisions shall apply to all corporations in Israel. Due to their importance, we have translated the draft.

To: Banking Corporations – to the General Manager

Subject: Foreign Residents’ Banking Activity

  1. In recent years, we have been witnessing various states’ more decided and vigorous steps to locate their residents’ funds kept outside the state of residency.The USA has taken steps against banks that kept American clients’ accounts, who were suspected of cooperating with these clients to hide their assets from the American Tax Authorities, and in addition, it also enacted the FATCA legislation in order to obtain reports on Americans’ bank accounts and other financial accounts outside the USA, which came into effect on July 1st 2014; other countries such as Britain, Germany and France are also acting to obtain data on their residents’ bank accounts kept outside the state of residency.In addition, the OECD has recently ratified a standard for automatic exchange of information for tax purposes, that also includes the due diligence duty and certain reporting duties, that shall apply to financial institutions that operate within the jurisdictions of states that will enter the appropriate bilateral agreements.
  2. This trend may increase the Israeli banking corporations’ exposure to compliance risks that generate across the border and to reputational risks, and it demands them to duly prepare both for their work with existing clients and in admitting new clients.
  3. Proper Banking Management Provision no. 411 – “Prevention of Money Laundering and Terrorism Funding and Client Identification” (“Provision 411“) and the provisions of the Prohibition on Money Laundering Order (Identification, Reporting and Record Management Duties for Banking Corporations to Prevent Money Laundering and Terrorism Funding), 5761-2001, determine relevant instructions and tools concerning “client recognition”, that allow Israeli banking corporations to minimize the risks involved in work with foreign residents as specified above in section 2.
  4. In light of the heightened risks described above and in accordance with that said in sections 4 to 6 to Provision 411, the banking corporation’s board of directors must review and update its policy and make sure the management updates its procedures and controls with regards to work with veteran and new foreign residents accordingly, while emphasizing the following points:4.1. The client’s source of wealth and income including obtaining the appropriate references, and obtaining the client’s declaration that it has paid taxes in accordance with the law;4.2. Proceedings to ascertain the countries the client is taxable in;4.3. Waiver of the client’s confidentiality toward foreign authorities;

    4.4. Performance of deals that were defined as material with regards to cross-border risk;

    4.5. The client’s link to the country banking services are provided in;

    4.6. Change of identification details that may affect the client’s taxability;

    4.7. classification for private banking as defined in the Provision;

    4.8. Classification of high-risk clients;

    4.9. The chain of command for authorization of account opening, management, and transactions;

  5. That said in section 4 above shall also apply to the banking corporation’s activity outside Israel, mutatis mutandis, in accordance with that said in section 3a(b) in Provision 411.
  6. Refusal to grant banking services as specified below shall be considered reasonable refusal for the purpose of the Banking Law (Client Service), 5741-1981:

6.1. Opening an account for a client who does not cooperate with the banking corporation in the required manner to implement the corporation’s policy and procedures for the purpose of cross-border risk.

6.2. Banking services in an existing account that expose the bank corporation to the risk of being held to cooperate with the client to circumvent foreign laws that apply to the client.

Respectfully,

David Zaken, the Supervisor of Banks

– Publications –

– Get in Touch –