28.04.04

The Activity of the Banking Corporations’ Sanctions Committee regarding the Prohibition on Money Laundering

On 4 April 2004 the Banking Corporations’ Sanctions Committee regarding the Prohibition on Money Laundering announced its decision with regard to nine commercial banks and two mortgage banks. The requests to impose financial sanctions arose from comprehensive inspections of the implementation of the legal provisions relating to the prohibition on money laundering that were performed by the inspection teams of the Banking Supervision Department in all of Israel’s banks during 2003. The Committee found that these banks had violated certain of these provisions, and in most cases it just sent a written warning, without imposing financial sanctions, mainly because of the short time that had elapsed since the legal provisions, orders and regulations came into effect. Nevertheless, fines were imposed on several banks that had delayed their preparations regarding the prohibition on money laundering, and in which many defects were found during the inspections, despite the fact that many of the faults had since been rectified. The banks are entitled to appeal in court against the Committee’s decisions, within thirty days from receipt of the decision.

The committee’s main decisions were:

¦

First International Bank-a fine of NIS 1,000,000 was imposed;

¦

Poalei Agudat Israel Bank -a fine of NIS 750,000 was imposed

¦

Discount Mortgage Bank -a fine of NIS 350,000 was imposed;

¦

Bank Leumi -a fine of NIS 350,000 was imposed;

¦

Israel Discount Bank -a fine of NIS 100,000 was imposed.

 The following banks were sent written warnings: Mercantile Discount Bank; Union Bank of Israel; Arab Israel Bank; Otsar Hahayal Bank; Israel Continental Bank; and Bank “Adanamim” Mortgage.

The cases of Bank Hapoalim, United Mizrahi Bank, Investec (Israel) Bank and its trust company were discussed several months ago, and the Committee’s decision was to issue these banks warning letters, mainly because the infringements and faults occurred within the first year when the law was in effect.

The inspections show that the banking system as a whole took steps to adopt and implement the international standards specified in the legislation. Among other things, wide ranging steps were taken at all levels by the banks to ensure their readiness, including coordination and cooperation between the different departments, and changing the perception of thousands of bank staff who, in addition to providing service to customers, would henceforth be engaged in the battle against money laundering. Nonetheless, despite the efforts and the means invested by the banks to implement the provisions of the legislation regarding the prohibition on money laundering, certain faults and infringements were revealed-in some of the banks even serious infringements—which were dealt with by the Sanctions Committee.

The major infringements and faults in all the banks involved related to the process of identification and authentication of particulars at the stage of new accounts being opened, including receipt of the declaration regarding beneficiaries and controllers of holding interest, and retaining identification documents. Faults were also discovered in the process of submitting reports to the Israel Money Laundering Prohibition Authority (IMPA), in the report by size of a transaction, and the report on exceptional activities. The Committee found that all the banking corporations acted to correct the faults revealed in the inspections swiftly.

The Sanctions Committee of the banking corporations is a statutory committee set up under the Prohibition on Money Laundering Law, 5760-2000 (henceforth, the Law), that as part of the means of enforcing the prohibition on money laundering is empowered to impose financial sanctions (fines) on banking corporations for infringements of the legislation. The Committee is headed by the Supervisor of Banks, Mr. Y. Lehman; its other members are Mr. S. Albeck, IMPA’s Legal Counsel, and Mr. D. Zaken, Head of Prohibition on Money Laundering, Banking Supervision Department. The Committee’s function is to discuss apparent infringements of the legislative provisions regarding the prohibition on money laundering and, after hearing the claims of the banking corporation concerned, to decide if in fact an infringement has occurred. If the Committee finds that the banking corporation has breached its obligations, the Committee may send it a written warning or impose a fine of up to NIS 2 million.