On Tuesday, the Knesset Constitution, Law and Justice Committee will discuss expanding the Prohibition of Money Laundering Ordinance to impose numerous responsibilities and obligations on money changers, or "currency trading providers" as they are officially called.
The new requirements somewhat resemble the obligations imposed on the banks: a "know your customer" duty to identify those seeking to launder money. "These obligations will from now on put money changers at the same level as large financial institutions, even though money changers, in contrast to a bank or insurance company, often employ just two or three people," says Adv. Yael Grossman, a specialist in money laundering.
The new ordinance requires money changers to fill out the details of customers making large transactions and to make a more thorough process for regular customers. Money changers with a turnover larger than NIS 3 million will have to set up a computer database to keep customers' details. The directive defines a regular customer as someone who makes at least NIS 200,000 in cumulative transactions over a six-month period, or in a single deal.
A money changer will have to carry out an in-depth review of such a regular customer, depending on his risk. The customer will fill out forms stating his personal details and state why he chose to convert money at this money changer, among other financial questions. The customer will also be asked if he has a public function, whether he is acting on another person's behalf, whether a bank refused to offer his service for reasons relating to money laundering, the transaction he wishes to make, and the source of the money. He must also declare that he has provided correct information and will be liable to criminal proceedings if he has not done so.
Customers who are not classified as regular customers will also have to provide identification for transactions larger than NIS 10,000 or a non-cash transaction larger than NIS 50,000. If more than NIS 5,000 is being transferred overseas, the identification process will include the identities both the sender and the recipient.
The ordinance places considerable responsibilities on the money changer. "He must verify the identity of the customer by reasonable means to obtain relevant information or data from a reliable source," states the ordinance. In addition, at least once a year, a money changer must review his information about regular customers to verify that it is current and that the customers' transactions conform to their routine activity under the relationship.
Big money
Emphasis will be placed on monitoring customers classified as high risk. The ordinance defines such a customer as a foreign resident with no affiliation to Israel, foreign public figure, a customer from a high-risk country or who is making a transaction with such a country, customers suspected of seeking to exchange unreported money, and customer suspected of ties to criminals. Transactions with high-risk customers will require approval of the money changer's prohibition of money laundering officer.
Grossman warns that the ordinance is liable to result in the flourishing of illegal money changes. "Tighter regulations on authorized money changes is liable to drive customers with something to hide to the thriving illegal industry of unauthorized money changers and to providers of unsupervised online money services providers. It would have been better to increase enforcement of the current ordinance, rather than add more and more regulatory provisions that complicate transactions and drive customers to unauthorized channels," she says.
The ordinance is not the only measure taken to tighten control over money changers; last year, the government ruled that all transactions over NIS 50,000 by money changers must be reported to the Israel Tax Authority.
The tighter controls are part of the war against black capital. The Ministry of Finance has previously estimated that money changers handle more than NIS 100 billion a year, some of which is suspected to belong to tax evaders. The government decided to clamp down on money changes through these regulations and other means, but it is unclear whether the money changers have the resources and tools to apply the tough regulations to check customers in the same way as the banks, which have far more developed resources and infrastructures. At the same time, the ordinance does not deal with the issue of how to prevent unsuitable parties from obtaining a money changers license, but only deals with current money changers.
Published by Globes [online], Israel business news - www.globes-online.com - on March 16, 2014
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