Justice Ministry investigators raid lawyers, accountants

Law, accountancy  photo: Shutterstock ASAP Creative

The Ministry of Justice has begun investigating law and accounting firms suspected of non-compliance with 'know your client' anti-money laundering rules.

The lawyers and accountants market is in turmoil, following stepped up enforcement of supervision of firms providing business services in the framework of the Prohibition on Money Laundering Law. Sources inform "Globes" that Adv. Adi Comeriner Peled, the supervisor in the Ministry of Justice for non-financial businesses and professionals,  has begun conducting lightening visits to law and accounting firms suspected of violating provisions of the law concerning documentation of deals and services provided to clients. Only six such raids have been conducted so far - in the north, the Sharon area, and Jerusalem - and the firms in which the physical audits have been held so far have been small firms.

Even though Comeriner Peled is authorized to conduct such unscheduled visits, and they were expected to begin at some stage, there are hard feelings in the accounting and legal professions about the invasion of their businesses and the doubt cast on their  discretion, in the best case, and on their integrity, in the worst. Complaints are arising among lawyers that the Ministry of Justice investigators are exceeding their authority and looking at materials to which they have no right of access.

"The auditors have no right to ask a lawyer, 'How did you reach the conclusion that this or that person was not a risk, and did not arouse suspicions of money laundering," says a lawyer whose firm was raided. A lawyer specializing in white collar crime added that what he was told by a lawyer whose firm had been raided that the visit by the Ministry of Justice was of a completely investigative character. "Not every visit is random. The supervisor is tracking down information from databases of real estate deals published in the land registry and other databases, and according to that, she can ask a lawyer 'whether you did this deal and why you didn't fill a form according to the law' or 'Why did you classify the client as not a risk.' She usually comes with previous knowledge, and confronts the lawyer or accountant with this information, and the lawyer or accountant has to answer and provide explanations. It's like an investigation."

Advocate A, who has a civil law firm, was dissatisfied with this situation, in which he was thrust into the role of a person under questioning. "Why are they questioning me? They have authority only to look at forms. Why should I answer questions that cast doubt on my judgment?", he wonders. The answer to this question is very clear under the law: if a lawyer chooses not to answer questions asked by the those sent by Ministry of Justice to examine his or her firm, he or she will be exposed to sanctions, including substantial monetary sanctions up to a NIS 2.26 million fine for a lawyer or accountant violating the Prohibition on Money Laundering Law.

It all began with Amendment No. 13 to the Prohibition on Money Laundering Law, which on September 2, 2015 was inserted into the law in the framework of the fight against money laundering and financing of terrorism. The amendment imposed obligations on lawyers and accountants concerning the identification and recognition of a client conducting actions defined as a "business service," including , among other things, transactions in real estate, buying and selling a business, and managing assets and money. According to the law, lawyers and accountants providing clients with services of a financial character are obligated to identify their clients through a special form before performing the action, and to keep the documents and present them when required to do so by the Ministry of Justice supervisory unit.

In February 2016, the non-financial business and professional supervisor introduced supervisory procedures. The beginning was calm - audits were conducted by correspondence, with a demand for client recognition forms for a specific time or specific clients. 2,800 written enquiries to lawyers and accountants have been made so far. Many of those being audited have already answered the enquiries, and the supervisor is constantly receiving answers. In a large proportion of the cases, the results of audit revealed that those audited were complying with the provisions of the law, but a significant number of cases revealed that the audited parties had not acted as required. Now, following an examination of the forms and the audit results, the cases are moving on to the second stage - unscheduled audits of some of these firms - a less pleasant stage for a lawyer or accountant, who is required to provide the supervisor with answers and present documents to the people conducting the enquiry that will remove the threat of a fine. By law, the supervisor's authority to conduct a surprise audit exists in two cases: If the lawyer or accountant did not cooperate with the supervisor as required (for example, the lawyer or accountant received a written request to send forms to the supervisor, but did not do so), and when concern arises that the lawyer or accountant was violating the law.

The audit is within the supervisor's powers, and in fact is an obligation for the supervisor, who is legally required to give audited parties an opportunity to response to suspicions and concerns about them before transferring the affair to the sanctions committee. Then comes the third stage, which is the most difficult for a lawyer or accountant, namely the stage of deciding whether or not to impose monetary sanctions on those who violated the provisions of the law. At the end of the audit, some of the cases in which the supervisor is concerned about violations of the law will be transferred to the sanctions committee for handling. This proceeding is looming. The first sanctions committee will convene in mid-January 2018, so it is possible that the first monetary sanction under the law will be imposed very soon.

Published by Globes [online], Israel Business News - www.globes-online.com - on December 21, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Law, accountancy  photo: Shutterstock ASAP Creative
Law, accountancy photo: Shutterstock ASAP Creative
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