2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY

UNCLAS SECTION 01 OF 06 TEL AVIV 006971

SIPDIS

DEPT FOR INL AND NEA/IPA
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: SNAR KSEP KTFN IS ISRAELI SOCIETY COUNTERTERRORISM
SUBJECT: 2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT (INCSR) PART II, MONEY LAUNDERING AND FINANCIAL
CRIMES

REF: 210346

--------------
General Questions
--------------


1. Israel is not a regional financial center like Hong Kong
or Switzerland due to a lack of financial activity with its
neighboring countries. Israel's financial activity is mainly
conducted with the financial markets of the U.S. and Europe,
and to a lesser extent with Asia. Less than a quarter of all
Israeli money laundering or terrorist financing seizures are
related to narcotics proceeds. The majority of the seizures
are related to fraud, theft, embezzlement, and
currency-services providers' legislative offenses. In 2005,
the most significant criminal activities that were
investigated were related to intentionally false reporting to
authorities on property transactions.


2. The Israeli National Police (INP) has no indication of an
increase in financial crime relative to previous years. The
most significant black market for smuggled goods in Israel is
the black market for cigarettes but there is no specific
information that it is significantly funded by narcotics
proceeds.


3. It is assumed that money laundering occurs in all types of
financial institutions, especially currency-services
providers. Offshore centers are more frequently associated
with upper echelon transnational criminals, the use of banks
are usual in both domestic and international cases, and the
use of non-bank financial systems are more regularly
identified in domestic-oriented cases. In the past year, the
courts in Israel have convicted several currency-services
providers for violating the obligation to register with the
Registrar of Currency Services. In addition, several
criminal investigations have been conducted against other
currency-services providers, some of which have resulted with
money laundering indictments, which are still pending. Also,
several currency-services providers have been sanctioned by
the Sanctions Committee for non-compliance with anti-money
laundering regulations. The government and its senior
officials do not encourage, facilitate, or engage in money
laundering. The INP has no specific knowledge of a
significant U.S. connection to Israel-related drug
trafficking proceeds.

-------------- --------------
Law and Regulations to Prevent Money Laundering/Terrorist
Financing
-------------- --------------


4. Money laundering is a criminal offense in Israel. The
Prohibition on Money Laundering Law (PMLL) 5760-2000
proscribes money laundering as a criminal offense, punishable
by up to ten years in prison and heavy fines. The PMLL is
very broad and does not only apply to drug-related money
laundering. It covers other offenses such as illegal arms
trading, smuggling, gambling, bribery, murder, forgery, and
theft.

--------------
Laundering and Financial Crime
--------------


5. Banks and other financial institutions are required to
know and record the identity of customers engaging in
significant transactions, including the recording of large
currency transactions, as well as certain non-cash
transactions. In addition, banks and other financial
institutions are required to report to the Israel Money
Laundering and Terror Financing Prohibition Authority (IMPA)
-- Israel's Financial Intelligence Unit (FIU) -- the identity
of customers engaging in certain large currency transactions
at thresholds and in activities perceived by the financial
institution as unusual. The IMPA does not have criminal
investigative or regulatory responsibilities. Comprehensive
legislation and regulations have been put in place to ensure
that banks and other financial institutions are required to
maintain for an adequate amount of time records necessary to
reconstruct significant transactions through financial
institutions in order to be able to respond quickly to
information requests from appropriate government authorities
in narcotic-related and other money laundering or terrorist
financing cases. Note: The Banking Corporations' Anti-Money
Laundering Order indicates that a banking corporation shall
keep the documents attesting to the instruction to the
banking corporation to carry out a transaction that was
reported to the IMPA for a period of at least seven years
from the date the instruction was given. End Note.

6. The PMLL requires financial institutions to report
"unusual transactions" to IMPA as soon as possible under the
circumstances -- unusual transactions is loosely defined and
is used so that the IMPA will receive reports even when the
financial institution is unable to link the unusual
transaction with money laundering. In addition to banking
corporations, money laundering controls apply to the
following: members of the stock exchange, portfolio managers,
insurers or insurance agents, provident funds and companies
managing a provident fund, providers of currency services and
the postal bank. These institutions are required to report
all domestic and international currency transactions above a
fixed amount to the IMPA. The threshold amount to be
reported varies according to the specific type of transaction
made, but in general it is an amount equal to at least 50,000
New Israeli Shekels (NIS),approximately 10,000 dollars, or
more. At this time, the PMLL does not apply to lawyers and
accountants. Casinos are illegal in Israel. Bankers and
others are protected by law with respect to their cooperation
with law enforcement entities. Israel does not have
legislation that prevents disclosure of client and ownership
information by domestic and offshore financial services
companies to bank supervisors and law enforcement
authorities. There have been no negative ramifications or
objections by financial or political groups to the
introduction of regulations and laws related to money
laundering and terrorist financing.


7. The PMLL requires the declaration of all transfers of
currency (including cash, travelers' checks and cashier
checks) into or out of Israel for sums above 80,000 NIS,
approximately 17,200 dollars. This applies to any person
entering or leaving Israel and to any person bringing monies
into or taking monies out of Israel by mail or by any other
method, including cash couriers. Violation of the obligation
to declare is an offense punishable by up to 6 months
imprisonment or a fine of 202,000 NIS, approximately 43,400
dollars, or ten times the amount which was not declared,
whichever is higher. Alternatively, administrative financial
sanctions of 101,000 NIS, approximately 21,700 dollars, or
five times the amount which was not declared, may be imposed.


8. In 2005, 6,005 suspicious transaction reports were
received by the IMPA. During this period the IMPA
disseminated several hundred intelligence reports to law
enforcement agencies in response to requests. During 2005,
twelve different investigation cases yielded indictments
(some of which yielded multiple indictments) and
approximately 75 million dollars were seized by the
authorities. In another case, the prosecution has indicted a
number of bank officials for money laundering offenses for
violation of the obligation to report unusual transactions
and for advising their customers on ways of avoiding
reporting to IMPA. There are also indictments against a
number of providers of currency services for similar offenses.


9. The legislative regime criminalizing the financing of
terrorism includes provisions of the Defense Regulations
(State of Emergency) (1945),the Prevention of Terrorism
Ordinance (1948) and the Penal Law (1977),and the PMLL. On
December 29, 2004, the Israeli Parliament (the Knesset)
adopted the Prohibition on Terrorist Financing Law 5765-2004
which is geared to further modernize and enhance Israel's
ability to combat terrorist financing and to cooperate with
other countries on such matters. This law went into effect
in August 2005.


10. Israel has broad and comprehensive legislation allowing
for identifying, freezing, seizing, and forfeiting terrorist
finance-related assets. This includes:

--Legislation generally providing for the seizure of items
which were used, or which were about to be used, in the
commission of an offense, or given as payment for its
commission.
--Legislation specifically providing for the confiscation of
terrorist finance-related property: The Prevention of
Terrorism Ordinance (1948) and the Defense Regulations (State
of Emergency) (1945) contain specific provisions for
identifying, freezing, seizing, and forfeiting terrorist
finance-related assets. The Prohibition on Terrorist
Financing Law provides additional tools for such actions.
This law also includes specific references to acts of
terrorism that have no connection to Israel and further
enhances Israel's ability to provide assistance to other
countries in combating the financing of terrorism. Together,
these laws create a comprehensive and tight legal regime
providing for a range of legal and administrative measures
that target terrorist finance-related assets.
--The Israeli PMLL provides for the freezing, seizure and
confiscation of funds, both in criminal and civil
proceedings, in any case of money laundering which can
include terrorist finance related property. Terrorist
financing offenses are defined as predicate offenses under
the law.


11. Israel has implemented its obligations regarding the
Taliban regime. The Taliban regime was never recognized by
Israel as the legitimate government of Afghanistan. Due to
the declarations of Taliban leaders on the regime's attitude
towards Israel and their support of Al Qaida/Bin Laden, the
Taliban has been considered an "enemy" under the Trade with
the Enemy Ordinance, 1939. The Ordinance imposes mandatory
freezing of enemy assets and prohibits transactions with the
enemy. No assets connected to the Taliban have been found in
Israel. No assets related to Usama bin Laden or the Al-Qaida
organization, and individuals or entities associated with
them, have been detected in Israel.


12. The PMLL mandates the registration of providers of
currency services through the Providers of Currency Services
Registrar at the Ministry of Finance. According to the Law,
the right to provide currency services is conditioned on the
following:
--The applicant is either an Israeli citizen or a resident of
Israel and is at least 18 years old; If the applicant is a
corporation incorporated in Israel, at least one office
holder of the corporation is an adult and an Israeli citizen
or resident of Israel; if the applicant is a corporation not
incorporated in Israel, it must be incorporated in a state
where there is legislation prohibiting money laundering and
the corporation must be legally registered in Israel.
--The applicant has not been convicted -- either in Israel or
in another country -- of a money laundering offense or of an
offense which, in the Registrar's opinion, due to its nature,
severity or circumstances, renders him unsuitable for serving
as a provider of currency services; where the applicant is a
corporation, an office holder of the corporation has not been
convicted of such an offense. A person who engaged in the
provision of currency services without being registered is
liable to one year of imprisonment or a fine of approximately
600,000 NIS, approximately 129,000 dollars.


13. The PMLL sets the following obligations on providers of
currency services:
--The obligation to identify recipients of services
(recording and authentication of identity particulars).
--The obligation to retain identity documentation and
documents attesting to the instruction to carry out
transactions that were reported to the IMPA, for a period of
at least seven years.
--The obligation to report to IMPA certain transactions
specified by size and type.
--The obligation to report to IMPA transactions perceived by
the provider of currency services as unusual.


14. In addition to these legislative and regulatory steps,
the INP set the closure of unregistered financial services
providers as an operational objective for 2005, and has
raided several such locations. The INP and the Registrar for
Providers of Currency Services maintain a high level of
coordination, routinely exchange information and have
conducted multiple joint enforcement actions.


15. Israel's effort to combat terrorist financing focus,
inter alia, on the misuse charitable and non-profit entities
as conduits for the financing of terrorism. Israel is one of
the leading countries in this area. The State of Israel acts
to thwart such misuse as part of its daily war against the
terrorism endangering the lives of its citizens and as part
of the global war against terrorism. Israel collaborates
with European and other countries in order to identify and
close charity foundations engaging in terrorist financing
that are established in their territories, and continuously
takes independent action by shutting down and confiscating
property of charity foundations declared illegal. Israel is
a party to the International Convention for the Suppression
of the Financing of Terrorism. Israel signed the convention
on July 11, 2000, and ratified it on February 10, 2003.
--------------
Offshore Financial Centers
--------------


16. Israel is not considered an offshore financial center.
There is no legal infrastructure for offshore activity in
Israel.

--------------
Free Trade Zones
--------------


17. There are no free trade zones in Israel.

--------------
International Cooperation
--------------


18. Israel has laws that ensure the availability of adequate
records in connection with narcotics-related, terrorism,
terrorist financing or other investigations and proceedings
to appropriate USG personnel and to those of other
governments. Israel grants legal assistance pursuant to the
International Legal Assistance Law, 5758-1998. The Law
allows the provision of legal assistance in both civil and
criminal matters, irrespective of whether Israel has a
specific mutual legal assistance agreement with the
requesting state and does not require double criminality. In
addition to requests for legal assistance, the PMLL
specifically permits IMPA to transmit information from its
database to foreign authorities of its kind.


19. Israel is a party to the United Nations Conventions
Against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances. Israel signed the Convention on December 20,
1988, and ratified it on January 3, 2002. The Convention
entered into force for Israel on June 18, 2002. Israel is a
party to the International Convention for the Suppression of
the Financing of Terrorism. Israel signed the Convention on
July 11, 2000, and ratified it on February 10, 2003. Israel
was among the first countries that raised, in the
international arena, the need to tackle the problem of the
financing of terrorism. Israel lent its support to this
Convention during all the stages of its deliberation. Israel
signed the International Convention Against Transnational
Organized Crime on December 13, 2000, and hopes to very
shortly complete the process of its ratification. In June
2003, the Knesset adopted the Combating Criminal
Organizations Law, which includes comprehensive measures with
regard to organized crime. On November 29, 2005 Israel
signed the United Nations Convention Against Corruption.


20. According to Israeli law, legal assistance in criminal
matters may be granted even if there is not a bilateral
agreement between Israel and the other country. Israel fully
recognizes, however, that such treaties facilitate working
relationships that allow such assistance to be granted in an
effective, efficient and expeditious manner. Israel has
entered into a wide number of treaty arrangements to enable
it to render mutual legal assistance in an effective manner
in criminal cases, such as the Convention on Mutual Legal
Assistance in Criminal Matters with the U.S., and the Council
of Europe Treaty on Mutual Legal Assistance in Criminal
Matters. Israel is in the final stages of domestic approval
for Israel's accession to the Second Additional Protocol to
the Council of Europe Convention. Furthermore, Israel is a
member of international conventions that provide specific
provisions for providing legal assistance in matters
regarding serious crimes including the financial aspects of
those crimes. These include the 1988 Vienna Convention on
the Illicit Traffic in Narcotic Drugs and the 1999
International Convention on the Suppression of Terrorist
Financing. Israel also hopes to very shortly complete the
process of ratifying the 2000 Palermo Convention on
Transnational Organized Crime that it signed on December 13,

2000. Israel has bilateral agreements on mutual assistance
in customs matters with the United States, the EC, Mexico,
Italy, the Netherlands, Poland, the Czech Republic, Cyprus,
Latvia, Slovenia, Turkey, Uzbekistan, Ukraine, Kazakhstan,
Russia, China, India, Korea, and Moldova. The Israel
Securities Authority (ISA) maintains ongoing, formal and
informal, relationships with investigative bodies in other
countries. The ISA signed a Memorandum of Understanding
(MOU) with the U.S. Securities and Exchange Commission on
February 13, 1996. In 2005, the ISA signed bilateral MOUs
with the securities authorities of the Netherlands, Greece,
Republic of South Africa, Cyprus, Australia, and New Zealand.
The INP regularly exchanges intelligence with other law
enforcement agencies around the world regarding individuals
and/or institutions involved in money laundering. Such
exchanges are done either directly or via INP liaison
officers abroad. Israel is also a member of INTERPOL, and
exchanges information with other law enforcement authorities
through the INTERPOL unit in the INP. In addition, in 2005,
the IMPA signed MOUs with South Africa, Luxemburg, Panama,
Peru, Canada, and Russia. Furthermore, negotiations were
held on MOUs with Ukraine, Argentina, Aruba, Guatemala, San
Marino, Paraguay, and the Czech Republic.


21. Israel has entered into a wide number of treaty
arrangements to enable it to render mutual legal assistance
in an effective manner in criminal cases. These treaties
include bilateral treaties such as its Convention on Mutual
Legal Assistance in Criminal Matters with the USG. Israel
also has a bilateral agreement on mutual assistance in
customs matters with the USG. The INP routinely exchange
information regarding narcotics and other criminal
investigations with the FBI, DEA, and U.S. Customs through
their regional liaison offices, as well as through the INP
Liaison Office in Washington, D.C. The exchange of
information for intelligence purposes is free-flowing and
executed in real-time. During 2005, Israel provided legal
assistance to the United States in the federal prosecution in
the United States of Pavel Lazarenko, the former Prime
Minister of the Ukraine, on charges of money laundering
related to widespread corruption committed by him and his
associates in the Ukraine. Lazarenko was convicted and
sentenced in federal court in San Francisco of money
laundering offenses. Also, Israel provided extensive legal
assistance to U.S. officials in the federal prosecution of
Sami Al-Arian on several charges of terrorism-conspiracy.
Other examples include the close legal assistance provided by
Israel in the prosecution in the U.S. of Muhammad Salah on
charges of terrorist financing; in the prosecution of Jessy
Maali on charges of terrorist financing and money laundering;
and in the prosecution of Gabi Ben-Haroush on charges of
money laundering. The U.S. and Israel recently successfully
negotiated extensive amendments to Israel's Extradition
Treaty with the USG. An agreement regarding such amendments
was initialed by representatives of the United States and
Israel and the process of achieving necessary government
approvals of the amendments in the United States and Israel
are underway. The amended treaty dispenses with the list of
specific extraditable offenses of the original treaty and
permits extradition with respect to any offense punishable by
a penalty of at least one year imprisonment. The practical
import of this is that Israel will now be able to extradite
to the United States for money laundering and other crimes
that did not exist on the statute books when the original
treaty went into effect in 1963. This is expected to have a
major deterrent effect on money laundering and to permit the
apprehension of money launderers and their successful
prosecution. There have been no instances of refusals to
cooperate with foreign governments.

--------------
Asset Forfeiture and Seizure Legislation
--------------


22. Israel has established systems for identifying, tracing,
freezing, seizing and forfeiting narcotics-related assets as
well as assets derived from or intended for other serious
crimes including the funding of terrorism. Identification
and tracing of such assets is part of the ongoing function of
the Israeli intelligence authorities and IMPA, who are
equipped with the necessary powers to accomplish their
mission. The International Legal Assistance Law allows the
Minister of Justice, after consultation with the Minister of
Finance, to order that the property forfeited at the request
of another country, or part of it, or its equivalent, be
transferred to that country.


23. According to the Ministry of Justice, Israel constantly
reviews its laws and regulations to ensure that they
effectively and appropriately deal with money laundering and
terrorist financing. Modifications, updates, and amendments
are being considered and, when required, adopted. In 2003,
the Knesset adopted the Combating Criminal Organizations Law.
In 2004, it adopted the Prohibition on Terrorist Financing
Law.


24. Israeli law allows for seizure and forfeiture of a wide
range of assets including instruments of crime, immovable and
movable property, bank accounts, monies, and rights.
Legitimate businesses can be seized if used to launder drug
money or other criminal proceeds. Israeli law establishes an
asset forfeiture fund into which forfeited property with
respect to narcotic related offenses and money laundering
offenses is deposited. This fund is administered by the
Administrator General and is used to carry out the functions
of the Drug Control Authority and the IMPA among other
things. Property forfeited with respect to terrorist
financing offenses is transferred to the Ministry of Finance.
The law allows for both civil and criminal forfeiture. The
government enforces existing drug-related asset seizure and
forfeiture laws.


25. The INP is the main body responsible for tracing and
seizing assets. In addition, the PMLL grants limited seizure
powers to the Department of Customs and VAT. Forfeiture
orders and interim orders (freezing) are issued by the
courts. There is no time limit ascribed to the action of
seizure or interim forfeiture if such an order is granted
after the filing of an indictment. If the seizure or interim
forfeiture occurs prior to an indictment being filed, the
assets must be released after a certain period of time unless
an indictment is filed during the period.


26. The INP, the Administrator General, and, where
appropriate, the Department of Customs and VAT, have adequate
powers and resources to trace and seize assets, and are
increasing their resources to adapt to the changing times.
Each police unit holds a forfeiture officer who is in charge
of facilitating the tracing and seizing of assets. In
addition, the police have two to five full-time anti-money
laundering enforcement officers in each of the five
districts, "Central Intelligence Unit" responsible for
dealing with most of the serious predicate offenses at the
district level, and criminal organizations, as well as
anti-money laundering officers in the three national crime
units responsible for transnational organized crime and
serious white collar offenses. Israel can freeze assets
without undue delay.


27. In 2005, the INP seized approximately 75 million dollars
in suspected criminal assets. Total seizures for each of the
past three years were more or less the same, 23 to 27 million
dollars per year.


28. Israel encourages and fully cooperates with efforts by
the U.S. or other countries to trace or seize assets. The
INP, as well as other relevant government agencies,
appreciate and make use of tips from other country
enforcement officials regarding the flow of drug-derived
assets. Moreover, the police have on their own account
approached the FBI and U.S. Customs Department requesting
transfer of information they may hold regarding money
laundering and drug trafficking proceeds. Israel is
constantly engaged in efforts to improve enhancement of
mutual legal assistance. There has been no noted public
response to government efforts to seize and/or forfeit
assets. The banking community cooperates with enforcement
efforts to trace funds and seize bank accounts.

********************************************* ********************
Visit Embassy Tel Aviv's Classified Website:
http://www.state.sgov.gov/p/nea/telaviv

You can also access this site through the State Department's
Classified SIPRNET website.
********************************************* ********************
CRETZ