The Banking Supervision Department has derived lessons and acted to strengthen control processes in order to minimize the risks inherent in the activities of Israeli banks abroad.
The events dealt with by the State Comptroller’s Report took place during the previous decade, up to 2011. The report concerns banks’ compliance with the foreign law applicable to their representative offices abroad and their foreign customers in Israel, and with the resulting risks. Due to these events, US authorities conducted an investigation concerning Bank Leumi, and as of today they have not yet completed their investigation against Bank Hapoalim or Bank Mizrahi-Tefahot.
It is clarified and emphasized that the compliance duty of the banks’ representative offices abroad was and remains absolute, and was not born of a change in tax law enforcement policy in the US, which increased the risk involved in contravening local law. In the same manner, the officers of the banking corporations have been and remain obligated to ensure that the corporation complies with local law. The Banking Supervision Department has warned of increasing compliance risk in international activity on a number of occasions, all in accordance with the information and authority provided to it by law. Judging by the results, these activities were not sufficient to prevent the realization of the risks.
From the time the results of the US authorities were received, results which included and were based on investigation of American citizens, the Banking Supervision Department has studied the failures that occurred in similar events at leadings banks and supervisory authorities around the world, and the events that took place in Israel, has derived conclusions, has acted to strengthen existing processes, and has demanded that new processes be implemented, with the aim of minimizing the risks and assuring that similar incidents do not recur. In the past two years, the banking system has also undergone a process of deriving conclusions and is acting diligently, under the Bank of Israel’s direction, to reduce risks in international activity and the risks inherent in activity vis-à-vis nonresident customers, who are also required to comply with the laws of their home country. The Banking Supervision Department will continue requiring the banking corporations to act to minimize exposure to these risks, and will strive to improve its risk management ability and that of the banks, in the future as well, including in relation to the State Comptroller’s comments.
The Bank of Israel welcomes the fact that the State of Israel amended the Prohibition of Money Laundering Law this year, to include tax offenses as an original offense. We call on the Ministry of Finance and the Knesset Finance Committee to rapidly arrange the legal infrastructure to implement the FATCA agreement in order to ensure the Israeli financial entities’ full compliance with the requirements of the US authorities.