This week, the Bank of Israel has circulated a draft directive intended to clarify and regulate measures that Israeli banks are required to adopt with respect to their foreign clients, in light of the increasing potential legal and reputation risks deriving from global efforts of countries to collect information on their residents foreign bank accounts.
The draft directive instruct the Israeli banks to ensure that their foreign clients are tax compliant in their home jurisdictions and specify the measures that the Israeli banks should implement in order to verify it.
The directive mentions the increased FATCA enforcement efforts by the United States and the fact that other countries also act to collect information on their residents' foreign bank accounts. In addition, the directive mentions that recently the OECD approved a Standard for Automatic Exchange of Financial Account Information, which will apply also to financial institutions in jurisdictions that will enter into relevant bilateral agreements in this regard.
According to the directive these developments may increase the potential exposures of Israeli banks to legal and reputation risks. Accordingly, the directive instructs the banks to examine their policies and verify that the banks implement procedures and policies with respect to foreign clients (existing and new clients) emphasizing in particular the following points:
- collecting a declaration from all foreign resident account holders (existing and new), that they have paid all taxes required on those accounts in other countries;
- obtaining supporting documentation from resident account holders, including on the source of the funds, and receiving a waiver on confidentiality rules so that the Israeli banks can receive information form and pass account information on to relevant tax authorities abroad;
- finding out in what countries foreign resident account holders are subject to tax, and their connection to the country in which the banking services are rendered;
- the banks will also need to formalize procedures for determining which foreign residents are high-risk customers; and indentify mangers and officers that will be authorized to approve bank account for foreign resident account holders.
The directive provides that a bank's refusal to open an account for a foreign resident that does not cooperate with the bank in order to allow the bank to implement its procedures and policies in this regard, or to service an account that could expose the bank to claims that it will be regarded as cooperating with tax evasion, will be considered “reasonable refusal” for Israeli banking law purposes.
To read the draft directive please click here.