After attracting the attention of the Israel Bar Association and generating considerable controversy, the 13th Amendment to the Israeli Prohibition on Money Laundering Law ("the Amendment") has been approved by the Israeli parliament.
According to the Amendment, for the first time, lawyers and accountants are required to actively collect information about their clients and properly identify them when they perform certain services on their behalf, and, more importantly – provide such information to the Israeli authorities under certain circumstances.
The services that trigger the forgoing identification requirement include buying or selling real estate or business entities; managing of clients' funds, securities or other assets; incorporation, operation or management of companies, business or legal entities on behalf of another; and more.
Although the Amendment has already been approved and published, it will become effective only after the Minister of Justice will sign a special Order setting out the necessary regulations relevant thereto (for example the type of the information which lawyers and accountants are required to collect).
The intention behind this new legislation is to align the money laundering laws of Israel with those of other developed countries, in accordance with the 40 recommendations on money laundering of the FATA (Financial Action Task Force). These recommendations were developed in light of more sophisticated methods of money laundering, often involving the services of lawyers and accountants, which evolved in recent years as means to circumvent existing money laundering regulations. The Amendment seeks to prevent the utilization of legal and accounting services to establish complex ownership structures designed to conceal the real owners of assets.
Although the authorities in Israel can, under certain circumstances, gain access to the information collected by lawyers and accountants pursuant to the Amendment, the Amendment does not imposed active reporting obligations in connection with suspicious transactions, as contemplated by the recommendations of the FATA and the original legislation proposal initiated by Israel's Money Laundering Prohibition Authority.
Despite the relative leniency of the Amendment in this regard, and although the Amendment specifically provides that it does not derogate from the statutory attorney-client privilege, it is yet to be seen what will the actual implications of the Amendment on the confidential relationship between professionals and their clients.
The Amendment is an important step taken by the Israeli parliament to meet international standards and to fight money laundering activities in Israel. The Amendment establishes record-keeping and client identification requirements, which prompted professionals to voice their concerns about the possible implications of the Amendment on the confidential relationship with their clients. Such implications will be seen upon publication of the new regulations and entry into effect of the Amendment.