Draft Law Requires Israeli Firms to Report on Clients' Crypto Activities

The Israeli Ministry of Finance has published draft prohibiting money laundering regulations with provisions specifically pertaining to virtual currencies. The proposed regulations will also introduce a suite of new reporting requirements for financial service providers, including strict conditions regarding the cryptocurrency activities of clients.

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Israeli Ministry of Finance Publishes Draft Money Laundering Regulations

The Israeli Ministry of Finance a draft of the amended Money Laundering Prohibition Order – with the proposed legislation now containing provisions pertinent to cryptocurrencies. The new regulations will incorporate virtual currencies into the regulatory apparatus designed to prohibit money laundering in the financial services sector.

Explanatory notes accompanying the draft acknowledge the intention to expand the regulations to apply to companies providing virtual currency services in addition to mainstream financial services providers, stating: “The definition of a service in a financial asset that comes to replace and expand the term ‘currency services’ includes all the activities and services performed in financial assets through a business that does not involve granting credit. The intention is to enable the supervision of financial services, other than tangible assets or standard financial means, in an area that has been developing in recent years.”

Proposed Regulations to Introduce Suite of Reporting Requirements Regarding Clients’ Cryptocurrency Activity

In addition to incorporating virtual currency services into the legislative apparatus, the proposed regulations will additionally impose a number of new reporting requirements on Israeli financial institutions.

According to local media: “As of June 1, brokers, banks, money changers and cryptocurrency trade and commerce platforms in Israel will be obligated to report any suspicious cryptocurrency activity by their clients […] The draft, which is open to public purview until June 13, specifies 37 money laundering red flags, among them large sums of over NIS 5,000 (approximately $1,400 USD) transferred to a digital wallet; any money transfers made using an anonymous IP address or an address that is incompatible with the geographic origin of the connection; cryptocurrency transfers to online gambling sites; and any activity in anonymous cryptocurrencies such as monero or zcash. The draft also states service providers must maintain full documentation of cryptocurrency activity, which includes all parties’ digital wallet addresses, IP addresses, and the type and amount of currency, for a period of no less than five years.”

New Money Laundering Laws to Take Effect on June 1st

Yishay Trif, the chief executive officer of international payments provider, Moneynetint, has indicated that financial institutions have reacted favorably to the proposed legislation bringing greater regulatory clarity regarding the virtual currency sector.

“In order to complete the legal framework for activity in virtual currencies, clear instructions are required regarding the prevention of money laundering and the financing of terrorism. The statement that the area is not regulated is repeated as part of the banks’ automatic refusal to provide services for those who trade in Crypto. Because of this, the steps taken are important and necessary. They provide regulatory certainty to banks and financial institutions and define clear rules on what is permitted and what is not, Mr. Trif stated.”

Meni Rosenfeld, the chairman of the Israeli Bitcoin Association, has echoed Mr. Trif’s sentiment, stating that “On many of the occasions in which banks have refused to accept money that originated with cryptocurrency, we met with the statement that the field is not regulated. The new order will regulatory certainty for those involved in the field, and will define rules that are permitted and forbidden, which will enable banks and financial institutions to know who is compliant with the law, and whose money they can safely receive. The union gave a proposal on the subject to the Israel Anti-Money Laundering Authority several weeks ago, and we welcome the regulator’s quick action to allow those involved in the field to operate.”

Do you think that greater legitimacy and juridical recognition of the cryptocurrency sector is a positive that outweighs the draconian reporting requirements regarding the virtual currency activities of Israeli firms’ clients? We would love to hear your thoughts in the comments section below!

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