Israeli Firms Compelled to Report on Clients’ Cryto Activities by Law

The Israeli Ministry of Finance’ draft of the amended Money Laundering Prohibition Order with the proposed legislation now contains provisions related to cryptocurrencies. The new regulations now include virtual currencies into the regulatory system meant to prohibit money laundering in the financial service sectors.

In the explanatory notes accompanying the draft, the intention to expand the regulations to apply to companies providing virtual currency services in addition to mainstream financial services providers is clearly acknowledged. The note states: “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.”

Along with incorporating virtual currency services into the legislative system, the proposed regulations will also 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 of 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.”

Mr. Yishay Trif, CEO of the international payments provider, said that financial institutions have reacted positively to the new rules. He stated that: “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.”


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