February 4, 2015

In the last couple of weeks we have been receiving frantic calls from our clients claiming that the banks in Israel are refusing to release money intended for the client unless showing proof of funds and a confirmation by their lawyers.

For an example, one of these calls came from a client of ours who lives in Europe, and who recently wired $40,000 to his Israeli grandson as a wedding gift. Both the giver and the recipient are non American citizens.  The bank refused to transfer the money into the grandson’s account unless it received an official document proving the source of the funds which had to be confirmed in writing by an Israeli lawyer.

The Bank of Israel recently sent Israeli banks a draft procedure requiring banks to receive from their foreign clients a declaration that they have paid the required tax on the income in their Israeli bank accounts in their country of residence.

In general, under the draft legislation, the procedure requires that every foreign resident customer (both new and existing ones) will have to present data about the source of his wealth and income, and declare that he has paid the legally required taxes in his country of residence. In addition, the client is required to sign and consent to waive his right to bank secrecy with respect to any other banking jurisdiction

This new request by the Israeli banks is another way to ensure that the money being transferred is “Kosher” as yet another way of combating against any potential money laundering issues and cooperating with the Israeli Tax Authorities (“ITA”) to detect tax evaders.

As part of the increasing efforts of the ITA to expose unreported worldwide income of Israeli tax residents, it published in September 2014, a New Voluntary Disclosure Program to encourage non compliant tax payers to come forward, disclosure their unreported income (whether it is accumulated in Israel or abroad) and pay the tax due accordingly.

The efforts made by the Israeli Tax Authorities (ITA) to combat unreported overseas accounts held by Israelis are beginning to yield results. Swiss banks have toughened their conditions for Israelis continuing to hold accounts. HSBC for example, has gone so far as to close Israeli accounts whose owners had not reported their accounts to the authorities in Israel. UBS and Credit Suisse started sending their Israeli account holders a form that they require to be filled out by their tax adviser and to be returned to the bank after declaring that the accounts are reported and that they are paying Israeli taxes on their Swiss accounts.

So if there are any indications that you will be receiving  money  in the near future we recommend that you prepare and have ready with you proof of the source of the money, and if possible, have it confirmed in writing by a lawyer, otherwise, that money might never reach you.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.