Banks and Compliance

The meaning of “money laundering” and how this phenomenon is handled by banks

In the modern world owning a sum of money, especially in cash, but also in the bank account in the name of the owner, does not guarantee its use for the purposes of the owner. The global war against capital obtained through the commission of offenses (“black capital”) has led to the basic question: “What is the source of the money?”. The meaning of “source” does not refer to the question of “from where” the money was transferred or how it was deposited into the account, but, refers to the result of which business operations or within what private relationship it was transferred and accumulated, for example, in the specific account.

Hiding the source from which the money was obtained while committing offenses by providing a different explanation for the source of the money, which does not correspond to the situation correctly, was given, first as a popular term and then as a legal term, the name “money laundering”. It should be emphasized that over the years the definition of “original offense” (the same criminal offense through which the capital was obtained) has been extended even beyond the definition of “classic” offenses such as bribery, extortion, human trafficking, illegal arms trafficking or illegal gambling. “- something that completely changed the way the banking system looks at and requires legal certificates of compliance of customers with tax laws at least in the countries of residence of customers of the banks. The concealment of “original offenses” is in itself, according to the legislation of most reformed countries, considered a criminal offense.

With regard to the use of cash, which is not the place to expand on, it will only be said that due to it’s nature, the tracking route for receiving cash is complex. Therefore, as a kind of substitute for supervising the receipt of money, which is not generally effective, legal restrictions have been established on the use of cash, even if it is physically in the possession of the owner. The limits usually set maximum amounts for transactions that can be paid in cash. These amounts are generally low, and in modern countries these amounts are decreasing even more over the years of the war on “black capital”, through legislation.

Regarding the use of funds in accounts: The very existence of the money in the account, even if it was deposited many years ago, or rather, especially if it was deposited many years ago, before the establishment of legislative provisions on supervision of capital movements and its source, does not guarantee that the paying bank will transfer the money and in particular – that the receiving bank will allow the transaction to be completed by transferring it to the account of the recipient managed by it, due to the fear that the bank will be recognized as an “assistant” in the use of capital obtained through commission of criminal offenses.

In order to avoid the fear of such assistance, special units have been set up in most banks around the world to check the source of the capital that the bank receives for its customers, called “compliance” units, which aim to track the source of the money that should be received. Due to the very high fines set by banks’ regulators on such assistance, over the years compliance units have become even more central than business units (especially in larger and reputable banks, which are less “eager” for new customers), as sometimes the goal of preventing the inflow of black capital into the system has become a more important task. This has led some customers, especially from countries suspected of black capital in the banking system, to experience difficulty carrying out business activities or even private purchases in the Western banking system.

Private ownership of an account and compliance procedures for the purpose of the movement of funds from it to carry out transactions

ENR is familiar with the compliance requirements of banking systems, in Israel and in many other jurisdictions, and assists its customers in meeting the banks’ requirements in the following aspects:

  • Collection of documents relevant to banks’ requirements for the compliance procedure.
  • A description of the customer’s business activity and the business actions that led to the accumulation of his personal capital.
  • Contact the different authorities in the jurisdictions of capital accumulation to provide explanations on the details of the transaction execution.
  • Receipt of documents, including from the relevant authorities, such as tax authorities, that comply with the requirements of the banking legal system in order to allow capital to enter into the banking system.
  • Determining the need to keep a record of transactions for long periods.
  • Clarification of the source of the money as an outgrowth of private transactions in property, such as its sale, inheritance, receipt as a gift, etc.

As part of accompanying the client, ENR is able to operate in several jurisdictions and in several languages, while providing required legal clarifications by the relevant legal systems, especially the Israeli system, from familiarity with business actions in the countries of origin of the money.

While ENR services do not guarantee the successful addition of capital into the banking system (due to the banks’ risk management perception and encouragement of compliance personnel to engage in enforcement), they significantly increase the chance of success, as they allow to present the customer’s interest in the best way to achieve this goal.

It is important to clarify that the compliance procedure is also required when opening a new account in the banking system of the jurisdiction in which the client is interested, especially if the client intends to accumulate significant capital in this account or transfer significant capital from other jurisdictions’ banking systems. This is especially important for immigrants that own capital in other jurisdictions, that must transfer significant capital to Israel to purchase their first home, car and to be able to live in the appropriate quality for them.