Israel’s New Draft Law Requires Banks To Report Suspicious Crypto Transactions

News, Regulation | May 29, 2018 By:

Israel’s Ministry of Finance has published a draft of new legislation that will require financial institutions to report suspicious cryptocurrency transactions.

The draft legislation, which is up for public comment until June 13, will incorporate cryptocurrencies into the regulatory apparatus designed to prohibit money laundering in the financial services sector. Under the new regulations, financial institutions, including brokers, banks, money changers, and crypto exchanges will be obligated to report any suspicious cryptocurrency activity by their clients. They will also be required to keep five years’ worth of records on their customers’ crypto activity, including their digital wallet addresses, IP addresses, and all details of their transaction history.

“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 ministy said. “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.”

Israel’s Money Laundering and Terror Financing Prohibition Authority has proposed 37 money laundering red flags which will require disclosure. Among these potentially unusual transactions are the “transfer of virtual currencies to online gambling platforms and sites.” Banks also have to report large sums of over NIS 5,000 ($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, and any activity in anonymous cryptocurrencies such as Monero or Zcash.

Meni Rosenfeld, chairman of the Israeli Bitcoin Association, said that the bill will give regulatory assurance and define what is allowed and what is prohibited. He added that it will allow banks and financial institutions to know who is compliant with the rules, and whose money they can accept.

“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,” Rosenfeld said.

Yishai Trif, CEO of Moneynetint, an international payments provider, said the new legislation will bring greater regulatory clarity regarding the crypto 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,” Trif said. “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.”