Preparing for an Israeli Bank Compliance Review

Why a review happens, and what it compares

Israeli banks operate under anti-money-laundering (AML) rules — the obligations imposed on financial institutions to prevent criminal proceeds moving through the banking system — and under know-your-customer (KYC) rules, which require them to identify a client, the people who ultimately own or control it, and the activity behind an account. Those duties are continuing rather than discharged at opening.

Reviews arrive in two ways. Some are periodic, part of the bank's own cycle for the category a client falls into. Others are prompted by an event: a payment that does not fit the file, a change of ownership, a new counterparty or country, a change in the client's own circumstances, or information that reaches the bank from outside.

A periodic review is not a sign of suspicion, and an event-driven one is a question rather than an accusation. Both are answered the same way, and the answer is easier where nothing has been left to be discovered.

A review sets the file against the account's behaviour. The activity described at opening against the activity that actually occurred. The counterparties and countries expected against those the bank has seen. The pattern of turnover against the pattern that was described. The ownership recorded against the ownership as it now stands. And the documents on file against the documents that are still current.

Where the two sides match, a review is short. Where they diverge, the divergence is the subject of the review and the client is asked to explain it. Most divergences are entirely ordinary: a business grew, changed direction, took on customers in new places. They become a problem only because the bank learned of them from a transaction instead of from the client.

The questionnaire, and what it is really asking

A review usually opens with a form and a request for documents. Read literally, the questions look administrative. What they are asking is whether the bank can still describe this client and this account accurately.

Three questions sit underneath. Who the client is and who ultimately stands behind it — for a company, the ultimate beneficial owners, meaning the individuals who ultimately own or control it. What the account is used for now, as opposed to what it was opened for. And where the money comes from: the source of funds, meaning the origin of the specific money entering the account, and the source of wealth, meaning how the client's overall wealth was built up over time.

A form returned without the documents behind it produces the same questions again in a second round, which is the slowest way to answer them.

Assembling the answer

A good review response has the same properties as a good opening file. It is documented, in that each assertion is supported by something a third party issued. It is continuous, in that the documents connect to each other without a step that has to be taken on trust. And it is consistent, in that the amounts, the parties and the sequence agree with each other and with what the bank was told before.

A short covering explanation in plain language, keyed to the exhibits behind it, is worth more than a thick file without one. The person reading it inside the bank does not know the client's business and should not have to reconstruct it.

Where something has changed, say so plainly and place it in the sequence, rather than leaving the bank to infer the change from the documents. Where a document no longer exists, say what the transaction was, why the primary document is unavailable, and what secondary evidence exists instead. A gap that is explained is a question answered; a gap passed over in silence is a question reopened, together with everything around it.

Corporate clients: what has usually changed

Ownership and control move: new shareholders, transfers between existing ones, an intermediate holding company introduced for a reason that made sense at the time, a change of directors or of authorised signatories. Activity moves too: new products, new markets, new suppliers, a subsidiary that now trades where the parent used to.

Corporate documents go stale quietly. Registers are not updated, extracts are old enough that a bank will not rely on them, resolutions have been superseded by decisions that were never written down. Where the group produces financial statements, the bank will read them against what it has seen on the account.

Money moving between companies under common ownership deserves particular attention. Related-party flows are ordinary in a group and unreadable without the arrangement behind them, so the arrangement is produced rather than described.

Private clients: what is usually asked

Identification and proof of residence that are current rather than whatever was supplied at opening. Declarations about tax residence, which banks collect under international reporting arrangements. The reason for holding an account in Israel, as it now stands. The sources of income supporting the account, and the history behind the wealth. And an explanation of the transactions that stand out from the rest.

Where the connection to Israel is a particular event — a property, an inheritance, an investment, a move — the documents describing that event belong in the answer, because they answer a question that would otherwise be asked separately.

While a review is running

An account may continue to operate normally, or the bank may limit what it will carry until the review is closed. A restriction is a situation to be worked with rather than argued about: the way it is lifted is by closing the review.

Payments that have to be made in the meantime are better discussed with the bank before they are attempted than sent and stopped. A stopped payment during an open review adds a second question to a file that already has one.

What preparation can and cannot do

Preparation can make the file accurate, the answer complete and the chronology one a compliance officer can follow. It cannot commit the bank to a conclusion. The decision belongs to the bank's compliance function, there is no timetable anyone outside the bank can offer, and no adviser can promise an outcome. We do not.

What is within a client's control is the habit rather than the event: telling the bank about changes when they happen. A file kept current turns a review into a confirmation. A file left as it was at opening turns it into an examination of everything that has happened since.

How the firm works on this

We establish what the bank is actually asking, read the account file against the activity the bank has seen, identify the gaps and obtain what can be obtained, prepare the questionnaire responses and the documented chronology behind them, arrange legalisation and translation where documents come from abroad, coordinate with the client's accountants and foreign advisers, correspond with the bank in Hebrew and report in English, and act where an account has been restricted or the relationship has been put in question.