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Israel Country Summary

62.15 Country Rating /100
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Sanctions

Arab League

FATF AML Deficient List

No

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Israel is not currently on the FATF list of Countries that have been identified as having strategic AML deficiencies.

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Israel was undertaken in 2022. According to that Evaluation, Israel was deemed Compliant for 16 and Largely Compliant for 19 of the FATF 40 Recommendations. It was deemed Highly Effective for 3 and Substantially Effective for 5 of the Effectiveness & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR)

Israel was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -

Israel is not regarded as a regional financial center. It primarily conducts financial activity with the markets of the United States and Europe, and, to an increasing extent, with Asia. Criminal groups in Israel, either home-grown or with ties to the former Soviet Union, United States, or EU, often utilize a maze of offshore shell companies and bearer shares to obscure ownership. Israel’s illicit drug trade is regionally focused, with Israel being more a market destination for narcotics than a transit country. The majority of money laundered originates from criminal activities abroad, including “carousel fraud,” which takes advantage of international value-added tax loopholes. Proceeds from domestic criminal activity also continue to contribute to money laundering activity. Electronic goods; liquor; cigarettes; cell phones; and pharmaceuticals, especially Viagra and Cialis, have all been seized in recent smuggling operations. Officials continue to be concerned about money laundering in the diamond industry, illegal online gaming rings, retail businesses suspected as money laundering enterprises, and public corruption. The government adopted the recommendations of the committee established by the Director General of the Prime Minister’s Office to explore the possibility of reducing the overall supply of Israeli currency in circulation, as part of an effort to combat both counterfeiting and money laundering activity.

Sanctions

There are restrictions by Israel of movement within the Palestinian territories and of goods moving in and out.

The Arab League (comprising 22 Arab member states) has boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.

The implementation of the boycott has varied over time among member states.

Bribery & Corruption

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           62

World Governance Indicator – Control of Corruption             79

Corruption is not an obstacle for businesses operating or planning to invest in Israel. Businesses may encounter demands for bribes or gifts particularly when dealing with public procurement, yet, corruption is not institutionalized in any of the country's sectors. The government has put in place a comprehensive legal framework to combat corruption and enforcement has been effective. The Penal Code addresses corruption offences including, bribery, extortion, embezzlement and abuse of office. Government corruption has come under the spotlight in several instances, however, impunity is not a problem. Several corruption cases have been tried and high-ranking government officials have received prison sentences. Both gifts and facilitation payments are criminalized in Israel. For further information - GAN Integrity Business Anti-Corruption Portal

Economy

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has 135 companies listed on the NASDAQ, the fourth most companies after the United States, Canada, and China. Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early-stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The government of Israel proposed changes to the judicial system in early 2023 that critics said could weaken checks and balances, the rule of law, and property rights. The government claimed the changes would reduce the number of frivolous lawsuits that allegedly slow down major investment projects, but many economists and business leaders predicted that, if implemented, the changes would dramatically reduce investment in Israel and hurt economic prospects. Several Israeli tech companies announced the withdrawal of funds from the country in response to the proposed reforms. Economists estimate that billions of dollars in personal savings and potential investment left the country within a few weeks of the proposal. Following weeks of sustained popular protests, the government paused the legislative changes and agreed to meet with the opposition for talks aimed at reaching a compromise. In May 2023, the two sides were still in discussions and the legislation has not progressed further.

The COVID-19 pandemic shook Israel’s economy, but successful pre-pandemic economic policy buffers – strong growth, low debt, a resilient tech sector among them – mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy rebounded strongly post-pandemic with 8.1 percent GDP growth in 2021 and 6.5 percent in 2022. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods and services that reached USD 51.8 billion in 2022, according to the U.S. Bureau of Economic Analysis, and extensive commercial ties, particularly in high-tech and R&D. The total stock of U.S. foreign direct investment (FDI) in Israel was USD 41.3 billion in 2021. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, particularly in agricultural products.

Israel has taken steps to meet its pledges to reduce greenhouse gas emissions, with planned investments in technologies and projects to slow the pace of climate change.

 

Country Links

Israel Money Laundering and Terror Financing Prohibition Authority (IMPA)

Bank of Israel

Israel Securities Commission

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