FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF 40 + 9 Recommendations
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
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 Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Israel was undertaken by the Financial Action Task Force (FATF) in 2018. According to that Evaluation, Israel was deemed Compliant for 17 and Largely Compliant for 17 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.
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 60
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
Israel has a technologically advanced free market economy. Cut diamonds, high-technology equipment, and pharmaceuticals are among its leading exports. Its major imports include crude oil, grains, raw materials, and military equipment. Israel usually posts sizable trade deficits, which are covered by tourism and other service exports, as well as significant foreign investment inflows.
Between 2004 and 2013, growth averaged nearly 5% per year, led by exports. The global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the crisis with solid fundamentals, following years of prudent fiscal policy and a resilient banking sector. Israel's economy also weathered the 2011 Arab Spring because strong trade ties outside the Middle East have insulated the economy from spill over effects.
Slowing domestic and international demand and decreased investment resulting from Israel’s uncertain security situation reduced GDP growth to an average of roughly 2.6% per year during 2014-15. Natural gas fields discovered off Israel's coast since 2009 have brightened Israel's energy security outlook. The Tamar and Leviathan fields were some of the world's largest offshore natural gas finds in the last decade. Political and regulatory issues have delayed the development of the massive Leviathan field, but production from Tamar provided a 0.8% boost to Israel's GDP in 2013 and a 0.3% boost in 2014. One of the most carbon intense OECD countries, Israel generates about 57% of its power from coal and only 2.6% from renewable sources.
Income inequality and high housing and commodity prices continue to be a concern for many Israelis. Israel's income inequality and poverty rates are among the highest of OECD countries, and there is a broad perception among the public that a small number of "tycoons" have a cartel-like grip over the major parts of the economy. Government officials have called for reforms to boost the housing supply and to increase competition in the banking sector to address these public grievances. Despite calls for reforms, the restricted housing supply continues to impact the well-being of younger Israelis seeking to purchase homes. Tariffs and non-tariff barriers, coupled with guaranteed prices and customs tariffs for farmers have kept food prices high through 2015.
In the long term, Israel faces structural issues, including low labour participation rates for its fastest growing social segments - the ultraorthodox and Arab-Israeli communities. Also, Israel's progressive, globally competitive, knowledge-based technology sector employs only about 8% of the workforce, with the rest mostly employed in manufacturing and services - sectors which face downward wage pressures from global competition. Expenditures on educational institutions remain low compared to most other OECD countries with similar GDP per capita.
Agriculture - products:
citrus, vegetables, cotton; beef, poultry, dairy products
high-technology products (including aviation, communications, computer-aided design and manufactures, medical electronics, fibre optics), wood and paper products, potash and phosphates, food, beverages, and tobacco, caustic soda, cement, construction, met
Exports - commodities:
machinery and equipment, software, cut diamonds, agricultural products, chemicals, textiles and apparel
Exports - partners:
US 27.5%, Hong Kong 8%, UK 6.1%, China 4.9% (2015)
Imports - commodities:
raw materials, military equipment, investment goods, rough diamonds, fuels, grain, consumer goods
Imports - partners:
US 13%, China 9.3%, Switzerland 7.1%, Germany 6.1%, Belgium 5.3%, Italy 4% (2015)
Investment Climate - US State Department
Israel has an entrepreneurial spirit and a creative, highly-educated, skilled, and diverse workforce. Israel is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in American companies. Israel, popularly known as the “start-up nation,” invests highly in education and scientific research, and many leading multinational companies have established research and development (R&D) centers here. Various Israeli Government agencies fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies and also seeks to develop more traditional industries. Private venture capital funds have flourished in Israel in recent years.
The fundamentals of the Israeli economy are strong, and the economy proved flexible and adaptable through the worldwide financial crisis. With low inflation, relatively low unemployment, and fiscal deficits that have usually met targets, Israeli Government economic policies are considered by most analysts 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 goods and services trade reaching USD 40 billion in 2015, according to the US Census Bureau, and extensive commercial ties, particularly in high tech and research and development. This year marks the 31st anniversary of the U.S.-Israel Free Trade Agreement, the first such agreement for both countries. During this time 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-technology sector. The Government continues to take actions to remove trade barriers and encourage capital investment, including foreign investment. However, several constraints exist in the economy that have contributed significantly to growing public concerns over the high cost of living and the lack of competition in key sectors.
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