Updated: May 1, 2019
As many in Israel are quick to learn, an ounce of paperwork prevention can be worth a pound of cure; especially when it comes to saving precious money, time, and hassle on your overseas currency transfers.
It wasn’t too long ago that transferring currency to Israel and exchanging to shekels was a pretty easy and pain free process. You would instruct your bank overseas to wire your money, your Israel bank would accept the funds, and automatically release them to be converted. End of story.
However, starting approximately a year ago, the pendulum has swung to the complete opposite end of the spectrum and into the “endlessly frustrating” classification. Over time Israel’s banks have become more difficult to deal with (as if that was possible), including excessive scrutiny with regarding source of funds being transferred, leading to the most common question we receive on a daily basis: Why won’t the bank just accept my money!!!???
The scenario typically plays out in an all-too-familiar way, and complications can arise on virtually any amount being transferred no matter how large or small. As such, it really does pay to plan ahead and gather supporting documentation before making any transfer. Believe us, you’re going to need it, especially once your funds arrive from overseas and the bank refuses to accept them until you satisfactorily answer their entire litany of questions including:
Where is the money from?
How did you get to have so much money?
Prove to us you have paid tax on the money.
Why do you need the money in Israel?
Prove it, prove it, prove it – and send it to us by fax!
Pretty invasive to say the least, and if you’re unable to satisfy their demands, they may freeze your money, or in some cases return the funds, where you may incur international transfer and receiving fees. Imagine if these funds were going towards the closing on a property purchase and you needed them right away. Talk about making a high anxiety situation much more stressful...
Why the third-degree treatment?
The reasons the banks are asking these questions are twofold:
They are scared that they may be helping launder money.
They are even more scared that they may be helping someone avoid paying tax.
While the former has always been a concern to Israel’s banks, and they continue to heavily scrutinize money received from offshore banks accounts in countries like Cayman Islands, Isle of Man, Luxembourg, and Switzerland, more recently it’s actually the latter that has been taking center stage. The reason for such excessive caution? Getting hit where it hurts following a United States Justice Department crackdown on three Israeli banks regarding tax evasion by its US customers. The probe which began in 2011 uncovered significant amount of tax sheltering activity by US citizens, and initially resulted in nearly USD $1 billion in fines to Israeli banks.
As a result they are no longer taking any chances when it comes to receiving foreign currency from overseas. By the way, the same can even occur if you send shekels from overseas to an Israeli bank account, they can still ask similar questions.
Now, in the simple example we mentioned earlier of you sending money from your account in the US to your account in Israel, you could probably answer the questions and get the paperwork to the bank within a day or two. However, what if you want to transfer your funds from the US to Israel, but have it sent to a third party, such as the seller of the property you are purchasing? Short answer: get ready for things to become even more difficult.
Perhaps the most challenging of all though is what happens if you are receiving money from a 3rd party, even if it’s just an immediate family member. In fact, not too long ago we heard an unbelievable story involving a major shareholder in an Israeli company that was sold for billions of dollars by an American company. This individual received a seven figure payout into his Israeli bank account in US dollars, however, the bank refused to accept the money into his account unless he showed them proof of how he had obtained such a large amount of money.
He explained and proved he had a shareholding in the company, however, the bank then asked to see a copy of the sale contract. Unfortunately, that document was and still is confidential and so he could not give it to the bank. Amazingly, the bank still refused to accept the money and it was ultimately returned to the sender!
“The best defense is a good offense”
Clearly no one is immune to being put through the wringer by the banks when transferring currency to Israel, so don’t take it personally. This is the reality we live in, and there is unlikely to be any change in the situation for a long time. In fact, we wouldn’t be surprised to see thing get even more invasive going forward. Our recommendation is to load up on absolutely as much documentation as to the source of your funds before initiating your transfer. Be prepared to be asked for it all, because you most likely will be.
From our experience, it seems every Israeli bank is a little different in how strict they are and what paperwork they require. If you’re not sure what types of documents you should start collecting, we deal with this on a daily basis and are pretty well versed with who typically requires what, and can certainly help save you hassle and time. With that in mind, if you would like to discuss particular issues, please feel free to call us on 074-701-8887.