It should also be noted that, as clarified in Section 1 of the Rules set by the Supervisor of Banks, in the provision of Regulation 411 of the Supervisor of Banks: Proper Banking Management (Prevention of Money Laundering and Terrorist Financing and Identification of Customers) (hereinafter: "Procedure 411"), an additional purpose underlying the duties and rules as determined and imposed on the banking corporations, is a desire to maintain its good name and the trust that the public acquires in the banking corporation and the banking system. Thus, in Section 1(b) of Procedure 411 states:
"The involvement of a banking corporation in money laundering and terrorist financing is liable to damage its good name and the public's trust in it and the banking system as a whole. Without an in-depth examination of the customer's identity, the banking corporation may be exposed to reputational risks, operational risks, legal risks, and other risks. Proper rules regarding customer knowledge help protect the reputation of the banking corporation and the credibility of the banking system, by reducing the chances that the banking corporation will become a tool or a victim of crime, and as a result, it will be harmed."
- The legislative provisions relating to the prohibition and prevention of money laundering and terrorism, as also established in Israel, are based on and intended to implement doctrinal documents - methodologies of the international organizations that lead the handling of money laundering and terrorist financing, including, at the general level, documents published and published by the Financial Action Task Force (FATF), an international organization whose goal is to promote and develop policies at the national and international levels for the purpose of combating money laundering and terrorist financing. It should be noted that this organization initially included Israel (in June 2000) as part of a "blacklist" of 15 countries that do not cooperate in the fight against money laundering, but in light of the legislation and enforcement that have been applied in Israel over the years, it decided in February 2016 that the State of Israel would join the organization as an observer and would be accepted as a full-fledged member if it successfully passed comprehensive audits. Over the years, this organization has published recommendation documents, the most relevant of which is the Risk Management Manual for the Banking System (Guidance for Risk-Based Approach (The Banking Sector) from 2014 (I note that an earlier version similar to this document from 2007 was submitted to the file and marked as Exhibit 4). It should also be noted that at the individual level, with regard to banking corporations, the Basel Committee has published over the years documents adopting the FATF's recommendations (the most recent of which was from 2014, in which the FATF recommendation of 2012 was adopted).
The methodology presented in the documents published by the FATF and the Basel Committee (and as a result of which is also seen in the legislation and procedures that have been applied in Israel), divides risk management by banking corporations into two parts - one, related to the identification and assessment of the risk inherent in the customer and his activities; and the second - related to the steps required to reduce the risk. In general, the two sections can be treated as having a chronological sequence, since in accordance with the policy presented - in the first stage, the risk is identified and categorized, and in the second stage, and in accordance with the risk as determined, steps are taken to reduce the risk, in accordance with the risk assessment.