Thus, as a central part of the first stage, the "Know the Customer" procedure is carried out (which in parentheses I will note that in accordance with the law and procedures, it must be carried out not only at the opening of the account but at all times of activity, as required), in which the client and his activity are examined and the inherent risk inherent in the client is assessed, as a result of the type of client and the scope and type of his activity. As helpful indications for the client's catalogue, a list of "red flags" has been published, which, to the extent that they exist in the customer or in his activity, can affect the risk inherent in them.
In the second stage, resources are allocated for ongoing monitoring of the customer and his activity in accordance with his risk rating, in such a way that the higher the risk involved in the customer, the greater the resources allocated for the purpose of examining and controlling his activity.
- In the framework of legislation in Israel, as well as the procedures that were issued under its auspices, there is a reflection of the methodology as it was presented, in its two stages.
- Combine Know Your Customer and Risk Assessment;
The primary basis for the fight against money laundering through the banking system is to know the parties involved in banking activity. As such, the first duty imposed on the banks is: "Know the customer" [see Shinar, p. 257]. Thus, Section 7(a) of the Prohibition of Money Laundering Law authorizes the Governor of the Bank of Israel to prohibit banks from providing certain services without receiving the identification details of the recipient of the service. Accordingly, as part of the order, actions that a banking corporation must perform before opening an account for a customer and while managing the account were determined. Thus, section 2 of the order establishes the obligations to identify the customer and receive his details, as well as that no transaction will be carried out in the account by someone who is not identified by the banking corporation.