Civil Lawsuit in a Speedy Hearing (Tel Aviv) 36055-05-23 Tublin Constantin v. Mizrahi Tefahot Bank Ltd.

Prior to a monetary claim in the amount of ILS 71,737 accompanied by a claim for writ of habeas corpus, which was filed by the plaintiff, Mr. Konstantin Toblin (hereinafter: "the plaintiff"), against the defendant, Mizrahi-Tefahot Bank in a tax appeal (hereinafter: "the defendant"; "the bank").

The lawsuit concerns the funds received in the bank for the plaintiff from his family members in Russia, and the bank's refusal to transfer them to the plaintiff's account, since they were received from banks that were subject to international sanctions.  This is a lawsuit that was filed in a speedy proceeding.

1. Summary of the plaintiff's arguments:
2. The plaintiff is a new immigrant. He officially immigrated to Israel in 2014, but only in 2020 did the plaintiff move the center of his life to Israel, while settling with his minor daughter in Herzliya.
3. The plaintiff established an investment company in Israel and opened a business account at the bank, at Branch 541 in Netanya (hereinafter: the "Branch").
4. On February 2, 2022, the plaintiff opened a private bank account at the branch (hereinafter: the "Account"). When opening the account, the plaintiff filled out a "Know the Customer" questionnaire, stating that he was a businessman living in Israel with his minor daughter, that the minor's mother lived in Russia, and that the account was intended to manage his day-to-day affairs, including receiving a salary (the account opening form stated that the plaintiff immigrated to Israel on February 1, 2021).
5. On February 28, 2022, the plaintiff informed the bank that his daughter (hereinafter: "Svetlana"), who lives in Russia, is supposed to transfer alimony payments for the minor daughter to his account.
6. A few days earlier, the Russia-Ukraine war had begun, and Western countries had imposed financial sanctions intended to harm Russia's banking system.
7. The plaintiff states that he made it clear to the bank that Svetlana was supposed to transfer the sum of US $40,000 per month as alimony, but in light of the state of the banking system in Russia (in light of the beginning of the war with Ukraine), it is not clear how Svetlana will be able to transfer the payments to the plaintiff's account.
8. The plaintiff was answered by the bank that it was not possible to approve the transfers in advance and that if receipts were received that would raise questions in the bank's receipts section, the matter would be referred to the compliance department.
9. The plaintiff notes that during the months of March and April 2022, four separate transfers of funds were made to his account (each in the amount of approximately $5,000): two transfers were made by Svetlana, one was made by his son Gregory Toblin (hereinafter: "Gregory"), and one was made by the plaintiff's father, Mr. Valentin Toblin (hereinafter: "Valentin"). The money transfers were carried out by various banks in Russia.
10. In relation to two of the transfers, no problem arose and the funds were received in the plaintiff's account. A transfer made by Svetlana on March 24, 2022 through AO RAIFFEISEBANK was credited to the plaintiff's account on April 3, 2022.  A TRANSFER MADE BY VALENTIN TO THE PLAINTIFF ON MARCH 30, 2022, THROUGH TINKOFF BANK, WAS ALSO CREDITED TO THE PLAINTIFF'S ACCOUNT ON APRIL 19, 2022.
11. The two additional financial transfers made by Svetlana and Gregory through banks in Russia (each for $5,000) were not accepted by the plaintiff (hereinafter: "the two transfers") and are also the subject of this lawsuit:

• On March 15, 2022, Svetlana transferred the sum of $5,000 to the plaintiff through SBERBANK (hereinafter: the "Svetlana Transfer").
• ON MARCH 25, 2022, GREGORY TRANSFERRED THE SUM OF $5,000 TO THE PLAINTIFF THROUGH ALFA BANK (HEREINAFTER: THE "GREGORY TRANSFER").

11. The matter of the lawsuit here is with those two transfers in the total amount of $10,000 (transferred by Svetlana and Gregory) which were not received in the plaintiff's account at the end of the day, in view of the bank's alleged refusal to allow the transfer of the funds.
12. With regard to the transfer of Svetlana - according to the plaintiff (paragraph 26 of the statement of claim), it became clear to him in retrospect that already at that time (apparently at the time of the execution of the transfer), the bank through which the transfer was made was already on the list of British sanctions. The bank concealed this from the plaintiff and if it had disclosed it, the plaintiff's family members would have financed their steps accordingly.
13. As for Gregory's transfer - according to the plaintiff, from the time he announced Gregory's transfer, he was asked to provide documents and explanations by the Compliance Department, but the bank's demands were petty.
14. In April 2022, the plaintiff contacted the bank's Ombudsman and demanded that the transfer of the funds be dealt with immediately, but did not receive a substantive response (once it was claimed that the sanctions were imposed on the banks in the United States and sometimes it was claimed that the sanctions were from the United Kingdom). The plaintiff also approached the Supervisor of Banks and was rejected.
15. The plaintiff does not dispute the bank's right to adopt a strict policy, which establishes a duty to comply with a variety of international sanctions, but alongside this right, the bank is obligated to inform its customers regarding the adoption of its policy in advance and not retroactively, for example, when this policy comes into effect and is implemented.
16. The defendant is in possession of the sum of US$10,000 (ILS 36,737), but he refuses to hand them over to the plaintiff. In view of the aforesaid, the court was asked to grant the plaintiff the following remedies:

• An injunction instructing the bank to credit the plaintiff's account in the sum of US$10,000, together with interest and linkage differences.
• Alternatively, an order was issued instructing the bank to return the two deposits to Svetlana and Gregory.
• Alternatively, monetary relief in the sum of ILS 36,737 ($10,000) was requested for the damage caused to the plaintiff due to the bank's negligence in managing the plaintiff's account.
• An injunction instructing the bank to disclose and transmit to the plaintiff the full procedures by virtue of which it withholds the amount of the deposit in its hands.
• To oblige the bank to pay the plaintiff compensation in the sum of ILS 35,000 for the mental anguish, humiliation and humiliation he suffered from the bank.

1. Summary of the defendant bank's arguments:
2. The bank is of the opinion that the lawsuit should be dismissed.
3. The Bank explains at the outset that the plaintiff approached the Supervisor of Banks in relation to his claims herein, and was rejected by him, when the Supervisor determined that the Bank's policy was reasonable in light of the international sanctions.
4. The Bank has established a policy on the prohibition of money laundering and the prohibition of terrorist financing, which also includes a prohibition on ongoing banking and business activity with entities that are included in sanctions lists published by certain entities outside of Israel.
5. The Bank notes that in the framework of the Proper Management Directive No. 411, issued by the Supervisor of Banks (hereinafter: "Nevat 411"), the Bank was obligated to establish a policy in the field of anti-money laundering and the prohibition of terrorist financing, which would include, inter alia, reference to the use of lists of entities declared by the sanctions committees of certain entities outside of Israel.
6. In our case, the plaintiff seeks to receive funds originating from banks that are under international sanctions, and which are currently in a transit account. The Bank is of the opinion that its position is consistent with the provisions of Section 2(a) of the Banking Law (Service to the Customer) 5741-1981 (hereinafter: the "Banking Law"), according to which the Bank may refuse to provide banking services to the customer, provided that the refusal is a "reasonable refusal", and hence there is no room to interfere with its discretion.
7. As for Svetlana's transfer, on March 15, 2022, a receipt in the amount of $5,000 was sent to the plaintiff's account in the amount of $5,000 from Svetlana's account at SBERBANK (a Russian bank), which is a member of the sanctions list published by the authorities in the United Kingdom, the European Union, Canada, and OFAC (Office of Foreign Assets Control) from the United States.

The bank clarifies that the transferring bank entered the British sanctions list as early as March 1, 2022, but since the transfer was transferred through an American correspondent bank, it was approved for transfer by the transferring bank, and since the receipt reached the bank, it is in a designated transfer account and bears interest.

23. As for Gregory's transfer , on March 25, 2022, a receipt in the amount of $5,000 was sent to the plaintiff's account from Gregory's ALFA bank (a Russian bank), which is a subscriber to the sanctions list published by the British authorities on March 24, 2022. In this case, too, since the transfer was through an American correspondent, it was approved for transfer to the bank by the transferring bank. Prior to the letter of the law, the bank returned the funds to the sender, but the sending bank refused to withdraw the funds from the transfer account.  This receipt is also in the bank's designated transfer account and carries interest.
24. The bank has no obligation to inform the plaintiff regarding the existence of international sanctions, and in any event, beyond the letter of the law, the bank's policy is published on the bank's website and was even attached by the plaintiff to the statement of claim.
25. The events that are the subject of the lawsuit took place close to the outbreak of the war and when the bank has no control or ability to predict the existence of sanctions. The Bank's internal procedures are protected under confidentiality by virtue of the Prohibition of Money Laundering Law, 5760-2000 and the orders pursuant thereto.
26. The procedural framework and the evidence of the parties:
27. The lawsuit was filed in a speedy proceeding.
28. In the framework of the lawsuit, the plaintiffs were also sued (who ordered the issuance of various orders to the bank). These remedies are not suitable for clarification in a speedy proceeding, and even when I raised the aforementioned difficulty with the plaintiff at the pre-trial meeting - that is, how can such remedies be appealed in a proceeding in a speedy proceeding (in the pre-trial session), I did not receive a response. Even at the summary stage, there was no reference to the matter.
29. On May 27, 2024, I met with the parties for a pre-trial meeting. Since it was not possible to bring the parties to an agreement, the case was set for evidence (the pre-trial session did not take place on its original date in view of the enlistment of one of the parties' attorneys for reserve duty and the plaintiff's absence from Israel).
30. The parties' affidavits were submitted in support of the pleadings.
31. On behalf of the plaintiff, an affidavit was submitted by Mr. Avigdor Rotem (hereinafter: " Rotem"), the plaintiff's personal manager, in all matters relating to his activity in Israel. Mr. Rotem clarified that the plaintiff authorized him to act as his proxy for the purpose of executing an engagement with the bank, and that the conduct with the bank was done through him. The plaintiff himself did not give an affidavit but announced in the list of witnesses that he would testify, and he did so.
32. An affidavit was submitted on behalf of Mr. Avraham Shalom (hereinafter: " Shalom"), who serves as the manager of the Bank's Compliance and Anti-Money Laundering Department. This affidavit replaced the original affidavit submitted by Ms. Karin Acker-Lev on behalf of the Bank (Director of the Anti-Money Laundering Section in the Bank's Compliance Department).
33. The evidentiary hearing took place on December 16, 2024. At the hearing, the witnesses testified on behalf of the parties (the plaintiff was also cross-examined) and after a break, the parties summarized their arguments orally. The evidentiary hearing was recorded by a recording company.  The transcript of the meeting was accepted in court and made available to the parties prior to the judgment.
34. Discussion and Decision:
35. After reviewing the pleadings, hearing the parties and their summaries I have reached the conclusion that the claim should be dismissed in the bulk in relation to the breach of the bank's debts or negligence and should be accepted in relation to the element of mental anguish only, This is in view of the reasons that will be detailed in detail below.

D.1.  The position of the Supervisor of Banks with respect to engagements with entities declared on the list of international sanctions and his determination that in this case the bank did not act in the absence of reasonableness:

34. On June 8, 2022, the Supervisor of Banks addressed the CEOs of banks and credit card companies, in a letter titled: "Risks Involved in Engaging with Entities Declared in International Sanctions Lists and National Sanctions Lists of Foreign Countries," and warned of the concern that the banking system could be exploited in order to circumvent the sanctions regimes imposed by foreign countries and international organizations, while clarifying, that such exploitation exposes banking corporations to significant risks, including compliance risks, money laundering and terrorist financing, legal risks, and reputational risks (hereinafter: the "Supervisor's Letter to Banks"):

"1.  Sanctions regimes practiced by foreign countries and various international organizations are complex in terms of the nature of the sanctions and have different implications, inter alia, on individuals, business entities, and various financial entities.

2. The exploitation of the banking system for the purpose of circumventing sanctions regimes imposed by foreign countries and international organizations exposes the banking corporations to significant agreements."
3. Proper Banking Conduct Directive 310 on the subject of 'Risk Management' establishes basic principles for risk management and control from an integrated perspective, and stipulates that the management of summaries will be done with a forward-looking approach, which includes, in addition to ongoing monitoring of existing risks, the identification of new or emerging risks. In addition, the directive stipulates that the risk management processes will include all risks related to the banking corporation, quantitative and non-quantitative at the level of the entire group.  As part of the risk management processes detailed in this directive, banking corporations must establish policies and procedures regarding the manner in which international sanctions lists and national sanctions lists of foreign countries will be used, and to engage in or carry out actions with entities declared in such lists."
4. The Supervisor of Banks further clarified in his letter that a refusal to approve a transaction, enter into an agreement, or terminate an engagement due to the implementation of the aforementioned policy, will be considered a reasonable refusal to provide a service:

"4.  Refusal to approve a transaction, refusal to enter into an agreement, or termination of engagement due to the implementation of a policy as stated above, will be considered a reasonable refusal to provide service for the purposes of the Banking (Customer Service) Law, 5741-1981."

36. It should be noted here that the Supervisor of Banks, Regulation 411, which deals with: "Managing the Risks of the Prohibition of Money Laundering and the Prohibition of Terrorist Financing", instructs the banking corporation (when the demand is from the board of directors and senior management): "to establish policies and procedures for the purpose of managing the risks of the prohibition of money laundering and the prohibition of the financing of terrorism, and to monitor their implementation, as an integral part of the banking activity."
37. Within the framework of the provisions of Section 10 of NAB 411, banking corporations were obligated to establish policies and procedures, which would also include the manner in which lists of organizations declared by other entities, such as the United Nations Sanctions Committee or the U.S. Department of the Treasury, would be used, as stated (Section 10(k)):

"The policy and procedures established pursuant to it shall include, inter alia, the following topics: