- Opening Stimulus (District T"A) 43782-08-20 Hayoun v. Bank Leumi Le-Israel inTax Appeal (July 20, 2021): The court rejected a lawsuit to cancel the bank's refusal to accept a transfer of $3 million from an overseas account to an account in Israel. This postponement was based on a number of reasons: the transfer of the money was contrary to a previous settlement arrangement between the parties, which received the force of a court ruling, which determined that the applicant would not contact the bank in connection with additional transfers other than "funds from Israeli activity"; The court interpreted the exception to "funds from Israeli activity" in a narrow manner, and ruled that the sums of money in question, which were used for trading in foreign shares abroad, do not meet this definition; The bank's decision to refuse to accept the money was reasonable even without connection to the settlement arrangement, in light of the "red flags" that were raised, such as the high amount of the transfer from a bank in Switzerland without prior contact or explanation of the purpose, and the applicant's criminal record of economic offenses and money laundering, which impose a public-administrative obligation on the bank to refuse to act; and the applicant did not meet the burden of proving the legitimacy of the money - he did not provide consistent documents or explanations, and contradictions were discovered in his versions.
- Civil Case (Mer District') 45627-09-22 Chodin v. Bank Leumi Le-Israel (October 3, 2022): The court rejected a request for a temporary injunction to deposit approximately ILS 35 million from the applicant's overseas accounts and to open a trust account. The rejection was based on a lack of clarity regarding the source of the money; Presentation of conflicting versions and lack of supporting documents. It was determined that the balance of convenience is tilted in favor of the bank, since potential damages to the bank (exposure to sanctions and harm to the public interest) are more severe than the compensable financial damage of the applicant. It was also found that the applicant delayed for more than two months in filing the application.
- The association referred to Schatz's testimony in which he said that the bank allows businesses such as kiosks, pizza shops and stands in the market to conduct large-scale cash without identifying payers, given "reasonable business reasonableness":
"Again, in general an association has no reason for it to be run with cash, in the market there is a business reason that it is conducted with cash, it is important first of all to note, you can't not look at who the customer is. Now that there are other problematic indications, we ask and investigate and lower the resolution, and when that is done, we get indications of irregularities and reports that are not true. Therefore, it is our duty not to allow such activity at Bank Leumi. by definition" (p. 84, paras. 23-28).
- The association explained that all of its income in 2022 amounted to ILS 2,162,049 and that most of them derive from donations from private individuals, all of whom are Israeli citizens. About 40% of the donations are received through standing orders and bank transfers, while about 60% are collected in charitable funds in mosques in small sums ranging from 1 to 200 ILS. The association claims that the source of the cash is known (donors in the mosques), and that its financial activity, which is based on cash donations, is logical and proper, similar to the nature of the activities of many religious associations. It emphasizes that donations of believers for religious purposes are not unusual, since, as stated, the source of the cash is known (donors in mosques), and refers to Regulation 2(a)(7) of the Regulations for the Protection of Holy Places for Jews, 5741-1981, which allows the placement of charitable funds in holy places, as well as to Procedure 7243 of April 7, 2016, according to which the Ministry of Religious Services is responsible for collecting and depositing funds from charitable funds. According to her, these are large sums of cash, no less than those deposited by the association, with the identity of the donors unknown; The association does not "run in cash" but receives income from donations in cash, an action that is permitted by law. The association notes that it has been operating in this manner since 1991, and no claim or suspicion has ever been raised in this regard by the Registrar of Associations or the bank. The 30% increase in donations over the past three years is due to marketing efforts, and the association does not receive or transfer funds outside of Israel, since the association's expenses are to destinations known and identified by the bank within the State of Israel. According to her, she is also not obligated to identify every donor in accordance with the provisions of section 5(a)(4) of the Income Tax Regulations (Maintenance of Books of Accounts by an Institution), 5752-1992, which allow the registration of an "anonymous donation" on receipts, and in a manner similar to the provisions relating to retail sales in cash; Three witnesses who work for the association described in detail the process of collecting donations: a representative of the association coordinates with the imam, sets up a stand with a locked cash register in the mosque on Fridays, Worshippers donate small sums (5 to 200 NIS) after the prayer, after which the money is transferred to Jaber, who deposits them in the account (Jaber, section 6; Appendix A, paragraph 12; Appendix B, paragraph 2 of his affidavit); Daoud (paragraph 7 of his affidavit); and Kadena (paragraphs 3-4 of his affidavit); The association presented hundreds of receipts that matched the bank deposits, with claims of malfunctions being purely technical. The association rejects the possibility that these donations originate from illegal activity as "hypothetical" and "illogical", since those who wish to launder money will not donate it anonymously, but rather find a way to return the money to their hands when it is ostensibly "clean". The association argues that once the facts have been examined and the concern of terrorist financing has been removed, there is no room to distinguish it from any other legitimate association that is authorized to deposit cash, and that the bank audit should not replace an income tax audit or focus on unfounded concerns. It added that the temporary order, which prohibited the deposit of cash, caused a significant decline in its revenues and severely harmed its operations.
- The law in this matter is with the association. The three decisions presented differ considerably from the present case, mainly in the type of client, the nature and scope of the sums of money, and the level of suspicion of direct criminal activity. While the cases deal with private clients with a proven criminal record of serious economic offenses, such as tax offenses, prostitution pimping or money laundering, and international money transfers of very large sums (millions of dollars) from unclear sources or in violation of previous legal arrangements, in the case of the association it is an entity with no criminal record and its activity in Israel. The main concern in the current case stems from the inability to identify the local cash donors in much smaller volumes (about ILS 2.13 million per year), and deficiencies in documentation and management of receipts. This is not the same as evidence.
- Second, it is impossible to conclude from the testimony of the association's witnesses that the imam is a "conduit" for transferring funds to the association, since it has not been clarified how much of the donated money remains for the operation of the mosque and how much is transferred to the association. However, I accept the bank's position that the association has not presented a satisfactory explanation of how it intends to enforce the identification of donors in cash if it is allowed to operate again in this format.
- The bottom line is that while cash conduct that does not allow clarifying the identity of the donors did indeed raise concerns about money laundering (although it is doubtful whether it amounts to a "real concern" as required by case law), I find that the bank's decision regarding the existence of a "red flag" in this matter is not unreasonable to the extent that it justifies intervention.
- On the other hand, and as determined in the decision in the interim relief, the bank's decision to completely cease the activity of the association in the account is therefore disproportionate against the background of the great damage that this will cause to the association when it is possible to address the concern by another means: a prohibition on cash deposits, as determined in the interim relief.
- The bank's argument that knowing only the donor's name in deposits through bank transfers or credit payments is not sufficient to remove the fear of money laundering due to the inability to ascertain the source of the funds cannot be accepted as a "red flag" in the circumstances of the case. This is because the concern that the source of the funds is not kosher, despite knowing the identity of the depositor, is a general concern that applies to all banking activity whatsoever. The bank is required to point to concrete acts and actions that establish a real fear of improper conduct, and a vague concern is not enough. In the absence of a concrete indication linking the specific donors or the activity of the money laundering association, a decision to close or limit the activity of the account based on such a general concern is unreasonable, especially when particularly weighty reasons are required for the cessation of activity in an existing account, and when we are talking about money laundering and a large number of donors - this is not a significant financial scope. To this, it should be added that it is known why the money is used by the association. The significance of the bank's decision not to allow banking activity even when the identity of the depositor is known means, in effect, interference in the manner in which the association's donations are collected, and the prohibition on receiving donations in cash, even in small amounts (according to the claim, which was not concealed), without presenting a legal basis - in terms of tax law or any other law - prohibiting such conduct. A decision to completely prohibit banking activity in these circumstances - even when the identity of the financial depositor is known - is unreasonable in my opinion, and cannot stand. This is especially true when the bank has confirmed that it permits such management in other accounts, in businesses that conduct similar amounts of cash.
- Arrest of Daoud activist and opening of a criminal investigation: The bank claims in its summaries that the request for the return of seizures proves that a criminal investigation was conducted into the association. According to him, Daoud's testimony at the hearing was unreliable in this context. In his affidavit, Daoud claimed that "I was interrogated for several hours into the night" (paragraph 3), but later claimed that "I was not summoned for any interrogation, as claimed in the application, but, as stated, I was detained for a routine examination at the entrance to the mosque" (paragraph 4). In his cross-examination, Daoud changed his version: at first he said that he had been asked "a few questions and returned home" (p. 20, s. 20), but later confirmed that he had been interrogated by the police during an interrogation that lasted "several hours" (p. 20, s. 24-26, 29). The bank further argues that the association did not provide evidence that the money seized was fees for participation in the course and did not explain why the money was returned to Daoud's personal account and not to the association's account (paragraph 5 of Daoud's affidavit; p. 21, paras. 17-19, 30-31; p. 23, paras. 2-6).
The association rejected the bank's claim of contradiction in Daoud's versions, and clarified that the questioning itself lasted about half an hour, but he was forced to wait at the station for long hours. He testified as follows: