International terror and crime could not exist without money. In the past, money moved around freely, and no one asked any questions. Accounts could be identified by codes or numbers. The customer was king until governments realized that to prevent funds from reaching the wrong hands, there needed to be a new order in banking. The real owner of every personal or business account had to be identified, both in the banks’ records and in all transfers. Israel did not rush to join this “New Order”, partly because foreigners who hid their undeclared funds in Israel depended on the secrecy built into the system. As a result, Israel risked being isolated by the developed economies, and 18 years ago, Israel acceded to pressure from abroad and imposed anti-laundering regulations.
In time, the crimes that the banks in Israel were expected to prevent and report, came to include tax evasion in Israel and abroad. Since every transaction might in theory be part of an attempt to avoid tax or involve funds that were not reported in their country of origin in the past, even in the very distant past, the attitude of the banks to their customers and their customers’ money has changed dramatically. Let’s see how:
1) You are guilty until proven innocent
Your bank will ask questions and demand proofs, routinely, even if they don’t suspect you of wrongdoing. They may ask for proof regarding the origin of your funds. If your wealth is inherited, they might even want proof as to how it was created decades ago.
2) Your money might be yours, but not really
Faced with the blocks and challenges raised by regulation, people tend to say, “But it’s my money and I can do what I like with it!” That’s half true. It may be your money, but you aren’t free to move it and spend it as you wish. Even receiving it from another account can be a major challenge.
3) I’m an American citizen!
That used to be a claim for protection. Now it’s an issue. Anyone who lived in the US (under certain conditions) or is a US citizen, even if they never lived there, is subject to the jurisdiction of the US tax authorities. The result of that is that anyone considered to be a “US Person” is subjected to even more limitations than other bank clients.
4) “Foreigners not welcome”
The bureaucracy surrounding non -Israeli accounts or the accounts of US Persons, is so overwhelming, that banks here, no longer encourage such accounts. Some banks in Israel received really heavy fines in the US for cooperating in hiding the funds of foreign clients, and all the banks in Israel no longer see foreign accounts as the goldmine that they once were. Each bank has designated a few branches capable of managing foreign accounts, and because of the headaches such accounts create, impose minimum deposits before agreeing to open an account.
5) Country of origin
Some banks will insist that all transfers into the accounts of foreigners or new olim, come from their country of origin. So, for example, if you come from Canada, you can’t receive money from Belgium.
6) Swimming offshore
Funds from “offshore” locations, that is countries associated with “tax planning” create special problems. Some banks may refuse to accept funds from offshore banks or offshore companies.
7) No trust in trusts
Israeli banks tend to insist on clarifying and documenting the identities of the real beneficial owners of trusts. That may have serious taxation implications in your country of tax residence.
8) “United we stand” or maybe not
It might be easier if there was a uniform book of rules and procedures for all banks. There isn’t. The official rules and guidelines are applied differently in each bank. Even worse: different branches of the same bank may give you different information. You are also likely to find that the bank’s requirements might be presented to you irrationally, incompletely, or in installments, simply because your bank clerk isn’t too acquainted with them. Also, in some banks, all questions and transactions of foreign residents or Israeli residents who are US persons, are ruled on by Head Office departments whose sole interest is ensuring that they keep out of trouble if they are too permissive. That process can be so drawn out that customers may even miss payment schedules.
9) Digitization and other ailments
Banks used to be like your more-or-less friendly grocery. They have become a supermarket in which you are expected to serve yourself. The banks’ sites and applications have revolutionized the banking world and made visits and calls to the banks almost a thing of the past. The more independent the clients become the fewer branches and staff the bank needs to keep. This process of digitization is great until you need to talk to someone. It’s becoming increasingly difficult to reach your banker by mail or phone, not because your bankers are lazy, but because there are so few of them. Also, increased regulation has made bankers more rigid and less creative, so you are less likely to hear simple but slightly out-of-the-box solutions to your problems.
So, if Rip Van Winkle had fallen asleep in an Israeli bank 20 years ago, he would have a hard time recognizing the language of banking and the attitudes of bankers today.
What can we do about this?
You are unlikely to change your bank’s approach. It’s rarely worth sending indignant letters. If you assume that the rules are here to stay, you have to learn to operate within them.
“I can’t communicate with my bank!”
If that’s how you feel, you may need help talking to the bank in a way that they understand and get them to talk to you in a way that you’ll understand. If no one in the bank will be your advocate, you need to find someone who will.
Don’t wait until you’re stuck. Careful planning and effective negotiation with your bank can save you a lot of money and headaches.
The writer, a consultant who has worked in banking in the UK and Israel for more than 40 years, can be contacted at Kalmanwalker@gmail.com