Money Laundering Law Preventing Collection of a Billion Shekels in Taxes

Israel’s own anti-money laundering laws are preventing the Tax Authority from collecting roughly a billion shekels in taxes owed by companies outside the country, Globes reported on Sunday.

“We are talking about many hundreds of millions of shekels that are not reaching the State’s coffers because of the obstacles placed by the banks. The total amounts to a billion shekels. We have one taxpayer who owes NIS 200 million. Tax funds that are waiting reflect revenue of billions taxable in Israel, but we are not seeing the money,” a senior official at the Tax Authority was quoted as saying.

In most cases, the companies are legitimate and willing to pay the taxes assessed on them, but are unable to do so because Israeli bank regulations, in compliance with international money laundering laws, prevent them from depositing the money in an Israeli bank. In other words, the billion shekels is out there, but the Tax Authority can’t get at it.

Adding to the frustration, the tax arm of the government finds itself in this absurd legal tangle just when the state’s finance officials are urging drastic measures—spending cuts and taxes—to rein in a large deficit.

Multilateral discussions involving the Tax Authority, the Ministry of Justice’s Money Laundering and Terror Financing Prohibition Authority, the Bank of Israel and the Attorney General are being held to create a mechanism for opening bank accounts for the foreign entities in question—at least for the purpose of paying taxes—but they have no solution yet.