The transaction

The buyer is a German resident with bank accounts in Germany, Switzerland and Luxembourg. He bought commercial space in Tel Aviv for EUR 11 million. Purchase tax on property that is not a residential apartment is 6%, and with the tax and costs he needed to transfer about EUR 11.8 million to Israel.

The money came from the sale of a building in Germany that he owned jointly with his wife. The notary who handled the sale paid the proceeds from his escrow account directly to the husband’s account at a private bank in Switzerland, and not to an account in Germany. The wife has a separate account at the same bank. In Israel a new account was opened in the wife’s name only. She was born in Israel and holds an Israeli ID card. The husband does not speak Hebrew.

At the first stage the banker in Israel said that a transfer from Switzerland was a problem and asked for the money to come from the German account. That account was with a retail bank, which refused to take in several million euros and pass them on. This started several weeks of work with the bank and its compliance department.

What the bank asked for, and the sections of Directive 411

Directive 411 of the Supervisor of Banks governs how Israeli banks manage money-laundering and terror-financing risk. It was last amended by Circular 2862 of 7 October 2026. The directive requires the bank to assess the risk posed by each customer and the activity in the account, and to set the depth of its review accordingly.

Source of funds and source of wealth

The first letter from the tax advisers in Germany stated that the client was tax compliant and that the money came from personal capital and the sale of a property. Switzerland was not mentioned. The banker raised four points: all the documents were in the husband’s name while the Israeli account was in the wife’s; the wife had told her the money was in her own Swiss account, contrary to the documents; the letter did not address the Swiss account; and the source of the money was not specified.

The directive distinguishes between the source of funds, meaning where the money deposited in the account came from, and the source of wealth, meaning how the capital was built up. Where the customer or the activity is classified as high risk, the bank takes one or more of the measures listed in section 30, among them inquiry into the source of wealth and the source of funds, and obtaining explanations and, where needed, written evidence. The client sent the sale contract, the credit advice from the Swiss bank, a letter from the Swiss bank and an updated letter from the tax advisers.

Between the sale price and the amount that reached Switzerland there was a gap of about EUR 900,000. The mortgage redemption documents showed that the notary had paid about EUR 700,000 of the proceeds directly to the lending bank. The compliance department reviews the money that enters the account and where it came from, and in practice it accepted an explanation of the main part of the gap.

An escrow account held by a professional abroad

After reviewing the file, the compliance officer asked who the beneficiaries were of the notary’s escrow account that received the sale proceeds. A notary’s or lawyer’s escrow account abroad is an arrangement in which the professional holds money for others. Sections 53 to 57 of the directive require the bank to take reasonable measures to understand the structure of a trust and to record the settlor, the trustee, the beneficiaries and anyone who controls it, and they apply equally to legal arrangements equivalent to a trust.

The answer was given in one paragraph of the tax adviser’s letter: the funds were held in the escrow account for the couple only, and no one else had any right to them. The Swiss bank issued a separate letter with the dates on which each of their accounts was opened.

Money arriving from a third country

The compliance officer also asked for an explanation, from the tax adviser rather than from the client, of why the money went from the escrow account straight to Switzerland. The client, a finance professional who knows customer due diligence from the inside, saw this as a question about a private decision of his, and wrote to the bank that if the account was not opened he would drop the purchase. The bank insisted that the explanation come from a professional. The explanation given was a long relationship with a private banker in Switzerland, as against an account used only for day-to-day banking in Germany.

Switzerland exchanges financial account information automatically under the Common Reporting Standard (CRS) with the member states of the European Union and with Israel. Israel and Switzerland agreed to collect data from 2018 and to exchange it from 2019. A Swiss account held by a German resident is reported under this framework to the German tax authorities, and that is a fact the Swiss bank and the professional abroad can confirm.

Confirmation of compliance with tax obligations

Section 10 of the directive requires the bank’s policy to cover customers’ cross-border activity, with emphasis on tax liabilities outside the country where the account is opened. Appendix C, which sets out this subject, is based on the Supervisor’s letter of 16 March 2015. This is the origin of the standard “tax compliance confirmation” the bank sent, with the wording “the amount transferred from account… in Switzerland has been reported / is not subject to reporting”.

The bank asked the tax advisers to confirm that the Swiss account was “reported”. The tax adviser replied that there was nothing she could confirm about reporting the account itself, and that what she could confirm was that the income had been reported. The request to her was therefore reworded: to confirm that the accounts had produced no income subject to reporting, and that they were subject to automatic exchange of information. The Swiss bank confirmed both points in writing, and she included that confirmation in her letter.

In the bank’s template, the source-of-funds field read “ongoing business activity”, and it was changed to the sale of the building in Germany. The statement that the client reports and pays all taxes was kept, and a statement was added that the accounts had produced no income subject to reporting. The Israeli account number had not yet been allocated, so only the branch number was given. Each change was set out explicitly to both the bank and the tax adviser.

Matching the buyer, the account holder and the sender

The money was in the husband’s Swiss account, and the receiving account in Israel was in the wife’s name. So that she would be moving money between two accounts of her own, a route was set: an internal transfer from his account to hers at the same Swiss bank, and from there to her account in Israel. The internal transfer was held back until the Israeli bank approved the route, so as not to add a link to the chain that would need its own explanation.

The timetable against the contract

Opening an account and reviewing the source of funds for a sum of this size takes weeks, and the compliance department’s requests came in several rounds. A parallel channel was opened with a second Israeli bank, on the understanding that the transaction would proceed with whichever bank approved first. At the time of writing, the compliance department had not yet reached its decision. When the money is not in Israel on the signing date, a delay at the bank may turn into a breach of the payment dates in the contract.

When a bank may refuse

Section 2 of the Banking (Customer Service) Law, 5741-1981, provides that a bank shall not unreasonably refuse to accept a monetary deposit in Israeli or foreign currency, or to open and operate a current account in Israeli currency. Section 50 of Directive 411 lists, among other grounds, when there is reasonable cause for refusal: where the customer does not provide details required under the anti-money-laundering order, the directive and the bank’s procedures, or where there is reasonable ground to suspect that the transaction is connected with money laundering or terror financing.

Directive 422 sets protections for an application to open a current account in credit. A bank that does not give its decision when the application is submitted gives the customer a written acknowledgment listing the documents required, and delivers its decision in writing, with reasons, within 10 business days. The directive applies to a customer who is an Israeli resident within the meaning of the Population Registry Law, or a foreign worker lawfully living in Israel, and not to a foreign resident applying to open an account.

Funds originating in digital currencies

Circular 2862 deals mainly with funds originating in virtual currencies. From 1 May 2027 a bank may not refuse to provide payment services merely because the source of the activity is connected with virtual currencies. The duty to look into the source of funds and the currency path above NIS 100,000 a year will be removed on that date, and the review will follow the risk profile of the transaction.

Checklist before the money moves

• Map the money chain: where it came from, into which account, in whose name, and by which route it will reach Israel.
• Match the buyer’s name, the Israeli account holder and the holder of the sending account.
• A documented explanation from a professional abroad for money held in a country other than the country of residence.
• A request to the bank for a complete list of documents at once.
• Translation of the bank’s question into what the professional abroad can confirm under his own tax system.
• A ready draft of the paragraph the professional abroad needs to confirm, with blanks for the details only he can determine.
• No internal transfers between accounts before the bank has approved the route.
• The money in the Israeli account before the contract is signed.

Further reading

Sources

Proper Conduct of Banking Business Directive 411 and Supervisor of Banks Circular 2862, 7 October 2026 · Proper Conduct of Banking Business Directive 422 · Banking (Customer Service) Law, 5741-1981, section 2 · Real Estate Taxation (Purchase Tax) Regulations, 5735-1974, regulation 2 · Swiss Federal Council release on automatic exchange of information with Israel