Money laundering between states: a comparison of international money laundering control mechanisms.

• Author: Lindner, Daniel C.

THE ISRAELI approach to controlling the problem of money laundering is best understood as the product of the combination of legislation and politics, both of which have undergone significant changes over the past fifty years. (1) The approach taken by the United States in its efforts to control money laundering has emerged in much the same way. Though the two countries address the problem in a similar fashion, noted discrepancies exist within the two corresponding legislative frameworks and enforcement regimes. These differences have the potential to complicate the already complex nature of money laundering prosecution. By imposing significant road blocks to prosecutors and loop-holes for perpetrators, Israel may inadvertently position itself as a haven for would be offenders.

This paper aims to show how both Israeli domestic laws and long standing Israeli political trends have influenced the investigations and prosecution of money launderers by both the United States and the greater international community. This paper argues that the best way to achieve success with international money laundering prosecutions, while maintaining Israeli cultural sovereignty, is to fortify both formal and informal international cooperation networks, especially those that attempt to bridge conflicting domestic legal structures. This paper will conclude with an assessment of the international community's response to money laundering control, detailing how tactics other than the forced statutory compliance method can be effective.

Israeli Anti-Money Laundering Law

1. Israeli Political History

   In Israel's political atmosphere, one does not need not look far to find protectionist principles. Envisioned by Theodor Hertzl, and subsequently codified throughout Israeli law, Israel's mission is twofold: first, to protect the Jewish people and provide the Jewish people with a homeland, and second, to be accepted by the international community. (2) Generally, Israel's legal progenesis is best understood as a common law tradition (adopted from the British Mandate) marked with some intermingled civil law themes (adopted from the many other countries that harbored Jews during the Jewish Diaspora). The interplay between the two above mentioned goals and the two differing legal traditions have not always worked perfectly and the resulting tension has, as is illustrated by the Israeli money laundering control efforts, created problems both domestically and internationally. (3)

   Upon independence, granted by the United Nations General Assembly Resolution 181, Israel was engaged in a war with all five of her neighboring countries. For over a year, from the withdrawal of British Mandatory forces on May 18, 1948 to the signing of a cease-fire with Syria on July 20, 1949, Israel was besieged on each of her borders. (4) Immediately on the heels of World War II, and in the wake of a bloody, yearlong war of independence, the acting government of the State of Israel moved to enact a body of protective laws. One of the first of such enactments, the Law of Return, was an echo of the Zionist movement led by Hertzl, himself. The Law of Return, officially enacted in 1950, granted every Jewish person in the world the right to obtain Israeli citizenship immediately upon entering the State of Israel. (5) The Law of Return initially helped the fledgling Israel state to quickly populate the country with exiled and politically persecuted Jews. (6) While this law created the legal means for creating a homeland, it also created a haven for Jewish criminals, a side effect wholly inconsistent with the goal of acceptance into the international community.

   One Israeli law, pertinent to a discussion of international money laundering control is the treatment of extradition. Resembling its common law counterpart when it was first enacted, Israel's extradition policy has changed considerably over time. Israel did not enact a formal extradition statute until the mid-1950's. Prior to this enactment in 1954, she followed the British common law of extraditing her nationals based upon bilateral treaties or notes of exchange; both such mechanisms were governed by the preexisting agreements with the respective countries and the United Kingdom (as established during the British Mandate) wholly consistent with the shared goals common of the international community.

   In 1954, Israel amended the Law of Return to permit the minister of the interior, at his discretion, to deny any citizenship request upon a showing that the party would endanger public welfare. This discretion was publicly exercised to reject the request of Meyer Lansky, an internationally renowned criminal figure. (7) The Extradition Act of 1954 conditioned extradition on (1) bilateral treaties between the requesting state and Israel in order to ensure reciprocity, (2) dual criminality in both the requesting state and Israel, and (3) a provision against double jeopardy. The Act of 1954 also contained a provision limiting the foreign prosecution to only that offense for which extradition was sought.

   Departing from the common law tradition, however, the Act of 1954 allowed the Israeli judiciary to refuse extradition in three broad ways. First, extradition could be refused in capital cases where the requesting country would impose a death penalty. Second, extradition could be refused if the statute of limitations for the offense had lapsed in either the requesting state or in Israel. Third, if the judiciary had reasonable grounds to suspect that the extradition request was motivated by racial or religious grounds extradition could also be refused. (8) The Act of 1954 also expressly stated that Israel was no longer bound by the obligations imposed on her by the agreements of the British Mandate.

   From the promulgation of the Act of 1954 up to the 1970's, Israeli society publicly debated the effectiveness and the repercussions of the Act of 1954. In 1978, the Knesset enacted the Offenses Committed Abroad (Amendment of Enactments) Act (the "OCAA") partially in response to France's refusal to extradite Abu Daoud, one of the suspected perpetrators of the murder of the Israeli Olympic athletes at the Munich games of 1972. (9) This backlash stemmed from Israel's inability to bring justice to the murderers of its citizens and its failure to protecting its citizens abroad. Utilizing the collective perceived helplessness of Israeli society, Menachem Begin leveraged himself into winning the seat of Prime Minister. The OCAA, enacted shortly after Begin's victory, amended the Act of 1954 to provide greater protection to Israeli nationals, as well as to extend the jurisdictional reach of the Israeli Judiciary beyond its previous boundaries.

   The OCAA of 1978 further conditioned Israel's obligation to extradite. The OCAA provided that no Israeli citizen would be extradited unless the offense was committed before the person obtained citizenship, that the Israeli courts had jurisdiction over Israeli citizens and non-citizen residents for offenses committed inside and outside Israel, but that extraterritorial jurisdiction was subject to "dual criminality" with the state where the offense was committed. (10) The overlap of the Law of Return and the OCAA, although both enacted to strengthen Israeli long-arm jurisdiction and to protect Israeli nationals, also effectively positioned Israel as a possible haven for Jewish criminals.

   Due to international pressure, Israel has recently, symbolically, amended the OCAA and has also established bilateral treaties and mutual legal assistance treaties. Not withstanding these minor changes, the OCAA and its resulting legal barriers remain largely intact, including a provision that the extradition request be made before the alleged offender obtains "residency."

2. United States Anti-Money Laundering Law

   Understanding the Israeli approach to controlling the problem of money laundering is enhanced by a brief comparison with the approach taken by the United States. Understanding these two systems together will allow us better to discuss how enhanced cooperation between the two countries may yield enhanced results. The United States "model," albeit with slight modifications, has been adopted by many countries internationally, including Israel, which only further strengthens the importance of this "modular" analysis. (11) It is also important to note, however, that the United States has taken a uniquely aggressive stance in extending long-arm jurisdiction, increased criminalization of underlying predicate offenses, and to the amount in question threshold. All of these variants help increase the efficacy of the United States in money laundering prosecutions, and are direct results of the political climate in the United States after September 11th, 2001. (12)

   Many countries do not rise to the relatively new and very high standard of the United States, partly due to the complex nature of legislation, structural enforcement programs and other unique domestic concerns. Given their geo-political position, one might expect Israel to join the United States in its post-9/11 stance, but it has not always done so.

   1. U.S. Statutory Framework

      Current U.S. anti-money laundering law (U.S. AML) is found in sections 1956 and 1957 of the United States Code, both of which were recently enhanced by the USA PATRIOT ACT. (13) These three pieces of legislation work together to provide the statutory framework to used to combat money laundering. Section 1956 of the United States Code ("1956") states, in applicable part, that the assets in question must be proceeds of a specific unlawful activity ("SUA"), and that the offender must know that the money was proceeds of a SUA. (14) 1956 also states that willful blindness does not mitigate the requisite "knowing" mens rea. (15) Section 1956 also states that the offender must conduct a financial transaction intending to promote a SUA, or conceal the nature, source, ownership or...