Message to Israelis: Your cash is no good here

The government has issued its final recommendations on limiting the use of cash in business transactions. As part of Israel’s efforts to fight money laundering, said the Finance Ministry’s State Revenue Division, cash transactions in business deals will be restricted to a maximum of NIS 10,000 (about $2,550).

That recommendation, and more, was part of a legislative memorandum – generally the first draft of a law slated to be proposed to the Knesset – issued Sunday by the State Revenue Division. The memorandum adopts many of the recommendations of a government committee headed by Harel Locker, director of the Prime Minister’s Office, which has been working for the past several years to develop the “cashless society” law.

According to the memorandum, cash (and check) payments to and from businesses will be limited to NIS 10,000 (about $2,500), while business deals between individuals can be conducted with up to NIS 50,000 in cash. Service providers like attorneys and accountants will also be limited to receiving NIS 50,000 in cash. In addition, “open” checks, in which an individual writes a check out to cash, or without a specific recipient, will no longer be honored by banks at all. Any check will have to have identifying information of both the writer and recipient.

Currently, there is no limit on how much individuals can exchange in business deals. For business deals (or deals with businesses, for individuals), the maximum cash transaction amount is NIS 20,000, a regulation issued in 2012. To get around the regulations for bigger purchases, many people just write multiple checks, receiving a separate receipt for each payment.

Instead of cash, deals for sums larger than the permitted amounts will be conducted with bank debit cards or digital wallets, with users transferring money between bank accounts via a bank machine or an app provided by the bank. The law will require banks to offer these services to all customers (they may charge a fee for this, the memorandum states), including those who do not qualify for credit cards or other bank cards.

And that’s just to start; the memorandum would have the Bank of Israel evaluate the system after a year, and if everything is working as desired, the Bank would cut the sums that could be used in cash transactions to NIS 5,000 for businesses deals, and NIS 15,000 for transactions between individuals.

The law, if it is approved by the Knesset, comes with teeth. The memorandum recommends imposing penalties on violators. Businesses that received payments in unassigned checks or in cash above the permitted limit could be fined 35% of the entire transaction, while payers in that deal could be assessed 25% of the money they paid. Individuals who violate the law could be assessed 25%-35% of the amount involved, and be fined up to NIS 4.5 million. And, repeat violators could face a jail sentence of up to three years – and be slapped with money-laundering charges as well.

The Revenue Division did not say when it would seek to legislate the measure – it will presumably be backed by whoever is running the government after the March elections – but that it would not be before the banks had set up the electronic wallet system that will replace cash payments, a spokesperson said.

In its report last June, the Locker Committee said that Israelis have more cash than ever — nearly NIS 50 billion — but tax collection has fallen significantly in recent years. Obviously, something is amiss, the committee said. “The economy has grown, as has the population, but the amount of business reported to tax authorities has fallen.” The logical conclusion, the committee said, is that more people are conducting transactions in cash.

Lest Israelis feel that the government is acting in too draconian a manner, the cabinet statement lists regulations in other places that are just as restrictive, if not more so. In the US, transactions of $10,000 or more are supposed to be reported to the Treasury Department; in the EU, cash transactions are currently restricted to 15,000 euros, but new regulations, if adopted, would cut that to 7,500 euros. And in countries like France, Italy, Spain and Belgium, individuals can be stopped on the street by special currency enforcement patrols who have the power to detain individuals or close down businesses violating currency regulations.

But analysts said that there were a lot of questions that needed to be answered before the project took off. In an interview, prominent Tel Aviv attorney Dr. Haim Stenger said that the new regulations would never hold up in court because they contradict Basic Laws (the Israeli equivalent of constitutional principles) — specifically, the Basic Law on Human Dignity and Liberty. That law, said Stenger, who has appeared before the High Court numerous times, specifically allows Israelis the right to “freely use their property,” a right that would be compromised if their freedom to use cash was restricted and the requirement to use an electronic wallet or debit card for transactions was implemented.

“As long as there is no specific limitation in the law, there is nothing to prevent the public from using cash for transactions, no matter what the amount,” Stenger said. Treasury regulations issued in 2012 limiting transactions between businesses are not necessarily covered by the Basic Law, but transactions between individuals certainly would be, he said — so it’s likely that any law passed by the Knesset on the matter would be struck down.

The government’s intent — to cut down on tax evasion and “black money” — is something all law-abiding Israelis agree with, said Stenger, but the way to implement it was not through a blanket ban of cash transactions. “Adding regulations and manpower targeting the habitual tax evaders will be much more effective than what is being proposed,” he said.