New law to reduce the use of cash and negotiable checks
Sep 6, 2018
By: John Geva and Shlomi Hadar – Attorneys and Mediators
Introduction by: Attorney Shkema Levi Ezra
The shadow economy in Israel, heavily reliant on cash transactions, is also very present in the construction sector. Official data indicate that approximately 50% of the shadow economy is related to real estate and construction, according to the OECD.
A new law seeks to limit the use of cash, among other goals, as part of the fight against this phenomenon.
Cases of money laundering and tax evasion have always occurred in Israel, but in recent years we have seen major cases that shocked the public. Following these incidents—where the perpetrators’ actions were executed with relative ease—it was decided to expand the fight against such illegal activities and enact a law titled: “Limiting the Use of Cash, 2018” (5778).
The law will come into force on January 1, 2019, and will impose restrictions on the use of cash and bearer checks. Violating the law will result in fines, penalties, and restrictions against the offender.
The Reduction of Cash Use Law, 2018 (the “Law”), will take effect on 1 January 2019, introducing restrictions on the use of cash and negotiable cheques.
Violations may result in fines, administrative penalties, and restrictions.
The Law forms part of broader efforts to combat illegal activities, including money laundering and tax evasion.
Some estimates suggest that Israel’s illicit cash economy causes tens of billions of shekels in lost revenue each year. At that scale, the implications for the economy and the tax burden are substantial.
Cash also prevents authorities from tracing transactions, allowing money to change hands without documentation. Negotiable cheques can similarly pass from one person to another without a clear explanation for each transfer. Sometimes, the final recipient is a dubious party who cannot provide information about the cheque’s chain of endorsements.
Nevertheless, the Law recognizes that cash also offers economic benefits, including facilitating transactions for disadvantaged population groups and transactions involving small amounts. Cash restrictions therefore apply at different monetary thresholds.
Some prohibitions apply to both the payer and the recipient. For example, restrictions apply to making or receiving cash payments for transactions exceeding NIS 11,000.
By contrast, a person who is not acting in a business capacity may not pay in cash if the transaction value exceeds NIS 50,000.
Of particular relevance to the construction industry, especially when employing foreign or Palestinian workers, is the prohibition on paying wages in cash where the wages exceed NIS 11,000.
The prohibitions also apply to gifts exceeding NIS 50,000.
The various restrictions do not apply between family members, except in relation to wages.
For cheques issued as wage payments exceeding NIS 5,000, the employee’s name must appear as the payee or endorsee, as applicable.
The prohibitions also apply to bodies that honour these cheques, such as banks, the Postal Bank, and licensed deposit and credit service providers, which must check whether the cheques presented to them comply with the applicable restrictions.
Law to reduce the use of cash
Starting on January 1, 2019, the Law for Reducing the Use of Cash, 5778-2018 (hereinafter: "the Law") will enter into force, which will establish restrictions on the use of cash and negotiable checks.
Violation of the law may subject the violator to fines, sanctions, and restrictions.
The reasons that led to the law are part of the widespread fight against illegal activities, including money laundering and tax evasion.
Some estimate the illegal "cash" market in Israel as one that results in a loss of revenue of billions of shekels every year, and on such a scale, it is clear that the implications you have for the economy and the tax burden are great.
The use of cash also prevents the authorities from being able to trace actions and transactions, which allows them to be passed from hand to hand without documentation. Negotiable checks also allow the check to be passed from hand to hand, with the reasons for this unclear, and sometimes the last party in the chain is a dubious party from whom it is not possible to learn about the "chain" of the check along the way.
However, the law takes into account that there are also advantages to the economy in using cash, among other things, to enable transactions by vulnerable population groups or small-scale transactions, and therefore the restrictions on the use of cash were set at different amounts.
It should be noted that some of the prohibitions in the law apply to both the payer and the recipient.
For example, there is a restriction on giving or receiving payment in cash for a transaction whose value exceeds 11,000 NIS.
On the other hand, someone who is not a business owner is prohibited from paying in cash if the transaction price exceeds 50,000 NIS.
What may be relevant to the construction industry, and especially in the employment of foreign or Palestinian workers, is the prohibition on paying cash as wages if the wage exceeds 11,000 NIS.
The prohibitions in the law also apply to gifts in an amount exceeding 50,000 NIS.
The various restrictions do not apply between family members, except with regard to wages.
With regard to checks paid as wages in an amount exceeding 5,000 NIS, it is mandatory to indicate on the check the name of the employee as the payee or payee, as the case may be.
The prohibitions also apply to entities that pay these checks, such as banks, a postal bank, or a licensee to provide deposit and credit services, which are required to check whether various restrictions are met in the checks that arrive at their doorstep.
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