The Israel Tax Authority (ITA), the country's tax collector, recently entered an agreement with Bits of Gold Ltd., a major Israeli cryptocurrency exchange, to obtain customer transaction information. The agreement requires the exchange to provide information about clients whose total transactions exceed $50,000 within the past year.
Under the country's Prohibition on Money Laundering Law, suspicious deposits and withdrawals, as well as all deposits greater than 50,000 Israeli new shekels (about $13,700 at time of press), must be reported to the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA). To verify the legitimacy of their transactions, account holders must submit supporting documentation to the IMPA.
Although Bits of Gold is required to provide customer transaction information to the IMPA under Israeli law, there is no such requirement for the ITA. Apparently, the country's privacy laws limit information exchange between governmental entities – in fact, an Israeli court rejected a 2002 ITA request to obtain a bankrupt bank's client list due to these laws.
Additionally, the ITA has interacted with Bits of Gold in the past, having audited the exchange just last month. The tax authority was not targeting the company itself but, rather, its larger clients.
The exchange emphasizes its intention to respect both its customers' privacy and Israeli law. The company's chief growth officer, Tomer Niv, stated that it only transmits legally required information:
"We at Bits of Gold only transfer the information we are required by law, which is still in the hands of the Israel Money Laundering and Terror Financing Prohibition Authority, in order to protect the privacy of customers on the one hand, and the provisions of the law on the other."
However, this seems somewhat at odds with the fact that the exchange has agreed to provide information to the ITA despite there being no requirement to do so. Perhaps the company anticipates imminent legislative changes and this is an attempt to get ahead of the curve, or perhaps it is simply to gain favor with regulatory bodies to legitimize its business practices.
The story is reminiscent of events in the US, which saw Coinbase turn over certain information to the IRS about its clients that moved at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year between 2013 to 2015.
Israel has seen various crypto advancements and news in the past year. In December 2017, the Bank of Israel, which is the country's central bank, and the Israeli Ministry of Finance were rumored to have considered issuing a state-backed cryptocurrency. On January 4, Bank Hapoalim, one of the country's largest banks, announced its partnership with the cybersecurity wing of Israel Aerospace Industries to test blockchain defense systems. And on February 26, the Israeli Supreme Court actually supported Bits of Gold by passing down a temporary order to prohibit Bank Leumi, a major corporate bank in Israel, from limiting the exchange's accounts.