PHASE 3 REPORT ON IMPLEMENTING THE OECD …

1 PHASE 3 REPORT ON IMPLEMENTING THE OECD anti - bribery convention IN ISRAEL June 2015 This PHASE 3 REPORT on Israel by the OECD Working Group on bribery evaluates and makes recommendations on Israel s implementation of the OECD convention on Combating bribery of Foreign Public Officials in International Business Transactions and the 2009 Recommendation of the Council for Further Combating bribery of Foreign Public Officials in International Business Transactions. It was adopted by the Working Group on 11 June 2015. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. 2 This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 3 TABLE OF CONTENTS EXECUTIVE SUMMARY .. 5 A. INTRODUCTION .. 7 1. The on-site visit .. 7 2. Summary of the monitoring steps leading to PHASE 3 .. 7 3. Outline and methodology of the REPORT .. 7 4. Economic background .. 8 5. Cases involving the bribery of foreign public officials .. 9 B. IMPLEMENTATION AND APPLICATION BY ISRAEL OF THE convention AND THE 2009 RECOMMENDATIONS .. 10 1. Foreign bribery offence .. 10 2. Responsibility of legal persons .. 11 (a) Standard of liability .. 11 (b) Enforcement against legal persons in practice .. 16 (c) Proposed legislative amendments to criminal legal person liability 16 3. Sanctions .. 18 (a) Sanctions for natural persons .. 18 (b) Sanctions for legal persons .. 18 (c) Dual penalty requirement under article 14(c) of the PL .. 19 (d) Relevant prosecution and sentencing principles regarding sanctions.

3 19 (e) Additional sanctions - debarment .. 20 4. Confiscation of the bribe and the proceeds of bribery .. 20 (a) Operational and legislative framework .. 21 (b) Confiscation in practice .. 21 5. Investigation and prosecution of the foreign bribery offence .. 22 (a) Enforcement agencies, coordination, resources and training .. 22 (b) Opening and terminating foreign bribery cases .. 25 (c) Investigative tools and challenges in the investigation of foreign bribery .. 28 (d) Plea bargaining / Settlements .. 30 (e) Considerations under Article 5 of the convention and Independence of the Police and Prosecution .. 31 (f) Jurisdiction .. 34 (g) Statute of limitations .. 36 6. Money laundering .. 37 (a) The money laundering offence and enforcement .. 37 (b) anti -money laundering measures .. 39 7. Accounting requirements, external audit, and company compliance and ethics programmes.

4 42 (a) Accounting requirements .. 42 (b) External audit .. 44 (c) Company internal controls, ethics and compliance programmes or measures .. 46 8. Tax measures for combating bribery .. 47 (a) Non-deductibility of bribes .. 47 4 (b) Awareness-raising and detection .. 49 (c) Reporting foreign bribery and sharing tax information with law enforcement .. 49 9. International cooperation .. 51 (a) Mutual legal assistance .. 51 (b) Extradition .. 53 10. Public awareness and the reporting of foreign bribery .. 53 (a) Awareness of the convention and of the foreign bribery offence .. 53 (b) Reporting suspected acts of foreign bribery .. 56 (c) Whistleblower protection .. 57 11. Public advantages .. 59 (a) Public procurement .. 59 (b) Officially supported export credits .. 59 (c) Defence exports .. 60 (d) Official development assistance (ODA) .. 62 C. RECOMMENDATIONS AND ISSUES FOR FOLLOW-UP.

5 63 1. Recommendations of the Working Group .. 63 Recommendations for ensuring effective investigation, prosecution and sanctioning of foreign bribery .. 63 Recommendations for ensuring effective prevention and detection of foreign bribery .. 64 2. Follow-up by the Working Group .. 66 ANNEX 1: SUMMARIES OF ISRAEL S FOREIGN bribery ENFORCEMENT ACTIONS .. 68 (a) Ongoing formal investigations .. 68 (b) Ongoing preliminary examinations .. 68 (c) Closed preliminary examinations .. 69 (d) Allegations which are not subject to a preliminary examination or formal investigation .. 70 (e) Closed preliminary examinations concerning bribery allegations that predate Israel s foreign bribery offence .. 70 ANNEX 2: PHASE 2 RECOMMENDATIONS TO ISRAEL AND ASSESSMENT OF IMPLEMENTATION BY THE WORKING GROUP ON bribery IN 2012 .. 72 ANNEX 3: LEGISLATIVE EXTRACTS.

6 77 ANNEX 4: LIST OF PARTICIPANTS IN THE ON-SITE VISIT .. 82 ANNEX 5: LIST OF ABBREVIATIONS, TERMS AND ACRONYMS .. 84 5 EXECUTIVE SUMMARY The PHASE 3 REPORT on Israel by the OECD Working Group on bribery evaluates and makes recommendations on Israel s implementation and enforcement of the convention on Combating bribery of Foreign Public Officials in International Business Transactions and related instruments. The REPORT considers country-specific (vertical) issues arising from changes in Israel s legislative and institutional framework, as well as progress made since Israel s PHASE 2 evaluation in 2009. The REPORT also focuses on key Group-wide (horizontal) issues, particularly enforcement. The Working Group is seriously concerned by the limited investigative steps taken in Israel s foreign bribery cases. It also notes the insufficient level of foreign bribery enforcement in Israel, with no prosecutions in the seven years since the entry force of Israel s foreign bribery offence.

7 It is, however, encouraged by Israeli authorities recent efforts to pursue foreign bribery more vigorously, and will pay close attention to how these efforts develop over the coming months. Out of 14 foreign bribery allegations, 4 are the subject of a formal investigation 3 of which were opened in the past 6 months and 4 other allegations are the subject of ongoing preliminary examinations. The Working Group recommends that Israel take all necessary steps to ensure that all foreign bribery allegations are thoroughly assessed and investigated, with a view to progressing cases to prosecution. Investigators should take advantage of the broad range of investigative tools available and seek mutual legal assistance more proactively in foreign bribery cases. Corporate liability should also be fully considered and investigated where appropriate.

8 To this end, the existing prosecution policies that emphasise consideration of legal person liability are encouraging. Israel s establishment of the Inter-Ministerial Team on foreign bribery to oversee foreign bribery cases is another notable step which could contribute to increased enforcement. The Working Group is also encouraged by Israel s independent detection of 4 foreign bribery cases. The REPORT identifies additional areas for improvement. Detection could be further enhanced through increased training and guidance for law enforcement as well as other actors involved in the detection of foreign bribery , such as accountants and auditors and the anti -money laundering authorities. The Working Group also encourages Israel to proceed with its proposed legislative amendments to consolidate its legal person liability framework, and remove existing limitations to Israel s jurisdiction over extraterritorial foreign bribery offences and the monetary threshold applicable to the relevant offence under the anti -money laundering legislation.

9 The REPORT also notes positive developments. Israel s foreign bribery offence is compliant with the convention . With respect to the sanctioning regime, sanctions have been increased for foreign bribery , and confiscation has also been enhanced through the establishment of the confiscation forum within the State Attorney s Office and a special forfeiture unit under the Ministry of Justice. Israel has been active in encouraging its companies to adopt anti -corruption compliance programmes and in raising public and private sector awareness of foreign bribery although more could be achieved to target accountants and auditors, and companies operating in high-risk sectors. The tax deductibility of bribes is now explicitly prohibited. Israel s whistleblowing regime has also significantly improved, though further efforts could be made to encourage this form of reporting.

10 The REPORT and its recommendations reflect the findings of experts from Australia and Belgium and were adopted by the Working Group on 11 June 2015. It is based on legislation and other materials 6 provided by Israel and research conducted by the evaluation team. The REPORT is also based on information obtained by the evaluation team during its three-day on-site visit to Jerusalem and Tel Aviv on 3-5 February 2015, during which the team met representatives of Israel s public and private sectors, judiciary, civil society, and media. Within one year of the Working Group s approval of this REPORT , Israel will make a written follow-up REPORT on its implementation of certain recommendations and progress on its foreign bribery enforcement actions. It will further submit a written REPORT in two years on the implementation of all recommendations and its enforcement efforts.