Dear customers and friends,
We are pleased to present to you the customer update in the banking, finance and insurance sectors for the second quarter of 2026, which contains a summary of case law updates.
Case Law Updates
1. The Bank of Israel has the authority to refuse a financial request raising money laundering concerns – even without an explicit statutory obligation to do so
The Supreme Court rejected a petition seeking to obligate the Bank of Israel to accept defective coins worth approximately NIS 210,000. It The Bank of Israel, and even a similar administrative authority, may take a strict approach and decline a financial application if the applicant does not provide sufficient information and supporting material to address concerns about money laundering or terrorist financing. Even if the law does not explicitly impose on the Bank of Israel the full identification and reporting obligations that apply to a commercial banking corporation, this does not deprive the Bank of Israel of its discretion to protect the integrity of the financial system and prevent its prohibited use.
HCJ 62935-10-24 Ron Shahar v. Bank of Israel
(The Supreme Court, sitting as the High Court of Justice, before the Honorable Judge David Mintz, the Honorable Judge Alex Stein and the Honorable Judge Khaled Kabub, given on April 29, 2026).
Summary of the judgment:
- In May 2023, Ron Shahar contacted the Bank of Israel with a request to replace defective coins worth approximately NIS 210,000.
- As part of the investigation, he was asked to provide details about the origin of the coins and the route of their transfer to Israel. Shahar said that the coins came from a metal recycling plant in China, via Hong Kong, Dubai and Jordan, but the Bank of Israel believed that the information was partial and included contradictions. Therefore, he announced that he would not approve the application, in part due to concerns about the risks of money laundering and terrorist financing.
- Shahar later argued that the Bank of Israel does not have the authority to consider these considerations, and that in the past, similar requests have been approved without such requirements.
- On the other hand, the Bank of Israel responded that it was acting according to an internal procedure from 2020 designed to manage money laundering and terrorist financing risks, and that in this case “red flags” were raised that did not receive a satisfactory response.
- The Supreme Court held that:
- the Bank of Israel may also take into account considerations of money laundering and terrorist financing when examining a request for the exchange of defective currencies. Although the identification and reporting obligations in Chapter C of the Prohibition of Money Laundering Law do not apply to it as a banking corporation, the prohibition to carry out an action with prohibited property and the purpose of preventing the assimilation of funds originating in an offense justifies a careful examination of the request.
- The court emphasized that intervention in professional decisions of an administrative authority is limited to exceptional cases only. When the decision is based on professional expertise and risk assessment, a material defect is required to justify judicial intervention – and such a defect has not been proven here.
- It was determined that Shahar was given a number of opportunities to complete information and respond to questions, but he did not provide a satisfactory response to the “red flags” that arose regarding the origin of the coins, the route of their transfer, and the identification of the parties involved. In these circumstances, the Bank of Israel’s refusal was found reasonable.
- The argument that similar requests were approved for Shahar in the past was rejected, because the previous applications were submitted before the procedure was formulated, and the authority is not forever bound by its previous policy when there are substantive reasons for the change.
- An expansive interpretation of the clause, which will include the forfeiture of autonomous bank guarantees, is liable to shock the world of commerce, harm commercial certainty and the independent nature of the bank guarantee, and even encourage the tactical use of insolvency proceedings.
- The petition was rejected, and Shahar was charged with expenses in the amount of NIS 40,000.
2. Validity of an asset sale prior to insolvency proceedings and the limits of recognizing “retention of title” against the trustee
The Haifa District Court held that the mere fact that an asset remained registered in an insolvent company’s name – and was subject to a charge – does not amount to a title agreement, and does not entitle a trustee to recover the asset from a purchaser who received delivery and paid the consideration in full. When a company sells an asset, delivers it to the purchaser, and grants an open power of attorney for its ongoing use, ownership passes at the moment of delivery – regardless of what the registry shows. A party seeking to establish retention of title must prove, on a balance of probabilities, that this was the actual agreement between the parties, and the court made clear that the burden is not a light one. At the same time, the court drew a sharp line on the other side of the equation: once an insolvency commencement order is issued, a company’s officers are stripped of all authority to dispose of company assets, and any purported consent they give to a third party to take possession carries no legal effect – leaving that party fully exposed to claims by the trustee, regardless of the circumstances under which possession was obtained.
Insolvency Case 59214-06-20 and Insolvency Case 11959-12-19, Mercantile Discount Bank Ltd. v. Commissioner of Insolvency – Haifa and Northern District, et al.
(Haifa District Court, before the Honorable Senior Judge Ron Sokol, decided on July 9, 2026).
Summary of the judgment:
- A.H. Hovalot Amin Ltd. and Etgarim Estrategiyim Ltd., companies engaged in transportation services, entered insolvency proceedings. The trustee located information indicating that trailers registered in the companies’ names were being held or operated by third parties.
- In 2018, Hovalot Amin Ltd. sold a trailer to Mahmoud Daif for 100,000 NIS plus VAT. The trailer was delivered to him but remained registered with the Licensing Office in the company’s name, and a charge was registered over it. Some of the checks delivered in the transaction were dishonored, but according to the evidence Mahmoud Daif repaid the debts to the parties to whom the checks had been endorsed.
- An additional trailer was taken from a parking lot by Mahmoud Daif after the insolvency commencement order was issued. He claimed that he received the company manager’s consent to do so, but this claim was not proven.
- Time Solider Building Ltd., owned and managed by Yasin Fares, had previously purchased trailer 573 from a court-appointed receiver in an earlier transaction. Despite being ordered in prior proceedings to return the trailer to the trustee, they continued to hold and use it without paying any consideration to the company.
- The court held that:
- Retention of title is an agreement under which the seller remains the owner of the asset until full payment of the consideration. Such an agreement is not inferred merely from the fact that the asset remained registered in the seller’s name or from a charge registered in the seller’s favor. A party claiming retention of title must prove, on balance of probabilities, that this was the explicitly mentioned in the agreement.
- In this case, it was not proven that the company and Mahmoud Daif agreed that ownership would remain with the company until payment of the consideration. On the contrary, delivery of the trailer and the grant of open power of attorney for licensing tests supported the conclusion that ownership passed upon delivery.
- Even if there had been a retention of title arrangement, the court held that Mahmoud Daif had repaid his debt, and no notice of cancellation of the transaction had been given. Therefore, there was no basis to require him to pay the value of the trailer or usage fees.
- With respect to the second trailer, the court held that no valid consent to its transfer had been proven, and in any event the company manager was not authorized to grant rights in the company’s assets after the insolvency commencement order had been issued. However, since the trustee had not sought relief against Mahmoud Daif with respect to that trailer, he could not be held liable.
- Time Solider Building Ltd. and Yasin Fares were ordered to return the trailer or pay NIS 82,000, as well as usage fees in the amount of NIS 3,000 per month and costs in the amount of NIS 10,000.
3. A bank is not responsible for a fraud committed through an escrow account when it acted according to the representations and documents presented to it
A bank that maintains an escrow account may rely on the account opening documents and representations provided to it, and is not obligated to initiate in-depth checks or intervene in the customer’s activity in the absence of abnormal, suspicious or contradictory indications; without any real warning signs and without a clear causal connection, it will not be held liable for damage caused to third parties due to the customer’s fraud.
Cell 24279-12-20 Sweet et al. v. Bank Leumi Ltd. Branch 953
(The Tel Aviv Magistrate’s Court before the Honorable Judge Guy Heiman, given on March 31, 2026).
Summary of the judgment:
- Matok Sasson and Evelyn filed a lawsuit against Bank Leumi Ltd. Branch 953, after funds deposited by purchasers in an escrow account were transferred to an entrepreneurial company that later turned out to be involved in fraud.
- According to the plaintiffs, the bank was negligent in managing the account and allowed the money to be transferred illegally.
- On the other hand, the bank claimed that it acted in accordance with the documents and representations presented to it when opening the account and during its management, according to which the account was intended to hold funds only for the entrepreneurial company, and not in trust for the benefit of the purchasers.
- The court dismissed the claim and ruled that:
- the bank was not negligent in managing the trust account.
- It was determined that the bank was entitled to rely on the representations and documents presented to it, according to which the account was intended to hold funds only for the company, and not for the purchasers.
- The court ruled that there were no exceptional circumstances, material contradictions, or real warning signs that should have led the bank to suspect that fraud was being committed or that a more in-depth investigation was required.
- It was further determined that the bank should not be subjected to a broad obligation to supervise the basic transactions or the company’s relations with the purchasers, as long as the account activity was in accordance with the infrastructure presented to it.
- In addition, it was determined that no legal causal connection was proven between the bank’s conduct and the damage caused to the plaintiffs, and therefore no liability arose for this reason.
- The operative result was the dismissal of the lawsuit against the bank.
4. A bank may refuse to receive funds from a foreign bank subject to international sanctions, even if the funds have already reached a transfer account
A bank may refuse to carry out an operation with funds originating from a financial entity subject to international sanctions, even if the sanctions do not apply directly under Israeli law and even if the money has already been absorbed into a transfer account; It is sufficient that the refusal is in accordance with a reasonable compliance policy designed to prevent the risks of sanctions, money laundering, legal exposure, and damage to the Bank’s relations with the international financial system.
Cell 29964-04-22 Tatiana Aksenovskaya and Ilya Svalkin v. Mizrahi Tefahot Bank Ltd.
(The Tel Aviv-Jaffa Magistrate’s Court, before the Honorable Judge, Vice-President Efrat Busani, given on April 27, 2026).
Summary of the judgment:
- Tatyana Aksenovskaya and Ilya Svalkin managed a foreign currency account at Mizrahi Tefahot Bank, and in the past, money was transferred to her account from her father, a Russian citizen and resident.
- In January 2022, Tatyana and Ilya requested to approve an additional transfer of $1.5 million for the purpose of purchasing an apartment in Israel. Although the checks have not yet been completed, in early March 2022, two transfers of $300,000 each were transferred from the father’s account at ALFA Bank, and the funds were received in the bank’s transfer account.
- Later, the bank demanded additional documents and clarifications, and after international sanctions were imposed on ALFA Bank , it refused to credit the customer’s account and announced that the source of the refusal was only those sanctions.
- Tatyana and Ilya claimed that the bank dragged its feet, that in the past it had approved similar transfers, and that since the funds had already been received in a transit account, there was no impediment to transferring them to them.
- The court ruled that:
- A bank’s obligation to provide a service is not absolute, and a bank may refuse to provide a service when it is a reasonable refusal. The burden of showing the reasonableness of the refusal is on the bank, but the standard of proof in this matter is not high, and the court will intervene in the bank’s discretion only sparingly.
- It was determined that a refusal based on international sanctions is a reasonable refusal, especially when it is anchored in the Bank’s internal compliance policy, the Proper Conduct of Banking Instruction 411, the Supervisor of Banks’ letter, and the position of the Attorney General.
- The court accepted the bank’s position that ALFA Bank was included in the relevant sanctions lists, and that this was sufficient to justify a refusal to credit the Tatyana’s account. The argument that there was a need for an opinion of a foreign law or that the sanctions did not apply to the case was rejected.
- It was held that the fact that the funds were held in a pass-through account does not change the outcome. The relevant date in terms of risk is the date of the beneficiary’s credit, and therefore a transfer from a transfer account to the customer’s account would also be considered a prohibited action in terms of the sanctions policy.
- The court rejected the claim of delay. It was determined that the Tatyana and Ilya transferred the funds before bank approval was given, did not complete the required documents on time, and knew in real time that there was both a compliance check and the possibility of sanctions on receipts from Russia.
- The argument that prior approval for a similar transfer required the bank to approve the current transfer was also rejected. The court emphasized that each transfer has a “life of its own”, and each action is examined separately according to the risk situation and the information available at the time of execution.
- The claim was dismissed, except for leaving the procedural arrangement according to which the funds would not be returned to the source account unless there was a change in the law. The plaintiffs were ordered to pay expenses and attorney’s fees in the amount of NIS 25,000.
We will be happy to be at your disposal for any questions and/or clarifications by email or phone: 03-3075000.
Sincerely,
Shibolet & Co. Banking and Finance
and Credit Insurance Department
The contents of this memorandum are provided as general information only, and should not be relied upon in any individual case without additional legal advice
