How an Australian Got NIS 1.42M of Crypto Proceeds Past an Israeli Bank

Result: NIS 1,420,000 in exchange settlement accepted, the account restriction lifted and the balance repatriated to Australia · Timeline: 7 months · Challenge: Bank returned funds from a licensed exchange and froze a non-resident account · Authority: Bank of Israel Banking Supervision Department and the Israel Tax Authority · Financial Impact: NIS 1,420,000 released against NIS 24,800 of Israeli tax paid

Background

The client moved from Tel Aviv to Melbourne in September 2014, at the end of an eight-year stint in Israel, and has been an Australian tax resident ever since. While he was still living in Israel he had put a few thousand shekels a month of salary into cryptocurrency through an Israeli platform, in 2013 and 2014, and then left the holdings alone for eleven years. He also left his Israeli current account open, mostly out of inertia, with a small balance and an address in Australia that the branch had on file.

In October 2025 he sold part of the holding through an Israeli exchange, licensed as a financial asset service provider by the Capital Market, Insurance and Savings Authority, and instructed the exchange to settle NIS 1,420,000 into his Israeli account. The transfer bounced. Nine days later the bank returned the money to the exchange, sent him a two-line letter about the account being subject to review, and blocked outgoing transfers on it. The exchange had the shekels, he had a frozen account, and he was fourteen time zones away.

The Challenge

Israeli banks are not free to refuse crypto-sourced money on principle, and they behave as though they are. The tension between those two facts is what the file was actually about.

The formal framework is the Prohibition on Money Laundering Law 5760-2000 and the banks order made under it, which requires identification, record-keeping and reporting on unusual activity, and the Supervisor of Banks' Proper Conduct of Banking Business Directive 411, which requires banks to manage money laundering and terror financing risk on a risk-based approach. Neither instrument authorises a blanket refusal. The Supreme Court said so in Bits of Gold Ltd v. Bank Leumi, Civil Appeal 6389/17, decided in February 2019, holding that a bank could not restrict crypto-related activity categorically and had to examine the individual customer and the individual funds. Section 2(a) of the Banking (Service to Customer) Law 5741-1981 sits behind that, prohibiting a banking corporation from unreasonably refusing services it lists.

What the client met was the commercial reality underneath the law. His compliance file said "non-resident" and "virtual currency" in the same paragraph, and the branch manager, who was pleasant and entirely unhelpful, explained that the transfer had been returned because the source of funds could not be verified. Verified against what, nobody would say in writing.

There was also a tax problem that the client did not know he had, and it was the more interesting half of the case. He assumed that as an Australian resident selling an asset that has no situs in Israel, Israel had nothing to tax. That is right for most of the gain and wrong for the part that matters. The Israel Tax Authority treats a virtual currency as an asset under Section 88 of the Income Tax Ordinance 1961, so a disposal is a capital gain, taxed at 25 per cent for an individual. Under Section 89(b)(3) a non-resident is chargeable only on assets located in Israel. But Section 100A deems a person who ceases to be an Israeli resident to have sold his assets on the day before he left, and where he defers payment instead of paying then, the tax falls due on the actual sale and is computed on the part of the gain attributable to his years of Israeli residence, apportioned across the holding period. He had bought in Israel as an Israeli resident and left nine months later. That sliver was Israeli.

In Practice: Section 100A of the Income Tax Ordinance 1961 deems assets sold on the day before residency ends, with payment deferrable to the actual disposal and the gain apportioned over the holding period. Here the holding ran 141 months and Israeli residence covered 9 of them, so about 6.4 per cent of a NIS 1,374,000 gain was Israeli, producing NIS 22,000 at the 25 per cent rate and NIS 24,800 once linkage and interest were added. The assessing officer at the Israel Tax Authority issued the assessment five weeks after we filed the computation.

What We Did

The first move was to make the bank commit to a reason. We wrote asking for the refusal in writing, identifying the specific concern and the specific documents that would answer it, and citing Section 2(a) of the Banking (Service to Customer) Law 5741-1981 together with the individual assessment requirement in Bits of Gold. Compliance departments write differently when they know the letter will be attached to a complaint. The reply that came back three weeks later was thin, but it named two concerns we could work with: the source of the original purchase funds, and whether Israeli tax had been paid.

The provenance file took two months and is the part most clients underestimate. We assembled the exchange's statements covering the whole account life, the debits from his own Israeli bank account in 2013 and 2014 that had funded the purchases, his Israeli payslips for those years showing the salary that fed the account, and a blockchain trace report from a licensed analytics firm showing an unbroken chain from the receiving addresses in 2014 to the wallets that funded the 2025 sale. We also obtained the exchange's licence particulars as a financial asset service provider supervised by the Capital Market, Insurance and Savings Authority, which matters more than it used to. A deposit routed through a supervised Israeli entity is now the low-risk case rather than the suspicious one.

While that was being built we dealt with the tax, and we did it in the order that a compliance officer reads rather than the order an accountant would prefer. We filed the Section 100A computation with the assessing officer, disclosed the full sale, took the position that the balance of the gain fell outside Israeli tax under Section 89(b)(3) because the client had been a non-resident since 2014, and asked for an assessment on the apportioned Israeli slice. The assessment came back at NIS 22,000 of tax, NIS 24,800 with linkage and interest, and we paid it. What we actually wanted was the confirmation of payment. A one-page Israel Tax Authority confirmation answers the second half of a bank's objection in a way that no explanation from the customer ever will. Our guide to the Israeli exit tax on leaving Israel covers how the deemed sale and the deferral election work for people who left years ago and never filed anything.

Then we escalated. The complaint went to the public enquiries unit of the Banking Supervision Department at the Bank of Israel, setting out the returned transfer, the account restriction, the documentary file and the tax confirmation, and noting the supervisory position that had shifted underneath the bank while the file was open. In mid-July 2026 the Banking Supervision Department removed the automatic delay that banks had been applying to deposits originating in crypto activity above NIS 100,000, and circulated a draft directive that would bar blanket refusals of fiat deposits sourced from licensed providers, treating funds routed through a supervised entity as lower risk. The draft is not yet a final directive and we did not present it as one. It was still the clearest available statement that the bank's posture was out of step with its regulator.

The account was released six weeks after the complaint went in. The exchange resent the settlement, the bank credited NIS 1,420,000, and the restriction on outgoing transfers came off.

In Practice: Directive 411 of the Proper Conduct of Banking Business Directives requires a risk-based approach rather than categorical refusal, and the Supreme Court held in Bits of Gold Ltd v. Bank Leumi, Civil Appeal 6389/17 (2019) that a bank must examine the specific customer and funds. The route that actually moves an Israeli bank is a written complaint to the public enquiries unit of the Banking Supervision Department at the Bank of Israel, which on this file produced a release six weeks after filing, on funds of NIS 1,420,000 that had been sitting with the exchange for four months.

The Outcome

Seven months after the transfer was returned, the money was in his Israeli account and the account worked again. Repatriation to Melbourne then followed the ordinary path for a non-resident moving a large sum out of Israel: the bank required the certificate that its withholding obligation on payments to non-residents under Section 170 of the Income Tax Ordinance 1961 makes it insist on, which the tax confirmation supported, and the funds went out in two transfers to avoid a single conversion at a poor rate. The mechanics of that leg are set out in our guide to transferring large sums from Israel to Australia.

The Australian side was quieter than the client feared, and for a reason worth knowing. When a foreign resident becomes an Australian resident, section 855-45 of the Income Tax Assessment Act 1997 deems the person to have acquired assets that are not taxable Australian property at their market value on the day residency starts. His Australian cost base therefore begins in September 2014, and the Australian CGT event on the 2025 sale captured only the growth after his arrival, reduced by the 50 per cent discount available on an asset held more than twelve months. Israel taxed the period before he left. Australia taxed the period after he arrived. The two systems met without a serious overlap, which is not something a treaty arranged, and there is no mechanism in the 2019 Israel and Australia double taxation convention that would have fixed it if the numbers had collided. Israel's slice is measured by time and Australia's by market value, so on an asset whose price moves unevenly they can meet badly.

The client's own summary was that he had spent seven months and a five-figure sum in fees to be allowed to receive his own money. That is roughly true. What is also true is that he was one letter away from a bank closing the account entirely, which for a non-resident with no Israeli address and no local guarantor is a door that does not reopen.

Key Takeaways

What this case illustrates for non-residents in similar situations:

1. Make the bank state the objection in writing before answering it. A compliance department that has named its concerns has narrowed the file, and a refusal that stays verbal cannot be escalated to the Banking Supervision Department.
2. Provenance means the whole chain, not the last step. Exchange statements alone do not answer a source of funds question. The original bank debits, the payslips behind them and a blockchain trace from the first receiving address are what close it.
3. Selling through a licensed Israeli provider is now an advantage. Funds routed through an entity supervised by the Capital Market, Insurance and Savings Authority sit on the low-risk side of the supervisory guidance, which is not where an offshore platform sits.
4. Israel may still tax an asset you bought there before you left. Section 100A apportions the gain across the holding period and the Israeli slice becomes payable when you actually sell, however many years later and wherever you now live.
5. Pay the small Israeli tax early and use the receipt. An Israel Tax Authority confirmation of payment is the single document that most efficiently answers a bank's second objection, and it costs less than a month of correspondence.

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Facing a Similar Situation?

If an Israeli bank has returned funds, restricted your account or asked for a source of funds explanation you cannot easily assemble from abroad, the sequence matters more than the argument. The tax position is settled first, the provenance file second, and the supervisory complaint last, because each one answers the objection the next step depends on.

Contact us for a confidential consultation about your Israeli legal matter.