Israel's supervisor of banks, Yair Avidan, has written a guidance note to the country's banks warning them of the risks associated with conducting letter of credit (L/C) and other transactions with banks in the UAE.

The guidance follows the peace agreement between the two countries which includes a protocol for understandings on cooperation in banking and financial services.

High risk jurisdiction

The guidance warns Israeli banks that despite the peace agreement the UAE is still considered a high risk jurisdiction for anti-money laundering and counter financing of terrorism (AML/CFT) purposes.

It instructs them to very carefully consider and manage the risk in their dealings with the UAE.

Identification requirements

The guidance lists conditions for the execution of trade related activity such as issuance of L/Cs and guarantees, including requirements to identify parties to transactions as well as the currency and financial institutions involved.

Banks remain subject to Israel's usual AML/CFT requirements for such transactions according to the guidance.

Risk factors

Israeli banks are not precluded from offering services beyond L/Cs and guarantees in the guidance but it warns that the Bank of Israel, the country's central bank, considers financial and commercial activity in the UAE to be highly complex with several inherent risk factors.

As a result, the guidance recommends that Israeli banks step forward "carefully and gradually" into the UAE's "challenging and complex" environment by ensuring they are familiar with relevant financial institutions and carry out ongoing controls.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.