Directors of gemachim can breathe a bit more freely now. In a meeting this past Monday in the Knesset Financial Committee, thanks to the initiative of Rabbi Moshe Gafni, a solution was put forward which will enable Israeli free loan gemachim to continue functioning even after the amendment of the internal revenue law is passed calling for all financial institutions in Israel to report properties owned by American citizens in Israel to the American internal revenue authorities via the Israeli government tax authorities.
The amendment to this new law is a direct corollary to the agreement between Israel and the U.S. whereby Israeli and American financial institutions can continue working together on condition that Israeli institutions report to the American tax authorities via the Israeli ones of the various accounts being operated either directly or indirectly by American citizens. This relates to an agreement already signed by many countries which stems from the desire of American tax bureau to broaden its ability to collect taxes from American citizens living abroad, known as FATCA.
Following the signing of this agreement, the Bank of Israel has informed Israeli banks that they must authenticate the status of all organizations and bodies which have accounts with them and in which American citizens involved. In view of this, many banks have approached the gemachim to validate their status, threatening them with closing their accounts if they do not comply. This bank directive has endangered the very operation and existence of many gemachim.
How will the Gemachim be Affected?
1. Transfers of funds to gemach accounts may encounter difficulties from the receiving bank. The depositor will be asked to prove the source of those funds and that these were duly reported to the tax authorities of his native country. In the event that the bank is not convinced [of their source], it can refuse to accept those monies and they will be returned to the holder of the account.
2. The transfer of monies which answer to the various criteria will be reported to the money laundering authorities and/or to the tax authorities.
3. A gemach will be considered a financial organization with regards to FATCA and therefore it must arrange its status with the American and Israeli tax authorities and may be required to report to the IRS information about its clients and the sources of their income. If an organization does not arrange its status properly, a bank maintaining it as a client is liable to criminal sanctions.
It seems that arranging the status of gemach foundations vis a vis legal and tax requirements is a necessary stage to keep this important mitzvah of free loan intact. However, this may entail exposing names of donors, borrowers and lender, and harm the very purpose of a free loan gemach, for blessing rests only on things which are hidden and discreet.
In order to keep this important mitzvah going, it will be necessary to find the proper balance and to study the very nature of registration in various countries and arranging the status of a gemach and the operation of the transactions of funds.
