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Directive 412 clarifies how banks should balance sanctions compliance with their statutory obligation to provide banking services, following criticism that Israeli banks applied sweeping and automatic restrictions on sanctioned customers.
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Banks are required to adopt clear, risk-based policies and procedures for managing sanctions exposure, relying on internal or external expertise, and may no longer apply blanket refusals of service solely due to inclusion on a sanctions list.
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Banks may partially or fully restrict customer activity where sanctions risks exist, without this being deemed an unreasonable refusal of service, provided that the decision is reasoned, documented in writing, and clearly defines the permitted scope of activity.
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While no dramatic operational change is expected, the directive sets clearer boundaries on banks’ discretion, increases transparency toward customers, and requires ongoing updates to policies in light of the dynamic nature of international sanctions regimes.
New Bank of Israel Directive: Banks May Restrict Accounts of Sanctioned Israelis
Summary
On December 30, 2025, the Supervisor of Banks published Directive 412, aimed at instructing banking corporations on providing services to customers subject to international sanctions. To strike a balance between banks’ risk management obligations and the provision of banking services to customers, the directive obligates banks to set clear policies and regulate how they will implement sanctions, with the assistance of experts to assess the risks arising from sanctions. The directive also allows banks to fully or partially restrict customers’ financial activities, without this being deemed an unreasonable refusal of service pursuant to the Banking Law (Service to the Customer).
The Bank of Israel issued this directive against the backdrop of criticism of the Israeli banking system in recent years. This criticism alleges that Israeli banks have adopted a harsh and sweeping policy that sometimes resulted in near-total restrictions on the activities of customers subject to personal (and especially US) sanctions, even in instances when a complete freeze on services was not required.
Background – International Sanctions
In recent years, there has been a significant increase in the use of economic sanctions regimes for a variety of purposes, particularly as a means of exerting pressure in the international arena. Since the outbreak of the Russia-Ukraine war, extensive sanctions have been imposed on individuals and companies, mainly by the United States, the European Union, and the United Kingdom. Additional US sanctions have targeted companies operating in China on the grounds of human rights violations, corruption, national security, and foreign policy, due to their ties to the Chinese military establishment.
Types of Sanctions
- Personal sanctions – This is the most severe type of sanction imposed by the US Treasury Department. It includes an absolute prohibition on any transaction with an individual or company, apart from transactions permitted for humanitarian reasons, such as the purchase of food and clothing for sanctioned individuals and their immediate family.
- Export and trade bans – Bans on exports of particular products to countries like Russia or Iran, or to companies on US or EU “blacklists.”
- Israeli sanctions – Israel’s sanctions regime mainly targets terrorist and criminal organizations and enemy countries. However, the corresponding US and EU sanctions regimes are far more extensive, mainly because Israel has not imposed sanctions related to the Russia-Ukraine war.
- Sanctions in the banking system – Many sanctions focus specifically on limiting the possibility of activity in the banking system, based on the presumption that blocking sanctioned individuals’ and entities’ access to payment systems will curtail undesirable activities. In any case, there are also concerns that sanctioned parties will attempt to circumvent sanctions regimes through the global banking system. Therefore, the sanctions framework imposes special compliance obligations on banking corporations to prevent sanctions violations.
Sanctions and the Israeli Banking System
The Israeli banking system has had to contend with sanctions on two main fronts:
- Handling payments originating from designated foreign entities (e.g., pension payments), including payments from sanctioned Russian companies or banks.
- Restricting activities of Israeli customers subject to personal US sanctions (for allegedly committing violence in the West Bank or who have been accused of human rights violations or corruption).
Israeli banks opted to adopt a “defensive” policy, effectively discontinuing banking services to sanctioned customers and terminating relations with Russian banks.
In both areas—payment transfers from Russia and enforcing sanctions on Israelis—banks faced criticism for their stance, particularly from Israel’s Minister of Finance, who accused them of complying with US sanctions without considering the interests of the State of Israel and its residents and failing to adopt a clear and balanced risk management policy for sanctions. The Israeli banking system, which suffered heavy fines in the tax evasion scandal by US residents, sought to protect itself from allegations of sanctions violations, especially those imposed by the United States.
New Directive – What’s Changed?
Directive 412 seeks to strike a balance between banks’ legitimate concerns about US actions against them and their obligation under the Banking Law to provide each customer with basic banking services, unless there is a reasonable reason not to do so.
Highlights of Directive 412
- Adopting policies and procedures: The primary directive to banking corporations is to establish policies and procedures that include risks assessments related to sanctions violations, terrorism financing, or exploitation of the banking corporation to circumvent sanctions. Banks should draft these policies based on professional expertise (internal or external) in sanctions regimes, terrorism financing, and anti-money laundering.
- Service provision to customers: Banks cannot simply adopt a sweeping policy of refusing to provide banking services in advance to customers on sanctions lists.
- Obligation to justify: Any bank that restricts a customer’s financial activity due to sanctions risks must explain and rationalize its decision in writing, explicitly demand documents (if relevant), and specify banking actions the customer may execute.
Practical Implications for Banking Activities
The directive is unlikely to trigger a dramatic change in banks’ operations. It is reasonable to assume banks will adopt a conservative, cautious, and strict approach, albeit not a sweeping one. For example, banks may still allow sanctioned customers to execute transactions at limited sums and for essential needs.
The importance of the directive is that it obligates banking corporations to formulate policies and procedures based on expertise with various sanctions regimes, and to disclose these policies to customers. Within this context, we note that international sanctions regimes are quite dynamic.
For example, just a year ago, the United States imposed an obligation on banking institutions to ensure compliance with the US export restrictions regime. This underscores that banks must continuously review and precisely update their policies and procedures.
Conclusions
Directive 412 will not spur drastic changes in the banking market; banks will continue to minimize services to those included on sanctions lists. However, it does delineate the boundaries of banks’ discretion and obligates them to strike an informed and reasoned balance between sanctions risks and customers’ rights.
Considering the dynamic nature of international sanctions regimes, banks will need to update their policies frequently and rely on specialized expertise to contend with sanctions risks.
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Adv. Efrat Cohen is a partner in our firm’s Regulation Department.
Adv. Amichai Cohen is a special counsel on international law at our firm.