Business Loan or Money Laundering Channel? The New Reporting Obligation That Exposes Your Cash Flow

Until January 1, 2025, the world of non-bank inter-company lending ("B2B") was considered a relatively gray area, managed primarily from tax and interest perspectives. A loan from a supplier to a distressed client or a capital injection to a business partner were recorded in the books and reported in annual financial statements. The amendment to the Anti-Money Laundering Order changes the picture: the state seeks to shine a spotlight on "shadow banking." Henceforth, extending a loan to a company that is not defined as a "related party" (a company that is not part of the same corporate group) requires compliance with reporting and corporate governance standards, out of concern that these channels are being used to launder money under the guise of legitimate business activity.

For entrepreneurs and CFOs, this means the end of "friendly" deals or spontaneous business assistance. Transferring significant funds as a loan to an entity you do not fully own or control, without proper procedure, exposes the company and its officers to criminal and administrative risks. The regulatory rationale is clear: fictitious loans are a classic method for moving illicit funds. Now, the burden of proof that the loan is purely commercial falls on you in real time — not only retroactively during a tax audit.

• Definition of "Unrelated Company": The reporting obligation focuses on loans to entities without a controlling relationship (subsidiary, sister company). Intra-group loans (inter-company group loans) are generally exempt, but a loan to a supplier, client, or external business partner falls within the net.

• Identification and Registration Obligation: The lender is required to conduct an identification process ("Know Your Customer") of the borrower, even if the borrower is a familiar business colleague, and to document the purpose of the loan and the source of funds.

• Reporting to the Authority: In certain cases and depending on the loan amount, active reporting to the Anti-Money Laundering Authority is required, similar to the obligations imposed on financial service providers.

At Shlomi Vaknin & Co., we encounter cases in which entirely legitimate loans were classified as suspected money laundering solely due to a lack of documentation. Strategic Recommendation:

1. Proper Loan Agreement: Never transfer money under the heading "loan" with only a journal entry. A written loan agreement specifying interest, repayment dates, and the purpose of the funds is mandatory.

2. Board of Directors Resolution: Approve the loan at a board meeting, stating the business justification for extending credit to an external party (e.g., "securing the supply chain").

3. Due Diligence: Before transferring the funds, conduct a basic review of the borrowing company and verify it does not appear on risk lists, so as not to "taint" your company with problematic funds upon repayment.