As part of its intensified campaign against cash transactions and the black-market economy, the Israeli government is advancing a proposal that would sharply limit the ability to exchange checks for cash, a move expected to significantly impact gemachs and other non-bank lending institutions.

During deliberations over the Arrangements Law, the Knesset Constitution, Law and Justice Committee is set to examine an amendment that would restrict the conversion or cashing of checks and promissory notes to a maximum of 6,000 shekels.

If approved, any amount above 6,000 shekels could not be paid out in cash, except for a small portion amounting to up to 10 percent of the value of the check.

According to the explanatory notes accompanying the proposal, “The practice of discounting promissory notes for cash constitutes a significant risk factor for tax evasion and money laundering through financial entities.”

In order to close what lawmakers describe as a regulatory loophole, the amendment would also revoke the full exemption that supervised financial institutions have enjoyed until now. Loans issued through check-discounting arrangements would be brought under the same strict cash limitations.

The proposed change is expected to create particular turbulence within the chareidi community, where gemachs serve as a primary financial backbone. The widely used model of providing cash in exchange for a postdated check to address urgent liquidity needs would become unlawful for sums exceeding the new threshold.

Despite the far-reaching nature of the proposal, the legal advisory team to the committee has expressed doubts about whether the broader Cash Law has achieved its original objective of curbing unreported capital.

The briefing paper also notes a lack of consistency in the framework, pointing out that while a business owner may still receive a cash loan from a regulated institution, that same individual would not be permitted to discount a check under similar conditions.