Western officials have written to the Israeli government warning of an “economic catastrophe” in the occupied West Bank unless Prime Minister Benjamin Netanyahu renews exemptions for international banks to maintain relationships with Palestinian financial institutions. He warned me that there was a risk of this happening.
The letter, led by U.S. Treasury Secretary Janet Yellen, expressed concern that Israeli Finance Minister Bezalel Smotrich would not renew the exemption, which expires on Thursday, the Financial Times reported.
A copy of the letter reads: “Actions taken on the part of your government to deny access to financial resources in the West Bank jeopardize Israel’s security and threaten to further destabilize the entire region.” It is written.
The letter was also signed by seven of Ms. Yellen’s counterparts, including officials from the European Union and the United Kingdom, according to the Financial Times.
The Palestinian economy relies on ties to Israel, as it is based on the Israeli shekel, and financial transactions with the rest of the world must go through the Bank of Israel and other Israeli banks.
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Two Israeli banks, Israel Discount Bank and Bank Hapoalim, currently maintain connections between Palestinian banks and the Israeli and global banking systems.
The Israeli government continues to issue protection waivers for both banks each year, signed by the finance minister, to protect them from lawsuits involving the Palestinian Authority and “transfers of funds to terrorist organizations.”
Israel could cut off Palestinian banks from the global banking system next week
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Smotrich, who became finance minister in 2022, has refused to renew the agreement.
Without this protection, the PA would be stripped of its immunity, Israeli banks would be exposed to lawsuits, and their ties with Palestinian banks would likely be severed.
The consequence of isolating the PA from the financial community would be to severely cripple the Palestinian economy.
“Such an economic disaster would threaten the integrity of the Palestinian Authority at a time when it is a particularly important security partner,” the letter said.
About $13 billion in trade between Israel and the occupied West Bank passes through the international financial system, according to the letter from Yellen and other finance ministers.
Under a 2022 agreement between Palestinian and Israeli authorities, Palestinian workers can only receive wages in bank deposits and cannot continue receiving wages in Israel unless paid in cash.
Other areas affected by Smotrich’s move include Palestinian import and export operations through Israeli ports and Palestinian taxes collected by Israel.
According to the Financial Times, Prime Minister Smotrich and Israel’s Cabinet required at least two conditions to be met before the exemption could be renewed. The first is to have the Financial Action Task Force, a global watchdog, schedule an assessment of the Palestinian Monetary Authority, and the second is to have the World Bank support a national risk assessment of the Palestinian financial system.
Sources told the Financial Times that the PA had already completed the measures and the letter said the PA was “on track” to strengthen its anti-money laundering regime.
