A significant economic and security crisis is unfolding in Israel as the country’s banking system confronts the future of its financial relationship with the ‘Palestinian’ Authority. The crisis follows reports published by Finance Minister Bezalel Smotrich that, according to the minister, demonstrate that the ‘Palestinian’ Authority’s official banking system serves as a major conduit for terror funding and payments to terrorists and their families.
2+According to the information presented, any financial institution transferring or processing money for the ‘Palestinian’ financial system—including Israeli banks—could expose itself to serious legal and international risks related to terror financing and violations of international anti-money-laundering regulations.
Against that backdrop, major Israeli banks, including Bank Hapoalim and Discount Bank, took the unprecedented step of moving to terminate financial and clearing relationships with banks operating under the ‘Palestinian’ Authority. In recent days, however, the banks temporarily stepped back, agreeing to extend those operations for just three additional months.
2+Israel has presented the ‘Palestinian’ Authority with a series of stringent conditions, including demands for a comprehensive and transparent risk assessment addressing terror financing, oversight and auditing by international enforcement bodies, full compliance with Israeli security requirements and a drastic reduction in the use of cash, which can facilitate unmonitored money-laundering channels.
Despite what the report describes as basic requirements for preventing terror financing, officials reportedly assess that the ‘Palestinian’ Authority is unlikely to implement them, citing its repeated failure to fulfill similar commitments dating back to the Oslo Accords. Rather than ending payments to terrorists, the ‘Palestinian’ Authority has launched an international campaign accusing Israel of attempting to “dismantle it economically.”
2+The crisis has also exposed disagreements among Israeli officials. A senior Finance Ministry official told C14 that if Israel’s political leadership wants to dismantle the ‘Palestinian’ Authority, it should do so through the Defense Ministry rather than through measures that could entangle the Finance Ministry. The government now faces a consequential decision: continue financially sustaining an authority accused of funding terrorism against Israeli citizens—or allow mounting economic and security pressure to push the ‘Palestinian’ Authority toward collapse.