Israeli Banks to Seek Extra Cover From Palestinian TiesBy
Firms worried they may be accused of aiding money laundering
Lenders said in talks for protection from possible lawsuits
Israeli banks are seeking broader legal protection from the risks involved with doing business with Palestinian lenders, according to people familiar with the matter.
Bank Hapoalim Ltd. and Israel Discount Bank are in talks with Israel’s government to secure financial indemnity and immunity should they become embroiled in domestic suits or criminal investigations involving money laundering using the Palestinian lenders they do business with, the people said, asking not to be identified as the discussions are private.
The two firms clear all Palestinian banking transactions because of the common reliance on the shekel, Israel’s currency. Earlier this year, Israeli authorities granted the banks immunity from potential lawsuits involving cases of terror financing, the people said. Israeli lenders are compelled to provide services to their Palestinian counterparts following an accord signed in 1994 that regulates financial relationships between Israel and the Palestinian Authority.
The Ministry of Finance operates in “accordance with government policy to ensure Israel’s political and economic interests regarding the Palestinian Authority,” it said in an emailed response to questions. The Ministry of Justice didn’t respond to requests for comment.
Regulators around the world have toughened up on banks that facilitate money laundering and terrorism. BNP Paribas SA in 2014 agreed to pay a $9 billion fine for violating U.S. sanctions against Iran and Sudan, two nations accused of sponsoring terrorism. A year later, Arab Bank Plc, Jordan’s biggest lender, settled a landmark lawsuit filed by American families who alleged it financed attacks carried out by Hamas, the Palestinian militant group, between 2001 to 2004.
For years, the Israeli lenders lobbied the government to cut their ties to the Palestinian banks, out of concern that they’d be ensnared in cases of terrorism or other criminal activities and be held liable for damages. The government has resisted those calls, arguing that removing the services the Israeli banks provide would send the Palestinian economy into chaos and lead to political unrest.
It would also encourage the use of cash and make it harder to crack down on terror financing, Azzam Shawwa, governor of the Palestine Monetary Authority, which would be the central bank of a future Palestinian state, said in an interview earlier this year.
Palestinian banks have made significant strides in monitoring their banking system, he said at the time, adding that the companies under his mandate are compliant with the Middle East and North Africa Financial Task Force, a 19-member inter-governmental organization set up to counter money laundering and terror financing in the region. The organization is an associate member of the Financial Action Task Force, which sets the global standard on policy.
The Palestine Monetary Authority, which regulates its financial sector, didn’t respond to requests for comment.
Before leaving office, former U.S. Treasury Department Assistant Secretary Daniel Glaser wrote in support of the Palestinian banking system. Its prosperity was important to "efforts in combating the financing of terrorism in the Palestinian Territories and throughout the region," Glaser said in a letter addressed to Shai Babad, director general of Israel’s Finance Ministry.
"The Palestinian Authority has a competent and active regulator and has made important strides in developing the necessary tools to oversee Palestinian banks," Glaser wrote. "Palestinian banks have also been credible and committed partners and have demonstrated attentiveness to the expectations of the international community and Israeli banks in particular."
— With assistance by Fadwa Hodali