US begs Israel not to eliminate occupied West Bank from global financial system

Western officials, led by US Treasury Secretary USA, Janet Yellensent a letter to the Israeli government warning that Prime Minister Benjamin Netanyahu faces the risk of an “economic catastrophe” in the occupied West Bank if he does not renew an essential exemption for international banks to maintain ties with Palestinian financial institutions. The information was released by Financial Times this Tuesday.

The warning refers to the pending decision of the Israeli Finance Minister, Bezalel Smotrichwhich must decide by Thursday whether to renew an exemption that protects two Israeli banks — the Israel Discount Bank and the Bank Hapoalim — legal actions linked to Palestinian Authority (PA).

These banks maintain essential connections between the Palestinian banking system and the global financial market, facilitating financial transactions that use the shekel, the Israeli currency, the basis of the Palestinian economy.

“Without this protection, the PA would lose its immunity, and Israeli banks would likely cut ties with Palestinian banks, isolating the PA from the international financial system and significantly paralyzing the Palestinian economy,” highlights the letter signed by Yellen and seven other finance ministers, including representatives from the European Union and the United Kingdom.

The West Bank’s economic dependence on Israel is reflected in about US$13 billion in trade between territories, which are processed by the international financial system.

Palestinian workers could also be directly affected by the disruption of these banking ties, as under a 2022 agreement between Palestinian and Israeli authorities, their salaries can only be deposited into bank accounts.

If the protection is not renewed, these workers would only be able to receive cash, which represents a significant logistical and economic setback.

Other affected areas would include Palestinian export and import operations, which depend on Israeli ports, and PA tax funds collected by Israel. The letter warns that the current situation threatens the integrity of the Palestinian Authority, especially considering its role as a security partner for Israel in the region.

For the exemption to be renewed, Smotrich and the Israeli cabinet require that two conditions be met: an assessment of the Palestinian Monetary Authority by the global watchdog Financial Action Task Force (FATF) and a risk analysis of the Palestinian financial system by World Bank.

Sources informed the Financial Times that the Palestinian Authority is already on the “right path” to strengthen its regime against money laundering, as highlighted in the letter from Western authorities.