newsIsrael-Palestinian Conflict

Smotrich’s plan to hurt PA economy following US sanctions

The finance minister won't renew waiver that protects Israeli banks from lawsuits over ties with the Palestinian Authority, which could force them to end all transactions.

Minister of Finance Bezalel Smotrich speaks during a press conference at the Ministry of Finance in Jerusalem on Aug. 9, 2023. Photo by Chaim Goldberg/Flash90.
Minister of Finance Bezalel Smotrich speaks during a press conference at the Ministry of Finance in Jerusalem on Aug. 9, 2023. Photo by Chaim Goldberg/Flash90.

Israeli Finance Minister Bezalel Smotrich is threatening to paralyze the Palestinian Authority’s economy in response to the Biden administration’s actions against Israeli residents in Judea and Samaria.

Israel Hayom has learned that Smotrich is refusing to renew signing a document that provides the P.A. immunity from lawsuits filed involving Israel’s Discount Bank and Bank Hapoalim, which have financial ties with Palestinian entities.

Without this protection, the Israeli banks are expected to cut ties with Palestinian banks out of fear of being exposed to lawsuits for transferring funds to terror groups. Since the P.A.’s economy relies on ties with Israel, this would mean an immediate freeze on economic activity in the P.A.

Smotrich’s threat comes in response to the sanctions imposed by the United States on seven Israeli settlers, which has resulted in banks freezing their accounts.

The United States has strict laws against money laundering used for terror, and a special authority conducts international campaigns against bodies that provide financial assistance to terror groups. Since the P.A. and its financial institutions are suspected by the U.S. of being involved in terror, the U.S. itself avoids direct contact with them to avoid violating the law. 

However, politically, the U.S. administration views the existence of the P.A. as important for stability in the region, so it has refrained from taking legal action against it.

Israel has been issuing on an annual basis a waiver of protection for the banks, signed by the finance minister. This arrangement has been in place for many years and was supposed to be renewed in two weeks. Now, following the Biden administration’s actions against “settler violence,” Smotrich is unwilling to sign the renewal of the waiver.

Smotrich’s associates say that the P.A. poses risks to Israeli banks, and he is no longer willing to be the one protecting that. The minister expects that just as the Americans do not make claims against Israeli banks over ties with the P.A., they will clarify that they have no objection to releasing the frozen funds of the seven Israelis.

Smotrich has a long history of clashes with the U.S. administration on financial issues. Recently, he forced the administration to back down when he refused to transfer tax funds that Israel collects on the P.A.’s behalf to P.A. personnel in Gaza. 

The Americans, in turn, are boycotting the minister, so there are no communication channels between the sides.

The implication of Smotrich’s move is an immediate freeze on significant parts of economic activity in the P.A. This is because the currency traded there is the shekel. Additionally, most Palestinian exports and imports go through Israeli ports. Moreover, the tax funds that Israel collects and will now freeze constitute an important part of Ramallah’s tax revenues.

Originally published by Israel Hayom.

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