The Biden administration on Monday welcomed the decision by the Israeli Cabinet late last week to approve a “one-year extension of its indemnification for Israeli banks, which underpins correspondent banking relationships with Palestinian counterparts.
“Economic stability in the West Bank is essential for Israeli and Palestinian security, and correspondent banking is a key pillar of that economic stability,” the U.S. State Department and Treasury stated. (The Biden administration refers to Judea and Samaria as the “West Bank.”)
“The United States appreciates the ongoing engagement with the government of Israel and the Palestine Monetary Authority on this matter,” the joint statement concluded.
The Biden administration has reportedly pledged to continue its opposition to the unilateral recognition of a Palestinian state in international fora in exchange for the extension of the deal, which prevents the collapse of the Palestinian Authority.
Israeli Finance Minister Bezalel Smotrich extended the indemnity waiver—which shields Israeli banks with ties to their P.A. counterparts from anti-terrorism laws—mere hours ahead of a Thursday night deadline.
Smotrich renewed the agreement following negotiations led by Minister of Strategic Affairs Ron Dermer, a confidante of Prime Minister Benjamin Netanyahu. As part of the quid pro quo, the outgoing U.S. administration was said to have promised to maintain its veto on Palestinian statehood at the U.N. Security Council.
Last month, an Israeli official told Israel Hayom that while Jerusalem has “no information” about current plans to allow passage of a Security Council resolution against the Jewish state to pass during President Joe Biden’s lame-duck period, “according to the assessment …, such a decision will likely come.”
Smotrich’s decisions in March and June to extend the waiver for shorter periods were reportedly also part of a barter with Washington, under which it agreed to ease sanctions on Israeli citizens and condone the legalization of five outposts located beyond the pre-1967 Green Line.
Earlier this year, Smotrich threatened to topple the P.A.’s economy in response to Ramallah’s push for unilateral statehood and support for the International Criminal Court case against Israeli leaders.
The Ramallah-based P.A. is “working against Israel with political terrorism and promoting unilateral measures around the world,” he told fellow ministers. “If this causes the P.A. to collapse, let it collapse.”
U.S. Treasury Secretary Janet Yellen vowed to use “all diplomatic efforts” to stop Smotrich. “I’m particularly concerned by Israel’s threats to take action that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” she said on May 23.
Ahead of the Thursday deadline, the United Kingdom, Germany and France also appealed to Smotrich to extend the agreement, claiming Ramallah had taken “significant steps” to combat terrorism financing.
The E3 foreign ministers said they were “deeply concerned that Israel has yet to provide assurances it will extend the indemnifications for essential correspondent banking relationships between Israeli and Palestinian banks for a minimum period of at least 12 months.”
London, Berlin and Paris said they were “fully satisfied” with what they described as “significant steps” taken by the P.A. and its financial institutions across Judea and Samaria to combat terrorism financing.
According to accords signed in the 1990s between Israel and the PLO, the shekel is the primary currency in Judea and Samaria, alongside the Jordanian dinar.
Some 1 billion shekels (nearly $275 million) in yearly tax revenue and tariff that Israel collects on behalf of the P.A. goes toward its “pay for slay” policy, under which Ramallah pays monthly stipends to terrorists and their families.