US official: PA has met Israeli requirements for Smotrich to extend corresponding banking deal

The US has concluded that the Palestinian Authority has met the requirements laid out by Israel for Jerusalem to extend indemnification needed to allow Israeli banks to continue conducting transactions with Palestinian banks, according to a US official familiar with the matter.

The recognition from the US is aimed at pushing the Israeli government to extend the corresponding banking agreement with the Palestinians for at least another year in order to avert an economic crisis in the West Bank.

The agreement is set to expire on October 31, after Finance Minister Bezalel Smotrich agreed to extend it for only three months over the summer, despite US pressure for a much longer period. As the deadline approaches, the US has grown increasingly worried that Smotrich wouldn’t extend it further.

In recent months, Smotrich’s office informed the PA Finance Ministry and the Biden administration that Israel would be willing to further extend the corresponding banking agreement if the PA conducted a risk assessment of its financial system and if a similar review by the Middle East and North Africa Financial Action Task Force was scheduled.

The Treasury Department notes in a readout on a rare phone call held earlier today between US Deputy Treasury Secretary Wally Adeyemo and PA Prime Minister Mohammad Mustafa that the PA has met both of those requirements.

Adeyemo noted the PA’s progress on the issue, including completing key milestones for assessing risks within its jurisdiction and bolstering effective compliance with international standards, the US readout says.

“They discussed the importance of the correspondent banking relationships between Israeli and Palestinian banks to the security and economic stability of the region,” the readout notes.

Adeyemo “stressed the importance of preventing terrorists and violent extremists” from raising, using, and moving funds in the West Bank, the Treasury readout adds, apparently referring to US sanctions against settler extremists.

Reuters contributed to this report.