US official: PA has met Israeli requirements for Smotrich to extend banking deal
Far-right minister has until October 31 to approve deal allowing Israeli, Palestinian banks to work together; US warns failure to do so could lead to West Bank economic crisis
Jacob Magid is The Times of Israel's US bureau chief
The US has concluded that the Palestinian Authority has met the requirements laid out by Israel for extending indemnification needed to allow Israeli banks to continue conducting transactions with Palestinian banks, a US official familiar with the matter told the Times of Israel on Monday.
The recognition from the US is aimed at pushing the Israeli government to extend the framework, known as the corresponding banking agreement, with the Palestinians for at least another year.
The US has said that failure to approve the waiver allowing Israeli banks to conduct transactions with their Palestinian counterparts risks an economic crisis in the West Bank and the collapse of the Palestinian Authority.
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 won’t agree to 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.
Israel wants proof showing that PA-regulated banks comply with international statutes regarding counter-terrorism and anti-money laundering
The Palestinian economy relies heavily on the banks’ relationships with their Israeli counterparts to process transactions made in shekels, as the PA does not have its own currency. Some 53 billion shekels ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.
And US officials have warned that failure to maintain banking relations between Israel and the Palestinians would turn the West Bank into a “cash economy,” which would benefit terrorist organizations in the territory and make it harder for the already-weakened PA to fight such groups.
The Treasury Department noted in a readout on a rare phone call held earlier Monday between US Deputy Treasury Secretary Wally Adeyemo and PA Prime Minister Mohammad Mustafa that the PA has met both of the requirements laid out by Israel.
Adeyemo noted the PA’s progress, including completing key milestones for assessing risks within its jurisdiction and bolstering effective compliance with international standards, the US readout said.
“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 noted.
Adeyemo “stressed the importance of preventing terrorists and violent extremists” from raising, using, and moving funds in the West Bank, the Treasury readout added, apparently referring to US sanctions against settler extremists.
Ahead of the last waiver extension, Smotrich, the far-right leader of the pro-settlement Religious Zionism party, only agreed to extend the deal for four months, instead of the customary one year.
And that only happened after significant prodding from Washington and an apparent quid pro quo agreement that saw Prime Minister Benjamin Netanyahu’s government legalize five wildcat outposts in the West Bank, advance plans for thousands of new settlement homes, and approve a series of punitive measures against the PA.
As the new deadline approaches, US officials have expressed concern that Smotrich will try to find new reasons to justify punitive measures against the PA.
The US has considered sanctioning Smotrich over his policies but has held off on the drastic step.
Reuters contributed to this report.
