Report: Smotrich’s Strategy to Cripple Palestinian Economy in Wake of U.S. Sanctions Unveiled

By Yoni Weiss

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

Yisrael Hayom reported that Smotrich is refusing to renew signing a document that provides the PA 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 Palestinian Authority’s economy relies on ties with Israel, this would mean an immediate freeze on economic activity in the PA.

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

The U.S. 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 Palestinian Authority 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 existence of the PA is very important to the administration for stability purposes in the region, so it has refrained from taking legal action against it.

Discount Bank and Bank Hapoalim have been asking the governments for years to cut ties with the Palestinian Authority due to the fear of being sued. To accommodate them, Israel has established a government correspondence company back in 2018. However, this company has also sought to sever ties with the PA and therefore has not been able to replace the Israeli banks in transacting with the PA.

As a band-aid solution, the government 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 administration’s actions against the settlements, Smotrich is unwilling to sign the renewal of the waiver.

Smotrich’s associates say that the Palestinian Authority poses risks to Israeli banks, and he is no longer willing to be the one providing protection for that. The minister expects that just as the Americans do not make claims against Israeli banks over ties with the PA, 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 allegedly collects on the PA’s behalf to PA 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, as stated, an immediate freeze on significant parts of economic activity in the PA. 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.