Israeli Banks Fear International Sanctions Over Settlement Funding

Israeli banks are concerned about potential international sanctions targeting their financing of settlement projects in the occupied West Bank. A report by the Union of Banks in Israel warns that an upcoming British sanctions regime could include financial institutions involved directly or indirectly in settlement expansion. British Foreign Secretary Ed Miliband announced last month that the UK plans to broaden its sanctions to cover entities participating in or funding settlement construction, not just individuals involved in settler violence.

Following Miliband's announcement, representatives from the Union of Banks met with officials from the Israeli Ministry of Foreign Affairs, the Bank of Israel, and the Ministry of Strategic Affairs to voice their concerns. The Union of Banks is awaiting the draft legislation for the expanded sanctions, which is expected to take six to nine months to pass. Legal consultations suggest that if enacted as proposed, the sanctions could significantly impact financial institutions linked to settlement expansion.

Israeli banks also fear economic repercussions even before sanctions are formally implemented. The report highlights that declarations from Britain, France, and Canada, alongside support from other European nations for such measures, may prompt international financial firms to tighten policies on settlement-related transactions. This could lead to stricter due diligence on deals connected to settlements by foreign financial institutions seeking to mitigate legal and reputational risks.

Particular anxiety surrounds the E1 settlement plan between Jerusalem and Ma'ale Adumim, which is seen by many countries as a red line due to its potential to sever Palestinian geographical contiguity and undermine the possibility of a Palestinian state. Israel has launched three construction tenders for the E1 area, with bid deadlines approaching before the upcoming elections. The Israeli Attorney General's office has ordered a one-month postponement of the announcement of tender winners due to the election proximity, though the Israel Land Authority requested that bid submission deadlines remain unchanged.

Banks face a dilemma: funding companies involved in E1 tenders could trigger sanctions, while refusing to finance them before sanctions are clear would amount to self-sanctioning. A banking source told Haaretz that they need to exercise restraint for another month, hoping the situation resolves favorably after the elections. Banks have declined to comment on whether they will provide financing and guarantees for tender participants, stating that domestic and international politics are the primary drivers of the process.

The Bank of Israel shares these concerns and is in continuous contact with commercial banks to coordinate responses to potential sanctions and their impact. The central bank views the issue as primarily political and diplomatic but acknowledges its significant commercial implications. A Bank of Israel spokesperson stated that current discussions involve general declarations, and the scope of potential repercussions depends on these being translated into concrete actions. The Bank of Israel is in contact with commercial banks and will address any tangible developments, while emphasizing that governmental bodies must handle the political dimensions.