UK Warns Banks of Sanctions Over E1 Settlement Construction

British Foreign Secretary Ed Miliband issued a warning to companies and developers on the final day for submitting bids for construction in the E1 area, located between Jerusalem and Ma'ale Adumim. Miliband stated that the UK now possesses new powers to impose sanctions on those involved in building settlements like E1, and the government will also target services that finance or facilitate such projects. While the announcement did not name specific banks, it explicitly mentioned financing. The tender, published by the Ministry of Construction and Housing in August, includes 1,234 housing units out of approximately 3,400 approved for the area in 2025. The tender committee is expected to review the bids within a month, after the upcoming Knesset elections, which could also impact bank and real estate stocks.

The E1 area has been a subject of dispute for over thirty years. Critics argue that construction there would sever East Jerusalem from the West Bank and divide the northern and southern parts of the West Bank. Israel, however, views it as a vital land reserve for Jerusalem's security and Ma'ale Adumim's growth. Petitions against the plan are still pending in the Jerusalem District Court. The E1 designation stands for East 1, and the area is known in Hebrew as Mitzpeh Adumim. It spans about 12 square kilometers within Ma'ale Adumim's jurisdiction, annexed by Yitzhak Rabin in 1994 without development. The master plan for the area was approved in 2002, but residential construction has been repeatedly postponed due to opposition from the US and European countries. The most prominent structure built in the area is the Judea and Samaria Police District headquarters, operational since 2008.

The new UK sanctions powers, effective last week, allow for sanctions against developers, companies, and financial institutions assisting settlement activities, with reasonable suspicion of involvement being sufficient. In September, 12 countries led by the UK announced measures against settlements, and London declared a separate regime prohibiting imports from settlements and providing financing, construction, and real estate services for their expansion, expected to take effect in six to nine months. The Office of Financial Sanctions Implementation (OFSI), a unit within the UK Treasury, enforces these sanctions. Assets of sanctioned individuals or companies in the UK are frozen, and British entities are prohibited from transferring funds to them. Violations can incur fines up to approximately $1.3 million or half the transaction value. Since mid-2022, OFSI can impose fines even without proving the violator's knowledge of the sanctions.

Israeli housing projects typically rely on bank financing and buyer guarantees, meaning the winning bidder for the E1 tender would likely require a bank. If a financing bank is deemed an assisting entity, it could risk its correspondent banking relationships with overseas banks, through which dollar and pound transfers occur. The Israeli Banks Association has already sought legal counsel on the matter. While mandatory legislation may take time, the immediate threat is that global financial institutions will intensify scrutiny of Israeli banks. A precedent exists: in 2024, after the US sanctioned four settlers, Bank Leumi and the Postal Bank froze their accounts. The Bank of Israel requires banks to establish policies for using foreign countries' sanction lists.

Israeli Foreign Minister Gideon Sa'ar rejected the warning, asserting that Israel's rights in the West Bank are not subject to London's approval and that Israel will not passively accept threats and sanctions from Britain. In response to the UK's September decision to ban imports from settlements, Israel announced the closure of the British Consulate in Jerusalem, later agreeing it would operate as a reduced representation.