Israel Struggles to Establish Government Company for Palestinian Banking Amid Legal Risks

Israel is facing difficulties in establishing a government-owned company intended to provide banking services to the Palestinian Authority's banking system. The project, delayed since a 2017 cabinet decision, requires the Palestinian Authority to implement measures preventing terror financing and money laundering, which have yet to be fulfilled. Senior officials appointed to the company's board are reluctant to serve due to personal and legal risks linked to working with the Palestinian banking sector, which has been accused of involvement in terror financing and money laundering.

The situation has intensified after Bank Hapoalim and Discount Bank announced they would cease providing services to the Palestinian Authority, increasing pressure on Israel to create an alternative. The Palestinian Authority warns of an impending economic collapse, but Israel has not yet succeeded in launching the substitute company. A former board member explained in a closed discussion that he was only willing to serve until the system became operational, citing high exposure to private and international market risks despite the company’s government status.

The challenge escalated when Minister Bezalel Smotrich revealed intelligence findings about Palestinian banks' involvement in terror financing and money laundering, sharing this information with international entities. Meanwhile, the Palestinian Authority has not taken the necessary steps, leaving the company designed to resolve the banking crisis still unestablished.