PALESTINIAN BANKS CEASE TRANSACTIONS WITH THE PA

C O N F I D E N T I A L JERUSALEM 002471

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/GREENE/WATERS/WAECHTER; NSC FOR
ABRAMS/DORAN/LOGERFO; TREASURY FOR NUGENT/ADKINS

E.O. 12958: DECL: 06/08/2016
TAGS: EFIN PREL KTFN KWBG
SUBJECT: PALESTINIAN BANKS CEASE TRANSACTIONS WITH THE PA
AND FTO-RELATED LEGISLATORS

REF: A. JERUSALEM 2245

B. GMP20060612748003 1517 GMT 11 JUN 06

Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d).


1. (C) Summary: Palestinian Monetary Authority (PMA)
Governor Abed stressed recently that local banks are not
transacting with the Palestinian Authority (PA) government,
in observance of the Treasury Department Office of Foreign
Asset Control regulations. He noted that they are not
accepting international transfers on behalf of the PA; not
paying PA salaries from their own funds; refusing bulk cash
deposits without proof of credible origin; and closing
personal bank accounts held by FTO-affiliated Palestinian
Legislative Council (PLC) members. The IMF ResRep confirmed
that local banks were not even "talking" to the PA ministries
so the Finance Ministry does not have updated information on
its commercial bank accounts. Abed termed the banks' actions
"heroic" but noted that the stress could cause some
foreign-headquartered banks to give up and leave. End
summary.

Banks are following OFAC regs
--------------


2. (C) PMA Governor George Abed told EconOffs and USAID
Deputy Director June 8 that the PMA had circulated to
commercial banks the Treasury Department's OFAC regulations
on transactions with the PA. He noted that the banks'
resolve to follow the spirit of the regulations, though they
are not "U.S. persons," had been stiffened early on when
their European correspondent banks warned of possible
negative consequences should they accept transfers on behalf
of the PA. He told EconChief June 13 that the PMA was
encouraging the banks to meet the strict requirements of the
OFAC regulations and had told the banks that it is their
responsibility if a problem develops from their lack of
adherence to the OFAC regulations.

Banks not transacting with PA
--------------


3. (C) Abed stressed that local commercial banks are under
intense pressure by the PA to pay salaries, even from banks'
own funds, in fulfillment of PM Haniyah's salary payment plan
(ref A). With the exception of the Bank of Palestine (BoP)
-- which claims to have used PA domestic revenues accumulated
in a PA account held at the BoP -- the other banks have held
firm in neither accepting PA transfers nor paying salaries,
according to Abed. Abed said he told local banks that they
would be "getting close to the line" of transacting with the
PA if they complied with Haniyah's salary payment plan. IMF
Resident Representative Joel Toujas told EconChief June 9
that local commercial banks are no longer even "talking" to
PA ministries, so the Finance Ministry could not confirm the
level of domestic revenue collected by banks on its behalf.

Not accepting bulk cash deposits
--------------


4. (C) Abed also noted that all of the banks had agreed not
to accept large bulk cash deposits, such as the sums valued
in the hundred of thousands of dollars and millions of euros
reportedly brought through the Rafah crossing by Hamas
officials in May and June. (Note: Abed is still gathering
the details of these events but said he would share his
findings with EconChief. End note.) He noted that one bank
branch in Gaza, not the Bank of Palestine, had originally
accepted such a deposit and then had reversed its decision.
Banks would now only accept bulk cash deposits if the
customer is known to them and the funds could be traced to a
legitimate commercial transaction.

Closing down personal accounts of
Hamas legislators
--------------


5. (C) Abed confirmed to EconChief June 13 that local banks
are also closing down the accounts of those Palestinian
Legislation Council (PLC) members who were elected on the
party slate of a foreign terrorist organization, per OFAC
General License 4(b). He confirmed that Cairo-Amman Bank had
asked Hamas PLC member and PA Housing and Public Works
Minister 'Abd al-Rahman Zaydan to draw down to a zero balance
his Cairo-Amman Bank account (which only had several thousand

dollars equivalent in it) and had refused to accept any
deposits or transfers to his account. Abed further confirmed
that all of the banks operating in the West Bank and Gaza are
taking these steps, given their anti-money
laundering/countering terrorist financing (AML/CTF) concerns.
Abed said that Arab Bank had closed down 17 such accounts of
PLC members.

PMA: Banks acting heroically
--------------


6. (C) Abed praised the commercial banks' adherence to
international banking standards and best practices and their
refusal to accept transfers or pay salaries on the PA's
behalf. Abed offered different examples of the current PA
government's campaign to pillory the banks and blame them for
the economic crisis. Under exceptionally difficult
circumstances, he said, the banks have "acted heroically" in
continuing to maintain the international standards expected
of them. However, he did note that some banks, especially
those headquartered overseas, "may just give up and close."
Palestinian bankers had told USAIDOffs and EconOffs June 7
that they are feeling the negative press attention, given the
PA government's criticism that the banks are part of the
"siege" on the Palestinian government and people.
WALLES