Identifier
Created
Classification
Origin
06TELAVIV1978
2006-05-19 15:43:00
SECRET
Embassy Tel Aviv
Cable title:  

ISRAELI PLAN FOR CONTINUED SHEKEL CHECK CLEARING

This record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 02 TEL AVIV 001978 

SIPDIS

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

E.O. 12958: DECL: 05/18/2016
TAGS: ECON EFIN EAID PGOV PREL IS KWBG KPAL ISRAELI PALESTINIAN AFFAIRS ECONOMY AND FINANCE
SUBJECT: ISRAELI PLAN FOR CONTINUED SHEKEL CHECK CLEARING
FOR PALESTINIAN BANKS

REF: TEL AVIV 1368

Classified By: Economic Counselor William Weinstein for reasons 1.4 b a
nd d.

-------
Summary
-------

S E C R E T SECTION 01 OF 02 TEL AVIV 001978

SIPDIS

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

E.O. 12958: DECL: 05/18/2016
TAGS: ECON EFIN EAID PGOV PREL IS KWBG KPAL ISRAELI PALESTINIAN AFFAIRS ECONOMY AND FINANCE
SUBJECT: ISRAELI PLAN FOR CONTINUED SHEKEL CHECK CLEARING
FOR PALESTINIAN BANKS

REF: TEL AVIV 1368

Classified By: Economic Counselor William Weinstein for reasons 1.4 b a
nd d.

--------------
Summary
--------------


1. (S) The Bank of Israel (BOI) and Ministry of Finance
(MOF) are developing a package of proposals to present to the
Israeli banks that handle shekel check clearing for
Palestinian Banks. The purpose is to convince the banks to
continue to provide the check-clearing services, which they
officially announced will end in July and August. The
package is designed to alleviate the concerns that the two
banks will be held criminally liable if a check they clear is
linked to terrorism under Israel's strict anti-terror finance
laws. The package includes new requirements for the
Palestinian correspondent banks requesting the check-clearing
services. It also frees the two Israeli banks from liability
if they can prove that they adhered to certain administrative
procedures, mainly checking the names on the checks against a
GOI list of suspicious individuals and organizations. The
Israelis are also requesting that the Treasury U/S for
Terrorism and Financial Intelligence make a public statement
indicating U.S. satisfaction with the Israeli requirements
and noting the low probability that any institution complying
with them would ever be prosecuted by U.S. law enforcement
authorities. End Summary.

--------------
Check Clearing - Not an Attractive Business
--------------


2. (S) In a meeting with the Deputy Economic Counselor, the
Head of Evaluations of the Bank Supervisors Office in the
BOI, David Zaken, explained the proposal to convince Bank
Hapoalim (BH) and Israel Discount Bank (IDB) to maintain
their shekel check-clearing services for Palestinian banks.
Both banks have officially notified the Palestinian banks

with which they do business that they will end the
relationships. BH will cease clearing checks on July 5, and
IDB on August 13. The banks took this action because the
check-clearing business is low margin and not very
profitable, and, in their view, does not warrant the risk of
being found liable of involvement in terror finance under
Israel's strict anti-terror finance laws (see reftel). In
addition, they fear the possibility of being sued by the
families of the victims of terrorist attacks.

--------------
Requirements for Banks
--------------


3. (S) Zaken listed the following requirements that
Palestinian banks must adhere to in order to be eligible to
have their shekel checks cleared by Israeli banks:

-- They may not accept any checks endorsed over to a third
party, i.e. the recipient of the funds represented by the
check must be the person whose name appears on the check.

-- As is the case with Israeli checks, Palestinian bank
checks must have the following printed clearly on the face of
the check: name of account holder, address, identification
number.

-- They must check the name of the check writer or recipient
against a list of names to be provided by the GOI and not do
business with anyone whose name appears on the list.

Zaken said that in discussions with BOI Governor Stanley
Fischer, Palestinian Monetary Authority Chairman George Abed
indicated a willingness to comply with these requirements.


4. (S) The GOI is also prepared to free BH and IDB from
criminal liability in the following circumstances:

-- For checks less than NIS 5000, the banks must comply with
their responsibility to compare the names on the checks to
the GOI list of names mentioned above.

-- For checks over NIS 5000, the proposal still needs some
clarification. However, the BOI, in cooperation with the
Ministry of Finance, seems to be developing a type of blanket
administrative order to the banks "ordering" them to clear
checks for more than NIS 5000. If they report any suspicious
names to the Israel Money Laundering and Terror Financing
Prohibition Authority (IMPA),they will not be held
criminally liable for any connection the funds might have to
terror finance.


5. (S) The banks are also demanding not to be held liable
for any check not directly written or received by one of
their customers. For example, if a Palestinian buys
something from an Israeli who is a customer of Mizrahi Bank
and gives him a shekel check written on his Palestinian bank,
the Mizrahi customer will deposit it in Mizrahi, which will
send it to BH or IDB for clearing. BH and IDB want Mizrahi
Bank to bear any liability that may arise as a result of the
funds represented by that check, and to be freed from any
liability themselves. They are only willing to assume
responsibility for a check written by or to one of their own
customers. Zaken said that the GOI is likely to agree, but
has not yet notified the banks of this.

--------------
Statement from U.S. Treasury U/S Would Help
--------------


6. (S) In addition, the Ministry of Justice is being asked
to issue a statement saying that not all Palestinian entities
should be considered to be terror-supporting, and that there
should be no hesitation to work with those which do not
support terror. Finally, Zaken asked that the U.S. Treasury
Department issue a public statement -- as U/S Levey said he
would consider doing in an earlier meeting with Fischer. The
purpose of the statement would be to raise the "comfort
level" of BH and IDB by explaining that the USG is satisfied
with the efforts of the GOI and the Israeli banks to combat
terrorist financing, and the banks are therefore unlikely to
be held liable by the USG for involvement in such activities.

-------------- --
The Issue Puts Everyone in a Difficult Position
-------------- --


7. (S) Zaken said that in preliminary discussions, the banks
have not given the proposed package of measures a very warm
reception. He explained that the GOI understands that the
bank managers have a fiduciary responsibility to act in the
interests of shareholders, and that it might be difficult for
them to explain why it is wise for the bank to remain in a
low-profit business that exposes it to major risk. Zaken
noted that the banks may get some unspecified future
concessions from the GOI on an unrelated issue if they agree
to serve the national interest by continuing the
check-clearing service. He expressed great discomfort at the
BOI being involved in these negotiations at all, noting the
conflict of interest inherent in trying to get such a major
"favor" from those whom the BOI supervises and regulates.

--------------
Banks Will Accept - Reluctantly
--------------


8. (S) When asked directly whether or not the banks will
accept the package, Zaken said he thought they would. The
major problem is that none of the proposals deals with the
issues that would arise if a family member of the victim of a
terrorist attack decides to sue one of the banks. Zaken said
that no government can indemnify a bank against a private
lawsuit. When pushed, he said he thought that the banks
would reluctantly be willing to live with that. The package
will be finalized the week of May 22, at which point it will
be translated into English and sent to the Embassy. Zaken
will also contact Treasury then to discuss a possible public
statement. He noted that he understood how important it is
to move quickly to resolve the issue well before the BH
deadline of July 5. He also said that the proposals he
described are not yet finalized, and are subject to change.


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