Identifier
Created
Classification
Origin
08TELAVIV1508
2008-07-11 13:47:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:
ISRAELI BANK DETERMINED TO CUT GAZA BANKING TIES
how-toVZCZCXRO4981 OO RUEHROV DE RUEHTV #1508/01 1931347 ZNY CCCCC ZZH O 111347Z JUL 08 FM AMEMBASSY TEL AVIV TO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE RHEHNSC/NSC WASHDC IMMEDIATE RUEHC/SECSTATE WASHDC IMMEDIATE 7499 INFO RUEHXK/ARAB ISRAELI COLLECTIVE IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001508
SIPDIS
E.O. 12958: DECL: 07/10/2018
TAGS: ECON PREL KWBG IS
SUBJECT: ISRAELI BANK DETERMINED TO CUT GAZA BANKING TIES
Classified By: Economic Counselor William Weinstein for reasons 1.4 b a
nd d.
-------
Summary
-------
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001508
SIPDIS
E.O. 12958: DECL: 07/10/2018
TAGS: ECON PREL KWBG IS
SUBJECT: ISRAELI BANK DETERMINED TO CUT GAZA BANKING TIES
Classified By: Economic Counselor William Weinstein for reasons 1.4 b a
nd d.
--------------
Summary
--------------
1. (C) Bank Hapoalim (BH) informed the Bank of Palestine
(BOP) in a July 6 letter that it will no longer provide it
with cash transfer services. The decision was made
independent of any consultation with or approval by the GOI
or the Bank of Israel (BOI) and was triggered by a BOP
request for a NIS 25 million transfer in early July. BH's
action was in line with its long-standing desire to exit the
Gaza business due to the minimal profits it generated
compared to the high risk it entailed of being accused of
involvement in terror finance. This risk was intensified
after the Hamas takeover of Gaza and the consequent GOI
classification of Gaza as a "hostile entity," and was made
concrete when the Arab Bank brought a lawsuit against BH last
year accusing it of involvement in terror finance. The BOI
is still working to convince the Israel Postal Bank (IPB) to
take over the Israeli-Palestinian banking relationship.
However, the head of IPB is leaving and the resulting
bureaucratic shakeup will likely result in a delay in the
negotiations. The BOI has not yet formulated its reaction to
BH's action, and will hold intensive discussions on the issue
next week. Regardless, the BOI states unequivocally that it
agrees with the GOI policy that maintaining the
Israeli-Palestinian banking relationship is in Israel's
interest.
--------------
BH Want Out of Gaza
--------------
2. (C) Boaz Raday, Head of Government Affairs at BH, told
Dep EconCouns on July 10 that his bank has long been
determined to end its business relationship with Gazan banks.
He said that the BH letter of July 6 to the Bank of
Palestine BOP stating that BH was ending its cash transfer
services was triggered by BOP's early-July request for a cash
transfer of NIS 25 million. Raday said that BH had provided
this service in the past but that the bank's management was
extremely unhappy about the negative publicity that it had
received for doing so. According to Raday, the press
reported the story as if BH were funneling money to Gaza that
would eventually end up in the hands of Hamas, without
mentioning the "high-level GOI clearances the bank had
received from agencies such as the Anti Money-Laundering
Authority" before it agreed to transfer the cash. That
experience, together with BH's long-time desire to cut its
ties to Gazan banks prompted the decision to send the July 6
letter ending cash transfer services in response to the BOP's
request for the cash transfer. Also on July 10, David Zaken
of the BOI's Banking Supervision Department told Dep
EconCouns that the BOI has not yet formulated a reaction to
BH's letter and had not yet directly contacted the bank,
confirming Raday's earlier statement that BH had not yet
heard any reaction from the BOI. Zaken stated unequivocally
that the BOI agrees with the GOI position that it is in
Israel's interest that Israeli banks continue to provide all
necessary services to Palestinian banks in Gaza, and that
there would be intensive discussions at the BOI next week on
how to proceed.
--------------
Large Risk Small Reward
--------------
3. (C) Raday explained that even before the Hamas takeover
of Gaza, the bank profited little from its Palestinian
correspondence and money transferring business, but incurred
great risks due to the possibility of being charged with
having links to terror finance. After a BH "campaign"
several years ago to pressure the GOI to indemnify it against
such potential charges, it was ultimately indemnified only
against criminal charges filed in Israel, leaving the bank
"completely exposed to all other types of lawsuits filed
anywhere in the world." When Hamas took over Gaza and the
GOI declared Gaza to be a "hostile entity," BH decided to
exit Gaza completely, as the risks associated with continuing
the Gaza business became truly unjustifiable from a business
standpoint. These risks assumed concrete form last year when
the Arab Bank filed a lawsuit against both BH and Israel
Discount Bank -- the other private Israeli bank providing
correspondent banking services to Palestinian banks --
accusing them of involvement in terror finance. Throughout
the conversation, Raday repeatedly stressed that BH has
enjoyed an excellent working relationship with the BOP
management, for which it has enormous respect. None of the
TEL AVIV 00001508 002 OF 002
actions BH was taking should be construed as being directed
specifically at the BOP or its personnel. It was a straight
risk-reward business decision.
--------------
BH Believes BOI Stringing it Along
--------------
4. (C) Raday claimed that BH would long ago have exited the
Gaza business if not for various machinations by the GOI to
force it to continue providing services. He did not go into
detail, but said that the GOI was using all sorts of
technical measures to prevent BH from acting on its threat to
sever its Gaza ties. With regard to the possibility of the
Israeli Postal Bank (IPB) providing banking services in place
of the private banks, Raday said that he had little faith in
the BOI's efforts to make this happen. He said that he had
been in constant contact with the BOI until about a month ago
regarding the IPB issue and heard "endless promises" about
how "just a few more things need to be worked out" in order
for the IPB to take over the business. He indicated that he
no longer believes that the BOI is serious in its effort to
convince the IPB to take over, and has not talked to the BOI
about the issue for the last month.
--------------
IPB Negotiations Temporarily Stuck
--------------
5. (C) When asked about the status of the IPB negotiations,
the BOI's Zaken said that the BOI is still working extremely
hard to overcome the hurdles preventing IPB from taking over
the business. However, the major hurdle now is the impending
departure of the IPB Chairman, which is preventing the
organization from taking on a major new commitment at this
time. Zaken noted that it would likely take some time for
the bureaucratic reshuffling at IPB to work itself out and
allow the negotiations to be successfully concluded. He also
noted that he has been in contact with the Palestinian
monetary chief, Jihad al-Wazir. He understands from Al-Wazir
that the Palestinians are under constant and extreme pressure
to figure out ways to get cash into Gaza and to deal with the
banking problems presented by the BH decision to sever ties
to Gaza. However, he added that "the Palestinians often
claim there's a cash crisis, but usually manage to figure out
a way to pay." He also said that Israel Discount Bank has
not followed BH's example so far and has not announced a
similar decision.
--------------
BOI Will Not Act as Commercial Bank
--------------
6. (C) Raday had proposed as an immediate solution to a
Palestinian cash crunch that the BH give the BOP a check
which it could present to the BOI for cash. However, when
asked about this possibility, Zaken said that the BOI could
not engage in such a transaction since it is not a commercial
bank. When pressed, he noted that while there are always
exceptional situations that might warrant one-time
extraordinary actions, what is really needed here is a
comprehensive solution to the problem.
********************************************* ********************
Visit Embassy Tel Aviv's Classified Website:
http://www.state.sgov.gov/p/nea/telaviv
You can also access this site through the State Department's
Classified SIPRNET website.
********************************************* ********************
JONES
SIPDIS
E.O. 12958: DECL: 07/10/2018
TAGS: ECON PREL KWBG IS
SUBJECT: ISRAELI BANK DETERMINED TO CUT GAZA BANKING TIES
Classified By: Economic Counselor William Weinstein for reasons 1.4 b a
nd d.
--------------
Summary
--------------
1. (C) Bank Hapoalim (BH) informed the Bank of Palestine
(BOP) in a July 6 letter that it will no longer provide it
with cash transfer services. The decision was made
independent of any consultation with or approval by the GOI
or the Bank of Israel (BOI) and was triggered by a BOP
request for a NIS 25 million transfer in early July. BH's
action was in line with its long-standing desire to exit the
Gaza business due to the minimal profits it generated
compared to the high risk it entailed of being accused of
involvement in terror finance. This risk was intensified
after the Hamas takeover of Gaza and the consequent GOI
classification of Gaza as a "hostile entity," and was made
concrete when the Arab Bank brought a lawsuit against BH last
year accusing it of involvement in terror finance. The BOI
is still working to convince the Israel Postal Bank (IPB) to
take over the Israeli-Palestinian banking relationship.
However, the head of IPB is leaving and the resulting
bureaucratic shakeup will likely result in a delay in the
negotiations. The BOI has not yet formulated its reaction to
BH's action, and will hold intensive discussions on the issue
next week. Regardless, the BOI states unequivocally that it
agrees with the GOI policy that maintaining the
Israeli-Palestinian banking relationship is in Israel's
interest.
--------------
BH Want Out of Gaza
--------------
2. (C) Boaz Raday, Head of Government Affairs at BH, told
Dep EconCouns on July 10 that his bank has long been
determined to end its business relationship with Gazan banks.
He said that the BH letter of July 6 to the Bank of
Palestine BOP stating that BH was ending its cash transfer
services was triggered by BOP's early-July request for a cash
transfer of NIS 25 million. Raday said that BH had provided
this service in the past but that the bank's management was
extremely unhappy about the negative publicity that it had
received for doing so. According to Raday, the press
reported the story as if BH were funneling money to Gaza that
would eventually end up in the hands of Hamas, without
mentioning the "high-level GOI clearances the bank had
received from agencies such as the Anti Money-Laundering
Authority" before it agreed to transfer the cash. That
experience, together with BH's long-time desire to cut its
ties to Gazan banks prompted the decision to send the July 6
letter ending cash transfer services in response to the BOP's
request for the cash transfer. Also on July 10, David Zaken
of the BOI's Banking Supervision Department told Dep
EconCouns that the BOI has not yet formulated a reaction to
BH's letter and had not yet directly contacted the bank,
confirming Raday's earlier statement that BH had not yet
heard any reaction from the BOI. Zaken stated unequivocally
that the BOI agrees with the GOI position that it is in
Israel's interest that Israeli banks continue to provide all
necessary services to Palestinian banks in Gaza, and that
there would be intensive discussions at the BOI next week on
how to proceed.
--------------
Large Risk Small Reward
--------------
3. (C) Raday explained that even before the Hamas takeover
of Gaza, the bank profited little from its Palestinian
correspondence and money transferring business, but incurred
great risks due to the possibility of being charged with
having links to terror finance. After a BH "campaign"
several years ago to pressure the GOI to indemnify it against
such potential charges, it was ultimately indemnified only
against criminal charges filed in Israel, leaving the bank
"completely exposed to all other types of lawsuits filed
anywhere in the world." When Hamas took over Gaza and the
GOI declared Gaza to be a "hostile entity," BH decided to
exit Gaza completely, as the risks associated with continuing
the Gaza business became truly unjustifiable from a business
standpoint. These risks assumed concrete form last year when
the Arab Bank filed a lawsuit against both BH and Israel
Discount Bank -- the other private Israeli bank providing
correspondent banking services to Palestinian banks --
accusing them of involvement in terror finance. Throughout
the conversation, Raday repeatedly stressed that BH has
enjoyed an excellent working relationship with the BOP
management, for which it has enormous respect. None of the
TEL AVIV 00001508 002 OF 002
actions BH was taking should be construed as being directed
specifically at the BOP or its personnel. It was a straight
risk-reward business decision.
--------------
BH Believes BOI Stringing it Along
--------------
4. (C) Raday claimed that BH would long ago have exited the
Gaza business if not for various machinations by the GOI to
force it to continue providing services. He did not go into
detail, but said that the GOI was using all sorts of
technical measures to prevent BH from acting on its threat to
sever its Gaza ties. With regard to the possibility of the
Israeli Postal Bank (IPB) providing banking services in place
of the private banks, Raday said that he had little faith in
the BOI's efforts to make this happen. He said that he had
been in constant contact with the BOI until about a month ago
regarding the IPB issue and heard "endless promises" about
how "just a few more things need to be worked out" in order
for the IPB to take over the business. He indicated that he
no longer believes that the BOI is serious in its effort to
convince the IPB to take over, and has not talked to the BOI
about the issue for the last month.
--------------
IPB Negotiations Temporarily Stuck
--------------
5. (C) When asked about the status of the IPB negotiations,
the BOI's Zaken said that the BOI is still working extremely
hard to overcome the hurdles preventing IPB from taking over
the business. However, the major hurdle now is the impending
departure of the IPB Chairman, which is preventing the
organization from taking on a major new commitment at this
time. Zaken noted that it would likely take some time for
the bureaucratic reshuffling at IPB to work itself out and
allow the negotiations to be successfully concluded. He also
noted that he has been in contact with the Palestinian
monetary chief, Jihad al-Wazir. He understands from Al-Wazir
that the Palestinians are under constant and extreme pressure
to figure out ways to get cash into Gaza and to deal with the
banking problems presented by the BH decision to sever ties
to Gaza. However, he added that "the Palestinians often
claim there's a cash crisis, but usually manage to figure out
a way to pay." He also said that Israel Discount Bank has
not followed BH's example so far and has not announced a
similar decision.
--------------
BOI Will Not Act as Commercial Bank
--------------
6. (C) Raday had proposed as an immediate solution to a
Palestinian cash crunch that the BH give the BOP a check
which it could present to the BOI for cash. However, when
asked about this possibility, Zaken said that the BOI could
not engage in such a transaction since it is not a commercial
bank. When pressed, he noted that while there are always
exceptional situations that might warrant one-time
extraordinary actions, what is really needed here is a
comprehensive solution to the problem.
********************************************* ********************
Visit Embassy Tel Aviv's Classified Website:
http://www.state.sgov.gov/p/nea/telaviv
You can also access this site through the State Department's
Classified SIPRNET website.
********************************************* ********************
JONES