ISRAEL'S NSC SUPPORTS MINIMUM MONTHLY CASH FOR

S E C R E T TEL AVIV 002859

SIPDIS

NEA/IPA
TREASURY FOR GLASER, D. AND KIMMIT, R.
NSC FOR MICHAEL PASCUAL

E.O. 12958: DECL: 12/04/2018
TAGS: EFIN KNNP KTFN KPAL PTER PREL IS
SUBJECT: ISRAEL'S NSC SUPPORTS MINIMUM MONTHLY CASH FOR
GAZA; WANTS USG HELP TO SELL THE IDEA

REF: A. JERUSALEM 2274

B. TEL AVIV 2713

C. TEL AVIV 2603

D. TEL AVIV 2447

Classified By: Amb. James Cunningham for reasons 1.4(b) and (d)

**THIS IS A CORRECTED COPY AMMENDING TEL AVIV 2858 TO INCLUDE
REFTELS**

1.(S) SUMMARY: In a meeting with Emboffs on December 17,
Ehud "Udi" Levi, National Security Council (NSC)
Counterterrorism Finance Bureau Director, expressed interest
in pursuing a GOI commitment to allow a monthly transfer of
shekel bank notes from the West Bank headquarters of
Palestinian banks to their Gaza branches. The preliminary
figure under consideration by Levi's team of analysts for
monthly transfer is NIS 40 million, a minimum figure the NSC
estimates will keep the banking system in Gaza from
collapsing. Levi said he had the support of the Bank of
Israel and some others in the GOI's security establishment
who worried that the cash transfer issue would become
increasingly politicized in the run-up to Israel's elections.
However, Levi said it would be helpful if the USG were to
weigh in (he suggested a phone call from DepSec Kimmitt to
Stanley Fischer) supporting the idea. Corroborating the
urgency of this request, Econcouns was told by an MFA
official on December 18 that the study group Foreign Minister
Livni had ordered to explore legal means of ending Israel's
Oslo obligations to the Gaza banking system would complete
its work in 2-3 weeks. END SUMMARY.

2.(S) RECOMMENDATION AND ACTION REQUEST : We believe that
getting the GOI to agree to a fixed monthly influx of funds
to Gaza will establish a basis for preventing growing
politicization of the issue. The amount should be agreed
between PA and GOI banking experts based on the minimum
amount necessary to ensure a functioning formal banking
sector in Gaza. Considering the current political situation
and the vociferous opposition to allowing any funds into Gaza
by many in the Israeli political establishment and public,
and growing tensions with Hamas, we believe that pursuing an
agreement that provides at least some minimum cash into Gaza
each month is the most prudent way to provide assurance to
the PA and the Palestinian banks that they will have
sufficient funds to do business. Expression of USG support
to key officials in the GOI could help determine the argument
within the GOI. END RECOMMENDATION AND ACTION REQUEST.

3.(S) Emboffs met with Israeli NSC Counterterrorism Finance
Director Udi Levi on December 17 to discuss GOI efforts to
establish a minimum monthly cash transfer to Gaza banks. Levi
agreed that a complete collapse of the banking system would
not serve Israel's security interests, but warned that
shekels entering Gaza were being funneled to Hamas in large
quantities through various methods. Therefore, said Levi,
allowing too much into the territory would have negative
consequences that far outweighed the positive ones. He said
that money was being taken by Hamas from armored trucks
arriving from Israeli border crossings before being delivered
to banks. Furthermore, Levi continued, Hamas had initiated a
program of draining Gazan bank branches of their reserves by
demanding that its operatives withdraw as such cash as
possible from their accounts. Levi contended that the PA's
list of 77,000 civil servants, which had grown from around
35,000 a couple of years ago, was grossly inaccurate; he said
that many of these salaries were being paid to Hamas
supporters. Levi also mentioned that the new Hamas-operated
bank in Gaza, even if illegal under the PA, would benefit
from any additional liquidity available in the territory (see
reftel "A"). Consistent with other reports on the matter,
Levi claimed that Gaza remained flush with cash. The NSC
estimates that only a "few dozen" million NIS have flowed out
of the territory since Hamas took control, but the GOI has
calculated that it has permitted approximately NIS 1.7
billion to enter since that time.

4.(S) Econcouns made the point that failing to keep the
legitimate banks afloat would force Gaza into a cash economy
that would escape regulation and from which only Hamas would
benefit. Econcouns also informed Levi that a bank collapse
in Gaza could have a disastrous ripple effect on bank
confidence and solvency in the West Bank. This would
complicate PM Fayyad,s efforts to fight corruption by
building confidence in direct deposit of salaries. It could
also allow Hamas to claw back some of the ground they have

lost to aggressive PA security force efforts to take down
Hamas' 'charitable' institutions in the West Bank. Levi
concurred, adding that GOI intelligence and security services
generally shared this opinion. However, key opponents within
the government including MFA and MOD officials have hindered
efforts to develop a regular, monthly transfer of NIS to
Gaza. Drawing on the example of this month's last-minute
approval of the transfer of NIS 100 million, Levi
acknowledged that politicians and others in the public eye
are influenced by the highly negative public reaction within
Israel to funding Gaza. He said that USG outreach to
important GOI officials would be vital to convince opponents
in the GOI of the plan's merit.

5.(S) In a conversation on December 18 with MFA Deputy DG for
Economics Irit Ben Abba, Econcouns learned that Tzipi Livni,
who opposes any cash transfers to Gaza, has asked the DG at
the MFA to determine if the GOI has a legal means of revoking
its recognition of the PMA as it applies to Gaza. Doing so
would permit the BOI to terminate its obligations to the Gaza
banking sector. Ben Abba told Econcouns that the group would
present its determination within the next 2-3 weeks.

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