NEW TAKE ON BUILDING ISRAELI-PALESTINIAN BANKING

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001471

SIPDIS

TREASURY FOR DAN MOGER AND STEPHANIE AHERN, NEA/IPA FOR
ANDREW LENTZ

E.O. 12958: DECL: 07/07/2016
TAGS: EAID EFIN PREL KPAL IS
SUBJECT: NEW TAKE ON BUILDING ISRAELI-PALESTINIAN BANKING
TIES

REF: A. TEL AVIV 01237

B. TEL AVIV 01273

C. TEL AVIV 01306

Classified By: Economic Counselor David R. Burnett; reasons 1.4 b/d


1. (SBU) Irit Roth, Director of Country Legal Counsel and
Compliance Division Head for Citi Israel, described
operational difficulties as the main impediment to increased
business between Israeli and Palestinian private banks in a
meeting with EconOff on 6 July. While echoing some of the
AML/CFT concerns voiced by other Israelis (Refs A, B, C),
Roth said that the lack of standardization was of greater
concern. Examples of this include different reporting
requirements by ISRAEL and the PA for suspicious activity,
and language barriers. She suggested the GOI and PA work
together to harmonize reporting requirements, and that
Palestinian banks operate more often in English, where
possible.


2. (C) Roth viewed Citi ISRAEL and other international banks
as more open-minded about doing business with the Palestinian
banks than domestic Israeli banks, given the former's
international scope. However, she noted that Citi ISRAEL is
still subject to the same regulations and public constraints
as domestic banks here in Israel. Roth said that while she
had "no doubt" about the AML/CFT regimes of the large
Palestinian banks, she was concerned about the capabilities
of the smaller banks not represented at the joint meeting
(Ref A). She also expressed doubt about the ability of
Palestinians to regulate in Gaza. In contrast to previous
reporting (Ref A),Roth was under the impression that some of
the Palestinian banks do utilize the Israeli designation list
and mentioned the willingness of others to begin doing so.
She said that the Israeli list was of limited utility since
it currently only includes designated groups and not
individuals, but noted that its use by Palestinian banks
could be a straightforward confidence building measure.
(NOTE: The GOI is currently first designating groups
previously designated by the UN and the U.S., to be followed
by UN/U.S.-designated individuals. END NOTE).


3. (SBU) Roth said that Israeli private banks would not be
the answer to the Palestinian surplus cash problem. She said
that the Palestinians must develop a mechanism whereby
private banks can deposit their surplus cash with the PMA,
much in the same way that Israeli private banks deposit
theirs with the Bank of ISRAEL and earn interest. Roth
highly doubted any Israeli private bank would accept
Palestinian surplus cash, given the lack of utility and
precedent. She did, however, see other opportunities for
increased relationships between private Israeli and
Palestinian banks, mentioning that any further collaboration
would be driven by business decisions. To this end, she
suggested Palestinian banks hosting a meeting to present
business opportunities for the Israeli private banks. This
meeting could discuss, for example, financing of large
building and infrastructure projects or providing financial
services. She thought that Israeli banks would be interested
in such projects due to the low risk because of international
guarantees to the PA. Roth emphasized that bolstering
relationships with Palestinian banks would be solely a
business decision; she said basic cash and correspondent
services were just not profitable.


4. (C) Comment: Roth's suggestions for approaches to bolster
Israeli-Palestinian banking relationships provide an
interesting--and less political--take on the subject than
previous reporting. If private banking relationships are
developed between Israeli and Palestinian banks on projects
financially beneficial to the Israeli banks, perhaps some of
the more basic (and less profitable) services the
Palestinians banks require could follow. Given the emphasis
on business decisions, encouraging cooperation on such
ventures could provide a better segue into building banking
ties than with merely cash deposit or basic correspondent
services. We believe that encouraging the GOI to work with
PA to tackle some of the standardization problems could both
build confidence as well as resolve some of the operational
difficulties Roth mentioned. We will continue to encourage
Israeli entities to work directly with their Palestinian
counterparts and seek differing viewpoints on how best to
move forward in building bilateral banking relationships.

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