HAPOALIM VP: BANK'S DECISION ON CORRESPONDENT

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002756 SIPDIS NSC FOR PREM KUMAR, TREASURY FOR DMOGER AND CKNOWLES, STATE FOR NEA/IPA AND SEMEP E.O. 12958: DECL: 12/22/2019 TAGS: EAID EFIN PREL KPAL IS SUBJECT: HAPOALIM VP: BANK'S DECISION ON CORRESPONDENT RELATIONS TO BE MADE SOON REF: 09 TEL AVIV 2379 Classified By: Ambassador James B. Cunningham; reasons 1.4 b/d ¶1. (U) This is an action cable (see para 7). ¶2. (C) Summary: Bank Hapoalim Executive Vice President Boaz Raday highlighted ongoing concerns about re-establishing correspondent banking relations with Palestinian banks in a 17 December meeting with Econoffs. Raday discussed an internal review that the Bank would be conducting within the coming months regarding these relations and suggested a letter from senior U.S. officials as the way in which the U.S. could best influence the Board of Directors' decision on the issue. End Summary. ¶3. (C) Raday outlined an ongoing internal review process regarding correspondent banking relations with Palestinian banks which would culminate in a paper presented to the Bank's Board of Directors in late January 2010. The paper would consist of a cost-benefit analysis of various decisions the Bank could make regarding these relations, including the restoration of full correspondent relations, maintenance of the status quo, and cessation of all relations. After discussion of the paper, Raday expects the Board to decide "once and for all" what type of relations the Bank wants to have with the Palestinians. ¶4. (C) Raday stressed that the cessation of all relations was a real possibility. He said that if it was up to the Bank, this would be the preferred course of action. The public relations risks from maintaining these relations, as well as several phone-calls from Noam Schalit (father of Gilad Schalit) encouraging the Bank to cut all ties with the Palestinians have weighed heavily on Hapoalim's Board. Even though the Bank has good personal and professional relationships with the Palestinian bankers, and understands that these banks are making significant progress with AML/CFT regulations and implementation, the possible financial incentives are just not great enough to outweigh the negatives, according to Raday. Due to past pressure from the Bank of Israel and the international community, the Board has chosen to maintain the status quo (providing some minor correspondent services, excluding cash services),and agreed to certain one-time deals to alleviate the Palestinians' situation (including the acceptance of excess shekels into Bank Hapoalim's account in the Bank of Israel--see reftel). However, Raday "doesn't know if there's a good chance" that even this level of cooperation will persist after the Board's decision. ¶5. (C) Raday noted that the international community cannot help Bank Hapoalim in "judging the risk" of re-establishing these relations, especially in regard to public relations, and stressed that efforts to do so would be counterproductive. He said that if the U.S. was serious about encouraging the re-establishment (and discouraging further back-sliding) of correspondent relations with Palestinian banks, it should make clear its interest to the Board of Directors. Raday thought that this could best be accomplished through separate letters from the Ambassador and Treasury Department U/S Stuart Levey to the chairman of the board, Yair Seroussi. Raday said these letters should underscore U.S. interest in correspondent relations by showing their importance to broader efforts to build Palestinian institutions in the context of U.S. foreign policy in the region. Raday said these two letters would highlight both the importance to U.S. national interests and USG confidence in the PMA/Palestinian banks handling of AML/CFT standards. Raday said that this letter should be sent before mid-January, in order to influence the Board's final decision. ¶6. (C) Raday said there was a possibility the Bank's Chief Risk Officer would like to discuss AML/CFT issues further with Embassy and ConGen's Treasury rep in preparation of the paper, and would let Post know in coming weeks. ¶7. (C) Action requested: Post requests guidance on sending a letter from the Ambassador to Bank Hapoalim's Chairman of the Board, Yair Seroussi, as discussed in para 4. We would suggest that the letter from the Ambassador focus on why correspondent banking is important to U.S. goals and policy efforts in the region. Post also seeks guidance as to U/S Levey's interest in signing a similar letter -- with very general language on USG assessments of Palestinian AML/CTF implementation -- and how these messages could best be TEL AVIV 00002756 002 OF 002 coordinated. CUNNINGHAM