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. 
 
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Summary 
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¶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. 
 
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Check Clearing - Not an Attractive Business 
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¶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. 
 
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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. 
 
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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. 
 
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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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