Inside Israel’s plan to force Biden to drop settlement sanctions

The Israeli government is preparing to take steps to dramatically curb financial interactions between Israeli and Palestinian Authority banks, a move eyed as a response against the Biden administration’s decision to sanction two Israeli towns in Judea and Samaria, according to a new report Thursday.

According to Axios, the Biden administration is planning to impose new sanctions as early as Thursday on two Jewish outpost communities in Samaria linked to alleged attacks on Palestinian Arabs.

The sanctions will also target three Israelis living in the area, said the report, citing three U.S. officials, and would include freezing of assets, entry bans to the U.S., and loss of access to the U.S. financial system.

On Thursday, Israel Hayom reported that the Israeli Finance Ministry, under Finance Minister Bezalel Smotrich (Religious Zionist Party) is planning to respond to the Biden administration’s sanctions with punitive measures against the Palestinian Authority.

The steps being considering by Smotrich include ending the broad exemption granted to Israeli banks which conduct business with Palestinian Authority financial entities from liability for any terrorist funding carried out by PA banks.

The exemption is extended on a regular basis, and the Finance Minister need only withhold his signature to end it.

Such a move would likely force Israeli banks to cease their business ties with PA banks, for fear of being targeted either in civil or criminal proceedings over any terrorist funding conducted by the PA banks they do business with.

Given the extent to which Palestinian banks rely on their financial ties to their Israeli counterparts, ending the exemption could cause serious damage to the Palestinian Authority economy.

The U.S. itself has hitherto refrained from forming closer ties to Palestinian financial institutions, given their links to terrorist entities – links which could create legal barriers to the U.S. directly involving itself with Palestinian banks.

Sources close to Smotrich said that the Palestinian Authority is creating risks for Israeli banks, and the Finance Minister is no longer willing to shield banks from those risks.

According to Thursday’s report, the Finance Ministry believes that faced with the potential collapse of the P.A. banking system, the Biden administration will ultimately agree to turn a blind eye to the unfreezing of the Israeli accounts of the seven Israelis targeted by the new U.S. sanctions.

In addition to the three Israeli nations set to be sanctioned Thursday, four others were sanctioned in February for alleged harassment of and attacks against Palestinian Arabs.