Israel: Withholding tax revenue and revoking banking waivers could paralyse Palestinian economy, UN experts warn

GENEVA (25 April 2024) — Unilaterally cutting off Palestinian banks from the global banking system would be a violation of the fundamental principles of international law, two UN experts* warned today, after an Israeli Minister threatened to revoke a protection waiver issued annually to two banks in Israel that maintain connections to Palestinian financial institutions.

“Cutting off Palestinian banks from the global banking system unilaterally also violates the principle of sovereign equality of states, the principle of non-intervention into the domestic affairs of states, the principle of cooperation in good faith,” the experts said.

“The impossibility of bank transfers will affect all people of Palestine indiscriminately, exacerbate the ongoing humanitarian catastrophe, and affect all fundamental human rights, including the right to food, right to water and sanitation, right to health, freedom from torture and the right to life.”

The waiver, issued annually and signed by the Israeli Finance minister, protects Israeli banks from lawsuits involving the Palestinian Authority for ‘transferring funds to terror groups’. Without this protection, Israeli banks will be exposed to legal action, and can be expected to break ties with Palestinian banks. The waiver expired on 1 April 2024.

The Palestinian economy runs on the Israeli shekel and its financial dealings with the rest of the world must go through the Israeli banking system.

Isolating the Palestinian authority from the financial world will cripple the Palestinian economy, the experts warned, recalling that the protection waivers guaranteed under the Oslo and Paris Accords.

Since the 1990s peace accords, Israel has also collected tax revenue on behalf of Palestinians and transferred the funds to the Palestinian authority. A large portion of these funds is used for wage payments. Since 24 January 2024, the monthly tax revenue previously allocated to the Palestinian Authority’s public sector employees in Gaza has been transferred to a Norwegian-based trust account. However, the Norwegian fund cannot release the money to pay public sector employees in Gaza without Israel’s permission.

“Because a significant proportion of taxes in the Palestinian Authority’s budget collected by Israel, the Palestinian Authority is vulnerable to unilateral suspensions by Israel of transfers of clearance revenue, qualifying as unilateral coercive measures contrary to international law” the experts said.

The experts have established communication channels with the Israeli Government to address these concerns. They called for interim measures to prevent irreparable harm and potential breaches of international law.