AML / CFT: Isreal to release Palestinian tax funds: sanctions remain in place

Because Israel has destroyed the airport in Palestine and it controls the airspace above and around Palestine, all air freight for Palestine first lands in Israel. Israel then decided whether it will be allowed into Palestine (hence the recent series of high-profile shipping moves to break Israel's blockade of the sea-ways, too) and it collects taxes.

Israel is supposed to pass the taxes onto the Palestinians but, after HAMAS won an election, Israel argued that to hand over the money to Palestine was to hand it over to HAMAS. There was widespread condemnation of Israel's decision from other countries, from supranational bodies such as the United Nations and even from within Israel itself. Approx 30% of the Palestinian government revenue comes from Israeli collected taxes and the freezing of them was a substantial cash-flow blow for the Palestinians.

And so, starved of supplies for repairs and maintenance of infrastructure, hospitals, etc., Palestine was also starved of revenue, which created anxiety and dissatisfaction as government bills, including salaries, went unpaid.

Last week, the two primary political parties in Palestine, HAMAS and FATAH, signed a concord agreement to share power and to run the country together.

"We have unblocked the funds because we have established that the agreement between Fatah and Hamas has had no effect, the security cooperation (between Israel and the Palestinian Authority) continues on the ground," Strategic Affairs Minister Moshe Yaalon told Israeli public radio.

But the Palestinians cannot rest easy: Israel has a history of taking illegal or unethical positions and then stepping back from those positions claiming that it is making concessions. It is by no means certain that Israel will not decide, without warning, to re-commence the freeze.

The timing of the decision is notable: Israel is celebrating the anniversary of its creation. Palestinians, many of whom were dispossessed when Israel was created and many more since Israel has repeatedly expanded its borders into Palestinian territory, have been demonstrating at borders, within Israel and at Israeli embassies around the world. Israel has shot a number of protesters, up to now, about 20 are reported to have been killed by Israeli armed forces.

Moreover, a ship chartered by a charity founded by Malaysia's former prime minister Mahathir has been intercepted by an armed Israeli vessel en route for Palestine carrying plastic tubes intended to help rebuild the water and sewerage systems which have suffered serious damage due to Israeli military action.

Further, hard line Israeli politicians have been calling for ever stronger action against Palestinians who protest against the continued building of settlements on illegally occupied land and who have decried the peace deal between the two Palestinian political parties.

Against that background, releasing the tax revenues looks like a way to get at least some good news out. The real test will come when Israel hands over money: how much and how quickly are two questions that come to mind. A third is whether Israel will pay compensation or interest in relation to the long-delayed payments. And lastly, whether Israel decides to ration the money, to drip-feed it or to reinstate a ban when there is better news around to help distract the media from the decision.

Israel's decision undermines its position that it was bound by international sanctions to block funds that might end up in the hands of HAMAS. But the decision of Israel to release the funds does not mean that the sanctions have been lifted or modified.

Therefore the sanctions under e.g. the UN, EU, OFAC remain fully in place and financial services businesses and others remain subject to the same regime as before.