Palestine Monetary Authority gets grip on terrorism funding

A new network will help Palestinian banks crack down on illegal money transactions by collecting more data from their customers.

al-monitor Gazan residents exchange currency as they gather at Al-Zawiya market, Gaza City, July 26, 2014. Photo by MARCO LONGARI/AFP/Getty Images.

Oct 10, 2019

GAZA CITY, Gaza Strip — The Palestine Monetary Authority has launched a new banking system designed to help keep track of the sources and recipients of financial transactions, and facilitate oversight and transparency.

The program, which was put in place Sept. 29, is dubbed Know Your Customer. The procedures are widely used in international banking to comply with anti-money laundering laws. They are designed to help banks verify customers' identities, comply with international best practices and appraise potential risks such as illegal business ties, money laundering, corruption, bribery and terrorism financing. The goal, officials said, is to make sure all local bank transactions are honest.

According to monetary authority data, customers’ deposits in banks operating in the Palestinian territories are constantly growing. They increased from $12.3 billion in February to $12.6 billion in July, a growth rate of 2.6%.

In a press release, the authority cited its governor, Azzam Shawwa, as saying the closer scrutiny will help bridge a gap in financial and demographic data of customers and other financial institutions and help banks make sound decisions. The authority also cited Shawwa as saying that the new system will streamline the opening of new accounts and constantly update customer data.

The Palestinian Authority (PA) is seeking to tout its oversight of bank transactions to and from the Palestinian territories. In November, the government adopted a national strategy against illegal transactions to prepare for an assessment by the Middle East and North Africa Financial Action Task Force. The task force represents 14 Arab governments, including the PA, seeking to counter money laundering and terrorism financing.

Speaking to Al-Monitor on condition of anonymity, a PA source said, “The new system is designed to counter and minimize suspicious bank transactions, such as international transfers by and to the Palestinian armed factions, money laundering and bribes.” 

He said the system requires customers to provide detailed information on the sources and recipients of transfers.

“The new system aims to stop banks from providing incorrect data on their deposits — such as understating their value to evade the annual 0.24% fee on deposits paid to the [monetary authority] or overstating their deposits through fake accounts to attract new customers." Accounts now will be disclosed as active, closed or frozen.

Atef Adwan, head of the Economic Affairs Committee of the Palestinian Legislative Council in the Gaza Strip, told Al-Monitor, “The PA’s new system seeks to prevent the resistance factions [such as Hamas and the Islamic Jihad] in the Gaza Strip from obtaining money transfers from abroad. I, however, believe that these factions have unconventional tools for bringing in money from abroad.”

He said Know Your Customer will affect Gaza Strip charities the most, as they obtain support from various donors around the world via local banks to provide relief services to the poor, orphans and other vulnerable segments of society. He said the new system will obstruct or delay the arrival of this funding.

“The PA’s restrictions on money transfers from abroad are mainly to tighten its siege on the Gaza Strip and subsequently weaken Hamas' rule. That’s its strategic goal,” he said. 

Mouin Rajab, an economics professor at Al-Azhar University in Gaza City, doesn't agree that the new procedures will increase pressure on the Gaza Strip. He told Al-Monitor that the new steps seek to counter the informal economy in the Palestinian territories that is based on all forms of smuggling, including drug trafficking.

Rajab said drug dealers and smugglers launder cash through local banks to conceal illegal money sources. These sources will be revealed under the new system, he said.

Drug trafficking in the West Bank increased 30% in 2018 over 2017, according to the West Bank police department's 2018 statistics report on narcotics in the Palestinian territories, released in August.

Rajab said the new system also seeks to counter customs duty evasion when goods and food commodities are smuggled from Israel. “The new system enables the source and recipients of the money transferred among local banks and merchants to be identified and disclosed.”

Customs duty evasion reportedly costs the Palestinian economy more than $1 billion a year.

Mohammed Abu Jayab, editor-in-chief of the Gaza Strip-based Al-Eqtisadiah newspaper, told Al-Monitor, “The new banking system seeks to classify the banks’ clients into categories, such as merchants, businessmen, civil servants and doctors, and to identify the share of each in the bank transactions.” He said this classification will make it easier to collect data on local banks’ customers and help develop local investments.

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