Israeli Finance Minister says banks should not obey EU sanctions on settlers

By Steven Scheer

JERUSALEM (Reuters) -Israel's Finance Minister Bezalel Smotrich on Thursday condemned the country's banks that have refused to provide services to Israeli settlers sanctioned by the European Union and warned they may have to pay compensation to them.

The EU last year imposed sanctions on five Israeli settlers for violence against Palestinians and Smotrich said there were reports of sanctions being considered against other settlers.

But in a letter to the banking supervisor, he said Israeli banks should not follow a "zero risk" policy since it leads to the abandonment of Israeli clients "under the guise of compliance with foreign sanctions."

In a statement quoting his letter to the regulator, Smotrich called on banks to use their legal, economic, and international strength to fight "unjust sanctions".

"The banks’ enormous profits enable them to take measured risks on behalf of their clients — especially when it comes to a national moral injustice," Smotrich, who leads the far-right Religious Zionism party, said.

Should banks continue to comply with sanctions and harm clients, Smotrich said he intended to promote immediate legislation that would require banks to pay substantial compensation to affected customers.

He also intends to require the Bank of Israel itself to offer banking services to citizens targeted by sanctions.

Responding to the letter, the Bank of Israel said that while banks must comply with international sanctions to avoid an array of risks, a draft directive it published on Thursday aimed to ensure appropriate banking services were available for the affected customers.

"Circumventing foreign sanctions regimes through the Israeli banking system exposes banking corporations to multiple risks, including compliance risks, anti-money laundering and counter-terror financing risks, legal risks, and reputational risks," the central bank said.

But it said it has taken steps to comply with sanctions "without banks resorting to blanket refusals to serve such customers."

While the sanctions in question concern Israeli settlers, the EU is reviewing its broad pact governing its political and economic ties with Israel in the face of mounting international pressure on Israel amid complaints about the lack of humanitarian aid reaching Gaza in the wake of the war triggered by Hamas' Oct. 7, 2023 attack.

(Reporting by Steven ScheerEditing by Tomasz Janowski)