West Bank

Sanctions

US/Israel have issued guidelines on transactions with the Palestinian Authority

FATF AML Deficient List

No

Higher Risk

Compliance with FATF 40 + 9 Recommendations
Weakness in Government Legislation to combat Money Laundering
Not on EU White list equivalent jurisdictions
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

Medium Risk

US Dept of State Money Laundering assessment 

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ANTI-MONEY LAUNDERING

FATF Status

The West Bank/Gaza Strip is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

A Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards has not yet been undertaken for the West Bank/Gaza Strip.

US Department of State Money Laundering assessment (INCSR)

Gaza Strip/West Bank was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

The Palestinian Authority (PA) is divided into three West Bank administrative areas, A, B and C, plus the Gaza Strip. The PA provides most governance, services, and security in “Area A” zones of the West Bank. The PA provides some governance and services in “Area B,” in which Israel retains security control. The PA has limited access to approximately 60 percent of the West Bank designated as “Area C,” which remains under full Israeli civil and security control. The PA also has little ability to work in the Gaza Strip, which has been under de facto Hamas control since the 2007 coup, although with the formation of an interim government of independent officials in June 2014 under the Fatah-Hamas reconciliation agreement, ministries based in Gaza are supposed to be under the control of technocrats. Security apparatuses in Gaza remain under the control of Hamas.

The Palestine Monetary Authority (PMA) is an independent agency of the PA and has oversight over Palestinian banks in the West Bank and Gaza. There are 16 banks operating in Palestine, seven local and nine foreign, working through a network of 274 branches and offices in both the West Bank and Gaza. There are also 306 money changers in both the West Bank and Gaza, and nine specialized lending institutions. Hawala networks, both licensed and unlicensed, are widely used for legitimate as well as illicit purposes.

The Palestinian economy is primarily cash-based. There is little data available on the extent of money laundering in the West Bank or Gaza. Minor narcotics trafficking and narcotics-based money laundering are present, principally in Palestinian areas that fall outside of the PA’s security control. Within territory located in Area A, narcotics trafficking and use are not major problems. The PA, however, has no effective control outside of Area A in the West Bank, which increases vulnerability to smuggling of consumer goods. Bulk cash smuggling, intellectual property rights violations, and counterfeit currency cases also have been reported. Trade-based money laundering, customs fraud, and other forms of value transfer allow criminal organizations to earn, move, and store supporting funds and illicit proceeds under the guise of legitimate trade. Currently, Palestinian authorities believe trade-based money laundering and customs fraud are among the largest money laundering threats to the PA but are difficult to quantify. A lack of cooperation between PA and Israeli authorities at a variety of stages from banking reserves to customs tracking complicates assessment and enforcement.

SANCTIONS

The US has issued guidelines on transactions with the Palestinian Authority.

There are also restrictions by Israel of movement within the Palestinian territories and of goods moving in and out.

The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -

  • Cutting off transactions with the Syrian central bank

  • Halting funding by Arab governments for projects in Syria

  • A ban on senior Syrian officials travelling to other Arab countries

  • A freeze on assets related to President Bashar al-Assad's government

 

The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.

The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.

BRIBERY & CORRUPTION

 

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           N/A

World Governance Indicator – Control of Corruption              56

ECONOMY

Israeli-Palestinian violence in 2015 exacerbated challenges to economic growth in the West Bank - the larger of the two areas comprising the Palestinian Territories. Increased security restrictions and political instability slowed economic activity, and Israel’s four-month withholding of taxes and other fees it collects on the Palestinian Authority’s (PA) behalf caused the PA to delay salary payments to its employees, which in turn had broader effects on business activity and consumer demand.

 

Longstanding Israeli closure policies continue to disrupt labour and trade flows and the territory’s industrial capacity, limit imports and exports, and constrain private sector development. The PA for the foreseeable future will continue to rely heavily on donor aid for its budgetary needs and economic activity.

 

Agriculture - products:

olives, citrus fruit, vegetables; beef, dairy products

 

Industries:

small-scale manufacturing, quarrying, textiles, soap, olive-wood carvings, and mother-of-pearl souvenirs

 

Exports - commodities:

stone, olives, fruit, vegetables, limestone

 

Imports - commodities:

food, consumer goods, construction materials, petroleum, chemicals

 

Investment Climate  -  US State Department

The Palestinian economy is small and relatively open, with several large holding companies dominating certain sectors. Palestinian businesses have a reputation for professionalism as well as the quality of their products. Large Palestinian enterprises are internationally connected, with partnerships extending to Asia, Europe, the Gulf, and the Americas. Due to the small size of the local market, access to foreign markets through trade is essential for private sector growth.

Since 2007, the West Bank’s investment climate has improved significantly – primarily due to security, economic and legal reforms; international donor support, and the easing of some Government of Israel (GOI) restrictions. Many of these reforms, however, were only applicable to business concerns in the roughly 40 percent of the West Bank under the civil control of the Palestinian Authority (PA). Restrictions on the movement and access of goods and people between the West Bank, Gaza, and external markets imposed by the GOI continue to have a deleterious effect on the private sector and limit economic growth.

 

Opportunities for meaningful foreign direct investment in Gaza are few, due to Hamas’s control and Israeli restrictions on the flow of imports and exports. Numerous consumer goods enter Gaza through Israel, but there are restrictions in place that limit the import of a number of dual-use items, including construction materials, which are only allowed to enter with advance coordination and approval from Israel. Likewise, only a few hundred truckloads of exports can exit each year.

Real Gross Domestic Product (GDP) increased by 2.9 percent in 2015: 1.8 percent in the West Bank and 6.5 percent in Gaza, where much of the growth was attributable to increased humanitarian and reconstruction assistance. This GDP growth followed a decline in 2014 that international organizations attributed mainly to that summer’s conflict in Gaza, ongoing political disputes with the GOI, uncertainty over the PA’s ability to pay salaries, and accumulation of high levels of private sector arrears. In 2015, donor countries provided the PA with USD 709 million to support its budget, about USD 510 million short of the amount needed to cover the PA’s recurrent deficit of USD 1.219 billion. The PA covered this financing gap by increasing bank debt and accumulating new private sector and pension fund arrears.

 

Future economic growth depends on a series of factors: easing Israeli movement and access restrictions, further expanding external trade and private sector growth, improved PA governance on commercial regulation, political stability, the GOI’s prompt release of customs and VAT revenues collected on behalf of the PA, and a general recovery of global and regional economic growth. Economic sectors that are not dependent on traditional infrastructure and freedom of movement, such as information and communications technologies (ICT), are able to grow somewhat independent of these factors and therefore have enjoyed greater success in the Palestinian economy during the past decade, although they are still impeded by factors such as GOI control of the electromagnetic spectrum.

 

According to the PA, the unemployment rate in 2015 was 17.3 percent in the West Bank and 41 percent in Gaza, or 25.9 percent overall. Among women, the overall unemployment rate was 39.2 percent and among youth aged 20-24 it was 36.5 percent (approximately 65 percent in Gaza). The workforce is expected to expand significantly in the coming years, as 50.5 percent of the population is currently below the age of 19. The labor force is relatively well educated, boasting a high literacy rate, with high technology penetration and familiarity with overseas markets. Wages are low relative to Israel but higher than neighboring Arab countries. In January 2013, the PA implemented the first Palestinian minimum wage, at NIS 1,450 (USD 389) per month. Palestinians remain dependent on the public sector, which employs 22.9 percent of the workforce. The PA depends primarily on the transfer of its customs and VAT revenue, which Israel collects on the PA’s behalf, to cover its operational expenses, including its wage bill.

 

Significant sectors highlighted by the Palestinian Investment Promotion Agency (PIPA) and in the National Export Strategy for 2014-2018 include the following:

 

  • Stone and marble

  • Tourism

  • Agriculture, including olive oil, fresh fruits, vegetables, and herbs

  • Food and beverage, including agro-processed meat

  • Textiles and garments

  • Manufacturing, including furniture and pharmaceuticals

  • Information and communication technology (ICT)

 

This report focuses on investment issues related to areas under the administrative jurisdiction of the PA, except where explicitly stated. Where applicable, this report addresses issues related to investment in the Gaza Strip, although Hamas’s implementation of PA legislation and regulations may differ significantly from the West Bank. In contrast to the West Bank, Gaza was controlled by Egypt rather than Jordan from 1948-1967, while Israel controlled both the West Bank and Gaza from 1967-1993. For issues where PA law is not applicable, Gazan courts typically refer back to Israeli and Egyptian laws; however, the de facto Hamas-led government in Gaza does not consistently apply PA, Egyptian, or Israeli laws. In 2014, Fatah (a major political party) and Hamas initiated a reconciliation process; however, at the time of writing the PA does not exercise operational control within Gaza.

 

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