Israeli banks are contributing to the proliferation of West Bank settlements by providing loans and mortgages for construction there, violating their human rights obligations, Human Rights Watch said in a report Wednesday.
The report said Israeli law does not require banks to provide such services to the settlements, and urged them to distance themselves from such activities. It also urged the banks' shareholders to "ensure their business relationships do not contribute to or benefit from" human rights violations.
Human Rights Watch says the banks have helped the expansion of the West Bank settlements, which are now home to some 400,000 Israelis.
Sari Bashi, the group's Israel and Palestine advocacy director, said the banks should abide by the UN guiding principles on business and human rights, a set of non-binding guidelines meant to address and remedy abuses committed in business activity, or else face action by shareholders.
"There are many, many steps banks can and should take to at the very least reduce their involvement in settlements, if not stop it entirely," she said. "If they choose not to take steps, institutional investors who care about their own human rights activity should take action."
Israel captured the West Bank, along with the Gaza Strip and east Jerusalem, in the 1967 Six-Day War. Israel has since annexed east Jerusalem in a move that is not recognized internationally, and it withdrew from Gaza in 2005.
Most of the international community considers settlements illegal and an obstacle to creating a Palestinian state. Israel disputes this, saying the fate of the settlements must be resolved through negotiations with the Palestinians.
Israel's banks lend money to homebuyers, settlement councils or to companies carrying out construction in the West Bank. Most also have branches in settlements.
Israeli law requires banks to accept settlers as customers, meaning they cannot refuse to open accounts for them. But a legal analysis by Human Rights Watch of Israeli banking laws concluded that banks are not obligated to provide financial backing for construction in the West Bank.
While an anti-discrimination law prohibits refusal of service based on place of residence, the report said banks could cite other reasons for declining to provide loans, such as the construction's implications for Palestinians' human rights. The law also allows companies to decline to serve certain areas so long as they provide advance notice to customers.
"It is Human Rights Watch's assessment that banks can, under domestic law, avoid providing many services that support settlements and settlement activity, and that doing so is necessary to fulfill their human rights responsibilities," the report said.
The relevant laws have yet to be challenged in court, meaning the report offers only one interpretation of how they may be read.
But the group presents a warning to Israel's banking sector: Operating in the settlements risks inviting divestment from ethically-minded shareholders. Bashi cited a 2016 move by the pension fund for the United Methodist Church that blocked five Israeli banks from its investment portfolio, saying they profit from rights abuses.
The Association of Banks in Israel, an umbrella group, declined to comment on the report's claims. Spokespeople for Israel's major banks either declined comment or referred queries to the banking association. Israel's central bank had no immediate comment.
Human Rights Watch said the five largest banks in Israel did not respond to questions about whether they adhere to the UN guiding principles. Four of the country's biggest banks are members of the UN Global Compact, a group of companies that calls on its members to "make sure that they are not complicit in human rights abuses."
Eugene Kontorovich, an international law expert at the Kohelet Policy Forum, a conservative think tank, disputed the report's claim.
He said private companies are not obliged under international law to restrict where they work even if others believe the settlements are illegal. He said companies are not necessarily violating human rights if they conduct business in an area where violations are said to occur.
"Granting a mortgage is not a human rights violation," he said.
Settlements have grown rapidly over the decades, providing a lucrative market for bank loans and mortgages, and an incentive for the banks to continue to offer funding.
Human Rights Watch has previously issued a report claiming businesses operating in the settlements contribute to Israel's violation of human rights and has called on them to cease their activities there.