Last weekend, a new law banning the operations of UNRWA (United Nations Relief and Works Agency for Palestine Refugees in the Near East) in Israel officially came into effect. The legislation consists of two components: the first prohibits the agency's activities in Israel due to its alleged links to the October 7 attacks and the second bars Israeli public authorities and institutions from engaging with UNRWA or its representatives.
This includes banks, which are now expected to freeze UNRWA's accounts, effectively blocking the agency’s financial operations in Israel — a significant move with far-reaching economic implications, such as preventing the payment of salaries to UNRWA employees or its suppliers within the country.
Although the law was passed in late October last year and allowed a three-month preparation period for implementation, it appears that during this time, no substantial changes were made by the banking sector. As a result, responsibility for freezing UNRWA’s accounts has been passed around, with no party willing to take definitive action.
Banks argue that the law’s language is ambiguous and does not explicitly mandate them to block accounts, leaving room for varying legal interpretations.
"Blocking a bank account is a dramatic step that exposes the bank to lawsuits," said a banking official. "Clear guidelines must be issued, detailing what actions banks can or cannot take under this law."
The Bank of Israel has also refrained from providing clarity. Yisrael Beiteinu MK Yulia Malinovsky, one of the law’s initiators, addressed the Bank of Israel in November, seeking an explanation of how the banking system plans to comply with the law.
She stressed UNRWA holds accounts in several Israeli banks and that the law effectively revokes the agency’s ability to issue official documents or approvals recognized by the state, which will likely impact its banking operations. "Given the complexity and importance of this matter, I request an explanation of how the banking system intends to implement the law," Malinovsky wrote.
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By the end of November, Malinovsky received a vague response: "Banks will need to assess the law’s implications on their operations and act accordingly. If necessary, the matter will be reviewed by the relevant authorities tasked with implementing the law."
Two months later, however, no clear directives have been issued. Last week, Bank of Israel Governor Prof. Amir Yaron addressed the issue during a Knesset Finance Committee meeting on the central bank’s budget.
When asked about the law, Yaron said, "This is a sensitive issue. We don’t manage the banks and this matter is still under discussion with the Foreign and Justice Ministries. We are waiting for their interpretations of the law and will act once we receive their guidance." Meanwhile, the law remains in effect but has yet to be enforced from the banks’ perspective.
UNRWA, a UN agency officially tasked with providing humanitarian aid to Palestinians, has come under scrutiny following evidence of its employees’ alleged ties to Hamas. Reports surfaced during the Gaza war of UNRWA staff participating in the October 7 attacks. Additionally, testimonies from released Israeli hostages revealed that some were held at UNRWA facilities or abducted by its employees.
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A year ago, it was reported that Bank Leumi, one of Israel's largest banks, froze UNRWA's accounts following a U.S. State Department decision to suspend financial transfers to the agency amid an investigation into possible involvement of its staff in terrorist activity.
While several countries have joined the U.S. in halting funding to UNRWA, others maintain that it is a legitimate humanitarian organization that should not be targeted. In light of these findings and allegations of terrorist ties, the Knesset advanced legislation banning UNRWA’s operations in Israel. The law passed in October with support from over 90 Knesset members, allowing a three-month period for implementation, which expired at the end of January.
The banking sector has expressed concerns about the potential legal risks of unilaterally freezing UNRWA’s accounts. "Given the sensitivity of the issue, we fear that acting independently to block UNRWA’s accounts could expose us to lawsuits from international entities," a banking source said. "We need the state to take responsibility and issue clear, official instructions on how to proceed."
The Bank of Israel released a statement, saying, "The Bank of Israel has been working with relevant authorities, including the Justice Ministry, Foreign Ministry and the National Security Council, to determine the applicability of the laws to the banking system, while considering Israel’s international obligations."