Israel Faces Challenge Stopping Hamas Cash

Tue Feb 28, 2:04 PM ET

JERUSALEM - Israel would have a hard time stopping Iran and other Muslim nations from sending large sums of money to a Hamas-led Palestinian government to make up for a threatened cutoff in Western aid.

Money could be sent by electronic transfers or be carried in suitcases through a Palestinian-controlled border crossing into the Gaza Strip, financial officials said. The Palestinians depend on about $1 billion in foreign aid a year, and such donations could endanger any plan to financially isolate Hamas.

However, past aid promises from Arab nations have gone unfulfilled and it's doubtful Iran has the money or the will to pay up. Israel - which once stormed Palestinian bank vaults to confiscate funds it said were meant for militants - has vowed to stem any significant money flow from its archenemy Iran.

On Monday, European Union foreign ministers approved an urgent aid plan totaling $143 million to prevent the immediate financial collapse of the Palestinian Authority. It was unclear whether the EU or the U.S. would make good on threats to cut all non-humanitarian aid once the militant group is in power.

The U.N. Office for the Coordination of Humanitarian Affairs said Tuesday that aid cuts to the Palestinians could lead to economic collapse, limiting the Palestinian Authority's ability to provide basic services such as health, education, utilities, sanitation and security.

During a trip by Hamas political leader Khaled Mashaal to Tehran last week, Iran offered to help the Palestinians compensate for any Western aid cut as a result of Hamas' Jan. 25 parliamentary election victory.

For now, it appears Tehran could do so legally because the money transfers would be between two legal entities, banking officials say. International banks that do business in both Iran and the Palestinian territories could secretly transfer money from Iran's Finance Ministry to the Palestinian Authority, because neither has been the target of international sanctions or declared illegal by the U.N. Security Council.

That means the transfers would not be subject to the anti-terror financing regulations imposed after the Sept. 11 attacks, which prohibit the international transfer of funds to terrorist organizations. However, banks that handle the transfers, if exposed, could face lawsuits, boycotts and other pressure.

Israel argues that once Hamas takes over the Palestinian Authority - which is expected within weeks - the world has the right to treat the authority as a terror group and deny it funds.

"If a terrorist organization takes over the machinery of government, do you not have the legal option to try to give the political body taken over by a terrorist group the status of a terrorist organization?" Israeli Foreign Ministry spokesman Mark Regev said.

Money is the international community's most important tool in trying to persuade Hamas to renounce violence, recognize Israel and respect past peace accords. While the U.S. and the EU are holding off on cutting the cash flow - at least until Hamas formally takes power - Israel has blocked about $50 million a month in customs and tax receipts collected on behalf of the Palestinian Authority.

Several Palestinian officials expressed doubt that Iran and the Arab countries could come even close to compensating for a cutoff in Western aid. Arab nations hold a summit this month in Sudan, with aid for the Palestinians expected to be on the agenda.

Lawmaker Saeb Erekat recalled a series of promises from Arab nations to provide the Palestinian Authority with tens of millions of dollars. "Unfortunately, this has not materialized," he said.

Israeli intelligence officials estimate Iran is already giving Hamas about $10 million a year. Most of that money comes in through back channels, including cash-filled suitcases and wire transfers from "charities" used as fronts. After Israel withdrew from Gaza last summer, the Palestinians took control of a border crossing with Egypt through which Gazans can pass without Israeli security checks.

But if Ali Larijani, secretary of Iran's Supreme National Security Council, is serious about the promise he made about funding the Hamas government, the magnitude of the sums involved would force Iran to use electronic transfers, not suitcases.

The United States, the EU and Japan could put pressure on their own banks not to handle transfers from Iran into the Palestinian territories. But Arab banks that do business in both Iran and the Palestinian territories could handle the Iranian transfers, Palestinian monetary officials and a senior Israeli banker said. They spoke on condition of anonymity because they were not authorized to speak about Iran.

Banking regulations prohibit the receiving bank from disclosing the identity of the originating bank. But Ephraim Kam, a former senior Israeli intelligence officer, predicted Israel would be able identify at least some of the banks involved and could use international pressure to get them to stop.

"I assume that the Israeli government would be able to stop part of this flow of money, but part of it will reach the Hamas," he said.

Still, Israel has experience in stemming the flow of funds to organizations it considers hostile, including the incident two years ago in which Israeli troops burst into three banks in the West Bank city of Ramallah, corralled the employees, covered security cameras and confiscated about $7 million in cash from bank vaults.

At the time, Israel said the seized cash corresponded to amounts of money found in accounts with suspected links to Hamas and another militant group, Islamic Jihad.

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