Banks balk at sending funds to Hamas government

RAMALLAH - Under US pressure, regional and international banks are balking at transferring funds from donors to the Hamas-led Palestinian Authority.

US officials said the Bush administration could take punitive action against banks that help provide money or services directly to the new government. As Washington has designated Hamas a "terrorist" organisation, such assistance could be in breach of US law.

The Bush administration has been spearheading a campaign with Israel to isolate Hamas, which won elections in January and took control of the Palestinian Authority late last month.

US officials would not discuss any specific communications with banks regarding the Islamic militant group, whose charter calls for the Jewish state's destruction.

But US Treasury Department spokeswoman Molly Millerwise said: "If an organisation or individual is facilitating direct fundraising for Hamas, they open themselves up to action by the United States."

Nabil Amr, a top adviser to Palestinian President Mahmoud Abbas, said: "There are warnings to the banks in order not to deal with the money coming to the Palestinian people and the Palestinian Authority."

Banks in the region rely heavily on "correspondent" financial institutions in the United States to conduct day-to-day transactions.

Palestinian officials said these regional banks were concerned Washington would put pressure on Wall Street banks to sever these correspondent ties if they helped transfer funds to the Palestinian Authority.

These US banks include JP Morgan, Citibank, Bank of New York, American Express, among others.

Shunned by the West and increasingly strapped for cash, Hamas has made urgent appeals in recent days to Iran and Arab donors to deposit funds into bank accounts in Egypt. The government is already three weeks late paying salaries to 165,000 government workers.

Amr said the problem was bringing funds into the West Bank and Gaza from Egypt. Qatar has donated US$50 million (28 million pounds) and Iran has promised at least US$50 million.

One of the Egyptian accounts was set up by the Arab League at the Misr International Bank, which French bank Societe Generale gained control of last year.

A Palestinian bank regulator said: "It is normal to think twice because (doing business with Hamas) will make difficulties for them in conducting certain functions."

Hamas officials say the United States triggered the financial crisis by pressuring the Amman-based Arab Bank to freeze the Palestinian Authority's main treasury account.

A Palestinian official said the Arab Bank recently turned away a transfer of US$50 million from Qatar.

Hamas had intended to use the money to pay low-ranking employees 2,000 shekels (US$435) each to help tide them over because full salaries could not be paid, the official said.

Local and regional banks have followed the Arab Bank's lead, balking at working with the new government for fear of facing US sanctions and lawsuits.

By naming Hamas a "specially designated global terrorist" entity in 2001, President George W. Bush empowered the Treasury Department to impose financial sanctions against entities and individuals "that support" the Islamic militant group.

Under US law, any foreign bank that refuses to cooperate with the United States in cutting off funding to Hamas could have its US assets frozen and its access to US financial markets denied.

US banks that maintain "correspondent" relationships with banned foreign banks could also be found in breach of US law.

- REUTERS