Israeli Finance Minister Bezalel Smotrich instructed the ministry's Director-General Yali Rothenberg to cancel the indemnity provided to correspondent banks in relation to banks operating in the Palestinian Authority, his office confirmed on Tuesday.

Until now, Smotrich has occasionally delayed the transfer of funds from time to time, but had not ordered a complete halt.

Move could see Palestinian banks shut out from shekel

Smotrich said the decision came against the "delegitimization campaign" by the Palestinian Authority against Israel globally.

The waiver had allowed Israeli banks to process shekel payments for services and salaries tied to the Palestinian Authority, without the risk of being charged with money laundering and funding extremism.

Without it, Palestinian banks would be cut off from the Israeli financial system.

A person holds Israeli shekel coins in their hand in Jerusalem on December 18, 2024. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
A person holds Israeli shekel coins in their hand in Jerusalem on December 18, 2024. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
It comes hours after the United Kingdom and four other nations imposed sanctions on Smotrich and National Security Minister Itamar Ben-Gvir for inciting violence in the West Bank. The sanctions included a freeze on assets and travel bans.

The Palestinian Monetary Authority (PMA) said that the move could halt the supply of essential goods such as food and fuel to the Palestinian Authority.