Tuesday 4 November 2025
Last update on Tuesday, November 4, 2025 At 6:53 PM
The problem of financial crime is pervasive in Palestine. The significant weight of foreign currency and deposits in the Palestinian economy's foreign assets (59%), linked to the absence of a national currency, facilitates illicit financial operations such as money laundering. The local financial system is dependent on the Israeli banking sector. Threats of suspending correspondence with Israel pose a continuous risk of disruption and encourage the informal economy and the use of cash.
The war also creates conditions conducive to corruption, resource siphoning, and the disorganization of regulatory bodies.
In this context, Palestine has been striving for several years to align its financial system with the international standards of the Financial Action Task Force (FATF).
A first national strategy to combat money laundering and terrorist financing (AML/CFT) was adopted in 2018, marking the beginning of a structured compliance process. In 2024, the updated risk assessment, the recommendations of the FATF Subgroup for the Middle East and North Africa (FATF-MENA), and discussions between the US Treasury and the Palestinian Authority reaffirmed the priority of combating financial crime.
For Palestine, this means demonstrating the real effectiveness of mechanisms for monitoring and reporting suspicious transactions, strengthening investigations, prosecutions, and confiscations, ensuring the transparency of non-profit organizations, and consolidating international and technical cooperation.
The deterioration in asset quality is accelerating.
Non-performing loans jumped to 13% at the end of March 2024, while paradoxically, provisions were decreasing, with a paltry coverage ratio of 10%. This systematic under-provisioning reflects either a financial incapacity or a deliberate attempt to artificially inflate the financial statements.
Liquidity constraints are forcing banks to increase emergency borrowing from the Central Bank, whose overdrafts reached 190 billion rials at the end of March 2024, with a worrying concentration in just a few institutions.
These demands are currently accompanied by increased political and financial pressure from international lenders, particularly the United States, the European Union, and the IMF.
Their support for the Palestinian financial system, already weakened by Israel’s withholding of tax revenues, is now contingent on measurable progress in financial governance. On the one hand, Palestine must strengthen its mechanisms to maintain access to the global banking system, and on the other, it faces increasing regulatory interference that limits its sovereign capacity to regulate its internal economic flows.
A new national strategy, covering the period 2025-2028, was adopted in June 2025 and made public in October 2025.
Approved by the Council of Ministers, it reflects a strong political commitment. It is supported by a national committee composed of 23 public and financial institutions (ministries, the Monetary Authority, security services, the Financial Intelligence Unit, and judicial bodies) and aims for a dual objective: to protect the financial system from illicit flows while preserving international banking relationships.
The strategy is based on ten strategic objectives, with a total estimated cost of USD 2.8 million. Priorities include: the development of data and statistical systems, judicial strengthening and inter-institutional cooperation, the reduction of the informal sector and financial inclusion, and the reliability and traceability of financial data.
These expenditures are designed to improve institutional resilience, modernize supervisory mechanisms, and ensure the implementation of Security Council resolutions on combating the financing of terrorism. A centralized monitoring mechanism coordinated by the national team secretariat has been established.
The 2025-2028 national strategy illustrates Palestine’s effort to comply with international standards and preserve the stability of its financial system.
However, dependence on donors and the constraints of the relationship with Israel limit its independent implementation. The actual effectiveness of the fight against money laundering and terrorist financing will depend less on the technical aspects of the plan than on Palestine’s capacity to exercise genuine economic and monetary sovereignty, a prerequisite for any sustainable financial governance.
Source: French Embassy in Tel Aviv
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