China’s Challenge to Netanyahu

Israel's Prime Minister faces a tough choice.

Israel’s Prime Minister faces a tough choice.

Israeli Prime Minister Benjamin Netanyahu is famously tough on terrorism–a reputation that dates back to his days as a member of the Sayeret Matkal, Israel’s version of the SAS and Delta Force, in the 1970s. (His brother Jonathan served in the same unit and was killed during the Entebbe rescue operation in 1976.) But now his tough-on-terrorism credentials are on the line as he must decide how far to push a legal case that has implicated the Bank of China in allowing itself to be used to move money for Palestinian terrorists.

Israeli officials had initially encouraged a Jewish-American couple, Tuly and Sheryl Wultz of Florida, to sue the Bank of China, because of evidence that, as the Wall Street Journal puts it, “the bank knowingly allowed Iran to use it to deliver funds to the Palestinian militant group that killed their 16-year-old son Daniel in a 2006 suicide bombing in Tel Aviv.”

But the case, in a New York federal court, only has a chance of succeeding if the Israeli government allows “a pending deposition by a former Israeli intelligence official, who is expected to testify that he was present at 2005 meetings in which Israeli officials told China that Bank of China accounts were being used to fund militant organizations including Islamic Jihad, the Palestinian outfit that claimed responsibility for the attack that killed Daniel Wultz.” The official’s testimony could establish the bank’s negligence and culpability–but will he be allowed to testify?

Last year, Netanyahu approved the testimony, and informed the family and members of Congress of his decision. But now things are far from clear because of reports that Netanyahu, who visited China last month, is wavering under heavy Chinese pressure. Israel and the People’s Republic of China already have well-established trade links–China is one of the best customers for Israel’s arms industry. In fact Israel has gotten into hot water with the U.S. in the past for its willingness to sell sophisticated technology to Beijing that could one day be used against the U.S. Armed Forces and U.S. allies. Now China appears to be upping the ante.

The Israeli press is reporting that a state-owned Chinese construction company is offering to build a new city of 30,000 homes near the Israeli town of Latrun–with an estimated $3 billion in financing to be provided by none other than the state-owned Bank of China. Neither the Chinese construction firm nor the Bank of China has a history of building homes in Israel before. Perhaps this is a straight commercial proposition, but there is cause to wonder if the Chinese state is trying to pay off the government of Israel to drop an embarrassing lawsuit that could seriously affect Bank of China’s ability to expand in the lucrative U.S. market. (Being tagged as a terrorist financier does not endear a foreign bank to American banking regulators.)

Netanyahu has a tough choice to make–alienate Beijing or not? If he remains true to his anti-terrorist outlook, he should run the risk of upsetting the Israel-China relationship in favor of establishing a broader and more important principle: that banks should not get into bed with terrorist groups. By showing that the state of Israel and the victims of terrorism will stop at nothing to punish financiers of terror, this case could serve as a deterrent to banks in the future that are thinking of doing business with groups such as Islamic Jihad.

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