Palestine's Banking System at Risk

At the hearing, George T. Abed, the monetary authority's governor, testified that the freezing of the funds passing through the Bank of New York could cripple Palestine's nascent banking system.

Mr. Abed was appointed by the chairman of the Palestinian National Authority and confirmed by the Palestine legislature. Mr. Abed testified that the monetary authority holds no funds belonging to the national authority, though the monetary authority has loaned and borrowed money from the national authority. The monetary authority, however, maintains a capital reserve and pays its employees with interest earned on its deposits, though a portion of any profits is paid to the national authority.

As for the funds that flow through the Bank of New York account, Mr. Abed testified, they involve any transactions in which dollars need to be moved in or out of the 21 commercial banks operating within the Palestine territory.

The Bank of New York Handles Dollar Transfers

The Palestine National Authority does not have its own currency. Instead, four currencies are used in the territories: the U.S. dollar, the Euro, the Jordanian dinar and the Israeli shekel. All dollar transfers, are conducted on the monetary authority's behalf through the account at the Bank of New York, which is in the name of yet another entity, the Palestine International Bank

In lifting the restraining order, Justice Kornreich found that "the Bank of New York holds no property of the Palestine Monetary Authority" which would be subject to attachment. In a separate finding, she concluded that the monetary authority "has been shown to have the characteristics of a typical central bank and has not been demonstrated to be the agent or alter ego of the [national authority]."

She also found that the imposition of the restraining order could cause irreparable injury by putting "the entire banking system of the territories at risk" as well as undermining "the economic development of the Territories and the Palestine Monetary Authority's status in the international community."

The Palestine Monetary Authority was represented by Haig Kalbian of Kalbian Hagerty in Washington, D.C. Mr. Strachman was represented by Robert J. Tolchin of Jaroslawicz & Jaros.