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For the past 15 years, Israel has been channeling hundreds of millions of shekels it had collected in the West Bank into its state coffers. The move is considered illegal, since international law prohibits an occupying power from appropriating the fruit of economic activity in an occupied territory.

Following protests by military lawyers, the deputy attorney general has ruled that the practice should be stopped and ordered an inquiry into whether the Civil Administration in the West Bank should be compensated retroactively.

"Following staff work by an interministerial team composed of representatives of the Finance Ministry, Justice Ministry and Civil Administration, it has been agreed that the ... said fees will be entered into the Civil Administration's budget. The technical aspects of the affair will be sorted out in the coming weeks."

The funds in question are collected by the Civil Administration, overwhelmingly from Israelis. They include fees and levies for various activities such as royalties from quarries and levies on public auctions. The sums are estimated in the hundreds of millions of shekels, sometimes reaching as much as NIS 80 million a year.

Until the Oslo Accords in the 1990s, the funds were transferred to the Civil Administration to be used for operational expenses as well as for infrastructure and welfare services for Palestinians in the territories. The Oslo Accords dictated the closing down of the administration, the funds in question were reclassified as income to the Israel Lands Administration and were redirected to state coffers.

The Civil Administration, however, continued to operate in Area C of the West Bank, working on infrastructure, planning and construction. The funds are still channeled to the state, although international law prohibits an occupying power from appropriating the fruit of economic activity in an occupied territory. Funds collected in American-occupied areas of Iraq, for example, are channeled to the United States, and, except for 5 percent that goes to Kuwait, are returned for direct investment in Iraq.

Budget ramifications

Recently, a lawyer at the Military Advocate General's Office said the transfer of such funds to the state was improper. Because the issue is complex and has budget ramifications far beyond the military, the authorities entrusted the inquiry to Deputy Attorney General Malchiel Blas.

He ruled that the direct transfer of the funds to the state budget should cease. A team that includes officials from the treasury, Justice Ministry and Civil Administration is now examining the implications of Blas' decision.

At the team's meetings, the Civil Administration has requested that the money again be directly channeled to its coffers. The Finance Ministry, by contrast, proposed that a fund be set up for the money, which would be divided among various ministries investing in the territories, such the transportation, agriculture and industry, trade and labor ministries.

Another question facing the team is whether the Civil Administration should be compensated for the funds it lost to the state. The Finance Ministry is strongly opposed, and claims that in the past 15 years the state has invested in the West Bank, apart from the settlements, more than double the amount it has collected. The government will make the final decision.

"This income was registered as part of state income, and the Finance Ministry budgeted all the activities of the Civil Administration and the military in the area out of the state budget," the Justice Ministry said in a statement.

"Recently ... it turned out that the issue should be arranged in a way that would make it obvious that the income should be registered as part of the Civil Administration's budget, as authorized by the Knesset."

The Finance Ministry said: "It should be noted the question of whether the funds are registered as state income or Civil Administration income is a technical question, because at the end of the day the State of Israel invests in the area amounts considerably larger than the fees it collects.