The recently leaked 2011 Jerusalem EU Heads of Mission report stated that Israel’s accelerating settlement construction poses a major risk to the prospect of a two-state solution. The report called for a more active EU policy on Jerusalem including legislation and other steps to end financial transactions in support of settlement activity. This paper examines the current situation regarding illegal Israeli settlements and the various forms of financial transactions in support of settlements involving European companies, states and other actors.
2. Israeli settlements and international law
Israel has established about 150 settlements on occupied Palestinian territory since 1967 and the settler population is estimated at approximately 500,000. Approximately 43% of the West Bank is off-limits for Palestinian use because of its allocation to the settlements. In 2011, almost 1,100 Palestinians were forcibly displaced as a result of the demolition of over 620 residential structures. Over 60% of the Palestinian-owned structures demolished in 2011 were located in areas allocated to settlements and 2011 saw a rapid acceleration in settlement construction activity.
Israeli settlements inside occupied Palestinian territory are illegal under international law and constitute a war crime under the IV Geneva Convention. Catherine Ashton has repeatedly stated that “the EU position on settlements, including in East Jerusalem, is clear: they are illegal under international law [and] an obstacle to peace”..
Corporations commit illegal acts in support of Israeli settlements and provide the means to facilitate the crime – a material element of complicity. Under international criminal law, those involved in the commission of a criminal offence can be held responsible as principal perpetrators or as complicit accomplices..
Some of the legal obligations that Israel has violated during its systematic denial of Palestinian rights infer obligations on third states, including the European Union and its member states.Two such obligations are of particular relevance:
- a duty of non-recognition – Third states must not recognise as lawful a situation created by a gross systematic failure of another state to fulfil one of its legal obligations. ..The duty extends not only to the formal recognition of these situations, but also to acts which would imply such recognition..
- a duty of non-assistance – Third states must not render aid or assistance in maintaining a situation created by a gross or systematic failure of another state to fulfil one its obligations..
All of these duties were said by the International Court of Justice (ICJ) to apply to third states in the context of the Wall that Israel is constructing on Palestinian territory and illegal settlements..
3. Jerusalem EU Heads of Mission report
The recently leaked 2011 Jerusalem EU Heads of Mission report noted drastically deteriorating situation in East Jerusalem “…in particular the systematic increase in settlement activity…increasingly undermines the two-state solution”.
The report went on to note that Israel’s explicit policy to prevent the Palestinian population from becoming more than 30% of the total population in Jerusalem had resulted in a series of new settlement, road and light rail construction projects, house demolitions and restrictions on movement and assembly that were undermining the permanent Palestinian presence in the city.
The report called for a more active and visible implementation of EU policy on East Jerusalem. The report’s recommendations, made “keeping in mind the deterioration on the ground”, made three explicit suggestions regarding withdrawing the support from EU countries for Israel’s ongoing settlement construction:
6) Prevent/discourage financial transactions from EU Member State (MS) actors supporting settlement activity in East Jerusalem.
7) Invite the Commission to consider proposing appropriate EU legislation to prevent/discourage financial transactions in support of settlement activity.
9) Ensure that products manufactured in settlements in East Jerusalem do not benefit from preferential treatment under the EU-Israel Association Agreement.
4. Review of European support for Israel’s illegal settlements
4.1 Settlement trade
Exports from settlement businesses play an integral part in the process of military occupation and colonisation of occupied Palestinian territory. Settlement businesses profit from the exploitation of Palestinian resources, sit atop land and use resources that have been illegally confiscated from Palestinians. Many settlement businesses contribute directly to settlement expansion, transforming government settlement plans into new facts on the ground that permanently alter the character of Palestinian land and ensure Israeli control of Palestinian resources..
Israeli agricultural export companies actively facilitate the ongoing colonisation of Palestinian land and employ Palestinian workers in illegal Israeli settlements in illegal conditions yet continue to be able to export their produce to European markets. Exports of settlement produce provide an economic incentive for occupation, fund the systematic denial of the rights of Palestinians and undermine prospects for a just and sustainable peace. The EU, followed by the USA, is the most important market for the export of Israeli fruit, vegetables, herbs and flowers, with vegetables currently being the fastest growing product.
Many European supermarkets now state that they have policies and processes in place preventing the sale of products grown or manufactured in illegal settlements. However, Israeli exporters are known to deliberately employ a variety of deceptive techniques in order to prevent the detection of settlement products. More importantly, many of the supermarkets that make such claims continue to maintain business with the companies that operate inside illegal Israeli settlements and bear much responsibility for the theft of Palestinian land and resources and the exploitation of Palestinian workers.
4.2 Participation of Israeli settlement companies in EU funded programs
At least 22 Israeli actors participate in the European Security Research Programme, and many more participate in other themes within the Seventh Framework Programme (FP7), the principal EU research funding mechanism. Israeli participants in FP7 directly contribute to or are complicit accomplices to acts that are illegal under international law. Such companies include:
- Ahava Dead Sea Laboratories, a cosmetics manufacturer and retailer partially owned by three illegal settlements in occupied Palestinian territory. The company factory and visitors centre are both located in the illegal Israeli settlement of Mitzpe Shalem in the occupied Palestinian West Bank. Ahava participates in 3 FP7 projects.
- Elbit Systems is an Israeli arms company that is involved in the construction of Israel’s illegal Wall and the supply of equipment and weapons to the Israeli military. Elbit Systems participates in 4 FP7 projects.
In addition, FP7 projects allow Israeli actors to further develop technology that has been deployed in such a way that facilitates violation of international law.
4.3 Provision of services to settlements by European companies
European companies provide a variety of services to infrastructure projects serving and providing support essential to the expansion of Israel’s illegal settlements. Such companies are directly involved in the commission of illegal acts and their European shareholders profit from violations of international law. Examples include:
- French giant Veolia, which operates transport and waste services for illegal settlements. The company partly owns and is a major contractor on the Jerusalem Light Rail, a project designed to tie Israel’s illegal settlements more firmly to Israel that has been condemned as illegal by the UN Human Rights Council.
- Danish-British security company G4S has provided equipment for Israeli-run checkpoints and terminals in the West Bank and Gaza, fitted out Israeli prisons in occupied Palestinian territory and interrogation facilities used to torture Palestinian political prisoners and provides security services to various businesses in Israeli settlements in the West Bank
- Dutch construction services company Riwal has provided equipment and services as part of the construction of Israel’s illegal Wall and settlements in occupied Palestinian territory. In early 2011 the Dordrecht offices of the company were raided and searched the headquarters of Riwal in Dordrecht, the Netherlands, following criminal complaints lodged by the Palestinian human rights group Al-Haq. The criminal investigation is on-going.
4.4 Israeli settlement companies operating in the EU
Israeli companies that operate from illegal Israeli settlements are able to operate subsidiaries and trade freely in European Union, not only exporting produce from those settlements to European businesses and consumers, but also generating a revenue stream that facilitates their operations within illegal Israeli settlements. Examples include:
- Israeli agricultural export company Mehadrin operates within illegal Israeli settlements, exports settlement produce to Europe, is directly responsible for the illegal exploitation of Palestinian workers and assists the Israeli state and other actors with the theft of Palestinian land and water. The company has subsidiaries and business premises in countries across Europe including France, UK, Netherlands and Switzerland.
- Israeli water company Eden Springs extracts and distributes mineral water, markets coffee and espresso machines, home and office water devices. The company uses the water from a spring in the occupied Syrian Golan Heights. The main plant is located in Katzerin I.Z., which is also in the Golan Heights. The company has subsidiaries throughout Europe that sell bottled water and water coolers, especially to public sector buildings.
4.5 Other financial flows
There are a variety of other financial transactions that channel funds for Europe to Israel’s illegal settlements. For example:
- The Israeli subsidiary of Belgian bank Dexia provided loans totalling more than $4.9m to illegal Israeli settlements.
- A wide range of organisations registered as charities in European countries, including the Jewish National Fund, receive state support and tax assistance as they fundraise for the construction and maintenance of Israel’s illegal settlements.
a) EU institutions should investigate introducing legislation that would implement a ban on any financial engagement with illegal Israeli settlements and Israeli companies that are directly involved or materially complicit with Israeli violations of international law relating to illegal Israeli settlement construction on occupied Palestinian territory. Such a ban should exclude Israeli companies operating in illegal settlements from the European marketplace.
b) The relevant bodies of the European Commission to undertake an urgent review of the participation of Israeli companies involved in violations of international law in European research projects and ensure that no further funds are allocated to them
c) The EU and member states should provide information to European businesses about the legal situation relating to illegal Israeli settlements, including information about the possibility of European businesses themselves becoming criminally liable for Israeli violations of international law
d) The EU and member states should conduct studies into the trade links and financial flows between European businesses and states and illegal Israeli settlements
 European Union (2011), Statement by EU High Representative Catherine Ashton following the vote in the UN Security Council on the resolution on the settlements
 This principle is codified in article 7(1) of the Statute of the International Criminal Tribunal for the former Yugoslavia (ICTY), Article 6(1) of the Statute of the International Criminal Tribunal for Rwanda (ICTR) and article 25 of the ICC Statute.
 For a thorough legal analysis, see: PLO Negotiations Affairs Department (2008), The Business of Colonization
Russell Tribunal on Palestine, Findings of Barcelona Session
 Wall Advisory Opinion, ibid., para. 15
 ILC Draft Articles, supra note 25, Art. 41, page 286, para.
ILC Draft Articles., Art. 41(2); and Wall Advisory Opinion, supra note 25, para. 159
 Wall Advisory Opinion, ibid., para. 158
PLO Negotiations Affairs Department (2008), The Business of Colonization http://www.nad-plo.org/facts/col-sett/NSU%20Policy%20Paper%20Business%20Colonization%20FINAL%20(Oct%202008).pdf
OECD (2010), OECD Review of agricultural policies: Israel, 2010, Idem, p.50
 Researchers have uncovered widespread mislabeling of agricultural produce grown or packed in illegal Israeli settlements as ‘Produce of Israel’. See Corporate Watch UK (2011), Targeting Israeli Apartheid.
The UK government recently confirmed that cosmetics company Ahava, which is known to base its only production facility in the illegal settlement of Mitzpe Shalem, has falsely claimed that its products are manufactured inside Israel see Hansard (2011), database of proceedings of the UK parliament.
 Ahava website http://www.ahava.com/?CategoryID=190&ArticleID=188&SearchParam=mitzpe+shalem
Ahava, Coalition of Women for Peace http://www.whoprofits.org/Company%20Info.php?id=575
Council on Ethics, Recommendation on the exclusion of the company Elbit Systems Ltd http://www.regjeringen.no/pages/2236685/Elbit_engelsk.pdf
 Global Exchange, Veolia profile http://www.globalexchange.org/economicactivism/veolia/why
 Nieuwhof, A Dutch company raided over involvement in occupation
 BDSmovement, Mehadrin profile http://www.bdsmovement.net/2011/mehadrin-profile-8450
 Coalition of Women for Peace, Eden Springs profile http://www.whoprofits.org/Company%20Info.php?id=503
 Coalition of Women for Peace (2010), Financing the Israeli Occupation
 Corporate Watch UK (2011), Targeting Israeli Apartheid