On 1 September 2025, a little-noticed administrative decision by the financial regulator of one of Europe’s smallest countries set off a legal storm that is still building.
The regulator, Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF), approved a prospectus for Israel’s diaspora bond programme allowing it to sell its “Israel Bonds” to retail investors across the European Union.
These bonds were explicitly marketed with the slogan “Stand with Israel. Israel is at War” – and the opportunity for Luxembourg to approve them came about due to growing outrage and accusations of genocide faced by Israel over its actions in Gaza.
For years, the bond programme had been anchored in Ireland, with its central bank serving as its regulatory home. But sustained parliamentary and civil society opposition in Dublin – linking the bond sales to the financing of military operations in Gaza – created enough pressure that the issuer of the bond, the US-based Development Corporation for Israel (DCI), sought a transfer.
Under EU regulation, an issuer can request that “approval competence” for a specific prospectus be delegated to the regulator of another member state.
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Luxembourg agreed to receive it, with the CSSF as the regulator.
What happened next was highly irregular given the political controversy surrounding these bonds: the CSSF did not consult Luxembourg’s Ministry of Foreign and European Affairs before approving the prospectus.
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Francesca Albanese, the UN special rapporteur on the occupied Palestinian territories, was unsparing in her assessment of the arrangement when she spoke at a conference in Luxembourg last month, organised by Amnesty International, to examine the country’s legal exposure to Israel.
“The sale of these bonds is illegal under international law because it goes directly to funding the genocide,” she said.
“International law [demands] that all financial actors have to abstain from directly being linked to human rights crimes. And those who have authorised the sale of bonds are implicated. It is morally and legally wrong to sell these bonds.”
Governments issue bonds to raise money for public spending or to repay debts. For Israel, those bond sales have been crucial to the financing of its wars in Gaza, Lebanon and Iran.
Bonds marketed for war
To understand why legal scholars and parliamentarians are now calling Luxembourg’s approval a potential breach of international law, it helps to understand what DCI’s Israel Bonds actually are.
Unlike standard Israeli government bonds sold to institutional investors (as covered by Middle East Eye), Israel Bonds are marketed directly at retail investors, religious organisations, and municipal funds – often through diaspora networks and appeals to solidarity.
DCI’s own promotional material at the time of the Luxembourg approval left little ambiguity about their purpose: supporting Israel’s wartime budget.
Since 7 October 2023, Israel Bonds have raised $7.7bn for the Israeli government, according to DCI’s website and Instagram page.
Proceeds from these bond sales flow as unrestricted general financing into Israel’s treasury at a moment when military expenditure has surged from roughly 20 percent to over 30 percent of total government consumption.
A detailed report released last month – prepared by a team of legal scholars, economists, and financial regulation specialists and presented at Amnesty International’s conference in Luxembourg – lays out the risks posed by Israel Bonds to the grand duchy, and to investors as well.
DCI’s marketing strategy, the report argues, leverages political and emotional sentiment that obscures numerous financial and legal issues.
Even as Israel’s own official financial filings in the US warn of severe economic contraction, DCI assures buyers of a “resilient” economy poised to outperform other developed nations.
The report calls this a “patriotic premium” – the idea that buyers, motivated by solidarity rather than financial calculation, accept returns far below what the risk actually warrants.
An investor lending money to Ukraine for a year, for example, would demand a return of around 25 percent; for Russia, around 15 percent. In short, lending money to countries at war usually means high returns for investors.
But Israel Bonds are yielding around four percent despite the country being at war and running a deficit of nearly seven percent of GDP.
The gap, the authors argue, is being filled not by sound economics but by sentiment – and retail investors are carrying risks they have never been properly told about.
Is Luxembourg ignoring international law?
The report’s legal framework centres on three provisional measures orders issued by the International Court of Justice (ICJ) in 2024, each affirming the plausibility that Israel is committing genocide, although the case against Israel at the ICJ is ongoing.
It also cites the ICJ Advisory Opinion of July 2024, which imposed obligations of non-assistance and non-cooperation on all states with respect to Israel’s unlawful occupation.
“The processing of Israel Bonds in EU markets is undeniably a grave violation of international law,” Shahd Hammouri of Law for Palestine, one of the conference’s keynote speakers, told MEE.
“This act cannot be justified with reference to financial or bureaucratic considerations.”
She went further, arguing that Luxembourg’s financial regulator had possessed – and failed to use – the tools to refuse.
“Luxembourg did have discretionary authority under the prospectus regulation to refuse the approval whenever there are systematic risks to public interest, peace, and the maintenance of an unlawful regime. To fail to exercise this discretion when the risk of complicity is serious is indeed a clear breach of their duties.”
Most strikingly, Hammouri argued that personal criminal liability may follow.
“By facilitating the processing of fungible proceeds from Israel Bonds, Luxembourg is aiding and abetting according to the standards of facilitation… and those who made the decision to approve the prospectus are indeed at personal criminal responsibility for facilitating acts of genocide.”
The report draws an explicit historical parallel with Luxembourg’s own past.
Between 1967 and 1975, Kredietbank Luxembourg extended approximately $625m in loans to apartheid South Africa, while European loans to the regime were booked on the Luxembourg Stock Exchange.
The international response eventually culminated in the US Comprehensive Anti-Apartheid Act of 1986, which explicitly prohibited the purchase of South African government debt.
“Today’s framework is materially stronger,” the report notes, “anchored in binding ICJ findings rather than accumulated political pressure.”
The contradiction is sharpened by the fact that Luxembourg formally recognised the State of Palestine on 22 September 2025 – just three weeks after the CSSF approved the bond prospectus.
‘Inaction is not an option’
Amnesty’s conference in Luxembourg on 18 May 2026 brought together more than 200 people, including Albanese, political economist Shir Hever, Irish senator Alice-Mary Higgins, and several Luxembourgish parliamentarians.
It generated five concrete calls for action, to be implemented within six to 12 months.
The most urgent is the September 2026 deadline, the point at which bond prospectuses are renewed annually.
Senator Higgins, one of the politicians who helped to force the original transfer out of Ireland, made clear that neither Dublin nor Luxembourg should facilitate the next one.
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“These authorities have tools which they should be using to ensure that these bonds are not renewed in September,” she said.
If that happened, and no other country within the bloc agreed to approve the bonds then they could no longer be sold in the EU, she added.
Higgins also took direct aim at the tendency of governments to hide behind their regulators’ independence.
“The government would like to create deniability by saying the independence of the competent authority means ‘there’s nothing we can do’,” she said. “That is not an acceptable position.”
Franz Fayot, a Luxembourgish MP from the centre-left LSAP party, told the conference that his team had now published two legal opinions – one from scholars at the University of Luxembourg, another from Utrecht University in the Netherlands – both of which concluded that the gravity of Israel’s violations of international law was beyond question, and that Luxembourg’s inaction was not an option.
“It is also very clearly stated that Luxembourg even now has possibilities to act economically through sanctions, but also to take action through its financial sector. That is the big leverage that we have.”
Fayot pledged that a parliamentary debate – which he was organising together with the Greens and the Lenk (Left) party – would result in concrete proposals.
“We will undoubtedly propose certain initiatives, motions, and possibly draft bills in order to improve the existing framework and truly hold the government to account.”
Political side-stepping
Luxembourg’s centre-right coalition government has so far responded to the pressure with a carefully constructed evasion.
When questioned in parliament in late May 2026, ministers declined to say whether the CSSF’s September 2025 approval had engaged Luxembourg’s international responsibility – citing the regulator’s independence.
Asked whether the government intended to intervene to prevent a repeat, ministers said the same thing: the CSSF acts with full independence and autonomy, and the government cannot intervene in its decision-making.
On the street, the response has been no different.
When activists from the newly launched Stop Israel Bonds campaign protested outside the finance ministry, Finance Minister Gilles Roth’s office issued a statement saying only that “the CSSF is the competent authority”.
It was the same line given by ministers to journalists in February 2026.
The CSSF itself has maintained that its role is purely technical – limited to determining whether the information in the Israel Bonds prospectus was complete, consistent, and comprehensible.
It has stressed that approval does not constitute a judgment on the economic or financial merits of the transaction, nor on the quality or solvency of the issuer.
Critics argue this position is legally untenable.
Speaking to MEE, Anas Obeidat, a Luxembourg-based activist and one of the report’s co-authors, put it directly: “Hiding behind technicality does not remove responsibility. Legal and financial distancing mechanisms cannot be used as a shield against accountability for what is happening in the Occupied Palestinian Territories and [Luxembourg’s role in facilitating the financing behind war crimes].”
ESG capital of Europe
There is one more dimension to the controversy that Luxembourg’s financial sector may find uncomfortable.
The grand duchy has invested heavily in positioning itself as Europe’s leading hub for sustainable finance and ESG (Environmental, Social, and Governance) investment.
The Norway Government Pension Fund – whose exclusion list functions as a benchmark for the ESG community globally – has already divested from companies linked to the unlawful occupation, alongside a string of other European financial institutions.
Luxembourg’s own public pension fund, the Fonds de Compensation, however, remains invested in several companies listed on a United Nations database of business enterprises supporting Israeli settlements.
“Luxembourg is Europe’s largest ESG hub,” the report notes, and the CSSF’s approval of the Israel Bonds prospectus “places this positioning under significant reputational and political strain.”
Hammouri offered a broader vision of what action by Luxembourg could mean: “A political movement in Luxembourg regulating the financial sector in a way that makes it impossible to contribute to or benefit from serious violations in contexts of war would be revolutionary for the global economy.”
Looming deadline
A lawsuit is reportedly being prepared in Luxembourg against the CSSF, based on its alleged failure to protect investors from risks the prospectus did not adequately disclose – mirroring a case filed in Dublin against the Central Bank of Ireland before the transfer.
The Stop Israel Bonds campaign, launched at the May conference, is coordinating civil society pressure across Luxembourg, Ireland, and the wider EU, with the explicit goal of preventing the bonds from simply moving to Germany or another willing host if Luxembourg ultimately declines renewal.
The September deadline looms large. The question now is whether Luxembourg’s government will continue to insist that its hands are tied – or whether its parliament, its civil society, and the accumulating weight of international legal opinion will force a different answer before the Israel Bonds prospectus comes up for renewal.
As Martina Patone, another co-author of the report, tells MEE: “What is written in this report is not unknown to our European governments. But keeping it on the page will remind the future of what was done, and hopefully expose, in the present, those who chose not to act.”
