It’s an unwritten arrangement Diaspora Jewish leaders and Israel have kept for decades — though few Jews know about it: The government of Israel uses one of world Jewry’s main Zionist funding instruments to hide money that it channels secretly to exclusively Jewish settlements in the occupied West Bank.

The funding body is the World Zionist Organization, set up to represent all Jews who support the concept of a Jewish state. For more than a century, the WZO, founded by Theodor Herzl at the first Zionist Congress, has served to gather the Zionist movement’s members under one nonpartisan umbrella.

But for decades, the Israeli government, with the tacit consent of Diaspora Jewish leaders, has taken one branch of this group, the Settlement Division, and turned it into a covert cash box for bankrolling settlement activity off the government’s own books.

Now, a sudden spike in public attention and an unexpected vote at the WZO’s governing body meeting could bring an end to this arrangement and dry up one of the key funding vehicles of West Bank settlements.

The WZO executive committee’s February 19 vote adopting two resolutions put forth by progressive Zionist groups would essentially close the loophole that allowed money to flow to settlements without public scrutiny. The resolutions require more control over the funding branch and full transparency for its activities.

“There’s never been transparency, so no one knows what money comes in and goes out,” said Judy Gelman, a representative of the progressive Hatikvah slate at the WZO that submitted the resolution. “So to see this happen is a major, major achievement. Diaspora Jewry wants to see where the money is going.”

The complex funding mechanism used by the WZO evolved through years of cooperation with the Israeli government. After the founding of the state of Israel in 1948, the WZO, as well as its sister organization, the Jewish Agency for Israel, adjusted its role and became an umbrella organization in which representatives from Israel and from Jewish communities abroad provide funding for settlements, education, immigration to Israel, and combating anti-Semitism.

In the Zionist Congress, the WZO’s top governing body, 38% of the members represent Israeli political parties; 29% are from American Zionist movements; and 33% are from other Jewish communities. For years, the head of the WZO also headed the Jewish Agency for Israel, but in 2009 the positions were separated; the WZO is currently headed by Avraham Duvdevani, a member of Yisrael Beiteinu, the right-wing party led by Foreign Minister Avigdor Lieberman.

As Israel’s settlement activity in the West Bank grew, starting in the 1970s, the WZO’s Settlement Division emerged as a key force in supporting Jewish building in the Palestinian territories. This function had been previously entrusted to its partner group the Jewish Agency, which received most of its Diaspora funding from Jewish federations in North America. The reason for shift, explained Gershom Gorenberg, author of “The Accidental Empire: Israel and the Birth of the Settlements, 1967-1977,” was to protect American donors from running into trouble with the Internal Revenue Service for sending tax exempt dollars to settlements in territories America viewed as occupied.

“It kept Jewish American philanthropists out of the settlements,” Gorenberg said. He described the creation of the WZO Settlement Division a “quasi-fiction bureaucracy.”

In the 1980s and ’90s, the Settlement Division evolved into the Israeli government’s key funding vehicle for its settlement activity in the West Bank.

While all other operations of the WZO are funded by both Diaspora funds and funds from the Israeli government, the Settlement Division is solely funded, and effectively controlled, by the government. An agreement signed in 2000 between WZO and the Israeli government defines the Settlement Division’s mandate as developing Jewish settlements in the Golan Heights, Samaria, Judea, the Jordan Valley, and, until Israel’s disengagement, the Gaza Strip. Later on, areas of the Galilee and the Negev, which are part of Israel proper, were added to the division’s jurisdiction.

What made WZO’s Settlement Division such an attractive conduit for government funds was the fact that it is not a government body. As such, it is not subject to transparency rules, nor does it have to abide by disclosure rules that regulate governmental institutions. “It’s a great hideout,” said a former Israeli government official.

Information about the Settlement Division’s financial activity is anecdotal. In a 1999 report, Israel’s state comptroller confirmed that “the entire budget of the division comes from the government budget.” The comptroller’s report found that the division’s budget that year reached nearly $50 million, all directed to settlements across the Green Line.

In 2013, the Knesset’s research center compared the Settlement Division’s approved budget to its actual budget and found that it grew massively thanks to the government’s huge undisclosed infusion of funds. The Division’s central region, which includes most of its West Bank settlement activity, was allocated $1.7 million in 2013, but ended up with an increase of 2,333%, which brought its budget up to $41.8 million.

A report published last year by the liberal-leaning Molad think tank in Israel found that three-quarters of the Division’s funds go to settlements across the Green Line. The report was titled: “The secret trove of the right wing settlers.”

Recently, the WZO’s function as a non-transparent funding arm for settlements has drawn increased public attention in Israel. Much of this attention was a result of the efforts of Stav Shaffir, a leader of Israel’s social justice protest movement who was elected to the parliament in 2012. As a lawmaker, Shaffir has devoted much of her time to fighting against secret money transfers from the government’s budget.

In meetings of the Knesset’s finance committee, Shaffir was ejected from the meeting several times for trying to force lawmakers to expose the funds delivered to West Bank settlements via the WZO’s Settlement Division. Shaffir referred to the body as the “corruption division” and said it had become “a secret cash fund for the heads of Judea and Samaria settlements.”

But Shaffir’s efforts failed to open the WZO’s Settlement Division to public scrutiny. Another attempt, led by then Justice Minister Tzipi Livni, to make the division accountable to freedom of information requests, failed as well.

Then came a police investigation. On December 31, investigators from the Israeli national police’s Lahav-443 unit raided the Settlement Division’s offices and confiscated documents related to a corruption scandal involving top members of Yisrael Beiteinu party. At the core of the investigation stood claims that members of Knesset from the party used the Settlement Division to illegally transfer funds to political allies.

Yet despite these growing attempts to end the use of the Settlement Division as the government’s unofficial funding arm, it was ultimately the work of Jewish Diaspora activists, partnering with Israeli representatives to the executive committee, that succeeded in bringing the WZO’s settlement branch closer than ever to this goal.

Two resolutions approved by the body in its last meeting could potentially overturn the practice and restore world Jewry’s control over the division. The first, presented by the liberal Meretz party and approved with two-thirds of the votes, calls on the WZO to “restore the authority and complete control over the Settlement Division to the WZO.” If implemented, this would mean putting an end to the Israeli government’s sole authority over the division.

The second resolution, sponsored by the Hatikvah slate, won the votes of 74 members with only 24 opposing the measure. It demands that the Settlement Division “operate under the generally-accepted rules of transparency.” The decision will be implemented within three months. “It’s not non-transparent by accident,” Gelman told the Forward, explaining that the resolution is meant to make sure the division is no longer used as a means for hiding government funding of settlements.

Morton Klein, head of the Zionist Organization of America, which is active in the WZO, said there is no reason to believe that introducing transparency to the organization should “prevent Israel from continuing its commitment to help its citizens wherever they live.” Klein called authors of the resolution who oppose Jewish settlements in the West Bank “naive, childish, silly Jews” who believe that settlements are the key obstacle to peace.

“Recent corruption investigations of Yisrael Beiteinu and the alleged involvement of senior officials from the Settlement Division in this affair highlight the need to impose transparency on this organization,” said Dror Morag, who represents Meretz at the executive committee.

How did a body controlled by members close to Israel’s right and center-right wings approve such resolutions?

Much of it had to do with luck. Participants speculated that some American and European representatives, even from the right, felt uneasy voting against a call for transparency. Others point to a more trivial reason: Many executive members were absent, in part because of the looming snowstorm that threatened to shut down Jerusalem that night.

But even though the resolutions are now on the books and are, at least officially, binding, many suspect they’ll make no difference on the ground.

Initial reactions from officials close to the WZO indicate this suspicion could be well founded.

An Israeli political official involved with the WZO’s governing bodies said it is not clear whether the organization can enforce transparency on money coming not from WZO donors but from the government. According to the official, once a new government is formed in Israel after the March 17 elections, it will move to bypass these resolutions.

In an official response provided to The Marker, an Israeli business newspaper, Yaron Ben Ezra, director general of the Settlement Division, said that transferring responsibility for the division from the Israeli government to the WZO would only be possible “as soon as the WZO starts funding the division, which is now funded by the government.”

Contact Nathan Guttman at guttman@forward.com or on Twitter @nathanguttman