P.A. Accountability

While the US Congress deliberates over whether or not to comply with the request of President Clinton to grant an additional $400M to the Palestinian Authority, a team of Palestinian and Israeli journalists have prepared a comprehensive report concerning Palestinian Authority fiscal accountability.

This carefully researched Palestinian-Israeli analysis reports severe financial mismanagement by the PA that casts doubt on the ability of the PA to be responsive to the health, education, welfare or even the business needs of the Palestinian Arab population.

Principle problems documented by the report:

• At least two private bank accounts of the Palestinian Authority operate under the exclusive control of Yasser Arafat, and the monies that go through those accounts are not invested in any concerns of the Palestinian Arab people. Half a billion dollars remain in these private accounts.
• The Palestinian Authority recklessly and brutally domineers the business affairs of the Palestinian Arab population through monopolies in industries such as cement-mixing and gasoline, which kick back all profits to private coffers of PA officials. The US state department estimates that there are 27 PA-controlled monopolies.
• Fourteen PA security services collect taxes from the Palestinian Arab population, with little coordination by the PA treasury. These militias all claim loyalty to Arafat under the aegis of the various arms of the Palestinian Liberation Army.
• Assets of the PLO abroad are not being transferred to the Palestinian Authority.
• Laxity of supervision from donor-nations has given Arafat free and arbitrary control over the 2.75 billion dollars received so far from those nations.
• Proliferation of thousands of unnecessary employees in public service of the Palestinian Authority

Meanwhile, the report notes that agreements signed between Arafat and all donor nations to the PA require total supervision of the Palestinian Authority’s bank accounts along with knowledge and certification of exactly what the funds were used for. For that reason, the International Monetary Fund was brought in as a “consultant” to the Palestinian staff to prepare the Authority’s annual budget.

The report points out that the Palestinian Authority gladly accepts foreign donations but is unhappy with the supervision that accompanies it. In fact, two budgetary systems operate within the PA; one ruled by Arafat with little or no accountability to the World Bank, the IMF, and donor nations. The other, under the supervision of the contributing countries which serves to develop PA infrastructure.

The World Bank and the IMF which represent the donor nations have repeatedly demanded that the Authority close the secret set of accounts that remain under Arafat’s personal control, and whose assets run in excess of half a billion dollars. Yet Arafat has simply ignored those requests, with no consequences.

At the conference of donor nations to the PA that was held in mid-October in Japan, the Palestinian Authority promised to clean up the arbitrary accounts and to make various economic reforms. In private discussions, however, Palestinian Authority representatives joked in the corridors of the conference that they will continue to do whatever they like with the money that they receive.

A theory propagated by proponents of the Oslo process was that the flow of capital to the Palestinian Arab community would foster peace and a “new Middle East”. Instead, the billions of dollars of cash-flow in Palestinian society has led to rampant corruption and a seething population that may turn to violence – not only against Arafat’s PA, but also against Israel and the US, whom the Palestinian people blame for imposing a corrupt regime upon them.

Part I

Introduction

With regard to the economic policies of the Palestinian Authority it is important to note several severe problems of inappropriate and illegal financial management. These problems cast a heavy shadow over the ability of the PA to transform itself into a sovereign state with a stable ruling system. The lack of economic planning and questionable policy making taking into account only narrow political interests, is not economically directed and is based on corrupt norms, nepotism and defective administration. These policies have the potential to stimulate the rise in power of extremist movements and the collapse of the peace agreement.

Among the principal problems are:

• Private banks accounts which remain under the exclusive control of Arafat, with monies not invested in the Authority’s interests.
• The Authority’s involvement in business affairs in the form of state monopolistic rule.
• A total lack of knowledge, rule or control regarding the amont of money that the Authority receives from these monopolies.
• Concentration of significant governmental economic strength in the hands of one unsupervised individual (Mohammed Rashid).
• Collection of taxes by various state bodies for the financing of their own activities, without supervision or rule by the Palestinian treasury.
• Most of the assets of the PLO abroad have still not been transferred to the Palestinian Authority.
• Laxity in supervision by the donor nations over actions taken by the Authority and a lack of desire to confront Arafat.
• Exaggeration of the governmental staff regarding unnecessary employees and the creation of a large measure of concealed unemployment.

Economic Agreements with Israel

The underlying premise of the economic negotiations between Israel and the Palestinians, held simultaneously with the political discussions, was that the two economies were dependent upon one another and integrally connected. The Paris Protocol, signed in April 1994, determined two clear principles: the absence of a financial limitation between Israel and the Authority and the existence of a unified tax mantle. In other words, tax officials, value added tax officials and other governmental collectors will not be situated at the Erez checkpoint or at the demarcation line, but rather on the external borders only. Thus, the Palestinian Authority adopted Israel’s customs and taxation policy.

The Paris Agreements determined that Israel would “repay” the amounts to be collected under the four types of taxes, to the Palestinian Authority. For example, if a television is imported through the Ashdod port into the Palestinian Authority, the importer pays the Israeli government import tax. The amount received from these tax revenues will later be transferred to Palestinian Authority representatives. The same procedure would take place in exchange for bills for V.A.T. collected for a purchase in Israel, stamps on gasoline, alcohol, tobacco, income tax on employees from the territories and health tax. From this sum, Israel deducts a handling fee and, at intervals, deducts the Palestinian debt to Bezek (phone company), the electric company and hospitals in Israel.

Immediately following the Oslo Agreements, the parties and contributing organizations promised to transfer four billion dollars to the Palestinian Authority in three stages:

• A general promise of money and aid.
• Appropriation of monies from the contributing group for a specific purpose.
• Actual transfer of the money for that purpose.

The entire $4M has already been appropriated for specific purposes, including $2.75 billion which has actually been contributed. The contributing countries demanded accountability in exchange for money. They insisted on total supervision of the Palestinian Authority’s bank accounts; they insisted on knowing and certifying precisely how the money was used and they requested that the International Monetary Fund participate as a “consultant” to the Palestinian staff preparing the Authority’s annual budget.

The Palestinian Authority gladly accepted the money but objected to the supervision that accompanied it. The contributing countries demanded an investment of funds in the rehabilitation of the territories’ primitive infrastructure and the creation of as many work places as po. They did not authorize exaggerated expenditures. Also they did not designate their monies to support institutions and individuals that overlapped the President’s national goals. Chairman Arafat had other ideas.

The Secret Account

According to the Paris Agreement, in 1994, 72 million NIS were transferred to the Authority. In 1995 the sum increased to NIS 792 million. In 1996, NIS 1,391million was transferred and in 1997, one billion, six hundred million NIS. In 1989 and 1999, the annual budget remained at an average of NIS.2.3 million. These monies are the prinicpal lifeline for the Palestinian Authority. The Authority uses this money for one purpose: to pay salaries. All of the investments in infrastructure and welfare are made by the contributing countries. In this manner, two budgetary systems have actually been created in the Authority: one ruled by Arafat with some oversight by the World Bank, the IMF, and the contributing countries, and the second, under the total supervision of the contributing countries designated expressly for development. The donor nations claim the privilege of supervision over the first budget. If Arafat has extra money in these budgets (such as that which is in the secret account) then these funds should be invested in aiding the activity of the contributions to infrastructure development.

Upon implementation of the Paris Agreements, representatives of the Israeli Treasury requested clarification from the Palestinians as to where the funds should be deposited. The Palestinians asked that all of the transfers be made to four separate accounts in the Palestine Bank and the Arab Bank in Gaza, excepting the repayments for taxes on gasoline. Mohammed Rashid then requested that those funds be transferred to a secret account in the Chashmonaim branch of Bank Leumi in Tel Aviv. Israeli representatives hsd no interest in becoming involved in the manner in which the Palestinian economy was handled. Up until February 1997 about half a billion Shekels were deposited in the account. Since then the rate of transferring of monies to the bank has stabilized at an average of NIS.35 million per month, i.e. NIS.1.5 million from 1994 until today.

This account in the territories and in Israel is known as “As-sundouk at-tanee – Cashbox B, the second budget, the secret budget, the budget of the Ra’is. According to an investigation conducted by senior personnel within the countries contributing to the Authority, only two people have the right of signature on the account, Yassir Arafat himself and his senior financial consultant, the mystery man, Mohammed Rashid (see below). In an internal report, the IMF determined that the account in Tel Aviv “is not under the supervision and rule of the Palestinian Treasury”. What happened to the money? How much is left in the account and how much has been transferred to financing other activities or has arrived in the hands of individuals? Nobody knows. Senior Israeli clerks report hearing harsh complaints from generations of ministers of the Palestinian Treasury and finance (several replacements have occurred regarding this position) that the monies transferred into the Tel Aviv account do not find their way to the Palestinian Treasury.

An Israeli government source states two additional purposes for Cashbox B: The Palestinian Authority wants to assure the possibilty of smuggling family members and several senior officials in the event of a coup and to establish a government in exile. This program is highly organized and involves very large sums of money. Another reason is that the money in the Cashbox B account is used for a series of activities that Arafat’s regime feels obligated to finance– in order not to lose its political grip. This is unconnected to the economic condition. Thus, for example, Arafat continues to pay, from Cashbox B, the shahidim pensions given to widows and orphans. He continues to support those injured at Sabra and Shatila, whom he sees as his own children. For these purposes there is no financial logic and the contributing countries will never authorize such expenses.

Dr. Maher Al-Kurd, Palestinian Deuputy Minister of Finance and Commerce has stated:

“The Palestinian Authority has the permission to create financial reserves for itself for a time at which something such as a civil war will occur and it is a pity that the contributing countries and Israel do not understand this. If the Authority would receive all of the money they were promised from Israel and the contributors, our situation would be much better.”

Question: That is to say, you are maintaining another, hidden cashbox?

Answer: “I don’t know for sure that this cashbox exists, yet I think that I would definitely be happy if it did”.

Question: To which bank accounts are transferred the monies that Israel returns from the taxes?

Answer: To bank accounts in Gaza and the (West) Bank.

Question: Is there also an account in Tel Aviv?

Answer: “Actually I don’t know exactly what accounts we have and also I am not in charge of this. Ask someone else.”

The World Bank and the IMF which represent the contributing countries demanded that the Authority immediately close all the different accounts in which the monies are collecting and to unite them into one open account in the Palestine Bank in Gaza. In 1996, a three-party agreement (TAP) was signed between Israel, the contributing countries and the Authority in which the Authority promised that it would unite all of the accounts in March 1997. It fulfilled its promise, with the exception of the account in Tel Aviv.

Joseph Saba, Director of the World Bank in the territories certifies this: “Israel, the Palestinians and the contributors came to an agreement (TAP) in 1996 in which the Authority promised, among other things, to subject the said account or any other private account that they had, to the supervision and responsibility of the Palestinian Treasury. This was not done. Therefore we, the World Bank, like all of the other contributors, are not at all happy with the existing situation. We have no idea what is happening in that account.”

According to the estimate of the contributing countries, only thirty percent of the hundreds of millions of dollars actually arrive at the Palestinian Treasury. Something like forty percent finance the activities of PLO institutions throughout the world and are invested in welfare activities and in supporting orphans and widows in the Lebanese refugee camps. This sum increased in the last year as a result of a propaganda battle that is occurring in these camps between PLO supporters and Hamas trustees. The other thirty percent remains in the account as reserve or is transferred abroad to be used on the day of command.

In his response to the daily newspaper, Ha’aretz, Mohammed Rashid said that “the money for the indirect taxes is transferred from Israel directly to the territories.”

Question: And what about the account in Tel Aviv?

Answer: Ah, that, that’s nothing. That’s a transit account. Israel deposits money in it and the following day it is transferred to Gaza.”

Question: So why is it needed at all?

Answer: “The Israelis agreed to transfer money to there. You don’t really thing that someone steals this money or makes it into cashbox B. How is it possible to hide so much money? The Authority does not work under the table and we received permission from the contributing countries to hire enough policemen. Actually, I don’t know how many policemen we have, that’s not my job. We don’t have any need for a hidden budget, everything is lucid and clear. All of the money is transferred to the Treasury. I know that we promised to close all of the accounts and we are making great, serious and very sincere efforts to fulfill this promise.”

Recently Israel opened ano