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Challenge No. 43

A Secret Account in Tel Aviv Funds Arafat's Oppression 

Hand in Glove 

By Michal Schwartz


The Palestinian Authority (PA) has a huge bureaucracy and numerous militias, but few people knew until recently how these establishments get their money. The countries that donate to the PA, especially Japan and the European Union, do not like to fund such non-productive entities. They want their largesse to go into infrastructure, not into the salaries of bureaucrats and policemen, especially since the PA record on human rights has been sharply criticized. What is worse, these donor countries demand a reckoning. How then can the PA meet its payroll?

The answer lies in a branch of Bank Leumi, on Ha-Hashmonaim Street, Tel Aviv, in an account controlled by two men: Yasser Arafat and his economic advisor, Mohammed Rashid. Only now has the secret account become public knowledge.

Because the private sector is so meager and the bureaucracy so large, Arafat is by far the largest employer in the Territories. About 80,000 breadwinners depend upon him for their salaries -- and this at a time of soaring unemployment. But Arafat himself depends upon the account in Tel Aviv. Thus Israel continues to hold the real power. Only by its good graces can Arafat continue to buy support, curb democratic freedoms, and use his employees to stifle opposition. He and his acolytes are thought to have stashed away some of the money abroad, however, in case things get out of hand.1 Deposits to this "second fund," as the account has been dubbed, come from two main sources: 1. Israel imports gasoline and supplies a portion of this to the PA areas; all import customs collected on this portion go to the fund. 2. The heads of the monopolies in the PA areas likewise divert shares of their profits to the account.

Where does the money come from?

Let us look at the sources of the bank deposits in detail.

Customs duties: Israel and the PA signed the Paris economic accords in April 1994. The accords stipulate that most of the goods entering the Palestinian areas must first be imported by Israel. All revenues on the goods are collected by Israel on behalf of the PA. These include the Value Added Tax (VAT), customs duties, import taxes, and levies on tobacco, alcohol and gasoline. Israel likewise collects health and income taxes from Palestinians who work within its area. Israel transfers these revenues to the PA after deducting service fees, as well as any amounts the PA owes it for the use of its electricity, telephone and medical services. The remainder, except for the refund on the gasoline levy, goes to four bank accounts in the Gaza branches of the Palestine Bank, as well as to the Arab Bank. These Israeli transfers account for almost 50% of the Palestinian budget.

The gasoline levy is an exception. Israel transfers it to the account in Tel Aviv. Since 1994 it has put at least $166 million in that "second fund." This year's deposits alone amount to $82.5 million.

Monopolies: Monopolies control 27 basic commodities entering the PA-controlled areas, including steel, cement, gasoline and meat. These firms do not manufacture goods or provide employment, but merely import from Israel. Members of a clique close to Arafat have set up joint ventures with Israeli businessmen. Together they reap the benefits of monopolistic overpricing and excessive profits.

Arafat's partner in the secret account, Mohammed Rashid, heads the Territories' largest monopoly, which controls gasoline. He pockets part of the profit and sends the rest to the "second fund," which also receives the gasoline customs levy. Various members of the Palestinian Legislative Council (PLC) have asked the PA for details about the gasoline monopoly, but the questions have always been shunted aside for "security" reasons.

Before the Paris economic accords, Israel supplied gasoline to the Palestinians through the Pedesco consortium, consisting of three companies: Paz, Delek and Sonol. Pedesco had contracts to supply several gasoline stations in the Territories until the year 2000. But in 1994, with the coming of Palestinian self-rule, members of Jibril Rajoub's Preventive Security Services (one of the militias) notified gasoline stations all over the Territories that henceforth they were to buy only from Dor, another Israeli firm. Rajoub's security men forcibly kept Pedesco trucks from selling their gas. Pedesco also lost all the equipment it had supplied to stations in Gaza.

Pedesco lost out because the PA, without so much as issuing a tender, had selected Dor as the sole supplier. Pedesco estimates its losses at $13.3 million. It has appealed to the Israeli state comptroller, to the PA and to the Israeli High Court -- so far to no avail.

Mohammed Rashid also signed a contract with Nesher, Israel's largest cement factory, so he now has that monopoly too. Nesher's sales to the PA amount to 18% of its total revenues.

Many other top officials are part of this system. Nabil Sha'ath, the Minister of Planning, for instance, owns a big Egyptian computer company, which is the main supplier to the PA. Yasser Abbas, son of Abbas Zaki, a PLC member from Fatah, and Sami Ramlawi, a senior official in the Palestinian Ministry of Finance, both import electronic gadgets for supply to the PA.

Mohammed Dahalan, chief of Preventive Security in Gaza, owns a freight company in Erez and heads a monopoly that controls the gravel industry. Hashem Abu Nada, an economic advisor to Arafat, and Ramzi Houri, chief of Arafat's bureau, head the monopoly known as Al-Baher.2 At the time Israel and the PA signed the Paris accords, many of these monopolies already existed. The accords merely gave them an official sanction to operate.

An Oslo Idyll: From Enemies to Friends

To run their import businesses, the monopoly chiefs have linked up with Israeli suppliers. Shmuel Goren, for example, once the chief military coordinator in the Territories, is a manager at Dor.

Yossi Ginosar was a senior member of the General Security Services (GSS or Shin Bet). The GSS dismissed him after he was implicated in cases of torture and cover-up. He then joined the Labor party. After failing to make a mark in politics because of his dubious past, he moved on to business. He is a close friend of Mohammed Rashid; he was even invited to Rashid's wedding in Cairo.

At one stage Ginosar arranged a meeting between Rashid and an Israeli tobacco importer. According to the latter Rashid proposed that they establish a company to import tobacco into the Territories and split the profit among themselves: 45% to each of the owners and the remaining 10% to Ginosar for his role as broker. The deal, however, has not gone through.

The Hebrew daily Ha'aretz attempted to interview Ginosar, but he refused. The PA severely punishes any attempt by the Palestinian press to publish articles which mention these links. When Asad al-Asad, a Palestinian editor, translated criticisms of Ginosar which had appeared in Globus, the prestigious Israeli financial newspaper, he was held for 24 hours by Rajoub's men for "breaching security".

The close friendship between one of the most detested people in the GSS and top PA officials typifies the new era of collaboration and corruption.

Silence is golden

Challenge and its sister publication in Arabic, Al-Sabar, have revealed aspects of this system in the past. Al-Sabar wrote about the secret bank account,3 as well as the collusion between top PA officials and dubious Israeli businessmen.4 Both Al-Sabar and Challenge have described the growth and domination of monopolies in the Territories, especially in Gaza.5 Dr. Sara Roy, an American economist, has also dealt with monopolies extensively in academic journals.6 Yet not one Arabic newspaper in the Territories published any of this information. Politicians too kept quiet. The only exception was Husam Khader, an independent PLC member from Nablus. Khader exposed the sale of adulterated flour. This too led nowhere. Al-Sabar attempted to get more details about this scam from the Control and Economic Committees of the PLC. The legislators promised the newspaper more details after completion of a report on corruption and monopolies. The report has never seen the light of day.

The Hebrew and Arabic media in Israel, for their part, have also shown little interest in this growing, insidious system. The Israeli courts and the Office of the State Comptroller (a body that deals with corruption in government) turned a deaf ear to complaints by Israeli companies which had lost out on business.

The lid on this corrupt system popped open at last only after sections of the International Monetary Fund and the European donor countries, as well as disgruntled companies on both sides of the Green Line, took the inside details to the journalists of the mainstream paper Ha'aretz. It published an extensive investigative report,7 presenting the information uncovered earlier by Al-Sabar, together with much more. We dare say that this is still but the tip of the iceberg.

Turning a blind eye

Challenge asked a European official based in Gaza for his thoughts concerning Palestinian officials involved in corruption. He answered, "The source of all problems is the Paris accord, which leaves the Palestinian economy in Israeli hands, as well as the Israeli closure, which suffocates the Palestinian economy." He hoped that the monopolies would be on the way out by the end of 1998, as Palestinian officials had promised the donor countries.

The official's attitude can be summed up thus: This is how Third World countries operate, these are the people who must put the Oslo accords into practice, and we have to accept them as they are if we want to save Oslo. By no means will we exert pressure on them. We want their stability. The official vehemently denied a statement in Ha'aretz , according to which the donor countries had threatened to stop aiding the PA if it failed to curb corruption and dismantle the monopolies.

Israel's attitude resembles that of the European official. It is quite happy with the present arrangement, which leaves the Territories in the hands of a clique whose members are dependent for their personal wealth on Israel's economy.

One incident epitomizes the skewed power equation. In September last year, Palestinian policemen and Israeli soldiers were firing at each other because Netanyahu had opened a tunnel in Jerusalem's Old City. Even at the height of the battle, a high-ranking Palestinian official phoned Arye Zaif, the head of Israeli customs. Zaif controls the huge monetary transfers to the PA. The official asked Zaif to make a scheduled transfer two days ahead of schedule. Zaif agreed. The street battles, it turns out, were just a superficial show of resistance. Many died, but the PA knew in advance there was nothing to gain by fighting. It depends overwhelmingly on Israel for its day-to-day needs, and both sides know this.

Israel and the PA have yet to negotiate the final status of the Territories. Given the background described above, the talks can only tilt in one direction. Israel will dictate what it pleases. Arafat will protest, but he will finally make do with token concessions in order to keep his regime in power. The Palestinian people will continue to suffer under the double yoke of two rapacious regimes. The fundamental problem will remain unsolved. Peace has become more elusive than ever.


1 Ronen Bergman and David Ratner, "The man who swallowed Gaza," Ha'aretz, April 4, 1997. We are indebted to the Bergman-Ratner article for many of the details in what follows.

2 Iyad Khalaile, "Al-Baher company: A corrupt monopoly," Al-Sabar, June 28, 1996; and Iyad Khalaile, "Where is the donor's money going?", Challenge, No. 39, Sept.-Oct 1996.

3 Michal Schwartz, "Israel encourages Palestinian monopolies: Corruption finances Oppression," Al-Sabar, Feb. 28, 1997.

4 Ibid.

5 See footnote 2.

6 Dr. Sara Roy , "Economic deterioration in the Gaza Strip," Middle East Report, July-Sept. 1996.

7 See Footnote 1.



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