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Reexamining U.S. Aid to the Palestinian Authority

Reexamining U.S. Aid to the Palestinian Authority

Jonathan Schanzer
14th September 2011 - House Foreign Affairs Committee

Full Committee
Ileana Ros-Lehtinen (R-FL)

Promoting Peace? Reexamining U.S. Aid to the Palestinian Authority, Part II

Date Wednesday, September 14, 2011
Time 10:00 AM
Location Room 2172 of the Rayburn House Office Building

Jonathan Schanzer, PhD
Vice President, Research
Foundation for Defense of Democracies

Chairman Ros-Lehtinen, Ranking Member Berman, and distinguished members of the House Committee on Foreign Affairs, on behalf of the Foundation for Defense of Democracies, I thank you for the opportunity to discuss with you today some of the challenges associated with our country’s aid package to the Palestinians.

I testify today having conducted interviews last week with Palestinian Authority figures, Fatah party officials, and Israeli authorities in both Ramallah and Jerusalem.  I will base much of my testimony on these interviews, but also draw from other open-source documents and some broader historical observations. 

After briefly reviewing Washington’s largesse to the Palestinians, this testimony will address four additional areas. The first cites specific examples of corruption and malfeasance that require better oversight by the US Congress. The second assesses US- Palestinian relations.  The third examines the potential impact, should Washington cut its aid. Finally, I provide a number of recommendations.

US Aid to the Palestinians

Palestinian aid in its current form began in 1993, with the creation of the Palestinian Authority (PA).  For the United States, Israel, and the rest of the international community, the PA was a more attractive option than the Palestine Liberation Organization, which had been responsible for scores of terrorist attacks since the 1960s. The prevailing wisdom was that although the PA was still controlled by PLO leader Yasser Arafat, its very existence would signal a shift from the PLO’s decades-long campaign of terrorism to the practice of governance. As such, the PA was charged with combating and preventing terrorism against Israel from Hamas and other radical groups.  It was further expected to foster stability and prosperity in the West Bank and the Gaza Strip to prepare the way for peace and self-governance.[1]

Since 1993 the United States has provided over $4 billion to the Palestinians. Since FY2008, that aid has averaged approximately $600 million annually.  The current allocation is:  $200 million for direct budgetary assistance to the PA, $100 million for security assistance, and another $300 million to NGOs. [2]

Areas of Concern

It is important to state up front that some of this aid has gone to good projects run by good people. However, Palestinian nationalism is a relatively new phenomenon, and its leaders have little experience in governance.  This has led to many failed programs, prompting the majority of Palestinians to lose faith in the PA as a legitimate governing administration.[3]  Moreover, even good programs are too often marred by the dangerous and populist messages of Palestinian nationalism that condone terrorism and encourage hatred against Israel. Other programs are plagued by corruption, or were simply poor ideas from the start.

One case in point is the UN Relief and Works Agency. The United States is the largest single-state donor to UNRWA. Since 1950, the United States has contributed approximately $4 billion to it. Since 2007, the United States has given an annual average of $200 million.[4]  While all other refugee issues have been directed to, and solved by, the UN High Commissioner for Refugees, UNRWA has had sole responsibility for the Palestinian refugees of the 1948 and 1967 wars.  But rather than dealing with the original refugees, UNRWA now services the children, grandchildren, and great grandchildren of those who were originally displaced. While the original number was estimated at 750,000, the number of Palestinians now claiming refugee status exceeds 5 million.[5]  Those claiming refugee status insist that they have a right to live inside Israel proper, and that the conflict cannot be solved until their claims are addressed. This is a major stumbling block for negotiations. If Israel, a country of 5 million Jews, were to accept this demand, it would be demographically destroyed. Unfortunately, UNRWA services these refugees as clients, and perpetuates their claims, rather than finding a way to end them.[6]  In other words, UNRWA has become a problem instead of a solution.

Another problem, dating back to 1993, is the issue of the PA’s incitement to violence.  This was a problem under Yasser Arafat, and it remains a problem now. The PA names streets after celebrated perpetrators of terrorism. It celebrates the anniversaries of terrorist attacks. Official television programs, print media, and textbooks continue to refuse to recognize Israel or actively delegitimize it.[7]  This incitement and de-legitimization, well documented by watchdog groups MEMRI and Palestinian Media Watch, is all carried out through the official budget of the Palestinian Authority, to which American taxpayers annually contribute.

It is also worth noting that the PA does more than honor those convicted of terrorism against Israel. Research sponsored by the Foundation for Defense of Democracies yielded an official PA document, dated June 28, 2010, describing the pay structure to prisoners and their families. PA stipends are to be distributed based on how much time prisoners have spent in Israeli jails. Those who serve shorter sentences receive less (1400 Israeli shekels per month, or $380) than those with longer terms (12,000 Israeli shekels per month, or $3,250). It is worth noting that the longer the prison term, the more violent the crime.[8]

There is also the matter of corruption. After the death of PA chairman Yasser Arafat, the world learned that he had siphoned off an estimated $1 billion to enrich his inner circle.[9]  With the arrival of Salaam Fayyad, then finance minister and now prime minster, the PA began to experience a degree of accountability and transparency. Indeed, it appeared the PA was cleaning up its act. However, in recent years, Fayyad has been sidelined by PA President Mahmoud Abbas. Abbas has consolidated power, and he is now abusing it.

One egregious example is the Palestine Investment Fund. The PIF was created in 2002 to manage and distribute the money and commercial interests owned by the PA.[10]  The bylaws were established so that its operations would be transparent, since the PIF effectively functions as a sovereign wealth fund.  The PIF succeeded in bringing hundreds of millions of dollars of commercial assets in the Palestinian budget into the light of day.  The PIF’s operating procedures call for the Fund to operate as an independent vehicle for economic stimulus for the benefit of the Palestinian people. In recent years, however, Abbas changed the charter, installed his own choices for board members, placed the PIF under his full control, and neglected to have the PIF audited by outsiders. Today, Prime Minister Fayyad has zero oversight of the PIF, despite his celebrated mandate for transparency.[11]

As the largest donor to the PA, the US has a right to oversee the PIF.  The PIF contributes dividends to the PA every year. The PA also borrows from this fund, currently worth at least $1 billion, when it cannot pay salaries. In return for money borrowed, Abbas has been repaying the PIF with land that will be used for additional businesses that enrich his inner circle.[12]

Oversight of the PIF is long overdue. Mohammed Dahlan, a former PA official, charges that $1.3 billion has gone missing from the fund.[13]  Another former official claims that if Congress were to demand an accounting of the PIF, it would cause an “explosion,” revealing corruption at the highest levels of the Palestinian Authority.[14]   The fact that Hamas recently took full control of the PIF’s assets and offices in Gaza adds to the concern.[15]

Another worthwhile inquiry would explore the way in which Abbas’ sons, Yasser and Tarek, have accumulated wealth since their father took office in 2005.

Yasser, the oldest son, owns Falcon Tobacco, which has a monopoly over the marketing of US-made cigarettes such as Kent and Lucky in the West Bank and Gaza Strip.  In a place where smoking is a national pastime, Yasser Abbas has raked in untold millions.[16]

Yasser also owns Falcon Electro Mechanical Contracting Company, which received $1.89 million from USAID in 2005 to build a sewage system in the West Bank town of Hebron.  His other company, First Option Project Construction Management Company, also received some $300,000 in USAID funds.[17]

The younger Tarek is general manager of Sky Advertising, which received hundreds of thousands of dollars from USAID to bolster opinion of the US in the Palestinian territories.[18]  His ad agency also won a lucrative contract from the controversial Wataniya cell phone company, where his brother Yasser sat on the board. Wataniya was created with international donor funds, including US assistance.[19]

According to Fatah officials, the Abbas brothers have now withdrawn much of their holdings from the West Bank, and their names appear on only a few boards.[20]  The Abbas family reportedly owns lavish properties in Jordan, Tunisia, and possibly the Gulf. One former PA official estimates that the total property owned by Abbas and his sons is $10 million.[21]

Finally, there is the PA’s ambiguous relationship with Hamas.   Despite its ongoing feud with Hamas, the PA has secretly allowed the jihadist group to raise funds through an electricity scam.  Electricity in Gaza is produced by a power plant that is guaranteed by the Palestinian Authority, but the bills are collected by Hamas. As one former advisor to the PA confides, “the Hamas authorities collect their bills from customers in Gaza, but never send the funds back to the West Bank.  And the PA continues to foot the bill.”  It should also be noted that Hamas government institutions and prominent Hamas members simply don’t pay their bills. The PA covers them, as well.[22]

In other words, Abbas allows Hamas to raise funds by billing Gazans for electricity that they don’t generate.  And because the PA is funded by US taxpayer money, we are all enabling Hamas to raise those funds. This is a violation of US law, and it must be addressed immediately.

Of equal importance is the reconciliation agreement, struck in May, between Hamas, the terrorist organization ruling Gaza, and Fatah, the dominant faction of the PA. What does it say about the PA if it joins hands with a terrorist group that has taken the lives of Americans, as well as Israelis?  Given Hamas’ designation as a terrorist organization by both the US Treasury and the US Department of State, the law is clear. Should the PA form a government that includes Hamas, US aid cannot legally continue to support it.  Mahmoud Abbas knows this, yet the process of reconciliation persists.

US-Palestinian Relations

The frustration of squandered American aid to the Palestinians does not tell the full story.

Americans recall the images of Palestinians celebrating in the streets in the wake of the September 11 attacks of 2001.[23]  Americans also recall the way in which the Palestinians, under the leadership of Yasser Arafat, squandered years of US-led diplomacy with Israel when they elected to shun a peace deal and launch the al-Aqsa Intifada—a low level war—against Israel in autumn 2000.[24]  There are several court cases pending against the PA for acts of terrorism that claimed the lives of Americans.[25]   And the anti-Americanism in the Palestinian media is second only to the anti-Israel invective.[26]

On the other hand, one could argue that the new PA leadership has worked closely with the United States to rebuild after the devastating effects of the intifada. With the death of Arafat in 2004 and the advent of a more transparent government less prone to sponsor violence, advocates of the Palestinian cause will argue that the PA has earned its aid. Proponents further argue that the US-Palestinian security and intelligence cooperation in recent years has been extremely positive, in light of the fact that it is in both the interest of the PA and the US to minimize the power of Hamas.[27]  Finally, the prevailing wisdom in Washington is that aid is our best leverage with the Palestinians, and is a relatively inexpensive way to maintain good will in the Arab world.

But the expected Palestinian unilateral declaration of independence this month raises new and troubling questions.

For one, the UDI is an outright rejection of the Oslo Accords, the legal framework for US-Palestinian relations. In many ways, it is also a rejection of the US role as the broker for continued diplomacy. 

In fact, the Palestinian plan to declare a state this month is designed, in part, to isolate the United States from the Arab world.  President Barack Obama has stated that the United States would veto the UDI at the UN Security Council, based on his belief that bilateral negotiations are the only true path to peace. If Abbas goes to the Security Council first, he may force the US to publicly deny the Palestinians statehood on the world stage. As Fatah officials recently explained, even after the US went to great pains to support the protest movements in Egypt, Libya, Syria, and elsewhere, America’s decision to veto Palestinian independence would damage its credibility in the Arab world.[28]

The Impact of Cutting Aid

What would be the economic impact if America cuts its aid to the Palestinians?  In short, it would be devastating.  The impact could be compounded if the Israelis, who collect some $100 million in Value Added Taxes (VAT) on behalf of the Palestinians each month, elect to withhold these funds.  One Israeli official recently indicated that two scenarios—a Hamas-Fatah unity government or a Palestinian decision to go through with the UDI—could trigger such a move.[29]  These are the same events that could trigger a cut in US funding. Collectively, US aid and Israeli VAT amounts to more than $1.5 billion per year.  This accounts for roughly three-quarters of the Palestinian Authority’s annual budget.

According to senior Fatah officials, it could take as little as two months for the PA to run out of cash. Thanks to unprecedented economic growth in recent years, Palestinians have increasingly taken out loans to buy cars, homes, and other items. Unable to pay their bills, the frustration would likely boil over onto the streets.[30]  If this happens, there are two scenarios that officials have described to me.

The first scenario is violence against Israel. As they have done repeatedly in the past, the Palestinians could again challenge Israel. Indeed, Israelis have already expressed concern that the political theater surrounding this month’s UDI, in which Palestinian leaders have called for mass protests, could lead to the outbreak of a third intifada.[31]   Additional unrest could undoubtedly result from a cut-off in aid. Conflict with Israel could draw other regional actors, such as Hamas and Hizbullah, into war.

Another scenario is an “intra-fada”—an uprising against Mahmoud Abbas and the Palestinian leadership. In keeping with the Arab Spring, the Palestinians of the West Bank may yet determine that their own government is the source of their frustration.[32]  While such a protest is long overdue, in light of the aforementioned corruption and unethical economic practices, unrest could destroy the delicate balance that currently exists in the West Bank.  Indeed, in 2007 Hamas brought down the PA in the Gaza Strip through a lightning-fast and brutal military coup. Fatah officials are openly concerned about Hamas’ attempts to undermine the West Bank regime in the event the Arab Spring comes to the West Bank.[33]

There is also the question of US influence. Should Washington cut aid, we could effectively relinquish all of our leverage with the Palestinians, leaving the door open for Iran or other actors to influence the PA in ways that could further threaten regional stability.

Recommendations

While there are dangers in cutting off aid to the Palestinians, Congress should not maintain the status quo.  Congress has an opportunity to challenge the corrupt system that has been fostered by Mahmoud Abbas. The following are seven recommendations:

  1. Conduct a long-overdue assessment of UNRWA, with an eye toward solving the problem, not perpetuating it. One consideration might be to transfer the Palestinian portfolio to the UN’s High Commissioner for Refugees, which handles every other refugee problem in the world.
  2. Legislate stricter oversight of the presidential waiver process that releases Palestinian aid each year. Aid should be predicated upon certification that the Palestinians have eradicated incitement from their media and schools.
  3. Establish oversight of the practices of the Palestine Investment Fund, including a full audit.
  4. Conduct an inquiry into the personal wealth of Mahmoud Abbas and his sons, Yasser and Tarek, to determine whether US funds have contributed to their personal holdings.
  5. Demand an immediate resolution to the matter of the electric power plant in Gaza. US taxpayers should not be indirectly financing Hamas under any circumstance.
  6. Scrutinize the presidential budget of PA President Mahmoud Abbas. It should now be clear that Abbas’ policies—from the UDI to unethical economic practices—challenge American interests.
  7. Find ways to increase the role of Prime Minister Salaam Fayyad, who has been marginalized by Abbas in recent years.  While he does not always adopt policies that further US interests, he appears to be the best hope for transparency and nonviolence among the Palestinian leadership today.

On behalf of the Foundation for Defense of Democracies, I thank you again for inviting me to testify before this distinguished committee.


1. Jim Zanotti, “U.S. Foreign Aid to the Palestinians,” Congressional Research Service, May 31, 2011, www.fas.org/sgp/crs/mideast/RS22967.pdf
2. Ibid.
3. Interview with former Palestinian Authority advisor, London, July 21, 2011.
4. Jim Zanotti, “U.S. Foreign Aid to the Palestinians,” Congressional Research Service, May 31, 2011, www.fas.org/sgp/crs/mideast/RS22967.pdf
5. “Palestinian Refugees,” UNRWA website, www.unrwa.org/etemplate.php?id=86
6. See: Asaf Romirowsky & Alexander Joffe, “De-Fund the UNRWA,” Wall Street Journal, April 1, 2011, http://online.wsj.com/article/SB10001424052748704396904576226452357028480.html
7. ‘Examples of Palestinian Authority Incitement,” Prime Minister’s Office (Israel), March 13, 2011, www.pmo.gov.il/PMOEng/Communication/Spokesman/2011/03/spokeincitement130311.htm
8. “Draft Regulations on the Disbursement of Monthly Salary of Prisoners and Families,” Council of Ministers, Palestinian Authority, June 28, 2010, http://freedom.ps/attachments/25-5-2011/02.pdf (Arabic)
9. Tricia McDermott, “Arafat’s Billions,” CBS News, November 7, 2003, www.cbsnews.com/stories/2003/11/07/60minutes/main582487.shtml
10. English language website at www.pif.ps/index.php?lang=en
11. Interview with Palestinian Authority official, Ramallah, September 8, 2011.
12. Interview with former Palestinian Authority official, Ramallah, September 8, 2011.
13. Khaled Abu Toameh, “Abbas ‘Feels He’s Above the Law,’ Charges Dahlan,” Jerusalem Post, July 31, 2011. www.jpost.com/MiddleEast/Article.aspx?id=231686
14. Interview with former Palestinian Authority official, Jerusalem, September 8, 2011.
15. Interview with former Palestinian Authority advisor, London, July 21, 2011.
16. Khaled Abu Toameh, “PA Officials Scandalized at Disclosure by Abbas's Son of Vast Personal Fortune,” Jerusalem Post, April 16, 2009, www.jpost.com/MiddleEast//Article.aspx?id=139339
17. Adam Entous, “Firms Run By President Abbas’s Sons Get US Contracts,” Reuters, April 22, 2009, www.reuters.com/article/2009/04/22/us-palestinians-aid-abbas-idUSTRE53L2Q220090422
18. “USAID Contracts with Firms Headed by Abbas’s Sons,” Reuters, April 22, 2009. http://uk.reuters.com/article/2009/04/22/uk-palestinians-contracts-sb-idUKTRE53L2R120090422
19. David Rose, “ Special Investigation: How Blair Rescued Palestine Deal Worth $200m to his £2-a-year Paymasters,” Daily Mail (UK), September 12, 2010, www.dailymail.co.uk/news/article-1311237/Special-investigation-How-Blair-rescued-Palestine-deal-worth-200m-2m-year-paymasters.html
20. Interview with Fatah officials, Jerusalem, September 8, 2011.
21. Interview with former Palestinian Authority official, London, July 21, 2011.
22. Interview with former Palestinian Authority advisor, London, July 21, 2011.
23. See: “Palestinians Celebrating 9/11 Attack,” MSNBC, www.youtube.com/watch?v=oMOZvbYJMvU. See also, “Reuters Statement on False Claim it Used Old Video,” CNN.com, September 20, 2001. http://archives.cnn.com/2001/US/09/20/reuters.statement/index.html
24. Bill Clinton, My Life. (NY: Alfred A Knopf, 2004), p.938.
25. Erik Tucker, “Palestinian Authority Settles RI Lawsuit,” Associated Press, February 14, 2011. http://news.yahoo.com/apnewsbreak-palestinian-authority-settles-ri-suit-20110214-120010-958.html
26. Hillel Frisch, “The Palestinian Media and Anti-Americanism: A Case Study,” MERIA, December 7, 2003, www.gloria-center.org/meria/2003/12/frisch.html
27. Jim Zanotti, “U.S. Security Assistance to the Palestinian Authority,” Congressional Research Service, January 8, 2010, www.fas.org/sgp/crs/mideast/R40664.pdf
28. Interview with Fatah officials, Jerusalem, September 8, 2011.
29. Interview with senior Israeli official, Jerusalem, September 8, 2011.
30. Interview with Fatah officials, Jerusalem, September 8, 2011.
31. “Officials Set Date for ‘Palestine 194’ March,” Al-Jazeera, August 1, 2011, http://english.aljazeera.net/news/middleeast/2011/08/201181185654921787.html
32. See: Jonathan Schanzer, “Mahmoud Abbas and the Arab Spring,” Jerusalem Post, September 7, 2011. www.jpost.com/Opinion/Op-EdContributors/Article.aspx?id=236927
33. Interview with Fatah officials, Jerusalem, September 8, 2011.

Tags

fatah, foreign-aid, hamas, israel, palestinian-authority