Auditing Arafat

national | miscellaneous | news report Monday March 10, 2003 08:28 by Avi H.

Arafat - One of the World's Richest Leaders

The Palestinian leader has more than Israeli tanks to worry about.

Frozen out by the Bush Administration and hemmed in by the Israeli military, Yasir Arafat is now facing a new threat: the cutoff of funds from his very own Palestinian Authority. Financial reforms might succeed in hampering the flow of money to terrorists--might even end up toppling Arafat himself.

Money keeps Arafat in power. With a tight grip on much of the $5.5 billion in international aid that has flowed into the PA since 1994, he appears to have overseen virtually all disbursements, from $600 payments to alleged terrorists and $1,500 in "tuition" for security officers, to $10 million, reportedly paid by a company controlled by friends of Arafat, for a 50-ton shipment of weapons from Iran.

Take the money out of his hands, reform a corrupt financial system and you could reduce the violence. That's the thinking of U.S. and European officials who insisted on the appointment of a new finance minister for the PA. Salam Fayyad, 50, is the chain-smoking Palestinian technocrat armed with little more than a Ph.D. in economics from the University of Texas who got the finance job last June. Israel has responded by resuming the transfer of $30 million or more per month in tax revenues to the PA, disbursements that were frozen in December 2000 following an outbreak of terrorist bombings. Israel may even release the $500 million-plus that piled up during the freeze.

"I am here to tell you it's not Arafat's money anymore," says Fayyad, sitting in his office in Ramallah, three miles from the Arafat base that Israeli tanks have all but destroyed. A portrait of the Palestinian leader looms above him. "I'm not going to accept anything but total transparency."

He is using standard accounting to take control of the PA's mysterious finances and open them up for all to see. Arafat's three main sources of cash: foreign aid, Israeli tax transfers and profits from PA-controlled companies. Fayyad's first move was to consolidate the PA's funds into a single treasury account under his control. That change ended the autonomy wielded by ministerial fiefs that were free to collect their own revenues and redistribute the funds as they saw fit.

It amounts to a direct attack on Arafat's elaborate patronage system, which ensures the loyalty of the Palestinians' fractious factions. "He is always ready to pull money out of his pocket to buy people," says Said Aburish, an Arafat biographer. An Israeli intelligence report pegs Arafat's personal holdings at $1.3 billion (a claim dubbed "ridiculous" by the Arafat camp), but Israeli officials say Arafat uses his largesse mainly to buy friendships.

"Until the last six months PA money was a power instrument for Arafat," says Eran Lerman, a retired colonel in Israel's military intelligence. "Calling what Fayyad is doing a threat to Arafat is an understatement." Fayyad, for his part, dismisses any such notion. Arafat, he says, "is the person who appointed me, and I am confident in a few months we will have one of the most accountable systems around."

In late December Fayyad took another step toward that goal. He submitted the first publicly disclosed PA budget, a $1.3 billion plan approved by the Palestinian Legislative Council. Auditing of the spending is being supervised by Ernst & Young, hired by the United Nations, and Deloitte & Touche, hired by the U.S. His latest move: the February delivery of the first meaningful annual report, conducted by Standard & Poor's, on the finances of ten PA-owned businesses once controlled by Arafat. Fayyad has lumped these and other interests together in the Palestine Investment Fund, of which he now is chairman, though the fund is managed by Arafat's trusted financial adviser, Mohammed Rachid.

The businesses include a 23% stake in the Jericho casino (worth $28.5 million) and 20% of a Tunisian telecom company ($50 million), as well as a $55 million firm that controls most of the cement imported into the territories and 13 accounts holding an estimated $73 million. At Fayyad's behest S&P is now valuing the fund's other 50 or so holdings, including a gasoline monopoly that is believed to net $1 million a month.

Israeli officials began releasing tax proceeds in July, beginning with a trickle of $14 million payments, rising to $58 million in February. The money, which is deposited into the central account Fayyad controls, includes excise taxes of up to $8 million a month collected by Israel on oil sold to Palestinian-controlled areas. The oil-tax collections--some $500 million from 1996 to 2000--previously flowed into a separate account controlled by Arafat and Rachid.