THE MAN WHO SWALLOWED GAZA - 04-Apr-97

THE MAN WHO SWALLOWED GAZA

(Article by Ronen Bergman and David Ratner, "Ha'aretz", Weekend Supplement, April 4, 1997)

This is how Yasser Arafat's Fund B works: The Al-Bahr Company, for example, belongs to his chef de bureau and economic advisor. The cement monopoly is run by mystery man Muhammad Rashid, who signed the multi- million dollar contract with Dor Energy on behalf of the Authority. In a first interview with an Israeli newspaper, Rashid confirms the existence of a secret bank account in Tel Aviv.

Last Tuesday, a bearded man entered the Bank Leumi branch on Hahashmonaim Street in Tel Aviv. He spoke fluent English, presented a German passport, and asked one of the tellers to deposit a check into the account of the Palestinian Authority at the branch. The clerk mumbled something about having to ask the manager and disappeared for a few minutes. When he returned, he told the German that the bank does not know what he is talking about, that there is no Palestinian Authority account there, have a good day, thank you and good-bye.

The teller was not being accurate, to put it mildly. The Hahashmonaim branch of Bank Leumi is where Palestinian Authority chief Yasser Arafat maintains what people in the know in the territories call "A-Sunduk A- Thani," Fund B, the Chairman's second, secret budget. According to an investigation conducted by top brass of the nations contributing to the Authority, only two people have the right to sign vis-a-vis this account: Yasser Arafat and his senior economic advisor, mystery man Muhammad Rashid, known also by the name Khaled Salaam. According to other sources, the Palestinian finance minister, Ahmad Zuhadi Nashashibi, also has access to the account.

Since it was opened in 1994, Israel has transferred at least NIS 500 million into the secret account in Tel Aviv. An International Monetary Fund (IMF) internal document in Ha'aretz's possession raises the possibility that the sums are even greater. The IMF states definitively that the account in Tel Aviv "is not under the control or supervision of the Palestinian finance ministry."

What is being done with these funds? How much has been used to finance Palestinian Authority operations, and how much has been channeled for other uses, or into private hands? Aside from the account holders, no-one knows. Matters have reached the point where senior Israeli officials have heard angry complaints from successive Palestinian ministers of finance and economics (there have already been several ministerial reshuffles) to the effect that the moneys transferred by Israel to the account in Tel Aviv never reach the coffers of the Palestinian treasury.

The Paris protocol, signed in April 1994 after the economic negotiations between Israel and the Palestinians, set forth two clear rules: from an economic point of view, there is no border between Israel and the territories of the Palestinian Authority; and both parties would continue to act within one customs enclave. In other words, customs and V.A.T. officials, and other Israeli collection authorities, would not be stationed at the Erez checkpoint or along the border between Israel and the territories, but only along external borders. Thus, the Palestinian Authority in effect adopted Israel's taxation and customs policies.

Simple enough? Not at all. The Paris agreements determined that Israel would refund four types of taxes to the Palestinian Authority. Thus, for example, if a television is imported into Gaza via the port of Ashdod, the Israeli importer pays import taxes on it to the Israeli government. These taxes are subsequently funneled to the coffers of the Palestinian Authority. In a similar fashion, the V.A.T. to be collected on purchases in Israel, the excise taxes on fuel, alcohol, and tobacco, the income taxes from the work of laborers from the territories, and the health tax will be transferred. Israel deducts handling charges from these sums, as well as, from time to time, the Authority's debts to Bezek, the Electric Company, and Israeli hospitals. An internal finance ministry document breaks down the sums that Israel transferred to the Authority in accordance with the agreement: NIS 72 million in 1994, NIS 792 million in 1995, NIS 1,391 million in 1996. In the first two months of this year, NIS 264 million have already been transferred in other words, an annual rate of approximately NIS 1.5 billion. At the very beginning of the process, several ministers in the Labor government requested that the money be given by check directly to Yasser Arafat, in order to impress him. Finance ministry officials explained to them that that is not the way things are done. Eventually, it was agreed that Arafat would receive a copy of every transfer order.

This is the Palestinian Authority's lifeline. The following story is proof: the day after the Western Wall tunnel was opened, at the height of the battles between IDF soldiers and Palestinian policemen, a professional conference was being held, attended by Aryeh Zeif, then director of customs and responsible for transfers of moneys to the Palestinians. One of the Authority's senior economists managed to reach Zeif on his mobile phone. He did not want to talk about the tunnel. He wanted to know whether Israel could move up the transfer of moneys by two days, for technical reasons, something to do with holidays on the Palestinian calendar. Zeif acquiesced.

When the Paris agreements first went into effect, finance ministry representatives asked the Palestinians exactly where they wanted their money transferred. The Palestinians requested that all transfers be made to four separate accounts in the Palestine Bank and the Arab Bank in Gaza, with the exception of refunds for taxes on fuel. Muhammad Rashid then requested that these refunds be transferred to a secret account in Bank Leumi, Hahashmonaim branch, in Tel Aviv. This raised Israeli eyebrows; but the Israelis smiled among themselves and did not feel free to intervene in the running of the Palestinian economy.

The moneys passing through this account constitute a tremendous economic reserve under the direct control of Yasser Arafat. What does he need it for? The nations contributing to the Palestinian Authority have pledged to donate $2.4 billion, of which $1 billion has been transferred so far. These nations demanded transparency in respect of the money: they wanted full oversight over the Authority's bank accounts, they wanted knowledge of and to approve exactly on what the money was being spent, and they wanted to add the IMF as an "advisor" to the Palestinian team drawing up the Authority's annual budget.

The Palestinian leadership happily accepted the money, but they were much less happy about the surveillance that came with it. The contributing nations demanded that the money be invested in rehabilitating the territories' destroyed infrastructures, and in creating jobs. They did not approve exaggerated current expenditures, or support for individuals and institutions that the chairman wanted to favor. Arafat had other plans.

"The Palestinians inflated their bureaucracy totally unjustifiably," says General (Res.) Danny Rothschild, coordinator of the government's activities in the territories when the Authority was founded. "They did not fire the 21,000 employees of the Israeli civil administration who were all, except for IDF officers, Palestinians; and to this number they added 20,000 clerks who came from Tunis and another 40,000 policemen and security apparatus officers. The result was a huge system that had to receive salaries.

Dr. Hisham Awartani, one of the top experts on the economy in territories: "The inflation of the bureaucracy is a disaster for the economy; they have to cut very significant percentages from the number of employees in the public sector. But my remarks are purely theoretical; in reality, not one can be fired. Arafat needs these people as a political power base, and therefore he pays the salaries out of the slush fund. In effect, this is a time bomb. The vast majority of those employed in the public sector or the security forces earn up to NIS 1,000 per month. This isn't money. These people will get married and will want to buy food for their children. Its only a matter of time before they revolt. They must create real jobs, with reasonable salaries."

Dr. Mahr Al-Kurd, the Authority's deputy minister of economics and trade, has this response: "I think that the inflation of the government bureaucracy is one of the Authority's great economic achievements. Where would all these people find work, if we had not made them clerks?"

A senior Israeli official points out two more objectives of the slush fund: "The Palestinian Authority has a fall back plan for the rescue of Arafat, his family, and several top dogs, in the event of a coup. This plan involves operating a leadership in exile, and a great deal of money. A second matter is a series of activities that Arafat's regime feels obligated to finance, in order not to lose political power bases, regardless of good or bad economic times. Thus, for example, Arafat continues to pay, out of the slush fund, the martyr allowances to the widows and orphans. He continues to support the casualties of Sabra and Shatila, whom he considers his children. The contributing nations would never approve such expenses."

Former minister Moshe Shahal: "Rabin used to talk about this a lot. He would flush with anger about the slush funds. It irritated him that money was going for salaries instead of job creation. Rabin tried to pressure Arafat, but he would be insulted to the core of his being: what is the idea of talking to him about these things and not believing him? Nabil Shaath once spoke with Rabin and told him that they need time, that they are inexperienced, that they are employing accountants. Rabin thought this was a very strange answer."

Dr. Al-Kurd: "The Palestinian Authority has the authority to create economic reserves for times of emergency, something like a civil war; and its a shame that the contributing nations and Israel do not understand this. If the Authority were receiving all the money that Israel and the contributors promised to give, our situation would be a lot better."

So you're operating a slush fund?

"I'm not sure that such a fund exists, even though I think that I would certainly welcome one if it did exist."

Into which bank accounts are Israel's tax refunds being transferred?

"To bank accounts in Gaza and the West Bank."

Is there also an account in Tel Aviv?

"I really don't know exactly what accounts we have, nor am I responsible for this. Ask someone else."

In his first interview with an Israeli newspaper, Muhammad Rashid confirms the existence of the account in Tel Aviv. "It is a transit account," he explains. "Israel deposits money in it, and a day later it is transferred to Gaza."

So why is it needed at all?

"The Israelis agreed to transfer money there. You don't really believe that someone is stealing this money or using it as a slush fund. How is it possible to hide so much money? The Authority does not operate under the table, and we received permission from the contributing nations to employ a sufficient number of policemen. In reality, I do not know how many police officers we have; that's not my job. We have no need for a slush fund, everything is out in the open. All the money is transferred to the ministry of finance."

The closure that Israel imposed on the territories in the wake of the terrorist attacks a year ago caused tremendous economic damage to the Palestinian Authority and its citizens. The Authority has announced that it is anticipating a budget deficit of some $200 million in excess of that predicted at the beginning of 1996. The contributing nations mobilized to help and more or less closed the gap. How surprised they must have been when diplomatic investigation revealed the Bank Leumi slush fund in Tel Aviv. The moneys that were poured into that account could have reduced the budget deficit, with no need for donations. The World Bank and the IMF, representing the contributing nations, demanded that the Authority immediately close all the various accounts in which budgets are accumulating and unify them in one recognized, acknowledged account in Gaza's Palestine Bank. The Authority promised that this would happen in March, 1997. It didn't.

Muhammad Rashid: "I know we promised to close the accounts. We are making significant, serious, and very sincere efforts to keep that promise."

BACK TO THE '60s

Upon its establishment, the Palestinian Authority sought to emphasize its independence from Israel and announced the abrogation of all orders and regulations issued by the IDF since the occupation of the West Bank and the Gaza Strip in 1967. In the opinion of economic experts, like Prof. Ezra Sadan, this was a big mistake on the part of the Authority, as it created a legal vacuum and commercial chaos that has yet to be redressed. In this context, at least, the Palestinians have not learned the Israeli lesson of adopting the British system, for the most part, when establishing the State.

In effect, rescinding of the orders of the military government and the association with Israeli law set the judicial situation back 30 years: the West Bank is under the jurisdiction of Jordanian law of the 1960s, and Gaza subject to Egyptian law of the same time period. Despite the fact that the laws of those two countries have developed significantly since 1967, the Palestinians have imposed upon themselves the old codes, which did not then comprise for example, a Companies Law or a Contracts Law or an Investment Law or other laws necessary for conducting trade in the modern world. The result is that in the territories of the Authority today there is no obligation to register a company, or to compete in tenders; there is no organized system for enforcing or collecting debts; there is no law governing mortgages for housing; no way of documenting joint entrepreneurial initiatives; the list goes on and on.

"Foreign investors are hesitating to come here," says a senior Western diplomat, who maintains close ties with the Palestinian Authority on behalf of the contributing nations. "It is a mystery to them how things work, or who is guaranteeing them ownership rights in conjunction with investment, or the ability to collect debts within the boundaries of the Authority. "Prof. Jimmy Weinblatt of Ben-Gurion University: "Something like 60 bank branches have sprouted up in Gaza since the establishment of the Authority, which is a lot for such a small area. Except that these branches are not willing to lend money to residents of the Authority, because there is no system for collecting moneys in case of default."

Dr. Mahr Al-Kurd, the deputy minister of economics, confirms that the judicial situation is very bad, and that the drafting of new economic legislation is at least two years behind schedule. He also confirms that is very difficult today for residents of the territories to obtain information on economic affairs the registration of companies, for example. Al-Kurd also notes the failure of the attempt to establish official financial institutions, like a monetary authority or an income tax collections office. He blames the contributing nations for this, for not transferring sufficient funds to the think tanks that were drafting the legislation.

The senior Western diplomat reacts vociferously to this allegation: "The contributing nations gave tremendous encouragement to the Authority to fill the void and draft new legislation. The Palestinians had no financial problem. The problem was one of their priorities. Instead of spending money on positive objectives, they preferred to continue to finance their inflated bureaucracy and pay salaries. When they finally managed to pass legislation, it was the law for the encouragement of foreign investment, which is a real disaster. Our teams of experts advised them not to promulgate this legislation, which creates a governmental agency with a large budget that is supposed to encourage private entrepreneurs. We thought this was inviting corruption. They were unwilling to listen."

PARADISE FOR MONOPOLIES

Erez checkpoint, Thursday, two weeks ago. A heavyset Palestinian approaches the VIP terminal, clearly looking like he is in a big hurry. He has a stack of documents in his hands, and two young and frightened Filipino girls in his wake. The man points to them and requests expediting their transit permits into Gaza. "They are new domestic workers for Muhammad Rashid," he explains.

In answer to the question where is Rashid's office, Amir Kiani, U.S. economic attache in Israel, laughs heartily and adds a meaningful wink: "Which office are you referring to? He has many offices." The official offices are on Talatin Street, on the edge of the prestigious Rimal neighborhood. A five-story building with one sign: The Ministry of Culture. The third floor houses the offices of the Palestinian Company for Commercial Services (PCSC). It is a luxurious office, by any standard: a plethora of wood decorations and fancy furniture. In the kitchen there is a large glass jar full of formaldehyde preserving a giant black snake. Pictures of smiling leaders of the Palestinian Authority adorn the walls. Mr. Rashid is not here, says the receptionist, he is out of the country, on business.

Muhammad Rashid, or Khaled Salaam, is currently one of the Authority's strongmen. Elegantly dressed, fluent in English, married to a Canadian citizen, tells funny jokes at the right time, Rashid is cloaked in mystery and is concentrating tremendous economic power in his hands as the senior economic advisor to the chairman. Rashid is also known in the strip as "the Kurdish doctor," because of his origins in the Kurdish province of Iraq. He is not a Palestinian, and a member of the PLO during the good old days of Beirut.

At PLO headquarters in Tunis, Rashid was Yasser Arafat's media advisor; he edited the periodical "Sowt al-Bilad," published in Cyprus with the backing of the Soviet Union, and Arafat took a liking to him. Because of his origins, Rashid is dependent on Arafat; and according to a honcho in the Palestinian Authority, because of Arafat's blind faith in his advisor, he is also dependent on Rashid.

Shmuel Dankner, one of the owners of Dor Energy: "Under international law, the entity as an autonomy had the authority to terminate agreements when it began to operate, even if they were legal contracts."

Rashid means monopolies. Simultaneously with the establishment of the Authority, its leaders decided to control several essential economic sectors through monopolies; and the rights to operate the monopolies were given to several of the Authority's senior officials foremost among them Rashid. The owner of the monopoly buys the product over which he has control from the Israeli manufacturer or importer, and sells it in the territories for a much higher price. The profits finance Authority operations that the contributing nations refuse to fund, or they disappear that is to say, make their way into private pockets, as representatives of the contributing nations and members of the Palestinian parliament allege.

The fuel sector is an excellent example of a particularly profitable monopoly. Residents of the territories consumer 40 million liters of fuel per month. Under Israel's administration, by far the largest share of the market was dominated by Pedasco, jointly owned by Israel's large fuel companies (Paz, Delek, and Sonol). The company sold gasoline and oil to 65 private stations throughout the Gaza Strip and the West Bank. The stations' Palestinian owners leased their equipment from Pedasco.

Pedasco had contracts for supply with the station owners through beyond the year 2000. Under the economic agreement between the Authority and Israel, the Authority pledged not to interfere with contracts between Israeli suppliers and Palestinian customers that had been signed before the signing of the Paris protocol. Promises are promises, and reality is reality. On October 18, 1994, the underlings of Jibril Rajoub, chief of the Authority's preventive security forces, informed all service station owners that they may not accept fuel from anyone except Dor Energy. Two days later, armed emissaries of Rajoub blocked the entry of Pedasco tankers into the territories of the Authority.

The service station owners sent a letter to the Authority requesting that they be permitted to continue working with Pedasco. Rajoub turned down the request. Eli Halahmi, former CEO of Pedasco: "After the Authority consolidated power in the territories, Rajoub took over and announced that henceforth service station owners would be required to pay an additional tax, at a rate based on their daily sales. Preventive security's `fuel patrol' takes daily measurements at the service stations and checks the differences in the balances of the black gold between the morning and the evening."

This tax enables Rajoub to expand his organization's power. There are approximately 20 different security apparatuses operating in the territories today; they compete with one another, and the extent of their influence is naturally derived from their economic prowess. Avraham Biger, CEO of Paz up until two months ago, wrings his hands in chagrin: "Pedasco was simply too serious; we believed the Palestinians would live up to their obligations under the Paris agreement and would honor previous agreements. We never received any formal tender announcement from the Palestinians, and this fell on us like a bolt out of the blue."

Overnight, Pedasco found itself without contracts, without customers, and without the equipment it had leased to the gas stations. After the fact, it turned out that the Authority had even had an exclusive contract for supply with the German-French company Marimpex, signed by Yasser Arafat, when suddenly Dor showed up and snatched all the marbles. The agreement was signed between Joseph Antverg, then the CEO of Dor, and Muhammad Rashid, representing the Palestinians, as "senior economic advisor" to Arafat.

The gas station owners have no business relationship with Dor Energy. Dor sells the fuel to the Palestinian monopoly at a certain price, and the monopoly sells it to the station owners at a much higher price. The monopoly keeps the difference. The station owners have no alternative, because Rajoub's outfit in the West Bank and Muhammad Dahlan's in the Gaza Strip prevent any other, competing importation and assign armed guards to escort Dor's tankers right up to the stations themselves.

Another way in which the security apparatuses finance their augmented activity is through the collection of unloading taxes. Rajoub and Dahlan control, in effect, all the discharging platforms at the transit points to the Palestinian Authority. Dahlan is also the owner of the loading pitchforks at the Erez checkpoint. Every merchant and truck owner must pay the preventive security apparatus a tithe in order to proceed. Sometimes, its done in a simpler fashion. An Israeli importer of cleaning products, who opened a branch in Gaza, was asked to pay $2,000, a "donation" to Force 17. A year ago,a rich Arab from East Jerusalem was asked to purchase 14 new jeeps, out of his own money, for Rajoub's organization's use.

A senior minister in the previous cabinet, who had looked into the procedures for transferring goods, relates: "One of the major problems I came across was the control over the transfer points by entities that collected transfer taxes for themselves people like Dahlan and others, who maintained private tills. Thus, for example, a certain entity who had received a franchise from Arafat for gravel used to transfer merchandise I don't know whether the money was transferred to private accounts, or for the financing of various apparatuses. Everyone there aggrandizes himself by creating an income apparatus of his own. In this manner, drivers would have to pay a transfer tax to one organization or another in order to transport goods from the north of the strip to the south, without any connection to Israel or the closure, simply because all the organizations wanted to support themselves."

THE FUEL WARS

The agreement on fuel supply was indeed signed by Rashid wearing his official hat, but it is not clear which hat he is wearing when he is the director of the fuel monopoly. According to senior officials in the contributing nations and Palestinian economists, the management of the monopoly is in the hands of PCSC. The company's offices say that the director is Muhammad Rashid. A senior Western diplomat who has looked into the matter on behalf of the contributing nations notes that Rashid is the owner of the monopoly and cuts a huge coupon therefrom in the form of a very large chunk of the profits. The Palestinian parliament several times asked the Authority for data on the companies under Rashid's management, and met with an adamant refusal for reasons of confidentiality. Mahr Al- Kurd, the deputy minister of economics, refuses to answer questions about Muhammad Rashid.

Pedasco appealed to the official in charge of fuel in the Palestinian Authority, Hirbi Muhammad Abdel Kadr Sarsur, and requested compensation for the large amount of equipment belonging to it that was left behind in the gas stations in the territories. Sarsur told them that the money was on its way. That was in November of 1995.

In Israel, Pedasco filed suit in District Court, seeking an injunction against Dor Energy from supplying fuel to the Palestinian Authority. Dor argued and correctly, from a legal point of view that it has nothing to do with the station owners who signed the contracts with Pedasco, and that its contract is with the Palestinian Authority alone. Pedasco also appealed to the Supreme Court against the government of Israel and the Palestinian Authority; it estimated its losses as a result of the granting of the franchise to Dor at NIS 43 million, which it demands that the State of Israel deduct from the taxes that it transfers to the Authority.

Pedasco also turned to the State Comptroller, seeking an investigation into the role of two former senior defense establishment officials, Yossi Ginossar and Shmuel Goren, in measures that preceded Dor's winning the oil contract with the Authority. Shmuel Goren is one of the directors of Dor Chemicals Trading Company. The name of Ginossar, the chairman of Amidar, has been mentioned many times in the last two years as the Siamese twin of Muhammad Rashid, and liaison and coordinator for Rashid's business affairs in Israel. The State Comptroller was asked to investigate conflicts of interest between Ginossar's two positions. Whatever happened to the complaints? The Comptroller's Office refused to answer the question this week.

Shmuel Goren: "Pedasco's allegations are lies, and this isn't the first time I've heard them. I submitted documents and affidavits to the State Comptroller proving that I had resigned my position as coordinator of activities in the territories in 1991, while the deal with the monopoly was signed only in 1994. I worked with the Dankner Group, but I had no connection with the Dor Energy transaction with the Authority. Nor do I know Muhammad Rashid, nor have I ever met him. I know he is involved with Yossi Ginossar and others, but I do not know him."

Yossi Ginossar has refused to comment. It would appear that Ginossar, formerly head of interrogations for the General Security Services and anathema to the Palestinians, has been rehabilitated by the PLO leadership. The journalist Assad al-Assad translated an unflattering Globes newspaper article about Ginossar into Arabic and published it in his newspaper, Al- Bilad. A few hours after the newspaper was distributed to the stands, Rajoub's preventive security people appeared in al-Assad's office and informed him that he was under arrest for harming state security. Rajoub himself told Assad that it is forbidden to publish lies in a newspaper, even if they are translated, and jailed him for 24 hours.

Another Israeli go-between between Dor and the Palestinian Authority is Ovadia Koko, a resident of Holon, known also as Abdullah. Koko is the senior partner in the "Shefer and Levy" fuel transport company, headquartered in Rishon Lezion, not far from Koko's Pub, which also belongs to him. An Israeli who visited the company's offices recently testifies that he saw pictures of Abu Jihad and Chairman Arafat on the walls.

The Shefer Company shares with the Yiftah Company the transport of Dor's fuel to the territories: Yiftah's tankers cover the Authority's territories from Nablus to the north, and Shefer covers all the rest. Ovadia Koko declined to comment, observing only that it was a pleasure doing business with the Palestinians. Yiftah director Eli Mutai sheds a bit of light on this pleasure: "It's not just a question of taxes and monopolies. It is Middle Eastern economics. Nothing works without baksheesh. Its first and foremost Jibril Rajoub, and then Dahlan. Business there runs smoothly, everyone gets a piece, the people in power receive percentages. There are several power centers there. I cannot point these power centers out, because at some point this draws fire. I just thank God that I don't get involved with that."

A senior Israeli tax official reports that at one point in the economic negotiations, Muhammad Rashid tried to include representatives of Dor Energy as outside advisors to the parties. The Israelis would not agree, and the Dor representatives were forced to leave the room. Dor's franchise is due to expire in July 1997; its immediate renewal is anticipated in the territories, with no tender.

Joseph Antverg, Dor's outgoing CEO, has recently been mentioned as a candidate to direct the Israel Lands Administration. As Dor's CEO, he signed the agreement between Dor and the Palestinian Authority together with Muhammad Rashid. "I do not wish to speak," he says.

Were you personally involved in the negotiations with the Palestinians?

"I'm neither confirming nor denying. I've remained silent until now; there are things that run more smoothly away from the media."

A few months ago, several Israelis were invited to Muhammad Rashid's wedding in Cairo. Were you one of them?

"I was invited but did not go."

Shmuel Dankner, owner of Dor Energy, says that the relationship between Dor and the Palestinian Authority was established through regular negotiations, as with any other client. "They talked to all the fuel companies," he says. "What motivated them exactly to choose us? I imagine the competitiveness of the prices, as well as the ability to convince them that we would give them the best service."

Pedasco claims that there was no tender.

"I know that Pedasco made all sorts of offers. It was not a tender that was published in the newspapers, but there definitely was a tender among all the fuel companies."

A real tender? They claim that one day Jibril's men prevented their entry.

"It's painful for them; Dor Energy in general is a thorn in their sides. That's how it is; they have to get used to the idea that the market is open and competitive."

The Paris Agreements determined that the Authority must honor agreements; Pedasco claims that their long-term contracts were abrogated.

"Under international law, the entity as an autonomy had the authority to terminate agreements when it began to operate, even if they were legal contracts."

They say you have warm ties with Muhammad Rashid.

"First of all, anything you want to hear about him, you ask him. Secondly, warm ties is an exaggeration. We have correct ties, as with any large customer."

But only really close friends were invited to the wedding in Cairo.

"Yes, I was invited to his wedding in Cairo."

Your franchise expires in 1997; what will happen then?

I have no doubt it will be renewed. We're the best.

How much do you sell to the Authority in a year?

"$150 million."

NOT EVERYONE KEEPS QUIET

Haider Abd a-Shafi, who was the head of the Palestinian delegation to the peace talks in Madrid, is today the most notable opposition member of the Palestinian parliament. "Without the monopolies, the economy could be in much better shape," he says. He is not alone in parliament. Hussam Hadr from Nablus says, for example: "They cut up the pie among themselves. The Palestinian leaders thought that our economy was some sort of inheritance due them and their children. Every honcho got himself a fat slice of the imports into the Authority. One got the fuel, another got the cigarettes, yet another the lottery, and his crony the flour. Gravel is a monopoly belonging directly to the security apparatuses, and they earn a fortune from it that finances their operations."

The monopolies' activities in several sectors have jacked up the prices to the consumer. Feed for sheep (khalta) sold under Israel's administration at 120 dinars a ton. Today, the price is 300 dinars a ton. The price of a six-kilogram bag of flour has nearly tripled, from $15 to $40. Hadr does not object to the Authority's collecting a commission on import taxes. "The problem is that the money does not get to the Authority, and the Authority has no idea of what is happening or what the monopolies' profits are. Freedom of information. You make me laugh. I could yell in parliament and set up commissions of inquiry, but nothing would come of it. We don't get the information from the Authority that we ask for. We don't know how much the monopolies earn, or where the money goes. The senior economists and monopoly owners, especially Muhammad Rashid, are not willing to appear before the parliament; and when they do appear, they just leave unanswered questions behind them and all this they cloak under the guise of state security, and it's all classified."

Hadr's criticism grows more vociferous: "We are, in fact, talking about a mafia that began to operate in parallel with the conducting of the negotiations with Israel. The same men who talked politics and Oslo tried at the same time to forge ties with Israeli companies. This same mafia now incites against the Palestinian legislative council. These men will do everything they can to continue their activities unsupervised and unmonitored by any other body. A weak parliament suits them very well."

Hadr was the one who exposed the flour affair several months ago. It turned out that one of the cronies of a certain minister in the Authority received the franchise to import flour. The man imported 5,000 tons of flour from Romania, and received an import permit for same from the Ministry of Supply. The flour was improperly stored in large storehouses in Nablus and spoiled. Hussam Hadr: "The storehouses are near my home, and it seemed strange to me to see Israeli trucks arriving in the middle of the night and loading large amounts of flour from the storehouses. I followed one of the trucks to a flour packaging facility in Tel Aviv. I discovered that they were repackaging the spoiled flour as if it were still good, and returning it to the territories to be sold in stores."

As soon as the scandal blew, Hadr says, the Minister of Supply, Abu Ali Shaheen, ordered his chief of staff not to give the legislative council any documents or details related to flour imports. "Abu Amar (Arafat) established a ministerial commission of inquiry that, without holding a single meeting, arrived at the conclusion that everything was hunky dory. Our commission of inquiry will issue its own findings next week." Hadr also reports that senior officials in the Authority threatened him that if he continued to delve into the matter his parliamentary immunity would be revoked. The same top dogs, he says, are frequent visitors to the flour importer's home.

Abu Ali Shaheen is that same veteran Fatah activist who, just before the Authority was established, published an open manifesto against corruption in the upper echelons of the PLO.

HOW THE SEA SWALLOWED GAZA

As with flour and fuel, monopolies were established for the importation of steel, meat, paint, building materials, cement, and cigarettes all under the control of senior officials of the Authority or their relatives.

According to American State Department reports, 27 monopolies are currently operating in the Authority's territories. In addition, the Authority issues import licenses to only a few of the applicants. Thus, Nabil Shaath's Egyptian company imports computers into the territories. Ramallah is the headquarters of Paltech, importers of consumer entertainment electronics (televisions, VCRs), owned by Yasser Abbas (the son of Abu Mazen) and Sami Ramlawi, one of the top officials of the Palestinian ministry of finance. Many Palestinian merchants discovered, to their chagrin, that the monopolies led to the elimination of competition and the closing of markets and contracts that had been open under Israel's administration. Nowadays, there is one supplier, and one has to buy from him.

Not long ago, member of the Palestinian parliament Rawiya Shawa read a speech in which she depicted "how the sea swallowed Gaza." The allegory was clear to all those who understood matters. Sharkat al Bahr (the Sea Company) is the Gazan company that is building a resort area in Gaza and is involved in other real estate deals. A registration document of the company reveals that it currently has two owners: Hashem Hussein Hashem Abu Nada, whose occupation is described in the document as a "merchant" although he is actually an economic advisor to Chairman Arafat and senior finance ministry official; and Muayin Khoury, known also by the name Ramzi, also described as a "merchant" even though he is, in fact, Arafat's chef de bureau.

Former Minister Moshe Shahal: "This is a system we find in most of the Arab world. We could not interfere; it was not in our purview to do so. They are also very sensitive: you cannot criticize them. Even in conversation with a man who is really educated and intelligent, like Nabil Shaath, what does he say to you? Its not me, it's the chairman. What could I do? I said: come and visit. I didn't say: come and learn; I didn't want them to get insulted. I said: we're willing to give you any model you want. I explained about savings in an economy; but it's not easy."

An Israeli from the center of the country who imports electric appliances for the Palestinian Authority relates that he had forged his ties with Nabil Shaath even before the Oslo agreements were signed, in the offices of Shaath's economic empire in Cairo. "I wanted to export to Egypt; but Nabil said to me, forget it, there will be peace soon and we can do great business in Palestine. After the Oslo agreements, Nabil's company, Team, opened an office in Gaza; and his son, Ali, was assigned to run it. I did business with Ali in both the private and government sector; in other words, sales of equipment to the Authority. Through these deals, I met people in the chairman's bureau, including the chairman's economic advisor, Abu Nada."

Team International has signed a half-million dollar contract for the installation of a computer network for the Palestinian Authority. "After eight months," says the Israeli importer, "Nabil Shaath's activity waned considerably, and I started doing business with the Al-Bahr Company, in partnership: they were supposedly doing the work for the Authority and selling it equipment, but in actuality, all the work was ours."

If everything came from you, why did you need Abu Nada?

"Are you nuts? And how exactly would a Jew from Israel win a contract to supply the Palestinian Authority? Abu Nada would bring me in to the chairman's office, tell him that we have to order from Al-Bahr such and such light bulbs, electric sockets, cables, air-conditioners. The chairman would sign, and that would be it. Finished."

Hikmat Ziad, chairman of the Authority's economics committee: "Everything you're saying about the owners of the company and its dubious business dealings is correct. The Al-Bahr case is a very serious one, and we shall discuss it in parliament very soon."

Dr. Hisham Awartani: "When it was founded, the Palestinian Authority promised a market economy. In actuality, it is doing exactly the opposite, interfering constantly in private enterprise while its leaders stuff their pockets. We, the Palestinians, have a tendency to blame Israel for all our economic problems. That is a major mistake. We have to blame ourselves as well. First of all, I think we have to get rid of the Authority's entire economic leadership: Nabil Shaath, Abu Ala, Muhammad Shtiya, Muhammad Rashid. We can't possibly allow a man like Nabil Shaath, who has such extensive private business dealings in the Authority, to preside over its official economy in a manner that places him in a position of constant conflicts of interests. We cannot possibly take such an ineffectual economics minister [the reference is to Mahr al-Mitzri]. They have all failed. They must all go home."

Dr. Awartani heads up an independent economic think tank that recently looked into the cement monopoly. It turns out that Muhammad Rashid company's PCSC also imports the cement. All Palestinian contractors must buy Nesher cement from Rashid. Trucks of other manufacturers are stopped by security forces. A senior source in the Authority, who requested anonymity, called our attention to the very close ties between Muhammad Rashid and domestic affairs minister Jamil Tarifi. A quick inquiry revealed that the PCSC office is housed in the office building of the construction company belonging to Jamal Tarifi, Jamil's brother.

Mahmoud al-Fara is one of the wealthiest businessmen in the Gaza Strip. He made his fortune in the United States and is currently building the airport at Dahaniyeh, as well as Gaza's new flour mills. Al-Fara relates that he feels the heavy hand of the monopolies every day. The Authority's security forces compelled him to buy cement from the Nesher plant, even though he had reached agreement with an Egyptian company to import cement at a much lower price.

Avraham Pe'er, formerly the head of Nesher Trading, refuses to discuss his dealings with the Palestinians. Yitzhak Davidi, CEO of Nesher, adamantly refuses to divulge details of the company's agreement with the Palestinian Authority. According to him, he declines at the insistence of the Authority. Last year, Nesher sold the Authority more than a million tons of cement approximately 18% of its total sales for which it was paid between $50 and $60 million. "We signed our first agreement with the Palestinians even before Arafat arrive in Gaza, in 1994," says Davidi. "Muhammad Rashid signed on their behalf."

The king of the monopolies?

"I don't call him that. His business card says senior economic advisor to Chairman Arafat. He arrived with a letter from the chairman authorizing him to sign. From our point of view, that was totally legitimate."

In contrast to the research findings of the contributing nations, and the testimony of Palestinian businessmen and members of parliament, Davidi says that, according to the information conveyed to him by the Palestinians, PCSC is a government company with no personal connection to Muhammad Rashid. If he knew of such a connection, he adds, he wouldn't have entered into the huge economic project with the company. Davidi also confirms that the Authority is now examining the possibility of a joint venture with Nesher for the construction of a $50 million factory for the grinding of the raw material for cement in Hebron.

Muhammad Rashid says that PCSC is wholly owned by the Palestinian Authority. "I think that the source of all the rumors about me, that are totally unfounded, is the confusion surrounding my job as senior economic advisor to the chairman and my job as president and CEO of PCSC. Our company deals only in cement, and that is the only franchise it has. I don't like using the word monopoly. The profits from the deals it makes, after deducting expenses, are transferred to the Authority. We are in no way involved with fuel. The Palestinian Fuel Authority handles fuel."

But you signed the contract with Dor.

"Ah, that was in my role as the chairman's economic advisor. I told you that it is confusing."

And why precisely did you sign with Dor Energy?

"We received bids from all the companies, including Pedasco, and the deal with Dor was the most worthwhile. We decided to go with something that has the flavor of a monopoly, because it was difficult for us to collect our tax refunds from Israel another way."

The preventive security forces engage in enforcing Dor's monopoly in the territories. That isn't related to security.

"We signed an agreement with Dor, and agreements must be respected and enforced."

SMOKE IN THE EYES

Cigarettes were one of the first industries the Palestinians dealt with and tried to exclude Israeli manufacturers and importers from. The Unifil Company was established in the Authority; according to Dr. Awartani, it is a subsidiary of PCSC, controlled by Muhammad Rashid. The senior Western diplomat is not sure whether the company belongs to Rashid or foreign investors, but he found that it received significant concessions vis-a-vis import terms into the territories. Unifil's first target was Dubek. One should explain, parenthetically, that according to the Paris protocol, the Palestinians are not entitled to refunds on purchase tax paid on an Israeli product. In other words, if Marlboros are smoked, the Palestinian Authority makes money. If they smoke Time, the Authority receives nothing.

The Authority demanded the purchase tax as well. Israel said there was an agreement, and politely refused. The Authority suddenly recalled a 1964 Jordanian law, which had in the meantime been repealed in Jordan, and announced that it was applying it to the territories. This law imposes impossible conditions on someone trying to export to the Palestinian Authority, including the obligation to appoint a sole agent, obligations to register and obtain a license, and much, much more. Israel protested the use of this regulation and argued that it constitutes a breach of the free trade provisions of the Paris agreement. The Authority argued that it had the right to promulgate its own laws.

In the Authority's territories, the security apparatuses began confiscating all merchandise, including cigarettes, with Hebrew writing. At first, this had the anticipated effect on consumption: the public refused to buy the packets with Arabic labeling, suspecting that they were fake (they were not), and heavy smokers even swore that the taste was totally different.

Dubek was forced to stop its sales in the territories, and it is about to open a cigarette manufacturing facility in Greece, so that cigarette sales to the Authority will permit the transfer of indirect taxes to its coffers. "They were not satisfied with eliminating Dubek, and they decided that they wanted to import all cigarettes themselves," says Solly Skal, owner of a chain of duty-free shops and a cigarette importer who used to sell about half a million packets a month in the territories before the establishment of the Palestinian Authority. The Palestinians succeeded in exploiting a long-standing divisional squabble within Philip Morris and transferring the territory of the Authority from the European division to the Middle Eastern division. Along the way, Unifil inherited Oded Elissar as the sole importer of cigarettes into the territories.

At the same time, the Palestinians were not skilled or well-connected enough to snare the veteran Israeli importers. One of those importers relates: "One day, Yossi Ginossar approached me and told me that he wanted to bring me to a meeting with Muhammad Rashid, Arafat's senior economic advisor, as he called him. The two of them showed up for the meeting. At first, Rashid played up the official angle, talking about the Palestinian economy and all sorts of other vague things. Soon enough, he got down to business and private affairs. Rashid proposed that he and I set up a company in the territories to import cigarettes. I would bring the connections and expertise, and he, by virtue of his official position, would sign the cigarette import permit for the Palestinian Authority. Rashid said we would split the profits 50-50, and Yossi Ginossar said that each side would have to pay him 5%.

"The deal seemed completely crooked to me, and I did not agree. Ginossar took it calmly and said thank you and good-bye. Now, I no longer export to the territories. The man who worked for me there and marketed cigarettes on my behalf got the franchise instead of me."

Ginossar refused to comment. "I have no private economic interests in the territories," says Muhammad Rashid. "Everything I do is for the benefit of the Authority and the Palestinian people. There was a case where two businessmen I, on behalf of PCSC, and that cigarette importer conducted negotiations. It didn't work out, and there is a misunderstanding between us. Then he started spreading untruths about me. The meeting took place, but the way he describes it is totally untrue."

Dr. Hisham Awartani and other leading Palestinians criticize you harshly.

"I do not think it is proper to conduct a dialogue with Hisham or any other Palestinian in the press. In general, I want to say that corruption thrives in the dark, in the shadows, and not in the light of day. It would be impossible for a man like me, who operates openly, to practice corruption. No one could protect me. I met with the chairman of the parliament's economic committee, Hikmat Ziad, and gave him all the data he asked for. I think that if you went to him, he would tell you how pleased he was with our meeting."

Good advice. Hikmat Ziad confirms that according to the information he possesses, PCSC is wholly-owned by the Palestinian Authority. He adds, however: "This is a company that has, since its inception, been operating without a board of directors, without supervision, without audits, and without any intervention on the part of the Authority in the activities of its omnipotent CEO, Muhammad Rashid; and this is the largest company in the territories. I do not know of any cigarette dealings that they are involved in. I was told that they deal in cement and have invested a bit in construction. I was promised that as of this week, the company would be subject to the Authority's oversight."

Associates of yours said that you were very unsatisfied with your meeting with Rashid.

"My feelings are unimportant; what is important are the results. You understand that I cannot tell a reporter what I say to friends in closed forums. Muhammad Rashid is an official of the Palestinian Authority. There are officials vis-a-vis whom everything is proper, and there are officials in the Authority whose activities are shady and who make a lot of mistakes, like Rashid."

IT'S ALL BECAUSE OF ISRAEL

Dr. Mahr Al-Kurd blames everything on Israel. "The reality of our economic relations with Israel is much narrower than the Paris agreements, which already constituted a narrowing of the interim arrangements, which themselves were a perversion for the worse of the declaration of principles. We are currently in a transitional stage. No-one knows what the final agreement will look like; and therefore, it is impossible to plan for the future. We are working on the assumption that we will have an independent state; but in the meantime, we have no free trade, we have no control over resources, the Gaza Strip and the West Bank are cut off from each other, there is closure, and because of Israel there is a moratorium on all the mega-projects such as the port in Gaza or the industrial parks."

Even when he is asked about the monopolies, he finds a way to place the blame on Israel. "I have heard the gossip about the profits of the monopolies, but I have no solid evidence of it. There is more than a bit of hypocrisy here. Your Bezek was also a monopoly until not so long ago. We are advocates of a free market policy. It is understood that in the beginning there must be control over some sectors.

We start off with very weak control over the economy and resources, and we do our best with that. In any event, the Authority has undertaken to eliminate the monopolies by 1998. But neither must you expect of us to be like the nations of the West. You have had decades in which to adapt yourselves to the standards of Western economies. We have to rehabilitate a region that was under occupation, sucked and drained dry and destroyed over the course of 30 years, without any investment on the part of Israel."

And the corruption?

"The level of corruption here is no different than in Israel or in Italy. It exists everywhere. It is normal. The only real monopoly is the Paris agreements, which obligate us to import via Israel's ports, and do not really give us true free movement of goods. That is the real problem, along with the closure and Israel's non-fulfillment of economic relations."

Nevertheless, why did the Authority sign an exclusive agreement with Dor Energy? What interest does that serve?

"With all due respect, that is not the problem. I'm talking to you here about a cancer patient, and you ask me about a headache. The real problem is Israel and its behavior."

Still, can we perhaps talk for a minute about the headache?

"I don't want to. I prefer to speak about the Paris protocol. If you have evidence of any corruption, give it to the district attorney, and I'm sure he will investigate the matter thoroughly; in the meantime, let us not dwell on rumors. If you want to talk about the closure, or safe transit between Gaza and the West Bank, then by all means. Everything else is absolutely marginal."

Not a few Israelis including the parents and sponsors of the Oslo Accords, like Ron Pundak, Yair Hirschfeld, and Uri Savir agree with Al- Kurd's opinion that the situation is not that terrible, and these are only the growing pains of an economy in its infancy. Pundak even says that he definitely supports the existence of a slush fund, hidden from the eyes of the world, and under the direct and secret control of the chairman. That is the only way, says Pundak, that Arafat can survive against Hamas's threats and the influence of the territories' street radicals.

THE YUSUF AL-BABA AFFAIR

It is hard to imagine Pundak's convincing the family of Yusuf Al-Baba with these words. Al-Baba, 32 when he died, worked his whole life in real estate and construction. His family says he was worth $13 million. According to them, senior officials of the Palestinian security forces and the local authority demanded that Yusuf pay regular protection money. He refused. He paid the price in another currency.

On January 3 of this year, Al-Baba was summoned to a meeting with Mahmoud Al-Aloul, the governor of Nablus. He left for the meeting in his Mercedes, and with a lot of cash. Someone whispered to his brother, Omar, who went looking for him, that he was imprisoned in the central Nablus lock-up. This was denied at the jail; go to the governor's office, they said. The governor's office said he was in jail, but refused to give a reason for his arrest. Finally, they said he was being interrogated by the Iskhabarat, military intelligence.

A week later, they said that he would be released in two days. Two days later, they said another two days. After another week had passed, Omar heard on Israel Radio in Arabic that his brother had died in a Palestinian prison. "I immediately rushed to the hospital. There were already all these security forces blocking access. I asked to see my brother. They wouldn't let me. They said he wasn't there, that I should go home. Afterwards, they wanted us to bury him. I told him there would be no interment until we saw a pathologist's report. He stayed in a refrigerator for two weeks, until eventually Farih Abu Medein, the minister of justice, promised us that everything would be all right, we could bury Yusuf and he would personally bring us the autopsy report. To this day, we have received nothing."

Omar Al-Baba received a permit to build a gas station in Nablus: "Israel left and the Authority came. I went to police headquarters, and they said there would be no problem in granting the permit if only I would be kind enough to give them 30% of the profits."

Abu Medein confirmed that Al-Baba's arrest was illegal, and that he died under torture. Al-Baba had been beaten all over his body, including the skull. His right arm had been badly scalded, and even burnt to the bone. After the fact, it turned out that the injured Al-Baba had been brought to the hospital, where severe necrosis of the arm had been diagnosed. The doctors wanted to amputate it, but the interrogators would not consent and took him back to the interrogation facility. After Al-Baba's death, two senior intelligence officers in Nablus, as well as Abdel Muati, the deputy governor, were arrested for questioning. They have since been released.

Instances of payment of bribes and protection money to elements who are not even in the upper echelons of the Authority are not rare. Omar Al-Baba sought to build a gas station in Nablus, and he had procured all the requisite permits even before Israel vacated the city with the exception of those of the municipality and the police. "Israel left and the Authority came. I went to police headquarters, and they said there would be no problem in granting the permit if only I would be kind enough to give them 30% of the profits."

A Palestinian who sought to build a gas station in Ramallah tells a similar story. Those authorized to grant permits asked him to pay NIS 100,000 for their signatures.

Imaginary Razor Blades

The formation of a joint Israel-Palestinian Authority customs entity has created an additional problem, about which the association of chambers of commerce recently warned in an internal letter to ministers of finance, foreign affairs, and trade and industry. Big differences in income tax between the Palestinian Authority and Israel, the stringent monitoring of standards in Israel, and importers' expensive advertising campaigns here inflate the price of products to consumers. Palestinian businessmen can sell an identical product at a much lower price, and it is worthwhile for them to sell in Israel some of the merchandise that they have imported from overseas via Israel.

It is possible to pull off a even cleverer trick: to enter into an agreement with a senior official of the Authority and sometimes, after all, the same man is both a senior official and a businessman and to agree on the import of a certain product into the territory of the Authority in amounts much greater than the needs of the local market. The Authority will get the full amount of the taxes from Israel, and kick some of it back to the importer. This way, the Authority earns money on merchandise that was never marketed in its territory, while the importer, who has gotten back some of the duties he has paid, can sell his goods at a very cheap price on the Israeli market. In the finance ministry they say that this is an theoretical possibility only, and not a real loophole in the Paris agreements.

Theoretical? Maybe the treasury people should exchange a few words with Yoni Shastovich, the importer of Gillette products in Israel. A few months ago, Shastovich began discovering Gillette merchandise not distributed by him, labeled in Arabic: first in stores in southern Tel Aviv, then in the old city of Jerusalem, and then in Nazareth and the Upper Galilee. Shastovich estimates that approximately 10% of Gillette's turnover in Israel, which was previously his alone, has been captured by merchandise that comes back from the territories

to be sold in Israel.