Key Facts

• There have been persistent reports that the Palestinians have used foreign aid, in particular from the European Union (EU), to finance terrorism. The EU has provided the Palestinian Authority (PA) with EUR 2 billion ($2.5 billion) since 1993 and it is the largest single contributor of direct budgetary assistance, giving EUR 112 million ($142 million) between January 2003 and June 2004.
• The EU vehemently denies that EU funds have been used by terrorists but has launched an internal investigation into the claims.
• Previous investigations into the diversion of foreign funds by the PA towards terrorist activities have been inconclusive and have not exonerated the PA of wrongdoing. PA accounting practices are opaque. Palestinians acknowledge that corruption is widespread. The PA routinely uses cash payments to buy loyalty from its staff and the population.

Additional Facts & Analysis

• There is indisputable evidence that PA money has been used to fund terrorist activities. The capture of the PA owned and operated ship, the "Karine A", demonstrated PA efforts to smuggle weapons into the territories for use by Palestinian terrorists. Later Israeli investigations turned up documents directly linking PA officials with the al-Aksa Martyrs Brigade, the suicide terrorism subsidiary of Yasser Arafat's Fatah movement.
• The PA finances the al-Aksa Martyrs Brigade. According to Abdel Fattah Hamayel, who was minister for sports and youth in the PA administration of Abu Mazen, the PA sends $50,000 a month to al-Aksa Martyrs Brigade members. The current Palestinian prime minister, Ahmed Qurei, has stated that "We have clearly declared that the Aksa Martyrs Brigades are part of Fatah," and that "Fatah bears full responsibility for the group." The EU has declared the al-Aksa Martyrs Brigade a terrorist group.
• The lack of PA financial accountability means that foreign aid is easily abused. While demonstrating that any specific foreign funds have been directly used for terrorism is difficult, the PA system has operated as a slush fund for Palestinian leader Yasser Arafat. Investigations have proven that PA payrolls were artificially inflated to provide cash that Arafat could use and avoid any foreign or local oversight. The PA payrolls include 7,000 employees that cannot be identified (so-called "PA ghosts"). The salaries of these fictitious employees are a major part of the PA slush fund that supports terrorism. Members of Yasser Arafat's PLO faction, Fatah, who are directly involved in terrorism are, according to the Israeli Defense Forces, on the PA payroll. Fatah receives additional funds by levying a compulsory tax on all PA employees.
• Arafat personally approved payments to terrorists. A report by Human Rights Watch documents and criticizes Arafat's involvement in PA funding of terrorism. Given the control that Arafat had over the entire functioning of the PA, it is disingenuous for any foreign donor to feign ignorance as to whether its money could end up with terrorist groups.
• The EU encourages PA corruption by using a system of Direct Budgetary Support to the PA, essentially a cash handout. Direct Budgetary Support means that the EU has limited ability to properly monitor how its aid is being used. Once EU money is in the PA, with its bloated payrolls and "ghost" employees, tracking the end use is difficult. The EU had previously given the PA aid on a project by project basis which made monitoring the spending of funds easier.
• The EU is not alone in providing indirect financial support to Palestinian terrorists. Many governments and aid organizations have been lax in their oversight of funds provided to the PA. Recent reports have revealed that active members of HAMAS are employed by UNRWA.

Policy implications

• The EU must support an independent, open and thorough investigation into the use of its funds by the PA. Previous investigations have had too narrow a focus and so have missed the broader problem of how foreign funds are used by the PA to form a slush fund.
• The EU should end Direct Budgetary Support to the PA. The EU should only provide funding on a properly monitored and audited project by project basis. There is no question that the Palestinians are in desperate need of funds, but the most effective aid mechanism is to target funds towards relieving hardship. The Palestinian non-governmental organization sector is well developed and more efficient than the PA. As the EU and the US begin discussing new direct aid to the Palestinians, effective oversight will be vital to ensure that the money is used to encourage peace, not fund more violence in the region.
• The EU should encourage Palestinian democracy. The key to ending the abuse of PA funds, whatever their source, is to create a democratic and accountable PA. The EU, however, has maintained high-level diplomatic contact with Arafat and its aid program propped up his regime. Arafat's death provides the EU and other international groups with an opportunity to reform their relationship with the PA, demanding greater PA accountability and a true program of democratic reforms of the PA.

Additional Information

"Managing European Taxpayers' Money: Supporting The Palestinian Arabs - A Study In Transparency," Funding for Peace Coalition, August 2004, available at http://eufunding.org/FPC2004Report.pdf

For an annotated PDF version, please click here. www.defenddemocracy.org/usr_doc/Briefing_10-29-04_EU_Funding_of_PA_Terrorism
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Bill McCarthy
Director of Communications
Foundation for the Defense of Democracies
Phone: (202) 207-0183
Fax: (202) 207-0191
www.defenddemocracy.org

Source: Imra

EU Report extract on
anti-Semitism

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