Executive SummaryWhen Mahmoud Abbas stood in front of the Seventh Fatah Congress on Nov. 29, 2016,  he faced an immediate challenge – that of retaining his rule amid increased criticism within the ruling Fatah movement. Abbas was prepared for the congress, the first since 2009, and banned all critics, many of them arrested in their homes in the West Bank. The result was that some 1,400 delegates arrived in Ramallah, more than 800 fewer than the last parley.

What was at stake was more than Abbas’ political future. It was the Abbas family fortune, most of which was acquired during his tenure as president of the Palestinian Authority nearly 12 years ago.  Since then, Abbas’ family monopolized much of PA trade, particularly with foreign countries as his children engaged in alleged money-laundering. The fortune was cemented by Abbas’ two sons, who unabashedly peddled influence to win major contracts in the West Bank or serve as middlemen in foreign deals, particularly with the United States.

Ironically, the main threat to Abbas came from a rival who also used his senior position in the PA to amass incredible wealth. Mohammed Dahlan spent his years as PA security chief to dominate commercial activity in the Gaza Strip until he fled the Hamas takeover in 2007. Dahlan later moved to the West Bank and established centers of influence everywhere from Abu Dhabi to Montenegro.

So when Abbas and Dahlan traded charges of corruption of embezzlement it provided both Palestinians as well as foreigners with a glimpse of how the PA has worked since its establishment in 1994. Foreign aid, particularly from the European Union and United States, was routinely pocketed by everyone from PA leaders to mid-level civil servants. Transparency and accountability were virtually non-existent. Criticism of PA practices was met with arrest and brutality by security forces in the West Bank.

The result was the creation of a super rich Palestinian elite and a largely underdeveloped West Bank. The elite built exclusive neighborhoods around Ramallah while leaving thousands of shoddily constructed apartments without services for the rest of the Palestinian middle class.

All the while, Western governments looked away. To most of these governments, PA corruption was a given and not to be questioned. Both the EU and United States also ignored the PA’s crackdown on Palestinian critics and in some cases viewed them as troublemakers.

With no peaceful outlet available, opponents of Abbas and his aides have turned violent. Fatah has split into numerous factions, many of them with their own militias and linked to organized crime. PA security officers augment their salaries by working with organized crime, particularly around Hebron, Jenin and Nablus. Most refugee camps have become no-go zones for PA police and their presence routinely sparks clashes with armed militias aligned with Fatah.

Israel and most neighboring Arab states expect PA corruption to fuel rising and armed unrest throughout the West Bank in 2017. The political aspect will include increasing calls for Abbas to resign, an impossibility given his commitment to his entrepreneurial sons who need their father to ensure influence both in the West Bank and abroad. Abbas’ tenure also serves as a means of wealth for his supporters, whether in the PA or in Fatah.

The result is a recipe for disaster for the West Bank over the next year. At best, the West Bank will become ripe for a Hamas takeover, as the Islamic movement did in 2007. At worst, the West Bank will be divided into cantons, each with its own authority, taxes and militia. This is a threat that supersedes any political feud over Palestinian statehood – the only concern of the international community. The question is whether the West, Arab world and Israel need another failed political entity in the region, one vulnerable to such interlopers as Iran and Islamic State of Iraq and Levant.

The first step for any international effort to save Palestinian society would be to impose strict conditions for aid to the PA. Such conditions would require accountability, transparency and most of all the right to investigate allegations and  protect Palestinian critics and whistleblowers. While change would be slow, Palestinian democracy activists would be able to set badly-needed norms that could spread to the political realm, including PA succession.

The Making of the Super Rich EliteYasser Arafat set the tone for the PA as soon as he arrived in the Gaza Strip in 1994. The first PA chairman, who controlled every aspect of Palestinian life, took control of every major contract and investment. He used public money – or those of donors – to build a secret $1 billion portfolio, including investments in Coca Cola, a Tunisian cellular phone company and venture capital funds in the United States and Cayman Islands. Arafat also created and held a grip on monopolies in the PA areas. One example was Petroleum Corp., which bought fuel from Israel watered it down with water and then sold the faulty product to Palestinian motorists.

Arafat acquired at least another $1 billion in tax revenue relayed by Israel for Palestinian workers. Again, the money went straight to Arafat’s account in Israel’s Bank Leumi in Tel Aviv. The Israeli leadership looked away and even justified this to Western donors, saying Arafat needed cash to maintain support, particularly in the Gaza Strip. Another $100,000 a month went to Arafat’s wife, Suha, who was living the life of a queen in Paris.  In all, Arafat was estimated by U.S. government investigators to be worth between $1 billion and $3 billion. [1] Little wonder, that within three years of the PA’s establishment, Palestinian auditors found that nearly 40 percent of the PA budget, or $326 million, was misappropriated, a figure that rose to $700 million less than a decade later. [2]

In the end, Arafat got away with stealing billions from the Palestinian people as not one Western government made this an issue. This set the tone for theft at all levels in the PA. Bribery became rampant; PA officials paid themselves two or more salaries and even skimmed from others. As the Palestinians saw it, this marked a tradition within the leadership of the Palestine Liberation Organization, which employed a system of favors to control constituents, exclude rivals and operate without opposition. [3]

Enter AbbasUnder Arafat’s successor, Mahmoud Abbas, nepotism reached every level of civil service, with ministers and senior officials packing in their relatives for nonexistent jobs. Many officials, who already commanded salaries of $10,000 per month, or more than 10 times that of ordinary civil servants, opened secret bank accounts in Jordan with the money they received in bribes. [4]

Under Arafat, Abbas portrayed himself as a model of Western-style governance and transparency. That ended as soon as he became PA president. The difference is that instead of directly stealing from the PA, as Arafat had done, Abbas employed his children. Abbas’ two sons established a network of businesses that dominated foreign aid and investment in the West Bank. The economic empire by Abbas’ two sons – Tareq and Yasser – has been worth hundreds of millions of dollars and fueled by the president.

The empire by Abbas’ sons is built around a consortium called Falcon, deemed to have taken over the Palestinian commerce and labor market in the West Bank. [5] Falcon has ensured its edge over all Palestinian competitors because of the support of the PA president. The consortium has extended into its reach into the most profitable areas of the West Bank. The PA president has pumped at least $890,000 into the consortium.

An example of the empire of Abbas’ sons is Falcon Electricity and Mechanical Contracting. This company has branches in the West Bank as well as neighboring Jordan and the United Arab Emirates.

Falcon also contains a company that engages in the production and distribution of tobacco and cigars, with a monopoly on the sale of U.S. cigarettes. Tareq and Yasser also operate an international media company and investment firm, the latter with profits that total $60 million.

The Al Mashreq Insurance Co. was said to be particularly profitable. It contains 11 branches in the West Bank with an estimated worth of $35 million. Al Mashreq has been joined by Al Khayar Al Awal, which focuses on development and headed by Yasser Abbas. [6] In all, the wealth of Abbas’ two sons was estimated at $300 million. [7]

Ironically, much of the start-up money that served as the foundation of Abbas’ wealth came from Arafat himself. Mohammed Dahlan has asserted that Abbas received $1.4 billion from Arafat’s personal finances transferred after the latter’s death in 2004. Dahlan said Abbas was hiding $600 million of this fund, deposited into his account by then-Prime Minister Salam Fayad. Mohammed Rashid, the economic adviser to Arafat who rose from a low-paid journalist to one of the richest Palestinians in the world, has reckoned Abbas’ embezzlement at least $100 million. [8]

Abbas’ EliteWith so much to protect, Abbas has helped foster an elite loyal to him. He has built palaces and approved the construction of exclusive closed communities for his top supporters around Ramallah, the government center of the West Bank. One such community is known as the “Diplomatic Compound,” which contains dozens of two-story homes and several apartment buildings. To save families from entering nearby Ramallah, Abbas has approved the construction of an exclusive shopping mall.

The “Diplomatic Compound,” originally meant for foreign diplomats, was the result of both PA funds and foreign investments. In 2011, Abbas’ adviser, Majdi Khaldi, asked $4 million from Bahrain’s foreign minister for the community, formally opened a year earlier. The PA ensured the feasibility of the project by transferring public land at 60 percent of its market value. Over the last five years, Khaldi approved the entry of senior PA officials, security commanders and top members of Fatah. [9]

When he is away from home, Abbas enjoys one of several presidential palaces. One of them was meant for his guests, including foreign dignitaries. The multi-million-dollar building is located in Ramallah — probably the last city still under Abbas’ direct control — and described as obscenely large. Like the other palaces, the guesthouse is under PA security control, and unauthorized visitors, particularly television news crews, are threatened with arrest. [10]

In some cases, Abbas has involved his trusted loyalists in major business deals. One example has been Mohammed Mustafa, deputy prime minister and economy minister in the PA until 2015. Mustafa was appointed head of the Palestinian Investment Fund, directly linked to Abbas and which holds 18 percent of the Arab Palestinian Investment Co., or APIC. APIC, registered in the Virgin Islands and which includes at least one Saudi investor, dominates the Palestinian economy and operates companies in such areas as food, medical supplies, automobiles and shopping malls. The holding company contains 1,500 employees, one of the largest in the West Bank.

Mustafa began more than a decade ago as Abbas’ economic adviser. Soon after succeeding Arafat in 2004, Abbas took direct control of the Palestinian Investment Fund and chose all of its directors. A key change was Abbas’ dismissal of Rashid, Arafat’s adviser as PIF chairman, replaced by Mustafa in January 2006. Two months later, Abbas placed Mustafa on the board of the much larger APIC. By 2009, Mustafa was appointed chief executive officer of one of the two cellular phone companies in the West Bank, Wataniya Mobile. Not surprisingly, PIF has owned 34 percent of Wataniya’s shares. [11] Today, Mustafa is on a list of international figures alleged to be involved in tax evasion and money laundering, known over the last year as the Panama Papers. He is said to be under investigation by international agencies but remains left alone by the PA. [12]

Still, Mustafa has little to worry about as long as he remains in the West Bank. Abbas employs the threat of arrest against virtually all of his Palestinian critics, including legislators. In February 2016, Palestinian Legislative Council member Najat Abu Bakr demanded an investigation of PA Local Governance Minister Hussein Al Araj, accused of pocketing $200,000 from a deal for the construction of a water well. Al Araj, however, is a close associate of Abbas, and within hours of her accusation, Ms. Abu Bakr was threatened with an arrest warrant and fled to the PLC building for safe haven. Before that, the PLC member relayed documents to a PA anti-corruption commission that were said to have supported her allegations against Al Araj. In the end, Washington and the other donor nations stayed silent and the affair was hushed up. [13]

Target DahlanAbbas has, however, fought a crusader’s battle against corruption when it comes to his rivals. His main target has been Mohammed Dahlan, who often called for Abbas’ resignation and commanded support from numerous Arab states, particularly Egypt, Jordan and the United Arab Emirates. On Dec. 14, a PA court sentenced Dahlan in absentia to three years in prison on charges of embezzling $16 million in public funds in 2007. The case was reopened after nearly 18 months and in time for the Seventh Fatah Conference, which Dahlan threatened to turn into a debate over Abbas’ political future. Two days earlier, Abbas lifted the immunity of Dahlan and four of his supporters in the PLC – all of whom accused of embezzlement and arms trading.

Few would argue that the 55-year-old Dahlan is clean. Like many others in the PA, Dahlan became rich off foreign funding and contracts. As early as 2006, Dahlan and his family began to invest in real estate in the former Yugoslavia. The then-PA security chief opened several companies in Serbia and Montenegro, including Al Fursan in Belgrade. Like Abbas, Dahlan used his children, particularly his son, Shadi, to maintain the businesses. Shadi has helped establish a network in Montenegro, including a company called Levant International. These companies were presented to the United Arab Emirates, which sent a delegation in search of business opportunities in Montenegro in 2008.

Montenegro valued the senior Dahlan, and in 2010 he and his wife were granted citizenship in recognition of what was described as their friendship. Then-Montenegrin Prime Minister Milo Djukanovic credited Dahlan with building ties with the UAE’s royal family. Two years later, Dahlan served as the liaison between the much larger Serbia and UAE Vice President Mohammed Bin Zayed Al Nahyan, also crown prince of Abu Dhabi. Not long after, Dahlan was granted citizenship by Serbia, which allows him to easily travel throughout Europe and meet Israeli and Arab representatives. [14]

Abbas Seeks a Benign SuccessorThe fortunes of Abbas and Dahlan have played a major role in the succession battle for the Palestinian leadership. At 81, Abbas is looking for little more than to protect the economic empire of his children.  The last thing Abbas wants is to pass the mantle to a reformer who would track and seize his bank accounts and assets in the name of the Palestinian people. As a result, Abbas sought to groom PA chief negotiator Saeb Erekat as his successor. Erekat, who survived numerous purges over the last 20 years, offered his resignation eight times only to withdraw under pressure from Abbas.

In mid-2016, Abbas named Erekat as secretary-general of the Executive Committee of the PLO, a key gateway to power. But to Abbas’ surprise, the selection was vigorously opposed by the Executive Committee and other senior members of Fatah until Erekat was forced to withdraw his candidacy. This was regarded as a blow to Abbas, who invested heavily in rewarding loyalty in the Executive Committee, where members were said to receive a stipend of $30,000 a month as well as a luxury car and VIP privileges. [15]

At that point, Abbas turned to another trusted aide – PA intelligence chief Majid Freij, deemed the leading deputy of Abbas. But Abbas has been careful to avoid an announcement or even promote Freij in face of rising opposition within Fatah. The main opponent of both Erekat and Freij has been Jibril Rajoub, a former PA security chief and now member of the Executive Committee. Rajoub, who has distanced himself from both Abbas and Dahlan, has sought the post of Executive Committee secretary-general as part of his drive to become the next PA president. [16]

The Palestinian people have been watching the corruption and fighting within the Palestinian leadership. The overwhelming sentiment of Palestinians is that the PA is corrupt. In the latest poll, Nader Said surveyed 1,200 Palestinians throughout the West Bank and Gaza Strip. The result was that a record 95.5 percent – or virtually everybody – believes that there was corruption in the Abbas regime. [17]

The corruption has been seen as embedded in Palestinian politics, headed by a ruling elite that enjoy immunity in virtually every area. This elite engages in the black market, money laundering and foreign bank accounts – activities that remain secret until a new ruler replaces the old order or becomes mired in a power struggle. [18]

An Understanding WestWestern governments have confirmed massive embezzlement of their funding to the PA. In 2013, the European Union determined that the PA squandered nearly 2 billion Euro through mismanagement between 2008 and 2012. The report by the European Court of Auditors found PA civil servants were receiving their monthly salaries without reporting to work while tens of thousands of others who actually worked were not paid. The EU and other donors were also called upon to compensate West Bank businesses that were not paid by the PA. Still, Brussels acknowledged that it did little to press the PA to reform the civil service and increase accountability and transparency. [19]

The United States has done little better, with the State Department withholding the release of reports of PA corruption and embezzlement. Like the EU, U.S. aid, more than $5 billion over the last 20 years, stemmed largely from political rather than humanitarian considerations. That has meant that successive administrations bolstered Abbas’ ability to crack down on critics through the National Security Forces and pay convicted killers of Jews. Under President Barack Obama, Washington has paid PA debts to private companies, bypassing concern by Congress over Abbas’ fiscal responsibility and priorities. [20] Indeed, U.S. taxpayer money has ended up paying companies controlled by Abbas’ sons, including a contract meant to improve the image of the United States in the West Bank. [21]

Indeed, Washington has repeatedly turned to Abbas’ sons for contracts in the West Bank. From 2005 through 2009, Tareq and Yasser received at least more than $2 million in contracts and subcontracts, most of them from the U.S. Agency for International Development. Abbas’ Sky Advertising won a contract to improve the image of the United States in the West Bank while Falcon was selected for a sewer project. Not surprisingly, AID resisted releasing the contracts to Abbas’ sons and then redacted key pieces of information, including executives and employees involved in the contracts. [22]

Conclusion

The emergence of a Palestinian elite backed by raw power presents the greatest threat to the cohesiveness of Palestinian society. It allows a chosen few to decide the fate of the great majority, whether through muzzling speech, denying jobs to critics or simply using public funds for personal enrichment of regime figures. With the PA preparing for what could be a bloody succession fight and organized crime and Fatah militias in control of much of the West Bank, Western donor funds will become a key resource for Abbas and his supporters. Denial of unsupervised funds to the PA will not stop the succession battle, but it will certainly give Abbas far less ammunition.

Notes

1 U.S.  government investigation of Arafat. Reported on CBS News “60 Minutes Nov. 7, 2003

2. Transparency International. Jan. 19, 2012

3. “Corruption in Palestine: A Self-Enforcing System.” Tariq Dana, Al Shabaka. Aug. 18, 2015

4. Dunya Al Watan. Feb. 6, 2006

5. “The Business of Mahmoud Abbas and His Sons. Yoni Ben Menachem. Jerusalem Center for Public Affairs. Sept. 14, 2016

6.  Al Masri Al Yom. Sept. 11, 2016. An investigation of Abbas’ finances by Hussein Yusef.

7.  Mohammed Dahlan interview with the Jordanian website Amon. June 8, 2016

8. “The Business of Mahmoud Abbas and His Sons.” Yoni Ben Menachem. Jerusalem Center for Public Affairs. Sept. 14, 2016.
9. “In tough times, most Palestinians view government as corrupt.” Karen Laub, Mohammed Daraghmeh. Associated Press. May 24, 2016

10. Al Jazeera interview of Abbas aide and PA negotiator Saeb Erekat. April 2, 2014

11. “Panama Papers: Leaks Reveal Abbas’ sons $1 million holding in company with ties to the Palestinian Authority.” Uri Blau, Daniel Dolev. Haaretz. April 7, 2016

12.  “Palestinians Pop Up in Panama Papers. Adnan Abu Amer. Al Monitor. April 15, 2016

13. Palestine’s Anti-Corruption Crusader. Jonathan Schanzer, Grant Rumley. The Daily Beast. March 14, 2016

14. “Mahmoud Abbas rival given Serbian citizenship, documents reveal.” Ivan Angelovski in Belgrade and Lawrence Marzouk. Balkan Investigative Reporting Network. Jan. 30, 2015

15. “Car, VIP and $30,000 a Month Await Executive Committee Member.” Safa News Agency. Dec. 3, 2016

16. “The Business of Mahmoud Abbas and His Sons.” Yoni Ben Menachem. Jerusalem Center for Public Affairs. Sept. 14, 2016.

17. Nader Said poll of Palestinians in the West Bank and Gaza Strip. Bir Zeit University. April 2016. The survey found that 82 percent thought the Hamas regime in the Gaza Strip was corrupt.

18. “Corruption in Palestine: A Self-Enforcing System.” Tariq Dana, Al Shabaka. Aug. 18, 2015

19. European Court of Auditors. European Union Direct Financial Support of the Palestinian Authority. 2013

20. “U.S. Foreign Aid to the Palestinians”, by Jim Zanotti, Specialist in Middle Eastern Affairs December 16, 2016

21. Firms run by President Abbas’s sons get U.S. contracts. Adam Entous. Reuters News Agency. April 22, 2009

22. ibid