Going After Arafat's Monopoly on Money

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ser Arafat doesn't deal delicately with threats to his power. When former Cabinet Minister Nabil Amr called in September for reform of the Palestinian Authority, Arafat had the chief of his special forces fire a few warning shots at Amr's home. Leaders of Arafat's Fatah faction of the Palestine Liberation Organization got the message. Scheduled to vote on reform a few days after the attack, they swallowed their criticisms instead.

It is no surprise, then, that past efforts to limit Arafat's prerogatives have failed. Nevertheless, one group of reformers thinks it has found a way to whittle down Arafat's domain. Its secret weapon against the imperious Palestinian leader: a team of American accountants. Shuttling between hotels in the West Bank and offices in California, a handful of professionals hired from Standard & Poor's by the reform-minded new Palestinian Finance Minister, Salam Fayyad, are combing through the many business interests of Arafat's Palestinian Authority, looking to uncover malfeasance. When they are done, according to an agreement Arafat signed in August under pressure from U.S. and European officials who threatened to cut aid, the Authority's investments will be given over to a fund administered by independent Palestinian businessmen. That will end the one-man dominion Arafat has enjoyed over Palestinian funds for decades, first as chairman of the P.L.O. and since 1994 as head of the Palestinian Authority.

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Palestinian financial reformers have an advantage that political progressives lack: a population that is sick of corruption and can't blame it on outsiders. Palestinians often assign their lack of progress toward an independent state to Israeli and American obstinacy, but malfeasance is an all-Palestinian issue, one on which there is a broad popular demand for change. That has given Fayyad, a former official of the International Monetary Fund with a Ph.D. in economics from the University of Texas, the confidence to order the scrubbing of the Authority's books. Says Karim Nashashibi, the imf's representative in the West Bank and Gaza: "There has been more progress in financial reform than in any of the other reforms."

So murky are the Authority's investments — which range from a cell-phone company in North Africa to a casino in Jericho — that the accountants can only guess that they are worth anywhere from $1 billion to $10 billion. Besides making sense of the books, the Standard & Poor's team is testing them for evidence to support allegations by Palestinian merchants that the Authority controls de facto monopolies in the local flour, cement and tobacco trades. The accountants are looking closely at how the Authority awards contracts and trying to determine whether corruption in licensing, which they say has been rife, continues.

The investigators are planning background checks on top executives at companies in which the Authority has a stake to be sure they are not associated with any of the Palestinian militias connected to attacks on Israelis. A source close to the investigation tells TIME that a mysterious payment of $10 million has been tracked from a holding company controlled by Arafat's secretive adviser for economic affairs, Mohammed Rashid, to the Finance Ministry and then out again to an unspecified payee — on the orders of Arafat.

The investigators have noticed that a lot of Authority holdings were sold off in the past year, presumably to hide them from prying eyes. What's more, Arafat prevailed in having his man Rashid head the Palestine Investment Fund, which as of Jan. 1 is to be the single vehicle for the Authority's business holdings. Even if Rashid is eventually replaced, Arafat will not be completely without resources. Israeli lawmakers say that in a secret briefing, a top Israeli intelligence officer maintained that Arafat controls at least $1.3 billion worth of investments beyond the official hold-ings now being scrutinized.