Dr Charles Tannock

Member of the European Parliament for London

EU terror-funding report attacked

The Jerusalem Post - 4 April 2004

By Torah Lazaroff

The European Union's failure to find evidence linking its funds with terrorist activity supported by the Palestinian Authority has angered at least one member of the investigatory committee, who on Friday called a newly released report on the matter "a partial whitewash."

"The Working Group Majority Report has chosen to ignore signed payment orders by [Palestinian Authority] Chairman Yasser Arafat to the tune of $39,000 to people linked to terrorist activities or their families on the basis that these are circumstantial evidence only and do not prove anything, as payment cannot actually have been shown to have taken place," said British European Parliament Member Charles Tannock, who was part of the probe.

"I still believe that, of the money we handed over, some of it, directly or indirectly, ended up where it wasn't intended to end up," said Tannock, who co-authored the minority report. He fears it was given to terrorists, families of suicide bombers, or was taken for Arafat's family's personal use.

The majority and minority reports concluded a year- long parliamentary investigation into the spending of the European Union's 246 million euros by the Palestinian Authority from the end of 2000 to the end of 2002.

In reaching their conclusions, the reports did not include an audit of the PA's non-targeted direct budget into which EU money flows. The reports were completed ahead of a similar investigation by the European Commission's Anti-Fraud Office, OLAF. It was also missing a full report from the IDF, which is still in the process of analyzing some 4,000 boxes of data it captured from the PA.

The reports also fail to investigate and address the issue of fungibility, focusing instead on the specific spending within the PA budget, rather than addressing how the EU's money might have freed up other funds to be used for terrorism.

The reports were given to the EU's Conference of Presidents on Thursday and are not due to be publicly released until later this month. But a number of dissenting parliamentarians gave the documents to the media, including The Jerusalem Post.

Tannock is asking that the report be debated by the EU's parliament. Despite his anger over the majority report, there is little difference between the majority and the minority reports in its final conclusions.

Both reports state, "There is no conclusive evidence to date that the EU non-targeted Direct Budgetary support was used to finance illegal activities, including the financing of terrorism. There is no evidence that the EU budget support has not been fully transferred into the PA budget or that it was used outside the budget."

Parliamentarians rejected the idea of a shadow budget based on a system of double bookkeeping, through which funds might have been used for terrorism.

The difference between the two reports focused in part on the standard of evidence needed to establish a link between EU funds and terrorism, with the majority report insisting that it had to stand up in a court of law.

The minority report noted that, while "conclusive evidence" was missing regarding the use of EU funds for illegal activity and terrorism, "there is evidence that payments have been authorized."

In defending the majority report, one of the committee's co- chairs, British Labor EU parliamentarian Terry Wynn, said, "If the IDF were trying to take this to an Israeli court of law they would have trouble convicting people for it."

During their investigation, parliamentarians heard from the IDF, which argued that EU money was indeed used for terrorism, and PA Finance Minister Salaam Fayad, who denied it.

Both reports focused in part on Arafat's financial transactions. The majority report noted that the IDF was making an assumption that, because evidence existed showing that Arafat has authorized financial payments which could have been used for terrorism, that the money did indeed go to that purpose. But evidence proving that action was taken on Arafat's financial orders was lacking, said the majority report.

Still, the minority report noted, "From a political point of view, the numerous documents with President Arafat's signature authorizing payment of monies cannot be discarded."

The minority report stated, "Israeli authorities did not capture any documentation at the Palestinian Ministry of Finance. As a consequence, documents showing that orders of payment captured from the president's office have actually been executed are usually not available. It is therefore extremely difficult to establish clear links between orders and executions of payments.

"Israeli captured documents show a wide range of requests of payments signed by President Arafat and which are of different types. Most of them are 'social requests,' i.e. requests by individuals for health care or material benefits, purposes which are clearly stated in the request," said the reports.

"IDF-related intelligence sources claim that some of these requests were coming from people linked to terrorist activities or from their families. According to them, a total sum of $2.5 million, broken down into various amounts - often not more than a few thousand dollars to be divided between several if not numerous individuals - was transferred. However, evidence of approvals of transfer followed by a proven execution of payment remains more difficult to obtain," said the report.

The commission's first reaction to these IDF allegations over transfers of funds to "terrorist elements," for a total of $ 2.5 million, was that many of these documents were already known and had been commented upon.

Furthermore, many documents related to the period before 2000, when the EU was not supporting the PA budget. Finally, the commission indicated that, to date, no evidence had been provided establishing that such transfers related to terrorist activities," the report said.

Among the earlier amounts, the report focused in particular on a $39,000 sum. "The picture that emerged from the examination at that point showed that payments to alleged Fatah activists had been authorized for a sum of $21,500. New documentation presented to the WG in November 2003 identified an additional amount of $17,500 as having been authorized, the total amount thus reaching some $39,000.

"While no evidence of actual payments being made have been provided for the first amount, such evidence exists for the $17,500. The IDF claims the amount was paid to a person involved in terrorist activities. The PA Ministry of Finance confirmed the payment was made and stated that the amount was paid for medical treatment," said the report.

The report also addressed the question of funding for Fatah activists. "Israeli allegations claim that the Palestinian Authority President's Office transfers on a monthly basis vast amounts of money to Fatah activists called 'al-Aqsa Martyrs Brigades.' "

Israeli allegations further assert that there is a "Fatah tax" withdrawn from security personnel salaries regardless of Fatah membership. The International Monetary Fund, however, states that the Fatah levy is in fact exclusively paid by Fatah members. According to Israeli sources, the total operating expenditure of Fatah reaches NIS 10 million, constituting another source from which funds could be retransferred to terrorist organizations.

"Any link between the Palestinian Authority budget structure and the financing of Fatah is difficult to clearly picture," said the report. "Given the fungible nature of EU budgetary support, it is not possible to link any salary payment - and thus any Fatah levy - to EU funding."

The report said reforms had occurred in Arafat's spending, explaining that his budget had been cut from $103 million in 2002 to $41 million in 2004. Since July 2002, the PA Ministry of Finance also monitors the Presidential Budget. Fayad indicated that, even before 2002, there was a permanent representative of the Ministry of Finance in the Presidential Office tasked with checking the regularity of payments.

Already then, he said, transfers authorized by Arafat had to be countersigned for a payment to be made.

In looking at overall spending, the report noted the lack of an independent audit, or even an audit done by the IMF.

The IMF looked at the data at a macro level. "It did not involve the detailed checking of every single item of expenditure effected in order to ascertain whether a particular disbursement was made for the intended purpose. This goes beyond the IMF's mandate and was not applied by the IMF to the funds granted by the international donors, including the EU's budgetary support," said the report. The report both applauded and attacked the use of a single non- discretionary spending account. All money to the PA flows into this account, including that of international donors and the tax transfers from Israel.

"It is therefore not possible to identify to which expenditure a specific donor contribution has gone," said the report.

"Granting DBA was a political decision, opting for a mechanism which was a technically and financially satisfactory way of proceeding, but which in terms of political image may have paved the way for legitimate suspicions," said the minority report.

The reports noted that the process of PA funding and its monitoring was improving, saying, "It was in a better state than those of surrounding countries or of various other countries that also benefit form international monetary institutions' funding." It also spoke highly of the reform efforts of Finance Minister Fayad.

Nevertheless, it recommended that an audit be done and that use of cash transfers be abolished.

Tannock said he was particularly concerned about the fact that the EU at the end of 2000 and into the first few months of 2001 gave the PA close to 40 million euros that went into a cash fund rather than a bank fund. That practice was stopped after a few months.

Tannock said he takes consolation in the fact that monitoring of PA spending continues to improve.