WRITTEN QUESTION P-3556/97 by Luigi Florio (UPE) to the Commission (4 November 1997)

Subject: EU loan to the Palestine National Authority

The Union is about to grant a loan of ECU 25 million to the Palestine National Authority in order to make up for funds which the Israeli Government has failed to transfer to the Arafat Government.

In April 1997 the Israeli newspaper Ha'aretz revealed that President Arafat holds a secret account with the Leumi Bank in Tel Aviv (Hashmonaim Street branch), in which some $150 m (approximately ECU 125 m) is deposited. The money, the proceeds of duties on imported fuel to be supplied to the Palestinian territories, was paid by the Israeli Government. It was consequently intended for the PNA, but President Arafat has withheld it for personal use completely beyond the range of scrutiny.

Is the Commission aware of the existence of the secret account and the large sums deposited in it? Given the circumstances, does it not take the view that the ECU 25 m loan should not be granted unless, at the very least, the above-mentioned $150 m is paid into the PNA treasury and the Palestinian President undertakes to increase the transparency of financial management?

Answer given by Mr Marin on behalf of the Commission (1 December 1997)

The issue of recent accusations of mismanagement of public funds in the Palestinian authority has already been raised in the context of the ad hoc liaison committee for the assistance to the Palestinian authority. The legislative council of the Palestinian authority has issued a comprehensive report on the matter and is engaged in further investigations.

The implementation of the Community's financial assistance to the Palestinian authority is closely monitored and scrupulously controlled by the Commission on the ground and by additional project monitoring units overseeing the ongoing individual assistance projects. Any indications of irregularities in the implementation of Community assistance to the Palestinian authority will be immediately reported and would be subject to the standard measures foreseen in such cases including the suspension of a financing agreement if needed.

Regarding the 25 MECU additional Community assistance to the Palestinian authority, the Council on 15 September 1997 invited the Commission to define a special cash facility in favour of the Palestinian authority. The Commission proposed to use the facilities as a risk reserve in favour of the Palestinian authority should Israel again withhold tax payments which it is obliged to transfer to the Palestinians. The facilities would take the form of an interest bearing account in a European commercial bank. The Commission proposes that all international donors are invited to contribute and the initial contribution will be coming from the Community, and that account will be administered by a donor council presided over by the Commission. Transfers from the account to the Palestinian authority will need a double signature (Commission and Palestinian authority). Finally, the Palestinian authority is obliged to repay any such transfers within ten days after having received the respective tax payments from Israel.

In addition, any disbursement from the special cash facility is subject to several conditions to be met by the Palestinian authority including consolidation of all Palestinian authority bank accounts to be put under the control of the finance ministry, strict budgetary control of current expenditures, and a sufficient decrease of the current budget deficit as foreseen for 1998.