[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]



 
   CHRONIC KLEPTOCRACY: CORRUPTION WITHIN THE PALESTINIAN POLITICAL 
                             ESTABLISHMENT

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                     THE MIDDLE EAST AND SOUTH ASIA

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 10, 2012

                               __________

                           Serial No. 112-167

                               __________

        Printed for the use of the Committee on Foreign Affairs


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/

                                 ______


                  U.S. GOVERNMENT PRINTING OFFICE
74-960                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, gpo@custhelp.com.  


                      COMMITTEE ON FOREIGN AFFAIRS

                 ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey     HOWARD L. BERMAN, California
DAN BURTON, Indiana                  GARY L. ACKERMAN, New York
ELTON GALLEGLY, California           ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
DONALD A. MANZULLO, Illinois         BRAD SHERMAN, California
EDWARD R. ROYCE, California          ELIOT L. ENGEL, New York
STEVE CHABOT, Ohio                   GREGORY W. MEEKS, New York
RON PAUL, Texas                      RUSS CARNAHAN, Missouri
MIKE PENCE, Indiana                  ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
CONNIE MACK, Florida                 THEODORE E. DEUTCH, Florida
JEFF FORTENBERRY, Nebraska           DENNIS CARDOZA, California
MICHAEL T. McCAUL, Texas             BEN CHANDLER, Kentucky
TED POE, Texas                       BRIAN HIGGINS, New York
GUS M. BILIRAKIS, Florida            ALLYSON SCHWARTZ, Pennsylvania
JEAN SCHMIDT, Ohio                   CHRISTOPHER S. MURPHY, Connecticut
BILL JOHNSON, Ohio                   FREDERICA WILSON, Florida
DAVID RIVERA, Florida                KAREN BASS, California
MIKE KELLY, Pennsylvania             WILLIAM KEATING, Massachusetts
TIM GRIFFIN, Arkansas                DAVID CICILLINE, Rhode Island
TOM MARINO, Pennsylvania
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
ROBERT TURNER, New York
                   Yleem D.S. Poblete, Staff Director
             Richard J. Kessler, Democratic Staff Director
                                 ------                                

             Subcommittee on the Middle East and South Asia

                      STEVE CHABOT, Ohio, Chairman
MIKE PENCE, Indiana                  GARY L. ACKERMAN, New York
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska           THEODORE E. DEUTCH, Florida
ANN MARIE BUERKLE, New York          DENNIS CARDOZA, California
RENEE ELLMERS, North Carolina        BEN CHANDLER, Kentucky
DANA ROHRABACHER, California         BRIAN HIGGINS, New York
DONALD A. MANZULLO, Illinois         ALLYSON SCHWARTZ, Pennsylvania
CONNIE MACK, Florida                 CHRISTOPHER S. MURPHY, Connecticut
MICHAEL T. McCAUL, Texas             WILLIAM KEATING, Massachusetts
GUS M. BILIRAKIS, Florida
TOM MARINO, Pennsylvania
ROBERT TURNER, New York


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

The Honorable Elliott Abrams, senior fellow, Council on Foreign 
  Relations......................................................     7
Jonathan Schanzer, Ph.D., vice president for research, Foundation 
  for Defense of Democracies.....................................    13
Mr. Jim Zanotti, specialist in Middle Eastern affairs, 
  Congressional Research Service.................................    30

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Elliott Abrams: Prepared statement.................     9
Jonathan Schanzer, Ph.D.: Prepared statement.....................    15
Mr. Jim Zanotti: Prepared statement..............................    32

                                APPENDIX

Hearing notice...................................................    52
Hearing minutes..................................................    53
The Honorable Gus Bilirakis, a Representative in Congress from 
  the State of Florida: Questions for the record.................    54
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    55


   CHRONIC KLEPTOCRACY: CORRUPTION WITHIN THE PALESTINIAN POLITICAL 
                             ESTABLISHMENT

                              ----------                              


                         TUESDAY, JULY 10, 2012

              House of Representatives,    
                Subcommittee on the Middle East    
                                        and South Asia,    
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2172, Rayburn House Office Building, Hon. Steve Chabot 
(chairman of the subcommittee) presiding.
    Mr. Chabot. The committee will come to order.
    Good afternoon. This is the Foreign Affairs Subcommittee on 
the Middle East and South Asia. We appreciate everyone being 
here this afternoon, and I will begin by making an opening 
statement. We are going to have votes relatively soon, so we 
will try to squeeze in as much as we can before we have to run 
over to make votes.
    Since taking office, President Obama has repeatedly 
emphasized his belief that a resolution of the Israeli-
Palestinian conflict is one of America's core interests in the 
Middle East. Throughout these 3\1/2\ years, aid to the 
Palestinian Authority to assist its state-building effort has 
consistently remained a central pillar of the administration's 
policy toward the Israeli-Palestinian conflict.
    For years, however, concerns have mounted about deep and 
widespread corruption within the Palestinian political 
establishment, including potential fraudulent use of U.S. 
financial assistance. This hearing has been called to offer 
members an opportunity to hear testimony on the extent of the 
corruption, who within the Palestinian political leadership can 
be trusted and who cannot, how the Palestinian political 
environment and the state-building effort are affected by 
corruption, and how the U.S. should respond.
    Reading the papers and listening to television news 
reports, however, one would have the sense that the only 
barrier to prosperity for Palestinians living in the West Bank 
and Gaza is Israeli intransigence. We are shown the plight of 
the Palestinians in Gaza, but instead of highlighting the ways 
that the Hamas terrorist leadership mismanages the local 
economy or gives Israel justifiable cause for concern, we are 
told that an Israeli blockade is to blame. Similarly, instead 
of calling attention to the omnipresent and insidious 
corruption within the PLO and Fatah leadership in the West 
Bank, we are told that Israeli settlements, many of which will 
surely not be a part of any future Palestinian state are the 
true problem, despite the fact that many of these locales 
employ Palestinian laborers.
    Well, I disagree with those points that I just made. If the 
Arab Spring has taught us nothing else, it has shown us that we 
must be concerned not just with how governments interact with 
each other but also with how they treat their own populations. 
For years, our top priority vis-a-vis Egypt was the regional 
stability that Mubarak helped to provide, and in exchange for 
his cooperation, we far too often turned a blind eye to the 
plight of average Egyptians.
    Similarly, our grossly exaggerated emphasis on a final 
resolution to the Arab-Israeli conflict warped our policy 
toward countries like Syria. Instead of going after Syria for 
malign actions like ushering jihadis into Iraq, we allowed our 
policy to be hostage to the ill-conceived notion that Syrian 
cooperation in the peace process, no matter how slight, might 
just break decades of stalemate.
    Instead of doing everything possible to promote good 
governance within Palestinian political parties and 
institutions, we propped up whoever would go through the 
negotiating motions, even if time and again he proved unwilling 
or unable to make peace. We expended all of our influence 
getting these countries to the negotiating table, and, in 
exchange for their real or imaginary cooperation, we looked the 
other way on issues like corruption and bad governance that 
have proved far more consequential. No longer.
    As our witnesses will testify to today, the corruption 
within the Palestinian political establishment has been endemic 
for decades. Reports suggest that Palestinian President Mahmoud 
Abbas, like his predecessor, Yasser Arafat, has used his 
position of power to line his own pockets as well as those of 
his cohort of cronies, including his sons, Yasser and Tareq.
    The Palestinian Investment Fund, for example, was intended 
to serve the interests of the Palestinian population and was 
supposed to be transparent, accountable, and independent of the 
Palestinian political leadership. Instead, it is surrounded by 
allegations of favoritism and fraud. President Abbas is 
reported to have asserted complete control over the fund, 
filled its board with his own allies, and has rejected all 
attempts to audit its operations.
    Even more disturbingly, Yasser and Tareq Abbas, who have 
amassed a great deal of wealth and economic power, have 
enriched themselves with U.S. taxpayer money. They have 
allegedly received hundreds of thousands of dollars in USAID 
contracts. This is not to say that they do not have a 
legitimate right to compete for these contracts, but it does 
raise questions as to whether they received preferential 
treatment of any kind as well as if and to what extent they are 
involved in corrupt practices within their own government.
    In addition to strengthening maligned actors, this 
corruption short circuits any progress that credible leaders, 
like Prime Minister Fayyad, have been able to achieve. A lack 
of accountability and transparency undermines the trust of the 
Palestinian people in their political institutions and renders 
them ineffective. How can democratic institutions be 
established or the economic wellbeing of the Palestinian people 
be advanced if their own leadership is raiding the common 
coffers? And if one of these leaders, against all empirical 
evidence, were to be willing to make peace with Israel, which 
will surely require unpopular even if necessary concessions, 
how can we expect the Palestinian people to respect an 
agreement negotiated by a hollow leader devoid of legitimacy 
among his own people?
    The endemic corruption within the Palestinian political 
establishment must go ignored no longer. Questions must be 
asked and answers must be demanded, including about our own 
assistance programs. Our objective cannot and must not be to 
strengthen whoever recites the same prescribed lines about 
negotiations. Rather, our policy must aim to empower those 
leaders who genuinely seek to establish the transparent and 
accountable institutions of government that will be necessary 
for any future Palestinian state to be viable and to live side-
by-side with Israel in peace, security, and prosperity.
    Our policy must aim to empower those who seek to serve the 
Palestinian people instead of themselves. Peace with Israel is 
objectively in the interest of the Palestinian people, but only 
a leader who is willing to put the wellbeing of the Palestinian 
people ahead of his or her own pocketbook will be willing or 
able to make the requisite sacrifices. I fear much of the 
current Palestinian leadership is not up to the task.
    And I would now yield to the gentleman from New York, the 
ranking member of this committee, the very distinguished Mr. 
Gary Ackerman.
    Mr. Ackerman. Thank you, Mr. Chairman.
    There was a moment in the recent past when corruption may 
have actually prevented a breakthrough moment in the Israeli-
Palestinian peace process. At that moment, but for the fact 
that one of the leaders of the two peoples was compromised by 
his own alleged misdeeds catching up to him, things could have 
turned out very differently. Unfortunately, that leader was 
Ehud Olmert, Israel's then-Prime Minister, who because of 
impending corruption charges had announced his intention not to 
seek reelection only 2 months before putting Israel's third 
comprehensive peace plan on the table for the Palestinians. The 
other two peace plans were both offered by current Defense 
Minister and once Prime Minister Ehud Barak.
    And the problem in all three cases is that the Israeli 
Prime Minister was, politically speaking, a very lame duck. 
Thus, for the Palestinians, saying ``yes'' or even ``yes, but'' 
would have meant accepting in principle all the downsides a 
compromise would entail but without having secured any of the 
benefits, as that would then depend on the outlook of the next 
Israeli Prime Minister.
    The decision not to accept is based on an understandable 
political calculus, but for the Palestinians it has been a very 
losing strategy. Avoiding domestic political risk, the 
consistent choice of Palestinian President Mahmoud Abbas has 
been a path which has kept him in office but has not achieved 
any of the Palestinian people's legitimate goals.
    And let's be very clear: It is the failure of the 
Palestinians to say ``yes'' that has prevented them from having 
a state of their own--not settlements, not defense, not the 
Israeli Defense Forces, not the Israeli right, not Prime 
Minister Netanyahu, and not anything else. With a bit more 
courage from their leaders, Palestinians could well be getting 
ready to celebrate their 10th independence day.
    Corruption in the Palestinian Authority is unquestionably 
serious and in some areas debilitating. But for the 
Palestinians, it has not been the deciding factor between the 
ongoing conflict or peace, or at least not in the way that 
people might expect.
    I am reminded of a funny story about an important 
negotiating session with all the Israeli and Palestinian 
principals attending. One of the Palestinians in the room, who 
I will not name--I will just refer to him as ``Abu A''--
launched into a furious diatribe about Israeli settlement 
activity and construction of the security barrier, particularly 
in and around Jerusalem. After a moment, in response, the 
Israeli Prime Minister simply and with a mysterious smile 
asked, ``Are you sure you want to stop all the construction?'' 
The room was filled with laughter, hardly suppressed, and a lot 
of snickers. It was well known among all of the principals in 
the room that the Palestinian advocate, who had just been 
holding forth so vehemently about the construction being the 
deterrent to peace, had a major financial interest in the 
Palestinian cement company that had a monopoly in the cement 
that was being used for the settlements and the security 
barrier that the Israelis were constructing in the Jerusalem 
area.
    For ordinary Palestinians, the situation is rather more 
serious, in that he or she realistically has only two viable 
political options: Radical, violent Islamic Hamas or feckless, 
corrupt Fatah. It is not much of a choice and, thus, no 
surprise that so many Palestinians have given up on their own 
political system altogether.
    But for us, as an interested outside party and as a friend 
of both sides in the conflict, our interests in the question of 
corruption are limited to three.
    One, in so much as one of the two political factions that 
favors peace and claims to be willing to accept negotiated 
settlement of the conflict is compromised--that means corrupt--
in the eyes of the Palestinian people, we should be concerned 
about the possibility that the political option for peace they 
favor will be likewise undermined. Happily, polling results for 
nearly a decade show little change in the Palestinian 
preference for a two-state solution. Less happily, at the same 
time, an overwhelming number of Palestinians have also 
concluded that that outcome is also extremely unlikely.
    Two, as a major political donor to the Palestinians, we 
need to be concerned that our aid will be construed as 
supportive for a corrupt regime. I will say that again. As a 
major political donor, we need to be extremely concerned that 
our aid will be construed as support for a corrupt regime. This 
is a problem not just with Palestinians but, likewise, in many 
other places of much greater strategic import, like Egypt, 
Pakistan, Afghanistan, and Iraq.
    The fact is, there is no easy answer for this question. We 
deal with corrupt governments out of necessity, because we need 
a partner with which to work on problems that reflect our 
national interests and our national security. Inevitably, 
dealing with rotten governments taints our reputation and, in 
the long term, jeopardizes our interests. Unfortunately, the 
only thing worse than dealing with rotten governments is trying 
to preserve and advance our interests should we ignore them.
    Three, we need to ensure that our assistance programs are 
achieving the goals that we set. If it is our intention to 
improve school attendance or decrease infant mortality or 
provide potable water and sanitation, then that is what the 
programs have to do. If they unintentionally wind up enriching 
loathsome regime figures and boosting the power of people we 
dislike, then we have a hard choice to make. Is our support for 
the people outweighed by the unintended, undesirable 
consequences of that flow?
    Obviously, I am not talking about outright corruption, 
waste, or fraud in our own aid programs. Such outcomes are 
always unacceptable and never to be tolerated. I am referring 
to the undesirable consequences of, say, buying concrete from 
the wrong Palestinian bigwig.
    Finally, we need to keep our eyes on the big picture, on 
where our strategic interests lie. Corruption is bad. 
Corruption here is bad. Corruption is bad in the P.A. 
Corruption is bad everywhere. We could all stipulate to that. 
It is agreed; we don't like it. Once that question is settled, 
then what? How do we move forward toward a peace that enables 
Israel to remain secure both as a democratic and Jewish state 
and for the Palestinians to have a national homeland of their 
own that poses no threat to others? That is the central 
question and the point from which our assessments about the 
seriousness of corruption must begin.
    Mr. Chabot. Thank you very much.
    It is the practice of the committee to recognize committee 
members if they would like to make a 1-minute opening 
statement.
    Mr. Connolly, were you interested in doing such?
    Mr. Connolly. Thank you, Mr. Chairman.
    And welcome, to our panel.
    Mr. Chairman, I would hope that here in the House Foreign 
Affairs Committee we maintain a tradition of straightforward 
intellectual pursuit. The title of this subject presupposes an 
answer. We don't ask about the magnitude of corruption or its 
impact. We actually say, ``Chronic Kleptocracy: Corruption 
within the Palestinian Political Establishment.'' That 
virtually says to anyone reading the title that it is chronic, 
it is a kleptocracy, not a government, and it permeates 
Palestinian political establishment.
    Now, it seems to me if that proposition were true, that is 
the purpose of hearing from the panel of expert witnesses. But 
for us to prejudge the case I think somewhat--more than 
somewhat--affects the whole tone and tenor of this hearing. And 
I would hope as we move forward in the future we would be a 
little more neutral in the wording so we can actually get at 
the facts.
    I certainly want to hear today from our witnesses about to 
what extent is there corruption, to what extent does that 
corruption prove an impediment to self-governance, to the 
prospect of a two-state solution anytime soon, to the fact that 
we, as Mr. Ackerman indicated, don't yet have Palestinian 
Government assent to participate in Middle East negotiations, 
and to what extent this is a barrier for any prospect of 
efficient service delivery.
    And so I would just hope that we try our best to resist the 
temptation to put the conclusion to a hearing in the title 
itself as we move forward.
    Thank you, Mr. Chairman.
    Mr. Chabot. Thank you.
    The gentleman's time has expired.
    The gentleman from Florida is recognized for 1 minute.
    Mr. Deutch. Thank you, Chairman Chabot, Ranking Member 
Ackerman, for holding today's hearing on corruption within the 
Palestinian political establishment. It is an issue I have been 
concerned with for sometime now. I believe it warrants our 
continued attention.
    And while there is no doubt that, under the leadership of 
Prime Minister Fayyad, the P.A. has made great strides in 
routing out corruption and reforming and restricting its 
financial system, I remain concerned about aspects of the P.A. 
that are not under Mr. Fayyad's control and remnants of those 
who for years profited under the corrupt system of Yassir 
Arafat.
    Reformers like Prime Minister Fayyad have come a long way 
in building the institutions necessary for a viable Palestinian 
state, but it is well known that the P.A. faces a massive 
budget shortfall. Unfortunately, allegations of corruption 
among those in power continue to be a source of serious concern 
for the U.S. and other donor states.
    Earlier this year, I, along with my colleagues 
Congresswoman Nita Lowey and Congressman Steve Israel, 
requested an investigation into U.S. contributions to the 
Palestine Investment Fund. We are hopeful that an investigation 
will not only provide a mechanism for accountability of U.S. 
dollars but provide additional transparency and clarity as to 
the functions of the PIF. I know that these are issues which 
our witnesses have investigated, and I look forward to their 
testimony here today.
    Mr. Chabot. Thank you very much. We appreciate that.
    We have been called for votes on the floor. I am told that 
we are looking at about 40 minutes' worth of votes, so we will 
be in recess in that period of time. But we will come back 
promptly and begin with Mr. Abrams' testimony.
    Thank you. We are in recess.
    [Recess.]
    Mr. Chabot. The committee will come back to order.
    We will now have the introduction of our panel here this 
afternoon. And we will begin with Elliott Abrams, who is the 
senior fellow for Middle Eastern studies at the Council on 
Foreign Relations; served as Deputy Assistant to the President 
and Deputy National Security Advisor in the administration of 
President George W. Bush, where he supervised U.S. policy in 
the Middle East for the White House. Prior to this position, 
Mr. Abrams spent 4 years working for the United States Senate 
and served in the State Department during the Reagan 
administration. In 1988, Mr. Abrams received the Secretary of 
State's Distinguished Service Award from Secretary George P. 
Shultz for his work in the State Department. Mr. Abrams was 
educated at Harvard College, the London School of Economics, 
and Harvard Law School.
    And we welcome you here this afternoon.
    And our second witness will be Dr. Jonathan Schanzer, who 
is vice president for research at the Foundation for Defense of 
Democracies. Previously he worked as terrorism finance analyst 
at the U.S. Department of the Treasury. He has worked for 
several think tanks, including the Washington Institute for 
Near East Policy, the Jewish Policy Center, and the Middle East 
Forum. Dr. Schanzer earned his Ph.D. from Kings College London, 
where he wrote his dissertation on the U.S. Congress and its 
efforts to combat terrorism in the 20th century.
    And we welcome you here, as well, Doctor.
    And our final witness will be Jim Zanotti, who is a 
specialist in Middle Eastern affairs at the Congressional 
Research Service. Since joining CRS in 2008, Mr. Zanotti has 
provided objective and nonpartisan research and analysis on the 
Middle East to Members, committees, and staff of both houses of 
Congress. He specialized in Palestinian, Israeli, and Turkish 
affairs. In 2010, he was detailed to the Pentagon as a Turkey 
and Romania policy desk officer for the Office of Secretary of 
Defense. From 2007 to 2008, Mr. Zanotti was a Bosch 
Transatlantic Fellow in Berlin, which included time working on 
Middle East issues for a leading member of the German 
Bundestag. Mr. Zanotti holds a B.A. In history from the 
University of Southern California, a J.D. From Harvard Law 
School, and an M.A. In international peace and conflict 
resolution from American University.
    And we welcome you here, as well, Mr. Zanotti.
    And we will have 5 minutes for each witness. I am sure you 
are familiar with the lighting system here. A yellow light will 
come on when you have 1 minute to wrap up. When the red light 
comes on, we would appreciate if you would wrap up. We usually 
give a little leeway, but if you could stay within that, we 
would appreciate it.
    And without further ado, Mr. Abrams, you are recognized for 
5 minutes.

   STATEMENT OF THE HONORABLE ELLIOTT ABRAMS, SENIOR FELLOW, 
                  COUNCIL ON FOREIGN RELATIONS

    Mr. Abrams. Thank you, Mr. Chairman, for the invitation to 
appear before the subcommittee. Thank you, Mr. Ackerman. I 
apologize for this cold. I am counting on 4 minutes of 
testimony and a minute of coughing. It should even out at the 
end.
    I wanted to say that I guess I don't agree with Mr. 
Connolly, in the sense that we all know the magnitude of this 
problem. In my written testimony, I mentioned the famous cement 
issue that Mr. Ackerman mentioned and which has been--it was 
actually 20,000 tons of cement that was bought from Egypt, and 
the purpose was to rebuild buildings in Gaza, but it ended up 
in Ashkelon and then on to build what the Palestinians were 
then calling the Apartheid Wall. And I won't identify ``Abu A'' 
any more than the ranking member did.
    But this is a serious problem. Polls have shown recently 
that more than 80 percent of Palestinians think it is a serious 
problem. And it matters politically, too, because if you have a 
government that is not elected--and, as you know, they haven't 
had elections since 2006, so everybody's term is up--and it is 
viewed as corrupt, the legitimacy necessary to rule and the 
legitimacy necessary to compromise in any negotiation simply 
are not there.
    Nor are we allowed to talk about corruption. Just an 
example of this: In 2008, there was a Web site covering 
corruption matters. It was simply blocked by the Palestinian 
Authority. President Abbas issued an order to block the site 
after dozens of articles about corruption had appeared. And the 
Web site did an article about this called, ``The Ramallah 
Banana Republic.''
    There have been efforts against corruption by Prime 
Minister Fayyad since he became Prime Minister in 2007 and even 
before that when he was Finance Minister. But I think you would 
have to say, in the last year, maybe 2 years, his efforts have 
been circumscribed, and his powers are not as great as they 
were a couple of years ago.
    People point to two things that have happened recently as 
signs that, oh, it is getting better. The anticorruption court 
convicted Mohammed Rashid, who had been a financial advisor to 
Yassir Arafat, but he hasn't really been a figure of importance 
in Ramallah since Arafat died in 2004. He is on the outs. So 
convicting him really is more like vengeance against an 
unpopular figure than it is really taking on corruption on the 
inside.
    This month, there were 150 arrests made in the West Bank, a 
kind of police sweep. And The Jerusalem Post reported, this is 
a crackdown on crime and corruption in the West Bank. I am not 
so sure about that. Maybe it is a crackdown on crime. I don't 
see it as a crackdown on corruption in the Fatah Party. And, 
again, it seems more like one faction against another.
    You have mentioned in your opening statement, Mr. Chairman, 
the sons of President Abbas, and you mentioned the Palestine 
Investment Fund. And I think it is really important that that 
investigation of the PIF go forward. It was removed from 
Fayyad's oversight, from the oversight of the finance ministry 
a couple of years ago. I can't believe that the reason for that 
removal is anything positive.
    Final point: What are we doing about this in our aid 
programs? I took a look at our AID programs and our MEPI 
programs, and on their Web sites they list all the things they 
are involved in, all of which are, I think, quite beneficial. 
But the word ``corruption'' does not appear. And if you ask, 
people will say, well, some of the governance programs deal 
with corruption, help deal with corruption. But what are 
Palestinians to conclude if we don't have what we call an 
anticorruption program, what is labeled and named an 
anticorruption program?
    If the suggestion is, in their minds, that we don't really 
want to talk about this, we don't think it is all that 
important, we don't want to have any visible AID or MEPI or 
other U.S. Government programs against it, that suggests that 
we are uninterested or at least we are minimizing it, which I 
think is a huge mistake for us for the reasons that all of you 
have already mentioned.
    So I think you are zeroing in, in this hearing, on a very 
serious issue, a key one for you as authorizers of assistance 
and key for anybody who wants to see the development of a 
responsible, transparent, democratic government in the West 
Bank.
    Thank you.
    Mr. Chabot. Thank you very much.
    [The prepared statement of Mr. Abrams follows:]

    
    
    
    
    
    
    
    
                              ----------                              

    Mr. Chabot. And, Dr. Schanzer, you are recognized for 5 
minutes.

   STATEMENT OF JONATHAN SCHANZER, PH.D., VICE PRESIDENT FOR 
        RESEARCH, FOUNDATION FOR DEFENSE OF DEMOCRACIES

    Mr. Schanzer. Chairman Chabot, Ranking Member Ackerman, 
members of the subcommittee, on behalf of the Foundation for 
Defense of Democracies, I thank you for holding this important 
hearing.
    I have recently devoted months of research to this problem 
of Palestinian corruption. I believe the problem is pervasive, 
and I also believe that it is, to some extent, one of our own 
making. After the Palestinian civil war of 2007, during which 
Hamas overran the P.A. and seized control of Gaza, Washington 
panicked. We threw all of the resources at our disposal at 
Mahmoud Abbas in the belief he was the moderate alternative to 
a terrorist organization. Yet, in providing him with the cash, 
intelligence, military assistance, and other valuable services 
to shore up his rule, we convinced Abbas there was virtually 
nothing he could do to shake our support. And over the last 5 
years, he has consolidated both economic and political power.
    In recent months, however, Abbas has come under fire for 
corruption from within. A recent poll indicates that no less 
than 71 percent of West Bankers believe the Abbas government is 
corrupt. This is for good reason. Abbas silences political 
opponents. His forces crush protests and arrest writers who 
criticize him. His government shuts down Web sites that make 
allegations against him. Meanwhile, his allies and family 
members have benefited handsomely from his rule. I summarize 
these problems in my written testimony.
    Mr. Chairman, I would like to speak for a moment about 
Mahmoud Abbas' sons, Yasser and Tareq. On June 5, I wrote an 
article for Foreign Policy that identified some of the business 
holdings, based on online sources, of these two individuals. 
Since then, someone has removed some of the Web sites that I 
cited.
    But there is more to uncover. I recently spoke with a 
current foreign intelligence official and two former U.S. 
intelligence officials who confirmed and shared additional 
information relevant to this testimony. According to these 
officials, in 2009 the P.A. granted diplomatic passports to two 
business partners of the Abbas brothers, Issam and Devincci--
also known as Assem--Hourani.
    The Israeli press covered aspects of the story in 2011, but 
according to these intelligence officials, it did not report 
that Yasser Abbas worked with Devincci Hourani to pursue an oil 
business in Sudan called Caratube International Oil Company, 
otherwise known as CIOC. Devincci Hourani and Yasser Abbas, 
according to these officials, received ``help from the 
Palestinian Authority Ambassador to Sudan to win three oil 
blocks on behalf of CIOC.''
    The intelligence officials suggest that the Sudan operation 
may be a violation of U.S. sanctions because Devincci could be 
a U.S. citizen. The intelligence officials note that Devincci 
Hourani ``partnered with Yasser Abbas to initiate other 
business projects in Sudan, including construction of a hotel 
and other real estate projects.'' The officials further add 
that Yasser and Tareq have ``been in continuing contact with 
the Hourani brothers about business opportunities in 
Kazakhstan, the Ukraine, and Montenegro.'' Open source 
information about these businesses, if they are active, is not 
readily accessible.
    Mr. Chairman, shifting gears, in congressional testimony 
last year I raised concerns about the Palestine Investment 
Fund. Since then, I have had several discussions with PIF's 
representation in Washington. Without getting too detailed, my 
most serious lingering concerns stem from indications that the 
fund is not as transparent as it was first intended to be.
    But there is also the question of PIF operations in Gaza. 
PIF claims to have ceased working there after Hamas seized its 
assets in 2011, but an official at the American International 
School in Gaza now claims that PIF representatives have ``taken 
over the office of a vice principal.'' Admittedly, PIF owns the 
school through a subsidiary, but if PIF maintains a presence in 
Hamas-controlled Gaza, it requires an explanation. PIF should 
also explain the Fund's presence in a school receiving USAID 
funds. PIF counsel has indicated that they will look into this 
matter.
    There are more issues to raise, but I will wrap up in the 
interest of time. Mr. Chairman, Washington should first 
acknowledge there is a problem. The consulate in East Jerusalem 
knows what is happening, but the State Department has yet to 
openly address this issue. If steps are not immediately taken, 
Hamas will exploit the problem. Hamas, after all, won the 2006 
elections on a campaign that centered on fighting corruption, 
and frustrations over corruption fueled the Arab uprisings that 
recently toppled several leaders.
    The Palestinians must know that Israel is not the only 
obstacle to independence. If self-governance is the goal, they 
must also grapple with corruption. Washington can also leverage 
its $600 million in annual aid. We squander our influence if we 
fail to withhold portions of this aid when we identify areas of 
corruption and restore it only when the problems are addressed.
    Finally, with enough political will, Congress could even 
press for an Executive order on Palestinian corruption. This 
would send a signal to violators that Washington will no longer 
tolerate this problem.
    Mr. Chairman, thank you again for the opportunity to 
testify.
    Mr. Chabot. Thank you very much.
    [The prepared statement of Mr. Schanzer follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Mr. Chabot. And, Mr. Zanotti, you are recognized for 5 
minutes.

  STATEMENT OF MR. JIM ZANOTTI, SPECIALIST IN MIDDLE EASTERN 
            AFFAIRS, CONGRESSIONAL RESEARCH SERVICE

    Mr. Zanotti. Chairman Chabot, Ranking Member Ackerman, and 
other distinguished members of the committee, thank you for 
inviting me here today. I would like to begin with a brief 
overview of the topic within a broader U.S. policy context.
    The Palestinian National Authority was established in 1994 
by agreement between Israel and the PLO to exercise limited 
self-rule under supervening Israeli control in the Gaza Strip 
and parts of the West Bank. Substantial material assistance 
from international donors backed the formation of the P.A. and 
continues in support of improving the P.A.'s capacities to 
govern and provide public security and services.
    U.S. bilateral assistance appropriated for Palestinians in 
the West Bank and Gaza since 1994 has exceeded $4 billion. 
Since the 2007 de facto split between the Fatah-led P.A. in the 
West Bank and Hamas in Gaza, this has included more than $1 
billion for direct budgetary assistance to the P.A. It has also 
included $645 million for nonlethal security and criminal 
justice sector assistance in the West Bank.
    Successive U.S. administrations and Members of Congress 
have routinely asserted that this aid supports at least three 
major U.S. policy priorities: One, preventing terrorism against 
Israel from Hamas and other militant organizations; two, 
fostering stability, prosperity, and self-governance in the 
West Bank that inclines Palestinians toward peaceful 
coexistence with Israel and a two-state solution; and, three, 
meeting humanitarian needs.
    Since the 1990s, allegations have swirled around the Fatah-
led P.A. and its two Presidents, first Yassir Arafat and now 
Mahmoud Abbas, accusing them and/or various of their associates 
of avoiding transparency and accountability with funds they 
have controlled, misusing or diverting assets intended for 
public benefit, and/or fostering a general environment in which 
corrupt or unaccountable practices are encouraged or accepted 
as the norm.
    The popular Palestinian perception of entrenched corruption 
within Fatah is commonly cited as one reason that Hamas, 
running under the moniker of the Change and Reform List in 
January 2006 elections, won a majority of Palestinian 
legislative council seats.
    Some Palestinian leaders have attempted over the years to 
curb corruption and institute reform with mixed results. P.A. 
Prime Minister Salam Fayyad, for example, established a 
reputation as a reformer in the early 2000s after becoming 
Arafat's Finance Minister. He exposed and discontinued various 
unsanctioned practices and strengthened P.A. accountability 
mechanisms. Many Western officials and analysts laud and 
support Fayyad's continuing P.A. reform efforts in the West 
Bank under Abbas' Presidency.
    A June 2012 poll indicated that 71 percent of Palestinians 
in the West Bank and Gaza believe that corruption exists in the 
West Bank's P.A. institutions. A Washington Post article from 
June quoted an analyst as saying that favoritism and off-the-
books payments continue within the P.A. However, the same 
article cited antigraft activists who say that the problem has 
diminished since Arafat's death. And surveys published last 
year by the World Bank found that, generally speaking, 
Palestinians' perceptions of corruption exceed their personal 
experience with it.
    Apparently in response to corruption allegations leveled 
against various P.A. officials in 2010, President Abbas 
appointed an anticorruption commission and empowered a court to 
adjudicate cases resulting from the commission's 
investigations. The first conviction resulting from the 
commission's activities occurred in June 2012 against Arafat's 
former financial advisor, Mohammed Rashid, for embezzlement. 
Rashid has responded publicly with allegations of corruption 
and nepotism against Abbas, and multiple reports indicate 
recent increases in official efforts to arrest and silence 
media and civil society critics of Abbas and the P.A.
    So what are the implications for U.S. policy? A next step 
for U.S. lawmakers and officials could be to determine whether 
various allegations of P.A. corruption are true, likely, 
plausible, or none of these. In determining whether and how to 
respond to corruption allegations deemed to have merit, they 
might weigh the following considerations: How important is 
preventing or limiting P.A. corruption in the context of 
overall U.S. priorities with respect to the Palestinians? How 
effective are existing U.S. laws and policies in addressing 
these priorities? And how might changes to U.S. laws and 
policies pertaining to aid and oversight affect this picture, 
along with regional public opinion and political trends?
    Thank you very much. I look forward to your questions.
    Mr. Chabot. Thank you very much.
    [The prepared statement of Mr. Zanotti follows:]

    
    
    
    
                              ----------                              

    Mr. Chabot. We appreciate all three of the witnesses' 
testimony here this afternoon. And we will now have 5 minutes 
to ask questions, and I will recognize myself for that purpose 
at this time.
    Mr. Abrams, in your written testimony you stated that, and 
I quote:

        ``The challenge here is not only to President Abbas and 
        to the P.A. It is, for one thing, a challenge to the 
        Fatah Party, whose future ability to defeat Hamas is 
        surely tied to public perceptions of whether it remains 
        a home to corruption. And it is a challenge to us, to 
        the United States. If we turn a blind eye to corruption 
        and to persecution of those who expose it, we are in a 
        very real way contributing to the problem and 
        undermining those Palestinians who wish to build public 
        integrity into their system. It is widely understood 
        that donors in the Arab states and Europe, as well as 
        we ourselves, look favorably on Prime Minister Fayyad, 
        but that is not enough.''

And you said some other things, as well.
    Could you please elaborate on specific measures that you 
believe should be taken by the various parties--the U.S., the 
Palestinians, and the Arab donor states--to stem future 
corruption?
    Mr. Abrams. Of course, one would hope--and it has been an 
idle hope over the past years--but, for the most part, one 
would hope the Palestinians would clean this up themselves. And 
there was some real progress made when Fayyad first became 
Finance Minister, 2003 if I remember, and then became Prime 
Minister. For example, they put the P.A. budget on the 
Internet. For the first time, you could get a sense of where 
things were going.
    But he is not a member of Fatah, Prime Minister Fayyad. And 
the pervasive corruption of the Fatah Party is, as has been 
said, I think, one of the things that contributed to their 
defeat by Hamas in the 2006 elections. And they have not been 
willing to do that kind of self-policing. And it starts, as Dr. 
Schanzer said, it really starts, I think, at the top of the 
Fatah Party with President Abbas and his family.
    So I don't think we are going to get a lot more from that 
direction. I think it really depends more on us and whether, 
for example, it is possible to build into our aid, whether it 
is through AID or MEPI or the National Endowment for Democracy, 
some specific anticorruption activities. I mean, they have an 
anticorruption program now, but when it, instead of going after 
anybody who is in the inner circle, it goes after outcasts, it 
goes after enemies of President Abbas, I think we have to draw 
the conclusion that it is not a serious program.
    Mr. Chabot. Thank you very much.
    Dr. Schanzer and Mr. Zanotti, in your testimonies you 
referenced numerous specific instances of Palestinian 
corruption. What actions do you believe the U.S. Government 
should take in investigating past instances and combating 
future ones? Do you believe the current Palestinian leadership 
is corrupt beyond salvation? And if so, how should U.S. policy 
accommodate that reality?
    And if either one of you wants to go first, and then I will 
take the other one after that.
    Mr. Schanzer. I suppose I will go first.
    First of all, you know, I think that the importance here is 
to take a look at this problem and to try to address it with 
the current Palestinian leadership. When we look at the 
importance of the Palestinian Authority, I think it can't be 
understated, this was designed to be a caretaker government 
that would help build up institutions while the Israelis and 
Palestinians tried to hammer out core issues in the peace 
process and ultimately midwife a state. And what we have seen 
here is that it has gone off the rails. This Palestinian 
leadership has decided that it doesn't want to negotiate any 
longer. We are seeing that right now under the top leadership. 
They are going unilaterally to the U.N. and basically going 
outside of the Oslo process to which we believe they had been 
bound. And now, on top of this, we are seeing blatant instances 
of corruption.
    And so I think we need to bring this back to where it was, 
which was a fledgling state designed to help bring together the 
institutions necessary for statehood. I think we have lost 
sight of that, and that is why I think it is important that the 
United States focus on this. I believe it is good for the 
Palestinians; I believe it is good for the peace process.
    In terms of what we can do specifically, you know, I did 
mention that I think that we could probably remove areas of our 
aid when we identify specific line items where there is 
corruption. In other words, when we identify, we say, this is a 
problem, we are going to remove funds until you rectify the 
situation, and we will replace it. Right now we just hand it 
over blindly. It is just given to the Palestinians as if it is 
owed to them, and there are no expectations on the part of the 
Palestinians that they need to deliver anything in return. I 
think this is a problem. It has ultimately undermined this 
project of the Palestinian Authority.
    Mr. Chabot. Thank you.
    Mr. Zanotti?
    Mr. Zanotti. Yes. And to clarify, my citing various reports 
did not advocate any sense of whether corruption has taken 
place within the P.A. or not. I have very few means of actually 
independently verifying those.
    But without advocating any investigative measures per se or 
specific means of U.S. policy, you know, one approach would be 
to relate back to the U.S. priority for our political support, 
our material support with the P.A., one of which I enunciated 
in my earlier remarks, talking about helping the P.A. develop 
capacity for self-governance and stability and prosperity in 
the West Bank.
    And if the Palestinian Authority, through establishing an 
anticorruption commission, through seeking to address this 
problem, has not done so in a way that evokes confidence from 
its people, then--a World Bank survey that was conducted last 
year in 2011 said, not only do you have to effectively pursue 
corruption, but you also have to convince your people that it 
is not politically motivated and that there is enough 
transparency that there can be discussion of it within the West 
Bank. And some of these reports that have come out in the last 
few months have cast some doubt as to whether there is this 
credibility.
    As for specific measures, specific ways that U.S. policy 
could perhaps address the situation, of course there are a 
range of options, going from more stringent oversight of 
various P.A. or P.A.-related bodies or accounts to the notion 
of revisiting various conditions on U.S. aid, adding to, 
changing those conditions; and then, of course, also addressing 
various types and levels of the aid itself; and then, you know, 
other measures having to do with having the issue raised on a 
more common basis.
    Mr. Chabot. Okay. Very good.
    Mr. Zanotti. So these are some of those measures that----
    Mr. Chabot. Okay. Thank you very much. I appreciate it. My 
time has expired.
    The gentleman from New York, the ranking member, Mr. 
Ackerman, is recognized for 5 minutes.
    Mr. Ackerman. Thank you.
    I would just like to comment first on something that Dr. 
Schanzer said. I believe that the money that we give the 
Palestinian Authority directly is to pay bills, which means 
that that money that we give them is really a passthrough to 
Israel to pay their bills for their electricity so that Israel 
keeps their lights on. So I don't know what we investigate 
there. I am not saying there is no corruption, but as far as 
that is concerned, that pays the electric bills to Israel, and 
we are really paying Israel for their electric bills by giving 
them the money so that they are paying their electric bills.
    And that is a couple hundred million dollars' worth. And 
almost equal, slightly more--or slightly less goes to AID in 
contracts. And I think that is where we really have to watch 
what is being spent. But that is not direct aid to them that is 
being handled by AID.
    I just want to sound a cautionary note as to where we are 
going with this and what we do with the information as far as 
policy and what others do with the information here as policy 
and whether that is helpful or not. If we stipulate, as I said 
before, that there is corruption, there are those who would use 
that information solely and exclusively to say, ``You see? The 
Palestinians are unworthy, and we should not be giving them any 
aid or assistance.''
    I would divide the camp up into those who want to help the 
peace process, and then there is a small splinter group of 
people who are so blinded in their support, trip over 
themselves, that say we should do everything we have to do to 
help Israel, and helping the Palestinians get their act 
together so that they achieve their legitimate goals and do not 
act in ways that are disruptive to the international community, 
Israel included, would also be something that is helpful to 
Israel.
    But there are those who would use this, they see this 
corruption there, let's cut them off until, you know, they act 
like Mother Teresa would act. That is not going to happen. 
There is corruption everywhere. I think on a scale of all the 
nations, 1 to 184, I think Sweden or Finland is number one with 
the least corruption and North Korea is 184. We come in, like, 
24th. So, you know, everybody is somewhere on this spectrum. 
Palestinians don't get rated because they are not a country. I 
assume they would be closer to North Korea than Scandinavia if 
they were.
    But there was a race once in Louisiana for Governor in 
which the former Governor, whose name I believe was Edwards, 
was running. And he had been known primarily because he was 
thoroughly corrupt. And he was running in a primary, and 
suddenly the guy who challenged him turns out to be David Duke, 
the well-known Nazi leader. So people had that choice. It 
wasn't their ideal. So bumper stickers were springing up, some 
of which said, ``I am with the crook.''
    You know, you don't always get your ideal choices.
    If we come to the conclusion that you have to put your 
money down somewhere, you know, who are you going to be with? 
And this is not necessarily a good choice. There is one group 
that wants to completely destroy Israel, and that is their 
lifeblood. The other one, you know, Fatah, at least contends 
that they are interested in a negotiated settlement, and if we 
take them at their word, even despite that, they are the group 
that is known to be corrupt.
    One of those groups is going to win. We don't want to pull 
away altogether. If you completely embarrass and humiliate the 
guys that are crooks, you force the voters or the electorate to 
go to the guys that are the Nazis, in relative terms. I am not 
calling them that. But, you know, in life you don't always get 
to pick your choices. You get two choices that confront you; 
sometimes they are bad and terrible.
    What is it that we do here to keep enough pressure and 
spotlight on the Palestinians, who are the guys that we might 
prefer win this battle, so that they clean up their act so that 
the guys who are the terrorists don't win?
    That was a 5-minute question, but maybe I can have a short 
answer.
    Mr. Schanzer. Well, thank you for raising all of these 
points. I will try to address them just very quickly.
    First of all, on the issue of paying the electricity bills, 
I am actually very glad that you raised that. It is something I 
brought up about a year ago in this very building.
    Part of the problem with the electricity bills that we are 
paying, or that we are giving funds to the Palestinian 
Authority to pay, is they are, in turn, financing the 
operations of the Gaza power plant. The Gaza power plant is 
operated under the auspices of Hamas. Interestingly, Hamas goes 
out and asks people to pay their electricity bills but does not 
remit those funds back to the Palestinian Authority. So, in 
many ways, when we give funds to the P.A. to fund electricity, 
we are actually funding Hamas.
    Mr. Ackerman. Well, everything is fungible. We know that.
    Mr. Schanzer. Of course it is fungible, but, again, you 
know, it is not as simply as just we are paying the electricity 
bills. And so, you know, I would just say that, you know, even 
those sorts of line items that appear very straightforward have 
a wrinkle to them that can impact this question of Palestinian 
corruption.
    Now, as for those who would say that we shouldn't fund the 
Palestinian Authority, period, because of the problem of 
corruption, I would say that they are very few. I certainly am 
not one of them. But I do believe that just saying that of 
course there is going to be a problem of corruption within the 
P.A., it is--what is the term--it is the soft bigotry of low 
expectations. In other words, if we don't ask them to do what 
is right for their own people, we are complicit in what is 
happening inside the P.A.
    And the frustration level, sir, is rising. We have seen it 
in recent demonstrations against the Palestinian Authority. You 
can see it in terms of the way the people are writing against 
the P.A. right now online. This is a growing sentiment. It is 
important that we try to address this now.
    Now, just on one other point here, yes, of course, 
corruption is an issue that every country faces, and, of 
course, we know that it is rife in the Arab world. But here I 
think when we talk about our choices, we can find a way to make 
sure that the choice of the Palestinians isn't Hamas in the 
end. In other words, as long as the Palestinian Authority 
continues to pursue this path of corruption, the Palestinian 
people will undoubtedly go running in the direction of Hamas. 
We saw it in 2006. I believe that if we don't tackle it now, 
the next time there is an election--I am not sure that we will 
ever actually see one held, but if there was an election, I 
think Hamas would win hands down.
    But then there is also just the question of the people 
rising up against the P.A. We are now in the middle of an 
unprecedented time in the Arab world. Some people call it the 
Arab Spring, the Great Unrest. All of this is about corruption, 
sir. All of this is about people being very angry at their 
leaders for squandering American aid, for allowing their 
children, whether it was Gamal Mubarak or Saif al-Islam 
Qadhafi, they all got rich off of their parents' systems. What 
we are looking at right now is the potential for this to come 
back to the Palestinians. If it does, it will have grave 
ramifications for the potential of a Palestinian state as well 
as the two-state solution.
    These are the all the reasons why I think it is important 
that we try to tackle this now. And whether we do it by 
addressing line items in the aid, whether we do it through 
proclamations through the State Department, we have to start to 
think about these problems more seriously.
    Mr. Chabot. The gentleman's time has expired.
    The gentleman from Pennsylvania is recognized, Mr. Marino, 
for 5 minutes.
    Mr. Marino. Thank you, Mr. Chairman.
    Good afternoon, gentlemen. Thank you for being here.
    I am just a country lawyer, a country prosecutor from 
Pennsylvania but with an insatiable appetite for foreign 
policy. I have four questions I would like to ask each of you, 
and if you could please be as succinct as possible, if there 
are answers to these questions.
    Who is more inclined to deal with the U.S., Hamas or Fatah? 
And why or why not?
    Mr. Abrams, please.
    Mr. Abrams. Oh, Fatah, Mr. Marino. Hamas continues to view 
the U.S. as an enemy.
    Mr. Marino. Okay. And why Fatah?
    Mr. Abrams. Well, they have always been, first of all, a 
secular group, not an Islamist group. And they have generally 
seen the possibility of getting what they want, which is a 
Palestinian state under their own leadership, as more likely to 
be brokered by the United States because of our status as a 
close friend of Israel.
    Mr. Marino. Does anyone want to supplement that? No?
    Second question: Could more of a wedge be cultivated 
between Hamas and Fatah? Doctor?
    Mr. Schanzer. Congressman Marino, I would say that--
probably not. I like to say that the two factions can't agree 
on the color of hummus. There is very little that the two sides 
can agree on one right now. One is very secular; the other one 
is Islamist in nature. One is at least nominally inclined to 
work with the United States; the other, absolutely not. And so 
the wedge is rather large, the divide is large.
    I don't necessarily think that would be a good thing for 
U.S. policy moving forward, because it means that we lack a 
credible interlocutor on the Palestinian side, which would make 
peace discussions that much more difficult.
    Mr. Marino. Thank you.
    Mr. Zanotti--and, again, if others have a response--what 
realistically happens if we cut all aid to Palestine?
    Mr. Zanotti. Well, I mean, there is a universe of 
possibilities. You know----
    Mr. Marino. Narrow it down to the galaxy.
    Mr. Zanotti. Dr. Schanzer spoke previously, in previous 
testimony, talked about the possibility of other countries, 
other influences stepping in, that this situation in the region 
is not simply a vacuum, that you have Iran looking to influence 
matters. There have been some reports, not saying that Abbas is 
cultivating a financial relationship with Iran, but there have 
been reports that Mr. Abbas might be attending some kind of a 
meeting in Iran in the near term.
    Other states, the European Union, other donors, not saying 
that these are all bad influences, necessarily, but they are 
influences other than the United States, that if the United 
States leaves the playing field at that point, there is an 
argument to be made that some of these other actors can step 
in.
    Mr. Marino. Anyone else? Doctor?
    Mr. Schanzer. I would say that, yes, we leave the playing 
field open to other bad actors to step in, whether it be Iran, 
Saudi Arabia, Qatar. I think there is no shortage of actors. Of 
course, the Muslim world is notorious for not making good on 
its pledges to the Palestinians for aid. But, nevertheless, if 
we stepped out, we certainly would lose our leverage and 
potentially yield it to other actors that are working against 
U.S. interests, and I would warn against it.
    Mr. Marino. I hear this more and more from State Department 
people. Give me an example. How could it get worse, and what 
could happen?
    Mr. Schanzer. Okay. So, for example, let's say Iran steps 
in. What we look at right now in the Gaza Strip, with the 
number of rockets that Hamas currently has in its possession 
that have been furnished by an Iran, somewhere in the vicinity 
of, let's say, 20,000 to 30,000 rockets, reinforced bunkers, 
they are preparing for another war against Israel. That is in 
one small area about the size of metropolitan Washington, DC. 
Now imagine you have another territory, the West Bank, roughly 
the size of the State of Delaware, with equal capacity, equal 
preparations for war, possibly more weaponry. You are 
destabilizing the region further.
    Mr. Marino. All right. Very complex.
    Mr. Schanzer. Yes.
    Mr. Marino. Last question. Mr. Abrams, how much U.S. cash 
did Arafat steal from us? And does his family still have it?
    Mr. Abrams. It was thought by the time that some money 
began to come back that he had stolen over $1 billion. That is 
not to say that it was all U.S. cash, because he was getting 
money from Europe, he was getting money from many Arab donors.
    But the original funding of what is now called the 
Palestine Investment Fund was, if I remember correctly, money 
that he stole and that he was forced to turn back over. Of 
course, it has grown, but you are talking, round numbers, $1 
billion.
    Now, how much they still have, I think no one--well, 
somebody knows the answer to that. Perhaps his widow knows the 
answer, and perhaps Mohammed Rashid knows the answer, the guy 
who used to handle money for him.
    Mr. Marino. Thank you, gentlemen. I could talk with you for 
hours, but I yield back.
    Mr. Chabot. Thank you. The gentleman's time has expired.
    The gentleman from Florida, Mr. Deutch, is recognized for 5 
minutes.
    Mr. Deutch. Thank you, Mr. Chairman.
    Mr. Chairman, I have a series of questions that I was 
prepared to ask about--corruption and transparency and where we 
might need to shine the light in order to succeed in routing 
out some of this corruption--but then the day's events took 
hold.
    And, Mr. Abrams, as you point out, we have now seen there 
has been this long history. The last parliamentary elections 
were in 2006. New parliamentary and Presidential elections were 
supposed to take place in January 2002, until the P.A. 
abandoned them; municipal elections in July of last year, then 
pushed back to October of last year; legislative and 
Presidential elections again by some point in the spring of 
this year.
    So, given that history, there is probably little reason for 
me to even ask. Nevertheless, in today's news we learn that 
there are now municipal elections that have been called for 
October--October 20th, 2012.
    Given everything that the three of you have talked about in 
terms of public opinion, the 70 to 71 percent figure that 
several of you referred to, 71 percent of the people who think 
that there is some level of corruption, Abbas is corrupt, the 
regional public opinion, let's talk about these elections. I 
mean, to what extent, given that backdrop, will this issue be 
one that is part of these municipal elections if they take 
place?
    And, Dr. Schanzer, as you pointed out a couple times, it is 
corruption which in many ways is at the heart of so much that 
we have seen take place over the past 1\1/2\ years in the 
region. Is there reason for us to think that it may play an 
important role in determining the direction that these 
elections go, as well?
    Mr. Schanzer. Well, Representative Deutch, thank you for 
this question.
    First of all, I think that the likelihood, at least based 
on the track record, is rather low that we will see elections. 
We continue to see the Hamas and Fatah factions talk about 
elections because we know that reconciliation between these 
factions and the unity discussions are important for them to 
talk about to the public, because the current state of quasi-
civil war is deeply unpopular. It very much undermines the very 
question of Palestinian nationalism that there are now two 
separate quasi-states governed by two separate governments.
    But at the end of the day I believe that both of these 
factions are very satisfied with the little fiefdoms that they 
control. In fact, I think they are looking to perhaps take over 
the other, but neither one is willing to chance it, I believe, 
in an election.
    I do believe that the question of corruption will come to 
pass if and when elections do take place. It will be an 
important issue. We are hearing right now, that same survey 
that I mentioned also indicates that a majority of Gazans 
believe that Hamas is involved in some sort of corruption. The 
problem is, for us it is a lot harder to get at. It is a much 
less accessible society for a lot of us.
    Mr. Deutch. Right.
    And just, if I may--and I bring this to the entire panel--
who is going to raise it? Where is the movement in the West 
Bank, let alone in Gaza? Who is going to raise this issue? And 
who will be the candidates who will take up fighting corruption 
as their top priority?
    Mr. Abrams?
    Mr. Abrams. Thus far, Mr. Deutch, the answer is very few 
people. Hamas and Fatah have really gotten the vast majority of 
Palestinian political activity and votes. Other parties, 
including Fayyad's party, for example, he got two seats in the 
Parliament. When Abbas ran in January 2005, he got about 67 
percent of the vote. The next candidate down got, I think, 14 
percent.
    So organizing other parties has been almost impossible. 
They seem to have a dual monopoly here on political life.
    Mr. Deutch. Mr. Zanotti?
    Mr. Zanotti. I mean, again, this is somewhat of a 
hypothetical, but if you are thinking of it analytically, you 
look at--as Dr. Schanzer said, I mean, Hamas, you know, they 
have a track record now. So, you know, they are perhaps 
vulnerable in a way that they might not have been in 2006.
    That being said, we don't have very good insight into the 
dealings in Gaza. And so when you are looking at it from an 
international standpoint, you have a much longer track record 
that Fatah has. And so Hamas, I mean, that perhaps leaves it a 
little bit more vulnerable.
    Mr. Deutch. Let me ask it a different way. We have all of 
the different ways, all of the different actions that we can 
take in this country as it relates to our foreign aid and 
ensuring that the aid is tied to these anticorruption measures. 
But who is it--or is there anyone on the West Bank or in Gaza, 
is there anyone who is willing to stand up and speak out 
against these issues, that, according to these polls that you 
cite, would be the popular position to take?
    Mr. Schanzer. I will try to answer that.
    I think there is only one, but I am not sure that he is 
still the man who can do it, and that is Salam Fayyad, the 
current Prime Minister. He has a track record of fighting 
corruption.
    But, unfortunately, he has been undermined recently by 
Mahmoud Abbas himself. The two are reportedly at odds over this 
very issue. You know, Fayyad is trying to clean up the P.A., 
and Abbas has a system that he is quite happy with, and so it 
has been a power struggle.
    It is also unclear--in the Palestinian territories, as well 
as in a lot of places Middle East, if you don't control the 
guns and the money, you don't have a lot of power. And Fayyad 
is not associated with Hamas, he is not associated with Fatah. 
He is a true reformer. And I think he is the best bet for the 
Palestinians, but I don't believe that the system right now 
could sustain him.
    Mr. Deutch. Mr. Chairman, could I ask for just an 
additional----
    Mr. Chabot. Yeah. Without objection, the gentleman is 
granted 1 additional minute.
    Mr. Deutch. Thank you, Mr. Chairman.
    Just on the issue of guns and money, particularly on the 
issue of guns, we have been reading in the past day or so about 
the issue of the Russian guns that have been delivered and 
warehoused, not yet delivered.
    I mean, when we get back to what role can we play, 
shouldn't part of the discussion about the delivery of those 
guns include a very specific discussion about fighting 
corruption, Mr. Abrams?
    Mr. Abrams. I think it should, Congressman. And I would 
urge you to just take a look at the Web pages of AID for the 
West Bank and MEPI. Because it is all--you know, it reads very 
nicely, but nowhere do you see, ``We are going to work with 
Palestinian NGOs on a major anticorruption drive. We are going 
to try to fund some NGO that is really pushing this issue. We 
are going to try to help broadcasters who are pushing this 
issue.'' It is just not there. And it ought to be.
    Mr. Deutch. All right. Thank you.
    Thank you, Mr. Chairman.
    Mr. Chabot. Thank you very much.
    The gentleman's time has expired. We will go into a second 
round at this point for any members that are interested. And I 
will recognize myself for not more than 5 minutes.
    Mr. Abrams, in your testimony, again, the written 
testimony, you stated that, and I quote you again, ``Corruption 
is an insidious destroyer, not only of Palestinian public 
finance, but of faith in the entire political system.''
    Would you explain how corruption affects the confidence of 
the Palestinian population in their own government and what the 
impact of this has been or probably will be in the future?
    Mr. Abrams. Thanks, Mr. Chairman.
    I think the best photo of this is the elections in 2006 
when, to our surprise, Hamas won. How is it possible? 
Palestinians were supposed to be secular, educated people. How 
is it that they voted for an Islamist group like this?
    I don't think there is one simple answer, but I think the 
heart of it is corruption. They were tired of the kind of 
governance that they saw, which was, they knew, making them a 
laughingstock throughout the Arab world and the rest of the 
world, where they had a terrorist leader, Arafat, whose wife 
was living the high life in Paris with their money. So what 
does it produce? In that case, it produces a Hamas victory at 
the election.
    Now they look around and see the elections in Libya, which 
seem to have been pretty good elections, judging from what the 
observers said. They have to be asking themselves, what is 
going on here? How is it that Libya, after 30 years of Qadhafi, 
can have free elections but we don't seem to be able to have 
elections here?
    So I think it is this combination of political frustration 
and the sense that the top figures are corrupt that leads 
Palestinians really into a kind of cul-de-sac. How do you get 
out of this? They keep hearing about elections being scheduled, 
and they are never held. And my fear is, of course, that 
ultimately this leads to some kind of violence as the level of 
frustration rises.
    Mr. Chabot. Okay. Thank you.
    Let me ask each of the panel members here a question. This 
may be unfair, but I am going to do it anyway.
    As far as the U.S. Aid that goes to the Palestinians, if 
you had to put a percent, based upon your expertise, common 
sense, things you have read, what you believe, if you had to 
put a percentage of how much of that aid gets siphoned off to 
somebody's pocket or to something that went to a relative for 
some reason and they had an unfair advantage over other people 
in the competition, so a percent of how much of our aid that 
the U.S. taxpayers send over there that goes to corruption, 
gets siphoned off in some manner or form, what percent would 
you put on that?
    And I will give you that unfair question first, Mr. Abrams. 
What would you say?
    Mr. Abrams. I would imagine, Mr. Chairman, that the number 
is reasonably low, partly because so much of our money is given 
in programming, so we know exactly where it is going; partly 
because to the extent that Fayyad has his hands on it, he would 
prevent the corruption.
    In some of these cases where we are looking at, say, the 
Palestine Investment Fund, we are not putting money into that 
now. It is a huge block of money that I think is being 
mishandled. But I suspect the percentage of our money that is 
actually being stolen, in the way it was stolen in the Arafat 
days, is now low.
    Mr. Chabot. Okay.
    And I saw a nod from Dr. Schanzer. So you would concur with 
that?
    Mr. Schanzer. I would concur, with a caveat. I do believe 
that it is also probably low. I think that the idea that anyone 
would be so brazen as to simply pocket money, you know, I think 
it would be a difficult thing to imagine on a very large scale.
    But I will also add this, that I believe that the funds 
that we are providing to the Abbas government, all of it--you 
have to look at it in the big picture. What they have done is 
they have used this funding to shore up and consolidate 
economic and political power. So all of the institutions help 
reinforce the power of Abbas, which is, you know, at this point 
not anything that we can really challenge. You are not going to 
see elections; he is not interested in stepping down anytime 
soon. And so his forces crack down on demonstrators, as they 
did recently. His cyber teams hack Web sites that are critical 
of him. So, in other words, by contributing to the broader 
Palestinian Authority, they are using it for political or 
economic corruption.
    Mr. Chabot. Okay. Thank you.
    Mr. Zanotti?
    Mr. Zanotti. Mr. Chairman, I have no reason to disagree 
with my colleagues on the panel.
    I would add that the State Department since 2008 has 
certified to the Committees on Appropriations that all money 
contributed from the United States to the Palestinian 
Authority's budget goes--that the Palestinian Authority has 
established a single Treasury account, eliminated parallel 
financing mechanisms, and has a comprehensive civil service 
payroll. And then there are additional safeguards such as a 3-
year power of audit and refund that we attach to the money that 
is given to the Palestinian Authority.
    The remainder of the Economic Support Fund money that we 
provide for the benefit of Palestinians in the West Bank and 
Gaza is distributed to various private organizations for 
programs in the West Bank and Gaza. And, by law, that is 
routinely renewed in appropriations legislation each year. Each 
of these vendors, if you will, have to be vetted and also are 
subject to audits at least annually by USAID.
    Mr. Chabot. Okay. Thank you very much.
    My time has expired. The gentleman from New York is 
recognized for 5 minutes.
    Mr. Ackerman. Thank you, Mr. Chairman.
    The corruption and the money from corruption, both under 
the regime of Yasser Arafat and under the current government of 
Mahmoud Abbas, seems to center on them and their families 
acquiring all of this money. Is the corruption for basically 
self-aggrandizement, or is it a powerful tool for control and 
politics?
    And tie that in with the word or the concept or the excuse 
that we really haven't brought up here at all, the occupation, 
which usually gets blamed in the Palestinian territories for 
everything, and everything is justified because of the 
occupation. ``I steal because of the occupation.'' ``We can put 
off the election because it doesn't really matter because of 
the occupation.'' Everything is the occupation.
    If there was no so-called occupation, would this become a 
Sweden or a Finland? Would corruption cease? Would democracy 
take full root? What would happen? And what do we do about 
this?
    Elliott?
    Mr. Abrams. Just as a beginning, Mr. Ackerman, I think we 
should not look at this as an Abbas family problem only. If we 
look at, for example, the Palestine Investment Fund, his sons 
are not on the board of that. But if you look at the board of 
that, it is cronies, it is Fatah guys.
    Mr. Ackerman. Yeah.
    Mr. Abrams. And the accusation, which I personally believe 
to be true, is one of self-dealing. It is doing business with 
your cousin and my cousin and your wife and my sister, and it 
is a very old-fashioned form of who gets what and making sure 
that your friends and relatives get it. That is what is going 
on, and the friends and relatives and cronies are all part of 
the old Fatah Party establishment.
    So it is one of the ways both of keeping Fatah in power by 
making sure there is money around in the machine and also 
keeping its popularity, unfortunately, down, because 
Palestinians are not stupid and they know that this kind of 
activity is going on.
    Mr. Schanzer. I will agree with Elliott again here. I think 
that certainly the funds are--it is a tool for politics. It 
enriches the inner circle. And from a recent trip that I took 
to Ramallah actually late last year, talking with a number of, 
let's call them senior insiders, or former insiders of the 
P.A., the idea here is that you have to play ball. You have to 
work within the system if you want to get business done. And it 
is a known fact that if you try to go out of the system, you 
will be edged out of business. So it is about wielding power. 
That is what a lot of this is about.
    As for the occupation or Israel's presence in the West Bank 
and the Gaza strip, I think that it, to a certain extent, is 
the best thing that ever happened to the Palestinian 
leadership, in the sense that they can blame this presence on--
or they can say that this presence is the root of everything. 
And you hear it from Abbas now, that he can't tackle some of 
these important issues because of Israel's presence in the West 
Bank and the Gaza strip.
    And so, if that were to be gone tomorrow, I think the 
Palestinian leadership would be left looking around, saying, 
well, geez, now how do we shift the blame? And it really has 
become a convenient crutch for this leadership.
    Mr. Ackerman. Let me ask an additional question. What 
happened to all those young people I met some years ago that 
were young reformers trying to get into the Fatah Party? They 
were full of--we used to say piss and vinegar. I don't know if 
that is an appropriate term anymore. But they were filled with 
a lot of spunk and wanted reforms and wanted in. Were they 
coopted, or did they just tire and go away?
    Mr. Schanzer. Many of them have been pushed out. I think 
one of the individuals who we had identified as a potential up-
and-comer was Mohammed Dahlan----
    Mr. Ackerman. Yeah.
    Mr. Schanzer [continuing]. Who was a West Bank security 
chief. And I have actually written about this for The Weekly 
Standard. Abbas has gone after him tooth and nail.
    Mr. Ackerman. He is the one with the bad knee.
    Mr. Schanzer. What was that?
    Mr. Ackerman. He is the guy with the bad knee, disappeared 
during the shooting?
    Mr. Schanzer. Yeah. And so Dahlan was basically railroaded 
out of the Palestinian Authority. Abbas has recently tried to 
seize his assets in Jordan. There has been a campaign to malign 
him.
    Now, I am not going to tell you that he didn't have his own 
problems with corruption. The allegations are out there. I 
can't verify them one way or the other. But certainly he became 
a political opponent of Mahmoud Abbas, and this became yet 
another grudge match that played out in the public sphere. It 
was rather ugly.
    Mr. Ackerman. If I could abuse my time and ask one 
additional question?
    Mr. Chabot. The gentleman has permission to ask an 
additional question.
    Mr. Ackerman. Thank you.
    The neighbors, they all make pledges. They promised the 
Palestinians a lot of money. They always seem to default big 
league. One of the excuses that they use for not coming through 
with their pledges is the corruption. But can't, in fact, they 
be of assistance by contributing money for projects in other 
ways, through other international projects, through the 
international community, project assistance, multilateral 
programs, the World Bank, et cetera? Can't they really do that, 
without putting money in someone's pocket directly or 
indirectly?
    Mr. Abrams. Mr. Ackerman, I think you are exactly right. 
They certainly can. They don't give zero. In the case of--we 
are talking about the oil producers who have plenty of cash. 
But they give late. They give smaller amounts than they pledge. 
Months and months go by when they give nothing. And, in fact, 
Fayyad, the day before yesterday, made another speech in which 
he said, we have about a $1 billion deficit because the Arab 
pledges have not been paid.
    So if they are worried about corruption, they could talk to 
him about it and work out ways to try to ensure that the money 
is not abused.
    Mr. Ackerman. In some synagogues, they call out your name 
to ask you what you are pledging and actually give a shout-out 
to everybody as to what they gave and what they didn't give 
based on last time.
    Do you think it is possible that they get more specific, 
rather than just generically blame their cousins, their 
brothers, for not coming through?
    Mr. Abrams. Not realistically, because they don't want to 
make them angry.
    Mr. Ackerman. Yeah.
    Mr. Abrams. So we know----
    Mr. Ackerman. Because then they might not give again.
    Mr. Abrams [continuing]. What the Arab League level of 
pledges are. And, in fact, we do a lot of cajoling. I mean, the 
reliable money they get is from the United States and Europe. 
And we are passing the tin cup constantly. I can't remember a 
meeting with Saudis or Emirates or Algerians or Qataris in 
which were not saying, ``By the way, how about giving money to 
the Palestinians?'' It is actually quite disgraceful.
    Mr. Chabot. The gentleman's time has expired.
    Before I recognize the gentleman from Pennsylvania to ask 
questions, it had been brought to my attention that you have a 
4 o'clock program you are supposed to speak at, Mr. Abrams. I 
am going to try to stop over there, although I have three 
things at 4 o'clock, as well. So you are free to go if you need 
to get over there.
    Mr. Abrams. Thank you.
    Mr. Chabot. So thank you.
    Mr. Marino, you are recognized for 5 minutes. There are 
still two witnesses left.
    Mr. Marino. Mr. Abrams, going out the door, as you are 
walking out the door, I happened to be in Israel several months 
ago, and the Prime Minister came and talked to a group of us. 
That alone was a good indication--the Prime Minister of 
Palestine. He clearly wanted to become friends or negotiate 
with us. How do we foster that?
    Doctor?
    Mr. Schanzer. Representative Marino, Salam Fayyad is a 
partner to the United States. I think that is without question 
at this point. And he has been very open to working with us, to 
conditioning the support. I mean, he will work with us pretty 
much no matter what and has that track record.
    So the question is not how we foster that relationship with 
him. I think the question now is, how do we empower him 
further? Because I believe that he has been weakened over time. 
At one point, it was the columnist Tom Friedman that had 
celebrated his approach to governance. He called it Fayyadism. 
And, you know, everybody sort of celebrated this new era of 
Palestinian politics. I would argue that his power has sort of 
eroded over time and Fayyadism is really on the wane.
    Mr. Marino. But can we not work into him some control over 
the aid that we give to Palestine?
    Mr. Schanzer. I have not seen that political will yet.
    Mr. Marino. Okay.
    And my second question. I had the opportunity to be in 
Egypt, in Cairo, several weeks ago, among other things, 
observing the elections. And we know how the elections went. 
But women in traditional garb were lined up for blocks and 
blocks and blocks to vote, and they voted for the Muslim 
Brotherhood. In most countries--in some countries over there, 
women are not even second- or third-class citizens.
    Why is this happening?
    Mr. Schanzer. I am not sure I am equipped to answer that, 
other than it is something that needs to be addressed.
    But I can assure you that that is not the case in the 
Palestinian territories. Women inside the Palestinian 
territories are equal citizens. I would say that the 
Palestinians, because of their education, their exposure to the 
West over the years as a result of being in the diaspora, it is 
a very forward-leaning society in that way. And so that is 
really not what the problem is in this area.
    Mr. Zanotti. Again, I am also not--Egypt is not my area of 
expertise, but there are a multiplicity of factors that could, 
you know, have some influence on the phenomenon. One, this was, 
I think in their perceptions, their first real opportunity to 
effect something at the ballot box. And, number two, there are, 
you know, conservative values throughout the region. There are 
conservative values in many places around the world. So those 
are a couple of reasons that can explain some of this 
phenomenon in Egypt.
    Mr. Marino. Gentlemen, thank you.
    I yield back.
    Mr. Chabot. The gentleman yields back his time.
    And the final questioner will be the gentleman from 
Virginia, Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman. And forgive me for 
being in and out. I have two hearings at the same time, and so 
I am trying to make both of them.
    Let me ask both gentlemen, first of all, I mean, the title 
of this hearing, ``Chronic Kleptocracy''--maybe I will start 
with you, Mr. Zanotti. I mean, what do we know about how 
pervasive corruption is in Palestinian governance, both in the 
Gaza and West Bank? And does it really stand above, for 
example, corruption in other countries in the region?
    Mr. Zanotti. Mr. Congressman, thank you for your question.
    As I had mentioned earlier, there was a 2011 World Bank 
study on the topic of Palestinian governance and corruption, 
and one of the quotes from it says, ``Given the fact that 
corruption is an activity which is concealed and hidden, it is 
generally difficult to identify specific acts when they occur 
or to ascertain the scale of the problem through observable 
indicators.'' So, of course, that is a problem not confined to 
the Palestinian context, but that is a situation----
    Mr. Connolly. Excuse me, but it does sound like kind of 
traditional bureaucratic gobbledygook. I mean----
    Mr. Zanotti. Sure.
    Mr. Connolly [continuing]. I have been in the development 
world for 30-plus years, and the World Bank has always had a 
little bit of a difficulty identifying corruption and doing 
anything about it.
    Mr. Zanotti. So that being said, Mr. Congressman, the 
conclusions of this study, which were based on some surveys of 
both public officials and households within the West Bank and 
Gaza, came to the conclusion that when you are talking about, 
kind of, at the lower and the mid levels throughout the West 
Bank and Gaza, that the perceptions of corruption, particularly 
with regard to bribery and preferential treatment of family 
members and personal connections, the perceptions are 
significantly higher than the actual experience with it. And 
they compared the incidence in the West Bank and Gaza with 
Egypt and Yemen as benchmarks, and it was significantly lower 
in those cases.
    Mr. Connolly. So are you saying that the title of our 
hearing here, ``Chronic Kleptocracy,'' might be a bit of an 
overstatement?
    Mr. Zanotti. I am not necessarily saying that. I am just 
citing the evidence that the World Bank had offered.
    Also, they had offered some evidence having to do with 
perceptions of the investment climate in the West Bank and Gaza 
compared with others in the region----
    Mr. Connolly. And?
    Mr. Zanotti [continuing]. And whether corruption----
    Mr. Connolly. No, no, but what did they find?
    Mr. Zanotti. Well, what they found was the perception, at 
least, was that corruption, compared with similar surveys from 
1996 and I believe 2002, had declined quite a bit from it being 
one of the main factors to dissuading potential investors from 
entering the market.
    Mr. Connolly. And what they found was, whatever that 
barrier was, it was diminished as a barrier.
    Mr. Zanotti. Correct.
    Mr. Connolly. Dr. Schanzer? 
    Mr. Schanzer. It is a very interesting question about how 
pervasive this is. First of all, you know, just looking at the 
polls, the recent polls that were taken inside the Palestinian 
territories, West Bankers in particular, 71 percent of West 
Bankers in particular believe that corruption is a chronic 
problem within the Abbas government. And so I think, you know, 
to a certain extent we need to take their word for it.
    But in my study of the problem of corruption, we can look 
at it in two ways. That is typically the way political 
scientists look at it anyway. One is the idea of systemic 
corruption, and then the other one of empirical.
    The empirical model is, you know, if you have been to maybe 
some countries in the Southern Hemisphere, you get pulled for 
allegedly going through a stop sign; a policeman will shake you 
down, you give him $10, and you go on your way, and this 
happens every couple of miles while you are there, constantly 
people making sure that you pay them for, sort of, bogus 
reasons.
    Then there is the question of systemic corruption, which is 
the consolidation of power, economic and political. This is 
what I believe we are seeing right now inside the Palestinian 
territories. The insiders get wealthy, the insiders gain more 
power. And those who are not insiders suffer, and they blame 
the occupation for it, as opposed to taking responsibility for 
helping to bring up a middle class.
    Mr. Connolly. I am running out of time, but let me ask you 
both one more question.
    When I was last in the West Bank, I met with Dr. Fayyad. 
And the impression at the time was that he was sort of a clean 
government type and actually was making strides to clean up 
that corruption, to discourage it, to highlight it, and to set 
a different kind of model, to show that the Palestinians were 
very capable of self-governance and that he was committed to 
making local services work.
    Your comment on--I heard what you said to Mr. Marino's 
question, but I would like you to expand just a little bit. Are 
you saying he stalled in that effort or failed in that effort 
or there has been a little bit of regression? Or what thought 
are you leaving us with with respect to the Prime Minister?
    Mr. Schanzer. Thank you, Representative Connolly. It is a 
terrific question, and it is something that I think we need to 
look into a bit more.
    I believe that when Salam Fayyad first became Finance 
Minister and then rose to Prime Minister, he really had a good 
head of steam. I mentioned the Fayyadism piece that Tom 
Friedman had written, and there was this celebration that the 
Palestinians were really turning a corner and that there was a 
realization among the leadership that something needed to be 
done about the question of corruption. This was particularly 
the case after the second intifada broke out in the early part 
of the last decade. There was this sense that something needed 
to be done.
    But I would argue that over the last several years Fayyad 
has sputtered, and not necessarily of his own doing. I believe 
that he has been undermined by the Abbas government. Abbas, in 
his hunt for alleged corruption inside the Palestinian 
Authority, he has gone after really primarily either outsiders, 
which doesn't affect Fayyad, but then has also gone after some 
of Fayyad's cabinet, which Fayyad appointed. And these were not 
for things that they did while they sitting in government; it 
was for what they did before they came into government.
    But the idea here is that Abbas has sort of undermined 
Fayyad in many ways. We hear that the two of them are not 
talking very much, that it is not a terribly close 
relationship, they are not coordinating on the question of 
corruption. So, as a result, I think Fayyad has been stripped 
of some of his power. And I find this very disconcerting, 
because we continue to hold up Fayyad as the answer to the 
Palestinians, but, meanwhile, his power has decreased 
significantly.
    Mr. Connolly. Would the chairman just allow Mr. Zanotti to 
answer the same question?
    Mr. Chabot. Absolutely. Yes. Mr. Zanotti is recognized.
    Mr. Connolly. I thank the chair.
    Mr. Zanotti. Again, there are these reports about the 
current dynamic between Mr. Fayyad and Mr. Abbas. Without 
directly approaching them, to give you a little bit of a 
historical basis for the office of the Prime Minister, this 
office was established in 2003, actually installing Mr. Abbas 
as Prime Minister when Mr. Arafat was still President. And some 
of the peculiarities of how this has evolved over the years may 
shed some light on perhaps what is going on right now, which is 
sometimes hard for current observers to fully glean exactly 
what the facts are.
    So you have a situation where Mr. Abbas was installed as 
Prime Minister largely to be able to take some of the powers 
away from Mr. Arafat, be a different interlocutor with Israel, 
to battle some of the corruption that was talked about at the 
time. Then, of course, Mr. Arafat passed away, Mr. Abbas was 
elected President. And a year later, Hamas was elected and we 
had a Hamas person occupying the seat of the Prime Minister, in 
which case many people from the international community, the 
United States included, looked to empower the President a bit 
more.
    So then when you had this split in June 2007 between Hamas 
and Fatah, then Mr. Fayyad was appointed by Mr. Abbas. But, 
again, you have a dynamic of personalized rule, where Mr. Abbas 
to some extent stands in the shoes of Mr. Arafat at this point.
    And in addition to that, what you don't have now that you 
even had back in 2003 is a functioning legislature that could 
act as a check on power. The ranking member referred to this 
notion of kind of a young group of people in Fatah. They had 
turned into a bit of a check on Mr. Arafat and holding his feet 
to the fire a bit. You don't have that currently because the 
Palestinian Legislative Council is not in session because you 
have the split between Hamas and Fatah.
    Mr. Chabot. The gentleman's time has expired.
    Mr. Connolly. Thank you, Mr. Chairman.
    Mr. Chabot. Thank you. Absolutely.
    And I want to thank the panel here this afternoon for their 
excellent testimony, and Mr. Abrams, in his absence, as well.
    And, without objection, members will have 5 legislative 
days to extend their remarks or submit questions. And if there 
is no further business to come before the committee, we are 
adjourned. Thank you very much.
    [Whereupon, at 4:15 p.m., the subcommittee was adjourned.]
                                     

                                     

                            A P P E N D I X

                              ----------                              


     Material Submitted for the Hearing RecordNotice deg.





               \\ts\





 \as 
             st\



[Note: No responses were received prior to printing.]

\
                      statt\