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

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                          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

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