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TOPIC: Arafat's Legacy Death, more death and debt
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Arafat's Legacy Tue Dec 28, 2004 11:42 am

Arafat's Investments
Bloomberg News Service

[Scroll Down to look at the Involvement of Peres]

December 22 (Bloomberg) -- In 35 years as Palestinian leader, Yasser Arafat raised billions of dollars. He spent the fortune to wield power, to pay militants who attacked Israel and to invest in the U.S. and the Middle East.

Arafat used a holding company to buy stakes that ranged from $285 million in Egyptian mobile-phone company Orascom Telecom Holding SAE and its affiliates to some $30 million in private equity, mostly in the U.S. These included $3.2 million in Herndon, Virginia-based Simplexity Inc., which makes electronic-commerce software, $2.1 million in New York- and Boston-based Vaultus Inc., which makes software for wireless computers, and $1.3 million in New York-based Strike Holdings LLC, which owns the Bowlmor Lanes bowling alley in Manhattan's Greenwich Village.

Arafat, who died on November 11 at age 75, disclosed $799 million of investments in documents the Palestinian Authority has released over the past two years that show he didn't just invest in building basic services in the West Bank and Gaza.

At a time when the authority was starved for funds, Arafat's money managers placed bets from Tel Aviv to Silicon Valley on venture capital funds, software startups and telecommunications companies.

``Arafat was notoriously secretive, and he spread the money all over," says Rachel Ehrenfeld, director of the New York-based American Center for Democracy and author of ``Funding Evil: How Terrorism Is Financed and How to Stop It" (Bonus Books, 2003). ``He didn't give the public a view of the investments until the donor community protested about corruption."

Holding Company

Arafat and his money managers invested abroad through Palestine Commercial Services Co., a Ramallah-based holding company owned by the Palestinian Authority and known by its initials, PCSC. Arafat controlled PCSC through his financial adviser, Mohamed Rachid, according to Palestinian legislators Hanan Ashrawi and Azmi Shuaibi. Arafat appointed Rachid as PCSC's chairman, a June 2004 World Bank report shows.

One PCSC subsidiary started investing $25 million in venture capital funds and Internet startups on April 4, 2000 -- three weeks after the Nasdaq Composite Index peaked. The funds have since lost about two-thirds of their value.

Arafat made the investments abroad with tax money that he ``diverted" from the Palestinian finance ministry, according to a September 2003 International Monetary Fund report on the Palestinian economy. Israel collected import taxes for goods destined for the territories and then passed the funds to the authority.

Violence Erupts

Israel halted the payments after violence erupted in the West Bank and Gaza in September 2000. By the end of 2002, the Palestinian Authority owed its ministries and suppliers as much as $531 million, or 10 percent of gross domestic product, the IMF report says.

``A political crisis occurred in May 2002," the IMF report says. ``Intense discussion within the cabinet, political factions and the Palestinian legislative branch, coupled with external pressures, prompted President Arafat to take immediate action toward a broad-based effort at institutional reform."

In 2002, Arafat handed control of PCSC to a new Palestine Investment Fund, which then hired New York-based Standard & Poor's, a McGraw-Hill Cos. unit, to value the investments.

Report Released

In May 2004, the fund released its first annual report, which covered 2003 and was audited by the Amman, Jordan, office of Ernst & Young, a member of New York-based Ernst & Young International, which provides accounting and auditing services in 140 countries. The report showed the Gaza City-based Palestine Investment Fund had net income of $40.1 million in 2003 on revenue of $85.1 million.

The report also revealed that PCSC held a $6.8 million account of venture capital investments at New York-based Citigroup Inc., the world's biggest bank. ``Citigroup does not have any accounts for Yasser Arafat, and we never have," company spokeswoman Shannon Bell said in a November 19 statement.

Citigroup Chief Executive Officer Charles Prince, 55, declined to answer questions about the account. There is no indication that Citigroup was aware that Arafat controlled PCSC.

Arafat was both hailed as a peacemaker and hated as a terrorist. In 1994, he shared the Nobel Peace Prize with Israeli Prime Minister Yitzhak Rabin and Foreign Minister Shimon Peres after the three negotiated the 1993 Oslo accord, which created the framework for Palestinian autonomy in the West Bank and Gaza Strip, which Israel occupied during the Six-Day War in 1967. Israel blamed Arafat for attacks on civilians, including the raid on the athletes' village at the 1972 Olympic Games in Munich that killed 11 Israelis.

Second Set of Money

As chairman since 1969 of the Palestine Liberation Organization, the diplomatically recognized representative of the Palestinians, Arafat controlled another set of investments and bank accounts, valued in 2002 at $500 million by Israeli army intelligence.

The number today is probably lower because the Palestinian Authority today gets much of the money that once went to the PLO in the form of donations from Arab governments, says Mohammad Shtayyeh, managing director of the West Bank-based Palestinian Economic Council for Development and Reconstruction, which administers aid money the Palestinian Authority spends.

The $799 million that's now in the Palestine Investment Fund is the bulk of the assets that were under Arafat's control, Shtayyeh says. ``All the Palestinian money has been consolidated in the Palestine Investment Fund," says Shtayyeh, who is also an economics professor at Birzeit University in the West Bank.

Tax Money

Arafat's main source of cash for PCSC's investments was Palestinian Authority tax money that he and Rachid collected yet never deposited into the authority's budget, according to the IMF report.

Getting Arafat to hand over the holdings was like pulling teeth, says Ashrawi, 58, a former member of his cabinet. Arafat gave in to pressure from aid donors such as the European Union and from his finance minister, Salam Fayyad, the IMF's former representative in the territories, she says. They demanded that Arafat turn over the investments as a condition of further aid, she says.

Until then, there had been little transparency, says Joel Toujas-Bernate, Washington-based IMF mission chief for the West Bank and Gaza. ``Since then, many reforms have been implemented," he says.

Global Investments

Most of the bigger investments held by the Palestine Investment Fund are in the West Bank and Gaza, such as the wholly owned Cement Co., valued at $54 million, which Arafat ran as a local monopoly until 1996; a $71 million stake in the Palestinian Authority's joint venture with Reading, England-based BG Group Plc, the U.K.'s third-largest natural gas producer, to explore for gas off the Gaza Strip's Mediterranean shore; and a 35 percent stake in Palestine Cellular Communications Co., the only mobile- phone service based in the territories, valued at $36.9 million.

Arafat also invested around the world through PCSC. The fund owns 25 percent of Algiers-based Orascom Telecom Algeria SpA, valued at $185 million, and 22 percent of Tunis-based Orascom Telecom Tunisie SA, worth $75 million, according to the annual report and asset valuations.

The companies run networks in Algeria and Tunisia for Cairo- based Orascom Telecom Holding, the Middle East's biggest mobile phone company. The company's stock has risen 32-fold in two years to 250 Egyptian pounds yesterday from 7.70 pounds on December 19, 2002, on the Cairo & Alexandria Stock Exchanges. Orascom Telecom's global depositary receipts, equal to half of a share, have risen to $20.08 from 78 cents on the London Stock Exchange over the two- year period.

Egyptian Stake

The Palestine Investment Fund owns 10 percent of the Egyptian company's stock outstanding, according to the number of shares shown as held by the fund in S&P's valuation and the total issued and paid-up share capital listed in Orascom Telecom's earnings report for the first half of 2004.

The stake was worth about $25 million according to S&P's January 1, 2003, valuation and currently may be valued at $394 million based on the stock's market price and the 10 million Egyptian shares and 2 million London-traded shares held at the time of S&P's report.

Arafat adviser Rachid holds one of seven seats on Orascom Telecom's board of directors, according to Orascom's Web site. The chairman and CEO is Naguib Sawiris, a member of the family that founded and controls the company.

In the U.S., Arafat's money managers set up Delaware holding companies for the sole purpose of making investments for PCSC, says Zeid Masri, 38, an American of Palestinian heritage who handled some of the investments and is managing partner of SilverHaze Partners LLC.

Palestinian Connection

McLean, Virginia-based SilverHaze manages an undisclosed amount of money for wealthy families, says Masri, who's distantly related to two of the seven directors on the Palestine Investment Fund's board: Maher Masri, the Palestinian minister of national economy, and Sabih Masri, chairman of Palestinian Telecommunications Co. and the Nablus-based Palestine Securities Exchange and a director of Amman-based Arab Bank Plc.

To invest in Strike Holdings, which owns Bowlmor Lanes in Greenwich Village and bowling alleys in Miami; Bethesda, Maryland; and New Hyde Park on New York's Long Island, Masri says he created a holding company called Onyx Funds LLC. Onyx, which is 100 percent owned by PCSC, was incorporated on June 1, 2002, in Delaware. Its only holding is the $1.3 million of Strike Holding shares, S&P's valuation of Onyx states


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