To Cut Corruption in the Palestinian Authority, Cut Off Development Aid

Foreign development aid plays a unique role in the lives of Palestinians, as aid is the main driver of growth in the Palestinian economy. For this reason, many people welcomed the Biden Administration’s announcement in April to reverse the Trump Administration’s decision to halt all development aid to Palestinians. Yet widespread corruption in the Palestinian Authority (PA)—which remains the principal recipient of aid to Palestinians—threatens to undermine the effectiveness of aid. Worse, foreign aid to the PA helps perpetuate and exacerbate the PA’s culture of corruption.

Corruption in the PA is deeply entrenched. To illustrate with just a handful of many possible examples: There are allegations that the PA has embezzled development aid money from the European Union. There are reports that the PA spent staggering sums on fake companies and projects, including a non-existent airline. But there are also documented examples of corrupt use of funds. Rather than develop welfare programs to distribute social services or development aid money to the public, the PA allocates the money to salary payouts for security officers and government officials in job placements secured by cronyism. High-ranking PA officials regularly establish their own NGOs and phony companies to attract additional funds from aid programs. Yet for the most part donors have turned a blind eye to the PA’s blatant corruption and mismanagement of development funds. Consequently, despite more than US$15 billion in development aid given to Palestinians in the past thirty years, that aid has failed to reduce poverty or deliver sustainable improvements in ordinary Palestinians’ quality of life.

And it’s not just that the PA’s corruption undermines the effectiveness of aid. Perhaps the even bigger problem is that the flow of development aid contributes to and props up the PA’s culture of large-scale corruption. The more funding the PA can access, the more powerful it becomes, and the more capable it is of embezzling funds and extorting bribes from its populace. Worse still, the costs of the corruption that the aid to the PA fuels are not merely economic costs: In Palestine, corruption contributes to needless violence, political radicalization, and, ultimately, the loss of innocent lives.

The only way to break out of this malignant cycle is for donors to call a halt to unfettered development aid to Palestinian government institutions, which have proven themselves time and again to be too weak and unscrupulous to handle aid without corruption.

Donors, including the US and EU, should set a timeline for the expiration of current aid packages and should make clear that no further aid will be forthcoming until the PA and other Palestinian governance organizations provide robust evidence of reduced corruption and assurances that the development aid money they already have is used for development projects and goals, with demonstrable positive results. 

In making this evaluation, donors should assess the PA’s transparency, accountability, and integrity. They can start by scrutinizing how the PA uses the aid that it has already received but not yet allocated. (At present, for example, the PA has just received the first in a series of payouts of nearly US$300 million promised by the Biden Administration. Much of this aid was given in response to displaced populations in Gaza and the West Bank.) Donors should demand, and the PA should be able to provide, information on the manner in which the aid was administered and the outcome of that administration to the intended beneficiaries. Concurrently, donors should ask whether the PA has strengthened and enforced its anticorruption legislation—which often exists on paper but not in practice. For example, donors should insist that the PA improve its whistleblower system, so as to ensure that whistleblowers who expose corruption in the PA have adequate assurances of confidentiality and adequate protections against retaliation.

If the PA can demonstrate, through its administration of the aid it has already been pledged and through genuine reforms to its anticorruption system, that it is capable of changing its corrupt culture, then perhaps donors can consider resuming development aid to the PA. If not, donors should stop throwing good money after bad. This is obviously a drastic response, given that foreign aid is the PA’s main source of funding. But if this draconian measure doesn’t create the urgency needed for the PA to establish genuine institutional safeguards to ensure that development aid money is used for investment, trade, or production, rather than for corrupt material gain, then it is unlikely that anything ever will. 

Some might worry that cutting off direct development assistance to the PA will cause its collapse, thus creating a vacuum that Hamas might seize. That is an understandable concern, but it neglects the bigger picture. Entrenched corruption in the PA is what enabled Hamas to attain power in the first place. Moreover, given that Hamas’s mis-governance in Gaza has undermined its claim to be a non-corrupt alternative to the PA, it is quite possible that, if the PA proves incapable of cleaning itself up, other alternatives might emerge. It is hard to predict what might emerge if the aid cutoff causes the PA to collapse, as there are currently no existing governance organizations or non-PA affiliated political parties that can easily replace the PA. But the recent appointment of Arab political parties in Israel’s governing parliamentary coalition does offer some hope that in the future, Israel might play a more positive role in enabling Palestinian governance. 

To be clear, cutting off aid to the PA does not mean abandoning the Palestinian people. For example, donor governments and agencies can and should consider depositing development aid directly in the hands of Palestinians and grassroots organizations. Directly funding local projects is more likely to improve the lives of Palestinians than empowering corrupt institutions ever will. But continuing the flow of no-strings-attached money to the PA will do little more than prop up and perpetuate the PA’s systemic corruption. And that corruption, if allowed to continue unabated, will not only thwart the efforts of ordinary Palestinians to improve their economic prospects, but it will encumber any hopes of peace and further prolong the Israeli-Palestinian conflict.

[Editor’s note: An earlier version of this post stated that over $2.3 billion in EU development aid money to the PA had been embezzled. That statement cited October 2013 newspaper reports, which were based on an unpublished draft of a European Court of Auditors (ECA) report. However, those newspaper stories also noted that an ECA spokesperson, while not disputing the veracity of the reporting, cautioned that the report had not been finalized. Furthermore, when the official ECA report was published in December 2013, it did not contain any allegation of embezzlement, let alone large-scale embezzlement. The original phrasing of this post conveyed the misleading impression that the alleged embezzlement was an established fact rather than an allegation. The post has been modified to correct that error.]

3 thoughts on “To Cut Corruption in the Palestinian Authority, Cut Off Development Aid

  1. Pingback: نادية حرحش

  2. Approach Corruption Claims with Wariness, A Reply to the July 26, 2021 Blog

    I read “To Cut Corruption in the Palestinian Authority, Cut Off Development Aid,” the July 26, 2021 blog by Magd Lh, with interest. The author notes that widespread corruption undermines aid effectiveness in the PA—no disagreement there, with respect to some periods in the PA’s history. But what immediately caught my eye was a sentence close to the beginning, in which the author states: “Between 2008 and 2012 alone, over US$2.3 billion in development aid money from the European Union to the PA was embezzled.” Could that really be true? The data I had seen suggested otherwise. The period 2008-2012 had seen many reforms and tight donor oversight of assistance, for the most part.

    Since July, this particular passage of the blog has appeared in social media posts and spread widely, so I decided to look at the post more carefully. Therein lie lessons for journalists, researchers, and bloggers: Always approach what you read with care, lest you further someone else’s political agendas and perpetuate misinformation.

    First I looked at the source of the information embedded in the word “embezzled.” That link leads to a Times of Israel story https://www.timesofisrael.com/eu-accuses-palestinians-of-wasting-e2-billion-in-aid/, which appears to have drawn its information nearly verbatim from a London Times piece published on October 13, 2013. https://www.thetimes.co.uk/article/pound195bn-eu-aid-lost-in-palestine-wwnsk8jc360 Both claim to have seen an unpublished report by the EU Court of Auditors (ECA). Lower down in the Times of Israel story cited in the blogpost a spokesman for the ECA is reported to have said that “no such report has been finalized,” but that a report would appear at the end of the year. The blog author does not mention this qualification. Nor, it appears, did the author look up the ECA report itself.

    Next I looked at the actual European Court of Auditors report, which appeared on December 12, 2013 https://www.un.org/unispal/document/auto-insert-206735/ and full report at https://www.eca.europa.eu/Lists/ECADocuments/SR13_14/SR13_14_EN.pdf . The report focuses on the largest aid program, PEGASE DFS, in the amount of about 1 billion euros from 2008 to 2012. The content does not match what the two articles say. The report says the program focused on civil service reform and helped to pay some civil servants in order to maintain essential public services and improve public finances. It indicates that the PA had undertaken a number of reforms. It urged the PA to do more. It flagged that some civil servants in Gaza, due to the political situation, were being paid without going to work but indicates this was a problem foreseen earlier, in the context of political disruption. It also says that, “Ultimately the threat to the financial sustainability of the PA can, to a considerable degree, be traced to the manifold obstacles raised by the Government of Israel to the economic development of the oPt…” With respect to aspects of the program, it says: “These funds essentially only transit through the central treasury sub-account, which operates a ‘double key’ system for the release of payments, i.e. both the EU and the PA have to authorise this. The risk of corruption is therefore minimal. Insofar as the risk of destruction of EU-funded infrastructure under the Gaza private sector programme is concerned, this risk was known and, although the Commission attempts to minimise the risk through regular dialogue with the Israeli Ministry of Defence (COGAT ), this risk has to be accepted.”

    The word corruption appears only three times, and only in connection with proposals for reducing corruption risk. To be sure, none of the references spoke of the incidence of corruption. The word embezzlement does not appear. Most of the recommendations focus on creating performance indicators and multiyear planning targets, streamlining procedures, etc. It does not give the PA a perfect bill of health, but neither does it say what the Times of London, the Times of Israel, or the blogpost take as fact. Nowhere does it mention “massive embezzlement of EU aid funds.”

    As Global Anticorruption Blog veterans know, charges of corruption can be manipulated for political purposes. Maybe GAB needs a peer review process so that it does not aid and abet. The only way to police that manipulation is to check facts, investigate, and go to the source.

    • Jennifer,

      Thank you for bringing this to my attention, and that of our readers. I am in the process of looking into this further, and Ms. Lh has also been informed of the concern about the veracity of this factual claim, and is also looking into it.

      One small correction to your correction: You quote the European Court of Auditors (ECA) report as stating:

      “These funds essentially only transit through the central treasury sub-account, which operates a ‘double key’ system for the release of payments, i.e. both the EU and the PA have to authorise this. The risk of corruption is therefore minimal. Insofar as the risk of destruction of EU-funded infrastructure under the Gaza private sector programme is concerned, this risk was known and, although the Commission attempts to minimise the risk through regular dialogue with the Israeli Ministry of Defence (COGAT ), this risk has to be accepted.”

      This text does appear in the report, but this is not the conclusion of the ECA. Rather, this text appears in a section at the end reporting the “Reply of the [European] Commission and [European External Action Service]” to the ECA’s findings. The specific ECA finding to which the language you quoted responds is this:

      “However, the Commission has not prepared a risk assessment addressing other Pegase DFS-related risks, such as the specific risks of corruption in Gaza, funds not being used for supporting public service delivery or the destruction of EU-funded infrastructure by the Israeli military.”

      (By “other … risks,” the report means risks other than the funds going to beneficiaries who are not eligible under the program criteria.)

      None of this is contrary to your larger point, which appears, on my preliminary review, to be correct: The London Times report (on which the Times of Israel relied) was based on an alleged draft ECA document, but the final ECA document did not include any allegations of widespread embezzlement, and instead the ECA report stated that it had not evaluated other corruption risks (though the Commission and EEAS insisted those risks were minimal).

      Of course, I also haven’t seen any formal statement from the ECA alleging that the London Times story was false — the spokesperson only said that the report had not been “finalized.” This all strikes me as a bit odd, bordering on fishy. Doesn’t it seem like there was an initial draft that included explosive allegations that a huge amount of money had been embezzled, but that allegation was dropped from the final draft, perhaps because the ECA did not think that the evidence was solid enough to make such an explosive claim?

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