Argument

The Brothers Abbas

Are the sons of the Palestinian president growing rich off their father's system?

In the wake of the Arab Spring, U.S. leaders have promised to reverse the United States' long reliance on autocratic, unrepresentative leaders who enrich themselves at the expense of their citizens. There's only one problem: Just as top American officials have been making these lofty promises, new details are emerging of how close family members of Palestinian leader Mahmoud Abbas, a major U.S. partner in the Middle East, have grown wealthy. Have they enriched themselves at the expense of regular Palestinians -- and even U.S. taxpayers?

Abbas's wealth recently became a source of controversy during the investigation of Mohammed Rachid, an economic advisor to the late Palestinian leader Yasir Arafat, in a high-profile corruption probe. Last month, Palestinian officials charged Rachid with siphoning off millions of dollars in public funds; his trial is set to begin on June 7.

According to a former Palestinian advisor, Abbas holds a grudge against Rachid dating back to the peace talks during the waning days of the Clinton era. In that intense period, Rachid was an advocate of working with Israel to find a solution, while Abbas called diplomacy a "trap that was laid for us." Abbas also resented Rachid because he was an Iraqi Kurd -- not even a Palestinian -- who had gained Arafat's trust and was part of his inner circle, while Abbas was on the outside looking in. "There was a huge amount of jealousy," the former advisor said.

With his back up against a wall, Rachid has now fired back at the Palestinian president with claims that Abbas himself has socked away $100 million in ill-gotten gains.

In stalking Rachid, whether or not the charges have merit, Abbas may have opened up a Pandora's box. The conspicuous wealth of Abbas's own sons, Yasser and Tarek, has become a source of quiet controversy in Palestinian society since at least 2009, when Reuters first published a series of articles tying the sons to several business deals, including a few that had U.S. taxpayer support.

Yasser, the elder son, graduated with a degree in civil engineering from Washington State University in 1983 and carries both Palestinian and Canadian passports. According to his biography (where he goes by the alias Yasser Mahmoud), he worked for a variety of Gulf contracting firms from the 1980s until the mid-1990s before returning to Ramallah in 1997 to launch businesses of his own.

Yasser now owns Falcon Tobacco, which reportedly enjoys a monopoly on the sale of U.S.-made cigarettes in the Palestinian territories. According to the Toronto Star, Yasser also chairs Falcon Holding Group, a Palestinian corporate conglomerate that owns Falcon Electrical Mechanical Contracting Company (also called Falcon Electro Mechanical Contracting Company, or FEMC), an engineering interest that was established in 2000 and boasts offices in Gaza, Jordan, Qatar, the United Arab Emirates, and the West Bank. This business success has come with a helping hand from Uncle Sam: According to a Reuters report, Abbas's company received $1.89 million from USAID in 2005 to build a sewage system in the West Bank town of Hebron.

According to Yasser's biography, other arms of Falcon Holding Group include Falcon Global Telecommunication Services Company and Falcon General Investment Company, companies about which less is known. Through the Falcon companies, Yasser boasted to an Emirati magazine in 2009 that the companies' revenues total some $35 million per year.

And the Falcon group doesn't even account for everything. Yasser is listed by the New York-based financial information database CreditRiskMonitor.com as the chairman of the publicly traded Al-Mashreq Insurance Company, with 11 offices across the Palestinian territories. The company is valued on the Palestinian stock exchange at $3.25 million.

Finally, Yasser serves as managing director of the First Option Project Construction Management Company, whose website suggests that it does a great deal of public works projects, such as road and school construction, on behalf of the Palestinian Authority. First Option employs at least 15 people in offices in Amman, Tunis, Cairo, Montenegro, and Ramallah. This enterprise also benefited from the U.S. government's financial support: As Reuters reported, First Option was awarded nearly $300,000 in USAID funds between 2005 and 2008.

The president's son is certainly entitled to do business in the Palestinian territories. But the question is whether his lineage is his most important credential -- a concern bolstered by the fact that he has occasionally served in an official capacity for the Palestinian Authority. In 2008, Yasser reportedly visited Kazakhstan as a special envoy, and according to a former Bush administration official, he "regularly accompanies his father on official travel."

Tarek Abbas appears less inclined than his older brother to take part in the political aspect of the Palestinian cause, but is just as ambitious in the business world. His online biography indicates that he followed in the footsteps of his older brother, working in the same Gulf contracting firms, as well as a trading company in Tunis during the early 1990s.

Today, he appears to be a successful entrepreneur. His principal enterprise, Sky Advertising, had 40 employees and earned $7.5 million in sales in 2010. And once again, the firm has worked with the U.S. government: Reuters reported in 2009 that Sky received a modest grant of approximately $1 million in USAID funds to bolster public opinion of the United States in the Palestinian territories.

The younger Abbas is also listed by the Arab Palestinian Investment Company (APIC), as the vice chairman of "Arab Shopping Centers." This is presumably shorthand for Arab Palestinian Shopping Center Company, valued on the Palestine Exchange at $4.2 million. The company, a project of APIC, now has two shopping centers, three supermarkets, and two indoor play facilities in the West Bank.

APIC is an economic juggernaut in the West Bank. In 2010, the company had more than $338 million in revenues. The company lists Tarek Abbas's Sky Advertising on its roster, as well as the Ramallah-based Unipal General Trading Company, where Tarek sits on the board. Unipal, which has 4,500 retail outlets in the Palestinian territories, distributes consumer goods to Palestinians, including products from Philip Morris Tobacco, Procter & Gamble, and Keebler.

Since the Arab Spring began in late 2010 and early 2011, the Abbas brothers have largely dropped out of sight in the West Bank. Where have they gone? According to an article written by Rachid on the staunchly anti-Abbas website InLight Press, the family owns lavish properties worth more than $20 million in Gaza, Jordan, Qatar, Ramallah, Tunisia, and the UAE.

Of course, the Abbas brothers' absence doesn't mean that Palestinians will forget. On a research trip to Ramallah last year, several Palestinians told me that the Abbas family dynasty is common knowledge. However, discussion of the issue rarely rises above a whisper -- thanks to growing fear of retribution by PA security officers, who have apprehended journalists and citizens for openly challenging President Abbas's authority.

At a time when the sons of Arab strongmen are under scrutiny, the questions surrounding the Abbas brothers will not go away. Indeed, the Arab public continues to demand accountability from its leaders -- and the upcoming Rachid trial will only bring this controversy closer to Ramallah.

ABBAS MOMANI/AFP/Getty Images

Argument

The Financial Guns of August

Is it too late to stop Europe's impending economic disaster?

Among the great and tragic questions of modern history, one of the most important is: How did the assassination of an Austrian prince turn into the conflagration of World War I, a disaster that in turn produced Nazism and Soviet communism, and which swept away most of the states that went to war in 1914? The answer, in part, is both simple and shocking. Following the rise of railways and the growth of mass armies, European countries had developed systems of military mobilization that, once set in motion, could not be reversed. As a result, they stumbled into war before they even realized they had passed the point of no return.

The conditions for an even greater disaster existed during the Cold War, when the doctrine of mutually assured destruction (with the appropriate acronym MAD) meant that any confrontation between the superpowers ran the risk of wiping out the entire human race. The United States and the Soviet Union built up systems that in effect were automatic doomsday switches, guaranteeing that a nuclear exchange, once started, could not be halted.

We escaped that disaster and now tend to imagine that the system worked as a force for stability. Arguably, though, this was a matter of good luck rather than good sense. With different people in charge, or a slightly different course of events, the Cuban missile crisis could easily have ended in all-out nuclear war, as could the Hungarian crisis of 1956 and the Yom Kippur War of 1973.

The problem is that systems built on deterrence and automatic responses work well much of the time, but when they fail, can lead rapidly to catastrophe. In a crisis, everyone tends to assume that it is up to someone else to avert disaster.

Europe's current economic crisis seems to be headed in the same direction. All of the main parties are set on autopilot, and each seems to expect someone else to fix the problem.

The Greek political system is clearly incapable of implementing further austerity, and yet there is essentially zero support in Greece for an orderly exit from the eurozone, even if such a thing were possible. The only way an exit can occur is if the so-called troika consisting of the European Commission, the International Monetary Fund, and the European Central Bank (ECB) enforces it by provoking a banking crisis in Greece. Such an action would be the economic equivalent of a mobilization order.

Meanwhile, the central European institutions are making noises about preparations for a Greek exit, as if such an outcome will be the automatic result of any Greek refusal to continue the failed policies of austerity. Such saber rattling allows them to avoid thinking about any effective alternative to further growth-killing budget cuts.

The obvious alternative, a shift to fiscal expansion, faces two major obstacles, one of which has been the subject of much comment, while the other has been largely ignored. The clear obstacle is the unwillingness of German voters to pay more taxes that, in their view, will be used for the benefit of profligate Southern Europeans. The reality, that the primary beneficiaries of the bailouts have been German and French banks, is almost never mentioned.

The much bigger problem is that because European governments cannot print their own money, any fiscal expansion must be financed by debt, and any increase in public debt is likely to produce a new crisis. The proposal for a shift to Eurobonds, backed collectively by European governments, would spread the pain but not resolve the problem.

In Europe, as in the United States, the problem underlying the crisis was an excessive buildup of debt, partly public, but mostly private. The rub is that whereas the United States was able to resolve the most critical problems through quantitative easing (large-scale purchases of public debt by the U.S. Federal Reserve), this option has been closed off in Europe because the ECB refuses to buy government bonds and remains fixated on controlling inflation.

In retrospect, the ECB's creation looks like a repetition of the systems of military mobilization built up before 1914, or of the doomsday switches built into the MAD system. The ECB's design reflected the policy preoccupations of the 1990s, most notably the belief that low inflation would ensure macroeconomic instability, and fears that a common currency would encourage national profligacy. These preoccupations produced an institution carefully insulated from any kind of democratic control and explicitly precluded from any action that could sustain fiscal stimulus. As long as the ECB remains on its current course, disaster is inevitable.

But even in 1914, there were a few weeks between the assassination of Archduke Franz Ferdinand in June and the general mobilization at the end of July, during which determined action could have prevented war. The time is similarly short today, and there are few signs of hope. But there is still time for European leaders to act to save themselves.

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