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Terror Inc - excerpt from the book

Economic independence facilitated the fragmentation of armed groups, as

discussed in chapter 4, as did the environment of political anarchy within

which they operated. The proliferation of armed organizations boosted the

growth of state-shells. Not all survived. Those that were able to integrate

their independent revenues with outside sponsors had a better chance of survival

and development. This has been the case with Hamas, the Islamist militant

group. When, at the onset of the Gulf War, Arafat supported Saddam

Hussein, Saudi Arabia retaliated by terminating all financial assistance to the

PLO. Money sent to the occupied territories went to fund Hamas instead.

Emerging during the Intifada in the 1980s, Hamas countered the PLO’s moderate

politics with a mixture of Islamic fundamentalism and democratic principles.

Since the group took inspiration from the Muslim Brotherhood and the

Islamic Jihad in Egypt and Jordan, it developed strong links with these and

other Islamic fundamentalist armed groups, such as the Lebanese Hezbollah.

Its political agenda is in sharp contrast to that of the PLO. For instance,

Hamas does not recognize the right of the PLO to create a secular state and

therefore does not accept its role in peace negotiations with Israel. Because

of its opposition to the PLO, Hamas was initially welcomed by Israel.

“Hamas is a creature of Israel,” affirmed Arafat, “which at the time of Prime

Minister [Yitzhak] Shamir gave it money and more than 700 institutions

among them schools, universities and mosques.” However, in line with

other fundamentalist groups, Hamas calls for the destruction of the state of

Israel and its replacement by a Palestinian pan-Islamic state stretching “from

the Mediterranean Sea to the River Jordan.”

The Hamas leadership used the unexpected income to strengthen its self-financing

capability and to challenge Arafat’s leadership in the Gaza Strip

and the West Bank. When Arafat’s support for Saddam caused the expulsion

72 terror incorporated of thousands of PLO workers from various Arab countries, Palestinians

began looking to Hamas as their new leader. As money flowed in, Hamas

offered socio-economic protection to its members and followers. It provided

bewildered Palestinians, inside and outside the occupied territories, with an

alternative state-shell.

Hamas’s improved financial status was followed by a sharp increase in its

armed activities. During the first ten months of 1992, the organization carried

out 192 attacks against Israel, as compared to 140 in the whole of 1991.

By the end of the 1990s, Hamas had a near-monopoly on terror activity in

Israel. According to Israeli intelligence, in the 16 months prior to May 2002,

the Saudis provided $135 million to meet Hamas’s expenses. Ad hoc charities

set up by Arab countries also channeled funds to the group for various

purposes. For example, some of these contributed an average of $5,000 per

martyr to the families of suicide bombers.


Over the last decade, Hamas’s greatest economic effort has been to establish

itself as the leading political power inside the occupied territories. In

doing so it has carved out its own state-shell. Following in the footsteps of

similar violent Islamic movements in Algeria and Jordan, Hamas took root

in the political milieu of Gaza and the West Bank. It poured money (and continues

to do so) into an extensive social services network which supports

schools, orphanages, mosques, health-care clinics, soup kitchens and sports

leagues in the poorest areas. As a result, its popularity is particularly high in

the shanty towns of the Gaza Strip, where its followers number in the tens of

thousands. “Among the poverty and desolation of these areas,” explained a

Hamas sympathizer, “Hamas’s violent and radical message has been the only

voice of hope.”29 The group has also gained support from trade unions and

agricultural cooperatives, within hospitals and among student unions. Today,

it is the second strongest group inside the occupied territories after al-Fatah.

Its main activities are in the sectors of education and social welfare, areas

where it can nurture its future martyrs. According to Martin Kramer, an

Israeli specialist on Islamic fundamentalism, Hamas takes care of Palestinians

from birth to death.

Hamas’s budget in the occupied territories is estimated at $70 million,31

of which about 85 percent comes from abroad; the rest is raised among

Palestinians in the occupied territories. However, these figures represent only

a small fraction of Hamas’s wealth. Though it still receives about $20–30

million a year from Iran and various ad hoc donations from Saudi Arabia

(in April 2002 a telethon in Saudi Arabia raised $150 million for the

Palestinians under siege in the occupied territories), more and more money

is raised through Palestinian expatriates, private donors in Saudi Arabia and

the birth of the terror state-shell other oil-rich Gulf states. In 1998, after being freed by the Israelis, Sheikh Ahmed Yassin, the spiritual leader of Hamas, set off on a four-month tour of

Arab capitals. He was welcomed as a hero and collected donations of over

$300 million.


While the PLO achieved economic independence by investing illegal funds

in mainstream finance, Hamas’s self-financing model resembles Oliver

North’s Contras fraud scheme, discussed in chapter 3. A network of charities

in the United States, Canada and Western Europe with a privileged tax status

offers a variety of tax breaks to Muslim contributors. The Holy Land

Foundation for Relief and Development (HLF) even stated in its brochure

that it collected “tax-deductible donations for charitable causes in the occupied

territories.”33 Founded in 1992 with a large cash infusion from

Hamas, the foundation collected $42 million from 1994 to 2000, according

to its tax returns.35 In 2000 it raised an estimated $13 million in the U.S.

alone ($6.3 million in 1999 and $5.8 million in 1998). The HLF also

received money from other charitable institutions across North America. In

December 2001, for example, South African intelligence unveiled a contribution

to the HLF from the Jerusalem Fund, a Canadian aid organization.

The HLF supported medical clinics, orphanages, schools, refugee camps

and community centers in the West Bank and Gaza Strip. While charities

such as the HLF provided funds, holding companies such as the Beit-el-Mal

Holdings carried out the construction work. It was thanks to these organizations

that Hamas managed to build its own state-shell inside the socio-economic

vacuum created by the Palestinian Authority in the occupied

territories. The Beit-el-Mal Holdings was a public investment company with

offices in East Jerusalem fully controlled by Hamas. The majority of the

shareholders were members of Hamas or had strong links to it. According to

the Palestinian Authority, the holdings supported socio-economic and cultural

organizations run by Hamas activists. Beit-el-Mal also owned a 20 percent

stake in the Al-Aqsa International Bank, the financial arm of Hamas. In

December 2001, these three organizations were shut down by the authorities

because they were suspected of helping Hamas recruit and train suicide

bombers. However, their role within the armed organization went well

beyond the financing of Hamas terror attacks; they were instrumental to the

formation of its state-shell.

Over the years, Hamas has been very careful to keep its covert and overt

activities separate. This distinction applies also to its financing. Donations from

established charities are generally not used for military activities. Funds for

the latter are provided by other sources: offerings from businessmen and

donations gathered during conferences held in the U.S. These fundraising

74 terror incorporated activities can generate large revenues. In 1994, for example, at a meeting of the Muslim Arab Youth Association in Los Angeles, addressed by Sukri Abu

Baker, chief executive of the Holy Land Foundation, $207,000 were collected

for the families of Hamas warriors. During Thanksgiving 2000 the Islamic

Association for Palestine, the voice of Hamas in the U.S., organized a conference

to raise $200,000 for the Palestinian martyrs. A steady income is also

generated in Western countries through complex financial schemes such as

money laundering through real estate. For instance, in the early 1990s, the

Woodridge Fountain, a custom-built subdivision of houses worth

$300,000–500,000 in DuPage County, was used by the Quranic Literacy

Institute to launder money from a wealthy Saudi supporter of Hamas. The

scheme generated funds to purchase arms used by Hamas in several attacks

inside Israel.

Economic independence, therefore, not only increased the number of

armed organizations attempting to build their own states, it also provided

them with the opportunity of competing with each other in promoting themselves

and recruiting among the population. This competition was not confined

to the economic sphere; it also involved the strategic use of violence. The

conciliatory attitude of the Palestinian Authority towards Israel was perceived

by many Palestinians as a betrayal of their cause. Hamas capitalized

on this and transformed the Intifada into the Fitna, its violent version. Part

of the Fitna was made up of Palestinian “shock committees” and death

squads who interrogated and eventually killed suspected “collaborators”

inside the occupied territories and attacked members of the Palestinian

Authority, thereby subverting the peace process corruption in the occupied territories

According to Pierson’s classification, the characteristics of the modern

state that state-shells lack are constitutionality, defined as adherence to a set

of laws, and sovereignty, which he describes as the acceptance of the existence

of a sole ruler. State-shells are therefore undemocratic and highly hierarchical.

Whoever controls the monopoly of violence and the war economy on

which the state-shell is built sets the rules. Anybody able to conquer these

monopolies by means of violence or money becomes the new ruler. Thus,

Hamas’s attempts to take over the PLO in the occupied territories hold dual

significance: they aim to break the monopoly of the Palestinian Authority

over the use of force, and gain economic power. The former is countered with

the Fitna and the death squads and the latter with Hamas’s social and economic

welfare program. However, conquering these monopolies leads only

the birth of the terror state-shell to further problems. Without constitutionality and sovereignty, power in a state-shell is by definition highly precarious. A sense of uncertainty permeates its infrastructure; loyalty, a rare commodity, can be bought. Those at the top

of the military and economic ladder, who enjoy great privileges, tend to accumulate

large amounts of wealth to protect themselves and their families from

the ups and downs of terror politics. It comes as no surprise that one of the

main features of a state-shell is corruption. In a 1999 poll conducted by the

Jerusalem Media and Communication Center, 83 percent of the population

in the occupied territories declared that there is corruption within the

Palestinian Authority.

Mahmoud Hamdouni is one of the many victims of what some people call

the “Palestinian Mafia State.” In 1996 he bought 30 acres of land outside

Jericho, built a petrol filling station and planned a housing estate. His dream

came to an abrupt end when the Palestinian Authority decided to speculate

in the area and needed his land. Hamdouni was accused of treason and

imprisoned. Eventually, he was freed in exchange for signing over his land to

the Palestinian Authority. The land was sold and a casino was built on it. As

soon as it opened for business, a front company for the Authority took an

undeclared 28 percent stake in the gambling facility. Today, located across the

street from the Aqabat Jabr refugee camp, the Oasis Casino rakes in a

monthly $15 million in profits.

The Israeli government is also heavily involved in the corruption of the

Palestinian Authority. Israel uses its economic power over the occupied territories

to maintain a grip on a small elite of Palestinians who are ready to compromise

in land-for-peace negotiations. Many officials, for example, are

awarded special VIP passes by Israel, so that they can travel freely in and out

of the occupied territories, but these passes are revoked whenever they voice

criticism against Israel. Corruption has remained an integral component of

the peace process. Even Arafat was not immune to Israeli “favors.” Until

June 2000, Israel collected hundreds of millions of dollars in VAT and customs

receipts which were channeled directly to his accounts. Arafat was free

to dispense the cash as he pleased and, according to several observers, he

used the money to buy political loyalty.

Corruption permeates society in a state-shell and becomes the modus

operandi within its institutions. Many officials from the Palestinian Authority

use their position to carry out unethical business practices or to take bribes.

In 1999, officials in charge of the “safe passage” between the West Bank and

Gaza were accused of charging double the price for travel permits, which are

produced by Israel and sold to the Palestinian Authority at cost. Another

instance of corruption involved Jamil Tarifi, Arafat’s minister of civil affairs

76 terror incorporated and a key negotiator with Israel during the peace process. In the summer of 2000, Tarifi set up a pharmaceutical distribution company in the occupied territories.

Israeli distributors of foreign drugs take a big cut of the profits from

pharmaceuticals imported to the occupied territories. The owner of the

Jerusalem Pharmaceuticals Co., Mohammad Masrouji, for example, pays

heavy duties each time he imports them. They also supply the distributors of

drugs to the occupied territories. However, within a single day Tarifi not only

managed to register dozens of products with the Palestinian Ministry of

Health, a process that would have taken Masrouji years, he also registered

Egyptian pharmaceutical products, thus bypassing Israeli distributors. These

products, according to industry professionals, did not meet international

standards. Nobody at the Ministry of Health bothered to check them.

International aid organizations have also been aware of widespread corruption

in the occupied territories. However, they remained silent due to the fear

that an anti-corruption campaign would destabilize Arafat’s regime, thereby

jeopardizing the huge sums ($3.8 billion from 1994 to 2000)44 committed by

donors to these organizations.

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