In a Ruined Country

How Yasir Arafat destroyed Palestine
The Sorcerer's Apprentices

As the Oslo peace process collapsed into violence, an Israeli investment adviser named Ozrad Lev had a falling-out with his business partner, Yossi Ginossar. The two men had formed a company together and worked closely with Muhammad Rachid. Angry at both men, Lev came forward and spoke to the Israeli newspaper Ma'ariv about his own role in laundering hundreds of millions of dollars stolen by Yasir Arafat from the Palestinian people with the connivance of the Israeli government and international authorities. The story he told placed an exclamation point at the end of a decade of official lies and flagrant corruption which were justified in the name of peace. A former Israeli military-intelligence officer, Lev had left the army in 1987 and gotten a business degree from Pepperdine University, in California. In 1997 he was approached by Ginossar, a former deputy director of Shin Bet, Israel's feared domestic-security service, who had retired in disgrace after participating in a cover-up of the murder of two Palestinian teenagers who hijacked a bus with plastic guns. A charismatic figure who spoke fluent, idiomatic Arabic, Ginossar was famous for his brutal manner toward people who displeased him. He met Arafat in the early 1990s and later helped an Israeli company called Dor win an exclusive contract to supply gasoline to the Palestinian Authority. Ginossar set up a meeting between Lev and Rachid, who was looking to find a safe home in Switzerland for hundreds of millions of dollars that he had extracted from the Palestinian economy.

Licensed by a codicil to the Oslo Accords known as the Paris protocol—the agreement that established tax, customs, and other formal economic arrangements between the Palestinian Authority and the State of Israel—such corruption was held by all but the most far-out critics of Arafat's rule to be essential to the Oslo process. Every month the Israeli government was obliged to forward the VAT and other tax revenues collected on goods and services in the West Bank and Gaza to the Palestinian Authority. According to a side agreement reached between the Israeli government and Arafat, who was represented by Rachid, fuel-tax revenues were deposited in Arafat's private account #80-219000 at the Hashmonaim Street branch of Bank Leumi, in Tel Aviv. Arafat and Rachid also diverted funds to a special account at the Arab Bank in Ramallah. Every month up through the beginning of the intifada the Israeli government transferred millions of dollars to the man whom it had denounced for four decades as the world's most dangerous terrorist.

Ben Caspit broke the story that became known in Israel as "the Ginossar Affair" in December of 2002. The reporter was a friend of Lev's from childhood and had known Ginossar for years. "He was a very interesting guy, very tough, very bad manners," Caspit remembers, when I meet with him one morning in Tel Aviv. "You could sit with Yossi in the fanciest restaurant and he would start yelling at the waitress like she just killed her youngest son," Caspit recalls. "But he knew how to make himself contacts."

As I sit with Caspit on the wooden boardwalk outside Yama, a bohemian hangout in the port section of the city, the claustrophobia of the West Bank feels very far away. Here you can listen to Hebrew reggae and smell the salty sea air. A rusted steel cargo crane broods over the man-made inlet, where an old motorboat has been pulled up onto the shore. The wild party scene in the warehouses on the weekends rivals that of Reykjavik in the winter, Caspit insists. If this is not exactly the Zionist dream of Israel's ascetic socialist founders, it speaks to the escapist desires of a secular Israeli society that has seen its dream of peace with the Arabs wither on the vine, and has become inured to flagrant official corruption.

The man that Arafat called "Joe" was the Palestinian leader's all-purpose back channel to the Israeli political leadership. He was also a lover of the good life, who smoked Cuban cigars and drove showy, expensive cars, and whose enthusiastic eating habits helped to finance Tel Aviv's proliferation of fancy restaurants. It made sense that the Palestinian leader would seek out someone like Ginossar. "Israel is a crazy place—one day you have one government, the next another," Caspit explains. "Ginossar is there all the time, and he has the ability to be close with Rabin, Peres, Barak, Sharon, with everyone."

There were those who saw Ginossar's proximity to Arafat and Rachid in a more troubling light. The former head of the civil administration in Gaza, a brigadier general named Yitzhak Segev, wrote to Barak in the fall of 1999 and warned that Ginossar's business dealings with Rachid made him a poor choice to represent Israel. But Ginossar was so deeply enmeshed in the backroom diplomacy and business deals at the center of the Middle East peace process that it was impossible to get rid of him. His self-advertised connections to high American officials such as Dennis Ross and Ambassador Martin Indyk were augmented by his lucrative business dealings with Stephen P. Cohen, a Harvard Ph.D. and sometime university professor who jetted around the Middle East in a private plane provided by the SlimFast diet mogul Daniel Abraham. When Ginossar was excluded from the Israeli delegation to the Camp David peace talks in 2000 as a security risk, he was quickly named a member of the American delegation instead.

What Ozrad Lev had to offer Ginossar and Rachid was a connection to the world of high-toned Swiss banks, which might have been leery of accepting deposits from a man once numbered among the world's leading terrorists. An investment account that belonged to the Palestinian Authority and was managed by a former Israeli intelligence officer presented fewer difficulties. Lev's first move was to establish a financial-management company named Ledbury and open an investment account at the Swiss bank Lombard Odier, at 11 Rue de la Corraterie, in Geneva, through the offices of a partner named Richard de Tscharner. On May 17, 1997, Rachid wrote a formal letter to de Tscharner establishing the account, whose funds would be derived from "Taxes and Customs revenues" and also from "Revenues derived from various economic activity of the Palestinian Authority, through its state-owned companies." Rachid also promised that the PA would not use Ledbury funds "for any war or aggression oriented activities," a commitment that might have given a more-cautious banker pause. De Tscharner agreed to set up the account on the spot.

From 1997 to 2000 the sum in the Ledbury portfolio grew to more than $300 million. Lev also agreed to create an investment fund for leading members of the Palestinian security apparatus, which was registered on the Isle of Man under the name Supr a-din—a pun on "Saladin." Management commissions for the fund were paid to Rachid's deputy, Walid Najab, through a company called MCS, which forwarded a commission to Ginossar and Lev through a company that the two men had set up in Tel Aviv under the name ARK, a Hebrew acronym for "Anachnu Rotzim Kesef"—"We Want Money."

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David Samuels has written for Harper's Magazine, The New Yorker, and The American Scholar. This is his first article for The Atlantic Monthly.

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