OLAF finalises investigation into EU direct budgetary support to the Palestinian Authority – European Union press release/Non-UN document

OLAF finds “no conclusive evidence” to link EU funds and terrorism: European Commission welcomes final report on assistance to the Palestinian Authority

The European Union’s independent anti-fraud office OLAF has finalised its investigation into EU direct budgetary support to the Palestinian Authority. It has concluded that “there is no conclusive evidence of support of armed attacks or unlawful activities financed by the European Commission’s financial contributions to the (Palestinian Authority) budget”. These findings are in line with the assessments of the European Commission, which has examined closely all allegations made about the use of EC funding. They are also in line with the conclusions of the European Parliament Working Group on Budgetary Assistance to the Palestinian Authority.

After extensive investigations, OLAF has arrived at the same conclusion as the European Commission: there is no proof that EU taxpayers’ money has been used to fund Palestinian terrorism or other illegal activities. The EU contribution helped to alleviate poverty, and the conditions attached to EU assistance were crucial in bringing about reforms in PA financial control and management, paving the way for statehood. Israel itself and other international donors now pay into the very same Single Treasury Account that EU conditions put in place.

The value of the previous EU Budgetary Assistance programme to the PA and EU’s current contributions through the World Bank Public Financial Management Reform Trust Fund have been recognised internationally. As the AHLC noted in December 2003: ‘budget support remains the most effective form of donor assistance for sustaining employment and stabilizing the Palestinian economy’. The objective, of helping the PA to lay the foundations for a viable Palestinian state, is set out in the “Road Map” supported by the Quartet (EU, US, UN and Russia). The EU budgetary assistance programme has been a driving force for reforms, particularly of PA financial control and management. As a result the International Monetary Fund has described PA “responsibility, control and transparency” as among the best in the region.

As OLAF’s report points out, it is impossible to eliminate all risks of misuse from any financial assistance. The Commission has always been committed to exercising maximum vigilance, and to co-ordinating as far as possible with other donors in this respect. The Commission therefore agrees with OLAF’s proposals:

BACKGROUND

The EU’s decision to provide non-targeted direct budgetary assistance to the Palestinian Authority was triggered by the unilateral freezing by the Government of Israel in September 2000 of monthly tax transfers agreed between the government of Israel and the PA in the Paris Protocol. The policy was endorsed by the Council and the European Parliament, and implemented by the European Commission.

The Commission provided €246 million non-targeted budgetary assistance to the PA 2000-2002. Initially conceived as a short-term Special Cash Facility, from June 2001 on, the aid was paid as Direct Budgetary Assistance. Monthly payments of about €10 million a month were released, each time subject to a “comfort letter” provided by the IMF, which provided macro-economic monitoring of the PA budget.

Payment of the non-targeted Direct Budgetary Assistance was also subject to conditions designed to improve governance in the Palestinian Territories. Concrete results include:

Following the Israeli decision in autumn 2002 to resume regular tax transfers (using the Single Treasury Account set up at the instigation of the EU), the EU discontinued non-targeted budget support.

The conditions attached to EU assistance have helped to create confidence in the PA’s accounting systems so that Israel and other donors have felt able to use the structures that the EU has put in place.