Citigroup Banked for Arafat as He Paid Fighters (Update1)
Nov. 19 (Bloomberg) -- Citigroup Inc., the world's biggest financial services company, invested $6.8 million for Yasser Arafat, Palestinian Authority documents show. At the same time, the late Palestinian leader was paying militants and channeling authority funds into his personal accounts.
The funds were invested through Citigroup's private bank before Arafat began turning over $799 million to the Palestinian Authority in 2002, said Andreas Martin, a Standard & Poor's analyst who helped value the assets. The bank's policies prohibit the acceptance of public figure clients without approval of the head of the private bank and company lawyers.
Citigroup's failure to conduct proper checks on its clients to prevent money laundering led Japanese regulators to close the company's private banking offices there in September. New York- based Citigroup in October fired the head of the private bank and the vice chairman who ran the company's international businesses.
``Citibank rears its ugly head again,'' said Jeremy Pope, co- director of London-based Tiri Network and former executive director of Transparency International. Both organizations advocate global standards to fight corruption.
Citigroup spokesman Jeremy Apfel in London declined to comment on Arafat. ``As a matter of policy, Citigroup does not confirm who may or may not be a customer,'' he said.
The private banking unit, which manages money for wealthy clients, has a ``know-your-customer'' policy that requires it to identify the source of an account holder's income.
Not Named
Arafat didn't hold accounts in his name, said James Prince, president of the Los Angeles-based Democracy Council, the outside governance monitor for the Palestine Investment Fund, the agency to which Arafat transferred his assets. Arafat and the Palestine Commercial Services Co., a Ramallah-based company he controlled, invested abroad by giving funds to money managers who set up accounts under other names, he said.
``Arafat didn't have any account in his name -- no bank in the world would open one,'' said Prince, who didn't know what name the Citibank account was opened under. ``There's nothing wrong legally, but it's a question of how strong are Citibank's know- your-customer policies.''
Arafat, who died last week in Paris at age 75, controlled about $1.3 billion through his positions as president of the Palestinian Authority and chairman of the Palestine Liberation Organization, according to Israeli intelligence estimates.
Donations, Taxes
He amassed the fortune by soliciting donations, channeling tax revenue into personal accounts and converting aid dollars into Israeli shekels at below market rates before paying Palestinian Authority workers, according to interviews with Colonel Miri Eisin, an Israeli army intelligence officer, and Mohammad Shtayyeh, managing director of the Palestinian Economic Council for Development and Reconstruction.
Shtayyeh, whose agency administers international aid received by the Palestinian Authority, said the investments and accounts controlled by Arafat belong to all Palestinians. They were simply held by Arafat until the Palestinian Authority could build institutions capable of managing them, Shtayyeh said.
``Arafat's money is for the people,'' said Shtayyeh, who is also an economics professor at Birzeit University in the West Bank. ``Arafat is not a man who was looking to accumulate personal money.''
Palestinian Authority Finance Minister Salam Fayyad didn't respond to e-mailed requests for comment on this story. Phone calls to the ministry weren't answered this week as Palestinians celebrated the Eid holiday marking the end of the Muslim holy month of Ramadan and mourned Arafat's death.
Paying Militants
Phone numbers for Mohamed Rachid, chief executive of the Palestine Investment Fund, and Ellam Tam, the firm that handles public relations for the Palestinian Authority, also went unanswered, as did e-mail messages to both. No one answered the phone at the PLO's office in Washington.
At the same time he was investing with Citigroup, Arafat used Palestinian Authority money to pay members of his Fatah guerrilla movement, according to documents the Israeli army seized at Arafat's compound in the West Bank city of Ramallah in April 2002. Palestinian negotiator Saeb Erekat at the time said the documents were forgeries.
In January 2002, Arafat received a letter from the West Bank chief of Fatah, Marwan Barghouti, requesting $1,000 each for a dozen fighters. ``Please allocate $350 to each,'' Arafat scribbled at the bottom of the letter. Arafat then signed his name, and sent the paper to the finance ministry for payment.
An Israeli court in June sentenced Barghouti to five consecutive life terms in prison after he was convicted of planning terrorist attacks.
PLO Funds
Arafat's funds included about $500 million held by the PLO, Eisin told Bloomberg in July 2002. Israeli officials this week declined to comment on Arafat's finances.
In addition, the Palestine Investment Fund listed $799 million of assets in its 2003 annual report, released in May. The fund was created when Arafat's money managers turned over many of his holdings to the Palestinian Authority finance ministry after international aid donors demanded more transparency in how the authority handled its money.
The fund includes a $25 million stake in Egyptian mobile- phone company Orascom Telecom Holding SAE and about $20 million in private equity stakes, according to the annual report.
Citigroup opened the account for Arafat's money managers before the fund was created in 2002, according to a valuation of the investments conducted for the Palestinian Authority by Standard & Poor's. The Citigroup account was held by Palestine Commercial Services, the valuation said.
Private Equity
The account today holds investments in three private equity funds, including an Asia fund and a real estate fund, along with some cash and shares of a Citigroup-run European mutual fund, according to the S&P valuation.
``It's an account at the private banking group within Citigroup,'' said Martin, who is based in S&P's Los Angeles office. An adviser to Palestinian Commercial Services at Jordan- based Cairo Amman Bank made investment decisions for the account, he said.
At the time the account was opened, Arafat handled Palestinian Authority finances outside the authority itself. From 1995 through 2000, he diverted $900 million of the authority's tax and business income to personal bank accounts, the International Monetary Fund said in a September 2003 report. Most of that money was invested through Palestine Commercial Services.
Before Arafat turned the money over to the finance ministry, the Palestinian Authority lacked financial accountability, said Joel Toujas-Bernate, the IMF's mission chief for the West Bank and Gaza Strip.
Transparency Improved
``It was not a very transparent system,'' he said. ``We can more or less trace the use of this money now.''
Citigroup Private Bank, with 90 offices in 31 countries, had net income of $551 million last year, accounting for 3 percent of Citigroup's profit, according to the company's 2003 annual report. Its clients include 127 billionaire families who keep an average of $7.1 million with the bank, according to a February presentation to investors.
The unit has been a flashpoint for criticism of the company's money-laundering controls, Pope at Tiri Network said.
``It would seem to suggest that Citibank hasn't learned very much after being burned,'' he said.
After Japanese regulators shut down Citigroup's private bank there, the company in October ousted Deryck Maughan, vice chairman for international strategy, Thomas Jones, who ran investment management, and Peter Scaturro, who ran global private banking.
Citigroup Policies
The bank strengthened its policies against handling accounts for public figures in 1998 as its dealings with such individuals attracted probes by the U.S. General Accounting Office and other Congressional investigators. Citigroup defines public figures as people who occupy senior positions in politics and applies the policy to businesses controlled by such figures, according to a Citibank Web site.
``Public figures are not part of the private bank's target market,'' John Reed, Citigroup's co-chairman at the time, said during testimony to Congress in November 1999.
In 1998, the GAO, now known as the Government Accountability Office, said Citibank's private bank bypassed safeguards against fraud and helped Raul Salinas de Gortari, brother of former Mexican President Carlos Salinas de Gortari, move as much as $100 million from Mexico to Switzerland and London through shell companies and multiple accounts.
In November 1999, a report by the staff of the Senate's investigations subcommittee criticized Citibank's relationships with political figures ranging from the sons of Nigeria's former military leader, General Sani Abacha, to El Hadj Omar Bongo, president of Gabon.
To contact the reporter on this story:
Vernon Silver in Rome at vtsilver@bloomberg.net
To contact the editor responsible for this story:
Anne Swardson at aswardson@bloomberg.net
Last Updated: November 19, 2004 04:23 EST |
