How $500 million was lost down Gaza's tunnel network

By Mordechai Kedar, October 15, 2009
A Palestinian receives goods smuggled from Egypt into Gaza through an underground tunnel last month

A Palestinian receives goods smuggled from Egypt into Gaza through an underground tunnel last month

Much has been published in Israel and around the world on the motorway of underground tunnels connecting Gaza to Egypt. Our natural inclination is to think that the tunnels are run by a few poor, hungry people bringing a little food into Gaza, and a few poor families making a living by smuggling weapons, food and goods into the besieged Strip. This image has helped bring many international donations to Gaza, from governments, organisations and individuals.

But while the image of the “poor Gazan” may have been true a few years ago, before Israel’s withdrawal from Gush Katif and the Philadelphi route in 2005, today — or, more accurately, before Operation Cast Lead in December 2008 — the situation is completely different. The tunnels — between 800 and 1,000 of them — were an enormous financial industry, attracting investments of more than $500 million from 4,000 residents of Gaza.

During Operation Cast Lead, however, most of them lost their funds. Many of them had taken loans and mortgaged property in order to invest in the tunnels, egged on by clergymen and the preachers in the mosques, who considered the tunnels a worthy way of resisting the siege which Israel and Egypt had imposed on the Strip.

During Operation Cast Lead, which took place between December 27, 2008 and January 20, 1009, the majority of the tunnels were bombed and collapsed, and most of the profitable trade which was conducted through them came to a rapid halt. Egypt also contributed to the stemming of the tunnel trade, by strengthening its monitoring of the Egyptian side of the border with Gaza.

Now 4,000 families are left with large loans taken in order to invest in the tunnels, unable to return the money from the tunnels’ profits — which never materialised.

Those who lent them the money have just as big a problem.

Both the tunnels’ operation and the collection of money for their construction and operation were undertaken with the full knowledge and encouragement of the Hamas government. Now the investors are demanding that the Hamas movement compensate them. But the movement does not have the resources to cover such a financial burden, and has offered each investor 16.5 cents for every dollar invested — that is, less than a sixth of their investment.

Officially, Hamas claims it has nothing to do with the matter. Finance Minister Ziad al-Zaza claimed that the people who recruited the public’s money invested a large part of it in dodgy schemes overseas, which lost the money in the international credit crunch.

In order to prove that Hamas had no part in the scandal, the Hamas government arrested 200 people involved in the tunnels industry, but most of them were freed in order not to open another front against it. The al-Kurd family, which received a large proportion of the investment money, returned part of it, and Hamas is intending to distribute the compensation from that pot.

All the financial activity surrounding the tunnels took place without any transparency, documentation or supervision. No one really knows what happened to the half a billion dollars, and the suspicion is that more than a few Hamas men — who encouraged the public to invest in the tunnels — got rich through the business.

Many in Gaza say that effects of the Madoff affair in New York are small compared to the tunnels scandal, given the small scale of the economy in the Strip.

The affair has damaged Hamas’s popularity, and many in Gaza accuse them of being no better than the corrupt regime in the West Bank. These allegations were one factor bringing Hamas to support the riots on Temple Mount during Succot, in order to divert attention from their internal problem to Israel.

The only question left is when the world will wake up to what the “poor people” in Gaza are doing with the billions being donated to them.

Professor Mordechai Kedar is a lecturer in Arabic at Bar-Ilan University

Last updated: 2:26pm, November 8 2010