Whatever happened to Arafat's billions?

November 11 marks two years since the death of PLO chief Yasir Arafat—but don't count on most Palestinians to mourn his memory.

On a good day in Gaza City, only 40 percent of the last night's sewage gets dumped into public beaches along the Mediterranean coast, where gaunt Palestinian kids build sand castles out of thick brown sludge. One and a half million Gazans, mostly children, live overwhelmingly in poverty amid a gutted infrastructure and a dysfunctional democracy. Meanwhile, the First Lady of Palestine, Yasir Arafat's widow Suha, has been living large in Paris, among other places, at the palatial Hotel Le Bristol. She and her baby daughter left Gaza for France in 2000, during the second intifada and Israel's reoccupation of Palestinian lands—and reportedly occupied an entire floor of the five-star hotel, at approximately $16,000 per night.

"Our economy has been deteriorating ever since Arafat came on the scene in '94," says Ramallah-based Bir Zeit University professor Mudar Kassis. "People had been waiting for something to happen that would improve the daily life of the Palestinians. Instead, the suffering has mounted, and the highest GNP per capita in our history still dates back to 1991."

Israeli and American intelligence officials say Suha Arafat's Paris hotel bill would be little more than chump change for the glitzy heiress, whose late husband might just have been the most flagrant embezzler of public funds since Louis XVI. During Arafat's rule, the United States, World Bank, European Union, and Arab governments poured $7 billion into the Palestinian Authority to try and help forge a viable Arab-Israeli peace. As much as half that sum is reported to have gone AWOL, with only a small fraction recovered to date. And Suha has proved to be only one of several big-time beneficiaries.

"There was never a complete public reckoning of corruption during the Arafat years," says Kassis, who teaches philosophy at Bir Zeit and heads the university's institute of law. "Now the Palestinians have lost so many assets ... that compared to the loss of life and land, it seems negligible." Kassis nonetheless calls for heeding the lessons of Palestine's first autonomous decade, lest history repeat itself. Which it already has: The flagrant corruption that marked the U.S.-led nation-building project in Iraq was underscored last year when a U.S.-appointed Iraqi defense minister and his procurement chief allegedly stole hundreds of millions in public funds.

Two years after Arafat's funeral, an international scavenger hunt continues for the revolutionary leader's far-flung riches. A motley assortment of investigators ranging from Israel's security establishment to the Palestinian Islamist group Hamas, which now rules in Ramallah, maintain an ongoing interest in every lost stash. "The only man who knows the whole story is dead," says a senior Israeli military intelligence official who agreed to answer questions on condition of anonymity. "But the deeper you go into it, the more it stinks."

Arafat's money trail leads far beyond the smelly sands of Gaza Beach, to a rainbow coalition of shady figures—Jewish, Christian, and Muslim—and as far west as New York's Greenwich Village, where the militant chieftain once secretly bought a stake in Bowlmor Lanes, a trendy bowling alley. You might say the closest the world ever came, in fact, to harmony and peace between all three monotheistic faiths was in the sleazy international campaign to siphon off Palestinian grant aid. It may be too early still to tell the full Where's Waldo–like tale of where the cash went. But several all-stars of Arafat's money laundering network have come to light—and the legacy of their greed still has grave repercussions across the Middle East.

Arafat's lifetime of grubbing for cash on behalf of the Palestinians dates back to his young adulthood in Cairo, where he was born shortly before the American stock market crash of 1929. Few had heard of the Palestinian cause back then, and there were no blue-and-white pushke boxes accepting pocket change for it. But longtime PLO stalwart Nabil Shaath remembers watching, as a 13-year-old, the young revolutionary hit up his father for a cash donation. Shaath told Atlantic Monthly correspondent David Samuels he immediately recognized the future president of Palestine. Arafat's sister Inam, moreover, recalls the cash-flush teen's leadership style during the same period: "He formed [the neighborhood kids] into groups and made them march and drill," she told Arafat's biographer. "He carried a stick to beat those who did not obey his commands. He also liked making camps in the garden of our house."

These two remembrances pretty much say it all about Arafat's lifelong financial strategy and management approach: He leveraged his relationship with authority figures to bankroll his movement, then took that leverage and beat Palestinians over the head with it.

He would not, however, go the way of other third-world dictators and settle into luxury living. "He controlled the money," recalls Eran Lerman, a retired Israeli military intelligence colonel who now heads the American Jewish Committee's Jerusalem office, "but he hardly ever used it for his own purposes. Most of it was a political tool—to ensure that no single faction of the Palestinians dominated." Follow the guerrilla leader's 50-year career through civil war in Jordan, civil war in Lebanon, R&R in Tunis, and total war in Palestine, and most eyewitness accounts of the PLO chief at bedtime indicate he went to sleep on a creaky cot.

The same may not be said of his close aides and confidantes, many of whom enjoyed opulent lifestyles as a reward for their loyalty to Arafat. "He was a connoisseur of power," writes David Samuels, "who used the money that he stole to buy influence, to provoke or defuse conspiracies, to pay gunmen, and to collect hangers-on the way other men collect stamps or butterflies."

Over a year after Arafat's death—when the Islamist terror group Hamas swept the Palestinian Authority elections on an anti-corruption platform—some of these "butterflies" tried to fly the coop, with wads of cash tucked under their clothes. According to the pro-Palestinian London daily Al-Quds Al-Arabi, Hamas intercepted a former PA finance ministry chief, Ali al-Ramlawi, attempting to smuggle millions of dollars in greenbacks into Jordan. More than 30 other PLO seniors were subsequently caught fleeing town and jailed, according to Hamas sources. Their confiscated moneybags, says the senior Israeli intelligence official, proved an early boon to the nascent Hamas-controlled treasury.

But these local cronies were just small potatoes. Incessant infighting among Palestinian elites, so common in patriarchal societies, meant that Arafat would often prefer to pick outsiders—even sworn enemies of the Palestinian people—to handle his most sensitive, high-stakes finance jobs. Consider Arafat's long-time Lebanese Christian aide and confidante, Pierre Rizk. Given the 1982 massacre of several thousand Palestinian refugees by Maronite Christians in south Lebanon, it might seem odd to picture Arafat relying for help on a Maronite militia leader. But in fact Rizk, the former intelligence chief for the Christian "Phalangist" paramilitary during the infamous Sabra and Chatila massacres, served Arafat for a decade and a half as a confidante and bag man—allegedly pocketing millions.