EU fraud office investigates aid diversion to bombers

European Union funds may have been channelled to Palestinian militant groups responsible for the deaths of scores of people in suicide bombings.

European Union funds may have been channelled to Palestinian militant groups responsible for the deaths of scores of people in suicide bombings.

The EU's anti-fraud unit and Belgian police are investigating claims that money earmarked for aid was paid to the Al-Aqsa Martyrs' Brigades through Belgian and German affiliate organisations.

Belgian judicial sources said yesterday that the inquiry began in Aachen in Germany but also involves an organisation based in Verviers, in eastern Belgium.

The allegation is that groups "have asked for European subsidies for some kind of immigrant project and that this was then transferred towards Al-Aqsa", the source said. Al-Aqsa is on the EU's list of banned terrorist organisations.

Confirmation that a formal investigation is going ahead is acutely sensitive for the European Commission, which pays subsidies to the Palestinian Authority of around €10m (£7m) a month. Worries have been growing for some time that EU aid has been diverted to groups engaged in terrorism or pocketed by corrupt Palestinian officials.

With the Palestinian economy in freefall, the International Monetary Fund is appealing for £700m for 3.2m Palestinians in the West Bank and Gaza Strip. The funds are also for the Palestinian Authority which is the main employer and economic mainstay in the occupied territories.

However donor governments are facing demands for funds for Iraq. And there are concerns that international aid for the Palestinians is replacing spending that Israel, the occupying power, is obliged to finance under the Geneva Conventions.

Last night a spokesman for the European commissioner for external relations, Chris Patten, said it was impossible to comment on the latest issue without more details of the case. But he added: "The Commission is the first organisation to be interested in making sure that its funds intended for non-governmental organisations, are not diverted to entities on the EU's terrorist list."

The probe, which was first reported in the German magazine Stern, is one of several being conducted by the Belgian authorities into the funding of the Al-Aqsa Martyrs' Brigades. They are also examining the transfer of large sums of cash and credit card transactions for signs of possible fraud, although the inquiry is said to be complex and slow-moving.

The Al-Aqsa Martyrs' Brigades came into being at the beginning of the three year old Intifada. They were originally linked to Palestinian leader Yasser Arafat's Fatah faction although Israeli claims that he directed their military campaign have never been proved.

Under the weight of Israeli military closures on Palestinian cities, the Al-Aqsa Brigades have fragmented into autonomous local cells without a unified leadership. Discovering where any misplaced EU funds may have gone, is likely to prove difficult as there is no centralised organisation.

In February this year almost one quarter of MEPs expressed their concern at the lack of accountability over the commission's funds, amid claims that it may have been siphoned to terrorist supporters. At that point Olaf, the EU's anti-fraud office, launched an investigation into the allegations.

Officials in Brussels admit they cannot account for every penny spent by the authority, but say there is no evidence of significant malpractice. Mr Patten, who sees the Palestinian Authority as a key interlocutor, believes it is crucial to continue backing it.

He argued that the EU's funding arrangements were supervised by the International Monetary Fund. But Thomas Dawson, director of the IMF's external relations department, said earlier this year that the fund "does not monitor or control every item in the budget", adding: "This obviously is an auditing function that goes far beyond the fund's present mandate." Salam Fayyad, the Palestinian Finance Minister, admitted the system was open to corruption.

* EU diplomats will travel to Israel in the coming weeks in an attempt to resolve a dispute about the origin of "Israeli" products. Israel currently benefits from a low tariff regime with the EU, a benefit Brussels refuses to extend to products that originate from Israeli settlements in the occupied territories.