FAYYAD SAYS TERROR LITIGATION POSES "EXISTENTIAL

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 001795

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
GOLDBERGER/SHAMPAINE/BELGRADE; L FOR SCHWARTZ/DOLAN/GROSH;
NSC FOR ABRAMS/SINGH; TREASURY FOR
HARRIS/LOEFFLER/NUGENT/HIRSON; BRUSSELS FOR LERNER

E.O. 12958: DECL: 08/19/2017
TAGS: EFIN EAID ECON KWBG IS PTER KPAL EINV
SUBJECT: FAYYAD SAYS TERROR LITIGATION POSES "EXISTENTIAL
THREAT" TO PA

REF: JERUSALEM 1612

Classified By: Acting Principal Officer Thomas Duffy for reasons 1.4 b,
d.


1. (C) Summary. Palestinian Authority (PA) Prime Minister
Salam Fayyad told a visiting interagency team that the suits
brought against the PA in the U.S. and Israel pose an
"existential threat" to the Palestinian cause. Fayyad urged
the State Department to provide a Statement of Interest in
support of his efforts to get two default judgments vacated,
though acknowledging that at this point having the judgments
vacated would be an uphill battle. He said that a U.S. court
decision to hand control of the Palestine Investment Fund
(PIF) to plaintiffs in one case could do lasting damage to
the PA. He was less worried about assets currently exposed
in the U.S., and instead focused on cash flows through
Israel, the ability of his Government and private sector to
conduct business and the threat posed by misuse of the PIF.
Fayyad admitted that he did not yet have a team within his
Ministry of Justice knowledgeable on these issues; for now he
was following them personally with the assistance of a
consultant and the PA's counsel in the U.S. and Israel. He
also said that the PA needed to engage more vigorously with
the GOI on litigation issues, observed that GOI action to
wall off PA assets would be very helpful, and noted that he
thought "official Israel" understood the importance of the
issue. End Summary.


2. (SBU) PA Prime Minister Fayyad met with Department of
State and Department of Justice lawyers on August 23 in
Ramallah to discuss cases in the U.S. brought against the PA
and the PLO for involvement in terrorist acts against
American citizens. Fayyad was accompanied by Minister of
Justice Ali Khashan. USG participants included Attorney
Adviser JoAnn Dolan, Deputy Assistant Legal Adviser Lisa
Grosh, and Justice Department Senior Trial Counsel Rupa
Bhattacharyya.


3. (C) Fayyad expressed appreciation for USG efforts in these
cases. He candidly said that the previous PA approach to
these cases was foolhardy and had left his government with a
significant challenge. He admitted that he did not have a
team yet within the PA to work the issue, and was forced to
rely on outside consultants and the PA's legal teams in the
U.S. and Israel. (Note: While Fayyad has command of all the
details of the litigation, he had to brief his Justice
Minister - who was clearly new to the issue - on the basics
of the cases at the beginning of the meeting.) Fayyad said
that the judgments in the U.S. had "vastly complicated" PA
efforts to maintain its Pension Fund and conduct other
business, and he claimed that they were forced to manage
transactions in such a way as to limit their exposure to
seizure.


4. (C) Fayyad said that the combination of judgments in the
U.S. and enforcement action in Israel posed "an existential
threat" to the PA. "This is not an exaggeration," he said,
"because in Israel we are not talking just about assets, we
are talking about an ongoing cash flow and the source of our
revenue." Fayyad said that Israel has cooperated closely
with the PA's Israeli counsel in responding to the cases in
Israel, and understood too that successful enforcement action
could "end the whole project." He claimed that Israel has
the ability to do more and should be able to, noting specific
legal action Israel had taken in similar cases in the past.
Referring to a possible GOI action to wall off PA assets from
attachment, Fayyad commented, "As I think about our bilateral
relations, this is the biggest economic favor they (the GOI)
can do for us." Fayyad said that he would engage the GOI
"with more vigor" on this issue in coming weeks. "Official
Israel gets this," he said. He suggested that Israeli action
to protect PA assets "might have a chilling impact" on
current - and potential future - plaintiffs in the U.S.


5. (C) Fayyad reiterated his appeal for the Department of
State to file a Statement of Interest (SOI) in the U.S. cases
in order to get two default judgments vacated. "Because of
our own failure," he said, "we have been deprived of due
process." He admitted that an SOI did not guarantee that the
judgments would be vacated, but "it's the most you can do."
Fayyad said that the failure to issue a SOI would work
against the legal strategy that the PA, at USG suggestion,
has belatedly adopted. The courts, he suggested, might

JERUSALEM 00001795 002 OF 002


interpret the absence of a USG statement as evidence that the
Administration "isn't really interested." Department
lawyers cautioned that while we understood the symbolic
effect a SOI might have in terms of support for the PA, U.S.
courts do not always agree with the USG position in SOIs.
They advised that the Department was therefore looking at
various options that would result in the best possible
outcome, but was not foreclosing the possibility of
appropriate SOIs.


6. (C) Fayyad's main concern is not the threat to assets in
the U.S. controlled by the Palestine Monetary Authority
(PMA),the PIF and the pension fund, calling them "relatively
small and finite." "If I were to know that parting with that
money would end it," he said, "I would not be as worried."
There was, however, "huge operational risk" to the PMA and
the Palestinian banking sector. Judgments in the U.S., he
said, greatly limit the capacity of the banking sector to
function. Fayyad was also deeply concerned about the
contested ownership of the PIF. He said it would be "absurd"
to dismiss the possibility that the plaintiffs claiming
ownership could (and might want to) do significant long-term
damage to the PA by entering into long-term contractual
arrangements that fundamentally undermine the Palestinian
economy. Fayyad said that misuse of the PIF "could be the
instrument of our undoing." Fayyad did not think his lawyers
would be successful in their attempt to protect PIF assets by
arguing that it is distinct from the PA. "Just look at the
PIF charter," he said.


7. (C) Fayyad also noted that he had been approached to
settle on one of the cases, "but it was at too high a cost
and didn't make sense." He said that he had settled one case
in Israel where, as part of the settlement, the PA was
immunized from further suits of a similar nature (related to
insurance claims for stolen vehicles). Fayyad said there was
a "moral hazard" in settling, but if it would significantly
reduce the cost to the PA and "stop the hemorrhaging" he
would consider it. "But large settlements will work against
us, and I would not authorize it - ever."
DUFFY