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Palestinian Authority's US assets are frozen

WASHINGTON -- A Rhode Island lawyer trying to collect a $116 million terrorism judgment against the Palestinian Authority has obtained a court-ordered freeze on all its US-based assets, severely limiting most Palestinian economic and diplomatic activities in the United States at a critical moment for the fledgling government.

The frozen assets include US holdings in a $1.3 billion Palestinian investment fund meant to finance economic development as well as bank accounts used to pay Palestinian representatives in Washington, according to lawyers and court documents filed in Rhode Island, Washington, D.C., and New York. Also frozen are about $30 million in assets from the Palestinian Monetary Authority, the Palestinian equivalent of the US Federal Reserve.

Providence attorney David Strachman, who is representing the orphaned children of a couple killed in Israel by Palestinian militants, has also initiated a court action to seize and sell the Palestinian-owned building in New York that serves as the Palestine Liberation Organization observer mission to the United Nations.

The aggressive collection effort comes as the Palestinian Authority is struggling to create economic opportunity and set up a viable government. Now, Palestinian officials say, the unpaid claim in the Rhode Island court, resulting from a 2004 ruling, threatens to complicate their efforts to become a credible emerging state.

But Strachman said if the Palestinian government wants to show the world that it is turning over a new leaf, it must obey the court's judgment.

''If you are a responsible party or entity or political organization, at the end of the day, you pay your judgment," Strachman said in a telephone interview from Israel, where he was on vacation. ''They have very brazenly refused to pay."

The case puts the Bush administration in the delicate position of giving financial aid and political support to an entity that has refused to obey a US federal court order to pay terrorism victims.

The case has created such a problem for Palestinians that Salam Fayyad, the Palestinian finance minister, recently asked Secretary of State Condoleezza Rice for advice, according to a Palestinian official who asked not to be identified. The State Department could not confirm Fayyad's request last night.

The Justice Department told a court in New York that it will submit next month the US government's position about the PLO mission in New York, but it is unclear how much help the Bush administration can or will offer.

''For the administration, it's difficult," said one Palestinian official speaking from Gaza, who asked not to be identified because of the sensitivity of the case. ''Right now, they are trying to figure out a creative way to deal with it without embarrassing anyone."

Palestinian officials have refused to pay the claim, arguing that doing so would be a politically dangerous admission of responsibility for terrorist acts by militants that the Palestinian Authority contends it does not control. Three officials interviewed by telephone from Gaza and the West Bank say they fear setting a precedent that would spur an avalanche of lawsuits that could bankrupt the new government. At least four other lawsuits involving deaths of US citizens in Palestinian attacks are pending in US courts.

But Strachman said that the Palestinians have billions in overseas banks, and that they are exaggerating the hardships that would be caused by paying the judgment.

The case is the first to result in a financial judgment under a 1991 antiterrorism law that allows US citizens to sue foreign organizations in civil court for terrorism. It stems from the 1996 murders of Brooklyn-born Yaron Ungar, a US citizen, and his pregnant Israeli wife, Efrat, whose car was sprayed with bullets by Hamas militants. Those convicted of the crime were found to be carrying uniforms issued by the Palestinian Authority, according to Strachman, who was appointed by an Israeli court to represent the couple's relatives.

In 2000, he filed a civil suit in Rhode Island, his home state. He sued Hamas, as well as then-Palestinian leader Yasser Arafat, the Palestinian Authority, which Arafat headed, and the PLO on the grounds that they had encouraged Hamas. Arafat hired Ramsey Clark, the former attorney general, who argued that the Palestinian Authority is a sovereign state, and deserved immunity from prosecution granted to most countries.

Last year, the court ruled that Palestine is not a state, and that Hamas, the PLO, and the Palestinian Authority owed the Ungars $116 million. In March, a federal appeals court upheld the verdict.

In April, Strachman obtained a court order to freeze all the Palestinian government's assets in the United States, the first step to collecting by force. Since then, Strachman has been sending the court order to every US financial institution where the Palestinians might hold funds. Court proceedings are pending across the country to determine if the frozen assets truly belong to the Palestinian Authority or the PLO and should be handed over.

Since Arafat's death last year, a more politically savvy generation of Palestinian leaders has stepped up the legal battle for release of the assets, using more traditional arguments. Lawyers are arguing in a New York court that the Bank of New York should release $30 million in assets on the grounds that the Palestinian Monetary Authority is an independent entity. In another action, lawyers are using a UN agreement with the United States to fight the move to sell the PLO mission.

But the largely unpublicized court fight for the assets has taken a major toll, Palestinians say.

George T. Abed, the governor of the Palestinian Monetary Authority, wrote in an affidavit to the court in June that the freezing of Palestinian Monetary Authority assets had forced a halt of all Palestinian dollar transactions through the United States and could ''cause a banking crisis in the Palestinian territories with possible fallout elsewhere in the region." The Monetary Authority provides financial backing for banks in Palestinian territory.

The unpaid claim has also brought a diplomatic price. It has frustrated Palestinian efforts to send a new ambassador to Washington because the envoy would have no functioning bank account, according to two of the Palestinian officials based in the West Bank.

Staff at the PLO mission in Washington have not been paid for three months, according to Said Hamad, a senior member of the PLO mission in Washington.

''Unless the mission is able to use these funds, . . . it will be necessary to close the mission with attendant injuries to Palestine and its people and negative consequences to peace in the Middle East," Clark's legal team wrote in a motion earlier this month.

Court documents show that the Bank of New York has halted money transfers to Palestinian missions in Ukraine, Guinea, Indonesia, Pakistan, the Ivory Coast, China, Bulgaria, Norway, Pakistan, and Colombia, as well as New York, because of the court order.

The case could also hamper US government aid. Last month, the US government's Overseas Private Investment Corporation voted to contribute $110 million to a project that would give loan guarantees to small businesses in Gaza. But the Palestinian Investment Fund -- whose US assets have been frozen by the court order -- is required to make a substantial contribution of its money as a condition for launching the project.

A State Department official who asked not to be identified said the lawsuit had not yet prevented US aid from flowing to the Palestinians, but that he did not know whether it would be an obstacle.

Representative Anthony Weiner, a New York Democrat who is also running for mayor in New York City, has called for the US government to halt aid to the Palestinian Authority until the claim is paid. ''If they wish to continue receiving checks from the US government, the Palestinian Authority needs to pay the Ungar family what they are owed," Weiner said in a statement last week. ''We must make sure this ruling is enforced to make sure that there is accountability."

Palestinians say that Strachman is going after the very funds that have recently been made public in celebrated reforms meant to curb corruption and terrorism funding. But Strachman and his legal team say they should stop making excuses and pay.

''We're looking for money," said Robert Tolchin, a New York-based lawyer working with Strachman. ''If you create a cost for doing wrong, people will be motivated to stop doing wrong."

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