Life savings sucked into black hole of tunnels

Jawad Tawfiq, a 52-year-old Gazan actor and director, was dubious at first, but his nephew insisted. If they could scrape together enough money, the nephew said, large profits could be made from investing in the tunnels beneath the Egyptian border.

"They were liars," Tawfiq said bitterly. "They took my money to put in their own pockets. And we are being offered a fraction of what we gave them."

At first the tunnels emerged as smuggling routes; then they became the vital lifeline for a Gaza under economic siege by Israel. But many people who invested in the tunnels now see them quite differently - as a source of ruination.

The tunnel schemes were advertised as opportunities for doubling and trebling money by unscrupulous figures linked to powerful businessmen in Gaza and, allegedly, to senior officials in Hamas, but have instead led to huge losses for ordinary residents of the Strip.

According to Hamas's Economics Minister, Ziad al-Zaza, whose office is investigating the issue, US$100 million ($159 million) has been taken fraudulently from would-be entrepreneurs. Others suggest the figure could be closer to US$500 million.

The hitherto untold story of the Gazan tunnel scam is notable for being self-inflicted and particularly depressing for a beleaguered population.

As Omar Shaban, an analyst from a thinktank, said: "The harm done to Gaza goes well beyond the savings lost in the investment schemes. The tunnels distort Gaza's social structure. They destroy the values that a state requires to function."

What comes through the tunnels is what keeps Gaza afloat economically.

Metal ladders lead down to sandy tunnels through which are winched bags of cement, cigarettes, cheese, children's bicycles and car parts. Even herds of cattle are led through the larger workings.

It is easy to see the smuggling routes as a heroic resistance to a crippling economic blockade. But many Gazans now reject the tunnels' status as an indispensable lifeline. In the most recent incident, investors in a tunnel scheme being promoted by one Ihab al-Kurdi were informed their money was "gone" - without explanation. They were pressured last week into signing confidential contracts with Kurdi's "company" offering them 16.5 per cent of the money they put in, in exchange for not complaining, an offer many investors felt they could not refuse.

If Jawad Tawfiq has not been bankrupted, his frightened neighbour, who asks to be identified only as "Umm Mohammed", is in a different situation. She sold all her gold and jewellery, which she had bought after working abroad, to add to a pot of money collected by her family, totalling US$17,000. Now she will also have to find money to repay what she borrowed from her son's fiancee.

"I trusted them," she said last week. "The middleman we dealt with seemed so honest. He was a religious man. I lost everything and now I'm poor."

It has not only been Tawfiq and his neighbour who have lost out. The same stories are being repeated from Gaza City down to Khan Younis and up to Beit Hanoun: of people who sold their houses and cars, borrowed against dowries and from relatives to invest in tunnel schemes and got burnt.

The victims name two companies run by Wael al-Rubi, in addition to that of Kurdi, as being the major movers behind the tunnel schemes, names confirmed by Zaza as being under investigation. While neither of these men was well known in Gaza business circles before the launch of the schemes, the men who sold the investments on their behalf were representatives of well-known merchant families.

"The tunnels are the worst thing that ever happened to Gaza," said Tawfiq. "It has poisoned it. It has turned Gaza into a prison economy. And for what? For chocolate and bicycles."

What led to the catastrophic losses for many Gazans is difficult to unravel. But some, including Zaza, insist the investment schemes, launched before Israel's assault on Gaza in late December and January, were a criminal scam from the start.

Investors and tunnel operators interviewed by the Observer describe a shadowy network of relationships between a number of businessmen, including some Hamas officials, all taking their cut. Many victims describe how a relative had recruited other family members and friends to a kind of pyramid venture. What is certain is huge sums of money were raised before the project mysteriously imploded, ruining many of the investors.

While Hamas, through Zaza, denies it was ever involved, he did say some of those involved in the investment "mirage" used their proximity to senior Hamas figures as a cover for what was little more than "robbery".

"Hamas had no relation to the scheme. It is a fantasy," Zaza said. "Kurdi said he had good relations with people in government, but what they were selling was a lie." But if the schemes run by Kurdi and Rubi were elaborate cons, the relationship between Hamas and the investment schemes is not quite as clear-cut as Zaza describes it. Indeed, one Gaza family that invested heavily in Kurdi's tunnels scheme was the Deri clan, a family with a involvement in Hamas's military wing, which reputedly lost US$3 million, and allegedly kidnapped Kurdi to get its money back.

Zaza said that some of the money had been recovered but he was unable to say what had happened to the majority of the cash.

The Observer has established that some money has been funnelled into charities and a religious foundation as a cover. Other money, it appears, was diverted to officials, while large sums were spent on houses, cars, land and other luxury items.

And while Zaza has calculated the money taken from investors at about US$100 million, Shaban believes the cost of the tunnels scam is far higher. "You see people becoming millionaires in two or three weeks."

On the border, tunnel operators - largely Rafah families - give accounts that corroborate the involvement of Hamas in the genuine tunnels. They describe paying taxes of 15-20 per cent to Hamas to operate their often lethal ventures. But they deny, however, that the fake investment schemes ever had anything to do with real tunnel operations.

The operators also speak of corrupt Hamas security officials who have become wealthy by turning a blind eye to some of the more questionable goods coming under the border.

They tell the story of the "princes of the tunnels", the nickname for three Hamas men they say became hugely rich from their involvement, who brought through cars in pieces for themselves.

One tunnel operator says: " Hamas figures invested in some of the tunnels. They have their own one for moving money and wanted people, but no one is supposed to talk about that. People thought they could make money out of it. And people got greedy."

DIGGING DEEP

A big tunnel costs US$120,000 ($190,000) to construct and run.

An average-size one that is little more than a crawl-way costs about US$90,000.

Then, in addition to the taxes, a tunnel owner must pay US$3000 for a permit from the municipality.

On top of that, there is the blood money for the families of the children and youths who are killed in the use of it.

- OBSERVER