Public companies in Palestine (2): the case of the non-banking financial sector

In a previous article numbered (1) in a series of articles addressing the public and private shareholding-company sector in Palestine, proceeding from its importance in development and in modernising Palestinian society and joining it to the caravan of civilisation, I said that the Israeli occupation placed obstacles and impossible requirements before the founding of shareholding companies, whether public or private, with the aim of keeping the Palestinian economy small, family-based and limited, easy to break, and preventing the Palestinians from working and thinking as a collective. I also said that with the founding of the Palestinian National Authority in 1994 a fever of founding shareholding companies, whether private or public, spread in all fields of investment, on the part of businessmen who had acquired sufficient experience and knowledge of this type of company as a result of their work around the world, especially in the Gulf, and who moved with accelerating steps to found private and public shareholding companies, benefiting from the newness of the Authority's age and the weakness of its experience in the field of oversight of companies and also in drafting the laws and decrees governing the establishment and work of private and public companies. Many shareholding companies were founded in the fields of insurance, mortgage and banking; huge economic sectors were privatised such as fixed and mobile telecommunications; long-term monopoly contracts were awarded in the fields of energy and electricity; the contract for supplying petroleum and gas from Israel to the Palestinian territories with the Israeli Dor company; the contract for exploring for Gaza's gas with the British company British Gas and the agreement to sell it to Israel later; as well as the management of the liberated lands in the Gaza Strip shortly after the Israeli withdrawal in 2005; and the founding of the Palestine Investment Fund and many other contracts and companies — all this before the completion of, or in the absence of, the legal and legislative infrastructure regulating the work of these companies and before the maturing of societal and cultural awareness about them. And although some components of the legal environment regulating this sector were later established through the founding of the Capital Market Authority, the Palestine Monetary Authority and other official institutions authorised by law to regulate the work of these companies and to oversee them, in the field of public and private shareholding companies what is left unsaid is still far greater than what is declared:

The Palestine Capital Market Authority and the Palestine Exchange

One of the examples of this is the securities market company, which was founded in Nablus as a private shareholding company in 1996 and began its first sessions in February 1997, that is, only one year after the organisation of the first legislative elections in the Palestinian territories and before this Legislative Council was able to accumulate the experience necessary to deal with such complex structures. Meanwhile the Palestine Capital Market Authority was established by a law issued by the Palestinian National Authority as a body entrusted with supervising and overseeing the financial institutions, among them the securities market, in 2004, that is, eight years later. In other words, the securities market and many other private shareholding companies in the fields of insurance, mortgage and others continued to operate without sufficient legal oversight for several years. According to what the law establishing the Capital Market Authority no. (13) of 2004 stipulated, the Capital Market Authority aims to create the appropriate climate for achieving the stability and growth of capital, as well as regulating, developing and monitoring the capital market and protecting the rights of investors. The Capital Market Authority is entrusted with supervising:-

• The securities market

• Insurance companies

• Financial leasing companies

• Mortgage companies

It is not established how the Palestine Securities Company was granted the concession to operate the Palestinian capital market without this being done through a public tender allowing the opportunity of participation to other individuals and companies; nor is there anything to indicate the financial value the capital market company paid to the Palestinian National Authority in return for this licence, the duration of the concession granted to the company, when it is renewed and at what value, and whether it is a fixed value or changes annually, and why the Palestinian National Authority did not hold a share in it!!! And more important than that, what are the legal, financial and economic justifications for granting a concession of a monopolistic character in a strategic field such as the capital market to a private company, and under a newborn political and constitutional system!! It is worth mentioning that the Palestine Securities Company has for several years continued to announce its desire to convert into a public shareholding company and open subscription in its shares to the public, without this having yet been realised. The Palestine Exchange company is run by a board of directors made up of 7 persons, namely:

1. Dr Rami Hamdallah, chairman of the board of directors and president of al-Najah University

2. Dr Farouq Zuaiter, deputy chairman of the board of directors

3. Mr Ziad al-Turk, board member

4. Mr Samir Hulileh, board member

5. Dr Bassem Khaled Makhoul, board member

6. Mr Roman Matthew, board member

7. Al-Sanabel Trading and Investment Company, board member

Some of the gentlemen among the board members hold administrative and executive posts in other companies, reaching in some cases eight posts; and among them are those who manage or are members of the board of directors of private or public companies whose shares are listed for trading on the capital market, which represents a dangerous overlap between the role of the supervisor and the role of the supervised, weakens the standing of oversight and strikes at the principle of equal opportunity among the listed companies.

Meanwhile the Palestine Capital Market Authority, the institution entrusted with supervision and follow-up, is run by a board made up of (6) persons, which constitutes a violation of the basic law that requires 7 persons to run the Authority. They are:

1. Maher al-Masri, chairman of the board of directors.

2. Mr Nasser Tahboub, deputy chairman of the board of directors and delegate of the Ministry of Economy.

3. Dr Jihad al-Wazir, delegate of the Palestine Monetary Authority.

4. Mrs Mona al-Masri, delegate of the Ministry of Finance.

5. Mr Nabil Abu Diab, delegate of the Palestinian banks.

6. Mr Aziz Abdel Jawad, delegate of the listed companies.

And while the Arab and international financial markets usually witness multiple crises and disputes between the listed companies, the supervisory bodies and the financial brokerage bodies, especially in recent years with the international global crisis, we find that the relationship between the Palestine Exchange and the Capital Market Authority appears entirely harmonious and is not marked by any dispute, contrary to what is expected and familiar between two institutions governed by a relationship of supervision and oversight. The New York Stock Exchange, the largest and most regulated in the world, lived through the Madoff crisis, which was uncovered at the end of December 2008. Madoff, who worked at the New York City exchange and occupied senior posts in it, was able to deceive the greatest companies in the world and major billionaires whom you could not imagine it possible to deceive, such as al-Waleed bin Talal; Madoff was able to steal 50 billion dollars during ten years of his work at the New York exchange. Meanwhile, since the founding of the market in 1996 and of the authority supervising it in 2004, no cases of significance have been uncovered, except when the news circulated at the beginning of 2008 about the Capital Market Authority's intention to dismiss, or about the resignation of, the chairman of the board and chief executive of the securities market, Dr Hassan Abu Libdeh, against the background of unconfirmed reports of manipulation of shares and collusion with businessmen in deals worth several million dollars.

Dr Abu Libdeh left his post at that time without denying or confirming such reports. It is worth mentioning that the Palestinian al-Quds newspaper published in its issue of Tuesday 12 February 2008 under the headline “Dr Abu Libdeh criticises the performance of the Capital Market Authority” the following: At the workshop organised by the MAS institute in Ramallah in February 2008, Dr Hassan Abu Libdeh called for the necessity of making changes at the Capital Market Authority, including its chairman and its board of directors, because of the Authority's great failures in all fields of its work and tasks, noting that it still obstructs the law that obliges public shareholding companies to list on the financial market. He addressed the existence of a great flaw in the non-listing of these companies, attributing that to the Authority, which bears responsibility for it, attacking it because it has not taken any practical step in putting in place the regulations governing the licensing of investment funds, and in implementing the law on the listing of public shareholding companies, and that it still obstructs the law even though it is the body that is supposed to be keen on implementing it. Abu Libdeh stressed that there is an enormous flaw in the non-listing of these companies, saying that every public shareholding company not listed on the financial market is a company operating in the shadows, and that the Capital Market Authority has not made a single effort to conclude a single agreement with any Arab or international body, and that the head of the national governance committee and the Authority will not be able to carry out implementation and promotion so long as the governing regulations remain absent. “End of quotation”.