Millions in EU aid destined for Palestinians paid in bank charges

More than a million euros of EU aid money to the Palestinians is being paid to the HSBC Bank every month, it was disclosed yesterday, as agencies accused authorities in Brussels of an "aid fiasco".

Oxfam said that Europe's efforts to bypass the Palestinian Authority had cost it €3m (£1.9m) in bank charges last year - and that HSBC had received money through levying the fees for transferring allowances to more than 140,000 Palestinian workers and people on low incomes.

Last night the European Commission said that the bank's services were needed to deliver money swiftly and directly to those in need without recourse to the Palestinian Authority, and to ensure that none of the cash was given to those on terrorist lists.

The election of a Hamas-led government plunged the EU into a crisis over how to continue to help the Palestinian people without funnelling cash through the authority. Because Hamas has refused to accept three principles laid down by the international community, including the existence of Israel, the new mechanism was set up last June to bypass the government.

Oxfam said that, based on recent documents from the EU, it calculates that between August and December 2006 the EU spent €3,246,472 on bank charges to transfer allowances to more than 140,000 Palestinians. For each transfer HSBC receives €8.

Barbara Stocking, Oxfam's director, said: "It's a fiasco that HSBC is being paid to act as a middle man. European states are wasting millions of euros of aid to Palestine through this bureaucratic scheme. The way that European aid is currently being delivered is undermining Palestinian basic services and damaging a highly fragile economy."

Emma Udwin, spokeswoman for the European Commission, said that around €3m had been charged by the bank but that this represented about 4 per cent of all costs - well below a maximum ceiling of 7 per cent. She argued: "We cannot have business as usual with a Palestinian authority which doesn't reflect the three principles.

"We want to continue to help the Palestinian people who are in great need at the same time as sticking to our principles."

The UK's Department for International Development said the bank charges reflected the fact that a payment "goes through five different counter-terrorism checks, thereby safeguarding taxpayers' money."