* Firms run by Abbas's sons won $2 million in U.S. contracts
* USAID says family ties were not a factor in the awards
* Transparency groups criticise USAID for lacking openness
By Adam Entous
RAMALLAH, West Bank, April 22 (Reuters) - Firms run by sons of President Mahmoud Abbas won U.S. government aid contracts to repair roads -- and America's image -- in the Palestinian territories, previously undisclosed documents show.
A review by Reuters of internal U.S. government records about aid programmes in the West Bank and Gaza Strip found that construction and public relations firms managed by Tarek Abbas and Yasser Mahmoud Abbas received over $2 million in contracts and subcontracts since 2005, when their father became president.
Other ventures backed by President Abbas's allies have received loan guarantees, grants and agricultural assistance, the review showed. But U.S. agencies would not disclose the identities of all of the Palestinian firms which have been awarded contracts, grants or guarantees.
The U.S. Agency for International Development (USAID) said Yasser Abbas's Falcon Electro Mechanical Contracting Company and Sky Advertising Company, where Tarek Abbas is general manager, won the contracts through "full and open" competitive bidding.
Family ties were not a consideration, the U.S. agency said.
Likewise, Kareem Shehadeh, a lawyer for Abbas's sons, told Reuters their ties to the president were not a factor, calling any suggestion of favouritism "unethical and baseless".
U.S. support for President Abbas, including hundreds of millions of dollars in aid for Palestinians, and the business dealings of his sons and closest advisers are sensitive issues in the Palestinian territories, where joblessness more than doubled after the outbreak of a Palestinian uprising in 2000.
The sensitivity, and the secrecy, surrounding Washington's role in the West Bank and the Gaza Strip has only been heightened by Abbas's power struggle with the Hamas Islamist group, shunned by Washington as a terrorist organisation.
Hamas won a Palestinian election three years ago in part by tapping into popular anger over allegations of corruption and favouritism under Abbas's long-dominant Fatah faction and predecessor as president, Yasser Arafat.
Reuters has no information suggesting wrongdoing by anyone involved in the USAID contracts. Diplomats said USAID's delay in releasing information requested by Reuters under the Freedom of Information Act may suggest a degree of political embarrassment.
Reuters obtained copies of USAID's two prime contracts with Falcon and Sky but the agency redacted the names of company officials and employees listed on the contracting documents.
In doing so, USAID, which says it is a leader in promoting transparency, cited confidentiality and security concerns.
Dozens of other documents obtained by Reuters detailed how USAID, ahead of the 2006 election, funded projects to promote Abbas's administration without disclosing its role. A 2007 U.S. "fact sheet" described a post-election strategy of providing "targeted, discreet support to emerging leaders, independent media, and selected civil society efforts". Watchdog groups questioned USAID's level of transparency.
"When we're supposed to be promoting democratic ideals and restoring trust and faith in the American system of government, it's ridiculous that the American government isn't releasing complete and accurate contract information," said Scott Amey, general counsel for the Project on Government Oversight in Washington. He called the USAID redactions "disingenuous".
According to USAID documents obtained by Reuters, Falcon signed a 2005 prime contract for a sewage project in the southern West Bank, while Sky launched a PR campaign in 2006 to improve America's image in the Palestinian territories.
The two prime contracts initially totalled $2.5 million, of which nearly $1.9 million was paid out between 2005 and 2008.
Shehadeh said bidding on the prime contract won by Falcon began before Abbas senior was elected president in January 2005.
The total does not include subcontracts, a large portion of U.S. spending in the Palestinian territories. After initially saying the information was not readily available, USAID disclosed nine subcontracts totalling $28,144 for Sky between October 2007 and July 2008 based on a "quick search" of records.
In addition to its prime contract with Falcon, USAID said First Option Project Construction Management Co., another construction firm run by Yasser Abbas, was awarded $296,933 in subcontracts by one of the agency's largest Western contractors in the West Bank, Colorado-based engineering giant CH2M HILL.
First Option's Website lists "Yasser Mahmoud" as its managing director, without mentioning the Abbas family name.
Shehadeh said there was nothing secretive about the USAID contracts and subcontracts, describing Tarek and Yasser, both U.S.-educated, as hard-working entrepreneurs who were trying to help their fellow Palestinians by developing the economy.
He said Yasser, whose ventures in the Middle East run the gamut from construction and cigarettes to life insurance, has lost out on business since his father became president. Tarek, whose business interests span from shopping malls to public relations, has also suffered, the lawyer added.
U.S. officials said there were no rules barring U.S. government contracts from going to the family members of top government officials, including sitting presidents.
"The selection process in both the cases of Sky and Falcon was done in strict accordance with U.S. government contracting rules," Howard Sumka, USAID's local director, said. "At no time was any consideration given to the fact that these firms were in any way associated with President Abbas's sons."
Describing Sky Advertising as the oldest and largest public relations firm in the area, Shehadeh said its selection by USAID "had nothing to do with Abbas being president."
To make that case, Shehadeh noted that Sky had sought additional USAID contracts but did not get them. "We won it fair and square and we lost it fair and square," he said.
Explaining its redactions of the identity of people working with USAID, the agency said revealing their names could expose them to groups in the West Bank and Gaza "including designated foreign terrorist organisations under U.S. law". (Editing by Alastair Macdonald and Dominic Evans) (For copies of contracts and other supporting documents about this series, go to blogs.reuters.com/axismundi)