A major corruption scandal involving the smuggling tunnels between Egypt and the Gaza Strip is making waves throughout the Strip.

The affair began shortly before Israel's incursion into Gaza in December, when tunnel owners affiliated with the ruling Hamas party offered Gazans an opportunity to invest in the goods smuggled through the tunnels. It was a good investment, they argued, because goods bought in Egypt can be sold in Gaza for two or three times their purchase price. To market their proposal, they hired salesmen who solicited investments from thousands of Gazans, primarily prominent businessmen.

The owners of the tunnels, which are located in the town of Rafah, on the Gaza-Egypt border, raised millions of dollars. Because the smuggling operations had the approval of Hamas, they proceeded without hindrance, and the scheme initially paid off handsomely.

The tunnel owners then hired more salesmen to solicit investments, and new investors joined every day. Imams even used their pulpits in the mosques to tell people what a good business proposition this was. Many people ultimately invested all their savings, even borrowing money from friends and relatives in order to invest.

Soon, the smuggling profits proved insufficient to pay off all the investors. At that point, the tunnel owners began operating a classic Ponzi scheme: They used money from new investors to cover the shortfall in the smuggling profits and enable them to pay off the old ones...