The arbiter is supposed to add time to the clock of the claimant but I dont believe he should also subtract from the offender. Illegal moves are often punished in this way..... by adding time to the opponents clock. ( usual is 2 or 3 minutes added )
what does the rules say?

If the one who made the illegal move had 3 min, or more , the arbiter should subtract 2 minutes from his time but they are NEVER to add to ones time AND subtract from the other's as well. If the arbiter did both he is wrong and there should be a written protest made to FIDE. If the player who made the illegal move has under 3 min left the arbiter should add time to his opponents clock. Usual is 2 or 3 minutes.

Ya, i guess most of these rules are not that rigid? The arbiters discretion can't be ruled out right?

IN the case given by the OP the arbiter clearly did wrong in that he added time to one player AND subtracted from the other. The arbiter is never supposed to do both.

An IA here in Portugal said the hardest thing about being an IA is having to know how to set ALL the digital clocks out there ! LOL I know from experience that often the players do not know how to set the clocks in use and have to ask the arbiter to do it or a neighboring player......

The funny thing is, it specifically states in the USCF handbook that the TD is not required to know how to set clocks, but it's strongly recommended that he learn how to do so.
Heck, I found reading manuals on operating nuclear reactors more lucid than trying to figure out how to program my chronos for classical time controls with a delay.

The funny thing is, it specifically states in the USCF handbook that the TD is not required to know how to set clocks, but it's strongly recommended that he learn how to do so.
Heck, I found reading manuals on operating nuclear reactors more lucid than trying to figure out how to program my chronos for classical time controls with a delay.
I am speaking of FIDE arbiters . IA = International Arbiter ( FIDE ) The requirements for FIDE and USCF are not the same, we need to keep that in mind.
However, for a tournament to be FIDE rated the rules followed must be those of FIDE.

You're correct Reb, I don't know enough about FIDE rules to speak confidently, but I DO happen to have a USCF handbook at my side that lets me feel comfortable in posting their rules.
I'm not sure I want to take my TD levels far enough to become an arbiter, though there's only one event within 500 miles that might be big enough to require someone to be an arbiter.
I was playing in an OTB rapids tourney at the weekend and a controversy issued at the table next to me.A player playing in the masters category mistakenly played his king into checked position and pressed his clock thereby completing his move.The other player protested and the arbiter subtracted 2 minutes from the offenders time and added to the claimants time.The offender had 3.08 minutes on his clock while the claimant had 8 seconds left. I thought it was absurd for the arbiter to do that. The claimants 8 seconds wouldn't have been enough to win the game but he finally won because of the arbiters decision. What does the rule say concerning this type of scenario?