Corruption: The enemy within

BySHLOMO MAITAL
August 25, 2017 23:46

In Israel, there may be some highly visible bribery cases now undergoing police investigation, but the bright side is that the offending crooks generally go to jail.




WILLIAM F. BROWDER

WILLIAM F. BROWDER speaks at the 2011 annual meeting of the World Economic Forum in Davos, Switzerland.. (photo credit:COURTESY WORLD ECONOMIC FORUM)

I’M FORTUNATE to meet and greet many foreign visitors who want the recipe for Israel’s start-up creativity. Recently, I spoke with a group of business school faculty members from one of the three small Baltic countries. These northern European nations – Estonia, Latvia and Lithuania − were once part of the USSR and have first-rate universities with strong science departments.



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Estonia, for example, has a superb computer science department, among the best in the world, at the University of Tartu. This university dates back to the 17th century. Its excellence in computer science is owed in part to the USSR’s paranoia. Because Soviet leaders believed that computers and software were Western, subversive and dangerous, they banished the study of them to the Baltic periphery.

Skype, the global communications application, was invented by three Estonians, along with a Swede and a Dane. Although now owned by Microsoft, nearly half of its employees are located in Tallin, Estonia’s capital.

I asked the visitors why their own country’s fine science and engineering departments do not generate loads of start-ups, as Israel does. Their answer was a single word: corruption. Would you work 24/7 for years to build a company, only to have it stolen by corrupt officials? they asked. Who would bother?

This partly explains why today’s Russia lacks a thriving hi-tech start-up industry, even though Russia sent Israel a million well-educated people in the 1990s, who fueled Israel’s hi-tech boom.

Corruption smothers entrepreneurial energy – and Russia is corrupt to the core. We know this because Russia ranks a lowly 131 (of 176 countries) in Transparency International’s 2016 Corruption Perception Index (CPI), which measures the degree to which experts perceive that a country is free of corruption – and in this case, perception is reality. If investors, multinationals and ordinary people think a country is corrupt, that will deter them from doing any business with it.

Israel, by the way, ranks 28 in the CPI – worse than the 16th place it held in 2001, but far better than 39th in 2012. That huge drop from 2001 to 2012 reflects, in part, then-prime minister Ehud Olmert going to jail for the Holyland boondoggle. For those who are curious, the world’s least corrupt country is Denmark, which has been tops for several years.

The case of Bill Browder and his investment fund Hermitage is informative. Browder, who is Jewish-American, founded the Hermitage Capital Management investment fund, once the largest foreign portfolio investor in Russia, together with banker Edmond Safra. During Russia’s wave of privatization of state-owned firms in the 1990s, Browder spotted an opportunity and bought shares of privatized Russian companies.

Later, Browder began to expose management corruption in these firms. He explained, “You had to become a shareholder activist if you didn’t want everything stolen from you.”

IN 2006, the Russian government blacklisted Browder and called him a “threat to national security.” Browder, indeed, threatened Putin’s security by criticizing corporate raiding, in which the Russian government typically (and “legally”) seized companies and assets aided by corrupt judges and police.

Browder and Hermitage were accused of tax fraud. This was the same charge Putin used to jail and destroy Mikhail Khodorkovsky, an opponent, whose energy company Yukos once made him Russia’s richest person, with assets of $15 billion.

Browder’s lawyer, Sergei Magnitsky, was arrested, and on November 16, 2009, he died in jail under suspicious circumstances. His death and a Browder campaign led to the US Congress’s Magnitsky Act in 2012, which prohibited Russian officials directly involved in this sordid affair from entering the US or using its banking system.

This Act has personally riled Putin because it harms a few of the tycoons close to him and, thus, harms him, too. The controversial meeting between Donald Trump Jr. and Natalia Veselnitskaya, a lawyer with close Kremlin links, apparently was part of Putin’s efforts to get the Magnitsky Act repealed.

Is Israel corrupt? A few years ago Transparency International surveyed Israelis and found that protekzia, slang for favoritism, or getting help from those you know in high places, is alive and well. Some 80 percent of Israelis believe that personal contacts are important or very important in getting things done in the public sector. Only Lebanon, Ukraine and Russia match this percentage.

The same survey found that Israel was second only to Greece among OECD nations in the perception that “government is run by a few big interests” ‒ a sign, according to Transparency International, of “deep-rooted failures of governance.”

On the other hand, the same survey found that Israelis are willing to take the fight against corruption into their own hands.

So, there may be some highly visible, disturbing bribery cases now undergoing police investigation, but the bright side is that the offending crooks generally do go to jail. In Russia, Brazil and Ukraine, this has often not been the case.

Wikipedia, the online encyclopedia, has a list of Israeli public officials convicted of crimes or misdemeanors. The list includes a president (Moshe Katsav), a prime minister (Ehud Olmert), nine ministers (Aharon Abuhatzeira, Shlomo Benizri, Arye Deri, Tzachi Hanegbi, Avraham Hirschson, Yitzhak Mordechai, Rafael Pinhasi, Haim Ramon and Gonen Segev), a dozen Knesset members and two mayors (Zvi Bar and Uri Lupolianski).

So, perhaps, there is some comfort in knowing that while the number of cases of corrupt officials has risen alarmingly, the diligence of those whose job it is to catch crooks and prosecute them is also growing. Israel may have more crooks than ever, but they do seem to get caught – unlike many other countries, where corrupt officials shelter under the umbrella of the nation’s political leadership and share the wealth with it.

Transparency International’s website observes that “cases like Petrobras and Odebrecht in Brazil or the saga of ex-president Viktor Yanukovych in Ukraine show how collusion between businesses and politicians siphons off billions of dollars in revenue from national economies, benefiting the few at the expense of the many. This kind of systematic grand corruption violates human rights, prevents sustainable development and fuels social exclusion.”

BRAZIL IS a poster boy for the dangers of endemic corruption. Former president Luiz Inacio Lula da Silva, six years after leaving the presidency as a highly popular figure, faces prison after a criminal conviction. Dilma Rousseff was removed as president amid a corruption scandal, and the current president, Michel Temer, also has been charged with corruption.

In Portuguese, there is a saying “Rouba mas faz” meaning, “He steals but he gets things done.” This has been part of Brazil’s culture for decades, but its judiciary is now ripping apart that corrupt system.

Here, at home, a whiff of corruption is now rising right to the top as four corruption cases surround Prime Minister Benjamin Netanyahu.

In Case 1000, Netanyahu is suspected of accepting gifts from billionaires Arnon Milchan and James Packer in the form of cigars, champagne and jewelry in return for acting on their behalf.

Case 2000 features recorded tapes in which Netanyahu negotiates with Arnon (Noni) Mozes, publisher of the daily newspaper Yedioth Ahronoth, for more favorable coverage, in return for legislation that would diminish Israel Hayom, the freebie competitor of Yedioth funded by American billionaire Sheldon Adelson.

Case 3000 involves the purchase of submarines from a German company, Thyssen-Krupp. Attorney General Avichai Mandelblit ordered the Israel Police to investigate this matter in November 2016.

Netanyahu’s confidant, lawyer David Shimron, was the Israeli counsel for ThyssenKrupp. Netanyahu and Shimron allegedly pressed for canceling the tender bidding process on the sub deal, valued at billions of dollars, in order to give it directly to the Germans. Michael Ganor, who was ThyssenKrupp’s Israeli representative, has now signed a deal to turn state’s witness.

Ganor was suspected of money laundering, bribery, conspiracy and fraud; he will spill the beans, in return for one year in jail and a $10 million fine. Former Israel Navy commander Maj.-Gen. (res.) Eliezer Marom is also a suspect. I have heard that Ganor may incriminate a submarine-full of crooks, as many as 40 or 50, who were on the take.

Yesh Atid founder and head Yair Lapid has called the submarine scandal the “worst graft case in Israeli history,” and casts doubt on Netanyahu’s claim not to have known of Shimron’s role in the deal.

“Funds from the Israeli defense establishment went out of the country into a bank account in Germany,” Lapid told the daily Haaretz, “from there into a secret bank account in Germany, and then back to Israel and into the private pocket of the Israeli prime minister’s lawyer, best friend and political representative.”

CASE 4000 claims Netanyahu, not a suspect in this case, failed to disclose conflict-of-interest information about his friendship with Shaul Elovitch, who has a small but controlling interest (9%, after you work through the pyramid) of Bezeq, the telecom giant once government-owned and now privatized.

Through a pyramid of companies, Elovitch allegedly illegally milked Bezeq of profits – Bezeq gobbled up 96% of the entire telecom industry’s profits in 2015.

State Comptroller Yosef Shapira wrote that he suspects former Communications Ministry director general Shlomo Filber, a Netanyahu confidant and former head of the Likud Party Central Committee, of leaking ministry documents to Bezeq and possibly changing ministry policies in Bezeq’s favor as a sort of Bezeq mole inside the government.

Internet speed in Israel is half that in Korea. One reason is that Bezeq has poured its profits into Elovitch’s pockets so he can pay back the money he borrowed to buy control of Bezeq, instead of investing in badly needed communications infrastructure.

Israel lives in the highly unstable Middle East and faces a variety of external threats, mainly from Iran and its surrogates, but the biggest existential threat by far is from within.

I recall a comic strip character, Walt Kelly’s Pogo, who once announced memorably and ungrammatically in the strip: “We have met the enemy – and they is us!” Our enemy is us, indeed. And not just dissension between the political Right and Left, or secular and religious – but between those who work hard to make an honest living and those who exploit political power to steal and plunder the public coffers.

Civil society is built on trust in those elected to run our affairs. Destroy that trust and you destroy the foundations of a thriving modern economy. If people believe their leaders make decisions based on how to line their pockets, rather than for the greater good of the people, the foundations of democratic society crumble, and with them the orderly growth and dynamism of the economy.

Let’s hope the deterrent effect of Cases 1000, 2000, 3000 and 4000 herald a new era of clean, honest government, so that Case 5000 will never occur.

The writer is senior research fellow at the S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com

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