State of Corruption

As embattled Prime Minister Ehud Olmert contends with a corruption investigation and a slump in the polls, some experts contend that Israel in not particularly corrupt

01toc (do not publish again) (photo credit: Flash 90)
01toc (do not publish again)
(photo credit: Flash 90)
Cover story in Issue 4, June 10, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Report click here. In mid-May, as a new police investigation into suspected corruption by the prime minister deepened and the rumblings in his Kadima party spread, Ehud Olmert found himself fighting for his political life. In the latest of a number of corruption scandals in which his name has cropped up, he is being investigated for allegedly receiving hundreds of thousands of dollars from an American fundraiser, either in violation of campaign donation restrictions or as plain bribes. The new affair broke as Olmert prepared to celebrate Israel's 60th anniversary with an impressive array of world dignitaries including U.S. President George Bush. Despite the allegations and the talk of his imminent political demise, Olmert handled himself with great aplomb. No one could tell by his public demeanor that it was raining heavily on his parade. Besides Olmert, four cabinet ministers, eight Knesset members and nine mayors are under investigation, on trial or facing imminent indictment on a wide range of corruption charges. The big political question is whether Olmert can survive as prime minister, but the fact that so many public figures are in trouble raises issues that go beyond Olmert's political future: How widespread is public corruption in Israel? How does Israel compare with other countries? And what can be done to raise ethical standards in public life? Ever since police questioned Olmert about the latest suspicions in early May, Kadima party HQ in Petah Tikva has been a hive of activity. Three days after the news broke, Olmert told the nation in a hastily arranged television address that he had never taken bribes. Party activists convened to express solidarity with their embattled leader. But that well-orchestrated gathering was a fleeting aberration. Since then, dozens of party members have been turning up at the party offices every day, not to express solidarity but, on the contrary, to talk about a successor. Supporters of Transport Minister Shaul Mofaz emphasize the former chief of staff and defense minister's security credentials; Interior Minister Meir Sheetrit's people talk about his natural talent and wide experience. But the clear front-runner is Foreign Minister Tzipi Livni. Though both camps slam her relative inexperience, polls show she is the only Kadima leader - including Olmert - who could win a general election. She's been criticized for being the only one not to wish the prime minister well or express the hope that he be cleared of the allegations against him. But it's clear that by distancing herself from Olmert, Livni is seeking to enhance her reputation for integrity and zero tolerance for corruption - an image that could serve her well in the next general election, which pundits predict will place the fight against graft high on the agenda. He has survived a number of probes in the past, but there are still five investigations pending, and the latest case does not look good for Olmert. According to leaks from the police investigation, he is suspected of having received hundreds of thousands of dollars, much of it in cash, over a 13-year period between 1993 and 2006 from Morris Talansky, a wealthy 75-year-old Long Island-based financier and fundraiser. Both Olmert and Talansky claim the money was for Olmert's various political campaigns: for mayor of Jerusalem in 1993 - when he defeated the legendary Teddy Kollek - and 1998, when he won reelection; in a primary for Likud party leader in 1999 - which he lost by a long way to Ariel Sharon; and in primaries for a place on the Likud Knesset slate in 2002. The police are pursuing several lines of inquiry, armed with evidence obtained from Talansky, from Olmert's one-time law partner Uri Messer, and from appointment schedules kept by Olmert's long-serving office manager Shula Zaken (herself a suspect in another corruption case, involving allegations of illegal tax concessions for cronies). Among the questions investigators are looking at are: Were the sums within the prescribed limits for the various campaigns? Was all the money declared in the campaign records as required by law? And, if not, what happened to the funds that were not declared? Olmert could be in trouble even if he did not take bribes. It could be enough to show that he knowingly breached campaign funding regulations to lead to an indictment that would force his resignation. Ariel Sharon's son Omri, a former Knesset member, is serving a jail term for violating these campaign funding laws, which are complicated and in a constant state of flux. Donations are limited to relatively small sums by individual donors and there is a ceiling on the amount that can be spent in total for any one campaign. But the figures keep changing and are different for different types of campaign - municipal elections, national elections, internal party primaries for Knesset candidates and internal party primaries for party leaders. And there is a catch. The limits on campaign donations only apply to the last nine months before an election. There are no limits on donations made between elections before the final nine-month run-up. President Shimon Peres, for example, received donations of $100,000 each from Swiss-based businessman Bruce Rappaport and Hollywood magnate ex-Israeli Haim Saban, and $120,000 from S. Daniel Abraham of Palm Beach, Florida for the Labor party leadership primaries in 2005; but although the funding was well over the prescribed limits, Peres was able to show that he received the funds before the critical nine-month period, that he registered all the donations and then used the money for campaign purposes. The Peres case sheds light on Olmert's predicament: If Olmert received large sums in any nine-month run-up period, he could be guilty of seriously violating campaign funding laws. And if he received big money outside the nine-month periods and can't show that it was used later for an election, he could be accused of taking bribes. In the 1993 Jerusalem mayoral election, there were no limits on campaign donations or spending, and the police investigation is apparently focusing on two other periods: money received in 1999 to cover debts incurred in the 1998 Jerusalem mayoral race and to fund Olmert's heavy-spending 1999 bid to capture the Likud leadership, which could entail major funding violations in both campaigns, and funds received between 2003 and 2005, when there were no elections in the offing and which could be construed as bribes. In his television address, Olmert insisted, "I never took bribes. I never took a penny for myself." And Talansky argues that there can be no question of bribery, since he has no business interests in Israel and has never considered making money in the country. In other words, there is nothing Olmert could have given him in return. Police, however, don't accept this logic and are following several leads on possible paybacks. Under Israeli law, it is enough to show that a high-ranking elected official accepted large sums for it to be considered a bribe. There is no need to prove that any favors were sought or rendered. Moreover, says legal expert Moshe Negbi, it does not matter whether the large sums were pocketed or used in violation of donation restrictions for an election campaign. "It is enough that the prime minister received large sums for it to be bribery. The police search for a payback by Olmert is superfluous as far as the law is concerned. The law says it's enough to show that he knew the person who gave him the money expected something in return, and that if the sum was very big, it is obvious that he did," says Negbi, a lecturer on law and communications at Jerusalem's Hebrew University (and a Jerusalem Report contributing editor). But not all the experts agree that the latest Olmert case is so cut and dried. "So far, in what the police have released for publication, I do not see any obvious breach of the law. Maybe they have more material, maybe they are putting it all together, but so far, from a legal point of view, I have not seen anything serious," says Hebrew University political scientist Menachem Hofnung, a leading expert on Israeli campaign funding. Others fear that although Olmert might be guilty, it will be difficult to pin him down. Aryeh Avneri, chairman of Ometz, a Hebrew acronym for "Citizens for Good Government and Social and Legal Justice," says he has been trying to block Olmert, the "sleazy politician," for 35 years without success. "He is a very smart manipulator who knows all the tricks of the trade," he complains. But the sheer weight of police probes and corruption scandals with Olmert's name on them may be about to catch up with a man who started his political life in the 1970s as an energetic young campaigner against all forms of crime. Indeed, the prime minister is currently, or has recently been under investigation for allegedly: • Making political appointments while minister of Trade, Industry and Labor between 2003 and 2005, and using that position to favor a company represented by his friend and erstwhile law partner, Uri Messer. • Buying a home in Jerusalem's Cremieux Street for $320,000 less than the $1.6 million market price, a discount received in return for helping the construction firm that refurbished the apartment acquire building permits. • Making changes in the tender for the sale of Bank Leumi to help his friend, Australian-based tycoon Frank Lowy. Lowy never bought the bank, and police recently recommended that the case be closed. • Selling his home on Jerusalem's November 29 Street to S. Daniel Abraham for $2.69 million, and then securing a lease to rent it back for 10 years at the relatively low price of $2,250 a month. Past affairs involving allegations against Olmert include: • In 1999, he agreed to arrange a reception for the mayor of Athens at the request of developer Dudi Appel, who was seeking to build an ambitious tourist facility on a Greek island and who had just promised Olmert his support in an upcoming race for Likud leader. The case was closed. • In 1997, Olmert was acquitted in court of responsibility for an election scam in which Likud officials provided fictitious receipts to donors in 1988, when Olmert was the party's co-treasurer. Olmert pleaded ignorance, but three other Likud officials were convicted. • In 1993, when Olmert was mayor, contrary to city practice, responsibility for realizing municipal construction assets was outsourced to Olmert's friend Uri Messer. Olmert was not prosecuted. • In 1981, Olmert received a $50,000 loan via Yehoshua Halperin, CEO of the Bank of North America, which he was never pressed to pay back. Although the circumstances suggested a possible attempt to bribe a sitting Knesset member, Olmert was not prosecuted. The fact that so many probes have been instituted against Olmert and other public figures would seem to suggest a high degree of public graft in Israel. The once powerful finance minister and Olmert confidante Avraham Hirchson is about to be indicted on charges of embezzling about 2.5 million shekels ($750,000) from the National Workers organization, which he headed. A prominent Shas politician, former Health minister Shlomo Benizri was convicted in late April for accepting hundreds of thousands of shekels worth of services from a building contractor and sentenced to 18 months in prison. But Transparency International (TI), a Berlin-based organization that measures global corruption, gives Israel relatively good grades. The organization's Corruption Perception Index (CPI) for 2007 placed Israel 30th out of 180 countries with a grade of 6.1 out of a possible 10. Topping the list as the world's least corrupt countries were Denmark, Finland and New Zealand with 9.4 points each. The United States placed 12th, Russia 143rd and Somalia last. In fact, despite the ongoing investigations of public figures, Israel's standing improved by four places from the year before. Ironically, the investigations themselves probably work to some extent to Israel's advantage: "In a country where things come to the surface, where such allegations are dealt with and things go to court, there is clearly a degree of transparency and enforcement. In countries where there is no transparency, corruption goes on behind closed doors. In Israel, it's high on the public agenda," Galia Saguy, CEO of TI's Israel branch, tells The Report. Local researchers agree. For the past five years, Doron Navot has been one of the Israel Democracy Institute researchers conducting a three-part study of public graft in Israel. The work is still ongoing and the findings have yet to be published, but Navot told The Report that they see corruption here as part of a wider global phenomenon. "We see in our research how in countries from East Asia to the United States, there has been a corruption eruption. There is much greater focus on political corruption than there used to be and you see a consequent reduction in public confidence in the political system worldwide," he says. Navot gives several reasons for the higher incidence of perceived corruption in Israel. The rules and regulations for political life have been significantly tightened, so that the potential for contravention of the law is much greater; the media have become far more critical and investigative; Israeli leaders are more in tune with the good things in life than their Spartan predecessors were. But, most importantly, he puts his finger on processes of globalization and economic liberalization over the past three decades. "As a result, the balance of power between government and big capital has shifted in big capital's favor. If once the government was the sole political leader, now capital has a huge influence on what government does and does not do," he says. These economic processes have also widened the gaps between rich and poor, weakening social solidarity. "There is far less concern for the general good today and far more egoism, which breeds a readiness to do corrupt things for personal gain," he says. In Navot's view, however, Israel is not a corrupt country. Indeed, in some aspects of the fight against corruption, he claims that Israel is a world leader. For example, it is far more advanced than most Western democracies in campaign funding and conflict of interest regulations. Navot points out that in Britain, for example, the Labor party was able to get huge donations from undisclosed sources, whereas in Israel, anything remotely like that would probably have brought down the government. "We tend to ignore how advanced Israel is in all this. Indeed, the very fact that a prime minister is under investigation is no trivial matter," he says. But where Israel is very weak in the corruption stakes is in the concentration of wealth in very few hands - relatively fewer than just about anywhere in the world. According to some estimates, around 60 percent of the country's economy is controlled by 12 family business groups - the Ofer, Dankner, Arison, Gabriel, Charles Bronfman, Matthew Bronfman, Tshuva, Saban, Leviev, Bino, Borovich and Fishman groups. "This gives them enormous influence," says Navot. "It's influence that's not necessarily illegal but it explains why, for example, certain spheres are not regulated. This is a very profound type of corruption and not something the legal system can deal with." The Israel Democracy Institute intends to publish detailed recommendations on how to contend with this and other kinds of corruption. In the meantime, Navot points to the general direction - strengthening the political system in order to redress the balance between government and capital, and creating a stronger anti-corruption political culture. "I don't accept the claim that we Israelis have a genetic code of illegalism. It's not a linear relay race - that Jews because that's what they may have done once in the Diaspora hand on the baton of illegalism. Culture, especially political culture, develops continuously. So let's be active players and create the reality we want," he declares. For example, in the next election, he says voters should put fighting political corruption high on the agenda and not elect politicians with questionable records. Not all social critics are as sanguine. For some, Olmert's alleged wrongdoing is just the tip of the iceberg. In his recently published book "Cry, the Corrupt Country," Ometz's Avneri paints an alarming picture of public officials across the board exploiting their power to get rich. He outlines several cases of people who entered politics with relatively few assets and became very wealthy while in public service. "I can't say they took bribes, but they found all kinds of ways of making money, usually by hiring services from family members and paying them huge sums," he tells The Report. According to Avneri, more and more people are joining political parties in the hope of making easy money. "This is a growing trend," he maintains. This is a trend that gathered pace, starting with jobs for pals in the Likud Central Committee, and according to Avneri is still growing. Because, in his view, the phenomenon is so widespread, Avneri is calling for a full-fledged Parliamentary Commission of Inquiry into public corruption. In mid-May, he wrote to Knesset speaker Dalia Itzik, urging her to set it up. "It would set limits and prescribe norms, for example for the government big capital nexus and for the conduct in office of all public officials," he says. Cabinet ministers already have something along these lines - in the form of an ethical code submitted to government in mid-May by former Chief Justice Meir Shamgar, philosopher Asa Kasher and law professor Gavriela Shalev. On the ostensible cause of Olmert's latest troubles, the need for money to run election campaigns, the experts are divided. Hebrew University political scientist Shlomo Avineri sees the primaries as one of the root causes of political corruption in Israel and wants the system abolished. He argues that it necessitates fundraising on a large scale and so invites corruption. Worse, it gives foreigners, mainly rich American Jews, a say in electing Israeli leaders. "Nothing has a more corrupting effect on democracy," Avineri maintains. Hofnung, however, would retain the primaries, but tighten the rules. For example, he would bar donations by foreigners altogether and insist on winners having to report on all their economic activities throughout their terms. All donations would have to be reported at all times, there would be no nine-month run-up period, and everything would be subject to the review of the State Comptroller. And, of course, there would be limits on the size of donations and on the overall ceiling for spending. "I would also say that the amounts that candidates can spend should be more realistic, so that they are less likely to feel the need to transgress," he tells The Report. A proposal now before the Knesset includes most of these suggestions and, by the time it gets through the committee stage, it will probably include them all. It allows prospective Knesset candidates to spend up to 500,000 shekels ($150,000), and party leadership candidates up to 2 million ($600,000). Knesset wannabes can accept individual contributions of up to 5,000 shekels ($1,500), and leadership candidates in the larger parties contributions of up to 20,000 shekels ($6,000). For legal commentator Negbi, the main problem is not the primaries but the weakness of the enforcement authorities. Author of a 2004 book attacking the way law enforcement agencies handle political corruption, "We Have Become Like Sodom," subtitled "On the slippery slope from law-abiding country to banana republic," Negbi argues that ever since the mid-1990s, successive attorney generals have tended to be soft on political corruption, and as a result, have lost their deterrent power. A string of corruption cases against top politicians - including former prime ministers Benjamin Netanyahu, Ehud Barak and Ariel Sharon and former president Ezer Weizman - were closed, sending the wrong signals to the political establishment. "Because power corrupts and the temptation is great, you need something to neutralize the temptation. And that something should be fear of the law enforcement authorities," he declares. Negbi sees the latest Olmert affair as a watershed case for the rule of law in Israel. "If there is resolute action by the enforcement authorities, they could regain their lost deterrence. I am not sure this will happen. I do not have much faith in the current attorney general," he laments. Negbi's fear is that the authorities will drag things out in the hope of building a cast-iron case, and end up deciding not to prosecute because of one or two loose ends. "The affair is not very complicated as far as the facts are concerned. Why should it take months more to investigate? They want a 100 percent guarantee of conviction, which they can never have," he charges. Olmert aides continue to protest the prime minister's innocence and claim the case against him stems from a right-wing conspiracy to unseat a leader bent on making peace with the Palestinians. In the past, they claim, right-wingers have not hesitated to use non-democratic means in efforts to change Israeli governments whose policies they disagreed with - from the assassination of Yitzhak Rabin to corruption charges against Ariel Sharon. The subtext is that Talansky and others who once supported Olmert the hawk are now trying to frame Olmert the reconstructed dove. Most pundits, however, argue that the motivation for the Talansky affair is irrelevant: The legal outcome, they say, will depend on the caliber of the evidence against the prime minister. Indeed, on the face of it, whether Olmert survives politically depends on legal developments. But the prime minister also has a serious political and public opinion battle on his hands. This was greatly aggravated by a mid-May opinion poll by the respected Dahaf organization, showing that 59 percent of the public think he should step down and only 33 percent that he should stay. Worse: 60 percent of the public do not believe his claim that he did not pocket any of the money, and only 22 percent do. But the most crushing blow for Olmert was in the poll's election predictions: With Olmert at the helm, his Kadima party would crash to only 12 Knesset seats to the Likud's 28 and Labor's 19; but with Foreign Minister Tsipi Livni, as the party's candidate for prime minister, it would actually win, with 27 seats, to the Likud's 23 and Labor's 15. Ariel Sharon, as prime minister, also had to contend with several parallel police investigations. The difference is Sharon could have won any ensuing election hands down, from jail if necessary. Olmert could not, and in the weeks ahead this is likely to accelerate moves in Kadima to unseat him. Whatever happens on the Talansky front, it will be virtually impossible for Olmert to keep the party behind him if he is seen as a surefire electoral disaster and Livni as a safe ticket to power. For Olmert the 60th anniversary celebrations may be over, but the rain is still pelting down. • Cover story in Issue 4, June 10, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Report click here.