Bank of Israel Governor Stanley Fischer met with police six weeks ago and gave his testimony over the Bank Leumi affair, in which Prime Minister Ehud Olmert is a suspect.

State Prosecutor Eran Shendar has ordered the police to begin a criminal investigation into Olmert on suspicion of having attempted, in his former role as finance minister, to influence the tender for the Leumi sale in order to help his friend, Australian real estate mogul Frank Lowy, gain a controlling interest in the bank.

Fischer met with two senior police officers at his Bank of Israel office as part of the State Prosecutor's investigation following the suspicions raised by State Comptroller Micha Lindenstrauss over the sale of Bank Leumi.

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The officers interrogated Fischer for two hours, during which he told them that during all of the meetings over the Bank's purchase, there were professional disagreements between Olmert and Accountant-General Yaron Zelekha, who filed the complaint against Olmert and is the key witness in the case.

According to Fischer, during the meetings each side presented his side and attempted to influence the other. In Fischer's opinion, both sides presented legitimate cases.

After giving his testimony, Fischer was asked to keep his meeting with the investigators secret.

During a Bank of Israel press conference last week, Fischer refused to answer questions regarding the affair, noting that it was under police investigation. He did however say that "there are professional disputes over the matter."


Lowy says he welcomes police probe
Australian real estate magnate Frank Lowy said Wednesday that he welcomed the police investigation into the affair.

In a statement released in Australia, Lowy said that his group had been invited to join an international syndicate that wanted to participate in the sale of Bank Leumi. He strenuously denied any indication that he or anyone connected to him had done anything illegal, adding that he was certain the investigation would prove this.

Lowy has not been implicated in any way in the affair, and is not facing any police probe.

The tender for the bank's privatization was published in November 2005, four months after Olmert replaced Benjamin Netanyahu at the treasury.

During that time, Olmert demanded various changes to the tender, which he explained were aimed at encouraging strategic, rather than merely financial, investors to bid. However, law enforcement officials suspect that the changes were meant to help Lowy.

In the end, however, Lowy withdrew from the tender shortly before it closed. The businessman on Wednesday welcomed the probe into Olmert's activities.

The suspicions against Olmert first emerged during an audit of the sale by State Comptroller Micha Lindenstrauss. The comptroller heard testimony from Accountant-General Yaron Zelekha and other officials in Zelekha's office. After finishing his audit, Lindenstrauss transferred the material to Mazuz, who then asked the police to conduct "preliminary inquiries" into the matter.

According to Shendar, this included questioning some additional people involved in the sale, aside from those who spoke with Lindenstrauss. Based on these findings, Shendar decided Tuesday to launch a criminal probe.

"The results of the preliminary inquiries led to the conclusion that the evidentiary infrastructure justified opening a criminal investigation," the Justice Ministry said in a statement.

One bit of evidence reportedly gathered by the police is a document listing changes in the terms of the tender, which Lowy allegedly read aloud at a meeting with Leumi officials. Olmert allegedly used this same document while demanding that treasury officials change the tender.

Police Commissioner Moshe Karadi announced Tuesday that the probe would be handled by the national fraud squad, which also conducted the preliminary inquiries. The fraud squad is also currently handling the probe into alleged influence-peddling at the Tax Authority, in which a key suspect is Olmert's office manager, Shula Zaken.

One of Olmert's aides said Tuesday night that his office "was not surprised by the decision" to open the probe, "in light of the contemptible leak a week ago, while the prime minister was in China.

"The prime minister is certain that his behavior in the affair was unexceptionable," the aide continued. "He acted impeccably, and if it were necessary to do it again, he would act exactly the same way. The [sale] process received the approval of Bank of Israel Governor Stanley Fischer and Finance Ministry legal adviser Yemima Mazuz. We are certain that nothing will come of this, just as nothing came of the investigations against previous prime ministers."

According to a senior Justice Ministry official, Olmert is suspected of breach of trust for having acted out of a conflict of interests.

The official said the decision to open a probe was based in part on the Supreme Court's ruling in the case of Shimon Sheves, a former director general of the Prime Minister's Office: "When a senior public servant has a conflict of interests, he broadcasts to those under him, and to the entire public, the failure of the public system, the breaking of governmental rules. When this conflict of interests includes a financial aspect, the public servant airs the connection between money and government."

The criminal investigation over Olmert's involvement in the Leumi sale may be only one of a string of legal proceeding facing the prime minister.

The Justice Ministry has not yet decided whether to open probes into two other allegations against Olmert, both involving his tenure as industry minister: that he gave unwarranted benefits to clients of his former law partner, Uri Messer, and made political appointments at the Small Business Authority.

Attorney General Menachem Mazuz will decide on these two cases.

In response to the prosecution's announcement on Wednesday, the Prime Minister's Office urged the police to finish the probe as soon as possible.

Normally, only the attorney general can order the investigation of a prime minister. However, Mazuz recused himself from the case because his sister, Yemima Mazuz, was involved in the Leumi sale as the Finance Ministry's legal adviser.


Roni Singer-Heruti contributed to this report.