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The debts of an organization that campaigned for Ehud Olmert's election as mayor of Jerusalem were covered out of funds received from American businessman Morris Talansky, Haaretz has learned.

According to information obtained by Haaretz, Talansky initially agreed to serve as a guarantor for the organization's debts. But after the organization failed to repay the money, Talansky's guarantee was called in. Talansky has apparently not yet been fully repaid for that outlay, and police are investigating whether this constituted an illegal transfer of funds.

The organization's name cannot be published due to the gag order on the case.

During Olmert's mayoral race, the organization handled his campaign's finances. It later received reimbursement from the state for some of its campaign expenses, in accordance with the law, but because Olmert's faction won fewer seats than expected on the city council, the amount it received did not cover all of its expenditures, leaving the organization with hefty debts.

To cover these debts, the organization continued to solicit donations even after the election was over. In the end, however, it had to call in Talansky's guarantee.

Haaretz reported in the past that the organization's debts had been paid, but how they were paid remained unclear; apparently, the organization relied on a third party to cover the repayment. At the time, none of the people involved in the organization's activities were willing to comment on how the debts had been paid. Olmert's office said at the time that he was not a member of the organization and was not involved in its affairs.

Then-state comptroller Eliezer Goldberg ruled in 1998 that deficits run up by an organization working on behalf of a candidate constitute an illegal campaign contribution, unless the candidate can prove that his faction covered the deficit via legal contributions. By law, those who are legally liable for such illegal contributions include the candidate on whose behalf the organization campaigned.

Police are currently investigating whether Olmert illegally received hundreds of thousands of dollars from Talansky, or from a third party via Talansky, during his tenure both as mayor of Jerusalem (1993-2003) and as industry, trade and employment minister (2003-2006). Olmert, at a press conference last Thursday, claimed that all the money constituted legal campaign contributions to his various electoral campaigns. He also said that attorney Uri Messer, another suspect in the case, was the only one who dealt with this money.

A third suspect is Olmert's former office manager, Shula Zaken, who is suspected of involvement in obtaining the money from Talansky.

Attorneys for all three suspects refused to comment on the latest report yesterday. Olmert's lawyer, Navot Tel Tzur, said he could not comment while the case is still under investigation.