PM to Face Criminal Investigation Over Bank Leumi Sale Affair

Aides say Olmert sees no fault in his involvement in sale; MK Ayalon: Labor should prepare for fresh elections.

State Prosecutor Eran Shendar has ordered the police to begin a criminal investigation into Prime Minister Ehud Olmert, on suspicion of having tried, in his former role as finance minister, to influence a tender for the sale of a controlling stake in Bank Leumi.

In response, 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, Attorney General Menachem Mazuz recused himself from the case because his sister, Yemima Mazuz, was involved in the Leumi sale as the Finance Ministry's legal adviser.

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. Mazuz will decide on these two cases.

In the Leumi case, Olmert is suspected of having tried to throw the tender to his friend, Australian real estate magnate Frank Lowy. 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 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 last 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."

Roni Singer-Heruti contributed to this report.