The leader of the "Young Chabad" movement in Israel and four other suspects were arrested by Israeli police yesterday on suspicion of embezzling $60 million from donated monies, tax evasion and money-laundering. The arrests of Yosef Aharonov, his assistant and the others followed a collaborative secret eight-month investigation by the Central District Fraud Squad and the Tax Authority.
Donated money never reached its destination, police suspect, and the money-laundering was effected in part by paying salaries to people under the table, and by "paying" money into fictitious bank accounts, Channel 10 reported last night. Businessmen reportedly abused the mechanism by "donating" money to the organization that they'd simply get back by these methods, while taking advantage of the tax break on charitable donations, not to mention the adulation.
"We discovered that money was changing hands left and right, and it seems that the suspects were treating the money as though it belonged to them personally," investigating officer Avi Mantzour told Haaretz yesterday.
Following a raid on Kfar Chabad yesterday, the police are expected to summon various powerful figures in Israel for questioning in the affair. Last night Israeli-Russian billionaire Arcadi Gaydamak, who had reportedly donated about a million shekels to the Chabad association, told Channel 10 news that he knows nothing of malfeasance, but police suspect that he is among the business personalities that donated money and got it back by illegal means.
Aside from organization director Aharonov, the police also arrested his deputy, the accountant and a signatory. The court yesterday extended Aharonov's detention by eight days. The others will be appearing before the court for remand hearings this morning.
Aharonov's legal counsel, attorney Gideon Fisher, called the arrest a "scandalous false arrest designed to terrorize my client". He claimed that the police investigation began following a financial claim that the Young Chabad organization had filed against a former association leader, claiming that the latter had stolen more than NIS 17 million. "Trying to save his skin by turning the tables, the former official chose to make false allegations and try to ruin the good name of dozens of families in Kfar Chabad," Fisher said, adding that the Young Chabad movement strictly adheres to the law.
Young Chabad is a nonprofit organization dedicated to spreading the word of Torah and the Chabad-Lubavitch Hasidic messages. It was founded by the Lubavitcher rabbi (and is also known an Lubavitch Youth), to serve as the operational arm of the Chabad movement.
It is the most dominant of the ultra-Orthodox movement's arms in Israel, and runs on a budget of about NIS 30 million a year.
From that amount, about 20 percent is allocated by the state. For the rest, Chabad relies largely on donations, including from leading business figures in Israel.
By the way, that annual figure of NIS 30 million (and NIS 7 million from government) is based on reports by Young Chabad to the Registrar of Associations.
But the police and Tax Authority now suspect that Young Chabad's real income was far higher. They suspect that Young Chabad organization really does use that roughly NIS 30 million to promote its causes, including the establishment of day-care centers for the poor. But they suspect that the organization also receives tens of millions more, which it neither reports nor handles transparently.
The investigation began after the Registrar of Associations complained about irregularities in Young Chabad's books. The open stage of the investigation began yesterday.
Aharonov, the Young Chabad manager, is suspected of theft by a manager, fraud under grave circumstances, falsifying corporate documents, hiding income and abetting tax evasion.
Evidence shows that a great deal of money passed from the Young Chabad bank account to both private and fictitious bank accounts linked to Aharonov and his cronies. "Fictitious bank account" means that documents showing transfers refer to accounts that don't actually exist. The fiction went on with donations by major businessmen. "They would donate the money, and receive an income tax break on it. But we can now say that they got it back, though a certain sum would remain in the association's hands," Mantzour said.
Police also say that Young Chabad laundered money by paying some workers in cash, in order to help them dodge taxes, too.
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