The Schlaff Saga / Gambling in Jericho, Betting on Political Friends

On the evening of November 4, 1995, Schlaff met with Rabin in his home in Tel Aviv just before the prime minister left for the peace rally at Kikar Malchei Yisrael. Schlaff was one of the last people to converse with him alone. Two hours after they parted, Rabin was assassinated by Yigal Amir, as he left the stage. By then, Schlaff was dining at a restaurant in Jaffa.

Contact Gidi Weitz at investigations@haaretz.co.il

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In the mid-1990s, then-prime minister Yitzhak Rabin invited one of his cabinet ministers to a meeting at his bureau. "This is Martin Schlaff, an Austrian businessman connected to Casinos Austria," he said, referring to the large European gaming corporation. The two shook hands and Rabin continued: "As you know, we are planning to establish a casino in Israel soon, and I want Casinos Austria together with Schlaff to be the ones to run this operation." Rabin detailed the considerable advantages of Casinos Austria, an organization held by insurance companies and banks that operates casinos worldwide.

For the full Haaretz Special Report on Martin Schlaff click here

The minister refused to accept the dictate, though. "We will issue an international tender before we decide on the identity of the operator," he said, and left the two.

When the minister returned to his office, his phone rang. On the other end of the line someone said to him in fluent Hebrew with a German accent, "I want to meet the man who, had he spoken to the Austrian chancellor the way he spoke to the Israeli prime minister, would have been kicked out of the government that very day." It was Schlaff.

In 1995, the Rabin government made a decision in principle to establish a casino in Israel and appointed a committee headed by former income tax commissioner Moshe Gavish to formulate recommendations and a proposal for legislation on the matter.

One of the major opponents to the idea was the public security minister at the time, Moshe Shahal. One day, the director general of the Prime Minister's Office, Shimon Sheves, phoned Shahal and asked to meet with him together with Schlaff. A few days later, Sheves and Schlaff met in Shahal's office in Tel Aviv in an attempt to thaw the minister's opposition to the casino initiative. "Let me make it clear to you," Shahal told Schlaff at that meeting, "in any vote in the government or the Knesset, I will vote against building a casino."

Among the last to see Rabin

Schlaff became acquainted with Yitzhak Rabin via the prime minister's wife, Leah. The Rabins' daughter, Dalia Rabin-Pelossof, says her mother got to know Schlaff when she headed the Friends of Sheba Medical Center, Tel Hashomer.

Schlaff, who was in his early 40s at that time, would visit the prime minister's home every time his private plane landed in Israel. Rabin's friends said he would come from time to time bearing information about Palestinian issues.

At that time Rabin-Pelossof, an attorney, was working at Dov Weissglas' law firm, which was able to add Schlaff, who needed the services of a big law firm in Israel, to its client list.

On the evening of November 4, 1995, Schlaff met with Rabin in his home in Tel Aviv just before the prime minister left for the peace rally at Kikar Malchei Yisrael. Schlaff was one of the last people to converse with him alone. Two hours after they parted, Rabin was assassinated by Yigal Amir, as he left the stage. By then, Schlaff was dining at a restaurant in Jaffa.

"My phone rang and they told me about Rabin," recalls Mordechai "Moti" Finkelstein, Schlaff's former driver. "We rose from the table, left the food and took off for Ichilov [Hospital]. Schlaff was in shock."

"He told me Rabin had invited him to come to the rally," says businessman Nissan Khakshouri, who was a friend of Schlaff's at the time. "I met him the following evening. He was crying. He said they had murdered the state for him."

Schlaff remained in Israel during the entire seven-day mourning period and, according to Finkelstein, visited the Rabins' home nearly every day. Rabbi Yisrael Lau, then the Ashkenazi chief rabbi of Israel, remembers Schlaff sitting beside members of Rabin's family and inner circle at a memorial service for the late prime minister.

Rabin was not the only bureaucrat with close ties to Schlaff. When Sheves was tried in a criminal court after he resigned from the civil service, Schlaff served as a witness for the defense. The billionaire related he had recruited Sheves after he left the Prime Minister's Office to examine the establishment of a tourism venture in Morocco.

"I've been a very close friend of Schlaff's for more than 20 years. This is a friendship at the level of the friendships I have with my friends from the Jordan Valley," says Sheves, who once served as deputy head of the Jordan Valley Regional Council. "I am proud of this friendship and as an Israeli I am proud of the contribution he has made to the state in deeds, missions and money."

Making profit, bringing peace

In the winter of 1999 an eggplant-colored Jaguar passed through the outskirts of Jericho, in the West Bank, and stopped near a field of horses. Out of the car stepped an attractive young woman named Ursula Schwartz, and Martin Schlaff. The two had come to watch their horse, Oasis - named after the casino - compete in a race held that day in the city of date palms.

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"He had two horses in Jericho and more horses in Rishpon and he has a number of horses on a ranch on the outskirts of Vienna," Finkelstein says.

Schlaff's participation in the novel Oasis project, had been arranged through Yossi Ginossar, a former deputy head of the Shin Bet who had left the service in disgrace some years earlier. Later, during the heady days after Oslo, Ginossar served as a secret mediator between Yasser Arafat and Rabin.

According to sources who were involved in the venture, Ginossar was the main go-between in the deal that led to the establishment of Oasis. He introduced Schlaff to the top people in the PA, among them Arafat, Mohammed Dahlan, Jibril Rajoub and Mohammed Rashid, a man with humor, charm and a fondness for money. The Oasis Casino was built in partnership with the Palestinian Authority, the Austrian labor union bank Bawag and Casinos Austria. Schlaff now owned a chunk of the gambling house.

In his Hebrew-language book "In the Pocket of the President" (Kinneret Zmora-Bitan Dvir, 2005 ), and as quoted in extensive reports by Ben Caspit in Maariv, Uzrad Lew, who was Ginossar's business partner, says Ginossar and Rashid received especially high commissions for managing Arafat's and other Palestinians' money in Swiss bank accounts and other deals. Sources who were involved in the venture say Ginossar, who died in 2004, also took home a commission for the casino deal.

The casino's opening was preceded by feverish discussions between the Palestinian leadership and Schlaff, which took place both in PA territory and Austria. These included a meeting between Arafat and the Austrian chancellor, for which the Palestinian was flown especially to Vienna. Later Schlaff bought Arafat's private plane from the Palestinians.

The official opening of Oasis took place in September 1998. The $50-million casino was on the outskirts of Jericho, opposite the Aqabat Jaber refugee camp. Inside 250 concealed security cameras followed the more than 2,000 gamblers - the vast majority of them Israelis - who came each day to try their luck at dozens of gaming tables and hundreds of slot machines.

Schlaff's attorney Weissglas was the legal advisor of the casino, which operated round the clock. Shimon Sheves received $20,000 a month for management and consulting services and Gitam BBDO head Moshe Teomim was in charge of the advertising.

On the Palestinian side, PA official Jibril Rajoub was responsible for security. Rajoub's Israeli friend, fuel tycoon Koko Ovadia, was responsible for transporting gamblers to the site and received a commission for clients' use of credit cards at the casino. Next to the casino a luxury hotel was built, as well as a school where Palestinians were trained in working in and running a casino. The casino itself was off-limits to residents of the territories who didn't work there.

As part of having landed the franchise, Casinos Austria was entitled to run it until at least 2028 and get a tax exemption for 10 years. It also received the exclusive right to operate any other casinos that might open in the territories of the Palestinian Authority.

During the two years it was active, approximately 800,000 people visited the casino, an estimated 99 percent of them Israelis. Profits for that brief period are estimated at about $328 million.

Hamas reacted aggressively to the opening. "A casino of Satan, a casino of humiliation and betrayal, degeneracy and licentiousness. They will drink the blood of the dead there that has not yet dried," a Hamas spokesman said about the gambling operation.

Israeli attorney general Elyakim Rubinstein, too, did not like the idea that many Israelis were gambling just one army roadblock away from Israel's jurisdiction, where gambling wasn't legally permitted.

In a 1998 hearing on the issue, in which Rubinstein participated, in the Knesset Constitution, Law and Justice Committee, there was one MK who thought the casino could serve as a key to cooperation between the two peoples: Schlaff's friend Haim Ramon (at that time still a Knesset member from the Labor Party ). "In fact people who are a lot closer to your view of the world, as I have been told, are coming there and seeing that Palestinians don't have horns on their head," Ramon taunted committee chairman MK Hanan Porat, of the National Religious Party, "and someone even said they are nice. And instead of the cooperation and coexistence focusing just on car thieves and the underworld, something is taking shape there and maybe at the end of the day they will do business. So why have you raised an outcry about this in particular?... Even if there is a violation of the law there, whom is it harming? Whom is it hurting?"

Ami Ayalon, who headed the Shin Bet security service at the time, didn't think the casino was the right way for Israelis and Palestinians to cooperate.

"The casino was a hit, but I personally didn't think this was the formula for the economic relations there ought to be between us and the Palestinian Authority as opposed, say, to joint industrial zones," he said. "During that period Weissglas met with me a number of times to try and persuade me that the Shin Bet should make it easier for Israelis to enter. I was opposed to the matter. I did not form the impression that Schlaff was serving as an active go-between in the diplomatic issue, but rather was a person with economic interests."

Funding Deri's defense

During the 1990s, Schlaff increased his circle of friends in Israel, especially among politicians. "He simply worked at it," says a person who knew him. He met with the heads of the government and maintained good relationships with Haim Ramon, Herzliya mayor Eli Landau, MK Ehud Olmert, Shimon Sheves and others. Current Intelligence and Atomic Energy Minister Dan Meridor also met him to request his help for the Jabotinsky Institute. Meridor dined with him in Jerusalem and accompanied him to the opera in Vienna but by the end of the decade their relationship faded away.

By means of his ultra-Orthodox family, Schlaff developed close ties with Shas chairman Aryeh Deri, who at that time was facing bribery charges.

In 2000, as is being reported here for the first time, Schlaff financed an effort aimed at helping Deri escape conviction. He enlisted a friend of his, Swiss lawyer Hans Baumgartner, and financed the acquisition of potentially compromising material concerning an affair in which Yaakov Shmuelevitz, a state's witness against Deri, had been involved.

The material served Deri in a request he submitted to hold an additional deliberation on his conviction in the Supreme Court. The appeal, however, was turned down by then-Supreme Court president Aharon Barak.

According to information that has come into Haaretz's possession, Schlaff invested hundreds of thousands of dollars to acquire the material in Switzerland.

In the 1990s the Schlaff family controlled an association called the Jaslo Foundation, with an address on East 59th Street in Manhattan, in the offices of the law firm Braun and Goldberg. Toward the end of the 1990s, the foundation transferred donations to organizations in Israel, among them the Jewish Agency, various hospitals, the Association for the Welfare of Israel's Soldiers, yeshivas identified with the Bobov branch of Hasidism and the Jerusalem Foundation.

The largest sums, hundreds of thousands of dollars, went from the Jaslo Foundation to the Legal Defense Fund, which, Haaretz has learned, paid for Deri's layers during the trial.

"Schlaff admires Deri," says an associate. "He thinks he has been done a grave injustice."

Another $50,000 from the Jaslo Foundation went to a defense fund for Jerusalem mayor Ehud Olmert, who stood trial in 1996 on charges of irregularities in Likud party finances the previous decade, when he was the party's treasurer. Olmert was acquitted on those charges. In a report submitted to the American registrar of nonprofit associations, the Jaslo Foundation listed the donations as "support for Jewish causes."

Flirting with power

Schlaff maintained a warm relationship with Leah Rabin until the day she died, a decade ago. "He is an intelligent, charming man and he was a loyal friend," says Dalia Rabin-Pelossof. Some people from Rabin's circle were disappointed at that time to find Schlaff in the company of a new friend, the director general of the Prime Minister's Office during Benjamin Netanyahu's first term as prime minister, Avigdor Lieberman, today the foreign minister.

Toward the end of 1997 Lieberman abandoned his position PMO and went into political exile for over a year to work in the business world. He was hired as a special consultant to Bank Austria, which had become embroiled in speculative deals in the financial derivatives market in Russia and was expected to lose hundreds of millions of dollars.

Investigators of the affair in Israel believe Lieberman was supposed to see to a rise in the exchange rate of the ruble , on the eve of the expiration of the contracts, thereby decreasing the bank's losses.

"The contract between Lieberman and the Austrians was written on a napkin, and he received his payment a short time later," said a senior source involved in the Israeli police investigation. "One of the directions that was examined was that Schlaff was involved in this deal, and mediated between the bank and Lieberman," said.

In December 1998, Lieberman earned $3.3 million. In the past, Lieberman told this reporter that at the time he was knowledgeable in the field of currency trades.

This story, along with other intelligence information, led at the end of 1998 to the opening of a secret police investigation of Lieberman. By then he had founded the Yisrael Beiteinu party and was preparing to run for the Knesset for the first time.

"Do you know why Martin loves Lieberman so much?" asked one of Schlaff's friends recently. "It's because he is profoundly disappointed with the Israelis. He considers them people without manners and honor, people who don't know how to be grateful, who use you and discard you. Martin thinks his relations with Lieberman aren't contingent on anything. He says Lieberman is more of a gentleman and humane, and he attributes this to Lieberman being more of a Jew than an Israeli."

In the course of the secret investigation of Lieberman, it emerged that Schlaff had talked with the Israeli at length, introduced him to Palestinian leaders, and evinced interest in his election campaign.

At the beginning of 1999, Schlaff offered Lieberman his services in recruiting Shimon Sheves to the Yisrael Beitenu Knesset list. He also helped Lieberman raise $1 million from a Viennese bank to serve the new party as a line of credit in its application for an identical sum from the Bank of Israel. Schlaff undertook both matters during a single trans-Atlantic telephone call, according to a person involved in the Lieberman investigation.

"'I spoke to Bobby and it left the place in Vienna on Friday,'" Schlaff updated Lieberman in Hebrew, according to the source. "'Talk to your schmuck at the bank and tell him you've had confirmation that it went out on Friday.'"

"Bobby" is Robert Nowikovsky, a Viennese businessman who is very close to Schlaff and does business with him. Nowikovsky's name has figured in a number of investigative reports in the press about trade between Eastern and Western Europe.

The money that came into Yisrael Beiteinu came out of the Erste Bank in Vienna, and the guarantees for the money came from a company called Jurimex. The transfer of the $1 million was revealed in a report by the state comptroller at the time, retired Supreme Court Justice Eliezer Goldberg.

This led to another police investigation, in the course of which the suspicion arose that it had been Schlaff himself who stood behind the guarantees and he had used Nowikovsky as a straw man.

In their questioning by the police, Schlaff and Lieberman "said Schlaff had served as an interpreter between the two," relates a person who was involved in the investigation. That was the first and last time Schlaff would meet Israeli police investigators. Eventually, the two cases open against Lieberman, in the matter of the ruble exchange rate and in the matter of the guarantees, were closed after many years for lack of evidence.

A combination of Ramon, Deri and Lieberman

At the start of 1999, Schlaff met with one of his friends, a top Israeli politician, and shared an idea with him: "The public opinion polls are showing that Amnon Lipkin-Shahak" - who had retired as IDF chief of staff the preceding year, and now had entered politics by joining the new Center Party - "is the most popular candidate in Israel. By adding forces from the Labor Party, this could be the party that will win the elections." Schlaff mentioned the names of two other political stars, personal friends of his, whom he hoped to bring into the venture, Haim Ramon and Uzi Baram.

Lipkin-Shahak has told Haaretz he was not at all aware of Schlaff's activity. In private conversations during that period, Schlaff claimed he was able to ensure the support of Shas (which Deri headed at that time ) for a party headed by Lipkin-Shahak.

Schlaff's friends in Israel say that in that period, and also in the ensuing years, Schlaff saw one person as the best candidate for prime minister: Haim Ramon. Others say the optimal candidate in his opinion was in fact Aryeh Deri.

"The truth is that he dreamed of helping to establish a party in Israel that would be made up of a combination of Ramon, Deri and Lieberman," says one of Schlaff's friends from that period. "He loved to deal in local politics."

Schlaff's friends say that in advance of the 1999 elections, Schlaff supported Ehud Barak in his race against Netanyahu for the premiership, and also donated some of his own money to him. In the police probe into the "Barak non-profits," that were suspected of raising money illegally abroad to finance his election campaign, police Brig. Gen. (res. ) Miri Golan asked Barak how Schlaff was connected to his election campaign.

"He has no connection to the election campaign, so far as I know," replied Barak. "I know who he is. He was friendly with Sheves and maybe also with Rabin, I am not sure ... I met him once in my life ... a very long time before the elections, at a dinner I was invited to by Eli Landau."

In August of 2000, a month after Arafat and Barak had returned from the Camp David summit, while he was away on a visit to the United States, Jerusalem mayor Ehud Olmert's mobile phone rang. Martin Schlaff greeted him politely and immediately thereafter asked him to arrange a meeting as soon as possible with him and Muhammad Rashid, Arafat's economic adviser.

One evening a few days later, the three men sat in a room Schlaff had rented out at the King David Hotel in Jerusalem.

"I intend to brief prime minister Barak about this conversation," said Olmert.

"It interests me greatly to talk with you about Jerusalem," said Rashid to Olmert. "After all, whatever you agree to, Barak will agree to as well."

Rashid detailed the lines Arafat could not cross regarding the capital: "Arafat will never in his life agree to recognize [Israeli] sovereignty on the Temple Mount. The Palestinian flag will fly over the mosques and as for the rest of the Mount - it will be transferred to an international trusteeship, which will put it in the possession of the Palestinian Authority as guardians."

A few days after that meeting, Olmert went to the Prime Minister's Residence in Jerusalem to meet Barak. "Schlaff and his partner in the casino business, Rashid, came to me," Olmert began, and shared the details of the conversation with Barak.

"This doesn't smell good," said Barak to Olmert. "I know the Palestinians are making efforts to create alternative channels of communication."

Barak told Olmert he had received information that Avigdor Lieberman (with Schlaff's mediation ) had also met with high-ranking Palestinians.

"I don't understand Lieberman," continued Barak. "A person like him knows I have a way to know about meetings like that and their contents from my sources. This is very grave."

Barak advised Olmert to "carry on with those contacts, but be wary."

"If that's the case," replied Olmert, who apparently was not expecting the outbreak of the second intifada in the coming weeks, "it's better that I not meet with them at all."

On September 28 Ariel Sharon, the leader of the opposition at the time, visited the Temple Mount. The second intifada broke out, Jerusalem and the territories were enflamed, dozens of people were killed and a permanent status agreement between Israel and the Palestinian flitted far out of reach.

The flow of gamblers to the casino in Jericho stopped. At the beginning of October an IDF tank opened fire on the Oasis compound, causing considerable damage to the structure holding the casino's offices. The IDF claimed the firing was in response to shooting at the nearby Israeli settlement of Vered Yericho by Palestinians from the roof of the casino.

On October 19, at 6 P.M., Olmert met with Schlaff and Rashid again at the King David. "Arafat has excused me from being present at the Palestinian cabinet meeting," said Rashid to Olmert. "I am disappointed with Barak and the Israelis' behavior in the past weeks and I am afraid the diplomatic process will not be renewed." It was evident he attributed a great deal of importance to the conversation.

"You have missed a historic opportunity to formulate the framework for an agreement in the best conditions there have ever been or ever will be from the side of the Israeli government," predicted Olmert to the two men. "You know very well that I disagree with the prime minister's proposals. Barak's concessions in the matter of Jerusalem are intolerable and they will never be acceptable to me."

The meeting with Rashid ended with nothing.