Submarine Scandal: Defense Ministry Gave Up Supervision of Middle Men in Arms Deals

Move meant there was no state oversight of contract to buy German patrol boats.

The German-made INS Rahav, the fifth Israeli Navy submarine, arrives in Haifa.
AFP

The Defense Ministry in 2014 willingly yielded its authority to oversee commissions collected by Israeli agents in arms deals, meaning there was no government oversight in place when a contract was signed with a German firm to buy patrol vessels.

The ministry claims that its authority to monitor these commissions was revoked because it rarely acquires arms through agents today. But it refused a request for information from Haaretz on the scope of arms deals made through agents in recent years, both before the oversight was canceled in 2014 and after. The oversight was withdrawn more than a year before Israel contracted with Germany’s ThyssenKrupp for the purchase of warships to protect the country’s offshore natural gas fields, through the offices of Israeli businessman Miki Ganor.

Israel Channel 10 News reported Wednesday that Ganor received commissions from ThyssenKrupp before the oversight was withdrawn, and without obtaining the required permit from the Defense Ministry. Ganor attended the signing of the sales contract for the Sa’ar-6 warships and was in photos on media handouts from the ministry for the ceremony.

The Knesset passed a government bill withdrawing Defense Ministry oversight on July 7, 2014, just hours before Operation Protective Edge, the war with Hamas forces in the Gaza Strip, began. The bill amended a 1975 law requiring Israelis who sought to earn commissions on arms imports for the military to obtain a Defense Ministry permit.

The ministry had asked to cancel its oversight authority in 2012, claiming that it rarely used agents to procure weapons. It argued that most of Israel’s weapons purchases were made from the United States directly using American military aid, and that in any case the law forbids paying agent commissions on deals made with this funding.

The ministry said at the time that “the infinitesimal savings by reducing commissions doesn’t justify the bureaucracy involved” in overseeing agents, and that procurement through agents was “exceptional and wasn’t monetarily significant.” The ministry also argued that government intervention in the relationship between an agent and suppliers of military equipment violated property rights and freedom of occupation, an argument supported by the courts.

“In the purchase of submarines and defense vessels, the Defense Ministry didn’t use agents or intermediaries. As such, the Defense Ministry didn’t pay a commission in these transactions and/or other transactions,” the ministry said yesterday. “The article in the so-called agents’ law, which was passed after the Yom Kippur War, was revoked by the Knesset in 2014, in the wake of criticism by the courts in several instances regarding its constitutionality and given its irrelevance given the changes that occurred in the economic reality and defense procurement policy.”

In May 2015 the Defense Ministry signed the contract to buy four Sa’ar 6 warships to secure the gas fields at a cost of 430 million euro (around $480 million). A German investigation sheds light on the scope of the commission Ganor earns on such deals; the report revealed that in the Defense Ministry-ThyssenKrupp deal to buy three more submarines, which has not been finalized, Ganor, as its Israeli representative, could earn at least 10 million euro.

In recent months, senior Defense Ministry officials claimed that the ministry canceled an international request for bids to buy the submarines at the behest of Prime Minister Benjamin Netanyahu and his associates, and soon afterward arranged the deal with ThyssenKrupp.

Netanyahu’s attorney, David Shimron, also represents Ganor, and had contacted the Defense Ministry’s legal adviser to make sure the bid solicitation had been canceled. The legal adviser subsequently wrote to the Defense Ministry director general, saying Shimron “wanted to know if we are stopping the tender process in order to negotiate with his clients, as requested by the prime minister.” Shimron denied that he had mentioned the prime minister in his conversation with the legal adviser.