Israel's Labor Minister Faces Indictment for Fraud, Breach of Trust

Suspicions against Haim Katz relate to 'give and take' with financial adviser, including allegations that the minister sponsored legislation to benefit him

Labor Minister Haim Katz at a government meeting in Eilat, August 4, 2019.
Olivier Fitoussi

Israel's Attorney General Avichai Mendelblit is expected to announce  that he will indict Labor, Social Affairs and Social Services Minister Haim Katz on charges of fraud and breach of trust. He is also to be accused of use of insider information.

As a result of a pre-indictment hearing last October, Mendelblit has decided against indicting Katz, member of Prime Minister Benjamin Netanyahu's Likud party, for bribery suspicions that appeared in a draft indictment.

To lay the groundwork for the filing the criminal charges, Mendelblit must notify the Knesset of his decision to indict Katz and ask the lawmakers to lift his immunity from prosecution so that he may be tried. Katz would then have 30 days to argue against his immunity being lifted, but any such deliberations could only be held once a new Knesset is in place following the September 17 election.

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The High Court of Justice has ruled that a cabinet minister who is indicted must resign which would means that Katz may be disqualified from serving as a minister in any new government following the election.

The suspicions against Katz relate to “give and take” relations with Moti Ben-Ari, a businessman involved in the financial markets who was a financial adviser to Equital, a company believed to be controlled by investor Kobi Maimon.

Katz is a former chairman of the worker’s committee at Israel Aerospace Industries. An investigation into suspicions that Katz put employees of the firm to become members of the Likud party while he chaired the committee is expected to be closed.

The investigation into Katz’s relationship with Ben-Ari began more than three years ago, and in May 2018, Mendelblit announced he was summoning Katz for a hearing on suspicions of bribery and receiving an item through fraud under aggravated circumstances.

According to the draft indictment, the relationship between Katz and Ben-Ari developed during the period from 2010 and 2015, during which they allegedly provided benefits to one another. Ben-Ari is suspected of advising Katz on the management of his investment portfolio, and prosecutors suspect that, as a practical matter, Ben-Ari managed the portfolio without charging Katz a fee.

It is suspected that Ben-Ari advised Katz to buy securities issued by an Equital subsidiary as a result of insider information that Ben-Ari had due to his connection with Equital.

“Katz and Ben-Ari carried out coordinated transactions of considerable scope through stock trades, in a manner that provided major financial benefits to Minister Katz,” the draft indictment said. “Ben-Ari’s expertise and major involvement in managing Minister Katz’s securities portfolio generated millions of shekels in profits. In addition, when Katz was appointed cabinet minister, he opened a trust account that in practice was managed by Ben-Ari, while concealing the identity of the manager, in violation of rules applicable in such a situation.”

According to the allegations, in exchange for Ben-Ari’s services, Katz sponsored legislation that Ben-Ari himself drafted that would benefit both Equital and Ben-Ari personally. The bill, an amendment to the securities law, changed the obligations of controlling shareholders of publicly traded companies that become insolvent. It was presented to the Knesset by Katz in October 2010 and was voted into law three months later.

According to the draft indictment, Katz, as chairman of the Knesset Labor, Welfare and Health Committee, headed the debate over the bill and invited Ben-Ari to appear before the committee as the only expert witness, while concealing his personal and business relationship with Katz, from the other committee members. Ben-Ari was allegedly presented as a disinterested expert, but the prosecutors say he had a substantial personal interest in the legislation’s passage.

“Minister Katz did all of this in exchange – allegedly – for benefits provided to him by Ben-Ari,” the prosecutors wrote, “acting in a conflict of interest between his public position and his private interests.”