Israel Police Arrest 20 Executives From State Roads Company for Bribery and Fraud

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Michael Gorolovsky at his arraignment, November 2, 2015. Credit: Ofer Vaknin

Israel Police on Monday arrested 20 executives, past and present, of the government company responsible for Israel’s road network, as well as a number of its subcontractors and suppliers. The move came after a months-long investigation into suspicions of bribery, fraud, and money laundering to the tune of tens of millions of shekels at Netivei Israel.

The suspects are alleged to have conspired to pay bribes and kickbacks to road company executives, in return for being awarded contracts to perform work for the company.

“The covert investigation revealed and established suspicions of several cases that have a common thread running through them of an organized and methodical modus operandi under which, in return for bribes and benefits for themselves and their associates, company executives would advance the business interests of certain outside suppliers,” the police announced.

Some of those arrested have also been implicated in the corruption investigation surrounding the Yisrael Beiteinu party, although this is a completely separate case.

Investigators from the Lahav 433 unit brought 18 of the suspects to court Monday to have their remands extended, including the daughter of a former minister. Among those arrested was former Likud MK Michael Gorolovsky, who was remanded for 10 days and is suspected of fraud, theft, money laundering and extortion by threats. In 2006, Gorolovsky was convicted of breach of trust after voting twice – in his own name and that of a fellow Likud lawmaker – during a 2003 Knesset session.

Also remanded for 10 days is Shimon Ben David, the head of Netivei Israel’s procurement and contracts department. Ben David is a former field activist for Kadima, who in 2008 became a top aide to former road company CEO Shay Baras when the latter was an executive at Ayalon Highways, and moved with him to the national road company in 2010. Ben David is suspected of bribery, fraud, breach of trust and money laundering, as well as drug possession. One of Ben David’s subordinates, Eitan Eidelman, was also arrested and remanded in custody until Sunday.

The investigation was conducted by the unit for investigating public corruption in government companies, which was set up two years ago under the auspices of Lahav 433, in conjunction with the Government Companies Authority. The probe was accompanied by prosecutors from the State Prosecution’s international department and involved the Israel Tax Authority’s customs and VAT investigation department.

Over the past few years, TheMarker has done investigative reports into the corruption suspicions at the roads company and gained insight into some of the methods. One way suppliers were able to pay the executives up to 20 percent of contracts on which they would barely make a 10 percent profit was to apply to the company’s exceptions committee after the job was done and demand reimbursement for “unexpected expenses” they claimed were the road company’s fault.

Getting the exceptions committee to agree allegedly became easier with the arrival of Baras as the company’s CEO in the summer of 2010. He immediately replaced the head of the exceptions committee and installed his own man, engineer David Gat, who would repeatedly approve the extra payments – often against the recommendations of professionals on the committee.

Baras allegedly facilitated this method by removing officials who refused to cooperate. For over a year, the roads company did not have a legal adviser or vice president of finance, or even a board chairman, as Baras ignored the demands of the regulators to fill those positions, and the regulators took no action.

Baras was arrested last May on suspicion of paying police officers for information about investigations against him through attorney Ronel Fischer, who, according to police, was given a consulting contract with the road company in return.

The system of bribery and favors did not necessarily make use of the exceptions committee. The newer allegations say the suppliers and contractors grew increasingly adept at methodically biasing tenders in favor of the companies they owned, even as many both inside and outside the road company were skeptical of how certain firms seemed to regularly win contracts.

This corruption might have continued except that in recent years it started to leave its mark on the ground, manifesting itself in cost overruns of hundreds of millions of shekels and months-long delays on projects on several routes, including the coastal highway (Route 2). Things came to a head with the sinking of the Dror interchange in December 2013, only two weeks before it was due to open, after three years’ work and an investment of 350 million shekels ($90.5 million).

The Dror Interchange scandal was a primary reason Baras was forced to resign from the roads company in 2014, which sparked the near collapse of the road company’s executive team. Eight senior officials left the company for the NTA company that is currently building the Tel Aviv light rail.

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