Police Investigating Unreported $57,000 Payment From Businessman to Israeli Minister

Money was allegedly received by Arye Dery in 2012 after he had announced his decision to return to politics. As interior minister, Dery later intervened in a legal dispute on the businessman’s behalf

Interior Minister Arye Dery arriving for a cabinet meeting in Jerusalem, November 2017.
Olivier Fitoussi

Shas leader Arye Dery allegedly received 200,000 shekels ($57,000) from a businessman in 2012 without reporting it, and later intervened on that person’s behalf in a legal dispute while serving as interior minister.

The money, which was deposited in Dery’s personal bank account, was received from businessman Ilan Sharabi before Dery had returned to the Shas party leadership and the Knesset, but after he had announced his intention to return to politics.

In early 2016, Dery became interior minister. Shortly afterward, on February 23, he met Sharabi at his government office in Jerusalem. Sharabi, who has been a close friend of Dery’s for years, asked him to intervene in a dispute between the Ramat Gan municipality and the Kfar Hayarok youth village – where a company owned by Sharabi is based. Dery agreed and asked ministry staffers to help.

>> The tragedy of ultra-Orthodox Shas leader Arye Dery | Opinion >>

Sharabi says the money he gave Dery was a loan and it was repaid in full. But Dery told the police when questioned on the matter that he had forgotten he ever received the money.

A few months ago, Dery met with Rabbi Chaim Kanievsky, one of the most prominent leaders of the “Lithuanian” (Ashkenazi, non-Hasidic) ultra-Orthodox community. Dery told the rabbi he wanted to repay the money and asked his advice. The rabbi agreed he should repay the money, but the police told him that doing so might interfere with their investigation.

Despite the police stance, Dery decided to repay Sharabi – some five years after he received the money.

It should be noted that Sharabi had loaned money to Dery on previous occasions and that, as far as is known, all those loans were repaid.

Anyone appointed as a minister is required to inform the state comptroller of any potential conflicts of interest, including any loans or gifts from potentially interested parties. But information obtained by Haaretz indicates that Dery never reported the money from Sharabi to the comptroller, and also refrained from revealing his financial ties to the businessman when he intervened on his behalf.

Sharabi owns a company called Metsuda Transportation Safety 97, which designs and makes road signs. It is based in the Kfar Hayarok youth village in Ramat Hasharon (just north of Tel Aviv).

Back in 2000, Dery was sentenced to three years in prison for corruption. After his release in 2002, he opened a company called D.R.A.R. Consulting Services and ran it until he returned to the Knesset in 2013. His consultancy was hired by many companies and businessmen, including leading tycoons like Nochi Dankner, Zvi Livnat and Lev Leviev.

One of the company’s clients was Metsuda, which paid Dery’s firm a retainer.

At their meeting in February 2016, Sharabi asked Dery to intervene in a legal dispute that affected him personally. The Ramat Hasharon municipality was demanding that Kfar Hayarok – the government corporation that runs the youth village where Metsuda is based – pay the municipality large sums in development fees on account of the land and buildings used by Sharabi’s company.

A few days before the Dery-Sharabi meeting, Ramat Hasharon had sent a bill to Kfar Hayarok for about 1 million shekels in fees. Both Kfar Hayarok and Sharabi claimed the municipality had no right to this money.

Nevertheless, Sharabi asked Dery to try to get the bill canceled. Following their meeting, Dery asked the Interior Ministry’s legal department to deal with the matter, but it was unable to find a way to resolve the dispute.

In the past, the courts have treated seriously the subject of politicians acting out of a conflict of interest, even if whatever governmental action they took bore no fruit, or was legitimate and reasonable in itself.

For instance, Jerusalem District Court ruled that former Prime Minister Ehud Olmert acted unacceptably when, in an earlier governmental role, he sent letters of recommendation to various tycoons about a company in which businessman Morris Talansky was a partner. The court said that since Talansky had given Olmert money, this constituted a conflict of interest.

The Dery investigation is being run jointly by the police fraud squad and the Israel Tax Authority, though the latter is considered the dominant player. The money from Sharabi is one of the issues the authority is investigating because, according to people involved in the matter, Dery never reported it to the authority. This could constitute tax evasion if, say, the money were paid to Dery as a consulting fee.

Sharabi confirmed to Haaretz that he met with Dery about the development fees, but said he had done so at the request of Kfar Hayarok’s management. Paying such a fee could severely undermine the finances, and therefore functioning, of Kfar Hayarok’s educational institutions, he noted.

He also said his company, Metsuda, is slated to vacate its premises in Kfar Hayarok soon and, therefore, there’s no justification for paying the fees. The company must vacate under a court order, which was issued on the grounds that its use of the premises is illegal.

Kobi Naveh, Kfar Hayarok’s general director, told Haaretz, “In the course of my conversations with Sharabi, the possibility was raised that the interior minister might exempt Kfar Hayarok from paying the fees. Either I asked Sharabi for help or he offered his help to assist Kfar Hayarok. I truly don’t remember.

“As for your question, if the court decides we must pay the fees, that would also have implications for the renter, Metsuda. If development fees are imposed on us, it’s reasonable to assume that all the beneficiaries will share in the payment.”

Police have questioned Sharabi under caution – meaning as a suspect in a crime – as part of their investigation into Dery. The investigation opened officially in March 2016, after police had spent months looking into the case unofficially.

The initial inquiry was approved by former Attorney General Yehuda Weinstein, who had reportedly hoped the suspicions against Dery would prove unfounded. Both Weinstein and his successor, Avichai Mendelblit, consider Dery one of the more responsible ministers in the current cabinet.

The police inquiry was opened after the authorities received information about millions of shekels worth of business activity conducted by Dery’s brother, lawyer Shlomo Dery. In January 2015, Haaretz reported that Shlomo Dery had bought land from his brother in Jerusalem’s Givat Shaul neighborhood for millions of shekels.

The brothers’ relationship

The investigators are pursuing several lines of inquiry, and a knowledgeable source said the investigation’s slow pace stems from “developments that have occurred since the start of the probe.”

One line of inquiry revolves around the relationship between the two Dery brothers. The investigators discovered that when Arye Dery purchased a family vacation home in Kfar Hoshen (aka Safsufa), Shlomo Dery picked up a significant portion of the tab. Shlomo Dery also helped his brother repay a $300,000 loan that the Shas chairman had used to buy shares in a medical research company.

Ever since Shas joined the government in 2015, Shlomo Dery has served on its behalf as vice chairman of the Jewish National Fund (Keren Kayemeth LeIsrael). The post is unpaid, but it is very influential. He was the party’s only candidate for the job.

At one point, police investigators even considered the possibility that the brothers were bribing each other, but this interpretation seems unlikely to hold water.

Since 2014, Arye Dery has been a registered shareholder of R-Cure, an Israeli company developing a device to treat pressure sores. The shares, which were purchased with his brother’s help, are currently being held in a trust.

The person who advised Dery to buy the shares was ultra-Orthodox businessman Mordechai Kugel, who was formerly a partner in LifeWave, a company acquired by R-Cure. Kugel confirmed to Haaretz that he had connected Dery with the biomed company.

Kugel, who immigrated from the United States in the 1990s, is a Jerusalem-based entrepreneur involved in many businesses. But he has run into trouble with the American authorities in the past, and in 2006 Ramle Magistrate’s Court convicted him of forging a passport and impersonating someone else. Kugel told Haaretz that things published about him in the past should be taken with a grain of salt.

By next March, the Dery investigation will have been underway for two years – a long time compared to other investigations of public figures. It is also looking into cash deposits made into Dery’s account before he returned to politics, and his use of cash to help pay for the house in Kfar Hoshen.

Dery has told associates the money came from relatives and was given as gifts during the many family celebrations he hosted for his nine children.

Police are also investigating some events that took place more than a decade ago.

Another suspect in the investigation is the minister’s wife, Yaffa Dery, who for years has run two organizations involved in charity and education for ultra-Orthodox girls – Mifalot Simha and Yehuda Ya’aleh. Haaretz has previously reported that many Israeli tycoons – including Dankner, Yitzhak Tshuva, Shari Arison and others – have donated millions of shekels to Mifalot Simha in recent years.

Mifalot Simha’s CEO is Arye Dery’s daughter, Shifi Sanans, while two of her sisters, Simha Avitan and Dasi Illouz, also work there. The organization’s financial activity is a focus of the police investigation.

Police are looking into several transactions between the organization and relatives of Dery’s, and they suspect that money was fraudulently taken from the organization. Yaffa Dery said there was nothing wrong with the organization’s conduct and that it obeyed the law.

Asked for a response to this article, Arye Dery’s office said: “Minister Dery has refused in the past to respond to leaks from the investigation, and therefore he also refuses to respond to this report. The minister will give his response only to the investigators, not the media. Minister Dery once again urges patience and respect for the investigation.”