The Submarine Affair Gets Complicated: How Israeli Funds May Reach Iran

Iran Foreign Investment Company holds 4.5 percent of shares in ThyssenKrupp, the company at heart of affair over alleged conflict of interests by Prime Minister Netanyahu.

Prime Minister Benjamin Netanyahu climbs out of the Rahav, a submarine widely believed to be capable of firing nuclear missiles, Haifa, Israel, January 12, 2016.
Prime Minister Benjamin Netanyahu climbs out of the Rahav, a submarine widely believed to be capable of firing nuclear missiles, Haifa, Israel, January 12, 2016.Credit: Baz Ratner, Reuters

The Iranian government would benefit financially if the German company ThyssenKrupp sells submarines and boats to Israel, an Israeli media report revealed on Friday.

The possible deal involves three submarines and several boats (to protect Israel’s offshore natural gas platforms), and has been dubbed the submarine affair given the involvement of Prime Minister Benjamin Netanyahu and his personal family lawyer in the matter.

Yedioth Ahronoth stated that the Iran Foreign Investment Company holds 4.5 percent of the shares in ThyssenKrupp. The state-owned company invests money raised from the Iranian oil industry in a bid to counter the fluctuating price of oil.

According to the Israeli daily, Iran invested more than 1 billion marks (then worth $400 million) in ThyssenKrupp during the Shah’s rule. The first investment was made in 1974, with a second one following in 1977 when the German corporation ran into financial difficulties.

At the time, Iran held 24.9 percent of the company. At that time, ThyssenKrupp didn’t have the shipyard where Israeli submarines have subsequently been built, concentrating instead on steel, cars and elevators. The companies that make up the current corporation, ThyssenKrupp Marine Systems, were purchased in 2005.

According to the report, at the start of the 2000s, Iranian Deputy Economy Minister Mohamad-Mehdi Navab-Motlagh was on the German company’s board of directors. But in 2003, then-President George W. Bush defined Iran as part of the “axis of evil,” and America threatened not to sign new contracts with ThyssenKrupp until Iran’s involvement was reduced. Iran held 7.8 percent of the company’s shares at the time, making it the third-largest shareholder.

Due to U.S. demands, ThyssenKrupp was forced to purchase 17 million shares from the Iranian company, reducing its shareholding to 4.5 percent. The shares were purchased for 400 million euros, almost twice their value. American pressure also led to the removal of the Iranian deputy minister from the board of directors. In 2007, the value of Iran’s shares in ThyssenKrupp was estimated at 600-700 million euros.

Since 2010, all the German company’s business with Iran has been frozen because of the imposition of sanctions due to Iran’s nuclear program. Such business included engineering projects, which generated annual profits of 200 million euros – amounting to 0.5 percent of the corporation’s profits.

The German newspaper Handelsblatt reported last week that a source at ThyssenKrupp said the chances of the submarine deal falling through are increasing. Last month, Attorney General Avichai Mendelblit ordered a police investigation into the affair.

Several weeks ago, journalist Raviv Drucker revealed on Channel 10 television that attorney David Shimron – Prime Minister Benjamin Netanyahu’s personal lawyer – was involved in Israel’s submarine deal with ThyssenKrupp. Shimron is also the lawyer of the German company’s representative in Israel, Michael Ganor.

According to the Yedioth Ahronoth report, Shimron and Ganor have tried over the last few months to transfer the maintenance of naval vessels from the navy’s shipyard to a company to be set up by Ganor. The two met with the Histadrut labor federation leader Avi Nissenkorn and with the head of the union of Israel Defense Forces workers in order to obtain their consent, but apparently failed.

According to Drucker, Shimron and Ganor said the navy liked the idea and that the two had also met with the manager of Haifa Port, officials at Israel Shipyards and others. Shimron did not attend all of these meetings.

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