Israel and Germany Agree to Kill Submarine Deal if Graft Found

Agreement reached after Merkel rebuffed successive requests by Netanyahu's office that the memorandum of understanding for the purchase of three submarines be signed

ברק רביד - צרובה
Barak Ravid
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
ברק רביד - צרובה
Barak Ravid

Israel and Germany agreed a few weeks ago to call off the proposed purchase of submarines from a German company in the event that an Israeli police investigation substantiates allegations of graft related to the deal. Officials from both countries say the recent agreement was added as a new clause to the draft memorandum of understanding on the purchase at the insistence of the German government. The purchase memorandum is expected to be signed within a few weeks.

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On October 31, Prime Minister Benjamin Netanyahu announced in the Knesset that Israel was close to signing a memorandum of understanding with Germany to buy three new submarines. Two weeks later, journalist Raviv Drucker revealed on Channel 10 that David Shimron, Netanyahu’s personal lawyer, was also the attorney of an Israeli representative of ThyssenKrupp, the German company supplying Israel with submarines and missile boats to secure it offshore drilling operations. Netanyahu claimed he was not aware of Shimron’s ties to ThyssenKrupp and had not discussed the issue with him.

A new submarine built for the Israeli navy at the site of ThyssenKrupp Marine Systems in Kiel, northern Germany, in 2013.Credit: CARSTEN REHDER / AFP

In the past six months, since the first report on the issue appeared, additional details on the deal to buy submarines, as well as the deal to buy defensive navy boats, have come to light.

>> The Israeli submarine scandal: What we know <<

Among others, it has been reported that Netanyahu wanted to buy three new submarines as an addition to the six existing ones, expanding Israel's fleet to nine. Moreover, it was reported that Netanyahu had sought to purchase two anti-submarine boats. Eventually, in wake of opposition from military officials and then-Defense Minister Moshe Ya’alon, it was decided not to buy anti-submarine boats, and that the new submarines would replace older ones, expected to come out of service by 2030.

When the affair came to light, Attorney General Avichai Mendelblit said there was no need for a police probe, but a few days later he ordered an investigation, citing “new intelligence.” In late February, State Prosecutor Shai Nitzan announced that the probe was now a formal criminal investigation, while specifying that Netanyahu was not a suspect.

>> A guide for the perplexed: The many affairs involving Benjamin and Sara Netanyahu <<

The Israeli-German memorandum of understanding was supposed to be signed toward the end of 2016, but the flood of media reports and investigations in Israel and Germany led to the suspension of talks for over four months. High-ranking Israeli officials, speaking on condition of anonymity, said that the office of German Chancellor Angela Merkel rebuffed successive requests from the Prime Minister’s Office that the memorandum be signed, saying that the timing was wrong.

About a month ago, a meeting took place between then-Acting National Security Adviser Jacob Nagel and his German counterpart, Christoph Heusgen, on the memorandum of understanding. Heusgen said that due to the Israeli police's investigation and the cloud of criminal allegations hovering over the submarine deal, the Germany government wanted to make some changes to the memorandum.

Heusgen told Nagel that to end the stalemate resume work towards the memorandum's signing and shift towards negotiations over the contract for the purchase itself, Germany wants to add to the memorandum of understanding a clause conditioning the deal on the results of the police's investigation. Nagel briefed Netanyahu, who agreed to the German condition.

Heusgen and Nagel formulated an additional paragraph for the memorandum that stipulated that in the event that the Israeli police investigation found any improprieties or criminal offenses connected to the submarine deal, the memorandum will not come into effect, negotiations on the contract itself will cease and the deal will be canceled.

“The goal was to find a solution that would break the suspension and allow for the memorandum to be signed,” said a senior Israeli official. “The Germans wanted a safety net in order to proceed without risking being dragged into a corruption affair. It was clear to us that if something problematic were found in the police investigation there would be no submarine deal, but it was also clear to us that nothing of the sort would be found, and therefore we had no problem with adding the clause,” he said.

Senior German officials, also speaking on condition of anonymity, said the submarine deal was very sensitive and important to Merkel, in part as an expression of her explicit policy of strengthening Israeli security. Another factors included the size of the deal – nearly 1.5 billion euros – and the fact that one-third of that amount would be paid by German taxpayers as defense aid to Israel.

The German officials said that Merkel, who in September will be fending off challengers in an election, wanted the memorandum of understanding to be signed to guarantee that the deal would go through even in the event she is not reelected, without requiring any additional steps for the next German government. On the other hand, the chancellor also wanted to guarantee that she would not find herself handing over hundreds of millions of euros for a deal clouded in allegations of corruption.

The Israeli and the German officials noted that the amended memorandum is slated to be signed within weeks. It provides for the sale of three new submarines to Israel and stipulates that in the event that additional submarines are bought, the German government agrees to underwrite one-third of their cost, as it did for previous submarine purchases by Israel.

One of the Israeli officials said that talks on the purchase contract itself would follow the signing of the memorandum of understanding. He said that these negotiations, which would be between Israel and ThyssenKrupp, were expected to take from 12 to 18 months, concluding near the end of 2019. He added that the assumption was that the police investigation would be concluded by then.

MK Erel Margalit (Zionist Union) commented: "The prime minister is attempting to make a grab while under investigation that will cost $1.5 billion. Germany's insistence for the graft clause illustrates the gravity of the situation we have reached."

Margalit called for a delay in implementing the agreement until the Knesset's Foreign Affairs and Defense Committee can convene a meeting in the presence of Netanyahu. "Graft and security cannot go together," he added.

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