Lieberman's Appointment as Defense Minister Should Nauseate Every Israeli Taxpayer

The real question isn’t why the investigation into Lieberman's shady business dealings was closed. It’s why its closing is seen as legitimizing him.

A file photo of then-foreign minister Avigdor Lieberman on his way to a meeting in Jerusalem, August 29, 2011.
Baz Ratner, Reuters

Zionist Union voters received quite the lesson in democracy this month, and not because the party finally joined the coalition. It didn’t. Whether it had joined or not, it wouldn’t have mattered anyway. The people in Israel’s political system, whether on left or right, coalition or opposition, are focused mainly on something other than you: their own survival in government, perks and promoting regulation for the pet interest groups or tycoons that lifted them to power in the first place.

Let’s start with the social affairs minister, Haim Katz, though he gets less headlines than Zionist Union leader Isaac Herzog or Benjamin Netanyahu. Why Katz? He isn’t some central figure in the circus of the peace process, territories, security, left or right; but the way he conducts himself affects democracy more than you would think.

When people think about democracy, such as Israel being the “only democracy in the Middle East,” they think about elections, the parties, the primaries, the voters, right, left, center and other political ideas. But these ideas are meaningless if we don’t ask what this political system produces.

The political system is supposed to produce a quality of life, wellbeing, our future. But the only way to achieve that is through quality government.

The market – i.e. the business sector – is the best way to allocate resources and generate growth. But without quality public services and efficient regulation of the markets, the market creates this wellbeing mainly for the powerful who can grab it.

How a simple technician became rich

There are many ways to measure quality government – and there’s one simple way. Are the managers, bureaucrats and workers hired by merit and can they make objective decisions, or are their decisions biased by their own greater good?

Which brings us back to Haim Katz. Last week the Israel Securities Authority announced an insider-information investigation into the social affairs minister, formerly chairman of the Knesset Labor, Welfare and Health Committee and, for 20 years, head of the Israel Aerospace Industries labor committee.

Katz is suspected of being privy to insider information on a multi-billion deal put together by his friend, the billionaire Kobi Maimon, to merge the real-estate companies Nitsba and Airport City.

The press reminded us that Katz is a multimillionaire who owns five apartments and shares in the Isramco oil exploration company. His shares alone are worth millions of dollars.

There’s nothing wrong with being a multimillionaire. On the contrary. We’d like as many of those as possible in a free, prosperous economy. But before applauding the freedom of Israel’s economy, let us see just how Katz made his money.

His resumé might surprise. Katz was not born into riches; he went to vocational school (Ort in Givatayim), was trained as an electronics technician, was discharged from the Israeli army 47 years ago as a noncom, and was hired by Israel Aerospace Industries. In 1992, Katz achieved chairmanship of the IAI labor committee, a role he continued to play after joining the Knesset. He only gave up his union position after becoming a minister a year ago.

You might wonder, how does an electronics technician who worked at a government company until retirement age become a multimillionaire? And Katz has three children, too.

Katz never did explain this, of course. His holdings in Isramco and the apartments were exposed by journalists. Asked specifically about the shares, he says Maimon – who owns both Isramco and Nitsba – is a good friend, but he never received inside information.

That’s some coincidence, though. Katz is a buddy of Maimon, one of the richest people in Israel, the owner of two business behemoths that are profoundly affected by government policy; Katz is chairman of a powerful union, and managed to achieve something that most government employees don’t achieve – to become a multimillionaire in real estate and shares. A mini Warren Buffett.

Maimon is evidently popular. Another good buddy is Finance Minister Moshe Kahlon, who even recused himself from dealing with Israel’s natural gas finds because his friendship with Maimon matters more to him than dealing with the gas monopoly.

Kahlon’s decision to keep the friendship and ditch his responsibility is even more eyebrow-raising, given that Maimon is also one of Israel’s bigger investors in real estate; and if property prices really do fall, as Kahlon has promised voters, Maimon’s companies will suffer serious financial damage.

How were these friendships formed? Did Kahlon and Katz find Maimon and embrace him? Was it the other way around?

You’re overpaid, I’m underpaid

Back to democracy. Katz plays a special role in Israeli democracy. For years he’s been considered a heavy hitter inside Likud. Specifically, he is considered a key player in the party primaries. In the past, he’d pack thousands of IAI employees (it’s a vast company) onto buses, and send them off to vote in the Likud primaries. A decade ago, the police recommended Katz be charged in the context, but the attorney general dropped the case.

Labor unions at the giant government companies are powerful beasts. Nobody wants to mess with them. Better to grab at the low-hanging fruit than muck around fighting, and there’s plenty of low-hanging fruit at the IAI – the company has a whole caste of workers earning well above their peers in privately owned companies. The IAI also has thousands of unnecessary workers that no politician would dare take on. The upshot is that the IAI has wasted tens of billions of dollars over the years, paid for by the taxpayer.

Back to democracy again! When the experts exclaim over Israel’s wondrous democracy, they note the general elections every four years; the freedom of choice and the party primaries. But these are empty slogans. Voters at these primaries are basically workers of the type that Katz used to load onto buses.

I don’t mean to pick on Kahlon or Katz; this isn’t personal. Knesset member Shelly Yacimovich fought like a lion against the gas monopoly belonging to Yitzhak Tshuva and Kobi Maimon, but hasn’t peeped about the vast waste and corruption at the Israel Electric Corp. Don’t complain about her. That’s how “democracy” works. Surviving in politics requires back-scratching, or at least staying silent.

Some politicians argue that it’s better for overpaid, unnecessary workers to get the money rather than the tycoons. That argument is ridiculous. The companies overpaying the unnecessary workers aren’t owned by tycoons, but by the government itself. By the taxpayer.

Another argument is that they aren’t overpaid – it’s everyone else who’s underpaid. Sure, that works – so at first let’s triple the pay of the million lowest-paid workers in Israel. That would cost about 200 billion shekels (about $50 billion), which is equivalent to about half of Israel’s national annual budget.

Sure, make a million people take a course

The second stage of this plan is apparently for Katz to have a million minimum-wage workers and their ilk undergo a Dale Carnegie course in “How to win friends and influence people” (and while about it, make wise investments in real estate and oil that will make you a multimillionaire) – anybody can do it. Look, this electronics technician managed. And thus we will solve all of Israel’s socioeconomic problems.

Back to democracy: Since the social-justice protests erupted in Israel in 2011, millions of Israelis have begun to realize just how the capital market and business sector work in Israel, how a handful of people controlled most of Israel’s democracy by controlling hundreds of billions of shekels of the people’s wealth. Since the protests, regulation has been changed. Norms have changed. Ideas have changed and some of the regulators who had been accustomed to serving the ruling elite have changed their ways.

But these achievements are under threat and the private monopolies are still the biggest source of cushy jobs – and there are whole swathes of the economy where nothing has improved. Mainly, at the government monopolies.

Let’s get back to financing for a moment – whoops. Allow me to apologize for what I wrote above. If I don’t, I could get a letter from Pini Rubin, reminding me that Mr. Kobi Maimon is not the controlling shareholder of Equital, the company that controls Isramco. The controlling shareholder is Haim Tsuff. Maimon is just an adviser.

If you check the records at the Tel Aviv Stoc Exchange and Registrar of Companies, you’ll find there is no legal way to tie between this giant group, one of the biggest in Israel, and Maimon. Except that everybody associated with the group says Maimon calls the shots.

These are some of Israel’s biggest publicly traded companies. So what is the Israel Securities Authority doing about this? Nothing.

Which is weird. To begin an investigation, all the ISA would need to do is summon the boss, Finance Minister Moshe Kahlon, and ask him, “Sir, Mr. Finance Minister, why did you decide that your friendship with Maimon places you in a conflict of interest regarding the natural gas? Maimon has no official relationship with the companies comprising the gas partnerships.”

This is some democracy we have.

Onto the next luminary, the man cutting the coupon after that endless negotiation Herzog held with Netanyahu over joining the government.

This coupon-cutter is a serial one – not him personally, but people around him, at extents that would put Katz to shame. It’s Avigdor Lieberman, defense minister-designate.

In recent years, Netanyahu has abandoned his once-famous focus on economic matters and shifted it to security. Now he’s named Lieberman as defense minister, in the stead of Moshe Ya’alon. Wonderful – for years we have been saying what the defense establishment needs is an outsider at the top, a person with common sense, integrity, in whom the public has faith, a diplomatic manifesto and initiative. That’s got Lieberman all over it.

You don’t buy that? Read the attorney general’s decision, 80 pages written very clearly. Don’t have two hours to do that? Read the precis of it we published a year ago. Am I asking too much? Read this:

“After resigning as director general of the Prime Minister’s Office in 1997, Lieberman commenced business and financial activity in Israel and the world, doing so through two companies he established in Israel and in Cyprus (hereinafter, Netiv Israel and Netiv Cyprus) which were commercially related (sometimes they will collectively be called “Netiv el Hamizrah” [path to the east])

“Since his resignation, Lieberman has maintained business relationships with businessmen in Israel and abroad. In the framework of these relationships these companies and an Israeli company registered in the name of his daughter, received vast amounts of money, including for reasons not related to the activity of these companies, and which did not reflect compensation for their activity, according to the suspicion.”

After stepping down from public office in 2004, the attorney general’s paper continues, Lieberman had another company set up in the name of his daughter, Michal Lieberman-Galon, though he himself controlled it and was its main beneficiary. To disguise his control over and gains from the company, “Lieberman caused a false document to be sent to the bank, contravening the anti-money laundering provisions. The establishment of the company in that fashion enabled Lieberman or his agents, according to the suspicion, to continue taking considerable amounts of money even after his return to public office in 2006. When not in public office, Lieberman directly used most of the company’s revenues for his private purposes. Of the total, that company took in more than $1.5 million while Lieberman was in public office,” the attorney general’s document says.

“Analysis and evaluation of the total evidence in the case centers chiefly on the activity of five companies which had financial ties with a small circle of businessmen associated with Lieberman. Inter alia, these companies had financial ties with the businessmen Michael Cherney, Martin Schlaff, Robert Nowikovsky, Daniel Gitenstein and Dan Gertler. “Allegedly, beyond maintaining his association with the Cypriot company Netiv, Lieberman sustained two other business frameworks over which he had control during his terms of public service. The rights to the two companies were registered in the name of his former chauffeur and confidant, Igor Schneider.”

The two entities on Igor’s name were MV, a subsidiary of Netiv Cyprus, registered in the Virgin Islands, and Mayflower, which had business ties with associates of Lieberman.

The company owned by Lieberman’s daughter Michal, ML1, engaged solely in advising a Russian company, MVF Megatis, controlled by Danny Gittenstein, a childhood friend of Lieberman’s, and a man named Igor Weinberg, who is dead. For its advice, ML1 received about $3 million, the document goes on to say.

“There is no dispute that Michal Lieberman, the company’s owner, provided no advise to Gitenstein’s companies she says she engaged in the macro, not the micro and that her job was to find good employees, not to give advice. From her admissions, two main things arise: First of all, she has no concrete knowledge about the nature of the advice given secondly, she was unaware of the change in the identity of the company in 2008 [from Megatis to Washington].”

In any case, the attorney general’s document points out, under evidentiary law, Michal cannot testify against her father.

Intuitively, the story raises heavy suspicion against Lieberman, the attorney general’s document goes on to say, but when trying to translate the intuition into hard facts that would convince a court, the ground gets shaky. Moreover, to be done properly, the investigation had to reach other countries too; yet the decision fell to wind it down, not deepen it.

It didn’t help that one Joseph Schuldiner, a central figure in the affair who acquired Netiv el Hamizrach, died in 2006, so his version of developments could not be elucidated; another involved party from Moldova died in 2008 (after being questioned); yet another, a Russian who is believed to be deeply in the know, can’t be found, the document observes.

So although the case was closed, the document says, “many questions and considerable oddness remain unresolved, given the evidence ostensibly indicating Lieberman’s involvement in companies and illicit association with them. It bears noting that closing a criminal case for lack of evidence is not tantamount to a certification of public legitimacy, and does not eliminate the questions.”

Thus far the attorney general.

Maimon and Lieberman have a clear line in common: Just as Maimon does not control the giant group of companies that in turn controls billions of shekels and legal evidence cannot be established because of the network of companies registered in tax shelters around the world, Lieberman evaded charges even though the millions of dollars in the bank accounts of his driver and daughter held at Cypriot banks came from companies of uncertain ownership and provenance.

But the real question isn’t why the Lieberman case was closed. It’s why its closing is seen as legitimizing him. Here are more: Why isn’t Katz being pressed on the source of his wealth? Why did the finance minister recuse himself from handling the natural gas plan? The answers aren’t about Lieberman, Katz, Kahlon or the other politicians mentioned herein; they lie in the norms of Israeli democracy.

Appointing the champion of Cypriot shell companies as defense minister, a man who controls of budgets amounting to tens of billions of shekels and who approves every arms deal, should nauseate not only every Israeli mother who sends her children to the Israel Defense Forces, but every taxpayer too.