Olmert's Network of Cronyism Goes Beyond Holyland

The former PM's conviction for bribery last week opened a Pandora's box of connections he has had with major players in Israel's business sector.

Tomer Appelbaum

In 2002, at the height of one of the most serious economic crises in Israeli history, the governor of the Bank of Israel, David Klein, managed to create anxiety in the country's banking system. A carelessly phrased answer to a reporter sent a warning that an Israeli bank might collapse. Klein refused to say which one, but in the markets they guessed that the bank most in danger was Israel Discount Bank – and its shares plummeted.

Klein regrets that slip even today, since his response could very well have caused customers to rush out and withdraw their funds, causing a run on the bank that may have caused it to fold – and possibly even leading to a system-wide collapse of other banks, financial institutions and companies. There could have been a sort of self-fulfilling prophesy.

That never happened: Discount did not fall, and the public calmed down. But such a statement by a senior economic and government figure should be uttered only the most exceptional circumstances.

The whole incident did not, however, bother then Minister of Industry, Trade and Labor Ehud Olmert. Indeed, a year later told Haaretz: “If the deal between the Dankner family’s Israel Salt Industries Ltd. and the Israel Lands Administration is not approved by the ILA council [which determines policy] – Bank Leumi could collapse.”

Klein said what he did because the enormous exposure of Discount's billions of shekels loans to large corporations could bring the bank down. In Olmert’s case, his statement was completely baseless. Leumi had a 1.4 billion shekels ($400,000,000) exposure to the deal. Even if it would have lost that entire amount, it was only 10% of the bank’s equity at the time. Serious damage but not enough to bring about its demise.

But that wasn’t the point. It is more relevant to ask why the industry and trade minister was interested in the first place in the Dankners' property, and what the connection was between it and one of Israel’s two largest banks. We must also remember that at the time Olmert served as chairman of the ILA’s council. What was at issue was a deal in which the ILA was asking for approval for a rezoning of the Dankners' property in Eilat in the south and Atlit near Haifa, from agricultural to residential land.

For the Dankners, the significance of the ILA's approval was enormous, almost existential. Back then they already partially controlled Bank Hapoalim, but they had achieved that by means of an enormous amount of credit – 1.4 billion shekels they received from Bank Leumi. An economic crisis at the time sent shares in Hapoalim plunging, so the value of the bank shares the Dankners owned dropped below the 1.4-billion shekels they owed; they feared Leumi would demand immediate repayment.

This is where guarantees for the loan entered the picture – the very same lands owned by the Salt Industries then under discussion at the ILA. Its approval for the rezoning would allow the Dankners to increase the value of their land, on paper, to 1 billion shekels.

At an ILA council meeting, Olmert told the members he was speaking from his heart – and asked them to green light the deal.

This was not the only time he acted in such a strange, or even suspicious, fashion. He went as far as saying certain things that could have endangered the Israeli economy.

Olmert seems to have used any tactics available back then to serve the Dankners' interests. He was never charged with anything in the Salt Industries affair, but the story does raise questions about his involvement in the deal – which was finally revoked not long ago, and as a result of which Dan Dankner, former chairman of Bank Hapoalim, was convicted of giving a 1.3-million shekel bribe to Meir Rabin, the brother-in-law of ILA head Yaakov Efrati; Efrati himself, however, was acquitted of taking a bribe on the grounds of reasonable doubt.

Bank Leumi sale tender

Today we can look back and examine with heightened concern the other scandals in which former Prime Minister Olmert was involved, and not just the most famous of them – i.e., the Talansky cash-envelope and Investment Center affairs.

One of the lesser-known affairs happened in 2005 when Olmert was finance minister in Ariel Sharon’s cabinet. The police investigated a suspicion then that Olmert acted to sell the state’s shares in Bank Leumi to two Jewish businessmen who were close to him: Frank Lowy and S. Daniel Abraham, both from Australia, who headed a group of investors bidding in the tender. And if all that were not enough, the lawyer representing the group was attorney Yosef Gross, whose daughter is married to Olmert’s son.

Olmert never informed the officials in his ministry of these connections with the group of investors.

The affair never made it to court, as State Prosecutor Moshe Lador decided to close the case. Lador said the police never found an adequate basis to prove that Olmert influenced the tender intentionally in favor of his friends. While the High Court of Justice rejected a petition asking them to order Lador to indict Olmert, the bench did criticize Olmert’s actions.

“The picture painted by the evidence is worrying. Olmert’s actions are not proper, and there is more than just bad taste in evidence here,” the justices wrote.

A few years later it turned out that the very same Abraham – on whose behalf Olmert was suspected of, but never charged with, fixing the Leumi tender – had helped pay legal fees for Olmert's longtime bureau chief Shula Zaken’s defense; she has also been convicted in the Holyland case.

One person who never stopped warning about the tender being fixed was Yaron Zelekha, then accountant general in the Finance Ministry, who also served as a key witness. Zelekha was constantly accused of seeing shadows everywhere, but did not hesitate to come out against his boss.

Zelekha may be quite well-off today and sometimes he even advises tycoons, but unlike many of his colleagues from the treasury, he was never sought after by the same tycoons to run their businesses – and never to serve as a board chairman. No one wants a “troublemaker,” and appointment of someone like Zelekha could be seen as a message to senior officials that even if they don’t do what the tycoons want – they can still find a good job. That is a message that could damage the entire financial system of the country.

In his book Zelekha later wrote that he participated in a number of meetings – along with other senior finance officials, including governor of the Bank of Israel Stanley Fischer – where Olmert tried to fix the Leumi tender in favor of his friends.

“At one meeting, two weeks after the final date to submit bids for the tender, Olmert sat with us at a meeting in which he read from a letter that described changes in the tender that would benefit Lowy’s group. This, of course, was something he was forbidden to do, since it violated the conditions that had been set forth.

“The letter was at some stage in Fischer’s hands. I grabbed it from him and saw it was actually a fax that Olmert had received from Lowy’s group. Afterward, Fischer told the police he didn’t remember any such thing. Like three monkeys, everyone sat there: No one understood but they were supporting the changes Olmert wanted to make, even though they knew that at the time of the announcement of the winner of the tender, Olmert was planning on traveling with his wife Aliza to Australia to see Lowy. (A trip that did not come about, in the end.) Later on the police didn’t remember or understand, and were surprised by the investigation itself,” noted Zelekha.

When asked about this a few days ago, Fischer declined to comment.

Akirov blames the press

Not many people remember, but one of the members of Frank Lowy’s group of investors for a short time – not until the end – was another friend of Olmert’s: businessman Alfred Akirov. He also wanted to buy control of Leumi along with them. And Akirov, too, as we have just learned in recent days, could find himself entangled in the next phase of the Holyland case.

Akirov will be invited to answer the police’s questions in the next few days, to clarify whether he actually paid Zaken to "keep quiet" during the Holyland trial by hiring her at his real estate development company Alrov, as an adviser on Jerusalem hotel marketing events and in the field of incoming tourism.

Akirov claims that he paid Zaken 12,000 shekels a month in wages, and she gave receipts as a self-employed contractor.

As is his wont, Akirov blamed the press for dragging him into the limelight now: “I assume that sticking my name in the Olmert affair was intended to satisfy the press, and nothing more,” he declared.

Today, Akirov owns 3.1% of the share of Bank Leumi, even though his main business interest lies in real estate and the hotel industry. The shares he owns give him some influence over the bank – for example, as concerns the choice of the chairman and the wages of senior executives. As opposed to state officials, Akirov voted in favor of the compensation packages for the bank’s CEO Rakefet Russak-Aminoah and chairman David Brodet.

Occasionally Akirov can be seen on television, always blames the media for fanning the flames or Knesset members for incitement against the rich. You can find in Akirov’s offices – as in those of public relations guru Rani Rahav of prominent attorney Ram Caspi – paintings done by Olmert’s wife Aliza, which cost thousands of dollars.

The Alrov real estate firm has built, among other things, the Mamilla project in Jerusalem just outside the Old City walls, as well as the famous Akirov Towers in Tel Aviv, a well-know status symbol. Olmert was responsible for years, as mayor of the Jerusalem and later as the chairman of the ILA, for the advancement of the Mamilla project.

Livnats behind the scenes

Nochi Dankner naturally drew the fire when the IDB conglomerate collapsed recently. His silent partners in controlling IDB, who also were company directors, were members of the Livnat family ־ specifically, the Avraham Livnat Group. They remained behind the scenes and came out of the debacle almost unharmed. Even today, after losing control of IDB, the Livnat family controls one of the largest and most influential companies in Israel.

The family deals not only in haulage and logistics, its traditional business fields, but also owns quarries and an explosives factory through Taavura Holdings Ltd. Taavura has a monopoly in the area of transporting cement, and also controls the publicly owned Maman, which operates cargo terminals at the airports. The firm also operates buses in cooperation with Egged.

In 2010, after he was already suspected of criminal acts in a number of cases, Olmert received an offer to work for Motti Zisser – before he too saw his business go bankrupt. Zisser already employed someone close to Olmert, former Jerusalem city engineer Uri Sheetrit, who was also convicted last week of receiving bribes in the Holyland case.

Olmert decided to accept the suggestion of Taavura and Avraham Livnat, who appointed him chairman of the Avraham Livnat Group.

This week Haaretz asked the Livnat family whether Olmert would remain chairman of the group after his conviction, or whether he would be fired – but the Livnats declined to answer. Sources close to the family said the Livnats see no reason to remove Olmert, and they emphasize that theirs is a privately owned firm.

The fact of Taavura being privately held – and not publicly traded – is important, since if it were public, Olmert would have no choice but to resign as convicted criminals cannot serve in such positions. The message seems to be that since the firm is private, convicted criminal Olmert has no contact with the public’s money.

This, of course, is deceptive. While the Avraham Livnat Group is a private entity, it owns a public company: Maman. Also, just a month ago Taavura raised 50 million shekels from institutional investors, who manage the public’s pension and provident funds. Add that sum to the 190 million shekels in loans the group has already taken out.

So, what is Olmert’s connection to all this? The Livnat family loves to tell the story of the father, Bondi, who will never forget how Olmert’s father invited him in when he was a poor, young Holocaust survivor all alone in a new country. It is certainly an emotional story, but it also has a very troubling side as revealed in the past by Raviv Drucker on the "Hamakor" investigative TV show: Olmert was involved as the industry and trade minister in decisions that favored Dankner and the Livnats. Olmert was responsible for raising duties on cement, which was to the benefit of the Livnats and their Nesher cement monopoly.

Bribes from public funds

Israel Salt Industries' lands, those at the heart of Danny Dankner’s second trial and conviction, no longer belong to the Dankners. It was sold a few years ago, along with their shares in Bank Hapoalim, to Shari Arison – the controlling owner of the bank.

Arison bought out the public in the industries, and now it is a private firm. But until then, the company was a public company controlled by the Dankner family. This did not seem to bother Dan Dankner, who took the money from bribes out of its coffers in 2003 and 2004. And Akirov has "joined" Dankner, by means of using the auspices of his publicly traded Alrov to hire Zaken – allegedly to ensure her silence.

This information was discovered by police investigations. The question is how many other such strange jobs are being offered today in companies in which our pensions and other savings are invested – but about whose operations the public knows nothing.

Nochi Dankner paid tens of millions of shekels over the years to lobbyists, brokers and various consultants – without the public knowing who those people were and why they were employed. Occasionally the media exposed a few of these cases. For example, IDB paid 4 million shekels to a new investment banking firm controlled by the former chairman of the Israel Securities Authority, Zohar Goshen, and lobbyist Tomer Amir: The sum was paid as brokers' fees on a deal to sell a company, but in the end some else actually closed the deal. Only nine months earlier Goshen still served as chairman of the ISA, which was supposed to supervise Dankner – but which allowed him and the Livnat family to distribute billions of shekels in dividends, thus precipitating IDB's collapse.

IDB also paid some 2 million shekels to Aryeh Deri, the head of the Shas party, for services that still remain unknown. Deri, as everyone knows, served as interior minister, was convicted of accepting bribes and was sentenced to three years in prison.

Tomer Appelbaum
Yuval Tebol
Tomer Appelbaum
Olivier Fitoussi
Yossi Zeliger