Shari Arison inherited two major assets from her father Ted after he died in 1999 – Bank Hapoalim and Housing & Construction Ltd. I doubt her father could have imagined that the businesses he willed her had seen their profits fed for so many years. I doubt he ever had expected them to cause his daughter so many legal complications and cost her so much money.
One thing we can be certain about is that Arison the father knew he was giving Arison the daughter two complex businesses that she would not necessarily be able to control, partly because she never showed a serious interest in them to begin with.
At a certain stage Ted Arison sought to limit her control over the empire she had inherited by handing more authority over to Shlomo Nehama, the executive who reported to her. But Shari Arison rebelled and her father ended up changing the will and granting her complete control over Arison Investments, the company that controled the family’s Israeli businesses.
However, financial and legal control is one thing, practical control over a business is something else. Twenty years later, Shari Arison is no longer in control of these assets, which were sold, but she has been scarred by the serious legal problems their global businesses caused.
On Sunday, police and the Israel Securities Authority announced they were handing over Case 1445 to the state prosecutor, which alleges that several Housing & Construction executives – among them Arison herself – bribed overseas officials to win construction contracts and boost profits.
The probe focuses on events that happened between 2008 and 2016, and the only reason it doesn’t go back any earlier is that Israeli law was only amended in 2008 to make bribing a foreign official a crime. Until then, there was nothing on the books to bar an Israeli company from making such payments. The amendment to the law only came under foreign pressure, in particular from the United Nations, the Organization for Economic Cooperation and Development and U.S. authorities.
Housing & Construction wasn’t alone in its alleged bribery. Not a few companies in Israel and elsewhere in the world – mainly those working in the developing world – engaged in illicit practices to win competitive bids by foreign governments. When in Rome do as the Romans do – until the bastards at the UN and in America changed the rules.
The same scenario played out with Bank Hapoalim and the other two Israeli lenders (Bank Leumi and Mizrahi Tefahot Bank) accused by the U.S. of helping Americans evade U.S. taxes. The Israeli banks were doing what a great many other overseas banks had been doing for 10 or so years – until the Americans changed the rules as part of a crackdown on money laundering, the international drug trade and the black market.
In the case of the banks, the U.S. did what it typically does when it uncovers corporate malfeasance – it made a deal for the accused to pay hefty fines. In the case of Leumi it was $440 million and Mizrahi Tefahot $195 million. Hapoalim still hasn’t settled but as of March it had set aside no less than $611 million, including legal expenses.
The two affairs are not connected with each other, but they reveal the way business was conducted until recently and would have continued that way if nothing had changed – generating profits fraudulently, even criminally. Ethical standards are poor and greed excessive. It even calls into question the ability of Israeli bank and corporate management. It also raises questions about the kind of incentives managers get that causes them to cross red lines for the stake of profits, and of course bonuses.
I doubt that Shari Arison herself was aware of the dubious practices occurring in her companies. She personally identifies with New Age ideas and is a major philanthropist, but as time goes on the significance of her ideas and contributions to the community have become outweighed by the practices of the business she controlled. She enabled her executives to do what they wanted.
It explains why she finally decided the time had come to exit: They were businesses that prospered when rules were loose but now the rules are changing and the day would come when she would get burned. That day came on Sunday.
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