The Real Breeding Ground of Israel's Corruption

Suspects in the Yisrael Beiteinu graft case exploited loopholes in the country's budget. Now there is concern the rot is spreading.

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Avigdor Lieberman and Faina Kirshenbaum during a Knesset faction meeting, November 12, 2013.
Avigdor Lieberman and Faina Kirshenbaum during a Knesset faction meeting, November 12, 2013.Credit: Emil Salman

As the investigation into the upper echelons of Yisrael Beiteinu expands, and evidence grows of bribe-taking by party apparatchiks, there is a growing sense that management of the state budget is in crisis.

With all due respect to Faina Kirshenbaum and her children, she would not have been able to accept the bribes she is alleged to have taken if she hadn’t been able to direct huge funds from the state budget to fund external organizations. Kirshenbaum may have been the highest placed politician to allegedly exploit the loopholes in budget management, but the existence of the loopholes is the real problem.

This is the second time in 20 years that the budget has been the subject of widespread bribery investigations. The last time saw Aryeh Deri, then interior minister and Shas party leader, at the center of the affair, which led to new policies at the finance and justice ministries to tighten up the procedures for how the government allocates its billions.

The last of these policies was only put in place last year, with new rules issued by the treasury on how the government allocates aid to nonprofit organizations. But it appears that, after two decades, the work isn’t yet done.

Rot spreading

Until now, the official version was that the loopholes Kirshenbaum and other Yisrael Beiteinu officials allegedly took advantage of were in marginal areas of the state budget – money allocated to nonprofits; special budgets voted on by the Knesset; and funds allocated as part of coalition deals.

But as the probe expands, the fear grows that it will be shown that the rot spread to the core budget – in particular, to money allocated to outside organizations that were contracted to carry out semiofficial tasks for the state.

These kinds of contracts are supposed to be subject to competitive bidding. Thus, if the Social Affairs Ministry – just as an example, the ministry has not been implicated in the Yisrael Beiteinu probe – wants to employ a nonprofit to provide services to at-risk youth, it publishes a tender where its requirements are spelled out and invites relevant groups to present bids. One or more will then be chosen, according to objective criteria, and receive ministry funding.

These tenders are conducted by ministry professionals. They are staffed by the senior relevant officials in the ministry: the director general and the top relevant official in the sector – for instance, the official in charge of at-risk youth. There are also gatekeepers, like the ministry’s legal adviser and comptroller. If everyone is working according to the rules, the process is supposed to be transparent, fair and professional.

Flouting the rules

But what happens when some of those involved are flouting the rules? For example, if the ministry’s director general inserts criteria into the tender that only a particular, favored, bidder will be able to meet. Or if the criteria are so vague that awarding the tender effectively ends up being at the personal discretion of the director general, who then disqualifies all bidders except his or her favorite. Will the gatekeepers be informed or alert enough to recognize such tricks?

At the Finance Ministry, officials say it depends on the professional abilities of the officials in each ministry. But the treasury also counts on a high degree of transparency as a second tier of enforcement: Since 2009, every government tender has been published online, which enables groups competing for the tender to have an interest in making sure the playing field is level, and filing a complaint with a court or the accountant general or leak it to the media.

Market discipline is also a mechanism the treasury relies upon to ensure that the especially sensitive practice of exempting some contract for competitive bidding isn’t subject to abuse. Every year, billions of shekels of government contracts are awarded this way. While there may be legitimate reasons for doing so, it is also ripe for corruption and bribery, and demands particularly strict oversight.

This is done by giving the gatekeepers sitting on the tenders committee – the legal adviser and comptroller – power to veto any decision by the panel to award an exemption. Second, it can only be awarded if the relevant ministry officials endorse it and put their rationale in writing. Third, the decision must be reported online to ensure the public knows. Only when no one files a complaint can the committee formally make an exemption.

Moreover, the law lists more than 30 specific criteria for making an exemption: for example, when a project is in financial difficulties and needs extra money allocated to it; it’s a classified tender involving national security; or projects that involve a mix of government and private funding.

Another is that there is only a single organization or company that can perform the service. Publishing exemptions on the Internet is supposed to inform other potential bidders who might not be known to the tenders committee. Exemptions for very large tenders must also gain approval from the treasury’s accountant general.

The catch is that while standards of awarding exemptions have, in many cases, been tightened, in others they have been loosened as part of a bigger program by the Finance Ministry to give ministries more control over their budgets. The Yisrael Beiteinu affair may now give the treasury pause for thought.

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