Why Israeli Courts Can't Stand Up to Corruption

Many of Jerusalem's judges are brilliant, but their misunderstanding of Israeli economics, as seen in Olmert's trial, helps weld the link of big money and government.

Guy Rolnik
Guy Rolnik
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Israel's Former Prime Minister Ehud Olmert
Israel's Former Prime Minister Ehud OlmertCredit: Reuters / File photo
Guy Rolnik
Guy Rolnik

The judges devoted six paragraphs to what they called the “economic aspect” of the Holyland corruption affair, which involved unholy relations between high-ranking officials and businessmen.

The six paragraphs, about 500 words, written by Justice Neal Hendel, out of the 1,100-page verdict, just go to show how terrible Israel’s judicial system is at handling the sludgy, oozing rise of corruption in Israel, or contending with the terrific influence interest groups have over all branches of government, from the cabinet itself to the Knesset members to government companies, local authorities and regulators.

As 2015 rolled to a close, the Supreme Court partially accepted former Prime Minister Ehud Olmert’s appeal of his convictions and sentence in the Holyland case, which involved corruption in the real estate sector resulting in the construction of a residential project widely seen to be an eyesore, at best. A panel of five justices determined that Olmert will serve 18 months in prison instead of the six-year sentence handed down to him by the Tel Aviv District Court last year.

Journalistic coverage of the Holyland mess can be divided into three camps: (1) The camp of Yedioth Aharonoth publisher Noni Mozes, which bent over backwards to diminish the affair and shore up Olmert’s image by highlighting the Supreme Court’s critique of the lower court’s ruling; (2) the Sheldon Adelson camp, which supports Benjamin Netanyahu and hailed the conviction of Olmert, once Netanyahu’s bitter rival; (3) media outlets with no apples to polish or political patrons to please, driven at most by ideology, agenda or values, which compared the sentences and yet again warned about the dangers of corruption in government.

But none, and certainly not the Supreme Court ruling, painted the bigger picture of the processes corrupting the regime and elites in Israel. There are judges in Jerusalem and most are brilliant, dedicated people but in their blindness, conservatism and mainly their detachment from how the Israeli economy is really run, they lent a hand to many of the frightening processes happening here.

The place to start the discussion is the very short bit the judges devoted to the economic aspect.

As Justice Hendel wrote, various people have “presented a possible thesis of ‘efficient corruption.’ According to this line, corruption enables entrepreneurs to expedite bureaucratic processes or circumvent erroneous government policy. The corruption also reflects a sort of efficient competition between the entrepreneurs over public resources, and the winner of the race is the entrepreneur who derives the greatest benefit from the resource, for which he is prepared to pay the highest bribe. In other words, corruption boosts efficiency because it enables any entrepreneur with a big enough interest to overcome the inefficiency of the public worker or politician.”

The thesis, Hendel explained, is apparently based on the public sector being characterized by inefficiency, by nature. Corruption helps overcome that.

But Hendel rejects the theory. Mutual relations are forged between the corrupter and corruptee; the government official may wind up distributing resources under his control inefficiently, knowing there are entrepreneurs who will pay bribes in order to gain control of the resources. In other words, Hendel concludes, the possibility of corrupting officials perpetuates the pockets of inefficiency.

Some also tapped the hierarchical structure of public service as liable to intensify corruption problems, Hendel adds. Take, for instance, the process of obtaining licensing for a business: It can be a protracted process, which creates opportunities for corruption – some people will be prepared to pay a bribe to expedite the process, for instance. That will lead people to want to work in licensing (so they’re in line for grease), and will be willing themselves to pay bribes in order to get the job. And then somebody will be willing to pay for the job of appointing the licensing staff, and so on. “In other words, the social cost of corruption becomes multiplied,” he says.

There is an argument that the benefit the briber and bribee reap should determine the degree of punishment when they’re caught. In other words, the penalty for corruption should be graded: The greater the benefit, the worse the punishment.

Hendel began to touch on the connection between big money and the structure of government, the incentives of government and of the big money, and the ties between big money and government. But he didn’t get far. Not he, not his colleagues nor in fact anybody in Israel’s legal establishment has ever delved into the tremendous implications of the structure of Israel’s economy and the inability of the citizenry to protect themselves against institutional corruption in government and business.

The more concentrated the power in the hands of the few, the less the legal establishment is able to expose the corruption.

Tamar Zandberg, a Knesset member representing Meretz, called for the dismissal of the Transportation Ministry director general Oz Yitzhaki for his door-opening services. Good call, Zandberg, but perhaps this is the opportunity to fire hundreds of regulators and bureaucrats who open doors for a living.

The proof of the pudding

In contrast to the picture often painted by the press, the real corruption in Israel isn’t about cash in envelopes. That’s a system for novices and minnows and the slipshod. The more concentrated the economic and political power, the less the need to resort to such primitive methods. The regulators and bureaucrats know upon whom to smile, with whom to meet and with whom not to meet in order to advance their own interests, in the public service or afterwards.

Why would the real estate magnate Alfred Akirov keep Shula Zaken, Ehud Olmert’s former secretary and confidante, on salary while Olmert was on trial for corruption? Could criminal intent be proved? No, it could not; and Olmert didn’t have to promise Akirov a thing, orally or in writing; and Akirov did not have to promise a thing either.

The ability to sway governmental decisions in favor of cronies without leaving a shred of evidence behind increases with the concentration of power and money in the economy. That concentration creates cliques of businessmen, lobbyists and lawyers who have to trust one another; they can’t leave a paper trail. In game theory, people like that are playing “repeated games” – they’re not going anywhere.

Take a lawyer who constantly appears before regulators; the people in regulation learn that if they smile upon him, he can advance their careers. Nobody has to offer crass cash in envelopes; sometimes all it takes is to see the boss smile (or tense) when a lawyer, banker, tycoon, lobbyist or whoever walks in, for the message to be clear – that person is important. No incriminating tapes will be made; the structure of the economy, the repeated game, the body language, the organizational culture all lock in a bias toward powerful repeat players. In the one-in-a-thousand cases that reaches the court, the case gets thrown out for lack of evidence.

Some years ago, a young accountant working for the most important accounting firm in Israel got into the car of one of the biggest lawyers in the land, who was giving him a lift to court. The youngster was astonished at the rather similar phone calls the lawyer was handling from the car, from politicians and top officials seeking jobs for family members. After 40 minutes, the kid couldn’t take it and asked, “You have to do that too?” The old fox snorted. “That’s how I spend most of my time,” he answered.

In July 1997, a builder and political activist bought a huge plot of 1,400 dunams (some 350 acres) in the moshav Ginaton, for $24 million. It was a huge sum 18 years ago, especially considering the land was farmland. Two months later, a politician (the head of the Israel Lands Administration at the time) convened a meeting to discuss that plot. It turned out later that the head’s children had received large sums of money from the builder. As the attorney general wrote at the time, the head of the ILA shouldn’t have handled the contractor’s issues because of their personal and political relationships, but the conduct did not add up to criminal behavior.

The politician was Ariel Sharon and the contractor was Dudi Appel. Today the attorney general of the time, Menachem Mazuz, is a Supreme Court justice. Almost a decade after closing the so-called “Greek island” case involving the Sharons and Appel, the prosecution closed the case against Gilad Sharon over $3 million paid into his Austrian bank account for “agricultural consulting.” Charges? None. Conviction? Nonsense. No misconduct could be proved.

Where is the court at fault? It is at fault in three ways.

One: It is ignoring the critical influence power and money have over the ability of interest groups to orient political decisions in their favor, without leaving behind criminal evidence. Concentration creates socioeconomic networks that have to be characterized by high degrees of trust lest their actions leave spoor behind.

Secondly, the rare cases in which evidence is left behind are not treated severely enough. It is hard to obtain evidence against the most powerful people in the land, especially when they know that they have to keep the trust or become pariahs (or poor).

Thirdly, the court fails to understand the role of the media. In the Olmert verdict, the judge proudly noted they had not been influenced by the media, which displays a twofold misunderstanding of how the media affects the public arena. The media can have powerful influence, for good or bad, on society’s norms and ideas, which will seep through to the legal system.

Ultimately, rulings aren’t mathematical models: One set of evidence and laws can result in dramatically different verdicts and sentences. The variable is the judge’s discretion, which is influenced by the norms and ideas to which he is exposed.

Also, some of Israel’s media, actually the most popular ones, have actually protected powerful corrupt people, sometimes because the journalists or their bosses are “one of the boys.” Ehud Olmert, Danny Dankner and Avigdor Kelner, all of whom were found guilty of corruption, had social or economic ties with the elite of the press. The watchdog journal Seventh Eye has studied and documented the bias, mainly in the last two years, and sometimes outright lies in coverage of these people or their companies.

Five years ago, Stanley Fischer, then the governor of the Bank of Israel, tried to throw out Danny Dankner as chairman of Bank Hapoalim. Fischer was shocked at the knee-jerk reaction of most of the press and business world, and in politics, which was to support Dankner, or to minimize the affair. Fischer, now deputy chairman of the Fed, hinted at the time that his tremendous difficulty in wielding his authority as a regulator stemmed from the existence of an oligarchy that controlled most of the Israeli economy, with tentacles in government.

Yet Dankner, who was hailed by four of the six newspapers active at the time, wound up convicted of two affairs and will shortly be going back to jail.

The economic concentration in Israel, the exposure of cliques with vast power to influence regulation, politicians and the press, and the proliferation of “repeat players” acting in the seam between money and politics should have compelled the highest courts to leap into battle, to root out the rot.

But aside from a handful of jurists, the legal elite has remained detached; even the most brilliant, such as Aharon Barak, prefer to devote their time to issues such as constitution, rights, religion and state. They are not paying attention to discussion of how money and power concentrations affect democracy. Constitution, rights, religion and state are critical issues, but so is the corruption of democratic institutions, and at the end of the day, all are related.

In contrast to politicians, academics, regulators, social activists, associations and tame journalists who quail at the personal price they might have to pay if they blow whistles, the Supreme Court justices have no such excuse. They are more economically and organizationally independent than any other player in democracy. They’re just not taking advantage of that. The last jurist who did was U.S. Supreme Court Justice Louis Brandeis, 100 years ago, where he spearheaded a historic battle against the concentrated money taking over the economy and politics. But unless the legal elite wakes up and starts fighting, the same thing that happened to other watchdogs of democracy will happen to it: It will become part of the problem and the system.

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