Bezeq Affair Shows Peril of Maintaining Dubious Communication Channels

Top officials at Israel's telecoms giant are expected to face indictments for their part in fraud case, casting a large question on their ability to continue running the company

Sami Peretz
Sami Peretz
Communications Ministry Director General Shlomo Filber in court, July 30, 2017.
Communications Ministry Director General Shlomo Filber in court, July 30, 2017.Credit: Ofer Vaknin
Sami Peretz
Sami Peretz

The Israel Securities Authority uncharacteristically broke a record Monday when it comes to investigations. Just five months after it launched the public stage of its investigation into Bezeq, and after questioning hundreds of people, it finished the probe by recommending unequivocally that indictments be filed against Bezeq controlling shareholder Shaul Elovitch, Communications Ministry Director General Shlomo Filber, Bezeq CEO Stella Handler, Yes CEO Ron Eilon and other executives at Bezeq and its Yes subsidiary.

Generally, these investigations can take more than a year, causing uncertainty for the companies, their owners and shareholders. Bezeq, the country’s dominant communications company, is too large and important to leave it facing such uncertainty, so the fast turnaround is quite an accomplishment.

The State Prosecutor’s Office was also involved in the investigation, so it’s quite likely a decision on whether to accept the securities authority’s recommendation to press for an indictment will be issued quickly as well.

Obviously, the suspects are innocent until proven guilty, but it’s not too early to call this one of the most important cases involving corporate governance that Israel has ever seen.

It contains a range of elements from Israel’s capital market. This starts with the controlling shareholder at the top of a massive pyramid of companies, all of which have been enlisted to help the controlling shareholder manage his bank debt; followed by the issue of executives serving the controlling shareholder instead of the company they manage; through to the matter of government ties – in this case, Filber.

As director general of the Communications Ministry, Filber is suspected of fraud due to allegations that he systematically advanced Bezeq’s interests while hiding his actions from bureaucrats and legal officials at his own ministry. He was appointed to head the ministry in June 2015 by Prime Minister Benjamin Netanyahu (who was doing double duty at the time as communications minister), and was a close associate of Elovitch.

The suspicions raised by the ISA investigation create a very disturbing picture – that Filber simply worked for Elovitch and Bezeq, instead of seeing to the public interest.

The ISA’s unequivocal recommendation to press charges against Elovitch, Handler, Eilon and others raises the question of whether they can continue leading Bezeq. If you look at the ISA’s recommendations and the law regarding the responsibility and independence of corporate boards as it concerns related-party transactions and corporate judgment, it would seem that Bezeq brutally assaulted the law, all to serve one man – Elovitch, the man who has appointed his corporate executives and most of the board members, and determines their salaries.

Regardless of whether the Bezeq affair ends in convictions, it clearly exposes a long list of conflicts of interest that harm investors by protecting the interests of the controlling shareholder, a man who took control of the company with little of his own money and lots of public debt.

The key question now is how Bezeq can be managed with such a heavy cloud hanging over the heads of its top executives. The answer is clear: the suspects cannot continue at the company. It’s hard to see how a company can function when its top executives are up to their necks in a criminal probe, and possibly a future court case too.

The employees and shareholders cannot be placed in this position; they deserve clean management, devoid of involvement in the case.

It’s clear the Communications Ministry also needs to be cleaned up. Filber won’t be returning as the ministry’s director general. But that’s not enough. We need to make sure that from now on, the ministry operates properly, that Filber’s secret line of communications with Bezeq is shut down, and that the company’s dialog with the ministry regulating it becomes transparent. The ministry has huge influence over the profits of Bezeq and Elovitch, and decisions by its bureaucrats may have great significance for these parties.

And there’s a message here for public servants more generally: Don’t maintain questionable communications with those whom you regulate, and don’t serve narrow individual interests at the public’s expense.

Great damage has been inflicted upon Bezeq. The suspects in the affair will obviously claim all their actions were taken with the good of the company in mind. But if the good of the company really matters to them, they should fight their private battles outside of its offices.

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