The massive flow of capital from Nathan Milikowsky, Prime Minister Benjamin Netanyahu’s American cousin, into the latter’s pocket has raised questions on possible implications according to Israeli law. But an angle that has remained almost unexplored is the possibility that these revelations could lead to a federal criminal investigation in the United States.
At least one complaint has been filed with the fraud division of the U.S. Attorney General’s Office in Washington, D.C. The investigation, if one is opened, will explore whether Milikowsky has run afoul of the U.S. Foreign Corrupt Practices Act (FCPA), a federal law designed to prevent the payment of bribes to officials in foreign countries.
According to the information known so far, Netanyahu received a discount worth millions of dollars when he purchased shares in his cousin’s Texas-based company Seadrift in 2007. In addition, the generous cousin transferred money, including cash, by various means, including a $200,000 loan to Netanyahu’s daughter, $300,000 paid toward Netanyahu’s legal fees, and loans of hundreds of thousands of dollars to Netanyahu himself. The means the money was transferred might vary from case to case, but what didn’t change is the flow itself. The main question: What does this generosity mean?
The FCPA was enacted in 1977 but was not left virtually unenforced for decades. Over the past 15 years the law has been more robustly applied as part of massive investigations led by federal agencies like the FBI and the Securities Exchange Commission.
According to Robert Henoch, who served as prosecutor at the U.S. Department of Justice for 15 years, the FCPA prohibits payments to public figures in foreign governments when the payment is intended to influence a government’s decisions or attain unfair business advantages. Henoch, who is now a partner in the Israeli branch of the U.S. law firm Kobre & Kim, adds that the law applies to citizens and companies associated with the United States. In practice, it applies U.S. law to payments to public officials outside of the United States, anywhere in the world.
Henoch is one of the legal sources we consulted with regard to the essence of the American legislation. He asked not to discuss Netanyahu’s specific case, and so anything regarding Netanyahu is on us.
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This is the gist of what we should know about the possibility of a federal investigation:
1. Netanyahu will not be a suspect
The prime minister is not expected to be a suspect in an investigation of his ties to Milikowsky. That’s because the FCPA does not apply to those receiving the payments but only to those who pay them, which is by definition the American side of the deal.
There have been cases where foreign public officials were suspected and even indicted in FCPA files. But that was by use of another law, for example, breaches of money-laundering laws.
FCPA enforcement policy takes into account diplomatic considerations, which means that a foreign head of state has never been a suspect in such an investigation by a federal agency. However, the very existence of a probe can be very unpleasant for the prime minister. Imagine a scenario in which a prime minister of Israel is asked to give his version of events by FBI agents in a criminal case involving millions of dollars that he received from an American businessman, whether such testimony is given in Israel or during a visit to the United States. Consider the implications for Israel’s image internationally and for Netanyahu himself. After all, the prestige of both in recent years has relied on their international status.
2. Tit for tat intent
In Israel, whenever a public figure receives money or gifts in kind without permission, it may be considered a breach of the law. Netanyahu is suspected of receiving cigars from the billionaire Arnon Milchan. Former Prime Minister Ehud Olmert was convicted of receiving hundreds of thousands of dollars in cash from businessman Moshe Talansky.
American law, in contrast, does not consider the receipt of money by a politician a crime in itself, especially when the giver is a family member. When is it a problem? In two cases: When the money is meant for a political campaign in order to get around restrictions on campaign financing, or when the money is given to get the public official to make decisions that benefit the giver. If we apply these principles to the Netanyahu-Milikowsky ties, in terms of American law, either this is a bribe case or there is no case at all.
To be clear: To establish a foundation for an accusation according to the FCPA, it does not have to be proven that Netanyahu actually used his authority to act for Milikowsky in exchange for the funds he received. It would be enough to show that Milikowsky intended to receive something in exchange from the prime minister. To this end, circumstantial evidence may be called on. It would be enough to show that Milikowsky had a prominent financial interest in a decision that Netanyahu has the power to make. To establish a basis to prosecute Milikowsky, it might be enough to call to testify two or three people who heard from Milikowsky that he intended, or even hoped, that Netanyahu would promote his business in exchange for the money.
3. Particularly low threshold
Let’s not mix up the burden of proof needed for an indictment with that needed for a decision to launch an investigation. To investigate the Netanyahu-Milikowsky ties, all that’s needed is a circumstance or fact that seems suspicious to a federal prosecutor.
Examples? A politician who chooses to manage his or her money in something other than a blind trust could arouse suspicion. Shares that a U.S. company transfers at a discount of dozens of percentage points, as much as 95 percent, or cash transfers without documentation to a head of state would apparently be enough to open an investigation in the United States.
To sum up: To launch an investigation, it is enough to show evidence of deals whose economic logic a federal prosecutor can be persuaded are strange. But if during the investigation no return can be found that Milikovsky at least hoped to receive from the large amounts of money he gave his cousin – case closed.
4. More incentives than obstacles
The main difference between Israel and the United States in terms of the possibilities for investigating the Netanyahu-Milikowsky ties stems from the approvals needed to launch such a probe. In Israel, the attorney general has to sign off; in the United States, there is no such obstacle.
Any prosecutor’s office in any state with standing in the affair has the authority to launch an investigation – it might be Massachusetts, where Milikowsky lives, or Texas, where Seadrift is located, or Delaware, where the company was incorporated. A well-known phenomenon in high profile cases is the competition created between the offices of attorney generals in various states. In these cases, prosecutors would race to see who could “catch” such a case first.
Such competition might be distasteful, but it’s a good reason to assume that the chance is certainly not low that an investigation of the Netanyahu-Milikowsky ties might ensue.
If and when a federal prosecutor initiates a probe, he or she will turn to a federal agency to do the actual investigating. In this case, based on past cases, this would probably be the FBI.
5. A hurdle: statute of limitations
One of the first questions that would apparently be asked in the Netanyahu-Milikowsky affair in its American context would be whether the statute of limitation might prevail and how long it is. For the FCPA it’s usually five years. According to what we currently know, it seems that the largest sums were transferred to Netanyahu 12 years ago, in 2007, when he was given the opportunity to purchase Seadrift stock at a price that seems suspiciously low compared to the market value. So on the face of things, the statute of limitations would apply.
But as in Israel, there are ways to extend the statute. One way is to show all the actions as one prolonged act, which would fall under an overall suspicion of a conspiracy to commit a crime. If that means is applied, it will be claimed that the series of transfers of wealth to Netanyahu began in 2007 and continued until the financing of his legal fees in 2019. And there you have an offense to which the statute of limitations would not apply.
6. Turning state’s witness in Israel?
Although Netanyahu is not expected to be a suspect in an American investigation (if there is one), it would be incorrect to assume that such an investigation is without legal risk to Netanyahu himself. In recent years, as a ban on bribery of public officials has begun to be more vigorously enforced around the world, international law enforcement agencies have begun to work more closely together. One of the implications of this is a plea bargain made with a suspect or indicted individual in one country, in exchange for which the suspect provides evidence in a case underway in another country.
That was the case in the first international bribery case prosecuted in Israel, the case against the Herzliya-based Nikuv International Projects in 2016. The company pleaded guilty to paying a bribe to the director general of the Interior Ministry in Lesotho, in southern Africa to win a tender. In the framework of a plea bargain, the company paid a fine of 4.5 million shekels ($1.2 million). Nobody in the company was convicted and in exchange, they gave evidence incriminating the recipient of the bribe in Lesotho. It cannot be ruled out that the authorities in the United States would come to a similar arrangement with Milikowsky - they would go easier on him and in exchange he would help the authorities in Israel to understand the meaning of his generosity to Netanyahu.