THE SHEKEL STOPS HERE!

PM Barak Tarnished By Election Scandal

Prime Minister Ehud Barak became the latest prominent Israeli politician ensnared in scandal, as the State Comptroller released a report in late January on illegal party funding in last year's elections which singled out Barak's Labor/One Israel faction for scathing criticism, fined the party $3.4 million and triggered an immediate criminal investigation into his campaign's fundraising activities. The findings have marred Barak's clean-cut image and cast a long shadow over his efforts to win the public's trust for major peace deals with Syria and the Palestinians this year.

The official report from State Comptroller Eliezer Goldberg found that 19 out of 34 parties who participated in the May 1999 national elections violated campaign finance laws, and each were hit with various fines. But the bulk of the findings dealt with the Barak campaign's blatant and extensive illegal use of a network of non-profit organizations (NPOs), concluding that Barak and his One Israel list employed a "worrisome method [of funding] that arrogantly tramples the rule of law." The section on "grave" Labor infractions ended by levying an administrative penalty of NIS 13.8 million, a figure that shocked party officials. Although Barak was not directly charged with breaking any laws, Goldberg contended "the extensive activity [of the associations]... should have lit a red light in the mind of the candidate."

A mere 15 minutes after the report went public, Attorney-General Elyakim Rubinstein ordered the police to open a criminal investigation of the pro-Barak associations, listing the suspected violations committed by One Israel as: accepting illegal campaign contributions, keeping false corporate records, fraud and breach of trust, and grand larceny under aggravated circumstances. Rubinstein also ordered police to investigate four other parties, including the Center Party, Likud, Yisrael Beiteinu, and United Torah Judaism. Rubinstein said it was not yet known whether the Prime Minister would be personally targeted in the probe, but that "every relevant person will be investigated."

Barak quickly reacted to the allegations, saying, "I didn't know about these groups. I wasn't involved in fundraising." He claimed he was too busy with campaign appearances and other matters to get involved with such details, and asserted that the campaign-finance laws were unclear.

The alleged campaign violations were first publicized by the opposition Likud party, who charged that Barak associates, including his brother-in-law, Doron Cohen, and current Cabinet Secretary Issac Herzog used illicit funds for surveys, campaign material and door-to-door recruiting. Likud MKs said that Barak's team set up non-profit groups in Israel and overseas to channel funds from wealthy donors wishing to make larger contributions than allowed by law. Even according to Barak's defenders, his new troubles center on deliberate attempts by his campaign handlers to exploit what they contend is a "loophole" in Israeli campaign financing laws.

To promote fairness, the 1973 Party Funding Law provides generous state funds for parties vying for the Knesset. Individual Israeli citizens are allowed to contribute around $400 to a party during an election year, but corporate and foreign donations are prohibited. In 1996, the Israeli electoral system changed with the first direct election of a prime minister. However, the funding laws - which refer only to "parties" - were not changed.

Barak's main defense is a letter solicited by Labor MK Eitan Cabel from Rubinstein in 1998 which stated that there are "problems of interpretation" in the question of whether the party funding law also applies to the race for PM. More recently, Rubinstein said the earlier letter was not an official opinion and has stated clearly that the law is relevant to candidates for prime minister as well. But the Barak camp says his prior letter is dispositive, and his new interpretation should not be applied retroactively.

Armed with what they felt was a pronounced "green light," Barak and his close associates - Cohen, Herzog, campaign manager Tal Zilberstein, and a handful of others - decided to take full advantage of this apparent loophole in the law to enhance his chances of defeating Binyamin Netanyahu in 1999. But the risky move ignored that former State Comptroller Miriam Ben Porat had charged Labor and other parties with extensive campaign funding violations in 1996 and warned there would be a "painful response" if it ever happened again. Barak and his advisers apparently were more worried about criminal charges - the Attorney General's domain - than the administrative sanctions assessible by the State Comptroller, and gambled that Rubinstein's letter was an absolute defense to massive fundraising outside party auspices.

Barak's party is now feeling the sting of Ben-Porat's previous threat of a "painful response" to such actions, as new State Comptroller Goldberg found a whole network of pro-Barak associations were set up for various charitable purposes - promoting immigration, student activities, ending poverty, etc. - but deviated from these goals by working solely for Barak's election. By election day, some $1.3 million had been diverted to the associations in question in a "systematic use of entities... to illegally further the Barak campaign."

The two key figures involved are Herzog and Silberstein. Goldberg explained that Herzog was the chief fundraiser, while Silberstein directed the funds to the respective associations. Much of the illegal funds came from the estate of the late Jewish philanthropist Octav Butner, a pro-peace advocate wanted in Britain for tax evasion who died in Switzerland in the summer of 1998. Herzog, an attorney and son of former Israeli President Chaim Herzog, was Butner's legal advisor and the administrator of his philanthropic activities in Israel. One of Butner's endowments, the "Camilla Fund," was earmarked for the relief of poverty and strengthening education in Israel, but Herzog used his authority to sign checks to fund pro-Barak efforts.

The report noted Herzog also used his fiduciary position with the Kahanoff Foundation, a Canadian charity, to transfer NIS 60,000 to a taxi drivers association and a student group to pay for anti-Netanyahu activities. Since then, a Toronto paper has discovered a further CAN$237,000 in Kahanoff funds were paid by Herzog to additional NPOs run by Labor figures. The Movement for Quality Government has since petitioned the High Court of Justice to seek Herzog's dismissal or suspension as cabinet secretary.

In another instance, the State Comptroller's report disclosed that the dovish NPO "Dor Shalom" signed a $150,000 contract to hang pro-Barak posters with a manpower company run by a drug addict with a criminal record. The addict received NIS 5000 simply for entering a bank to cash a check. When questioned by the Comptroller, the director of Dor Shalom said, "it was clear that I was getting into something very smelly...If I could turn things around, I wouldn't do it that way."

Justice Goldberg rejected Labor party claims that it was unconnected with these associations used only for promoting Barak's personal run for PM. Goldberg also dismissed their attempt to use the Attorney General's letter as a shield, insisting that, five months prior to the May 1999 elections, he personally warned each party that the law applicable to parties also applied to PM candidates.

Barak agreed the law needs to be clarified, but asserted "We won the elections as a result of our broad societal support and volunteers throughout the country." He also claimed the investigation had not tainted his public image among Israelis: "No cracks have appeared in my credibility. The people in this country who think I have ever lied to them could fit into one telephone booth." Later, Barak hedged, "If mistakes were made, they were done innocently." [A majority of Israelis questioned in a recent poll believed Barak knew the fundraising efforts were improper.]

Barak also has maintained that he did no fundraising overseas. However, a press report last March indicated he attended a $10,000 minimum donation fundraiser hosted by Hollywood mogul and Clinton-backer Haim Saban. Lord Michael Levy, the principal fund-raiser for British Prime Minister Tony Blair's 1996 campaign, is also suspected of raising "considerable funds" for Barak.

He also pleaded: "In such a large-scale campaign... it was not my responsibility to oversee the specific execution of my instructions." Likud MK Limor Livnat responded that Barak was acting like a "crybaby" in complaining of his heavy workload, asking: "If it's so hard to be a candidate and to know about criminal activity going on under his nose, how can he function as Prime Minister?" The Likud submitted a motion of no-confidence over the scandal and Barak's "culture of lies." The Knesset eventually defeated the motion, but Barak's troubles are far from over.

The Shas party said sarcastically: "With the President [Ezer Weizman] under investigation for receiving millions of dollars in contributions and half a million dollars in gifts, and the Prime Minister being questioned about millions of shekels in donations, Aryeh Deri should have been tried in the Small Claims court."

Israeli police initiated their investigation by assigning 30 officers from the national fraud squad, divided into five teams, to conduct research into violations by 5 parties. In one of their first moves, police arrested One Israel activists Shmuel Levy and Ronen Yamini in mid-February on suspicion of illegally soliciting funds for One Israel's election campaign.

Meanwhile, Labor and Likud are filing additional complaints and submitting boxes of new evidence to police against each other over further alleged election funding violations in last year's balloting. Additional Likud allegations include Barak's headquarters handed out food baskets to thousands of poor voters, which contained pro-Barak pamphlets.

Many leading figures in Labor rue the damage Barak's campaign team has inflicted on the party in his personal quest for the premiership. With the party already NIS 110 million in debt, a special fund-raising team was commissioned to ask party members to contribute NIS 900 in coming weeks, while party properties may be sold or joint-ventured to solidify their finances. Barak and party officials also bickered over whether to appeal the fine to the High Court of Justice. The petition has been put off for now, although Barak views abandoning the appeal as a tacit admission the funding laws apply to the PM race.

Many Labor leaders have murmured that their troubles stem from the direct election of the prime minister, because it has weakened their traditional power base. Several have vowed to redouble their efforts to repeal the direct election law, but their main obstacle is Barak himself, who quickly rose to power by virtue of the new system.

Barak has insisted the current police investigation will not impede his efforts to conclude peace deals with Syria and the Palestinians by year's end. However, political analysts predict it will hurt his chances of winning public referendums on any future peace accords, as many voters might use it as an opportunity to express their disappointment with Barak.


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