Olmert Corruption Probe Exposes Murky Role of U.S. Money in Elections

By Marc Perelman

Published May 15, 2008, issue of May 23, 2008.
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In the past two weeks, three American Jewish donors have been brought in for questioning by Israeli authorities investigating Prime Minister Ehud Olmert’s financial dealings. In addition to businessman Morris Talansky of Long Island, N.Y., who is a central actor in the probe, the police interrogated right-wing Las Vegas casino mogul Sheldon Adelson and Slim Fast founder S. Daniel Abraham, a longtime dove.

While Israeli officials stressed that Adelson and Abraham were merely witnesses, the sight of two American Jewish magnates being asked to shed light on their relationship with leading Israel politicians appeared to signal more aggressive scrutiny of the role of foreign money in Israeli politics.

Faced with stringent financing rules and frequent primary and general elections, Israeli leaders have increasingly tapped into the deep pockets of Diaspora Jews to fund modern-day campaigns. And after years of relative impunity, those fundraising schemes have become the focus of a series of police investigations, first and foremost the one that led to the guilty plea and imprisonment of Omri Sharon, a Knesset member and the eldest son of former prime minister Ariel Sharon.

“The Omri Sharon case has set a rare precedent in a country generally apathetic when it comes to corruption,” said Daniel Kayros, director of fiscal litigation at the Israeli advocacy group The Movement for Quality Government. “It is being taken seriously by the system, by the press and by the general public, and I am sure politicians are more careful than they used to be when dealing with campaign financing.”

Olmert has admitted to taking cash from Talansky over the course of a decade to fund personal election campaigns, but he has denied any wrongdoing and suggested that the money was handled by associates. He said he would resign only if indicted.

The prime minister has hinted that irregularities could have been committed as a result of the stringent regulations governing campaign financing, an argument similar to the one made by Sharon in his own case.

After being charged in August 2005 with setting up fictitious companies to conceal illegal contributions to his father’s bid to win the leadership of the Likud party in 1999, Sharon pleaded guilty in November of that year to falsifying corporate documents, perjury and violating party financing laws. He was eventually sentenced to nine months in jail.

Asher Arian, a professor emeritus of political science at Haifa University, noted that public financing of Israeli elections and Israeli political

parties was in fact “extremely generous by any comparative standard.”

“Not only are the amounts large and the shekels-to-vote ratio high,” he said, “Israeli parties get free television and radio time for their political commercials.”

In addition to expensive media-rich and consultant-heavy campaigns, since the early 1990s Israel has imported an American-style primary election system rife with opportunities to raise money rarely hampered by oversight.

Menachem Hofnung, a senior lecturer in political science at The Hebrew University of Jerusalem and a leading expert on political financing issues, argues that intra-party electoral competition is the main factor behind the tendency to disregard fundraising and expenditure regulations. Winning those internal battles is especially important in a system of proportional representation, since it usually means securing a safe seat on the party list.

“Those primaries are directly responsible for weakening political parties, wreaking havoc with party discipline and altering the considerations of elected representatives, who have become beholden to particular segments of their party who brought them into office,” said Naomi Chazan, a former Knesset member for the leftist party Meretz who now heads the school of government and society at the Academic College of Tel Aviv-Yaffo. “Needless to say, the opportunities for corruption have grown exponentially, as has the reliance on financial support from a variety of individuals here and abroad who have a vested interest in maintaining close relations with decision-makers,” she said. 

Israel had a system of private financing until the late 1960s, with virtually no oversight of party financing. In response to the rising cost of campaigning, the parties agreed to put in place a mixed funding system in 1973, with public money apportioned according to Knesset representation alongside private money, including funds from foreign donors. The growing share of private funding prompted a decision before the 1992 elections to limit private donations to 55,000 shekels, roughly $22,000 at the 1992 rate.

In 1994, however, campaign financing rules were rewritten. In addition to increasing public funding and putting in place more stringent transparency requirements, they entailed a drastic change of private funding rules: The ceiling was slashed to 1,000 shekels (around $350 at the 1994 rate) and limited to Israeli citizens exclusively. As a result, Israeli parties now rely almost solely on public funding.

Private donations, including those from foreign donors, have since shifted to party primaries, whose financing is loosely regulated, with oversight authority granted chiefly to the parties themselves. Moreover, reporting of contributions is required only for the nine months prior to the primaries, with no disclosure of fundraising and expenditures needed for any period prior to the cutoff date. In addition to allegedly amassing war chests before the nine-month period, politicians have supposedly collaborated with not-for-profit associations in a scheme in which not-for-profits would campaign for a given politician who would, upon being elected, use his position to steer government funding back toward the associations, according to Hofnung.

The shift of private financing toward individuals from parties has landed a number of leading politicians in legal trouble.

Each of Olmert’s three immediate predecessors as prime minister — Ariel Sharon, Ehud Barak and Benjamin Netanyahu (the latter two now Olmert’s main rivals for office) — have faced investigations over political financing. None of them, however, has been charged with wrongdoing.






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