Tale of Computer Espionage Rocks Highest Echelons of Israeli Business


By Ofer Shelah; With Reporting by Ha’aretz.

Published June 03, 2005, issue of June 03, 2005.
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TEL AVIV — In an unusual departure, Israel’s headlines and public conversations this week were dominated not by diplomatic, political or military news but by a business scandal. However, it was not just an ordinary scandal: With close to a dozen of the country’s most distinguished business executives called in for investigation so far, the so-called Trojan Horse affair is fast shaping up as the worst scandal of its kind in Israel’s history.

Among those arrested or questioned this week were top executives of two of Israel’s three cellular phone companies; the vice president of the country’s only satellite-TV outlet, and the president of one of the largest importers of cars and trucks, who also happens to manage Israel’s top soccer team, Maccabi Haifa.

In all, 21 people had been arrested by midweek, including several of Israel’s most sought-after private investigators. Police sources promise that this is only the beginning. Bezeq, which is the country’s largest telecommunications company and the owner of several of the companies involved, had its shares drop some 5% in the first two days after the scandal became public.

The story reads like a good thriller. Strangely enough, it began when a popular writer of detective thrillers, Amnon Jacont, discovered six months ago while surfing the Internet that excerpts from an unpublished novel were appearing on an unknown server. Suspecting that the excerpts had been stolen from his computer, Jacont went to the police. He also named a suspect: Michael Ha’efrati, 41, his former son-in-law. Ha’efrati, Jacont told the police, was obsessed with his former wife and her family. He was also a gifted software engineer.

Two police investigators started looking into the matter, and what they eventually found was startling: Ha’efrati apparently had written a malicious Trojan horse, a software program that invades the personal computers of unsuspecting people and transmits the contents of their hard drives elsewhere. Ha’efrati sold the software to several of Israel’s leading private investigators; they, in turn, used it for industrial espionage.

The most startling aspect of the case was the scale of the operation. It involved dozens of companies in a range of fields. All of them allegedly had bought illegally obtained information about their rivals’ plans and strategies.

E-mail was not the only path by which the Trojan horse virus invaded its victims’ computers. Some received compact discs with commercial presentations, ostensibly from would-be customers. For example, the Shalmor-Avnon-Amichay advertising agency learned that its computer’s security had been breached when

one of its top employees received an e-mail message asking her to submit a proposition for a campaign; when she opened an attachment containing a nondisclosure agreement, the software — undetectable by any of the victims’ security systems — penetrated the agency’s computer and transmitted its customers’ strategic plans to the investigators, who sold them piecemeal to the company’s rivals.

At Israel’s request, Ha’efrati and his current wife were arrested in London. Over the next three days, close to two-dozen top businessmen and private investigators were arrested or called in for questioning. The parade of top executives into police headquarters — one Ha’aretz reporter said the fraud unit “looked like a business convention” on Monday — prompted bitter media comments about the general state of morality, standards and law abiding in Israel as a whole.

“It’s a story of company fat cats who left their morals in their limousines,” commented Sever Plotzker, chief economic and social editor of the daily Yediot Aharonot.

The governor of the Bank of Israel, Stanley Fischer, told the Knesset Finance Committee on Monday that the affair could potentially damage Israel by scaring away foreign investors. “If things I hope don’t come out of the investigation, do — people will think about where they want to invest,” Fischer told the committee.

More broadly, the Trojan horse affair strengthened a widely held perception that the Israeli business world has become no holds barred, inhabited by ruthless executives who earn millions of dollars a year — something unheard of only 10 years ago — but live by a sort of law of the jungle in which everything is kosher in the name of the bottom line.

The effect of the affair was amplified by two other trends: a general disgust with the norms and morals of politicians, and rising violence in the streets.

Views of politicians’ morality, which hit a low point two years ago with the eruption of the Sharon family campaign-finance scandal, have hit bottom in the past two weeks, thanks in large part to a campaign by the daily Ma’ariv alleging cronyism in civil service appointments. One of the major culprits is foreign minister Silvan Shalom, whose wife, Judy Nir Mozes Shalom, is sister of the owner-publisher of Yediot Aharonot, Ma’ariv’s bitter rival.

Even more shocking is a series of gruesome killings that stunned Israelis, accustomed as they are to terror but not to random violence. A day before the Trojan horse story broke out, 15-year-old Ma’ayan Sapir, a beautiful honor student from Rehovot, was strangled to death in an orange grove by a stranger. A 16-year-old who was housed in a local youth detention center confessed to the killing, which had no apparent motive. Two days afterward, a 4-year-old girl and her aunt were killed in a drive-by shooting, apparently by underworld figures who mistook their car for a rival’s vehicle. The same day, a serial killer — something practically unknown in Israel — was arrested in Haifa and accused of murdering four people and burning their bodies.

No wonder Yediot’s new editor-in-chief, Rafi Ginat — a longtime television personality who once hosted an Israeli version of “America’s Most Wanted,” a show that called on the public to help the police solve crime mysteries — wrote a front-page op-ed calling for “an Israeli Rudy Giuliani.” In a country where leaders are elected based on their military record or on their views on the territories, many people were calling for a leadership that would set moral values and come down hard on crime.

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