Back Door Channels: The Price of Peace-Part II: The Camp David Accords.07.05.13

Back Door Channels: The Price of Peace 07.05.13
Part II: The Camp David Accords

by

Howard Adelman

When I was in the Jerusalem Theatre at the historic moment of Sadat`s visit to Jerusalem when Sadat, Begin and Peres made speeches, I was overwhelmed with how articulate, witty, warm and forthcoming Sadat had been. Peres was also his usual serious political self clearly open to peace and welcoming to Sadat. Begin was the grouch. It was as if Sadat had not said anything and had not taken the bold step of coming to Jerusalem. Begin told Sadat about the Jews as victims of the Holocaust, as if Sadat was a school child. The second note Begin struck was on the Jewish historic right to Palestine and Jerusalem. Begin could have been giving a speech to Irgun followers in 1946. The session was filmed at the time, but there are no clips from the Jerusalem theatre included in the documentary, Back Door Channels: The Price of Peace.

I tried to indicate in my last blog what an amazing military and political leader Sadat had been. My own sense is that the film failed to convey the enormity of his role. As a military leader, he rivals Churchill for he had to remake a demoralized and dysfunctional military organization, depoliticize it and give it a sense of purpose and pride. He succeeded. In this blog I want to focus on Jimmy Carter. For he does deserve great credit for both initiating the Camp David talks and for personally mediating between two very opposite personalities, one of whom Carter detested. How did he do it? What does the documentary contribute to help us understand how the Camp David Accords were concluded? What happened in the thirteen days of negotiations at Camp David that allowed President Anwar el-Sadat of Egypt and Prime Minister Menachem Begin of Israel to sign an accord on 17 September 1978 at the White House to agree to end the state of war between Egypt and Israel? How do you pull off a peace accord when one of the leaders, Menachem Begin, is contemptuous of both Sadat and Carter and where Sadat despises and Carter comes to hate Begin?

One form of credit must be given to all three leaders – all three were very courteous gentlemen, even when they were separated by bitter differences. More specifically, Jimmy Carter was a true southern gentleman. He may often not hear what is really being said and somehow manage to convert what his said into his own predilections, but he was always the ultimate in consideration in ensuring that others had and were enabled to voice their views no matter how he weighed those views.

One might have expected that back door channels would be irrelevant now that direct talks between the leaders of the two states had been initiated. In fact, Leon Charney, an American lawyer who became an agent for Ezer Weizman’s book, not only played a small role in feeding information to Weizman that Sadat was sincere in wanting to make a peace deal based on return of the Sinai to Egypt, but during the Camp David discussions he served as the conduit between Ezer Weizman and Robert Lipshutz who had been close to Jimmy Carter for many years, had served as the treasurer in Jimmy Carter’s presidential campaign and then served as counsel to President Jimmy Carter from 1977 to 1979. That back channel was critical in overcoming personality blockages as well as figuring out how to get around roadblocks, such as the insistence that all land be returned to Egypt in exchange for peace and that provision be made for a settlement on the Palestinian issue.

As background, hinted at but not detailed in the documentary, Wolf Blitzer when he was a reporter for The Jerusalem Post contacted Robert Lifshutz and told him that there was a predominant narrative about Lipshutz circulating in Israel that Lipshutz was anti-Israel and even anti-Jewish even though Lipshutz was Jewish. Blitzer introduced Lipshutz to Leon Cheney who was close to Ezer Weizman. The film is particularly strong on the back channel developed from Carter to Lipshutz to Cheney to Weizman and from Lipshutz to Stuart Eizenstat who played the most important role in the senior White House staff in communicating to the Jewish community leadership in American and through them back to Begin. The back channels helped break down problems and determine what was possible and what was impossible. Strengthened by the information he received, especially on Begin’s views, Carter was able to come up with proposals that Ezer Weizman could sell Begin on directly. However, by focusing almost exclusively on the role of the back channel, the whole sense of perspective is lost.

Further, although this was a back channel that worked superbly, the same back channel was unsuccessful when it was used to deal with the American hostages held by Iran. Leon Charney got word from Austrian Prime Minister, Kreisky, that, because Kreisky had a close relationship with Yasser Arafat, that channel could be useful in negotiating the release of the hostages. After all, Khomeini had given the American embassy in Tehran for the Palestinians. Charney contacted Lipshutz, who was by then no longer White House Counsel, who told Jimmy Carter. Carter arranged to have Charney and Lipshutz fly to Vienna to see what could be done. Charney flew to Israel to get the Israelis on board and Charney fed back to the White House that, “Provided you keep us well informed, we want to cooperate and help you get the hostages out.”

That back channel opening failed because the Carter White House thought that utilization of that back channel would have amounted de facto recognition of the PLO. In my estimation, this was an error by the White House and could possibly have allowed Carter to win a second term. Cy Vance had convinced Carter that the risk was not worth it when the whole point of back channels is that you can take such risks because Carter could deny everything. The film, in this case, missed an opportunity to show the importance three critical elements: 1. personal long term trust; 2. intimate contact; and 3. sidetracking spoilers to make back channel diplomacy effective. The second was only present in small part and the third aspect was lacking.

There is another source that somehow was not used in the film. On the 25th anniversary of the signing of the Camp David Accords, a year after Jimmy Carter was awarded the Nobel Peace Prize, on 17 September 2003, the Woodrow Wilson International Center for Scholars held a forum chaired by Lee Hamilton from the Woodrow Wilson Center on the topic that, though it did not include Lipshtiz, did include many of the participants including, President Jimmy Cater, Vice-President, Walter Mondale, William Quandt, the member of the U.S. National Security Council who was the best informed of the Americans on Middle East issues, Elyakim Rubinstein who had been the assistant director of the Israeli Ministry of Foreign Affairs, Zbigniew Brzezinski U.S. National Security Adviser to the President, Aharon Barak then Israeli Attorney General and subsequently Chief Justice on the Supreme Court of Israel, Harold Saunders U.S. Assistant Secretary of State for Near East Affairs, Hamilton Jordan U.S. Chief of Staff to the President, Jody Powell U.S. Press Secretary to the President, Samuel Lewis U.S. Ambassador to Israel, Hermann Eilts U.S. Ambassador to Egypt, Osama el-Baz Foreign Policy Adviser to the President of Egypt and, representing the back channel, Leon Charney, who, as was his custom, rarely spoke. Rosalyn Carter was also present for it was she who planted the idea in Jimmy’s head of inviting Begin and Sadat to meet at Camp David and was both present and active in the whole process. Osama el-Baz, Sadat’s adviser could not be there because he was at the time actively involved on behalf of President Mubarak in dealing with the Palestinian resort to violence, but he appeared on a video hook-up.

In that forum, Carter recalled the meetings after the historic visit of Sadat to Jerusalem between Sadat and Begin at Ismailia and between representatives of the two sides at Leeds in Great Britain that ended not only in failure but in acrimony, hostility and bitterness between the two leaders, though the wide-ranging discussions did allow the Americans to grasp the opportunities for compromise and define the pitfalls so important in allowing the Americans to write the first draft of the Camp David Agreement that was forged immediately after Leeds and produced at a strategic moment at Camp David. The film omits this context.

Sadat had his ambitious agenda. Carter had a modest one of simply setting an agenda for a fuller peace process and conference. Begin was amenable to Carter’s modest goal. As the film shows, the attempt to get Sadat and Begin to talk directly was a complete failure. The two ended their first discussions in a shouting match. Carter began a process of shuttle diplomacy within the confines of Camp David. When faced with failure on the 11th day, Ezer had pressed for another try and Aharon Barak became the key to writing a compromise to which both Begin and Sadat could agree on the settlement issue.

Barak was clear that Camp David would “never, never be possible without the involvement, the care, and the dedication of President Carter.” But Barak also threw a few sly and gentle digs at Carter, complimenting him for his mastery of detail, but also referring to his arguments with Carter over detailed wording when Carter was neither a legal specialist not an expert on the Middle East. This is not in the film. Second, though alluded to in the film, an important difference is that the Egyptians were split but led by a forcible personality who believed primarily in attitude and commitment. The Israelis believed in detailed preparation and, in that regard, Carter personally, in contrast to the American delegation, was ill-equipped. The Israelis had a peace plan and a solution for the Palestinians based on autonomy that was in accord with the Egyptian position. The Israelis came with draft agreements and fallback positions. They also had a detailed knowledge of the position of the Egyptians. Carter came with a genial smile and very deep convictions.

Critical to these negotiations, and absent in many, was trust in the integrity of the negotiators and honesty on each side quite aside from differences in interests and principles. Since the film emphasizes the back channels rather than the direct discussions and the roles those played in advancing the direct channels, these factors are underplayed in the film. But the back channels could not have been successful without first having that trust. If the back channels were only used to get around the enormous distrust between Begin and Sadat, they would have proven insufficient. What Carter, Sadat and a good part of the Israeli negotiating team brought was persistence combined with the creative imaginations of both Sadat’s and Aharon Barak.

What happened is that the real negotiations took place between Barak and el-Baz and then both the front channels and back channels used to sell the deal to Begin. When I was involved with the negotiations on the refugee issue when Canada gavelled the talks, I was told by our Canadian ambassador who led the talks that I would never succeed as a diplomat because I had been taught through my philosophical training to use clear and distinct ideas. A diplomat had to master the art of creative ambiguity. Barak and el-Baz were masters at that craft. Carter was trained as an engineer and was not facile with equivocation. Barak and el-Baz formulated ambiguous wording at a level of abstraction just sufficient to obscure their differences, but not so abstract as to be meaningless. But Carter was patient, indefatigable, dedicated and had a strong sense of mission that, whenever the negotiations flagged, managed to give them a new spurt of energy. Barak and el-Baz not only negotiated, they engaged in dialogue, told stories, explained background. Back channels are of little help in the hard slugging of negotiations themselves or providing the necessary dialogue that allows negotiations to be fruitful.

Carter deserves enormous praise. But he was often misguided – such as in his initial stress on the Geneva route. The U.S Ambassador to Egypt, Hermann Eilts, erred in this regard in giving credit to Jimmy Carter`s letter to Sadat urging a bold step as a key to the Jerusalem visit when historical documents seem to sustain a story line that Sadat went to Jerusalem in spite of American policies on the peace process. Eilts claimed correctly that when Jimmy Carter became president, he shifted from a stress on a step-by-step approach that had characterized the previous administration to a comprehensive approach. Eits believed even twenty-five years later that this shift had an enormous impact. I, and I believe most historians, would argue that the impact was negative for any comprehensive approach at that time was doomed to failure. The Geneva effort was a dead end.

It may be true that Carter gave up the comprehensive approach only when Assad of Syria did not agree to take part even when Carter supported Assad`s call for a united Arab delegation. Carter`s letter to Sadat encouraging a bold step was not even a catalyst in Sadat`s initiative. Sadat had already been on that route. Jimmy Carter`s accession to Assad`s push for a united Arab delegation only accelerated Sadat`s efforts. As the American ambassador to Syria said, President Sadat did not want to mortgage Egypt’s foreign policy to the lowest common denominator. Sadat decided to move ahead separately. Carter`s answer to this interpretation is revealing because he claimed that America was bound by United Nations resolution that called for an international conference to be headed by the United States and the Soviet Union. Carter simply evaded the question and narrated the details of his many efforts to get Assad aboard before, in fact, conceding, that Assad was inflexible. Carter conceded that his administration `by default` placed our eggs in the Sadat-Begin basket.

Even given that the timing was propitious for an agreement, and even given the extra assistance provided by the back channel, Carter does deserves enormous credit for his commitment and voracious persistence backed up, as Samuel Lewis has remarked, by an unusually united Defence, State, and Intelligence departmental coherence that matched the Israeli briefs in its detail. As Sam Lewis has said, “without that daily concentration of the president driving a process to a conclusion as quickly as possible, you’re not likely to get there, because something is going to blow it out of the water.” Persistence was needed. Timeliness was a prerequisite. So was detailed preparation and coherence. The Americans provided all four. Further, even if both Begin and Sadat were strong leaders, Begin was hard to negotiate with for the best of diplomats.

Because of the focus on the back channel in the film which only dealt with a few issues that were blocked where behind the scenes maneuvering could help, look at the long road the negotiators had to travel in thirteen days. Menachem Begin, who had dedicated his life to a deep belief in the greater Israel, at a minimum, an Israel between the Jordan and the Mediterranean Sea, had to agree to subscribe to UN Resolution 242 requiring Israel to withdraw from occupied territories. Begin had to subscribe to the principle that territories could not be acquired by force, and, in the case of Egypt, the withdrawal from all of the Sinai captured in the Six Day War. He had to agree to withdraw security forces to defined enclaves. The Israelis had to give up their advanced defence positions, including three airfields. Begin had to set the precedent of giving up 14 settlements, including the large infrastructure that had been developed at Sharm el Sheikh and Yamit (the latter with over 3000 settlers). Sadat had to agree to the part of its territory being returned to be demilitarized – a problem later for securing the Sinai from Palestinian terrorists and militant Bedouin as well as leading to the creation of the tunnel economy into Gaza. Sadat had to swallow the humiliation of having a foreign peace force on Egyptian territory and to limit how close his own troops and military, including artillery and tanks, could come to the Israeli border.
Of course, the greatest effort in creative ambiguity was over the surrender of the settlements as Begin had vowed never to return a Jewish settlement. Aharon Barak`s skills were really tested. This was the issue in which the back channel efforts were so effective in allowing Begin, a man of great principle, to keep his vow, by allowing the Knesset and not himself to agree to surrender the fourteen settlements. Without this final concession, the Camp David talks would have ended in failure. Begin got his way in agreeing to full autonomy for the Palestinian Arabs as a people but not a nation but without full self-governing authority over their own land which, for him, only the Palestinian Jews were entitled to have. Unfortunately, the film does not have and cannot take the time to convey the enormity of this leap for a leader of Begin`s ilk.

This was the biggest issue on which Sadat had to compromise. Neither the Americans nor the Israelis recognized his sincere belief in trying to advance this issue for they thought, given their realist assumptions, that he was negotiating simply to provide cover for himself. But he was a firm, both for his own political survival as for the success of the peace talks, in his belief that progress on the Palestinian front had to be in tandem with peace on the Egyptian-Israeli front. Both the Americans and the Israelis let him hang naked and exposed on this issue because the Palestinians were not part of the compromise. With his own contribution, the Israelis and the Americans had boxed Sadat into a suicidal cul-de-sac where he was forced to negotiate on behalf of the Palestinians who were not present and for whom he could never be a legitimate negotiator, but unless he negotiated on their behalf, there never could be an Israeli-Egyptian peace agreement. That compromise alone would turn Sadat into an enemy for those who believed that no Muslim was entitled to cede Muslim territory to Jews.

Further, the peace negotiations had to overcome other obstacles that belonged to neither Sadat nor Begin. Jimmy Carter had then and continued to have a commitment to the principle that all settlement activity by the Israelis was illegal. This was the case even in his interpretations of the discussions twenty-five years later. Elyakim Rubinstein, who was a mandarin and not a party ideologue, had to remind Carter diplomatically that this was his belief and not that of every American administration as he mistakenly insisted. Further, in agreeing to Camp David, Israelis were agreeing to a new base line but for Palestinians who were not part of the agreement, Camp David was an extreme of surrender and not a starting point. Israelis were signing a deal on the issue of Palestinians without a Palestinian quid pro quo.

Finally, contrary to the advice of the Americans, both the Israelis and Egyptians insisted on a deadline for converting the Accords into a full agreement. As we shall see in our discussion of the path from the Camp David Accords to the Camp David Agreement, that deadline initially allowed for wasted time and later became an obstacle itself to an agreement. The film was unable to provide any sense of the dilemmas deadlines pose between their ostensible purpose in preventing endless discussion and their contribution to making discussions endless.

NEXT: The Camp David Peace Agreement

Back Door Channels: The Price of Peace.Part I: Sadat’s Visit to Jerusalem.06.05.13

Back Door Channels: The Price of Peace                                                            06.05.13

Part I: Sadat’s Visit to Jerusalem

by

Howard Adelman

The title of today’s blog is taken from the documentary directed by Harry Hunkele called Back Door Channels: The Price of Peace which I saw at the Toronto Jewish Film Festival but was too busy to write about it during that busy film week. The film is available on Netflix or on a DVD. It is not a new film; an early version was shown at the 2009 Monte-Carlo Television Festival, premiered at the Abu Dabai Film Festival in October 2010 and was screened at Cannes in 2011. The title also belongs to the book of one of the important individuals involved as a back channel conduit featured prominently in the film, Leon H. Charney, and from whom the director clearly borrowed a great deal in dealing with the Camp David segment.

The Israeli-Palestinian conflict has been long and appears intractable. In these types of conflicts, military forces and diplomats alone rarely achieve peace. Complex approaches are used involving a multitude of agents in addition to diplomats and soldiers – academics, human rights activists, conflict resolution experts, businessmen. These are referred to as Track II initiatives. They bring parties together and can focus on joint projects and building trust even when the parties are technically at war. They also offer a parallel path for contacts. Track I and Track II efforts can be clandestine or open. The use of clandestine contacts, dubbed back door channels through trusted private individuals or politicians, has been a part of virtually every peace negotiation in history. This film purports to focus on those back door channels. Having been involved in several Track II efforts, some clandestine, I was very interested in seeing the film.

The documentary is about the efforts and personalities who brought together first Anwar Al-Sadat’s historic visit to Jerusalem, then the Camp David Accords and finally the peace agreement between Israel and Egypt that followed. The film, as the subtitle indicates, is also about the consequences of such peace efforts to the principals involved. The film contends that all three principals, Anwar Al-Sadat, Menachem Begin and Jimmy Carter at Camp David, paid a huge price for making peace before the finale focuses on allusions to the present with clips of Obama presumably from his speech in Cairo.

Let me deal with the conceit, indeed, distortion, that all three leaders paid a great price to make peace. Unquestionably, Sadat did. He was assassinated for signing the Camp David Peace Agreement. In fact, the film slides over the fact that his Prime Minister resigned over the issue and most of his advisors refused to attend the signing ceremony. This is important for it was relevant to whether Israel could be confident that a peace agreement would hold. It did hold, but it turned out to be a cold peace that today is under threat of unravelling.

The suggestion is made that Begin also paid a high price. His colleagues, who had accompanied him through his long years in the underground and in the wilderness of the opposition, accused him of betrayal according to Hunkele. Further, as he stalled on the second half of the peace agreement dealing with the Palestinians, Ezer Weisman resigned from his cabinet – though the film does not deal with these events. The filmmaker believes that Begin then invaded Lebanon in 1982 to prove to everyone he was not a softie or an appeaser, and, following that calamitous decision, in 1983 withdrew into isolation as a seriously diminished individual, ended as a recluse and thus became a victim of signing the Accords.

I do not even find this argument plausible, but perhaps some case could be made for it.  The film never even tries to make the case. This is not true for the explanation of Jimmy Carter losing the bid for re-election. In the Q&A that followed the showing, Harry Hunkele was asked why, if Jimmy Carter played such an important role in making peace, he developed so much ill will in the Jewish community in America. Hunkele presumed the questioner was referring to Carter`s statement about Israel being an apartheid state, and said that he believed that this was a result of Carter becoming frustrated with Israeli intransigence on the Palestinian peace front.

It is hard to believe that this is what he actually said. It only indicated to me that a director can make a very effective and powerful film, especially out of such historically important material, and still be relatively ignorant about the subject matter he is covering. Carter did not just make one statement about apartheid. He wrote a book called Palestine: Peace Not Apartheid, a polemic against Israel, Israeli politicians and Israeli Jewish and gentile supporters in America based on distortions, misinformation and exaggerations that help sabotage rather than advance peace. And it is not just an aside. Carter’s obsession with Israel and his hatred of Begin have never abated.

What about then? It is certainly true that Carter`s support in the American Jewish community fell from 72% in his first election bid to 45% in his bid for re-election. But to connect that fall in support to Carter`s facilitating the Camp David Accords and subsequently the Camp David Peace Agreement is more than a stretch. Look at the facts. 

Carter no sooner took office than he alienated the Jewish community by calling for a Palestinian homeland. Such a vision might be considered prophetic, not simply because I held that view at the time, but it ran strongly against both community beliefs and the back door efforts underway in the seventies to make a deal with Jordan. Second, in the Spring of 1978, Carter sold Saudi Arabia America’s top fighter, the F-15; recall that Mark Siegel, who helped initiate the Holocaust Museum in Washington and forge Carter’s generous policy towards Soviet Jews, resigned from Carter’s White House staff over the issue. Third, Zbignew Brzezinski, who was Carter`s Security Advisor and plays a prominent role in the film, worked with Carter to get Sadat and Begin to attend a Geneva Conference with the goal of producing a comprehensive and all-encompassing peace agreement, an initiative that both Sadat and Begin regarded as foolish and incapable of producing results. Fourth, after Sadat made his historic visit to Jerusalem in November 1977 `behind Jimmy`s back`, Carter had to reverse gears and remake his strategic approach. Carter deserves credit that he did change his approach and took the lead in inviting Begin and Sadat to Camp David against the advice of his closest associates.

Carter also deserves credit for the effective and determined role he played in Camp David, quite aside from all his mistakes. He also has to be given enormous credit, again in spite of his many fumbles, for helping translate that peace accord into a full-fledged peace agreement. At that time, his support within the Jewish community was strong. But the Jewish community, like the American community in general, turned against Carter on all kinds of grounds – his handling of the Panama Canal issue for one. But most of all it was over the failure to rescue the American hostages in Iran that stood in such blatant contrast to the successful Israeli efforts at Entebbe a few years before and his failed negotiations to bring the hostages home.

The Iran Hostage Crisis was sufficient to ensure his defeat. But there were other reasons which guaranteed a landslide victory for Reagan. The Soviets marched into Afghanistan on his watch just after he signed an arms control treaty with Leonid Brezhnev. The American military was perceived as having been gutted so that America could no longer project strength abroad to intimidate adventurism. The American economy was in a shambles suffering from both high inflation and stagnation – stagflation. I spent five days with President Carter in Atlanta over African issues in the 1990s at the CarterCenter. I came to Atlanta with little knowledge of him and a general appreciation for what he accomplished at Camp David.

I left totally disillusioned and convinced that the impression of his fellow leaders in NATO of him as incompetent – obsessed with a combination of high moral principles and meticulous mastery of details that were often irrelevant – had been correct. In my five days with him, he displayed a quite stubborn determination to get his way whatever the objections raised to his proposals for dealing with a particular African problem. In spite of his mastery of facts, he never let an inconvenient fact falsify a conviction he held. His understatement, impish smile and sparkling eyes disguised his powerful will. He was always simplistic even though he had a great capacity to know all kinds of minute details on a subject. He projected a combination of 100% dogmatic assurance who liked to be surrounded by sycophants while underneath being very insecure and uncertain, a state of mind which he covered with dogmatic adhesiveness. The Jewish community – like every other community – had a great many reasons to vote against him. Camp David was unlikely one of them. Rather than paying a price for Camp David, Camp David is perhaps the only action that saves Carter from total ignominy.

Part of the problem of the film is that it covers three phases of the peace process instead of concentrating on the last two where Carter was most effective after the parties themselves arranged the Jerusalem visit in spite of Carter’s deeply flawed and distracting if not destructive Geneva efforts. The back door channels to achieve the first stage could have been easily covered without getting into distractions. Given that the first five minutes of the film are taken up with a silly cartoonish and potted history of the conflict from the split between Abraham’s two sons thousands of years ago to the 1970s that mixed historical film footage with computer-generated imagery was enough to drive you out of the theatre. The film could have started with the October 1973 war and its legacy.

We are approaching the 35th anniversary of 17 September 1978 when President Jimmy Carter brought President Anwar el-Sadat of Egypt and Prime Minister Menachem Begin of Israel together to the White House to sign the Camp David Accords, the document outlining how they would subsequently agree to end the state of war between the two countries and also attack the Israeli-Palestinian conflict. The film could also have begun much more organically with the historic victory of Menachem Begin over Shimon Peres that thrust all us peaceniks into deep doldrums and a sense that we would never get peace. How then did the first major breakthrough come with Egypt? What role did clandestine contacts play? Such a focus, if one obtained access to the right persons, could not help but be a powerful film.

In the first phase of the process to set up the historic visit of Sadat to Jerusalem, I happened to be living in Jerusalem; I was a Lady Davis Visiting Professor at Hebrew University for 1977-1978. Though I managed to wangle my way into the Jerusalem Theatre to hear Anwar Sadat, Menachem Begin and Shimon Peres, I knew nothing at the time of the convoluted back door efforts that had been used to bring about that historic visit. But even before those back door processes through Romania and Morocco could be explored, setting the context of the implausibility of pulling off such a venture is critical.

My own knowledge of the backdrop came from Aziz Sidqi who was Prime Minster of Egypt from 1972 until after the Yom Kippur War. We spent four days together in Amman at a conference and the two of us spent a day off hiking through the hills of Jordan. He was a bright economist with a PhD from Harvard, but with a very jaundiced view of politics. When we went on that hike, he had taken time off from his business as a candy importer. He had been driven from office by orchestrated protests by a cabinet colleague against price controls he had lifted as part of a comprehensive effort to free up the rigidities of the Egyptian economy. In 1973, on the eve of the Yom Kippur War, he was in London with his wife who was due to be operated on the next day. Sadat summoned him back to London. Two hours before the war started, he, as Prime minister, was informed. Prior to that, Sadat had told only the Defence Minister and the Minister of Intelligence.  

Sadat was determined to change the ground rules, get back the Sinai and go to war since it seemed that the Israelis, particularly Golda Maier, was not receptive and could not hear his back door overtures. Win or lose, the Sinai campaign would change everything. Against the overwhelming advice of his associates, in spite of the détente in place between the US and the USSR since 1972, and in secrecy with few knowing, he decided to go to war in October. His intelligence service projected that the war would cost the lives of 30,000 Egyptian soldiers. He himself expected 10,000 dead. He wanted change and took the risk. The initial attack cost just over 200 Egyptian soldiers lives.

And change came, even though Israel finally recovered from the not-so-surprise attack if the Israeli government leaders had heeded the signals. In the end, Sadat suffered a profound military defeat. However, it was a diplomatic and political victory. Israel’s post-1967 sense of invulnerability was crushed. Egyptians hailed the defeat as a great military accomplishment just because they so successfully broke through the Bar-Lev line and did not suffer nearly the number of casualties predicted. His domestic and worldwide prestige was enormous. He had earned a great deal of political capital. He had also developed a deep personal emotional motivation to pursue peace which the film does deal with – the loss of his son-in-law in the October War. He now had to find parties on the other side that could hear his message.

In spite of America’s deafness to his back door approaches to Washington that rivalled the auditory blockages in Jerusalem, Sadat had also decided to realign with America rather than the USSR, move strongly towards a more open economy, rebuild his army with superior western arms (and correspondingly fewer troops) and redefine foreign policy in terms of placing a priority on Egyptian rather than Arab interests. The 1973 war would be Egypt’s last war with Israel. Military preparations would accord with that objective and shift the threat perception once a peace agreement could be concluded, at great savings to the Egyptian economy. The first and second disengagement agreements of 1974 and 1975 between Egypt and Israel, the joint Egyptian-Israeli patrols in the Sinai, the attendance of Egyptian and Israeli academics at conferences together and the joint experience of Israeli and Egyptian officers taking the same advanced military courses in Britain and America bore enormous fruit in creating pockets of background trust. (See the account of Ahmed Fakhr of his relationship developed over a year in London with General Ari Brown of the IDF who had been an aide to Defense Minister Moshe Dayan.)

These initiatives had allowed Sadat to seed his rapprochement plan at lower levels. These were different aspects of Track II (though not back door) diplomacy underway. Some reference to these initiatives would have made clearer why and when clandestine moves on either Track I or Track II are necessary and helpful since that is the subject of the film. The opportunity was lost. It was important to state that Sadat was not just interested in peace with Israel but in a total realignment of the region and, in particular, Egypt’s new efforts to enable Egypt to foster peace in the whole region, west and south as well as east, and to secure Egypt’s most vital interest, the waters of the Nile. Given what subsequently took place in Sudan and then Libya, Sadat was very prescient. 

Further, in addition to the economic domestic agenda, Sadat had a political domestic agenda for which these moves were prerequisites. Sadat directed the military to stay out of politics on all levels and moved ballot boxes out of military bases as a key step towards democratization, a multiparty system and a freer civil society.

It is against this background, most of which was accessible to Mossad, that Sadat renewed his primary back door peace initiative by planning to go to Jerusalem. Now that much of the Israeli archives are open from that period and can be accessed on the internet, the secret documents are available for all to see. As suggested by pictorial images and interviews with a veteran journalist in the film, on 4 September 1977, two and one-half months before Sadat’s historic visit to Jerusalem on 20 November, Ceausescu met secretly with Begin in Romania where Begin was told with certain conviction that Sadat wanted a high level meeting between Egyptian and Israeli representatives. Whatever the awful character of Ceausescu as a dictator, Romania was the only country behind the iron curtain that had not broken diplomatic relations with Israel after the Six Day War. Further, Ceausescu was a reliable intermediary with a formidable ability to recall conversations in great detail. In the same meeting – this was 1977 – Ceausescu told Begin that Arafat was willing to recognize Israel in exchange for recognition of the PLO and a Palestinian state in the West Bank and Gaza. 

Israel immediately stepped up another back door channel through Morocco’s King Hassan II and confirmed what they had been told by Ceausescu. This is also in the film. A disguised Moshe Dayan flew to Morocco and his entourage was housed in the king’s official guest house next to his private villa with a secret back door specifically designed for back door diplomacy. I thought the director missed a chance to introduce a cartoon version of all this literal back door diplomacy, including a caricature of Dayan in disguise. Dayan met with Prime Minister Hassan Tohami. Mossad made meticulous notes of the meeting. This was an initiative without American involvement because the Americans were stubbornly pursuing a wrong track. The message was clear. The Arab countries wanted to curb Palestinian radicalism because it was infectious and posed a danger to their regimes. Peace was necessary and the opening to that route was now available through Egypt. 

The highway for Sadat to travel to Jerusalem had been built. In spite of the snipers placed in locations around the airport lest a Trojan Horse arrive, something I did not know until I saw the film, Sadat came and won the hearts and minds of the majority of Israelis. The doorway to peace had been opened.

Next: Back Door Channels: The Price of Peace – Part II: The Camp David Accords

Tycoons and Monopolies III: Dan Gertler.22.04.13

Tycoons and Monopolies III: Dan Gertler 22.04.13

by

Howard Adelman

Dan Gertler is a 40 year old Israeli billionaire president of the DGI (Dan Gertler International) group of companies who became involved in Africa and, in particular, the resources in the Democratic Government of the Congo (DRC formerly Zaire). Steeped for his whole life in the family diamond business, he was only 23 years old when he founded DGI after completing his IDF service in Israel. He had learned the diamond trade from his father and famous grandfather, Moshe Schnitzer, who initiated and was the first President of the Tel Aviv Diamond Exchange. He set up his own firm because he believed the big profits were not to be found in the labour intensive part of the business, cutting and polishing raw diamonds, but acquiring and selling the raw diamonds themselves.

Though I never met him, our paths crossed in 1997. At the end of 1994, I and a Norwegian colleague, Astri Suhrke, had been commissioned by an international consortium of governments, humanitarian and devlopment agencies to research and write a report on the international community’s role in the 1994 Rwandan genocide in which 800,000 Rwandan Tutsis and moderate Hutus were slaughtered in ten weeks by Hutu Rwandans led by an extremist group, the Akasu, who won control over the Rwandan government on 6 April 1994 in a coup d´état.

We finished our report a year later and it was very widely lauded except by the President of Uganda, Yoweri Museveni, the Belgians, and the French. Yoweri Museveni criticized us for saying that the evidence overwhelmingly suggested that Museveni must have known about the desertion of the Rwandans from his army and the invasion of Rwanda on 1 October 1990 when Museveni kept insisting he had no knowledge. The Belgian complaint was rather mild; they had a harsh judgement of the Canadian General Romeo Dallaire’s role as the head of the United Nations Peacekeeping Force and were especially critical of his role when the Belgian peacekeepers were murdred by the military extremists in Rwanda. We, on the other hand, regarded Romeo Dallaire as somewhat of a hero.

The French criticisms were much more serious and of a much higher order and very much stronger that the other two. They were apoplectic about our claim that France continued to supply arms to the extremist regime in Rwanda even after the genocide had commenced on 6 April 1994. The disagreement led the French government to cancel a high level trip to Paris from Sweden, withdraw its financial support for the commission (which Finland volunteered to make up) and to denounce us in the most vociferous way. We offered to reconsider and offered to travel to Paris to see the French evidence; we agreed to rewrite if the evidence contradicted our findings, including findings we had from French government sources in our previous trips to Paris. The Canadian ambassador at that meeting in Copenhagen came up to me after the brouhaha and told me, “Howard, stick to your guns. I was on the tarmack of Kigali airport after the genocide started and saw French arms being unloaded by a private carrier onto the tarmac.

We went to Paris but the French government was not co-operative and provided no new information. We let the report stand as we had written it. As it turns out, we were incorrect about the claim that the French government continued to ship arms to Rwanda after the genocide started. At the end of 1996, as a result of Paul Kagame’s Rwandan army overrunning the refugee camps controlled by the Hutu extremists then based in Zaire, documents were found by an Italian jouirnalist and sent to us which showed that the arms with French markings were supplied by a British firm based in the Isle of Wight and the arms had come, not from France, but from Eastern Europe supplied via a middleman, an Israeli-Hungarian.

Our involvement in Zaire, still led by Sese Seku Mobutu, began as we followed the plight of the more than a million ex-FAR (old Rwandan army), their families, militias involved in the genocide in Rwanda as well as other civilian refugees inrto Zaire. After failing in their efforts to launch military raids against ther new government, they began a genocide againt Tutsis in Zaire. Paul Kagame, then President of Rwanda, warned the international community that if the invasions and depridations of the ex-FAR and militias in Zaire were not stopped, he would take action. The international community stood by. Kagame in alliance with Museveni of Uganda invaded Zaire. They involved a small number of Congolese and appointed Laurent-Désiré Kabila as the spokeman for the supposedly indigenous uprising against the crimes being committed in eastern Zaire. (This narrative is filled out in our book on the DRC.)

In the process of the invasion, Laurent Kabila, an old Lumumba supprter who for the last twenty years had made a lliving as a smuggler, promoted himself step by step to the military and political leadership of the invading force. Further, not satisfied with overcoming the control of the refugee camps by the ex-FAR and winning military victories over Mobutu’s forces that had been in league with the ex-FAR forces, and against the wishes of his Rwandan and Ugandan patrons, Kabila decided not to stop but to go onto Kisangani, which he overran, and then head for Kinsasha and the complete overthrow of the Mobutu regime.

One set of masters, controllers and expoiters of Zaire’s – now renamed the Democratic Repiublic of the Congo (DRC) – resources, were replaced by a new group – Kabila in competition with Uganda and Rwanda for control. What ensued was Africa’s first continental war in which DRC’s immense mineral resources became the prize. In 1997, Dan Gertler flew to Kinshasha and was introduced to Laurent Kabila through the Lubavitcher rebbe, Rabbi Chlomo Bentolila, based in that city. Without his Rwandan and Ugandan patrons, Kabila was strapped for funds to pay his soldiers. Gertler offered to loan Kabila US$20 million in return for a monopoly control of the diamond production in the DRC. Kabila agreed. Within weeks, Gertler raised the funds that became the foundation of his personal fortune.

Tycoons and Monopolies V: East Europeans – Arcade Gaydamak.23.04.13

Tycoons and Monopolies V: East Europeans – Arcade Gaydamak 23.04.13

by

Howard Adelman

Five East European Israeli billionaires stand out. I begin with sixty-one year old Arcadi Gaydamak (Arie Bar Lev) who owns residences in Russia, Israel and Canada and has citizenship, not only in Israel and Canada, but in Angola and France as well. Though born in Berdichev, Ukraine, though also reported as Moscow, he had to surrender his Soviet citizenship when he migrated to Israel in 1982 when he was twenty years old. Four years ago, he applied to “regain” his Russian citizenship.

The outline of his life is anything but simple, but I will first offer a potted history. Gaydamak became a kibutznik at first (Beit HaShita), but Israel appeared to be initially only a pit stop to escape Russia. He studied Hebrew in an ulpan but in six months was unable to master the language before he moved to France after six months. Initially, he worked as a labourer and gardener. In 1976, he started a translation service, Gaydamak Translations. He used that business to “migrate” to Canada as a business investor and opened a translation business there. His initial real wealth stake did not come from this business but from the connections he had established through that business with Russian officials to engage in import and export transactions, especially when the Berlin Wall fell and the Soviet Union was imploding.

My path crossed with Gaydamak, though again I never met him, from my work in Africa after 1994. My personal connection was through our study of President Mitterand’s son, Jean-Christophe Mitterand, of the arms supplied to the Rwandan Habyarimana regime mentioned in a previous blog. Mitterand worked out of a separate section located in the Ministry of Cooperation in Paris to supply arms to President Habyarimana of Rwanda, even though we were incorrect that this arms supply continued after the genocide started. Mitterand was involved in shipping arms in other parts of Africa, including Angola where he became intertwined with the Gaydamak/Falcone arms for Angola deal. Pierre Falcone through his British companies linked to Brenco International gave £1.3m in alleged bribes to Jean-Christophe Mitterrand, but Arcadi Gaydamak claimed the money paid in 1998 had nothing to do with the arms deals. Jean-Christophe was found guilty by the French court of tax evasion in relation to the Angolagate scandal and given a 30-month suspended sentence.

Gaydamak became involved in what became known as the Angolgate Scandal, the arms for oil and forgiveness of debt deal between Russia and Angola in 1995 and which I will explore later on in this profile. But let me jump to the end and a sports story that appeared in the Canadian Jewish News at the end of February written by Yair Lootsteen about why he would not let his son, Natan, attend the games of the Beitar Yerushalyim football (soccer) team though he was an ardent fan. At the games, many fans, especially those led by an ardent group called La Familia, booed Arabs on other Israeli teams and would call out, “Death to the Arabs!” and “Muhammad is dead.” Hundreds of police were required to control the “enthusiasm” of these hooligans.

In 2005, Arcadi Gaydamak bought the football club. This year he bought two Muslim players from Chechnya to join the club, Zaur Sadaev and Gabriel Kadiev, as much to combat Beitar’s racist image as to add skills to its roster. Beitar had Muslim players before, namely Viktor Pacha of Albania, but since Nigerian defender Ibrahim Nadala had been harassed by anti-Muslim (and anti-Black) fans and left the team, Beitar had not had any Muslim players in contrast to most Israeli teams.

At the next game, in response to the two new Muslim players on the team, La Familia led the hooligans in chants of “Beitar is Pure Forever” and torched the team’s clubhouse, including its trophy room with the team’s historic relics. At the next game, fans with La Familia sweaters were banned from entry and Gaydamak organized fans to hold up welcome signs to the two new players. When some fans tried to boo Kadiev when he came onto the field, the majority of fans rose to give him a standing ovation and drowned out the boos. Lootsteen offered to take his son to the next Beitar game for the first time.

Gaydamak has taken other bold humanitarian gestures in the past – the two most notable in Israel involved setting up a huge tent city on the beaches of Nitzanim at his own cost for the evacuees who had fled the north to escape the rockets during the Lebanon War in 2006, Gaydamak also offered holidays in Eilat for residents of Sderot who lived under a barrage of rocket attacks from Gaza before the last Gaza War. My own conviction is that these were genuine gestures though clearly also serving to polish his public image in Israel.

In the previous decade, Gaydamak had been awarded the Chevalier de l’Ordre National du Mérite and the Ordre du Mérite agricole ostensibly for contributions to agriculture but for allegedly secretly rescuing two captured French pilots in the 1990s Balkan War and two French intelligence officers captured by rebels in the Caucasus. In 1997, he was also involved in freeing four French aid workers being held in Dagestan. Former French interior minister Charles Pasqua, his co-conspirator charged before the French court (see next section), insisted that the awards had been personally approved by Jacques Chirac. In March 2006, he tried to buy the newwspaper, France Soir.

In February 2007, Gaydamak established Social Justice and converted it into a political party in July in Israel ready for the elections and won three seats. He was also an unsuccessful contender as Mayor of Jerusalem in the November 2008 elections and only won 3.6% of the vote and no seats on the municipal council. In Russia, he gave money to Jewish charities and funded and was president of the Congress of Jewish Religious Communities and Organizations of Russia (KEROOR). In 2004, he also bought the independent Moskoviskie Novosti and converted into a strongy pro-Putin advocacy sheet under his insistence that newspapers should be loyal to the powers in charge of the state. “Newspapers which are responsible for public opinion should not direct the public against the powers that be…If the political and administrative structures in Russia are organised by people elected in free, democratic elections, it is not right to turn public opinion against them.”

Do we have to ask, “Why the enormous effort to polish his public image?”

When Arcadi Gaydamak applied for Russian citizenship in 2009, it was just days before the French court was to hand down its verdict in the “Angolagate” arms-dealing affair to add to his troubles over very recent steep financial losses, largely as a result of former associates double-dealing him, and investigations by the Israel Security Authority of alleged fraud and money-laundering using Bank Hapoalim. Just this past January 2013, The French Court of Cessation upheld the original findings and sentences meted out to 3 of the 24 of the original 36 charged in the Angolagate scandal who had appealed their convictions on 27 October 2009. The French Court of Appeal in April 2011 had reduced Gaydamak’s sentence to 3 years, Falcone’s to 2.5 years and Charles Pasqua was acquitted on his first appeal. The French Court of Cessation upheld the original six year prison sentences as well as one year for former interior minister, Senator Charles Pasqua.

What were their crimes? In 1975, Angola gained its independedence only to become a site for further civil war between factions serving as either South African (American?) or Soviet proxies. With the demise of his Soviet sponsors in 1989, the Angolan government of Jose Eduardo dos Santos wanted to seek western support but encountered two problems – UN sanctions and a huge burden of indebtedness left over from the Soviet era representing two-thirds of its annual GDP. Dos Santos was still in the midst of the civil war as the MPLA tried to finally eliminate its long time opponent, Jonas Savimbi’s União Nacional para a Independência Total de Angola (UNITA). (Savimbi died in 2002 effectively finally ending the long civil war.) At the same time, the 1991 Bicesse Peace Accords forbad the import of additional lethal weapons.

The Angolan government sought to purchase combat helicopters, guns and ammunition from Russia using a Slovak company, ZTS-OSOS to be paid with the exchange of oil. Dos Santos turned to private entrepreneurs to assist him by trading diamonds and oil for armaments just as Joseph Kabila had in the DRC, but using Pierre Falcone in partnership with Arcadi Gaydanak who had the Russian connections to access the arms and get around the UN sanctioned weapons embargo. Arcadi Gaydamak and Pierre Falcone were given authority to control an Angolan bank account in France and authorized to sign contracts on behalf of ZTS. The profits on the oil were estimated at over £50million.

Falcone was born in Algeria, moved to France when he was six when Algeria achieved independence, and began his entrepreneurial life in Brazil, but eventually obtained Canadian citizenship. Falcone and Gaydamak orchestrated the delivery of US$790 million in Russian arms contrary to the sanctions. However, the initial French appeal agreed with the claim that, since the two had Angolan citizenship and were acting as official agents of the Angolan government, they were not bound by French sanction laws.

However, the really big profits were not made through arms sales – though, as you read, those profits were huge – but as agents in reducing, purchasing and reselling of debt instruments at no risk to themselves. In April 1996, Angola owed Russia $US386 million for past arms purchases. Angola also owed Russia $5 billion in debt left from the Soviet era. On 24 April 1996, the Angolan Minister of Economy and Finance, Augusto da Silva Tomás, issued a formal mandate that designated Pierre Falcone and Arcadi Gaydamak as agents empowered to act on Angola’s behalf to settle its $US5 billion debt. Arcadi Gaydamak and Pierre Falcone, joint owners of Abalone Investments, a shell company, negotiated a settlement of the debt. The $US5billion debt was to be reduced by 70% to $US1.5 billion to be repaid after a five year grace period dated from 20 November 1996 and then repayment over fifteen years of the reduced debt plus acrued interest calculated at 6% per annum assessed every six months and secured by a promissory note from the Angolan Central Bank. Andrey P. Vavilov, Russia’s First Vice-Minister for Finance, signed the deal on behalf of Russia. Effectively, Angola was supposed to repay a total of $US2,896,596,000 made up of the reduced capital debt of $US1.5 billion, the accrued interest during the grace period of $US457,160,000 and $US939,437,000 for interest during the fifteen year repayment period.

Abalone earned a “commission” of $US386 million, of which just over $138 million went to Gaydamak and almost $US125 million to Pierre Falcone, and just under $US49 million to Vitaly Malkin, the richest member of Russia’s Duma, who just recently resigned when it was revealed that he held Israeli as well as Russian citizenship and held large amounts of undeclared assets in Canada.. The balance of just over 30% of the funds were used to pay off a wide variety of other players including the Angolans who received $US110 million. The three greatest Angolan beneficiaries were José Eduardo dos Santos, President of Angola, US$36.25 million; Elísio de Figueiredo, Angolan Ambassador to France, $US17.55, Joaquim Duarte da Costa David, Director General of Sonangol until 1998 and then Minister of Industry, $US 13.25 million.

There was another level of profit when Russia decided to sell those notes to Abalone for 50% of their face value in six equal instalments for a further profit to Abalone over the next six years of almost $US500 million when Abalone resold those notes to Sonangol for their full face value in accordance with an agreement dated 30 May 1997. Abalone in the end effectively only paid about $US265 million for them. There were other levels of profits, some to Glencore for making the escrow arrangements and facilitating the pre-financing secured by prospective oil deliveries via Sonangol as collateral on which it undoubtedly made a further large profit. In 1999, Vitaly Malkin, as the representative of Rossiyskiy Kredit Bank (RK) which he owned, bought into Abalone by paying Gaydamak $US60 million and another level of profits were arranged when Russian Principal Notes (PRINS) and Instruments Arrears Notes (IANS) were exchanged at their depressed values for other secured notes at full value to Russia’s benefit by showing a reduced debt and to Abalone’s benefit by obtaining a huge profit since, when the deal went into effect on 23 August 1999, PRINS had a value of only 10.54 per cent of face value and IANS had only a 14.41 per cent face value.

In 2001, facing investigations of all these transactions, Gaydamak shifted the banking to Cyprus through Sherinvest Bank owned by Gaydamak and gave the impression that the debt repayments were going to Russia since Sherinvest Moscow was the name of Russia’s banking agent in Moscow. Since neither Falcone nor Malkin knew anything about this, Gaydamak had effectively double-crossed his partners. Between March and August 2001, Sonangol transferred $618,235,483.25 to Sberinvest. Angola was told that the debt had been repaid but Russia had not received the final eight payments. The deal blew open in 2005 and Angola agreed to pay Russia the balance owed. Gaydamak agreed to pay Angola $206 million which still left him with a profit of $US 181 million on the deal.

As he jockeys back and forth from Israel to Russia and avoids France, France has been unsuccessful in extraditing Gaydamak from Israel. Israeli law did not make his financial matters an extraditable offence. Nor were the other charges of arms dealing an offense at the time the actions were taken. There is, however, an ironic twist to the whole series of shill games. In 2006 and 2007, Joelle Mamane, his long time confidante and micromanager, transferred US$249 million in securities from Gaydamak’s company to the Manatel Foundation evidently without Gaydamak’s approval and evidently not for his benefit. Because there were so many levels of covers, Gaydamak had not been able to establish ownership. The Manatel Foundation gives its money away to Orthodox Jewish causes in Israel and Europe.

For a very long and very detailed dissection of all these deals, see “Deception in High Places: The Corrupt Angola-Russia Debt Deal.”

Click to access The_Corrupt_Russian-Angolan_Debt-Deal-04-11-2013-with_ISBN.pdf

Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer.22.04.13

Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer 22.04.13

by

Howard Adelman

Israeli billionaires come in many varieties and types. Noam Lanir stands in contrast to Dan Gertler. First, he is a hi-tech billionaire. Though also in his forties, Lanir does not run a myriad of offshore companies; he focuses on a few engaged in marketing services – gambling, translation and medical tourism. He is the CEO of the Livermore Investment Group. (Empire Online) of which he is the major shareholder. Instead of coming from an observant background of a family involved in a traditional Jewish business – diamond cutting and sales – his father was an Israeli pilot and hero. In the Yom Kippur War, his father’s plane was shot down over Syria when Noam Lanir was only six years old; his father was captured, tortured and died in captivity.

Lanir served in the IDF pioneering in training for guiding pilotless aircraft. As indicated in my blogs on drones, such a technology is based on calculations of probabilities to forecast trajectories. Gambling is also about risk calculation. However, when he was discharged from the IDF, he first went into the club business. In 1997, at about the same time as Dan Gertler entered the DRC. Lanir entered the gambling realm by becoming the marketing manager for a lottery for the Association for the Well-Being of Israel’s Soldiers – Aguda Lemaan Hachayal. A charitable organization, it provides R&R for soldiers, recreation and sports facvilities, educational centres and programs, help for bereaved families of fallen soldiers and a host of programs for veterans, including scholarships and a variety of assistance programs for soldiers with disabilities. Lanir has remained very active and supportive of this charity as his wealth has grown.

After leaving his stint at Aguda Lemaan Hachayal, the following year he registered Empire Online (EO) in the Virgin Islands not as a gambling site itself, but as a site to host gambling sites run by others and undertake the marketing for them. Lanir does not operate in Israel or provide access to Israelis who want to gamble. Empire Online is more accurately depicted as an internet technology and marketing company specializing in hosting and promoting gamling sites than operating any gambling site itself.

By 2005, there were 186,000 gamblers using the site, 70% of them Americans. EO referred them primarily to two gambling sites, PartyGaming (72% of its 2004 revenue of US$65 million) owned by the Parasol Group (Anarag Dikshit, Vikrant Bhargava and Russ DeLeon) and Casava (27%) owned by Ari and Aharon Shaked and and Shai and Ron Ben Yitzhak. PartyGaming founded in 1997 was a network of gambling sites with itsd flagship site, PartyPoker, launched in 2001.

Each of these gambling sites could terminate their contracts on short notice for a wide variety of reasons. Why were they willing to allow another site called a “skin” to skim off parts of their profits for simply a hosting and marketing service, particularly since those actual gambling sites encouraged gamblers to register directly on their sites? Why have Empire Poker serve as a gateway to Party Poker? There appear to be a number of reasons: 1) these clients were regarded as bonus gamblers, gamblers they might not otherwise have had; 2) since the sites were recommended by a third party that appeared to be neutral with respect to all gambling sites available, the hosting and marketing site enhanced the credibility of the actual gambling site for honesty and credibility, especially since players were wary of internet sites cheating by using improper shuffling of the cards, insider playing or collusion; 3) since the success of a gambling site depends on attracting a critical mass of gamblers, the function of luring gamblers to a gambling site is triply important; 4) most of the gamblers using those sites are American and American federal authorities consider online internet gambling illegal but then lacked a specific enforcement law – operating at two levels provided a degree of protection for the actual online gambling site for the site on which they register is not a gambling site and cannot be banned from taking credit cards under then current regulations; 5) Party Gaming was valued at US$8 billion is 2005, so why begrudge giving away some of its profits to another company which does so much to enhance its own value.; 6) the competition was already very tough among online gambling sites with up to 200 estimated competitors with giants such as Hurrah Entertainment and BetFair, so that anything enhancing the value of one’s own site is worth supporting.

In 2004 alone, 34,000 new gamblers enrolled on gambling sites through EO’s efforts. In 2004, on gross revenues of US$65.2 million with only 60 employees, it netted $US 37.7 million. That meant that with such revenues, especially given its growth potential – the existing world wide online internet gambling was then estimated to be worth $US!2 billion and growing rapidly – the company’s market value could be estimated to be almost a billion American dollars. Sure enough, by the time it was ready to go public on the London stock exchange, its IPO was valued at up to one million British pounds and when the flotation was about to be launched, it reached a value of US$928 million.

However, at about that time, EO’s relationship with Party Gaming began to sour. In mid-2005, Party Gaming began to “ringfence” its players from EO and upgraded its PartyPoker site to cut out EO from accessing its players. In November 2005, Party Player terminated its relationship with EO. EO sued in the High Court of Gibralter. In February 2006, the two companies agreed to an out-of-court settlement that paid $US250 million to EO. Further, in December 2006, Party Player agreed to acquire Lanir’s remaining shares in EO for $US40 million. It was estimated that Lanir ended up netting about a third of a billion American dollars.

The timing was propitious. In 2006, the United States Congress passed The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) to regulate online gambling. On 2 October 2006, PartyGaming suspended “all real money gaming business with US customers” when George Bush signed the act into law on 13 October. The value of the shares dropped by 60% in 24 hours.

To attract players to EO’s site from many different companies, EO had to develop a translation facility. Lanir purchased and retained ownership of Babylon Inc., an online dictionary and translation service. Using a database of 1400 sources, the company provides services in 75 languages. In addition to covering a wide variety of technical fields, it also offers audio pronunciation services. Listed on the Tel Aviv stock exchange, in 2012, annual revenues totaled US$178 million.

In 2010, Lanir entered the medical tourism business and started a company, Life Tree Marketing, to market high quality health services in Israel – initially surgical services and in vitro fertilization, a field in which Israel is a world leader. Life Tree Marketing initially targeted Eastern European clients. Increasingly, American patients have been attracted because of the significantly lower costs for equivalent service in the United States. Heart bypass surgery that costs $120,000 in the US costs $30,000 in Israel. In vitro fertilization that costs $30,000 in the US costs $3500 in Israel.

His company is in competition with International Medical Evaluation and Referral (IMER) owned by Hadassah Hospital or the Ramat Aviv Medical Center that also serves the medical tourism business. Like his gambling site, his is a marketing site and his company enters into partnerships with hospitals that actually provide the services from which Life Tree rakes off 20% of the fees charged to cover its costs of attracting clients and making the arrangements for them to get to the facilities in Israel. There are already contracts with the Shaba Medical Center, Tel Hashomer Hospital, Shaarei Tzedeck Medical Center and Wolfson Hospital. Annual revenues are already estimated to have reached $US20million.

Stef Wertheimer is a much older entrepreneur, twice the age of Noam Lanir and probably four times the wealth. He is worth at least US$4billion. Originally born in Germany, his fled the Nazis when he was eleven years old and settled in Israel. Although Wertheimer attended an excellent school, he dropped out at the age of 16, surprising in retrospect for someone who puts such a high value on training and education. During WWII, Wertheimer worked for and studied optics with a pioneering researcher in the field, Emmanuel Goldberg, and then joined the British airforce to repair optical equipment installed on British aircraft. After the war, he served in the Palmach and eventually served as a technical officer in the Yiftach Brigade.

ISCAR, one of the largest manufacturers of carbide industrial cutting tools with 6,000 employees worldwide; it was started by Wertheimer in 1952 as a backyard sheet metal cutting operation. It was sold to Bershire Hathaway in 2006 for US$5 billion. The Wertheimer family retained ownership and control of Blades Technology valued at US$1 billion. Sceptical of high tech companies and entrepreneurs or making money off natural resources, whether it be the discovery and export of gas from Israel’s new fields or from buying the raw materials of other nations, Wertheimer is a true believer in the old industrial economy as the backbone of a nation’s wealth. To develop that wealth demands providing workers with the necessary high level of skills to engage in manufacturing, and to ensure that all citizens, whether, religious Jews or Arabs, Haredi or secular, Druze or Circassions, are properly skilled. He is an equal opportunity employer.

Whatever the value of this wealth obtained from the older manufacturing centres, a great part of Wertheimer’s money has come from the development of industrial sites where manufaturing on all levels takes place. In the eighties, Wertheimer focused on comprehensive sites that included not only manufacturing, warehousing and shipping space, but educational, recreational and transport facilities as well. He has been a pioneer with Shimon Peres in using economics to promote peace by fostering co-ventures and cross border industrial parks. This initiative was successful in Nazareth but unsuccessful in Gaza once Hamas took control. Wertheimer envisions such parks, not simply as real estate plays, but as incubators of innovation, worker training and start-up companies. Wertheimer helped found the Democratic Movement for Change and was elected onits list in 1977 and joined Shinui in 1978 when DASH broke apart but left politics in 1981. Currently, he is an active member of Tzipi Livni’s Hatnuah.

He is a winner of the Israeli Prize and was given the Oslo Business for Peace Award in 2010. He is highly esteemed in Israel.

Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer 22.04.13

Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer 22.04.13

by

Howard Adelman

Israeli billionaires come in many varieties and types. Noam Lanir stands in contrast to Dan Gertler. First, he is a hi-tech billionaire. Though also in his forties, Lanir does not run a myriad of offshore companies; he focuses on a few engaged in marketing services – gambling, translation and medical tourism. He is the CEO of the Livermore Investment Group. (Empire Online) of which he is the major shareholder. Instead of coming from an observant background of a family involved in a traditional Jewish business – diamond cutting and sales – his father was an Israeli pilot and hero. In the Yom Kippur War, his father’s plane was shot down over Syria when Noam Lanir was only six years old; his father was captured, tortured and died in captivity.

Lanir served in the IDF pioneering in training for guiding pilotless aircraft. As indicated in my blogs on drones, such a technology is based on calculations of probabilities to forecast trajectories. Gambling is also about risk calculation. However, when he was discharged from the IDF, he first went into the club business. In 1997, at about the same time as Dan Gertler entered the DRC. Lanir entered the gambling realm by becoming the marketing manager for a lottery for the Association for the Well-Being of Israel’s Soldiers – Aguda Lemaan Hachayal. A charitable organization, it provides R&R for soldiers, recreation and sports facvilities, educational centres and programs, help for bereaved families of fallen soldiers and a host of programs for veterans, including scholarships and a variety of assistance programs for soldiers with disabilities. Lanir has remained very active and supportive of this charity as his wealth has grown.

After leaving his stint at Aguda Lemaan Hachayal, the following year he registered Empire Online (EO) in the Virgin Islands not as a gambling site itself, but as a site to host gambling sites run by others and undertake the marketing for them. Lanir does not operate in Israel or provide access to Israelis who want to gamble. Empire Online is more accurately depicted as an internet technology and marketing company specializing in hosting and promoting gamling sites than operating any gambling site itself.

By 2005, there were 186,000 gamblers using the site, 70% of them Americans. EO referred them primarily to two gambling sites, PartyGaming (72% of its 2004 revenue of US$65 million) owned by the Parasol Group (Anarag Dikshit, Vikrant Bhargava and Russ DeLeon) and Casava (27%) owned by Ari and Aharon Shaked and and Shai and Ron Ben Yitzhak. PartyGaming founded in 1997 was a network of gambling sites with itsd flagship site, PartyPoker, launched in 2001.

Each of these gambling sites could terminate their contracts on short notice for a wide variety of reasons. Why were they willing to allow another site called a “skin” to skim off parts of their profits for simply a hosting and marketing service, particularly since those actual gambling sites encouraged gamblers to register directly on their sites? Why have Empire Poker serve as a gateway to Party Poker? There appear to be a number of reasons: 1) these clients were regarded as bonus gamblers, gamblers they might not otherwise have had; 2) since the sites were recommended by a third party that appeared to be neutral with respect to all gambling sites available, the hosting and marketing site enhanced the credibility of the actual gambling site for honesty and credibility, especially since players were wary of internet sites cheating by using improper shuffling of the cards, insider playing or collusion; 3) since the success of a gambling site depends on attracting a critical mass of gamblers, the function of luring gamblers to a gambling site is triply important; 4) most of the gamblers using those sites are American and American federal authorities consider online internet gambling illegal but then lacked a specific enforcement law – operating at two levels provided a degree of protection for the actual online gambling site for the site on which they register is not a gambling site and cannot be banned from taking credit cards under then current regulations; 5) Party Gaming was valued at US$8 billion is 2005, so why begrudge giving away some of its profits to another company which does so much to enhance its own value.; 6) the competition was already very tough among online gambling sites with up to 200 estimated competitors with giants such as Hurrah Entertainment and BetFair, so that anything enhancing the value of one’s own site is worth supporting.

In 2004 alone, 34,000 new gamblers enrolled on gambling sites through EO’s efforts. In 2004, on gross revenues of US$65.2 million with only 60 employees, it netted $US 37.7 million. That meant that with such revenues, especially given its growth potential – the existing world wide online internet gambling was then estimated to be worth $US!2 billion and growing rapidly – the company’s market value could be estimated to be almost a billion American dollars. Sure enough, by the time it was ready to go public on the London stock exchange, its IPO was valued at up to one million British pounds and when the flotation was about to be launched, it reached a value of US$928 million.

However, at about that time, EO’s relationship with Party Gaming began to sour. In mid-2005, Party Gaming began to “ringfence” its players from EO and upgraded its PartyPoker site to cut out EO from accessing its players. In November 2005, Party Player terminated its relationship with EO. EO sued in the High Court of Gibralter. In February 2006, the two companies agreed to an out-of-court settlement that paid $US250 million to EO. Further, in December 2006, Party Player agreed to acquire Lanir’s remaining shares in EO for $US40 million. It was estimated that Lanir ended up netting about a third of a billion American dollars.

The timing was propitious. In 2006, the United States Congress passed The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) to regulate online gambling. On 2 October 2006, PartyGaming suspended “all real money gaming business with US customers” when George Bush signed the act into law on 13 October. The value of the shares dropped by 60% in 24 hours.

To attract players to EO’s site from many different companies, EO had to develop a translation facility. Lanir purchased and retained ownership of Babylon Inc., an online dictionary and translation service. Using a database of 1400 sources, the company provides services in 75 languages. In addition to covering a wide variety of technical fields, it also offers audio pronunciation services. Listed on the Tel Aviv stock exchange, in 2012, annual revenues totaled US$178 million.

In 2010, Lanir entered the medical tourism business and started a company, Life Tree Marketing, to market high quality health services in Israel – initially surgical services and in vitro fertilization, a field in which Israel is a world leader. Life Tree Marketing initially targeted Eastern European clients. Increasingly, American patients have been attracted because of the significantly lower costs for equivalent service in the United States. Heart bypass surgery that costs $120,000 in the US costs $30,000 in Israel. In vitro fertilization that costs $30,000 in the US costs $3500 in Israel.

His company is in competition with International Medical Evaluation and Referral (IMER) owned by Hadassah Hospital or the Ramat Aviv Medical Center that also serves the medical tourism business. Like his gambling site, his is a marketing site and his company enters into partnerships with hospitals that actually provide the services from which Life Tree rakes off 20% of the fees charged to cover its costs of attracting clients and making the arrangements for them to get to the facilities in Israel. There are already contracts with the Shaba Medical Center, Tel Hashomer Hospital, Shaarei Tzedeck Medical Center and Wolfson Hospital. Annual revenues are already estimated to have reached $US20million.

Stef Wertheimer is a much older entrepreneur, twice the age of Noam Lanir and probably four times the wealth. He is worth at least US$4billion. Originally born in Germany, his fled the Nazis when he was eleven years old and settled in Israel. Although Wertheimer attended an excellent school, he dropped out at the age of 16, surprising in retrospect for someone who puts such a high value on training and education. During WWII, Wertheimer worked for and studied optics with a pioneering researcher in the field, Emmanuel Goldberg, and then joined the British airforce to repair optical equipment installed on British aircraft. After the war, he served in the Palmach and eventually served as a technical officer in the Yiftach Brigade.

ISCAR, one of the largest manufacturers of carbide industrial cutting tools with 6,000 employees worldwide; it was started by Wertheimer in 1952 as a backyard sheet metal cutting operation. It was sold to Bershire Hathaway in 2006 for US$5 billion. The Wertheimer family retained ownership and control of Blades Technology valued at US$1 billion. Sceptical of high tech companies and entrepreneurs or making money off natural resources, whether it be the discovery and export of gas from Israel’s new fields or from buying the raw materials of other nations, Wertheimer is a true believer in the old industrial economy as the backbone of a nation’s wealth. To develop that wealth demands providing workers with the necessary high level of skills to engage in manufacturing, and to ensure that all citizens, whether, religious Jews or Arabs, Haredi or secular, Druze or Circassions, are properly skilled. He is an equal opportunity employer.

Whatever the value of this wealth obtained from the older manufacturing centres, a great part of Wertheimer’s money has come from the development of industrial sites where manufaturing on all levels takes place. In the eighties, Wertheimer focused on comprehensive sites that included not only manufacturing, warehousing and shipping space, but educational, recreational and transport facilities as well. He has been a pioneer with Shimon Peres in using economics to promote peace by fostering co-ventures and cross border industrial parks. This initiative was successful in Nazareth but unsuccessful in Gaza once Hamas took control. Wertheimer envisions such parks, not simply as real estate plays, but as incubators of innovation, worker training and start-up companies. Wertheimer helped found the Democratic Movement for Change and was elected onits list in 1977 and joined Shinui in 1978 when DASH broke apart but left politics in 1981. Currently, he is an active member of Tzipi Livni’s Hatnuah.

He is a winner of the Israeli Prize and was given the Oslo Business for Peace Award in 2010. He is highly esteemed in Israel.

Tycoons and Monopolies. Ze’evi.21.04.13

Tycoons and Monopolies. Ze’evi. – Part II 21.04.13

by

Howard Adelman

Before I took time off to write blogs on films showing at the Toronto Jewish Film Festival, in my economic series on Israel, I wrote on tycoons and billionaires to get a sense of many of the top individuals who have driven their own stories of rags to riches as well as the story of Israel’s rise into the top tier of developed countries. In the first one of this series, I wrote about the political and social as well as economic impacts of a dozen or so Israeli billionaires — including Shari and Micki Arison, the Ofer brothers, David Azrieli, Noam Gottesman, Arnon Michan, Meir Doron, Joseph Gelman, Marc Rich, and Haim Saban, many of whom live outside of Israel and made a good part of their fortunes outside Israel. I also wrote about two impressive but very different Mizrachi billionaires, Shilvan Eliahu and Yitzhak Tshuva. Today and tomorrow I want to concentrate on a smaller group of Israeli billionaires who also made their fortunes primarily in Israel, but come from an Ashkenazi or Sabra background. On Tuesday, I will write about the East European Israeli billionaires.

Gad Zeevi is an Israeli born tycoon who was accused of stock fraud and money laundering in 2006, disappeared from the public eye, went through a long trial until the judge declared him NOT guilty in March of 2011, finding that the sale of his shares “was neither false nor unreasonable”. As Judge Daniela Cherizli concluded, “There was no conspiracy, and I therefore acquit the accused of all charges in the indictment.” I begin at the end of the story because if you read the ruling, it becomes clear that when there is smoke, sometimes there is no fire. There is just deep suspicion about people who are worth billions. Some rich people are certainly guilty of making their money through fraudulent means. But making money is not itself fraudulent. Further, even the ultra rich can be subject to bullying by zealous prosecutors convinced that something was amiss.

Further, bureaucrats sometimes interfere with entrepreneurial activities and initiatives even when they are not against the law. In the 1990s, when Gad Zeevi made a move to acquire the controlling interest in Bank Mizrachi, though there was no law at the time against his effort, Ze’ev Abeles, the supervisor of banks, kept insisting that he had to inquire further into the Zeevi group of companies activities in Africa, endlessly postponing a decision, until Zeevi just gave up. As it has been said, the problem in Israel is not one of a normal bureaucracy with too many rules and too many levels of decision-making, but government functionaries who are as entrepreneurial about their duties as any businessman. They make up the rules as they go. Israel is burdened with an anti-bureaucracy bureaucracy, where bureaucrats practice the art of creative decision-making.

This occurs at all levels. When I was in Israel in the late seventies as a Lady Davis Visiting Professor at Hebrew University, I knew I had to get my VW camper van out of Israel before a year was up or I would be subject to a huge tax. I was due to leave with my oldest son from the Port of Haifa two days after my year was up. So I drove the camper van down to Haifa two days before the expiry of the period, just to be safe, and put it into the export area from which I could drive it onto the ship when I was leaving four days later. When I did this, the port authorities informed me that a small licensing fee had been due at six months and that I should go to the Jerusalem office where I lived to pay the fee and when I showed them the receipt, I would be permitted to take the VW van out of Israel.

The official was very helpful and gave me instructions on where to go on King George Street in Jerusalem and how much I would be required to pay. I had two days to accomplish this task as well as complete our packing and preparations to move three days hence. Early the next morning – at 7:00 a.m. – I stood in line on King George Street. I was second in line when the office opened at 8:00 a.m. By the time it opened, there were about twenty people waiting to get in. When the door opened, I asked the person where to go and she directed me to the second floor to pay license fees. I scurried up and was no longer second in line but about sixth and it took me until 9:45 a.m. to get to the front of the wicket.

I then showed my license and had the exact amount of lira (money had not yet been changed to the new Israel shekel) in hand to pay. The clerk condescendingly told me that a license fee was not due, but an import duty was. That office had moved two years ago. She tersely gave me an address. It was in a new industrial area of Jerusalem. I ran outside and grabbed a cab. It took twenty minutes to get there.

The line had about sixteen people in it when I got there at 10:22. I despaired, but quickly cheered up when it seemed to be moving reasonably quickly. I learned later that the reason the line moved so quickly was that most people were sent away to get more documents in order to complete the transaction. Further, the son of the Imam from Jerusalem was standing behind me in line and we struck up a very enjoyable and interesting conversation. When my turn came – it was then 11:30 a.m. – I handed over the license and my money through the wicket – only it was not quite a wicket.

Curtly, the clerk asked what this was for. I answered that it was to pay the foreign vehicle fee that was due at six months and that I had not know about previously. The clerk asked for the ownership papers for the vehicle. I told the clerk that I was required to leave the ownership papers at the Haifa Port. He said that I could not pay the fee without the ownership papers. I told him my situation and that I was in a Catch-22. I was leaving in another two days and could not get my vehicle out of the port any longer nor retrieve the ownership papers that had to be left with the vehicle. Yet I could not get the vehicle again to leave until I paid this fee.

He said, “Next.” In Hebrew, of course! I said I was not leaving the line until I could pay the fee. The Imam’s son encouraged me. This was his third time back in line because each time he was sent away and asked to bring another paper. The Israelis further down the line, instead of telling me to get out of the way, yelled, “Start a sit in.” I seemed to have the whole line behind me totally sympathetic to my plight and supporting me. The clerk announced that he was going on a tea break and closed the wicket.
He returned in twenty minutes – I was getting desperate because I knew government offices closed at 1:00 p.m. for the day. It was now almost noon. The clerk, without looking up, said I would have to go upstairs. He directed me to an official upstairs. That person would take care of the problem. I ran up the stairs, found the room, and was ushered in right away to see this official. I explained my plight. He asked, “What size of engine did the VW have?” I said I had no idea. He said that VW vans had either a 1200 or a 1600 cc engine. Again I said I had no idea. When he kept insisting on my trying to recall a figure, I said it must have been the larger figure because the VW I drove had lots of oomph. He asked whether I was sure. I said that I was not sure at all, but thought that must have been the case. He asked again whether I was sure. After the third time, to get the matter over, I said that I was pretty sure. So he gave me a signed slip with instructions and told me to go to the front of the line and see the clerk. I would not have to line up again.

I went to the front of the line – it was now 12:25 – and waited until the person being served finished. The Imam’s son was no longer there and I hoped he had received his license this time. No one in the line objected to my jumping the queue. I handed over my license, the money and the signed slip I had been given. He took the papers, counted the money and said that it was not enough. I said that was the amount I had been told in the port. He said that that was the amount for a 1200 cc engine. I had a 1600 cc engine. The amount required to be paid for a 1600 cc engine was three times the amount for a 1200 cc engine.

I despaired at my stupidity and failure to get the hints of the official upstairs. I asked in despair, “What can I do?” I had traded in all my excess lira and would have to go a bank and exchange more money and come back and I was not even sure I had that amount of cash freely available as I had transferred most of my assets back to Canada already. He said, wait a minute. I, and everyone else in the line, waited ten minutes. I was so embarrassed. I knew that those near the back of the line – there were about eight still lined up – could not possibly get served by 1:00. When he returned he told me that he would reduce the fee by half. I still did not have enough lira. There were no ATM machines then and the nearest bank was probably a mile away – we were in the boondocks.

I agreed to return the next day. He told me I would not have to line up. And true to his word, after I went to the bank first thing in the morning to obtain the extra lira I needed, I went right to the front of the line and within two minutes I had paid the fee and had the longed for stamped slip I needed. I left amazed at both the initiative of the bureaucrats and their obduracy. They could not and were not cowed by academics, imams or, as we shall see, billionaires. They were equal opportunity obstacles and innovators.

Gad Zeevi was a multi-billionaire. He owned part of Haifa’s Grand Canyon Mall, and real estate throughout Israel, Eastern Europe and the USA, owns the largest and best equipped private hospital in Israel and has been a pioneer in health tourism. He has investments in the media and in new hi-tech apps. He runs the largest import and freight forwarding agency with offices throughout Africa, Eastern Europe and America. He has been an importer and gained control of Japanauto in the late nineties to become the dominant importer of cars and trucks into Israel. The Ze’evi group is also onto the production, refining, distribution and sales of petroleum products both in Israel and the USA as well as in the construction and management of electric power stations. He has been, nevertheless, treated with much more bureaucratic interference than I was fitting to his wealth. And, possibly, sometimes more help. In some ways, however, Israel, in spite of now ranking with countries with the greatest gap between rich and poor, is still an egalitarian society.

When the Berlin Wall came down and Eastern European states initiated the privatization of their assets, Eastern European groups with money turned to pick up those assets at bargain basement prices. The Polish Group (Bagsik and Gasiorowski) was one of them. They decided to sell off their assets to do so. One was Paz Oil in Israel. They approached Gad Ze’evi to see if he was interested. They offered Paz to him at US$10 million less than they themselves had paid a year earlier because they saw much greater and faster profits in Eastern European assets then for sale. Ze’evi put a down payment of US$7.5 million and agreed to pay for the balance in equal installements every six months over the next four years. A contract was signed.

But it did not work out. During the due diligence period, Ze’evi claimed that something was amiss and refused to close the deal. Instead of backing off and absorbing losses for the work put in, Ze’evi took the Polish Group to court for refund of his deposit and legal costs. The issue went first to an arbitrator as provided in the contract and then to the courts and, as usual, dragged out for three years. Paz was tied up and the Polish Group sufered significant opportunity cost losses in not having the funds to gain control of Polish government assets. At the same time, Ze’evi had his $US7.5 million tied up and very large legal fees. The Polish Group lost even more, not only the lost opportunities to make large sums in other ways, but they finally sold Paz at one-quarter of the price that Ze’evi had agreed to pay. Both sides were huge losers.

The losses were not only financial. Although both sides poured money into public relations as part of their legal suit, both sides’ reputations suffered enormously. Gad Ze’evi was portrayed in terms bordering on antisemitic stereotypes. Further, his legal troubles had just begun. In March of 2001, he was arrested, along with others, and charged with fraud by the Israeli International Crimes Unit in what was called the Bezeq Affair. When Ze’evi purchased his 17.6% stake in Bezeq from Cable and Wireless for US$600 million in 1999, he evidently, as required by law, did not properly disclose his source of financing from Mikhail Chernoy who had come onto a large stash of cash when he sold control of the Bulgarian cell phone company to MobilTel. (I will have more to say on Mikhail Chernoy and his connection with Avigdor Lieberman in my last blog on Tycoons and Monopolies focused on the Eastern European Israeli billionaires.)

In 1999, Ze’evi had borrowed US$643 million from a consortium of Israel’s six largest banks led by the First International Bank of Israel. US$500 million of the loan was secured by the shares that he had purchased as well as a guarantee provided by a Swiss account controlled by Mikhail Chornoy for US$143 million. Evidently Mikhail Chernoy had not been disclosed as the one providing the guarantee. The banks claimed that, had they known, they would not have approved the loan.

When Ze’evi could not meet the terms of the loan, largely because of his losses in the Paz affair, the banks in 2002 put him into receivership and he lost control of the Bezeq stake. The receiver sold the shares in Bezeq for NIS 4.7 billion for a healthy profit, repaid the banks in full, repaid Chernoy US$107million ($36million had already been repaid in 2000) and enough held in trust until the courts settled the amount of interest owing to Chernoy. The balance went to Ze’evi. The criminal action, on the other hand, dragged on until 2009. Then, Tel-Aviv District Judge Oded Mudrik instructed that the Prosecutor settle since no criminal intent was uncovered in Cherney’s loan to Ze’evi.

There are several lessons to be learned from this affair. First, as I have written before, when there is smoke, there is not always fire. Second, becoming involved with intelligent, persistent and suspicious prosecutors in Israel is dangerous to one’s health. Third, any business person has to do due diligence, not only on the business financial aspects of a deal but on the personalities involved. Fourth, the financial costs of slip ups are enormous. Hence the huge amounts entrepreneurs pay legal firms to minimize possibilities of exposure to possible mistakes. Legal costs and potential legal costs constitute a significant, but largely unproductive cost of engaging in business transactions. Any actions the state can take to ensuring financial deals are totally above board while also minimizing exposure to risk can be one of the most important contributions that the state can make both to the efficiency and integrity of business transactions.

Defilement and Blasphemy Parsha Emor: Leviticus 21: 1-24:23. 26.04.13

Defilement and Blasphemy Parsha Emor: Leviticus 21: 1-24:23. 26.04.13
by
Howard Adelman
Emor means speech. Some of the specific laws applying to the Koanim, the priests, are about protecting those priests from defilement. Marrying someone who is not a virgin is defilement for a high priest. Marrying a divorcee is defilement for any priest. But since the punishment simply bans the priest from entering the holy of holies, and since the Temple has been destroyed and there is no holy of holies, one might be led to believe that a Cohen or a Katz suffers no real consequences from such harsh bans if those bans are broken. But what if the rabbis say the laws still do apply to the Koanim and it does not matter if the Temple no longer exists, then the rabbis will simply refuse to marry a Cohen or a Katz if he wants to marry a divorcee.
What about a daughter of a priest? After all, these priests were not celibates. “If a kohen’s daughter becomes desecrated through adultery she desecrates her father; she shall be burned in fire.” (21:9) A little harsh, I would suggest. Further, it is quite inequitable. The old priest just cannot participate in the sacraments. The young teenage girl gets burned to death.
The women are not the only ones who are discriminated against, and quite ruthlessly. So are the defective ones. It is one thing to say the people with puss running out of their wounds or who were in contact with dead bodies and had not washed themselves, should not come near the place of sacrifice, but what about those with deformities, including a broken arm? What about those with long eyebrows (21:20); they are defined as “deformed”.
Squeezed between defilements of Koanim and laws about blasphemy come the list of the Holy Days, including the 49-day counting of the Omer, a period in which we are now in the midst of, which begins on Passover and culminates in the festival of Shavuot on the fiftieth day. But then comes the laws against not only murder and injury of one’s fellow man (an eye for an eye), or for destruction of property, but for blasphemy. The portion named “speech” bans free speech.“And one who blasphemously pronounces the Name of the Lord, shall be put to death; the entire community shall stone him; convert and resident alike if he pronounces the [Divine] Name, he shall be put to death.”(24:16) The law is carried out. “And Moses told [all this] to the children of Israel. So they took the blasphemer outside the camp and stoned him, and the children of Israel did just as the Lord had commanded Moses.” (24:23)
Thomas Aquinas wrote that blasphemy was a worse sin than murder since the action targeted God, but the action was miniscule compared to murder given the consequences of murder, whereas words could not hurt God. Thus, in spite of the unequivocal wording of the text, there is a way out; since no one was hurt, and since blasphemy is a sin only against God, then one can leave the punishment up to God. In the West, anti-blaspheny laws are no longer enforced. However, many individuals and states do not leave enforcement up to God. The vast majority of Islamic countries not only have laws forbidding blasphemy, but they enforce them. As in the case of Salman Rushdie for publishing The Satanic Verses, an imam can issue a fatwa condemning a person for blasphemy.
So what do we make of a section on speech that inhibits and even prohibits free speech. Last night we watched Jon Stewart and his guest, the Jon Stewart of Egypt, Bassem Youssef. Youssef Has been arrested in Cairo and questioned for hours about insulting both President Morsi and Islam. Subsequently, Egyptian authorities threatened to revoke the license of the station that airs Youssef’s program, though they evidently laughed uproariously when Youssef mocked Mubarak. Stewart subsequently mocked Morsi himself in a hilarious episode that I never saw. There were two subsequent official responses, one from the United States embassy in Egypt. The embassy had tweeted the Stewart monologue and, then deleted the tweet first totally and then restored it but without the Stewart monologue presumably as a result of pressure from the Egyptian government on the American government. “Egyptian President Mohammed Morsi’s office called the tweet ‘inappropriate’ and unbecoming of a diplomatic mission, while the State Department said the unusual affair was the result of ‘glitches’ in the embassy’s social media policies that are now being corrected.”
If you think the whole affair was not getting funnier by the moment, The American Cairo Embassy “came to the conclusion that the decision to tweet it in the first place didn’t accord with post management of the site. Next, the Egyptian government charged Jon Stewart with defamation and gave him 30 days to surrender to the Egyptian authorities. If he did not surrender, they would try him in absentia and then apply to have him extradited.
.”This conspiracy to defame the Egyptian government violates our laws and will be prosecuted fully. Mr. Stewart may think he’s funny. But in reality he is destroying the moral fiber of Egypt with his numerous references to penises and openly flamboyant homosexuals like Larry Craig, Marcus Bachmann, and Lindsey Graham.” As the Egyptian government stated, there is nothing more important than defending Egypt’s honor against the United States’ most prominent political comedian.
If such religious text portions did not have such drastic consequences for some directly affected, we should all applaud them as excellent sources of humour.

Lev Leviev.30.04.13 30.04.13

Lev Leviev 30.04.13

by

Howard Adelman

I have been AWOL after visiting my two youngest children in Victoria and Vancouver. (In August, Daniel is getting married on Vancouver Island where he lives; Gabriel is just finishing film school in Vancouver and his film was showing at the student film festival, When we were there, we learned he was flying to Miami Beach this past Sunday to receive a film award.)

One recent piece of news relative to Obama’s use of small tactical moves to advance the peace process has emerged. In a meeting yesterday of Arab League members with US officials, including Vice President Joe Biden and Secretary of State John Kerry, at Blair House yesterday, the Arab League for the first time backed the idea of comparable mutually agreed territorial swaps in a land for peace deal.

This week I will finish my series of profiles on Israeli billionaires, in particular, the ones from Eastern Europe, and offer some summary observations. I will cover:

Lev Leviev (today)
Alexander Mashkevitch
Leonid Nevzlin
Vadim Rabinovich

Lev Leviev, like some other Israeli billionaires, relocated six years ago from Israel (B’nei Brak to London); he now occupies a US$70 million mansion in Hampstead. We already had a glancing acquaintance with Lev Leviev because of his association with Arkadi Gaydamak in Angola. Leviev and Gaydamak had become involved together in a joint venture to purchase a metallurgy plant in Kazakhstan in 1999 and subsequently when Gaydamak bought a 15 percent share of Africa Israel. As with most of Gaydamak’s partnerships, but very rare for Leviev, there was a falling out. In a London court last year (12 July), the High Court in London not only dismissed all legal claims of Gaydamak against Leviev (the suit was for a $1billion), but assessed legal costs against Gaydamak. The deal went back to 2001 when Gaydamak first entered the Angolan diamond market. Leviev brought to the deal his expertise in diamond cutting and conceived the idea of an Angolan controlled marketing of Angolan diamonds, a deal that has been very profitable for the Dos Santos family and his associates as well as for Leviev. There is no evidence that Leviev was involved in the arms for diamond trade, but the monopoly deal was, in part, designed to eliminate the trade in blood diamonds.

Leviev is a self-made billionaire. He arrived in Israel with his Lubavitcher family from Tashkent, Uzbekistan in 1971 at the age of fifteen but dropped out of school to learn diamond cutting. He lacked Dan Gertler’s family connections but his own inner ambition allowed him to master all eleven steps of diamond cutting without serving decades of apprenticeship. He paid his fellow cutters to teach him the requisite skills. By the age of 22, he had set up his own shop. By the age of 32, he had twelve of the most technologically developed diamond cutting and polishing plants. During that period of expansion, he established himself as a de Beers “sightholder” even though he was an outsider, a Bukharan Jew. He became one of the 100 or so individuals authorized by the de Beers cartel allowed to buy diamonds at fixed prices.

Just as he could not stand to be an outsider forced to buy diamonds from middle men rather than directly from de Beers, he soon chafed at having to buy rough diamonds through de Beers. In the upheavals in Eastern Europe, after receiving a blessing from Rabbi Menachem Schneerson, he convinced the Russian Minster of Energy to break the de Beers monopoly and, with his help by using the Lubavitcher network in the former Soviet Union, set up an indigenous cutting and polishing of diamonds operation in Russia so that the higher value polished diamonds could be exported. Leviev broke the de Beers monopoly. It was the same technique he would bring to Angola in 1997. In a joint venture with Alrosa, the Russian state diamond company, Leviev bought into the Catoca diamond mine. It helped that Dos Santos spoke Russian from his days as an engineering student in the Soviet Union so Leviev did not have to master Portugese.

Leviev now is the largest cutter and polisher of diamonds in the world. His company integrates the beginning of the business with the acquisition of rough diamonds to the retail level with high end stores in London, New York, Moscow, Dubai and other centres. His vertically integrated company gets its diamonds not only from Russia (Leviev is a personal friend of Putin) and Angola, but also Namibia, Alaska and the Northwest Territories in Canada where he was a pioneer in mining for diamonds.

Leviev’s diamond business is personally owned but he is also the controlling shareholder of Yehud, which owns Africa-Israeli Investments (AFI) in which he bought a 60% interest in 1996 for $400 million. AFI recently went through a financial restructuring that diluted his holdings from 75% to just under 53%. Like many other property developers, he got caught by the bursting American real estate bubble in 2007-2008 (just after the New York Times building and the Madison Avenue Clock Tower were purchased), the burst bubble in Europe – AFI owns property in Prague and London – and the more recent burst in the Russian bubble, ignoring that he bought his Hampstead home at the peak of the London market. Yehud also owns Gottex, the Israeli swimwear company, 1700 FINA gas stations in the American southwest, and a chain of 173 7-Elevens in New Mexico and Texas. AFI is a one-third owner of the Israel toll road, the Cross Israel Highway. It also owns the Russian language Israeli TV station, Vash Telecanal. Fortunately for him, AFI’s real estate investments in the USA, mainly in New York, have recovered a great deal of their lost value.

Leviev has mixed his political convictions with his investment strategies in assuming the role as the foremost developer in the West Bank with significant building projects in Har Homa, Maale Adumim, Zufim, Adam, Modiin Illit and Ariel. As a consequence, his jewellery stores have been the sites of pickets and protests and the British foreign ministry cancelled a prospective deal to rent space for its Israeli embassy in an AFI building in 2009 after a campaign led by Architects and Planners for Justice in Palestine. Some European Investment funds have also sold off their holdings in AFI, but it is not very clear in some cases whether this was because of perceived negative prospects of AFI or a response to protests. BlackRock, Investeringsforeningen Sydinvest, the Swedish AP1 pension fund and Dutch PFZW were joined by the US Teachers Insurance and Annuity Association College Retirement Equities Fund in selling their shares in AFI. Further, it is also not clear whether this sell off also precipitated the need for AFI to restructure.

Lev Leviev is possibly the most active philanthropist among the Israeli plutocrats and is certainly the foremost promoter of the restoration of Jewish life, culture and especially Jewish education primarily through the Jewish Learning Initiative in the former Soviet Union. He is President of the Federation of Jewish Communities of the CIS (FJC) representing the fifteen organized Jewish communities in the former Soviet Union. Leviev supports over 10,000 Jewish community civil servants, including 300 mostly Chabadnic rabbis as well as the extensive network of schools in which they teach..

Fathers are supposed to circumcise their own sons. Almost all hire a mohel or a certified doctor to perform the task. Not Leviev. One of the more interesting stories about Lev Leviev is that, without any training, at the age of 22 he followed his father’s practice and circumcised his own son, using his skills as a diamond cutter to get through. By now he has performed over a thousand circumcisions. Another is that he is a believer in women’s equality in the workplace. Two of his daughters have very high executive positions in his companies. Zvia, a daughter with four of her own children, runs the international marketing and mall businesses. Tomorrow, when Tamir Kazaz steps down as CEO of AFI, Leviev’s daughter, Hagit Leviev-Sofayev, a former executive of Deloitte in the economics department, is most likely to become CEO.

Leonid Nevzlin.01.05.13 01.05.13

Leonid Nevzlin 01.05.13

by

Howard Adelman

Leonid Nevzlin is from Moscow. As I shall explain, he is probably no longer the billionaire listed in Forbes in 2003, but he is included in this series because of the explanation. Nevzlin graduated from the Gubkin Institute of Oil and Gas in Moscow as a software engineer and worked as a computer programmer for the Foreign Trade Association (ZarubezhGeologia) in the Soviet Ministry of Geology. In 1987, he partnered with Mikhail Khordorkovsky and became Deputy Director of the Youth Centre for Scientific and Engineering Creativity just when Mikhail Gorbachev began his restructuring of the Soviet economy. He also headed the Center of Interdisciplinary Scientific–Technological programs (MNTP) that morphed into the Joint Company Menatep-Invest out of which the two partners established the Menatep Bank in 1990. Nevzlin became President. Menatep was used to found Yukos, where Nevzlin assumed the position of Vice-President. Yukos became the world’s largest non-state oil company in only five years.

The foundation of their wealth began with currency trading in the early nineties based on algorithms Nevzlin devised, and then buying up for cash the vouchers issued in the process of privatization, initially in state enterprises, and then in property at deeply discounted prices. The new Russian oligarchs, mostly Jewish, lent the money to the state Yeltsin ran, and the loans were secured by state assets. When the government defaulted on loan payments, the oligarchs seized the assets. Through buying vouchers and foreclosing on state loans, by the mid-nineties, Khodorkovsky and Nevzlin were very rich.

Nevzlin and Khodorkovsky bankrolled Yeltin’s re-election in 1996 for which Nevzlin was awarded the Russian Order of Friendship. In September 1997, Nevzlin became Deputy Director of the Russian news agency, ITAR-TASS, for a year. Nevzlin developed a plan to gradually transform ITAR-TASS into a joint-stock company. In 1999, Bank Menatep went belly-up in the Russian financial crisis of 1998-1999. Yukos was also in trouble, spending US$12 to pump oil with its outdated equipment that was only selling for $US8 per barrel. Nevzlin and Khodorkovsky not only saved the company by modernizing it, transforming the financial reporting to western methods to assure transparency and accountability, but mainly through the god’s of fortune as oil prices began their spectacular rise.

The two partners began to devote more time to the development of civil society and the two founded the Open Russian Federation to fund civil society projects. The two also funded a school for public administration. From March to December 2001, Nevzlin was president of the Russian Jewish Congress and he personally funded a number of Jewish historical and heritage research projects, including the establishment of the Moscow Jewish Cultural Center and the International Center for Russian and Eastern European Jewish Studies in Moscow. From November 2001 to March 2003, Nevzlin became a senator in the Federation Council of Russia representing Mordovia and became the first rector of a university without a PhD for the Russian State University for the Humanities. The two partners became the biggest supporters of civil society organizations providing at least 50% of the income of all of them while Khodorkovsky also donated a hundred million $US to the Russian State Humanities University.

In 2003, the political winds that had been changing over the previous four years became a whirlwind. Putin had assumed the presidency of Russia in 2000 after rising under Yeltsin as Acting President in 1999. By 2003 he was consolidating his power in preparation for running for president again in 2004. Though the economy had stabilized and had experienced enormous growth under his regime, fueled in good part by increases in the value of Russia’s oil and gas, Russia began also to regress in democratic terms. Part of that regression meant eliminating any economic centres of power that threatened Putin’s political power. You were either in bed with Putin or sentenced to the scrap heap of history. Putin targeted Vladimir Gusinsky, another Jewish oligarch, who owned a media company and two television stations. Gusinsky was charged and agreed to sign over his companies to the state and fled to Israel.

Khodorkovsky, in 2003 then the richest man in Russia, had as big an ego as Putin and challenged him in the political arena by funding civil society human rights and opposition groups. As an ex-KGB agent, Putin was wedded to doublespeak, doubletalk and double think while Khodorkovsky was a believer in saying what he thought without inhibitions. In February 2003, he refused in a direct meeting with Putin to buckle under. In fact, he directly challenged Putin at the meeting with a slide show arguing that political corruption was costing the Russian economy US$30 billion per year. Khodorkovsky and Nevzlin were true believers in the free market – he and Nevzlin had published a manifesto, The Man with the Ruble, extolling the virtues of capitalism. They wrote: “Our guiding light is Profit, acquired in a strictly legal way. Our Lord is His Majesty, Money, for it is only He who can lead us to wealth as the norm in life.” They had also become believers in free speech and human rights, transparency and accountability. However, Nevzlin, a more prudent man, was not willing to uphold his beliefs at the risk of his life.

Putin’s guiding light was power and Russian nationalism. He turned the power of the state apparatus against Yukos. At the meeting in February, Putin took umbrage at Khodorkovsky’s speech and in not very subtle terms issued his threat. “Some companies, including Yukos, have extraordinary reserves. The question is: How did the company get them? Your company had its own issues with taxes. To give the Yukos leadership its due, it found a way to settle everything and take care of all its problems with the state. But maybe this is the reason there is such competition to get into the tax academy?”

Nevzlin, who had mastered public relations, got the message and immediately went to take citizenship in Israel in 2003 and made efforts to move whatever funds he could salvage to safe havens. Khodorkovsky held his ground as other billionaires and millionaires fled Russia to save their lives (several were murdered abroad) and to avoid the wild west lawlessness of Russia where kidnappers and murderers in cahoots with the state ransomed children and killed at will, Khodorkovsky, as stubborn as Putin, refused to flee, even though Nevzlin warned him that the old laws still on the books could be used to prosecute them.

The squeeze began on 2 July 2003 when, their partner, Platon Lebedev, was arrested. Later in July, the head of security for Yukos, Alexi Pichugin, was also arrested and eventually sentenced to 24 years in prison for murder. Khodorkovsky could bend or flee. He not only stood his ground but ran a public campaign against Putin. By the time Khodorkovsky was arrested on 25 October at the Novosibirsk airport in Siberia at 8:00 in the morning as he was preparing to fly back to Moscow, Nevzlin was living in Israel where he fled with two other partners from Yukos, Vladimir Duvdov and Michail Brodno. Nevzlin has said that he had spoken to his friend just earlier and he seemed to know the consequences he faced.

So did Pavel Ivlev, a tax lawyer who never worked for Yukos or Khodorkovsky but was called as an expert witness at the trial even though he was the lawyer representing other Yukos employees who had been charged, a completely illegal move under any jurisdiction. In the pre-trial examination, he was told that he had to tell all – namely how the employees took sacks of cash out of Yukos to deliver to Khodorkovsky personally. Ivlev protested that he had no knowledge of that ever happening. He was told that if he said that, he too would be arrested. The next day, Ivlev fled the country and flew to Kiev and eventually his family joined him and they now live in New Jersey.

Three years after Mikhail Khodorkovsky was convicted of fraud and tax evasion after a ten month farcical trial, he was sentenced to nine years in prison and sent to Khodorkoovsky colony, YaG-14/10, a 9 hours flight and a 15 hour train ride from Moscow. In January 2004, an international warrant was issued for Nevzlin’s arrest, initially for evading US$930,000 in taxes for the 1999-2000 fiscal year, with illegal appropriation of shares in two Eastern Oil Company (VNK) subsidiaries, and, in July, for murder and attempted murder, specifically targeting businessman Sergei Gorin and his wife, and also Yevgeny Rybin, the president of the East Petroleum Company.

Moscow City Court tried Nevzlin in absentia and found him guilty of organizing five murders and sentenced him to life in prison. All efforts to extradite Nevzlin from Israel failed as the Israeli Supreme Court found that none of the evidence the Russian government presented was enough to even charge him let alone secure a conviction. The High Court of Justice in Israel ruled, “These are hearsay testimonies that do not even justify the appeal to extradite Nevzlin.” In the end, 42 Yukos employees were charged and sentenced. Yukos was sold at a bargain basement price to a company, Baikalfinansgrup capitalized at $US300 with no assets at all registered in a small town of Tver three hours drive from Moscow, the purchase financed by a US$9billion loan by the state oil company, Rosneft, to get rid of debt in return for Baikalfinansgrup’s shares as collateral. Ironically, the process that the partners had initially used to acquire the assets was now put in reverse gear.

While in prison, Khodorkovsky and Lebedev were charged in March 2009 with stealing Yukos’ oil between 1998 to 2003. The trial ended in December 2010 and the two were sentenced to a further 14 year prison term. It was clear that Putin had determined that the two would never again be out of prison.

Since leaving Russia, Nevzlin has repeatedly criticized the Putin regime and offered monies to opponents. He set up an institute on Eastern European and Russian Judaism, The Leonid Nevzlin Research Center for Russian and Eastern European Jewry, at the Hebrew University in Jerusalem. Twin institutions were funded in Moscow, Vilnius and Kiev. He has helped create an endowment for Beth Hatefutsoth, the Nahum Goldmann Museum of the Jewish Diaspora next to Tel Aviv University and became chair of its Board, funding the Nevzlin Program for the Study of Jewish Civilization at Tel Aviv University and the International School for Jewish Peoplehood Studies at Beth Hatefutsoth. He also helped saved the newspaper, Haaretz, by buying a 20% interest.