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.

Advertisements

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.”

http://www.evb.ch/cm_data/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.

Tycoons and Monopolies I.14.04.13

Tycoons and Monopolies I 14.04.13

by

Howard Adelman

Economic development depends in good part on entrepreneurs. The vast majority are small, but some have become very rich. There are at least seventeen Israeli billionaires in Forbe’s Israel list not counting billionaires who hold Israeli citizenship but whose primary residence is now elsewhere. I have already referred to the richest, the Ofer brothers (Idan and Eyal) and Arison brother (Micki) and sister (Shari) in previous blogs. Since the Arisons largely inherited their money from their father who died in 1999, I will only tell one story of Shari Arison who was voted the 56th greatest Israeli in 2005 because of her philanthropic work. In March 2009, she sponsored the annual Good Deeds Day in Israel to inspire and recruit thousands of volunteers. As part of the event, a Palestinian youth orchestra from Jenin performed classical Arabic tunes and songs of peace in a concert honouring Holocaust survivors. Subsequently, the conductor was condemned by Jenin politicians, fired from his job and expelled from Jenin. Such are sometimes the unintended bad effects of good deeds.

Israeli billionaires are sometimes accused of bad deeds. Focusing on the Israeli documentary, The Shakshuka System (Shitat Hashakshuka), written by the Israeli investigative journalist, Miki Rosenthal and directed by Ilan Aboody, I will re-introduce the Ofer brothers. Shakshuka refers to an Israeli hot breakfast concoction of poached eggs cooked in a tomato and olive oil sauce with lots of spices and an assortment of other ingredients often mixed in – sausages, tuna, spinach, feta cheese. Since the film was broadcast, the term now has a secondary meaning in Israel to refer to mixing of government and big business in the process of devolving state assets onto the private sector. A lawyer working for the Ofer family can be given the credit for this neologism for he described the process for calculating the purchase price of state assets as combining various offers and making a shakshuka out of them.

The film combined a Monopoly Board, cartoons and official records, history and interviews, to explain how the Ofer brothers and the Israel Corporation purchased what were state assets at what were alleged to be bargain basement prices. But the film starts with the end, the effort of the Ofer family to suppress the film and prevent it from being shown on Israeli TV. Eventually they not only failed, but their own film made to counteract the critical film, and shown back-to-back on Channel 1 (the Israeli version of CBC), evidently, according to a radio survey, garnered a credibility of only 10% while the Rosenthal-Aboody film had a credibility of 90%. However, in the process of making the film, Rosenthal lost his job with Channel 2 (the Ofers actually bought the channel as part of its campaign). Nevertheless, the film garnered far more publicity than it would otherwise have if the Ofers had not launched such a strenuous campaign to suppress it. The Ofers also agreed to pay NIS 40,000 to settle their suit against Rosenthal et al out of court.

In the film, as in a Michael Moore documentary but without Moore’s narcissism, no one from the Ofer family, its hirelings or the government is willing to talk to Rosenthal about the process of privatization, but in the tradition of investigative journalism, the narrative relays how the government sold state assets in the resource industry cheaply while the companies continued to pollute and hired former state employees in charge of the sale to work for the Ofers immediately after the purchase. Other than introducing a new meaning to a Hebrew word, as a result of making the film, Rosenthal and Aboody have been frozen out of many work opportunities. At the same time, the Ofer brothers blame the film for making government officials unwilling to meet with them lest those officials be suspected of collusion.

We should not, however, stereotype billionaires, though when at the end we discuss the Eastern European Israeli billionaires, one may be tempted to do so. The billionaires in Israel represent a widely divergent group both in background, how they made their fortunes and any conclusions that can be drawn for their impact on the Israeli economy. The most well known in Canada is David Azrieli because he is a Canadian as well as an Israeli citizen and is included in the Canadian rather than Israeli list. He made his money (currently a fortune estimated in excess of $3 billion), like many of the very rich who made fortunes in Canada, as a property developer in both Israel and Canada where he is ranked as the 9th wealthiest Canadian by Forbes.

Trained as an architect in the Technion (though he never graduated) and having served in the IDF, he was one of the first Israeli migrants to Montreal in 1954. The Azrieli School of Architecture and Urbanism at Carleton University was named after him, not only because of his $5.1 million donation, but because of his commitment to high quality architecture in his developments. In Israel, the Jerusalem Shopping Mall, as well as twelve other super malls in Israel, and the Azrieli Center in Tel Aviv, are now landmark developments. Azrieli has a controlling share in Sonol, Tambour and Supergaz. There is no indication that his contribution to the Israeli economy (and the Canadian economy) has been anything but positive.

However, he has donated funds to Im Tirtzu, self-described as a centrist organization combating efforts to promote a boycott of Israeli academic institutions. However, Im Tirtzu is known for its denial of the Nakba, condemnation of artists who support Palestinian nationalism, its campaign against the New Israel Fund for funding the "lies" that were fed into the Goldstone Report, and especially its criticisms of biases in political science departments of universities. In the case of Ben Gurion University of the Negev, the organization claimed that 9 of 11 professors in the department were left-wing activists who supported the boycott of Israeli academic institutions. Although the heads of Israel’s seven leading universities condemned Im Tirtzu‘s "dangerous attempt to create a thought police," the Israeli Council for Higher Education appointed an international committee to investigate the allegations but it too became controversial because well-known scholars were rejected from being appointed to the committee and the original chair also resigned. The committee did conclude that the curriculum of the department was indeed imbalanced and recommended closure unless changes were made.

Then there are the American billionaires who are also Israeli and not included in the list. Micki Arison is classified as American because he runs Carnival Lines out of Miami; both he and Shari were born in the USA and retain their American citizenship. Noam Gottesman, who founded GLG Partners, a wealth management firm, which he sold but still controls TOMS Capital, has lived in London and New York and is not an Israeli resident. Other Israeli-born billionaires have made their fortunes in America. Arnon Michan, the Hollywood producer (Pretty Woman, L.A. Confidential and numerous other movies) built his initial fortune in Israel by developing and expanding his father’s fertilizer company into a large chemical business. He has always had an intimate relationship with Israel, having served in the Israeli intelligence and is credited by Shimon Peres for obtaining what was required to build Israel’s nuclear capacity — as well as other forms of arms dealing. (Meir Doron and Joseph Gelman (2011) Confidential – The Life of a Secret Agent Turned Hollywood Tycoon). He has no current impact on the Israeli economy except as a goodwill ambassador and financial backer of the Israeli Network which re-broadcasts Israeli programs to Canada and the United States.

Marc Rich is another billionaire born in the USA with Israeli citizenship, but he lives in Switzerland. He fled the USA to escape indictment for tax evasion, running an export oil scam and involvement in the illegal trading with Iran in 1983 but was pardoned by President Clinton in 2001. A more interesting billionaire personality from an Israeli perspective is Haim Saban, another Hollywood mogul who owns Univision, the Spanish-language media giant. He sold Fox Family Worldwide, a co-venture with Robert Murdoch, to Disney in 2001 and made $1.5 billion. He has retained a continuing commitment to and involvement in Israel but is formally classified as an American billionaire. His main efforts are directed towards ensuring American support for Israel rather than having any direct impact on the Israeli economy. He supplied the funds to build the headquarters in Washington of the Democratic National Committee and founded and funded the Saban Center for Middle East Policy at Brookings.

The big Israeli billionaire movers and shakers in the Israeli economy, other than those discussed above, can be divided into five groups:

a) Mizrachis – Israeli Jews born in Arab countries;

b) the Ashkenazis;

c) the older Israeli-born businessmen;

d) the Young high-tech Sabras;

e) the East Europeans, the most colourful collection of all.

I will discuss the Mizrachis in this blog, then the other Israeli billionaires in subsequent blogs. Since the Toronto International Jewish Film Festival is now on, I will delay some of these economic blogs to review some of the films I see.

Shlomo Eliahu came to Israel as a child of fourteen from Baghdad and made his fortune, and reputation for integrity and responsibility, in insurance and banking. He owned large stakes in Bank Leumi and the Union Bank of Israel (Bank Igud) which in turn owned 9.9% of Bank Leumi’s shares, but very recently had to sell his personal stake in Bank Leumi to consolidate his takeover of Migdal Insurance and Financial Holdings and escape the requirements of the Israeli anti-monopoly laws. He is one of the two billionaires who has run for and had a seat in the Knesset, first as part of DASH, the Democratic Movement for Change, in 1978, and then in 1980, as part of Ahva until 1981. He then went back to making money. In 2012, that effort landed him in trouble with the law for he was fined almost $3million for non-payment of taxes between 2007 and 2009 when he took NIS 74.3 million out of Israel without notifying the authorities, in part ostensibly for gambling in London. There were rumours of money laundering but no evidence that I could find and a spokesperson for the Eliahu group explicitly denied it.

When Italian insurance giant Generali was due to sell its interest in Migdal to Eliahu, and Elihau was about to sell his shares in Bank Leumi, as stated above, to satisfy the new anti-trust laws, Bank Leumi lent Eliahu NIC2billion to buy Generali’s 69.1% controlling share of Migdal. Eliahu sold another block of shares in Leumi for NIS200million thereby raising about two-thirds of the needed price of his purchase of Migdal. After Eliahu completed the purchase of Migdal, the share price rose 40% and Eliahu joined the billionaire class.

I tell this story because all sales were private. But if it was a state sale to a private entrepreneur and the share price went up 40% after the sale was completed, there would have been accusations that the stock was sold too cheaply and that politicians and civil servants had colluded with Eliahu to help him make his fortune. The reality is that once you have a fortune, it is easier to enlarge it for there are fewer competitors in the buying sweepstakes for states privatizing their holdings.

Eliahu retained his personal political conscience. He railed against the high cost to Israelis of buying a home because of the scarcity of land and sites on which to build. He called for land to be privately owned so a base for personal capital would be created. "Why have Israelis, exemplary children, been sentenced to a country that does not care to give them a piece of land? To build a home?…We have a lot of land. In two years, I’ll build you hundreds of thousands of homes at a construction cost of $1,000 per square meter. $20,000 for a young couple, an 80% mortgage, and you’ll have a reasonable home for a family.”

Yitzhak (Isaac) Tshuva, another Mizrachi Israeli, seems to have been apolitical. He was born in Libya. He came to Israel as an infant in the Jewish exodus from Arab countries following the War of Independence. Starting as a contractor and developer, he has maintained his down-to-earth modesty though he came to own some very posh investment properties through his wholly owned property company, El-Ad, in New York, Florida and Los Angeles, including the landmark Manhattan Plaza Hotel which he recently sold after renovating and selling off a large number of condos.

Tshuva also controls the Delek Group, a global integrated energy company based on the Israel Fuel Corporation which he acquired from private interests rather than the state, but in gaining control, he pushed aside the establishment very wealthy Recanati family which made him some enemies in establishment circles. The Delek Group was part of the conglomerate that discovered and brought on stream the Tamar gas reservoir; Delek owns about one-third of Tamar. (See my blog on the energy sector.) He is an example of a Horatio Alger story of a self-made billionaire who made his money through hard work, discipline and dedication. Though in his early years he received state contracts – such as for building the Bar Lev Line along the Suez Canal – there was never any suggestion that he obtained those contracts other than through competition and an excellent business reputation. He has also had but survived serious setbacks, losing half a billion dollars when financial markets took a dive in 2008.

Tshuva has one ambitious plan that would have a tremendous political impact – to develop a 106-mile canal to bring Red Sea water to help refill the Dead Sea as well as develop hotels, restaurants and parks along its length. Tshuva is working with Jordan and the Palestinian Authority as well as the Israeli government to advance the project.

One last aside on the Recanati famil fortune which controlled the IDB Group and bought a controlling share of Gmul at a premium price just when the stock market hit the skids. When he lost about a half billion dollars and had to liquidate assets to satisfy creditors, he stepped aside. Leon Recanati lost control but retained his (and his family’s) reputation as a businessman of honour and integrity.

TO BE CONTINUED

Tycoons and Monopolies.I.14.04.13.doc