A grand Israeli bazaar with a hint of corruption

To whom it may concern at Israel’s state committee of inquiry: Amir Rapaport dove into the "submarine affair" for 18 months to tell the true story, and also made some new discoveries 

A grand Israeli bazaar with a hint of corruption

Photo: IDF spokesperson's unit

The “submarine affair” has been rocking Israel for over five years now. Unfashionably late, this affair is about to be examined by a national committee of inquiry. But even the government’s mere decision to set up this committee is a testimony to the confusion this affair has evoked.

Prime Minister Naftali Bennett abstained, while Minister of Interior Ayelet Shaked opposed the decision. Many in the public sphere, including some very senior former members of the defense establishment, believe wholeheartedly that this is the most serious corruption affair in the history of the State of Israel – while just as many are convinced it is a political investigation.

One thing is sure: this is an incredibly complex affair.  

At its heart we find defense procurement which some of its components are top secret; delicate international relations with the likes of Germany, South Korea and Egypt; thousands of documents; and countless formal meetings and undocumented discussions.

The investigative journalism, appeals to the Supreme Court of Israel, and the intentional leaks from the investigations, did not necessarily contribute to dispelling the fog. Neither did the exhausting election campaigns. In fact, the opposite is probably true.

Investigative journalism

What is the truth? As an analyst of many years, who is closely familiar with the Israeli defense system, I estimated from the start that the real story also has to do with personal aspirations, as well as those of various IDF corps, ancient alliances between present and formal generals, obscure political considerations, hatreds and rivalries. And yes, also greed and motivations of investigators and attorneys, which grow stronger in cases where suspects are public figures – and evaporate during “dull” inquiries.

Twice in the past, I conducted an especially lengthy journalistic investigation. Between 2003-2005 I looked into the murder of teenage girl Hanit Kikos, together with former Israeli Security Agency (ISA, also known as the Shin Bet) officer, criminologist Dr. Ariel Livne. We discovered that Suleiman Al-Abeid, who was accused of killing the girl and spent his life in prison, is innocent beyond all doubt.  

In 2008, I investigated the exploits of the IDF attaché in Switzerland, Colonel Shmuel Avivi, who was engaged in private arms deals while on duty. I worked on this after Israel’s military police refused to investigate themselves suspicions that arose against Avivi. Only after the journalistic investigation did a military police one open, which was then transferred to the general police, once Avivi’s tenure had ended. At the end of his trial, Avivi was convicted of a series of serious felonies.

The submarine affair is not similar to the Avivi one, and certainly not to the Kikos murder affair. From the very beginning, I was assisted by a series of in-depth investigations conducted by various sources, who shared their findings with me. Still, no one in the political system was aware of my project.

I managed this project in parallel with my intensive pursuits as an entrepreneur and commentator, as well as writing my recently published book Cybermania, together with Prof. Eviatar Matania. I found the greatest value in conversations I held with individuals who are closely familiar with this affair (not including suspects, who by law are barred from talking about it).

I will not name here most of those who assisted me. I would only like to mention that I examined the chain of events also from the Israeli navy’s point of view (a special thanks goes to the IDF spokesperson unit for its help). The goal was to understand the sequence of the affair’s main axis, within an ocean of information.

Corruption suspicions

In the heart of the submarine affair lies a suspicion of alleged corruption in two of Israel’s largest defense procurement deals of the past decade, both for its navy: four surface combatants and three new submarines, as well as a deal to procure two anti-submarine warfare ships, which was signed and almost immediately nixed. There was also a suspicious move to privatize Israel Shipyards and transfer their work to a German corporation.

The corruption suspicions led all the way to former top navy figures, among them Rear-Admiral (Ret.) Avriel Bar-Yosef, who was then deputy chief of Israel’s National Security Council, and was even appointed by then-Prime Minister Benjamin Netanyahu to serve as chief (an odd appointment which eventually did not materialize); businessman Mickey Ganor; and former Israeli navy commander, Vice-Admiral Eliezer Marom (Chiney), against whom the case was recently closed.

The internet highlighted additional figures, from the fringes of the defense and political arenas, but the press and the political sphere were mostly interested in the “head”, Benjamin Netanyahu, whose cousin David Shimron served as Ganor’s attorney and was involved up to his neck in wheeling and dealing.  Shimron is the business partner of attorney Isaac Molho, who for years served as Netanyahu’s personal political envoy, including during the most sensitive dealings with Germany and Egypt.

The press and the political sphere were mostly interested in knowing whether Netanyahu pushed the deals with the German conglomerate ThyssenKrupp, the manufacturer of both the submarines and the surface combatants, in order for Shimron and Molho to capitalize on this and rake in millions.

Another suspicion that arose was that Netanyahu did a “corruption spin” on the shares of a steel company that was a ThyssenKrupp supplier, and that he gave Germany the green light to sell advanced submarines to Egypt as well, for improper motives – and behind the back of then-Minister of Defense, Moshe Ya’alon, and the entire defense establishment.  

The submarine affair first arose in October 2016, one week after I published, on the front page of Makor Rishon and Israel Defense, the very first story regarding how Israel was about to purchase three additional modern submarines from Germany, on top of the five that were already in its possession and the sixth that had been ordered, scheduled to arrive in 2018.  

My publication received relatively small attention at the time, until the exposé by journalist Raviv Drucker, who linked the procurement with improper motives by Netanyahu. Examining the publications thus far, together with the testimonies I have collected, reveals the following chain of events, which begins with the formation of the second Netanyahu government in 2009.

The sixth submarine

At the times, newly appointed Minister of Finance, Yuval Steinitz, recommended appointing Rear-Admiral (Ret.) Avriel Bar-Yosef as deputy chief of Israel’s National Security Council. Bar-Yosef had previously served as director of the Knesset Foreign Affairs and Defense Committee, at the time it was chaired by Steinitz, and the two were especially close.

Bar-Yosef was also close to Steinitz’ Chief of Staff, David Sharan, and to businessman Mickey Ganor, whom he knew well from their mutual service in the navy (Ganor retired as commander). An option to purchase a sixth submarine for the navy was on the table in those days, even though the IDF did not endorse it.

Prime Minister Netanyahu, along with then-Minister of Defense, Ehud Barak, decided to exercise this option after Germany promised to finance one third of the cost, and in 2010 also authorized Germany to sell submarines to Egypt, but from a model considered inferior to that provided to the IDF.   

According to the documents of suspicion later published by the police, Ganor – who was given the representation of ThyssenKrupp in the Israeli market – realized that Sharan was very close to Minister Steinitz and could therefore assist him. And indeed, Sharan acted in Ganor’s favor. Among other things, Sharan helped Ganor coordinate meetings with Minister Steinitz, and also provided him with inside information regarding the deals’ progression.

Ganor and Sharan formed an understanding that the former would reward the latter in the future, in exchange for assisting him in advancing his own deals and interests. At the end of October 2012, Sharan ended his role in the Ministry of Finance.

Some of the meetings Sharan arranged for Ganor were also between the minister and ThyssenKrupp representatives. This is a well-known practice: setting up meetings with ministers in order to impress foreign guests with how close their Israeli delegates are to the cream of the government.

My personal, subjective impression, following years of acquaintance: Steinitz is an honest politician, whose naivete was exploited by those around him.

Either way, according to the contract signed between Ganor and the German conglomerate back in 2009, Ganor was entitled to a 3.7% commission of all future vessel procurement transactions, excluding the 6th submarine deal, for which he was never entitled for a commission. Eventually, it was agreed he would get a 2% commission for this deal.

Accordingly, as of May 2012, Ganor received a commission from the conglomerate for his role as its agent in completing the 6th submarine deal and the surface combatants deal, for a total of €10,402,971.

According to the publications, in November 2010 Netanyahu sold his cousin, Nathan Milikowsky, his shares at SeaDrift for approximately NIS 16 million, earning NIS 12 million. The following day, SeaDrift’s merger with GrafTech International was completed. GrafTech is a ThyssenKrupp supplier.

The fall of Mubarak

As far as we know, Adv. David Shimron started working with Mickey Ganor only in 2011. It was also published that “following the fall of Mubarak in 2011 and the rise to power of Muslim Brotherhood’s Morsi, Netanyahu and Barak requested Germany to revoke the deal. The Germans replied it would not be possible at that stage, and the two submarined arrives in Egypt in 2016.”

At the same time, Molho was also involved in the deal to bring Gilad Shalit back from Gaza, which was brokered by Egypt. As an aside, the police investigation into this affair raised the claim that Molho and Shimron have a full business partnership, meaning that every cent Shimron makes also belongs to Molho, and vice versa. If this claim is true, the conflict of interest in this particular affair is especially serious.

Another development of that time, which is either relevant or not: Cyprus’ ambassador to Israel appointed businessman Ganor to be honorary consul, with the intent that he would care for the mutual interests both countries share, especially in gas and oil. A possible involvement by then-Foreign Minister Avigdor Liberman, who as far as known attended the appointment ceremony, was also evoked. In those days, Israel and Cyprus discussed plans and dreams of massive cooperation in the natural gas field.

On the fringes of the navy affair, a strong suspicion was raised that Bar-Yosef also tried to sway the recommendations of the Tzemach committee, established after the discovery of Israel’s natural gas, so that they met the interests of a German businessman named Michael Herzog. But that’s already another story.

“Navy celebration”

Israel’s massive gas fields, Karish (shark) and Leviathan, were discovered off the shores of Israel towards the end of the millennium’s first decade. The state envisioned billions in royalties, but it was clear the reservoirs would require major security investments.

Shortly after, two men were appointed to key positions at the National Security Council: navy veteran Avrial Bar-Yosef as deputy head (the head, Prof. Uzi Arad, regretted this appointment soon after it was made), and Ram Rothberg, who headed the division which among other things was responsible for defense procurement.

Rothberg was previously the naval commando unit’s commander, and took the job at the National Security Council while he was waiting to receive his vice-admiral ranks and be appointed navy commander (which indeed was the case). According to the rules, the National Security Council is responsible for approving and major procurement transaction, as overseeing the defense system and to integrate all national interests.  

It is important to understand: the Israeli navy is considered professional, but it is small, the size of one air force base. For decades, this fostered jealousy and an inferiority complex – and here, at once, the tables have turned: an urgent need arose to secure Israel’s exclusive economic zone (EEZ), something which happened, no less, at a time when two senior navy members were holding top positions at the National Security Council.

Finance Minister Steinitz has been a navy fan since the days he headed the Foreign Affairs and Defense Committee. His son served in the submarine  unit. All this happened while the navy was headed by Vice-Admiral Chiney, one of the most dominant figures in the General Staff, and a close personal friend of then-Chief of Staff, Gabi Ashkenazi (they reenlisted in the military at the same time, following the Second Lebanon War).

The navy’s procurement processes last for decades. During the millennium’s first decade, talks had already started regarding the future missile boats (corvettes) that would replace the Sa’ar 5-clas corvettes, whose life span is approximately 30 years, and were manufactured in the US in the 1990s.

At first, a deal to procure a massive boat from Lockheed Martin was examined, but this fell through due to costs and the cancellation of a parallel project in the US. Then, at the start of the previous decade, the navy came to the conclusion that the procurement budget for the EEZ could fit into the corps’ normal intensification process, and give it a forward leap of decades. Taking advantage of an intensification program. What a celebration.  

The navy’s corvette project was run by the material command, and had known dramatic upheavals. The submarine affair connects to that around October 2014. At the time, navy seniors were debating on whether to manufacture the next  ships in Israel Shipyards (as it turned out, that wasn’t possible), procure ships that would be manufactured at ThyssenKrupp in Germany, on the basis of an old ship called “Mako 100”, or purchase the ships in another country altogether.

It is important to note that procurement transactions of such magnitude are normally conducted between states, meaning that they are transactions between a manufacturing company and a certain corps, under the full auspices of the countries involved. In the case of the new vessel procurement for the Israeli navy, the decision was made to embark on an unordinary governmental tender. Within weeks, though, this  tender was annulled, and it was decided to procure the surface vessels from ThyssenKrupp directly, with Germany’s backing.

What was the background for this change? After checking with highly reliable political and defense sources, it appears that relations between Israel and Germany – or rather between their leaders, Benjamin Netanyahu and Angela Merkel – were seriously strained in 2014, due to Merkel’s wrath over the cessation of Israeli-Palestinian negotiations as well as a highly sensitive defense action Israel took at the time against one of its main enemies, without alerting Germany.   

The Germans then asked Israel for a green light (not that they really needed Israeli consent) to sell another submarine to Egypt, this time from a more advanced model (but not as advanced as the new submarines Israel had). This possibly had to do with the “secret” Netanyahu discussed in the famous interview he gave Keren Marciano, regarding Egypt’s procurement of advanced German submarines. And there was possibly another sensitive issue between Israel, Germany and Egypt, which cannot be discussed even today.  

Oddly, Mickey Ganor was privy to the sensitive negotiations with Germany on the question of selling Egypt the advanced submarines. And this is what a “high ranking defense official” recounted, in a Movement for Quality Government in Israel (MQG) affidavit submitted to the Supreme Court:

“Mr. Ganor suddenly approached me, and introduced himself as Israel’s honorary consul in Cyprus, and especially as Thyssenkrupp’s representative. Then, much to my astonishment given the fact that only a handful of top executives, including the Prime Minister, even knew of this highly classified matter, he raised the issue of authorizing selling the submarines to Egypt.

“He told me that he knew I was adamantly against the deal of selling the submarines to Egypt. I distinctly remember that his words were highly unusual and made my blood boil, especially when Ganor requested a meeting with me in order to ‘brief’ me, as he put it, how to ‘hold talks properly with the chancellor’s chambers’ on this matter. Ganor added that this briefing is intended to ‘alter’ and ‘soften’ my approach which, according to him, was very stern.

“Mr. Ganor told me, upfront and without batting an eye, that my ‘attitude’ regarding selling the submarines to Egypt has damaged his business, dazzling me yet again. He let me understand back then something which I further understand today, that he had business and financial motivations, as well as a personal, direct connection to the number of submarines ThyssenKrupp would manufacture and sell, regardless of the buyer’s identity, including Egypt.” End of quote.

Back in the day, journalist Ben Caspit published that this high-ranking defense official was none other than Maj. Gen. (Res.) Amos Gilad, who was in charge of the sensitive ties with Egypt for 13 years as the head of the Political-Military Affairs Bureau in the Ministry of Defense.

A surprise meeting in Berlin

In retrospect, it seems that when the international corvette tender was taking place, a major storm was brewing: the fact that the Israeli defense establishment issued a tender for such a major procurement deal, a highly unusual step, drove the arms dealers and top admirals crazy, as all they could see before their eyes was the fat commissions.

The head of the navy’s material command, Rear Admiral Moshe (Shiko) Zana, left for South Korea together with the Head of Procurement and Production Administration of the Ministry of Defense, Brig. Gen. (Res.) Shmuel Zucker. They received the impression that the Korean shipyards have the capabilities to manufacture ships that could answer the navy’s needs. Each admiral tried to pull towards the shipyard he represented. The navy received proposals also from Italy and elsewhere.

The General Director of the Ministry of Defense was not a fan of this situation. During the meeting with the various Korean shipyard representatives, he implored upon them to work together to make a deal between their country and Israel.

At the time, South Korea was furious at Israel over its choice to procure trainer aircrafts for its air force from Italy, rather than Korea, in a single procurement maneuver for which they (the Koreans) raised allegations of a sham tender and corruption.

From their side, the Koreans also held negotiations to purchase the Iron Dome defense system from Rafael, a procurement deal in which Israel was very interested. Had Israel procured a Korean ship, the latter would have procured an Iron Dome system.  

How involved were Molho and Shimron, Bar-Yosef and Ganor, in the annulment of the international tender and signing the deal with Germany to procure the ThyssenKrupp vessels under German government subsidies? One previously published fact is that Shimron sent a letter on the matter to the Ministry of Defense’s legal advisor at the time, attorney Ahaz Ben-Ari.  

According to the investigation summary in “Case 3000”, Adv. Isaac Molho was interrogated for the suspicion that in 2012, while serving as a public officer as Prime Minister Netanyahu’s advisor and special envoy for political affairs and negotiations with the Palestinians, he met with Ganor, his firm’s client. This, at the request of his partner, Adv. Shimron.

The suspicion was that during that meeting, Molho and Ganor discussed Germany’s demand to remove certain political barriers as a condition for promoting the grants required to realize a transaction to purchase navy vessels, as well as additional transactions.   

Suspicions were raised that Molho did not report this meeting to the Prime Minister’s Office legal advisor, contrary to his obligation by virtue of the conflict-of-interest arrangement applicable to his legal office given his aforementioned public office. However, there was not enough evidentiary basis that Molho had committed a felony. It should be noted that neither Molho nor Shimron were indicted in this affair.

And here are some new details: when the international tender was annulled and the deal with Germany signed, , Brig. Gen. (Res.) Shmuel Zucker was astonished to find Avriel Bar-Yosef walking around Berlin together with the Israeli ambassador to Germany, negotiating with the Germans behind the Ministry of Defense’ back, and against protocol. At a chance meeting in Tel Aviv’ Kirya military base which took place at an earlier date, Bar-Yosef told Zucker that “there will be a grant from Germany, cancel the tender.” Zucker updated the Ministry of Defense’s Director General.

But the biggest surprise still awaited Zucker one late evening in the Kirya when, after 9pm, he received a surprises phone call from the navy and was told that “a letter from the navy commander is on its way.” The distance between the offices of the head of the navy (it was already Ram Rothberg) and those of the procurement manager is only a few hundred feet. Within minutes, a soldier arrived at the stunned Zucker.

She submitted him a letter, which stated that the navy had changed its stance and therefore henceforth objects to the international tender and is only interested in a single supplier, meaning Germany’s ThyssenKrupp. The Germans did, in fact, enlarge their subsidy, and the deal was signed in May 2015. At the signing ceremony photo, taken and distributed by the Ministry of Defense, Mickey Ganor looks incredibly happy.

Ganor attended the ceremony with ThyssenKrupp’s CEO, the Director-General of the Ministry of Defense (Dan Harel, at the time), Chief Naval Officer Ram Rothberg, and other dignitaries. “Ganor is entitled to an especially fat commission from ThyssenKrupp,” said Zucker to some in those days. “He managed to sway the Ministry of Defense.”

Only three weeks after signing the agreement, the Israeli navy announced that it is interested in changing the transmissions of the designed vessels, which would up the costs by €53 million.

Submarines 7 – 9

Israel’s intention to procure three additional submarines from ThyssenKrupp was something Shmuel Zucker first hear about in a surprise phone call from Mickey Ganor. The feisty representative wasn’t wrong: shortly after, negotiations to purchase submarines 7, 8, and 9 had begun. I was the first to reveal the existence of those negotiations, in Makor Rishon and in Israel Defense.  

Zucker retired, never completing the deal.

An interesting point: the submarine deal with ThyssenKrupp was authorized and accelerated on the day Avigdor Liberman replaced Moshe Ya’alon as Minister of Defense, on May 30th, 2016. At the time, the political echelon was also promoting a deal to procure anti-submarine warfare ships for Egypt, but this was annulled, most likely because of the defense establishment’s stern objection.

As soon as Raviv Drucker came out with his first investigative reports, the question was raised as to why Israel was in such a hurry to procure three additional submarines, which as designed to replace those that arrived in Israel at the start of the millennium not before 2030.

One possible answer was that it takes more than a decade to plan and build an advanced submarine, and Israel was interested in benefiting from Angela Merkel’s sympathetic approach towards it in order to receive maximum subsidy, before Merkel concludes her particularly long tenure as chancellor.

The current Israeli government signed only recently a deal to procure those three submarines at a price that is more than $1 billion than that discussed during the Netanyahu era (although journalist Nahum Barnea said that the published price was most likely unfounded in the first place).

In the fringes of the submarine affair, Mickey Ganor operated without disruption in the navy and defense establishment, in order to privatize the navy’s shipyards in Haifa and transfer their work to ThyssenKrupp – something which would have brought huge sums of money for the shipyards, and another fat commission for Ganor.

Among other attempts, Ganor  and Shimron met with the chairman of the IDF Civilian Worker’s Committee, where Ganor spoke as if he were the defense establishment itself. In the future, Ganor would claim during his investigations that the initiative to privatize the shipyards came from the navy and not from him.

Either way, the privatization never saw the light of day. This affair is worthy of its own investigative journalism pieces. Ganor’s celebration finally stopped when he was arrested, became a state witness (and then changed his mind). He will stand trial soon.  

And what about the alleged authorization that Germany received to sell Egypt additional submarined, beyond the 2010 deal?

In May 2015, Israel’s then-President Reuven (Ruvi) Rivlin was visiting Germany, where he met with Chancellor Merkel. On a mission by then-Defense Minister Ya’alon, Rivlin asked to find out why the Germans were selling advanced weapons to Egypt, contrary to their agreements with Israel.

Embarrassingly enough, Merkel responded that Prime Minister Netanyahu (reported at first as an “official Israeli entity”) authorized the procurement deal to Egypt. The deal included four advanced submarines and two anti-submarine warfare ship. When Rivlin returned to Israel he confirmed his suspicions with MoD Ya’alon. Despite its denials, the Israeli government had agreed to remove its objection to the German-Egyptian submarine and vessel deal. The motives still appear complex. Knowledgeable sources believe that despite the improvements made to the new generation of Egyptian submarines, they are still inferior to the Israeli ones.

A mixed Israeli salad

In conclusion: the submarine affair, and mostly the surface combatants, is yet another demonstration of the problematic method in which Israel conducts its procurement processes. Following the Harpaz affair (if anyone remembers) protocols were changed. And following Mickey Ganor’s shenanigans, the Ministry of Defense established another committee, headed by the ministry’s former Director General, Brig. Gen. (Res.) Pinchas Buchris. The committee decided to revoke the unrestricted access of retired generals to the Kirya, and took a few additional steps. Whether this will help is highly doubtful.

Bottom line: between the narrative of one of the largest corruption affairs in the history of Israel, and a mixed Israeli salad with a hint of corruption, I side with the latter. This time, the police investigation came to fairly true conclusions (regarding those standing trial, only time will tell).

What about Netanyahu, Shimron and Molho? It would be difficult to impossible to prove that the most important decisions were irrelevant or tainted by direct corruption. Fact is, the new government is the one that signed the deal to procure submarines 7-9, and not for a cheap price.

This is regarding the criminal aspect. However, on regarding the public aspect, I sometimes wonder what I would think if I heard of some Middle Eastern country in which an arms company can easily access the closest people to the prime minister and minister of finance, pay million, and be aware of and even influence the entire political and defense decision-making process? That’s exactly what happened. Rightt here.

One comment to conclude: for those interested to dig even deeper, details of the navy affairs indictments as well as countless other details are all over the internet. Here, I attempted to describe the forest, meaning the chain of events as I understand it, the real story, not each individual tree.

You might be interested also