U.S. Soil Proves Fertile for Israeli Political Campaigns

When candidate Ehud Barak navigated the art-bedecked hallways of entertainment mogul Haim Saban’s Beverly Hills mansion nearly a year ago, the future Israeli prime minister was stepping unmistakably into the world of high-stakes politics and big bucks.

As many Israeli politicians did elsewhere, Barak appeared at the fund-raiser and spoke about his views to a small gathering of Hollywood producers and elite political activists, Israelis and Americans. Checkbooks would be drawn, and money would flow toward Israel.

“For a Special Evening Honoring Ehud Barak, Chairman, Israel Labor Party,” the invitation enticed. “Make checks payable to The Shefa Fund.”

Ultimately the money was used, among other things, to fly Barak’s expatriate Israeli supporters to Israel to vote. And so the Saban fund-raiser became one more piece in a gigantic puzzle that illustrates how Americans influence Israeli elections--not by breaking laws but by working within a vast gray area that has sparked new controversy here and abroad.

Barak’s appearance at the Saban event also raises questions about his personal role in fund-raising, which he has sought to minimize after an Israeli government investigation into improper campaign financing.

American Jews have been contributing uncounted millions of dollars to Israeli election campaigns for years, sometimes directly, sometimes indirectly through charities, but often in contravention of the spirit, if not the letter, of Israeli law.

The practice is coming under new scrutiny after the government inquiry turned up widespread abuse of campaign funding laws by Barak’s One Israel/Labor Party coalition, which scored a landslide victory in last year’s national election. The Likud Party of former Prime Minister Benjamin Netanyahu was also targeted, among others.

The scandal dealt a major blow to Barak’s credibility and clean-government image, just as he attempts to handle delicate peace negotiations with Arab leaders. And it has sent jitters through the American Jewish community, for which giving to Israel can be a moral, religious and sometimes political obligation.

The vast majority of donations go to legitimate charity or developmental work. At issue in the Israeli investigation is money that goes into election politics--and the questions that raises about the propriety of U.S. citizens bankrolling a foreign nation’s election campaigns.

“The possibilities of abuse are almost unlimited,” said Abraham Foxman, national U.S. director of the Anti-Defamation League and an outspoken critic of the donation practice. “What is at stake is the sovereignty of the Israeli voting public.”

“I can think of nothing more corrosive to Israeli democracy than the buying of votes” by non-Israelis, said David Clayman, the American Jewish Congress’ director in Israel.

Under a 1994 law, Israeli political parties and candidates can accept donations only from Israeli citizens who are eligible to vote in Israeli elections; donations from foreigners are strictly prohibited. In some cases, the donations may also have broken U.S. laws, because tax-deductible gifts may not be used for political work.

And yet, through the years, and especially in two elections since 1996, money from U.S. donors has poured into campaigns or into nonprofit organizations that indirectly or directly supported a candidate or political party. No one tracks it carefully, but political scientists estimate the amount at $10 million to $15 million in a single election year--a lot for a small country like Israel.

In a damning report released last month, Israel’s state comptroller determined that huge sums of money--some of it from foreign donors--were funneled through sham nonprofit foundations to bankroll Barak’s election victory. His coalition was fined $3.2 million, and a criminal investigation is underway.

Barak initially denied wrongdoing and said he was not involved in fund-raising. He adjusted his denial later, saying that any mistakes that occurred were made without criminal intent.

Undisputed is that Barak attended fund-raisers held in the United States, including the one given by Saban on March 25. Neither Saban nor the Shefa Fund, a Philadelphia-based nonprofit, tax-exempt foundation, are cited in the Israeli comptroller’s report. And there is no indication that they are under investigation or that the donations collected for Shefa were illegal. Barak’s campaign, however, did benefit.

Saban, who is chairman and chief executive of Fox Kids Worldwide, a television company he co-owns with Rupert Murdoch’s media conglomerate News Corp., made his mark--and personal fortune--as a producer of such hits as “Teenage Mutant Ninja Turtles” and “Mighty Morphin Power Rangers.” And he is one of California’s most prolific campaign contributors, a well-known patron of such Democrats as President Clinton, Gov. Gray Davis and, most recently, Senate hopeful Hillary Rodham Clinton.

The party for Barak at Saban’s house was billed as a cocktail reception, and about 30 of the approximately 45 guests, including U.S. citizens, pledged $10,000 each for the chance to meet with Barak, according to people who attended. Others reportedly contributed smaller amounts. As the invitations instructed, the donations were earmarked for Shefa, which in Hebrew means “abundance.”

Guests interviewed by The Times said they were told the money would be spent on political events not linked to a specific candidate. But they also said it was clear to them that they were helping Barak. Two guests said Barak, who addressed the gathering in Saban’s living room and spoke on a wide range of topics, including the Middle East peace process and the state of U.S.-Israeli affairs, did not directly solicit money.

“It was a pretty typical campaign speech, but there was no price tag on it,” said one American political activist who attended. “He asked for vague support. It was clear that he was running for office.”

Another guest, Danny Dimbort, the Israeli president of Nu Image productions in Los Angeles, told the Israeli newspaper Yediot Aharonot that he wrote a check for $10,000 at Saban’s event hoping to help Barak win the election.

“We knew we were donating to Barak’s election campaign, but we did not know where the money was going exactly,” Dimbort told Yediot. (Dimbort did not return phone calls from The Times seeking comment.)

Several people familiar with the event told The Times that they believed Saban matched the donations, raising the total to about $600,000. Saban, 57, who is thought to hold dual Israeli-U.S. citizenship, was part of a group that reportedly flew from Los Angeles to Israel to vote in the election. He declined requests for an interview.

The Shefa Fund says its work is nonpartisan. Most of the recipients of its annual bequests appear to be liberal and pro-peace causes, primarily in Israel. Shefa outreach director Deborah Meyer said the money from Saban’s event was used for grants to Kesher Inc., a tax-exempt volunteer-run organization. Meyer could not say how much money the event raised.

As Meyer describes it, the money was to be used in Kesher’s “nonpartisan get-out-the-vote project” to fly Israelis who live in the U.S. or Europe back to Israel to vote in the May election. Shefa obtained a legal opinion last year from outside counsel that found that Shefa’s grants to Kesher for the fly-back project were permissible under Internal Revenue Service codes.

At the time, Kesher organizers said they did not screen the political proclivities of people signing up for the flights, yet the endeavor was widely associated by Israelis in Israel and the United States with the left. (Right-wing voters had similar discount flights of their own.)

Kesher received a total of $678,637 from Shefa in 1999--not all of it from the Saban fund-raiser. Kesher spent much of the money on a project to fly in voters for an expected runoff in the prime ministerial race, but it called off those flights when the election was decided in the first round. Some Kesher-sponsored voters, sensing the outcome, were able to change their plans and travel earlier, in time for the first-round vote, Meyer said. Kesher used the rest of the money on other “networking” projects, she said, adding that a full accounting will not be available until April.

Efforts to reach Kesher were unsuccessful. Spokesman Udi Behr did not return phone calls asking for comment; no one from the organization responded to e-mail, and the fax number that appears on Kesher’s one-page Web site had been disconnected.

Menachem Hofnung, a Hebrew University political scientist who helped write Israel’s campaign finance law, said cases such as the Saban event are borderline--and typical.

“To ask for contributions that do not go right away to the campaign but help the campaign is against the spirit of the law,” Hofnung said. “Not only did Barak do it, but so did all the major candidates for prime minister.”

Indeed, it is the largely unmonitored system of political fund-raising and giving that Israeli authorities say has been abused and perverted by Israeli politicians exploiting every possible loophole.

According to the state audit, campaigns such as One Israel/Labor’s eluded restrictions by essentially laundering money through nonprofit organizations. Money might be given legitimately to an above-board cause, then transferred from one association to another until it is finally spent on inappropriate campaign activities. According to the state audit, these ranged from bumper stickers and posters to paying people to attend rallies.

Labor Party officials maintain that Barak’s predecessor, Netanyahu, committed similar, perhaps greater, abuses, funneling money through yeshivas and other organizations. Netanyahu’s Likud Party has said it did nothing illegal. A veritable parade of politicians from left and right has been marching into government investigators’ offices in recent days to present evidence against their opponents.

For many American Jews who contribute, the sales pitch that invites their checks is laudable: support for peace or for voter education. At what point donations cross the line into overt political activity remains a gray area in Israel, much as it is in the U.S.

Critics of the practice argue that people who do not live in Israel, with the consequences of Israel’s elections, should not be allowed to influence their outcomes. Contributing to hospitals and schools and infrastructure is one thing, but politics is something else, they say.

Israel has tight restrictions on campaign financing because elections are already heavily subsidized by Israeli taxpayers.

In addition to the ban on contributions from foreigners, the law bars parties from accepting donations from “a commercial entity, corporation or business partnership.” Also, Israeli citizens may not make donations of more than $400 in a single year to a single party.

Last year’s campaign, in which Barak came from behind to trounce Netanyahu, was a hard-fought, record-setting affair--one that triggered alarm bells among investigators. Elections in Israel were once strictly parliamentary polls in which personalities mattered little; 1996 and especially 1999 saw the most U.S.-style campaigns in Israeli history as the prime minister’s post was put to a popular vote. Barak hired the likes of Democratic kingmaker James Carville to help transform him from a wooden army hero into a charming politician who easily defeated the charismatic Netanyahu.

It was an extraordinary feat. And it was expensive. Barak’s One Israel and Netanyahu’s Likud declared that their combined spending totaled nearly $30 million, in a country where registered voters number about 4 million.

Barak’s spokesman declined to comment about the Saban cocktail party and would only say that the prime minister stands by his initial statement that he was not involved in fund-raising. This, the spokesman said, was meant to be interpreted as meaning that Barak did not organize or spearhead fund-raising. Another official said the Beverly Hills event was one of several such encounters that Barak attended to allow people to get to know him and his policies.

“He goes to many kinds of events with influential people,” the official said. “He is not collecting or dealing with the money.”

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Wilkinson reported from Jerusalem, and Newton and Hofmeister from Los Angeles.