Barak Election Funds Focus of Criminal Probe

In a stinging rebuke of Israeli Prime Minister Ehud Barak, judicial authorities launched a criminal investigation Thursday into the campaign financing that bankrolled Barak’s landslide election victory last year after a state auditor found systematic, illegal abuse.

Israel’s state comptroller, in a comprehensive report to the legislature, accused Barak’s One Israel coalition dominated by his Labor Party of “flagrantly trampling” on election laws by building a network of straw foundations used to channel hundreds of thousands of dollars to the 1999 campaign. The coalition was fined a whopping $3.2 million for breaking the rules.

Barak hastily called a news conference and said he wasn’t aware of any wrongdoing. He added that he welcomes the criminal probe but noted that campaign funding laws are ambiguous.

The scandal, the first to hit Barak’s 7-month-old government, is a serious setback for the prime minister just as his ambitious efforts to negotiate peace treaties with Syria and the Palestinians by year’s end have become bogged down in disagreement. At the least, Barak and his staff will be distracted by the inquiry, and at the worst, Barak’s credibility--his stock in trade for much of his career--could be severely damaged.

A dizzying wave of corruption probes is filling the front pages of Israeli newspapers and implicating the upper echelons of Israel’s political establishment. The prime minister’s predecessor, the president, the Jerusalem police chief and the publisher of a leading newspaper are all under some form of criminal investigation.

Thursday’s scathing report by the state comptroller focused on dozens of “nonprofit organizations,” some of which ostensibly are charities or are supposed to engage in nonpartisan civic activities, such as voter registration. In fact, they were allegedly used to circumvent party-financing laws and to channel large sums of money, some of them from foreign donors, into candidates’ campaign coffers in violation of limits on contributions and spending.

While as many as 19 of the 31 parties that participated in the election were guilty of improprieties, comptroller Eliezer Goldberg said, One Israel distinguished itself by what he called “systematic” abuse.

“The law was violated and broken, and this is what must stand before the eyes of the public,” Goldberg said after presenting his report.

Minutes later, Atty. Gen. Elyakim Rubinstein ordered police to begin investigating the campaigns of One Israel and four other parties on suspicion of fraud, breach of public trust and falsification of documents. Rubinstein left open the possibility that Barak would be a target of the inquiry.

Goldberg investigated 17 nonprofit foundations associated with the Barak campaign and said he is holding the prime minister accountable for allowing unlawful fund-raising by his staff.

One of Barak’s most trusted aides came under a particularly dark cloud. Yitzhak Herzog, the son of a former president and a longtime Labor insider who serves as Barak’s Cabinet secretary, stands accused of raising most of the illegal money, about $1.2 million, discovered so far. Some of it came from the trust fund of a Jewish philanthropist who had hired Herzog as his attorney before his death.

Herzog’s attorney, Dan Sheinman, said allegations of criminal acts are “absurd.”

Barak insisted that he was far too busy as a candidate to become involved in fund-raising and had instructed his staff to obey the law.

“I was not updated in all the specific details, and even if I was, I am not sure that this would have caught my attention amid the surging wave of public support and sympathy,” Barak told reporters.

That explanation appeared to contradict Barak’s well-known hands-on management style, and some of his critics were not convinced.

Barak can ill afford to be weighed down by a criminal investigation at the same time he is engaged in a delicate battle of wits and wills with formidable opponents such as Syrian President Hafez Assad, to whom this scandal is sure to make Barak appear weakened.

Barak also is facing mounting opposition among Israelis over his purported plan to return the strategic Golan Heights plateau to Syria and over concessions he is thought likely to make to the Palestinians involving the disputed city of Jerusalem and other territorial questions.

Some Israelis bemoaned the corrupting intrusion of high finance into the increasingly American-style Israeli electoral system and called for reform of laws that are too easily skirted.

Part of the problem stems from a basic clash between some of Israel’s rather old-fashioned campaign rules and campaigns’ growing sophistication. The choosing of an Israeli leader involves high stakes and inevitably attracts numerous foreign investors, despite laws that prohibit campaign contributions from foreigners.

The cap on contributions--about $400 for individuals--is unrealistically low, said Menachem Hofnung, a leading expert on the Israeli electoral system. Raising it would “reduce the incentive” for getting around the law, he said.

Politicians also have taken refuge in confusion over a 1995 change in the electoral system that provided for direct elections of the prime minister. Campaign financing laws refer to money for parties, not specific candidates, creating what some have used as a loophole.

The new allegations give Barak’s otherwise disorganized opposition a potent weapon. The Likud Party of former Prime Minister Benjamin Netanyahu has already scheduled a no-confidence vote in parliament for Monday.

Netanyahu, whose campaigns also have benefited from huge donations by foreign backers, was defeated by Barak in May. Netanyahu is the focus of a bribery probe.