Israel’s sea of scandal gets deeper

Israel is awash in corruption allegations, with splashy arrests in a tax-agency scandal and media reports that Prime Minister Ehud Olmert will soon face a police investigation of his role in the sale of a major bank while serving as finance minister.

Olmert was on an official visit to China this week as Israeli media reported that Atty. Gen. Menachem Mazuz planned to investigate the prime minister’s role in the state’s sale of a controlling interest in Bank Leumi when it was privatized in 2005. News reports said authorities could also examine Olmert’s role in appointments to a small-business agency and alleged favoritism toward a former law partner.

Previous Israeli prime ministers have been the subjects of police investigations without being charged. But even the suggestion of a criminal inquiry worsens headaches for the struggling Olmert, who hasn’t shaken low approval ratings months after Israel’s inconclusive war with Lebanon’s Hezbollah militants.

Olmert’s weakened standing probably limits how far he could go in making concessions to the Palestinians at a time when the Bush administration hopes to revive a moribund peace process. Secretary of State Condoleezza Rice is expected to visit with both sides in coming days.

Israel’s Justice Ministry declined to comment on the news accounts, which began with a report Tuesday night on Israel’s Channel 10, other than to say that no decision had been made on whether Olmert would come under investigation. The daily Yediot Aharonot newspaper reported Wednesday that authorities wanted to question Olmert before deciding.

Mazuz will open a formal investigation of Olmert’s role, at least in the bank matter, soon after his China trip, Israeli media reported. The trip ends today.

“We don’t comment on speculation,” Olmert spokeswoman Miri Eisin said Wednesday. But Olmert told Israeli reporters traveling with him in China that his handling of the Bank Leumi sale was proper.

The reports come amid an already dizzying array of scandals involving top Israeli figures. Authorities last week arrested the head of the Israel Tax Authority, his predecessor and a top aide to Olmert as part of an investigation of possible influence peddling and bribery at the tax office.

Olmert has not been implicated in the matter, although his bureau director and longtime assistant, Shula Zaken, is under house arrest. The director of the tax authority, Jacky Matza, and a former chief, Eitan Rob, also were released to house arrest. Zaken’s brother, Yoram Karashi, and a fellow businessman, Kobi Ben-Gur, were arrested on suspicion that they had influenced appointments at the tax agency to benefit themselves and associates.

This week, the authority’s top representative to the United States, Yigal Saar, was arrested by police after arriving on a flight at Ben-Gurion International Airport.

About 60 people have been questioned so far as part of the investigation.

In other cases, Israelis are waiting for Mazuz to decide whether to indict President Moshe Katsav on charges that he forced female subordinates to have sex with him. And a Tel Aviv judge is expected to announce a verdict this month in the case against former Justice Minister Haim Ramon, charged with forcibly kissing a 21-year-old female soldier while they were alone in a government office.

Analysts said the tax-authority scandal would severely undermine the public’s confidence in the nation’s leaders, who already have come to be viewed by many Israelis as mainly self-serving and ethically suspect.

The corruption cases come on top of investigations already underway on the performance of the government and military during the monthlong war with the Shiite Muslim militant group Hezbollah, which ended in August with a cease-fire.

“The final indictments, believe the police detectives, will shock the Israelis. The sense of shame, they say, has disappeared in Israel, and we must restore it,” Yediot Aharonot columnist Sever Plotzker wrote this week about the tax scandal. Suggestions of corruption “that in the not-too-distant past citizens would have never dared air publicly are now done so audaciously in full view.”

Olmert, a former lawyer and onetime mayor of Jerusalem, previously has been investigated for corruption during a career in politics spanning more than 30 years, and was once indicted though never convicted of wrongdoing.

Since taking over as prime minister a year ago, he has clashed publicly with State Comptroller Micha Lindenstrauss, who already has recommended a formal investigation of Olmert’s role in making appointments to the Small Business Authority while he was trade minister.

Lindenstrauss is expected to issue a report in the Bank Leumi matter this month. At issue is whether Olmert as finance minister sought to influence the terms for the sale of a controlling interest to benefit two potential bidders who were his friends. Neither man purchased the bank.

The comptroller also has looked into Olmert’s sale of a home in Jerusalem to one of those friends, American billionaire S. Daniel Abraham, but found nothing illegal in the transaction.

The air of scandal at home had already cast a shadow over the trip abroad.

In an unusual move, Olmert went without representatives of Israel’s business community to avoid charges that he was showing favoritism, according to Israeli press reports.

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ellingwood@latimes.com