Questions About Cash

When Israeli Prime Minister Ehud Barak stormed into office last May, it was after running a Bill Clinton-style campaign, complete with Washington spinmeisters and punchy sound bites. But it turns out Barak's party also took a seamier page from the Clinton political playbook: the no-holds-barred pursuit of campaign cash. Barak is embroiled in a multimillion-dollar campaign-finance scandal that has tarnished his image as Israel's straight-shooting soldier-politician and could lead to criminal charges against some of his top aides.

For Barak, whose integrity was a major selling point during the campaign, the scandal couldn't come at a worse time. His ambitious peace agenda depends largely on his ability to maintain the trust of the Israeli electorate, as he pursues simultaneous negotiations with the Syrians and the Palestinians. But that trust has been eroded by a series of alarming allegations--involving foreign contributors, dead donors and some of Clinton's own political benefactors--and a growing public suspicion that the political process itself is corrupt. "The problem these days is the mingling of money and politics," says Yehudit Naot, a lawmaker from the opposition Change Party. "It's very dangerous for our democracy."

Israelis thought they had clamped down on big-money politics long ago, with the passage of a 1973 law limiting individual contributions to $400 and barring foreign donations. But a blistering report released by the country's state comptroller on Jan. 26 found that 12 of the 15 parties in the Knesset broke the rules in the last election. The prime offender: Barak's One Israel Party. According to the comptroller, One Israel used as much as $1 million in improperly obtained funds in the contest. Most of the money was channeled through a network of nonprofit organizations with names like Doctors for Absorption and the Taxi Drivers' Non-Profit Organization. They were designed to look nonpartisan, but in reality the Barak campaign used them to conduct polls, print and distribute posters and organize protests against his opponent, Benjamin Netanyahu. The comptroller also hit the campaign with a $3.5 million fine.

According to the report, much of the money channeled through the nonprofits came from Octav Botnar, a mysterious billionaire who died in Switzerland in 1998 owing ??50 million to British tax authorities. Botnar, who made his money importing Nissan cars to Britain, had long supported Israeli charities. He left millions to be distributed by his executor, Yitzhak Herzog--who was Barak's chief fund-raiser and is now his cabinet secretary. Herzog reportedly parked the money in an offshore fund and then transferred most of it to nonprofits and left-wing Israeli groups, some of them apparently set up for the purpose. A peace group called Dor Shalom received large amounts of Botnar's money. The report says that Dor Shalom then channeled the cash into a bogus company that used it to buy and hang Barak posters. According to the same report, Dor Shalom says it was merely being used as a "puppet."

Barak's campaign is also said to have used big American donors to beat the system. A nonprofit group called Citizens of the Right and Left, which claimed its purpose was "supervising and maintaining the integrity of the ruling bodies of the state of Israel," launched an anti-Netanyahu media blitz with $100,000 from an anonymous donor in the United States. It was Herzog who dispatched the head of the group to America to collect the cash. Opposition leaders don't believe Barak's claim that he was too busy campaigning to keep an eye on the books--and neither does 70 percent of the Israeli public, according to a poll published in Yediot Ahronoth last Friday. Opposition leaders are demanding that police conduct a full criminal investigation based on the comptroller's findings. "When they start investigating, more and more details will come out and that weakens Barak," says Limor Livnat, a Likud bloc leader. "Someday they'll get to Barak and they'll have to investigate him."

Police might want to begin with a March 25 fund-raiser for Barak at the Los Angeles mansion of Haim Saban, a Hollywood mogul who made a fortune with his children's television show "Mighty Morphin Power Rangers." Saban is also a financial backer of President Clinton.

Barak intimates say he was only working a legal loophole when his campaign used money from the nonprofit group. When funding questions were raised after the 1996 election, Israel's attorney general waffled on whether the $400 limit and ban on foreign contributions to parties also applied to the new procedures for directly electing the prime minister. Barak's people say they didn't think Netanyahu, with his powerful network of U.S. supporters, would wait for a clearer legal ruling. (The comptroller did fine Likud, but for lesser offenses.) Barak denies wrongdoing and may appeal the comptroller's findings to the Israeli Supreme Court; he has already had to hire lawyers. Saban and his wife contributed $20,000 to Clinton's legal-defense fund. Barak is no doubt hoping he won't need similar help.