Global Policy Forum

By Deborah Sontag

Jerusalem - Prime Minister Ehud Barak's party was fined and placed under criminal investigation today after the state comptroller issued a blistering account of what he called violations of campaign finance laws during the 1999 elections.

The comptroller, Eliezer Goldberg, did not implicate Mr. Barak personally, and there was no immediate political threat to him. But Mr. Goldberg held him accountable for what he described as a "trampling of the law" by his One Israel Party, and fined the party $3.2 million. According to the comptroller, Mr. Barak's associates systematically circumvented strict campaign finance restrictions by channeling illegal contributions into a host of nonprofit organizations.

Mr. Barak, a reserve general who ran his political campaign like a military operation, said he welcomed the investigation as a spur to clarify an unclear campaign financing law. He said he had advised his associates to operate legally and knew nothing about the operations of the nonprofit associations. "I did not deal with raising money," he said. "I was not updated on the details, and I was not involved specifically in any of the activities described in the comptroller's report."

Mr. Goldberg, a former Supreme Court judge, said he had found no evidence to contradict Mr. Barak's assertion that he was ignorant of the "particulars." But the comptroller charged that the "extensive scope" of the illegal activity should have "lit a red warning light for the candidate." "Claiming not to know is simply untenable," he said in a radio interview, adding that it was Mr. Barak's responsibility to supervise his campaign. The One Israel campaign's overall budget was about $22 million; the allegations involve the funneling of about $1.2 million in illegal money to the nonprofit organizations, which then directly or indirectly supported the campaign.

The fund-raising affair has erupted at a delicate moment for Mr. Barak. He is encountering frustrations in his ambitious peacemaking initiatives with the Palestinians and the Syrians, and he faces an impatient public waiting for him to make good on his campaign promises of peace and prosperity. Accusations of illegal behavior on his behalf clash with the image that Mr. Barak presents as a straightforward, old-fashioned man of his word. And it makes it harder for him to declare himself above the political fray that has dragged so many into scandal.

The Israeli police are already juggling the criminal investigations of several political leaders. Among them, President Ezer Weizman is under investigation for accepting substantial cash gifts from a French executive, and former Prime Minister Benjamin Netanyahu for alleged bribery and the alleged theft of gifts to the state. "This is yet another investigation placed on the shoulder of the police," Police Chief Yehuda Wilk said, sighing. "And in the slew of investigations, it becomes a logistical issue who will investigate what, when and how."

The comptroller's report was released as a rare snowfall began blanketing the Holy City in an otherworldly quiet. Over the airwaves, the political storm broke the mood. Ariel Sharon, leader of the opposition Likud Party, blasted the prime minister for breaking his election promise to be trustworthy. "I hereby declare that the prime minister knew about the existence of the apparatus and the system," he said, referring to the system used to obtain illegal donations. Shlomo Benizri, a Cabinet minister from the Shas party, whose former leader, Aryeh Deri, is appealing his conviction on corruption charges, said, "After this, the Deri appeal should go to small claims court!"

One Israel is a reconstituted version of Mr. Barak's Labor Party, which is heavily indebted and will face the financial penalty with difficulty. The comptroller also found similar violations on a far lesser scale by four other parties, and criminal investigations into their activities were also opened. The parties were the opposition Likud, the Center Party, the United Torah Judaism faction and the Russian immigrants' Ysrael Beteinu.

Speaking after the report was issued, Mr. Barak noted that other parties had been criticized, too. And he suggested that the problems lay in the campaign financing laws themselves, and with the murky way they have been interpreted since the country switched in 1996 to a direct election system for prime minister. "I myself am convinced that there is a need for corrections to the campaign finance law in order to make the picture clear so that no list, candidate or public body of any kind will find itself uncertain as to how to act," Mr. Barak said.

Under Israel's strict campaign financing law, political parties receive state funds for their campaigns based on the number of Parliament seats they eventually win. Individual citizens are limited to contributions of about $400 each, and corporations and foreigners may not give at all. Confusions arose after the 1996 election because the system changed but the law did not.

Starting in 1996, the parties' candidates for Parliament and for prime minister were elected on separate ballots. The law applied to parties but made no specific mention of limits on the candidates themselves. The state comptroller, then Miriam Ben-Porat, felt that the law could be applied to the candidates by inference. And she fined the Likud Party some $600,000 for improperly using nonprofit organizations in Mr. Netanyahu's successful 1996 campaign. One organization stood out: Called Netanyahu Is Good for the Jews, it was backed by Joseph Gutnick, a wealthy Australian who belongs to the ultra-Orthodox Chabad, or Lubavitch, movement.

Mr. Barak's Labor Party urged the attorney general, Elyakim Rubinstein, to prosecute. But Mr. Rubinstein said the law as written applied only to parties and not to candidates, and could not be "widened by inference." Mr. Barak's critics say that when it came time for his campaign, his advisers took another view of this loophole, and decided to plot campaign fund-raising strategy based on the "Gutnick precedent."

Tonight, Mr. Barak said he would petition the Supreme Court to clarify whether the law indeed applied to candidates as well as to parties. The attorney general, Mr. Rubinstein, said his investigation would go beyond the campaign law violations to look at alleged "violations of the penal law, false registration, fraud and breach of trust in a corporation, and acceptance of an object by fraudulent means." Mr. Barak's campaign relied on costly American Democratic Party consultants who had worked for President Clinton.

In his report, the comptroller cited the activities of Tal Zilberstein, Mr. Barak's campaign manager, and Yitzhak Herzog, Mr. Barak's cabinet secretary, a lawyer and son of the late Chaim Herzog, a former Israeli president and ambassador to the United States. The report, for instance, said Mr. Herzog had funneled donations into the campaign from the estate of a dovish Swiss Jew, Octave Botner. Mr. Herzog had served as a trustee for Mr. Botner's charitable accounts in Israel before his death, the comptroller said. Afterward, Mr. Herzog handled the estate's Camilla Fund, which was intended to ease poverty and promote education in Israel, the comptroller said.

Mr. Herzog, who told the comptroller he had personal discretion to disburse the money according to general instructions, directed about $105,000 from the Camilla Fund to the campaign, the report said. Money from the Camilla Fund set up several nonprofit organizations, including one nominally for the "promotion of taxi drivers in Israel." That nonprofit group provided posters and put on rallies for the campaign, the report said.