Likud’s Tangled Charity Web
02/19/99
Staff Writer
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Nearly a half-million dollars raised in America for Israeli children by Likud fund-raisers cannot be properly accounted for, a joint investigation by The Jewish Week and the Israeli daily paper Haaretz has found. The joint probe, which included scrutiny of Israeli leader Benjamin Netanyahu’s campaign financing, has found that some of the money in question — about $47,000 — was instead channeled directly to the Likud Party and other Israeli political causes. Almost $300,000 appears to have vanished somewhere between the United States and its Israeli charitable destination. And at least another $160,000 — donated by the right-wing philanthropist Dr. Irving Moskowitz to a fund-raiser linked to Likud — was never reported to the U.S. Internal Revenue Service, as required by law. These funds, donated to youth charities between the early 1990s and the present, in some cases came from American Jews widely reported to be among Likud’s major contributors – notwithstanding Israeli laws that since 1994 have prohibited foreign donations to Israeli parties and partisan political campaigns. The Jewish Week-Haaretz probe also found that one of the youth charities in question, controlled by senior Likud officials, included among its grantees a rabbinic group then calling on Israeli soldiers to disobey orders from the Labor Party government in power to redeploy in the West Bank. As Israel’s next elections approach on May 17, the new findings provide the first detailed look at the nexus between U.S. charities and Israeli political fund raising from foreigners. It is an increasingly busy intersection that has become a source of growing concern regarding all of Israel’s political parties. According to The Jerusalem Post, American Jews contributed $6 million to $8 million to Israeli campaigns in the 1996 elections, despite the 1994 law barring foreign donations. The cash flow continues, Israeli legal experts say, in part because Israel lacks serious campaign disclosure rules. But the increasing use of U.S. charities by Israeli politicians and their American benefactors has also sparked concern about the politicization of American Jewish charitable giving and the integrity of Israel’s campaign finance system. “It is already clear that politicians are getting around” the landmark 1994 reform law, said Hebrew University political science professor Menachem Hofnung, who helped write the statute. One way they do so is by establishing nonprofit organizations “which are identified with a politician, raise money for him and bear many campaign expenditures which subsequently are not counted in the financial report of the candidate,” he wrote in a study of the post-reform loopholes. According to Hofnung, this makes Israeli politicians “dependent much more than in the past on either personal wealth or ‘investors’ who seek to cash in on their contributions.” As in America, he said, those concerns are intensified when the ‘investors’ are non-citizens with strong political agendas, whether or not they may be Jewish. A Philadelphia Story The Jewish Week-Haaretz probe uncovered four children’s charities whose connections to Likud fund-raisers are clear. But the financial reports the charities have filed – or failed to – raise many questions. With such innocuous names as the Education Fund for Israel, Israel Development Fund and Youth Towns of Israel, the groups have raised millions, ostensibly to help Israeli youth. Indeed, it is clear that much of their money went to just this purpose. But their exclusive fund-raising dinners and parlor meetings bring together ambitious Israeli political leaders seeking support; wealthy and passionate American Jews; and, most crucially, charity fund-raisers who, as this investigation found, often work also as political fund-raisers for the Israeli leaders in ways that seem to blur their dual roles. Among the key players in this world are a fund-raiser and political advance man for Netanyahu who now works for Ronald Lauder, the cosmetics heir just elected chairman of organized Jewry’s most prominent umbrella group; a former national treasurer of the Likud Party who was convicted of campaign finance fraud in 1996; and a former diplomat in Israel’s Los Angeles consulate who now raises funds for the Likud from wealthy donors on both coasts. But the central figure in many of these charities is Steven L. Friedman, a boyhood Philadelphia friend of Netanyahu and longtime supporter who was registered until 1996 with the U.S. Justice Department as a foreign agent and fund-raiser for the Likud Party in the United States. From his office in the antique decorated, white-shoe Philadelphia law firm of Dillworth, Paxson, Kalish and Kauffman, Friedman, 52, established a network of tax-exempt corporations throughout the ’90s with striking political connections. One of these charities, the Education Fund for Israel, told the IRS in its 1995 application for tax exemption that it expected to raise $750,000 for Israeli youth over the next three years. In the years that followed, however, the fund never filed any of its required annual reports to the IRS. Friedman declines to say why. But the question could be important, given the specifics of his registration with the Justice Department as a foreign agent for Likud. At the time of Friedman’s work for EFI, the registration stated that his main work as a foreign agent would be to “solicit funds and coordinate fund raising for the Likud Party of Israel in the United States.” Incorporated one year before the 1996 Israeli elections, EFI listed Friedman as its secretary-treasurer. Its president was Glen Segal, a Philadelphia Jewish activist who once had sponsored local appearances by Rabbi Meir Kahane, the radical right-wing Jewish nationalist. Segal failed to return repeated calls seeking comment. In its August 1995 incorporation papers, EFI described the charity’s purpose as “including, but not limited to, distributing funds to charitable organizations which promote the education and welfare of the youths of Israel.” Under IRS regulations, only charities that take in less than $25,000 are exempted from having to file an annual report. Friedman declined repeated requests for an interview about EFI’s failure to file such reports. But in 1995 at least, one contributor alone gave EFI $160,0000. That contributor, according to its own IRS records, was the Irving R. Moskowitz Foundation. The California-based foundation, whose assets come from a bingo parlor near Long Beach, is run by the prominent Florida-based millionaire of the same name who has devoted much of his foundation and personal wealth to supporting right-wing causes in Israel. Just last month, for example, Moskowitz led a group of like-minded businessmen on a trip to Israel in which they interviewed possible right-wing candidates for prime minister in an effort to unite around one. In the 1996 election, Moskowitz was widely reported to have backed Netanyahu financially, as well as Avigdor Kahalani, the leader of the Third Way party. Informed about the charity and its fund-raiser’s background, a spokesman for the IRS, Bob Kobel, said EFI’s failure to file raises questions that could go to the heart of the tax authority’s red line separating charitable fund raising from partisan politics. “When you start talking about [public charities] and political fund raising, that’s serious,” he said. “Without the information they submit in their annual reports, we have no real way of knowing what’s happening to the money.” In fact, it is impossible to know how much more Friedman may have raised — or may still be raising — for EFI in the absence of these reports. Charitable foundations are obliged by law to divulge their grants, and grants made by the largest ones, such as Moskowitz’s, are accessible on a public data base. But this is not the case for smaller foundations, public charities and individual donors. On the U.S. side, Kobel emphasized, any channeling of charity money into partisan politics, even indirectly, is forbidden. Israel Development Fund:‘A Branch Of Likud?’ That injunction appears particularly germane in the case of another children’s charity Friedman established. The Israel Development Fund, according to its 1994 tax report, gave $16,000 directly to the Likud Party itself. The charity lists the grant as going to “Lichud,” a Hebrew spelling variation of the political party Friedman represented. That tax filing shows that the fund also granted $9,000 to Nikuda, the official newspaper of the West Bank and Gaza settlers council. And $13,000 went to “Geghner Aliya,” an apparent corruption of Gesher Aliya, a charity controlled by Netanyahu’s former chief of staff, Avigdor Lieberman. Gesher Aliya later came under criminal investigation in Israel in connection with loans it allegedly made to Lieberman for political purposes. That investigation is now with the state prosecutor. Finally, IDF also donated $9,000 in 1994 to a group it listed as “Schud Ha Rabbamin,” an apparent corruption of Ichud HaRabbanim, the rabbinic group that urged soldiers to disobey orders to redeploy on the West Bank. A charity’s donors generally are not publicly available, but a list of IDF donors from 1989 through 1992 obtained by The Jewish Week shows that they included many individuals who have been reported widely as financial backers of Netanyahu. Among these are Moskowitz; New York businessman Joseph Mermelstein; Reuben Mattus, the late founder of Haagen Dazs ice cream, and his widow, Rose; and Manfred Lehmann, the late philanthropist and right-wing activist who defended Dr. Baruch Goldstein’s murder of 29 Palestinians in Hebron in 1994. One donor contacted by The Jewish Week, Lew Eisenberg, the chairman of the New York Port Authority, acknowledged giving $15,000 to IDF at Friedman’s behest. But Eisenberg said he had “no clue” the charity had ever given money to anything besides youth programs in Israel. “I think they had a little booklet in which they actually listed some of the building projects,” said Eisenberg. A few individuals are listed in Friedman’s IDF tax reports and his Justice Department filings as having given identical sums in the same year to IDF and Likud. In 1995, for example, Moskowitz’s foundation gave $5,000 to IDF and $5,000 to the Likud Party through Friedman. When questioned about this, Friedman, in the only brief interview he agreed to, said the listing of the political donation to Likud was “a mistake.” Soon after the interview, Friedman filed an amendment to his Justice Department filing stating that the 1995 Moskowitz donation to Likud was, in fact, to the charity IDF. Like the Education Fund for Israel, IDF, which Friedman established in 1989, was devoted officially to providing “building programs or general operating funds for youth organizations,” according to reports it filed with Pennsylvania’s Bureau of Charitable Organizations. Friedman served as secretary-treasurer of both. But the other board members of this charity were mostly senior Likud officials. IDF president Menachem Atzmon, for example, then was national treasurer of Likud. A longtime party stalwart, Atzmon was convicted in an Israeli court of campaign finance fraud in 1996 and given a suspended prison sentence of one year. Soon after his conviction, Atzmon left his post as Likud treasurer and as president of IDF. According to IDF’s tax reports, he was replaced by IDF board member Gershon Stav, another senior Likud official. But Stav told The Jewish Week he resigned from IDF’s board in January 1994, and faxed the newspaper a copy of his resignation letter. In an interview with The Jewish Week, Atzmon staunchly denied that any IDF money ever went to political purposes. But according to close associates of Netanyahu during this period, IDF functioned as a base and source of cash for Netanyahu while he was raising money in the U.S. for his ultimately successful 1993 primary election campaign to lead Likud. One former Netanyahu associate, who would speak only on condition of anonymity, said IDF’s sole paid staff member, Steven Schneier, used the charity to raise money for Netanyahu’s political ambitions. “Steve Schneier would tell people to write checks to IDF” to enable them to get a tax deduction, said this source. “The money went first for the [1993 Likud] primary, and then to rebuilding the party.” Repeated efforts attempts to reach Schneier for comment were unsuccessful. Another source close to Netanyahu during this period described IDF as a fund Netanyahu used to finance his U.S. travel and lodging expenses during fund-raising trips. “IDF was like a branch of the Likud,” said this source. Frequent Flyers More important than the Israel Development Fund’s relatively small grants to Likud and right-wing Israeli organizations, these sources said, was the fact that only about half of the more than $1.7 million IDF raised over six years of activity went to any charity groups in Israel at all. In some years the proportion dipped much lower. In 1993, for example, the year that Netanyahu ran a costly campaign to win the first open Likud primary, the percentage IDF spent on charitable programming dipped to 35 percent. The National Charities Information Bureau, a prominent monitoring organization in New York, reports that among the large U.S. charities it tracks, the average share of expenditures devoted to grants and programs is 75 percent. For IDF, the rest went to administrative expenses - with the largest line item being salary for its only full-time paid employee: Steven Schneier. The second largest expense was for travel. Schneier, who is in his 40s, now works in Israel for international businessman and Netanyahu confidante Ronald Lauder. But through most of the 1990s, Schneier was known widely for his role with Netanyahu. “I knew Steve as someone who was an assistant to Bibi,” recalled Eisenberg, the New York Port Authority chairman, referring to Netanyahu by his nickname. Eisenberg, a friend of the Israeli leader during this period, said: “I always viewed [Schneier] as an advance man, setting up events here for Bibi.” A leader of a large national Jewish organization related, “I would always see [Netanyahu and Schneier] together. During the campaign phases, when Bibi came here, he [Schneier] would be with him at the Regency [Hotel]. If you wanted an appointment with Netanyahu before the election, you had to go through Steve.” Between 1990 and 1994, Schneier was receiving $30,000 to $50,000 per year as IDF’s full-time director. During this period, leading up to and immediately after Netanyahu’s primary campaign, Schneier received a total of $220,000. Then in 1995 and 1996 - the year of the Israeli election that brought Netanyahu to power - Schneier went on the payroll of the Shalem Center, then a right-leaning Jerusalem think tank sponsored by Lauder. The Shalem Center, run by Netanyahu researcher Yoram Hazoni, appears to have been a venue where many Netanyahu supporters, aides and Likud-linked charities coalesced. Lauder, who serves as Shalem’s president, provides about one-third of its annual budget, which was $700,000 in 1995 but has escalated greatly, according to director Yoram Hazony. In 1994 and 1995, Shalem also received $27,650 from IDF. And in 1995, it received another $8,000 from yet another charitable organization established by Friedman. This charity, the Israel Research Foundation, in turn had as its donors IDF and Lauder. Hazony participated in some of Netanyahu’s campaign strategy sessions during the ’96 election. But in an interview with The Jewish Week, Hazony adamantly maintained such work was distinct and separate from his work for the Shalem Center, whose independence he has striven to establish. As for Schneier’s Shalem salary, Hazony rejected any suggestion of feather bedding. “Steve was very successful in helping us get off the ground,” he said. “He and I … raised $1.3 million for the center during this period. … It was a hell of a lot of work. There’s no getting around it was a major time commitment.” Hazony described Schneier as “extremely gifted and a very sweet person [who] helps a lot of others. I don’t know about his [other] activities.” Meanwhile, the Israel Research Foundation spent the overwhelming share of its money – some 88 percent — on salaries and administrative and travel expenses for unspecified individuals, according to its filings with the IRS. To be sure, IRF, which declared as its corporate purpose “serving as an educational forum for the development of new concepts, ideas and policies regarding the economy in Israel,” was quite small compared to IDF. During its three years of activity, 1993 through 1995, IRF raised only about $150,0000. But just $19,000, or about 12 percent, was used for programming. In 1994, its most active year, IRF’s single largest expense was a salary of $48,000 paid to an unnamed individual. That same year, Schneier’s salary at IDF was cut from $40,000 to $30,000. IRF’s second largest expense that year, after payroll taxes, was $10,848 for “travel, conferences and meetings.” Salary — for Schneier — was also IDF’s largest single administrative expense in its six-year existence. As with IRF, its second largest — $166,006 — was for travel. IDF and IRF were both officially dissolved on the same day, Sept. 2, 1997. Dan Langen, a spokesman for the National Charities Information Bureau who reviewed the two groups’ records at The Jewish Week’s request, singled out their travel and phone expenses. “The high travel and phone budgets raise suspicion,” he said. “If the money they raised for these activities went back to the charity, the ratio then going back to the programs would be much higher.” Youth Towns: Where Did The Money Go? Meanwhile, on the West Coast, another board member of IDF named Yoram Oren has been running a separate Likud fund-raising operation of his own throughout the ’90s. Unlike Friedman, Oren has never registered as a foreign agent with the Justice Department. But like Friedman, Oren also has a separate Likud-sponsored children’s charity for which he raises funds. That charity, known as Youth Towns of Israel, has two incorporated affiliates in New York and California. According to a review of financial reports filed in each state, in 1993 these affiliates sent the Israeli group a total of $888,640 in donations. Youth Towns officials describe Oren as a key fund-raiser for much of this. But in Jerusalem, Youth Towns of Israel and its sister organization, Havat HaNoar, or Youth Villages, reported receiving only $595,764 in foreign receipts from its affiliates all over the world that year — an apparent shortfall of at least $293,000. Though long based in Beverly Hills, Oren, a former consul for Soviet Jewry affairs in Israel’s Los Angeles consulate, is listed as a board member of the Israeli Youth Towns. He is also an employee on its payroll. Repeated phone calls and a fax sent to his office with questions about his fund raising activities went unanswered. Howard Barbanel, the former president of Likud USA — which clashed with Netanyahu over a series of issues, including what the organization decried as Netanyahu’s attempt to usurp its funds for political purposes — said Oren was “one of Bibi’s point men and fund-raisers for his far-flung empire. … It was just common knowledge.” A number of people who know Oren and his activities firsthand concur in this assessment. But others, speaking on condition of anonymity, describe him instead as pre-eminently a fund-raiser for Likud with no special ties to Netanyahu. “He has been much closer to [Israeli Foreign Minister Ariel] Sharon,” said one. Indeed, just last spring, Oren organized a large fund-raiser in Los Angeles featuring Sharon. One source privy to its planning said donors in Los Angeles and Phoenix were contacted prior to the dinner and told they could make out tax-deductible checks to the College for National Studies in Israel. Though there is an organization by this name – in Likud’s Tel Aviv headquarters – the IRS states that no such institution enjoys tax-exempt charitable status in the United States, a requirement for such donations to be tax deductible. Youth Towns, a network of youth villages and schools for disadvantaged and gifted Israeli children, has campuses in Herzliya and Ber Yakov, and recently opened a new school in Lod. The relatively new Aleh school on the Herzliya campus has won plaudits as a top-rated science and technology high school modeled on the Bronx High School of Science. Though all but a small portion of these institutions’ budgets comes from the government, the network was founded originally by leaders of Likud’s predecessor, the Herut Party. Today, the Ber Yakov campus has 700 children and the Herzliya campus 400. But according to reports filed with Israel’s charities registry in Jerusalem, foreign donations directed to these institutions first go to a tiny, nondescript office on the 10th floor of the Likud’s fortress-like headquarters on King George Street in Tel Aviv. There, Petachia Shamir, Youth Towns longtime president, presides over his schools with a seemingly tireless hand, often working well past closing hours. Shamir, a tough, no-nonsense veteran of the Irgun and former secretary-general of Herut, initially said he would permit a Jewish Week reporter from New York to visit his schools as part of the paper’s inquiry. But during the course of a two-week visit for this purpose last spring, Shamir said Israel’s minister of education would not allow such a visit. A receptionist at the Ber Yakov campus, however, said permission for reporters to visit had to be obtained from Shamir. Sitting at an unadorned desk in his small office, with framed portraits of Likud leader Menachem Begin and the party’s ideological father, Vladimir Jabotinsky, above him, Shamir fielded a range of questions about his charity’s financial practices with rigorous if curt civility — and an occasional burst of anger. “I really don’t owe you answers to all the questions you’re asking,” he said at one point. “I think you really intrude into our matters, and I don’t owe you any more explanation. What I can tell you for certain is that no [Youth Towns] money goes to Likud, and all the money is used for the purpose of helping Youth Towns.” Asked about the seeming $292,000 shortfall in 1993 donations sent from America, Shamir replied, “I can say nothing about the American organizations. That’s their responsibility.” But in Los Angeles, Herbert Wolfe, president of the Youth Towns affiliate incorporated in California, said, “We send the money to Israel. The California organization does not have any oversight with respect to how the funds are specifically utilized.” And in New York, Nathan Mazerak, chairman of the New York affiliate, said, “People are making donations in absolute good faith. We understand they go directly to help children in Aleh High School or the youth villages. It is absolutely our understanding the money goes to these institutions.”

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