T

he Pandora Papers is the largest leak of financial records in history: almost 12 million documents leaked from 14 companies that provided services to offshore companies and trust funds. The documents were obtained by the International Consortium of Investigative Journalists (ICIJ), which shared them with more than 600 journalists in 177 countries and dozens of news organizations, including the Washington Post, the Guardian, Le Monde, and the BBC. Shomrim journalists Uri Blau and Daniel Dolev were the only Israelis involved in the project.

Our inspection of the documents contained in the leak reveals the widespread use of tax havens by Israeli citizens seeking to register companies and manage their businesses outside of the country. The word “Israel” appears more than 40,000 times in the leaked documents; the phrase “Israeli passport” also records thousands of hits. Five hundred and sixty-five Israeli citizens appear as the ultimate beneficiaries of a company mentioned in the documents, which places Israel in 16th place when it comes to countries mentioned in the trove of documents. Top of that list is Russia, with close to 4,500 citizens, followed by the United Kingdom, with 3,500. Despite having more than 30 times the population, the United States has a similar number of its citizens listed (617) in the leak as Israel.

It is important to emphasize that, as long as those involved file full and proper reports to the relevant authorities, it is both legal and commonplace for Israelis to register and run companies overseas. Nonetheless, the management of companies overseas is highly significant for the state, since it ‘loses out’ on taxes that it could have levied from those companies, had they been registered in Israel.

Barkat’s ‘blind trust’ in his brother

When Barkat was elected to the Knesset in 2019, he transferred his shares to his brother, Eli Barkat. That transfer, according to a Shomrim investigation, is in violation of instructions issued by the Knesset’s Ethics Committee, which prohibit a member of parliament from selling or leasing his or her shares to a family member. In the case of a trusteeship, the MK must use a public trust company.

One of the most prominent Israelis to appear in the leaked documents is MK Nir Barkat, who is seen as a likely contender for leadership of the Likud Party and as a potential prime minister. According to a Shomrim investigation, the documents show that, while he served as mayor of Jerusalem and when he had declared that the companies which had yielded him a fortune of hundreds of millions of dollars had been put into a blind trust, he continued directly to own the shares. According to the documents, Barkat was involved in a due diligence test for one of his companies in 2016. Again, it is worth noting that this is perfectly legal since Israeli law recognizes trusteeships that do not include the transfer of shares – even though this raises questions about the kind of due diligence we can expect from public figures about the kind of trust they have established.

When Barkat was elected to the Knesset in 2019, he transferred his shares to his brother, Eli Barkat. That transfer, according to a Shomrim investigation, is in violation of instructions issued by the Knesset’s Ethics Committee, which prohibit a member of parliament from selling or leasing his or her shares to a family member. In the case of a trusteeship, the MK must use a public trust company.

Those instructions were issued by the Ethics Committee in 2009, in response to a specific case, but the panel stresses that its ruling was a matter of principle and issued it as a general guideline for all Knesset members. Barkat could have asked the Ethics Committee for an exemption, but a Shomrim investigation found that no such request was made and that the committee, which was in session for most of 2020, did not issue any exemption.

In addition to the blind trust, Shomrim also discovered that eToro, in which Barkat has holdings, is registered in the Virgin Islands, which does not have a companies’ tax, rather than in Israel, where it is headquartered and where most of its employees are located (via a subsidiary). In Israel, companies’ tax has varied throughout the years that eToro has been active between 23 percent and 26 percent. The company has been highly profitable: its earnings before interest, taxes, depreciation and amortization for 2020 was around $100 million and it predicts that will grow to $700 million by 2025.

Barkat’s spokesperson told Shomrim in response that, during the years he served as Jerusalem mayor, he transferred his shares to a blind trust, “in accordance with the demands of the law and with the approval of the relevant authorities.”

Responding to the trusteeship after Barkat’s election to the Knesset, the spokesperson claimed that the abovementioned ruling by the Ethics Committee was issued in relation to a different public figure and does not apply to Barkat. Asked if he would allow the public to view the trust documents, Barkat declined, saying that “this is not a legal requirement.”

Barkat was also asked whether it was possible to have a truly blind trust that is controlled by his brother. A spokesperson responded that “blind trusts have well-established legal parameters. Eli Barkat acted in accordance with the law as the trustee in his brother’s blind trust.”

Asked about eToro being registered in the Virgin Islands, the spokesperson said that the decision was taken by the company’s board of directors and that it pays taxes in Israel according to the law. Barkat also refused to divulge his position on a global companies’ tax, which would prevent companies from making huge profits by registering in tax havens.

Ramon, Schlaff and the 50-million-euro debt

The economic logic of the deal is hard to understand. Ramon took control of a company from Montenegro, which had plans for a tourism project that has hardly moved an inch in the past 13 years and which has debts of 50 million euros. On the other side of the equation, the company-owned land earmarked for the project.

Former minister Haim Ramon is another prominent Israeli to feature in the leaked documents. According to a Shomrim investigation, Ramon used a company he registered in Cyprus to make a deal with an old acquaintance of his – Austrian billionaire Martin Schlaff. The Israeli public knows Schlaff’s name thanks to his connection with the casino in Jericho and his connections to various Israeli politicians – as well, of course, as the fact that Israeli authorities wanted to question him as part of their years-long investigations into former prime minister Ariel Sharon and current Finance Minister Avigdor Lieberman.

The economic logic of the deal is hard to understand. Ramon took control of a company from Montenegro, which had plans for a tourism project that has hardly moved an inch in the past 13 years and which has debts of 50 million euros. On the other side of the equation, the company-owned land earmarked for the project. According to the Shomrim investigation, however, the question of how much that land is worth very much depends on whom one asks. As part of Ramon’s attempts to convince the authorities to reduce the debt, the land was appraised at a value of 14.4 million euros. In contrast, when the company filed its reports with the authorities in Montenegro, it valued the land at 50 million euros. Either way, the deal also included a clause that would allow Schlaff to buy back the company in the future.

According to the Shomrim investigation, the land in Montenegro was originally used as security for loans, but, at some stage, when Schlaff had a controlling interest in the project, part of the loan was also guaranteed on a temporary basis by a private fund controlled by the Austrian billionaire. An examination of the documents does not clarify whether this security was ever annulled.

In response, Ramon said that he “completely reject[s] the accusation that I was a ‘straw man’ for MS Privatstiftun. These accusations are harmful, hurtful, and not true.” Ramon added that he took control of the company in 2016 in order to extricate it from the impasse it had reached and worked toward that end. He said that a deal has recently been reached with authorities in Montenegro for the development of infrastructure in the area earmarked for the project and that negotiations were underway with a “very well-known body” in the tourism industry over the future of the project.

Schlaff, the company and the fund he controls issued a statement saying that they chose Ramon to rescue the company because of his “many years of business experience and his connections.” The statement added that since Ramon joined, much progress has been made, including work on infrastructure.

The Steinmetz family’s billion euro transfer from Lichtenstein

According to the documents, the family representative argued, at a meeting with a company that specializes in such matters, that the family was unhappy that the manager of the trust fund in Lichtenstein insisted on approving every transaction from the funds. The documents do not conclusively state whether the funds were, in the end, relocated.

In recent years, businessman Benny Steinmetz has faced a series of investigations, indictments and convictions in several countries, including Switzerland, Romania, the United States and Guinea. A Shomrim investigation has found that, at the same time as some of these processes were playing out, a representative of the Steinmetz family looked into transferring two trust funds, totaling around 1 million euros, from Lichtenstein to the Cook Islands. According to the documents, the family representative argued, at a meeting with a company that specializes in such matters, that the family was unhappy that the manager of the trust fund in Lichtenstein insisted on approving every transaction from the funds. The documents do not conclusively state whether the funds were, in the end, relocated.

It is worth noting that, in recent years, Lichtenstein significantly tightened its anti-money laundering legislation and now demands regular reports regarding transfers. The tiny principality also has close relations with Switzerland.

A spokesperson for Benny Steinmetz said in response that, “Mr. Benny Steinmetz conducts his affairs with utmost adherence to the law and full disclosure to the tax authorities. He did not, does not and will not have financial activities or accounts in the Cook Islands.

“The thesis according to you which a response was sought is inaccurate and untrue, therefore the questions raised by it are inaccurate and irrelevant.” The spokesperson added that, over the past decade, Steinmetz has been the target of a smear campaign by billionaire George Soros and that the article is part of this campaign.

The settlers and land ownership in East Jerusalem

As far as can be ascertained, these settler NGOs have been petitioning the courts in the Virgin Islands for years to allow the dissolved companies to resume operations. It is not known which companies were brought back to live and whether – on paper, at least – the government of the Virgin Island is still the owner of highly sensitive properties in East Jerusalem.

The settler NGOs which specialize in Judaizing East Jerusalem make extensive use of companies registered in tax havens. A Shomrim investigation has found that at least five such companies in the Virgin Islands were dissolved after the NGO in question failed to pay its fees in the tax haven for several years.

This dissolution, our investigation found, created a legal labyrinth for these NGOs, since, according to the law of the Virgin Islands, any assets held by the dissolved companies go to the government coffers. In an affidavit to the courts in the Virgin Islands, as part of efforts to re-register a company called Philinest, the head of Ateret Cohanim himself, Mati Dan, explained that he had been given legal advice that in order to hold assets, a company must be registered and active. In the case of Philinest, those assets were two apartments in the Muslim Quarter of Jerusalem’s Old City. Ten years after the request was submitted, the company was brought back to life. Dan did not respond to several requests from Shomrim for a statement.

In another case, the company that was dissolved was Humberstone Ventures S.A., which owns a building known as Saint John Hotel. For several years during the period that the company was dissolved, there were legal hearings in Israel over the ownership of the building. As far as it is possible to ascertain, the Israeli courts were not informed that the company had been dissolved. A lawyer for the company said in response that, “the claims you have detailed have no relation to reality.”

As far as can be ascertained, these settler NGOs have been petitioning the courts in the Virgin Islands for years to allow the dissolved companies to resume operations. It is not known which companies were brought back to live and whether – on paper, at least – the government of the Virgin Island is still the owner of highly sensitive properties in East Jerusalem.

King Abdullah’s secret mansions

Abdullah’s appearance in the leaked documents is significant because it could have far-reaching domestic ramifications. Jordan is in the middle of a dire financial crisis, made worse by the coronavirus pandemic. In recent years, the royal family has faced increasing discontent from Jordanian citizens, angry at their economic situation and the institutional corruption they believe caused it.

One foreign leader who ‘stars’ in the leaked documents is King Abdullah of Jordan. An analysis of the documents reveals that the king and his associates secretly owned no fewer than 36 companies registered in tax havens. The companies were used over the years to purchase 14 houses and apartments across the world. Among them were a house in Ascot, one of England’s most expensive towns; multimillion-dollar apartments in central London; and four luxury apartments in a complex in Washington, DC, with panoramic views of the Potomac River.

The king, it seems, is also fond of the West Coast of the United States, where he has purchased three separate but contiguous estates in Point Dume, an exclusive enclave overlooking Malibu. One of those properties is a 10-bedroom mansion on a cliff overlooking the Pacific Ocean. It was bought in 2014 by one of Abdullah’s companies, Nabisco Holdings, for $33.5 million. The other properties sold for $23 million and $12 million. The total value of the properties, according to the leaked documents, was $106 million. The king’s advisers were careful to conceal his ownership of the properties, referring to him in emails as “the final beneficiary” “you know who.”

Abdullah’s appearance in the leaked documents is significant because it could have far-reaching domestic ramifications. Jordan is in the middle of a dire financial crisis, made worse by the coronavirus pandemic. In recent years, the royal family has faced increasing discontent from Jordanian citizens, angry at their economic situation and the institutional corruption they believe caused it. It was against this backdrop that there was an alleged attempted coup against Abdullah.

Abdullah’s lawyers argued in response that there were many reasons – security, privacy and legal – that the king opted to own properties through offshore companies. They refused to detail these reasons, claiming that the king had never misused public funds or international aid and that the properties were purchased with his private fortune.

They also added that most of the offshore companies mentioned in the leaked documents no longer exist or are no longer linked to Abdullah. They also said that some of the properties mentioned in the documents are not owned by Abdullah. They argued, too, that since Jordanian law exempts the king from paying taxes, it is perfectly legitimate for him to use offshore companies.

Milchin’s offshore fortune and Netanyahu’s trial

Milchan, whose fortune is estimated by Forbes to be around $3.5 billion, is mentioned several times in the leaked documents. Documents filed in 2016 as part of regulatory changes in the Virgin Islands reveal that Milchan is the ultimate beneficial owner of seven offshore companies, most of which were established in the early 2000s.

Arnon Milchan, the Hollywood film producer who is a key prosecution witness in former prime minister Benjamin Netanyahu’s corruption trial, held at least part of his assets and his art collection in offshore companies based in the Virgin Islands, according to the leaked Pandora documents. The extent of Milchan’s massive offshore holdings could shed new light on his requests of Netanyahu, as described in the indictment in Case 1000. Milchan did not respond to Shomrim’s request for a response.

Milchan, whose fortune is estimated by Forbes to be around $3.5 billion, is mentioned several times in the leaked documents. Documents filed in 2016 as part of regulatory changes in the Virgin Islands reveal that Milchan is the ultimate beneficial owner of seven offshore companies, most of which were established in the early 2000s.

According to the documents, these companies owned a staggering number of assets. A company by the name of Century Mark Company Limited, for example, owned in 2016 artworks valued at $452,855,187 – almost half a billion dollars. Fairway Isle Limited owned a luxury apartment in Manhattan valued at $7.6 million – purchased, incidentally from the family of Rupert Murdoch. The same company also has a bank balance of $630,039. Widesands Limited owned property in Malibu, California, valued at $4.5 million and had a balance of more than $300,000. These are just two examples. There are additional references to these companies in 2017-18 when the local agent who handled their affairs was replaced.

The extent of these companies’ offshore holdings could shed light on one element of Case 1000 and the indictment filed against Netanyahu. According to that indictment, in the summer of 2013, Milchan asked then finance minister Yair Lapid to extend to 20 years the exemption from tax and from having to report income that returning Israeli citizens enjoy according to amendment 168 to the Income Tax Regulations – the so-called Milchan law.

Lapid refused, so Milchan went to his ‘boss,’ Netanyahu, with whom he was close at the time. “Milchan also contacted you regarding the matter,” the indictment states,” within the framework of your position, asking for your intervention on the matter so as to promote his request. You then contacted Lapid and raised the subject during two professional meetings that you had with him in your role as prime minister. During these meetings, you expressed your support for the extension of the exemption, while Lapid said that he did not believe that it should be extended.”

The state prosecution considered also pressing charges against Milchan but, in the end, decided against it.