Israeli Prime Minister Benjamin Netanyahu’s Flawed and Irrelevant Defense to Bribery Allegations

After three years of investigations, it’s likely that Benjamin Netanyahu will soon become Israel’s first sitting prime minister to be indicted. The indictment, which has already been published by the Attorney General though not yet submitted to the court, accuses Netanyahu of several crimes of corruption. One of the most serious allegations (commonly referred to as “Case 4000”) is that when Netanyahu served as both Prime Minister and the Minister of Communications, he took steps to promote a deregulation of the telecom sector that would greatly benefit Shaul Elovitch, the controlling shareholder of Bezeq, one of Israel’s largest telecom firms. In particular, Netanyahu is alleged to have pushed for a decision allowing Bezeq to merge with another Israeli telecom giant. In return, Netanyahu allegedly received favorable media coverage from a news company controlled by Mr. Elovitch during two general elections.

Netanyahu has yet to submit a formal statement of defense to the charges, but given his countless press releases and interviews, it’s easy to predict what he will say. In particular, Netanyahu and his spokespersons have repeatedly argued that “decisions Netanyahu made regarding the telecom giant when he was communications minister were reasonable, had the support of the ministry’s professionals and were approved by the legal gatekeepers” (emphasis added). It’s not clear at this stage whether it is in fact true that the professionals in the Ministry of Communications also supported the merger. But suppose it were true. Why would it matter? Why would this be a defense to the bribery charges? Netanyahu and his supporters have remained vague, perhaps intentionally so, on this point. But there seem to be three possible arguments that he might advance as to why the Ministry professional staff’s (alleged) agreement with his position supplies a defense to the bribery allegation. None of these arguments has merit, and the court should dismiss all of them.

Continue reading

Entrepreneurs Care About Corruption – Here’s How to Help Them Fight It.

A friend of mine has been trying to start an artisanal liquor business in a small Latin American country. He learned to ferment fruit, crafted a logo, scrounged for and sanitized several hundred glass bottles, registered his corporation with all the various agencies, and paid all of his initial taxes. After producing his first batch and selling it to a number of small shops, he decided it was time to expand. Unfortunately, when he began to negotiate sales to larger restaurants and grocery stores he ran into a major complication: liquor taxes. The high level of liquor taxation made his business model completely unprofitable. Trying to understand how any other liquor business stayed afloat, he discovered that one liquor manufacturer and importer dominated the market, and didn’t pay any taxes. How? Corruption. In order to stay in business, my friend had a choice: (A) he could stay small, fly under the radar, and avoid paying taxes, or (B) he could navigate the perilous and uncertain process of bribing his way out of paying taxes. He ended up choosing a third option: he closed up shop and went back to his day job.

Ultimately, the fate of one small liquor business is not that important. But my friend’s experience illustrates a much more general phenomenon, one that is likely familiar to readers with experience in countries where corruption is widespread: corruption protects incumbent firms, undermines entrepreneurship, and constrains growth and job creation—particularly by small and medium-sized enterprises (SMEs), which are often the primary drivers of economic growth, employment, and innovation. Corruption can be a critical roadblock to entrepreneurs and small business owners who can’t bribe their way out of regulation. In fact, pervasive corruption can shift business incentives to such a significant extent that it can impact the shape of an economy dramatically. Continue reading