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Tuesday, February 3, 2009

Did Israeli officials help U.S. firms win security tenders?

By Yossi Melman

A secret seven-year investigation at the Defense Ministry has raised concerns that senior ministry officials used inside information to help certain American companies win more than $100 million in security-equipment tenders advertised in the United States.

However, the state prosecution closed the investigation in late 2007, citing insufficient evidence, after the ministry stalled the probe due to fears it would harm Israel-U.S. ties.

Police and Defense Ministry investigators focused on suspicions that employees at the Defense Ministry in Tel Aviv and at the defense procurement office in New York leaked sensitive information from the closed bids made by companies participating in the tenders to companies they favored, helping them win the contracts.

The corruption allegations regarded secret tenders for the procurement of security software and advanced computer technologies, including software, databases, storage and backup systems, from U.S. firms. The tenders were for American firms only because the payment for the equipment, the software and technology was to be made from U.S. military assistance funds, requiring that the money be spent in the United States.

The companies involved were among the leading firms of their type, including Cisco, Juniper, HP, EMC and others with offices in Israel. The equipment was procured for Military Intelligence units involved in signals intelligence and encryption, as well as for the air force and other units.

Yehiel Horev, the Defense Ministry's security chief in the early part of the decade, did not support the probe due to concerns it might cause a crisis in ties with the United States. Horev's replacement, Amir Kin, continued his predecessor's policy and later announced the closure of the investigation.

The first deal that raised concerns related to a tender issued at the start of the decade for digital storage for the Israel Defense Forces. Three U.S. firms made bids: EMC, HP and Hitachi Data Systems. EMC won the tender. Haim Adar was in charge of the defense procurement office in New York at the time of the tender. Since his retirement from the ministry several years ago, he has served as external adviser to EMC and other firms who do business with the Defense Ministry.

"As early as the next day [after EMC had won the tender], I knew that our competitors had known everything about our price bid," Yehuda Cohen, who at the time was in charge of procurement at HP, told Haaretz. EMC refused a request for comment.

Adar said he had never known about the investigation and had never been asked to testify.

Shortly after the deal with EMC, during Operation Defensive Shield in 2002, various problems were found with the system the company was providing. The technical problems made it difficult to analyze intelligence during the West Bank operation. It took 24 hours to correct the problems and restore the intelligence systems to working order.

Nonetheless, the IDF continued to work with EMC, and over the next few years the firm won several other contracts for data storage systems worth tens of millions of dollars.

There were more complaints from companies that expressed their concern that senior officials at the Defense Ministry were leaking details about their bids to competitors.

A senior source a the Defense Ministry familiar with the details of the investigation, and who has read the secret reports, confirmed that the investigation focused on the activities of several senior ministry officials.

The figures suspected of corruption include Adrian Schwartz, who served until several months ago as deputy head of the defense procurement office in New York and is now the ministry's deputy for land forces procurement, and Eliezer Hasson, the powerful chairman of the union of Defense Ministry employees, who was Adar's deputy in New York, where he was charged with procurement for the Israel Air Force and Military Intelligence.

"Our concern from the start was that the investigation would open a Pandora's box," a senior Defense Ministry source told Haaretz. "That if we deepen the investigation, the Americans may start getting curious and the relations between the two countries might suffer."

A small portion of this affair emerged in a lawsuit recently filed in the Tel Aviv district labor court by Doron Tamir, a corruption investigator and a senior assistant to the head of special investigations at the Defense Ministry's office of security. Tamir, 54, says he suffered heart failure after an attempt was made to shut him out of the investigation and close the case.

Tamir got the job of investigating the case after Horev ordered the unit to look into claims that senior officials enjoyed favors from firms wishing to do business with the Defense Ministry. Tamir details parts of the investigation in his affidavit.

Tamir's lawyer Ilan Elmkyes told Haaretz he is bound by secrecy laws and could not comment.

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