In a rather puzzling move,
Rafael, the Armament Development Authority, has permitted arms
merchant David Kolitz and the companies of his Elul Group to earn
tens of millions of shekels in recent years in transactions with
India. Rafael has fired hundreds of workers in the past few years,
has been in dire straits, recorded heavy losses and needed the
injection of government funds. It might have been expected that the
company would be ultra-careful about spending public money, not
least because it is a government company, like any other unit of the
At the heart of the affair is Yisrael
Yaniv, who until a few years ago worked for Rafael and is now
Kolitz's partner in arms deals. Until 1995, Yaniv was employed in
Rafael's marketing department, which is divided according to
regional desks that try to sell the company's products within their
geographical areas of responsibility. Yaniv was on the Southeast
Asia desk, which includes India; India established full diplomatic
ties with Israel in 1994, in the wake of the Oslo agreement.
India was a coveted target for Israeli defense exports. All
the military industries - governmental, public and private -
launched aggressive marketing campaigns for their products. The
Israeli companies appointed agents in India and enjoyed the support
and assistance of the Defense Ministry's exports unit (known as
Sibat) as well as the reputation of the Israel Defense Forces.
Within a few years, India (together with Turkey, China and Romania)
became important markets for Israeli defense exports. The contracts
that have been signed in the past few years total more than $1
billion and include the sale of radar ("Green Pine"), Barak
sea-to-sea-missiles, navigation equipment for aircraft, RPVs
(remotely piloted vehicles) and more.
At the time this
marketing campaign was launched, Yaniv took a year's sabbatical
leave and joined Kolitz's Elul Technologies company. Rafael decided
not to appoint a replacement for him. Instead, the director general
at the time, Giora Shalgi, and the head of marketing, Lova Drori,
decided that Yaniv would continue to deal with the India market from
his new place of employment. This was an unprecedented decision.
Yaniv extended his sabbatical for another year and then asked for
and received permission to absent himself from his desk for two more
years, during which he was described as being on "leave without
pay." Throughout this period, he continued to market Rafael products
in India via Elul. In October 1998, he resigned from Rafael,
received his full compensation package, and joined Elul.
Yaniv was appointed the CEO of a new company that was
established by Elul, Elul Asia, with responsibility for marketing
and sales in India, and together with Kolitz was one of the new
company's shareholders. According to the Registrar of Companies,
Yaniv holds 20 percent of the shares through a company called
Yisraniv Asia Investments, while Elul Technologies holds the
In other words, the top executives of Rafael
"privatized" the company's marketing system and awarded it to Kolitz
and Yaniv. Calls to Rafael and the Defense Ministry to get an
explanation for this decision were not answered. No reply was
received to the question of whether Rafael issued a tender to
privatize the India market, and why it was decided to award the
market to David Kolitz and Elul.
Since then, according to
foreign reports, Rafael has concluded two major deals with India.
One was for the sale of an aircraft navigation system worth about
$100 million, the other for the sale of the Barak sea-to-sea
missile, in conjunction with Israel Aircraft Industries (IAI).
Rafael's share in the transaction is about $70 million. Elul
received a handsome commission for its marketing work, though
neither Rafael nor the Defense Ministry is ready to say exactly how
handsome. At the same time, a senior source in the Defense Ministry
confirmed that the commission totals between 3 and 5 percent of the
value of the deal - so that Elul probably earned NIS 20 million to
NIS 30 million.
After it received the India market, Elul
decided to break off its ties with Rafael's regular agent in India,
and appoint a new agent in his place. Recently, after the ousted
agent learned how much the latest deals were worth, he demanded that
the Defense Ministry pay him the commission he claimed was coming to
him. The ministry's legal advisers referred the matter to the
attorney general, Elyakim Rubinstein. Those who are familiar with
the affair say that the claim of the Indian agent may rest on solid
ground and that the ministry may well try to reach a compromise
agreement with him. If so, another considerable sum will be paid
out, because of the decision to change agents.
with Kolitz and Yaniv has generated a furor among some of the senior
officials in the Defense Ministry. They found it difficult to
understand why Rafael decided to stop marketing its products in
India by itself, even though it still does so in other countries,
and why the territory was awarded to Elul, of all firms. They viewed
the move as tantamount to granting Elul a license to make money
without any effort. That is because Israel's arms sales are the
result of decisions by the two governments involved, and their
defense establishments, to cooperate and create a kind of strategic
alliance between them.
"Rafael could have continued to be
responsible for marketing in India, too, just as it is in many other
countries," says a senior official in the Defense Ministry. "Neither
I nor some of my colleagues understood the decision then and we
understand it even less today." These senior officials tried to
interest the Defense Ministry's battery of legal advisers, headed by
Zvia Gross, in the affair, as well as top officials in the unit that
is in charge of security in the defense establishment, which is also
responsible for ethical practices. The senior officials do not
understand why Yehiel Horev, who heads the security unit, failed to
launch an investigation into the matter.
Horev said in
private conversations that he was not aware of Rafael's decision and
that he did in fact find it "unusual." As a result, he has now
decided to look into the affair.
Joseph Ravkaie, Elul Group
vice president for marketing and technologies, confirmed that "The
company has had a commercial agreement with Rafael for five or six
years." As for the commission received by Elul from each of Rafael's
transactions in India, he said: "It's not 5 percent, but I won't
tell you the exact figures and I won't elaborate on the subject."
David Kolitz did not respond to calls from Ha'aretz.
Yisrael Yaniv stated: "Regarding Rafael's considerations,
you have to ask them. I can only suppose that Rafael made a good
deal. When we started to work, the India market was virgin territory
for Rafael. When I started to deal with India, Rafael had zero sales
there. Nowadays Rafael is selling there very well. On top of which,
their connection with us doesn't cost them money. When there is a
deal, the client pays for it and that includes our commission, too."
(Yaniv apparently means that Rafael and Elul roll the payment of the
commission onto the Indian authorities, which of course is liable to
up the price and adversely affect Rafael's chances.)
reply to the question of whether it was accepted practice for an
employee of the defense establishment to work for a private company
- and in the same sphere, Yaniv said: "When I left Rafael, I didn't
engage in marketing [in] India." He declined to say why it was
decided to replace the agent in India, saying: "I am not responsible
for appointing and dismissing agents."
The head of marketing
at Rafael, Lova Drori, did not respond to calls from Ha'aretz, nor
did the company's management. The Defense Ministry, through its
spokesman, replied to 10 questions in three sentences: "Rafael draws
on the help of Elul Asia in obtaining marketing authorizations in
the world, as it draws on the help of other companies. That activity
is carried out after all the required authorizations are received
from all the relevant bodies in the Defense Ministry. All of
Rafael's activity and any connection between Rafael and other
companies is under the supervision and scrutiny of the Defense
Ministry and the State Comptroller."