Exclusive: I helped clinch German submarine deal

Benjamin Netanyahu  photo: Avi Ohayoun

German businessman Michael Herzog tells "Globes" about the deal and denies bribing former National Security Council deputy head Avriel Bar-Yosef.

Dr. Michael Herzog sits in a wheelchair in a Berlin courtroom. He is wearing an expensive suit, spectacles with golden frames, and his hair is combed back. On the wooden table before him is a pile of legal files that comes almost up to his neck. On his right are two lawyers representing him in court, where he is accused, together with two partners, of defrauding investors of €50 million. The hall is only one of dozens of rooms in the old Berlin district court building in the Moabit neighborhood. It was built during the reign of Kaiser Wilhelm II, and its huge doorways, long corridors, and winding stone staircases fill visitors with the awe of justice.

It is likely that those present in the courtroom are unaware of Herzog's role in another affair in Israel that is currently reaching a decisive stage. At the recommendation of the police to the State Attorney's Office last month, Herzog is accused of giving bribes and favors to former National Security Council deputy head Brigadier General (res.) Avriel Bar-Yosef when the latter was serving in that sensitive position. The police suspect that, in exchange, Bar-Yosef promoted Herzog's business interests, among other things in the Zemach Committee on the natural gas industry, where he was responsible on behalf of the National Security Council for the security aspects of developing the gas fields in Israel's territorial waters.

Herzog does not appear to be in awe of the courtroom. He has been coming to this court twice a week since March 2015, when his trial began for persuading eight private investors, to whom he promised phenomenal returns, to give him tens of millions of euros. The lawyers of the other suspects are sitting at tables, and Herzog is calmly waiting for the judges to enter. A few minutes earlier, I had gone up to him and asked him to comment on the suspicions against him in Israel. He was somewhat surprised at first, but immediately recovered. "Would you like to come to my home to talk?", he asks. "Yes," I answer. "Excellent," he says. "Come tomorrow at 11 in the morning. Bring a tape recorder."

The next day, I enter the gates of a private home in a neighborhood in southern Berlin. A carer opens the door, and leads me to a meeting room on the ground floor. "Dr. Herzog is expecting you," he says. Herzog is sitting in a wheelchair again. He suffers from medical problems and sharp pain, according to statements submitted by his lawyers to the court on the preceding day. His carer sits on his right, and occasionally arranges a cushion to support his back. His personal lawyer, who does not disclose his name, sits on his left. Herzog is again expensively dressed, with a gold UN pin on his suit lapel and a large ring on one of his fingers. He asks me to turn on the tape recorder, asks me to state that I am permitting him to record the conversation as well, and starts to provide his version of the gas and submarine affairs that have put Israel in turmoil for the past year. Herzog says that the "Globes" interview is the first that he has ever given to the media.

In recent months, the authorities in Israel have been trying to trace the connections between senior IDF officers to procurement deals for submarines and warships for the defense of the gas fields. Police investigators and senior state attorneys are also trying to understand whether there is a connection between the gas facility affair and the submarines affair, and insofar as there was corruption, how deep it went. The interview with Herzog, in which it should be emphasized that he is giving his version while being on trial for fraud and deception, does not answer all of these questions; he does not necessarily finger any particular person as a criminal. If his version is correct, however, he exposes some of the covert connections between all the main players in the submarines and gas affairs: how they met at various junctions in Israel's security and national affairs, and started doing business with each other.

"I didn't know that Bar-Yosef was a member of the Zemach Committee"

"I have known Avriel more or less since 2008," Herzog said, referring to Bar-Yosef, who was appointed deputy head of the National Security Council in 2009 and served as secretary of the Knesset Foreign Affairs and Defense Committee after retiring from the Israeli navy in 2003. "I can't talk about the context in which I came to know him. I knew other senior Israeli defense figures before him. Let's say that I know a lot of people in Israel. I know several decision-makers in Israel very well. Knowing them doesn't mean that they're my friends. It means that I can make a connection with them, telephone them."

Herzog, 62, a German-Jewish businessperson, says that he comes from an Austrian-German family. He was born in Spain in 1955, and he says that he returned to Germany in the 1980s to study physics at the University of Tubingen and medicine at the University of Wurzburg. He says that he made his money over the years through investments all around the world, development of financial instruments, companies in Spain, mines in Brazil, and shipyards in Portugal and Greece, and so forth. His lawyer says that he inherited some of the money from his family. The German prosecutor suspects that he made at least some of it by fraud. Herzog says that he has helped Israel over the years. According to information obtained by "Globes," at least three former leading Israeli defense establishment figures were employed by him in recent years. When Herzog talks about Israel, he speaks a in the first person.

"I was in continual contact with Avriel Bar-Yosef, but not in business matters," he continues. "Through this connection, I understood from him that he was involved in the negotiations between Israel and Germany on the procurement of the sixth submarine for the Israeli navy. Bar-Yosef may not have been the only one dealing with this, but he was one of the people involved in the negotiations. He often came to Berlin." The Israeli press has previously reported that Bar-Yosef was responsible for the defense procurement section of the National Security Council, and was also involved in the procurement of the submarines. Besides his arrest in the affair in which he is suspected of taking a bribe from Herzog, he was also arrested in the submarines affair (Case 3000), in which the main person in the affair and Bar Yosef's friend from the navy, Michael Ganor, signed a state's witness agreement. "What I'm saying may create a problem for Avriel," Herzog says, "but as part of the personal connection between us, he informed me in 2010 that there was some problem with the Germans - that they were opposing the deal. He was a little desperate."

"Globes": Why did he talk to you?

Herzog: "We spoke about other things unrelated to business. It's legitimate for you to wonder whether it's right to talk about official matters of this type with someone outside the system."

What was the problem?

"The problem was that the subsidy and the discount that Israel was demanding as a condition for buying the submarine were too big."

How did you help resolve the matter?

"I went to the minister who was one of the objectors (Herzog gave the minister's name, but "Globes" has chosen not to publish it, because what Herzog said cannot be confirmed; it was impossible to get in touch with the former minister), and we found a solution. It was give and take."

What did they get?

"They got help."

In what form?

"Information, but I can't talk about this matter. Information about other countries. Information about mines and resources."

And what did they give in return?

"The minister retracted his objection, and the submarines deal was approved."

Who presented this problem to you?

"Avriel Bar-Yosef.

"You have to understand," Herzog added, "There are regular diplomatic channels. There, the work is done by professionals. But there are also gray channels. For those channels, you need people with connections. Bar-Yosef told me, 'We have a problem.' He didn't ask me to help, that's forbidden. But I'm glad to help when I can. Actually, the public in Israel should thank Bar-Yosef, because he did a good job of representing Israel, and got the submarines at a better price."

Herzog says that he also took Rabbi Chaim Rozwaski, whom he calls a "friend and business partner," with him to the meeting with the minister. Rozwaski is the rabbi of a Jewish community called Lev Tov in Berlin. Herzog brought him along so that if journalists asked what was discussed, they could say that the three of them talked about Jewish affairs in Germany.

According to Herzog's version of events, he and Bar-Yosef crossed paths again in early 2012, in the Zemach Committee's deliberations on the Israeli gas industry. Herzog says that it was happenstance. According to the Israeli police, it was part of the relationship between the two men that went beyond what was ethical. As reported by the media last month, the police assert in their recommendations that there is a basis for suspecting that Bar-Yosef tried to help a company founded by Herzog in Israel, and presented a solution to the Zemach Committee for gas liquefaction in the Mediterranean Sea near the gas fields themselves that would have resulted in huge profits.

The company, the initials of whose name are INRI, was represented before the Zemach Committee by another senior person from the defense establishment - Shai ("Shaike") Brosh, a former commander of the Shayetet 13 commando unit, who worked for Herzog and his partner Rozwaski, and is even mentioned as a director on the website of Herzog's main company - IFC (International Finance Corporation). Brosh is a friend of Bar-Yosef from their navy days, and he too was arrested in the submarines affair. In the session of the committee of January 23, 2012, Brosh presented INRI's proposal. The police suspect that in the committee's subsequent deliberations, Bar-Yosef strove to promote the solution of Herzog's company, in his capacity as the representative of the National Security Council on the committee.

Did you ask Bar-Yosef to help promote INRI's proposal with the Zemach Committee?

"No. I didn’t even know that he was a member of the committee. The first time I saw him on the committee was when he sat there in the center of the table (at the committee session that took place in January 2012 - A.U.). What happened was that Shai Brosh informed me that I would shortly be invited to appear before the Zemach Committee, and that I would need to prepare a presentation. At the same time, he asked another acquaintance of his, a naval engineer, to prepare another presentation. Over two weeks, I prepared a professional presentation, and waited outside the committee for them to summon me. When they did, I discovered that instead of me giving the company's presentation, Brosh's acquaintance gave another presentation on behalf of the company, lasting just ten minutes. Then I also saw that Bar-Yosef was a committee member.

"After the presentation, there was a break in the committee's discussions. I had a fierce heated discussionargument outside with Brosh, with the engineer he brought along, and with Rabbi Rozwaski. At that stage, Avriel Bar-Yosef came out. He approached us and said, 'Relax, everything's fine. It was good that you did it that way.' After that he slapped Brosh on the back, and only then did I realize that they knew each other."

"Congratulation on the start, Avriel"

In the end, later in 2012, the Zemach Committee rejected INRI's solution, and chose a solution whereby the gas would be transported by pipeline to an existing liquefaction plant in Egypt. Herzog forcefully denies that he requested any help from Bar-Yosef on the committee, and says he never transferred money to him for his personal use, never paid for a flight or hotel for him, and never asked him for anything.

But in late 2014, Herzog claims, while Bar-Yosef was still serving as deputy head of the National Security Council, he started doing business with his family through the deputy head of the National Security Council himself. Herzog describes in detail the meeting at which, according to him, Bar-Yosef described to him his daughter's startup company, and then produces documents and email messages that testify to the depth of Bar-Yosef's apparent involvement in the negotiations and the investment itself. Whether Bar-Yosef is indicted or whether it is found that there was no criminal fault in what he did, Herzog's version describes what looks like the very core of the suspicions investigated by the police in the affair.

"In late 2014, Bar-Yosef told me that he wanted to leave the National Security Council. He said he was considering two possibilities - to obtain the post of ambassador somewhere, or to go into business. I wanted to employ him, because I hold him in high esteem. If you have known someone for a long time and done a few things together, why not?

"In November 2014, I came on a visit to Israel and rented a house in Caesarea for a few days. Bar-Yosef apparently heard through Shaike Brosh that I was looking for Israeli startup companies in which to invest, and he wanted make a connection between me and the company run by his daughter, Dr. Hilla Fogel and her partner Dr. Yiftah Dolev." The company, called NIBS, had developed an electro-magnetic helmet designed for medical use. "Avriel came to my house in Caesarea one evening with his daughter. He introduced her to me, left her with me, and went to another room - in order not to be involved in any business matters. You must understand, Bar-Yosef is Germanic in that respect. Punctilious."

Although Bar-Yosef may have left the room on the occasion of the initial meeting, it would appear that he was back in the heart of things afterwards. The German businessman relates that he was enthused by the company's idea, and decided to invest €700,000 in it. He didn’t want to do so directly from a Spanish company he owned, so together with Bar-Yosef and his wife Aliza Bar-Yosef he set up a company the purpose of which was to transfer the money to NIBS. The records of the Israeli Registrar of Companies show that in late November a new company, EMGR Advanced Momentum Ltd., was indeed set up in Israel. The only shareholder, with full ownership, was Aliza Bar-Yosef. The company address is the Bar-Yosefs' address in Zichron Yaakov.

Documents that have reached "Globes" show that in the weeks following the investment decision Bar-Yosef was in direct contact with Herzog and with Rozwaski concerning the money. "Good morning, Rabbi," Bar-Yosef writes in an email message he sent to Rabbi Rozwaski on November 21, 2014 containing a non-disclosure agreement , "I enclose the NDA agreement from Hilla and Yiftah (whom you met in Caesarea). Please send it to Michael and ask him to sign and please send back, regards, Avriel."

"I hope that you will review the basic agreement and we will agree and we will carry on as planned," he writes in a later email, "Mazal Tov on the start."

"Hello Michael, I'm sending you the lawyer's invoice as he sent it to me. Please settle it, he did a good job, Avriel," another email says. Other emails concern a requirement for a declaration from Herzog that the money transferred from Spain isn't "dirty", and does not infringe money laundering laws in Israel.

What looks like the actual invoice from EMGR to the Spanish company has also reached 'Globes" - a demand for a payment of €750,000 to the company's account at Bank Leumi in Tel Aviv. It is not clear whether in the end this amount was transferred or the €700,000 mentioned by Herzog, and what happened to the remaining €50,000. The address, once again, is that of the Bar-Yosefs in Zichron Yaakov. "I enclose the invoice corrected with the address", an email message to Herzog dated January 20, 2015 from Aliza Bar-Yosef states. The message was sent from her e-mail account at the Ministry of Defense, where she works.

Avriel Bar-Yosef's lawyer, Adv. Jack Chen, stated in response to a series of questions in which Dr. Herzog's claims in relation to his client were mentioned: "From your questions it emerges that they amount to recycling of previous reports on a matter the subject of a legal inquiry. Clearly, in such circumstances, this time too we cannot comment on the substance of the groundless claims that arise from these questions. Other questions give an impression of a forced and artificial attempt to find a connection between Mr. Herzog and Mr. Bar-Yosef in relation to the submarines matter. It may be that this tendentious attempt is being made in the wake of an egregious error in an article you published previously, that linked these things without any basis. Either way, it should be clearly stated that here too claims are being raised that are groundless and amount to slander."

Dr. Hilla Fogel's lawyer confirmed to "Globes" that he recognizes the amounts mentioned and the names of the companies, but declared that his client "behaved in good faith and with clean hands." "Nothing was done in secret, everything was above board. I am certain that at the end of the day nothing will be found," he stated. Talking to "Globes", Dr. Dolev said he did not wish to respond on the connections with Dr. Herzog or the meeting in Caesarea."

Herzog says there was nothing improper in his business dealings with the extended Bar-Yosef family. He says that Aliza Bar-Yosef obtained approval from the Ministry of Defense to start a company. Bar-Yosef's lawyer said in response: "All of Mrs. Bar-Yosef's affairs have been conducted completely lawfully, as even arises from your questions." "They (Avriel and Aliza Bar-Yosef) could easily have taken part of the money I transferred for themselves, but they didn’t do so," says Herzog. "I even gave approval for them to do it. That's my way of testing people, to know whether they are trustworthy or not, whether they can be relied upon. Do you think they took a cent? Nothing. They transferred it all to their daughter's company."

"I haven't spoken with Bar Yosef since the investigation"

According to Herzog, behind all the affairs is a war between generals, stemming from Prime Minister Benjamin Netanyahu's surprise decision to appoint Bar-Yosef as head of the National Security Council, six months after he resigned from it in mid-2015. "The whole problem was that all of a sudden (in February 2016 - A.U.) Bar-Yosef was declared Prime Minister Benjamin Netanyahu's candidate for the post of head of the National Security Council," says Herzog. "I was very surprised that he decided to take on the task. From everything I had heard about him previously, I would not have thought he would be interested in it. He told me that he would never stay on there, he was very tired of the situation. The decision on the appointment started all the uproar - because there were several generals who did not want him in the post."

Immediately after Netanyahu's announcement of the appointment, the Ometz good government advocacy movement filed a complaint with the prime minister directly, in which it reported to him the suspicious links between Bar-Yosef and Herzog and Rozwaski. A few months later, Bar-Yosef announced that he was foregoing the appointment. At that time, the police investigation into the matter began.

Herzog is especially furious over the police recommendations finding that there was suspicion that Bar-Yosef acted in such a way as to assist him in the Zemach Committee, three years before the investment in his daughter's company. "Do you think I'm such a fool as to give money to someone three years later for a project that didn't materialize?" he asks.

At a certain point in our conversation we take a short break. "Dr. Herzog is under the influence of strong painkillers," his lawyer says. He asks his carer to open the doors to the garden, to bring a little oxygen into the room. When the conversation resumes, Herzog talks about other prominent people, among them Shai Brosh and Miki Ganor.

"Brosh isn’t really a businessman," Herzog says of the man he hired in 2010. "He's more of a security person. His job was to check out information on people with whom we do business in Israel. In the rest of the world, we have that capability. In Israel, it's easier for him to gather information on people." Nevertheless, he says, "After the gas story went by the board, I worked with Brosh on other projects as well - a water desalination installation that works on new technology, and an idea he had to set up fish cages in the Mediterranean. But I haven't employed him any more for two years now. We have a joint company in Israel, by the name of BHR International, but we're not in touch." Brosh's lawyer did not respond to a request for comment.

"I don't have that many representatives in Israel"

Concerning Miki Ganor, who was ThyssenKrupp's representative and is suspected of having bribed a number of senior people in the defense establishment and the government to promote his business affairs, Herzog relates that he met him in Israel in late 2011. He says that Ganor was also involved in the Zemach Committee, and, in his capacity as honorary consul of Cyprus, tried to promote the Cypriot government's proposal to Israel to transport the gas via pipeline to the liquefaction plant in Cyprus. "I visited Ganor in his office a few months before my appearance in the committee," says Herzog. "I wanted to understand his idea of a pipeline to Cyprus. He was my competitor. Ganor told me that he paid €190,000 to become honorary consul of Cyprus." According to Herzog, Ganor told him this after he (Herzog) told him he had obtained the status of honorary consul of Guinea-Bissau in Africa. Ganor's lawyer did not provide a response, and reported that state's witness Ganor was currently overseas.

Asked to prove his links with Ganor, Herzog produces a surprising email. It is from January 2015, and contains scans of the passports of Miki Ganor and of his lawyer Adv. David Shimron, who is also suspected of involvement in the submarines affair. According to Herzog, Ganor and Shimron were involved together with him in business affairs in a country with which Israel has defense ties. He says that the photographs of the passports were sent to him in order for him to show them to officials of the country in question for approval in advance, as the organizer of the meeting. The business did not go ahead.

Advs. Amit Hadad, Osher Rubinger and Noa Milstein of Weinroth & Co. stated in response: "Adv. Shimron has never spoken with Mr. Herzog; he has never met him; he has never sent him a photograph of a passport or anything else; and, most importantly, he has never travelled to the country that Herzog mentioned. If Herzog has in his possession a photograph of Adv. Shimron's passport, it was sent to him by Ganor without his knowledge and without his consent. In fact, Adv. Shimron heard for the first time that his passport had been sent to Mr. Herzog only when he was asked to respond to the claims raised in the article. In any event, Adv. Shimron acted lawfully as Miki Ganor's legal counsel and his actions were blameless."

Dr. Herzog, have you spoken with Bar-Yosef recently?

"Not in the past two years, because of the investigation."

Have you spoken with the police in Israel?

"I spoke with an investigator from Lahav 433 who came here. I gave testimony. As a result of the investigation in Israel the Germans also opened an investigation into my affairs, because of the suspicion that I bribed someone in Israel."

Why are you not being investigated in Israel? After all, you are also an Israeli citizen.

"I don't know, I don’t want to say anything in this context."

How will your trial in Germany end?

"The trial was started so that I would be kept busy. Because I know what really happened, I know that I will win. On the other hand, because I'm dependent on the court, which doesn't completely understand finance, I don't know what will happen."

Why are there so many senior people from the defense establishment in Israel working for you?

"I don't have that many representatives in Israel," Herzog laughs, "It looks that way only because we're talking about Israel. I have people in Spain, Brazil and Russia as well. They all help me find strategically important projects."

The interview ends. In the days following, Herzog sends dozens of emails and documents meant to validate what he says. Some of them appear to support him, others are irrelevant. In the interview itself Herzog says that Bar-Yosef is "an honest man who has been wronged," and adds that he feels sorry for him over the arrest. He says that "the only money that flowed Bar-Yosef's way flowed to his daughter's company." From the email messages that he later forwarded to "Globes", however, a picture emerges of direct involvement by Bar-Yosef in his daughter's business, through his wife.

Why are you giving an interview now?

"Because I want the Israeli public to see the full picture."

Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Benjamin Netanyahu  photo: Avi Ohayoun
Benjamin Netanyahu photo: Avi Ohayoun
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