It doesn’t involve a high-profile American billionaire, and yet of the two cases on which the police recommended indicting Israel’s prime minister, “Case 2000” is far more important and severe.
The headlines featured words like graft and bribe and alongside pictures of Israeli prime minister Benjamin Netanyahu was the photo (and the story) of the Israeli-American billionaire and Hollywood mogul Arnon Milchan. According to the evidence collected by the Israeli police, Netanyahu took bribes from Milchan in the form of expensive cigars, pink champagne, and other gifts totaling in value a cool one million Israeli shekels ($300,000).
Buried in the middle or at the end of these reports, however, was a short description of the second case on which the police recommended indicting the prime minister. That case does not involve a high-profile American billionaire, and yet it is far more important and severe and casts a long shadow on one of the country’s most important democratic institutions—its news media. It also revolves around many of the ideas and theories that this blog is dedicated to: regulatory capture and the power of special interests to subvert markets and competition.
The case, known as “Case 2000,” is based on the most amazing tapes ever to be found and released in the history of corruption in Israel. Found by accident while investigating Netanyahu’s aide on an unrelated case, the tapes contain several hours of recorded secret negotiations between Netanyahu and Arnon Mozes—the most powerful media mogul in Israel in the last 30 years. Think Rupert Murdoch in the UK, but much more powerful in the domestic context and secretive—a person who has never given interviews and whose political power is so vast that many people within the Israeli elite avoided raising his name in any public discussion.
In the tapes, Mozes can be heard clearly, explicitly, and directly offering the prime minister a deal: you (Netanyahu) will use your power to eliminate the fierce competition to my newspaper Yedioth Achronot, and in return I will “steer the ship” (i.e., the entire editorial team of Mozes’ news media empire) to stop attacking you and adopt a more positive editorial line. “It is clear, we have to make sure that you will continue to be prime minister,” Mozes told Netanyahu.
In the last seven years, Israelis have become much more aware of the backroom dealings between politicians, regulators, business tycoons, and media moguls. But for the first time ever, they got a smoking gun—explicit words that explain how these backroom dealings work, and how their prime minister and the editor of the country’s most popular newspaper and website are willing to sell the public for their own personal gain.
The offer—“if you eliminate my competition I will make sure that you will continue to be prime minister”—sounds like something from a public choice theory textbook detailing how regulation, in this case competition regulation, can be captured by the regulated industry. The industry in point here is by far more important than many other industries, since it concerns the marketplace of ideas and the democratic institution tasked with holding the powerful to account.
Case 2000 is not an isolated case. It follows a huge scandal that broke in the summer of 2017 and involved another Israeli tycoon with significant ties to the news media market. Israel’s SEC arrested Shaul Elovitch, the controlling shareholder in Bezeq—Israel’s local telephony monopoly—and charged him with fraud and breach of fiduciary duties.
During their investigation of Elovitch, investigators stumbled upon some very interesting evidence: email exchanges between Bezeq’s top management and the Ministry of Communication, the government body charged with regulating the company. According to their analysis, the director general of the Ministry, a confidant of Netanyahu, tailored the regulation of Bezeq to the company’s needs, supplying Bezeq’s management with inside information and accepting their instructions on how to design the regulation. What is missing from the SEC’s findings in this is what motivated the director general, and what he got in return. This is what a new investigation is now trying to find out. Elovitch’s portfolio included not only a telephone company, but also Walla!, one of the most popular news websites in Israel. Incidentally, the website was found to have censored stories critical of Netanyahu and promoted positive stories about his wife.
Israel’s attorney general and his prosecutors now have to decide whether to file criminal charges against Netanyahu and Mozes. They will face huge pressure from many powerful forces in the country. Both Netanyahu’s supporters and his enemies want to bury this case, as Mozes’s newspapers are known to be very close to Netanyahu’s opponents.
That is why this case, more so than any other corruption scandal in Israel, must reach trial and be debated in the open. Exposing the secret dealings between media moguls, politicians, and other tycoons may be one of the most important opportunities that Israelis will have to address the modern epidemic plaguing market economies—the capture of regulation by powerful private interests.
Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.