Welcome to the Promised Land

REPORTS in April that Roman Abramovich, a London-based Russian businessman (pictured), had bought a hotel in Tel Aviv’s posh Neve Tzedek neighbourhood for 100 million shekels ($25m), probably to convert into a private home, caused barely a stir in the local business community. The owner of Chelsea Football Club is only the latest in a long list of oligarchs to invest in an Israeli home. It will not be the most expensive Russian businessman’s home in Israel anyway. That distinction goes to a huge and lavish estate in Caesarea, a millionaire’s playground by the sea, being built for Valery Kogan, the owner of Domodedovo airport in Moscow. It is said to be costing him half a billion shekels.

Most oligarchs purchasing a private stronghold in the Promised Land do not spend more than a few weekends a year there. Even so, many of them have gone to the trouble of obtaining Israeli citizenship. Since the businessmen in question have Jewish origins, they are entitled to this under Israel’s Law of Return. Israel’s government has long tried hard to attract Jewish businesspeople to the country, but for many years, they were content mainly to donate to philanthropic causes. The scepticism among American Jews was summed up by an old quip: “To make a small fortune in Israel, come with a large fortune.”

In an effort to attract successful people and their money, the authorities took a no-questions-asked attitude to the source of the funds. More recently, the success of Israeli technology companies has also made the country a viable destination for legitimate investment. The oligarchs, for their part, have increasingly sought out potential boltholes in case they fall out with the government back home.

Besides the warm welcome from officialdom, another of Israel’s attractions for the oligarchs is physical security. Many of them travel the world with bodyguards, looking over their shoulders for hit-men or polonium in their tea. It is never referred to publicly, but there is an understanding that Russia’s intelligence services do not challenge their Israeli counterparts by carrying out hits in Israel. “There haven’t been any assassinations here, that’s enough,” was all one senior official would say.

With many oligarchs forced to choose between being for or against Vladimir Putin, or between one or other of the factions fighting for power in Ukraine, Israel has become a neutral zone where they can all meet, safe from extradition for (often politically motivated) indictments. At the end of the week and on the eve of Jewish holidays, websites such as Flightradar24.com show the paths of business jets from Moscow, Kiev and other ex-Soviet cities heading to Tel Aviv’s Ben Gurion Airport.

Israeli law-enforcement officials have raised concerns that lax tax rules have created a pipeline for money-laundering. Last month the finance ministry tried to convince the cabinet to adopt its proposal to cancel a ten-year exemption from reporting foreign income and assets that immigrants and returning Israeli expatriates enjoy. (They would still have been exempted from paying tax on their foreign income.) The immigration minister, Ze’ev Elkin, blocked the plan. He insists that the exemption is not there to attract the oligarchs, who have their pick of friendly tax jurisdictions elsewhere.

Not everyone is convinced. The Israeli tax authority reckons that Israelis hold unreported wealth equivalent to around one-fifth of the country’s GDP. Some of that money is trickling in to the country, but its main effect is to fuel an upward spiral in property prices.

There are also worries about the effect the influx of oligarchs is having on local politics. Ezriel Levi, a former executive at the Israel Land Authority, says the country is letting in dirty money, and that some of it “buys the oligarchs access to politicians, who are constantly looking for ways to bypass the strict campaign-finance laws.”

A series of Israeli politicians, including one former president and three prime ministers, have been investigated over the past decade for accepting illegal payments from foreign Jewish tycoons. One former prime minister, Ehud Olmert, is currently appealing against a prison sentence related to such payments. More such political scandals are likely to occur if Israel allows itself to remain an oligarchs’ playground.