Dingell’s Committee Probes Israeli Involvement in Dotan Arms Scandal

A House oversight subcommittee held a hearing this week that was slated to determine the role of General Electric Co. and the Defense Department in the illegal diversion of $40 million in foreign military assistance funds earmarked for Israel.

But, judging from his questions and comments, Rep. John Dingell (D-Mich.), chairman of the subcommittee on Oversight and Investigations, had another agenda in mind.

He praised G.E. for its efforts to clean up company practices in the wake of the scandal and for its cooperation with official investigations.

But he seemed most interested in ferreting out evidence of complicity by the Israeli government in what has come to be known as the “Dotan affair.” None surfaced at the hearing.

The case involved the diversion of some $40 million in U.S. military aid earmarked for Israel. Israel had agreed to purchase $100 million from G.E.’s aircraft engines division and was to receive reimbursement from the Defense Department.

The charges arose in December 1990 after Chester Walsh, a whistleblower at G.E. who had previously worked in Israel, claimed that a high-level G.E. executive had made $11 million in bribery payments to secure the Israeli contracts for the jet engines.

The bribes were made to Brig. Gen. Rami Dotan, the Israeli air force’s chief procurement officer in the United States in the mid-1980s. Dotan is now serving a 13-year prison term in Israel. His contact and close friend at G.E., Herbert Steindler, was fired by the company.

FAILURE TO COOPERATE CAN COST ISRAEL

At Wednesday’s hearing, Dingell repeatedly referred or alluded to the failure of the Israeli government to cooperate with a U.S. probe of the case. He pointed out that such cooperation in the event of suspected fraud is a requirement of the aid agreements that provide Israel with $1.8 billion in foreign military assistance annually.

Dingell made note briefly of a recent news report that Israeli officials had announced a change of heart and would cooperate more fully with the inquiry. He called it “a very hopeful sign.”

Both Dingell and the report, in the Washington Post, indicated Israel was responding to pressure mounting inside the Bush administration to declare Israel in default of its aid and loan agreements because of its refusal to cooperate in the investigation.

Dingell clearly has been angered by the affair. “What started out innocently as aid to a valued ally appears to have turned into a sordid tale of theft, bribery, money laundering and attempted kidnapping or murder,” he said. “Tax-payers and investors have been swindled and we need to get to the bottom of this.”

G.E. Chairman John Walsh used his appearance before the committee to trumpet the company’s commitment to integrity. He cited its discipline of 21 G.E. employees involved in the scandal and its close cooperation with the Departments of Defense and Justice in the investigation of the affair, for which Dingell repeatedly praised the company.

Walsh noted in his testimony the company’s $69 million settlement last week in a lawsuit filed by Walsh, the whistleblower, who charged G.E. with defrauding the U.S. military aid program. The electronics giant also pleaded guilty last week to four felonies, including money laundering and violations of the Foreign Corrupt Practices Act.

G.E. contends the diversion was a rogue operation planned by Dotan and Steindler, an international sales manager with the engines division.

Frank Doyle, senior G.E. vice president, recounted what has been well-documented in court papers: that the two overcharged contractors, diverted roughly $11 million to European bank accounts, presumably for their personal use, and diverted about $30 million from authorized Israeli air force projects to projects that were unauthorized.

DOTAN AND STEINDLER HAD ‘ILLICIT RELATIONSHIP’

Doyle explained that the company’s elaborate system designed to guard against such abuses broke down in the face of Dotan and Steindler, whose “illicit relationship,” he said, formed the core of the case.

During the period in question, in the mid-1980s, said Doyle, “Dotan was an Israeli hero: a brilliant, energetic and decisive leader with great technical expertise who kept the Israeli air force, Israel’s elite service, in the air.” Steindler, he said, was a longtime friend of Dotan’s, who was known in G.E. as “Mr. Israel,” for his extensive experience there.

Dingell made an effort to puncture the argument that Dotan and Steindler engaged in the scheme primarily for their own personal enrichment, seeking to paint a picture of broader Israeli government involvement.

He repeatedly asked Doyle and Walsh how they thought the money could have been diverted to unauthorized Israeli air force projects without the knowledge of Israeli higher-ups besides Dotan.

“The government of Israel has claimed throughout this investigation that General Dotan was engaged in a rogue operation without the knowledge of his superiors in the Ministry of Defense,” Dingell said.

“However, it is not clear how General Dotan was laundering tens of millions of dollars of U.S. funds and making this scarce currency available for unauthorized purposes on various military bases without top Ministry of Defense officials questioning where the money was coming from,” Dingell said.

ISRAELI CONSPIRACY UNLIKELY

Doyle and Walsh conceded they could offer no explanation. Also testifying was Lieut. Gen. Teddy Allen, director of the Defense Department’s Defense Security Assistance Agency, responsible for approving the defense contracts in question.

Allen said Dotan and Steindler took advantage of their positions to bypass the Israeli military’s normal system of checks and balances.

But he praised the Israeli government for earning U.S. confidence by its handling of more than $19 billion in commercial contracts since 1971 in the U.S. foreign military financing program.

And he said it was highly unlikely there was a broader Israeli government conspiracy afoot to defraud the program. “It would be uncharacteristically shortsighted of the government of Israel to jeopardize its long-term interests by abusing the system,” he said.