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Chaim Gelfand: Israel launches foreign bribery investigation of drone maker

The press in Israel reported this week that  Aeronautics Ltd., one of the largest military drone manufactures in Israel, is being investigated for suspected bribery of a foreign public official.

If confirmed, the investigation into foreign bribery offenses would be the fourth in Israel. The others involve Teva Pharmaceuticals stemming from its $519 million resolution in 2016 with the U.S. DOJ and SEC, an investigation into Beny Steinmetz related to the activities of BSRG in Guinea, and an investigation of the construction company Shafir for bribery related to activity in Romania.

In addition, based on public filings, the Israeli company Elbit Imaging has reported potential FCPA violations which could potentially be violations of Israeli law as well.   

Israel to date has had one conviction of a company on acts of foreign bribery. Nikuv International Projects Ltd. or NIP pleaded guilty in Tel Aviv and paid a fine of 4.5 million NIS (about $1.2 million).

The current investigation of Aeronautics is under a blanket gag order put in place by the Israeli courts. The only information released is that the investigation is in relation to a “deal with a key client.”

In August this year the Defense Export Control Agency (DECA) of the Israeli Ministry of Defense, suspended an export license that had been granted to Aeronautics. This suspension came after complaints that the company had demonstrated the use of one of its kamikaze drones in actual combat. Aeronautics denied these claims.

In its public filings Aeronautics said the Defense Ministry had frozen the marketing and export licenses of its Orbiter 1k to “an important customer of the company in a foreign country.” The company didn’t mention the name of the country. It is still permitted to conduct sales with other nations.

DECA requires all Israeli defense exporters to sign declaration that they have not and will not participate in bribery of a foreign public official as part of each license request. Further the General Director of the Ministry of Defense issued a letter to all defense exports require them to implement an anti foreign bribery compliance program.

The Ministry of Defense in Israel has always played an important role in the enforcement of foreign bribery, Upon the enactment of Israel’s foreign bribery statute in 2008, Israel’s Attorney General issued guidelines for the implementation of the statute and therein called specifically upon the Ministry of Defense to assist in investigations of this matter.

There are no public indications of any connection for Aeronautics between the bribery allegations and export control issues. Those issues converged in the United States enforcement action against UK-based BAE Systems.

In 2010, BAE pleaded guilty to a conspiracy that involved impeding U.S. investigators, making false statements about its FCPA compliance program, and violating the Arms Export Control Act and ITAR.

A year later the U.S. State Department fined BAE $79 million for violations of the Arms Export Control Act and the International Traffic in Arms Regulations.

Earlier this month, Airbus Group SE said it found “inaccuracies in filings” made with the U.S. Department of State under the International Traffic in Arms Regulations. The company is already under investigation in the UK and France for suspected corruption.

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Chaim Gelfand, pictured above, is a Partner at Shibolet and Co. and head of its Anti-Corruption Compliance Practice — one of the first (if not the first) dedicated anti-corruption compliance practices in any of Israel’s first tier law firms. He has been dealing with anti-corruption compliance in large multinational companies for almost a decade. He can be contacted here.

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