Israel’s economic growth being undermined by ‘demonization’ of russian businessmen

Published November 17th, 2004 - 02:00 GMT

While most headlines from Israel focus on the security situation, political upheaval and the power vacuum created by Yasser Arafat’s death, a profound “quiet revolution” continues to take place largely away from the public spotlight. This battle pits Finance Minister and ex-Prime Minister Benjamin Netanyahu on the side of privatization and sweeping economic reform against a curious alliance of “old” interests, including vintage state monopolies like the once all-powerful Histadrut Labor Union, as well as new populist politicians from the left, right and religious sectors. 


The reformers advocate across the board privatization of government interests, loosening of the grip of State monopolies, lower taxes on smaller business and the middle class and a seriously trimmed down bureaucracy. Opponents argue such reforms will hurt the least protected elements in Israeli society, widen the gap between rich and poor and destroy Israel’s traditionally embedded form of socialism. 


Michael Cherney, one of Israel’s wealthiest citizens - if not indeed THE richest - supports the reforms. And he made the mistake of openly endorsing these views, which led to a shocking confrontation with long-time vested interests. The established elites, which long ago carved up the economic pie of Israel, have fueled a steel-fisted campaign to use the law enforcement and judicial authorities to silence powerful new voices, consisting most conspicuously of Russian Jewish “oligarchs,” – amongst whom Cherney is considered “brash newcomer No. 1.” 



Michael Cherney was born in Uman, a Ukrainian village. His father was an engineer, and he grew up in Uzbekistan. He adeptly began making money during the declining years of the USSR, encouraged when Gorbachev loosened restrictions placed on small businesses. Aided by his brothers Lev and David, Cherney set up a thriving cottage industry of consumer goods manufacturing businesses in Uzbekistan. 


When Boris Yeltsin announced privatization, many experts branded this a ruse that would lead investors to doom. Cherney took a risk on the vouchers and won big. He and his brother quickly gained control of much of Russia’s aluminum industry. Many experts believe that without the Cherney brothers, the Russian aluminum industry would have stagnated. Constantine Borovoy, Chairman of Russia’s Association of Businessmen and the founder of its first commodities exchange, says “In the early ‘90s, with the collapse of State-created links among suppliers, manufacturers and consumers, giant Soviet smelters were on the verge of closing. There was nothing in their place. If the smelters had stopped, it would have been impossible or prohibitively expensive to re-start them. The Cherneys arrival was a stroke of fortune: they brought the smelters back to operation through their energy, commitment and willingness to take risks.” 


By 1996, Trans World, the British company introduced to the Russian market by Cherney had become the world’s third largest aluminum manufacturer, after Alcoa and Alcan.  


Around then, older brother Michael, sold most of his metals stock and moved to Israel. Israel turned out less than hospitable. “Upon arrival,” Cherney said, “I made a crucial mistake: I befriended ‘wrong’ politicians while simultaneously demonstrating that I was able to strengthen the Russian business community which the entrenched Israeli elites perceive as threatening their interests.” 


In 1996, Israel’s Attorney General ordered a wiretap on Cherney’s telephones and permission to conduct round-the-clock surveillance. Such measures, usually limited to dangerous criminals and terrorists, were taken by AG’s office under the guise of investigating Cherney’s alleged complicity in crimes committed in Russia. Only in 2004 did this office belatedly acknowledge that in response to their inquiries Russian law enforcement agencies fully cleared Cherney of any wrongdoing and said he had no police record.  


According to Israeli human rights attorney Nitsana Darshan-Leytner, ”What is being done to Mr. Cherney and other Russian-Jewish businessmen has the appearance of political cases, linked to their political views and social status in Israel.” 


According to Cherney’s lawyers, they, too, have accumulated piles of “classified materials.” “These are nothing more than yellowed clippings from Russian newspapers in mid-‘90s,” says attorney Ya’akov Weinroth, “This was the time when unsavory competitors could pay under the table to accuse business foes of any and all mortal sins. To use ‘yellow’ media to launch a criminal investigation in a distant democratic country is a miscarriage of justice that can be explained only as an attempt to ‘settle scores’ with Cherney and other Russian-born businessmen from Israel’s economy and social life.” 



Michael Cherney directly challenged the Israeli police at a Tel Aviv news conference in 2000: “If I’m a criminal, go ahead and indict me. If I’m not, stop persecuting me.” It took the police two years to even respond with the charges against him. These were slim pickings indeed: after years of wiretapping, all they had was an alleged bribe to Eilat’s Deputy Mayor and an illegal acquisition of stock in Bezek, the national telephone company. Two years later, this past July, the Attorney General’s office cancelled charges on the Eilat case, while most of the Bezek-related charges were also dismissed. No indictment on any count has yet been made. 


“The actions of our AG’s office are not merely a miscarriage of justice, but something bordering on corruption and arrogance,” Cherney claims. “I was planning to invest billions of dollars in this country with my Russian-generated capital. But my partners reasoned that, just like me, they would be smeared without basis as ‘Russian Mafia’ and decided to invest in Europe and US. During this same period, huge budget deficits are forcing Israel to reduce social assistance to veterans, single mothers and retirees. It is a huge shame.” 


Cherney has launched a counter-offensive and has the means to conduct a sustained effort. In order to prove that the case against him had been fabricated, he sued to hold the “classified materials” up to public inspection. The police and the AG’s office sensed the potential for fiasco, triggering a recent police request to Israel’s Interior Ministry to revoke Cherney’s citizenship on the baseless grounds of some undefined criminal past. Despite repeated requests to the police, Interior Minister Avraham Poraz has not received even one shred of documentation substantiating the claims against Cherney.  


According to Yoram Ettinger, a diplomat and a former Israeli liaison to the US Congress, “the Cherney affair strongly suggests discrimination against the Russian community in Israel. It is hard to imagine an émigré from the US finding himself in this situation. Israel was very reluctant to send Meir Lansky, an infamous American gangster, back to the States under extradition request. Yet no one is calling for Cherney’s extradition. Russia, a country where, according to Israeli police, he committed certain crimes, has absolutely no claims on Cherney.” 


“All of this causes great damage to national economy,” says Yakov Kedmi, ex-head of “Nativ,” an Israeli NGO that deals with Russian-Israeli relations. “Today not one super-wealthy Russian Jewish businessman will invest in Israel. They view these as attempts to squeeze Russian capital out of Israel. This is why when Roman Abramovich wants to buy a soccer team, he is buying Chelsea, rather than Maccabi Tel Aviv.” 



“The Cherney case exemplifies the resistance of the old Israeli elite to the new Russian elite,” says Dr. Martin Sherman of The Herzliya Center, also a Political Science professor at Tel Aviv University. “At a time when Israel is under siege, it is criminal to wage internecine warfare and try to chase away a man who has done much for the country and wants to do even more.” 


Cherney is resolute to secure justice but can’t hide some bitter undertones, “Ben Gurion’s joke that the only way to become a millionaire in Israel is to arrive as a billionaire is sadly true. Israel has a deeply rooted tradition of clannishness and hostility towards strangers, even if they are fellow Jews. Netanyahu’s attempts to create a business environment with integrity are impeded not by the so-called Russian Mafia, but by the true Israeli one, by which I mean the web of family, friends and business relations at play by the old economic and political elites to protect their interests and quash any new competition.” 


Yet, Cherney can’t hide his bullish outlook: “Israel in 2004 reminds me of Russia in early ‘90s. The economy was uncertain, and many businesses were on the verge of collapse. I believed in Russia’s economic future and closed many good deals. Right now I believe in the future of Israel’s economy. I’m not afraid of the current situation. One must remain an optimist. Israel’s economy is undergoing a crucial period. From now on it can only improve.  


“One can invest here in construction and real estate, infrastructures, high technologies and consumer goods,” the industrialist added, “As in Russia, the sole obstacle is the human one: those controlling state monopolies do not want reforms: they are afraid of energetic newcomers whose changes may challenge the entrenched powers. Yet only so can Israel be made a more open, competitive and prosperous country.” (

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