Still Connected: Economy Minister Nir Barkat’s Business Empire Raises Conflict of Interest Concerns

Four years after he was first elected to the Knesset and more than six months into his tenure as economy minister, Nir Barkat hasn't divested from his business portfolio – which includes holdings in many different companies operating in Israel. He once claimed that his interests are in a blind trust controlled by his brother, but the rules do not permit ministers to use first-degree relatives as trust-holders. A former deputy attorney general says: ‘Barkat must sell or get a conditional permit to keep his holdings.’ Barkat refused to respond. After publication of this article, his office said: ‘Barkat does what is required of him by law.’ A Shomrim investigation, also published in Calcalist

Four years after he was first elected to the Knesset and more than six months into his tenure as economy minister, Nir Barkat hasn't divested from his business portfolio – which includes holdings in many different companies operating in Israel. He once claimed that his interests are in a blind trust controlled by his brother, but the rules do not permit ministers to use first-degree relatives as trust-holders. A former deputy attorney general says: ‘Barkat must sell or get a conditional permit to keep his holdings.’ Barkat refused to respond. After publication of this article, his office said: ‘Barkat does what is required of him by law.’ A Shomrim investigation, also published in Calcalist

Four years after he was first elected to the Knesset and more than six months into his tenure as economy minister, Nir Barkat hasn't divested from his business portfolio – which includes holdings in many different companies operating in Israel. He once claimed that his interests are in a blind trust controlled by his brother, but the rules do not permit ministers to use first-degree relatives as trust-holders. A former deputy attorney general says: ‘Barkat must sell or get a conditional permit to keep his holdings.’ Barkat refused to respond. After publication of this article, his office said: ‘Barkat does what is required of him by law.’ A Shomrim investigation, also published in Calcalist

Economy Minister Nir Barkat. Photo: Reuters

Uri Blau

in collaboration with

July 16, 2023

Summary

Fifteen years after launching his political career, Economy Minister Nir Barkat remains a stakeholder in many companies registered in Israel, the United States, Luxembourg, the Virgin Islands tax haven, and other places. Despite the cabinet passing a resolution in 2003, which introduced clear and binding regulations regarding the private businesses of government ministers, Barkat has neither “sold or leased,” in the words of the directive, his businesses, nor has he requested special permission allowing him to remain a stakeholder.

This is not merely a procedural matter; it is a grave concern directly related to potential conflicts of interest for the minister, whose holdings have even increased during his time as a rank-and-file Knesset member. Some of the companies in question engage in business dealings with retail chains that Barkat's ministry is directly involved with. Additionally, one of his companies owns a significant Israeli investment house, while others have received loans from various banks.

Another aspect of Barkat’s behavior is the absence of a conflict-of-interest arrangement that every minister must submit to the attorney general. Seven months after his appointment, Barkat has yet to sign any such arrangement. Apart from the questions that this state of affairs raises about the border between Barkat’s role as economy and business minister and the businesses in which he is a stakeholder, the absence of a conflict-of-interest arrangement means that, according to the rules, he cannot even request special permission from the State Comptroller’s Office to maintain his holdings in these companies.

Barkat refused to address the issues raised in this article. Before he was appointed minister, however, he claimed that he had transferred his shares in various companies to his brother, by means of a blind trust. It should be noted that the rules for the prevention of conflicts of interest by ministers stipulate that a minister cannot transfer shares into a blind trust controlled by a family member.

Over the years, Barkat has repeatedly claimed that he transferred his assets to a blind trust and was no longer involved in any business activity. However, an investigation published as part of the Pandora Papers reporting revealed that until his election to the Knesset in 2019, Barkat continued to own shares in Nir Barkat Ltd. (the parent company)

Dozens of Interlinked Companies

Before joining the political fray and running for mayor of Jerusalem, Barkat was a full-time businessman. In 1988, Barkat, his brother Eli, Yuval Rakavy, and Omri Man founded the BRM Group, which invested in various Israeli startups. The group’s most acclaimed investment came in 1993 when it paid $400,000 for a 50 percent share of Check Point, a leading data security provider that later achieved global prominence.

Barkat managed his holdings through a chain of companies, headed by Nir Barkat Ltd., which was registered in 1998. In turn, that company held 100 percent of the shares in another company with a remarkably similar name – Nir Barkat Holdings Ltd. – under which various holdings were concentrated. In 2012, while Barkat served as mayor of Jerusalem, the company sought to change its name to B.N. Barkat Holdings and Studio after negotiations with the Registrar of Companies.

B.N. Barkat Holdings and Studio has a variable number of holdings in a series of companies and subsidiaries in Israel and overseas. For example, it holds 33 percent of the shares in BRM Finances, which in turn owns 28 percent of the Meitav Dash investment house. The company also owns 33 percent of the shares in BRM Ltd., through which it holds shares in many other companies globally. Some of the companies in this chain are registered in tax havens or jurisdictions with lax corporate governance standards. BRM Capital Partners is registered in Delaware in the United States, and a partnership named BRM Capital Fund LP operated until 2020 from the Cayman Islands, until its closure.

B.N. Barkat Holdings and Studio also has direct holdings in companies established after Barkat was elected to the Knesset. For example, it owns 14 percent of a company called Exceed Talent, which is registered in Israel and is a platform for investing in artists and talent. It also holds 8 percent of the shares in Drill Neuromarketing Israel Ltd. (also known as Shopping AI), which was established in early 2020 to analyze the body language of shoppers in supermarkets using psychological tools combined with computer vision and artificial intelligence.

Barkat holds an 18 percent stake in a company called Ikko Health, which was established in 2021 and deals with medical equipment, and around 5 percent of the shares of Barcelona Holdings, which was established in 2015. Among the Barkat family’s partners in the company are Damari Construction Company, owned by Yigal Damari, and vehicle tracking company Ituran.

Economy Minister Nir Barkat. Photo: Reuters
Former deputy attorney general Attorney Mike Blass says that Barkat “must obtain a conflict-of-interest arrangement” cosigned by the office of the attorney general before approaching the Permits Committee. Ballas emphasizes the importance of transparency in Barkat’s situation, as he could be in conflict of interest on certain matters.

How Blind Can a Brother’s Trust Be?

Over the years, Barkat has repeatedly claimed that he transferred his assets to a blind trust and was no longer involved in any business activity. However, an investigation published as part of the Pandora Papers reporting revealed that until his election to the Knesset in 2019, Barkat continued to own shares in Nir Barkat Ltd. (the parent company) and in at least one case – related to holdings in the chain of companies in eToro, registered in the Virgin Islands – he also communicated through the company’s attorneys when a compliance test was being conducted.

In response to that investigation, Barkat claimed that he transferred his shares in various companies to his brother by means of a blind trust. The question is, however, how “blind” can a trust managed by his brother be? One can only guess what Barkat’s response to that question would be. In any case, a third brother – Eran – provided an intimate glimpse into the close relationship between them, saying that “there are no political arguments between us, because we think the same way. We always rally round to help [Nir]. I was his campaign manager in the primary, and Eli was in charge of strategy. We genuinely want each other to succeed.”

Transferring his holdings to a blind trust controlled by his brother did not satisfy the demands made of Knesset members. A decision by the Ethics Committee obligates newly elected Knesset members to sell or lease their holdings in companies (unless they are less than 5 percent) to someone who is not a first-degree relative. If the lawmaker decides to transfer their holdings to a blind trust, the committee ruled, they must do so “within 60 days of his appointment,” and all “the funds and securities in his ownership and in his family’s ownership” must be transferred “to an independent public trust company that shall keep and manage them in a blind trust.”

Shomrim's investigation shows that no such ruling has been made regarding Barkat since he was elected to the Knesset in 2019. Such requests are submitted to the committee anonymously, and the committee’s decisions are made public, occasionally with the lawmaker’s name redacted.

Stricter Rules for Ministers

At the end of December last year, when the current government was sworn in, Barkat was appointed economy and trade minister. According to the most recent report filed to the Register of Companies in May, there has been no change to the previous structure of holdings, indicating that Eli Barkat still holds 99 percent of the company at the top of the chain.

The rules governing ministers are even stricter than those applying to Knesset members, but the question of applying them is more complex. The rules were drafted by a public commission as an ethical code, approved by the government in 2003, but have never been enshrined in law despite having legal standing according to a High Court of Justice ruling. The rules indicate potential criminal consequences for violations, particularly for conflicts of interest.

According to these rules, a minister who has rights in a business or owns shares granting control over a company has 60 days after assuming office to do one of the following: sell the company, transfer holdings to a non-relative who worked in the business for at least one year prior to the minister’s appointment (excluding the minister’s spouse or child), or lease the company to a non-relative. The minister must also transfer all funds and securities owned by themselves and their family to an independent public trust company within 60 days of appointment, which must manage them in a blind trust.

Attorney Omer Makayes, the CEO of Israeli anti corruption movement (TLM), states that Barkat’s company appears to be in violation of rules regulating conflicts of interest. He suggests that Barkat should have acted in accordance with the three paths mandated by the rules or approached the Permits Committee, which operates out of the State Comptroller’s Office. Barkat must reveal all his business and financial activity to the attorney general.

Former deputy attorney general Attorney Mike Blass says that Barkat “must obtain a conflict-of-interest arrangement” cosigned by the office of the attorney general before approaching the Permits Committee. Ballas emphasizes the importance of transparency in Barkat’s situation, as he could be in conflict of interest on certain matters. Barkat’s office maintains that he follows the law and consults with relevant authorities, but concerns about potential conflicts of interest persist.

In response to Shomrim’s questions, the State Comptroller’s Office said “Barkat submitted a declaration of assets to our office (…) and in accordance with the ‘Asher Regulations’ details of that declaration are kept confidential (…) In addition, we would add that the minister has been told that he should approach the Permits Committee to submit a conflict-of-interest arrangement in his affairs, which would be drawn up by the deputy attorney general.”

The committee usually publishes its decision on its website once it has completed its deliberations and made its decision. However, before Barkat can approach the Permits Committee, he must obtain his conflict-of-interest arrangement, which is supposed to be cosigned by the office of the attorney general. This arrangement, as already stated, had yet to be signed.

Shomrim sent a series of questions to Barkat, but he opted not to respond. After the article was published, his office submitted the following response: “Minister Nir Barkat does what is required of him by law and holds professional consultations with people responsible for these issues in the Justice Ministry and the State Comptroller’s Office. It would be naïve to think that this article came from nowhere and that it is not connected to the campaign of persecution and pressure that is being waged against Minister Barkat, in an attempt to thwart his activities to dismantle monopolies and cartels.”

This is a summary of shomrim's story published in Hebrew.
To read the full story click here.

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