14. 6. 2006: ALLEGED ISRAELI CORRUPTION AT KARNI IMPEDES U.S.



MARKET ACCESS

S E C R E T SECTION 01 OF 03 TEL AVIV 002301

SIPDIS

NOFORN

E.O. 12958: DECL: 06/14/2016 TAGS: ETRD, ECON, PGOV, KWBG, PINR, IS, SCRM, ECONOMY AND FINANCE, ISRAELI-PALESTINIAN AFFAIRS SUBJECT: ALLEGED ISRAELI CORRUPTION AT KARNI IMPEDES U.S. MARKET ACCESS

REF: TEL AVIV 2120

Classified By: Ambassador Richard H. Jones, reasons 1.4 (b) and (d).

This is a joint cable with Consulate General Jerusalem.

1. (S/NF) Summary: U.S. businesses allege that corruption by Israeli officials at Karni crossing is impeding their access to the Gaza market. As of late May 34 shipments of American goods, amounting to nearly USD 1.9 million dollars, have been waiting three to four months to cross into Gaza. U.S. distributors assert they are being asked to pay "special fees" which amount to as much as 75 times the standard processing fee as quoted by GOI officials. According to one major American distributor, corruption extends to Karni management and involves logistics companies working as middlemen for military and civilian officials at the terminal. An open and transparent truck registration system and the development and publication of clear procedures, charges and service standards for Karni would go a long way to fight corruption and advance the Agreement on Movement and Access, goal of effective service standards for the border crossings. End summary and comment.

------------------------- ALLEGATIONS OF CORRUPTION -------------------------

2. (S/NF) According to business contacts, allegations of corruption at Karni have a long history. Recently, COGAT head General Yossef Mishlev acknowledged the problem telling EconCouns that corruption was the root cause of backlogged shipments waiting to cross into Gaza at Karni and that some businessmen have had to pay NIS 9,000 (USD 2,500) to guarantee that their shipments could cross (reftel). However, the fact that Karni has been closed nearly 40 percent of the time has exacerbated the problem of access and appears to have forced up the cost of bribes, Embassy business contacts allege. The normal cost of shipping cargo is USD 600-650 to transport a load from the West Bank or the port of Ashdod to Karni and, according to Israeli Airports Authority (IAA, which manages Karni terminal) Deputy Director General Yoram Shapira, the standard processing fee at Karni is NIS 370 (USD 82) for a full trailer, NIS 350 (USD 78) for a semi-trailer, and NIS 250 (USD 56) for a single trailer. Coca Cola distributor Joerg Hartmann (strictly protect) claimed to econoff that the cost of guaranteeing that one,s shipment will cross into Gaza on a certain day increases sharply after a long closure, while the price goes down after the terminal has experienced a long period without any closures. Hartmann also alleged that he has been asked to pay as much as NIS 13,000-15,000 (USD 2,889-USD 3,333) per truckload, which includes a flat fee plus an additional two shekels per case charge, which is not recorded on the invoice. The AmCit Westinghouse general manager supplied FCS with invoices where he was charged NIS 14,000 and NIS 28,000 (USD 3,111 and USD 6,222) per truckload. Caterpillar alleges that it was asked to pay NIS 12,000 (USD 2,667) to move two small caterpillar generators through the passage, which the company refused to pay.

3. (S/NF) What does one get for $3,000 payment to move cargo? Hartmann said that for that price, your truck is promised the first place in line or a spot near the head of the so-called "Israeli line" which does move. Hartmann said that usually two or three lines at Karni are reserved for Israeli companies/shippers, which he speculated pay a much lower amount to get their products across the border. These lines process transfers much more rapidly than the other lines at Karni. In any case, he alleged, the queue at Karni is "a joke" because everyone whose shipment is going to move has paid a bribe long before the trucks get in line. Hartmann said he tried to bypass the exorbitant bribes by making a deal with Coca Cola Israel to use their Beer Sheva warehouse and have them truck his merchandise to Karni. However, IDF officer Mikhail Sorolnik told him that was not permissible, he claimed.

4. (C/NF) Distributors of American companies selling products in Gaza have complained to emboffs that the lack of a clear and predictable truck registration system enables widespread corruption at Karni crossing and impedes their ability to do business. These companies include Coca Cola, Proctor & Gamble, Caterpillar, Philip Morris, Westinghouse, Hewlett Packard, Motorola, Aramex, and Dell computers. As of late May, according to data compiled by FCS, 34 shipments of American goods, amounting to nearly USD 1.9 million dollars, have been waiting three to four months to cross into Gaza. These businessmen have criticized the fact that calls to the phone reservation system for receiving a date and time to cross are never answered and that their discussions with GOI officials have resulted in only temporary (one or two day) improvements. (Note: Many of the businesses affected have operations in the West Bank and ship from there to Gaza, but shipments coming directly from the port of Ashdod similarly suffer. End note.) While these businesmen concede that security concerns and frequent closures this year have severely cut overall imports into Gaza, they say these factors do not explain why these truckloads of U.S. imports have had to wait as much as four months to enter the territory, while some trucks, according to the AmCit general manager for Westinghouse, have been delivering two shipments in one day. Unable to cross, American products are forced to waste unproductive days waiting at Karni and then spend weeks on end in a warehouse. Under such conditions, U.S. businesses are unable to plan effectively and incur additional costs.

----------------- HOW DOES IT WORK? -----------------

5. (S/NF) Hartmann claimed that a certain high-level official at the terminal heads the bribery ring. Directly under him, Hartmann alleges, are an Arab-Israeli, another Israeli civilian, and two IDF officers, who have met with Hartmann and other businessmen. Hartmann said that he has met with the terminal official, who discussed the price of bribes required to facilitate the movement of goods through the terminal. He said the usual middlemen for bribes are logistic companies with close ties to the Karni terminal management. He also said that the terminal official works with Palestinians. Hartmann recounted one occasion when he met a Palestinian middleman in Gaza and drove with him to the Karni terminal for a meeting with the terminal official where bribes were discussed. (Comment: Hartmann is not the only contact to have named this particular official as the head of the bribery ring, but has been the only one willing to discuss the set-up in detail. End comment.)

------------------ EFFORTS TO RESOLVE ------------------

6. (C/NF) Hartmann and representatives of Westinghouse, Caterpillar, Proctor & Gamble, and Philip Morris joined emboffs for a meeting on May 26 with Karni officials. During this meeting, the business representatives vociferously complained to Karni officials about the bribes they had to pay. The officials did not address the issue of bribes, but suggested that the USG either push the Palestinian Authority to allow the businessmen to ship through Kerem Shalom or fund the purchase of more conveyor belts at Karni.

7. (C/NF) Hartmann is chairman of the local Overseas Security Advisory Council (OSAC). OSAC, which is affiliated with the Department and supported by the U.S. Commercial Service, focuses on security issues, but has also served as an umbrella group to tackle the delay problem. Hartmann said that OSAC tried to reach an agreement with Karni management that would have had OSAC members working through a single logistics company and receiving a guarantee from the management that six of the group,s shipments would cross each day. Finalizing that proposed MOU has stalled since the victory of Hamas in January. Consequently, Hartmann said that he and the other U.S. companies would prefer that there be a solution based on a real registration/management system that is transparent and open.

------- COMMENT -------

8. (C/NF) The GOI,s commitments to the Agreement on Movement and Access (AMA) notwithstanding, the deeply problematic procedures and allegations of endemic corruption at Karni terminal constitute a major non-tariff barrier to trade. An open and transparent truck registration system, such as a website where one could register and monitor the movement of the queue would go a long way toward resolving this problem. The development and publication of clear procedures, charges and service standards for Karni will advance the AMA goal of creating an effective system for trade with the Palestinian territories. Embassy officers continue to meet with COGAT and IAA officials to try to resolve this issue. The Ambassador will meet with appropriate ministerial-level officials to seek a solution.



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