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.



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ALLEGATIONS OF CORRUPTION

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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.



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HOW DOES IT WORK?

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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.)



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EFFORTS TO RESOLVE

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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.



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COMMENT

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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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