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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