The Jerusalem Post and Ha'aretz both have pieces on the Chabad embezzlement scandal.
As you read keep in mind the "Young Chabad" "movement" or "association" is Tzach (Lubavitch Youth Organization), and is the main Chabad organization in Israel. It controls all but a handful of Chabad Houses and major Chabad organizations in Israel, and most minor Chabad organizations in the country, as well as some in Russia.
Tzach under Rabbi Yosef Yitzhak Aronow took control in questionable ways, driving Rabbi Wolfe out of power in about 1990.
When I worked for one of Rabbi Wolfe's organizations in the early 90s, I heard stories from reliable Chabad representatives close to the situation. They spoke of rigged beit dins (religious courts) that issued judgments before hearing witnesses, and other such corruption.
In one case a judgment was mailed to and received by a soon to be deposed Chabad leader one week before the beit din was scheduled. When that leader called and asked how this could happen, the head of the court replied, "Oh, I made a mistake. I meant to hold this until after the trial and mail it then." He claimed to have filled it out ahead to "save time."
Is Rabbi Aronow guilty? I think so, largely because of what he allegedly did to others years ago, and because I saw the behavior of his office with my own eyes.
Rabbi Aronow's office once stole an advertising campaign I did for a rival Chabad organization. The rabbi stopped in to see my boss, who was out. He saw the project I had and asked me for a copy because he loved the concept. He was told this was a proof, that we were fixing the graphics and then sending it out in a couple of weeks.
I was flattered he liked it so much, but I would not let him take a copy unless he promised not to use it. I also wanted the shaliach I worked for to know and give his approval. Thinking no one would steal a concept so brazenly, I called my boss who, after speaking to the rabbi and getting assurances, allowed him take a copy.
What happened?
The next week it was the back cover of Rabbi Aronow's fund raising magazine, there with minor copy changes and more expensive graphics.
When challenged about this blatant theft, Aronow's employee said, "My guys were already working on it before I showed yours to them." And this is not the only story I can tell.
Now for the current allegations. According to Ha'aretz:
The leader of the "Young Chabad" movement in Israel and four other suspects were arrested by Israeli police yesterday on suspicion of embezzling $60 million from donated monies, tax evasion and money-laundering. The arrests of Yosef Aharonov, his assistant and the others followed a collaborative secret eight-month investigation by the Central District Fraud Squad and the Tax Authority.
Donated money never reached its destination, police suspect, and the money-laundering was effected in part by paying salaries to people under the table, and by "paying" money into fictitious bank accounts, Channel 10 reported last night. Businessmen reportedly abused the mechanism by "donating" money to the organization that they'd simply get back by these methods, while taking advantage of the tax break on charitable donations, not to mention the adulation. "We discovered that money was changing hands left and right, and it seems that the suspects were treating the money as though it belonged to them personally," investigating officer Avi Mantzour told Haaretz yesterday.…
[Rabbi Yosef Yitzchak] Aharonov, the Young Chabad manager, is suspected of theft by a manager, fraud under grave circumstances, falsifying corporate documents, hiding income and abetting tax evasion.
Evidence shows that a great deal of money passed from the Young Chabad bank account to both private and fictitious bank accounts linked to Aharonov and his cronies. "Fictitious bank account" means that documents showing transfers refer to accounts that don't actually exist. The fiction went on with donations by major businessmen. "They would donate the money, and receive an income tax break on it. But we can now say that they got it back, though a certain sum would remain in the association's hands," Mantzour said.…
Leading businesspersons are expected to be brought in to police headquarters for questioning including, according to reports, Arcadi Gaydamak.
Ha'aretz also notes:
Police also say that Young Chabad laundered money by paying some workers in cash, in order to help them dodge taxes, too.…
I find it far more likely Chabad paid employees in cash because Chabad could then pay those employees less and at the same time have both Chabad and employees save money by avoiding taxes. This is common practice throughout the haredi community. I personally know of employees of haredi kiruv organizations that were forced to accept cash payments instead of being paid on the books.
For those not familiar with Chabad politics, the Jerusalem Post notes:
…The Young Chabad Association represents mainstream Chabad leadership in Israel. It is differentiated from the overtly messianic camp within Chabad that preaches that Rabbi Menachem Mendel Schneerson, who passed away in June 1994, is really still alive and will reappear as the Messiah.
Aharonov was behind the "Bibi is good for the Jews" campaign that mobilized Chabad to support Binyamin Netanyahu as prime minister in 1996. He also led an aggressive offensive against breakaway groups within Chabad.
Then the Post drops this bombshell:
Yosef Segal, who was accused over a year ago by Chabad officials of embezzling NIS 17.5 million from Chabad coffers, was also detained by police Wednesday.
Attorney Na'ama Zer-Kavod, who is representing Chabad along with attorney Gideon Fisher, said that all the accusations against Aharonov, Edrei and Livitin were concocted by Segal.
"In an attempt to clear his own name, Segal is disparaging the names of dozens of upright Chabad families," said Zer-Kavod. "Chabad was the one that uncovered the crimes in the first place. Now, for some inexplicable reason, a year later, the police stage this publicized raid."
Asst.-Cmdr. Avi Mansour, head of the criminal investigation against Chabad, rejected the claims by Zer-Kavod and said there was no connection between Segal's embezzlement and the present case.
"Besides, even after Segal was uncovered as an embezzler he continued to be employed by Chabad," said Mansour.…
Jerusalem Post:
Chabad heads suspected of major embezzlement
By Matthew WagnerAdministrators in the Israeli branch of the Chabad Hassidic sect are allegedly embroiled in a multi-million shekel embezzlement, tax evasion and money laundering scheme involving local businessmen, police said Wednesday.
Police arrested four men on Tuesday connected with the sect who are suspected of embezzling and aiding Israeli businessmen in tax evasion by accepting tax-exempt "donations" to Chabad which were later returned laundered.
A Channel 10 report said that among the business leaders suspected of using the money-laundering facilities allegedly run out of Kfar Chabad was Arkadi Gaydamak. Gaydamak, according to Channel 10, had made NIS 1 million in donations to the fund - but was far from the only prominent business figure suspected of involvement. Police said that they would continue to investigate both Gaydamak as well as the other businesspeople.
Police arrested Yosef Aharonov, director of the non-profit Young Chabad Association, which is the main supporter of Chabad activities in Israel. Aharonov's driver, Levi Edrei, and Young Chabad employee Dov Livitin were arrested, too.
The Young Chabad Association represents mainstream Chabad leadership in Israel. It is differentiated from the overtly messianic camp within Chabad that preaches that Rabbi Menachem Mendel Schneerson, who passed away in June 1994, is really still alive and will reappear as the Messiah.
Aharonov was behind the "Bibi is good for the Jews" campaign that mobilized Chabad to support Binyamin Netanyahu as prime minister in 1996. He also led an aggressive offensive against breakaway groups within Chabad.
Yosef Segal, who was accused over a year ago by Chabad officials of embezzling NIS 17.5 million from Chabad coffers, was also detained by police Wednesday.
Attorney Na'ama Zer-Kavod, who is representing Chabad along with attorney Gideon Fisher, said that all the accusations against Aharonov, Edrei and Livitin were concocted by Segal.
"In an attempt to clear his own name, Segal is disparaging the names of dozens of upright Chabad families," said Zer-Kavod. "Chabad was the one that uncovered the crimes in the first place. Now, for some inexplicable reason, a year later, the police stage this publicized raid."
Asst.-Cmdr. Avi Mansour, head of the criminal investigation against Chabad, rejected the claims by Zer-Kavod and said there was no connection between Segal's embezzlement and the present case.
"Besides, even after Segal was uncovered as an embezzler he continued to be employed by Chabad," said Mansour.
The investigation was launched after the Young Chabad Association aroused the suspicions of the registrar for non-profit organizations in the Interior Ministry who discovered evidence of mismanagement.
"We are talking about huge sums of money that were pocketed by the four suspects and transferred to overseas accounts, including the US," said Mansour.
The police requested that Aharonov be detained for 12 days. However, a Ramle court decided to extend the detention order for six days. On Thursday, the three additional suspects will appear before the court.
Yoni Kahana, a Chabad hassid and advertiser, said that the criminal scandal that wracked the Hassidic sect would not have an impact on operations in Israel.
"Chabad houses across the country are self-sustaining; they do not receive anything from the central administration."
Kahana, who is identified with the more messianic camp in Chabad, estimated that the balance of power among the different camps within Chabad would not change. However, he added that he was concerned the scandal would tarnish Chabad's good name.
"I hope Aharonov does not go to prison, but I do hope that he learns his lesson and retires. He has made a lot of mistakes and it is time for him to go home.
"The man who replaces him should run Chabad the way the Rebbe wants."
Ha'aretz:
Chabad leaders arrested for alleged theft, money-laundering
By Nurit Roth and Roni Singer-HerutiThe leader of the "Young Chabad" movement in Israel and four other suspects were arrested by Israeli police yesterday on suspicion of embezzling $60 million from donated monies, tax evasion and money-laundering. The arrests of Yosef Aharonov, his assistant and the others followed a collaborative secret eight-month investigation by the Central District Fraud Squad and the Tax Authority.
Donated money never reached its destination, police suspect, and the money-laundering was effected in part by paying salaries to people under the table, and by "paying" money into fictitious bank accounts, Channel 10 reported last night. Businessmen reportedly abused the mechanism by "donating" money to the organization that they'd simply get back by these methods, while taking advantage of the tax break on charitable donations, not to mention the adulation.
Advertisement"We discovered that money was changing hands left and right, and it seems that the suspects were treating the money as though it belonged to them personally," investigating officer Avi Mantzour told Haaretz yesterday.
Following a raid on Kfar Chabad yesterday, the police are expected to summon various powerful figures in Israel for questioning in the affair. Last night Israeli-Russian billionaire Arcadi Gaydamak, who had reportedly donated about a million shekels to the Chabad association, told Channel 10 news that he knows nothing of malfeasance, but police suspect that he is among the business personalities that donated money and got it back by illegal means.
Aside from organization director Aharonov, the police also arrested his deputy, the accountant and a signatory. The court yesterday extended Aharonov's detention by eight days. The others will be appearing before the court for remand hearings this morning.
Aharonov's legal counsel, attorney Gideon Fisher, called the arrest a "scandalous false arrest designed to terrorize my client". He claimed that the police investigation began following a financial claim that the Young Chabad organization had filed against a former association leader, claiming that the latter had stolen more than NIS 17 million. "Trying to save his skin by turning the tables, the former official chose to make false allegations and try to ruin the good name of dozens of families in Kfar Chabad," Fisher said, adding that the Young Chabad movement strictly adheres to the law.
Young Chabad is a nonprofit organization dedicated to spreading the word of Torah and the Chabad-Lubavitch Hasidic messages. It was founded by the Lubavitcher rabbi (and is also known an Lubavitch Youth), to serve as the operational arm of the Chabad movement.
It is the most dominant of the ultra-Orthodox movement's arms in Israel, and runs on a budget of about NIS 30 million a year.
From that amount, about 20 percent is allocated by the state. For the rest, Chabad relies largely on donations, including from leading business figures in Israel.
By the way, that annual figure of NIS 30 million (and NIS 7 million from government) is based on reports by Young Chabad to the Registrar of Associations.
But the police and Tax Authority now suspect that Young Chabad's real income was far higher. They suspect that Young Chabad organization really does use that roughly NIS 30 million to promote its causes, including the establishment of day-care centers for the poor. But they suspect that the organization also receives tens of millions more, which it neither reports nor handles transparently.
The investigation began after the Registrar of Associations complained about irregularities in Young Chabad's books. The open stage of the investigation began yesterday.
Aharonov, the Young Chabad manager, is suspected of theft by a manager, fraud under grave circumstances, falsifying corporate documents, hiding income and abetting tax evasion.
Evidence shows that a great deal of money passed from the Young Chabad bank account to both private and fictitious bank accounts linked to Aharonov and his cronies. "Fictitious bank account" means that documents showing transfers refer to accounts that don't actually exist. The fiction went on with donations by major businessmen. "They would donate the money, and receive an income tax break on it. But we can now say that they got it back, though a certain sum would remain in the association's hands," Mantzour said.
Police also say that Young Chabad laundered money by paying some workers in cash, in order to help them dodge taxes, too.