Article found at The Jewish News Weekly, http://www.jewishsf.com/bk961026/ibilk.htm
Did Murdoch bilk Israel of $150 million?
By RAINE MARCUS
Jerusalem Post Service
October 26, 1996
JERUSALEM -- Media mogul Rupert Murdoch allegedly cheated the Israeli government of $150 million, tax officials say, and faces arrest if he sets foot in Israel.
Such a tax swindle, if the story is true, would be the biggest in Israel's history.
Tax authorities raided the offices of Murdoch's Jerusalem-based News Datacom Sunday amid allegations that the firm developed technology for his Sky and Star television stations abroad that reaped tens of millions of dollars -- but that he never declared the earnings to Israeli authorities.
Those involved in developing the technology were allegedly paid tens of thousands of dollars under various covert circumstances, including stock options and payments to overseas accounts.
Tax auditors Sunday raided the home of Adi Shemer, a renowned mathematician from the Weizmann Institute of Science in Rehovot, who developed the technology. They were also questioning professionals and lawyers in connection with the allegations.
These included partners from the law firm Herzog, Fuchs and Ne'eman -- the offices of former Justice Minister Ya'acov Ne'eman -- on suspicion that the firm provided consulting services even though it was aware of the illegal activities.
Ne'eman recently stepped down as minister after he became the target of a separate police investigation involving the corruption trial of ultrareligious MK Aryeh Deri.
Police also requested that a warrant for Murdoch's arrest be issued, in the event he travels to Israel.
In response to the allegations, News Datacom issued a statement declaring itself appalled by the charges, and blamed the probe on an attempt at extortion by former employees.
"We totally reject the outrageous references and attacks in the media on Mr. Rupert Murdoch, chairman and chief executive of News Corporation, the parent company of NDC," the company said in a statement.
NDC, whose parent company is based in the United Kingdom, employs some 250 people in Israel.
The investigation, conducted undercover for several months, was personally supervised by Tax Commissioner Doron Levy. Early Sunday morning, some 70 tax investigators raided News Datacom's Jerusalem office. Thousands of documents, computer programs and computers were seized, and several of the company's senior managers were detained for questioning.
Two senior News Datacom partners, Tuvia Erlich and Meir Linzel, were scheduled to be questioned earlier this week.
The lawyers objected to the tax authorities' confiscation of documents and computer discs, arguing that the material is subject to lawyer-client confidentiality. They said material was transferred to the Tel Aviv District Court until a decision is made. The courts have seven days to decide whether to turn the data over to tax authorities.
Others besides Shemer who were questioned included: Datacom president Abe Peled, accountant Dov Rubin and former financial officer Leo Krieger.
Allegations against Datacom include the following:
*All research and development for the company was conducted in Israel, but payment for R&D was sent to News Datacom's parent companies in Hong Kong and Britain to avoid paying local taxes.
*Managers' "consultant" fees beyond their regular salaries were deposited into bank accounts abroad.
*Software was manufactured in Israel and exported for use abroad by millions of pay-TV subscribers, and client TV channels paid a branch of the parent company in Hong Kong, where taxes are much lower.
*Israel's Ministry of Industry and Trade awarded the company grants for purchasing computers and other equipment -- but the company allegedly sold the equipment, worth millions of dollars, abroad and deposited the profits in Britain.
News Datacom issued a statement vehemently denying that any offenses were committed.
"The company has filed all required tax returns and paid all applicable taxes," read the statement.
"Defamatory comments to the media...appear to be a result of a continuing extortion campaign by former employees who have been sued in the UK by NDC for defrauding it of millions of dollars."
The company also denied receiving any research grants which "carry restrictions on technology transfer."
Murdoch owns some 400 companies worldwide, including the British daily newspapers The Times and The Sun, and TV networks such as London-based Sky News, Hong Kong-based Star TV and the U.S.-based Fox TV and Hughes Pay TV. He also owns U.S. newspapers including the New York Post and the conservative magazine, The Weekly Standard.
He also recently bought shares in a Hollywood production company owned by Israeli Arnon Milchin. Murdoch is reportedly currently in Australia, where he also owns scores of companies and newspapers.
Jewish Telegraphic Agency Jerusalem correspondent Naomi Segal contributed to this report.
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