Israel’s Most Important Source of Capital: California

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Protesters at the Port of Oakland on Saturday, August 16 march to a marine terminal to block an Israeli cargo vessel from docking.

On Saturday between one and two thousand protesters marched on the Port of Oakland to “blockade” one of its busy marine terminals and prevent an Israeli ship from docking. After confronting a line of police guarding the waterfront the protesters declared victory; the Zim Lines cargo was on a vessel that hovered offshore, afraid to dock, they said, and port workers wouldn’t be unloading it.

One protester looking beyond the line of police and barbed wire fences separating the people from the port explained that the purpose of the action was to “impede the flow of capital.” Stopping one of Zim’s ships—the company’s vessels arrive in Oakland about four times a month, according to Zim’s web site—was a small, but real economic blow against Israel.

Palestinian solidarity activists inside Israel’s biggest economic and military partner, the United States, have worked for years to build a boycott, divest and sanction movement. They’ve asked pension funds and universities to divest from companies that do business with the state of Israel, and they’ve asked academics and musicians to boycott Israel by canceling concerts and shunning conferences. They’ve had some success.

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California Governor Jerry Brown and Israeli Prime Minister Benjamin Netanyahu sign a memorandum of understanding, March 5, 2014 in Mountain View.

But if it’s a matter of stopping the flow of capital, the ports are a relatively small conduit of trade between California and Israel. For over 20 years California’s technology industry has been channeling billions of dollars to finance the growth of Israeli tech firms. The flow of capital between California and Israel is digital, transmitted as currency and intellectual property. And this flow of capital occurs mostly through the decisions of a small number private equity firms and perhaps as few as a dozen large corporations. These flows of capital supporting Israel’s economy are less susceptible to social movement pressure.

The amount of support of for Israel’s economy originating from Silicon Valley’s private equity firms is especially large. In 2001, during the first year of the Second Intifada, Sequoia Capital Partners, a private equity firm headquartered in Menlo Park, raised $150 million to invest in Israeli technology companies. This was Sequoia’s second Israel-focused venture capital fund. Last year Sequoia raised its fifth Israel-dedicated fund, totaling $215 million. Since 1999 Sequoia Capital has injected over $789 million into Israel’s software and electronics industries. Much of this money managed by Sequoia Capital was contributed by California investors, including major tax-exempt institutions like the J. Paul Getty Trust, and the Gordon and Betty Moore Foundation, but also from wealthy companies and individuals from San Francisco to San Jose.

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The offices of Sequoia Capital Partners in Herzliya Pituach, Israel.

Accel Venture Partners, another one of the giants of Silicon Valley private equity, set up its first Israel-focused investment vehicle in 2001. Joseph Shoendorf of Accel told the Haaretz newspaper in 2007 that Accel has invested over $200 million in 20 Israeli companies. He added that many of Accel’s investments in Israel are not the run-of-the-mill consumer apps and gadgets that are so popular in the Bay Area’s tech scene. Although Israeli engineers produce plenty of that, Shoendorf said, “the world’s security situation is expected to get worse, and as a result, inventiveness will increase. The armies of the world are seeking solutions to a problem, and will encourage technological answers.” Last March, Accel successfully raised $475 million for a fund that will burn a lot of its powder supporting Israeli tech companies.

A lot of California’s venture capital has been exported to Israel to fund military and cybersecurity startups. Israeli society, constantly mobilized for a counter-insurgency war and occupation, creates an environment in which the nation’s hi-tech firms see their main role as contributing to the security of the Jewish state.

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Google rents 8 floors in this Tel Aviv office tower.

But the U.S. tech industry is also steeped in surveillance and weapons companies, and even the big consumer and enterprise brands like Google, Microsoft, and Cisco produce militarized software and hardware for use here and abroad. The contributions of Hewlett Packard in creating Israel’s biometric tracking system to control the movements of Palestinians is well known. Hewlett Packard also maintains the Israel Defense Ministry’s server farms, a job IBM previously held. What makes the California-Israel economic connection powerful, however, isn’t so much the nature of the technologies being traded, and the capabilities they provide the Israeli state and military, but more so the sheer economic value of these transactions.

Foreign direct investment into Israel has risen since 2010, and the United States is the key source of capital for Israeli companies. According to the Organization for Economic Cooperation and Development (OECD) Israel received $1.846 billion from U.S. investors in 2012, a total that has likely risen over the past two years. That’s about two thirds of the total military aid the U.S. government provided Israel the same year.

U.S. investors have built up large positions in Israel’s economy, mostly through ownership of stock in Israeli corporations. In 2012 U.S. investors held a $19.7 billion stake in Israel’s economy, more than double the interest owned by all European countries combined. And corporations registered in the Cayman Islands, a tax shelter where thousands of American investors establish offshore funds, owned another $8.6 billion of Israel’s economy. For example, the Sequoia Capital Partners venture firm of Menlo Park raised $215 million last August to invest entirely in Israel. The legal place of incorporation for this fund? The Cayman Islands.

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Intel’s Haifa, Israel data center, opened in June of 2010. (http://www.intel.com/pressroom/archive/releases/2010/20100422corp.htm)

California investors own and manage stakes in Israeli companies like Mellanox Technologies, Ltd.. In 2002 Silicon Valley venture capital firms and several U.S. tech companies provided Mellanox with $64 million in funding. The American investors included three Menlo Park private equity firms, Sequoia Venture Partners, U.S. Venture Partners, and Bessemer Venture Partners, as well as technology giants IBM and Intel. Using this capital, Mellanox, headquartered in Yokneam, Israel, grew from a small company into a transnational technology giant valued today at $1.8 billion. It’s a key supplier of hardware to Hewlett Packard, IBM, and Intel. It’s main office in Yokneam looks like any other tech campus you can see in San Mateo County off the 101 Highway, with gleaming glass mid-rise buildings tucked among trees and grass.

Yokneam is in the heart of Israel’s Silicon Wadi (wadi being “valley” in Arabic). Prior to 1948 Yokneam was called Qira, the site of a Palestinian village and farms, but the area was “depopulated” and occupied by Israeli forces, and later settled and transformed into one of Israel’s most affluent cities.

Lots of Silicon Valley venture capital firms have also set up offices in Israel. The location of choice for California investors seems to be Herzliya Pituach, a posh ocean side district of the city of Herliya. North of Tel Aviv, Herzliya is named after Theodor Herzl, considered by many to be the intellectual father of Zionism. The Herzliya Pituach is one of the wealthiest spots in all of Israel, home to many of the nation’s elite families. Bessemer Venture Partners’ Israel office is located just a few blocks from the Marinali Marina yacht harbor, and a short drive from million dollar beachfront homes. Sequoia Venture Partners maintain an office on Ramat Yam in one of the high rise towers with views of the azure Mediterranean Sea.

The business links between Silicon Valley and Israel aren’t apolitical. Many of California’s venture capital investors and technology executives are staunch supporters of pro-Israel causes. They have established numerous nonprofit organizations to strengthen economic and political ties between California and Israel.

The California-Israel Chamber of Commerce, located in Cupertino, is funded by Silicon Valley companies, investors and law firms like Intel, Paypal, Silicon Valley Bank, and Morrison Foerster. Executives from these companies sit on the Chamber’s board of directors. Their ties to other pro-Israel political groups are numerous.

Zvi Alon, a director of the California-Israel Chamber, also runs a family foundation out of his Los Altos Hills home. Alongside a donation of $9,900 in 2011 to the California-Israel Chamber, Alon also made donations worth $36,000 to the Friends of Israeli Defense Forces according to tax records. Alon is also credited as being a founder of Israel21C, an “online news magazine offering the single most diverse and reliable source of news and information about 21st century Israel to be found anywhere.”

Operating out of offices on Montgomery Street in downtown San Francisco, across the Street from Israel’s consulate, Israel21C produces media promoting Israel’s technology companies. Recent articles published by the group include “20 top tech inventions born of conflict,” and a profile of the “maverick thinker” behind the creation of Israel’s Iron Dome missile defense system. A recent film produced by the organization promotes Tel Aviv as a startup epicenter similar to San Francisco.

The General Consul of Israel in San Francisco, Andy David, is a board member of the California-Israel Chamber, as is the president of Silicon Valley Bank. Nir Merry, another board member of the California-Israel Chamber, was born and partly raised in Israel in the Ma’agan Michael kibbutz. His father worked in a hidden underground ammunition factory making armaments used by Jewish commandoes in the battles that created the state of Israel. In a talk to students at the University of California, Santa Barabara, Merry elaborated on the links between Israel’s technology companies and its military.

“I volunteered to become a commando. It’s quite related to the topic of innovation,” said Merry. “Because to be a commando we have to be very innovative.”

The California-Israel Chamber of Commerce will be hosting an international business summit in October at the Microsoft Campus in Mountain View where innovation will be among the topics.

Silicon Valley’s links to Israel have also been promoted through state legislation and the California Governor’s office. In March of 2014 Governor Jerry Brown signed a memorandum of understanding with Israeli Prime Minister Benjamin Netanyahu promising to promote economic links between California and Israel. The setting for the signing ceremony, Mountain View’s Computer History Museum, underscored the centrality of the tech industry in the agreement.

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2 comments
  1. A most excellent piece of investigative journalism. Thank you, Darwin. I continue to be impressed! Another area of cooperation between California and Israel: water conservation. Israel has plenty of experience with water resource management (a Palestinian would tell you about how much water Israel would allow him to have) that some believe California could use!

    But technology and the nexus with Silicon Valley is indeed the umbilical cord that keeps Israel’s economy and growth chugging along. But then those who work in tech are a bit like mercenaries anyway so it’s a marriage made in heaven.

  2. Terry Crawford-Browne said:

    Please advise who are the bankers to these companies that are complicit in Israeli war crimes and the murder of more than 2 000 people in Gaza, 70% of whom are civilians? From a South African perspective…..I would appreciate your reply and comments..

    SWIFT SANCTIONS AGAINST ISRAELI BANKS

    The international banking sanctions campaign launched in October 1985 by Bishop Desmond Tutu, Dr Allan Boesak and Dr Beyers Naude became the tipping point in South Africa’s relatively peaceful transformation from apartheid to constitutional democracy. It was a nonviolent strategy intended to avert a looming civil war. International trade and sports boycotts and numerous resolutions at the United Nations had created conscientiousness about apartheid, but in themselves could not defeat the system. The critical factor was the role of the US dollar as settlement currency in foreign exchange markets. Without access to the New York bank payment system, apartheid South Africa would be unable to pay for imports or receive payment for exports even from third countries such as Germany or Japan.

    Under the “adopt-a-bank” strategy, the church leaders applied their influence with American churches to pressure the major New York banks to choose the banking business of apartheid South Africa or the pension fund business of the respective Anglican, Catholic, Presbyterian and other denominations. The City of New York later added the choice between the City’s payroll accounts or the banking business of apartheid South Africa. Even the Bush (senior) administration in October 1989 surprisingly issued an ultimatum to demand compliance by the apartheid government by February 1990 of the first three of five conditions, namely: (a) the end of the state of emergency, (b) release of political prisoners and (c) unbanning of political organisations.

    That was the background to President FW de Klerk’s announcement on 2 February 1990. Mr de Klerk has subsequently conceded that the threat contained in that ultimatum to close off all South African access to the American financial system motivated his decision to release Nelson Mandela and to begin constitutional negotiations. The fourth and fifth objectives of the banking sanctions campaign were: (d) repeal of apartheid legislation and (e) constitutional negotiations towards a democratic, non-racial and united South Africa.

    Three decades later, banking technology has advanced dramatically. The pressure point in the international payments system is no longer in New York, but is now at the Society for Worldwide Interbank Financial Telecommunications (SWIFT) which is headquartered in Belgium. In essence, SWIFT is a giant computer cooperatively owned by 10 500 international banks in 215 countries that daily authenticates interbank payment instructions for more than 20 million international financial transactions. SWIFT’s function has been to replace the cumbersome and labour-intensive authentication system traditionally known as “testing,” which verifies the payment instructions of correspondent banks.

    SWIFT is overseen by the central banks of the G10 countries, with the National Bank of Belgium being the lead overseeing authority. Every participating bank has a SWIFT code, the fifth and sixth letters of which identifies the country of domicile. As examples, South African banks are identified by the letters ZA; Israeli banks by the letters IL.

    The impact of SWIFT is such that a bank that is not part of the SWIFT network is essentially excluded from the international financial payments system. Banking is the lifeblood of any economy. Just as all South African banks were complicit in funding and upholding the apartheid system, so too the role of Israeli banks is fundamental to the Israeli government’s illegal occupation of Palestine. Money laundering and financial crimes are now regarded as serious international threats, and thanks to forensic auditing can increasingly be traced and identified. In fact, given the advances in technology, Israel is much more vulnerable to a banking sanctions campaign than was apartheid South Africa during the 1980s.

    Israeli banks fund the construction both the “apartheid wall” and the settlements, which the International Court of Justice in 2004 found to be illegal in terms of international law. The banks provide heavily subsidised mortgages to induce over 700 000 Israelis to live in illegal settlements such as Ma’ale Adumin, Har Homa and Zufrim as well as providing regular banking services in those communities. Israeli banks are also a critical factor in repatriating the financial proceeds to Israel of blood diamonds, drug trafficking and Israeli arms exports, all of which are crucial to the Israeli economy.

    Just as South African banks during the apartheid era were actively engaged in “sanctions-busting,” so too Israeli banks all blatantly participate in illegal transactions under the guise of “national security.” It is impossible to separate legitimate transactions of Israeli banks from illegal transactions that violate international laws on money laundering and war profiteering. Accordingly, all transactions to and from Israeli banks must be deemed to contravene banking protocols such as international obligations imposed on financial institutions to “know your customer”(KYC) and other due diligence procedures to mitigate financial crimes.

    Major international banks such as JP Morgan Chase, BNP Paribas, HSBC, Barclays Bank, Credit Suisse have recently been heavily fined for failures to meet such obligations. Seventeen European governments, including the Belgian government, in June 2014 warned their citizens of the reputational and other risks involved in financial transactions to and from the settlements in the Occupied Palestinian Territories. All countries, even including the United States, regard the Israeli settlements as illegal.

    Norwegian, Danish and Dutch pension funds and banks are already blacklisting Israeli banks. SWIFT declares itself to be “neutral” in respect of sanctions. Since sanctions often only apply in certain but not all jurisdictions, SWIFT cannot voluntarily suspend transactions unless regulations are enacted by laws of its home jurisdiction, namely Belgium and the European Union (EU). To date, the EU government statements about financial transactions with the settlements are warnings rather than regulations, but the “writing is increasingly on the wall.” The image of the banking industry is currently poor, and SWIFT and its 10 500 members would certainly not wish to be publicly identified as complicit with Israeli war crimes.

    Given these developments. SWIFT earlier this year has expanded its operations to include compliance management registry, including sanctions screening and testing. To this purpose, SWIFT will conduct a two day conference in Boston, USA during 30 September to 1 October to establish standards to assist banks in addressing financial crime compliance regulations. This registry is expected to go live at the end of 2014.

    The Russell Tribunal on Palestine (RToP) — which met in Barcelona, London, Cape Town, New York and Brussels between 2010 and 2013 – has already collated a huge volume of evidence on Israeli government violations of international law, including that its behaviour towards Palestinians meets the legal criteria of apartheid as a crime against humanity.

    The recent Israeli bombardment of Gaza prompted the United Nations Human Rights Council on 23 July 2014 to establish a commission of inquiry on Israeli war crimes. Similarly, the RToP has now decided to establish an extra, extraordinary session to be held in Brussels during 24 and 25 September 2014 to investigate the implications of the latest Israeli war crimes in Gaza. Just as the campaign against apartheid was driven by international civil society, so too it is now imperative for civil society to apply pressure upon EU governments to meet their obligations in respect of war crimes and crimes against humanity.

    Given the outrage over the disproportionate and illegal Israeli government actions in Gaza, there is increasing recognition of the need for a permanent resolution of the Israeli-Palestinian conflict. Indisputably, just as the international community judged apartheid in South Africa to be a threat to world peace, so too is the Israeli-Palestinian conflict. The Israeli government is a repeated violator of international law including the Geneva Conventions. SWIFT sanctions against Israeli banks offer a nonviolent instrument in the cause of peace in the Middle East to balance the scales between Israelis and Palestinians so that, unlike the failed US “peace process” and the Egyptian-brokered ceasefires, meaningful negotiations become possible.

    The Boycott, Divestment and Sanctions Campaign, which is supported by the broad spectrum of Palestinian society, has endorsed a proposal of SWIFT sanctions against Israeli banks. The proposal calls upon the EU governments and other members of the international community to require SWIFT to suspend transactions to and from Israeli (IL) banks until the Israeli government:

    1. Agrees to relinquish its nuclear weapons, and to accede to the Non-Proliferation Treaty,
    2. Agrees to release immediately all Palestinian political prisoners,
    3. Agrees to end its occupation of the West Bank including East Jerusalem, plus Gaza, and that it will dismantle the “apartheid wall,”
    4. Recognises the fundamental rights of Arab Palestinians will full equality in Israel-Palestine,
    5. Acknowledges the right of return of Palestinian refugees.

    Being directed at Israeli banks, SWIFT sanctions are targeted at the financial and political elites who have the influence and clout to alert and warn the Israeli government of the consequences of financial isolation from the international community. The intention is not to destroy the Israeli economy but, instead, to bring the highly militarised Israeli government to its senses. Once the Israeli government agrees to these conditions, SWIFT sanctions can immediately be reversed in order to minimize economic damage to the Israeli economy.

    Terry Crawford-Browne
    21 August 2014
    Cape Town

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