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  • Elbit, the security industry and the pension funds (Security Industry: links between Israel and the Netherlands?)

    In the case of Israel, it is almost impossible to draw a line between the military-industrial complex and the homeland security industry, in the sense that equipment developed by the military industry and tested in the real-war circumstances of the occupation are later marketed for civilian use. The history and present marketing of drones, as related in the next chapter of this report, is a good example of such a development. There are, however, big differences between the arms industry and the homeland security industry as well. Taking Neve Gordon’s recent paper “The Political Economy of Israel’s Homeland Security” as a point of departure, this chapter explores the field. The large military electronics corporation Elbit Systems serves as an example, including the recent divestments from the company.

    “Almost all of the arms produced in Israel (over 95 percent) are manufactured by six companies. Four of these companies are state owned (Elta Systems, Israel Military Industries, Israel Aerospace Industries and Rafael Advanced Defense Systems) and are responsible for about 75 percent of the arms sales, while the two private companies (Elbit Systems and Elisra) make up the rest of the sales. […] The structure of the military industry is very different from the homeland security and surveillance industry: whereas companies in the military industry employ thousands of workers, most of the companies in the surveillance industry have less than a hundred employees, and many employ between five and thirty people.” Gordon also points out the fact that Israeli regulation requires that the ownership of companies in the military industry must remain Israeli during the processes of privatisation. The surveillance industry, on the other hand, does not seem to be affected by such regulations. “Some surveillance companies were bought over the years by foreign companies, while others were transformed by their owners into US companies (primarily for tax and sales purposes).” The fact that Israeli companies have been bought or have changed their ownership may be a complicating factor in providing an overview of links between the Israeli homeland security industry and the Netherlands.

    Gordon mentions two other issues of importance to understand the Israeli economy. First, the military industry’s success in developing cutting edge technology was a result of investment in national research & development funding, but it is also due to the relationship the industry established with industries in countries like the US, Germany and France with which it shared technological knowledge. (And in Chapter IV of this report, we will detail the importance of Israel’s access to research projects of the European Union for research & development). Secondly, the industry shifted its focus from purely military markets to include the civilian ones too. This also contributed to the economic growth of the military industry in Israel. “By 1999, for example, Israel Aerospace Industries (IAI) reported that 39 percent of its

    revenues came from the civilian sector. Along similar lines, Elbit, which originally specialised in UAVs as well as in aircraft retrofit and modernisation of aircraft and helicopters (comprising 38 percent of its sales), currently designs, develops, manufactures, markets and provides services for advanced electronic and imaging systems and products for medical (45 percent), industrial and commercial applications (17 percent).” Another part of this development is the flow of intellectual capital, of people originally employed in the state-owned military industries who eventually move into the private sector where they apply the knowledge and training they had acquired to new projects. And sometimes, start-ups get bought up by the larger private companies. “Haifa-based Fibronics was founded by engineers who had worked together in military intelligence. The company got off to a good start in the 1980s with a data- networking technology called Fiber Distributed Data Interface, but since it lacked a U.S. distribution arm it was eventually taken over by Elbit Computers.” Elbit itself is one of those firms managed or initiated by personnel previously employed in the military or military industry.

    Elbit Systems is Israel’s main private company. It is dedicated to improving existing military equipment in Israel and produces unmanned aerial vehicles (UAVs) through its subsidiary Silver Arrow. In 2000, Elbit merged with Elop and in 2005 acquired 26% of Tadiran Communications (TadCom), a leading company in Israeli military communications equipment (and increased its percentage ownership thereafter), and 70% of Elisra, specialised in electronic warfare, intelligence, radar and communications. Elbit has a 14% equity interest and 12.5% voting power in ImageSat International N.V., a Netherlands Antilles company involved in the operation of satellites for commercial and other applications and providing satellite imagery. ImageSat’s EROS A and EROS B satellites contain advanced high resolution cameras developed by Elop.

    Elbit is also a large player in another surveillance sector in which Israeli companies are among the world leaders: in electro-optical and laser applications to overcome darkness or distance. A range of optronics technologies developed in Israel, such as thermal imaging, lasers, and infra-red optics, are used by fighter aircraft to carry out reconnaissance missions and strikes as well as in unmanned aerial vehicles (UAVs). Ortek and Elop, both subsidiaries of Elbit, are leaders in this field. Elop “manufactures an array of electro-optics products including thermal imaging devices which aim to ‘deliver a 24/7 observation and surveillance advantage’ and a threat detection and countermeasure device for airborne platforms.” A major in the Israeli army has recently been quoted as saying that the optics systems on the UAVs allow the operator to clearly distinguish between combatants and civilians. The wide-scale killing of civilians in both Lebanon and Palestine by drone-fired missiles indicates that the drones are used to target civilians. As a detailed briefing by Stop the Wall points out, “the drones have been used to both enable and commit war crimes in Lebanon, the West Bank and Gaza” and these crimes “bring tangible financial benefit to Elbit Systems.” The briefing continues by quoting Johnson’s analysis:

    Like all Israeli military technology, Elbit UAVs are ’battle-tested,’ giving [them] an operational history by which the reliability and effectiveness of the machines can be judged. Every military operation, not by intent per se, acts as an advertisement for the weapons and techniques used.

    (Chapter V on companies contains more information on Elbit’s involvement in the occupation and the homeland security economy of Israel).

    All in all, it seems fair to conclude that the strategic decision to concentrate on military research & development with an emphasis on technologically advanced systems which serve civil markets too, provided a solid technology-orientated economic base for Israel. This should not, however, be understood as an example of so-called dual use, as that is a provision in export regulation dealing with products and technologies normally used for civilian purposes which may have military applications too.60 Rather, the case of the drones supports Gordon’s concept of selling the ‘Israeli experience’.


    Elbit and the Netherlands

    Elbit is still a strong trading partner in military trade, and it is proudly advertising the experience in the field as a specific advantage of the Israeli industry. Ran Galli, Corporate Vice President of Major Campaigns for Elbit Systems maintains that, “No other country has Israel’s extensive hands-on experience in fighting terror, including the development of new systems, testing them in real-time and adapting and fine-tuning following feedback from performance in the field.” Zuri from the Israel Export Institute adds that the “military can say it has used the technologies on the ground, it has not just put them in storage. Israel is a laboratory and we have people who have experience.”

    In contrast to contacts with other European countries, the trade between Elbit and the Netherlands is limited to military equipment. As the European Tender Register (ted.europa.eu) shows, Elbit is active in the homeland security market and is trading in medical equipment too. The company sold a CCTV system to the city of Vilnius in Latvia, computer systems for civil crisis management in Belgium and medical equipment such as laboratory instruments in Poland.

    In May 2010, Elbit was one of the participants at an arms fair held at the Industrieele Groote Club, situated at the Dam Square in Amsterdam. At this conference arms traders discussed the so-called compensation orders (orders foreign weapon producers are required to place with Dutch companies in return for Dutch Defence placing orders with companies abroad). As a result of pressure by peace groups and anti-militarists in 2005, then-mayor Job Cohen made a statement that Amsterdam does not want to host arms fairs. Answering questions in the local council about the arms fair at Dam Square in 2010, temporary mayor Lodewijk Asscher insisted that weapon fairs do not contribute to the idea of Amsterdam as a safe city and contradict the city’s policy on reducing the use of weapons.

    The Ministry of Defence has awarded several contracts to Elbit over the last ten years, which are listed here in chronological order. In 2003, Elbit won a contract for the delivery of Enhanced Tactical Computers and Battlefield Management System (BMS) Equipment, to the Royal Dutch Army. In 2004, the Dutch army tested Elbit’s Skylark mini-UAV (see Chapter III on drones). In 2006, Elop sold thermal imagining systems for the Leopard 2/A5 to the army of the Netherlands according to its 2006 Annual Report. In 2008, Elbit was awarded a contract from the Dutch Ministry of Defence for the supply of Advanced Battlefield Management Systems. The contract is scheduled to be completed and delivered over five years and is valued at approximately $40 million. The Enhanced Tactical Computers will be installed in more than 1, 800 Dutch vehicles, including tanks and armoured trucks. Bezhalel Machlis, General Manager at Elbit stated that the company views this contract “awarded by a leading country in NATO, as a springboard to potential future business in this market.” In 2010, the Dutch army bought a computer system for virtual exercises, the NL-CST, to be used for Computer-Assisted eXercises (CAX). This is how the contract describes the system: “The primary objective of a CAX exercise is to enable participating staffs to train their command-and-control procedures and combat actions without the need of actually having all the subordinate levels in the field.”


    Elbit and the Pension Funds divestments

    In other Western countries, Elbit has been the focus of a civil society campaign because of its involvement in the occupation and the apartheid wall. In the past year, there was a chain of divestments from Elbit that also reached the Netherlands. It started when Stop the Wall, the grassroots Palestinian anti-apartheid wall campaign, the International Physicians for the Prevention of Nuclear War (IPPNW) and Pax Christi moved together with its Norwegian partners to persuade the Norwegian State Pension Fund to sell its shares in Elbit, worth $5.4 million. Pressure mounted by Norwegian People’s Aid, the Council of Churches in Norway and the Norwegian Associations of NGOs for Palestine certainly helped to put the issue on the agenda. Subsequently, the Ethical Council investigated the issue, and made a recommendation to the Norwegian Minister of Finance to divest in September 2009. In Norway, there is a strong support for the boycott of Israel within two of the three coalition partners (Labour, AP and Socialist Left, SV), at least in the rank and file, including the trade unions. Mark Taylor, Deputy Managing Director of the Norwegian research institute Fafo, explains that the Ethical Council has a strong reputation in research and international law. As a result, the investment policies of the Norwegian Pension Funds are a leading guide which other funds in other European countries tend to follow. With a little help from campaigners in other countries pressuring financial institutions on the issue, and a cohort of responsible investment advisers with a growing influence, Danske Bank and PKA Ltd, two of the largest Danish pension funds, and Folksam, Sweden’s largest asset manager, divested early this year. In May 2010, the Deutsche Bank sold its 2% stake in Elbit Systems.

    In the Netherlands, ABP, one of the largest pension funds, followed suit, and disinvested from Elbit Systems. Much of the pressure leading to decisions to disinvest is taking place behind the scenes, and the funds do not seem willing to comment in the media. The only public confirmation available is the report of investment consultant and human right activist Adri Nieuwhof who wrote on 19 February 2010: “ABP informed the Electronic Intifada today that it has sold its US $2.7 million shares in Elbit Systems”. All news items found in the media data-bank LexisNexis reporting on the disinvestment have the Electronic Intifada as their only source. The step was taken without any public campaigns in the Netherlands. The only Dutch reference we found was to a Church group called Keerpunt who coordinated a letter-writing campaign to put pressure on Dutch Pension Funds. Keerpunt compiled a dossier with an overview of Israeli companies involved in the construction of the Wall, based on the “Who Profits?” database. Their aim is to have the Pension Funds disinvest from all the companies mentioned. Keerpunt also complains about ABP’s lack of communication about its disinvestment strategy. In a letter to the church group dated 14 January 2010, ABP announced talks with Veolia and Alstom and other companies involved in the construction of the wall, but it refused to give any further information on the progress. ABP does not invest in companies involved in the production of cluster bombs and landmines, and lists about 20 companies that are banned for that reason (no Israeli company is amongst them). The fund’s policy also excludes companies connected to weapons forbidden by the Nuclear Non-Proliferation Treaty, while failing to comply with the guidelines of the Global Compact “could be a reason for exclusion too”. However, ABP has indeed sold its shares in Elbit. The Israeli company had disappeared from the fund’s public stock market listings dated December 2009; while the register for 2008 included an investment of 2 million Euros in Elbit.

    The other large Dutch Pension Fund, Pensioenfonds Zorg en Welzijn (PFZW, formerly PGGM), currently (as at 1 July 2010) bans only one Israeli company from its investment universe: Aryt Industries, for its production of cluster bombs. Until recently, the pension fund invested in 13 of the companies listed by “Who Profits?” for 323 million Euros altogether, including 1.6 million Euros (0.12%) in Elbit in 2009. In November 2009, the Fund disinvested from Africa-Israel, a company listed by “Who Profits?” As of November 2010, the only Israeli investments left are in Teva pharmaceuticals, Checkpoint Software Technologies and a supermarket chain. A spokesperson for the Fund claims the decision had nothing to do with political pressure, but is just a “benchmark decision”: Israel is no longer considered to be an “upcoming economy” and thus did not fit the PFZW profile investment universe any more.

    However, also in November 2010, PFZW’s chair Hans Alders, wrote a letter to the Russell Tribunal to express the Board’s “deep concern about the ongoing conflict between Israel and Palestine and the occupation of Palestinian Territories.” In his letter, Alders also explains the Fund’s policy on “engagement with regard to companies active in occupied Palestinian Territories.” The situation has been a topic at various board discussions with its external ethical advisers over the past few years. In response to the concerns of Werkgroep Keerpunt and Nederlands Palestina Komitee, the Fund developed an engagement approach. This focused on those companies:

    • “that contribute to sustaining the occupation (for example banks providing loans to finance Israeli settlements in occupied territory);
    • whose products or services are directly associated with the occupation or suppression (for example a company allegedly providing custom-made bulldozers involved in the destruction of Palestinian homes);
    • that contribute to activities that can be seen as in direct violation of international law (for example companies involved in a controversial tramway).”

    Held against the Fund’s investments, these descriptions fit the profiles of the Israeli Bank Hapoalim and Bank Leumi, bulldozer producer Caterpillar and maybe Volvo too, and Veolia and Alstom, the companies involved in the light rail project. The engagement starts with a fact finding mission asking the companies to provide information on the policies and systems they have in place to avoid or mitigate these risks, and – when applicable – whether there is equal access to their products or services. Further input is gathered from different sources and experts, a process that may take up to 2-3 years. The final outcome may (or may not) be a decision to exclude the company from investments. PFZW/PGGM has also been actively engaged in the Global Compact recently, in developing guidelines for doing business in war zones. This letter to the Russell Tribunal by the chair of the Fund is indeed a sign towards more transparency on investment policies. Moreover, the content of the letter clearly indicates that putting pressure on investors by providing them with well-sourced cases is a strategy with a considerable chance of success.