Exclusive: Austria launches probe into Cyril Kern affair
Yaakov Katz, THE JERUSALEM POST Sep. 9, 2005
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The Austrian Justice Ministry has appointed a state prosecutor to conduct an
independent investigation into allegations that Prime Minister Ariel Sharon
received a bribe from an Austrian businessman with business interests in
Israel via a Vienna-based bank, The Jerusalem Post has learned.

Officials in the Austrian Justice Ministry confirmed to the Post Thursday
they had recently launched an independent investigation into allegations
that the BAWAG bank served as a funnel for a mysterious $1.5 million loan
given to Sharon by South African businessman Cyril Kern.

The loan has been the focus of an ongoing Israeli investigation for the past
three years.

Austrian officials further accused the Israel Police and Justice Ministry of
dragging their feet in pursuing the investigation.

In 2003, the Israeli Justice Ministry sent an official request to Austria
asking for assistance. The request was rejected by an Austrian court for not
detailing the bribery suspicions but only Sharon's alleged campaign finance
violations, which do not constitute a crime in Austria. According to
Austrian Justice Ministry Spokesman Christoph Pochinger, Israel
astonishingly never made a second more-detailed request.

"The Austrian authorities tried to help the Israeli Justice [Ministry],"
Pochinger told the Post Thursday. "The main points of the Israeli request
for a juristic assistance have already been answered... A second request
from the Israeli authorities would have been necessary, but we did not get
this second request for a juristic assistance."

Despite the official's claims they were cooperating with the investigation,
senior police sources close to head of the Israeli investigation National
Fraud Squad chief Lt.-Cmdr. Miri Golan accused Austria on Thursday of
responsibility for lack of movement in the high-profile case.

"These claims have no basis in reality," the sources said. "Until now the
Israel Police has not obtained the type of cooperation it would have
expected." Pochinger rejected the accusation claiming that if Israel really
wanted help, all it had to do was file a second request.

"It is impossible to say that we are not cooperating when they have not made
a second request [for assistance]," Pochinger said.

The Israeli Justice Ministry refused to comment on the launching of an
independent Austrian investigation and would not even say whether it was
aware such an investigation had been opened.

The investigation - dubbed the Cyril Kern loan affair - began following
Sharon's victory in the 1999 Likud Party leadership primaries when the
then-Likud Party chairman went into debt to repay NIS 4.7 million in illegal
campaign contributions.
In 2002, Sharon's son Gilad received a $1.5 million loan originating in
Austria from South African businessman Kern to repay a loan the family had
taken out to repay the donations. In November 2002, after Gilad learned
police were tracking the money transfers, he received two additional money
transfers from the Austrian bank BAWAG totaling some $1.5 million which he
used to repay the original Kern loan and a loan to an Israeli bank.

Police suspect that Kern, who has no business interests in either Austria or
Israel, served as a front for other businessmen with
business interests here. Police have said in the past that Austrian-Jewish
businessman Martin Schlaff - a major shareholder in the Jericho casino - was
one of the prime suspects in funding the loan to Sharon. Police suspect
Schlaff gave the "loan" hoping the prime minister would reopen the casino,
which in its heyday reportedly managed a daily turnover of $680,000.

Sources familiar with the Israeli investigation speculated Thursday the
police and the Justice Ministry were not interested in properly
investigating the prime minister and for that reason never filed a second
request for assistance with the Austrians.

Bank officials in Austria cited the full cooperation Israeli investigators
received throughout the recent investigation of Yisrael Beiteinu Chairman
Avigdor Lieberman in Austria. In comparison to the Kern investigation, they
said, for Lieberman Israel submitted a detailed request including criminal
charges and not just campaign violations.

Police are also investigating why all of the money transfers to the Sharon
family were made through the BAWAG bank.
Together with Schlaff, the Palestinian Authority and Casinos Austria, BAWAG
is also an owner of the Jericho casino, with 13 percent of the casino
shares. The bank shares other joint business ventures with Schlaff - in 2002
the two purchased a Bulgarian cellular company.

The original campaign contributions to Sharon which were paid back by the
Cyril Kern loan came from a straw company called Annex Research Ltd.,
currently at the focus of a recent indictment filed against Sharon's son MK
Omri Sharon.

According to the indictment, Omri Sharon funneled funds from donors overseas
to Annex and used the money to pay for consultants, service suppliers and
campaign activists. Police suspect the overseas donors may have been the
same people behind the "Cyril Kern loan" - Schlaff or US-based Sharon
confidant Aryeh Genger.

The casino, which has been closed since October 2000, is believed to be at
the center of the investigation and possibly the catalyst behind all of the
mysterious money transfers. Police suspect Schlaff may have given the loan
as a bribe to prompt Sharon to reopen Jericho to Israeli gamblers.

In March, Israel transferred security control over Jericho to the
Palestinians in a move seen by the casino owners as a step towards
ultimately allowing Israelis to enter the PA-controlled city to gamble. An
employee for Casinos Austria - an 18% owner of the casino - said Thursday
his company was optimistic Jericho would be reopened in the near future.

"We are very optimistic that it will happen," the employee said. "For now
however we cannot say when the time frame will be and when it will take
place." Sharon Spokesman Ra'anan Gissin did not rule out the possibility the
casino would be reopened, claiming it all depended on the Palestinians.

"If there will be a change in the security situation and the Palestinians
begin taking steps in that direction and the [IDF] commander feels it is
safe for Israelis to travel in that area then it might be opened," he said.

As to the Austrian claims Israel was dragging its feet regarding the Cryil
Kern investigation, Gissin said: "This is a private business matter and [I]
am not involved." Schlaff was also unavailable for comment. Laughing upon
hearing about the newly-launched investigation, Schlaff's spokesman Michael
Fink told the Post: "I have two words for you - No comment."