Revealed: US officials are investing public funds in Israeli bonds in deals that raise ethics concerns
State
and local officials have invested $1.7bn of the public’s money in
Israel Bonds since 7 October. An investigation reveals contacts between
buyer and seller that experts say may cross a line
In August 2023, an executive at Israel Bonds – an organization that sells Israeli bonds
to fund that nation’s government and buttress its military – emailed
the Ohio state treasurer’s office a sales pitch: could the state of Ohio
buy a batch of Israeli bonds for $5m?
In less
than 40 minutes, the treasurer’s office approved the purchase, bringing
Ohio’s Israeli bond purchases to a total of $35m for that year.
The
fast deal was made between parties that were on exceptionally friendly
terms, according to a trove of emails and other records obtained by the International Consortium of Investigative Journalists
(ICIJ). And it was not the only matter being discussed with Israel
Bonds. At the same time that the Ohio treasurer, Republican Robert
Sprague, allocated millions in state funds to the bond purchases, he was
also making arrangements with the bond seller’s business development
team to join an exclusive guided trip to Israel, scheduled for later that year.
Six
weeks after the Ohio treasurer’s $5m purchase, Hamas launched its
deadly 7 October attack, which killed nearly 1,200 people in Israel.
Another 250 were taken hostage.
In the
following days, there was an outpouring of public support from lawmakers
at all levels of government in the United States for the country’s
closest ally in the Middle East. While Israel launched its retaliatory
bombardment of the Gaza
Strip – and Joe Biden shepherded billions in funding and military aid
through Congress – many state and local governments showed their support
through a lesser-known financial mechanism: investing in sovereign
bonds issued by Israel.
Since the start of the war, US states and municipalities have bought at least $1.7bn
in Israeli bonds, with Democratic and Republican officials around the
country boasting of their investments demonstrating support for an
Israel at war.
This is an area of ethics where there are many potential conflicts of interest
Richard W Painter of the University of MinnesotaIsrael Bonds,
which is headquartered in New York, has meanwhile found itself caught
up in a global political maelstrom that followed the Hamas attack and
the war in Gaza. Activists have singled out Israel Bonds in demanding
that corporations and institutions divest from financial instruments
seen as supporting Israel’s government.
The
more than 2,000 pages of emails and other records obtained by the ICIJ,
largely through records requests, offer an unprecedented glimpse inside
Israel Bonds’ extensive efforts to court public officials in the US
while delivering highly personalized sales pitches in a stream of
pro-Israel messaging. The documents show how some officials who buy
these bonds have gained access to an often-glitzy world that includes
gala dinners, cocktail celebrations and private meetings with top
Israeli leaders and senior military officials – and how these dealings
with Israel Bonds sometimes blurred the lines between private life and
official business.
In a statement to the ICIJ,
a spokesperson for Israel Bonds said that the bonds were a safe
investment and that the group places importance on building
relationships with its customers, partly to keep continuity if key
decision-makers change due to elections or other reasons. “Investors
usually choose to invest for a simple reason: Israeli bonds offer strong
credit as well as strong and steady returns,” Nathan Miller, a
spokesperson for Israel Bonds, said. “The state of Israel has never
missed an interest or principal payment in almost 75 years of issuing
bonds.”
When an elected official tasked with
investing taxpayers’ money buys government bonds, it’s usually a dry and
straightforward process with little interaction between the seller and
buyer. Government officials are generally discouraged from taking
actions that could be construed as creating a conflict of interest –
that could cause them, for instance, to favor certain assets for any
reason other than selecting the best investments available. Ethics
experts say some state officials may have crossed an ethical line in
their dealings with Israel Bonds.
Demonstrators
protest the appearance of Bezalel Smotrich, the Israeli finance
minister, at the Israel Bonds gala in Washington DC on 12 March 2023. Photograph: Zuma Press/Alamy
“This
is an area of ethics where there are many potential conflicts of
interest,” said Richard W Painter, a law professor at the University of
Minnesota and former chief White House ethics lawyer in the George W
Bush administration. “These types of practices, the mixing up of the
personal and official, seem to go well beyond what’s seen as
acceptable,” Painter said, referring to actions of public officials
described in this article.
Miller said that “Israel Bonds’ marketing practices and events are legitimate, appropriate and common practice” in the industry.
The
ICIJ interviewed a half-dozen experts on state treasuries who described
a usual investment approach in which bonds were chosen based on
expected performance alone and where extensive interaction with sellers
was rare.
Bill Lockyer, a former treasurer of
California, said his former office bought bonds only in arms-length
transactions. Early in his tenure, he said, a major bank hosted a swanky
event in Napa valley. Although he attended the daytime activities, he
recalled declining to accept a hotel room or attend the bank’s dinner
due to ethics concerns. “I got my own motel and ate at the local Mexican
restaurant. I didn’t want to violate anything.”
In
an era of war and rising concerns over antisemitism in the US and
abroad, Israel Bonds sees itself at the vanguard of securing the future
of the Jewish state. And given the historic scale of its operations,
which have raised $52bn over more than seven decades, and the toll that
the war has taken on the country’s economy, Israel Bonds’ performance
could have real consequences for Israel’s future.
‘Now is the time to stand with Israel’
For
decades after its launch in 1951, Israel Bonds, formally known as the
Development Corporation for Israel, primarily focused on leveraging
funds from the Jewish diaspora in the US to bolster the fledgling Middle
Eastern state. Israeli bonds have long been pitched as gifts for
celebrations such as birthdays and bar and batmitzvahs. But the group –
and its marketing strategy – has evolved, becoming an important source
of government financing as it courted banks and other institutional
investors, more recently including US states and municipalities.
David
Ben-Gurion, Israel’s first prime minister, and American businessman
Rudolf Sonneborn at the launch of the Israeli Bond Campaign at Madison
Square Garden in New York City in May 1951. Photograph: Archive Photos/Getty Images
“In
some ways, the Israel Bonds program is one of the – if not the – most
successful sovereign debt issuance programs in the history of the
world,” said Mitu Gulati, a law professor specializing in international
debt finance at the University of Virginia School of Law.
In the early weeks of the war, though, the Financial Times
reported that Israel quickly borrowed billions of dollars by issuing
bonds through privately negotiated deals, despite growing concerns about
the bonds’ risks. Over the past year, credit rating agencies have
downgraded Israeli government bonds due to growing political
instability, although the bonds are still considered well within
“investment grade territory”, according to Bloomberg.
But many US state and local governments were undeterred by the turbulence. On 11 October, Sprague announced Ohio’s plan to invest an additional $20m in Israeli bonds. “Now is the time to stand with Israel,” he said in a statement.
Joseph Abruzzo, the Democratic chief financial officer of Palm Beach county, one of Florida’s wealthiest counties, announced an additional $160m investment in Israeli bonds in October alone.
On
12 March 2024, the Palm Beach county board of commissioners approved
Abruzzo’s request to lift the cap on the investments from 10% to 15% of
the county’s portfolio. Two weeks later, Abruzzo claimed, in a press conference,
the county’s new title of “world’s largest investor in Israel Bonds”,
which accounted for roughly $700m of its $4.67bn portfolio.
In
May, three Palm Beach county residents – all US citizens with
Palestinian heritage – sued Abruzzo for allegedly breaching his
fiduciary duty to taxpayers and for investing for “social, ideological
and political reasons”, which Florida banned under a 2023 law, according
to court documents. One of the plaintiffs said in the complaint that
the Israel Defense Forces had killed 37 of his family members since 7
October 2023.
“We expect the frivolous case
brought against me in my capacity as clerk will be quickly dismissed
with prejudice,” Abruzzo, who is also clerk of the circuit court, said.
Joseph Abruzzo, left, and then Florida state senator Wilton Simpson in 2016. Photograph: Zuma Press/Alamy
In
December 2023, both Sprague and Abruzzo joined Israel Bonds’ newly
formed government, industry and financial services leadership group,
alongside Illinois’s treasurer, a Democrat, and treasurers from
Pennsylvania and Oklahoma – both Republicans. The purpose of the group
was to help Israel Bonds strengthen ties with government and other
institutional investors in the US, according to media reports. Sprague,
the Ohio treasurer, was named chair.
High-level visits and access
The
itinerary for Sprague’s planned October 2023 trip to Israel reads like a
luxury vacation mixed with an official state visit. In a statement to
the ICIJ, Sprague’s office said he had planned to pay for the Israel
trip with personal funds, some of which he had already spent before the
trip was canceled after Hamas’s 7 October 2023 attack on Israel.
A
spokesperson for Sprague said there was nothing unusual or
inappropriate about his relationship with Israel Bonds and that every
Ohio treasurer since 1993 had invested in Israeli bonds, which have
“consistently proven to be a strong and reliable investment for the
state portfolio”. Since 2019, Sprague has bought $357.5m worth of
Israeli bonds on behalf of Ohio.
The trip to
Israel was to begin with Sprague checking into a five-star Jerusalem
hotel before being shuttled to a gala dinner at a subterranean venue
with vaulted stone ceilings. The itinerary for the days afterward
included a trip to the City of David, the controversial
archaeological site, for “an exclusive tour of places not yet open to
the public, including groundbreaking archeological artifacts”.
The
itinerary also included meetings with Israeli politicians, a wine
tasting at an Israeli vineyard, exclusive tours of two Israeli military
bases and a private, after-hours tour of Tel Aviv’s Museum of the Jewish
People to see the earliest copy of the Hebrew Bible. On the final day
of the trip, the itinerary listed a visit to Israel’s presidential
residence for a meeting with the Israeli president, Isaac Herzog.
In
a statement, Miller, the spokesperson for Israel Bonds, said that only
one public official – presumably Sprague – had registered for the
ultimately canceled 2023 trip, and that the official planned to pay for
the trip himself at the same rate as other attendees. No US public
officials have attended an Israel Bonds trip since 2019, Miller said. He
added that Israel Bonds “has frequently facilitated missions to Israel
for our leadership and investors” and called the trips “substantive
educational opportunities for our investors to learn more about the
financial health and economy of the country that they have invested in”.
Sprague
listed a personal email address on the registration form for the bond
seller’s trip to Israel, but his Ohio treasurer’s office email account
was used for at least some communications around the planned trip.
This
wasn’t the first time Israel Bonds had helped plan Sprague’s travel. In
March 2023, Israel Bonds hosted a conference in Washington DC to
commemorate the 75th anniversary of Israel’s founding. In an email
message to Sprague’s office, a sales executive for Israel Bonds said he
had reserved a hotel room for Sprague at the four-star Grand Hyatt.
Republican candidate Robert Sprague gives his victory speech after winning the Ohio treasurer position on 6 November 2018. Photograph: Justin Merriman/Getty Images
The
Washington event featured a cocktail reception, dinner and a Q&A
with Sprague and the Illinois treasurer, Michael Frerichs, for which
Israel Bonds provided Sprague questions in advance. Israel Bonds also
offered Sprague and Frerichs a private meeting with Israel’s finance
minister at the event, according to Israel Bonds emails to Sprague.
Frerichs did not respond to the ICIJ’s questions about the potential
meeting, and a spokesperson for Sprague said that it did not take place.
Three
months later, Sprague’s office – the Ohio treasurer’s office –
reimbursed Israel Bonds $727 for his hotel and meal expenses at the
event.
Late last year, Sprague traveled to
Florida, where he attended an Israel Bonds gala dinner in Palm Beach to
present an award honoring that state’s chief financial officer, Jimmy
Patronis, for his support of Israel Bonds, including the state’s major
bond purchases.
A spokesperson for Sprague
said the trip “included work not for state business and that no public
funds were used in paying for the trip”. Instead, Sprague used campaign
funds to pay for “travel expenses and meals related to the trip”, the
spokesperson said.
Sprague was already serving
his second term as treasurer, and was ineligible to run for a third
given term limits on his position. His office did not answer questions
about what campaign activity took place in Florida, but noted that the
term limit did not preclude him from running for a different office.
Sprague’s campaign told the ICIJ that he attended political meetings in
Florida without providing further details.
Conflicts of interest are ubiquitous in public life … If there is a conflict suspected, then the public is owed an account
Archon Fung of Harvard University’s Kennedy School of GovernmentOhio’s
ethics law forbids public officials from taking substantial gifts from
an “improper source”, including from any person or organization “seeking
to do business with the agency”. Things of substantial value, according
to the website, include lavish meals, entertainment activities and
travel to exotic locations. Sprague’s 2023 financial disclosure form
lists nothing related to Israel Bonds.
The
office of the Illinois treasurer, Michael Frerichs, did not respond to
the ICIJ’s repeated requests for comment, which included questions about
who paid for his hotel and dining costs at the March 2023 Israel Bonds
conference in Washington. (Illinois ethics laws forbid a public official
from accepting gifts of more than $100 total in a calendar year from
anyone who does business with the state.)
Archon
Fung, a professor focusing on democratic governance at Harvard
University’s Kennedy School of Government, said that transparency is key
for officials, who naturally face a variety of potential ethical
pitfalls. “Conflicts of interest are ubiquitous in public life,” Fung
said. “For somebody in a public role, they have to explain how they are
managing these issues. If there is a conflict suspected, then the public
is owed an account.”
Israel Bonds said it
paid the expenses for speakers at the Washington event, and that
“expenses were modest and we did not ask our speakers for
reimbursement”.
“Just like any other business,
it is common practice for broker dealers to host seminars, meetings and
conferences, during which clients and potential clients attend to
discuss issues of interest to them,” Miller, the Israel Bonds
spokesperson, said in a statement. “We invite a variety of speakers to
present, including elected officials, and often pay for housing and
transportation for those speakers who are coming in from far away.”
Florida’s growing commitment
Few
states, if any, have formed the kind of partnership with Israel Bonds
that Florida has. The Sunshine state has a treasury holding more than a
quarter-billion dollars worth of the bonds. As the state’s chief
financial officer, Patronis, who has led a major drive to invest
Florida’s money in Israeli bonds, has been recognized by Israel Bonds several times in recent years.
“CFO
Patronis is committed to providing the best return on investment for
taxpayers’ dollars,” Devin Galetta, a spokesperson for Patronis, told
the ICIJ in an email, adding that four Florida state treasurers had
purchased Israeli bonds. “Since 2001, Florida has earned approximately
$29m in interest from state of Israel bonds.”
In
2018, after Patronis began dramatically increasing the state’s holdings
of Israeli bonds, the bond seller honored him at a celebration during
which he was presented a plaque by Israel Defense Force Maj Gen Mickey
Edelstein, then the nation’s military attache to the United States.
Florida’s
chief financial officer, Jimmy Patronis, at a commerce committee
meeting on 8 March 2023 at the state capitol in Tallahassee. Photograph: Phil Sears/AP
The
following year, in 2019, Patronis went on a trip to Israel that was
reported by the Tampa Bay Times to be partly sponsored by Israel Bonds,
which said it hosted a meal for the delegation. Patronis and a
delegation of Florida politicians and business people were joined on the
trip by two Israel Bonds executives, according to an official itinerary
of the trip.
In 2020, Israel Bonds held a
celebration in which Patronis was honored for promoting state
legislation that enshrined a commitment to continue buying Israeli
bonds. In 2022, Israel Bonds hosted Patronis as a special guest at its
annual Prime Minister’s Circle Gala in Boca Raton. And last year, the
bond seller made Patronis the main attraction at the same gala event,
presenting him with a top honor called the Israel Bonds Leadership
award. This was the same December event that Sprague attended.
In
response to the ICIJ’s questions about who paid for Patronis’s costs
around Israel Bonds events, Galetta responded only that “all appropriate
statutory requirements have been met”.
Warnings of risk
Last
year, Democracy for the Arab World Now, or Dawn, a non-profit
organization that has accused Israel of human rights violations,
submitted a complaint to the US Department of Justice alleging that
Israel Bonds appeared to be violating a federal law designed to keep
tabs on foreign influence operations in the US. The complaint urged the
justice department to investigate whether Israel Bonds broke the law by
not registering as a foreign agent.
Miller called Dawn’s letter “false and defamatory” and said Israel Bonds “is not a foreign agent, and never has been”.
Since
7 October Israel Bonds has raised a staggering $3bn worldwide. At the
same time, the group has attracted new attention from activists seeking
divestments from Israel. In May, the advocacy group Jewish Voice for
Peace protested outside Israel Bonds’ Philadelphia offices, shutting
down city streets and demanding government offices withdraw investments
in Israel.
As previously reported by the Guardian,
many of the US states that answered the call to buy Israeli bonds are
the same ones that have railed loudly against investment strategies
based on social and environmental issues, such as the climate crisis.
The Guardian found that the majority of state financial officials who
invested millions in Israeli bonds in the first month of the war
belonged to a conservative group that is now lobbying to keep “the left”
out of state treasuries.
In mid-2021, Thomas
Clancy, the then chief investment officer of Pennsylvania’s treasurer,
Stacy Garrity, cautioned that Israeli bonds could be a risky investment
for the state, according to emails obtained by the ICIJ. Clancy
emphasized Israel’s political instability and the country being
“frequently involved in military violence”. He also noted that the bonds
are not traded on the open market – meaning, regardless of headwinds
the nation may face, buyers are stuck with the bonds until they pay out.
He proposed “investing in more liquid securities, with fewer risks to
the investment capital”.
His advice was not
followed. Erik Arneson, a spokesperson for Pennsylvania’s treasury
department, pointed out in an email to the ICIJ that the chief
investment officer “is one member of the Pennsylvania treasury
department’s investment committee” and that “in this case, the other
members of the investment committee did not agree with the former CIO’s
view on Israel Bonds”. Arneson also emphasized that Israel Bonds has
never defaulted on its payments.
On 10 October
2023, Pennsylvania’s new chief investment officer conveyed an
opportunity from Israel Bonds for the state to make an additional
investment “given everything taking place”. It took Garrity just an hour
to confirm that she would “love” to temporarily increase the state’s
investment in Israel bonds by $10m. By 12 October, she publicly pledged to double that amount to $20m worth of bonds.