An Israeli general and a General Electric official diverted more than $40 million in US military aid to Israel from 1984 to 1990 for unauthorized military projects, according to an ongoing investigation by the House Commerce and Energy Subcommittee on Oversight and Investigations.
Presenting his panel’s preliminary findings at a July 23, 1992, hearing on Capitol Hill, Rep. John Dingell (D-MI) asserted that Brig. Gen. Rami Dotan conspired with Harold Katz, a dual citizen of Israel and the US, and Herbert Steindler, a senior General Electric official, to launder about $40 million in US military assistance funds, earmarked for Israel, through General Electric.
The funds, diverted to secret Swiss banks accounts set up by Katz, were generated by writing thousands of phony vouchers for military equipment with inflated prices and for equipment never produced. Dingell estimates Dotan may have siphoned off an additional $30 million through other military contractors. Dotan was chief procurement officer in the Israeli Air Force and played a major role in determining which US and Israeli contractors got a slice of the US military aid pie.
“Most of these laundered funds were transferred to Israel where, according to General Electric, they were used for projects on Israeli military bases that were not authorized by the US government,” Dingell stated. These projects included improvements to General Electric jet engines that the Pentagon had denied, the construction of a power plant on an Israeli Air Force base, and the purchase of computers and communications equipment. 
Dingell asserts that the scandal also involves various shell companies, Israeli subcontractors and perhaps several other major US defense contractors, including Pratt & Whitney, Textron/Lycoming and General Motors/Allison. Also implicated is Benjamin Sonnenschein, president of Yrret Co. and Air Tech Ince., who pleaded guilty in July to federal currency transactions. The two New Jersey-based defense firms received $6 million for subcontracting work from Pratt & Whitney, underwritten by US military aid to Israel, which was diverted to bank accounts controlled by Dotan in New York and Switzerland.
Israeli authorities arrested Dotan in October 1990 and later sentenced him to 13 years in prison for accepting bribes from GE’s Steindler and diverting US military aid. But then-Prime Minister Yitzhak Shamir’s Likud government dismissed the Dotan affair as “a rogue operation” and refused to allow the Justice Department to question Dotan or Katz.
Dingell was not satisfied with the Israeli explanation. “It is not clear how General Dotan was laundering tens of millions of dollars of US funds and making this scarce currency available for unauthorized purposes on various military bases without top Ministry of Defense officials questioning where the money was coming from,” he said.
The Pentagon did not buy the Israeli explanation either. Asserting that the US cannot be sure that Dotan and his accomplices were acting only out of self-interest, Jerome Silber, general counsel to the Defense Security Assistance Administration, wrote in an April 1992 memorandum that, “We must therefore proceed on the assumption that [the Israeli government] itself may be implicated in the alleged fraud.”
Katz’s role in the Dotan affair raised the eyebrows of Congressional investigators because of his suspected ties to Israeli intelligence. The investigators found that more than $11 million of the funds diverted by Dotan and Steindler was funneled to Katz, who laundered the money through a maze of front companies and bank accounts he set up in Europe. Pratt &Whitney, a division of United Technologies Corp, hired Katz as a $25,000-per-year consultant. 
Katz, an ardent Zionist, ultimately transferred most of these funds to Ellis AG, an investment company in Zurich, and front companies in Switzerland. Ellis AG has been under investigation by the Securities and Exchange Commission for almost a decade for suspicious trading practices on Wall Street and some US investigators believe Ellis may be linked to Israeli intelligence. 
Katz is also connected to Ellis AG managers and opened up dummy companies registered in Panama-M&E Engineering Ltd., Aerotech Ltd. and VISP — at the behest of Dotan, through which the diverted money was channeled.
Katz served for a decade, until 1983 as a legal adviser to the Israeli Ministry of Defense, helping Israel negotiate contracts with US military contractors. Katz also worked in the 1970s with Rafael (Rafi) Eitan, one of Israel’s most notorious intelligence operatives, when Eitan was Prime Minister Menachem Begin’s special assistant for terrorism. During this period Katz developed expertise as a money launderer. 
Katz apparently teamed up again with Eitan in the mid-1980s when Eitan was head of LAKAM, the super-secret intelligence unit set up in the Israeli Ministry of Defense to gather scientific intelligence and sensitive technology from the West. From LAKAM, Eitan ran the spy operation in the US that recruited Jonathan Pollard. At Eitan’s request, Katz bought a Washington, DC apartment for Pollard and his handler to use for exchanging money and documents.  The Israeli government dismissed the Pollard spy operation as “a rogue operation,” as it has the Dotan affair. But some Justice Department and congressional investigators suspect Katz may have helped move the money used to pay Pollard, and think the two affairs may be connected. 
GE pleaded guilty of defrauding the US of $26.5 million in the sale of military equipment to Israel in this case, and in July agreed to pay approximately $69 million in fines, penalties and damages. Israel had refused to allow US investigators to question Dotan and other witnesses. In November 1992, under threat of suspension of US military aid, Israel agreed to allow US officials to question them under the following conditions which, it seems, the US has accepted: The two parties will be separated by a glass panel, and the investigators will not be able to hear witnesses’ answers. All answers will be relayed to US investigators by Israeli officials. Finally, the witnesses may refuse to answer any questions. 
 Washington Post, July 29, 1992.
 Wall Street Journal, January 20, 1992; Hartford Courant, January 21 and July 26, 1992; Los Angeles Times, July 3, 1992.
 Wall Street Journal, January 20, 1992; Dingell, opening statement, July 29, 1992; interviews with Congressional investigators.
 Ibid.; Andrew and Leslie Cockburn, Dangerous Liaison: The Inside Story of the US-Israeli Covert Relationship (New York: Harper Collins, 1991), p. 202.
 Wolf Blitzer, Territory of Lies (NY: Harper & Row, 1989), pp. 8-10, 84-86, 90; Seymour Hersh, The Sampson Option (New York: Random House, 1991), p. 296; and Dangerous Liaison, pp. 85, 203.
 Boston Globe, February 7, 1992; interviews with Congressional investigators.
 Wall Street Journal, November 2, 1992.