A police probe into the legality of Gad Zeevi's 20% holdings in the national phone company Bezeq could delay the company's privatization, say sources involved in the process.

The international crimes division of the Israeli police is investigating allegations that businessmen Gad Zeevi, Michael Chernoy and others used laundered Russian mob money to acquire shares in the Israeli phone company Bezeq, among other things. The probe became a matter of public knowledge yesterday, after months of covert investigation.

At the direction of Government Companies Authority director Yaron Jacobs, Merrill Lynch is looking into the implications the probe could have on potential investors and the value of the company, in which the government holds just over 50%. The bank's findings could induce the Government Companies Authority to delay publishing a tender for Bezeq's privatization, although Jacobs said that meanwhile, preparations for the publication of the tender are continuing.

Jacobs is concerned that the allegations against Zeevi and others could lower the value of the company or detract from its allure to strategic investors.

A decision on whether to delay publication of the privatization tender will be taken based on the findings of the Merrill Lynch inquiry.

Bezeq CEO Ilan Biran said yesterday that the investigation into Zeevi's finances should not delay the company's privatization.

The probe into his mob connections aside, Zeevi has been holding up the company's privatization with objections to an early retirement plan for Bezeq employees. A compromise was recently achieved on this matter. But Zeevi has yet to issue a power of attorney that would allow the Government Companies Authority to raise capital to finance the retirement program.

Contenders for the controlling interest in Bezeq include the Zeevi group, The Israel Corporation, and Poalim Investments. Sources from these companies have told


that they do not wish to see the tender postponed. Sources close to other potential competitors for the tender added that an investor wanting to buy control of Bezeq, which will apparently cost at least $2 billion, would not be deterred merely by the Zeevi affair.

Under the Telecommunications Law, acquisition of 5% or more of the shares of the telecommunications company requires a permit from the communications minister. Legal sources noted that the law allows the minister to force the buyer to sell its shares if it turns out that the permit was obtained through misrepresentation.

Communications Minister Reuven Rivlin stated yesterday that Zeevi is innocent until proven otherwise, adding, however, that as communications minister, the affair was causing him "much concern regarding the privatization of Bezeq." Rivlin refused to comment on allegations that the Communications Ministry had been negligent in looking into the data submitted by Zeevi or the possibility that the share acquisition had been approved following a bribe.

A finger in many pies The Zeevi Group is involved in the fields of energy, trade, retailing, shipping and logistics, industry, construction and development, real estate, communications, high-tech and finance. The company's head offices are located in Israel, with one branch in Puerto Rico and a second in London.

The group's activities in the energy field include the operation of oil refineries in Central America, as well as the financing and establishment of fuel stations. Zeevi also trades energy products through offices in Israel, Switzerland and Britain.

In the retail field, the group operates through Ace, Auto Depot, Zeevi Chain Stores and Zeevi Trading and Marketing, dealing in products such as household and electronic goods, clothing, foodstuffs, construction equipment and motor vehicles.

The company is involved in the planning and construction of roads, bridges, airports, water plants and sewage infrastructure. The group also builds and manages vacation and health centers, including hospitals and clinics.

In the field of high-tech, the Zeevi Group is involved in the development and manufacturing of chips, hardware and software, electronic data security and biotechnology.

Most of Zeevi's real estate projects are located in Haifa and its vicinity, where Mayor Amram Mitzna, a close associate, has defined him as "the best thing that has ever happened to the city."