Israel Bonds: The FBI File

Documents

Founders of the U.S.-based sales corporation for Israel bonds included the unindicted ringleader of the Sonneborn network (PDF) of conventional arms smuggling fronts, Rudolph Sonneborn, and the North America financier for Israel's clandestine nuclear weapons program Abraham Feinberg, along with former U.S. Treasury Secretary Henry Morgenthau Jr..  Morgenthau's role in conventional and nuclear smuggling is alleged, but unconfirmed since the FBI has censored nearly every page of his lengthy FBI file.

The FBI kept a close watch on the "American Financial and Development Corporation for Israel" (AFDCI, incorporated in 1950) to determine whether it was acting as an unregistered agent of the Israeli government.

On June 27, 1951, the FBI chartered an investigation to discover "connection between subject corporation and the Government of Israel, the extent to which the corporation is subsidized directly or indirectly by the Government of Israel, and extent to which the Government of Israel in any way exercises control of the policies or operations of the corporation."

After one FBI inquiry, the Chief of Foreign Agent Registration at DOJ (who later enforced the registration order against AIPAC's parent, the American Zionist Council) determined that "Bonds for Israel" was "entitled to 'Commercial Exemption' under the Registration Act for the reason that funds raised by this organization are to be used for economic purposes..." [Nathan] Lenvin "pointed out that Israeli Government representatives and military personnel who tour the U.S. for 'Bonds for Israel' would be required to register with the Justice Dept. if their talks and speeches include any political propaganda.  He added that, in his opinion, it would seem most difficult for these speakers not to interject some political propaganda in their speeches." 

FBI ordered that confidential informants be developed within the sales network and that public source material be collected to determine whether "'Bonds for Israel' have been engaged in activities requiring their registration under the Registration Act."

On November 13, a 1956 FBI bulletin, copied to NSA and CIA, reported that a secret November 9, 1956 Development Corporation for Israel (successor to AFDCI)  meeting took place over concerns that Israeli funds would be frozen over Israel's attack on Egypt.

However, U.S. presidents never used their leverage on ballooning Israeli bond sales across the United States to pressure Israel to comply with international law.  Although bond sales have expanded to over a billion dollars a year (2013) as Israel's supporters enact laws to efficiently place them in a wide variety of state government holdings, the record reveals that the Justice Department has never engaged in a serious review of compliance with the Foreign Agents Registration Act.

FOIA release letter

DOJ rules "the [FARA] exemption was available only so long as the Corporation did not engage in any political activity as defined by Rule 100 of the Act on behalf of the State of Israel...While no specific investigation is being requested at tis time, the Division would appreciate receiving any information that may come to the attention of the Bureau indicating that the subject organization is engaged in any political activity within the meaning of rule 100, such as attempting to influence the foreign policy of the United States, endeavoring to procure the enactment or repeal of any legislation affecting the State of Israel, or disseminating any political propaganda on behalf of the State of Israel."

March 28, 1951 Prospectus for sale of $500 million bonds.

September 18, 1951 New York Times "20 Frank Answers to Your Questions about State of Israel Bonds"

"For Private Circulation to Officers" report from American Financial and Development Corporation of Americans buying Israel bonds during issue campaign.

Form letter from former Treasury Secretary Henry Morgenthau Jr., Chairman of the Board of Governors of the American Financial and Development Corporation of Israel.

June 27, 1951, FBI charters investigation to discover "connection between subject corporation and the Government of Israel, the extent to which the corporation is subsidized directly or indirectly by the Government of Israel, and extent to which the Government of Israel in any way exercises control of the policies or operations of the corporation."

FBI obtains the December 21, 1950 Certificate of Incorporation of the American Financial and Development Corporation for Israel from the City of New York.  Among the initial stockholders is unindicted smuggler Rudolph G. Sonneborn.

Informant report that Rudolph Sonneborn listed as President of AFDCI.  "Will report any information received concerning advertisements issued by subject corporation and will report the opinion of the department of Justice as to prosecution of subject corporation for failure to register under the Registration Act.

October , 1951 recommendation that SEC records of bond issue be reviewed.  Letter seeking SEC records.  Audit of SEC records.

Investigation of holding company American Committee for Aid to Israel Immigrants.

May 5, 1952 confidential DOJ opinion on AFDCI.  "It was the Department's opinion that the organization came within the definition of the term 'agent of a foreign principal' contained in Section 1(c)(2) of the Act, but that the Corporation could avail itself of the exemption contained in Section 3(d) of the Statute, as engaging in financial activities in furtherance of the bona fide trade and commerce of the State of Israel and in activities to relieve human suffering." "It was pointed out, however, that the exemption was available only so long as the Corporation did not engage in any political activity as defined by Rule 100 on behalf of the State of Israel."

1953, FBI responds to insider reports that AFDCI has been infiltrated by communists. FBI responds to Congressman Cellar call on suspected infiltration.  AFDCI "eases out" suspects. FBI closes case "Communist Infiltration of American Financial and Development Corporation of Israel; IS-C"

November 13, 1956 FBI report, copied to NSA and CIA, that a secret November 9, 1956 Development Corporation for Israel meeting too place over concerns that Israeli funds would be frozen over the attack on Egypt.

November 5, 1957 report that Edwin Garfield of the Development Corporation for Israel, was on the Security Index of suspected communists.

April 30, 1956 Notation that "subject's registration was not being required at that time but pointed out that the exemption was available only so long as the Corporation did not engage in political activity...In view of the current attempts on the part of Israel to influence the U.S. to furnish arms to that country and inasmuch as officials from the State of Israel make political speeches for promotion of sale of bonds of subject it is recommended that this case be reopened. It is felt that this investigation would be directed toward bringing this case up to date and ascertaining whether the acts of Political Leaders in the US on behalf of the state of Israel come within the meaning of Rule 100."

June 28, 1956 FBI SAC memo recommends closing update.

Reports on Israel Development Corporation attempts to get governors, judges and members of congress to speak at bond drives.

FBI informants try to obtain IDC internal papers.  indicate concern over funds freeze as a U.S. response to Israeli invasion of Egypt.

1959 Case file that Joseph J. Schwartz a IDC sales representative may have "a possible association with the Israeli Intelligence Service and the possibility of his having had pro-Communist connections.