Jewish St. Petersburg Community House
JDC in the CIS: What's up?
25.11.2009, Communities of Eurasia
The American Jewish Joint Distribution Committee and its policy in the CIS have recently become one of the most disputed topics in the Jewish communities of the Euro-Asian realm.
The New York newspaper “My Zdyes”(We Are Here) has recently published an extensive analytical report on the matter, prepared by a group of Israeli and Russian experts speaking on condition of anonymity, ordered by Moscow entrepreneurs who are deeply involved in Jewish philanthropic activities.
The editors of the “My Zdyes” newspaper have kindly allowed us to reprint the article; we hope it will revive the discussion on the future of the Jewish community in the CIS.
It was officially announced in the beginning of February 2008 that Elli Malki, finance director and deputy program director of the JDC in the CIS (the so-called “Russian department”) had resigned of his own accord and was to leave the Joint in August. Although the numerous resignations or secretly arranged reorganizations in the “Russian department” have stopped being surprising over the recent years, but Elli Malki’s unexpected resignation has caused many questions:
What was the genuine reason of the resignation?
Would full reorganization of the “Russian department” follow?
Was this resignation an attempt to revise the functions, goals, and methods of the department, or was it simply searching for a scapegoat?
Was an even louder retirement in store for the unchallenged director of the “Russian department” Asher Ostrin?
These questions are caused by the part Elli Malki used to play in the “Russian department” of the Joint. Formally the second voice in the department, according to some, not only was he in fact the “grey eminence” of it, but he also performed such functions as managing all current work and formulating the “ideas” which determined the tactics and strategies of the organization.
The “Russian department” being an absolutely closed structure, and Elli Malki himself probably the least public of its employees, observers are left with guessing what is currently happening in the JDC – the largest Jewish charitable organization whose policy directly influences the fates of hundreds of thousands of Jews in the CIS.
At a glance Elli Malki’s retirement may seem linked to an attempt of the leadership of the Joint to change their strategy in Russia and other states of the region, to return to their mandated goals of community building and cooperation with communities, and to avoid the conflicts which are bursting out in the entire CIS and have recently spilled into Jewish press, including that of the United States.
However, unfortunately it is more likely that his resignation was simply caused by internal confrontation between individual leaders of the “Russian department”, wherein Elli Malki had manipulated budgets and cash flow to create his own “state within a state”. It is also quite probable that this is just “Russian department” director Asher Ostrin’s attempt to decline all responsibility for the Joint’s CIS policy and preserve his own position in an atmosphere of ever-growing criticism and numerous scandals.
Let us postpone the question of reasons which made possible this monopolization of power in its entirety by the finance director of the “Russian department”. Firstly, let us attempt to get a more detailed understanding of his activity’s very character and the financial schemes he used which come across as fatally non-transparent.
1. Beginning of the “grey eminence’s” activity – standards and audit
This chapter is dedicated to the power struggle within the “Russian department” of the Joint. The struggle led first and foremost to destructive repercussions in the department itself, but one of the main side effects was that any and all ties of partnership between the Joint and local CIS communities were severed.
When Elli Malki took the post of finance director (then without the status of deputy director), his first and perhaps quite sincere steps had to do with bringing order to the financial system. At that point, the structure of the department was rather complicated, but logical in its own way.
The territorial structure was represented by regional directors, whose subordinates were local Joint representatives, leading small offices in the largest cities of the CIS. Next to this, there were professional sub-departments responsible for program development, though many regional directors were simultaneously responsible for some program areas as well (social work, community centers, education, etc.).
A constant process of negotiations, discussions, and power struggles among the regional directors and heads of sectors determined the Joint’s policy in the CIS, budget distribution etc., while the financial department played a secondary part, servicing the decisions of the leading employees. This situation, apparently, grievously disagreed with the director of Joint-CIS, Asher Ostrin, who was forced to constantly consider the opinions of his brighter and more creative subordinates.
In this situation Elli Malki began fighting for total introduction of so-called standards – rules of program work, of administrative activities, of accountability and budgeting. As there was virtually no discussion of the established standards even inside the JDC, once the initially reasonable requirements were rendered absolute became their own opposite. Rules began to regulate even cases which cannot be regulated in principle (e.g., there are known, though luckily isolated, cases of JDC employees demanding that local organizations choose artists to perform concerts on the basis of a tendering contest). As usual, total bureaucratic regulation of everything hindered work; JDC employees had to go cap in hand to Asher Ostrin or Elli Malki every time the rules would not adhere to reality, begging for an exception. Naturally, favorites were allowed to depart from the rules; however (another trait of the “house style”) this in no way implied that in the future they would not be punished for disobeying rules.
Next to setting standards, Elli Malki set out to create a system of financial audit. Malki demanded that there be an auditor in each regional office of the Joint in the CIS to systematically check the activities of local organizations financed by the Joint. According to their job description they reported not to the local Joint representatives, but directly to Elli Malki. Their reports were also sent directly to him, and contrary to conventional standard the audited organizations were not allowed to challenge the contents beforehand. There was no possibility of additional verifications or updates, and even when an organization would hire an independent auditor, the opinion of such an auditor was ignored.
Soon the authority of the JDC’s auditors was increased arbitrarily, with the audit they were conducting now reaching far beyond financial accountability and touching upon any aspect of the activities of local Jewish organizations. For all that, the qualifications of the auditors in financial matters as such were often highly doubtful, while their total lack of knowledge whatsoever on the essence of the organizations’ program activities raised no doubt at all.
Elli Malki rated the quality of an audit report on the level of “frightfulness” of its results. No wonder the auditors often simply made up criticism on the work of the organizations, and the audit reports carried multiple conclusions of systematic violations, abuse, and suspicion of embezzlement. These reports allowed Malki to virtually single-handedly decide to discontinue financing for an organization, which he engaged in with relish. It was often impossible to understand why a given organization suddenly fell in disgrace with the Joint. It seemed that the only goal of this was to create an atmosphere of fear and dependence both among the Jewish organizations and the employees of the Joint itself.
Soon program audit, previously conducted by professional departments, was also in Malki’s competence. Having obtained this authority, Elli moved some of the program audit employees to his own department and dismissed the rest. Unsurprisingly, the most capable and proactive workers were discharged, while Elli’s staff was refilled with new “girls” who had no qualifications or experience whatsoever, but hung on his every word.
Curiously enough, once he had laid his hands on program audit, Malki soon curtailed this activity, transferring it to his auditors in local offices; the audit was replaced with the requirement for Jewish organizations and local JDC offices to get prior permission for virtually any step they made from Jerusalem, i.e., Elli.
After program audit was moved to the financial service, program departments were stripped of the last of their authority and were virtually liquidated. Regional directors were also deprived of almost all authority, as every decision was now made by the financial service according to the rules it had developed and the audit it had conducted. The staff of local Joint offices in the CIS grew exponentially, but in fact most of their work was limited to obtaining permissions from the financial service of the “Russian department”. Naturally, all of its Jerusalem office had been transformed in its entirety into a vast financial service reporting to Elli Malki, who had moreover accrued the status of deputy director of the “Russian department”.
The enlargement of JDC offices in the CIS and their virtual subordination to Elli Malki were performed under the motto of “delegating powers to local communities”, although clearly the Jewish communities themselves had no part in the process, and the offices of the Joint had no part in the local communities. On the contrary, during the aforementioned restructuring Elli provoked serious conflict with local Jewish organizations, simultaneously creating a weapon to fight them – audit reports. That was the time when the “Russian department” of the Joint stopped even pretending to consider the Jewish communities and organizations of the CIS partners, and ceased all dialogue and discussion of any issues with them. From then on, instead of the retired motto of community development, Asher Ostrin began using the vague expression “capacity building”.
As for the “Russian department” of the Joint, the main results of this stage were that Elli Malki’s personal power mechanism was established; belief in his infallibility and impunity was universally asserted; and all feedback with local communities was eliminated. Another result was that Asher Ostrin became fully immune to criticism from his employees, as any problem became his deputy’s responsibility.
2. New stage – real estate
This chapter describes the way the “Russian department” of the JDC gradually focused on real estate operations in the CIS, as well as its numerous conflicts with local communities, largely caused by these very operations.
In the first years of its work in the CIS, the Joint was uninterested in real estate, except maybe slowly acquiring office premises. Cases of it participating in buying real estate for local Jewish communities were rare and unsystematic, and usually initiated by the organizations themselves or by other donors. However, this was the stage when a typical tendency became obvious: the Joint was unwilling (or maybe just incapable) to participate in acquisition, construction, or renovation of real estate in partnership with other organizations, and any building it had invested in had to become its full property. Naturally, this approach led to many wasted possibilities with regard to the resources and contacts of the local communities; once initiated, many projects ended in scandals.
A very famous story has to do with the cancelled construction of a community center in Moscow opposite the Grand Choral Synagogue, where the mayor of Moscow Yury Luzhkov ordered a large lot of land to be allocated for the purpose (a major achievement for the activists of the local community!). However, by demanding that the whole estate become its full property, even though it was only ready to invest part of the requisite funds, the Joint first wrecked negotiations with Moscow businessmen, and eventually the whole project. The allocated lot has been vacant to this day.
Another situation arose in Kishinev, where the Joint used the weakness and legal incompetence of a local Jewish organization and promised it all sorts of welfare to get it to give over the old synagogue building it owned. Once the estate was renovated, its price grew times many, and the Joint found itself owning expensive real estate downtown, which it began renting out both to commercial enterprises and Jewish organizations, including the one that had given it the synagogue building in the first place. The local Jewish leaders blamed the Joint with fraud and went to the law. This story has so far gotten into the press, but not to its end. Court of first instance has ruled in favor of the local community. Currently the appeal of the Joint is under consideration with the municipal court of Kishinev.
The JDC’s interest in real estate grew overtime and became an obsession by the year 2000 or so, which is when they got to building huge edifices, the most remarkable of which are the “community houses” in Odessa and St. Petersburg, each worth over $10,000,000. Their intention to construct an even larger community center in Kiev on the territory of the Babi Yar, was brought to a stop by mass protests both among Kiev residents and beyond. The protesters called the plan of erecting a community center “on the bones of Babi Yar victims” blasphemous and uncoordinated with the local public. After the scandal found its way into American press, the Joint chose to abandon the project.
Building and renovation authority was delegated to a specially formed “building” committee, also headed by Elli Malki, and construction was directly supervised by employees whom Elli had appointed and who reported to him personally. Although none of the buildings were finished in time, and budgets were always overdrawn almost twofold, the committee’s authority kept growing. Gradually it came to be that the committee was responsible not just for purely technical issues, but for the following utilization of the buildings as well. The participation of regional Joint directors and local office directors was merely nominal, although some did make fruitless attempts to challenge that.
Naturally, the local Jewish communities were entirely excluded of any and all negotiations. Moreover, in such communities where local lay or professional leaders attempted to show independence and minimal independence, the JDC began getting rid of them, using the previously described audit system (the so-called “contract” audit, where the result is known in advance to be negative).
The first such case to surface was the conflict in Kharkov. The director of the local Chesed was charged with abuse on the basis of a “contract” audit, but refused to resign, while the Chesed council in turn refused both to fire the out of favor director, and to introduce to its statute clauses that would fully subordinate it to the Joint. In order to subdue the rebellious community, the Joint ceased financing the old Kharkov Chesed and opened instead a new, fully subordinate one. Simultaneously, it removed the director of the Jewish community center, who protested against his organization being relocated to a new building the JDC had bought in a remote part of town. The situation in Kharkov led to numerous scandalous publications in the Jewish press of Ukraine, as well as a lengthy trial which, however, resulted in no change.
It was probably an attempt to prevent repetition of that situation, when the Odessa Chesed director was dismissed by the Joint (which the local Chesed was virtually a department of). Following a “contract” audit, the director was fired (and with obvious breaches of labor legislation at that) right before the Chesed was relocated to a new “community house” – the man could have hindered the planned reorganization of the Chesed. The case is currently in court. To prevent the old director inevitably being restored to his post, the Odessa office of the Joint used a simple scheme as in Kharkov, i.e., cut financing from the old Chesed and founded a new one instead.
The “Kharkov experience” was used by the “Russian department” in Rostov as well. Renovations in the city’s Chesed premises were supervised personally by Moshe Harel, Elli Malki’s closest employee. After the Chesed council expressed dissatisfaction with the price and quality of the repairs, the Joint held a “contract” audit, followed by the demand to fire the Chesed director and replace the council. The director resigned, as did many council members. Entrepreneur Mikhail Gelfer, Chesed council chairman, who had resisted the JDC’s actions to the end, died from a heart attack. Nevertheless, the Joint ceased financing the Rostov Chesed, creating instead a new, more controllable structure. Notably, the local entrepreneurs who had been council members of the Rostov Chesed, soon restored the charitable organizations out of their own funds and invited the old director back, thus showing him their full trust and non-agreement with the findings of the Joint’s “contract” audit.
Perhaps the conflict between the JDC and the Jewish organizations of St. Petersburg, which leaked into the press, was also provoked by the former’s attempt to get rid of local leaders who were asking awkward questions.
How was the construction and repair performed under the supervision of the deputy director of Joint programs in the CIS, chairman of the audit and construction committees, finance director Elli Malki? What grounds did the rumors of abuse, which always follow large-scale building projects in these parts, have? Was the dramatic budget overdraft just a consequence of complex construction and insufficient competence of Joint employees?
Some information to answer these questions can be derived from the story of Yoram Aberjil, one of the Joint’s most experienced employees, who was its regional director in Moscow until the end of 2006. In the spring of that year, tenders were invited for repairs in the Joint-owned building of the Moscow Jewish cultural center on Nikitskaya Street. The tender committee, including, among others, Yoram Aberjil and Moshe Harel (Elli Malki’s right-hand man in supervising construction work), evaluated the bids and chose a contractor. The results were sent in for Elli Malki’s approval. After a while Aberjil noticed that a different contractor had been commissioned, one from Minsk, not Moscow. To his perplexed questions he was presented with the protocol of the tender committee sitting he had been present at, but with another winner. Outraged, Aberjil turned to Asher Ostrin for explanations and demanded an investigation. As a result, Yoram Aberjil was fired despite Asher Ostrin’s recent flattering references at his attestation. The case of his illegal dismissal is currently in court in Israel. It is quite likely that the issue of corruption that he raised will come to court as well. It is known that the New York office of the JDC hired one of Israel’s most recognized audit firms to investigate the situation. As the audit results have not been published, the audit is either yet to finish or its results have turned out unfavorable to the Joint.
3. Ingenious idea – AREC
This chapter describes the creation of a financial system which virtually removed a significant section of the “Russian department’s” budget from the control of JDC management.
It is not clear when and why Elli Malki had the idea to create the commercial structure which was later dubbed AREC (AJJDC Real Estate Company Ltd., often referred to as AREC in the Joint’s inside correspondence). Numerous reasons were formulated to substantiate the need for it: minimization of taxes; organization of building maintenance; legal problems with renting out buildings; etc.
At first the fact that Cheseds and community centers conducted commercial activities was named as the reason for creating this company (then named simply CypCo – Cyprus Company). However soon (in December of that same year) the Joint strictly prohibited not just commercial activities, but accepting payment for services (i.e., non-commercial activities) rendered by the Cheseds and community centers. Thus the main reason for creating the Cyprus Company was eliminated, but the company was still established on offshore territory on Cyprus. The natural question arose – to what end was it created?
The commercial company was registered on offshore territory on Cyprus, in Nicosia. Elli Malki was predictably appointed its director; Asher Ostrin came on the directors’ board. The AREC was intended to receive ownership of all Joint real estate in the CIS. Let us note that this real estate whose area is currently about 50,000 meters square and whose price is over $100 million according even to the humblest estimates, was acquired or built by the JDC for donors’ money and intended for Jewish life development and hosting local Jewish organizations. All construction and maintenance budgets were to be transferred to the AREC as well. According to Elli Malki’s letter (as the finance director of the Joint) regional directors and local offices were to have no part in either the AREC’s activities or buildings owned by it. Beside budgets transferred to the AREC from the Joint, its second source of income and potential profit was to be rent from letting premises to the same local Jewish organizations the buildings were originally constructed for. The Jewish organizations were told that they were paying not rent but rather maintenance expenses, but there were never any documents or estimates to prove it. However, after the AREC came into custody of the buildings, the amounts demanded of the local organizations have grown abruptly and is now dangerously close to the commercial rent prices in these buildings. For example, in some cities were the buildings have already been transferred to the AREC, the rent price for the local Jewish organizations has grown by more than a third, and now equals over 75% of the rent price for commercial organizations leasing premises in the same buildings.
The press informs that in 2007 the Jewish community center of St. Petersburg was asked to pay the full commercial lease price for its premises, also belonging to the JDC. After outraged articles in American papers and personal interference on the part of vice president of the JDC Steve Schweiger, the demand was removed from the agenda, but the next year saw the community center lose the financing the Joint had been supplying for many years. This scandalous event proved the obvious: any Jewish organization that tries to challenge the rent fee Elli Malki, the director of the AREC, asks of it, will have serious troubles with the budget it receives from the Joint, which Elli Malki, the financial director of the Joint in the CIS, is to approve. There have been known cases when Malki delayed budget transfer to the Odessa region for months because of a conflict between the regional director in Odessa and the AREC.
Thus, the two main income sources for the commercial company AREC are – the money the Joint grants for building and maintaining real estates, and the rent paid by local Jewish organizations, which essentially is the same JDC money channelled through these organizations. A third source is the rent which commercial companies pay for premises in buildings transferred to the AREC by Joint free of charge.
As a result of the creation of the AREC the “Russian department” lost control over a vast part of its activities and budget; this obviously complicated control over these activities for the New York office and Board of the Joint. The creation of the AREC commercial structure itself is hardly an example of transparency and casts a shadow on the JDC as a whole.
4. Example – St. Petersburg situation
This chapter describes the way the aforementioned system is reproduced in local offices of the JDC. St. Petersburg is used as an example, as the system is at its most vivid there.
The main Joint-owned real estate in St. Petersburg was the community campus ESOD (abbreviation for Jewish St. Petersburg Community House), built by the organization.
This building of over 7000 meters square cost the JDC almost $13 million (with a construction budget of $7 million) and was put into operation in 2006. Like other buildings in the CIS, the ESOD was given over to the AREC. A small part of the building is occupied by the Jewish organizations of St. Petersburg, for which the ESOD was officially intended and which must now pay the AREC a Joint-determined rent fee. Part of the building, approximately equal in area to all the premises of the Jewish organizations together, is occupied by a commercial fitness club, renting the space from the AREC. It is not known whether the club has already begun paying its rent, but in any case this has not alleviated the lease price for the Jewish organizations; rather, the price has risen significantly. Most of the building remains empty or used occasionally.
The management structure of the ESOD building merits a special interest, with the term “non-transparent” doing it no justice. Ever since the ownership rights were transferred (by “gifting”) from the Joint to the AREC, the St. Petersburg office of the Joint (responsible for filling the building with “life”) and the AREC, represented by its officials of various levels, have been struggling for power over the building. As has been mentioned, both these structures are in fact subordinate to Elli Malki (the AREC also reports to him legally), so their constant fights are rather perplexing.
Another organization involved in the struggle is the ESOD foundation of unclear functions, established and controlled by the St. Petersburg office of the Joint. To top it all off, there is a commercial organization working on the premises, Shalevet Ltd., also founded and controlled by the Joint. This company rents out part of the building which it in turn rents from the AREC. Curiously, the director of Shalevet Ltd. is the deputy director of the St. Peterburg office of the JDC. In a way, this scheme copies the combination performed in the top tier of the “Russian department”, as when Elli Malki became leader of the AREC, he remained deputy program director of the Joint in the CIS under Asher Ostrin.
Let us now examine the routes of the money the Joint collects as donations for Jewish life in St. Petersburg. The money is transferred from the “Russian department” in Jerusalem to the office in St. Petersburg according to the budget, in charge of which Elli Malki was until recently. Part of this budget goes on to the ESOD foundation, which in turn transfers part of it to Shalevet Ltd. for rent (let us not forget that both the ESOD foundation and Shalevet Ltd. are officially affiliated with the St. Petersburg office of the JDC), after which Shalevet Ltd. transfers it onwards, also for rent, to the AREC, i.e., back to Elli Malki. There are other routes as well, different from the first only in that the ESOD foundation is replaced by local Jewish organizations, renting rooms in the ESOD building and transferring part of the fees directly to the AREC, and part – to the same company, but through Shalevet Ltd.
The first obvious consequence to this scheme is the “laundering” of the money of any obligations to the donors. The funds American Jews donate for concrete social or educational programs in Russia are turned into funds “earned fairly” by the Joint through rent fees. However, the intricacy and non-transparency of such a system causes more serious suspicions as well.
The “grey eminence” is leaving, but the questions are staying behind: how did his appearance even become possible? And how could he lord it with impunity for so many years in an authoritative organization whose reputation used to be impeccable, but is now entirely tainted with endless scandals and court trials? Let us try and find answers to these questions.
The “Russian department” of the Joint, established in the late 1980s, was for a long time virtually independent both from American donors, less than keen on spending their money in the “faraway savage Russia” and from the end recipients of the donations – weak, poorly organized communities which had barely begun forming in the post-Soviet states. With its Jerusalem location the “Russian department” was even geographically remote from both, and it inevitably got stuck in internal bureaucratic games and began decaying rapidly, like any uncontrolled bureaucratic structure.
Subjective efactors played a part as well. The unique historical process of revival in Jewish communities after the fall of the communist empire presented the “Russian department” with elaborate social, economical, and cultural tasks. This required a figure of a wholly different scale in the leading position than was Asher Ostrin. No wonder he readily delegated all his responsibilities to the energetic apparatchik Elli Malki, always at the ready with a new “project” to solve problems of any level of difficulty. Realization of these projects usually had only destructive repercussions, produced new problems, the tangle got thicker, and the Joint’s reputation deteriorated quickly. By the mid-2007, the policy of the “Russian department” was receiving increasing criticism from the management of the JDC. The numerous trials, the constant conflicts with CIS communities, the scandals leaking into press which vice-president Steve Schweiger had to suppress personally – all this could have been tolerable in a context of success. However, there was none. The AREC brought no tax allowance or profit (as expected), nor success in constructing and managing the buildings. On the contrary: the tax authorities of Moscow presented it with charges which are only natural considering the aforementioned style of transactions. The non-transparent financial system Elli Malki had created began causing increasing suspicion, furthered by the story of Yoram Aberjil. The necessity to support the AREC and its employees became a heavy burden on the JDC’s budget with no prospects of the situation resolving itself. In fact, the AREC became the Joint’s biggest internal problem.
Sergey Vakulchik, acting director of the AREC in Russia, first fell victim to the discontent of the JDC top leadership. He was forced to resign of his own accord. The next scapegoat was Moshe Harel, who lost his status as AREC deputy director and was moved to a technical position in the end of 2007. And now – the “grey eminence” himself, Elli Malki, has been made to step down. Who will be next? And will the JDC leadership draw fitting conclusions from this situation? And will someone be held responsible for the degradation of many aspects of Jewish community lives in the CIS in recent years, which was a direct result of the activities of the “Russian department” of the Joint, its organizational and intellectual degeneracy, the incompetence of its employees, and their mass squandering of public funds?
These questions still stand.