Confidential
The Life of Secret Agent
Turned Hollywood
Tycoon
Arnon Milchan
Meir Doron Joseph Gelman
Gefen Books
To our loving wives and children,
who tolerated our late-night writing sessions
and general obsession to get this story told
x Contents
Acknowledgments vii
Prologue ix
1 Man on Fire 15
2 The New Age 19
3 The Mirror Has Two Faces 27
4 Six Degrees of Separation 35
5 Don’t Say a Word 41
6 Dangerous Beauty 55
7 The Client 67
8 The Man Who Knew Too Little 82
9 Under Siege 96
10 The Devil’s Advocate 107
11 Mud 119
12 Guilty by Suspicion 130
13 Once upon a Time in America 147
14 Falling Down 163
15 Fight Club 174
16 Mr. and Mrs. Smith 190
17 Pretty Woman 200
18 Entrapment 209
19 The Negotiator 223
20 City of Angels 242
21 Jumper 253
Epilogue 259
Appendix A / The Smoking Gun 265
Appendix B / Novels of “Jon Schiller” 268
Appendix C / Arnon Milchan Filmography 271
Index 276
x Acknowledgments
We would like to thank all those who helped in the writing of this book, especially those who agreed to talk on the record, such as Israeli president Shimon Peres, Viacom chairman Sumner Redstone, former chairman of Warner Brothers Terry Semel, Meir Teper, and Dr. Michael Ledeen at the Foundation for Defense of Democracies, among others. We are also very thankful for the many sources who talked “off the record.” You know who you are.
We would like to thank Hadas Klein, Ety Kanner, Dvora Ben Yitzhak, Yair Lapid, Roger Schneider, and Aya Markovitch in Israel. A big thank you to Jane Bulmer at New Regency Films and Gal Shor of Israel Weekly in Los Angeles. Thanks to Gary Ginsberg who at the time was at News Corporation in New York, but has since moved to Time Warner. We also thank David Kuhn of Kuhn Projects in New York for his early guidance.
We are thankful to all of those talented journalists and researchers whose diverse body of work over the years undoubtedly helped us piece together this story: people like Yossi Melman, Ronen Bergman, Dan Raviv, Ben Caspit, Dr. Avner Cohen, Seymour Hersh, Wolf Blitzer, Ann Louise Bardach, John M. Goshko, Jack Mathews, Bob Woodward, Thomas Reed, Danny Stillman, and many more.
We would like to thank Ilan Greenfield for immediately grasping the importance of the material spelled out in this book, and of course, a big thanks to our editors, Kezia Raffel Pride and Katie Roman. Thank you to all of the staff at Gefen Publishing House who have worked so hard on this project.
And last but most important, we are thankful to Mr. Arnon Milchan himself, for leading such an incredible life, and for agreeing to respond to the many assertions made in this book, even though, as would be the case with any human, not all are flattering. It takes a man of special confidence and honor to do so, and for that we are grateful.
Joseph Gelman and Meir Doron
x Prologue
I would rather nobody write a book about me.
Arnon Milchan
The evening of September 18, 2008, the Paramount studio lot could have easily been mistaken for a high-profile movie premiere. Powerful searchlights reached up into the sky as A-list stars walked the red carpet accompanied by blinding camera flashes. But this event was different; the more than seven hundred attendees were powerful studio executives and community leaders who had come to honor not a movie, but a man.
Arnon Milchan arrived with his wife Amanda, seemingly uncomfortable both in his tuxedo and with all of the lavish attention heaped upon him. He quickly sought refuge in the anonymity of the crowd. But there would be no escaping the numerous speeches praising him, and the elaborate film documenting his cinematic achievements.
Although his name is connected to Hollywood blockbusters such as Pretty Woman, The War of the Roses, L.A. Confidential, Fight Club, Mr. and Mrs. Smith, and the Oliver Stone–directed conspiracy epic JFK, few in the audience had any awareness of the secret life of the man they were about to publicly honor with a Lifetime Achievement Award. To paraphrase Winston Churchill, Milchan is a riddle wrapped in a mystery inside an enigma. This book lifts that shroud of mystery.
This is the controversial story of a secret agent, of nuclear proliferation, billion-dollar high-tech defense transactions, ideology, patriotism, and the awe-inspiring Hollywood career of a mysterious mogul.
Arnon Milchan, born in Israel in 1944, has led the kind of life that Ian Fleming and John le Carré loved to write about, that Steven Spielberg or perhaps even Oliver Stone like to make movies about. Milchan is a real risk taker, charming yet tough, secretive yet famous – but only among famous people. He’s a superagent in the real-world sense, and the closest thing to a real-life James Bond that one could imagine. He understands fine wines and high-stakes gambling, deception, exotic cars, exotic weapons, and exotic women, and maintains a private $600-million art collection spread among his grand dwellings around the world – from Monaco to South Africa, from Paris to Malibu to Israel.
We began this endeavor as unauthorized biographers and quickly evolved into detectives, peeling away layer after hidden layer, revealing the narrative of a unique man and his deep involvement in Israel’s clandestine struggles for survival.
For many months, without
Milchan’s knowledge or approval, we immersed ourselves in court
records and obscure articles from both the Hebrew and English
presses, as well as in novels and private memoirs. We leaned heavily
on our direct knowledge of the culture and language from which our
main subject emerged, talked privately with the key figures mentioned
in this book, and visited most of the locations
described.
We have made every effort to chronicle the events as honestly and as completely as possible – fairly, accurately, and by placing matters in their full historic context. Many quotes attributed to Milchan and others are extracted or translated from rare interviews given over the decades to the international press. Other sources include a self-published autobiography of Milchan’s grandfather, as well as a series of obscure manuscripts (fiction and nonfiction), written under an assumed name, by a person directly involved in Milchan’s secret life. We discovered this author through the investigative process, confronted him in person, and confirmed his real identity.
Many revelations are unique to this book.
Following the completion of the manuscript, we surprised Milchan with its existence, and extended him an opportunity to respond. Initially, he was highly reluctant and perhaps even a little concerned. Eventually, he agreed to meet after we gave him every assurance of our good faith and honorable intentions. Through a few amicable meetings, we were able to confirm the accuracy of most of our assertions in this book, and corrected a number of factual errors. For his part, Milchan refused to confirm or deny the numerous sensitive defense-related assertions.
However, through the highest authorities in Israel, we have more than confirmed the overall security-related and highly sensitive contentions spelled out in this book. There were many sources, but the ultimate confirmation came from the mouth of Israeli president Shimon Peres himself, in a private interview that we conducted with him at the president’s residence in Jerusalem on February 8, 2010:
Arnon is a special man. It was I who recruited him. Working secretly, from outside the official system, he brought extraordinary ideas and a level of creativity that greatly contributed to our country. When I was at the Ministry of Defense, Arnon was involved in numerous defense-related procurement activities and intelligence operations. His strength is in making connections at the highest levels in countries around the world, including important countries with which Israel does not officially maintain relationships. His activities gave us a huge advantage, strategically, diplomatically and technologically…
And he continues to do so to this day, though only on the strategic level.
Few people in Hollywood, or anywhere else, are aware of Milchan’s exploits, and many of his closest friends will be surprised as they read what follows. As Sumner Redstone, the legendary owner of the media giant Viacom, told us: “Beyond the whispers and the movies, few people know of Arnon’s role in supplying Israel with its defense needs, and in creating its ultimate deterrence capabilities. I and most people don’t know the details, but I suspect just enough to consider him a great man. For me, he is ‘Mr. Israel.’ He has introduced me to every Israeli prime minister since the 1980s.”
Global media tycoon and News Corporation chairman Rupert Murdoch states, “Arnon Milchan is a multifaceted, passionate enthusiast for all he touches. He is an Israeli businessman, an Israeli political enthusiast, a Hollywood producer and a remarkable art collector. He is a loyal and generous friend who also happens to be a great long-term and trustworthy partner.”1
Or as Peter Chernin, chairman and CEO of Fox Entertainment, once joked in reference to Milchan, “Never, never tell jokes about a man with easy access to weapons of mass destruction.”2
Indeed, they may be unaware of the details of his secret life, yet almost every person on the planet would recognize any number of his contributions to our popular culture. (We've named the chapters of this book after his films – for a full filmography see the back of the book.)
As with any man in the arena, he’s made a few profound mistakes, and has been involved in some controversial endeavors. He’s rubbed a few people the wrong way and seems to spark a higher level of vitriol, and even jealousy, from some of his “victims,” many of whom would be more than happy to work with him again, despite everything.
This complex man, who for so long has lived a multifaceted existence by compartmentalizing his life, now seeks alternative and more public avenues to leave his mark on the world, well beyond intelligence gathering, high-tech defense procurements, and Hollywood blockbusters. Milchan is heavily involved in politics, or as he puts it “politically active well behind the scenes.” Years ago he was uncomfortable with the very mention of the word politics, just as he was uncomfortable with the word rich, especially when in reference to himself. But time and experience have cured him of this discomfort.
At age sixty-five, Arnon Milchan has yet to write his last chapter. He sees his next opportunity, his next dream, his next movie, as bringing peace to the Middle East.
And as in any Hollywood blockbuster, the thriller that has been his life thus far will surely have a sequel in one form or another.
1 x Man on Fire
I was away, not involved in the business at all at that time.
Arnon Milchan, 60 Minutes, March 5, 2000
Arnon Milchan was nervous – very nervous. He had just received a phone call at his Paris apartment from a Newsweek reporter seeking his reaction to the stunning indictment of Dr. Richard Kelly Smyth, president of Milco Ltd., an Israeli intelligence front company, for shipping krytrons to one of Milchan’s Tel Aviv companies.
Publicity is something that any secret agent tries to avoid, and Milchan was particularly averse to it.
In the coming days, newspapers around the world reported that krytrons were used as sophisticated triggers for the detonation of nuclear bombs. Indeed, krytrons have been around since the late 1930s, but the fact that they were, among other things, a primary mechanism for triggering nuclear weapons, was until that very day in May 1985 unknown to the general public.
Media analysts predicted “severe implications” for US-Israeli relations.3 According to Smyth, Milchan’s company had pushed him hard for the krytrons, and like the long list of other highly sensitive materials that Milchan had gathered over the years for his country, he knew perfectly well what they were for.4
In all, Milchan’s company Heli Trading Ltd. had ordered 810 krytrons, which Smyth shipped without the proper State Department munitions export license. Now, US Customs and the FBI had moved in and all hell had broken loose. The entire Milco operation was in jeopardy. Milchan feared that a politically ambitious and publicity-hungry US prosecutor would come hunting for him.
After a short conversation with the Newsweek reporter, which consisted mostly of pleading ignorance, Milchan booked the first available flight to Tel Aviv, where, within hours, television crews and photographers were camped out in front of the building where he maintained a penthouse, and the phone was ringing off the hook. He ignored it all.
But there was one call that he could not avoid – the one from his mother, Shoshanna, who, after finally reaching him on the phone, burst into tears and said, “Everyone is calling my son an arms dealer. It’s embarrassing.” Arnon was devastated. He had never seen himself as an “arms dealer,” and now his own mother was laying the charge at his feet.
“Mother, nobody calls Boeing or Rockwell an arms dealer, and nobody calls Raytheon an arms dealer. These are the kinds of companies that I am working with. It’s not like I’m instigating wars in third-world countries and shipping them guns. I’m doing this to help our country survive.”5 It was little consolation for a mother who knew nothing of these sorts of things. She only knew that she had to face gossiping neighbors, and on that front the damage had been done.
Milchan did not even bother bringing up the matter with his handlers at LAKAM, a top-secret agency within Israel’s sophisticated intelligence network that was unknown to the United States at the time. He quickly dressed in a sweat suit and exited the building, hoping that none of the reporters would recognize him. After all, he was not a well-known public figure, and few if any images of him had yet circulated in public.
His gamble worked. As he exited the building, he was swarmed by reporters who clearly didn’t recognize him, so he told them that “Mr. Milchan” had gone to his office in Jaffa on the other side of town.
The reporters scrambled on a wild goose chase as Milchan calmly got in his car and drove directly to Jerusalem for a private meeting with his close friend and mentor, the Israeli prime minister at the time, Shimon Peres.
“Shimon, they are accusing me of doing it for personal gain. You know that I didn’t do it for me; I did it for the country. Now I’m asking for your help.”
Peres listened quietly. “What do you expect them to do, Arnon? What do you want me to do?”
Arnon firmly but respectfully raised his voice in despair. “I don’t know, Shimon! Call Reagan or whoever and have them fix this. Why should I be the scapegoat?”
There was a long pause.
“Arnon, what do you want me to do? Go public and explain how the president of the United States and I got together to use you to get things for Israel that can’t be obtained through regular channels?”
Arnon continued to plead. “All I am asking is that something be done to make this go away.”
Peres was sympathetic and felt almost like a father to him, but he made no promises: “Let me carefully consider how to handle the matter; in the meantime, I want you to go home and try to relax.”6
Peres knew that there was no such thing as “relaxing” for Arnon Milchan. He knew that he was one of the most productive and creative operatives that Israeli intelligence had ever fielded. Over the years LAKAM chief Benjamin Blumberg, and later Rafi Eitan, presented him with long lists of highly sensitive items needed for Israel’s secret defense programs and other unobtainable defense-related materials, and through a sophisticated web of front companies around the world he delivered like no one else.
Milchan’s mission was to secure these items by any means necessary – everything was fair game. In exchange, he would be treated by his government as a prince among his people. “He was working on missions for us, so if he found himself in trouble, I felt it our duty to help,” said Shimon Peres.
Rules that applied to others did not apply to Milchan; perhaps it was not a “license to kill,” but very close to it. He fronted secret bank accounts for the State of Israel – accounts that would be used to finance his country’s most covert and sometimes deadly intelligence operations around the globe. He then parlayed his growing personal wealth through Hollywood and into some of the highest-profile and most profitable motion pictures ever produced, making him an icon of popular culture and one of the richest men on the planet in the process.
As he arrived back at the penthouse from his meeting with Peres, he saw that the mob of reporters was also back from the wild goose chase, and they were not very happy. Against the advice of everyone around him, according to his longtime personal assistant, Ety Kanner, Milchan agreed to invite them into his house for a short press conference in hopes of disarming them. He proceeded to explain that he had no personal connection to the krytrons matter and was unaware of the details of the event.
Whether Peres made that call to President Reagan has never been definitively confirmed, but something was clearly done. What unfolded changed lives forever.
2 x The New Age
When
I told Arafat I was an eleventh-generation Israeli, he said: “You’re
more Palestinian
than me.”
Arnon Milchan
A child was brought forth on the sixth of December, 1944, at the infirmary on Binyamin Street in the small but influential Jewish town of Rehovot in what was then the British Mandate of Palestine. These were grim and uncertain days in human history, as Europe was in flames and many members of the newborn’s extended family would never be heard from again. It was the darkest hour. Yet, as Israeli president Shimon Peres told us, “Arnon was born as the sun began to rise, and has since lived on the sunny side of life.”7
His ancestors on one side can be traced back to the great medieval biblical commentator Rashi, and on the other side almost to King David.
His father Dov stood nervously outside as the nurse popped her head through the door and announced, “It’s a boy.” He was quickly swarmed by family and friends hugging and kissing him: “Mazal tov!”
“The residents of Rehovot lived as a single family. The private and the public were as one. There was a feeling that all were sitting in the same boat, rowing toward an unknown shore,” wrote his grandfather, Chaim Eliezer, who himself had arrived on the shores of the desolate land, from Poland, in the late 1890s.8
His parents, Dov and Shoshanna, chose for their only son the name Arnon, which is the biblical name of a river that cuts through the Moab Mountains in what is today Jordan, and flows westward to the eastern shore of the Dead Sea. In ancient times, the area was home to the kingdom of the Moabites, a people often in conflict with their Israelite neighbors to the west.
Ironically, the family name, Milchan, is derived from the Polish word milczec, which means “to be silent,” or “to carry a secret,” a virtue that would come in handy in later years.
In 1944, Rehovot was a bustling regional hub of a few thousand people and one of the most economically successful settlements in all of British-controlled Palestine. Situated among rolling hills, covered in lush orange trees and vineyards, sowed by the sweat and toil of Arnon’s grandfather, it was the kind of place where no one locked their doors, children played freely, and everybody knew just about everyone else in town.
Arnon grew up among a large extended family, running through the vineyards and citrus groves and playing endlessly with friends in open fields between the houses until dark. With the “minor” exception of the ongoing Arab-Israeli conflict, for Arnon it was an idyllic and carefree life in many ways.
That perception contrasted greatly with the grown-up world around him. Unbeknownst to the young boy, one of the main Jewish underground weapons factories was hidden practically under his very feet, under the town’s citrus packing house, and his family was involved in the manufacture of explosives under the cover of their fertilizer business, all in the wider struggle for Jewish independence.
On the evening of November 29, 1947, the entire population of the town, including three-year-old Arnon in his mother Shoshanna’s arms, congregated around the main café and listened intently to the radio as the votes on United Nations Resolution 181 were announced.
The creation of a Jewish national homeland in the British Mandate of Palestine had been authorized by the international community. A spontaneous outburst of joy and relief swept through the crowd, which cried, danced, and sang throughout the night.
Six months later, Israel declared its independence. A small country mostly made up of farmers, merchants, and Holocaust survivors now faced the daunting task of enduring the promised military onslaught.
There was no time for celebrations after that first night. True to their word, all the surrounding Arab countries attacked in an all-out effort to destroy the fledgling, poorly equipped, and outnumbered nation before it was able to get off the ground.
Rehovot was bombed nine times from the air by the Egyptian air force; tens of people in the small town were killed and wounded. Numerous houses were hit and the original town hall structure, a short walking distance from the Milchan home, was totally destroyed in an enormous explosion. Like everyone else in town, Arnon, now four, scrambled for cover in a makeshift trench that had been dug in the backyard of their house.
The Holocaust and the entrenched Arab-Israeli conflict that exploded all around him during his early childhood would, by the nature of things, come to define most of Arnon’s life and his attitudes. Metaphorically speaking, he would never really leave little Rehovot.
Over the years, the town and its immediate surroundings evolved from the quaint Mediterranean agricultural community that Arnon’s grandfather helped found at the turn of the century into a massive technological and scientific center, critical to Israel’s very existence. The entire area is one giant hornets’ nest, buzzing with top-secret security-related activity; a world-renowned research facility, nuclear-tipped, intermediate-range missile silos, cutting-edge chemical and biological weapons programs, a nuclear squadron at the nearby Tel Nof air force base, a heavy water production plant, and much, much more. Arnon would play a role in making all of that happen.
A year after the war ended, in 1950, a dispute broke out between Arnon’s father and his three uncles over the question of who would control various parts of the family business, Milchan and Sons. An agreement was reached in which Arnon’s father, Dov, would get the fertilizer business and the other brothers would manage the rest, including the fuel distribution company that was quickly becoming the most lucrative part of their businesses. Within three years after the breakup, Dov felt compelled to pack up and leave Rehovot with his wife and children, and make his way separately in the new state.
Arnon, his younger sister, Dalia, and his parents, Dov and Shoshanna, departed Rehovot in 1953 for the growing suburbs of North Tel Aviv. Now that the fertilizer business was no longer part of Milchan and Sons, Dov needed a new name for the company. Out of respect for Arnon’s grandfather and the family patriarch, Chaim Eliezer, Dov named the new company Milchan Brothers, even though his brothers had no stake in the company at all.
The new offices were located in the Tel Aviv agricultural wholesale market, in close proximity to the Ministry of Defense and the Mossad. The business next door, Dagon, was a grain trading company owned by the Gillerman family. Their son Danny became a close friend to Arnon and years later became Israel’s ambassador to the United Nations.
Arnon’s childhood coincided with the critical early years of Israel’s development. He grew up among the establishment of the old Ashkenazi aristocratic elite, among the country’s wealthiest and most educated, who had emigrated mostly from Europe in the late 1800s and early 1900s. This was a society that believed the keys to the kingdom – the world of business, politics, and privilege – rightly belonged to them.
It was during this period that Arnon’s parents began to observe certain behaviors in their son that were outside the norm. Although bright in the extreme, he seemed hyperactive and incapable of sitting even for short periods.
Of course, hyperactivity also involves distractibility factors, impatience, impulsiveness, and in some cases, such as with Arnon, an affinity for danger: “There is something in me that wants to or needs to do scary things. I need a dose of danger to breathe.”9
It is generally recognized that people affected by hyperactivity should seek out careers that involve rapidly changing circumstances and environments that require constant stimulation, and to avoid careers that involve repetition or excessive focus on a single task, mental or physical. Arnon Milchan would choose the right career.
The most obvious trait to anyone observing the young Arnon was his boundless energy, and there was one place for him to expend that energy during childhood: on the field playing sports, a place where he almost made a career. His natural physical talents, his incredible energy, and his extreme competitive spirit paved the way for his acceptance into the elite fraternity of Maccabi Tel Aviv’s youth team, the dominant soccer team in the country. Arnon was elated.
But there was a slight problem. A few years earlier, his vision had been tested and judged to be exceptionally poor. “The kid can’t see a thing,” the ophthalmologist told his parents as he handed them the prescription for a thick pair of glasses, which Arnon requires to this day. Although advances in optometry have since made the matter much more manageable, in those days glasses were actually made out of glass – and children wearing glasses were discouraged from participating in aggressive contact sports, like soccer, to avoid eye injuries.
Arnon did not disclose his vision problem, and it took time for his coach to realize that he even had an issue. By the time he did, Arnon had already solidified his place as a starting forward and the leading scorer on the team three seasons in a row.
He continued to play soccer for years. He had a burning ambition to play for the adult team and was completely confident that he would lead Maccabi Tel Aviv to national championships as its star. He believed he would even lead the national team to international success, and would ultimately coach the team in a lifetime career in the sport. To the astonishment of the young players, to this day Arnon Milchan continues to practice with the Israeli national squad whenever possible. He remains a big fan of soccer in general and Israeli soccer in particular.
Aside from soccer, there was another passion that Arnon developed during this period: the cinema. As a restless young man with a limitless imagination, he was mesmerized by the international films that slowly and belatedly made their way to the first movie theaters of Tel Aviv, and he imagined himself creating his own stories for the world to see. If there was one place that Arnon could sit still, it was in his own personal Cinema Paradiso. These encounters were his first real contact with the wider outside world and stimulated not only his imagination, but the beginning of his ambition to go out into that world and immerse himself in it, tasting every possible part of it.
With test results showing him to be a highly gifted child, Arnon was sent to a boarding school in Hertfordshire, in southern England. This kind of arrangement was the way Israel’s wealthiest elite guaranteed a cosmopolitan upbringing for their children. It also meant that their children would acquire an important additional language as well as exposure to what they considered to be “high culture.”
In Arnon’s case, his parents also hoped that the environment of a strict English preparatory school would help him gain the kind of discipline and self-control that he was unable to achieve in the notoriously casual environment of Israel.
This journey was Arnon’s first exposure to a big world outside of little Israel, and his first lengthy separation from the safety and security of the only home he had ever known. He was reluctant to separate from his family, friends, and especially from his team. But he was eager for the new adventure.
The all-boys English boarding school was not particularly successful in taming the highly energetic young man, or in keeping him seated and focused on his studies. But academia wasn’t everything. Shortly after arriving, the boarding school’s soccer coach discovered that he had a new star for his team, and the good news for Arnon was that talented soccer players always received preferential treatment.
It was in Hertfordshire that Arnon first encountered small instances of anti-Semitism. When his close friend and the only other Jewish student at the school, Yosef Malikson, won the school’s highly prized tennis championship, the principal loudly declared that this was the first time that any Jewish student had won the tennis championship. Whether he said it in good spirit or not, it suddenly dawned on the young Milchan that others tended to look upon him differently because of his heritage.
Arnon and Yosef struck up a close friendship that has lasted to this day. One evening the two boys snuck past guard dogs and through a formidable fence to escape the school grounds in order to frequent the pub in a nearby town in hopes of meeting girls. Upon returning, the boys were caught red-handed, and their punishment was not subject to an appeal – public expulsion. The entire student body was lined up to witness the offenders, serving as examples to others, being driven off the premises in humiliation.
Dov Milchan would have none of it and arranged for his son to be picked up in unique fashion. When Arnon’s escort arrived as scheduled, everyone was stunned to see the fancy white Rolls Royce, driven by a classically dressed English chauffeur. As the car came to a dramatic stop at the bottom of the stairs of the courtyard, the chauffeur quickly exited the vehicle, removed his hat, and rushed to open the door for the expelled student, to the amazement of the entire student body and the staff. Before entering the Rolls Royce, Arnon turned with a wide grin on his face, waved to his fellow students, and gave a thumbs-up to the staff.
Following his expulsion from boarding school, a special academic schedule was established for the rowdy young man. When most kids his age were preparing for their matriculation examinations, Arnon was tested and accepted to London City College while taking separate classes at the London School of Economics.
Within a year and a half, at the age of eighteen, he received his military draft orders and returned to Israel. Arnon was drafted into a unit that few are even aware exists: Foreign Transfer Unit 1030. This boutique detachment was composed mostly of multilingual individuals with foreign travel experience. His job was to generate required documents and accompany senior military officers when they traveled abroad, as well as to act as a confidant, interpreter, and facilitator.
He has never publicly discussed his military service, which, in fact, was his first real encounter with Israeli intelligence. During this period, he developed knowledge, friendships, and contacts that would last a lifetime. Two attractive women – Dvora Ben Yitzhak, who served as the unit’s financial controller, and Ety Kanner – would became trusted figures in his personal and professional life.
He served in the unit on reserve duty during the Six-Day War of 1967, and the Yom Kippur War of 1973. However, his most meaningful national service occurred well beyond the military, beyond the Israel Defense Forces, and beyond the borders of his country.
3 x The
Mirror Has
Two Faces
I had the choice of becoming a professional soccer player or going to university. I made a mistake and went to school.
Arnon Milchan, LA Jewish Journal, September 24, 2008
Following his military service, Arnon headed to Geneva, Switzerland, to continue his studies, this time focusing on chemistry in order to prepare for the family fertilizer business.
In Switzerland, he was again free of worries, playing soccer and beginning to make a name for himself as something of a playboy. He was a fine-looking young man, well connected, with unlimited possibilities.
With increased maturity, his hyperactive symptoms became less apparent. He slowly learned to adapt his behavior and to control overt physical manifestations such as extreme restlessness that had once plagued him. While studying abroad, Arnon developed a passion for tennis that would stay with him for a lifetime. Geneva was also where he discovered European cinema.
One day, in a frantic message from home, Arnon received the unexpected shock that permanently changed his life: his father’s health had taken a disastrous turn and Dov was now incapacitated. In that single moment in 1965, Arnon’s worry-free European paradise was cut short. In an instant, the pristine, well-manicured, orderly, cosmopolitan environment to which he had become accustomed was put on indefinite hold.
Upon hearing the news, a fear that he had never known before gripped him. He packed his bags and booked the first flight back to a rough-and-tumble world, not much more than a tiny Middle East backwater at the time.
As the flight departed Geneva International Airport, he gazed out the small window at the picturesque Swiss farms below and couldn’t help but think of his grandfather, Chaim Eliezer Milchan, whom he had been very close to his entire life until the previous year when Chaim had passed away. It had been his first exposure to the reality of death and the loss of a loved one. He remembered that he had sobbed uncontrollably, and he began to brace himself for what he imagined could be an even greater blow.
From the airport, Arnon rushed to Ichilov Hospital in Tel Aviv. He sprinted up six flights of stairs to where his fifty-four-year-old father lay at death’s door. As he arrived at Dov’s bedside, Shoshanna explained that what started off as an infection in the pancreas had escalated into septic shock, damaging Dov’s heart, lungs, and kidneys.
In the coming days, Arnon refused to leave his father’s bedside, following his every movement and every breath, determined to see him through this crisis.
Within a number of weeks, to the surprise of his doctors Dov experienced a miraculous improvement and was sent to a rehabilitation facility at Kibbutz Givat Brenner. The family breathed a sigh of relief. Arnon began to plot his return to Geneva. And then things took a sudden turn for the worse.
Dov experienced intense abdominal pain that was diagnosed as a gallstone attack. In his already weakened condition, he was rushed into surgery, which he would not survive. To this day, Arnon believes that his father’s death was the needless consequence of medical negligence.
The extended family arrived at the cemetery in Rehovot and long-standing differences were swept aside as a wave of emotion overcame everyone present. As Dov was laid to rest near his parents, Chaim and Esther, it suddenly dawned on Arnon, the only son, that he had lost the only emotional and financial support system that he had ever known. He struggled to show steadfastness but tears forced their way out. All of his fears were realized. A great weight was suddenly thrust upon him. He understood that his family would now look to him for leadership, strength, and their livelihood. He feared that he was unprepared for such responsibility; he was only twenty-one years old.
Through his tears, Arnon noticed many people at the funeral whom he did not recognize as they filed past the grave placing stones as a final expression of respect. A tall, lean man with a serious demeanor was keeping his distance behind the other mourners. Only after the crowd thinned following the services did he approach Arnon to offer his personal condolences: “Your father was an important man who did many important things for Israel. I know that you will follow in his footsteps,” he whispered quietly in Arnon’s ear.
Shortly after the funeral, Arnon made his way to his father’s small office at the Agricultural Wholesale Market in Tel Aviv. It was a squalid scene and in vast contrast to the carefully tended streets of Geneva. As he made his way through the squawking chickens and agricultural waste, he suddenly gained a new appreciation for the sacrifices that his father had made for him. He entered the modest offices at the front of a small warehouse, where he was quickly surrounded by the company’s few employees as they expressed their sympathy.
Arnon began to assume responsibility for the family business, Milchan Bros. Ltd. He rushed into this new world with a great deal of youthful enthusiasm, determined to uphold the family legacy, even though he would quickly learn that he had no idea what the family legacy actually was.
Dov had shielded his wife, his daughter, and his son from anything relating to the family business or finances, and they were all largely ignorant of the intricacies of Milchan Bros.
Arnon’s expectations of himself and of the company that he took control over were sky-high, but he was brought back down to reality when he learned that Milchan Bros. was in a horrible financial state.
Import regulations had been loosened and the company’s monopolistic advantage in the fertilizer business had been greatly diluted. Farmers began to import directly from manufacturers abroad, bypassing Israeli dealers altogether. Arnon was stunned to learn that the company had only the equivalent of $61,00010 in reserve in Israeli liras. “The situation seemed grim. Milchan Bros. was on the edge of bankruptcy and I didn’t even fully understand that,” Arnon said. “In the days to come, the sharks began circling.”11
Various competitors, vendors, and even employees began to challenge the new owner’s business savvy and stomach for the job. Arnon was forced to fend off numerous schemes to maneuver him out.
As he sat frustrated in his father’s office, contemplating disaster, he noticed a number of cabinets in the corner that he had yet to inspect. After looking at them curiously for a moment, he walked over and opened the drawers. He grabbed as many files as he could and brought them back to the desk to investigate.
Within moments, photographs of space-age missiles and fancy brochures lay sprawled across the desk, and it suddenly dawned on Arnon that his father had been involved in business far beyond fertilizers.
Arnon’s father was the kind of man who played his cards close to the vest, especially in matters involving national security. Everything was on a need-to-know basis, and really, no one needed to know.
Dov had intended to gradually introduce his son to this side of Milchan Bros., but his sudden death prevented an orderly transition over what he had assumed would be a period of years. For Arnon, it was a stunning turn of events. He now began to understand the words whispered in his ear at his father’s funeral, and why that mysterious person had been there to begin with.
He made phone calls and questioned the small secretarial staff, who themselves were uninformed. As it turned out, Milchan Bros. was also in the defense import and export business for the state; according to Arnon, his father handled some of Israel’s lucrative military contracts.12
It is not surprising, perhaps even understandable, that some may have concluded that Arnon was a vulnerable pushover. They turned out to be wrong in an embarrassingly big way. The many sharks that repeatedly tried to displace him had no idea who they were dealing with, and grossly underestimated him.
Milchan quickly moved to consolidate his hold on the company. With youthful energy, he approached all of his suppliers, explained the situation, and charmed them into increasing their lines of credit.
He then proceeded to bring in his own team. One of his first moves was to take advantage of the maternity leave of the office manager. He called up the former controller of his military unit, Dvora Ben Yitzhak, and asked that she fill in for three months. Three months turned into a thirty-year rollercoaster ride.
Arnon may have been naïve and inexperienced, but in some ways it worked to his advantage. He had the confidence that only a young person, completely unaware of what couldn’t be done, would have.
In very short order, he turned the small company that was mostly involved in brokering imported agricultural fertilizers and chemicals to local farmers into a wheeler-dealer on the international stage, involving tens of millions of dollars, and later much more than that. He reached out to every major chemical and fertilizer company in Europe and in the United States, seeking to become their exclusive representative in Israel.
However, it was one invention, one patent, one purchase, and one gamble that secured the company finances and propelled him to the next level: it involved an Israeli product that to this day is considered one of the most enterprising inventions from a tiny country that over time has become a world powerhouse of innovation.
It all happened by chance. As Arnon’s desperate maneuvers to save the company began to show results after signing the Swiss companies Sandoz and Ciba-Geigy,13 he set an appointment for a meeting at the world’s second largest chemical manufacturer, DuPont, in Wilmington, Delaware. On the long flight over, he contemplated the ineffectiveness of the current fertilizer distributed by Milchan Bros.
Coincidentally, the stranger sitting next to him on the flight was a logging company executive from Canada. During their casual conversation, Milchan was fascinated to learn that tree bark was not used for any product and was simply disposed of after wood was processed.
He became curious about the chemical content of tree bark and wondered if there were any possible fertilizer benefits to this byproduct, which at the time was considered waste.
Upon arrival, he shared his thoughts with DuPont executives, who were at a loss about what to do with the enthusiastic young businessman from Israel and his strange ideas about bark. He was referred to the only Jewish executive in the company at the time, a man by the name of Irving Saul Shapiro, DuPont’s lawyer.
Shapiro was impressed by Milchan and invited him to spend the weekend at his house. He also invited a group from the local Jewish community to meet the young man from Israel and hear his stories from the embattled country. By Monday, Milchan had secured a close friendship with Shapiro, a contract for exclusive representation of DuPont in Israel, and a commitment to finance experiments with bark in Israel.
A key Milchan contact, Shapiro would later become the chairman and CEO of DuPont from 1973 to 1981. It was the beginning of a long and close relationship with the company, which had been an integral part of the Manhattan Project (the research group that developed the nuclear bomb during World War II), and has long been a supplier of nuclear and defense-related material.
After this successful trip and upon his return to Israel, Milchan hired four agronomists from the Hebrew University Faculty of Agriculture in Rehovot, who developed a tree bark formula for experimentation. But no farm in Israel was willing to allow the formula to be tested on their orchards. After searching long and hard, Milchan finally came to an arrangement with Kibbutz Kfar Hanasi in the northern Galilee, which agreed to allow the experimentation on a portion of their orchards in exchange for Milchan financing a dental clinic in the kibbutz. Milchan agreed, under the condition that the clinic be named after his late father. The kibbutz obliged.
The experiments were a failure, but Milchan refused to give up. Eventually, he and his team realized that the fertilizer would be many times more effective if developed in a spray form, and delivered directly to the leaves and branches of the trees themselves. The formula was perfected over time and proved to be an important, revolutionary product for citrus growers around the world.
In addition to its agricultural effectiveness, the nutrient originally known as NU Green proved extremely profitable both for DuPont and for Milchan, and remains so to this day.
“This is a man who made his fortune by screwing with nature,” a colleague criticized later.14 It has been said that since Milchan got involved in the fertilizer business, oranges have never tasted the same.
The orders started rolling in, first from Israel and eventually from around the world. The legend of the young Milchan who made a quick fortune was born, and rapidly circulated around the small country.
Over time, he reached out to many more chemical and biotech companies, including some of the largest in the world, such as Germany’s Bayer, Switzerland’s Syngenta, Chemtura, and Seedco. In partnership with these companies, Milchan went on to play a key role in additional field experimentations that led to significant increases in agricultural production in Israel throughout the 1960s and 1970s, technology that would then be exported by Milchan Bros. and others, benefiting developing nations around the world.
As interesting as his agricultural endeavors were, it is also clear that over time these pursuits became something of a convenient cover for where the overwhelming portion of his success came from: defense-related contracts. And as in the agriculture sector, he would sell Israel as a prime testing ground for the latest weapons systems from some of the world’s largest aerospace companies.
Milchan subscribed to every
imaginable defense-related magazine, particularly publications having
to do with aviation. He quickly learned the names of every major
defense manufacturer and studied the latest developments in aviation
and military electronics systems. He sent countless letters
of
introduction to defense manufactures around the world offering to
represent them in Israel. To his surprise, a number of companies
expressed interest and asked for appointments. Soon Milchan was
jetting around Europe signing representation contracts.
All defense-related deals at Milchan Bros. were conducted by the owner of the company personally – first the father, then the son. Israel began buying arms from the United States in 1962 with the approval of the Kennedy administration, but did not receive any military grant assistance until 1971 when Congress first earmarked a specific amount of aid for Israel.
As a result, Israel had to go deeply into debt in order to finance its economic development and arms procurements. However, since 1974, following the Yom Kippur War, Israel has received nearly $100 billion in US assistance, and to this day receives over $2 billion in military assistance annually. By law, the bulk of US military aid to Israel must be spent in the United States on procurement of US weapons systems.
Any company licensed to import and export defense systems to or from Israel, in addition to being capable of signing exclusive and very lucrative representation agreements with major US defense contractors, is going to succeed.
4 x Six
Degrees
of Separation
Arnon Milchan is a man who knows how to create opportunities.
Israeli president Shimon Peres
When Arnon was twenty-one years old in the summer of 1965, he made his first direct foray into the strange world of Israeli politics. He became a contributor and “almost-candidate” for one of the strangest political parties in Israel’s history.
The story begins when Arnon, newly flush with cash from his recovering business, became a close friend to Tel Aviv’s nightlife king Rafi Shauli and a frequent patron of his club and restaurant, which at the time was the most prestigious and popular hangout for the who’s who of Israeli high society. By all accounts, Arnon was an unrestrained party animal. “He was the kind of person who lived on the edge. He burns the candle from both ends,” observed his personal assistant of thirty years, Ety Kanner.
The club, Mandy’s, was named after Mandy Rice-Davies, Rafi Shauli’s beautiful blond wife from England, who also happened to be a supporting player in the Profumo affair, a huge political sex scandal in 1963 in the United Kingdom, named after John Profumo, then secretary of state for war in Britain’s conservative government.
Mandy Rice-Davies participated in a notorious sex ring involving a number of Britain’s most powerful politicians at the time. The entire affair ended up a public spectacle in court, where Rice-Davies is well remembered for countering the testimony of powerful political figures denying their involvement, with the catchphrase, “Well, he would say that, wouldn’t he?”
The expression stuck; it became a national joke and a cultural phenomenon in Britain. Rice-Davies traded on her newfound notoriety, comparing herself to Admiral Nelson’s mistress, Lady Hamilton. She then converted to Judaism, married Arnon’s new nightclub friend, moved to Israel, and became the famous hostess of the club. In the 1989 film about the Profumo affair titled Scandal, actress Bridget Fonda portrayed the nineteen-year-old Mandy Rice-Davies.
Arnon came to know the real Mandy, and as a young man was mesmerized. He spent many hours at the nightclub and it was there that he held most of his meetings, both business and social. That is where he also met socially for the first time a person whom he had known only from afar, one of Israel’s most talented politicians both then and now: Shimon Peres.
The forty-two-year-old Peres was deputy minister of defense after having served for years as the director general of the ministry. Of course, these were positions that greatly impacted the business interests of Milchan Bros.
Peres told Arnon of his intentions to become a founding member of a new political party called Rafi (Israeli Workers’ List, in no way connected to Rafi Shauli) shortly before the elections to the Sixth Knesset. The new party would be led by a number of breakaway members from Mapai, the country’s largest political faction, which had ruled Israel from day one. Ironically, the leader of this rebellious faction was none other than David Ben-Gurion himself.
Since the day that he declared the establishment of the State of Israel, Ben-Gurion had been the dominant political personality in the country; as the first prime minister and minister of defense, he ruled the country with a firm hand.
The plan to challenge the only party in power since the establishment of the state was cooked up at Kasbah, a restaurant, and it intrigued Milchan greatly. Here was the vaunted “Old Man,” David Ben-Gurion, passing the torch to the younger generation, Shimon Peres and company. Milchan believed that Peres would return to the Ministry of Defense as a representative of the new party and decided to concentrate on the upcoming election, emotionally, intellectually, and financially.
Beyond his personal interests, he quickly learned that Rafi was packed with some of Israel’s top political talent, like Abba Eban, Israel’s premier diplomat, Tzvi Tzur, a former army chief of staff, as well as forty-four-year-old Yitzhak Navon and forty-seven-year-old Chaim Herzog, both of whom would later become presidents of the country.
In the eyes of many young sabras,15 Rafi represented a rebellious battle cry against the crusty old establishment, Mapai, whose time they felt had come and gone. Arnon was swept away with youthful fervor. He was captivated by Peres and company, who represented to him the new generation of competent, active professionals, more than capable of leading the country in exciting new directions.
There is no question that Rafi was the fashionable party, but whether it could translate its modern allure into votes was still an open question. Milchan claims that he was the second contributor to Rafi, and described a meeting with Ben-Gurion and Peres: “In those days they didn’t actually take contributions, they took a ‘loan’ and gave you back a promissory note stating that the funds would be returned.”16 Of course, the funds would never be returned.
Milchan officially contributed $3,000,17 but his contributions were certainly not limited to money. The party needed a new star and someone able to make connections.
His first task was to secure the backing and membership of former IDF chief of staff and legendary war hero fifty-year-old Moshe Dayan. Peres felt that the prospects for an electoral knockout were far more viable with Dayan on board.
Milchan knew Dayan from his dealings between Milchan Bros. and the Ministry of Agriculture, which occurred on a near-daily basis, similar to his contact with the Ministry of Defense. Dayan’s office had issued licenses and permits for all of Milchan’s agriculture-related businesses. Dayan walked out with Ben-Gurion, and was left without a job after resigning from the Ministry of Agriculture, a post he had held for five straight years.
But following the founding of Rafi, Dayan was not in a hurry to join the Peres bandwagon. He hedged his bets, sat on the fence, and played hard to get. At first he stated that he intended to stay in Mapai and oppose the breakaway faction. But later, as a result of his conversation with Milchan, Dayan was successfully convinced that if he stayed in Mapai, he would be marginalized and unable to advance his personal and political agenda.
“Set up the meeting,” Dayan told Milchan. It was one of the first displays of Milchan’s keen talent for brokering deals.
On a hot summer day in August 1965, only days before the election, Milchan arranged the crucial late-afternoon meeting between Moshe Dayan and Shimon Peres. Because of the summer heat, the three sat on the patio in the garden of Dayan’s home in Zahala, a suburb of Tel Aviv, trying to catch a cool breeze coming in from the Mediterranean. They were surrounded by Dayan’s legendary collection of antiques, which he “found” at various historic sites throughout the Holy Land. Any other person would have been thrown in jail for violating Israel’s strict antiquities preservation laws, but Dayan didn’t have to worry about little things like that.
Milchan told us that “with my passion for peace, I was able to help bridge the gap between them.” Within the hour, Dayan announced that he would join Rafi. Both Dayan and Peres were very impressed with the successful new businessman’s mediating skills, and after the two politicians reached their agreement, Dayan pointed at Milchan and told Peres, “You know what, Shimon? I want Arnon as minister of finance.”
“OK,” Peres replied with a sly smile.
Unbeknownst to the three participants in the meeting, there had been a security breach. A certain person was hiding behind a fence listening in on the entire conversation. He was an investigative reporter for HaOlam HaZeh, Israel’s leading gossip tabloid. Within days, the paper came out with a loud headline: “Meet the Youngest Minister of Finance in the History of Israel.” Following that publication, Milchan was invited to participate in an interview on Israeli TV.
“How can a young man like you feel like he is qualified to be the minister of finance of the State of Israel?” the interviewer asked in a snotty tone right off the bat.
At that very moment Arnon understood what he’d gotten himself into, and at that instant he made his decision: “Take a good look at me,” he told the host. “Do I look like the kind of guy who will show up at 8:00 a.m. at an office in Jerusalem every day wearing a suit and tie for the next four years?”
He slammed the door on politics as an option for himself right then and there on national TV, for everyone to see. “I resigned before I was even nominated.… I understood that it was not for me,” he later explained. What Milchan did not understand was that Dayan and Peres had in mind a completely different kind of “minister of finance,” unelected, secret, far outside the country, and in service indefinitely.
Milchan, like every Rafi backer, was absolutely convinced that the party would score big on election night. He would be disappointed. In the elections for the Sixth Knesset, Rafi pulled about eight percent of the vote, translating into ten parliament seats out of 120, and went straight into the opposition.
Rafi’s failure was so extensive that not only did it fail in coming close to the number of Knesset seats its backers had hoped for, but its rival Mapai actually increased in strength and was able to form a government without the need to invite Rafi to join in a governing coalition, even as a junior partner. It was a humiliating defeat that confirmed that what is fashionable among the elite doesn’t always translate into popular votes.
One of the first things that Rafi did in its role as an opposition party was to attack Prime Minister Levi Eshkol for a large “defense-related failure,” without specifying what it was. Today it is understood that the failure they were referring to was Prime Minster Eshkol’s decision to slow the pace of development of the nuclear reactor in Dimona in exchange for military aid from the United States.
Shortly thereafter, on the eve of the Six-Day War, Rafi entered Eshkol’s coalition government as part of the national unity government that was hastily formed in response to the growing crisis, which led to war on the morning of June 5, 1967. Sweeping politics aside, Moshe Dayan was appointed minister of defense and led the country to its unprecedented victory, turning Dayan into an even greater international celebrity.
A few months after that, all Rafi members returned to Mapai with their tails between their legs – with the exception of David Ben-Gurion, who continued to wander in a political wilderness until the day he died in 1973.