Israeli Parties Exploit Funding Loophole by Registering 'Shelf Companies'

A political bloc associated with Israeli Minister Itamar Ben-Gvir has secured an additional 1.83 million shekels annually through a bureaucratic maneuver: registering a new party named 'Eretz Israel Shelanu' (Our Land of Israel). This new entity is registered under the names of Minister Yitzhak Wasserlauf and Knesset Member Yitzhak Kroizer, both already members of Ben-Gvir's Otzma Yehudit party. The strategy leverages Israel's party funding law, which allocates funds based on parliamentary seats and an additional full unit for each registered party. By creating a separate registered entity, the bloc effectively gains an extra funding unit, even though the individuals and political group remain the same.

A funding unit is currently valued at approximately 1.38 million shekels, making the registration cost negligible compared to the substantial financial gain. This practice, known as registering a 'shelf party,' involves creating a dormant party that continues to receive funding as long as it meets reporting requirements. Ben-Gvir previously employed this tactic during the 2022 elections to increase his bloc's funding without altering candidate lists or political messaging.

This method is legally permissible as it adheres to the letter of the law, though critics argue it deviates from the law's intent. The additional funding unit was originally intended to support independent political entities, not to inflate the budgets of existing blocs through paper divisions. The process of establishing a new party requires a hundred founders, bylaws, and a fee, taking only a few weeks, while the resulting annual funding can amount to millions of shekels.

A similar tactic was observed on the political left, where the Yachad party submitted a separation agreement with Naftali Bennett's and Yair Lapid's Joint List, preserving its right to split after the elections. This move also aimed to maintain political flexibility and financial advantages. The funding for these parties comes from state coffers, as private donations in Israel are strictly limited.

While the State Comptroller audits party finances, the focus is on expenditure rather than the number of registered entities representing the same political group. Previous legislative attempts to reform the funding law, aimed at aligning allocations with a party's actual size and reducing incentives for technical registrations, have not yet passed. Until such reforms are enacted, parties that meet the seat threshold will likely continue to find value in registering additional entities.