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MATTHEW KALMAN in Jerusalem STEPHANIE NOLEN in Toronto

A Canadian charitable foundation that donates money to Israel has been named as one of numerous sources of illegal campaign funds that helped Israeli Prime Minister Ehud Barak win the general election last May.

The Kahanoff Foundation, a Calgary-based charity with assets of more than $100-million, is mentioned three times in a damning report published last Thursday by Israeli state comptroller Eliezer Goldberg.

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The flow of funds from foreign donors into a string of foundations that helped Mr. Barak's campaign is now the focus of a criminal investigation by Israeli police.

The comptroller levied a fine of more than $4.1-million on Mr. Barak's One Israel movement because of the illegal donations, which the report says were organized by his adviser Yitzhak Herzog, a lawyer who now is cabinet secretary.

Mr. Herzog acted as legal adviser to the Israel branch of the Kahanoff Foundation and was empowered to sign cheques on behalf of the foundation.

Mr. Goldberg discovered that two payments totalling about $20,000 were made by Mr. Herzog using Kahanoff Foundation money during the election campaign.

One was a cheque for 40,000 shekels ($13,900) to the Foundation for the Advancement of Taxi Drivers in Israel, which campaigned on behalf of Mr. Barak. Another 20,000 shekels ($6,950) was donated to the Students Want Change campaign to pay for bumper stickers and newspaper advertisements with the message "Anyone but Netanyahu," a reference to the rival whom Mr. Barak defeated.

The money from the Kahanoff Foundation is a pittance compared with the $1.8-million identified by the comptroller. More than half of that came from the charitable trust of Octav Botnar, a mysterious Romanian billionaire wanted by British authorities for tax evasion before his death in 1998.

Mr. Herzog continued to channel funds to the Barak campaign from Mr. Botnar's charitable foundations after he died. Mr. Herzog told the comptroller it was Mr. Botnar's wish to see his money used to help Mr. Barak's party win office.

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Kahanoff Foundation president Jim Hume said yesterday that the comptroller's report came as a complete surprise to him.

"Our understanding was that these donations would go to charitable community programs of the organizations in question. We are disturbed to learn that they were apparently used for other purposes." The foundation, he added, "does not and cannot support political organizations or activities."

He said he personally makes all decisions on funding, while Mr. Herzog "occasionally made recommendations to us regarding smaller contributions."

He would not comment on what he thought Students for Change or the taxi drivers' association would do with the funds when he approved grants to them.

The foundation donated $150,000 to 20 organizations through its Israeli branch in 1999, Mr. Hume said, and has invested "tens of millions of dollars in the country [Israel] in the past two decades.

The Kahanoff Foundation was formed in 1979 from the estate of Sydney Kahanoff, a Calgary oil millionaire.

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Its mandate is to fund "innovative projects" that fall outside the scope of other grant agencies. Among grants awarded last year were $291,743 to York University in Toronto, $125,000 to the University Hospital Foundation in Edmonton, $100,000 to Camp B'nai Brith in Montreal and $323,395 to the Science Alberta Foundation. The largest disbursement in Canada was $883,984 to the Non-Profit Sector Research Initiative, based in Calgary.

The foundation's vice-president is Shira Herzog, the cabinet secretary's cousin. They are part of one of the most storied families in Israel. Her father Yaacov was chief of staff to prime minister David Ben Gurion in the 1960s and ambassador to Canada. Her uncle, Yitzhak's father Chaim, was prominent in the Israeli government for years and went on to become president. Her grandfather was Israel's chief rabbi in 1948, when the state was founded.

She declined to comment yesterday.

Mr. Goldberg uncovered a web of foundations that helped Mr. Barak, many of them set up with the involvement of Mr. Herzog and Tal Zylberstein, Mr. Barak's campaign manager. He concluded that the Barak campaign last spring systematically violated Israeli election finance laws.

Mr. Barak was not implicated personally, but Mr. Goldberg said "he should have known" what was being done by campaign managers.

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