President Obama, Vice President Biden, and Secretary of State Clinton have been uncharacteristically frank about how illegal Israeli settlements obstruct prospects for Middle East peace. General Petraeus went even further, advising a reluctant Congress that Arab perceptions of one sided US support for Israel actually harms US national security and endangers troops. It is now time for President Obama to cut off hidden US funding — private and public — to illegal Israeli settlements.

The American Israel Public Affairs Committee marshaled all of its congressional beneficiaries of Israel lobby campaign contributions. AIPAC demands [pdf] the administration stop publicly confronting Israel, take the dispute behind closed doors and get back to the AIPAC agenda against Iran [pdf]. But Obama long ago stated backroom deals with the Israel lobby were off the table, because such deals have a track record — like illegal settlements — of derailing efforts toward peace in the region.

Both Israel and its US lobby have long followed the doctrine that transgressions committed to advance Israeli interests would never be prosecuted in the United States. David Ben-Gurion established an enormous US arms procurement, theft, and smuggling network [pdf] — violating scores of US export controls [pdf] in the 1940s — during his visits to the United States as an officially registered foreign agent of the Jewish Agency beginning in September of 1943. The Jewish Agency, a nonprofit corporation established to realize Theodore Herzl’s vision of a Jewish State in Palestine has constantly clashed with Presidents and the US Department of Justice not only over arms smuggling but money laundering into the US for covert lobbying and public relations campaigns, and failing to disclose its secret covenants with the Israeli government in mandatory US foreign agent activity reports. More recently the Jewish Agency and its twin sister (the World Zionist Organization) were identified in a lengthy official 2005 report by Israeli prosecutor Thalia Sasson as being at the very core of illegal settlement activity — a secret venture that has laundered $50-60 billion according to USA Today.

Historically both the Jewish Agency and its US startups dodged accountability by changing shell corporations like agile hermit crabs. AIPAC scuttled out from under the protective shell of the American Zionist Council a mere six weeks [pdf] after the Department of Justice ordered its parent to register as the foreign agent of the Jewish Agency in 1962. The Jewish Agency-American Section, which laundered funds into the AZC, also claimed to the DOJ that it “reconstituted itself” into two unique and separate organizations after damning Senate Foreign Relations Committee investigators and US watchdogs caught it failing to properly file declarations of its secret ties to the Israeli government. But even in 1970, the DOJ found this claimed rehabilitation to be “very sketchy” [pdf]. Today the Jewish Agency still claims to somehow be separate from its sister organization, the World Zionist Organization, even though one director heads “both” organizations, provides all of the funding and shares the same physical facilities. Arcane Jewish Agency history is important to Americans. As in the 1960s, US tax-exempt funds donated to the Jewish Agency are still quietly recycled back into the United States through the World Zionist Organization’s American Section, itself conveniently located in the same New York office building as the Conference of Presidents of Major Jewish Organizations. Their major function is lobbying the White House and organizing AIPAC’s executive committee.

Israel’s leaders and lobbyists have long used intricate wire diagrams to obfuscate through complexity blatantly obvious (and unlawful) activities. In the past, this has assuaged compliant US regulators during times of crisis. The alphabet soup of ever changing, similar sounding Israel lobby organizations is as confusing to average Americans as it is to regulators — and that’s because it’s designed to be that way. The Jewish Agency let lose another wire diagram in 1971 as it tried to convince skeptical Department of Justice officials that it would behave and stop infiltrating the US advice and consent process through covert lobbying and public relations campaigns. Benjamin Netanyahu recently foisted one on Obama to show how he couldn’t possibly be held accountable for the timing of the infamous 1,600 East Jerusalem housing units. These ploys have grown very, very tiresome.

Analysis of cash flows confirms that funds for illegal settlement expansion continues to move from the US like water — pumped by US tax exemptions for committed donors as well as through Congressional siphoning of unsuspecting US taxpayers. The Jewish Agency received at least $140 million in tax-favored donations in 2008 from US charitable federations. Congress allocates $40 million a year in US taxpayer contributions to the Jewish Agency, but exercises no real oversight into how it actually uses the funds. In addition to building illegal settlements, the Jewish Agency funds think tanks such as the Jewish People Policy Institute, which Dennis Ross established in 2002 and chaired before joining the Obama administration to spearhead efforts against Iran. The Jewish Agency has long been the world’s largest quasi governmental nonprofit corporation, its budget was $592 million in 2007.

It is no secret that United Jewish Communities is the currently the designated lead US nonprofit funding umbrella for federations providing unrestricted funds to the Jewish Agency — though it has never revealed this simple fact in its mandatory public IRS filings. US tax exemptions are supposed to be granted only to promote social welfare within designated US municipalities. Land grab campaigns against foreign nations with which the US is at peace are not even legal, much less a charitable activity. Tax exemptions for feeder funds and the Jewish Agency itself were granted so long ago the IRS doesn’t even remember [pdf] precisely what justified many of them. No new wire diagrams, appeals for secrecy, or shell company reorganizations can obscure the fact that US tax exemptions and tax dollars have long been misused to create “facts on the ground” that imperil US national security.

No unit of government is more responsible for enabling illegal settlement money laundering than the US Treasury Department. In the days of Henry Morgenthau Jr., opaque Treasury busybodies even helped and ferried pre-state terrorists through Europe and into the US — just as today they quietly wage economic warfare on Iran beyond the reach of broad public scrutiny or the Freedom of Information Act. In 1968, two years after the AZC foreign agent battle ended, AIPAC applied for a tax exemption. The Internal Revenue Service of the Treasury Department not only granted it two months later, but made it retroactive to 1954 so that AIPAC could lay claim to a much longer existence than actual corporate filings or the press record warrant. AIPAC then happily conducted the AZC’s business as usual as if the 1962 DOJ foreign agent registration order never happened — what maneuverability the DOJ temporarily took from the Israel lobby, the US Treasury Department permanently restored.

Today public complaints about the Israel lobby’s charitable money laundering are treated with the same contempt Harry Markopolos experienced years ago when he tried to warn the Securities and Exchange Commission about the Madoff Ponzi scheme. US political appointees at Treasury in a position to make a difference simply refuse to receive petitions in Washington, much less enforce the law. Although IRS commissioner Douglas Shulman was recently urged to tackle tax exempt donation laundering on National Public Radio, only action against Muslim charities is carried out behind the impenetrable wall of bureaucratic Treasury disinterest. Dwight Eisenhower once threatened to cut off such misused tax exemptions and Treasury enablers — like Ike, ending US illegal settlements funding is something only president Obama can do.

President Obama should revoke the Jewish Agency’s 1948 US tax exemption. This would immediately shut down all US charities acting as feeder funds and throw into question the deductibility of individual US donor contributions. This strong message would be timely, but generate some political backlash. Israel lobbyists inside and outside the federal government exploit elected American politicians’ own insatiable thirst for campaign contributions from the tributaries of this massive slush fund — politicians know they are only welcome to partake if they unconditionally support Israel and its lobby — no matter the cost to their American constituents.

But canceling all US tax exemptions for major charitable Jewish Agency feeder funds until Israel takes the necessary steps toward peace wouldn’t necessarily be controversial if American donors and concerned citizens are properly educated. Sordid recent events may even convince grassroots donors to welcome an Obama ban — donors are often held in pure contempt by elite Israel lobby officialdom anyway. Their donations have been constantly misused for nonexempt political activities and unlawful attempts to subvert the advice and consent participation in government of their fellow countrymen. The most toxic donor contempt is perhaps no clearer than in former lobbyist Steven J. Rosen’s insistence that AIPAC pay him $20 million from its coffers for what appears to be an illegal attempt to unlawfully influence US policy toward Iran through purloined classified US national defense information. AIPAC’s grassroots donors probably wouldn’t have knowingly relinquished their funds to pay AIPAC’s legislative director Ester Kurz to mishandle and improperly dispose of classified US trade secrets either — legitimate American charitable organizations simply don’t behave this way.

Obama must also permanently end all US taxpayer support to the Jewish Agency. By quietly funding an entity with such a long history of arms smuggling, illicit US lobbying, propagandizing, and illegal settlement expansion, the Jewish Agency and its US lobby have compromised Congress and turned every American taxpayer into an unwitting accomplice.