Katz has been a member of the IAI workers' union over the past four years and allegedly used his position to political ends.
"(Katz) made people register for the Likud party though intimidation and extortion," claimed police representative Slava Maron.
Maron added that since the investigation was made public, attempts were made by the younger Katz and other suspects to obstruct procedures.
"The workers' union cast fear on IAI workers. As someone in a senior position (Katz), who was supposed to help employees with their problems, he instead exploited his position—along with the other suspects—to instill fear in the workers and promote his personal interests," the police representative said.
Chairman of IAI's technicians' workers union David Peretz is also suspected of conducting political activity through extortion.
"When an organization such as this or a person representing it asks an employee to register to the Likud party, it's a problem for him to refuse," the representative said, adding that "people registered to the Likud even though it didn’t represent their political views because they felt threatened."
The suspects' remand was extended by five days at the police's request. Ten additional suspects were held for questioning. Police also searched the homes of the suspects.
The investigation will examine whether employees who registered to the Likud party received promotions at the IAI.
Minister Haim Katz is expected to be summoned in the next few days to give testimony concerning the allegations against his son.
The corruption investigation initially focused on suppliers providing bribes and kickbacks to company officials in order to win various tenders.
So far, 16 suspects have been arrested, including several senior board members and a bank manager.
Among those arrested is former senior IDF officer Brig. Gen. (res.) Amal Asad, who is believed to have received bribes from the company DruzNet, which allegedly transferred funds to him through his relatives so he would help them keep their IAI contract.
Another suspect is Eli Cohen, a senior member of the IAI workers' union, who is suspected of receiving and giving benefits to senior officials in the government company its suppliers.
In one glaring example, an as-of-yet unidentified northern Israel company allegedly provided illicit favors in exchange for several IAI contracts. In direct contravention of regulations, the same company was also given clear preference over others in tenders.
According to information from police, the unnamed contracting company was awarded "rolling" orders, meaning, each time payment for a particular service was concluded, an additional service contract would be provided.
"This is a complex and extensive investigation, which involves a number of different actors being suspected of a variety of offenses including bribery, aggravated fraud, money laundering, theft by a public servant and breach of trust," police said in a statement.
Police also added that the undercover investigation uncovered "systematic criminal conduct and deep suspected corruption that is apparently the norm in IAI.
"This case includes a large and diverse amount of people involved, including board members, executives, managers, junior staff; all those who were gatekeepers (to IAI), in addition to service providers and consultants for the company."
(Translated & edited by Yaara Shalom and Lior Mor)