At the Expense of the Survivors

17 people have been charged in New York following an FBI investigation into more than US$42 million compensation being paid by the Claims Conference in false claims…Isi Leibler writes.

The Claims Conference is one of the most powerful Jewish organizations in the world

• ♣ It controls billions of dollars – earmarked for the welfare of Holocaust survivors, many of whom are living in abject poverty
• ♣ Recently, embezzlement of millions of dollars was discovered – but the organization, already facing many difficult questions regarding its allocation of funds, acts as if there is no problem
• ♣ The lesson, as far as they are concerned, is to invest in public relations
• ♣ This is what happens when the executives are not replaced

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The “Conference on Jewish Material Claims against Germany” (Claims Conference) is one of the most important global Jewish organizations. Founded in 1951 to negotiate with the German government for material compensation for Jewish victims of Nazi persecution, it subsequently also served as the conduit for the disbursement of other postwar restitution schemes.

In recent months, widespread criticism has been voiced at the manner in which this body has been conducting its affairs. It was also charged with lacking compassion and failing to prioritize the needs of survivors, who are now elderly and many of whom are living in dire poverty.

This climaxed with the recent disclosure of massive misappropriations of funds which could well prove to be the ugliest organizational Jewish financial scandal of our time.

In February, it was disclosed that the Claims Conference had dismissed three employees, one of whom was the supervisor of the Hardship Fund, over a fraud amounting to $350,000. Two of those sacked, allegedly returned to Russia. Subsequently, the New York Jewish Week published the shocking revelation that the FBI was investigating fraudulent misappropriation of at least $7 million from the Article 2 fund created in 1992 by the German government to provide monthly pensions for eligible Holocaust survivors.

At their subsequent annual meeting, the Board of Directors was officially notified about the fraud. The directors were informed that that the scam had been going on for more than 10 years and that the $7 million already identified related only to the facts obtained since the computerization of records initiated in 2007. The Treasurer Roman Kent added that $7 million was “only the tip of the iceberg”. The board was also informed that the German government could hold the Claims Conference accountable for the missing funds.

To make matters worse, the auditors KPMG, declined to sign off on the accounts pending further clarification of the actual amount of funds misappropriated. Since then there have been rumors rampant in Claims Conference quarters that $40 million, or even more, had been stolen. Repeated attempts to obtain an estimate of the amount missing from the chairman of the Claims Conference yielded no response beyond a statement that the FBI were still investigating the matter. The rumor that in excess of $40 million had been stolen was never denied. One would have assumed that a scandal of this order involving restitution funds would have created a major stir throughout the Jewish world. Yet the response seemed muted. Indeed, the Claims Conference tried to play the whole matter down. The chairman had the chutzpa to say that “no survivor payments were affected”. Of course he failed to point out that when it was discovered, Hardship Fund payments to legitimate claimants, including many in dire need, were frozen for three months.

Adding to the insult, Executive Vice President Greg Schneider blithely informed the media that there had been no failure in standard operating procedures.

Every organization is susceptible to fraud. But for a charitable organization to shrug off and trivialize a fraud involving millions of dollars over a 10 year period, insisting that nobody was responsible because there was no deviation of standard procedures, is surely unconscionable. It is, after all, obligatory for the administrators of the largest global Jewish foundation to ensure that foolproof procedures are in place. Allowing for the absence of malfeasance, there is a question of accountability, not to mention transparency. It was thus somewhat bizarre for a director, in response to this scandalous fraud, to publicly boast that “the Claims Conference is well led, well governed, well-staffed and manages its restitution funds in a manner consistent with best practice and probity”.

No responsible public institution encountering a fraud of this magnitude would respond in such a cavalier manner. Such arrogance enrages those concerned with the administration of this crucial organization, especially survivors.

Haim Roet, a former Claims Conference director from Israel, insists that had the internal audits – which are undertaken by one person on a part time basis – occupied a higher priority, this multimillion dollar scam may have been averted.

Three years ago, in the wake of questions involving Avraham Hirshson, the disgraced former Israeli Finance Minister currently serving a jail sentence for fraud, relating to the use of Claims Conference funds by the March of the Living, there were calls for an independent forensic audit to review the broad spectrum of controls within the organization. The calls were ignored.

More was to come. At the most recent Board meeting, Avraham Biderman, a veteran Agudat Yisrael director, announced that in order to deal with the latest scandal, the executive had appointed Howard Rubinstein and Associates, “the biggest and the best PR organization in the United States”, to refurbish the Claims Conference image. This is despite the Claims Conference already having a fully staffed public relations department. An additional $500,000 was set aside for lawyers and accountants. It is astounding that not a single board member saw fit to challenge the decision to hire the PR firm.

The distorted perspective by which the Claims Conference perceive their role as dispensers of restitution funds is reflected by the nature of tributes frequently extended to them by organizations who are beneficiaries of their largesse. Nowhere is this more offensive than at Yad Vashem where a major plaque appears naming every member of the executive of the Claims Conference in appreciation of their contribution.  As the principal national Jewish institution commemorating Holocaust memory, it is entirely appropriate for Yad Vashem to be a recipient of such funds. But it is surely odious for a plaque to be erected in honor of executive members suggesting that they were donating the funds rather than acting as a bureaucratic body disbursing restitution funds provided by the German government.

The key problem confronting the Claims Conference today is undoubtedly the acute and deteriorating plight of the survivors. Chairman Julius Berman did concede that “tens of thousands of Jewish victims of Nazism throughout the world are living in need, unable to meet bare expenses or to properly care for themselves in old age”.

What Berman failed to say was that this deplorable state of affairs was entirely due to years of neglect and a failure to prioritize the needs of survivors. It is indisputable that had a greater percentage of the $70 billion already allocated by the Claims Conference over the years, been set aside for survivors instead of other charities – many not even Holocaust related – we would not today face the scandal of survivors unable to meet their basic food, medical and utility bills.

Admittedly, many of these charities were worthy. But they failed to account for the desperate needs of survivors. Substantial funds were provided to hospitals, nursing homes and general welfare operations in which survivors in many cases were still obliged to pay the standard fees, and only benefited as a small percentage of the overall population. As Leo Rechter, Director of the National Association of Jewish Child Holocaust Survivors says: “That is like subsidizing the railroads because some survivors sometimes take the subway”. This applies particularly in Israel where funds were provided for welfare facilities that the government would otherwise have been obliged to provide.

Substantial amounts were also paid out to worthy causes such as Birthright and even haredi Yeshivot. This was rationalized on the basis that participants to Birthright visited Yad Vashem and that the Yeshivot taught Holocaust studies! In addition to this, there were many other grants extended to organizations that were only peripherally related to the Holocaust.

The Claims Conference also has an” Investment” portfolio (defined as such in the Claims Conference Financial Statement) amounting to $1,086,810,179, which in the last financial year grew by $33 million. Whereas the President and Treasurer insist that these funds are all committed for the future, it is disappointing that not one of the 64 directors felt obliged to ask the obvious question: could not more of this one billion dollar plus sum have been set aside for the few remaining ailing Holocaust survivors, whose lifespan is now extremely limited?

In an unrelated area, there is also growing anger about the failure of the Claims Conference to protect the interests of heirs of German property and their descendants. Claims Conference leaders have adopted a Robin Hood approach in relation to this issue, arguing that the proceeds of these properties should be directed to other Claims Conference enterprises. Today they argue that diverting these funds from their rightful heirs could possibly mitigate the plight of the survivors.

Roman Kent, the Treasurer of the Claims Conference, recently provoked another storm by making the extraordinary assertion that the Claims Conference refuses to provide access to the list of German properties published in 2003 because heirs would “think that they could file claims but will not be able to do so because the Claims Conference sold many of these properties since the 1 March 2004 deadline”. Denying heirs and their children access to such information for the sake of historical truth is unconscionable. However, Kent failed to mention that the 2003 list of 59,198 names, released by the Claims Conference only after pressure from the German and UK governments, were only circulated for six months after which it was withdrawn. As a consequence, many legitimate heirs only learnt of their right to reclaim their properties after the deadline had expired.  In 2008, again in response to pressure, a virtually useless list of 11,000 addresses without names was released.

This should also be viewed in tandem with the huge uproar and litigation which arose over the manner in which the German properties were managed.  In response to allegations of questionable practices related to the sale of properties – amounting to up to $7 billion – two internal audits were carried out, the findings of which to this day have been suppressed. And until now, the Claims Conference refuses to provide an estimate of the values of the properties it has retained or to which they still claims title.

Allegations of an absence of “transparency and democratic accountability” in these areas resulted in the current investigation of the Claims Conference by the Board of Deputies of British Jews, the findings of  which are to be released shortly.

All of this begs the question: How could a Board comprising of 60 distinguished well intentioned Jewish representatives from all over the world tolerate such a situation?

The reality is that despite an external façade of governance, the Claims Conference operates like a private club.

The organizational representation is outdated and completely out of sync with the current realities of Jewish life. Defunct or near defunct organizations, such as the Jewish Labor Committee and the Anglo Jewish Association retain equal representative status to a body like the Jewish Agency. It is noteworthy that the chairman of the nominations committee after many years remains the representative of the Anglo Jewish Association.

The chairman of the Claims Conference, Julius Berman, has held office for over eight years. This is unhealthy in any democratic organization, but especially so in one disbursing billions of dollars. Without implying personal malfeasance, but in the absence of adequate checks and balances after a long period in control, it is tempting, some would say inevitable, for a chairman to begin behaving as though the organization was his personnel fiefdom.

He is enabled to do so by virtue of the fact that the organizational representatives meet just once a year and are unable to absorb the complexities and intricacies of the organization. Besides, many face a conflict of interest as their organizations are frequently on the receiving end of funds from the Claims Conference and do not wish to rock the boat.

However, dissent from survivor groups and others is not tolerated.  In May 2009, a $200,000 loan was withheld from the “Center of Organizations of Holocaust Survivors in Israel” until they were willing to undertake not to criticize the Claims Conference. The Claims Conference only relented after the Israeli media exposed the matter and Haaretz stated that “Welfare organizations in Israel are on the brink of bankruptcy and the Claims Conference is trying to take advantage of this.  It is worse than offering a bribe: it’s a dictatorial attempt to silence opposition”.

The centralized control is augmented by the extraordinary personal power that Julius Berman has amassed. Not only is he chairman of the Claims Conference, but he has taken upon himself to act as chairman of five of the most crucial committees including the all-powerful Allocations Committee. Another is the Advisory Committee for Social Welfare Allocations – not merely for the United States but amazingly also the committee dealing with Israel. He is also a member of three other committees which do not list a chairman.

The Claims Conference argue that he does not exercise voting rights but in this context that is utterly irrelevant, especially if one takes account of Berman’s autocratic style. With such concentration of power in the hands of one person, checks and balances disappear and governance inevitably becomes corrupted. It also raises major questions about the entire decision making process of allocating funds. It is thus hardly surprising that directors cannot recall a single occasion when the board has not automatically rubber-stamped all the allocation recommendations.

This was expressly why Haim Roet, a former Israeli director and himself a Holocaust survivor, resigned, stating in a letter to Berman: “I am too experienced and old to be a rubber stamp for the autocratic majority of the Claims Conference board and its management.” He deplored the fact that the allocations committee had ignored recommendations by the Israel Advisory Board “as well as explicit recommendations by the Knesset”. Such behavior, Roet said “is unbelievable and unacceptable” and can only be described as “chutzpah”. He also bitterly protested that Berman repeatedly failed to respond to his communications or act on his repeated demands to circulate to the Board protests concerning the cavalier manner in which the Israeli recommendations had been overruled.

The issue came to a climax on September 28 this year, when seven key members, of the Israeli Advisory Committee for Allocations (all of whom were Holocaust survivors), wrote to Claims Conference Chairman, Julius Berman (who also chairs the Advisory Committee) and Executive Vice President Greg Schneider, informing them that they would no longer participate in future meetings.

They claimed that the Claims Conference “does not practice what it preaches”, accused Berman of ignoring recommendations made by the Committee and then refusing to submit their objections to the Board as a whole. They told Berman that they considered that his behavior reflected “contempt towards survivors in Israel.”

The Executive Vice President Greg Schneider responded, trying to mollify the group, expressing the hope that the matter could be amicably resolved at a forthcoming meeting scheduled for November.

As one investigates further, new issues arise. For example, I only recently learned that Burt Neuborne is one of the three members of the Claims Conference “Goodwill Fund Late Applicants Committee”. This committee decides on payments for claimants who filed their claims after the German deadlines for properties which the Claims Conference had already taken possession of or received compensation. Since its inception in 1994, the fund has disbursed close to $1 billion, with more than $85 million over the past two years.

That Neuborne can be a member of this important committee is obscene. In an op-ed in the New York Post in 2006, Menachem Rosensaft, the founding chairman of the International Network of Children of Jewish Holocaust survivors, disclosed that early in 1997, Neuborne had accepted an invitation from US district judge Edward Korman “to serve in a pro bono capacity as co-counsel for the plaintiffs” in the Swiss Bank litigation. Two years later he was appointed lead counsel on the assumption that he was serving free of charge. He stated in October 2000 that “every penny in the $1.25 billion Swiss Bank case will go to Holocaust victims” and ridiculed as “absurd” another lawyer’s $4 million dollar fee request. As late as September 2005, he boasted that “I am the lead settlement lawyer in the Swiss case in which I served without fee now for almost 7 years.”

But suddenly in December 2005, he had a change of heart and demanded $4.7 million, finally extracting $3.1 million (aside from $ 4.4 million he had already pocketed from the settlement of Holocaust related claims against other German corporations). He even went to the extent of demanding that two months interest be added to his bill for late payment. Needless to say all this was at the expense of survivors.

This despicable behavior of repeatedly falsely claiming that he was working pro bono enraged Holocaust survivor groups and led to a formal resolution of the American Gathering of Jewish Holocaust Survivors and their Descendants condemning “his greed which eclipses any consideration for overriding moral and ethical concerns… His actions constitute a moral stain on the legal profession”. The anger spilled over into the media, prompting an editorial in the New York Times.

The Claims Conference justifies his role on the grounds that he is performing his current task pro-bono and is an expert in the field. Yet most Jews would consider it unconscionable for a person who behaves in such a manner to be appointed to a leading position in an organization such as the Claims Conference. The treasurer of the Claims Conference, Roman Kent, who had described Neuborne’s behavior as “outrageous” was apparently totally unaware that Mr. Neuborne held any position in the organization. That his nomination was not challenged is symptomatic of how the uninformed Board simply acts as a rubber stamp for every decision proposed by its chairman.

What should be done?

An independent forensic audit review should be implemented forthwith in order to allay concerns and instill confidence in the Jewish world that adequate oversight is now being applied.

The Claims Conference Board should also appoint an independent committee to review the structure of the organization and ensure that conflicts of interest are removed from the decision making progress.

The Board should be streamlined, eliminating representation from defunct organizations and co-opting new bodies with legitimate claims to be party to policy and allocation deliberations.

The Claims Conference should cease to operate as an “old boys’ club” and must genuinely represent the Jewish people and Holocaust survivors.

Most importantly, term limits for senior elected officers and directors must be instituted. This would allay the fears of survivors that the money is being withheld to enable leaders and functionaries to continue maintaining and allocating funds even after the decease of survivors. This concern is reflected by the submission of  the USA Holocaust Survivors Foundation  to the Knesset subcommittee reviewing Holocaust restitution in 2007 which  refers to the then  President of the Claims Conference (who  was subsequently forced to step down following disclosure of misappropriation of charitable funds of another organization) having opined that  “there would be an abundance of  Holocaust restitution money left over to be used for the community’s needs … after survivors were gone”.

In addition, the Claims Conference should submit to full oversight by an objective regulatory authority such as the Israel State Comptroller with authority to appraise not only the flow of funds but also the decision making process in order to satisfy the Jewish public that restitution funds are being managed in an exemplary manner.

Above all, there must be a review of the criteria applied for granting assistance to survivors and the ground rules of eligibility for providing grants to worthy organizations or projects.

Instead of a public relations firm to enhance their image, the Claims Conference should appoint an Ombudsman to ensure that survivors and heirs are treated with respect.

But the absolute priority must be to immediately ease the plight of the ailing survivors.  Time is of the essence. In view of the appalling suffering and indignities experienced by remaining survivors, every cent not committed to heirs should be diverted towards this humanitarian crisis. And if some projects need to be frozen, so be it. It is obscene that elderly survivors are denied the opportunity of living out their few remaining years in dignity. There is a Jewish obligation on us to raise our voices and cry Gevalt!

In this context, the New York Jewish Week recently dropped another bombshell. In October, Ambassador Stuart Eizenstat, Special Negotiator of the Claims Conference, hosted a concert commemorating the defiance and resistance of Jewish prisoners at Terezin. It was a gala event, including   the performance of the National Opera Orchestra and in the presence of members of Obama’s administration and Congressman — surely a laudable enterprise.

But what outraged the survivor community is that instead of using this illustrious event as a vehicle to raise funds for survivors in desperate need, the Claims Conference provided a $50,000 subsidy for the occasion. In response to criticism, the Claims Conference justified the subsidy claiming that it was being earmarked for “educational materials”. Admittedly, in the context of billions of dollars, this is a drop in the ocean. However, it symbolizes an attitude. And as Leo Rechter pointed out “20 survivors could have been taken care of with $50,000… and provided with a shred of dignity in their last days.”

David Schachter head of the Miami Holocaust Survivors Foundation added that the Claims Conference had “blown close to $250 million on [educational research and documentation] projects in recent years, including grants to Board members which had nothing to do with survivor needs”. He asked “How in God’s name can the Jewish world allow this diversion of holy money while survivors are suffering?”

How indeed?

Note:  This article first appeared in Israel Hayom, the Hebrew daily with the largest circulation in Israel. It created an enormous stir.