Claims Conference: Has it No Shame? …asks Isi Leibler

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For more than a decade, there have been passionate pleas for the Conference on Jewish Material Claims Against Germany, the organization responsible since its inception for the distribution of over $70 billion of restitution payments, to review its management, governance and oversight procedures and prioritize the distribution of discretionary funds so that aged Holocaust survivors desperately in need of assistance could live out their remaining years with a modicum of dignity.

Isi Leibler

The Claims Conference response has been consistently hostile. It has demonized critics, threatened the media with libel suits and accused me of conducting a vendetta and jeopardizing its negotiations with the German government. At all times it has brazenly insisted that its management and oversight procedures were impeccable.

Even following a $57 million fraud – the largest financial transgression ever experienced by a Jewish organization – Chairman Julius Berman and CEO Greg Schneider adamantly rejected pleas to strengthen organizational oversight and authorize an external independent review. They insisted that the fraud, which was orchestrated by a senior manager at the head office and perpetrated over 16 years, was merely a regrettable breakdown that could never have been detected. They refused to accept accountability; they did not even apologize.

Over the past month, in response to media accusations of failed governance and a possible cover-up, Claims Conference Ombudsman Shmuel Hollander, was commissioned to prepare a report for a committee of directors handpicked by Berman.

The findings, which were belatedly released to the Board of Directors just one day before its annual meeting last week, were unambiguous, confirming the charges of the organization’s harshest critics. It was a clear-cut condemnation and an expression of lack of confidence in the Claims Conference management, leadership, and Board of Directors.

The report notes that during the period 2001-2009 the Claims Conference:

* failed in “tailoring its organizational structure to meet the growing range of activities   and needs.”

* “was governed in a manner unacceptable in both public and corporate bodies”.

* demonstrated “systematic failings and problematic organizational behavior”.

* operated with an “absence of professional control systems… [that] constituted a key factor in enabling and certainly in facilitating the [$57 million] fraud.”

Hollander’s findings show that the management failed to address the fraud even when made aware of it. It states that an “enormous hole in the control mechanisms sent out an invitation to the thief” and that “even with the writing on the wall, and the organization exposed to warning signs, the matter was not attended to.”

The report goes further, concluding that management failures were not restricted to the $57 million fraud. According to the report, the scandal should be “reviewed and addressed against a backdrop of systematic failings and problematic organizational behavior”, adding ominously, “only the tip of the iceberg was revealed to us”.

A key piece of evidence in the accusations against the Claims Conference is an unsigned letter sent to the organization in 2001 detailing and potentially exposing the nature of the fraud.

Despite the debate over whether or not there was a deliberate attempt to cover up this letter, it is indisputable that Berman – acting in 2001 as the Claims Conference’s counsel – failed to adequately investigate its contents. The Board was not informed of the letter’s existence, neither at the time of its receipt in 2001 nor on the discovery of the fraud in 2009. Indeed, had it not been for the sharp eye of a journalist for The Forward, who picked up an oblique reference to the letter whilst attending court during the fraud trial, it would have remained concealed to this day.

As the Ombudsman’s report attests, the Claims Conference’s dysfunctional organizational culture of secrecy and opacity enabled this concealment to take place. It concludes that “no one who was aware of the 2001 letter [including Berman, and CEO Greg Schneider] treated it with the gravity that it demanded at the time or examined or supervised the work of the department where the fraud took place…In this respect the management of the letter and the report [undertaken by Berman’s law firm] was a symptom of a more serious problem”.

In any functional organization or public institution, such a damning report necessarily leads to the resignation of the parties involved and raises major questions concerning the fiduciary responsibilities of the Board of Directors. Not so in the case of the Claims Conference.

Indeed, ignoring the incriminating report, the organization presented a list of nominated officers, including Chairman Berman and CEO Schneider, as a bloc to the Board at its annual meeting last week. The Board was obliged to accept or reject the list in its entirety. To maintain a façade of total unanimity, abstentions were not recorded. Board members were quietly warned that if they failed to endorse the list they would bear responsibility for the dissolution of the Claims Conference.

The majority of directors, true to form, “unanimously” endorsed the list of nominees, including those directly responsible for the mismanagement and fraud. Despite the findings of the Ombudsman’s report, the apathetic refrain repeated again and again by Berman apologists was “Yes, they made mistakes but it is over. Let us move forward”.

To their credit, the Chairman of the Jewish Agency, Natan Sharansky, and the President of the World Jewish Congress, Ronald Lauder, who head the two most significant organizations affiliated with the Claims Conference and represent the bulk of world Jewry, fully endorsed the Ombudsman’s report. Both expressed “great disappointment and dismay” at the failure of the leadership to disclose the 2001 letter warning of the fraud to the board. Sharansky referred to the “growing perception that the organization is run like a closed club, with little transparency or accountability in its decision-making process”. He called for the creation of a committee, totally independent of the management or leadership, to review the organization.

The dysfunctional Board summarily rejected this call, highlighting that it is disproportionately represented by minor and even marginal organizations and ad hominem members lacking accountability to anyone. Furthermore, that that many of its member organizations themselves receive funding from the Claims Conference and therefore have a conflict of interest.

Neither Natan Sharansky nor Ronald Lauder partook directly in the vote, and, to his credit, Jewish Labor Committee’s Sam Norich, a former fervent supporter of Berman, made an impassioned speech and resigned in protest.

Yet even allowing for the abstentions, support for the status quo was overwhelming. CEO Greg Schneider, subsequently boasted to The Jerusalem Post that “Our board spoke loudly, clearly and unanimously. It was inspiring to see unanimous agreement that all extraneous issues, from personalities to internal Jewish politics were put aside so that the Claims Conference can continue in successfully providing for Holocaust survivors.”

In line with this fatuous remark, the Board rejected the call of Sharansky and Lauder for an independent review, and again approved the creation of an internal committee to assess whether the current management has the capacity to implement future strategic plans. Such internal committees dominated by Berman supporters have become a standard procedure by which the Board buries embarrassing matters.

There remain serious fiduciary issues at stake. The report stated that auditing procedures were “neglected in terms of both resources and personnel… as required in the body handling monies on such a large scale.” Yet the Board failed to appoint external auditors to conduct a forensic audit to ensure that there were no additional skeletons in the closet – a standard procedure for organizations in which embezzlement has taken place.

Berman and Schneider’s failure to disclose the 2001 letter to the Board also represents a breach of fiduciary responsibility. And the Board itself clearly has a fiduciary obligation to ascertain whether the negligence of Berman’s law firm in failing to adequately investigate the $57 million fraud in 2001 exposes it to liability.

The Forward has gone further to question whether the violations of fiduciary obligations on the part of the Board and Berman for failing to adequately investigate the fraud and take adequate measures to ensure appropriate checks and balances were in place constitute a criminal offence.

And there is the matter of Chairman Berman himself. Despite his awareness that retaining the chairmanship would irretrievably compromise the reputation of the organization, Berman canvassed unabashedly to retain his position. He succeeded in being re-elected, enabling him to carry on with business as usual despite the devastating finding that for 11 years he has presided over an organization handling billions of dollars of restitution funds without effective controls, oversight or management. It is simply inconceivable that under such circumstances and facing a conflict of interest, the Chairman of such an immensely powerful charitable organization could retain his role.

By enabling the Chairman and his management team to retain their positions and continue to run the organization like a private fiefdom, the Board of Directors has de-legitimized the Claims Conference itself. It has forfeited its legitimacy and moral authority to speak in the name of the Jewish people and survivors. In the eyes of world Jewry, despite the massive sums of money from Germany which it disperses, the organization is perceived as an example of the abuse of power on a grand scale.

But more disgraceful than the lack of organizational integrity, is the Claims Conference’s failure of moral integrity. At its last Board meeting, the directors again displayed an utter failure to recognize the moral responsibility, if not the sacredness, of the task with which they have been entrusted by declining to implement proposals urging a diversion of funds from other projects to ease the plight of aging Holocaust survivors in the twilight of their lives.

What will happen next? The Board’s failure to act may well encourage intervention from outside regulatory bodies. According to The Forward, the office of the New York Attorney General is monitoring the situation. If this were to lead to a full-blown investigation, it will cause further disgrace and humiliation in the Jewish world.

Isi Leibler lives in Jerusalem. He is a former president of the Executive Council of Australian Jewry.