The road to restitution
By John Authers
Financial Times
Published: August 15 2008 18:07 | Last updated: August 15 2008 18:07
Ten years ago this week, on the hottest day of a sweaty New York
summer, an excited crowd gathered around a courthouse in Brooklyn to
hear history proclaimed. A scrum of business-suited lawyers and Jewish
activists emerged on the steps as Alfonse D=92Amato, a US senator, read
out a brief statement announcing that UBS and Credit Suisse, the two
biggest Swiss banks, had agreed to pay $1.25bn to Holocaust survivors.
It appeared to bring an end to an extraordinary episode. For three
years, the World Jewish Congress (WJC), in a self-proclaimed attempt
to =93write the last chapter of the Holocaust=94, had pursued
Switzerland=92s banks over money deposited with them by Jews seeking a
haven before the war. The WJC alleged that the Swiss had allowed these
accounts to remain dormant. It said that rather than help Holocaust
victims and their relatives to locate their money following the war,
the banks actively obstructed them; survivors came forward with
stories of being told by bank tellers to produce death certificates
for relatives who had perished in Auschwitz.
The WJC, led by Edgar Bronfman, the billionaire head of liquor group
Seagram, had a powerful team of advocates on its side. Israel Singer,
a rabbi and Bronfman=92s trusted lieutenant, co-ordinated a brilliant
campaign for =93moral and material restitution=94. Before it was done, he
had persuaded US pension funds to threaten the Swiss with the biggest
campaign of private economic sanctions since the disinvestment
campaign against apartheid-era South Africa. A group of the most
feared lawyers in the US had launched a class-action demanding
billions from the Swiss =96 even as Wa****ngton tried to protect US-Swiss
relations from serious damage.
After all this, the campaign reached its resolution behind closed
doors. Edward Korman, the judge in the case, brought together the
parties for a meal at a Brooklyn steakhouse, then locked them in his
courtroom for two days of private negotiations. Lawyers for the Swiss
banks proclaimed that the resulting deal =93bought peace for
Switzerland=94. But in Switzerland, it seemed to confirm the widespread
belief that the campaign had been a =93shakedown=94. After all, the Swiss
had set up an independent panel, under Paul Volcker, the former head
of the Federal Reserve, to find out how the banks had behaved in the
postwar years. Volcker was still in the middle of the most expensive
audit in history.
Meanwhile, an equally ambitious commission of historians, set up by
the Swiss government, was studying Switzerland=92s entire wartime role.
And yet the lawyers had jumped the gun and demanded the money now. The
issue of the Swiss banks=92 behaviour had been rendered moot. In Swiss
eyes, this seemed to confirm that the whole affair had always been
about money, not truth or justice.
And yet the lawyers who had reached the deal angrily rounded on the
notion that they should attempt to settle issues =93with precision=94.
After so many years, they regarded the notion as a trick, and the
Volcker investigation as a trap. Instead there was a sense of urgency.
Claimants needed to be given something while they were still alive.
Maybe money that could not be linked to individuals could be used
instead on Jewish charitable causes.
Still, what exactly would =93justice=94 for the Holocaust survivors mean?
The WJC=92s =93moral and material restitution=94 formula seemed to suggest
that =93moral=94 and =93material=94 were separate things. The banks were
supposed to make a moral gesture, and then show they meant it by
backing it up with cash. But many claimants took deep offence at this.
They bridled at any notion of charity or moral gestures: this money
was theirs, and had been for half a century. =93This is not charity from
the Swiss,=94 protested an ageing Estelle Sapir, who had months earlier
been paid money by Credit Suisse. =93My father deposited money there.
It=92s my money.=94
For them, the moral victory that many perceived was not at all clear-
cut. And over the following decade, the =93material=94 ****tion of the
equation =96 getting the Swiss banks=92 money to its rightful owners =96
would also prove much easier said than done.
=2E . .
Anton Walter Freud, the grandson of Sigmund Freud, had played no role
in the events that led to the 1998 gathering on the Brooklyn
courthouse steps. But three years later, when a list of 21,000
=93probable=94 victims of Nazi persecution who held Swiss bank accounts
was published, he saw his grandfather=92s name on it.
Sigmund Freud, born to Jewish parents in 1856 in what is now the Czech
Republic, moved to Vienna with his family just a few years later. He
attended school, university and medical school there and rose to
prominence at the turn of the century, as interest in his books and
theories began to grow. When the Nazis took power in Germany in 1933,
Freud=92s books were burned, and by the time Berlin annexed Austria five
years later, the father of psychoanalysis had realised he would have
to leave the country.
On March 10 1938, while American diplomats tried to co-ordinate
Freud=92s flight, stormtroopers raided his publi****ng house and his
home, taking his pass****ts and his will, which detailed his assets
outside Austria. The Gestapo launched their own raid 12 days later and
arrested his daughter Anna for interrogation. They demanded that a set
of Freud=92s collected writings, held in Switzerland, be returned to
Austria, where they were =93ceremonially burned=94. =93Of course,=94 said
o=
ne
biographer, =93Freud=92s bank account was confiscated.=94
On May 25, Freud=92s assets were valued at just over 125,000
Reichsmarks, on which he had to pay a =93flight tax=94 of 25 per cent.
This was paid for him by Marie Bonaparte, Princess George of Greece, a
former pupil who wanted to aid his escape. The New York Times re****ted
on June 4, the day Freud left Vienna for London, that his publi****ng
house and =93all his money=94 were confiscated. He told re****ters at the
time that =93all my money and property in Vienna is gone=94.
But that was just Austria. A little more than a month later, on July
18, the Nazi foreign currency office demanded that Freud turn over a
Swiss account denominated in Dutch guilders. There was a lengthy
correspondence between Freud and his lawyer in which Freud debated
what to do about this, and recollected that he had been allowed by the
Nazi authorities to hold on to this money to enable him to build a new
existence elsewhere. He also wanted to repay the money he had borrowed
from Bonaparte.
In Hampstead, Freud was visited by Anton Sauerwald, the Nazi commissar
who had arranged his departure. Sauerwald, it turned out, had
deliberately turned a blind eye to evidence that Freud had money in
Switzerland, to make it easier for him to leave. Now that Freud had
escaped, Sauerwald wanted to collect the money he had previously
ignored.
Freud=92s nephew would later write: =93The Gestapo had graciously left him
in possession of a sufficient sum of money to tide him over the first
days of his exile. Shall we call it naivete or shamelessness when a
Nazi official visited him in London a long time afterward and demanded
this amount back?=94
=2E . .
Decisions made swiftly in the heat of Brooklyn in 1998 took years of
complex legal argument before they could be converted into cash
payouts. Almost all the decisions went through many rounds of appeals,
making the final arbiter the US legal system =96 even though the case
hinged on events in prewar Europe. To make the deal more palatable for
the Swiss, the victims=92 lawyers had agreed that the settlement should
cover far more claimants than just those who had held bank accounts.
All =93victims of Nazi persecution=94 who had suffered looting during the
war had a claim on the $1.25bn. So did people who had been forced into
slave labour for any Swiss company (not just the banks themselves);
those who had been made to labour by companies that kept accounts at
Swiss banks; and all refugees who had been turned back at the Swiss
border.
It took more than two years to decide how to divide the money, a
process that generated five thick volumes of submissions from around
the world. Gays, gypsies and the disabled should be included, it was
decided; political prisoners and =93righteous gentiles=94 who helped Jews
should not. Many people who weighed in wanted money spent on
charitable work, such as reviving Jewish communities in eastern
Europe, improving Holocaust education or providing daycare for elderly
survivors.
What was becoming clear was that $1.25bn was nowhere near enough to
make all the people whose hopes had been raised feel that they had
received justice. It was impossible to compensate each individual who
had suffered looting =96 the numbers ran to many millions =96 so instead
Judge Korman decided in 2000 to endow an aid programme for needy
Holocaust survivors. In order to concentrate the funds where they
would make a difference, they were focused on survivors in the former
Soviet Union, since they suffered the greatest poverty. This incensed
survivors in the US, but made for relatively easy administration.
Still, had the lawsuit ever come to court, the people with the
strongest legal cases for recompense were those with claims on
accounts. Also in 2000, Korman decided they should be allocated $800m
of the settlement. Almost nobody who had been involved in the
investigations, on either the Swiss or the Jewish sides, thought it
would be possible to find claimants for anything like this amount of
money. That aroused resentment among other claimants.
And there was a further problem. For these people, =93rough justice=94 was
not an option. If it was possible to establish with some precision
exactly what a bank owed to an individual, then the US legal appeals
process would surely find that this should be done. That in turn meant
that this money could not be paid out easily to charity cases, for
fear that it would run out while people with strong legal claims
against the banks still remained unpaid.
The business of matching each dormant account, opened more than 60
years earlier, would be an administrative nightmare. It would have to
reach standards that would survive legal scrutiny in the US.
Even before the Brooklyn deal, the Swiss banks had set up a team of
international lawyers in a Zurich suburb to adjudicate owner****p of
unclaimed accounts. Under Korman=92s aegis, their work was greatly
expanded. After a huge audit and further negotiations, they published
the list Freud=92s grandson spotted, and invited claims. Three-quarters
of the accounts went entirely unclaimed; the remainder attracted an
average of four claims per account; and an additional 27,000 people
sent in claims even though their relatives did not appear on the list
of 21,000.
The lawyers were told by Korman to give the claimants the benefit of
every possible doubt. The problem had been caused in part by the
banks=92 destruction of do***ents, reasoned the judge, and that
destruction must not get in the way of justice.
By the end of last year, the court had paid out $469m to 18,415
claimants. But most of these were token awards of $5,000 each to
claimants whose cases were described as =93plausible but undo***ented=94.
A further 79,843 claims had been decisively rejected. The total of
fully do***ented claims to have received payment so far comes to
2,597. Each of these received a meticulous printed adjudication,
laying out all the evidence. They make fascinating reading =96 none more
so than the decision on the account of Sigmund Freud.
=2E . .
Freud would die in London, aged 82, only days after the outbreak of
the war in September 1939. His four sisters, trapped in Vienna, were
less lucky: Maria and Pauline were killed in Treblinka; Rosa died in
Auschwitz; and Adolfine died in Theresienstadt. There was never a more
public case of the hounding of a Jewish depositor with the Swiss
banks. But the records kept by the banks were nowhere near as clear.
Investigators found one do***ent bearing the name of Sigmund Freud: a
customer card, showing that he had held one custody account and two
demand-deposit accounts, one of which was denominated in Dutch
guilders. The address on the card matched Freud=92s. But the card also
showed that all the accounts had been closed =96 the guilder-denominated
account on June 30 1938 and the other two on July 31 and September 19.
There were no details of the amounts in the accounts. Nor was it clear
to whom the accounts had been paid.
When Anton Walter Freud came forward in 2001, it was easy to prove his
relation****p to his grandfather, and that Freud had been a victim of
the Nazis. Walter Freud could even show that he had joined his
grandfather in the flight from Vienna. Both of these steps would be
much more difficult for other claimants. But it was unclear how much
money Walter Freud was due. The published historical details of what
had happened to Freud=92s assets after he left Austria were quite weak.
But, the lawyers reasoned, they could prove that the Nazis continued
to hound Freud for his money, even in exile. And the date given for
the closure of the guilder-denominated account was crucial. It showed
that it had been closed 18 days before the Nazi currency office
demanded that he turn it over. Further, Freud=92s correspondence made
clear that he still thought he had control over the account weeks
after it had in fact been closed.
On this basis, they ruled it =93plausible=94 that the accounts=92 proceeds
had not been paid over to Freud or his heirs. This was enough, given
the tribunal=92s deliberately relaxed standards of proof. The amount
paid was a work of total conjecture. The average held in custody
accounts in 1945 was SFr13,000, while deposit accounts had an average
of SFr2,140. So Freud=92s accounts were assumed to have been worth
SFr17,280 in 1945. Taking into account changes in interest rates and
inflation over the intervening 60 years, it would by 2005 have been
worth SFr216,000 =96 about =A394,000 in sterling at the time. The court
wrote a cheque for this amount. It was much more than a token, and it
represented the conclusion to an all-out and honest attempt to settle
the issue with justice.
If this was the fate of one of the most famous figures of the 20th
century, the problems for other claimants can be easily imagined. Even
the matching of names to accounts was much harder than expected. Jews
used different languages and different alphabets in different
countries across Europe. For example, the archives at the Yad Vashem
Holocaust memorial in Jerusalem identify 1,398 variations on the name
Isaac and 95 variations of the surname Berkowitz. The problem extends
to place names: Yad Vashem=92s memorial has nine spellings of
Bratislava, for example, including =93Pressburg=94 in German. Special
software had to be written to aid the chance of finding matches.
The lawyers needed to look through birth certificates and marriage
certificates dating back more than a century, and cross-refer to
scanty evidence in bank archives for accounts that had ceased to exist
decades earlier. This often caused painful delays that served to
underscore the logic for hastily coming to a deal back in 1998. Walter
Freud never saw his grandfather=92s stolen money repaid. He died, aged
82, a few months before the tribunal would finish work on his claim;
his obituary was included as evidence in their adjudication of his
claim.
=2E . .
Many in Switzerland say the difficulties finding claimants for the
material restitution undermine the apparent moral victory on those
courthouse steps 10 years ago. But such a charge does not withstand
closer inspection. The slower processes designed to reveal the truth
of what happened have finally ground to a conclusion. Paul Volcker=92s
re****t, published more than a year after the settlement, refrained
from estimating the amount of Nazi victims=92 money the Swiss were still
holding. In a conclusion carefully worded to appease the rival Jewish
and Swiss members of the committee, it absolved the banks of =93systemic
disruption=94 and =93organised discrimination=94.
More damning, however, was the re****t by the commission the Swiss
government had ordered, headed by the Swiss historian Jean-Francois
Bergier. Unlike Volcker=92s group, this commission found evidence of co-
ordinated obstruction: in 1954 the legal teams of the big banks agreed
with one another to refuse to divulge information about matters that
went back more than 10 years. This neatly excluded accounts opened
before the war whose holders had died during it. =93The banks relied on
a combination of discreetly playing down the problem and erecting
barriers to investigation,=94 said the re****t. =93Time and again they
would bring banking secrecy into play in order to legitimise their
reluctance to provide information while at the same time charging high
search fees for conducting investigations.=94
Bergier=92s committee also found that the problem was not so much
accounts that had been left open as accounts now closed =96 and
therefore far harder to investigate. Due to fees, =93unclaimed accounts,
deposits and safe-deposit boxes could also disappear in the space of a
few decades=94. Once an account had shrunk to a minimal amount, =93it
could be cashed in=94. Even accounts closed before the war, like
Freud=92s, may have been paid over to the Nazi authorities, in breach of
the bank=92s contract with the depositor. Beyond episodes where bank
employees simply stole unclaimed assets, Bergier and his colleagues
found that =93legal principles were exploited for cor****ate objectives=94.
Hans Baer agrees. One of the most powerful bankers in Switzerland and
former head of the family bank Julius Baer, he is the most senior Jew
in Swiss banking =96 although his upbringing was secular and he is not
religious. He was deeply involved in the controversy. In his memoirs,
published earlier this year, Baer makes plain his distress at what he
discovered about the Swiss banking industry, in which he spent nearly
a lifetime. =93They, and all of us, came too late to the conclusion that
the real scandal was not the dormant assets but the closed accounts,=94
said Baer. =93It is true that nobody had organised any great plunder,=94
he continued. =93It was a Swiss variation =96 unorganised theft.=94
Baer had been shocked to discover that his own bank had charged a $75
=93search fee=94 to claimants who had inquired about an ancestor=92s
account. Other banks had charged much more. By the end of the process,
he said, =93there=92s no doubt that a good part of Switzerland fell apart.
I could not have imagined discovering such improprieties. There was
never a Jewish conspiracy. We simply became victims of our own
smugness.=94
=2E . .
In early 2004, Judge Korman decided to hold another public hearing.
There was a risk he would fail to find takers for all the $800m
earmarked for account-holder claimants, and he wanted to consult about
how money left over should be distributed. The hearing lasted well
into the night, and prompted outpourings of anger. Jewish community
workers pleaded for the money to be disbursed immediately as an act of
charity, so that aged Holocaust survivors could be given a little
dignity. The WJC itself had floated a plan for a Foundation for the
Jewish People which would spend the residue from the Swiss restitution
settlement (and similar settlements struck with other European
countries that were brokered in its wake), that would spend money on
education initiatives. Many argued that it was absurd to link every
last penny in the Swiss banks to claimants.
But the survivors who had first spoken to D=92Amato back in 1996, before
he started the public hearings that targeted the Swiss banks, felt
differently. They were upset at the thought of the court distributing
money elsewhere before all claimants to Swiss accounts had come
forward. =93In our age, it=92s not easy to wait such a long time,=94 said
Alice Fischer, whose family had been killed in Auschwitz and
Mauthausen, and who had once received huge press attention as one of
the first claimants. =93And now we are discussing what to do with
leftovers? I did not see a penny of the money yet.=94
It was the view of survivors like Fischer that triumphed. Rather than
use the Swiss pay-out for a big charitable gesture, the US legal
system had pulled the settlement towards a different version of
justice. Banks could make good on their faults, and the often long-
deceased owners of their accounts could receive the dignity they
deserved, only if the court made every last attempt to make sure every
surviving claimant received exactly their due. That meant more delays
and more frustration, but it was the closest to =93justice=94 that the
Holocaust=92s victims were likely to get.
Greta Beer, the star witness at D=92Amato=92s Senate hearing almost a
decade earlier, sounded dispirited as she begged the judge not to
disburse the $800m until the search for claimants was complete. =93Eight-
hundred million is a sacred amount of money, Judge Korman,=94 she said.
=93It has survived the Holocaust. It has survived the bank manipulations
and come here to this country. It belongs to souls who from their
grave have made the money come here to the United States. And it has
to be distributed among us.=94
John Authers is the FT=92s investment editor and co-author of =91The
Victim=92s Fortune: Inside the epic battle over the debts of the
Holocaust=92 (HarperCollins, 2002)
And what of the men who made it happen?
While the past decade has seen internecine struggles to distribute
$1.25bn the Swiss banks agreed to pay Holocaust survivors, it has also
witnessed the odd fates of many of the key figures in the deal, from
humiliating defeat in electoral contests to political scandals to
ideological about-faces that would have been difficult to predict back
in the sweltering summer of 1998
Israel Singer
Secretary-general of the World Jewish Congress and the architect of
the restitution campaign.
After falling under investigation from the New York attorney-general=92s
office, he was eventually fired by Edgar Bronfman last year.
Allegations against Singer included accusations that he transferred
WJC money into Swiss bank accounts not linked to the WJC, and
improperly handled travel expenses.
The episode owed much to ugly political infighting, but it had broader
significance. Singer, a polymath who speaks several languages and is a
veteran of the civil rights movement, had been central to the campaign
for Holocaust restitution. His charm and intellect, combined with the
Machiavellian skills of a Brooklyn operator, were essential to it. His
removal, quickly followed by the retirement of Bronfman himself,
reflected growing disquiet in the Jewish world over the way the
Holocaust restitution campaign had been handled. Singer, meanwhile,
denies the accusations made against him by the WJC.
Mel Weiss
A leader of the class-action lawsuit that forced the Swiss banks to
pay out. One of the richest lawyers on Wall Street, he made his money
as the leading innovator of class-action lawsuits against securities
fraud.
Earlier this year, Weiss pleaded guilty to paying kickbacks to a group
of people whom he had arranged to name swiftly as plaintiffs, if and
when a company in which they held shares ran into trouble. This
enabled him to win a =93race for the courtroom=94 and establish himself as
the lead lawyer, with control over the distribution of fees to other
lawyers who also brought suit. He paid a penalty of $250,000 and
forfeited $9.8m of the funds the kickbacks had raised for him. He was
also sentenced to 30 months in prison. Milberg Weiss, the firm he
founded, is now known as Milberg and has paid $75m to settle charges
against it.
Alan Hevesi
Comptroller of New York City, who co-ordinated a campaign by public
pension funds in the US to levy sanctions on Switzerland, including a
threat to divest all Swiss shares.
After losing in his attempt to become mayor of New York, he was
elected comptroller of New York state in 2002. He was subsequently
forced to resign in 2006, after it came out that he had used a state-
employed chauffeur to drive his ailing wife around town, and even
perform household errands. He entered into a plea bargain that led to
a guilty plea on one felony fraud charge and a bar on holding public
office. The New York Post=92s epitaph for him was to publish his police
mugshot on the front page under the headline: =93Crook=94.
Avram Burg
Chairman of the Jewish Agency, and the first leading Israeli
politician to put pressure on the Swiss banks.
Seen as a potential Israeli prime minister, he went on to be speaker
of the Knesset, but narrowly lost the election for leader of the
Labour party in 2001. After his defeat, he took a walk on the
Appalachian Trail in the north-eastern US, and then moved to France,
severing ties with mainstream Israeli Zionism. In an interview
published last year in the Ha=92aretz newspaper, he said: =93People are
not willing to admit it, but Israel has reached the wall.=94 This
brought fierce criticism in Israel, even from his friends on the left.
He went on to tell The New Yorker that Israel was =93obsessed=94 by the
Holocaust. =93Didn=92t we cheapen the sanctity of the Holocaust by using
it about everything?=94
Alfonse D=92Amato
Senator who held hearings into the Swiss banks, and turned it into a
global political issue.
He lost his seat in the Senate three months after the settlement in
Brooklyn. He became a consultant, and was also a court-appointed
mediator in a subsequent, lower-profile battle between Holocaust
survivors and banks in Austria.
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