Claims Conference mismanagement key in ‘facilitating’ fraud, internal report alleges

Former board member calls for chairman Julius Berman and chief operating officer Greg Schneider to step down.

By EVA TAPIERO
July 9, 2013 00:01
Berman Julius

Berman Julius 370. (photo credit: Marc Israel Sellem/The Jerusalem Post)

“Management failings” were responsible for “facilitating” $57 million in fraud perpetrated against the Conference of Material Claims Against Germany over 16 years, according to an internal report leaked to The Jerusalem Post on Monday.

The report, written by Ombudsman Shmuel Hollander, pointed to “systematic failings and problematic organization behavior” as the background to the failure to discover and stop years of approvals of fraudulent restitution claims. It was distributed to members of the board of directors on Monday despite having been presented to the Claims Conference nearly a week earlier.

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The board is set to meet in New York starting Tuesday.

In a blistering critique of the corporate culture of the Claims Conference, Hollander stated that “the absence of professional control systems... constituted a key factor in enabling, and certainly in facilitating, the fraud.”

The controversy surrounding the Holocaust restitution organization centers around a 2001 tip-off letter sent to the conference that resulted in two internal probes – one conducted by current chairman and then board member and pro bono counsel Julius Berman – that failed to uncover the embezzlement.

Hollander asserted that among the leaders of the Claims Conference, “no one... who was aware of the [2001] letter, treated it with the gravity that it demanded at the time.”

The initial fraud warning was received by Karl Brozik, a conference official in Germany, who investigated the matter without finding any evidence of wrongdoing.

After the 2001 letter went public, a Claims Conference spokeswoman placed responsibility for not investigating further on the official, who died in 2004.

However, the JTA subsequently reported that a paralegal working for the law firm of then-board member and pro bono counsel Berman launched a second investigation, which also terminated without uncovering the fraud.

In May, Berman appointed board member Reuven Merhav to lead a Select Leadership Committee that would investigate the events surrounding the 2001 letter. It was the SLC that tasked Hollander with carrying out his probe after several members of the board, representing major organizations such as the Jewish Agency and World Jewish Congress, called for an independent investigation.

The fraud was organized by conference employee Semen Domnitser, who served as the director of the conference’s Hardship Fund.

Hollander asserted that “none of the Senior Directors examined or supervised the work of the department in any meaningful way” and that Domnitser was able to go about his work, and fraud, for years with effectively no oversight.

Had the allegations in the 2001 letter been “properly addressed and investigated thoroughly by an independent and professional functionary in New York, it is highly probable that the information it contained could have led to the discovery of the missing links in the chain of command and the breaches of procedure which Mr. Domnitser and his partners used to their own advantage to perpetrate their crimes,” the ombudsman wrote.

In his report, Hollander further contended that despite rapid growth between 2001 and 2009, the organization failed in “tailoring its organizational structure to meet the growing range of its activities and needs” and that the Claims Conference was governed in a “manner unacceptable in both public and corporate bodies.” The Claims Conference, he said, was unreasonably centralized.

He subsequently called for an examination in greater depth of the “general conduct over many years that enabled such a large scale fraud to continue unimpeded.”

Among Hollander’s critiques of the Claims Conference’s corporate structure were allegations that the division of activities within the organization was “inadequate” and areas of responsibility were “systemically unclear.”

The report “demonstrates that most regrettably and contrary to what many on the board had earlier assumed, best practice and competence, were missing” in respect to the issue of the 2001 letter and “related events,” wrote members of the SLC in their introduction to the report.

However, not all members of the committee signed off on the report.

Board members Roman Kent and Abraham Biderman both resigned from the committee rather than endorse the ombudsman’s recommendations.

In a letter to the board included with the report, Biderman stated that he believed the report to be “inappropriately pejorative” and to “contain material factual errors.”

The report, he averred, “does not take into account the substantial management improvements” since 2001.

The SLC also denied allegations that Berman engaged in a cover-up of his failure to stop the fraud.

Responding to critics of the Claims Conference who noted that public statements by conference officials blamed Brozik while failing to mention Berman’s own investigation, the members of the SLC stated that there had been no attempt to deceive anybody.

While the failure to disclose these matters to the board was “unacceptable,” they noted, there is nothing in the report to suggest “active concealing.”

Rather, they wrote, the lack of disclosure was “part of the litany of lack of diligence, competence and judgement that, as the ombudsman has shown, characterized this event throughout.”

The SLC also recommended that Berman appoint a Restructuring and Strategic Planning Committee comprised of members of the board and up to three external lay leaders to make recommendations regarding the “structure, administration, management and governance of the Claims Conference.”

Despite his harsh remarks, however, Hollander did also have positive things to say about the senior leadership of the Claims Conference and their ability to expand the scope of the organization’s funding and disbursements during the period of the fraud.

Hollander praised the Claims Conference over the fact that “no Holocaust victims were deprived of any funds as a result of the fraud.”

In response, Alex Moskovic, a member of the Executive Committee of the Holocaust Survivors Foundation USA, stated that his organization rejected this argument.

Survivors consider the theft of $57 million as “typical of the general disregard the Claims Conference has had for Holocaust survivors’ actual rights and interests all these years, and the massive suffering its policies have inflicted especially on those survivors living in poverty,” he said.

“When the Claims Conference mishandles the rights or property of Holocaust survivors, or fails to adequately oversee employees charged with administering such funds, the damage is inflicted on survivors everywhere,” he told the Post through his lawyer.

Moskovic also said that he “hope[s] they also examine the behavior of the accounting firms like Ernst and Young and KPMG who certified the organization’s financial reports over the last decade, and the blindness of the organization’s board of directors as well.”

Hollander’s report can be seen as a harsh rejoinder to comments made by Berman in May, when he said that he felt “no fault at all” for the fraud, that the controls in place at the Claims Conference to prevent fraud were “reasonably adequate” and that the deception discovered in 2009 was as impossible to anticipate as the attacks of 9/11.

When asked if the Claims Conference owed an apology to anybody for the affair – whether survivors, the Claims Conference board or the Jewish community – Berman said the thought never occurred to him.

This stands in contrast to Conference Chief Operating Officer Greg Schneider, who responded to Hollander’s probe in a letter appended to the report, stating that while he only believed that Domnitser was to blame, he could not “escape the fact that Domnitser and his accomplices stole tens of millions of dollars. And, while he was doing it, I was working closely with him – in the same office... I was lied to, fooled, hoodwinked, duped. I missed it. I am sorry.”

In response to the report, Haim Roet, a former member of the board who resigned in 2010, said that the results of Hollander’s investigation bear out concerns that he expressed prior to leaving the conference and called for Berman and Schneider to step down.

“It is [inconceivable] that the chairman and the chief executive officer decline to take responsibility for the large fraud taken place over a period of years and years by so many employees,” he told the Post.

The Claims Conference noted the distribution if the Hollander report in a brief statement. Asked for further comment on the conclusions of the report, a spokeswoman replied that “the Conference will only issue further statements following the board’s deliberations.”

JTA contributed to this report.


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