On March 30, 1999, the court issued an “Order Preliminarily Approving Material Terms of the Proposed Class Action Settlement Agreement and Provisionally Certifying the Proposed Settlement Classes.” This document further distanced the court from the substance of the accusations and of the agreement by stating at length that the plaintiffs’ claim to representation was not “wholly unreasonable” (maybe a little unreasonable?) and lay within the legal boundaries of class action suits. In this regard the document did not go beyond stating that the settlement fell “within the range of possible approval.” What indeed that range may be, and why, the court did not attempt to say.
The document also stated that the settlement “does not disclose grounds to doubt its fairness or other obvious deficiencies, such as preferential treatment of class representatives or of segments of the class, or excessive compensation for attorneys.” Yet the document did not try to define what the proper treatment of class representatives (especially the WJC) might be, nor what any segment of any class should receive. It left these questions to a “special master,” whom the court would appoint within thirty days. Compensation for attorneys was also left up to the “master’s” determination and the court’s administrative approval at a later time. The document, in short, delegated the substance of judgment to an administrator.
Finally, the document laid out the classes into which the plaintiffs/beneficiaries were to be divided. These divisions were proper, it said, because the defendants/releasees had agreed to them. But, of course, since the defendants’ only interest in the settlement concerned their release from liability, and therefore since they could not have cared less to whom the payments would go, their agreement did not justify the classes. In essence, the court ratified the results of the WJC’s pressures on two Swiss banks and set the stage for distributing the proceeds according to the WJC’s wishes.
On March 31, 1999, Judge Korman appointed Judah Gribetz to be the “special master” who would draw up the detailed plan to distribute and apportion attorney fees. Part of the city’s Democratic machine, Gribetz was not chosen randomly any more than Korman had been. Gribetz had been a member of the Judicial Selection Committee that had “advised” Democratic Senator Moynihan on federal judicial appointments in New York State—the committee that had “advised” on Korman’s job. Gribetz was also president of the Jewish Community Relations Council, a compendium of sixty New York Jewish organizations, and a longtime advocate of Jewish causes. The various parties who expected a slice of the proceeds owed much to Gribetz, and he in turn owed much to each of them. In this and in other “special masters” the power of interest groups is clothed with official authority. What began as an interest group campaign clothed first in the garb of morality and foreign policy, and then in that of a judicial proceeding, ended up as a naked interest group play once again.
Gribetz’s job was to reconcile the welter of interests among groups and individuals who clamored for a slice of the proceeds. Ordered in March 1999 to submit a tentative plan for distribution by December 29 of that year, Gribetz got an extension until March 31, 2000. Judge Korman went out of his way to state that Gribetz was not especially connected with any group of claimants or lawyers: “I am not going to do anything that is going to create the reality or the impression that anyone has the inside track.”12 But since there were no objective criteria for deciding about distribution any more than there had been objective criteria for deciding the settlement amount, Gribetz’s plan for distribution could only ratify the power of each party to get the inside track.
By March 14, 2000, however, Korman had issued a strange order to the effect that Gribetz would not submit his plan until further notice. Korman stated that the report must await his final ruling on the case, and that that would come only after the Swiss banks had “implement[ed] two of the central recommendations of the Volcker commission.” He, not Volcker, called these matters “central.” They were the creation of “a central archive of data on all 4.1 million accounts to be established and [publication of] the names of some 25,000 account holders identified as possibly or probably related to victims of Nazi persecution.”
This is strange because as we shall see the Volcker report actually discouraged publication of massive numbers of names. Also, Israel Singer had expressed strong reservations about such publication. Nevertheless, in March 2000 Swiss bankers, perhaps looking forward to being spectators of the consequences, decided to publish the names of the accounts. The archive on 4.1 million accounts would take time to establish, and it would be quite useless for determining the validity of individual claims, because reference to this master list would duplicate the work of the Volcker commission. The Swiss banks had no interest in this matter. Yet on May 3, 2000, Switzerland’s two largest banks, UBS and Credit Suisse, agreed to establish a central archive containing the 2.1 million accounts on their records opened between 1933 and 1945. (The other 2 million were spread out among hundreds of minor banks.)
As a result, Judge Korman was quoted in the press to the effect that he might soon give final approval to the settlement and—more to the point—to the special master’s report. At this writing the special master’s report had not been published, much less approved. Why at least a fifteen-month delay? Why a court document giving the implausible impression that the Swiss banks, having agreed to give up $1.25 billion, were eager to hold on to the last possible scrap of the victims’ money? Perhaps the answer had to do with the intensity of the fight for the money amongst the plaintiffs.
Reality: The Scramble for the Money
The battle for the $1.25 billion was between competing groups of lawyers and numerous Jewish organizations. At the court hearings on the settlement, various people had asked emotionally that the money, all of it, be distributed forthwith to Jewish and other survivors of the Holocaust, most of whom were fast approaching the natural end of their lives. Yet there was never any chance that the court would divide the settlement sum by the number of Holocaust survivors and other potential claimants, some half million people, and cut checks for $2,000 to each. This would have deprived the WJC of the power that comes from distributing a ten-figure amount of money, and the lawyers from collecting on their claims for $13 million in fees. Nor, for the same reason, was there any chance that the money would be turned over to the U.S. (or Israeli) government to be distributed under the scrutiny to which democratic governments are subject.
The interests of the individual survivors were represented by Gizella Weisshaus, in whose name attorney Edward D. Fagan had filed one of the original suits. Estranged from Fagan, she demanded that at least 70 percent of the funds go to individuals. The lawyers split into two groups, one led by Fagan, the other by Melvyn Weiss and Michael Hausfeld. Both groups of lawyers argued for their own big fees and maintained that substantial amounts of money should go to the organizations they represented, such as the Simon Wiesenthal Center in Los Angeles. Bronfman’s WJC argued that it should take the lead in distributing the proceeds since, it said, Bronfman was also president of the Jewish Restitution Organization, which was connected to (but note, not under the direction of) the Israeli government. The WJC claimed that it was empowered by the state of Israel “to represent the Jewish people in Holocaust-related matters,” and that “we have been mandated to represent them.”13 This was simply untrue.
Name-calling quickly came to characterize the jostling at the money trough. Columnist Charles Krauthammer said the lawyers and organizations fighting for the money “recall the worst of racial hustling and class action opportunism in the United States.”14 Abraham Foxman of the Anti-Defamation League—uninvolved in the struggle—warned that the claimants were making “an industry on the memory of the victims.” And it is indeed difficult to disagree with what each of the claimants said of the others—namely, that they were chiefly interested in gaining wealth, power, and glory in the name of the dead. One lawyer charged $5,000 for reading a book on Swiss gold transactions, but this was far less damning than that under
the WJC’s proposal direct payments to survivors and services provided by Jewish organizations, however the organizations might define them, were lumped in a single category to which 80 percent of the funds would go. The rest would go straight to the organizations. But of course giving money to organizations that claim to serve survivors is more like giving money to organizations than to survivors. And in fact the structure of the settlement agreement was stacked in favor of organizations.
Of the five categories of beneficiaries established by the settlement agreement the one with the highest priority for payment, the one at first sight likeliest to deliver money to real Holocaust survivors and heirs, is comprised of those who “had assets . . . on deposit at any Swiss bank, investment fund, or another custodian prior to May 9, 1945.” Yet the amount of money allocated to this category could never have been more than a small slice of the $1.25 billion, and a substantial part of that slice was likely to end up in the hands of the distributing organization. By the time the Independent Committee of Eminent Persons under former Federal Reserve Chairman Paul Volcker was established to make a definitive report on the number, value, and property of accounts in Swiss banks dormant since World War II, those accounts had already been thinned by several sets of searches over the years. But while the Volcker committee examined every single account opened in Switzerland between 1933 and 1945 (6.8 million), and further increased the estimate of the number of dormant accounts that might have belonged to Holocaust victims, it had no more success than Swiss bankers in identifying proprietors.
The committee first excluded the accounts for which no records remained due to bank mergers and authorized disposal, as well as purely domestic accounts. It also excluded dormant accounts opened earlier (among which was one Lenin had established during his exile in Zurich). Then it matched the remaining 2.2 million accounts against the names of all known or suspected victims of the Holocaust (5.5 million). About 356,000 names matched to some extent, or were otherwise suggested to be relevant. Of these, more than 300,000 were further determined to have been domestic, or unmatched chronologically, or properly closed. Some 53,000 were left with a “possible or probable relationship with Nazi persecution.” But more than half of these had been closed for various reasons, and most of the rest had been paid in some way. Only 2,726 were classified as “open and dormant.” Most had little value. The Volcker report said:As stated earlier, identification of an account as “probably or possibly” related to a victim does not in itself indicate the validity of such a relationship. The identified accounts vary widely in the degree of probability attached to them, and there is now no way of determining the number of accounts that will be claimed or that will be recognized for payment by the claims resolution process. . . . Moreover for about half the identified accounts there is no information on account values. For accounts with such values there is little consistency in valuation dates, uncertainty as to fees and charges paid or interest credited, and the proper valuation of securities in custody accounts.15
The report concluded that the inclusion of any account as “probably or possibly related” is not necessarily evidence about who owns the account, since the matches involve common names, and evidence considered normal in judicial or financial proceedings is almost totally lacking. Moreover, the committee made no attempt to place monetary value on the unclaimed accounts. Thus it did not take up the bet by the Swiss bankers’ association that the cost of the Volcker process—200 million Swiss francs—would exceed very substantially the amount of money it turned up.
The committee’s judgment on the process of liquidating these accounts further suggested that those in charge of the process could do pretty much what they wanted:The experience of the Claims Resolution Tribunal [established by Swiss law in 1997] demonstrates that publication of names [of account holders] attracts multiple claimants and claims by a single claimant to numerous unrelated accounts. One danger is that a volume of frivolous claims to a very large list of published names could clog the claims resolution process, delay justice rather than serving the legitimate claimants, and introduce a substantial and undesirable element of chance into the resolution process.16
Certainly this had been the experience of the administrator general of Israel’s Justice Ministry, who had published a list of five thousand dormant accounts held by Israeli banks and ended up giving title to all of ten claimants. Anyone whom the special master put in charge of the claims resolution process would face precisely the same problems of distribution as the Swiss banks or the Israeli justice minister had faced.
The questionnaire sent out under the court’s mandate to potential claimants of these accounts asked for substantiating documents that the claimants would not be able to produce for the distributors any more than they had been able to produce for the Swiss bankers themselves. Just like the Swiss banks, the Jewish organizations would not hand out fortunes to old ladies bearing stories of a long lost father who made obscure remarks about having stashed money in a Swiss bank. Unlike the banks, however, these organizations had political constituents to feed. Besides, since the average age of potential claimants was seventy-five, they were dying off at the rate of about forty thousand per year. Hence the pressure on the distributing organizations to give away money that would otherwise be theirs was sure to diminish, while the incentive to delay would grow.
The second category, consisting of persons who lost “assets disguised by a Swiss entity for the benefit of an Axis company, entity or person associated with the Nazi regime,” was even less likely to contain well-documented claims for substantial sums. How could any person whose money or business or cars were taken by the Nazis argue, much less prove, that the value of those assets was somehow “cloaked” in Switzerland rather than simply consumed in the maw of the Reich’s war machine? The Volcker committee’s brief reference to this problem basically stated its insolubility. The money devoted to this category also had to end up in the distributors’ hands.
The third and fifth categories gave the distributors total discretion. The third concerned slave laborers whose work somehow passed through Switzerland. But to tell where the value of anyone’s work flowed in a complex modern economy was as impossible as to discover what operation of a human body was due to any given bit of food it had consumed. The fifth included slave laborers who worked in Swiss-owned facilities in Nazi-occupied Europe. But by definition any factory in Germany or any occupied country operated not according to the wishes of its legal owners but according to those of the Nazis who had power of life and death over managers as well as laborers.
The fourth category, those who “unsuccessfully sought entry into Switzerland to avoid Nazi persecution,” had the advantage of dealing with possibly identifiable persons. Leave aside why the plaintiffs did not seek damages against American or Swedish authorities who had denied asylum to persons fleeing the Nazis. The practical question was: How could anyone show that he or she was denied entry into Switzerland (deportation is another matter)? One person’s story would be as good or as bad as another’s. To the extent that refusal of asylum meant death, there should have been no one around with a right to collect. Add the fact that the distributors of the money had every reason to believe that every application they denied would mean more money for their own organization, and it was reasonable to deduce that little money from this category would ever reach individual claimants.
Who then would be the beneficiaries of such wide discretion over so much money? Could it be that past, present, and future constituents of the distributing organizations would do better than unconnected persons?
Finally, by the time of the settlement, the Jewish organizations that were vying for the power to distribute the take had compiled a solid record of delay and inefficiency in distributing previously established funds. In 1997, for example, Swiss government and industry established a $200 million fund for Holocaust victims. Distribution was to be handled by the WJC in its capacity as an affiliate of the World Jewish Restitution Organization. Yet a
year after the fund was supposed to begin disbursing, the WJC had actually sent out only 10 percent of its funds. The newspapers were full of anguished cries from those who had expected benefits.17 In the end, the effective beneficiaries turned out to be the organizations themselves. No one familiar with Michels’s Iron Law of Bureaucracy could be surprised.
On the other side of the ledger, only the U.S. government could provide the two Swiss banks, and indeed Switzerland itself, with any measure of security that henceforth they would be left alone. But since the Clinton administration had never officially done anything to Switzerland, nor even officially threatened it with anything, it could hardly undo what it had not done. The Clinton administration, which had wielded a large part of the stick, had been represented in Judge Korman’s courtroom by one James Gilligan, a low-ranking Justice Department lawyer who said that the settlement was “fair, reasonable, and in the public interest.”18 But the Clinton administration did not sign the document. Even if it had, the ruling of one federal court in one set of cases could not, in the strictly legal sense, prohibit other judges from entertaining similar suits. Hence the absolution that the Swiss bought was more political than legal.
And so on January 30, 1999, the U.S. and Swiss governments issued an anodyne three-paragraph “Joint Statement.” It committed both countries to “strengthening and deepening the ties between our two countries in the political, economic, and cultural spheres . . . [to] promote international peace and stability, ensure respect for human rights and democratic values, and encourage free markets . . . to continue fighting organized crime . . . [to] the exchange of people and ideas . . . [and to] the further strengthening of bilateral and multilateral economic cooperation.” The statement was so void of content that any student of international affairs would ask why any two governments would go through the bother of drafting it.
Between the Alps and a Hard Place Page 19