The scandal that never was

A document shows that concern about fraud at the Claims Conference reached the highest levels of the organization in 2001. JTA Wire Service

There is a truth that keeps getting shunted aside in the ongoing cover-up scandal involving the Conference of Material Jewish Claims Against Germany. That truth is simply stated: There is no cover-up scandal.

There never was. There were mistakes made in 2001, to be sure, but they only became mistakes with the gift of hindsight. Several Claims Conference employees developed a complicated scheme to siphon off $57 million over 17 years. A just-completed and highly critical report by the organization’s ombudsman described the scheme as a “sophisticated and large-scale fraud committed by criminal elements who had expertly forged documents to fraudulently receive money from the German government.”

This last point is also dismissed by critics. While it was the Claims Conference that was the venue for executing the scheme, it was the Federal Republic of Germany that was defrauded; the $57 million came from its treasury. If anyone has reason to complain, it is the German government. Instead, it continues to show confidence in the Claims Conference.

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How the mistakes were made is instructive. The Claims Conference was an embattled organization from its founding in 1951. Since then, it has negotiated many important agreements with Germany and others, and has processed over 600,000 individual claims, with total payments exceeding $4.5 billion.

Who got what has always been at the heart of criticism of the organization, and this was as true in 2001 as it is today. Some survivor groups took potshots at its leadership on a routine basis, because they felt they were not getting a fair share of the monies being handed over by the Germans and, later, others. There was good reason for them feeling that way. From day one, the Claims Conference gave priority to those survivors in greater need of aid. Cries of foul were often heard from survivors’ groups, especially those in the United States, because poorer Jews were getting more of the restitution pie than Jews who lived in varying degrees of comfort. They never put it that way, but that was the issue for them.

Israel, at times, also chimed in with its complaints – because it decided that it alone had the right to negotiate for the survivors. It was, after all, the Jewish state, with the only legitimate Jewish government in the world. Governments should negotiate only with other governments. Israel, it must be pointed out, has an even more controversial and problematic record in how it handles restitution funds, but that did not dissuade Israel from complaining.

At times, such complaints led to frivolous charges being leveled at Claims Conference officials, in an attempt to wear down the organization. It is in that climate of seemingly endless sniping and carping that a letter arrived at a Claims Conference office in Germany from a nonexistent organization – the “Organization of Eastern European Jews in America” – with a phony return address, accusing a trusted conference employee who was involved in approving requests for payments from the so-called Hardship Fund. It could be dismissed as yet another attempt to cause trouble.

It could have been dismissed, but it was not. The letter alleged improprieties in five specific cases. To be on the safe side, two investigations were launched, one here and one in the conference’s office in Germany. Mistakes in judgment were found in the five cases, and it became obvious that a better system of controls and oversight was needed, but no pattern of fraud was discovered by either investigation.

In 2009, when the fraud finally was uncovered – by Claims Conference officials themselves, without outside prompting – the organization’s leadership moved quickly to involve the U.S. Attorney’s Office and the FBI. Both agencies have repeatedly complimented the Claims Conference for its “extraordinary” cooperation, without which they said convictions would not have been possible. U.S. Attorney Preet Bharara, who oversaw the subsequent prosecutions, called the level of cooperation “outstanding.”

Going to the federal authorities was the proper thing to do, but that action became the basis for the current cries of scandal and cover-up.

For example, the Claims Conference leadership in 2001 is accused by its critics of not telling the organization’s board about the anonymous letter. In hindsight, that was a mistake, but only in hindsight. At the time, when the investigations came up empty, there did not seem as though there was anything to tell.

It should be noted that had the anonymous letter alleged a more widespread conspiracy, rather than just five cases that could be attributed to bad judgment, it is more than likely that Claims Conference officials would have proceeded differently in 2001.

The current leadership, meanwhile, is faulted for not sharing information about the fraud with the board from the time of its discovery in 2009 until the time prosecutors announced indictments in November 2010 and arrests were made. A special committee formed by the conference to investigate its handling of the letter calls that silence “totally unacceptable,” although it insists there never was “any active concealing, or any attempt to deceive, by way of a cover-up of any of these events, as has been alleged in some quarters.” Yet those who make such accusations, including the committee (two of whose four members disassociated themselves from its conclusions) are aware that the Claims Conference was barred by specific FBI instructions from doing so. Even without the instructions, however, common sense tell us that any hint that the fraud was discovered would have jeopardized the investigations and possibly sent the perpetrators fleeing.

Conference officials immediately shut down the fraud, but they used a subterfuge to do so in order not to alert the perpetrators that their scheme had been exposed.

There is much carping, as well, about the need for an “independent” investigation to determine how to change the way the Claims Conference does business, in order to prevent future scams such as the one that was uncovered in 2009.

What these demands always fail to acknowledge is that the Claims Conference put new systems in place almost immediately after the fraud was discovered, and is even now sifting through further recommendations recently presented to it on behalf of the German government. Significantly, considering that the $57 million came out of its own beleaguered coffers, Germany has demonstrated full confidence in the reforms to date, leading to an irony: The reforms are good enough for the victim of the fraud, but apparently are not good enough for those who criticize the Claims Conference.

This does not mean that the Claims Conference has done all that it can do to improve how it does its business. It does mean, however, that it is not sitting on its hands or ignoring the mistakes of the past.

The media also have played a role in creating a scandal where none exists. Over and again, we read that the “scandal” was exposed when a reporter “discovered” the anonymous letter “hidden away” in federal documents. It would “never” have come to light otherwise.

This is simply not true. The letter’s existence was part of the public record from the moment the indictment was unsealed on Nov. 9, 2010, nearly three years ago. It also was referred to in open court during the trial earlier this year. As the otherwise critical ombudsman’s report put it, “the general content of the letter and the report [by one of the two investigations conducted in 2001] were reported in the media….”

More to the point, when charging cover-up, federal investigators did not discover the letter hidden in Claims Conference files; Claims Conference officials found it. They could have ignored the letter, buried it back in their files. Instead, they volunteered it to the prosecution to help with the federal fraud case.

Volunteered is the operative word here. The Claims Conference was not under any subpoena requirement to turn over any records, much less this letter.

What all this carping almost did was give Germany an excuse not to go ahead with a historic agreement to provide approximately $1 billion for homecare for Jewish Nazi victims through 2017, and to extend compensation from two reparations funds to as many as 3,000 Shoah survivors who until now have been considered ineligible. That it did not scrap the deal is said to be a testament to the current German government’s confidence in the Claims Conference.

There is no question that the continued sniping and carping threatens the important work of the Claims Conference at a time when the clock is running out on what more can be accomplished. Substantive allegations of mismanagement and malfeasance must be addressed, but to create scandal where none exists will not hurt the Claims Conference. In the end, it is the survivors alone who will be hurt.