Officials of the Conference on Material Claims Against Germany say they expect to recover less than $1 million of the $50 million in fraudulent Holocaust claims on behalf of Germany, which has now hired an accounting firm to conduct a broad audit, the Jewish Week has learned.
Those revelations came during a July 13 meeting here of the Conference’s board of directors and were not in a press release issued after the meeting. The directors were also reportedly told that although the ongoing investigation of the crime has so far placed the loss at $50 million, it is “nowhere near the extent of the fraud.”
The German government's hiring of the accounting firm Deloitte & Touche in Frankfurt, Germany, came despite a decision by the Claims Conference to hire K2 Global Consulting in New York as soon as the fraud was discovered last November. K2 Global worked until January to review the Claims Conference’s procedures and provide both security and computer forensic services.
Julius Berman, chairman of the Claims Conference, said that although the Claims Conference had “instituted steps to ensure it not happen again, we wanted to bring in experts to review what we had implemented and to bring us other ideas to aid in ensuring that it not happen again.”
But he said Global’s contract was terminated because “the German government on its own felt they wanted to look themselves” at the operation of the Claims Conference.
“We have no problem with that and we feel that the report by the accountants they pick will be more credible and acceptable to them,” he said.
The fraud, which has resulted in the arrest of 19 people including six insiders, began in 1994. Focused on the Russian-speaking Jewish community in Brooklyn, it involved taking out ads and hiring so-called recruiters to find individuals who could provide documents that could be altered to show they had lived in areas of the former Soviet Union or other Eastern European countries during the Holocaust to make them eligible for German compensation payments.
The Claims Conference directors were reportedly told that the elderly Russian Jews who provided documents to the thieves were mostly poor and “in most cases they did not know” they were being involved in a crime. Sheldon Rudoff, chairman of the Claims Conference’s Task Force on Individual Compensation Programs Investigation, is said to have told the directors that many of them could have legitimately applied for one of the compensation programs.
Although the Claims Conference said it plans to seek recovery of all the fraudulent payments, Berman said it now realizes the elderly Jews who received the payments -- after the thieves took their cut -- do not have the wherewithal to repay the money.
“The Germans and the Claims Conference are realistic enough to realize you can’t squeeze blood out of a stone,” he said. “In cases where the money is not there, it’s not there.”
Asked the German reaction when told less than $1 million would likely be recovered from the fraud, Berman replied: “There was none at all. They are dealing with hundreds of millions of dollars. They never focused in great depth on what we could get back, but focused instead on what systems are in place to avoid this in the future. We look forward to an active collaboration with them moving forward.”
Unlike K2 Global, which was told to confine its work to procedures and safeguards regarding the Claims Conference’s handling of monthly German pensions (Article 2 Fund) and a separate Hardship Fund (one-time payments to Jews in former Soviet-bloc countries who never received reparations), the Deloitte & Touche probe goes much further. It will look also at allocations and homecare funding and conduct a “systems audit” of the Claims Conference’s Frankfurt and New York offices to “review processes, procedures, data bases and controls,” according to a report presented at the board meeting.
Berman said Deloitte & Touche is “not auditing” the Claims Conference but rather “reviewing the systems we use to process [compensation] requests … to assure the best systems are in place to prevent any kind of fraud.”
In his report to the board, Sheldon Rudoff, chairman of the Claims Conference’s Task Force on Individual Compensation Programs Investigation, called it a “systems audit."
One of those who attended the meeting and spoke on condition of anonymity said of the German action: “It shows just how much confidence Germany has in the Claims Conference that it would want to conduct its own independent audit with a company that will report to them and not the Claims Conference.”
Berman said he would expect the review to be completed by the end of the year.
On another matter, The Jewish Week has learned that a much heralded $19 million fund from which to make one-time payments to Jewish Holocaust victims living in certain East European countries will not be a German but rather a Claims Conference program.
Despite nearly two decades of Claims Conference negotiations with Germany, the directors were reportedly told that the German government has continued to balk at making such payments. But it did agree to include money for the new program in a multi-year homecare funding package for the Claims Conference that extends through 2014.
Unlike the Hardship Fund, which has made one-time payments of about $3,600 to 350,000 Jews from the former Soviet Union and Eastern Europe who now live in the West, the new Holocaust Victim Compensation Fund is for victims of Nazi persecution who continue living in 10 former Soviet bloc countries that are now members of the European Union. It is estimated that about 7,000 survivors will each receive about $2,660.
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