Background

In May, Julius Berman, the Chairman of the Conference for Material Claims Against Germany Inc (Claims Conference), announced the appointment of a Select Leadership Committee of the Board of the Claims Conference (Committee), to deal with issues surrounding the June 2001 anonymous letter, discovered during the fraud trial that exposed a $57 million fraud engineered by a Claims Conference employee. The letter had been sent to the Frankfurt office of the Claims Conference. The Letter alleged that certain Claims Conference employees had approved applications in breach of the relevant rules, citing five specific examples.

Members of the investigative committee were Reuven Merhav, Chairman of the Executive Committee (Chairman); Abe Biderman, Chairman of the Personnel and Management Committee; Robert Goot, Chairman of the Governance Committee; and Roman Kent, Treasurer. The Committee received secretarial and logistical assistance from the Claims Conference.

When the letter was made public, it caused an uproar, inside and outside of the Claims Conference. After the committee met in early June, and reviewed a detailed Chronology of events (prepared by it) and a number of documents, the Committee asked for an experienced person with relevant skills to conduct a thorough fact finding investigation of the Letter; how its allegations were investigated; the extent of the disclosure of the Letter and related documents, to Claims Conference staff, its Board of Directors and lay leaders. An Ombudsman was then appointed.

While acknowledging the good work that the Claims Conference does, the findings regarding the Letter and related events are “disturbing.” It demonstrates that best practice and competence, were missing in respect of this matter. Importantly, its conclusions regarding the shortcomings identified in respect of those events, indicate the real need for improvements in the Claims Conference’s administration, management and governance, generally.

Executive Summary

The Committee supports the conclusions and recommendations of the Report. In particular, and without detracting from the Report as a whole, we draw attention to the following excerpts from the Report by way of Executive Summary. The headings used are those of the Committee:

Context

• In order to facilitate an understanding of the general context of the Letter, it seems appropriate to provide a brief description of the activities with which the Claims Conference was involved at the time.[9]

• (At the time of receipt of the Anonymous Letter in 2001, the Claims Conference was undergoing a period of growth and facing important tasks that would change the character of the organization and the scope of its assets, and would multiply the range of its activities many times over. Simultaneous to negotiations which were being pursued with the German government, negotiations were also underway with the Austrian government regarding the establishment of the Austrian Fund. Negotiations with insurance companies on the subject of The International Commission on Holocaust Era Insurance Claims (ICHEIC) were also at their most intensive point. As regards the personal programs, elements within the Claims Conference were working hard on the subject of the Forced Laborers Fund (The Memory, Responsibility and Future Fund); whose activities included the location of eligible persons in 40 countries and the establishment of a logistical system for the intake and processing of applications.[10]

• In addition, during this period, discussions and final decision making relating to the establishment of the CEEF program took place; which necessitated the creation of a new logistical system to suit its purposes. [ll]

• During this same period, the management of the Claims Conference changed, with the appointment in 1999 of a new Executive Vice President, Mr. Gideon Taylor … [12]

• …thanks to its activities, more than 600,000 individual claims have been processed by the Claims Conference, with total payments exceeding $4.5 billion.[l3]

• It is also a credit to all those involved, that the mission of the organization continued to be implemented , and that the Holocaust survivors themselves were not financially harmed. [14]

• …even when taking all of this into account, the division of activities within the organization was inadequate, and the areas of responsibility were systemically unclear. [15]

The Letter

• On June 6, 2001, the Logistical Center in Frankfurt received a Jetter signed by the “Organization of Eastern Europaen Jews in America”—a fictitious body. The Letter

was received by Ms. Hannelore Diedrich, who served at the time as Director of the Logistical Center in Frankfurt … an additional copy of the Letter was received by Dr. Karl Brozik, the Claims Conference director in Germany. The Letter accused Mr. Domnitser’s department as well as Mr. Domnitser himself, of breaching regulations by approving applications for pensions for employees in the department and their relatives. [32]

• The Letter noted five specific and well detailed examples (from the serial numbers of these cases in the Claims Conference files to the method used for their approval and the flaws in their processing), of such fraudulent applications. The Letter also proposed a series of steps and examinations whose findings, it claimed, would confirm the allegations. [33]

• Ms. Gafsi was given a copy of the Letter, with instructions ID examine the files mentioned in the letter and their contents. She was not asked to conduct any additional investigation beyond that of the files themselves, nor was she asked to enact any of the measures recommended in the Letter. [39]

• Ms. Gafsi reviewed all five files and in each one found, at the very least, serious irregularities (this was also the definition used by the late Dr. Brozik). These included: files which did not include the required documents; files which had not been approved by a minimum of two employees as required by German guidelines but rather by Mr. Domnitser alone; applicants who had failed to prove that they met the required income threshold for compensation; documents which were unreliable; details of relatives which were missing; facts which contradicted those presented in earlier applications- and so on. [40]

• All of these discrepancies were compiled by Ms. Gafsi into an orderly and detailed table in German and submitted to Dr. Brozik, who then forwarded it to Mr. Domnitser but without a copy of the anonymous Letter and requested his response.[41]

• A copy of this correspondence from Dr. Brozik to Mr. Domnitser including Ms Gafsi’s table in German, was forwarded to Mr. Taylor and Mr. Saul Kagan [in New York]. [42]

• On June 21,2001, Mr. Domnitser sent a fax message saying that he would require several days to address the body of the accusations …he requested from Dr. Brozik a copy of the Letter itself, and protested the fact that he was being required to reply to accusations leveled by an anonymous source. A copy of this correspondence was sent by Mr. Domnitser to Mr. Taylor, Mr. Kagan, and Mr. [Greg] Schneider (now Executive Director] as well. Dr. Brozik then sent but only to Mr. Domnitser, a copy of the Letter (in English) as requested. [43]

• We could not find any written evidence that Mr. Schnieder received the Letter at this point. [43]

• From subsequent actions described later …we can deduce that Mr. Taylor had seen the Letter. [43]

• On June 28, 2001, Mr. Domnitser sent Dr. Brozik another fax message attaching his reply to the Gafsi table … and sent a copy to Mr. Taylor, Mr. Kagan, and Mr. Schneider.[44]

• …Mr. Domnitser ostensibly responded to the substance of the matter, explaining that he had no intention of replying and/or discussing the serious (and, he argued, mendacious) accusations leveled at him by the anonymous source, and that it was not within the guidelines of his job to do so in any case. [45]

• …Mr. Domnitser divided Ms. Gafni’s table (which had been composed in German) into sections. His reply, in English, appears immediately after each section, so that a reader who does not understand German, will find it difficult to determine whether his remarks constitute a substantive response to the accusations (which, as noted, appear in German), or not. In one single case, that of Ms. Kazakova Maro, Mr. Domnitser admitted that the case had been approved improperly and that the payment should be discontinued. Regarding the other cases, Mr. Domnitser avoided providing a substantive response and offered only partial and vague replies. [46]

• Mr. Domnitser’s reply to Ms. Gafsi’s table, was forwarded to her. Ms. Gafsi examined the replies and found that they were inadequate in constituting a satisfactory explanation for the grave accusations raised in the Letter. She made handwritten notes in German, in response in the margins of Mr. Domnitser’s reply. [47]

• Ms. Gafsi’s notes asserted that the principal accusations presented in the Letter had been left unanswered, and that it would be prudent to conduct a more extensive examination of the files. Ms. Gafsi recorded … forwarded them to Dr. Brozik. [48]

• We did not encounter any further correspondence between Dr. Brozik and Mr. Taylor or Mr. Schneider. It seems that Mr. Schneider, aside from having been copied on some but not all of the correspondence, did not play an active role in the handling of this issue. [49]

• We found no evidence that Dr. Brozik passed on Ms. Gafsi’s notes (in response to the Domnitser explanations), although he probably realized at that stage that Domnitser’s answers were not satisfactory. [50]

Tan Report

• …Mr. Julius Berman was asked—probably by Mr. Taylor—to examine the issue and to offer his opinion and his recommendations for the handling of the Letter. Mr. Berman has no recollection of seeing the Letter at the relevant time. However, because he assigned the task to a paralegal in his office …and, having regard to the wording of his fax dated 5 September 2001, under cover of which the paralegal’s report was sent to Mr. Taylor, we infer that he probably saw the Letter at the relevant time. The matter however is not clear. [50]

• Mr. Berman appointed Mr. Ryan Tan, a paralegal from his firm, to conduct an external investigation of the matter. ..during this period Mr. Berman was a pro bono

legal advisor to the Claims Conference, while serving as a senior and active partner in

his law firm … Given that his Claim Conference role constituted a minor portion of his business and public activities, and that his principal time and energy were not devoted to the affairs of the Claims Conference, it is hardly surprising that we have formed the impression that Mr. Berman was not thoroughly versed in the details or the developments of the affair prior to Mr. Taylor’s request. The Report was sent by Mr. Berman to Mr. Taylor by fax, on 5 September 2001. [51]

• From the Report itself, we learned that Mr. Tan was given a copy of the Letter and asked to investigate the issues it raised. According to his Report, Mr. Tan received a copy of Mr. Domnitser’s initial reply to Dr. Brozik, but we did not find any evidence that he received a translation of Ms. Gafsi’s first table in German (which was first translated into English only in 2010, by Ms. Heilig for the purpose of the trial itself), or that he asked for it. In any event, he did not refer seriously in his Report to Ms. Gafsi’s table but relied exclusively on what Mr. Domnitser told him. In addition, he did not check for follow up comments that we know existed from Ms. Gafsi’s handwritten comments in response to Mr. Domnitser’s reply, which he most probably did not see. Nor does it appear that he spoke with anybody else in the New York office. [52]

• Although the Report explicitly stated that the Letter accused Mr. Domnitser of irregularities and of unlawfully approving applications for employees in his department and for their relatives, Mr. Tan chose as his method of investigation an interview with Mr. Domnitser himself (and with him alone), and an examination of the material in the files given to him. Once again, no additional measures were undertaken, including those recommended in the Letter. [53]

• …Mr. Domnitser’s partial and inadequate replies, coupled with Ms. Gafsi’s comments and Mr. Tan’s opinion should, at the very least, have served as an alert to Mr. Domnitser’s superiors, had anyone been functioning in this capacity. However, since in practice there was no superior party responsible for Mr. Domnitser’s work or actions, these signs did not receive attention or instigate action. Accordingly, the fraud continued – and was perhaps even expanded – for eight years after the receipt of the Letter and the “investigation” of its most serious allegations. [56]

• The Report was sent to Mr. Taylor for his comments. [57]

• …Neither Mr. Taylor nor Dr. Brozik, performed any follow up on the matter. .. [58]

• It hardly needs to be explained that Mr. Domnitser’s partial and inadequate replies, coupled with Ms. Gafsi’s comments and Mr. Tan’s opinion should, at the very least, have served as an alert to Mr. Domnitser’s superiors, had anyone been functioning in this capacity. However, since in practice there was no superior party responsible for Mr. Domnitser’s work or actions, these signs did not receive attention or instigate action. Accordingly, the fraud continued—and was perhaps even expanded—for eight years after the receipt of the Letter and the “investigation” of its most serious allegations. [56]

• Although we cannot determine unequivocally what happened to the Report, given the evidential material before us, we find it more reasonable to surmise that it was never seen by Dr. Brozik. [61]

• Whatever the case, we did not find any evidence to suggest that the Report was addressed in any manner. This is particularly strange since the Report was designated as a draft, and was never edited into a finished report, or followed up on in any way. [62]

• …However, it is a fact beyond any doubt that the absence of professional control systems, as well as the absence of computerization (until 2007, when the computerization of the work began, ultimately leading to the exposure of the fraud), constituted a key factor in enabling, and certainly in facilitating, the fraud. [63I

• With the exception of Mrs. Gafsi, we conclude that no one at the Claims Conference, who was aware of the Letter, treated it with the gravity that it demanded at the time. [64]

Conclusion

• …during the period that is the subject of the Letter, no one in the organizational system considered him or herself responsible for, or directly superior to Mr. Domnitser, who apparently enjoyed complete freedom of action regarding the management of his department, its personnel, and the processing of claims. [66]

• In effect, none of the Senior Directors examined or supervised the work of the department in any meaningful way … [67]

• Although it is difficult to make this assertion with certainty, given the varying testimonies presented to us on this matter, our opinion is that had the allegations made in the 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. Had this been the case, it might have been possible to limit to scope of the fraud. On the contrary, Mr. Domnitser’s unmonitored control of the system under his management, and the absence of real supervision, enabled him to neutralize any attempt to investigate the detailed claims raised in the Letter. Indeed, in practice this process only seems to have reinforced his belief that his actions would remain undiscovered. [69]

• …we must recall that under the leadership of Mr. Taylor, and with the beneficial service of Mr. Schneider and Ms. Heilig, the organization experienced tremendous growth between 200I to 2009, in the scope and areas of its activities. And yet, with the enormity of the tasks before it, the organization did not succeed in tailoring its managerial structure to meet the growing range of its activities and needs. Prior to Mr. Taylor’s arrival, there had been no established organizational structure or proper division of authority, and this reality was only partly rectified during his tenure as Executive Vice President. The organization was governed in a manner unacceptable in both public and corporate bodies. The apportionment of authority and the organizational structure in no way matched the needs of the organization, which was characterized by unreasonable levels of centralization. [71]

• …after the discovery of the fraud in 2009, the directors of the organization—Chairman Berman, Mr. Schneider, Ms. Heilig and others—acted quickly and vigorously to forward the matter to the FBI for investigation and to prosecute the offenders. In so doing they performed their natural and obvious duty. They cooperated fully and extensively with the authorities and have received public appreciation for this. [80]

• Additionally, their timely reporting to the German authorities about what had transpired, has allowed for renewed faith between these authorities and the organization, and for the maintaining of good relations between the two. [81]

• …the management of the organization has done and continues to do its utmost to fulfill the mission of the organization and to provide relief to Holocaust survivors worldwide …we were impressed by the dedication evidenced in those we met, and by their exceptional sense of mission and commitment. It is a credit to those working tirelessly to carry out the organization’s missions that this commitment has not been diminished, even in light of all that has transpired. [82]

• …It is not enough merely to examine the handling of the anonymous Letter. We believe that our findings indicate a need to examine in greater depth the general conduct over many years that enabled such a large scale fraud to continue unimpeded. The rules of proper administration require that, following such fraud, and after the criminal proceedings against the offenders have been completed, a comprehensive examination, with all that this entails, should also be conducted on the administrative level. [85]

Was there a Cover Up?

The Committee notes that the existence, let alone the contents, of the Letter and the Tan Report, was never disclosed to the Board of Directors of the Claims Conference or any Committee of the Board either in 2001, or in 2009 when the fraud was discovered, or in 2010 when the Letter and the Report were made available to the relevant authorities for the purposes of the criminal proceedings against Mr. Domnitser and others. Indeed, the formal charge (complaint) issued by the court in those proceedings in November 2010, refers (in paragraph 108), to the Letter and Mr. Domnitser’s responses to it. Whilst that complaint was apparently given to the two lawyer members (since deceased) of the Taskforce established by the Claims Conference in the wake of the fraud, it is not known whether their attention was directed to paragraph 108. However, it was not given to the third member of that Task Force, Mr. Roman Kent, nor otherwise disclosed to him. We surmise that the members of the Task Force were not directly aware of the Letter, nor of the Report.

The Committee regards the failure to disclose these matters at any time, to any Committee of the Board or to the Board itself, as totally unacceptable. However, we have found nothing in the Report or otherwise, to suggest 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. The failures were in fact much more prosaic—part of the litany of lack of diligence, competence and judgment that, as the Ombudsman has shown, characterized this event throughout.

Other Developments

The Committee notes, that since the discovery of the fraud, shortcomings in the administration of the Claims Conference have been raised internally and the Claims Conference has been the subject of a number of reports of independent experts, into different aspects of its affairs, including by:

• Deloitte, retained by the Government of Germany to make recommendations as to administration of the Individual Payments Program and the Institutional Payments Programs; and

• Accenture, retained by the Claims Conference to conduct an organizational review and to make recommendations regarding the strategic plan, Board restructure and general administration and management, of the Claims Conference. The Deloitte Recommendations were made in April 2013. We have not seen them, but have been advised that they have been, or are being, implemented.

The Accenture Recommendations were presented to the Personnel and Management Committee on 27 June 2013, will be reported on to the Board and ought to be actively considered. In addition various Committees of the Board of the Claims Conference have been either established or their terms of reference expanded and enhanced.

The Committee regards these reports, together with the Ombudsman’s Report, as providing a timely and informed basis on which to institute a comprehensive restructure of the Claims Conference, its culture, structures, administration, management and governance, so as at this unique point in time, to equip the organization to be in the best possible position to fulfill its mission in the future and to overcome the deficiencies and seize the opportunities identified in the various reports referred to above.

Recommendations

Accordingly, the Committee makes the following strong recommendations to the Board of Directors for adoption at the forthcoming Annual Meeting and for implementation without delay:

1. The appointment by the Chairman of the Claims Conference of a Restructuring and Strategic Planning Committee, comprising: the Chairs of the Executive Committee, Personnel and Management Committee, Governance Committee, Public Information Committee; the Treasurer; up to three other members of the Board of Directors, and up to three other external lay appointees, to make recommendations regarding, the structure, administration, management and governance of the Claims Conference, including a review of its by-laws, so as to ensure as far as possible, that the Claims Conference is able to:

a. Identify its future vision and how it is to be achieved;

b. Fulfill its mission for the future;

c. Further identify survivors and victims of the Shoah;

d. Identify the services to be provided to survivors in 5- 15 years;

e. Assist survivors and victims of the Shoah to the fullest extent possible in their remaining years;

f. Promote appropriate Shoah research, education, remembrance and commemoration;

g. Plan for the time that will shortly be upon us, when there are no survivors; and

h. Develop a strategic plan to take account of the above.

2. The Committee will, in conjunction with the Executive Committee, and such external consultants, as they think necessary:

a. Monitor the implementation of the recommendations made by Deloitte;

b. Consider for implementation the recommendations made by Accenture.

3. The Committee will have power to obtain assistance from demographic organization, management and other relevant experts.

4. The Committee may, in addition, invite others to assist it in its deliberations.

5. The Committee will provide a progress report on its activities and the implementation of recommendations for management and administrative improvements, including those in paragraph 2 above, to the December 2013 meeting of the Executive Committee and will report back to the Board of Directors of the Claims Conference, at its Annual Meeting to be held in July 2014, or within such further time as may be agreed to by the Board.

Reuven Merhav (Chairman), Abe Biderman, Robert Goot, Roman Kent

2 July 2013

Mr. Biderman and Mr. Kent resigned from the committee after they read the reports.