NEW YORK — Weeks after an employee was convicted of orchestrating a $57 million fraud involving Holocaust restitution for survivors, the Conference of Jewish Material Claims Against Germany is under scrutiny for who knew what and when.
The Claims Conference in recent weeks had blamed a now-dead regional director for bungling an early warning in 2001 about a massive fraud scheme that wasn’t halted until 2009.
But a document obtained by JTA shows top officials of the organization that processes Holocaust restitution claims for survivors were sufficiently concerned by the allegations that they launched their own probe in 2001 that failed to detect the wider fraud.
The probe resulted in an eight-page report that raised questions about the handling of several fraudulent cases by Semen Domnitser, a Claims Conference employee who was found guilty on May 8 of orchestrating the $57 million scheme.
Throughout the scheme, the Claims Conference, which was established in 1951 to negotiate Holocaust survivor restitution with Germany, continued its work reviewing claims and processing billions of dollars in German payments to survivors. Since its founding, the conference estimates it has handled more than $70 billion.
The revelation of the report leaves unanswered the question of whether Claims Conference leaders showed gross negligence in failing to detect that Domnitser was orchestrating a widespread fraud, as some critics contend, or whether Domnitser, who was questioned in the two 2001 probes, was such a shrewd operator that Claims Conference officials couldn’t help but be fooled.
The first probe was sparked by an anonymous letter in June 2001 alleging that five fraudulent claims had been approved for restitution payments. The letter reached the director of the Claims Conference office in Germany, Karl Brozik, who conducted an assessment that included questioning Domnitser about his handling of the claims.
Domnitser responded to Brozik by fax, acknowledging some inadvertent errors but lying about other facts to cover up his criminality. Brozik shared Domnitser’s responses with the staffer he had assigned to look into the matter, who marked them up with a lot of question marks. But there is no evidence in the public record indicating that the inquiry was taken further, and last week Claims Conference spokeswoman Hillary Kessler-Godin blamed Brozik, who died in 2004, for failing to pursue the matter.
However, it turns out that the Claims Conference’s top leaders launched a second probe of their own. Those involved in the second investigation included the organization’s chief professional at the time, Gideon Taylor, and its counsel, Julius Berman
The investigation was assigned to a paralegal at Berman’s law office, Kaye Scholer LLP, who went to the Claims Conference office in New York on Aug. 27, 2001, to review the five fraudulent claims and question Domnitser.
The paralegal, Ryan Tan, produced a report that Berman sent to Taylor on Sept. 5, 2001.
The report contains no smoking gun fingering Domnitser as perpetrating the fraud, and it’s not clear how common allegations of fraud were at the Claims Conference. However, the report demonstrates that the organization’s top leaders considered the matter sufficiently alarming that they had an outsider conduct an independent probe even after an internal inquiry had been conducted two months earlier.
Despite whatever actions Berman and Taylor took after receiving the Kaye Scholler report, Domnitser and his cronies managed to fleece the Claims Conference of millions more for another eight years.
In an email to JTA, Taylor blamed Brozik for dropping the ball, saying Brozik oversaw the review of the allegations in the 2001 letter and was sent the Kaye Scholer report.
“The report indicated that there should be a specific follow up on allegations about the improper processing of five cases involving Claims Conference staff members,” Taylor wrote. “Karl Brozik subsequently indicated to me that no further action regarding the New York staff was required concerning the issues in the report.”
In all, at least six senior Claims Conference figures were made aware in 2001 of the allegations involving fraud, though some were not privy to all the details: Domnitser, who perpetrated it; Brozik, who is dead; Taylor, who left the conference in mid-2009 and now works in real estate; former Claims Conference chief Saul Kagan, who is in his 90s and retired; Berman; and Greg Schneider, then assistant executive vice president and director of allocations and now the Claims Conference’s chief executive.
Of them, only Berman and Schneider still play prominent roles at the organization.
Berman, who is also a member of JTA’s board, refused to discuss the details of the 2001 episode, saying he’ll withhold comment until the committee of Claims Conference board members he has assigned to look into the matter recommends a course of action.
But he made clear that he believes he is not to blame.
“Somebody dropped the ball. That’s this issue,” said Berman, 77. “My conscience is totally clean on the role I played.”
In an interview, he also stood by comments he made in late 2011 saying 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.
“Until it happens once,” he added. “Then you’re on notice that something you never foresaw can happen.”
Schneider declined to comment to JTA, but last week Kessler-Godin told JTA that Schneider is not to blame because he never saw the original anonymous letter and the other people CC’d on the correspondence were senior to him. Therefore, Kessler-Godin said, Schneider reasonably assumed they were handling the matter.
Ultimately, it was Schneider who finally halted the massive fraud scheme, when he and a colleague, Karen Heilig, came across a pair of suspicious claims approvals in November 2009 and began to investigate further. They quickly found hundreds more suspicious cases — what turned out to be the tip of the iceberg in a fraud scheme involving nearly 5,000 falsified claims.
Within hours, Schneider alerted Berman. They had the law firm of Proskauer Rose LLP do an initial investigation, and a few weeks later the conference alerted the FBI. Eventually, a total of 31 people were arrested in connection with the scheme. Twenty-eight pleaded guilty; the three who did not, including Domnitser, were found guilty at trial on May 8.
In all, there were at least 3,839 falsified applications to the Hardship Fund, an account established by the German government to provide one-time payments of approximately $3,360 to those who fled the Nazis as they moved east through Germany, and 1,112 false claims to the Article 2 Fund, through which the German government gives pension payments of approximately $411 per month to needy Nazi victims who spent significant time in a concentration camp, in a Jewish ghetto in hiding or living under a false identity to avoid the Nazis.