Calls For Shake-up

Calls For Shake-up

Ombudsman urges restructuring as two board members resign, citing report’s lack of fairness.

In a scathing report sent to board members of the Claims Conference, a copy of which was obtained by The Jewish Week, the ombudsman for the group found that a 2001 anonymous letter that might have alerted officials to the $57.3 million fraud within the office was not “treated with the gravity that it demanded” due to mismanagement.

The ombudsman, Shmuel Hollander, and a Select Leadership Committee that requested his report, both recommended to the Claims Conference Board, hold its annual meeting this week, that there be a major re-haul of the organization. Hollander said his 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 Select Leadership Committee called for a “comprehensive restructuring of the Claims Conference, its culture, structures, administration, management and governance ….”

The report does not deal directly with whether or not the current leadership of the Conference, including its president, Julius Berman, should step down. But the Select Leadership Committee called for a “comprehensive restructuring of the Claims Conference, its culture, structures, administration, management and governance ….”

However, two of the four members of the Select Leadership Committee, Abe Biderman and Roman Kent, both wrote letters resigning from the committee and disassociating themselves from its findings.

“I believe that the report is inappropriately perjorative, contains material factual errors, and does not take into account the substantial management improvements made subsequent to 2001,” Biderman wrote. “In addition, the affected parties were not given appropriate due process to react and respond to the factual statements contained therein.”

The fraud was eventually discovered in November 2009 – some 16 years after it began – and led to the arrest and conviction of 31 people, including 11 former Claims Conference employees. The ombudsman said that as a result of the failure to properly investigate the 2001 letter, “the fraud continued – and was perhaps even expanded – for eight years after the receipt of the letter ….”

“Had the allegations made in the letter been properly addressed and investigated thoroughly by an independent and professional functionary in New York,” the ombudsman wrote, “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 procedures” used to commit the fraud.

“Had this been the case, it might have been possible to limit the scope of the fraud.”

But because of a lack of oversight, he wrote, the man who headed the two reparations programs that were defrauded, Semen Domnitser, “was able to treat the department as his own domain and to maintain over many years a sophisticated and complex network of fraud on an enormous scale, without any of his formal superiors noticing what was occurring under their noses.”

“The possibility of fraud should have been minimized at all time,” Hollander continued. “Even with the writing on the wall, and the organization exposed to warning signs, the matter was not attended to ….”

Although the ombudsman was restricted in his report into investigating the handling of the 2001 report and Claims Conference leaders at the time – most of whom are now deceased or retired — the Select Leadership Committee leveled criticism at current Claims Conference leaders. It said that neither the board of the Claims Conference nor any of its committees were told of the 2001 letter nor of a cursory investigation conducted at the request of the-then pro bono counsel to the Claims Conference, Julius Berman, now its chairman, in 2001 or in 2009 when the fraud was discovered.

It remained concealed from the board and its committees even after Claims Conference officials turned the letter and the report over to the Justice Department in 2010 “for the purpose of the criminal proceedings.”

“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,” the committee wrote. “Whilst the complaint was apparently given to the two lawyer members 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 taskforce, Mr. Roman Kent, nor otherwise disclosed to him. We surmise that the members of the taskforce were not directly aware of the letter, nor of the report.”

“The committee regards the failure to disclose these maters at any time, to an committee of the board or to the board itself, as totally unacceptable,” it said. “However, we have found nothing in the [ombudsman’s] 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 a litany of lack of diligence, competence and judgment that, as the ombudsman has shown, characterized this event throughout.”

Greg Schneider, the executive vice president of the Claims Conference, responded to that assertion in a 21-page letter of reply to both the committee and the ombudsman’s reports. He said Kent was given the letter and the complaint, and that he was never asked if any other board members were given copies.

“I have been in the forefront of the efforts since our discovery in November 2009,” he wrote. “Nothing – not one thing – about those efforts can be characterized as lacking diligence, competence, or judgment. Indeed, quite the contrary has been true.”

The Select Leadership Committee said it found Hollander’s report “most disturbing in respect to its findings regarding the letter and related events. It demonstrates that most regrettably and contrary to what many on the board had earlier assumed, best practice and competence were missing in respect of this matter.”

Although both Hollander and the Select Leadership Committee took pains to praise the current leadership for its efforts in behalf of Holocaust survivors – noting that that the organization has provided 600,000 survivors with $4.5 billion in German reparations over the years – Hollander criticized current and former leaders for trying to blame the 2001 letter fiasco on a dead man – Karl Brozik.

Hollander wrote that although the anonymous letter had been sent to Brozik, a survivor who headed the Claims Conference’s Frankfurt office, he had no authority over Domnitser, who worked in New York and whom the letter alleged was involved in the fraud. Hollander noted that Brozik and a colleague had asked a case worker in their office to look into the letter’s claims, and that her findings of “serious irregularities” were sent by Brozik to Domnitser for a response.

The caseworker’s report was written in German; Domnitser wrote his response in English.

“A reader who does not understand German will find it difficult to determine whether his remarks constitute a substantive response to the accusations,” Hollander wrote.

The caseworker read Domnitser’s reply, said she found it “inadequate,” and in a handwritten note added that Domnitser had not responded to the principal allegations. She also suggested a further investigation. She sent her note to Brozik, and the ombudsman said he found no evidence that Brozik forwarded it to anyone.

“Some have attempted to argue (both to us and on various occasions to the media) that his centralized management methods were not limited to the Frankfurt office but crossed oceans, so that he was effectively responsible for Mr. Domnitser,” Hollander said. “In doing so, these individuals attempted, among other things, to divert the blame of the letter affair to Dr. Brozik. … We find it impossible to accept this version of events, and believe it to be without any basis in reality.”

“It is completely apparent to us,” the ombudsman continued, “that Dr. Brozik did not have any authority over Domnitser, particularly given the centralized manner in which the New York office was run.”

Hollander then pointed out the animosity between Brozik and the men who ran the New York office, Gideon Taylor, then the executive director, and Schneider, then the chief operating officer. Some suggested, said Hollander, that there was “a generational gap” and others saw it as Brozik’s disagreement with New York’s “centralized, disorganized and unprofessional” manner.

In his response, Schneider, who succeeded Taylor when Taylor retired in 2009, wrote that Hollander “seems to go to great lengths to blame the New York staff, which I find perplexing and inexcusable.”

“A total of 2 ½ hours on what I understood to be about the 2001 letter is not sufficient time to discuss the management and control issues of over a decade,” he wrote of his meeting with Hollander. “Woefully inadequate time was spent with me discussing the issues of what the paper calls `managerial culture and control systems.’”

Schneider also took issue with Hollander’s claim that the letter, comments from the caseworker and the report from Berman’s office did not “receive attention or instigate action” from the leadership in New York when, he said, neither he nor Taylor’s legal adviser were aware of them.

“Several basic facts of the Hollander paper are wrong,” Schneider pointed out, adding that in the limited time of Hollander’s inquiry – two weeks – Hollander was unable to “master even the fundamentals, to say nothing of the key complicated issues.”

Schneider noted that he wrote July 4 to the chairman of the Select Leadership Committee, Reuven Merhav, to complain about the “outrageous breach of due process” by sending his and the ombudsman’s report to Berman without giving him a chance to respond. He said he found that the reports “contain errors, omissions, false assumptions, unsubstantiated allegations, and are defamatory in nature.”

“Given the scope of the report, the extensive nature of the problems therein and the extremely damaging nature of its contents as written, I must insist that I, and others named in the report, be given adequate time to draft comments for submission to the ombudsman and the committee and that these comments be reviewed before a final report can be issued,” Schneider wrote.

Merhav replied that “there is no fact stated in our report that a person who might feel offended didn’t have a chance to comment on prior to finalization of the report.”

Schneider disagreed, saying he did not see the report until last Tuesday when it was already completed. And he insisted that Hollander was simply wrong when he said that no one had supervised Domnitser nor examined the work of his department.

He said he was the “main conceptual architect and driving force” behind the effort to computerize Claims Conference records, and that this could not have been done “without being involved in the details of the funds, their administration and working extremely closely with fund managers such as Domnitser. ….

“Ultimately, I cannot escape the fact that Domnitser and his accomplices stole tens of millions of dollars. And, while he was doing it, I was working closely with him – in the same office. There is not a day that goes by in the grueling four years since I discovered the fraud that I don’t replay events in my head, wondering what else I could have done. I considered Domnitser a trusted colleague. … I was lied to, fooled, hoodwinked, duped. I missed it. I am sorry.”

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