'Lack of Due Diligence, Competence and Judgment'

Leaked Internal Report: Claims Conference Management Failed to Prevent $57 Million Fraud

Confidential report blames management for failing to spot massive theft by employees.

A confidential internal report of the Claims Conference, the Jewish organization that handles German reparations to Holocaust survivors, criticizes the management's handling of a 15-year, $57 million embezzlement scheme involving employees.

The report, which was delivered to the Conference on Jewish Material Claims Against Germany's leadership on Monday and given to Haaretz by an anonymous source, cites a "lack of due diligence, competence and judgment." It concludes that organizational failings, like inadequate monitoring of employees, prevented the massive embezzlement by former employees from being detected earlier than 2009, when the fallout could have been minimized.

"None of the senior directors [of the department where the report said the embezzlement took place] examined or supervised the work of the department in any meaningful way...," the report said.

The Claims Conference officially responded to a request for comment with a terse statement saying that the board would consider how to act on the report.

"The Board members will now have the opportunity to consider, evaluate and discuss the report and, if desired, make decisions regarding its findings and recommendations," it said. The organization added that further statements will be made only following such deliberations.

The report is based on an earlier report written by independent ombudsman Shmuel Hollander, which examined how the Claims Conference failed to prevent the embezzlement from within. Hollander's report was submitted to the organization's board at the beginning of July, and the board's own report fully adopted its conclusions.

At the center of the report is an anonymous letter, signed by a fictitious group called the "Organization of Eastern European Jews in America," that was sent to the Claims Conference's office in Frankfurt, Germany, in 2001. The letter suggested that some of the Claim Conference's employees had "breached regulations by approving applications for pensions for employees and their relatives" even though they did not meet the application criteria.

The letter did not include details or an address that could be used to determine its authorship. But it did provide the serial numbers of the relevant Claims Conference case files. Despite having this information, the organization's management failed to adequately investigate the case, uncover the embezzlement and stop it in time, according to the report. By the time an internal investigation was initiated, it was too little, too late.

Because of the lack of appropriate supervision, "The fraud continued and was perhaps even expanded for eight years after the receipt of the letter at hand and the 'investigation' of its most serious allegations," the report said. No one "at the Claims Conference who was aware of the letter treated it with the gravity that it demanded at the time."

The scandal broke in 2009 and the Claim Conference's management belatedly filed a formal complaint with the Federal Bureau of Investigation. Indictments were subsequently filed against 31 people, 11 of them former employees of the Claims Conference's New York office.

The board's report found no evidence of a cover up or attempts at deception by the organization's leadership but faulted it for a "lack of due diligence, competence and judgment that characterized this event throughout."

Between 1993 and 2009, when the embezzlement took place, the Claims Conference handled a record 600,000 German reparations claims; the extent of the fraud only became clear when the claims began to be computerized in 2007, according to the report.

Employees at the organization stressed that the embezzlement targeted money received from the German government and did not affect the transfer of fund to Holocaust survivors. Claims Conference figures show that to date $60 billion in payments have been made to 500,000 Holocaust survivors in 67 countries, and $750 million has been given to organizations that support Holocaust survivors. 

Mark Katz