Nazi-Era Claims Spark Sanctions on Swiss Banks

Over strong objections from the Clinton administration, state and local government officials across the United States have moved to impose sanctions against three large Swiss-based banks that have resisted meeting demands of Jewish Holocaust victims and their survivors for the return of funds allegedly withheld since World War II.

A committee of state and local government financial officers announced the action late Wednesday after a lengthy meeting at which efforts to negotiate a settlement of the Nazi-era claims were pronounced a failure.

California Treasurer Matt Fong told reporters after the meeting that he has directed his staff not to do business for the indefinite future with the banks--Credit Suisse, Swiss Banc Corp. and Union Bank of Switzerland--or their U.S. subsidiaries.

Fong’s office oversees $32 billion in state funds, investing between $1 billion and $2 billion each day in short-term deposits. In the past, the state has invested as much as $2.2 billion with the three banks.

New York City Comptroller Alan G. Hevesi, who chairs the committee representing 810 state and local officials, and New York State Comptroller Carl McCall are expected to announce the nature of sanctions they will impose today.

“There is a total, stone-like impasse,” Hevesi said, referring to a breakdown in settlement talks. He expressed particular regret that “the government of Switzerland is not willing to participate in these negotiations.”

California and New York officials had placed sanctions on the Swiss banks last year but suspended them earlier this year in the hopes of facilitating a negotiated settlement of Holocaust-era claims.

The money at issue stems from deposits that tens of thousands of Jews placed in Swiss banks as the Nazis gained power in Europe. The banks stressed that the accounts would be kept secret from everyone, including German officials. But victims’ relatives and concentration camp survivors say that after World War II ended, bank officials stonewalled them, contending accounts could not be found or refusing to turn over funds unless heirs of those who died in the Holocaust could produce nonexistent death certificates.

With the survivors of the Nazi death camps rapidly aging, efforts to recover the funds have escalated, both in the courts and the political arena.

On June 19, the banks offered to pay $600 million to settle all outstanding claims--an amount Jewish leaders lambasted as “obscenely low.” Lawyers for the survivors had told the banks it would take $1.5 billion to settle the claims, an amount bank officials branded “exorbitant.” Both sums would be on top of any traceable dormant accounts found by a special commission headed by Paul Volcker, former chairman of the Federal Reserve Board, which has been conducting a lengthy probe of the matter.

Talks Fail to Reach Deal

With negotiations having broken down, Edgar Bronfman, president of the World Jewish Congress, abandoned a request he had made earlier this year for a moratorium on sanctions.

“I am here to say that the World Jewish Congress . . . will no longer stand in the way of any decision you may make with regards to sanctions,” Bronfman said Wednesday.

“Our demands have always been moral restitution and material restitution,” Bronfman said, adding that there had been “a failure on the part of Swiss authorities to achieve either goal.”

But Stuart E. Eizenstat, the undersecretary of state for economic, business and agricultural affairs and the administration’s lead official on the claims issue, spoke out against sanctions and urged state and local officials to adopt a 45- to 60-day cooling off period before levying them.

“Sanctions, however well-intentioned or carefully calibrated, will not make it easier to achieve closure in this complex and sensitive matter,” Eizenstat told Wednesday’s meeting.

“Our nation should speak with one voice in matters of foreign policy and international commerce,” Eizenstat said. In addition, he warned, sanctions “may be counterproductive and fail to advance the goal of a prompt and just settlement.”

“Even the threat of sanctions has reinforced an unfortunate climate of inflexibility in Switzerland,” he said.

But Fong, saying that the response of the Swiss banks to the demands of the Holocaust survivors has been “reprehensible,” retorted that the Holocaust survivors and their lawyers “have come to us and told us our aggressiveness brought the banks to the table” in the first place. “I would suggest that the State Department is off base,” he said.

Institutions Criticize Action

The Swiss banks immediately condemned the move of the group, labeling those who have urged sanctions as “extremists” and describing the sanctions as “unwarranted, counterproductive, unconstitutional and illegal.”

“No government or organization in the world has responded as positively, quickly and constructively to resolve Holocaust-era related issues as the Swiss banks,” the statement declared.

“The banks will not be pressured into paying exorbitant and unwarranted sums of money that do not bear relation to the facts simply because politicians, plaintiffs’ lawyers and the World Jewish Congress demand it.”

The banks also blasted those calling for sanctions, contending that it was prolonging the agony of the claimants, most of whom are elderly. “I am profoundly disappointed at this outcome,” said Robert C. O’Brien, managing director in the U.S. of Credit Suisse/First Boston.

“I feel it is unfair, it is not based on any of the facts that have been presented, and it unfortunately sets the process of putting money in the hands of Holocaust victims back considerably.”

But Alice Fisher, a representative of Holocaust survivors who came to the meeting, praised the committee’s decision. “Only sanctions or punitive actions can help,” Fisher said. “For 53 years, we tried all other channels.”

The $600 million the banks have offered “is a fraction of the interest they made on the money all these years,” she said. “They profited from this terrible, terrible tragedy.”

Meanwhile, the lawyers representing the claimants moved on several fronts in the last two days:

* They filed yet another large case against the three Swiss banks in San Francisco Superior Court. The suit, among other things, demands that the banks give up profits they allegedly made as a result of the competitive advantage they obtained by holding assets obtained from Jewish depositors during the World War II era.

* The attorneys filed a suit in federal court in Washington, alleging that the Swiss National Bank, an entity of the Swiss government, was the primary instrument for fencing Nazi gold during World War II. “We are asking them to disgorge profits they made by acting as the banker for the Nazi gold,” said Burt Neuborne, a New York University law professor, who is one of the attorneys for the plaintiffs.

* The attorneys notified Federal District Judge Edward Korman in Brooklyn, who is presiding over a class-action suit brought by the families of Holocaust victims, that negotiations had broken down. Korman has held off making some key preliminary rulings while settlement talks were proceeding.

Neuborne and Melvyn I. Weiss, one of the lead lawyers for the plaintiffs, said they hoped actions by the state officials would put added pressure on the banks to improve their offer.

In a related development, the state Assembly Insurance Committee unanimously passed a bill by state Sen. Tom Hayden that would set up a four-year, $16-million research fund for the state Insurance Commission to help recover unpaid insurance claims for about 20,000 California residents who are Holocaust survivors or the children of individuals who were among the 6 million killed during World War II genocide. The bill already has passed the state Senate.

Weinstein reported from Los Angeles and Goldman from New York.