Claims Conference probes $7 million fraud

NEW YORK (JTA) — After discovering $7 million in fraudulent payments, the Claims Conference is facing questions about whether it will recover the money and how extensive the fraud actually was.

Officials at the Claims Conference, which acts as a pass-through to distribute more than $400 million per year from Eastern European governments directly to survivors, discovered last last year that it had paid out at least $7 million in pension payments dating back as far as 1980 to 202 imposters who used fraudulent documents to file claims for payments.

The Claims Conference notified the recipients earlier this month that their payments were being suspended and that they had 90 days either to return all the money they had received or appeal the suspension. Soome 40 people have responded, with about half saying they wanted to return the money and half asking for appeals, according to the Claims Conference.

It is not clear what, if any, criminal charges they will face.

“Criminal activity is not a matter for the Claims Conference,” Gregory Schneider, its executive vice president, told JTA. “We reserve the right go after them in civil court for the return of money.”

Claims Conference officials first noticed last November that several claimants had falsified information to receive payments from the Hardship Fund, an account established by the German government to give one-time payments of roughly $3,000 to those who fled the Nazis as they moved east through Germany. A further internal investigation revealed that more fraudulent claimants received payments from the organization’s Article 2 fund, through which the German government gives pension payments of roughly $375 per month to those who spent either six months minimum in a concentration camp or at least 18 months in a Jewish ghetto in hiding or living under a false identity to avoid the Nazis.

Conference officials said they immediately notified the FBI and the U.S. Attorney’s Office, and discussed the matter in meetings with the German government. The Federal Bureau of Investigation and the Claims Conference are continuing to investigate the matter.

“We are determined to get to the bottom of this,” Schneider said. “We have worked very closely with law enforcement, and on a regular basis they are in touch with us.”

In total, the Claims Conference has made pension payments to more than 160,000 people in 78 countries on behalf of the Germans since the start of the Hardship Fund in 1980 and the Article 2 fund in 1995. The organization now is reviewing each of the recipients, comparing the information it has from the fraudulent claims, such as where the claims were made, to all other claims, going case by case through all their case histories.

The 202 suspects come from reviewing “thousands” of recipients, according to a Claims Conference official, but it expects to find more as the organization reviews the entire caseload.

Payments are made from Claims Conference’s offices in Frankfurt, Tel Aviv and New York, but thus far all the suspected fraud was processed through the New York office. The discovery led to the firing of two case workers and one supervisor in that office. Schneider would not comment on whether the employees were under criminal investigation.

The fraud was reported in the New York Jewish Week just before the Claims Conference board of directors held their annual meetings in New York two weeks ago.

At the meetings, the board approved a $500,000 reserve fund “as a contingency to cover potential expenses associated with investigating the fraud and recovering the funds,” according to a spokesperson for the Claims Conference.

The board also has spent some money on public relations services from the high-profile firm Howard Rubenstein; Claims Conference Chairman Julius Berman described the sum as “minimal.”

The Claims Conference makes several kinds of payments. Most of the money it handles are pass-through payments from the German government to Nazi victims. The organization handled about $418 million in such payouts in 2009, and some $4 billion since 1980 from agreements negotiated between the German government and the Claims Conference acting as the representative of Nazi victims and the Jewish people. This is where the $7 million fraud was discovered.

In addition, the Claims Conference decides on how to distribute money each year from the sale of heirless Jewish property in the former East Germany. That money is distributed using a formula in which 80 percent goes to organizations that aid survivors and 20 percent to programs involved in Holocaust education, documentation and commemoration.

Over the past few years, however, as the Claims Conference upped the payouts from this fund — in 2010, the organization is set to distribute $136 million — the Holocaust education portion was capped at $18 million. The Claims Conference has about $1.16 billion from this fund earmarked for future payments.

The organization also distributes other monies negotiated from European governments for such issues as home care for needy, ailing survivors. The Claims Conference will distribute about $80 million in such funds this year, officials said.

"The Claims Conference has a 59-year history of working with the German government,” Schneider said. “During this time, the Claims Conference has continuously negotiated for the rights of Holocaust victims, establishing compensation funds and obtaining expansions of existing programs."

He added, "While all understand that money can never truly compensate Holocaust victims for their suffering, the German government has assumed responsibility throughout the decades and acknowledged its obligation to survivors. The Claims Conference believes that the German government will continue to honor this obligation as long as Nazi victims remain alive."