Real History and the Great Shakedown

Posted Monday, July 8, 2002

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Everybody is making a profit on the Holocaust story except the survivors. It is morally and ethically repugnant. -- Leo Rechter, National Association of Jewish Child Holocaust Survivors

Baltimore, Maryland, USA, July 7, 2002

Agency turmoil hinders claims from Holocaust

Documents: An inside look shows that efforts to get long-due insurance claims paid may take more from a fund than victims get

By Greg Garland Sun Staff

AT a hearing last fall, Lawrence S. Eagleburger angrily brushed aside a California congressman's questions about extravagant spending and mismanagement at an international commission set up to help Holocaust survivors resolve old life insurance claims.

"Frankly, it's none of your business," Eagleburger, a former secretary of state who heads the commission, snapped at Rep. Henry A. Waxman during a heated exchange.

But that's not the way Waxman saw it. The commission's business is important public business, he believed, because the elderly Holocaust survivors and the children of Holocaust families he counts as constituents feel ignored and mistreated by an organization that was supposed to help them settle insurance claims dating to World War II.

Waxman was disturbed by the record of the commission Eagleburger heads, known as the International Commission on Holocaust Era Insurance Claims, or ICHEIC. After three years, it had spent $40 million to operate while only $10 million had been paid on claims filed with the commission.

Insight into what is going wrong at the ICHEIC can be gained from hundreds of pages of internal commission records - many stamped "confidential" - that were obtained by The Sun.

These records depict an agency in disarray that has left thousands of elderly Holocaust survivors frustrated, awaiting answers months and even years after filing claims. Staff members, in internal memos, have faulted the way the process is working and have sounded alarms. Even Eagleburger described it as "a complicated nightmare."

The documents show that:

Eagleburger has projected that $150 million will be needed to cover the commission's operating costs. Much of that could be drawn from the $350 million that European insurance companies have pledged for paying claims and for Holocaust-related humanitarian purposes.
The commission has paid Eagleburger's personal business manager's company at least $1.5 million to run the ICHEIC's business and financial affairs. An internal auditor reviewing the commission's books at its Washington headquarters said that manager Barbara Laumann's "professional know-how ... seems not to be adequate to the job at hand" and that others working for her appeared unqualified.
Commission members and staff traveled regularly to Rome; London; Zurich, Switzerland; and other cities in Europe, running up hefty expense tabs. In 1999, for example, the chief of staff for the agency's headquarters spent $136,653 on travel to Rome, Berlin and other European cities. Most claims settlements have been for less than $10,000.
The ICHEIC has paid a company in England $17.6 million to process claims, but the company has routinely failed to meet deadlines. Thousands of claims were stacked up without action for months as the company and the commission quarreled over contract terms and how different kinds of claims should be handled.
The commission's former claims manager, Pat Webber, warned Eagleburger that the agency could exhaust its financial resources without coming anywhere close to meeting its objectives for getting claims settled. "The process may very soon collapse without producing the results envisaged," she wrote.
Despite warning signs for several months, the ICHEIC did little until recently to check how well insurance companies were following its guidelines for deciding claims. As a result, thousands of claims that might be valid under the ICHEIC rules were rejected.

Eagleburger staunchly defends the commission's performance, pointing out that it is tackling an extraordinarily difficult problem that no one else has been able to solve for more than six decades.

The ravages of World War II left many survivors without documents to back up their claims, national borders shifted, and many insurance companies changed hands, went out of business or were nationalized.

In spite of all this, the commission has performed remarkably well, Eagleburger said. "We've done better than I think the public generally thinks we have."

Eagleburger said that the costs of setting up the commission were high but that expenses have been sharply reduced over the past year. And although the process has been costly, survivors have received money that would not have been paid if the commission didn't exist, he said.

But some Holocaust survivors - such as Leo Rechter, 74, of Queens, N.Y. - say they are disappointed by the commission's performance.

Rechter survived World War II in hiding in Belgium, but his father, who had been a butcher in Vienna, Austria, died in Auschwitz in 1943.

A retired bank executive, Rechter heads the National Association of Jewish Child Holocaust Survivors and is an officer in a nationwide alliance, the Holocaust Survivors Foundation-USA.

"Everybody is making a profit on the Holocaust story except the survivors," Rechter said. "It is morally and ethically repugnant."

'Inventing the wheel'

Eagleburger and others with the commission say the process of getting claims processed and paid has been slow and expensive because it is complex.

"It took us a year just to work out how we were going to do it," said Philip Francis, chief of staff for the commission's London office. "We always knew that this was unprecedented."

Added Bobby Brown, who represents Israel on the commission: "Nothing ever existed before like ICHEIC. It wasn't reinventing the wheel; it was inventing the wheel."

The commission's problems date to its beginnings. It was established in August 1998 by the National Association of Insurance Commissioners, six European insurance companies, several Jewish organizations and Israel.

Incorporated as a private association in Switzerland, the ICHEIC was to provide a streamlined process outside of the courts for dealing with claims from the Holocaust era. In exchange, the companies that signed on and agreed to fund the commission were promised protection against lawsuits and regulatory action.

The commission says it has obtained more than $20 million in settlement offers for survivors since it was launched. However, only a portion of those involve claims filed through it.

The agency's records show that, through May, settlement offers of $14.8 million were made by European insurance companies on 1,342 claims filed through the commission. Of those, 486 were accepted by survivors for total payments of less than $7 million.

About $7.4 million in offers were made on 631 claims filed directly with the companies, not with the ICHEIC. The commission claims credit for these because the companies used its guidelines for settlements in making the offers. The guidelines require companies to accept lower standards of proof than they ordinarily accept when deciding to pay a claim.

William M. Shernoff, a Los Angeles lawyer who has successfully represented Holocaust survivors in lawsuits against insurance companies, says the settlements offered under the ICHEIC system are appallingly low. He contends the commission serves the interests of the insurance companies, not survivors, and argues that survivors should not be hindered from pursuing lawsuits against the companies.

"Under this system, survivors are being herded into a secretive organization funded by the insurance companies," Shernoff said. "Since the companies are funding it, they obviously have control over it ... and they give 2 cents on the dollar. The people I represent want nothing to do with the pittances ICHEIC hands out."

But the commission's defenders say the purpose should be to get money to as many survivors who have claims as possible, not to enrich trial lawyers by relying on the courts to settle claims.

Audit alarms sounded

Eagleburger, 71, said deep distrust between Jewish groups and state insurance regulators on one side, and the European insurance companies on the other, has slowed the commission's work.

"The dislike and the antagonism are as bad as any I've ever encountered," the veteran diplomat said in a recent interview. "I've negotiated with the North Vietnamese and the Soviets, and I've never seen any that are worse than this."

At a commission meeting in January, Eagleburger became so frustrated with internal squabbling that he abruptly resigned as the ICHEIC's chairman. He rescinded his resignation the next day.

Eagleburger also said the nuts-and-bolts work of getting the commission operating proved more challenging than he expected.

He said he asked the companies for help setting up a financial accounting system but got no response. So he turned that job over to his personal business manager, Barbara Laumann, who is vice president of Triton Systems Corp., a closely held sole proprietorship based in Virginia.

"I had used Triton for my personal stuff, for income taxes and so forth, for a couple of years," Eagleburger said.

Laumann started by helping to set up and staff the commission's office, Eagleburger said, and her role expanded to include managing its financial affairs.

After about a year, an internal auditor was brought in from the Swiss insurance firm Winterthur, an ICHEIC member company, to review the commission's books and budgets and to advise on financial matters.

Eagleburger said he welcomed the help, which he said he had pushed for all along. "I am by no means a financial expert," he said. "I am not now, nor have I ever been, a money manager."

The auditor, Karin Muenzel, criticized the way Laumann was handling the commission's books. She questioned the "accounting accuracy and efficiency of reporting" of the system that Triton had set up and raised other concerns.

In June last year, Muenzel wrote a strongly worded confidential memo to Eagleburger and to her superior at Winterthur questioning the competence of Laumann and of Triton's accounting manager.

"The audit ... was remarkable insofar as [Triton's] accounting manager seems not to have a very professional knowledge [of] accounting," Muenzel wrote.

She added that Laumann's "professional know-how ... seems not to be adequate to the job at hand" and warned of "reputational and legal risks" if the commission did not get its financial house in order.

Muenzel also criticized pervasive secrecy in financial matters and what she described as a lack of cooperation from Eagleburger and other senior ICHEIC officials during her audit.

Eagleburger disputed Muenzel's criticisms of Laumann and her claims that he and senior managers were uncooperative. "I think her report was very unfair," he said.

He suggested Muenzel was angry because some of her ideas for changes were rejected as impractical, while others proved unworkable.

Eagleburger gave The Sun a copy of a letter he wrote on July 13 last year responding to Muenzel's report. It was sent to an ICHEIC committee with financial oversight responsibilities.

In the memo, he accused Muenzel of writing a report that "misleads, insults and prevaricates." For example, he wrote, Muenzel incorrectly described Laumann as the commission's chief financial officer.

"Ms. Laumann does not claim that her 'professional know-how' is that of a CFO," Eagleburger wrote. "But she is eminently qualified to be business and financial manager."

He added that he felt he had placed an "unfair burden on Ms. Laumann and her organization. ... When ICHEIC began, none of us had any idea that the commission would become the complicated nightmare that we now live with daily."

Triton's role

Laumann is Triton System's vice president and is responsible for the ICHEIC account. A basement office in her home in Rockville serves as the company's de facto headquarters.

Triton's president, Bernard F. McMahon, was executive assistant to CIA Director Stansfield Turner early in the Carter administration.

McMahon, whose government service included a stint as staff director of the Senate Intelligence Committee, did not respond to requests for an interview. But he said in a letter that the company has about 20 clients a year; he did not identify any.

"These clients are international corporations and wealthy individuals who look to us for technology investments or financial engineering," McMahon wrote. "We do not advertise but receive more referrals than we can accept."

In taking on the ICHEIC as a client in late 1998, Triton treaded into uncharted territory.

Laumann said in an interview that she initially thought the commission would finish its work within two years with operating expenses of about $10 million.

But by February 2000, Eagleburger was projecting costs of more than 10 times that early estimate.

"The companies' offer of $80 million [for administrative costs] is not enough on the most stringent of assumptions," he wrote in a memo to insurance company executives. "We will need, at a minimum, $100 million from now to the end of the life of the ICHEIC. That figure, plus what has been spent over the past year, leads me, inexorably, to a figure of $150 million."

Managing the growing enterprise's financial affairs soon proved too much for Laumann - and Triton - to handle without outside help.

"I don't think you begin to understand the complexity of running an international organization," Laumann said in an interview.

She said special accounting expertise was needed to help with multicurrency transactions. "This was far more complex than the normal accounting process."

She said Triton's accounting manager, whom Muenzel criticized as incompetent, is well qualified. He was a certified public accountant in his native China and passed all the tests required to be a CPA in the United States, she said.

Laumann said she manages the commission's account with the help of her husband, the accountant, and a bookkeeper. A fifth Triton employee works on the account in the commission's offices in Washington.

Laumann said she had been working for Eagleburger for about two years when he asked her to help him get the commission going in late 1998.

"There was a relationship of trust there from handling his personal matters," she said.

At the time, she said, she had 25 years of experience managing executive search firms and experience in leasing offices and hiring.

Muenzel declined to discuss her memo to Eagleburger criticizing Laumann and Triton when reached at her offices in Winterthur, Switzerland. The town and insurance company bear the same name.

Her superior, Urlich E. Thalmann, a senior vice president at Winterthur, also declined to comment on the audit.

Asked about Eagleburger's criticism of Muenzel, Thalmann said, "The professional qualifications of Ms. Muenzel are beyond any question."

Eagleburger said a Swiss accounting firm recommended by Muenzel was brought in to help the commission, and the problems were resolved. He said an external auditor recently completed a review of the books, giving the commission "a clean bill of health." He would not provide a copy of the audit report.

Expensive travel

The ICHEIC's financial records shed light on why its administrative costs have been high.

One ledger shows $136,653 in travel expenses were run up in 1999 by Neil Sher, chief of staff for the ICHEIC's Washington offices, mostly for travel to Europe.

Sher's first-class or business-class airfare to Rome, Berlin and other cities often totaled $5,000 or more per trip. More recent records for Sher, who declined repeated requests for an interview, were not available. He recently resigned from the ICHEIC, where he essentially was executive director.

Other financial records show that, as of Nov. 30, 2000, two years after it was launched, the commission had spent $703,400 on staff travel, $586,548 for travel by commissioners and $296,431 on meeting expenses.

Those traveling at ICHEIC expense to Rome, London and elsewhere for frequent meetings included state insurance regulators and representatives of Jewish groups who serve as ICHEIC observers. As was the case with Sher, their travel expenses were often substantial.

For example, Pennsylvania Insurance Commissioner Diane Koken, chairwoman of the ICHEIC's financial oversight committee, had logged $56,003 in travel expenses by the end of 2000, after less than two years.

During that period, the commission paid for $148,766 in travel by officials with the New York-based Conference on Jewish Material Claims Against Germany. The money covered expenses for an ICHEIC commissioner who represents the claims conference and several staffers who serve as advisers.

Geoffrey Fitchew, who heads the commission's offices in London and serves as ICHEIC vice chairman, defended the travel expenses.

"I don't think any of those who travel to these meetings regard it as some kind of holiday, because I can assure you it is not," Fitchew said.

Frustration and anger

Yet, despite the large sums spent for meetings, travel and consultants, the commission's work has led to settlement offers on only 1.2 percent of the 85,739 claims filed by Holocaust survivors since 1999. ICHEIC officials say that most claims lack documentation - failing to even name an insurance company - and are more like inquiries than claims.

Still, the process has left many survivors who have filed claims frustrated and angry.

Several said they got letters acknowledging their claim was received but heard nothing more from the ICHEIC. Some eventually got responses from the insurance companies denying their claims for lack of evidence; others say they have no idea what is happening.

Alex Moskovic, 71, of Hobe Sound, Fla., a child survivor who lost his parents and siblings to the Holocaust, said he filed a claim in August 2000. He said he got a form letter a few weeks later acknowledging that his claim had been received.

Moskovic said he called about a year ago to report seeing what could be his father's name, spelled slightly differently, on a Web site list of possible policyholders that the ICHEIC had posted. "They told me as long as I had filled out a claim, they would check it out," he said. But Moskovic has heard nothing further.

Pat Webber, a former claims manager at the ICHEIC's London office, complained repeatedly in memos to her superiors that the system the commission had set up was insensitive to survivors and ineffective.

Shortly after resigning last fall, she summarized the problems in a memo to Eagleburger that was circulated widely at the commission.

Webber warned that "claimants will very soon tire of the process in view of the obstacles they encounter and seek alternative remedies" to get claims resolved.

"The process may very soon collapse without producing the results envisaged. ... ICHEIC will exhaust its finance without meeting its objective," she predicted.

In a May 2001 report, Webber voiced alarm about the performance of a key contractor the commission hired to log and process survivors' claims.

She found that 34,000 claims were awaiting processing by Eastgate Insurance Services Ltd. of Gloucester, England. "Over the last eight weeks, just 650 claims per week [were] sent to companies or finalised," she wrote. "It would take a year to clear the backlog of unprocessed claims at that rate."

A year later, 11,033 claims remain to be processed, according to commission records. And 33,030 claims passed along to insurance companies were awaiting action.

In her memo to Eagleburger, Webber criticized what she said was "inappropriate pricing" of the commission's contract with Eastgate.

"Every time the supplier [Eastgate] performs an activity, it is chargeable," she wrote. "There is no incentive for the supplier to be process efficient."

As an example, Webber wrote, a question about a particular claim means a $48 charge by Eastgate to locate the file and another of $48 to answer the inquiry.

She also wrote that Eastgate's claims handling system was insensitive to elderly survivors. The emotion-filled letters they sent with their claims got terse form-letter responses that did not appropriately address their questions or concerns, Webber wrote. "This communication is inadequate for a very sensitive claimant," she said.

Eastgate officials did not return telephone calls seeking a response. However, Eagleburger acknowledged that there have been problems.

"Eastgate has not by any means been perfect in its performance," he said. "We've worked very hard to correct this."

The performance of Eastgate and other contractors are overseen by a staff that works directly for the commission from London and Washington offices.

The Washington office consists of six full-time staff members and one part-timer, with an annual payroll of $990,000, according to commission records. The London office has 11 full-time staffers and one working part time, with a payroll of $900,000.

Eagleburger makes no apology for his $360,000 salary, saying the demands of serving as ICHEIC chairman have cost him money. He said he has had to turn down lucrative speaking engagements and to resign from some corporate boards that paid him substantial fees.

In a recent letter to The Sun, Eagleburger estimated that he was losing $200,000 a year by serving as chairman. In a letter to Waxman in April, he said it was costing him $600,000 a year.

Claiming credit

Responding to criticism, ICHEIC officials, in newspaper reports published this year, pointed to success stories including that of Steven Pridham, 79, of Minneapolis. He got $115,000 in a settlement in January from Allianz, a German insurance company.

But Pridham told The Sun that the commission had little to do with the settlement. He said it came about through the efforts of a private lawyer and a state insurance regulator.

"I don't think they had any role to play," he said of the ICHEIC. "We may have filled out a form and sent it to them, but it wasn't going anywhere."

Kevin M. Murphy, deputy commissioner for Minnesota's Department of Commerce, the agency that regulates that state's insurance companies, said he stepped in to assist Pridham after reading about him in a Fortune magazine article.

He said Allianz's main U.S. subsidiary was in Minneapolis. He contacted officials there about negotiating an appropriate settlement with Pridham.

"We sort of sidestepped the ICHEIC process, and they [Allianz of North America] figured out a way to do the right thing," Murphy said.

The $115,000 paid to Pridham was to settle principal and interest on a $7,000 life insurance policy that Pridham's Lithuanian father had bought from Allianz in the 1930s.

Murphy stressed that he is not critical of the ICHEIC, which he says has "an extremely daunting task and is doing the best that it can."

Disagreement on role

Nevertheless, after more than three years, the commission has yet to resolve whether it should play an active role in making sure insurance companies are following its guidelines in deciding claims.

Some commissioners and staff members believe the ICHEIC needs only to make sure that claims get to the insurance companies and that survivors receive prompt responses, according to a critical internal report issued in the spring.

"On this view, it is not intended that ICHEIC will communicate further with claimants, nor assess the validity of company decisions in individual cases," wrote the report's author, Lord Archer of Sandwell, a member of Britain's House of Lords.

But, Archer said, others see a need for the commission to take a more active role and notify companies when it thinks guidelines for deciding a claim "have been overlooked, or evidence ignored."

Archer, who is not an ICHEIC member, was chairman of a committee that Eagleburger appointed to examine how the insurance companies were deciding claims. It was created after questions were raised about the commission's performance at last fall's congressional hearing.

The committee reviewed 91 "documented" claims. These named a company and had some documentation to back them up, but had been rejected. It found that four out of five had been denied improperly.

In a memo to commission members, Eagleburger said Archer's report "raises serious questions about what ICHEIC's role has been in the past and what it should be in the future."

He also said he was disturbed that the companies "have apparently ignored documentation provided by the claimants that appears to satisfy ICHEIC standards of proof."

Asked why the ICHEIC did not monitor until recently whether its guidelines were followed, Eagleburger said: "We acted once it became very clear that it was something we were going to have to watch. The monitoring committee was my idea. Maybe I came to it late, but at least I came to it."

Later, in a letter to The Sun, he said he saw "little purpose to such a group until there was a sufficient sample of company offers to monitor. That has only recently become the case."

Still, the findings by Archer should have come as no surprise. More than a year ago, an ICHEIC administrator in London warned his superiors to expect such problems.

In a memo dated Dec. 7, 2000, Nigel Kinder wrote that the commission was "proceeding down a path to franchising out its claims handling and appeals process with little or no control over whether ... they are delivered according to ICHEIC standards."

'The greater good'

Companies including Allianz, which was noted in the Archer report, insist that they are not improperly rejecting claims.

"Allianz is complying with the ICHEIC regulations," said Michael Anthony, a spokesman from the company's headquarters in Berlin.

The insurance companies maintain that they have no financial incentive to reject valid claims because doing so doesn't save them money. Money left after claims are paid does not go back to the companies, but is to be used for education, research and other purposes related to the Holocaust.

European insurance companies have pledged more than $350 million - several times what is projected to be needed to cover individual claims.

Token payments of $300 each are slated for people who have claims that are deemed legitimate but lack documentation linking them to a specific company. And a sizable sum could be used for Holocaust education, research and other humanitarian purposes yet to be determined.

"It's my sense that the greater good is going to come from the humanitarian funds that are going to grow out of this," said Glenn Pomeroy, who represented the National Association of Insurance Commissioners on the ICHEIC when the commission was launched.

A behind-the-scenes struggle is being waged among some Jewish groups over control of any leftover money. One grass-roots survivors group wants the money used to provide home care for elderly survivors; other Jewish groups want to tap the funds for broader purposes.

But the more the ICHEIC spends for administration now, the less will be left later. How much less depends on negotiations over what counts as administrative expenses - and how much of that should come from the funds that have been pledged by the insurance companies.

The money pledged by the companies should be more than enough to cover all open claims and the commission's administrative expenses, "unless ICHEIC produces unreasonably high expenses," said Ralf Guetersloh, a spokesman for the German Insurance Association.

He said few claims are being paid out because most survivors - at least those who had lived in Germany - were paid through previous postwar compensation programs.

Guetersloh said the association has concerns about the ICHEIC's expenses but no influence over how it spends.

"We are certainly concerned about stories that ICHEIC's administrative expenses are extremely high," he said. "We do hope that the money will not entirely be spent for ICHEIC's administrative costs."

Eagleburger concedes that the commission could wind up spending more money on administration than on claims. But he said he does not believe that is a good measure of performance.

"I will not agree that this was a great spendthrift operation in the sense this had never been done before," he said. "We're charting new ground. ... The money we have spent has been well spent."

Added Fitchew, the commission's vice chairman, "We have to make every reasonable effort to pay unpaid claims."