When bad things happen to good causes

Semen Domnitser’s despicable conspiracy to defraud a fund for Holocaust survivors proves that that there isn’t a cause scammers won’t exploit.

In July new allegations surfaced concerning what a judge called a despicable conspiracy to defraud the Conference on Jewish Material Claims Against Germany, better known as the Claims Conference, an organization founded in 1951 to supervise and administer several funds that provide reparation payments to Nazi Germany’s victims and their heirs.

The fraud, uncovered in November 2009, resulted in charges against 31 people, including 11 employees of the Claims Conference who worked out of its Manhattan office. One of those charged was a Canadian woman. A lengthy investigation estimated the group had siphoned US$57.3 million from the Hardship Fund and the Article 2 Fund, both financed by the German government.

This year, former Claims Conference ombudsman Shmuel Hollander, who had been terminated, notified the board of directors that “the final sum is in all probability much higher.”

WHO COULD EVER IMAGINE?

The fraud was hardly a complicated scheme. For about a decade, the conspirators, including Claims Conference employees who were tasked with determining that applicants met the criteria for compensation, processed false claims through the two funds. It was likely successful for such a long time because of its audacity: who could imagine anyone taking money from such a deserving cause?

The Hardship Fund provides a one-time payment of approximately US$3,500 to legitimate victims of Nazi persecution who had been forced to leave their homes and become refugees. “Members of the conspiracy submitted fraudulent applications for people who were not eligible,” the FBI stated. “Many of the recipients of fraudulent funds were born after World War II, and at least one person was not even Jewish. Some members of the conspiracy recruited other individuals to provide identification documents, such as passports and birth certificates, which were then altered and submitted to corrupt insiders at the Claims Conference, who then processed those applications. When the applicants received their compensation checks, they kept a portion of the money and passed the rest back up the chain to their recruiters and others involved in the scheme.”

The investigation determined that the Hardship Fund had been defrauded of about US$12.3 million.

“The Article 2 Fund makes monthly payments of approximately US$400 to survivors of Nazi persecution who make less than US$16,000 per year, and either lived in hiding or under a false identity for at least 18 months; lived in a Jewish ghetto for 18 months; or were incarcerated for six months in a concentration camp or a forced labor camp,” the FBI noted. The fraudsters doctored identification documents, changing, for example, an applicant’s date of birth.

“The fraud also involved more sophisticated deception, including altering documents that the Claims Conference obtained from outside sources to verify a person’s persecution by the Nazis. Some of the detailed descriptions of persecution in the fraudulent Article 2 Fund applications were completely fabricated.” The Article 2 losses, investigators estimated, totalled about US$45 million.

According to the New York Post, many of the claimants were Russian immigrants.

THE CONVICTIONS

Following the investigation, which began in 2010, 28 defendants pleaded guilty to various fraud-related charges, while three others claimed innocence. Their cases went to trial, and in May 2013 all were convicted of mail fraud and conspiracy to commit mail fraud.

The most prominent of the three was Semen Domnitser, who was described in court as the ringleader of what US Attorney Preet Bharara called “unthinkable crimes.” A Brooklyn, NY, resident, the Russian-speaking Domnitser, who was 55 at the time of his conviction, had served as the director of the two funds from 1999 to 2010.

According to Forward.com, the prosecutor told the court that recruiters sent blank application forms, signed by Russian-speaking immigrants and their children, to the Claims Conference, where employees then forged documents and made up false survival stories. “After applications were approved, the recruiters demanded thousands of dollars, often paid in cash or money orders, which was then shared with Claims Conference employees.”

In 2008 Domnitser, who had final say over applications, approved claims from two couples who each had almost identical persecution stories. Domnitser was sentenced to eight years behind bars, three years of supervised release and ordered to forfeit US$59,230 and pay restitution of US$57.3 million.

Another person who had pleaded not guilty was 58-year-old Canadian Luba Kramrish, who was caring for her ailing 93-year-old mother, a Holocaust survivor who was bedridden in a Toronto-area nursing home, while Kramrish was on bail awaiting sentencing. According to the National Post, Kramrish’s mother, who had emigrated from Russia to Canada with her family after the war, was a legitimate beneficiary of the funds.

GETTING ENSNARED

“It was while Kramrish was applying for assistance on her mother’s behalf that she became ensnared in the wide conspiracy,” the newspaper said. “When she phoned the funds’ office in New York to check on her mother’s application she spoke with Faina Davidson, a corrupt caseworker.” Davidson, who was among the 28 who later pleaded guilty, received US$2,000 from Kramrish for processing her mother’s claim quickly.

“When word of [Kramrish’s] success spread through her close-knit community in Toronto of Russian-speaking Jews, people started to approach her for assistance with their claims,” the paper said, adding that her lawyer said she took a US$500 fee for putting people in touch with co-conspirators. The US government said she charged up to US$1,500 and submitted 20 to 25 false claims.

Kramrish claimed she never engaged in fraudulent activity. Her lawyer said she was a fringe player who only put legitimate applicants into the pipeline of insiders who processed payments for illegal fees. She was convicted nonetheless, despite imploring the judge not to sentence her to prison. “Please, your honour, don’t let me live with the guilt of not being able to be by [my mother’s] side if, God forbid, something happens,” she said. She was sentenced to 37 months behind bars.

The current ignominy, Spiegel Online International reported in 2010, was not the Claims Conference’s first taste of scandal. “The organization has often been the subject of negative headlines in the past, thanks to dubious managers, a lack of transparency and strange business practices. In 2007, for instance, long-standing [Claims Conference] president Rabbi Israel Singer was forced to resign amid allegations that he had used his position as the secretary-general of the World Jewish Congress to embezzle funds.”

Hollander’s letter to the board also questioned how the Claims Conference conducted business, and especially how it handled the fraud investigation. Hollander noted that Claims Conference officials had received an anonymous tip in 2001 that a fraud was occurring but, after an internal probe, concluded there was no cause for concern.

Although Hollander didn’t provide evidence that the fraud exceeded US$57.3 million, he had earlier written a report on the fraud that asserted the Claims Conference had an “absence of professional control systems [that] constituted a key factor in enabling, and certainly in facilitating, the fraud.”

The fired ombudsman told the Jerusalem Post that the organization had a troubled culture. “The management of the conference very often doesn’t function in a professional manner. It’s very centralized. It wouldn’t listen. When we came to it with systematic problems, like things that weren’t written or implemented equally, it was mad at me.”

POSITIVE CHANGES

The scandal, which went on so long thanks to the corporate culture and lax internal controls, has likely brought about positive changes to the Claims Conference. “Critics have long accused Berlin of not subjecting the [Claims Conference] to sufficiently stringent controls,” Spiegel Online International said. “Officials from the [German] Finance Ministry have [proposed] that the funds should in the future be administered by one of the [Claims Conference] branch offices in Frankfurt or Tel Aviv. This would effectively reduce the power of the headquarters in New York.”

The Claims Conference will no longer accept documents from applicants; they must come directly from archives and government agencies. An internal supervisory unit will conduct spot checks. And US$500,000 has been set aside to retain a firm to monitor the organization’s work. To date, about US$10 million of the defrauded claims has been recovered.

It’s unfortunate that the organization’s noble mandate has been tarnished by fraud and accusations. As Forward.com notes, “In 2014, the Claims Conference paid out US$760 million, a record amount for the world’s 200,000 or so remaining survivors, and this year it anticipates US$900 million in payouts.”

If there’s a lesson for investigators it’s not to assume that those entrusted to do good are always good people. Fraudsters have proven too often that there isn’t a cause they won’t exploit, even the Holocaust.

About the Author

David Malamed


David Malamed, CPA, CA•IFA, CPA (Ill.), CCF, CFE, CFI, is a partner in forensic accounting at Grant Thornton LLP in Toronto.

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