Between the Alps and a Hard Place (24 page)

That organization's workings came to national attention in 1999–2000, after two local lawyers decided they had not received their proper cut of patronage from the Kings County (Brooklyn) courthouse. The lawyers turned over to state officials
(who then brought in the FBI) details of how Brooklyn's Democratic Party controls the appointment of judges, who then hand out lucrative administrative assignments to lawyers who support the Democratic Party. A party insider described these revelations as “radioactive.”
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But the only thing new about the revelations of partisan corruption was that former insiders had made them publicly. That judges in Brooklyn at all levels are selected and work as part of a corrupt party machine has been an open secret for a century.

Unsurprisingly, Judge Korman accepted the non-self-evident contention of the plaintiffs and the World Jewish Congress that they represented vast classes of individuals victimized by the Swiss banks and government—an assertion that the plaintiffs made no effort to document. The judge left the details of the nature of the class, and of the plaintiff's precise relationship with the class, to be worked out as part of the settlement. In other words he allowed the plaintiffs to pursue a campaign of pressure, one result of which would be that the defendants would be forced to agree to the plaintiffs' right to exert the pressure. Judge Korman managed not to express any substantive judgment on either the claim of representation or the substance of the charge. But what he did was enough.

Here is how the banks were made to pay. On December 14, 1997, Undersecretary Eizenstat convened a meeting in Zurich with Switzerland's top bankers, the WJC's Israel Singer, and the plaintiffs' lawyers. Three facts dominated the meeting. First, the Swiss public's increasingly outraged reaction at the campaign made it inconceivable that the Swiss government would meet the Americans' demands. If the demands were to be met, the banks would have to do it. Second, a week earlier Alan Hevesi had gathered like-minded state and local officials, including
many Democratic state treasurers, at New York's Plaza Hotel. The meeting had authorized sanctions (such as withholding licenses and disinvesting in Swiss banks) if the Swiss did not pay. Hevesi had required executives of the main Swiss banks doing business in New York to face this hostile audience. Third, Undersecretary Eizenstat and the Clinton administration feared that the confrontation they had helped set up between their U.S. clients and Switzerland was spiraling into a real international crisis. This could force Clinton to choose between stranding his domestic clients or fighting a battle that the American public would likely disavow. Therefore Eizenstat convened the meeting to broker a settlement.

Although the Swiss bankers were willing to pay, they discussed only sums somehow tied to the dormant accounts. After all, it seemed to them that this is what the fuss was about, and that is why they had agreed to pay for a massive audit of their bank records headed by former U.S. Federal Reserve Chairman Paul Volcker to determine the outer limits of the value of such accounts. What was the point of the Volcker inquiry if they were to pay an amount unrelated to it? But the fuss was not really about the accounts. So, no deal.

The two sides met again, in January 1998, in Eizenstat's State Department office. The U.S. government's participation in private suits had been anathema to American law, based as it is on the distinction between public and private, as well as on official impartiality in private disputes. But Eizenstat, using the influence of his position in the Clinton administration, pressured the Swiss side to negotiate a settlement unrelated to the amount in the dormant accounts. Later, Eizenstat argued that he had acted to bring about “justice.”
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Friends of Eizenstat say that his breach of American legal practice had been for the sake
of sparing the Swiss the worst consequences of “a crazy American legal system.”

The Swiss got the message that they would have to pay an amount unrelated to any objective criterion, and in return asked that any amount agreed upon serve to immunize their banks and their country against further suits. The budding agreement, however, was nipped by the arrival of the WJC's Israel Singer, who managed to anger both the plaintiffs' lawyers and the Swiss with high demands backed by the specter of what his friend Alan Hevesi could do. In subsequent meetings, Singer would bring Hevesi along because, he said, “I didn't want to be shooting blanks.”
⁹

And indeed Hevesi was shooting live ammo. If the banks had not agreed to a settlement, his committee would apply sanctions against Switzerland. More important, he himself would act to deny the operating license for the merger of the Union Bank of Switzerland and Swiss Bank Corporation, which would create UBS, Europe's largest bank. Hevesi had set March 26, 1998, as the deadline. On March 24 he formally objected to the merger, due to take place in July. These banks have hugely profitable operations in New York—some $4 billion per year. Had the two banks not been merging and thus had they not needed a new license, bringing pressure against them would have required moving against existing licenses, something that would have required much more exposure on the part of judges and officials. But in fact Hevesi could bring enormous pressure to bear simply by opposing the new license.

This put Stuart Eizenstat and the Clinton administration in a bind. Foreign policy is supposed to be the exclusive responsibility of the federal government. But now, a city official and like-minded fellow Democrats were about to start a real economic
war that was sure to be more trouble for the Clinton administration than the support of the lawyers and Jewish organizations was worth. And it was a war that the Clinton administration had primed them for, albeit unofficially.

Eizenstat went to New York to try to damp the fire he had done so much to start. At this point the banks could have made a powerful bargaining chip out of the contrast between the Clinton administration's intense desire to avoid an international incident and the substantial unity of Swiss public opinion. But by this time the banks were thoroughly spooked. On March 26 the Swiss formally agreed to Eizenstat's proposal that they stop insisting on merely paying out sums related to the dormant accounts and instead negotiate a higher, comprehensive, “rough justice” amount unrelated to any datum. In exchange for that agreement, Alan Hevesi held off sanctions until June 30. But since he had already objected to the scheduled July merger, he had set up the biggest possible sanction, one that would cost the banks 300 million francs per month.

As the talks moved back to Eizenstat's State Department office, the Swiss government announced that it would not contribute to the settlement. The last public policy connection had fallen away. Now the issue had come down to how much the two banks would pay for the U.S. Democratic Party's permission to do business. In his U.S. government office, but of course unofficially, Eizenstat suggested that the Jewish groups' demands of $1.8 billion and the Swiss offer of $300 million be reconciled at $1.25 billion. On June 30, on Eizenstat's advice, Hevesi formally dropped his objection to the merger. But when the Swiss banks' final offer came in at only $530 million, he angrily vowed to resume the objection. Also, beginning in September, Hevesi's committee of state officials would disinvest
from all Swiss companies the state pension funds they managed. But by then the banks had long since given up thoughts of fighting.

The final act began when Judge Korman—could he possibly have felt the Clinton administration's pain?—invited all parties to dinner near his courthouse, where he asked both sides to outline the case that each would make in a trial. No one doubted that this was in fact
the
trial, though unencumbered by rules or responsibility. Having heard the arguments, Korman advised the defendants that the courts could possibly make them pay far more than what they had offered, and the plaintiffs that conceivably none of their evidence might be admissible in the federal court system—especially in courts of appeal. Since he would have a lot to say about what evidence would be allowed and what amount would be set, he was not “shooting blanks” either. Then he suggested a settlement figure of $1.25 billion. Perhaps serendipitously, this was exactly as much as Eizenstat had suggested. The two sides got the message, and on August 12, 1998 they settled on that figure.

Once the banks, the WJC, and the plaintiffs' lawyers had seen the wisdom of the Clinton administration's recommendation, Alan Hevesi ceased to have trouble with the license. The threat of sanctions evaporated quicker than it had materialized. Officially, Hevesi, Judge Korman, the Senate, and even the Clinton administration had done
nothing
. No votes were recorded, no formal accusations made, no formal actions were taken, no judgment on evidence was made. Everything was done officiously.

So, the resolution of the anti-Swiss campaign came down to the mundane capacity of officials to use public offices for private purposes informally to force private party “B” to pay their friends in private party “A.” In January 1999, as the banks were
setting about paying $1.25 billion over three years—just under 10 percent of profits—Richard Capone of the now merged UBS mused how much cheaper it would have been to buy influence in New York's ruling Democratic Party, just as businesses do with ruling parties in much of the world: “But it never occurred to me that in America we would have to pay bribes.”
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Bribes? On January 26, 1999, Melvyn I. Weiss, lawyer for one of the plaintiffs, declared in court: “Don't ever let the Swiss government get away with saying they are absolved because of this.”
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But absolution is precisely what the settlement agreement says that the defendants bought for $1.25 billion. Judge Korman's provisional acceptance of the settlement agreement closed the five cases in his court. Plaintiffs' lawyers in Brooklyn were able to guarantee that the settlement would also cover the cases in California and the District of Columbia. This showed that the individuals in whose names those suits had been brought had been mere pawns. Nevertheless, although it was certain that the banks would pay money to organizations, it was by no means sure what those organizations would do with the money or even what the banks payments would exempt them, or Switzerland, from.

The agreement began by laying out the plaintiffs' allegations: Switzerland collaborated with the Nazi regime and unlawfully participated “in a scheme” to retain class members' accounts. The Swiss also dealt in looted assets. They profited from slave labor because the Reich's economy during the war depended in part on slave labor, economic resources were fungible, and Nazi Germany deposited in Switzerland some of its proceeds. Finally,
the Swiss tried to cover up their role. Then the agreement stated that the Swiss side did not agree with the allegations, that each side believed that it could uphold its case in court, but that both had chosen the settlement instead: $1.25 billion would purchase the end of the anti-Swiss campaign and preclude further suits relating to World War II. The court stated that it was taking no position with regard to either side's claims, and that it was not about to argue with the parties' agreement—
it had nothing to do with it
. This, of course, was insincere.

On March 30, 1999, the court issued an “Order Preliminarily Approving Material Terms of the Proposed Class Action Settlement Agreement and Provisionally Certifying the Proposed Settlement Classes.” This document further distanced the court from the substance of the accusations and of the agreement by stating at length that the plaintiffs' claim to representation was not “wholly unreasonable” (maybe a little unreasonable?) and lay within the legal boundaries of class action suits. In this regard the document did not go beyond stating that the settlement fell “within the range of possible approval.” What indeed that range may be, and why, the court did not attempt to say.

The document also stated that the settlement “does not disclose grounds to doubt its fairness or other obvious deficiencies, such as preferential treatment of class representatives or of segments of the class, or excessive compensation for attorneys.” Yet the document did not try to define what the proper treatment of class representatives (especially the WJC) might be, nor what any segment of any class should receive. It left these questions to a “special master,” whom the court would appoint within thirty days. Compensation for attorneys was also left up to the “master's” determination and the court's administrative approval at a
later time. The document, in short, delegated the substance of judgment to an administrator.

Finally, the document laid out the classes into which the plaintiffs/beneficiaries were to be divided. These divisions were proper, it said, because the defendants/releasees had agreed to them. But, of course, since the defendants' only interest in the settlement concerned their release from liability, and therefore since they could not have cared less to whom the payments would go, their agreement did not justify the classes. In essence, the court ratified the results of the WJC's pressures on two Swiss banks and set the stage for distributing the proceeds according to the WJC's wishes.

On March 31, 1999, Judge Korman appointed Judah Gribetz to be the “special master” who would draw up the detailed plan to distribute and apportion attorney fees. Part of the city's Democratic machine, Gribetz was not chosen randomly any more than Korman had been. Gribetz had been a member of the Judicial Selection Committee that had “advised” Democratic Senator Moynihan on federal judicial appointments in New York State—the committee that had “advised” on Korman's job. Gribetz was also president of the Jewish Community Relations Council, a compendium of sixty New York Jewish organizations, and a longtime advocate of Jewish causes. The various parties who expected a slice of the proceeds owed much to Gribetz, and he in turn owed much to each of them. In this and in other “special masters” the power of interest groups is clothed with official authority. What began as an interest group campaign clothed first in the garb of morality and foreign policy, and then in that of a judicial proceeding, ended up as a naked interest group play once again.