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A historic $1.25 billion settlement of all Holocaust-related claims against Swiss governmental and business entities was approved yesterday by the chief judge of the U.S. District Court for the Eastern District of New York in an opinion that was pointedly critical of the Swiss response to the survivors’ “moral” and “legal” claims. Reflecting the grudging negotiations that led to the settlement, Judge Edward R. Korman imposed a condition on his approval that the two Swiss banks, which are the lead defendants in the class action, have threatened will scuttle important concessions negotiated in recent months. Korman also vowed to withhold the benefits of the settlement from hundreds of Swiss banks unless they are more forthcoming in their treatment of Holocaust claims. Roger Witten, a partner at Wilmer, Cutler & Pickering who is lead counsel for the two Swiss banks, USB and Credit Suisse, expressed optimism yesterday that any disagreements with Korman will be surmounted in future negotiations. Yesterday’s opinion approved a settlement negotiated in August 1998 providing $1.25 billion to compensate the claims of Nazi victims who were unable to recover Swiss bank accounts established during the war years. The class action also sought the recovery of assets looted from victims of Nazi persecution and deposited in Swiss banks, as well as compensation for the heirs of those who were forced to work as slave laborers during the war. A three-year investigation, headed by former Federal Reserve Chairman Paul Volcker, uncovered 54,000 Swiss bank accounts, potentially created by persons attempting to safeguard their savings from Nazi confiscation. The estimated value of those accounts alone exceed the $1.25 billion settlement fund, according to the estimate of the Volcker commission. The refusal of the Swiss Federal Banking Commission to endorse steps that the Volcker panel found essential to assuring maximum compensation to Nazi victims drew Korman’s ire. Specifically, the Swiss banking commission refused to mandate the creation of a centralized computer database of 4.1 million bank accounts established in Switzerland during the war years. The Volcker commission said such a database is critical to ascertaining the validity of claims to accounts left dormant in the wake of the Nazi persecutions. The failure to create such a database, Korman wrote, “is nothing less than a replay of the problems addressed in this case.” Those problems, he noted, were reflected in the Volcker panel’s findings that in many cases Swiss banks had been insensitive “to the efforts of victims or heirs of victims to claim dormant or closed accounts,” and had shown “a general lack of diligence — or even active resistance — in response to earlier private and official inquiries about dormant accounts.” In the absence of a centralized database, Korman noted that USB and Credit Suisse, Switzerland’s two largest banks, had agreed to run a computer check of all claims against their own databases of accounts established during the war. But Korman pointed out that hundreds of other Swiss banks have refused to take similar measurers. Rather than let those banks’ recalcitrance scuttle the accord, the judge ruled that they would not get the benefit of the general release from claims unless they agreed to search their own records. Korman also directed that the banks must publish the names of any accounts in their institutions among the 54,000 identified by the Volcker commission to get the benefit of protection from future claims arising out of the Holocaust. A similar dispute marred resolution of the slave labor claims. Korman pointed out In re Holocaust Victim Assets Litigation, 96 Civ. 4849, that Swiss authorities had been unable to identify which Swiss companies — most of them subsidiaries of German corporations — might have used slave labor. Without knowing which companies they were, the judge noted, it would be unlikely that heirs of people who had worked as slaves would be able to make claims. As part of his approval order, Korman required any company that believed it might have used slave labor to identify itself in order to benefit from the release. To date, three Swiss companies, believed to have used approximately 2,500 slave laborers, have been identified. Melvin Weiss of New York-based Milberg, Weiss, Bershad, Hynes & Lerach, one of the lawyers representing the plaintiff class, estimated that about 35 Swiss companies may have used slave labor. Lawyers for the Swiss banks declared Korman’s demand that Swiss companies identify their use of slave laborers unacceptable. They threatened to scuttle important provisions negotiated in the last year in response to comments received at the fairness hearing held in December. One of those provided for Swiss insurance companies to contribute $50 million for the settlement of Holocaust claims. But Korman wrote that he doubted the Swiss insurance companies would walk away from their agreement because they would want to get the benefit of the release. If USB and Credit Suisse refuse the most recent modifications, the judge vowed that he would approve the settlement as initially negotiated in August 1998. He also warned the banks that their most important concession — their promise to search a computerized database of their records to determine the validity of claims to abandoned accounts — would be enforceable even if they sought to jettison it. Backing away from that commitment, he wrote, would be “a breach of the contractually implied duty of good faith.”

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