I.C.E.P.

INDEPENDENT COMMITTEE OF EMINENT PERSONS


MEMORANDUM

November 19, 1996


Audit Firm Mandate and Instructions - The First Phase


I.      INTRODUCTION

      (1)      This memorandum provides the mandate and instructions to audit firms to implement the work program of the Independent Committee of Eminent Persons (the "Committee" or "ICEP") under a Memorandum of Understanding ("MOU") of May 2, 1996, between the World Jewish Restitution Organization ("WJRO"), the World Jewish Congress ("WJC") (representing also the Jewish Agency and Allied Organizations), and the Swiss Bankers Association ("SBA").   After introductory material, this memorandum describes the mandate and instructions to audit firms for the first phase of audit work, including preparations for audits of Swiss banks and pilot audits of five of these banks. This is a painstaking and time-consuming process, here. Speaking of this, we can say that it is worth producing such a thing together with someone.

II.      THE ROLE OF THE ICEP

      (2)      ICEP was established to conduct an investigation to determine whether there are any dormant accounts and other assets and financial instruments of the victims of Nazi persecution that were deposited before, during, and immediately after the Second World War in banks located in Switzerland.   The MOU provides that the ICEP will appoint an international auditing firm to implement this mandate and instruct the firm as to the scope of its duties.   The ICEP met on August 14, 1996, and, among other actions, authorized a subcommittee to interview international audit firms operating in Switzerland to ascertain their views on the means, methods, and personnel that would be employed to carry out the mandate of the ICEP as established by the MOU.   Six major international auditing firms including Arthur Andersen, Atag Ernst & Young, Deloitte & Touche Experta, KPMG Peat Marwick, Price Waterhouse, and STG-Coopers & Lybrand, responded to this invitation, and presentations were made by each of these firms to the subcommittee on September 12 and 13, 1996.   In addition, on November 4, 1996, in response to a request from the Committee, these six firms submitted formal proposals that confirmed their agreement to implement the mandate, described their program for implementing the mandate, including the personnel and other resources that will be employed, and furnished the ICEP with the amount of the charges for their services.

      (3)      In the light of the MOU, the presentations made to the subcommittee, and the proposals submitted by the six international accounting firms, this memorandum establishes the mandate of the audit firms and provides the instructions to the audit firms that have been selected as to their duties, functions, and procedures for the First Phase of the work of the ICEP which will consist of a program to prepare for audits, followed by pilot audits of five Swiss banks.

III.      BACKGROUND

      (4)      The persecution of minorities by the Nazis and others, prior to and during World War II, made it likely that many of the victims sought to move their assets to safety in neutral or Allied countries.   In view of neutral Switzerland's borders with the perpetrators of this persecution, Swiss banks and other Swiss financial intermediaries were recipients of at least some of the assets in search of safety.   The loss of life that accompanied the pre-war and wartime persecution has resulted in the concern that the victims were unable to claim these assets entrusted to others for safekeeping, and that they remain as dormant accounts in the institutions in which they were placed for safety.

      (5)      In 1962, the Swiss Government adopted a Federal decree, that applied not only to banks, but to every person in Switzerland in possession of unclaimed assets belonging to victims of racial, religious, or political persecution by the Nazi regime, designed to identify and describe any unclaimed assets that belonged to the victims of persecution.   At that time, SFr. 9.5 million were reported to the Federal authorities, 75 percent of which were distributed to the rightful owners, and the remaining 25 percent to the Swiss Jewish Society and the Swiss Organization for Refugees.

      (6)      Nevertheless, concerns still remain that there are unclaimed assets that had been deposited with Swiss banks.   In response to these concerns, the SBA launched a survey of Swiss banks, and on January 2, 1996, the SBA announced the interim results of this statistical survey that identified a total of 775 accounts amounting to SFr. 38.7 million that had been opened by foreign customers before May 8, 1945, and that had been dormant at least since 1985.   Since the interim results of the SBA survey have been published, some banks have identified additional accounts and amounts of foreign customers, which the SBA estimates could increase the total amount of such dormant accounts by 10 percent.

      (7)      Continuing concerns that an independent investigation be made of dormant accounts led to the formation of the ICEP.   It is for the purpose of initiating this independent investigation that the First Phase mandate and instructions contained in this memorandum have been formulated.

      (8)      The assignment of the Committee is of historic importance.   The goal of the ICEP is to conduct a comprehensive, thorough and independent investigation that can satisfy the reasonable demands of public opinion that these matters be definitively settled.   In carrying out this task, the intention of the ICEP is to provide as clear answers as the presently existing record will now permit about assets entrusted by victims of Nazi persecution to the custody of banks in Switzerland through an intensive investigation based on unfettered access to relevant Swiss bank files and personnel.   In the same manner, the investigation will examine the methodology of the Swiss banks, the SBA and the office of the Ombudsman as regards the search for accounts and assets in question and to record its conclusions.   The Committee fully recognizes the great difficulty of the task ahead as it requires following an audit trail that is now dimmed by the passage of more than fifty years.   Because of the historic importance of the work assigned to the Committee and its difficulty, extraordinary efforts of forensic auditing and historical analysis will be required by the auditors, and usual audit practices, such as sampling to verify the accuracy of records, must be effectively supplemented by the more rigorous disciplines of forensic auditing.

IV.      FIRST PHASE MANDATE AND INSTRUCTIONS

      (9)      The major objective of the investigative audit of Swiss banks to be governed by this mandate and instructions is to determine whether there are any previously unreported dormant accounts and other assets and financial instruments that were deposited or otherwise conveyed to the custody of Swiss banks before, during or immediately after the Second World War, regardless of the domicile of the client (hereinafter "dormant accounts").   The scope of the audit includes not only the determination of the existence of previously unreported dormant accounts, but also an examination of whether there were accounts that would presently exist as dormant accounts in Swiss banks but for the fact that actions by the depository Swiss banks or others caused these accounts to be categorized as other than dormant accounts as a result of actions that were inconsistent with the banks' legal or fiduciary duties.

      (10)      In carrying out this audit, with respect to each bank audited, the auditors shall, inter alia, examine bank records and other available sources of information to determine:
  1. The scope and effectiveness of

    1. the methodologies and guidelines of the SBA and the office of the Ombudsmen, and

    2. the methodologies and implementation procedures of individual Swiss banks, as well as the banks' compliance with Swiss laws and regulations, as well as directives of the SBA,

    as regards previous searches for dormant accounts;


  2. the accuracy and integrity of bank record keeping for accounts that became dormant accounts both before and after they became dormant accounts, and compliance with Swiss laws and regulations on destruction of bank records;

  3. policies and practices on the payment of interest on dormant accounts, as well as with respect to the application of fees and charges on such accounts, including any differences in such interest, fees and charges for dormant accounts compared with accounts held by persons with non-dormant accounts;

  4. the number of dormant accounts, the total value of the amounts in these accounts; the number and the total amount in such accounts where there have been contacts with account holders or other authorized persons since 1945; and an estimate on how much of the total amount of such accounts may have been opened by persons who were victims of persecution for religious, racial or political reasons during the period 1934-1946.

      (11)      The Auditors shall determine whether or not there is any evidence of:
  1. any deliberate or inadvertent record keeping errors or misclassifications of accounts, missing records, irregularities in record keeping, as well as any evidence of misapplication or embezzlement of dormant accounts; and

  2. any lapses from accepted standards of ethical behavior expected of bank or other fiduciaries at the time any such actions were taken.
      (12)      In addition, to cooperate fully with the historical and juridical investigation to be established by the Swiss Government under legislation now pending before the Swiss Parliament, particularly with respect to the focus of this investigation on the identification of any assets that may have been looted by the Nazis and placed for safekeeping in Switzerland, the auditors shall report to the ICEP any evidence relevant to this investigation that comes to their attention in the course of conducting the audit as instructed in this Section IV, including evidence of accounts containing looted assets or information indicating a breach of fiduciary duty by fiduciaries, so that the ICEP can take appropriate action on a case-by-case basis to report this information to the Swiss Government.

      (13)      For the purpose of implementing this mandate and instructions the following definitions shall apply:
  1. The term "account" means accounts, assets or financial instruments of every kind, including, but not limited to cash, securities, art, jewelry, collectibles, gold and other valuable metals, held by a Swiss bank in any form and under any legal regime, e.g., general deposits, special deposits, safety deposit boxes or other trust, custody or funds management arrangements.

  2. The term "dormant account" means an account
    1. with respect to which there have been no withdrawals or additions by, and no correspondence or other contacts with the account holder(s) or their representative(s) or with the beneficiary(ies) for a period of at least ten years in arrears from November 1, 1996; or

    2. whose holder(s) or representative(s) (physical person(s) or legal entity(ies)) are connected with the bank and with respect to which the only activity for a period of at least ten years in arrears from November 1, 1996, have been charges of fees and/or costs of administration or other action by the bank.
V.      THE FIRST PHASE OF WORK - PREPARATIONS AND PILOT AUDITS

      (14)      The First Phase of the audit work shall consist of data gathering and analysis to prepare for the pilot audits, followed by pilot audits of five Swiss banks.   The first three months of the First Phase shall be devoted to preparing for the audit.   To carry out this First Phase, a preparatory committee shall be established which shall be composed of a chairman and members selected by the ICEP taking into account the recommendations of the audit firms.   This preparatory committee will have the responsibility for gathering information that is necessary to prepare for the audit and for assigning the work projects specified in this Section V or otherwise approved by the ICEP to the individual selected audit firms for implementation.

      (15)      In developing the necessary information, including the information referred to in paragraphs (16) and (17) below, the audit firms should draw upon their knowledge and experience about the Swiss banking system and Swiss bank procedures and controls, and where such knowledge exists in the audit firms they should not perform de novo research to develop this information.   In addition, to expedite the preparatory work, on-site visits to banks to obtain information from records and personnel, as well as the use of questionnaires directed to banks, techniques which are expected to be used extensively in the pilot audits and in the Second Phase audits, should be minimized in the preparatory work, and used where necessary to form an overview of operational methods and procedures to serve as a basis for on-site auditing in the pilot and Second phases of the audit program.

      (16)      As part of this preparatory work, an analysis shall be made of the procedures, methods and techniques that were used by the victims of Nazi persecution to place assets with Swiss banks, and include:
  1. the timing of historical events that created the atmosphere that generated the flow of assets in search of safekeeping, taking into accounts any contemporary records or reports, including reports of the destination of such funds from newspaper reports or other contemporary documents;

  2. in connection with (a) above, an analysis of the usefulness to the audit of any official or other documentation that recorded capital or other financial flows into Switzerland, as well as any other contemporary official documents such as the 1945 Swiss census of German assets in Switzerland, and the "Safehaven" documents in the archives of the United States and the United Kingdom;

  3. a review of the records of the Swiss bank Ombudsman and other accounts of victims’ claims to assets in Swiss banks for any assistance such records may provide in conducting the audit;

  4. a list of the names of the Swiss banks that were open in the 1934-1946 period, as well as any available information on the likelihood of their having received assets from victims of persecution, and, if they no longer exist, the place of disposition of their records;

  5. the procedures and methods used to open accounts that later became dormant;

  6. an analysis of balance sheets and other financial data that may be available on Swiss banks during the period 1934-1946 to determine their usefulness in carrying out the audit objectives;

  7. a compilation of the laws and regulations in Switzerland governing the opening of accounts during the 1934-1946 period, and record keeping with respect to such accounts from the time of opening until the present; and

  8. the Swiss laws and regulations, and bank policies and procedures, for paying interest and crediting dividends; as well as for assessing fees, commissions or other similar charges, on open and dormant accounts from 1934 to the present.
      (17)      As part of the First Phase preparatory work, the preparatory committee shall also:
  1. review the work of previous surveys of dormant accounts in 1962 and 1996;

  2. review the record keeping practices of individual banks at the time of account opening during the 1934-1946 period, and subsequently; the banks' practices with respect to the retention and destruction of records including account opening, closing, transactional and other record keeping; records storage or archiving systems; the chain of custody for relevant bank records, and other related matters relevant to the audit; all as may be necessary to establish a general understanding of such bank facilities and systems as a basis for the auditing of individual banks in the pilot audits and in the audits to be made in the Second Phase.

  3. determine the feasibility of creating a database of all accounts opened by Swiss banks in the period 1934-1946 and of any relevant information available on such accounts up to the time of closing of such accounts; and

  4. for the purpose of making the pilot audits, recommend for selection by the ICEP for inclusion in the pilot audits two offices of the largest Swiss banks, one Cantonal bank, one private bank, and one regional bank, based upon the probability that they would have been likely to have received funds in search of safety because of a reputation as a recipient of such funds, or because of a location close to a border.
VI.      THE FIRST PHASE PILOT AUDITS

      (18)      Once the preparatory work provided for in Section V has been completed, and the ICEP has chosen the Swiss banks to be audited in the pilot audit program, as well as the audit firms to audit these banks, the auditors shall promptly commence the pilot audits of the banks so selected.   In making this audit of Swiss banks, the auditors shall, in consultation with the ICEP, employ all necessary auditing and investigative techniques and procedures, including the examination of records, the interview of bank personnel and others with knowledge of the matters under review, and data analysis using advanced data processing techniques.   The ICEP expects the pilot audit program to take three months.   The principal objective of the pilot audit program is to assist the ICEP in developing final audit instructions for the Second Phase audits.

      (19)      With respect to access to information and bank secrecy, the MOU provides that the SBA will assure the auditors unfettered access to all relevant files in banking institutions regarding dormant accounts and other assets and financial instruments deposited before, during and immediately after the Second World War.   In addition, representatives of the Swiss Banking Commission ("SBC") have assured the ICEP that the SBC will cooperate with the ICEP with a view to assuring that information requested by the audit firms of banks will be made available to them.   However, the ICEP itself would be subject to the information availability restrictions of Swiss bank secrecy law.   Nevertheless, the SBC has also assured the ICEP that it would be able to have access to all the information developed by the auditors except for the names of account holders or information that would necessarily reveal the name of an account holder and the auditors are so instructed not to provide such information to the ICEP.   The SBC representatives also confirmed that the audit firms could use non-Swiss personnel from their offices outside of Switzerland to assist in the performance of the audits.

VII.      REPORTS

      (20)      Auditors shall keep such logs and records of their work as necessary to document fully the techniques and procedures used to carry out the audit as well as all actions taken during the course of the audit.   The preparatory committee shall prepare brief progress reports for the ICEP on the results of their work at monthly intervals, and a comprehensive report on the conclusion of the preparatory work.

      (21)      Each audit firm selected to audit a bank or banks in the pilot audit program shall make a brief progress report to the ICEP at the end of each month of work and a final comprehensive report on the pilot audits that shall include a description of the auditing methods and procedures, of all information reviewed, all findings and conclusions, as well as their recommendations for any changes to the scope of the audit.   Counsel to the ICEP will receive the reports of the preparatory committee and from the audit firms in the First Phase, and will serve liaison as a contact point for conveying any further instructions from the ICEP, as well as to receive comments from the audit firms conducting the pilot audits.   Responding firms should be aware that price of services will be only one of the factors that will be taken into account in making the selection of firms to carry out the audit.

VIII.      THE SECOND PHASE

      (22)      Based on the preparatory work and pilot auditing in the First Phase, the ICEP will formulate a final mandate and instructions for the auditing of the Swiss banks that the ICEP determines are to be audited taking into account the advice of the audit firms.   The ICEP, after consulting the audit firms, will designate the banks to be audited by each firm and will take the necessary steps to establish reporting requirements and coordinate the work of the audit firms in order to obtain comparable results.   The ICEP now expects this Second Phase to begin in June 1997 and to be completed by approximately June 1998.



Members: Mr. Paul A. Volcker, Chairman; Mr. Reuben Beraja, Mr. Avarham Burg, Prof. Dr. Curt Gasteyger, Prof. Rene Rhinow, Prof. Dr. Klaus Jacobi, Mr. Ronald S. Lauder.
Alternates: Mr. Hans Baer, Mr. Zvi Barak, Dr. Pieder Mengiardi, Mr. Israel Singer.


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