U.S. finance officials take pains to punish Swiss during impasse

WASHINGTON — In clearing the way for punitive measures against Swiss banks, American public finance officials have unleashed a forceful salvo in what is turning into a war of attrition over Holocaust-era claims.

Ignoring strong objections from the Clinton administration, a commission representing hundreds of state and local finance officials decided on Wednesday of last week to lift a moratorium on sanctions against the banks after settlement talks with Jewish groups reached what one official described as "a total, stone-like impasse."

Several states took immediate action:

*California reimposed sanctions against the U.S. subsidiaries of Credit Suisse, Swiss Bank Corp. and the Union Bank of Switzerland.

*New Jersey's governor ordered the state not to increase its investments in Swiss financial institutions. The New Jersey legislature already is considering a bill that would require the state to divest some $66 million in stock invested with the Union Bank of Switzerland.

*Pennsylvania plans to recommend that its state pension boards not do any new business with Swiss financial institutions. Vermont, Rhode Island and Kentucky also are considering similar moves.

*New York said it would bar short-term investments, among other steps, with the banks if there is not a settlement by Sept. 1.

New York City Comptroller Alan Hevesi, who heads the five-member commission, said he hoped U.S. officials would impose a graduated process of sanctions that would give participants in the negotiations "a little more time to resolve the issues."

Swiss banks lambasted the move and threatened to sue U.S. states or cities that adopt boycotts. The Swiss government called the sanctions "counterproductive, unjustified and illegal," and said the move could disrupt U.S.-Swiss relations and trigger a free-trade dispute.

Talks between Switzerland's three largest banks and Jewish negotiators broke down last month after the banks said $600 million was their final offer to settle claims over Holocaust-era bank deposits.

The World Jewish Congress and lawyers for Holocaust victims rejected the amount as "insulting" and are holding out for a $1.5 billion "global settlement" that would cover all claims against the banks, the Swiss central bank and the Swiss government.

The funds would go to Holocaust survivors and their heirs.

It is not clear after this week's developments where those settlement talks stand. After the Hevesi commission announced its verdict, the Swiss banks reportedly were considering revoking their $600 million offer.

Stuart Eizenstat, U.S. undersecretary of state for economic affairs, who began brokering talks between the two sides last December, expressed disappointment at the lapse of what he called a "historic opportunity for resolving this matter that may not come again soon."

In blunt remarks to the finance officials — made by telephone during last week's daylong hearing — Eizenstat urged them not to slap sanctions on the banks and warned that such a move could lead to a hardening of positions on both sides.

Speaking to reporters earlier in the day, Eizenstat had said that while pressure on Switzerland may have played an important role in the past, "our belief is that sanctions or the threat of sanctions have made the Swiss public more inflexible" and "have contributed to an environment in which further progress becomes more difficult."

Jewish groups, frustrated by what they felt was a lack of good faith by the banks, took a different view of the matter.

Edgar Bronfman, president of the WJC, which in March had asked the finance officials to hold off on sanctions while efforts to reach a settlement continued, told the commission last week that it would no longer stand in the way of such moves.

In an interview the next day, Elan Steinberg, executive director of the WJC, rejected the State Department's concerns about a hardening of Switzerland's stance, saying, "There's no stance to harden. Either you return what was stolen or you don't.

"This is not a bazaar at which we are haggling over a price," he said. "We will win, we will lose, but we won't be swindled. We will struggle for justice."

Other developments last week, meanwhile, also served to ratchet up pressure on Switzerland:

*Lawyers representing five Holocaust victims filed a new class-action lawsuit against Switzerland's central bank to recover plundered gold acquired by Switzerland during World War II.

The lawsuit asks the U.S. District Court in Washington to award compensatory and punitive damages stemming from what it called the "unlawful behavior" of the Swiss National Bank.

The Swiss government and the Swiss National Bank have refused to join the commercial banks in negotiations with Jewish groups and have said they would not be a part of any settlement.

A spokesman for the Swiss government in Bern blasted the suit, saying it is "not justified by the facts, politically unacceptable and legally untenable."

*A separate group of four female Holocaust survivors filed a new lawsuit in California against the three commercial Swiss banks, alleging that the banks' behavior violated California's Unfair Competition Act.

Three of the plaintiffs are Jewish, and the other is a Romani, or Gypsy. The suit, filed last week in state Superior Court in San Francisco, accuses the banks of "knowingly accepting for deposit and concealing the existence of slave labor profits and assets looted by the Nazis." Profits derived from these deposits, the suit alleges, gave the Swiss banks "an unfair competitive advantage over other banking and financial institutions operating in California."

The new suits are in addition to a pending multibillion-dollar class-action lawsuit filed in New York against the three Swiss commercial banks. In the absence of a settlement, lawyers for Holocaust survivors have threatened to pursue that litigation as well.

Eizenstat said the standoff with Switzerland should be resolved in court if agreements cannot be reached, but cautioned against that scenario, which could lead to protracted litigation. "It is very important," he said, that a settlement "be reached quickly and in the lifetime of survivors. This is a race against the clock, and we must, if we possibly can, avoid having a biological solution to this litigation."