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Mr. Chairman, and Members of the Committee:

Good morning. My name is Burt Neuborne. I am grateful for this opportunity to appear before you this morning to discuss moral and legal claims by victims of Nazi oppression for compensation from German corporations that reaped significant unjust profits at their expense by knowingly and willingly participating in Nazi-era crimes against humanity. I am the John Norton Pomeroy Professor of Law at New York University, where I have taught Constitutional Law, Federal Courts, Evidence and Civil Procedure for the past 26 years. I have also litigated widely as a civil rights-civil liberties lawyer, serving from 1982-86 as National Legal Director of the American Civil Liberties Union, and currently as Legal Director of the Brennan Center for Justice at NYU.

I make no claim to academic neutrality on these issues. I currently serve as lead settlement counsel in the federal class action seeking relief against Swiss banks for unjust profits earned as a result of Holocaust-connected activities. The Swiss banks case has been settled for $1.25 billion. I am also serving as an attorney for the plaintiffs in numerous federal class actions seeking relief against German corporations in connection with claims arising out of knowing use of slave labor, knowing participation in the Aryanization of Jewish property, and knowing failure to account for insurance policies owned by Holocaust victims. I appear this morning to acquaint the Committee with the nature of the victims' claims for compensation, and with the current status of ongoing efforts to negotiate a consensual resolution of the outstanding claims of Holocaust victims. I will not attempt to develop a legal claim in this forum on behalf of victims. The parties disagree vigorously on the merits of any legal claim for relief, and that dispute is best dealt with by a federal court. But the parties are in agreement that, whether or not a legal claim for relief exists, humanitarian and moral issues of the highest order are raised by the plight of uncompensated victims of the Holocaust. It is those humanitarian and moral issues that I hope to discuss this morning.

Before beginning my formal testimony, I am delighted to acknowledge the invaluable achievement of Deputy Secretary of the Treasury Stuart Eizenstat in helping to document the facts underlying these claims, and in working tirelessly to persuade all affected parties to find a way to resolve the claims in a just and expeditious manner. I also acknowledge the extraordinary efforts of my co-counsel Melvyn Weiss and Michael Hausfeld, and the numerous other lawyers who have worked intensely on these issues over the past several years, as well as the valuable contribution of Dr. Israel Singer and the World Jewish Restitution Organization.

1. The Nature of the Unresolved Holocaust-Era Claims

Against German Corporations

Three sets of claims are currently being pursued against German corporations on behalf of victims of Nazi-era crimes against humanity. One set of claims is on behalf of the millions of individuals throughout Europe who were forced to perform involuntary labor for German industry and the German government during the Nazi era, and who have never been compensated for the value of their labor, or for the appalling conditions of their confinement. A second set of claims is on behalf of the millions of Germans and Austrians whose property was confiscated in connection with the Nazi Aryanization program, under which virtually all Jewish-owned businesses in Germany and Austria were involuntarily transferred to persons of more acceptable racial stock through forced sales at a fraction of the business' real value. A third set of claims is on behalf of owners of insurance policies who failed to survive the Holocaust, and whose insurance proceeds were retained by faithless insurance companies that simply ignored their duty to locate appropriate beneficiaries.

A common moral thread unites the three seemingly disparate sets of claims against German corporations. In each setting, victims of Nazi oppression charge that German corporations, acting in close cooperation with Nazi officials, knowingly and unlawfully earned substantial unjust profits from the exploitation of innocent victims. In the slave labor context, the unjust profit was the value of the victims' involuntary labor, and the enormous profits earned by wartime corporations through the exploitation of slaves. In the Aryanization context, the unjust profit was the substantial fees charged by German and Austrian banks for acting as the financial agents for the massive forced transfer of ownership of Aryanized property, and the huge profits reaped by the banks in retaining choice Aryanized properties for their own accounts. In the insurance context, the unjust profit was the economic benefit reaped by European insurance companies that made no effort to pay off on insurance policies owned by persons who failed to survive the Holocaust, simply keeping the proceeds as an unjust windfall.

In each of the three settings, German corporations reaped unjust profits by unlawfully exploiting the victims of Nazi persecution. Fundamental principles of restitution and unjust enrichment that have undergirded our legal and moral values since Aristotle teach that no one should be permitted to profit by committing an unlawful act at the expense of another. Instead, the wrongdoer is universally obliged to disgorge the unjust profit to the victim. Victims of the Holocaust now invoke those fundamental tenets of restitution and unjust enrichment. They demanding an accounting of the unjust profits earned by German corporations as a direct result of their unlawful exploitation of Holocaust victims, and the disgorgement of all such unjust profits to the victims.

2. The Scope and Nature of the Slave/Forced Labor Claims

Historians have reached a consensus concerning the massive used of involuntary labor by German industry during WWII. As the manpower demands of the German army accelerated, and as the demands for the production of war materiel increased, German industry found it impossible to staff its factories through the traditional method of voluntarily attracting male laborers. German industrialists initially considered widespread appeals to German women to staff the factories voluntarily, similar to the remarkable voluntary mobilization of America's women that took place in this country during WWII. They were hampered, however, by Nazi ideology that envisaged a rigid role for Aryan women as wives and mothers, not factory workers. Instead, Germany turned to the exploitation of involuntary labor. Although involuntary labor has been documented as early as the improper use of French prisoners of war in 1939, the German slave labor program reached its nadir in 1942 after the appointment of a Nazi official whose principal responsibility was the extraction of involuntary labor from conquered populations in blatant violation of international law. From and after 1942, SS units combed conquered Europe, forcibly rounding up inhabitants for deportation to forced labor camps, where they were required to perform industrial labor under appalling conditions without compensation. German corporations, anxious to meet production schedules and consumed with greed in an effort to earn enormous wartime profits, competed with one another for access to the pool of involuntary labor, often lobbying high Nazi officials for preferential treatment in labor allocations, and actually buying laborers from the SS in formal slave auctions. In company after company, the percentage of the labor force staffed with involuntary workers increased to over 50%. By 1944, twelve million persons had been impressed into involuntary servitude by the SS.

The unjust enrichment flowing to German corporations as a result of its use of unpaid, involuntary labor was immense. Imagine the economic benefit to a wartime economy of being relieved from the obligation of paying wages to more than 50% of your labor force. The fruits of the unpaid slave and forced labor were realized in enormous wartime profits, much of which was paid out to large shareholders as dividends, much of which was reinvested in capital equipment that paved the way for post-war corporate profitability.

The victims of the Nazi slave labor program have never received compensation for their labor. At the close of the war, the Allies initially decided to compensate the victims of Nazi oppression by physically dismantling the German industrial plant, and transferring its assets to the victorious nations for re-distribution to the victims of Nazi crimes against humanity. The Treaty of Paris of 1946 codified the policy of physical liquidation of German industry, and provided an elaborate formula for transferring German industrial property to the victors as the core of the reparations process. If the policy exemplified by the Treaty of Paris of 1946 had been carried out, victims of Nazi slave labor would have looked to the proceeds of the liquidation of German industry for compensation. But the consequences of such a Draconian approach to German reparations would have made it impossible for Germany to re-emerge as an industrial power. By 1948, second thoughts had arisen over the wisdom of a policy that condemned Germany to decades of poverty. Instead of a punitive program of physical liquidation of the German industrial plant, the Western Allies adopted a new policy of reconstruction that sought to rebuild Germany as a stable, prosperous democracy. The Western Allies decided to postpone consideration of claims by slave laborers until German industry was able to recover its economic health, and a comprehensive peace treaty ending WWII was signed. The new policy was codified in the London Debt Agreement of 1953, that explicitly "postponed" consideration of claims against German corporations arising out of the Nazi era until sometime in the indefinite future when a final settlement of the reparations issues would be achieved pursuant to a general peace treaty. Thus, in 1946, slave laborers were initially told to look to the proceeds of the liquidation of German industry for their compensation. When the liquidation approach failed, slave laborers were told, from and after 1953, that their claims had been postponed until the indefinite future. When the Cold War made it impossible to achieve a final peace treaty ending WWII, the postponement provisions of the London Debt Agreement remained in effect for more than 50 years. Finally, in 1991, the Allies entered into the 2+4 Treaty with the then two-Germanies, ending the reparations phase of WWII, and finally lifting the "postponement" of slave labor claims imposed by the London Debt Agreement.

Nor were slave laborers compensated pursuant to internal German reparations programs. Several German firms made token payments to slave laborers in the 1950's and 60's, but the amounts involved were nominal. Germany itself made token payments to Eastern European Reconciliation Foundations in the 1990's, but, once again, the amounts were nominal. Germany itself expended substantial sums in reparations, but the reparations programs explicitly excluded Eastern European slave laborers, and explicitly declined to provide compensation for the value of involuntary labor, even for Germans.

Thus, a combination of the "postponements" imposed by the international community from 1946-91, and the failure of the German reparations programs to include compensation for forced laborers, left the involuntary labor population with no remedy for more than 50 years. To its credit, the German Federal Constitutional Court ruled in 1996 that claims against German corporations by slave laborers were no longer blocked by international law. Numerous legal claims for relief were filed in the wake of the decision of the German Federal Constitutional Court. Faced with numerous legal claims by slave and forced laborers in both German and United States courts, and cognizant of strong moral claims that transcend any legal theory, Chancellor Schroeder pledged during his successful election campaign to attempt to find a means of resolving the outstanding claims of slave laborers.

Representatives of German industry, responding to Chancellor Schroeder's concerns, and to the increasingly large number of lawsuits filed against German corporations doing business in the United States, suggested the creation of a massive German foundation, governed by a Board of Directors of eminent international persons and funded by contributions from German industry and the German government, that would make expeditious payments to surviving involuntary laborers in complete satisfaction of present and future legal claims against German corporations. Interested parties, including lawyers for the victims, representatives of German industry, representatives of interested governments, and non-governmental organizations representing the victims, have been meeting in Bonn and Washington., D.C., under the auspices of the United States and Germany, since March in an effort to reach a negotiated resolution of the slave labor claims. The United States delegation has been ably headed by Under Secretary Stuart Eizenstat. The German delegation is currently headed by Dr. Otto Graf Lambsdorff, whose candor and common sense have provided significant assistance to the negotiators. The next negotiating session is scheduled for Washington, D.C., on October 4, 5, and 6.

It is fair, I believe, to report that the negotiators have made substantial progress on every issue except the size of the fund. Although more work remains to be done, the negotiators have successfully discussed the nature of the foundation, its governance structure, criteria for eligibility for payment, and methods of assuring German industry future legal peace. Without intruding into the negotiations process, I will attempt to explain the difficulties the negotiators are experiencing in reaching agreement on the appropriate contribution to the fund.

The negotiators quickly agreed that Nazi era involuntary laborers should be divided into categories that respond to the severity of the conditions of labor. Three categories appear to be appropriate: (1) slave laborers, who were confined to concentration camps and subjected to the harshest conditions of labor; (2) forced laborers, who were deported or displaced from their homes and compelled to perform industrial labor; and (3) other involuntary laborers, including agricultural laborers. The parties have agreed that payments from the fund should contain a differential between slave, forced and other laborers designed to reflect the relative harshness of the conditions of labor.

The negotiators then turned to the task of quantifying the number of laborers falling into each category. Negotiators for the victims reluctantly agreed that it was impossible to provide compensation for all 12 million involuntary laborers. Tracing the heirs of persons who failed to survive, and the sheer number of persons involved, would have rendered the plan impracticable. Accordingly, the negotiators agreed to restrict direct payments to surviving laborers. The negotiators agreed that the most appropriate method of acknowledging persons who failed to survive was the creation of a substantial "future and remembrance" fund designed to honor their memory by supporting programs designed to assure that the evils of the Nazi era never occur again.

Negotiators for the victims then attempted to identify the number of surviving laborers in each category. They were aided in their efforts by Professor Lutz Neithammer, a distinguished German academic teaching at the University of Florence, who conducted a painstaking analysis of the number of surviving involuntary laborers at the request of the German government. Extrapolating from Professor Neithammer's latest report, I estimate that approximately 300,000 slave laborers are currently alive. While it is possible to identify the German companies that used slave labor, and even to identify the particular concentration camps that provided labor to each German company, it is impossible at this stage to allocate the number of survivors per company, or even to allocate the surviving slave laborers who worked for German industry and slave laborers who worked for a German government entity. The best estimate appears to be 50% allocated to German industry, and 50% allocated to the German government. The figure is relevant only insofar as it guides the relative contribution to the fund from government and industry.

It also appears that there are approximately 1.25 million surviving forced laborers, consisting of approximately 700,000 deportees, and 500,000 displaced workers. Once again, substantial records exist of the location of work camps, and the companies that received labor from the camps, but it is impossible to allocate forced labor survivors to particular companies at this stage, or to allocate the surviving laborers between government and industry. The best estimate allocates 70% to industry, and 30% to entities of the German government.

Finally, it appears that approximately 825,000 deported or displaced forced agricultural laborers have survived.

The sheer volume of surviving laborers makes it clear that any defensible effort to provide a modicum of compensation to the involuntary labor population will require a significant contribution to the fund from both German industry and the German government. Whatever the amount, however, it will be considerably smaller than the amount that would have been necessary to compensate the millions of workers who did not survive the 50 years it has taken to deal with this issue. Using the $20,000 figure awarded by the United States to the thousands of Japanese-Americans placed in detention camps during WWII as the closest analogy, negotiators for the victims have suggested that each surviving slave laborer should receive $30,000; each surviving forced laborer $10,000, and each surviving agricultural laborer $6,500. The per capita figures suggested by negotiators for the victims are quite modest, translating into a $3,000 principal payment to each slave laborer, and an interest component for 50 years delay in payment of $27,000. The similar calculation for forced laborers yields a principal payment of $1,000, and an interest component of $9,000. Agricultural laborers would receive a principal payment of $650, with an interest component of $5,850.

We have also suggested that the future and remembrance fund, designed to honor the many millions of workers who failed to survive, should not be less than $4 billion.

Negotiators for German industry claim to be surprised by the magnitude of the numbers, despite the fact that we are using the figures provided by the German government's expert, and despite the fact that our suggested per capita amounts are based on the closest analogue - the American treatment of interned Japanese-Americans. Thus far, German negotiators have declined to respond to our suggested figures, stating that a $20 billion fund jointly financed by German industry and the German government is out of the question. By declining to respond to our reasoned effort to quantify the fund's size, the German negotiators have made future negotiations extremely difficult. Although the parties are scheduled to meet again in Washington, D.C., on October 4, 5, and 6, I am saddened to report that, in the absence of a good faith response to our effort to quantify the fund, negotiations will be at an impasse.

Negotiators for German industry have also informed us that no payments will be made to slave and forced laborers unless an agreement is reached insulating German industry from litigation concerning profits from Aryanization, and failure to account for insurance policies owned by Holocaust victims. There is no principled reason why such a resolution should not take place, but a reasoned assessment of the unjust profits earned by German banks by acting as the financial agents for the Aryanization program, and an assessment of the unjust profits earned by German insurance companies as a result of the failure to have responded to Holocaust-era insurance policies must be calculated. Such a calculation will undoubtedly add significantly to the size of the fund, especially its "remembrance and future" component. Initial calculations suggest that German banks reaped at least $2 billion in unjust profits, and that German insurance companies reaped at least $1 billion in unjust profits.

3. Prospects for the Future

Count Lambsdorff closed the most recent round of discussion in Bonn with the dramatic observation that "we are doomed to succeed. Fate demands it." All parties accept the wisdom of Count Lambsdorff's words. Having made real progress during the past seven months toward resolving moral and legal issues arising out of the Nazi era that have resisted resolution for 50 years, it would be tragic if the negotiators were unable to find reasoned avenues to compromise with our goal in sight. It is impossible, however, to fashion cut-rate solutions to real moral problems. The willingness of German industry and the German government to recognize their respective moral obligations to deal with the unjust profits earned by German industry during WWII, regardless of a binding legal obligation, deserves genuine admiration. A voluntary decision by German industry that seeks to atone for past moral wrongs creates an enormously important and highly visible precedent that will help to make the future a more civilized place. But the German moral gesture loses its significance if the material consequences of the gesture do not match the suffering and the unjust enrichment that made it necessary. German industry reaped immense unjust profits during WWII. A moral gesture of atonement that does not disgorge a portion of those profits to the surviving victims, and set aside another significant portion of those profits to remember those who did not survive, cannot purport to put an end to the moral controversy in this millennium. Indeed, it is almost certain to precipitate increased bitterness, and calls for reprisals.

I look forward to receiving a reasoned counter-offer from my German colleagues so that we can attempt to reach an expeditious and honorable solution to this controversy. An historic opportunity for moral growth is within our grasp. If, however, no reasonable counter-offer is forthcoming, let there be no misunderstanding. Those of us who have devoted the past several years to an effort to provide Holocaust survivors with a modicum of justice will not give up the struggle. If courts can provide relief, we will seek justice in court. If government sanctions can obtain relief, we will seek government sanctions against corporations that fail to disgorge unjust enrichment. If popular disapproval can stimulate just behavior, we will conduct a public education campaign designed to acquaint our fellow citizens with the facts. If current negotiations fail to reach a just resolution of these issue, we will exhaust every lawful avenue open to us in a search for justice for the victims of the Holocaust.