Senate Banking Committee - Official Correspondence


February 5, 1998

The Honorable Alan Greenspan
Chairman
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20551 



Dear Chairman Greenspan: 


On December 8, 1997, the Swiss Bank Corporation ("SBC") and the Union Bank of 
Switzerland ("UBS") announced a proposed merger. The new entity would be the 
second largest bank in the world in terms of assets. I am writing to urge the 
Federal Reserve Board not to approve any notice or application resulting from 
this proposed merger concerning the scope or status of the operations of these 
banks in the United States, pending the outcome of a thorough investigation by 
the Board and ongoing inquiries by other authorities into the conduct of these 
banks concerning the disposition of assets of Holocaust victims and their heirs, 
as well as their record of collaboration with the Nazis during World War II. In 
addition, the Board should not approve any notice or application pending the 
outcome of a complete and independent investigation into the reckless operation 
of UBS's global equity derivatives activities. 


Under the International Banking Act of 1978, the Board may not approve an 
application to establish a branch or an agency in the United States unless it 
determines that: (A) The foreign bank and any parent foreign bank engages 
directly in the business of banking outside the United States and is subject to 
comprehensive supervision or regulation on a consolidated basis by its home 
country supervisor; and (B) The foreign bank has furnished to the Board the 
information that the Board requires in order to assess the application 
adequately. The effectiveness of the regulation of these banks, especially UBS, 
by their primary supervisor, is open to serious question. In addition, the Board 
should obtain all pertinent information and documentation about the actions of 
both banks concerning the disposition of assets of Holocaust victims and their 
heirs, and their record of collaboration with the Nazis. 
SBC and UBS have yet to provide answers to a host of questions regarding their 
conduct regarding the disposition of assets of Holocaust victims and their 
heirs, as well as their record of collaboration with the Nazis during the war. 
According to over two years of research by the Senate Banking Committee, four 
Congressional hearings, the eleven-agency Administration report known as the 
Eizenstat Report, and the preliminary report of the Bergier Historical 
Commission in Switzerland, the evidence is overwhelming that these banks 
participated in an ongoing conspiracy to conceal and prevent the recovery of 
assets deposited in their banks by victims of the Nazi regime and laundered 
funds deposited by the Nazis that were taken from victim nations and 
individuals. 


In a report by the Independent Commission of Experts (Bergier Commission), "Gold 
Transactions in the Second World War: Statistical Review with Commentary," it is 
reported that SBC was the largest recipient of German Reichsbank shipments of 
gold during the war, having accepted $36.6 million (in 1945 terms), with UBS 
having accepted $8.5 million (in 1945 terms). In today's figures these numbers 
amount to $360 million in gold accepted by SBC and $85 million by UBS. Neither 
bank, to date, has explained or made proper recompense for these illicit gold 
transactions with the Nazis, which research has clearly proven the Nazis stole 
from victim nations and individuals alike. 


Furthermore, SBC has demonstrated a lack of cooperation with authorities in this 
country seeking answers in ongoing investigations. SBC and its New York branch 
entered into a Consent Order executed by the New York State Banking Department 
on December 5, 1997 for failing to cooperate with an ongoing investigation that 
began in January, 1997. 


The New York State Banking Department entered into the Consent Order after 
finding that SBC and its New York branch had not acted with appropriate speed 
and diligence in responding to requests for information that would assist in 
determining the existence of wartime records relating to the assets and accounts 
held in New York. The order also found that SBC and its New York branch had not 
provided relevant records and documents, had provided inaccurate responses to 
inquiries concerning wartime accounts, and had failed to supervise adequately 
the performance of an April 17, 1997 Agreement with the New York State Banking 
Department. 


In addition, UBS has admitted to destroying Holocaust-era documents in its 
Zurich branch in January 1997. This secret document destruction was exposed by a 
bank guard, Christoph Meili, who was later fired by UBS. At the time, UBS denied 
the documents had any historical importance. In July, however, the Bergier 
Commission judged the documents Meili was able to save as being of historical 
importance. To date, there has been no authoritative, independent investigation 
and report into UBS's destruction of documents. 


It is clear these banks participated in an ongoing conspiracy to conceal and 
prevent the recovery of assets deposited in their banks by victims of the Nazi 
regime. In lists published world-wide by the Swiss Bankers Association ("SBA"), 
numerous dormant accounts were found, dating back to the 1930s and 1940s. On a 
list of dormant accounts published by the SBA in July 1997, two names were 
found, Vilko Laric and Nicolai Constinescu, that were also on a list of SBC 
accounts found in the bank when the accounts were frozen by the Treasury 
Department in 1941. Both accounts apparently were returned to Switzerland after 
the war and showed up as dormant, even though the accounts existed in the 1940s. 
The October 1997 SBA dormant accounts list contains the names of "Johann Rohani" 
and "Anna Rohanny," of Amsterdam. I heard from the Rohannys' daughter, Susan 
Unger of New York, who informed my staff that these people were her parents. She 
went on to say that her mother had tried and been turned down in 1968 trying to 
claim the funds which were hers. As late as October 1, 1997, she tried to claim 
the account and was turned down. Yet, ten days later, the name appeared on the 
dormant accounts list. 


In addition to the concerns about the conduct of these banks regarding Holocaust 
victims and heirs, there have been recent reports of significant problems in the 
London-based equity derivatives department of the Union Bank of Switzerland. 
Estimates of losses have been escalating. One recent report puts the losses at 
$689 million, up from an estimated loss of $140 million in November, but the 
true magnitude of the losses appears to be unknown. There have also been reports 
that UBS's equity derivatives department was operated in a reckless manner 
without proper risk management controls. The cause and scope of the problems and 
the extent of the losses remain under investigation by the bank itself, but 
there has been no official, authoritative, and independent examination and 
report. 
The reported inadequate separation of risk taking activities and risk monitoring 
activities on the part of UBS's management brings to mind the highly publicized 
collapse of Barings and the intolerable conduct of Daiwa Bank and Daiwa Trust 
Company that led to the unprecedented termination of their banking operations in 
the United States by our regulators. As you stated quite correctly at our 
November 27, 1995 hearing on Daiwa, actions such as these "...carry the threat 
of significant damage to a major asset of our Nation -- the integrity of our 
financial system ...and cannot be tolerated...The potential cost to our 
financial system and hence, to our economy is too large." You went on to make a 
significant statement about the need for trust, especially concerning 
supervision, "What is true for the financial system in general is particularly 
true for the supervision of financial institutions. Indeed the whole system of 
supervision proceeds upon the basis of trust, whether in terms of the veracity 
of representations or reports filed by management or transparency with regard to 
any material developments affecting the financial condition of the institution." 



The reports of these problems and the lack of response call into question both 
the adequacy of home country supervision and the need to provide the Board with 
sufficient information and assurances that the full extent of the problem has 
been revealed and adequate remedial measures have been devised, put in place, 
and operate with certainty to prevent any reoccurrences. I urge the Board not to 
approve any notice or application from this proposed merger concerning United 
States operations until the Board fulfills its responsibility to ensure that the 
operation, management and supervision of these banks is consistent with the 
requirements of our laws. 


I also urge the Board not to approve any notice or application from this 
proposed merger until the Board has been provided sufficient information 
demonstrating that SBC and its New York branch have fully complied with the 
December 5, 1997 consent order from the New York State Banking Department, and 
that the proposed merger will have no effect on future compliance. Further, the 
Board must request and obtain a complete, independent investigation and report 
into the UBS destruction of Holocaust-era documents, and a full and complete 
accounting of the historical activities of these banks to conceal and prevent 
the recovery of assets deposited by victims of the Nazi regime and the response 
and actions of the current management of these banks. In addition, the Board 
must receive assurances that the new management from the proposed merger will 
fully cooperate with the recovery of assets as well as all ongoing and future 
investigations. 


Sincerely, 




Alfonse M. D'Amato
Chairman