Edition: U.S. / Global

New York Punishes Swiss Bank Over Nazi Gold

Published: October 10, 1997

New York City quietly administered a major sanction against the Union Bank of Switzerland last week by barring it from participating in a billion-dollar bond offering, a move meant to underline disapproval of the way the bank has responded to the investigations into dealings with Nazi Germany, city officials said yesterday.

The action by New York City's Comptroller, Alan G. Hevesi, was immediately criticized by the State Department, which is attempting to coax Swiss banks to make larger contributions to humanitarian funds for Holocaust survivors and their heirs.

Stuart Eizenstat, the Under Secretary of State for economic affairs, said in an interview from Egypt yesterday that New York's action could ''further inflame passions in Switzerland'' and insisted that ''confrontation with the banks will achieve far less than cooperation.''

Nonetheless, Mr. Hevesi, who is running for re-election with only token opposition next month, said he would not let Union Bank profit from expanded dealings with the city while its top Swiss officers remain unapologetic for the bank's response to the widening Nazi gold investigations.

New York's action was prompted by a routine request by the city for bids from global banks to handle a $1.075 billion revenue anticipation note, money that the city borrows in anticipation of receiving state and Federal aid for education and welfare expenditures.

The winning bidder was a syndicate of banks led by UBS, which Wall Street experts said would have garnered nearly half of the $1 million fee New York ordinarily pays for ''letters of credit'' from the banks.

''We were faced with the decision of whether to go ahead and do business as usual, or send a message to Union Bank of Switzerland,'' said Mr. Hevesi, who protested led the protests earlier this year when the bank dismissed a guard who revealed that the bank's archivist was shredding World War II-era documents, but refused to dismiss its honorary president, who said he thought a Jewish conspiracy lay behind American-led revelations about the banks.

''We decided it would be sending the wrong message to accept the bid,'' said Mr. Hevesi, who added that the Giuliani administration ''had no objection'' to excluding UBS.

So before the winning bid was announced, Mr. Hevesi's office approached the second bank in UBS's syndicate, Morgan Guaranty Trust Company, and asked it, Mr. Hevesi said, to ''reconfigure the team of banks to exclude UBS.'' It immediately complied, city officials said, replacing UBS with National Westminster Bank of Britain and Societe Generale of France.

The chief operating officer of UBS Americas Region, Richard C. Capone, who met with Mr. Hevesi late last month in an effort to avoid the sanction, was traveling yesterday, and the company said he was not available to discuss the issue.

But in a statement, Mr. Capone said: ''We respect the position of the Comptroller even though we do not agree with it. We are proud of the fact that the Swiss banks are working extremely hard and providing leadership in resolving the World War II dormant account issue fairly, and with sensitivity. We understand it is an emotional and complex issue, and we are committed to understanding the truth and doing what is right.''

Mr. Capone also noted that his bank aided the city ''in its darkest hour'' during the 1975 fiscal crisis.

For months now, New York City and the State Department have been sparring over sharply differing approaches in dealing with the Swiss.

Mr. Hevesi, whose family included a number of Holocaust victims, has repeatedly pressed Swiss firms to declare how much they are contributing to the Holocaust funds and has criticized UBS in particular for its continuing refusal to release copies of the documents rescued by the guard.

Those documents apparently include records of ''forced sales'' of properties held by Jews in Germany. Swiss prosecutors last week ended the investigation into the actions of the dismissed guard, Christof Meili, who was recently granted permanent residency in the United States to escape what he said were death threats in Switzerland. The prosecutors also ended their investigation into the archivist who ordered the shredding.

The State Department, however, has tried to calm the furor caused by the blistering report it issued in April. That historical study, led by Mr. Eizenstat, documented how Swiss financial cooperation with the Nazis prolonged World War II, and charged that Switzerland knowingly violated a 1946 agreement to turn over billions of dollars in assets that Nazi Germany looted during the war.

Since issuing the report, Mr. Eizenstat has been accentuating the positive, arguing that ''sanctions are not justified by the objective steps that Switzerland has taken.'' In yesterday's interview from Cairo, Mr. Eizenstat said, ''I don't question the motives of New York City, but I am concerned that its approach will be counterproductive.''

He was referring to the effort by the Swiss Government to get a majority of the public to vote in a national referendum to create a multibillion-dollar humanitarian fund. Polls indicate that the more the Swiss bridle at the criticism focused on their country, the more likely they will defeat the referendum.

While the New York financing deal represents an extremely small percentage of the Union Bank of Switzerland's overall business, the precedent of punishing one of the banks for its response to the Nazi gold investigations is bound to provoke a reaction among the Swiss banks. Mr. Hevesi has been urging financial officers around the country to also focus on Switzerland's actions.

All three major banks have contributed to a ''Special fund for Needy Victims of the Holocaust.'' But they have resisted calls for restitution and particularly objected to suggestions that a 1946 accord requiring the banks to turn over Nazi assets now worth billions, should be enforced a half-century later.

The Union Bank has been targeted because its honorary president, Robert Holzach, told The New Yorker magazine this spring that Jews have long been excluded from top posts in most Swiss banks, and that he suspected that a Jewish conspiracy lay at the heart of the relentless revelations about how the banks dealt with the Nazis. The bank later told Mr. Hevesi it was ''distancing itself'' from Mr. Holzach's remarks, but the bank took no public action against him.