The class actions and the global settlement of 1998

The lawsuits in Brooklyn

While the Volcker Committee was beginning its work, lawyers in the United States chose a different path. On 3 October 1996 the first class action, Weisshaus v. Union Bank of Switzerland, was filed in the United States District Court for the Eastern District of New York. It was followed on 21 October 1996 by Friedman v. Union Bank of Switzerland and on 29 January 1997 by World Council of Orthodox Jewish Communities v. Union Bank of Switzerland. On 7 March 1997 Judge Edward R. Korman consolidated the three actions under the name In re Holocaust Victim Assets Litigation.¹ The defendants were the three big banks, the Union Bank of Switzerland, the Swiss Bank Corporation and Credit Suisse, which merged in the case of the first two into the new UBS in 1998.

The plaintiffs’ claims went well beyond dormant accounts. They alleged that the Swiss banks had knowingly retained and concealed the assets of victims, had profited from looted assets and from the proceeds of slave labour, and had acted as financiers of the National Socialist state. The American class action, with its broad discovery, its jury trial and its potential for damages far exceeding the value of the accounts themselves, was a procedural weapon for which Swiss banking law had no equivalent. The plaintiffs were represented by a group of American class action lawyers, among whom Professor Burt Neuborne of New York University School of Law later served as lead settlement counsel.²

The banks raised the defences that a Swiss lawyer would expect: lack of jurisdiction, forum non conveniens, the running of limitation periods, the absence of a legal basis for the claims under the applicable Swiss law and the existence of the Washington Agreement of 1946, which in their view had settled all claims arising from the war between Switzerland and the Allied powers. Whether these defences would have succeeded was never decided. While Judge Korman left the motions to dismiss undecided for many months, the political pressure continued to grow. The banks knew that a decision in their favour would not end the sanctions campaign of the American states and cities. They also knew that a decision against them would expose them to discovery of their archives and to a trial before a jury in Brooklyn.

Negotiations and settlement

Negotiations began under the mediation of the American Under Secretary of State Stuart Eizenstat, who had led the United States government’s historical inquiry and who played a central role in the diplomatic handling of the dispute.³ The Swiss government declined to participate as a party. When the banks reached their settlement with the plaintiffs in August 1998, the Federal Council expressed understanding for it but stated that the Swiss state was not part of it.⁴ The negotiations were difficult. By the summer of 1998, the banks had offered USD 600 million, while the plaintiffs demanded USD 1.5 billion. The announcement of phased sanctions in New York on 2 July 1998 and the prospect of further measures by other states raised the pressure on the banks decisively.

On 12 August 1998 the parties reached an agreement under which UBS and Credit Suisse would pay USD 1.25 billion in settlement of all claims against Swiss banks, the Swiss government and other Swiss entities relating to the Holocaust and the Second World War.⁵ The agreement put an end to the threatened sanctions. The formal settlement agreement was signed on 26 January 1999. Judge Korman granted preliminary approval on 30 March 1999 and appointed Judah Gribetz as Special Master to propose a plan for the distribution of the funds. He gave final approval on 26 July 2000 and entered the final order on 9 August 2000.⁶ The settlement became effective on 16 May 2001, once the appeals against it had been withdrawn.

The structure of the settlement

The settlement defined five classes of beneficiaries. The Deposited Assets Class comprised persons with claims to assets deposited in Swiss banks. Slave Labor Class I comprised persons who had performed slave labour for German companies whose proceeds were alleged to have passed through Swiss banks, and Slave Labor Class II those who had performed slave labour for companies with a Swiss connection. The Refugee Class comprised persons who had been refused entry to Switzerland, expelled or mistreated there. The Looted Assets Class, finally, comprised victims whose property had been looted and whose value had passed through Switzerland.⁷ The class structure reflected the breadth of the plaintiffs’ original claims and the need to secure a release from all groups that might have sued.

On 11 September 2000 the Special Master filed a proposed distribution plan. It reserved up to USD 800 million for the Deposited Assets Class, allocated the balance to the other classes and to humanitarian assistance, and set aside funds for a list of victims. Judge Korman adopted the plan in full on 22 November 2000.⁸ The plan gave a large share of the looted assets funds to the neediest survivors, which in practice meant survivors in the former Soviet Union. Although some survivors’ groups in the United States challenged that geographical choice, the Court of Appeals for the Second Circuit upheld it in 2005. The United States Supreme Court declined to review the matter in 2006.

The final allocation illustrates the priorities of the court. Of the total, about USD 800 million went to the Deposited Assets Class, about USD 280 million to Slave Labor Class I, about USD 259 million to the Looted Assets Class, about USD 11.5 million to the Refugee Class and about USD 0.7 million to Slave Labor Class II, while USD 14.5 million was assigned to the Victim List Project.⁹ The Claims Conference administered payments to the slave labour and refugee classes, while the International Organization for Migration and the American Jewish Joint Distribution Committee handled parts of the humanitarian programmes.

A legal assessment

Seen from a Swiss legal perspective, the settlement was a remarkable instrument. It was a private agreement between two Swiss banks and a class of plaintiffs, approved by an American court, which released from liability the banks that paid together with the Swiss Confederation, the other Swiss banks and Swiss industry. The Swiss authorities were not parties, yet they benefited from the release. The Swiss courts never decided the underlying claims, on which it is by no means clear that the plaintiffs would have succeeded. Limitation periods, the evidentiary difficulties of proving the existence of accounts from the 1930s and the absence of any rule of Swiss law that imposed a duty to search for owners would have raised formidable obstacles.

In substance, the settlement was the price that the two largest Zurich banks paid to secure their access to the American market at a time when that market had become essential to their strategy. The merger that created the new UBS was completed in 1998, at a time when both banks were building up investment banking operations in New York and London. The threat of exclusion from the American public finance market, combined with the reputational damage of continuing litigation, outweighed the legal merits. A practitioner may draw a lesson from this that remains valid today: when a Swiss financial institution depends on access to a foreign market, the standards that govern its conduct in that market are those of the foreign jurisdiction, including its politics, in addition to those of Swiss law.

That lesson was learned again, with a different subject, a decade later. The tax disputes with the United States that began in 2008 and ended the era of banking secrecy for foreign clients, which Part G of this book examines, followed a strikingly similar pattern. Confronted with American legal procedures, political pressure and the threat of losing its licence, a Swiss bank resolved the dispute by payment and disclosure. The finews commentary on the Meili affair made the same point, arguing that the arrogance shown in the 1990s foreshadowed later reputational damage in the tax dispute with the United States.¹⁰

Notes

1. Swiss Banks Settlement: In re Holocaust Victim Assets Litigation, “Chronology” (as above), entries for 3 and 21 October 1996, 29 January 1997 and 7 March 1997. ↩
2. Swiss Banks Settlement: In re Holocaust Victim Assets Litigation, “Overview”, https://www.swissbankclaims.com/Overview.aspx.html. ↩
3. World Jewish Congress, “In Search of Justice” (as above), which describes Eizenstat as mediator between the parties. ↩
4. Parliamentary Services, “Die Schweiz und der Zweite Weltkrieg – Chronologie”, https://www.parlament.ch/centers/documents/de/ch-wk2-chronologie-d.pdf, entry of 19 August 1998: “Der Bundesrat zeigt Verständnis für den Vergleich der Grossbanken mit den Klägern in den USA. Der schweizerische Staat sei indessen nicht Teil dieser Lösung.” ↩
5. Swiss Banks Settlement, “Chronology” (as above), entry for 12 August 1998; on the scope of the release see “Overview” (as above), which states that the settlement released “Swiss banks, the Swiss government and other Swiss entities” from Holocaust-related claims. ↩
6. Swiss Banks Settlement, “Chronology” (as above), entries for 26 January 1999, 30 March 1999, 26 July 2000 and 9 August 2000. ↩
7. Swiss Banks Settlement, “Chronology” (as above), section on the five settlement classes. ↩
8. Swiss Banks Settlement, “Chronology” (as above), entries for 11 September and 22 November 2000. ↩
9. Swiss Banks Settlement, “Overview” (as above). The total of these allocations exceeds USD 1.25 billion because interest accrued on the settlement fund; the website gives the total fund as approximately USD 1.288 billion. ↩
10. finews.com, Britt (as above). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.