Mr. Chairman, and members of the Commission:
Thank you for affording me the opportunity to testify before you today concerning the status of the claims by American citizens for restitution of properties that were abusively seized by the Communist Party of Romania, or by the Romanian government, during the period between 1945 and 1989, when the Communist Party controlled the country.
I am Chairman of the Romanian-American Chamber of Commerce based in Washington, D.C. I am also an attorney admitted to practice before the New York and Bucharest Bars, and a member of the law firms of Herzfeld & Rubin, P.C., located at 40 Wall Street in Manhattan, and Rubin Meyer Doru & Trandafir, sca, having its offices at 7, Strada Putul cu Plopi in Bucharest. Since February 1990, I have represented many of the largest foreign investors in Romania, and both of my firms currently represent American claimants with some of the most significant claims for restitution in Romania. I have also been Special Advisor for legal and economic issues to the Presidents of Romania and the Republic of Moldova; Associate Professor of Law at the Faculty of Law, Universitatea Creºtinã Dimitrie Cantemir in Romania; Vice President of the Congress of Romanian-Americans, (although I am not a Romanian-American); and the author of numerous articles in international publications on Romanian legal, economic and political issues.
My testimony is offered on behalf of the victims of abusive state-sponsored confiscations in Romania, which violated their basic human rights, and in support of the Romanian people in their desire to continue the development of their democracy. A nation of law and justice cannot be built upon the stolen property of its citizens. No matter how difficult or costly the task may be, Romania must fully and fairly restore all property seized by the State for which no fair and just compensation was paid. Unlike some former communist nations in the region, Romania has at least begun to address the issue of restitution. However, before it can take any pride in its efforts to provide restitution to the victims of communism, Romania will have to amend its current restitution law in ways that I will describe though my testimony.
Restitution is a difficult problem for Romania both financially and in the determination of the validity of claims made for abusively confiscated properties. Since corporate shareholder records were mostly destroyed by the communists, identification of shareholding interests is very difficult, if not impossible; and few records exist for personal property seized from citizens during the communist era.
Currently, charitable institutions, government offices, foreign embassies and ambassadors, political leaders, former high-ranking members of the communist elite, and ordinary citizens occupy the homes of people who were literally forced out of them often at gun point in the middle of the night by the communists. The museums and government houses are filled with confiscated art works, and the government openly offers for sale corporate entities whose former owners’ identities are well-known. Indeed, most Ministry offices and the Parliament sit upon land stolen from people by the Ceauºescu regime when it destroyed one-fifth of old Bucharest, creating a title nightmare that makes it very difficult to proceed with the private redevelopment of the area.
Until 1995, Romania had no law concerning restitution. Some owners of real property sought judicial intervention for the return of their real property in instances where the seizure of their property had not been recorded and title therefore remained in their name or in the name of those persons from whom they inherited rights to such property. In such instances, which were quite common, owners simply were thrown out onto the street without resort to any legal niceties. Ownership never actually changed, so a few former owners were restored to their residences without upsetting newer titles.
Where legal action was taken and resulted in a favourable ruling, these cases were invariably appealed, including a final appeal to the Supreme Court of Justice of Romania. When the State is involved, even after the appellate process has been exhausted, past governments often resorted to further litigation to seek compensation from the restored owner for “real estate management fees” for the State’s unlawful occupation. This was akin to a thief asking the victim of his larceny to pay him for taking care of the victim’s property during the period of the theft.
It is important to note that to this day, Romania has made no effort to restore any personal property abusively taken from its people. Art, furnishings and cash were confiscated pursuant to communist era laws that permitted such actions. Currently, no claim is available for recovery of such property because it was confiscated pursuant to the Constitution of 1948. It may have been immoral and contrary to the human right of property as accepted by Romania in 1994 when it signed Protocol 1 of the European Convention on Human Rights, but it had legal and constitutional support in Romania when it occurred. Manifestly, the personal property claims need separate attention. However, at this time, my testimony concerns restitution in Romania only in regard to real property and buildings.
Law No. 112/1995
In 1995, the Romanian Parliament enacted Law No. 112/1995 regarding resolution of the legal status of residential property appropriated by the State during the communist period. This law applied only to former owners of residential property appropriated by the State or other legal entities after March 6, 1945 with valid title, or of such property held by the State, or other legal entities, as owners as of December 22, 1989. It applied to all real properties used as residential quarters and confiscated by the State in compliance with the laws and decrees in force at the date of seizure, such as Decree No. 92/1950, regarding the nationalization of certain properties, Decrees Nos. 111/1951, 142/1952, and 223/1974, and Law No. 4/1974. The residential properties seized by the State in violation of the legal provisions then in force or appropriated by the State in the absence of a legal text entitling it to do so were deemed as possession without title and, therefore, were not regulated by the law. Any claims regarding such properties were subject to common law. Former owners of residential properties seized by the State and assigned to a different use (such as educational or medical establishments, commercial or office space) were entitled only to monetary compensation.
The most dubious aspect of Law 112/1995 was the right that it provided to tenants of formerly seized properties to buy those properties from the State. Homes that were stolen from the victims of communism, where sold for next to nothing to the very people who had benefited from those thefts. Far from rectifying the injustice of 112/1995, the Romanian Parliament in Law 10/2001, provided that those sales to tenants have precedence over the rights of the real owners of those properties. This was done in the name of the social protection of the tenants. Ordinarily, social protection for tenants would entail a grace period in which to move or renegotiate a lease. But, is there any justice in permitting tenants to buy villas that they never owned for a tiny fraction of their value while the real owners of those houses receive nothing or next to nothing?
The law provided that such houses could not be resold for ten years after the purchase, but many such houses have been illegally sold for large profits. Surely those illegal sales can and should be reversed with no social impact to the wrongly enriched former tenants. One might question why such properties were sold to the tenants six years before the former owners were given the right to make their restitution claims.
It took Romania eleven years after the fall of communism to produce a restitution law, albeit covering only real property, which is more than some former communist nations in the region have done. Indeed, Romania has not restricted restitution to only its current citizens, as have some of those nations, but since the Romanian Constitution provides that only Romanian citizens can own land, in kind restitutions are effectively limited to Romanian citizens.
Law 10/2001, effective as of February 14, 2001, is not much more than a series of declarative statements shrouded in exceptions and procedures that, unfortunately, thwart genuine restitution and prolong communist misappropriations. The first article of the Law misleadingly proclaims restitution in kind of abusively confiscated real property (meaning the return of actual confiscated realty) as the paramount goal of the Law and equivalent remedies as an alternative to be used only when restitution in kind is not possible. However, there are so many exceptions to the right of restitution in kind, that the remedy by equivalent virtually prevails throughout – a remedy burdened in the Law by a lack of substance and the need for further regulations. Among those yet to be issued regulations — one and a half years after promulgation of the law — are those with regard to the method of valuation for cash and cash equivalent payments.
A most unwarranted aspect of the Restitution Law makes it virtually impossible for victims to recover real estate presently occupied by health, educational, cultural or public interest institutions, headquarters of political parties, diplomatic missions, consular offices, offices of international organizations accredited in Romania and residences of diplomatic staff. While it is somewhat arguable that real estate occupied by hospitals and schools should not be restored in kind to the former owners, the decision not to return property occupied by political parties, diplomats, et al., protects no social interests, and flaunts the inalienable right of ownership.
For inexplicable reasons, property which belonged to legal entities, in almost all cases, except if the property was a residence owned by a family-owned entity, will not be returned to a claimant. Restitution by equivalent is also the exclusive remedy if the building no longer exists, except for buildings destroyed by natural calamities; if the building was transformed into a new one, or if the building was disposed of in favor of the former tenant under Law 112/1995.
Claimants are entitled to cash payments only for residences that are not returned in kind. The Law refers to regulations not yet enacted. The government must appoint an inter-ministerial commission within 6 months from the effective date of the Law. Within one year from the expiration of such 6-month term (i.e. within 18 months from the date when the Law became effective), the Parliament must adopt a "special law" which will regulate the procedure to be followed for obtaining cash compensation, as well as the amount of compensation to be granted. The Law further provides, with no other details, that cash compensation "may be limited", i.e. the "special law" to be adopted may provide that cash compensation cannot exceed a certain amount of ROL. (This would be similar to the provisions of Law 18 regarding land restitution that initially provided that no matter how much agricultural land a claimant once owned, the maximum a claimant could get back was 10 hectares. Law 18 was later amended to allow for more substantial restitution.)
All other restitution is to be made in vouchers or shares of yet to be privatized companies. Although the Law required that within 30 days of February 14, 2001, the Ministry of Finance must present regulations regarding the issuance of a new form of voucher to be used as compensation for claimants, no such regulations have yet been issued. The Law stipulates that the vouchers may circulate on the market and may be used exclusively in the privatization process by the claimant in lieu of cash. State agencies involved in privatization must accept them as currency for the purchase of shares and assets of companies undergoing privatization. But the reality is that with only very few worthwhile companies still to be privatized, these vouchers may be of little real value.
Procedural Experiences of American Citizens Under Law 10/2002
The original filing deadline of August 14, 2001 for all restitution claims was extended until February 14, 2002. I would not quarrel with this one year statute of limitations, although others have said that the filing period was too short and the notice thereof was inadequate. Quite rightly, Prime Minister Adrian Nastase felt that some outside date was required to put an end to all future claims for confiscated real property in order to create some semblance of order in the Romanian property market. His government was most cooperative in agreeing to two extensions — a cooperation that this Commission should seek in regard to revising Law 10/2001 in the other aspects suggested by my testimony.
Instead of providing the smooth administration of justice through the rapid return of most confiscated properties, Law 10/2001 creates a morass of procedures that are costly and utterly frustrating to the claimants. Law 10/2001 procedural requirements are labyrinthine and time consuming, which makes them costly for claimants to pursue and, consequently, unfair in the circumstances. The process to obtain restitution under Law 10/2001 started with an application by the former owner (or the heirs) for restitution for each separate parcel of real property claimed. The Law rightly requires a great deal of evidentiary proof. But most claimants do not have written proof of ownership since those papers were either confiscated by the communists or were never in the possession of the claimants. Indeed, the communists destroyed most corporate shareholder records as a matter of course and few people kept stock certificates in companies that had been confiscated from them. In any event, no one was permitted to leave Romania with such documents in their possession. Moreover, it is not unusual for claimants to be only vaguely aware of the full scope of real properties once owned by their progenitors.
Although, the Law allows claimants a total of two years from the date when the Law became effective (February 14, 2001) to submit evidence of title to their properties (as well as evidence of their inheritance rights where applicable), obtaining such evidence can be quite difficult. Claimants without proper documentation must seek to obtain documents from the State Archives in the appropriate jurisdictions where the land is located and, wherever possible, extracts from the land rolls. Although the right of freedom of information is enshrined as a constitutional right in Romania (Article 31), the ability of claimants to obtain documentation in support of their claims from the State Archives is severely impaired by bureaucratic inefficiency, lack of manpower and lack of interest. Romania cannot expect claimants to file within prescribed deadlines, and then not provide them with the means to obtain the proof of their claims from the government’s own records. As with the claims, such evidence, once prepared, must be filed with the authorities at the site of each claimed parcel when the property involved was a residence or non-commercial parcel, and also with the Ministry of Privatization (APAPs), when the property claimed was real estate owned by a business.
This is an exasperating task when dealing with claims for multiple real properties, such as those owned by a corporate entity formerly owned by a claimant. An actual example may help clarify the problem: a US citizen with a claim for real properties of a company owned by his father, filed one notice with the Ministry of Privatization and one notice with a Transylvanian city where the company had its headquarters. Thereafter, information obtained from the State Archives indicated that the land holdings of the former company were actually divided into over two hundred separate parcels of land. Consequently, the claimant had to file one notice for each of the separate parcels that made up the original claim. That generated over two hundred notices for just this one claim. The notices were addressed to each of the city/town/village halls at the sites of the properties in three Prefectures.
If restitution in kind is “denied or not available” (Art. 24), the legal entity holding the property must make a counter-offer for compensation by equivalent within 60 days from the registration of the former owner’s claim. These counter-offers are made in separate filings for each parcel claimed. However, city/town/village halls have rarely responded or have made requests for more details, documents, and specifications, or raised collateral issues. My firm has filed over 400 claims for restitution, most for American citizens, but we have had only a few responses and those were all requests for additional documentation. In the case of the American citizen that I just mentioned, on one such claim, the State insisted upon evidence that the claimant did not receive compensation from France in one of the various treaties signed by Romania in the late 1940's and early 1950's with Western nations in regard to Romanian properties confiscated by those countries in response to the Romanian confiscations of foreign nationals’ properties in Romania. Proving a negative has its challenges, but it can be done if the assertion is made in regard to the claimant’s country of nationality.
However, in the case of this American citizen, the Romanian authorities requested verification that the claimant did not obtain restitution from France, a country to which the claimant had no association whatsoever. The French government refused to issue an official document attesting to the fact that it did not pay anything to an American citizen back in the 1950's. Since the Romanian government has a complete list of all such former restitution awards, one might wonder why its subdivisions are asserting unfounded challenges to claims, the legitimacy of which it knows or at least should know. As for the Ministry of Privatization, we have not received a single response from it to any claims filed with it.
When the claimant responds, he must do so with new documents, many of which must again be obtained from the State Archives – but this time, within a very short time frame of sixty days – or forfeit the claim. Non-compliance with the time limitations might entail a loss of the right to compensation. In the event that restitution in kind is not approved or is impossible, the holder of the property must make a counter offer for compensation equivalent to the real estate’s value. The Law provides for a 60-day term from receipt of the compensation offer for the claimant to accept or refuse it; failure to express an option is deemed a refusal. Should the offer be refused, the claimant can appeal the decision in court within 30 days from notification. Although the right to acceptance or refusal can be theoretically exercised within 60 days, in fact the right to sue is barred after the first 30 days.
In March 2001, the Minister of Justice, Mrs. Rodica Stanoiu, issued a directive asking judges to pay special attention to the “social consequences” in cases concerning the restitution in kind of nationalized homes in those very few cases that do not fall within the exceptions of Law 10/2001. Was this a communication to the nation’s judges of the Ministry’s less than sympathetic view of the rights of the victims of abusive confiscations? It has heralded the start of a process that will force claimants through the three-tiered Romanian court system at no minor expense to them for each claim of what could well be many separate claims for each claimant. Hence, of the 188, 297 claims that the Romanian government reports were filed through February 14, 2002 (113,543 involving in kind restitution), only 2,268 claims have been resolved as of July 2002. The self-imposed burden on the claimants -- and on Romania -- of resolving so many claims through the current process must be lifted.
What Can The United States Congress Do?
Fortunately, Romania can fix the negative aspects of Law 10/2001 without harming the interests of the current occupiers of confiscated properties or seriously depleting its national treasury at this time. The US Congress can assist the Romanian government in redesigning its restitution law and the regulations promulgated under it in the following ways:
1) Broaden In Kind Restitution
The express purpose of Law 10/2001, according to Article 1 (1) of the Law, is to make restitution in kind of nationalized real property and, whenever such in kind restitution is not possible, to make restitution in an equivalent consisting of cash for residential properties and vouchers to be used in exchange for shares of state-owned companies or “services” (without specifying what that actually means). This faultless principle is then shattered by so many exceptions to it that it becomes virtually inapplicable. Those exceptions should be drastically curtailed and the espoused principal underlying Law 10/2001 should be respected.
Obviously, there are legitimate circumstances where in-kind restitution is impossible, not practical or not in the best interests of the nation. One can argue that returning a hospital building to a claimant might result in great hardship for the citizens of a municipality. On the other hand, there is no earthly reason why a diplomatic residence or the offices of a political party should be immune from restitution in kind.
What are the consequences of such unwarranted social protection? Here is an example: an actual claim has been filed by an American citizen for the return of a residence in Bucharest now occupied by an ambassador from a Latin American nation. The building is worth US $8 million on today’s market. Under the Law, however, the claimant cannot have his former residence returned to him. Instead, he is entitled to a cash payment. Why can’t he have his home returned to him? Why can’t the law provide for a five year period after restitution in which the Ambassador rents the building from the claimant -- instead of the State — before the Ambassador finds a new residence to lease or leases the current residence for fair value? Can the Romanian State reasonably be expected to pay the American claimant the fair and valid sum of US $8 million as a cash equivalent so that the Ambassador can remain in the claimant’s residence? Instead, Romania will likely woefully under-compensate the claimant who in turn will sue in the Romanian courts. There he may well lose. While this claimant’s house is worth the expense of even further litigation before the European Court of Human Rights for the violation of his property right by gross under-compensation, how many claimants will have claims sufficiently high enough to warrant such protracted litigation? The answer, of course, is very few, and that translates to very few claimants receiving justice in Romania under the current law.
Law 10/2001 should be amended to substantially eliminate the exceptions which make in kind restitution impossible. The Law should establish an obligation to maintain the formerly protected use for some of the properties listed in Article 16 (1) for a number of years. In the meantime, it would be the owners rather than the State who would receive the rent for those properties. The cost to Romania is the loss of rental income from stolen properties that it has no business holding. The benefits are in the pride of justice done in a new democracy, as well as the financial benefits of putting more private real estate onto the tax rolls.
2) In Kind Restitution for All Shareholders
Article 18 (a) of the Restitution Law contains a provision which states that in kind restitution is not available if the claimant is a former shareholder of a company which used to own the property, unless the claimant was a sole shareholder or if the shareholders were members of the same family. Why can’t properties be restituted in-kind to shareholders, whether or not they are members of the same family or were sole shareholders? Indeed, the clear and manifest result of this provision is to make it virtually impossible for there to be any significant restitution of industrial properties.
Many pre-communist Romanian companies reached a high degree of development and sophistication and most of them were owned by more than one shareholder and they were unlikely to be members of the same family. Some of the companies were quoted on the stock exchange. The companies had immense wealth but their shareholders are now unable to obtain in kind compensation simply because of Article 18 (1). Instead, can the Romanian State afford to pay the fair cash equivalent of all such properties? Because the answer is no, the Law should be amended to provide that shareholders are entitled to pro-rata in-kind restitution when it is physically possible. Nothing should prevent, for example, the in kind and pro-rata restitution to the former shareholders of the huge areas of land which used to be owned by pre-communist companies.
3) Procedural Changes
The entire restitution process needs to be streamlined and provision made to consolidate multiple claims by the same claimants into a single proceeding.
The Law requires claimants to provide evidence of title attesting to their ownership rights. The language of the Law may lead to the conclusion that failure to provide such documents within the deadline set by the Law results in the loss of the right to claim compensation. The State Archives is truly understaffed and is suffocated by many thousands of applications. Instead, the Law should provide that claims are properly made within the deadline fixed by the Law as long as an application has been made to the State Archives. The Law should also stipulate penalties for the State Archives if it fails to respond in due time.
Recognizing that in-kind restitution may not be available in a number of legitimate situations, the government should be empowered to swap comparable land or buildings that it holds for the land or buildings that are the subject of the claim. So, for example, if the old family homestead now has a chemical plant on it, the State could cede a comparable parcel of land somewhere nearby. This entails no cost to the State and would be eminently fair under the circumstances.
Claimants with multiple claims should be able to negotiate a comprehensive resolution with a single government agency and that settlement could then be confirmed in a government decree. If a settlement is not possible, then all of the claims should be consolidated into one action before one court.
The concept of settlement of multiple claims, noted above, could be enshrined in the administrative norms that have yet to be published in full. Indeed, much of the recommendations set forth in this article could be accomplished through a liberal tweaking of the methodological norms and thereby avoid the delay entailed in amending the Law outright in Parliament.
5) Fair Valuations
In attempting to deal with wholesale destruction of property as in the case of the one-fifth of Bucharest that was demolished by the Ceausescu regime in the 1980's, Article 10 (6) of the Law provides that the value of a demolished building is to be established according to the legislation in force on the date when they were demolished plus a sum increased by the inflation index. This may seem fair at first blush but, in fact, the legislation valued the properties at a pittance of what they were worth even at that time. These low communist-era valuations were confiscations disguised as an exercise in eminent domain. Why should the victims of these abusive acts be deprived once again of their property rights by offering them an amount calculated under communist-era laws? The fair thing to do, and by far the easiest, is to provide them with compensation based upon a fair calculation of the value of the property on today’s market.
6) Fair Cash Equivalents
Art. 40 of the Law provides that a special law, not yet enacted, will provide for the procedure required to grant cash compensation and states that such cash compensation "may be limited." This suggests that Romania may enact legislation which puts a ceiling on the amounts given to claimants regardless of the value of the confiscated property. In other words, the American claimant with a legitimate and proven claim for the cash equivalent of the value of that US $8 million residence in our earlier example, could be given no more than a fraction of that amount. Indeed, any reduction in value of the legitimate sum due is tantamount to another taking of property in violation of the human rights of the victims of communism.
It surely was not the intent of Parliament to engage in mock restitution. Rather, Article 40 may be a hapless attempt at dealing with the problem of cash flow. Romania does not have even US $100 million to allocate to restitution, let alone the billions of dollars that Law 10/2001 would, presumably, require in order to be fair. That is one reason why in kind restitution should become broadly obtainable and land swaps utilized where that is not possible. That is also the reason why some form of fairly valued long-term bonds should be considered for compensation in lieu of any cash payments by the State when in kind restitution or land swaps is not possible. Such long-term bonds should be indexed to inflation and immediately tradeable. In other words, pay today with a promise to pay in the future when Romania would be financially capable of doing so.
7) Rescind Law 112/1995
Law 112/1995, which allowed tenants of stolen properties to buy those properties instead of returning them
to their original owners, should be rescinded in respect of any properties to which claims have been filed, and the monies paid should be returned to the tenants. These properties should then be restituted to the rightful owners, subject to provisions safeguarding the tenants for a reasonable period of time to allow for relocation.
8) Restitution for Personal Property
Romania must provide restitution for stolen art works, furnishings and cash that were confiscated pursuant to communist-era laws.
The express purpose of Law 10/2001 is to make restitution in kind. Its provisions, however, do not accomplish this just goal. Because of that, Law 10/2001 neither satisfies the moral obligation of a democratic society to return property it wrongfully received, nor satisfies the demands of claimants for justice. Romania can change this and, in the process, enhance its reputation as a just and democratic state. Romania can fulfill the unfulfilled promise of restitution to the victims of communism without harming the current occupants of the properties and without further impoverishing the treasury. It can create a long-term plan for restitution in kind wherever possible and a structure of payments through long-term bonds in cases where in kind restitution is truly not feasible. It can most certainly streamline and centralize the system of filing and resolving claims.
Indeed, Romania can satisfy the demands of justice for wholly practical reasons — if it fails to amend Law 10/2001 or implement the recommended changes through a liberal interpretation of the Law in the underlying regulations, the country will be overwhelmed by the financial costs of compliance. Romania does not need to embarrass itself, exasperate its friends, demean the victims of the past or impoverish its treasury by maintaining Law 10/2001 in its current form.
If I may be permitted one final comment. The Senate may be asked after the Prague Summit in November 2002 to advise and consent to the enlargement of NATO to include Romania. NATO membership has become — rightly or wrongly — a statement of unity and acceptance. The people of Romania through their history, their culture and their political institutions are as European as any other nationality. They have proven themselves worthy of NATO membership through their adherence to the democratic principles which NATO safeguards. The alliance would benefit strategically from Romania’s accession, and the reforms sought by the United States would occur more rapidly if Romania were part of the western pact. Firmly embracing Romania in the arms of NATO will facilitate more immediate and positive change.