Safehaven: The Allied Pursuit of Nazi Assets Abroad

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U  M P Columbia and London

ftyx{täxÇ The Allied Pursuit of Nazi Assets Abroad Martin Lorenz-Meyer

Copyright © 2007 by The Curators of the University of Missouri University of Missouri Press, Columbia, Missouri 65201 Printed and bound in the United States of America All rights reserved 5 4 3 2 1 11 10 09 08 07 Library of Congress Cataloging-in-Publication Data Lorenz-Meyer, Martin. Safehaven : the Allied pursuit of Nazi assets abroad / Martin Lorenz-Meyer. p. cm. Summary: “A detailed study of the development and collapse of the Safehaven Program initiated by the Federal Economic Administration, advocated by Treasury Secretary Henry Morgenthau, and reluctantly supported by Britain and France that focused on averting post-World War II German aggression by investigating and confiscating German assets in neutral countries”—Provided by publisher. Includes bibliographical references and index. ISBN 978-0-8262-1719-6 (hard cover: alk. paper) 1. Safehaven (Program) 2. World War, 1939–1945— Reparations. 3. German property—Foreign countries. I. Title. D819.G3L67 2007 940.531dc22 2006103398 ø™ This paper meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials, Z39.48, 1984. Designer: Kristie Lee Typesetter: The Composing Room of Michigan, Inc. Printer and binder: The Maple-Vail Book Manufacturing Group Typefaces: Adobe Caslon, Helvetica Neue, Edwardian Script

I M

Georg-Christian Lorenz-Meyer

Contents

Acknowledgments Abbreviations xi Introduction 1

ix

1. Hidden Battles: Economic Warfare during World War II 8 2. The Beginnings of the Safehaven Program, 1944 3. Safehaven and Reparations: Officials Disagree

67

4. Safehaven and Reparations: The Big Three Decide 5. Safehaven and Sweden in 1944 and 1945 6. Quo Vadis, Safehaven?

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95

125

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7. An Allied Quarrel: How to Approach the Neutral Countries 8. Negotiations with Sweden, 1946

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9. Swedish Payments, Liquidation of German Assets, and the Final Swedish-German Settlement, 1946 –1956 286 Conclusion 335 Bibliography 345 Index 367

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Acknowledgments

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        but true adage that a study such as this could not have been completed without the help of others. First, I would like to thank Theodore A. Wilson at the University of Kansas. It was under his tutelage that this project first began more than nine years ago, and it would not have been possible without him. Various organizations provided necessary funding. Initial research was supported by an Eddi Jacobson Scholarship for International Studies from the Harry S. Truman Good Neighbor Award Foundation. Research at the Truman and Franklin D. Roosevelt presidential libraries was supported by grants from the Harry S. Truman Library Institute and the Franklin and Eleanor Roosevelt Institute. The Society for Historians of American Foreign Relations provided support for research in the U.S. National Archives. Archival research in Germany was supported by a German Academic Exchange Service Research Grant for Ph.D. Candidates, and writing was made possible by a generous Max Kade Dissertation Fellowship. During my archival visits, many librarians provided valuable support in locating and retrieving documents. Dennis Bilger and Elizabeth Safly at the Truman Library were always ready to help, as was Raymond Teichman at the Roosevelt Library. Frau Werth-Mühl at the German Federal Archives in Koblenz helped locate a plethora of documents (enough for another book), and Herr Dr. Peter Grupp at the Political Archives of the German Foreign Office in Berlin let me go through uncataloged wartime files of the German Embassy in Stockholm. ix

x

Acknowledgments

Finally, I owe a very special debt to Elizabeth. For years she had to endure this never-ending project, which so often seemingly was finished, only to continue unabated. We should thus all be grateful to our now three-year-old daughter, Hannah, who did her best to convince everybody that it was time to be done once and for all. Sadly, my father did not live to witness the work’s completion. To him this study is dedicated.

Abbreviations

AB ACAO ACC AHC APC ARC BAK BDFA BEW BNA CFM CIOS DBPO DESC DICEA DM EAC ECEFP EWD FCCO FDRL FDRP FEA

Aktiebdaget Committee on Armistice Terms and Civil Administration Allied Control Council Allied High Commission Alien Property Custodian Allied Reparations Commission German Federal Archives, Koblenz British Documents on Foreign Affairs Board of Economic Warfare British National Archives, London Council of Foreign Ministers Combined Intelligence Objectives Subcommittee Documents on British Policy Overseas Division of Economic Security Controls Division of Investigation of Cartels and External Assets deutsche mark European Advisory Commission Executive Committee on Economic Foreign Policy Economic Warfare Division (U.S. Embassy, London) Flyktkapitalbyrån (Foreign Capital Control Office [Sweden]) Franklin D. Roosevelt Library Franklin D. Roosevelt Papers Foreign Economic Administration xi

xii

FFC FM FO FRUS GEPC HICOG HSTL HSTP IARA IPCOG JEIA MEW MEWFO NACP OEP OEW OMGUS OSS RG SFr SKr SNB TIDC UD USGCC X-2

Abbreviations

Foreign Funds Control (U.S. Treasury Department) foreign minister Foreign Office Foreign Relations of the United States Series German External Property Commission (United States) High Commission for Germany Harry S. Truman Library Harry S. Truman Papers Inter-Allied Reparation Agency Informal Policy Committee on Germany (State Department) Joint Export-Import Agency Ministry of Economic Warfare (Great Britain) Ministry of Economic Warfare, Foreign Office (Great Britain) United States National Archives at College Park Office of Economic Programs Office of Economic Warfare Office of Military Government for Germany, United States Office of Strategic Services record group Swiss francs Swedish kronor Schweizerische Nationalbank (Swiss National Bank) Technical Industrial Disarmament Committees (FEA studies) Utrikesdepartement (Swedish Foreign Office) United States Group Control Council Counterintelligence Branch (OSS)

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Introduction

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             the end of World War II, the Swedish newspaper Morgontidningen reported that Sweden had “become a haven for German investments during the last war years.” This “German capital flight to other countries” would be “difficult” to control. The paper warned: “American experts are of the opinion, that,” if left unchecked, “Germany would be in a position to engage in a new world war in five years.” The article expressed well the deep concerns the Western Allies felt about controlling the economic powers of a defeated Germany. In the words of Assistant Secretary of State William L. Clayton, “security against a renewed German aggression” was the paramount aim of the Allies shortly after the end of the war.1 One area in which that goal became important was in regard to the European countries that had stayed neutral, namely, Sweden, Switzerland, Spain, Portugal, Turkey, and Ireland. The United States administration identified these countries as targets for cloaked efforts of Nazi Germany allegedly to continue a cause that was lost on the battlefield. To address those concerns, the United States began to develop the Safehaven program in May 1944. The program’s roots lay in the complex set of 1. [Christian] Ravndal (Stockholm) to Secretary of State James Byrnes, July 20, 1945, folder: Safehaven July 16–31, 1945 (box 384), Foreign Funds Control Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, U.S. National Archives at College Park (NACP) (hereinafter cited as FFC Subject Files); statement of Clayton before the U.S. Senate Committee on Military Affairs, Subcommittee on War Mobilization, Elimination of German Resources for War, pt. 2, Testimony of State Department, June 25, 1945, 39, 79th Cong., 1st sess., 1945. In April, the State Dept. had warned of Nazi postwar plans; “Discovery of Nazi Post War Plans,” Department of State Bulletin 12 (1945): 537–38.

1

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economic and financial relationships generated by the deficiencies of various strategic war materials that Nazi Germany confronted before and during the war. Berlin’s pursuit of the industrial building blocks of modern warfare led to requisitions from the nations it occupied and to commercial relations with various European neutrals. The Allied effort to deny Germany these vital raw materials produced a convoluted set of international economic instruments and machineries and ultimately spawned the effort to trace and recover Nazi assets throughout Europe. The program began as a device to address the perceived danger of capital flight from Germany so that the United States and the neutral countries could work together to control those movements. Its focus soon broadened considerably to include all German capital and assets in the neutral countries, and the idea quickly emerged that these assets could be used as reparations. The main aims of Safehaven thus turned out to be twofold. In the short run, German assets had to be identified and located. In the long run, the main European neutral countries had to be convinced to turn over those assets as reparations. In these efforts the United States was the leading force. Great Britain and, later, France joined in, though both countries remained reluctant partners. For a couple of years after the war the concerns of the United States and its Western Allies moved the Safehaven program along, with the United States aggressively pursuing its goals. However, by the late 1940s the dynamics had shifted, and Safehaven disappeared from the agenda as renewed friendship with a revitalized Germany became more important. Only when the Cold War came to an end were those threads picked up again to become a topic of hot debate. Despite this recent interest in the economic aspects of World War II, the Safehaven program itself has not received a great deal of attention from historians. A 1990 American University master’s thesis is the sole study in English dealing specifically with this topic. More recently, two preliminary reports by the State Department (1997, 1998) covering questions of looted gold and other assets have been published.2 No detailed historical study of the Safehaven program in English has been available until now. 2. Marc Masurovsky, “The Safehaven Program: The Allied Response to Nazi Post-defeat Planning, 1944–1948” (master’s thesis, American University, 1990); William Z. Slany, U.S. and Allied Efforts to Recover and Restore Gold and Other Assets Stolen and Hidden by Germany during World War II, Preliminary Study (May 1997), coordinated by Stuart E. Eizenstat (hereinafter cited as Eizenstat I); Slany, U.S. and Allied Wartime and Postwar Relations and Negotiations with Argentina, Portugal, Spain, Sweden, and Turkey on Looted Gold and German External Assets and U.S. Concerns about the Fate of the Wartime Ustasha Treasury (June 1998), coordinated by Stuart E. Eizenstat (hereinafter cited as Eizenstat II). There is also a very recent Dutch study by Gerard Aalders, Operatie Safehaven: Kruistocht tegen een Vierde Rijk (Amsterdam: Boom, 2006), which could not be considered for this book.

Introduction

3

This study addresses the two chief components of the Safehaven program. Its main focus is on the policies of the Allies and foremost those of the United States, the leading proponent of the program. Their debates and discords are presented in great detail based on archival research in the United States and Great Britain. And since the Federal Republic of Germany later became, rather unexpectedly, an important third party in the continuing Alliedneutral discussions, German records have been inspected as well. This inquiry will show which forces in the bureaucratic apparatus of the war administration in Washington, D.C., initiated the program and which branches of government tried to carry it through. Safehaven was a large and difficult program, at times involving five departments. The three leading agencies of Safehaven—the Foreign Economic Administration and the State and Treasury departments—were constantly at odds in regard to the overall course of the program and its daily administration. The coordination of Safehaven was further complicated by the very different assumptions the United States and Great Britain had about the aims of the program. Second, using Sweden as an example, this study offers an investigation of the effects of Safehaven in the neutral countries. Because each neutral country presented its particular challenges and issues of contention, the Safehaven program is best studied and presented by focusing on particular countries. To date, the workings of Safehaven in Switzerland have been examined in the greatest detail, as it was also the most important of the Safehaven countries. It was the first country the Allies negotiated with, and an agreement with it was signed after protracted discussions in May 1946. Even before the recent renewed interest in Switzerland’s wartime history, Marco Durrer and Linus von Castelmur investigated the wartime and postwar economic and financial relations between Switzerland and the Allies. Castelmur’s book especially presents in significant detail and with great care the ongoing Swiss-Allied Safehaven negotiations before an ultimate settlement was finally reached with the help of Germany. More recently, the Independent Commission of Experts Switzerland—Second World War has published twenty-five volumes and a summary of the role of Switzerland during the war. Safehaven in Spain—with which an agreement was signed in May 1948—has been the subject of a detailed study by Carlos Collado Seidel, while Portugal—which never fully implemented the February 1947 accord—has not yet been the subject of a comprehensive account.3 3. Marco Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen im Zweiten Weltkrieg. Von der Blockierung der Schweizerischen Guthaben in den USA über die “Safehaven”-Politik zum Washing-

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In Sweden, Safehaven began in the fall of 1944, when the Allies first voiced concerns about German assets in that country. Diplomatic talks continued until July 1946, when Sweden became the second country with which the Allies concluded a Safehaven agreement. Similar to those with the other Safehaven countries, a final settlement with Sweden of all the outstanding issues under the Allied-Swedish accord proved contentious and was only accomplished between Germany and Sweden in 1956.4 Where appropriate, comparisons between Sweden and Switzerland will be made concerning the progress of the program in these two countries, since of all the Safehaven countries these two were closest in political structure and outlook. This study thus does not aim to present a complete picture of the Safehaven program as it played out in all four European countries that concluded Safehaven agreements. From Spain’s dictatorship to Switzerland’s democracy, these countries were very different, and for each country the Allies had individual political aims that varied the application of the program accordingly. For example, the development of Safehaven in Portugal cannot be understood without considering the urgent need of the Joint Chiefs of Staff for air bases in the Azores, which led to a great reluctance to apply needed pressure on Portugal. Safehaven formed a small part of the inter-Allied attempts to deal with the vestiges of war and to reorder and reshape the world in its aftermath. It was thus a program supposedly formulated and executed in conjunction with Great Britain and France. Yet, in comparison to the United States, which had reached an unprecedented position of power at the war’s end, Great Britain was forced to adjust to the fact that the age of the British Empire had come to an end. Britain’s goals and aims when it came to dealing with the neutral countries were thus often very different from those of the United States because these countries were seen as valuable trading partners whose economic capacity the war had left untouched and which were useful to British economic reconstruction. To treat these countries in a way the U.S. Treasury Detoner Abkommen (1941–1946); Linus von Castelmur, Schweizerisch-alliierte Finanzbeziehungen im Übergang vom Zweiten Weltkrieg zum Kalten Krieg: Die deutschen Guthaben in der Schweiz zwischen Zwangsliquidierung und Freigabe (1945–1952); Swiss final report: Independent Commission of Experts Switzerland—Second World War, Die Schweiz, der Nationalsozialismus und der Zweite Weltkrieg, Schlussbericht (2002) (the individual volumes considered for this study are detailed in the bibliography); Carlos Collado Seidel, Angst vor dem “Vierten Reich”: Die Alliierten und die Ausschaltung des deutschen Einflusses in Spanien, 1944–1958. 4. A few works deal with aspects of Safehaven in Sweden. See Klaus Wohlert, “Enteignungen von deutschen Auslandsanlagen im neutralen Schweden bei Kriegsende 1945,” and Sven Nordlund, “Verstaatlichung oder Privatbesitz? Die Auflösung der deutschen Unternehmen in Schweden nach dem Zweiten Weltkrieg.”

Introduction

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partment sometimes favored was not an option for British policymakers, much to the chagrin of some U.S. officials. Thus, some options, such as economic sanctions, were only debated but not used against the neutral countries. Nevertheless, Great Britain supported Safehaven because it also offered a chance to replace the German economic competition in the neutral countries with its own commercial interests. Tensions resulting from the transition from a wartime to a new postwar economic order were inherent in the Allied attempts to reshape the postwar world. Safehaven was a program whose function largely rested on Allied wartime and postwar controls in matters such as censorship, exchange and transfer of capital, and business activity. Yet, it was also the professed aim of the United States to stimulate free trade in the postwar world, which had to leave these measures of control by the wayside. Allied influence over the neutrals’ trade—such as it was—diminished, and the Allied apparatus of wartime trade controls dissolved quickly. Then, only a few years after the war’s end, the necessity arose to rebuild Germany as a bulwark against the East, which again put into question the entire notion of the Allied postwar policy of policing Germany. There was thus a continuing tension inherent in Safehaven: on the one hand, there was the aim to extensively control all manifestations of the German economy—including investments abroad—to the Allied advantage, on the other, there was the emergence of the Bretton Woods free-market economy and a new German state. Safehaven faced another difficulty that this study will explore: the complications international law caused for any plan to expropriate German assets in the neutral countries as reparations. Such a policy had never before been realized. Indeed, the United States had returned most of the property it had confiscated after World War I, although the Treaty of Versailles had allowed for such a measure against an enemy. The legal claim to these assets that the Allies—and again, primarily the United States—put forth when they approached the neutral countries caused tremendous and continuing complications and was, despite much argument by the United States to the contrary, never recognized. Safehaven was instrumental to the U.S. policy to derive reparations from external assets, a major component of the reparations policy of the United States. For the United States, external assets represented the largest share of reparations received after the war. Securing assets in this form had the added benefit that they could supposedly be transferred easily, or so officials believed in the beginning. Since it was largely through the Safehaven program that

6

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those assets were raised, this study will present the genesis of this seemingly minor aspect of reparations planning. Analyzing this debate casts a probing light on the changing fortunes of those policymakers in the Roosevelt administration who ultimately shaped the debate about Germany’s and Europe’s future. Under Roosevelt’s successor, that debate certainly did not ebb, but for Safehaven the new climate of the Truman administration meant an end to any previous attention it had occasionally received from policymakers. All of this brings us to one final question that this study addresses and that is ultimately essential to understanding this program: What was the role and position of the neutral countries during and after the war? Or, put differently and more bluntly, was there truly a neutral country left in Europe during World War II and even after it ended? The legal concept of neutrality was a longstanding one in international law—and one historically vigorously defended by one of its foremost practitioners, the United States. It was institutionalized in the Hague Conventions of 1907 regarding naval and land warfare. Yet, it was a stance often seen as “anachronistic, immoral and inefficient,” and it was a policy in decay probably since World War I.The practices of modern warfare, which had eroded the distinctions between active participants and nonbelligerents, the creation of international organizations that made the moral justification to continue only as bystander instead of defenders of the peace questionable, and finally the rise of Fascism and Communism—which had little place for neutrals within their totalitarian weltanschauung—all contributed to this fading, though it certainly still exists. Yet, despite these difficulties, declaring neutrality during wartime was still attractive. “Neutrality was the obvious, preferred, and indeed only option for some twenty-two European states” when the war broke out in 1939.5 Obviously, in most of these cases these declarations did not achieve the desired result, but for the five countries of Sweden, Switzerland, Spain, Portugal, and Ireland, this policy worked until May 8, 1945. Yet, the character and shape of the policy of the neutrals who held out to the very end has been strenuously debated, lately with new vigor as a result of the renewed examination of the neutrals’ wartime role. Did they not take actions that were “permissible” only under “their own strictly legal interpretations,” without taking “moral considerations of what was right or wrong” into 5. Efraim Karsh, Neutrality and Small States (New York: Routledge, 1988), 2 (quote). Neutrality fading and reasons for it: Karsh, 108–14; Jürg Martin Gabriel, The American Conception of Neutrality after 1941, 3; and Neville Wylie, “Victims or Actors? European Neutrals and Non-belligerents, 1939–1945,” 5–10 (quote 10).

Introduction

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account, as the second Eizenstat report lectured? Or, rather, was neutrality a policy that “had the good fortune” to keep these countries out of one of the bloodiest conflicts in history and that allowed them “to live in peace”? Did their wartime trade with Germany help to “sustain the Nazi regime and prolong its war effort,” or did this trade simply serve to preserve the neutrals’ economic existence? This is a debate, by the way, that carried on into the Cold War years, when, for example, the question became one of “how neutral Sweden’s neutrality policy actually was.” Lately, attempts have been made to move beyond such a moral dichotomy, which ultimately “remains trapped in the paradigm of the Cold War” itself. Thus it is not the task here to render moral judgment in hindsight. But understanding this continuing historical debate serves to illuminate similar dilemmas the Safehaven program and its participants faced.6 When the neutral countries were asked to surrender German assets, were they morally obliged to hand them over because the neutrals’ role during the war had been questionable and they had not been truly neutral? Or should they have continued to follow the laws of neutrality, as they had supposedly done during the war? Were they therefore required by international law, which protected private property in neutral countries, to disregard Allied demands? Were neutral countries obliged to contribute to the reconstruction of Europe with the help of these assets, as the Allies told them, or were these not ordinary reparation payments in accordance with the internal understanding of the Allies? And, finally, what would the postwar position of the neutrals be if they acted either way? Ultimately, these were the questions that had to be decided, and this study will detail how they were answered.

6. Eizenstat II, ix (first three quotes); introduction to Schwedische und Schweizerische Neutralität im Zweiten Weltkrieg, ed. Rudolf L. Bindschedler et al., 7 (fourth and fifth quotes); Eizenstat I, iii (quote), see also iv and v; critique of Eizenstat I in Dietrich Schindler, “Contested Swiss Neutrality,” 93–94; Ulf Bjereld and Ann-Marie Ekengren, “Cold War Historiography in Sweden,” 143 (quote); Mikael af Malmborg, Neutrality and State-Building in Sweden, 2 (quote). In addition to recent works already cited, see also Jerrold M. Packard, Neither Friend nor Foe: The European Neutrals in World War II, and Christian Leitz: Sympathy for the Devil: Neutral Europe and Nazi Germany in World War II.

Hidden Battles Economic Warfare during World War II

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              in September 1939, and especially with the rapid collapse of France in May 1940, the German military juggernaut seemed almost unstoppable. However, contrary to this perception and despite its early successes, Germany was ill prepared to fight the type of war it had started. World War I had already shown that the country lacked key mineral and industrial resources as well as the necessary food supplies to fight an extended war. Even with the added wealth of the occupied territories at the height of German domination, the Axis still had to obtain raw materials such as chromite, wolframite, high-quality iron ore, tin, and manganese from the neutral countries, which made them conspicuous players in the German war effort despite their political noninvolvement. The German government had a variety of means of controlling its trade with other European nations during the war. Already in 1931, during the depression, Germany had mandated stringent foreign-exchange control regulations to stem the massive outflow of capital and to stabilize the reichsmark through a deflationary policy. The government required all privately held foreign currency to be offered to the Reichsbank (German Central Bank) for sale. Germans had three days to do so; otherwise the potential penalty was ten years in prison. The Nazi government easily built on these measures. In June 1933, Hitler’s regime stopped all remaining payments to its creditors abroad. The next step to conserve foreign exchange was the New Plan of 1934, which mandated an import-management program that incorporated 8

Economic Warfare during World War II

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foreign trade into the Nazis’ twin goals of rapid rearmament and sufficient civilian production.1 Germany signed bilateral compensation and exchange agreements, or clearing agreements, with many European states, the first one with Hungary in April 1932. A clearing agreement with Switzerland was concluded in July 1934, negotiated on the Swiss side by Walter Stucki, the same person who would head the delegation to the Safehaven negotiations in Washington in 1946. An agreement with Sweden was signed in August 1934, with Jacob Wallenberg, a banker, and Gunnar Hägglöf from the Foreign Office leading the Swedish delegation. Essentially, these agreements eliminated the need for bilateral cross-border payments between the signatory countries. German companies wanting to buy a product from abroad would pay the reichsmark amount into an account at the Deutsche Verrechnungskasse (German Clearing Office) in Berlin after prior governmental approval. The Deutsche Verrechnungskasse, in turn, would advise its foreign equivalent to pay the foreign trading partner in its own currency. This was a cumbersome bureaucratic system—the Deutsche Verrechnungskasse already had 1,200 employees by 1935—relying on the equal exchange of products so that the clearing accounts in each country would remain balanced.2 However, it had the advantage that the signatory countries knew about and could control all the financial transactions between them. German Influence in Sweden Because of the traditionally close economic ties between Germany and Sweden, German investments in Sweden were considerable. Germany was the biggest non-Scandinavian investor in the country until the end of World War II. Of the 165 German-controlled companies in Sweden, 75 produced goods and were thus more than mere sales organizations for the German parent company. In 1938, foreign-controlled companies accounted for 4.8 percent of the Swedish industrial output and for 4.1 percent of all employed 1. In May and June 1931 alone, the biggest banks in Berlin had to pay out 1.2 billion reichsmark. See Stefan Frech, Clearing: Der Zahlungsverkehr der Schweiz mit den Achsenmächten, 46 n. 4, 45 – 48; Fritz Blaich, Der Schwarze Freitag, Inflation und Weltwirtschaftskrise, 87–88. Hans-Erich Volkmann, “The National Socialist Economy in Preparation for War,” 245. 2. For agreements see Frech, Clearing, 48– 62, and Klaus Wittmann, Schwedens Wirtschaftsbeziehungen zum Dritten Reich, 1933–1945, 48–72. For functioning of clearing see Frech, Clearing, 23–44.

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workers. Of these foreign-owned companies, 16 percent of the industrial output came from and 17 percent of all workers were employed by Germancontrolled companies. These companies were in traditional areas of German strength, such as electrical machinery, armaments, and shipping.3 The biggest German company in Sweden was Aktiebolaget (AB [Joint Stock Company]) Landsverk in Landskrona, with 552 employees in 1938. During the war Landsverk was the largest maker of tanks in the country. Since 1925, 62.8 percent of the company had been owned by Gutehoffnungshütte, Oberhausen, via its Dutch subsidiary Naamloze Vennootschap en Handelmaatschappij Rollo (Rollo). Because of a 1916 law, foreigners were not supposed to own more than 20 percent of the stock of a Swedish company—and no mining or real estate interests—but Landsverk’s articles of association were based on an 1895 contract that had not limited foreign ownership. Landsverk continued to produce unhindered, especially as its expertise in tank production was unmatched, its production strictly controlled, and all of its tanks went to the Swedish army. Also, in comparison to AB Bofors, an armament maker of worldwide repute, Landsverk was only a small company. The two other Swedish armament companies that had been under German control or part German ownership, AB Flygindustrie and AB Bofors, no longer had German participation at the outbreak of the war as a result of a 1935 Swedish law that limited foreign ownership in the armament industry.4 Another important German-controlled company was Accumulator AB Tudor, with 251 employees in 1938.Tudor produced submarine and other batteries and had been founded by Allgemeine Elektricitäts-Gesellschaft (AEG) and Siemens & Halske in the 1920s to compete with a similar Swedish com3. Nordlund, “Verstaatlichung oder Privatbesitz?” 79–81. The term German-controlled rather than German-owned is used because in many cases those companies were owned by Dutch dummy companies to mask their real German ownership. For these often complex cloaking operations, see below and Chapter 8 on the Bosch/Enskilda case. 4. For Landsverk: Nordlund, “Verstaatlichung oder Privatbesitz?” 85, and Inger Ström-Billing, “Die Behandlung der deutschen Interessen in der schwedischen Rüstungsindustrie 1934–1935,” 239–40, 249–51. Since 1925, AB Flygindustrie had been controlled by Junkers Flugzeugwerke AG via open ownership and dummy shareholders. It closed in 1935. The company mainly built militarized versions of Junker planes, which could not be assembled in Germany under Versailles Treaty regulations. In the early 1930s, Bofors had 2,800 employees, and even more were employed in its supply companies. Since 1920 Krupp of Germany had held 31.8 percent of Bofors’s stock via the Swedish dummy company AB Boforsintressenter. Shortly before the 1935 law became effective Krupp sold its Bofors holdings on the stock market and Boforsintressenter went into liquidation. The U.S. Foreign Economic Administration (FEA) suspected that Swedish financiers continued to hold Bofors stocks for Krupp. See Ström-Billing, “Behandlung der deutschen Interessen,” 236–41, 244–53; FEA, “German Economic Interests in Sweden,” 7–8, Nov. 1945, folder: German Economic Interests in Chile (box 111), Isador Lubin Papers, Franklin D. Roosevelt Library (FDRL).

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pany. There were also important subsidiaries of the big German electrical companies, like AEG Elektriska AB, Siemens Elektriska AB, and several Osram companies, the biggest maker of lightbulbs in Sweden. These were all owned 100 percent by the equivalent German companies. Eight German mining companies were located in the mining areas of central Sweden, which had been acquired before the 1916 law took effect. The biggest of them was Stora Långviks Gruv AB, with 344 employees, owned by Vereinigte Stahlwerke, Düsseldorf. Two-thirds of AB Stollbergs Gruvor (141 employees) was owned equally by Friedrich Krupp and Gutehoffnungshütte via Rollo. Krupp also owned up to one-third of four other Swedish mining companies. In three cases, the other shares were controlled by Hoesch, Dortmund, and Gutehoffnungshütte via Rollo, while Bergverks AB Vulcanus’s fourth owner was a genuine Dutch company. It should be noted that these German mining companies were not very important in terms of overall Swedish ore production. The many small mines in central Sweden had lost importance to the vast northern Swedish mining areas with the opening of the Narvik, Norway–Luleå, Sweden railway line in 1902. These northern fields were largely controlled by one company, the Trafikaktiebolaget Grängesberg-Öxlesund, which worked in close collaboration with the Swedish government; it also controlled the largest deposits in central Sweden.5 In addition, there were a number of German economic and cultural organizations in Sweden, such as the German Chamber of Commerce, an office of the German labor front, and the German film distributors UFA, Tobis, and Pallas. Stockholm was also home to the oldest German school abroad (founded before 1569), which had ceased to exist in the nineteenth century but was refounded in 1941. It was attended by children of German diplomats, merchants, and Jewish emigrants from Germany. One newspaper in Sweden, the Dagsposten, provided outright support of Nazi Germany. Its 5. For Tudor: Paul Ufermann and Carl Hüglin, Stinnes und seine Konzerne, 44, and Sven Nordlund, Upptäckten av Sverige: Utländska Direktinvesteringar I Sverige, 1895 –1945, 134, 172. Other companies: Nordlund, “Verstaatlichung oder Privatbesitz?” 80 – 98; Robert Chalker (second secretary of the U.S. Embassy in London) to State Dept., Apr. 26, 1946, with list “Swedish Companies in Which German Majority Participation Has Been Proved,” 800.515/date, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP (hereinafter cited as 800.515/date); and Avery Peterson (first secretary, London) to State Dept., Sept. 8, 1945, with list of Krupp’s foreign holdings attached, folder: Safehaven Aug. 16–25, 1945 (box 384), untitled Safehaven Report about Krupp from London, Nov. 19, 1945, folder: Safehaven Nov. 1945 (box 385), both in FFC Subject Files 1942–1960, Records of the Office of Alien Property, RG 131, NACP. Mining situation: Berthold Steinhoff, Die schwedische Eisenerzproduktion und Eisenerzpolitik seit der Jahundertwende, 21– 36, 74–106.

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editor was jailed for accepting financial aid from a foreign power, but the paper continued to be published until 1951, though running a less definite political format.6 The Role of Sweden during the War With the outbreak of the war in Europe the specialty resources of the neutral countries became very important for the German war effort. Spain and Portugal, for example, had large wolframite mines. Wolframite is an ore that yields tungsten, which was crucial to produce machine tools and armorpiercing shells. Spain also supplied a very limited amount of iron ore, although never in significant quantities. Sweden “became the totally dominant delivering country” for high-quality iron ore during the war, thus supplying one of the most valuable raw materials for the German war effort. On average, Sweden supplied 28.2 percent of all the iron ore used annually in Germany between 1940 and 1944. These deliveries continued on a fairly constant basis until the fall of 1944. Even after the conquest of the French and Luxembourgian mining regions, Swedish ore remained very attractive because its high iron and low phosphorus content made its use in iron production very economical. Other important Swedish exports to Germany were iron and steel products, ball bearings, timber, and cellulose. In return, Germany chiefly offered the only important commodities it owned in abundance: coal and coke. Other German imports were chemicals (fertilizers and salts), textiles, machinery, and, in small amounts, war matériel. Contrary to earlier claims, Swedish iron ore and ball bearings were not indispensable to the German war effort, and the cessation of export of those products would not have caused a swift end to the war. Martin Fritz, for example, has concluded that “the [contemporary] American notion of the importance of Sweden’s export of ball-bearings was . . . fundamentally mistaken.” The overall significance of Swedish iron ore for the German war economy is much more difficult to measure because its effects on labor, fuel supply, and blast-furnace capacities are hard to assess. In the end, Swedish deliveries of both products were always guided by the larger economical and political considerations. They continued beyond the threat of a possible German attack on 6. German organizations: Nordlund, Upptäckten av Sverige, 260, 264. German school: Frankfurter Allgemeine Zeitung, May 20, 2003. Dagsposten: FEA, “German Economic Interests in Sweden,” 19, Lubin Papers, FDRL.

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Sweden because Germany could always suspend the release of vital supplies to Sweden.7 As this discussion has already made apparent, the fate of Sweden’s foreign trade was closely tied to the changing fortunes of the belligerents. Traditionally, foreign trade constituted a large share of the Swedish gross national product (15 to 20 percent, even in the protectionist 1930s). Before 1939, Germany and Great Britain each accounted for about 20 percent of this trade and the United States for another 12 percent. When the war broke out, Sweden signed war-trade agreements first with Great Britain and then with Germany, negotiated with the help of banker Marcus Wallenberg for the British and his brother Jacob for the German talks. Yet, the trading situation for Sweden changed profoundly only when Germany launched its Northern Front in April 1940 and mined the Skagerrak between northern Denmark and southern Norway. Thenceforth, until the end of 1944, Swedish trade “was almost entirely directed to Germany and to countries subjugated of [sic] Germany.” The only outlet to the West was the “safe-conduct” (or Göteborg) traffic that began in late 1940. It operated under the permission of both Germany and Great Britain and under the condition that the number of incoming and outgoing vessels should remain equal. Of course, the conditions of the Göteborg traffic offered a good opportunity for both sides to exercise political pressure by halting the traffic at various times. Even with this outlet, 90 percent of Swedish wartime exports went to German-occupied Europe and 80 percent of Swedish imports came from there. For both sides, this trade was advantageous. Germany needed Swedish products, while Sweden, on the other hand, could fulfill most of its critical needs from within the German economic sphere of influence. Only oil, rubber, and some “psychologically important” food items such as coffee and bananas were brought into Sweden via the Göteborg traffic.8 7. Martin Fritz, German Steel and Swedish Iron Ore, 1939–1945, 53, first quote 52; Fritz, “Swedish Ball-Bearings and the German War Economy,” second quote 34. Fritz has summarized his findings in “Swedish Iron Ore and Ball-Bearings in the German War Economy.” On German deliveries: Fritz, “German Swedish Economic Relations during World War II,” 15 –16, and Fritz, “Neutrality and Swedish Economic Interests,” 312–15. On the Swedish fuel situation during the war: Sven-Olof Olsson, “German Coal in Swedish Energy Consumption.” On average, Spain supplied 3.71 percent of Germany’s iron-ore imports between 1941 and 1944 (Fritz, German Steel and Swedish Iron Ore, 51). The importance of Swedish iron-ore exports was discussed by Alan S. Milward, Rolf Karlbom, and Jörg-Johannes Jäger in the Scandinavian Economic History Review between 1965 and 1967. 8. Fritz, “German Swedish Economic Relations,” 16; Fritz, “A Question of Practical Politics: Economic Neutrality during the Second World War,” 96–98, quote 98.

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At the outbreak of the war, Sweden declared its neutrality. Yet, over the course of the war there were a number of aberrations from the strict application of this policy. In November 1939, when Russia attacked Finland in the Winter War, Sweden did not announce its neutrality but simply remained a nonbelligerent. Sweden and Finland had always been close as Finland had been an integral part of the kingdom until it was lost to Russia in 1809. After the attack, more than eight thousand Swedes volunteered to fight against the Soviet Union, and the Swedish government delivered substantial amounts of war matériel. In short, “Sweden went as far as a country could do without getting directly involved.” Sweden maintained that this was a local war and that thus its earlier neutrality declaration did not apply—which certainly did not prevent the Soviet Union from vehemently complaining about the Swedish assistance.9 The other violations of neutrality were clearly related to the larger war and most visibly concerned the transit of German troops and matériel through Sweden, a practice not allowed under the Hague Conventions. With the war in northern Norway still ongoing, Sweden had already conceded to Germany a one-time transfer of humanitarian aid to Narvik, Norway, and had also allowed the ongoing transfer of civilian goods, including gasoline. After Norway’s capitulation in June 1940, Sweden was completely surrounded by German troops and was in a difficult position to refuse German demands. Thus, until August 1943, Sweden allowed the transit to Norway of war matériel and troops on leave to and from Norway as well as the transfer of German troops from the middle of Norway to Narvik via Sweden. During this period more than 2 million people and about 200,000 tons of matériel per year were transported. In the summer of 1941, an entire German division passed from Norway through Sweden to the Russian front. Sweden also allowed German courier flights over its territory; 3,157 such flights took place. These agreements were passed “under the impression of the overwhelming superiority of Germany” but helped to preserve “Sweden’s continued existence as a selfgoverning and free country inside the German sphere of influence.”10 If these concessions were clearly in violation of neutrality laws, there were other occurrences that made use of the gray area under which neutrals could operate during this time. During the war various German companies tried to build ships in Sweden. These were either to be delivered to Germany or to be 9. Af Malmborg, Neutrality and State-Building, 138– 39, quote 138. 10. Ulf Brandell, “Die Transitfrage in der schwedischen Außenpolitik während des zweiten Weltkrieges,” 84–95, quote 87; Wilhelm M. Carlgren, Swedish Foreign Policy during the Second World War, quote 120.

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used to increase German transport capacity under a neutral flag, an advantageous setup. In the spring of 1942, for example, fourteen ships for twelve different German shipping companies were planned or under construction in Swedish shipyards, their construction being dependent on the deliveries of the necessary materials from Germany. There was also the scheme that ships under construction would be outfitted as warships later, as in the case of fortyfive so-called fishing boats designed to serve as minesweepers for Germany. The Allies were quite aware of these activities. Often, these operations were illegal under Swedish law. Not only did Sweden forbid foreign ownership of vessels under the Swedish flag, but also neutrals were not supposed to outfit and sell warships on the order of belligerents—a law dating back to the Alabama case during the American Civil War.11 In 1944 the United States received information that the prominent Hamburg shipping company Hamburg-Amerikanische Packetfahrt-AktienGesellschaft (HAPAG) had been trying since 1941 to build a number of ships in Sweden. The overt intention was to use these ships for civilian purposes under the Swedish flag. Because of the Swedish law limiting ownership, HAPAG had to find a Swedish national who would build and operate the ships for it. The company’s agent in Sweden, Gustav Thulin, agreed to step in—on the advice of his lawyer—and subsequently set up four separate companies, AB Skeppsbron, AB Trivia, AB Proserpina, and AB Atomena. The latter three were planned to be the operating companies for four ships and were all wholly owned by Skeppsbron making the scheme legal under Swedish law. HAPAG would lend the necessary money to Skeppsbron, which would then pass it on to its three subsidiaries. Part of the 11,980,048 Swedish kronor loan for the transactions came from a HAPAG account at the Swiss Bank Corporation in Zurich (about 2.5 million kronor) and the remainder from accounts the German Reichsbank maintained at private Swedish banks. The involvement of the Reichsbank is a clear indication that the German govern11. Ships under construction: Dr. Heinrich Riensberg (commercial naval attaché at the German Embassy, Stockholm) to the German Economic Ministry, the Foreign Office, and the Fachgruppe Reeder, Hamburg, “Schiffbaumaterial für Neubauten in Schweden” and “Stand der Neubauten für deutsche Rechnung in Schweden,” both Mar. 26, 1942, folder: Neubauten auf schwedischen Werften (box 448), Schiffahrtssachverständiger, Deutsche Gesandtschaft, Stockholm, Political Archive of the Auswärtiges Amt (Foreign Office), Berlin. Plans for fishing boats were summarized by German Naval Attaché Paul von Wahlert during his postwar interrogation; see Peterson to State Dept., Feb. 23, 1945, with interrogation report attached, 800.515/date. After the war the Allies found thirtyeight of these fishing boats, outfitted as minesweepers, in Norwegian ports (Henry Denham, Inside the Nazi Ring: A Naval Attaché in Sweden, 1940–1945, 66–67; William N. Medlicott, Economic Blockade, 2:467–68).

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ment knew and approved of this operation. Since the money was not adequate to purchase the ships, which were built at two Swedish shipyards on the order of another shipping company, the Svenska Handelsbanken loaned another 8 million Swedish kronor to Skeppsbron. This money was secured by a mortgage on the ships and by HAPAG itself. Three vessels were ready by the summer of 1944 and the fourth later that year. The Allies, of course, did their utmost to prevent them from being put into service. Under the threat of blacklisting (see below) Thulin agreed not to use or charter the vessels except with Allied permission, and after the war, the four ships were entered into the Allied Shipping Pool of the United Maritime Authority.12 Obviously, these schemes did not happen without the approval of the German government because of the country’s stringent control over any transaction involving foreign exchange. They are thus not examples of a last-minute flight of capital, but rather exemplify the efforts of Germany to employ every possible resource for fighting the war. To the Allies such plots, which seemed to give support to their enemy, were reprehensible and demonstrated the questionable role of the neutrals in the war. The initial turn of the tide at the gates of Moscow in the winter of 1941/ 42 did not immediately decrease the danger for Sweden. There were credible rumors that Germany might engage in a preventive attack against Sweden to preempt any Swedish support for possible Allied action in Norway. Nevertheless, with the entrance of the United States into the war, the pressure on Sweden to reduce German transit through the country increased drastically. Sweden was vulnerable because of its needs for oil, and between September and December 1942 several Swedish tankers sailing from the United States were detained there. By 1943, the battle had turned more decisively in Allied 12. HAPAG itself has claimed not to possess any files about this topic. First information about this case in Otto Fleischer to Sidney Homer, Aug. 12, 1944, folder: Special Subjects folder: Sweden, Safehaven Subject File, 1945–1947, Records of the Division of Economic Security Controls, Records of the Office of Economic Security Policy, RG 59, NACP (hereinafter cited as Records of DESC); available information according to a memo by the British Economic Warfare Dept. transmitted in Herbert Fales (second secretary of the embassy, London) to State Dept., July 13, 1945, 800.515/date; Calder to State Dept., “Cloaking by the Swiss Bank Corporation of assets of the Hamburg-Amerika Linie,” May 8, 1946, with letter about the Swiss account transactions from HAPAG to the Control Commission for Germany (British Element), dated Mar. 12, 1946, attached, 800.515/date; U.S. Minister in Sweden Herschel Vespasian Johnson to State Dept., July 15, 1944, folder: Currie Mission (box 387), FFC Subject Files. Technically, Johnson was thus not a full ambassador. However, in order to differentiate his position from that of a cabinet-level minister (such as a “foreign minister,” for example), he and his colleagues in the diplomatic service will be referred to as ambassadors throughout if they headed foreign missions.

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favor, and the cancellation of the transit agreement opened the way for Sweden to sign a tripartite trade agreement with Great Britain and, for the first time, the United States. Germany, busy with the impending fall of Mussolini, hardly protested. The last war-trade agreement with Germany was concluded in January 1944 and incorporated the reductions promised earlier to the Allies. However, those limits were partly circumvented by deliveries of higher-quality iron ore as well as steel and machinery for ball bearings.13 Sweden now moved away from its close relationship with Germany and adjusted to the prospect of a postwar world dominated by the United States and the other Allies. In August 1944, Sweden canceled the insurance coverage for all Swedish ships sailing to Germany. Because of a lack of German tonnage, this step greatly reduced Swedish-German trade. In early September, Sweden stopped all the still-remaining German transit through its territory and later that month prohibited foreign ships from coming into Swedish Baltic ports. The measure left ports on the Swedish west coast, including Göteborg and Malmö, open for traffic, a special concern to the United States because a lot of ball bearings were transported through these ports.14 Erik Carlsson Boheman, kabinettssekreterare at the Swedish Foreign Office, made clear to the U.S. ambassador that the limited closure was due only to the relentless U.S. pressure on Sweden, which “had been resented by the Government and in particular by the Foreign Affairs Committee of the Riksdag.” The issue of foreign interference in Swedish affairs—a large topic during the 1945 Safehaven negotiations—was raising its head. On October 12 exports of ball bearings to Germany were also stopped. The United States would have liked to see a complete end of all Swedish-German trade, but that would most likely have meant the termination of Sweden’s diplomatic relations with Germany. Sweden could not have acted as a protective power anymore, and its Red Cross activities in Germany and elsewhere would have come to an end. Also, forcing the issue on Sweden would certainly have made it harder for Great Britain to build closer economic ties with the country later.15 13. Carlgren, Swedish Foreign Policy, 126–62; Wittmann, Schwedens Wirtschaftsbeziehungen, 343–60. 14. Secretary of State Cordell Hull to U.S. Ambassador to the United Kingdom John G. Winant, Aug. 19, 1944, U.S. Dept. of State, Foreign Relations of the United States Series (hereinafter cited as FRUS), Diplomatic Papers, 1944, vol. 4, Europe, 616–17; Johnson to State Dept., Sept. 8 and 22, 1944, FRUS, 1944, 4:637, 638– 39; see also Carlgren, Swedish Foreign Policy, 199 –207. 15. The English equivalent of kabinettssekreterare would be chief of staff to the foreign secretary. Boheman according to Johnson to State Dept., Sept. 23, 1944, FRUS, 1944, 4:639. British postwar hopes: Juhana Aunesluoma, Britain, Sweden and the Cold War, 1945 – 54, Understanding Neutrality, 2, 27–28.

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Not surprisingly, Germany proved very accommodating during these months in order to keep from having Sweden as a new and unnecessary enemy. Germany continued the Göteborg traffic even though Swedish deliveries of specialty steel, machine tools, and other products were discontinued at the end of October under Allied pressure. Sweden hoped thus to satisfy Allied demands—at least for a while—and to receive delivery of three thousand tons of rubber ordered in the United States. However, since the United States believed that any amount of Swedish exports to Germany “enabled Germany to prolong the war,” the rubber was released only when Sweden promised to end all trade with Germany. The shipment reached Sweden on New Year’s Day 1945, and at that point all trade between Sweden and Germany came to an end.16 Toward Germany, Sweden continued to hint at a possible new wartrade agreement, but soon all those vague pronouncements became futile because there was no German Foreign Ministry to speak of anymore. The Allied Machinery of Economic Warfare To counter the German industrial war machine on a broad economic front, the Allies set up a number of specialized agencies to plan and implement economic warfare strategies. Immediately after the outbreak of the war in September 1939, Great Britain created the Ministry of Economic Warfare (MEW). Its goal was quite simple: “to disorganize the enemy’s economy as to prevent him from carrying on the war.”17 Though broadly conceived, the MEW’s work largely rested on the traditional British practice of blockading enemy ports during wartime. To successfully cut off the German economy from outside support, the behavior of the neutrals was decisive since they were the only countries legally allowed to trade with both sides. Two Allied measures—already successfully employed during World War I—aimed to limit the danger that Allied products might end up in the hand of the Axis. The first one was essentially a rationing sys16. Swedish deliveries: Johnson to State Dept., Oct. 26, 1944, FRUS, 1944, 4:653–56, and Stettinius to Johnson, Nov. 10, 1944, FRUS, 1944, 4:660– 61, quote 661. End of trade: Stettinius to Johnson, Jan. 1, 1945, FRUS, 1945, 5:731. The German industrialist Hugo Stinnes, who served as an adviser to Germany’s Ministry for Armaments and War Production, had warned already in May 1944 that all German deliveries to Sweden had to be fulfilled “meticulously” so that there might be a chance for a new war-trade agreement despite the strong Allied pressure (Karl Heinz Roth, “Wirtschaftliche Vorbereitungen auf das Kriegsende und Nachkriegsplanungen,” 534). 17. Medlicott, Economic Blockade, 1:12–17, 36–40, quote on 1. See also discussion in David L. Gordon and Royden Dangerfield, The Hidden Weapon: The Story of Economic Warfare, 1–29.

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tem in the form of the war-trade agreements discussed above.The general aim of these agreements was to establish import quotas similar to the usual prewar consumption of overseas imports by the neutrals. That way, neutrals were prevented from exporting increased amounts to Germany and from making an ungainly profit from the war. The practical enforcement of these agreements rested, secondly, on a documentation system that forced shipowners to prove the legality of their cargo and crew at the port of embarkation with socalled navicerts (naval certificates). Every voyage into neutral harbors had thus to be certified by the Allies or owners would risk seizure, and ships could not use any Allied shipping facilities around the world. In addition, there was always the already-demonstrated option that any product under Allied control could be held back by the Allies to soften a neutral’s stance.18 Naturally, there were also goods the Allies could never control since they were available from the neutrals themselves (like the Iberian wolframite). Aside from diplomatic pressure, Allied options were limited in this regard. One tactic was to engage in preclusive buying with the aim of outbidding the other side for certain strategically valuable products, an approach that could get very costly.19 The other was the use of what was commonly known as the blacklist—a World War I invention as well—in its various British and (later) American incarnations. Altogether, Allied success in influencing wartime trade with the neutrals was very much dependent on who currently seemed to have the upper hand in the changing fortunes of the war. While Great Britain could rely on centuries of experience in these matters, the United States faced these issues from a very different perspective. At least until the end of the “Twilight War” in May 1940, the United States was quite concerned with the effects of these British wartime measures on Atlantic trade—not an unfamiliar theme for the world’s most powerful neutral. Official British history has maintained that there was no Anglo-American conflict. “When the navicert system was introduced on 1st December [1939] it was generally well received by United States shipping companies,” William N. Medlicott has written, and later historians have picked up on this assessment. However, exporters who wrote to the State Department that they were “boiling mad” about the fact that they had “to purchase a piece of the ocean 18. World War I precedent: Arthur Mardsen, “The Blockade,” and Charles Paul Vincent, The Politics of Hunger: The Allied Blockade of Germany, 1915 –1919. Functioning of blockade: Gordon and Dangerfield, Hidden Weapon, 29–40. With the increasing success of Allied bombing later in the war, another important task of the MEW was to name possible economic targets in enemy territory. 19. On Iberian wolframite see Leitz, Sympathy for the Devil, 130 – 37, 155 – 66.

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to accommodate the British government” contradict that picture of complacency. Actually, the United States launched energetic protests against this British policy. There was also the problem that the British began a clandestine blacklist of U.S. firms in early 1940, though this fact was repeatedly denied by the British ambassador in Washington. This conflict over the right of neutrals to ship without restrictions was only resolved when Great Britain acquiesced to U.S. demands in April 1940. The MEW would not use the navicert system to discriminate against U.S. shippers; it would make its decisions based on the goods and their destinations instead of on the companies shipping them. Finally, a precise explanation would be given if an application was denied. Implicit in this agreement was also the “surrender” of the “unofficial Black List,” as a Foreign Office memo critically noted. As the first Lord of the Admiralty and half-American, Winston Churchill had already warned the MEW in February, “the disadvantages of a quarrel with so powerful and so friendly a neutral as the United States are very great.”20 Despite its protest, the United States was hardly a defender of strict neutrality in these early years of the war. A November 1939 change of the 1937 Neutrality Act allowed belligerents to buy arms on a cash-and-carry basis. President Roosevelt knew very well that only Britain and France would have the shipping facilities to take advantage of this change from U.S. isolationism. Indeed, with the phony war in Europe coming to an end, it became obvious that U.S. foreign policy began to assume a stance that more appropriately could be called nonbelligerency, or benevolent neutrality. The destroyers-forbases deal in September 1940 and Lend-Lease in March 1941 made apparent that it was a version of neutrality that clearly favored one side in the war and that gave up any pretense of impartiality. Concomitantly, the United States began to take its own circumscribed steps into the field of economic warfare.21 When Germany invaded Norway and Denmark on April 9, 1940, the United States froze (or blocked) the assets of Denmark and Norway in the United States. This move was mainly due to the quick actions of Secretary of the Treasury Henry Morgenthau in the wee hours of April 9.22 After that 20. Medlicott, Economic Blockade, 1:44. For later views see, for example, Gabriel, American Conception of Neutrality, 46, and B. J. C. McKercher, Transition of Power: Britain’s Loss of Global Pre-eminence to the United States, 1930–1945, 284–85. Issue revalued in Robert W. Matson, Neutrality and Navicerts: Britain, the United States, and Economic Warfare, 1939–1940, 4–57, quotes 26, 49; Churchill to Rodney H. Cross (minister of Economic Warfare), Feb. 14, 1940, quoted in Matson, 44. 21. Gabriel, American Conception of Neutrality, 29–30, 41. 22. John Morton Blum, From the Morgenthau Diaries: Years of Urgency, 1938–1941, 133–35; see

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date, Roosevelt amended this initial executive order—which was also confirmed by general legislation in May—to include those countries that were being occupied by Germany. A special section in the Treasury Department, Foreign Funds Control (FFC), was created at the same time to control the blocked funds. Still, these initial freezing orders were hardly offensive steps, and the economic warfare section at the British Embassy in Washington kept probing the State Department to take bolder action. A more opportune time for further activities arrived after the 1940 presidential election. On June 14, 1941, after a long-drawn-out struggle between Morgenthau and Secretary of State Cordell Hull, the president finally froze the assets of all continental European nations except Turkey. Japan and China were added a month later. For over a year Morgenthau had advocated such a blanket freezing order or at least a freezing of Axis assets, but Hull had been steadfastly opposed to such steps. He argued that the United States was still neutral and that a general freezing order might endanger U.S. assets in Germany and Japan, worth four times as much as the assets of those countries in the United States. Also, such an order might cause Sweden and Switzerland to move closer toward Germany. Finally, Hull relented, giving in to pressure from within his own department and especially from his new assistant secretary, Dean Acheson, who got involved on Morgenthau’s behalf.23 Edward Foley, general counsel of the Treasury Department, commented in a September speech in Indianapolis that this presidential order “changed the emphasis of freezing control from a defensive weapon . . . intended to protect the property of invaded countries, to a frankly aggressive weapon against the Axis.” Not only bank deposits, gold, and securities were frozen, but also businesses, merchandise, patents, trademarks, copyrights, trusts, real estate, and ships. Thus, for example, it fell initially to FFC to control such companies as General Aniline and Film, a subsidiary of the German chemical combine I.G. Farbenindustrie and the first company vested by Morgenthau.24 also letter from John W. Pehle to Orvis A. Schmidt, acting director of FFC, Apr. 10, 1944, folder: J. W. Pehle Memoranda, 1942–44 (box 2), Abijah U. Fox Papers, Harry S. Truman Library (HSTL). The orders for such a step had been readied in the Treasury’s Legal Division since 1937; see Bernard Bernstein, Oral History Interview, July 23, 1975, Bernard Bernstein Papers, HSTL. Bernstein claimed a large role in drafting these orders. 23. Blum, Years of Urgency, 334–37; Dean Acheson, Present at the Creation: My Years at the State Department, 22–27; Bernard Bernstein, Oral History Interview, HSTL. 24. Foley, “Freezing Control as a Weapon of Economic Defense,” Sept. 29, 1941, U.S. Treasury Dept., Census of Foreign-Owned Assets in the United States, 5; types of property in Summary Report of the Secretary of the Treasury, July 21, 1945, 82–83, folder: Treasury, Dept. of the—Summary Report of the Secretary of the Treasury, July 21, 1945 (box 23), Bernard Bernstein Papers, HSTL. For Gen-

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However, FFC’s control over anything but liquid assets soon ended. In March 1942, Roosevelt created the Office of Alien Property Custodian (APC) under direct White House supervision to manage all other assets. At the top he placed Leo T. Crowley, a self-made millionaire and conservative Catholic New Dealer from Wisconsin. Crowley had already proven himself an effective government bureaucrat as head of the Federal Deposit Insurance Corporation (FDIC), a job he had held since the FDIC was founded in 1934. In addition, Crowley was the successful chairman and president of Standard Gas in New York, one of the largest public-utility companies in the country. Standard Gas controlled utility companies in twenty different states and Mexico and was owned by the financier and speculator Victor Emanuel—which is why Morgenthau always thought Crowley was just “a personal front” for Emanuel and never warmed up to Crowley. Because Crowley had excellent ties to the business community and was a very able administrator, he was the obvious choice as APC to guarantee that the companies under his control would run smoothly to support the U.S. war efforts.25 Even without alien property to take care of, FFC was still supervising between $6 and $7 billion in liquid assets. Its large staff of 650 people under Treasury lawyer John Pehle worked closely with the Federal Reserve Banks, the Securities and Exchange Commission, and other governmental agencies. The whole operation was overseen by an interdepartmental committee consisting of Foley, Acheson, and Francis Shea from the Justice Department.26 The main task of FFC was to issue general or specific licenses, which were required to move any of the blocked funds. Not all transactions were necessarily dubious. For example, citizens of blocked countries who had lived in the United States for a sufficient time received general licenses, making them “generally licensed nationals.” However, if these people ever came under suspicion, their licenses could easily be revoked. The European neutral countries whose funds had been blocked were granted general licenses for transactions of their governments and their nationals that went through their individual eral Aniline and Film, see William Harvey Reeves, “The Control of Foreign Funds by the United States Treasury,” 51. 25. Stuart L. Weiss, The President’s Man: Leo Crowley and Franklin Roosevelt in Peace and War, 114–31 (history of appointment), 33–38 (FDIC), 81–84 (Standard Gas), 121 (quote), 122–47 (as APC). Crowley’s past had also not been without trouble. In the late 1920s, he supposedly issused large loans to himself as president of the State Bank of Wisconsin, a fact later covered up. Morgenthau found out about Crowley’s troubles shortly after he became head of FDIC (Weiss, 12–16, 48– 64). 26. Assets in Summary Report of the Secretary of the Treasury, Bernstein Papers, HSTL, 87; structure in Blum, Years of Urgency, 341.

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central banks. Of all the countries affected, Switzerland had the largest holdings in the United States ($1.2 billion), followed by France ($1.04 billion), the Netherlands ($976 million), and Sweden ($366 million). Investors from these and other countries had considerably built up their savings in the United States as long as was possible. Then—as now—keeping savings in the United States appeared to be a good safeguard against uncertainties.27 While FFC was concerned with the general control of financial transactions, another already-mentioned instrument of economic warfare focused on the actions of certain companies or individuals. In July 1941, FDR began the U.S. version of a blacklist, the “Proclaimed List of Certain Blocked Nationals.” Issued by the secretary of state and frequently updated, this list named companies and people whom the U.S. government considered to be acting for the benefit of the Axis. Any dealings with the companies on the list were penalized under the Trading with the Enemy Act of 1917. To decide who should be listed, the State Department created the Division of World Trade Intelligence, which later would evolve into one of the main departments handling Safehaven. An interdepartmental committee on which no less than six agencies were represented coordinated the overall blacklist activities.28 Since the beginning of the war, Great Britain had maintained a similar list officially known as the Statutory List. The general idea was that the U.S. list would apply to the Western Hemisphere while the British list would deal with the Eastern Hemisphere. A committee in London tried to coordinate them, but there was much duplication of names on the two lists. Also, at least in the case of Latin America, the listing was apparently so random that even Jewish refugees were put on it. Furthering the confusion was the fact that in both countries there also existed a more extensive list, which the Americans called the “Confidential List” and the British called the “Grey List.” In addition, Great Britain maintained a Black List to control the trade between the European neutrals. The names of people on these lists were not published, but 27. Licenses structure: Summary Report of the Secretary of the Treasury, 82–83, Bernstein Papers, HSTL; Blum, Years of Urgency, 341– 43; and Reeves, “Control of Foreign Funds,” 38–40. Sums according to Census of Foreign-Owned Assets, 12–15, and app. 2, table 1, 61–63. 28. The first Proclaimed List of 1,834 names was published on July 17, 1941, together with the Presidential Proclamation of the same date. For the history of the list, see Max Paul Friedman, “There Goes the Neighborhood: Blacklisting Germans in Latin America and the Evanescence of the Good Neighbor Policy,” 579–82. On the Proclaimed List committee sat representatives from the State, Treasury, and Commerce departments; the attorney general’s office; the Export Controls Administration; and the Office for Coordination of Commercial and Cultural Relations between the American Republics.

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their transactions were under close scrutiny by the Allies. Since names might be taken off one list but remain on others, Acheson recommended in October 1941 the suspension of the Confidential and Grey lists, but both lists continued until after the end of the war.29 The advantage of the lists was that even in cases where countries such as Sweden or Switzerland had been granted general licenses under FFC rules, individual companies could still be singled out. Being on any of the lists made all business with the Allies very difficult if not impossible and threatened a company’s reputation at home and abroad during and after the war. Thus, sometimes even the threat of being put on the list was enough that companies stopped their business with Germany or its allies.30 Despite all these activities, Roosevelt was not considering setting up anything resembling the British Ministry of Economic Warfare, notwithstanding British pleas for the opposite. Of course, on paper the United States was still neutral until the end of 1941, but also such farsighted planning was usually not FDR’s method of governing. Rather than setting up clear lines of command, he would encourage the free flow of information with the hope of achieving consensus, or so historians have suggested.31 After January 1941, various departments battled each other over the general authority for some kind of body to direct economic warfare measures. Roosevelt’s solution was the appointment of Vice President Henry Wallace to the newly created Economic Defense Board, at this time a purely advisory and planning body. The executive order that set up the board defined economic defense as the “conduct, in the interest of national defense, of international economic activities including those relating to exports, imports, the acquisition of materials and commodities from foreign countries including preclusive buying, transactions 29. Jewish refugees: Friedman, “There Goes the Neighborhood,” 589– 90. Outlines for coordination between U.S. and Great Britain: Hull to Winant, Jan. 7, 1942, and Hull to Winant, Jan. 20, 1942, both in FRUS, 1942, 5:281–84; memo from Dean Acheson, Oct. 4, 1941, outlined in “Proclaimed List: Public or Confidential?” July 27, 1966, folder 2, Present at the Creation—research notes: binder 2—Early Years—State Dept. Organization—Economic Warfare—FDR, HSTL. See also “Brief Memo on Proclaimed List,” Aug. 16, 1966, folder 1, Present at the Creation—research notes: binder 2 (both box 132), Dean Acheson Papers, HSTL. 30. That the listing action was quite successful is apparent in a complaint by the German ambassador to Spain, Hans Heinrich Dieckhoff, in October 1943: “Recently the enemy has been operating with the black lists to an increasing degree and with growing success.” He suggested the creation of a Red List to counter the Allied lists. Companies on this Red List would be excluded from any business relations with Germany in the postwar period. See telegram to Stockholm, Bern, Lisbon, and Ankara, Oct. 19, 1943, folder 68651, R 901 (Foreign Office), German Federal Archives, BerlinLichterfelde. 31. George McJimsey, The Presidency of Franklin Delano Roosevelt, 286 – 87.

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in foreign exchange and foreign-owned or foreign-controlled property, international investments . . . shipping and transportation of goods among countries . . . patents, international communication . . . and other foreign economic matters.”32 Armed with a broader mandate than the British had ever hoped for, the board nevertheless remained fairly powerless until the attack on Pearl Harbor made it a fully operational agency. Under a new name, the Board of Economic Warfare (BEW) began to engage in buying and stockpiling critical raw materials from abroad. However, Roosevelt’s special system of creating multiple arrangements for similar functions soon snagged its activities. The BEW’s efforts duplicated those of Secretary of Commerce Jesse Jones, who boasted that he was doing the same job for less money. Purchasing agents from both Jones’s Reconstruction Finance Corporation and the BEW competed for the same supplies in Latin America. While Wallace’s first goal was to supply the army as quickly as possible, for Jones buying raw material did not mean giving up business savvy. The conflict between the two came to a head in the summer of 1943. Jones complained to the Senate that Wallace was trying to extend New Deal pro-labor policy abroad through the BEW’s buying contracts, while Wallace countered that Jones was obstructing the war effort.33 Troubled by this very public conflict, President Roosevelt dissolved the BEW and renamed it the Office of Economic Warfare (OEW). At the top he placed once more his trusted lieutenant Leo Crowley, who had previously been a member of the BEW. Already the APC and president of the FDIC, Crowley was now arguably one of the busiest men in Washington. But FDR knew that he could rely on Crowley for his quiet and efficient adroitness in handling delicate matters. At least for the duration of his new appointment at the OEW, Crowley promised the president to take a leave of absence from Standard Gas—at full pay.34 Crowley set out to replace some Wallace appointees with people more amicable to Jones, thus defusing the level of conflict. As his deputy, Crowley picked Lauchlin Currie, a Harvard economics Ph.D. and Roosevelt adviser. This was a very smart move since Currie would ensure smooth relations not 32. Executive Order 8839, July 30, 1941. 33. McJimsey, Presidency of Franklin Delano Roosevelt, 248 – 49; Bureau of the Budget, The United States at War: Development and Administration of the War Program of the Federal Government, 421– 25. The Wallace-Jones conflict is described in great detail in Torbjörn Sirevag, The Eclipse of the New Deal and the Fall of Vice-President Wallace, 1944, 101–32. 34. Weiss, President’s Man, 148–51. The OEW was created by Executive Order 9361 on July 15, 1943.

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only with the White House, where he still kept an office, but also with the Treasury Department, since he had worked there before. Currie was also a good friend of Assistant Secretary of the Treasury Harry Dexter White’s from their Harvard days.35 But new problems immediately emerged. With the war moving into northern Africa and southern Italy, military and civilian agencies were at odds with each other while working together in the newly occupied areas. One strong civilian agency uniting the functions of various organizations seemed to be a good solution. For a while, Dean Acheson tried to accomplish some semblance of unity in the new State Department Office of Foreign Economic Coordination. However, this was solely a policy committee without real power and hardly offered an improvement over the earlier confusion. As a solution, James F. Byrnes, chairman of the Office of War Mobilization and popularly known as the “assistant president,” suggested the creation of the Foreign Economic Administration (FEA), which was, finally, a onestop agency for all foreign economic matters. This new agency would again be headed by Crowley. The FEA would absorb Edward Stettinius’s LendLease Administration, Herbert Lehman’s Foreign Relief and Rehabilitation Operations, and a number of other agencies, doing all this work for less money. Stettinius would be promoted to undersecretary of state, while Lehman would expend his energies in the new United Nations Relief and Rehabilitation Administration, under FEA guidance. Pleased with all the arrangements, Roosevelt announced the new setup on September 25, 1943, effusively praising Crowley as “one of the best administrators in or out of government.” “He would need to be,” Acheson drily commented.36 Crowley quickly got to work streamlining his new realm of 4,009 employees at home and abroad. He merged the fourteen agencies combined into the FEA into four and created two bureaus, the Bureau of Areas and the Bureau 35. Both White and Currie had entered Harvard in 1925. Currie had a remarkable career, moving from Harvard instructor via the Treasury Dept. and Federal Reserve Board to become the first White House economic adviser in 1939. He never got tenure at Harvard because the senior Harvard faculty viewed his Keynesian views with greatest suspicion. See Roger J. Sandilands, The Life and Political Economy of Lauchlin Currie: New Dealer, Presidential Advisor, and Development Economist, 23–137. Technically, White became assistant secretary in January 1945 by Senate confirmation, but Morgenthau had given him the status already on Dec. 15, 1941. See David Rees, Harry Dexter White: A Study in Paradox, 131, 297. 36. The FEA was created by Executive Order 9380 on Sept. 25, 1943. Reorganization: Bureau of the Budget, The United States at War, 371–72; Weiss, President’s Man, 159 – 64, FDR quoted on 163; and Acheson, Present at the Creation, 46.

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of Supplies.37 In general, the Bureau of Areas was in charge of determining the needs of the various regions of the world, while the supply side was then responsible for fulfilling those requirements. As straightforward as this setup might sound, for its two years and two days of existence the FEA was in charge of a dazzling array of functions. The Bureau of Supplies, for example, imported such critical raw materials as tin, nickel, and mahogany, the latter used for PT boats. Since the war had often disrupted the normal flow of goods, new production and transport facilities had to be developed, for example, to secure rubber from the Amazon Basin, a task carried out by the Rubber Development Corporation. The Bureau was also in charge of delivering to the army all the food, medicines, clothing, and so forth that was needed to supply civilians in the liberated areas of France and Italy. The Bureau of Areas was divided into sections in charge of most regions of the world, from China to Bolivia, and last but not least for the European neutrals. It not only administered Lend-Lease—which had amounted to $29 billion by July 1944—but also managed U.S. export controls in close collaboration with the British to maintain a comprehensive blockade. The global dimension of the FEA is demonstrated by the fact that in 1944 it had fortythree offices total, with some on every continent except Antarctica.38 Economic warfare was the responsibility of the Special Areas Branch, which was part of the Bureau of Areas. This branch was directed by William T. Stone, a former journalist and vice president of the Foreign Policy Association. His branch had four main tasks. It enforced the Proclaimed List— though the blacklist committee decided who would be on it—and negotiated the war-trade agreements with the European neutral countries.The branch was also engaged in the preclusive buying operations and assessed the Axis’s war-making capabilities. This latter task entailed the making of predictions about how military operations would influence the enemy’s war potential and naming vulnerable economic spots for Allied strategic bombing, such as the German ball bearing factories in Schweinfurt. To gain a complete picture of the enemies’ economy, the Special Areas Branch sorted through about 30,000 confidential documents a week. These came into its hands from a multitude of sources: wartime censorship provid37. U.S. House Subcommittee of the Committee on Appropriations, Foreign Economic Administration Appropriation Bill for 1945, 78th Congress, 2nd sess., 1944, 353– 54, 388, 403– 4. 38. Report to Congress on Operations of the Foreign Economic Administration, September 25, 1944, 7– 10, 18–46. The FEA was dissolved by Truman’s Executive Order 9630 on Sept. 27, 1945.

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ed access to mail and telegrams; the files of the American offices of German and Japanese firms were used; crews of captured blockade runners were interrogated; U.S. and foreign businessmen who had worked abroad were asked for information; and finally Allied agents and supporters also delivered useful information.39 Thus, by 1943 the United States had one agency that took care of most economic warfare matters. Authority for some functions, such as the control of frozen liquid assets or the maintenance of the Proclaimed List, remained in other departments since it had originally been assigned to them and they defended their turf vigorously. On occasion, Crowley would try to gain authority over all frozen funds, but even he did not succeed against the good friend of the president, Henry Morgenthau. It was from within certain departments of the FEA that Safehaven emerged. The program’s origins will be discussed in detail in the next chapter.

39. Report to Congress on Operations, 11–17; U.S. House Subcommittee, FEA Appropriation Bill for 1945, 357–59, 440, 424.

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              of government, officials in the Special Areas Branch of the Foreign Economic Administration (FEA) were the best informed about the wartime economic activities of Germany and the neutral countries. They were aware of the potential postwar dangers that a reemerging Germany might pose since they had experienced the results of the first revival of a once-defeated Germany. Long before Hitler’s rise to power, Germany had run a secret armament program in Sweden, the Netherlands, Czechoslovakia, and Switzerland, but especially with the help of the Soviet Union—the other pariah of the 1920s. An additional vital source for military knowledge and organization for post–World War I Germany was, remarkably, the United States, whose military allowed German officers to observe its tactics, training, and new weapons in development. The motivation of the developers of Safehaven is discussed in much greater detail in Chapter 6, but suffice it to say here that it was this fear that history might again repeat itself that resulted in the initial planning of the Safehaven program by members of the Special Areas Branch, directed by William T. Stone.1

1. Between 1923 and 1933, the Soviet Union provided training grounds for German pilots and tanker commanders and also allowed research on gas warfare. See Manfred Zeidler, Reichswehr und Rote Armee, 1920–1933. For collaboration with U.S.: Michael Geyer, Aufrüstung oder Sicherheit: Die Reichswehr in der Krise der Machtpolitik, 149–65. For detailed discussion of this issue and further literature, see Peter Hug, Schweizer Rüstungsindustrie und Kriegsmaterialhandel zur Zeit des Nationalsozialismus: Unternehmensstrategien, Marktentwicklung, politische Überwachung, 93 –114.

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First Ideas Part of Stone’s office was the Blockade Division under David Gordon, which was mainly in charge of ensuring that goods from Latin America would not be shipped to Europe to supply Axis forces. This division dealt with such questions as the strength and possible buildup of the German financial position in Latin America and the analysis of Portuguese-Argentine gold transactions. In 1943, this division prepared several memoranda on the future problem of German capital flight. “Germany could,” the texts warned, “perpetuate its financial influence in the neutral countries beyond the reach of our armies.” The memoranda proposed that “a substantial organization . . . be set up to initiate combined programs on the subject with State, Treasury, and British authorities.”2 At this point in the war, these suggestions were obviously a bit premature, but the division continued to analyze questions that could possibly be related to Safehaven problems later. Two people in this division, Sidney Homer Jr., who led the enforcement section, and his assistant, Dr. Otto P. Fleischer of the Finance Unit, were especially active in pulling together material advocating a possible program on German capital flight. With the war slowly but surely shifting in the Allies’ favor, it appears that in the spring of 1944 Homer and Fleischer alerted Stone. Stone, in turn, raised these concerns with people higher up in the administration’s hierarchy. One of them was Frank Coe, head of the Office of Economic Programs, a high-level coordinating office for all the numerous FEA activities. Coe had come from the Treasury Department, where he had worked with Assistant Secretary of the Treasury Harry Dexter White, Secretary Henry Morgenthau’s closest adviser. (After the war, Coe became the first secretary of the International Monetary Fund [IMF]. In 1948 he was called before the House Committee on Un-American Activities and in 1952 was subpoenaed to testify before a Federal Grand Jury. Two days later he had to resign from the IMF and could no longer work in the United States. In 1958, he moved to China, where he translated the works of Mao Tse-tung.) The other person Stone contacted was Benjamin Lewis, an economist from the Brookings In2. For activities of the division see Gordon and Dangerfield, Hidden Weapon, 28–56; entry for Sept. 1943, “Safe Haven, Summary Progress Report up to and Including October 1, 1944,” n.d., 2, folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC, RG 59, NACP. On the same subject see also Coe to Milo Perkins, Apr. 19, 1943, folder: Finance, Public 11–1, Safehaven July (box 10), Records of the Office of Economic Programs (hereinafter cited as Records of OEP), Central File (Entry 200), RG 169, NACP.

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stitution who now worked with Coe in the Office of Economic Programs. As former alien property custodian, FEA Administrator Leo Crowley was certainly also aware of the possible dangers of German activities abroad.3 Coe then asked for a draft letter from Crowley that could be circulated among concerned U.S. agencies urging “that neutral nations be advised either by public announcement or by secret cable that this government will not tolerate any action by neutral states which will make such states a post-war haven for German property interests” (my emphasis). The matter was “briefly discussed” with White in the Treasury Department, and on May 5, 1944, Crowley addressed an official letter to Morgenthau. White himself would confirm that the initial idea for Safehaven came from the FEA.4 This letter is the first concrete evidence of the beginnings of the Safehaven program, at this point thought to be a program to control capital flight only. In his letter to Morgenthau, Crowley wrote that toward the neutral countries “the United States Government . . . shall be . . . firm in [its] insistence that such claims as we may have against Axis property are not thwarted through any devices by which Axis property and commercial interests, tangible or intangible, may seek a haven in neutral countries.” To prevent such a development, Crowley proposed that an “active” investigation of how and to what extent assets of Nazi Germany were transferred into neutral countries should be made. White acknowledged this letter for Morgenthau and passed the request on to attorney Samuel Klaus, then serving as special assistant to the Treasury De3. Homer and Fleischer mentioned in letter from [Albert] Robbins to J. Brooke Willis, Economic Warfare Division, U.S. Embassy, London, Dec. 16, 1944, 2, folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC; see also “General Administrative Background—Blockade,” n.d., folder: England (box 991), Material on the “SAFE HAVEN Project,” 1943–1954, Records Assembled by the Historian, FEA, RG 169, NACP. For Coe: Rees, White, 297, and James M. Boughton, “The Case against Harry Dexter White: Still not Proven,” 227. For Coe in China: Sidney Rittenberg and Amanda Bennett, The Man Who Stayed Behind, 249–57, 267–75, 286–89. For Lewis: U.S. House Subcommittee of the Committee on Appropriations, FEA Appropriation Bill for 1945, 436. For Office of Economic Programs: Margaret Clarke, “The Safehaven Project,” 76–77, FEA Study #5, [October?] 1945, box 991, Material on the “SAFE HAVEN Project.” Crowley resigned as APC on Mar. 24, 1944, after not only Isidor F. Stone but also the weekly of the railway unions, Labor, began to attack him for being strongly probusiness. The Senate confirmed Crowley’s deputy as his choice for new APC, James Markham (Weiss, President’s Man, 183– 90). 4. Quote from unsigned “Desk Note,” Apr. 15, 1944, in which Coe’s request is outlined, folder: Finance, Public 11–1, Safehaven July, Records of OEP; Crowley’s letter (copies of which were sent to Stone and Lewis): Exhibit 6 in folder: Exhibit IV (box 991), Material on the “SAFE HAVEN Project”; letter also mentioned in FRUS, 1944, 2:217 n. 10, but dated May 12 (the quote is from the letter itself); Morgenthau Diary, Aug. 22, 1944, vol. 764, p. 141, FDRL.

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partment’s general counsel, Joseph J. Connell. Klaus was hardly an ordinary bureaucrat but more like a detective on special assignments—sometimes comparing himself to Javert, the detective in Les Miserables. “Sammy Klaus is always trying to make trouble,” Morgenthau would say about him later.5 Klaus’s self-assigned mission was to counteract German plans “to achieve domination of the world,” as he wrote to White in 1943. Klaus repeatedly judged German cartels—I.G. Farben especially—as instruments of those plans. But he also advised White of “more devious . . . fifth columnism [sic]” activity in the United States by “so called ‘cultural’ activities” of German Americans, like singing societies or regional societies. Concomitantly, he warned of Nazi “nest eggs” and “refugees” in neutral countries after the war. It was thus a meeting of minds when in November 1944 Klaus transferred to the FEA to work for Coe and Oscar Cox, an immaculately dressed lawyer, drafter of the Lend-Lease Act, and general counsel of the FEA.6 Klaus’s spirited behavior and manners often inspired antagonism in the people he met, and he might not have been the best choice to ensure a smooth start for the Safehaven program. Nevertheless, Klaus quickly replied to Crowley’s suggestions by writing to Coe. Klaus suggested that a preliminary investigation along the lines already proposed should be made through a survey mission to Europe, preferably headed by himself.7 After such a trip, work on individual projects which would be part of Safehaven could begin. Coe and Lauchlin Currie both approved the memo, but the planning for Safehaven did not go forward as Klaus had outlined. The trouble was that none of the people involved really knew what the proposed investigation was supposed to look for or which shape or form it would take. The next three months would be spent gaining some clarification in these matters—including assigning the name Safe Haven, which first appeared in July 1944—before Klaus could finally set out on his survey trip to

5. White to Crowley, June 9, 1944, folder: Finance, Public 11–1, Safehaven July, Records of OEP; interview with Ida Klaus, in Linda Hunt, Secret Agenda: The United States Government, Nazi Scientists, and Project Paperclip, 1945 to 1990, 36; Morgenthau Diary, Aug. 22, 1944, 764:142. 6. Klaus to White with attachment, July 13, 1943, folder: Inter-Treasury Memoranda, Mr. Klaus, 1943 (box 17), Intra-Treasury Memoranda of Harry Dexter White, 1934 –1945 (Entry 360R), RG 56, NACP; “Memorandum for All Attorneys” from Cox, Nov. 14, 1944, folder: Klaus, Samuel (box 18), and memo from Cox to Ward W. Stevens, Jan. 10, 1945, folder: Safe Haven Activities (box 104), in series I, Alphabetical File, and series IV, Lend-Lease File, Oscar Cox Papers, FDRL; for Cox: newspaper article in folder: End of War Thinking (box 83), series IV, Cox Papers. 7. Klaus sent his memo on May 11, 1945, before White had replied to Crowley, according to Clarke, “The Safehaven Project,” 26–28.

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Europe in late August.8 During this time a number of people from numerous FEA departments got active in planning for the program, and it remained unclear until December 1944 who was really in charge of what inside the FEA. In addition, when the FEA tried to bring in other departments, the State and Treasury departments claimed responsibility for Safehaven based on various jurisdictions, which further complicated the performance of the program. Planning The State Department was informed of the FEA’s plans early on. Two weeks after the first letter to Morgenthau, Stone wrote to Livingston T. Merchant at the Eastern Hemisphere Division of the Office of Wartime Economic Affairs in the State Department about a possible “last minute flight of German capital for safe keeping in neutral territory.” Although he cautioned that it might be too early for final action, he suggested that some interdepartmental discussions that would include the Treasury Department and the British Embassy would be useful. Stone also wrote to Byron Price, head of the Office of Censorship, to warn of an accelerated flight of enemy capital. He characterized this possibility as “a blockade problem in reverse” and said that a program to detect “all such transfers” was in the works. Stone’s letter to the State Department was followed up at the end of the month by a more official letter from Crowley to Undersecretary of State Edward Stettinius similar to the one he had written to Morgenthau. Cox attached to this letter a personal note to “Ed” to underscore his personal interest in the matter.9 Crowley’s warnings were not unfamiliar to the State Department. Indeed, in March 1944 the U.S. ambassador in Stockholm, Herschel Vespasian Johnson, had reported that the German company AEG had constructed a new plant in Sweden. According to Johnson, a young career diplomat on his first assignment as ambassador, the Swedish press had rumored that the Germans might attempt to protect Nazi capital by expanding German subsidiaries in 8. Internally, the FEA would continue to use Safe Haven. Only in September 1944, in the State Dept.’s instructions to U.S. missions, was the one-word Safehaven introduced (see below). For the first use of Safe Haven in an FEA document, see Arthur Burns to Stone, July 5, 1944, folder: Finance, Public 11–1, Investigations, Records of OEP. 9. Stone to Merchant, May 15, 1944, exhibit 7, also printed in FRUS, 1944, 2:215 –16, but dated May 17, 1944; reply by Merchant, May 23, 1944, exhibit 8; Stone to Price, May 19, 1944, exhibit 12, all in folder: Exhibit IV, Material on the “SAFE HAVEN Project”; Crowley to Stettinius, draft, June 19, 1944, and Cox’s personal note in folder: Germany—General (2) (box 85), Cox Papers; final version sent June 27, 1944, mentioned in reply by Stettinius to Crowley, July 19, 1944, in FRUS, 1944, 2:217.

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Sweden. However, Johnson wrote, “no evidence has been uncovered to substantiate the rumor.” In fact, the rumor might have resulted from a not-sotruthful Pravda article.10 This and other unsubstantiated information, it appears, caused Secretary of State Cordell Hull in April to ask U.S. Ambassador to Great Britain John G. Winant to forward any information he or the Ministry of Economic Warfare (MEW) might have on “enemy attempts to secrete funds in neutral countries for safekeeping.” Apparently this issue was not high on the agenda. In his reply two months later, Winant found that the MEW had “comparatively little” on the problem but that it was preparing instructions to send out to British European missions at some point.11 Nevertheless, Winant’s request apparently drew British attention to the issue for the first time. At the end of June a member of the interdepartmental Committee on Armistice Terms and Civil Administration (ACAO), which was in charge of advising the War Cabinet on these questions, raised the topic while discussing censorship directives. P. Dean from the Foreign Office inquired about the information available regarding the “action now believed to be in progress by German firms . . . to acquire property in neutral countries, for the purpose of . . . post-war trade and . . . insurance against measures that the Allies may take after the surrender.” Since the initial answer was, in the words of another Foreign Office official, “nothing has come this way so far,” a July meeting of members of the Foreign Office, the MEW, the Board of Trade, and the Trading with the Enemy and Treasury departments confirmed that the British embassies should be notified. However, it was clear that even a systematic census of all German property in neutral countries would require too much manpower at that point.12 Across the Atlantic, speed was not of the essence either. After Stettinius received Crowley’s letter in June, it took nearly a month for him to tell Crowley that he was aware of the problem. Stettinius named two people in the State Department who would be ready to work with the FEA—Seymour J. Rubin and J. Daniel Hanley. Until 1946 Rubin would be one of the most important 10. American Legation, Stockholm, to Secretary of State Cordell Hull, Mar. 13, 1944, in folder: Germany—Flight of Capital (box 86), Cox Papers. 11. Hull to Winant, Apr. 25, 1944, and reply June 17, 1944, FRUS, 1944, 2:215, 216 –17. 12. Minute by John Monro Troutbeck, Foreign Office (FO), July 3, 1944, regarding the twentyfifth meeting of the ACAO on June 28, 1944, letter from A. A. Mocatta, July 8, 1944, to Troutbeck; minute, July 5, 1944; meeting “German Assets in Neutral Countries,” July 29, 1944. The ACAO only discussed the issue again on Nov. 8; see M (44) 46, Nov. 8, 1944. All files FO 371/40959, British National Archives (BNA).

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people driving the Safehaven program. A recent magna cum laude Harvard Law graduate (1939), Rubin had joined the State Department the year before and was currently assistant chief of the Division of Financial and Monetary Affairs. In March 1945, he would move up to head the new Division of Economic Security Controls, then the main office in charge of Safehaven at the State Department, and would later embark on a distinguished postwar career as legal adviser to the United States at various international conferences and organizations.13 While the State Department was dithering, the people at the FEA concerned with Safehaven were very busy planning the program. First arose the question of authority. Benjamin Lewis asked Oscar Cox to explore the question of whether the FEA could safely claim jurisdiction at home and abroad to investigate German plans to “seek haven in neutral . . . countries.” Cox found that the FEA had “adequate powers under existing legislation” to begin such an investigation. Its mandate in this case was only circumscribed by the paramount authority of the Office of War Mobilization and the State Department when it came to matters of policy.14 Of course, these findings would never sit well with anybody from the State Department since “matters of policy” was a rather broad and vague definition that left much room for the State Department to claim full authority for Safehaven. Second, there was a need for information. Besides rumors, nothing concrete had emerged yet. Information was needed on practical aspects—how and what Germany might attempt to hide abroad—and also on the question of which legal steps could be taken to prevent such German action. Several departments of the FEA began to explore those questions. Since no central authority was yet in charge of the program, their work was not always coordinated and sometimes resulted in duplicate efforts. Early talks between officials from the Treasury Department and the FEA attempted to clarify the practical issues. Klaus, Lewis, and Homer met with Orvis Schmidt and others from the Treasury’s Foreign Funds Control in an attempt to catalog German assets abroad. Their group defined these assets broadly. Not only did they include such tangible assets as gold, currency, bank deposits, securities, and stored merchandise, but also they counted more elusive items such as patents, licenses, and German interests in foreign busi13. Stettinius to Crowley, July 19, 1944, FRUS, 1944, 2:217. Rubin died in March 2003; obituary in American Journal of International Law 97 (2003): 310–11. 14. Memo, Cox to Lewis, June 26, 1944, exhibit 5 in folder: Exhibit IV, Material on the “SAFE HAVEN Project.”

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nesses and German subsidiaries abroad. These assets might either be looted— in which case their return to the original owner within the territories of the Allies would be relatively easy—or not. How nonlooted assets—especially in neutral countries—would be treated, they left open to be decided later. All the participants agreed that the assets in question would have to be unearthed and controlled. Discovering assets would be helped by using not only the current information the Allies had, but also information obtained once the Allies occupied Germany. For now, the control of the movement of any of these assets would be insured by the blockade. Later on, the neutrals could probably be coerced into revealing any relevant information by the continued (postwar) use of the Proclaimed List. Also, after a victorious end of the war, the Allies would be able to achieve further cooperation with the neutral countries from a presumably strong bargaining position.15 In an effort to obtain firsthand information on possible techniques of German evasion of postwar control, the FEA asked the Office of Strategic Services (OSS) for assistance. In the beginning of July, the OSS began interviewing informants who might know, “from their personal knowledge,” how Germany had concealed assets abroad after World War I and how the country “at the end of the last war [preserved], in despite [sic] of an adverse peace, potential military or economic power for future German use.” Questions were supposed to be specific: Was there a centralized German organization or financing to direct activities abroad? Had there been any specific planning meetings? Where and when? What were the informants’ dealings with the Inter-Allied Control Commission for Germany—which was supposed to oversee German disarmament efforts? By September, thirty-three people had been interviewed by the New York field office of the OSS. Most of them were elderly, probably Jewish refugees from Germany who had held high positions in German industries or banks. In general, this so-called Survey of Foreign Experts produced nothing new. The disarmament commission set up in Germany after World War I had been understaffed and was ineffective. Members of the commission were easily deceived because few spoke German. Production and training in certain weapons were moved abroad, but the “experts” did not judge this to be part of a German master plan for rearmament. In Germany, governmental encouragement for rearmament had been indirect, through trade associations, for ex15. Homer to Schmidt and Klaus, June 13, 1944, folder: Currie Mission, FFC Subject Files, 1942– 1960, Records of the Office of Alien Property, RG 131, NACP. See also “Chronology according to Exhibits,” folder: Chronology (box 991), Material on the “SAFE HAVEN Project.”

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ample. In some cases, the survey obtained a few specific bits of information, but these were by their nature often not relevant for the current situation.16 This survey was but one step in asking all the intelligence-gathering agencies of the U.S. government for assistance with the Safehaven program. In June and July, Crowley sent letters to the Federal Bureau of Investigation (FBI), the Office of Naval Intelligence, the OSS, the War Department, and the Office of Censorship. He informed these agencies that the FEA was investigating the “transfers of Axis enterprises and other assets to neutral countries.” All these letters were drafted by Lewis and closely resembled those already sent to Morgenthau and Stettinius.17 It is questionable whether Lewis’s initiative met with much success. The FEA was well equipped to analyze and assess incoming intelligence from those agencies within its Economic Intelligence Division, which was part of the Special Areas Branch. Yet, for example, the information J. Edgar Hoover sent in reply was not very useful. “It was . . . reported,” Hoover wrote in September, “that much of the German and Northern Italian wealth is destined for Argentina, via Spain and Portugal. This is being performed through the facilities of banks in neutral countries.” True or not, such actions had been the motivation for developing the Safehaven program in the first place and were thus hardly news to the FEA. Later suggestions to Hoover to set up a “special detail” to investigate the flight of enemy capital to Latin America were left unanswered. As always, Hoover had no intention of allowing any intrusion on his own turf, and beginning in November 1944 he started his own Safehaven investigations in Latin America.18 Contacts with the Office of Censorship did not fare much better. Though Stone and Crowley had written to Byron Price there in May and July, the head 16. P[ayson]. W. Loomis to Eric W. Straight, June 30, 1944, folder 39; Straight to John C. Hughes, Sept. 21, 1944, folder 39; Walter C. Langsam to Hughes, Short Study Based on Safe-Haven Reports, n.d. [Oct. 1944]; all in Safe Haven Project (box 2), Records Relating to a Survey of Foreign Experts (Entry 107), Records of the OSS, RG 226, NACP. 17. Crowley to J. Edgar Hoover, June 23, 1944, and reply, Hoover to Crowley, July 5, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov.; Crowley to William J. Donovan, June 27, 1944, and reply by G. Edward Buxton, July 1, 1944, folder: Finance, Public 11–1, Safehaven July; Crowley to Secretary of the Navy James Forrestal, July 7, 1944 (quote), and reply by Forrestal, July 22, 1944, folder: Finance, Public 11–1, Safehaven July; Crowley to Price, July 27, 1944, folder: Finance, Public 11–1, Safehaven July; letter to War Dept. mentioned in this letter to Price. All files: Records of OEP. 18. Hoover to Crowley, Sept. 23, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov., Records of OEP; Crowley to Hoover, Nov. 18, 1944, exhibit 29 in folder: Exhibit IV, Material on the “SAFE HAVEN Project.” For FBI files on Latin America see Robert E. Lester, The Safehaven Program, reels 1 and 2.

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of the FEA again contacted Price in September 1944 to inform him about his agency’s specific needs for Safehaven. Presumably, the first letters had not produced sufficient results yet. Only at the beginning of 1945 did the Office of Censorship send detailed instructions to its censors to look out for “Nazi efforts to ‘go underground.’” The OSS sent out its own first instructions to gather information for Safehaven at the end of November, which were further specified the following month.19 Besides these efforts to achieve clear definitions of responsibilities and to undertake fact findings, there was also a need for legal expertise. Which official steps could be taken to prevent the flight of capital? What were the legal foundations for approaching the neutrals for later claims by the Allies? Could the Allies or the United Nations make a declaration of some kind to warn Germany and the neutrals of any such transfer and to pronounce their illegality? These were questions Dr. George M. Wunderlich was asked to work on. Wunderlich, most likely from Germany, was a professor at the University of Pennsylvania Law School, where he specialized in international economic law. For the moment he served as the FEA’s adviser in international law, working in the Office of the General Counsel.20 Wunderlich began to study the issue of a possible Allied declaration. In the end, one was made, but it emerged rather unexpectedly from the gathering of financial experts at Bretton Woods, New Hampshire, in July 1944. Wunderlich could rely on certain precedents for a possible declaration. On January 5, 1943, seventeen Allied nations had issued a declaration against “Acts of Dispossession,” warning all concerned, in particular “persons in neutral coun19. Crowley to Price, Sept. 13, 1944, exhibit 26 in folder: Exhibit IV, Material on the “SAFE HAVEN Project”; Clarke, “The Safehaven Project,” 99–101. New instructions in “Memorandum for Division Heads,” attached to “Memorandum to Mrs. Furbershaw, FEA,” from Lt. Theodore K. Koop, asst. to the director, Office of Censorship, Jan. 2, 1945, exhibit 28 in folder: Exhibit IV, Material on the “SAFE HAVEN Project.” Besides FEA, also the OSS and the Treasury Dept. tried to coax the Office of Censorship into specific action on Safehaven. Treasury was apparently not successful until the January instructions went out. See memo from Jerome Sachs to John Richards, Oct. 12, 1944, with attachment, folder: Safehaven Oct. 1944 (box 382); Samuel S. Gilbert to Behuncik, Nov. 3, 1944, folder: Safehaven Jan. 1945 (box 382); Rella R. Shwartz to Moskovitz, Dec. 26, 1944, with attachment of draft letter to Price from Orvis A. Schmidt, folder: Safehaven Dec. 1944; all in box 382, FFC Subject Files. OSS followed in December; see memos from Lt. Col. Roger A. Pfaff to Col. Harold Shaw (Censorship), Dec. 29, 1944, and Jan. [?], 1945, folder: Safehaven (box 45), Washington X-2 Personalities Files (Entry 171), Records of the OSS. Callisen to OSS Station, Caserta, Dec. 19, 1944, cited in Donald P. Steury, “The OSS and Project SAFEHAVEN,” 38. 20. For Wunderlich see Foreign Economic Administration, Technical Industrial Disarmament Committees: Organization and Personnel, 19. Wunderlich had probably served as legal adviser to Gen. Erich von Falkenhayn, who commanded the German Army Group Yildirim near Aleppo (today Syria) during World War I. See Wunderlich, “Die Gerichtsbarkeit der Heeresgruppe Yildirim,” 79.

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tries,” that any transfer of property acquired by looting, plunder, or pretended legal means would be considered invalid. This declaration was not much more than a political statement of Allied solidarity. Officials from the Bank of England and the British Treasury argued that in practice the Allies could not do very much to enforce the declaration without damaging their current precarious dealings with the neutrals and burdening future trade relations with them. In addition, they pointed out that this official declaration would only encourage the looters to carefully hide or cloak their actions. In practice, the declaration remained rather toothless. A Committee of Experts set up to consider Axis methods to gain control of property in occupied territories never got off the ground. Russia sternly resisted Polish attempts to outline the practices of dispossession used in Russian-occupied eastern Poland.21 Technically, this declaration included Germany’s dubious sale to the neutrals of gold that it had seized from Europe’s prewar gold reserves. Arguing that in light of Germany’s depleting gold reserve all gold offered by Germany at this time was probably looted, the MEW felt it necessary to issue a separate warning to the neutrals to show the Allies’ sincere intentions not to recognize such dealings. Supported by the U.S.Treasury but opposed by the State Department and the British Treasury, which foresaw a hopeless task in identifying gold that had been melted down, the Allied Gold Declaration was finally issued in February 1944 in a show of Allied solidarity. “The meat,” as White put it when presenting the final version to his boss for signature, was in the following sentence: “The United States formally declares that it does not and will not recognize the transference of title to the looted gold which the Axis at any time holds or has disposed of in the world markets.”22 Besides Great Britain, the Soviet Union also signed on to the declaration. Wunderlich took these declarations as the basis for figuring out legal steps the Allies could take to prevent any transfer of Axis capital to neutral countries. He saw that the declarations established a clear basis that the Allies would not recognize any transfer of title they considered illegal. He referred 21. For British views, see Historians in Library and Records Dept., Foreign and Commonwealth Office, General Service Command, History Notes, Nazi Gold: Information from the British Archives, 4 –5. Since so many governments were involved it took six months to come up with the final text, released on Jan. 5, 1943. See FRUS, 1942, 1:72–88, and FRUS, 1943, 1:439–59. Final text of the declaration in FRUS, 1943, 1:443– 44. The Soviet representative maintained that the Polish territories in question were “an integral part of the territories of the Union of Soviet Socialist Republics” and that all references to them should be withdrawn (FRUS, 1943, 1:452– 59). 22. History Notes, Nazi Gold, 5 –7; White in Morgenthau Diary, 698:159; declaration in FRUS, 1944, 2:213–14.

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to a conference in London in 1943 that had pondered the question of whether property could be transferred legally outside occupied territories, namely, neutral countries, and explained that the conference’s final resolution said that such acts of the occupant “are null and void.” He suggested that in every liberated territory a quasijudiciary commission should be established to decide the return of property to its lawful owners. But he pointed out that in the case of Germany and its satellites only a legitimate government—and not the Allies—could make final decisions involving property. And he warned that the Allies would not “get away with our doctrine of absolute invalidity of titles acquired from the occupant in neutral countries as Switzerland and Sweden.”23 The neutrals’ acceptance of Allied claims would turn out to be a major question in the future. A month later Wunderlich and Raymond P. Baldwin, one of Cox’s assistants, pointed out some possible solutions in two memoranda. Baldwin suspected that the looting in occupied territories indicated “a careful campaign to put Germans in a sound financial position after the war” and that any prevention of such plans would call for the legal support of the “neutral nations to which such capital has fled.” He suggested an additional declaration by the UN to specifically warn the neutral countries. Wunderlich pointed out that cooperation with the neutral countries would most likely be achieved by diplomatic pressure or economic sanctions such as the cutting of essential supplies of oil or food. With the improvement of the Allies’ military and diplomatic situation, such steps became increasingly possible.24 On the other hand, he also warned that relations between the United States and the neutral countries had normally been good and that these good terms should not be unduly jeopardized. Wunderlich continued his work on a draft declaration and actually suggested a draft text to Baldwin a while later. For two reasons, however, Wunderlich’s exercises had become largely academic at this point. First, Cox himself was afraid that a possible declaration “may be of dubious value” since its only effect would be to put the people on guard who would actually engage in any financial transfer—the same argument made earlier by the Bank of England. Thus, it would be more difficult for the Allies after the war to trace 23. Dr. George M. Wunderlich to Raymond P. Baldwin, “Disentangling of German Ownership, Public and Private, of Businesses in Germany and German-occupied Countries,” May 8, 1944, in folder: Germany—Flight of Capital, Cox Papers. 24. Baldwin to Cox, “Exports of German Capital,” June 23, 1944, with attached memo “German Investments in Spain and Portugal,” by Dr. Otto Fleischer, to Homer, June 23, 1944; Wunderlich to Cox, “Exports of German Capital,” June 26, 1944 and reply June 27, 1944, ibid.

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those assets. If at all, he argued, such declaration should be of a very general nature so as not to raise suspicion.25 Secondly, efforts to pass some kind of general warning to the Axis powers had been going forward if on a very different front than that the people of the FEA might have expected. Bretton Woods On July 1, delegates from forty-four countries assembled in the salubrious New Hampshire resort of Bretton Woods to hammer out a new postwar financial order. The conference was the brainchild of Assistant Secretary of the Treasury Harry Dexter White, who, in close collaboration with John Maynard Keynes, had outlined his views on postwar international financial policy in various versions of the so-called White Plan. The two main commissions of the conference considered the final plans for an international monetary fund and an international bank for reconstruction; the third commission took care of residual matters.26 To this third commission, the actions of which have been largely overlooked, Polish and French delegates submitted proposals on enemy assets and looted property. Most likely the two delegations came up with the proposals independently since the evidence suggests that there was no coordination between the members of the FEA who were at Bretton Woods and the representatives of these governments. The proposals were submitted to the Agenda Committee between July 3 and July 10. A day later, Klaus, who was not at the conference, suggested to Coe, head of the FEA’s Office of Economic Programs and currently at Bretton Woods, that “the representatives of the Governments in Exile be sounded out generally on the Safe Haven Project idea.” In addition, Cox, who was an official member of the U.S. delegation, had received Baldwin and Wunderlich’s memos shortly before he left for Bretton Woods but was, as we saw, reluctant to issue such a declaration. The French and Polish proposals in themselves were very different from each other and from any texts Wunderlich had suggested.27 25. Wunderlich to Baldwin, “Export of German Capital” (despite the title, an entirely new memo), July 13, 1944, ibid.; Cox’s views: Cox to Baldwin, “Exports of German Capital,” June 26, 1944, and reply June 27, 1944, ibid. 26. Rees, White, 137–53, 221–35. 27. Klaus to Coe, June 11, 1944, outlined in Clarke, “The Safehaven Project,” 83, and meeting of Treasury officials in Bretton Woods on July 18, 1944, in Senate Committee on the Judiciary, Subcommittee to Investigate the Administration of the Internal Security Act and Other Internal Security Laws, Morgenthau Diary (Germany), 90th Congress, 1st Session, 1967, 1:399 – 403.

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For the next ten days, an ad hoc committee deliberated on the possible text of a declaration. The Polish proposal called on the neutral countries to block any Axis funds within their territories so that these funds could be liquidated and used for reparation purposes. The French proposal requested that steps be taken to prevent “the enemy from successfully secreting funds in neutral territories . . . under assumed names.” Remarkably, in the beginning the United States was not even represented on this committee. It is possible that Schmidt, head of the Treasury Department’s Foreign Funds Control (FFC) and for now the secretary of the third commission and all of its subcommittees, alerted others in the U.S. delegation to participate. In the following days, the United States submitted an alternative draft on enemy assets and looted property that incorporated features of the two earlier drafts. France and Poland withdrew their proposals. The lone opponent to the U.S. proposal was Sir Nigel Bruce Ronald, the British assistant undersecretary of state for foreign affairs. He protested that any possible declaration had only “a very indirect bearing, if it can be said to have any bearing at all” on the main topic of the conference. The British delegation also argued that this topic had already been addressed by the earlier declarations on this subject.28 Nevertheless, Great Britain, alone in its protest, later relented. After some tinkering, a final version of the draft was adopted by the conference’s Plenary Session as Bretton Woods Resolution VI on July 22. This resolution had two aims. First, it called on the neutral countries to take immediate measures to prevent any disposition or transfer of assets from areas controlled by the Axis to the neutral countries, namely, looted gold, currency, art objects, securities, other evidence of ownership in business enterprises, or any other looted assets. In this connection, the resolution specifically warned of such transfers by “enemy leaders, their associates and collaborators.” Secondly, the neutral countries were asked to uncover, segregate, and hold these assets and “to facilitate their ultimate delivery to the post-armistice authorities.” Together, the Declaration on Dispossession, the Gold Declaration, and Bretton Woods Resolution VI would provide the legal foundation for any requests to the neutral countries in regard to German external assets in the years to come. There was, it has to be pointed out, a certain contradiction in these declarations to the general goals of the conference. Ultimately, the Bretton Woods system intended to make the world safe for capitalism under U.S. dominance; this aim 28. Dept. of State, Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944, 1:329 – 30 (text of Polish and French proposals), 444–45, 1098, 862–64 (Ronald quote 862).

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included a decrease in governmental controls and barriers to trade worldwide. However, the resolutions could only really be put into practice if wartime controls were still in place. In 1944, this was of course not a problem at all, but in the long run measures of control and open trade could not coexist, as the Allies would find after the war’s end.29 In the summer of 1944, Safehaven had not moved much beyond the planning stage and remained divided among various departments and agencies. In the FEA, no less than five different departments were concerned with Safehaven to some extent. Its Office of Economic Programs, led by Coe, was engaged in the general planning, along with a number of people from Cox’s General Counsel Office. In addition, besides the head of the Special Areas Branch, the Branch’s Blockade Division and its Economic Intelligence Division were peripherally involved in the project.30 Outside of the FEA, the Treasury Department’s FFC and a number of people from the State Department were part of the planning process.The OSS and other intelligence agencies were also informed but for the most part did not play prominent roles yet. Internally, the question of who was in charge of Safehaven was finally solved at the end of December 1944. A directive by Crowley established the German and Austrian Branch in the Bureau of Areas, which also absorbed the appropriate functions of the Special Areas Branch. This branch was in charge of all transactions “with respect to the problems of looted assets, flight of German capital, escaped German capital, assets of German war criminals, and the like, evasions of economic controls over Germany by activities carried on outside of Germany, the use of economic sanctions outside Germany for the enforcement of other controls over Germany, the surveillance of the movements and activities of German nationals outside of Germany having economic security significance, and all other related problems.”31 Nevertheless, the passage of the Bretton Woods resolution marked a new chapter for the program. Departments outside of the FEA now became much more actively involved in its activities. Officials from the FEA still entertained high hopes that they would have key responsibilities in the program, but the 29. Dept. of State, Bretton Woods, 1:939–41. For Bretton Woods see also Alan P. Dobson, The Politics of the Anglo-American Economic Special Relationship 1940 –1987, 48–59; Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System, 71–114; and Harold James, International Monetary Cooperation since Bretton Woods, 33 – 63. 30. Clarke, “The Safehaven Project,” 43–44. 31. Crowley to James L. McCamy, “Administrative Order No. 4, Supplement A,” Dec. 30, 1944, exhibit 13 in folder: Exhibit IV, Material on the “SAFE HAVEN Project.”

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course of events in the fall of 1944 made that possibility highly unlikely. Steps to further the program took place on several fronts. The first Eizenstat report in 1997 portrayed this flurry of activity after Bretton Woods as “new and vigorous U.S.-British action.”32 But all these efforts remained uncoordinated because so many different departments on two continents had to agree. As a result nothing came quickly. There are two dimensions to these troubles. On the one hand, they can be explained by a detailed look at the setup and circumstances the program was working under. On the other hand, these difficulties have to be understood in the context of the top-level rivalries prevalent in the Roosevelt administration in the fall of 1944 and before. Those contentions will become clearer in the next chapter. Klaus in Europe The trip Samuel Klaus had suggested in May to evaluate the Safehaven situation in the individual European neutral countries finally got under way in August. Klaus and Herbert J. Cummings from the State Department had already spent a week in London when Cummings’s department informed the pertinent U.S. embassies that a traveling mission might visit them soon. During their canvass trip they visited Stockholm, Madrid, Lisbon, Barcelona, Bilbao, and the International Zone of Tangier—then under Spanish occupation.33 Because of his investigatory zeal, Klaus might have been the right person for the trip, but his authority certainly did not go unquestioned. Since June, William Stone from the FEA’s Special Areas Branch had doubted Klaus’s connection and position with Safehaven. He emphasized that people from his own branch had been working hard on Safehaven problems “for months.” As soon as Frank Coe returned from Bretton Woods, he had to defuse the situ32. Eizenstat I, 19. 33. “Secretary of State to Certain Diplomatic and Consular Officers,” Aug. 23, 1944, FRUS, 1944, 2:220–21; Klaus to Currie, Coe, and Cox, “Safe Haven Investigation in Europe—August 16 to October 10, 1944,” Oct. 21, 1944, folder: Safe Haven Activities, Cox Papers. For an overview of the trip see also Masurovsky, “The Safehaven Program,” 35–43, and Eizenstat I, 16 –17. Crowley informed FEA field representatives of the Klaus mission on July 7; see “Chronology,” folder: Chronology, Material on the “SAFE HAVEN Project.” The OSS informed its field stations of the trip on Aug. 2, writing that “the whole question of Nazis running to ground has been of considerable concern to us . . . and we are, therefore, glad that it has now become a special activity of the FEA” (in folder 39: Safe Haven Project [box 2], Records Relating to a Survey of Foreign Experts, Records of the OSS).

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ation in talking to Sidney Homer of the branch’s Blockade Division, who apparently felt that Safehaven was his project.34 Although Klaus was going to Europe for the FEA, he was not yet officially working for that agency. However, the Treasury Department no longer regarded Klaus as one of its own. “I made it perfectly clear . . . didn’t I,” Secretary Morgenthau told his staff after Klaus had left, “that I didn’t know what he was going for, and that he would not go as a Treasury Representative, period. . . . What is he going over for, anyway?” Ansel F. Luxford, chief American legal adviser at Bretton Woods and new to the secretary’s regular morning group, explained that he had not known “the scope of the mission” but discovered after Klaus’s departure that he was working on a report on Axis looted property. “Well, now, that has always been a Treasury Foreign Funds problem,” declared Luxford. As a solution, John S. Richards from Foreign Funds Control was selected to accompany Klaus when he left London for Sweden. The assignment of this former shoe salesman had obviously been a hasty decision because Klaus would lambaste Richards in his final report. Richards had “no instructions to make any contribution to the project” and “no training.” Moreover, he refused “to accept any assignment at all” and in Klaus’s opinion actually endangered the security of the group on some occasions by advertising their presence to the enemy.35 The fourth man on the team suffered from the same “utter incapacity,” in Klaus’s and Cummings’s opinion. Sidney J. Kennedy of the Treasury Department’s Secret Service division was supposed to look into reports of traffick34. On June 19, Stone wrote to Coe to discuss the question of “assigning responsibility for the coordination of work in flight or concealment of enemy capital” and suggested setting up a committee. On July 5, Arthur Burns, who was the acting assistant administrator standing in for Coe, replied that such a coordinating committee apparently was “now functioning” and that he thought Klaus was in charge of the actual direction and coordination of the program at the FEA. On Aug. 3, Stone replied that the Blockade Division under Homer had been investigating the flight of Axis assets “for months” and that he preferred Benjamin Lewis from the OEP to lead Safehaven. In the end, Coe had to iron out the problem with Homer. Task accomplished, Coe attached a note to the last memo from Stone saying that it was “ok now,” according to Clarke, “The Safehaven Project,” 43; see also “Chronology according to Exhibits,” 3, folder: Chronology, Material on the “SAFE HAVEN Project,” and “Safe Haven, Summary Progress Report up to and Including October 1, 1944,” n.d., 9, folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC. 35. Morgenthau Diary, Aug. 22, 1944, 764:138 – 44, quotes 140, 143; for Luxford: John Morton Blum, From the Morgenthau Diaries: Years of War, 1941–1945, 283. Klaus was notified on the decision to send Richards on Aug. 24, 1944, “Chronology according to Exhibits,” 3 (see also Morgenthau Diary, Sept. 19, 1944, 772:133). For Klaus’s views on Richards: “Safe Haven Investigation in Europe,” 2; last quote: letter from Klaus to Coe, Sept. 11, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov., Records of OEP.

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ing of counterfeit currencies, an assignment only marginally related to the main purpose of the trip. Klaus thought that Kennedy “kn[ew] very little about counterfeiting” and that therefore “the Kennedy thing is a phony,” as he wrote Coe. Klaus and Cummings succeeded in traveling to Spain and Portugal alone and afterward decided to return home early without visiting Italy, Turkey, or Switzerland, as they had originally planned.36 In addition to the trouble with his entourage, the trip held other surprises for Klaus. Arriving in London, he learned during his first meeting with E. H. Bliss from the Ministry of Economic Warfare that the cabinet had already studied the Safehaven project proposal, courtesy of a description obtained by the British Embassy via Sidney Homer. According to Bliss, the cabinet had agreed to go along with the fact-finding efforts for now “but would reserve decision as to policy.” This was a nice way for Bliss to dress up the fact that Great Britain had not confronted the political implications of the issue at all. Since the British were thus informed, Klaus’s original plan—to maintain secrecy and to avoid American embarrassment because “our own factual information as compared with the British was very limited”—went out the window. Bliss also showed him some drafts of the instructions on Safehaven that were to go out to the British missions in September. Klaus found them lacking because they did not mention the dangers enemy personnel or newly founded enemy enterprises might pose in neutral countries. With the help of Ambassador John Winant these deficiencies were later corrected. Secrecy eroded further when an article in the London Express described the purpose of the trip. Thereafter, in Klaus’s words, “we were marked men in any neutral capitals.”37 As such, Klaus and Cummings arrived in Stockholm on September 2. Exhausted and with no place to stay, they nevertheless espoused “great plans” to find out every available piece of information about possible German influence in Sweden. Klaus summarized in his final report that in Sweden “German Safe Haven activity was rife” but that the Swedish state, because of its Social Dem36. Carlton Hayes to Dept. of State, May 30, 1944, 800.515/date, 1945 –1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP. For Kennedy’s tasks: Morgenthau Diary, Aug. 22, 1944, 764:143; Daniel Bell to Crowley, Aug. 11, 1944, folder: Finance, Public 11– 1, Safehaven Aug.–Nov.; Klaus to Coe, Sept. 11, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov. For countries visited: “Safe Haven Investigation in Europe,” 1–2; Klaus to Coe, Sept. 11, 1944. White informed Morgenthau about Klaus’s return on Oct. 11, 1944 (Morgenthau Diary, 781:187–88). 37. “Safe Haven Investigation in Europe,” 2, 5–6, quotes 5, 2. These instructions will be discussed later in this chapter.

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ocratic government and democratic traditions, might be positively disposed toward supporting Safehaven “if we would insist on it.” Through discussions with various officials from the U.S. Embassy, he identified three main areas of concern: German shipbuilding activities in Sweden (discussed above), possible expansion of German industries (Siemens-Schuckert), and potential attempts to manufacture under German patent goods for export with Swedish certification of origin. In the last case some assistance was perhaps provided through the banking activities of the Wallenberg brothers and their Stockholms Enskilda Bank.38 Klaus might have been correct in some of these assumptions, though he apparently regarded German wartime activities as similar to the assumed impending attempts to hide capital abroad for the postwar period. Despite these activities, Sweden was perhaps also one of the most hopeful cases. On Klaus’s request, Walter S. Surrey, an energetic and knowledgeable officer at the embassy, was starting to investigate Safehaven cases. Others on the embassy’s staff, such as Christian Ravndal—“a swell fellow,” according to Klaus—were in general quite aware of the project. In Klaus’s eyes the situation was similarly encouraging in Portugal and Tangier, the only two locations he visited that had unregulated financial markets. Both posed dangers as possible conduits for transactions in currency and gold, but those dangers could be addressed with additional investigative manpower, as Klaus wrote.39 The mission’s experience in these countries contrasted sharply with what the men encountered in Spain, where Ambassador Carlton Hayes and his staff were “entirely unsympathetic” with the investigation and basically denied the existence of any Safehaven activities in Spain. Furthermore, Hayes felt that he had already supplied Washington with most of the information Klaus and Cummings were seeking. Yet, according to Klaus, “Spain is beyond question the country in which the most damaging Safe Haven activities are going on and may be expected.” This statement reflects the fact that Klaus never visited Switzerland, which later would become the country in which German activities were regarded as most dangerous by U.S. officials. In Spain, the special problem was that the totalitarian government was positively disposed toward Germans and German companies and that all financial transactions 38. [Christian M.] Ravndal to Herschel Johnson, Sept. 2, 1944, folder: 1944 (box 1), Top Secret General Records 1943–1949, Stockholm Legation and Embassy, Records of the Foreign Service Posts of the Dept. of State, RG 84, NACP; “Safe Haven Investigation in Europe,” 8 – 9, quote from Klaus, “Summary of Report on Safe Haven Investigation in Europe,” 1, folder: Safe Haven Activities, Cox Papers. 39. Klaus to Coe, Sept. 11, 1944.

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were controlled by one institution, which made it easy to bestow “favors” toward Germans through bribes.40 Whatever the experience was in the particular capitals, the main thrust and outcome of the mission lay in the final recommendations Klaus made. Some of these ideas soon emerged in various FEA proposals made when the agency was planning for its future role in Germany. Klaus advocated that—aside from also sending missions to the neutral countries he did not visit—the FEA should prepare as soon as possible a large-scale investigative operation to move into Germany at a moment’s notice. Klaus thought in large dimensions: “FEA must . . . have available to work under its direction in Germany hundreds of trained investigators.” Ideally these people would come from the FBI and the OSS and would investigate all possible Safehaven targets in the country. For the neutral countries, trained people should also be available. For the time being, Klaus recommended at least one specialist per mission, with possible additions to be made later. The hub of a future investigative unit should be Berlin. As Klaus wrote to Coe, he hoped that with such a proposal the FEA could win the FBI as a strong ally, thereby perhaps assuring the agency’s survival. In addition, Klaus recommended that the UN should set up a separate body—he proposed to call it the UN Assets Realization Corporation—that would receive title to all German assets in neutral countries.This was of course nothing new, as Wunderlich had already raised such an idea. Also, “publicity” in neutral countries in regard to Safehaven aims “should be as widespread as possible” in the hope that the local population, even if the government were unfriendly, would help. These efforts should go hand in hand with any diplomatic initiatives. If these proposals were not put into action, Klaus concluded, the Safehaven program had “no prospects of substantial success.”41 It was Klaus’s sense of mission together with his strong belief that there really was a danger of a “Fourth Reich” that led him to these conclusions.42 But his recommendations also reflected the belief and hope inside the agency he was representing that the FEA would indeed have a major role in the transition from war to peace. At the time he was writing, the FEA was perhaps at 40. “Summary of Report on Safe Haven Investigation in Europe,” 2 (first quote); Hayes to Dept. of State, May 30, 1944, 800.515/date; “Safe Haven Investigation in Europe,” 10–12, second quote 10. 41. “Safe Haven Investigation in Europe,” 3–4, 4–8, 13–17, quotes 13, 5, 8; Klaus to Coe, Sept. 11, 1944. 42. This was a recurrent theme in Klaus’s thinking. On Oct. 21, 1944, he wrote to Coe warning again “of safe haven preparation for the next war,” folder: Finance, Public 11–1, Safehaven Aug.– Nov.

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the height of its influence in Washington, and it was from this position that the agency was advocating not only a well-staffed Safehaven program but also a large-scale planning program on the future of Germany. FEA and the Future of Germany While Klaus was on his trip, the top leadership of the FEA moved boldly to come up with their own program for Germany. Their vehicle was a letter Roosevelt had supposedly addressed to Crowley to initiate such preparations. But political maneuvering intervened and the story of the letter turned out quite differently than anybody in the FEA had hoped. In his report Klaus frequently referred to a letter that Roosevelt had written to Crowley on September 29, 1944. The president read aloud its salient points during his press conferences that day. The letter mostly called for a reduction of basic FEA functions (such as export controls, preclusive buying, or raw-material acquisition) in light of the possible end of the war in Europe—the Battle of the Bulge was still to come. However, well hidden toward its end, the letter also stated that the FEA had been “making studies from the economic standpoint of what should be done after the surrender of Germany to control its power and capacity to make war in the future. This work must be accelerated . . . under the guidance of the Department of State.”43 Furthermore, the missive said that the FEA should also make studies of how “the destruction and devastation of war [should] be repaired.” The newspapers covered the topic of these FEA studies extensively the next day, but for a different reason than the leadership of the FEA had originally anticipated. For the president, the letter offered a way to disassociate himself from the discord in his administration that he repeatedly tried to deny: the debate about Germany’s future and, in particular, the Morgenthau Plan. Reporters and historians alike have since suspected that the letter was one of the steps Roosevelt took to back away from the memorandum he and Churchill had signed on the future of Germany in Quebec two weeks earlier. Indeed, in an election year Roosevelt could use the letter to demonstrate to the public the return of order and careful consideration in German planning, even if the details of this order were rather sketchy.44 43. Press release, Sept. 29, 1944, Official File 5430 (FEA), Franklin D. Roosevelt Papers (FDRP), FDRL; Complete Presidential Press Conferences of Franklin D. Roosevelt, Number 970, Sept. 29, 1944, 24:133–34. 44. For press reaction see newspapers in folder: Dept. of State (box 991), Material on the “SAFE

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However, that turn of events was quite unintentional. Originally, the letter had been drafted by Oscar Cox, general counsel of the FEA, in early September, to be released with the FEA’s Annual Report to Congress. Cox hoped that this way the FEA would receive some clearer guidance and justification for its postwar planning efforts, which had been under way internally since early August. When these attempts had begun, the FEA had not yet had any validation from the highest political level for such a project, which had its origins in the actions of the interdepartmental Executive Committee on Economic Foreign Policy (ECEFP), created in April by FDR. At the beginning of August, the ECEFP had passed two policy papers on Germany, one focusing on general aspects, the other dealing with the question of reparations. In the ECEFP, representatives from the FEA were for the first time confronted with the State Department’s postwar plans and subsequently submitted their own proposals for reparations. The ECEFP and reparations debates will be dealt with in greater detail in the next chapter. Important in the present connection is that as a result of the ECEFP papers, the FEA began its own postwar planning based on the principles laid down in the ECEFP documents. FEA head Leo Crowley immediately assigned James W. Angell, a professor in international trade and finance at Columbia University, to work on the issues of German economic controls and reparations. Angell formed the German Working Committee, which soon came up with its first draft. Remarkably, Crowley moved ahead briskly in this case without a clear political mandate. The personal and immediate action Crowley took in assigning Angell shows that he and his top staff had high hopes for his agency to become a major part in the planning for and the administration of Germany. Like Klaus, he was interested in carving out a possible postwar role for the FEA, thereby assuring its survival.45 His views might have been bolstered by the fact that around the same time, HAVEN Project.” For historical assessment of the letter see Warren Kimball, Swords or Ploughshares: The Morgenthau Plan for Defeated Nazi Germany, 1943–1946, 43; Carolyn Woods Eisenberg, Drawing the Line: The American Decision to Divide Germany, 1944 –1949, 45; Blum, Years of War, 380; and Paul Y. Hammond, “Directives for the Occupation of Germany: The Washington Controversy,” 379. The following also discusssed in Weiss, President’s Man, 195 –202. 45. ECEFP members were Acheson (State), White (Treasury), Leslie A. Wheeler (Agriculture), Amos E. Taylor (Commerce), A. F. Hinrichs (Labor), Oscar B. Ryder (U.S. Tariff Commission), and Currie (FEA); see Department of State Bulletin 10 (Apr. 5, 1944): 511. For the genesis of the ECEFP in the State Dept. see Harley Notter, Postwar Foreign Policy Preparation, 1939 –1945, 138 – 39, 218 – 20. For Angell, see U.S. House Subcommittee of the Committee on Appropriations, FEA Appropriation Bill for 1945, 431; for setup of German Working Committee, see Hammond, “Directives for the Occupation of Germany,” 393–94.

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the FEA became a member of the first committee Eisenhower set up in Great Britain to coordinate the exploitation of any kind of German military or scientific information between the two countries. Eight U.S. and seven British intelligence organizations were represented on this Combined Intelligence Objectives Subcommittee, the FEA by William Stone. Their task was to select the targets for teams of investigating specialists. These “T-Forces”—T for target—closely followed the victorious troops to uncover anything they could about Germany’s scientific and technical know-how, including the scientists themselves. The subcommittee would later play an important role in Safehaven investigations in Germany, but more about that in Chapter 6.46 The letter as originally drafted by Cox would provide the necessary political backing for these nonmandated planning endeavors of the FEA. With Crowley’s approval, the draft was sent on September 8, 1944, to FDR’s closest adviser, Harry Hopkins, and then on to Secretary of State Cordell Hull. The original proposal was essentially the same as the released version, with one crucial addition. The words “under the guidance of the Department of State” were not in the original and were added by the State Department. After Quebec this phrase made Crowley increasingly uncomfortable “in view of all the public talk about a split between State and Treasury.” The head of the FEA had no personal interest in taking sides in this dispute, of which he was not and did not want to be a part.47 But higher politics intervened as FDR saw the political advantages this letter offered him. For the next two weeks the president held onto the letter. In the end, with the fallout of the Morgenthau Plan increasing, FDR used this communication as his exit. The outcome of this story was that at least afterward Crowley knew better what to do in regard to Germany. And he took his obligations seriously. The FEA already had “pounds if not tons of relevant information” on Germany and its industry. What was needed was a mechanism to bring all this information together. To do so “is of the greatest urgency” and “should take priority over any other studies being made,” found the FEA Executive Policy Com46. “Memorandum on the Establishment and Present Status of the Grey List Panel of the Combined Intelligence Objectives Subcommittee,” Jan. 30, 1945, Correspondence of the OSS Mission to Germany, 1944–1945, European Theater of Operation, Research and Analysis Branch, RG 226. 47. Cox to Stephen Early (secretary for the president), Sept. 7, 1944; Cox to Tom Blake, Sept. 8, 1944, with revised copy of letter as suggested by Hopkins; Hopkins to FDR, Sept. 13, 1944, with copy approved by Hull and Crowley; Cox to Early, Sept. 25, 1944 (quote), all in Official File 5430, FDRP. The usefulness of the release of the letter in light of the “dispute which exists currently between the Treasury, State, and War Departments” is also discussed by FEA’s Executive Policy Committee, Sept. 25, 1944, folder: Exhibit IV, Material on the “SAFE HAVEN Project.”

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mittee, the agency’s top-level policy body. At the beginning of October the Executive Policy Committee decided to create a new German Branch to do just that. This branch would run the Safehaven program, finally ending the “tug-of-war” among those FEA departments that wanted parts of it.48 For various reasons it took until the end of the year to establish the new German and Austrian Branch in the Bureau of Areas. First, there was the question of what the State Department had to say about it, since planning for Germany was supposed to be under its guidance. Only at the very end of October did Edward Stettinius—exactly a month away from becoming secretary of state—write to Crowley. In his words, the State Department expected the FEA to “pull together the studies of the structure of the German economy” since it would look to the FEA for all relevant background information. Of course, as the next chapter discusses, the State Department had studied the future of the German economy for years, and, consequently, the suggestion to establish the “closest relationship” between the two agencies never amounted to much.49 Secondly, there was the question of whether a new branch was needed since Angell was already working on the topic as head of the German Working Committee. But Angell was also very busy planning for Lend-Lease after the end of the war in Europe, and the German Working Committee remained inefficient. Crowley finally picked Henry H. Fowler, not an FEA insider but a lawyer who was assistant general counsel of the War Production Board, to head the new branch. And Fowler delivered. Ten days after Fowler started in January of 1945, he sent a fifty-page memo to Crowley outlining the scope of the twenty-seven studies he planned on Germany. Topics ranged from the post-surrender treatment of all kinds of German industry—aircraft, oil, rubber, machine tools, automobiles, coal, electric power, and so forth—to questions of separating the Ruhr industrial district or other areas from Germany, German agriculture, and how Germany had evaded the Treaty of Versailles. Because this new branch was in charge of the Safehaven program, one of these proposed studies dealt with that topic. Its concise title was “The Need for and

48. Henry H. Fowler to Working Group Chairman, “Procedural Information for Working Group,” Jan. ?, 1945, exhibit 16 in folder: Exhibit IV, Material on the “SAFE HAVEN Project”; “Notes on Executive Policy Committee Meeting, Monday, October 23, 1944,” 4, and “Notes on Special Meeting—Executive Policy Committee Saturday, October 7, 1944,” 4–5, both in folder: Executive Policy Committee (box 3), Records of OEP; Clarke, “The Safehaven Project,” 38. 49. Stettinius to Crowley, Oct. 31, 1944, exhibit 15 in folder: Exhibit IV, Material on the “SAFE HAVEN Project.”

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Nature of Allied Activities Relating to German Property Assets, Industrial Personnel, and Economic Activities Outside Germany, Designed to Enforce Economic and Industrial Security Measures Pertaining to Germany.” Not surprisingly, in the final version this title was shortened.50 These studies were drawn up by various Technical Industrial Disarmament Committees, which kept more than 250 people inside and outside of the FEA busy for nearly a year. The agency presented its first interim results in June of 1945 and its final version of these studies to President Truman in October. This had been a grandiose effort, and often Fowler compared his work to the British Economic and Industrial Planning Section of the Foreign Office established to draw up plans for the postwar world. These studies, which will be discussed in greater detail in Chapter 6, contain much useful information, so it was a pity that at the time they were presented, no one in the U.S. government any longer cared much about them. Crowley had been a Roosevelt man, and with the president’s failing health and death, Crowley and his agency lost influence. In addition, Stettinius had replaced Hull as secretary of state. Crowley had enjoyed good relations with Hull, and after his departure FEA rapport with the State Department got frosty.51 As already stated, Klaus’s ideas together with the FEA project outlined above reflect the high point of the agency’s influence in Washington. However, in the fall of 1944, this grandiose array of ideas about the possible future of the Safehaven program and Germany faced several challenges. Until the Bretton Woods conference, the Safehaven program had been, for the most part, an FEA program. But beginning in August of 1944, other departments became actively involved in its activities. Any steps to put the Bretton Woods resolution into action required the assistance of the State Department and its missions abroad. The Treasury Department, on the other hand, began to show special interest in the program when its leadership began to notice that the program’s activities might encroach on its own field of responsibilities, namely, the control of Foreign Funds. Subsequently, nobody from those depart50. For Angell’s other work, see “Notes on Executive Policy Committee Meeting, Monday, October 23, 1944,” 5, folder: Executive Policy Committee, Records of OEP; on Fowler: Weiss, President’s Man, 202; Fowler to Crowley, “Interim Report on Study Project Relating to German Economic and Industrial Disarmament,” Jan. 10, 1945, exhibit 17 in folder: Misc. File (box 992). For Fowler’s assertive nature see Fowler to Walter Rudlin, n.d., folder: Intercepts (box 991), both in Material on the “SAFE HAVEN Project.” 51. Crowley to Truman, Oct. 15, 1945, Official File 27 (FEA), Truman Papers (HSTP), HSTL; for the scope of its efforts see FEA Enemy Branch, Technical Industrial Disarmament Committees: Organization and Personnel, Oct. 1, 1945; Weiss, President’s Man, 216 –18.

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ments was open to any sensible compromises about how the tasks of the program could be effectively divided between the three agencies. Diplomacy All American diplomatic missions were informed on August 19, 1944, of the text of Bretton Woods Resolution VI. While adherence to its lofty principles came easily, it was much more difficult to work out the measures that would spring from those pronouncements. Already in Bretton Woods the British had raised their concerns, and they did so again in talking to Ambassador Winant. Now Sir Nigel Bruce Ronald, the British assistant undersecretary of state for foreign affairs, was afraid that measures to enforce the resolution would not be effective without the “widespread continuation” of postal censorship, the blockade, and related controls after the war. He was indeed correct to be concerned because internally the FEA assumed the continuation of those measures into the postwar period. Ronald conceded to Winant that the British Foreign Office would do its best to cooperate with the State Department. In a memo to Winant nearly two weeks after hearing Ronald’s concerns, Hull tried to soothe the British by assuring them that since the resolution mostly demanded action by the neutrals themselves, the wartime “extraordinary and burdensome controls” could be relaxed immediately after the war. Relaxed, of course, was not the same as discontinued. Some form of control over securities and other looted assets might be necessary for some time, Hull said.52 On August 23, the State Department had “finally” sent out instructions to its embassies in Morocco, Portugal, Spain, Sweden, Switzerland, and Turkey, telling them to keep the department informed “concerning enemy investments, and enemy plans, as well as operations under such plans, to seek haven in neutral and other countries for assets and military and industrial potential in frustration of anticipated Allied controls following the cessation of hostilities.” This communication was the first official instruction of the State Department for the Safehaven program—although the actual codeword SAFEHAVEN was not introduced until more than a month later. This circular had been preceded by telegrams earlier that month that requested embassies in neutral countries to think about how to seek the cooperation of the respective 52. “Secretary of State to All Diplomatic Missions,” Aug. 19, 1944; Winant to Hull, Aug. 11, 1944; Hull to Winant, Aug. 24, 1944, all FRUS, 1944, 2:218 –20, 218, 221–22.

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governments to control enemy capital. In the general instructions the missions were asked to be aware of a number of specific items while considering the request. First, was there any evidence of any new enterprises that might represent enemy assets? Second, was there any indication of capital transfers or deposits of enemy assets? Such removal might be through the transfer of bank balances, gold, securities, or other evidence of wealth. This category included merchandise in warehouses, mortgages, art objects, the creation of new credits by the delivery of merchandise, or any other real or fictitious services.Third, had enterprises or governments used or invited German technicians or managers to work there? Fourth, had any companies provided cover for such activities? And finally, could any German refugees be engaged in any of these activities? These orders were followed up by more widely circulated and more detailed instructions in January 1945, which also emphasized AngloAmerican cooperation in this matter. Apparently, the State Department had forgotten to mention this in the first version—much to the surprise of the British.53 The British followed suit with their own directives in mid-September. As already mentioned, the first drafts of these instructions—the ones that Klaus saw in London—were incomplete in American eyes. The final version, which was distributed widely, was quite inclusive, asking for “information about any sort of enemy-owned assets.” In contrast to the Americans in their instructions, the British were careful to request that distinctions should be made between looted and other assets and put more emphasis on various kinds of property—real estate, patents, trusts, estates, and so forth. Cases where there was only a suspicion but no proof should also be reported, they stated. The instructions noted that “we know that you are very busy, and we do not expect . . . an exhaustive list . . . but we feel sure that you will have some useful information which you could send us without too much trouble.”54 53. Delay lamented by the FEA Blockade Division in: “Safe Haven: Summary Progress Report up to and Including October 1, 1944,” 6, folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945 –1947, Records of DESC; “Secretary of State to Certain Diplomatic and Consular Officers” (to Morocco, Portugal, Spain, Sweden, Switzerland, and Turkey, and to Algeria, Egypt, the UK, and Rome for information), Aug. 23, 1944, FRUS, 1944, 2:220–21; telegram to Stockholm, Aug. 12, 1944, mentioned in Johnson to Hull, Aug. 18, 1944, in: Currie Mission, FFC Subject Files; for codeword: “Secretary of State to Certain Diplomatic and Consular Officers,” Sept. 28, 1944, FRUS, 1944, 2:234–35; “Secretary of State to Diplomatic and Consular Officers except Those in the American Republics,” Jan. 19, 1945, FRUS, 1945, 2:852–59; British views: J. F. Cahan (MEW) to Troutbeck, Aug. 21, 1944, FO 371/40959, BNA. 54. Winant to Hull, Sept. 1, 1944, FRUS, 1944, 2:222–24; British instructions in FO 371/40959, n.d., attached to letter from E. H. Bliss (MEW) to Troutbeck, Sept. 18, 1944, BNA.

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At the same time, the Ministry of Economic Warfare set up a Safehaven study group. Its main obligation was to comb through the files the ministry had accumulated in maintaining the Statutory List. This review was still ongoing but largely complete in April of 1945. In addition, the group’s task was to coordinate and exchange information with the United States, a job done through the Economic Warfare Division (EWD) of the U.S. Embassy in London under Wienfield Riefler. Located right across from the MEW on Berkeley Square, the EWD created its own Safehaven unit in December 1944 headed by Albert Robbins. Beginning in January 1945, all information the U.S. embassies in Europe collected on the topic was sent not only to Washington, but also to this unit so that the reports could be compared with the ones of the MEW. In addition, U.S. officials began to exchange information with their British colleagues at the various capitals in Europe themselves, although that exchange did not always go smoothly.55 The next logical step was to inform the actual governments that were the targets of the Bretton Woods resolution of the decisions of the conference and to ask for their cooperation. But first the participating agencies in Washington had to overcome some interagency squabble, and then the British stalled the venture. Klaus had wanted to get something out the door by late July. However, the State Department felt that his suggestions were too specific to be applied broadly to all the countries in question. Consequently, only in early September 1944 did the State Department send out instructions to its embassies in Dublin, Madrid, Bern, Ankara, Lisbon, Stockholm, and Tangier to present a general request two weeks later. The embassies were supposed to ask these governments “to institute the measures set forth in the resolution” because the United States “consider[ed] cooperation in this matter to be of primary importance to the welfare of the occupied nations and to the protection of the lives and property of their nations, and to the peace and security of the post55. “Safe Haven: Summary Progress Report up to and Including October 1, 1944,” 9, folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC, see also History Notes, Nazi Gold, 7; status of review: Edwin F. Rains (U.S. Treasury representative in London), “Memorandum for the Files re Safehaven, Meeting at Ministry of Economic Warfare, Apr. 16, 1945,” Apr. 17, 1945, folder: Safehaven May 1–15, 1945 (box 383), FFC Subject Files; EWD described in Gordon and Dangerfield, Hidden Weapon, 44 – 45; creation of Safehaven unit memo by Rains, Mar. ?, 1945, folder: Safehaven Mar. 1945 (box 382). That telegrams should be forwarded already suggested by Stone (London) to State Dept., Treasury, and FEA, Oct. 19, 1944, folder: Safehaven Oct. 1944; embassies so instructed in Stettinius to London, Jan. 2, 1945, folder: Organization of Safehaven Work (box 389), all in FFC Subject Files. For exchange of information: Winant to State Dept., Jan. 27, 1945, 800.515/date.

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war world.” But the British hindered the presentation of these notes. Instead of acceding “readily to this proposal,” as the United States had hoped, Ronald dragged his feet because the British government had not yet fully considered the Bretton Woods resolution. In addition, echoing Klaus, he felt that a request merely to adhere to the resolution did not clearly spell out what the neutral governments were actually being asked to do—a very accurate objection, as it turned out. However, three days later Ronald retracted his misgivings in the name of Allied unity and because the Foreign Office decided it to be “unwise” to tie down its future policy by spelling out the meaning of the resolution.56 It took another two weeks—until October 2—to present separate notes in an amended version, despite the fact that a meeting of representatives from the FEA, the Treasury Department, and the State Department had once more underlined that the United States considered the matter “highly urgent.” The October 2 note included the added request “to institute such measures as will fulfill the aims of the United Nations.” That way, the United States and Great Britain would appear to be acting not alone, but in the name of all those nations fighting against the Axis powers. The two Allies also asked the Soviet Union to follow their example. The USSR delivered notes in November only to Sweden and Turkey, since it was not represented in the other neutral countries. Similarly, the United States asked other countries of the Allied coalition to take such action through their own embassies in neutral countries, and some did so.57 The delivery of the notes was accompanied by a State Department press release drafted by Seymour J. Rubin of the Division of Financial and Monetary Affairs stressing that the enemy, “in order to salvage his assets and to perpetuate his economic influence abroad,” was taking loot and property acquired under duress and “by subtle and complex devices” to the neutral countries, whose assistance the Allies had requested.58 In substance this press release 56. Klaus to Coe, July 31, 1944, Coe to Crowley et al., Aug. 2, 1944, Klaus to Coe, Aug. 12, 1944, all in folder: Finance, Public 11–1, Safehaven Aug.–Nov., Records of OEP; Hull to Winant, Sept. 5, 1944, FRUS, 1944, 2:226–27, quote 227; Great Britain’s qualms: Winant to Hull, Sept. 13, 1944, ibid., 229–30; Winant to Hull, Sept. 16, 1944, ibid., 231–32, quote 231. 57. Meeting took place Sept. 16: see Hull to Winant, Sept. 22, 1944, FRUS, 1944, 2:232– 33, quote 233; Hull to diplomatic representatives in Ireland, Spain, Switzerland, Turkey, Portugal, Sweden, and Morocco, Sept. 29, 1944, for notes to be presented Oct. 2, ibid., 235, 236; Soviet action: ibid., 227 n. 26, Harriman to Hull, Oct. 2, 1944, ibid., 235, Kennan to Hull, Nov. 14, 1944, which confirmed the delivery of the Soviet notes, ibid., 242; U.S. request followed by Belgium, Canada, China, Czechoslovakia, Iceland, Liberia, Luxembourg, Netherlands, New Zealand, Norway, and a number of Latin American countries, ibid., 238 n. 51. 58. The release was handed out on Oct. 4, 1944, so that it appeared in the papers shortly after the

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stated the obvious and was couched in very general terms. Remarkably, it remained the only statement ever released to the press related to the Safehaven program. Cox from the FEA would have wished otherwise. Already in September he sent a proposed public statement for the president “on the flight of Axis capital” to Frank Coe and Lauchlin Currie. He also got in touch with Roosevelt adviser Harry Hopkins and with Morgenthau. In its various incarnations the draft made its rounds between the departments for the next three months. While H. Freeman Matthews, deputy director of the Office of European Affairs in the State Department, had no objections, the Treasury Department had trouble with the statement. In a fairly insulting letter to Cox, the department’s general counsel, Joseph O’Connell, wrote, “I am very much concerned by the thought that you should feel satisfied with the draft. I will not take your time to point out the draft’s inadequacy and ineptness, both as to form and substance.” The trouble was not with Cox’s writing, but with his list of economic weapons available “to destroy these Nazi designs.” In congruence with reality, O’Connell and others in the department felt that the Allies did not have much to threaten the neutral countries with, beyond the three declarations already made.59 And because the United States and the other Allies did not want to appear weak, the Treasury Department remained strenuously opposed to any statement then or in the future. There the matter of a future release rested, forever. Under these conditions it should be no surprise that the presentation of the notes to the neutral countries elicited hardly any response. First, there was no real need for the countries in question to reply since they were not asked to do so. Second, as the British had foreseen, the notes did not provide adequate guidelines of what the Allies expected from the neutrals. In the case of Sweden, for example, the country was quite willing to assist but not sure as to the note’s meaning. Walter S. Surrey, the State Department’s Safehaven officer in Sweden, later wrote that it had been “the failure of the Allies” to pass on mere-

notes were presented; see telegram to London, Moscow, Lisbon, Madrid, Stockholm, Bern, Ankara, Tangier, and Dublin, Oct. 17, 1944, folder: Safehaven Oct. 1944, FFC Subject Files. 59. Cox to Currie and Coe, Sept. 13, 1944, folder: Germany—Flight of Capital/2, Cox Papers; Cox to Hopkins, Sept. 12, 1944, folder: Book 9: Treatment of Germany/1 (box 333), Hopkins Papers; Cox to Morgenthau, Oct. 7, 1944, Morgenthau Diary, 782:151–53; Cox to Hopkins, Oct. 20, 1944, folder: Germany—Cartels (box 86), Cox Papers; Hopkins to Matthews, Oct. 20, and reply, Oct. 26, 1944, folder: Germany (box 154), Hopkins Papers, all in FDRL; Cox to O’Connell, Oct. 20, 1944, and reply, Oct. 24, 1944 (quote), folder: Safehaven Oct. 1944, FFC Subject Files.

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ly a policy statement without supplying any guidelines on “the means of implementing the resolution.”60 It should be noted that Klaus and Coe drew up these telegrams in some loose coordination with the people from the State and Treasury departments. In the State Department, besides Rubin, Herbert J. Cummings of the Foreign Activity Correlation Division and Covey T. Oliver, George Baker, and Bob Crassweller of the Division of World Trade Intelligence (WT) were responsible for the Safehaven program.Their work was directed by Francis Russell, head of the WT. Despite its name, the Foreign Activity Correlation Division was actually collecting the relevant intelligence, while the WT was primarily in charge of assembling and maintaining Safehaven information. Rubin’s Division of Financial and Monetary Affairs was directing the larger political aspects of the program, including its representation to other departments. In the Treasury Department, Harold Glasser and Allan J. Fisher of Assistant Secretary White’s own division of Monetary Research and John Richards, Bernard Feig, and Samuel S. Gilbert of FFC were working on Safehaven. They worked under Orvis A. Schmidt, who had replaced John Pehle as head of FFC. The proposed telegrams were circulated among concerned people in the three agencies before they were sent out.61 Otherwise no coordinated efforts had been made, and the above-mentioned meeting to discuss the implementation of the Bretton Wood resolution was apparently the first in which those people got together. Such a setup was not very satisfying or efficient for the people involved, and a lot of time would be spent (and wasted) on numerous proposals to overcome those hurdles. Who Is in Charge? With a formal diplomatic initiative under way, Safehaven had become a program that concerned certain divisions of three Washington agencies. Ideally, it should have been guided equally by the officials from these depart60. Ravndal to State Dept., “Transmitting Report by Walter S. Surrey on Safehaven Negotiations in Sweden,” Dec. 12, 1945, quote 5, 800.515/date; same point is made in unnamed report, Dec. 19, 1945, 14, in folder: Swiss Certification (box 390), FFC Subject Files. 61. [State Dept.], “Division of Responsibility within the Department concerning Property Looted by the Axis and Secretion of Axis Property,” n.d., letter from Robbins (who was visiting Washington at this time) to Brooke Willis, U.S. Embassy, London, Dec. 16, 1944, both in folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC; “Chronology,” 2, 3, folder: Chronology, Material on the “SAFEHAVEN Project.”

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ments. In the daily bureaucratic battles of the entity known as government, however, such arrangements rarely work out. The result was that the State and Treasury departments and the FEA were constantly at odds over each step necessary to move the program forward. Thus, for example, the Allies did not deliver follow-up letters to their Bretton Woods notes from October until April and May of 1945.62 Officials from the three agencies in Washington spent more than six months discussing whether the proposed notes should spell out specific demands or be kept in general terms and finally deciding on the former. These discussions were held in the so-called Interdepartmental Safehaven Liaison Group, a very informal organization established in December 1944 to clear up questions among the three agencies.63 No secretariat or officer coordinated the group’s meetings, no agreement on who was to chair these meetings was reached, and, not surprisingly, no regular meeting schedule was kept. Until December 1945 this group of ten people or more met once or even three times a month to discuss various matters of importance. This informal arrangement proved the lowest common denominator on which the people involved could agree. Some people tried to propose a different setup. In July 1944 Rubin had suggested creating a subcommittee of the Executive Committee on Economic Foreign Policy to be in charge of financial and property control over foreign assets after the war. But when the time came to establish such a subcommittee, Feig from Treasury’s Foreign Funds Control, following orders from his boss, Schmidt, argued that there was no need for one. His department, he said, had worked on the problems in question for “several years” through existing channels, and a new committee would only duplicate work already done. Never mind that other agencies also tended to the same issues and an exchange of views and experiences might have been beneficial, as everyone else pointed 62. Not all neutrals received these follow-up notes. For Sweden, telegram, Apr. 10, 1945, 800.515/ date; for Spain, Norman Amour (U.S. ambassador to Spain) to Stettinius, May 1, 1945, FRUS, 1945, 2:877; for Portugal, “The Acting Secretary of State to the Ambassador in Portugal,” May 7, 1945, and confirmation that note had been delivered May 10, 1945, both ibid., 879– 88. 63. Russell from State first met with Fleischer (FEA) and others on Aug. 25 and then again with Homer (FEA) and Richards and Feig from FFC on Oct. 27, 1944, to begin establishing this group. Fleischer to Gordon (acting chief, Blockade Division), Aug. 25, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov., Records of OEP. For October meeting: State version “Memorandum of Conference, Subject: Division of Functions of Safehaven Project,” Oct. 27, 1944, in folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945– 1947, Records of DESC; Treasury version “Memorandum for the Files,” Nov. 2, 1944, folder: Safehaven Jan. 1945, FFC Subject Files.

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out.64 There was turf to protect, and the Treasury Department held onto it for dear life. This was the refrain in every future proposal to put the coordination of the Safehaven program on a surer footing. In lieu of the Executive Committee on Economic Foreign Policy setup, each agency put forward its own proposals at the beginning of December on how better coordination could be achieved and the workload split among the departments. In its proposal, the State Department assigned itself a large role in directing not only an official interdepartmental Safehaven Committee but also the “factual aspects” of the program. This latter responsibility would be carried out by WT since its work on the Proclaimed List had already given it a very large database for useful “politico-economic intelligence.” In the FEA’s memo, Sidney Homer assigned a similar role to his agency in line with the FEA’s belief that it would play “a major role in the actual economic administration of occupied Germany.” Internally, he estimated the number of FEA people necessary for Safehaven work in Europe at fifty-one—a number at least more reasonable than Klaus’s call for several hundred investigators. Homer was careful not to forget that the FEA had to obey the guidance of the State Department, but for the Treasury Department there was not much left to do. Treasury officials were not amused with either proposal. The FEA plan they found “so slanted in favor of FEA that agreement to it would permit them to go to the Budget Bureau and contend that they had major responsibility in the field.” The State Department’s plan was judged to be only slightly better.65 After reviewing what the other agencies offered, the Treasury Department’s Richards and Feig came up with the very loose agreement realized in the end. In their plan there would be no division of functions. Only the vaguely defined Liaison Group would decide policy and procedure. The central files 64. “Memorandum for ECEFP, Subject: Interdepartmental Committee on Post-Hostilities Controls over Foreign Property,” July 15, 1944; “Memorandum of Discussion at Meeting of ‘Interdepartmental Committee on Post-Hostilities Controls over Foreign Property,’” Sept. 5, 1944 (apparently the only meeting of that committee ever), both in folder: Proposed Subcommittee of the ECEFP on Post-Hostilities Controls over Foreign Property (box 76), ECEFP, Interdepartmental and Intradepartmental Committees (State Dept.), RG 353, NACP. 65. Feig to Richards, Dec. 1, 1944, with attachment from State: “Operational Arrangements and Division of Functions between State Department, Treasury and FEA Relating to the Safehaven Project,” dated Nov. 28, 1944, quote 2, and from FEA: “Organization of Safe Haven Work,” n.d., folder: Safehaven Dec. 1944 (box 382), FFC Subject Files; Homer to Arthur Paul, acting executive director, Bureau of Areas, Oct. 11, 1944, “Safe Haven FEA Personnel Requirements,” folder: Exhibit I (box 991), Material on the “SAFE HAVEN Project”; Treasury views: “Memorandum for the Files, Subject: Safehaven Project—Organization and Procedure,” Dec. 8, 1944, quote 2, folder: Safehaven Dec. 1944.

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would be maintained by WT in the State Department. Since the FEA and the State Department did not like each other’s proposals either, the Treasury Department’s plan won the day.66 In February of 1945 Rubin made yet another attempt to drag all matters concerning Safehaven into his department, the State Department. “The Safehaven project,” he wrote to Otto P. Fleischer at the FEA and Irving Moscowitz in FFC, has “been carried on more or less independently by various . . . agencies for a considerable period of time.” Any actions in regard to this program, “which has grown like Topsy,” should be handled by the State Department after the input of the other departments has been heard. A truly small policy group of three to six people should meet once a week to determine matters of broad policy. Rubin’s proposal met with nothing but outrage in the other agencies. Feig told Rubin that he deemed the reorganization “entirely unacceptable.” Fleischer was told by his boss, Henry Fowler, to keep quiet about the proposal because Fleischer hoped that a presidential directive “in the very near future” might fix the confusion.67 That directive never came, and the competition between the agencies engaged in Safehaven continued unabated. This arrangement was never a happy one, either in Washington or abroad. Treasury representatives stationed at various embassies around the world repeatedly complained that they found themselves mysteriously excluded from important discussions on Safehaven or suddenly did not receive Safehavenrelated cables anymore. The State Department commented that these “jurisdictional clashes” in the field “create an atmosphere of dissension” at the embassies.68 66. “Operational Arrangement between State Department, Treasury and FEA Relating to the Safehaven Work,” Dec. 2, 1944, folder: Safehaven Dec. 1944, FFC Subject Files; arrangement accepted after two meetings, see State versions: “Minutes of Safehaven Meeting,” Dec. 4, 1944, and Dec. 11, 1944, in folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC. The more complete Treasury version of the meetings is “Meeting in State Department on Procedures Relating to the Safehaven Project,” Dec. 18, 1944, about the Dec. 4 meeting, and “Memorandum for the Files on the Safehaven Meeting of December 11, 1944,” both in folder: Safehaven Dec. 1944, FFC Subject Files. 67. Memo, “Organization of Safehaven Work,” Feb. 7, 1945, attachment to letter from Rubin to Dr. Fleischer, same date, exhibit 25 in folder: Exhibit IV, Material on the “SAFE HAVEN Project”; memo with same title from Rubin to Moscowitz, Feb. 7, 1945, folder: Safehaven Feb. 1945 (box 382), FFC Subject Files; handwritten note by Feig dated Feb. 23, 1945, on the memo from Rubin to Moscowitz; Arons to Feig, memo about informal conversation with Dr. Fleischer of FEA, Feb. 17, 1945, folder: Safehaven Feb. 1945, FFC Subject Files. 68. Quote from undated, unsigned draft memo, “Work on Control of German External Holdings and Influence,” to William Clayton (asst. secretary of state for economic and business affairs), folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject

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The worst situation probably existed in Sweden. On his arrival in August 1945, seasoned Treasury man James J. Saxon reported from Stockholm “that there exists an atmosphere of suspicion” between him and his colleagues from State. He should have known what to expect since his predecessor, Iver C. Olsen—on the post since 1943—had already warned the department about his “continual harassment,” which was “well known” in Washington. Saxon only hoped in vain that the atmosphere would improve, because soon matters deteriorated even further. In September, Charge d’Affaires Christian Ravndal accused Saxon of being sent “under specific instructions from the Treasury deliberately to create trouble,” while Ambassador Herschel Johnson judged Saxon to be “very immature” and lacking all self-control for a post abroad. But then Saxon had equal praise for Ravndal, considering him “as vicious and rotten a man as I have ever met.” The home department soon decided that a “Treasury Representative at Stockholm is not needed at present” and told Saxon to “close the office, and return to US.”69 Evidence? All these conflicts overshadowed the current and future progress of the Safehaven program and certainly did not make it any more successful. For the time being, the program amounted to nothing more than mere fact finding. To the end of 1944, all of the departments concerned were engaged in looking through their files to determine what kind of relevant information they had. Because these were large files, such review took time and the outcome was uncertain. However, there was a general assumption behind all these undertakings, and even though the program had just begun, someone should have ascertained whether that assumption was even correct. The whole program operated on the belief that there was indeed a flight of German capital taking File, 1945–1947, Records of DESC. The reports of Treasury representatives at Bern, London, and Stockholm document these frequent difficulties. See, for example, for Switzerland, “Memorandum of Conversation with Covey Oliver, State Department, July 11, 1945,” folder: Safehaven July 1–15, 1945 (box 384); for Great Britain, among others, Edwin F. Rains, “Memorandum for the Files,” London, Mar. 14, 1945, folder: Safehaven Mar. 1945, both FFC Subject Files; for Sweden, see below. 69. Saxon to Secretary of the Treasury Fred M. Vinson, Aug. 30, 1945, folder: Safehaven Aug. 26–31, 1945 (box 384), FFC Subject Files; Report “Treasury Representative at Stockholm, Sweden,” Aug. 8, 1945, unsigned, folder: Treasury Rep. (box 35), Accession 56– 67A245, Records of the Dept. of the Treasury, RG 56, NACP; Saxon to Vinson, Sept. 14, 1945, folder: Safehaven Sept. 11– 30, 1945 (box 384), FFC Subject Files; Johnson’s views in telegram to Secretary, Oct. 5, 1945, 800.515/date; Treasury to Saxon, Oct. 2, 1945, folder: Treasury Rep., Accession 56– 67A245.

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place. The Blockade Division of the FEA had assumed that to be a given, judging from its wartime operations when Germany needed to acquire material or support through often clandestine means. In the fall of 1944 some evidence seemed to confirm the initial suspicions. At the end of November the U.S. Embassy in London forwarded a report by an agent of the French Deuxieme Bureau on two meetings of German industrialists in the Hotel Rotes Haus in Strasbourg that had taken place in August. In these meetings the representatives of important German industries (Krupp, Messerschmitt, Rheinmetall-Borsig, Volkswagen, and so forth) had learned that their colleagues regarded the war to be lost and that they should take steps to protect their interests via holding companies abroad. A member of Germany’s Armaments and War Production Ministry also told them that they should be ready to finance an underground organization of the Nazi Party that was prepared to make a last stand in the Bavarian and Austrian Alps. This latter plan for a redoubt in the Alps turned out to be bogus, although the Allies’ intelligence services expended great efforts in attempts to verify it.70 Beloved and often cited by conspiracy-theory believers until today, the Rotes Haus meetings probably never took place. Rather, the information about them was most likely a compilation of pieces of information of various meetings between some midlevel managers and German officials at the Rotes Haus. Also, the names in the document itself are wrong and some of the companies mentioned (Brown-Boveri) are not even German. Nevertheless, with great fanfare, Secretary Morgenthau used this information in the book he published to defend his plan, declaring that “fanatical young corporals . . . will be dreaming of another chance at world conquest and reminding each other in beer halls . . . how narrowly they missed success this time. . . . They will get that chance . . . for the industrial leaders of Germany already are laying their plans . . . to mobilize for World War III.”71 70. EWD to State Dept., “Transmitting Intelligence Report no. EW-Pa 128 by G-2 Economic Section, SHAEF, regarding Plans of German Industrialists for Post-War Operation,” Nov. 27, 1944, folder: Safehaven Jan. 1945, FFC Subject Files. An equally vague copy is memo from French Embassy in London to FO, Jan. 26, 1945, FO 371/45750, BNA. The head of the OSS, William Donovan, sent Roosevelt several reports about the réduit that had originated with Swiss newspapers. See Donovan to Roosevelt, Feb. 14 and Mar. 6, 1945, folder: OSS Reports (box 151), Confidential File, President’s Secretary’s File, FDRP. OSS personnel in Europe started to investigate in March but only came up with questionable evidence; see Carl Schorske to John Magruder, Mar. 7; George Jacobs to Chandler Morse, Mar. 13, 1945, both, no folder name (box 2), Correspondence of the OSS Mission to Germany, 1944 –1945, European Theater of Operation, Research and Analysis Branch, RG 226. 71. Roth, “Wirtschaftliche Vorbereitungen,” 565 n. 189; Christiane Uhlig et al., Tarnung, Transfer, Transit: Die Schweiz als Drehscheibe verdeckter deutscher Operationen (1938 –1952), 109 –11; Henry Morgenthau, Germany Is Our Problem, 10.

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The secretary’s views—which were actually those of Harry Dexter White, the author of the book—stand in stark contrast to the opinions expressed during a meeting of high-ranking officials at the German Reich Economic Ministry in October 1944. They regarded any cloaking efforts by German industry as a sign of doubt in Germany’s final victory and advised the German clearing office and other concerned departments to prevent any such transactions “under all circumstances.”72 This did not mean that there were no German postwar planning efforts. These centered around the Economic Ministry and the Planning Department (Planungsamt) of the Speer ministry. The participating governmental and industrial officials clung to the belief that German economic dominance of Europe could somehow be preserved, an idea that even they finally realized had become obsolete in the summer of 1944. Behind the required ideological constraints, the planners then began to recognize the predominant position of the United States for the postwar period, and their last position papers, in December 1944, moved to a Keynesian view of moderate state intervention, a position far from the realities of total war but close to postwar economic structures.73 There is naturally a difference between the official views that were to be expected by members of the German government and the actions taken by individuals, which the Allies tried to trace. But at least in the fall of 1944, the problem with any kind of evidence for cloaking or illicit capital transfer was that it was so rare. Indeed, when Cox asked Currie’s assistant Dudley T. Easby to get him any proof on the movement of German technicians out of Germany, Easby had to refer him to a one-month-old article from the Baltimore Sun because “we apparently have no concrete evidence on the movement of German technicians out of Germany.”The article was about a number of Germans supposedly working for the Argentine military. A recent, thorough multinational study about the “Nazi menace” in Argentina, as believed to exist by U.S. officials, has convincingly shown that such ideas were “nonsense.”74 The situation in regard to this sparse verification of the initial suspicions hard72. “RWM/Hauptabteilung III, Vermerk über die Abteilungs- und Referatsleiterbesprechung am 3. 10. 1944,” cited in Rolf-Dieter Müller, “Albert Speer und die Rüstungspolitik im totalen Krieg,” 506–7. 73. See Ludolf Herbst, Der totale Krieg und die Ordnung der Wirtschaft, 348–82; Roth, “Wirtschaftliche Vorbereitungen.” 74. Baltimore Sun, Sept. 23, 1944, Cox to Easby, Oct. 23, 1944, and return memo by Easby, same day, folder: Germany–Dr. George Wunderlich Memoranda (box 85), Cox Papers; Ronald C. Newton, The “Nazi Menace” in Argentina, 1931–1947, quote xiv. However, the debate continues; see the recent study by the Argentinean journalist Uki Goñi, The Real Odessa: Smuggling the Nazis to Perón’s Argentina.

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ly improved over the next months. It throws into doubt the entire initial assumptions the officials in the FEA—and some in the Treasury Department— had formed and explains why, by 1946, the Safehaven program had taken on a very different shape than originally envisioned by its creators. The lack of evidence was not the only problem Safehaven faced at the end of 1944. Though the program was still in its infancy, its planning by the FEA had met with questionable success so far. Internally, there had been extensive confusion over who was in charge of the program. When the FEA contacted other agencies it ran into opposition. In general the FEA suffered from the fact that even at the height of its power in wartime Washington, it was only an emergency wartime creation that could not act with the same authority as the Treasury or the State departments, which were cabinet-level agencies. There was also the question of what the program was really after. Its definition remained vague, and soon so-called Safehaven information encompassed mountains of information that was simply filed away. The Bretton Woods resolution sounded good, but because it was rather nonspecific it required concrete explanations of what was expected of the neutral countries, which were not supplied. Again, as did other areas of the program, these diplomatic initiatives suffered from the constant conflicts between the agencies in charge. To solve these squabbles a presidential directive or at least some kind of highlevel decision between the concerned members of the cabinet would have helped. But the technical and organizational difficulties of a program such as Safehaven hardly warranted such a top-level determination, and the conflicts continued until they were solved by fiat after the end of the war. In the meantime there was another question to answer that clearly required a political decision: what should the Allies do with any German external assets discovered in the neutral countries?

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           an answer to the question of what should happen to German external assets after the war was a long one. It was an issue closely intertwined with the question of postwar reparation payments by Germany, arguably one of the most complex and controversial issues among the Allies. Since postwar planning including these questions began in 1941, we have to return to that time period to trace the experts’ discussions and the evolution of their thinking. The View in the United States, 1941–1943 Three weeks after Pearl Harbor, President Roosevelt put the State Department in charge of postwar planning. At this point in the war, such an initiative had an “Alice in Wonderland” air. The president’s choice also reflected the fact that the secretary of state had become one of least important members of the cabinet, since FDR liked to plan the future by himself—when the time would be right. “During the war . . . FDR generally ignored the Department,” George M. Elsey, assistant naval aid to FDR, later joked. During the early years of the war, FDR’s occasional utterances on Germany showed him to be in favor of a harsh peace, which would include reparations through the provisioning of manpower and material and the breaking up of Germany into smaller states. These ideas were in line with his aim “of reviving something resembling the good old pre-1870 Germany,” in itself probably a ro67

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mantic transfiguration of his boyhood recollections of the country. Lacking any clear guidelines from their chief, State Department officials soon began to sketch out their own views of how to treat the postwar world. And because it was still a small department—in 1940 it had only 1,968 employees, 42 percent of them overseas—it turned to the Council on Foreign Relations for advice.1 The Council on Foreign Relations, based in New York, represented an elite strata of “internationally minded bankers, corporation executives, and Wall Street lawyers, along with professors and journalists.” Historian Carolyn Woods Eisenberg has concluded that “in social origins and outlook,” council members and State Department officials “were indistinguishable.” Migration between the two institutions was seamless. After the president had agreed to assign the task of postwar planning to the State Department, no less than four council members became part of the newly established Advisory Committee on Post-War Foreign Policy. The only person on the committee who had not been in government or a member of the council was New York Times foreign affairs correspondent Anne O’Hare McCormick. She could not be a member of the council since it barred women from membership.2 The congruence in outlook between the two groups extended to the postwar economic treatment of Germany. No one disagreed with Isaiah Bowman, president of Johns Hopkins University, when he said in one of the advisory committee’s subcommittees that German war industry had to be weakened and the paramilitary portion of the German economy controlled while maintaining the “wellbeing of the German people.” As another member outlined, the greater part of European products were made in Germany and the “peace of Europe undoubtedly depended in large measure on the prosperous organization of Germany.” Such statements echoed the council’s proposal on the same subject. The Allies should, after attaining disarmament, lay the foundations for international economic recovery and “compensation for losses suffered by the victims.” In so doing, the victors should reject measures that 1. Roosevelt approved Cordell Hull’s suggestion in his October letter to create an Advisory Committee on Post-War Foreign Policy on Dec. 28, 1941, Notter, Postwar Foreign Policy Preparation, 63 – 65; speech by Elsey, Sept. 22, 2000, Whistle Stop (Winter 2000): 2; FDR’s early views on Germany: “Memorandum of Conversation with President Roosevelt,” Oct. 5, 1943, FRUS, 1943, 1:541– 43, see also FRUS, 1943, 3:16–17; FRUS, Cairo and Teheran, 253–54; John Lamberton Harper, American Visions of Europe: Franklin D. Roosevelt, George F. Kennan, and Dean G. Acheson, 77–131, quote 333; and Acheson, Present at the Creation, 9–16. 2. Eisenberg, Drawing the Line, 16–18, quotes 16; Notter, Postwar Foreign Policy Preparation, 71– 78; Laurence H. Shoup and William Minter, Imperial Brain Trust: The Council on Foreign Relations and United States Foreign Policy, 151–54.

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would reduce Germany “to a position of permanent economic inferiority.” Instead, the ultimate goal should be “receiving the defeated nation . . . on equal terms into the international organization.”3 To get compensation for losses, reparations would be necessary. The reparations malaise after World War I did not inspire confidence. Yet, the reemergence of the issue seemed inevitable. “History . . . may repeat itself . . . in the form of a second German reparations problem, leading to a third world war,” warned the council’s Jacob Viner in 1943.4 To be ready for this eventuality, the council had prepared a comprehensive U.S. reparations program and forwarded this plan to the State Department in March of 1943. Remarkably, the council was thinking far ahead of the State Department, which continued to simply avoid this thorny issue by not considering the subject at all. This tactic worked until the conference of foreign ministers in Moscow in October of 1943 forced the United States to present a stance on the topic based on the council’s suggestions. The council’s 1943 study was prepared by William Diebold, one of the council’s research assistants. The study acknowledged that there was justice in the claims that Germany should restore what “she has taken,” but it warned that only “with careful management” would such a program result in “sure benefit to the rest of the world.” Diebold then outlined the possible kinds of reparations. Obligations should preferably be settled only through the export of goods and services, in other words, reparations in kind. Like any kind of foreign debt, their payment would derive from the creation of a positive export balance, meaning that Germany would have to export more than it imported. This concentration on reparations in kind, by the way, would become 3. Protocol of the Subcommittee on Territorial Problems, Jan. 29, 1943; see also “Tentative Views of the Subcommittee on Political Problems,” Mar. 12, 1943, both in Bundesministerium für gesamtdeutsche Fragen, Dokumente zur Deutschlandpolitik, 1. Januar bis 31. Dezember 1943: Amerikanische Deutschlandpolitik, 1st series, vol. 4: 141, 214 (hereinafter cited as Dokumente with volume number and referring to 1st series unless stated otherwise); Percy W. Bidwell, American Interest in the War and the Peace: Postwar Controls of the German Economy, 1. This latter publication was part of the council’s study project on the postwar world, which had begun in 1939. Four committees under the chairmanship of Norman Davis and Hamilton Fish Armstrong dealt with such questions as the postwar control of the German economy, Lend-Lease, the location of future military bases, the setup of a World Organization, and reparations. During the lifetime of this project the council forwarded 682 memos to the State Dept. The council began to publish the studies in 1944. See Shoup and Minter, Imperial Brain Trust, 118–20; Notter, Postwar Foreign Policy Preparation, 19, 56; and Eisenberg, Drawing the Line, 18. 4. Jacob Viner, “German Reparations Once More,” 659. Viner was an economist at the University of Chicago and had been instrumental in pulling together Morgenthau’s first “Brain Trust” in 1934. Currie and White were among its prominent members, and Viner remained good friends with Currie his whole life. See Sandilands, Life and Political Economy of Lauchlin Currie, 56 – 57.

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one of the cornerstones of a future U.S. reparations policy. Payments should never be stated in the form of a total monetary sum, as had been the case in the 1920s, but only in the specific amounts of those goods and services the creditors wanted.5 However, there was one exception to this requirement of creating a positive monetary balance. This was the payment of reparations in the form of foreign assets. These assets were already available abroad. Diebold outlined three forms of foreign assets: (1) assets held before the war, such as patent rights and branch factories; (2) possessions acquired during the war, such as shares in corporations in occupied countries; and (3) assets built during the war, such as harbor installations or railroad lines. He assumed that assets under the last two groups would not matter anyway, since none of these would be allowed to remain in German hands. Assets under the first category were either held by the respective alien property custodians in the United Nations or were shares held in Germany of non-German corporations located in neutral countries. The transfer of these assets would constitute some kind of reparation payment, although, as Diebold noted, “the total value is probably not great compared to the reparations in kind.” For this reason, the council’s study dismissed German foreign assets as a possible source for reparations and saw the buildup of an export surplus as the only feasible source of substantial payments.6 For the lack of alternatives, a greatly shortened version of the Diebold memorandum served as the basis of the U.S. paper on reparations that Secretary of State Cordell Hull presented in Moscow in 1943. This paper no longer mentioned the topic of external assets at all.7 But the issue would not go away that easily, despite the council’s conclusions. Taking German foreign assets as reparations was a thought that had occurred not only to the experts in the United States. Independently, planners in the Soviet Union and the United Kingdom were working on comparable ideas.

5. Dokumente, 4:232–59, quotes 232. A very similar version of this study was published as William Diebold, American Interests in the War and the Peace: What Shall Germany Pay? The New Reparations Problem (New York: Council on Foreign Relations, 1944). 6. Dokumente, 4:241; Viner, “German Reparations Once More,” 661. 7. FRUS, 1943, 1:740–41; Philip Mosley had hastily drawn up this proposal while the conference was under way in Moscow after the U.S. delegation read Eugen Varga’s article in a Soviet daily (see below). For the genesis of the American proposal, see Otto Nübel, Die Amerikanische Reparationspolitik gegenüber Deutschland, 1941–1945, 62–67, and Albrecht Tyrell, Großbritannien und die Deutschlandplanung der Alliierten 1941–1945, 187–88.

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Opinions in the Soviet Union There was no doubt that Soviet premier Joseph Stalin had an interest in getting reparations for his country. When Minister of Supply Lord William Beaverbrook arrived in Moscow in September of 1941 to negotiate the delivery of goods to the Soviet Union, one of the first questions Stalin asked him was about the British view on reparations. Thus forewarned, Foreign Secretary Anthony Eden of Great Britain visited Moscow in December of 1941. He found the dictator ebullient from his recent victories against the before ever-victorious German army. And Stalin was eager to discuss his postwar aims, including reparations. The two politicians agreed that reparation payments should come in the form of goods and services and should not be derived from financial transfers, as had been the case after the last war. For the time being, neither discussed the topic further.8 A month later a special commission in the People’s Commissariat for Foreign Affairs began to study the subject of a future peace conference, including possible reparation demands. The commission also busied itself with translating the studies of the Council on Foreign Relations. Although the commission’s original assumption that the war would soon come to a victorious end proved wrong, its work led to the formulation of initial Soviet reparation demands. A prominent member of this commission was Eugen Varga, a leading Soviet economist from Hungary and president of the Moscow Institute of World Economy. In 1942 Varga developed the basic elements of Soviet reparations policy; he presented them to the public in a lecture and four articles just before the Moscow conference of foreign ministers in October 1943. Because of this timing, the Allies paid close attention, suspecting, correctly, that Varga’s views represented official Soviet policy. Varga argued that in light of all the destruction the German armies were inflicting on European 8. One of the few studies on Soviet views of reparations based on Soviet sources is Jochen P. Laufer, “Die Reparationsplanungen im sowjetischen Außenministerium während des Zweiten Weltkrieges”; see also his “Politik und Bilanz der sowjetischen Demontagen in der SBZ/DDR 1945–1950,” 33– 40. The FO account of the Beaverbrook-Stalin meeting reads: “Stalin said ‘What about getting the Germans to pay for the damage.’ Beaverbrook dodged the question with some generality about ‘We must win the war first,’” Dokumente, 1:527, also Tyrell, Großbritannien, 57–58, and Nübel, Reparationspolitik, 49; in “Record of an Interview between the Foreign Secretary and M. Stalin, Dec. 16, 1941, at 7 P.M.,” Eden is quoted as saying, “So far as reparations are concerned . . . I am sure we should be against any money reparations.” Stalin replied: “I fully agree; money reparations are no good. The best thing to do is to deprive Germany and Italy of their best machine tools for the benefit of the countries they have occupied” (Dokumente, 1:595). In the papers prepared for Stalin’s talks with Eden, reparations had been treated in somewhat more detail, but these points were apparently not mentioned by the dictator (see Laufer, “Politik und Bilanz,” 33).

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countries, “the Allies’ reparation claims on Germany should roughly amount to between 800 and 1,000 billion gold rubles.” Any payments should be large but end quickly. They should come from Germany’s national wealth, such as shipping and industrial plants, from current production, and from “properties held abroad . . . at the end of the war.” These latter investments “were not inconsiderable,” amounting, in Varga’s opinion, to “five billion marks.” It should be borne in mind that the total sum of German reparation payments after World War I had been fixed in 1921 at 132 billion gold mark, or 65 billion gold rubles, according to Varga—a figure Germany never paid. After that time the Allies had never again attempted to set a total German payment.9 Varga’s comments clearly demonstrated that the Soviet Union considered external assets to be a viable and substantial source of possible reparations— much the same as did the United States. There was potentially a great deal of money to gain, and that opportunity should not be missed. Whenever the Allies would discuss the issue of reparations in the following years, the Soviet Union would hearken back to this initial concept. Further Soviet redrafting considerably reduced the total figure Stalin would demand from Germany. At the time of the Yalta meeting in February 1945, the bill was down to $10 billion, a sum the Western Allies still regarded as exceedingly high. Great Britain’s Position British planning for a future reparations program began in earnest in November 1942. During that month the interdepartmental Committee on Reparation and Economic Security met for the first time on the initiative of Hugh Dalton, president of the Board of Trade. It was soon known by the name of its chairman, Herbert William Malkin, legal adviser of the Foreign Office, as the Malkin Committee. Representing the Treasury was the freshly knighted and well-known critic of the Versailles settlement, Lord Maynard Keynes. The Board of Trade, the War Cabinet Economic Secretariat, and the Paymaster General were also represented on the committee. The final report of 9. Varga, “Payment of Reparations by Hitler Germany and Her Accomplices,” Information Bulletin, Embassy of the Union of Soviet Socialist Republics, 133 (Nov. 30, 1944): 3 – 6, quotes 3, 4; see also Laufer, “Reparationsplanungen,” 22–37; Laufer, “Politik und Bilanz,” 34– 35; Nübel, Reparationspolitik, 64–65; and documents in Jochen P. Laufer and Georgij R. Kynin, eds., Die UdSSR und die deutsche Frage 1941–1948: Dokumente aus dem Archiv für Außenpolitik der Russischen Föderation, vol. 1, 22 Juni 1941 bis 8. Mai 1945. An interesting question is where those memos the Soviet commission translated came from, since the council only published its studies in 1944 for a limited audience.

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the Malkin Committee was a compromise between the different views prevalent in the British government between 1941 and 1942.10 When Keynes visited the United States in September of 1943, he explained the report to a select audience of State Department officials. In its main thrust, the report was very similar to the plans developed in the United States, although there had been no contact between the two groups.11 During its deliberations, the Malkin Committee had not considered the wisdom of extracting reparations from Germany but had worked on the basis that they would be demanded. The plan assumed that Germany would be disarmed, and that the country’s economy would be left intact for future reintegration into the world’s economy. If there were to be reparation payments, they should be of short duration—around five years—and mostly in kind. Keynes estimated their possible total at about $4 billion in 1938 prices, although he was hesitant to give a general figure. These payments would derive from five principal groups: the delivery of all financial or capital assets including gold, the delivery of materials out of German stock at the end of the war, the supply of German labor services abroad, annual deliveries in kind, and lastly cash payments for occupation forces in Germany. Keynes explained that each country fighting against Germany—excluding hereby the neutral countries— would take over German property rights and interests within its territory.This was, in his opinion, “a particularly simple form of reparation, since it involves no transfer of foreign exchange.” The peace treaties concluded after World War I had already sanctioned such a modus operandi. The sum so received should be credited against German obligations.12 10. Tyrell, Großbritannien, 174. While Dalton’s initiative was welcomed by all departments, his views on reparations were contested. In suggesting the meeting Dalton wrote, “I see no virtue in ‘moderation’, either in doing justice or in taking steps to prevent a repetition of German crime.” In reply, Gladwyn Webb, who headed the Economic and Reconstruction Dept. of the Foreign Office, pointed out that any form of “disindustrialisation” would result in a “lowering of the German standard of living [and] would no doubt be criticised as not being in harmony with the ambiguous document the Atlantic charter (in spite of Mr. Dalton’s interpretation) and give rise to all kinds of sentimental objections.” An earlier memo by the Treasury had also argued for moderation. Besides these internal memos, the committee did not receive any further specific guidelines. “Reparations. Memorandum by the President of the Board of Trade,” Aug. 28, 1942, and commentaries by Webb from Sept. 11, 1942, Dokumente, 3:718, 770 –71. See also ibid., 403 – 9, 594 – 97, 929, 1016 –24, and Tyrell, Großbritannien, 172–74. 11. Nübel, Reparationspolitik, 58 n. 97. 12. These paragraphs are based on Keynes’s notes of the talk (Sept. 28), printed in Donald Moggridge, ed., The Collected Writings of John Maynard Keynes, vol. 26, Activities 1941–1946, Shaping the Post-War World, Bretton Woods and Reparations (London: Macmillan, 1980), 346 –73; also Dokumente, 4:567–80.That these notes were quite accurate is demonstrated by the comment Keynes made to Malkin when he sent him the notes a day later: “You will see that to a very great extent I have re-

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In regard to German assets in neutral countries, Keynes outlined that these assets should be used to settle the claims of those countries against Germany. To pay off these German liabilities, any German asset, monetary or “physically situated in neutral territory,” could be used. Any money remaining after these settlements would go toward German relief efforts. Another source to pay for German relief would be the gold remaining in Germany after all restitution claims had been settled. Any payments necessary for relief in Germany beyond these two sources would have to be paid back by Germany in later years. However, Keynes had to confess in the question-and-answer session following his presentation that some of the murkier details in regard to the position of the neutral countries had not yet been “considered . . . in detail.”13 Until the time of the Yalta Conference in February 1945, the Malkin report remained one of the most detailed elaborations of British views on reparations. In the summer of 1944 the Armistice and Post-War Committee—a cabinet-level committee chaired by Deputy Prime Minister Clement Attlee— officially accepted the general framework of the Malkin report. The committee also very broadly outlined a future British policy toward Germany. Certain German industries instrumental to maintaining the country’s war potential should be eliminated or reduced (for example, armament industries, synthetic oil production, and shipbuilding). The country’s economic potential should be concentrated on peacetime production. Reparation payments by Germany would rank in importance above any sort of help given to the German population for their support. It was a policy aimed “to draw out the fangs while leaving some of the teeth,” in the words of Sir John Anderson, chancellor of the Exchequer. Its catalog of priorities stood until the Yalta meeting made a reconsideration necessary.14 By the fall of 1943 there existed thus three different opinions of how to deal with German external assets after the end of the war. Experts from the main Allied nations had thought about the question but had arrived at very different conclusions. In the United States the Council on Foreign Relations had tained the actual language of the original” (ibid., 347). See also Nübel, Reparationspolitik, 58 – 62; Alec Cairncross, The Price of War: British Policy on German Reparations, 1941–1949, 24 – 33; and Ernest F. Penrose, Economic Planning for the Peace, 217–24. Penrose was economic adviser to Ambassador Winant. 13. Discussion session printed only in Dokumente, 4:566. 14. Tyrell, Großbritannien, 489–98; Anderson quoted in John Farquharson, “Policy on German Reparations from Yalta to Potsdam,” 905.

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considered the question of German assets in neutral countries and had dismissed these assets as financially unimportant. The Soviet Union, on the other hand, had indicated its interest in simply taking German property abroad. Varga had left open the possibility of including property in neutral countries and had specified what kind of property he was thinking about. The Malkin Committee had worked out a third variant: German assets in neutral countries should pay for German relief efforts after the neutral countries had settled their own claims against Germany. For now, these three different suggestions reflected only the musings of planners. In 1943 their designs were far from being put into practice by the politicians. Although the Soviet army was making rapid progress against German troops in the East, the Western Allies were pushing to roll up the “soft underbelly” of Europe. Estimates as to the end of the war ranged from late 1944 to 1947. Pressing military concerns were thus of much greater importance for the Allies than the highly technical issue of reparations. Only at the Yalta Conference in 1945 would the issue of reparations become the subject of serious and vigorous discussion. In 1944, however, politicians did turn to the subject of reparations and external assets. As additional people and agencies began to discuss the pending question in the United States, a very complex course of events unfolded around these discussions. Decisions in the Executive Committee on Economic Foreign Policy One result of the meeting of foreign ministers in Moscow in 1943 was the creation of the tripartite European Advisory Commission (EAC), headquartered in London. The British, American, and Russian members of the EAC were mandated to “study and make joint recommendations to the three governments upon European questions connected with the termination of hostilities.” Unfortunately, the EAC never lived up to these great expectations. Right from its first meeting in January 1944, its British member tried to press ahead to achieve tangible results quickly. However, his Allied counterparts on the EAC were less prepared. In general, the two delegates suffered from a lack of autonomy to make far-reaching decisions without consultation, as well as from a lack of guidance from their own governments. While Stalin in his usual way remained suspicious of condoning any decision not made by himself, Roosevelt showed only minor interest in educating Ambassador John Win-

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ant, the U.S. member on the commission, or the State Department about his views on Germany.15 Because of FDR’s desire to preserve his freedom of action, the State Department was left on its own to produce clear instructions for Winant. These attempts were not necessarily more consequential than the presidential taciturnity. Proposals for the EAC were ensnarled in the Washington Working Security Committee, a body established by the State Department to clear papers for the EAC with the military. Only in the summer and fall of 1944 did the Working Security Committee approve documents on German surrender terms, the zonal division of Germany, and occupation machinery. Yet, it never agreed on a document on reparations or any general directive for the treatment of Germany. The trouble lay with the Joint Chiefs of Staff. Opposed to any large post-hostilities role, the Joint Chiefs indeed never agreed to programs that would limit the army’s freedom of action or would prescribe large future civilian obligations for the army. Frustrated and increasingly desperate, officials at the State Department sought to break the deadlock by having their policy papers approved in a newly created civilian committee, the Executive Committee on Economic Foreign Policy (ECEFP). With a confirming vote from the seven civilian agencies represented on the ECEFP, the State Department hoped to then be able to approach the War Department from a stronger bargaining position.16 The documents for the ECEFP were prepared by specially created State Department committees after Hull returned from Moscow in November 1943. One of them, the Committee on Reparation, Restitution, and Property Rights, began to consider the subject of reparations in earnest. The various proposals that had been put forward by the Allies up to this point served as the basis for a possible U.S. reparations plan. Coming to an agreement was easier said than done. The committee’s discussions were acrimonious. During spring 1944 the divisions among its members sometimes threatened to endanger the work of the whole committee. In the end, the committee agreed on a proposal that was in its content, aims, and outlook very close to the British Malkin report. This final version was passed in June 1944, and this 15. FRUS, 1943, 1:757; for British activities: Tyrell, Großbritannien, 219 –20, and FRUS, 1944, 1:1–3, 11–14, 112–61. 16. Working Security Committee documents printed in FRUS, Malta and Yalta, 110–27; for administrative conflicts: Hammond, “Directives for the Occupation of Germany,” 316 –17, 329 – 43; Eisenberg, Drawing the Line, 25– 30; and Bruce Kuklick, American Policy and the Division of Germany: The Clash with Russia over Reparations, 32–39.

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proposal—in which “all flaws . . . and all errors pursued by the Committee found . . . their complete if indiscriminate expression”—was then presented to the ECEFP for consideration.17 During the ECEFP’s meetings, other civilian agencies heard for the first time of their country’s reparations plans. In substance, the State Department’s propositions offered nothing new. Reparation payments should be in kind and over a short period of time. Countries at war with Germany could confiscate German property within their territories to account against their losses. Neutral countries were only mentioned in connection with restitution, as looted property brought there should not “acquire immunity.” Hesitantly, the proposal argued that it “may be possible to transfer” such property to the Allies. In summary, the object was that, as Paul T. Ellsworth from the State Department prosaically observed while presenting the report, “innocent young Germans should not have to bear the burden and Germany should be permitted as soon as feasible to become integrated into the world economy.”18 Not all of the members were pleased with what the State Department was proposing, and it took all summer to come to an agreement. Opposition to the reparations proposal came mainly from the FEA, raised by its representative Lauchlin Currie and his alternate, Frank Coe. Indeed, the FEA had quite different ideas about the purpose and design of reparations and submitted its own proposals during the redrafting process. In comparison to the original plan, the FEA’s suggestions called not only for deliveries in kind but also for reparations in the form of machinery and plants, essentially advocating the dismantling of certain kinds of German industry. In addition, the FEA suggested the “surrender of all German assets abroad, including patent rights, licenses, contracts, agreements and other direct or indirect property controls.”19 17. For these State Dept. discussions, see Nübel, Reparationspolitik, 68–78, quote 76; also FRUS, 1944, 1:234–35. Report was presented by Paul T. Ellsworth to the ECEFP on June 29, 1944; see minutes ECEFP M-12/44, 2, folder: ECEFP Minutes 1–20/44 (box 56), Records of Interdepartmental and Intradepartmental Committees (State Dept.), RG 353, NACP. 18. Attachments to letter from Emil Despres to Isador Lubin, Mar. 12, 1945: “Report of the Interdivisional Committee of Reparation, Restitution and Property Rights, Part Four: Comments,” June 24, 1944, numbered ECEFP D-21/44, 66, and “Report of the Interdivisional Committee of Reparation, Restitution and Property Rights, Part Two: Recommendations with Respect to a Final Settlement of German Reparation,” June 24, 1944, numbered ECEFP D-19/44, 9, both in folder: German Property Abroad (box 106), Lubin Papers, FDRL; minutes, June 29, 1944, 3, numbered ECEFP M-12/44, folder: ECEFP Minutes 1–20/44. 19. “Suggestions with Respect to Document No. 7,” n.d., numbered ECEFP D-23/44, quote 4, folder: Committee—ECEFP, Documents 21/44–40/44 (box 44). This document was written by FEA, according to ECEFP R[eport]-1/44, 6, folder: Committee ECEFP, Reports 1– 6/44 (box 46), both in Entry 128, Subject File of the Administrator, Jan. 1942–Oct. 1945, RG 169, NACP.

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These latter suggestions were probably the direct result of the FEA’s internal planning on Safehaven and German external assets. In the end, only a very timid version of these suggestions was incorporated into the final recommendations. The document remained in line with the predominant State Department thinking. The German economy should be converted to “peacetime usefulness.” If necessary, German industries should be transformed for that purpose or scrapped—a notion only the rich United States could possibly consider. Although some deliveries out of existing stock could be made early on, German industry in general should not be dismantled for delivery to other countries. In short, it was, as the economic adviser to U.S. Ambassador Winant found, “a moderate and reasonable statement.”20 The FEA’s provisions on external assets were mentioned only in an annex of “subjects closely related to reparation.” The committee concluded that all the “United Nations should reserve the right to retain and dispose of all German property and rights” within their jurisdiction to pay off reparations and “possibly” prewar debts. Regarding the case of the neutral countries, there was, from “a strictly juridical point of view,” no legal way to compel the neutrals to turn over those assets. Thus, the committee decided not to venture an answer, but to pass this question on for further “treatment on the political level.” Other parts of that annex further specified that prewar debts should be settled only after reparation payments had been made and that German compensation for “persecuted minorities” should consist of resettlement aid and some payment per person “up to a moderate maximum.”21 These were manifestly restrained and careful conclusions. There was apparently no connection between them and the discussions in Bretton Woods that had resulted in the passage of Resolution VI on July 22, 1944. After five weeks of deliberation, the final version of the ECEFP document on reparations was approved by the committee on August 4, 1944. For a brief 20. Hammond, “Directives for the Occupation of Germany,” 344– 46, maintains that the final version was based on the FEA proposals—theirs was “a formulation which became, and remained, the basis of U.S. reparations policy” (345); “Germany: General Objectives of United States Economic Policy with Respect to Germany,” Aug. 14, 1944, numbered ECEFP D-36/44, 9–10, folder: ECEFP Documents 31/44– 40/44 (box 45), RG 353; Penrose, Economic Planning for the Peace, 240. 21. “Summary: Report of Reparation, Restitution and Property Rights—Germany,” Aug. 12, 1944, numbered D-37, FRUS, 1944, 1:296– 99. This document went through two major revisions (D-30 and D-31). Although D-30, ready by the middle of July, was a rather unpolished version of the final outcome, the subject of external assets was already mentioned only in the special annex. This annex did not change in the subsequent versions. Both documents in folder: ECEFP Documents 31/44–40/44. See also minutes of ECEFP meeting, July 21, 1944, ECEFP M-17/44, folder: ECEFP Minutes 1–20/44.

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moment, the State Department indulged the hope that at last a firm basis for discussing the issue with the other Allies had been agreed upon. Indeed, the British judged it to be “a very competent document.”22 But this hope quickly proved futile. The issue of how to treat Germany after the war took on a wholly different dimension when Secretary of the Treasury Henry Morgenthau got wind of the State Department’s machinations. Morgenthau Intervenes The Treasury Department had not paid much attention to the discussions in the ECEFP. Although Assistant Secretary Harry Dexter White was officially a member of the committee, he had not been at any meeting in which the German issue was discussed—the Bretton Woods conference preparations took up most of his time. His often-changed alternates had not raised any opinion on the subject either. When the final version of the ECEFP reparations document was passed, Treasury Representative Norman Ness indicated that he had “no objections,” although he did not know “definitely the status of the Treasury in regard to those documents.” White had told his stand-in not to make any final commitments because he suspected that his boss might not like the ECEFP paper. Soon, the Treasury’s position would become clear enough.23 Shortly after the Bretton Woods conference, Secretary Morgenthau traveled to London—he was there at the same time Samuel Klaus was. Originally, he wanted to look into currency arrangements for liberated France. During the long flight White showed him a draft version of the ECEFP document on reparations, describing it as a “State Department memorandum.” White commented that reparations from current production as envisioned in this document necessitated the rebuilding of Germany industry, making the coun-

22. John E. Coulson (FO Economic Relations Dept.), minutes, Aug. 17, 1944, FO 371/41003 (quote). Ever since the State Dept.’s Committee on Reparation, Restitution, and Property Rights had finished its work, Hull had hoped that “informal exploratory conversations” with the other Allies could begin soon. Winant and Hull discussed the possibility for such talks over the summer, and the State Dept.’s representatives on the ECEFP urged quickly passing the reparations paper in light of the discussions “which will take place shortly in London.” See FRUS, 1944, 1:234 – 36, 241, 249 – 51, 271–73, 301, 234 (quote); minutes of ECEFP meeting, July 7, 1944, numbered ECEFP M-15/ 44, 5 (quote), folder: ECEFP Minutes 1–20/44. 23. Minutes, Aug. 4, 1944, numbered ECEFP M-19/44, 5, folder: ECEFP Minutes 1–20/44; White, “Memorandum for the Secretary’s Files,” Aug. 31, 1944, in Senate Committee on the Judiciary, Morgenthau Diary (Germany), 1:462.

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try once “again the industrial heart of Europe.” Morgenthau read the document “first with interest” and then “with sharp disagreement.”24 Eisenhower had sent his personal train to pick up the secretary upon his arrival in Scotland. On the train was one of Morgenthau’s former employees, Bernard Bernstein, who had come up to greet his old boss. Although now an army colonel, Bernstein was still “intensely loyal” to Morgenthau. Bernstein held two offices. He was the deputy chief of the Financial Branch within the Civil Affairs Division (G-5) of the combined Anglo-American headquarters. In addition, he was director of the Finance Division of the U.S. Group Control Council, a newly created body set up under Brigadier General Cornelius W. Wickersham to plan for a future military government in Germany under EAC guidance. Bernstein, rather short and stocky in appearance, was definitely no “Wall Streeter,” although he had a law degree from Columbia University. His relation with Morgenthau dated back to 1933, when his former professor and then the Treasury Department’s general counsel, Herman Oliphant, had asked him to come to Washington. He subsequently worked on a variety of international issues for the department and with the start of the war devoted his time almost exclusively to the legal issues of Foreign Funds Control. With no military background, Bernstein joined the army in 1942 to work on the financial aspects of Allied Military Government in North Africa.25 During a comfortable breakfast on Eisenhower’s train, Bernstein showed Morgenthau the U.S. Army “Handbook for Military Government,” on which the German country unit had been working and which in general confirmed the secretary’s fears. Bernstein told Klaus shortly after this meeting that “he had sold Morgenthau on a reorganization of German economy . . . and that Morgenthau had become a convert.” Morgenthau then began to question nearly everyone he met about what should be done with Germany. His most 24. On his flight Morgenthau read a July 31 draft version (D-31/44) of the final ECEFP document on reparations. In substance this document was not very different from the final version (D37/44), which arrived at the Treasury after September. Thus, all subsequent actions of the Treasury Dept. were based on this earlier version. See Morgenthau Diary (Germany), 1:403 –13, 679 – 89. Quotes in Hammond, “Directives for the Occupation of Germany,” 350, and Blum, Years of War, 334. 25. Henry Morgenthau III, Mostly Morgenthaus: A Family History, 395–97, quote 395. The author is the son of the secretary. For Bernstein see Christoph Weisz, ed., OMGUS-Handbuch: Die amerikanische Militärregierung in Deutschland 1945 –1949, 5 –15, and “NY and SX desks—Bernstein profile,” n.d., quote 6, folder: Bernstein, Bernard—Correspondence: War Dept., 1941–1955 (box 5), “Affidavit of Bernard Bernstein as to His Life,” Dec. 1954, 1– 34, folder: Bernstein, Mrs. Bernice Lotwin—Correspondence and Other Materials, 1933–1955 (box 6), both in Bernstein Papers, Bernard Bernstein, Oral History Interview, HSTL.

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revealing talk was with Ambassador Winant and his advisers, but Morgenthau also talked with Eisenhower, Churchill, and Anthony Eden about their views on Germany. The overall impression Morgenthau took away from all these meetings was that current plans were to treat Germany far more leniently than it deserved. “The Germans,” Morgenthau told Hull after his return, “were going to be treated in a manner so that they could be built up over a number of years to pay reparations, and that at the end of 10 years they would be prepared to wage a third war.” Instead, the secretary thought, the aim should be to destroy Germany’s economic and military capacities to wage a modern war once and for all. As Morgenthau and White outlined for Winant: German industry should be crippled, the central German state split up, and the country converted into an agricultural society. The former German exports markets could be taken over by the Allies. In the eyes of the Hudson Valley gentleman farmer, a Germany full of good and democratic yeomen would never threaten the peace again.26 Once back in Washington on August 18, Morgenthau shifted into high gear. He knew that the president was scheduled to meet with Winston Churchill three weeks later in Quebec. If there was any way to get something ready before that meeting, he was set to do it. “This is the most important thing that I’ll ever handle while I’m in government service,” he told White. He ordered White and Treasury lawyers John Pehle and Ansel Luxford to thrash out a possible plan.27 Thus, White mainly formulated the Morgenthau Plan, although the secretary made sure that the outcome was sufficiently “hard” to fit his taste. While White and his fellow drafters were spending their Labor Day weekend at the office in Washington coming up with the plan, Morgenthau phoned in daily from his family farm in Fishkill to check up on their progress. Morgenthau was especially concerned about the Ruhr and its industrial potential and made very clear that it had to be put “under lock and key.” While the area between the Ruhrgebiet and the Kaiser-Wilhelm Kanal—called the Kiel canal in the plan—would be under international control, the rest of the country would be 26. Bernstein, Oral History Interview, HSTL; Klaus to Frank Coe (quote), Aug. 21, 1944, folder: Finance, Public 11–1, Safehaven Aug.–Nov., Records of OEP; Blum, Years of War, 333–40, Morgenthau quoted 339–40; meeting with Winant described in Penrose, Economic Planning for the Peace, 244–50; for Morgenthau’s Jeffersonian ideals, see Kimball, Swords or Ploughshares, 25 –26. 27. Quote from Morgenthau Diary (Germany), 1:448; committee of three, Blum, Years of War, 342; Morgenthau’s upbringing—he “inherited his father’s hatred of the Germans,” as Morgenthau III wrote—and his religion motivated his actions. Morgenthau had already intervened earlier in matters close to his heart, such as the creation of the War Refugee Board. Mostly Morgenthaus, 353.

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split into two separate, independent states. Large areas of German territory, such as Eastern Prussia and Upper Silesia, northern Schleswig-Holstein, and the Saar with adjacent areas, would be given to Poland, Denmark, and France, respectively. Reparations should not be in the form of deliveries. Instead, they would derive from forced German labor and the dismantling of industrial property in these territories and the rest of Germany. In addition, “all German assets of any character whatsoever outside of Germany” should be confiscated.28 It is not my aim to review the controversy that resulted from Morgenthau’s sudden intervention in German planning. Roosevelt appeared at first to heartily approve of his good friend’s actions, as they were in line with his general thoughts on Germany, and he said so during his meeting with Churchill in Quebec. The plan might have been attractive to the prime minister because it offered the possibility that Great Britain could take over German export markets after the war and, thereby, potentially rebuild and expand its own economy. Roosevelt’s support lasted until after the conference, when negative press coverage alerted the ever-shrewd politician that his reelection might be at stake. In an election year, FDR could not afford to disagree publicly with Cordell Hull, who enjoyed a favorable political backing in Congress. Hull had decided to join Secretary of War Henry Stimson in his opposition to the plan. Sick and on his way out, Hull decided to make this issue his last stand against his constant archrival Morgenthau. The president, as noted in the last chapter, denied any split in his cabinet over Germany—“that was newspaper stories”—and also made public his letter to Crowley to study the German problem. As has been shown, the story of the letter was actually quite different than FDR’s presentation led the public to believe, but served to pass on to Crowley the German problem. “Morgenthau’s Absurd Plan Out,” headlined the Philadelphia Enquirer the next day.29 What is important for our purpose is the fact that the Morgenthau Plan for the first time in U.S. postwar planning shifted the topic of external assets from the realm of FEA obscurity to the top political level. “Restitution and 28. Blum, Years of War, 350–52; Morgenthau Diary (Germany), 1:495; “Memorandum Prepared in the Treasury Department,” Sept. 1, 1944, FRUS, Quebec, 86–90, quote 87. 29. Press Conferences of FDR, Number 970, Sept. 29, 1944, 24:134 (quote). For British views in Quebec, see Tyrell, Großbritannien, 511–16, and Kimball, Swords or Ploughshares, 38–39. For FDR and Hull, see Kimball, Swords or Ploughshares, 42–43. Churchill was at first not positively disposed toward the Morgenthau Plan. Morgenthau later wrote that, on first hearing about his ideas, Churchill “turned loose ‘the full flood of his rhetoric, sarcasm and violence,’” exclaiming that he would be “chaining himself to a dead Germany” (FRUS, Quebec, 325–26). It was most likely Lord Frederick Cherwell, Churchill’s trusted adviser, who convinced him to change directions.

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reparation shall be effected . . . by confiscation of all German assets of any character whatsoever outside of Germany.” This wording remained the same through all of the plan’s different incarnations—from the draft version Morgenthau gave to FDR when the president came over for tea on Labor Day weekend to the briefing book for Quebec prepared by the Treasury Department. The policy was never further defined, but it was clearly meant to be all inclusive. While FDR was in Quebec, his closest adviser, Harry Hopkins, wrote to White inquiring about details on the reparations paragraph. In White’s reply, he quoted the relevant part of the plan (“all German assets of any character whatsoever”) and opined, “I am informed by our Legal Division that the legality of such confiscation under international law is clear.”30 That was certainly an overly optimistic statement. As we have already seen, George Wunderlich, the chief international law expert in the FEA, had made very clear that such confiscation at least in regard to the neutral countries was a very tricky business. White’s views and their expression via the Morgenthau Plan signaled the evolution of an important shift in the stance of U.S. officials. Obviously, White was very familiar with the ECEFP proposal, which touched on external assets but did not consider them all appropriate for reparations—in line with State Department thinking. In comparison, the Morgenthau Plan’s advocacy of taking external assets of any kind “whatsoever” was a logical step since the aim was to reduce Germany’s industrial capacity in Germany as well as abroad. During the war and even before, one of the main aims of Nazi Germany had been to dominate Europe economically. Such a Nazi-dominated Europe could be as self-sufficient as possible and ensure the continuous delivery of war matériel.31 That domination had to be abolished, and simply taking everything abroad promised to achieve that aim. However, in the discussions before and during the Quebec conference the issue of external assets did not come up. The conference negotiations and the final agreement on Germany largely reduced the plan to a memorandum on the Ruhr. Only toward the end did the main ideas of the secretary’s plan show through. In Churchill’s words: “This programme for eliminating the warmaking industries in the Ruhr and in the Saar is looking forward to convert30. Draft and final versions in FRUS, Quebec, 87, 129; Hopkins to White and reply, both Sept. 12, 1944, folder: Book 9—Treatment of Germany (folder 1), pt. 2 (box 333), Harry L. Hopkins Papers, FDRL. 31. For a good overview of Nazi economic thinking, see Volkmann, “The National Socialist Economy in Preparation for War,” 157–94; also Tyrell, Großbritannien, 510.

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ing Germany into a country primarily agricultural and pastoral in its character.” Afterward, when Secretary of War Stimson read this memorandum to the president, FDR claimed to have no idea how he could have agreed to this draconian policy. From then on, FDR remained wary of any quick or premature commitment on postwar policy. As usual, he did not want to be maneuvered into a corner and he was perhaps embarrassed over the Quebec incident.32 More ECEFP Discussions While these political battles were being waged, the ECEFP plowed ahead with yet another policy paper. This document, entitled “Allied Economic Policy toward Neutral Countries,” was passed by the committee in December 1944 and subsequently approved by Roosevelt. It was a statement that put in writing for the first time policy guidelines for the Safehaven program and reparations from neutral countries. Originally the FEA, with the assistance of the State Department, had started this proposal. In August 1944, John Fleming, who had replaced William T. Stone as director of the FEA’s Special Areas Branch, wrote to Deputy Administrator Lauchlin Currie that it might be an appropriate moment to rethink the policy toward European neutrals. Fleming argued that it was a good time to raise Allied postwar demands with Turkey, Switzerland, Sweden, Portugal, and Spain because of the Allies’ battlefield successes. Once a position was agreed upon, the United States could undertake discussions with the British. Fleming’s memo observed that for the neutrals, “this war . . . has been a very profitable business.” It was only just and proper that the Allies should ask the neutrals to assist in the rebuilding of Europe, to limit their postwar production so they would not compete with the Allies, and to help with the detection of “enemy assets.” The tactic to accomplish these goals was “to use our control over supplies to get what we want.” At the time Fleming was writing, the war had reached such a state that this economic weapon could now be used “without competitive bidding from Germany.” A postwar extension of the Allied control on shipping through the navicert system or the negotiations of postwar supply agreements were his suggested means to this end. 32. Quote in FRUS, Quebec, 467; Tyrell, Großbritannien, 514- 15; Hammond, “Directives for the Occupation of Germany,” 369; Harper, American Visions of Europe, 104 – 5. Stimson and FDR lunched on Oct. 3, 1944 (Blum, Years of War, 380–81); FDR was noncommittal (Hammond, “Directives for the Occupation of Germany,” 410).

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Fleming mainly thought in terms of postwar trade and supplies. The Allies controlled valuable resources, and they should use this control to their advantage. His memorandum to Currie counted Safehaven requirements as one goal among many others.33 Fleming’s suggestions might have been prompted by those made by the British Foreign Office. A week before Fleming sent his memo, the British chargé d’affairs in Washington, Sir Ronald Ian Campbell, had written to Assistant Secretary of State Dean Acheson. Campbell was responding to a request from the State Department in April to report his government’s views concerning the economic policy “towards the European Neutrals” immediately after Germany’s surrender. Campbell’s communication made clear that Great Britain was concerned foremost with “unchecked” postwar trade competition from the neutrals. To avoid such a possibility, he suggested the negotiation of transitional supply-purchase agreements with each neutral to regulate the flow of a specified list of goods. Campbell did not yet go as far as Fleming about methods of keeping the neutrals in check; nor did he mention any Safehaven goals. Acheson did not think very highly of such postwar trade limitations. In his September reply—after Fleming wrote his memo—Acheson pointed out that the United States’ primary interest was to end “wartime controls over international commerce.” If any supply agreements were to be made with neutral countries, they should be very limited in scope and in the numbers of products regulated—much in contrast to Great Britain’s suggestions. He also mentioned the problem of “Nazi nest-eggs” very briefly as part of the “residual economic warfare objectives.”34 This exchange and Fleming’s memo were considered by the FEA’s toplevel Executive Policy Committee in September and November 1944. Many of the people already encountered in connection with the Safehaven program were present at some point or other: Frank Coe, Oscar Cox, Lauchlin Currie, and David Gordon from the Special Areas Branch’s Blockade Division. The committee not only criticized Acheson’s letter as “not strong enough,” but also 33. Fleming to Currie, Aug. 30, 1944, quotes 2, folder: Correspondence 8 – 31–44 (box 41), Subject File of the Administrator, Jan. 1942–Oct. 1945 (Entry 128), Records of the Office of the Administrator, RG 169, NACP; the writing of the paper on economic policy toward neutral countries is also briefly summarized in Eizenstat I, 20–22. 34. The British-American exchange began with a letter from Charles P. Taft, director of the Office of Wartime Economic Affairs at the State Dept., to the British Embassy, Apr. 19, 1944. This letter passed on to FO, according to A. D. Marris to Taft, May 10, 1944, Campbell to Acheson, Aug. 24, 1944, all in FRUS, 1944, 2:136–39, quotes from Campbell’s letter, 137, 139; Acheson to Campbell, Sept. 12, 1944, ibid., 140–42, quotes 140, 141.

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asked Fleming to rewrite his memo with one main goal in mind: Safehaven. By the end of November the new and improved version was ready and had the approval of the State Department. The department had initially doubted the virtue of using economic pressure such as freezing controls to force the neutrals into compliance, but the Executive Policy Committee thought this necessary and included this option in its version for the ECEFP.35 The new document stated that the goal of the United States toward neutral countries should be to establish efficient neutral oversight to prevent German export or “German economic penetration or control of neutral economies.” Neutrals should also help in the restitution of loot and “in disclosing all Axis assets.” Once such a transparency was in place, the Allies could establish “effective . . . controls over German property abroad,” particularly if the neutrals would recognize “the right of Allied control authorities to exercise full control over such property.” Manifestly, the Allies should be in control. An annex spelled out what the Executive Policy Committee was after in regard to enemy assets. During the war German property owners had sought “haven” in neutral countries either to “preserve private wealth or to promote German national interests.” The Allies had to get hold of these assets “through every means possible.” Such a forceful program would not only ensure the “complete destruction of Germany’s economic influence” but also provide the means “from which restitution or reparation payments can be made.” The political and economic means to achieve the revised goals were not only the Allies’ power over supply, but also the Allied wartime freezing and exchange regulations. In this new version, the request to the neutrals to help rebuild Europe and other elements of Fleming’s memo ranked at the very bottom—literally.36 The proposal went to the ECEFP in late November. Acheson explained that, although it came from the FEA, it “was in its present form a joint product of that agency and the State Department.” He added that his department 35. “Notes on Executive Policy Committee Meeting, Thursday, Sept. 7, 1944,” where Fleming introduces his memo, folder: Exhibit IV, Material on the “SAFE HAVEN Project”; letter criticized in “Notes on Executive Policy Committee Meeting, Thursday, Sept. 21, 1944,” folder: Executive Policy Committee, Records of OEP; intermediate draft version, n.d., folder: Neutral Countries (box 1139), Records of the Programs and Report Staff, General Subject File of the Director, 1944–1945 (Entry 217), Records of OEP; “Notes on Executive Policy Committee Meeting, Thursday, November 2, 1944,” folder: Executive Policy Committee, Records of OEP. Possibly, there were more meetings where the topic was discussed, but the protocols of the Executive Policy Committee meetings are incomplete. 36. “Proposed Allied Economic Policy toward Neutral Countries,” Nov. 20, 1944, signed “Foreign Economic Administration,” numbered ECEFP D-80/44, folder: ECEFP Documents 7/44 – 80/44 (box 45), RG 353, quotes 2, 5.

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understood it to be a “broad” statement, providing only a “general framework” for further reference. The committee made much-needed improvements to the wording and added a paragraph concerning the implementation of policy. The Allies also had the option, the document now stated, to withhold neutral membership in a future United Nations organization. The final ECEFP version was passed on December 8. Freshly minted Secretary of State Stettinius then sent it on to Roosevelt. Stettinius suggested the statement as a possible basis for discussions with the other “principal Allies”—he was careful not to exclude the Soviet Union, as Fleming had originally done. FDR approved the document on January 15, 1945, seven days before he left the United States for the Yalta Conference.37 The quick passage and approval of this policy paper was a big victory for the FEA. Safehaven goals had become the officially stated policy of the United States. Also, the option to take German external assets in neutral countries as reparations had become an official possibility that the United States would consider in the future. The FEA had suggested this possibility ever since George Wunderlich had written his memoranda in the summer. To date, however, it had not been an official choice until FDR approved this statement. The British continued to stress other priorities. Their reply to Acheson in the fall of 1944 made apparent that for now they were primarily concerned about the uninterrupted delivery of supplies from the neutrals. The war was not yet over, and in any negotiations with the neutrals those aims had priority. Only in the summer of 1945 would the larger question be taken up again.38 The State Department next set up another subcommittee of the ECEFP to talk about the practical aspects of this new policy. The European Neutrals Committee wedged together officials from the department, the FEA, and the British Embassy, and it met throughout 1945 to discuss current negotiations with the neutrals mostly in regard to supply agreements and the delivery of goods to liberated areas. The Treasury Department did not take part in this committee’s work.39 37. Minutes, Nov. 24, 1944, numbered ECEFP M-36/44; minutes, Dec. 8, 1944, numbered ECEFP M-37/44, both in folder: ECEFP Minutes 21–38/44 (box 56); Stettinius to FDR transmitting Dec. 8 ECEFP proposal, Dec. 29, 1944, folder: State: Oct.–Dec. 1944 (box 71), Confidential File, President’s Secretary’s File, FDRP, FDRL; also printed in FRUS, 1944, 2:147– 53, with FDR approval 147 n. 20. FDR’s approval might not have been the end of the policy discussions. Supposedly, the statement was still under revision in March; see Eizenstat I, 22. The ongoing discussion might have been as a result of the Yalta Conference decisions. 38. Memo from British Embassy to Dept. of State, Oct. 11 and Nov. 11, 1944; Stettinius to U.S. Ambassador to the Soviet Union W. Averell Harriman, Nov. 28, 1944, all in FRUS, 1944, 2:142–46. 39. Asst. Sec. of State for Economic Affairs William Clayton informed Ambassador Winant

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Joint Chiefs of Staff Directive 1067 Even with all the discussions and papers the administration produced on the future of Germany and Europe, specific policy guidelines were still lacking in the summer of 1944. This was especially unnerving for the Supreme Commander of the Allied Expeditionary Forces in Europe, General Dwight D. Eisenhower. Since D-day, Eisenhower’s armies had very successfully rolled up the German front and for a brief period in the summer of 1944 the end of the war in Europe seemed near. Up to this point Eisenhower operated under the Combined Chiefs of Staff Directive 551, which dealt only with the socalled pre-surrender period in Europe. Directive 551 had very limited civilian obligations because it assumed that the German governmental system would basically remain intact behind the lines.40 Were the war to end suddenly, Eisenhower would need a new directive.The result of this necessity was the rise to prominence of a document that no governmental planner ever intended to have any permanence: Joint Chiefs of Staff ( JCS) Directive 1067. First sent to Eisenhower on September 27, 1944, it was originally written as a short-term directive to be valid until the Allied Control Council would begin its work. Ironically, JCS 1067 survived three revisions and remained in effect until the summer of 1947.41 A State-War-Treasury committee began drafting this new interim directive in early September—before Quebec, and the first version was sent to Eisenhower after the Joint Chiefs of Staff approved it. JCS 1067 was originally intended only for “the period immediately following the cessation of organized resistance.” At first glance, the directive appeared to take a punitive position. “Germany will be,” it read, “occupied . . . as a defeated enemy nation.” But it also contained the famous escape clause that Eisenhower should assure “the production and maintenance of goods and services essential . . . for the prevention . . . of epidemic or serious disease and serious civil unrest and disorder which would endanger the occupying forces.” Lucius D. Clay, miliabout the setup of the committee on Jan. 31, 1945, folder: 850—European Neutrals Committee (box 350), Conference File, London Embassy, RG 84. Unfortunately, the files of the European Neutrals Committee are incomplete. There is a small collection of committee protocols in folder: European Neutrals Committee, Minutes Jan. 1945–Feb. 1946 (box 24), RG 353. 40. Elsey wrote in a memo in preparation for the Quebec conference that “Allied armies in France were advancing at so fast a pace that optimists were predicting the end of the war in two months,” n.d., FRUS, Quebec, 157; Hammond, “Directives for the Occupation of Germany,” 328–29, 389– 90. 41. Kimball, Swords or Ploughshares, 45–46; Hammond, “Directives for the Occupation of Germany,” 378–79.

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tary governor of the U.S. zone, was later to take these paragraphs to defend the maintenance and revival of German industry. Taken as a whole, as Eisenberg has noted, the directive “was filled with prohibitions and dotted with loopholes.” Its vagueness made it acceptable for many, though it was never adopted by any other Allied nation.42 None of its drafters could have foreseen that this directive would remain in effect until 1947. Because of its interim nature, larger political questions such as reparations were not discussed in the first version. JCS 1067’s financial clauses—in large part based on Treasury proposals—directed Eisenhower to put all banks under his control and to close all stock exchanges and similar institutions. He was to impound “all gold, foreign currencies, foreign securities, accounts in financial institutions, credits, valuable papers and all similar assets” held in the name of the German state, enemy governments, Allied or neutral governments, and the Nazi Party. These assets were to be held until their “future disposition” had been decided. Eisenhower was not to allow any trade in gold or foreign exchange. Nor should he permit any foreign trade of any kind, except in cases he exempted. The directive also contained provisions to collect any information on looted property and to prevent the transfer of property whose owners tried to “evade or avoid” the orders of Military Government.43 This financial program was nothing more than an attempt to make sure that all financial transactions of Germany with the outside world would be controlled. In scope and aim this program differed little from the Nazis’ own program of Foreign-Exchange Control (Devisenbewirtschaftung). Such controls as outlined in JCS 1067 would make sure that all foreign-exchange assets in Germany would be under U.S. control until the Allies had decided what to do with them. This question would supposedly be determined later, and new directives would spell out those decisions—in theory, at least. In practice, any new directives were very slow in arriving. All parties involved tried to get Roosevelt on their side, but none of them were successful. The only tangible document that had been produced so far was JCS 1067. Absent alternatives, John J. McCloy, assistant secretary of war, decided to use JCS 1067 as the basis for a U.S. position paper in the EAC. Previously, the 42. Drafting process described in Hammond, “Directives for the Occupation of Germany,” 371– 77; “Directive to SCAEF regarding the Military Government of Germany in the Period Immediately Following the Cessation of Organized Resistance (Post Defeat),” Sept. 22, 1944, in FRUS, Malta and Yalta, 143–54, quotes 143, 153; Eisenberg, Drawing the Line, 47. 43. FRUS, Malta and Yalta, 149– 53, quotes 151, 153.

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many papers destined for the EAC had been bottled up by the Joint Chiefs, but since they had technically already accepted this directive, no further agreement was necessary. Therefore, the roadblock the Joint Chiefs had put up for more than a year was circumvented.44 A committee consisting of representatives of the State, War, and Navy departments began to redraft the directive in November to make it more suitable for the EAC. In this first revision of JCS 1067, a careful balance was to be achieved. The State Department hoped that it could transform the directive into a long-term policy position, while the War Department wanted to produce something quickly without another round of prolonged bickering. Such was the planning for Europe’s future. Although not represented on this committee, McCloy kept the Treasury Department informed, and this department indirectly took part in the revision process. On January 13, the results were send to Ambassador Winant in London and to Robert D. Murphy, who had served as the State Department’s political adviser to Eisenhower since the Allied invasion of Africa in 1942. The outcome was again a careful balance of divergent views. No department could claim victory in the ongoing debate, except perhaps McCloy, who had succeeded in preserving the military’s freedom of action on the ground in Germany.45 The telegram to Winant left out one crucial element of the directive: the financial part. At least in this area, Treasury could claim dominance, and it used its prerogatives to the fullest. Only on February 15, 1945, when FDR was already on his way back from the Yalta Conference, was the missing part transmitted to Europe. That part contained the first practical mention of external assets as a source of reparations. This version was in agreement with the paper on neutral countries the ECEFP had passed in December. However, the financial part also strongly reflected the beliefs and opinions of the Treasury Department in general and of Bernard Bernstein in particular—Bernstein was nominally in army services but was nevertheless on a mission for his old department.46 44. Hammond, “Directives for the Occupation of Germany,” 391– 93. 45. Stettinius to Winant, Jan. 13, 1945, FRUS, 1945, 3:378; Hammond, “Directives for the Occupation of Germany,” 400–405. Hamilton Fish Armstrong lamented the ambiguous wording of the revised version in a critique to Stettinius—see Armstrong to Stettinius, Jan. 29, 1945, 740.00119 Control (Germany)/1–2645, RG 59, NACP. 46. “Basic Preliminary Plan, Tripartite Control and Occupation of Germany, Annex XIV, Finance,” dated Feb. 15, 1945, enclosure to Murphy to Stettinius, Mar. 10, 1945, 740.00119 Control (Germany)/date; the decisions reached at Yalta could not have influenced Bernstein since the Treasury Dept. did not have a copy of the agreement before March—see Morgenthau Diary (Germany), 2:949, 951.

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Mr. Bernstein Goes to Washington Bernstein returned to Washington from Europe at the end of December 1944. As soon as he arrived, he voiced his strong objections to the financial component of JCS 1067. As McCloy told Morgenthau in early January, “Bernstein, when he came back . . . although we had passed this new 1067 with your people . . . when he got here, he wanted to change it again.” When Morgenthau inquired of his staff a few days later about what was as going on, Josiah E. DuBois told him that the plan was that “the directive will be sent out . . . except financial, which will be held up for a few days.” During the course of this stay in early 1945, Bernstein had several meetings with White and also with the secretary.47 Bernstein’s manner was to make his opinions known. Donald R. Heath, deputy to Political Adviser Murphy, reported that Bernstein was “emphatic in support of this thesis that JCS 1067 . . . take both short term and long precedence over any other American governmental document. Wherever there is any conflict . . . the EAC directive should be ignored.” Winant had already warned the State Department that the opinions of “some top people in the United States nucleus control group” would basically undermine the whole purpose of the Allied control machinery for Germany.48 Given this thinking, it is thus not surprising that Bernstein invested so much effort in getting the directive changed to his liking. When the reworked version of the financial directive was finally issued in February, it contained sweeping assumptions regarding external assets and their place in reparation payments. “Subject to any agreed policies of the Control Council,” the directive for Eisenhower read, “you will reduce to the possession and control of custodians or agencies designated by you all German 47. Morgenthau Diary (Germany), Jan. 9, 1945, 1:855– 58, quote 855, Jan. 12, 1945, 1:863 (quote); Hammond, “Directives for the Occupation of Germany,” 405 –7; Mrs. Shanahan to Morgenthau, Jan. 9, 1945, folder: Inter-Treasury Memoranda—Secretary Jan.–June 1945 (box 19), Intra-Treasury Memoranda of Harry Dexter White, 1934–1945 (Entry 360R), Records of the Assistant Secretary of the Treasury re: Monetary and International Affairs, RG 56, NACP; for Bernstein’s meetings: Morgenthau Diary, Jan. 1, 1945, 806:25–27, FDRL; “Vesting of Enemy Assets,” conference in White’s office, Jan. 15, 1945, actual memo about this meeting not in this file, box 20, Memoranda of Conferences held in Harry Dexter White’s Office 1940–1945 (Entry 360T), Records of the Assistant Secretary of the Treasury re: Monetary and International Affairs. There was another meeting about this topic on Feb. 2, 1945, but the memo from it is not in the file, either. Overview of Bernstein’s trip is also in first “Monthly Report of the Finance Division, February 1945,” 14–15, attachment to Donald R. Heath to Stettinius, May 16, 1945, 740.00119 Control (Germany)/date. 48. Heath to James W. Riddleberger (chief of the Division of Central European Affairs), Mar. 8, 1945, enclosing memo of talk between Bernstein and J. W. Tuthill, 740.00119 Control (Germany)/ date; Winant to Stettinius, Feb. 5, 1945, FRUS, 1945, 3:405–8, quote 405.

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foreign exchange assets of every kind and description.” Any property, currency, or other transactions between people in Germany and abroad were also to be controlled.49 What these sentences meant in practice was spelled out in a draft document written by the Finance Division stating the actual future tasks of the division’s Foreign Exchange and Blocking Control Branch. The paper defined foreign-exchange assets as comprising all property located or payable outside Germany “owned by persons inside Germany.” Property was understood to include all possible types of property—from gold coins to real estate. It assumed that these assets would be controlled “at the highest tripartite level” regardless of zone. It explained the branch’s mission to establish complete control over all these assets. Hence, they would be available “for (a) the satisfaction of United Nations’ claims for reparations, restitution; (b) the repayment of old debts [and] (c) other payments.” For any foreign-exchange assets in Germany, the task of the branch should be to establish a system of “long-term foreign exchange control . . . through which to eliminate Germany’s war potential, to prevent her re-nazification and to supervise her economic policies.” To reach these goals, a speedy census of all foreign-exchange assets in Germany should be taken. Germans would then have to deliver all such assets to branches of the Reichsbank within thirty days—at least they were given a little more time than they were in 1931. The Allied Control Council would designate appropriate agencies for delivery of all property located abroad. The branch would furthermore assist with any vesting order for external assets passed by the Control Council. It would also coordinate with the Intelligence Services for the “procurement and evaluation of information on German assets concealed abroad through nominee ownership.”50 These broad definitions were clearly Bernstein’s doing. The Finance Division’s first report proudly stated that Bernstein’s visit resulted in “major changes” in JCS 1067, among them the sentence on controlling “all German external assets.” (Note the fine but important difference between foreignexchange assets in JCS 1067 and all German external assets in this report.) Not 49. The financial directive as approved by Treasury is only printed in Morgenthau Diary (Germany), 2:935–37, quote 937. 50. “Proposal by the Finance Division, U.S. Group CC,” Enclosure 1 to letter from Heath to Stettinius, Jan. 24, 1945, 740.00119 Control (Germany)/date. This document served as the basis for SHAEF’s “Financial and Property Control Technical Manual,” which was written by the Finance Division. See SHAEF, G-5 Division, Military Government, Germany, Financial and Property Control Technical Manual, folder: Germany—Financial and Property Control Technical Manual, Military Government, 1944 (box 11), Bernstein Papers, HSTL.

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surprisingly, Bernstein’s views did not go unchallenged. Heath wondered whether “it is not desirable that more positive policies be formed to attempt to avoid the development of chaotic economic conditions in Germany.” In regard to the external-assets program, Heath questioned the rigid focus on control. He thought that it might become necessary to use external assets as payments for relief operations or for the import of raw materials to be employed in reparation production.51 This represented a clash of worldviews. Morgenthau—and Bernstein with him—had argued that there should be no reparations from current production, as this would necessitate the rebuilding of German industry. Consequently, Germany would not need external assets to pay for the import of raw materials. In contrast, the State Department—personified by Murphy and Heath—favored reparations from current production. Together, the financial directive and the draft of the Finance Division reflected what the Treasury Department and Bernstein had in mind in regard to German external assets. It was in line with what Secretary Morgenthau had advocated to eliminate Germany’s war potential. Controlling the country’s external assets was part of that project, and at least in this area the Treasury Department held all the cards. The apparent thinking also related to what the FEA had advocated when the ECEFP document on neutral countries was passed. Both parts offered the option for an interconnected program to locate and control German assets abroad and foreign assets held in Germany. It must be assumed that Bernstein knew of the ECEFP document on neutral countries since it was circulated in the Treasury. The thinking of U.S. officials had come a long way from the initial assumption by the Council on Foreign Relations that those assets did not matter—a view the other Allies did not share. An important shift occurred in Washington when the Morgenthau Plan zoomed in on those assets and lifted the issue from obscurity. Once that had happened, the August ECEFP document on reparations was out of place. The December ECEFP document on neutral countries signaled this significant shift. The State Department no longer opposed a policy that the FEA had advocated for many months. There were still many kinks to work out. How exactly were these assets to 51. “Monthly Report of the Finance Division, February 1945,” 14; “Preliminary Comments on the Draft of Finance Annex XIV pursuant to U.S. Group CC Planning Directive No. 35 of 21 December 1944,” Jan. 22, 1945, Enclosure 2 of Heath to Stettinius, Jan. 24, 1945, 740.00119 Control (Germany)/date. Ambassador Winant joined Heath in his critique. See Winant to Stettinius, Jan. 22, 1945, 740.00119 Control (Germany)/date.

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be defined? Who would be in charge of such a program? What exactly would these assets be used for? Until FDR had decided and conferred with his Allied colleagues, a final policy remained elusive. The president’s trip to the Crimea began a cycle of inter-Allied meetings that sought to settle the new postwar order. Among the most prominent questions to be negotiated by the Big Three was the issue of reparations from Germany.

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          February and July 1945 that the inter-Allied treatment of Germany’s external assets was determined. Since it was a question connected with the larger and acrimonious issue of German reparations, the final decision about which country should utilize what external assets was reached only during the last hours of the meeting of the Big Three in Potsdam. This decision settled the long debate that had gone on in Allied quarters since the early 1940s. The outcome tied the Safehaven program to the larger reparations settlement. The decision process began with the meeting of the Big Three on the shores of the Black Sea at the Soviet resort of Yalta. The Yalta Conference Roosevelt left Washington in late January 1945 to begin his long journey for a second meeting with Stalin. In contrast to the Teheran Conference, the State Department participated actively in this gathering. Relations between the White House and the department had eased with the appointment of Edward R. Stettinius as secretary in late November 1944; Stettinius was characterized by one insider as a man of “mild personality” and “considerable innocence.” The State Department prepared the Yalta Briefing Book for Roosevelt to read while he crossed the Atlantic—whether he actually did so remains du-

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bious. However, during these ten days he held daily staff meetings that covered the topics of the upcoming conference.1 The Yalta Briefing Book’s paper on reparations was largely based on the 1944 Executive Committee on Economic Foreign Policy (ECEFP) documents on the same subject, although it was now much shorter and to the point. Its various incarnations had been drawn up by Emile H. Despres, an economist who had come from the Office of Strategic Services, where he had been the contact person for the FEA on Safehaven matters. He was now adviser on German Economic Affairs in the Central European Division under James H. Riddleberger. A small paragraph on external assets in neutral and satellite countries was added to the final version of the paper. This change probably reflected FDR’s final approval of the policy paper on neutral countries on January 15, seven days before he left. The section “German Foreign Holdings” offered the now common division of German foreign assets into three categories—loot, flight capital, and foreign investments. Loot would be returned and flight capital controlled by “efforts” made in the neutral countries—an indirect reference to Safehaven. German foreign investments would first be counted, then segregated, and finally made “available for such disposition as may be agreed on among the Allies.” There was also a reference to Bretton Woods Resolution VI and earlier Allied declarations.2 The conclusion offered in this paragraph was less than FDR had already agreed to in the December ECEFP paper on neutral policy, but a very safe position for the department for the time being. It had to be, since before Yalta it had remained unclear what the president really preferred. In December, FDR wrote to Stettinius that “we are against reparations.”3 But while the United States had no personal interest in large German payments, it was clear that the Soviet Union wanted such reparations. Since FDR had a genuine interest in maintaining the Alliance at the upcoming conference and beyond, these demands had to be considered and possibly settled. The British, in comparison, were not as far along as their American coun1. Charles E. Bohlen, Witness to History, 1929–1969, 166 (quote); William D. Leahy, I Was There: The Personal Story of the Chief of Staff to President Roosevelt and Truman Based on His Notes and Diaries Made at the Time, 343. 2. “Briefing Book Paper: Reparation and Restitution Policy toward Germany,” Jan. 16, 1945, FRUS, Malta and Yalta, 194–97, quotes 197; Despres named FEA contact person in Edward Buxton to Crowley, July 1, 1944, folder: Finance, Public 11–1, Safehaven July, Records of OEP, RG 169, NACP; earlier versions of the reparations paper in Despres to Riddleberger, Jan. 4, 1945, 740.00119 Control (Germany)/date, and Despres to Haley Jan. 9, 1945, 740.00119 Control (Germany)/date. 3. FDR to Stettinius, Dec. 4, 1944, FRUS, Malta and Yalta, 174.

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terpart.Tentative planning continued in the interdepartmental Committee on Armistice Terms and Civil Administration. It was slowly becoming clear to the British that the other Allies “would not be favorably disposed” toward the original Malkin report recommendations to use German assets in neutral countries first for those countries’ own claims and then for German relief. Yet, as a Foreign Office paper noted, Allied “policy was not settled.” The British were also concerned about the “to be expected” difficulties of getting their hands on this property in the neutral countries.4 At Malta and at Yalta, Roosevelt was already passing into the twilight of history. Meeting up with the president at Malta, “Chip” Bohlen, FDR’s new State Department liaison and faithful translator, “was shocked by Roosevelt’s physical appearance. He was not only frail and desperately tired, he looked ill.” His loyal adviser Harry Hopkins was in no better condition, and he spent most of the Yalta Conference in bed except for the meetings of the Big Three. By then, the Soviet Armies were creating a fait accompli in Eastern Europe. Three days before the conference began, the Red Army had established a bridgehead on the western bank of the Oder, only a hundred kilometers from Berlin. The Western Allies had not yet crossed the Rhine. Churchill was concerned that with Germany gone and with Roosevelt’s expressed intention not to leave U.S. troops in Europe for long, the continent would soon be dominated by the Soviet Union. At the conference Poland became the test case for the future of Eastern Europe and one of the two major bones of contention among the Allies.5 The other was reparations. Stalin’s detailed reparations proposal presented at the second plenary meeting took his Allied counterparts by surprise. The topic had not figured prominently during the Roosevelt-Churchill talks at Malta; nor had the Soviet Union indicated that it was bound to become a prominent subject. “The Russians had a very carefully worked out program,” Stettinius would later say. The Soviet proposal for $10 billion in German reparations was presented by Ivan Maisky, former Soviet ambassador to London and now the country’s number two person, behind Foreign Minister Vyacheslav Molotov. The Soviet Union wanted to receive considerable deliveries in the form of industrial plants, 4. Paper ACAO/P (44) 99, written by FO, for presentation to the interdepartmental ACAO meeting, Nov. 8, 1944, FO 371/40959, BNA; see also ACAO minutes in FO 371/40763. The topic was dealt with again only after Yalta. 5. Bohlen, Witness to History, 171 (quote), 178–79; Leahy, I Was There, 349; for Eastern Europe see Marc Trachtenberg, A Constructed Peace: The Making of the European Settlement, 1945 –1963, 4 –15, and Arnold A. Offner, Another Such Victory: President Truman and the Cold War, 1945 –1953, 28–29.

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rolling stocks, and so forth for two years, as well as yearly payments in kind for ten years.6 This Soviet proposal had been the product of further Soviet planning after Eugen Varga’s initial recommendations from October 1943. Since then Maisky had chaired a high-ranking commission in charge of Soviet reparation planning. This commission was informed, on the one hand, by the Soviet interest in receiving broad assistance for its own postwar reconstruction program. On the other hand, it was the country’s aim to gain long-term security against renewed German aggression. The two goals were, of course, closely interconnected. The commission was quite aware of the Morgenthau debate and had been using the Russian translation of the term economic disarmament since the fall of 1944. In December 1944 the commission prepared a memorandum on reparations at Molotov’s request. Maisky outlined that the Soviet Union’s reparation claims amounted to $23 billion, with $10 billion being the lowest possible amount the USSR should get. Stalin reacted to his suggestions by demanding that a Soviet proposal for $5 billion should be presented to the European Advisory Commission (EAC). Maisky dared to disagree and implored Stalin to consider his original submission and to not go through the EAC since it would be difficult to exert influence on the commission in faraway London. This remained the only time that Stalin, according to historian Jochen Laufer, ever reacted to any of his subordinates’ reparations proposals. In preparation for Yalta, the Soviet proposal assumed German reparation payments to the Soviet Union of $10 billion, of which “the USSR should demand 75 to 80 percent in order to receive 65 percent.”7 In reply to the Soviet presentation, Roosevelt remarked that he wanted to keep German property in the United States but had no interest in German capital equipment. But he also wanted to be sure that Germans would not “starve.” Churchill was not convinced of the virtue of extracting any such high amounts. He was concerned that a Germany stripped of its industry would not be able to deliver any reparations and would only be a costly burden for his country. Because the discussion was inconclusive, the topic was passed on 6. Tyrell, Großbritannien, 529–30; Stettinius to Stimson and Forrestal, Mar. 13, 1945, quoted in Daniel Yergin, Shattered Peace: The Origins of the Cold War and the National Security State, 65. To prepare for the conference, U.S. Ambassador Averell Harriman talked with Maisky on Jan. 20, 1945. On Germany, Maisky “said that no conclusions have been reached by the Soviet Government on any precise details,” FRUS, Malta and Yalta, 176–78, also 610. Maisky’s presentation: FRUS, Malta and Yalta, 620–21. 7. Laufer, “Reparationsplanungen,” 34–41, quote 41, also documents in Laufer and Kynin, Die UdSSR und die deutsche Frage, vol. 1.

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to the foreign ministers.8 They were also asked to figure out the guidelines for the future reparations commission that the Big Three had agreed to set up concomitantly. In the foreign ministers’ meeting, Molotov presented a plan that called for reparations in kind effected by “removals in a single payment . . . from the national wealth of Germany located on the territory of Germany herself as well as outside her territory (equipment, machine-tools, ships, rolling stock, German investment abroad . . . ).” Annual commodities deliveries over ten years would be the other source. The total so extracted should be $20 billion: $10 billion for the Soviet Union, $8 billion for the United States and Great Britain, and $2 billion for all other countries. In discussing the plan, Foreign Secretary Anthony Eden of Great Britain quickly signaled his agreement with the suggested reparation categories. Stettinius was not as conciliatory. He thought FDR had said that he was only interested in either “German foreign investments” or simply “investments”—the American minutes are inconclusive at this point. Actually, the president had only been concerned about German investments in the United States, but that subtlety got lost in this meeting. Because of that slip, German investments abroad became an accepted part of a possible Allied reparations settlement. A later U.S. proposal by H. Freeman Matthews, director of the State Department’s Office of European Affairs, repeated exactly the words of the Soviet proposal quoted above.Two days before the conference was over, the foreign ministers reported to their bosses that they had reached agreement on “the types of reparations in kind.” No agreement had been achieved in regard to the final amount of payments, however. The following discussions were all about numbers—a conflict that even the Big Three had difficulty solving and that threatened to spoil the otherwise jolly mood.9 The final secret protocol of the conference used the sentence the Soviet delegation had suggested in the very beginning. Removals of reparations in kind—and external assets were considered as such—should take place in the 8. FRUS, Malta and Yalta, 620–23, 630–33, quote 622. Compare this account to the more extended Soviet version in Robert Beitzell, ed., Teheran, Yalta, Potsdam: The Soviet Protocols, 66 –74. 9. Soviet proposal, FRUS, Malta and Yalta, 707, my emphasis; FRUS, Malta and Yalta, 702– 6, quotes 703, 706 (there is no record of this foreign ministers’ meeting in the released Soviet documentation); U.S. proposal 808, written by Matthews, FRUS, Malta and Yalta, 816; FM report, FRUS, Malta and Yalta, 859; Big Three discuss this topic in FRUS, Malta and Yalta, 901–3, 909 (a “heated discussion”), 921–22, also in Beitzell, Teheran, Yalta, Potsdam, 121–22. See also accounts of the reparations question in Yergin, Shattered Peace, 64–65; Jörg Fisch, Reparationen nach dem Zweiten Weltkrieg, 57–63; Kuklick, American Policy and the Division of Germany, 76–86; Cairncross, Price of War, 64–71; and Nübel, Reparationspolitik, 118–28.

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first two years. The other sources of reparation would be deliveries from current production and German labor. This third category had been suggested by the British as a way to satisfy Soviet reparation requirements. The British government had doubts that it could otherwise ever fulfill Soviet demands. British requests to consider any prewar claims on Germany had been unsuccessful. The future reparations commission should use the $20 billion figure as a basis for discussion only, since Great Britain had reserved its consent on the final sum.10 In contrast to the disagreement over the final amount, there was no real argument about the categories of reparations in kind. Consequently, there was no discussion on external assets. Stalin’s and Roosevelt’s experts and officials already thought alike on this point, and their proposals presented at Yalta were very similar. The British reparations proposal—sent to Yalta after a meeting of the War Cabinet—also used exactly the same words as the Soviets’. However, the British did not list the possible categories as such. The War Cabinet felt that such concession would severely limit its room for future maneuvers at the reparations commission. Also, when it came to external assets, “practical” problems would result in realizing those claims. “But the words remained,” since Eden had already agreed to the Soviet proposal in this regard and could no longer retract his earlier concessions.11 In the end, Churchill and his cabinet stood alone with their doubts about the whole aim of the Soviet program and its economic consequences for the future of Europe. These concerns the Soviets simply brushed aside while focusing on their two primary goals of reconstruction and long-term security from German aggression. And since the “Russians,” in Harry Hopkins’s words, “have given in so much at this conference,” Roosevelt went along with the final proposal, leaving the British on the sidelines.12 The only concession to British qualms was the acceptance of France as a fourth power to control Germany.

10. Final protocol on reparations, FRUS, Malta and Yalta, 978–79; working draft without statement on German labor or prewar obligations, ibid., 937. The British suggested these options in their proposal (ibid., 885) as a result of a hurried War Cabinet meeting; see Josef Foschepoth, “Britische Deutschlandpolitik zwischen Jalta und Potsdam,” 680– 81. For British prewar claims, see Tyrell, Großbritannien, 527–28. 11. British proposal, FRUS, Malta and Yalta, 885; drafted by War Cabinet, Tyrell, Großbritannien, 535–38, especially 537; quotes: letter from Edward Wilder Playfair (British Treasury) to H. S. Gregory (Trading with the Enemy Dept.), Feb. 21, 1945, FO 371/45750. 12. Hopkins to FDR, February 10, 1945, FRUS, Malta and Yalta, 920, also 902.

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After Yalta When the American delegation returned home, its mood was one of “supreme exultation.” Long-term cooperation among the three principal Allies seemed to be a reality; a future in which world peace would be upheld by the United Nations was a genuine option. But the atmosphere soon changed. Stalin proceeded to bring Eastern Europe under his control. Poland—the raison d’être for the war and the archetype for the future—polluted the relations among the Allies. Then, in April, the ultimate arbitrator of Soviet-American détente died. The new president relied heavily on his advisers because he was inexperienced in international affairs. As a result, Harry S. Truman wavered between a policy of getting tough with the Russians—on one occasion dressing down Molotov over Poland—and accommodating the ally—by sending Hopkins to Moscow to work things out.13 Before this background, the administration began to plan for the upcoming meeting of the newly created Allied Reparations Commission in Moscow. In March 1945, FDR had appointed Isador Lubin—“a good statistician,” as Morgenthau deemed—to head the U.S. delegation on this commission. Lubin had a Ph.D. in economics from the Brookings Institution and had been, since 1941, special statistical assistant to the president. In January 1945 he had gone to Europe on Roosevelt’s request to study economic conditions there. Lubin was versed in statistics, but he lacked the standing to solve one of the thorniest issues in inter-Allied relations, a fact also noted by Truman. Two weeks after the new president was sworn in, he appointed Edwin Pauley over Lubin’s head as the new leader of the U.S. delegation. Truman had every reason to be thankful to Pauley. A rich California oilman, Pauley had been instrumental in getting Truman nominated over Henry Wallace for the 1944 election. Pauley was impressive in appearance and a real mover and shaker. Truman would later say that he liked Pauley because he was a “hard boiled hard hitting anti-Russian.” But his appointment was one out of favor, not expertise. The British thought that with Pauley an “atmosphere of horse trading and cheap politics” descended on the American delegation and that once in Moscow “his principal occupation” was to come to a quick agreement.14 13. Robert E. Sherwood, Roosevelt and Hopkins: An Intimate History, 869; Trachtenberg, A Constructed Peace, 7–13. Although some historians see FDR as a belated cold warrior, he followed his approach of “creative procrastination” until the last. See Warren Kimball, The Juggler: Franklin D. Roosevelt as Wartime Statesman, 179–80. 14. Senate Committee on the Judiciary, Morgenthau Diary (Germany), 2:962 (quote); on FDR’s appointing Lubin on Mar. 12, 1945, FRUS, 1945, 3:1179 n. 18. For Pauley: planned letter from Tru-

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Drafting instructions on a topic on which the Big Three did not agree was a tricky business. Familiar with the dynamics in the Roosevelt administration, Lubin first approached Morgenthau in March for advice. Five days after his appointment, Lubin asked the secretary and his assistants for “one page on what our policy should be on reparations.” Josiah DuBois was put in charge of this project and two days later presented his first draft to the secretary. It repeated the familiar line of the Morgenthau Plan: “To the maximum extent possible, reparations should be taken from the national wealth of Germany existing at the time of collapse, including . . . the confiscation of all German assets abroad.” Before handing the paper to Lubin, White redrafted the memo a little. It now stated that after Germany’s defeat, there should take place “the immediate . . . confiscation of German assets abroad, as part of a program of reparations and restitution.” This version went to Lubin, who in turn handed it to FDR immediately, presenting it as his own memo.15 The entire thrust of this proposal was met with scorn in the State Department. “The most extreme statement which I have seen yet of the Treasury doctrine,” wrote Despres—whom Morgenthau liked to call Dupres—to William Clayton. Despres felt that his department had been—once again—neglected and forgotten and suggested that the department’s newly created Informal Policy Committee on Germany (IPCOG) should consider the matter further. IPCOG was chaired by Clayton, who had turned his family business into the world’s biggest cotton company and who had been assistant secretary of state for economic and business affairs since December 1944. Everyone accepted this solution as the lowest common denominator. It offered the advantage that man to Acheson, Mar. 15, 1957, in Monte M. Poen, Strictly Personal and Confidential: The Letters Harry Truman Never Mailed, 33, and Harry S. Truman, Memoirs: Year of Decisions, 308. For Pauley’s role in Truman’s nomination, see Robert H. Ferrell, Choosing Truman: The Democratic Convention of 1944 (Columbia: University of Missouri Press, 1994); on British views see Foschepoth, “Britische Deutschlandpolitik,” 688, and Farquharson, “Policy on German Reparations,” 923, also 911–12; for unfavorable views on Pauley see Lord Birkenhead, Walter Monckton: The Life of Viscount Monckton of Brenchley, 208–9. 15. Mar. 17, 1945, Morgenthau Diary, 829:54, FDRL; Mar. 19, 1945, Morgenthau Diary (Germany), 2:1014; Morgenthau Diary, 829:227, see also Morgenthau Diary (Germany), 2:1016 –17; White redrafted it the same day, Mar. 19, Morgenthau Diary (Germany), 2:1031; passed on to Lubin Mar. 22, 1945, Morgenthau Diary (Germany), 2:1065; handed to FDR, FRUS, 1945, 3:1179 – 81. DuBois had been a lawyer in Foreign Funds Control and became assistant to the secretary in 1945. In 1943 he and his like-minded lawyers had helped dislodge the State Dept.’s resistance to sending funds to Europe to support and free Jews in Romania and France—the Riegner Plan. For his role see David S. Wyman, The Abandonment of the Jews: America and the Holocaust, 1941–1945, 178 – 83. He traveled with Morgenthau and White to London in August 1944 and in 1947 became the chief prosecutor at the Nuremberg trial against I.G. Farben. DuBois also authored two books.

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all agencies involved would be represented, from the Treasury and State departments to the FEA and the War Department.16 The main job of IPCOG had been something else: to draw up yet another revision of Joint Chiefs of Staff Directive 1067 that would reflect the policy of the Yalta Conference and could finally be presented to the EAC—the last revision had never made it that far. Between March and May, IPCOG considered the new version of JCS 1067 as well as the instructions for Pauley, since the two were closely related anyway. The already familiar faces were present on this committee. White, with Coe as alternate, spoke for the Treasury, Henry Fowler sat in for the FEA, McCloy for the War Department, and Undersecretary Ralph A. Bard represented the Navy.17 The committee’s first task was to draw up guidelines for the revision of JCS 1067. The definition of what actually constituted external assets was again a point of debate. Not surprisingly, White and Coe liked the all-inclusive definition of “all German external assets.” Clayton first argued that such a claim by the United States would mean outright confiscation, but he relented under the condition that it would be clear that these assets would be used for legitimate claims—namely, reparations and restitution—of those countries fighting Germany. After all, Morgenthau, Clayton, and McCloy agreed that “in principle” such a step was desirable, whatever final form it would take. FDR signed this statement toward the end of March, about three weeks before his death. It was his last approved policy statement on Germany. The part about external assets was not put into the memo for FDR since McCloy felt that the subject was “not important enough.”18 Over the next month, various IPCOG subcommittees discussed the issues at hand. In the Financial Subcommittee, the State Department advocated a formula that would use external assets not only for reparations and restitution, but also “for other purposes.” Its delegate had in mind the necessity of payments for needed German imports after the war. Coe and White thought such an idea “completely illusory” since U.S. war claims on Germany already outweighed all German external assets. Of course, they were also aware that this formula represented the State Department’s aim to maintain a viable German 16. Despres to Clayton, Mar. 24, 1945, FRUS, 1945, 3:1181; for Clayton see Eisenberg, Drawing the Line, 64. 17. For IPCOG see Hammond, “Directives for the Occupation of Germany,” 417, 421; Notter, Postwar Foreign Policy Preparation, 370; and FRUS, 1945, 3:456 – 57. 18. Memo for Morgenthau, Apr. 9, 1945, of a Mar. 23, 1945, meeting, Morgenthau Diary (Germany), 2:1115–22, quotes 1119; final statement signed by FDR dated Mar. 23, 1945, in FRUS, 1945, 3:471–73.

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economy, contrary to the Treasury’s intentions. As a non-solution, the final version of the revised directive did not mention reparations, restitution, or “other purposes,” conveniently passing on the problem to Pauley. The new JCS 1067 read: “The Control Council should . . . seek out and reduce to the possession and control of a special agency all German (public and private) foreign exchange and external assets of every kind and description located within or outside Germany.” Originally this sentence had continued with “for disposition as reparation . . .”19 Truman approved the new directive on May 10, 1945. Apart from the unresolved conflict, the revised directive introduced a new concept into the discussion: a leading role for the Allied Control Council (ACC) in handling external assets. This was a significant departure from the first version of the financial directive, which had assigned only Eisenhower any authority in this matter. It was still up to him to take the first steps. As long as the ACC did not begin its program, Eisenhower was to start his own within the U.S. zone. However, as soon as possible he was to merge any agency he had created for that purpose with those in the other zones—assuming he had been successful in convincing his Allied colleagues to create those. With the new formula, the issue was now lifted to the tripartite level, making it a real inter-Allied endeavor—allegedly. There were problems yet to solve. With the future control of these assets under the authority of the Inter-Allied Control Council, how would matters be handled in practice? Would the Control Council actually negotiate with the neutral countries? What kind of agency or body would undertake those negotiations? The State Department regarded the control of these assets as a Safehaven problem under its own tutelage. If the Control Council were to enter the picture, warned Herbert Cummings, assistant chief of the department’s Division of Foreign Activity Correlation, in a memo to his boss, the “political effects” of such a setup “would doubtless result in constant embarrassment, confusion, and misunderstanding.” People would work on this issue who had “no Embassy connection or supervision.”20 Cummings was anxious to avoid such a conflict. Not long after Truman approved the revised JCS 1067, he also signed off 19. See Coe to Morgenthau, Apr. 9, 1945, with IPCOG draft containing State Dept. formula, and Coe and White to Morgenthau, Apr. 21, 1945, outlining their concerns, Morgenthau Diary (Germany), 2:1132, 1174; Hammond, “Directives for the Occupation of Germany,” 423; final version passed by IPCOG Apr. 26, 1945, printed in FRUS, 1945, 3:484 – 503, quote 502. 20. Cummings to Lyon, June 4, 1945, 740.00119 Control (Germany)/date.

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on the final instructions for Pauley passed by IPCOG. On foreign assets, the committee stated quite forcefully that “the United States will desire to receive as much as feasible of its share of reparations in the form of foreign exchange assets including German investments abroad.” There had been little discussion about this topic in the high-level final meetings to work out the last kinks in the Pauley instructions. Originally, the text that came out of the Working Committee of IPCOG had simply said that “German investments abroad” would be subject to reparations. Coe suggested the final version in the first meeting since he felt that this way not only German investments but also any gold the United States found in Germany would come under the provision. Clayton thought this a “good suggestion,” and the Coe proposal was adopted.21 In comparison to those in the United States, discussions in the United Kingdom did not result in any clear political guidelines in regard to German external assets before the Moscow meeting. The problem had again been mulled over between the Foreign Office, the Board of Trade, the Trading with the Enemy and the Treasury departments, and the Ministry of Economic Warfare without definite conclusions. After the Yalta meeting the conference results had to be incorporated into the position papers, which caused further delays. This continuous—and very slow—redrafting destroyed any real hope that a definite document could be presented in time to the Armistice and PostWar Committee, the British cabinet body ultimately in charge of deciding such questions. By late April the continuous discussions had evolved so far as to suggest, in the words of Edward Wilder Playfair from the Treasury Department, “an act of general assignment . . . which would have the effect of transferring to the United Nations the title to all German-owned assets in neutral countries.” This would best be done through the Reichsbank on order of the ACC once the ACC had been installed as the highest authority in Germany. But Playfair remained skeptical of such a policy and opined that making any decision “before the Moscow Conference . . . is going rather far.” Clearly, the British had a clear preference for having any action taken through 21. Originally, Truman had approved both directives on the same day. The Pauley instructions, however, had to be revised in light of some concerns that Judge Robert Jackson, chief of the Council for the Prosecution of Axis Criminality, subsequently raised in regard to reparations through labor. Truman approved the revised version on May 18. See FRUS, 1945, 3:1216 –17, 1222 n. 6. Final version in FRUS, 1945, 3:1222–27, quote 1225. Clayton, Despres, Crowley, Fowler, Morgenthau, Coe, Cox, DuBois, Pauley, Lubin, McCloy, and others met four times (May 1, 3, 4, and 18) to work on the final version; see Morgenthau Diary (Germany), 2:1337– 68, 1371–1416, 1423 – 42, 1493 – 1513, external assets 1339, Coe’s suggestion 1342, comparison to earlier versions discussed in the IPCOG subcommittee 1141–44. For details of negotiations see also Nübel, Reparationspolitik, 145 – 58.

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a German body under Allied control to avoid the challenging legal problems that might arise otherwise.22 Disaster in Moscow With the instructions finally ready, Pauley and his troops could go to Europe. His team had swelled to over thirty-five people—among them Josiah DuBois from the Treasury Department, Seymour Rubin from the State Department, and Pauley’s wife. The considerable delay in the meeting of the Allied Reparations Commission (ARC) was hardly the United States’ fault, however. After Yalta, Great Britain had insisted on including France in the negotiations in Moscow, a move initially supported by the United States. This did not go down well with Stalin, who thought the idea “an insult to the Soviet Union.” He countered with the suggestion that Poland and Yugoslavia should also participate. In light of the Soviet opposition, the United States dropped this idea in the middle of May and Great Britain followed suit, so France was not represented on the ARC.23 Before Pauley arrived in Moscow on June 11, his team spent nearly a month on a circuitous tour of the continent, traveling to London, Paris, and around Germany. Rubin, since March the chief of the Division of Economic Security Controls, was detailed to go to Lisbon, Madrid, and Bern to discuss with the local embassies “questions of German external assets.” Of course, Rubin, who had been involved with the Safehaven program nearly since its inception, was thoroughly familiar with it. He arrived in Moscow on July 14 after a rather rushed trip. With him he brought the conviction that a vesting decree should be issued by the Allies to assign to them the “administration of German assets in Western European neutral countries.” Various embassy officials had pointed out to him the lack of any formal legal basis of Allied claims to control German external assets.24 22. Redraft as result of Yalta meeting decided in ACAO meeting, Feb. 16, 1945; Playfair to Brigadier J. Greenschields, Apr. 26, 1945; vesting method further discussed in minute by Dean, FO, German Dept., May 12, 1945, all in FO 371/45750. 23. Pauley and Lubin, Report on German Reparations to the President of the United States, February to September 1945, app. 4, “Personnel—United States Delegation, Allied Commission on Reparations (Appointments, Assignments and Terminations),” 740.00119EW/9 –2045, RG 59, NACP; for question of French participation: FRUS, 1945, 3:1175–76, 1177–79, 1185 – 86, 1190, 1192, 1194 – 95, 1197–98, 1201–3, 1205–6, 1210–11, 1214, 1218–19; the U.S. agrees to “begin” discussions on tripartite basis only, May 17, 1945, 1220–21; Eden agrees with U.S. the next day, 1221; Stalin’s views, FRUS, Potsdam, 1:32. 24. “Draft Report by S. J. Rubin, Member of the United States Delegation, Covering Trip to Lis-

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While Rubin was crisscrossing the continent, Pauley had already pressed ahead, as was his manner. On June 16, Acting Secretary of State Joseph C. Grew (Stettinius was in San Francisco for a conference on the UN) cabled Pauley in Moscow that “Russian agreement to preliminary precautionary steps and ultimately an ACC . . . vesting order [is] essential.” However, this telegram by no means authorized Pauley to take the aggressive action he began to pursue, though his activities illustrate well his personal belief that the United States should “assert to the fullest extent” its demands for foreign assets, patents, technical know-how, and other similar things.25 Just two days after his British colleagues had finally arrived and before the conference had even officially opened, Pauley called an informal meeting with his fellow delegates. There, he presented—much to the surprise of the British—a possible vesting order. This proposal had been prepared by the Treasury Department, though it is unclear who actually authored it, and it also had the indirect backing of the French. It came in the form of two alternatives. All German external assets would be vested either in a special commission of the ACC or in the ARC. Pauley offered the second option as a way to get around the problem that the ACC did not yet exist.26 bon, Madrid and Berne (Report is as of July 15, 1945),” app. 8 to Pauley and Lubin, Report on German Reparations, quotes 1, 8. 25. Grew to Pauley, 800.515/6–1545, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP; for Pauley’s views: Pauley to Stettinius, June 19, 1945, FRUS, Potsdam, 1:511. Grew’s telegram had been cleared with Harold Glasser in the Treasury’s Division of Monetary Research. It had been sent in direct response to “recent developments in Spain” (quote from telegram). In itself this telegram was an episode in the long fencing between the Allies and the Spanish government over German assets in Spain. On May 1, 1945, Great Britain and the U.S. had presented notes to the Spanish government requesting adherence to Bretton Woods Resolution VI. Spain assured that it would observe its principles and by decree froze all German assets on May 5. But in Allied eyes, real cooperation was lacking. More than a month after the end of the war in Europe ( July 15), Spain consented to an Anglo-American trusteeship to control German state property and to oversee German companies in Spain. Spain also recognized the ACC as de facto—but not de jure—German government. For the May 1 note and Spanish reply: FRUS, 1945, 2:873 –78, 885; further Allied concerns: FRUS, Potsdam, 1:555 n. 1, see also Seidel, Angst vor dem “Vierten Reich,” 166–203, especially 178. 26. “Memorandum to Ambassador Pauley: Subject: Notes on Informal Meeting Held Wednesday June 20,” folder: Minutes, First Meeting of Steering Committee; “Order Vesting and Marshalling German External Property,” folder: Official Memoranda, both in box 109, Lubin Papers, FDRL. The British delegation, led by Solicitor Gen. Sir Walter Monckton, arrived June 18: see Farquharson, “Policy on German Reparations,” 914. The proposal was prepared by Treasury, according to above “Notes on Informal Meeting”; most likely it had been written by DuBois since he was ordered to go to Moscow in the June 16 telegram, but it might also have been Orvis Schmidt, who was on assignment in Germany and who had dinner with Pauley while he was there; see letter from DuBois to White from Paris, June 14, 1945, Morgenthau Diary (Germany), 2:1583–85. The U.S. Embassy in Paris held a conference with French Foreign Office and Finance Ministry officials at

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While the Soviets were much in agreement with Pauley’s views, the British delegation was nothing less than stunned by his pitch. They raised a litany of concerns. Regardless of form, the British thought any action that would create a special inter-Allied setup was premature. Legal confusion would arise, especially if the ARC, which had no sovereign rights in regard to Germany, took over the assets. In British eyes, there was no substantial difference between control of external assets by a special authority and individual control by the respective governments. Also, the French were not in Moscow, and true inter-Allied control would require their participation. For all these reasons, the proper body to decide these questions would be the individual governments and not the ARC, a view Maisky actually agreed with. The only thing the British consented to was to work out a general freezing order for these assets, a topic already under discussion in the European Advisory Commission. In late July the EAC would indeed agree that, as part of certain political and economic requirements to be imposed on Germany after surrender, all German foreign assets were to be taken under the provisional control of the Allies.27 The British were “very angry over the entire procedure,” as it was yet another example of how Pauley embarrassed and sidelined the British at the same time. Not to be outdone, the British subsequently submitted their own proposal on the topic. It emphasized that any assets in those countries that fought Germany should be used to pay Germany’s prewar debt first and then reparations, the position already taken at Yalta. Second, assets in neutral countries might be used for reparations or for essential imports. Rubin, DuBois, and their two fellow Americans on the committee wanted all these assets solely for reparations purposes. In the end the initial “flurry” of activity led “nowhere,” according to Playfair, who was a member of the British delegation. Though the topic of German assets in neutral countries was thus not decided, Playfair continued, “it is worth mentioning that we shall soon hear plenty of it, since the Americans are more interested in that than in anything else.”28 which the French indicated that they were “anxious to avoid delay” in this matter: Jefferson Caffery to State Dept., June 18 and 19, 1945, folder: Safehaven June 1–20, 1945 (box 383), FFC Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, NACP. 27. “Appendix A—Chronological Summary of Developments—German External Assets,” 3, July 17, 1945, written by Rubin, attached to “Committee II—Interim Report,” n.d., in folder: Reparations Commission, Committee II, Lubin Papers; British reaction in Dokumente, 2nd series, 1:803– 8, 810–11; the EAC passed the agreement on July 25, the four powers approved it subsequently, and the ACC published it on Sept. 20, 1945. See FRUS, Potsdam, 2:1008 –23. 28. British upset: “Memorandum of Conversation with Mr. Covey Oliver, State Department, July

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This disagreement mirrored the general outcome of the meeting in Moscow. No settlement was reached on many outstanding questions, from the final sum for reparation payments to the definitions of reparations, war booty, or restitution. The growing divide between the Western Allies and the Soviet Union also reflected recent changes in British postwar planning made in light of the economic realities in Europe after the end of the war. With an economic vacuum in the heart of Europe likely, the maintenance of the German population had become more important to Britain than reparation payments. This change simply took into account that debt-ridden Great Britain had no interest in paying for Germany, especially with a future zone that had a small agricultural but a large industrial base.29 Thus, in Moscow, the gulf between Soviet aims for German economic disarmament and AngloAmerican goals for limited German reconstruction to minimize the burden for the taxpayer at home proved unbridgeable. Significantly, the Soviet side could not agree to one of the principles dear to the Western delegations, the so-called first-charge principle. It was essentially the idea that Germany could only “export” reparations after it had paid for necessary imports. Implied in this principle was the goal that Germany would be guaranteed a certain standard of living, because a definition of “necessary” imports would require setting such a standard. This rule would make certain that the Allies would not again indirectly finance German reparations through loans, like they did after 1918. But it was a principle that put German needs before reparations, which was anathema to the Soviets.30 In the end, the only concrete results of the meeting were a new agreement on each country’s percentage of the total reparations due (USSR 56 percent, Great Britain and the United States 22 percent each, with other countries receiving proportional percentages from those shares), procedures of how to determine the claims of those other countries, and a general declaration of principles for a theoretical future reparations settlement.31 5, 1945,” from Locker (U.S. Treasury), folder: Safehaven July 1–15, 1945 (box 384), FFC Subject Files; “Allied Reparations Commission Moscow 1945, U.K. Delegation: Agenda for Discussion with American Delegation on German Foreign Assets,” n.d., “U.K. Delegation Paper on Pre-War Claims on Germany,” n.d., “Chronological Summary of Developments,” all attached to “Committee II— Interim Report” from U.S. delegation; memo by Playfair, July 16, 1945, in Rohan Butler and M. E. Pelly, eds., Documents on British Policy Overseas, series I, vol. 1, The Conference at Potsdam, July– August 1945, 332 (hereinafter cited as DBPO and always referring to 1st series). 29. Tyrell, Großbritannien, 498–99, 539–48, 622. 30. For Soviet views of the Moscow results see Maisky to Molotov, July 2, 1945, in Laufer and Kynin, Die UdSSR und die deutsche Frage 1941–1948, vol. 2, 9. Mai 1945 bis 3. Oktober 1946, 36 – 40. 31. Principle five, which listed possible reparations categories, mentioned again that reparations in kind should be derived from “foreign investments.” Principles are listed in “Memorandum by the

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All the unresolved outstanding questions were passed on to the meeting of the Big Three in Potsdam, to which Pauley traveled from Moscow. As Maisky had already pointed out about the creation of the ARC at Yalta: putting any question the three heads of state could not solve “to a lesser body would be utterly illogical.”32 The Potsdam Solution For the first and last meeting of the president and the dictator, the Allies assembled in July 1945 near Berlin, the capital of their former foe, which was now utterly destroyed. “This is a hell of a place—ruined, dirty, smelly,” Truman wrote to his wife. His quarters were pleasant enough. For the nineteen days he was in Germany, he lived in Babelsberg in a house overlooking Griebnitz lake. The residence belonged to the head of the former German movie colony of Babelsberg who was now—as the presidential log cheerfully noted —“with a labor battalion somewhere in Russia.” Churchill, fresh from his vacation in Biarritz, lived two blocks away in a house “a bit better furnished.” His staff felt treated “royally” and enjoyed the Rhine wine, which flowed “freely.” Stalin resided much closer to the conference site, the Cecilienhof in Potsdam, the last palace the Hohenzollern dynasty built in Germany before they had to resign a year later.33 Truman arrived at the “Little White House” after using every conceivable means of transportation to make the trip from Washington. At the president’s own request, the longest time was spent on board the Augusta crossing the Atlantic. Truman used this voyage to read up on the voluminous briefing books prepared for him by the State Department. On board, he also met frequently with his new secretary of state, James F. Byrnes, Admiral William Leahy, and Matthews, Bohlen, and Benjamin Cohen from the State Department. On the Delegation to the Allied Commission on Reparations,” July 14, 1945, FRUS, Potsdam, 1:538 – 48; principle five, 546, also 528. 32. FRUS, Malta and Yalta, 903 (not surprisingly, the Maisky quote is not in the Soviet version); for Moscow meeting see also Foschepoth, “Britische Deutschlandpolitik,” 702–7; Farquharson, “Policy on German Reparations,” 914–20; Eisenberg, Drawing the Line, 86 – 89; Tyrell, Großbritannien, 553–63; Fisch, Reparationen, 63– 69; Nübel, Reparationspolitik, 158–73; and Cairncross, Price of War, 80–86. For a strongly revisionist perspective, see Kuklick, American Policy and the Division of Germany, 113–40; in a similar vein, Yergin, Shattered Peace, 95–98; critique of Yergin in Tyrell, Großbritannien, 555. 33. Letter to Bess, July 20, 1945, Robert H. Ferrell, ed., Dear Bess: The Letters from Harry to Bess Truman, 1910–1959, 520; “President’s Log,” FRUS, Potsdam, 2:9 –10. British impressions in Harrison to Troutbeck, July 16, 1945, DBPO, 1:335.

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subject of external assets the briefing books stated the inevitable: “The United States has recently approached Great Britain, France and the Soviet Union suggesting that the Allied Control Council . . . should declare that all German external assets, private as well as public, are subject to the Council’s control.” This was to be done in the interest of economic security. That the British were quite upset over the whole issue was not mentioned.34 After all, Pauley was a Truman protégé. After arriving in Babelsberg, the first visitors Truman received were Pauley and Ambassador to the Soviet Union Averell Harriman, both of whom had arrived a day earlier. The day the conference was about to start, Stalin and Molotov met with Truman. This was also the day Truman learned the full details of the successful test of the atomic bomb at Alamogordo, New Mexico, the day before. The Soviet foreign minister suggested adding reparations to the agenda of the meeting. During their first meeting, the Big Three turned over the topic to the foreign ministers, who in turn passed on the problem to an economic subcommittee. On this committee essentially the same people who had discussed reparations in Moscow faced each other once again and, not surprisingly, made no real progress.35 The problem was once again that the Allies did not want to deviate from the first-charge principle, while the Soviet Union wanted to put reparation payments before imports or the maintenance of the German population. In addition, Maisky now proposed putting the Ruhr under Allied control. This idea struck at the heart of British German policy since they looked at the Ruhr as the key for maintaining their zone. The final blow for any possible agreement was the Soviet definition of war booty, a proposal the Allies had waited for since Moscow. Under the Soviet plan, not only German military supply but also “all supply and equipment used by the enemy to satisfy his military needs” was to be considered as such. Under further questioning by Pauley and Solicitor General Sir Walter Monckton of Great Britain, Maisky had to confess that such a definition would justify tacking on even shoe factories as booty, 34. Truman, Year of Decisions, 333, 335, and “President’s Log,” 5–6; FRUS, Potsdam, 1:554 – 55. 35. Arrival in Berlin: Pauley and Lubin, Report on German Reparations, pt. 2, 9; meeting of Pauley, Harriman, and Truman, July 15, “President’s Log,” 10 (there is no record of what the three talked about during this meeting); Truman-Stalin-Molotov meeting, July 17, FRUS, Potsdam, 2:43 – 46, 1582–87; Pauley might already have suggested including a U.S. proposal on reparations anyway (see FRUS, Potsdam, 1:240 and 2:941); First Plenary Meeting, FRUS, Potsdam, 2:52–55; FM meeting, ibid., 70, 76; the subcommittee met four times between July 19 and 21 (see ibid., 110–11, 141–42, 183–84, 224, 942–43), and its official members were Pauley and Clayton, Maisky, and, for Great Britain, Sir Sigismund David Waley, although other delegates participated at various times.

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leaving little for reparations. In practice, this definition probably reflected what Soviet so-called trophy brigades were doing in Germany anyway. In areas under their control, these brigades were dismantling German industrial plants with great speed but without much direction or technical expertise.36 By the end of the first week of the conference, an amicable settlement seemed increasingly remote. While the Allies were negotiating on this topic, Rubin and DuBois arrived in Potsdam on July 20 from Moscow, where they had been left behind.Thanks to Pauley’s careless and thoughtless handling of the matter of external assets— which the State Department repeatedly regretted—the Western Allies were now under pressure to move forward quickly. After the June meeting in Moscow on this topic, the Soviet Union had not only addressed a note to Turkey “not to touch any German property,” but it had also demanded from Romania the German-owned shares in that country’s oil companies. A little later, that claim was extended to include German bank stocks. And in Sweden the Soviet Union began ascertaining the number of stranded German aircraft to fly them out as war booty. All this activity was, not surprisingly, “objectionable” to the United States.37 How could the Allies ever hope to have legitimate, full authority over German external assets on a four-power basis if now the Soviet Union went ahead on its own to claim those assets as reparations or war booty? To counter this move temporarily, the United States pressed a reluctant Great Britain to jointly notify the Western European neutrals (Sweden, Por36. Meeting of Economic Subcommittee, 10:30 a.m., July 20, 1945, evening, July 20, 1945, FRUS, Potsdam, 2:141–42, 183–84; “Proposal by the Soviet Delegation,” July 21, 1945, ibid., 846– 47; Pauley and Lubin, Report on German Reparations, pt. 5, 4–5, also in FRUS, Potsdam, 2:942– 43, 224. This kind of “trophy” activity had reached its peak in May 1945. Generally, German workers had to disassemble and crate their own factories, often over their bitter protest. Material was then shipped to huge railway yards in eastern Poland and Brest Litovsk, where for the most part it was stored outside, rusting away and unprotected from pilfering. See Vassily Yershov, “Confiscation and Plunder by the Army of Occupation,” and Vladimir Alexandrov, “The Dismanteling of German Industry”; see also Norman M. Naimark, The Russians in Germany: A History of the Soviet Zone of Occupation, 1945–1949, 166–70, 178–83; and Laufer, “Politik und Bilanz,” 41– 50. 37. Pauley instructed Rubin and DuBois to go to Berlin in Kennan to Grew, July 19, 1945, FRUS, Potsdam, 2:952–53; State Dept. lamenting “the unfortunate lack of coordination within this government,” in Oliver to Collado and Despres, July 7, 1945, FRUS, Potsdam, 1:559–61, quote 559, and also Byrnes to Winant, July 6, 1945, ibid., 557– 58; for Turkey: Grew to Kennan, July 17, 1945, FRUS, Potsdam, 2:949, quote in “Memorandum of Conversation with Mr. Covey Oliver, State Department, July 5, 1945,” from Locker, folder: Safehaven July 1–15, 1945, FFC Subject Files; for Romania: Grew to Clayton, July 19 and 24, 1945, FRUS, Potsdam, 2:951–52, 955; for Sweden: U.S. Military Attaché in Sweden to War Dept., July 24, 1945, ibid., 956, and Byrnes to Kennan, July 30, 1945, ibid., 961; Grew to Clayton, July 19, 1945, ibid., 951 (quote).

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tugal, Spain, Switzerland, and Turkey) that the Allies claimed title to German assets in those countries. But British officials were still disgruntled over Pauley’s behavior, and the Allied notes (including France’s) were not delivered until the end of July and the beginning of August. This communication did not mention that the Allies might plan for a vesting decree through the ACC, as the United States would have wished. The omission was due to British insistence. As stated earlier, Great Britain did not want to foreclose the option of vesting these assets in a German body under nominal Allied control, like the Reichsbank. The British hoped thus to circumvent not only the legal questions but also possible large personnel requirements, which they feared any ACC apparatus to administer external assets would have.38 American officials maintained that the proper legal approach was that the four Allies would act as successors to the German government and ascertain their claim to those assets together. To move beyond the notes delivered in July, tripartite steps were urgently needed at Potsdam to maintain any shred of legality. For these reasons Pauley had called DuBois and Rubin to Potsdam. Once there, DuBois and Rubin immediately got to work on a possible U.S. proposal on the topic. The idea was that either the Allies—with or without France—would issue a declaration announcing that external assets “are subject to the jurisdiction of the Powers occupying Germany, and of the ACC,” or the final conference protocol could contain a paragraph underscoring that the ACC should control external assets.39 Unfortunately, these plans got under way at the same time as the negotiations stagnated on the whole issue of reparations. The solution to both topics came only at the end of the conference. In the final settlement, external assets played a crucial role. After the Soviet government presented its definition of war booty, no common settlement seemed possible. “There is no prospect that the Soviet 38. The USSR delivered notes only in Sweden and Turkey. For Switzerland: Grew to Harrison (the ambassador in Switzerland), July 24, 1945, FRUS, Potsdam, 2:956, and follow-up telegram to “act immediately” on the July 24 proposal, July 31, 1945, folder: Safehaven July 16–31, 1945 (box 384), FFC Subject Files. For Spain: Oliver to Collado, July 25, 1945, FRUS, Potsdam, 2:958. Note in Sweden was not delivered until August; see Johnson to State Dept., Aug. 7, 1945, 800.515/date, confirming delivery on Aug. 4 and Soviet participation; British objections in Oliver to Collado, July 25, 1945, FRUS, Potsdam, 2:958; general British views in Oliver to Collado and Despres, July 7, 1945, FRUS, Potsdam, 1:560. British FM Eden instructed his chargé d’affaires in Sweden that “no mention should be made at present of vesting enemy assets in the Control Council or any other allied body, since it may eventually prove more convenient to vest them in a German body under allied control,” July 13, 1945, DBPO, 1:255. 39. Pauley and Clayton to Grew, July 21, 1945, FRUS, Potsdam, 2:953; the quote is in U.S. Delegation Working Paper, July 22, 1945, ibid., 954. See also Pauley to Johnson, July 25, 1945, ibid., 957–58.

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government will accept our set of definitions and we cannot accept theirs,” wrote Philip Mosley, Ambassador John Winant’s economic adviser. New approaches were urgently needed. The solution was the zonal plan. Each of the Allies would simply take its share of reparations from its own zone of occupation. Deliveries between the Eastern and the Western zones would equalize the total for each nation.This solution began to take shape during the sixth full conference day ( July 22) under the lead of Pauley and Clayton. That day the U.S. delegation came up with a proposal that would allow each power to remove all forms of reparations—capital equipment, current production, and stocks of goods—“from its own zone of occupation.” For the most important form of reparations, German industrial equipment, the first-charge principle would no longer apply. But even for the two other kinds of payments, it was now up to the governments in question—and not the ACC anymore—to decide whether imports were paid for before such removals were made. In itself, such a division of reparation deliveries was nothing new. Rather, it was the final evolution of a proposal by the Treasury Department. This suggestion had made it into Pauley’s instructions, and he in turn had presented it in Moscow.40 Up to this point, the zonal plan had only applied to the so-called interim removals of plants and equipment, which were to go on for a relatively short time, still not agreed upon by the Allies. But since the Soviet Union now defined war booty very broadly, any meaningful separation of reparations from war booty or interim removals appeared useless. Consequently, the new U.S. plan discarded the fruitless debate about definitions and simply split everything along zonal lines. The proposal was worked over during that day and on the twenty-third, Secretary of State Byrnes began to carefully prepare Molotov for such a possible settlement. Ironically, during the morning’s meeting, when Byrnes first mentioned this solution, Molotov announced that he would soon present his own proposal on the topic. These were two papers the Soviet delegation had come up with independently, probably on the twenty-second as well. Molotov presented them an hour later, in the formal meeting of the foreign ministers. The first paper was nearly identical to Pauley’s earlier proposal on interim zonal deliveries introduced in Moscow, except that one crucial detail was miss40. Mosley to Clayton, July 22, 1945, FRUS, Potsdam, 2:850; U.S. drafts of the zonal plan, ibid., 853–54 and 858– 60, first one n.d., second July 23, 1945. Pauley claimed to have come up with this plan himself in Report on German Reparations, pt. 1, 9; Treasury’s ideas first mentioned in DuBois to Morgenthau, Apr. 11, 1945, Morgenthau Diaries (Germany), 2:1140 – 44, especially 1143; Pauley’s instructions paragraph 10, FRUS, 1945, 3:1225–26, presented in Moscow July 9, FRUS, Potsdam, 1:544–46, 539–40; see also Sir Clark Kerr to Anthony Eden, July 9, 1945, DBPO, 1:88 – 90, and Nübel, Reparationspolitik, 187.

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ing. The four-power subcommission overseeing the removals would no longer be able to veto any of the zonal removals. That way none of the Allies could be prevented from taking what they liked. This proposal was a nice way of legitimizing pro tempore the current stripping of plants going on in the Soviet Union’s zone, but it was not yet a complete departure from the goal of uniform reparations from Germany. That policy was apparent in the other Soviet proposal, which called for deliveries in kind—the remaining 50 percent of all reparations—over ten years and not to be split by zone.41 In congruence with its security concerns, the Soviet Union had no interest in giving up fourpower control over reparations in kind because this way it could maintain its influence over the shape of the German economy and the country’s future. The United States’ proposal, on the other hand, left any pretext for the joint control of the reparations program behind. Of course, Germany as a whole would still be administered by the Inter-Allied Control Council, but in regard to reparations the United States did not consider Germany a single economic unit anymore. The British were quite alarmed about this turn of events. Foreign Secretary Anthony Eden heard of the U.S. plan only after Molotov. This was a clear indication that the United States was taking the lead in the negotiations. In principle, Monckton agreed with the U.S. idea, but he was as concerned as ever that such a settlement would threaten German economic unity. Once that principle was questioned in one area, how could it still be valid in other areas? For example, so far a single import-export program was supposed to have priority over reparation deliveries—the first-charge principle. But if reparations were not a matter under joint control anymore, why should there be any common agreement on imports and exports? If deliveries of goods and supplies were linked to reparation deliveries, as the United States proposed, then the whole idea of a free and unconditional flow of goods between the zones was in question. The British zone in particular was not agriculturally selfsufficient and depended on outside deliveries from the surplus areas of Germany in the East. Pauley and Harriman might have already lost their belief that Germany would ever be treated as an economic unit, but this view was unacceptable to the British delegation.42 41. Byrnes-Molotov meeting, FRUS, Potsdam, 2:274–75; note by Collado for this meeting with essentials of U.S. plan, ibid., 861– 62; FM meeting, ibid., 277–81; Soviet proposal “On Advance Deliveries from Germany,” n.d., ibid., 864–65; Soviet proposal “Plan of Reparations from Germany,” n.d., ibid., 863–64. 42. Eden first heard of the U.S. plan during an informal meeting of the foreign ministers on the afternoon of July 23. He “listened with great interest” to Byrnes’s proposal, which seemed to offer

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Owing to these British reservations, the final U.S. proposal for the subcommittee was modified to include once again the first-charge principle. As before, all zonal removals including capital equipment would rank second to the requirement to pay for imports first and to maintain “approved standards of living” in Germany. In addition, removals should not be “inconsistent” with treating the country as one economic unit. It is no wonder that, when Pauley presented this version in the Economic Subcommittee, there was no agreement, since the Western Allies were basically retracting the concessions already made. It was also surely not helpful that Pauley harshly refused to discuss the earlier Soviet proposal for a $20 billion settlement. Once again, it appeared necessary that the foreign ministers would consider the question. But by now it was time for the British delegation to return home for the results of the general elections.43 Truman spent part of his break visiting U.S. troops in Frankfurt. Pauley used his time to bombard the president and Byrnes with memoranda about the “ghastly and costly” Soviet policy of industrial removals in the Berlin area, though Truman was probably less shocked by these actions than Pauley had hoped. As Truman remarked to his wife, “The Russians are naturally looters and they have been thoroughly looted by the Germans over and over again,” so “you can hardly blame them for their attitude.” Byrnes, finally, took the nearly three days of lapse to efficiently settle “the matter as between the Americans and the Russians,” as Sir David Waley, principal assistant secretary of the Overseas Finance Division of the British Treasury, critically noted.44 Fundamentally, Byrnes and Molotov had an interest in resolving the problem along the lines already proposed. Since Pauley had refused to consider the Soviet proposal, the only feasible alternative was to accept the U.S. plan or have no agreement at all. Molotov summarized the current status of the negotiations quite accurately when he said that with or without Byrnes’s plan, the option of exchanging supplies between the Eastern and Western zones. See note on meeting in DBPO, 1:580. In the evening of the same day, Clayton informed Sir Monckton and others of the U.S. plan; see memo by Monckton, July 24, 1945, ibid., 616–19; Sir Waley on Pauley’s and Harriman’s views in his memo, Aug. 2, 1945, which summarized the Potsdam negotiations on reparations, ibid., 1258. 43. Final U.S. version July 24 or 25, 1945, FRUS, Potsdam, 2:867–69, quotes 869; Protocol of Subcommittee Meeting, July 24, 1945, DBPO, 1:672; Report of Economic Subcommittee, DBPO, 1:710–11, see also Rubin to Oliver, July 25, 1945, FRUS, Potsdam, 2:871. 44. Truman, Year of Decisions, 392–94; Pauley to Truman, July 25, 1945, FRUS, Potsdam, 2:873 – 76, to Byrnes, July 27, 1945, 888–92, to Truman, July 29, 904 – 5, quote 905. Truman to Bess, July 31, 1945, Dear Bess, 522; see also Eisenberg, Drawing the Line, 110; Waley’s summary of negotiations, DBPO, 1:1258.

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“the result would be the same. . . . Each [occupant] would draw reparations from their respective zones.” There was no longer much leeway to negotiate, and from then on the question had to be how each side could get the best deal under the U.S. plan. The new focus became apparent in the Byrnes-Molotov meeting later the same day, when the discussion turned away from fundamentals to negotiating dollar figures and percentages.45 Encouraged by his breakthrough, Byrnes decided to now go further and combine all the outstanding issues of the conference in one package. In a talk with Sir Alexander Cadogan the same evening—for the moment Cadogan was the highest-ranking member of the British delegation—he outlined his idea. Soviet reparation demands would be satisfied from eastern Germany and by deliveries from the Western zones in exchange for supplies. In return for such a settlement, the Western Allies would agree to concede for now to Poland the territories it already occupied up to the Eastern Neisse. The final settlement of the western border of Poland would be conditional to a peace settlement—which, of course, would never come, but who was to know that?46 The aim of the reparations settlement was, as Byrnes told Molotov, “to remove any source of irritation between our two governments.” However, nothing definite could be decided before the British delegation returned with their new prime minister, Clement Attlee, and their new foreign secretary, Ernest Bevin. President Truman, in the meantime, was getting cranky and wanted to leave: “I spent the day . . . to think up reasons why I should bust the conference and go home,” he wrote to his wife after more than two weeks in Babelsberg. That Truman was “in a hurry” had not escaped Stalin, as the generalissimo remarked to Attlee. The next two days, July 29 and 30, Stalin fell ill with a cold, be it for health or strategic reasons. In any case, Truman had his doubts: “I rather think Mr. Stalin is stallin’ because he is not so happy over the English elections.”47 Therefore, the negotiations moved forward without Stalin until the last two days of the conference. Byrnes made the valuable concession to Molotov that 45. FM meeting, 4 p.m., July 27, 1945, FRUS, Potsdam, 2:430. The British protocol reads: “If agreement is not reached . . . the Soviet Government would certainly take reparations from their zone of occupation,” DBPO, 1:932; Byrnes-Molotov meeting, 6 p.m., July 27, 1945, FRUS, Potsdam, 2:450–52. 46. Record by Sir Cadogan of conversation with Byrnes, July 27, 1945, DBPO, 1:944 – 45. 47. FM meeting, July 27, 1945, FRUS, Potsdam, 2:430; Truman to Bess, July 29, 1945, Dear Bess, 522; meeting of Attlee, Bevin, and Stalin, July 28, 1945, DBPO, 1:957; on Truman’s impatience, also Byrnes’s meeting with Cadogan, same day, ibid., 945; Truman to Bess, July 31, 1945, Dear Bess, 522.

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Poland could administer the territories up to the Western Neisse, an area that included important coal mines and agricultural areas. The British had already begun to consider such a move, because in reality Poland occupied those territories anyway. As Sir Archibald Clark-Kerr, British ambassador to Moscow, summarized the situation: the Western Allies might as well incorporate the truth into the general settlement rather than have to accept a unilateral Soviet-Polish fait accompli. Yet, before the British had time to finally decide on such a step, Byrnes introduced his package deal in the foreign ministers’ meeting on July 30.48 Byrnes presented proposals for a reparations settlement, the Polish frontier, and the admission of certain European states into the United Nations. The latter issue had sprung from Truman’s desire to have Italy admitted to the UN. Truman’s request had so far been stalled by the British demand to then also accept all the European neutrals except Spain and by the Soviet request to also admit Bulgaria, Romania, Hungary, and Finland into the UN. Yielding to Soviet demands would essentially have meant the recognition of Soviet satellite regimes by the Western Allies, a move Churchill vehemently opposed. Byrnes now proposed a new text aimed at allowing each Ally to decide “separately . . . in the light of the conditions then prevailing” the establishment of diplomatic relations with those countries as a first step toward UN admission. In return, the Soviet Union would agree to declare together with the other Allies that representatives of the Allied press would have full freedom to report on those countries. So far, Molotov had refused to contemplate such an idea since, supposedly, the press was already completely free in these countries. In presenting his three-part package deal, Byrnes reminded his colleagues that they had to agree on all three matters or none.49 The U.S. proposal on reparations offered the Soviet Union the exchange of 25 percent of capital equipment from the Ruhr for a specific list of products from the Eastern zone. In addition, another 15 percent of such equipment would be delivered for free. In comparison, the British proposal for 10 per48. Conversation Molotov-Byrnes, July 30, FRUS, Potsdam, 2:480, proposal, 1150–51, importance of those areas for Poland outlined in Polish memo, July 28, 1141–49; British staff conference with Prime Minister Attlee (including Clark-Kerr summary), July 29, 1945, DBPO, 1:966. Bevin reminded Molotov during the meeting of the foreign ministers that “the British had not agreed to the American proposal,” but to no avail, FRUS, Potsdam, 2:485, 490; also Tyrell, Großbritannien, 415 n. 57; Byrnes’s package deal: FRUS, Potsdam, 2:484–85. 49. For UN question: Truman’s proposal, FRUS, Potsdam, 2:53, British demand, 147–48, Soviet demand, 207, prime minister opposed, 357–64, Byrnes compromise, 629– 30, Molotov’s views, 153– 55, 228–32; see also Tyrell, Großbritannien, 583–84.

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cent of such deliveries from all the Western zones in exchange for goods was not as attractive to Molotov. The Soviet foreign minister was now in the fortunate position of being able to pick what he liked from both plans. He focused his discussions on combining the U.S. plan with the British offer for deliveries from all Western zones. Naturally, the British wanted reparations to come from a larger area than just their own industrial heartland. But at issue still was Molotov’s desire to specify reparations available to the Soviet Union in terms of a total dollar figure, even if the Allies seemed closer on the percentages. Pauley had warned Byrnes that, according to his calculations, any absolute figure for reparation deliveries from the Western zones would be much lower than the Soviets expected. “Mere mention of this figure . . . would preclude any agreement,” he had told Byrnes.50 Byrnes and Bevin steadfastly followed that recommendation, and the issue had to be referred to the Big Three. The United States was now keen on making “the best bargain” possible, as Bevin saw it. Inexplicably, Stalin recuperated from his cold the next day and much of the time of the last three plenaries was spent on reparations. The deal on the United Nations question came easily; it was nearly passed as suggested by Byrnes. A very agreeable Stalin also made the important concession of no longer insisting on a definite dollar figure for reparations. That figure could be established in the six months after the conference. He also agreed, on Bevin’s insistence, that only equipment “not needed for peacetime economy” would be removed. This way Germany would be assured a certain standard of living. That standard—and therefore the amount of capital equipment available for reparations—would be determined by the Allied Control Council. Stalin also consented to the idea of each zone commander’s having the final determination over such deliveries—meaning that any Ally could veto removals from its own zone. Yet, the question of percentages remained. The Soviets had opened the paltering with higher demands—15 percent of deliveries for the return of goods and 10 percent free from all Western zones. They also did not neglect to mention reparations from current production to be exacted over ten years from each zone. And in addition, they now demanded 30 percent of all German external investments and gold.The day before, they had 50. U.S. proposal, FRUS, Potsdam, 2:921; British proposal, 920; discussion, 485– 92. Molotov also presented a proposal on the topic, but it was not discussed, ibid., 482, 484, printed 913–14. The whole complex of absolute numbers was murky territory, and Pauley knew this (Pauley to Byrnes, July 28, ibid., 892). See also U.S. working paper on the problem of agreeing to dollar values, undated, ibid., 886.

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mentioned only their desire to get $500 million of western German industrial and transportation shares, which also still stood.51 The specific Soviet demand on external assets was news to Byrnes and Bevin. It was a topic never mentioned before at the highest levels of the conference. It is likely that this surprise attack was triggered by a U.S. proposal at the foreign ministers’ meeting the day before, July 30. This motion asked the conference to issue a declaration bringing those assets under the “jurisdiction of the Powers occupying Germany.” This was finally the proposal that Rubin and DuBois had been working on since they got to Potsdam ten days earlier. During all this time little had happened to further their initial assignment. A memo had been drawn up for Deputy Military Governor Clay that he should have the ACC issue a vesting decree, but it was never sent—probably because of British opposition. Now the conference was definitely coming to a close and time was running out. With no discussion at all—for once a noncontroversial topic—the foreign ministers had passed the U.S. proposal on to the economic subcommittee. Here, Sir Waley had coaxed the Americans into dropping their proposal. Instead, the United States and Great Britain had agreed that the ACC should issue a vesting decree, the second alternative.This way the British could continue to influence further developments because the ACC’s decisions had to be unanimous. But Maisky did not concur with this solution, probably because, as Waley thought, the Soviet Union wanted to withhold its consent until a final agreement on the reparations question had come about.52 For the Soviet side this was a nice bargaining move. If all four powers claimed German external assets, why should the Soviet Union not get a good share of them? And even if that was not the case, this tactic might help to better the final reparations settlement in other areas. The Soviet demands for external assets and gold now nearly destroyed the whole carefully constructed compromise. Stalin announced that he had in mind German foreign assets “frozen in other countries, including America.” Byrnes had to remind him that such a demand would clash with internal American laws already passed by Congress. He also pointed out that all Ger51. Bevin during British Staff Conference, July 31, 1945, DBPO, 1:1053; Eleventh Plenary, July 31, 1945, FRUS, Potsdam, 2:512–16, quote 515; Soviet proposal, July 29, 1945, 913–14; Soviet proposal, [July 31, 1945], 1593– 94. 52. U.S. proposal, July 30, 1945, FRUS, Potsdam, 2:961–62, presented at meeting, July 30, 5 p.m., 483, 492; memo for Clay (not sent), July 28, 1945, 960– 61, no author indicated; note by Sir Waley, July 31, 1945, DBPO, 1:1071; note by Sir Waley regarding the Third Report of Economic Subcommittee (to U.K. delegation only), Aug. 1, 1945, DBPO, 1:1124–25; U.S. report about the work of the Economic Subcommittee is much less informative, FRUS, Potsdam, 2:827–28, 963 – 64.

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man gold found in the country was looted anyway and had to be returned. After this exchange an enervated Byrnes concluded that he did not agree to “any of the additional claims” Stalin had now put on the table. Stalin threatened to increase once again the percentages he was demanding in equipment deliveries. The whole agreement now seemed endangered. To save the day, President Truman suggested that Stalin should simply drop his demands for Germany’s external assets, gold, and company shares. In return, Truman would agree to the Soviet percentages for deliveries. Deserted by his ally, Bevin also finally concurred with that suggestion, as well as with the U.S. proposal on the future border of Poland. The question of deliveries from current production was no longer mentioned by anyone, since all the attention was focused on the final horse trading.The details of the reparations settlement were left to a drafting committee, which once more united nearly all the usual suspects.53 However, the rush in the plenary meeting to come to an agreement had left the officials somewhat clueless. In the drafting committee, the future embodiment of the Cold War, Soviet Ambassador to the United States Andrey Gromyko maintained that Stalin had never waived his claims for external assets, shares, or gold. Sir Waley called this pretension a “shameless” move. Consequently, the committee could not agree on anything.54 Once more, the topic went back to the Big Three. By now, it was August 1, the last day of the conference, and everyone was anxious for a settlement so they could get back home. When the reparations issue came up, Stalin suggested the following solution: he would not press any claims for German gold, and the Soviet claim to German external assets and shares should be divided along the “demarcation line between the Soviet and western zones.” Foreshadowing, if maybe a little less eloquently, Churchill’s famous speech in Missouri, Truman wondered whether Stalin meant “a line running from the Baltic to the Adriatic.” Stalin confirmed this. The next minutes were spent defining which countries belonged in whose sphere of influence. Romania, Hungary, Finland, and Bulgaria would go to the East, Aus53. Plenary discussion, July 31, 1945, FRUS, Potsdam, 2:515–18; DBPO, 1:1076–78; Truman does not mention his proposal in his memoir Year of Decisions, 404–6. The idea of current-production reparations was by no means dead. They had only been quietly split along zonal lines, making an Inter-Allied agreement superfluous. In his final report to Truman in September 1945, Pauley wrote that, after the ACC had determined the agreed standard of living for Germany including a joint export-import program, the U.S. could then decide for itself “how much current production will be available”; Report on German Reparations, pt. 10, 5. The British thought along the same lines; Tyrell, Großbritannien, 589. 54. Report by the Drafting Committee, Aug. 1, 1945, FRUS, Potsdam, 2:929 – 32, 923 n. 2; Waley in DBPO, 1:1259.

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tria was to be divided like Germany, and in the case of Yugoslavia, Stalin generously granted German assets there to the West. Yet, Byrnes really wanted to be clear, asking: Did Stalin renounce any claims “unless they were in the zone occupied by the Soviet Army”? And what constituted this zone? Stalin replied that Finland or eastern Austria, for example, would be “in this zone,” Yugoslavia again was not. Agreement had been reached. And since German external assets were now so clearly divided, Stalin could also agree with the earlier Anglo-American proposal to let the ACC manage them.55 Byrnes read the final version of the reparations section of the Potsdam protocol during the last plenary meeting, which had begun at 10:40 p.m. It now stated that in addition to the various removals and deliveries, the reparation claims of the Allies should be fulfilled “from appropriate German external assets” in accordance with the earlier division and that “the Soviet Government renounces all claims in respect of reparations to shares of German enterprises which are located in the Western Zones of occupation in Germany as well as . . . to gold captured by the Allied troops in Germany.” The ACC was “to exercise control and the power of disposition over German-owned external assets.” The meeting adjourned at 12:30 a.m., August 2. President Truman left the country less than eight hours later. He was back in Washington on August 7, one day after the bombing of Hiroshima had announced the dawn of a new era. Two days later another atomic bomb was dropped on Nagasaki. The next morning Japan sued for surrender terms. World War II was over.56 55. Plenary discussion, Aug. 1, 1945, 4 p.m., FRUS, Potsdam, 2:566–69; ACC proposal, 571–72; British record, DBPO, 1:1127–29, 1130; for the negotiations see also Cairncross, Price of War, 86 – 99; Fisch, Reparationen, 69– 80; Eisenberg, Drawing the Line, 89–113; Nübel, Reparationspolitik, 177–201; Tyrell, Großbritannien, 563– 601; and Offner, Another Such Victory, 78 – 91. This division of German external assets also settled a controversy over the former German satellites’ assets (Finland, Romania, Hungary, and Bulgaria) in Western European neutral countries going on since March. The Soviet government was in favor of blocking the private assets of these former German satellites in Western European neutral countries through the Allied control councils existing in those countries. However, the Soviet Union did not want to block state or state-controlled assets such as embassy buildings, state-owned companies, etc. George Kennan suspected the motivation behind such a policy to be that the Soviet Union controlled the governments in question anyway—including their state property elsewhere—but needed the ACCs’ assistance to get hold of their private property in Western Europe. The U.S. thought such a division impractical and was in favor of a total freeze, allowing for the unblocking of funds in legitimate cases. The issue had not been solved before the Potsdam Conference. See for Soviet views: Harriman to Stettinius, June 18, 1945, and Grew to Winant, June 30, 1945; for Kennan’s views: Kennan to Grew, July 14, 1945; all in 800.515/; see also Chapter 5. 56. FRUS, Potsdam, 2:586–87; Final Communiqué, 1505– 6. Positive Soviet assessment of conference results in circular telegram (draft) by Molotov, Aug. 5, 1945, in Laufer and Kynin, Die UdSSR und die deutsche Frage 1941–1948, 2:79–91.

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The final product of the Potsdam Conference came after more than two weeks of intense, controversial, and exhausting negotiations wherein each side toiled to preserve its influence over the heart of Europe. The Potsdam Agreement was often contradictory and incoherent in character. At first glance, Germany was to remain unified. The Allies would treat it “as a single economic unit,” a phrase that extended to the treatment of the German population as well. But then there was the reparations settlement, which already seemed to divide the country in two. Which was to take precedence over the other? Zonal reparations might put into question sensible economic planning for the whole country, yet such planning was necessary to preserve economic unity. The final agreement remained ambiguous because it did not state which was more important. Indeed, it could not state any of that because the precedence of reparations over a common economic policy had been the incentive for the Soviet Union to sign the agreement.57 Regardless of its many compromises and ambiguities, the final agreement was quite clear in at least one regard. German external assets were to be divided between East and West along an explicit line of demarcation and to be used for reparation payments. The division of these assets was the result of Stalin’s tactic of using the outstanding question of their allocation to apply pressure in other areas of the reparations settlement at the last minute. He got a nice return for his move from Truman, who agreed to Stalin’s percentage demands for deliveries. Yet, after this agreement of the Big Three, the issue threatened to be an unresolved question. Since Stalin had no interest in endangering what he already had, he suggested the division along the line of what was to become the Iron Curtain. This separation would give him some of Germany’s external assets but otherwise leave no ambiguities. In this area of the settlement the future of Germany was not at stake and each side could afford to give up influence.58 Because of this determination of the Potsdam agreement it was now possible for the Western Allies to use German external assets everywhere for their own reparation claims, save those situated in the very few countries claimed by the Soviet Union. If these assets were already located in Allied countries it 57. Eisenberg, Drawing the Line, 114–15; Cairncross, Price of War, 99. 58. Trachtenberg has argued that the agreement on external assets is the cardinal example of both sides’ agreeing on a sphere of influence settlement. The evidence presented here shows that the decisions reached in regard to the three related issues of Germany’s external assets, gold, and company shares are a result of the dynamics of the negotiations. The Russian tactic of using these three issues as leverage during the last days of the conference is also apparent in Molotov’s Aug. 5 circular. See Trachtenberg, A Constructed Peace, 31.

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was a straightforward procedure to realize those claims. Yet, the Potsdam agreement also indirectly involved the neutral countries—or at least did not exclude them specifically—when it said that “appropriate German external assets” should be used to cover this category of reparations. What appropriate meant was, for the most part, up to the interpretation of the powers, limited only by the common boundaries of international law and the governments of the countries the Allies would have to approach. For Safehaven the Potsdam decision meant that the program was now focused on a clear goal. The assets had to be found and identified so that the Allies could approach the neutral countries for their delivery. The first phase of this program was already well under way at the time the Potsdam Conference ended. How far it had gotten by then, the next chapter will explore.

Safehaven and Sweden in 1944 and 1945

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             most other European countries, Sweden survived World War II very well. The national economy grew by 20 percent between 1939 and 1945, and the country did not suffer any physical damage. Per Albin Hansson, the country’s Social Democratic prime minister since 1932, could thus look back at a “successful policy of neutrality . . . that had kept the country outside the destructive war without compromising internal democracy.” The Swedish economy expanded rapidly after the war’s end to fulfill consumer demand in the country. Its exports also picked up again in the fall of 1945, stimulated by the large product reserves Swedish industry had accumulated. In terms of foreign policy, Sweden was to continue its course of nonalignment, especially under Bo Östen Undén, who became foreign minister at the end of July 1945 and held that post for the next seventeen years. In the early postwar years Sweden, as well as Denmark and Norway, proclaimed a policy known as bridge building, which generally showed a closer affinity to the West but also aimed to build satisfactory relations with the Soviet Union.1 For Great Britain, Swedish timber was an especially crucial import for use in postwar housing reconstruction. Sweden, on the other hand, was in need of British coal, which had become even more valuable when all Swedish trade 1. Jussi Hanhimäki, Scandinavia and the United States: An Insecure Friendship, 12–13; Martin Fritz, “Turbulente Jahre: Schwedens Außenhandel und Wirtschaft 1945 –1954,” 143 – 45; Geir Lundestad, America, Scandinavia, and the Cold War, 1945 –1949, 47–48.

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with Germany ended. In March 1945, Britain and Sweden concluded a trade agreement that fixed the exchange rate between the Swedish krona and the pound. The agreement brought Sweden into the sterling area and has to be seen as part of British attempts to extend its influence over postwar European trade since the German competition had been eliminated—at least for the time being. Of course, another element of such policy was the Safehaven program. Politically, the Foreign Office saw Sweden as the “quiet spot” in the rising tensions between the two blocs and judged Sweden to be firmly in the Western sphere of influence, even if it was neutral. In comparison to Britain, the United States was not as interested in Sweden once the war was over and left its policy toward that country mainly in the hands of the Stockholm legation and the State Department’s Division of Northern European Affairs. Altogether, “American-Scandinavian relations were . . . regarded as satisfactory” in the early postwar years as long as it remained clear that the Soviet influence in Northern Europe would not increase.2 However, there was one area in which the United States showed considerable interest, and that was the Safehaven negotiations with Sweden. Here, according to the British ambassador in Sweden, Sir Victor Mallet, the British were only to play “second fiddle.”3 Since the Safehaven discussions started before the end of the war in Europe, we have to go back to the beginning of these Allied-Swedish talks, the fall of 1944. Safehaven and Sweden, 1944 As already outlined in Chapter 2, the Bretton Woods notes from early October 1944 had not produced any measurable responses. Because of the notes’ general character, it had remained unclear what the neutral countries were actually being asked to do. And because of the interagency squabble in Washington, there was no determined initiative to press the neutrals with concrete demands. It was thus sometimes up to the missions in the neutral countries themselves to seize the initiative, depending on how important the individual U.S. ambassadors thought Safehaven was. Sweden had a particularly active team in Ambassador Herschel Johnson; his chargé d’affaires, Christian Ravndal; and his Safehaven officer, Walter Surrey. Supposedly, Iver C. Olsen, the Treasury Department representative in 2. Aunesluoma, Britain, Sweden and the Cold War, 27–28, 5 (quote); Lundestad, America, Scandinavia, and the Cold War, 51- 60, quote 59. 3. Mallet to FO, Apr. 11, 1945, FO 371/46765.

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Stockholm, should also have been part of that team, but because of alreadydiscussed ongoing conflicts, that was never a good combination. Johnson had come to Sweden in December 1941, when he was forty-seven years old. According to his British colleague, his arrival “aroused great expectation among the Swedes” as it was expected that the U.S. legation would play a bigger role under the new, more active chief. The bachelor Johnson had “the reputation . . . of being a martinet and of indulging to violent outbursts of temper, but fortunately,” Sir Mallet remarked, “I do not see this side of him.”4 The U.S. Embassy in Stockholm had received the first instructions for the Safehaven program in August 1944. Remarkably, it had already been active even before this communication was sent and long before Klaus arrived in Stockholm. In a talk with Swedish authorities in early August, a member of Johnson’s staff discussed German activities.The embassy was concerned about evidence of looted diamonds offered for sale, looted gold used for purchases of goods, transfer of funds ostensibly for relief, shipments of consumer goods to Sweden that had not been ordered by Swedes, and a two-price system utilized to pay for German goods. In the last case, a fictitious lower price would be paid to a German vendor, which would leave a positive balance in Sweden to be used after the war. In light of these activities, it is thus no surprise that five days after receiving the official Safehaven instructions on August 23, the embassy sent to Washington a proposed note on Safehaven for the Swedish government. The embassy suggested informing the Swedes that the United States was very concerned about “the attempts of individual Germans and German firms to safeguard their post-war interests by building up financial reserves” in Sweden. The Swedish government should be asked to “to make every possible effort” to prevent such a development, an effort with which the U.S. government would be “ready to assist . . . in any manner.”5 But the embassy officials scarcely knew about the ineffectiveness of Washington’s bureaucracy when it came to Safehaven. 4. Treasury instructed Olsen on Oct. 17, 1944, to “associate” himself with the Safehaven program; folder: Safehaven Oct. 1944, FFC Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, NACP. A chargé is second in command to the ambassador. Mallet to Eden, “Report on the Heads of Diplomatic Missions at Stockholm for 1944,” July 20, 1944, in Paul Preston and Michael Partridge, eds., British Documents on Foreign Affairs: Reports and Papers from the Foreign Office Confidential Print, pt. 3, From 1940 to 1945, series F, Europe, vol. 11, Scandinavia, January 1944–December 1945, 124 (hereinafter cited as BDFA and referring to this volume, if not otherwise indicated). 5. Johnson to State Dept., Aug. 18, 1944, about the earlier talks, folder: Currie Mission; Johnson to State Dept., Aug. 28, 1944, attached as “Exhibit A” to “Memorandum for the Files,” Nov. 2, 1944, from Feig (FFC) about Safehaven meeting on Oct. 27, folder: Safehaven Jan. 1945, all in FFC Subject Files.

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This possible note was considered at a Safehaven meeting of the three involved agencies at the end of October—some two months after it was sent. The agencies made some changes, and by the beginning of November it appeared that the note was ready to be sent to the embassy for presentation to the Swedish government. But as that was about to happen, an irate Samuel Klaus called Covey T. Oliver in the Division of World Trade Intelligence at the State Department. Klaus pointed out that this note—to which his colleague and rival Sidney Homer from the Foreign Economic Administration (FEA) had agreed—was superfluous. He had already talked these things over with the appropriate people at the embassy when he was in Sweden, Klaus argued. The next day Seymour Rubin, assistant chief of the Division of Financial and Monetary Affairs in the State Department, found a compromise and the telegram was dispatched, but it was left to the discretion of the embassy whether the note should be presented. It never was. The embassy decided that its time had passed since a new round of Allied-Swedish war-trade negotiations in London set for early December would offer a much better forum to raise Safehaven issues with Sweden.6 While no official moves were thus made during fall 1944, there was at least some measurable progress. Surrey was of the opinion that Safehaven required more than mere “fact finding,” as Klaus had originally outlined during his visit in September 1944.The help of the Swedish government was urgently needed if any movement of German assets was to be hindered, and therefore the discussions with the Swedish authorities continued. Officials from the embassy’s Economic Warfare section talked informally to the Swedish Foreign Office and the management of the Enskilda Bank and Svenska Handelsbanken. They outlined the need for strengthened foreign-exchange regulations and for a general census of foreign assets in Sweden. They pointed out to their contacts that if no such changes were forthcoming, “unrestricted financial transactions with the United States” might be put in jeopardy. The combined pressure on the Foreign Office and on the most influential Swedish 6. There is no particular explanation for why this two-month delay occurred. Presumably, Treasury wanted to wait until Klaus returned from his trip on Oct. 10. Modified version “Exhibit B” and memo from Feig with second revision of draft telegram attached, Nov. 4, 1944, both attached to “Memorandum for the Files”; sent to Sweden on Nov. 7, 1944, but never presented, according to Johnson to State Dept., Dec. 16, 1944, see also “Meeting in State Department on Procedures Relating to the Safehaven Project,” Dec. 18, 1944, which is Treasury version of meeting held Dec. 4, 1945, both files in folder: Safehaven Dec. 1944 (box 382), FFC Subject Files. Also State Dept. version “Minutes of Safehaven Meeting, December 4, 1945 [1944]”, folder: Special Subjects folder, Minutes of Meetings of Safe Haven committee, Safehaven Subject File, 1945–1947, Records of DESC, RG 59, NACP.

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banks produced some results. At the end of October new Swedish regulations were put into force that blocked transfers to and from Swedish accounts held by people residing abroad. By definition of this order, foreign nationals who had moved to Sweden after November 1939 were also considered nonresidents. In effect, the order blocked foreign access to liquid assets held in Sweden such as bank accounts, security holdings, and credits. Every movement on these accounts had to be licensed by the Swedish Foreign Exchange Office, which was part of the Swedish Central Bank (Sveriges Riksbank), the world’s oldest central bank, founded in 1668. In the case of nonresidents living in Sweden, some exemptions were made for necessary expenditures, such as living expenses and travel abroad. At the same time the import and export of gold bullion, gold coins, and the like was also prohibited except by special permission.7 In December, the embassy was informed that Sweden was preparing a general Gold and Foreign Exchange Census, which began in February 1945. The forms were due in early April. Swedes and residents of the country since November 1939, including corporations with headquarters in Sweden, had to declare these assets if they were worth more than a thousand Swedish kronor, or $238. As in the case of the October regulations, the census intended to solicit information only about liquid foreign-exchange assets as of December 1944.8 Yet, the U.S. officials judged these actions too weak to satisfy their demands. The new regulations made no attempt to account for or control Swedish companies owned by Germans, patents, real estate, or any other forms of German property in Sweden except liquid assets. It was a rare agreement of Surrey and Treasury Representative Olsen wherein they both found that these steps were a good beginning but were in general “inadequate.”9 7. Ravndal to State Dept., “Transmitting Report by Walter S. Surrey on Safehaven Negotiations in Sweden,” Dec. 12, 1945, quote 2, 800.515/12–1245 (hereinafter cited as “Safehaven Report”); negotiations briefly described in “Safehaven Report,” 2–3, quote 2, and also in Olsen to Morgenthau, Nov. 3, 1944, in folder: Safehaven Jan. 1945, FFC Subject Files. Text of the regulations in Johnson to Secretary of State, Nov. 17, 1944, and Jan. 8, 1945, in folder: Safehaven Jan. 1945, FFC Subject Files, and 800.515/date, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP, respectively. 8. First information about the census in Johnson to Stettinius, Dec. 2, 1944; text of regulations in Johnson to Stettinius, Apr. 9, 1945, both 800.515/date. Sample forms in Peterson (London) to Stettinius, Mar. 22, 1945, folder: Safehaven Mar. 1945 (box 382), FFC Subject Files. For the duration of the war the Swedish krona was tied to the dollar at SKr 4.2 for $1; see Statistiska Centralbyrån, Historisk Statistik för Sverige, 3:95, table 72. The dollar itself was fixed at $35 per ounce of gold, which meant that one kilogram of gold cost SKr 4,726. 9. “Safehaven Report,” 3, as well as untitled account of Safehaven matters in Sweden, 7– 8 [Dec. 1945?], probably a draft copy of Olsen’s final report, folder: Safehaven Project Reports: Swiss Certification (box 390), FFC Subject Files.

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The London negotiations about the new interim supply agreement in late 1944 offered the next opportunity to put forth Allied demands. The new accord was intended to continue and replace the old Anglo-American-Swedish war-trade agreement that had been in force since September 1943. The new settlement would cover the remainder of the war and a period of three months thereafter. In the negotiations, the United States was represented by William T. Stone from the Economic Warfare Division of the U.S. Embassy in London, and Great Britain by Dingle Mackintosh Foot, parliamentary secretary of the Ministry of Economic Warfare. As its representative, Sweden had sent Kabinettssekreterare Erik Carlsson Boheman, who was, in the words of the always witty Sir Mallet, “the ablest of Sweden’s career diplomats. He is far more communicative than most Swedish officials and his intelligence . . . make[s] him delightful company.” He was second only to Foreign Minister Christian Ernst Günther, and, being part Jewish, “passionately anti-German.” But he was “above all a thoroughly patriotic Swede.”10 When Stone presented the text of the possible agreement to Boheman, the rather general clause that Sweden would “institute such measures as may be necessary to fulfill the aims expressed in Bretton Woods resolution No. VI” was part of the suggestion. Originally, Homer from the FEA had pressed for more specific demands, but Bernard Feig from Treasury’s Foreign Funds Control (FFC) warned that such an approach “would give FEA a dominant position”—presumably because the FEA could formulate those demands. Also, Feig was concerned that too specific demands might threaten the whole agreement; this concern was valid. Yet, Homer was not alone in his recommendations. U.S. Embassy officials in Sweden also proposed a more specific approach after the presentation of the initial text in December. Sweden should be asked to undertake a “full and detailed” census of German property and to strictly limit the use of the German clearing as long as it was still controlled by the German government. Their suggestions were not incorporated, either, because—in addition to Feig’s concerns—those demands were not yet agreed upon among the Allies, which will be discussed below. In the end, Feig’s warning was fulfilled nevertheless. Negotiations on all parts of the accord came easily except the one concerning Bretton Woods. Boheman resented the fact that the Allies put him under pressure by combining trade and Safehaven goals. Ultimately, the agreement was never signed. The two sides agreed that the in10. On Boheman, report on personalities in Sweden, in Mallet to Eden, Aug. 31, 1944, BDFA, 138.

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terim agreement would “be considered as in force on January 1,” 1945, and there matters stood until a new postwar trade agreement was negotiated in January 1945.11 Such a solution was probably the best for both sides. The Swedes did not yet have to make any promises they later might not be able to fulfill.12 The Allies, on the other hand, were relieved of specifying once again their general request. Officials in the United States and Great Britain were far from settled on what they actually wanted the neutrals to do. The interagency muddle in Washington was unproductive, and Anglo-American disagreements further complicated matters. As a result, events threatened to pass by those very bureaucrats who were supposed to formulate policy. Thus, for a while any progress was achieved by other means. Quick Success in Switzerland, March 1945 On February 13, 1945, Lauchlin Currie arrived in Bern on the first through train from Paris since Germany had occupied France. Under considerable public attention, Currie and his British and French colleagues, Foot and Paul Charquéraud, were to negotiate the last of the war-trade agreements with Switzerland. The Allies’ main goal was to completely stop the remaining trade between Switzerland and Germany and the transit traffic between Germany and Northern Italy via the Swiss Alps. This traffic—which in comparison to Sweden had never allowed for the transport of troops—had already been reduced considerably in 1944 because of Allied pressure, and three days before Currie arrived the coal transit was suspended, mainly because Germany could not deliver coal to Switzerland anymore. In return for Swiss concessions during the Currie negotiations, the Allies were prepared to supply Switzerland as much as they could with needed raw materials and to release Swiss stocks held at Lisbon. So far, the negotiations at the ambassadorial level had moved at a “glacial rate,” but once the Swiss suggested in January that a joint 11. Winant to Stettinius, Dec. 12, 1944, FRUS, 1944, 4:670–73, quote 671; regarding the Treasury-FEA conflict: Feig to Gilbert (both FFC) about conversation with Homer and handwritten note from Feig, Nov. 6, 1944, folder: Safehaven Jan. 1945, FFC Subject Files. Embassy’s suggestions in Johnson to Stettinius, also sent to Stone in London, Dec. 13, 1944, folder: Safehaven Dec. 1944, folder: Safehaven Jan. 1945, both in FFC Subject Files; agreement not signed: Winant to Stettinius, Dec. 22, 1944, FRUS, 1944, 4:681 (quote), see also 673–75, 677–78, FRUS, 1945, 5:732, and “Safehaven Report,” 5–7. Agreement still not signed in March 1945: see “Memorandum for the Files on the Safehaven Meeting of Mar. 17, 1945,” folder: Safehaven Mar. 1945, FFC Subject Files. 12. This point was made by Surrey in “Safehaven Report,” 6.

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Anglo-American delegation should come to Bern, matters became downright hasty.13 Less than a month later, Currie arrived. Currie’s departure from the United States had been so quick that the writing of his instructions had bypassed many of the complex bureaucratic channels, including those that were supposed to consider possible Safehaven instructions for him. Secretary of State Stettinius had suggested to President Roosevelt that Currie should go to Bern to bring an end to the trade between Germany and Switzerland. After Frank Coe called Emilio Collado—Seymour Rubin’s boss—at the State Department, Currie was advised via telegraph to also explore Safehaven goals during the negotiations. Coe had returned from the FEA to the Treasury Department to take Harry Dexter White’s place and had thereby become a Morgenthau confidant. By way of this personal contact between the two departments, the “jurisdictional difficulties” of having divergent officials from all three agencies agree was avoided. Currie himself had left the day before—much to the consternation of the Safehaven Liaison Group. After he was gone, its members could only note that “the group need not concern itself any further with the Swiss situation since the Currie Mission is already in the field.” Instead, they should “attempt to come to some general agreement with regard to future Safehaven objectives.”14 A noble goal, as well as a necessary one. In Switzerland, it appeared that Currie was successful. During the negotiations the Swiss Federal Council passed a variety of measures to demonstrate 13. Currie’s arrival: Leland Harrison (U.S. ambassador in Bern) to Stettinius, Feb. 13, 1945, FRUS, 1945, 5:778; Allied goals: Joseph Grew (acting secretary of state) to Winant, Jan. 24, 1945, Winant to State Dept., Feb. 5, 1945, Harrison to State Dept., Feb. 13, 1945, ibid., 774–78; quote from Acheson, Present at the Creation, 58; Swiss suggestion in Grew to Crowley, Jan. 15, 1945, FRUS, 1945, 5:770–71. Switzerland stopped all exports to Germany of arms and ammunition, fuses, ball bearings, airplanes and parts, and telephone and military radio equipment on Oct. 1, 1944, under Allied pressure, but general trade with Germany continued; FRUS, 1944, 4:790, and Martin Meier et al., Schweizerische Außenwirtschaftspolitik, 1930 –1948: Strukturen-Verhandlungen-Funktionen, 272–74. For 1944 transit negotiations, see sources in FRUS, 1944, 4:752, 762, 769 –70, 773 –77, 780–81, 783, 785–86, 789; see also Gilles Forster, Transit ferroviaire à travers la Suisse, 1939–1945. 14. Stettinius’s suggestion: Grew to Crowley, Jan. 15, 1945, FRUS, 1945, 5:770–71—this was in reply to Crowley’s letter to Stettinius, Dec. 29, 1944, which dealt solely with economic warfare objectives and not Safehaven, ibid., 765–67; Coe-Collado talk, unsigned memo, Jan. 30, 1945, folder: Safehaven Jan. 1945, FFC Subject Files; Currie left Jan. 29, 1945, see Grew to American Legation, Stockholm, Jan. 27, 1945, folder: Switzerland, Material on the “SAFE HAVEN Project”; “Memorandum for the Files on the Safehaven Meeting of February 1, 1945” (Treasury version), folder: Safehaven Feb. 1945 (box 382), FFC Subject Files. On its way to Bern, Surrey met the Currie delegation in Paris. FFC Director Orvis Schmidt, who traveled with Currie, showed him the instructions. Surrey thought they “could have been tighter and perhaps have gone further.” See “Conference with Mr. Surrey, State Department,” written by Feig, Feb. 28, 1945, folder: Safehaven Feb. 1945, FFC Subject Files.

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goodwill. Shortly after Currie’s arrival, a new law (passed February 16) blocked German assets in Switzerland owned by people living in Germany or by German nationals living in Switzerland or another country. Four days later the Swiss also agreed to separate frozen “pure” Swiss holdings in the United States through an official governmental agency from those they held in the names of others, a move that was to divide neutral from enemy assets. On February 27, all transit traffic from Italy to Germany came to an end—what was left of it. And on March 2, all trade in foreign currency was forbidden—so far there had not been any currency control, as in Sweden.15 In the final, March 8, 1945, agreement, the Swiss also agreed to restrict gold purchases from Germany to required “diplomatic services.” They would also undertake a census of German assets “for their own purposes.” Furthermore, they agreed to prevent Switzerland and Lichtenstein from being used for the disposal of loot and promised to assist in the restoration of loot to its rightful owners. The north–south transit of remaining important items, such as coal, iron, or steel, would cease. Exports to Germany would not exceed one million Swiss francs per month. The Swiss would not deliver any electricity to Germany; electricity had been crucial so far for southern German aluminum production and thus for the German aircraft industry. Switzerland also agreed to block the assets of former German satellites (Finland, Bulgaria, Romania, and Hungary), former German-occupied territories, and Japan, although only the formerly occupied territories were blocked quickly. In return, the Allies would guarantee rail transportation through France and make controlled commodities available. The Swiss insisted that in the signed documents there should be no specific reference to the Bretton Woods resolution since the resolution often referred to the “enemy,” thus putting into doubt Swiss neutrality. Triumphantly, Currie wrote home three days before the final signatures that “after 3 weeks of continuous negotiations . . . the Swiss delegation capitulated today.”16 15. For freezing German assets, frozen U.S. assets, and currency control: Durrer, Die Schweizerischamerikanischen Finanzbeziehungen, 192– 99, 188– 92, 208–11, and Uhlig et al., Tarnung, 295 – 300; for transit traffic: Richard Ochsner, “Transit von Truppen, Einzelpersonen, Kriegsmaterial und zivilen Gebrauchsgütern zugunsten einer Kriegspartei durch das neutrale Land,” 228. 16. Independent Commission of Experts Switzerland—Second World War, Die Schweiz und die Goldtransaktionen im Zweiten Weltkrieg, 149–63, 172–74, 176–78, 183. “Diplomatic services” were to include the requirements of the German legation, amounts needed for prisoners of war, and payments to the Red Cross; final agreement in FRUS, 1945, 5:785–91, quote 786. For electricity supply: Jean-Daniel Kleisl, Electricité suisse et Troisième Reich; for Bretton Woods: Currie Mission to Stettinius, Mar. 6, 1945, FRUS, 1945, 2:860– 62, and Currie to Stettinius, Mar. 5, 1945, FRUS, 1945, 5:782. Former German satellites were not blocked before Potsdam because of the Russian opposi-

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But not all is well that ends well. Although Henry Morgenthau congratulated Currie on the “most ably” conducted negotiations, the Swiss had agreed to the catalog because economic relations with Germany were breaking down and the country had to make good-faith concessions to the Allies, the coming rulers of Europe. There was no timeline for the census, nor an assurance that the Allies would be fully informed of its outcome. The handling of the trade ban on foreign currency was lax. The Swiss Central Bank bought its last gold from Germany in April 1945, mainly owing to the insistence of Swiss insurance companies, which wanted to transfer their German premiums before the war’s end. This transaction was made technically legal but was nevertheless a violation of “the spirit of the Currie accord.”17 And the country still had under its control German assets, which could be used for later compensation against German debts. Which Tactic for Sweden? At least Currie could point to some ostensible and quick achievements, something that could not be said of the Washington bureaucracy. It bumbled along at its own speed, as was its manner and custom. While Currie was still in Switzerland, Surrey left Paris for Washington. In France, Surrey had seen Orvis Schmidt, the head of Foreign Funds Control of the Treasury Department, who was on his way to Bern with the Currie delegation. Arriving in Washington, Surrey met with the Safehaven Liaison Group at the end of February. The topic was the further modus operandi regarding Sweden. Surrey suggested that for the next round of war-trade negotiations Sweden should be asked to sign on to “specific steps” to implement the Allied resolutions, namely, Bretton Woods Resolution VI. Much in contrast to the Swiss agreement, performance guarantees to fulfill these steps should be part of such a future agreement, Surrey maintained. Feig noted in his memo about this meeting that “Treasury representatives, of course, were very pleased with this tion discussed in Chapter 4 (see also Harriman to State Dept., June 2, 1945, 800.515/date). For formerly occupied areas (Poland, Netherlands, Greece, etc.), see Grew to Stockholm, July 31, 1945, folder: Safehaven July 16– 31, 1945, FFC Subject Files. Japanese assets in Switzerland were blocked after the final end of the war; see Winant to State Dept., Aug. 11, 1945, folder: Safehaven Aug. 1– 15, 1945 (box 384), FFC Subject Files. 17. Morgenthau to Currie, Apr. 12, 1945, in Morgenthau Diary, 836:259; Swiss views and actions: Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen, 212–13, and Uhlig et al., Tarnung, 298–99; for gold: Independent Commission of Experts Switzerland, Goldtransaktionen, 179 – 82, 285–99, quote 181, see also Grew to Harrison, May 7, 1945, FRUS, 1945, 2:878 –79.

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position,” and he felt that “in general . . . Surrey had an excellent point of view and that his ideas were for the most part consistent with Treasury’s.” Otto P. Fleischer from the FEA, who was also at the meeting, must have felt the same way, since Surrey’s suggestions—put into a detailed telegram the next week— came very close to those recommended by FEA head Leo Crowley in a letter to Stettinius two weeks earlier.18 The beauty of this situation was that Surrey was a highly regarded State Department officer and that for once all three agencies seemed to be in complete harmony—a temporary illusion. After another meeting the following week, a long list of very specific Safehaven demands was sent to the embassy in Stockholm. Originally intended for verbatim presentation to the Swedish government, the United States asked Sweden for the following: to publicly announce its intention to adhere to Bretton Woods and the other declarations; to count through a census and then to freeze all enemy assets of any kind, including looted assets, and to give the census results to the Allies; to supply the Allies with a list of all Axis nationals and people from Axis-occupied territories who had lived in Sweden since January 1939, including their residence, occupation, and travels from Sweden; to investigate suspicious cases and to report all the results to the Allies; and finally to ensure that the supply of all this information to the Allies was in agreement with Swedish law. The last request was a thinly veiled attempt to ask Sweden to change its laws if they ever stood in the way of exchanging information. Such an exchange would be facilitated by the Joint Standing Committee already in operation between Sweden and the Allies to administer the current trade agreement. As originally proposed by Klaus after his trip in 1944, the Allies would also supply technical experts to Sweden if so asked. If Sweden would inquire as to what would ultimately happen to the German assets, all three agencies agreed that “no of18. Oliver to Ferris, “Recall of Mr. Walter S. Surrey for Consultation,” Jan. 3, 1945, with attached telegram sent Jan. 13, 1945, 800.515/date; Liaison Group agrees with this recall in “Minutes of Safehaven Meeting Held on Friday, Jan. 5, 1945,” which is State version, folder: Special Subjects folder, Minutes of Meetings of Safe Haven committee, Safehaven Subject File, 1945–1947, Records of DESC. Johnson had a hard time letting Surrey leave: see his telegram in 800.515/1–3045. Feig memo “Conference with Mr. Surrey, State Department” on Feb. 28, dated Mar. 13, 1945, folder: Safehaven Feb. 1945, FFC Subject Files; Crowley to Stettinius, Feb. 14, 1945. In this letter, Crowley outlined a set of Safehaven demands toward Switzerland—after Currie had left—and suggested that these should also be applied to the other neutrals. His December letter had not included these demands (see n. 14). Stettinius’s reply, drafted by Rubin and not sent until April, was vague and noncommittal. Letter and unsigned reply dated Apr. 18, 1945, in folder: Safehaven Special Subjects folder: Basic Instructions, Policies and Procedures, Safehaven Subject File, 1945–1947, Records of DESC. Surrey traveled back to Stockholm via London a month later; see memo from Allan Fisher, Mar. 30, 1945, folder: Safehaven May 1–15, 1945, FFC Subject Files.

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ficial statement could be made concerning Allied policy.” At this point, the assembled officials did not yet have a definite common policy—although the Allies had come fairly close to one at the recently concluded Yalta Conference. They knew, however, that this question was a thorny issue, because Sweden had already said that it wanted to satisfy its claims toward Germany out of these assets.19 It was a long list and it was born in the belief that an expansive and confrontational approach would achieve quick results. After all, U.S. officials had to make up for lost time. But this was an idea the British did not share. In overall trade with the United States, Sweden did not matter very much, and cooperation with the country was not really necessary if the American presence in Europe was temporary. But the British had to consider the future implications of such an approach for their trade policy and their position in Europe after the war. It was just at this time that the Anglo-Swedish Monetary Agreement was signed, and Great Britain certainly had no intention of endangering this advantageous arrangement.20 Foot, from the Ministry of Economic Warfare, suggested a much more subtle approach along the lines already undertaken in Switzerland. The British “repeatedly” told Stone: “Ultimately we can accomplish far more if we enlist neutral cooperation at the outset rather than force neutrals into unwilling compliance with demands.” Instead of confronting Sweden—or any other remaining neutral country—with a litany of demands, a high-level delegation with broad instructions should negotiate the best possible agreement.21 After Germany surrendered, the Allies could then legally claim title to German assets abroad. Armed with such a mandate, the Allies would later have far more authority to obtain information and cooperation from Sweden. In addition, Foot specifically warned that if the Allies wanted information about the movement of Axis nationals to Sweden from former Axis-occupied territories, not only would that produce a mountain of essentially useless in19. For the catalog of Allied demands: Grew to Winant, Mar. 7, 1945, and for Allied intentions regarding Swedish laws: Johnson to State Dept., Mar. 10, 1945, both 800.515/date; quote in “Safehaven Report,” 10, see also “Draft Report,” 18–19. FDR had only arrived in the U.S. the very day Surrey met with his colleagues the first time. 20. Initially, Great Britain took some time to study the demands despite U.S. pressure; see Winant to State Dept., Mar. 14 and Mar. 19, 1945, folder: Safehaven Mar. 1945, FFC Subject Files, and 800.515/date, respectively; “Anglo-Swedish Monetary Agreement,” signed Mar. 6, 1945, in BDFA, 232–39. 21. Harry C. Hawking (economic affairs counselor, London Embassy) and Stone to Stettinius, Mar. 22, 1945, FRUS, 1945, 2:865– 68, quote 868. See also Winant to Stettinius, Mar. 14, 1945, folder: Safehaven Mar. 1945, FFC Subject Files.

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formation, but also such a definition would include Finland and the Baltic States. About 30,000 Baltic refugees had crossed over to Sweden in small boats when the Soviet Union reconquered the three Baltic states in the summer and fall of 1944. Subsequently, the Soviet Union had accused Sweden of harboring “Hitler’s agents” within its borders; thus, information about refugees from these states would very much interest the Soviet Union. The Allies could hardly refuse to turn over any lists of names to the Soviet Union, which then might insist that these refugees be returned. One can only say that in this regard the initial U.S. quest for every possible kind of information was a major blunder. The United States—Surrey and Treasury Representative Olsen from the U.S. Embassy especially—knew as well as Britain that the question of Baltic refugees in Sweden was one of the most controversial issues in Swedish politics at that time and one that did not endear Sweden to the Soviet Union. Also, the request to modify Swedish laws if necessary would certainly be refused on the basis of sovereignty. If the Allies should continue to insist on such changes, there could not be “the slightest doubt” that “we should jeopardize the whole of the negotiations.”22 These were all valid concerns and pointed to a much more subtle and thoughtful, as well as possibly more successful, tactic. Stone wrote in his analysis of the British views that the “British answer does not arise from any lack of appreciation of importance . . . regarding Safehaven.” Rather, the “divergences are mainly a result of genuine differences in tactics and timing.” These were major differences nevertheless. Indeed, the British were so unhappy about the U.S. suggestions that they wanted to raise the level of discussion to a higher political plane. “They went so far as to threaten that the Ambassador would have to call upon the Secretary of State,” wrote Melville E. Locker from Treasury’s FFC after a talk with Rubin. As a result, the “political people” in the State Department—possibly Clayton or Acheson—suddenly became interested in the issue. They decided that the supply negotiations with Sweden should not be held up by an argument with Great Britain over the correct Safehaven approach. A compromise was needed, and subsequently the State 22. Soviet accusations in Mallet to Eden, Jan. 19, 1945, BDFA, 223 (quote). Sir Mallet wrote that Sweden would have been only “too pleased to see the last of these people” and to avoid the controversy with its old archenemy (Mallet to Eden, May 22, 1945, BDFA, 272). However, “public opinion could not tolerate the forcible expulsion” of these refugees (Labouchere to Eden, June 26, 1945, BDFA, 373). Hawking and Stone to Stettinius, Mar. 22, 1945, FRUS, 1945, 2:866 (second and third quotes). Olsen, and thereby the Treasury Dept., were very well informed about the refugee question since Olsen was in charge of the Refugee Section in the embassy between April and December 1944 (Montague-Pollock to Eden, Nov. 17, 1944, BDFA, 186).

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Department and the British Embassy in Washington worked out an acceptable solution. Great Britain would accept the fact that Sweden would be presented with a list of Safehaven demands instead of the brief statement suggested for the interim supply agreement. In return the United States—or rather the State Department—would reduce the Safehaven demands to certain “hard core” objectives and would give any negotiator great discretion in coming to a final agreement. The new approach was ready at the end of March 1945, and the State Department drafted cables to be sent to London.23 But before that could happen, the telegrams had be to cleared with the Treasury Department and the FEA. Neither agency was thrilled to hear that any kind of agreement would be negotiated on a flexible basis and that only certain hard-core objectives were the goal. For days Rubin heard nothing from either agency—supposedly the Treasury Department was working on a redraft—and on April 4 finally decided to send the telegrams anyway. “In this particular case the political considerations were so important . . . that it was necessary for the Department to make the decision,” Rubin reasoned in a memorandum for Clayton. Specifically, Rubin did not want the United States to appear weak in light of rising British criticisms over the unexpected delay. Locker from FFC was left to note that the cables “were dispatched without clearance from the Treasury” and did “not include . . . some changes the Treasury considers essential.” Nevertheless, he decided not to insist on further changes, since again his trust in Surrey’s competence was unbroken. Surrey “will make a very strong attempt to attain all of our Safehaven demands,” Locker concluded.24 The new list of demands was very different from the old one. The requests beyond which no negotiator should retreat were: Axis and Axis-satellite assets should be frozen immediately, a census should be instituted, and Sweden should subscribe “in principle” to the Bretton Woods resolution. Some of the earlier demands—the full disclosure of all census information and the request for the whereabouts of Axis nationals in Sweden—were left to the discretion of the negotiators. Other elements from the first draft—like the implied demand for possible changes in Swedish law or the offer for technical person23. Hawking and Stone to Stettinius, Mar. 22, 1945, FRUS, 1945, 2:868; memo by Locker, Apr. 7, 1945, folder: Safehaven Apr. 1–15, 1945 (box 382), FFC Subject Files; compromise: Rubin to Clayton, “Safehaven—Relations with Treasury and FEA,” Apr. 5, 1945, 800.515/3 –1345; Stettinius to Winant (2607), quote, Apr. 7, 1945, FRUS, 1945, 2:869. 24. “Memorandum for the Files on the Safehaven Meeting of March 27, 1945,” folder: Safehaven Mar. 1945, FFC Subject Files; Locker memo, Apr. 7, 1945.

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nel—were simply dropped. Altogether, this new focus in the coming negotiations with Sweden represented a huge turnaround.25 Two questions remained. Who should actually negotiate with Sweden, and should France and the USSR participate? On his way back from Switzerland Currie had written from London to Robert Lynch, special assistant to Secretary of State Stettinius, that only “top delegations” should be sent to Sweden and other countries for negotiations. People without “status or prestige” would not be effective in applying “top pressure.” But right after sending this letter, Currie fell ill, Roosevelt died, and the State Department decided that Ambassador Johnson, together with Ravndal and Surrey, should do the actual negotiations. Only if these were unsuccessful should the sending of a special mission be considered. Though this way there would be no public pressure, “it is felt,” Clayton wrote in reply to Currie, “that . . . Sweden will . . . cooperate with us more fully.” But there was yet another reason for this choice. While Treasury gave in to the suggested approach because of its trust in Surrey, the FEA was not at all in agreement. The agency wanted to send its own expert and had selected, horribile dictu, Samuel Klaus. Sending Klaus to Sweden would have been easy since he was already in Europe on another, frustrating assignment, which will be discussed in the next chapter. But Klaus’s selection was one of the worst possible choices the FEA could have made. With shudders did Wayne G. Jackson in the State Department remember Klaus from his trip in 1944, when he “proved a very disturbing element since it was impossible to control his actions. The Department feels very strongly that he should not be sent” to Sweden. And indeed, he was not. Over the protest of the FEA, the State Department told Johnson that the negotiations should begin at once, without Klaus. Subsequently, Crowley, the smooth operator that he was, did his best to defuse the situation. He wrote to Clayton that “the final determination and responsibility clearly rest with the Department of State on this matter.” He proposed that John R. Fleming, formerly deputy director of the Special Areas Branch, should travel to Stockholm. At the beginning of May, Fleming and John Lovitt, chief of Section on Blockade and European Neutrals in the State Department’s Office of International Trade Policy, joined Johnson, Ravndal, and Surrey in Stockholm.26 25. These changes were apparent in two telegrams of Stettinius to Winant (2607 and 2608), Apr. 7, 1945, FRUS, 1945, 2:868–72. Foot agreed with the new approach, except for some very minor differences, in Winant to State Dept., Apr. 10, 1945, ibid., 872–73. 26. Currie to Lynch, Mar. 31, 1945, folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC; Clayton to Currie (drafted by Rubin), Apr. 17, 1945, 800.515/3 – 3145; memo by Jackson, assoc. chief of the War Areas Economic Division, to Clayton,

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In regard to the participation of France and the USSR, Great Britain suggested and the State Department agreed that their brothers in arms “should be informed” and that the support of their missions might be helpful. However, there should be absolutely no waiting for any “manifestations of support” because it should be clear anyhow that the negotiations were for “the ultimate benefit of all the United Nations.” When Herbert Setchell from the British Embassy in Stockholm contacted his Russian colleague, Vinogradov “did not know much about” the whole question anyway, and neither France nor the Soviet Union “raised the issue of participation” in these discussions, so neither of them participated in the negotiations with Sweden in 1945.27 Consequently, when the term Allies is used in the following discussion it refers only to Great Britain and the United States. Negotiations with Sweden It took the British another six days to agree to the beginning of negotiations and the text to be presented to Sweden. Ambassador Johnson used this time to test the ground in informal meetings he and his staff held with Rolf R. Sohlman, the head of the Commercial Division of the Swedish Foreign Office (Utrikesdepartement [UD]). A seasoned diplomat, Sohlman had been stationed in Riga, London, Rome, and Paris and had taken part in various trade negotiations with European countries. Socialist in outlook, he was also “very pro-British and anti-Nazi.” Initially, Sohlman was not shown the list of U.S. demands but was given only a summary of U.S. aims. Sohlman made clear that the less official the negotiations and agreement, the better. Sweden had a strong interest in separating the trade from the Safehaven negotiations since the UD did not want to invoke the impression that “the Swedes had been pressured into a Safehaven agreement.” Nevertheless, Sweden had a strong desire to comply with Bretton Woods, but so far, the Swedish government had “never been able to ascertain the meaning” of the resolution—in light of the fact that the resolution was now nearly nine months old, this failure was a remarkable symbol of the inter-Allied bureaucratic and political squabbles.28 Apr. 5, 1945, folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC; to begin negotiations: Acheson to John Lovitt in London and to Stockholm, Apr. 4, 1945, 800.515/date; Crowley to Clayton, Apr. 19, 1945, folder: Crowley, Leo—Memoranda Approved or Drafted by Cox, Jan.–July, 1945 (box 81), Cox Papers; Acheson to Lovitt in London and to Johnson, Apr. 4, 1945, 800.515/date. 27. Acheson to Winant (2609), Apr. 4, 1945, 800.515/date; Setchell to Gerry H. Villiers (MEW), May 2, 1945, FO 188/507. The USSR and France were informed on Apr. 30, 1945. 28. Mallet, report on personalities in Sweden, in Mallet to Eden, Aug. 31, 1944, BDFA, 155;

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Because of the Swedish request in regard to the general handling of these negotiations, all agreements reached were of a rather informal, perhaps even fluid, nature. After the British ambassador received approval from Foot, both embassies put together the text of a proposal to be given to the UD. This proposal was partly based on the original American suggestions from early March minus the requests for changes in Swedish law and the offer for technicians. Other parts were toned down. The request for full information from the census of German assets or persons of Axis nationality were left in—it never hurts to aim high. More formal negotiations began when Sweden advised the United States and Great Britain that Bo Östen Undén would represent Sweden. Undén was currently the chancellor of the Swedish Universities (a position he held until 1951), chairman of the Foreign Affairs Committee of the Riksdag (Parliament)—in itself a powerful position—and adviser in international legal questions to the UD. Johnson and his British colleague were quite thrilled about the choice of Undén. “He is known to be strongly pro-Allied,” judged Johnson, and Sir Mallet agreed, declaring that Undén “is . . . a man of great influence . . . and . . . uses that influence firmly . . . in favor of the United Nations.”29 In the following numerous talks between Undén, Sohlman, and their colleagues on the one side and Ravndal, Saxon, Surrey, and their British colleagues George Clutton, Setchell, and R. H. Traviss on the other side, the Swedish reservations about Allied demands were spelled out. Nothing was firmly settled during these talks. The legal scholar that he was, Undén was concerned about how a purchaser in good faith of looted property would be protected. Tage Grönwall, byråchef (head of office) of the UD, provided an example. Coal might have been imported from Poland that was sold to Sweden under German pressure, and now Poland might say that it had never received payment and the coal was thus looted.The Allies replied that such cases would have to be decided on a case-by-case basis, and they assured Undén that some kind of legislation would address the problem. “Safehaven Report,” 12; Johnson telegrammed on Apr. 27 to the State Dept.: “If we . . . give the Swedes . . . an opportunity to take the desired action publicly as of their own initiative, it is conceivable that we shall more nearly reach 100% achievement”; Johnson to Stettinius (1496), Apr. 21, 1945, both 800.515/date. 29. Johnson to Stettinius (1497), Apr. 21, 1945, 800.515/date, also John A. Birch (who worked in Rubin’s Division of Economic Security Controls) to Feig, Apr. 28, 1945, with attachment “Anglo-American Safehaven Objectives for Sweden,” folder: Safehaven Apr. 28–30, 1945, FFC Subject Files; for Undén: Johnson to State Dept., Apr. 26, 1945, 800.515/date; and Mallet, report on personalities in Sweden, 157.

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Another issue concerned the freezing of assets, which the Allied proposal defined rather extensively as “any real property or interest therein, enterprises (commercial, industrial, financial, or scientific) security, interest, patent rights, trademarks, corporate and contractual rights including management contracts, patents, licenses and arrangements, insurance policies and re-insurance contracts, money, checks, drafts, all other negotiable and non-negotiable instruments, bank accounts and deposits, including trusteeship accounts and safe deposit boxes and vaults and their contents, gold and other precious metals and stone, personal property, options and any other type of arrangements or undertakings written or unwritten.” As Undén pointed out, the Bretton Woods resolution did not require freezing those assets held by German nationals living in Sweden. The Allies insisted that all those assets had to be frozen and their usage could then be licensed in particular cases—as in the United States. They conceded, however, that in a case where there was only a small Axis interest in an entire asset, only that interest needed to be frozen. Two other circles of problems remained difficult. One was the Allied demand for information about persons of Axis nationality or people acting in the interest of Axis countries, a request also not spelled out in the original resolution. The Allies pointed out that they mostly wanted information about people possibly hiding assets to investigate them. Undén provisionally agreed to such a limited request—but only if such agreement would remain secret. The other was the Allied request for information about all transactions in German assets since 1939. In light of the resulting volume of information, fulfilling this request would most likely be, in Sohlman’s words, “a hopeless job.” It was agreed that this information should be collected as part of a new, inclusive census to include only information about cases where Axis “ownership . . . has not been lost . . . or has been obtained through any transaction involving the transfer of assets to Sweden . . . since January 1, 1939.”30 In other words, only those cases where there had been a German interest starting in 1939 and still existing in 1945 should be counted. In these negotiations mutual desires brought the two sides closer together. The Swedes clearly hoped that “the Allies will agree with the desire that Sweden satisfy its claims against Germany to the extent possible out of German assets frozen in Sweden.” The Allies remained cautious of such overtures. 30. Definition is from Birch, “Anglo-American Safehaven Objectives for Sweden,” Apr. 28, 1945; Johnson to Stettinius (1496), Apr. 21, 1945, 800.515/date; Johnson to Stettinius, May 9, 1945, FRUS, 1945, 2:881–85, quote 882. The negotiations are treated in Johnson to State Dept., Apr. 26, 1945, and May 2, 1945, both 800.515/date; see also “Safehaven Report,” 11–17.

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Their negotiators must have known by then that Allied intent was to use those assets for reparations—a decision not disclosed to the Swedes since that information would clearly have deflated their will to cooperate. Furthermore, there was the Allied threat of the Proclaimed List. If Sweden would take the necessary steps to control German firms in Sweden, the Swedish side expected that these firms would be taken off the list.31 During these negotiations the embassy had complete freedom. Of course, the State Department was informed of its progress, but the Safehaven Liaison Group—which now met only once a month—did not discuss the topic again until the middle of June. At that point George W. Baker from Rubin’s division told the group that the Riksdag was considering legislation to cover the points discussed with the Allies. Undén and his assistants had begun to draft this legislation on May 9—two days after Sweden cut its diplomatic ties with Germany and a day after Germany surrendered. The text was introduced into the Swedish parliament on June 7. Aside from the measures already taken—which included the stoppage of payments into the Swedish-German clearing account on April 9—there were no further steps the Swedish side could take until the legislation had passed. This democratic process might have been a little slow, but, as the Swedes pointed out, “they are not in position as in case of Spain to rule by decree.”32 In May, the Swedish public also heard for the first time about this pending legislation. Prime Minister Per Albin Hansson surprised the members of the Riksdag by stating that the government would soon introduce legislation concerning looted property. At the beginning of June, Minister of Commerce Professor Bertil Ohlin released more details on the two proposed bills in a press conference. He explained that one bill concerned looted property that had been taken by force by the “occupying power or on its behalf ” after August 31, 1939, and that had possibly been transferred to Sweden. By that def31. Johnson to Stettinius, Apr. 26, 1945, 800.515/date; “Safehaven Report,” 24. 32. Liaison Group met on Mar. 27, Apr. 25, May 5, and June 15, and Feig informed his boss, Rella R. Shwartz, about the “very preliminary nature of the discussions” in Sweden on Apr. 26, 1945, folder: Safehaven Apr. 28–30, 1945, FFC Subject Files; “Memorandum for the Files on the Safehaven Meeting of June 15,” by Miss Scullen, folder: Safehaven June 1–20, 1945, FFC Subject Files; Johnson informed the State Dept. about the end of the clearing in his telegram to dept., May 14, 1945, with Royal Decree attached, 800.515/date; last quote: Johnson to State Dept., May 24, 1945, 800.515/date. Spain had frozen all German assets on May 5 (see Chapter 4, n. 25). The State Dept. and the MEW were in favor of asking Sweden after the German capitulation to immediately freeze German assets. However, both the U.S. and British embassies in Stockholm preferred to let the Swedish legislation run its course, and hence no Allied demarche was submitted; see State to Winant, May 10, Winant to State Dept., May 21, Johnson to State Dept., May 26, 1945, all in 800.515/date.

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inition, property taken in Germany, Austria, or Bohemia did not fall under this law. A special governmental committee, the Board of Restitution, would examine these cases on the appeal of their former rightful owners and facilitate the quick return of the properties. On this three-member board sat two judges, one of them from the Supreme Court. It was noteworthy that even property acquired in good faith would be returned. In those cases, current owners would be compensated “out of public funds.” So far such acquisitions had been protected by Swedish law—as Undén had pointed out—and the reversal of that long-standing provision was an “important concession by Swedes,” as Johnson wrote.33 It should be noted that Switzerland, despite the promises it made to the Allies, had not yet passed a comparable law concerning looted property. The second bill allowed for the widespread freezing (technically a dispersal prohibition, or skingrinsförbund) of the property of a “certain foreign state,” corporations, and citizens of that state—obviously Germany. The government could also institute a census of this property. This property could be distrained (through impoundment, or kvarstad ) by authority of the Board of Restitution if there was reason to fear that such property might be concealed or sold. An interventor, or administrator, could be appointed to oversee and report the activities of such companies. This second law would be valid only until June 1946. To oversee the daily application of this law, the Flyktkapitalbyrån (Foreign Capital Control Office [FCCO]) was created after the laws were passed on June 27, 1945.34 A general secrecy clause protected all the information the FCCO accessed during its work. In the press conference it was not apparent that the legislation was the result of the Swedish-Allied negotiations. But when King Gustav V—revered royal leader of the country and, despite his eighty-seven years of age, still fond of lawn tennis and elk hunting—and his cabinet had discussed the issue earlier, Minister of Justice Thorwald Bergquist had made clear that the laws were 33. For introduction of legislation: Johnson to State Dept., May 24, 1945, 800.515/date; Ohlin’s statement to the press on June 2 in Johnson to State Dept., June 4, 1945, 800.515/date; description of press conference in Johnson to State Dept., June 4, folder: Safehaven June 1–20, 1945, FFC Subject Files; first two quotes are from text of the law in Johnson to State Dept., Aug. 24, 1945, folder: Safehaven July 16–31, 1945, FFC Subject Files; Johnson to State Dept., June 4, 1945, folder: Safehaven June 1–20, 1945, FFC Subject Files. 34. Quote from the text of the law in Johnson to State Dept., Aug. 24, 1945. The literal translation of Flyktkapitalbyrån is “Flight Capital Bureau,” but the Swedish side preferred and used Foreign Capital Control Office because the term was a more accurate reflection of the FCCO’s daily work; see Henry Heineman, “Analysis of Swedish Safehaven Legislation and Administration,” 14, enclosed in Ravndal to State Dept., May 17, 1946, 800.515/date.

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proposed because of these negotiations and the various Allied declarations since 1943. These minutes were made public, and Sweden maintained that this way the country had adhered to the Bretton Woods and the other Allied resolutions—a view that the United States did not necessarily share but accepted since it remained the extent of the Swedish commitment.35 Dissent In Allied quarters nearly everyone was impressed with the Swedish efforts. In June, British and American embassy officials met with Einar Modig, the future chairman of the FCCO, to discuss a new census of German assets. The Allies judged the Swedish proposal “very comprehensive.” After the meeting the British Embassy wrote to the Ministry of Economic Warfare that “we were very much impressed by the spirit of good will. . . . The United States delegate . . . complimented the Swedes on the efficiency of the proposed measures.”36 But there was one dissenter: the Treasury delegate in the U.S. Embassy, Iver C. Olsen. Formerly with FFC, Olsen felt marginalized by Johnson, Surrey, and Ravndal, a treatment that had precluded him “from bringing the full weight of his experience” to the Safehaven discussions. Two days before the Riksdag passed the Safehaven laws in June, Olsen wrote a scathing telegram to the Treasury Department, spoiling the atmosphere of utter harmony. Olsen pointed out that there was no formal assurance that the Allies would ever be provided with the census results, nor did they know that the FCCO measures would really be a serious undertaking. Surely the Swedish side would be careful not to harm its own economic interests by giving out too much information. Even if the FCCO would operate successfully, Olsen concluded that “the entire program will be a long and drawn out matter” requiring constant encouragement from the Allies. He also criticized the compromise with Undén about information on persons since the burden of proof was on the Allies to show that people were hiding assets before Sweden would provide information on these people.37 35. For King Gustav’s leisure activities: Denham, Inside the Nazi Ring, 36; “Excerpt from the Minutes of a Meeting by His Majesty The King and the Cabinet at Stockholm Castle, May 25, 1945,” enclosure 1 to Johnson to State Dept., July 5, 1945, 800.515/date. For the Swedish views: Ravndal to State Dept., July 20, 1945, FRUS, 1945, 2:888–89; for U.S. acceptance of these: Grew to Stockholm, July 31, 1945, ibid., 893– 94. 36. Winant to State Dept., June 26 and 27, 1946, 800.515/dates, reporting a British telegram from Stockholm from June 23, 1945. Meeting with Modig took place June 22, 1945. 37. “Treasury Representative at Stockholm, Sweden,” Aug. 8, 1945, unsigned, folder: Treasury Rep., Accession 56–67A245; Olsen to Morgenthau, June 25, 1945, 800.515/date.

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The questions raised by Olsen came down to a matter of trust. Olsen clearly did not have faith in the Swedish when he wrote about “their stone Age perspective of world problems,” which convinced him “that we established a diplomatic mission here at least a hundred years too soon. We should be sending a flock of missionaries.” Sir Mallet put Olsen’s condemnations in somewhat more understandable—and diplomatic—terms when he described the Swedes as “suffer[ing] from a certain smugness and complacency which at times can be irritating.” Ambassador Johnson conceded in his comment on Olsen’s missive that there were some outstanding issues, such as the census information. However, negotiations were not yet completed, and the supply agreement was not yet signed—this was the weapon in the Allies’ arsenal. Nevertheless, the Allies would always have to operate in a sovereign country and would always need the “assistance of Sweden” since the elimination of German influence in Sweden was “a political objective requiring a political approach.” Olsen’s opponents thus sincerely trusted Undén and his “sympathetic understanding of Allied objectives.”38 Not surprisingly, when the Treasury Department in Washington received Olsen’s message, its officials sided with their representative in Sweden. In July, Michael Hoffman, acting director of FFC, proposed a reply to Oliver at the State Department’s Division of Economic Security Controls. Basically, Hoffman took the whole argument a step further. He questioned the overall approach the embassy had followed so far. Hoffman pointed out that the Swedish side only had the “function” in the Safehaven program of administering the German assets until the Allied Control Council had issued its vesting decree. As already discussed, the three Allies had considered such a decree at the meeting of the Allied Reparations Commission in Moscow in June and July. Further, this option was to be considered again at the Potsdam Conference, where Rubin would arrive from Moscow on July 20, 1945. Hoffman proposed that the Swedes should be informed “immediately” of Allied intentions in regard to the vesting decree. If the Swedes were truly serious about their Safehaven measures, such information “should not in any way affect [their] desire” to carry out the program. Otherwise, “their Safehaven program will have little meaning and will be in violation of their commitment to adhere to Bretton Woods VI.” If the latter were the case, economic sanctions should be considered. The view Hoffman expressed here was a very different one than 38. Olsen to White, Apr. 5, 1945, folder: Treasury Rep., Accession 56–67A245; Mallet to Eden, June 17, 1945, BDFA, 294; legation’s comments on Olsen’s cable: Johnson to State Dept., June 26, 1945, 800.515/date.

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that espoused by the embassy. It would degrade the Swedish side to mere executors of Allied decisions, and if they were to resist, they would be threatened with sanctions. Either naive or very strongly believing in the commonality of Allied and Swedish Safehaven goals, Hoffman downplayed the likely possibility that Sweden would lose interest in Safehaven. His was an opinion in agreement with the Treasury Department’s view that Safehaven should follow a “harder” line than so far displayed by the State Department. That divergent view would surface later, in the debate about the usefulness of sanctions during the Safehaven negotiations in 1946. But it was a conviction that would reverse the approach used up to that point, and thus Oliver never sent Hoffman’s telegram to Sweden.39 Admittedly, Sweden was informed in early August that “the powers occupying Germany claim title to and control of” German assets in Sweden. This note was presented by the four occupying powers, one of the few times that the USSR was included in any Safehaven action. Yet, that notice remained without consequences for the time being. As discussed in the last chapter, because of British insistence, no mention was made that the Allied Control Council or any other Allied body might vest these assets. Sweden requested further information “regarding [the] legal foundation” of the Allied claim and made clear informally that it could not consider this legal issue before the vesting decree had actually passed. The Allies did not provide any additional information, again because of British urging. Playfair, from the British Treasury, wanted the Allies to hold back and to first agree on a coordinated approach for the coming negotiations with Sweden.40 With the Swedish Riksdag’s passing of the new laws on June 27, Sweden froze all German assets on July 15, 1945. Under the same law, Sweden also froze Japanese assets, on August 17, as the Allies had requested after V-J day of all European neutral countries. On July 21 the order of the King-inCouncil about the census of German assets was published. All owners, hold39. The head of FFC, Orvis Schmidt, was in Germany at this time helping Bernstein. Hoffman to Oliver, July 14, 1945, 800.515/date, original draft, dated July 2, 1945, and approved by Frank Coe, in folder: Safehaven Project—Personnel Assigned to SHAEF (box 390), FFC Subject Files; Hoffman to Oliver, July 14, 1945; Oliver’s note on Aug. 2, 1945, on his copy: “This message was not necessary.” 40. For note delivery: British Legation, Stockholm, to UD, Aug. 4, 1945, in DBPO, 5:157, calendar ii to document 33, also Johnson to State Dept., Aug. 7, 1945, 800.515/date, confirming delivery on Aug. 4 and Soviet participation; Swedish reply in Cecil Bertrand Jerram (who officially replaced Mallet in September 1945) to FO, Aug. 30, 1945, DBPO, 5:157; further reaction discussed during Safehaven meeting, Sept. 12, 1945, folder: Safehaven Sept. 11– 30, 1945, FFC Subject Files; FO to Stockholm, Sept. 3, MEW to British Embassy, Washington, Sept. 1, 1945, both DBPO, 5:157.

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ers, or agents of any German property, be they corporations or private individuals, had to declare that property as of the end of June 1945. Only household items of up to 40,000 Swedish kronor ($9,523) per person were exempted. Debtors who owed money to the German state had to make a similar declaration. The declarations had to include Swedish shares or other Swedish obligations held by Germans abroad. In those cases where the debtor to German claims or rights was located in Sweden—patents or mining rights, for example—the rights had to be declared. Germany was defined as the German Reich without Austria.41 The forms were due at the FCCO on August 15, when 2,400 declarations were returned. This office was governed by a board of directors consisting of representatives of the Riksbank, the UD, and the Department of Justice, with Einar Modig as director. The board met weekly to decide questions of policy. The FCCO’s daily work was done by a staff of some twenty employees, whose main tasks were to check the census returns and to select and oversee the actual work of the receivers and trustees employed to supervise companies in question.These full-time employees were drawn from other governmental departments, such as the Swedish Internal Revenue Service or the courts. The cross-fertilization between the tax agency and the FCCO was further enhanced by a special order of the King-in-Council allowing the FCCO to consult Swedish tax returns to check the accuracy of the census data.42 Appropriately, the FCCO had been established in July on the ground floor of the former German legation building in central Stockholm.The other parts of the building were used to store furniture and documents from the former German consulates in Malmö and Göteborg and from German institutions (the German school in Stockholm, German Chamber of Commerce, and so 41. Johnson to State Dept., Aug. 24, 1945, with census forms and directions attached, folder: Safehaven July 16–31, 1945, FFC Subject Files; for Japanese assets: Winant to State Dept., Aug. 11, 1945, about Anglo-American joint approach to freezing them, folder: Safehaven Aug. 1–15, 1945, FFC Subject Files; Swedish action reported in Johnson to State Dept., Aug. 17, 1945, 800.515/date. The Allies had already asked Sweden to freeze Japanese assets at the end of June, but Sweden feared for the rather substantial Swedish assets in Japan; see Johnson to State Dept., June 30, 1945, 800.515/ date. A detailed census of Japanese assets in Sweden was never made, although the Allies requested one. They were not large in any case. Until the peace treaty with Japan in April 1952, private Japanese assets in Sweden (SKr 7.1 million [$1.69 million] in three bank accounts and cash) were controlled by the FCCO, and Japanese diplomatic and consular property by a joint Soviet-AngloAmerican-Chinese committee. See various files in folder: 321.3 Japanese Assets (box 9), Classified General Records, 1950–1952, Stockholm Legation and Embassy, Records of the Foreign Service Posts of the Dept. of State, RG 84, NACP. 42. Commission on Jewish Assets in Sweden at the Time of the Second World War, Sweden and Jewish Assets: Final Report, 223; Heineman, “Analysis of Swedish Safehaven Legislation,” 4 – 5, 8– 9.

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forth). This activity was overseen by Werner Dankwort, former counselor of the German legation and until October in charge of the Liquidation Office situated in the legation building. The Allies agreed on this procedure because they were consulted through the Inter-Allied Committee for the Control of German State Property. As the British Embassy characterized this arrangement, “The Swedes and the Germans did the work but consulted us on all and every occasion where expenditure of German funds was involved.”43 On all the legal actions “the entire Swedish press . . . commented very favorably” and noted with satisfaction the cooperation with the Allies, as Ravndal found. The Social-Democratic newspaper Arbetaren (Workers) mentioned recent public allegations made “by the Anglo-Saxons in a very sharp way” that Sweden could be used as a base for a new war. These were references to public statements made by the State Department and in front of the Kilgore Committee, which will be discussed in Chapter 6. But because of the Swedish action, Arbetaren commented, there was no cause for apprehension on the Allied side. A comprehensive program had begun to control German loot, possible smuggling, and German industry in the country. This program was a “first step” in preventing the accumulation of any “secret reserves” in Sweden.44 Agreement? Despite this rather satisfying outcome for nearly everyone in the Allied quarter, there were still some outstanding issues to discuss. The post-hostilities trade agreement also still needed to be signed—the war-trade agreement had 43. The German school was closed immediately after the German capitulation; it was reopened in 1953 and exists today. See Frankfurter Allgemeine Zeitung, May 20, 2003. Committee’s work: British Embassy to German Dept., FO, Oct. 11, 1945, DBPO, 5:157, calendar ii to document 33, see also “Memorandum regarding the Assets in Sweden of the Former German Legation, Consulates and Semi-Official Institutions as of October 10,” translation of aide-mémoire from the Swedish Foreign Office, British Embassy, to Gordon Knox, U.S. Embassy, Nov. 3, 1945, folder: German InterAllied Committee (box 5), Confidential File 1944 to 1949, Stockholm Legation and Embassy, Records of the Foreign Service Posts of the Dept. of State. 44. Ravndal to State Dept., July 24, 1945, with enclosed translation of newspaper article from Arbetaren, July 19, 1945, 800.515/date; “Press release on German postwar plans . . . appeared in all Stockholm morning newspapers,” Johnson to State Dept., Apr. 26, 1945, folder: Safehaven Apr. 16– 25, 1945 (box 383), FFC Subject Files; the reference was to a State Dept. release entitled “Discovery of Nazi Post War Plans,” Department of State Bulletin 12 (Apr. 1, 1945): 537–38. It did not discuss any countries in particular, but the countries in question were clear nevertheless. The Swedish press also discussed Clayton’s statement “Security against Renewed German Aggression,” which he had given in front of the Kilgore Committee on June 25, 1945; see Ravndal to State Dept., July 18, 1945, folder: Safehaven July 16– 31, 1945, FFC Subject Files.

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of course become superfluous. Both in need of supplies, the British and the Swedes were anxious to put at least one agreement into final form. Yet, Sohlman was still careful not to let it appear that Sweden was “forced into control [of the] Axis by threat [of ] supplies.” He requested that all reference to Bretton Woods and other Allied declarations be deleted from the main agreement. Instead, a separate exchange of letters should cover the Swedish commitment to the program and the Allies’ understanding that supplies depended on Sweden’s Safehaven performance. This was done and the agreement initialed by Sweden, Great Britain, and the United States in July. Thus, the agreement came into force provisionally. Shortly thereafter, Japan surrendered, World War II ended, and many raw materials were released from Allied control. Sweden continued to obtain needed raw materials “in accordance with the original recommendation,” but as a result of these relaxed trade controls the Allied bargaining position had diminished considerably. “Freed from . . . anxiety, there arose a stiffening resistance to Allied demands” on the Swedish side, the British ambassador found, resistance that was moderated only by the country’s great need for coal. As a result of these developments, even by October the attempts to continue negotiations on the agreement had not yet been successful.45 At issue were some outstanding Allied Safehaven demands. Initially, a meeting with the Swedes at the end of July to review the state of affairs and to prepare the exchange of letters had been quite positive. “Swedes have met all our requests and even gone further,” Ravndal wrote to Washington. Sweden agreed to freeze and to hold a census of all Axis satellite countries, as well as the formerly occupied territories. So far, these assets had not been blocked because Sweden had requested that the Allies ask the former Axis and satellite countries with representatives in Sweden—Hungary, Romania, Bulgaria, and Italy—for their concurrence with such a step. In early July, the United States wanted to go even a step further and freeze the assets of all formerly occupied countries (Norway, Denmark, Belgium, Greece, Yugoslavia, Czechoslovakia, Poland, and the Netherlands) including France, so as not to be ac45. Johnson to State Dept., May 27, 1945, with proposed text of trade agreement, folder: May 16–31, 1945 (box 383); new draft text and suggested changes in Johnson to State Dept., July 4, 1945, (quote) and July 6, 1945, both in folder: Safehaven July 1–15, 1945, FFC Subject Files; Jerram to Bevin, Feb. 4, 1946, BDFA, pt. 4, From 1946 to 1950, series F, Europe, vol. 4, Western Europe, October 1946–December 1946, and Scandinavia, 1946, 142; agreement not signed by October: “Memorandum for the Files on Safehaven Meeting of October 17, 1945,” folder: Safehaven Oct. 1945 (box 384), FFC Subject Files. The department confirmed to Johnson that the supply agreement should not be signed without Sweden’s “full compliance” in Safehaven matters, July 13, 1945, 800.515/6– 3045.

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cused of “discriminatory action” against selected countries. In the end, the Allies did not take Sweden up on the late July offer because of French opposition. After Potsdam determined the fate of external assets, Great Britain assumed that the assets of the former satellite and occupied countries in European neutral countries—such as Bulgarian assets in Sweden, for example— belonged to the Western Allies and that thus France should now be consulted. Thus informed, France objected strongly to such a freeze since it meant the refreezing of its own assets in Sweden after they had been released on June 21 as a result of a Franco-Swedish financial agreement. In the words of the French ambassador in Stockholm: “[The] French Govt would profoundly regret having [the] funds [of ] its nationals treated in [the] same manner as those of Germans.” Thus stymied, Great Britain dropped its support for the freeze of the former satellite and occupied countries in October so that it would not produce “unnecessary ill will” with France. Left alone, the United States finally agreed with Great Britain in November.46 Apart from the agreement on former Axis and satellite countries, which the Allies never took advantage of, Sweden also assured the Allies that they would receive “all information on German assets . . . obtained from the census” and on Germans and former Germans now stateless. Sweden and the Allies would discuss the possibility of a transaction census, which would ascertain financial transactions between Sweden and Germany since 1939. This was a point dear to the Allies since, as they explained, persons who no longer held German assets would have no real cause to lie in such a further census. The new information so obtained could then be compared to perhaps not-so-truthful returns from the current census and thus serve as the starting point for further investigations. Sweden would appoint so-called interventors (supervisors), who would manage German companies in Sweden in accordance with the June laws. In return, Sweden expected that those formerly German-controlled firms would be taken off the Proclaimed List. In the proposed letter Sweden would confirm that the country would assist the United Nations in carrying out the policy of Bretton Woods and the other Allied declarations. But the letter would also state that “such action does not prejudice question of ultimate disposal of German assets.”47 46. Swedish request: Johnson to State Dept., June 30, 1945, 800.515/date; complete freeze: Grew to Johnson, July 13, 1945, 800.515/6–3045; Great Britain wanting to consult France: Winant to State Dept., Aug. 11, 1945, folder: Safehaven Aug. 1–15, 1945, FFC Subject Files; France objecting: Johnson to State Dept., Sept. 29, 1945, 800.515/date; Great Britain changing view: Johnson to State Dept., Oct. 10, 1945, 800.515/date; U.S. agreeing: State to Stockholm, Nov. 15, 800.515/date. 47. Ravndal to State Dept., July 20, 1945, FRUS, 1945, 2:888 – 93.

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The Safehaven Liaison Group in Washington mulled over this agreement. Locker from Foreign Funds Control objected to the fact that the Swedish law was valid for only one year. In his view Sweden was “stalling for time,” hoping that “by the end of the year, things would have blown over.” The group agreed that Sweden would be required to consult the Allies to extend the law in 1946. Despite Locker’s suspicion, this was not a problem at all. Sweden did not object to adding the phrase that the measures taken would “continue in force as long as it is deemed necessary by the parties to this agreement.”48 Locker also opposed the Swedish statement about the “ultimate disposition” of German assets. Such a statement would be against the intended Allied aim that the Allied Control Council should decide the ultimate fate of those assets. By this time, his colleague Josiah DuBois’s initial suggestions had become official Allied policy, with only the details to be worked out at Potsdam. The State Department’s reply therefore included a request that Sweden should adhere to Bretton Woods—at least in the secret letter, the Swedish side could state this without qualms. Sweden would acknowledge that in regard to German assets the country would “facilitate their ultimate delivery to the post-armistice authorities,” as Resolution VI itself read. The Stockholm embassy thought that Washington made a big deal out of small semantics. Whether Sweden would “adhere” to the resolution or “assist” the Allies in carrying out Bretton Woods was only relevant “on a very technical basis.” It was a point no one ever pressed any further.49 The importance of all the issues Locker got so worked up about paled in light of another, rather unexpected, disagreement. The group agreed that the firms in question should not be deleted from the Proclaimed List unless they were completely liquidated. Also, Allied Safehaven officials in Stockholm and not the Swedish government should appoint the interventors. The last point was made because it was around this time that the Allies informed the neutral governments that they were laying claim to German assets. The complete control of these assets in every regard would be a natural consequence of these claims. The nuances of the last request spawned an acrimonious debate that was 48. “Conference in Mr. Baker’s Office,” July 24, 1945, folder: Safehaven July 16 – 31, 1945, FFC Subject Files; view of “Safehaven authorities” communicated in Grew to Johnson, July 31, 1945, FRUS, 1945, 2:893 –94; Johnson replies “we do not expect difficulties” to State Dept., Aug. 6, 1945, 800.515/date; quote from Ravndal to State Dept., Oct. 1, 1945, transmitting draft letter to Grönwall, folder: Safehaven Oct. 1945, FFC Subject Files. 49. Grew to Johnson, July 31, 1945, FRUS, 1945, 2:893–94; quotes from Johnson’s reply to State Dept., Aug. 6, 1945; Acheson’s reply to Johnson, Sept. 6, 1945, did not mention this point anymore; both 800.515/8–645.

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still not solved by the end of the year. In a long telegram Johnson addressed this “serious problem.” He pointed out that his understanding had always been that the actual control of German or partly German companies in Sweden would be exercised by Sweden. The Allies would have a “residual right to taking over control if necessary.” He much preferred to leave the actual administration to Sweden. “We fully expect Swedes to give satisfactory administration,” Johnson wrote, his trust in Sweden unbroken. If the Allies were to insist on taking over, the general mood of “mutual cooperation” could change into one of distrust. He also pointed out that neither he nor the British knew enough responsible and knowledgeable people to take care of the actual administration. Any rights the Allies claimed in regard to the final disposition of these assets were sufficiently reserved through their quadripartite démarche of early August. The current handling of these matters by Sweden would not prejudice these claims.50 Talks about Safehaven Go On and On The problem that now arose was that both sides moved into a gray area that the July agreement had not further defined. The Allies understood the agreement to allow them a high level of influence in the affairs of the Foreign Capital Control Office.The Swedish side assumed that they had made many valuable concessions—including changes to their laws—after which they could now decide their own affairs. Determining the actual meaning of the July agreement kept both sides busy throughout countless meetings for the rest of the year. These were rather informal meetings held in the Joint Standing Committee. In an adroit move, the Allies tried to clarify their understanding of the issues. Their goal was to eliminate the German influence in any whole or partly owned German company in Sweden. German companies not important to the Swedish economy should be liquidated and the money put into a blocked account. For those companies where both sides found that their elimination would “seriously interfere with [the] Swedish economy,” only the German influence should be removed—all German personnel dismissed, connections with the parent companies cut, et cetera. After the Allies were convinced that their goals had been accomplished, the companies would be taken off the Pro50. Johnson to State Dept., Aug. 6, 1945; in a similar vein Johnson had already written on July 19, 1945; both 800.515/date.

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claimed List and the German interests could then be sold “to desirable persons or companies.” Now, of course, the question is, how could the Allies be sure of the elimination of the German interest so that the firms could be taken off the Proclaimed List? In Allied eyes the answer was obvious.They would have to closely consult with the interventors. If they were not allowed to do so, they would have to undertake “detailed investigations” themselves in every case—the implications being that those could take years. Not that the Allies were actually equipped for large-scale investigations, but it was a good bluff anyway.51 For Sweden this was the end of the line. Despite the different incarnations a draft to summarize the two sides’ agreement took, they found no common ground. In a statement, Modig, head of the FCCO, pointed out that Sweden had already instituted “far reaching measures.” In his view, the details of these measures were never supposed to be the “object of a detailed and specific agreement.” Now the Allies apparently intended to “create a joint Swedish and Anglo-American control system . . . whereby a dominating Allied influence should in reality be exercised on the Swedish control machinery” (my emphasis). This Allied influence should apparently extend to “every step or stage in the work of the F.C.C.O”—of which the upshot would be the “special procedure” to sell any of the German companies in Sweden. The work of the FCCO was an “internal question” since the office was part of the Swedish government. Because all these matters were internal Swedish affairs, the Swedish government, Modig wrote, “is not prepared to enter into any discussion” about the sale procedures of German assets in Sweden. Apparently, the Allies had overlooked the fact that Sweden was still a sovereign and also a neutral country. Modig had a very clear understanding of where the cooperation with the Allies ended and his own jurisdiction began. Surrey had already observed during one of his talks with Modig and Tage Grönwall that “on the Swedish side the principal argument appears to be the age-old question of sovereignty.”52 51. “Proposal for Elimination of German Controlled Firms and Firms in Which There Is a German Interest,” and “Proposal for Swedish Control of German Controlled Firms and Firms in Which There Is a Majority German Interest,” Aug. 30, 1945, attachments to Surrey to Johnson, Saxon, Ravndal, Knox, and to Setchell and Clutton at the British Embassy, Aug. 31, 1945, in which Surrey indicated that he had already discussed his proposal “at some length” with Modig and Grönwall, memos in folder: Safehaven Aug. 26– 31, 1945 (box 384), FFC Subject Files; for Allied bluff: memos from Surrey to Ravndal and Saxon, Sept. 13, 1945, folder: Safehaven Sept. 11–30, 1945, FFC Subject Files. 52. This statement was handed to the Allies during talks on Sept. 20; see Ravndal to State Dept., Oct. 1, 1945, with enclosed statement by Modig, folder: Safehaven Oct. 1945, FFC Subject Files; British version is “Report of ‘Safehaven’ Meeting held at the Swedish Ministry for Foreign Affairs,”

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But there was more to it than merely the touchy issue of Swedish authority. Aside from the fact that the overall trade situation with the Allies was no longer precarious, there were also some more immediate and practical arguments. Surrey summarized these in his final report. The Swedish government was concerned that through the proposed close collaboration and exchange of information, the Allies might find out which firms should be newly listed on the Proclaimed List. Also, Sweden feared that such information would prejudice the Swedish right to those assets.This was based on the assumption that if the Allies knew all the details about German property in Sweden, they might lay claim individually to that property. By this time it was apparent that the question of the ultimate disposition of German assets was the most sensitive issue for both sides. And there was another, larger reason not mentioned by Surrey. If Sweden were to create a precedent in international law by delivering German assets in the country to the Allies, what would happen to Swedish-German trade relations later on? For the Allies, German views were of no concern since they assumed to represent the German government at the moment (see Chapter 7), but Sweden feared later German claims. This was especially important since Germany had been Sweden’s key trading partner and Swedish investments in Germany were considerable.53 Finally, there was a slight change in atmosphere as the assertive Undén replaced Günther as foreign minister and the world-renowned economist Gunnar Myrdal became the new minister of commerce in early August. If Modig was clear where cooperation ended, he did make some concessions on a few other outstanding issues. The number of people working in the FCCO was expanded to eighty. Sweden would supply the Allies with the “general results” of the census once the FCCO had completed and checked the outcome. The control system of the FCCO would be reinforced. As a result of further Allied probing, this process began in October. An interim procedure that was replaced by a new law effective in January 1946 considerably strengthened the powers of the government regarding the companies in question. The Board of Restitution could now appoint an interventor on application of the FCCO solely on the grounds that an “Axis person had a ‘controlling influence.’”This influence did not necessarily mean that a German person attached to Traviss to Gerry H. Villiers, Sept., 22, 1945, FO 371/46766; memo from Surrey to Ravndal and Saxon, Sept. 13, 1945. 53. “Safehaven Report,” 27–28; Wohlert, “Enteignungen von deutschen Auslandsanlagen,” 340– 41. Wohlert cites an argument made by Alfred Emil Sandström, Modig’s successor at the head of the FCCO.

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held the majority of shares; it could refer to influence exercised through patent or credit agreements. The administrator had complete control over all aspects of the company’s business. Only in the case of sale would the FCCO have to give its consent. Before this law took effect, companies would be controlled through an interim agreement, in itself the “result of numerous discussions held with Modig,” as Johnson summarized. On the basis of a voluntary agreement between the company and the FCCO, a supervisor, or ombudsman or god man (depending on whether the company was incorporated or not), would oversee the management of the company. In both cases Allied interest in quickly ensuring the control of these companies met with the Swedish desire to get these companies off the Proclaimed List. The business of all these companies was diminishing considerably as the delivery of the raw materials or semimanufactured goods that they needed from Germany was cut off. They now struggled to establish new contacts with other countries, a task hindered by the Proclaimed List. Since the ultimate danger was that they could go broke, the goal of the new law was “to safeguard the interests of the community by maintaining production and employment,” as Minister of Justice Herman Zetterberg explained. This interest also helped to push the law through the Riksdag, despite opposition.54 Right after the unfortunate meeting with Modig, a member of Johnson’s staff talked with Myrdal. The future Nobel Prize winner (1974) pointed out that his government’s position was to work out the problems on the “basis of trust,” but not on the assumption of “foreign control in Swedish internal administration.” In light of this pronounced resistance, Johnson concluded that the entire discussion about the administration and sale of German property in Sweden should be dropped for now.55 The issue could be brought up again 54. FCCO expansion: Rubin report about negotiations with Sweden, State to Stockholm, Dec. 4, 1946, folder: Safehaven 1946 (box 4), Confidential File 1944 to 1949, Stockholm Legation and Embassy, Records of the Foreign Service Posts of the Dept. of State; new law described in Johnson to State Dept., Nov. 10; law considered by King-in-Council Oct. 5, passed by Riksdag Dec. 12, 1945, and became effective on Jan. 19, 1946; see “Excerpts from the Minutes of a Meeting by His Majesty the King and the Cabinet at Stockholm Castle,” attached to Ravndal to State Dept., Jan. 12, 1946, which also contains text of the law, both 800.515/date; talks with Modig: Johnson to State Dept., Oct. 22, by December, 22 companies were controlled through the interim procedure; see Ravndal to State Dept., Dec. 12, 1945, both 800.515/date; Zetterberg in King-in-Council minutes, see also Johnson to State Dept., Oct. 20, 1945, summarizing a press conference in which Undén announced and explained the new law, 800.515/date. For the application of the two procedures, see Heineman, “Analysis of Swedish Safehaven Legislation,” 11–13, enclosed in Ravndal to State Dept., May 17, 1946, 800.515/date. 55. It is unclear who talked with Myrdal. See Johnson to State Dept., Sept. 25, 1945, folder: Safehaven Sept. 11–30, 1945, FFC Subject Files.

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when the Allies would pass their vesting decree in the Allied Control Council—which happened at the end of October. Instead, the Allies should press for detailed information about German or former German persons and from the census. They never got much further. Sweden remained firm in its insistence that the outstanding issues were an internal Swedish affair and not the subject of discussion with the Allies. In 1945 there were only very few cases of sales of German property. Some were made simply because the property in question was deteriorating rapidly, as in the case of a large consignment of lumber. In the only other more important instance, the Allies were not informed about the transaction on the German school in Stockholm, which the city bought for 1.2 million Swedish kronor (SKr), or $285,714, in September. Yet, Sweden remained true to its promise to supply the Allies with the general results of the census, which it did in December. The total value of German assets in Sweden amounted to SKr 342.52 million ($81.55 million), or possibly only SKr 330 million ($78.57 million) because of duplicate declarations. Of the first total, SKr 99.67 million ($23.73 million) was German property in Sweden (personal, real estate, stocks, bonds, bank accounts, patents, German state property, and so forth), and SKr 242.82 million ($57.82 million) was liabilities to Germany or Germans (commercial debts, shares and bonds issued in Sweden, debts, royalties, options, and so forth). The FEA had estimated German assets in Sweden in April 1945 to be $76.1 million, not far off from the Swedish figure. Neither estimate included the clearing debt of Sweden to Germany of SKr 103 million ($24.52 million) as of March 15, 1946. Despite Allied probing, Sweden never instituted a transaction census or even a dual census, which would have ascertained assets at two dates, such as 1939 and 1945. Sweden argued that the FCCO investigated “fully” all the cases of current German ownership anyway and that another census would not yield much new information.56 In regard to information on German persons and former Germans now stateless, Sweden never deviated from its argument that it was not willing to 56. School sale: Morgontidningen, Sept. 5, 1945, summarized in Johnson to State Dept., Sept. 8, 1945, folder: Safehaven Sept. 1–10, 1945 (box 384); Saxon complaining about school sale in Saxon to White, Oct. 2, 1945, folder: Safehaven Oct. 1945, both FFC Subject Files; “Preliminary Estimate of German Assets and Holdings in Sweden,” Ravndal to State Dept., Dec. 24, 1945, 800.515/date; FEA estimate in “German Assets Abroad, Preliminary Estimate,” Apr. 30, 1945, folder: Enemy Assets (box 386), FFC Subject Files; “Safehaven Report,” 30. The FCCO informed Ravndal in September that thirty-five companies were under investigation; see Ravndal to State Dept. with list of firms enclosed, Sept. 14, 1945, folder: Safehaven Sept. 11– 30, 1945, FFC Subject Files.

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question its traditional role as a safe haven for refugees. The extent of the Swedish willingness to cooperate on this problem was to open up the files of the German legation for Allied inspection, which yielded few results. It should be noted that in the very straightforward cases progress had already been made earlier. At the end of the war in Europe, the Allies and Sweden had agreed that they would wait three months for any Germans in Sweden to return “voluntarily.” After that time had passed, the four Allied powers delivered notes in August requesting the “prompt” repatriation of the remaining German diplomats and other German state employees. Included with the note was a list of names. Sweden then shipped back 188 officials—the total requested by the Allies—and 649 military personnel to Lübeck between August 18 and October 5. This number constituted a little more than 11 percent of the total number of Germans present in Sweden (7,600). With these unquestionable cases taken care of, Sweden made no more transports, and matters got tricky. This whole complex was intimately connected with the status of the Baltic refugees in the country. Sweden did not want to establish a precedent of giving out information to the Allies because then the Soviet Union would request information about the Baltic refugees. Apparently, for U.S. officials this policy was hard to comprehend, but Sir Mallet, ambassador of a traditional Swedish ally over the centuries, assessed the general implications quite well when he wrote in June 1945 that “Sweden will always be nervous of the great strength of Russia, which is now deployed along the whole eastern coast of the Baltic and no longer has the counterpoise of a strong Germany.”57 Nevertheless, Johnson and his Safehaven officers remained optimistic about the Swedish handling of Safehaven problems. Of course, James Saxon, Olsen’s replacement as Treasury Department representative, did not share that view. He found the Swedish program “sharply unilateral” and Surrey’s assessments of the Swedish measures to “have a much more optimistic tone than is justified.” Any statements that called the Safehaven program in Sweden a success were “ludicrous,” according to Saxon. Probably nothing short of close col57. For legation files: Saxon’s final “Report of the Safehaven Program in Sweden,” Oct. 26, 1945, folder: Safehaven Oct. 1945, FFC Subject Files; for repatriation: Johnson to State Dept., May 29, 1945, Johnson to State Dept., “Transmission of Notes Presented to Foreign Office concerning Repatriation of Germans in Sweden,” Aug. 7, 1945, both 800.515/date; on list of names, see also Johnson to State Dept., July 6, 1945, folder: Safehaven July 1–15, 1945, FFC Subject Files; for transport to Lübeck: Ravndal to State Dept., Apr. 5, 1946, folder: Safehaven Apr. 1946 (box 385), FFC Subject Files; total number reported in Morgontidningen, Sept. 4, 1945. Among this total were many victims of Nazi persecution; see Johnson to State Dept., Sept. 8, 1945, folder: Safehaven Sept. 1–10, 1945, FFC Subject Files. Baltic refugees question: “Safehaven Report,” 29. Mallet to Eden, June 17, 1945, BDFA, 294.

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laboration in the daily work of the FCCO (Saxon hoped for an office there), the appointment of Allied interventors, and the immediate suspension of all business activities of German and partly German companies would have satisfied Saxon and his department’s aims. As Saxon declared in his final report, “The major problem in Sweden is that of the exposed physical industrial and commercial properties owned or controlled . . . by Germans. These are the assets which are part of the German war machinery. These are the assets which constitute a threat to U.S. security.” The Swedish side has made “every effort to avoid any action which would restrict the activities of these enterprises.” That there was never more pressure exerted on Sweden was clearly Johnson’s and his collaborators’ fault since “some of the U.S. officials actually support the Swedish position.”58 As discussed in Chapter 2, Saxon felt excluded from the work undertaken by Surrey and Ravndal and did not get along at all with his fellow officials at the embassy. Thus, his personal animosities might have skewed his judgments. Blunt Weapons The question remains: why did the inducements the Allies believed to have at hand in the summer of 1945 to convince the Swedish of the Allied position not work? These were the usage of the Proclaimed List, the question of the signature on the supply agreement, and finally the possible use of economic sanctions. As a result of the inconclusive discussions, Swedish companies were only slowly taken off the Proclaimed List, but by November 1945 the list had been reduced considerably. Sweden protested the listing policy, as it had during the war, arguing that it “cannot be reconciled with the general aims proclaimed by the U.S. government for its commercial and financial policy.” Indeed, in September 1944 the United States and Great Britain had published statements that the Proclaimed List would be withdrawn “at an early date.” Internally, both countries had agreed that the Proclaimed List should not continue for more than a year after the surrender of Germany. In April 1945, Foot, from the MEW, traveled to Washington, and the State Department concurred that both the British and the U.S. lists would gradually be reduced to 58. Saxon to White, Oct. 2, 1945 (first three quotes); Saxon’s final account, “Report of the Safehaven Program in Sweden,” Oct. 26, 1945 (fourth and fifth quotes), both in folder: Safehaven Oct. 1945, FFC Subject Files; Saxon, “Summary of Report on the Safehaven Program/Sweden,” Nov. 11, 1945 (last quote), folder: Sweden Safehaven (box 35), Accession 56–67A245.

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a hard core in 1945 before their complete later withdrawal in May 1946. By the end of November, six thousand names were left on the list after five thousand had been taken off.59 However, because of the Safehaven negotiations with the neutral countries that were to begin in February 1946, the United States made one last attempt to continue the Proclaimed List beyond the May termination date. Rubin found that “a commitment indefinitely to continue the list . . . would make negotiations with the neutrals a great deal easier.” The Executive Committee on Economic Foreign Policy agreed to that option, but the British made clear that they would withdraw their own Statutory List in June 1946. Since the two lists worked in tandem, the listing ended on July 8, 1946, five days after the Allied-Swedish negotiations had reached a tentative agreement in Washington.60 If the Proclaimed List was not a convincing tool because of its considerable reduction in November 1945, neither was the outstanding supply agreement after the complete end of the war. Apparently it was only initialed and never signed. However, that technical difference did not change the practical applications of the agreement. Aside from the fact that the release of many items from wartime restrictions diminished Allied influence in general, the Allies had also agreed not to withhold “essential supplies” from the neutrals on the grounds that they “were dissatisfied about the Safehaven picture,” as Saxon noted in September. On the other hand, agreement or not, the Allies could not give “an unconditional guarantee” that goods and quantities would actually be available because of worldwide requirements, as a proposed redraft of the agreement noted in December. The needs of the postwar world were large, and Sweden’s did not rank as the most important. Yet, neither side had an interest in canceling deliveries since Sweden had goods that Great Britain urgently needed. Thus, an agreement was left in abeyance and never signed nor entirely revoked until the whole Allied planning apparatus dissolved.61 59. “Swedish Views on the Black-List and the Safe-Haven Question,” Dec. 12, 1945, 800.515/ date; Anglo-American statement on Proclaimed List: FRUS, 1944, 2:188 – 89, quote 189; internal agreement and discussions: “Modification of Proclaimed List Schedule,” Feb. 13, 1946, ECEFP D17/46, folder: Committee—ECEFP, Documents 11/46 – 30/46 (box 49), Interdepartmental and Intradepartmental Committees, RG 353; FRUS, 1944, 2:851 n. 59, 838 – 51. 60. Rubin to Willard L. Thorp and Clayton, Apr. 15, 1946, 800.515/date; “Modification of Proclaimed List Schedule,” ECEFP D-17/46, see also press release: “Announcement of Withdrawal of List,” July 9, 1946, Department of State Bulletin 15 (July 21, 1946): 112–14, 118. 61. Saxon to White, Oct. 2, 1945; Henry D. Wyner to Surrey (who was back at the State Dept.), Dec. 20, 1945, folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC.

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Finally, there was the whole question of sanctions. This question will be discussed thoroughly in Chapter 8 in relation to the vesting law passed by the Allied Control Council and the overall Allied approach to the 1946 negotiations. Suffice it to say here that the Treasury Department was strongly in favor of sanctions to enforce Allied demands. Reluctantly, the State Department agreed, but then the United States needed to convince the British. In January 1946, Great Britain made it very clear that “for political and practical reasons . . . sanctions are not an appropriate weapon to use in Safehaven negotiations.” That was the end of that option.62 The Allies faced a different world at the end of 1945. They had won the war. Now it was over, and the world wanted to return to peace. Any hope of repairing all the destruction lay with the advancement of free trade, or so the United States had so often declared. Wartime economic controls therefore had to fall. The victors of World War II had many advantages on their side, but time was clearly not one of them. If anything was to be achieved with German assets in neutral countries, it had to be done quickly. As Rubin had already observed in August 1945, “Time is of the essence. Economic controls are disappearing and effect on neutrals of Allied victory is being dissipated.”63 The crux was thus, once again, the tension between continuing controls and free trade. At this point another brief comparison with Switzerland seems appropriate. Of all the “Safehaven countries” in Europe, Switzerland was closest to Sweden in terms of democratic structure and outlook. Indeed, for lack of alternatives, the two countries became close trading partners during the war, a relation that continued into the postwar period until the old trading patterns between these countries and their more immediate geographic neighbors returned. As already discussed, the Allied approach had been very different in Switzerland, where a top-level delegation pressed for quick results. After Currie departed, Switzerland, as Sweden, began a census at the end of May 1945. The results were due on the last day of August 1945. Although the census was also inclusive, Switzerland had not created a special agency to evaluate the results. The forms were due at the Swiss Clearing Office (Verrechnungsstelle), founded in 1934 to manage the payments between Germany and Switzerland. Preliminary results of this census were given to the United States and Great 62. British reply to U.S. proposal from Dec. 21, Winant to State Dept., Jan. 21, 1946, folder: Safehaven Jan. 1946 (box 385), FFC Subject Files. 63. Rubin to Oliver from Stockholm, Aug. 24, 1945, 800.515/date.

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Britain in November 1945. According to these results, the assets of Germans living in Switzerland and the area of the former German Reich and Austria (Großdeutschland) amounted to approximately one billion Swiss francs. In December 1945, the Swiss Federal Council finally passed a decree concerning looted property, as promised to Currie nine months earlier. The Swiss decree was specifically modeled after the Swedish law. However, unlike the Swedish version, the Swiss law mandated some financial obligations for the claimant before he could get back his property. Otherwise, the two laws were very similar in many regards. But Switzerland did not have any kind of program that came close to the administration of German property in Sweden. Only after the Swiss-Allied negotiations in the spring of 1946 did Switzerland create an extra department of the clearing office in charge of liquidating German assets in Switzerland.64 Thus, in comparison, Safehaven’s application in Sweden appeared to be rather successful in 1945. Many of the Allied demands had been met as a result of the low-key approach the British and the United States had agreed on. The Swedes valued such an approach since the discussions remained out of public view until their conclusions were presented. Mandated partly by legislation, Sweden had frozen German assets, counted them, and appointed powerful interventors to administer German companies—though not necessarily to suspend their activities, because such a step was hardly in the Swedish interest. In regard to the remaining issues still under deliberation, the Allies had to accept that there were certain limitations to their influence that Sweden as a sovereign and neutral nation was not willing to adjust.

64. For Swiss-Swedish relations see Marco Durrer, “Die Beziehungen zwischen Schweden und der Schweiz im Zweiten Weltkrieg aus schweizerischer Sicht: informelle Solidarität,” and Meier et al., Schweizerische Außenwirtschaftspolitik, 267–71; for work of clearing office: Frech, Clearing, 83 – 87; for census results: American Legation, Bern, to Dept., with Swiss aide-mémoire attached, Nov. 27, 1945, folder: Safehaven Dec. 1945 (box 385), FFC Subject Files, see also Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen, 243– 51, and Uhlig et al., Tarnung, 300–311, 363–81; for looted property decree: Hanspeter Lussy, Barbara Bonhage, and Christian Horn, Schweizerische Wertpapiergeschäfte mit dem “Dritten Reich”: Handel, Raub und Restitution, 279–308; for later Swiss action: Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 49 – 89, 158 – 60.

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            new post as deputy military governor of Germany in April 1945, Lucius D. Clay reported: “Conditions in Germany are getting progressively worse and large sections of all important cities have been obliterated. . . . Several years will be required to develop even a sustaining economy to provide a bare minimum standard of living. . . . I think that Washington must revise its thinking relative to the destruction of Germany’s war potential as an immediate problem. The progress of war has accomplished that.”1 Clay would consistently advocate that a limited German production would allow for the existence of an economically viable zone in which people would not starve and the occupation forces would not be threatened by disease and unrest. Not everyone was in agreement with that kind of policy. Senator Harley M. Kilgore (D–West Virginia) considered Clay “nothing but a Fascist.” And in June 1945, the Treasury’s representative in uniform, Bernard Bernstein, complained to Morgenthau that “the United States program for Germany is presently endangered by the over concentration of industrial representation 1. Clay was informed of his appointment on Mar. 19, arrived at Eisenhower’s headquarters on Apr. 8, and on Apr. 25, 1945, became deputy military governor, commanding general of the U.S. Group Control Council, and deputy chief of staff of U.S. forces in the European Theater; see Weisz, OMGUS-Handbuch, 15. Clay to Byrnes, Apr. 20, 1944, and Clay to McCloy, Apr. 26, 1944, in Jean Edward Smith, ed., The Papers of General Lucius D. Clay, Germany, 1945–1949, 1:6, 8. Similar sentiments by Clay are chronicled in a letter from Murphy (U.S. political adviser for Germany) to Matthews, Apr. 22, 1945, 740.00119 Control (Germany)/date. Clay later wrote in his book that upon seeing a draft of JSC 1067 “we were shocked . . . at its failure to grasp the realities of the financial and economic conditions which confronted us” (Clay, Decision in Germany, 18).

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on the U. S. Control Council.”2 Bernstein would continue to advocate a more punitive policy for Germany in his area of authority, German finances. As discussed in Chapter 3, his responsibility included German external assets, and he would repeatedly clash with officials in other departments of the U.S. government who had their own ideas on how to begin Safehaven investigations in Germany. Bernstein’s claims have to be understood as part of a larger pattern of concepts for the future of Safehaven voiced in 1945. Besides Bernstein, the Office of Strategic Services (OSS) and the Foreign Economic Administration (FEA) came forward with their own assessments and ideas for the program. The FEA proposal garnered much attention since it was presented to the public in front of the Kilgore Committee. The FEA presentation especially sheds an important light on the underlying weltanschauung that was guiding the inventors of Safehaven. Common to all these ideas was that they represented a view on and a policy toward Germany that were already quickly falling out of favor, making all these suggestions ultimately nugatory. Bernstein versus the Combined Intelligence Objectives Subcommittee The conflict over Bernstein’s authority had its roots in the Allied information-gathering efforts that had begun in July 1944. A Supreme Headquarters, Allied Expeditionary Forces (SHAEF) directive established so-called Target Forces, or T-Forces. For the remainder of the war, the task of these military units was to “seize and secure documents or persons” for the Allied forces. Although T-Forces would immediately evaluate the available information in regard to “current . . . military operations,” a more thorough assessment was left to specialized teams that would come in later. Through the T-Forces, the Allies were able to quickly appraise the status of German weapons research, to find out what information Germany had passed on to Japan, and to detain technicians so that they would not leave the country before the war’s end. TForces saw their first action after the liberation of Paris in August 1944, a hasty affair of two weeks before they moved on to Verdun and Luxembourg.3 2. Kilgore’s views according to Morgenthau during a meeting with Truman, Morgenthau Presidential Diaries, 1666, June 18, 1945, FDRL; Bernstein to Morgenthau, undated but most likely from end of May or June 1945, when Bernstein was in Washington, folder: Inter-Treasury Memoranda— Secretary Jan.–June 1945 (box 19), Intra-Treasury Memoranda of Harry Dexter White, 1934–1945 (Entry 360R), Records of the Assistant Secretary of the Treasury re: Monetary and International Affairs, RG 56, NACP. 3. Quotes in “T-Forces in the ETO,” undated, no folder name (box 2), Correspondence of the

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The T-Forces and the subsequent, more detailed exploitation activities were coordinated by the Combined Intelligence Objectives Subcommittee (CIOS), established on August 21, 1944, in London. The Combined Chiefs of Staff (Great Britain and United States) had created the CIOS as an agency of the Combined Intelligence Committee, whose American members came from the various intelligence agencies of the U.S. government—War, OSS, Army Air Forces, and Navy—the Office of Scientific Research and Development, the State Department, and the FEA. On the British side, the members came from the Foreign Office; the Naval, Military, and Air Intelligence; and the Ministries of Supply, Economic Warfare, and Aircraft Production. Soon after the CIOS was organized, various subcommittees drew up a list of possible intelligence targets of military priority, the so-called Black List (there was apparently a certain predilection to name lists after dark colors). Included in that list of thirty-three categories were things such as rockets and rocket fuel, jet propulsion, chemical warfare, and infrared devices.4 While these targets were related to the ongoing war, pressure built quickly to also include targets of “industrial and commercial” value. Only seven days after the creation of CIOS, Vannevar Bush, director of the Office of Scientific Research and Development, circulated a proposal along such lines. War, Navy, and the War Production Board all agreed with Bush’s proposal. Preliminary talks with the British revealed that they were even more interested in the topic than their U.S. counterparts. The British side strongly urged the creation of a so-called Grey List “to include subjects of a technical nature.” Beginning in December 1944, the Grey List Panel of the CIOS began its discussions, which were finished in January 1945. This new list contained such target categories as textiles, agriculture, forestry, household equipment, sanitation, and utilities. Each list included one category that bore relation to the Safehaven program. On the Black List one item concerned enemy headquarters documents and personnel, while on the Grey List one category named business institutions as targets.5 So far, seizing external assets had not been mentioned as a specific task for OSS Mission to Germany, 1944–1945, European Theater of Operation, Research and Analysis Branch, Records of OSS, RG 226, NACP. See also John Gimbel, Science, Technology, and Reparations: Exploitation and Plunder in Postwar Germany, 3–4. 4. For CIOS creation: Gimbel, Science, Technology, and Reparations, 3– 4; “CIOS Target Categories,” attached to Joint Intelligence Committee Memorandum, May 29, 1945, folder: CIOS (box 386), FFC Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, NACP. 5. “Memorandum on the Establishment and Present Status of the Grey List Panel of the Combined Intelligence Objectives Subcommittee,” Jan. 30, 1945, no folder name (box 1), Correspondence of the OSS Mission to Germany. For Bush’s initiative see Gimbel, Science, Technology, and Reparations, 5–6.

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CIOS. That idea developed only when, in February 1945, Seymour Rubin drafted a telegram for John Allison, the State Department’s representative on the CIOS. “The Department desires to submit to C.I.O.S. a request for information to be obtained in enemy and liberated areas in Europe, relating to external German holdings and assets,” Rubin wrote. Such information would probably be located in banks, foreign-exchange and clearing institutions, and in the files of large industrial companies. Allison immediately began exploratory talks with the representative of the Ministry of Economic Warfare (MEW) on the CIOS and with other U.S. officials in London. Everyone “expressed emphatic agreement” with this initiative, but putting it into action hinged on sufficient personnel and a specific list of targets.6 It was a smart move by Rubin. The Treasury Department was not represented on the CIOS since it was in character a war-intelligence committee and representatives from the State Department and the FEA were its only civilian members. But Foreign Funds Control (FFC) knew immediately what Rubin was concocting when Bernard Feig got a copy of the messages sent to London. “The . . . messages,” he wrote to Rella Shwartz, his boss and head of the Enforcement Division of FFC, “raise a question which may seriously affect and handicap Treasury’s future operations and plans in the European theater. . . . The C.I.O.S. operations will cut sharply across many of the proposed investigative projects envisioned by Treasury in Germany.” Feig did not say it, but there was no need to. Everyone knew that he was referring to Bernstein and the activities of his team of financial investigators. Any large CIOS investigations would undermine Bernstein’s role and diminish the expected flow of information from Germany directly to the Treasury. Feig was especially upset because at a meeting of the Safehaven Liaison Group in January, Herbert J. Cummings from the State Department had suggested that he would draft a telegram along the lines now proposed by Rubin for the group’s consideration. Cummings had never followed up on his idea.7 Thus, the Treasury Department remained frosty to any further overtures that would undermine Bernstein’s authority. When Assistant Secretary of State for Economic and Business Affairs William Clayton suggested setting 6. Grew for Allison (London), Feb. 13, 1945, drafted by Rubin Feb. 6, and Winant to Grew, Feb. 15, 1945, both 800.515/date, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP. 7. Feig to Shwartz, Feb. 20, 1945, folder: CIOS, FFC Subject Files; “Minutes of Safehaven Meeting Held on Friday, Jan. 5, 1945” (State version), folder: Safehaven Special Subjects folder: Minutes of Meetings of Safe Haven Committee, Safehaven Subject File, 1945–1947, Records of DESC, RG 59, NACP.

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up a special committee for the joint selection of targets, Morgenthau’s reply contained little more than a simple acknowledgment that there was indeed a Safehaven program the two agencies were working on. Other agencies, such as the Office of Alien Property Custodian (APC) or the FEA, were much more enthusiastic. APC James E. Markham promised his “full cooperation,” and the FEA already had a list of targets ready nine days later. This list was drawn up by the German and Austrian branch, the same branch that was working on the FEA postwar studies. If any department would have an idea of which companies to investigate, it would be this one. The suggested targets included many important German companies: Henkel, which had two subsidiaries in Sweden; Philip Holzmann; Otto Wolff; Mannesmann; and others. The special committee—christened the Business Intelligence Committee (BIC)—began meeting in April, and the participating agencies started to present their lists of targets. The Treasury Department, instead of having a list of companies ready, had come up with a catalog of fifty German industrial leaders. Feig explained that “a serious shortage of personnel” had made it impossible to put together a listing of industrial targets. But his department considered it important that the German industrial elite be thoroughly denazified.8 While the Treasury Department continued to take the committee’s work lightly, all of its members were aware that they could really only provide recommendations that the CIOS itself had to finalize. For the same reason, London was the place to ultimately decide who should investigate Safehaven targets—Bernstein or the CIOS. The issue made for strange bedfellows indeed. On the one side stood Bernstein, the Treasury Department, and the military, represented by Deputy Military Governor Clay. On the other stood all the remaining civilian agencies. These had nominated Samuel Klaus of the FEA as 8. Clayton to Morgenthau, Mar. 15 and reply Apr. 11, 1945, folder: CIOS, FFC Subject Files; Clayton also sent his letter to the depts. of Commerce and Justice, the FEA, and the Office of Alien Property Custodian; replies: APC Markham to Clayton, Mar. 21, 1945, State and FEA to William T. Stone in London, Mar. 21, 1945, both 800.515/date; FEA list: Leo Crowley, Henry Fowler, John R. Fleming, and Walter Rudlin to Stone, Mar. 24, 1945, folder: CIOS, FFC Subject Files (Fowler was the director of the German and Austrian Branch in charge of the Technical Industrial Disarmament Committees studies, while Fleming and Rudlin worked in this department); the BIC’s first organizational meeting was Mar. 23 and the first official meeting Apr. 20, 1945, see Rubin to Rudlin, Apr. 5, 1945, with attached memo “Background and Organization of the Combined Intelligence Objectives Sub-Committee,” Apr. 5, 1945, 800.515/date; J. Scullen, “Meeting at State Department,” Apr. 12, 1945, folder: CIOS, FFC Subject Files; Feig’s statement, “Meeting of the Business Intelligence Committee (re: C.I.O.S.) at the State Department on April 20, 1945,” Apr. 23, 1945, folder: Safehaven Apr. 16–25, 1945, FFC Subject Files.

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the project’s European director, and he went to London in April 1945. It was an irony of history that now pitted these two major figures of the Safehaven program against each other, although the two men probably had very similar goals. Colonel Bernstein was in a strong position of authority. In his dual function, he was deputy chief of the currently important SHAEF Financial Branch and chief of the Finance Division of the U.S. Group Control Council (USGCC), which would become essential as soon as the Allies constituted the Allied Control Council (ACC). On occasions, Bernstein and Clay would travel together or meet otherwise as part of their daily business, a relation Klaus could not claim to have. Clay, who had just begun his new assignment, had a strong interest in asserting his new authority right when the CIOS conflict was to be decided.9 If Bernstein had gotten his way, he would have already started a farreaching investigation into Germany’s external assets. In March, he suggested to Brigadier General Cornelius W. Wickersham that a “field staff of at least 100” should search the files of “important industrial, commercial, financial, and . . . political organizations” all over Germany and collect the results for the Finance Division. To justify this initiative, Bernstein explicitly referred to the financial part of the Joint Chiefs of Staff Directive 1067—the same directive that he himself had reworked in Washington a month before. The project was not approved in this form—not so much because of the daunting organizational challenges as because of “a feeling on the part of some high ranking officers . . . that Washington might not be fully behind the project,” as the U.S. Treasury representative in London, William H. Taylor, put it.10 Still, Bernstein was not without allies in the British capital. William T. Stone—formerly with the FEA and now representing the Economic Warfare Division of the U.S. Embassy on the CIOS—concluded in one of his memoranda “that major responsibility for securing Safehaven information within Germany, rests with SHAEF, G-5, and ultimately, the Allied Control Council”—in other words, Bernstein’s teams. Stone advocated this position because G-5 was “responsible for control of German assets, foreign exchange, etc.” 9. Bernard Bernstein, Oral History Interview, HSTL. 10. “Proposal of Project to Investigate German Foreign Assets,” Bernstein to Wickersham, Mar. 7, 1945, attached to letter from William H. Taylor (London) to Harry Dexter White, Mar. 25, 1945, folder: Safehaven Project—Personnel Assigned to SHAEF, FFC Subject Files. The head of FFC, Orvis Schmidt, contemplated the idea of getting the Combined Chiefs of Staff to send a telegram endorsing Bernstein’s project; his memo, Mar. 21, 1945, folder: Safehaven Mar. 1945, FFC Subject Files.

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anyway. In addition, he wrote that the British equivalent of Bernstein’s branch had now made clear that they would not supply any Grey List targets for Safehaven-CIOS investigation since the British wanted to leave such activities to the ACC and thus ultimately to G-5.11 It was actually Allan Fisher from the USGCC Finance Division who represented Bernstein’s interests in London during the spring. Bernstein himself was in Germany, racing around the country to find out as much as he could. For the better part of April he was busy at the Kaiserroda potassium mine near Merkers in Thuringia. Here the Reichsbank had hidden its gold, silver, and currency reserves, the SS had deposited its loot from concentration camps not yet sold, and fourteen Prussian state museums had stored their major art holdings. The gold alone was worth $239 million and constituted 91 percent of all the gold reserves found in Germany. Emboldened by this find—and perhaps also by the personal visit of General Dwight D. Eisenhower, General George S. Patton, General Omar N. Bradley, and a trailing troop of journalists— Bernstein again pressed for his earlier program, now with a slight twist. “The Germans were planning to use these foreign exchange assets, including works of art, as a means of perpetuating the . . . Nazi influence both in Germany and abroad,” he wrote to Major General Hobart Gay, the Third Army’s chief of staff. All remaining such assets had to be located before they could be moved off to “southern Germany or . . . Switzerland and Sweden.” As before, Bernstein did not get approval. Nevertheless, he set out with a small team from Frankfurt on April 19—he had to make do without the tank company and infantry regiment he had requested—for his very own reconnaissance mission. In the next two weeks Bernstein and his team found another $3 million worth of gold during a nineteen-hundred-mile trip. Along with the gold found by other troops, the Finance Division concluded in September 1945 that they had found 98.6 percent of the Reichsbank’s gold account. All this gold was transported to the Reichsbank building in Frankfurt to be stored and counted there.12 11. Memo by Stone, n.d., discussed during “Meeting on Relationship of CIOS to Safehaven Targets,” Apr. 9, 1945, written by Allan J. Fisher, Foreign Exchange and Blocking Control Branch, Finance Division, USGCC (Rear), both in folder: Safehaven May 1–15, 1945, FFC Subject Files. 12. “G-4 Functions in ETOUSA Operations, Merkers, Herringen-Frankfurt Areas in Germany, 9 April to 22 April 1945,” “Report of the German Treasure Cache at the Merkers Salt Mine,” n.d., see also Bernstein’s “SS Loot and the Reichsbank,” May 8, 1945, all in folder: Merkers Mine Reports and Related Documents (box 1), Nazi Gold File, 1945–1988, Bernard Berstein Papers, HSTL; Bernstein to Gay, Apr. 14, 1945, in Greg Bradsher, “Nazi Gold: The Merkers Mine Treasure,” 16; Bernstein’s finds were at Halle and other points—see “Report of Division Directors Meeting, April 28, 1945,” Murphy to State Dept., Apr. 29, 1945, 740.00119 Control (Germany)/date; gold storage:

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Against the combination of Bernstein’s military functions, any team sponsored by the FEA was at an automatic disadvantage because of its civilian status. Furthermore, the FEA had been an emergency wartime creation and, with the apparent end of the war, was losing its luster. Nobody on the agency’s payroll really knew what would happen to them in the future. Already in April 1945 Klaus reported from London “that there is an FEA-phobia in our staff here.” Klaus himself felt cut off and left in the “dark.” Despite this atmosphere of “resignations, apathy, [and] distaste,” Klaus worked tirelessly to carve out a postwar position for his agency. Not unlike his counterpart, he dreamed up big plans. A “sort of Joint Chiefs of Staff for External Security” should be created by executive order and should be directly attached to the White House, he argued, specifying that its “personnel need will go into the hundreds and may be more.” Designing such an organization would have been quite a feat considering that Klaus found that at the moment “FEA has nothing worth counting on in this field here—nothing” (emphasis in original).13 To counteract “the Treasury-Bernstein combination,” Klaus wanted the executive order. The trouble was that the FEA or even the combination of all the civilian agencies requesting CIOS investigations were never strong enough to go to the top and assert themselves against the military ruling Germany. “The failure of FEA . . . in actual operations in the German area . . . has been . . . that our stature has not been high . . . since we have always dealt only with one of the lesser Divisions far removed from the top. An agency like ours deserves and must necessarily play a more major role than that,” Klaus argued.14 Despite Klaus’s activism, the only concrete outcome was the setup of one FEA team. This team was designated to travel to Heidelberg to examine I.G. Farben records held at the 7th Army document center. Over the spring the FEA recruited a number of investigators in Washington as a result of Clayton’s initial letter of March 15. At first, Klaus had been designated to lead the future team after he had arrived in London.To get matters started, Klaus, with the help of Cummings, got two OSS men released to him; they were packed off to Heidelberg on May 21. The rest of the team arrived in Europe a little Bradsher, “Nazi Gold,” 17, and Arthur L. Smith, Hitler’s Gold: The Story of the Nazi War Loot, 84 – 92, 96–99. 13. Letters from Klaus to Oscar Cox, Apr. 13, 1945; Klaus (Paris) to Dud[ley T. Easby], May 12, 1945; Klaus (London) to Oscar Cox, Apr. 13, 1945; Klaus (Paris) to Cox, June 6, 1945; Klaus to Easby, June 5, 1945; Klaus to Easby, May 12, 1945, all in folder: Klaus, Samuel (box 18), series I, Alphabetical File, Cox Papers, FDRL. 14. Klaus to Easby, June 5, 1945; Klaus to Cox, June 6, 1945, folder: Klaus, Samuel, Cox Papers.

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later but waited around in London for a month. A major quarrel had broken out over whether Klaus was the right person to lead the team and what status such a team should have in comparison to Bernstein’s Finance Division. At this point Clay came into the picture. The general was annoyed with Klaus and his activities: “Much of his proposed investigation lies in the same field now being ably investigated by Bernstein,” he wrote to Major General John Hilldring at the Pentagon’s Civil Affairs Division. In general, Clay would not allow “uncontrolled teams” to roam freely in Germany duplicating work already done. To unify all such efforts, Eisenhower created the Field Information Agency, Technical (FIAT) at the end of May. Thereafter, the always straightforward Clay made immediately clear that “it was absolutely essential that all investigative work . . . be centralized in one organization under the control of the Military” and that hence Klaus should work under FIAT authority.15 At the same time Bernstein was in Washington. He personally met twice with President Truman, courtesy of Senator Kilgore, whom Bernstein had dined with during the senator’s tour of Europe in May. Meeting Truman certainly greatly strengthened Bernstein’s position. During a conference with Emile Despres, Covey T. Oliver, Emilio Collado, and Cummings at the State Department, Bernstein made clear that “from now on G-5 will make all of the financial . . . investigations.” Cummings concluded that Bernstein left “us under the impression that he is being supported in this by General Clay, Secretary Morgenthau, and President Truman.” As a result of this united effort in Germany and Washington, the FEA team was placed under USGCC and FIAT authority and the remaining team members were finally allowed to go to Heidelberg in June and July. Klaus was no longer part of this team. Bern15. It is another irony that both Bernstein and Klaus were deeply interested in I.G. Farben, a sign of how close both were in their basic assumptions about German industries. Indeed, during the race to get to these files, the FEA’s competitor G-5 removed some valuable I.G. contract documents to Frankfurt in May. These actions demonstrate well the “obsession” of some U.S. officials with I.G. Farben, although “I.G.’s role in bringing the Nazis to power was limited at most.” The focus on I.G. also became apparent during the Kilgore hearings. Quotes from Raymond G. Stokes, Divide and Prosper: The Heirs of I.G. Farben under Allied Authority, 1945 –1951, 42, 45; FEA recruitment: “Administrative Report on Activities of Heidelberg Team,” Nov. 19, 1945, attached to Murphy to State Dept., Dec. 14, 1945, 800.515/date; “Observations Made during My Recent Trip to London and Paris,” Cummings to Frederick B. Lyon, May 1, 1945, 740.00119 Control (Germany)/date; Klaus named to lead team in Grew to Allison and Stone, Apr. 30, 1945, reply by Winant that Klaus’s assignment should be reconsidered because “harmonious and effective relations with other British and American agencies . . . must be maintained,” May 2, 1945, both in folder: CIOS, FFC Subject Files; see also Easby to Cox, May 24, 1945, “Brief Summary of Sam Klaus’ Situation,” folder: Klaus, Samuel, Cox Papers; Clay to Hilldring, May 24, 1945, in Smith, Papers of General Lucius D. Clay, 1:15–16; Clay to War Dept. according to “Meeting of the Business Intelligence Committee (re: CIOS) at the State Department on June 12, 1945,” June 14, 1945, file: CIOS, FFC Subject Files.

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stein’s staff, on the other hand, greatly increased—to up to four hundred people. For a short while FFC Director Orvis Schmidt even became his deputy in Frankfurt. Bernstein himself traveled around Germany with a signed photograph reading “Best wishes to Col. Bernard Bernstein from Harry Truman.”16 Thus, even if all of Bernstein’s plans for far-reaching investigations into Germany’s external assets failed, he was successful in blocking the challenge of the Rubin-Klaus-CIOS initiative. When Rubin passed through Paris as part of his assignment to look into external assets for the Allied Reparations Commission he had to confess during a meeting at the U.S. Embassy “that the question of CIOS investigations of financial and economic targets was largely moot—that CIOS in this field was moribund.” Bernstein’s authority “was being sustained,” as Rubin said. However, it remained a Pyrrhic victory for Bernstein. Privately, Clay had always wondered about his financial chief. “I doubt if Colonel Bernstein is big enough to handle the overall financial problem. He is very smart and energetic but is somewhat warped in his judgment,” Clay had written to Hilldring in May. But Clay was not yet ready to sidetrack Bernstein publicly, since the deputy military governor always thought that Bernstein was “excellent in the investigating phases of his work.”17 The Heidelberg sojourn of the twenty-three team members did not last long. In August they had completed their initial sorting and indexing of the 16. Dinner with Kilgore and meetings with Truman: “Affidavit of Bernard Bernstein as to His Life,” Dec. 1954, 44 – 45, folder: Bernstein, Mrs. Bernice Lotwin—Correspondence and Other Materials, 1933–55, Bernstein Papers, HSTL, also his “Report from Col. Bernstein,” June 5, 1945, Morgenthau Diary (Germany), 2:1553– 58, and James Stewart Martin, All Honorable Men, 88–90; letter from Kilgore to Truman on Bernstein’s behalf, May 21, Truman to Eisenhower, June 5, 1945: “This work has my hearty support,” both letters in Truman Official File 198-B (USGCC), HSTP, HSTL; memo from Cummings, May 31, 1945, 740.00119 Control (Germany)/date; team to Heidelberg: Hilldring to Clay, June 15, 1945, file: CIOS, FFC Subject Files; Schmidt was in Germany until September on temporary assignment since he remained director of FFC—see “Affidavit of Orvis A. Schmidt,” Jan. 10, 1945, folder 7: Bernstein, Mrs. Bernice Lotwin—Security Investigations of Mr. and Mrs. Bernstein (box 7), Bernstein Papers, HSTL; staff increases: “Affidavit of Bernard Bernstein as to His Life,” 46; president’s photograph: Bernstein, Oral History Interview, HSTL. 17. For Rubin: Fisher, “Status of Safehaven Activities in Washington,” June 12, 1945, attachment 14 to Taylor to White, June 30, 1945, folder: Safehaven June 21–30, 1945 (box 383), FFC Subject Files; see also Rubin to Emile [Despres], June 7, 1945, complaining that the “Finance Division will continue to assert not only primary but exclusive control over all documents, records, etc.; we will continue in the uninformed state in which we now find ourselves” folder: Safehaven Special Subjects folder 1945–1947: German External Assets (box 3), Safehaven Subject Files, 1945–1947, Records of DESC; Clay to Hilldring, May 7, 1945, Clay to War Dept., in Smith, Papers of General Lucius D. Clay, 1:12, 70.

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records and prepared to put together two final reports about I.G. Farben’s foreign patents and financial holdings. With the end of their work in sight, Clay “made perfectly clear” that the FEA team “could no longer continue . . . as an independent investigative group.” Clay wanted all such activities centralized in—and not just under the authority of—the USGCC. As a result, the FEA work in Heidelberg was shut down completely on October 31.18 A Fleeting Victory As the summer turned into fall, Bernstein’s temporary successes and even the Kilgore Committee hearings could not negate the fact that the Treasury Department and the “hard peace” advocates were slowly but steadily losing influence. Back on the day of Roosevelt’s funeral in April, President Truman had asked James Francis Byrnes to become his secretary of state—the very same conservative southerner who had hoped even until the first days of the Democratic convention in Chicago to become vice president. Out of deference to Stettinius’s highly successful work during the founding conference of the United Nations in San Francisco, Truman and Byrnes agreed that “Jimmy” should not be sworn in until July 3, 1945. If Byrnes did not hold a grudge against Truman for his loss of the vice presidency, Morgenthau certainly was not so forgiving. Since 1943, he and Byrnes, who was then director of the Office of War Mobilization, had clashed repeatedly over a wartime tax-control issue. Morgenthau would not and could not work with Byrnes. Also, Morgenthau felt increasingly out of place in an administration that seemed to turn more conservative under the new president. Thus, the highest-placed proponent of the Morgenthau Plan resigned the very day Truman began his journey to Potsdam, July 6. To fill his position, the president named Fred M. Vinson, Byrnes’s successor at the renamed Office of War Mobilization and Reconversion.19 18. List of Interim and Final Reports, app. 7 to “Administrative Report on Activities of Heidelberg Team”; Walter K. Schwinn, “Settlement of FEA Interest in External Security Investigations in Germany,” Sept. 1, 1945, about a talk between Easby and Fowler with Clay on Aug. 25 in Berlin, app. 8 to “Administrative Report on Activities of Heidelberg Team.” At this opportunity, Fowler also gave Clay a copy of the FEA studies on Germany. See Smith, Papers of General Lucius D. Clay, 1:63. 19. To finance the war, Byrnes had advocated a program to deduct money from paychecks for a compulsory savings program, which Morgenthau opposed because of the Treasury’s voluntary war bonds campaigns. See David Robertson, Sly and Able: A Political Biography of James F. Byrnes, 332– 64, 369, 388–89; Vinson officially became secretary of the Treasury on July 23 (see Blum, Years of War, 464–73).

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The new secretary of state remained preoccupied until August with the Potsdam conference and the surrender of Japan, but with the end of the war he was ready to consolidate his realm. At the end of August, Truman approved the dissolution of the Informal Policy Committee on Germany, through which the Treasury Department had influenced German policy. The same memorandum also made clear that the State Department “would deal primarily with the policy aspects of the questions” arising from the treatment of Germany and Austria. The War Department, on the other hand, “would deal primarily with the executive and administrative aspects” of military government.20 The original lines of bureaucracy seemed to be functioning again, and in light of these shifts the remaining Treasury people in Germany could only fight a rearguard action. Personally, Clay had never disliked Bernstein. Yet, the deputy military governor was increasingly of the opinion that running German finances required attention to tasks that Bernstein seemed to neglect. So far, Bernstein had emphasized two aspects. On the one hand, he wanted to assure Allied control of the property of former Nazi officials, the Nazi Party, the German government, and other enemy nationals, in accordance with Military Government Law No. 52. On the other hand, his division had immediately blocked all transactions involving foreign exchange and property abroad and had required that foreign-exchange assets held in Germany be reported to the Reichsbank, as Law No. 53 stipulated. But in Clay’s opinion there was more to the work of the Finance Division. German banks and insurance companies had to be controlled and denazified, while rudimentary business activities had to continue. Taxes had to be collected, German and U.S troop salaries paid, the public debt controlled, and currency circulation maintained. In short, the Finance Division was supposed to contribute its part to keep the country running. As useful as Bernstein was, Clay felt that “our progress in finance and banking has been much less than in other fields,” especially in the area of public finances. As a solution Clay tapped Joseph Morrell Dodge to run the Finance Division. Dodge was president and director of the Detroit Bank and had worked with Clay before, in 1944.21 20. Memo quoted in Robert P. Patterson to Vinson, Nov. 15, 1945, folder: Occupied Areas (box 38), State Dept., Correspondence File, 1945–1952, Confidential File, White House Central Files, HSTP, HSTL. 21. In 1972 Clay wrote to the editor of his papers, “I liked Bernstein, and even though disagreeing with his philosophy, I never asked for his relief,” Smith, Papers of General Lucius D. Clay, 1:71 n. 1. Both laws and their French and British equivalent came into force by Allied declaration during the Allied military advance into western Germany; see Hans Dölle and Konrad Zweigert, Gesetz Nr.

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Bernstein apparently did not know about this change until Dodge was already on his way to Germany. Of course, his hearing that his own replacement was expected to arrive soon was not happy news for Bernstein, even if he knew that Clay had assumed his time in Germany would be limited. Bernstein had enough “points” to go home, and either he or Clay’s deputy general, Clarence L. Adcock, had put in a request to that effect. Bernstein made clear to Clay that the “circumstances under which I had been relieved” indicated a “lack of confidence” in him and that he could not serve “any useful purpose by staying on.” Clay insisted that he had just thought that heading the Finance Division combined with overseeing external assets and decartelization was too big a task for one person and that therefore he had wanted to split the chores.22 For that reason a new Division of Investigation of Cartels and External Assets (DICEA) would be created, which Bernstein could lead. Whatever the exact circumstances, it was clear to Bernstein that he would lose his standing and influence. The DICEA—founded September 12—would never be an autonomous division like the Finance Division had been because it came under the general supervision of Charles Fahy, Clay’s legal adviser. As quickly as the Finance Division had been built up before, now its personnel were divided between the DICEA and the old division. Bernstein protested this treatment and even went back to Washington to raise his concerns with the agencies there. But with the backing of the War Department, the reorganization went forward. Bernstein himself decided to remain in Washington, wrote a lengthy report on I.G. Farben, testified for the Kilgore Committee, and never went back to Germany on official duty. His absence left Deputy Director Russell A. Nixon, a Harvard-educated economist, in charge. His and other reports to the Treasury are full of the administrative and political battles the DICEA had to fight. Other divisions treated the people in the DICEA “as Pariahs.” “Morale” and therefore the number of people wanting to work for the DICEA were continuously sliding. And finally, the contact between the Treasury Department and its people in Germany was so 52 über Sperre und Beaufsichtigung von Vermögen: Kommentar, 2. The Soviets instituted comparable laws after the capitulation of Germany. For Berlin, the Allied Kommandatura followed suit only in November 1946; Clay to War Dept., Sept. 8, 1945, Smith, Papers of General Lucius D. Clay, 1:70, see also 79–80; for Dodge: Who Was Who in America with World Notables, 1961–1968, 4:255. 22. Clay-Bernstein talk, Aug. 18 and Aug. 20, 1945, both in folder: Clay, General Lucius D.— Memoranda of Conversations with Bernstein, Aug. 18–20, 1945 (box 8), Bernstein Papers. Bernstein later said about the circumstances of his departure: “I think General Clay, and I think it’s quite understandable, wanted to have as a senior finance man someone who would be closer to the point of view that Colonel Stimson and he espoused rather than to the Treasury point of view. Joseph Dodge was brought over for that purpose” (Bernstein, Oral History Interview, HSTL).

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meager that the finance personnel in Germany felt “completely divorced” from home and like they were left to operate “as isolated individuals.” Nixon’s division’s difficulties even made it into the New York Times.23 The main conflict was over the cartels part of the DICEA, and specifically about I.G. Farben. While Nixon and even Dodge would have liked to destroy war-related I.G. plants, this was anathema to Brigadier General William Draper, chief of the Economics Division and formally still with Dillon, Read and Company, a large Wall Street brokerage house. Although in November the ACC passed a law to vest I.G. assets in a quadripartite body, not much progress was made by the time the DICEA was dissolved on December 14, 1945. Once again, the Finance Division was in charge of external assets, while the Economics Division now dealt with the cartels question. With that reorganization it was clear that de-cartelization would not have a high priority since Draper was hardly the man to press for it.24 Bernstein returned to private life in December and opened a practice in New York after he had briefly played with the idea of getting another job in government.25 Klaus would have one more row during his governmental ca23. Bernstein’s protest in Clay to War Dept., Sept. 8, 1945, in Smith, Papers of General Lucius D. Clay, 1:70; Treasury concerns in DuBois to White, Sept. 12, 1945, folder: Safehaven Project—Personnel Assigned to SHAEF, FFC Subject Files; Bernstein’s report printed in U.S. Senate Committee on Military Affairs, Elimination of German Resources for War, pt. 7, 941–1042, and pt. 10, 1151– 1532; his testimony on Dec. 11 and 12, 1945, printed in pt. 8, 1062–1116; Nixon later said in front of the Kilgore Committee that Bernstein did not return because of the “unsatisfactory” outcome of a controversy between the War and the Treasury depts. over the authority of Treasury personnel in Germany, see U.S. Senate Committee, Elimination of German Resources for War, pt. 11, February 25, 1946, 1596–97; for view on DICEA: Phillip Thorson (DICEA executive officer) to Bernstein, Oct. 20, 1945, telephone conference between Bernstein and Abijah Fox (asst. chief, Finance Division), Nov. 23, 1945, memo for Schmidt about information from Fox, Financial Branch, n.d., all in folder: Safehaven Project—Personnel Assigned to SHAEF, FFC Subject Files; White to Vinson, Dec. 27, 1945, folder: Germany—General—1945 (box 130) and reel 7, microfilm copy of Fred M. Vinson Papers, HSTL; Raymond Daniell, “Experts Sent to Smash Cartels and Big Concentrations Rebuffed by Military,” New York Times, Nov. 16, 1945. 24. For the decartelization work of DICEA see Eisenberg, Drawing the Line, 138–51, and her “U.S. Policy in Postwar Germany:The Conservative Restoration.” Nixon’s successor was James Stewart Martin, who only heard of the dissolution of DICEA while he was already on his way to Germany; see his All Honorable Men, 153–54, 162–64. 25. Bernstein talked with White on Dec. 17 and 18 about the prospects of getting another government job, about which White was not very positive. See detailed memo about White from J. Edgar Hoover to Harry Vaughan (military aid to Truman), Feb. 1, 1946, Harry Dexter White File, section 10, FBI Reading Room, Washington, D.C. Presumably, this information was derived from White’s taped telephone. The newspaper PM wrote about Bernstein after the December hearings that “the man who has successfully conducted the investigation of German cartels is giving up in disgust. . . . He feels he has no proper support” (PM, Dec. 12, 1945). The paper also ran an article detailing Bernstein’s testimony.

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reer. This happened when the program to bring over to the United States outstanding German and Austrian scientists got under way—in knowing disregard of their often questionable Nazi past. This was Project Paperclip, and in a final irony Klaus—now working in the State Department—was assigned in June 1946 to review the first visa applications of these German scientists submitted by the Air Force. President Truman had in March 1946 signed the initial Paperclip directive, which combined the earlier military program (Project Overcast) with a civilian exploitation program. It should surprise no one that Klaus, one of the principal founders of Safehaven and the one single person always so concerned about the activities of German scientists abroad, did not approve any of the visas. In the beginning, Klaus was not alone in his opposition. Already in the summer of 1945, internal State Department memos had pointed out that it was inconsistent to press for the deportation of German scientists from neutral countries to Germany—as part of Safehaven—while at the same time welcoming them in the United States. And after Truman’s 1946 directive, Assistant Secretary of State for American Republic Affairs Spruille Braden voiced similar concerns in a complaint to Undersecretary of State Dean Acheson. Braden also pointed out that Paperclip would allow for military research in the United States, which had been outlawed by the ACC in Germany. But the pressure from the top echelon of government and the military to move forward was overwhelming, especially as the other Allies had no such hesitations. A new presidential directive in September 1946 aimed to circumvent the “visa boys,” and in 1947 another section of the State Department was put in charge of the applications. Thus, Paperclip went forward, a program, in historian John Gimbel’s words, that by making “a mockery of American denazification policies and practices in Germany” was “altogether remarkable for the ways in which specialists who were otherwise unacceptable to the Justice and State Departments under the immigration laws were brought to the United States for reasons of ‘national security.’”26

26. John Gimbel, “Project Paperclip: German Scientists, American Policy, and the Cold War,” 361–65, 348–57. State Dept. opposition continued until Secretary of State George C. Marshall had the visa regulations changed in the fall of 1947. At this point many German scientists were already in the U.S. anyway. See Gimbel, “German Scientists, United States Denazification Policy, and the ‘Paperclip Conspiracy,’” 447–63; for Gimbel’s assessment see his Science, Technology, and Reparations, 49.

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The OSS There was yet another agency of the U.S. government that had been working on Safehaven: the Office of Strategic Services. Since November 1944, its agents had been gathering information in neutral countries and later in Germany. “Wild” Bill Donovan, director of the OSS, hoped that his agency’s active participation in the program might help to justify the office’s existence in the postwar period. Ultimately, he was not successful, as the OSS faced extinction in September 1945 just like the FEA and the DICEA.27 Two departments of the OSS were involved in Safehaven, the Secret Intelligence Branch (SI) and the Counterintelligence Branch (X-2). During the war, SI was in charge of collecting from clandestine sources in the neutral countries and Germany itself, while X-2 reported on such matters as secret German projects to acquire strategic material in the neutral countries. Often the new information required for Safehaven did not substantially differ from material already collected as part of the OSS’s wartime reporting. Therefore, in many cases, “the collection of SAFEHAVEN material simply piggybacked onto other programs for the collection and processing of raw economic intelligence from sources already in place.”28 Substantial Safehaven intelligence began to flow in early 1945, although the amount depended, of course, on the particular station. In Bern, for example, Allen Dulles, who headed the OSS network in Switzerland, did not think highly of the project. It seemed to throw into doubt cooperation with his wellplaced contacts, like Thomas B. Kittrick, American president of the Bank for International Settlement (BIS) and a good friend of Donovan’s. The Dulles family’s relationship with Kittrick and the BIS was close as well, as Allen Dulles’s brother, attorney John Foster Dulles, had represented the BIS in the United States. Morgenthau wanted the bank abolished and had succeeded in passing a resolution to that effect during the 1944 Bretton Woods conference. Yet, the BIS still exists today.29 27. The creation of an independent, centralized intelligence service had been the dream of Donovan ever since the OSS’s formation in June 1942. See David E. Rudgers, Creating the Secret State: The Origins of the Central Intelligence Agency, 1943–1947, 11– 46. 28. Steury, “The OSS and Project SAFEHAVEN,” 36–38, quote 38. This article is very similar to the information about the OSS printed in Eizenstat I, 37– 47. However, one of Steury’s key conclusions—that covert German activities covered by Safehaven “had little to do with visions of a resurgent Fourth Reich” (38)—is flipped around in the Eizenstat report: “These efforts were the desperate attempts of the Nazi leadership to preserve access to vital sources of raw material as much as they represented visions of a resurgent German Fourth Reich,” 38 (my emphasis). 29. For the BIS see Gustav Trepp, Die Bank für Internationalen Zahlungsausgleich im Zweiten

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In December 1944, Dulles wrote about the Safehaven request that “we must fish in troubled waters and maintain contacts with persons suspected of working with Nazis on such matters.” While Dulles did not have the inclination or the manpower to pay attention to Safehaven, the situation got better in 1945, when X-2 was put in charge, new arrivals were put to work, and reports began to flow in the spring. These informed about such topics as bonds looted in occupied Europe and transferred to Switzerland or accounts presumably held for Nazi officials. Sometimes, it was difficult to tell truth from fiction in these reports from Switzerland. Cummings, for example, was informed as part of the routine information exchange with the State Department that Herman Göring had deposited sixteen million reichsmark in the name of Dr. Ingmann in an unknown bank, that a Walter Baumer “is said to be hiding millions,” and that the import and export firm Intercommerz served “as a safehaven” for Hitler’s property. The last two reports were allegedly received from a “reliable source.”30 From Stockholm’s X-2 material, Donovan received a lengthy summary in June. The report outlined methods of capital transfer to Sweden. German exporters, for example, held in warehouses in the free ports of Stockholm and Malmö goods valued at 10 million Swedish kronor—mostly chemicals, drugs, and textiles. Since the shipping traffic between Germany and Sweden had stopped in December 1944, these goods were now increasing in value. To make capital available for later use, only the older, lower price would be paid into the clearing while the remaining balance would be available for the German exporter later. Indeed, later German sources confirm a planned effort of the German Economic Ministry to increase the financial holdings in Sweden in 1944 “by asking German companies, which had branches in Sweden, to send to Sweden goods etc. in large amounts.” Allegedly the idea was to make available money for the continued payments of German bonds and other debt coming due over the years. The effect of this action was that there remained after the war a large clearing balance in Germany’s favor. The OSS report also Weltkrieg: Bankgeschäfte mit dem Feind: Von Hitlers Europabank zum Instrument des Marshallplanes, 112–17, 138–51; for Allen Dulles in Bern see Neal H. Petersen, “From Hitler’s Doorstep: Allen Dulles and the Penetration of Nazi Germany.” 30. Dulles to Washington, Dec. 28, 1944, quoted in Steury, “The OSS and Project SAFEHAVEN,” 39, 39–40 (X-2); memos for Cummings, about Göring on July 6, about Baumer on Apr. 15, and about Intercommerz on Oct. 31, 1945 (and last quote), all in folder: Safehaven (box 45), Washington X-2 Personalities Files (Entry 171), Records of OSS. Supposedly, Göring had also deposited SKr 50,000 in Stockholm under the name Freidmann (more likely Friedmann) and 10,000 pounds in Argentina; see Davids to Feig, May 3, 1945, folder: Safehaven May 1–15, 1945, FFC Subject Files. At least for Sweden, the suspicions about Göring turned out to be incorrect; see Chapter 9.

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documented a meeting of “air transport men” in the German Embassy in April. A German intelligence officer announced that the war was apparently lost but that none of those present needed to be concerned. The officer had deposited enough cash in Sweden “in such a way that access . . . is possible” so that each man “will have no financial worries for the next few months . . . until he finds a new place for himself.”31 Beginning in April, these reports were routed through the newly founded Economic Intelligence Control Unit, which reported directly to Donovan. The unit had been assembled after Frederick B. Lyon from the State Department asked the OSS in early April to “intensify its SAFEHAVEN investigative activities.” Thereafter, not only was this new unit organized, but the OSS also got proactive in other ways. A circular from Assistant Director G. Edward Buxton to all field stations made it clear that the “OSS should make a substantial contribution” to Safehaven. All field offices were asked to report their status on Safehaven. Material “which does not need processing or evaluation in Washington” should be made available to the local State Department officials as well as to the theater commanders. Buxton pointed out that the clandestine collection of business and financial intelligence had to be understood “not merely as a wartime or post-hostilities necessity but rather as a vital and permanent part of our national intelligence.”32 It was thus clear that there was a larger agenda behind these concerted efforts of the OSS directors. Donovan wanted to be sure that there would be a place for the OSS once the war was over. A report by X-2 submitted to Donovan in April or May seemed to underpin such a plan. The report was highly critical of Safehaven. It was also deadly in its accuracy. None of the other officials involved in the daily battles of Safehaven could ever have written this report since they were so locked into the eternal defense of their own bureaucratic fiefdoms and their careers. “An objective observer gets the impression that a great deal remains to be done in organizing the Washington end of the Safe Haven project on an efficient basis,” the report asserted. Because three 31. John A. Mowinckel to Donovan, June 4, 1945, transmitting undated report “Oustanding Cases Illustrating the Pattern of the Transfer of Funds, Valuables, and Scientists and Technicians, from Germany to Sweden,” reel 82, Microfilm Publication M 1642, Office of the Director, Records of OSS; Walter Hoffmann, Fritz Wecker, “Bericht über die Lage des deutschen Vermögens in Schweden,” May, 2, 1950, for the members of the Swedish study group of the Studiengesellschaft für privatrechtliche Auslandsinteressen, B 184/130, Bundesarchiv (German Federal Archives), Koblenz (BAK). See Chapter 9 for further discussion of this group. 32. Lyon (chief of the Division of Foreign Activity Correlation) to Donovan, Apr. 3, 1945, reel 82; G. Edward Buxton (acting director) to all OSS officers, Apr. 16, 1945, reel 108, both in Microfilm Publication M 1642, Office of the Director, Records of OSS.

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agencies were involved, “much of the time people who should be grappling with the difficult problems of Safe Haven are actually jockeying for position against members of other departments.” As a result, work was duplicated and manpower and energy wasted. The inefficiency was no surprise, though. Those in charge “appear to be mostly on the fourth level of administration or lower.” Such bureaucrats would never understand “the economic, political, and organizational experience necessary for the mastery of such a complicated international-economic-political problem.” (It was a good thing that the author of the report did not work for any of these three departments, because he certainly would have just ended his career.)33 Because of these bureaucrats’ ingenuousness, Safehaven instructions had been comprehensive only “in a technical sense.” As much as the resulting massive list of all German assets in foreign countries was desirable, its compilers’ aims were off target. Its assembly relied either on old, already existing material, such as Proclaimed List files, or on newly reported “transactions in the mystery story style, such as picture and jewel smuggling.” Simple accumulation should clearly not be the goal of Safehaven, the report declared. Instead, its officials should be developing “new intelligence sources” and using them to detect the transfer of funds while they were moving, not after they had already arrived in the neutral countries. For reasons of legality and practicality, that way it would be much easier for the Allies to get hold of these assets.34 Analyzing the State Department’s views on Safehaven, the author concluded that the department had developed a “police system which aims to prosecute every violation of the law.” Such a system neglected to note that the real aim of Safehaven was political and not “a law enforcement task.” The goal was “to prevent the resuscitation of German nationalism in foreign countries.” Thus cases had to be ranked according to importance. There would always be examples of Germans inclined to spirit away money abroad because they “will not see any future in a country broken and impoverished” or because they would simply like to avoid “high taxation”—an eternal motive. Others, however, would be more suspect because of “their past and present activities.” These should be watched even if they were “reading Plato.” Equally suspect would be legitimate business activities awaiting “favorable circumstances to be 33. “Memorandum for General Donovan: Re: Rebuilding of German Economic, Political, and Military Power Positions Abroad by the Evasion of Allied Controls over the Exit of German Assets and Personnel from Germany (Safe Haven),” from “George,” n.d. but probably April or May, reel 108, 4–5, 6. 34. Ibid., 15–22.

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reconverted into political funds.” The conclusion of this long tract came as no surprise: “It is obvious, that . . . only a secret intelligence agency such as the O.S.S. has or is able to develop the facilities to make a successful investigation.” Otherwise, “our government . . . is likely to dissipate its forces and fail in its aim.” OSS participation would focus the program on its main political goals within the broad limits set by the State Department. The OSS could then use these investigations as “the starting point and testing ground for large scale economic intelligence for the protection and promotion of our economic and related political interests abroad.” In other words, OSS could continue to exist.35 This report was a sharp and precise critique of Safehaven’s operation so far. Its aim was to focus the program on its perceived essential goal, which was to prevent neutral countries from being used as postwar bases for German power. The report also supplied the OSS with a reason for continued postwar operations via its participation in Safehaven. Similar to Bernstein, the OSS was yet another entity that hoped to set up some kind of investigation apparatus for Safehaven—if only with a slightly different aim. The necessity for such steps seemed to be reconfirmed in the Kilgore hearings on the “Elimination of German Resources for War.” These depicted a still-menacing Germany in need of thorough controls in the future. Donovan maintained close contact with Senator Kilgore because the head of the OSS saw a renewed chance to press for the establishment of “a national centralized intelligence agency” to control the “future aggressive intentions” of Germany.36 Yet, the advocates of such a policy were clearly on their way out. Indeed, the hearings were the last hurrah of the promoters of a harsh peace. Here they finally had the opportunity to lay out their thinking to Congress and to the public. Even if these hearings were perhaps not politically important in shaping the future course of U.S. policy toward Germany, they are crucial to understanding the weltanschauung of many of those people who had so far planned and executed Safehaven.

35. Ibid., 32–33. 36. Donovan to Kilgore, Aug. 3, 1945. Kilgore agreed with Donovan in his Aug. 13 reply that “the old adage ‘forewarned is forearmed’ reaches a new peak” in regard to Germany. Both reel 108. See also Steury, “The OSS and Project SAFEHAVEN,” 43. These communications might be interpreted as part of Donovan’s last-ditch publicity campaign to preserve his organization; see Rudgers, Creating the Secret State, 41–42.

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The Kilgore Hearings Two main sets of hearings were held, in June and December 1945, in front of the Subcommittee on War Mobilization, chaired by Senator Kilgore. His committee was part of the Senate’s Committee on Military Affairs. The first hearing was the more important in terms of the public attention it garnered. Testifying were many of the people concerned with Safehaven: Schmidt from FFC, Fowler—appearing for Crowley—from the FEA, Bernstein, Nixon, and Clayton. Major General Hilldring from the Pentagon’s Civil Affairs Division and Bernard M. Baruch, financier extraordinaire and adviser to many presidents, also testified. Clayton set the tone when he said on June 25 that “in all questions affecting the treatment of Germany, the Department of State has one paramount objective—security against a renewed German aggression.”37 Clayton proceeded to give a comprehensive primer on Safehaven. He outlined the data-collection efforts that the OSS had so criticized, gave some examples of German cloaking, and talked about the various resolutions passed by the Allies. While his testimony presented a reasonable—if quite positive— picture of the program so far, he did not say much about the basic motivations. This was left to the other officials’ testimonies, which followed during the next days. These testimonies were clearly guided by one basic assumption: that German history in the decades after 1918 had been one giant and unrelenting conspiracy for world domination. Even with the guns still smoldering, the men “who had drawn up Germany’s economic plans for mobilization of the entire German economy during the First World War began . . . to plan the economic and industrial rearmament of Germany for World War II,” as Crowley wrote in his testimony for the committee. The provisions of the Treaty of Versailles had been inadequate. Germany had been “allowed to retain and equip a provisional army of 100,000 men,” an army too large in proportion to its population. The treaty had only limited but not abolished “the possession and manufacture of all arms, ammunition, and implements of war.” Such a gentle policy had been the result of the misguided “desire on the part 37. U.S. Senate Committee, Elimination of German Resources for War, pt. 2, Testimony of State Department, June 25, 1945, 39 (quote). For public attention see “Senate Group to Air Third War Schemes of Nazi Cartelists,” Washington Post, June 22, 1945, reporting the release of a document about the Rotes Haus meeting in Strasbourg in 1944. See also two editorials by Isador F. Stone about the hearings: “The Smokescreen on German Plan for World War III” and “One Way to Prevent World War III,” PM, July 2 and 3, 1945. Morgenthau also quoted from the hearings in his book to show that he was not alone in his thinking; see Germany Is Our Problem, 24 –28.

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of many Allied statesmen . . . to prepare the way for the eventual entrance of Germany into the League of Nations.” Because of this inadequacy, the German General Staff, though officially abolished, could go on “planning for the next war” unhindered. This was done in close cooperation with German industry. Over the next decades, there then existed a “perfect working partnership” between state and industry because, as Senator Kilgore summarized, German “industry was not solely interested in the expansion of business but its ultimate aim was the industrial domination of the world to be accomplished by force.” This was not a partnership that came about solely in the 1930s under Nazi leadership. Rather, as Schmidt from the Treasury pointed out, it “began as soon as they were able to organize after the First World War.” To finance their goal, the “network of trade, industrial, and cartel organizations” together with the “underground General Staff” set out to purposefully create a hyperinflation to wipe out industrial debt in 1923. In the following years, the conspirators lured innocent foreign investors—many of them from the United States—into buying German bonds. The money so gained was in truth only intended to build up the country’s already excessive iron and steel mills. All the while, Germany took advantage of the requirement to pay reparations in goods because these payments “kept the enlarged plants busy and skilled staff together, built up buyer demand for Germany in the receiving countries against the day when the deliveries stopped, and retarded the development of key war-potential industries abroad.”38 When the Nazis came to power in 1933, they were really only a cog in the machine that had already been going for quite a while. As Bernstein told Kilgore, “The Nazi party was . . . a more recent member of the conspiracy. The Wehrmacht and the German General Staff was [sic] an older member of that conspiracy. . . . The German heavy industry and German finance had also been a member of that conspiracy for some time.” In the weltanschauung expressed in the hearings, the Nazi Party was, in Bernstein’s words, a “front,” machinated “from time to time” at the convenience of the real leaders of Germany. This bizarre version of history collapsed together a fairly democratic German state with a totalitarian regime in order to show that Germany only and always had strived for world domination. With the second attempt of the

38. Crowley had submitted a written statement, which was summarized by Fowler; see U.S. Senate Committee, Elimination of German Resources for War, pt. 3, Testimony of Foreign Economic Administration, June 26, 1945, 170, 166–67, 171, 148; Elimination of German Resources for War, pt. 5, Testimony of Treasury Department, July 2, 1945, 641; pt. 3 (FEA), 165, 175–76.

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conspirators now defeated, the peril was that “they and their descendants” stood once again “ready to carry on” in the near future.39 German external assets played a prominent role in these hearings. In the 1920s, “while the Germans were alleging their inability to pay . . . they did have substantial assets cloaked abroad,” Schmidt surmised. These assets had formed the “nucleus for a new German effort at world conquest.”40 Schmidt and others were of course right that Germany had maintained a substantial rearmament program abroad in the 1920s, even if these efforts very much lacked the sophisticated level of coordination assumed in the hearing. It was in part because of these past experiences that the Safehaven program had begun in the first place. Similar to the views already expressed by Bernstein and the OSS, the FEA presented its own version of large-scale controls of external assets to the committee in December. The topic had been studied by the FEA as part of its massive undertaking to prepare a plan for Germany’s economic future. This was the program that President Roosevelt had supposedly asked Crowley to “accelerate” in September 1944, when the controversy about the Morgenthau Plan had become public. In his written statement for the committee in June, Crowley announced that the studies were now nearing completion and would be distributed to interested agencies shortly. An FEA delegation under Fowler traveled to Germany in August and gave a copy of the reports to Draper, chief of the Economics Division. The brigadier general was not necessarily thrilled with the outcome. “Adding all the FEA studies together will indicate that the whole program won’t work,” Draper announced during a large meeting with Fowler, Bernstein, and others. Clay decided against their “wide distribution” because the studies might be “misleading.” Fowler himself came before the Kilgore Committee again in December and elaborated on the FEA’s general conclusions, which now had been combined into one large summary report.41 Underlying the report was the belief that it would take many generations until the Germans would be able to redeem themselves—if they ever could. 39. U.S. Senate Committee, Elimination of German Resources for War, pt. 8, War Department Testimony, December 11, 1945, 1064–65; Schmidt in his testimony, ibid., pt. 5, 649. 40. Schmidt, ibid., pt. 5, 644, 643. 41. See Chapter 2 for the FEA studies; Draper in A. M. Kamarck, “Meeting with FEA Representatives 16 August 1945,” folder: Pending File—Memoranda and Reports, 1945 (box 7), Abijah U. Fox Papers, HSTL; Smith, Papers of General Lucius D. Clay, 1:63; summary report printed for the Kilgore Committee as U.S. Senate Committee on Military Affairs, A Program for German Economic and Industrial Disarmament, A Study Submitted by the Foreign Economic Administration (Enemy Branch). Even in the dense congressional print, it amounted to 660 pages.

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The program was thus designed “for effective operation and execution . . . in 1976 as well as in 1946.” Such long-term planning was necessary because “the Germans . . . will continue to be fired with their desire for revenge,” as Crowley said. Danger existed because, according to Fowler, “the economic base of her aggression . . . is still available”—a view certainly different from Clay’s. Thus, a simple military disarmament program would be insufficient. The goal was to get at the base of German industrial capacity, which was formed by the country’s economic and scientific potential. Therefore, in addition to a total disarmament program, the FEA recommended the “complete and permanent” elimination of certain key industries: oceangoing shipping, electronics, optical instruments (excluding civilian cameras), ball bearings, and synthetic rubber and oil, and a ban on the production of aluminum, magnesium, calcium cyanamide, and heavy trucks. All military and civilian aircraft production and usage—except by Allied permission—would be outlawed as part of the military disarmament program. Other industries, like the iron and steel or the machinery industry, should be reduced in capacity to early 1930s levels— the height of the depression. All industrial-plant construction including major repairs would have to be licensed by the Allies. Even long-term wood production was considered dangerous in its strategic applications, and the FEA recommended that the cutting of German forests should be “accelerated.”42 To control all scientific research, every laboratory should be closed, and they would only be allowed to reopen after every particular research project had been licensed by Allied authorities. All German technical information “patentable or otherwise” resulting from this research would have to be disclosed abroad free of charge. All scientific personnel including engineers would have to register with Allied authorities and could not leave the country—although, of course, some already had, thanks to the Allies. Allied authorities would also control all technical education. They should also “consider future limitations of certain courses in physics, chemistry, and advanced engineering” in as far as their teaching had not been outlawed yet as part of a ban on military studies or other forbidden industries. The number of scientists in Germany was also considered too high and should be “decreased.”43 Finally, the entire Ruhr-Rhineland area west of the Rhine—and not only 42. Program for German Economic and Industrial Disarmament, 30; U.S. Senate Committee, Elimination of German Resources for War, pt. 3 (FEA), 189; Fowler during his second testimony, Elimination of German Resources for War, pt. 9, Testimony of the Foreign Economic Administration, December 20, 1945, 1133; Program for German Economic and Industrial Disarmament, 136. 43. Program for German Economic and Industrial Disarmament, 176, 12.

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the Ruhr itself—should be separated from Germany and placed under the authority of the United Nations Security Council. The landed estates in East Germany or elsewhere should be broken up “for resettlement as family farms.” And “all combines, trusts, cartels, and cartel-like organizations should be dissolved” since these were “the driving forces behind the policy of expansion through military conquest.” The desired long-term effect of all these measures was to reverse “the dependence of the various European countries” on Germany and to thereby end German industrial dominance of the continent.44 Curiously absent from this plan for economic and industrial disarmament were any larger political considerations in regard to Germany’s future. The FEA made clear that “this report is a disarmament program, not a program for the governance of Germany in all its aspects” and eschewed any further discussions. Left open was the question of how, apart from the punitive aspects, Germany should actually be administered, regarding such considerations as education, political activity, or the creation of a future German government. For the long run, the report displayed a strong belief in the future of the grand alliance. The Allies would continue to hold the ultimate authority in Germany even after the troops had left. Then, one day, a new German state might be “admitted into the family of nations again.”45 If this program sounded like a slightly milder version of the Morgenthau Plan, the authors were certainly aware of that. Indeed, they conceded that the difference between the two plans was “one only of degree.” The FEA agreed that some of the premises of the secretary’s plan were “incontrovertible” and that they had used them themselves. The only difference was that the FEA had not carried “the program of deindustrialization to the extreme” since the result of this would not be “feasible, desirable nor necessary.”46 An “external security program” was an important, integral part of the overall design. Here the FEA presented ideas already familiar. A UN “German External Security Council” should be in charge of the overall program, it stipulated. This council would work to extirpate the “economic base of German aggression” all over the world. In the neutral countries all German property should be placed at the disposal of the Allied Control Council. The Allies should have complete and unlimited freedom to investigate German assets. (The relationship between the UN body and the ACC was not exactly specified.) All German nationals in the neutral countries should be repatriated. 44. Ibid., 14, 13, 201, 279. 45. Ibid., 289, 316. 46. Ibid., 33.

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“As a rule,” neutral governments should be asked “to divest” naturalized Germans of their neutral citizenship regardless of “their length of residence abroad.” Further, German foreign trade in the future should be controlled in “some form” by the Allies, including not only the export but also the import of capital. If any country should “prove unwilling to cooperate with the Allies in their endeavor to suppress the seeds of another war, the employment of existing sanctions and the development of new ones should be aggressively pursued by the Allies.” This complete program for external security was guided by “the firm conviction that the disposition of German foreign assets is not primarily a reparations problem.” Instead, its main focus was on the industrial disarmament of Germany. In that event, Germany would not need any foreign assets. “Germany should surrender all the assets of the nation and of its nationals outside of Germany regardless of when acquired and regardless of pro-Nazi or anti-Nazi sympathies of the holder.”47 Morgenthau would have had much sympathy with this plan. This was, then, the true motivation of the early developers of Safehaven. The OSS critique might have been right to say that the focus of Safehaven was too broad, but the above discussion gives the reason that it had to be. The goal was security from a Germany guided by a military-industrial complex and considered an eternal and unceasing menace.There was no difference between the state and industrial interests, between private property and the interests of the conspirators who would turn even the most innocent property abroad to their advantage. Thus all assets abroad had to be surrendered regardless of how old or what kind. In combination with the other measures proposed, only then might there be security against renewed German aggression—at least for a while. Taken together, all three programs—by Bernstein, the OSS, and the FEA—had one theme in common: all of them envisioned large-scale, more or less permanent investigations in Germany and abroad. The underlying motivation for such a move was also clear and spelled out for the public during the Kilgore hearings. However, at least the FEA and the OSS also had their own personal agenda in such efforts, as they hoped for a legitimate reason to extend their wartime existence. Yet, at this point the proponents of such a pol47. Program for German Economic and Industrial Disarmament, 249; TIDC Project 25, Study of the FEA Drafting Committee on the Treatment of the Allied Activities Relating to German Assets, Economic Activities and Industrial Personnel outside Germany from the Standpoint of International Security, Aug. 6, 1945, 22, Lubin Papers (box 113), FDRL; Program for German Economic and Industrial Disarmament, 253, 19; Study of the FEA Drafting Committee, 16, 24.

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icy had lost their influence. Both the OSS and the FEA were dissolved in late September. Under the new administration any such ideas seemed very farfetched anyway and were no longer in congruence with reality. Instead of disarming Germany completely, the Allies in the coming winter were to confront the much more pressing problem of how to feed a Germany that was now under Allied tutelage.48 The FEA’s plans were thus very much a reflection of thinking that was in vogue in late 1944 but that had hardly any influential supporters anymore in late 1945. These facts Bernstein and the OSS had to face as well. For a while Bernstein’s activities were useful to Clay, but that marriage of convenience soon ended and Bernstein had to leave. The OSS was also clearly an organization not in demand anymore until new enemies would require a new intelligence agency. Yet, the critique of Safehaven the OSS had penned remained accurate. Safehaven was handled in such a way that it could not fulfill its aims. A mountain of information that was not up to date—and the archival files confirm these collection efforts—was, as such, not a very useful tool. These files needed to be analyzed as to their accuracy and cross-checked with other files, a job that would require much work. But they also had to be kept current, a task increasingly more difficult as such information the Office of Censorship collected was not available anymore after the war. Such large-scale efforts might have been warranted during the war in other areas—such as codebreaking— which helped answer life-and-death questions, but did Safehaven deserve such investments and also the continuation of controls? This was ultimately a political decision. Some advocates of Safehaven, such as Samuel Klaus, had emphatically advocated that such efforts were necessary, and his and Bernstein’s travails in Germany testify to their attempts to put those ideas into practice. But such investments were highly unlikely as they were politically infeasible. For the State Department these developments were all good news. Clearly, the declining but still irksome competitors were losing their influence and the department could now claim increasing authority in determining the future course of the program. Thus, the direction of Safehaven was changing. No longer would vast file collections and teams of investigators be required. Yes, supposedly it was still a program to control capital flight, as the FEA had envisioned. But that focus was no longer the main aim of the program, as the next chapter will show. 48. Martin Lorenz-Meyer, “To Feed the Hungry: German Americans, the Truman Administration and the European Food Crisis.”

An Allied Quarrel How to Approach the Neutral Countries

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  U      S     , possible financial rewards remained at the core of all future Safehaven activities. Strategic utterances about Allied security concerns related to Germany, such as those expressed by the FEA, did not completely disappear since they proved useful in the negotiations with the neutral countries, but they were hardly in step with the times. Arnold A. Offner has written that in early January 1946 President Truman, in a letter to Secretary of State James Byrnes, penned “his personal declaration of Cold War,” and over the next weeks and months the Soviet Union became the looming threat it was to be for the next forty-four years. Germany, in the meantime, had morphed from a menace to a costly liability, and those expenditures needed payment. As already discussed, Truman’s May 1945 directive for Edwin Pauley’s trip to Moscow for the meeting of the Allied Reparations Commission stated that “the United States will desire to receive, as much as feasible of its share of reparations in the form of foreign exchange assets including German investments abroad.” And after the inconclusive Moscow meeting, Edward Playfair from the British Treasury found that in regard to German external assets in the neutral countries, “we shall soon hear plenty of it, since the Americans are more interested in that than in anything else.” The Potsdam Conference sealed the compromise of splitting the allocation of those assets between East and West. In explaining the meaning of the agreement to a public audience in New York in October 1945, Pauley made clear that for reparations “we will not want any 190

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substantial part of machinery, tools, and other industrial equipment. We will want . . . patents, ‘know how,’ . . . samples of specialized machinery . . . and a good share of German foreign exchange assets.” The British had slightly different if ultimately comparable priorities—or maybe they were just more honest about their aims. As John Dent from the Foreign Office wrote the same month, “Our principal purpose is to eliminate German commercial influence in neutral countries but we have an important secondary interest in laying our hands on German . . . assets for reparation purposes if we can.”1 Either way, before that “good share” could be claimed, the assets the Allies did not already control had to be handed over by the neutral countries. After Potsdam the question became how to approach and negotiate with those countries. Deciding on the right strategy for these negotiations involved two issues, the passage and legality of the vesting decree and the question of whether any other approach not based on this decree should also be employed. A Question of Law At the suggestion of his reparations commission representative, Truman had sent instructions to Deputy Military Governor Lucius D. Clay from Potsdam that Clay should “urge” the Allied Control Council to issue a vesting decree and set up an External Property Commission. Yet, in many regards such a decree entailed unprecedented and thorny questions of international law. Already in 1944, George Wunderlich had listed all the court cases that made it unlikely that neutral courts would happily oblige with such unique Allied requests.2 Also, as already discussed, the government of Sweden was most reluctant to acknowledge this decree. And finally, the British had already demonstrated a more cautious attitude at Potsdam and before, which they were not inclined to give up readily. 1. Offner, Another Such Victory, 124; Pauley instruction in FRUS, 1945, 3:1225; memo by Playfair, July 16, 1945, DBPO, 1:332; “Address of Edwin W. Pauley, Personal Representative to the President on Reparations, before the Democratic State Committee of New York, Hotel Biltmore, Thursday Evening, October 11,” also released to the press and radio, folder: Germany—Berlin Protocol on Reparations (box 130) and reel 7, microfilm copy of Fred M. Vinson Papers, HSTL; Dent minute, Oct. 23, 1945, FO 371/46767. 2. Truman to Clay, Aug. 1, 1945, FRUS, Potsdam, 2:964– 68. Like the final agreement, this communication was probably dated incorrectly since the conference ended early on Aug. 2 (see ibid., 1478 n. 1d). Clay’s instructions originated with Pauley, according to Pauley and Lubin, Report on German Reparations, pt. 5, 13–14; Wunderlich to Oscar Cox, “Flight of German Capital. Position of the Neutrals after the Future Peace Treaty with Germany,” Aug. 31, 1944, folder: Germany—Economic Control of, Oscar Cox Papers.

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To disentangle the legal issues, three topics need to be considered. First, very briefly, the legal history of the treatment of enemy property in the interwar period will be discussed. Then the question of what status the Allied administration of Germany had, or, in other words, whether the Allied Control Council had the authority to pass such a law, will be examined. The final question is whether such a decree could actually have force in neutral countries and, if not, what could be done to remedy the situation. Like so many aspects of the Safehaven program, the roots of the legal issues date back to World War I, or, more specifically, the Treaty of Versailles. The treaty’s article 297 (b) specified that “the Allied and Associated Powers reserve the right to retain and liquidate all property, rights and interests belonging . . . to German nationals, or companies controlled by them, within their territories, colonies, possessions and protectorates.”3 This section stood in contradiction to the clear wording of the annex to the “Convention Respecting the Laws and Customs of War on Land,” signed in The Hague in 1907. Article 46 of the annex stated simply that “Private Property cannot be confiscated.” In the United States, World War I and the Versailles Treaty introduced for the first time since the Revolutionary War the notion that private property could be counted among the assets of nations at war and therefore seized by the belligerents or victors. Never a party to the complete Versailles Treaty, the United States subsequently renegotiated the treatment of German property in the United States with the German Reich. Beginning in 1928, 80 percent of the German property was returned. The United States paid an indemnity for all the seized patents and ships. In the interwar period these measures did not yet extend to enemy property in neutral countries, and indeed the courts in the neutral countries did not recognize any measures taken by the Allies to expropriate German property. There were several Swiss cases, for example, in which the courts ruled that the recognition of foreign exceptional war measures would “mean a violation of neutrality” by Switzerland. Spanish and Swedish courts ruled in a similar manner.4 Nevertheless, at least in the coun3. FRUS, The Paris Peace Conference, 1919, 13:598. 4. For German property in U.S.: Hans W. Baade, “Die Behandlung des deutschen Privatvermögens in den Vereinigten Staaten nach dem ersten und zweiten Weltkrieg,” 11–14, and Burkhard Jähnicke, “Die Bemühungen privater Interessenvertreter um die Freigabe des deutschen Vermögens in den USA nach dem Ersten und Zweiten Weltkrieg,” 351–54. Quoted from a 1927 Swiss case in which the English liquidator of a German company sued to be the official legal agent before Swiss

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tries at war, a precedent had been created that the United States was set on broadening after World War II. The occupation of Germany by the Allied powers in 1945 created a unique situation in international law. No German government was in place to continue after the British took the Dönitz government into custody. Therefore, once again, the Hague regulations of 1907 came into play as the applicable, if limited, convention of the time regulating the authority of the occupying powers. According to article 42 of the annex, a territory was considered to be occupied “when it is actually placed under the authority of the hostile army.” Article 43 regulated the treatment of such occupied territory: “The authority of the legitimate power having in fact passed into the hands of the occupant, the latter shall take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country.” Then and now the main foundation for this law of occupation is the “principle of inalienability of sovereignty.” In other words, “effective control by military force can never bring about . . . a valid transfer of sovereignty.” Rather, “the occupant administers the territory on behalf of the sovereign,” as a sort of trustee. Of course, how much power this “trustee” has, has remained open to interpretation ever since.5 World War II was characterized by serious erosion of these laws. This was especially the case on the side of the major and minor Axis powers, but the Soviet Union also disregarded the Hague regulations. The United States grew bolder in its actions with every territory under occupation, and by the time the troops got to Germany it was clear that the Allies would not abide by the regulations’ constraints. Unconditional surrender was the goal. Having achieved that aim, the Allies publicly declared on June 5, 1945, their “supreme authority in Germany.” This authority was to be “exercised, on instructions from their Governments, by the Soviet, British, United States and French courts instead of the original legal representative at the time of the liquidation; his application was denied by the highest Swiss court, Die Praxis des Bundesgerichts, Monatliche Berichte über die wichtigsten Entscheide des schweizerischen Bundesgerichts 16 (1927): 252–57, quote 253. In a well-known Spanish case Friedrich Krupp had been suing the British company Orconera Iron Ore Co. since 1918 to get Orconera to continue its deliveries of ore from the Spanish mines Orconera owned in Spain. The 1873 contract for those deliveries had automatically been terminated during the war under English law and later by art. 299 (a) of the Versailles Treaty. After ten years of litigation Spain’s highest court (Tribunal Supremo) dismissed the case, reasoning that Spain was not a party to the Versailles Treaty, Juristische Wochenschrift 58 (1929): 3523–26. In a Swedish case Germany had liquidated British-held share documents of a Swedish joint-stock company. The German action was not recognized in Sweden. See Hermann Isay, Die privaten Rechte und Interessen im Friedensvertrag, 78 –79. 5. Eyal Benvenisti, The International Law of Occupation, 5 – 6.

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commanders-in-chief, each in his own zone of occupation, and also jointly, in matters affecting Germany as a whole.The four commanders-in-chief will together constitute the Control Council.” The Potsdam agreement reiterated that announcement.6 It can be argued that by virtue of that declaration the Allies took over all powers of the German state; in other words, they became the new sovereign of Germany. This was clearly the Allies’ own view. Such contention rests on the notion of debellatio. This term “refers to a situation in which a party to a conflict has been totally defeated in war, its national institutions have disintegrated, and none of its allies continue militarily to challenge the enemy on its behalf.” All these conditions were clearly fulfilled in the case of Germany. Therefore, measures taken by the Allies were not a matter of international law, but an outflow of the power of the Allies to regulate the internal affairs of Germany as the holder of German sovereignty. The Hague regulations would no longer have applied.7 Taken to its most extreme, such an argument would have meant that the Allies would have been able to make a peace treaty with Germany among themselves, as they would represent the two parties at the same time. Not surprisingly, German scholars writing in the late 1940s did not agree with this notion. Instead, they argued that German sovereignty did not perish but only was suspended. To confirm this theory of abeyance, they cited the facts that treaties concluded with the German Reich did not suddenly lose validity, that the national debt of the German Reich did not cease to exist, and that passports were still issued to Germans in the name of Germany. In addition, the powers of the Allied Control Council (ACC) did not rest on a constitution and thus could not legitimately reflect the will of the populace. Nor was the ACC responsible to the people. Thus, the ACC should instead be described as a collective organ representing the combined will of the four powers and acting in their combined interest. The ACC’s powers were unprecedented in international law. Hence, its actions were new acts of international law and not those of a successor of the German Reich.8 6. “Statement on the Control Machinery in Germany, June 5, 1945,” in U.S. Dept. of State, A Decade of American Foreign Policy, Basic Documents, 1941–1949, rev. ed., 276 –77, and Final Communiqué, III, A., 1., Aug. 2, 1945, FRUS, Potsdam, 2:1502. 7. Benvenisti, Law of Occupation, 92–96. Because World War II had so seriously eroded the Hague regulations, the Geneva conventions were revised and added to in 1949. The Fourth Geneva Convention Relative to the Protection of Civilian Persons in Time of War most likely signified the demise of the debellatio doctrine, ibid., 94– 96. 8. Rolf Stödter, Deutschlands Rechtslage, 91–103, 198–203; Fritz Faust, Das Potsdamer Abkommen und seine völkerrechtliche Bedeutung, 106–7 with further literature.

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Whatever its status, there was—remarkably—some agreement that the ACC indeed had the authority to pass a vesting decree. Of course, in the U.S. Treasury Department such a belief was never in doubt. A 1945 memorandum written for Pauley flatly asserted that “there can be no question that the Allied Control Council with its powers of a de facto government has authority to issue a decree vesting German external assets” (emphasis in original).9 The memo—probably written by Josiah DuBois—was based on the assumption that the Allies would establish a temporary de facto government that, as the sole and unopposed representative of Germany, could pass such acts. A later de jure German government would have to recognize those earlier acts. This memo did not mention with a word the Hague regulations, and many of the court cases cited had been decided before that convention came into effect. German scholars writing in 1948 did not question, in principle, this authority of the ACC. Rolf Stödter reasoned that the ACC possessed concomitant legislative, executive, and judicial powers and could pass laws that had “immediate legal force for all persons living in Germany.” In principle, the ACC could thus pass any vesting decree. Erich Kaufmann—later legal adviser to Chancellor Konrad Adenauer—argued that there were certain domaine réservé for every occupied territory that any occupier had to respect. Into this protected sphere fell such issues as the design of a constitution, of the political economy, or of the educational system. Nevertheless, Kaufmann also conceded that the ACC had the power to pass a vesting decree since there was no central German government and because of “the extraordinary conditions Germany and the world are in.” A prerequisite was that appropriate compensation would be paid later.10 However, if the authority of the ACC in this case was not an issue, the question of its legality in neutral countries clearly was. DuBois knew this quite well when he wrote in his memo that neutral “courts will probably refuse to give effect to the external assets vesting decree.” Up to 1945, the Allies had, he conceded, to be “thankful” for this practice since neutral courts had “refused to enforce the confiscatory measures of the German occupation authorities.” Now, however, this so far positive policy of the neutrals had to be changed immediately. At this point, the memorandum continued on a somewhat helpless note. If the neutrals would not implement the Bretton Woods measures 9. “The Validity and Enforcement of an Allied Control Council Decree Vesting German External Assets,” Apr. 27, 1945, folder: Reparations—General (box 19), European Mission Subject File 1945–1947, Records of the Pauley Reparations Missions, 1945–1948, Lot Files, RG 59, NACP. 10. Stödter, Deutschlands Rechtslage, 203 –15, quote 208; Erich Kaufmann, Deutschlands Rechtslage unter der Besatzung, 80.

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and recognize the ACC as the “de facto government of Germany,” there was nothing the Allies could do except “exert economic pressure.” The memo then returned to the usual catalog of economic sanctions.11 Thus, despite its nineteen pages, this memo shied away from the real, thorny issue in question: how any such confiscatory laws could have legal validity in neutral countries. Stödter maintained that the protection of private property abroad is one of the fundamental features of international law and an essential obligation of states. This held true even if the ACC had every right to pass a vesting decree. Neutral states could not recognize confiscatory laws of an occupying power—again, a perspective valid both for German measures during the war and for these Allied activities after the war. The security of private property was further endangered as the Allied decree now put private property on the same level as public or state property, thus making all property responsible for the actions of the state. So far Sweden, for example, had not even recognized foreign claims for private property located in Sweden but under foreign ownership that had been nationalized by that foreign state. This was the case in regard to 3,800 kilograms of gold that a private Russian bank had transferred to Sweden shortly before the Russian Revolution. The Soviet state claimed ownership of that gold later, when all banks were nationalized. After nearly thirty years of legal deliberations, the Swedish Supreme Court decided that the private bank had not ceased to exist as a legal entity because of the decree and that such a confiscatory law had no effect on assets outside the Soviet Union. The gold remained in Sweden. Finally, would any such confiscatory or other laws made between the Allies and neutral countries later apply to a reconstituted German state as it was a noncontracting and nonparticipating party? Pacta tertiis nec nocent nec prosunt. Treaties only bind the contracting parties and do not create rights or obligations for third parties without their consent.12 A memorandum written by Covey Thomas Oliver, who worked in Seymour Rubin’s Division of Economic Security Controls, basically came to comparable conclusions. “At its simplest, the acquisition of control over enemy-held assets in neutral countries involves the impact of Allied will (and the power used to enforce it) on a legalistic inertia arising from the existence within the 11. “The Validity and Enforcement of an Allied Control Council Decree Vesting German External Assets.” 12. Stödter, Deutschlands Rechtslage, 224–27; court case in Ravndal to State Dept., Nov. 23, 1945, 800.515/date, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP.

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neutral country of a presumptive private owner . . . whose property there, under classic concepts, is subject to the in rem jurisdiction of the state only” (emphasis in original). Especially the question of how to deal with property that represented “long-standing enemy investment” would raise “a ticklish sovereignty issue.” “Inertia” or duty to protect private property, the problem was the same. Any legal basis for the Allied claims in neutral countries rested on very shaky grounds. In comparison to the Treasury memorandum, Oliver’s was less gung ho about “economic inducements,” as he called them. “Sanctions or their threat cannot well be the basis for any long-range control over the operation of German plants in neutral countries. Harsh measures must be justified by the shockingly bad situations they are invoked to meet.”13 It is worth mentioning that Rubin in the spring of 1945 published an article concerning the treatment of enemy private property in the Allied countries. He argued that there was absolutely no reason at all to differentiate between public and private property of enemy nationals and that the United States had every right to do whatever it pleased with such property. “The terms, ‘confiscation,’ ‘private enemy property’ and similar phraseology are . . . anachronistic and inappropriate, as well as misleading,” he wrote. Of course, his arguments stood on much firmer grounds as they dealt with German property situated in a country at war with Germany. Although he did not extend his analysis to treat the matters discussed here, this article makes apparent his general views on the topic.14 In concluding this discussion of legal issues, the picture was thus as follows. It was in the power of the ACC to pass a vesting decree. Such an ACC law would clearly have been valid in the territory under occupation. Beyond the borders of Germany its legality—and hence its recognition by the neutrals— would have been doubtful owing to the recognized standards of international law. Since legal claims would therefore most likely have been at an end, the Allies would then have had to resort to other measures. It might be that in the long run the outcome of this process could have resulted in a new concept of international law, but at the time this concept did not exist.

13. Oliver, “The Acquisition of Control over Enemy-Held Assets in Neutral Countries,” n.d., folder: Safehaven Dec. 1944, FFC Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, NACP. 14. Rubin, “‘Inviolability’ of Enemy Private Property,” Law and Contemporary Problems 11 (1945): 166–82, quote 181–82.

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Great Britain, the Junior Partner These legal problems were not solely a matter of theory. If certain departments in the Truman administration had little worry interpreting the legal issues in their favor, Great Britain certainly had trouble doing so. Its legal and other qualms delayed the issuance of the vesting decree until the very end of October even as France and the Soviet Union sided with the United States. Anglo-American relations in regard to the Safehaven program had, since the program’s inception, never been very harmonious. At the heart of the disparities between the United States and Great Britain lay different assumptions about the Allied postwar treatment of neutral countries springing from different views about the future design of the European continent. Guiding Great Britain was the dual fear of a rebirth of German aggression and a threat from the Soviet Union. Yet, the country hardly had the money to pay for the food needed in the British zone, let alone the deep pockets to maintain the army needed to preserve its worldwide interests. This was help that only the United States could offer, at a time when it was still possible that the United States would once more return to isolationism—as many in Congress would have liked. Every friend Great Britain had was appreciated, from Portugal to Sweden, but foremost among all was the United States. However, that mighty ally made quite clear that it did not really need any allies at all, and if help would be granted, Great Britain would not enjoy any special treatment. Lend-Lease was scaled down sharply after V-E day. In August, the United States abruptly cut the program off and only extended it until the date of the official capitulation of Japan on September 2 because of intense British protest. Lend-Lease came under the formal jurisdiction of Leo Crowley, the embodiment of an uncompromising stand toward the United States’ closest ally. He and his congressional supporters had not the slightest understanding for extending a helping hand other than in a “brisk, business” manner. Crowley was also “hopping mad” about giving Great Britain a loan to finance postwar reconstruction. It took four months for Secretary of the Treasury Fred Vinson, Assistant Secretary of the Treasury Harry Dexter White, and Assistant Secretary of State for Economic and Business Affairs William Clayton to negotiate this loan with Lord Maynard Keynes. Signed on December 6, 1945, the loan was tempting enough “to force Great Britain to participate in an international financial system pegged to gold and dollars . . . but not a loan large enough to enable the United Kingdom to survive full convertibility and

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join the Bretton Woods institutions as a permanent, healthy party.”15 At the same time the same U.S. departments also pushed the vesting decree through the ACC. Sovereign but broke, Great Britain remained in a postwar quandary that was apparent in, among many other matters, its oscillations in regard to the Safehaven program. Great Britain’s role in Safehaven had always been one of a junior partner, primarily because its officials lacked the missionary zeal of their American counterparts. Throughout the spring of 1945, officials from the British Ministry of Economic Warfare (MEW) complained that the envisioned AngloAmerican exchange of Safehaven information was “one-sided.” The MEW felt that it was “continually supplying” information to the U.S. Embassy, while the United States sat on its stack of information, a concern raised especially in regard to the behavior of Foreign Funds Control and the FEA. The Treasury representatives in the Economic Warfare Division of the U.S. Embassy, on the other hand, were grumbling that the British efforts to collect all relevant files were “disappointingly slow” and that indeed the whole British organization for Safehaven was “inadequate.” State Department officials were less critical but felt that the British Foreign Office had neglected its obligation to compile lists of enemy persons in neutral countries for their future repatriation.16 So far, the British had generally interpreted the program as a call to review their old files collected for the enforcement of the Statutory List, from which summary reports were then to be drawn up. Speedy progress was hampered by the lack of manpower and also by the impending dissolution of the MEW, which began in early April and was finished at the first of June. Most of the MEW’s functions and staff were transferred to the Foreign Office, which set 15. Weiss, President’s Man, 219–35, quotes 233, 235. Most likely it was an unfortunate combination of circumstances that left the uncompromising Crowley at the helm without the moderating influence of Acheson or Clayton; see Randall Bennett Woods, A Changing of the Guard: AngloAmerican Relations, 1941–1946, 320–22, 329–62, quote 361– 62. 16. MEW complaints: “Memorandum for the Files re Safehaven, Meeting at Ministry of Economic Warfare, April 16, 1945,” Apr. 17, 1945, from Treasury Rep. Edwin F. Rains, folder: Safehaven May 1–15, 1945, FFC Subject Files; Treasury complaints: Allan Fisher, “Meeting of March 8th and March 12th, 1945 on Safehaven,” Mar. 15, 1945, folder: Safehaven Mar. 1945, FFC Subject Files; “Report and Minutes of Anglo-American Safehaven Meeting Held on May 23, 1945,” May 29, 1945, no author, 800.515/6 – 545. The FO was in charge of collecting information on enemy persons. Complaints in Peterson (London) to State Dept., “Coordination at London with British Authorities in Compilation of Safehaven List of Individuals for Repatriation to Enemy Territory,” reporting his talks with Michael Vyvyan from the FO, May 18, 1945, 800.515/date, Winant to State Dept., May 19, 1945, folder: Safehaven May 1–15, 1945, FFC Subject Files.

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up a new department, the Ministry of Economic Warfare (MEWFO), under the direction of Gerry H. Villiers. With the fate of the MEW mostly decided, a large-scale roundtable meeting was finally held at the end of May. It brought together twenty-seven officials from the U.S. Embassy, the U.S. Group Control Council and its British equivalent, the Foreign Office, the British Treasury, the Board of Trade, and the MEW. Both sides promised rectification, and in general the meeting improved the flow of information and the atmosphere between the parties. In regard to the whereabouts of enemy persons, the assembled officials found that “there had been no U.S.-U.K. cooperation in the field or in London” and decided after some discussion that the countries’ missions abroad “should get together on this subject.” That solution made apparent that there was only so much a central collection facility like London could do since close Anglo-American cooperation was also very much needed in the particular missions.17 During the meeting officials also speculated on the future treatment of German assets, declaring that “in the case of German businesses abroad . . . the intended process would [be] . . . aryanisation in reverse.”18 But at that point the feat of reverse engineering was still to be debated at Potsdam. The Big Three meeting decided how German foreign assets would be divided, but it was less clear how to get to them. The Rubin Approach The State Department was aware that “legalistic inertia” might not offer the best foundation to make any claim for German assets in the neutral countries. To find a more convincing solution, Seymour J. Rubin traveled to London in August. At this point, Rubin was still the chief of the Division of Economic Security Controls and part of the hapless U.S. delegation to the Allied 17. The review of British files was largely complete by the end of April; see Rains, “Memorandum for the Files re Safehaven,” and his “Memorandum of a Conversation with Fenton and Clark of M.E.W., Willis and Zetterberg of E.W.D., and Fisher of U.S. Group C.C.,” Apr. 12, 1945, both in folder: Safehaven May 1–15, FFC Subject Files; dissolution of MEW: Medlicott, Economic Blockade, 2:627–29. Rains had been clamoring for a large Safehaven meeting since April; see his memo from Apr. 13, 1945, pressing Albert Robbins from the Economic Warfare Division to set up such a meeting. The delay was due to “British SAFEHAVEN organizational difficulties,” according to Winant to State Dept., May 19, 1945. Both are in folder: Safehaven May 1–15, FFC Subject Files; British report about Safehaven meeting with list of participants is in FO 371/45812; quotes are from this file. 18. “Report and Minutes of Anglo-American Safehaven Meeting held on May 23, 1945.” British version is similar.

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Reparations Commission. He would soon rise through the ranks to become the deputy director of the new Office of Economic Security Policy in October. In London, Rubin conferred with officials from the British Foreign Office and the Treasury as well as with members of the French Embassy. During these meetings Rubin submitted a memorandum that, after being changed by Villiers in agreement with the subsequent discussions, was forwarded to all respective governments for approval.19 Opening the round of meetings, the British laid out the problem. They expected the neutrals to “question our right to German external assets”—as Sweden would do exactly two weeks later. Furthermore, neutrals would want to satisfy their own claims from these assets first. After cycling briefly through the pros and cons of the legal arguments, the final memo concluded that any legal sparring with the neutrals “will result only in prolonged and possibly acrimonious discussions and will lead nowhere. It would be far better to void altogether discussion of legal points.” Rather, a combined Anglo-AmericanFrench approach “through the diplomatic channel” should be made.20 The Allies would first point to “the sacrifices which had been required” of them during the war. They would compare those to the profits the neutrals had reaped “from trade with both the Allies and the Axis.” If the neutrals would now like to participate “in the reconstituted family of nations,” they would have to show their goodwill by making German assets available for the “rehabilitation” of damaged areas. Such willingness would “be one of the primary tests for neutral participation in United Nation organizations or for full association in international affairs.” In an obvious attempt to address the neutrals’ legal qualms, the French suggested making certain that “the first German government established . . . will recognise the validity of any action in the matter of German assets taken by neutral Governments at the request . . . of the Allied Governments.” Such assurance would not be given for any measures the neutrals would take on their own to satisfy their own claims.21 Overall, such a program would be one that would not only “eliminate German foreign economic power” but also realize such assets “for reconstruction purposes.” The program would be put into effect through the liquidation of 19. These talks were first reported in Winant to State Dept., Aug. 20, 1945, FRUS, 1945, 2:896 – 99. The final paper is “Memorandum: German Assets in Neutral Countries,” [Aug. 18, 1945], enclosure to Peterson to State Dept., Aug. 23, 1945, folder: Safehaven Aug. 16–25, 1945, FFC Subject Files. This final version was written by Villiers; see DBPO, 5:154 n. 3. 20. Winant to State Dept., Aug. 20, 1945, FRUS, 1945, 2:896; “Memorandum: German Assets in Neutral Countries,” 2. 21. “Memorandum: German Assets in Neutral Countries,” 3 – 4.

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German property in the neutral countries on approval by the three Allies. The German owners would be compensated in German currency later by a future German government. The resulting proceeds would be paid “to United Nations, acting through [the] Three Powers” and be used for “reparation, reconstruction, or payment for essential imports into Germany.” As an important additional incentive, the Allies would offer to use these proceeds “for purchase to extent practicable of local products,” which then could be shipped to the United Nations for relief or even to Germany under the rubric of “essential imports.” Preferably those products would be bought that were already export surplus for the neutral countries, such as oranges from Spain. Through this plan, the damage to “the economy or the foreign exchange position of the neutral involved” would be minimized.22 Originally, Rubin proposed that all claims of the neutral countries toward German assets should be rejected outright. He argued that the majority of these claims resulted from credits advanced to Germany in support of its fighting capabilities “in spite of Allied protests and warnings.” However, Edward Playfair from the British Treasury thought that such outright refusal would only lead the neutrals “to harden their hearts.” Allied policy should appear “just and not vindictive.”23 On British insistence, those claims were therefore divided into four groups. Claims “arising out of wartime transactions” should not be recognized for the above reasons. Prewar debts did not carry that stigma of “original sin,” although they did not deserve “particular priority.” In the course of the negotiations the Allies could concede that the neutrals could use some German assets within their borders to satisfy prewar debt. However, such a concession should not be offered at the outset. Prewar debts not yet due, such as securities, as well as the property of neutrals in Germany that they wanted to sell, should be subject to later negotiations. At the moment no proceeds from such sales in Germany could be transferred abroad. Yet, in general, the Allies would assure the neutrals that they would recognize these kinds of claims.24 Altogether, this approach offered a skillful combination of the carrot and the stick. Basically, the neutrals would have to pay for their acceptance into 22. Ibid., 4 (first, second, fourth, and seventh quotes); Winant to State Dept., Aug. 20, 1945, FRUS, 1945, 2:897 (other quotes). 23. Playfair, “Neutral Claims on Germany,” [Aug. 15, 1945], DBPO, 5:157, calendar 33 i; “Memorandum: German Assets in Neutral Countries,” 2. 24. “Memorandum: German Assets in Neutral Countries,” 2 (first quote); Playfair, “Neutral Claims on Germany.”

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the “family of nations,” but at the same time that obligation could be advantageous to their own economies. Such a combination would ensure that no one would have to sacrifice anything on trade, a British goal. It should be noted that the memorandum said nothing about the use of sanctions, except maybe in the part about membership in “United Nation organizations.” In these meetings the French took part for the first time as full-fledged Safehaven participants. Subsequently, the French Foreign Ministry indicated its approval of the Rubin memorandum, apart from some technical changes. The meetings in London could also take advantage of the presence of Assistant Secretary of State William Clayton, who was accompanied by Emilio Collado. They had come to the British capital from Potsdam on August 3 to negotiate the preliminaries for the loan to Great Britain and the next phase of Lend-Lease—the latter of which of course never happened. Both indicated their approval of the Rubin memo.25 The possibility was thus high that the Allies would actually use this approach in the coming negotiations. The U.S. State Department had agreed, as had the British and the French. Indeed, after the talks, Villiers from the MEWFO thought this to be the case since the suggestions “had been put forward by the American official who is dealing with Safehaven.” Villiers expected that “the Americans would accept it at once” and that Allied representatives in the neutral countries “would be instructed at an early date to approach neutral governments on these lines.”26 At this point—the middle of August—the British were not yet opposed to a vesting law. “We agreed” with “Mr. Rubin . . . to take time by the forelock” and to prepare such a law, summarized Villiers in retrospect.27 But when the British saw the U.S. version of the law, their position changed quickly. The Vesting Law Apparently the British did not have a chance to get a look at the draft law much before it was presented to the Coordinating Committee on August 7. This committee, which was formed by the military governors’ deputies, put 25. Winant to State Dept., Sept. 14, offering a translation of the French reply from Sept. 10, 1945, folder: Safehaven Sept. 11–30, 1945, FFC Subject Files; for Clayton: Woods, Changing of the Guard, 333–34, and Winant to State Dept., Aug. 20, 1945, FRUS, 1945, 2:899. Collado was the director of the Office of Financial and Development Policy. Rubin’s division was part of this office. 26. “Minute by Mr. Villiers on German External Assets,” [Sept. 25, 1945], DBPO, 5:155. 27. Ibid.

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the vesting decree on the agenda for the second meeting of the ACC on August 10. The four generals took note of its existence and sent it back to the deputies’ committee during their next meeting ten days later. From there it went to the Finance Directorate for further consideration.28 Before proceeding, it will be useful to review briefly the functioning of the quadripartite body designed to administer Germany. As finally constituted on August 10, 1945, the Allied Control Authority (ACA) under the command of the ACC was a cumbersome four-power body. Headquartered in the 546room building of the Berlin Supreme Court (Kammergericht), the ACA’s daily affairs were guided by a central secretariat in charge of the control staff and the Allied Kommandatura for Berlin. The control staff were responsible for the twelve directorates of the ACA, which were to plan for a future German central administration. Every directorate also had its own secretariat and four chiefs that rotated every month, and every document had to be translated into three languages. Every meeting needed two interpreters for each party. Furthermore, every directorate could create its own opulent array of working groups, subcommittees, and ad hoc commissions. At the height of its activity, Clay estimated that the ACA had 175 of these groups. Since Eisenhower and his Allied counterparts obviously did not have the spare time to guide such a cumbersome machinery, the Coordinating Committee consisting of Clay, Lieutenant General Brian H. Robertson (UK), Marshal Wassili D. Sokolovsky (USSR), and General Louis Koeltz (France) was to decide all but the most discordant questions and to otherwise forward issues to the ACC for formal approval. Only the ACC had the authority to make decisions, and even its members often had to refer to their governments before approval. Overall, this setup allowed for any question to be buried forever in bureaucratic red tape.29 When the vesting law draft got to the Finance Directorate, not much was changed. The directorate shortened the preamble and slightly revised the part regarding the German External Property Commission. The commission was 28. ACC, “U.S. Proposal on ‘Vesting and Marshalling of German External Assets,’” Aug. 8, 1945, CONL/P(45)12, folder: Memoranda, Reports (box 65), Charles Fahy Papers, FDRL; sent to deputies: Murphy to State Dept., Aug. 10, 20, 1945, FRUS, 1945, 3:831, 832; to Finance Directorate: Coordinating Committee, “Vesting and Marshalling of German External Assets,” Sept. 13, 1945, CORC/P(45)53, folder: Legal Directorate Agenda, Meetings 1 to 11, Aug. 17, 1945–Oct. 30, 1945 (box 62), Fahy Papers. 29. Clay, Decision in Germany, 45. For the organizational setup of the ACA see Elisabeth Kraus, Ministerien für das ganze Deutschland? Der Alliierte Kontrollrat und die Frage gesamtdeutschter Zentralverwaltungen, 64– 66, and Weisz, OMGUS-Handbuch, 23 –26.

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now an “inter-governmental agency” with all the “attributes, powers and immunities” also vested in the ACC. In the old version, the commission held those powers because they were also those of “the sovereign government” of Germany, meaning the ACC. Yet, the gist of the proposed law was still there: “All rights, titles, and interests, legal or equitable, in, or in respect of any property outside Germany, in whole or in part, which is owned by any person of German nationality in Germany are hereby vested in the Commission.” A similar provision was supposed to apply to “any German citizens outside Germany and . . . any branch of a corporation or other legal entity organized under the laws of Germany.” Nationality, for the purpose of this law, was defined as German citizenship held within the territory controlled by the German Reich “at any time” since September 1, 1939. The commission had complete “dominion” over the vested property and could even request the zone commanders to conduct “investigations” subject to their approval. The commission would dispose of the property under its control pursuant to future ACC directives. The ACC would also determine at its own “time” and “manner” the question of compensation. It was in these consultations of the Finance Directorate that British opposition first formed. The British member of the directorate stated his reservation that it was not “the proper time to pass such a law.” None of the other members agreed with him. The British concern was, of course, with the whole Rubin approach. How could that approach be followed if now the Allies passed a law that would “undoubtedly have a very bad effect” on the upcoming negotiations?30 With these reservations, the proposal came back to the Coordinating Committee on September 17. General Robertson announced that his British delegation “was in entire agreement” with the other Allies. Yet, he could not approve the proposed law because of its unknown effects on the negotiations “in progress with the neutral countries.” Secondly, “such a complicated technical question should be subjected to the closest legal scrutiny,” he said, and he proposed to send it off again, this time to the Legal Directorate. Hearing this, Clay lost his countenance, reminding Robertson that “ample opportunity had already been given for legal examination,” as the ACA had considered the paper “already for a month.” Sokolovsky agreed with Clay and pressed for quick action. In an ACC meeting on September 20, even Eisenhower stated 30. Draft law: CORC/P(45)53; brief for the British Commander-in-Chief for the Sixth Meeting of the ACC, Sept. 20, 1945, SEC/B(45)66, DBPO, 5:158, calendar 33 v(a).

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his “emphatic approval” of the law seconded by Sokolovsky and General Koeltz.31 But Field Marshal Montgomery could only say that he was not authorized to sign the law. That position did not change at the next meeting of the ACC, on October 1. The proposal was postponed for a month and sent back to the Legal Directorate for further study. There was not much the other Allies could do since decisions had to be unanimous. The British tactic at Potsdam of coaxing the conference into pursuing a vesting decree instead of a joint Allied declaration now paid off. The British objected on two grounds, legal and tactical. Legally, Villiers advised General Robertson, “it is practically impossible to contend” that the ACC could claim “the title to all German assets abroad.” The ACC would, through such a law, claim “wider powers” over German assets “than an ordinary sovereign government generally has.” Neutral countries were already asking about the legal base of such an authority, and “we are quite unable to think of any effective reply.” In addition, the British thought it “a mistake to upset . . . legal principles” that had worked so far in their favor and would “more likely” continue to work that way “in the future.”32 Tactically, the British simply hoped to hold out as long as they could until the United States would accept the strategy worked out in London. His country, General Robertson said in the ACC, thought “that there is a reasonable chance that we may succeed” in approaching the neutrals “on moral grounds.” On the other hand, issuing the decree immediately “will go far in wrecking any chance of success,” Robertson argued.33 When the Legal Directorate considered the proposed law, British delegate R. O. Wilberforce suggested dropping the article that would vest property of German citizens living abroad. “There would be great difficulties in enforcing Article III,” Wilberforce said. He also criticized the compensation clause as “much too vague” and giving the commission “very dangerous powers.” The U.S. representative, Charles Fahy, had little understanding of Wilberforce’s views since Fahy “did not see any danger to neutral countries in these provi31. Coordinating Committee, “Minutes of the Eight Meeting,” Sept. 17, 1945, CORC/M(45)8, folder: Control Council Minutes, Aug. 17, 1945–Apr. 29, 1946, Fahy Papers. Because of Robertson’s request, the draft was sent to the Legal Directorate for three days, but no changes were made before it came back to the ACC; Murphy to State Dept., Sept. 20, 1945, FRUS, 1945, 3:837. 32. Villiers to Robertson, Sept. 26, 1945, DBPO, 5:158, calendar 33 v(b); Winant to Clayton, Sept. 30, 1945, FRUS, 1945, 2:904–6, which is very similar to Villiers’s. 33. “Remarks by British Representative, Control Council, 1st October 1945,” annex A to minutes of ACC that day, CONL/M(45)7, DBPO, calendar 33 v(b), 158. See also Murphy to State Dept., Oct. 2, about this ACC meeting, FRUS, 1945, 2:842–43.

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sions.” Indeed, the U.S. side made it clear that it understood the whole meaning of this law very differently when its Legal Division argued that, although the legal situation might be “conflicting,” the passage of the law was “a matter of high international policy.” It was part of a program “designed to insure the future peace of the entire world.” Not more, not less. “Narrow rules . . . of laws, should not be allowed to confuse the basic and fundamental issues.” Eisenhower had argued in a similar vein during the October 1st meeting of the ACC, when he said that the Allies were already creating “one new precedent in international law” at the Nuremberg trials and that he had “no objection to setting other new precedents.” The Legal Division’s memo further contended that only Nazi laws had been confiscatory and the differences between those laws and the one now proposed are “so obvious that they should not present serious difficulties.”34 The United States, savior of the world, did not really address the British concerns, but declared them to be narrow, misguided, and, basically, ludicrous. Apparently, the sparring in Berlin could have continued forever as long as the British did not give way. Their legal arguments were sound—even Eisenhower acknowledged that. But fundamentally the British hoped to nudge the United States and France to join them in the diplomatic approach agreed to in London. In contrast to the British, the State Department thought that the vesting law was necessary, not so much for legal as for political reasons. In preparation for a talk with Foreign Secretary Ernest Bevin of Great Britain, Undersecretary of State Dean Acheson informed Ambassador John Winant of the department’s arguments. The law was required by that part of the Potsdam agreement that mandated that the ACC should take “appropriate steps” to control German external assets. Furthermore, the decree would strengthen “our hand in approaching [the] neutrals,” according to Acheson. Overall, the passage of such a decree would not “conflict” with the strategy agreed to earlier in London.35 34. ACA, Legal Directorate, “Minutes of the Eight Meeting Held in Berlin on 10, 11 and 13 October 1945,” Oct. 14, 1945, DLEG/M(45)8, folder: Legal Directorate Agenda, Meetings 1 to 11, Aug. 17, 1945–Oct. 30, 1945, Fahy Papers. Wilberforce’s requests were based on Villiers’s instructions; see Villiers to Robertson, Sept. 26, 1945. U.S. Legal Division views: “United States Memorandum Re Control Council Law No—, Vesting and Marshalling of German External Assets,” n.d., and, unfortunately, no author, folder: Memoranda, Reports, Fahy Papers. Eisenhower in the Oct. 1 ACC meeting, in Murphy to State Dept., Oct. 2, 1945, FRUS, 1945, 2:843; “United States Memorandum Re Control Council Law No—.” 35. Acheson (acting secretary) to Winant, Sept. 27, 1945, FRUS, 1945, 3:840. The British reply was transmitted in Winant to Clayton, Sept. 30, 1945, FRUS, 1945, 2:904 – 6, discussed above.

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The British had reasonable hope that the State Department might change its position since Rubin—“the American official who is dealing with Safehaven”—had been in London. However, when the British position and hopes became clear, it was not the State Department that vehemently pressed for the issuance of the decree. Rather, the fight was carried out by U.S. Treasury officials. In their understanding, the whole issue of the vesting law had always been a first step for a serious Safehaven program—after all, it was the Treasury that had first proposed the law during the meeting of the Allied Reparations Commission in Moscow. The validity of such a law would then have to be backed up by the threat of tough sanctions. Treasury and Vesting Officials in the Treasury Department were quite alarmed about the whole envisioned diplomatic approach agreed to in London. After receiving the relevant cables in August, Lehman C. Aarons from the General Counsel’s Office and Michael Hoffman, deputy director of Foreign Funds Control (FFC), wrote to Harry Dexter White that “there are two principal points concerning which the State Department’s position is not entirely clear.” Aarons and Hoffman resented that neutral governments would have the option of realizing for themselves some of their claims toward Germany. They argued that neutral claims toward Germany exceeded available assets “in some cases” and that thus the Allies would not receive “a large portion of the reparations to which they are entitled under the Potsdam Protocol.” Nothing in their critique indicated that Aarons and Hoffman understood the careful distinctions the British had made in regard to the different classes of claims. Secondly, Aarons and Hoffman emphasized that because the neutrals would question Allied claims, “this government should be prepared to impose all available economic sanctions against any neutral which does not cooperate.”36 The advantage of the London approach had been that sanctions might not be needed because of its combination of carrot and stick. Aarons and Hoffman thought little of such enticement if it would not be supported by blunt force. These different views were first discussed between the State and Treasury departments “at the working level,” but those discussions remained inconclu36. Aarons and Hoffman to White, n.d., folder: Safehaven Aug. 26–31, 1945, FFC Subject Files. See also the summary in “Report of the Activities of the Foreign Funds Control for the Month of August 1945,” 9, folder: Reports—Bureau and Division—Schmidt—1945–1946 (box 142), reel 16, microfilm copy of Vinson Papers, HSTL.

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sive because, in the words of White, “some of their representatives agree and others disagree.” Consequently, Aarons and Hoffman proposed that Secretary Vinson should send a letter to Byrnes, which was done in September. After reading the letter, Rubin told Melville E. Locker from FFC that “he [Rubin] was very discouraged . . . because he felt that the British will refuse to impose sanctions and would stall the matter indefinitely.” Locker, on the other hand, argued that “we should take a firm position” to convince the British. The neutrals would not simply turn over German assets or enforce a vesting decree “because we gave them a sermon from the mount on the hardship suffered by the countries which fought the war.” The British willingness to give in would demonstrate whether Great Britain was “serious about vesting” or only interested in “British trade relations with the neutrals.”37 As much as the Treasury Department was wondering about the seriousness of the British, the British were wondering about the direction their ally was taking. It was thus a tit-for-tat game. The British were waiting for the United States to adopt the Rubin approach, while the U.S. Treasury was waiting, as Ambassador the Earl of Halifax wrote to London, for “assurances that if Rubin approach to neutrals failed . . . State and British would agree to ‘severe economic sanctions’ against neutrals.”38 As long as that assurance was not given, there would be no joint approach to any neutral on any line. The British were quite annoyed by this stand. Since September, they had been clamoring for the United States to come up with a draft note that could be used to invite the neutral countries for negotiations. Of course, Great Britain hoped that such a note would be along the lines of the Rubin approach. That month, the preparatory meetings to set up the Inter-Allied Reparation Agency had started in London and Paris. Fourteen states had been invited to submit their reparation claims against Germany. During these meetings Sigismund David Waley, deputy secretary of the British Treasury’s Department of Overseas Finance, told his U.S. colleague Jacques Reinstein, associate chief of the Division of Financial Affairs in the Office of Financial and Development Policy under Collado, that he was anxious “to have preliminary discussion of disposition of German Foreign assets.” Playfair thought that for these Rubin should come to London. For apparent reasons Rubin did 37. White to Sec. Vinson, Sept. 10, 1945, folder: Safehaven Sept. 1–10, 1945, FFC Subject Files; Vinson to Byrnes, Sept. 13, 1945, folder: Germany—Safehaven Program—1945 (box 130), Vinson papers; Locker, “Memorandum of Conversation with Mr. Rubin, State Department, September 18, 1945,” dated Sept. 20, 1945, folder: Safehaven Sept. 11– 30, 1945, FFC Subject Files. 38. Halifax to FO, Oct. 16, 1945, DBPO, calendar 33 vi, 158.

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not make the trip. There would be no draft notes as long as the British did not let the vesting decree pass. But that matter was of course contingent on the question of whether the United States might adopt the Rubin approach. Hence, the question was now who would budge first.39 The more the British delayed the vesting decree at the ACC, the shriller became the tone at the Treasury Department. “For the past two months our Safehaven program has been virtually stymied and the British have categorically refused to do anything,” went an October memo. For a moment it appeared that the United States had given up completely on the vesting decree, as the British Embassy in Washington mistakenly informed the Foreign Office in the middle of October. That was probably never the case because during that month even the War Department weighed in and pressed the State Department “for tripartite vesting action,” which would exclude the British— certainly a novel combination. The War Department felt that Eisenhower’s prestige was on the line since he had “taken a strong stand in favor of the decree.” To raise the debate to yet another level, Vinson sent a letter to Byrnes— beginning “My Dear Mr. Secretary”—proposing that Truman should send a cable to Prime Minister Attlee. “I think it is unfortunate,” read the cable draft for the president, “that representatives of His Majesty’s government . . . are the sole objectors to the immediate issuance of the proposed decree.” Lord Keynes, in Washington for the never-ending loan negotiations, was also to be informed of “the matter.”40 In the end, all that excitement was no longer necessary. The British continued to express “considerable exasperation” that the United States would not come around to the Rubin approach. Yet, in October, London finally caved 39. On Aug. 28 initial messages went to Canada, Australia, New Zealand, South Africa, India, Belgium, Luxembourg, Norway, Holland, Greece, Czechoslovakia, Yugoslavia, Denmark, and Egypt. Talks among the three Western Allies to organize the IARA began in London on Sept. 20; see FRUS, 1945, 2:1248, 1256, 1264, 1268–72, 1288. The FO requested in early October that its embassies in Switzerland, Sweden, and the Iberian Peninsula prepare possible draft notes. Again, embassy officials were asked to think along the lines of the Rubin approach. They were also to take local circumstances into consideration. About that task, “it would obviously be undesirable to say anything to your United States and French colleagues for the time being” (FO to these embassies, Oct. 6, 1945, DBPO, 5:158, calendar 33 vi); Reinstein to State Dept., Oct. 4, Oct. 6, 1945, FRUS, 1945, 3:1328, 1334. 40. J. Scullen, Oct. 18, 1945, “Memorandum, Subject: British Policy in the Neutrals,” folder: Safehaven Oct. 1945, FFC Subject Files; in a similar vein: “Report of the Activities of the Foreign Funds Control for the Month of September 1945,” 12, folder: Reports—Bureau and Division—Schmidt— 1945–1946, Vinson Papers; information for FO: Schmidt, “Memorandum for the Files,” Oct. 15, 1945, folder: Safehaven Oct. 1945, FFC Subject Files; War Dept.’s intervention: Byrnes to London, Oct. 19, 1945, 800.515/date; Vinson to Byrnes, Oct. 25, 1945, folder: Germany—Group Control Council—1945 (box 130), reel 17, Vinson Papers.

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in, an outcome the Foreign Office had internally already conceded to in late September. As John Monroe Troutbeck noted, “We should not be justified in holding out,” though General Robertson was instructed to postpone the inevitable as long as he could. In the ACC meeting on October 1, Robertson succeeded in his cunctations. Seventeen days later the British change in policy became official when Villiers admitted in a talk with Reinstein that the “British Commander in Germany had been instructed that if question of vesting decree is raised . . . he should not object to adoption of decree.” Playfair added that, while his country was still “not convinced,” “something” had to be done to “resolve present stalemate.” Britain continued to advocate an approach to the neutrals that “should not rely upon this decree,” and the State Department confirmed that the law would “be used only to eliminate anticipated legal objection on part of neutrals.” The main line of attack would still be along the London approach. Finally, the ACC passed the law at its meeting on October 30. Field Marshal Montgomery still stated his “objections” but nevertheless signed it as instructed. The German External Property Commission was activated in November and held its first official meeting on December 4, 1945.41 The vesting law had passed because of a confluence of viewpoints in the departments of the law’s most outspoken proponent, the United States. The State Department had advocated the law halfheartedly because of political considerations to live up to commitments made at Potsdam and because the law might prove useful in the upcoming negotiations. Yet, that department remained skeptical as to its legal validity. The Treasury Department pressed vigorously for the law because its officials felt that otherwise their whole program to get hold of German external assets would collapse before it had started. And, finally, the War Department was in favor of it, because of the stand tak41. Villiers wrote to Robertson that “we shall be most grateful if you will make a final effort to obtain postponement of the issue of the vesting decree” (Villiers to Robertson, Sept. 26, 1945, DBPO, 5:158, calendar 33 v[b]). Troutbeck minute, Sept. 25, 1945, DBPO, 5:158, calendar 33 v[b]; Reinstein to Rubin, Oct. 17, 1945, FRUS, 1945, 2:907–9, quote 908; State Dept. confirmation: Rubin to London, Oct. 26, 1945, folder: Safehaven Nov. 1945 (box 385), FFC Subject Files; law passed: Murphy to State Dept., Oct. 31, 1945, FRUS, 1945, 3:849. In the Coordinating Committee Meeting preceding the ACC meeting the other Allies actually agreed with the “British misgivings” but nevertheless “felt the matter sufficiently important to warrant the effort” (Murphy to State Dept., Oct. 28, 1945, ibid., 1566); ACC, “Directive No. 21, The Activation of the German External Property Commission,” Nov. 20, 1945, folder: Directives (box 60), Fahy Papers; first informal meeting of the GEPC Nov. 27, see GEPC, Minutes, Dec. 4, 1945, GEPC/M(45)1, folder: GEPC/M(45)1–3 (box 437), General Records of the German External Property Commission, 1945–1948, Records of the U.S. Element, Allied Control Authority, Records of the U.S. Element on Inter-Allied Organizations, Records of U.S. Occupation Headquarters, World War II, RG 260.

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en by General Eisenhower.42 In addition, the French and the Soviets also favored a swift passage of the law. In light of the combined pressure, Great Britain gave in, at least in this round. The Model Note As a reward for the “British concurrence” on the vesting law, the United States quickly produced a draft note that would be used to invite the neutral countries for the coming negotiations. On October 31, one day after the law passed, preliminary talks began in Paris with James W. Angell, the replacement of the hapless Edwin Pauley on the Allied Reparations Commission and overall a much better diplomat. Angell was in the French capital for the preparatory talks to set up the Inter-Allied Reparation Agency. There, a first draft of the note was drawn up in collaboration with the British.43 At the same time, Washington’s bureaucracy had also been busy coming up with its own draft, which was finalized and sent to London on November 10. This final American version represented a careful compromise between the views of the Treasury and State departments, each of which had come up with its own proposal during the early days of November. Not surprisingly, the Treasury version “emphasized the vesting decree and based our claim to the assets on legal right and not an appeal to the conscience of the neutrals,” as J. Scullen from that department summarized. Treasury also wanted to underscore the “active participation” of the ACC, which should present its own notes to the neutrals independently from the three Allies and should also be included in the negotiations. The ACC would thus act to execute its own laws, namely, the vesting law. Since General Clay was in Washington in late October and early November 1945, the matter was mentioned 42. For State’s continued skepticism see J. Scullen’s memo about comments made by members of the State Dept. during a meeting on Nov. 7, 1945: “State Questions the Legal Validity of the Decree,” folder: Safehaven Nov. 1945, FFC Subject Files. The Eizenstat report claims that Byrnes weighed in on the debate; there is no indication in the documents to confirm this. Clayton would have liked Byrnes to take up the question of the passage of the vesting law with Bevin during the London meeting of the Council of Foreign Ministers, but, according to Winant, this never happened. See Eizenstat I, 51–52, Acheson to Winant, Sept. 27, 1945, FRUS, 1945, 3:840 – 41, and Winant to Clayton, Sept. 30, 1945, FRUS, 1945, 3:904. 43. Model note was prepared as a result of British concurrence, according to “Report of the Activities of the Foreign Funds Control for the Month of October 1945,” 15, folder: Reports—Bureau and Division—Schmidt—1945–1946, Vinson Papers; Angell’s appointment: Byrnes to Angell, Oct. 24, 1945, FRUS, 1945, 3:1357– 60; talks described in Angell to Rubin, Nov. 5, 1945, folder: Safehaven Nov. 1945, FFC Subject Files.

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to him. Clay thought that if the ACC was to participate, the German External Property Commission should do the actual negotiations. This was anathema to the State Department, which had feared and resented such an idea since before Potsdam. Rubin made clear “that under no condition” would his department permit the ACC to conduct “political negotiations . . . which would cut across this Government’s entire relations with the neutrals.” Nor would Berlin be the right location to host any of these negotiations. The State Department wanted Washington as situs in order to apply “maximum pressure” on neutral representatives. Rubin was perhaps also so forceful in defending the department’s views because Francis W. McCombe from the British Embassy had seen the Treasury version and had “protested with all possible emphasis to Rubin.”44 In the end the compromise text that arrived in London provided that the three Allies would present their notes “on behalf of the Allied Control Council” but that the council would have no further role. In general, the U.S. version of the model note was designed in very broad terms to provide sufficient leeway for the negotiations. It began with a reference to the vesting law and made clear that the Allies were supporting this law. It then explained that the objective of this law was to ensure postwar security “by eliminating Germany’s economic and financial potential for another war, and to devote these resources to the relief, reparation, and rehabilitation of countries devastated by German aggression.” The note then expressed the hope that the government in question would “give full effect to this decree.” A small if vague incentive was offered in the statement that the money realized from “German external assets will largely tend to promote restoration of . . . trade” between the neutral and devastated areas. Thinly veiled was the threat of “economic dislocations” if arrangements “consistent with the objectives of the law” could not be reached between the neutral and the Allies.45 The British were quite happy with this version though they received the U.S. version only in early December because of “a deplorable [bureaucratic]

44. Scullen, “Memorandum of Conference at State Department, November 7, 1945,” folder: Safehaven Nov. 1945, FFC Subject Files; Clay’s views in “Resume of Meeting at State Department,” Nov. 3, 1945, in Smith, Papers of General Lucius D. Clay, 116; for Rubin’s views: Scullen, “Memorandum of Conference at State Department, November 7, 1945,” and Cummings to Lyon, June 4, 1945, discussed in Chapter 4, both in 740.00119 Control (Germany)/date; for location: Winant to State Dept., Dec. 3, 1945, FRUS, 1945, 2:917; McCombe to Villiers, Oct. 31, 1945, FO 371/45814. 45. State to Winant, Nov. 10, 1945, FRUS, 1945, 2:912–13. This model note was very similar to the one used for Sweden on Feb. 11 and for Switzerland on Feb. 14, 1946.

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muddle,” as the MEWFO put it. “The American draft comes as a welcome surprise,” the department informed the British Embassy in Washington. The first Paris draft had lacked “everything that might sweeten the pill for the neutrals,” owing to Angell’s insistence. But the Washington version was sufficiently vague to reveal little of the Allied position. Villiers and his colleagues from the MEWFO accepted the note under the condition that the Allies would not act “on behalf of the Control Council.” The British, more aware of the coming Cold War, were afraid that otherwise the Soviet Union had every right to insist on participation. The United States gave way, and thus the Washington draft version would have been ready for presentation in late December 1945.46 The British were quite eager to go ahead, but there was the thorny issue of sanctions.The United States wanted Anglo-American-French agreement on this question before using the note. And here the British were not ready to give in. Sanctions? In general, the sanctions the Allies were considering for uncooperative neutrals fell into two broad categories. On the one hand, sanctions could be inducements to neutrals by way of offering to remove existing Allied controls that were still in place—or not, if neutrals did not cooperate. These inducements could be the deletion of companies from the Proclaimed and Statutory lists, the defrosting of neutral assets in Allied countries, the removal of remaining wartime special licensing procedures for financial and commercial transactions, or the recognition of some (certainly not all) neutral prewar claims on Germany to be satisfied from German assets in those countries. On the other hand, new sanctions could be imposed on the neutrals. Supplies to neutrals of allocated products such as coal could be withheld or restricted, and the use of Allied shipping facilities could be denied. Trade with Germany could also be limited, though that was perhaps not an effective threat in light of what that trade amounted to in the years 1945 –1946. Existing freezing controls could be tightened considerably to make them more difficult to live with for the neutrals. Finally, neutrals could be excluded from the many international organizations the Allies were currently creating, such as the Eu46. Quotes in MEWFO to British Embassy, Washington, Dec. 5, quoted in Winant to State Dept., Dec. 8, 1945, folder: Safehaven Dec. 1945, FFC Subject Files; for possible Soviet participation: Winant to State Dept., Dec. 7, 1945, FRUS, 1945, 2:918; ready for presentation: Winant to State Dept., Dec. 29, 1945, FRUS, 1945, 2:930.

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ropean Coal Organization, the International Monetary Fund, the World Bank, and the UN.47 The British tried to avoid the unpleasant issue of sanctions as long as they could. When Reinstein inquired about the British position in October, Villiers told him “how intensely Ministers and Government Departments in London dislike hypothetical questions.” But internally he confessed “that we must consider this point . . . even if we arrive at nothing positive.” Consider they did, and not surprisingly neither he nor other British officials were in favor of sanctions. Villiers himself found that pressure on the neutrals could result in the possible cutoff of timber, paper, and iron-ore deliveries from Sweden and of dried- and fresh-fruit imports from Spain and Portugal. Sweden could also threaten to “tear up” the recent Anglo-Swedish sterling agreement. Playfair seconded that “we cannot do without” such imports from Sweden “we . . . cannot yet pay for” and that, in general, support from this northern neutral was “worth having.” And Hoyer Miller from the Western Department of the Foreign Office found that in regard to Portugal, the question was whether the United States would be ready to give up on the permanent base in the Azores “the Americans are hankering after.” In the case of both Portugal and Spain, “economic sanctions would almost certainly do us more harm than good.” In general, Villiers doubted that “anything short of a Cabinet decision” could change this British view on sanctions and hoped that the Allies would proceed without having “to wave a big stick.”48 The British would continue to stick to this view. What ensued were months of haggling, strong-arming, and ultimately fruitless debates. Certain departments and people in the United States were very much in favor of waving a big stick. During November and December an unenthusiastic State Department was prodded into the use of sanctions by the Treasury Department. A possible catalog of sanctions, already outlined above, was finally agreed upon toward the end of the year and sent off to London. The agreement had come with the State Department’s condition that “unilateral measures by this government should not be attempted.”49 47. This U.S. catalog of sanctions outlined in Acheson to Winant, Dec. 21, 1945, FRUS, 1945, 2:924–28. 48. First three quotes in Villiers minute, Oct. 20, 1945, DBPO, calendar 33 vi, 158; Playfair minute, Oct. 30, 1945, DBPO, calendar 33 vi, 158; Hoyer Miller (Western Dept., FO) minute, Oct. 29, 1945, DBPO, calendar 33 vi, 158; Villiers minute, Oct. 20, 1945. Christian Ravndal from the U.S. Embassy in Stockholm pointed out that Sweden was well aware of these British needs and “confidentially” regarded them “as [a] chink in our economic warfare armour,” Ravndal to State Dept., Jan. 25, 1946, 800.515/date. 49. Gerald Smith (assoc. chief of the Division of Commercial Policy) to Clair Wilcox and Charles

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In their reply, the British refused to consider almost all of these sanctions, except one: the recognition of prewar claims. The MEWFO reminded the United States that there were no blocked neutral assets in Great Britain and that the country was not ready to risk the “denunciation of monetary agreements to which we attach great importance,” for example, those with Sweden. In addition, the MEWFO pointed out that the Allies could hardly deny membership in the United Nations to all the neutrals except Spain.50 The Potsdam agreement had clearly stated that the three powers would “support applications” from these states. This had been one of the hardest questions to reach agreement on during the conference and one of the three last-minute problems resolved only through Byrnes’s package deal. Some officials in the State Department were very much angered by the British refusal. After seeing the British reply, Collado suggested that Acheson give Lord Halifax “a good dressing down” because their opposition was “preposterous.” But Acheson—who doubted “that the British are completely wrong”—was a better diplomat than Collado. The aide-mémoire Acheson finally handed to Halifax was substantially rewritten by Rubin to stay within diplomatic morés. Still, the note expressed “the deep concern” the United States felt over the British position and said the country “strongly hoped” for an alteration of the British stand.51 For the time being, Byrnes as well as other cabinet members supported the use of sanctions. During a meeting in early February 1946, Byrnes, Secretary of the Navy James Forrestal, and Secretary of War Robert Patterson all agreed “that sanctions were necessary in order to achieve the desired results.” But Byrnes was also careful enough to keep his options open when he wrote to Vinson that “the availability of sanctions is . . . a complicated matter, depending . . . upon the outcome of negotiations and discussions in which Treasury is, of course, participating.”52 Bunn (director and adviser, respectively, in the Office of International Trade Policy), Nov. 21, 1945, about a meeting in Rubin’s office; see also Surrey to Rubin, Collado, and Thorp, Dec. 12, 1945, both 800.515/date. Also Acting Sec. Acheson to Vinson, Dec. 26, 1945, FRUS, 1945, 2:928 – 30. 50. MEWFO to British Embassy, Washington, Jan. 19, 1946, quoted in Winant to State Dept., Jan. 21, 1946, folder: Safehaven Jan. 1946, FFC Subject Files. 51. Collado to Acheson, Jan. 24, Acheson to Collado, Jan. 26, 1946, with draft of a return aidemémoire attached, 800.515/1–2646; aide-mémoire as approved by Acheson, Feb. 4, 1946, 800.515/ date. Collado did not have much to lose by his recommendation. The Senate confirmed him as director of the International Bank for Reconstruction and Development two weeks later. 52. Rubin, “Memorandum of Conversation, German External Assets,” Feb. 5, 1946, 800.515/ date; Byrnes to Vinson, Feb. 16, replying to a letter from Vinson from Feb. 1, 1946, folder: Safehaven Feb. 1946 (box 385), FFC Subject Files.

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Clearly, the British were playing for time. At the end of February the British and French negotiators were expected in Washington and the Swiss delegation shortly thereafter. If there was no agreement at that point, it would be too late. The Treasury representative in London assessed this situation quite correctly when he wrote of the British “program of delaying tactics.” In the meantime, the French were getting impatient.They complained of “all the shilly-shally” to Walter Surrey and rather “wanted to come to grips with the neutrals.” So far, the French had been supportive if not enthusiastic about the U.S. program. They were opposed to most of the contemplated sanctions but would support such possible threats as exclusion from UN organizations or Bretton Woods and the ban on trade with Germany.53 The British delay gave critics in the State Department time to come forward. So far, the U.S. sanctions program had been driven by a vindictive Treasury Department and people like Surrey in the State Department, who was back from Stockholm and now worked in Rubin’s office. After all, the Treasury Department had always liked Surrey. Already in December, Paul Culbertson from the Division of Western European Affairs in the State Department had felt obliged to remind Rubin and Surrey that not all European neutrals could be treated “as a bloc,” that there existed different forms of government, some democratic and others clearly not. Furthermore, Culbertson thought that “the history of economic sanctions has not been a happy one.” The United States could try “to make sanctions stick for the first time in history,” but that would work only if the Allies were able to present a united front. Shortly thereafter, Leroy D. Stinebower, deputy director of the Office of International Trade Policy, wondered whether neutrals could effectively be excluded from the International Monetary Fund or the World Bank and noted that if a UN organization would invite any of those countries for negotiations, “we would not oppose.”54 In February, H. Freeman Matthews, director of the State Department’s high-ranking Office of European Affairs and future ambassador to Sweden, 53. Taylor to Feig, Feb. 16, 1946, folder: Safehaven Feb. 1946, FFC Subject Files; Surrey memo (quotes), Jan. 30, with attached note from French Embassy, Jan. 29, 1946, and Collado to Acheson, Jan. 30, 1946, both 800.515/date. 54. Surrey was officially appointed chief of the Division of Economic Security Controls on Feb. 1, 1946, and Rubin had moved up to deputy director of the Office of Economic Security Policy on Oct. 20, 1945; see Department of State Bulletin 14 (Mar. 17, 1946): 452, and 13 (Oct. 28, 1945): 705, respectively; Culbertson to Rubin and Surrey, Dec. 10, 1945, 800.515/12–1245; Stinebower to Wilcox, Dec. 28, 1945, 800.515/date. In the same vein, Great Britain had already wondered whether exclusion from Bretton Woods was really a “disadvantage” for the neutrals; see MEWFO to British Embassy, Washington, Jan. 19, 1946.

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stepped up the critique. “Economic sanctions are a drastic and unfriendly means of pressure,” Matthews reminded the secretary of state. In the sanctioned country, they produce “popular resentment” and intensify nationalism. In general, their effect is to “destroy friendly relations between the states.” Their use is “only justified where vital issues are at stake.” In light of the fact that in the cases of Sweden and Switzerland “the total amount of German assets . . . is small,” Matthews argued that it was hardly worth destroying relations with these countries, which “are firmly wedded in the Democratic way of life.” But so far the sanctions program had been “vigorously endorsed by the Treasury, and . . . certain of our own economic divisions.” Their support had made “objective consideration” impossible. Since the beginning of the debate, Matthews’s office had thought “that the nations nearest geographically to the neutrals and those having the most at stake . . . should be equal judges of the disciplinary measures taken against their neighbors.” In other words, Great Britain and France should actually have a say in this matter. However, U.S. policy was now “to force the British and the French into unwilling compliance” with the sanctions program. Such a stance would surely result in France’s and Great Britain’s “exculpating themselves privately to the Swedes and Swiss” and “having the United States bear the full onus” for insisting on sanctions. This would especially be the case because “the differences in Allied ranks” were well known to the neutrals through reports in British and neutral newspapers. It has to be pointed out that Matthews, when he served as ambassador later, did not regard Sweden very positively. When he arrived at his post in December 1947 he began a strenuous campaign against Swedish neutrality, which was, in his opinion, “misguided” during this time of superpower confrontation. Matthews’s concerns in his February memo were thus clearly about Allied cohesion, and the question of whether the end results would be worth the means.55 Since Great Britain was not giving in, the only possible alternative for the United States would have been to engage in a sanctions program unilaterally. Acheson, who had never thought as much of sanctions as Byrnes, had already 55. Matthews to Byrnes, Feb. 15, 1946. For an example of a newspaper report about the sanctions debate, see article in Swedish newspaper Morgontidningen, Mar. 5, 1946, attached to Stockholm to State Dept., Mar. 18, 1946. The paper was, in Ambassador Herschel Johnson’s words, not only “accurately” but also “promptly informed” in regard to the Inter-Allied debate. He hoped that this “leak” would be stopped. See Johnson to State Dept., Mar. 5, 1946, all in 800.515/date. Matthews in Sweden: Lundestad, America, Scandinavia, and the Cold War, 102, 201–2, and Charles Silva, “Keep Them Strong, Keep Them Friendly: Swedish-American Relations and the Pax Americana, 1948 –1952,” 58–60.

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made clear to Vinson in December that the United States would not impose unilateral sanctions. Nevertheless, Vinson requested such a step in February, as did Secretary of War Patterson. In his letter to Byrnes, Vinson complained about Acheson’s position. The secretary of the Treasury suggested that his colleague call in Halifax to let him know that the United States would “be prepared to use economic sanctions regardless of the position taken by the British.” While doing so “you may care to point out to him the difficult position in which his Government’s attitude might place us in the forthcoming debates in Congress concerning the British loan.” The British lack of cooperation “would indicate that Great Britain is not in such desperate need of financial assistance as this Government has been led to believe.”56 Apparently, Vinson and his department continued to think German assets would produce a windfall worth endangering the economic health of the United States’ ally. Yet, Byrnes was not ready to threaten the laborious compromise over the British loan or to employ sanctions unilaterally. Officers in his department concurred. Edward T. Weiles, chief of the Division of British Commonwealth Affairs in Matthews’s office, wrote that “from our experience with the British and British behavior toward the whole sanctions program, we believe that nothing would delight the British more than to trap us into a unilateral application of sanctions.” In the end, the British stuck to their views. Villiers confirmed again “categorically” that his government “could not reconsider opposition to sanctions.” And once the British negotiators were in Washington, they repeated their “unwillingness to go along with the program of sanctions.”57 The whole spectrum of sanctions was thus never employed by the Allies. Yet, the Allies still had a number of what the United States had called “inducements” at their disposal, and they used them to their advantage. As noted in Chapter 5, the reduced versions of the Proclaimed and Statutory lists were phased out only after the conclusion of negotiations with Sweden in July. Furthermore, neutral assets in the United States were still frozen—and in the 56. Acting Secretary of State Acheson to Vinson, Dec. 26, 1945, FRUS, 1945, 2:928 – 30; Vinson to Byrnes, Feb. 21, 1946, Surrey to Byrnes, “Forthcoming Negotiations with the Swiss on German Assets,” Feb. 25, 1946, both 800.515/date. Vinson’s department also advised the chief negotiator for the coming Allied-Swiss negotiations “of the most immediate problem . . . to get a reconsideration of the question of unilateral sanctions”; memo for Randolph Paul from the Treasury, Feb. 20, 1946, 800.515/date; Vinson to Byrnes, Feb. 21, 1946. 57. Weiles to Surrey, Feb. 15, 1946, 800.515/date; Villiers in Winant to State Dept., Feb. 18, 1946, 800.515/2–2146; Rubin memo, Mar. 8, 1946, 800.515/date.

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case of Sweden not released before March 1947. Such measures surely did not represent the wide range of sanctions the Treasury had envisioned when the debate began in December 1945. But what made the resulting discussions so difficult was the fact that the U.S. Treasury adopted an all-or-nothing approach and would never consider retreating from that position. In that regard, Halifax had judged Vinson correctly when he noted on the occasion of the secretary’s appointment that “having once made up his mind, he sticks to his guns and [is] . . . not likely to be deflected by threats of political pressure.” Matthews pointed out that such attitude really did not lead anywhere. In his mind, it was much more realistic and ultimately more successful to agree on a position “to which we and the British and the French could all give our full support.”58 This, in a way, happened in the end, but only after the United States had produced much unnecessary dissension with the other Allies. Left in the Cold: The External Property Commission There was never a question that the three Western Allies alone would negotiate with the Western European neutral countries. The Potsdam agreement had first codified such a setup. That understanding was further confirmed in an exchange of letters with the Soviet Union and in the treaty creating the Inter-Allied Reparation Agency (IARA). That arrangement left unanswered the question of what would be the intended function of the German External Property Commission. Correspondence with the Soviet Union in regard to external assets during September 1945 confirmed the agreement reached at Potsdam. Clayton asked U.S. Ambassador to the Soviet Union Averell Harriman to inform Foreign Minister Vyacheslav Molotov that “the US holds [the] view that although C[ontrol] C[ouncil] has control and power of disposition of German external assets, USSR will dispose of assets in Rumania, Hungary, Bulgaria, Finland and Eastern Austria” while the three Western Allies would concentrate on “all other German external assets.” Less than two weeks later, the Soviet Union confirmed that it had “no objection” to that understanding.59 58. Halifax to Eden, July 13, 1945, in Paul Preston and Michael Partridge, eds., British Documents on Foreign Affairs: Reports and Papers from the Foreign Office Confidential Print, pt. 3, From 1940 to 1945, series C, North America, vol. 5, United States, January 1945 –December 1945, 224; Matthews to Byrnes, Feb. 15, 1945, 800.515/date. 59. Acheson to Harriman, Sept. 6, and reply in Kennan to State Dept., Sept. 18, 1945, FRUS, 1945, 3:1284, 1296; see also Harriman to State Dept., Sept. 8, 1945, ibid., 1285 – 86; Rubin to Ernest Gross, Dec. 13, 1945, 800.515/date.

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On January 14, 1946, the final act of the Paris Conference on Reparation came into force, concluding the negotiations that had been going on since November. The IARA was constituted in Brussels to “allocate German reparation among the Signatory Governments” (Albania, Australia, Belgium, Canada, Denmark, Egypt, Greece, India, Luxembourg, Norway, New Zealand, the Netherlands, Czechoslovakia, South Africa, and Yugoslavia, as well as the three Allies). Each of these eighteen countries would have one delegate in the general assembly that would decide by majority vote over the allocation. Reparations were divided into two categories, of which each country was assigned a certain percentage. Category B constituted “industrial and other capital equipment” as well as merchant ships. Category A was everything else. German assets in neutral countries thus fell mostly into Category A. In regard to these assets the conference had concluded that they “shall be removed from German ownership or control and liquidated or disposed of” pursuant to negotiations under “the authority of France, the United Kingdom and the United States of America.” The resulting “net proceeds” would then be handed over to the IARA and allocated by the agency. The term net proceeds was intentionally vague because, as Surrey recommended, the United States did not want to preclude the option that the neutrals could satisfy some of their own prewar claims from these assets. On the other hand, the Allies did not want to tip off any of those countries of this possibility, either.60 In regard to the treatment of German assets in the IARA countries, member countries could decide this question as they “may choose.” The final agreement also regulated the allocation of gold and other valuables stored by the Allies—mostly by the United States—in Germany. All the monetary gold was to be pooled “for distribution as restitution” to those countries whose reserves had been looted by Germany. In general, the term monetary gold refers to gold held as a component of a country’s currency reserves at a central bank or similar institution. In April 1947 the United States adopted a very broad definition of monetary gold that allowed for the inclusion of gold bullion and coins derived from victim gold of Nazi concentration-camp inmates. Monetary gold paid to the Allies by the neutral countries as part of the future Safehaven agreements would also go into this pool. To regulate this gold’s distribution, the Tripartite Gold Commission was created in September 1947 and situated in Brussels. All the nonmonetary gold found “by the 60. “Final Act and Annex of the Paris Conference on Reparation,” Department of State Bulletin 14 (Jan. 27, 1946): 114–24; Angell to State Dept., Nov. 23 with proposed text on this section and reply Nov. 27, 1945, FRUS, 1945, 3:1404–5, 1421.

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Allied Armed Forces in Germany” was allocated to the “Non-repatriable Victims of German Action.” In addition, a part of the German assets in neutral countries “not exceeding 25 million dollars” was designated to go into this fund, as well as heirless assets the neutral countries “shall be requested to make available.” In June, France was designated as the agent to request those heirless assets. The $25 million fund was later administered by the International Refugee Organization (IRO).61 The three powers had thus been very successful in making certain that the IARA would not “interfere with any of the delicate and difficult processes short of the process of disposal” when it came to German assets in the neutral countries. Two of the final unanimous resolutions of the conference further confirmed this authority of the three Allies. The first one stipulated that “the countries which remained neutral in the war against Germany should be prevailed upon by all suitable means [by] the Powers exercising supreme authority in Germany . . . to extirpate the German holdings.” The second one stated that the neutral countries “should be prevailed upon” to make available all gold looted by Germany.62 Both the letters exchanged with the Soviet Union and the IARA agreement thus seemed to strongly confirm the division of German external assets reached at Potsdam. Because of these arrangements it was doubtful that the German External Property Commission (GEPC) would ever work on a quadripartite basis. For the State Department, the policy was clear. Shortly after the end of the Potsdam Conference, Rubin telegraphed from Paris that “as an administrative matter this Commission [GEPC] should be divided into two sections” along the lines determined at the Big Three meeting. And a memorandum on the Potsdam protocol by the Allied Reparations Commis61. “Final Act and Annex of the Paris Conference on Reparation,” pt. 3, pt. 1, art. 8; for U.S. views: Eizenstat I, 171–76. An agreement between the three Allies, Czechoslovakia, and Yugoslavia to work out questions in connection with the allocating of the IRO fund took until June 14, 1946. It was clear that most of these nonrepatriable victims were Jews, and Great Britain was concerned that part of these funds would be used for resettlement initiatives in British Palestine. The final agreement contained no reference to the Jewish Agency for Palestine or the Jewish Joint Distribution Committee, but spoke only of “appropriate field organizations.” Instead, both agencies were named in an unpublished letter annex to the final agreement, which determined the agencies to which the Intergovernmental Committee on Refugees could distribute these funds. See Eizenstat I, 91– 96; text of this agreement (without the letter annex) in Department of State Bulletin 15 (July 14, 1946): 71–73. France was designated to request heirless assets as part of this June 1946 agreement. 62. FO, “Note for Paris discussions on Reparations. German External Assets,” Oct. 31, 1945, quoted in Seidel, Angst vor dem “Vierten Reich,” 260; “Final Act and Annex of the Paris Conference on Reparation,” Resolution 1: German Assets in the Neutral Countries, Resolution 2: Gold Transferred to the Neutral Countries, Department of State Bulletin, 14 (Jan. 27, 1946): 121–22.

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sion also assumed that an Anglo-American-French “sub-commission” of the GEPC would exercise the appropriate control “in the name of the Control Council.”63 Consequently, the State Department sent a cable to propose such a split four days after the Allied Control Council had formally activated the GEPC and even before the commission had first convened in early December 1945. That cable also asked to exempt all Latin American republics from the coverage of the vesting law. The proposal did not sit well with the U.S. delegate on the commission—who was none other than the already frustrated Russell Nixon. According to his later testimony in front of the Kilgore Committee, Nixon vigorously opposed the proposed split. Instead of emasculating the GEPC, Nixon wanted to make it an effective tool in implementing the ACC law. The deputy military governor agreed with Nixon. Clay felt that he had employed his utmost personal pressure to get the law passed, and now the State Department was working to undermine the quadripartite structure of the commission.64 This was, after all, a time when Clay was making great efforts to get the quadripartite machinery in Germany working, and he had no interest in weakening those attempts immediately. Clay asked Nixon to sound out the Soviet representative on the GEPC. The Soviet delegate professed to know nothing of the U.S.–USSR correspondence, even after he had consulted with his own political adviser. However, the Soviet member told Nixon that his country had not given up “equal interest” in implementing the vesting law even if the Soviet Union had “no interest in ultimate disposition” in those areas assigned to the other powers. Therefore, Clay never presented the State Department’s proposal and wrote home that he was “completely at sea with respect to responsibilities of GEPC.” Clay’s reservations did not stop the British from presenting a similar paper in January, which the Soviet delegate strongly opposed. Clay warned 63. Caffery (for Rubin) to State Dept., Aug. 16, 1945, 800.515/date; “Memorandum on the Provisions of the Berlin Protocol Relating to Reparations,” Sept. 20, 1945, folder: Memorandum on Provisions of Berlin Protocol in Relation to Reparations (box 104), Lubin Papers. 64. The State Dept.’s cable was sent Nov. 24; copy in FO 371/45815. The British agreed with State’s proposal, according to draft telegram from Playfair to W. Ritchie, Dec. 12, 1945, ibid. For Nixon’s views see his testimony in U.S. Senate Committee on Military Affairs, Elimination of German Resources for War, pt. 11, 1551–52; “Clay disturbed,” TWX conversation between Bernstein, Locker, and Nixon, Nov. 28, 1945, Jack Bennet to Orvis Schmidt, Jan. 24, 1946: Clay “feels pretty strongly over the fact that after pressuring him into accomplishing the enactment of Control Council Law No. 5 the State Department then proceeded to hold a 17-Nation Conference in Paris over the disposition of the spoils without even asking a representative of Military Government or the GEPC to attend,” both in folder: Safehaven Project—Personnel Assigned to SHAEF, FFC Subject Files.

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that any further such attempts “may lead to [the] breakup of GEPC.” Clay’s uncertainty continued when he received yet another telegram, which suggested that as a result of the IARA agreement all German assets in the IARA signatory countries should also be exempted from the GEPC’s authority. By now, Clay was “more confused than ever and . . . unable to proceed intelligently in any quadripartite discussions.” Finally, after consultations between Acheson and the Pentagon, the State Department dropped its proposal. The British paper should also be opposed, the War Department advised Clay.65 This whole affair led Nixon—a private citizen since January—to level harsh charges at the administration. After describing what he knew, he declared, “I submit that this is a very sad record. . . . It is clear that behind the backs of the Allied Control Authority there has been secret conniving to avoid full four-power activity with respect to Germany’s external assets.” Senator Harley Kilgore confirmed that “the whole theory of UNO is starting to split into two grand subdivisions.” Nixon also singled out Rubin as the man “in charge of their ‘safe haven’ operation.” This led Kilgore to remember that because of Rubin “every block was thrown in the way of getting any evidence released” for his hearings. It was a charge Rubin would not endure. He and his department had already been disturbed by the November 1945 press articles about Treasury’s problems in Germany. The department answered Nixon’s charges with a press release that “emphatically” denied everything. Rubin continued to complain to Matthews about Nixon “and others of his persuasion.” He accused these “figures” of “much if not all of the difficulties” between the State Department and General Clay.66 As did every good bureaucrat, Rubin worked hard to protect his career. He did not comprehend that Clay was rightly concerned about how he could ever get a quadripartite apparatus working when he was being asked to undermine it immediately. 65. Nixon talked to the Soviet representative twice, as reported in Clay to Hilldring, Dec. 5, 1945, and Jan. 25, 1946 (quotes), in Smith, Papers of General Lucius D. Clay, 1:128 –29 and 149 – 51, respectively; see also U.S. Senate Committee, Elimination of German Resources for War, pt. 11, 1577, 1581–82; Clay unclear: Clay to Hilldring, Jan. 25, 1946; British proposal “Procedure in Connection with the Disposal of German External Assets,” Jan. 15, 1946, GEPC/P(46)6, folder: GEPC/ P(46)1–74 (box 437), General Records of the GEPC; Clay more confused: Clay to Hilldring, Feb. 8, 1946, Papers of General Lucius D. Clay, 1:158–60 (Clay sent this communication as a result of a cable State sent to Angell on Jan. 15 and of which Clay received a copy on Feb. 4, 1946); proposal dropped: Surrey to Acheson, Feb. 11, 1946, with attached cable to Clay, 800.515/date. 66. U.S. Senate Committee, Elimination of German Resources for War, pt. 11, 1586, 1584, 1581. First proposal for a press release in Surrey to Collado, Nov. 30, 1945, another version in Rubin to Glasser at the Treasury, Dec. 7, 1945, both 800.515/date; released Jan. 8, 1946, printed in Department of State Bulletin 14 (Jan. 20, 1946): 76–77. The press release also answered charges Nixon had apparently made before he resigned in Jan. 1946. Rubin to Matthews, Feb. 5, 1946, 800.515/date.

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At the core of the debate was that Clay, the War Department, and the Treasury interpreted the vesting law and the functions of the GEPC much more broadly than did the State Department. After all, the vesting law was expansive, vesting “all rights” of “any property outside Germany” in the GEPC. The law passed was very much the original Treasury proposal, and Clay had to operate under this proposal, which was now law in Germany. But the State Department had concurred in the passage of the law only under pressure from Secretary Vinson. The State Department had never intended the vesting decree to be more than “a means to the end of achieving control of German external assets.”67 The main function of the law was to serve as a legal backup the Allies could refer to at convenient times during their negotiations with the neutrals. Beyond that task, the GEPC was not intended to have any functions other than undertaking investigations inside Germany. The “Least Useful Appendage of the Control Council” In light of the IARA agreement and the subsequent settlements with Switzerland and Sweden in May and July 1946, the Western Allies remained uncomfortable with the continued existence of a broadly mandated GEPC. Despite the Potsdam agreement and the exchange of letters with the USSR, the GEPC had the potential to offer the Soviet Union an inroad to question the subsequent arrangements of the Western Allies.The British delegate for the Swiss negotiations in Washington, which began in March, stressed that the GEPC had to be “put out of the picture,” as he told Rubin.68 The efforts to draw the lines of demarcation thus continued unabated. In February, the French officially proposed exempting the so-called IARA countries from the jurisdiction of the commission. The United States decided to support that move to be in accord with the decisions reached at the reparations conference. Again, Clay did this only reluctantly because, as he pointed out correctly, the IARA agreement and the vesting law were contradicting each other. In supporting the French move, Clay warned that “it is our view 67. Sec. Patterson to Acheson, May 6, 1946, replying to a letter from the State Dept. sent Mar. 22, 1946, 800.515/5–646. Confirming this view: memo from Surrey, Mar. 11, 1947, folder: German External Assets, Safehaven Subject Files, 1945–1947, Records of DESC, RG 59, NACP. 68. Theodore Ball (deputy director, Finance Division, OMGUS) to George Baker (acting assoc. chief, Division of Economic Security Controls), with memo from Rubin attached, Oct. 14, 1946, see also Rubin memo, Mar. 8, 1946, both 800.515/date. The Allies informed the Soviet Union that they were negotiating with the neutrals, but received no further reaction; see Acheson to Murphy, Apr. 3, 1946, 800.515/3–2746.

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that we are writing the finish of GEPC.” Despite the general’s acute flair for drama, this did not happen. The Soviet delegate on the GEPC did not receive any instructions, and the proposal was not discussed for months on end. This standstill gave the United States time to explore the issue with Great Britain and France, an urgent task since the Western Allies wanted to avoid “any embarrassment that would result from Soviet non-concurrence.”69 The preferred U.S. solution was a once-and-for-all final settlement: German assets in IARA countries would be put under the jurisdiction of the IARA; those allocated to the Soviet Union in the Potsdam agreement would go to the Soviet Union; and the title to assets in all other areas would go to the United States, the United Kingdom, and France. But by then the Cold War had destroyed all the trust that was left between East and West—this was the year of Kennan’s “Long Telegram,” Churchill’s “Iron Curtain” speech, and Clay’s decision to stop the dismantling of industrial plants in the U.S. zone. France did not want to give up completely on a quadripartite body through which the West might be able “to maintain some control over transfer of assets in Eastern part of Europe” which might be partly Allied and not solely German—as the Soviet Union might like to pretend. This concern also encompassed German assets in Austria, where German investments had been extensive, each Allied side had large economic interests, and the entanglement of all those various interests was hopelessly stalled. Therefore, France proposed during the summer that the GEPC review the true character of each individual German asset, after which they would be transferred to the four powers on certification of the commission. Governmental discussions ensued, the summer turned into fall and then winter, and no solution was in sight. The British and the Americans simply did not like the “activation” of the commission “at this late date,” which would only “prolong” its certain death anyway. Thus, no proposal was ever made in 1946. By early 1947, the French were ready to surrender, but by then the issue of the peace treaties with the Eastern European countries had changed the whole equation.70 69. Clay to Hilldring, Feb. 18, 1946, in Smith, Papers of General Lucius D. Clay, 1:164 – 65; Murphy to State Dept., June 11, 1946, 800.515/date. 70. Final settlement proposal: State to Murphy and embassies in Brussels, London, Paris, Stockholm, Lisbon, Madrid, Bern, and Moscow, July 26, 1946; French views in Rubin memo, attached to Ball to Baker, Oct. 14, 1946; next two quotes: note from State Dept. to French Embassy, Feb. 4, 1947; last quote: Gallman (London) to State Dept., Oct. 2, 1945. The department’s note to France was in reply to French note, Nov. 11, and aide-mémoire, Nov. 21, 1946; British views: Calder (London) to State Dept., with attached letter from Villiers, Oct. 1, 1946, State to Rubin in Lisbon, Oct. 3, 1946; change in French opinion: Caffery to State Dept., Jan. 13 and 31, 1947, all in 800.515/date.

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These treaties with Bulgaria, Romania, Hungary, Finland, and Italy were finally ready for signatures in February 1947. Nearly all of these treaties contained a sentence more or less similar to this one: “Bulgaria recognizes that the Soviet Union is entitled to all German assets in Bulgaria transferred to the Soviet Union by the Control Council for Germany and undertakes to take all necessary measures to facilitate such transfers.” The Italian treaty was more ambiguous but basically allocated the German assets to the Western powers. The United States maintained—and so informed the French in February in reply to their earlier proposal—that the Soviet Union had to come before the GEPC to validate the transfer of these German assets. Such a request would give the other three Allies the chance to finally settle for the envisioned overall agreement.71 It was a good plan, but it did not work as intended. The problem was that the Soviet Union simply did not consider it necessary to come before the ACC, despite U.S. and British requests. The United States informed Molotov that all transfers of German assets made before or after the peace treaties had to be “made in accordance with the treaty terms.” In other words, transfers had to be “provided by the Control Council for Germany.” Molotov’s deputy, Andrey Vyshinski, regarded any such stamp of approval as quite unnecessary: “The Soviet Union’s right to possession of German assets in Hungary, Bulgaria, Roumania, Finland, and Eastern Austria is based on the decisions of the Berlin Conference: this right is expressed in law No. 5 of the Control Council . . . and does not require any further ratification.” A further exchange of notes stretching into 1948 only resulted in a repetition of these positions.72 Up to 1947, the German External Property Commission had continued to 71. Paragraph 24 of Bulgarian, paragraph 26 of Romanian, paragraph 28 of Hungarian, paragraph 26 of Finnish peace treaties. Art. 77, paragraph 5 of the Peace Treaty with Italy stipulated: “Italy agrees to take all necessary measures to facilitate such transfers of German assets in Italy as may be determined by those of the Powers occupying Germany which are empowered to dispose of the said assets.” Italian assets, with certain exceptions, in Romania, Bulgaria, and Hungary went to the Soviet Union: see art. 74, pt. A, paragraph 2 (b), U.S. Dept. of State, Treaties of Peace with Italy, Bulgaria, Hungary, Roumania, and Finland; proposal for such a settlement was first drafted by Surrey on Mar. 11 and circulated by him on May 14. The proposal was sent as a telegram to London, Paris, Brussels, Moscow, Rome, Budapest, and the U.S. political adviser in Berlin on June 2, 1947. His March draft and May memo in folder: German External Assets, Safehaven Subject Files, 1945– 1947, Records of DESC; telegram in 800.515/date. 72. Molotov informed: Walter Bedell Smith (U.S. ambassador in Moscow) to Molotov, July 29, 1947, see also Sir Maurice Peterson (British ambassador) to Molotov, July 28, 1947, attached to British Embassy, Washington, to Baker, Oct. 24, 1947, both in folder: German External Assets, Safehaven Subject Files, 1945–1947, Records of DESC; Soviet reply Aug. 16, 1947, and further exchange: Peterson to Molotov, Nov. 20, 1947, both attached to British Embassy, Washington, to Baker, Oct. 24, 1947; Vyshinski’s reply, Jan. 28, 1948, 800.515/2–548.

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exist because no side had questioned the arrangements of the other out of fear that then all handling of German external assets in the two spheres of influence would come under scrutiny. The last U.S. delegate on the GEPC, E. J. Cassoday, summed up this mutual but mute agreement quite well: the Soviet side has “consistently refused to interfere in tripartite agreements which failed to take into account the fact that title to the German external assets dealt with in such agreements is vested in the GEPC.” But, apparently as a result of the U.S. and British notes, the Soviet Union in early 1948 finally began to wonder about the role of the GEPC. This was the move the United States had awaited for seven months. The Soviet proposal regarding the “functions” and role of the GEPC resulted in one of the liveliest exchanges in the history of the commission. None of its delegates was ready to dissolve the commission, and its British member even hoped that now its role would “increase.” That never happened. It was the last meeting of the German External Property Commission. On the 20th of March, 1948, the Soviet delegate left the Control Council, and the quadripartite Allied Control Council—or what was left of it—ceased to exist.73 Fourteen months later, the Federal Republic of Germany was founded. Due to higher power, the GEPC never lived up to its lofty beginnings and remained the “least useful appendage of the Control Council.” Much time, for example, was spent on such questions as the treatment of seven ships previously registered in Danzig. In 1946 Poland requested that these ships be delivered to Poland. After the war these ships were lying in German ports and were registered to a Hamburg shipping company. The issue led to the exciting question: “Can a ship lying in a German port be an external asset?”74 It was a question not solved before the commission broke up. The only really useful quadripartite function the GEPC accomplished was a limited exchange of tabulations on German external assets. Under U.S. Military Government Law No. 53 and its Allied counterparts, Germans had to 73. E. J. Cassoday to James W. Gantenbein, Office of Political Affairs, Mar. 23, 1948, folder: Soviet Relations—External Assets (box 590), General Records of the External Assets Branch, Records of the Property Division, Records of the Office of the Military Governor, United States (OMGUS); GEPC, “Minutes of the Sixty-Seventh Meeting,” Feb. 10, 1948, GEPC/M(48)3, folder: GEPC M/ 48 1–3 (box 440), General Records of the GEPC; Clay describes the last meeting of the ACC in his Decision in Germany, 355–57. 74. Reports of U.S. Delegate on the GEPC on the Committee’s 53rd Meeting, May 16, 1947 (first quote), and 63rd meeting, Dec. 11, 1947 (second quote), both in folder: GEPC (47) Journals (box 438), General Records of the GEPC.

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declare these assets. Altogether, 1.147 million declarations had been submitted to the Allies in the four zones and Berlin. The United States and the Soviet Union had already completed their tabulations in July 1947 or earlier. The French and British tables were not ready before the end of 1947 or even later. The French member of the GEPC suggested in May that the exchange should begin as soon as partial results were ready, but the Soviet delegate would only agree to a simultaneous exchange. A Soviet–U.S. exchange was finally accomplished in December 1947. Additional exchanges were planned for later but never happened because of the dissolution of the Allied Control Authority.75 The preliminary completion of this task was probably another reason that the Soviet Union then proposed rethinking the functions of the GEPC. After much debate the approach to the neutrals was finally worked out.The British had hoped all along that the United States would stick to its initial proposal put forward by Rubin in August. But this did not happen because the U.S. Treasury had always envisioned a very different negotiating tactic, one that would rely not on morality but on force. The State Department initially went along with that approach, as it saw some usefulness in having the vesting law passed in the ACC. That support disappeared—after some wavering—when it came to the question of sanctions, a question on which the British would not budge. Without their support the United States might have been alone in imposing sanctions. The united bargaining position of the Allies would have been severely weakened even before the negotiations had begun, and in the end officials in the State Department saw that the United States was in danger of being isolated and without allies. As a result the German External Property Commission had been created after much debate but remained functionless from early on. Its existence could never bridge the contradiction between its mandate and the fact that the Pots75. French proposal for an immediate exchange as soon as charts become available under threat to send the matter to the Control Council, May 9, GEPC/P(47)24. U.S. prefers to exchange the tabulations when the ones from the U.S. zone are complete and hence does not want to refer matter to Control Council, May 21, GEPC/P(47)26, resulting in GEPC/P(47)24 rev., Aug. 7, 1947, all in folder: GEPC/P(47)1–42 (box 437). See also Report of U.S. Delegate on the GEPC on the Committee’s 59th Meeting, Aug. 14, 1947, and report on the 63rd meeting, Dec. 11, 1947, folder: GEPC (47) Journals, all General Records of the GEPC. Attempts to continue the exchange in Frank Miller to Cassoday, May 5, 1948, folder: External Assets (box 6), General Records of the Director, Records of the Property Division, Records of the Office of the Military Governor, United States (OMGUS).

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dam agreement split German external assets along the line of the Iron Curtain. Rubin had always wanted to divide the commission, but those assorted efforts never succeeded. That failure did not hurt either of the two sides since the Soviet Union stuck to the agreement struck at Potsdam and refused any further discussion.

Negotiations with Sweden, 1946

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  S        negotiations with Sweden opened in Washington, D.C., in late May 1946. Originally they were planned for much earlier that year, but the agreement with Switzerland had to be signed first. Because the negotiations with this other neutral dragged on much longer than expected, the months before the negotiations with Sweden were used to deliberate the outstanding questions between the Allies and Sweden. Although nothing conclusive was decided during that time, the preliminary discussions served to clarify the understanding of the issues on both sides. The Allies had two main goals for the negotiations. First, they wanted to eliminate the German influence in Sweden, which foremost meant the sale of the German companies in Sweden to non-German owners. Their second goal was to receive substantial payments from these proceeds and to eliminate German commercial competition in Europe. This latter objective was primarily in the interest of Great Britain, while the United States focused on the financial advantages. The Allies understood the Swedish payment to be reparations that could be used to pay for their expenditures in Germany and also to compensate the other Inter-Allied Reparation Agency (IARA) countries. Sweden, of course, denied such a contention since it ultimately rested on the vesting decree, which had supposedly made the Allies the new owner of all German assets in Sweden. And Sweden had its own claims against Germany for which it wanted to use the German assets in the country. There were, of course, many other connected questions, which will be discussed below. 231

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Apart from these, there was one other issue that, despite its prominence, was not put on the table. This was the treatment of the Stockholms Enskilda Bank, the Wallenberg brothers, and the question of their wartime activities. The U.S. Treasury thought that Marcus and Jacob Wallenberg had supplied considerable help in cloaking German companies during the war and wanted to bring up this issue during the negotiations to pressure Sweden. The whole affair is a textbook case of cloaking undertaken by so many German companies before the war to protect their assets for the duration of hostilities. It is thus not an example for the original intention of Safehaven, to locate flight capital that had allegedly left Germany before the end of the war. The case in itself demonstrates the shifting priorities of Safehaven from a program focusing on flight capital to one that predominantly concentrated on eliminating all German economic influence in the neutral countries. The Wallenbergs and Bosch In the 1940s, the Wallenberg family was one of the richest and most influential families in Sweden. Probably more than 10 percent of the country’s industrial workers were employed by companies under the Wallenbergs’ influence. The beginnings of their empire had been laid by André Oscar Wallenberg, who founded the Stockholms Enskilda Bank, the capital’s first private bank, in 1856. His sons Knut Agathon (1853 –1938) and Marcus (1864 – 1943) greatly expanded its role and continued to focus its investments on closely monitored industrial properties, like Allmänna Svenska Elektriska Aktiebolaget (AB), a leading maker of electrical equipment. During World War I, Knut Agathon Wallenberg was the country’s foreign minister and Marcus Wallenberg negotiated important supply agreements with the British. In 1919 Marcus traveled to Germany to protect Swedish industrial holdings there. Later, he became a member of the Economic and Financial Committee of the League of Nations and was chairman of the Court of Arbitration, set up to decide disputes arising from the Versailles reparation settlement. When the next war came, the reins of the family had been taken over by Marcus’s sons Marcus Jr. (1899 –1982) and Jacob (1892–1980). Marcus Jr., by the way, was an avid tennis player and yachtsman who had competed at Wimbledon in 1922 and 1925 and at the German Olympics in Kiel in 1936. Later in his life he enjoyed the occasional match with the king as the longtime chair of the Swedish Tennis Association.1 1. For Wallenbergs’ influence and history: Ulf Olsson, Furthering a Fortune: Marcus Wallenberg,

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The holdings of the family were controlled through the Enskilda Bank and two main holding companies, AB Providentia and AB Investor. The independence of these holding companies from the bank was merely formal. In the interwar period Swedish banks were allowed to hold only a limited number of shares themselves—and after 1932 none at all—and it was the usual practice of all large banks to increase their involvement in industry through affiliated investment companies. Providentia had been in liquidation since 1916, when the Swedish banking inspector had complained that it was too closely affiliated with Enskilda. The bulk of the shares were transferred to Investor, but Providentia continued to function until 1946, when it was finally dissolved.2 The Wallenbergs’ position in relation to the country’s two other large banks greatly improved in 1932, when they profited from the spectacular financial crash of Swedish financier Ivar Kreuger. One of Kreuger’s business methods had been to pledge his companies’ shares as collateral for loans that financed his expansion. The suicide of Kreuger, the “match-king,” in Paris—which resulted in a financial meltdown in his home country and spelled the end of the Liberal Party in power—allowed the Wallenbergs to acquire these shares in many of the most important Swedish companies, such as SKF (ball bearings) or Ericsson (telephones) for sometimes 10 percent of their former value. The other great Swedish financier of the time, Axel Wenner-Gren—the founder of the appliance-maker Elektrolux—removed himself when he left Sweden on his private yacht in 1938 and settled in the Bahamas—to the great suspicion of Allied officials, who put him on the Proclaimed and Statutory lists in January 1942 for his alleged contacts with Germany.3 As of the end of 1944 the Wallenberg group held direct or indirect interSwedish Banker and Industrialist, 1899–1982, 128; Johnson (Stockholm) to State Dept., May 11, 1945, enclosing report “The Division of Political and Economic Power in Sweden,” 116 –18, from Lewis Gleeck (third secretary of the embassy), folder: Political and General (box 2), Classified General File (Confidential File) 1944 to 1949, Stockholm Legation and Embassy, Records of the Foreign Service Posts of the Dept. of State, RG 84, NACP; Ulf Olsson, At the Centre of Development: Skandinaviska Enskilda Banken and Its Predecessors 1856–1996, 13 –20, 38 – 46, 101–29, 159 –71, 295–96. For Marcus Jr.’s leisure activities: Olsson, Furthering a Fortune, 61– 64, 146 – 55, and Denham, Inside the Nazi Ring, 142. 2. Mats Larsson, “Overcoming Institutional Barriers: Financial Networks in Sweden, 1910– 90,” 122–31; for Providentia: Olsson, Centre of Development, 121–22, 162– 64. 3. Håkan Lindgren, “The Kreuger Crash of 1932: In Memory of a Financial Genius or Was He a Simple Swindler?” According to a Jan. 1945 FBI report, Wenner-Gren took with him on his yacht $4 million in cash supplied to him by Herman Göring. Wenner-Gren distributed this money in Brazil, Argentina, and Peru for investments there. See “FBI Report on Information Furnished by Elof A. Ostman, Former Personal Secretary to Axel Wenner-Gren,” attached to Coe to Morgenthau, Feb. 23, 1945, Morgenthau Diary, 822:47– 53, FDRL.

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ests in fifty-four Swedish companies. Members of the bank and its affiliated holding companies were represented on forty-one of the boards of those companies. The Wallenbergs’ influence was not necessarily visible because the structure of Swedish shareholder law allows that certain so-called A shares have much larger voting powers than B shares (1000:1, for example). The intention was (and is) to make it more difficult for foreigners to take over Swedish companies. Thus, it was not necessary to own the visible majority of a company’s shares to control it.4 With the Social Democrats firmly in power after the Kreuger crash, the Wallenbergs’ relation to the government had cooled a bit, as it was the stated policy of the party to one day nationalize the country’s commercial banks. Still, after 1938, the Wallenbergs’ contacts with the government increased because they could provide valuable insights from their far-reaching international connections. In 1939, for example, Marcus Jr. met with both Herman Göring and Winston Churchill. During the war Marcus Jr. took on various diplomatic assignments. One of these was the negotiation of the Allied-Swedish wartime trade agreements. Marcus Jr. also chaired the Anglo-AmericanSwedish Joint Standing Committee. Jacob, on the other hand, took on similar functions for the Swedish-German negotiations and the German-Swedish Standing Committee. Conveniently, his diplomatic assignments enabled Marcus Jr. to travel on a diplomatic passport and to mingle official and private business during his trips—an opportunity that he did not hesitate to employ. Marcus Jr. was also a close friend of both British Ambassador to Sweden Victor Mallet’s and U.S. Ambassador Herschel Johnson’s.5 The accusations against the Wallenbergs were mainly centered on their alleged assistance in cloaking foreign holdings of the German Robert Bosch G.m.b.H., the well-known maker of spark plugs.6 In 1917 the U.S. branch of 4. Håkan Lindgren, Bank, Investmentbolag, Bankirfirma: Stockholms Enskilda Bank, 1924 –1945, 410–13; Gerard Aalders and Cees Wiebes, The Art of Cloaking Ownership: The Secret Collaboration and Protection of the German War Industry by the Neutrals, 30 – 32. 5. Olsson, Furthering a Fortune, 161–62, 167; the brothers’ wartime activities: “The Division of Political and Economic Power in Sweden,” 117–18, 141– 43, and Olsson, Furthering a Fortune, 169 – 75, 189–202. Mallet wrote about Marcus that he “is one of the staunchest friends of England that exists in Sweden,” Mallet to Eden, June 20, 1945, BDFA, 371–72; see also Denham, Inside the Nazi Ring, 69. At the end of the war Marcus Jr. was recommended for the British order Knights Cross of Saint Michael and Saint George. Because of the Bosch affair, he received only the order Knight of the British Empire in 1954. See Olsson, Furthering a Fortune, 222. 6. The facts of this story are fairly well known. See, from 1950, Martin, All Honorable Men, 247– 51. More recent narratives are Wohlert, “Enteignungen von deutschen Auslandsanlagen,” 344–52;

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the German company had been vested by the Alien Property Custodian (APC). In 1918 it was sold to American interests and operated under the name American Bosch Magneto Company (ABMC). Still, the name Bosch was “an excellent trademark,” and the goal of Bosch, Germany, was to reunite the American-owned Bosch company with a new, German-owned U.S. subsidiary, the Robert Bosch Magneto Company. Since German Bosch could not have bought the ABMC shares openly on the U.S. market, the purchase was arranged through a German-Dutch banking consortium, which supplied the necessary loan to a New York bank together with Bosch, Germany. After the U.S. bank had bought enough shares, the two companies were united in January 1931, bringing about the American Bosch Corporation (ABC). Though it was supposedly an American company, the real control of the majority of ABC shares lay with Bosch, Germany. The ABC shares were held by the New York bank until 1934. Because of changes in U.S. law, they were then sold to the Dutch branch of the Berlin banking house Mendelssohn and Company. Already in 1930, Bosch, Germany, had put nearly all the shares of its foreign subsidiaries in a Swiss company located in Chur, Switzerland. The company in turn was controlled through a Dutch dummy corporation. With the war on the horizon, any links between Bosch, Germany, and its foreign subsidiaries were further concealed when in 1937 all the shares of the foreign subsidiaries—including ABC’s—were transferred to the Dutch Mendelssohn bank. Unfortunately, the Dutch bank went broke in August 1939, and somebody else had to quickly take its position. The outbreak of the war the next month only made the situation more urgent and difficult.7 At this point the Wallenbergs became involved. In July 1940, they took over the 70 percent of ABC shares formerly held by Mendelssohn for $2.94 million through their company AB Planeten, which was owned by Providentia (in liquidation) via the subsidiary Svenska AB Caritas. In return, Bosch helped Enskilda to sell German bonds worth $3.6 million to the Deutsche Golddiskontbank. Since the German bank paid less than the Wallenbergs demanded, the difference of approximately $650,000 was paid directly by Bosch, Germany, to Enskilda and was the Wallenbergs’ premium for the transaction. Aalders and Wiebes, Art of Cloaking Ownership, 37–53, as well as their article “Stockholms Enskilda Bank, German Bosch and I.G. Farben. A Short History of Cloaking,” 25– 50; and Ulf Olsson, Stockholms Enskilda Bank and the Bosch Group, 1939–1950, a translation of the relevant parts of his Bank, familj och företagande. The affair is also mentioned in his Centre of Development, 208 –10, and Furthering a Fortune, 235–53. 7. Aalders and Wiebes, Art of Cloaking Ownership, 37–42, quote 38; Olsson, Stockholms Enskilda Bank and the Bosch Group, 11–13.

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A secret, written—but not signed—agreement stipulated that Bosch, Stuttgart, had “the right and obligation” to reacquire the majority of ABC shares for the original Enskilda acquisition price until two years after the end of the war. Enskilda was allowed to charge a small percentage for costs from which dividends would be deducted. With the coming war, ABC’s profits were expected to rise considerably. Later in 1940 the ABC shares were transferred to another Wallenberg-controlled subsidiary that was partly owned by AB Investor. During an extensive diplomatic mission to the United States in November 1940—officially to get armament supplies released to Sweden—Marcus Wallenberg Jr. established a voting trust to protect ABC from further enquiries by U.S. officials. The designated representative, George Murnane, former vice president of the New York Trust Company and president of the board of ABC, held sole power to vote the ABC shares and could not sell a majority of shares. If Murnane died, his successor would be named by John Foster Dulles, then senior partner in a Wall Street law firm and the brother of Allen W. Dulles, the OSS man in Bern later who did not think much of Safehaven.8 Like the ABC shares, the shares of other Bosch subsidiaries were also transferred to AB Planeten in December 1939. The conditions and the connected bond transactions were very similar to those in the ABC deal. Three years later, because of the treatment of the ABC shares by the United States, Enskilda wanted to liquidate its holdings of the other Bosch subsidiaries. In 1943, Bosch’s own Swedish company AB Robo, through its subsidiary AB Tessalia, bought AB Planeten and another Wallenberg-controlled company that held Bosch shares—except the ABC shares that were not owned by Planeten anymore. Enskilda had therefore secured a handy profit. The shares of AB Tessalia were deposited with three trusted Swedish lawyers. One of them was Herbert Lickfett, the Swedish representative of I.G. Farben. After the war the Swedish Foreign Capital Control Office confiscated the shares of AB Tessalia as German property when one of the lawyers reported his holding under the 1945 Safehaven legislation.9 8. Olsson, Stockholms Enskilda Bank and the Bosch Group, 14–20, quote 18, and Furthering a Fortune, 237–40; Aalders and Wiebes, Art of Cloaking Ownership, 43–46. Marcus also used this trip to buy a number of German stocks and bonds. These transactions had been agreed to by Jacob and the German banker Otto Wolff. Because of the higher share prices that could be realized upon resale in Germany, a good profit could be made. Enskilda’s commission of $173,000 was deposited in gold by Wolff in Switzerland. This gold might have been looted. The U.S. Treasury, which Marcus contacted, did not oppose the transaction. See Olsson, Furthering a Fortune, 234–35, and Commission on Jewish Assets, Sweden and Jewish Assets, 150–51. 9. Olsson, Stockholms Enskilda Bank and the Bosch Group, 14–16, 25–26; Aalders and Wiebes, Art

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The 1943 transactions left the ABC shares in nominal control of the Wallenbergs. These shares had been, despite the elaborate safeguards, blocked by the U.S. Treasury six days before Hitler declared war on the United States. Five months later Leo Crowley, as the new APC, “finally” vested the ABC shares in himself, a move the Treasury had recommended after an investigation. In an antitrust action in December 1942, the company was ordered to supply free licenses to U.S. companies for all Bosch patents it owned. The Wallenbergs protested all these actions and informed the Swedish government. After consideration by members of the Swedish cabinet, the Swedish Embassy in Washington notified the U.S. Treasury in January 1942 that the ABC company was “bona fide as Swedish.” In Stockholm, Erik Carlsson Boheman met with both Johnson and Mallet and stressed the same point. Yet, these statements apparently did not influence the U.S. stance, especially since the telegrams the German contact person in Stockholm sent home to Bosch, Stuttgart, about his talks with the Wallenbergs were intercepted by British intelligence.10 Thus, until the end of the war, statement stood against statement. There were further Allied accusations against the Wallenbergs, for example, that they had helped finance the cloaking of shares of the I.G. Farben U.S. subsidiary General Aniline and Film Corporation via Swiss and Dutch companies. This very elaborate operation via the Swiss I.G. Chemie did not stop Secretary of the Treasury Henry Morgenthau from vesting the General Aniline shares in February 1942. Another accusation was that they had lent their assistance in increasing the capital basis on behalf of I.G. Farben of the only European producer of heavy water, the Norwegian Norsk Hydro, in an operation aiming to oust the French interest in the company.11 of Cloaking Ownership, 51–53. Lickfett was a naturalized Swede, born German, and the principal agent for I.G. Farben as well as other German companies in Sweden, such as Siemens. See, as one example, Stockholm to State Dept., Mar. 19, 1946, transmitting FCCO report about Lickfett, 800.515/date, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP. 10. First quote from “American Bosch Corporation,” White and Joseph O’Connell Jr. (general counsel) to Vinson, Aug. 1, 1945, folder: Foreign Funds Control—American Bosch, Enskilda Bank and Wallenbergs—1945 (box 129), reel 6, copy of Fred Vinson Papers, HSTL; second quote: “Summary of Evidence in the Wallenberg Case and Evaluation of the Testimony of the Swedish Parties,” 8, Apr. 1, 1946, attached to Orvis Schmidt to White, Apr. 3, 1946, folder: Foreign Funds Control— American Bosch, Enskilda Bank and Wallenbergs—1945, Vinson Papers; Olsson, Furthering a Fortune, 240–43; telegrams intercepted: Aalders and Wiebes, Art of Cloaking Ownership, 48. 11. The most recent and objective treatment of I.G. Chemie/Interhandel is Mario König, Interhandel: Die schweizerische Holding der IG Farben und ihre Metamorphosen—eine Affäre um Eigentum und Interessen (1919–1999), 113–16. Marcus Wallenberg Sr. had been intimately involved in the founding in 1905 of Norsk Hydro, originally a maker of nitrogen from water power. His son Marcus was president of the board. In the 1930s the company was owned by I.G. Farben (25 percent), Enskilda, and the Banque de Paris and Pays Bas (60 percent). Norsk Hydro produced not only the

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The Wallenbergs and the Enskilda Bank had thus held the attention of U.S.Treasury officials for the duration of the war. In April 1944 Johnson asked for the “gist” of the available information on the brothers from Washington. His financial attaché, Iver C. Olsen, had told him that the Treasury Department had an “extensive file on Enskilda.” The State Department provided an apt summary but also found that although “some of the Bank’s activities . . . appear questionable” the evidence did not offer a “sufficient basis for economic sanctions against Enskilda.” Such sanctions, of course, would foremost be to put the Wallenbergs on the Proclaimed List. In light of this conclusion, the Allies continued to work closely with Enskilda and other Swedish banks to, for example, strengthen the country’s exchange regulations in the fall of 1944 as already discussed in Chapter 5. During the talks a representative of Enskilda admitted quite frankly “that there are undoubtedly many concealed assets in Enskilda Bank and other banks which Swedes nominally hold which only government action will ferret out and that Enskilda Bank will urge this to be done.”12 Did the unnamed representative of the bank have his own directors in mind when he made that statement? Because of the continued close cooperation between Ambassador Johnson and Marcus Wallenberg in this and other matters, the Treasury Department became quite concerned. In a December Safehaven meeting, the Treasury proposed sending a telegram to Sweden asserting that “in view of rather persistent evidence of close connection of Wallenberg and Enskildabank with German financial and industrial matters . . . it would appear highly inappropriate and inadvisable for us to seek their cooperation or accept their advice in SAFEHAVEN matters.” George Baker from the State Department countered “that there is no evidence . . . to support” such a statement and pointed out that Marcus Wallenberg “has been actively on the Allied side.” For now, Treasury withdrew the telegram since there was no hope State would ever transmit it.13 In January 1945, the Treasury Department tried again. “I do not think we can trust [Marcus] Wallenberg,” wrote Morgenthau to “Dear Ed” Stettinius, heavy water but also cheap electricity so urgently needed for aluminum production. A heavy Allied bombing campaign in 1943 did not destroy the plants, and in the end it was the Norwegian resistance that precluded any chance for Germany to receive sufficient quantities of heavy water. See Aalders and Wiebes, Art of Cloaking Ownership, 63–69, and Olsson, Centre of Development, 117–18. For the intricate financial maneuvers of I.G. Farben in acquiring a larger share of Norsk Hydro, see Peter Hayes, Industry and Ideology: IG Farben in the Nazi Era, 290 – 97. 12. Johnson to State Dept., Apr. 28; replies May 13 and June 14, 1944, all in 858.516/date; Olsen to Morgenthau, Nov. 3, 1944, in folder: Safehaven Jan. 1945, FFC Subject Files, 1942–1960, Records of the Office of Alien Property, RG 131, NACP. 13. Safehaven meeting Dec. 22, 1944, Morgenthau Diary, 808:55, FDRL.

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secretary of state. Morgenthau urged that the December telegram should be sent. Stettinius remained cautious and assured Morgenthau that he had “taken steps to have the views expressed in your proposed cable conveyed to our Legation.” The cable arrived in Stockholm, but much to the chagrin of Olsen he could never see it because Ambassador Johnson “held it in his personal file” (emphasis in original). Johnson continued to think that “Treasury was completely wrong on the Wallenbergs and that the facts on which the Treasury based its attitude were for the most part frivolous.” It was once more time for Olsen to be frustrated with everybody—“I do not like Ravndal,” he wrote. Olsen thought that his fellow Americans were becoming “‘like them.’”14 Matters changed considerably when the secret agreements between Bosch, Germany, and the Wallenbergs were discovered in Germany. After the ABC shares had been blocked in the United States in late 1941, Bosch and Enskilda had agreed to rewrite all their contracts without any reference to the secret repurchase rights of Bosch. In April 1942, the Wallenbergs destroyed their copies of the old agreements. However, Bosch, Germany, did not destroy the old contracts, and they were excavated in a dramatic operation in July 1945. The finding of these records “was conducted . . . under the direction of Colonel Bernard Bernstein,” as White proudly wrote to his new boss, Fred M. Vinson, who had replaced Morgenthau as secretary of the Treasury in late July, 1945. Bernstein was eager to tell the world about his find without waiting for the State Department’s approval—one more reason for the continued animosity—and on July 31 the New York Herald Tribune headlined: “Army Discovers Bosch Ownership to be German, Secret Agreement Through Swedish Bank Dug Out of Stuttgart Raid Shelter.” Eight days later the Wallenbergs were designated “special blocked nationals” by the Treasury on Bernstein’s recommendation. Their transactions were thereafter exempted from the general license that applied to Sweden. “The State Department not only approved this action,” Michael L. Hoffman from FFC wrote to White, but also was in agreement that the United States should notify the embassy in Stockholm that the Wallenbergs and Enskilda “should be included on the Proclaimed List.” In addition, the embassy was advised “not to carry on any further safehaven discussions with the Wallenbergs.”15 14. Morgenthau to Stettinius, Jan. 8, 1945, folder: Safehaven Nov. 1944 (box 382), FFC Subject Files, and reply by Stettinius, Jan. 18, 1945, Morgenthau Diary, 817:154, FDRL; Olsen to White, Apr. 5, 1945, folder: Treasury Rep., Accession 56–67A245. This was the same letter in which Olsen complained about the “stone Age perspective” of the Swedes. 15. Agreement rewritten: Olsson, Stockholms Enskilda Bank and the Bosch Group, 22; White and O’Connell Jr. to Vinson, “American Bosch Corporation,” Aug. 1, 1945; story of discovery in Olsson,

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Marcus Wallenberg immediately wanted to travel to the United States but had some trouble getting a visa, a problem only circumvented by Johnson’s personal intervention. Jacob followed his brother not long thereafter, prodded by John Foster Dulles, who was very upset about the whole affair. In the meantime Swedish newspapers reported the story that “the Wallenbergs” and Enskilda were now included on a “presently unpublished blacklist” and that the confidence so far enjoyed by Swedish banks would no longer apply to Enskilda, a bank “henceforth . . . controlled by United States Treasury.” The departments in Washington remained very tight-lipped to any official Swedish inquiries from the Swedish Embassy. In Stockholm, Johnson was advised not to pass on any U.S. evidence on the various cloaking schemes to the Foreign Capital Control Office for fear of compromising the evidence.16 During their extended stay in the United States, the Wallenbergs first met with their lawyers and other advisers in New York before they traveled to Washington to face Treasury and State Department officials. In these talks in Washington between October and December 1945, the brothers, in the words of FFC Director Orvis Schmidt, “admitted a good deal of the evidence obtained in the files and confirmed by the Bosch officials.” The Swedish side had a hard time gauging what their opponents knew since the Treasury regarded these meetings as a hearing in which the department was not required to explain its actions or to present any evidence. The aim of the Wallenbergs was, of course, to be removed as special blocked nationals, a goal they did not succeed in. Among officials, on the other hand, the debate was whether the WalStockholms Enskilda Bank and the Bosch Group, 28– 30, and Aalders and Wiebes, Art of Cloaking Ownership, 126–27. The Herald Tribune article is reproduced in Olsson, Furthering a Fortune, 244. The story was quickly reported in Sweden; see summary of Swedish press reports in Johnson to State Dept., Aug. 7, 1945, folder: Safehaven Aug. 1–15, 1945, FFC Subject Files; Hoffman (deputy director, FFC) to White, sent on to Vinson by White, Aug. 10, 1945, folder: Foreign Funds Control— American Bosch, Enskilda Bank and Wallenbergs—1945, Vinson Papers. The Stockholm embassy was informed about the findings on Aug. 6, 1945; see Grew to American Legation in three parts, folder: Bosch and Enskilda Bank (box 386), FFC Subject Files. James Saxon, Treasury rep. in Stockholm, was “highly gratified with the Treasury action” and thought the Riksbank and the Swedish Ministry of Finance would “secretly be delighted” with this step. See Saxon to White, Aug. 17, 1945, folder: Sweden: Banks and Banking (including Currency), box 34, Accession 56– 67A245. 16. Aalders and Wiebes, Art of Cloaking Ownership, 131, 133; Olsson, Furthering a Fortune, 246 – 47; Svenska Dagbladet and Stockholm Tidningen, respectively, reported in Johnson to State Dept., Aug. 13, 14, 1945, folder: Safehaven Aug. 1–15, 1945, FFC Subject Files; talk of Swedish Chargé d’Affaires Tor Hugo Wistrand with Hugh Cumming (chief, Division of Northern European Affairs), Aug. 13, 1945, 800.515/date; Johnson to State Dept., Sept. 20, 1945, wanting to pass on the evidence, folder: Sept. 11–30, 1945, reply in memo from Harold Glasser (asst. director, Division of Monetary Research) to Emilio Collado (director, Office of Financial and Development Policy, State Dept.), Oct. 16, 1945, folder: Currie Mission, both FFC Subject Files.

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lenbergs should be placed on the Proclaimed List. In February, Vinson informed Secretary of State Byrnes that the Wallenbergs’ “statements served only to confirm our conclusion” and recommended that the bank and the brothers be placed on “the hard-core Proclaimed List.”17 The brothers and their activities were not without supporters. One of them was Ambassador Johnson. In March 1946 he was asked by his superiors if his views “remain [the] same” as before. His judgment was hindered by his lack of information on the case, as Johnson wrote back. From his vantage point, he pointed out the bank’s and Marcus Wallenberg’s “aid to the Allies, such as its help in stopping SKF exports, in selling the War Trade Agreement to Swedish Government, in getting Swedish ports closed and in making loan to Danish underground.” Similar to the issue of economic sanctions, placing the Wallenbergs on the Proclaimed List should not be done “except jointly with British.” Any unilateral action would have no benefit in light of the “serious damage it would produce to American prestige and material interest in Sweden.”18 But the evidence against the Wallenbergs was strong. Despite the replacement of Jacob with Marcus Wallenberg as the managing director of the bank, the Proclaimed List Committee in Washington “unanimously” recommended the listing of the bank and the brothers in May 1946. This was only a recommendation for the London committee, and the details for the listing action were spelled out for consideration in London. Even Johnson and his British colleague Cecil Bertrand Jerram conceded, after seeing the telegrams, that “a clear case for listing is made.” Now, however, they pointed out that the timing of this action was questionable. The Proclaimed List would be annulled at the end of June 1946 and therefore they were “not convinced that listing at this late date would serve any useful purpose.”19 17. Schmidt to White, “Wallenbergs and Stockholms [sic] Enskilda Bank,” Apr. 3, 1946, folder: Foreign Funds Control—American Bosch, Enskilda Bank and Wallenbergs—1945; see also “Report of the Activities of the Foreign Funds Control for the Month of October 1945,” 18, folder: Reports—Bureau and Division—Schmidt—1945–1946, reel 16, both Vinson Papers; details of the Wallenbergs’ trip in Aalders and Wiebes, Art of Cloaking Ownership, 131– 36, and Olsson, Stockholms Enskilda Bank and the Bosch Group, 31–34; Vinson to Byrnes, Feb. 20, 1946, quoted in Olsson, Stockholms Enskilda Bank and the Bosch Group, 35. 18. State to Stockholm, Mar. 18, 1946, Johnson to State Dept., Mar. 20, 1946, both 800.515/date. 19. Washington Proclaimed List decision: Acheson to London, May 10 (3925), 800.515/date; evidence transmitted in 3926, May 10, 1946, folder: Bosch and Enskilda Bank, FFC Subject Files; Ravndal to State Dept., May 15, 1946, 800.515/date. About the management change Olsson wrote that Jacob “was made the scapegoat of the Bosch deal, whereas Marcus Wallenberg emerged as the undisputed leader of the bank, less tainted by the past.” Jacob took over the two main holding companies of the family instead. At the same time Providentia (in liquidation) was finally reorganized

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The question really was what function such a brief listing could have in light of the coming negotiations with Sweden, which were scheduled for the end of May. One or two months on the Proclaimed List would not be very consequential for the Wallenbergs, but maybe such a step could be a useful threat during the negotiations. Washington had agreed either to list the Wallenbergs immediately or “to approve listing but notifying Swedes we are delaying execution of decision in view of [the] forthcoming negotiations.” This latter option had been added at the suggestion of the British and French representatives, Francis W. McCombe and Paul Charguéraud, in the currently ongoing negotiations with Switzerland. In the end, none of this happened. At the London meeting of the blacklist committee on May 16, “all British Departments” expressed “united and strong opposition” to any listing. Even the second option of not implementing the decision immediately was not agreeable to the British because of “fear that the threat might leak out” during the negotiations, even while the Allies had no intention of actually following through with it—thus only needlessly endangering the negotiations. Once again, the United States was pitted against Great Britain in an action mainly pushed by the Treasury and not opposed by the State Department. The French “actively” supported the U.S. position, but the British held firm. This was most likely because they feared once again for their good trade relations with Sweden. Listing the country’s most influential bank would surely not improve, but only hamper them.20 Therefore the Swedish ambassador in Washington got very mixed signals from the Allies shortly before the negotiations were to begin. The State Department’s chief for Northern European Affairs, Hugh S. Cumming, told Herman Eriksson that evidence against Enskilda had been obtained, that “there is considerable agitation” for listing, but that “no decision has as yet been reached”—a small strategic lie. In any case, Enskilda Bank would not be used “as a ‘club’ to induce the Swedes” in the coming negotiations.The subject could be discussed, but “we hope to keep it as a separate case.” The Allies did not specifically exclude the matter, though; it appeared as an option on their ageninto a new holding company after the Swedish Bank Inspection Board would not recognize any longer the “special circumstances” (the war) the bank had so far claimed. See Olsson, Centre of Development, 210–12, quote 210, and Furthering a Fortune, 257– 63. 20. Acheson to London, May 10 (3926), 800.515/date, and McCombe to FO, May 15, 1946, FO 944/245. McCombe and Charguéraud had been asked because it was thought that they both would stay on for the discussions with Sweden. However, in the end only McCombe continued. For the London meeting: W. Averell Harriman (Ambassador Winant’s successor) to State Dept., May 16, 1946, folder: Bosch and Enskilda Bank, FFC Subject Files.

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da proposals if the Swedish side would like to bring it up. That the topic was optional was probably very much favored by the Swedish delegation. As said before, relations between the Wallenbergs and the current Social Democratic administration had been ambiguous but nevertheless close during the war. With the changes in the Swedish government in August 1945, many of the familiar faces in the Swedish Foreign Office disappeared, a trend driven by the appointment of Östen Undén as foreign minister. This “radical and doctrinaire Social Democrat,” as Ulf Olsson has called him, had no real intention of becoming the advocate of one bank. “The Swedish government . . . has stated definitely that it is not interested in discussing the Enskilda case . . . on the theory that this is the bank’s business,” wrote Gordon Knox from the Division of Economic Security Controls to Northern European Affairs.21 The only person who still wanted to discuss the question was Orvis Schmidt, who tried desperately to bring up the question during the meetings with the Swedish delegation. The leader of the Swedish delegation did his best to ignore him. The Alien Property Custodian sold the ABC shares to U.S. interests in the late 1940s for $7.7 million. In 1950, after extended and costly court battles, Enskilda received a compensation of $2.6 million for these shares from the United States, the equivalent of their original investment ten years earlier. In the end, the whole transaction was thus a loss for Enskilda.22 Other Outstanding Issues Thus, despite considerable agitation, the Wallenberg case did not become a topic during the negotiations. Nevertheless, even without this subject, there were still many other issues to be discussed during the months leading up to the Washington negotiations. Fundamental to all these problems remained the question of how much influence the Allies should have on supposedly internal Swedish affairs, like the work of the Flyktkapitalbyrån (Foreign Capital Control Office [FCCO]). The extent of this influence had already been 21. Cumming according to William Trimble (asst. chief, Division of Northern European Affairs) to Cumming, May 22, 1946, 800.515/date; first versions of agenda in Johnson to State Dept., Apr. 18 and reply May 1, final agenda proposed by Surrey to Alexis de Aminoff, Swedish Legation, Washington, May 13, 1946: “There may be some special cases such as Enskilda Bank which will be appropriate for discussion at the negotiations,” all in 800.515/date; Olsson, Furthering a Fortune, 220; Knox to Trimble, May 23, 1946, 858.516/date. 22. Aalders and Wiebes, Art of Cloaking Ownership, 143; Olsson, Stockholms Enskilda Bank and the Bosch Group, 44–49.

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the reason for some difficulties in 1945, and those tensions continued into 1946. In Allied eyes, the work of the FCCO had not been entirely satisfactory so far. By February 1946, the three Allies had supplied information on about thirteen hundred persons and companies to the FCCO, but it had only very slowly investigated that information. Matters were sped up considerably when that month the Allied legations adopted a policy of refusing travel visas “to persons suspected of concealing or aiding in the concealment of Allied assets.” Likewise, they would “decline to assist in the maintenance or establishment of business connections” between Allied companies and suspected Swedish ones. The legations forwarded the names in question to the FCCO. After an investigation the “legation concerned is free to render all appropriate assistance to the individual or company.” After this procedure was adopted, “it has been the experience of the American Legation that the Foreign Capital Control Office promptly completed its investigations.”23 Another issue had been the cunctative exchange of information between the FCCO and the Allies. In this regard matters improved in March, after “many conversations and much persuasion.” The United States and Great Britain acceded to a Swedish request not to use information provided by the FCCO as a basis for new listings on the Proclaimed and Statutory lists. Before this happened, the FCCO had for a short while stopped the flow of information to the Allies. Yet, the Swedish data was considered “highly desirable,” and the State Department agreed to the concession. Informal meetings between Allied and FCCO officials began. By June these took place twice a week. And in early April, Swedish Foreign Office Utrikesdepartement (UD) Director Tage Grönwall supplied Knox, then still third secretary of the U.S. Embassy in Stockholm, and his British colleague Herbert Setchell with a complete list of the firms under the supervision of the FCCO or under the direct control of an interventor. In the same communication he also addressed a State Department request from January for an answer to the question of whether any German directors were still serving on the boards of Swedish firms. Grönwall denied this, except in the case of Tobis Film, which was at this point without any business anyway. From then on the FCCO supplied such lists to the Allies every second month, a “mutually satisfactory” procedure, as Knox found.24 23. Ravndal to State Dept., Feb. 20, 1946, 800.515/date. 24. Quotes from Johnson to State Dept., Mar. 8, and from reply Mar. 18, 1946, both 800.515/3 – 846; quote from Knox to Rubin, “Outline of Consultative Practices Now in Existence between the

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If these two matters were resolved to the mutual agreement of all parties, another issue remained tense up to the time of the negotiations. This was the subject of the possible sale of German companies taken over by the FCCO. The discussions soon included—rather unexpectedly for the Allies—the whole range of legal issues at stake between the two sides. In 1945 the Allies had thought to successfully put the question of the sale of German companies on hold. Thus, they were quite surprised to read in a December newspaper interview with the head of the FCCO, Einar Modig, that Sweden might begin to sell the German companies under its control in 1946. British and U.S. representatives immediately protested to Modig, who confessed “with some embarrassment” that he had been misquoted—the eternal defense. He had never mentioned “any specific companies as subject to sale” in his interview, nor were any “immediate sales” planned. Yet, when the talks touched on the question of whether the Allies would be consulted prior to any sales, Modig remained ambivalent and said the question would be referred to his government. The U.S. Embassy concluded that the whole story had apparently been planted “to test Allied reaction to SWED[ish] viewpoint.” The sooner the negotiations now began, the better.25 Sweden had some reason to test the waters this way. Not only were those companies increasingly losing value because they were still on the Proclaimed List and their daily business therefore suffered. Also, some hoped that the Swedish state might take over the most important German companies. A governmental commission began to study the question of what to do with the German companies in January 1946, but its July recommendations were not taken up by Minister of Commerce Gunnar Myrdal. These discussions fell into a time of vigorous debate about the extent of the state’s influence over the economy. The postwar goals of the Swedish Social Democratic government Swedish FCCO and National Allied Missions,” June 21, 1946, 800.515/date; informal meetings and FCCO list: Ravndal to State Dept., May 23, 1946, 800.515/date; Grönwall to Knox, Apr. 6 and 8, 1946, 800.515/4–1645; initial request concerning German directors, Acheson to Stockholm, Jan. 10, 1946, 800.515/11–2945. A list put together by the Economic Warfare Dept. of the U.S. Embassy in London, “Swedish Companies in Which German Majority Participation Has Been Proved,” showed 48 such companies. This list was assembled from German, Swedish, and Allied sources. See London to State Dept., Apr. 26, 1946, 800.515/date. A similar list put together by the U.S. Embassy in Stockholm, “Swedish Companies Known or Suspected of Being German Owned and Controlled or in Which German Interest Exists,” showed 187 such companies. See Ravndal to State Dept., Apr. 18, 1946, folder: Safehaven Apr. 1946, FFC Subject Files. 25. First reported Dec. 28, 1945; State Dept. reaction Jan. 5, 1946, to Stockholm (800.515/12– 3145); Allied talks with Modig reported in Winant to State Dept., Jan. 10, 1946 (800.515/date) and Ravndal to State Dept., Jan. 16, 1946 (quotes), folder: Safehaven Jan. 1946, FFC Subject Files.

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were full employment, equal distribution of the fruits of labor and higher living standards for the populace, and greater efficiency in industry and agriculture. An element of this official program was the possible nationalization of private industries in cases where they were inefficient or there was a danger of a monopoly. This was a program drawn up in consultation with the labor unions and with the assistance of Myrdal, and thus enjoyed broad though not unequivocal public support.26 Modig had, with his interview, started a public discussion about the future of German companies in Sweden. In January the workers of AB AEG Elektriska, the Swedish subsidiary of Allgemeine Elektrizitätsgesellschaft, Berlin, petitioned Myrdal that the government take over AEG Elektriska “as well as other similar German-dominated firms in Sweden.” There were other, comparable initiatives by the workers of AB Elektriska Siemens. A few days later the Gothenburg Social Democratic newspaper Ny Tid (New Time) applauded the AEG workers’ petition “as a step in the right direction” because Swedish “vital interests” were at stake. The paper argued that while some German companies should be sold into private hands, others, like the Germanowned mining companies or AEG—which had been working on Swedish defense contracts during the war—should be taken over by the state. The liberal paper Dagens Nyheter countered that “it is unfortunate that certain champions of State enterprise have hurried to suggest the nationalization of some German firms.” A new state-owned electrical industry would be “an antagonist” to private competition.27 It was clear that the whole issue of the treatment of German companies in Sweden was suddenly subject to a spirited debate. Therefore, the Allies had a strong interest in receiving further Swedish assurances that no sales would be made before the coming of the negotiations in Washington. To this end Knox, together with his Allied colleagues, wrote to Rolf Sohlman at the UD’s Commercial Division in January that “the American Government views as extremely undesirable any unilateral sale or disposition of German assets in Sweden without prior approval” by the three Allies. He also referred to Sohlman’s earlier statement “that no German assets will be disposed of for the time being.” Informally, the embassy told the Swedish side 26. See the analysis in Jerram to Bevin, Aug. 25, 1945, BDFA, 379–81, also Nordlund, “Verstaatlichung oder Privatbesitz?” 81– 83. 27. Morgontidningen, Jan. 4, reported in Ravndal to State Dept., Jan. 10, 1946, folder: Safehaven Jan. 1946, FFC Subject Files; Ny Tid, Jan. 5, reported in Ravndal to State Dept., Feb. 1, 1946; Dagens Nyheter, Jan. 9, reported in Ravndal to State Dept., Jan. 10, 1946, both 800.515/date.

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that any “definite action” would only “confuse [the] atmosphere” and would not help to reach a “mutually satisfactory agreement.”28 By all these signals the Allies hoped to keep the question dangling until the negotiations started. Yet, with the Swedish reply to Knox’s letter it soon became clear that there were more fundamental issues as stake for the Swedish side than the Allies had perceived. Sweden Questions Allied Legal Claims In his return letter Sohlman reminded Ravndal that Sweden had never received any legal explanation for the Allied claims to German property. Without it, “the Swedish government cannot base its policy on the thesis that the Allied powers should have acquired title to or control of the German property in Sweden.” Nevertheless, “there seems to be complete harmony” between Allied and Swedish Safehaven goals and so far the arrangements had proceeded on that basis. But, as in the case of Allied influence on the actions of the FCCO, there were limits. “The Swedish Government feel[s] that the cooperation between Sweden and the Allied Nations . . . must be based on mutual confidence, as well as respect for Sweden’s sovereign rights.” Germanowned companies in Sweden were “an integral part of Sweden’s national economy,” and “therefore, the Swedish government cannot accept the theory that it should depend on the Allied powers, which German-controlled Swedish firms should be sold and which not, when they should be sold or to whom.” Sweden would continue to “show very great consideration” to Allied wishes but would not submit any sale proposal to the Allies for prior “approval.” Once again, the limit to Allied influence had been reached. The State Department concluded that “there seems little to be gained at this time by detailed reply” to Sohlman’s letter “in view of imminence [of ] Swed[ish] negotiations.”29 But if the department wanted to leave the matter alone, it had not considered the Swedish desires. The three Allies had invited Sweden for negotiations “during the latter part of March or early April.” The Allied notes were along the lines discussed in Chapter 7. Unfortunately, these notes were addressed to a foremost expert in 28. Knox to Sohlman, Jan. 18, 1946, folder: Special Subjects folder: Sweden (box 2), Safehaven Subject File, 1945–1947, Records of DESC, RG 59, NACP; last three quotes: Byrnes to Stockholm, Jan. 31, 1946, 800.515/1–2546. 29. Sohlman to Ravndal, Feb. 8, 1946, folder: Special Subjects folder: Sweden, Safehaven Subject File, 1945–1947, Records of DESC; Acheson to Stockholm, Mar. 26, 1945, 800.515/date.

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international law. Foreign Minister Undén had no desire to let the Allies off the hook in regard to their questionable legal claims since their specter had been raised by Sohlman three weeks earlier. “The Swedish government,” Undén replied to the Allied invitation, “is not entitled . . . to place at the disposal of the Allied authorities such German property as it is located in Sweden or the proceeds from sales of such property.” Nevertheless, his government was “prepared to examine the question jointly with the Allied Governments.” Much did Undén wish that the Allies would supply some clarification to their legal claims, but the Allies, on the other hand, were not very prepared to supply that kind of statement. As Gerry Villiers from the British Economic Warfare Department had written to Lieutenant General Brian Robertson during the Control Council debate regarding such earlier Swedish requests: “We are quite unable to think of any effective reply.” Undén was not to give up easily—he apparently knew he was onto something—even after Johnson told him that no further explanations would be provided. In a further note “personally drafted” by Undén “without consultation with his Foreign Office advisors,” who did not regard the whole question as “one of the most important,” the foreign minister pointed out that “the discussions would be delayed and hampered” if no legal clarifications were received before the meeting. This communication left the “British and US Legations uncertain of next move,” and they contacted the UD to inquire what the meaning of all this fencing really was.30 Grönwall told them that, on the one hand, “Undén has a legal mind, he has made a reasonable request and it would be polite to give him [a] reasonable answer.” Hence, the Allies could answer Undén’s request. Yet, Grönwall also told them that his minister would be happy with “an Allied statement that [the] legal basis for [the] Allied claim would be ‘held in abeyance’ during the Washington negotiations.” Supposedly, as Grönwall explained, the difficulties lay with the Riksdag, which would never pass any law recognizing the Allied Control Council vesting decree. Whether parliament or the government, the fundamental issue was the same: the “Allied claim [was] not valid in interna30. U.S. invitation: Johnson to Undén, Feb. 11, attached to Ravndal to State Dept., Mar. 6, 1946, folder: Safehaven General (box 4), Confidential File 1944 to 1949, Stockholm Legation and Embassy; Undén to Johnson, Feb. 28, 1946, attached to Ravndal to State Dept., Mar. 6, 1946; Villiers to Gen. Robertson, Sept. 26, 1945, DBPO, 5: calendar 33 v(b), 158; Johnson to Undén on no further explanations forthcoming, Mar. 19, 1946; Undén’s initiative: Johnson to State Dept., Mar. 26, and Ravndal to State Dept., Apr. 5, quotes in Johnson to State Dept., Mar. 27, 1946, all in 800.515/ date, and Jerram to FO, Apr. 16, 1945, FO 944/245; British Embassy, Stockholm, to MEWFO, Apr. 2, repeated as Winant to State Dept., Apr. 5, 1946, 800.515/date.

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tional law and hence [a] violation [of] private property rights.” Asking for the second alternative, namely, holding the legal basis for the Allied claims in abeyance, was a smart play by Undén. The Allies would thereby assure beforehand that the legal issue would not be discussed, and Undén could avoid the uncomfortable question of Swedish recognition of the Allied legal claims. Instead of legalities, Grönwall explained, his government hoped to base the negotiations on the understanding that “liberated countries should certainly be helped as far as practicable by neutral countries who were benefited from the suffering of the nations who fought.”31 In short, a moral and not a legal basis should be used for the negotiations, the approach Great Britain had advocated all along. It was thus clear what the Swedish side wanted. In the meantime, the Swedish press reported on the Allied invitation and the Swedish reply. The paper of the Farmers’ Union, Skanska Dagbladet, noted the “brusque manner displayed, particularly by the Americans” regarding the whole question of the treatment of German assets in Sweden and hoped that “the victorious powers . . . would respect international law.” Various papers noted certain “fables concerning German assets in Sweden.” There were reports from an “unknown American source” in early March that those assets amounted to SKr 2.125 billion ($505.952 million) instead of the SKr 343 million ($81.66 million) reported by the FCCO in December. Modig, in an interview with the conservative Svenska Dagbladet called those numbers “fantastic,” and the liberal Expressen judged them to be a sign of “American grandiloquence.” All the newspapers found that the negotiations would have to focus ultimately on legal issues and reminded their readers that Sweden had its own claims toward Germany. Without the “pawn” of those, “our chances of getting anything out of Frau Germania’s bankrupt estate are meager indeed,” Expressen opined. In light of this overall situation, the Social Democratic Morgontidningen concluded, “The impending negotiations will be both hard and involved.”32 The Allies remained uncomfortable with Undén’s legal request but could not, of course, afford to give away one of their trump cards before the nego31. Summary of information supplied to Knox by Grönwall, transmitted in Ravndal to State Dept., Apr. 5, 1946, 800.515/date. 32. Skanska Dagbladet, Apr. 20, 1946, reported in Ravndal to State Dept., May 2, 1946, folder: Safehaven Apr. 1946, FFC Subject Files; “Fables concerning German Assets in Sweden,” headline of the Gothenburg Handels och Sjöfartstidning, Mar. 5, reported in Johnson to State Dept., Mar. 12, 1946, folder: Safehaven Mar. 1946, FFC Subject Files; Modig interview Mar. 23, reported in Ravndal to State Dept., Apr. 1, 1946, 800.515/date; Expressen article, Mar. 11, Morgontidningen, Mar. 5, reported along with two similar ones in Ravndal to State Dept., Mar. 18, 1946, 800.515/date.

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tiations had even started. Because of “Undén’s strong personal desire to have some legalistic reason,” Johnson recommended supplying him with “a bare outline . . . concerning Allied legal claim to German assets.” The United States and Great Britain finally did this on May 6. At the same time they also delivered a now specifically dated invitation to begin the negotiations in Washington on May 13.The gist of the legal statement—which was approved by Charguéraud and McCombe, of the current Swiss negotiations—was that “as government of Germany ACC, as any government, has right to marshall its assets, internal and external.” Thus, the “only question” to discuss in Washington was “whether Sweden will cooperate in vesting and marshalling of German assets in its territory.” This written statement was toned down by an oral addendum emphasizing that “purely legal issue will not be only issue before negotiators.” Other problems “mentioned on either side” would be discussed. This way there was at least some soothing of Undén’s concerns.33 Delays and More Delays The Allies had to cough up the legal statement because they wanted to negotiate with Sweden as soon as they could. The long gap between their first invitation in February and their second one in May had been caused by the stalling of the Swiss negotiations. On April 12 it actually seemed that the negotiations with Switzerland would be concluded soon and the discussions with Sweden could therefore begin.34 Yet, on April 23 those negotiations broke down, rather unexpectedly, for nearly a month, and the agreement with Switzerland was not signed until May 25. This gave both sides some time to decide who should lead the delegations for the negotiations. On the Swedish side it quickly became clear that Alfred Emil Sandström, new head of the FCCO since the first of April and former distinguished judge of the Supreme Court, would chair the delegation. Ravndal thought Sandström to be an “an expert in International Law, and a person of pro-Allied sentiments.” On the Allied side the selection was a little 33. Johnson to State Dept., Apr. 18, 1946 (707), 800.515/date; Acheson to Stockholm, Apr. 29, 1946, 800.515/4–1846, and text of notes, Ravndal to State Dept., May 14; delivery confirmed in Ravndal to State Dept., May 6, 1946, both 800.515/date. 34. Department’s views about opportune date to begin negotiations, Trimble to Cumming and John D. Hickerson (deputy director, Office of European Affairs), Apr. 24, 1946, 800.515/date; British negotiator McCombe telegraphed his country’s legation in Stockholm on Apr. 12: “As there is now a real prospect of concluding an arrangement with the Swiss, we are beginning to think actively about Sweden,” repeated in Johnson to State Dept., Apr. 18, 1946 (706), 800.515/date.

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more difficult. McCombe from the Swiss negotiations would stay on, while Charguéraud would continue only if the meeting were held in Paris—a location neither the United States nor Great Britain favored. On the U.S. side Randolph Paul, who had been a special assistant of the president to lead the Swiss negotiations, was not available anymore. The State Department tried to obtain the services of James Angell of IARA fame instead, but that also did not work out. Only a few days before the meeting with the Swedes was to begin, Seymour Rubin was chosen. Cumming was full of praise for the deputy director of the Office of Economic Security Policy, a position Rubin had held since October 1945. “I feel that Mr. Rubin is extremely well qualified to direct our part in the negotiations in a highly satisfactory manner,” he wrote to his superiors. However, because there was now a certain “imbalance” in prestige between Rubin and Sandström, Knox suggested asking Undersecretary Acheson to provide a short opening statement at the start of the meeting.35 If the delay for the beginning of the meeting had been so far due to the Swiss negotiations, further postponement was now due to the Swedish side. The May invitation to Undén had for the first time contained the suggested agenda for the negotiations, a version slightly extended from the first proposals the Allies had discussed internally since April. Those earlier versions had included the usual subjects, such as the Allied legal claims, German assets in Sweden and Swedish assets in Germany, German gold and looted art, the Proclaimed List, the repatriation of German citizens, patents, and the Swedish investigations of German property in Sweden. Shortly before the final notes were ready to be delivered, the MEWFO proposed extending this list of items. It wanted to include such subjects as the German Chamber of Commerce and the alleged trading of looted foreign securities by Enskilda. To these additions, the United States agreed.36 So far, the issue of the German Chamber of Commerce had been a sore point between Sweden and the Allies. According to a report from the Hei35. Besides Paris, Stockholm was also considered. After a short debate Washington was chosen because of “experienced negotiating organization there,” as the MEWFO explained, [Waldemar] Gallman to State Dept., Apr. 27, see also Acheson to London, Apr. 26, Gallman to State Dept., Apr. 27, and Harriman to State Dept., May 3, 1946, all in 800.515/date; on Sandström, Ravndal to State Dept., Apr. 3, 1946, folder: Safehaven Apr. 1946, FFC Subject Files; Cumming to Hickerson and Matthews, May 22, also detailing Knox’s suggestion; Treasury Dept. approved of Rubin two days later: see Clayton to Acheson, May 24, 1946, both 800.515/date. Truman approved Rubin’s appointment the next day; see Byrnes to Truman, May 24, with presidential approval, May 25, 1946, Official File 1022, Truman Papers (HSTP), HSTL. 36. Earlier agenda version in Johnson to State Dept., Apr. 18, 1946, MEWFO proposal in Harriman to State Dept., May 3, and U.S. agreement in reply, May 6, 1946, all in 800.515/date.

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delberg FEA team, the chamber did have 1,128 members in 1944. Great Britain and the United States wanted access to the eighty cases of files from the chamber to inspect them for Safehaven information. Sweden, on the other hand, maintained that the chamber “is a Swedish organization . . . in which there is a German interest” and that therefore the FCCO should take care of these files. In January 1946, Modig from the FCCO made clear in no uncertain terms that the Allies could not see the files because their surrender would place “a potential weapon in the hands of the Allies for taking listing action against many Swedish persons and firms.” All further efforts by the Allies to gain access thereafter met with failure.37 In discussing the final version of the agenda a few days later, Grönwall told Ravndal that the Swedish government was “very much distressed over scope of agenda which appears to cover many points they believed already to have been settled to mutual satisfaction.” In particular, Grönwall pointed to the Allied desire to discuss the “scope of SAFEHAVEN administration and legislation in Sweden,” a surprise since Sweden had not expected to “rehash old points.” Sandström remarked that some time would be needed to study the agenda but that, on the other hand, the Swedish government was also anxious to begin the discussions quickly. There were several incentives on the Swedish side to do so. One was that Swedish assets in the United States were, of course, still frozen. But of more immediate concern was the treatment of Swedish assets in Germany. Sweden had already wanted to send a delegation to Germany to inspect Swedish property there before the beginning of the negotiations. Swedish businesses were concerned that “the Allied authorities in Germany are still disposing in various ways of such assets, e.g. by means of seizure or . . . removal.” The Allies had not allowed the sending of such a delegation, and now it was up to the Washington discussions to decide this question.38 37. Johnson to State Dept., Sept. 15, 1945, folder: Safehaven Sept. 11–30, 1945, FFC Subject Files; Heidelberg report “10th Annual Report—German Chamber of Commerce,” July 25, 1945, in folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy; Ravndal to State Dept., Jan. 8 and Feb. 26, 1946, both 800.515/date. 38. Ravndal to State Dept., 804 and 803, May 8, 1946, both 800.515/date; regarding the issue of Swedish assets in Germany, Sweden wanted “a partial quid pro quo” on this question before the negotiations (State Dept. to Murphy, Apr. 26, 800.515/date); last quote from Swedish reply note to Allied invitation, May 17, attached to Ravndal to State Dept., May 20, 800.515/date. See also letter from Sohlman to Ravndal on Mar. 7 complaining that the U.S. Military Government in Germany had “sequested [sic] and taken over some companies belonging to well-known Swedish firms,” such as Elektrolux. Ravndal forwarded the letter to Washington, commenting that the “general subject is of considerable interest” to Sweden and that it would be advisable if, during the negotiations, Sweden could be given “an assurance in principle that Swedish assets in Germany shall not be sub-

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On May 17, Undén answered the Allied invitation with a list of the Swedish delegates for Washington, and on May 28, Sandström, Grönwall, and Tore Millquist from the FCCO arrived in New York. They were joined by Commercial Counselor Leif de Belfrage of the Swedish Legation, Washington. This relatively small delegation faced a huge group of twenty Allied representatives, fourteen of them from the United States alone.39 Besides Rubin, the United States was represented by Walter Surrey, John Birch, Otto Fletcher, and Ellis Allison from the Division of Economic Security Controls, by Trimble from the Northern European Division, and by Knox from the U.S. Embassy in Stockholm. The Treasury Department had sent Orvis Schmidt and Rella Shwartz from FCC and Iver Olsen and Melville Locker. The Justice Department was also represented by two delegates (Irving Levy and Jacob Abramson), and APC Markham was represented by Philip Blackow. McCombe had just one assistant, Albert Frost from the U.K. Embassy in Washington, while Christian Valensi, the financial counselor of the French Embassy, had three. Sandström’s instructions once again made apparent the Swedish concerns. On the one hand, he was supposed to defend the Swedish legal position. On the other hand, he was advised to further Swedish economic interests, for example, to negotiate about Swedish property in Germany and frozen Swedish assets in the United States. And finally he was, of course, supposed to keep as small as possible the Allied share to be derived from the liquidation of German assets in Sweden. That money should rather be used to pay Swedish claims on German debt. If money had to be paid by Sweden, he should try to arrange for the settlement of such payments directly between Sweden and other countries as part of existing bilateral trade agreements. Such a settlement not only would prevent Allied legal claims for reparations from Sweden, but also would not erode further the precarious foreign-exchange position that Sweden now faced. Sandström’s instructions did not contain a specific sum he was authorized to offer the Allies, but a point of reference for him was the assumed amount of German flight capital in Sweden, estimated at SKr 50 million ($11.9 million). From this sum, Swedish claims for damages of Swedish property in Germany should be deducted before a settlement jected to discriminatory treatment” (Ravndal to State Dept. with enclosure, Mar. 20, 1946, folder: Safehaven Mar. 1946, FFC Subject Files). 39. Swedish note, May 17; Byrnes to Stockholm, announcing arrival of Swedish delegation, June 3, 1946, 800.515/date.

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could be made. Sweden would return looted gold, but the Riksbank was to be compensated for these payments out of the German assets. The Allies were supposed to make sure that a future German government would have no claims for compensation on Sweden.40 The Swiss Precedent Four days before the negotiations with Sweden commenced, the Allies signed their agreement with Switzerland—more than two months after those negotiations had begun.The Swedish delegation was quite aware of the course and outcome of these earlier negotiations. Grönwall told Knox in April that his country “received much strength and encouragement by reports concerning [the] unyielding position taken by [the] Swiss.” And when the Swedish government presented the final Washington agreement to the Riksdag for approval in November 1946, the proposal contained an extended section comparing the two agreements.41 The earlier negotiations with Switzerland had centered on two basic questions. One was the division of German assets in Switzerland and Lichtenstein between the two parties, the other the treatment of German gold bought by the Schweizerische Nationalbank (Swiss National Bank [SNB]) and private banks during the war.42 The latter question held up the negotiations for an extended period. In regard to German assets in Switzerland there was early agreement that the Swiss would liquidate them. This consensus was made easier by the Allied assurance that compensation in reichsmark would be paid. By that step 40. Klaus-Richard Böhme, “Recht oder Moral. Die Behandlung des deutschen Vermögens in Schweden 1944–1956,” 66–67. Sandström had supplied this amount of German flight capital in a speech before the Swedish Bankers’ Association; see his “Omkring Washingtonförhandlingarna Rörande Den Tyska Egendomen I Sverige,” 4. 41. Summary of information supplied to Knox by Grönwall, transmitted in Ravndal to State Dept., Apr. 5, 1946; also “His Majesty’s Proposal to the Riksdag regarding approval of an exchange of notes between Sweden on the one side and the United States of America, France, Great Britain and Northern Ireland on the other side in regard to German assets in Sweden, etc.; done at Stockholm Palace on November 1, 1946,” 26, folder: Special Subjects folder: Sweden, Safehaven Subject File, 1945–1947, Records of DESC (hereinafter cited as Riksdag Proposal). 42. These negotiations have been well studied. An early account is Daniel Frei, “Das Washingtoner Abkommen von 1946: Ein Beitrag zur Geschichte der schweizerischen Außenpolitik zwischen dem Zweiten Weltkrieg und dem Kalten Krieg,” 567–619. Subsequently both Marco Durrer in Die Schweizerisch-amerikanischen Finanzbeziehungen im Zweiten Weltkrieg and Linus von Castelmur in Schweizerisch-alliierte Finanzbeziehungen im Übergang vom Zweiten Weltkrieg zum Kalten Krieg have written about the topic. See also the account in Eizenstat I, 68–89.

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the whole issue of the legality of the ACC’s Law No. 5 became superfluous, much earlier than the Swiss had expected. The question then was who should receive those assets. Switzerland wanted to use them as a credit against the large German wartime liabilities to Switzerland, foremost the so-called clearing billion. This idea the Allies could, of course, not tolerate since they did not want to act as “a collection agency for the sole benefit of the Swiss claimants against a bankrupt Germany,” as an Allied memorandum to the Swiss delegation put it. On the other hand, the Allies would never see any of the German assets from Switzerland without Swiss help and had to offer something tempting in return. As a step toward a possible solution, the Allies, at the end of March, conceded that “the liquidation of German interests [would] be handled by a Swiss agency which would cooperate with a joint Swiss-Allied commission.” Further, Switzerland should receive 20 percent of the liquidated German assets.43 If this question was on its slow way toward a possible solution, progress came to a halt elsewhere. The real problem was in regard to German gold, the quintessential Nazi gold question, as it became known. On the basis of detailed studies of the German Reichsbank gold accounts, comparison of the German account books with those of the looted Central banks, estimates of the German gold position before June 30, 1940, and finally on the basis of amounts of gold found in Germany at the end of the war, the U.S. Treasury had concluded that up to $289 million of the $391 million worth of gold Switzerland had bought from Germany was looted. This conclusion was based on the assumption that 74 percent of the Reichsbank reserves were looted gold, a share then supposedly mirrored in the Swiss gold acquisitions. A large part of the looted German gold under discussion in Washington had come from the Banque Nationale de Belgique because Belgium had entrusted parts of its reserves to the Banque de France for safekeeping in May 1940. After a hazardous detour via French West Africa, the Belgian gold had finally arrived in Germany in May 1942, courtesy of the Vichy regime, where it was resmelted by the Prussian Mint 43. These German debts to the Swiss government primarily derived from the Swiss-German clearing (SFr [Swiss francs] 1.01 billion) and amounted to SFr 1,189.5 million altogether. Private Swiss prewar and wartime claims amounted to SFr 2,929 million. See Frech, Clearing, 171, 176; Allied memo, Mar. 22, 1946, quoted in “Report by Mr. Randolph Paul concerning Allied-Swiss Negotiations on German External Assets in Switzerland,” submitted to Truman June 3, 1946, FRUS, 1946, 5:208; Allied memos, Mar. 29 (quote) and Mar. 31, 1946, Mar. 29 memo quoted in “Report by Mr. Randolph Paul,” Mar. 31 memo paraphrased, both in FRUS, 1946, 5:210; negotiations also in Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen, 264–68, and Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 51–57.

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and sold as prewar gold. From these Belgian holdings, the SNB bought gold worth $87.46 million (SFr 378.6 million). In late 1944 France returned the equivalent of the Belgian gold share to Belgium and now, understandably, had a strong interest in getting satisfaction from the Swiss.44 The Allies demanded that Switzerland return all looted gold to the InterAllied Reparation Agency. The Allied accusations against the gold-buying practices of the SNB were direct charges against an organ of the Swiss government, and the representative of the SNB in Washington, Alfred Hirs, was ill-prepared—and not very capable—to prove his employer’s innocence. Hirs insisted that his bank had never dealt with looted gold. This was not a very convincing position once the Allies presented interrogation statements made by the vice president of the Reichsbank, Emil Puhl. Puhl had told the United States that he had never confirmed to the SNB that the Reichsbank would deliver only prewar, or nonlooted, gold and that the SNB’s directors knew that some of this “pre-war” gold was derived from the Belgian reserves. These statements came from the same person the Swiss had so far relied on to prove their innocence in the gold trading.45 44. At issue in Washington was solely the looted monetary gold, which mainly originated from European central banks, as discussed in the last chapter. Today the definition for looted gold is much broader and would include all so-called victim gold. For definitions see Independent Commission of Experts Switzerland, Goldtransaktionen, 43–51. The 1946 U.S. figures for the SNB were fairly accurate. According to Goldtransaktionen, 72–81, 111, the German Reichsbank delivered $449.56 million (SFr 1,946 million) worth of gold to the SNB and Swiss private banks. Part of this gold was sold from the Reichsbank’s own account at the SNB to other buyers, such as the Swedish or Portuguese central banks. The SNB itself bought $387.88 million (SFr 1,231.1 million) of German gold. The Swiss report makes no general estimate of how much of the gold Switzerland bought was looted. For Belgian gold, see Smith, Hitler’s Gold, 11–15, 35–37; for the amounts of Belgian gold acquired by the SNB, see Goldtransaktionen, 148, 331. The amount of looted Dutch gold sold to the SNB was slightly higher (SFr 399.9 million), but not a subject in Washington because documents regarding those transactions had not yet been discovered by the Allies (see Goldtransaktionen, 305). 45. According to Puhl, the Reichsbank only assured the SNB that Germany held enough gold reserves overall to cover later claims from Belgium or France. These assurances “in no way prevented some of the gold coming to them [Switzerland] from being the actual physical gold taken from Belgium and the other occupied countries,” Puhl explained, according to a March 1946 Treasury memo quoted in Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 64 n. 175. On the other hand, Paul Rossy, an SNB director, told a Swiss court in June 1946 that “on request, Mr. Puhl assured us repeatedly that he does not deliver any gold looted from occupied areas,” quoted in Michael Fior, Die Schweiz und das Gold der Reichsbank: Was wusste die Schweizer Nationalbank? 65. There is, of course, an extended and continuing historical debate about the function of these large gold purchases from Germany, their role in the war economy of Switzerland, and their morality. In general, these purchases served to ensure the backing of the Swiss gold standard, an equal balance of payments, and the worldwide convertibility of the Swiss franc, the only currency freely convertible during the war years. After 1943 these purchases became more and more difficult to justify for the SNB. The bank would later claim to have acted in good faith to preserve the neutral position of Switzerland during

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The whole negotiations now threatened to collapse. The chief Swiss negotiator, Walter Stucki, briefly returned to Bern to get new instructions, a fact duly reported in the Swedish press, which “continues following closely the progress” of the Swiss negotiations. Upon his return on April 9, Stucki carried on the negotiations mostly in writing as a precautionary measure against further unhelpful statements from his delegation. This setup certainly slowed down matters. The next weeks were spent in tediously moving the two parties closer together, a process mostly facilitated by the drafting of a possible accord. The fight was not only between the two sides but also within the Washington bureaucracy. McCombe wrote home to the MEWFO that he had spent two days defending his draft “word by word and line by line against the backroom Treasury boys,” who were not to come down from their “hobby horse of suspicion of the Swiss.”46 Yet, nobody was ready to settle. The Allies wanted the Swiss to concede in principle their obligation to return all the looted gold, even if they did not stick to those sums originally demanded by the U.S. Treasury. Stucki, on the other hand, tried hard to reach an agreement short of the maximums allowed by his instructions. On April 23 the negotiations then broke down for real. Stucki refused the Allied “final” offer of one-third of German assets and the payment of $130 million to settle the gold issue. Yet, neither side could afford a total collapse, because Switzerland wanted to normalize Allied-Swiss relations and the Allies were eager to move on to Sweden. A “complete breakdown” would “prejudice very seriously” the impending meeting with Sweden, as the Foreign Office warned McCombe. On May 2, Stucki finally presented his last offer as stipulated in his instructions, a 50/50 split concerning German assets and a payment of SFr 250 million ($58 million) in gold. The Allies had a hard time figuring out whether this was really the end of the line and, in any case, now suffered from internal disagreement. McCombe, Secretary of the Treasury Vinson, Assistant Secretary of State William Clayton, and even Senator Kilgore were quite content with the possible financial reward—probably altogether around $115.51 million (SFr 500 million). France, on the other hand, the war and to protect the country from invasion by making Switzerland’s services valuable to Germany; see Goldtransaktionen, 18–25. 46. For Swedish press, Johnson to State Dept., Apr. 23, 1945, 800.515/date; negotiations in Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen, 275–85, and Castelmur, Schweizerischalliierte Finanzbeziehungen, 66–89; McCombe to Villiers (MEWFO), Apr. 17, 1946, quoted in Castelmur, 69. Stucki had been Swiss minister in Paris and Vichy, a history that might have contributed to Swiss-French animosities; see Durrer, Die Schweizerisch-amerikanischen Finanzbeziehungen, 188–89.

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was disappointed about the low gold payment, and Charguéraud did not want to give in. It took three weeks to massage the French. On May 21 the Allies at last informed Stucki that they accepted his offer. Four days later, the final agreement between Switzerland and Lichtenstein on the one hand and the three Allies acting on behalf of the IARA countries on the other was signed. The accord consisted of the actual text, an annex, and an exchange of eight letters.47 In the accord both sides agreed to disagree over the divergent legal standpoints. Switzerland made clear that “it was unable to recognize the legal basis” of the Allied claims but nevertheless declared its desire “to contribute . . . to the pacification and reconstruction of Europe.” Switzerland would liquidate all German “property of every kind and description and every right or interest of whatever nature in property acquired before the first of January, 1948.” This property had to be “owned or controlled by Germans in Germany”—thus excluding that of Germans living in Switzerland. Switzerland would furnish the Allies half of the resulting money. Property of the German state, the Reichsbank, and the Reichsbahn were also excluded, a standpoint the Allies protested because supposedly they represented the German state.48 The Swiss liquidation authority would work “in close cooperation” with an Allied-Swiss joint commission, and the Germans affected would be indemnified in German money—details of that compensation procedure were left open. The Swiss office, “in consultation with the Joint Commission,” would offer the German property for sale, thereby taking into account Allied security and Swiss economic interests. No property would be sold to Germans or to German interests. Switzerland would make immediately available SFr 50 million ($11.55 million) of the liquidation money for the rehabilitation and 47. FO to McCombe, Apr. 25, 1946, in Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 76; for Kilgore’s approval see Memorandum of Conversation between Kilgore, Paul, and Rubin, May 6, 1946, Truman Official File 198, HSTP. After Charguéraud was unsuccessful in his demand for a higher gold payment, he insisted that any Italian and Austrian gold claims be explicitly excluded from the Swiss gold payment, hence leaving more for France. The two other Allies finally agreed to this under the condition “that Italian and Austrian rights should in no way be jeopardized in the final understanding.” See Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 84–86, quote 86 n. 279; accord and annex in Department of State Bulletin 14 (June 30, 1946): 1121–24—the letters were not intended for publication. The Division of Economic Security Controls also provided a brief summary and assessment in ibid., 1101–2, 1128. 48. Allied protest regarding state property according to Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 94 n. 331. The amounts in the Swiss-German clearing accounts were also excluded. The term Germans circumscribed all natural and juridical persons, including those who had been or were about to be repatriated before Jan. 1, 1948. See paragraph IV of the annex. Strangely, a definition of what constituted Germany was not supplied.

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resettlement of nonrepatriable victims of German action. The Allies declared that in accepting the payments of the SFr 250 million in gold, they and all other IARA countries would waive “all claims” against Switzerland “in connection with gold acquired during the war from Germany.” This issue was hence closed. Swiss assets in the United States would be unblocked and the blacklists discontinued “without delay.” The agreement also contained an extensive arbitration clause. The letters dealt with certain issues left open. In one of them, for example, the Allies requested that money from heirless accounts should be directly paid to refugee organizations. On June 27 both houses of the Swiss Parliament voted in favor of the agreement. Despite clear majorities in the two chambers, the parliamentary debate had not been without controversy. Once again, legal questions, the gold payments, and the division of German assets were at issue during this one week of heated public discussion. Yet, it was apparent from the beginning that the majority wanted to normalize Allied-Swiss economic and political relations and that the payments under the agreement were the price to pay—literally.49 In comparison to Switzerland, parliamentary approval was not necessary in the Allied countries since they had no payment obligations. The fairly technical, specialized, and obscure agreement hardly attracted the public’s attention. The lone voice of protest was Senator Harley Kilgore, who apparently had thought over his initial approval and now rejected all aspects of the agreement. The accord “violates, both in spirit and in form, the Allies’ pledges to root out Nazism and the German war potential,” Kilgore declared in a letter to the president. If passed in its present form, he argued, it would “set a pattern by which the Allies agree that Switzerland and other former neutrals— Spain, Argentina, Sweden, and Turkey—can serve as safehavens for Nazi resources.” Truman—who was rather busy to “get tough” with the Russians— was not a man for details. The new secretary of the Treasury, John Snyder, drew up a reply for Truman’s signature that refuted the senator’s allegations and pointed out that the negotiations could no longer be canceled—as Kilgore had demanded—since everything had been signed.50 In the meantime, the negotiations with the next Safehaven country were about to begin.

49. Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 101–19; Durrer, Die Schweizerischamerikanischen Finanzbeziehungen, 288–300. 50. Kilgore to Truman, May 24; Truman to then secretary of the Treasury Vinson, with letter from Kilgore attached, May 27; reply from Snyder delayed because of Vinson’s resignation, July 3, with draft reply to Kilgore attached; Truman to Kilgore, July 3, 1946, all in Official File 198, HSTP.

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Negotiations with Sweden The discussions with Sweden opened at the very end of May (a Friday) with formal statements more or less rehashing familiar points. In his brief introduction, Clayton emphasized that the intention of this meeting was not to question Sweden’s role as a neutral during the war, but to obtain security and peace. McCombe warmly acknowledged the cooperation provided so far by Sweden and said he hoped that the negotiations would finish before the hot Washington summer descended on all of them. Rubin was less humorous and pointed out that the Allies “have the right to expect the cooperation of Sweden” and that their authority derived not only from the vesting decree but also “from the mandate” of the Paris Reparation Conference. Sandström replied to all this by first stressing that the Allied claim “has been presented to us as a legal and not a political one.” He again emphasized that there was “complete harmony” between Sweden and the Allies as far as the achievement of external security was concerned. He also said that his country had already generously contributed to European reconstruction by handing out gifts and credit to various countries amounting to SKr 2 billion. During this first week the State Department also issued a very brief press release that Allied-Swedish negotiations concerning the “disposition of German assets in Sweden” had commenced. No further statements were made until the agreement was signed.51 After these initial pleasantries the real work began on Monday, June 3. The next two weeks were spent in nearly daily general sessions at which both sides largely reiterated their known positions. The first day saw an exchange of the legal standpoints. This was a rather pointless exercise that was concluded by a joint agreement that the meetings would continue to search for “the practical means of achieving the ends desired by Law No. 5 without regard to the settlement of the legal issue.” If the Allies had thought to thereby quickly put that matter to rest, they were mistaken. Sandström, in comparison to the 51. Rubin’s “Report on Swedish Negotiations with Respect to German External Assets and Related Questions,” Dec. 2, 1946, 800.515/date (hereinafter cited as Rubin Report), gives May 29 as the formal opening date. However, his and other statements are dated May 31 (Friday), and the press release also refers to May 31. Clayton’s introduction summarized in Rubin Report. McCombe, Rubin, and Sandström statements in folder: Swedish Negotiations—Minutes (box 201), Conference on German External Assets and Looted Gold, Washington, Jan. 6–21, 1953, Records of the Council of Foreign Ministers and of Other Meetings of the Foreign Ministers of the United States and the European Powers, 1943–1955 (Lot File M-88), Records of International Conferences, Commissions, and Expositions, RG 43, NACP (hereinafter cited as Records of CFM); press release, May 31, Department of State Bulletin 14 (June 9, 1946): 992.

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youthful inventors of the vesting law, a real and renowned authority of international law, was not easily distracted from this apparent weakness in the Allied stance. Throughout the negotiations he took every opportunity to reiterate his point that the law was not legal and that Sweden could not recognize it. “The Allied claim is founded on a concept of justice under which the warring nations share best, the Swedes say, and it is a concept with which they must disagree,” read the Allied minutes. And when the Allies put forward their claim to German state assets in Sweden, namely, to the legation building, Sandström again pointed out that “Sweden could not recognize the Allied Control Council as fully sovereign on the basis of its filling a vacuum.”52 But since there were other points on the agenda to discuss, the subsequent general meetings moved through those swiftly—if inconclusively. The two delegations spent Wednesday, June 5, going through the Swedish list of German assets in the country, which had been given to the Allies the day before. Altogether that list showed $107.7 million in German assets, of which the largest amount ($34.5 million) was the clearing account balance in Germany’s favor. Assets of the German state and German citizens in Sweden amounted to $3.5 and $1.7 million, respectively. That left $68 million in other assets such as bank accounts, real estate, share capital, commercial claims, and loans. This category included a large quantity of granite stones ordered for German victory memorials, “the produce of which,” in the words of McCombe, “is very doubtful.”The FCCO roughly estimated that a forced liquidation of these latter assets might produce $54.5 million, while the forced liquidation of all assets including the clearing balance would yield approximately $92.5 million. Rubin was quite impressed with the “care with which the specifications had been drawn up,” yet also criticized the absence of German intangible property such as patents or trademarks from the table. If German state property and the property of those Germans in Sweden not subject to repatriation was excluded, the final balance Sweden regarded as negotiable in Washington was SKr 378 million, or $90 million. The Allies “accepted” this Swedish estimate, and there was “no further discussion of the extent and value of German assets” during the negotiations.53 This, then, was the final figure a settlement had to be all about. 52. State to Stockholm, June 19, with enclosed minutes of the Safehaven negotiations, June 3, 1946, State to Stockholm, June 25, with enclosed minutes of the Safehaven negotiations, June 4, 1946 (Afternoon session), State to Stockholm, July 11, with enclosed minutes of the Safehaven negotiations, June 7, 1946, all in folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy. 53. On Mar. 15, 1946, there was SKr 103 million ($24.52 million) in the clearing account.Though

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A day later the Swedish delegation was confronted with a draft accord Rubin had presented to Sandström at dinner the day before. Sandström was not enthralled by this outline. He pointed out that it offered “nothing new” except further details regarding Allied-Swedish cooperation of how to handle German assets in Sweden. In the subsequent discussion it became apparent that the main intent of the Allied proposal was to spell out in detail the nature of this cooperation, ultimately aiming at greater Allied influence and control. Sandström, of course, voiced his “strong objections” to such suggestions, and, in any case, regarded an agreement as premature. The Allied step must have appeared especially untimely since many issues, such as German state property, patents, gold, and so forth, had not yet been discussed.54 The draft proposal remained nothing more than a trial balloon and was quickly put ad acta. The Allies would have very much liked to press ahead with the question of the ultimate disposition of German assets, but Sandström was careful to save this most important subject of all until the very end. Therefore, other outstanding issues were treated during the next days. Among them was the matter of gold, which, much in comparison to the Swiss negotiations, was not the cause of breakdown. Still, it was one of the most contentious points, and it took several sessions to reach a provisional understanding. Gold The Allies opened the question with a statement that, because of their January 5, 1943, declaration against transfer of property acquired by looting, plunder, or pretended legal means (“Acts of Dispossession”), they regarded any gold sold by Germany after that date as looted. The gold acquired by Sweden after that date should be returned so that it could “be pooled for the benefit of the nations robbed of their own gold holdings.” The question of the appropriate date after which the Allies regarded all gold sold by Germany as no outpayments were being made anymore, money was still flowing into the account because the Swedish government “continued . . . to persuade Swedish creditors to pay the outstanding commercial debts into the clearing.” The Swedish figure presented in Washington included those obligations. See Fletcher to Rubin, “German-Swedish Clearing Agreement,” 15, June 25, 1946, folder: Special Subjects folder: Sweden, Safehaven Subject File, 1945–1947, Records of DESC; State to Stockholm, June 12, 18, with enclosed identical lists of German assets in Sweden (listed in dollars only) and minutes of the Safehaven negotiations, June 5, 1946, respectively, folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy; McCombe to Villiers, June 12, 1946, FO 944/245; Rubin Report, 10–11; quoted from Riksdag Proposal, 26. 54. State to Stockholm, July 1, with enclosed minutes of Safehaven negotiations, June 6, 1946, folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy.

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looted had already been at issue during the Swiss negotiations. The Swiss had rejected any specific date, and not surprisingly Sandström “contested” the Allied definition of looted gold based on an exact date as well. In contrast to the Swiss, however, Sandström also made “categorically” clear that “Sweden is ready to restitute proven loot” and would supply information on its gold transfers to resolve this question. This was certainly a very different attitude than the Swiss had displayed, and after a one-day break the Allies unceremoniously dropped their insistence on taking January 1943 as the beginning date for looted-gold acquisitions. Instead, they now accepted Sandström’s suggestion of taking the Allied gold declaration of February 22, 1944, as a marker. At the same session both sides exchanged tabulations on gold movements and Swedish acquisitions of gold after January 1943. The next day both sides came to a broad agreement on what gold should generally be restituted.55 At issue during these discussions had been the possible illegal Swedish acquisitions of monetary gold, foremost the gold from Belgium. Nonmonetary gold was not a subject in Washington. From their own sources and estimates, U.S. officials were reasonably well informed about Swedish-German gold transactions. Overall, their impression was quite positive. Schmidt from the U.S. Treasury told Sandström “that in our view Swedish hands were clean in the gold dealings with Germany.” Though Sweden had indeed been much more careful with its gold dealings with Germany than Switzerland, recent research has made clear that matters were perhaps not as straightforward as Schmidt thought.56 Between early 1940 and August 1944, there were various gold transactions between the Swedish Riksbank and the German Reichsbank. Some of the early ones in 1940/41 functioned to finance the purchase of war materials from Italy or Germany. In another case in the fall of 1940, Germany bought 55. State to Stockholm, July 11, with enclosed minutes of the Safehaven negotiations, June 7, 1946; State to Stockholm, July 11, with enclosed minutes of the Safehaven negotiations, June 10, 1946; State to Stockholm, July 25, with enclosed minutes of the Safehaven negotiations, June 12, 1946; State to Stockholm, July 30, with enclosed minutes of the Safehaven negotiations, June 13, 1946 (Morning session), all in folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy. 56. Otto Fleischer (formerly of FEA), “Memorandum on Swedish-German Gold Transactions from January 1939 to December 1945,” folder: Gold Policy (box 3), Records of DESC; Schmidt in minutes of the Safehaven negotiations, June 13, 1946 (Morning session); recent publications: Swedish presentation to the London Conference on Nazi Gold, printed in Foreign and Commonwealth Office, Nazi Gold: The London Conference, 2–4 December 1997, 421–86 (hereinafter cited as “Swedish Statement”); Commission on Jewish Assets in Sweden at the Time of the Second World War, The Nazigold and the Swedish Riksbank, Interim Report, and Sweden and Jewish Assets: Final Report, 143–57.

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back Swedish-held Kreuger bonds. This was part of the German initiative to buy back German external debt after the German default had caused these bonds to plummet in value. Through the assistance of Jacob Wallenberg, the deal was arranged and payment was made in dollars and gold (about 8.6 tons, worth SKr 25 million) in Berlin and Stockholm. Another, much smaller package of bonds issued by the Free City of Danzig and held by the Wallenbergcontrolled company Swedish Match was sold to Germany in July 1943. The German Golddiskontbank paid for the value and accrued interest with Kreuger bonds and gold. The 0.21 tons of gold the Riksbank received in Bern for this transaction came from the looted Belgian reserves.57 However, the most important of the Swedish-German gold transactions and the source for Allied concern during the 1946 negotiations were those undertaken as part of the Swedish-German clearing. Between July 1941 and May 1944 Germany had always owed money to Sweden. Because of the German war in the East, Germany supplied fewer products to Sweden, while Sweden delivered more goods to Germany to fill its increasing need. Only in 1944 were Swedish exports reduced accordingly—mainly because of a reduction in iron-ore deliveries. The result was a German net balance in the clearing account at the war’s end, though this outcome might also have been partly due to conscious planning on Germany’s side, as discussed in Chapter 6. For the period of German indebtedness, a possible alternative to reducing the trade between the two sides until the account was balanced again was that Sweden would provide a credit to Germany to be paid back in gold. The final Swedish-German trade agreement of December 1941 included such an unwritten amendment. The Riksbank would furnish the German Reichsbank with kronor in return for gold up to a certain limit—SKr 25 million initially and subsequently raised to SKr 105 million on Puhl’s request. From 1942 to January 17, 1944, various gold transactions as part of this agreement took place. In the majority of cases gold was received on the Swedish account at the Swiss National Bank (SNB), to which it was transferred from the corresponding German account at the SNB. Altogether, 16.37 tons of gold arrived this way at the Swedish account in Bern; its value was SKr 96 million ($22.86 million). Together with other transactions undertaken in Berlin, the Riksbank acquired 20.3 tons of gold from Germany in these years in connection with the trade agreement. Of the gold Germany transferred to the Swedish account 57. “Swedish Statement,” 459–60; Commission on Jewish Assets, Nazigold and the Swedish Riksbank, 21–23, and Sweden and Jewish Assets, 144–47.

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at the SNB, 7.2 tons was looted monetary gold from Belgium and 8.6 tons was Dutch gold of various fineness. While the Belgian gold consisted solely of resmelted Belgian monetary gold, the Dutch gold bars—resmelted from gold coins—could potentially have contained some so-called victim gold. However, exact quantitative research on this latter point remains inconclusive.58 The value of the transactions via Switzerland was short of the SKr 105 million ceiling that Sweden and Germany had agreed to earlier. Because of the Allied gold declaration, the Riksbank refused any more purchases of gold bars after February 1944. Therefore, the last German gold delivery of 1.5 tons was made in the form of German twenty-mark gold coins in July and August 1944. Germany had ceased to mint gold coins in 1918, so there was at least some reasonable assurance that they had not been resmelted from other gold, namely, looted gold. However, the coins could still have been seized from Jews or other victims, despite Puhl’s assurance that the Reichsbank had owned them since the 1920s.59 During the negotiations in Washington in 1946, Sandström said that Sweden “had German assurances that no looted gold was being sold to them after January 5, 1943,” and Grönwall seconded that “the Germans had made a special effort not to send any looted gold to Sweden.”60 Nevertheless, as recent research has shown, the governor of the Riksbank, Ivar Rooth, had been suspicious of looted gold being sold by Germany since the outbreak of the war in 1939. In the fall of the following year, Marcus Wallenberg went on his diplomatic mission to the United States, and in February 1941 he told Rooth that the United States might refuse to buy gold it regarded as stolen. Rooth, in conjunction with his government, began to think about separating the gold acquired from Germany from his bank’s other gold holdings. It is unclear whether that sorting actually took place. Throughout 1942, Rooth continued to ponder the problem, but Swedish gold transactions with Germany continued unquestioned. One result of Rooth’s apprehension was that he recom58. For clearing: Wittmann, Schwedens Wirtschaftsbeziehungen, 263–64;, Donald B. Calder (London) to State Dept., with study “Report on German Clearing with Sweden by Representatives of British Clearing Office in Germany” attached, May 20, 1946, 800.515/date; Fletcher to Rubin, “German-Swedish Clearing Agreement,” June 25, 1946; for Swedish gold transactions: Commission on Jewish Assets, Nazigold and the Swedish Riksbank, 23 –27, 52– 57, and Sweden and Jewish Assets, 147–49. 59. Commission on Jewish Assets, Nazigold and the Swedish Riksbank, 84–86; “Swedish Statement,” 463. Fleischer’s 1946 memo listed the swap transactions in Switzerland and the 1944 coin transactions only. 60. Minutes of the Safehaven negotiations, June 10, 1946.

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mended that questionable gold bars should, if possible, not be stored but sold first to Swedish jewelers and Italy. It should be noted that at this time there was concern only about gold looted from European central banks, and not about gold confiscated or plundered from individuals.61 The first Allied warning in January 1943 brought renewed Swedish activity regarding gold purchased from Germany. On February 19, the board of the Riksbank granted the German request to raise the gold ceiling to the final level of SKr 105 million, but refused any further demands thereafter. A day earlier, Jacob Wallenberg had talked privately to Puhl while in Berlin as a member of the Swedish trade delegation. This approach had been agreed on with Rooth, the governing board of the Riksbank, and members of the Swedish government such as Minister of Trade and Finance Herman Eriksson. To Puhl, Wallenberg “informally tendered the desire that no gold bars from occupied countries should be delivered to the Riksbank.” Puhl was very thankful that such a request had been expressed privately and not officially, since “otherwise a settlement might have been impossible to achieve.” Germany continued to cling to the assumption that all sales of gold from occupied territories were lawful “and would hardly be disposed to depart from that principle.” Puhl was prepared “to see to it personally” and assured Wallenberg the following day “that he had taken the requisite measures already.” This then was the—not very convincing—German commitment that Sandström referred to during the Washington negotiations.62 After the Allied gold declaration came out in February 1944—and was delivered by Great Britain and the United States to the Swedish Foreign Office on February 24—the governing board of the Riksbank decided in early March that no further gold should be bought from Germany since it “was no longer internationally negotiable.”The last purchase was then the already-mentioned gold coins. Rooth expressed concern on this acquisition that the coins might be looted from individuals but left the matter at the verbal assurance from Puhl.63 Not all these details were known to the Allies during the 1946 negotiations. The final Allied-Swedish agreement regarding gold regulated a Swedish gold payment of 7.15 tons to restitute the looted Belgian gold. Other states could submit claims—which the Netherlands did—until July 1947. Sweden would 61. Commission on Jewish Assets, Nazigold and the Swedish Riksbank, 73 –77. 62. Ibid., 77–82, quotes 79. 63. Ibid., 83–86, quote 84.

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not be held responsible for gold the Riksbank had sold to third parties, like the SNB, a special concern of the Swedish delegation in Washington. Other Questions General agreement on the gold question had already been achieved before many of the other points were discussed or settled. A number of issues were outstanding. In regard to the Proclaimed List, Sandström stated the usual Swedish objection to its existence and put forward the view that the various British and American blacklists “were disguised sanctions.” The Allies, of course, rejected that view, and Rubin argued that, rather than sanctions, the lists “are inseparable from Safehaven matters in the interest of full security.” All three Allied negotiators assured Sandström that after a “satisfactory” conclusion of the present negotiations “Sweden could expect the immediate removal of the Proclaimed and Statutory Lists.” That was at least a nice enticement, even if it was not the full truth. Despite the discontinuation of the blacklists in early July, the U.S. government did not sell any wartime surplus property to persons and firms formerly on the Proclaimed List.64 Other topics were only briefly touched on, many of them during the last two days of the general meetings. Rubin remarked on the generally satisfactory but slow Swedish repatriation actions concerning so-called obnoxious Germans. Sandström replied that this “was a domestic Swedish matter” but also assured the continued cooperation of his country. He further promised the sympathetic consideration of the Allies’ intent to locate securities looted by Germany, although the whole question was still to be discussed at the IARA in the future. On the treatment of the files from the German Chamber of Commerce, Sandström was quite conciliatory and agreed that “some of the information contained in the files” could be turned over to the Allies. Further, funds from the liquidation of the chamber might be considered German external assets by the Swedish government and also turned over, although the final agreement remained noncommittal on this point.65 64. Minutes of the Safehaven negotiations, June 12, 1946. Ravndal thought this Proclaimed List policy inconsistent with the assurances given during the negotiations, but the department replied that “US Govt may exercise prerogative to determine persons to whom it will dispose its own property”; see Ravndal to State Dept., Aug. 7, and reply Sept. 26, 1946, both 800.515/8–746. 65. For repatriation: minutes of the Safehaven negotiations, June 13, 1946 (Morning session); Riksdag Proposal, 26 (quote); for looted securities: State to Stockholm, Aug. 8, with enclosed minutes of the Safehaven negotiations, June 14, 1946, folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy; for Chamber of Commerce: minutes of the Safehaven

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Allied negotiators also brought up the treatment of German patents in Sweden. Since early 1945 the United States and Great Britain had been concerned about the increasing number of German patent registrations in Sweden, which could have been a sign of capital flight. For example, in 1938, 1,618 patent applications by German applicants were filed, while in 1944 there were 3,377. Investigations by the British Embassy and also the FCCO in the fall of 1945 found those rising numbers a normal side effect of war and also the result of the fact that Austrian and Czechoslovakian applications were being included under the German applications. Furthermore, after 1943, the Swedish patent office was one of the very few in Europe still functioning normally and speedily and also the only one that carried out so-called novelty examinations. Even if the initial Allied fears had thus been assuaged, they were now interested in opening all German patents and trademarks to the general public. A conference in London was convening at that time to decide this question; it resulted in the signing of an accord to that effect on July 27. Rubin requested that the current freeze of German patents in Sweden continue until Sweden decided whether it wanted to become a party to the patent accord. Therefore, in the final agreement, Sweden agreed to extend the freeze for at least three months.66 The treatment of Swedish companies in Germany had been dear to Sweden ever since the German capitulation. Sandström had tried to bring up this point already on the second day, but Rubin had steered the discussion to the question of the Allied claims on German assets in Sweden. The group re-

negotiations, June 14, 1946 (quote). In the final agreement Sandström confirmed “the willingness of the Swedish Government to cooperate . . . in locating looted securities within the framework of Swedish legislation and within the limits of practical possibilities” (“Liquidation of German Property in Sweden: Accord between the United States of America, France, the United Kingdom, and Sweden, July 18, 1946, entered into Force March 28, 1947,” Treaties and Other International Acts Series, no. 1657, Washington: GPO, 1948 [hereinafter cited as “Final Accord”]). This referred to the Swedish looted-property law of June 1945. The agreement consisted of a series of letters, which for the purpose of reference have been consecutively numbered. Looted securities are mentioned in letters 3 and 4, and quote is from letter 4. 66. For selected correspondence regarding the initial Allied concerns regarding patents, see Johnson (Stockholm) to State Dept., Mar. 1, 1945, Peterson (London) to State Dept., Mar. 16, 1945, with statement from the Swedish patent agent Albihns Patentbyrå attached, both 800.515/date; Ravndal to State Dept., Oct. 4, 1945, with statement by special investigator Harald Skogman from the FCCO attached, folder: Safehaven Oct. 1945, FFC Subject Files. On I.G. Farben’s deciding against a plan to register its patents through a Swedish holding company, see Hayes, Industry and Ideology, 375; for patents: minutes of the Safehaven negotiations, June 13, 1946 (Morning session); for trademarks: minutes of the Safehaven negotiations, June 14, 1946; “Final Accord,” letters 11 and 12.

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turned to the Swedish request over a week later. Sandström made clear to his Allied counterparts that “Sweden expected indemnification for reparationsremovals affecting Swedish property” in Germany. In addition, he submitted a list of Swedish subsidiaries in Germany. Most of the listed companies (twenty-two) were located in the British zone, largely in Berlin and Hamburg. There were fourteen in the U.S. zone, eleven in the Russian zone, and two in the French zone. An extended discussion ensued, but basically the Allies were not very accommodating. Rubin explained that Swedish companies could expect no different treatment than Allied companies and that “even Allied property was not safe from removal.” The basic goal, in his words, remained “that all war industries, regardless of ownership, must be removed.” On the other hand, “removals to the present time have been few.”67 Indeed, by this time Clay had already stopped removals from the U.S. zone (May 4, 1946), a little over a month after a quadripartite reparations plan had been published. One British contemporary observer later judged this plan to be “utterly unrealistic” as soon as it saw the light of day, and it certainly did nothing to settle the complex issue. The never-explained contradictions of the Potsdam agreement came to a head around the time of the Allied-Swedish negotiations. How could Germany be treated as a single economic unit while in fact trade between the zones was rapidly diminishing? Only in the fall was U.S.–German policy spurred into a definite direction.68 With the reparation policy in the air there was not much the Allies could do for the Swedes. At least the final Allied-Swedish agreement gave protection to Swedish property in Germany similar to that enjoyed by the Allies. Furthermore, Sweden was assured that, in case of removals, compensation would be given in “local currency.” Also, a Swedish delegation would be allowed to visit the three Western zones to inspect Swedish-owned corporations there.69

67. Minutes of the Safehaven negotiations, June 4, 1946 (Morning session), folder: Swedish Negotiations—Minutes, Conference on German External Assets and Looted Gold, Records of CFM; minutes of the Safehaven negotiations, June 13, 1946 (Afternoon session); State to Stockholm, June 25, with enclosed list “List of Swedish Subsidiaries in Germany,” folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy; minutes of the Safehaven negotiations, June 13, 1946 (Afternoon session). 68. Cairncross, Price of War, 130–66, quote 143. For a description of the reparations process, see John Farquharson, “Großbritannien und die deutschen Reparationen nach 1945,” 46 – 67. 69. “Final Accord,” letters 17 and 18; quote: Rubin Report, 23.

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Breakdown or Compromise? Finally, all points on the original agenda had been covered, and what remained was the question of how to divide German assets in Sweden. After a weekend hiatus the last general meeting was held on June 17, at which this “principal question” of the negotiations was discussed. It quickly became clear that both sides had not changed their standpoints during the two weeks of negotiations. Rubin outlined the usual Allied view that they were entitled to the proceeds of German assets in Sweden “for use in connection with relief and rehabilitation” and that they believed they had “a good legal basis for the claim.” Sandström remained “tenacious” in his resistance to this legal basis, but recognized “the moral claim” and pointed out once again that his country had “already contributed extensively” to European relief. He further made clear that “he does not regard the proceeds [from the liquidation] as transferable from Sweden,” but that the money had to be spent in Sweden. A certain amount would be used to offset the credits Sweden had already given for rehabilitation. The remainder of the money would be spent partly on paying the Swedish creditors of Germany and partly for later negotiations with a German government.70 Apparently, after the meeting—and thus not mentioned in the U.S. minutes—Sandström elaborated for the first time on a possible settlement offer. Out of the total of liquidated German assets amounting to SKr 378 million, Sweden would pay SKr 228 million internally for Swedish clearing claims. After these internal payments, a balance of SKr 150 million would be left for disposal. He suggested that Sweden could pay SKr 1 million to liberated countries—and not the IARA—for their support. Sandström’s concern was that there was to be no connection between that contribution and the liquidation of German assets in Sweden. In other words, legally it would appear that Sweden had not given in to the Allied demands for reparations. He offered no other payments. As to be expected, the Allies “rejected this proposal in toto.” They found it “completely unacceptable since it would mean that the Swedes would . . . take over the functions assigned to the Inter-Allied Reparation Agency.”71 And, of course, it was by far not enough money. 70. First quote: Riksdag Proposal, 26; State to Stockholm, Aug. 8, with enclosed minutes of the Safehaven negotiations, June 17, 1946, folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy; Sandström “tenacious,” according to McCombe’s final report, July 19, 1946, FO 944/245. 71. Rubin, “Memorandum of Conversation,” June 18, 1946, folder: Swedish Negotiations—Minutes, Conference on German External Assets and Looted Gold, Records of CFM; Rubin Report, 15–16.

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Obviously, real progress would not be made this way. The next day both delegations met at a luncheon at the Swedish legation. Grönwall suggested to Rubin that the chief Allied negotiators and his delegation should have a small meeting at Sandström’s hotel room after the occasion. This was the beginning of a number of similar exchanges and the end of the general sessions. In comparison to the previous large conferences, these small meetings are not very well documented. With their conclusion the Allied-Swedish discussions were not yet over, but unfortunately the historical evidence for those talks becomes even more sparse. In Sandström’s room, the Allies told the Swedes that they had discussed the Swedish proposal further and believed they had found an acceptable way to address the Swedish legal concerns. The Allies could accept money for “reconstruction and rehabilitation” purposes, “acting as trustees . . . with due regard for their existing international obligations and commitments.” Rubin explained that this latter phrase meant that, although the IARA would receive and allocate the money, the Allies and Sweden would informally agree that “we would exercise our influence on IARA” to ensure that only those countries that traded with Sweden would receive money from the Swedish payment. That opening was a path to an acceptable settlement, and for the first time Sandström was ready to say “what he had previously indicated he could not state,” namely, the amount Sweden was willing to “contribute.” Sandström then made the first serious Swedish offer to settle. Sandström said that SKr 100 million would be available altogether as Swedish payments, with SKr 25 million to be allocated to nonrepatriable victims of German actions through the Intergovernmental Committee on Refugees. The remaining SKr 75 million would be handed over to the Allies under the conditions outlined above. On the basis of the legal understanding already reached, the total of SKr 150 million mentioned by Sandström the day before was technically not related to this current Swedish payment offer. Sandström therefore adumbrated that Sweden would dispose of the SKr 150 million in later discussions with “a reconstituted Government of Germany.”72 Rubin did not like this offer at all. The Allies were currently enduring very heavy expenditures for Germany and would get only “slightly over 25 per cent of the German assets” (one-fourth of the SKr 378 million was SKr 94.5 million). He pointed out that “Swedish creditors would receive almost full payment on their claims against Germany and would be better off than creditors 72. Rubin, “Memorandum of Conversation,” June 18, 1946, folder: Swedish Negotiations—Minutes, Conference on German External Assets and Looted Gold, Records of CFM.

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in . . . any other country of the world.” There might be unpleasant “recriminations” if Swedish creditors were paid from German assets in Sweden, while the creditors of Germany in any other country would see all those assets in their respective countries go toward reparations. Also, to have the SKr 150 million earmarked “for a future German government was completely unacceptable.” In this connection McCombe “strongly” raised the issue of economic security. He wondered whether having this sum available might not simply provide Germany with the means “for another aggressive warfare.” Sandström sarcastically asked “whether it was believed that Sweden would be the source of another war,” which McCombe had to deny. The next three hours of discussion brought nothing new, but at least there was now something to go by. Indeed, the two sides were already pretty close. What was left was to barter over the amounts.73 The haggling continued two days later with an Allied counteroffer.The Allies asked Sweden to pay SKr 50 million for refugees instead of the SKr 25 million, specified that its contribution to reconstruction should be SKr 75 million, and finally said that the amounts above those needed by Sweden to balance the clearing “should be put at the disposal of the Allies, as trustees.” In other words, they wanted to also get the full SKr 150 million. The total paid by Sweden would thus amount to SKr 275 million, a sum considerably higher than Sandström had offered earlier and one representing three-fourths of German assets in Sweden. The discussion went back and forth for a while, during which Rubin was sly enough to point out that essentially Sweden would nationalize certain industry while being able to pay “for this nationalization program in a very favorable manner.” Sandström finally had to confess that he had “already exceeded his instructions” with his first proposal— which was true—and that matters were now truly beyond his powers. He threatened to consult with his government and hinted “that perhaps the best thing would be to adjourn . . . until some time in the fall” for a meeting in Stockholm. Sandström’s statement was at least more diplomatic than the Swiss action of breaking up the negotiations but nevertheless would have meant the end of the discussions for now. Rubin worked hard to convince him otherwise, and in the end Sandström, who did not appear to be very fond of his idea of a breakup anyway, agreed to meet again the following week after he had consulted with his government.74 73. Ibid. 74. Ibid., June 20, 1946.

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After the weekend and a Swedish holiday on Monday that had slowed down a Swedish reply further, the group met again on Tuesday, the 25th. Here now the final agreement took shape. Apparently, despite the interruption, Sandström still acted “without authorization from Stockholm,” but he assured the Allies that he would “strongly urge” acceptance of an agreement in Sweden later. He conceded that Sweden would pay the amounts suggested in the Allied offer. The SKr 150 million would be available immediately and unconditionally “for the purchase of goods in Sweden for Germany”—and not simply as reparations. The Swedish legal qualms were thus addressed. Sandström was not yet certain which goods specifically would be on hand, but Grönwall mentioned traditional Swedish export products, like fish and iron ore. Rubin made one last attempt to press for the allocation of the German state property in Sweden, but Sandström swiftly blocked this move.75 The final agreement was now near, and it was up to the Allies to accept it. The question they had to decide was the allocation of the Swedish payments among themselves. In contrast to Sweden, they understood both the SKr 75 million and the SKr 150 million as contributions to the IARA, in other words as reparation payments. On the basis of the U.S. and UK shares of category A reparations (28 percent), the two countries would receive SKr 63 million each, while France would get SKr 36 million, or 16 percent of the SKr 225 million available. The trouble was that France had no interest in using its share of the SKr 150 million for purchases for Germany “because of the selfsupporting nature of the French Zone.” A solution had thus to be found among the Allies to increase the share France could spend unconditionally. The conflict was resolved when the United States and Great Britain agreed to take their entire share of the Swedish payments out of the SKr 150 million while forgoing their share of the SKr 75 million. This way, the French share of the SKr 150 million was reduced from SKr 36 million to SKr 24 million. The Allies estimated that, on the other hand, SKr 12 million out of the SKr 75 million would be left for France after all other IARA countries except the three Allies had received their part from the smaller Swedish payment.76 What was left after the Allies’ internal agreement was to draw up the final text of the accord. This was apparently a difficult affair since Sandström had 75. Ibid., June 25, 1946. 76. Rubin Report, 17; Rubin, “Allied-Swedish Accord on German External Assets, Looted Gold, and Related Matters,” Department of State Bulletin 17 (July 27, 1947): 159; “Liquidation of German Property in Sweden: Allocation of Proceeds, Understanding between the United States of America and France, Entered into Force July 18, 1946,” Treaties and Other International Acts Series, no. 1731 (Washington: GPO, 1948).

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exceeded his instructions. He made clear that the text had to be acceptable to both his government and the Riksdag. Therefore, Sandström and his colleagues “carefully reviewed each phrase in the proposed Accord and insisted that there should be no language within the Accord which could in any way be construed as inconsistent with the Swedish legal position,” as Rubin noted. This process made the drafting of the provision regulating the allocation of German assets “extremely difficult.” At the same time, real, substantive differences arose elsewhere. For one, McCombe had received firm instructions not to agree to a provision that would limit the purchase of goods to only those from Sweden. Such an operation would only serve to finance “German/Swedish trade” and would not “be of the slightest benefit” to Great Britain. Therefore, McCombe tried to “induce” the Swedish negotiators to agree with the idea that the SKr 150 million would be held in a special account at the Riksbank for the purchase of goods and that “recognition would be given to the principle of multilateral trade.” In other words, the money would supposedly also be available for purchases from other countries. Great Britain would have much preferred to have freely convertible kronor available, “but the Swedes flatly deny that there is such an article on offer.” Second, the Allies wanted to include an arbitration provision similar to that in the Swiss agreement. The Swedish delegation considered this desire a “derogation of their position” that the liquidation of German assets was an internal Swedish affair. The Allies, on the other hand, refused the Swedish proposal that the arbitration clause should be extended to cover questions arising from the treatment of Swedish property in Germany. The Swedes “finally agreed” to the Allied request without getting their way because the arbitration clause did not cover all parts of the agreement. The provisional text was completed on July 3 and sent off to Sweden.77 “Much to the displeasure and strong disappointment of the Allied delegations,” as Rubin put it, the Swedish government did not agree with the draft at all. Sandström was criticized for going beyond his directive and received “iron-clad instructions” not to compromise. The Swedish government insisted that Sweden had the final right to allocate the SKr 75 million and resisted the option of supplying the SKr 150 million for purchases in Sweden and elsewhere. It also opposed the arbitration clause for the reasons already explained by Sandström. There was further opposition regarding the Allied de77. FO to McCombe, June 27, 1946, McCombe to FO, July 12, 1946, McCombe to Villiers, n.d. (4348), and other telegrams in same folder FO 944/245; Rubin Report, 18–21.

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sire to put in writing “that all relevant information concerning the progress of liquidation would be supplied by the Swedish authorities,” as both sides had agreed to in the draft version.The never-ceasing attempt of the Allies to claim German state property in Sweden, which Sandström had said would be “sympathetically” considered by his government, was also firmly rejected. The parties spent the next eleven days ironing out these difficulties, and the AlliedSwedish accord was finally signed on July 18. On the same day, the State Department issued a short press release summarizing the most important points of the agreement.78 The Final Accord The final agreement consisted of an exchange of thirty-two letters between the heads of the delegations. This form of the accord had the advantage that the different questions could be treated in unrelated letters and that thus both sides could continue to hold up their legal interpretations. Rubin later presented this design as a benefit because “the effort was to reach an agreement . . . rather than to argue out legal points of view which were diametrically opposed and which could hardly have been reconciled within any feasible period of time.” In their understanding, the Allies counted “most receipts from Sweden . . . as reparation proceeds,” while Sweden, of course, did not regard the payments as such. The final agreement specified that the SKr 150 million should be used “to assist in preventing disease and unrest in Germany [by] financing such purchases . . . of essential commodities for the German economy” as Sweden and the Allies might agree on. The well-tried phrase disease and unrest had been employed to make clear that the money would only be used “to maintain a minimum standard of living in Germany” and nothing more, as Rubin explained in his report. Even though the Allies regarded the SKr 150 million as a reparation payment, the limits that the agreement put on the use of this money were agreeable to the United States and Great Britain—which were to use the entire sum—because they could utilize these funds for expenditures in Germany they had to pay for anyway. The definition for use of the SKr 75 million, on the other hand, was a little more contorted. Sweden would “allocate” this money “among countries party to the Paris Agreement on Reparations” on the basis of “exchanges of views with the Allies.” In so doing, Sweden would also conduct individual consultations 78. Rubin Report, 21, 18; Department of State Bulletin 15 (July 28, 1946): 174.

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with each of those countries so that the payment could be applied toward “the remission, reduction, or extension of any existing or future credit with Sweden.” Through this combined formula Sweden could continue “on the face of the document” to have the final say in the distribution of the money and could use the payment for commercial advantages, while “for all practical effect” the Allies regarded the money as pure reparation payments to the other IARA countries.79 Thus, both sides could claim to have persevered. German property was defined as “all property owned or controlled . . . by any person or legal entity of German nationality inside of Germany, or subject to repatriation to Germany, other than persons whose case merits exceptional treatment.” The very last clause referred to the property of Jewish and other victims of German atrocities, which was to be excluded. The definition also excluded the property of German residents of Sweden who were not scheduled to be repatriated. This definition was thus an abrogation of the sweeping powers of the ACC’s Law No. 5, but apparently nobody was concerned about this fact anymore.80 There was the hypothetical possibility that the liquidation of German assets in Sweden would actually yield more than the parties in Washington assumed. For Sweden it was clear that there would be an accord only if it “was a final one and did not imply any future discussions” on the question of what to do with such money, as Sandström made clear. Rubin and his colleagues, however, did not want to preclude the possibility that they might raise “with the Swedish government at a future date the question of the disposition of any excess in the event that they believed the amount justified such action.” The heads of the three Allied delegations signed a memorandum stipulating this view, and it was included with the conference papers. It was not signed by Sandström, who even “refused to read” it. Later that year there was some misunderstanding regarding this memorandum as it was transmitted as part of the final agreement to the Swedish Foreign Office. Sandström objected to its formal inclusion, which was noted by Rubin and the others. Over the years, this issue remained what it had been from the beginning— hypothetical.81 79. Rubin, “Allied-Swedish Accord,” quotes 158, 159; “Final Accord,” letters 1 and 2; Rubin Report, 22; “Final Accord,” letters 21 and 22; Rubin Report, 24. 80. “Final Accord,” letters 19 and 20. 81. Letter from Sandström to Rubin, Aug. 31, and reply Nov. 6, attached to State Dept. to Stockholm, Dec. 26, 1946, folder: Safehaven General, Confidential File 1944 to 1949, Stockholm Legation and Embassy. Sandström wrote a further letter to Rubin concerning this issue on Dec. 18, 1946, to which Rubin replied on Mar. 4, 1947. Rubin’s reply in 800.515/12–1846. See also Rubin Report, 24.

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Another aspect always dear to the Allies had been their amount of control over the liquidation of German assets in Sweden. While the Allies had made during the negotiations, as Sweden put it, “another attempt . . . to bring about a joint Swedish-Allied control of German assets,” Rubin had to confess that the effort was “weakened by the excellent record already established” by the FCCO. This office had maintained “extremely good, although informal, liaison with the Allied missions in Stockholm.” Sweden, of course, never had any desire to go beyond such a setup. Therefore the final agreement declared only that the current “procedure already informally established” should continue.82 In this regard neither side had been able to make any inroads. The main letter stated further that the former German owners should be “indemnified in German money” for their property. The Allies were obligated to take “the necessary steps” to record the titles of the German property in Sweden in Germany. However, there was no time frame for reimbursements or regulations of possible amounts. The only reference to a possible guideline was a clause that “in due time” a future German government would be required “to confirm” the agreement. Sweden assured that the property so liquidated would not be sold to German nationals and that “when practicable” sales would be done publicly at the “highest possible price.” Further, foreign bidders would be treated the same as Swedish nationals “on conditions of reciprocal treatment.” In other words, Allied companies and nationals would be fully allowed to bid.83 The Allies had also achieved the inclusion of their beloved arbitration clause, which covered the main points of the agreement in case of “divergencies on the interpretation and scope” of the accord. The clause was thus much less broad than in the agreement with Switzerland. Nevertheless, through this clause, the Allies had a last resort to intervene in case Sweden did not liquidate property the Allies regarded as German. The Allies assured Sweden that “they did not intend to use the arbitration clause unless absolutely necessary,” and indeed this option was never employed—though Sweden later used it to threaten the Allies.84 There were other parts of the accord codifying the return of looted gold, the treatment of Swedish property in Germany, the handling of heirless assets, and other points already discussed. The Allies assured Sweden also in the name of the other IARA countries that they would have no further claims regarding gold except those presented before the agreed deadline of July 1, 1947. 82. Riksdag Proposal, 25; Rubin, “Allied-Swedish Accord,” 158; “Final Accord,” letters 1 and 2. 83. “Final Accord,” letters 1 and 2, 19 and 20. 84. Rubin Report, 22, 23.

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Furthermore, they guaranteed Sweden that the Soviet Union would have no claims on Sweden “pursuant to the Potsdam Protocol.”They also declared that the Proclaimed List and other such lists had been “eliminated” and would not continue in any form. Sandström was very “pleased” with this assurance, as he wrote in his reply letter. Finally, the Allies assured Sweden that Swedish assets in the United States would be unblocked after the details had been worked out between the two countries. Sweden promised to “take steps” to turn over to the Allies those assets that belonged to victims of Nazi actions who had died without heirs.85 In his report on the negotiations, Rubin wrote that the discussions with Sweden “were conducted in a much more harmonious manner than the Swiss . . . [and] Justice Sandström, at the conclusion of the negotiations, expressed his sincere appreciation for the manner in which the Allied Chiefs of delegations, and in particular their Chairman, the Chief of the American delegation, had conducted themselves.” There is never anything wrong with a little self-praise.86 Not everybody was as cocksure as the chief Allied negotiator. In a memorandum to Assistant Secretary of State for Occupied Areas General John Hilldring, Walter A. Rudlin criticized the form and legal compromise of the accord. The agreement was “less than perfect” because “it does not recognize ACC as the Government of Germany or the validity of Law 5.” This was correct, but it was exactly for this reason that there was an agreement at all. Also, the accord was “complicated” by being put in the form of so many different letters. In addition, the understanding regarding the SKr 150 million disregarded the Allied policy that all costs for supporting Germany would be recovered from a German government later. Reparations and occupation costs were two different matters, a fact that the accord did not take into account. Nevertheless, he admitted, “this is a better accord than was reached with the Swiss and it is as good as could be expected.” Inside the State Department, Rudlin remained the lone voice of criticism.87 McCombe, like Rubin, also assessed the agreement quite positively in his final report. The only one able to compare the Swedish and the Swiss negotiations firsthand, McCombe found that in regard to looted gold “there was far less difficulty than in the corresponding Swiss negotiations” since the Swedes were “not anxious to be accused of retaining, or profiting from, stolen 85. “Final Accord,” letters 27 and 28, 1 and 2, 23 and 24, 15 and 16, 31 and 32, 25 and 26. 86. Rubin Report, 26. 87. W[alter]. A. Rudlin to Hilldring, Aug. 14, 1946, 800.515/date.

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goods.” Sandström had been “a fair opponent,” though he “more stubbornly contested” than the Swiss the Allied legal claims to German assets. The Swedish negotiator himself was also of the opinion that the agreement was “particularly successful.” It rested “on a sound and logical basis” and resulted in an outcome both sides could be very content with.88 Indeed the Allies had no reason to complain about the achieved financial outcome, especially in comparison to the Swiss accord. Excluding the gold payment, Sweden would pay 72.75 percent (SKr 275 million, or $65.48 million) of the assumed total of SKr 378 million in German assets, much more than the fifty-fifty split in the Swiss case. When the SKr 50 million ($11.9 million) payment to the Intergovernmental Committee on Refugees is deducted, SKr 225 million ($53.57 million), or 81.82 percent, of the total payment was left for what the Allies regarded as reparations even if Sweden did not agree with that understanding. If the agreed gold payment of 7.155 tons for the looted Belgian gold is added to the final sum, the total Swedish payments amounted to SKr 308 million, or 81.48 percent of all German assets in Sweden, a very agreeable outcome.89 In comparison to the Swiss case there was no joint Allied-Swedish commission to oversee the liquidation of assets and the arbitration clause did not cover all aspects of the agreement, but these disadvantages were tolerable in light of the Swedish payments and their established good record in the liquidation process. The beauty of the Allied-Swedish accord was that both sides could claim victory on their principal points, the Swedes on their legal concern and the Allies on reparations. Sweden did pay a rather large sum from the expected liquidation of German assets. In return, the liquidation process would continue to be under sole Swedish authority. The only thing remaining was the ratification of the accord by the Swedish Riksdag. Swedish Ratification and the Unblocking of Swedish Assets in the United States When the facts of the final agreement became known in Sweden, the Swedish press, conservative, Social Democratic, and liberal alike, comment88. McCombe’s final report, July 19, 1946; Sandström, “Omkring Washingtonförhandlingarna,” 16–17. 89. The official U.S. price for gold in 1946 was $35 per ounce, or $1,125 per kilogram (35.27 ounces), of fine gold. On that basis, the Swedish gold payment amounted to $8.05 million, or SKr 33.81 million.

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ed very favorably on the outcome. Even the leading Communist paper, Ny Dag, did not criticize the agreement. In general, there was great relief that this “sore spot” in the relations with the Allies had now been solved. The Social Democratic Morgontidningen commented that the agreement enabled the people of Sweden to “safeguard our ‘sovereignty’ and [to] protect us from continued interference from the outside.” Dagens Nyheter, a liberal paper, wrote that even if the balance from German assets in Sweden was not very favorable after the payments to the Allies, “this meagre result should be viewed as part of an economic-political settlement of greater proportions.” Not only were the blacklists now abolished, but also the large amount of Swedish assets in the United States would be unblocked. The papers also commented on the legal aspects of the accord, where, in the words of Stockholms Tidningen, “Swedish negotiators have managed to maintain the legal standpoint taken by our country from the very beginning, vis: that a neutral state could not act . . . as an executor of the victorious powers.” The lone voice of opposition was the former Nazi—and now right-wing—newspaper Dagsposten, which editorialized “emphatically” that the agreement was not satisfactory. “What the agreement actually means is that Sweden undertakes to pay a considerable war reparation to the three Allied powers”—a payment “brought about under hard pressure” from the Allies.90 But this one newspaper could not spoil the general tone of relief that the accord had been concluded. The government presented the bill to ratify the final agreement on November 14, 1946. The proposal provided a long summary of the history of Allied-Swedish Safehaven negotiations, starting out with the Allied declaration of 1943. In its main body the proposal took great pains to emphasize the Swedish understanding of the agreement, namely, that Sweden was not paying reparations to the Allies. The SKr 150 million was paid as “property of the German national economy . . . to be disposed of by those who de facto represent the German national economy”—in other words, the Allies. In a way, this sum was thus a payment to the German government that at the moment had to be handed to the Allies because there was no German government in existence. Because of the accord’s legal solution, “the Allies did not have any right to a share or any other interest in the result of the liquidation of the German assets in Sweden . . . even if the liquidation should yield a greater balance than the now estimated 378 million Crowns.” Therefore, the “distribu90. Paul S. Pierson (second secretary of the embassy, Stockholm) to State Dept., July 29, 1946, 800.515/date; Morgontidningen, Dagens Nyheter, Stockholms Tidningen, all July 19, 1946, translations enclosed in Randolph Higgs (first secretary of the embassy, Stockholm) to State Dept., July 24, 1946, 800.515/date; Dagsposten, July 30, 1946, quoted in Pierson to State Dept., July 29, 1946.

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tion” of the remaining SKr 228 million was “a domestic Swedish matter.” The other two payments under the accord were a “Swedish contribution” that were “not derived from the German assets” but that aimed to “satisfy the Allied desire for assistance in the rehabilitation of the liberated countries.” The final Allied-Swedish agreement was thus presented as a sort of merger of certain views. Sweden had been “able to adhere to the security demand [by the Allies] and has likewise encountered no obstacles in carrying out a liquidation of the German assets. On the other hand, Swedish law[s] . . . do not afford any legal authority for surrendering to the Allies liquid funds created by the measures of disposal.” The bill recommended that the Riksbank should pay the SKr 150 million, to be reimbursed later “out of the proceeds of the liquidation of German assets in Sweden.” The other payments, including a compensation for the gold payments by the Riksbank, would be taken up by the Department of Finance later.91 The parliament approved the Allied-Swedish agreement on December 17, 1946, and the king was authorized to “render Washington agreement operative at time considered suitable by him.”92 This latter phrase referred to the fact that Swedish assets in the United States were still frozen and that consequently Sweden would not make any payments until those had been freed. Now, for once, Sweden actually had something in hand with which to pressure the Allies. Blocked Swedish assets in the United States amounted to $366.2 million. Naturally, this number had not changed from June 1941, when they had originally been blocked. Through the 1941 Census of Foreign-Owned Assets, the U.S. Treasury was well informed about the nature and composition of these assets, as well as about the nationality of their holders. The majority of Swedish-owned assets in the United States were in cash (63.95 percent) and owned by Swedish citizens. Only 30 persons of enemy nationality (from Germany, Italy, Japan, Hungary, Romania, or Bulgaria) with a reported Swedish address held assets in the United States, while a higher number of persons (626) of unknown nationality held Swedish assets. Of all the 2,198 persons holding Swedish assets, the large majority of them (72.02 percent) held assets under $10,000; in contrast, in the case of Swiss residents that proportion was only 54.71 percent.93 91. Bill presented: Higgs to State Dept., Nov. 14, 1946, 800.515/date; Riksdag Proposal, quotes 30, 31–32, 41, 47. 92. Ravndal to State Dept., Dec. 18, 1946, 800.515/date. 93. Andrew Overby (special assistant to the secretary) to John W. Snyder (secretary of the Treasury), “Status of Countries Blocked—Foreign Funds Control,” Sept. 2, 1946, folder: Foreign Funds

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By late 1946, most of the countries that had been blocked during the war had been unblocked. The exceptions were the former enemy countries Germany and Japan and the neutral countries. Even the former German satellites such as Bulgaria, Hungary, and so forth had been unblocked as far as current transactions were concerned. In December 1945, when most of these freezing controls were abolished, then secretary of the Treasury Vinson had made clear that the neutral countries could not be “accorded the privileges being made available to other countries . . . until a satisfactory solution has been reached concerning the disposition of . . . enemy assets.”94 In general, the U.S. Treasury used two forms of general license for unblocking. One form, General License No. 94, allowed the freeing of all current transactions from any limitations once the license had been issued. The other license, No. 95, unblocked the old assets of a country through a certification process.The foreign country had to certify for each individual asset that no enemy interests were contained in it. The goal of this process was to separate German and Japanese property from any other assets so that these could be uncovered and ultimately vested by the U.S. Alien Property Custodian. Although well informed already by the census and also by the reports on foreign assets required in Germany, the U.S. Treasury wanted still more details and therefore relied on the foreign government for the certification. Doing the work for the U.S. Treasury was in the interest of the foreign government since it was the only way to unblock its accounts in the United States. Fortunately, in the case of Sweden, the United States also had an interest in a speedy solution to get the money from Sweden under the Allied-Swedish accord. After the signing of the accord in July, low-level talks to unblock Swedish assets dragged on for months. In these talks between Swedish Embassy and U.S. government officials it became clear that Sweden regarded its assurances to uncover German assets in Sweden and elsewhere as sufficient to satisfy U.S. information demands. “When the Question of segregating and uncovering German assets in the U.S., held through Sweden, has been solved by the stipulations of the main agreement, there is, according to the views of the Swedish Government, no further reason for the complicated and cumbersome procedure for deblocking so far suggested,” Commercial Counselor Belfrage inControl—Proclaimed List, 1946–49 (box 17), John W. Snyder Papers, HSTL; U.S. Treasury Department, Census of Foreign-Owned Assets in the United States, app. 2, pt. 1, tables 4 and 8; pt. 2, table Q. 94. Press release, Dec. 7, 1945, in U.S. Treasury Dept., “Documents Pertaining to Foreign Funds Control,” Sept. 15, 1946, folder: Foreign Funds Control—Liquidation (box 17), Snyder Papers.

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formed the State Department. Yet, the Treasury Department remained unwilling to budge by relaxing its certification procedures for Sweden, and, as a result, the promised Swedish negotiator never arrived in Washington. The State Department continued to assure “appropriate Swedish officials that both Treas[ury] and Dept[artment are] anxious to institute discussions” for unblocking, but that did not help since Sweden was, in the words of a Treasury memo, “unwilling” to yield to U.S. demands. Finally, in February 1947, the State Department suggested sending a special negotiator to Stockholm. The chief counsel of Foreign Funds Control, Elting Arnold, carried with him the possible threat that existing licenses covering financial transactions with Sweden could be withdrawn if no defrosting agreement were reached.95 The negotiations in Stockholm were concluded in March 1947. In a letter the Swedish minister of finance, Ernst Wigforss, assured Snyder that his country’s Foreign Exchange Office (Valutakontoret) would certify the blocked Swedish assets in the United States. Purely Swedish assets could thus be unblocked. In cases involving partnerships, corporations, and so forth, which were partly owned by people outside Sweden, “the government of the other country” would likewise have to certify “that no national of Germany or Japan is involved”—a so-called cross certification. If that interest was under 25 percent or worth less than $1,000 the cross certification would not be required. All property filtered out by the certification process as German or Japanese had to be transferred by the Swedish banks to a special blocked account of the Riksbank in the United States. In contrast to the unblocking procedure with Switzerland, Sweden was not required to supply the names of the enemy owners. American concerns in this regard had already been addressed during the negotiations, when Sweden had given Arnold a list showing such information for the German property in the United States held through Sweden. With the letters signed, Snyder added Sweden to the two general licenses in question on March 28, 1947.96 All assets not licensed under General License No. 95 fell to the Alien Property Custodian in 1948. 95. Belfrage to John Morgan (assoc. chief, Division of Northern European Affairs), “Oral Statement,” Nov. 1, 1946, 800.515/date, see also “Part I. Narrative Report of the Secretary on Treasury Activities during the Month of November, 1946,” folder: Monthly Reports of the Secretary of the Treasury, Nov.–Dec. 1946 (box 73), Snyder Papers; Acheson to Stockholm, Dec. 9, 1946, 800.515/ date; Overby to Snyder, Feb. 5, 1947, folder: Sweden (box 30), Snyder Papers; Overby to Snyder, Feb. 5, 1947, with authorization letter for Arnold signed by Snyder attached, folder: Sweden (box 30), see also “Part I. Confidential Narrative Report for the Secretary on Treasury Activities during the Month of February, 1947,” folder: Monthly Reports of the Secretary of the Treasury, Jan.–Dec. 1947 (box 73), both in Snyder Papers. 96. Arnold to John S. Richards (acting director, FFC), with proposed letter from Wigforss at-

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Also on March 28, the king validated the accord, and a little later Sweden made its first payments. In June, Great Britain and the United States each received their share of SKr 63 million and France its smaller share of SKr 24 million out of the SKr 150 million on a Riksbank account. On July 12, Sweden paid the SKr 50 million into an account at the Riksbank in the name of the Preparatory Commission of the International Refugee Organization. Some discussion was necessary to exchange parts of those funds into sterling. Thus, the whole fund was not available immediately. Nevertheless, Sweden was the first payer into this fund and remained, together with Switzerland, the only one.97 With the Allied-Swedish July 1946 accord, the treatment of German assets in Sweden was finally resolved. Both sides could be fairly content with the outcome. Based on the treatment of German assets by Sweden so far, the Allies could reasonably expect that the German companies and other, much less important assets would be sold speedily. From these proceeds the Allies would get a share that was much larger than the 50/50 split agreed upon in the settlement with Switzerland. More than four-fifths of the Swedish payments were for reparations, at least in Allied eyes. Sweden, on the other hand, had prevailed in supposedly not making any reparation payments since on the face of the document it remained in ultimate control of how and when this money was used. It has to be pointed out that it was important for the Swedish side to codify in the agreement that German owners would be compensated later. The Allies, of course, did not care very much about this provision, so it remained very vague. For them it was a problem a German government would have to solve in the future, supposedly under Allied direction. Yet, for Swetached, Mar. 6, 1947, folder: Sweden German Assets (box 35), Accession 56–67A245. Only minor changes were made to the final version of this letter: see Arnold to State and Treasury depts., Mar. 8, 1947, 800.515/date; list of German property in U.S. held through Sweden transmitted in Birch to State Dept., Oct. 10, 1947, 800.515/date; general license for Sweden: Snyder to George Marshall, with his reply letter to Wigforss and proposed press release attached, Mar. 18, 1947, folder: Foreign Funds Control—General, 1946– 48, Snyder Papers. 97. For Swedish payments see memo from George Baker (Division of Occupied Areas—Economic Affairs, Office of Financial and Development Policy) to Richard Breithut (Division of Financial Affairs in the same office), Dec. 10, 1947, folder: Special Subjects folder: Sweden, Safehaven Subject File, 1945–1947, Records of DESC; embassy, Stockholm, to dept., Jan. 23, 1948, folder: Safehaven 1948 (box 7), Confidential File 1944 to 1949, Stockholm Legation and Embassy; first payment: Inter-Allied Reparation Agency, Final Report, 30–32, 41–43, annex 5. Originally, the Allies had hoped that Portugal would also contribute to bring up the fund to its $25 million limit. But Portugal never paid, and the outstanding amount was taken by the Allies from the Swiss settlement in 1955/56.

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den, the payments to the Allies were made because there was no German government in existence. They were made on the basis of later German indemnification and not simply because the Allies had confiscated those assets. Such an understanding would indeed have recognized the ACC’s Law No. 5 and its confiscatory measures. Despite its legal sophistications, the Allied-Swedish accord contained many loopholes and uncertainties and left wide open the divergent legal standpoints. Did Sweden pay reparations? To what extent was Sweden in control over the modifications of payment? When would German owners be compensated? At the time of the agreement those deficiencies did not matter, since the goal was to come to an agreement without delay. But over the next ten years, those gaps loomed large and made for a never-ending story of how all the promises and payments under the accord would be settled and accounted for.

Swedish Payments, Liquidation of German Assets, and the Final Swedish-German Settlement, 1946–1956

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            discussions about the application of the AlliedSwedish Safehaven accord after the agreement had been validated in March 1947 took place before a background of increasingly worsening SwedishAmerican relations. The emergence of the Cold War clouded any action by U.S. policymakers, and Sweden’s policy of nonalignment was regarded as highly dubious, to say the least. As briefly indicated in Chapter 7, the arrival of Ambassador H. Freeman Matthews in Sweden in December 1947 set off a vigorous campaign against Swedish neutrality that reflected the United States’ “obstinate insistence on political allegiance in the Cold War.” This change was all the more notable as Swedish political action in 1946—such as a SKr 1 billion credit to Russia and the return of the Baltic refugees—seemed to give in to the Soviet Union but had not resulted in outspoken U.S. criticism. There were voices in the government and the public, such as Ambassador to the United States Erik Carlsson Boheman and the newspaper Dagens Nyheter, advocating a closer affiliation with the West or even NATO membership, but Foreign Minister Bo Östen Undén was not in agreement with such a policy. After the failure of the Scandinavian Defense Union—the idea of which the United States dismissed—Denmark and Norway joined NATO in April 1949. Since Sweden was apparently not following suit, American attitudes changed in 1950, and the United States accepted Swedish neu286

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trality. This change in policy was due to the replacement of officials under the new secretary of state, Dean Acheson, Swedish participation in the Western embargo of the Eastern Bloc, and the beginning of informal security arrangements between Sweden and NATO in 1948. The adjustment of U.S. policy finally also brought American attitudes in line with a policy the British had advocated since 1947.1 There is no indication that the negative U.S. views of Sweden directly influenced the discussions regarding the Safehaven accord, but these political difficulties surely exacerbated the uncooperative atmosphere between the countries, which did not make the settlement of the outstanding questions any easier. However, aside from these political issues clouding relations, there were also more concrete economic problems that led to these extended discussions. In the late 1940s, Sweden’s gold and foreign-exchange reserves had reached precarious levels. After the war Great Britain and Germany—Sweden’s traditional trading partners—were not in a position to supply goods, particularly coal. These therefore had to be imported for hard currency either from the United States or from a handful of European countries. Trade with these latter countries did not produce any money that could be converted into dollars because it was either based on bilateral credit agreements or done in currencies that could not be converted freely. Sweden, like the rest of Europe, suffered from this dollar shortage and therefore the country’s reserves were quickly depleted. Even a general import stop in March 1947 did not halt the drain on the country’s reserves because its enforcement remained lax. Some assistance was provided by the Marshall Plan aid from 1949 until 1951 and concomitant stabilization measures such as a general wage freeze Sweden undertook to satisfy U.S. economic demands. However, Sweden’s economic conditions effectively stabilized only in the early 1950s, after Germany regained its traditional place in the Swedish export economy, allowing Sweden to significantly reduce its dollar expenditures and to increase its foreign-exchange reserves.2 Swedish Payments under the Accord In light of the Swedish situation certain difficulties arose concerning how the SKr 150 million available to the Allies could be utilized. The accord had 1. Silva, “Keep Them Strong,” 38– 346, quote 78; af Malmborg, Neutrality and State-Building, 153–57; Aunesluoma, Britain, Sweden, and the Cold War, 128 – 33. 2. Fritz, “Turbulente Jahre”; Silva, “Keep Them Strong,” 38– 44, 89–120.

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stipulated that the sum would be made available “in a special account with the Swedish Riksbank” to “assist in preventing disease and unrest in Germany.” It could be used for purchases “in Sweden or in any other market.” The three occupying powers had a strong interest in receiving that money quickly to offset some of their expenditures in Germany. The question now was whether that money could somehow be transferred into hard currency. Even before the agreement was validated in 1947, Rubin approved a State Department suggestion to use the U.S. share of SKr 63 million to buy Swedish products, ship them to Germany, and sell them there for reichsmark. Later, the reichsmark could be exchanged into dollars and transferred to the Treasury’s reparation account. Other State Department officials had doubts that such a proposal would live up to the idea of the original accord since Sweden could hardly have intended that the United States would fill its reparation coffers by making a profit from the Swedish payments.3 Next the State Department proposed that the money would simply be used by the Office of Military Government for Germany, U.S. (OMGUS) without selling the acquired products. The money would be repaid into the Treasury’s reparation account once German exports began generating enough dollars. In 1946, of course, that repayment was far in the future; in retrospect, it never happened during the Allied occupation. Secretary of the Treasury John W. Snyder was therefore not enthralled with that idea. Nevertheless, the money was available and the German occupation at this time was a huge drain on the U.S. Treasury. The creation of Bizonia in January 1947 signified American hope for an eventual end of that condition. In November, the State Department modified its proposal to recommend that the combined U.S. and British share (SKr 126 million) be used for the Joint Export-Import Agency (JEIA), in itself a new creation to make Bizonia self-sufficient by 1949. This usage was confirmed in the Anglo-American Memorandum of Agreement of December 1946 bringing about the combined zones.4 What was left after Sweden made the money available in June 1947 was the question of how to utilize the amount in light of the acute Swedish shortage of foreign exchange.To avoid having the amount exchanged into hard cur3. Rudlin to Clayton, Oct. 8, 1946, folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC, RG 59, NACP. 4. Snyder to Byrnes, Nov. 12, 1946, modified proposal in Acheson to Snyder, Nov. 25, 1946, both in folder: Gold, Safehaven Subject File, 1945–1947, Records of DESC; confirmed in Snyder to Acheson, Dec. 4, 1946, 800.515/11–2746, 1945–1949 Decimal File, Central File, General Records of the Dept. of State, RG 59, NACP; Anglo-American memo described in U.S. note to Sweden, July 28, 1955, 258.6241/8 – 355, Decimal File, RG 59, NACP.

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rencies, Sweden apparently limited its usage so “that the United States authorities do not feel that the funds have in fact been made effectively available.” Indeed, by August 1947, only SKr 6.8 million of the American share of SKr 63 million had been used. To work out a mutually acceptable settlement between the United States and Sweden, Theodore H. Ball, director of the OMGUS Finance Division, traveled to Stockholm in August 1947. In two days he arrived at an agreement with officials from the Swedish Foreign Office, which was confirmed by the bipartite board of the combined zones in October.5 Essentially, it was an arrangement not dissimilar to the German-Swedish clearing. An account named “Military Government for Germany (US/UK) Joint Export-Import Offset Account” was opened at the Riksbank. Through this account all exports and imports to and from Bizonia would be paid. The only things excluded were Swedish purchases of coal, timber, and potash— currently the only hard currency–producing products available from Germany in larger quantities, if at a very low price—for which Sweden had to pay like everybody else. The Swedish minister of finance, Ernst Wigforss, confirmed to Clay and his British colleague General Robertson in a letter that his country would pay into the offset account the SKr 63 million due to the United States in eighteen monthly installments.6 This way, Sweden knew that the money would be used for purchases in Sweden and that there would be no drain on the country’s foreign-exchange resources. Sweden therefore unceremoniously dropped any restrictions on its usage. The combined occupation authorities, on the other hand, could use this money to buy urgently needed supplies, even if the amount available was not very large in light of the overall expenses. In a way, the agreement also signified the resumption of Swedish-German trade, which had been nonexistent since May 1945. In the spring of the next year, the 1947 agreement was ex5. It is not entirely clear from the documentation what those limits were, but apparently Sweden imposed certain restrictions on the kind of products available for purchase; see Allied report on Swedish progress under the Washington agreement presented to IARA, quoted in John A. Birch (attaché in Stockholm in charge of Safehaven matters) to Frederick J. Cunningham (U.S. Embassy, Stockholm), Aug. 8, 1947, folder: Safehaven (box 4); for limited amounts spent, see Riksbank letter to Cunningham, Oct. 27, 1947, folder: Safehaven, both in Confidential File 1944–1952, Stockholm Legation and Embassy; Cunningham to State Dept., Aug. 21, 1947, with attached letters from Ball to UD and reply, both dated Aug. 14, 800.515/date. 6. Robert D. Murphy, U.S. political adviser for Germany, to Stockholm, Oct. 24, 1947, with “Agreement between Military Governments for Germany (US/UK) and the Swedish Government Covering Payment for Trade between Sweden and the US and UK Occupied Areas of Germany,” Oct. 6, 1947, attached, 800.515/date.

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tended to a formal trade agreement, which used the remainder of the money from the Allied-Swedish accord to cover a predetermined Swedish export surplus in the Swedish trade with the combined zones.7 France came to its own arrangements with Sweden regarding its share of SKr 24 million in 1948. Presumably the money was used in the operations of the French equivalent of the JEIA, the Office du Commerce Extérieur. Because about SKr 10 million remained unused, the amount was transferred in 1952 to the new German Central Bank, the Bank deutscher Länder.8 The precarious Swedish foreign-exchange situation also delayed a solution for the gold payments under the accord. In Washington, Sweden had agreed to transfer the equivalent of 7.15 tons of gold looted from Belgium.The United States and Great Britain first approached Sweden in March 1948 for its restitution, but Sweden replied that the identification of the gold was not yet complete since it was a “complicated task of long duration.” The United States had little sympathy for such a weak excuse since experts from the Banque de France and the Riksbank had already met in 1946 to identify the Belgian gold. The real reason, as Ambassador Matthews wrote to Washington, was that Sweden was determined “not to deplete further an already dangerously low gold reserve.” By the next year, the most dire economic problems had passed, and payment was effected in December 1949 between the Swedish and the Tripartite Gold Commission’s accounts at the Federal Reserve Bank in New York.9 7. In early 1946, Sweden had made attempts to revive its trade with Germany, but OMGUS had not shown any interest before September, when it allowed a small Swedish delegation to travel to Berlin; see U.S. Embassy to Nils Ståhle, UD, Jan. 15 and Sept. 26, 1946, folder: 711.3 Proclaimed List (box 3), Confidential File 1944–1952, Stockholm Legation and Embassy. The idea was that a Swedish export surplus of SKr 50 million would be covered by the money left over from the accord. In the end, the trade did not reach the stipulated amounts because the agreement required payments in dollars, which led to a restrictive handling of Swedish imports; see Fritz, “Turbulente Jahre,” 158. 8. See Swedish note to U.S. Embassy, Jan. 19, 1953, printed in Otto Böhmer, Konrad Duden, and Hermann Janssen, eds., Deutsches Vermögen im Ausland: Internationale Vereinbarungen und ausländische Gesetzgebung, 3:492; see also French note to UD, Aug. 4, 1955, attached to William H. Fowler (economic affairs counselor, U.S. Embassy, Stockholm) to State Dept., Aug. 17, 1955, 258.6241/ date. 9. British Embassy, Stockholm, to UD, Mar. 12, 1948; U.S. Embassy to UD, Mar. 15, 1948; Swedish reply May 4, 1948; experts meeting, 1946: U.S. Embassy, Stockholm, to UD, Aug. 19, 1948 (this August note was delivered also in the name of the other two Allied governments); Matthews to Dept., Dec. 14, 1948, all in folder: Gold, Confidential File 1944 to 1949, Stockholm Legation and Embassy. Final transfer: Undén had already replied in May 1949 that the Riksbank experts had completed their identification and the gold could be transferred. The British desire to have the gold transferred in London delayed the final delivery until December. The UD declined the British request in a note to N. S. Roberts, British Embassy, Dec. 1; see also Acheson to Stockholm, Dec. 7,

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Much more prolonged difficulties were caused by a Dutch claim for 8.6 tons of gold. This claim was mainly for melted down coins (so-called coins bars of lower fineness) and 2.7 tons of regular bars that had not been resmelted by Germany since they had come originally from outside the Netherlands. The submission of this large claim shortly before the accord’s deadline in July 1947 was “a surprise to the Swedes,” as Ambassador Boheman put it. Sandström and his delegation had left Washington “convinced” that any additional claims would only be “for very small sums which might have been overlooked” during the negotiations.10 A slow exchange of notes stretched into 1953, but Sweden felt fairly secure in its position that the final proof confirming the acquisition of the looted Dutch gold was lacking. Informal talks led to a 1954 Allied-Swedish conference on the topic at which the Allies presented new factual evidence on the question, “which seriously weakened the position maintained by Sweden.” While Boheman had stated at the outset of the meeting that “there was not much in the way of proof ” to support the Dutch case and that in an eventual arbitration his country “would be held liable for only a small amount of gold, if any,” that Swedish position now had to be abandoned. The Allies offered to reduce their claim by one-fourth if Sweden would forgo arbitration—which neither side was keen to begin. Because such a solution offered a sure reduction of the gold payment versus an uncertain outcome of the whole claim in arbitration, Sweden accepted. An exchange of notes in August 1954 confirmed the Swedish payment of 6,000 kilograms of fine gold (479 bars) to the Tripartite Gold Commission. The gold was transferred in April 1955 at New York after the Riksdag’s approval.11 For these transfers the Riksbank was re1949, both in folder: Looted Gold, Confidential File 1944 to 1949, Stockholm Legation and Embassy. 10. The Dutch claim was presented in two letters. The first claim, for eighty-four gold bars, was communicated in Walter Surrey to Alexis de Aminoff, chargé at the Swedish Embassy, Washington, May 9, 1947, 800.515/date. The second claim, submitted on June 27 after Sweden had rejected an Allied request for an extension of the accord deadline for fear of additional gold claims, was in State Dept. to Herman Eriksson, Swedish minister; extension of deadline: Marshall to John A. Birch (attaché in Stockholm), June 13, June 20, and replies by Louis G. Dreyfus (U.S. ambassador, Stockholm) to State Dept., June 26, 1947 (560 and 561), all in 800.515/date. For discussion of the nature of the Dutch gold claim, see Commission on Jewish Assets, Nazigold and the Swedish Riksbank, 51–54; statement of Boheman according to “Minutes of Meeting May 19, 1954, Swedish-Allied Conference on Looted Gold,” folder: Allied-Swedish Conference on Looted Dutch Gold (box 199), Records of CFM. 11. Sweden felt secure: “Position Paper: Claim for Additional Looted Gold in Sweden” in “Documents for the Use of Allied Representatives in Negotiations with Sweden concerning Looted Dutch Gold Beginning May 19, 1954, in Washington,” folder: Allied-Swedish Conference on Loot-

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imbursed with SKr 29 million for the Belgian gold claim and SKr 35 million for the Dutch gold claim out of the German liquidation fund. Thereby, nine years after the original accord, the gold question was finally settled. In the Allied-Swedish accord Sweden had also promised to pay SKr 75 million to all eighteen (later nineteen, when Pakistan joined in 1948) IARA countries. Because of the inter-Allied agreement with France, Great Britain and the United States no longer had a monetary interest of their own in this payment. But France was still expecting SKr 12 million, and all the other IARA countries certainly also hoped for some money from Sweden. Under the terms of the accord, the money would be allocated after Allied-Swedish consultations in which the Allies would act on behalf of the other IARA countries. But Sweden itself would also consult with each of the receiver countries. What might have been a compromise for settlement purposes during the negotiations was thus also an inherent contradiction. The Allies understood this agreement to mean that the money would be distributed in accordance with all the other IARA countries’ shares, while Sweden wanted to use the money to reduce commercial or other credits it had already given to some of those countries. In June 1947 the Swedish Embassy handed the State Department a first position paper. It made clear that Sweden would make no new payments—it would only reduce or discontinue existing credits. Of course, the three Allies did not agree with that understanding of the accord. The two sides held talks first in London and then in Stockholm to work out a more acceptable settlement. In London, Sweden presented a possible payment plan that would distribute the SKr 75 million among France, Denmark, Norway, Holland, Belgium, and Yugoslavia only. Because the Allies felt that the Swedish proposal gave no “consideration to Allied views,” this first round ended inconclusively. In September 1947 Rubin traveled to Stockholm and met with Dag Hamed Dutch Gold, Records of CFM; “Minute of Conversation between Mr. Virgin of the Swedish Foreign Office, and Mr. Duffy, of the British Embassy,” Dec. 16, 1953, attached to Robert N. Bee (Treasury rep., Stockholm) to Dept., Dec. 18, 1953, 258.6241/date; Swedish position weakened: statement by Undén according to “Extract from the Minutes of the Transactions of the Ministry of Foreign Affairs, Conducted before His Royal Highness the Regent, the Duke of Halland, in the Cabinet Council at Stockholm Palace on October 29, 1954,” attached to Grant Gilbert Hilliker to Otto Fletcher, Dec. 20, 1954, folder: Additional Gold Claim against Sweden (box 201), Records of CFM. These minutes concerned the bill for the Riksdag to approve the “Surrender of a Certain Quantity of So-called Looted Gold.” Change in Swedish position: “Minutes of Meeting May 19, 1954, Swedish-Allied Conference on Looted Gold”; Swedish payment: note from Secretary of State to Boheman and reply, Aug. 16, 1954, attached to Hilliker to Fletcher, Dec. 20, 1954; gold transferred: Hilliker to Fletcher, Dec. 20, 1954.

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marskjöld, permanent undersecretary in the Ministry of Finance and chairman of the governing board of the Riksbank. At issue was a new, modified Swedish payment plan, personally approved by Undén. It added Greece, Luxembourg, and Czechoslovakia, while it reduced some other shares, mostly to France, accordingly. Again, the Allies found this proposal unsatisfactory. The shares to Norway and Denmark were disproportionately large (40 percent of the total) because of the sizeable credits Sweden had given to these countries. Australia, Canada, Egypt, India, New Zealand, and South Africa were excluded because Sweden did not feel bound by the IARA agreement and as a matter of general policy limited its financial assistance to European countries. But on a visit to the United States in October, Undén made clear that he regarded “the matter as settled” by his proposal.12 Indeed, that was essentially the end of any further negotiations. Sweden made no payments because neither the Allies nor the IARA approved the allocation of the money. However, no IARA country would ever see any money if they did not accept the Swedish settlement. In February 1948 the IARA Assembly passed a resolution requesting that Sweden distribute the money to all IARA countries “with the least possible delay.” In reply Sweden reiterated its position that it was for the Swedish government to decide how to allocate the sum. A further IARA resolution in June of that year asked Sweden to begin payment to those countries named by Sweden in September 1947 up to the amount of their reparation shares. The Allies should continue to negotiate with Sweden concerning the payments to all the other IARA countries. Sweden did not act on this second proposal. In September 1949 the IARA finally gave up and in a resolution the agency’s General Assembly accepted “the allocation proposal made by the Swedish government in September 1947.” 12. Position paper: “Statement of the Swedish Government at Washington, a Record of Which Was Handed to State Department towards the End of June, 1947,” annex C to the “Agreed Record of Discussion” of the Allied-Swedish meetings in London, Aug. 13–15, 1947, attached to Russell Dorr (U.S. delegate, IARA) to State Dept., Aug. 19, 1947, 800.515/8 –1947; “London Plan: Preliminary Plan for Distribution of the Swedish Contribution of 75 Million Kronor,” annex D to “Agreed Record of Discussion”; Allied reaction in “Agreed Record of Discussion”; Modified Swedish Proposal, Sept. 16, attached to “Supplemental Statement by the Delegates of the United States, the United Kingdom and France on Negotiations concerning Allocation,” n.d., folder: External Assets (box 6), General Records of the Director, 1944–1950, Records of the Property Division, Records of Functional Offices and Divisions, Records of the Office of Military Governor, U.S., Records of U.S. Occupation Headquarters, World War II, RG 260, NACP; Allied reaction: George Baker to Willard Thorp, “Allocation of 75 million Swedish Kronor to IARA,” two memos, both Oct. 10, 1947; Undén met with Asst. Sec. of State for Economic and Business Affairs Willard Thorp in New York, see memo, Oct. 14, 1947, no author, all in folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC.

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This resolution was communicated to Sweden by the three Allied powers in December. Subsequently Sweden successfully negotiated bilateral agreements with nearly all the recipient countries. The countries that under the Swedish allocation plan did not receive any money were paid later by other contributions to the IARA from Japan, Spain, and Switzerland.13 Problems remained only with Belgium and Luxembourg. Sweden ran a deficit with the Belgium-Luxembourg Economic Union and, because of the country’s foreign-exchange situation, wanted to avoid cash payments. In July 1952 the two countries asked the IARA to reallocate their share among the other member countries and to cancel the SKr 7 million debit on their reparation share. Accordingly, in September, the Allies asked Sweden to transfer the amount to the IARA for further disposition. In December, Sweden rejected this proposal, arguing that the IARA had already accepted the 1947 Swedish allocation plan. Little progress was made on this question until 1956, when all other questions had been settled through a Swedish-German agreement. In June, Sweden proposed that the money be paid to the UN high commissioner for refugees, who was in poor financial standing at that time. In an exchange of letters in the fall, the Allies accepted this solution.14 The Liquidation of German Assets in Sweden The main aim of the Allied-Swedish accord was that the German interest in Sweden be eliminated. For that purpose the Foreign Capital Control Office (FCCO) was to, as the accord put it, “uncover, take into control, liquidate, sell, or transfer German property” in the country. The informal consultation procedures with the Allies were to continue “affording mutual assistance.” On

13. Inter-Allied Reparation Agency, Report of the Secretary General for the Year 1948, 26–27; Acheson to Stockholm transmitting Sept. 15, 1949, resolution, Oct. 25, U.S. Embassy to UD, Dec. 22, 1949, both in folder: Safehaven (box 8), Confidential File 1949, Stockholm Legation and Embassy; bilateral agreements negotiated: Acheson to Stockholm, Mar. 15, 1952, folder: 321.3 German Assets 1952, Confidential File 1944–1952, Stockholm Legation and Embassy; later IARA adjustments: “IARA Accounting Problems,” undated paper for the Jan. 1953 Allied conference on external assets, folder: German External Assets—Memos and Documents (box 197), Conference on German External Assets and Looted Gold, Records of CFM. 14. Allied request: Bee to State Dept., Sept. 15, 1952, with note to UD, same day, attached; Sweden rejects: Bee to State Dept., Dec. 9, 1952, with UD reply, Dec. 1, attached, both in folder: 321.3 German Assets 1952, Confidential File 1944–1952, Stockholm Legation and Embassy; Swedish proposal: Fowler (Stockholm) to State Dept., June 21, 1956; the letters were exchanged in Washington: see Herbert Hoover (undersecretary of state) to Stockholm, Nov. 6, with Swedish letter, Oct. 31, and U.S. reply, Nov. 2, 1956, attached, all in 258.6241/date.

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the Allied side there had always been concern that Sweden would begin the sale of German companies without their input and would give Swedish bidders advantages. Thus, even before Sandström was back from the United States and even before the British and French mission had received any background material on the negotiations, the U.S. mission asked Sandström’s deputy Tore Millquist for his views “of procedures re sales [of ] German properties.” Millquist stated that his country would not like to be limited by any agreed procedures with the Allies to dispose “of assets expeditiously,” but otherwise remained cautious. Matters became clearer when Sandström came back in late August 1946 and had the chance to submit his reply to an earlier Anglo-American letter dispatched after the discussion with Millquist. In Sandström’s understanding there was no regulation for “consultations” in the accord, but only for the exchange of information. He regarded the matter as settled by the Washington negotiations and the accord. Consequently, further Allied requests to inform them in advance of any sales or to furnish them the names of the buyers of the German companies so that they could check them were also refused. “In [a] small country like Sweden [the] Swedish Government knew more about its own nationals than Allied Governments,” Sandström explained.15 Since the Allies would therefore not receive any preferred treatment as they had apparently hoped, the State and Commerce departments agreed that Stockholm (and Bern) should send to the United States “promptly” all available information about the properties offered for purchase. These FCCO sale memoranda were translated in Stockholm, sent to the Department of Commerce, and published in the Journal of Foreign Commerce. Preliminary bids normally had to be submitted by interested parties in six weeks.The United States felt no need to inform any other IARA country of this information received through Stockholm. Although the embassy thus did its best to promote “American business interests” and to protect “American interest in the properties to be liquidated,” there was apparently not much response in the United States. About a year later, the embassy requested that the translation service be discontinued because only twelve bids and one deal had been made so far. This was for the sale of a number of circus animals such as elephants and 15. “Final Accord,” letters 1 and 2; Millquist in Ravndal to State Dept., Aug. 20, 1946; “British and French Missions have practically no background on Washington discussion,” Ravndal to State Dept., Sept. 10, 1946; letter from Ravndal to Sandström, Aug. 20, and Sandström’s reply Aug. 29, 1946, attached to Birch to State Dept., Sept. 10, 1946; Sandström in Ravndal to State Dept., Sept. 10, 1946, all in 800.515/date.

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zebras from the Hamburg zoo of Carl Hagenbeck, a transaction truly worthy of the economic security aims of Safehaven.16 Sweden had thus made clear once again the limit of Allied influence on internal Swedish affairs and went ahead with the sale of German assets in the country. Some property had to be sold quickly because it was deteriorating in value. There were a number of automobiles from German institutions and a large consignment of timber sold for millions of kronor. Fourteen German ships had been under construction in Swedish yards at the end of the war and were sold in the spring of 1946 to the highest bidders. However, the Germancontrolled companies represented the largest value, as Sandström explained in a press conference. How and to whom they would be sold was not an easy decision.17 For purpose of sale the German companies were divided into three groups. Those in the first group were liquidated after their assets were sold. Among them were such companies as UFA and Tobis Film AB, Otto Wolff, Mannesmann AB, and Svenska Hamburg Linien, after its two ships, Knut and Nisse, had been sold. The companies in the second group were sold to nonGerman interests. Among them were those with large German minority holdings, which were normally acquired by the Swedish majority holders. For that purpose, a special July 1947 law allowed for Swedish shares held in Germany or controlled by German entities to be canceled so that new ones located in Sweden could be issued. Most German companies fell into this second group, among them such firms as Schenker and Co. AB, the Swedish branch office of a big German transport company, or Zeiss Svenska AB, the 16. Surrey to Murray H. Marker (asst. for occupied areas and reparations, Office of International Trade, Dept. of Commerce), Jan. 23 and reply Feb. 24, 1947; Hamilton Robinson (last director of the Office of Economic Security Policy before it was abolished in July 1947) to Thorp, Feb. 6, 1947; translation discontinued: Cumming to State Dept., “Review of Safehaven Program,” Feb. 19, 1948; Commerce and State depts. concur: see State to Stockholm, Apr. 29, 1948. Thereafter only the Swedish text together with a short summary was sent to Washington; some of the Hagenbeck animals were offered on Feb. 25, 1947, according to telegram from Stockholm to State Dept. that day. All in 800.515/date. The treatment of the Hagenbeck animals later led Rep. Orland Kay Armstrong (R-Missouri, 1951–1953) to wonder why “we take a hand in the appropriation of private property in no way connected with the war.” Armstrong to Bureau of German Affairs, June 9, 1952. The Bureau replied with a short letter explaining the Washington agreement, June 20, 1952. Both in 258.6241 Hagenbeck, Lorenz/date. 17. “Ships Being Built on German Account in Sweden,” Apr. 25, 1946, folder: Sweden Special Subjects Outline, Safehaven Country File, 1945–1947, Records of DESC. Money left over from the sale of the ships was placed in a blocked account after the builders had been paid off; Sandström press conference, in which he also mentions timber and cars, Oct. 24, 1946, in Svenska Dagbladet, Birch to State Dept., Oct. 29, 1946, 800.515/date.

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sales company of the German optical-instruments maker.18 The third and most important group, however, was made up of those companies that held an important position in the Swedish economy because of their products and / or their large number of employees. Among those twelve companies was of course Landsverk, the biggest German company in Sweden, the various branches of the German electrical companies, and German mining companies. Altogether this handful of companies accounted for 55 percent of all employees of the German-controlled companies in Sweden in 1938. Two special commissions studied the fate of these twelve companies between 1946 and 1947. In the end, all of them were sold to Swedish interests. For example, AEG was bought by a consortium under the leadership of Swedish industrialist Ernst Wehtje, while Siemens was transferred to a state holding company. Siemens, Munich, regained control of its Swedish branch after 1956, when a buyback was again allowed. Landsverk was bought by another machinery company that also built submarines so that there was a natural connection in the military branches of the two companies.19 The treatment of the eight German mining companies was a long-drawnout affair. One of them, AB Vulcanus, was sold to the Swedish mining company Stora Kopparbergs, which could thereby combine two neighboring ore deposits. Another one was taken over by the Swedish majority owners. This left six smaller mining companies that owned ore deposits with small metal content and had lost their German market. Since other Swedish mining companies had no interest in taking those six over, the Riksdag nationalized them in April 1950 with the reasoning that they would thus form one economic unit and be more competitive.20 While 106 German companies had been sold by 1950 and thus constituted the most important part of German assets in Sweden, there was, of course, 18. Nordlund, “Verstaatlichung oder Privatbesitz?” 80– 98; Birch to State Dept., “Transmitting Sales Memorandum regarding Svenska Hamburg Linien, Aktiebolag,” May 27, 1947; see also the list “Status of German-owned Enterprises,” as of Nov. 1, 1948, from the FCCO, transferred in Cumming to State Dept., Nov. 4, 1948; copy of the 1947 law (323) attached to Birch to State Dept., Sept. 10, 1947; for Zeiss, see Birch to State Dept., Feb. 25, 1947, with sale memo attached, all four in 800.515/date. 19. Nordlund, “Verstaatlichung oder Privatbesitz?” 94– 97. In the case of AEG, International General Electric (IGE) traditionally held a minority interest in the German AEG (18.1 percent in 1943 and later), and a transfer of Swedish AEG to a state holding company would probably have precluded a settlement regarding the patents owned by IGE. For IGE’s holdings in AEG, Berlin, see P. Meinhardt of IGE to OMGUS External Assets Branch, Oct. 13, 1948, folder: IGE (box 9), General Records of the Director, 1944–1950, Records of the Property Division. 20. Nordlund, “Verstaatlichung oder Privatbesitz?” 89–92.

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also private German property that had been blocked. Ironically, or perhaps not surprisingly, the amount of fugitive capital—the original incentive for Safehaven—discovered in Sweden was very meager indeed. As Sandström explained in a lecture before the Swedish Bankers’ Association in 1946, there was SKr 11,000 ($2,619) in shares that belonged to Herman Göring. He had inherited these from his former Swedish wife (after whom he named his hunting estate Karinhall) after her death in 1931. If, however, increased credits and shipments of goods from Germany before the end of the war were included in the fugitive-capital category, the total would amount to “perhaps 50 MILLION SEK” ($11.9 million), the number Sandström had originally used as a basis for the Washington negotiations.21 Apart from the uncertain amount of those fugitive-capital holdings, all private German property of Germans domiciled in Germany had been blocked under the 1945 legislation. Exemptions to this rule were made on application to the FCCO. A general exemption, for example, applied to cases of Swedishborn women who had become German citizens upon marriage to German men and had returned to Sweden after the war. Similarly, Germans of Swedish descent were allowed to receive Swedish inheritances, gifts, and so forth if they had not been Nazis. The Allied-Swedish accord had also regulated that German property should not be blocked in cases that merit “exceptional treatment.” In practice, this rule was used very rarely. In fact, the Commission on Jewish Assets in Sweden has found that the first such case occurred only in March 1952. The King-in-Council decided to return blocked assets to the original heirs of an Aryanized German company. Usually no special exemptions to the blocking were made when Jewish property was involved. The letter of the law called for exemptions if it turned out that the blocked property was not German. Because Jews had usually lost their German citizenship and were stateless after the war, that rule could be applied. From a contemporary perspective, the FCCO often handled these cases in a manner “which can seem unnecessarily bureaucratic and insensitive,” as the Commission on Jewish Assets found.22 Last but not least, there was the question of so-called heirless property. The Allied-Swedish accord had stipulated that Sweden should put “at the disposal of the three Allied governments, for purpose of relief, the proceeds of prop21. Sandström, “Omkring Washingtonförhandlingarna,” 4; recent inquiries into whether Göring or other Nazi functionaries had transferred looted property to Sweden have not uncovered any additional information: see Sweden and Jewish Assets, 186– 88, 207– 8, 222. 22. Sweden and Jewish Assets, 228– 30, 234, quote 228.

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erty found in Sweden which belong to victims of Nazi action who have died without heirs.” This money was then to go into the fund for “Non-repatriable Victims of German Action,” created by the IARA agreement and administered by the International Refugee Organization in Paris. In general it had been Swedish law since 1928 that any heirless assets would go into the General Inheritance Fund. In December 1946 the Swedish government told the Allies that so far there had been “no single instance” in which assets of foreigners had been paid into this fund. There matters rested until exactly four years later, when the Czechoslovakian delegate at the IARA wondered what the neutral countries had done so far in regard to heirless property and asked the secretary general of the IARA for more information. Around the same time Max Isenbergh, legal counsel for the American Jewish Committee, visited Sweden and discussed with Sandström and Minister of Justice Herman Zetterberg the same question. Isenbergh followed up his visit with a letter to Zetterberg signed by him and the legal advisers of the World Jewish Congress and the American Joint Distribution Committee. The letter proposed that Sweden should undertake a survey among Swedish banks and other possible repositories of assets (it did not mention insurance companies) to ascertain the possible value of heirless assets. Following up these two inquiries, the three Allied embassies submitted a note to the UD inquiring what steps Sweden had taken so far to fulfill its obligation regarding heirless assets. By May the note was not yet answered, but Sandström had already replied in a letter in April that provided the relevant information. He maintained that the General Inheritance Fund had been asked to report all possible cases falling within the heirless-assets provision of the accord. “No such case has so far been reported,” Sandström said again. He explained that Zetterberg had discussed the option of a survey, but the banks “were not disposed to carry out the investigation.” In any case, the sums in question would not be very large. At this point the government could not do more “without legislative measures.”23 It would be another thirteen years before the question was taken up again and the needed legislative measures put into place. At that point the IARA

23. “Final Accord,” letters 25 and 26; laws attached to Birch to State Dept., Nov. 6, 1946, 800.515/ 11–446; Ravndal to State Dept., Dec. 6, 1946, 800.515/date; note from Czechoslovakia, Dec. 6, 1949, attached to State Dept. to Stockholm, Jan. 11, 1950, folder: 321.3 German Assets 1952, Confidential File 1944–1952, Stockholm Legation and Embassy; letter to Zetterberg, Nov. 4, 1949, attached to Bean to State Dept., May 12, 1950, folder: 321.3 German Assets 1952, Confidential File 1944–1952; Allied Notes of Mar. 27 and 28, and letter from Sandström Apr. 11, 1950, attached to Bean to State Dept.

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had been dissolved and the Allies had no further obligation to pursue this question under the 1946 Paris Agreement on Reparations.24 In the Allied-Swedish accord, Sweden had also assured that it would continue its freeze of German patents until October 1946. At the request of the Allies, this freeze was extended to the end of the year. The three Allies also asked Undén to consider making Sweden a party to the July 1946 agreement on German patents that made them available without charges. The Foreign Ministry first avoided a direct answer, and in May 1947 Sweden refused to join. After “profound scrutiny by the competent authorities,” Sweden had found that the London agreement would not be “compatible” with the AlliedSwedish accord. Instead, the German patents would be liquidated “in the same way as all other German property in Sweden.” Despite further probing on an informal basis, Sweden did not change its views. Beginning in December 1947, German patents were offered for sale. In the first round, 346 patents became available. The FCCO received offers for 180 of these, worth SKr 700,000. Most of these patents concerned chemical processes. Another 4,000 patents were offered thereafter, if buyers would agree to pay the outstanding patent fees.25 The money raised through these and subsequent sales then became part of the liquidation proceeds. Regarding the German official property, the two parties had continued to disagree in the Allied-Swedish accord. This discussion especially concerned the German legation building in Stockholm. In 1948 the FCCO told the U.S. 24. A 1963 survey among Swedish banks mandated by legislation found SKr 3.4 million in dormant foreign accounts. It was unclear whether all those belonged to victims of Nazism. A further survey in 1966 reduced the possible value of those accounts to SKr 2.8 million, of which SKr 1.5 million was reliably attributed to Jews and other victims. Discussions of how the Swedish Bankers’ Association could allocate a possible payment among Jewish organizations continued until 1972. In July of that year the Bankers’ Association transferred SKr 1.185 million to the Swedish Red Cross, an action protested by the three largest international Jewish organizations. In March 1998 the Commission on Jewish Assets in Sweden published an updated list of dormant accounts based on the 1966 survey. As a result, direct payments to the descendants of the former account holders have been made by Swedish banks. Most of these concerned Baltic nationals and Swedish Americans. The commission’s inquiries regarding possible life-insurance contracts taken out by victims of Nazi actions have found no such cases for Sweden. See Sweden and Jewish Assets, 94 –104. 25. For freeze: L. Randolph Higgs (chargé at interim) to Undén, Oct. 18, attached to note to dept., Oct. 21, 1946; for patent agreement: Higgs to Undén, Sept. 25, 1946, attached to note to dept. of same day; Swedish reaction: reply from Gösta Engzell (director of the Judicial Division, UD), Nov. 22, attached to note to dept. of same day, all in 800.515/dates; Engzell to Dreyfus, May 13, 1947; informal memo by the State Dept. to Swedish Embassy, Washington, transmitted to U.S. Embassy, Stockholm, July 21, 1947; sale began: Cumming to State Dept., Dec. 18, 1947, Jan. 14, 1948; Svenska Dagbladet, Mar. 9, 1948, all in folder: Safehaven Patents and Trademarks 1–12 1947, Confidential File 1944 to 1949, Stockholm Legation and Embassy.

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Embassy that the German legation building had been sold to the City of Stockholm for SKr 1.5 million. After the deduction of the mortgage and taxes, the remaining SKr 1.1 million would be placed in a special account for German official property that so far had been filled mostly from the proceeds of the sale of German legation furniture. The sale would be completed in 1953, when the building was to be demolished to make space for a new bridge and the widening of streets in the area. The Allies objected only verbally. Until 1953 some space in the building was thus available for rent, and in March 1951 the Swedish Foreign Office announced that the new German Consulate General would move into the building. After the fact the British Embassy protested in a note in May in the name of all three Allies, but Sweden made clear that it would not reply. Rather, Östen Lundborg from the UD hoped that the two parties could “continue to agree to disagree.” They did so for two more years, until the Allies finally decided in a January 1953 conference that aimed to settle all the outstanding issues that, upon U.S. recommendation, they should “no longer press their claim to this property.” This step was made easier in light of the “relatively small value of the Legation property.”26 If asked by Sweden they would also not object if Sweden decided to hand over this property to Germany. In the end, the German diplomatic mission remained in the old building until it moved into a new one in 1960. Thus, by 1950, 106 German companies, over 4,000 German patents, and private and official German property had been sold. A special commission, the Tyskmedelskommitté, under the chairmanship of professor and Riksdag member Åke Holmbäck, had already been convened in January 1947 to decide a possible allocation of the money. The German Assets Committee presented its report to Undén in February 1949. It estimated that approximately SKr 214.9 million would be available for distribution. Claims to this money were ranked in three groups: commercial claims under the clearing, financial claims (bonds, rents, and so forth), and other claims (salaries, pensions, royalties, and so forth). These claims had to have been submitted from German 26. First information about sale in Cumming to State Dept., Jan. 23, 1948, see also Cumming to State Dept., Sept. 1, 1948, with sale contract enclosed, folder: 851 German State Property 1947– 1948; space rented: Butterworth to State Dept., Mar. 21, 1951, folder: 321.3 German Assets; Marshall Green (second secretary, Stockholm) to State Dept., Dec. 8, 1951, with British protest note, May 7, 1951, attached, folder: 321.3 German Assets, all in Confidential File 1944 to 1949, Stockholm Legation and Embassy; 1953 decision: “Conclusions on Settlement with Sweden,” in “Tripartite Meeting on German External Assets and Looted Gold,” folder: German External Assets— Memos and Documents; building’s small value: U.S. position paper: “Questions Outstanding with Sweden concerning German External Assets,” Dec. 19, 1952, folder: Looted Gold, both Conference on German External Assets and Looted Gold, Records of CFM.

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public or private sources by May 1, 1945. The assumption hereby was that the German government had gone bankrupt on that date. In other words, all bonds and other similar instruments were due immediately even if payment on their interests would normally stretch out into the future. This, for example, applied to the tranches of the Dawes, Young, and Kreuger bonds to which Swedish investors had subscribed in large numbers. Swedish claimants had already begun to file their claims in 1948 to the Clearing Board that had taken up offices in the German legation building. For clearing purposes, Germany was the German Reich within its boundaries of January 1, 1938, excluding, for example, claims for Austria or Danzig.27 On the basis of the commission’s recommendations, the Riksdag decided on May 25, 1950, on the distribution of the available assets under the so-called compulsory clearing. A special Liquidation Board, the Likvidationsnämnd, was set up in August to verify the various claims, which altogether amounted to SKr 613 million, and to distribute the money. The government had of course priority rights to those assets. A refund was reserved for the two Riksbank gold payments of SKr 29 million to Belgium and SKr 35 million to the Netherlands. The SKr 150 million Sweden had paid to the Allies was also deducted. The two other payments of SKr 75 million and SKr 50 million were not included since they had been “voluntary contributions”—and the SKr 75 million was not in any event causing additional expenditures. A further government claim was made for costs in connection with the internment of German military personnel and the German evacuation of Norway. Part of this latter refund was waived, which freed SKr 6 million to support Swedes in Ger27. Parts of the 7 percent 1924 Dawes plan loan had been placed in Sweden by the Enskilda Bank in pounds and Swedish kronor. It was due in October 1949. Repayment for the 5.5 percent 1930 Young plan loan was due over the course of the next thirty-five years. The 1929 6 percent Kreuger loan was largely placed in Sweden. Repayment was due over forty years beginning in 1941. In return Kreuger’s company received a match monopoly for Germany. As the only country besides Switzerland, Sweden continued to receive interest payments on these loans until the end of the war, though at a reduced rate. In 1933 these loans formed 77.3 percent of all Swedish claims on Germany. See Hermann Josef Abs, Entscheidungen 1949–1953, Die Entstehung des Londoner Schuldenabkommens, 16, 20–21, 34–35, and Wittmann, Schwedens Wirtschaftsbeziehungen, 53–55. With other loans included, the total Swedish holdings of German bonds was SKr 448.8 million; see Robert N. Bee (Treasury rep., Stockholm) to State Dept., Oct. 7, 1952, folder: 321.3 German Assets 1952, Confidential File 1944–1952, Stockholm Legation and Embassy; Swedish estimate in Cumming to State Dept., Mar. 4, 1949, folder: Safehaven (box 8), Confidential File 1944 to 1949, Stockholm Legation and Embassy; ranking of claims: see the minutes of the Cabinet Council for Riksdag Bill 197, “Concerning the Passage of General Guidelines for a Compulsory Clearing with Germany,” Mar. 24, 1950, printed in Böhmer, Duden, and Janssen, Deutsches Vermögen im Ausland, 3, 458–89; filing of claims: two royal announcements of Jan. 16 and 31, 1948, transmitted in Cumming to State Dept., Feb. 13, 1948, 800.515/date.

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many who had sustained war-related damages. Private commercial claims that had resulted from the wartime clearing; those for pensions, wages, and annuities; and claims for compensation of deaths and injuries due to German violations of Swedish neutrality received full payment. For the private wage and pension claims the exchange rate was 1 krona to 1 reichsmark; otherwise the rate was 30 to 100. These were both very advantageous rates for the Swedish creditors. Altogether, priority cases amounted to only SKr 37 million. For all the other nonpreference claims, mainly the Dawes, Young, and Kreuger loans, a payment of 15 percent was made from the assets available.28 The final liquidation total was SKr 378 million. After the SKr 150 million, administrative costs of SKr 2 million, the SKr 6 million for Swedes in Germany, and the SKr 64 million for the Riksbank were deducted, SKr 156 million was thus left for distribution.29 The process was not yet concluded when the new German government began preliminary negotiations with Sweden in early 1953. The Federal Republic Questions Allied Policy For understandable reasons, no German government had so far participated in the discussions on German external assets. These conditions changed with the founding of the Federal Republic of Germany in May 1949. In four years, the former foe had become friend, a remarkable transformation made possible only by the Cold War. Though lacking a foreign office, the new German government began to contemplate the fate of the country’s external assets as soon as it could. Less than a month after the new German Basic Law became effective, a meeting was held at the Ministry of Finance to ascertain Germany’s “external damage,” especially in the neutral and Allied countries, for which there was no data thus far. The meeting brought together officials working on the administration of the proposed Equalization of Burden Laws (Lastenausgleich) and delegates from various semiprivate organizations. 28. After the 1948 German currency reform, the approximate reichsmark-krona exchange rate was 100:11. Also, in Germany, reichsmark claims had been exchanged at a rate of 10:1. For rates see Bill 197, 483–85; Compulsory Clearing: Sweden and Jewish Assets, 211; Julius Hepner, “Behandlung des deutschen Vermögens in Schweden,” 83; priority cases: Svenska Dagbladet, Jan. 13, attached to Paul Gekker to State Dept., Jan. 16, 1956, 258.6241/date. 29. Michael Dux (Office of German Economic Affairs, State Dept.) to Jacques Reinstein (director, Office of German Affairs), Feb. 4, 1953, folder: German External Assets Oct. 1952–May 1953, Conference on German External Assets and Looted Gold, Records of CFM; Böhme, “Recht oder Moral,” 72.

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Present were members of the Society for the Study of Private Law Interests Abroad (Studiengesellschaft für Privatrechtliche Auslandsinteressen), the German Office for Questions of Peace (Deutsches Büro für Friedensfragen), and the Society for Overseas Interests (Interessenverband Übersee). The meeting was chaired by the secretary general of the Expert Commission on the Equalization of Burden Laws (Gutachterkommission für den Lastenausgleich).30 The composition of the meeting was indicative of the semiofficial character of German foreign policy at that time. The Studiengesellschaft in particular was notably active in the field of German external assets. It had been founded in November 1948 in Bremen and represented over six hundred German companies, associations, and people who had lost or were about to lose their assets abroad. Its task was to “investigate the legal and economic aspects connected with German external assets with the goal to revise, on the basis of private initiative, the policy of the victorious powers as it relates to Germany’s external assets,” as a letter from the Studiengesellschaft to German Vice Chancellor Hans Blücher stated it. The Studiengesellschaft advocated a concept according to which Germany’s external assets should be credited toward the country’s external debt. Its Swedish country group had been founded in December 1949. Four months later, this group sent a two-man delegation, Dr. Walter Hoffmann and Dr. Fritz Wecker, to Sweden to investigate the status of German assets in the country and to “present the German standpoint on this question.” Since they arrived only a few weeks before the final Riksdag vote that regulated the distribution of German assets, they found that little could be done. In their talks with various bankers and lawyers, Hoffmann and Wecker repeatedly voiced the opinion that “according to German views the Swedish handling [of German assets] is incompatible with the standards of international private law and the law of nations.” Many of the people they talked to actually agreed, but also pointed out that not much would change in light of the strong majority of the ruling party. Hoffmann’s and Wecker’s conclusions for the study group were thus fairly disheartening because they 30. “Niederschrift über die Sitzung am 16. Juni 1949 betreffend Feststellung der Auslandsschäden,” Record Group B 126, folder 5694, BAK. The results of this data collection were later summarized in a parliamentary report for the Committee on the Occupation Statute by Dr. Georg Pfleiderer of the Free Democrats. The supposed total of German external assets in Western Europe in 1938 dollars was $2.230 million. German external assets in Sweden were valued at $90 million, those in Switzerland at $225 million, in Spain at $64 million, and in Portugal at $3 million. The overall total, including Eastern Europe, the British Commonwealth, the U.S., Latin America, and Asia, was $4 billion. See Document No. 3389, folder: German External Assets—Memos and Documents, Conference on German External Assets and Looted Gold, Records of CFM.

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thought the options to influence the course of events in Sweden were very limited. After their return, the study group decided to send a telegram to the German Ministry of Finance: “Assembled in Hamburg, the German companies with an interest in Sweden” protested the imminent passage of the Swedish law regulating the distribution of the liquidation proceeds. Such a law, the telegram stated, “violates the foundations of private property.” Undén also had the pleasure of receiving a copy of a Studiengesellschaft legal report, which of course presented predictable conclusions.31 The fact was that Germany had been a terrible debtor. Since 1931 most of its existing debt payments had been put under yearly standstill agreements until the war had made them largely superfluous. Consequently, Germany had been unable to raise foreign credits ever since. If the new German government wanted to take out money again, the question of this pre- and postwar debt needed to be addressed, as High Commissioner John McCloy told Chancellor Konrad Adenauer in October 1949. Despite the cabinet decision that Economic Minister Ludwig Erhardt and Finance Minister Fritz Schäffer should prepare an appropriate proposal, the only initial reply by Adenauer was a short letter to the High Commission at the end of the month. It stated that “the Federal Republic of Germany . . . is . . . the sole organ in which the rights of the former German Reich are vested. The Federal Government desires to go on record already at this time that it claims the rights to any assets of the former German Reich abroad, if and when such assets are released.” Not surprisingly, the Allies were not very pleased with this communication. The chief of the External Assets Investigation Branch in the U.S. High Commissioner’s Office, Herbert Sorter, felt that it was “a trial balloon launched for the purpose of sounding out the sentiments of the High Commissioner relative to the general question of German external assets.” Sorter was afraid that West Germany was setting out to attack Law No. 5—“still the law of the land”— thereby launching an assault on “the entire legal structure which supports the liquidation measures thus far taken.” The answer, sent on February 17, 1950, 31. Hausmann of the Studiengesellschaft to Blücher, Dec. 12, 1949, quoted in Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 307 n. 16; its goals also in Abs, Entscheidungen, 73 –74; “Niederschrift über die erste Sitzung der Arbeitsgruppe Schweden am 7.12.1949 in Düsseldorf,” B 184 (Studiengesellschaft), folder 130, BAK; Dr. Walter Hoffmann, Dr. Fritz Wecker, “Bericht über die Lage des deutschen Vermögens in Schweden,” May 2, attached to letter to the members of the Swedish study group, May 5, 1950; telegram according to “Vermerk” about the meeting on May 12, 1950; letter from Hoffman and Janssen to Undén, May 15, 1950, with report from Rolf Stödter attached, all in B 184/130. The Studiengesellschaft informed the readers of its member newsletter about the passage of the Swedish law under the heading “Sweden’s Revenge,” Nachrichten der Studiengesellschaft 7 (Oct. 1950): 17, B 126/5694.

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made clear that the Allies had no intention of changing the existing laws and otherwise tried to steer the discussion to the question at hand, in other words, whether Adenauer also regarded the Federal Republic as successor to the Reich’s debt. Adenauer promised to study the question, but in the following months not much progress was made.32 The debate only opened again in September 1950, when, because of the Korean War, talks began that ultimately led to the rearmament of West Germany. Upon the recommendations of the tripartite Intergovernmental Study Group on Germany (ISG), the three foreign ministers decided at a meeting in New York to terminate the state of war with West Germany, to raise their troop levels in the country, to remove certain economic limitations, and to concede a West German mobile police force of 30,000. Further relaxation of the occupation statute (allowing for a foreign ministry, for example) were also promised if the Federal Republic would assume “responsibility for the German pre-war external debt” and would “acknowledge the debt” that had resulted from the Allies’ postwar economic assistance.”33 This acknowledgment was to be ratified by the German Parliament (Bundestag). This request nurtured renewed hopes inside and outside of government that the two issues of German external assets and German external debt could be linked. The Studiengesellschaft continued its agitation, which, in the case of German assets in Spain, for example, amounted to a full-flung press campaign against the Spanish government. Aside from this private agitation, the German government also took the initiative regarding external assets. An interministerial committee for German external assets (Interministerieller Ausschuß für deutsches Auslandsvermögen) had already been formed in early 1950. This body decided in December of that year that a note should be sent to the 32. German debt situation: Abs, Entscheidungen, 21–33; McCloy according to cabinet meeting, Oct. 18, 1949, in Die Kabinettsprotokolle der Bundesregierung (1949) 1:139–40; Adenauer to McCloy, Oct. 26, 1949, folder: External Assets, General Records of the Director, 1944–1950, Records of the Property Division; Sorter to Frank Joseph Miller (chief of the Property Division), Nov. 17, 1949, folder: External Assets, General Records of the Director, 1944–1950, Records of the Property Division; reply according to Ursula Rombeck-Jaschinski, Das Londoner Schuldenabkommen: Die Regulierung der deutschen Auslandschulden nach dem Zweiten Weltrieg, 117. 33. Germany was now allowed to have a commercial fleet of any size, speed, and number, and certain steel-production limits had also been reduced; see “Decisions of the Ministers on Germany,” Sept. 19, 1950; further relaxations: “Principles Relating to Claims,” in “Decisions of the Ministers on Germany,” Sept. 19, 1950, both FRUS, 1950, 3:1286 –1301, 1292. The only other condition in return for the Allied promise was that Germany would cooperate with the Western powers in the distribution “of materials and products which are or may be in short supply or required for the common defense,” ibid., 1289. These two conditions were officially communicated to Germany on Oct. 23, 1950; see FRUS, 1950, 4:767–71; see also Rombeck-Jaschinski, Schuldenabkommen, 88 –122.

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Allied High Commission (AHC) regarding the subject. Finance Minister Schäffer was certainly aware that such German initiatives would probably meet with questionable success. In a January memorandum for the cabinet he explained: “Unfortunately, under the current occupation statute, the hands of the federal government are tied when it comes to any initiative concerning German assets abroad. German requests have been refused by the AHC without any further consideration of the subject and without explanation.” Nevertheless, a further try of a “general and fundamental nature” should be made. This was especially urgent as the Foreign Affairs Committee of the Bundestag had refused to endorse the German debt assurance on December 15 because of, among other things, its exclusion of German external assets.34 After further talks with the Foreign Affairs Committee, Adenauer told the new British high commissioner, Sir Ivone Kirkpatrick, in January that he would be able to get the necessary parliamentary support if the Allies would agree to certain points. Among them should be the assurance “that certain German properties abroad could be charged off against FedRep debt.” Adenauer presented this proposal on the suggestion of the Foreign Affairs Committee, even though the chancellor himself opposed it. Kirkpatrick rejected this claim, a view later endorsed by the State Department. Nevertheless, West Germany continued trying. In early February, Herbert Blankenhorn from the German Liaison Office to the AHC presented two letters to the Allied finance advisers. These had been formulated so that the concerns of the Foreign Affairs Committee were taken into account. The second letter stated that it is the “opinion” of the federal government of West Germany “that [the] problem [of] German foreign assets has an immediate material relationship to [the] settlement [of the] debt problem.” In other words, for a satisfactory debt settlement, foreign assets had to be taken into consideration. Blankenhorn explained that the Foreign Affairs Committee “attaches great political significance” to this letter. The Allied advisers indicated “considerable doubt” that the second letter would be acceptable to their governments. They also pointed out that the letter, if resubmitted unchanged, “might result in reply from governments of such tenor as to vitiate political advantage” that Ger34. For Studiengesellschaft: Seidel, Angst vor dem “Vierten Reich,” 390–91; Interministerieller Ausschuß für deutsches Auslandsvermögen, fourth meeting, Dec. 21, 1950; Schäffer to the Staatssekretär (permanent undersecretary) of the Interior in the Chancellery, Jan. 22, 1951, with proposed note to AHC attached, both B 126/5694. The proposal had the agreement of the Economic and Justice ministries, discussed in cabinet, Feb. 2, 1951, Kabinettsprotokolle, 4:132; Foreign Affairs Committee meetings Dec. 5, 14, and 15, 1950, in Wolfgang Hölscher, ed., Der Auswärtige Ausschuß des Deutschen Bundestages, Sitzungsprotokolle 1949–1953, 165– 69, 202– 8.

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many was seeking to achieve. Nine days later, the Federal Republic presented a new draft that did not include the second letter. Adenauer had told his cabinet the day before that the Allied finance advisers had asked him to submit a separate letter on the external assets issue after the German debt assurance had been made. That proposal was approved by the cabinet and the Foreign Affairs Committee.35 The way to a settlement was now open. On March 6, Adenauer formally replied to the Allied requests. The Federal Republic of Germany would assume responsibility for its pre- and postwar external debt in accordance with “the general situation of the Federal Republic including, in particular, the effects of the limitations on its territorial jurisdiction and its capacity to pay.” The next day the revision of the occupation statute became effective. The Bundestag was asked to pass only this debt acknowledgment when it ratified the whole London debt agreement in July 1953—at a time when a link between the two issues was no longer so acute.36 For now, West Germany had thus not succeeded in connecting the subject of external assets with the debt assurance. However, there was still a slight chance that a separate note might have some effect. For that purpose a note already proposed by Schäffer in January was redrafted and sent to the AHC on April 10. As usual, it suggested that West Germany’s external assets should be considered in the settlement of the country’s external debt. But it also asked the Allies to repeal Law No. 5 because this law “was based on assumptions which today are no longer appropriate.” The Federal Republic should be allowed to begin bilateral negotiations with those countries which had confiscated German external assets. The AHC was further requested to ask those countries to stop their confiscation and liquidation efforts until those negotiations could begin. Not surprisingly, the AHC’s reply on April 28 was negative in every regard. “The three Governments desire that the High Commission should make it clear that they cannot agree to the Federal Government entering into bilateral negotiations with other countries on the subject of Ger35. Joseph E. Slater (for U.S. High Comm.) to State Dept., Jan. 25, 1951, FRUS, 1951, 3:1411– 12; for Foreign Affairs Committee suggestion: Hölscher, Auswärtige Ausschuß, 248–53; Blankenhorn letters: Auswärtige Ausschuß, 250 n. 7, 274 n. 1; McCloy to State Dept., Feb. 10, 1951, reporting the Feb. 8 meeting, FRUS, 1951, 3:1414–17; second draft: McCloy to State Dept., Feb. 17, 1951, FRUS, 1951, 3:1418–20; German approval: cabinet meeting Feb. 16, 1951, Kabinettsprotokolle, 4:161– 62; for the Foreign Affairs Committee’s approval on the same date, see Auswärtige Ausschuß, 274 –76. 36. For Adenauer’s letter, see FRUS, 1951, 3:1435–37. For the other changes resulting from this revision, see ibid., 1431–44; see also Rombeck-Jaschinski, Schuldenabkommen, 122–43, and Abs, Entscheidungen, 243–44.

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man external assets.” The Allies would also not act to stop any liquidation measures nor withdraw Law No. 5. Instead, they “were now considering additional legal measures to clarify certain aspects concerning external assets.” West Germany’s answer of June 28, which also had the Foreign Affairs Committee’s approval, protested the Allied standpoint. To counter the German views, France thought that “an immediate . . . strongly worded reply rejecting Chancellors’s contention would be in order.” But McCloy thought that any such reply would “aggravate situation unnecessarily” and would force the Federal Republic to turn this topic into a major issue at the coming debt conference. In the end the note remained unanswered. Attempts by Hermann Josef Abs, the leader of the German delegation, to raise the topic at the opening and during the preliminary talks on German debt in London remained without consequences.37 But the Allies were aware that this German agitation would continue and on August 31, 1951, finally terminated these attempts with a new AHC law. This “Law No. 63 Clarifying the Status of German External Assets and of Other Property Taken by Way of Reparations or Restitution” had been long in coming and was therefore not an immediate reaction to the German notes. Drafting had begun at the AHC in August 1950, and the ISG had assumed that the law would be in force before the March 1951 changes to the occupation statute became effective. Yet, there were various technical aspects that made Anglo-American agreement on the final version difficult. Not only that, but also Great Britain and France continually insisted that “as long as Occupying Powers retain supreme authority time not appropriate to obtain waiver of claims from Ger[many]”—in other words such a law was not yet really needed. The United States preferred to not put off this question because the Allies’ bargaining power would only diminish over the years and 37. The cabinet discussed the note on Feb. 2 and decided to pass the proposed note on to Adenauer. In consultation among the Justice, Finance, and Economic ministries it was subsequently redrafted. See Kabinettsprotokolle (1951), 4:132, and Abs, Entscheidungen, 88– 89. The three notes are printed in Verhandlungen des deutschen Bundestages, 1. Wahlperiode 1949, Stenographische Berichte, 246, Sitzung, Jan. 22, 1953, Anlage 1, 14:11760–62 (Bonn: Bonner Universitätsverlag, 1953); see also Abs, Entscheidungen, 89–92; McCloy to State Dept., July 14, 1951, folder: Negotiations and Position Paper (box 199), Conference on German External Assets and Looted Gold, Records of CFM. Abs had suggested that he would mention the subject at the opening of the preparatory talks on German debt on July 6. The cabinet took note of Abs’s proposal on June 26, 1951: see Kabinettsprotokolle, 4:469–70; for Abs’s failed attempts, see his Entscheidungen, 92–93. He told the cabinet in July that he had tried to bring up the topic “in confidence” in the conference’s Steering Committee but that his attempts had always been blocked; see his report, July 20, 1951, Kabinettsprotokolle, 4:556 – 57; this and the following also discussed in Rombeck-Jaschinski, Schuldenabkommen, 167–79.

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such a waiver was important to Latin America, the Benelux, and the neutral countries.38 In the meantime the negotiations about the status of the Federal Republic of Germany were moving into a new stage. Adenauer skillfully used the opportunities the Korea crisis offered in the summer and fall of 1950 to drive home his point that the occupation statute should be progressively replaced by a new system of “contractual agreements” if the Allies wanted a German military contribution to Western defense. Before this background, the Steering Committee of the ISG undertook a survey of “outstanding residual issues . . . in connection with [the] surrender [of ] reserved powers” in April 1951. The Allied representatives now agreed that one of the few remaining required steps in this regard was a divesting law and the implementation of the Safehaven agreements, specifically that Germany should be required to pay compensation to the former owners who had lost their assets abroad as a result of these agreements. The ISG recommended to the AHC that it immediately enact such a divesting law. The AHC announced in a note to Germany on July 3 that it would pass such a law. Of course, Adenauer protested and pointed out that it might be received as an Allied diktat by the German public. Although he could convince McCloy of the virtue of this argument, the two other high commissioners urged the law’s implementation. With the abstention of McCloy, who wanted one more week for discussions with Germany, the AHC passed the law, Law No. 63, on August 30, 1951. Adenauer’s last-minute talks with the AHC to prevent the promulgation of the law were unsuccessful.39 The main aim of the law was to “extinguish,” as the text of the law put it, “all rights, titles or interests of former owners” to their property that had been taken as reparations or for restitution since September 1, 1939. Further, the law stipulated that “no claim or action” out of this transfer, liquidation, or delivery “shall be admissible” against any person who had acquired title of said property or any international agency or government.This clause addressed the 38. See the ISG’s report to that effect, Sept. 4, 1950, to the foreign ministers’ New York meeting that month, FRUS, 1950, 3:1256–57, 1270; technical aspects concerned the treatment of Germanissued securities located abroad, of foreign-owned shares of German companies, and of bonds in nonGerman currencies located in Germany: see Seidel, Angst vor dem “Vierten Reich,” 395; different Allied views according to Acheson to the U.S. delegation at the ISG, Nov. 17, 1950, FRUS, 1950, 4:778–79. 39. For Adenauer’s views, for example, McCloy to State Dept., Nov. 17, 1950, FRUS, 1950, 4:780–84; ISG survey: U.S. delegation at the ISG to State Dept., Apr. 15, 30, 1951, FRUS, 1951, 3:1403, 1409; law passed: Abs, Entscheidungen, 94– 95, Seidel, Angst vor dem “Vierten Reich,” 396 – 97, and cabinet meeting, Aug. 28, 1951, Kabinettsprotokolle, 4:622.

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Allied fear that Germans might sue in foreign courts for the return of their property.The law also finally abolished the legal oddity that, according to Law No. 5, all external assets were vested in a quadripartite commission that no longer existed. The 1945 law now applied only to countries in the Eastern Bloc in accordance with the Potsdam agreement and Switzerland, Trieste, and Turkey because no settlement regarding German external assets had yet been reached for those areas.40 The continuing negotiations about the status of the Federal Republic of Germany resulted in the passage of various related treaties between Germany and the Allies, which came to be known together as the Contractuals. They were all signed in Bonn on May 26, 1952. One of these accords was the “Convention on the Settlement of Matters Arising out of the War and the Occupation” (Settlement Convention). In its sixth chapter, the Settlement Convention stipulated that “the Federal Republic shall in the future raise no objections against the measures which have been, or will be, carried out with regard to German external assets or other property seized for the purpose of reparation or restitution, or as a result of the state of war, or on the basis of agreements concluded, or to be concluded, by the Three Powers with other Allied countries, neutral countries or former allies of Germany.”41 Of course, Germany was unhappy with this part of the Contractuals. In the first portion of the negotiations with the High Commission in 1951, the German side threatened repeatedly that this kind of recognition by Germany “would be calculated to wreck the acceptance by the Bundestag of the envisioned system of contractual arrangements.” But the three Allies remained unmoved by such presentations. After a September 1951 foreign ministers meeting in Washington, the high commissioners reported back, in the words of André François-Poncet, that the German opposition had “not escaped the Foreign Ministers, but the three Governments are themselves bound by international agreements whose implementation in Germany they must ensure.”42 40. Law No. 63, dated Aug. 31, 1951, published in Official Gazette of the Allied High Commission for Germany, Sept. 5, 1951, 1107–10. 41. “Convention on the Settlement of Matters Arising out of the War and the Occupation,” chap. 6, art. 3, U.S. Treaties and Other International Agreements, 3425 (1955). 42. “Report of the Allied High Commission for Germany concerning the Establishment of a New Relationship between the Allied Powers and Germany,” Aug. 9; see also McCloy to State Dept., Aug. 4; McCloy reported on an Oct. 1 meeting with Adenauer in Oct. 2, 1951, to State Dept.: “Chancellor repeated his previous objection to recognition of FedRep of agreements relating to disposal of Ger assets abroad,” FRUS, 1951, 3:1509, 1500, 1541 (quote). Statement by High Commissioner François-Poncet of France to Adenauer, Sept. 24, 1951, ibid., 1532.

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An advantage for the German side was the Allied interest in bringing these negotiations to a quick and successful conclusion since it was part of a package to create a European army with German participation. Serious negotiations began in December 1951, when the German counterproposal was presented to the Allies. Germany agreed to accept the Allied measures regarding external assets but wanted to be able to negotiate new agreements with those countries that had not yet finished the liquidation process or the distribution of the liquidation proceeds. Because such a proposal basically concerned all Safehaven countries and probably would have meant the end of the Allied policy, naturally it was unacceptable to the Allies. Another difficulty was the question of compensation to former German owners. As explained by the German delegation, Germany was obliged under the constitution to pay an equal amount of compensation to all the people harmed by the war. If the Allies now insisted on full compensation under the Safehaven agreements, the government of the Federal Republic would be bankrupt very quickly. The Allies, on the other hand, were not interested, for understandable reasons, in renegotiating any of their agreements concerning the possible level of compensation. But neither did the Allies really want Germany to begin negotiations. The Allies finally conceded this point. Germany would not have to pay full compensation.43 The remaining issue was the extent to which Germany would be allowed to enter into negotiations with the countries that had expropriated German external assets. The final compromise allowed Germany to negotiate with the four neutrals’ questions “concerning the nature and amount of compensation to be paid to former German owners.” With IARA countries, Germany could negotiate regarding certain property such as pensions or reichsmark securities. In return, Adenauer personally conceded in an April 1952 meeting that cleared all the remaining disputed points that Germany would raise “no objections” to the Safehaven accords.44 After the Contractuals were signed, the European Defense Initiative was voted down by the French National Assembly in September 1954. This required the renegotiations of the related Contractuals. Despite the changes in the October 1954 Paris Agreements, the part of the 1952 Settlement Con43. The rather vague final regulation stipulates: “The Federal Republic shall ensure that the former owners of property seized . . . shall be compensated”; see Settlement Convention, chap. 6, art. 5. 44. These German-Allied discussions are described in greater detail in Seidel, Angst vor dem “Vierten Reich,” 401–8; for quotes see Settlement Convention, chap. 6, arts. 4 and 3.

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vention concerning external assets remained the same. After ratification, the Paris agreements entered into force on May 5, 1955. West Germany was largely sovereign. The same chapter of the convention also delayed the question of reparations in general until it could be settled by a peace treaty—in other words, probably never. This part has to be seen in conjunction with a similar clause in the London debt agreement. According to its article 5, the wartime claims of states and their citizens would be deferred until a “final settlement of the problem of reparation.” Thus, despite all the German clamoring about its loss of external assets, the Federal Republic technically no longer had to make any other direct reparation payments to the Western Allies or any other state—a considerable success. As undersecretary of state for foreign affairs (Staatssekretär), Walter Hallstein declared to the cabinet in May, “The reparation question is solved.” In this regard the convention had the character of a peace treaty. The Allies had decided that external assets and the repayment of the country’s external debt settled through the London debt conference would satisfy their financial desires. At least in the case of the United States, that focus on external assets had been the policy all along. As a result of this combined strategy German financial claimants were clearly at an advantage over other victims.45 This policy had the great benefit that instead of unilateral (and probably unproductive) reparations payments, Germany’s economic potential was speedily integrated with the West as once again the country was open for foreign investments. The greater German freedom resulted in a prolonged Allied-SwedishGerman attempt to conclusively settle the questions arising from the 1946 Allied-Swedish accord. However, before this question can be considered in depth, the final agreement with Switzerland needs to be described. Throughout the negotiations with Sweden, the August 1952 German-Swiss agree45. Art. 5 (2) of the London debt agreement states: “Consideration of claims arising out of the Second World War by countries which were at war with or were occupied by Germany during that war, and by nationals of such countries, against the Reich and agencies of the Reich, including costs of German occupation, credits acquired during occupation on clearing accounts and claims against the Reichskreditkassen shall be deferred until the final settlement of the problem of reparation.” Art. 5 (3) made the same statement for “countries which were not at war with or occupied by Germany during that war,” with a certain exception related to the German wartime debt to Switzerland (discussed below), “German External Debts, Agreement, with Annexes and Appendices, between the United States of America and Other Governments, signed at London, Feb. 27, 1953,” Treaties and Other International Acts Series, no. 2792 (1954); Hallstein on May 10, 1952, in Kabinettsprotokolle (1952), 5:285; argument that German financial claimants were advantaged according to Fisch, Reparationen, 117–23.

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ment was an important benchmark for Sweden. The Swedish government did not want to reach an agreement with Germany that would offer less than what was in that precedent. The Final Settlement with Switzerland After the May 1946 Allied-Swiss agreement, Switzerland transferred the agreed amount of gold to the Tripartite Gold Commission and thirteen months later paid SFr 20 million ($4.7 million) to the International Refugee Organization. But no German assets in Switzerland had been liquidated yet. Switzerland—represented throughout these years by Walter Stucki—maintained that an appropriate Swiss franc–reichsmark exchange rate for the later reimbursement of the German owners was a precondition for the beginning of this process. Any meaningful settlement of this question remained difficult until the German currency reform in June 1948 opened the way to a possible agreement. An Allied-Swiss conference in May and June of 1949 seemed to have come to a solution of this problem, but other issues caused its failure. First, there was the Allied request that Switzerland should also liquidate the property of East German owners, which Switzerland refused to do since there would be no guarantee that they would be indemnified sufficiently. Besides, would it be appropriate for neutral Switzerland to liquidate this property without the approval of the Soviet Union and transfer the money to the Western Allies? The Potsdam agreement had clearly stipulated that those assets should go to the USSR. Second, Switzerland demanded that the issue of the so-called intercustodial agreements should be resolved before the liquidation process could begin. This matter referred to the question of whose enemy custodian would have the right to liquidate property owned by a Swiss person but allegedly held for a German name via Switzerland. A possible case could, for example, involve a British estate that would benefit mainly German heirs but that owned assets in third countries. Would those assets go to Great Britain or to the country where they were located? Between Switzerland and the United States the largest case was that of the U.S. assets of Interhandel, an I.G. Farben holding company located in Basel. The IARA had tried to solve this very complex issue with a multilateral agreement but had failed by 1948. Instead, bilateral agreements had to be concluded. A Swiss-American intercustodial agreement was signed in July 1949, but the resulting Memorandum of Understanding was not approved by Congress. Switzerland was certainly not the only country facing these difficulties. A Swedish-American

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agreement was also never signed. In light of these unresolved issues, the next attempt to resolve the Allied-Swedish accord in June and July of 1950 was unsuccessful, and the Allied negotiators left Bern a few days after they arrived.46 As a result of this fiasco the Western European Office in the State Department was ready to break the whole agreement. The United States had already overdrawn its IARA account and could not expect to receive any more reparation payments from the settlement. The other Allies were alarmed because they still expected substantial Swiss payments to their accounts and deeply resented the “monstrous fashion in which the Americans seem determined to steam-roller the opinion of their Allies.” An ambassadorial intervention caused the State Department to reconsider, although, in good American diplomatic fashion, it never admitted any mistakes. In January 1951 the Allies asked Switzerland for new negotiations of the outstanding questions without tying the liquidation to a solution of the intercustodial problem. Surprisingly, Switzerland agreed. Swiss diplomats had heard that the United States was ready to terminate the agreement, and Switzerland did not want to be painted as the country causing this break. Negotiations in Bern among the four parties resulted in an agreement on April 20, 1951. Germany would immediately indemnify the owners of the liquidated assets with 50 percent of their value in deutsche mark (DM), while the other half would be covered by a long-term bond. Accounts under SFr 10,000 would be released unconditionally. Switzerland calculated that this way even holders of larger accounts would eventually receive up to 80 percent of their property value in DM— because the bond would most likely be worth less than 100 percent. The Federal Republic would receive 25 percent of the liquidation proceeds from Switzerland to partly cover the resulting compensation costs, and the Allies and Switzerland would split the remaining amount. The Allies conceded that 46. Initially Switzerland wanted the other issues under the accord resolved before the SFr 50 million payment to the International Refugee Organization (IRO) was made. Switzerland dropped that linkage in June 1947, but then the U.S. did not want to proceed before the liquidation of German assets in Switzerland had begun. Only public pressure in the U.S. caused a change of opinion leading to the first payment of July 1948. Continued inquiries from the IRO caused the U.S. to request further payments in 1950. At this point Switzerland returned to its original position that all outstanding issues under the accord were linked and required a common solution. Only after the complete settlement in 1952 did Switzerland pay another SFr 13 million ($3 million) into the fund. See Eizenstat I, 100–103; Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 161–229, 221 (for East German property), 231–53 (for intercustodial question), 254–63 (for failed negotiations); no SwedishAmerican intercustodial agreement: Fowler (Stockholm) to State Dept., Aug. 1, 1955, 258.6241/date, “Analysis of Certain Provisions of German-Swedish Agreements, [May 1956], 258.6241/5–856.

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the property of East German owners did not have to be liquidated. This was, however, not a major concession since at this point only 8 percent of German property in Switzerland fell under this category because of migration between the German states.47 This plan clearly required the assistance of the Federal Republic to make it work. It informed the Allies in June 1951 that it would not implement the plan because it required high German expenditures and would give preferential treatment to German owners of Swiss property over others awaiting compensation.48 The Allies pondered the option of forcing German implementation through an Allied law, but even then the West German government would have to carry out the agreement, which offered many options for passive resistance. Thus, the Allies decided against this idea. The final breakthrough came from a suggestion of the German Finance Ministry, which had developed in close cooperation with the Studiengesellschaft. The idea was that Germany would pay the Allies a lump sum in lieu of the liquidated German assets after which Germany and Switzerland would have the freedom to negotiate their own settlement. The money would initially be provided by a loan Germany would take out with a Swiss bank consortium. The United States in particular, which had lost all hope of settling the subject otherwise, was in favor of such an arrangement, and on November 26, 1951, the Allied High Commission allowed Germany to proceed.This was quite a revolutionary change of Allied Safehaven policy, especially since legally Germany was at that time still bound by the occupation statute. Now the party that supposedly should have only been subject to the Safehaven agreement was allowed to negotiate on its own. The first round of German-Swiss negotiations in December 1951 came to a principal agreement rather quickly. Similar to stipulations in the earlier Allied-Swiss agreement, those in the German-Swiss agreement specified that German assets under SFr 10,000 would be unblocked in full after the deduction of a 1 percent administrative fee. This measure would immediately free the assets in Switzerland of 80 percent of German owners. Larger assets would be unblocked in Switzerland after the owners “voluntarily” paid one-third of their value to the Swiss liquidation agency—which would not pass any names on to Germany. If an owner would not agree to this “voluntary” payment, Switzerland would liquidate the asset in full, disclose the name and address 47. Goodchild to British Legation, Bern, Nov. 1, 1950, quoted in Castelmur, Schweizerischalliierte Finanzbeziehungen, 266; see also 264–69, 270–304. 48. Decision of the German cabinet on June 28, 1951, Kabinettsprotokolle, 4:488 – 89.

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to Germany, and Germany would pay the owner the equivalent of their assets in DM. The amounts so generated would go toward the lump-sum payment via the Swiss bank loan. In Germany these amounts would be subject to taxes and possible tax penalties if the holdings in Switzerland had been unknown to the German tax agencies. In December and January the German cabinet and the Allies agreed in principle to this plan. In February 1952, the Allies and Germany furthermore achieved agreement concerning the German lump-sum payment. In principle, this amount would be the same as under the Allied-Swiss plan, but a 10 percent discount for immediate payment would bring it down from SFr 135 million to SFr 121.5 million.49 A settlement seemed imminent. But there was one more issue Switzerland wanted to regulate before the agreement: the settlement of the wartime German debt to Switzerland, an issue also known as the clearing billion (Clearingmilliarde). The 1951 German debt assurance had specifically left out wartime claims. Furthermore, the former agency in charge of clearing (Verrechnungskasse) was located not in the territory of West Germany, but in East Berlin. Legally, the Swiss claim was thus not exactly sound and the United States especially was concerned not to overburden its new Western ally with financial claims. Yet, Germany needed access to the Swiss capital markets, and all parties were aware that the agreement would not be signed without some settlement of the Clearingmilliarde. During the preliminary London debt talks in 1951, the Allies first refused to accept these Swiss claims but then gave in to German demands to include them. The alternative could have meant that Germany would have negotiated with Switzerland alone to settle this issue, thus undermining the whole idea of a universal debt settlement.50 As Germany’s third largest creditor, Switzerland had participated as an observer in the preliminary London debt talks in 1951 and was invited to the main conference—as were Sweden and twenty-five other countries—which began on February 28, 1952. Once again Switzerland’s secret weapon, Stucki, was dispatched. He arrived fresh from a second round of Swiss-German 49. Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 305–21, 322–38; cabinet approval, Dec. 14, 1951, Kabinettsprotokolle, 4:811–12. 50. This Allied concession took the form of a bracketed addition to the paragraph on wartime claims (art. 5 [3], see n. 45) in the final London agreement. Supposedly those claims were put off until a final peace treaty “(except in so far as they may be settled on the basis of, or in connexion with, agreements which have been signed by the Governments of the French Republic, the United Kingdom of Great Britain and Northern Ireland and the United States of America and the Government of any such country).” This regulation later caused certain problems with Sweden (see n. 67); location of Verechnungskasse: Abs, Entscheidungen, 227; Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 337, 349–53.

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talks in Bern, where Germany had made an offer of SFr 60 million to settle the clearing debt. Upon hearing this, Stucki had faked a virtual nervous breakdown and all further talks had been canceled. In London, Stucki presented a Swiss claim of SFr 1.5 billion. Such a claim was, of course, not acceptable. In intense German-Swiss haggling—during which Stucki once again threatened to leave the conference—a final compromise was reached in early May. Germany would pay a total of SFr 500 million, which included the SFr 121.5 million for a Safehaven settlement.51 But the drama was not yet over. Supposedly, the Swiss payment to the Allies would invalidate the 1946 Allied-Swedish accord. But Switzerland did not want to cancel the whole agreement because certain Swiss assets in the United States (Interhandel) still needed to be unblocked, and the accord might provide leverage in that regard. The final compromise was that the agreement would be invalidated only for the territory of the Federal Republic, thus technically leaving it in force otherwise. Yet, on the goal of achieving a final American-Swiss intercustodial agreement, Switzerland (for once) had to give up. The United States remained unmoved, insisting that this issue was outside the scope of the Safehaven negotiations. In last-minute maneuvering, Stucki succeeded in increasing the German payment to SFr 650 million. With this payment, all Swiss claims on Germany would be terminated.52 The final 1952 settlement contained three main agreements. The August 28 Allied-Swiss agreement largely invalidated the 1946 accord after the payment of SFr 121.5 million. On August 26 the German-Swiss agreement was signed, which regulated the SFr 650 million payments to Switzerland. SFr 121.5 million would be paid immediately with the Swiss bank loan. SFr 200 million would remain in Germany for investments there. The remainder would be paid between 1957 and 1984—the payments were actually completed in 1971. Switzerland thus received 55 percent of its wartime credits to Germany. The third German-Swiss agreement regulated the treatment of German assets in Switzerland as outlined above. Only if the “voluntary” pay51. For these February German-Swiss talks, see Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 338–42, and Abs, Entscheidungen, 230–31. The cabinet had not approved any specific instructions regarding the German offer; see meeting, Feb. 12, 1952, Kabinettsprotokolle, 5:105. The SFr 60 million was only a German trial balloon after which further negotiations had been expected. Despite the breakdown over the Clearingmilliarde, a German-Swiss subcommittee completed a draft concerning the treatment of German property in Switzerland along the lines outlined above; London negotiations: Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 354–64, and Abs, Entscheidungen, 231–33. 52. Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 365 –72.

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ments were not made would the German property be liquidated. Fewer than 9 percent of the German owners with assets over SFr 10,000 used this option. Either way, a 2 percent administrative fee would be deducted and the realized amounts would go toward the repayment of the loan. In a separate agreement Germany and Switzerland also reinstated German patent and trademark protection. In return, the Swiss-German agreement stipulated that Swiss citizens would be exempted from the Lastenausgleich, a point that later raised many complications with Sweden.53 German property owners who decided to have their property liquidated and the equivalent paid in DM were subject to a 33.3 percent German tax supposedly similar to the Lastenausgleich tax that applied to domestic German property. Thus, the German owners of Swiss property received 66.7 percent of the value of their assets. This then was the figure Sweden was also aiming for in its settlement with Germany. Attempts for a German Settlement with Sweden Sweden had always been concerned about an orderly compensation of former German owners because otherwise the Swedish liquidation process would amount to illegal expropriation. Beginning in January 1951 Sweden repeatedly approached the Allies to make sure the former German owners of assets would be compensated by Germany “up to amount of 150 million kronor” made available by the accord. As already discussed, the United States and Great Britain had applied their share of this sum to the funds of the Joint Export-Import Agency (JEIA), which arguably served the original Swedish purpose of using the money to deliver commodities to Germany. But the Allies never credited the Swedish payment toward the JEIA and simply included the amount in their overall capitalization of the agency of $121 million. The Swedish payment was instead applied toward the Allies’ respective reparation accounts at the IARA in accordance with the Allied understanding of the accord.Then, in the London debt agreement, the Allies included the JEIA charge in their total claim against Germany for postwar economic assistance. And since the French equivalent of the JEIA, the Office du Commerce Extérieur, was united with the JEIA on October 1, 1948, these Allied claims also included a French share. In the final debt agreement, this total claim was greatly reduced. The JEIA assets themselves were turned over to Germany in 53. For cabinet discussions, see meeting on Aug. 28, 29, 1952, Kabinettsprotokolle, 5:530, 540; 55 percent of wartime credits according to Frech, Clearing, 178; the agreements are discussed in Castelmur, Schweizerisch-alliierte Finanzbeziehungen, 373–79, the aftermath in 391–97.

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1955 under the Settlement Convention with no further Allied charges. Sweden had assumed that the equivalent of the SKr 150 million, derived largely from private German assets in Sweden, would be used to compensate the individual owners in Germany and would not go toward the German government.54 Underlying this question was the unresolved legal conflict of the Allied-Swedish accord. Was this sum a reparation payment, as the Allies understood it, or an advance payment to the Allies, which all along had belonged to Germany and should thus be used for compensation? New urgency was breathed into these Swedish requests by the German intention to charge Swedish nationals and companies the Lastenausgleich tax starting in September 1952. Under the Settlement Convention all United Nations natural and juristic persons were excluded from this tax for the time period between April 1949 and March 1955 (chap. 10, art. 6). As part of the German-Swiss agreement the same benefits applied to Switzerland. Under the precursor of the Lastenausgleich, the Immediate Aid law (Soforthilfegesetz), Sweden had also been excluded by administrative decision. But in a July 1952 meeting German officials agreed that Sweden could not be excluded any longer. Any future exclusion could only be made for “appropriate considerations in return.” Mainly the branches of the two biggest Swedish companies in Germany would have been concerned by this tax, the ball bearing company SKF and the Swedish Match monopoly. German tax authorities estimated that the taxes would amount to DM 24 to 25 million for the time period in question. In August 1952 the Swedish ambassador to Germany, Ragnar Kumlin, was informed that under the September law Swedish persons would have to start paying the Lastenausgleich, including the back taxes since 1949. For the time being, though, Germany would not move to recover those taxes from Swedish persons.55 54. A first Swedish note was sent to the State Dept. and the FO. A second, similar note was submitted by the Swedish delegation to the London debt conference on Mar. 26, 1952. See Undersecretary of State David K. E. Bruce to U.S. Embassy, Stockholm, June 24, 1952; U.S. Embassy, London, to Embassy, Stockholm, July 1, 1952, both in folder: 321.3 German Assets 1952 (box 9), Classified General File (Confidential File) 1944–1952, Stockholm Legation and Embassy; for the JEIA see Walter Vogel, Westdeutschland 1945–1950: Der Aufbau von Verfassungs- und Verwaltungseinrichtungen über den Ländern der drei westlichen Besatzungszonen, 2:157– 64; for French share: Abs, Entscheidungen, 52, 107, and Vogel, Westdeutschland, 165 – 67. Swedish assumption according to “Denkschrift zu dem Entwurf eines Gesetztes über die am 22. März 1956 in Bonn unterzeichneten drei deutsch-schwedischen Abkommen über deutsche Vermögenswerte in Schweden, über die Wiederherstellung gewerblicher Schutzrechte und zum deutschen Lastenausgleich,” 20, n.d., accompanying the cabinet proposal to pass the final 1956 German-Swedish agreement, Mar. 5, 1956, B 126/39096. 55. The Lastenausgleich was a fiscal measure to distribute the costs of war and defeat among the

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Prompted by this German move, the Federal Republic of Germany and Sweden agreed on negotiations in Stockholm for January 1953. During these talks Sweden proposed settling the compensation of the former German owners on a two-thirds basis, similar to the Swiss agreement. To find the money for such a solution, Sweden advocated—based on the assumption of the compulsory clearing that the German government had gone broke in 1945—that the German federal government should pay all public and private bonds in cash immediately. The German government could then move to collect the money itself and use it to cover the compensation costs.56 However, this Swedish proposal clashed with the tortuous settlement the London debt agreement was providing—and which was at its very last stages of German-Allied negotiations in January 1953. The main goal of the agreement had been to settle the prewar obligations of the Reich by stretching those payments out over thirty years. On average, interest rates were reduced by 22 percent. After 1958, furthermore, a sinking fund was added that would provide a reduced coverage of the back interests without compounded interests and whose payments were added to the current interest payments. The bonds themselves would be paid in full, a very important provision for the Federal Republic to reestablish its creditworthiness. In return, article 8 of the final agreement regulated that no country would seek “any discrimination or preferential treatment among the different categories of debt.” In other words, no creditor would be paid before the others. Sweden was now trying to do exactly that. It wanted preference for its holdings of German bonds through immediate repayment. Of course, Germany would have to make payments on those bonds in the long run anyway. But the danger for Germany was that the Swedish demand—even if the money would go to the former German owners—would undermine the whole London agreement. Another problem was German population. A first emergency law (Soforthilfegesetz) had already been passed by the German Economic Council of the Bizone in 1948. The Soforthilfe became effective in August 1949 after Allied approval. See Michael L. Hughes, Shouldering the Burdens of Defeat: West Germany and the Reconstruction of Social Justice, 64–82. In very general terms, both measures consisted of a tax between 2 and 6.8 percent to be paid yearly for thirty years; see Lutz Wiegand, Der Lastenausgleich in der Bundesrepublik Deutschland 1949 bis 1985, 57–74, 84 –137, 142– 68, 208 – 354; German meeting: “Niederschrift über Referentenbesprechung betreffend Behandlung der Schweizer, Lichtensteiner, Schweden und Italiener bei der Erhebung der Vermögensabgabe,” July 22, 1952; estimates in Hans Ulrich Granow, “Aufzeichnung über den Verlauf und das Ergebnis meiner Schwedenreise nebst 1 Beilage,” Dec. 6, 1952, Anlage zum Rundschreiben an die obersten Bundesbehörden vom 8. Dezember 1952; Alfred Hartmann (permanent undersecretary in the Finance Ministry) to Kumlin, Aug. 19, 1952, all in B 126/39095. 56. See Ernst Féaux de la Croix to Kumlin, Oct. 25, 1954, B 126/39095.

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that this cash payment, even in combination with the remaining amounts available from the compulsory clearing, fell short of a two-thirds compensation. And, lastly, under Allied tutelage, Germany did not yet have the authority to engage in such negotiations, as the Allies informed Germany in terse terms in February 1953.57 For all these reasons the Swedish-German talks ended inconclusively. For the next two years no real solution was in sight. Sweden made numerous attempts to come to an agreement either via the Allies or Germany. In two notes in March and April 1953, for example, Undén suggested a solution to the SKr 150 million issue. Either the German liability to pay back this amount under the London debt agreement should be written off, or the Allies should cede their claim to Sweden, which in turn would put the claim at the disposal of Germany for compensation.58 The purpose behind this Swedish suggestion was clear. Because the German-Swedish negotiations had fallen short of finding the money for a two-thirds solution, the money had to be located somewhere else. The return of the SKr 150 million seemed to offer a solution to that lack of funds. The Allies had already made clear in a reply to an earlier Swedish note that Germany was definitely obliged to repay the SKr 150 million under the London agreement, which had been signed in February 1953. But they also reminded Sweden that they had greatly reduced their demands on Germany for the repayment of postwar assistance under the same agreement. Indeed, the United States had cut its postwar claims on Germany by 62.5 percent, payable at an interest rate of 2.5 percent over thirty-five years, while Great Britain and France had lowered their claims by 25 percent, to be settled in twenty years for no interest. These cutbacks resulted in an overall reduction of these claims from DM 16 billion to DM 7 billion.59 57. Art. 8 and annex I, “Agreed Recommendations for the Settlement of Reich Debts and Debts of Other Public Authorities,” of the London agreement; Sweden was afraid that even its payments under the compulsory clearing might be interpreted as preference payments and that Germany might later move to exclude those Swedish creditors from any further payments under the London debt agreement. These concerns were expressed in a Swedish note to the U.S. Embassy on Feb. 10, summarized in Butterworth to State Dept., Feb. 10, 1953, 258.6241/date; Germany informed: John Ford Golay (deputy U.S. secretary, U.S. High Commission for Germany [HICOG]) to Hallstein, Feb. 5, 1953, folder: External Assets III, Oct. 1952–May 1953 (box 198), draft of the letter to Germany in conference papers, folder: German External Assets—Memos and Documents (box 197), both in Conference on German External Assets and Looted Gold, Records of CFM. 58. The Swedish notes were delivered to the Allied representatives in Stockholm on Mar. 26 and Apr. 28, 1953. See Butterworth to State Dept., Apr. 29; Herbert Spivack (Paris) to State Dept., June 24, 1953, with French draft reply attached, both in 258.6241/date. 59. British draft of Allied note attached to Peter Marshall (British Embassy) to Michael Dux (Of-

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Since the Allies had decreased their financial demands on Germany so considerably, Robert N. Bee, the U.S. Treasury representative in Stockholm, felt obliged to remark to his Swedish counterpart that the Swedish complaint about the SKr 150 million was correct only in “a very formal sense.” Eric Virgin from the UD had to confess that this was “quite true but that ‘his boss’ puts a great deal of emphasis on questions of principle—sometimes too much.” That emphasis on principle also doomed another attempted solution first suggested by Bee on that occasion. He offered a “general package settlement” that would aim to settle the SKr 150 million question, the outstanding payment for the looted Dutch gold, and the payment of the SKr 7 million (out of the SKr 75 million) to Belgium and Luxembourg. That proposal was formally put to Sweden in October 1953. The note emphasized that the Allies could not make “any other disposition” of the SKr 150 million because the London agreement had been signed and ratified by the Allies and the Federal Republic. It also hinted that such a package settlement would allow the Allies to reconsider their ban on the resale of German assets in Sweden to German nationals and might lead them to authorize new German-Swedish negotiations. Undén was not intrigued by this suggestion. Although he was willing to negotiate for a gold settlement, he saw no connection between the principal problem of the SKr 150 million and the two other issues.60 It was clear that a final settlement could really only be achieved between Germany and Sweden. The Allies, in 1954, decided not to make any replies to Sweden. German-Swedish settlement attempts, on the other hand, continued. Sandström traveled to Bonn twice that year. During his first visit in March, he suggested that Germany should use the money left over in its favor in the wartime clearing account (about SKr 100 million) to compensate the former German owners. He argued that regarding the clearing claim, “most of the German exporters were already paid” and that thus the claim to the clearing account money was now held by the German government. It was another suggestion to fill the financial gap. But Sweden also wanted compensation for its gold payments to the Allies and for German violations of fice of German Economic Affairs, State Dept.), Feb. 19, 1953, 258.6241/date. France suggested some slight but not substantial changes to this British version in Henri Ruffin to Dux, Mar. 21, 1953, 258.6241/date. The final note was delivered on Apr. 10, 1953, in Stockholm; for reductions: Abs, Entscheidungen, 106, and Christoph Buchheim, “Londoner Schuldenabkommen,” 356. 60. Memo by Bee, July 9, 1953, 258.1152/date; package settlement: Walter B. Smith (undersecretary of state) to Stockholm with British draft, Sept. 17; see also Ware Adams (Stockholm) to State Dept., Oct. 6, 1953, confirming delivery of note; note presented by Undén to Butterworth, Nov. 17, transmitted in Bee to State Dept., Nov. 18, 1953, all in 258.6241/date.

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Swedish neutrality—albeit a very small sum.These Germany rejected because they involved claims on the old Reich. Furthermore, the general dispute over the interpretation of the London debt agreement remained.61 A second visit in October was equally unsuccessful, as both sides found that a shortfall of SKr 22 to 50 million still remained to guarantee a two-thirds compensation. In Germany, after the failed first visit, the Ministry of Finance argued once again that Swedish nationals should now be charged the Lastenausgleich. “Because the negotiations were unsuccessful, we have advocated for some time the renunciation of the deferment,” went a July 1954 memo. A circular was sent to the state tax offices to prepare them for the end of the deferment at some point soon. But still, the Foreign Ministry was against such a step, seconded by the German Embassy in Stockholm, which pointed to Swedish press articles about this subject and warned that Sweden would perceive such a measure “as a decidedly unfriendly act.”62 On the Allied-Swedish side the two failed talks also produced renewed action. First Swedish ambassador Erik Boheman and then Sandström himself, who had arrived in Washington from Bonn, pounded away on the Swedish interpretation of the SKr 150 million question in talks at the State Department. Sandström contrasted the Swedish understanding of the usage of the money with the Allied decision to use the sum as reparations and inquired whether the Allies could not “find a way to provide the German government with funds” for compensation. Otherwise Sweden would have to move to arbitration of the Allied-Swedish accord. Daniel F. Margolies from the Office of German Affairs was at first quite unimpressed by these presentations. But in November, Boheman repeated the Swedish threat of arbitration, a move that had received fresh urgency because Germany had now set the date for collecting the Lastenausgleich at January 1955. And Boheman now added a time-honored demand that has always made the United States take notice: money. Because the three powers had failed in their obligations for the compensation of the former owners as Sweden had suggested (the SKr 150 million), Germany was now beginning to charge the Lastenausgleich. This was a direct result of the Allied failure to enable Sweden and Germany to come 61. Memorandum of Conversation with Virgin from Bee, Feb. 10, transmitted in Bee to State Dept., Feb. 15; Memorandum of Conversation with Virgin from Bee, Mar. 10, transmitted in Bee to State Dept., Mar. 12, 1954, both in 258.6241/date. 62. “Vermerk zu LA 2343 IV 181/54 für Herrn MinRat Dr. Hohrmann,” no author, July 15, 1954; draft circular, Aug. 16, sent Sept. 1, 1954; letter from German Embassy, Stockholm, to Finance Ministry, Sept. 12, 1954, all in B 126/39095.

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to a financial agreement. Hence, Sweden would “seek damage” from the Allies for the Lastenausgleich tax, a sum estimated at approximately SKr 30 million. But Boheman also offered a solution. The Allies should inform Germany that in the Swedish view the SKr 150 million had been incorrectly included in the London settlement. They would not have to concede that this Swedish position was correct, but only say that it was “highly arguable.” They should further say that “since the three Powers had written off the claim based on these 150 million kronor in varying amounts . . . the result was the unjust enrichment of the Government of the Federal Republic at the expense of its own citizens whose property was involved.” Boheman also ominously hinted that the Riksdag would have a hard time approving the gold payment to settle the issue of the looted Dutch gold “unless the Allied Powers disposed satisfactorily of the compensation problem.”63 In practice, the Swedish tiff was quite unnecessary. Germany had informed Ambassador Kumlin at the end of October 1954 that the Lastenausgleich collection from Swedish nationals would not be enforced—though it was correct that the deferment had ended. The ambassador had been satisfied with this information. Sweden only passed on this information to the United States in early December.64 Nevertheless, the beauty of the Swedish move in the United States was that Sweden had now succeeded in turning the SKr 150 million problem against Germany. For the United States, sending some kind of note to Germany was certainly easier than going into arbitration. A communication was delivered to Germany in January 1955. This was also the year the ill-fated Contractuals were finally ratified in May. “The U.S. Government has been informed by the Swedish Government,” the note went, that in German-Swedish negotiations regarding the Lastenausgleich Germany has “protested” the Swedish measures under the Allied-Swedish accord. “We are further informed” that the tax would be imposed “unless satisfactory arrangements were made” for compensation of the former owners and that Sweden was now seeking damages from 63. Meeting with Boheman, “Disposition of German Assets under the Allied-Swedish Accord of 1946,” Sept. 28, 1954, from C. Burke Elbrick (deputy asst. secretary, Bureau of European Affairs); Sandström according to Margolies (officer in charge, Economic Affairs), “Allied Disposition of Proceeds of Swedish Liquidation of German Assets,” October 18, 1954; meeting of Boheman with Margolies, Hilliker, and Walworth Barbour (deputy asst. secretary, Bureau of European Affairs), “Allied Use of Proceeds of German Assets in Sweden,” Nov. 4, 1954, from Barbour; Boheman solution in Dulles to HICOG, Dec. 3, 1954, all in 258.6241/date. 64. Finance Ministry to Kumlin, Oct. 30, 1954, B 126/39095; Dulles to Stockholm, Dec. 7, 1954, 258.6241/date.

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the United States for the tax. The note then went on to warn Germany once again of its constraints under the reserved powers and the Contractuals.65 On the Swedish front, the Allies also tried to be prepared if Sweden intended to go into arbitration. A July 1955 note to Sweden aimed to put “all our arguments on record.” Once again the different views of the use of the SKr 150 million were put forward and explained. Sweden had now essentially exhausted all its options. Pressure on the Allies to produce the money for compensation had led nowhere, and the attempt to put pressure on Germany via the Allies had been equally unsuccessful. It was all “fearfully complicated,” as Leif de Belfrage, deputy secretary general of the UD, confided in the British ambassador, Sir Robert Hankey.66 The Final Agreement The final agreement emerged, rather unexpectedly, from a Swedish offer in February 1955. A February note from Ambassador Kumlin argued that Germany was obliged to convert the bonds held in Sweden into cash under article 5 (3) of the London debt agreement. Yet, subsequently, the ambassador also hinted that Sweden might stop the payout of the liquidation proceeds if Germany would provide those immediate payments. Germany did not share the Swedish interpretation of the London agreement, but finding a way to stop the Swedish payouts through a German concession was attractive. An interdepartmental meeting in June explored the options. Ernst Féaux de la Croix from the Finance Ministry explained that it was fundamentally possible to buy the German bonds from Sweden and transfer them to a holding company that could even sell them on the public market for a good price (German bonds traded at or close to par again since the London debt settlement). Abs from the Bank for Reconstruction had so far argued against such a move because Germany should not undermine the basic concept of the London debt agreement. But, in the words of Féaux de la Croix, “in the special Swedish case it should be explored if an earlier repayment might not be possible,” es65. Walter C. Dowling (deputy U.S. high commissioner) to State Dept., Jan. 21, 1955. This note was delivered by the U.S. only; text in Dulles to HICOG, Dec. 3, 1954, partly changed in Dulles to HICOG, Jan. 7, 1955 (quotes), both 258.6241/dates. 66. State to Stockholm, July 15, 1955; Fowler to State Dept., Aug. 3, with U.S. note dated July 28 and British note, delivered July 27, attached. France delivered a slightly different note on Aug. 9: see Fowler to State Dept., Aug. 17, 1955, with French note attached. Conversation between Belfrage and Hankey during delivery of note, July 27, transmitted in Fowler to State Dept., Aug. 10, 1955. All in 258.6241/date.

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pecially as such a transfer to a holding agency would not undermine the basic design of the thirty-year payment plan under the debt agreement. Such a step would probably raise SKr 50 million so that, together with the other SKr 50 million left in the Swedish liquidation fund, a compensation of 40 to 50 percent might be possible. A quick resolution of this problem was necessary because “it should be avoided that Sweden would continue the payouts from the liquidation fund.” Further, it was in the general German interest to reach a settlement with Sweden “to free the political relations with Sweden from this burden.”67 After further internal explorations as to whether the buyback of the bonds was possible, a second interdepartmental meeting in July was called. Abs now “highly welcomed such a step.” Féaux de la Croix explained that Germany was not obliged to make such an offer to Sweden but that the Federal Republic would “agree under certain conditions to such a voluntary sacrifice” (Opfer). The meeting also explored the possibility for a two-thirds settlement and found that probably a shortfall of only SKr 20 to 30 million remained. Féaux de la Croix hoped this gap might be closed by the United States, which might be convinced to reduce its demands for postwar economic assistance accordingly. If the gap could not be closed, a 43 percent solution would still be possible. Germany would be content with such a figure since the “political relations with Sweden would still be cleared up.”68 After this meeting, matters moved rather quickly. Kumlin was informed the same day of the German decision. Féaux de la Croix, Sandström, and Virgin met for exploratory talks in October 1955 in Stockholm. In the meantime the collection of the Lastenausgleich was deferred again. The talks at the FCCO went rather well. Sandström agreed to stop any further payouts from the liquidated assets except those already promised to the Swedish creditors. But there was the problem of the missing amount. Sandström made various 67. The Swedish Feb. 1, 1955, note referred to a part of the London agreement that had been modified explicitly to open the way to an agreement with Switzerland concerning Germany’s wartime debt. Since it was a wartime claim it technically had been prohibited. But as discussed above (n. 50), art. 5 (3) excepted such claims if they arose out of the Safehaven agreements. In considering the Swedish argument, the German Ministry of Finance argued that Germany was still not obliged to pay out the bonds immediately since the bonds in question had been issued before the war; see “Niederschrift über die Ressortbesprechung betreffend deutsches Vermögen in Schweden am 16. Juni 1955, 10 Uhr im Bundesministerium der Finanzen,” June 20, 1955, B 126/39095; present were officials from the Foreign Office, the ministries of Justice and Economics, the German Central Bank, and the Agency for the Federal Debt (Bundesschuldenverwaltung). 68. “Niederschrift über die Ressortbesprechung betr. deutsches Vermögen in Schweden am 15. Juli 1955, 9. 00 Uhr im Bundesministerium der Finanzen,” B 126/39095.

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attempts to convince Germany to come up with the money, for example by referring to the German compensation obligation under the Settlement Convention, which of course did not specify the percentage for such a compensation.69 The first result of these discussions was an agreement between Sweden, Germany, and the Deutsche Revisions- und Treuhand Aktiengesellschaft (Treuarbeit), which was signed on January 17 and became effective on March 1, 1956. According to this contract, all titles of the Swedish claims on the German Reich which so far had been paid by Sweden and were held by the FCCO were transferred to the Treuarbeit, which would regulate their further settlement after deduction of a 12 percent administrative fee. The money raised by the Treuarbeit would be paid into a special liquidation-equalization account (Liquidationsausgleichsfond) in Germany to be used for the compensation of the former German owners. The other source for that fund would be the money left from the Swedish liquidation, estimated at SKr 60 to 65 million.70 The Allies only heard about these talks in December, when Boheman told the State Department that so far these discussions “had been moving ahead in a very satisfactory manner.” Yet, because the SKr 20 million gap remained, “his government is still going forward in preparation of papers which would initiate arbitration proceedings with the three Allied Powers.”71 For now the Allies could do little more than stand by and occasionally repeat their standpoint on the SKr 150 million question. That was also the conclusion of a tripartite meeting held in London at the end of January 1956 on the subject of external assets. This meeting had been convened mainly on the urging of Great Britain. The British government thought that “the Allied powers ought not to be exacting reparations from 69. The German Finance Ministry had written to the German Foreign Office on Apr. 27, 1955, that the Lastenausgleich deferment should be lifted. The FO had replied on June 14 that it had “considerable doubts” about such a step, which would be considered “an unfriendly gesture” by Sweden and which would “affect our relationship with Sweden very negatively.” The solution proposed a few days later muted any such pressure from the Finance Ministry; “Inoffizielle deutsch-schwedische Besprechungen, 11.-13. 10. 1955,” all ibid. 70. All the individual Swedish creditors had already ceded their claims to the FCCO after they had received the 15 percent payments. The bonds would be converted into DM and valued at the rate of Apr. 1, 1956—after the payment of the first coupon by Germany the day before; agreement: “Vertrag über die Verwertung von Forderungen schwedischer Gläubiger gegen deutsche Schuldner” and letter from Sandström to Féaux de la Croix concerning certain technical details, Jan. 17, 1956, attached to Bonn to Dept., Feb. 16, 24, 1956, both 258.6241/dates. The biggest items so transferred were the Dawes, Young, and Kreuger bonds, as well as Prussian state and Bank for Conversion (Konversionskasse) bonds. 71. Dulles to Stockholm, Dec. 5, 1955, 258.6241/date.

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Germany any longer” because Germany “has regained its independence and has become a member of the North Atlantic Treaty Organization and the Western European Union.” Consequently, it was also time to end the existence of the IARA, which, in the words of a British Foreign Office memorandum, was “a kind of bull ring in which the Three Powers, who negotiate on behalf of the other members, are subjected to constant baiting of their failures.” The function of the meeting was mainly to coordinate one last effort in the field of external assets so that the Allies could demonstrate to the other IARA countries that they had done “everything possible . . . on their behalf.”72 The other conclusion of this meeting regarding Sweden was that the Allies should point out in Bonn and Stockholm that “in the opinion of the Three Governments, JEIA funds would be an appropriate source from which to meet any gap in settlement.” After the end of the London meeting, the director of the Office of German Affairs, Jacques Reinstein, and his two Allied colleagues traveled to Stockholm. Meeting with Virgin and Sandström, they informed them that the JEIA funds had been turned over to Germany in May 1955 with a “substantial net mark balance.” The Swedish side was “surprised” to hear this fact as it had not been mentioned to them before by either party. Because this was a topic outside the scope of the German-Swedish discussions, it was up to the Allies to present this potential solution to the shortfall in Bonn. Despite mentioning this option “on three separate occasions,” the German side “demonstrated [a] remarkable lack of interest in this suggestion.” Further Allied inquiry made it clear that Germany thought there was a deficit in JEIA funds instead of a surplus because of yet-unsettled German claims on these funds. Although the “three power representatives expressed astonishment” at this German view, they could not, as they explained to the Swedish side, “exert pressure on the Germans to use the JEIA funds” but could only suggest such a settlement.73 72. British Embassy to State Dept., Oct. 21, 1955, folder: German External Assets—Memos and Documents, Conference on German External Assets and Looted Gold, Records of CFM; FO memo, “German External Assets in Former Neutral and Ex-Enemy Countries,” Aug. 20, 1955, quoted in Seidel, Angst vor dem “Vierten Reich,” 456. 73. Conference conclusion in U.S. Embassy, London, to State Dept., Jan. 31, 1956, folder: German External Assets—Memos and Documents, Conference on German External Assets and Looted Gold, Records of CFM; Sandström according to Cabot to State Dept., Feb. 4, see also Gekker to State Dept., Feb. 8, 1956, with a complete memo of these discussions, both in 258.6241/date; German lack of interest: Ambassador James B. Conant (Bonn) to State Dept., Feb. 10, 1956 (unnumbered), 258.6241/date; Allied reaction: Conant to State Dept., Feb. 10, 1956 (2703), 258.6241/ 2–956; “Memorandum of Conversation,” Virgin-Reinstein, Feb. 14, 1956, 258.6241/2–1156. At

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These talks were going on while Sweden and Germany were officially negotiating for a final settlement in February and March 1956. Germany had obediently, if rather tardily, informed the Allies of these negotiations; the Allies in turn waived their right to participate. Again, Féaux de la Croix and Sandström led the respective delegations. Reinstein and his colleagues were informed by the two sides on the progress. Germany was quite willing, as Féaux de la Croix explained, to settle for less than two-thirds, in the range of 60 to 62 percent, and to exempt Sweden from the Lastenausgleich. But it was Sweden that insisted on a two-thirds solution (or rather a 65.3 percent solution, if an administrative fee similar to the one in the Swiss agreement was taken into account) in response to domestic pressure and the belief that it should get the same conditions as Switzerland.74 For this reason the negotiations were interrupted in mid-February. Another issue not yet clear was whether the Allies would once again permit Sweden the resale of former German property to Germans, which was not allowed under the Allied-Swedish Safehaven agreement. The Allies had not yet answered a Swedish inquiry to this effect from February. Because the British Foreign Office wanted to hold this concession in reserve as its last possible bargaining chip, the Allies held back during the first round of the Swedish-German negotiations. France proposed at the last minute to make an Allied resale waiver dependent on Sweden’s assurance that it would not pursue arbitration, but the other Allies were not willing to risk the “collapse of Swedish-German negotiations” for such an assurance. Virgin was informed of the Allied waiver on March 3, and on the same day the Swedish-German agreements were initialed.75 the time of the transfer the Allies had blocked DM 50 million for possible claims on JEIA. They were willing to unblock this amount so that it could be used in the settlement with Sweden. Yet, Germany maintained that claims on the JEIA already amounted to DM 50 million. Such claims had resulted, for example, from the export of timber from the French zone during the early occupation period. The German property owners had complained that proper forestry practices had not been carried out and sought damages; see “Memorandum of Conversation,” Virgin-Reinstein, Feb. 14, 1956; Ambassador John Cabot (Stockholm) to State Dept., Feb. 24, 1956, 258.6241/date. 74. Talks were held in Bonn (Feb. 6–14) and Stockholm (Feb. 23 to Mar. 3, 1956). The German cabinet approved the instructions for the German delegation in its meeting on Feb. 1, 1956, Kabinettsprotokolle (1956), 9:159; Germany informed the Allies on Jan. 28, summarized in Conant to State Dept., Feb. 2, Allied reply, Feb. 3, summarized in Conant to State Dept., Feb. 4, 1956, both 258.6241/dates; German proposal: Conant to State Dept., Feb. 10, 1956 (2739), 258.6241/dates; Swedish views: Cabot to State Dept., Feb. 17, 1956, 258.6241/date. 75. Swedish inquiry was made during the Allied-Swedish discussions on Feb. 4; see Paul Gekker (Stockholm) to State Dept., Feb. 8, 1956; Allies held back: Conant to State Dept., Feb. 20, 1956; French views and waiver: Cabot to State Dept., Feb. 27, Feb. 29 (quote), Dulles to Stockholm, Feb. 29, and Cabot to State Dept., Mar. 5, 1956, all in 258.6241/dates.

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In the final agreement on “German Property in Sweden,” the two sides had not been able to close the remaining, albeit small, shortfall (DM 8 million, at the most) for a two-thirds settlement. The German Finance Ministry estimated that the former German owners could nevertheless expect a 60 to 62 percent compensation for their property. The major provisions of the agreement were that “German assets in Sweden will no longer be subject to liquidation or sale” (art. 1) and that the main June 1945 laws concerning German property were repealed (art. 2). According to a second agreement, expired German patents and trademarks would be reestablished “upon application” and the payment of the necessary fees. A third accord concerned the topic dear to Sweden, the Lastenausgleich. Swedish nationals and companies received the same exclusions as the other United Nations persons, meaning that they would not have to pay the levy for the time before March 1955.76 The agreements were ratified on August 3, 1956, and became effective a month later. Press commentaries in both countries were quite positive. In Sweden, the agreements elicited little attention, and newspapers for the most part reprinted an official UD press release. The only exception was the conservative Svenska Dagbladet, which in March editorialized about this agreement that “satisfaction should be great in Sweden since this ends a chapter in Swedish justice which is not among the most honorable episodes.”The editorial compared the treatment of German assets in Switzerland and Sweden and found that “Switzerland had the intelligence to interpret the [Washington] agreement wisely and cautiously” because it did not set out to liquidate the assets. Thus, a Swiss-German agreement had been accomplished four years earlier. It concluded that the “responsibility for Sweden’s inflexible measures rests with Undén, Minister of Foreign Affairs. Only in recent years has he modified his standpoint.” In Germany, the Studiengesellschaft thought it “distressing” that the former owners were getting back only two-thirds, while in the Swiss case they had received a full payment with a one-third reduction—certainly only a technical difference. But it had been the best possible outcome “under the circumstances,” as the Frankfurter Allgemeine Zeitung wrote. The paper also expressed relief that finally an issue had been cleared up “which had burdened German-Swedish relations for years.”77 76. German estimate in “Kabinettsvorlage,” Mar. 5, 1956, B 126/39096; final agreements annexed to Weir M. Brown (financial attaché, U.S. Embassy, Bonn) to State Dept., Mar. 20, 1956, 258.6241/ date. Until the agreement became effective the collection of the levy was deferred. 77. Svenska Dagbladet, Mar. 23, 1956, translated in Gekker to State Dept., Mar. 29, 1956, 258.6241/date; Frankfurter Allgemeine Zeitung, Mar. 24, 1956.

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By May 1959 the compensation of the former German owners was largely complete. In 90 percent of the cases, the money had been enough to reach a two-thirds solution. Under the final distribution owners had received 66.5 percent for any assets valued at less than DM 50,000 and 65.5 percent for any assets exceeding that amount.78 The Settlements with Portugal and Spain The settlement of the two remaining Safehaven agreements, with Portugal and Spain, was equally difficult. In the case of Portugal, the three sides agreed in 1956 that the Allies were to receive 12 million escudos ($418,000) from liquidated assets and German Reich property as well as payment on their final gold claim of 3.9 tons. Germany would fully reimburse Portugal for these payments with 144.5 million escudos (about $5 million) and 250 million escudos for the Portuguese wartime claims. Portugal would turn over all notyet-liquidated assets to Germany, which would take a one-third levy. Yet, not before 1958 did Germany and Portugal reach a final agreement on trademarks, patents, and wartime claims. The final accords were thus only signed in October of that year, and in 1959 Germany paid Portugal the monies under the 1956 agreement. Portugal then made its promised payments to the IARA and the Tripartite Gold Commission.79 In Spain, the liquidation of German property based on the May 1948 Safehaven accord proceeded quite successfully until 1952. By May of that year, the German shares in 75 of 118 companies had been sold and another 24 German companies had been liquidated. Only German-owned bank accounts, securities, and real estate had not been liquidated. These involved only comparably small sums, and the Allies would have liked to finish up the process quickly. But in the meantime the Federal Republic of Germany was increasing pressure on Spain, and Spain also thought that it had not received enough money under the accord. In July 1951, Spain stopped any further payments to the IARA. By that point the IARA countries had received 335 million pesetas (about $30.5 million), while Spain had kept 47.5 million pesetas (about 78. Die Welt, Apr. 30, 1959. The files concerning the technical details of the settlement as regulated by the Treuarbeit are in B 186. 79. Slany, U.S. and Allied Wartime and Postwar Relations and Negotiations with Argentina, Portugal, Spain, Sweden, and Turkey on Looted Gold and German External Assets and U.S. Concerns about the Fate of the Wartime Ustasha Treasury, coordinated by Stuart E. Eizenstat, 56– 58 (hereinafter cited as Eizenstat II); IARA, Final Report, 25–27.

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$4.3 million); 63 million pesetas from previously liquidated German assets remained outstanding.80 The final settlement came in the form of an April 1958 German-Spanish agreement. Spain agreed to stop the liquidation and lifted the freezing of German property in Spain. Not-yet-liquidated assets were turned over to Germany. The ban on the resale of German property to its former owners was lifted. German patents and trademarks were restored if Spain had not yet sold them—a provision similar to that in the agreement with Sweden. In an August 1958 Allied-Spanish agreement, the Allies received the outstanding 65 million pesetas (about $1.1 million at the severely lower July 1959 exchange rate) to go to the IARA countries and an additional share of 13.9 million pesetas ($200,000), which had been due to Czechoslovakia and Yugoslavia since the end of Spanish payments in 1951. This latter agreement was ratified in July 1959.81 This was finally the end of the all the Allied Safehaven agreements with the neutral countries. After the signing of the Allied-Swedish Safehaven accord, it took ten years, countless telegrams, and many working hours of concerned officials to settle all the questions that came out of it. One has to wonder about the administrative costs in bringing solutions to these questions. Nevertheless, the basic fulfillment of the terms of the accord with Sweden was never in doubt. Swedish and Allied goals were interconnected, though for different reasons. The Allies had an interest in getting money for reparations. Sweden, on the other hand, wanted to use the money out of the liquidation of the German assets to pay some of the German debt in the country. The Swedish government fulfilled most of its obligations to the Allies rather quickly. The payment to the International Refugee Organization was made and the money due directly to the Allies (the SKr 150 million) was paid once Swedish assets in the United States were unblocked. True, there were conditions attached to the payment of the SKr 150 million, and it would have been better if the money had been paid without restriction. Nevertheless, this payment could be used for the purchases of goods for Germany that would have to be bought anyway. The other payment, of the SKr 75 million, and the restitution of the gold took much longer, but did not concern Great Britain and the United States 80. Eizenstat II, 375–79, 408–16. 81. Seidel, Angst vor dem “Vierten Reich,” 451– 62; Eizenstat II, 86–87; IARA, Final Report, 18 – 20.

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anymore. Since there was no incentive left for either side to come to a quick solution, the issue dragged on forever but was finally solved. These payments—except the restitution of the monetary gold—were all concluded before a new actor entered the scene, the Federal Republic of Germany. Displaying a remarkable ability to forget why German external assets had been confiscated, the new state immediately began to question Allied policy. As much as the Allies—and the United States especially—were willing to integrate the Federal Republic into the Western alliance, they were hardly disposed to undermine the Safehaven treaties with the neutrals. Thus, any attempt to bring up the topic by Germany was doomed to fail and even resulted in a new law in August 1951, which hardly seemed appropriate anymore in that time of increasingly cordial German-Allied relations. However, Germany was urgently needed as a new bulwark against the Communist bloc, and Allied policy regarding external assets had to change to reflect these new requirements. In the end, it was Germany that mostly negotiated the settlements with the neutrals. As a result, the former restrictions on German ownership were lifted in all Safehaven countries. Germany mostly got back its property that had not yet been liquidated in return for payments the country made in some cases (Portugal, Switzerland). In the case of Sweden, all property had already been liquidated and the Swedish government had received the money for it, which covered its payments to the Allies. The main question for the German-Swedish settlement thus became how to compensate the former German owners. These final settlements were clearly in the interest of the neutrals as well. The more the standing of Germany improved and old European trading patterns were reestablished, the less interest the neutral countries had to continue a policy left over from the war. Thus, for all parties the whole affair had become an embarrassment. In the end, everybody tried to bow out gracefully, but the complicated subject matter did not lend itself to a quick exit.

Conclusion

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               , President Harry Truman wrote that “we asked for no reparations” from Germany and Japan. Even if Truman’s words were mainly intended for public consumption during a time of Cold War tensions, it was largely during his presidency that the policy of using external assets as reparations was executed. According to the final report of the InterAllied Reparation Agency, the combined efforts to locate German external assets in the four Safehaven countries as well as in Afghanistan, Ireland, and Tangier netted a balance of $44,658,839 in 1938 dollars. Of all these neutral countries, Sweden paid the largest amount, $29.6 million in 1938 dollars. It was naturally in the interest of all IARA member countries to use low valuations and exchange rates for their statistics. A more realistic picture is probably provided by the numbers in the second Eizenstat report, which estimated the payments from the four neutral countries at $127.8 million in postwar 1940s dollars. Of these payments, around $24.7 million, or 19.33 percent, went to the Paris reparation fund for refugees. With its payment of SKr 50 million, Sweden contributed 54 percent of the fund’s total and remained the largest contributor to this fund.1 All these figures exclude the gold settlements. The amounts the Allies realized in the end through the Safehaven program were meager in comparison to their initial assumptions about the amounts 1. Harry S. Truman, Memoirs: Years of Trial and Hope, 238; IARA, Final Report, annex 6. The amounts allocated from German assets in Afghanistan, Ireland, and Tangier were very small; Eizenstat II, xvi, lv–lxv.

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they would receive. The FEA had estimated the value of German assets in the four Safehaven countries as between $628 and $900 million in 1945, the largest portion of them in Switzerland, with an estimated $300 to $600 million. A 1952 study of the German Parliament estimated the value of German external assets in the four Safehaven countries and Ireland at $387 million in 1938 dollars.2 Surely the Allies had expected more money. Regardless of the exact amounts, for the United States the assets in the neutral countries represented the largest share of reparations from Germany ($12.6 million), second only to the German assets located and liquidated in the United States itself ($98.6 million). The situation was different for Great Britain and France.They had a greater interest in dismantled industrial plants, merchant ships, and unilateral deliveries and thus received a larger share from these categories than from external assets.3 Reliable numbers for German reparation payments after the war are notoriously hard to come by because of such complexities as valuation and devaluation fluctuations and currency conversion rates. Nevertheless, it is clear that the United States achieved its goal of collecting most of its reparations in German external assets, excluding the benefits that operations like Project Paperclip and the collection of German technical know-how provided. This aim, always the stated goal of U.S. reparation policy, in the end was successfully achieved. Bearing this aspiration in mind, it is understandable why the United States pressed on to implement Safehaven—despite continuous British reluctance—after the program’s initial wartime aims had taken a backseat. Money beckoned. Only a small amount of the money the Safehaven program took in was allocated toward the victims of Nazi Germany. It would have been even less if Safehaven had raised anything close to the FEA’s educated guesses—around 3 percent of the $628 to $900 million, depending on the estimate. No money was raised from heirless accounts in Switzerland or Sweden through Safe2. FEA estimates in “German Assets Abroad, Preliminary Estimate,” Apr. 30, 1945, folder: Enemy Assets, FFC Subject Files; TIDC Project 25, Study of the FEA Drafting Committee on the Treatment of the Allied Activities Relating to German Assets, 15, Lubin Papers. The numbers in the second report were much higher, although, at least in the case of Sweden, the first study was much closer to the 1945 Swedish census results than the second one; German estimate: Committee on the Occupation Statute, Document No. 3389, folder: German External Assets—Memos and Documents, Conference on German External Assets and Looted Gold, Records of CFM. 3. Great Britain received $13.7 million from external assets versus $49.8 million from category B reparations. France received $7.2 million from external assets and $43.4 million from category B reparations. Numbers according to IARA, Final Report, Schedule 2. All figures in 1938 dollars.

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haven, although the accords had stipulated that any such money be handed to the Allies for the “purpose of relief.”4 The Allies accepted the countries’ statements that no such assets were found because Safehaven by that time had become a program of very low priority and there was no willingness to exert pressure for such a seemingly minor aspect of it. The initial impetus for the inventors of Safehaven at the FEA had not been financial. Their interest was in eradicating any traces of Germandom abroad, including those in the neutral countries, in the interest of national and international security. These early inventors such as Samuel Klaus had big plans for the Safehaven program. Investigators from the FBI and the OSS were supposed to inspect German records in Berlin and other European cities including some in the neutral countries to gain a complete picture of German external investments. A United Nations body was to take over all these German assets and administer them for the benefit of all UN members. Clearly, Klaus was not alone in his ideas, since this proposal was later integrated into the FEA’s study project on external security. It was presented to the public when FEA officials testified before the Kilgore Committee in 1945 and received coverage in major newspapers. Of course, these plans were also part of a selfserving agenda to carve out a postwar existence for the agency. Yet, by that point any such concepts were on their way out, even if Klaus and Bernard Bernstein managed to put a very limited version into practice once they embarked on their investigations in Germany, which unfortunately also suffered from mutual competition. It has to be underscored that such plans were primarily driven by the desire to control Germany’s economy so that it would not be employed once more to begin another war. These officials were informed by the belief that in German hands any external asset of whatever kind would be used for such a purpose and that Germany should thus not have any. To these people, the issue was not primarily one of reparations. Any monetary advantage was only a secondary if welcome benefit. The State Department, however, always had very different views about Germany, as is apparent in its early planning of the postwar period. For this department and affiliated officials, the issue was not one of control but of free market. Germany, as the economic powerhouse of Europe, needed to be reintegrated with the world’s economy after the war. Eradicating its foreign investments was not a viable 4. Quote from the agreement with Sweden, letter 25. The agreement with Switzerland contained a very similar clause; see Barbara Bonhage, Hanspeter Lussy, and Marc Perrenoud, Nachrichtenlose Vermögen bei Schweizer Banken: Depots, Konten und Safes von Opfern des nationalsozialistischen Regimes und Restitutionsprobleme in der Nachkriegszeit, 239–40.

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strategy for such a plan, and the investments were, in any case, not deemed important enough. When the end of the war came closer and the State Department’s plans became known for the first time to a wide array of officials, the department immediately ran into pronounced opposition. Why should the vicious enemy the Allies were fighting be rebuilt only to perhaps engage in another war? The FEA had such concerns, but as a recent, wartime creation it did not have the clout in the disjointed bureaucracy of the Roosevelt administration to be heard. Rather, it took an FDR confidant to raise the issue of security from German aggression to prominence. Secretary of the Treasury Henry Morgenthau and his plan proposed taking external assets as reparations as part of his desire to save the world from Germany. In contrast to almost anything else the secretary proposed, there was not much dispute about these few words in the Morgenthau Plan. Hence, while the plan as such was tossed out, the proposal about Germany’s external assets became part of successive policy papers and was also incorporated into the financial proposals authored under the Treasury Department’s and Bernstein’s leadership. By the time FDR traveled to Yalta, these ideas had become part of his policy papers for the trip. Thereafter this scheme was quickly absorbed into the Allies’ postwar reparation planning. At Yalta it was apparent that both the United States and the Soviet Union were in favor of such a policy, which was in agreement with earlier Soviet thinking on reparations from Germany. It was an idea the British did not favor since they had continuing doubts about how these assets could be realized legally. But since they also had a hard time in keeping up with the permutations of American planning when it came to this question, an official British policy was never approved before Potsdam. For the other Allies, the question after Yalta was no longer whether those assets should be used, but how. At the Potsdam Conference external assets turned out to be a handy bargaining tool during the last days of the meeting. Last-minute maneuvering among the Big Three split the money between East and West, and each side proved to be fairly content with its share. German external assets in the neutral countries and elsewhere allegedly promised to be a very convenient source of reparations. They were easily convertible and already located outside Germany. At this point the security concerns that had initially started the program had moved into the background as financial gains became the impetus for the Safehaven program. As soon as the Western Allies, under U.S. leadership, tried to assert their claim to these assets, they encountered major problems. There was, first of all,

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inter-Allied dissent as British legal qualms continued. Great Britain had advocated initially that an organ of the German state, such as the Reichsbank, under Allied orders, should make the claim to Germany’s external assets. After the end of the war and the declaration of Allied supreme authority in Germany, there was of course no Reichsbank left, which made this option moot. In contrast, Edwin Pauley and Josiah E. DuBois had always favored an approach that would take such action through an Allied organ and thus advocated a vesting law through the Allied Control Council (ACC). British doubts remained on how such a law could be legal, but British officials could not hold out against the opposition of the three other Allies, and the ACC law was passed. It was a policy that rested on the belief that the United States, as the triumphant victor of the war, should use the opportunity to rewrite international law, as it was doing already, for example, at the trials in Nuremberg. During all this time the British had hoped for a different approach toward the Safehaven countries, one based on appeals to morality, not on legal arguments. If the neutrals wanted to again become part of the family of nations under Allied leadership, they had to demonstrate their goodwill by making German assets available to the Allies. The State Department mostly shared this Seymour Rubin approach to the neutrals, as it always understood the vesting law to serve only as a legal backup. The vesting law had the unfortunate side effect of creating a quadripartite Allied commission to supposedly administer all German external assets. But neither East nor West had any interest in questioning the arrangement reached at Potsdam and opening yet another (minor) front in the constant skirmishes between the two sides. Thus both sides proceeded relatively unhindered when it came to Germany’s external assets, and the German External Property Commission remained functionless, much to Deputy Military Governor Lucius D. Clay’s annoyance. Once the law was in place, the Allies approached the neutral countries, but they found that, secondly, these countries strongly doubted the legality of Allied action when it came to seeking German assets in their countries—as the British had warned all along. Under international law this private property was protected, a fact Nazi Germany had only circumvented before and during the war as part of a deceitful system to make the handover of such property ostensibly legal by forcing the owners’ signatures under duress.5 Now 5. In contrast to Swiss banks, which transferred the assets of their customers to accounts within the German jurisdiction without much hesitation, Swiss courts, when ruling in those cases, usually

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some in the United States wanted to quickly change this protection of property under international law. However, the United States was strikingly unsuccessful in convincing the neutrals of its legal interpretation, and the vesting law never had any lasting consequences. It thus remained the legal backup the State Department had envisioned it to be from the very beginning. Rather, in the Allied discussions with the neutrals, other measures, such as the freezing of neutral assets in the United States, the use of the Proclaimed List, and the general interest of some but not all neutral countries to avoid being marked as outcasts, supplied the Allies with the necessary leverage. Therefore, sanctions such as these were clearly important for the initial success of the Allies in getting the Safehaven agreements signed. For the U.S. Treasury Department, these measures were only poor remnants of the sanctions that might have been possible if the British had not protested. But Great Britain, nearly driven broke by the war and mostly left alone by its stronger ally, needed to revitalize its trade with Europe and hoped to take advantage of the absence of German competition in the early postwar years. The production capacities of the neutral countries had not suffered during the war, and at least in the case of Switzerland and Sweden they had expanded, so these neutrals were an important element in these plans. The State Department was not ready to risk unilateral sanctions, and therefore the Treasury Department protested in vain. Underlying this conflict was once again one of the basic and never-resolved contradictions of Safehaven: how could sanctions and other measures of economic control be enforced for years after the end of the war if the United States so strongly believed in the powers of the free market under U.S. leadership? After all, the greatest achievement of the United States– advocated Bretton Woods system was, in the words of Treasury lawyer Ansel Luxford, that it “was the death blow . . . over the economic isolationism of the prewar period.”6 Sweden served as the good example of the four countries that signed Safehaven agreements. Beginning with the first Allied overtures in 1944, Sweden was open to Allied suggestions and requests, and the dialogue between Sweden and the Allies proceeded with low but steady intensity. In 1945 Sweden made necessary changes to its own laws and set up an effective system of conblocked those assets in Switzerland. The courts, of course, did not have to fear for their business contacts with Germany. See Bonhage et al., Nachrichtenlose Vermögen, 148 – 51. Similar cases have not been found in Sweden since the Swedish capital market was much more tightly controlled than the Swiss; see Sweden and Jewish Assets, 133–34, 167–72. 6. Luxford, quoted in Richard N. Gardner, Sterling-Dollar Diplomacy in Current Perspective: The Origins and the Prospects of Our International Economic Disorder, xv.

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trolling German companies within its borders. The Allies, and especially the U.S. Treasury representatives in Sweden, continued to complain that they lacked influence in those affairs, but on the other hand the U.S. ambassador was quite impressed with the Swedish measures. Sweden had its own incentives to institute those measures. Not only did the country hope to satisfy its claims against Germany out of the German assets in Sweden, but also it was the declared policy of the socialist Swedish government to exercise control over and to nationalize certain industries.That meant that indirectly the United States was in favor of nationalization, certainly an unexpected position for the prime defender of capitalism. The United States was quite interested in the proper execution of the Safehaven program in Sweden, even if it did not show much interest in Sweden in other areas. The Swedish side had troubles with this keen interest of the United States. The laws had been passed and the FCCO set up, but from there on the administration was an internal Swedish affair. The Allies could not expect to have more influence on these internal Swedish matters, as officials from the FCCO made abundantly clear. Still, these steps were much more advanced and to Allied liking than those taken by the Swiss, who were much more reluctant to follow Allied requests. The Allied-Swedish negotiations in 1946 were informed by the same constructive spirit. In contrast to the negotiations with the Swiss, the Swedish reached an agreement relatively quickly. Swedish concessions, such as on the issue of gold that Sweden had received from Germany, helped to produce Allied amicability. The discussions over the final settlement were mainly a barter about numbers, and the Allies could be very happy with the financial outcome. Thereafter the liquidation of German assets in Sweden went forward with reasonable speed and was largely concluded before the formation of the Federal Republic of Germany. Remarkably, interest in the Allied countries in buying German companies in Sweden was never strong. Instead, they ended up mostly in Swedish hands, which the Swedish government surely did not regret. Meanwhile, only Spain had begun similar actions, Portugal had only barely begun the process, and Switzerland never did begin. At this point the Cold War had already dissipated any real U.S. interest in pressing the neutrals on Safehaven issues beyond its own monetary satisfaction. These neutral countries were now targets of recruitment for the Western Bloc, and Safehaven very quickly became unimportant. By the end of the 1940s, Sweden had transferred most of the amounts promised to the Allies and the IARA, and only a small part was still withheld because of difficulties with interpretation and the precarious Swedish financial situation. With the entrance of the Federal Republic of Germany, matters became

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infinitely more complicated. The German government and German interest groups did not allow Allied policy on German external assets to proceed unhindered. Strong opposition financed by German industry formed, and at various levels German officials questioned Allied policy. It is doubtful whether Chancellor Adenauer himself was very convinced of these policies—he was working on larger goals than these—but he was at some points bound to satisfy domestic concerns. The Allies were clearly very reluctant to chop away at the foundations of their reparation strategy when so many countries were involved, but they were then pushed into the uncomfortable position of defending a policy that was clearly no longer fashionable. In the end, it was more in Germany’s than in the Allies’ interest to negotiate once again with the neutrals, and the results were the final settlements, first with Switzerland and then with Sweden and the two remaining Safehaven countries, Portugal and Spain. In the final analysis, was the Safehaven program successful? In general it had two major goals and one minor one. There was first the early aim of controlling Germany’s external assets for the purpose of future security. In this, Safehaven was certainly not successful as this aim so quickly fell out of favor and nobody in any position of authority had an interest in pursuing it in a serious manner. In its second aim, to raise reparations, the program was fairly successful, although the amounts raised were less than anticipated. The third aim was less overt but clear nevertheless. This was the aim of displacing German economic interests in Europe for the benefit of Allied, and more specifically British, trade. In this the Safehaven record is mixed. At least in Sweden the German companies were sold to non-German interests, and many of them ended up in Swedish hands. For the other countries the results were less promising. But there was also the issue that this was a policy that sounded good in 1945 but not anymore in 1950. Matters reversed because of political necessities, and the German-neutral agreements repealed the ban on the German acquisition of companies. Together with the German economic expansion of the 1950s and later, these agreements provided for renewed German influence in the European economy. There is also the question of whether the intended economic replacement of Germany was ever a realistic goal. The Allies noticed quickly that it was difficult if not impossible to replace Germany’s economic capacities in Europe, which was therefore one of the many reasons for allowing the German economic revival. Finally, we have to return to the question posed at the beginning. What does the program tell us about the role of neutral countries during and after the war? Clearly, the assessment of their actions was not positive. When the

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United States entered the war in December 1941, it shed any lingering pretensions of neutrality. This was now a war in which the moral dichotomies of good versus evil seemed to be certain, and the Allies were shouldering huge expenditures that would also later benefit the neutral countries. In this situation any remaining neutral countries became suspect since they appeared to be only reluctant supporters of the Allied cause, especially after 1943, when it became clearly apparent which side was winning. The national interest of the United States and the other Allies to win the war stood against the national interest of the neutrals to preserve their sovereignty. Naturally, each party claimed to be in a superior moral position. After the war the neutrals were required to show that they were again ready to become responsible members of the new world order under U.S. leadership. Such an appeal to morality was shared by the members of the State Department and British officials for varying reasons, even if others in the United States argued for a much harder line toward these countries. But forcing the neutrals to do what the Allies told them turned out to be very difficult, and only Sweden appeared to be truly receptive to moral appeals. Beginning in 1947, the new focus on the Cold War quickly turned attention away from Safehaven questions as the neutrals had to begin proving their loyalty in other areas. The issue only reappeared again once the Cold War was over, and remarkably, at least for politicians in the United States, with comparable moral dichotomies, as the lectures on morality and neutrality in the Eizenstat reports demonstrate.7 Did the resulting debate settle the issue? Perhaps.

7. See Gabriel, American Conception of Neutrality, 45–65.

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Index

Aarons, Lehman C., 208 – 9 Abramson, Jacob, 253 Abs, Hermann Josef, 309, 326 –27 Accumulator AB Tudor, 10 –11 Acheson, Dean, 21, 22, 24, 26, 85, 177, 207; British and, 137– 38, 216; on memo of Allied demands on neutrals, 85 – 87; negotiations with Sweden and, 137– 38, 251, 287; sanctions and, 216, 218 –19 Acts of Dispossession, 38 – 39, 262 Adcock, Clarence L., 175 Adenauer, Konrad, 195, 305 – 6, 310, 312, 342 Advisory Committee on Post-War Foreign Policy, 68–71 AEG Elektriska, AB, 11, 33, 246, 297 Afghanistan, 335 Africa, 26 Agriculture, Germany’s, 52, 81, 84, 115 Aircraft Production Ministry (Britain), 165 Alien Property Custodian, Office of (APC), 22, 31n3, 167, 235, 243, 282 Allied Control Authority (ACA), under ACC, 204 Allied Control Council (ACC), 115, 168 – 69, 177, 224; acting separately from Allies in Safehaven negotiations, 212–13; coordinating occupation of Germany, 87, 92, 194, 228–29; dissolution of, 228; German civilians and, 119, 194; as German government, 107n25, 195, 250, 278, 280, 285; Law No. 5 of, 255, 276, 278, 285, 305 – 6, 308–9, 311; legality of claim on German

assets, 113, 152, 206, 261; managing external assets, 104, 105–6, 111, 122, 187; Soviets and, 227; structure of, 204–5, 223; vesting decree by, 120, 146–47, 157, 203, 212–13; authority to pass, 195, 197; concerns about, 198, 207, 211, 248–49, 339– 40; limited influence to enforce, 195–96; purpose of, 107, 113; support for, 191, 207, 208–11, 229. See also German External Property Commission (GEPC) Allied Gold Declaration, 39 Allied High Commission (AHC), 307–11 Allied Military Government, in North Africa, 80 Allied Reparations Commission (ARC), 101, 106, 109–10, 212; on external assets, 108, 172, 190, 222–23; on vesting decrees, 107, 146, 208 Allied Shipping Pool, 16 Allied-Swiss Joint Commission 258 Allies: ACC acting separately from Allies in Safehaven negotiations, 212–13; charging for postwar assistance, 319, 322; claim to German assets, 113, 147, 151, 152; based on legal right vs. moral conscience, 212, 229, 249, 339, 343; legality of, 106–7, 136, 152, 191–92, 201, 247–50, 258, 260 –61, 279, 338–39; Contractual treaties with Germany, 311–13; control of external assets by, 74–75, 86, 108, 113, 300; control of Germany by, 51, 100, 186 –88, 221; controlling trade, 2, 18–19, 23 –24, 84, 188; cost of war to, 201, 343;

367

368 declaring transfer of German assets illegal, 38–39; disagreements among, 97, 113 –14, 218, 309 –10; on external assets, 53, 135 – 36, 161, 270, 301, 303 –7, 311, 341– 42; fearing future German aggression, 1, 29, 186, 190; on German companies in Sweden, 16, 246 – 47, 295 – 96, 341; German negotiations and, 307– 9, 324–25, 329–30; goals of, 2, 4 – 5; limiting German foreign economic power, 201, 231, 294; preventing future wars, 1, 29, 186, 190; on gold trade, 265 – 66; IARA and, 222, 271, 292– 94, 329; influence of, 40, 84 – 87, 271, 340; limits to, 58, 243 – 44, 296; on Sweden, 150, 153 – 54, 159 – 61, 243 – 44, 277, 296, 341; through supply agreements, 150, 160; international organizations created by, 214 –15, 217; investigations by, 27–28, 39 – 40, 161– 62, 164–65, 251–52; negotiations with neutral countries, 84 – 86, 191, 202– 3, 219 – 20; occupation costs of, 278, 288; on Poland, 97, 101; postwar relations with Germany, 2, 5, 305 –7, 310, 312–13, 322– 23, 334; relations with neutral countries, 36, 156; on reparations, 79, 95, 99, 109, 114 –15, 313, 322–23, 328 –29; as successor to German government, 113; Sweden and, 152– 53, 158, 244, 292– 93, 296, 298–300, 330; cooperation by, 145 – 46, 149, 154–55, 162; uses of payments by, 287–88, 294, 319, 324 –26; Switzerland and, 3, 131– 34, 257, 315 –17; U.S. relations with, 315; war-trade agreements, 128, 130, 134 – 35, 234; Western, vs. Soviets, 72, 109, 116 –18, 220, 225; zonal division of Germany, 194, 223 –24; zonal plan of reparations from Germany, 114–15, 117, 220, 269. See also Britain; Safehaven; Soviet Union; United States Allison, Ellis, 253 Allison, John, 166 American Bosch Company (ABC), 235–37, 239, 243 American Bosch Magneto Company (ABMC), 235 Anderson, John, 74 Angell, James W., 50, 52, 212, 251 Anglo-American-Swedish Joint Standing Committee, 234 Anglo-Swedish Monetary Agreement, 126, 136 Argentina, 30, 37, 65 – 66

Index

Armaments and War Production Ministry (Germany), 64–65 Armistice and Post-War Committee (British), 74, 105 Arms, 20, 165, 176; German companies in Sweden producing, 10, 14–16 Armstrong, Hamilton Fish, 69n3 Army Air Forces, 165 Arnold, Elting, 283 Assets, Axis, 5; definitions of, 35–36, 42; discovering, 35, 36 Assets, enemy: Treaty of Versailles allowing seizure of, 5, 192; in U.S., 22–23, 281–83; war booty, 111–14 Assets, German external, 2, 77, 78, 83, 120, 181; Allies’ claim to, 147; legality of, 191, 200–201, 206, 258, 260–61, 279, 338– 39, 343; planning, 136, 152; Allies’ postwar control of, 53, 74–75, 86, 92–93, 107n25, 174, 176, 205, 329, 337; Bernstein and, 168, 174; cataloging of, 228– 29; Swedish, 128, 138, 141, 145–48, 151, 155, 157, 179–80, 261, 268; Swiss, 133– 34, 161–62; definitions of, 51, 54, 92, 103, 142, 200; division of, 200, 226, 270– 75; along Soviet and western lines, 121– 23, 220, 222, 224, 230, 338–39; final dispositions of, 334; foreign, 70, 96; foreignexchange, 92; German estimated total of, 304n30, 336; German External Property Commission and, 205, 228–29; German state property in Sweden, 275, 300–301; heirless, 222, 259, 278, 298–300, 336–37; hidden, 65, 149, 169; investigations into, 37, 54, 128, 165–66, 168, 172–73, 179– 80; monetary vs. nonmonetary gold, 221– 22; in neutral countries, 161, 335; Allies’ claim to, 112–13, 152, 201, 212, 339; control of, 48, 83, 105, 187; disposition of, 222, 341; negotiations about, 106, 191, 212–14; as reparations, 74, 124; U.S. and, 74–75, 78, 190; wanting to satisfy own claims out of, 201, 208, 221; new German government and, 303–6, 308–9, 311–12, 341–42; no settlement with Eastern bloc countries, 311; in occupied territories, 40; Pauley and, 104, 107, 112; in Portugal, 332; private property and, 196, 277, 284– 85, 298, 310–11; proposals for, 41, 82–83; as reparations, 5, 72–74, 77–78, 90, 97, 99, 102, 114, 119–20, 122–23, 190–91, 221, 335–36, 338; Safehaven under, 43; in Spain, 143n32, 332–33; in Sweden, 135,

Index

149, 231; Allies’ claim to, 147, 247– 50; amounts of, 157, 218, 246, 261, 301, 303; compensation for owners of, 319 –20, 324–25, 328, 331– 32; definitions of, 267, 276; disposition of, 152– 53, 156 – 57, 277; freeze on, 138, 142, 147, 148n41, 300; German nationals buying, 323, 330; liquidation of, 274–75, 280 – 81, 294, 296, 301, 328, 331; sale of, 157, 296 – 98; Sweden satisfying own claims with, 136, 142– 43, 155, 231, 246, 253, 270, 272, 341; in Switzerland, 133, 218, 255, 257; German negotiations about, 316 –18; intercustodial issues of, 314–15; liquidation of, 254 – 55, 314, 315 –16, 318 –19; Swiss census of, 133–34; tied to negotiations about debt, 306–9; U.S. position on, 31, 110 –11, 185; in U.S., 21–22, 28, 120 –21, 336; vesting decree to legitimize ACC control of, 113, 213. See also Looted property Assets, German within Germany, 89 Assets, of former German satellites, 122n55, 133, 150 – 51 Assets, of neutral countries, 219 –20, 340 Assets, of occupied countries, 20 –21, 21 Assets, of occupied territories, 39 Assets, Swedish, 252– 53, 280 – 83, 333 Assets, Swiss, 259, 318 Assets, transfer or disposition of German, 38 – 42 Assets, U.S., 21 Atlee, Clement Richard, 74, 117, 210 Atomena, AB, 15 Atomic bombs, 111, 122 Austria, 174; divided into spheres of influence, 121–22; Eastern, 220, 227 Axis, 27, 30, 42; property acquisition by, 39, 45. See also Germany; Japan Axis satellites, 150– 51. See also Germany, former satellites of Azores, 4, 215 Baker, George, 58, 143, 238 Baldwin, Raymond P., 40 – 41 Ball, Theodore H., 289 Ball bearings, 12, 17 Baltic refugees, in Sweden, 137, 158, 286 Bank for International Settlement (BIS), 178 Bank of England, 39, 40 Banks, 37, 89; European central, 256n44, 266; Swedish, 47, 128 –29, 233, 234, 238, 299; Swiss, 339n5

369

Banque de France, 255, 290 Banque Nationale de Belgique, 255–56 Bard, Ralph A., 103 Baruch, Bernard M., 183 Baumer, Walter, 179 Beaverbrook, William, 71 Bee, Robert N., 323 Belfrage, Leif de, 253, 282–83, 326 Belgium: gold looted from, 255–56, 263– 64, 279, 290, 292; as occupied territory, 150 –51; Swedish payments to, 294, 323 Belgium-Luxembourg Economic Union, 294 Bergquist, Thorwald, 144–45 Bergverks AB Vulcanus, 11 Berlin, ruins of, 110 Bernstein, Bernard, 80, 176; Clay and, 172, 174 –75, 189; investigations by, 166–69, 171–73, 239; at Kilgore Committee, 183 – 84; Klaus and, 171–72; on military government of Germany, 163–64; on reparations, 90–93; Safehaven and, 167–68, 337–38; Truman and, 171–72 Bevin, Ernest, 207; reparations negotiations and, 117, 119, 121; Soviets and, 120–21 Bilateral compensation and exchange agreements. See Clearing agreements Birch, John, 253 Bizonia, creation of, 288–89 Black List, of Combined Intelligence Objectives targets, 165 Blacklisting, 19–20; by Britain, 23–24; by U.S., 23, 27. See also Proclaimed List; Statutory List Blankenhorn, Herbert, 307 Bliss, E. H., 46 Blockade, of Germany, 18, 27, 36 Blockade Division, 30, 43, 45n34, 64 Blücher, Hans, 304 Board of Economic Warfare (BEW), U.S., 25 Board of Restitution (Swedish), 144, 155 Board of Trade (Britain), 34 Boforintressenter, AB, 10n4 Bofors, AB, 10, 10n4 Boheman, Erik Carlsson, 17, 130–31, 237, 286, 291, 324–25 Bohlen, 110 Bonds, German, 184; in agreement with Sweden, 326–27; Dawes, Young, and Kreuger, 302n27, 303, 328n70 Bowman, Isaiah, 68 Braden, Spruille, 177

370 Bradley, Omar N., 169 Brest Litovsk, 112n36 Bretton Woods Conference, 38, 41– 44, 52, 217 Bretton Woods Resolution, 42, 53, 96, 107n25, 133; demanding action by neutrals, 56–58, 130–31; lack of clarity of, 56–58, 140; lack of effects of, 126; Sweden’s compliance with, 130–31, 134, 138, 140, 145–46, 150–52; U.S. and, 53, 59, 78 Britain, 13, 165, 225, 234, 288; on Allied Reparations Commission, 101, 106, 107n26; Bretton Woods and, 42, 54, 57; distaste for Pauley, 101, 108, 113; economic warfare by, 18–20, 23–24, 27; on external assets, 34, 42, 107n25, 112–13, 150–51, 191, 216, 336; claim based on legal right vs. moral conscience, 249; Germany and, 111, 198; on looted gold, 39, 290; in negotiations with Sweden, 140 – 43, 147, 274; at Potsdam, 116 –17, 118n48; preferred approach to neutral countries by, 4, 39, 85, 203 – 8, 213 –14, 339; Proclaimed List of, 159 – 60, 242; reduced world role after WWII, 4, 198; relations with Sweden, 17, 136, 242, 287; on reparations, 72–75, 96 – 97, 100, 105 – 6, 107n26, 118 –19, 328 –29, 338; Safehaven and, 2–5, 46, 198 –200; Safehaven payments to, 284, 336; on sanctions, 161, 214 –20, 229, 340; Soviets and, 71, 118, 198, 214; trade and, 82, 84 – 85, 126, 340, 342; trade with neutral countries, 4, 39, 87, 209; trade with Sweden, 13, 17, 125 – 26, 150, 160, 242, 287; U.S. and, 44, 46, 51, 118n48, 131, 137– 38; U.S. loans to, 198 – 99, 203, 210, 219; U.S. neutrality and, 19 –20; vesting decree and, 108, 147, 198, 203 – 8, 206, 213, 339; in zonal division of Germany, 115 –16, 223 –24. See also Allies; Churchill, Winston British Economic and Industrial Planning Section, of Foreign Office, 52 Bulgaria, 118; assets frozen, 150, 282; as former Axis satellite, 122n55, 150; Soviets getting external assets in, 121, 220, 227 Burns, Arthur, 45n34 Bush, Vannevar, 165 Businesses, German abroad, 200. See also Sweden, German companies in Business Intelligence Committee, 167 Buxton, G. Edward, 180 Byrnes, James F., 26, 110, 119, 173; on ex-

Index

ternal assets in spheres of influence, 122; at Potsdam, 118–19, 174; on sanctions, 216, 219; Soviets and, 114, 116–21; on vesting decree, 210, 212n42; on zonal reparations plan, 114, 115n42 Cadogan, Alexander, 117 Campbell, Ronald Ian, 85 Capital, German, 33–34, 317 Capital flight, 2, 37, 268; Allies’ attempts to prevent, 8, 39–40, 43, 53–54, 58; Blockade Division tracking, 30, 45; neutral countries’ role in, 53–54, 58; prevention as original Safehaven goal, 31, 57–58, 63–66, 232; rarity of, 63–66, 298; small amounts in Sweden, 253, 298; U.S. concern about, 33, 45n34, 53–54, 96 Capitalism, 42–43. See also Trade, U.S. belief in free trade Cassoday, E. J., 228 Castelmur, Linus von, 3 Central European Division, of State Department, 96 Charquéraud, Paul, 131, 242, 250–51, 258 Cherwell, Frederick, 82n29 China, U.S. freezing assets of, 21 Churchill, Winston, 81, 98, 110, 234; Quebec agreement and, 49, 82; Roosevelt and, 82, 97; Soviets and, 97, 118, 226 Civilian agencies, on investigation of Safehaven targets, 167–68, 170 Civilians, German, 8–9, 194; maintenance of living standard for, 68, 74, 88, 109, 111, 119, 163, 275 Clark-Kerr, Archibald, 118 Clay, Lucius D., 88–89, 163, 204–5; on ACC, 120, 191; on authority for investigations, 167–68, 171; Bernstein and, 171–72, 174–75, 189; on external assets, 185–86; on German External Property Commission, 223 –26, 339; on industry removals, 226, 269; on vesting law, 120, 191, 212–13, 225; wanting investigations under military control, 171, 173 Clayton, William L., 1, 87n39, 166 – 67, 183, 203, 212n42; on external assets, 105, 220; Informal Policy Committee on Germany and, 102–3; in negotiations with British, 137–38, 198; in negotiations with Swedish, 137–39, 260; in negotiations with Swiss, 257–58; on spheres of influence, 114, 220; on zonal reparations proposal, 114, 115n42, 220

Index

Clearing agreements, 9; clearing billion, 317–18; Germany assumed to have gone bankrupt in, 302, 321; Swedish-German, 9, 289, 323; Swedish-German account, 143, 157, 264; Swiss-German account, 258n48 Clutton, George, 141 Coal: Germany exporting, 12, 131; Sweden’s need for, 12, 125–26, 150, 287 Coe, Frank, 30–32, 41, 103, 132; on capital flight, 58; on reparations, 77, 105; Safehaven and, 32, 43 – 45, 85 Cohen, Benjamin, 110 Cold War, 214, 226; influence on Allies’ relations with Germany, 190, 303, 334; loss of interest in Safehaven in, 341, 343; neutrality in, 7, 218, 286 – 87, 343 Collado, Emilio, 132, 171, 203, 216 Combined Chiefs of Staff: Bernstein and, 168n10; Directive 551 by, 87; sharing intelligence, 165 Combined Intelligence Objectives Subcommittee (CIOS), 51, 165 – 66, 172 Committee on Armistice Terms and Civil Administration (ACAO), British, 34, 97 Committee on Reparation, Restitution, and Property Rights, of State Department, 76 –79 Concentration camps, loot from, 169 Connell, Joseph J., 32 Contractual treaties, of Allies and Germany, 311–13, 325 –26 Coordinating Committee, of ACC, 203 – 5 Council on Foreign Relations (U.S.), 68, 71 Counterintelligence Branch (X-2), of OSS, 178 –79 Cox, Oscar: on capital flight, 32– 33, 58, 65; FEA and, 35, 50 – 51; fearing of putting Axis and neutrals on guard, 40 – 41; Safehaven and, 35, 43, 51, 85 Crassweller, Bob, 58 Crimea, Allied leaders meeting in, 94 Crowley, Leo T., 22, 183, 198; on external assets, 185–86, 237; on FEA’s role, 49 – 51, 82; negotiations with Sweden and, 135, 139; in postwar economic planning for Germany, 49– 50, 52, 82; Roosevelt and, 49 – 50, 52– 53, 82; Safehaven and, 43, 135n18 Culbertson, Paul, 217 Cultural activities, of German Americans, 32 Cumming, Hugh S., 242, 251

371

Cummings, Herbert J., 44–49, 58, 104, 166, 170 –71 Currency: conduits for, 47; counterfeit, 45– 46; in European trade, 287; German reform of, 314; hard, 288–89; Reichsbank hiding, 169; reserves, 221; Swiss, 133–34 Currie, Lauchlin, 25–26, 58, 69n4, 77, 85, 139; negotiating with Switzerland, 131– 34, 161; Safehaven and, 32, 85, 161 Czechoslovakia, 29, 150–51, 333 Dalton, Hugh, 72, 73n10 Dankwort, Werner, 149 Davis, Norman, 69n3 Dawes plan loan, 302n27, 303 Dean, P., 34 Debt agreements (London), 309, 313, 317– 18, 321–24; Germany vs. Swedish interpretation of, 326–27 Debts: German, 255n43, 263–64, 313, 317; to Germany and Germans, 148; Germany’s prewar, 78, 305, 321; external assets and, 93, 108, 202, 216, 306–10 Declaration on Dispossession, 42 Denmark, 13, 82, 125, 286; as occupied territory, 20–21, 150–51; Swedish payments to, 292–93 Dent, John, 191 Department of Justice (Swedish), 148 Despres, Emile H., 96, 102, 171 Destroyers-for-bases deal, 20 Deutsche Verrechnungskasse (German Clearing Office), 9 Diebold, William, 69–70 Directive 551, by Combined Chiefs of Staff, 87 Directive 1067, by Joint Chiefs of Staff. See Joint Chiefs of Staff ( JCS), JCS 1067 of Disarmament, of Germany, 36, 68, 98, 186 Divesting law, AHC, 310–11 Division of Economic Security Controls, 35, 217n54 Division of Investigation of Cartels and External Assets (DICEA), 175–76 Division of World Trade Intelligence, 23 Dodge, Joseph Morrell, 174 –75 Donovan, “Wild” Bill, 178–79, 181–82 Draper, William, 176, 185 DuBois, Josiah E., 91, 112; on external assets, 108, 113, 120, 152, 339; on reparations, 102, 106, 108; on vesting decree, 107n26, 195 Dulles, Allan, 178–79

372 Dulles, John Foster, 178, 236, 240 Durrer, Marco, 3 Easby, Dudley T., 65 Eastern bloc, 287, 311 Eastern Europe, 97, 101, 226 –27 East Germany, 314 –16 Economic Defense Board (U.S.), 24 Economic Intelligence Control Unit, of OSS, 180 Economic Intelligence Division, of FEA, 37, 43 Economic Ministry (German), 65 Economic sanctions. See Sanctions Economic warfare: choosing vulnerabilities for military actions, 27; U.S., 20 –25, 27– 28, 85. See also Ministry of Economic Warfare (MEW), British Economic Warfare Division (EWD), U.S., 55 Economic Warfare section (U.S. embassy, Sweden), 128 Economy: Allies’ power through, 84 – 85; Britain’s postwar, 198; Europe’s, 83, 337– 38; evaluating enemies’, 27–28; Germany’s, 78, 272, 306, 342; Allied control over, 5, 92–93, 109, 115; Britain’s efforts to disrupt, 18–20; destruction of influence through, 86, 201, 232; disarmament of, 98, 109; maintenance of, 73, 77, 87, 93, 103–4, 109, 275; mobilizations for wars, 183–84; postwar condition of, 163; prevention of war-making capacity through, 81, 92– 93, 98, 100, 213, 337– 38; recovery/expansion of, 68 – 69, 337– 38; reintegrated with West’s, 313; reorganization of, 80–81; unity of, 115 –16, 123, 269; Sweden’s, 125, 245 – 47, 287; role of German companies in, 9 –10, 153 – 54, 294, 297; shortage of foreign exchange, 288–90, 294; threats of “dislocations,” 213 Eden, Anthony, 71, 81, 99–100, 113n38, 115 Eisenberg, Carolyn Woods, 68, 89 Eisenhower, Dwight D., 87, 104, 169, 171, 207; Morgenthau and, 80 – 81; vesting decree and, 205– 6, 210 –12 Eizenstat report, 44, 178n28, 212n42, 335 Electricity, 133, 237n11 Elektriska Siemens, AB, 246 Ellsworth, Paul T., 77 Elsey, George M., 67, 87n40

Index

Emanuel, Victor, 22 Enskilda Bank (Swedish), 47, 232–33, 236n8, 238; Bosch and, 235–36, 239, 243; on Proclaimed List, 239–42; Safehaven negotiations with, 128–29 Erhardt, Ludwig, 305 Eriksson, Herman, 242, 266 Europe, 39, 83, 293; Britain’s trade with, 126, 340; divided into spheres of influence, 121–23; German external assets in, 32–33, 44–49, 304n30; Germany’s economic influence in, 68, 109, 187, 231, 342; postwar expectations for, 97, 136, 198; postwar policies for, 86, 87; reconstruction of, 86, 100 European Advisory Commission (EAC), 98, 108; JCS 1067 and, 89–90, 91, 103; obstacles to operation of, 75–76 European Coal Organization, 214–15 European Defense Initiative, 312–13 European Neutrals Committee, of ECEFP, 87 Executive Committee on Economic Foreign Policy (ECEFP), 50, 76–79; creation of, 60 – 61; on demands from neutrals, 86 – 87; papers by, 86–87, 93, 96; on reparations, 79 – 84, 83 – 84, 96 Executive Policy Committee, of FEA, 85–86 Fahy, Charles, 175, 206–7 FBI, 37, 48 Féaux de la Croix, Ernst, 326–27, 330 Federal Republic of Germany, 3, 334; claiming external assets, 305–7, 316–17, 341– 42; creation of, 228, 303; status of, 310, 313 Feig, Bernard, 58, 166–67; in jurisdictional disputes over Safehaven, 60–62; on negotiations with Sweden, 130, 134–35 Field Information Agency, Technical (FIAT), 171 Finance Directorate, under ACC, 204–5 Finance Division, of USGCC, 92, 172n17, 174–75 Finland, 14, 122n55; Soviets and, 118, 121– 22, 137, 220, 227 First-charge principle, German living standard as part of, 109, 111, 114–16 Fisher, Allan J., 58, 169 Fleischer, Otto P., 30, 62, 135 Fleming, John R., 84–86, 139 Fletcher, Otto, 253 Flyingindustrie, AB, 10n4

Index

Foley, Edward, 21, 22 Foot, Dingle Mackintosh, 130 – 31, 136 – 37, 141, 159 – 60 Foreign Affairs Committee, of German parliament, 307–8 Foreign Capital Control Office (FCCO) (Swedish), 144–45, 148 – 49, 155, 236, 240, 252, 277, 298, 328n70; Allies’ influence on, 153–54, 158 – 59, 243 – 44, 247, 341; liquidating German assets, 245 – 46, 294, 300 – 301 Foreign Economic Administration (FEA), U.S., 10n4, 26, 41, 173; authority of, 38 – 39, 170; on capital flight, 33, 35, 66; cooperation with other agencies, 36 – 38, 38n19, 87, 103; creation of, 26; dissolved, 27n38, 189; ECEFP papers and, 84, 93; on external assets, 157, 185, 336; future of, 48–51, 170, 188; Klaus and, 45, 47– 48, 139, 167–68, 170; negotiations with Sweden and, 135, 138, 139, 251– 52; operations of, 27, 53; organization of, 26 – 31, 51– 53, 165; in postwar planning for Germany, 48– 50, 82; relations with British, 138, 199; role of, 48 – 49, 61, 82, 337; Safehaven and, 3, 57, 66, 78, 130, 164, 167, 199; German Branch in charge of, 43, 52–53; goals of, 337– 38; jurisdictional disputes over, 35, 43 – 44, 58 – 59, 61–62; in planning for start up, 32– 33; staff of, 31–32; State Department and, 33–35, 51–52, 77, 86 – 87; Treasury Department and, 35, 170 Foreign exchange, 105; regulation of, 8, 128, 174; Sweden’s, 128, 253, 287– 90, 294 Foreign-Exchange Control (German), 8, 89 Foreign Funds Control (FFC), of Treasury Department, 35, 58, 166; creation of, 21; overlap of Safehaven with, 43, 53 – 54, 199; role of, 22–23, 45 Foreign Ministry (German), 324 Foreign Office (British), 34, 165; on approaches to neutral countries, 85, 201, 210 –11; MEW dissolved into, 199 –200; U.S. relations with, 53, 199 Foreign Office (UD) (Swedish), 140 – 41, 148, 243; Safehaven and, 128 –29, 244 Foreign policy, Sweden’s postwar, 125 Foreign Relief and Rehabilitation Operations, 26 Forrestal, James, 216 Fourth Reich, 48, 178n28. See also Warmaking capacity, German

373

Fowler, Henry H., 62, 103; in FEA, 52, 185 – 86; testifying before Kilgore Committee, 183, 185 France, 20, 82, 201, 242; in administration of Germany, 100, 225–26; Allied Reparations Commission and, 106, 108; assets of, 23, 150–51, 256; at Bretton Woods convention, 41–42; in negotiations with Germany, 309; in negotiations with neutrals, 217–18, 222; as occupied territory, 12, 150–51; in Safehaven negotiations, 2, 140, 151, 203, 257–58, 273; Safehaven payments to, 284, 290, 292, 336; support for vesting decree, 107, 212 François-Poncet, André, 311 Friedrich Krupp (Company), 10n4, 11, 192n4 Fritz, Martin, 12 G-5, 168–69, 171–72 Gay, Hobart, 169 General Analine and Film, 21, 237 General Counsel Office, of FEA, 43 Geneva conventions, 194n7 German Assets Committe (Swedish), 301–3 German Branch, of FEA, 52– 53 German Chamber of Commerce, in Sweden, 11, 251–52, 267 German External Property Commission (GEPC), under ACC, 204–5, 211, 339; Clay’s support for, 223–24; role of, 213, 220, 222–25, 229; Soviets and, 225–29 German school, in Sweden, 11, 148, 149n43, 157 German-Swedish Standing Committee, 234 German Working Committee, of FEA, 50, 52 Germany: Allies’ postwar relations with, 2, 5; charged for postwar assistance, 319, 322, 327; compensation for Swedes in, 302–3; Contractual treaties with Allies, 311–13; costs of occupation of, 278, 288; economy of, 313, 342; fears of future aggression by, 1, 29, 32, 48, 98, 183–85, 198; former satellites of, 122n55, 133, 282 (see also Axis satellites); France and, 100, 226; future government of, 202, 254, 270– 72, 277–78; government of, 88, 312; ACC as, 107n25, 250, 278, 280, 285; to accept Allies’ disposition of assets in neutral countries, 201; Allies representing, 113, 155, 193, 195; assumed to have gone bankrupt, 302, 321; influence in Europe,

374 158, 294; military government of, 90, 174; negotiating with neutrals, 342; neutral countries’ trade with, 214, 217; new government of, 303 – 6, 336; postwar administration of, 174, 223 –24, 226 (see also Occupation, of Germany); postwar conditions in, 163; postwar planning about, 48 – 50, 49, 52, 87, 123; postwar treatment of, 67, 81–82, 87, 163 – 64, 182– 88; proposals to split up, 81– 82, 186 – 87; reparations from, 313, 322–23, 328 –29, 335; Safehaven investigations in, 48, 169, 178; settlement with Portugal, 332, 342; settlement with Spain, 333, 342; settlement with Sweden, 313 –14, 319 – 32, 342; settlement with Switzerland, 258, 313 –19, 342; Spain’s affinity for, 47– 48; state property in Sweden, 261– 62, 274, 300 – 301; surrender of, 143; Sweden and, 16 – 18, 143; Swedish assets in, 155, 252– 53, 268 – 69, 320; trade and, 2, 8, 13, 126, 289, 337– 38; trade with Sweden, 13, 18n16, 155, 156, 264 – 65, 287; U.S. assets in, 21; in wartime, 2, 13, 97, 317. See also Assets; Federal Republic of Germany Gilbert, Samuel S., 58 Gimbel, John, 177 Glasser, Harold, 58, 107n25 Gold: Allies’ possession of, 169, 221; looted, 39, 236n8; Dutch, 291, 323, 325; restitution of, 120–21, 222, 254, 323 –24, 333 – 34; in Safehaven negotiations, 262– 67, 278 –79, 279; vs. nonlooted, 265 – 67; monetary vs. nonmonetary, 221–22, 256n44, 263, 265; neutral countries paying in, 74, 258 – 59, 314; Reichsbank hiding, 169; reparations and, 105, 119; in Safehaven agreements, 332; Sweden’s, 287, 290; trade in, 30, 47, 129, 133 – 34, 254 – 58 Gold Declaration, 42 Gordon, David, 30, 85 Göring, Herman, 179, 233n3, 234, 298 Göteborg traffic, 13, 17–18 Greece, as occupied territory, 150 – 51 Grew, Joseph C., 107 Gromyko, Andrey, 121 Grönwall, Tage, 141, 154, 254, 265; on Allies’ claim to assets, 248 – 49; Safehaven negotiations and, 244, 252– 53, 271 Gustav V, King (of Sweden), 144 – 45 Gutehoffnungshütte, Oberhausen, 10 –11

Index

Hägglöf, Gunnar, 9 Hague Conventions (1907), 6; on neutrality, 14; on occupation, 193, 194n7, 195 Halifax, Lord, 209, 216, 220 Hallstein, Walter, 313 Hamburg-Amerikanische PacketfahrtAktien-Gesellschaft (HAPAG), 15–16 Hammarskjöld, Dag, 292–93 Hanley, J. Daniel, 34 Hansson, Per Albin, 125, 143–44 Harriman, Averell, 98n6, 111, 115, 220 Hayes, Carlton, 47 Heath, Donald R., 91, 93 Henkel, 167 Hilldring, John H., 183 Hirs, Alfred, 256 Hitler, Adolf, 179 Hoesch and Gutehoffnungshütte, 11 Hoffman, Michael L., 146–47, 208–9, 239 Hoffmann, Walter, 304–5 Holmbäck, Åke, 301 Homer, Sidney, Jr., 30, 35, 44–45, 61, 128, 130 Hoover, J. Edgar, 37 Hopkins, Harry, 51, 58, 83, 97, 101 Hull, Cordell, 21, 34, 51–53, 70, 79n22, 82 Hungary: assets of, 150, 227, 282; as former Axis satellite, 122n55, 150; Soviets and, 118, 121, 220, 227 I.G. Chemie/Interhandel, 237 I.G. Farben, 21, 102n15, 237, 314; Bernstein and, 171n15, 175–76; FEA investigating records of, 170–71; Klaus and, 32, 171n15; Safehaven investigation into, 171–73 Import-management program, Nazi, 8–9 Industry: German, 8–9, 52, 68, 74, 133, 171n15 (see also Sweden, German companies in); dismantling of, 77, 81–84, 112, 186–88, 226, 269; equipment from, 114, 119; need to rebuild, 93, 98, 163; postwar planning for, 79–80; preservation of, 88– 89; protecting assets, 64–65; reparations and, 97–98, 119; Soviet removals from, 112, 116–19; Spain affinity for, 47–48; in Sweden, 9–12, 14–16, 33, 46–47; war, 165, 184, 188, 269; of neutrals, 340; Swedish, 246, 341 Informal Policy Committee on Germany (IPCOG), of State Department, 102–3, 105, 174

Index

Intelligence agencies, 36 – 38, 43, 51, 92, 165. See also specific agencies Inter-Allied Committee for the Control of German State Property in Sweden, 149 Inter-Allied Control Commission for Germany (post-World War I), 36 – 37 Inter-Allied Reparation Agency (IARA), 209, 212, 220, 224, 267, 314, 329; reparations categories of, 221; countries of, 221, 225–26, 312, 329; distributing assets, 231, 299–300, 335; role of, 221–22; Spain and, 332–33; Swedish payments and, 270 –71, 273, 275 –78, 292– 94, 319; Swiss and, 256, 259 Intergovernmental Committee on Refugees, 271, 279 Interhandel, 314, 318; I.G. Chemie/, 237 International law: Allies creating new precedents in, 207, 339 – 40; legality of Allies’ claim for German assets in, 260 – 61; vesting decree and, 207, 248 – 49, 304 International Monetary Fund, 214 –15, 217 International Refugee Organization (IRO), 222, 284, 299, 314, 315n46, 333, 335 International Study Group on Germany (ISG), 306, 309–10 Investments: German in Sweden, 9 –12; in Germany, 155, 184, 313; Germany’s foreign, 96, 99, 105, 119, 337– 38 Investor, AB, 233, 236 Ireland, 6, 56, 335 “Iron Curtain” speech (Churchill), 226 Iron ore, Germany importing, 12, 13n7, 17 Isenbergh, Max, 299 Isolationism, U.S., 198, 340 Italy, 26, 71n8, 118; Allies trying to cut German trade with, 131, 133; assets of, 37, 150; German assets in, 46, 227 Jackson, Wayne G., 139 Japan, 122, 294, 335; assets of frozen, 21, 133, 147, 148n41, 282; surrender of, 150, 174 Jerram, Cecil Bertrand, 241 Jews, 102n15, 298 Johnson, Herschel Vespasian, 33 – 34, 63, 126, 250; in negotiations with Sweden, 139, 140 – 42, 144 – 46, 155 – 56; on Sweden’s cooperation on Safehaven, 158 – 59; on Swedish vs. Allied control of assets in Sweden, 152– 53, 156 – 57; Wallenbergs and, 234, 238 – 41

375

Joint Chiefs of Staff ( JCS), 76; JCS 1067 of, 88 – 89, 163n1; financial part of, 90–93, 168; revisions of, 90, 103–4 Joint Export-Import Agency ( JEIA), 288, 319 –20, 329; French equivalent of, 290 Jones, Jesse, 25–26 Junkers Flugzeugwerke AG, 10n4 Kaiserroda potassium mines, 169 Kaiser-Wilhelm Kanal, 81–82 Kaufmann, Erich, 195 Kennan, George, 122n55, 226 Kennedy, Sidney J., 45–46 Keynes, John Maynard, 41, 72–74, 198, 210 Kilgore, Harley M., 163, 171, 182, 224, 257–59 Kilgore Committee, 173, 175, 183–88, 337 Kirkpatrick, Ivone, 307 Kittrick, Thomas B., 178 Klaus, Samuel, 31–32, 58; Bernstein and, 171–72; Bretton Woods and, 41, 57; FEA and, 139, 170–71; German scientists coming to U.S. and, 176–77; goals of, 47– 48, 337; hopes for FEA role, 48–49, 61; investigations by, 35, 44–49, 167–68, 170 –72; in Sweden, 127–28 Knox, Gordon, 243–44, 246–47, 253 Koeltz, Louis, 204, 206 Korean War, 306, 310 Kreuger, Ivar, 233 Kreuger loan, 302n27, 303 Kumlin, Ragnar, 320, 326–27 Labor: German, 100, 112; Swedish, 9–10, 246 Landsverk, AB, 10, 297 Lastenausgleich tax, 319–20, 324–28, 330– 31 Latin America, 23, 25, 30, 223; Axis assets in, 37, 233n3 Laufer, Jochen, 98 Leahy, William, 110 Legal Directorate, under ACC, 205–6 Lehman, Herbert, 26 Lend-Lease, 20, 26, 27, 52, 69n3, 198, 203 Levy, Irving, 253 Lewis, Benjamin, 30–31, 35, 37, 45n34 Liberals (Sweden), 233 Lickfett, Herbert, 236 Liquidation Board (Swedish), 302–3 Locker, Melville E., 137–38, 152, 209, 253 “Long Telegram” (Kennan), 226

376 Looted property, 45, 89, 96, 127, 133, 135, 143 – 44, 162, 179; to be returned, 120 – 21, 221, 262–63; good-faith buyers of, 141, 144; negotiations with Sweden about gold, 262– 67 Lovitt, John, 139 Lubin, Isador, 101–2 Lundborg, Östen, 301 Luxembourg, 12, 294, 323 Luxford, Ansel F., 45, 340 Lyon, Frederick B., 180 Machinery, Germany importing, 12, 17–18 Maisky, Ivan, 97– 98, 108, 110 –11 Malkin, Herbert William, 72–75 Malkin Committee (British), 72–75, 76 –77, 97 Mallet, Victor, 126 –27, 130, 141, 146, 158, 234 Malta, Allies meeting at, 97 Mannesmann, 167 Mannesmann AB, 296 Margolies, Daniel F., 324 Markham, James E., 31n3, 167 Marshall Plan, 287 Matthews, H. Freeman, 58, 99, 110, 286; on sanctions, 217–18, 220 McCloy, John J., 89–91, 103, 305, 309 McCombe, Francis W., 213, 250, 272; on Safehaven negotiations with Sweden, 251, 260–61, 274, 278 –79; on Safehaven negotiations with Switzerland, 242, 250n34, 257– 58 McCormick, Anne O’Hare, 68 Media, 118, 169; on Safehaven, 57– 58, 257, 279 – 80; Swedish, 11–12, 149, 246, 249, 279–80; on Swedish-German agreement, 331; Swiss, 257 Medlicott, William N., 19 Mendelssohn and Company (Dutch bank), 235 Merchant, Livingston T., 33 Military: Allied, in Germany, 90, 171; Allied economic targets for, 27, 164; Allies wanting German participation in, 310, 312– 13; Axis, 27; Bernstein’s standing with, 168, 170; Britain stretched to support, 198; German, 81, 111; German scientists requisitioned by U.S. for research in, 177 Military, U.S.: ambiguity on postwar treatment of Germany, 76 Military bases, planning postwar, 69n3 Military government, of Germany and Aus-

Index

tria, 87–88, 163, 174; DICEA, 175–76; not invited to Paris Conference on reparations, 223n64; planning for, 80; Swedish concern about handling of assets of, 252n38; trade with Sweden and, 289–90; U.S. uses of Swedish payments in, 288 Military government, of North Africa, 80 Miller, Hoyer, 215 Millquist, Tore, 253, 295 Mining, by German companies in Sweden, 11, 297 Ministry of Economic Warfare (MEW), British, 18–20, 24, 34, 39, 143n32, 165; British vow to withdraw Proclaimed List and, 159–60; dissolution of, 199–200; Safehaven and, 46, 55, 166, 199 Ministry of Economic Warfare (MEWFO), under Foreign Office, 200, 213–14, 216 Ministry of Finance (German), 324 Ministry of Finance (Swedish), 240n15 Ministry of Supply (Britain), 165 Modig, Einar, 145, 148, 154, 252; Johnson’s negotiations with, 155–56; on sale of German companies, 245–46 Molotov, Vyacheslav, 97–99, 227; Byrnes and, 116–19; on Poland, 117–18; Truman and, 101, 111; zonal reparations plan and, 114, 220 Monckton, Walter, 107n26, 111–12, 115 Montgomery, Field Marshall, 206, 211 Morgenthau, Henry, 20–21, 91, 103, 132, 134, 167, 173, 178, 237; Bernstein and, 163–64, 171; “Brain Trust” of, 69n4; Crowley and, 22, 28; goals of, 64–65, 93, 98; on Klaus, 32, 45; on plans to reorganize German economy, 80–81; on reparations, 79–84, 83, 102; on Wallenbergs, 238–39 Morgenthau Plan: on dismantling Germany’s industry, 83–84; on external assets, 93, 187; goals of, 80–81, 338; harshness of, 81–82; Roosevelt and, 49, 51, 83–84 Morocco, 53–54 Moscow, ARC meeting in, 146, 208 Moscow conference, of foreign ministers, 69–71, 75 Moscowitz, Irving, 62 Mosley, Philip, 70n7, 114 Murnane, George, 236 Murphy, Robert D., 90 Museums, hiding art, 169 Myrdal, Gunnar, 155, 156, 245

Index

Naamloze Vennootschap en Handelmaatschappij Rollo (Rollo), 10 –11 Narvik, Norway-Luleå, Sweden railway, 11 Nationalism, German, 181 Nationals: assets of Germans, 142, 162, 197; enemy, in Sweden, 200, 281; Allies demanding list of, 135 – 37, 141– 42, 157– 58; enemy, in Switzerland, 162; German, in neutral countries, 177, 187– 88; German, in Sweden, 276, 323, 330; repatriation of, 158, 187– 88, 267, 276; Swedish, 298, 328; Lastenausgleich tax on, 320, 324–26, 330–31; Wallenbergs as blocked, 239 – 41 NATO, 286, 329 Naval, Military, and Air Intelligence (Britain), 165 Navy Department, U.S., 90, 103, 165 Nazis, 171n15, 184, 207; assets of, 65, 174, 179–80; fear of mobilization by, 64 – 66; support for, 11–12 Ness, Norman, 79 Netherlands, 29; assets of, 23, 150 – 51; gold looted from, 265– 66, 291, 323, 325 Neutral countries, 177; Acts of Dispossession aimed at, 38 – 39; Allies’ approaches to, 39, 136, 191, 202– 9, 213 –20, 229, 339; Allies’ negotiations with, 212–13, 217; Allies’ pressure on, 23 –24, 40, 58, 86–87, 195–96, 219 –20; Allies’ requests for action by, 18–19, 42, 54 – 55, 77, 84 – 86, 131, 147, 222; assets of, 22–23, 219 – 20, 282, 340; Bretton Woods Resolution and, 42, 54, 56–59, 126; British relations with, 23–24, 39, 209; differences among, 217; existence of questioned, 6 –7; external assets in, 2, 39 – 40, 93, 106, 122n55, 161, 190, 200–202, 335; definitions of, 35–36; Germans hiding, 1, 31, 34; note inviting to negotiations about, 212–14; proposed control of, 48, 105, 187; proposed uses of, 73–75, 97, 124; respecting private property rights, 196 – 97; U.S. dismissing, 70, 74–75, 78; wanting to satisfy own claims out of, 201, 208, 221; flight capital and, 53 – 54, 56, 96; German influence in, 30 – 32, 46 – 47, 86, 182, 191, 337; Germany needing raw materials from, 8, 12; Germany selling European gold reserves to, 39; heirless assets in, 222, 299 – 300; legality of ACC vesting decree and, 196, 339 – 40; legality of Allied claims to external assets in, 83, 106 –7, 152, 192,

377

200 –201, 206; based on legal right vs. moral conscience, 211, 229, 249, 339, 343; negotiations with new German government, 303–5, 342; profits from war, 84, 201; reparations from, 86, 338; Safehaven agreements with, 221, 334; Safehaven and, 3, 178; Safehaven goals in, 232, 337; Safehaven negotiations with, 160, 333; Soviets claiming war booty in, 112; trade by, 18–19, 84–85; trade with, 4, 27, 209, 340; trade with Germany, 2, 191; UN membership of discussed, 118–19; U.S. relations with, 40, 85–86; Western, 112– 13, 220. See also specific countries Neutrality, 192; Germany violating Sweden’s, 303, 323–24; morality of, 6–7, 342–43; Swedish, 13–14, 125, 218, 286– 87; Swedish violations of, 14–17; Swiss, 133, 256n45; U.S., 19–20 Neutrality Act (1937), 20 New Plan (1934), 8–9 Nixon, Russell A., 175–76, 183, 223 Norsk Hydro, 237 North Africa, 80 Northern Front, Germany launching, 13 Norway, 13, 14, 125, 286; frozen assets of, 20 –21, 150–51; German invasion of, 14, 20–21, 150–51; Swedish payments to, 292–93 Nuremberg trials, 102n15, 207, 339 Occupation, of Germany, 193–94, 196; conditions for ending, 306; costs of, 275, 278, 288, 306, 313n45; revision of statute of, 308 –10; supplies for, 163, 289; zonal reparations plan in, 117, 194, 223–24, 269. See also Allied Control Council (ACC) Occupied territories, by Axis: frozen assets of, 133, 150–51; gaining control of property in, 39–40; Germany looting, 40, 266 O’Connell, Joseph, 58 Office of Censorship (U.S.), 37–38, 38n19 Office of Economic Programs, of FEA, 30– 31, 43 Office of Economic Security Policy, of State Department, 201, 217n54 Office of Economic Warfare (OEW), 25–26 Office of Foreign Economic Coordination, of State Department, 26 Office of Naval Intelligence (U.S.), 37 Office of Scientific Research and Development (U.S.), 165

378 Office of Strategic Services (OSS), 38n19, 48, 165; Crowley working with, 37– 38; dissolved, 188 –89; FEA and, 36 – 37, 170 –71; on Safehaven, 164, 178 – 82, 188 – 89 Office of War Mobilization (U.S.), 35 Office of War Mobilization and Reconversion (U.S.), 173 Offner, Arnold A., 190 Oil, Sweden importing, 13, 16 Oliphant, Herman, 80 Oliver, Covey T., 59, 128, 146 – 47, 171, 196 – 97 Olsen, Iver C., 63, 126 –27, 137, 238 – 39; on negotiations with Sweden, 129, 145 – 46, 253 Olsson, Ulf, 243 Osram, 11 Pallas (film distributor), 11 Paris Agreements (1954), 312–13 Paris Conference on Reparation, 221–22 Patents/trademarks: Bosch, 237; German, 300, 319, 331– 33; not included in census of German assets in Sweden, 261– 62, 268 Patterson, Robert, 216, 219 Patton, George S., 169 Paul, Randolph, 251 Pauley, Edwin, 101, 110, 212; British relations with, 108, 113; on external assets, 104–5, 112, 190, 339; reparations and, 106, 116, 119; Soviets and, 111–12, 116; Truman and, 111, 116, 190; on vesting decree, 107, 339 Pearl Harbor attack, 25 Pehle, John, 22, 58 People’s Commissariat for Foreign Affairs (Soviet), 71 Philip Holzmann (company), 167 Planeten, AB, 236 Playfair, Edward Wilder, 105–6, 147; on approach to negotiations with neutrals, 202, 209 –11; on external assets, 108, 190 Poland, 39, 82, 106, 113n36; Allies and, 97, 101, 117–18; borders of, 117–19; on external assets, 41– 42; freezing of assets of, 150 – 51 Portugal, 6; Argentina and, 30, 37; final settlement with Germany, 342; German assets in, 47, 112–13, 304n30, 341; Safehaven negotiations with, 3 – 4, 84, 332; State Department asking for cooperation, 54–56; trade by, 12, 19, 215

Index

Potsdam, Big Three meeting in, 95, 110, 123n58, 173–74; anxiety to be done with, 121–22; division of external assets decided at, 113, 151, 190, 200, 220, 222, 338; lack of agreement at, 116–17; split among Allies over reparations at, 113–14, 121– 23; UN membership for neutrals discussed at, 216; vesting decree discussed at, 146, 206, 207; zonal plan for reparations from, 114–15, 194, 220 Potsdam Protocol, 119; contradictions in, 123, 269; external assets divided in, 222– 23, 314; reparations from external assets in, 122–23; satisfaction with, 339 Price, Byron, 33, 37–38 Proclaimed List, 36, 61, 267; Allies’ pressure through, 159–60, 214, 267, 340; German companies in Sweden on, 245; phased out, 219, 278; Sweden not wanting new companies added to, 155, 244; Sweden wanting names removed from, 143, 151– 54, 156, 267; Wallenbergs and Enskilda and, 239–42 Project Paperclip, 177 Proserpina, AB, 15 Providentia, AB, 233, 235, 241n19 Puhl, Emil, 256, 265, 266 Quebec, Roosevelt and Churchill meeting in, 49, 82–84, 87n40 Ravndal, Christian, 47, 63, 126, 159, 215n48, 267n64; in negotiations with Sweden, 139, 141; Olsen and, 145, 239; on Sweden’s cooperation, 149–50 Raw materials, 156; Allies’ control of, 2, 19, 131, 150; Germany needing, 8, 12, 178n28; U.S. supplies of, 25, 27 Rearmament, of Germany, 8–9, 306; after WWI, 29, 36–37, 183, 185 Reconstruction, postwar, 258; Allies wanting German external assets for, 201–2, 213, 270; Swedish contributions to, 260, 270, 272, 281 Reconstruction Finance Corporation, 25 Red Cross, 17 Red List (German), 24n30 Refugees, 32; Baltic, in Sweden, 136–37, 286; external assets paid out for, 294, 335; heirless assets to be given for, 259; Jewish, 36–37; Sweden and, 157–58, 271–72, 294 Reich Economic Ministry, 65

Index

Reichsbahn (German), 258 Reichsbank (German), 8, 169, 258; funneling funds to Sweden, 15 –16; gold trade of, 255, 263–64; proposed to handle German external assets, 92, 105 – 6, 113, 339 Reinstein, Jacques, 209, 211, 215, 329 – 30 Relief, 74, 270; external assets to be used for, 75, 93, 97, 202, 213, 270; heirless assets for, 298–99, 337 Reparations, 121, 313n45; after WWI, 69, 109, 184; Allied leaders discussing, 94 – 100, 122–23, 338; amounts of, 119, 279; Britain on, 73, 100; Soviets on, 72, 98 – 100, 116; British position on, 72–75, 96 – 97, 105 – 6, 107n26, 328 –29; divesting law for property used for, 310 –11; from external assets, 2, 5, 42, 70, 83, 86, 90, 102– 3, 122–23, 190 – 91, 202, 213, 231, 311, 335, 336, 338; German industry and, 93, 98, 119; German labor as source of, 100; German living standard vs., 109, 111; German postwar payments for, 336; InterAllied Reparation Agency for, 209, 220 – 21; in kind, 69 –71, 77, 97–100, 114, 336; other uses of external assets vs., 108, 143, 278; Paris Conference on, 221; in postwar planning, 49–50, 68 – 69; put off until peace treaty, 313; Safehaven and, 96, 337, 342; sources of, 73, 86, 100, 269; Soviet position on, 71–72, 75, 96 – 99, 111–12, 119–20; Swedish payments not called, 270, 273, 275 –76, 280, 284, 288; Swedish payments used for, 319, 324; timeline for, 99–100; UN in, 92; U.S. position on, 5 – 6, 67, 76–84, 96, 118 –19; U.S. proposals for, 77–78, 118–19; war booty vs., 111– 12, 114; zonal plan for, 114 –15, 123, 220 Reparations commissions: Soviet, 98. See also Allied Reparations Commission Restitution, 103, 310 –11; of gold, 221, 333 – 34 Richards, John S., 45, 58, 61 Riddleberger, James H., 96 Riefler, Wienfield, 55 Riegner Plan, 102n15 Riksbank (Swedish Central Bank). See Sveriges Riksbank Robbins, Albert, 55 Robert Bosch G.m.b.H., 234 – 37, 239 Robertson, Brian H., 204 – 5, 211 Romania, 220; as former satellite of Germany, 122n55, 150; Soviets and, 112, 118, 121

379

Ronald, Nigel Bruce, 42, 53, 57 Roosevelt, Franklin D., 67, 87, 95, 132; Crowley and, 26, 49–50, 53; death of, 53, 103, 139; discord in administration, 49, 51, 82; economic warfare and, 20–22, 24– 25; on German assets, 98, 103, 185; governing style of, 24–25, 67; Morgenthau Plan and, 82–84; not making postwar policies, 67–68, 75–76, 89, 94; reparations and, 83–84, 96–97, 101; at Yalta, 97, 100 Rooth, Ivar, 265–66 Rotes Haus meeting, 64 Rubber, Sweden importing, 13, 18 Rubin, Seymour J., 34–35, 112, 172n17, 197, 217n54, 224; on approaches to neutral countries, 137–38, 200–210, 213, 216, 339; defending blacklists, 160, 267; on disposition of German assets in Sweden, 270, 277; on external assets, 106, 108, 113, 120, 161, 166, 172, 202, 268; on German External Property Commission, 222–23, 230; looking for moral claim to German assets, 200–203; on reparations, 106, 108, 288; Safehaven agreement with Sweden and, 274, 276, 288, 292–93; Safehaven and, 57–58, 60, 62, 166; Safehaven negotiations with Sweden and, 128, 251, 253, 260–62, 271–72, 278 Rudlin, Walter A., 278 Ruhr area: Allied control of, 81, 111; in Morgenthau Plan, 81, 83–84; Soviets taking capital equipment from, 118–19 Ruhr-Rhineland area: UN control of, 186– 87 Russell, Francis, 58 Russia, 14, 16, 39. See also Soviet Union Saar, industry in, 83–84 Safe-conduct traffic. See Göteborg traffic Safehaven: amount of assets in, 190, 335– 36; Anglo-American relations over, 44, 198, 200, 210; approaches to neutral countries on, 40–41, 85–86; authority for, 35, 38–39, 167–70; basic assumptions of, 63–66; British role in, 46, 199; compliance with, 46–47, 146, 161, 340; effectiveness of, 3, 66, 180–82, 188–89, 342– 43; in Fleming’s proposal for Allied demands on neutrals, 85–86; Germany and, 312, 316; goals of, 2–5, 87, 188; changing, 232, 338; controlling capital flight, 31, 63 – 66; preventing German aggression,

380 178n28, 190, 337– 38; removing German economic influence, 191, 232, 337; investigations for, 36 – 38, 55, 63, 165 – 66, 178–82; jurisdiction over, 3, 33, 43, 52– 54; jurisdictional disputes over, 43 – 44, 45n34, 52– 54, 58 – 63; logistics of, 104, 164; loss of interest in, 337, 341, 343; motives for ending, 334; motives for pursuing, 29, 190–91, 336; negotiations with neutrals, 160, 332– 33; only one press release on, 57–58; OSS and, 178 – 82, 188 – 89; participants in, 147, 203; payments for, 221, 316, 327n67, 336 – 37; reparations and, 95, 338; start up of, 32– 33, 41, 56; studies on, 2– 3; U.S. starting, 1–2, 31. See also Foreign Economic Administration (FEA); Sweden; Switzerland Safehaven Liaison Group, 60, 143, 166; wartrade negotiations and, 132, 134 Sanctions: British refusal of, 216 –19, 229; to enforce Safehaven demands, 161, 203, 214–20, 340; opposition to, 217–18, 267; Treasury pushing for, 208 – 9, 220; uses of, 40, 188, 196, 208 – 9 Sandström, Alfred Emil: on German assets in Sweden, 260 – 61, 268 –70, 295 – 96, 298; on looted gold, 263, 265, 291; in negotiations with Germany, 323, 327– 30; on Proclaimed List, 267, 278; on Safehaven agreement, 273 –74, 276, 279; in Safehaven negotiations, 250 – 53, 262– 63, 270 –72, 278 –79, 324 Saxon, James J., 63, 141, 158 – 59 Scandinavian Defense Union, 286 Schäffer, Fritz, 305, 307– 8 Schenker and Co. AB, 296 Schmidt, Orvis A., 35, 42, 58, 60, 107n26, 132n14, 240, 263; Bernstein and, 168n10, 172; in Safehaven negotiations with Sweden, 243, 253; testifying before Kilgore Committee, 183, 185 Science and scientists, 65; Allied control of, 186; coming to U.S., 176 –77; German, 51 Scullen, J., 212 Secretary of Commerce (U.S.), 25 Secret Intelligence Branch (SI), of OSS, 178 Security, external. See War-making capacity, German Seidel, Carlos Collado, 3 Setchell, Herbert, 140 – 41, 244 Settlement Convention, 311–13, 320, 328 SFK (Swedish company), 320 Shea, Francis, 22

Index

Shwartz, Rella, 166, 253 Siemens, 297 Siemens & Halske, 10–11 Siemens Elektriska AB, 11 Siemens-Schukert, 47 Silver, Reichsbank hiding, 169 Skagerrak, Germany mining, 13 Skeppsbron, AB, 15–16 Snyder, John, 259, 283, 288 Social Democrats (Sweden), 233, 243, 245– 46, 341 Sohlman, Rolf R., 140–41, 150, 246–48 Sokolovsky, Wassili D., 204–6 Sorter, Herbert, 305 Sovereignty, 313; neutral countries’, 197, 343; under occupation, 193; Sweden’s, 154, 247, 280 Soviet Union, 39, 101, 106; British and, 97, 198, 214; external assets and, 122n55, 278, 338; East-West split of, 121–22, 226–27, 314, 338; spheres of influence in disposition of, 220, 222, 224; in U.S., 120–21; on German External Property Commission, 225 –29; Germany and, 29, 98, 115, 158; influence on Allies’ relations with Germany, 190, 334; interest in Baltic refugees in Sweden, 136–37, 158; in negotiations with neutrals, 57, 140, 214; on Potsdam results, 123n58, 338; power in Europe, 97, 125, 158; reparations and, 71–72, 75, 97–100, 118–22, 338; satellites of, 118; Sweden and, 140, 147, 278, 286; vesting decree and, 108, 212, 223; on war booty, 111–14; Western Allies and, 75, 109, 117. See also Cold War; Russia; Stalin, Joseph Spain, 37, 118; affinity for Germany and companies, 47–48; Allies’ demands on, 56, 84; German assets in, 46, 107n25, 112–13, 143n32, 192, 304n30, 306, 341; neutrality of, 6, 192; Safehaven and, 47, 53–54, 294; Safehaven negotiations with, 3, 215, 332–33; settlement with Germany, 333, 342; trade by, 12, 13n7, 19, 215 Special Areas Branch, of FEA, 29, 43, 84 Speer, Albert, 64–65 SS, loot from concentration camps, 169 Stalin, Joseph, 75, 101, 106; at Potsdam, 110, 117, 119; proposal for split of external assets, 121; on reparations, 71, 97, 119–22; Truman and, 111, 117, 121, 123 State Department (U.S.), 39, 90, 102n15,

Index

165, 177; administration of Germany and, 222–24; Allies’ demands on neutrals and, 54–58, 85–86, 152; on approaches to neutrals, 137– 38, 203, 211, 339 – 40; Bretton Woods and, 54 – 55, 152; on capital flight, 33, 34–35, 54–57; on external assets, 104, 143n32; FDR and, 67– 68, 75 –76, 95; FEA and, 34 – 35, 43, 51– 52, 86–87; on German External Property Commission, 222–23; negotiations with Sweden and, 134 – 35, 139, 260; in postwar planning, 50, 52, 67– 68, 75 –76, 103–4, 337–38; in preparations for Big Three conferences, 95 – 96, 110; Proclaimed List and, 159 – 60; reparations and, 69 –70, 76 –79; Safehaven agreements and, 275, 278, 288; Safehaven and, 3, 43, 51, 57– 58, 62, 104, 180 – 82, 189; in Safehaven jurisdictional disputes, 33, 58 – 59, 61–63; Safehaven memo to diplomatic missions, 54–57; Safehaven negotiations and, 213, 260; sanctions and, 161, 215, 217–18, 340; Treasury Department and, 132, 215, 240 – 41, 283; Treasury Department vs., 51, 82, 102– 4, 146 – 47, 158 – 59, 171, 173 –74, 208 – 9, 217, 225, 239; on vesting decree, 107, 207, 211, 212n42, 225, 229, 339 – 40. See also Division of World Trade Intelligence; Office of Economic Security Policy Statutory List, 219, 244; MEW Safehaven study group combing through, 56, 199; removal from, as inducement, 214, 267 Steel, Germany importing, 17–18 Stettinius, Edward, 26, 33 – 34, 52, 87, 132, 238–39; on Soviet reparations proposal, 97, 99; State Department under, 95, 173 Stimson, Henry, 82, 84, 175n22 Stinebower, Leroy D., 217 Stinnes, Hugo, 18n16 Stockholm’s Enskilda Bank. See Enskilda Bank (Swedish) Stödter, Rolf, 195–96 Stollbergs Gruvor, AB, 11 Stone, William T., 27, 29, 37– 38, 44, 51, 84, 130, 168–69; British stance toward neutrals and, 136–37; concern about capital flight, 30–31, 33, 45n34 Stora Kopparbergs, 297 Stora Långviks Gruv AB, 11 Stucki, Walter, 9, 257– 58, 314, 317–18 Studiengesellschaft für Privatrechtliche Auslandsinteressen (Society for the Study of

381

Private Law Interests Abroad), 304–6, 316, 331 Supreme Headquarters, Allied Expeditionary Forces (SHAEF), 164–65, 168 Surrey, Walter S., 47, 57–58, 126, 128–29, 132n14, 137, 159, 217n54; negotiations with neutrals and, 217, 221; in negotiations with Sweden, 134- 35, 138–39, 141, 145, 253; on Sweden’s goals, 154–55 Survey of Foreign Experts, 36–37 Svenska Hamburg Linien, 296 Svenska Handelsbanken, 16, 128–29 Sveriges Riksbank (Swedish Central Bank), 129, 148, 240n15, 289; gold transfers by, 263 –64; looted gold and, 254, 265–67, 290; Swedish payments from, 281, 284, 291–92 Sweden, 129, 291; Allies’ claim to German assets in, 112–13, 147, 152–53, 248–49, 260 – 61; Allies’ negotiations with, 84, 140 –45, 225; Allies promising no further claims on, 277–78; Allies’ relations with, 152–53, 156; assets of, 23, 219–20; Bretton Woods Resolution and, 57–58, 151– 52; British relations with, 136, 242, 287; British trade with, 125–26, 160, 215, 242; clearing agreement with, 9; companies in Germany, 268–69, 320; cooperation with Allies, 145–46, 149, 154–55, 162; defense of sovereignty by, 17, 154–55, 157, 162, 296; economy of, 24, 233, 245–46, 287–89, 297; effects of WWII on, 125; final settlement with Germany, 320–30, 332, 342; compared to Switzerland’s, 313 –14, 319, 330–31; freezing enemy assets, 147, 148n41, 150, 300; German assets in, 1, 127, 152–53, 155, 179–80, 304, 341; amounts of, 45–47, 218, 246, 261, 304n30; investments in, 9–12; satisfying own claims with, 231, 246, 270, 272; German companies in, 33, 151–52, 231, 244n24, 252, 305, 340–41; Allies trying to remove German influence from, 153– 54, 159; building ships, 14–16; categories of, 296–97; cloaking activities of, 179, 232; sale of, 245–47, 295–98; struggle for control of, 152–53, 155–56; German organizations in, 11–12, 340–41; government of, 11; claim on German assets, 302–3; passing Safehaven agreement, 128 –29, 152, 279–81; U.S. demand to change laws, 135, 137, 143–44; Wallenbergs and, 234, 243; on heirless assets,

382 298 – 300; neutrality of, 6, 13 –14, 192, 218; in Cold War, 286 – 87; violations during WWII, 14 –17, 303; on private property rights, 196, 249, 268; relations with Germany, 16–18, 29, 143; on reparations, 270–71; repatriation of Germans in, 158; Safehaven agreement with, 152, 273 –79, 320; implementation of, 245 – 47, 285 – 87, 330; monetary amount of, 270 –73, 279; motives for completing, 267, 333 – 34; possible arbitration on payments for, 324–26, 328; ratification of, 279 – 81; responses to, 304 – 5, 341; Safehaven compliance by, 46– 47, 150, 158 – 59, 340 – 41; Safehaven negotiations with, 4, 53 – 54, 126, 128 –29, 140 – 45, 231– 53, 259 – 85; about looted gold, 262– 67; agenda for, 247– 50, 251– 52; Allies’ influence in, 159– 61, 243– 44; Anglo-American relations and, 130– 31, 137– 38; arbitration clause in, 274–75, 277; compared to Switzerland’s, 254, 257, 278 –79; on division of German assets, 270 –75; Enskilda bank and, 241– 43; on German Chamber of Commerce, 251– 52; goals of, 253, 260, 294; participants in, 63, 126 –27, 139 – 40, 250 – 51, 253; process for, 270 –71; Safehaven payments by, 284, 287– 89, 292– 93, 323, 335, 341; Allies’ use of, 290, 324 – 26; to IARA countries, 292– 94; Soviets and, 57, 112, 158; trade by, 13, 24, 149 – 50, 161; war-trade agreements of, 128, 130, 134 – 35, 234; trade with Germany, 12–13, 17, 18n16, 156, 264 – 65; U.S. demands of, 56, 135 – 39, 141; U.S. relations with, 21, 126, 136, 286 Swedish Match monopoly, 320 Swiss Clearing Office, 161– 62 Swiss National Bank (SNB), 254, 256n44, 264 – 65, 267 Switzerland, 23; Allies claiming German assets in, 112–13, 258; Allies’ negotiations with, 24, 56–57, 84, 134, 225; ban on foreign currency trade in, 133 – 34; final settlement with Germany, 313 –19, 342; Sweden’s compared to, 319, 330 – 31; German assets in, 192, 235, 255, 257, 311, 339n5, 341; amounts of, 46, 162, 218, 304n30, 336; German debt to, 255n43, 317; government of, 255n43, 259; intercustodial issues of, 314 –15; in London debt talks, 317–18; neutrality of, 6 –7, 192, 256n45; relations with Germany, 21,

Index

29, 317; Safehaven agreement with, 3–4, 254, 259, 279, 314, 317, 318; final agreement in, 242, 250–51, 254, 258–59; Safehaven and, 47, 178–82; Safehaven negotiations with, 3–4, 54–55, 132, 135n18, 161, 231, 250–51, 278–79; main issues in, 254–59; motives for reaching agreement, 257, 259; Safehaven payments by, 284, 294; trade by, 24, 131–34, 161; trade with Germany, 9, 131, 132n13, 133 Tangier, 47, 56, 335 Taxes, German, 320; Lastenausgleich, 319– 20, 324–26, 328, 330–31 Technical Industrial Disarmament Commitees, of FEA, 53, 185 Tessalia, AB, 236 T-Forces, under Supreme Headquarters, Allied Expeditionary Forces, 164–65 Thulin, Gustav, 15–16 Timber, Swedish, 12, 125–26 Title, transfers of, 39–40 Tobis Film AB, 11, 244, 296 Trachtenberg, 123n58 Trade, 27, 160; Allies’ influence on, 18–19, 84–85, 159–60, 214; Britain’s, 39, 82, 136, 191, 202–3, 242, 340; capitalism and, 42–43; economic warfare through, 18, 23–25, 159–60, 287; German competition in, 82, 191, 231, 342; between German zones, 269, 289; Germans building ships in Sweden, 14–16; Germany’s, 8–9, 188, 191, 289; in gold, 89, 129; imports vs. reparations, 111, 114–16; of neutral countries, 7, 27, 209, 215; neutral countries as competition in, 18–19, 84–85; of neutrals with Germany, 214, 217; reparations and, 69–70, 108; Safehaven payments used for, 108–9, 213, 273–74, 288–89; Sweden’s, 13, 17, 125–26, 130– 31, 136, 149–50, 271, 273–74, 287; Sweden’s with Germany, 12–13, 17–18, 155– 56, 179, 264–65, 289–90; U.S., 19, 24– 25; U.S. belief in free trade, 5, 42–43, 161, 337–38, 340; war-trade agreements, 128, 130–31, 134, 149–50, 234; wartime, 8 Trade associations, after WWI, 36–37 Trading with the Enemy (Britain), 34 Trading with the Enemy Act (1917), 23 Trafikaktiebolaget Grängesberg-Öxlesund, 11 Traviss, R. H., 141 Treasury Department (British), 34, 39

Index

Treasury Department (U.S.), 35, 39, 89, 90, 114, 176n23, 259; on Allies’ claim to assets in neutral countries, 212, 229; external assets and, 31, 45 – 46, 93, 338; foreign assets in U.S. blocked by, 21, 237, 281– 83; Klaus and, 45 – 46; losing influence, 173; negotiations with Sweden and, 134 – 35, 138–39, 145– 46; relations with neutral countries and, 58, 255; relations with other agencies, 26, 35, 38n19, 87, 103 – 4, 166–67; reparations and, 79 – 84, 102, 288; Safehaven and, 3, 57, 58, 66, 167– 68, 170, 210, 257; in Safehaven jurisdictional disputes, 33, 52– 53, 58 – 63; State Department and, 132, 201, 240 – 41; State Department vs., 51, 82, 103 – 4, 146 – 47, 158 – 59, 173 –74, 217, 225, 238 – 39; support for sanctions, 161, 215, 220, 340; support for vesting decree, 107, 195, 208 – 11; Wallenbergs and, 236n8, 238 – 39, 240 – 41. See also Foreign Funds Control (FFC) Treaty of Versailles, 10n4, 52; criticisms of, 72, 183; on seizure of enemies’ property, 5, 192 Trieste, 311 Trimble, William, 253 Tripartite Gold Commission, 221–22, 290 – 91, 314 Trivia, AB, 15 Troop transport, German, through neutral territory, 14, 17, 131 Trophy brigades, Soviet, 112 Troutbeck, John Monroe, 211 Truman, Harry S., 52, 104, 118, 173, 177, 190, 259; atomic bombs and, 111, 122; Bernstein and, 171–72; in Germany, 110, 116; Pauley and, 105, 111; at Potsdam, 110, 117, 122; reparations and, 101, 335; Soviets and, 101, 121, 123, 190; vesting decree and, 191, 210 Turkey, 56–57, 84; German assets in, 46, 112–13, 311; Soviets and, 57, 112; U.S. and, 21, 54–55 Undén, Bo Östen, 125, 286; on Allies’ legal claim to assets, 248 – 50; as foreign minister, 155, 243; in negotiations with Allies, 141, 144–46, 293, 300, 323; in negotiations with Germany, 305, 331 United Nations (UN), 92, 101, 107, 214 –15, 320; membership in, 87, 118 –19, 201, 203, 216 –17; neutral countries and, 40,

383

57; proposals for control of German assets by, 48, 105, 202, 337; proposals for control of Germany by, 186–87; Sweden and, 151, 294 United States, 112, 165, 193, 221, 288; after WWI, 5, 192; Bretton Woods and, 42– 43, 59; Britain and, 44, 51, 131, 198; demands of Sweden by, 135–39, 141–42; economic warfare by, 20–23, 25, 27–28, 159 –60; entering war, 16; external assets and, 42, 103, 107, 113, 122n55, 192, 336; few sales of German companies to, 295– 96; German scientists coming to, 176–77; loans to Britain, 198–99, 203, 210, 219; neutrality of, 19–20; postwar dominance of, 65; postwar policies toward Germany, 163 –64, 327; relations with Allies, 315; relations with neutrals, 40; relations with Sweden, 17, 126, 136, 286–87; reparations and, 5–6, 76–79, 105; Safehaven and, 1–2; Anglo-American relations over, 46, 55, 57, 198, 200; goals for, 3, 5; motives for pursuing, 189, 336; Safehaven negotiations with Sweden, 126–27, 140– 45, 290; Safehaven payments to, 284, 288 –89, 315, 336; on sanctions, 214–20, 340; on trade, 13, 17; belief in free trade, 42– 43, 85, 161, 340; on vesting decree, 206 –7, 211; wanting to change international law, 207, 339–40; zonal reparations proposals by, 114–15. See also specific individuals and agencies Universum-Film AG (UFA), 11, 296 U.S. Group Control Council (USGCC), 80, 92, 168–69, 171, 172n17, 173–75 Varga, Eugen, 70n7, 71–72, 75, 98 Vereinigte Stahlwerke, 11 Vesting decree, 223, 225; of ACC, 113, 120, 157, 198, 203, 212–13; authority to pass, 195, 197; effectiveness of, 195–96; legality questioned, 113n38, 196, 248–49, 339 –40; support for, 191, 207, 208–11, 229; Allies’ claim to assets based on, 212, 229; British objection to, 203–8; international law and, 207, 248–49, 304–5; State Department on, 212n42, 339–40; Sweden and, 146–47, 231; U.S.-British relations over, 209–10; U.S. support for, 106– 7, 211–12 Vichy France, 255 Villiers, Gerry H., 200; on British opposition to sanctions, 215, 219; on claim to

384 German assets, 201, 206, 248; on Rubin memo approach, 203, 211, 214 Viner, Jacob, 69 Vinson, Fred M., 173, 198, 241; pressing for sanctions, 220; pressing for vesting law, 210, 225 Virgin, Eric, 323, 327, 329 – 30 Vulcanus, AB, 297 Vyshinski, Andrey, 227 Waley, Sigismund David, 116, 120, 121, 209 Wallace, Henry, 24, 25 Wallenberg, Jacob, 9, 13, 241, 266; in bond trade, 236n8, 264; Germans and, 232, 234 Wallenberg, Marcus, Jr., 13, 232, 236, 238 – 39, 241 Wallenberg family: accused of cloaking assets, 47, 234–37, 237, 239; financial holdings of, 232–34; Proclaimed List threat and, 240–42; in U.S., 240 – 41 War Cabinet (British), 100 War Department (U.S.), 37, 76, 165, 176n23; JCS 1067 and, 90, 103; in postwar administration of Germany, 174, 224; vesting law and, 210 –12, 225 War-making capacity, German, 272; economic control to prevent, 92– 93, 98, 100, 213, 337–38; economic mobilizations for, 183–84; Morgenthau wanting to destroy, 81, 83 – 84; obliterated, 163; preventing neutral countries as bases for resurgence of, 182; Safehaven in preventing, 259, 342; through elimination of industrial base, 186 War matériel, 12, 14 War Production Board (U.S.), 165 Webb, Gladwyn, 73n10 Wecker, Fritz, 304 – 5 Wehtje, Ernst, 297 Weiles, Edward T., 219

Index

Wenner-Gren, Axel, 233 Western European Union, 329 White, Harry Dexter, 26, 30–31, 39, 58, 65, 103, 132, 176n25, 239; on approach to neutral countries, 208–9; Bretton Woods convention and, 41; Morgenthau and, 69n4, 79, 81, 83; negotiating Britain’s postwar reconstruction loan, 198; reparations and, 79, 83, 102 White Plan, 41 Wickersham, Cornelius W., 80, 168 Wigforss, Ernst, 283, 289 Wilberforce, R. O., 206 Winant, John G., 34, 46, 53, 79n22, 207; JCS 1067 and, 90; postwar planning and, 75–76, 81 Winter War (Russia’s attack on Finland), 14 Wolff, Otto, 167, 236n8, 296 Wolframite, from Spain and Portugal, 12, 19 Working Security Committee (U.S.), 76 World Bank, 214–15, 217 World Trade Intelligence (WT), of State Department, 59, 61–62 World War I, 232; economic warfare tactics in, 18–19; German assets in, 5, 36–37, 192; German rearmament after, 29, 36– 37, 183–85; reparations after, 69, 109; treatment of Germany after, 183–84 World War II: Britain’s reduced role after, 4, 198; neutrality in, 6–7, 342–43; regulations on occupation ignored during, 193 Wunderlich, George M., 38–41, 48, 83, 191 Yalta Conference, 97, 103, 105; reparations discussed at, 72, 95–100, 108, 338 Young loan, 303 Yugoslavia, 106, 122, 150–51, 333 Zeiss Svenska AB, 296–97 Zetterberg, Herman, 156, 299