XI. Bank for International Settlements

The Bank for International Settlements (BIS) is an organization of central banks with headquarters in Basel, Switzerland. The BIS was formed in 1930 to coordinate Germany’s World War I reparations payments to various nations. Its primary purpose soon became and still is to promote cooperation among central banks and provide additional facilities for international financial operations. The BIS’s statutes provided for U.S. representation on the Board of Governors, but the U.S. Federal Reserve Bank did not choose to do that until 1994. At the time of the founding of the BIS, the Federal Reserve had decided that it was not appropriate to join the BIS Board of Governors because the United States was not a party to the reparation settlement with Germany.

The United States was thus not a member of the BIS Board of Governors during World War II. The United States gave some support to the liquidations of the BIS, partly because the Bretton Woods agreement of 1944 provided for new restitutions to deal with postwar monetary issues. The U.S. Treasury Department also sought to monitor BIS operations closely during the war to determine what support it might be providing to German commerce and the German war effort.

The President of the BIS, American Thomas McKittrick, was re-elected in 1942 with German acquiescence. In February 1941, Paul Hechler, a German banker serving as the BIS General Director, explained to the U.S. Treasury representative in Berlin that the officers of the bank were determined to keep it alive as a center of future international financial cooperation and were unanimously agreed on the necessity of keeping McKittrick in office in order to maintain a link with the United States. The Bank’s Board of Governors included British, German, Italian, and Japanese central bank leaders, serving under the chairmanship of President Weber of the Swiss National Bank.

In summer 1941, Fortune magazine warned that Germany, by picking up shares from French, Belgian, Netherlands, Norwegian, and other holders, had gained control over the BIS. This charge was denied by McKittrick. Concerns about Germany’s dominant role as the largest creditor of the BIS nevertheless helped shape U.S. policy toward this institution. As early as 1942 the Treasury Department suspected the BIS of shifting assets to neutral countries in order to "escape and defeat the foreign funds control" of the U.S. Government and of being controlled by the Axis. In July 1942, the United States, which had turned down a prewar effort by several member countries to guarantee freedom of movement for BIS funds in war as well as in peace, decided to deny a request by the BIS to transfer $1 million from its New York account to the Swiss National Bank. Assistant Secretary of State Dean Acheson subsequently pointed out to Minister Harrison in Bern that it was not impossible that the Axis might seize control of the Bank and its assets, directly or indirectly, and operate the bank as an Axis institution or in Axis interests. On the other hand, the Treasury Department determined that a proposed shipment of gold by the BIS to Portugal on behalf of the Bank of France was a matter outside its control, and did not consider it advisable to express either approval or disapproval. When Harrison wished to confirm reports picked up by the U.S. Consul in Basel that the Axis was shipping escudos to Latin America, he sent one of his staff to Basel to check out these reports with McKittrick.

Considerable controversy swirled around the question of whether the BIS permitted itself to be used to further Axis interests. At the July 1944 Bretton Woods Conference, Norway tabled a draft resolution calling for the liquidation of the BIS at the earliest possible date, and for the appointment of a commission to examine the management and transactions of the bank during the war. A resolution recommending liquidation of the bank at the earliest possible date, but dropping the call for an examination, was adopted by the Conference. The language of the resolution permitted the Bank to continue during the war, as desired by Assistant Secretary Acheson, supported by Lord Keynes and the British delegation. Treasury Secretary Morgenthau had wanted to liquidate the Bank at once.

Thomas McKittrick approached Orvis Schmidt, Treasury representative on the Currie Mission to Switzerland, in February 1945 and explained to him that the BIS sought to remain neutral during the war by dealing with high-level German financial officials from the Reichsbank, whom McKittrick considered to be cool to the Nazi regime. Schmidt asked McKittrick about the whereabouts of Belgian looted gold; McKittrick maintained that it still lay in the vaults of the Reichsbank. The President of the BIS continued to plead his case in a letter on May 2, 1945, to all Allied Finance Ministers, including Treasury Secretary Morgenthau, stating that during the wartime period, the BIS complied with the provisions of the Hague Convention of 1930 governing financial clearinghouses. Morgenthau refused to respond to McKittrick’s letter.

The Treasury Department collected evidence in June 1945 in the U.S. zone of occupation that the BIS had received resmelted looted gold from the Reichsbank. General Clay, Chief of OMGUS, recommended that "an immediate demand be made that the Bank for International Settlements permit a team of experts representing United States Group Control Council and Treasury to inspect all gold owned by or in the possession of the Bank for International Settlements and all relevant books, files, and records." McKittrick met with Abijah Fox, Acting Deputy Chief of the Financial Branch of OMGUS, on October 4, 1945, to discuss the forthcoming Allied investigation of BIS wartime acceptance of looted gold. He indicated that the BIS would not turn over its records to the Allies but would take the information gleaned by the Allies concerning specific looted gold bars and match them with BIS records. He then reversed himself and pledged to cooperate without agreeing to provide the Allies with access to internal BIS records. Faced with mounting evidence of collaborationist activities at the BIS during the war, Treasury Secretary Fred Vinson proposed to the new British Chancellor of the Exchequer, Hugh Dalton, to formulate plans to liquidate the BIS.

In December 1945, OMGUS’s External Assets Branch completed a preliminary assessment of BIS wartime activities. It concluded that the BIS accepted looted gold, aided the Reichsbank in salvaging assets threatened by blocking in neutral countries, was dominated by Axis interests, continued to pay dividends to occupied countries in spite of inevitable confiscation by the Nazis, and furnished financial intelligence to the Reichsbank. Based in part on the OMGUS findings and on a Treasury study detailing the looting by Germany of Netherlands monetary gold, Treasury officials from Foreign Funds Control and the Legal Department petitioned Assistant Secretary of the Treasury White and Treasury Secretary Vinson in February and May 1946 to press the British Treasury into holding bilateral talks for the purpose of liquidating the BIS. Years later, BIS authorities acknowledged that the Bank acquired 13,542 kilograms of looted monetary gold during World War II (worth more than $15 million) and retained 3,893 kilograms (worth approximately $4.4 million) of that gold at war’s end.

Soon more information became available regarding BIS banking support of Germany during the war. The Treasury representative in Lisbon, Portugal, informed Treasury and State on September 18, 1946, that, based on an investigation led by the Bank of France, the BIS had acquired 1,607 kilograms of looted Belgian gold. In an effort to placate the Allied powers, the BIS offered to pay France the equivalent dollar amount of $1.6 million. Treasury and State were reluctant, however, to allow the French to accept the BIS offer. They pointed out that it would be preferable to incorporate their claim into the tripartite gold restitution program. Furthermore, any settlement between the French and the BIS would give the impression that the BIS was innocent of any wrongdoing, thereby complicating the U.S. campaign to liquidate the BIS. If liquidation was not possible, some Treasury officials recommended a campaign of harassment to weaken the BIS. They would target $17 million of gold BIS had allegedly taken from Italy with German assistance, as well as the "BIS dividends which this institution wrongly delivered into German hands."

Some American officials did not agree with the assessment of the Treasury Department. For instance, a June 1947 Federal Reserve Bank study of the BIS outlined a number of positive actions taken by the BIS during the war and advocated the maintenance of the BIS as a "convenient meeting place for European central bankers," an institution that could extend small credit packages, and a locus of experience in international currency and financial transactions. The report concluded that charges of deliberate collaboration with the Axis during the war had never been proven. Moreover, the report noted that the British ardently supported the BIS, as did the International Bank for Reconstruction and Development.

In 1948 Treasury and State proposed an agreement to the BIS. Walter Ostrow, Treasury representative in Bern, met with President of the BIS, on February 19, 1948, to discuss the unblocking of BIS assets in the United States. Auboin told Ostrow that the BIS had "accepted [the looted gold] involuntarily" and the BIS wanted to restitute it as an inducement to having the bank’s assets unblocked. BIS officials met with Treasury on April 29, 1948. They were told that their funds would be unblocked if the looted gold question was satisfactorily resolved. In exchange for unblocking the movement of BIS gold holdings, Treasury proposed to ask the BIS to restitute 3,705 kilograms of gold, open its records on all gold transactions from January 1939 to September 1945, and allow the Allies to make additional claims for looted gold for one more year. The BIS would also relinquish any claim to 1,525 kilograms of gold that the Reichsbank had deposited at Constance under BIS account in the final moments of the war. On May 11, 1948, Treasury accepted State’s proposal to demand 3,728.49 kilograms of gold (approximately $4.2 million) and to leave the issue of the Constance gold open for further negotiation. The Allies and BIS signed the agreement on May 13, 1948, whereupon the BIS agreed to ship 3,740 kilograms of gold ($4.2 million) to the Bank of England.

Of this total of 3,740 kilograms of gold ($4.2 million), the BIS acknowledged that 2,093 kilograms (worth approximately $2.3 million) represented Dutch looted gold, 1,607 kilograms ($1.8 million) were Belgian looted gold, and 40 kilograms were Italian looted gold. Under the May 11, 1948, agreement, the Allies agreed to waive all claims against the BIS with regard to looted monetary gold. What this meant in practice was that the 155,000 gold coins and 34 gold bars (worth roughly $1.7 million) deposited at Constance on the account of the BIS at the end of the war, was not released to the BIS until after the signing of the Allied-BIS agreement, and the Allies made no further claim against that gold, which the BIS soon sold. The State Department issued a press release indicating that the BIS had "inadvertently acquired" looted gold during the wartime period, and the gold reached the Bank of England on July 6, 1948.

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