| U.S. and Allied Efforts To Recover and Restore Gold and Other Assets Stolen or Hidden by Germany During World War II |
VI. Implementation of the May 1946 Allied-Swiss Accord
In the first three months after the Accord was completed, July-September 1946, Swiss negotiators raised some interrelated issues related to its implementation. The Swiss linked their delay in advancing funds for refugees to the lack of an agreement on a "fair" Reichsmark-Swiss franc exchange rate, and refused to begin liquidating German assets without agreement on an exchange rate.
In a note to the U.S. Legation in Bern, dated July 2, 1946, the Swiss stated that they could not proceed with the liquidation of German assets until the Allies fixed a "fair" rate of exchange between the Reichsmark and the Swiss franc. The Swiss argued that they could be charged with being parties to "expropriation" without adequate compensation to the Germans who had made direct investments or deposited money in Switzerland. The Swiss were concerned that the international banking community would view that outcome as a blot on Switzerland’s reputation as a refuge from political unrest. In addition, the Swiss, according to a Legation report, "repeatedly contended that they feared possible retaliatory measures by a future German Government for any action taken against German interests under Allied pressure." The Department of State instructed the Legation to stress that there had been no requirement established in the Washington Accord that a Reichsmark-Swiss franc exchange rate be set before proceeding with liquidation.
The Swiss Federal Council, during parliamentary debates, admitted that there had been no agreement on this point during the Washington negotiations. Nonetheless, the Swiss leadership assured Parliament that the Swiss had an obligation to see that Germans who faced "expropriation" in Switzerland would be properly indemnified. and that compensation would be at a fair rate of exchange.
Whether by design or not, the Swiss succeeded in sorely testing Allied unity with the exchange rate issue. In an attempt to forge a common response to Swiss efforts to link liquidation to the exchange rate, Allied diplomats in Bern met in late July 1946. The French representative informed his British and U.S. counterparts that Paris supported the Swiss position that there had been a "gentlemen’s agreement" among all four parties negotiating the Washington Accord that the Swiss franc-Reichsmark exchange rate would be fixed prior to liquidation. The French position made it impossible for the Allies to respond to the Swiss note for over a year and hence delayed serious consideration of this issue. Apparently, the French supported the Swiss on this point for financial motives: a Swiss source told a Legation officer that the French desperately needed a Swiss loan and also wanted to purchase certain German assets in Switzerland. Such stories, sometimes including British interest in a Swiss Government loan, would continue to surface over the next two years.
At the first meeting of the Joint Commission established under the Washington Accord to monitor the liquidation of German assets on September 5, 1946, the Swiss reiterated the link between the exchange rate and liquidation. In response, the U.S. representative stated that "the Accord does not provide for the fixation of the Swiss franc-Reichsmark rate before mobilization and liquidation of German assets." At the September 12 meeting of the Joint Commission, the Allied members contested the Swiss contention that establishment of a Swiss franc-Reichsmark exchange rate was a precondition to liquidation of German assets. The French representative presumably acknowledged that the actual text of the treaty called for liquidation without prior establishment of an exchange rate, and made no reference to a "gentlemen’s agreement." Throughout this period, the Swiss refused to act on liquidation, pointing to the lack of agreement on the exchange rate as justification for their non-performance.
During 1947, the Swiss continued to insist on prior establishment of an exchange rate before proceeding with liquidation of German assets. Persistent differences among the Allies held up for a year a response to the July 2, 1946, Swiss note on the exchange rate issue. In June 1947 the French proposed that the Allies offer an exchange rate of 173 Swiss francs to 100 Reichsmarks. When the United States and the United Kingdom resisted the proposal, the French representative threatened indirectly to inform the Inter-Allied Reparations Agency (IARA) that they were responsible for non-implementation of the Accord because of their opposition to an exchange rate that had been accepted by the Soviet Government in the Allied Control Council. For the sake of Allied unity, the United States and the United Kingdom proposed a compromise that the rate of 173 Swiss francs to 100 Reichsmarks could be used "as a provisional rate for bookkeeping purposes only, and subject to adjustment when the overall exchange rate" would be established.
On July 22, 1947, the Allies sent their exchange rate proposal to the Swiss. The Swiss promptly rejected it on August 5 on the ground that the rate could not be fixed unilaterally by France, the United States, and the United Kingdom. In a follow-up note, the Swiss added that if the Allies were unable to accept the Swiss proposal, the exchange rate could be fixed by arbitration. Alternatively, the Swiss indicated that they could begin liquidation and place the proceeds in a blocked account.
In internal discussions, State Department officials were negatively disposed toward the Swiss proposals. The Soviets were unlikely to approve of a rate that the Swiss could accept. Nor did the United States want German investors to benefit from such a favorable rate of exchange. State Department officials also recognized that placing the proceeds of liquidation in blocked accounts would not make these funds available to the IARA for immediate distribution.
On November 24, 1947, to break the deadlock over the exchange rate-liquidation issues, the State Department handed a note to the British and French proposing Allied negotiations with the Swiss. The United States even suggested offering to revise the Accord if that would encourage the Swiss Government to accept such negotiations. The objective of the negotiations was to obtain the funds necessary to European economic recovery: "The desirability of obtaining such funds at this time as an aid to the economic recovery of nations devastated or depleted of resources by war, has strongly influenced the Department’s consideration of this problem." The British and the French took a dim view of the U.S. proposal. A British Embassy official in Washington told the State Department that the U.S. proposal to consider certain revisions would be "equivalent to discarding the Accord," and he urged the United States to secure implementation of the Accord via arbitration. The French also reacted negatively.
In early 1948, the United States found it difficult to take initiatives given the continued disunity among the Allies on the exchange rate-liquidation issue. In an April 7 aide-mémoire to the British and French, the United States again proposed negotiations with the Swiss. The U.S. aide-mémoire added a new element to the plan: if the negotiations with the Swiss failed, the United States proposed to file a report with the IARA on the Swiss position and on the unworkable nature of the Washington Accord; the Allies would then consider their obligations under the Accord discharged.
B. Swiss Contribution to Monetary Gold in the Allied "Gold Pot"
In the summer of 1946, the Swiss raised an issue that threatened to undermine the monetary gold portions of the May 1946 Allied-Swiss Accord. Swiss representatives questioned the amount of gold Switzerland was obligated to transfer to the Allies in settlement of all claims against Switzerland for the its acceptance of looted monetary gold. On August 2, 1946, in a note to the State Department, the Swiss Legation stated that it was prepared to turn over to the Allies 50,807 kilograms of gold in payment of its 250 million Swiss franc obligation. This amount was about 800 kilograms and nearly $1 million short of the $58 million anticipated by the Allies. The Swiss arrived at the 50,807 kilograms of gold by devaluing the Swiss franc to 4,920.63 per fine kilo of gold, whereas the value used in transactions in New York and London was 4,844.55 per kilogram. The higher gold-franc parity would have required the Swiss to deliver over 51,600 kilograms in gold to equal 250 million Swiss francs. For several months into 1947, the Swiss insisted on arbitration of the Swiss franc’s gold value, despite the fact that it was clear what the gold transaction rates were in London and New York (presumably fixed on a daily basis).
The Swiss eventually backed down, and in early May informed the British Foreign Office that they could accept the Bank of England’s technical assessment of the proper rate (which was also the rate acceptable to the U.S. Federal Reserve). By June 1947 the Federal Reserve confirmed that the Swiss had deposited the amount of gold necessary to carry out its obligations under the Washington Accord¾ a transfer of gold bars from the Swiss account in the Federal Reserve Bank to the Tripartite Gold Commission account. All the bars were of pre-war origin.
C. Swiss Contribution to Non-Repatriable Victims of the Nazis
At the September 5, 1946, meeting of the Joint Commission, the Swiss also cited the unresolved exchange rate question as the basis for Swiss non-fulfillment of Article V of the Annex of the Accord, which obligated Switzerland to permit the Allies to draw immediately up to 50 million Swiss francs against the Swiss share of the proceeds from liquidation of German property. The advances would go to refugee organizations for the rehabilitation and resettlement of non-repatriable victims of German action (mainly Jewish refugees). The U.S. representative challenged Swiss linkage of the exchange rate and liquidation issues to the Swiss obligation to advance 50 million Swiss francs ($11.6 million) for refugees. The U.S. representative was supported by his British counterpart on this point.
Switzerland’s delay in making these funds available created concern among American Jewish organizations, which appealed to Acting Secretary of State Acheson. On March 28, 1947, Edward M. M. Warburg, Chairman of the American Jewish Congress (AJC), asked Acheson to remind the Swiss of their obligations. In his letter, Warburg suggested that the Swiss provide as soon as possible 20 million Swiss francs ($4.7 million) of the 50 million franc advance. Warburg noted that the Jewish organizations designated to receive these funds had reached the limit of their borrowing capacity and were faced with the prospect of having to discontinue resettlement projects for Jewish refugees. Acheson replied on April 9 that the State Department would make every possible effort to secure such sums and was discussing this matter with the British and French Governments.
In early May, State Department officials sent a proposed note on the request for nearly $5 million to the British and French Embassies, noting the need to act "as soon as possible." Before the Allies could present their note, however, the Swiss on June 10 dropped the linkage between liquidation and advances for refugees, offering to make the full 50 million franc advance. State Department officials took a negative view of the Swiss offer, noting that the "principal interest" should be rapid implementation of the Accord and bringing to the attention of all IARA countries the Swiss refusal to proceed with implementation over such a "meaningless issue" as the specific rate of exchange. The Department indicated that it was "against requesting Swiss to advance 50 million francs for humanitarian purpose¼ until after some settlement reached on this major issue." "Dept wants to avoid any charges that it has bargained on Accord for all IARA countries in order to advance one special cause."
Pressure began to build on the State Department to adopt a position more helpful to refugees. The New York Times accurately reported on September 25 that the United States had spurned the Swiss offer of 50 million francs for the non-repatriable fund because it did not wish to raise the question of this advance separately from the general question of the disposition of German assets. AJC Chairman Warburg was also active. In the fall of 1947, he wrote two follow-up letters, this time to Secretary of State Marshall. Warburg’s October 17 letter to Secretary Marshall raised the specter of Jewish victims of war and persecution starving in refugee camps in Europe during the winter of 1947-1948 unless refugee organizations obtained an urgently needed $5 million. Apparently, this negative press coverage and Warburg’s letters to Marshall spurred the State Department into acting on the Swiss offer.
On February 13, 1948, after consultations with the British and French, the U.S. Legation in Bern requested 20 million Swiss francs (about $4.7 million) from the Swiss. The State Department followed up with a similar note to the Swiss Embassy on March 19, and another on May 11. On July 27, 1948, the Swiss fulfilled the request for a 20 million Swiss franc advance.
Less than a year after the Allies received the 20 million Swiss francs for refugees, there were renewed appeals for the remaining 30 million franc ($7 million) advance from Representative Jacob K. Javits and the IRO. In a May 16, 1949, letter to Secretary Acheson, Javits noted that the Allies could draw upon the 50 million francs "immediately" and wondered why this had not been done. He indicated that the Director General of the IRO had already informed Secretary Acheson of IRO needs. Replying to Javits’ letter, Assistant Secretary of State Ernest Gross indicated that, at an appropriate time, the Allies would request additional advances from the Swiss, but probably for smaller amounts as there were funds becoming available from other neutral countries. Gross added that, under these circumstances, the IRO had requested only an additional $3.5 million from the Swiss and $4 million from Portugal. In November 1949, Javits again made inquiries along the same lines.
Following these appeals from Representative Javits, and after another appeal from the IRO, the United States sought an additional $4 million from the Swiss (17 million Swiss francs), after obtaining British and French approval. On January 12 and again on March 28, 1950, the U.S. Legation in Bern sent notes to the Swiss Government requesting 17 million Swiss francs to bring the Paris Reparations Fund up to $25 million. The Swiss rejected the appeal in early May, noting that Switzerland was under no legal obligation to make an advance in favor of the IRO. The Swiss argued that such an advance should be made from the proceeds of liquidation of German assets in Switzerland. The Swiss blamed the delay in liquidation on the unresolved "intercustodial" issues between Switzerland and other countries.
In short, the Swiss reverted to their original position on the liquidation of German assets in Switzerland to the Accord. Instead of citing the exchange rate, however, which by May 1950 had largely been resolved, the Swiss linked their refusal to intercustodial conflicts with Washington¾ the release of assets blocked in the United States as Nazi German property during the war, which the Swiss claimed as their own. It would not be until September 11, 1953 (after revision of the Accord in August 1952) before the Swiss would advance the remaining amounts as part of the final overall settlement¾ 13 million Swiss francs ($3 million). The Swedish contribution of $13.5 million and the Portuguese contribution of $3.5 million, combined with the total Swiss contribution of $7.7 million (the Portuguese contribution was paid by the Allies out of the Swiss francs acquired from Switzerland pursuant to the 1952 Allied-Swiss agreement), brought the total of the Paris Reparations Fund to $24.7 million ($300,000 less due to the Swedish kroner devaluation). In the modified Allied-Swiss Agreement of 1952, the Swiss lump sum payment of 121.5 million Swiss francs was reduced by the 20 million francs that Switzerland advanced the Allies in July 1948.
Sources of Contributions to the $25 Million Paris Reparation Fund
| Dates Received | Country | Kroner | Francs | Dollar Equivalent |
| July 12, 1947 | Sweden | 50,000,000 | $13.5 million |
|
| July 27, 1948 | Switzerland | 20,000,000 | $4.7 million |
|
| September 11, 1953 | Switzerland | 12,896,917 | $3.0 million |
|
| March 29, 1955- December 15, 1956 |
Allied payment on behalf of Portugal | 15,209,909 | $3.5 million |
|
| Total | $24.7 million |
D. Swiss Treatment of the Assets of German-Jewish Persecutees
Another issue related to implementation of the 1946 Washington Accord involved Swiss treatment of the assets of Jewish concentration camp victims who fell into the category of "Germans in Germany." As provided by the Accord, the assets in Switzerland belonging to "Germans in Germany" were to have been liquidated and the proceeds divided equally between the Allies and the Swiss. The Allied portion was for the "rehabilitation of countries devastated or depleted by the war, including the sending of supplies to stricken people." In addition, the Accord provided that Switzerland, out of the proceeds of liquidation, would advance 50 million Swiss francs to the Allies for rehabilitation and resettlement of non-repatriable victims of German action. Liquidation of German assets applied to all property and assets of both natural and juridical persons. The Accord included a provision for eventual compensation of asset owners, but the assets of all Germans in this category were to be blocked, indeed for a longer period than anticipated. One exception that the Swiss successfully included in the Accord was for female Swiss spouses of Germans in Germany; their assets could be released.
With this one exception, the Washington Accord had the result that all Germans, including Jews in Germany who survived Nazi death camps, would lose access to their assets. This was not the intent of the U.S. negotiators, who were also aware of the feelings in the U.S. Congress that German-Jewish concentration camp victims, and other persecutees, should have their assets returned regardless of whether they were "Germans in Germany" during the war, or, subsequent to their persecution, chose to remain in Germany. To provide a remedy, the U.S. delegate Randolph Paul had negotiated an oral and informal "gentlemen’s agreement" that such property would constitute an exception to the Accord. However, because of time constraints, this side agreement was not reduced to writing and was left as a matter to be disposed of in the actual administration of the Accord. Indeed, the first impression of Washington officials was that Switzerland was considering sympathetically the release of assets belonging to persecutees.
By late 1948, it became clear that this was not the case. In a letter to Secretary of State Marshall, dated November 26, 1948, the Director General of the International Refugee Organization stated that the Swiss Office of Compensation was continuing to block the assets in Switzerland of certain persons who had been persecuted by the Nazis and requested U.S. assistance in the matter. In his response of December 23, Assistant Secretary of State Saltzman wrote that the United States hoped that the cause of the persecutees would soon be re-examined with a view toward obtaining "a less strict interpretation" of the status of their assets in Switzerland.
In the Allied-Swiss negotiations planned for May 1949, the United States sought to exempt from the terms of the Washington Accord the assets of German persecutees. At the March 1949 preparatory meeting of the three Allied delegations, the United States asked for British and French support on this issue, citing the "gentlemen’s agreement" from the May 1946 Washington Accord. The United States also sought to establish the general principle that property of persecutees would be exempt from the Accord in the same manner as in IARA countries. (IARA member countries could release assets if the victims planned to depart Germany at some later date.) The British and French, however, balked. According to a U.S. report of the meeting, the British regarded such action favoring the persecutees as "discrimination" and neglecting "the security purpose of the Accord," which was to eliminate all German assets abroad. Given strong U.S. concerns, the Allies agreed to allow delegations to raise the matter separately.
Learning of the Allied-Swiss negotiations taking place in May 1949, U.S. Senator J. Howard McGrath asked the administration to assure that Allied delegations would press strongly on releasing the assets of persecutees, as laid down in Public Law 671 of 1946. In response to Senator McGrath’s concerns over this and other related issues, Assistant Secretary of State Gross wrote that the French Government opposed the exemption for persecutees. Without citing the British rejection of the U.S. proposal, Gross stated that the British had not yet responded, but noted that the British preferred to consider each persecutee case on an ad hoc basis. Remaining silent on future U.S. action on this issue, the Assistant Secretary stated that the "Swiss Compensation Office¼ has denied requests for exception on the ground that the owners were persecutees."
The May negotiations between the Allies and the Swiss ran until June 10; the question of exemptions for the property of persecutees was not raised.
E. Switzerland and the Diplomacy of European Economic Recovery
In March 1948 the U.S. Congress adopted, by a lopsided vote, the Economic Cooperation Act, the legislative implementation of the Marshall Plan for the recovery of war-battered Europe. Passage of the legislation was greatly facilitated by rising anxieties among American leaders occasioned by the Communist coup in Czechoslovakia in February 1948, the upcoming elections in Italy where the Communists appeared likely to prevail, and the deepening German crisis among the Western and Soviet occupying forces. Four billion dollars were appropriated for the program’s first year, and the Truman administration moved quickly to complete a diplomatic structure necessary to support the program.
Switzerland joined with other nations in April 1948 in Paris in the creation of the Organization for European Economic Cooperation, but was not nearly so willing to become a full participant in the European Recovery Program. Swiss Minister Bruggmann told the State Department in April 1948 that his country did not want economic assistance from the United States and would not agree to participating in the ERP if it meant compromising Switzerland’s traditional neutrality. The Minister was particularly resistant to a section in a proposed exchange of diplomatic notes with Switzerland, identical with exchanges with all other ERP participants, that involved acceptance of the policy "to sustain and strengthen principles of individual liberty, free institutions, and genuine independence of Europe." Bruggmann explained that his country could not officially adopt a policy of this kind because that would be a departure from Swiss neutrality and would expose his country to pressure from the Soviet Union.
Negotiations dragged on as the State Department sought to conclude a bilateral agreement with the Swiss comparable to such agreements with other Marshall Plan countries. State Department experts reviewing the status of bilateral negotiations for U.S. economic assistance under the ERP in June 1948 concluded that both Switzerland and Portugal were countries that did not require financial assistance from the United States and, although they would be vital cogs in the Marshall Plan concept, would probably not sign any agreements. State Department records indicate that Switzerland insisted on being treated separately and resisted such an agreement until the United States finally abandoned the effort at the end of 1948.
F. Revision of the Washington Accord
In 1947 the Swiss began to identify problems over the handling of German assets in the United States in which Switzerland had interests as a hindrance to liquidation. These problems, referred to as "intercustodial" during the extended negotiations, arose between the United States and Switzerland when the U.S. Office of Alien Property applied controls to properties in the United States that were ostensibly owned by Swiss corporations but which may have been owned in some degree by German interests. The Swiss argued that such foreign-owned assets in the United States should be released by American authorities to allow the Swiss to determine whether there were German interests in the parent company in Switzerland. The Swiss position was that the authorities in the host country of the parent company should decide whether a subsidiary located abroad had fallen under Nazi German control. The Swiss had similar disputes with other signatories.
In late April and early May 1948 representatives from the United States, Britain, and France met in Paris to review all outstanding issues on German assets in non-IARA countries of the Western and Eastern Hemispheres and in the wartime neutral countries of Spain, Portugal, Sweden, and Switzerland. Seymour Rubin, the chairman of the U.S. delegation to the conference in Paris, subsequently reported on the outcome. With respect to Switzerland, there were clear differences among the three Allies. Britain seemed optimistic that the Swiss were serious about implementing the Washington Accord and wanted to focus on those objectives of the Accord that might assist European recovery resulting from the liquidation of German assets. The French were skeptical about further negotiations, pointed out various reasons for doubting the good intentions of the Swiss, and suggested that the United States use sanctions against the Swiss. The U.S. representatives reminded the British and the French that "sanctions had been ruled out in the beginning of the negotiations two years before" and the United States would certainly not take them unilaterally. The United States wished to report to the IARA as soon as possible the unworkability of the Accord and "if possible to relieve itself of a task that would then threaten our dignity and promise no success."
It was finally agreed that the Allies would present a strongly worded note to the Swiss on May 11 with the following points:
The U.S. Legation in Bern reported that the Swiss failed to provide a satisfactory reply to the Allied note and continued to argue that they were not obliged to liquidate German assets before knowing what counterpart in German currency would be paid to German owners. The Swiss also renewed their request for arbitration of this particular point.
During the remaining months of 1948, there was little progress. On August 23, Assistant Secretary Thorp met in Bern with Swiss chief negotiator Stucki, but little came of the meeting. Stucki continued to favor arbitration as a solution to the exchange rate issue. On September 8, Max Petitpierre, Chief of the Swiss Political Department, met with Seymour J. Rubin of the State Department’s Legal Adviser’s Office who was in Geneva on other business. In the meeting, Rubin saw the Swiss proposal for arbitration as a slow process which, until completed, would continue to hinder the transfer of funds to the IARA and IRO. Rubin suggested solutions to the impasse that transferred to the Swiss Government the responsibility to achieve through negotiations its objective of providing fair compensation to the German owners of liquidated property. Moreover, such negotiations would be conducted by the Swiss directly with the Allied authorities or a new German Government. Over the next several months, there was little movement in discussions with the Swiss, and Allied disunity continued.
On December 29, 1948, the head of the Swiss Legation in Washington told Assistant Secretary Thorp that Switzerland was prepared to put aside its preference for arbitration and undertake negotiations with the Allies on all problems relevant to the Allied-Swiss Accord. The Swiss indicated their change in position came about because they considered arbitration too lengthy and too costly. Ironically the United States had come to consider arbitration a possible solution to the exchange rate issue.
After the Swiss had dropped their demand for arbitration, the way was clear for the United States to call for an Allied-Swiss conference on the Accord to discuss all issues and ultimately seek a revision of its terms. However, it was also clear that over the previous two and one-half years of negotiation there had been no progress on the critical exchange rate issue, and hence virtually no liquidation of German assets in Switzerland.
G. Allied-Swiss Negotiations in Washington, May-June 1949
The Allied-Swiss negotiations were set for May 1949. Over the previous year, events in Germany and in East-West relations created new concerns for U.S. policy-makers. The Berlin Blockade, in effect since June 1948, had highlighted the onset of the Cold War and initiated a process of reconciliation between Germans and Americans. The recovery of the German economy had also become an important U.S. objective since the London Conference of February-July 1948. U.S. objectives in Germany and toward implementation of the Allied-Swiss Accord sometimes appeared to be in conflict. A May 1949 joint State-Army message to U.S. occupation authorities in Germany drew attention to this conflict between strict implementation of the Accord and the requirements of U.S. policy toward post-war Germany:
"Under Swiss Safehaven Accord, U.S., U.K., France legally obligated to ensure that compensation paid in Germany to former owners German assets in Switzerland. Circumstances have changed since commitment undertaken but, unfortunately, obligation persists and a practical way out must be found."
The conference on the Accord was held in Washington from May 10 to June 10, 1949. After 5 weeks of discussions, the conference ended with agreement on several minor issues, but failed to reach agreement on the three major issues of the exchange rate, compensation of Germans residing in the Soviet Zone, and intercustodial matters.
The chief Swiss negotiator suggested at one point that the exchange rate issue could be resolved through direct negotiations between Switzerland and West Germany. He also indicated that the German asset owners would prefer to see established the strongest possible Swiss franc, as they would thereby obtain more marks for each franc. He also linked the exchange rate to the problems of a "clearing agreement," which Switzerland would negotiate with Germany on trade relations. Such negotiations would be "under the supervision of the occupying powers, making it difficult to reach agreement."
The Allies, while continuing to maintain that establishment of an exchange rate was not a prerequisite under the Accord, sought to meet the Swiss point of view via a number of proposals. One proposal involved the following: "Liquidation (of German assets) shall begin immediately. The counter-value of assets liquidated shall be computed at the provisional rate of Swiss Francs 100 equals DM 78." The Swiss indicated that they might be able to accept a modified version of this proposal but only in conjunction with a settlement of the intercustodial question. The new Swiss position must have been all the more frustrating for senior U.S. officials because it ran contrary to the assurances that Swiss Minister Stucki gave to Thorp and Rubin in March 1948 that the exchange rate was the only problem standing in the way of speedy implementation of the Accord.
The second unresolved major issue at the conference involved the disposition of assets in Switzerland owned by Germans residing in the Soviet Zone. The Allies proposed that the West German authorities provide indemnification to East German owners on an identical basis as for West German owners. The Swiss rejected this proposal. The Allies made a counterproposal, but it was not acted upon.
Regarding intercustodial matters, the Swiss sought to find a single solution on the basis of a multilateral agreement among the governments represented at the conference, an agreement that would also be binding on all IARA member governments. In rejecting the Swiss proposal, the Allies stated that solution of cases subject to intercustodial conflict was not covered in the Accord and recommended that the Swiss negotiate on a bilateral basis with IARA member governments.
The inability to reach agreement on the three major issues prevented the Allies from raising the question of the property of persecutees of the Nazi regime and delivery of Swiss francs to the International Refugee Organization.
H. Possible Reconvening of the Allied-Swiss Conference
The Allied-Swiss conference did not reconvene as planned in September 1949. On December 29 Minister Stucki told the U.S. Legation Chief and a visiting State Department official that Switzerland could not agree to convening a conference until the intercustodial discussions were more satisfactorily advanced.
In an internal State Department note, U.S. officials expressed frustration over the delays, which they attributed to delays in Swiss negotiations of intercustodial agreements with several Allies. The Swiss were in bilateral discussions with the United Kingdom, France, the Netherlands, and Belgium. Delays with Belgium seemed to be the main problem for the Swiss. A British official informed his U.S. counterpart that the delays were "not entirely the fault of the Swiss." He also stated that the Swiss were "entirely justified" in not reconvening the Allied-Swiss conference until there would be more progress in the intercustodial discussions.
In the first half of 1950, while the United States sought to get the Swiss to reconvene the Allied-Swiss conference, obstacles to the Accord arose within the State Department. In January 1950, the European Bureau’s German Office objected to the Accord provisions that required the German authorities to establish a system of compensation for German owners of assets liquidated in Switzerland. The German Office objected to such a system because:
"(1) this would be discriminatory treatment in favor of a particular class of persons who lost as a result of the war and would be politically dangerous;
"(2) it would lead to demands for compensation in Germany for other classes of war losses, the acceptance of which would be economically impossible."
The West European Office of the State Department argued in favor of respecting an international agreement to which the United States was a party and noted that the Swiss would not implement the Accord without the compensation scheme. Differences were papered over adequately to allow the matter to be discussed at the June meeting of Allied experts in Frankfurt, hosted by the U.S. High Commissioner, called to prepare for the reconvening of the conference that was recessed in June 1949.
The Swiss finally agreed to reconvene the conference on June 22, 1950, in Bern. As U.S. officials departed for the preparatory meetings, they listed the following issues for discussion at the Bern conference:
The United States believed that the Swiss would accept an exchange rate that would be determined by a formula based on the dollar-Deutschmark rates. On the intercustodial issue, the U.S.-Swiss Memorandum of Understanding, negotiated in July 1949 separately from the May-June conference, had not yet been approved by the U.S. Congress. There were still differences within the Executive Branch over the terms, and the Swiss had requested some amendments.
The Allied delegations arrived in Bern on June 22, 1950. In preliminary talks, the Swiss stated that they would not carry out any agreements that might be reached with respect to outstanding problems under the Accord unless prior and final settlement was reached on the U.S.-Swiss Memorandum of Understanding on intercustodial matters. The Swiss had suggested such linkage at the May-June 1949 Allied-Swiss conference, but they stated the linkage explicitly just before the June 1950 session was underway. After several days, U.S. negotiators left Bern before the conference could resume. State Department officials warned the Legation Chief not to "gloss over" the true reasons for the breakdown of the conference, concluding that the "most recent Swiss performance reinforces [Washington’s] belief Swiss have no intention ever implementing the Accord."
In early July, The New York Times reported that the Swiss action constituted an "insult" to the United States. On July 6, the State Department issued a press statement that noted that the conference was "canceled because of the last minute imposition by the Swiss Government of a condition unrelated to the Accord which the United States Government could not accept. The condition, which the Swiss Government advanced for the first time after the Allied delegations already had assembled in Bern was that the Swiss Government would not carry out any agreements which might be reached with respect to outstanding problems under the Accord unless prior and final settlement were reached on the bilateral Memorandum of Understanding between Switzerland and the United States."
The Swiss asserted in a subsequent press release that they imposed no conditions; they merely pointed out that a resumption of the conference was "premature" given the differences that arose "in respect of certain bilateral negotiations" (i.e., on intercustodial matters). Moreover, the Federal Council "could not take a definitive attitude with regard to a new quadripartite agreement¼ so long as agreement with the U.S.¼ had not been concluded." The Swiss sent a note indicating that Switzerland was prepared at any time to resume the "bilateral negotiations," but the note made no reference to Allied-Swiss talks.
The United States soon made an effort to reconvene the negotiations. In late July, Assistant Secretary Thorp made an oral and informal proposal to the Swiss Legation Chief that the Allied-Swiss conference and the bilateral negotiations on intercustodial issues could both begin in the fall without preconditions. The Swiss responded in a September 20 Aide-Mémoire to the State Department, indicating willingness to resume bilateral discussions "as soon as possible," but continuing to propose terms that would allow linkage between the Accord and the bilateral intercustodial agreement: the two issues could be discussed "separately" but "the result of each would be submitted ad referendum to the participating governments."
I. U.S. Policy Toward Switzerland in 1950 and 1951
In August 1950, as part of its broader practice of preparing policy statements summarizing current foreign policy toward most nations and regions, the State Department updated its policy paper on Switzerland. The paper summarized U.S. policy objectives as follows:
"The Swiss Confederation is an important factor in European economic recovery and a positive force in the maintenance of free democratic institutions in Europe. While traditional neutrality precludes their political or military alignment with the west, the Swiss can nevertheless be relied upon to defend their territory resolutely against any aggressor. As such Switzerland constitutes a deterrent to the expansion of Soviet influence in Western Europe and a strategic asset, even though a passive one, within the frame of United States objectives."
The body of the policy paper expanded on these objectives. With respect to the Marshall Plan to help revive the war-shattered economy of Europe, the paper observed that the Swiss had at first been skeptical but by 1950 had become more supportive. The paper estimated that Swiss contribution to European economic recovery amounted to $500 million in the form of Swiss Government credits of over $187 million, additional credits from private Swiss banks, and gifts for international relief and welfare. In this 25-page paper, only one page was devoted to the problem of liquidating German assets in Switzerland. The paper adopted the attitude that the 1946 Allied-Swiss Accord had "caused difficulties in our relations with Switzerland disproportionate to the intrinsic importance of the matter" and saw it in terms of a negotiating deadlock without any criticism or blame to the Swiss.
By late 1951 U.S. policy toward Switzerland had continued to change, and on December 9, 1951, President Truman approved NSC 119, "The Position of the United States With Respect to Switzerland," which assessed the military capabilities and economic strength of Switzerland and concluded that U.S. policy should be to bring Switzerland into closer relationship with the common defense effort of Western Europe. NSC 119 acknowledged the neutrality of Switzerland but also saw the strengths of Switzerland’s military and strategic position against a possible Soviet attack and proposed that Switzerland could be induced to cooperate closely with the Western Powers. Early versions of this paper, drafted in the State Department, had included recommendations for extending military assistance to Switzerland and for persuading Swiss military industry to work closely with NATO, but the Joint Chiefs of Staff were reluctant to give Switzerland priority over NATO nations in the receipt of military assistance.
J. Possible U.S. Withdrawal From the Washington Accord
Throughout the summer and fall of 1950, most mid-level U.S. officials involved in the implementation of the May 1946 Accord had concluded that the Swiss never had any intention of implementing the Accord. In line with this conclusion, the Western European Office in the State Department prepared several memoranda recommending that the United States report to the IARA that the Accord was unworkable and that the United States should be relieved of further responsibility as a trustee for the other IARA countries. The West European Office believed that it could be expected that the United Kingdom and France would have the necessary interest to seek implementation of the Accord, which would remain in effect, as these two countries needed the Swiss francs for balance of payments purposes.
Other offices objected to this approach, notably the Legal Adviser’s Office and the Monetary Office of the Economic Bureau. The latter indicated that the proposed action might prejudice negotiations with other neutrals for the recovery of looted monetary gold and success with the Swiss could lead to another $58 million in Swiss francs, which were in great demand in Europe and would be important to fostering European recovery. The Monetary Office also addressed the issue of whether compensation in Germany should be a stumbling block, making the following point:
"Staff members of OFD remember that it was stressed by the Swiss during the [May 1946] negotiations and understood by the U.S. that no liquidation of German property could be undertaken by them without simultaneous genuine compensation to the individual Germans involved. Consequently, the U.S. was in full knowledge of this necessity in concluding the Accord and cannot shun the responsibility involved now. The problem of finding a satisfactory exchange rate has solved itself in the meantime."
The move to withdraw from the Accord gained strength during the fall of 1950, in part because of evolving U.S. objectives regarding Germany. U.S. officials felt confident that they were on strong legal grounds if the negotiations broke down on the intercustodial issues, but if the negotiations broke down on the compensation issue, the United States would be faced with a Swiss demand for arbitration, supported by the United Kingdom and France. The German Office regarded the compensation issue as a "desire by the Allies to extract at this late date a comparatively few Swiss Francs for reparation," and feared that the compensation provision of the Accord would be a burden on the German economy and create political problems for the German government, particularly at a time when German support on European and NATO issues was critical.
By 1951 U.S. policy toward Germany became a critical factor for U.S. policy-makers. A cable to the U.S. High Commissioner in Frankfurt of March 22, 1951, stated that the limit to which the Department was willing to go in implementing the Accord depended "primarily" on the High Commissioner’s view of acceptability of the Accord "from German standpoint." The cable continued:
"Implementation Accord wld avoid abrogation international agreements and wld have beneficial effect US relations with Swiss, U.K., FR and IARA countries although such effect not major consideration since Accord relatively small item as compared to arrangements such as NATO or issues such as East-West trade, materials allocation, etc., which currently control climate of US relations with these countries. On other hand, if Accord not implemented we wld be relieved disadvantages of compensation program."
The State Department’s European Bureau prepared a plan, described in a November 1950 memorandum to Deputy Under Secretary Matthews, to find a way to allow the United States to make a "dignified withdrawal" from the negotiations and "a situation which for more than four years has poisoned our normally good relations with the Swiss." The memorandum stated:
"Such a withdrawal, however, does not contemplate creation of a vacuum as regards German assets in Switzerland. Switzerland’s obligations under the Accord and existing blocking mechanisms would not lapse, and the emerging German Government could effectively deal with the Swiss. In such a settlement it must be contemplated that Germany will be part of the Western Europe defense structure and hence its acquisition of purchasing power in Switzerland would redound to the common good."
U.S. policy-makers believed that the Swiss were eager to assure that the new German State honored the Reich’s wartime debt of 1.2 billion Swiss francs (more than $275 million) to Switzerland. Thus it was also in Switzerland’s interests to come to an agreement with Germany on the liquidation and compensation issues.
The decision resulting from the November 1950 memorandum to Under Secretary Matthews was to inform the Swiss of the U.S. intent to withdraw from the Accord (i.e., lay down its trusteeship functions). When the British and the French objected strongly, the United States, in the interest of maintaining Allied harmony, agreed to make another attempt to get the Swiss to drop the linkage between the intercustodial agreement and the Accord.
On January 10, 1951, Assistant Secretary of State for European Affairs Perkins handed Swiss Legation Chief Bruggmann an aide-mémoire calling for a resumption of Allied-Swiss discussions on the Accord at the earliest practical date. The aide-mémoire also allowed for talks on the bilateral intercustodial agreement in the spring of 1951, but was explicit in de-linking the two issues. The British had already agreed that, should the Swiss reject the Allies’ compensation plan, all three Allied governments would refuse to submit the matter to arbitration. On February 6 the Swiss responded to the U.S. aide-mémoire, agreeing to essentially all the terms of the U.S. proposal of January 10.
K. Allied-Swiss Conference at Bern, March-April 1951
The conference reconvened in Bern on March 5, 1951, and negotiations continued into April. The session was characterized by the U.S. and British negotiators as "a final test of Swiss good faith." Agreement was reached on a number of subsidiary points (including an exemption from the Accord for property valued at less than 10,000 Swiss francs). The exchange rate agreed upon earlier was confirmed at 100 Swiss francs to 95.88 Deutschmarks. On the critical issue of compensation, the four powers agreed on what came to be known as the "April 20 Understanding," with the following provisions:
The Swiss subsequently imposed an additional condition on liquidation: Switzerland required a formal undertaking from the Federal Republic that the German Government would carry out the compensation program. The three Allies rejected this condition.
The issues of persecutees and heirless assets also became important points of controversy in May 1951. The Swiss refused to grant exemption from forced liquidation to persecutees but noted that they would receive compensation. The United States pointed to Allied agreements with Sweden and Italy, as well as U.S. law, which exempted the property of persecutees from liquidation. The United States also argued that it was contrary to basic U.S. policy to allow America or others to profit from the assets of persecutees. If the Swiss refused to yield, the United States would press for an exemption of persecutees’ assets if persecutees took up residence outside of Germany by the effective date of the final agreement on the Accord. The U.S. view was that this would exempt the majority of persecutees.
As soon as the main session of the Bern conference ended on April 21, the Allies informed the German Government of the compensation formula. On April 25 in Bonn- Petersberg, the Allies handed to the Germans an Aide-Mémoire on the compensation proposals, i.e., the terms agreed upon in the "April 20 Understanding." On May 8 the Germans informed the Allies that they were they were unable to respond to the compensation proposals. U.S. officials suspected that the Germans would view such a compensation plan, and Chancellor Konrad Adenauer’s letter in late March to Allied officials opposed the principle of compensation.
During May and June, German newspapers published stories critical of Allied plans to impose the settlement with Switzerland on Germany. On June 9 additional evidence of a German rejection of the compensation plan appeared in a cable from the U.S. High Commissioner. Based on the information in that cable, the State Department instructed the U.S. High Commissioner to draft an Allied High Commission law to implement the "April 20 Understanding." On July 3 The New York Times reported in detail German rejection of the April 20 compensation plan. Shortly thereafter, Chancellor Adenauer clearly rejected the Allied-Swiss compensation plan.
On July 13 the State Department instructed the U.S. negotiators in Bern to inform the Swiss that Germany "has not agreed to take initiative on compensation." Nevertheless, the Allies intended to issue the required law, and the delegation should submit the draft Allied High Commission (AHC) law to the Swiss for their information with a statement that the Allies regarded it as fulfillment of the "April 20 Understanding" and a valid basis for Swiss implementation of the Accord. The instructions concluded:
"If Swiss refuse implement Accord this basis USDel shld take position it must reluctantly conclude Swiss lack genuine intention to carry out Accord and that in view of history Accord US must consider Accord unworkable and terminate futile attempts reach solution."
The Swiss responded on July 21, in an aide-mémoire to the Allied Legations in Bern, regarding the plan to promulgate a law on the compensation plan. The Swiss aide-mémoire indicated that the Swiss wished to conclude an agreement with the German authorities and proposed direct negotiations with the German Finance Ministry on "numerous technical problems."
L. Direct Negotiations Between Germany and Switzerland
The Allies wanted to prevent direct negotiations between Switzerland and Germany in the fall of 1951 when there was still no plan for getting out of the impasse that German rejection of the compensation plan had created. Eventually, the Allies saw no other means of taking account of German interests and approved the German-Swiss discussions, scheduled for early December 1951. The Swiss were determined to assure that the Germans settled their wartime debts for imported goods and other items on the bilateral clearing account, which included about 1.2 billion Swiss francs ($275 million) of German debt to Swiss citizens. The collateral for this German debt had always been blocked German assets in Switzerland, estimated by the IARA at about 1 billion Swiss francs in 1947. (Although only 500 million ($116 million) of the 1 billion ($233 million) was actually subject to liquidation under the Washington Accord after the Allied and Swiss negotiators agreed on a variety of exceptions.)
On December 11, 1951, the Germans reported to the Allies on their discussions with the Swiss. The Germans had discussed the idea that Switzerland would make a lump sum payment to the Allies of 135 million Swiss francs ($31.7 million) in lieu of the May 1946 Accord’s provision for liquidation of German assets in Switzerland and payment of 250 million Swiss francs ($58.7 million) each to the Allies and the Swiss. Germany would in turn reimburse Switzerland for the 135 million, and the Swiss would give up their claim to half the proceeds of liquidation. The Swiss would also release German assets to their original owners. The British and French agreed to the reduction but insisted on making the 135 million Swiss francs the minimum amount acceptable because that was the amount the Swiss had agreed to pay under the April 20 Understanding.
In early February 1952 the Allies finally authorized the Germans to conduct direct negotiations with the Swiss with a view toward achieving agreement on a compensation plan along these lines. In order to assure that no additional burden would be placed on Germany’s balance of payments, the Allies acceded to a German request that the 135 million Swiss franc payment be discounted by 10 percent, thereby arriving at 121.5 million Swiss francs. On the difficult question of Germany’s 1.2 billion Swiss franc debt to the Swiss, the Germans agreed to request the Swiss to defer any unsettled wartime claims until a final general settlement in the future on this matter. On February 13 the Allies informed the Swiss of formal Allied authorization of German negotiations on the compensation plan with Switzerland.
On February 14 the Germans and the Swiss began negotiations in Bern. Agreement was achieved on the compensation plan details, which was initialed on February 22. Problems arose, however, in the debt negotiations between the two countries. The Germans initially offered 60 million Swiss francs as a lump-sum payment under the Washington Accord and as final settlement on their 1.2 billion Swiss franc debt to the Swiss.
On February 22 Swiss Foreign Minister Petitpierre sent a strong response to the U.S. Legation, insisting that the Swiss Government would never forego German payment of its debts to Switzerland. Petitpierre reported that the Germans and the Swiss had just agreed on compensation along the lines proposed by the United States, but warned that implementation depended on an Allied-Swiss agreement on liquidation and settlement of Swiss claims of 1.2 billion Swiss francs against Germany. Petitpierre concluded by noting that the German offer (of 60 million) on debt settlement was a "mockery." He therefore expressed the hope that the London Conference on German Debt, beginning February 28, would be able to deal with Swiss claims. The Swiss Government announced on the next day a suspension of the German-Swiss negotiations. In an early March aide-mémoire, the United States warned the Swiss not to jeopardize an agreement on releasing German assets in Switzerland by an attempt to use the German proposal "as a means of affording Switz more favorable terms with respect to Swiss credits extended to Ger during the past war than have already been accepted by Allied powers whose territory suffered Ger occupation."
Swiss officials were unsuccessful in bringing the matter before the London Debt Conference, but they did conduct side discussions with the Germans at the conference during March. The Germans quickly improved their original 60 million offer to 121.5 million Swiss francs, i.e., the same amount the Allies would receive from the Swiss as a lump sum payment under the revised provision of the Accord. The Germans also made clear that this 121.5 million would be a final payment in settlement of the German Reich’s debt of 1.2 billion Swiss francs. The Allies fully backed Germany’s position.
The result was a new impasse. The Swiss made their preparedness to sign an agreement on liquidation dependent on getting satisfaction on their debt claims. To find a way out, the Allies authorized the Germans to conduct parallel discussions on the Reich’s wartime debt. These negotiations, conducted in Bern in April and May, finally reached agreement. The Germans proposed a compromise to recognize Swiss claims to the extent of not more than 650 million Swiss francs, approximately half of the total. An agreement between Switzerland and Germany on the clearing claim, and a revised agreement on German assets in Switzerland, were initialed on May 8. But not all issues had been resolved.
M. Compromise on Intercustodial Matters
The three Allied delegations arrived in Bern in early May 1952 to initial the changes agreed upon with respect to the lump-sum payment and the revised Washington Accord. But the United States refused to initial because of Swiss insistence on the retention of Articles IV and VI on intercustodial matters, which had been in dispute since 1947. The talks were suspended on May 7, and remained suspended through early August. The Swiss had been attempting unsuccessfully to get the U.S. Office of Alien Property to release an estimated $15 to $50 million of assets in the United States (based on a 1950 estimate) on the grounds that the companies were no longer (or never were) controlled by Germans. Swiss insistence on inclusion of these two articles would have permitted them to continue to raise intercustodial issues after ratification of the new agreement. If the Swiss failed to obtain satisfaction, they could then demand arbitration. U.S. opposition was based on the legal ground that neither the terms of the May 1946 Accord nor the arbitration provisions of the Accord covered German assets in the United States.
On July 2, 1952, the Swiss Legation Chief raised the matter with the West European Office of the State Department, noting that the negotiations in Bern had broken down when the United States asked that Switzerland give up its rights under Article IV. The Chief of the West European Office stated that the United States "was acting within its sovereign rights when it seized enemy property located in its territories" during the war. His response made clear that the United States felt strongly about this issue:
"Article IV, which provided that ‘Swiss property’ in the U.S. would be unblocked, referred to the Swiss property which had been blocked as a protective measure. As fast as it could be determined that this property was in fact totally Swiss, and not enemy owned or controlled, it was unblocked.
"Accordingly, latter-day Swiss demands that, on the basis of Article IV of the Washington Accord, Switzerland has rights regarding enemy controlled property in the U.S. are completely without foundation. When the U.S. negotiators in Bern met with an adamant Swiss demand for such rights, they could only withdraw to consider the matter.
"[The importance of the Washington Accord] to Swiss-American relations far transcends the dollar values in question. As the [Swiss] Minister knows, it was, quite humanly, true that many people in the U.S. viewed neutral Switzerland rather unfavorably during the war. The fact that the Washington Accord remains to this day unresolved constitutes a constant remainder of these unpleasant feelings, which cannot have favorable consequences with relation to whatever subject regarding Switzerland is being discussed."
During June and July State Department officials worked out a compromise solution that was presented to the Swiss in early August. The solution involved retaining the validity of the May 1946 Accord with respect to East German property while the new agreement of 1952 would apply only to the area of the Federal Republic and West Berlin. The compromise allowed the Allies and the Swiss to sign an agreement on the liquidation of German property in Switzerland on August 28, 1952, in Bern. This followed the signing of the German-Swiss agreement of August 26, 1952. Indeed, there were three major agreements involved among the three Allies and Switzerland and Germany and Switzerland.
A summary of their key provision follows:
August 28, 1952, Allied-Swiss Agreement on Liquidation of German Property. This agreement assured release of German assets blocked by Switzerland in 1945 at the behest of the Allies. Switzerland agreed to pay the Allies a lump sum of 121.5 million Swiss francs ($28.3 million), less its advance of 20 million francs ($4.7 million) to the IRO in July 1948. The Allies actually received 101.5 million ($23.6 million), from which the Allies were committed to make an additional payment of 13 million Swiss francs ($3 million) to the IRO. The Allies were entitled to receive the 121.5 million francs in lieu of Switzerland’s liquidation of German assets in its country. The May 1946 Accord ceased to have effect with respect to the Federal Republic and West Berlin, allowing the Swiss to release under certain circumstances blocked German assets to their owners.
August 26, 1952, German-Swiss Agreement on Financing. This agreement between Germany and Switzerland involved establishment of the procedures for financing the 121.5 million Swiss francs that Germany was required to reimburse the Swiss Government for its lump sum payment to the Allies. German owners of property released by the Swiss would be asked by the Federal Republic to make a contribution to the German State equal to one-third the value of their Swiss property. If they refused, the Swiss Government would liquidate their property and the proceeds would become available to the German Government. The German property owners would then receive the full value in German Marks and be liable for taxes to the German State. To assure prompt payment to the Swiss Government of the 121.5 million Swiss francs, the German State would obtain a loan from a consortium of Swiss banks; the loan would be secured by the contributions of German property owners. Exempted from this process were properties with a total value of less than 10,000 Swiss francs and the property of dual nationals and those who had suffered persecution in Germany for racial, political, or religious reasons. The total value of blocked German property in Switzerland was estimated in 1947 at 398 million Swiss francs ($93 million). During the 1951-1952 negotiations, additional deductions for exempted property reduced the total to 360 million Swiss francs.
August 26, 1952, German Settlement of Reich’s Wartime Debts to the Swiss. In this agreement, Switzerland agreed to renounce its claim to a payment under the May 1946 Washington Accord, so long as the Germans agreed to recognize the Reich’s wartime debt, which had reached 1.2 billion Swiss francs exclusive of interest payments. The Germans agreed to pay not more than 650 million Swiss francs as settlement of this debt and begin making specified installment payments on April 1, 1953.