by Adam LeBor
I am especially grateful to the staff of the following archives: Bank of England; Columbia University Rare Book and Manuscript Library; Federal Reserve Bank of New York; Franklin D. Roosevelt Presidential Library; Seeley G. Mudd Manuscript Library at Princeton University; National Archives, London, and the US National Archives and Records Administration at College Park, Maryland. Special thanks go to my team of researchers. In London, Rosie Whitehouse found valuable material in the Bank of England archives. Elysia Glover diligently searched the records of the Federal Reserve Bank of New York, the archives at Columbia University Library and the Henry Morgenthau diaries, which are held at the Franklin D. Roosevelt Presidential Library in Hyde Park. In Washington, DC, Emmanuelle Welch at French Connection Research (www.frenchpi.com), located a number of valuable documents at the US National Archives. Andras Lengyel and Esther Judah deftly translated from German and French into English.
This book is an unauthorised investigative history of the BIS and has not been read or vetted by any staff member or bank official. However I would like to extend my thanks to several people at the BIS. Edward Atkinson was always insightful, and good-humored as he guided me through the archives. Dr. Piet Clement, the bank’s historian, readily shared his knowledge of historical matters, no matter how arcane. Margaret Critchlow and Lisa Weekes at the BIS press office kindly added me to the bank’s media mailing list, answered a good number of my questions, provided numerous photographs, and arranged an interview with Stephen Cecchetti, the head of the Monetary and Economic Department.
All works of historical enquiry draw on their predecessors. I am glad to acknowledge the contribution of Professor Gianni Toniolo and Dr. Piet Clement. Their authoritative study of the BIS, Central Bank Cooperation at the Bank for International Settlements 1930–1973, is an invaluable work of reference. I am especially grateful to Christopher Simpson, professor of journalism at American University, and to Jason Weixelbaum, a very talented, young historian. Professor Simpson, a pioneer in researching the connection between big business and genocide, was extraordinarily generous with his time and expertise, guiding me through the US National Archives and sharing original documentary material from his own archive. Jason Weixelbaum, an expert in the links between American companies and the Nazis, shared a number of documents about the BIS and allied themes and was also a tenacious researcher. Professor Harold James was generous with his insight into the BIS and the historical backdrop to this book. Donald MacLaren kindly shared his insight into his father’s life and work. I am grateful to Helen Scholfield who first contacted me about the extraordinary story of how British secret agents worked against Nazi economic interests in the United States. That episode, like much wartime cross-border economic intrigue, leads back to the BIS.
Thanks most of all to Kati, Danny, and Hannah, for putting up with my long absences, and for daily reminding me that there is indeed life outside the Tower of Basel.
Notes
INTRODUCTION
1. Gates McGarrah, “A Balance Wheel of World Credit,” Nation’s Business, March 1931, 24. BIS archive, File 7.18 (2), MCG8/55.
2. Jon Hilsenrath and Brian Blackstone, “Inside the Risky Bets of Central Banks,” Wall Street Journal, December 12, 2012.
3. Sir Mervyn King interview with the author, in London, February 2013.
4. Paul Volcker, interview with the author, in New York, May 2012.
5. Peter Akos Bod, interview with the author, in Budapest, October 2011.
6. Laurence Meyer interview with the author, in Washington, DC, May 2012.
7. Agreement between the Swiss Federal Council and the Bank for International Settlements to determine the bank’s legal status in Switzerland, February 10, 1987, amended effective January 1, 2003. Available for download at http://www.bis.org/about/headquart-en.pdf.
8. Memorandum A, “Benefits which the US might be expected to derive from representation on the board of the BIS,” October 16, 1935, NARA, MD. RG 82—FRS, NWCH, box 13.
9. Charles Coombs, The Arena of International Finance (New York: John Wiley, 1976), 26.
10. “King: Ace or Joker,” Economist, March 31, 2012.
11. Harold Callender, “The Iron-Willed Pilot of Nazi Finance,” New York Times, March 4, 1934.
12. Coombs, op. cit., 26.
13. http://www.bis.org/about/index.htm.
14. The International Monetary Fund, as its name indicates, is a fund, rather than a bank. The IMF supplies credit to its 188 member countries and imposes strict conditions on the loans, often demanding changes in governments’ economic and fiscal policies. The World Bank Group is composed of five agencies, including the International Bank for Reconstruction and Development, and lends money to poor, low, and middle-income countries. The World Bank Group’s aim is to relieve poverty, not to make a profit.
15. http://www.investopedia.com/terms/b/basel_i.asp#axzz2JIIsrfcm.
16. Gianni Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973 (London: Cambridge University Press, 2005), xiii.
17. World Gold Council, World Official Gold Holdings, February 2012.
CHAPTER ONE: THE BANKERS KNOW BEST
1. Gianni Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973 (London: Cambridge University Press, 2005), 30.
2. Kathleen Woodward, “Montagu Norman: Banker and Legend,” New York Times, April 17, 1932.
3. Peregrine Worsthorne interview with Rosie Whitehouse, carried out for the author in Hedgerley, England, March 2012.
4. John Weitz, Hitler’s Banker (London: Warner Books, 1999), 71.
5. Op. cit., 73.
6. Liaquat Ahamed, Lords of Finance (London: Windmill Books, 2010), 216.
7. Op cit, 327.
8. Ibid, 332.
9. Hjalmar Schacht, Confessions of the Old Wizard (NY: Houghton Mifflin, 1956), 232.
10. Op cit., 235.
11. Andrew Boyle, Montagu Norman (London: Cassell, 1967), 247.
CHAPTER TWO: A COZY CLUB IN BASEL
1. Peter Grose, Gentleman Spy: The Life of Allen Dulles (Boston: Houghton Mifflin, 1994), 30.
2. Op. cit., 101.
3. Allen Dulles to Leon Fraser, September 3, 1930. BIS archive, File 7.18 (2) MCG, 10/76.
4. Paul Warburg to Leon Fraser, May 28, 1930. BIS archive, File 7.18 (2) MCG, 10/76.
5. Ronald W. Preussen, John Foster Dulles: The Road to Power (NY: The Free Press, 1982), 70–71.
6. Op. cit., 72.
7. Gianni Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973, 49.
8. Op. cit., 51.
9. Clarence K. Streit, “A Cashless Bank That Deals in Millions,” New York Times Magazine, July 27, 1930.
10. Gates McGarrah to H. C. F. Finlayson, February 9, 1931. BIS archive, File 7.18 (2) MCG, 4.23.
11. Op cit.
12. Ibid.
13. John Weitz, Hitler’s Banker (London: Warner Books, 1999), 110.
14. Nancy Lisagor and Frank Lipsius, A Law Unto Itself: The Untold Story of Sullivan and Cromwell (NY: William Morrow and Company, 1988), 120.
15. Gates McGarrah to George Harrison, September 22, 1930. BIS archive, File 7.18 (2) MCG, 6/48.
16. Op cit.
17. BIS, First Annual Report (Basel: 1931), 1.
CHAPTER THREE: A MOST USEFUL BANK
1. Quoted in Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973, 59.
2. Op. cit., 58.
3. Ibid., 59.
4. Ibid., 59.
5. Ibid., 106.
6. Hew Strachan, Financing the First World War (NY: Oxford University Press, 2004), 28.
7. Niall Ferguson, Paper and Iron: Hamburg Business and German Politics in the Era of Inflation, 1897–1927 (London: Cambridge University Press, 2002), 117.
8. Pierre Mendes-France, La BRI Son rôle dans la vie économique mondiale, published in L’Espirit International, July 1, 1930, 362.
&n
bsp; 9. Ibid.
10. Toniolo, 46.
11. Gates McGarrah to John Foster Dulles, October 14, 1930. BIS archive, File 7.18 (2) MCG, 7/53.
12. Eleanor Dulles, The BIS at Work (NY: Macmillan, 1932), 480.
13. Weitz, Hitler’s Banker, 106.
14. Gates McGarrah to Leon Fraser, BIS archive, File 7.18 (2) MCG, 12/20a.
15. Interrogation of Kurt Freiherr von Schröder, November 13, 1945. Charles Higham collection, “Trading with the Enemy” Collection, Box 3, Folder 6, University of Southern California Cinematic Arts Library.
16. Op cit.
17. This document, in German, can be accessed at http://www.ns-archiv.de/krieg/1933/04-01-1933.
18. Donald MacLaren, British intelligence dossier on Hermann Schmitz, part of “Brief for the De-Nazification of the German Chemical Industry,” December 1, 1945. Author’s collection.
19. Joseph Borkin, The Crime and Punishment of IG Farben (New York: The Free Press, 1978), 51.
20. Ronald W. Pruessen, John Foster Dulles (New York: The Free Press, 1982), 129.
21. Toniolo, 154.
22. Gates McGarrah to Johan Willem Beyen, June 27, 1935. BIS archive, 7.18 (2) MCG, 12/79a.
23. Op. cit.
24. Ibid.
CHAPTER FOUR: MR. NORMAN TAKES A TRAIN
1. Paraphrase of telegram received, from Cochran, American Embassy, Paris, May 9, 1939, no. 907. Franklin D. Roosevelt Presidential Library, Hyde Park, NY. Henry Morgenthau Papers. Book 189, 1–3.
2. Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973, 131.
3. Gates McGarrah, “A Balance Wheel of World Credit,” Nation’s Business, March 1931, 24. BIS archive, File 7.18 (2), MCG8/55.
4. Henry M. Christman, editor, Essential Works of Lenin: “What Is to Be Done?” and Other Writings (NY: Dover Publications, 1987), 202–203.
5. “Watch Mr. Norman,” News Chronicle, January 5, 1939. Press cuttings file, Bank of England Archives.
6. “Public Should Know What He Is Doing There,” Daily Herald, January 6, 1939.
7. Frederick T. Birchall, “Schacht Honored on Sixtieth Birthday,” New York Times, January 23 1937.
8. The Nikor Project, “Nazi Conspiracy and Aggression: Individual Responsibility of Defendants, Hjalmar Schacht,” part three of thirteen, accessed at http://www.nizkor.org/hweb/imt/nca/nca-02/nca-02-16-responsibility-12-03-01.html.
9. H. R. Trevor-Roper, Hitler’s Secret Conversations, 1941–1944 (NY: Farrar, Straus and Young, 1953), 432–433.
10. Hjalmar Schacht, Confessions of the Old Wizard (Boston: Houghton Mifflin, 1956), 356.
11. Op. cit, 304.
12. Ibid., 357, 358.
13. Paraphrase of Sections Six and Seven, from Cochran, American Embassy, Paris, May 9, 1939, no 907. FDRPL. Henry Morgenthau Papers. Book 189, pp. 6-11.
14. W. Randolph Burgess notes for meeting of the Federal Reserve Board, October 30, 1931. NARA, RG 82- FRS, NWCH.
15. Andrew Boyle, Montagu Norman (London: Cassell, 1967), 281.
16. Op. cit, 281.
17. Diarmuid Jeffreys, Hell’s Cartel: IG Farben and the Making of Hitler’s War Machine (London: Bloomsbury, 2009), 210.
18. Quoted in Toniolo, 195.
19. Bretton Woods Conference, Reel 216, Book 755, page 117. FDRPL. Henry Morgenthau Papers.
20. Tereixa Constenla, “How Franco Banked on Victory,” El Pais (English), June 13, 2012.
21. Pablo Martín-Aceña, Elena Martínez Ruiz, and María A. Pons, “War and Economics: Spanish Civil War Finances Revisited,” Working papers on Economic History, Universidad de Alcala, in Madrid, WP-04-10, December 2010.
22. BIS, Seventh Annual Report (BIS: Basel, 1937), 49.
23. Constenla, “How Franco Banked on Victory.”
CHAPTER FIVE: AN AUTHORIZED PLUNDER
1. Paul Elston, “Banking with Hitler,” BBC Timewatch documentary, 1998. Accessed online at http://www.youtube.com/watch?v=YauM5dHLn1s.
2. Douglas Jay, “£10,000,000—And Norman’s Fault,” Daily Herald, June 21, 1939. Press cuttings files, Bank of England Archives.
3. Elston, “Banking with Hitler.”
4. Toniolo, Central Bank Co-operation at the Bank for International Settlements 1930–1973, 209.
5. Op. cit., 208.
6. Ibid., 210.
7. Montague Norman to Johan Beyen, May 25, 1939. BIS archive, File 2.22e, Vol 1.
8. George Harrison to Marriner Eccles, April 6, 1939. Columbia University, Harrison, Volume 57. Miscellaneous letters and reports, Volume V, 1940.
9. Op. cit.
10. Ibid.
11. Extract from the minutes of the ninety-third meeting of the Board of Directors held in Basel, June 12, 1939. BIS archive. File 2.22e, Vol. 1.
12. Josef Malik to Thomas McKittrick, June 16, 1945. BIS archive, File 2.22, volume 1.
13. “Sees British Hands Tied on Czech Gold,” New York Times, June 6, 1939.
14. Toniolo, 187.
15. Milton Friedman, “The Island of Stone Money,” Working Papers in Economics, E-91-3. The Hoover Institution, Stanford University, February 1991.
16. Op. cit.
17. John Weitz, Hitler’s Banker (London: Time Warner, 1999), 244.
18. Andrew Boyle, Montagu Norman (London: Cassell, 1967), 309.
CHAPTER SIX: HITLER’S AMERICAN BANKER
1. Winant to State Department, July 10, 1941. Telegram 2939. NARA. Author’s collection.
2. Cochran to the State Department, May 9, 1939. Telegram 907. FDRPL. Henry Morgenthau Papers, Book 189, 1–9 and 11–14.
3. Thomas McKittrick interview with R. R. Challener, July 1964. John Foster Dulles Oral Collection at Seeley G. Mudd Manuscript Library, Princeton University Library, 7.
4. Higginson & Co., Paris Office, Copies of Cable & Telegraphic Correspondence—German Gov’t Short Term Financing, September 19, 1930. Thomas H. McKittrick Papers. Harvard University Business School, Baker Library Series 2, Carton 6, Folder 13, Reel 10.
5. Gates McGarrah to John Foster Dulles, October 14, 1930. BIS archive, File 7.18 (2) MCG, 7/53.
6. McKittrick interview, 9, 10.
7. McKittrick correspondence with Kenneth Brown Baker, September 25, 1939, and October 19, 1939. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, sub-series 2.1, Carton 5, file 18.
8. Mattuck to McKittrick, November 23, 1938. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, sub-series 2.1, Carton 5, file 17.
9. McKittrick to Harrison, August 28, 1942. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, sub-series 2.1, Carton 6, file 1.
10. McKittrick memo to staff, June 11, 1940. BIS archive, McKittrick papers. Series 2, Business papers 2.2, Carton 10, f.11 Neutrality file.
11. McKittrick to Baranski, May 1, 1940. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, Carton 6, Folder 20, Reel 12.
12. McKittrick interview, 19.
13. McKittrick to Cochran, September 2, 1940. FDRPL. Henry Morgenthau Papers. Reel 83, Books 302, 3–5.
14. McKittrick interview, 13–15.
15. Ibid.
16. Winant to the State Department, telegram 2939, July 10, 1941. NARA. Author’s collection.
17. Ibid.
18. McKittrick interview, 37.
19. Quoted in Toniolo, 225.
20. Ibid., 229.
21. Currently, there are no figures available for the total amount of foreign exchange bought and sold by the BIS to its various counterparties, including the Reichsbank, during the war years. The information is available in the BIS archives in the files dealing with BIS- Reichsbank transactions, and the BIS’s foreign exchange records, but has not been compiled. Most of the transactions involve the Reichsbank, selling Swiss francs to the BIS to cover the interest payments on the bank’s investments in Germany. These transactions were usually in the range of 200,000 to 300,000 Swiss Francs, but they ended in January 1943 when the Reichsbank began paying its obligations to the B
IS in looted gold. The author is grateful to Piet Clements, the BIS historian, for this information.
22. Erin E. Jacobssen, A Life for Sound Money: Per Jacobssen, His Biography (Oxford: Clarendon Press, 1979), 165.
23. Toniolo, 227. Toniolo references the final report by the Swiss Independent Commission of Experts on Switzerland in the Second World War, published in 2002.
24. Interrogation reports, Devisenschutzkommando, May 29, 1945. United Kingdom National Archives, London. FO 1046/763, German Loot.
25. Op. cit.
26. Lucas Delattre, A Spy at the Heart of the Third Reich (London: Grove Press/Atlantic Monthly Press 2006), 198.
27. Elizabeth Olson, “Report Says Swiss Knew Some Nazi Gold Was Stolen,” New York Times, May 26, 1998.
28. Schmitz to Thomas McMittrick, January 3, 1941. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, Carton 5, Folder 25, Reel 9.
29. Fraser to McKittrick, November 20, 1940. Thomas H. McKittrick Papers. HUBL, Baker Library, Series 2, Carton 8, Folder 18, Reel 18.
30. Ibid.
31. Ibid.
32. Quoted in Toniolo, 227.
33. Norman to McKittrick, June 12, 1942. Thomas H. McKittrick Papers, HUBL, series 2.2, carton 8, folder 1–2, Correspondence Bank of England 1939–1946.
34. Ibid.
35. Rooth to Norman, September 17, 1942. BIS archive, Thomas H. McKittrick Papers. Series 2, Business papers, 2.2 Carton 10, f.11 Neutrality file.
36. McKittrick memorandum of conversation with President Weber at Swiss National Bank, in Bern, June 7, 1940. HUBL. Thomas H. McKittrick Papers Series 2, Carton 6, Folder 21, Reel 11.
37. Quoted in Toniolo, 225.
38. Ibid.
39. Memorandum from Marcel Pilet-Golaz, October 2, 1942. BIS archive, McKittrick papers. Series 2.2, Business papers, Carton 10, f.11 Neutrality file.
40. Op. cit.
41. Ibid.
42. Ibid.
43. Ibid.
CHAPTER SEVEN: REASSURING WALL STREET
1. Lithgow Osborne to William Donovan, Conversation with McKittrick. December 14, 1942, December 14 1942. NARA. RG 226 OSS records. Entry 92, box 168.
