Nazi Gold

by Douglas Botting

  The old trooper, John McCarthy, the man every CID agent in Germany loved to name, was among those who continued to arouse ‘confusion and dismay’ among right-thinking Americans. McCarthy, the notorious head of the Investigation and Enforcement Branch of Property Control, was to survive to fight yet another scandal and yet another assault against the integrity and honour of his good name. That scandal was the Property Control Case. This was to bring about his downfall and that of his superior, Colonel Lord, and the removal of the last of the bad men from American Bavaria, and from this book – not, many thought, before time.

  There will always remain a mystery around McCarthy. As head of the Investigation and Enforcement Branch of Property Control – the department of American Military Government in Bavaria responsible for the confiscation and redisposal of former Nazi property – he had long been in the best of all possible positions to manipulate the department’s affairs to the personal financial advantage of himself and certain of his closest colleagues, who were also intimately involved in the affairs of Property Control, not only in Munich, but in Augsburg and, of course, Garmisch. That much became clear to his superiors in the US Occupation in due course. But it seems McCarthy was up to more than fiddling the books. We have already seen how CID agent Philip Benzell and other investigators of the Garmisch affair reiterated in their reports the fact that McCarthy’s name cropped up time and time again in connection with various aspects of their investigations – including narcotics trafficking. We have also seen how McCarthy, though the object of deepest suspicion on the part of the investigative authorities, always remained one jump ahead of them – largely as a result of tip-offs from members of the investigative networks who also happened to be members of his own criminal confederacy. So when the CCD tapped his private phone in Munich he was able to receive due warning of the fact and move to a secret abode ‘along the banks of the Isar’ where, incredibly, his colleagues in the close-knit fraternity of the American administration were unable to locate him. And when they came to look at the books in Finance Division, McCarthy was forewarned and destroyed them – or destroyed at any rate those accounts and records which he knew to be incriminatory. In this way the investigators were denied the concrete evidence that could bring McCarthy to trial – and so, it goes without saying, were the authors of this book. And yet there was, as one of the investigators, CID agent William C. Wilson, told us: ‘Not much doubt as to his dishonesty and lack of integrity’. Even the Inspector General charged with examining that part of the Reinhardt memorandum relating to this particular matter was forced to concur that McCarthy had provided false testimony to facilitate the de-Nazification of his chief German confederate, whom we have been obliged to refer to as ‘the Doctor’. (He was not a medical man, but had a doctorate in another field of learning.)

  The circumstances leading to the de-Nazification of ‘the Doctor’ lie in the heart of the mystery surrounding John McCarthy. McCarthy, then a Major, was the G-2 (Intelligence) officer of the 103rd Infantry Division when it took the surrender of Innsbruck, the capital town of the Austrian Tyrol, during the first week of May 1945. Almost immediately after the entry of the division into the town, McCarthy made the acquaintance of ‘the Doctor’, a young German-born Nazi civilian who two months previously had sought refuge in the Tyrol from the rigours of the war front near the Rhine. There was nothing untoward about the fact that these two, the American Intelligence Officer and the Nazi civilian, should have made each other’s acquaintance. It would have been part of McCarthy’s job to follow any lead or contact he thought fit in the pursuit of military intelligence. Since ‘the Doctor’ claimed to have been a member of the Resistance in Austria, and to have saved the lives of thousands of American soldiers by disarming (through means still unknown) the enemy forces attempting to stop the 103rd Infantry Division from entering Innsbruck, it would have been eminently reasonable, even necessary, for McCarthy to have made contact with ‘the Doctor’ at the earliest possible juncture. What is extraordinary is that McCarthy should have gone to the length of rigging ‘the Doctor’s’ de-Nazification. ‘It is highly desirable,’ he wrote in a testimonial certificate to he presented before the de-Nazification court in Garmisch, ‘that [“the Doctor”] be cleared of any blemish which may appear on his record. Further information will be furnished to US officer authorities only, by the undersigned officer, whose telephone number is Munich Military 3341. (Signed) John R. McCarthy, Major Infantry, 0 – 1299833, US Army.’

  It was even more extraordinary that McCarthy should have remained in continuous personal and ‘business’ contact with ‘the Doctor’ for the next five years, even though it had been long established that he was one of the most notorious racketeers and dope traffickers in the Munich and Garmisch underworld. ‘The Doctor’, we have been told by American CID investigators, was ‘the clue to McCarthy’ – though no matter how hard they tried they were never able to ‘get to him’.

  All that is now by the by. It is not difficult to imagine the kind of mutual advantages accruing from a working relationship between a bent, high-ranking and strategically placed American officer in Property Control and a clever, ruthless, ex-Nazi criminal and gang leader ‘in’ narcotics and big-time black-marketeering. But the real question – the true heart of the mystery – is this: what actually transpired at the first meeting of McCarthy and ‘the Doctor’ on the banks of the River Inn during the last days of the war in Europe that resulted in such a close and continuous relationship between them – a relationship all the more remarkable for the fact that McCarthy was the representative of the ruling power and ‘the Doctor’ was an enemy subject and wanted war criminal? Whatever it was it must have offered a unique and considerable advantage to both men. By the nature of things at that time, the source of this unique advantage – some hidden source of concentrated wealth, of money, diamonds or even gold perhaps (we can only speculate) – would have been known to ‘the Doctor’ rather than McCarthy and revealed to the American in return for the kind of favours and protection only an American could provide in that part of occupied Germany and Austria in those days. Something momentous took place, but what it was was never discovered at the time and – short of a death-bed confession – will doubtless never be discovered in the future. McCarthy is dead and ‘the Doctor’ has never uttered a word about those dubious days, and never will.

  So McCarthy and ‘the Doctor’ survived and prospered through all the choppy seas and sudden squalls of the CIC, CID and Inspector General’s investigations – until McCarthy and his Property Control associates overstepped the mark one last time and finally capsized and foundered. The immediate cause of this ultimate débâcle seems to have been the I.G. Farben case. When the time came for this former giant German chemical combine – one of the greatest in the world – to be broken up and sold off to legitimate private bidders, the indomitable Property Control boys of OMGB, by now feeling invulnerable and overwhelmingly confident, decided to have a crack at this grandest of all Property Control prizes. The whole operation was underhand and illegal, as John McCarthy and his superior officer, Russell Lord, the Chief of the Finance Division, well knew. But they stood to make millions – or thought they did – if the deal came off and it was clearly a gamble these expert operators felt well worth the risk of taking.

  It had been the rule under the Allied occupation that properties confiscated by Property Control should be placed under the supervision of a qualified custodial supervisor who was in turn responsible to the Finance Division under Russell Lord. The ultimate goal was to return these properties to their rightful owners or, in the case of new operations such as the big Perlon (nylon) plant near Augsburg, to sell them off to non-Nazi buyers and allocate the purchase money to war reparations. One proviso of the regulations was that no member of Property Control, or any custodial supervisor, could buy into the property concerned. But this was not the sort of thing to deter the likes of McCarthy and Lord – nor their close associate, a Property Control officer for Augsburg,
who had supervision over the Perlon plant mentioned above.

  When the break-up and sale of I.G. Farben were first mooted, it seems that McCarthy and Lord concocted a scheme to set up secret front corporations in Liechtenstein and Switzerland and have them buy up the various Farben plants, which apparently included the Perlon one. The general idea was that a stock-holding group composed of German financiers, custodial supervisors and American members of Property Control would compose the syndicate. This was a very bold, indeed a breathtaking scheme. If it had gone according to plan, Lord and McCarthy would have become millionaires from their secret stock-holdings in the de-Nazified German companies – but only temporarily. Though they obviously had not foreseen it, they would eventually have been frozen out by stock manipulators and, as soon as Germany became autonomous (which in 1949 it did), they would, in the words of an American investigator on the case, ‘have lost their shirts’.

  But the scheme did not go according to plan, for it was rumbled – as so often happens in such cases – by a surprise intervention from a completely unexpected direction. One of the CID agents involved in the ensuing investigation, William C. Wilson, has described what happened:

  The Augsburg Property Control Officer had a German mistress who virtually ran his office. For some reason or another he brought his wife over to live with him in Augsburg and he kept up his relationship with his mistress. It didn’t take her long to catch on as to the state of affairs. One night they had a big row and he beat up his wife. She left him and returned to the States where she got in touch with her Congressman. She was a highly intelligent woman, who had found out a great deal of what was going on, and she told her Congressman everything she knew or suspected. A CID case was opened by the 15th Detachment at Augsburg (Agent Henry Coogan), but it soon became apparent that it was far too big and complex for him to handle alone. Also, it involved matters of finance and procedure that were beyond the scope of the CID.

  In early December 1948 General Clay ordered an investigation to examine the entire performance of the property custodians and administrators in OMGB, the management by American personnel of properties under American control in Bavaria and procedures of control since May 1945. Clay also demanded an audit of the records of the more important properties. A Special Team of investigators from the Inspector General was set up. The team was headed by Lieutenant-Colonel William King. King was an experienced man. He had served many years with the fraud branch of the Department of Immigration, and later he was one of the early chiefs of the CID.

  He was one of the most brilliant and astute investigators I have ever known [Wilson recalled]. He had as his team: Major Ross Black, who was an excellent interrogator and very tenacious; Major Robert Hensley, who was very thorough; a Captain Austin from military intelligence (spoke fluent German); an auditor named Murray Feingold, and myself. King very wisely compartmentalised the case so that each investigator had his own area with King acting as co-ordinator and evaluator.

  It soon became apparent that Lord and McCarthy were feathering their own nests, furthermore that ‘the Doctor’, based in Garmisch, was McCarthy’s chief contact man and adviser, and that another dubious figure – an Austrian-born Jew called George Spitz, who had been sentenced to 20 years for embezzlement before the war, worked as a Nazi SO agent during the war, and purported to be a Munich banker and US citizen after the war, was Lord’s fiscal adviser. Spitz had been one of the Nazis’ leading ‘salesmen’ of counterfeit British currency manufactured during the war as part of an SS project code named ‘Operation Bernhardt’. After the war he had become Lord’s and McCarthy’s front man in the I.G. Farben affair.

  The investigation by the Special Projects Team into the wrongdoings of Lord, McCarthy and their colleague from Augsburg took six months to complete. The resulting report ran into 26 volumes. The Inspector General was assisted not only by the men from the CID but by the fiscal experts who included AG audit teams and JAGC and German auditors, and the case was the subject of almost daily conversations between General Clay and his Chief of Staff in Berlin, his Theater Inspector General in Heidelberg and his Director of Military Government in Bavaria. It was a very big case. All three of the officers investigated were found to be deeply implicated; their two German advisers, George Spitz and ‘the Doctor’, skipped the country while the investigation was in process. According to CID agent William Wilson, who wrote one of the 26 volumes, the investigators actually found the minutes of a meeting in which the American officers discussed how to buy themselves into the German companies then being made available through the break-up of the I.G. Farben cartel – by forming dummy companies in Liechtenstein with qualified German front men. ‘Having a piece of this kind of action would be better than stealing something that could be traced,’ wrote Wilson later, ‘but I doubt that any of them got away with anything much in the long run.’ While there was little doubt about McCarthy’s guilt, that of his superior officer, Russell R. Lord – the American financial supremo in Bavaria – was more difficult to determine. It was generally felt that he was either naive to the point of stupidity, or he was dishonest – though there was some disagreement as to whether he was an out-and-out crook, or merely an accessory to McCarthy’s criminal schemes.

  As far as the Property Control case is concerned – the last great scandal involving some of the longest-surviving rascals who have appeared in this story – the spirit of cover-up seems to have prevailed in Washington to the present day. When the authors first applied to the US Archives for copies of the 26 volumes of investigative records relating to the case, availability was denied on the grounds of invasion of privacy of the individuals principally involved. When the authors then submitted the death certificates of both McCarthy (died in 1978) and Lord (died in 1981) as submission that privacy could no longer be invaded, the US authorities replied that they had now shredded the records of the Property Control case, and that these no longer existed. However, sufficient bits and pieces of documentation cross-referenced in other files in different archives have survived to provide a picture of the scope and seriousness of the case, if not the fiscal minutiae of the evidence.

  Thus in a letter to General Clay dated 22 Mardi 1949 the Inspector General’s office reported that ‘by concentrating on certain accounts . . . they expect to be able to trace various unethical and illegal transactions to those responsible at top level. It would appear at this time that Mr Lord had knowledge, if not actual participation, in these manipulations.’

  A further letter from the Office of the Chief of Staff, European Command Headquarters, to the Headquarters of Military Government for Germany, dated 17 August and enclosing the report of the investigation for appropriate action, stated: ‘The investigation does show on the part of Mr Lord and Mr McCarthy flagrant indifference to the interests of the United States and a disregard for the obligations of an officer of the government, which is in effect a breach of trust.’

  On 31 August 1949 the Office of Military Government for Germany made their final pronouncement on the case. The Personnel Officer wrote:

  1. I have reviewed the attached case involving Mr Russell Lord et al. The file in my opinion clearly confirms Mr Lord’s weaknesses as air administrator, but does not show clearly that Mr Lord gained personal benefits through the juggling of property and monies.

  2. With respect to Mr Lord, I repeat a recommendation that Mr Lord not be given a position in the High Commissioner’s Office.

  3. With respect to Mr John R. McCarthy, the extent of his involvement in the irregularities of property management is not very clear. His conduct before the investigating authorities, however, was such as to raise serious doubt as to the wisdom of retaining him in a position of responsibility. On the basis of the material in the file, I would recommend that Mr McCarthy not be given a position on the staff of the High Commissioner.

  McCarthy and Lord in other words, were out of a job – or, in clinical US Army parlance, ‘terminated’. But discretion was still the better part of justice
under General Clay’s troubled command. There was no public statement about the ease, let alone a trial. McCarthy and Lord were not separated from the employ of Military Government dishonourably, but simply shipped quietly home – amazingly, Lord found subsequent employment in the State Department; McCarthy went back to Europe to sell insurance in Switzerland. They were not asked to apply for re-employment in the American High Commission (the organisation representing the American presence in Germany which replaced Military Government after the formation of an autonomous West German state in September 1949 – the date which spells the absolute conclusion of this tortuous tale). Such wrongdoers as had survived the total collapse of the German black market following currency reform did not survive the end of American rule in Germany. The wild old, bad old post-war days were over – and so were the careers of ‘the men who had enriched themselves’.

  There is perhaps no particular or subtle moral with which to end this story of the world’s greatest robbery and its aftermath – only that war and the conquest and rule of one nation by another bring about their own exaggerated, frontier-style forms of corruption. But our main drift might he best summarised in the words of a man who was close to the action of this book during one of its most important periods – the Military Governor of Bavaria, Brigadier-General Walter J. Muller. General Muller made two statements when he finally relinquished his command and returned to the States – one public, the other private, the one after the other. The two statements are totally contradictory, and in their contradiction lies the paradox which is close to the crux of this book. In his formal valedictory to the Americans in Military Government under his command, General Muller proudly proclaimed: