The Merkers Treasure
Nazi Gold! The words crackle with an electrifying terror like a bolt of lightning slicing through the sky. No two words are more liable to trigger images of Nazi intrigue and brutality. Unfortunately, there are as many false tales of Nazi loot as there are true ones. No single aspect of WWII has caused more controversy, myths and bewilderment; more than sixty years since the end of the war, a sea of controversy remains. Equally important, but seldom mentioned, is the hoard of booty collected by the Emperor of Japan. Both hoards contained enormous quantities of gold, silver, platinum, jewels, art and other valuables looted from a third of the world.
Adding to the controversy is the extreme complexity of the subject. An all-encompassing view of Nazi gold is nearly impossible because it involves Vatican, Swiss and South American banks, the Bank of England, the Federal Reserve, and Nazi plans for a rebirth. Some top Nazi officials skimmed gold and valuables into individual hoards. The Allies never reported all the gold they recovered; what the Soviet Union recovered remained hidden behind the Iron Curtain, and is only now becoming known. How much of the treasure was recovered is largely a guessing game. Bitterly disputed estimates vary widely. The only certainty is that much remains unaccounted for. A great deal was most likely spent in rebuilding Germany after the war. The wealth robbed from the victims of the Nazis helped fund the so-called European miracle of reconstruction.
The Nazis had precise plans for a comeback, resting on their ability to hide their ill-gotten loot from the Allies, and on aid from friends in foreign countries, including the United States. Some of the hoard was hidden safely in secret Swiss bank accounts; other portions were shipped to South America (mainly to Argentina) for safekeeping. One conduit to Argentina was controlled and directed by Martin Bormann. Bormann’s fate is still uncertain, and valuables he sent to Argentina in project Action Feuerland are still shrouded in a fog of mystery and intrigue.
There are several accounts - some plausible, others bordering on the preposterous - about Bormann’s fate. The more common and believable account had Bormann living out his life in South America, while an equally likely account had him dying in the last days of the Third Reich while trying to escape from Berlin. In a third version started by Gen. Gehlen, Bormann escaped to the Soviet Union and lived there. Gehlen claimed to have recognized Bormann in a crowd at a soccer game as a television camera panned the spectators. Most recently, one ridiculous account named Bormann as a Soviet mole in Hitler’s inner circle, while another claimed a British commando unit rescued him from Berlin and he lived out his life in the English countryside.
Obviously, it would have been useful for Bormann to be declared dead in Berlin. Nevertheless, recent DNA taken from one of the skulls found in Berlin matched closely with that of an uncle of Bormann. The skull still had glass shards between the teeth, suggesting that Bormann was unable to escape from Berlin and committed suicide.
Before the advent of DNA testing, there was much controversy over the identity of the skull. It was caked with red volcanic clay not to be found around Berlin, but closely matching the soil of Paraguay. The government turned the remains over to the family, which had them cremated and the ashes scattered at sea, hoping to settle the controversy for all time, yet it still continues. There were credible sightings of Bormann in Europe, then in South America until the 1960s. The red clay suggests that Bormann died in South America and his body was moved to Berlin.
Bormann’s end is of only secondary importance; what concerns us more is the fate of the assets he spirited from Germany to Argentina. Despite some factual errors that diminish their credibility, two of the best books covering Bormann and South America are Aftermath by Ladislas Farago and Martin Bormann: Nazi In Exile by Paul Manning. Manning, a reporter during WWII who has written two books regarded as classics, admits that Allen Dulles deceived him about South America. But why?
While the Nazis had concrete plans to ship much of their gold and valuables to other countries, the United States planned to recover them. A good deal of the American effort to recover the Nazi gold fell under Operation Safehaven. However, no one realized the enormous size and complexity of the task until early April 1945. Late in the evening of March 22, 1945, units of Lt. Gen. George Patton’s Third Army crossed the Rhine. What at first was a trickle of soldiers crossing the river soon turned into a raging flood of troops.
By noon on April 4, the Third Army captured the village of Merkers. During April 4-5, a CIC detachment questioned displaced persons in the vicinity. Many told the CIC of unusual activity around the Wintershal AG’s Kaiseroda potassium mine at Merkers. The rumor was that the Reichsbank hid its gold reserves there. CIC passed the information up to G2, which immediately issued an order to bar civilians from the area.
The next morning, two female displaced persons approached a roadblock and were questioned by the guards. One was pregnant and on the way to Keiselbach to see a midwife. After questioning, the guards drove the two women back to Merkers. The jeep driver asked the women about the Kaiseroda mine, and was told it was where the Nazis hid their gold and other valuables.
By noon on April 6, this information reached Lt. Col. William A. Russell, who proceeded to Merkers and questioned several displaced civilians who confirmed the story. In addition, Russell learned that Paul Ortwin Rave, curator of the German State Museum in Berlin, as well as an assistant director of the National Galleries in Berlin, took care of paintings there. Russell then confronted the mine officials with the information and questioned Werner Veick, the head cashier of the Reichsbank’s Foreign Notes Department, who also was at the mine. Rave admitted his role as caretaker for the paintings. Veick told Russell the Nazis hid the entire gold reserve of the Reichsbank in the mine.
Military wires blazed with requests for reinforcements to guard the mine. At first, Russell ordered the 712th Tank Battalion to advance to Merkers to guard the entrances. The Ninetieth Division Military Police provided additional forces. By evening, American troops discovered five more possible entrances to the mine, and it was obvious one tank battalion was not enough. Maj. Gen. Herbert L. Earnest then ordered the First Battalion of the 357th Infantry Regiment to go to Merkers and reinforce the 712th. Russell also told an XII corps G5 officer what was going on at the mine.
On the morning of April 7, American forces placed guards at each additional entrance. At 10 a.m., Russell and two other officers with Rave and mine officials entered the main entrance, where a shaft took them 2,200 feet below the surface. In the main tunnel, they found 550 sacks of Reichsmarks, and located the main vault behind a 3-foot thick brick wall that enclosed an area at least 100 feet wide. In the center was a heavy bank vault door.
Patton was informed that a large quantity of paper money but no gold was found. As Patton’s forces continued their lightning advance into Germany, he ordered the 357th Infantry Regiment, except for the First Battalion, to move out and join the Ninetieth Infantry Division. Patton also ordered the vault door blown open.
Early on April 8, Russell, with a public affairs officer, photographers, reporters and soldiers of the 282nd Engineer Combat Battalion, reentered the mine. The vault door was easily blown open and they entered Room 8. The size of the hoard was simply stunning; stretching before them was a room about 75 feet wide and 150 feet long. The room was lighted, but not ventilated.
Before them were more than 7,000 bags stretching all the way to the back of the room. The bags were laid out in 20 neat rows about knee-high and separated by roughly 2.5 feet. Baled currency was neatly stacked along one side of the room. At the back were 18 bags and 189 suitcases, trunks and boxes; each carefully marked with the name Melmer. It was obvious that these containers belonged to the SS. It also was the first clue to the complexity and scope of the Nazi looting of Europe.
Russell and his men broke some of the seals on the bags to inventory the stash: 8,198 bars of gold bullion; 55 boxes of crated gold bullion; hundreds of bags of gold items; more than 1,300 bags of gold Reichsmarks, British gold pounds and French gold francs; 711 bags of American $20 gold pieces; hundreds of bags of gold and silver coins; hundreds of bags of foreign currency; nine bags of valuable coins; 2,380 bags and 1,300 boxes of Reichsmarks (2.76 billion Reichsmarks); 20 silver bars; 40 bags containing silver bars; 63 boxes and 55 bags of silver plate; one bag containing six platinum bars; and 110 bags of currency from various countries. In other tunnels, they found a large quantity of artwork. The hoard also revealed the brutality of the Nazi regime. Included in the inventory were bags of teeth containing gold fillings extracted from concentration camp victims.
Once aware of the enormous size of the hoard, Patton considered the matter to be political and immediately requested that it be turned over to SHAEF. Eisenhower appointed Col. Bernard D. Bernstein, deputy chief, Financial Branch, G-5 Division of SHAEF. On April 15, a convoy with constant overhead fighter protection moved the treasure to the Reichsbank in Frankfurt.
By mid-August, the gold was weighed and appraised. SHAEF valued the gold at $262,213,000, the silver at $270,469. A ton of platinum and eight bags of rare coins were not appraised. Early in 1946, SHAEF turned the gold over to the Inter-Allied Reparation Agency, which eventually turned it over to the Tripartite Commission for the Restitution of Monetary Gold. The Tripartite Commission returned the gold to the central banks of the countries from which it was looted. Due to the Cold War, some of the gold was not distributed until 1996.
The manner in which the Allies divided the Merkers gold is plagued with controversy. The Allies took no account of how much was from smelting dental gold. Interestingly enough, in 1948, the army microfilmed the records of the Reichsbank’s Precious Metals Department and turned them over to Albert Thoms, who was working for the successor bank. These records disappeared in Germany and were not relocated again until the 1990s.
No other cache of gold and valuables found in Europe rivaled the size of the Merkers find. In the Philippines, one of the caches of the Golden Lily, the Japanese Emperor’s looted treasure, reportedly unearthed by Philippine President Ferdinand Marcos, was larger. The only other possible cache from Europe that could rival the Merkers find would be the Croatian Ustashi treasure. However, the gold and valuables looted by the Ustashis have never been located.
The best evidence suggests that the Ustashis smuggled them out of Europe through the Vatican-CIA ratline. How much of the Ustashi cache made it into the Vatican vaults remains shrouded in secrecy and mystery. American forces located several other smaller caches, mostly in the alpine region on the German-Austrian border, where the Nazis tried to stage a final stand.
There is no dispute about what the Merkers treasure contained. The controversy stems from where the gold came from, how the Allies divided it, and what portion of the total Nazi hoard the Merkers treasure represented.
To reach an estimate of the extent of the Nazi looting, the gold reserves of the Nazis’ trading partners can be used to set an upper bound. Only a handful of countries hiding under the umbrella of neutrality continued to trade with the Nazis during the war.
The following table reflects the change in gold reserves of Nazi Germany’s primary trading partners. The figures are in millions of dollars.
Obviously, not all of the increase was due to the Nazis, but the figures do set an upper limit. Further, since the only currencies not accepted globally were the German Mark, Italian Lira and Japanese Yen, neutral countries continued to accept the U.S. dollar and British pound. More evidence comes from the declared deposits of Swiss banks, which soared from Swiss Francs (CHF) 332 million in 1941 to CHF 846 million in 1945. Again, not all of the increase in deposits can be attributed to the Nazis, but it does set an upper limit of half a billion dollars. Note that the dollar figure is in 1945 dollars when gold sold for $35 an ounce; the dollar value of the gold today would be more than $5 billion.
The figures above compare favorably with the latest estimates available. The report stemming from President Clinton’s initiative shows the Swiss received $440 million in gold from the Nazis, of which $316 million was looted gold. The Dresdner and Deutsche banks received $1 million of gold, which they sold in Turkey for foreign currency. More than $300 million in Nazi gold reached Portugal, Sweden, Spain and Turkey.
The U.K. Foreign Office conducted a vigorous campaign, warning neutral countries against accepting gold from the Nazis. The U.S. refused to support the measure until July 1943, when the alarming increase of gold reserves of the neutral countries became obvious. Even then, State Department support was cool, at best.
The above list of countries is accidents. Without their raw materials, the Nazis could not wage war. Sweden supplied vitally needed high-grade iron ore. Turkey supplied Hitler with chromate. Portugal and Spain supplied wolframite. War munitions and heavy armor production required all three metals. Chromates are used to harden steel for armor, while wolframite or tungsten ore is used primarily for machine tools. Nazi sources for both metals were extremely limited; the war forced Germany to rely almost entirely on these countries.
Considering South America was a prime refuge for the Nazis after the war, it is instructive to look at changes in the gold reserves of South American countries, particularly Argentina. Argentina’s gold reserves increased from 313.83 metric tons in 1940 to 1064 tons in 1945. The increase in the gold reserves of Argentina was $635 million. To put that figure in perspective, the U.S. budget for 1940 was about $9.4 billion. Brazil also saw an increase in gold reserves from 45 metric tons in 1940 to 314 tons in 1945, or an increase of about $228 million.
The reserve figures shed some light on the destination of some of the Nazis’ loot. How much of the increase in South American gold reserves came from Germany towards the end of the war to finance the Nazi comeback is unknown. However, gold was only part of the plan. Even more valuable were the bearer stocks and bonds, and the Nazi front corporations set up worldwide by Bormann. They held valuable patents, and produced a steady income stream to finance the Nazi underground.
Safehaven Operations
The Allies used various methods and programs to recover Nazi gold. Poland took the first measures against Nazi looting by moving their gold reserves to Romania before they were invaded. Unluckily, the Nazis soon overran Romania too, and seized the Polish gold.
Several other European countries made similar efforts. French officials at the National Bank shipped their treasure to the United States. At the end of 1939, Belgium entrusted the French with $223 million for safekeeping. Soon after the German invasion of the Low Countries, Belgium urged France to ship its gold to London aboard military cruisers. However, the French transferred the gold to Dakar, in its West African colony of Senegal. After the fall of France and negotiations with Vichy, the Nazis got the Belgian gold.
Within the first hour of the Nazi invasion of the Netherlands, Dutch authorities shipped their gold reserves in Amsterdam to England. A second boat carrying 11 metric tons of Dutch gold reserves stored in Rotterdam struck a mine near the coastline, and was marooned. By 1942, the Nazis recovered most of the gold aboard. Other European countries failed to take any precautions, and the Nazis seized their gold reserves as soon as they were overrun. In this way, most of the gold reserves in the central banks of Europe fell to the Nazis, except for those of France and a portion of those of the Dutch.
The first action taken by the United States was Executive Order 8389, signed by Roosevelt on April 10, 1940 freezing Norwegian and Danish assets in the United States. Eventually, the United States froze the assets of every country except England, Japan and China. Freezing assets blocked Nazi accesss to them in the United States.
In July 1942, the United States issued the blacklist of individuals and companies, the Proclaimed List of Blocked Nationals, banning trade in the Americas with any party on it. Those listed were deemed hostile to the defense of the Americas. Throughout the war, the United States added to the list until it included several thousand names.
On Jan. 5, 1943, the Inter-Allied Declaration Against Acts of Dispossession Committed in Territories Under Enemy Occupation or Control, better known as the London Declaration, was announced. The measure declared the Allies would no longer recognize the transfer of property in occupied countries, even if it appeared legal. The Allies were aware that the Nazis were forcing people in occupied countries to sell or transfer their property to them. Up to then, the Nazis had painstakingly created the illusion that such transfers were legal.
On Feb. 22, 1944, the United States announced in its Declaration on Gold Purchases that it would no longer recognize the transfer of gold loot from the Axis, nor buy gold from any country that had not broken relations with the Axis. England and the Soviet Union followed with similar declarations.
In July and August of 1944, the Bretton Woods Agreement was reached, calling on the neutral countries to prevent disposition or transfer of assets in the occupied countries. On Aug. 14, 1944, the U.S., UK, and Swiss War Trade Agreement was reached, requiring the Swiss to reduce trade with the Nazis.
On Dec. 6, 1944, Operation Safehaven was organized. Four days later, the State Department released a paper urging a soft line toward Switzerland. This was the first step in sabotaging efforts to return assets to Holocaust victims. In essence, it continued a feud between the Treasury and State departments regarding peace terms and the 4Ds program.
In February 1945, the Yalta Conference agreed that reparations would be exacted from Germany. The conference also set the groundwork for the Allied Reparations Commission.
Operation Safehaven was by far the best known and biggest action the Allies launched to recover assets looted by the Nazis. Leo T. Crowley, Director of the Foreign Economic Administration (FEA), first proposed the need for a Safehaven organization in a letter to the Secretary of Treasury on May 5, 1944. Then, in a letter to Livingston T. Merchant in the State Department ten days later, William T. Stone, Director of FEA’s Special Areas Branch, called for bringing in the British, as well as various other U.S. agencies. Since it involved both the Treasury and State departments, Safehaven was plagued by their intense rivalry. Thus it suffered the same fate as the 4Ds program; it was sabotaged from within.
In May 1944, Samuel Klaus, Special Assistant to the General Counsel of the Treasury Department, proposed a plan for a fact-finding mission to neutral countries dealing with the problem of hidden Nazi assets. Early planning for the trip included Klaus and Herbert J. Cummings, a State Department official. Once the Treasury Department was aware of the trip, it sent several officials to catch up with the Klaus delegation. From August to October, Klaus visited London, Stockholm, Lisbon, Madrid, Barcelona and Bilbao to encourage neutral countries to participate in Safehaven. The mission had only slight success, and canceled plans to visit Switzerland and Portugal. In his final report, Klaus outlined his current thinking on Safehaven:
It is only in its narrowest, and relatively less important, aspects flight of enemy capital. In its most important aspects it is the use of neutral countries as bases for maintaining the assets, skills and research necessary for the conversion of Germany to a war basis at an appropriate future date. The hiding out of stolen jewels or pictures, even if it exists, is truly important from the point of view of war crimes retribution. But the presence of IG Farben personnel in Spain, the expansion of Siemens production in Sweden, or the presence of German military technicians in Argentina are of more far-reaching significance, and constitute as well the most difficult Safehaven activities.
Klaus found the conditions in Spain the most troubling. There, U.S. Ambassador Carlton Hayes was unsympathetic to Safehaven’s investigations, although Spain was the country most damaging to its objectives. In fact, the OSS had to work out of Portugal due to the ambassador, who identified undercover agents to the Spanish police. Hayes insisted on censoring all incoming and outgoing OSS messages. He even blocked the broadcast of Safehaven publicity material for a time. Hayes was friendly to a fault with the Franco regime; however, he is credited with keeping Spain from joining the Axis, even though such an alliance probably never was part of the Nazis’ plans. Just as Hitler recognized the need for a neutral Switzerland to get foreign currency and laundered gold through, the Nazis most likely recognized the need for a neutral port on the Atlantic to receive supplies, for instance, gasoline imported through Spain after Hitler invaded the Soviet Union.
Hayes was aware of Spain’s oil imports. On Feb. 26, 1943, he commented that oil products in Spain were considerably easier to get than on the East Coast of the United States. The supply of gasoline and petroleum products available equaled the full capacity of Spain’s tanker fleet. Standard Oil supplied the gasoline from its oil fields in South America. This presented the Roosevelt administration with a Pandora’s box of dilemmas. Forcing Standard to stop the shipments could have resulted in an interruption in the U.S. oil supply. At one point during the war, Standard threatened to do just that. Second, U.S. citizens suffering from gasoline rationing cards would have rebelled on learning that an American company was supplying oil to the Nazis. A similar commotion could be expected from the troops, many of whom were draftees. So the oil shipments to Spain continued. If you are rich enough, treason is no crime.
The OSS collected and evaluated most of the data for Safehaven. Within OSS, Safehaven was confined to the SI (Secret Intelligence) and X2 (counterintelligence) divisions. X2 often played the dominant role, especially with the more important neutrals - Switzerland, Portugal and Spain. X2 was especially involved in the German effort to transfer looted assets to foreign countries.
Cooperation between the OSS and Safehaven was informal until Nov. 30, 1944, when instructions sent to all OSS stations detailed the intelligence requirement expected by the program. Safehaven was able to use already active OSS operations, redirecting them slightly toward the collection of economic data.
This made Safehaven dependent on the personalities of the various OSS station chiefs. As mentioned, the ambassador had compromised OSS missions in Spain. In Switzerland, Allen Dulles was the station chief. Dulles had already been exposed in an earlier operation, a joint program with the British, for spying on Americans, and he was suspected of being sympathetic to the Nazi cause. Roosevelt deliberately sent Dulles to Switzerland where he would be most tempted to help his clients. When Dulles reached Berne, he was aware that he was being watched. He knew he could not use official channels to help his clients in the United States. So he used his Vatican connections to help the Nazis and couriers with diplomatic immunity. The Vatican readily agreed to help Dulles in its zeal to regain its assets in Germany and further its fanatical anti-communist philosophy.
Declassified files show that Slovenian Bishop Gregory Rozman was trying to arrange the transfer of huge quantities of Nazi-controlled gold and Western currency discreetly secreted in Swiss banks during the war. The bishop was sent to Berne with the help of Dulles’ friends in the intelligence service. For a few months, the Allies were successful in preventing Rozman from getting the funds. Then, suddenly, Rozman had the money for his Nazi friends living in Argentina. Dulles had fixed it. This incident may be only the tip of the iceberg. In 1945, the U.S. Treasury Department accused Dulles of laundering funds from the Nazi Bank of Hungary to Switzerland. Similar charges were made against Dulles’ agent, Hans Bernd Gisevius, who worked for the OSS while serving at the Reichsbank. The State Department quickly took over the case from the Treasury, after which the investigation was silenced and dropped. Gisevius also was involved in the ratlines.
Dulles’ career in Berne during WWII was marked by several money-laundering cases. After the Nazis tipped off Dulles that the Swiss codes had been broken, he shifted his laundering activities to the banks of Belgium, Luxembourg and Liechtenstein. He used a roundabout route through Japan, aided by Vatican couriers. After the war, all the banks in these countries refused to allow Allied investigators to look at their books. One of Dulles’ dirtiest tricks may have been an effort to buy more time to move Nazi gold through Switzerland. A former East Bloc intelligence officer confirmed that Dulles warned the Nazis that their code had been broken. Shortly afterwards, the SS told the High Command to tighten code security, stop using the radio and switch to couriers. For once, the Allies had no information on German battle plans. This most likely explains how the Germans were able to launch the Battle of the Bulge as a complete surprise.
Dulles and his comrades exerted a good deal of influence to ensure that U.S. investments in Nazi Germany were not seized for reparations. In Switzerland, the SS bought a large amount of stock in American corporations and laundered money through the Chase and the Corn Exchange banks. Even more brazen was the case of the Pan Am clippers hired by the W.R. Grace Corp., to transport Nazi gems, currency, stock and bonds to South America. These operations were the product of Dulles’ money laundering for the Nazis. Several American officers readily admit that much of the Nazi gold was never turned over to them. One officer tells of being in a huge vault filled with gold, gems and currency that never appeared in any U.S. files.
Dulles backed Germany for a long time, seeing it as a bulwark against the Soviets. The young Lt. William Casey was another OSS agent who shared this view. Casey served in the SI division in France and the Lowlands following liberation. In a report from Paris, Casey wrote that Safehaven was a valuable field of endeavor, especially because of the potential for leverage with German financial circles. After the war, Casey worked on Wall Street before becoming Reagan’s CIA Director.
In 1946, Dulles’ men simply changed their OSS uniforms and became the War Department Strategic Service Unit. Sometimes they were the War Department Detachment; other times, the Document Disposal Unit. In effect, there were two factions left from the OSS - a liberal faction that took orders from the president and the other under the control of Dulles. The latter faction was hoping for a conservative victory by Dewey so it could unleash an émigré army against the Soviets. Dulles had a secret ally in Region IV around Munich, where the CIC was helping to recruit ex-Nazis.
Due to Dulles’ close association with German industrialists, he was unwilling to give the attention to Safehaven that Washington expected. In November 1944, with the Allies now in control of France, a land route to Switzerland was reestablished, making it possible to send an X2 agent to Berne to help run the Safehaven program there. By April 1945, X2 in Berne had unearthed a great deal of information on Nazi dealings, including:
Gold and bonds looted from Europe and received by certain Swiss banks.
Additional funds sent by the Deutsche Verkehrs-Kreditbank of Karlsruhe to Basel.
Stocks and bonds held in Zurich by private firms for the Nazi Party.
Hoards of Swiss francs credited to private accounts in various Swiss banks.
Cash and property held in Liechtenstein.
More than 2 million francs held by the Reichsbank in Switzerland.
Forty-five million Reichsmarks held in covert Swiss bank accounts.
This information, gleaned in less than four months by the X2 agent, only confirms other information that surfaced over the years that Dulles was working hard for the Nazis to hide their loot. Dulles was a friend of the American director of the Bank for International Settlements and top Nazi banking officials.
After the investigation into his money laundering, Dulles resigned from the OSS and returned to New York to seek out Thomas McKittrick, the former head of the Bank of International Settlements. The Nazis had moved many of their assets from Switzerland to Argentina. Dulles soon went to work for a staggering number of Argentine clients. He and Donovan agreed that every effort should be made to sabotage Truman and the liberals. To this end, Dulles inveigled Donovan into serving on the board of the World Commerce Corp., where Dulles was the lawyer. Nazi money flowed in a circle from Germany to the Vatican, then on to Argentina and back to Germany. Argentina’s economy boomed from the influx. The so-called economic miracle of the 1950s came from the same money the Nazis looted from Europe in the 1940s.
From the beginning, Safehaven was an ambitious project with several goals, including immediately forcing the neutral countries to stop trading with the Nazis. The secondary goals of Safehaven follow:
To restrict German economic penetration outside the borders of the Reich.
To prevent Germany from sequestering assets in neutral countries.
To ensure that German assets would be available for postwar reparations and to rebuild Europe.
To prevent the escape of those members of the Nazi ruling elite already cited for war crimes trials.
For a large and ambitious program, Safehaven was terribly understaffed. With the Nazi surrender in May 1945, SI agents assigned to Safehaven had to concentrate first on strategic information before devoting any time to Safehaven. Additional well-trained agents simply were not available. Second, Safehaven was plagued by the long-running feud between the Treasury and State departments and, to a lesser extent, by British hesitation to employ harsh measures. Finally, success was proportional to the willingness of the neutral countries to comply with Allied demands to stop trading with the Nazis. During and especially at the end of the war, Safehaven operations were left in the hands of the CIC or the CID Criminal Investigation Division of the military. While TCOM forces were well equipped and staffed, CIC and CID were poorly equipped and undermanned, as were the gold rush teams.
Bormann’s Aktion Feuerland
The British Ministry of Economic Warfare (MEW) estimated that the Merkers hoard made up only 20 percent of all the gold Germany held. In August 1945, the Bank of England estimated there would only be enough gold available for a 58 percent restitution of claims. Even this only included claims by central banks, without private claims. Where did the rest of the gold go? Although the CIA still denies that the Nazis had a plan for a comeback, captured documents show otherwise. Even members of Congress and, in particular, members of the Kilgore Committee, were aware of Nazi plans. (Translations of the Nazi comeback plans are included in Appendix 10.) To understand where the missing gold went, we need to look at the German plans for a comeback.
At the center of the plan was Martin Bormann, the Reichsleiter. Bormann rose through the ranks to Party Secretary, the No. 2 spot in the Nazi hierarchy. Hitler entrusted him with ensuring the Reich would be able to stage a comeback once hostilities ended. The “Red House” meeting was the beginning of Bormann’s effort to expand his plan to include industrialists and top-ranking officers. The meeting took place on orders from Bormann, who did not attend in person. The Treasury Department has a transcript of the meeting conducted by an SS agent, who told the group that all industrial materiel was to be evacuated to Germany immediately because the battle for France was lost. He also assured the gathering the Treason Against the Nation Law controlling foreign exchange had been repealed. At a smaller conference that afternoon, Bosse of the German Armaments Ministry pointed out that the Nazi government would make huge sums available to industrialists to help secure bases in foreign countries. Bosse advised the industrialists to use two main banks for the export of capital: Schweizerische Kreditanstalt of Zurich and the Basler Handelsbank. He also told the industrialists about Swiss cloaks that would buy Swiss property for a 5 percent commission. A month later, Bormann countermanded Hitler’s scorched earth policy, to preserve Germany’s industrial base.
Bormann knew the Nazis lost the war once the Allies landed in Normandy on D-Day. He gave himself nine months to launch his flight capital program to find a safe haven for the Nazis’ liquid assets. The Alsace-Lorraine area served as a microcosm for his plans. Germans owned controlling interests in many of the French banks in the area. A German majority ownership also controlled many of the factories. Bormann relied on Tarnung (cloaking or camouflage, see chapter 3) to hide German corporate interests. Bormann was a close friend of Schmitz, a director of IG Farben, and he studied IG’s method of Tarnung extensively. Bormann sorted his records and then shipped them to Argentina via Spain. Already having control of the Auslands-Organisation and IG Verbindungsmänner, he began with the capital flight. Both organizations placed spies in foreign countries disguised as technicians and directors of German corporations.
By the time the Battle of the Bulge raged, Bormann had successfully moved assets out of Germany. In 1938, the number of patent registrations to German companies was 1,618, but after the Red House meeting, it rose to 3,377. Bormann also created a two-price scheme with Germany’s trading partners. The lower price was cleared or settled at the end of the banking day. The neutral importers retained the higher price on their books and the difference was collected in a German account as flight capital. Under this scheme, Bormann amassed about $18 million kroner and $12 million Turkish lira. Balance sheets showed he bought seven mines in central Sweden. He also created 750 new corporations scattered across the globe, representing a wide array of economic areas - from steel and chemicals to electrical companies. The firms’ locations were in: Portugal, 58; Spain, 112; Sweden, 233; Switzerland, 234; Turkey, 35; and Argentina, 98. All the corporations created by Bormann issued bearer bonds, so ownership was impossible to prove.
Bormann had several means of dispersing Nazi assets. He used diplomatic pouches of Nazi Foreign Policy Minister von Ribbentrop to send gold, diamonds, stocks and bonds to Sweden twice a month. A similar pattern was used to ferry valuables to South America. Bormann also allowed other Nazis to transfer their valuables through the same channels.
In Turkey, the Nazi government allowed both the Deutsche Istanbul and the Deusche Orient banks to save all their earnings rather than send them to Berlin. The earnings were mere bookkeeping items ready for transfer anywhere in the world.
In 1941, German investment in the United States held a voting majority in 170 American corporations and minority ownership in another 108. Many of these corporations were part of the IG Farben cartel. In addition, U.S. corporations had investments in Germany totaling $420 million. With his program for flight capital well on its way, Bormann gave permission for Nazis to once again buy American stocks.
Purchase of American stocks usually was done through a neutral country, typically Switzerland or Argentina. From foreign exchange funds on deposit in Switzerland and Argentina, large demand deposits were placed in such New York banks as National City, Chase, Manufacturers Hanover, Morgan Guaranty and Irving Trust. Manning reports the Nazis bought more than $5 billion in American stocks in this way. These same banks were active in supporting Germany. In addition, every major Nazi corporation transferred assets and personnel to its foreign subsidiaries.
The United States and Britain never could fully grasp the extent of Nazi flight capital. John Pehle, the original director of the Foreign Funds Control, offers an interesting view as to why the United States was unable to stop Bormann and his movement of Nazi assets to neutral countries. Pehle’s reasoning:
In 1944, emphasis in Washington shifted from overseas fiscal controls to assistance to Jewish war refugees. On presidential order I was made executive director of the War Refugee Board in January 1944. Orvis Schmidt became director of Foreign Funds Control. Some of the manpower he had was transferred, and while the Germans evidently were doing their best to avoid Allied seizure of assets, we were doing our best to extricate as many Jews as possible from Europe.
Pehle’s explanation seems too simple. With more personnel, more could have been accomplished, but the real problem was rot and corruption in the United States. Leaders of America’s largest corporations were sympathetic to the Nazis, and almost all had invested heavily in Germany. Many in Congress also sympathized with the Nazi cause. The mood in Congress was to “get the boys home and get on with business.” Schmidt’s testimony on the extent of Nazi infiltration of neutral countries before the end of the war fell on deaf ears in Congress:
The danger does not lie so much in the fact that the German industrial giants have honeycombed the neutrals, Turkey and Argentina, with branches and affiliates which know how to subvert their commercial interest to the espionage and sabotage demands of their government. It is important and dangerous however, that many of these branches, subsidiaries and affiliates in the neutrals and much of the cash, securities, patents, contracts and so forth are ostensibly owned through the medium of secret numbered accounts or rubric accounts, trusts, loans, holding companies, bearer shares and the like by dummy persons and companies claiming neutral nationality, and all of the alleged protection and privileges arising from such identities. The real problem is to break through the veil of secrecy and reach and eliminate the German ability to finance another world war. We must render useless the devices and cloaks which have been employed to hide German assets. We have found an IG Farben list of its own companies abroad and at home - a secret list hitherto unknown - which names over 700 companies in which IG Farben has an interest.
The list does not include the 750 companies Bormann set up. After the war, Schmidt testified again to Congress:
They were inclined to be very indignant. Their general attitude and expectations were that the war was over and we ought now to be assisting them in helping to get IG Farben and German industry back on their feet. Some of them have outwardly said that this questioning and investigation was in their estimation, only a phenomenon of short duration, because as soon as things got a little settled they would expect their friends in the United States and England to be coming over. Their friends, so they say would put a stop to activities such as these investigations and would see that they got the treatment which they regarded as proper, and the assistance would be given to them to help reestablish their industry.
Here again, we see how the 4Ds program was sabotaged. In every country liberated, there was a great reluctance to disturb the machinery of money and industry connected to Germany through cartel agreements. The German presence was reduced, but not eliminated. The cloaked ownership ensured continuity for the Nazis. Even the Grand Duchess Charlotte of Luxembourg had her own ideas. On returning from exile, the Duchess dismissed the U.S. investigative team and ordered it out of the country. On June 26, 1945, the chair of the U.S. Senate Subcommittee on Military Affairs, Elbert D. Thomas, commented on Luxembourg:
We had a mission in Luxembourg which was obtaining quite a bit of information on the steel cartel until the Grand Duchess returned. Information was then blocked off from us and the mission had to retire with what information they had already collected. There was much to learn about the way in which small states like Luxembourg had been used by the cartels. The episode suggests that some rulers, whom we have befriended, may be expected to assist the cartelists in their postwar efforts to regain dominance.
What the Grand Duchess learned from her finance minister was simple: Do not tamper with the cartel. Luxembourg made a vast amount of money and there was every indication that it stood to make a great deal more. All it needed to do was readjust the stock ownership to please the Allies. Powerful friends of the Bormann organization understood what was at stake and planned accordingly. Scattered across the globe in various control points, such as Wall Street, Washington, London and Paris, were members of a group of bankers well aware of the financial benefits of cooperating with the Nazi underground.
The Nazi plans rested on American fears of communism. Free enterprise and property rights were to take center stage, while war crimes and crimes against humanity were conveniently dismissed as superficial. Such was the case in the 4-1 vote by the appeals board to free Richard Freudenberg, the largest shoemaker in Germany. Freudenberg was a regional economic adviser to Bormann and a die-hard Nazi. He was in the automatic arrest category. Ambassador Murphy expressed the argument of free enterprise in his comments in defense of Freudenberg. This is the same Murphy who was part of the control council. His comments:
What we are doing here through denazification is nothing short of a social revolution. If the Russians want to Bolshevize their side of the Elbe that is their business, but it is not in conformity with American standards to cut away the basis of private property. This man is an extremely capable industrialist, a kind of Henry Ford.
In testimony given at Nuremberg, Hermann Schmitz praised Bormann for the manner in which he spread German assets around the globe. Of particular interest was Schmitz’s view of what was ahead for the directors of IG Farben once the war ended:
We can continue. We have an operational plan. However, I don’t believe our board members will be detained long. Nor will I. But we must go through a procedure of investigation before release, so I have been told by our N.W.7 people who have excellent contacts in Washington.
The phrase “who have excellent contacts in Washington” should have set off alarm bells for the U.S. prosecuting team at Nuremberg. Here is direct proof of people in power in Washington collaborating with an integral part of the Nazi war machine. The N.W.7 division of IG Farben was closely connected to the SS and Gestapo, as well as the rest of Nazi intelligence. Where was the follow-up investigation to identify those contacts? There are reasons many files from WWII have not been released. Besides exposing the industrialists and congressional members mentioned in the previous chapters as traitors, such files would uncover many career employees of the State Department and the military-intelligence community as traitors.
Like so many other promising leads, it was quietly dropped. This attitude of top IG Farben directors was typical. They knew in advance that they would suffer only minor penalties. As George Seldes reminded us, there are people too powerful or too rich to be subjected to our laws, even when it involves treason. Schmitz’s information was slightly inaccurate in that twelve IG Farben executives did face trial at Nuremberg. Schmitz received a four-year sentence. However, all the sentences were later reduced to time served, and all the executives returned to their previous positions.
At this point we return to the Merkers hoard. Intelligence reports since 1940 indicated the Nazis accumulated a fortune of roughly $1 billion in 1940 dollars, or about $10 billion today. The discovery of the Merkers hoard created a complex set of problems. First, the find was only about half of the estimated Nazi treasure. While the Merker’s hoard was most of the Reichsbank’s holdings, there was more gold and currency left in Berlin. Second, dividing the treasure presented a myriad of problems that remain controversial today.
Also troublesome were the accounts of Melmer and Max Heiliger. Interrogation of Nazi banking officials soon revealed the nature of these accounts. Albert Thoms explained the booty seized by the Wehrmacht went straight to the Reichshauptkasse or Treasury. However, the Reichsbank exclusively handled the loot seized by the SS. The bank would credit the loot to the Melmer account, assess the value, then credit the amount to the Heiliger account. Only five people were privy to the Heiliger account: Reichsbank President Walter Funk, Reichsbank Vice President Emil Puhl, Chief Cashier Kropf, Director Fronknecht and Albert Thoms, chief of the Precious Metals Department. The SS account held the earnings skimmed from the Aktion Reinhardt operation that began in 1943 to strip the concentration camp inmates of all gold coins, jewelry and clothing. Puhl aided this operation. Besides his Reichsbank position, he also was a director of the International Bank for Settlements. Thus, he was in a perfect position to act as an international fence after the concentration camp gold was smelted into gold bars.
The Melmer account was indicative of other private accounts. Indeed, many top-ranking Nazis, from colonel on up, gathered their own treasures. Some of these private treasures, such as Goering’s, were substantial in their own right, while others were more modest. The value of these private treasure hoards is unknown, as is the fate of many of them.
Additional caches were uncovered in the Merkers area. In another mine, the Allies found 400 tons of records from the German Patent Office, enough to fill 30 railroad cars. Another discovery included more than 2 million books, the records of the German High Command and much more.
Corruption Overtakes Safehaven
With the capture of Merkers, the Allies were fast closing in on Berlin. As they advanced, the Nazis made a last desperate attempt to save the remaining Reichsbank assets by moving them to southern Germany in the alpine redoubt area. Many top Nazi officials desperate to save themselves also fled to this region with the fortunes looted from their victims.
Ernst Kaltenbrunner, chief of the Reich Security Head Office, amassed one such private fortune and transported it into the Bavarian Alps to save himself and his ill-gotten gain. Only one document survives detailing the contents:
50 cases of gold coins and gold articles (each case weighing 100 pounds)
2 million U.S. dollars
2 million Swiss francs
5 cases of diamonds and gemstones
a stamp collection worth 5 million gold marks
110 pounds of gold bars
Goering also transported his private hoard to the region, including a large collection of vintage wines.
The Nazis did not ship all the Reichsbank’s assets to Merkers, leaving some in Berlin to pay the troops and cover other expenses in the final days of the war. Reichsbank assets left in Berlin included a prodigious quantity of paper money, 730 gold bars and millions in gold coins. The gold bars were valued at nearly $10 million.
As the Allies continued to advance with the Russians on Berlin, the Nazis shipped most of the remaining assets of the Reichsbank to southern Germany aboard two special trains, code named Adler (meaning eagle) and Dohle (meaning jackdaw). Once these trains left Berlin, $3,434,625 of gold still remained in Berlin.
Because of the rapid Allied advance and air cover, the trains were unable to travel directly to Munich, and were forced to take an alternate route through Czechoslovakia. On April 16, three days after leaving Berlin, the trains were stranded about 10 miles from Pilsen, waiting for the tracks to be cleared for a final run to Munich. While stranded, the Nazis loaded some of the treasure onto trucks for the remaining trip to Munich. On April 19, the trains were just inside the Bavarian border, and the Nazis again loaded another portion of the treasure onto trucks.
By nightfall on April 19, the train was about 50 miles south of Munich at Peissenberg, where the Nazis planned to hide the treasure in a lead mine. However, the electricity was out and the mine began to fill with water. The Nazi in charge of the treasure decided to hide it in a small town named Mittenwald. At this point, it is believed the fortune consisted:
365 bags, each containing two gold bars
9 envelopes of records
4 boxes of bullion
2 bags of gold coins
6 cases of Danish coins
94 bags of foreign exchange
34 printing plates and a supply of banknote paper
Even after the two trains left Berlin, a small quantity of treasure remained in the Reichsbank. On orders from Ernst Kaltenbrunner, SS Gen. Josef Spacil, head of Office II, seized the remaining Reichsbank assets at gunpoint and transported them south. Gold and gems taken in the robbery are estimated at more than $9 million.
Spacil amassed a huge private hoard, some of which he divided among Gestapo officers in the closing days. He gave Hitler’s commando Otto Skorzeny 50,000 gold francs, 10,000 Spanish crowns, US$5,000, 5,000 Swiss francs and 5 million Reich marks. Skorzeny was hiding in the Austrian Tyrol. Skorzeny surfaced in Spain, where he lived palatially and ran his part of Die Spinne (the spider) escape route. In addition, he became an arms dealer. During the 1950s, it was clear to American intelligence that Skorzeny had ample funds at his disposal. The Allies never recovered the money; Skorzeny went to work for the CIA.
American authorities later duped Spacil into leading them to a small cache containing 19 bags of gold coins, bullion worth $11,722, and paper money consisting of $160,179 and £96,614 sterling. Many other private hoards were hidden in this area of southern Germany.
Starting on April 19, 1945, the Allied gold rush teams were in full operation, headed by Col. Bernstein, Cmdr. Joel Fisher and Lt. Herbert DuBois. Helping them were Albert Thoms, chief of the Precious Metals Department of the Reichsbank, and Emil Puhl, vice president of the Reichsbank. Gold rush teams soon located several treasure hoards. On April 26, at the Reichsbank branch in Halle, they found 65 bags of foreign currency, which included about $1 million; at Plauen, they found 35 bags of gold coins, including 1 million Swiss francs and a quarter-million gold dollars. On April 27, they learned of 82 bars of gold bullion in Aue, which was still heavily defended. On April 28, they located more than 600 silver bars and 500 cases of silver bars, which comprised the entire silver reserves of Hungary. On April 29, they found 82 gold bars at Eschwege; the following day, they found additional gold bars hidden under a manure pile at Coburg. On May 1, they found 34 cases and two bags of non-Reich gold in Nuremberg. The gold recovery teams shipped these hoards to Frankfurt.
Both combat troops and gold teams found caches of looted treasure, including the famed gold train containing treasures from Hungary. Total estimated value of the treasure recovered from the train was $500 million, including $350 million of gold.
The gold recovered from the various Reichsbank branches totaled $3 million. However, from interrogations and captured documents, the gold rush teams knew the Reichsbank branches had more than $17 million in gold. The Russians recovered roughly $3 million in Berlin. In early May, Bernstein had to return to Washington for discussions with President Truman on the decartelization program. Lt. DuBois then took charge of the recovery efforts in southern Germany.
Gold rush teams failed to recover any gold from southern Germany until June 7, when a detachment headed by Maj. William Geiler (later a New York Supreme Court justice) recovered 728 gold bars. The gold was shipped to Frankfurt and properly inventoried. This recovery is commonly confused with the gold recovered by Sgt. Singleton, who recovered a stash of gold described to be around 3 feet high and 3 feet wide. Singleton’s gold reached Munich, but it never reached Frankfurt and remains unaccounted for..
Robert Kempner, the chief prosecutor for the Nazi diplomats’ trial, expressed in a letter to Perry Lankhuff of the political division of the military government many of the problems that plagued complete recovery of the Nazi gold. The letter appears below.
In the course of our trial against Nazi diplomats which has just been concluded, it was brought to light that the German Foreign Office had - besides other gold funds - a special Ribbentrop gold fund, in gold bullion, weighing approximately fifteen tons. Leads and newspaper accounts from various countries in the Western Hemisphere indicate that unrecovered Foreign Office gold, probably in the hands of former German Foreign Office officials, is still at work for anti-American purposes. Large numbers of former German diplomats who had to do with the Foreign Office gold are still in foreign countries, e.g., Spain, Italy, Ireland, Argentina, Sweden, and Switzerland, living well from unknown resources.
It should be noted that besides other former German diplomats, a brother-in-law of Ribbentrop is living in Switzerland, and at least two other German Foreign Office officials who dealt with German gold matters.
Out of the fifteen tons, about eleven tons of Ribbentrop’s Foreign Office gold was hurriedly removed from Berlin in 1945:
1. 6.5 tons to Ribbentrop’s Castle Fuschl in Austria (now American Zone of Austria). The larger part of this consignment was allegedly turned over to American troops in the neighborhood of Fuschl. However German Foreign Office officials stated here in Nürnberg the amount allegedly turned over was less than the amount, which was shipped to Fuschl.
2. 2 tons to Schleswig-Holstein in the British Zone allegedly turned over to the British.
3. 3 tons to the South of Germany on the shores of Lake Konstanze, an area then in American hands. Out of the last amount, two-thirds of a ton was taken to Berne, Switzerland, in the closing days of the war. This was done in the presence of the son of the former German Minister of Foreign Affairs, von Neurath, who according to newspaper reports, arrived a short time ago in the Argentine.
About four tons were sent between 1943 and 1945 to German embassies, notably to Madrid, Spain (one ton), to Stockholm, Sweden (one-half ton), to Berne, Switzerland (three-fourths ton), to Ankara, Turkey (about 1 ton), to Lisbon, Portugal (an unknown quantity).
Since I interviewed several hundred German diplomats, including ambassadors, ministers, and fiscal and personnel administrators, I know that the summation which I made above is highly reliable.
But so far as I know there was never any check made whether gold of this amount was ever recovered or whether the amount of Foreign Office gold turned over by German foreign service people to Allied authorities at the end of the war was identical with sums indicated by my investigation.
In the course of the trial, I have from time to time pointed out the danger and the problem of this missing gold, but nobody as yet tackled the problem, and with my heavy trial work in Nürnberg, I could not devote much time to it, since no war crime was involved. I feel very strongly that this gold project should not be neglected further in these critical times, in which a large amount of uncontrolled gold constitutes a force for evil and mischief in the hands of unscrupulous opportunists working closely together and located in many countries all over the world.
The only certainty about Ribbentrop’s gold is that American forces only recovered a little more than 4 tons. The 6.5 tons allegedly recovered from Ribbentrop’s castle vanished because no records pertaining to it exist in the Federal Exchange Depository. According to records from the Wilhelmstrasse trial, a large part of this gold was turned over to either the Third or Seventh Army on June 15, 1945. However, the books of the Allied occupation show no trace of this gold, worth $108 million today. Kempner continued to look for the missing gold. In 1950, he lobbied Congress to investigate, but it found no new information.
The disappearance of various treasure hoards recovered in southern Germany was all too common. Capt. Fred Neumann recovered a stash of paper currency from the garden of the von Bluechers. The only document of this recovery is a poorly typed receipt that Luder and Hubert von Bluecher demanded before turning the money over to Neumann. The receipt declares the von Bluechers turned over to the U.S. Army $404,840 and £405 sterling. The Army and historians suspected both Neumann and the von Bluechers in the disappearance. However, with recently released documents from government archives, it is now obvious this was part of a much larger problem, clearing them of suspicion.
The problem was aggravated by the rivalry and lack of coordination between the Army and military government agencies. CID (Criminal Investigative Division) was chiefly responsible to the Army; CIC was mostly responsible to the military government. The recovery of Nazi gold involved both groups. Further, Army and military government communication was from the top down, with the bottom levels faltering, at best. Many military government commanders considered themselves free agents and ignored directives from higher-ups. Complicating the problem was the high rotation of personnel and the limited contracts the military government could offer. The military government issued one-year contracts and restricted annual pay to $10,000.
Initially, CID bore responsibility for searching for Reichsbank treasure. However, at war’s end, CID was full of men counting the days before they shipped home. Most were recruited from military police units and background checks often were lacking. Several CID replacement agents had criminal records, while others were discredited police officers, which the division weeded out as soon as they were discovered.
Ultimately, all CID units were under the Command Provost Marshal, Brig. Gen. George H. (Pappy) Weems, a West Point officer whose basic branch of service was the horse cavalry. Apparently, Weems was unable to make the switch from the cavalry to armored divisions. Before his transfer to Germany, Weems was head of the military mission to Hungary. Noticeably absent in his background was any police or investigative work. Weemswalked with a cane, had poor hearing and a faulty memory, and lacked the ability to understand anything complex. The general had frequent temper tantrums and often issued outrageous orders. Weems had a strange obsession with typewriters and required any case involving a stolen or missing one to be brought to his attention. In short, Weems was senile, most likely the result of a mild stroke.
It was not until September 1947 that Lt. Col. William Karp replaced Weems. Obviously, Weems’ inappropriate assignment handicapped CID. How Weems came to be assigned his post is left for future researchers.
Like the 4Ds program, CID was hampered by a shortage of staff and quality training, which contributed to the corruption in the Munich area. While the first gold rush teams under Bernstein lacked staff yet did an admirable job, by June 1945, most of them were discharged and replaced with new recruits.
Internal feuding among agents plagued CIC. Many agents were German-born Jews. CIC agents divided into two groups: one considered Germany their home and worked hard to rout Nazism to return to a democratic state; the other group, mostly from Eastern Europe, considered Germany a stepping-stone on the way to Palestine. Other CIC agents were first-generation Poles and Czechs, or of other Eastern European origins, with divided loyalties and even illegal alliances reaching outside CIC. By far, the CID unit was the more professional; CID agents often described CIC as a group of thugs.
From late June 1945-47, this was the sad state of affairs hampering the Garmisch case, in which gold was recovered, then lost. CID was overly compartmentalized with no clear objectives, no direction, no coordination and, most importantly, no centralized database. In short, CID allowed various units to blunder off into the dark to follow their own individual goals. The Garmisch case was complicated since no one knew exactly how much gold and currency had disappeared. It took another year and a half before the Federal Exchange Depository discovered that its Reichsbank account was short $2 million.
The recent release of classified documents shows the recovered funds were deposited in the Land Central Bank in Munich, where the gold and currency vanished. None of the recoveries around Garmisch ever reached the Federal Exchange Depository. Various American authorities in the chain from Garmisch to Frankfurt were all familiar with the proper procedures for transferring funds, but the funds would reach Munich and then disappear. After an exhaustive search, authors Ian Sayer and Douglas Botting decided that $432,985,013 from the Reichsbank was unaccounted for. Included were diamonds, securities and currencies given to Otto Skorzeny by SS General Spacil totaling more than $9.1 million, of which the Allies only recovered $492,401. In one case, Maj. Roger Rawley recovered $8 million in paper currency and turned it over to Maj. Kenneth McIntyre. From there, the funds disappeared.
After Germany’s surrender, the economy decayed into a black market, with cigarettes the preferred medium of exchange. One Camel cigarette was worth more than double a day’s pay for a German hired to clear rubble. At first, Gen. Clay seemed unaware of the black market, but when CID reported to him that it was a security threat, he took every step to cover it up. Americans willing to engage in the black market extended all the way to the top and included Clay’s wife. U.S. Customs, Florida District, made it more difficult for Gen. Clay after it sent a complaint listing landings of his personal plane in the Miami area. In each case, the pilot bypassed Customs by reporting the landings as classified. However, in Germany, the flights were logged as training missions. Charges were filed against the pilot, but it was clear he was just taking the fall for someone else.
Many Americans tried to strike it rich in the black market economy, but most failed. The lucky few came predominantly from the Office of Military Government in Bavaria. The head of the Financial Division in Munich was Col. Russell Lord and his aide, Maj. John McCarthy from Property Control. Both figure prominently in the disappearance of gold and currency once it reached Munich. Once the gold from Garmisch was turned over to the proper authorities in Munich, only McCarthy and Lord had access to it. An American investigator also accused McCarthy of having a hand in the drug trade in and around Garmisch and Munich.
The extent of the military government’s corruption is revealed in the following passage by Lt. Kulka, an aide to Col. Smith assigned to look into the corruption in the Garmisch and Munich areas. Kulka was sent to a civilian house converted into an American bachelor officers quarters on a report that a young officer was sharing his room with his girlfriend, a baroness, which was strictly forbidden. The hausdame mistook Kulka for a courier and gave him a briefcase.
She looked at me and said, “Oh you must be the young man who came to pick up the briefcase with the papers for Switzerland.” I said, “I guess so.” She said, “Oh yes, lieutenant told me that you were coming to pick it up and that you are a young pilot.” So I said, “Yes.” The Dame came down and handed me a briefcase and a larger attaché case, which had been sealed with a diplomatic seal. Therefore, I took them and hastily left. I took them to my room in the house and opened the diplomatic case and to my surprise found it filled with British pounds in rather large denominations and some jewelry. The briefcase I found to be filled with about ten folders which contained very neatly written columns of names of people with dates and their rank, their location and sums of money - all the instructions and records of how the money had been transported across the border. I immediately went to Colonel Smith and he was extremely interested. We went through the paperwork and found a great number of important names, including several colonels from headquarters. The one thing they all had in common was that they all belonged to units that had one time or another controlled the border crossing to Switzerland - military police, military government agencies and CIC.
By the middle of July 1947, Col. Smith completed his preliminary investigation and filed his report to Gen. Clay. The report pointed out that there was enough evidence to warrant a full-scale investigation, and Gen. Clay issued an order to that effect. Fearing for his life, Smith asked for an immediate transfer. Afterward, the military governor and post commander of Garmisch were shipped back to the States and several other officers transferred out of the area. The Inspector General Office suddenly closed the investigation. Kulka alleges the order to stop the investigation came from Clay’s office. He also claims half of the U.S. command would have been in trouble if the investigation continued. Files gathered by Smith and Kulka were destroyed.
Kulka was ordered to keep his mouth shut, then accused of gunrunning and of harboring an alien in his quarters, who happened to be his 87-year-old grandmother. His bride-to-be was listed as a Sudeten German expellee from Czechoslovakia, not as a Jewish DP. When Kulka told his senator of the problem, so much pressure was brought on his bride-to-be and his grandmother that he had to keep quiet. Only by accident was his future bride allowed to obtain her exit permit. Col. Smith was transferred from Berlin to Ecuador. In 1978, Kulka reported that his friends’ mysterious deaths and suicides were warnings to keep his mouth shut about the Garmisch affair.
The Garmisch affair did not end with Smith and Kulka. In September in Bad Tohr, Frank Gammache was charged with misappropriation of military property, and disorderly and discreditable conduct. The charges were trivial compared to the criminal activity in the area. Gammache was going to be the small fall guy. Operation Garpeck opened a further investigation. Heading the operation were Victor Peccarelli and Philip von Pfluge Benzell. The case soon reached to San Francisco, where now civilian Capt. Neumann lived. The investigation into Maj. McCarthy reopened. McCarthy’s influence still lingered in Munich, as files on him disappeared before investigators got to them. Shortly after they began bugging his phone, McCarthy learned of the tap and moved.
The investigation soon crossed the path of journalist Guenter Reinhardt, who came from a German Jewish banking family. At the age of 21, he came to the United States and got his first job at a bank in New York. In 1933, he became a freelance journalist who wrote a syndicated column on foreign affairs for the McClure newspapers. Various banking and civic groups commissioned Reinhardt to conduct an investigation into Germany’s likely future international relations. Reinhardt turned over to the House Committee on Immigration and Naturalization the information he uncovered about Nazi activities in the United States. This led him into activities with American Intelligence. In 1934, he acted as a liaison between the McCormick Committee and the FBI. In 1942-43, Reinhardt infiltrated communist organizations for the bureau. In 1946, he joined the CIC in Germany.
By all reports, Reinhardt was an enthusiastic and dedicated agent in Europe. However, he soon began to show signs of stress and fatigue when he realized the whole system was corrupt. By the summer of 1947, he realized that his CIC career was in jeopardy. His superiors secretly arranged to send Reinhardt home. He complained about the transfer, but there was no appeal and he was forbidden to go to the Inspector General, under threat of immediate arrest. He was further warned that if he spoke with the press or tried to get another job in Germany, he would be arrested for violating security regulations. In addition, they threatened to drag his German girlfriend through the mud.
Outraged at the actions and threats, Reinhardt dictated the first of two memos. The formal 48-page report revealed the irregularities and fake intelligence reports in the Munich region, and accused CIC of widespread corruption and incompetence. The report, written in November, caused an immediate shake-up. The operations chief for Bavaria was dismissed and the executive officer was transferred. However, there also was a cover-up of two chains, one from Garmisch to Augsburg and another from Munich to Nuremberg. After he arrived in New York in December, Reinhardt wrote his second memo, a 55-page document that was divided into nine sections. The opening section, “Loot and Smuggling Situation,” described how U.S. personnel continued to smuggle valuables into the States; the higher the rank, the greater the problem. Reinhardt detailed how a general’s baggage contained 166 crates laden with silverware, china and other valuables looted from castles around Hesse. After his appointment as a special consultant, Reinhardt dictated his memo to Assistant Secretary of Army Gordon Gray, who later became director of the CIA.
The heart of the memo charged that a group of Americans and Germans headed by John McCarthy were involved in widespread corruption in the Garmisch area and wielded enough power to derail any investigations. The memo was sent to Gen. Clay in Germany and caused an immediate uproar. Clay hated scandals in his command. Rather than clean up the mess, he launched another vast cover-up. Gen. Weems canceled the ongoing Operation Garpeck shortly after Reinhardt’s memo arrived in Germany. The Army decided the charges were overblown.
McCarthy and his superior, Col. Lord, did not escape unscathed. While they survived charges from the Reinhardt memo, their boundless greed eventually caught up with them. The pair planned to buy various IG Farben plants through a front they set up in Liechtenstein. An investigation ordered by Gen. Clay unmasked their scheme and the Army discharged them. However, Gen. Clay made no public announcement of the illegality of the scheme or its outcome. Yet while the military government in the Munich area was beset with corruption, the looting of the Nazi hoard pales in comparison to the money laundered by the neutral countries.
Operation Andrew
The plot to counterfeit British pounds figured prominently in the Nazi finance plans. Perhaps one of the most understood affairs of the war, it is often mistakenly referred to as Operation Bernhard; its true name was Operation Andrew or Andreas. No one knows for certain the extent of the action, or how many bogus notes the Nazis placed in circulation.
The Bank of London had its own reasons to keep mum about the forged bills it found in circulation as the Nazis designed Operation Andrew to bring about the downfall of the British pound. The operation was the brainchild of Alfred Nanjocks, a fanatical Nazi. Nanjocks was the officer who simulated the Polish attack on the German radio station that started the war. After occupying the Low Countries, Heydrich transferred Nanjocks to the documents division of the SD, because he had earned a reputation of being too reckless and violent for his own good. Forging passports was not to the hothead’s liking. However, flooding the world in bogus currency to destabilize the English economy appealed to him. Nanjocks was imagining just that.
The British were the first to try disrupting the enemy’s economy using counterfeit money. The British forged German auxiliary certificates of payment for 50 Reichspfennige and dropped them from planes all over Germany.
Immediately after, Nanjocks took the idea to Heydrich, who not only approved the scheme, but also added the forging of American dollars and sought out Hitler’s approval. Hitler refused to approve the forging of dollars, because at that time Germany was not at war with the United States. Funk and other bureaucrats did not like the idea much. Funk worried that destabilizing the pound could create a creditor backlash and destabilize the Reichsmark. Funk’s worries testify to the degree of collusion between the Bank of England and the Nazis.
Heydrich assigned the matter to RSHA Bureau IV, which created a new division, SHARP 4, to oversee it. In the summer of 1942, the Nazis set up the forging ring inside the Sachsenhausen concentration camp headed by SS major Fredrich Kruger. The operation was formally known as Aktion1 in Berlin. The use of inmate labor limited security problems, but the group had a tough time developing a suitable paper. Max Bober, a printer by profession, headed the team of 60 inmates. The counterfeiters were isolated from the rest of the Sachsenhausen concentration camp. The Nazis provided the inmates with everything they needed, but sabotage would have resulted in their immediate death. It was not until 1943 that a Hahnemuhl plant produced a suitable paper. The factory delivered 12,000 sheets a month to the operation. Each sheet produced eight notes. Even then, the forged notes were only mediocre at best. It was not until the Nazis located Salomon Smolianoff, an expert counterfeiter, that they could produce suitable notes.
Once Smolianoff corrected the earlier mistakes, the Nazis did 15- to 20-hour print runs. The inmates examined each note and selected only the best. These notes then underwent a procedure of aging to make them look used. The Nazis counterfeiters produced all denominations, including hundred-pound notes, but the five-pound note made up 40 percent of the print runs. By mid-1943, Kruger’s team had grown to 140, and was turning out about 40,000 notes a month. Unlike the rest of the camp, Kruger’s inmates received enough food and even a cigarette ration.
The counterfeiters divided the notes into four categories: perfect, near perfect, flawed and rejects. They destroyed the rejects, although initially, they planned to air drop them over England. The Nazi plot reserved the perfect notes for German spies to use in neutral countries. The near-perfect and flawed notes were bundled and provided to the SS to be used in occupied countries. As the operation continued, the quality of the notes improved to such a degree that banks throughout the world accepted them. The Bank of England only stumbled across the forged notes when a bank clerk noticed the two notes she held in her hand had the same serial number.
The operation eventually shipped the equivalent of $4.5 billion in British pounds to Berlin and then all over the world. Nazi agents used the forged notes to buy legitimate objects, which they then resold for stable world currencies. German embassies in the neutral countries received some of the notes to exchange for local currency. The first attempt to distribute the notes widely was disastrous. The German military arrested their own agents when they tried to pass the forged notes, because Action1 was top secret.
At some point, the underlying mission of Action 1 changed. Himmler and Lt. Grobel, head of Bureau VI, became greedy. They imagined laundering the notes on a large scale and skimming the profits for their personal benefit. To carry out the widespread distribution, Friedrich Schwend was brought into the operation. In the 1920s, Schwend was an arms dealer. He married the niece of the Minister of Exterior Baron von Neurath. Through his wife’s family connections, he received an appointment as the personal administrator of the wealthy Bunge family. This is the same Bunge family that made a small fortune by shorting the market the day John F. Kennedy was murdered. In the 1930s, Schwend was working from New York managing the investments of Bunge & Born.
The operation brought Schwend into Bureau IV as paymaster of the money-laundering scheme. Bureau IV gave him a false identity as Maj. Wendig, a legal officer of the Gestapo and a member of the tank corps. In September 1943, Schwend started setting up his network and requested Col. Josef Spacil do the operation’s bookkeeping. This is the same Col. Spacil involved in funding Skorzeny. Operation Bernhard is limited to this scheme of private enrichment. Schwend was skimming a third of the fake notes for this group.
Operation Andrew continued to the end of the war. The Bank of England suffered enormous losses. Even with the Russians closing in on Sachsenhausen, the operation did not shut down. It just moved to southern Germany, near the Austrian border. There, it continued to produce fake notes until about May 3. Some of the last forged notes ended up at the bottom of Lake Topltz. The Nazis hid crates of forged notes there in a midnight rowboat operation. The boxes were recovered in 2000. The fate of the balance of the notes is unknown.
Sweden’s Neutrality
As much as half of the Reichsbank gold remains unaccounted for. Bormann undoubtedly transferred some of it out of Germany, and top Nazi officials and U.S. personnel looted other portions of the treasure. However, a great deal of looted gold was used by the Nazis to buy munitions and raw material from neutral countries.
It was not until its Gold Declaration of Jan. 5, 1943 that the United States began an aggressive campaign toward the neutrals and their gold dealings. Aware that Nazi Germany was disposing of looted property in neutral countries, Britain started talks with the other Allies. On Jan. 5, 1945, Britain issued the Inter-Allied Declaration against Acts of Dispossession Committed in Territories under Enemy Occupation or Control. The declaration was signed by 16 nations and England. The declaration simply stated the signatory nations reserved the right to declare invalid any transaction involving property from any of the occupied territories. The declaration was largely political. Both the Bank of England and the Treasury Department doubted that the act would achieve the desired results. There was little the Allies could do to enforce the declaration without damaging their own economic situation or souring future relations with the neutrals. Technically, the act was restricted to gold dealings only. Others wanted to broaden the scope of the act to include other valuables.
Of particular concern to the United States was Switzerland. However, it was not until the tide of the war turned clearly in the favor of the Allies that the Swiss responded. On Dec. 28, 1944, Switzerland announced it had blocked all accounts from Hungary, Slovakia and Croatia. On Feb. 7, 1945, British and American delegates met with Swiss officials in Berne to negotiate an agreement on immediate economic warfare objectives and Swiss exports to Germany. In turn, the Swiss wanted help in getting raw materials and food in the form of import quotas from the Allies, and support for transit facilities across France. On Feb. 16, Switzerland announced a block on all German assets. On March 8, the Swiss signed an agreement under which the Swiss government took measures:
To ensure the territory of the Swiss Confederation should not be used as a cache for looted assets.
To conduct a census of German assets in Switzerland.
To buy no more gold from Germany except the quantity needed for diplomatic expenses.
It was not until three months before the defeat of Germany that Switzerland took any action against the Nazis. Further, it was only one month before the defeat of the Nazis when the Swiss finally banned gold trades with them. The willingness of the other neutrals to take action against the Nazis followed a similar timeline. They did nothing until it was clear the Nazis were defeated.
The declarations issued on June 5, 1945, by the Four Powers and the Report of the Potsdam Conference of Aug. 2, 1945 provided the basis for the recovery of gold and Nazi assets outside Germany. The Potsdam accord stated that the Allied Control Council would take such measures as were fitting to exercise control over German assets abroad, and would exercise the right of disposal of such assets. Both acts conferred powers on the Allies that were not easy to exercise and not well received by many of the neutral countries. Legally, the Allied position was weak.
Both Sweden and Switzerland were quick to respond that such demands conflicted both with their own legislation and with their status as neutrals. The Allies failed to agree on how to deal with the neutrals until December 1945. Even then, the agreement had weak wording and offered no guidance on how to prevail on the neutrals to return Nazi assets. The United States wanted to employ sanctions while the British rejected them as unenforceable in peacetime. Eventually, Britain agreed with the United States to open negotiations with Switzerland in Washington. As leverage over the Swiss, the United States would neither unblock Swiss accounts in the United States nor remove Swiss companies from the Allied blacklist unless an agreement was reached.
A brief survey follows of the neutral nations and the problems faced in each.
During the war, Sweden was openly pro-fascist, although it was one of the more cooperative neutral countries. High-grade Swedish iron ore formed the basis of a strong and profitable connection between Sweden and the Nazis, for whom this supply of ore was so vital that they delayed invading the Low Countries, going into Denmark and Norway first to protect the shipping route for the Swedish ore.
Swedish ball-bearing producer S&K also enjoyed a profitable relationship with the Nazis. S&K presented a special problem for the United States, which was equally dependent on the company for bearings. S&K did its best to delay production of war munitions in its U.S. plants, presenting the Roosevelt administration with a dilemma. The United States could impose sanctions on S&K, Sweden or both. The sanctions would most likely result in a reprisals by S&K, further limiting U.S. production of bearings, and disrupting the building of military vehicles and ships. A second alternative for the administration was to seize the plants during the war, but that would only heighten the charges of rampant communism and socialism by FDR’s critics. The course followed was to allow S&K to continue business as usual. Regardless of who won the war, S&K would win big by supplying both sides.
Many other Swedish corporations that enjoyed profitable dealings with the Nazis. The one most cherished by Germany was Enskilda Bank, owned by the Wallenbergs. The Nazis borrowed funds and laundered their stolen gold there. Safehaven documents revealed that the United States was tracking the pro-Nazi activities of the Wallenbergs for several years. In February 1945, in a letter to Secretary of State Edward Stettinius, Morgenthau charged that Enskilda was making large loans to the Nazis without collateral, and covertly investing money for German capitalists in U.S. industries, in line with the Bormann plans. He further charged the bank was repeatedly connected with large black market operations.
Morgenthau identified Jacob Wallenberg as strongly pro-Nazi and rejected the claim that Marcus Wallenberg was for the Allies. Like S&K, the Wallenbergs were playing both sides. Cousin Raul Wallenberg helped to save 20,000 Jews in Budapest. When the Soviet army recaptured Budapest, Raul was arrested as an American spy. In June 1996, U.S. News and World Report published a review of declassified documents indicating that Raul Wallenberg was indeed a spy for the OSS.
In a Feb. 7, 1945 Treasury memo, Morgenthau detailed his concerns on the Wallenberg brothers:
Jacob Wallenberg recently indicated that he was willing to sell to the Germans a Swedish plant in Hamburg for gold provided the price was high enough for possible future complications.
The following facts should be considered in evaluating the impression held in some circles that Marcus Wallenberg is strongly pro-Allied.
A. While Marcus Wallenberg was apparently sympathetic with the Allied cause, Jacob Wallenberg, his brother and partner in the Enskilda Bank was known to be sympathetic to and working with the Germans.
B. Jacob Wallenberg was the author of the Swedish-German trading agreement.
C. Jacob Wallenberg is a member of the Permanent Joint Swedish-German Trading Commission and Marcus Wallenberg is a member of the Joint Standing Committee created by the Anglo-Swedish Trading Agreement.
D. Marcus Wallenberg came to the United States in 1940 and attempted to purchase on behalf of German interest an American held block of German securities.
E. Enskilda Bank has been repeatedly connected with large black market operations in foreign currencies, including the dollars reported to have been dumped by the Germans.
Britain and the United States began to enlist Sweden in the Safehaven program in 1944. Britain was in favor of restricting the program in Sweden to gold, while the United States wanted to include other assets. The United States used trade agreements as an inducement for cooperation. The Riksdag, the Swedish Parliament, voiced its approval of Safehaven and in February 1945, Sweden began an inventory of its gold and foreign currency to see how much was linked to the Nazis. By spring, the British agreed with the Americans and drafted a proposal for Sweden, which then served as a basis for talks in Lisbon and Madrid. By summer 1945, Sweden had passed several measures to restrict the sale or dispersal of German property, and expanded the range of its census to include all types of German property. In January 1946, at the urging of the Allies, Sweden broadened the laws to include German subsidiaries. In November 1945, Sweden gave the Treasury Department a report on Swedish gold transactions. From it, the Treasury decided Sweden had received $22.7 million in looted gold from Belgium. The United States soon reduced the amount to $17 million.
On Feb. 11, 1946, the U.S. Embassy told Sweden of the details of ACC Law 5 vesting the title of German assets in other countries with the occupation authorities, and invited a Swedish delegation to Washington. Sweden expressed grave concerns over the claim, but agreed to the talks. On April 5, Sweden told the American embassy the matter would have to be put to the Riksdag, where it would probably face defeat in the Riksdag in the face of beliefs that the Allied claim was invalid in international law, and therefore a violation of private property rights. Before negotiations began, Sweden also requested release of its frozen assets in the United States, and permission to inspect Swedish property in Germany. The United States denied the request.
By the end of March, after discussions with Britain and France over German assets in Sweden, the United States believed it had an almost complete picture and began to push for formal negotiations, which began in Washington on May 29. Seymour Rubin, Deputy Director of the State Department’s Office of Economic Security Policy, headed the U.S. delegation. Francis W. McCombe of the Foreign Office led the British delegation. France headed its delegation with Christian Valensi, Financial Counselor of the French Embassy in Washington. Judge Emil Sandstrom headed the delegation from Sweden. From the outset, Sweden agreed to the danger of Nazi assets being used to provide a rival, but contested the legality of the Allies’ claim to the assets.
On July 18, the two sides reached an agreement. Of the estimated 378 million kroner (about $90.7 million) in German assets in Sweden, Sweden agreed to divide the assets as follows: 50 million kroner (about $12.5 million) went to the Intergovernmental Committee on Refugees (later the International Refugee Organization); 75 million kroner (about $18 million) went to the Inter-Allied Reparations Agency (IARA), excluding the amounts the United States, Britain and France received; 150 million kroner (about $36 million) went for aid in preventing disease and unrest in Germany. The last sum was used in Sweden or other countries to buy essential commodities for the German economy. Moreover, the agreement allowed for Swedish and German owners of liquidated property to be compensated in German currency. It also allowed for a mission to travel to the U.S., British and French zones of occupied Germany to inspect Swedish properties. Further it called for the release of frozen Swedish assets in the United States (estimated at the time at $200 million); the removal of any blacklists; and permission for the Allies to hold in reserve their claims to German properties in Sweden.
In the agreement, Sweden would restitute 7,555 kilograms of fine gold (roughly $8.1 million), the same quantity stemming from the Bank of Belgium. The United States would hold Sweden harmless from any claims arising from transfers from the Swedish Riksbank to third countries. Finally, the agreement banned the Allies from claims to any gold received by Sweden from Germany and transferred to third countries before June 1, 1945 or any additional claims after July 1, 1947. In his report, Rubin noted the talks advanced smoothly and without bitterness.
Sweden formally approved the agreement in November 1946. Shortly before the deadline for gold claims expired on July 1, 1947, the Allies filed a request for the return of 638 looted Dutch gold bars (worth about $10 million). Sweden challenged a portion of these claims. The Swedish challenge rested on the claim that some of this gold was acquired before the London Declaration. The Allies claimed the agreement included all the gold received. The debate over the Dutch gold continued into the 1950s. Eventually, in 1955, Sweden returned about 6 tons of gold (about $6.8 million) to the Netherlands.
Other problems arose in fulfilling the agreement. Sweden did not turn over the gold specified in the July 1946 agreement by the March 1948 deadline. Although Sweden quickly fulfilled its obligation to IRO in July 1947, it was not as forthcoming with the funds for IARA. Throughout the period, Sweden argued that Law 5 was invalid.
The latest investigation conducted by a bank-appointed commission revealed Sweden accepted 59.7 metric tons of gold from the Nazis. The newly discovered gold bears the same mark as that stolen from the Netherlands. The investigation also found 6 tons of gold of undetermined origin that could have come from the victims of the concentration camps. This additional find of gold was missed by the Safehaven operation. So far, Sweden has only returned 13.2 tons to Belgium and the Netherlands. The commission turned over its findings to the Swedish government. It was unclear whether that commission would have the power to recommend returning the gold. One of the investigators says Sweden has a moral but not a legal obligation to return the gold. The report was released in 1997.
Portugal, Spain and Nazi Gold
Before the outbreak of WWII, Portugal held strong and long-standing political and emotional ties to Britain, dating back to the 14th century Anglo-Portuguese Alliance against Spain. England was Portugal’s largest trading partner in 1938. Portugal joined the British early in WWI and sent 50,000 troops to the frontlines.
Portugal’s association with Nazi Germany emerged during the Spanish Civil War. Dictator Antonio de Oliveira Salazar sided with Franco and Hitler, helped Germany smuggle arms to Franco’s forces and sent Portuguese volunteers to fight. Salazar hoped thereby to achieve his long-term goal of stabilization and development of the country’s economy. By the end of 1938, Germany was Portugal’s second largest trading partner. However, Salazar did protest Hitler’s invasion of Catholic Poland.
Salazar’s choice to remain neutral during WWII had as much basis in geography as it did in any ideology. Portugal occupied a strategic position on the map of Europe. It had many ports along its Atlantic coast that would be hard for Britain to blockade. However, Salazar’s main fear was an invasion of Portugal by the Nazi war machine. After occupying France, the Wehrmacht was less than 260 miles from Portugal’s border. His other fear was of Hitler and Franco forming an alliance, placing Nazi troops at Portugal’s border. Dean Acheson, then Assistant Secretary of State, expressed the opinion that Salazar granted favors to Germany in the trade war after computing “the relative danger of German and Allied military pressure on him.”
Salazar promised both Britain and Germany open trade for Portugal’s valuable domestic and colonial resources. Neutrality benefited Portugal’s economy tremendously. The balance of trade went from a $90 million shortfall in 1939 to a $68 million surplus in 1942. Assets in private banks nearly doubled in the first four years of the war, while those of the Bank of Portugal more than tripled. Both the Nazis and the Allies waged economic war through threats and profitable trade deals, but Portugal could not cut its ties with the Allies because it was dependent on the United States for petroleum, coal, ammonium sulfate and wheat. In October 1942, Britain capitalized on its long-standing relationship by inducing Portugal to accept sterling in payment for goods. Britain’s gold reserves were low, and both Sweden and Switzerland were demanding payment in gold.
Portugal’s economic success hinged on its rich wolframite or tungsten ore deposits. The Nazis were dependent on Portugal and Spain for this mineral. Tungsten has various uses, including light bulb filaments, but it was of particular value in producing war munitions. Germany’s machining industry used tungsten carbide almost exclusively, whereas the United States was still largely using inferior molybdenum-tipped tools, mainly because of the cartel agreement GE held with Krupp for carboloy or cemented tungsten carbide. In addition, tungsten was useful in armor-piercing munitions. The Allies were not solely dependent on Portugal or Spain and could buy wolframite from other sources, but it was their goal was to deprive Nazi Germany of as much tungsten ore as possible, so they bought as much as possible from Portugal. Competition was intense and by 1943, to Portugal’s benefit, the price of the ore increased 775 percent over prewar levels. Production also soared from 2,419 metric tons in 1938 to 6,500 tons in 1942.
Germany’s minimum needs for wolframite were 3,500 tons a year. Considering the quantity the Nazis needed and the extraordinary means they went to ensure supplies of the ore, the Allies correctly surmised that wolframite was a vital resource for the Nazis.
To maintain its neutrality, Portugal set up a strict export quota system in 1942. It allowed both sides to export ore from the mines they owned, and a fixed percentage from independent mines. England owned the largest mine, while Germany owned two midsize and several smaller mines. France owned Portugal’s second largest mine. Legal issues tied up the French mine’s output throughout 1941 due to the Nazi occupation. In January 1942, Portugal closed a secret trade pact with Germany. The pact allowed the Nazis export licenses for up to 2,800 tons of wolframite. In turn, Germany was to supply Portugal with coal, steel and fertilizer, which the Allies could not supply. In 1943, the Allies tried to negotiate a new wolframite agreement. Portugal asked for price cuts in ammonium sulfate, petroleum products and other materials from the Allies. The Allies refused, and Portugal refused to increase the Allies’ wolframite export licenses. At the same time, Portugal completed a new agreement with Nazi Germany.
Parallel with the wolframite negotiations were talks to gain air bases in the Azores that could prove critical for anti-submarine warfare as the battle in the Atlantic peaked. The Allies failed to take the Azores by force, fearing Germany would invade Portugal in reprisal. Invoking the old Anglo-Portuguese Alliance, Britain concluded an agreement with Portugal on Aug. 17, 1943, to use the islands starting in October. In late 1943, Portugal extended the agreement to include the U.S. Air Force.
By April 1944, the United States decided to use economic sanctions to induce Portugal to cut off the Nazis’ supply of wolframite. Portugal was dependent on the United States for petroleum and other products. On June 5, 1944, the Allies pressed Portugal to end wolframite shipments to Germany. The Germans immediately began to cloak their mining interests in Portugal by selling them and buying up other businesses. By June 1946, the Allies estimated the Nazis had cloaked about $2 million in hotels, cinemas and other industries. At the same time, a German U-boat seized a Portuguese vessel, increasing anti-German sentiment. The United States also began negotiations to build an air base in the Azores. Construction was delayed until after reaching an agreement on a wide range of supplies and services. On Nov. 28, 1944, the United States and Portugal signed the agreement. The United States also agreed to Portuguese participation in the campaign to free Timor from the Japanese.
On May 14, 1945, a week after Germany’s defeat, Portugal passed law 34,600 freezing all German assets in the country, creating a licensing system for unblocking these assets, providing a census of these assets, prohibiting trade of foreign currency notes and establishing a penalty regime to enforce these provisions. On May 23, Portugal extended the law to include all its colonies. Included in these assets were the German government buildings. On May 6, at the request of the Allies, Portugal had seized all German government buildings. Included in the seizure were 5,000 gold sovereigns found in the German Legation in Lisbon.
While the Portuguese law gave the appearance of cooperation, the State Department feared it contained too many loopholes. For one, the census excluded participation by the Allies. The law also allowed for the transfer of blocked assets to individuals for their subsistence, and the normal exercise of commercial and industrial activity. In a report issued on June 19, 1946, the Division of Economic Security Controls decided that German firms continued to operate without any serious handicaps and many of the Nazis’ assets had dissipated. Moreover, the Portuguese census failed to uncover any holdings the Allies had not already identified.
On Sept. 3, 1946, negotiations between Portugal and the Allies began on how to assess, liquidate and distribute German assets. Seymour Rubin reported to the American Ambassador to Portugal John C. Wiley. While the talks were friendly, there were serious disagreements. The negotiations stalled on four points:
Defining what German assets would qualify for liquidation
Determining how much the Portuguese could claim against Germany for wartime losses
Deciding what role each side would play in overseeing liquidation
Deciding how much gold, if any, Portugal would have to surrender to the Allies.
The Lisbon talks of 1946-47 failed to resolve any of these issues. Portugal took a firm stand in 1945 that it was not responsible for returning gold it had exchanged with Germany during the war for tangible assets. Portugal claimed it never received German gold shipments from 1938 to ‘45. Allied intelligence decided Portugal received $143.8 million in gold from the Swiss National Bank, about half of the increase in the country’s gold reserves. Of this amount, the Allies were certain that $22.6 million was from gold looted from Belgium. During the negotiations, the Allies proposed that Portugal turn over $50.5 million. The Allies contended that this amount of gold was obtained after 1942 when it was clear to everyone the German gold reserves had expanded by the looting of Europe. Portugal claimed it was not aware of such looting. Later during the negotiations, Portugal contended that all the gold it gained had been in good faith and was not looted. Throughout the long period of negotiations stretching into the 1950s, Portugal only agreed to return $4.4 million.
Recent evidence shows that Portugal’s claims were, at best, disingenuous. In a confidential report, Victor Gautier, a high-ranking Swiss National Bank official, reported in his meeting with Albino Garble Peso, secretary general of the Banco de Portugal, that Portugal would not accept gold directly from the Nazis, due to political motivations and legal risks. He further noted Portuguese objections would evaporate if the money passed via the Swiss. These statements and others in Gautier’s report make it clear the Portuguese wanted the Nazi gold with a clean slate from the Swiss money launderers. Initially, Portugal used the Bank of International Settlements and the Yugoslav National Bank in Basel to launder the Nazi gold.
However, starting in 1941 the Nazi invasion of Yugoslavia forced Portugal to look for other routes. Also, on Jan. 8, 1942, Montagu C. Norman, Director of the Bank of England, notified Thomas McKittrick, the American Director of the Bank of International Settlements, that it would no longer recognize shipments of gold from the International Bank to Portugal. Portugal then insisted the Reichsbank sell its gold for francs to the Swiss National Bank. The Reichsbank then deposited the francs into the Banco de Portugal account with the Swiss bank. The Banco de Portugal used these francs to buy the gold from the Swiss National Bank. In addition, the Portuguese used three accounts in the Swiss bank. Portugal used one to deposit gold transferred in payment for the purchase of escudos by SNB from the Banco de Portugal. It used the second account for gold bought from the Banco de Portugal, financed with the Swiss francs. The last account closed the circle by transferring gold on orders from Berlin to the Banco de Portugal account in Zurich.
The Banco Espirito Santo also played a significant role in buying wolframite for the Nazis. An October 1945 FEA report charged that the bank was the financial agent for Nazi purchases of wolfram or wolframite (wolfram is the word for tungsten in German and other languages). After the Allies compelled the bank to forgo its German ties, the Nazis transferred their accounts to the Banco Lisboa e Acores.
A significant amount of gold was smuggled into Portugal. The German Commercial Attaché in Madrid admitted to smuggling almost $1 million in English gold sovereigns from Berlin to the German embassy in Lisbon. The coins were sent in diplomatic pouches in 1943-44. Another report noted $360,000 in gold was flown to Portugal in June-July 1944 and deposited in the Bank of Portugal under the name of the ambassador. The bank director admitted several other dignitaries had special accounts, including the brother of Franco.
While the Portuguese reached an early agreement with the Allies on German property, the issue of gold stalled the talks. Moreover, Portugal tied the property agreement to the gold issue and refused to liquidate the property. This delaying action only served to erode the value of the Nazi property seized. Talks continued off and on, formally and informally.
Recently declassified documents show the American negotiators were aware of an OSS memo dated Feb. 7, 1946 stating that Portugal had received 124 tons of Nazi gold. Nevertheless, Allied negotiators were only seeking a return of 44 tons. The Azores complicated the negotiations from the end of the war until 1953. Portugal granted the U.S. permission to build an air base in the Azores for use during the war and for five years after. By July 1947, the State Department was urging negotiators to ease the hard-line approach and seek a compromise with Portugal on the gold issue. Foremost in the change of stance at the State Department was the Azores air base negotiation. In 1945, the Joint Chiefs designated the Azores as one of nine essential strategic bases needed to preserve the security of the United States. In 1947, the United States broke off the negotiations on gold until completion of the Azores negotiations.
In 1948, Robert Lovett wrote the Treasury Secretary that “overriding political and strategic considerations of our foreign policy make it essential that the Portugal assets in the United States be unblocked.” A week later, the Treasury Department weakened the licensing procedures, effectively unblocking the assets. With that action, the United States lost all leverage over Portugal. On July 17, 1951, the State Department wired the embassy in Lisbon to settle on the Portuguese terms. The State Department based the decision on the overriding importance of politico-military objectives. Portugal had become a full member of NATO. Also at stake was a long-term lease for an air base in the Azores. Based on the priority of the Cold War objectives and after consulting British authorities, the State Department recommended settling the gold issue with Portugal for a mere $4.4 million.
The Treasury Department would only agree to the terms if it received a letter signed at the Assistant Secretary level indicating there were political considerations warranting a settlement and that any agreement would not result in claims against the United States. Acting Assistant Secretary for European Affairs James Bonbright signed the letter to the Treasury. The United States finally agreed with Portugal on June 24, 1953. However, Portugal hinged the agreement on the condition of reaching an agreement with West Germany. It took until June 1958 before Germany and Portugal concluded an agreement. The next year, Portugal returned the $4.4 million in gold.
While many of the neutrals leaned toward fascism, none were fully fascist like Franco’s Spain. Both Germany and Italy provided support for Franco during the Spanish Civil War. In 1941, Franco sent 40,000 volunteers to Germany. Known as the Blue Division, they served for two years on the Russian front. Although Franco declared neutrality as soon as war broke out in Europe, Spain hovered on the brink of joining the Axis powers through 1940-41. Spanish belligerency was premised on an early German victory over Britain and Germany’s agreement to allow Spain to expand territorially into French Morocco, Africa and perhaps even Europe.
The Nazis recognized the strategic location of Spain early on. As early as mid-1940, the Nazis had comprehensive plans to invade Gibraltar. The plans, code-named Operation Felix, originally called for a mid-1941 operation in which two corps would move by road across Spain, with Franco’s permission. Spain’s rail system was a different gauge than the rest of Europe, forcing the Nazis to rely on the roads. Once in position, Gibraltar was to be attacked from both the land and air with deadly Nazi efficiency. The plans also included two extra divisions to attack Morocco once Operation Felix succeeded.
A Nazi seizure of Gibraltar would add weeks for oil tankers to reach Britain from the Mideast and give the Nazis strategic control of the Mediterranean. Franco certainly must have been aware of Britain’s precarious situation in 1940. With the empire under attack worldwide, it was hardly capable of defending itself against a follow-up attack on Morocco, the country that Franco eyed. Nevertheless, the Nazis failed to get Franco’s approval. Whether this was due to the intervention of the American ambassador or poor Nazi diplomacy, it has to be one of the biggest diplomatic and strategic setbacks for the Nazis.
After 1941, there were similar plans to attack Gibraltar. However, once Hitler invaded Russia, any such plans were impractical. The Germans did not have the manpower or equipment to open a new battlefront.
One of the strongest ties between Spain and Nazi Germany was the debt incurred by Spain during the civil war. Spain owed Germany for more than $212 million for war materials and other items for Franco’s forces.
Britain and the United States engaged in a continuing effort to keep Spain neutral during the early 1940s. The Allies supplied Spain with grain and gasoline. Much, if not most, of the petroleum products were sent on to the Nazis. Franco played the United States for fools. He gladly accepted the gasoline, skimmed a small portion for his needs, and shipped the rest onward. Spain’s neutrality hinged on the threat of a German invasion. After 1941, Spain drifted closer to the Allies. Franco provided a haven for Jews who escaped over the Pyrenees. By 1943, both American and Spanish concern about an invasion vanished, and Spain shifted to clearer neutrality.
In July 1943, the American Ambassador met with Franco and explained that there were three major aspects of Spanish policy that needed to be revised if it was to demonstrate real neutrality. Spain had to clearly announce its neutrality. Falange-controlled organs of government had to adopt the policy of neutrality already followed by the Foreign Ministry. Finally, Spain needed to recall the Blue Division. Franco responded that he could not yet fully abandon nonbelligerency, but could begin shifting toward neutrality. A 1947 State Department memo decided that Franco acted in a most non-neutral fashion for the first four years of the war, providing Nazi Germany with significant amounts of strategic goods, as well as military and intelligence support. According to intercepted messages, key to this intelligence support were the spy networks set up in the United States and Britain, run by the Spanish embassies in Washington and London. Operation of this spy network seems to have begun in 1942; the decrypted messages were available to U.S. leaders.
Besides the debt tying them to the Nazis, Spain had considerable minerals that Germany needed. Sociedad Financiera Industrial (SOFINDUS) was formed in 1936 under the name Rowak. It was a large commercial conglomerate that acted as the centerpiece of Spanish-German trade. Through special bilateral agreements in 1937 and 1939 granting German enterprises favored economic treatment, SOFINDUS built a commercial empire by the time war broke out. In a secret protocol to a 1939 German-Spanish agreement, Spain promised to serve as a conduit of supplies from South America. In May 1940, Spain signed a three-year agreement promising supplies to Italy. By 1942, the trade between Germany and Spain shifted from mainly foodstuffs to minerals essential for warfare. Spain had rich deposits of pyrite, a high-grade iron ore that accounted for 70 percent of the mineral trade between the two countries. The Nazis also bought zinc, lead, mercury, fluorspar, celestite, mica and amblygonite or phosphate from Spain, but wolfram was the most vital. The Nazis used Spanish-flag ships to smuggle goods from South America. The Allied blockade was effective in eliminating bulk items, but small ones, such as industrial diamonds or platinum, a catalyst in producing nitrates and sulfuric acid, made up most of the smuggling trade.
Allied trade with Spain had three main objectives. The first was to obtain needed goods not readily available elsewhere. Second, by buying materials from Spain, the Allies could deny the Nazis a source for these materials. Finally, by trading materials needed by the Spanish, the Allies sought to lessen the influence of Germany. Efforts to implement this policy began in March 1940 Britain when Britain signed a six-month agreement to provide Spain with materials, such as petroleum products and fertilizer, in return for iron ore, other minerals and citrus. Britain renewed the agreement every six months throughout the war. In May 1943, the United States started to buy up materials that were being smuggled into Spain for the Nazis from their sources in South America.
However, the real competition in trade with Spain was for tungsten ore. By 1941, Germany developed most of Spain’s wolfram mines and controlled the largest producer through SOFINDUS. In 1941, the Nazis bought almost all the wolframite produced. England only managed to buy 32 tons. Unlike Portugal, which had a quota system, Spain relied on an open market for wolfram that provided an edge to the Allies with their access to hard currency. Starting early in 1942, England and the United States launched a unified program to buy up as much ore as possible, causing the mines to double production from the previous year. Output increased to 2,000 tons and the price rose from $75 a ton to $16,800. In June, Spain set a minimum price of $16,380 a ton, which included a $4,546 export tax. In an effort to better compete with the Nazis, the Allies set up their own dummy corporate front and, in 1942, bought roughly half the output.
In December 1942, under pressure from the Nazis, Spain signed a new trade agreement with Germany with more explicit quotas. The agreement soon fell apart with both sides blaming the other for the failure. In February 1943, Spain signed a secret agreement in which Germany agreed to provide Spain with armaments at cost. At first the Nazis demanded a 400 percent markup on the weapons, but being desperate for wolfram and Spanish pesetas, they had to relent to Spain’s demands. After the war, the Nazi negotiator commented on how strained and difficult the talks were. In August 1942, Spain agreed to pay back its debt in four installments, which the Nazis used to buy wolfram. During 1943, Germany bought roughly 35 percent of the total wolfram mined in Spain, or four to five times the level of 1940.
In January 1944, after the British Ambassador Sir Samuel Hoare met with Franco in an unsuccessful attempt to persuade Spain to suspend wolfram sales to the Nazis, the Allies imposed an oil embargo. On May 2, Spain agreed to limit the export of wolfram to Germany to 580 tons; 300 tons had already been delivered. The agreement cut German imports to half of the previous year. However, captured documents show that Germany managed to buy a total of 865.6 tons through smuggling. Wolfram exports to Germany ended in August 1944, when Spain closed the border.
Operation Safehaven in Spain began in the spring of 1944. Samuel Klaus of the FEA led the team. Klaus reported that Spain was the most discouraging and difficult of all the neutrals, and that American Ambassador Carlton Hayes was unwilling to cooperate. Klaus noted the Nazis could easily cloak their businesses in Spain thanks to corrupt officials. He also pointed out that Tangiers was being used as a conduit to move Nazi assets from Spain and Portugal to Argentina. This was part of Bormann’s program of flight capital.
In the fall of 1944, the Allies made their first request for Spain to stop all gold transactions involving enemy interests. Spain failed to reply. In January 1945, the Treasury and FEA wanted to link Safehaven with upcoming talks with Spain on the expired trade agreement, noting the Allies had cut off all land routes between Spain and Germany. Britain, which was more dependent on Spanish trade, adamantly opposed such linkage. It was not until May 5, 1945 before Spain issued a decree to freeze and immobilize all assets with Axis interests. After the Nazi surrender on May 7, Spain agreed to an Anglo-American trusteeship to take control of German and quasi-official properties. Problems with the trustee agreement arose immediately. By July 1947, the trusteeship had taken control of only $25.3 million out of an estimated $95 million of German assets in Spain.
Information on Spain’s gold transactions came from Allied intelligence, captured German Reichsbank records, statements by Swiss banking officials and records seized from the offices of the quasi-official corporations SOFINDUS and Transportes Marion. The best estimate was that Spain received $138.2 million in gold either directly from Germany or indirectly through Switzerland. Published figures showed that Spain’s gold holdings increased from $42 million in 1941 to $110 million in 1945.
Negotiations with Spain started in November 1946 in Madrid. Seymour Rubin was once again one of the lead negotiators. The negotiations dragged, and the Allies and Spain finally reached agreement on Nazi assets and the gold issue on May 3, 1948. Spain agreed to repatriate more than $114 million in gold, much of which was believed to be from the Netherlands. However, the agreement required the Allies to issue a statement that Spain was not aware the gold was looted by the Nazis.
There were two extra causes at work here that sped the negotiations to an early agreement compared with Portugal. The State Department had its usual request for an easy settlement to ease the way for military bases in Spain. More important, Spain was regarded as a pariah following the war. The Allies agreed at Potsdam to exclude Spain from UN membership for its fascist background. In December 1945, American Ambassador Norman Armour left Madrid, and was not replaced until 1951. Other nations also withdrew their ambassadors. In May 1946, a UN subcommittee presented evidence of the Spanish regime’s fascist nature, its pro-Nazi activities, postwar support and sanctuary to Nazi war criminals, and political repression of opponents. The UN denied Spain membership until 1955. Spain was isolated in an unfriendly world.
Turkey on the Tightrope
Like other neutral countries, Turkey was bound to the Nazis by trade, but that is where any similarities stop. Turkey was a remnant of descended from the Ottoman Empire and was mainly a Moslem nation. During World War I, it was aligned with Germany. The nationalistic “Young Turks” overthrew the Ottoman Sultan in 1908, and began a pogrom against the Armenian minority in 1915, a charge their successors still vigorously deny. Whether the rise of the Young Turks arose spontaneously, or were sponsored by imperialist capital as the Nazis were, is a subject for further research.
Turkey began WWII bound to Britain and France by the military alliance of October 1939. It declared neutrality in June 1940 after the fall of France, and ended the war aligned with the Allies. Much of Turkey’s proclaimed neutrality resulted from fears of a Nazi invasion. In June 1941, after the fall of the Balkans to the Nazis, Turkey signed a Treaty of Friendship with Germany.
Throughout the war, Turkey walked a tightrope, balancing the needs and expectations of the Nazis against those of the Allies. While Istanbul was a center of spying and intrigue during the war, Turkey took no overt action against the Nazis and, in turn, the Nazis never violated Turkey’s borders. In October 1941, Turkey signed an important trade agreement with Germany. In exchange for raw material, especially chromite ore, Germany supplied Turkey with war materials and other finished goods.
At the same time, Turkey maintained friendly relations with the United States and Britain, which supplied Turkey with modern war equipment in exchange for chromite ore. Turkey’s chromite ore was critical for the Nazis. Turkey was their sole source for chrome, a vital element in steelmaking. Albert Speer stated that Turkey’s chromite ore was so vital to the Nazis that war production would come to a complete stop 10 months after the supply was cut off. The ore was shipped from Turkey by rail through some of the most rugged country in the world. Toward the end of the war, the Allies targeted bridges along the main rail line to stop the chromite shipments.
In 1941, the Roosevelt administration added Turkey to the lend-lease nations available to receive equipment. In January 1943, during the Casablanca Conference, FDR considered asking Turkey to enter the war. In November 1943, all three of the big leaders - Churchill, Roosevelt and Stalin - called for Turkey’s entry into the war. In February 1944, after Turkey entered the war contingent on massive military aid and a significant Allied military presence, Britain and the United States stopped their aid program. By 1943, the Allies foresaw no threat from a Nazi invasion. It was not until April 1944 that Turkey stopped chromite exports to Germany, and then only after threatens of the same economic sanctions that the other neutral countries were under. In August, Turkey suspended all diplomatic relations with Germany. In February 1945, on the eve of establishing the United Nations, Turkey declared war on Germany.
Turkey was not a major recipient of gold from the Nazis. In fact, the best estimate was in the range of $15 million, most which is believed to have been looted from Belgium. In addition, two private German banks - Deutsche and Dresdner - sold gold from the Melmer account in exchange for foreign currency.
Allied efforts to recover gold from Turkey were never pursued with any vigor. Turkey’s geographical location, controlling access to the Black Sea and its border with the Soviet Union made it a cornerstone for U.S. strategic interests in the coming Cold War. In 1946, formal talks were held to consider the gold received from the Nazis, as well as German assets in Turkey. The Allies estimated that German assets totaled $51 million. In March 1947, the Truman Doctrine included Turkey with Greece. In July, the United States signed a $150 million trade agreement with Turkey that dealt a deathblow to any further negotiations on restitution. Turkey never turned over any gold.
Argentina, the Nazi Eldorado
Throughout the 1930s, a succession of military dictators and fraudulently elected presidents ruled Argentina. These regimes were weaken by their internal corruption and sought to legitimize themselves by reviving an ancient Hispanic alliance, the Cross and the Sword. Ties with Franco on race, religion and language were emphasized. Some even called for undoing Argentina’s war of independence from Spain and for rule by a viceroy. The military leaders and the Catholic Church, urged on by the Vatican, dreamed of creating a Hispanic Catholic nation that could counterbalance the United States in the Western Hemisphere. By the time war broke out, Argentina was divided into pro-Nazi and pro-Allied camps. However, Vatican-connected operatives supporting a triangle of peace between Argentina, Spain and the Vatican controlled Argentina’s foreign policy.
At the onset of the war in Europe, Argentina’s weak president, Ramon Castillo, announced a policy of prudent neutrality. Despite having agreed to the Havana Conference of 1940, in which an attack on any country of the Western Hemisphere would be considered an act of aggression on all American states, Argentina adhered to its neutrality policy. Argentina claimed that any action undertaken in response to an attack was a matter for each state. Argentina remained neutral during WWI and its economy benefited handsomely as a result. There was hope again that a policy of neutrality would revive the economy from the devastating depression of the 1930s.
In January 1942, Argentina agreed to the terms of the Rio Conference, severing all commercial and financial relations with the Axis powers. In June 1942, Argentina agreed to the Final Act of the Inter-American Conference on Economic and Financial Controls, obligating all states to end commercial intercourse with the Axis. Argentina ignored the terms and continued business with the Nazis. Moreover, during 1942, Juan Goyeneche, a confidential agent of Peron, and Adrian Escobar, Argentina’s Ambassador to Spain, traveled through war-torn Europe, meeting with Nazi and Vatican officials. Goyeneche collaborated extensively with the Foreign Intelligence Branch of the SS. Escobar and his consul Aquilino Lopez were collaborating with Himmler’s secret service by crossing into Vichy France and reporting details on Spanish and Allied diplomats.
After extensive meetings with Vatican Secretary of State Cardinal Luigi Magione, an agreement was reached in which, once peace was established, Argentina would generously apply its immigration laws. This seemingly innocent meeting takes on critical importance at the end of the war. It proves the Vatican was planning on helping Nazis war criminals escape from Europe as early as 1942. This meeting set up the Vatican ratlines.
On Oct. 10, the Pope received Escobar and welcomed Argentina’s view that it was proper for the Vatican to engage in the peace talks. Goyeneche traveled to Germany and met with Ribbentrop seeking Nazi support for the nationalist candidate in the 1943 elections. This façade of neutrality was maintained until 1943 and the colonels’ revolution that eventually brought Peron to power.
Once in power, the colonels sought arms from Germany in case war broke out between Argentina and Brazil. By September 1943, the colonels gave up the idea of smuggling arms into Argentina from Germany and, instead, sought an alliance with the Nazis. The group of colonels dispatched Osmar Hellmuth and Carlos Velez to Spain to negotiate. Unfortunately for the colonels, U.S. Magic intercepts detected the upcoming mission from transmissions between the SS agent in Argentina, a Capt. Becker, and Schellenberg in Germany, and had the British seize Hellmuth when the ship docked in Trinidad.
The seizure of Hellmuth failed to deter further plots. Peron and Becker continued to plan the overthrow of neighboring governments to set up a pro-Nazi block in South America. Peron wrote in a secret manifest of the colonels:
Forming alliances will be the first step. We have Paraguay; we have Bolivia and Chile. With Argentina, Paraguay, Bolivia and Chile, it will be easy to pressure Uruguay. Then the five united nations will easy draw in Brazil because of its type of government and its large nucleus of Germans. With Brazil fallen, the American continent will be ours.
On Dec. 20, 1943, a military coup in Uruguay planned by Peron and Becker installed Gen. Gualberto Villarrod as president. American counterintelligence was aware of it through Magic decrypts of Becker’s transmissions from Argentina. However, the coup was a failure for the Nazis. Using material from the decoded Magic messages, the United States threatened Argentina. Facing the U.S. threat to release the decrypts and Hellmuth’s admissions from interrogations implicating Argentina’s role in the coup, Argentina broke off diplomatic relations with the Nazis in January 1944. However, Argentina upheld its neutrality and did not declare war against Germany until a month before Hitler’s suicide.
During the final year of the war, Argentina was a prime destination for many of the assets that Bormann spirited out of Germany for a rebirth of the Third Reich. Following the war, Argentina also was a prime destination for Nazi war criminals. Even war criminals who escaped to other South American countries generally first entered the continent through Argentina. While other South American countries generally supported the U.S. policies during the war, there was no cooperation from Argentina. Other countries adhered to the Proclaimed List and took steps to eliminate any smuggling efforts. The Treasury Department urged harsher actions toward Argentina than the State Department was willing to impose. The State Department was hampered by a fear that a harsher policy would alienate other South American countries and by a difference of opinion with the British. During both world wars, England depended on Argentina for beef. However, as early as 1942, Argentina’s neutrality policy made it a leading focus of the Treasury Department and the Board of Economic Warfare.
The Nazis allowed the large number of German companies in Argentina to turn over their profits to espionage organizations for Reichsmark credits. The Treasury Department also suspected that Argentina made substantial amounts of foreign exchange available to the Axis countries, accepted the entry of large amounts of looted currency and securities into its markets, and allowed German firms to cloak their assets. An FBI report released in June 1943 described how Buenos Aires served as the Western Hemisphere outlet for U.S. banknotes stolen in occupied Europe and entered in commercial traffic in Switzerland.
Throughout the war, Argentina served as a hub for Nazi smuggling. The blockade easily stopped bulk items of trade. However, critical small items, such as industrial diamonds and platinum needed by Germany, regularly were smuggled through the blockade. Immediately after Pearl Harbor, Morgenthau wanted to freeze Argentina’s assets. In May 1942, he presented evidence to President Roosevelt that many Argentine companies were cloaking German funds in the United States and that Argentina had recently sent $1 million to the United States in looted currency. However, Roosevelt continued the policy set forth by the State Department. After repeated requests from the Treasury Department, the State Department agreed to an ad hoc blocking of selected Argentine accounts in October. The United States added more than 150 individuals and firms in Argentina to the blacklist.
Safehaven negotiations with Argentina started in 1944. However, the distressed relations restrained any progress in the negotiations. In February 1944, Argentine President Ramirez delegated his powers to Gen. Edelmiro Farrell. The United States failed to recognize the Farrell government and recalled the ambassador. In August and September, the State Department announced more sanctions against Argentina due to its failure to comply with denazification. In response, Argentina withdrew from the Montevideo Committee for the political defense of the continent. The Argentine Central Bank provided little help to U.S. investigators in locating German assets. After Cordell Hull resigned as Secretary of State in November 1944, the incoming Secretary, Edward Stettinius, developed an easier policy toward Argentina. Nelson Rockefeller, the appointed wartime chief of South American intelligence, also favored easier terms with Argentina. Rockefeller-controlled banks illegally transferred funds between the U.S. and Argentina from frozen accounts.
On Feb. 7, 1945, Treasury Secretary Morgenthau suggested to Acting Secretary of State Joseph C. Grew that a special Treasury representative be sent to Argentina to uncover and control Nazi external assets. Grew rejected the suggestion, citing political considerations. In early 1945, the Inter-American Conference on War and Peace held in Mexico City passed a resolution in support of Bretton Woods Resolution VI. However, the resolution known as the Act of Chapultepec did not grant control of Nazi assets in Latin American countries to multinational governing bodies. Instead, the act recognized the right of each of the American Republics, including the United States, to German property within its respective jurisdiction. Due to its continuing pro-Nazi policy, the American states excluded Argentina from the meeting. Recognizing its increasing isolation from other nations in the Western Hemisphere, Argentina declared war against Germany in the last month of hostilities.
On Feb. 11, 1946, the State Department released the famed Blue Book on Argentina. The book confirmed that the Argentine government asserted no control over German firms, delaying the efforts to seize the Nazi assets until they were dispersed elsewhere. The book also confirmed that Nazi Germany sent large sums of money to its embassy in Argentina without any serious obstacles. Some historians credit the release of the Blue Book for Peron’s election as part of an anti-American backlash. On May 22, 1946, the Safehaven team reported the total value of German assets at roughly $200 million. The assets included bank balances, real estate and merchandise. The Safehaven team found no caches of art or gems, and assumed that Argentina was not a major destination of looted treasure. The team also reported that no records revealed Argentina receiving Nazi gold.
As early as 1942, the United States knew of illegal Argentina currency dealings. In April 1942, the U.S. Consulate in Switzerland reported that an Argentine diplomat was smuggling dollars stolen by the Nazis to his homeland for sale; the funds were then transferred to Switzerland. British cables from 1944 show Argentina conducted vigorous trade with Switzerland and often the payment was in gold. By 1945, the State and Treasury departments found decisive evidence of extensive transactions involving the transfer of Argentine pesos, Reichsmarks and Swiss francs from Argentina to Switzerland. In May 1947, Argentina proposed a transfer of $170 million to its Federal Reserve account. Concern over the source of the gold only momentarily delayed the transfer. Guyatt reports that in 1973, after returning to power, Peron sold 400 tons of gold on the black market. Peron code-named the sale Bormann 1345. While the Spanish government tutored the sale, the transfer agent labeled it political. Despite the massive increase in Argentina’s gold reserve and the number of Nazi war criminals who found sanctuary in Argentina, even after 50 years there is little proof of Argentina accepting gold from the Nazis.
The Cold War badly compromised Safehaven investigations in Argentina. On June 3, 1947, President Truman and Argentine Ambassador Ivanissevich issued a joint announcement that the two countries would renew consultations with other Latin American countries about creating a treaty of mutual aid. In September, Argentina joined the United States and other American Republics in agreeing to the Inter-American Treaty for Reciprocal Assistance, the Rio Pact, for mutual defense against aggression. Bormann’s cloaked companies in Argentina, as well as any treasure, were safe and secure. The hemisphere had to be protected from communism.
On April 10, 1941, following the Nazi invasion of Yugoslavia, the so-called independent state of Croatia was established, headed by Ante Pavelic, a member of the fascist Croat Ustashi political movement. Mussolini declared Croatia a protectorate of Italy. Both Italy and the Nazis supported Croatia. The Ustashi also were closely aligned with the Vatican. On May 18, 1941, Acting Secretary of State Sumner Welles reaffirmed the exile government of Yugoslavia did not recognize the independent state of Croatia. Shortly after, Croatia sealed the U.S. embassy in Zagreb. Since Croatia only existed as a state during the war and the United States never recognized it, the figures presented in this section are likely to be subject to revision in the future.
Postwar reports suggest the Ustashi treasury had at its disposal more than $80 million, mostly gold coins, some stolen from their victims. On May 31, 1944, Croatia deposited $403,000 in the Swiss National Bank. On Aug. 4, 1944, Croatia deposited another $1.1 million in gold. An OSS report in July 1945 concluded that Croat-owned commercial accounts in Bern totaled more than $93,000. The Historical Section of the Task Force of the Swiss Federal Department of Foreign Affairs shows that on July 24, 1945, the Swiss National Bank returned to the National Bank of Yugoslavia all 1,338 kilograms of gold in 121 ingots in the account of the wartime Croatian regime.
While bank records of deposit are not likely to change much, the gold the Ustashi carried as they fled to Austria as the war was reaching an end is very much in doubt. Estimates placed the value of gold Ante Pavelic had when entering Austria at $5 million-$6 million. Whatever the value of the loot, it is certain that much of it was used to set up and run a ratline with the Vatican. In October 1946, U.S. intelligence reported to the Treasury Department that the Ustashi had $47 million deposited in the Vatican before transfer to Spain and then to Argentina. Due to the Cold War, the Allies expended little effort in returning the thousands of war criminals from Italy to Yugoslavia. The issue of Ustashi gold received even less attention at the war’s conclusion.
Switzerland, the Hub
Of all the neutral countries, none was more at the center of doing business with the Nazis than Switzerland. Geographically, the Third Reich surrounded Switzerland once France fell. Further, the preceding look at other countries has already implicated Switzerland in a pivotal role in trading with the Nazis through Swiss banks. When referring to Switzerland, most Americans think of exquisite chocolates, fine timepieces and Heidi chasing goats across alpine meadows, but it was a much different nation during the 1940s.
The 1848 constitution established the present form of Swiss government in approving three cantons, civil liberties and the parliamentary form of democracy. The franchise did not extended to women until 1971. Switzerland was ruled for decades by a center right coalition of parties. During WWII, these parties were the Christian Conservatives, Social Democrats, Liberals, and the Farmers and Artisans Party. The same coalition rules today, although some of the party names have changed. A seven-member Federal Council, the members of which parliament selects for rotating one-year terms, rules Switzerland.
Much of Switzerland’s complicity with the Nazis has only recently come to the forefront from the efforts of President Clinton’s appointment of Eizenstat to lead a commission to reach a just settlement with the victims of the Holocaust. While the legend of the fierce Swiss neutrality lives on, it is more of a myth, considering Swiss policy during WWII was balanced heavily in favor of the Nazis. The threat of a Nazi invasion of Switzerland has no basis in fact. As early as the 1930s, the Nazis were busy cloaking their corporations and cartel agreements with Swiss fronts. An invasion would have compromised all the hard work spent in cloaking these corporations. As we have seen in the cases of the other neutral countries, once the Nazis invaded Russia, they simply lacked the manpower and equipment to open another front. Finally, Switzerland had no strategic geographic location, unlike Spain or Turkey. Its only strategic value to the Nazis was its international banks. The Nazis could use the international banks to get hard currency and launder looted gold.