II. The Safehaven Program
A. Origins of the Safehaven Program
As the tide of battle shifted in favor of the Allies in 1943, economic warfare goals began to take into account the concern that Germany would try to hide gold and other assets abroad so they would not be included in war reparations and could be used to re-build Axis strength in the post-war period. The specific goals of Safehaven, as they came to be formulated in spring 1944, were to restrict and prevent German economic penetration beyond Germany, to block Germany from transferring assets to neutral countries, to ensure that German wealth would be accessible for war reparations and for the rehabilitation of Europe, to make possible the return to legal owners of properties looted from countries once occupied by the Germans, and to prevent the escape of strategic German personnel to neutral havens. The overall purpose was to make it impossible for Germany to start another war.
The need to organize a Safehaven program appears to have been first brought up in letters from Leo T. Crowley, Director of the Foreign Economic Administration (FEA), to the Secretary of the Treasury on May 5, 1944, and from William T. Stone, Director of FEA’s Special Areas Branch, to Livingston T. Merchant in the State Department, on May 15, 1944. Stone’s letter suggested that the British be consulted, as well as other interested U.S. Government agencies. The State Department had already sought British cooperation in systematically gathering data on German efforts to secret assets in neutral countries inside Europe, and a vague British reply suggested that steps be taken to oblige the neutrals to fulfill certain economic warfare requirements by offering to provide supplies to Sweden and Switzerland. The official British history of the World War II economic blockade of Germany summarizes U.S.-British differences over the implementation of Safehaven objectives soon after this exchange as follows:
“This led to the last of the long series of Anglo-American differences over tactics, and it arose, as so often before, through the American tendency to concentrate on a single objective to the exclusion of supply and other interests which the British could not so readily ignore.”
In May 1944 Special Assistant to the General Counsel of the Treasury Department Samuel Klaus proposed a plan for a fact-finding survey of the situation in neutral countries, and of the plans other nations might have for dealing with the problem of hidden German assets abroad. The planning for this trip revealed the continuing tensions between FEA officials and those in other agencies. The Safehaven program was plagued from the start by inter-agency and intra-agency rivalries. Initial planning for the trip called for Klaus to be accompanied only by a State Department official, Herbert J. Cummings. In briefing officials in the Embassy in Madrid on the background of the trip, Klaus indicated that he had neither informed nor sought the approval of Treasury for the trip. When they learned about the proposed trip only several days before it was due to begin, Treasury officials took a direct hand in setting forth the purposes of the trip, as well as insisting that Treasury officials be included on the delegation. After these Treasury officials caught up with the Mission in London, and accompanied it to Stockholm, Klaus refused to permit them to continue on his delegation, and they made separate visits to Spain. The Mission canceled its plans to visit Switzerland and Portugal.
From August 16 to October 10, 1944, Klaus and his party visited London, Stockholm, Lisbon, Madrid, Barcelona, and Bilbao to encourage the implementation of the Safehaven program. The initial success was limited. It took another two months for the Safehaven program to emerge as America’s response to the potential use of Nazi financial and economic influence in the neutral countries to prepare for a third world war.
In his final report of October 21, 1944, Klaus observed that the purpose of the trip was primarily to bring about an increased flow of information to Washington concerning German efforts to find safe havens in the neutral countries. He also sketched out the current thinking about the broad range of activities being pursued by the Safehaven Program:
“It [Safehaven] 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 I.G. 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 situation in Spain the most discouraging and the most difficult. He found the U.S. Mission in Spain, and particularly the Ambassador, Carlton Hayes, to be entirely unsympathetic with the Safehaven program’s investigations although Spain was “beyond question the country in which the most damaging Safe Haven activities are going on and may be expected.”
The Treasury Department felt that the Klaus Mission was weakened by a lack of knowledge of the reporting on enemy assets already being done by U.S. missions in neutral countries, and by lack of understanding of the political situation in these countries; for example, Klaus showed little understanding of the consequences of Spain’s recent civil war. In discussing the collection of information on enemy assets in Madrid with Counselor of Embassy W. Walton Butterworth and other Embassy officers, he suggested that the Embassy could probably expect considerable cooperation from dissident and labor groups. Butterworth had to explain that labor syndicates in Spain were controlled by the Falange, and that it would not be prudent for the Embassy to seek help from the outlawed Communist Party.
The confusion within FEA concerning responsibility for Safehaven programs was not resolved until December 1944, when FEA set up a new German and Austrian Branch, which shortly became the Enemy Branch. This branch was assigned responsibility for Safehaven programs, and its director, Henry H. Fowler, was permitted to coordinate the Safehaven efforts which had been scattered throughout the agency. Throughout the often complicated implementation of the Safehaven program, the U.S. Government maintained a tough and unequivocal stance whereby no concessions would be granted that would compromise America’s commitment to identify and liquidate Nazi assets.
B. Building a Legal Base for Safehaven Programs: Bretton Woods Resolution VI
The discussions with the United Kingdom in spring 1944 and the Klaus Mission’s meetings in London, Stockholm, and Madrid revealed the lack of consensus on how to proceed in preventing the flow of German assets to neutral countries. The purpose of the Klaus Mission had been limited to fact-finding. Scant progress had been made in determining what policy measures needed to be taken, or how to persuade Britain and other countries to support the Safehaven program. Just as the Klaus Mission was getting underway, help arrived from an unexpected quarter, the United Nations Monetary and Financial Conference then underway in Bretton Woods, New Hampshire.
The work of the Bretton Woods Conference was divided among three commissions, the first two dealing with what were the primary interests of the Treasury and State Departments, the proposed World Bank, and the Stabilization Fund. Commission III, chaired by Egypt, was charged with responsibility for “Other Measures for International Monetary and Financial Cooperation.” On Ju
ly 10, 1944, Commission III set up three ad hoc committees, including a committee dealing with “Enemy Assets, Looted Property, and Related Matters.” This committee, in which the United States was not represented, received a proposal from the Polish delegation to seek cooperation from the neutral countries in blocking and liquidating Axis assets in neutral territory, and a proposal from the French delegation concerning steps to prevent the enemy from successfully secreting funds in neutral or UN territories under assumed names. According to the French proposal, these measures should apply to beneficiaries of property looted by the enemy, whether such beneficiaries be enemy nationals or their associates of whatever nationality. These measures should be directed in particular against Axis leaders and their collaborators in occupied countries, who might attempt to perpetuate their influence, power, and ability to plan future aggrandizement and domination in the post-war period.
Both the U.S. and the U.K. delegations reacted quickly to these proposed drafts. The United States submitted an alternative draft embodying features of the Polish and French proposals, which were then withdrawn. This draft built upon the Polish proposal in calling for action by neutral countries to take immediate measures to prevent any disposition or transfer within their jurisdiction of assets belonging to governments, individuals, or institutions in occupied countries, as well as looted gold or other assets. The neutrals were also called upon to prevent the concealment of such assets. Unlike the French proposal, which would have applied to the beneficiaries of all property looted by the enemy, including beneficiaries who were enemy nationals, the scope of the U.S. draft was restricted to assets located in enemy-occupied territories.
The U.K. delegation initially opposed this effort, on the grounds that the subject matter had very indirect bearing on the plans for establishing a Fund and Bank, which were the purposes of the Bretton Woods Conference. The United Kingdom also insisted that the action called for in these draft proposals was already being taken in other places, notably the Inter-Allied Committee on Acts of Dispossession. No other country joined the United Kingdom in opposing the draft resolution, and the U.K. eventually withdrew its objections. After the Soviet Union proposed some language changes, the United Kingdom joined the United States and the Soviet Union in a drafting committee to work out the final text of the resolution. This text was presented to the Plenary Session of the Conference for approval as Resolution VI.
The State and Treasury Departments quickly recognized the value of Resolution VI in terms of the pursuit of Safehaven objectives. On August 19 the text of the resolution was sent by airgram to all diplomatic missions, and on September 29 instructions were sent to missions in the European neutral countries as well as to missions to countries which had participated in the Bretton Woods Conference, to impress upon their host governments the importance of instituting such measures as would fulfill the aims of Resolution VI.
New and vigorous U.S.-British action resulted from the Bretton Woods agreement. A Safehaven department was established in the British Ministry of Economic Warfare, and there began more formal pooling of information with American Safehaven officials. In April British and U.S. officials had met with Swiss banking officials in Lisbon and sought, without success, to persuade Switzerland from allowing its facilities to be used to finance Axis trade. In August 1944 the British joined the United States in a joint request of the Swiss to halt the acquisition of gold from Germany or any of its occupied territories and to prevent such acquisition by any bank or person under Swiss jurisdiction. The British objected to the American proposal to present such requests to the other neutral states on grounds that they might well prove to be inconvenient for the Allies after the war.
In separate notes of October 2, 1944, the U.S. and U.K. Governments instructed their Embassies in neutral countries to request that the country to which they were accredited adhere to Resolution VI passed at the Bretton Woods Conference and take necessary measures to enforce it on their territory. The note asked the countries to thwart Axis moves to find “Safehaven” for their loot in neutral countries and observed that these activities were increasing as the enemy anticipated defeat. To provide Embassies with expertise in Safehaven-related issues, on October 31, 1944, Treasury Secretary Morgenthau agreed with Treasury General Counsel Joseph O’Connell and Harry Dexter White, Director of Monetary Research for the Treasury Department, that Treasury-trained financial intelligence officers should be dispatched to supplement the staff of Embassies in response to the increased outflow of Axis capital and goods from the German Reich to neutral havens.
C. Implementation of Safehaven
As originally conceived by FEA, Safehaven was to be entirely operated by FEA, with Treasury guiding on the financial and informational side, and State making the policy. However, FEA’s role was weakened from the start by its failure to establish clear lines of responsibility within its own organization. The controversy surrounding the Klaus Mission did not help. Differences on both policy and operations sprang up almost at once, at times becoming acute. Diplomatic activity related to persuading the neutral countries to implement Resolution VI propelled the State Department into an active role in Safehaven operations. According to one observer, by early 1945 the State Department had for all practical purposes assumed responsibility for the Safehaven program. This transfer of responsibility may have taken place earlier, for on December 24, 1944, the State Department sent a Department-only airgram to missions in the American Republics, stressing the importance of Safehaven and requesting the missions to begin as soon as possible a flow of current information regarding suspect entities and transactions and to prepare for a long-range reporting task. A comprehensive message to other diplomatic missions followed on January 16, 1945. This message referred to Resolution VI and the subsequent instructions to missions in neutral countries to investigate and report any evidence of enemy capital flight. The primary purpose of the message was to direct the Missions’ attention to the importance of Safehaven as a phase of post-hostilities economic security, to suggest a long-range reporting task, and to begin at once a flow of current information concerning suspect persons, entities and transactions.
Beginning in fall 1944, FEA and the State Department engaged in a long-standing debate over treatment of the European neutrals after the end of hostilities. MEW and other British agencies also joined in this debate. In September 1944 FEA’s Executive Policy Committee considered a proposed statement of Allied policy toward the neutrals that would continue trade controls into the postwar period. Correspondence in August between Sir Ronald Ian Campbell, the British Minister in Washington, and Assistant Secretary of State Acheson had revealed that the United Kingdom had agreed on continuing controls, although only on items in short supply. The Committee agreed that Lauchlin Currie from the FEA should discuss this proposed policy statement with Acheson.
In a subsequent meeting on November 2, the Executive Policy Committee discussed the State Department’s stance that continuation of the economic blockade against the neutrals would not be warranted, and that reliance should instead be placed on obtaining the cooperation of the neutrals. The FEA officials doubted that this approach would be effective, and believed that controls should be kept in place until the policy objectives were attained. They proposed drafting a revised policy statement on keeping controls, to
be taken up at the inter-agency Executive Committee on Economic Foreign Policy, where policy toward the neutrals was to be considered.
Treasury, State, and FEA exchanged proposals on dividing and sharing responsibilities in the organization and enforcement of Safehaven, and at a meeting on December 2, 1944, agreed on the roles of the participating agencies, which gave each a measure of operational freedom. They also agreed to centralize all intelligence and data related to Safehaven and Axis assets in neutral countries at the Embassy in London. Aside from relying heavily on British economic and financial intelligence, the Americans viewed this choice as an inexpensive way of recognizing the British contribution as partners, albeit reluctant, in Safehaven.
The State Department released on December 6, 1944, its long-awaited Circular Instruction to U.S. Missions concerning Safehaven matters. This initiative launched the political and diplomatic phase of Safehaven under the leadership of the Department of State, and signaled the beginning of the demise of FEA as the perceived lead agency in the formulation of Safehaven policies.
Continued fear in Allied circles that after Hitler’s demise Nazi diehards would try to tap into German external assets helps to account for the Allied leaders’ eagerness to reach a settlement on these issues very soon after the end of the war. As late as April 22, 1945, the Secretary of State noted in a telegram to Ambassador John Winant in London that “the United Nations have perceived cause for anxiety in the possible flight of Axis capital for the use of war criminals and other dangerous persons and other Axis manipulation of assets located abroad to the detriment of both the peace and security of the post-war world and the welfare of the country in which such assets were located.”
As the end of hostilities neared, the United States maintained a firm stance toward the neutrals. Reports of movements of German-origin gold were still reaching Washington, and Switzerland as well as other neutrals were resisting U.S. pressure to adopt a gold policy in line with Resolution VI. On December 8, 1944, the Executive Committee on Economic Foreign Policy approved a policy statement concerning Allied economic policy toward neutral countries, which closely reflected the tough stance being taken by FEA. This position paper noted that the neutral countries had profited by maintaining their commercial and other relations with Germany, that they were not committed to assume any responsibility for postwar rehabilitation, and that as a result of their collaboration with the enemy they were in many cases stronger economically than neighboring countries which had cooperated with the Allies. This policy statement called for a continuation of trade controls, exchange controls, and freezing regulations into the postwar period, as leverage in obtaining assistance from the neutrals in attaining Safehaven and other economic defense objectives.
Even though it received President Roosevelt’s approval, this policy statement did not put an end to differences among U.S. agencies, particularly with respect to continuation of controls after the end of hostilities. Word reached officials in the Embassy in London in March 1945 that the policy statement was still under review and was being revised. The organizational aspects of handling future economic relations with the neutrals were sorted out more readily. The State Department organized, with FEA and the British Embassy, a single committee to coordinate the policy aspects involved in obtaining “our remaining economic warfare desiderata in each of the neutral countries,” as well as securing agreement from the neutrals to cooperate in postwar procurement and supply. The Treasury Department appeared to be excluded.
Secretary of the Treasury Morgenthau in September 1944 put forward his plan for the political reform of a defeated Germany through punishment, partition, and pastoralization. The radical down-scaling of German economy envisaged under the Morgenthau Plan would rule out any substantial reparations to the victors, except what might be obtained from the dismantlement of what remained of German industry at the end of the war. While President Roosevelt appeared at first to approve of the Treasury plan for a punitive peace for Germany, and he and Prime Minister Churchill went some distance in adopting some of its elements during their wartime meeting at Quebec in September 1944, opposition developed from Secretary of War Henry Stimson who feared it would foster resentment in Germany and give rise to another war with Germany. The State Department also opposed the pastoralization of the Germany economy called for in the Treasury plan and favored a system of controls that would bring Germany into the family of nations. The State Department opposed the deindustrialization of Germany, believing rather that Germany should have a positive role to play in the postwar international economy. The British also opposed the harsh peace plan advocated by Morgenthau. By the time of the Heads of Government Conference at Yalta in February 1945, high-level support for Morgenthau’s Plan had disappeared, the directives prepared to guide the U.S. occupation of Germany ruled out key elements of the Morgenthau Plan, and Roosevelt, Prime Minister Churchill, and Soviet Marshal Stalin tentatively agreed upon plans for the occupation and control of Germany that envisaged substantial reparations from a revived Germany economy.
D. War Trade Negotiations
Safehaven objectives of finding and restoring looted assets, preventing the escape into the neutral nations of German assets, and preventing the resurgence of Nazi Germany became mingled, in the wartime Allied economic warfare diplomacy, with the protracted efforts to halt the trade of the neutrals with Nazi Germany. Germany’s war effort depended significantly upon its imports of raw materials and goods from the neutral nations. Switzerland provided Germany with arms, ammunition, and machinery, including locomotives as well as agricultural products. The wartime Allied bombing campaign eventually forced Germany to move some of its arms factories to the safety of Swiss territory. Sweden’s exports of ball-bearings to Germany were vitally important. but were even overshadowed during the early years of the war when Sweden supplied Germany with 40 percent of its iron ore before imports of iron ore from other European countries reduced this dependency. Portugal and Spain provided Germany with invaluable supplies of wolfram ore which Germany refined into tungsten and used in the steel-hardening process. Spain also provided iron ore, mercury, and zinc. Turkey was Germany’s source of the very scarce cobalt ore.
In the early years of the war, the economic blockade efforts had little or no support from the neutral nations. The postwar analysis of the blockade by British experts concluded: “At no stage of the war was Germany decisively weakened by shortages due to the blockade alone.” The study observes that massive bombing and great military losses in battle had by 1944 made German defeat inevitable and unmistakable even to objective observers within Germany. Only as the military balance passed permanently to the Allied side, and recognizably so to the neutrals, did the economic blockade and with it the Safehaven program, begin to show results.
The chief tool in the Allied economic warfare program to prevent German imports from the neutrals was, early in the war, bargaining over Allied trade with the neutrals. Such bargaining with neutrals who supplied important materials to Germany was highly unpopular in the United States. As Dean Acheson, who served during the war years as Assistant Secretary of State in charge of economic warfare efforts, recalled: “At home the public, almost to a man, regarded arrangements to supply the neutrals as traitorous connivance at trading with the enemy, and that some high officials like Under Sec
retary of War Robert Patterson were of this opinion.” In passing along to Secretary of State Hull one of Under Secretary Patterson’s memoranda about neutral trade, Secretary of War Henry Stimson observed on June 22, 1944, that “the policy of gentle appeasement” to the neutrals had ended only as Allied armies closed in on Germany.
FEA experts estimated in mid-1944 that Germany had increased its trade with the neutral nations and, with the exception of Portugal, which had major trade ties with Britain, became the major trading partner of all of them. Switzerland, entirely surrounded by Germany, had been drawn even more completely into Germany’s trade orbit than the other neutrals, and by 1943 Germany absorbed nearly a third of all Swiss exports� primarily manufactured items that required small amounts of raw materials, large amounts of capital, and highly skilled labor. The FEA experts noted that the most important products exported to Germany required the exceptionally high degree of skill and precision for which Swiss watch and machine tool industries were famous, and, in fact, some of the products could not be produced at all in Germany or not in sufficient quantities to meet wartime needs. In addition, Switzerland annually exported to Germany one-half billion kilowatts of electricity, or about 40 percent of the total power supply of southern Germany, and Swiss hydroelectric power annually produced 16,000 tons of aluminum and aluminum products for Germany during the war. Moreover, the unprecedented use by Germany of the Swiss railway to transport goods to and from Italy (apart from the transit of actual materials which Switzerland banned) allowed large quantities of raw materials, foodstuffs, chemicals, and other materials to transported to Italy and permitted Germany to mitigate some of the effects of the Allied control of the Mediterranean Sea.
The London Declaration of January 1943 and the Gold Declaration of February 1944 were part of the joint U.S.-British effort to persuade the neutrals to reduce their exports to Germany. As Allied military power grew, Secretary of State Hull sounded the toughening of American economic warfare tactics against the neutrals. On April 9, 1944, he included, in what turned out to be his last major foreign policy address (drafted by Acheson and approved by the major Department divisions) a warning to the neutrals. After pointing out that the limits of American power in the first two years of the war had forced the United States to make compromises with the neutrals, he pointed out that that period was drawing to a close:
“We can no longer acquiesce in these nations drawing upon the resources of the allied world when they at the same time contribute to the death of troops whose sacrifice contributes to their salvation as well as ours. We have scrupulously respected the sovereignty of these nations, and we have not coerced, nor shall we coerce, any nation to join us in the fight. We have said to these countries that it is no longer necessary for them to purchase protection against aggression by nourishing aid to our enemy.� We ask them only, but with insistence, to cease aiding our enemy.”
Hull engaged in other ways to support the Allied efforts to break the deadlock on the attempts to halt neutral commerce with Germany. William Donovan, head of the Office of Strategic Services, had informed President Roosevelt on July 10, 1944, that the Swiss, rather than restricting their bank dealings with Germany had agreed to buy $7–10 million in gold from Germany every month. After President Roosevelt urged Donovan to take up the matter with Secretary Hull and “block the Swiss participation in saving the skins of rich or prominent Germans,” Hull called in Swiss Minister Charles Bruggmann on July 14, 1944. He reviewed the loss of American lives on the battle fronts and the expenditure of $200 billion and added:
“It is not unnatural that Swiss businessmen should ask the intercession of their Government with ours so as to retain as much trade with the Axis as possible.� When the United States is losing lives right and left and is spending enormous sums of money because of neutral aid to the enemy primarily in order to gratify some businessmen, the question becomes mores serious to this country.”
Hull concluded by warning the Minister: “One of these days the stand of some of the Swiss businessmen in question would be uncovered as in the cases of certain people in Sweden, resulting in inevitable friction between our countries.”
In August 1944 the State Department instructed the Legation in Bern that the military developments that brought Allied forces ever closer to the Swiss frontier made it time to begin informal discussions with the Swiss regarding the suspension of all exports to Germany and the prohibition of German transit traffic across Switzerland. Although the British eventually joined with the Americans in late August in approaching the Swiss Government, British Foreign Secretary Anthony Eden wrote to U.S. Ambassador John Winant in late August 1944 indicating a preference for seeking at first only a prohibition of high priority exports to Germany:
“We attach very high importance to avoiding forcing the Swiss to take action which would result in a rupture of Swiss diplomatic relations with Germany. This would necessarily mean that Switzerland would cease to act as protecting power at a moment when this may be more necessary than ever before. After the recent murder of our airmen in Germany we are genuinely alarmed at the possibility that the last moment before total defeat the Gestapo might run amok and commit wholesale murder of British and American prisoners of war. Obviously this is more likely to happen if the restraining influence of the protective power is removed.”
The Swiss response to the American request came in late August in an aide‑m�moire that betrayed Swiss recognition that approaching Allied military victory made necessary the adaptation of the policy of neutrality:
“It goes without saying that the war as it nears the Alps changes aspect of transit problem and has a bearing on its solution. For this reason Federal authorities keep this problem under constant and careful watch. They have thus been able to observe that traffic in both directions has in general decreased and not increasing since spring. In spirit of true neutrality which guides them will see to it that it follows the trend circumstances demand.”
As a result of U.S‑U.K negotiations with the Swiss in August 1944, Switzerland drastically reduced its exports of strategic items such as ammunition, locomotives, automobiles, diesel engines, and machinery to Germany. Negotiations in the autumn moved Switzerland toward a total ban on such exports. The Swiss also agreed to a ban on the transit of all war materials between Italy and Germany including various categories of loot. The State Department, the U.S. and British Legations in Bern, and the British Embassy in Washington urged that the Swiss be allowed some supplies from the Allies in order to encourage further concessions, but the Foreign Economic Administration advocated that the strongest methods be used to achieve economic warfare objectives against Switzerland, including the withholding of raw materials, food, and fodder previously promised by the Allies. The U.S. Joint Chiefs of Staff also favored withholding supplies to Switzerland in order to eliminate Swiss exports to Germany, but the British Chiefs of Staff continued negotiations in order to accomplish further reductions. In a memorandum to the War Department General Staff in late October 1944, Under Secretary of War Patterson indicated that Swiss convoys carrying shipments of goods from Spain across France to Switzerland had resumed in late September 1944, and he argued that such shipments across to France not be undertaken until Switzerland had stopped all shipments to Germany of goods useful for war which he estimated at $30 million for the second half of 1944.
The State Department circular instruction of December 6, 1944, required U.S. and U.S. missions to discuss ways of presenting the issues of looted gold and enemy property to the neutrals without jeopardizing the negotiation of war trade agreements. However, disagreements erupted over how to balance the war trade agreements with the basic requirements of the Safehaven program. For instance, in London, Treasury objected to commingling Safehaven matters and war trade negotiations with the Swedes. As long as State was lukewarm about making straightforward overtures to the neutrals about Safehaven, partly in response to British reluctance in that area, Treasury argued that it was best to work toward ratification of a war trade agreement with Sweden and utilize the next available opportunity to press for its acceptance of basic Safehaven objectives, namely, adherence to Bretton Woods Resolution VI and to the Gold Declaration.
Differences among American policy officers persisted in the conduct of the Safehaven programs. Treasury officials felt that their “hard” approach in the negotiations with the neutral countries differed from the “soft” undertakings they ascribed to the State Department and their British counterparts. The same could be said about Allied plans for postwar Germany. Dean Acheson later looked back on these wartime negotiations with the neutrals as “worth doing,” but estimated that the efforts, aimed at denying Germany materials for its war production, were not particularly successful until the latter half of 1944:
“A good case can be made for the argument that economic measures resulted in stopping important exports for military needs from Sweden to Germany for six months before military measures would have done so. Exports from Switzerland and the Iberian Peninsula probably moved in minimum necessary quantities until military measures stopped them.”
E. Evolving Policy Toward Switzerland; the Currie Mission and Its Aftermath
In December 1944 the State Department’s Western European experts prepared a Department policy paper on current policy toward Switzerland. On the eve of the semi-annual revisions of the wartime U.S‑U.K.-Swiss War Trade Agreement, the Department proposed a revision of policy toward Switzerland. The object of the change was to further reduce Swiss exports to Germany and the volume and composition of the transit traffic across Switzerland between Germany and Italy. The Office of European Affairs policy paper recommended the following:
“For political reasons and for reasons arising out of the benefits to us of Switzerland’s neutral position and her future potential usefulness in the economy of Europe it was inadvisable to place too great pressure upon the Swiss Government at this time in order to attain pure economic warfare objectives.
“The change of tactics suggested by the Legation at Bern and fully supported by the British Government should be adopted.
“The Swiss should be told that as the military situation changed, our economic warfare objectives likewise would change and increase; that they had not fully met our September demands, and that in the January negotiations we would have further requests to make, particularly with respect to the North-South transit traffic; that it was the United States intention to deal generously with the Swiss in supply and other economic matters to the full extent of their willingness and ability to meet our requests; and that as an earnest of our good-will and in reflection of the partial way they had already come, we were planning to make immediately available to them a substantial proportion of the raw materials offered them in September.”
The Department policy paper argued that economic warfare considerations were important but should be placed in the perspective of the whole range of relations with Switzerland which it presented as follows:
“Switzerland differs from other neutrals in that her neutrality is not unilateral. It is a neutrality which has been guaranteed for many years by the major powers. As a result of this neutrality Switzerland performs certain indispensable services for all the belligerents and claims in return the right to trade with such of them as will help maintain its essential economy and internal stability. As far as the United States is concerned Switzerland serves as the protecting power for our general interests and in particular for our prisoners of war in Germany and Japan. It is the agreed policy of the British and U.S. Governments to avoid forcing Switzerland to a break with Germany. Such a break would make it impossible for the Swiss to continue to represent British and U.S. interests in Germany and might likewise affect their position in so far as Japan is concerned. It is essential as the situation in Germany becomes more and more disturbed that we endeavor to obtain their greatest degree of protection not only for U.S. general interests but especially in regard to matters relating to prisoners of war. But it should be remembered that the effectiveness of Switzerland’s protection can be much altered by a severe deterioration of its relations with Germany short of complete rupture.
“Related to but not directly connected with the protection of U.S. interests by Switzerland are her humanitarian efforts, undertaken at the request of the U.S. Government, on behalf of the Jews in Central Europe. At our request, she has recently agreed to admit some 15,000 additional Hungarian Jews in spite of the increased strain on her general food problem.
“Lastly, it must be remembered that no people in Europe are more profoundly attached to democratic principles than the Swiss. Continued moderate prosperity will ensure the maintenance of the present economic and political systems which is so close to our own.”
In a letter of December 29, 1944, to the Secretary of State, FEA Administrator Leo Crowley summarized his agency’s arguments against a soft policy toward Switzerland and for the immediate withdrawal of the offer of supplies to the Swiss, a complete halt in military supplies from Switzerland to Germany and the drastic reduction of other exports, and the stoppage of southbound German train transit across Switzerland. Crowley told Stettinius that “the time has come when, for the sake of both present and future objectives, we must take immediate measures to convince the Swiss not only that we means business , but also that to continue their present economic policy vis-�-vis the Germans would be disastrous to their own interests.”
The Department policy paper on Switzerland was taken up by the Secretary of State’s Staff Committee at its meeting on January 3, 1945. The meeting, which was largely given over to a discussion of postwar European economic planning and the possible loan to the British, was presided over by Secretary of State Edward Stettinius and included all his principal officers. James C. Dunn, Director of the Office of European Affairs, made the case for the policy paper, explaining that the War and Navy Departments preferred a much harder policy toward Switzerland in order to completely halt Swiss exports to Germany and reminding the Committee of the opposition as well from the Foreign Economic Administration. Dunn felt that the policy paper had made the political case for not pressing Switzerland harder. Under Secretary Joseph C. Grew emphasized the importance of the protection of American prisoners of war in the Far East. Assistant Secretary William Clayton felt that Switzerland had met most American demands and that no extreme action should be taken against them. After Secretary Stettinius indicated that he opposed severe measures against the Swiss, the Committee approved the policy paper’s recommendations.
Acting Secretary of State Joseph Grew replied on January 15, 1945, in a letter restating the policy conclusions of the approved Department of State paper described above.
On behalf of the Jo
int Chiefs of Staff, War Department Secretary Henry L. Stimson wrote to Secretary of State Stettinius on January 25 arguing for the stoppage of all Swiss transit traffic at the earliest possible date, but he added that “decision on the line of diplomatic procedure best calculated to achieve this desired result is a matter which does not concern them,” except insofar as it might have military consequences.
British Ambassador Lord Halifax called on Under Secretary Grew on January 16, 1945, and reviewed the British attitude on economic relations with Switzerland and the British feeling that, “since stern tactics” had failed to achieve results, it would be the “better part of wisdom to allow a reasonable amount of commodities to reach Switzerland from France in the belief that this would cause the Swiss still further to meet our wishes in cutting off their supplies to Germany.” The following day Swiss Minister Charles Bruggmann called on James C. Dunn at the State Department to try to explain why his government could not halt transit train traffic completely and reminding Dunn that the Swiss position of neutrality in the war allowed Swiss assistance for the inspection and care of Allied war prisoners in Germany and Japan. Finally on January 20 the Department of State informed its Missions in London and Bern that a U.S.-British delegation would proceed to Bern immediately to negotiate the cessation of Swiss trade with Germany. In the days immediately following, Lauchlin Currie, Assistant to President Roosevelt, was named to head the U.S. team, and Dingle M. Foot, the British Parliamentary Secretary for the Ministry of Economic Warfare, headed the British team. The State Department also concluded that although France had not been a party to wartime Safehaven negotiations, French representation (subsequently Paul Chargueraud was named to head the French team) would also be indispensable because of France’s geographic position.
In preparing for the negotiations with the Swiss, the U.S. delegation grappled with reconciling two different approaches to the negotiations: should the Allies press for both the war trade agreement and Safehaven objectives or relegate the latter to the background in order to obtain some measure of satisfaction with the former? The Treasury Department and FEA agreed to make the acceptance of Safehaven requirements a sine qua non before any talk of war trade negotiations could begin. The State Department opposed this on grounds that there was no coordinated approach with the French and the British on Safehaven matters, and that Currie had only been briefed about war trade and not Safehaven matters. In the end, Currie returned to Washington with a basic agreement on how to identify enemy property in Switzerland that gave the Allies a benchmark by which to approach the other neutral countries on the subject of Safehaven.
The arrival of the Currie Mission in Bern in February 1945 represented both a substantive and psychological watershed for the Swiss. Since the Allied landings in June 1944, the German Army had steadily retreated, and for the first time in over four years Switzerland was not surrounded by the German Army, opening the possibility to expand trade and communication with the non-Axis world. The U.S. Legation in Bern judged that public expectations centering on Currie’s visit were bordering on the feverish. The Legation expressed concern that if the outcome of the Currie mission did not benefit the Swiss (presumably through increased shipments of coal and other essential raw materials), the public would be “proportionately disappointed” with negative consequences for U.S.-Swiss relations. The same report suggested that Swiss officials who had earlier dealt with the Allies on financial matters were far less sanguine over Currie’s imminent arrival.
The Swiss delegation was led by Dr. William Rappard (an academic from Geneva), but, according to the Legation, the number two at the Foreign Office, Walter Stucki, was the “man pulling the strings.” Stucki appeared to be moving in all directions, intruding into a number of economic areas not normally within the purview of the Foreign Office. The Legation also noted that Stucki had held a ranking position in the Department of Public Economy but, according to local reports, his headstrong disposition resulted in his ultimate removal. Stucki later became head of the Swiss delegation to the 1946 Washington negotiations on German assets.
Despite official Swiss concern about his Mission, Currie was impressed with the popular enthusiasm that greeted his arrival on the first train to Bern from a recently liberated Paris. Throughout his stay, in fact, Currie received red carpet treatment, the details of which appeared in much of his correspondence about the Mission. It is likely that the lavish Swiss hospitality afforded Currie and his colleagues contributed, to some degree, to the optimistic interpretation of the mission’s outcome.
Currie was not unmindful of the real needs of Switzerland. With the liberation of France, the supply system the Germans had established to maintain its conquered western territories collapsed and coal shipments to Switzerland declined precipitously. According to Swiss sources, coal stocks were at dangerously low levels and unless the Allies rapidly established new channels of supply through France, Switzerland faced coal shortages in late winter as well as a decline in coal-dependent manufacturing. Shortly after his arrival Currie became aware of Swiss concerns and sent a first person communication to President Roosevelt seeking a decision to increase coal shipments to France as soon as possible. The State Department’s response to Currie suggested that the Swiss were unlikely to see any improvement in coal shipments in the immediate future.
A month of difficult negotiations culminated in an exchange of letters between the Allied delegation and Rappard setting out a list of blocking measures the Swiss had taken or would take against Germany and its allies. In March Currie reported a degree of success in trying to get the Swiss to meet Allied requirements for the blockade of Germany. The Swiss Government agreed to freeze all German assets in Switzerland, including those held through Swiss nationals; prohibit the importation, exportation, and dealing in all foreign currencies; and restrict Swiss purchases of gold from Germany. The Swiss also undertook to prevent their territory from being used for the disposal or concealment of assets taken illegally or under duress during the war. Further, the Swiss affirmed that, within the framework of Swiss law (present and future), every facility would be accorded to dispossessed owners to claim their assets found in Switzerland.
The Swiss Federal Council agreed on February 16, 1945, to block German assets in Switzerland with certain conditions. However, Treasury officials were well aware that this initial step fell far short of a concrete guarantee to freeze German assets in Switzerland. In the words of Treasury official Frank Coe, “They must do much more, however, before we can feel that they are giving us real cooperation.” The final agreement with the Allies on March 8, 1945, stipulated that Switzerland would block the assets of all European countries, except the neutrals, and of Japan; prevent cloaking of enemy assets; interrupt all purchases of gold from Germany except for the expenses of the German Legation, the Red Cross, and prisoners of war; assist in restoration of looted property; and conduct a census of German assets in Switzerland.
U.S. officials initially felt that the Currie Mission and the U.S.-Swiss agreement of March 8, 1945, had successfully advanced Safehaven objectives and decisively redirected Allied-Swiss relations. Some anxiety about this apparent change seemed to cause Soviet Ambassador Andrey Gromyko to address a note to Secretary of State Stettinius on March 19 asking for information about the agreement and assurances that Swiss goods would not fall into German hands and presumabl
y be used against Soviet forces fighting their way into Germany from the east. Treasury Secretary Morgenthau congratulated Currie and informed him that he had paved the way “for Allied Military Government in Germany to take control of German assets in Switzerland.” Tensions over the interpretation and fulfillment of that agreement soon emerged and continued through the remainder of 1945. The U.S. Legation in Bern reported in May 1945 that subsequent to the Currie Mission, the Swiss purchased 3,000 kilograms gold from Germany for purposes specifically excluded by the March 1945 agreement. Worse still for American authorities was the Swiss assertion that the purchase was not looted gold, despite the clear Allied policy since February 1944 to regard all gold coming from Germany as looted gold.
In June 1945 Senator Harley Kilgore chaired hearings of his War Mobilization Subcommittee of the Senate Military Affairs Committee. The hearings were aimed at determining whether a defeated Germany retained the capacity, including its resources hidden abroad, to conduct warfare again in the near future. Senator Kilgore used the hearings to warn that the Swiss were practicing a double standard in dealing with the Allies. He introduced copies of correspondence from the spring of 1945, then recently discovered by Allied investigators, between German Reichsbank Vice President Emil Puhl and the German Minister of Economic Affairs Walter Funk regarding German-Swiss commercial discussions that were conducted at the same time as the Currie Mission. American newspapers gave considerable coverage to the correspondence including its recounting of Swiss Government assurances to the German negotiators of Switzerland’s continuing concern to Germany’s interests.
Wide publicity was given in the American press to the testimony before the Kilgore Subcommittee by Orvis A. Schmidt, Director of Foreign Funds Control for the Treasury Department and a member of the Currie Mission to Bern. Schmidt stated:
“Even at this late date, the Swiss Government is loath to take the necessary steps to force banks and other cloaking institutions to disclose the owners of assets held in or through Switzerland. This means that German assets held in or through Switzerland will not be identified. Thus, the true picture of German financial and industrial penetration throughout the world will be kept a secret. By the same token, Swiss banks will continue to profit by protecting, through their secrecy laws, German’s war potential� the hidden assets of it financiers and industrialists.”
By August 1945, U.S. Treasury leadership was becoming increasingly concerned with the defects of Swiss controls over German assets and the general reluctance of Switzerland to cooperate fully on Allied Safehaven efforts. The Treasury Representative at the U.S. Embassy in London was instructed to seek British retention of controls over Swiss accounts in the United Kingdom and work with the United States in obtaining greater Swiss cooperation before relaxing controls. The instructions concluded: “Allied control of Swiss assets is the most potent weapon we have with which to obtain Swiss compliance with Safehaven.”
The following month, the U.S. Minister in Switzerland, Leland Harrison, warned the Swiss Minister for Foreign Affairs, Max Petitpierre, of U.S. dissatisfaction with Swiss efforts to complete a census of German assets and of the general non-cooperation of Switzerland. Minister Harrison repeated these complaints to Petitpierre a month later, after concerting with his British and French colleagues in Bern. Harrison observed the apparent Swiss failure to implement the March 1945 agreement and, in particular, the unsatisfactory cooperation of the Swiss in Allied attempts to identify German assets in Switzerland. Harrison gave Petitpierre an aide‑m�moire that listed nine suggestions for Swiss action to assist the search for German assets.
Some Swiss banks developed a press campaign designed to arouse public support for a position that German assets in Switzerland should be used for the satisfaction of Swiss claims. Swiss labor and liberal elements were told that Swiss compliance with Allied demands would be illegal and would jeopardize Switzerland’s position as a neutral; and it would throw Swiss industry out of balance and endanger the jobs of many Swiss nationals. A few months later, the socialist press in Switzerland was said to have demanded the ouster of those responsible for giving Switzerland a black mark in the Puhl- Funk letters incident. Even the right-wing papers, while generally denying Swiss collaboration with the Nazis, reportedly indicated that Switzerland could not afford another crisis like that created by Senator Kilgore’s accusation. These papers suggested that Switzerland send its most capable diplomats to see U.S. authorities “especially Mr. Vinson, Secretary of the Treasury, and if possible the President,” in order to discuss the entire question of Swiss collaboration with the Nazis.
American intelligence learned in November 1945 of Swiss anxiety as a result of the Puhl-Funk correspondence. The Swiss Government explained to the press and its missions abroad that the German-Swiss agreement of April 1945 provided for purchases other than German war purchases. The Swiss Legation in Washington warned its government the criticisms and suspicion of Switzerland by the United States could not be contained while the German assets problem remained unresolved and while Treasury officials, especially Foreign Funds Control, sought to gain complete control over these assets for fear they would be used to finance a German fifth column or atomic research.
F. Safehaven After the End of the War
The end of the war did not end the need to pursue Safehaven progress. The main task at hand, however, was to discover Nazi economic and financial interests in the neutral countries. Much of the evidence lay in corporate and banking records captured by Allied forces in Germany. Foreign Funds Control Director Orvis Schmidt led a team of 30 Treasury officials to Germany in May and June 1945 to assist the U.S. Army in the conduct of financial investigations into the wartime activities of German companies and banks. While in Germany, they also drew up plans for financial controls over the collapsed economic infrastructure of the former German Reich.
When Treasury investigators uncovered linkages between German parent companies and their neutral subsidiaries, that information was forwarded to the Allied Embassies in the neutral countries as further evidence of enemy property to be liquidated for reparations purposes. The more difficult inquiries, however, concerned the provenance of gold deposits in German and neutral banks. The agencies of the new Allied Control Authority for defeated Germany became important agencies in these and other Safehaven efforts.
Spain afforded the Allies a special wartime problem. It maintained its pro-Axis leanings but was willing to placate the Allies’ economic warfare objectives as long as they did not interfere with Spain’s neutrality. The Treasury Department and FEA agreed to try to blend war trade negotiations and Safehaven objectives, hoping that the Spanish could be convinced that, unless they subscribed to the latter, they would not benefit from the former. To some Treasury officials, the State Department, worried over seeming British reluctance toward Safehaven, appeared to stress the uniqueness of the Spanish case, arguing that the Allies, and especially the United States, had little influence over Spanish policy and it was best to push for war trade concessions until the time was ripe to press for the satisfaction of Safehaven objectives.
The Allies had devised the so-called Axis Replacement Program to eliminate what remained of Axis economic and financial influence in the Western Hemisphere. Under this Replacement program, the United States sought to work with the governments of the variou
s American Republics to build up business enterprises to substitute for those enterprises eliminated because of the Axis influence or involvement in them. U.S. officials were divided over whether the reach of the Allied Control Council for Germany, which assumed authority over defeated Germany in the summer of 1945, should extend to Latin America, particularly Argentina.
During the June 1945 War Mobilization Subcommittee hearings chaired by Senator Kilgore, Henry Fowler, Chief of the Enemies Branch of the FEA, gave evidence of German wartime penetration into the banking, industry, and commerce of the neutral nations, particularly Sweden, Spain, Switzerland, and Portugal. In reply to questions from Senator Kilgore, Assistant Secretary of State William Clayton provided a detail accounting of the government’s Axis Replacement and Proclaimed List Programs in Latin America and the general Safehaven program. Clayton’s testimony made clear that the Safehaven program remained unfinished, and that the State Department and other agencies were pressing forward to attain basic economic security objectives and to ensure that German property outside of Germany was subjected to just claims against it. Clayton summarized the Safehaven program as follows:
“The Safehaven Program concerns itself with denying to Germany, in the interest of justice and future security, the economic power arising from (a) the organized looting of occupied countries, (b) the flight of German capital in anticipation of defeat, and © the German capital investment already located abroad when the war began. Our chief efforts in this connection are directed against areas which have not cooperated in the extirpation of pre-war, and the prevention of wartime, Axis economic penetration.”
Clayton reviewed the various measures used by Germany to mask its interests in neutral countries and its resort to looting to acquire wealth cheaply for concealment abroad. He observed that the “looting reached its nadir when gold was picked from the teeth of gas-chamber victims.” Clayton told the Kilgore Subcommittee that the aggressive Safehaven program was made necessary because the neutral nations had resisted throughout the war the Allied calls for adequate local controls over German schemes, but the decline of German military power and the rise of Allied economic bargaining power had convinced the neutrals to become more accommodating. Much had been accomplished but a great deal more remained to be done.
The Safehaven objectives of the Allies were further defined at the major postwar conferences.
G. The Office of Strategic Services and Project Safehaven
The role of the Office of Strategic Services (OSS) in Project Safehaven was largely confined to the collection and evaluation of information from the clandestine sources under its control. The Safehaven project thus fell largely under the aegis of the Secret Intelligence (SI) Branch, responsible for the gathering of intelligence from clandestine sources inside neutral and German-occupied Europe. However, the unique character of the Safehaven program, which was both an attempt to prevent the postwar German economic penetration of foreign economies and an intelligence gathering operation, meant that the OSS counter-intelligence branch, X‑2, also had an important role. Safehaven thus emerged as a joint SI/X‑2 operation shortly after its inception, especially in the key OSS outposts in Switzerland, Spain, and Portugal, with X‑2 frequently playing the dominant role. X‑2 was particularly active in reporting on clandestine German projects to acquire important economic and industrial assets in neutral countries. These efforts intensified as Germany’s military fortunes waned, especially from September 1944 onwards, as the advance of Allied armies threatened to sever Germany’s land communications with important sources of strategic materials in Southeastern Europe and the Iberian peninsula.
In fact, the inception of the Safehaven program meant little more than a redirection of intelligence assets already dedicated to the collection of economic intelligence. The OSS had been collecting economic intelligence similar to that required by the Safehaven program since 1942 as a part of the general effort to understand the functioning of the German war economy. Gold transfers in particular were a key part of that economy. Germany suffered from an acute shortage of certain strategic resources after 1936, and its armaments industry had increasingly resorted to specie payments to pay for imports of these materials since before the outbreak of the war. Conquest of Europe had done little to alleviate most of these shortages. Moreover, due to the inefficiency of the Nazi regime, full mobilization for war production had not been achieved until 1944. Therefore, the German appetite for oil, high-grade iron ore, wolfram, and other strategic materials grew even as German industry suffered from the Allied strategic bombing campaign and the territory under German control shrank. Always heavily dependent upon payment in commodities and gold, German imports became even more so as the ultimate defeat of the Nazi regime became obvious and neutrals grew more wary of cooperating with the Axis belligerents. The channels for the transfer of foreign currencies and the exploitation of German war loot remained those established during the years of German victory.
These efforts were the desperate attempts of the Nazi leadership to preserve access to vital sources of raw materials as much as they represented visions of a resurgent German Fourth Reich. Individual Germans and German corporations were also taking steps to conceal assets in foreign countries to protect them against destruction or seizure by the victorious Allied armies. Although, from the perspective of 50 years, the real motivations behind such efforts seem obvious, to Safehaven planners (and to X‑2) they were evidence of a grand conspiracy, one that encompassed the transfer of millions of Reichsmarks worth of gold as well as the purchase of individual automobiles in Stockholm and hotels and bank accounts in Portugal.
Because the August and September directives implementing Project Safehaven treated it as a departmental program� and, to some extent, an inter-government matter� cooperation on the part of the OSS at first was on an informal basis. Not until November 30, 1944, were instructions sent out to OSS stations alerting them to the kind of intelligence requirement expected to be generated by the Safehaven program. To a large extent, therefore, the collection of Safehaven material simply piggy-backed on to other programs for the collection and processing of raw economic intelligence from sources already in place.
Under these circumstances, it is scarcely surprising that implementation of Safehaven measures depended largely on the personalities of the OSS Chiefs of Station and the conditions under which they operated. In Bern, the heart of the Swiss banking and German gold transfer activity, the OSS chief was Allen W. Dulles, later to become Director of Central Intelligence from 1953 to 1962. An East Coast Brahmin with extensive prewar ties to European banking circles, Dulles spent his tenure in Bern constructing an “Old-Boy” network of sources that extended throughout neutral and Axis-occupied Europe. It was an astonishingly successful system, ideally suited to his situation in neutral Switzerland and well-conceived to gain access to European government and business circles. For example, Dulles counted among his close personal friends no less than Thomas B. McKittrick, President of the Bank for International Settlements (BIS) in Basel. McKittrick also was an OSS source who provided Dulles with “comfortable access” to the thinking of the bankers most responsible for moving German assets throughout Europe.
Among other kinds of information, McKittrick kept Dulles informed of the comings and goings of Reichsbank Vice President Emil Puhl, the arc
hitect of the German gold transfer arrangements. Other well-placed sources available to Dulles in high European financial circles included: Dr. Eduard Waetjen, Abwehr agent, member of the German resistance, and commercial adviser to the German Consul-General from February 15, 1945; Maurice Villars, General Director of the Z�rich Electro-Bank; and Swedish economist and Economic Adviser to the BIS, Dr. Per Jacobsson, who was close to the extensive Japanese diplomatic and business circles in Switzerland. In 1945, Jacobsson provided information that helped to scuttle a Japanese attempt to buy vitally needed ball-bearings in Sweden and later served with Maurice Villars as a mediator in Japanese peace feelers put forward in Switzerland.
Although such contacts were clearly important, it also seems clear that the high value Dulles gave them made him wary of intelligence activities such as Safehaven. Moreover, Dulles looked forward to a postwar settlement that envisioned the United States working closely with European business and banking circles to reshape Western and Central Europe according to American interests. Finally, Dulles could legitimately claim that his staff was already overburdened by the collection of strategic and military intelligence. On December 28, 1944, following receipt of the OSS memorandum regarding cooperation with State’s Safehaven project, he cabled Washington:
“Work on this project requires careful planning as it might defeat direct intelligence activities and close important channels for German SI� Today we must fish in troubled waters and maintain contacts with persons suspected of working with Nazis on such matters. For example,� both 496 and X‑2 here can be useful under cover but believe idea of working practically as agents of Commercial Attach� and Consul General Z�rich, on this project would be unwise. Further, to deal effectively with matter, it would require special staff with new cover.� At present we do not have adequate personnel to do effective job in this field and meet other demands.”
In part because Dulles was already fully occupied with his existing requirements for strategic intelligence reporting and in part, no doubt, because of his unwillingness to give Safehaven material the attention Washington believed it deserved, responsibility for this task in Bern was delegated to X‑2. Fortuitously, the restoration of access to Switzerland through France in November 1944 made it possible for the first X‑2 operative in Switzerland to enter the country by the end of the year. By January 1945 X‑2 was up and running in Switzerland, and by April they were able to provide OSS Washington with an extensive summary of Nazi gold and currency transfers arranged via Switzerland throughout most of the war. According to X‑2, these included:
- Gold and bonds looted by the Nazis from all over Europe and received by certain Swiss banks;
- Funds sent by the Deutsche Verkehrs-Kreditbank of Karlsruhe to Basel;
- Securities held in Z�rich by private firms for the Nazi Party;
- Large quantities of Swiss francs credited to private accounts in various Swiss banks;
- Money 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.
Apart from the obvious official transactions, these sums were brought in by German and Swiss banks and business organizations. X‑2 reported only a few cases where private individuals, some of which were believed to be with German intelligence organizations, participated. Methods used included smuggling, diplomatic pouches, undercover exchange of foreign currencies, bank accounts and trusts, the sale of paintings and other valuables, and the black market.
From the end of 1944, X‑2-originated Safehaven reporting appeared alongside other reporting provided by Dulles’ SI operation in Bern. Although Dulles’ SI organization provided substantial Safehaven intelligence material, it was buried in a sea of other reporting on strategic and military topics, including war damage to German industry and rail services, the status of German synthetic oil refining operations, order of battle and operational intelligence on German forces in Italy and on the Western Front (for which Bern was the principal source), political intelligence on the Fascist Italian Social Republic, contacts with the German resistance, and the negotiations leading to the surrender of Axis forces in Italy.
By the end of 1944 reporting on the Reich from OSS Bern was being augmented by material from SI London. Dependent on agent reporting from within Germany itself, the intelligence collection by the sources available to SI London of necessity was somewhat problematic until the middle of September 1944, when the liberation of Paris and much of France provided new avenues for attacking the German target. SI London moved to Paris, where it was designated SI European Theater of Operations (ETO). Its chief was the then-Naval Lieutenant William J. Casey. The son of a Tammany Hall politician, Casey lacked the family connections of his counterpart in Bern. Casey’s vision of the postwar world saw the United States playing business interests in Germany against each other and against Communist- and Socialist-led labor unions. He welcomed an opportunity to collect intelligence showing Nazi connections to supposedly neutral business circles as a means of influencing these same circles in the postwar world. As a result, Casey launched into Safehaven with such enthusiasm that he had to be restrained by Washington, in a cable dispatched on January 18, 1945:
“[W]hile Safehaven Project has certain present and potentially greater future value, no SI personnel which can possibly be used in connection agent penetration Germany� should be used for any Safehaven purpose. For this project we can be one of many supporting agencies Department State which has assumed control and direction.
“For agent penetration Germany for strategic information and for proper briefing such agents US Government can look to OSS SI only to accomplish its characteristic mission.”
This meant that OSS operations in Europe (SI ETO) would largely confine its Safehaven activities to the areas already under Allied control� the most fruitful area anyway, since Project Safehaven involved assets outside of Germany. By the end of the month, Casey was able to report that the “gold project” was underway in Paris, with other plans for Safehaven work in France, Belgium, and the Netherlands. However, since these areas were already occupied by Allied forces, the special intelligence techniques that distinguished OSS operations proved unnecessary. Casey did not give up, however, and, two months later reported that “Safehaven work with State has shown area to be a valuable field of endeavor, especially because of the potential for leverage with German financial circles, etc., in the future,” and “Fagan Safehaven man for embassy� feels us absolutely necessary to his work.” Nevertheless, SI activity in this area remained a footnote to the efforts of State Department and other War Department personnel already on the ground. An X‑2 “Art Looting Investigation Unit” produced similar results.
Although Switzerland remained the financial heart of German gold and currency transactions, without question for OSS the most productive areas of Safehaven activity were the other neutral centers of German commercial activity� Sweden and the Iberian Peninsula. Madrid Station in particular had had economic intelligence as a principal function since its creation in April 1942, despite being “very considerably hampered” until shortly after V‑E Day by an ambassador and diplomatic staff hostile to OSS activities. OSS Madrid nonetheless managed to provide extensive documentation of German commercial transactions throughout the war. Bills of lading or manifests covering all merchandise shipped to France (and thence to Germa
ny) were provided weekly, including everything from orange juice to wolfram (tungsten ore) and steel rails. Equally important was documentation of the flagrant cooperation given the German war effort by Spanish authorities, including the use of Spanish airfields by German aircraft, the covert supply of German submarines in Spanish harbors (Operation Moro), and in matters of espionage and counterespionage by all grades of Spanish officials. From 1945 X‑2 Madrid was able to document German economic penetration in Spain, including illegal currency transfers and smuggled works of art; plans by French collaborators, Nazi individuals, and covert organizations to use Spain as a postwar hideout; and the integration of German technicians into the Spanish military. Nearly 50 Spanish firms were identified by X‑2 as having been used by Germany for espionage purposes. By V‑E Day, X‑2 had identified some 3,000 enemy agents in Spain and more than 400 members of enemy clandestine services.
Operations in Portugal were made easier by that country’s traditional pro-British stance (despite having an authoritarian regime on good terms with Franco). The local authorities provided OSS Lisbon with access to enemy safe deposit boxes held in every bank in Portugal except four (which were covered by the British). In January 1945 the Research and Analysis Branch (R&A) of the OSS used this material to document German gold and foreign currency transactions from January 1943 to December 1944. The Portuguese authorities were willing to extend cooperation to direct action as well. Acting on information largely provided by X‑2, at the end of the war the Portuguese Government sealed up the German Embassy and withdrew recognition from German diplomatic and consular representation. By war’s end, X‑2 files in Lisbon listed 1,900 enemy agents and 200 enemy officials.
Much as in Spain and Portugal, economic reporting was a staple of intelligence activities in Sweden from the outset of American involvement in the war. Despite its liberal democratic traditions, Sweden was Nazi Germany’s largest trading partner during the war and almost the sole source of high-grade iron ore and precision ball-bearings for the German war machine. Imports of the latter from Sweden were especially important following the destruction of the VKF ball-bearing plant (itself a Swedish-owned company) at Schweinfurt by the U.S. Eighth Air Force in August and October 1943. OSS operatives in Swedish southern and east coast ports monitored the Swedish ore traffic and were able to provide extensive reporting on the rate and size of Swedish shipments to Germany. From December 1943 until his arrest in May 1944, an OSS agent working in the shipping office of the SKF ball-bearing plant in G�teborg supplied reports on ball-bearing shipments to Germany, including serial numbers and quantities. Using this information, the U.S. Economic Warfare Mission was able to conclude an agreement with the Swedish Government that finally halted shipments of ball-bearings to Germany in January 1945. Intelligence data collected on iron ore shipments and exports of ball-bearings were not, of course, directly related to the Safehaven program; but, by accounting for much of Germany’s foreign trade with Sweden, they provided important indices that could be used to calculate specie and currency transfers.
By late 1944 German economic planners were desperate enough to try exporting crude petroleum (itself in short supply) to Sweden as a substitute for the monetary gold that had funded the iron ore and ball-bearing transactions. Eric Erickson, an American-born Swede working for the OSS, penetrated the German synthetic oil industry and, in addition to reporting extensively on the German oil industry, was able to provide information on German gold and currency transactions� perhaps the best example of how it was possible to derive Safehaven material from existing OSS sources of economic and industrial intelligence.
By April 1945 X‑2, using SI sources as well as its own, was able to document German transactions converting 100 million Swedish kroner (about $25 million) in gold and currency into German goods (chiefly chemicals, drugs, and textiles) stored in Swedish warehouses. From at least August 1944, low-grade reporting depicted the German Legation in Stockholm selling diamonds looted from the Dutch State Bank on orders from the German Reichsbank. Additional activity, probably involving individuals and private firms, was documented whereby German gold was either smuggled into Sweden or converted to gasoline or salable goods. This latter activity was discounted� probably correctly� in a postwar message that documented German wartime gold transfers to Sweden with official data from the Swedish Riksbank. More difficult to document was the role of Stockholms Enskilda Bank, owned by the powerful Wallenberg family, which received more than $4.5 million from the Reichsbank between May 1940 and June 1941 and was suspected of having acted as a purchasing agent (through intermediaries) for the German Government in buying up German bonds and securities held in New York.
By the Spring of 1945 OSS collection on the Safehaven project was extensive enough to warrant a more formal treatment in the OSS hierarchy. The March 30, 1945, State Department warning issued to neutral governments prompted a resurgence of effort on the part of the OSS in the collection of Safehaven. A circular memorandum from the Acting Director of Strategic Services, Edward Buxton, called upon OSS to “make a substantial contribution to this program,” albeit with the caveat that “the collection of military, political, and other types of intelligence will continue to be an important function of this agency.” In fulfillment of this goal, Station Chiefs were instructed to report on the status of Safehaven operations in their area. To better direct OSS participation in the program, an Economic Intelligence Collection Unit (Econic) was created in Washington under John A. Mowinckel, reporting directly to the Director’s office. Econic monitored and, on occasion, synthesized Safehaven reporting into detailed reports on specific topics� for example, a massive report at the request of the State Department on the activities of the Swiss firm Johann Wehrli & Co., A.G. (Wehrlibank), a private Swiss banking house with global interests then under investigation by the Justice Department for its role in transferring private German assets overseas.
It is doubtful that this move on the part of OSS Washington had much impact on the Safehaven intelligence effort in the field, which had been up and running by this point for a good three months. Rather, it should be seen as a part of the effort by the Director of Strategic Services, Brigadier General William J. Donovan, to carve out a place for the agency in the postwar world. Two reports were filed in the Director’s office at this time that were relevant to Project Safehaven, both of which were critical (at least by implication) of the State Department’s efforts in this area. One, written by the Research and Analysis Branch (R&A), correctly placed German import and transfer activity in context with the development of the German war economy since 1933, in effect discrediting the whole notion of a concerted program to fund a resurgent Fourth Reich using assets concealed in neutral countries. The other, prepared by X‑2, launched a direct attack on Safehaven. Noting that “there are many problems in the Safehaven program, mainly due to the inexperience and general lack of comprehension on the part of State Department personnel,” the report argued that the project consumed personnel and resources that might better be used elsewhere. The basic flaw in the program was that it failed to distinguish between transactions that were part of “German power politics” and those that occurred in another, albeit related context, e.g., the actions of individuals and individual corporations. Asserting that “the defeat of the Axis will not end the game of power politics between nat
ions,” the report projected that “Safehaven may turn out to be less important than the collection of economic, political, and social intelligence in connection with other problems and other foreign countries. � Safehaven should be the starting point for large-scale and permanent economic intelligence for the protection and promotion of our economic and political interests abroad.”
In the intelligence requirements generated by the Safehaven program, Donovan clearly saw an argument for the existence of a central intelligence organization like the OSS after the end of the war. It was no doubt with this in mind that he passed the reports along to Senator Harley Kilgore, then heading a Senatorial investigation of the elimination of German war resources. Such action could hardly overcome the opposition that had been building to Donovan’s idea of a postwar central intelligence organization since his first proposal in September 1943.
On September 20, 1945, the OSS was abolished by executive order and its component parts absorbed by different various agencies in the Washington bureaucracy. Research and Analysis Branch (R&A) was absorbed by the State Department’s Interim Research and Intelligence Service. SI and X‑2 were moved into the War Department as the Strategic Services Unit (SSU). On January 22, 1946, President Truman created a temporary Central Intelligence Group (CIG) as a body for the coordination of intelligence activities on the national level. Clandestine human source collection remained in the War Department until the creation of the Central Intelligence Agency in 1947.
From the summer of 1945, OSS and SSU collection in support of the Safehaven program took place under the rubric of Project Jetsam. However, with the end of the war in Europe, first the OSS and then the SSU began to shift resources into other areas, especially collection against the Soviet Union. Efforts by the Foreign Economic Administration and State Department representatives in Europe to re-vitalize the Safehaven program ran up against the stone wall of budgetary limitations. On July 20, 1945, SI Paris cabled OSS Washington:
“Original definition of Safe Haven, namely tracking down German capital and assets abroad, has been very substantially broadened by (Klaus) of FEA now in Washington and Fagen of Embassy, they claim under instructions of Washington. They have asked that under Safe Haven we should now gather intelligence on ‘external security’ namely, all German activities abroad, cultural and political as well as economic and financial, in short, the entire non-military SI field of activity....We pointed out that we were presently contracting, not expanding, our activities and that his wishes and the particular targets he was suggesting required substantial additional personnel.”
Noting that “We would be happy to undertake intelligence operation [of this kind] and are physically equipped to do so,” Washington replied that “no funds [are] available,” and recommended that State “officially urge OSS to procure additional funds for such purposes.” No such pressure was forthcoming; to the contrary, although Safehaven remained important, with the end of the war in Europe the role of intelligence reporting in the project began to diminish. That same month, lack of Treasury and State interest prompted the OSS to begin rolling up economic reporting networks in the Iberian Peninsula.