Hell's Cartel

by Diarmuid Jeffreys

  The IG’s troubles with Sterling paled next to its other foreign problems. The Nazis had also been delving into the cartel’s agreements with Standard Oil and now were putting pressure on the IG to bring them to an end. Pharmaceuticals were one thing but synthetic oil and rubber were strategically important commodities and controlling them was a matter of vital national interest. If information and money connected with these programs had been flowing overseas, it would have to stop—immediately.

  But of course, like so many of the regime’s other rulings, this one was far from absolute. It soon became apparent that the Nazis were more than happy to allow the IG to extract advantages from its special relationship with Standard, providing they were of benefit to Germany. The IG’s acquisition of substantial stocks of tetraethyl lead from a Standard subsidiary in 1938 was a case in point. Tetraethyl lead was an important element in the manufacture of high-octane gasoline. When added to the benzin that the IG produced at Leuna, it significantly increased the fuel’s performance to a level that was suitable for use as an airplane propellant—clearly a matter of great interest to the Luftwaffe. The Ethyl Gasoline Corporation, a jointly owned subsidiary of Standard Oil and General Motors, had developed the additive in America during the late 1920s and had since become its principal producer. As Nazi rearmament began to gather pace, government officials decided that Germany should also have the capacity to make it. Having just signed the Benzinvertrag with the IG, they asked the concern to obtain the relevant licenses.

  The IG approached Standard Oil, its partner in hydrogenation projects, and Standard approached its subsidiary with a proposal that the IG and Ethyl Gasoline form a joint company to build and operate tetraethyl lead plants in Germany. The board of Ethyl Gasoline was keen to go ahead, despite the objections of DuPont, which protested vigorously that any such transfer of technology might have military consequences. On December 15, 1934, for example, a DuPont official wrote to E. W. Webb, the president of Ethyl Gasoline: “It has been claimed that Germany is secretly rearming. Ethyl lead would doubtless be a valuable aid to military aeroplanes.… Under no condition should you or the board of Directors of the Ethyl Corporation disclose any secrets of ‘know-how’ in connection with the manufacture of tetraethyl lead in Germany.” Nevertheless, Ethyl Gasoline eventually managed to obtain the necessary permissions from the U.S. government.

  All this took time: to the German government’s frustration, the IG didn’t begin constructing its first tetraethyl lead plant, at Gapel, near Berlin, until early 1936 and the first modest quantities of the additive didn’t come off the production line until 1938. The Air Ministry was keenly aware that the international situation was rapidly deteriorating and that a crisis might come sooner than anticipated. Desperate that the Luftwaffe’s planes should be in a position to sustain a long campaign if necessary, the ministry asked the IG, through Carl Krauch, to obtain tetraethyl lead from its overseas contacts.

  The IG knew that both the timing and the scope of the request made this mission especially delicate. One year earlier Krauch, Hermann Schmitz, and August von Knieriem, the IG’s chief attorney, had met Standard Oil officials in London to negotiate the purchase of $20 million worth of ordinary aviation fuel.* Quite what the Americans had made of the deal is hard to say but they must have appreciated that the fuel was destined for the Luftwaffe and not the IG. As von Knieriem acknowledged later, “It is quite unusual for IG to purchase oil in the amount of 20 million dollars. Our business is to make oil by the hydrogenation process and not to purchase gasoline.” On that occasion, the Standard executives approved the sale without question, but the IG knew that rumors about the deal must have spread. If the IG now went looking for tetraethyl lead, particularly at a time of growing international tension, no one was going to be deceived about its likely destination. Nevertheless, Krauch, Schmitz, and von Knieriem set off for London once more and this time met executives of the Ethyl Export Corporation, another Standard Oil affiliate, to ask if they could “borrow” five hundred tons of the all-important additive. Once again they were particularly careful not to mention any Luftwaffe connection, but five hundred tons was a huge amount and the men on the American side of the table could not have been in any doubt about what it was for. Still, Ethyl Export agreed to go ahead with the “loan,” and on July 8, 1938, Krauch was able to tell the Air Ministry that the tetraethyl lead was about to be shipped.

  In all likelihood the Standard executives looked the other way because their company was then desperately trying to persuade the IG to live up to its side of their agreements on synthetic fuel and rubber, which obliged the two companies to exchange scientific and technical information. However, the high premium the Nazis placed on protecting trade secrets was proving a formidable barrier to this exchange. In March 1937 the IG’s Berlin office issued a memorandum reminding all staff of the strict punishments (including the death penalty) that awaited anyone who leaked details of scientific or technical work being carried out for the state. Then, on July 14, the German authorities, worried that that the Americans might catch on to the true extent of their rearmament program, ordered the IG to be as disingenuous as possible with Standard: “IG Farbenindustrie is permitted to inform its partners in the agreements, in a cautious way, shortly before the start of large-scale production, that it intends to begin production of isooctane and ethylene lubricant. The impression is to be conveyed, however, that this is a matter of large-scale experiments. Under no circumstances may statements on capacity be made.”

  Synthetic rubber was even more problematic. Under the terms of the Jasco (Joint American Study Company) agreement that Carl Bosch, Carl Krauch, and Fritz ter Meer had negotiated on the IG’s behalf in 1930, Standard was committed to handing over the patents and expertise connected with any new advances its scientists made in the synthetic rubber field. There was no reciprocal requirement for the IG to share knowledge on the buna process—its own version of the technology—merely an understanding that the two companies might jointly exploit any discoveries should they ever move from the drawing board to the manufacturing stage. The deal had suited the oil giant at the time because its attention had been focused on the apparently greater prize of securing the IG’s synthetic fuel technology, and buna had seemed a long way off. Now, though, IG buna was a commercial reality. In defiance of initial expectations the product was beginning to sell well in Germany and had already begun to appear in other markets. Understandably enough, Standard wanted to exploit buna in the United States, either on its own or by selling licenses to local tire manufacturers, and turned to the IG to get the technology and the necessary patents. But the combine seemed strangely reluctant to cooperate.

  Standard’s disquiet was compounded by the fact that its experts had meanwhile discovered another synthetic rubber process. Although it was still at the early development stage, the procedure—for a product called butyl—looked very promising. Because the IG held exclusive rights in the field, however, Standard was legally obliged to hand the technology over to the cartel. Unless the IG let the oil company share in its buna success, Standard faced being cut out of the synthetic rubber business altogether. There was a broader political anxiety, too. Standard’s executives knew that war in Europe was becoming more likely. In that event the oil company’s agreements with the IG would inevitably be scrutinized by the U.S. government, and lurking in the back of their minds was the uncomfortable thought that Standard might one day be accused of having given the Germans a strategic advantage. It was imperative, therefore, that the balance be restored in its favor.

  * * *

  GERMANY’S FOREIGN POLICY had become steadily more aggressive since Britain and France had failed to resist the reoccupation of the Rhineland. At a top-secret meeting on November 5, 1937, Hitler discussed some of the reasons for this increased belligerence with five key individuals: Field Marshal Werner von Blomberg, minister of war and commander in chief of the armed forces; Colonel General Baron Werner von Fritsch, commander in chief of the army;
Colonel General Hermann Göring, commander in chief of the air force and president of the Reichstag; Admiral Erich Raeder, commander in chief of the navy; and Baron Konstanin von Neurath, Germany’s foreign minister. Hitler’s military adjutant, Colonel Friedrich Hossbach, attended to take notes and later produced a famous account, the “Hossbach Memorandum,” which remained secret until after the war. Hitler began by telling the assembled group that what he had to say was the fruit of “thorough deliberation and the experiences of four and a half years of power.” Over the next four hours, he then explained his ambitions for the years ahead: the rights of Germany to more living space, his plans for military conquest to acquire it, the likely response of Britain and France, the need to strike no later than 1943—although the opportunity might arise sooner—and much more. Crucially, the Führer left no one in any doubt that he intended, sooner rather than later, to add Austria and Czechoslovakia to the Reich. On March 11, 1938, Hitler achieved the first of these objectives, when he sent troops into Austria to effect the Anschluss (union) of Austria with Germany. As expected, Britain and France protested vociferously but took no action. Nevertheless, with German ambitions in Czechoslovakia becoming more apparent by the day, the political temperature was rising rapidly.

  Standard, increasingly anxious at the turn of events, immediately redoubled its efforts to wrest the buna rights from the IG. Three days after the annexation of Austria, Frank Howard, Standard’s head of development, met Fritz ter Meer in Berlin to ask for the licenses. The IG man promised to do all he could but explained that in the current climate the government would have to give permission. He hinted that the Nazis would be more likely to agree if Standard handed over the butyl processes first. Howard felt he was in no real position to argue. He knew the pressure the IG was under and believed that ter Meer was genuinely trying to help. In any case, what did Standard really have to lose? Buna was a going concern, whereas butyl was still at the development stage. He agreed to pass on the information and returned to New Jersey to await developments.

  He would come to regret his naïveté. If anyone had a motive to guard the IG’s buna secrets it was Fritz ter Meer. The head of Sparte II had been a proselytizer for synthetic rubber since the formation of the combine in 1926 and had maintained his faith through the years of economic uncertainty that followed. When his peers had lost interest in the project, he had somehow found the money to keep it going, even sending his protégé Otto Ambros on an expensive fact-finding trip to the natural rubber plantations of Java and Sumatra. In 1931 the Depression had forced ter Meer to cut spending on buna development, but from the moment the Nazis expressed an interest in supporting the technology he had worked tirelessly to get it up and running. His dream was to make buna manufacture so efficient and cost-effective that it could compete with the natural product even without government subventions. But until that day the IG would have to rely on military subsidies, which meant that good relations with the authorities were imperative. Sharing buna with the Americans would perhaps have been acceptable in less turbulent times, provided the IG had established an unassailable commercial lead; doing so now would risk alienating the Nazi regime. And that simply couldn’t be allowed to happen.

  A few days after his meeting with Howard, Fritz ter Meer sat down with Colonel Löb of the Four-Year Plan and two other procurement officials. There was only one question on the agenda, how “to halt the development of a synthetic rubber capacity in the U.S.A.” Ter Meer, recounting his conversation with Howard, explained that there was no doubt that the United States would get the technology sooner or later because the science behind it was not that complicated. Nevertheless, that moment could be delayed, he felt, by letting the Americans believe that the IG was just about to hand over the buna processes. The stalling couldn’t go on forever, of course: “We are under the impression that one cannot stem things in the United States for much longer without … the risk of being faced all of a sudden with an unpleasant situation.” But if Standard could be left dangling for a while, Germany could gain valuable time. With Colonel Löb’s backing, ter Meer therefore wrote to Howard on April 9, explaining that he had “taken up negotiations with the competent authorities in order to obtain the necessary freedom of action in the United States with regard to rubberlike products. As anticipated, these negotiations have proved to be rather difficult and the respective discussions are expected to take several months.… I will not fail to inform you of the result in due course.”

  Ten days later Howard replied. He understood ter Meer’s problems and wished him well in his negotiations, but in the meantime could the IG let Standard approach rubber producers and tire manufacturers and begin discussing how they might be organized into a consortium for exploiting the buna technology? A slight delay was probably acceptable but the matter really needed to be resolved in the next few months. What Howard didn’t say was that Standard was coming under pressure from those same tire manufacturers and that it was hard-pressed to stop them from going off and developing synthetic rubber on their own. That very day he had had to write to Fred Bedford, a producer of rubber products, to explain why it was necessary to wait for the IG’s permission: “We know some of the difficulties they have, both from business complications … and from a national standpoint in Germany, but we do not know the whole situation and since under the agreement they have full control over the exploitation of this process, the only thing we can do is continue to press for authority, but in the meantime loyally preserve the restrictions they have placed on us.”

  The exchange of letters between Standard and the IG continued in much the same vein for another six months, at the end of which Howard made another fruitless trip to Berlin to try to persuade ter Meer to relinquish the buna rights. The Sparte boss’s excuse this time was that Germany’s annexation of the Sudetenland in Czechoslovakia (which took place on October 1) had thrown up some unexpected problems, but he promised to visit the United States soon to sort the whole thing out. He arrived in New York at the end of November 1938 and, after an inconclusive meeting with Standard’s board, spent a couple of weeks touring tire factories, reassuring the manufacturers that negotiations between the IG and the oil giant were in their final stages and would soon be resolved to everyone’s satisfaction. Then he abruptly returned home—with the matter still up in the air. As the political situation in Europe became more difficult by the day, Howard and his colleagues got the uneasy feeling that their relationship with IG Farben was running into the sand.

  * * *

  TER MEER WAS RIGHT about one thing: Germany’s annexation of the Sudetenland had given rise to problems, though they were perhaps not as much of a surprise as he made out. While it is unlikely that the IG had any official advance warning of Hitler’s plans for the Sudetenland, or indeed of the Anschluss with Austria that had taken place six months earlier, its executives undoubtedly had some intimation of the move. By the spring of 1938, when the general thrust of the Führer’s expansionist ambitions became plain to anyone in Europe who could read a newspaper, the IG had been working on mobilization contracts for almost two years; developing and producing thousands of tons of materials, from explosives and poison gases to synthetic aviation fuel and military tires, all of which manifestly contributed to the aggressive capacity of Germany’s armed forces. Many of the IG’s leading figures had been in regular contact with senior members of the Nazi hierarchy: Carl Krauch was about to be made Hermann Göring’s special plenipotentiary for chemical production; Georg von Schnitzler, the chief of the IG’s Commercial Committee, was regularly wining and dining Nazi officials in Berlin. As war had been a theoretical possibility ever since Germany had reclaimed the Rhineland, it is hard to imagine that the IG bosses didn’t speak to their associates in government to try to get an inside edge on exactly how, when, and where the Führer was likely to make his next move. Indeed, given that the combine had long since become the regime’s leading financial backer, pouring millions of marks into Nazi coffers, they may even have told them
selves that their duty to shareholders demanded the acquisition of such intelligence.

  Something must surely have been conveyed, because by 1938 the IG was remarkably well prepared for the dramatic events that were about to unfold.* Sometime prior to the Anschluss, for example, the cartel suddenly reaffirmed its interest in acquiring Austria’s leading chemical and explosives firm, Skodawerke Wetzler AG, whose parent company, the Creditanstalt, was owned by the Rothschild banking family. The IG had actually considered taking a minority stake in Skodawerke as early as 1927, but because it already controlled Austria’s next two largest chemical producers, Carbidwerke Deutsch-Matrei AG and the Dynamit Nobel AG, it decided to negotiate joint marketing agreements instead. As the IG was only concerned with ensuring that Skodawerke was kept out of its markets in Western Europe, a limited arrangement was deemed sufficient.

  In late 1937, however, the combine took the unusual step of sending Paul Haefliger to Vienna to put pressure on Skodawerke’s owners to sell their majority stake. This new move was almost certainly a defensive gambit motivated by fears, or well-informed gossip, that some sort of union with Austria was in the offing. The IG must have known that once Austria was part of a Greater Germany there was a strong chance that an independent Skodawerke (providing it had been thoroughly Aryanized) would be eligible to begin competing for the Reich’s Four-Year Plan chemical contracts. The concern had come to regard these contracts as its own and saw it had no option but to try to protect them. Frustratingly, the Rothschilds, possibly confident of Austria’s continued independence, refused to sell. Nevertheless, they did agree to consider a compromise proposal for a joint venture.

  But before this deal could come into effect the Anschluss changed the situation. Within a few days of Nazi troops crossing the border on March 11 and with a suspicious degree of efficiency, Max Ilgner’s office produced a lengthy document for government officials entitled “A New Order for the Greater Chemical Industries of Austria” and suggested to all and sundry (including Wilhelm Keppler, Hitler’s personal economic envoy to Germany’s newly acquired territory) that allowing the IG to take over Skodawerke in its entirety would speed up the Aryanization of Austrian industry. The Rothschilds were Jewish, Creditanstalt’s chief executive, Josef Joham, was Jewish, and Skodawerke’s general manager, Isador Pollack, was Jewish. Someone would have to take over from them and who better than the company that had maintained an interest in Skodawerke over many years and had proved so reliable an ally back in Germany?