by Bower, Tom
Helped by sympathetic Swiss lawyers, Mann, nevertheless, had in March 1947 received evidence confirming that Ted Hoch of the Swiss Bank Corporation was a “fence for the systematic falsification of affidavits.” The SBC, confided a Swiss lawyer, was “notorious for such practices.” Swiss lies, Mann told King, “were so convincing.” But pursuit of Hoch, he added, was pointless. Not only had the Swiss refused to reopen their wartime investigation, but Hoch, through an anti-Safehaven diplomat in the American embassy, had obtained a visa and traveled to New York. “Looks like a charade,” King said, laughing. “Do you think the Swiss officials know what’s happening?” King was clearly bewildered by the idea of government-endorsed dishonesty.
Ott did, however, consider the incriminating evidence collated by Mann about the Union Bank’s cloaking of share transactions in the Munich Reinsurance Company. Ott had even wanted to tell Mann that the Compensation Office had completed its own investigation, which incriminated Paul Jaberg, the bank’s president; and Rudolf Ernst, the bank’s honorary president. It would, he told Homberger and Dunant, be “a little dangerous” to conceal the findings of the Compensation Office, since the Americans would eventually discover the truth. Homberger overruled his advice: “There’s no reason to hand over this information.” Dunant of the Bankers Association agreed. Ott, complained Dunant, had portrayed the bankers in a “disadvantageous manner.” Although no one could disagree that the bankers had awkwardly broken the law, the financier conceded, the Americans were using these cases and the accord to further their commercial interests.
While the Swiss wrung their hands, Mann confronted Adolf Jann, the UBS chief with close connections to the insurance companies, about the Munich Reinsurance plot. “Surprised” and “very much embarrassed” by the exposure, Jann gave what Mann considered an odd explanation. The covert transaction, said Jann, had been undertaken only because the German official offering the shares had pleaded that he would be murdered on his return if he failed to accomplish the deal. Jann presented no evidence for that colorful defense and, after receiving the dossier from Mann, Ott did not undertake any further investigation. Ott’s lack of interest was consistent with the Compensation Office’s failure to investigate Crédit Suisse and the Julius Baer banks after Walter Ostrow’s complaints that three U.S. servicemen were selling stolen Dutch securities through the two banks. The cause of the inactivity was not just prejudice. Rather, Compensation Office officials had unearthed much more serious falsification cases relating to the theft of foreign shares. One investigation incriminated both of Petitpierre’s brothers—the banker and the speculator.
The Compensation Office’s investigation of the Petitpierres had been commenced after inquiries by Mann and Ostrow. Although the Americans were dissatisfied by the Compensation Office’s response, by August 1948 the investigators had compiled a damaging expose of corruption, and their report was due to be considered on August 8 by the seven ministers of the Bundesrat, Switzerland’s cabinet. Unusually, an announcement in the Bund newspaper predicted that the council would be making a statement about “a very serious and sensitive affair involving gold, valuables and affidavits.”
The short statement shocked Eberhard Reinhardt, who was the director of Crédit Suisse and an observer at the Washington negotiations. A short, intelligent man with a squeaky voice, Reinhardt, the son of a priest, was very good at seeming reasonable and winning the trust of U.S. diplomats in Bern while actively scheming against the Allies’ interests. Reinhardt knew that besides Alexander Petitpierre, the speculator, senior government officials and businessmen in Geneva, Lausanne and the Valais were also implicated in procuring and selling the false affidavits during and after the war. That morning, Reinhardt’s first call from his holiday home in the mountains was to the minister of defense—a personal friend and one of the seven who would meet later that day. Begging that the affair be handled with utmost discretion, Reinhardt urged his friend to prevent at all costs any sensational disclosures. Publicity about the regrettable affair, he told the minister, would cause “immense” and “irreparable damage” to Switzerland’s banks and the whole country. To foreign countries it would confirm all the accusations of “corruption” directed at Swiss banks in the previous years: “Outsiders will not realize that this is a one-off mistake by individuals who forgot their responsibilities.” Instead of “finding alibis,” Reinhardt went on, “we would all be under constant suspicion, just like over the looted gold.… Everyone will think that the whole of Switzerland is rotten.”
The following day, Reinhardt’s plea was endorsed in a telephone call by Albert Nussbaumer, the trusted director of the Union Bank, to Franz Kappeler at the Compensation Office. The banker, expecting the official to pass his message on to Petitpierre, repeated that the “bankers were very worried by the rumor” of the Bundersrat’s meeting and about a draft communiqué, which named not only the suspects but also the banks involved. Nussbaumer was well informed. The secret communiqué mentioned, among others, Alexander Petitpierre. “Have you considered,” asked Nussbaumer, spelling out the bankers’ fear of the United States, “the effect on Swiss financial interests abroad?” The communiqué should be withheld, he urged, and Petitpierre should agree to meet Bernhard Sarasin, the president of the Bankers Association. Personal discussions with politicians, the bankers reassured themselves, always guaranteed their influence. The lobbying was apparently successful, although the formal decision taken by the seven ministers at the Bundesrat meeting on August 8 was, as usual, never officially disclosed, but it could be inferred from its consequences.
By the time Sarasin met Petitpierre, another Compensation Office investigation had discovered that false affidavits for securities and residence permits had also been traded in the canton of Fribourg. Max Schwab’s advice to Petitpierre was to suppress the new revelation. Two days later, on August 26, Petitpierre rejected the proposal. The Americans, replied the foreign minister, had already been told. That, Petitpierre knew, was untrue, but he had no intention of leaving an incriminating paper trail. Nevertheless, mindful of Reinhardt’s request for secrecy, Petitpierre read with benevolence a submission from the Bankers Association justifying the false affidavits as a legitimate self-defense against the illegal freeze on Swiss assets in the United States. Nothing more, the minister decided, needed to be done. With evident relief, Caflisch and Dunant assured the possessors of the stolen shares that, since the statute of limitations for recovering stolen property had expired, any future attempt to retrieve the looted shares would be hampered by the procedures of the normal civil courts. In the annual report of the Bankers Association, both men naturally concealed the scandal. “Our experience has confirmed,” they informed their members, “our earlier opinion that the existence of stolen share certificates in Switzerland was greatly exaggerated.” Concealing embarrassments was, as the Safehaven team discovered, an effortless chore for Swiss officials.
Nat King quickly grasped, after sitting with Ott and the two other Allied representatives through just two sessions, the institutionalized masquerade of the Compensation Office and of the Joint Commission established under the accord to sell German assets. In strictly legal terms, the Nazis’ victims could rely only upon adoption by the Swiss of “principles of morality and fairness,” and the Swiss showed “no intention of doing much.” The “charade,” King reported to Washington about the Joint Commission, was “entirely unworkable and the quicker it is abolished the better.” The blame for that condition, King believed, lay not only with the Swiss, who regarded the Compensation Office “as only an impotent consultative body and somewhat of a nuisance,” but with the “servile attitude of the French member of the Commission” and the “complacency of the British member.”
The attitudes that infuriated King manifested themselves in the two diplomats’ reports. While the French representative uncritically supported Swiss policy, Hugh Legg, the British representative, had described the Compensation Office to London as “satisfactory” and its rules as suf
ficiently “elastic” for each case and claim to be decided on its merits. For their part, the British had become exasperated by the Americans.
Ever since the Washington Accord was signed, British and U.S. officials had, with disparate enthusiasm, sought to negotiate its implementation. But the mood in Washington had changed, however. Having frozen, confiscated or sold German assets in the United States, officials in the State Department and Treasury cared little about extracting reparations from the German assets in Switzerland. All that remained of interest in Washington was the IG Chemie interests located in the United States, which were worth over $100 million. Washington insisted that IG Chemie was German, but the Swiss government, covertly protecting German interests, claimed that the company was legitimately and entirely owned by Swiss shareholders. In retaliation for the continued American sequestration, the Swiss refused to transfer the promised SF50 million to the refugees or help the Jews to recover either their deposits in Switzerland or the heirless assets. The battle between Washington and Bern had poisoned the implementation of the accord.
One year earlier Villiers had been convinced of the Allies’ strength: “The Swiss are rattled and Stucki knows that he is on the spot.” But now, in 1948, the British official blasted the “American intention … to smash the accord.” The Justice Department’s obsession about IG Farben, he complained, was “the nigger in the woodpile.” That obsession was typical of the “ignorance and crass stupidity which the Americans have always shown in Safehaven matters.”
Petitpierre was content with the “slow tempo of the operation,” and his interest in the accord had “long since dwindled to a quiescent distaste.” His policy was to do practically nothing other than wait for the Allies to come around to Switzerland’s point of view. Deriding the Allies’ request for SF50 million, and irritated that the government should consider honoring the accord, Heinrich Homberger growled, “We mustn’t throw money out of the window.” He added, in reference to the gold payment, “We’ve already given the Allies SF250 million. I wouldn’t like to bet that the accord will be implemented.” Doing nothing also suited the industrialists and the bankers. In the meantime, the bookkeepers in the Compensation Office diligently reduced their estimate of available German assets from SF581 million to SF371 million—a far cry from Washington’s estimate of SF4 billion ($1 billion). “I’m not displeased about these figures,” Dunant had said to Max Ott with measured cynicism. “It just shows the weakness of the old press campaign against Switzerland.” Fear of the crusaders now seemed a dim memory.
On the eve of his resignation from the State Department, Seymour Rubin was sensitive about his original gullibility regarding Swiss promises. Unlike the ever-skeptical Sam Klaus, who was single-handedly fighting the Pentagon to prevent incriminated German scientists, many guilty of war crimes, from settling permanently in the United States, Rubin had trusted some colleagues. Officially, the State Department had accepted that there was nothing in the Washington Accord to help claims by anti-Nazi Germans and the persecutees, but as a parting gesture Rubin persuaded Willard Thorp, the assistant secretary of state for economic affairs, to invite Stucki to Washington and to protest formally to him about Switzerland’s failure to honor its commitments to the Jews.
Among the last crusaders still serving in the government, Rubin had developed close social relations with the Swiss diplomats in Washington but was unable, despite tennis and dinner parties, to gain a closer understanding of their endgame. His Swiss hosts, however, had accurately gauged the declining support for his cause in the department and, in their reports to Bern, had encouraged their government’s instinctive resort to self-interest. Then, on March 24, 1948, Thorp’s invitation to Stucki arrived.
Nineteen days earlier, General Lucius Clay, the American military governor of the United States zone in Germany, had cabled to the Pentagon warning that war with the Soviet Union “may come with dramatic suddenness.” Six days after Thorp’s invitation had been sent to Stucki, the Red Army imposed a blockade around Berlin in a bid to drive the Allies out of Eastern Europe, isolating the western part of the city and heralding the Cold War. Affected by the tension now pervading Washington, Thorp perceived no advantage in continuing to irritate Switzerland and contemplated renegotiating the Washington Accord. But that notion would arouse British anger. The State Department, complained the Foreign Office, is “wasting time [and will] only [make] the Allies look ridiculous [by] virtually repudiating their signature.… We have too often in the past given way to the State Department against our better judgment.”
Thwarted by London, Thorp adhered to the agreed-on script when Stucki arrived. “We’re worried about the lack of progress,” said Thorp.
“We refuse to allow history to brand us as thieves,” replied Stucki brazenly. “The Germans must receive fair compensation for their property.” The issue, he said, was the rate of exchange between the Swiss franc and the German mark.
“Is that the only problem?” asked Rubin, exhausted by the Himalayan proportions of the disagreement.
“Yes,” replied Stucki. “We are interested in a speedy solution. After all, we will receive 50 percent of the proceeds.” The Swiss was unmoved by the news that, to prevent the sale of Jewish assets in Switzerland, Congress had passed a law preventing the government from accepting as reparations any property in Switzerland belonging to persecutees. That, he said smoothly, smacked of interference in Switzerland’s sovereignty.
Depressed, Rubin cast a glance at Thorp. There was not a hint of emotion. Shortly afterward, Rubin resigned from the department to join a private law firm.
Stucki meanwhile returned to Bern to reassure his colleagues that Thorp was markedly different from the crusaders. He was a man who sympathized with the Swiss.
Stucki’s self-congratulation was brief. Over the previous year, Swiss stubbornness had split the Allies, but new evidence of Bern’s duplicity, compiled as officials from the three Allied countries planned a new approach to finalize the accord settlement, quickly healed their disagreement. Switzerland, the officials realized, was making fools of the Allies.
Unraveling Switzerland’s relationship with Germany had exposed the fact that Swiss wartime collaboration had been more profitable than previously imagined. Switzerland’s claims that it had imported from Germany more than it had exported to Germany had camouflaged the truth. Careful examination of slick accounting had shown that Switzerland had earned extra profits by accepting looted gold to pay for financial services and for Swiss francs used in payment of imports from other countries. Clever accounting had also disguised Switzerland’s imports of German coal as repayment of Germany’s prewar debts. Switzerland was now demanding, in addition to those wartime profits, 50 percent of German property in Switzerland—which it still refused to seize and sell—to repay the SF1 billion in Swiss loans that had helped the Germans wage ware against the Allies. Considering Europe’s continuing dire economic plight—widespread war damage, industrial dislocation and chronic shortage of fuel, food and medicines—Switzerland’s contribution to the continent’s recovery rested immobile at zero.
On May 5, 1948, the Allies protested to Bern about the “untenable position.” The German assets in Switzerland, they complained, “make no contribution whatsoever to the common effort” of rebuilding Europe. Considering that the “urgency of the circumstances cannot be exaggerated,” the Swiss were asked for an immediate SF100 million for the Allies and SF20 million for the refugees and a promise of negotiations to settle the implementation of the accord.
Alfred Escher, the Swiss chargé d’affaires in London, was summoned to the Foreign Office to explain Switzerland’s stubbornness. By then, Britain’s economy had seriously deteriorated—devaluation of sterling was for the first time being discussed—and the government’s enthusiasm for a share of German property in Switzerland had grown after it had been calculated that, while the United States could expect 15 percent and France 20 percent, Britain would obtain over 40 percent of the proceeds. Br
itain’s predicament did nothing to change Escher’s cheerful attitude or his lack of contrition. Justifying Swiss obduracy, he recited a list of reasons why Switzerland could not comply with the accord—the Allies’ slowness in replying to Swiss notes, the failure to agree on a rate of exchange, the status of the Swiss as trustees for German assets, and the claim that Switzerland had signed the accord “under duress.” Escher added that the Allies’ criticism of Switzerland was “unhelpful.” Having completed his long condemnation, the diplomat departed. “As monstrous a piece of hypocrisy as we have come across,” exclaimed the Foreign Office official subjected to Escher’s reprimand.
The Allies’ attempt to extract some money from the German property would end disastrously. Neal Goodchild had predicted that the Swiss had become “fed up with waiting and we will lose all advantage from the conciliatory attitude they have shown over the past three months.” In the event, Stucki, the bulldozer, had scattered the Allies during the discussions. “He was as tricky, pompous and difficult as ever,” Goodchild groaned, “and made himself thoroughly unpopular, particularly with the Swiss delegation.” Condemning Swiss behavior as “abominable,” Gerry Villiers had resigned himself to perpetual defeat: “It would not advance matters one whit to make a protest at Berne … but it would be no small satisfaction to tell the Swiss in blunt language what we think of them.”
In Bern, Petitpierre and von Steiger gladly accepted their lawyers’ advice that the government could continue to ignore the commitments signed in Washington. The Allies’ renewed interest was clearly motivated by Switzerland’s enemies. “I’ve no doubt,” said Stucki, identifying the culprits, “that the Allies’ initiative wasn’t their own idea. The string goes back to the Committee Against the Third World War. That means, the strings go back to Jewish groups.”