Tower of Basel: The Shadowy History of the Secret Bank that Runs the World

by Adam LeBor

  Everyone was relieved when the BIS returned to Basel in October 1940. There, despite the conflict, the BIS continued to enjoy immense financial as well as legal privileges. It could buy and sell unlimited amounts of Swiss francs. This was the most important currency in wartime Europe, accepted everywhere. The BIS, thanks to its charter, did not have to report foreign exchange transactions. Its exchange rate against the Swiss franc was not subject to the same restrictions as Swiss commercial banks. Until 1942 the BIS could buy and sell gold at better rates than the Swiss National Bank. This bizarre setup, where Allied and Axis bankers worked together so profitably, drew increasingly hostile attention in London and Washington, DC.

  The State Department asked the American embassy in London to investigate the state of the relationship between the British government and the BIS, noting that “many problems” have come up. John Gilbert Winant, the ambassador, met with Sir Otto Niemeyer, the former chairman of the BIS board. Niemeyer was as adamant as ever about the BIS’s immunity. He pointed to article 10 of the BIS’s charter that guaranteed that in the event of war, the property and assets of the bank shall be immune from seizure. Niemeyer had even made arrangements with the British government that BIS communications to London could pass directly through the censor. “It is Niemeyer’s belief,” wrote Winant, “that the British should continue their association, as well as lend the bank their tacit approval, if only for the reason that a useful role in postwar settlements might later have an effect.”16 While the BIS was operating in such a restricted manner, “it was felt that it would be of no use at this time to raise difficult legal questions with respect to the relationship of the various countries overrun by the Germans.” Niemeyer argued that McKittrick should stay in Switzerland as he was “the guardian of the bank against any danger that might occur.”17

  McKittrick was far more than a guardian of the BIS. He repeatedly passed economic and financial intelligence to the Reichsbank leadership. McKittrick was especially close to Emil Puhl, the vice president of the Reichsbank and BIS board member, whom McKittrick described as his “friend.” Puhl, a gold and currency specialist, was a regular visitor to both the BIS at Basel and the Swiss National Bank in Bern. He had close links with the financial wing of the SS that managed its extensive business interests. Puhl, rather than Walther Funk, his nominal superior, was the real boss of the Reichsbank. In autumn 1941 McKittrick gave Puhl a tutorial on the Lend Lease program, under which the United States supplied the Allies with arms, ammunition and other war material. The act, passed in March of that year, effectively marked the end of the United States’ policy of neutrality. McKittrick later recalled the conversation. Puhl asked the BIS president,

  “What does this Lend Lease thing mean? We don’t understand it. Is there anything you’d be willing to tell me about it?” And I [McKittrick] said, “Yes. I’ll give you this. It’s my own idea but there’s no reason I shouldn’t tell it to you. I think that if America is going to be in the war something will happen to get us in. Just the way it did in the first war. And what is happening is that we’re getting our industrial organization into shape for our entry into the war.” I’ve never seen a man’s face drop more than his did. I though he was going to faint or something. He said, “My God. If you’re right, we’ve lost the war.”18

  McKittrick’s prediction proved correct. But America’s entrance into the war in December 1941 caused him further problems. The BIS president was no longer a neutral, but a citizen of a belligerent nation—in daily contact with his German, French, and Italian colleagues. But the advent of hostilities between the United States and Nazi Germany did not change his cordial and productive relationship with the Reichsbank. Puhl wrote of McKittrick in September 1942, “Neither his personality nor his manner of conducting business have been any cause for any criticism whatsoever.”19 Puhl even described the BIS as the “only real foreign branch” of the Reichsbank.20 Some of the BIS dividend payments to its shareholders in Nazi-occupied countries went through the Reichsbank, thus giving Berlin access to the foreign exchange transactions and allowing it to charge a fee for its services. During the war the Reichsbank continued to pay interest on BIS investments in Germany, even though that interest contributed to the bank’s dividends, which were paid to its shareholders, including the Bank of England. Thus, through the BIS, Nazi Germany was contributing to Britain’s wartime economy.

  It was a price worth paying, Puhl believed. For despite Hitler’s bluster and Schacht’s planning, Nazi Germany had not achieved autarky. It needed to buy vast amounts of raw materials to manufacture armaments and to feed, heat, and clothe its population. Swedish steel, Romanian oil, Portuguese tungsten, even South American beef, all had to be purchased and paid for in hard currency. Nazi Germany needed a financial channel to the neutral countries it ran through Basel. Which is the main reason why Nazi Germany did not invade Switzerland or Sweden. These neutral countries were far more use to the Third Reich as monetary hubs on the transnational financial network than as extra swathes of German-controlled territory.21

  When questions were raised at the German Foreign Ministry as to why the Reichsbank remained a member of a bank with an American president, Puhl was the BIS’s most influential advocate. The BIS was one of Germany’s most important external trading partners, he argued. It carried out gold and foreign exchange transactions and gave the Reichsbank a mechanism for buying vital war materials. It was a listening post, providing useful intelligence on enemy financial transactions. The Germans working there, such as Paul Hechler, the assistant general manager, were loyal and efficient. If Germany pulled out and the BIS closed down, it would be an enormous loss to the Nazi war effort. And the BIS needed the Reichsbank—and Puhl—just as much. Per Jacobssen, the BIS’s economic adviser, had lunch with Puhl on December 7, 1942, at Puhl’s office in the Reichsbank. The two men always enjoyed each other’s company. They had a pleasant meal, just a short walk from the bank’s vaults that held the wealth of a looted continent and of its exterminated Jews. Puhl, Jacobssen believed, was the BIS’s most important ally in Nazi Germany. Without his support the bank would collapse. Jacobssen later wrote in his diary, “I know full well to what extent the future of the BIS depends on Puhl’s possibilities of holding the fort in Berlin.”22

  THE WAR WAS not good for the BIS’s balance sheet. By 1943, its business volume fell to less than 5 percent of the average for prewar years. But the BIS had 294 million Swiss gold francs ($96 million) invested in Germany in the form of state bank funds, bills, and bonds. The bank was kept going by the interest payments it received from the Reichsbank, which eventually accounted for 82 percent of its income. At first Germany paid its dues in currency. But after March 1940 it changed to gold, much of it looted. During the war Germany added $603.5 million worth of gold to its reserves, more than 80 percent of which was plundered from the central banks of occupied countries. $88 million-worth was seized from citizens of Germany and Nazi-occupied territories. Around $3 million worth was taken from concentration camp victims, including the macabre category of “dental gold.” This was also credited to an account at the Reichsbank, overseen by Emil Puhl, the confidant of Thomas McKittrick and lunch partner of Per Jacobssen.23

  Thanks to research by Piet Clements, we know that during the war years a total of 21.5 metric tons of gold passed in and out of the Reichsbank gold account at BIS, of which 13.5 metric tons was acquired during the war. Some of the new gold—much of which was looted—was used to pay the interest on the BIS’s loans and investments to Germany. Six metric tons were used to pay the Reichsbank’s debts through the BIS payments system for international railway and postal traffic, which the bank also handled.

  The fate of the Belgian gold reserves is the most extraordinary. At the end of 1939 the National Bank of Belgium sent more than 200 metric tons of its reserves to France for safekeeping. As the Nazis advanced, France transported the Belgian gold and some of its own to the port of Dakar in West Africa. Fearing an Allied raid, the French author
ities then moved the gold inland. After the fall of Paris, Germany ordered the collaborationist French government based in Vichy to send the gold to Marseilles to be taken into the “custody” of the Reichsbank. The gold was then transported by boat, truck, train, and camel train through the Sahara Desert to Algiers. From there it was flown to Marseilles and eventually deposited in the vaults of the Reichsbank.

  In the summer of 1943 Yves Bréart de Boisanger, the governor of the Bank of France, now under Vichy control, traveled to Basel to warn McKittrick about the fate of the Belgian gold, some of which would doubtless end up in Basel. McKittrick dismissed de Boisanger’s concerns. All the gold received at the BIS had been stamped with the proper markings, he said, and was German, not Belgium. Whether or not he believed this, McKittrick understood that if the bank were to stay in business there was probably no other option than to accept the Reichsbank’s gold shipments. But Auboin, the French manager, sided with his compatriot. The BIS should no longer accept German payments in gold, but demand Swiss Francs instead.

  Auboin was right. The Belgian gold had been melted down at the Prussian Mint and stamped with false identifying numbers and dates between 1934 and 1939. About 1.6 metric tons was used by the Reichsbank to meet its BIS interest payments, as well as 2 metric tons of looted Dutch gold.

  However, not all the gold melted down at the Prussian Mint originated in the vaults of national banks. The Nazis set up a network of informers and torturers, called the Devisenschutzkommando (DSK), to track down private gold holdings in occupied territories. The stated purpose of the special unit that was handpicked by SS soldiers was to control currency traffic across the Third Reich. Its actual purpose was “the acquisition of gold by any means, including deceit and brutality,” according to British intelligence records. In Paris alone the DSK employed eighty informers, from the “lowest levels of society to the highest circles.”24 Each received a 10 percent commission, as well as false identity cards and counterfeit American and British currency. Victims were lured with supposed sales of property or land. They were then arrested, beaten, and tortured to reveal how they would pay for such a purchase. The favorite interrogation method of Hugo Doose, who ran the DSK for the Channel Islands, was to break a beer glass over his victim’s head. Ludwig Jaretski, an Austrian living in Paris, “employed burning matches on stripped victims.”25 Some of the BIS gold had an even more grisly origin, which came from the watches, spectacles, jewelry, and gold teeth of concentration camp victims. This was why, after the war, Emil Puhl, vice president of the Reichsbank and BIS director, would be found guilty of war crimes.

  Under McKittrick’s leadership, the BIS also carried out a significant number of gold transactions for other Axis powers. It sold gold for the Bank of France (Vichy) to Portugal for escudos, which France needed to pay for Portuguese imports. It organized three gold shipments from Bern to Bulgaria. It sold almost nine metric tons of gold to Romania, by undercutting the Swiss National Bank. All of these were direct breaches of the policy of neutrality. The BIS also carried out thirteen gold swaps with Turkey—a total of 8.6 metric tons—exchanging gold that Turkey had held at the Swiss National Bank for BIS gold that was held in New York, Paris, and London. Turkey was technically neutral but had strong trade relations with Germany and was the Third Reich’s main supplier of chromium. Nor was the BIS was alone in its acceptance of looted Nazi gold, and the failure of its managers to check the gold’s provenance. Swiss commercial banks and the Swiss National Bank (SNB) also readily accepted looted Nazi gold. The bankers’ policy of “business as usual” with the Nazis was led from the top. Ernst Weber, the chairman of the BIS board from 1942 to 1947, was also the president of the Swiss National Bank. Weber, like McKittrick and Jacobssen, enjoyed cordial relations with Puhl. Even as the Allies fought their way through Nazi-occupied Europe to the Swiss border, Weber and Puhl were still arranging gold shipments. The two bankers had dinner together on December 10, 1944, to discuss their latest arrangement: Switzerland would buy German gold, and in exchange Germany would sell Switzerland coal. The negotiations took place in what Otto Köcher, the head of the German legation in Bern, called the “usual atmosphere of trust.”26

  The cozy relations between the BIS, the SNB and the Third Reich stayed buried until the late 1990s, when the scandal broke that Swiss commercial banks were still holding the assets of Holocaust victims. The BIS and the SNB were soon dragged in. A report commissioned by the Swiss government, published in 1998, said that Swiss National Bank officials followed an “ethic of the least effort” to check the origins of the gold sent to Switzerland, some of which had been looted from Holocaust victims. During the war the SNB bought $280 million of gold from the Nazis. By 1943 the SNB knew about the extermination of European Jewry, but bank officials did not take measures to distinguish looted gold from other Reichsbank holdings.27

  DESPITE MCKITTRICK’S SAFE and privileged existence, he was often lonely. His wife and four daughters were far way in the United States. Travel remained difficult and slow. There were few visitors in Bern, apart from Emil Puhl, and the postal service was erratic. McKittrick kept an account at a bookshop on Charing Cross Road and took refuge in non-bankerly works including, Will Europe Follow Atlantis, which examined the coming cataclysm of European civilization; a work of Sufi devotion called At the Gate of Discipleship; and even The Occult Causes of the Present War. McKittrick went walking in the woods and mountains with Erin Jacobssen, the daughter of the bank’s economic adviser. A keen botanist, McKittrick taught Jacobssen about the region’s rich flora. Other correspondence doubtless cheered the BIS president. Hermann Schmitz, the CEO of IG Farben and BIS board member, for example, sent his sincerest New Year wishes on January 3, 1941. Schmitz wrote, “For their friendly wishes for Christmas and the New Year, and for their good wishes for my 60th birthday, I am sending my sincere thanks. In response, I am sending you my heartfelt wishes for a prosperous year for the Bank for International Settlements.”28 It would certainly be another prosperous year for IG Farben, whose profits were soaring and whose plans were well advanced for the construction of IG Auschwitz, the firm’s own corporate concentration camp.

  Most of the BIS staff stayed, but Charles Kindelberger, an American with a young wife, returned home. His departure left a vacancy. Leon Fraser, now president of the First National Bank of New York, had a suggestion for his old friend McKittrick. In November 1940, Fraser met with a young man named Henry Tasca in Washington, DC. Tasca was working at the National Defense Commission, specializing in foreign trade and Latin America. “He has a pleasing personality, a manifestly keen mind, and is ambitious and hard-working.”29 Tasca could leave for Switzerland on thirty days’ notice. “He makes a much more favorable impression than did Kindelberger, both in appearance and seriousness of purpose.”30 And Tasca, fortunately, had the right answer for the most sensitive question, reported Fraser. Merle Cochran had asked it, “and the reply was that Tasca was not Jewish.”31

  As the war ground on, the Czechoslovak gold affair still haunted the BIS. Once again, there were angry questions in the House of Commons about Britain’s continued membership, the bank’s role, and its connections to Nazi Germany. The government stayed firm in its support. Sir Kingsley Wood, the finance minister, declared in October 1942 that with McKittrick at the helm, there was nothing to worry about. “The conduct and control of the bank have been and are today in the sole hands of the President of the Bank, an American citizen. . . . This gentleman has our complete confidence.”32

  In Washington the Treasury Department was increasingly hostile, especially after the United States entered the war in December 1941. McKittrick’s first term of office ended in December 1942. Many argued that it should not be renewed. Montagu Norman was certainly worried. In June 1942, Norman wrote to McKittrick to assure him of his continuing support. “We certainly hope that means can be found for you to continue your presidency of the Bank, indeed it is not too much to say that we regard it as essential.”33 Perhaps McKittrick could
simply “carry on without any formal steps at all.” Bearing in this mind, it would be helpful for McKittrick to visit the United States. “We would at any rate do our best to make that possible.”34

  Norman and his allies had a plan: to appoint Ernst Weber, the president of the Swiss National Bank and a BIS board member, as chairman, as long as he agreed to re-appoint McKittrick as president. Weber would be a neutral figurehead for the BIS and provide cover for its activities. As Ivar Rooth, the governor of the Swedish Rijksbank, wrote to Norman, it was “important” that the Bank should be safeguarded by “putting in as authoritative position as possible a personage of neutral nationality.”35 Weber’s discretion was guaranteed. In 1940 McKittrick had mentioned the Czechoslovak gold to Weber. The BIS president explained that the conversation went like this: “I asked him not to tell me where the gold would go, and he did not do so.”36 McKittrick was in close contact with Weber, whom he met in Zürich or Bern two or three times a month.

  In Berlin, Joachim von Ribbentrop, the former German foreign minister, did not understand McKittrick’s value to the Third Reich either. McKittrick should resign, he thought, and be replaced by a neutral, or Germany should sever its links with the BIS. Emil Puhl and Paul Hechler swiftly went into action. Both were great admirers of McKittrick, whom they described as “professional and loyal.”37 They told von Ribbentrop that if McKittrick went, Ernst Weber, once appointed chairman of the board, would take control. Even if McKittrick was deposed as president, the United States would still have a representative in the bank’s management. Such a person would undoubtedly disrupt the “until now smooth functioning of the BIS and its use by us for conducting gold and foreign exchange transactions.”38