by Adam LeBor
MCKITTRICK REMAINED MAROONED in New York, unable to return to Basel, until Montagu Norman came to the rescue. Meanwhile the BIS president was still a man in demand. Thomas Watson, the president of IBM who had been honored by Hitler, could not attend McKittrick’s dinner at the University Club. Instead, Watson, who was also the president of the International Chamber of Commerce, arranged a luncheon in McKittrick’s honor. Aware that not all of the American public shared the financiers’ enthusiasm for the BIS, McKittrick limited himself to three private formal engagements while in New York. On January 12, 1943, he wrote to Ernst Weber, the president of the Swiss National Bank and chairman of the BIS board, that “it seemed to me best, however, for the BIS not to take part in public or semi-public gatherings.”42
One day, McKittrick paid a call on a diplomat at the British embassy in Washington, DC. He had reassuring news for the BIS president. The Bank of England and the Treasury were “very interested in the BIS,” the British diplomat said. “I’ve got to take this up with London. I’ll be surprised if I can’t get you back.”43 Calls were made, cables were sent, and the wheels of transitional finance started turning. Rafaelle Pilotti, the BIS’s Italian secretary general, told McKittrick to travel to Lisbon and report to the Italian Legation, which would help him get to Rome, and from there he could travel on to Basel. McKittrick eventually received permission to leave the United States and arrived safely in Lisbon. After a stop in Madrid, he flew to Rome.
The United States was at war with Italy, and McKittrick was a citizen of an enemy nation, but none of that mattered. The BIS president still received a regal reception, he recalled. “I was met at the airport as if I was the king of something. Nobody looked at my passport; they just waved their hands at it.” McKittrick was then taken to a comfortable hotel where Pilotti met him. Understandably, the Italian authorities did not want an American banker wandering freely around Rome. Pilotti arrived, to act as McKittrick’s minder. The two men sent out for a sumptuous dinner. “That was the best meal that I ever had in the war, and Italy was really short of food, but good gracious they gave me a wonderful meal,” recalled McKittrick. Soon after, at 11 p.m., McKittrick was put on a train to Switzerland.44
McKittrick finally arrived back in Basel in April 1943. His trip to the United States had produced mixed results. Despite his lobbying and John Foster Dulles’s legal advice, the BIS’s request for exemption was denied. The bank’s funds in the United States remained frozen. But if that battle was lost, a far larger one loomed: for the bank’s very survival. This time Henry Morgenthau, rather than McKittrick, would find himself outgunned.
CHAPTER EIGHT
AN ARRANGEMENT WITH THE ENEMY
“The bearer of this letter, Mr. Thomas McKittrick, President of the Bank of International Settlements, is a close friend of a prominent member of the State Department stationed in Switzerland, Mr. Allen Dulles.”
— OSS laisser-passer for Thomas McKittrick, June 15, 1945, requesting the provision of US Army billet and mess facilities1
There were many in Washington, DC, especially in the Treasury department, who asked why the State Department had renewed McKittrick’s passport and allowed him to return to Basel, when it was clear that the BIS was aiding the Nazi war effort. The answer lay in Bern, at Herrengasse, 23. Here McKittrick’s old friend and protector, Allen Dulles, ran the Swiss branch of the Office of Strategic Services, America’s foreign intelligence service—a complex network of bankers and businessmen, scholars and spies, and refugees and émigrés. Some of Dulles’s assets and agents traded information out of principle, others for money. McKittrick, also known as OSS codename 644, traded information out of loyalty—not to the Allied cause or the national interest of the United States, but to transnational finance, a creed shared by America’s spymaster.
Back channels between the Allies and the Axis powers existed throughout the war in neutral capitals such as Stockholm, Berne, and Lisbon. The BIS was one of them. Its multinational staff and neutral, privileged status made the bank an ideal place for gathering and disseminating intelligence. Switzerland was its natural home. As the cynical wartime saying noted, “For six days a week Switzerland works for Nazi Germany, and on the seventh it prays for an Allied victory.” After his return to Basel in 1943, McKittrick regularly met with Allen Dulles and American ambassador Leland Harrison. The three men, McKittrick recalled, talked more freely “in those meetings than at any other time.” Dulles and Harrison wanted to know everything McKittrick knew, especially about Nazi money channels—which was a lot, McKittrick later recalled,
And I did know, for instance, the way the Germans were obtaining the money with which they maintained their organisation for sabotage, subversion, as well as political and military intelligence, especially in South America. The Allies were very anxious to stop this, but no way was found to do so without risking a loss of good will among the neutral nations which would be too serious to provoke.2
The Portuguese connection was key, McKittrick explained to Dulles and Harrison. The Germans needed a steady supply of Portuguese escudos to pay for vital war materials such as tungsten. The Portuguese escudo was then a hard currency, accepted by the Allies, the Axis powers, and of course, South American countries. Some German companies were still connected to their American partners or parent firms through subsidiaries in South America. The key players were the Bank of Portugal, the Reichsbank, the Swiss National Bank, and the BIS. The Bank of Portugal bought gold bullion from the Reichsbank, which was delivered to the Swiss National Bank and credited to the Bank of Portugal’s account. The Bank of Portugal then credited the requisite amount of escudos to German accounts in Lisbon, allowing German purchases to take place there.
Germany was also shipping gold to the BIS, McKittrick explained,
You see we had a lot of German investments, which were made in ’31 in accordance with the statutes of the bank. We had to help Germany with loans to pay for reparations payments in the first years . . . they had to pay us about a million Swiss francs a month and that is what we lived on. And in order to give us that money they would ship gold to us. Now, we had no vaults. We had no place to handle gold. We had none of the necessary devices to assay gold or weigh gold. They [the SNB] have a scale as big as that chimney breast there, and you can weigh the weight of your signature on a piece of paper. So we had the Bank of Switzerland do all our gold handling and gold storing for us in Switzerland.3
The American government knew this. A source referred to as “A” passed intelligence about BIS gold movements to American officials in Bern. It was sent to the State Department in a cable dated June 23, 1943:
German gold shipments (gold bars) arriving here, which were referred to recently, seem to be for the account of the Bank for International Settlements. The value involved is small, approximately Swiss francs 750,000 at a time. The gold, upon the arrival at the National Bank of Switzerland, Bern, is passed to the credit of the Basel bank.4
The BIS also held gold for the Reichsbank so sometimes, when the interest was due on the bank’s investments, the BIS simply helped itself to the Nazi gold it held to make up the payments, McKittrick explained. At other times, the Germans borrowed BIS gold for their dealings with Swiss banks. This cozy arrangement caused no concern at the BIS, said McKittrick, as “we knew that they’d replace it.” McKittrick’s close relationship with Emil Puhl, the vice president of the Reichsbank, was especially valued by Dulles and the OSS. Puhl, whom McKittrick described as a “friend,” passed on important information about German morale, the country’s economy and political intrigue. OSS telegram 3589-90, sent on May 25, 1944—at a time when thousands of Hungarian Jews were still being deported every day to Auschwitz, where most were immediately murdered—records Puhl’s fears—not that the war was lost, but that the Reichsbank might lose its privileged position during the reconstruction.
Not long ago our 644 [McKittrick] had two lengthy conversations with Puhl of the Reichsbank. The latter was extremely depressed, not so
much by the idea of Nazi defeat, but by the situation, which Germany will have to contend with later. The Reichsbank has been engaged in work on plans for the reconstruction, and evidently they are unable to see where an effective beginning can be made.5
Roger Auboin, the BIS manager, was known as OSS codename 651. Auboin naturally had excellent connections in France. OSS telegram 3401, sent on May 11, 1944, warns that the Nazis planned to plunder what remained of French national assets:
I have been informed by 651 that he is the recipient of secret information from Paris pointing out the danger of an attempt to seize both the French Treasury and Bank of France’s gold and foreign exchange.6
McKittrick also had excellent connections in neutral Sweden. The Stockholm OSS station closely observed Jacob Wallenberg and his brother Marcus, of Enskilda Bank. Jacob, the author of the Swedish-German trading agreement, was the most powerful banker and businessman in Sweden. He had strong links with both the Nazi leadership and the German resistance. His brother Marcus was McKittrick’s mentor at the BIS since the two men worked together on the German Credits Committee during the 1930s, when Wallenberg had taught McKittrick about the intricacies of international finance.
When Marcus fell ill in June 1943, McKittrick wrote an appreciation of the Swedish banker, which was hand delivered by Ivar Rooth, the governor of the Rijksbank. “During the three years I have been in Basel,” wrote McKittrick, “your method of approaching international problems, of which I gained some understanding during our work together in Berlin, has helped me more than I can tell you in dealing with the intricate and delicate questions which have presented themselves to the Bank for International Settlements by reason of changes wrought by the war.” Marcus Wallenberg was his most important teacher, McKittrick concluded. “The thought of following in your footsteps will provide spur to my will and a goal for my ambition.”7
The most important lesson the Wallenbergs could teach McKittrick was how to play both sides at once: ensuring that Sweden remained one of Nazi Germany’s key trading partners while feeding intelligence to the Allies—and thus guaranteeing that regardless of whoever won the war, the Wallenberg banking and business empire would survive and thrive. Jacob Wallenberg managed the bank’s channel to Berlin while Marcus looked after connections with the Allies. As the managing director of the Enskilda Bank, Jacob Wallenberg was the “principal financial figure in Scandinavia” and was “vigorous, shrewd, and cautious,” Abram Hewitt, an OSS agent based in Stockholm, reported.8 Outside the Swedish foreign office, Jacob Wallenberg was the country’s “principal representative” dealing with Nazi Germany. “Wallenberg frequently goes to Germany and most Germans of importance visiting Stockholm are in touch with him.”9
Sometime in 1943, Wallenberg had asked Hewitt if he would like to meet representatives of cells forming in Germany who planned to overthrow Hitler. Nothing came of this as the cells were subsequently “liquidated.” In 1944 Wallenberg claimed to know the names of German generals who were now opposed to Hitler—because of German defeats—and were ready to overthrow him. However, he would share the names only when “in his opinion conditions would justify it.” Wallenberg “probably has better sources of information about Germany and the continent in general than any man in Sweden,” Hewitt continued. However Wallenberg was a “very difficult” man to approach, except by someone whom he had known for a long time. Jacob Wallenberg was still a bachelor at the age of fifty-four, and one possible approach of getting to know him was the time-honored one of the honey trap, preferably on a yacht. “It is important for anyone dealing with Jacob Wallenberg to know that he is very interested in sailing and in attractive women.” Marcus Wallenberg, his young brother, was quickly dismissed, as a “man of less integrity and less weight.”
Meanwhile, in Washington, DC, the Treasury was also closely monitoring the Wallenberg brothers and Enskilda Bank. A Treasury report in December 1944 made numerous accusations of economic collaboration with the Nazis: “Jacob Wallenberg recently indicated that he was willing to sell to the Germans a Swedish plant in Hamburg for gold, provided the price was high enough to compensate for possible future complications from the Allies.”10 Enskilda Bank acted for the German interest in the American branch of the Bosch company and had also worked with the Swiss Bank Corporation to conceal German interests in Schering, a chemical company in New Jersey—which had since been vested by the Alien Property Custodian, the report noted.11
J. Holger Graffman, Wallenberg’s point man for foreign currency deals, was regarded as a high-value asset by the OSS. Graffman, an engineer by training, had worked as Latin American representative of Ivar Kreuger, the Swedish fraudster bankrolled by Lee, Higginson, the former employers of Thomas McKittrick. After Wallenberg had taken control of the remains of Kreuger’s empire, Graffman returned to Sweden and joined Enskilda Bank, working on currency transfers, foreign credit, and blocked accounts. “In my opinion this man is the most useful single contact there is for us in Sweden. He is very pro-American and is married to a Dutch woman whose feelings toward the Germans are what you would expect,” noted Hewitt.
But Graffman was also friends with Felix Kersten, an Estonian-born masseur who now lived in Stockholm. Kersten’s most important client was Heinrich Himmler and he frequently returned to Berlin to treat him. Graffman introduced Hewitt and Kersten over coffee and cakes at his house. Kersten began treating Hewitt for his back problems. But Kersten was much more than a masseur: soon afterward he brokered a meeting between Hewitt and Walter Schellenberg, the Nazi intelligence chief, in Stockholm. Schellenberg and Hewitt met in Kersten’s office in November 1943. Schellenberg hoped to arrange a separate peace with the Western Allies to prevent a Soviet takeover of Eastern Europe. The plans came to nothing.12
The Wallenberg business empire was the most important transnational finance channel between Sweden and Nazi Germany. Not just money but vast amounts of intelligence flowed back and forth between Stockholm and Berlin. Much of the State Department and the OSS—especially Allen Dulles—shared Jacob Wallenberg’s desire to keep links with German industry so that business could resume as swiftly as possible after the end of the war. An OSS psychological warfare operation known as the “Harvard Plan” specifically utilized Thomas McKittrick for this purpose. The Stockholm OSS office published a wartime newsletter for German businessmen filled with snippets of intelligence and news. The purpose of “Information for German Business,” was to suggest that cooperation now would pay handsome dividends after the Allied victory. OSS officials believed that the newsletter was seriously affecting the morale of German businessmen, many of whom were now planning for their future in a post-Nazi Germany.
On February 1, 1945, David Williamson, a senior official in the OSS Morale Operations department, wrote to codename 110—Allen Dulles. Williamson suggested to Dulles that he set up a similar psychological warfare operation in Switzerland, or find another way to use the Harvard Plan material to erode German morale. Williamson enclosed some draft material for Dulles’s perusal. Notably, all the information in the OSS Stockholm newsletter had been passed by the State Department before it was to be distributed. The newsletter included this paragraph:
The direct negotiations, which have been taken up by the business interests on both sides thanks to the mediation of Mr. McKittrick, the American who lives in Basel, have already led to a number of detailed agreements. Thus, we learn that representatives of the German potash industry have contacted and entered into binding agreements with the new and expanded potash industries overseas . . . it is expected that the postwar demand permanently will be materially higher than pre-war consumption. The new agreement will guarantee the German export interests during this second period an export income at least equal to their pre-war revenues regardless of the expected break in the German cartel control.13
Once again, the German chemical industries were key. In 1925 Lee, Higginson, McKittrick’s employers, had been part of a syndicate, including Enskilda Bank, that had issued an £8
million bond on behalf of the German Potash Syndicate. Nineteen years later, McKittrick was still ensuring that supplies of the mineral, vital for agriculture, would continue after the war’s end. A second paragraph, also datelined Basel, outlines how, even as Allied airmen were bombing Germany, McKittrick had already concluded an agreement to “preserve the industrial substance of the Reich.” Anyone who questioned the wisdom of such backdoor accords was merely a “leftist radical”:
Mr. Thomas H. McKittrick, the American president of the BIS, has announced his decision to continue his efforts for a close cooperation between the Allied and German business world, irrespective of the opposition of certain leftist radical groups; in these efforts he counts on the full assistance of the American State Department. “After the war such agreements will be invaluable,” said McKittrick. We learn that certain German interests have received assurances that their negative attitude toward the National-Socialist regime will be fully be considered by the Allied political and economic leadership after the war. Negotiations are under way to bring hostilities to a speedy conclusion and to preserve the industrial substance of the Reich.14