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

by Adam LeBor

  Von Schnitzler used the BIS to send a message to the Allies that the bombing of German industry had to stop, according to Heinz Pol, who was a former associate editor of the Vossische Zeitung, Germany’s paper of record until it was dissolved in 1934. Pol had excellent sources among German émigrés and in neutral countries. He wrote,

  According to information emanating from Lisbon, Schnitzler is said to have drawn up a memorandum, which he has sent to the board of directors of the Bank for International Settlements at Basel, Switzerland. It is not known whether the memorandum arrived in Basel in time for the general meeting, which took place at the beginning of June (the American Mr. McKittrick presiding as usual), but several points raised in the memorandum are known. Schnitzler, the Lisbon sources say, stresses the fact that the term “unconditional surrender” implies that the Germans will still have something to surrender. But if the war of destruction, especially the bombing of the industrial centers in Germany, goes on, then there will be nothing left in the end but ruins and ashes.33

  Schnitzler’s terms were clear, wrote Pol: “Collaboration on condition that German industry survives.” If the bombs stopped falling, the German industrialists would cooperate with the forthcoming occupation. As none of the IG Farben main sites had been much damaged by bombing so far, von Schnitzler’s offer “might not sound too unreasonable to other industrialists on the side of the United Nations.”34

  THE BIS WAS used by Japan as a channel to try and negotiate a peace treaty. Japan was a founding member of the bank and kept its links with Basel during the war. In July 1945 two Japanese bankers, Kojiro Kitamura, a board member of the BIS, and Kan Yoshimura, the head of the BIS’s Exchange Section, asked Per Jacobssen if he would act as an intermediary to arrange a peace accord. The Allies demanded unconditional surrender, but the crucial point for Tokyo, the bankers said, was that Japan would retain the royal family, and ideally, the country’s constitution.35 Jacobssen, naturally, passed the information to his close friend, Allen Dulles, who took the Japanese proposal to Henry Stimson, the secretary for war. They discussed it in Potsdam on July 20, 1945, but events soon overtook the slow pace of the backdoor diplomacy. On August 6 Hiroshima was destroyed by an atomic bomb, followed by a second one in Nagasaki on August 9. Six days later Japan surrendered.

  Jacobssen at least had the excuse that he was a citizen of neutral Sweden to justify his contacts with the Nazi bankers. McKittrick, whose homeland was at war with the Third Reich, did not. Cocooned in Basel, the BIS president seemed to have lost touch with reality, let alone morality. McKittrick had spent the war years in a parallel universe, one in which neutrality meant that the Reichsbank—the financial motor of war, plunder, and genocide—was judged equal to those banks whose assets it had stolen. A place where Puhl, the Reichsbank’s vice president and receiver of stolen goods, was actually helping the victims by keeping their goods in a safe place, and where Puhl—and doubtless Hjalmar Schacht as well—were not the builders and managers of the Nazi economy. Instead they were merely technocratic bankers, who only wanted to “play the game squarely.”

  It is hard to judge which is worse: that McKittrick really believed these arguments, or they were a cynical lawyer’s ploy to ward off difficult consequences. McKittrick was certainly nervous about possible consequences of his entanglements with Nazi bankers, especially with Paul Hechler, the head of the banking department, who continued to sign his correspondence “Heil Hitler” throughout the war. Fate came to McKittrick’s rescue when Hechler died in 1945. His death “raises a serious administration problem while solving a political one,” wrote McKittrick to Roger Auboin.36 But with Allen Dulles covering his back, McKittrick had nothing to worry about. McKittrick traveled to Germany at least twice in 1945 and in September stayed at Allen Dulles’s house in Dahlem, in Berlin. Although McKittrick was still president of the BIS, his laisser-passer was organized by the OSS and numerous senior American officials received him.

  Not everybody shared Dulles’s enthusiasm for the BIS’s president. There was a nasty surprise waiting for McKittrick on his return to Basel. The October 11 edition of the New York Herald Tribune carried a scathing attack on the BIS, and the article was reprinted in the Tribune de Lausanne, a Swiss newspaper. The article reported that the American occupation authorities in Germany were investigating whether the BIS had supported Germany’s gold operations and helped finance Nazi rule in other countries. McKittrick’s activities during the war were criticized. The bank may be called to give evidence on its gold transactions with Germany during WWII, it added. Hypersensitive as ever to press criticism, and doubtless mindful of his need to find a new job in the United States, McKittrick asked Allen Dulles to take action. The source of the leaks, he suspected, was an American official named Fox, whom McKittrick had met in Frankfurt. Fox was a colleague of Harry White. “White and his associates have taken consistently an extremely unfriendly attitude toward the BIS and the attacks on the bank at the Bretton Woods conference originated with White,” complained McKittrick.37

  Despite the bad publicity and attacks on McKittrick, the bankers at Basel got on with what they knew best: keeping the money moving. Quietly, carefully, barely noticed by the outside world, the BIS returned to business as usual. In December 1946 the bank held its first postwar directors’ meeting. Maurice Frere, the governor of the National Bank of Belgium and BIS board member, traveled to Washington, DC, to lobby US policymakers to free the BIS’s blocked assets and to try to defuse the media attacks. He found a sympathetic hearing. The turning point came in May 1948 when the BIS agreed to return 3.74 metric tons of looted gold to Belgium and the Netherlands. In exchange, the Allied Tripartite Commission, which dealt with Nazi plunder, agreed to drop all future claims against the bank. The US Treasury freed all BIS assets. Frere was elected president of the BIS, the bank’s first since Thomas McKittrick’s term had come to an end in June 1946. The Bretton Woods resolution calling for the BIS to be liquidated quietly faded away.

  MEANWHILE, THOMAS MCKITTRICK had a lucrative new job. Soon after he stepped down as BIS president in 1946, he was appointed a vice president of Chase National in New York, in charge of foreign loans. McKittrick was even lauded by those whose stolen goods he had purveyed. He was invited to Brussels and decorated with the royal Order of the Crown of Belgium. The honor, noted a press release, was “in recognition of his friendly attitude to Belgium and his services as President of the Bank for International Settlements during World War II.”

  PART TWO: BUNDESREICH

  CHAPTER NINE

  UNITED STATES TO EUROPE: UNITE, OR ELSE

  Our whole concept of the unification of Europe was that it would first contribute to economic unification. Then we hoped to secure an economic-military unity and finally a political unity.1

  — Averell Harriman, US Special Envoy for the Marshall Plan for the postwar reconstruction of Europe

  Thomas McKittrick opened his hotel door to find fifteen slips of paper on the floor. It was the spring of 1947, and McKittrick, vice president at Chase National Bank, was passing through London. The messages from the switchboard indicated that someone in Washington, DC, was urgently trying to get in touch. McKittrick asked the operator to phone the number, and the call went through soon afterward. A voice said, “Is that you, Tom? This is Averell Harriman. You’re coming to work for me for six months. I talked to Winthrop this morning, and he said you could.”2

  “Winthrop” was Winthrop Aldrich, the chairman of the board of Chase National Bank. Aldrich, who had run the bank since 1934, was one of the best-connected financiers in the United States. His father, Nelson Aldrich, had given his name to the plan, which had eventually resulted in the creation of the Federal Reserve system. Winthrop Aldrich was now an outspoken advocate of economic aid to Western Europe. Aldrich and McKittrick were old friends. In December 1945, at the height of the political attacks against McKittrick and the BIS over their acceptance of Nazi gold, McKittrick had written to Aldrich, complaining about “the people i
n Washington who seem to dislike us so heartily.” McKittrick explained, “The situation will need to be handled skillfully.” And indeed, it was, at least from the point of view of the BIS, which survived, and its former president, who was now working for Aldrich.3 Harriman, the man at the other end of the line, was also a prominent banker and a diplomat who had served as US ambassador to London and Moscow. Harriman was now one of the most powerful men in the world, in charge of the Marshall Plan, the $12 billion American aid program to reconstruct postwar Europe. Harriman asked McKittrick if he could be in Paris to start work on June 2. Yes, gladly, replied McKittrick.

  TWO MILLENNIA AGO, the Roman philosopher Cicero observed, “The sinews of war are infinite money.” An updated version of his epithet would note that “the sinews of war are the transnational flow of infinite money,” which will find its way around any obstacle. When the Allied leaders met at Potsdam in August 1945, they agreed that the German economy would be decentralized and the power of the cartels broken up. But the Nazi industrialists had no fear of such threats—Thomas McKittrick, as the OSS Harvard Plan documents show, had already reassured them that even if decartelization took place, the Allies would still guarantee their profits.

  By the time Harriman summoned McKittrick to Paris, it had long been decided in Washington that the German business elites would not be punished. The Morgenthau Plan, which called for Germany to be stripped of its industrial might and turned into a pastoral state, had been so watered down by General Lucius Clay, the American commander of occupation forces, that it was meaningless. (Clay had set up shop in Frankfurt at the former headquarters of IG Farben, whose buildings had mysteriously escaped Allied bombing.) Washington’s JSC Directive 1779, passed in the summer of 1947, institutionalized this change in policy. German industry would be rebuilt; its steel mills and forges would once again be the powerhouse of Europe.

  What would be the role of the BIS in the German renaissance? After 1945, the bank had no reason to exist. The BIS had been founded to manage German reparations payments, and none had been paid since the early 1930s. The BIS claimed it was needed as a meeting place where central bankers could gather to coordinate monetary policy. But as commercial airlines expanded their networks across the world, the BIS’s lush hospitality could easily be replicated in a hotel or conference room in London, Paris, Wall Street, or anywhere else the bankers wished to gather. The BIS said it was needed to help coordinate the postwar global economy. The new institutions of the IMF and the World Bank had been founded for precisely this reason. Unlike the BIS, the IMF and World Bank were not Nazi collaborators.

  The Basel bankers had also lost their golden touch. For the first time, in 1946, the BIS registered a loss. The founders could not help. Montagu Norman, now in his midseventies, had retired from the Bank of England. Raised to the peerage as Baron Norman of St. Clere, his legacy endured, and he remained influential, but he could no longer move markets with a sentence or two. Nor could Hjalmar Schacht provide assistance to the bank he had once proudly called his own. Schacht had been arrested after the July 1944 plot against Hitler and sent to Dachau concentration camp. He survived and was liberated by the US Army. He was then arrested and put on trial at Nuremberg and charged with organizing Germany for war, which is precisely what he had done. Unbowed by the weight of the proceedings, Shacht and his lawyers were putting up a spirited defense, aided by his sporadic instances of public opposition to the Nazis during the 1930s.

  Yet, ultimately, no matter how tainted its reputation, Norman and Schacht’s creation would prove as durable as they had hoped. Throughout the war, the repeated arguments of BIS officials that the bank must keep working so that it could play a central role in the reconstruction of postwar Europe had found a ready audience among both the Allied and Axis leadership. Bureaucratic inertia also helped the BIS. The general sentiment in both Washington, DC, and London was that the bank could be useful and was too complicated to dismantle. The BIS was “built to last,” argued British Treasury officials. It was both a Swiss corporation and an international organization protected by its own treaty. Britain had just won a war, and there were other priorities for scarce resources. Lord Catto, the new governor of the Bank of England, also came to the BIS’s defense: The IMF was completely new, and who knew how effective it would be? The BIS, in contrast had existed for fifteen years and was staffed by experts. Postwar Europe, like prewar Europe, still needed a place for pan-European meetings of central bankers. Basel remained the ideal venue.

  BUT BEFORE A cent of Marshall aid could be sent to Europe, the plan had to be approved by the US Congress. Harriman set up a bipartisan committee of political, labor, and business leaders to steer the plan through the US government and persuade American public opinion that it was in their best interest to send tax dollars to the war-ravaged continent. The committee’s members included Owen Young, the architect of the last German reparations program, whose own eponymous plan had set up the BIS, and, of course, Allen Dulles, who saw the Marshall Plan as a means of dealing the death blow to the spread of Communism in western Europe. Barely a few months after the war ended, Allen Dulles was already demanding imports of food and raw material to rebuild German industry. He condemned the arrest and detention of one hundred thousand Nazis. “We find ourselves in the concentration camp business on a large scale,” he told the Foreign Policy Association in January 1946, as though the German detainees who were fed, clothed, and received medical treatment from the Allies were about to dispatched to the gas chambers.4

  In July 1947, soon after General Marshall announced his plan, the Conference for European Economic Cooperation (CEEC) met in Paris to work out how it would be implemented. The State Department made it clear to its European allies that American aid would come at a price: financial and economic cooperation between the recipient countries with a view toward eventual European union. The first step was to replace bilateral trade deals and exchange controls with multilateral policies. The following year, the CEEC was institutionalized as the Organization for European Economic Cooperation (OEEC), which still exists today as the Organization for Economic Cooperation and Development (OECD).

  The OEEC’s mandate was, essentially, to ensure that the State Department’s plan for Europe, and, especially Germany, was implemented. It was charged with promoting economic and political cooperation between its members; developing intra-European trade by removing barriers and tariffs and studying the feasibility of customs unions, free trade, and multilateral payments.5 The Marshall Plan was administered by another new agency, the European Cooperation Administration (ECA), which is where Thomas McKittrick worked. McKittrick arrived in Paris for the first ECA meeting on June 2, 1947. Conditions did not meet the standards of the BIS, he recalled. “The American embassy let us have a room and secretary. But the room didn’t have any carpet on the floor and [only] the barest of bare furniture and we sat there.”6 There were twelve people present, and Harriman instructed each as to his responsibilities. McKittrick’s was “Trade and payments.” The dozen officials had no office, no organization, and no support staff. But they did have $5 billion in the bank, which they had to distribute quickly—and McKittrick no longer had to worry about Henry Morgenthau and Harry Dexter White.

  Morgenthau had stepped down as Treasury secretary in 1945 and was now largely retired from public life. He devoted himself to Jewish causes and helping the new state of Israel. White left government and joined the IMF as its first US executive director. He was an idealist as well as a realist. He saw the IMF as a means to promote economic growth through trade and financial stability. White, like the BIS, believed in global financial cooperation as the path to prosperity—but crucially, a cooperation coordinated among governments rather than unelected central bankers and technocrats.

  After 1945 White was subjected to sustained attacks on his patriotism, attacks that James M. Boughton, the IMF’s official historian, has described as ranging from “the questionable to the bizarre.”7 White’s failed attempt to bring
the Soviet Union into the IMF in 1944 (when the country was an ally of the United States) and his meetings with Soviet officials were recast as support for Communism. So was his support for the Morgenthau Plan to de-industrialize Germany. White’s request to the nationalist government in China to account for how it had spent hundreds of millions of dollars in American aid was respun as sympathy for Mao Tse-Tung’s Communist forces. In August 1948, White was called to testify before the House of Representatives Committee on Un-American Activities to be questioned about his relations with the Soviets. Historians continue to investigate these. There is evidence that White passed sensitive information to Moscow. Decrypted Soviet diplomatic cables from the 1940s detail White’s discussions of American foreign policy with a Soviet official. But an authoritative biography of White by Bruce Craig argues that White was regarded by Moscow as a “trusted individual” rather than an active agent.8 Certainly White’s influence on policy making and access to high-level governmental decision making made him a person of great interest to the Soviets. Whether White was an agent or an asset, he was passing sensitive information to a hostile foreign power. Craig argues that White was a Rooseveltian internationalist, who believed in the need for cooperation with the Soviets, rather than a Communist.9 Either way, such views were no longer acceptable in Washington in the late 1940s.