The size of the gold and securities transfers declined after the first two trips. The war in the Atlantic continued, but the bulk of the London gold was now safely in Canada. The final transfer of a British navy ship took place in April 1941 aboard the HMS Resolution and carried only £3 million in bullion. The last one, on the merchant ship Ida Bakke, brought just £1.25 million.
While most of the gold went from London to Halifax, the British also sent significant amounts across the Pacific Ocean to the U.S. and Canada. Between November 1939 and April 1940, forty-eight shipments traveled from Cape Town to Sydney and then on to Canada. There were also deliveries from Bombay and Hong Kong to Honolulu and San Francisco. Those totaled more than £100 million.35
On June 30, 1940, Sir Frederick Phillips was able to report to his bosses that outside of gold held by individuals only £280 million remained in Britain, and there was a decline of £125 million in just the two previous weeks. Of that, the Bank of England owned only £20 million. The rest was the property of the central banks of Argentina, Belgium, Czechoslovakia, France, Holland, Norway, Poland, Switzerland, and Yugoslavia. Phillips added that the next week two convoys involving battleships and ocean liners would carry £132 million. The rest should be leaving in July, so the great British evacuation was just about over.36
Only a week after the Nazis invaded Poland in 1939, President Franklin Roosevelt sent a letter to Winston Churchill, who was then First Lord of the Admiralty. The two men had met during World War I, or at least the president thought they did. He said they met in London during World War I, when Churchill was First Lord of the Admiralty and Roosevelt was Assistant Secretary of the Navy. Roosevelt remembered the occasion, but Churchill did not. The First Lord quickly responded to the White House message, signing his answer with the code name: “Naval Person.” Their exchanges continued throughout the war, totaling more than two thousand messages. After Churchill moved to 10 Downing Street to be prime minister, he sent the president a special message, asking if the cable traffic could continue. Churchill that night signed off as “Former Naval Person.”37
A year into the war, the prime minister was anxious to stop paying for American military equipment with cash on the barrelhead because he knew his country would soon run through all the gold that was now on the western side of the Atlantic. At the end of 1940, Roosevelt suggested that the U.S. send navy ships to South Africa to pick up British gold as payment for some destroyers. Churchill politely, but firmly, rejected the idea. He wrote that loading gold in Cape Town “will disturb public opinion here and throughout the Dominions and encourage the enemy, who will proclaim that you are sending for our last reserves.” Later, though, Britain did ship gold from South Africa to Washington.38
Despite Britain’s success in getting its gold to North America, the country still faced a desperate financial situation. On August 21, Chancellor of the Exchequer Sir Kingsley Wood sent the war cabinet a brutally candid report entitled “Gold and Exchange Resources.” It was marked “TO BE KEPT UNDER LOCK AND KEY.” It opened with the blunt statement, “I am seriously perturbed by the rate at which our gold and exchange resources are now disappearing.”39
Wood discussed the issue the following day at a noon cabinet meeting. He showed that between January 1, 1940 and mid-August 1940, the country’s total assets had fallen from £775 million to £490 million, with gold and dollar holdings dropping from £525 million to £290 million. Looking forward to the period from July 1940 to June 1941, he predicted, “We could lose some £800 million of gold and foreign exchange as compared with the previous estimate of £410 million.” He then glumly concluded, “If we continue to lose gold at the rate we have experienced in the last six weeks, we should have none left by the end of December.” Wood once again brought up the possibility of requisitioning British wedding rings and other gold jewelry, but dismissed the idea himself saying that it “would not produce more than £20 million.”40
Germany’s London blitz commenced on September 7, 1940, and the American public began to realize fully what was happening to beleaguered Britain. Edward R. Murrow, a radio reporter for the CBS network, brought the horror of the attacks into America’s living rooms. The America First Committee, whose most prominent member was Charles Lindberg, still opposed getting into the war, but a counter-organization called The Committee to Defend America by Aiding the Allies was beginning to build a following.
Churchill on the afternoon of May 15 sent Roosevelt his first message in his capacity as prime minister. He bluntly wrote, “We shall go on paying dollars for as long as we can, but I should like to feel reasonably sure that when we can no more, you will give us the stuff all the same.” Both leaders knew that nothing could happen until the U.S. got through the quadrennial national circus known as the presidential election. Roosevelt was running for an unprecedented third term.41
Behind the scenes in Washington, administration policy makers were busy looking for new ways to help Britain, even though they could not talk about it in public because of the upcoming election. Treasury Secretary Henry Morgenthau took the lead. In June, he asked the British to send a team of top officials to discuss both the country’s financial needs and its finances. London sent Sir Frederick Phillips. During the candid talks, he admitted that at the current rate of war spending, Britain by June 1941 would need “massive assistance.”
Lord Lothian, the British ambassador to Washington, tipped off the American public to a change in British policy shortly after Roosevelt’s election victory in November. It came in the form of a well-planned quip to reporters. The diplomat had been in London working on a strategy for how to deal with the Americans after the election. Nazi bombings were raining down on the British capital day and night. During a long flight back to the U.S. aboard a Pan Am Clipper, Lothian pondered what he would say to the reporters he knew would greet him when he landed at New York’s LaGuardia Airport. He finally decided to let it all hang out. After disembarking on November 25, he flippantly told them: “Well, boys, Britain’s broke. It’s your money we want.”42
Roosevelt was furious and let the British embassy know it. The ambassador’s aides admonished him for the undiplomatic comment, but he replied, “I know I shall get my head washed in London and in Washington, but it’s the truth, and they might as well know it.” One of his deputies later wrote, “Never was an indiscretion more calculated.”43
At that time, Britain had already spent nearly $5 billion to buy U.S. weapons. The country didn’t have much left in the kitty, and that could not be disposed of quickly or easily. As Churchill explained in his memoirs, “Up to November we had paid for everything we had received. We had already sold $335 million worth of American shares requisitioned for sterling from private owners in Britain. We have paid out over 4,500 million dollars in cash. We had only 2,000 million left, the greater part in investment, many of which were not readily marketable. It was plain that we could not go on any longer in this way. Even if we divested ourselves of all our gold and foreign assets, we could not pay for half we had ordered, and the extension of the war made it necessary for us to have ten times as much.”44
After his long and tiring presidential campaign, Roosevelt on December 3, left on a long trip to the Caribbean aboard the USS Tuscaloosa with Harry Hopkins, his global troubleshooter. Hopkins was so close to the president that he actually lived in the White House. Before joining the New Deal, he was a social welfare worker in New York City. His first job for Roosevelt was fighting unemployment, but gradually he drifted to foreign affairs. FDR ran the big foreign policy issues out of the White House, calling on his special aide Harry Hopkins and to a lesser degree Sumner Welles, Undersecretary of State to handle the crucial problems. Hopkins was very sickly, having had an operation for cancer of the stomach in 1937, and also suffered from malnutrition. He spent a lot of time in and out of the hospital.
While relaxing on the cruise, the two men discussed the European war. The president on December 9 received by navy seaplane a four-thousand-wo
rd memo from Winston Churchill that was perhaps their most momentous correspondence of the whole war. As a consummate political tactician, the prime minister had timed it to arrive shortly after the election.
No British document during the war was more carefully crafted than Churchill’s four-thousand-word plea for financial help. The prime minister had supreme confidence in his own eloquence, but this time he was open to editing. The first draft, for example, raised the possibility that Britain might invade the Irish Republic to occupy its ports in order to wage the Atlantic war. Ambassador Lothian warned him that even such a suggestion would outrage the large Irish-American community and hurt Britain’s cause. That paragraph was dropped. Another sentence said, “I should not myself be willing even in the height of this struggle to divest Great Britain of every conceivable saleable asset.” Upon second thought, Churchill realized that Britain had to be willing to put everything on the line. That also fell by the wayside.
In the final draft, Churchill confidently wrote: “The danger of Great Britain being destroyed by a swift overwhelming blow has for the time being very greatly receded.” He did not ask for the U.S. to send troops to Europe, writing, “Shipping, not men, is the limiting factor.” Accompanying the memo was a statistical supplement that spelled out in detail the British naval losses from June 2, 1940 to November 24, 1940. It was a bleak picture: Britain had lost 372 ships.
In point seventeen of the nineteen-point document, Churchill wrote, “Last of all I come to the question of finance. The moment approaches when we shall no longer be able to pay cash for shipping and other supplies.” The key words were underlined.
Churchill then made his pitch: “If, as I believe, you are convinced, Mr. President, that the defeat of the Nazi and Fascist tyranny is a matter of high consequence to the people of the United States and to the Western Hemisphere, you will regard this letter not as an appeal for aid, but as a statement of the minimum action necessary to the achievement of our common purpose.”45
Roosevelt and Hopkins discussed Churchill’s cable for hours aboard the Tuscaloosa, and the day after they returned to Washington, the president at a press conference took the first step toward a new American foreign policy. Reaching for a homey metaphor, he told reporters: “Suppose my neighbor’s home catches fire, and I have a length of garden hose four or five hundred feet away. If he can take my garden hose and connect it up with his hydrant, I may help him to put out his fire. I don’t say to him before that operation, ‘Neighbor, my garden hose cost me $15; you have to pay me $15 for it.’ I don’t want $15. I want my garden hose back after the fire is over.”46
On January 10, 1941, the administration introduced legislation in Congress officially named “An Act Further to Promote the Defense of the United States.” It became known as Lend-Lease. Instead of buying weapons, the Allies going forward would get them for free. Theoretically the foreign countries were going to return them later, but that never happened. The bill was patriotically listed as H.R. 1776. The next month, Churchill helped the political process along when he said, “Give us the tools, and we will finish the job.” Roosevelt signed Lend-Lease into law on May 11, 1941. The primary recipient was Britain. Churchill later called Lend-Lease “the most unsordid act in the whole of recorded history.”47
In his year’s end fireside chat on December 29, 1940, Roosevelt urged American industry to join in a mammoth national program to build weapons for the world’s democracies to fight the evil posed by the Axis powers of Germany, Italy, and Japan. He warned, “Never before since Jamestown and Plymouth Rock has our American civilization been in such danger as now.” Then he made his pitch: “We must have more ships, more guns, more planes—more of everything. And this can be accomplished only if we discard the notion of business as usual. We must be the great arsenal of democracy.”48
After the legislation was enacted, the Reichsbank’s Emil Puhl was in Basel for a monthly meeting of the Bank for International Settlements. He stopped in at Thomas McKittrick’s office and asked, “What does this Lend-Lease mean? We don’t understand it.”
McKittrick explained how the new policy worked and added, “We’re getting our industrial organization in shape for our entry into the war.”
Puhl’s face dropped so dramatically that McKittrick thought he was going to faint. Finally the German muttered, “My God. If you’re right, we’ve lost the war.”49
Chapter Twenty-One
DESTINATION DAKAR
Philippe Pétain’s new French government ruled only forty percent of the country, while the Germans occupied the rest, including Paris. The capital of the rump French state was the small provincial town of Vichy, while the French central bank’s headquarters was located forty-five miles away in Clermont-Ferrand. Initially, it was uncertain who had authority over France’s institutions. The Nazi part of the country was clearly under the Wehrmacht’s boot, but Pétain’s authority in Vichy was questionable because it was not known whether the French public or civil servants would answer to his new regime.
It was also not clear to whom France’s far-flung empire answered. Pétain appointed Admiral George Robert High Commissioner of the French Antilles, and he technically had authority over the French gold in Martinique. The American and British navies, though, had battleships just off shore to make sure it didn’t go anywhere. An important part of the French central bank’s staff now worked outside the country, and no one knew their future. French bank officials working abroad eventually set up an informal group that dealt with the institution’s international issues independent of mainland France. General Charles de Gaulle, who was operating out of London, put together an army that called itself the Free French, which continued the fight against Germany. Thanks to British help, it began gathering strength.
The Bank of France’s staff was proud of their heroic efforts under difficult circumstances, but they learned a few horror stories about things that had gone badly wrong during the evacuation. Bags of gold had been left on railroad platforms. Two officials from the bank’s office in Bayonne simply showed up with six bags of gold, eighty-eight sacks of paper currency, and 130 containers of coins. How many more cases were there like that? The ship Clairvoyant had arrived with just one ton of gold. Fortunately and almost miraculously, all the gold ships from Brest and Lorient made it safely to Casablanca and under orders had gone on to Dakar.
Bank officials now also had time to investigate how much gold had been lost or stolen along the way. They learned to their dismay that a case of gold weighing a total of 110 pounds had fallen into the harbor in Brest during the loading. Six bags of coins had also seemingly been lost. A few sacks had broken open during transport, and 166 gold pieces were stolen on the El Kantara, although the perpetrators were later caught. The Ville d’Alger lost at least 10 sacks, and a case was missing from the Ville d’Oran. In June 1941, the bank finally admitted that nearly a half-ton had been lost during the evacuation. Given the massive amount that was handled in chaotic circumstances, the whole operation was a remarkable achievement. On June 28, Moreton received a message from the French Admiralty telling him that officials had finished an inventory of the gold that had arrived in Dakar. It weighed in at 1,097 tons.1
On July 3, Charles Moreton met with Admiral Ollive, who said that the French Admiralty had warned him about the danger of a British attack on the ships in Dakar. The French navy had decided to move all the gold as soon as possible to a safer inland location. The bank’s René Gontier, who had arrived from Brest on the El Djezaïr, had already left for Dakar to monitor the transfer, but he needed some help. Ollive asked Moreton to assist him, offering to get him there overland by car and plane.2
French naval intelligence was correct, and at almost the same time as the two Frenchmen were discussing their next moves, a British naval task force bombed the French fleet anchored at Mers-el-Kébir on the Mediterranean coast of French Algeria. At the time, much of the surviving French fleet had been docked there. The attack resulted in the deaths of 1,297 French
servicemen. A battleship was sunk and five other vessels were badly damaged. Churchill had told the French that he was worried about their fleet ending up in the hands of the Germans, although Admiral François Darlan had given his personal assurance that would never happen. He said that if necessary, he would send it to Canada. Churchill, though, didn’t trust the admiral or perhaps wanted to make a political point by showing that the British lion could still roar. Cordell Hull, the American Secretary of State, later had a long discussion with the prime minister about the event and wrote in his memoirs, “Since many people throughout the world believed that Britain was about to surrender, he (Churchill) wanted by this action to show that she still meant to fight.”3 The attack was not Britain’s finest hour.
At 3:00 in the morning of July 5, a military car picked up Moreton at his hotel and took him seventy miles to Port Lyautey near Rabat in Morocco. The following morning, the banker had a five-hour car ride to a small military outpost, where he picked up another vehicle that took him to a second military camp. He reached there at 7:00 the next morning. Then he boarded a seaplane already carrying fourteen men. It had just reached cruising speed, when a British aircraft attacked it, but then departed. After that close call, Moreton’s pilot told his passengers that he was not sure he had enough fuel to make the trip. The plane eventually landed after eleven hours in the air at Port Etienne in Mauritania, where everyone spent the night. The brave travelers left the next morning on a treetop flight that rarely rose above 1,000 feet and finally landed in Dakar at 4:30 in the afternoon.4
Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion Page 33