In early June 1941, German authorities took over the town and demanded the keys to the vaults in the Bank of Greece’s office. The Nazis then searched the storage area in the presence of the branch manager. On June 17, Major Eberhard von Künsberg also arrived at the bank. He was the head of a special SS unit charged with confiscating local artworks and other valuables in invaded countries. The Nazis had great hopes of a rich haul in Greece. Künsberg picked up the ten cases, which in a document were identified as “three cases containing gold and seven cases containing silver.”14
Citizens holding gold coins in Greece were required to deposit them in a semi-state banking institution known by the French name Caisse des Dépot et Consignations (Cashier of Deposits and Consignments). They were then given drachmas, the local currency, in exchange for the gold. The Caisse retained the coins in its vaults, and the Germans confiscated them. They included mainly British, Turkish, French, and Italian coins. The Germans later learned of other holdings and picked up small amounts on the Greek mainland in August 1941 and on Crete on April 1944. Another 116 kilograms of gold was found in the Salonika branch of the Bank of Greece, and a total of 12.5 tons was taken from private individuals. Later 6.5 tons of gold was taken from Greek Jews who were deported to Germany and died in concentration camps.15
The Yugoslav government had substantially more gold than Greece, and much of it had left the country before the Axis powers invaded. In early May 1939, and shortly after the Germans had taken control of Czechoslovakia and Memel, the National Defense Council of Yugoslavia decided to move most of the nation’s bullion abroad to London and New York. On May 20, 1939, the Yugoslav destroyer Beograd docked in Plymouth Harbor in Britain with 7,344 bars of gold. The Yugoslav attaché in London was there to greet it. The Yugoslavs eventually stored nineteen tons in Britain.16
The United States, though, was the major destination for Belgrade’s gold. The Yugoslavs in June 1940 first sent four shipments to the New York Fed and then later five more. By the end of November 1940, the New York Federal Reserve was holding 17 tons of Yugoslav gold. With the Axis threat rising rapidly, a New York Federal Reserve report in February 1941 estimated that the Yugoslavs still had inside the country “not less than” 131 tons that it wanted to move to a safer location. A month later, Belgrade was so desperate to get bullion out that they sent 22 tons to Argentina and Brazil and also shipped some to the Bank for International Settlements in Switzerland. On March 18, 1941, a Yugoslav shipment arrived at Pier 34 in New York City with seventeen tons of bullion for the Federal Reserve.17
On April 5, the day before the invasion, the National Bank of Yugoslavia told the Bank for International Settlements in Basel to convert all its accounts, including its gold, into dollars and deposit that in the New York Federal Reserve. Two days later, the BIS sent $2.7 million to the Yugoslav account at the New York Federal Reserve.18
The last minute frantic shipments were successful, and by the time the Axis powers controlled Yugoslavia in mid-April, the country had just twelve tons of gold left in the country, which was mostly in coins. Bank officials decided to move nearly ten tons of that to the bank’s Uzice Branch in western Serbia, where it was stored in vaults. The location was close to the Adriatic coast, a potential route for shipping it abroad. Immediately after the Nazi invasion began, several of the National Bank’s managers and the Yugoslav minister of finance traveled to Uzice to check on the bullion.19
With the Germans on the march, the bullion was next shipped nearly 120 miles further west to the town of Mostar. General Miojko Jankovic called the manager of the local branch on April 13 and relayed a wireless order he had just received to send the bullion to Nikši, a city sixty miles north in Montenegro. During that evening, 204 cases of gold left in trucks headed for the new location. In the town of Bileca, the cargo was transferred to a train. It finally arrived at its destination on April 15.
Bank officials decided to move it by truck to the nearby Trebjesa Grotto, where it would stay until the Yugoslav Air Force could carry it out of the country from an airport in Nikši. The seven remaining Do-17K bombers in the Yugoslav Air Force flew there to evacuate King Peter II, members of the Yugoslav government, and the gold.20 During that operation, however, only twenty of the 204 cases of the country’s gold reserves were airlifted out. Five Do-17Ks planes were destroyed, and the remaining boxes of bullion remained on the tarmac. The Italians seized them and sent them to the Bank of Italy. After the fall of Mussolini and German occupation of Italy in 1944, they went sent to the Reichsbank.21
Ten boxes of gold had been dispatched by truck to the Ostrog Monastery, a massive structure built into the hillside where Gavrilo V, the Orthodox Patriarch of Yugoslavia, had recently taken refuge. The German First Panzer Group, commanded by Paul von Kleist and known as Panzergruppe von Kleist, reached the monastery at 5:00 in the morning on April 25. Accompanying the unit was Wilfred Oven, a war reporter who wrote the following news story:
“The Gestapo in collaboration with the Wehrmacht has discovered an important part of the Serbian State treasure concealed in the inaccessible mountains of Montenegro. The coterie of traitors that surrounded the young King Peter had previously, like so many governments in allegiance to England, endeavored to send their state treasures to the British Isles. That attempt failed in Serbia.
“The town of Nikši was still asleep when we left by a narrow winding path that led up the mountains. The mountain scenery here is wildly romantic, filled with ravines and steep rocks. There was a mountain torrent a hundred meters below. There we caught sight of the monastery that lies within an opening made in the almost perpendicular mountainside. This had been the goal of the king when he fled. It is also our goal. The monastery seemed still asleep when we arrived, except for the monotonous chanting of monks in the chapel. The place was soon awoken by our arrival. The doorman, who had a bad conscience, appeared and seemed at once to understand what we were after. He told us that the prior was still in bed. We told him we wanted to see him. We also told him that everyone in the monastery was to assemble in one of the rooms before we began our search. When the leader of our expedition asked whether everyone was present, he told us that everyone was there except for two monks who were in a building still higher on the mountain that was the real monastery.
“We believed him and began our search. One locked door interested us. From the outside it appeared to be the entrance to a storage room. Although the servant of the prior assured us that it contained nothing of interest, we were anxious to investigate. Finally, after the prior saw that we had hammers and crowbars, he produced the key. When we opened the door, we found ourselves in a comfortably furnished clubroom with chairs around a table. There was a door opening to another room, and who should we find there but the Patriarch of Yugoslavia Gavrilo!
“He had just finished putting on his richly ornate vestment, when we showed him two pistols that he had hidden away in his cupboard. Apparently the Patriarch was ready to fight Germany with more than just spiritual weapons. Later we found other weapons: rifles, numerous pistols, and large stores of ammunition. There is no doubt that it was only our sudden appearance that had prevented these weapons from being used against German soldiers.
“Although the Gestapo had quite reliable clues that led to this monastery, the Patriarch maintained that he knew nothing of any treasure. It was only after we made him understand that he might be shot for having concealed weapons that he asked us to follow him. He then led us down to a mountain cellar that had an iron door. By the light of four torches, we saw piles of boxes, equipment, and state documents. Then we proceeded through a narrow and damp passage where there was the smell of smoked hams and meat. We found ourselves in a larder filled with a countless number of sausages, hams, sacks of flour, sugar, coffee, and other foodstuffs. But there we also found canvas sacks that we couldn’t open. They were sealed with chains and locks. There could be no doubt about the contents. We dragged them into the sunlight.
“For the first tim
e in my life, I carried 25 million on my back because each of these sacks had a neat little label on which was written: Contents 25,000,000. . . . Gradually 375 million were brought out and put on a truck. But still more important were the chests, each of which was so heavy that two men had difficulty carrying one. This was mint gold. We had a splendid haul.”22
The Gestapo later sent a jeep to the upper monastery building and seized nearly a ton there. The Germans got a total of 9.6 tons of gold in Yugoslavia. Italian troops captured a total of 124 boxes of gold, including forty-two cases that had been left on the road between Cetinje and Hercegnovi and eighty-two in the town of Nikši. They were all sent to Rome. The rest was temporarily left in the hands of Yugoslav authorities, but eventually it too was dispatched to Italy. There still remained 32 cases of gold stored in the Franciscan Monastery in Kaptol, Zagreb, which stayed there until the end of the war.23
On April 29, 1940, Yugoslav Finance Minister Juraj Šutej told a meeting of the Yugoslav government-in-exile in Jerusalem that only 9.2 tons of gold remained in the country.24 Almost twice as much was by that time stored in the New York Federal Reserve.25
Chapter Twenty-Three
THE SOVIET UNION STARES INTO AN ABYSS
On December 18, 1940, Adolf Hitler issued War Directive No. 21. Only nine copies were made. The military operation was named Operation Barbarossa, and the target was the Soviet Union. Barbarossa was a charismatic twelfth century Holy Roman Emperor, who was constantly at war. The Führer was going to do what he had said he would always avoid: wage war on both the eastern and western fronts simultaneously. Confident that the fall of Britain was only a matter of time and could be finished easily, he now turned his attention to an attack on the communist country. Hitler had an almost irrational hatred toward communism and wrote in Mein Kampf, “The problem of how the future of the German nation can be secured is the problem of how Marxism can be exterminated.”1
The minerals-rich area of the Ural Mountains was also an essential part of Hitler’s vision of his future Reich. The Soviet Union was to provide the raw materials and agricultural products needed for his massive land empire that would dominate Europe for a thousand years. The inferior ethnic groups living there would be killed, and Germans would move in and harvest the area’s riches.2
War Directive No. 21 set the invasion date at “May 15 or soon after.” Hitler expected another lightning victory just as he had enjoyed in Western Europe during May and June 1940. “We have only to kick in the door, and the whole rotten structure will come crashing down,” he confidently declared. In the instructions on the conduct of the war for the army’s Economic Operations Staff East, there was a section called “Raw Materials, Management of Goods.” Item two stated: “Gold reserves and foreign currency are to be secured. Further action will be taken by the Economy Command upon notification.”3
Russia enjoys a great wealth of natural resources, especially minerals, and has historically been a major gold producer. At the beginning of the reign of Czar Alexander III in 1881, Russia had just 195 tons of bullion holdings, which rose to nearly 700 tons at the end of his reign in 1894. Under the ill-fated Nicholas II, they soared again to reach 1,250 tons at the beginning of World War I. The czarist government, though, sold off much of its bullion during the war to buy weapons and used it as collateral for loans. At the beginning of the Russian revolution in 1917, the country’s holdings were down to 1,102 tons, with two-thirds of that stored in Britain, France, the U.S., and Japan. Most of the country’s remaining bullion had been moved for safekeeping from Petrograd, the capital located at the foot of the Bay of Finland on the Baltic Sea, inland to the Volga region, mostly to the city of Kazan.4
During the civil war, which lasted until 1921, both the Red Army and the anti-Bolshevik White Army fought to capture the national treasury. The Red army managed to evacuate only 4.5 tons early in 1918. Admiral Alexander Kolchak, the head of the Imperial Russian Navy, became the leader of the forces fighting the Reds, and their bullion was called Kolchak’s Gold. He set up his government in Siberia, with the center in Omsk. Kolchak enjoyed some early success, but his military units were eventually pushed back into Eastern Siberia, and he sent some of his gold abroad. Some of Kolchak’s gold was sold off during the civil war to buy weapons and thus ended up in the U.S. and Britain. He was killed in February 1920. Some went to royalists living abroad and some fell into Bolshevik hands.5
The new communist government in 1918 sent 98 tons of gold to Germany as part of the Brest-Litovsk Treaty that took the Soviet Union out of World War I. Some of the new country’s gold also had to be given to the victors of World War I, including France and Britain. In June 1921, the People’s Commissariat of Finance announced that the Communist government had returned 323 tons of gold to the new capital of Moscow, where it was stored in the Gosbank, the new Soviet central bank.6
In a 1921 article in Pravda entitled “The Importance of Gold Now and After the Complete Victory of Socialism,” the country’s new leader Vladimir Lenin famously said, “When we are victorious on a world-wide scale, we will make public toilets out of gold on the streets of the world’s largest cities.”7 He had a more immediate and practical purpose for it during the period of state capitalism, when the nation was recovering from the ravages of the civil war and building a new industrial country. The national railroad, for example, used gold to buy 1,000 locomotives from Sweden. The government also made use of it to support national communist parties and world revolution through the new Comintern. Stalin succeeded Lenin in 1922, and he initially showed little interest in gold. Production remained low, and the reserves dropped to 141.3 tons in 1925.8
In the late 1920s, Stalin changed the national gold policy and sought to expand mining. He brought in a team of experts to rebuild the industry as part of his first Five Year Plan. Alexander Serbrovsky, a famed Soviet scientist, led the program and hired the American mining engineer John Littlepage, who became the deputy Gold Commissar. Production increased almost five-fold between 1929 and 1936. By 1933, output was back to pre-World War I levels and the Soviet Union was once again among the world’s largest producers. By 1935 the central bank holdings had risen to 626 tons. The country was selling much of it abroad to finance industrialization.9
The U.S. broke diplomatic relations with Moscow in December 1917, after the fall of Czar Nicolas II, and did not recognize the country even after it became clear that the communists were in power to stay. That policy changed, however, early in the administration of Franklin D. Roosevelt. The Soviets at the time were interested in purchasing American equipment for its industrialization program, which was difficult without diplomatic ties. At the time, the United States had few Soviet experts. The top one at the State Department was William C. Bullitt, who had married the widow of John Reed, an American Communist whose first-hand account of the Russian Revolution was entitled Ten Days That Shook the World. Reed died in 1920 and was buried in the Kremlin Wall.
In late September 1933, Roosevelt surprised Treasury Secretary Henry Morgenthau at one of their weekly luncheons by asking him, “What would you think of bringing this whole Russian question into our front parlor?” The next day Morgenthau had lunch with Bullitt, who proposed a new U.S. policy toward the communist nation.10 The secretary suggested that the U.S. offer the Soviets diplomatic recognition and also sell them $100 million worth of agricultural and industrial goods. He worked with Bullitt in early planning, but eventually turned the entire project over to the diplomat. Stalin later sent the urbane Maxim Litvinov, the People’s Commissar for Foreign Affairs and a veteran of the Russian Revolution, to Washington as ambassador. Roosevelt had a lighter touch. He sent comedian Harpo Marx to Moscow as a good-will ambassador. The two countries established diplomatic relations in November 1933.
The United States and the Soviet Union were natural partners. The Americans could provide industrial equipment for Moscow, and the Soviets had gold to pay for it. So it was not surprising that trade flourished, with Roosevelt and Morge
nthau watching developments closely. American exports to Moscow went from $8.9 million in 1933 to $33.4 million in 1936, while U.S. imports jumped from $12.1 million to $21.4 million in the same period.11
Morgenthau in April 1937 suggested to the Soviets that the central bank of the Russian Federation open an account with the Federal Reserve Bank of New York to handle earmarked gold transactions, which they did in June. Moscow made an initial deposit of $100,000. As part of the new relationship, the New York Fed staff produced a detailed study of the Soviet gold industry since the Russian Revolution. Given Soviet secrecy in such matters, it was more guesstimates than hard facts. It showed that the Soviet bank’s official balance sheet on January 1, 1937, reported assets of $120 million, with twenty-four percent of that in gold. It estimated that the country’s bullion stocks were worth $1.2 billion, with the central bank holding $300 million. The study estimated that in the fifteen years since 1923, the Soviet Union had exported $730 million of the $1.2 billion in gold that it mined. The Soviet Union was the world’s second largest producer after South Africa. Moscow now probably had twenty-one percent of the global gold market. The study predicted that the Soviet Union in 1937 would buy $30 million in goods from the U.S., with most of that going toward products such as aircraft engines.12
In August 1939, the Soviet central bank sent the New York Fed a cable saying that they would soon be sending a first shipment of gold from Leningrad to New York. On September 27, the State Bank delivered 160 bars of gold to San Francisco. The following month a second shipment worth $11 million arrived.13 While most of the bullion arrived in New York City and was taken immediately to the Federal Reserve vault, some also landed in San Francisco after crossing the Pacific Ocean. The gold departed from the port of Vladivostok on the Pacific Coast. There were two routes out of the harbor. In the winter, when the northern way was frozen, it left by the southern one. The bullion was stored at the U.S. Mint in San Francisco, which had been built originally to handle the California gold rush. The funds were immediately booked in the Secretary of the Treasury’s special account.14
Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion Page 36