During the 1930s, Germany was able to attract credit from many foreign banks and countries to underwrite the modernization of its industry and, by extension, the program of rearmament (see Chapter 1). Similarly, up to the outbreak of war, most countries were willing to accept payment for goods and services in reichsmarks, which were then often used to buy manufactured products from Germany. However, once the U.S. Treasury Department severed financial and commercial links with Germany and occupied Europe after December 1941, payment was demanded in more attractive currencies such as British pounds, U.S. dollars, or Swiss francs. But the most attractive currency of all—then as now—was gold.
By the end of 1942, following its conquest of most of Europe, Germany had an abundance of gold. The central banks of every occupied country were plundered for the benefit of the Third Reich, starting with that of Austria following its annexation in March 1938. The gold reserves of the Austrian National Bank divulged 200,765 pounds of gold bars and coinage, of which some 49,254 pounds were held in the Bank of England; the total value in U.S. dollars was $102,689,215. Czechoslovakia rendered $44 million; the Free City of Danzig, $4.1 million; Holland, $163 million; Luxembourg, nearly $4.858 million; Belgium, $223.2 million; and Italy after September 1943, some $80 million. The amount of gold taken from Greece is not recorded, while that of Yugoslavia was shared between Italy and Germany, some of it being used to establish the Ustaše fascist regime in the puppet state of Greater Croatia. Denmark, Norway, and France had made the wise provision of transferring most of their gold reserves to England, America, or Canada before the Nazis invaded.
POLAND’S GOLD WAS SAVED by chance and by the indefatigable efforts of Stefan Michalski, the director of the Bank of Poland. In September 1939, just as the Germans were invading Poland, he personally escorted the gold via train and truck from Warsaw through Romania and Turkey to Lebanon, where it was loaded on a ship bound for Marseille in France. It arrived in Paris by train in October 1939. The gold was then moved to the port of Lorient in Brittany and shipped aboard the French cruiser Victor Schoelcher to Dakar in French West Africa (in the region that is now the country of Senegal). After May 1940, Dakar was also the refuge for the residual gold holdings of France and Belgium’s reserves; the latter had been transferred to the Bank of France for safekeeping early in 1940. German demands for the surrender of the Polish and Belgian gold under the terms of the armistice with Vichy France met with months of delay and prevarication. Eventually the French agreed to hand over the Belgian gold, but not the Polish, on the grounds that since that country had been carved up between Nazi Germany and the Soviet Union it was no longer a sovereign state and could not currently honor the credit France had extended to it previously. The diligent Stefan Michalski guarded his charge until the Allied invasion of North Africa in November 1942, when he arranged for a U.S. warship to transport the sixty-five tons of Polish gold to New York to be deposited in the U.S. Federal Reserve Bank.
The saga of the Belgian gold was one of the most extraordinary tales of World War II. On September 23, 1940, the British and Gen. de Gaulle’s Free French launched Operation Menace, an unsuccessful attack on Dakar to capture the remaining French gold reserves. Before this fiasco, the Belgian gold—comprising 4,944 sealed boxes weighing some 270 tons—had been moved inland by Vichy French operatives to Kayes, where it arrived on September 20. From there it went by train to Bamako on the Niger River and was transported by riverboats and light trucks upriver to Timbuktu and Gao. The long haul across the Sahara Desert was accomplished by camel train to the railhead at Colomb-Béchar in French Algeria. Once the gold reached Algiers, 120 aircraft flights were needed to transport it to Marseille. It arrived at the Reichsbank in Berlin in May 1942, after a journey lasting twenty months.
ANY GOLD BULLION STOLEN from the central banks of the occupied countries was easily recognized on the international market, due to particular stampings on each gold bar that revealed its provenance. Accordingly, all looted gold was processed through the Precious Metals Department of the Reichsbank, where it was carefully weighed, cataloged, and stored, either centrally in Berlin or in one of some twenty other branches. When necessary, the bullion was re-smelted at the Prussian State Mint into new bars that were stamped with prewar German markings to disguise their true origins.
Similarly, all the gold items taken from the victims in the extermination camps, such as gold teeth and jewelry, were either sold or melted down and cast into gold bars by the firm of Degussa—Deutsche Gold und Silber Scheideanstalt. The company even had its own smelter at Auschwitz, where it processed on average twenty-four pounds of gold per day: with a hideous symmetry, Degussa and IG Farben jointly owned the chemical production firm Degesch, which manufactured the Zyklon-B tablets used in the gas chambers. The first shipment of prisoners’ valuables from the death camps to the Reichsbank was made on August 26, 1942, under the supervision of SS Capt. Bruno Melmer. In November 1942, the tenth shipment to the Reichsbank was the first to include dental gold, and the deliveries continued until the end of the war; some seventy-eight in all. The Reichsbank realized the market value of all the bullion and currency, and the proceeds were deposited in a special SS account under the name of Melmer. Funds were then transferred to an account in the name of Max Heiliger; this account was controlled by SS and Police Gen. Ernst Kaltenbrunner, the successor to Reinhard Heydrich as head of the Reich Main Security Office, and by SS Gen. Oswald Pohl, the chief administrator of the concentration camps. This became a slush fund for the SS leadership, which made large deposits and investments in Switzerland, mainly through the Bank for International Settlements.
Despite its newfound hoards of looted gold, Nazi Germany had no direct mechanism of paying for foreign goods, and the transfer of funds or gold bullion to another country required the cooperation of the international banking community. The solution lay on Germany’s doorstep, in the financial institutions of neutral Switzerland, which had been quick to recognize the commercial opportunities of what was happening in Germany. As early as 1934, Swiss banks had introduced a system of numbered bank accounts to guard the privacy of depositors—particularly Jews wishing to move their wealth out of Germany—from the scrutiny of the Nazi regime. Only the most senior bank officials knew the true identities of the account holders. In August 1939 alone, just weeks ahead of the German invasion, some 17,000 transfers were made from Poland for safekeeping in Swiss bank accounts, and once war broke out large numbers of European Jews or their appointed agents came to deposit their savings and valuables in the banks of Basel and Zurich despite Swiss border restrictions to inhibit the entry of Jews. But these Swiss transactions with the prey were small beer compared to the trade in gold that was conducted with the predators.
AT THE OUTSET, THE GERMANS FAVORED the Bank for International Settlements (BIS) based in Basel. As already mentioned, this bank was founded in 1930 for the purpose of overseeing the transfer of German reparation payments to various recipient countries under the provisions of the Treaty of Versailles, but those provisions were repudiated by Germany in 1932. Lacking any form of governmental control, the BIS was owned and run by the central banks of the member countries, including the U.S. Federal Reserve Bank, the Reichsbank, and the Bank of England. Its role was “to promote the cooperation of central banks and to provide additional facilities for international financial operations.” By its own charter, it was immune from seizure or prosecution even in times of war. It acted as the prototypical world bank, but was run purely for the benefit of its own members. Indeed, it became a useful club where central bankers and their staffs met once a month in the agreeable surroundings of Basel.
The membership of the BIS board of management was intriguing. The two principal directors were Hjalmar Schacht, former president of the Reichsbank and Reich economic minister, and Sir Montagu Norman, the governor of the Bank of England. These two were long-standing close friends given to extended walks in the woods together. The chairman was the affable Thomas H. McKittrick, a New York ba
nker-cum-lawyer, whose sympathies with the Nazis were well known. The German bias of the BIS was further confirmed by the presence on its board of Dr. Walter Funk, president of the Reichsbank (1939–45), and his deputy Emil Puhl; Hermann Schmitz, chairman of IG Farben; and Baron Kurt von Schröder, banker to Adolf Hitler and owner of the J.H. Stein Bank of Cologne, whose most noted client was the SS—accordingly, one of the Stein bank’s directors was Gen. Ernst Kaltenbrunner.
Baron von Schröder, himself an SS brigadier, was the director of more than thirty other companies, including ITT in Germany. Schröder’s Bank of Hamburg was affiliated with the J. Henry Schröder & Co. of London, which acted as the German government’s financial agent in Britain from 1938. The latter in its turn owned the J. Henry Schröder Banking Corporation of New York; this concern went into partnership with the Rockefellers in 1936 to become the Schroder Rockefeller & Co. investment bank, of which Allen Welsh Dulles—the future OSS station chief in Bern—was a director. Such was the fraternity of international banking, united in the belief that business must continue even in the depths of a world war.
Up to the outbreak of war in 1939, the BIS channeled funds totaling some 294 million Swiss francs from foreign investors into Nazi Germany, and it continued to assist the Nazis throughout the war. At the time of the German annexation of the Czech Sudetenland in October 1938, the National Bank of Czechoslovakia in Prague held some $26 million of gold in the BIS account held by the Bank of England in London. In March 1939, after the whole of Czechoslovakia had been occupied, the Germans laid claim to this amount for the Reichsbank. The BIS immediately bowed to German demands, but required the agreement of the Bank of England for completion of the transaction, and Sir Montagu Norman duly arranged this. When the Soviet Union tried the same ploy after occupying the Baltic states of Estonia, Latvia, and Lithuania in 1939–40, its claim was refused.
DESPITE CLAIMING NEUTRALITY and total probity, the BIS was of vital assistance to Nazi Germany in its quest for strategic resources—such as rubber from Japanese-occupied Malaya, paid for with funds transferred to Japan via the BIS. It was Germany’s need for essential raw materials that fueled the money-laundering operations of the BIS and the Swiss banks. Coincidentally, some of the most critical resources were to be found in Europe’s neutral countries—Swedish iron ore, Turkish chromium, and Portuguese and Spanish wolfram—the latter being essential for the manufacture of tungsten, which was used to make machine tools and armor-piercing ammunition. Both Portugal and Spain were ruled by fascist dictators sympathetic to the Nazi cause.
António de Oliveira Salazar of Portugal played a canny game, trading with both the Allies and Germany. His regime depended on America for oil and wheat but was willing to sell wolfram by a strict quota system on a cash-and-carry basis that inevitably inflated the cost of the ore—by 1943, wolfram commanded eight times the prewar price, and the Allies alone paid $170 million for wolfram to Portugal and Spain during World War II. While Britain and America paid respectively in pounds sterling and U.S. dollars, Germany was obliged to pay in gold. At the outbreak of the war, Salazar had declared that Portugal would remain strictly neutral and would “adhere to an iron principle—we shall not try to exploit the conflict for pecuniary gain.” In 1939 the Banco Nacional de Portugal held 63 tons of gold; by October 1945, its reserves stood at 356.5 tons.
In 1939 the Spain of Gen. Francisco Franco—El Caudillo (The Leader)—was indebted to Germany to the tune of $212 million for its military and financial support during the Spanish Civil War of 1936–39. Although Spain deployed the “Blue Division” of fascist volunteers to fight with the German army against “Bolsheviks” on the Russian Front, it maintained its neutrality with both Germany and the Western Allies. Spain was a ready source of wolfram and other high-grade ores, such as pyrite, as well as lead, mercury, phosphates, and zinc, and foodstuffs, particularly citrus fruits. Germany paid for all of them with gold, manufactured goods, and weapons. Equally important was Spain’s role as a conduit for illicit trade with South America, particularly Argentina, which continued throughout the war despite the Allies’ illegal naval blockade of the Iberian Peninsula. Portugal, in its turn, provided a similar conduit to Brazil.
Both America and Britain placed a high priority on sustaining Spain’s neutrality. If Franco joined the Axis powers, then British Gibraltar would inevitably be captured and the western gate of the Mediterranean Sea closed, forcing Allied oil tankers to sail all the way around Africa via the Cape of Good Hope. To keep Franco amenable, the Allies provided Spain with large quantities of grain and petroleum products. Indeed, Spain’s complete tanker fleet was kept busy throughout the war transporting oil from Venezuela to Spain, courtesy of Standard Oil and the Texas Oil Company, which charged the U.S. government accordingly. For a simple agrarian society such as Spain, this traffic provided a significant surplus of oil over the country’s needs and the difference was sold on to Germany. By the end of the war, Spain had paid off all its debts to Germany and Madrid’s gold reserves had grown from $42 million in 1939 to $110 million in 1945.
PORTUGAL AND SPAIN ESPOUSED fascist ideologies similar to Nazi Germany’s. It is more difficult to justify the wartime dealings of a liberal democracy such as neutral Sweden. Sweden possessed a mineral resource that was absolutely vital to the Nazi war machine—iron ore, the key ingredient of steel. Sweden’s vast Kiruna-Gällivare mines in Lapland held almost 90 percent of Europe’s high-grade iron ore; Swedish ore exports had underwritten the German steel industry for years and continued to do so until November 1944. One of the fundamental reasons for the German invasions of Denmark and Norway in 1940 was to protect the coastal sea-lanes carrying this continuous supply of iron ore, which amounted to some 10 million tons a year. Sweden was also a major producer of the ball bearings that were essential to every modern weapon system. U.S. intelligence calculated that the German war machine would have ground to a halt within six months if denied Swedish iron ore and the ball bearings manufactured by Svenska Kullagerfabriken (SKF)—a company owned by the Stockholms Enskilda Bank. Of the 100 million ball bearings used each year by German war industries, 60 percent were produced in the SKF subsidiary plants at Schweinfurt and Cannstatt in Germany and most of the remainder came from factories in Sweden.
All these products were paid for in gold or Swiss francs. During World War II, Sweden received 65.7 tons of gold, including 6.6 tons that came from Holocaust victims. The mechanism was simple. Looted gold was moved to Switzerland in diplomatic bags to avoid Swiss customs regulations and deposited in the Swiss National Bank in Bern, BIS, Union Bank of Switzerland, Swiss Bank Corporation, Crédit Suisse, and other financial institutions. These banks then charged commission—commonly 5 percent—for storage prior to dispatch to the central bank of the recipient country. This involved transporting the gold by aircraft, truck convoys, or ship, while insured by Swiss insurance companies. For instance, between May 1942 and February 1943, a series of convoys totaling some 280 trucks marked with Swiss national flags conveyed gold bars with a value of up to $400 million across occupied France to Spain and Portugal.
During the second half of the war, all the neutral countries came under intense pressure from the Allies not to accept payment for any goods or services in Nazi gold. A senior official at the Swiss National Bank (SNB) came up with an ingenious scheme to avoid such censure. Now the Reichsbank would simply sell its gold to Swiss banks in exchange for currency, usually Swiss francs. This money was then deposited in the account of the recipient country at the Swiss National Bank. The country in question was then at liberty to transfer these funds home or else to buy “cleansed” gold from the SNB—which, of course, took a commission on every transaction. Of the $890 million in gold that financed the Nazi war machine, $388 million was processed through the Swiss National Bank and a similar amount, $378 million, through the Bank for International Settlements.
Many other Swiss financial institutions benefited from the Nazi connection. Nazi officials and SS leaders secreted un
told millions of dollars’ worth of gold, currency, and artworks in Switzerland. There, the plunder was hidden in numbered accounts that were immune to scrutiny, thanks to the Swiss banking laws originally enacted in 1934 to give anonymity to Jewish depositors fleeing the clutches of the Nazi regime. As the French writer and diplomat François-René de Chateaubriand (1768–1848) once observed, “The Swiss, neutral during the great revolutions in the countries surrounding them, have enriched themselves on the destitution of others, and founded a bank on the misfortune of nations.
Chapter 6
EAGLE FLIGHT AND LAND OF FIRE
BY THE SUMMER OF 1943, the manufacturing capacity of the Soviet Union had recovered from the devastating effects of Hitler’s Operation Barbarossa two years earlier. In the face of the remorseless advance of the Wehrmacht in the summer of 1941, whole armaments factories were moved eastward behind the Ural Mountains and beyond the reach of the invaders. Tanks and aircraft were now being produced in unprecedented numbers while lend-lease supplies from America, Britain, and Canada added significantly to the fighting powers of the Red Army.
In July 1943, the Wehrmacht, painfully rebuilt after the losses of Stalingrad, launched a major offensive code-named Operation Citadel against the Kursk salient in central Ukraine, where almost two-thirds of all Soviet armored fighting vehicles, aircraft, and artillery assets were concentrated. In a grueling battle of attrition lasting eight days, the German and Soviet forces fought each other to a standstill. The German Army Groups Center and South lost nearly three hundred tanks and the Soviets three times as many—but the Red Army was left in control of the battlefield and could more easily replace such losses. Germany’s hopes of defeating the Soviet Union had finally failed. Despite German propaganda proclaiming many “defensive triumphs” in the months to come, the Ostheer or Eastern Army was never again to mount a major offensive on the Russian Front. From now on, the Red Army would begin its inexorable advance westward toward the borders of Germany.
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