The American who let the Nazis rebuild Germany
by Adam LeBor  /  November 2021

“Tucked away on the website of the United States embassy to Germany is a lengthy hagiography of a man who nowadays is largely forgotten, but should not be. “John J. McCloy and the ‘Splendid Reconciliation’” by the late Garrick Utley recounts McCloy’s life and some of his achievements. McCloy, an American lawyer, served as the highest-ranking U.S. official in West Germany from to 1949 to 1952 — king in all but name. As McCloy noted, “I had the powers of a dictator as High Commissioner of Allied Forces in West Germany, but I think I was a benevolent dictator. I think the rebuilding came off very well, with no significant problems. It wasn’t a matter of ordering things done so much as using orderly persuasion with the Germans.” That the United States freed vast numbers of high-ranking Nazi officials, scientists and SS officers and then employed them has been well documented by historians such as Tom Bower and Christopher Simpson. The dilemma, known as “hang or hire”, was often resolved by the latter. Werner von Braun, the Nazi rocket scientist who sent V-2 missiles crashing into London was relocated to the United States, together with a legion of German scientists and engineers.

Reinhard Gehlen served as chief of military intelligence on the eastern front where German troops had carried out unimaginable atrocities. He was appointed the head of West Germany’s new intelligence service. Much less well-known is the parallel operation by McCloy and his key allies in United States government, such as intelligence chief Allen Dulles, to free numerous Nazi industrialists and bankers and return them to positions of great economic power and influence — in particular the men who ran I.G. Farben, the most powerful industrial conglomerate in Nazi Germany, a subsidiary of which manufactured Zyklon B, the poison gas used to murder millions. That decision by McCloy and his powerful allies in the American political establishment — that the economy of the new West German state should be run in large part by numerous convicted war criminals — shaped West Germany, post-war Europe and our world today. Helmut Schmidt, the former Chancellor of West Germany, described McCloy as “the architect of Germany’s rehabilitation from an occupied country to an independent state”. Henry Kissinger said of McCloy that he “never served in the Cabinet of any president, and after 1952, never occupied a full-time position. Yet few Americans have had a greater impact on their time.”

So who was John McCloy and how did he amass such power? Unlike many of his peers on Wall Street or in Washington, McCloy was not a scion of the American elite. He was a self-made man, which shaped his brusque, get-the-job done approach. Born in Philadelphia in 1895, his father worked for an insurance company, and his mother was a hairdresser. He supported himself through Amherst College by working as a dishwasher, then studied at Harvard Law School. In 1917 he joined the U.S. army and served in France, then returned to Harvard to finish his law studies. He then joined Cravath, an influential New York law firm. In 1930 McCloy was sent to Paris to run Cravath’s office in the French capital. There he became friends with an American lawyer called Allen Dulles, of Sullivan & Cromwell, another immensely powerful law firm. Sullivan & Cromwell represented I.G. Farben’s American subsidiary, General Aniline & Film. Cravath had also taken a case for G.A.F. Both McCloy and Dulles, notes Kai Bird, author of The Chairman, a biography of McCloy, “travelled frequently to Germany on business”. By the late 1930s, McCloy was well regarded enough to join the most exclusive Wall Street lawyers’ lunch club, known as Nisi Prius, Latin for “unless, before”, a legal term. “It was the elite of the bar then … It was quite an honour in those days,” McCloy later recalled. Around the same time, he was invited to join a second elite establishment, one where the grandees of politics and foreign policy such as Allen Dulles met — The Council on Foreign Relations. The aim of the organisation, notes Bird, was “war-planning and planning for a post-war Pax Americana”. A Pax Americana which demanded the rehabilitation of German industrial giants such as I.G. Farben.

I first learnt about John McCloy while researching my book Tower of Basel, the first investigative history of the Bank for International Settlements (BIS). The BIS was founded in Basel in 1930 to channel German reparations for the First World War. Payments were cancelled two years later, but the bank repurposed itself as a bank for central banks and a secure, secretive meeting place for central bankers to discuss monetary and economic policy. As a bank founded by an international treaty, the BIS retains extraordinary levels of immunity — Swiss officials have no jurisdiction over its proceedings or affairs. Such meetings continue to this day. During the war, the BIS was one of the main back channels between the Nazis and the Allies. Intelligence was exchanged, post-war plans for Europe discussed by its officials. BIS directors included Hermann Schmitz, Kurt von Schröder, Walther Funk and Emil Puhl. Hermann Schmitz was the CEO of I.G. Farben. Kurt von Schröder was a high-ranking Nazi banker who had acted as an intermediary between Nazi industrialists and Hitler. Funk and Puhl were the president and vice-president of the Reichsbank. Schmitz, Funk and Puhl were all convicted of war crimes at Nuremberg. Like McCloy, the BIS’s American president, Thomas McKittrick, was friends with Allen Dulles. During the war, Dulles was the Bern station chief of the Office of Strategic Services, the forerunner of the CIA, which he later headed. The BIS was a central pillar of the lines of communication between the Allies and the Axis, wrote Heinz Pol, a well-informed German émigré. A former editor of a Berlin newspaper, Pol had fled to the United States, where he wrote The Hidden Enemy, published in 1943. Hermann Schmitz and Kurt von Schröder kept lines of communication open to the Allies, wrote Pol. “Since the beginning of this war, both have maintained contacts, through go-betweens, with their business friends in all the countries of the United Nations.”

Declassified US intelligence documents show that a channel did exist from Berlin to Basel and on to Washington DC. McKittrick was an important asset for Dulles, known as OSS source 644. OSS telegrams record that, towards the end of the war, Emil Puhl, the Reichsbank vice-president and BIS board member, had lengthy conversations with McKittrick, the contents of which were swiftly passed on to the Bern OSS station. In 1941 McCloy was appointed Assistant Secretary for War under President Roosevelt. McCloy helped get the Lend-Lease Act, which provided vital war-time aid to Britain, through Congress. But his ruthless pragmatism had a much darker side. He was instrumental in the internment of around 120,000 American citizens and residents of Japanese ancestry. McCloy also blocked attempts by Jewish organisations to have the U.S. Air Force bomb Auschwitz. McCloy did not have the final word on targeting, but his was an influential voice. By the summer of 1944 it was widely known in western capitals that Auschwitz was a death factory. Allied bombers regularly overflew the camp and occasionally bombed the neighbouring I.G. Farben factory complex. McCloy argued that such an operation would divert crucial military resources and would be of “very doubtful efficacy”. McCloy also claimed that such an operation would “provoke even more vindictive action by the Germans”, although it is hard to imagine what that might have been.

Many German firms and industrial combines used slave and forced labour during the war. I.G. Farben had its own corporate concentration camp at Auschwitz, known as Monowitz. There the firm’s managers honed the new synthesis of capitalism and mass murder to a new level. When managers judged the slave labourers to be gebraucht, or used up, they were sent to the main Auschwitz camp, to be gassed with Zyklon B. Thus, Nazi economies of scale. In 1947, twenty-four I.G Farben executives were put on trial. President Roosevelt had once declared, “the history of the use of the I.G. Farben trust by the Nazis reads like a detective story. Defeat of the Nazi armies will have to be followed by the eradication of those weapons of economic warfare.” It was not to be. Thirteen I.G Farben executives were found guilty. Their sentences were derisory. Hermann Schmitz, the CEO and BIS director, was sentenced to four years. Otto Ambros, a senior manager of Auschwitz III, received eight years. Fritz ter Meer, who oversaw the building of Auschwitz III, received seven years for “plunder and spoliation” and “mass murder and enslavement”. Meanwhile, McCloy was appointed president of the World Bank. After the founding of the German Federal Republic in 1949 President Truman sent McCloy to Germany to succeed General Lucius Clay as Military Governor. The following year McCloy was appointed U.S. High Commissioner. He set up his main office in Frankfurt, aptly enough, in the former headquarters of I.G. Farben. Instead of eradicating what Roosevelt had described as “weapons of economic warfare”, he rehabilitated them and released the I.G. Farben managers from prison. McCloy freed Hermann Schmitz in 1950. By February 1951 all the I.G Farben executives were released, together with the steel baron, Alfried Krupp, who also had his confiscated property restored. The Krupp industrial empire had worked up to 80,000 slave labourers to death in a network of dozens of camps guarded by the SS. McCloy also freed Nazi judges, SS officers and a Nazi doctor who had conducted experiments on camp inmates.

Of the 104 defendants convicted at Nuremberg, 74 had their sentences reduced and ten death sentences were commuted. Heinz Hermann Schubert, who had personally supervised a mass execution of 700 people at Simferopol had his death sentence commuted and was sentenced to ten years in prison. Only a handful of senior SS officers, including General Otto Ohlendorf, former commander of Einsatzgruppe D, were eventually executed. The decisions provoked both fury and incredulity among Allied countries. Even Eleanor Roosevelt wrote to McCloy, asking “Why are we freeing so many Nazis?” Why indeed? Benjamin Ferencz, one of the prosecutors at Nuremberg, recalled that McCloy was in a “generous and kindly” frame of mind and “anxious to make a gesture towards the Germans”, notes Kai Bird. Beyond that, multiple factors were in play. The arc of money and influence that connected pre-war Wall Street and the American establishment to Germany had not only survived but was once again flourishing. Powerful figures such as McCloy and the Dulles brothers, Allen and John Foster, had been deeply entwined with German interests in the 1930s. They knew many of the key players in post-war Germany. In a less accountable age, when political and economic elites could act more freely to pursue their interests, these personal connections were crucial in rebuilding the old economic order in Germany. At the same time McCloy was under intense pressure from influential German figures to show clemency to Nazi war criminals. He and his family even received death threats as part of what he described as, “a well organised conspiracy to intimidate me”. Much of the post-war German state was either complicit in the Holocaust or in denial over the extent of Nazi war crimes, and many everyday people didn’t care. They simply wanted to move on. But McCloy could have refused to grant clemency. He had, as he admitted, near unlimited power. In later years McCloy was influential in securing meagre compensation from Krupp for former slave labourers, for which he was given an award by American Jewish organisations.

The Cold War, more precisely the North Korean attack on the south of the country in June 1950, also helped save the Nazi industrialists. Support for Konrad Adenauer, the pro-west Federal Chancellor, was sliding while voters moved towards the left-wing Social Democrats. The west needed to stand firm against the Communist advance and to do that it needed both steel and industry. Germany was to be rebuilt as the continent’s industrial powerhouse, a bulwark against the Soviet bloc, which it bordered. Yet the ease with which the Nazi-era industrialists and financiers were not only pardoned, but swiftly welcomed back by the German business establishment still has the power to shock. Hermann Schmitz joined the supervisory board of Deutsche Bank. Otto Ambrus joined numerous company boards and set up as an economic consultant. His clients included Konrad Adenauer. Fritz ter Meer re-joined Bayer. In 1964, on ter Meer’s eightieth birthday, Bayer set up a foundation to honour him with a donation of two million deutschmarks, to support especially able chemistry students. McCloy was not alone in working to free high-ranking Nazi industrialists or to ensure other guilty parties remained at liberty. His decisions were part of a profoundly cynical, but well thought out policy. Allen Dulles was also hard at work to keep high-ranking Nazi bankers from prison and ease their passage back to running the post-war German economy. The clearest exemplar of this policy was a German banker called Karl Blessing. Once again, the lines of economic continuity between pre- and post-war Germany ran through the Bank for International Settlements.

A rising star in the world of German banking, Blessing had worked at the Reichsbank and then at the BIS during the early 1930s. Blessing returned to the Reichsbank in 1934 where he was appointed its youngest director. He joined the Nazi party and after the 1938 Anschluss he was given the job of absorbing the Austrian National Bank. Blessing moved in the highest circles of the Third Reich. As the American historian Christopher Simpson notes in The Splendid Blond Beast, a ground-breaking study of the links between big business and genocide, Blessing attended 30 out of 38 meetings of the Himmlerkreis, the secret group of financiers and industrialists who bankrolled his private projects. He went on two group trips to visit concentration camps, guided by Himmler himself. During the war Blessing joined the board of Kontinentale-Öl, a monopoly created by I.G Farben and private oil companies to seize control of petroleum firms in the newly conquered territories, and served as a member of its senior management team. His fellow board members included Walther Funk, the Reichsbank president and BIS director, and Heinrich Butefisch, a senior executive at I.G. Farben. Like I.G. Farben, Kontinentale-Öl was built on slavery, plunder and murder. It ran a network of concentration camps in Poland where the workers were “leased” from the SS until they died of starvation or overwork. Blessing was a classic example of the intelligent, amoral Nazi technocrat that smoothly transitioned to the new West Germany. At best he was complicit in the genocide, at worst he was what Simon Weisenthal called a “desk-murderer”, a loyal follower always eager to do his duty, no matter what the cost in human lives.

After the war Blessing was arrested while the Allied authorities considered charging him with war crimes, as he deserved. But Allen Dulles also had Blessing in his sights. In the summer of 1945 the US occupation authorities asked Dulles to provide whitelists of suitable candidates for posts in the new German administration. Dulles provided an A list and a B list. The A list included Ernst Hulse, the former head of the BIS banking department. Blessing’s was the first name on the B list. Dulles termed him “a prominent businessman and financial expert with considerable experience in international trade”, which was one way of describing him. McCloy also wrote a letter of support for Blessing. With Dulles’s support, Blessing was freed to return to his former employers Unilever. In 1958, Blessing was appointed president of the Bundesbank, successor to the Reichsbank. Blessing served as president until 1969, regularly attending the central bankers’ meetings at the BIS. After 1945 Blessing reinvented his wartime past as a “lowly functionary” in a government ministry, a myth swallowed by a credulous press. He died in 1971, garlanded with praise from his fellow bankers and the German establishment, his wartime role at Kontinentale-Öl forgotten or glossed over. Nor did the United States have a monopoly on ensuring Nazi financiers escaped justice. Hermann Abs, head of Deutsche Bank’s international department, was instrumental in the absorption of foreign banks as the Third Reich occupied new territories. Abs, who sat on the board of I.G. Farben, was central to the policy of plunder and Aryanisation and was a key player in the construction of the Nazi economic empire. Abs was on a blacklist to be arrested, but he lived in the British zone, where he met an old banking contact from the pre-war days. He spent three months in prison, before being released without charge. Abs went on to become the pre-eminent commercial banker in post-war Germany and served on the board of numerous German companies. He died in 1994, like Karl Blessing, wreathed with misty hagiographies. As for McCloy, he remained at the heart of the American business and political establishment. His work in Germany completed, he was appointed Chairman of Chase Manhattan Bank and later as Chairman of the Ford Foundation, before being appointed President Kennedy’s chief disarmament negotiator. He became known as one of the six “Wise Men”, the veteran advisers who shaped American foreign policy during the Cold War, together with Dean Acheson, Secretary of State under President Truman and George F. Kennan, the U.S. diplomat and architect of the policy of “containment” of the Soviet Union. McCloy advised every post-war American president from Truman to Ronald Reagan. He died in 1989 at the age of 93, hailed as a worthy scion of the American establishment. Nowadays, the Germany McCloy helped rebuild is a democracy, with the fourth largest economy in the world. The Holocaust is seared into the national consciousness. Locked into NATO and the European Union, Germany’s military is now criticised for being too pacifistic. Follow the money though, and the lines of economic and financial power run back through the decades through the West German state, the Third Reich and the Weimar Republic. The same corporations, the steel and car manufacturers, the appliance and chemical makers, the household names that were the economic titans of the Third Reich still dominate the German economy. McCloy’s legacy endures, as he intended.

This too was forecast by Heinz Pol, the émigré German newspaperman. Pol predicted the future remodelling of the Nazi industrialists: “To obtain a peace, which would leave them in power, they will suddenly flaunt ‘European spirit’ and offer worldwide ‘co-operation’. They will chatter about liberty, equality and fraternity. They will, all of a sudden, make up to the Jews. They will swear to live up to the demands of the Atlantic Charter and any other charter. They will share power with everybody and they will even let others rule for a while.” After the war, I.G. Farben was broken up into its successor companies including BASF and Bayer. A shell company survived to deal with legal legacy issues. BASF is now the world’s largest chemical producer. Bayer employs around 100,000 people worldwide. Bayer’s Fritz ter Meer Foundation was renamed in 2005, before finally being closed down in 2007. The United States establishment still reveres the man who released Fritz ter Meer, and so many other Nazi war criminals from prison. Each year the American Council on Germany awards a $5,000 stipend to the winner of the John McCloy Fellowship on Global Trends. Winners have to produce an article, website or video. Perhaps one could produce a report on how McCloy did indeed set a trend, one now all too widespread, for powerful politicians to set free war criminals and mass murderers, that the world may be profitably remodelled to their advantage.”

“Defendant Alfred Krupp von Bohlen testifies at the Krupp Case war crimes trial”

The Other Nuremberg Trials, Seventy-Five Years On
by Erica X Eisen  /  March 29, 2021

“On April 14, 1945, as a group of American soldiers were leading him down the road in the village of Wittbräucke, German steel magnate Albert Vögler bit into a concealed cyanide ampoule, collapsed against an armored car, and died almost instantly. “I am ready to take part in the reconstruction of Germany,” he had told fellow industrialist Friedrich Flick earlier that year. “But I will never let myself be arrested.” Across the country, businessmen were doing the same thing: Siemens alone saw five of its board members kill themselves as the Red Army advanced through the streets of Berlin and captured its factory. Those industrialists who remained behind, shredding documents and wrenching portraits of Hitler off the walls, would soon find themselves on the list of candidates for war crimes prosecution at Nuremberg—executives from Krupp, IG Farben, Daimler-Benz, Volkswagen, and elsewhere whose companies had collectively smelted steel for tanks and purified aluminum for gunbarrels, formulated the synthetic rubber and gasoline necessary for tires and engines, built airplanes and U-boats and V-2 rocket circuit boards, and manufactured nerve gas and Zyklon B. They had seized Jewish property and swallowed up businesses sold off for pennies by those fleeing Nazi persecution. They had contracted with the German government to exploit the labor of concentration camp internees and sited factories with the specific goal of better leveraging this free and disposable workforce. They had planned, profited from, and above all else made possible the Nazi war machine and its genocides. This year marks the seventy-fifth anniversary of the conclusion of the most famous of the Nuremberg trials, the International Military Tribunal, which began in November 1945. While the tribunal—which sentenced Hermann Göring, Joachim von Ribbentrop, and other prominent Nazi military and political figures—has dominated our memory of the Nuremberg trials, it was only the first of a series of criminal proceedings against doctors, administrators, jurists, and others—including private businessmen, whose prosecution was seen by many at the time as essential to both reaping justice and establishing a lasting peace. The Trials of the Industrialists have become, in the words of historian S. Jonathan Wiesen, “undoubtedly one of the most overlooked aspects of postwar German business history.” When the prosecutors presented these cases before the judges, they were asking them to consider, implicitly and explicitly, the connection between capitalism and warfare, and where—or even whether—it was possible to draw a line between legitimate pursuit of profit and immoral greed. The conclusions these judges arrived at would shape not only the future of international law but the arc of Western Europe’s postwar reconstruction as a whole.

Links between the world of big business and the Nazis were extensive: over 50 percent of companies listed on Berlin’s stock exchange in 1932 had significant ties to the Nazi Party, and they experienced a boom in stock value after Hitler seized power the following year. It did not take corporate leaders long to realize the profits their businesses could reap from German aggression. In 1933 Gustav Krupp von Bohlen und Halbach, whose metalworks would churn out everything from Panzers to anti-aircraft cannons during the war, submitted to Hitler a plan for the complete reorganization of Germany’s industry guided by the idea of bringing [it] into agreement with the political aims of the Reich Government.” Steel giant Hermann Röchling encouraged Hitler to invade the Balkans and leveraged his ties with the regime to cherry-pick which factories and mines his firm would take over in occupied territory; these same production sites were then policed by SS officers and staffed with forced laborers over whose heads hung the constant threat of imprisonment in a company-run labor camp at Etzenhofen. The understanding that economic imperialism had played a major role in Germany’s aggression was therefore widely held, not just among Soviet thinkers but among the Western Allies as well. As such, administrators of the occupied zones viewed the dismantling of Germany’s powerful business cartels—particularly in the realm of iron and steel—as crucial to ensuring that the country could never again wage war. “We cannot safely leave Germany until actual ownership of important business property has been transferred to non-Nazis,” wrote RM Havens, an economic specialist stationed in the American sector. Managers were detained, their wartime actions scrutinized; at factories that had not been bombed out completely, quantities of industrial machinery were seized and either destroyed or requisitioned. In a speech delivered in the fall of 1945, General Dwight D. Eisenhower called for the massive chemical conglomerate IG Farben to be broken up, its war matériel factories destroyed, its assets used as reparations, and the remit of its future research tightly controlled. Farben, he argued, “must be completely dissolved as one means of assuring world peace.”

In the face of war crime accusations, corporate leaders were unapologetic. Managers at Siemens, for instance, protested that their firm had dealt admirably with the “Jewish Question”—making use of Nazi terminology even as they asserted their complete lack of anti-Semitism. Other such rhetorical callbacks to fascist rule were clearly deliberate, as when Ruhr Valley industrialist Hermann Reusch angrily compared the Allies’ policy of cartel-breakups to Aryanization (whereby Jewish business owners were forced to surrender their property to non-Jews). One internal company memo at the manufacturer GHH records an official claiming that postwar labor unions were “preparing the way for a Russian/communist Final Solution.” In both public and private statements, Germany’s businessmen categorically refused to acknowledge their own complicity in the country’s crimes, instead casting themselves as the helpless victims of anticapitalist persecution equal in its cruelty and senselessness to the Holocaust. With the specter of prosecutions looming, companies took it upon themselves to mount a defense, publishing corporate histories and founder biographies scrubbed conspicuously clean of incriminating details and imbued with a deep sense of victimization. Siemens, which had forced Auschwitz inmates to manufacture airplane components, boasted that it had received a raft of thank-you letters from its former slave laborers, who they claimed were well nourished and given opportunities to visit theaters and museums. When the Allies announced plans to strip Henkel of equipment they deemed to be excess, the chemical manufacturer barraged both British officials and the public at large with pamphlets bearing titles such as Death by Dirt! and warning that the soap shortage engendered by such a move would cause mass death from disease. These kinds of transparent PR efforts generally proved ineffective, but a force much larger would soon tilt things drastically in the favor of the German war profiteers now facing down a day in court: the onset of the Cold War.

After the International Military Tribunal, presided over by all four Allied powers, the plan had originally been to hold a second quadripartite trial that would focus exclusively on industrialists who had collaborated with the Third Reich. But dissatisfaction with this idea gradually mounted, particularly among officials in the British government who were leery both of the cost and of applying ex post facto law. (Winston Churchill, for his part, favored “political disposition” of the accused—a euphemism for execution without trial.) In the background, meanwhile, tensions between the USSR and America were rising, leading to the concern that a collaborative trial might become “a wrangle between the capitalist and communist ideologies” that “the Russians  might exploit . . . to discuss irrelevancies.” Robert Jackson, who was taking time off from the Supreme Court bench in order to serve on the U.S. legal team at Nuremberg, expressed displeasure at the idea of working with “the Soviet Communists and the French Leftists” on a trial against industrialists. As the prospect of another international prosecutorial effort faded, it was decided that all further war crimes cases—including those of industrialists—would instead be divided between the occupying powers and undertaken separately. This switch to so-called “zonal trials” left Allied governments free to deal with the accused in their sector as they saw fit—which included the ability, if they wished, to do nothing. The British promptly dropped almost all suits against industrialists; the United States cut its list of possible defendants down by over half. What might have been a capacious legal probe into the wartime actions of German industry was reduced to a handful of prosecutions targeting only those profiteers whose crimes were most heinous and most easily proven in a court of law.

One reason for this dramatic narrowing of scope was geostrategic. With the rise of Cold War tensions, German’s industrial capability was suddenly transformed from a dangerous liability into a potent asset. Eying the dividing line that now jagged its way through the continent, Americans began to view Germany as a bulwark against the further spread of communism in Europe—but for the country to prosper, it had to rebuild the manufacturing capabilities lost during the war. In a parallel move, Americans scrapped any plans for prosecuting corporate heads at the Tokyo War Crimes Tribunal in a bid to make sure that Japan would emerge from the war as a firmly capitalist state. The friction between occupying powers was not lost on German industrialists, who took the opportunity to conflate their own legal troubles with the jeopardy of the nation as a whole. After being arrested multiple times in relation to his wartime past, Wolf-Dietrich von Witzleben, who had helped to run Siemens’s massive forced labor program, warned British authorities that “the way I am being treated has physical and psychological effects that will endanger the reconstruction process.” By 1947 the U.S. legal team in Germany had narrowed its focus to the actions of only three companies: IG Farben, Krupp, and Flick KG. Yet as these attorneys prepared to go to court, they faced resistance from certain quarters back home. The investigations of Jackson and his colleagues were coming up against a very awkward fact: a number of U.S. companies—most prominently Standard Oil, Dow Chemical, DuPont, and General Electric—had significant dealings with precisely the firms whose heads were now poised to stand trial. Standard Oil had shared information about its own synthetic rubber research with Farben while blocking U.S. production of the same, and a deal between General Electric and Krupp related to tungsten carbide, a metal-hardening agent crucial in the manufacture of machine tools and armor-piercing ammunition, carved the world’s markets up beween the two companies and allowed them to massively inflate prices. The business-friendly Truman administration was so worried about the private sector’s reaction to these industrialist trials that the government attempted to force Josiah DuBois, lead attorney in the Farben case, to drop “aggressive war” from the list of charges. DuBois resisted this pressure—but by the time the decisions were handed down, it would be clear that the judges themselves had been influenced by the same political currents that had so drastically curtailed the scope of the trials themselves.

The sentences received by the handful of businessmen who eventually made their way to trial in the American zone were, in the bitter words of DuBois, “light enough to please a chicken thief.” At the Farben Trial, ten of the defendants were found not guilty of all charges, while the maximum sentence received by any of the remaining fourteen was eight years with time served. Half of the six Flick defendants were likewise acquitted, and the judge presiding over the Krupp trial dismissed all charges of crimes against peace, arguing that it was simply the duty of a company board to pursue profit. At the trials’ inception, the prosecution had “aspired to nothing less than indicting the entire Nazi state and analyzing its workings.” Now the criminal acts of the defendants were excused as just how one did business. The trial documents contain statements that are strikingly credulous. In a passage from the Farben discussion regarding the company’s large-scale and systematic exploitation of slave labor, for example, the decision remarks that the firm “voluntarily and at its own expense provided hot soup for the workers on the site at noon.” Perhaps the most striking aspect of the rulings is the acceptance in many cases of pressure from above as a legal defense, which anyone familiar with the judgments of Nuremberg’s International Military Tribunal will recognize as a complete reversal of that court’s rejection of the “just following orders” argument. Considering Flick’s yearly donations of 100,000 Reichsmarks to SS leader Heinrich Himmler—monies which Flick said he believed were for the purposes of supporting Himmler’s “cultural hobbies”—the court stated that tacit pressure to donate must be considered a mitigating factor.

Many of the claims by industrialists that the state had coerced them into crimes against humanity were simply false. As the sole dissenting opinion in the Farben case notes, at no point during the war did the German government mandate that factories use slave labor or mete out the kinds of abuses to which forced laborers were subjected. Executives’ assertions that forced labor was necessary in order for the company to meet production quotas hides the fact that Farben had leeway to set its own quotas, which in any event it often exceeded. It is not difficult to spot the knot of contradictions at the heart of the industrialists’ defense. They claimed that business was fundamentally apolitical but also said that it was their patriotic duty to act in alliance with national goals; they said they were terrified of the deadly consequences of noncompliance but also protested that they had no knowledge of the extent of Nazi terror the moment it began to implicate them. The majority’s willingness to look past these inconsistencies and to accept the industrialists’ actions as merely part of business carried with it, in DuBois’s words, “the clear implication that any society could be filled with such men with no danger whatever to the peace of the world.” DuBois’s claim hints at a certain conservatism lurking at the heart of even the most ambitious arguments put forth by prosecutors. When he scoffed at the idea that “such men” could possibly exist in a peaceable society, he was leaning on the comforting but dangerous idea that the businessmen in the docks at Nuremberg were aberrant, exceptional creatures. In fact, of course, corporate violence occurs every day, motivated by the same drive for profits that led Farben to run its own Auschwitz subcamp in order to cut down on labor costs. Historian Kim Christian Priemel has observed that the industrialists at Nuremberg failed to see that their self-identification as “ordinary businessmen who could find no flaw in having conducted ordinary business under extraordinary circumstances was part of the problem, not of the solution.” The corollary to this is that construing these men and their conduct as extraordinary is in their own way a part of the problem as well.

Upon their return from Nuremberg, multiple members of the U.S. legal team came under suspicion from Senator Joseph McCarthy of harboring communist sympathies due to their work prosecuting business leaders. McCarthy needn’t have worried. Even at the initial, most ambitious stages of the industrialist prosecutions, Western Allies at Nuremberg never intended to launch a systematic critique of the economic order. In much the same way as the New Deal aimed to create a gentler and more stable form of capitalism in the form of the welfare state, the ultimate goal of the Americans at Nuremberg was not to attack big business writ large but rather to delineate what was and was not an acceptable form of big business. The prosecution assured the court that there was nothing wrong with the arms trade per se, and structural criticism of German industry focused on cartels, thought by many American economists at the time to be inherently tied to illiberalism. In this way, the prosecution sought to punish German industrialists for doing capitalism badly—an effort that, they hoped, would ultimately lead to a revitalized free market in both Germany and the United States itself. “From this perspective,” Marxist legal scholar Grietje Baars writes, “Nuremberg was not a failure. Rather, by producing capitalism’s victor’s justice it played an important part in this process of further congealing capitalism and institutionalizing international law.” The body of international criminal law that has developed in the wake of Nuremberg largely excludes corporations—to speak nothing of the individual executives that compose them—from scrutiny. Yet Baars is highly skeptical of well-intentioned calls to hold corporations accountable for their actions via the application of international law, arguing that the original sin of such a position lies in accepting the validity of corporate power in the first place. The answer to the problem of corporate impunity, according to this interpretation, is not the expansion of legal apparatuses in the hopes of circumscribing the actions of businesses but rather the work of challenging capitalism itself. Today many of the companies under investigation at Nuremberg have returned to the fore of the business world. Both in Germany and around the world, there remains much work to be done.”

“Thomas Harrington McKittrick, BIS headquarters in 1931, in a former hotel in Basel”

American Banker Helped Hitler Loot Gold While Spying for the OSS
by Adam Lebor  /  August 30, 2013

“After Thomas McKittrick, the former president of the Bank for International Settlements, died in a New Jersey nursing home in 1970, at age 81, the New York Times eulogized him as a world financier. His brief obituary described him as a man sufficiently daring to attend a bank meeting in Switzerland in 1940 “within earshot of a French-German artillery duel,” while his peers voted by proxy instead. But like many obituaries, McKittrick’s death notice was more notable for what it omitted. As head of the BIS, headquartered in Basel, from 1940 to 1946, McKittrick played a crucial role in abetting Hitler’s war—and, at the same time, in revealing details about his Nazi colleagues to his friends in Washington, D.C. On McKittrick’s watch, the BIS willingly accepted looted Nazi gold, carried out foreign exchange deals for the Reichsbank, and recognized the Nazi invasion and annexation of conquered countries. By doing so, it also legitimized the role of the national banks in the occupied countries in appropriating Jewish-owned assets. Indeed, the BIS was so indispensable to the overall Nazi project that the vice-president of the Reichsbank, Emil Puhl—who was later tried for war crimes—once referred to the BIS as the Reichsbank’s only “foreign branch.” In the closing months of the war, as American GIs fought their way across Europe, McKittrick was arranging deals with Nazi industrialists to guarantee their profits after the Allied victory. But McKittrick was also a key contact between the Allies and the Nazis, passing information back and forth from Washington to Berlin. His relationship with the Third Reich was encouraged both by factions within the State Department and by the leadership of the Office for Strategic Services, the predecessor of the Central Intelligence Agency. He also served as a back-channel between anti-Nazi German business interests and the United States—and ultimately served to help preserve the power of German industry after the war, over the opposition of no less a figure than Treasury Secretary Henry Morgenthau. Born in St. Louis in 1889, McKittrick graduated from Harvard in 1911. He joined the U.S. Army in 1918, at the end of WWI, and was sent to Liverpool, England. There he was seconded to British military intelligence, checking that no spies were using the docks to pass in and out of the country. After the armistice in November 1918, McKittrick was dispatched to France to work with the Allied occupation forces. The following year he returned to New York and started work at Lee, Higginson & Company, then a renowned Boston investment house. In 1921, McKittrick was sent to London to work for the firm’s British wing, and he was made a partner. He quickly built up an impressive network of contacts with international connections. Much of his time was spent working on German loans and investments, many of which were arranged by John Foster Dulles, then a lawyer working at the immensely powerful law firm of Sullivan and Cromwell. McKittrick enjoyed his time in London and became a kind of honorary Englishman, complete with a butler who ironed his copy of the Times of London each morning before he read it.

McKittrick’s involvement with the BIS began in 1931, when he joined the German Credits Arbitration Committee, which adjudicated disputes involving German commercial banks. One of the other two members was Marcus Wallenberg, of Sweden’s Enskilda Bank, who taught McKittrick about the intricacies of international finance. Marcus and his brother Jacob were two of the most powerful bankers in the world. During the war, the Wallenberg brothers used Enskilda Bank to play both sides and harvest enormous profits. (Their nephew Raoul would later save tens of thousands of Hungarian Jews before disappearing into the Soviet gulag, abandoned by his uncles.) In May 1939 McKittrick was offered the position of president of the BIS, which he readily accepted. Once he was in office, Marcus Wallenberg remained his most important mentor, teaching the American banker how to negotiate the delicate path between the opposing European powers—just as the Wallenbergs themselves had so skillfully done. At first glance, McKittrick seemed a curious choice to run the world’s most influential bank, especially during wartime. He was a lawyer by training with no direct experience of central banking. But that did not matter, for McKittrick was the ideal contact person between both sides: He was an American, and thus, when he was appointed in 1940, a citizen of a country that was still neutral in the growing war between the Axis and the Allies. He had excellent connections in Washington and on Wall Street, in London and Berlin. The BIS was founded in Basel in 1930, where it is still headquartered today. Ostensibly set up as part of the Young Plan to administer German reparations payments for WWI, its real purpose was detailed in its statutes: to “promote the cooperation of central banks and to provide additional facilities for international financial operations.” The establishment of the BIS was the culmination of the central bankers’ decades-old dream to have their own bank—powerful, independent, and free from interfering politicians and nosy reporters. Under the terms of the founding treaty, the bank’s assets could never be seized, even in times of war. Most felicitous of all, the BIS was self-financing and would be in perpetuity. Its clients were its own founders and shareholders—the central banks. The BIS, boasted Gates McGarrah, an American banker who served as its first president, was “completely removed from any government or political control.” Based in a former hotel near Basel’s central railway station, the BIS swiftly made itself into the principal pillar of the new international global financial system at a time of worldwide financial crisis. It organized bailouts for Austria, Spain, and Hungary. It provided banking services for central banks. Its annual reports on the state of the global economy were soon required reading in the world’s treasuries. Every month, the BIS brought together some of the most powerful central bankers in the world, in conditions of extreme secrecy, to discuss the world economy. Reporters were forbidden from even looking into the room where the directors met after they had left.

The cabal of central bankers, aided by their numerous friends on Wall Street, including John Foster Dulles, the future American secretary of state, and his brother Allen Dulles, had been instrumental in rebuilding Germany after WWI—a project that continued after Hitler took power in 1933. Before he moved to Basel, McKittrick had established himself as a valuable go-between for the Americans. In October 1939, lawyers for Ernst Hanfstaengl, Hitler’s former propaganda chief, asked McKittrick to provide a character reference for their client. Hanfstaengl, a Harvard graduate, had lived in New York and was well connected in American high society. He returned to Germany to become one of Hitler’s earliest backers. Hanfstaengl was appointed foreign press chief in 1931, and his job was to present a moderate, sophisticated face to journalists. However, his eccentric mannerisms, dry sense of humor, and close connection to Hitler made him enemies, and he fled in 1937, eventually winding up in a British prison camp. McKittrick was ready to declare that the former Nazi spin doctor would not act against British interests if he were set free—although it is unclear how McKittrick could know this. Hanfstaengl was duly released and sent to the United States, where he compiled psychological profiles of Nazi leaders for American intelligence. McKittrick was an admirer of the new Germany and, like many in his social and business circles at that time, had an ambivalent attitude toward Jews. After Kristallnacht, the German pogrom of November 1938, he used his contacts to help Rabbi Israel Mattuck, of the Liberal Jewish Synagogue in London, arrange the immigration of German Jews. Mattuck wrote a grateful note thanking McKittrick “most heartily.” Later on, in August 1942, Paul Dreyfus, a Basel banker, asked McKittrick to write a letter of introduction for him to Leland Harrison, the American ambassador to Switzerland. McKittrick obliged but made his feelings about Dreyfus clear in a separate letter to Harrison. “He is, as you will surmise, a Jew, but a good sort who is doing everything he can to help his unfortunate countrymen.” McKittrick started work in Basel in January 1940. The outbreak of war in Europe posed existential choices for the BIS management. There were three options: liquidate the bank, downsize and become dormant until the end of hostilities, or remain as active as possible within the bounds of the declared policy of “neutrality.” The directors were unanimous—and already thinking ahead of the needs of transnational capital: The BIS must be kept going to assist with postwar financial reconstruction. McKittrick assured the Swiss authorities that the bank would be neutral and the staff would not “undertake political activities of any sort whatsoever on behalf of any governments or national organizations.”

The bank was indeed a bizarre island of neutrality. Basel is perched on the northern Swiss border, overlooking both France and Germany. Just a few miles away, Allied and Nazi troops were fighting and dying. But at the BIS, nationals of opposing sides worked together in courteous harmony. Roger Auboin, the manager, was a Frenchman. Paul Hechler, the assistant manager, was a German, a Nazi party member who signed his correspondence ‘Heil Hitler,’ as German law required. Rafaele Pilotti, the bank’s secretary, was Italian. British nationals also worked at the bank. After the fall of France, the BIS and the staff were temporarily evacuated from Basel, in anticipation of a Nazi attack. But the German invasion of Switzerland never materialized. Switzerland was far more useful to the Nazis as a neutral launderer of Nazi gold, a supplier of hard currency, and a financial channel to the rest of the world than as another territory under Nazi rule. In any case, McKittrick’s declarations of neutrality soon proved worthless. He and the rest of the bank’s management turned the BIS into a de facto arm of the Reichsbank. This was not a result of inertia, passivity, or bureaucratic sloth. It followed from a series of deliberate policy decisions. The BIS accepted Nazi gold looted from occupied countries such as Belgium until the final days of the war, when even neutral countries refused the plunder. The BIS recognized the forcible incorporation of 10 countries, including France, Belgium, Greece, and the Netherlands, into the Third Reich. The BIS allowed the Nazi occupation regimes to take ownership of those nations’ BIS shares, so that the Axis bloc held 64.7 percent of the bank’s voting stock. Board meetings were suspended, but Annual General Meetings continued, with member banks voting by proxy. McKittrick was especially close to Emil Puhl, the Reichsbank vice-president, whom McKittrick described as his friend. Puhl, who was a director of the BIS, was a regular visitor to Basel. In autumn 1941 McKittrick gave Puhl a tutorial on the Lend-Lease program, under which the United States supplied the Allies with arms, ammunition, and other war materiel. The act, passed in March of that year, effectively marked the end of the United States’ policy of neutrality. But America’s entry into the war did not affect McKittrick’s cordial and productive relationship with the Reichsbank. Puhl wrote of McKittrick in September 1942, “Neither his personality nor his manner of conducting business have been any cause for any criticism whatsoever.” The Reichsbank greatly valued its relationship with the BIS. Berlin continued to pay interest on the BIS’s prewar investments in Germany, even though that interest contributed to the bank’s dividends, which were paid to its shareholders, including the Bank of England. Thus, through the BIS, Nazi Germany was contributing to Britain’s wartime economy. It was a price worth paying, Puhl believed. Some of the BIS’s dividend payments to shareholders in Nazi-occupied countries went through the Reichsbank, thus giving Berlin access to the foreign exchange transactions and allowing it to charge a fee for its services. Hermann Schmitz, the CEO of IG Farben, the giant Nazi chemicals conglomerate, and a BIS board member, sent his sincerest New Year wishes to McKittrick in January 1941. Schmitz wrote, “For their friendly wishes for Christmas and the New Year, and for their good wishes for my 60th birthday, I am sending my sincere thanks. In response, I am sending you my heartfelt wishes for a prosperous year for the Bank for International Settlements.” It would certainly be another prosperous year for IG Farben, one of whose subsidiaries manufactured Zyklon B, the gas used to murder millions of Jews. In the winter of 1942 McKittrick traveled to the United States. His return to New York was the talk of Wall Street. On Dec. 17, 1942, Leon Fraser, an American banker and himself a former BIS president, hosted a dinner for McKittrick at the University Club. Thirty-seven of the United States’ most powerful financiers, industrialists, and businessmen gathered in his honor. They included the presidents of the New York Federal Reserve, the National City Bank, the Bankers’ Trust, and General Electric, as well as a former under-secretary of the treasury and a former U.S. ambassador to Germany. Standard Oil, General Motors, JP Morgan, Brown Brothers Harriman, several insurance companies, and Kuhn Loeb also sent executives. It was probably the greatest single gathering of America’s war profiteers. Many of these companies and banks had, like McKittrick, made fortunes from their connections with Germany, connections that carried on producing profits long after Hitler took power in 1933 and certainly after the outbreak of war in 1939. But, despite McKittrick’s powerful connections on Wall Street, the BIS was coming under pressure from the Treasury Department, where Henry Morgenthau and his aide, Harry Dexter White, were the bank’s most powerful foes. White was scathing about McKittrick, describing him as “an American president doing business with the Germans while our American boys are fighting the Germans.” The BIS, like all Swiss banks, needed a license to operate in the United States, and it had been revoked in 1941. McKittrick hired John Foster Dulles to get the license unblocked. He also met Morgenthau. The encounter did not go well. Morgenthau walked out after 20 minutes and recommended that McKittrick consult Treasury experts. McKittrick was then denied permission to return to Basel. He spent his time while waiting for his passport being debriefed by OSS agents about the intelligence he gleaned from his Nazi contacts.

There was a rich haul. Hitler, McKittrick revealed, had become indecisive. “Instead of having a definite plan laid out, and pursuing it relentlessly, he switches from one plan to another,” the OSS report of McKittrick’s interview noted. There were even rumors that he had started drinking. Despite the soaring casualties on the Eastern Front, and the surrender at Stalingrad, most Germans, McKittrick explained, still believed state propaganda. He related how one friend of his in the Reichsbank said he had to get out of Germany every now and again or he would start to believe the propaganda himself. Some of the most intriguing material the OSS obtained from McKittrick detailed his role as a back-channel between anti-Nazi Germans and the United States. McKittrick told the OSS that he received “peace feelers” from non- or anti-Nazi Germans twice a month. All of them, however, argued that, even if a deal was made, Germany would remain the dominant European power “with a free hand in the east and a large measure of economic control in western Europe.” McKittrick also strongly emphasized the BIS’s future use in planning the postwar order. “While it does not concern itself with political affairs, it does offer facilities for the discussion of postwar financial and economic questions,” wrote the author of the OSS memo, “and he thinks that a year or two can be saved in getting Europe back to work by informal international conversations under its auspices.” McKittrick finally arrived back in Basel in April 1943. Despite his lobbying and John Foster Dulles’ legal advice, the BIS’s request for exemption was denied, and the bank’s funds in the United States remained frozen. There were many in Washington 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 was 60 miles south, in Berne, at Herrengasse, 23. There, McKittrick’s old friend Allen Dulles ran the Swiss branch of the OSS. McKittrick, also known as OSS codename 644, regularly met with 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. McKittrick, they discovered, knew a lot. For example, the BIS 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. 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. OSS telegram 3589-90, sent on May 25, 1944—at a time when thousands of 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.” Declassified OSS documents reveal that McKittrick played a central role in an American psychological-warfare operation known as the “Harvard Plan,” which aimed to undermine the morale of German businessmen—and their support for the Nazi regime. The Stockholm OSS office published a wartime newsletter called “Information for German Business,” the purpose of which was to suggest that cooperation now would pay handsome dividends after the Allied victory. On Feb. 1, 1945, David Williamson, an 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. He enclosed some draft material. Notably, all the material had been passed by the State Department before it was to be distributed. It revealed how McKittrick was arranging deals with Nazi industrialists to guarantee their profits after the war was over. “The new agreement will guarantee the German export interests during this second period an export income at least equal to their prewar revenues regardless of the expected break in the German cartel control,” read the document. A second paragraph outlined how, even as Allied airmen were bombing Germany, negotiations were under way to “preserve the industrial substance of the Reich.” Anyone who questioned this was merely a “leftist radical,” according to McKittrick: 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.

For Morgenthau and White, such “agreements” were simply treasonous. They wanted the country to be deindustrialized and the power of the German cartels broken forever. For a brief moment, it seemed as though they might triumph. In July 1944 the Allies met at Bretton Woods to plan the postwar financial system. There would be a new International Monetary Fund and an International Bank for Reconstruction and Development. A resolution was passed calling for the dissolution of the BIS “at the earliest possible moment.” But the Dulles brothers and their allies, who argued that Germany must be rebuilt as rapidly as possible as a bulwark against the Soviet Union, triumphed over Morgenthau and White. The BIS returned the looted Nazi gold, and the calls for its dissolution faded away. Today, the bank is richer and more inviolable than ever. Last year, the BIS made a tax-free profit of $1.36 billion—an impressive sum for a bank with just 140 customers. Ultimately, McKittrick was proved right: The agreements he brokered were indeed “invaluable.” After he stepped down as BIS president in 1946, McKittrick was appointed a vice president of Chase National Bank in New York, in charge of foreign loans. He was even lauded by those whose stolen goods, in the form of looted Nazi gold, he had traded: That same year, McKittrick 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.”

[ Additional research by Jay Weixelbaum and Emmanuelle Welch. Adapted from Tower of Basel: The Shadowy History of the Secret Bank That Runs the World ]

“Walther Funk, president of Reichsbank and economics minister of Nazi Germany”

Nazi blueprint for postwar integration
by Adam LeBor  /  June 2020

“In the summer of 1940 Walther Funk, the president of the Reichsbank and economics minister of Nazi Germany, set out his thoughts on Europe’s postwar future. For Funk, a former financial journalist, these were heady days. The nine-page, closely-typed memo, numbered H.S. 70, was entitled “Economic Reorganisation of Europe”, to take place after, of course, the coming German victory. To many at that time, especially in Berlin, the triumph of Nazism was a given. Austria and Czechoslovakia had been absorbed into the Reich, Poland dismembered between Germany and the Soviet Union. Denmark, Norway, Holland and Belgium had all fallen. France had surrendered and the Luftwaffe was nightly pounding Britain. Funk’s memo is a detailed outline of what needs to happen for Germany to control the postwar European economy, one designed to meet Germany’s economic and commercial interests. Some of his measures seem arcane, others more grandiose. Funk calls for a bonfire of regulations to ease free trade and exchange restrictions across a Europe-wide market. He argues that currency exchange rate fluctuations should be brought under control to stabilise cross-border trade. A better system of clearing technniques should be developed for countries to settle their payments to each other. Funk stresses the need for Europe to be a profitable market for high-quality German exports. In the immediate postwar years the German unit of currency would be the most powerful currency on the continent. Eventually a united Europe would have a single currency. Five years later, Funk was tried for war crimes. But he was also a prophet.

I found Walter Funk’s memo in the archives of the Bank for International Settlements (BIS) in Basel. The BIS is one of the world’s least known but most influential financial institutions. Founded in 1930 to channel German reparations for the First World War, the BIS has far outgrown its original mandate. Nowadays it acts as the bank for central banks, and also hosts regular meetings of central bankers, which are conducted in secret. The bank was granted, and retains, extraordinary legal privileges, similar to those enjoyed by the United Nations or diplomatic embassies. Its managers and their papers are inviolable. Its assets are not subject to civil claims under Swiss law and can never be seized. The Swiss authorities have no jurisdiction over the BIS’s premises. I first encountered the BIS while researching my book Hitler’s Secret Bankers, which exposed Swiss economic collaboration with the Nazis. That book led me to write Tower of Basel, the first investigative history of the BIS. Earlier this year, I finished a new, updated edition of Hitler’s Secret Bankers. I was particularly interested in Nazi postwar economic planning and the role the BIS played as a secret communications channel between the Nazis and the Allies. The bank is one of the most bizarre footnotes of the war. Throughout the conflict, American, British, French, German and officials of other nationalities all worked together to keep the BIS functioning and open. Paul Hechler, the German assistant general manager, even signed his correspondence with “Heil Hitler”. London, Washington and Berlin all agreed: the BIS was vital for postwar planning. The more I delved into this, and examined the BIS’s behind-the-scenes role in postwar economic planning, the more I kept returning to Walther Funk’s memo. Those nine pages seemed less like the power-mad fantasies of a Nazi financier and more like an actual blueprint for Europe’s financial and economic infrastructure. Funk’s memo was translated and a copy given to Thomas McKittrick, an American who served as the BIS’s president during the Second World War. The BIS described itself as neutral, but it actively aided the Third Reich. The BIS accepted looted Nazi gold and carried out foreign exchange deals with the Reichsbank. It legitimised the Nazi occupation of its member shareholders. The Nazi regimes in France, Belgium, Greece and the Netherlands, for example, were given control of those countries’ BIS shares, so that the Axis block held 67.4 per cent of the BIS’s voting stock. With McKittrick at the helm, and the Axis powers controlling its shares, it was no wonder that Emil Puhl, the vice-president of the Reichsbank and BIS director, described the BIS as “the only real foreign branch of the Reichsbank”. So how had an American worked with Nazi colleagues to launder looted gold? Who was Thomas McKittrick — and who was protecting him and why? McKittrick was a lawyer, rather than a banker. After graduating from Harvard in 1911 he lived in Italy, then joined the US Army in 1918. He was seconded to British military intelligence and sent to Liverpool docks to check for spies. After the war he was despatched to France, where he worked with the occupation forces, before joining Lee, Higginson, a once prestigious Boston investment firm.

“John Foster Dulles: Lifelong friend”

In 1921 he moved to the firm’s London office and put in charge of foreign operations. He loved London and became a kind of honorary Englishman, reading an ironed copy of The Times each morning with his breakfast. McKittrick worked on the Dawes Plan German External Loan of 1924, which extended credit to Germany to rebuild. John Foster Dulles, who later served as US Secretary of State, helped to arrange German loans through his powerful law firm, Sullivan and Cromwell. McKittrick knew Dulles and was also friends with his brother Allen Dulles, who later served as the Bern station chief of the Office of Strategic Services, the forerunner of the CIA, before becoming director of the CIA. Allen Dulles was friends with another powerful lawyer, John McCloy, who represented I.G. Farben’s American subsidiary in the US. John Foster Dulles and McCloy were also close to Jean Monnet, a French financier and diplomat who later became one of the founding fathers of the European Union. These details are important because after 1945 Allen Dulles and John McCloy in particular would ensure that Nazi war criminals, especially those guilty of financial or economic crimes, such as powerful bankers and the directors of I.G. Farben, received only token punishments or none at all. Dulles and McCloy would ensure the continuity of economic and financial power between prewar and postwar Germany — a continuity rooted in their prewar commercial and business interests. The policies and their decisions of this cabal shaped postwar Germany and Europe, and thus the world in which we live today. The histories of all these men show that while countries go to war, and millions lose their lives, finance and capital will keep channels across the front lines, while planning a future that will safeguard their interests and profits.

There are few better illustrations of the depth of this cynicism than the relationship between McKittrick and Emil Puhl. McKittrick was especially close to the Nazi banker, whom he described as his “friend”. Puhl was tightly bound to the financial and economic wing of the SS that managed its business interests. He was a frequent visitor to Basel and often met with McKittrick. McKittrick passed political and economic intelligence to Puhl in full knowledge that the German would immediately pass such valuable information to his superiors and colleagues. For example, the Lend Lease act, passed in March 1941, allowed the US to supply its allies with food, oil, arms, ammunition and other war material. The act effectively ended American neutrality and caused great alarm in Berlin. More information was needed and Puhl was the man to get it. In Autumn 1941 McKittrick gladly gave Puhl a brief tutorial on the Lend Lease act. McKittrick later recalled the conversation. Puhl asked, “What does this Lend Lease thing mean? We don’t understand it. Is there anything you would be willing to tell me about it?” McKittrick replied: “Yes, I’ll give you this. It’s my own idea but there’s no reason I shouldn’t tell it to you. I think that if America is going to be in the war, something will happen to get us in. Just the way it did in the first war. And what is happening is that we’re getting our industrial organisation into shape for our entry into the war.” I’ve never seen a man’s face drop more than his did. I thought he was going to faint or something. He said, “My God, if you’re right, we’ve lost the war.” McKittrick had just passed high-level strategic intelligence to a high-ranking Nazi official. At this time the US was still technically neutral, although it was clear it was preparing to enter the war. In December 1941 Germany declared war on the US. For Puhl, McKittrick was now a citizen of an enemy nation. Now there were also questions in Berlin about the BIS’s American president, the Germans working there, and the BIS’s relationship with the Reichsbank. Puhl ardently defended the BIS. In September 1942 Puhl wrote of McKittrick, “Neither his personality nor his manner of conducting business have cause for any concern whatsoever.” McKittrick also passed intelligence to the Allies, through his old friend Allen Dulles. McKittrick had his own OSS codename: 644.

The two men often met Leland Harrison, the US ambassador to Switzerland. McKittrick explained how the Germans were financing their intelligence and sabotage organisations in South America. “The Allies,” he recalled in a postwar interview, “were very anxious to stop this, but no way was found to do it without risking a loss of goodwill among the neutral nations which would be too serious to contemplate.” The Portuguese connection was key. Portugal supplied tungsten, a vital war material. The country was neutral but the escudo was a hard currency. How could the Nazis pay the Portuguese? It worked like this, explained McKittrick. The Reichsbank sold gold to the Bank of Portugal. The gold was then delivered to the Swiss National Bank where it was credited to the Portuguese account. The Bank of Portugal credited the accounts of German firms in Lisbon, who then purchased the tungsten. Dulles and the OSS greatly valued McKittrick’s connection with Puhl, OSS documents reveal. Puhl had high-level intelligence and was considered a reliable source. OSS telegram 3589-90, sent on 25 May, 1944, reported that the Reichsbank had already started to make plans for postwar reconstruction: Not so 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 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. Puhl was also in deep discussions with the Swedish economist Per Jacobsson, future leader of the International Monetary Fund. During the war Jacobsson was a senior BIS official. The two men lunched together in December 1942, at Puhl’s office in the Reichsbank, not far from the vaults that were piled high with the looted wealth of European Jewry. Jacobsson believed, correctly, that Puhl was the BIS’s most important ally in Nazi Germany. Without his support the BIS would collapse. Jacobsson wrote in his diary: “I know full well to what extent the future of the BIS depends on Puhl’s possibilities of holding the fort in Berlin.”

Hjalmar Schacht, Funk’s predecessor at the Reichsbank, supposedly described him as a “harmless homosexual and alcoholic”. Funk was indeed gay and enjoyed a dissolute lifestyle. But he was anything but harmless. Indeed his importance to the Third Reich helped keep him out of the concentration camps where less well-connected gay men were tortured and murdered en masse. Building on Schacht’s foundations, Funk sat at the apex of the Nazi plundering of Europe. Much of the stolen wealth of nations, of their citizens and of murdered Jews was channelled through the Reichsbank. Funk was an economic war criminal of the first order, one of Simon Wiesenthal’s “desk-murderers”. He liked to take guests on a tour of the Reichsbank vaults, to inspect the piles of valuables looted from Holocaust victims. In his 1940 memo Funk asks how Germany would run Europe after the Nazi victory. The postwar “European large-unit economy”, he writes, “must be an organic growth”, resulting from “close economic collaboration between Germany and European countries”. The most important currency of postwar Europe would of course be the Reichsmark. “In this connection it is obvious that the Reichsmark will have a dominating position. The enormous strengthening of the power of the Greater German Reich, will, as a natural consequence, bring with it a strengthening of the Reichsmark.” Eventually, the aim would be a single currency across Europe. But before that, conversion rates would have to be tightly controlled to avoid wild fluctuations and disruptions. Only then could currency union be achieved. “There can, of course, be no question of getting rid of foreign exchange controls and compulsory clearing at one blow. The problem is not one of free foreign exchange or European monetary union, but, in the first place, of a further development of clearing techniques for the purpose of ensuring a smooth course for payments within the countries participating in the clearing.” The first step then was a European structure for central banks to clear their debts and payments to each other. Once exchange rates had been stabilised, foreign exchange restrictions could be abolished, initially for travellers and “petty frontier traffic”, then for import trade. “Meticulous surveillance and all the regulations which weigh down on the individual business enterprise with a mass of forms will no longer be necessary.” Funk’s more immediate objective was to ensure that postwar Europe’s economies should be designed first and foremost to meet Germany’s needs, primarily to act as an export market. That would be the central plank of the postwar European economy. The deciding factor would be the quality of German exports, “and in this respect we really need have no anxiety”. European countries would base their economies, and plan their production as satellites of the Germany economy, to be “an outlet market” offering “security for many years”.

The postwar continent would stand firm in its defence of Germany and German economic interests, concluded Funk. “This united Europe will not accept the imposition of conditions of a political or economic nature from any extra-European group.” This is not to claim that the European Union is the Fourth Reich. The EU’s founding political principles are freedom, human rights, democracy and the rule of law, the antithesis of Nazi Germany. Its member states are open civil societies, albeit to a varying degree. After 1989 membership of the EU helped to stabilise the post-communist countries and lock them into a democratic framework. Nowadays much of the discussion around the future of the EU revolves around the political aspect, and whether or not it should evolve into a continent-wide federal state. But the EU’s founding fathers, like Funk, were focused on postwar trade and commerce. The priority was to remove barriers, customs regulations and tariffs. Only then could it evolve into a single market across the continent for all goods, labour, capital and services and then perhaps become a federal European state. But that would take many years. Funk even anticipated the economic disequilibrium between different members of a single currency zone, such as Greece and Germany. While national economies remained so different, monetary union must remain a longer-term aim, he wrote. “But a monetary union calls for a gradually assimilated standard of living and, even in the future, the standard cannot be the same in all the countries participating in the European clearing and nor should it be the same, for the economic and social prerequisites are lacking, and in any case, the organisation of European economy on this basis in the near future would be an absurd undertaking.”

After the war, Funk was tried at Nuremberg. In October 1946 he was found guilty of war crimes and crimes against humanity and sentenced to life imprisonment. But while Funk was incarcerated, much of his programme for Europe was steadily being implemented. The BIS, the bank on whose board he had served, played a central role in these decades. It was at the BIS that the bankers and technocrats met to plan the new financial institutions and mechanisms that would ultimately lead to the removal of national currencies and monetary sovereignty. Such decisions, taken behind the scenes by a cabal of central bankers and privileged officials, were presented as apolitical technical steps, technocratic measures too obscure for the general public to bother themselves with. But there are few things more political than the stealthy removal of national sovereignty. The European Payments Union, a clearing system for countries to manage their trading balances, was established in 1950, with the BIS as its agent. Two years later six countries, including West Germany, France and Italy, founded the European Coal and Steel Community, Europe’s first supranational organisation, which would eventually evolve into today’s European Union. The BIS oversaw the loans issued by the ECSC which gave the fledgling group credibility on international markets. The ECSC’s member states surrendered control of these industries to an aptly named “High Authority”, based in Luxembourg. Its first president was Jean Monnet, the old friend of John Foster Dulles and John McCloy. Behind all the fine talk about a peaceful future Europe were more hard-headed calculations: to ensure the continuing dominance of the German and steel cartels and the power of men such as Alfried Krupp, whose industrial empire had worked tens of thousands of slave labourers to death. Krupp had been sentenced to 12 years at Nuremberg, but was pardoned by McCloy in 1951. McCloy also restored Krupp’s confiscated property. McCloy also pardoned the leaders of I.G. Farben, including Hermann Schmitz, the company CEO, himself a former director of the BIS.

As for Walter Funk, he was released from prison in May 1957, soon after the six founder members of the ECSC signed the Treaty of Rome, which established a common market and customs union. The treaty also called for closer coordination of monetary policy between member states. That work was carried out by the Committee of Governors of EEC member states central banks, created in 1964. The Governors’ Committee was hosted by the BIS, which also provided its secretariat. The Committee managed the first limits on exchange rate fluctuations within European currencies, a mechanism known as the “Snake in the Tunnel”, a necessary prelude to full currency union. The Committee of Governors sat for almost 30 years, quietly planning for a single currency, until 1993 when it was replaced by the European Monetary Institute, which relocated to Frankfurt. The EMI’s founding president was Hungarian economist Alexandre Lamfalussy, the former general manager of the BIS. In 1997, the EMI became the European Central Bank and two years later the euro was launched. Of the 19 eurozone central banks that contribute to the ECB’s capital, the Bundesbank, successor to Funk’s Reichsbank, was and remains the most powerful and influential. Finally, Funk’s “European large-unit economy” had come to life.”




Leave a Reply