Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (14 page)

McKittrick was not a Nazi, but he was certainly a friend of the new Germany and, like many in his social and business circles at that time, had an ambivalent attitude toward Jews. In November 1938, two weeks after Kristallnacht, he used his contacts to help Rabbi Israel Mattuck, of the Liberal Jewish Synagogue in London. McKittrick introduced Rabbi Mattuck to the US Consul General in London to try and help arrange the immigration of German Jews. Mattuck wrote a grateful note thanking McKittrick “most heartily.” The meeting had been very useful. “As a result, I hope that I may, by means of a fund that we have here, help at any rate a few German Jews to find a way of escape.”
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Later on, during the war, in August 1942, Paul Dreyfus, a Basel banker, asked McKittrick to write a letter of introduction 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.”
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THE OUTBREAK OF
war brought existential choices for the BIS’s 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 gave an undertaking to the Swiss authorities that all staff would not “undertake political activities of any sort whatsoever on behalf of any governments or national organizations.” Any such departures, he noted in a memo to staff, would be “particularly regrettable at present when special privileges are being sought on behalf of the bank and its staff.”
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A safe passage home would be arranged for anyone who wanted to leave.

The BIS declaration of neutrality meant the following: the bank would not grant credit to central banks of belligerent countries; it would, when operating on neutral markets, ensure that belligerents did not profit from such operations; it would not carry out any transactions, either direct or indirect, between countries at war with each other; it would not sell assets in one country to make a payment to another if they are at war, and it would not hold assets of one belligerent country secured against another. Badly burned by the Czechoslovak gold affair, the BIS said it would not make decisions implying recognition of what it delicately called “territorial changes not universally accepted.” When the central bank of the German Protectorate of Bohemia and Moravia (the illegitimate Nazi regime ruling Czechoslovakia) requested the transfer of its remaining gold held at the BIS to the Reichsbank, it was blocked. When the Belgian government in exile proclaimed that the National Bank’s official seat was in London, the Nazi occupation regime responded that the bank’s headquarters were in Brussels. The BIS said it was neutral and would not recognize either. The Belgian vote on the board of directors remained unused. The BIS took the same position with regard to Yugoslavia, when faced with competing claims from Belgrade and London.

The bank’s declarations of neutrality soon proved worthless. McKittrick 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 carried out foreign exchange deals with the Reichsbank. It accepted looted Nazi gold until the final days of the war, when even neutral countries such as Sweden
had begun to refuse it. It recognized the forcible incorporation of occupied countries, including France, Belgium, Greece, and the Netherlands, into the Third Reich. By doing so, it also legitimized the role of the Nazi-controlled national banks in the occupied countries in appropriating Jewish-owned assets. The BIS allowed the Nazi occupation regimes to take ownership of BIS shares, so that the Axis block held 67.4 percent of the bank’s voting stock. Board meetings were suspended, but Annual General Meetings continued. Shareholder banks voted by proxy. The case of Poland is telling. In April 1940, Leon Baranski, the Polish representative to the BIS, asked for the government in exile in London to take control of the Polish shares. McKittrick refused. He told Baranski that he did not want to have to issue a ruling, but if he was forced to, the “result may necessarily be an adverse decision” for Poland. McKittrick was determined to avoid raising “a question of this sort,” for “once political discussion gets underway, even without publicity, one never knows where it will end.”
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While Nazi territorial annexations were accepted, Soviet ones were not. In June 1940 the Red Army invaded Latvia, Lithuania, and Estonia. The Soviets ordered the three central bank governors to instruct the BIS to transfer their gold reserves to the Soviet Union’s state bank. The parallel with the Czechoslovak gold was clear—but the outcome was very different. The BIS’s management, as legalistic as ever, argued that the bank had to accept the instructions. But this time the president refused. “I had to fight my whole management—particularly my legal adviser, saying that we had to accept these instructions and turn the gold over to the Russians. But I just couldn’t do it,” McKittrick recalled.
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Instead, McKittrick commissioned an outside legal opinion from Professor Dieter Schindler of Zürich University. Schindler argued that neither the governors nor the banks of the Baltic States were free agents, but had probably acted under the instructions of the Soviets. He quoted Article 10 of the BIS charter, which prohibited coercive measures against depositors. Thus, Schindler argued, it was the duty of the BIS management to “resist,
as far as lies in their power” any attempts by governments to interfere with the BIS’s assets. McKittrick was vindicated. He sent a copy of Schindler’s memo, which was accepted by the bank management, to Merle Cochran. The BIS president asked him to keep Schindler’s legal opinion confidential. “My one serious concern is that it should not get into the press. After the damaging campaign of publicity regarding the Czech gold, it is of the greatest importance to the BIS to remain in the background at this time.”
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UNTIL THE OUTBREAK
of war, the BIS was a congenial place to work. The staff were well paid, intelligent, and cosmopolitan in their outlook. The BIS, like the League of Nations, was an international oasis. Managers regularly traveled to meet their counterparts in London, Paris, Berlin, and other capitals. The governors’ meetings were the high point. Some of the most powerful people in the world traveled to Basel, sprinkling the staid BIS with a little stardust. The staff enjoyed the glamour, the sense of being on the inside track, and the social whirl of dinners, receptions, and teas.

That idyll ended with the fall of France in May 1940. Axis-controlled territory now surrounded Basel on two sides where the borders reach almost to the city limits. Bank officials worked to a backdrop of gunfire. The Swiss authorities feared a German invasion and made plans to evacuate the city. Meanwhile, McKittrick’s patrons in London were keeping a very close watch on their protégé. The BIS president was in regular contact with Sir Frank Nelson, the British consul in Bern. Nelson, who was an experienced international businessman, later became chief of the Special Operations Executive, the British wartime sabotage organization. One day, around May 20, as tension soared, Nelson called McKittrick at home at 7 a.m. The British diplomat told him, “Things look very bad indeed. They couldn’t look worse.” Nelson explained that he must be able to reach McKittrick at any time. He told him, “Don’t go out without telling somebody where you are going, and don’t leave the next place without telling me where you’re going.”

At 7 p.m. that evening, McKittrick had returned home when Nelson called again. He instructed the BIS president to evacuate all French and British staff from Basel immediately. The Nazi invasion was imminent, expected to commence at any moment. McKittrick returned to the bank’s headquarters and summoned his senior staff, including Roger Auboin, Rafaele Pilotti, and Paul Hechler. They contacted as many French and British employees as they could. Hechler then told McKittrick, “You’re the only man who alone can dispose of the assets of this bank. I think you’re the most important man for us to get out of Basel.” McKittrick agreed and quickly abandoned his colleagues. He called his chauffeur, and went home and grabbed some clothes. The chauffeur, McKittrick recalled, “didn’t pack them but stuffed them into the car.” They headed for Bern and were stopped on route fourteen times by Swiss soldiers or police.
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The German invasion of Switzerland never happened. Swiss francs, Swiss banks, and the BIS were far more use to the Third Reich than another stretch of mountainous territory, where a stubborn, hardy population would have likely waged guerilla warfare against the Nazis. The BIS relocated to Château d’Oex, in the southwest of the country. McKittrick and Per Jacobssen moved into the Chateau de Rougemont, kindly loaned by its American owner. The rest of the staff had to make do in the village. There were few decent houses, schooling was basic, and the village was tiny. By the end of the autumn, as the war ground on, relations between the different nationalities were near-poisonous. Morale was collapsing, recalled McKittrick. “There was only one movie house in town, and if a Frenchman and his wife went to the movies, and a German and his wife went to the movies, and they walked into each other, it was an embarrassment for all concerned.”
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Everyone was relieved when the BIS returned to Basel in October 1940. There, despite the conflict, the BIS continued to enjoy immense financial as well as legal privileges. It could buy and sell unlimited amounts of Swiss francs. This was the most important currency in wartime Europe, accepted everywhere. The BIS, thanks to its charter, did not have to report foreign exchange
transactions. Its exchange rate against the Swiss franc was not subject to the same restrictions as Swiss commercial banks. Until 1942 the BIS could buy and sell gold at better rates than the Swiss National Bank. This bizarre setup, where Allied and Axis bankers worked together so profitably, drew increasingly hostile attention in London and Washington, DC.

The State Department asked the American embassy in London to investigate the state of the relationship between the British government and the BIS, noting that “many problems” have come up. John Gilbert Winant, the ambassador, met with Sir Otto Niemeyer, the former chairman of the BIS board. Niemeyer was as adamant as ever about the BIS’s immunity. He pointed to article 10 of the BIS’s charter that guaranteed that in the event of war, the property and assets of the bank shall be immune from seizure. Niemeyer had even made arrangements with the British government that BIS communications to London could pass directly through the censor. “It is Niemeyer’s belief,” wrote Winant, “that the British should continue their association, as well as lend the bank their tacit approval, if only for the reason that a useful role in postwar settlements might later have an effect.”
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While the BIS was operating in such a restricted manner, “it was felt that it would be of no use at this time to raise difficult legal questions with respect to the relationship of the various countries overrun by the Germans.” Niemeyer argued that McKittrick should stay in Switzerland as he was “the guardian of the bank against any danger that might occur.”
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McKittrick was far more than a guardian of the BIS. He repeatedly passed economic and financial intelligence to the Reichsbank leadership. McKittrick was especially close to Emil Puhl, the vice president of the Reichsbank and BIS board member, whom McKittrick described as his “friend.” Puhl, a gold and currency specialist, was a regular visitor to both the BIS at Basel and the Swiss National Bank in Bern. He had close links with the financial wing of the SS that managed its extensive business interests. Puhl, rather than Walther Funk, his nominal superior, was the real boss of the Reichsbank. 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 material. The act, passed in March of that year, effectively marked the end of the United States’ policy of neutrality. McKittrick later recalled the conversation. Puhl asked the BIS president,

                 
“What does this Lend Lease thing mean? We don’t understand it. Is there anything you’d be willing to tell me about it?” And I [McKittrick] said, “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 organization into shape for our entry into the war.” I’ve never seen a man’s face drop more than his did. I though he was going to faint or something. He said, “My God. If you’re right, we’ve lost the war.”
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McKittrick’s prediction proved correct. But America’s entrance into the war in December 1941 caused him further problems. The BIS president was no longer a neutral, but a citizen of a belligerent nation—in daily contact with his German, French, and Italian colleagues. But the advent of hostilities between the United States and Nazi Germany did not change his 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.”
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Puhl even described the BIS as the “only real foreign branch” of the Reichsbank.
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Some of the BIS dividend payments to its 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. During the war the Reichsbank continued to pay interest on BIS 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.