File No. 763.72112/5251

The Governor of the Federal Reserve Board ( Harding ) to the Counselor for the Department of State ( Polk )

Dear Mr. Counselor: I have just received your letter of the 10th instant,1 returning tentative draft of the letter to all Federal Reserve Banks based upon your communication of April 27.1 I have taken pleasure in making the change suggested by you, and have sent the circular letters out this afternoon. I enclose copy for your information, as requested.

Very truly yours,

W. P. G. Harding

Circular Letter from the Governor of the Federal Reserve Board ( Harding ) to the Federal Reserve Banks

Dear Sir: The board is in receipt of a letter from the Counselor for the Department of State, calling its attention to the desirability of guarding against transfers of banking credits to neutral countries for account of alien enemies, and against the use of domestic credits for similar purposes.

The board is informed that the State Department is not concerned in the ordinary commercial transactions and routine bank accounts of aliens of whatsoever nationality, resident in the United States, with banks situated therein. It is suggested by the Department, however, that each banker doing business in this country should scrutinize with particular care such accounts as may be held by his bank for any resident alien enemy, and in the event any suspicious transactions occur in connection with such accounts, that they be reported immediately to the board for transmission to the proper department.

The transactions which are interesting to the State Department may be divided into three classes:

Foreign exchange transactions between banks in this country and banks in neutral countries in Europe;
Ordinary banking transactions such as the obtaining of credits by alien enemies resident in the United States;
Banking transactions between this country and Mexico, or Central American and South American countries.

The State Department is especially interested in preventing all transfers of money by cable, by draft, or by shipments of currency or otherwise to neutral countries in Europe for the account of alien enemies.

It is, of course, difficult for a bank to determine offhand whether or not a transfer is for the account of alien enemies, when it is asked by an individual or corporation in this country to make a transfer to a bank in a neutral country.

The board is advised, however, that the State Department is anxious that bankers throughout the country should be warned that they should scrutinize most carefully every application made to them involving the transfers of funds to neutral European countries, which transfers seem intended to give aid to the enemies of this country, either directly or indirectly.

The board is further advised that the State Department is interested in banking transactions between this country and Mexico or other Latin American countries, as there is some evidence in its possession that alien enemies operating either as individuals or through the instrumentality of an American corporation, or otherwise, are desirous of fomenting trouble between this country and other Republics of this hemisphere, and in order to further their plans they must rely upon financial assistance through the form of credits opened in their behalf in this country. It is, of course, true that many accounts held by banks in this country for the benefit of alien enemies resident in countries adjacent to the United States, are ordinary commercial accounts, and up to the present time the State Department has disclaimed any disposition to interfere with the free operation of such accounts, being interested only in such transactions as may appear to the bankers who are requested to facilitate the same as being of a suspicious character.

The board is of the opinion that, in view of your intimate contact with member banks in your district, you are in a position to secure their cooperation in scrutinizing and supervising financial transactions made or attempted to be made for the benefit of alien enemies. Reports of suspicious transactions coming to the notice of banks should be made to the board by wire, in order that the officials of the proper department may be advised and immediately make investigations.

There are, of course, many trust companies, State banks, and private bankers with which your bank has no intimate relationship. The board believes, however, that if an appeal should be made to [Page 816] these banks and bankers, they would readily observe such precautionary methods as you may, with the approval of the board, ask your member banks to comply with. Express companies and telegraph companies doing a banking business in transmitting currency or credits by express or by wire should also be asked to cooperate on the lines suggested above.

The attention of the Comptroller of the Currency has been called to this letter and he has been asked to enlist the cooperation of the large force of national bank examiners working under his supervision. It is believed that their assistance will be of great value in securing the information desired and in further enlisting the cooperation of the banks with which they come in contact in their work. You are requested to urge the banking departments of the States in your district to cooperate in the same manner through their bank examiners.

It is requested by the board that a copy of this letter be sent to all banks and trust companies in your district, in order that they may understand that, while innocent transactions of a domestic character with alien enemies are unobjectionable, no business of a nature calculated to give aid or comfort to the enemy directly or indirectly will be countenanced.

Very truly yours,

[No signature indicated]
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