Office of the Historian

File No. 763.72112/7607

The Assistant Secretary of the Treasury ( Leffingwell) to the Counselor for the Department of State ( Polk)

Washington, February 1, 1918.

Dear Mr. Polk: I beg leave to acknowledge receipt of your letter of January 24, in which you inform me that the British Embassy is pressing for an answer to various notes and memoranda submitted in relation to the extension of the financial blockade, and the securing of bankers’ guarantees.

It has been impossible so far to take any action in regard to these matters, pending the preparation and approval of an Executive order dealing with the subject.

The President has just signed (on January 26) an Executive order which has been in preparation for some time, and which prescribes rules and regulations under section 5 of the Trading with the Enemy Act, and supplements, rules, and regulations heretofore prescribed under title 7 of the Espionage Act. I enclose herewith two copies of this order.2

You will observe that the order requires declarations from foreign bankers dealing with bankers within the United States in order to [Page 954] safeguard the accounts of United States bankers with such foreign bankers against use for the benefit of an enemy or ally of enemy. Any foreign banker failing to execute such declaration, or, having executed it, failing to comply with its terms, will be precluded from doing business with bankers within the United States, and, in addition, there is lodged in the Federal Reserve Board the power to prohibit such business connection in any case in which, in their judgment, the best interests of the United States require such action. This provision will permit the application and progressive tightening of any form of financial blockade that may be agreed on. In respect of this matter, we are waiting to hear further from Mr. Crosby, in pursuance to his cable No. 21 to the Secretary of the Treasury.1

You will observe that the regulations will put the Federal Reserve Board in possession of full information in regard to credit and banking operations with foreign countries. It is thought that interesting and valuable information will be obtained in this way.

In connection with this subject, I request that the attached cable be sent to Mr. Crosby.2

Cordially yours,

R. Leffingwell
  1. Not printed.↩
  2. Foreign Relations, 1917, Supplement 2, vol. II, pp. 1005–1006.↩
  3. Infra. ↩