Papers Relating to the Foreign Relations of the United States, 1927, Volume I

763.72113 Au 7/17

The Secretary of State to the Chairman of the Committee on Ways and Means of the House of Representatives (Green)

Washington, December 10, 1927.

My Dear Mr. Green: I have been informed by your office that you desire to receive, for the information of the Committee, a statement from me outlining the considerations involved in the question whether provision should be made for the return of Austrian and Hungarian property at the same time as provision is made for the return of the German property sequestrated by the Alien Property Custodian, and that in particular you would be pleased to know what, if any, representations in the matter may have been made to the Department of State by the Austrian and Hungarian Governments.

In a note dated November 29, 1927, the Austrian Minister submitted on behalf of his Government a proposal from which I understand that the Austrian Government is prepared to place at the disposal of the Government of the United States for the purpose of satisfying the awards made against Austria by the Tripartite Claims Commission, United States, Austria and Hungary, a sum of not more than two and one quarter million dollars in cash, this sum to be composed of the funds held by the Alien Property Custodian which at the time of sequestration belonged to the Austrian Government as such, including funds of the State owned Tobacco Monopoly (K. K. Österreichische Tabak Regie), and of such further deposit in cash as may be necessary to bring the total up to the sum of two and one quarter million dollars. If this proposal is acceptable to the Government of the United States, the Austrian Government requests that appropriate recommendation be made to the Congress for the enactment during the present session of an act of legislation authorizing the Alien Property Custodian to release Austrian property as soon as it has been ascertained by the competent authorities (for example, the Treasury Department and the Commissioner of the Tripartite Claims Commission) that the sum of two and one quarter million dollars deposited by the Austrian Government is sufficient to satisfy the awards made by the Commission against Austria. A copy of the note from the Austrian Minister is transmitted herewith.^38a

It is my understanding that the figure of two and one quarter million dollars mentioned by the Austrian Minister is based upon an estimate prepared by the Austrian Agent before that Commission of the maximum probable awards against Austria. An estimate has also been prepared by the American Agent, and I transmit herewith a copy of the latter’s memorandum containing his estimate which, you will note, exceeds the two and one quarter million dollars fixed by the Austrian Government as the amount it will make available for the satisfaction of the awards.

In considering whether the present proposal of the Austrian Government may be regarded as constituting suitable provision for the satisfaction of the awards made in favor of American claimants, your Committee will no doubt wish to satisfy itself that the amount of the awards with interest will not exceed the sum available for their satisfaction. In this connection there are two considerations which I feel should be brought to your attention.

In the first place it should be noted that the Commissioner of the Tripartite Claims Commission has held that, unless the Congress decides to apply the property sequestrated by the Alien Property Custodian to satisfy the awards of the Commission, neither the Austrian nor the Hungarian Government is liable for debts owing by its nationals to American nationals in respect of which the said Governments employed no measures in the nature of exceptional war measures, or measures of transfer, nor can such debts expressed in Austrian or Hungarian currency be valorized at the prewar rate of exchange, viz. 9.36 cents to the crown. The Commissioner held that

“… in the event the Government of the United States, through its lawmaking power, should elect to adopt the method of payment or procedure provided for by paragraph (h) (2) of Article 249 (232) and paragraph 4 of the Annex to Section IV of Part X of the Treaty³⁹ and apply the Custodian Property to the payment of the claims and debts defined therein, then under the terms of the Treaty for the purposes of such payment the American creditors would be entitled to have their debts converted into American currency at the pre-war rate of exchange and also be entitled to the benefits of paragraph 22 of the Annex to Section HI of Part X of the Treaty with respect to interest.

“The Commissioner holds that under the Treaty only the Government of the United States, acting through its law-making power, may determine whether or not the proceeds of the liquidation of the Custodian Property will be applied to the payment of such claims and of such debts as may be found by this Commission to have been owing by Austria (Hungary) or its nationals to American nationals.” (Administrative Decision No. II, page 16)

and that (Administrative Decision No. II, pp. 28, 29)

“From the analysis of the portions of Sections III and IV of Part X of the Treaty applicable to the United States and Austria (Hungary) and their respective nationals it appears that the only provisions fixing direct and absolute liability on Austria (Hungary) for debts owing by their nationals are those embodied in paragraphs (e) and (h) (2) of Article 249 (232), in the first of which Austria (Hungary) is held liable to make compensation for damage or injury resulting from its own acts in applying war measures to American property, rights, or interests, including debts, credits, accounts, and cash assets, and in the second of which Austria (Hungary) is required to pay to American nationals or the American Government the proceeds of the liquidation of American property, including debts.

“An indirect liability is fixed on Austria (Hungary) for debts owing by its nationals (paragraph (j) of Article 249 (232)) contingent, however, on the Congress of the United States electing to retain and apply the Custodian Property to the payment of claims and/or debts in accordance with the provisions of paragraph (h) (2) of Article 249 (232) and paragraph 4 of the Annex to Section IV.

“Austria (Hungary) is, of course, independent of any Treaty provisions, primarily liable for its public debts, evidenced by its bonds, treasury notes, and the like.

“But nowhere in such of the clauses of the Treaties as became effective with respect to the United States and its nationals is there found any provision fixing direct and primary liability on Austria (Hungary) for the debts of its nationals to American nationals in the absence of some act of the Austrian (Hungarian) Government operating upon such debts to the prejudice of the American creditors. The suggestion that, in the absence of such act by the Austrian (Hungarian) Government, it is obligated to pay American creditors for losses sustained by them due to depreciation during and after the war in the exchange value of Austro-Hungarian currency can be sustained only on the theory that Austria (Hungary) is liable for all of the direct and indirect, immediate and ultimate, consequences of the war. Clearly such a construction of the Treaty is not justified (see reasons set forth in the ‘Opinion in War-Kisk Insurance Premium Claims’ rendered by the Umpire of the Mixed Claims Commission, United States and Germany, Decisions and Opinions, pages 33 to 59, inclusive).”

In these circumstances it is clear that in the absence of a special agreement with the Austrian and Hungarian Governments on this point, the status of American claims in respect of crown debts to which exceptional war measures have not been applied depends upon the position taken by the Congress regarding the disposition to be made of the Austrian and Hungarian property held by the Alien Property Custodian.

In the second place, as your Committee no doubt is aware, not even full payment by the Austrian Government of the awards which the Tripartite Claims Commission may make against that Government will wholly relieve the Austrian property sequestrated by the Alien Property Custodian from the charges imposed by the treaties, since under Article 177 of the Treaty of St. Germain (the benefits of which are accorded to the United States by the Treaty signed at Vienna August 24, 1921) Austria accepted responsibility not only for herself, but also for her Allies for the loss and damage caused by the war, and the Austrian property may, in the discretion of the Congress, be applied in satisfaction of Austria’s responsibility for loss and damage caused by Germany and/or Hungary. It should, therefore, be borne in mind that, according to the best information available, the amount of Hungarian property sequestrated by the Alien Property Custodian is not sufficient to meet the probable awards of the Tripartite Claims Commission against Hungary individually, to say nothing of the awards which will be rendered against Austria and Hungary jointly on account of reparation claims, Hungary’s share of which has been fixed by the Commissioner of the Tripartite Claims Commission, United States, Austria and Hungary, at 36.4 per cent of the whole. (Administrative Decision No. I, page 10) In these circumstances the release of the Austrian property apparently would affect directly the interest of claimants against Hungary, and the Committee will undoubtedly wish to consider what provision is to be made to satisfy awards against Hungary in the event that the Austrian and German properties are released. The Department of State has received no proposal on this subject from the Hungarian Government; on the contrary in a memorandum dated December 16, 1926,⁴⁰ the Hungarian Minister informed the Department that his Government “is not asking for and does not believe in an earlier release of the seized property of its nationals, but expects to deal with this question when it will logically arise at the termination of the work of the Tripartite Claims Commission.” A copy of this memorandum was transmitted to the Treasury Department on December 21, 1926, for its information in connection with the legislation then pending. A further copy is enclosed herewith for the information of your Committee.⁴¹

While the point is not of much practical significance in view of the relatively small amount of Hungarian property sequestrated by the Alien Property Custodian, it might be observed to complete the record that under Article 161 of the Treaty of Trianon (the benefits of which are accorded to the United States by the treaty signed at Budapest August 29, 1921) Hungary accepted responsibility not only for herself but also for her Allies for the loss and damage caused by the war, and the Hungarian property may, in the discretion of the Congress, be applied in satisfaction of Hungary’s responsibility for loss and damage caused by Germany and/or Austria. Mutatis mutandis the situation with respect to Germany and the German property is the same.

In conclusion may I request that the enclosed communications from the Austrian and Hungarian Legations be treated as confidential. If your Committee desires to give them any publicity, the Department will be happy to request the consent of the Austrian and Hungarian Governments thereto.

I am [etc.]

Frank B. Kellogg

[Enclosure]

Memorandum by the Agent of the United States Tripartite Claims Commission (Bonynge)

Memorandum of Awards and Interlocutory Judgments and Estimated Amounts involved in Claims pending against Austria and Hungary

An estimate has been made by the American Agency of the total amount of the awards and of the probable awards to be entered by the Tripartite Claims Commission against Austria and Hungary.

This estimate, except as to the awards and interlocutory judgments that have been actually entered, is necessarily only a rough estimate based on a cursory examination of each of the files, and on such information as is now obtainable in reference to the claims that have not been finally submitted to the Commission. It is subject to revision upon a full development of the facts in each of the claims which have not been passed upon by the Commission.

In making the estimate no account has been taken of the claims in the unknown address file, nor of the principal of any bonds that matured during the war period, except such as are now known to have matured during that period. No exact computation of the interest from varying dates or at different rates has been made, but the interest has been computed at the average rate of four per cent for a period of ten years. All of the claims have been valorized at the pre-war rate of exchange, namely, 9.36 cents to the Kronen. In the case of debts payable in gold or foreign currency, the gold value and the pre-war rate of exchange have been adopted.

This is the best and most accurate estimate that the American Agency is able to make with the information now available.

The result is as follows:

Awards entered and estimated to be entered against and Hungary	$361,096.39
Awards entered and estimated to be entered against Austria	2,623,542.97
Awards entered and estimated to be entered against Hungary	782,667.16
Total	$3,767,306.52

Robert W. Bonynge

Washington, November 22, 1927.

1. Supra.
39. The references are to parts of the treaties of St. Germain-en-Laye (signed Sept. 1.0, 1919) and Trianon (signed June 4, 1920) cited in the treaties establishing friendly relations between the United States and Austria (signed Aug. 24, 1921) and Hungary (signed Aug. 29, 1921). For texts of the treaties of St. Germain and Trianon, see Malloy, Treaties, 1910–1923, vol. iii, pp. 3149 and 3539. For texts of the treaties establishing friendly relations, see Foreign Relations, 1921, vol. i, p. 274 and vol. ii, p. 255.
40. Foreign Relations, 1926, vol. i, p. 143.
41. Not printed.