841D.51/143
Memorandum by the Solicitor for the Department of State (Hackworth)
Conference in the Office of Assistant Secretary Mr. Castle, regarding the question of the so-called Irish Bonds.
- Present: Mr. Castle, the Solicitor, Messrs. Walsh and Ryan representing the Bondholders’ Committee.
Mr. Walsh stated that he and Mr. Ryan had called for the purpose of ascertaining what progress had been made looking to a settlement by the Free State and what they might be able to expect from the Department.
Mr. Castle stated that he had talked with President Cosgrave, as he had told them he would do, and that while Mr. Cosgrave declared the intention of the Irish Government to reimburse the certificate [Page 87] holders, he was not in a position to state just how or when this might be done; that Mr. Cosgrave had expressed a desire that the holders of the certificates should be reimbursed in full, and stated that had the Irish Free State obtained possession of the funds involved in the litigation in New York, no difficulty would have been experienced in carrying out plans to that end; that, because of the large expense attached to the administration of the New York fund, that fund supplemented by the amount which was sent to Ireland would not be sufficient to reimburse the certificate holders in full and that they will naturally feel that after all the Free State is responsible for their loss, despite the fact that the funds in New York are not under the control of the Free State. He, therefore, desired that some plan should be evolved which would make it possible for the certificate holders to be reimbursed in full. He also apprehended some difficulty in making settlement at this time with the American subscribers to the loans in view of the large number of subscribers in Ireland. Mr. Cosgrave did not desire, moreover, that speculators who had purchased certificates—possibly at 10% of the face value—should be allowed to collect the face value. Messrs. Walsh and Ryan stated that they had not heard of any speculation in the certificates and they knew of no case where anyone had purchased certificates at a discount but thought that even though such cases might exist they afforded no legal grounds for refusal by the Free State to pay the original undertaking, since the discounting of obligations is a recognized practice in banking and other business circles. This was admitted to be correct.
They stated that the loan floated in Ireland was separate and distinct from that floated in the United States, and thought that there was no reason for associating the two loans in connection with any plan of settlement.
As to the expense incident to the distribution among subscribers of the funds held in New York, Mr. Ryan stated that the largest item—approximately $140,000—went to attorneys for the Free State who were representing one or two of the trustees of the fund; that only about $90,000 went to the committee for the bondholders to cover costs of the litigation; that, moreover, the increase in value of the securities purchased with funds held in New York, together with the accumulation of interest on funds which had not been invested, was sufficient to cover all expenses in connection with the litigation in New York and the operations of the receivership established by the court. He stated that a large part of the money had been invested in Liberty Bonds at about 85 which were later sold at about par, and that the balance had been left with the banks on interest. He thought that the money in New York would about cover the interest on the loan and that the desire of the Free State to reimburse the certificate [Page 88] holders in full could readily be realized by the use of that money in payment of interest and the issue by the Free State of bonds of the face value of the original certificates. He stated that in order to make certain that these bonds should not fall into the hands of speculators, the Free State might attach a condition to the effect that they shall be made payable to and shall not be transferred by the certificate holders; that, inasmuch as the names of these holders who advanced the funds are available to the Free State, no difficulty should be experienced in placing the bonds with the people who advanced the funds.
Messrs. Walsh and Ryan finally stated that since the matter is now in the diplomatic channel and, according to their understanding, properly so, they desired to know what the Department expects to do to bring about settlement.
Mr. Hackworth stated that in so far as concerns the legal situation the matter was comparatively simple; that, in the first place, the Department had consistently taken the position, which was in accord with the generally recognized practice, that it could not undertake to act as a collection agency in the enforcement of foreign obligations purchased by American citizens; that when such citizens purchase obligations of foreign Governments they do so with their eyes open and assume the risk of possible default in payment; that the most that the Department ever does looking to the enforcement of contracts with foreign Governments is to use its informal good offices in appropriate cases, emphasizing appropriate cases. In the second place, the situation in this case is made more difficult by reason of the fact that the money was advanced for the purpose of promoting a revolution in Ireland against the parent State with which this Government was and is on friendly terms; that to sponsor the claim, other than through the use of informal good offices, might be regarded as an affront to the British Government which might conceivably construe such action as an approval by this Government of the acts of its nationals in trying to establish the independence of Ireland. It was added that there appeared to be no doubt as to the obligation of the Free State to return the money which went to Ireland and that the Department had already employed its informal good offices to bring this about and presumably would continue to do so. Mr. Castle confirmed this by stating that he had discussed the subject on several occasions with the Irish Minister at Washington and only recently, as he had previously related to Messrs. Walsh and Ryan, had talked with the President of the Irish Free State.
Mr. Ryan stated that he knew of the general rule referred to but he thought that the reasons for that rule were non-existent in this case because the Irish Minister had stated at the outset of the litigation [Page 89] in New York that they should appeal to the Department of State for settlement of the question. He thought, therefore, that since the representative of the British Crown and the Irish Free State had contended that the matter was one to be disposed of through diplomatic channels, they would be estopped to deny the right of this Government to take formal action.
The question was raised as to the exact amount turned over to the Free State. Mr. Castle stated that President Cosgrave thought that the amount was around $300,000. Messrs. Walsh and Ryan stated that the amount as established by the testimony of Irish officials in the New York litigation and by the account rendered by the trustees of the funds was approximately $4,000,000.
It was finally agreed that Messrs. Walsh and Ryan should submit to the Department a concrete statement of their proposal showing the amount of money received by the Free State and how the settlement could be made with complete assurance that the certificate holders would be fully reimbursed the amounts advanced by them and the Free State safeguarded against any outlay beyond its legitimate obligation.