825.516/203
The Secretary of State to the Ambassador in Chile (Culbertson)
Sir: The Department has been giving careful consideration to the questions raised in connection with the decrees 12 and 39 enacted by the Chilean de facto authorities on June 9 and June 16, 1932, respectively, with reference to the deposits in the foreign currency accounts in banks in Chile. Although your telegrams No. 140 of July 22 and No. 158 of July 3043 now inform us that the Chilean Government has annulled these decrees and though you convey to the Department the expression by the Chilean Government of an intention to respect the foreign currency deposits of Americans (letter of the Minister of Finance and statement of Minister of Foreign Affairs given in your telegram No. 134, July 16, 3 p.m., and statement of the Minister of Finance of July 22 conveyed in your No. 140, July 22), the fact that law No. 5107 (April 19, 1932), which may affect these deposits, still remains in force, makes it appropriate to transmit to you the Department’s views on this subject.
The Department has noted that in your informal communication to Señor Barriga on June 9, 1932,44 the Embassy stated in effect that the policy of this Government towards the taking over of foreign currency deposits held by Americans in banks in Chile would follow that set forth in your note No. 846 of June 3, 1932, to the Chilean Government regarding the threatened expropriation of American oil interests in Chile. This would mean that in the event of compulsory conversion or seizure of foreign currency deposits due to Americans, this Government would support a claim for adequate and effective compensation.
In the study which the Department has so far made of this subject, it has been impressed by the fact that a number of foreign governments have put into effect decrees dealing with foreign currency accounts in their banks which appear in many respects similar to the measures that the Chilean Government has taken. In this connection, there is enclosed herewith for your information a preliminary memorandum45 prepared in the Economic Adviser’s Office. It is of interest that in practically no instance have the American interests in foreign countries which may have been affected by the operation of these decrees protested against them to the Department. While the Department’s information is not complete enough to indicate to what extent [Page 477] these decrees may have been applied against Americans concerned, it is probably justified in surmising that the governments in question have applied these measures with extreme leniency so far as American and other foreign interests are concerned. It is the Department’s hope that the Chilean Government will manifest the same leniency and that the situation will be so handled as to give rise to no formal dispute.
In many instances the American owned accounts affected by Law No. 5107 would involve small accounts, the seizure of which would be of little national importance to Chile, while on the other hand the hardship to the individual depositors might be very considerable and consequently of importance to the public relations between the two countries. As a practical approach to this problem, it would seem that much might be gained if, should the necessity therefor arise hereafter, you could in informal conversations impress upon the Chilean authorities the foregoing considerations and urge them, not only in the interest of the Americans involved but also in the interest of good relations between the two countries, that they should seek to give effect to this law in such a way as to mitigate any hardship upon foreigners.
The Department realizes that if the Chilean Government should determine to take over deposits of foreign currency in such manner as patently to work injury to their owners, it will have to consider the question of dealing with the matter on the formal basis of diplomatic protest and the support of claims for compensation. It must frankly be admitted, however, that, in this event, the basis on which a definition of adequate compensation in this matter could be arrived at would be most difficult to determine. There is also enclosed herewith for your information a memorandum46 prepared in the Legal Adviser’s Office which discusses this question from the point of view of the right of the State to take over property by exercising its right of eminent domain, paying compensation therefor. It is obvious that if this Government becomes involved in a controversy with the Chilean Government or with Chilean authorities on the subject of the legal principles involved, there would be little hope of immediate relief for the American interests affected, and probably the most that could be hoped for would be ultimately the submission of the claims to arbitration. The ultimate return therefore to the American interests established in Chile might be less satisfactory than that which could be obtained by a conciliatory approach to Chilean officials before any damage is done.
It appears probable that in any case the Department’s formal support could be extended only to American owners of foreign currency [Page 478] accounts, and not to cover the whole question of foreign currency deposits for which American banks are responsible. This view is amendatory of phrases used in the Department’s No. 55 of July 27 which it instructed you to embody in a letter to the Minister of Foreign Affairs—which letter however you are at the present moment withholding under later instructions. The Department’s view on this latter point is also tentative and further study may lead to further revision. It is based on the fact that under the Chilean banking law, the branches of American banks located in Chile appear to have agreed to submit themselves to Chilean legislation. Moreover, it would appear that law No. 5107 affords these banks on the whole reasonable protection; should this judgment prove to be mistaken, the Department might reconsider its views on this point.
There are also transmitted herewith other memoranda47 which have been prepared in the Department in the course of the study that has been made of this matter. It would be appreciated if you would give consideration to the views set out hereinabove, and transmit to the Department such opinions as you may desire to express.
Very truly yours,