Memorandum by the Legal Adviser (Hackworth)

It seems to me that this Department has but little authority in connection with the adjustment of the war or post-war obligations of foreign governments to the United States incurred under authority of several Acts of Congress.

The Act of April 24, 1917, generally referred to as the “First Liberty Bond Act”, provides in Section 2 that—

“… the Secretary of the Treasury, with the approval of the President, is hereby authorized, on behalf of the United States, to purchase, at par, from such foreign governments then engaged in war with the enemies of the United States, their obligations hereafter issued, bearing the same rate of interest and containing in their essentials the same terms and conditions as those of the United States issued under authority of this Act; …” (40 Stat. 35)

The Act approved September 24, 1917, known as the “Second Liberty Bond Act”, contains in Section 2 provisions substantially the same as those contained in the Act of April 24, 1917 (40 Stat. 288).

Section 3 authorized the Secretary of the Treasury to convert short-time obligations into long-time obligations bearing a higher rate of interest to conform to higher rates paid by the Government of the United States on Liberty Bonds.

Section 2 of the Third Liberty Bond Act, approved April 4, 1918, merely increased the amount that might be loaned to foreign governments from $4,000,000,000 to $5,500,000,000 (40 Stat. 502), while Section 2 of the Fourth Liberty Bond Act of July 9, 1918, increased to $7,000,000,000 the amount of loans that might be made (40 Stat. 844).

The Act approved March 3, 1919, known as the “Victory Liberty Loan Act”, provided in Section 7 that until the expiration of eighteen months after the termination of the war between the United States and Germany,

“… the Secretary of the Treasury, with the approval of the President, is hereby authorized on behalf of the United States to establish, in addition to the credits authorized by section 2 of the Second Liberty [Page 568] Bond Act, as amended, credits with the United States for any foreign government now engaged in war with the enemies of the United States, for the purpose only of providing for purchases of any property owned directly or indirectly by the United States, not needed by the United States, or of any wheat the price of which has been or may be guaranteed by the United States.…”

The Secretary of the Treasury was authorized to make advances to or for the account of any such foreign government and to receive its obligations bearing interest at not less than 5 per centum per annum, maturing not later than October 15, 1938, and containing such terms and conditions as the Secretary of the Treasury might prescribe. The section further provided that—

“The Secretary, with the approval of the President, is hereby authorized to enter into such arrangements from time to time with any such foreign government as may be necessary or desirable for establishing such credits and for the payment of such obligations before maturity.”

The Secretary of the Treasury was also authorized to convert short-time obligations of foreign governments into long-time obligations. (40 Stat. 1309)

It will be seen from the foregoing that the Secretary of State was given no authority under the several Acts of Congress to negotiate these loans with foreign governments, and that the whole matter was left in the hands of the Secretary of the Treasury who was to act with the approval of the President.

When it came to adjusting the indebtedness of foreign governments to the United States following the establishment of peace, Congress by an Act approved February 9, 1922, provided for the establishment of a World War Foreign Debt Commission. (42 Stat. 363)

  • Section 2 of this Act, as amended February 28, 1923, stipulated that the Commission should be composed of eight members, one of whom should be the Secretary of the Treasury, “who shall serve as chairman”, and seven of whom “shall be appointed by the President, by and with the advice and consent of the Senate.” The Secretary of State was a member of the Commission, as were also three members of Congress—Senator Smoot, and two members of the House.
  • Section 2 of the original Act authorized the Commission, subject to the approval of the President, to refund or convert, and to extend the time of payment of the principal or the interest, or both, of any obligation of any foreign government arising out of the World War, into bonds or other obligations, in such form and of such terms, conditions, etc., as might be deemed for the best interests of the United States.
  • Section 5 of the Act of 1922 provided that the annual report of the Commission should be included in the Annual Report of the Secretary [Page 569] of the Treasury on the state of the finances, and that the Commission should immediately transmit to the Congress copies of any refunding agreements entered into by each foreign government upon the completion of the authority granted by Congress.

The Acts as amended January 21, 1925, provided that the authority granted should cease and determine on February 9, 1927. (43 Stat. 763)

While the Secretary of State was designated as a member of this Commission, he was not so designated by the Congress and was not given any special function. For the most part the Secretary of the Treasury, as Chairman of the Commission, was regarded as more directly charged with the responsibility for the negotiations. All agreements concluded were approved by the Congress.

On June 20, 1931, President Hoover proposed to the European Powers postponement during one year, beginning July 1, 1931, of all payments on inter-governmental debts, reparations and relief debts, but he stated that postponement by the United States on debts of foreign governments to this Government would be “subject to confirmation by Congress”, and further that—“Authority of the President to deal with this problem is limited as this action must be supported by the Congress. It has been assured the cordial support of leading members of both parties in the Senate and the House.” The action of the President was approved by a Joint Resolution, December 23, 1931. (47 Stat. 3) That resolution stated:

“… the Secretary of the Treasury, with the approval of the President, is authorized to make, on behalf of the United States, an agreement …”

The resolution contained in Section 5 the following significant statement:

“It is hereby expressly declared to be against the policy of Congress that any of the indebtedness of foreign countries to the United States should be in any manner canceled or reduced; and nothing in this joint resolution shall be construed as indicating a contrary policy, or as implying that favorable consideration will be given at any time to a change in the policy hereby declared.”

It will be seen from the legislative history that these obligations have at all times been controlled by the Congress; that the agreements have all been subject to the approval of the Congress; and that that body has declared it to be contrary to its policy to cancel or reduce any of the obligations.

The only way by which the Secretary of State could be said to have any responsibility in these matters would be by virtue of authority vested in the President to conduct the foreign relations of the United States. This, however, is not believed to confer upon the Secretary [Page 570] of State any duty to take the initiative in any negotiations looking to a readjustment of the situation. While the Secretary as representative of the President might be authorized under the general broad powers of the Executive to negotiate agreements, such agreements would, of course, at all times be subject to the approval of the Congress. This would seem to follow, not only from the several Acts referred to above, but also from Article IV, Section 3, paragraph 2 of the Constitution, providing that—

“The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States; …”

The foreign government bonds held by the United States are property of the United States and as such are subject to the control of Congress.

In view of the position which Congress has heretofore taken, and of the small part which the Secretary of State has played in these matters, I do not feel that he would be warranted in assuming to enter into negotiations of any kind without prior authorization of the Congress.

Green H. Hackworth