Foreign Relations of the United States, Diplomatic Papers, 1940, General, Volume I

840.51 Frozen Credits/339: Telegram

The Acting Secretary of State to the Chargé in the Soviet Union (Thurston)

Washington, August 9, 1940—6 p.m.

423. Your 885, July 20, 9:30 [9] p.m.

Section 1. The reply to the Soviet memorandum handed you by Lozovsky is set forth in the memorandum comprising section 2 of this telegram. Section 3 contains the text of a first person note which is to be presented simultaneously with the memorandum.

Please examine both documents carefully in order to make sure that no statements contained in them are contrary to facts of which the Embassy may have special knowledge. If in your opinion certain alterations are advisable you should request authority to make them.

It is suggested that you request an appointment on Monday, if possible, to present these documents in person to the Commissar or Assistant Commissar for Foreign Affairs and that you inform the Department in advance of the day and hour of the interview⁵ so that it may furnish copies to the Soviet Embassy immediately thereafter.

Section 2. The Government of the United States of America has given careful consideration to the memorandum handed to the American Chargé d’Affaires at Moscow on July 20, 1940, in which the Soviet Government protested because the Federal Reserve Bank of New York had not transferred to the account of the State Bank of the U. S. S. R. certain gold held in the Federal Reserve Bank of New York belonging to the Banks of Lithuania, Latvia, and Estonia.

The memorandum states in part that the gold in question “was acquired by the State Bank of the U. S. S. R. from the Lithuanian, Latvian, and Estonian Banks on the basis of sale purchase agreements and was subject to transfer to the deposit of the State Bank of the U. S. S. R. by virtue of telegraphic orders of July 13, 1940, of the Lithuanian, Latvian, and Estonian Banks, orders which are unconditionally binding upon the Federal Reserve Bank”.

Under the Gold Reserve Act of 1934⁶ and regulations published pursuant thereto which have been in effect since January 31, 1934, gold in any form in the United States may be acquired and held, imported, exported, earmarked or held in custody for foreign or domestic account only to the extent permitted by and subject to the conditions prescribed in regulations which the Secretary of the Treasury of the United States is authorized to issue. Under regulations issued in January 1934 pursuant to such Gold Reserve Act, transfers of the character referred to in the memorandum of the U. S. S. R. may be made only if specifically licensed by the Secretary of the Treasury.

The nature of the United States Government control over gold situated in this country has been known or should have been known to the banks of Lithuania, Latvia, Estonia and U. S. S. R. The agreements pursuant to which the gold is held by the Federal Reserve Bank of New York provide that such gold is to be held “within the authority of, and subject to the terms of” the gold license issued to the Federal Reserve Bank by the Secretary of the Treasury. Under the terms of such gold license the Federal Reserve Bank is required, before it may make transfers of the type here in question, to obtain a specific license from the Secretary of the Treasury. Accordingly, the Federal Reserve Bank of New York had no authority to make the transfers of gold which were requested of it until it first received a license from the Treasury Department. In recent months the Federal Reserve Bank of New York has effected transfers of gold between accounts of the Bank for International Settlements and accounts of the Banks of Latvia and Lithuania. The exchange of telegrams between the Federal Reserve Bank and the Banks of Latvia and Lithuania in connection with such transactions must have made it entirely clear to such banks that transfers of gold are made by the Federal Reserve Bank of New York only pursuant to a license issued by the Secretary of the Treasury.

No agreement for the transfer of gold situated in this country, regardless of who may be the parties thereto, may be considered as “unconditionally binding” on the Federal Reserve Bank of New York in cases where no license for the transfer has been issued by the Secretary of the Treasury. The alleged sale, therefore, by the Banks of Lithuania, Latvia, and Estonia of gold held in the Federal Reserve Bank of New York to the State Bank of the U. S. S. R. was without binding force and effect in this country since no license authorizing the transfer of such gold has been issued by the Secretary of the Treasury. Title to the gold situated in this country cannot be considered to have passed by virtue of any arrangement made outside the country unless the transfer is authorized by a license issued by the Secretary of the Treasury of the United States.

The memorandum of the U. S. S. R. states that there was a “completely unjustified delay of three days” in the application by the Federal Reserve Bank for authority to transfer the gold to the State Bank of the U. S. S. R. The Government of the United States cannot agree with such a statement. On July 13 the Federal Reserve Bank of New York received a telegram dated July 12 from the Lithuanian Bank requesting the transfer of certain gold to the State Bank of the U. S. S. R., and also stating “You will receive instructions from beneficiary”, meaning the State Bank of the U. S. S. R. On July 13, the Bank of Lithuania sent a further telegram to the Federal Reserve Bank of New York amending its telegram of July 12 and, on the same day, the Bank of Latvia sent a telegram to the Federal Reserve Bank of New York instructing that certain gold be transferred to the State Bank of the U. S. S. R. July 13 was a Saturday and the Federal Reserve Bank of New York is not open for business between noon on Saturday and the following Monday morning. The telegrams of July 13 were not received at the Federal Reserve Bank of New York until long after the close of business on Saturday, July 13, and too late for any action to be taken in connection therewith until Monday July 15. On July 15, the Federal Reserve Bank of New York also received for the first time telegraphic instructions dated July 13 and July 15 from the State Bank of the U. S. S. R. relative to such gold transfers. On the same day, namely July 15, the Federal Reserve Bank of New York applied to the Treasury Department for a license, pursuant to the Gold Regulations which had been in effect since 1934, to transfer the gold referred to in the telegrams from the Banks of Latvia, Lithuania, and the U. S. S. R. On the following day, July 16, the State Bank of the U. S. S. R. was advised by the Federal Reserve Bank of New York that application for such license had been made. There was, accordingly, no delay whatever on the part of the Federal Reserve Bank in dealing with this matter.

In this connection it should be pointed out that the Federal Reserve Bank of New York has not as yet received instructions from the Bank for International Settlements to transfer gold which it holds under earmark for the Bank for International Settlements and which apparently belongs to the Bank of Estonia. On July 18, the Estonian Bank advised the Federal Reserve Bank of New York that it had previously given instructions to the Bank for International Settlements concerning such transfer and asked the Federal Reserve Bank of New York to assist in obtaining the necessary license for the transfer. The Bank for International Settlements has never issued any instructions to the Federal Reserve Bank of New York to make such transfer. In view of the agreement between the Federal Reserve Bank and the Bank for International Settlements, pursuant to which such gold is held, the Federal Reserve Bank of New York is not in a position to take any steps looking to the transfer of such gold until it receives appropriate instructions from the Bank for International Settlements. On July 20, therefore, the Federal Reserve Bank of New York informed the Bank of Estonia that it would apply for the necessary licenses as soon as it received instructions from the Bank for International Settlements. No such instructions have been received up to the present time.

On July 15, 1940, the President of the United States, pursuant to the authority conferred on him by the Act of October 6, 1917,⁷ as amended, issued Executive Order No. 8484. This Order amended Executive Order No. 8389 of April 10, 1940,⁸ as amended, so as to extend all the provisions of Executive Order No. 8389 to, and with respect to, property in which Latvia, Estonia or Lithuania, or any national thereof, has, at any time on or since July 10, 1940, had any interest of any nature whatsoever, direct or indirect. Executive Order No. 8389 of April 10, 1940, provides that certain transactions involving property in which Norway or Denmark, or any national thereof, has had any interest on or since April 8, 1940, may be carried out only pursuant to license issued by the Secretary of the Treasury. On May 10, 1940, the provisions of Executive Order No. 8389 were extended to, and with respect to, property in which the Netherlands, Belgium or Luxembourg or any national thereof, has, at any time on or since May 10, 1940, had any interest.⁹ On June 17, 1940, the provisions of Executive Order No. 8389 were extended to, and with respect to, property in which France, or any national thereof, has, at any time on or since June 17, 1940, had any interest.¹⁰ Under Executive Order No. 8484 transactions of the character referred to in the memorandum of the U. S. S. R. involving property in which Latvia, Estonia, or Lithuania, or any national thereof, has, at any time on or since July 10, 1940, had any interest, may be carried out only pursuant to a license issued by the Secretary of the Treasury. Accordingly, on July 16, 1940, the day following the issuance of Executive Order No. 8484 and the day after it had received instructions from the banks of Lithuania, Latvia, and the U. S. S. R., the Federal Reserve Bank of New York applied for a license pursuant to Executive Order No. 8484, authorizing the transfers of the gold in question. This application was in addition to the application for a license under the Gold Reserve Act of 1934 which, as previously indicated, was made by the Federal Reserve Bank of New York on July 15.

The measures against which the Soviet Government protests are neither arbitrary nor isolated manifestations of national policy. They are acts of conservation and control fully within the rights of the Government of the United States and involve no infringement of international law. Similar measures have been applied with respect to property situated in the United States belonging to various countries, or nationals thereof, which have been occupied by the armed forces of a foreign Power or otherwise deprived of their freedom of action by force or threats of force, giving rise to practical problems of the appropriate protection of American institutions and nationals from adverse claims which might result from the making of payments by them on instructions issued under duress, and of the protection of the interests of the rightful owners.

The attempt to transfer the gold belonging to the Banks of Lithuania, Latvia, and Estonia was made at a time when it had become apparent that the governments and peoples of those countries were being deprived of freedom of action by foreign troops which had entered their territories by force or threats of force. The attitude of the Government and people of the United States with regard to the use of force or threats of force in the conduct of international relations is well known. In keeping with this attitude, it is proper that the authorities of the American Government, in administering the orders and regulations referred to, should not fail to take into consideration the special situation existing in the three Baltic countries.

References in the memorandum to legal property rights and to the elementary principles of international law prompt the Government of the United States to draw the attention of the Soviet Government to the fact that nationals of the United States have suffered heavy losses in territories under the control of Soviet civil or military authorities as the result of acts committed by, under the direction of, or with the active approval of, such authorities. Certain of these losses which have been suffered during more recent months and the responsibility of the Soviet Government therefor are, however, being made the subject of a note to be addressed by the American Embassy at Moscow to the Commissariat for Foreign Affairs.

Section 3 (First Person Note). I have the honor, upon instructions from my Government, to draw the attention of Your Excellency to the fact that American institutions and nationals have suffered considerable losses in territories under the control of Soviet civil or military authorities as the result of acts committed by, under the direction of, or with the approval of, such authorities.

In September 1939, Soviet armed forces entered and occupied certain territories in Eastern Poland. While these territories were under the control of such forces certain persons or groups of persons proceeded to nationalize or confiscate property, including the property of nationals of foreign countries. Nationals of the United States own, or have interests in, property situated in these territories. Although this Embassy has submitted numerous requests to the People’s Commissariat for Foreign Affairs for information regarding the status of these properties, it has as yet received no indication from the Soviet Government with regard to the disposition thereof. Under cover of a note dated April 26, 1940,¹¹ however, the People’s Commissariat for Foreign Affairs transmitted to the Embassy a copy of an instruction of the People’s Commissariat of Justice relating to the “nationalization of foreign properties in the territories of Western Ukraine and of Western White Russia.” This instruction stated in effect that since measures nationalizing land of estate owners, banks, and large industries had been approved and proclaimed on October 28 and 30, 1939,¹² before the formal incorporation of the territories in question into the Soviet Union, there are no bases for the presentation to the Soviet Union of claims arising from such measures even though the property with respect to which such claims are presented may subsequently have passed into the possession of organs of the Soviet Government.

In June 1940 Soviet armed forces entered and occupied Bessarabia and Northern Bukovina. Nationals of the United States own property and have interests in property in these provinces. Although inquiries have been made to the Soviet Government by the Embassy of the United States at Moscow no information has as yet been received with regard to the status of such property or property interests.

In the countries of Lithuania, Latvia, and Estonia nationals of the United States also own or have interests in certain properties. It is the understanding of my Government that steps have already been taken by certain persons or groups under the control of the authorities of the Union of Soviet Socialist Republics to nationalize or confiscate these properties and to take other actions injurious to American property or interests.

My Government instructs me to state that regardless of any disclaimers of responsibility therefor on the part of the Government of the Union of Soviet Socialist Republics, the Government of the United States holds, and will hold, the Government of the Union of Soviet Socialist Republics responsible for all losses to American nationals resulting from acts of nationalization or confiscation, or other acts injurious to the property or interests of such nationals, committed in territories under Soviet control by, under the direction of, or with the approval of, the authorities of the Union of Soviet Socialist Republics.

My Government also directs me to bring to the attention of the Government of the Union of Soviet Socialist Republics the fact that the governments, institutions, and residents of certain of the countries which at present are wholly or in part under occupation by Soviet armed forces have debts aggregating large sums to the Government or nationals of the United States.

Accept, Excellency, the renewed assurances of my highest consideration.

Section 4. In case the Soviet official to whom the documents are presented intimates that they may have an adverse effect on American-Soviet relations you may state that in view of the contents of the Soviet memorandum of protest and of the attitude displayed by the Soviet authorities with regard to American property and interests in territory now under Soviet control, your Government, in spite of the fact it is hoping for an improvement in American-Soviet relations,¹³ has no choice in the matter. It would be lacking in frankness if it should fail to make a clear statement of its position.

For your information, it may be added, during the last week informal discussions of various problems of American-Soviet relations have been taking place between the Soviet Ambassador and members of the Department. Among these problems are those advanced by Mikoyan on July 30.¹⁴ A summary of these discussions will be sent you later.

Welles

5. The Chargé in the Soviet Union reported in his telegram No. 1006, August 12, 3 p.m., that he had handed the memorandum and the first person note to Assistant People’s Commissar Lozovsky at noon on that day, without discussion (840.51 Frozen Credits/446).
6. Approved January 30, 1934; 48 Stat. 337.
7. 40 Stat. 411.
8. 5 Federal Register 1400.
9. For text of Executive Order No. 8405 of May 10, 1940, see ibid., 1677.
10. For text of Executive Order No. 8446 of June 17, 1940, see ibid., 2279.
11. See footnote 77, p. 391.
12. See telegram No. 826, October 28, 1939, 4 p.m., from the Ambassador in the Soviet Union, Foreign Relations, The Soviet Union, 1933–1939, p. 785, and footnote 83.
13. For conversations on this subject, see vol. iii, pp. 179 ff.
14. The proposals of Anastas Ivanovich Mikoyan, People’s Commissar for Foreign Trade of the Soviet Union, were reported by the Chargé in the Soviet Union in his telegrams No. 936, July 30, 6 p.m., and No. 937, July 31, 9 a.m., vol. iii, pp. 446 and 449, respectively.