811.51/4208: Telegram

The Secretary of State to the Ambassador in Brazil (Caffery)

1417. Your 1787, May 27, 6 p.m. The Department and Treasury regret that alternative methods were deemed necessary with respect to the handling of dollar currency of undesirable origin by the Brazilian authorities. The attachment to your despatch No. 7373 of May 2050 seemed to indicate that, in the case of dollar currency the origin of which was deemed unsatisfactory, the currency would be returned to the owner and that payment in milreis or establishing a credit would be utilized only in other cases. It is felt that the return of dollar currency to depositors is the most effective method of preventing the Axis powers from realizing on their loot and it is hoped that the Brazilian authorities will see fit to deal with tainted dollar currency solely on this basis.

The Department recommends that you urge the Bank of Brazil to stamp dollar currency before returning to depositors. The stamp should take the form of a perforated mark so as to avoid the possibility of the mark being removed. It is felt that the stamping of returned currency with a perforated mark is the only way that the [Page 795] movement of dollar currency can be effectively controlled so as to minimize the ability of the Axis powers to convert their loot. The recording of serial numbers will also be helpful but it is felt that such procedure alone will be too cumbersome to be effective because of the amounts involved. It is suggested that recorded numbers be forwarded to the Department as promptly as possible.

In connection with the other alternatives, you should point out the following to the Bank of Brazil:

reimbursement in milreis will give funds to undesirables at the possible expense of the Bank since, because of the currency’s Axis taint, the Bank may encounter difficulty when it subsequently attempts to liquidate the dollar currency thus acquired.
placing milreis in a controlled account will involve the same possibility of loss to the Bank as outlined in (1) to the extent that funds are paid out from such account. Furthermore, the Department agrees with your views as to the general ineffectiveness of such control and hopes that you will be able discreetly to persuade the Bank not to adopt this procedure.

If it is not possible to limit the procedure as outlined above, the Department recommends that you suggest to the Bank of Brazil that deposits of dollar currency by undesirables be placed in controlled dollar accounts and that withdrawals from such accounts be limited to amounts needed for reasonable living expenses and be in the form of dollar currency stamped with a perforated mark in the manner heretofore suggested.

Your telegram indicates that controlled accounts will be used only for Axis nationals. If the procedure is not limited to return of the dollar currency, the Department recommends that the blocked dollar account method be used for all undesirables be they Axis nationals or not in order that the controls be as effective as possible.

It has further been noted that your telegram deals only with deposits by undesirables, although the attachment to your despatch indicates that currency whose origin was deemed unsatisfactory would be returned irrespective of the character of the depositor. It is believed that this change of procedure, if a change has taken place, is predicated upon the feeling that friendly persons who acquired dollar currency in good faith prior to the promulgation of the controls should not be punished. This attitude is probably not objectionable, provided that in the future administration of the controls, any deposits of unstamped dollar currency after May 22 and May 25, respectively, will be presumed to have an Axis taint and be dealt with accordingly, regardless of the character of the person who makes the deposit.

If the Brazilian controls are made internally effective, it is not expected that they will be undermined by markets in other areas which have not adopted measures implementing general ruling no. 5, [Page 796] as Treasury intends to scrutinize dollar imports from such areas with particular care.

With respect to the dollar currency held by the Spanish and French Embassies, it is suggested that you try discreetly to bring the facts to the attention of the appropriate Brazilian authorities with the view to having them make strong protests to the Spanish and French upon the basis that the latter are using their diplomatic immunity to indulge in actions to benefit economically countries unfriendly to the Brazilian Government.

While it is realized that Brazil has gone a long way in cooperating with this Government in the control of currency movements, as well as in other fields, it is hoped that at an opportune moment you will suggest to the appropriate authorities that, in the interests of uniformity with measures already adopted by the United States, Brazil will extend its controls to cover all foreign currency.

  1. Not printed.