Memorandum of Conversation, by Mr. W. J. Hull of the Foreign Funds Control Division

Participants: Mr. H. A. Mulligan, Treasurer, RFC6
Mr. Stoner, Office of General Counsel, RFC
W. J. Hull, FF, Department of State

Mr. Hull stated that the State Department understood that the Netherlands Government had requested a loan from RFC to be secured in part at least by assets in this country belonging to persons resident in the enemy occupied territory of the Netherlands, and that the State Department was interested in the matter particularly since it seemed that the pledge of private Dutch assets might involve some recognition of the Netherlands Property Decrees, a matter which had been under consideration in the Department for some time. He then inquired [Page 456]as to the requested amount of the loan, the collateral offered, the statutory provisions under which the loans might be made, and the types of securities that RFC might consider sufficient.

RFC representatives stated: (1) that the Netherlands Government had requested a loan in the amount of $300,000,000; (2) that it had offered as security gold of the Central Bank of the Netherlands on deposit in this country, together with securities in the United States belonging to persons in the enemy occupied territory of the Netherlands; (3) that the loan would be made, if at all, under sec, 606 (b) (4) of Title 15, USCA,7 which authorizes loans to foreign governments for the purpose of achieving the maximum dollar exchange value for the securities and property of the foreign government, upon the security of bonds, debentures, stocks, or other obligations of the United States Government, or any state or political subdivision thereof or of any private corporation organized under the laws of the United States or any state, and (4) that RFC contemplated requiring in the first instance the hypothecation of the Netherlands gold accompanied by a general assignment of all right title and interest of the Netherlands Government in and to assets of persons in the occupied territory falling within the statutory requirements, the gold to be released as the securities were reduced to readily marketable form (street form) and physically pledged with RFC. It was stated that while the information of the Netherlands Government as to the value of such securities was incomplete, it appeared that the value would be sufficient to provide adequate security for a $300,000,000 loan. Mr. Stoner expressed doubt as to the sufficiency of the gold alone as security, both by reason of the possibility that its value might fall and also by reason of the statutory requirement which seemed to contemplate that securities rather than commodities be pledged. He suggested, however, that if the gold could be obtained by the Netherlands Government and deposited to its account against certificates of deposit, the certificates would probably (as obligations of the depository) come within the statutory requirements. He stated too that the Netherlands Decree of May 24, 1940, would evidently be the basis for recognition of the Netherlands Government’s interest in the private assets, and that he thought RFC would be reluctant to accept them as security unless the Decree was recognized by the Department and the American courts.

Mr. Hull inquired as to whether the securities could be reduced to street form when the certificates were probably situated in the Netherlands. Mr. Mulligan replied that their information was that the practice of Dutch investors prior to invasion had been to appoint Dutch banks and Trust companies as trustees or administrators of [Page 457]their American holdings which were retained in American depositories while receipts and certificates of participation were issued to the equitable owners in the Netherlands and traded in on the Amsterdam Bourse. The securities, he said, were registered on the books of the American issuing corporations in the name of the administrators or trustees.

Mr. Hull stated that presumably the Netherlands Government could obtain the gold without explicit reference to the Decrees in view of Section 25 (b) of the Federal Reserve Act,8 but that, specific hypothecation of securities might unless carefully qualified, involve possible recognition of the Decrees and in any event would raise problems of conflicting jurisdiction in view of the property interest of nationals of countries other than the Netherlands. He inquired whether, in view of these and other difficulties, involved in recognition of the Netherlands Decrees, and in the segregation and pledge at this time of particular assets, the RFC might not consider accepting as securities the Netherlands gold or gold certificates, accompanied by a floating lien or an agreement to give a lien on such of the assets as were in fact owned by subjects of the Netherlands. It was pointed out that under Section 5 (b) of the Trading with the Enemy Act,9 as amended, a limited power could probably be created by executive action in the Netherlands Government to enter into such an arrangement without recognition of the Decrees. The RFC representatives stated that they would consider this possibility. Mr. Hull inquired as to the amount of and the collateral for loans made by the RFC to other foreign governments. It was stated that the loan to the British Government was the only one previously made under the applicable provision of the RFC Act10 and that loan had been in the amount of $425,000,000, only $395,000,000 of which had been actually disbursed, secured by assets of the type described in the statute in street form physically delivered to RFC, and that the British Government had obtained the assets used by requiring their conversion by the private owners into sterling or by borrowing them from the private owners for the purposes of the pledge.

Mr. Hull then inquired as to the purpose for which the Netherlands Government intended to use the proceeds of the loan. He stated that Act 606 (b) (4) of Title 15, USCA, seemed to contemplate that the proceeds of such a loan must be used for the maximization of the exchange value of the foreign government’s assets. Mr. Stoner said that since the loan would evidently avoid forced and hasty liquidation [Page 458]at unfavorable prices, it could, in his opinion, be deemed to be made for the purpose mentioned in the Statute. He added that RFC had no information as to the actual use which the Netherlands Government intended to make of the money.

RFC’s representatives agreed to keep the Department informed as to developments in regard to the loan, and requested that they be advised from time to time as to action taken or proposed by the Department in connection with the Netherlands Decrees. They stated also, that of course, Mr. Jones11 would discuss the matter with appropriate officials of the Department at the proper time.

  1. Reconstruction Finance Corporation.
  2. United States Code Annotated.
  3. Approved December 23, 1913; 38 Stat. 251.
  4. Approved October 6, 1917, amended 1918, 1920, 1933, 1940, and 1941; 40 Stat. 411, 966; 41 Stat. 977; 48 Stat. 1; 54 Stat, 179; and 55 Stat. 839.
  5. Approved January 22, 1932; 47 Stat. 5.
  6. Jesse H. Jones, Secretary of Commerce and Chairman of the Executive Committee of the Export-Import Bank of Washington. The Reconstruction Finance Corporation was under the jurisdiction and supervision of the Secretary of Commerce.