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  4. Document 179

837.61351/4008

Memorandum by the Assistant Chief of the Division of the American Republics (Walmsley)56

[ Washington ,] May 29, 1943.

Cuban Sugar Insurance

The contract for the 1943 sugar crop57 provides in Article VIII (c) that the Commodity Credit will make payments up to 90 percent on June 1, provided the insurance contracts are satisfactory, in the following terms:

“Said 90% payment shall be made against warehouse receipts certified to by the Institute, identity certificates authenticated by the Institute, and insurance certificates acceptable to Commodity for coverage equivalent to that placed by Commodity on February 16, 1943, covering sugar under the 1942 Cuban Crop Purchase Contract,58 but total limit on the hurricane risk shall not be less than $5,000,000”. (Underscoring mine58a)

[Page 190]

Ambassador Braden, in his airgram of May 14,59 reported upon alleged corruption in connection with the insurance deal which has come to be known as the “Godoy Proposal”. Mr. Braden has, for example, stated that “reports of corruption … have … become … so notorious … that I have reached the conclusion that even if the insurance appears secure …60 should we permit the deal to go through we can hardly escape criticism as being in effect party to a fraud”.…

Mr. Bonsal, Mr. Scherer and I examined this message carefully and concluded that, if the proposal were to be refused, it should be properly refused by the Commodity Credit, under the terms of its contract with the Institute, on technical grounds and not on allegations of corruption nor for policy reasons, for which the Department would have to take the responsibility. Mr. Bonsal sent a message reading as follows:61

“In absence of satisfactory alternative for present insurance proposal the Department considers its suitability should be determined entirely on its technical merits, by the CCC.”

The CCC and representatives of the Institute were in almost continuous session this week. The CCC called in an insurance specialist for consultation. Certain questions arose on which the CCC desired additional security and assurances, primarily with regard to the reinsurance of the insurance written by one American company and four Cubans. The CCC is now satisfied with the reinsurance contracts, which have been passed upon as well by the insurance specialists, and have informed the Institute’s representatives that the insurance contracts are acceptable and that, therefore, sugar payments will be made June 1 in accordance with the Sugar Crop Purchase Contract.

Following our usual practice of keeping the Ambassador at Habana up-to-date by sending copies of memoranda from time to time, we sent Mr. Braden two memoranda on two meetings, May 27,62 with regard to the insurance discussions. Those memoranda have now evoked an unequivocal condemnation of the insurance deal (Habana’s 366 of May 2863) in which Mr. Braden makes the following principal points:

(1)
The transaction is unsavory.
(2)
$200,000 graft will be distributed in high quarters.
(3)
Reports of graft are widespread.
(4)
The prestige of the United States Government would be involved if the insurance is accepted.
(5)
The rejection of the insurance should be based not on unsubstantiated allegations of graft but on technical grounds; and the Ambassador [Page 191] recommends employment of a competent expert (this was done according to CCC).
(6)
Rejection on technical grounds would nevertheless be interpreted by the public as a rejection based in fact on the nature of the transaction.
(7)
The Ambassador requests that the deal be rejected as a matter of policy and future good relations with Cuba.

As we know, the Ambassador is considerably worked up over Cuban corruption. I think that from a purely practical point of view we should not request the CCC to withdraw its acceptance of this morning (before receipt of Mr. Braden’s latest telegram) of the insurance, for the following reasons:

(1)
The reinsurance according to the experts is good and safe.
(2)
Refusal could prejudice the entire contract64 by placing the Institute in a position where its essential collaboration in fulfilling the terms of the contract would be jeopardized.
(3)
The Institute would lay itself open to renewed sniping by its opponents who are always trying to build up a case for its abolishment (which course might bring about the collapse of the non-political sugar control structure and seriously injure our interests.)

W. N. Walmsley, Jr.
  1. Addressed to the Under Secretary of State (Welles) and the Adviser on Political Relations (Duggan).↩
  2. Not printed. For details of the purchase agreement for the 1943 sugar crop, see pp. 151 ff.↩
  3. For details of the purchase agreement for the 1942 sugar crop, see Foreign Relations, 1942, vol. vi, pp. 315 ff.↩
  4. Printed in italics.↩
  5. Airgram A–936, not printed.↩
  6. Omissions in this sentence indicated in the original memorandum.↩
  7. Text of Department’s telegram No. 600 of May 20, 2 p.m.↩
  8. Neither printed.↩
  9. Not printed.↩
  10. Contract for United States purchase of the 1943 Cuban sugar crop.↩