The Secretary of State to the Ambassador in Peru (White)
The Secretary of State refers to the Embassy’s despatch no. 8679 of January 3, 194422 concerning the present status of Peruvian controls on Axis commercial and industrial activities and the proposed sale by Cie des Mines de Huarón of undeveloped Lima real property to Mr. Ewald Hillmann.
This despatch raises the general problem of the Department’s attitude toward the investment of frozen funds of enemy nationals in land, buildings, or government bonds issued by the Peruvian Government. It is understood that any such investments which may be made will remain under freezing controls as would any interest on bonds or other securities.
The question of the post-war disposition of frozen or controlled funds of enemy nationals is one which has not as yet been settled in the United States. It is also believed that this problem has not been settled in Peru or in the other American Republics. Without attempting to indicate what may be the eventual disposition of the funds belonging to nationals of enemy countries, it may be observed that a highly desirable attribute of such funds is liquidity. Should such funds be required for special purposes, ability to convert the form in which the funds are held into cash or stable and negotiable securities will be highly important.
It, therefore, seems undesirable that frozen funds should be invested in such properties as land or buildings. There does not, however, appear to be any harm in permitting the investment of such funds in prime stocks and bonds of a type that have a ready market. This would include stocks and bonds of large corporations organized under the laws of the country involved, as well as bonds issued by the government or political subdivisions thereof. In the case of securities issued by corporations, it would seem desirable to confine purchases for any one account to a nominal percentage, say three per cent, of the particular issue involved. This would prevent the enemy national from acquiring a substantial interest in any corporation, but would still leave the funds in a liquid condition. For your information, in connection with investments of this nature, Treasury’s policy in similar cases would require that such investments be licensed to assure that they are not made pursuant to directions from an enemy interest outside of the United States subsequent to [Page 1563] the time when the funds involved in such investments were considered as having an enemy national interest.
The Treasury Department’s policy regarding the investment of funds of firms about to be vested has been by and large to deny such applications, although if the request is to purchase United States Government issues or other high class investments the application would probably be approved. Applications to purchase real estate or other types of property difficult to dispose of would be denied. One of the purposes of this policy is to protect the position of the Alien Property Custodian in order to enable the Custodian to use the assets of the firm being vested as he deems desirable.23 When a firm is vested the funds cease to be blocked funds, the title is in the United States Government, and the former owners are entirely divested of their title. The officers of the firm are under the control of the Alien Property Custodian, the Office of the Alien Property Custodian places its own officers in the company, and the use of the company’s funds is left entirely to the judgment of these officers. There are no restrictions on the use of these funds. If the Alien Property Custodian should decide to liquidate the vested firm, the proceeds of the liquidation would be placed in the general fund of the Treasury and an account of the money would be kept. There would be no question in such a case whether the original owners should be permitted to invest the money in United States Government bonds or other securities since the title to the funds no longer resides in the original owners but in the United States Government; and moreover, since the Government has use of the proceeds of the liquidation by virtue of their being deposited in the general fund, there would be no need for investing them in Government bonds in order to make them available to the Government. If after the war any original owners should succeed in establishing a claim to the proceeds of the liquidation, the Treasury Department presumably would pay accrued interest on the money since it had had the use of the money for the period of time that it was in the general fund.
The Embassy is authorized in its discretion to communicate the foregoing views to the appropriate officials of the Peruvian Government. The Department has noted the recent developments in the custody, investment, and possible eventual disposition of blocked funds reported in the Embassy’s despatches no. 8871, no. 12, and no. 388 of January 25, April 4, and May 24, respectively.24