The Ambassador in Nicaragua (Warren) to the Secretary of State

No. 17

Sir: [Here follow references to several of the Department’s instructions during 1943–1945 relative to Axis interests and to the status of Luis Palazio.] When Luis Palazio was deleted from the Proclaimed List on November 17, 1944, this Embassy recommended that his name be included on the Confidential List of Unsatisfactory Consignees (Airgram no. 465 of November 16, 1944, and Airgram no. 5 of January 16, 194511) on the ground that as a close relative of Alfredo, Carlos and Enrique Palazio (then PL12) and a shareholder of E. Palazio & Company (then PL), he could individually revive the business of the firm in which his three relatives were also shareholders. This recommendation was rejected (Department’s Airgram no. 50 of February 12, 194513) with the following comment: “To continue to regard an individual as politically unsatisfactory after his deletion from the Proclaimed List creates serious administrative difficulties.… With regard to preventing non-Proclaimed List nationals such as Palazio from acquiring agencies of United States firms it is suggested that you submit current World Trade Directory Reports on them setting forth the reasons, as you did in Airgram no. 5, for your belief that such persons would be undesirable as agents of United States firms.” Information for a World Trade Directory Report has been procured from Luis Palazio, but as his relatives and the firm were deleted from the Proclaimed List on May 4, 1945, the specific reasons set forth in Airgram no. 5 for his inclusion on the Confidential List are no longer valid.

There are, however, in my opinion other forceful reasons for denying United States agencies to proclaimed nationals upon their deletion from the List. With the exception of persons deleted because erroneously included originally and of firms deleted because of a satisfactory [Page 308] change in management or ownership, the Proclaimed List comprised those who gave their loyalty or lent their cooperation to subversive activities in furtherance of the Axis cause. The elimination of these elements from the economic life of the Western Hemisphere was a recited objective of the control measures recommended in resolutions adopted at the Inter-American Conference on Systems of Economic and Financial Control held at Washington, D.C. in July 1942.14 Pursuant thereto the Nicaraguan Government has enacted and enforced restrictive legislation of a severe character which the persons affected correctly believe was prompted by this Embassy. For over three years these persons have subsisted on what the National Bank allowed them for maintenance, have seen their businesses liquidated or expropriated and the proceeds converted into bonds maturing in twenty years. It would be fatuous to suppose that this experience has converted Axis partisans of 1941 to pro-American democrats of 1945. Hope of escape from humiliating restrictions, social stigma and material ruin is more than adequate to explain their present professions of sympathy for the United Nations and willingness to subscribe undertakings for future conduct. And it is reasonable to suppose that a present fear of reinclusion on the Proclaimed List will deter them from any subversive activity for a considerable time.

But as this fear passes with peace and time, these individuals will be the logical instruments of that quiet resurgence of Axis effort which is envisaged in the Safehaven Project.15 Their former proclaimed status will be a badge of loyalty which post-war Axis agents will respect, and their rancor will be a stimulant to renewed collaboration when deemed safe. If they again become economically powerful in Nicaragua, their ability to injure the interests of the United States will be proportionately great; if not, they can offer scant service to their principals. As the overwhelming bulk of Nicaragua’s commerce is with the United States, and the local representation of a great American corporation is in itself enough to insure the prosperity of a local firm, it lies largely in our power to concede or to deny deleted enemies the means of a speedy recuperation. If conceded, they will not be slow to grasp the opportunity, and it is not to be inferred that their wish to represent American firms constitutes the slightest evidence of pro-American sympathy. On the contrary the most active Nazi firms before the war eagerly sought and procured American agencies,—among them Casa Geerz (PL), of which the notorious [Page 309] Oscar Wilms (PL, repatriated) was manager. Nor, should it be added, will American firms be reluctant to accept their services. Local representatives of both the United Fruit Company and the West India Oil Company long ago requested this Embassy to advise them when E. Palazio & Company could be reappointed as their agent. Such connections cannot fail to bring the deleted firm prosperity, commercial prestige and information of great value to the planners of Germany’s future. No investigation by this Embassy, furthermore, can possibly determine whether those deleted have no latent intent to cooperate in the future. It may be safely assumed that for the present and near future they would not, and that in doing so later, they would exercise great circumspection. But information which they might obtain for legitimate commercial purposes without attracting suspicion may also be of political and military value.…

Aside from any consideration of the treatment of deleted Proclaimed List firm it seems that our policy with regard to such firms serving as representatives of American business houses is of primary importance in our efforts at post-war recuperation in the field of foreign trade and our national effort to control forces and agencies that will promote and protect hemisphere solidarity. We found as we went into the Second World War that our greatest weakness from the Rio Grande to Patagonia was the fact that the representation of the most important American firms, in far too many cases, rested in the hands of foreigners owing allegiance to the Axis. We know now that one reason that Germany was able to make the fight that has astounded the world was her network of nationals throughout the world serving commercially outstanding American, British and other allied firms. It was through this network that Germany obtained the information which made her need for intelligence in the strictest sense of less importance. When the war broke out, the Nazi Government already had on file in Germany the most critical information needed for the prosecution of the war. If the United States is now to follow the present practice with regard to deleted firms, we are making again the same tremendous error that characterized our foreign trade in the 20’s and 30’s. To say that a World Trade Directory Report cannot show the former Proclaimed List status of a firm or that no action can be taken in Washington to prevent such firms seizing again their privileged pre-war status is tantamount to admitting that we are unable and unprepared to protect ourselves in the post-war world. We may be sure that if we do have another war that our Latin American friends will never forgive us for delivering ourselves a second time into the hands of our enemies.

As suggested in Airgram no. 50 relative to Luis Palazio, a World Trade Directory Report will be submitted on the recently deleted firms [Page 310] and individuals together with a notation that for the general reasons advanced in this despatch they are believed undesirable as agents for United States firms. The more important of these firms and individuals, however, need no recommendation from the Bureau of Foreign and Domestic Commerce to procure American agencies, and I strongly urge that some much more effective means of preventing their recuperation through American commerce be authorized and made effective.

Respectfully yours,

Fletcher Warren
  1. Neither printed.
  2. Proclaimed List.
  3. Not printed.
  4. See Foreign Relations, 1942, vol. v, pp. 58 ff.
  5. The Safehaven Project was a combined effort of the Departments of State and Treasury and of the Foreign Economic Administration to forestall German attempts to hide assets outside of Germany and to lay the economic basis for future aggression. For documentation, see vol. ii, pp. 852 ff.