840.51 FC 60H/1–248

Memorandum by the Chief of the Division of Southern European Affairs ( Barbour ) to the Under Secretary of State ( Lovett )1

confidential

the problem

To review the US position in regard to the US-Yugoslav negotiations concerning US claims against Yugoslavia and blocked Yugoslav assets in the US, to formulate a reply to the Yugoslav Ambassador’s note of January 2, 1948,2 and to recommend the position the Department should take with a view to the expeditious satisfactory conclusion of these negotiations. (Reference: Policy Planning Staff Paper No. 16, dated November 17, 1947).3

background

1. Yugoslav Blocked Assets in the US

Yugoslav assets in the US blocked under Executive Order No. 8389 of April 10, 1940, as amended, now consist of

a)
Yugoslav funds deposited in the Federal Reserve Bank of New York to the account of the Yugoslav Government amounting to approximately 47 million dollars (46.8 million in gold),
b)
Yugoslav private assets on deposit in various financial institutions, trusts, etc in an amount unknown but estimated at roughly $13,800,000 in 1941.

As regards Yugoslav Government funds, at the beginning of April 1941 the Yugoslav National Bank had an account in the Federal Keserve Bank of New York. When the German invasion of Yugoslavia began, the Department, in agreement with the Yugoslav Minister in Washington, on April 25, 1941, took steps under Section 25B of the Federal Keserve Act, as amended, copy of which is attached, to authorize the Yugoslav Minister to take possession of the funds in that account and to transfer such funds to an account in the name of the Yugoslav Government-in-exile at the same Federal Keserve Bank. [Page 1059] The purpose of this action was to protect these funds from the invading Germans. In 1944 the Government-in-exile, which was recognized by the US, furnished documents ratifying this transfer from the Yugoslav National Bank to the Yugoslav Government and ratified also all transactions consummated pursuant thereto.

The Yugoslav Government funds in this account in the Federal Reserve Bank have, under certification of the Secretary of State and by license of the Treasury Department, been subject to certain withdrawals by the Yugoslav Government-in-exile and subsequently in 1945 by its successor the National Provisional Government of Yugoslavia. Between 1942 and 1944 the Yugoslav Government-in-exile was authorized to operate the account freely under a blanket license. (19.0 million were withdrawn in this period). Since 1944 specific licenses have been issued for specific transactions totalling 1.7 million dollars but, although Tito’s present authorities have made numerous efforts to obtain a general Treasury license, such a general license has been denied. We have offered to unblock sufficient funds from this account for Yugoslavia to pay its subscription to the International Bank and Fund but the Yugoslavs have not availed themselves of such a limited authorization. The amount now in this account is reported to be approximately $47,000,000, 46.8 of it in gold.

Concerning Yugoslav private assets, the Department has no intention of using the private assets as a bargaining weapon in connection with the settlement of US claims against Yugoslavia. However, it has been the invariable policy of the Treasury Department to make general agreements or to unblock simultaneously all assets of specified foreign countries and consequently the Yugoslav private assets have remained blocked pending the outcome of the negotiations with regard to US claims and the Yugoslav Government assets. It is impossible to estimate accurately the amount of the private assets so blocked. Under the 1941 census there were $13,800,000, but accretions by way of dividends, interests, etc., and depletions by way of licenses (for example, up to $1,000 per month can be withdrawn by individuals) may have materially altered the 1941 figures.

2. US claims against Yugoslavia.

a)
US Government claims against Yugoslavia are for lend-lease, pre-UNRRA US military civilian relief (known as Plan A), the loss of 2 US Army airplanes, a confiscated jeep, etc. The US lend-lease outlay to Yugoslav amounted to 32 million dollars approximately, and for civilian relief (Plan A) approximately 6 million dollars. The airplanes have been estimated by the Army Department at 180 thousand dollars and the jeep at $2,000.
b)
US private claims against Yugoslavia arise as a result of Yugo-slav [Page 1060] expropriation under various pretexts including nationalization, alleged axis collaboration, and other pseudo judicial subterfuges, of the property, business interests, etc of American citizens and corporations in Yugoslavia. American-owned assets in Yugoslavia were estimated by the Treasury Department as of May 31, 1943 to have amounted to 50.3 million dollars. US corporations and citizens have submitted to the Department statements indicating claims totalling in excess of $42,300,000.

There are also certain items such as the service on Yugoslav bonds, etc. which were placed on the agenda for negotiation but have not been reached for discussion.

3. Following various previous informal representations both in Belgrade and in Washington, the Yugoslav Government informed the Department in March 1947 that it desired to undertake negotiations with regard to unblocking Yugoslav assets in this country. In a separate communication that Government also indicated that it was prepared to discuss the settlement of US claims for nationalized property in Yugoslavia. In response to these approaches the Department informed the Yugoslav Government that it would welcome such negotiations, which, if agreeable to the Yugoslavs, should include in addition to the above matters the “settlement of lend-lease accounts between Yugoslavia and the US and any other financial claims of one Government against the other which have arisen subsequent to the outbreak of war.” The Yugoslav Government indicated its willingness to proceed with such negotiations which began on May 19, 1947.

4. a) In the course of the negotiations which have been conducted since May 19 the Yugoslavs have agreed to the principle of a lump sum settlement. They have further agreed to the principle of the settlement of the lend-lease and Plan A accounts through the payment of local Yugoslav currency which the Department desires to use in connection with the operation of the Embassy in Belgrade and to purchase Government quarters in Yugoslavia. However, the Yugoslavs have offered only 5, 187,000 dollars for what they term direct American investments in Yugoslavia and the equivalent of approximately 300,000 dollars in local currency in settlement of lend-lease and Plan A. They have based their figure of 5 million so-called direct investments upon a Department of Commerce estimate published in 1942 which that Department reports to have constituted only an extremely rough estimate covering a strictly limited category of investments. The Department of Commerce considers its figure superseded by subsequent Treasury estimates such as those noted above. The Yugoslavs express complete unwillingness to accept responsibility or pay compensation for the two airplanes or to reach agreement at this time upon the [Page 1061] claims of certain recently naturalized American citizens and those of American citizens wherein the original investment was made through third countries. They have offered to leave blocked in this country 2½ million dollars to cover claims not settled by the present negotiations which they desire to discuss subsequently. They have failed to furnish information concerning the status of various American assets in Yugoslavia including certain lend-lease P–T boats and have denied representatives of US claimants entrance into Yugoslavia to inspect their clients properties.

b) The Department has taken the position in these negotiations that it would be prepared to settle for a lump sum payment in gold or dollars for losses of American citizens in Yugoslavia generally, such sum also to include compensation for the two airplanes, the jeep, etc. We suggested the figure of 20 million dollars as an acceptable compromise in this regard. In accordance with standing policy we insist on the inclusion as American citizens of persons whose citizenship was American at the time the claim arose. As regards lend-lease and Plan A we have indicated our readiness to accept local currency in Yugoslavia. We offered to accept the equivalent in Yugoslav dinars of 3½ million dollars in this connection. We have, in accordance with statutory requirements, requested the return of the P–T boats.

5. The Yugoslavs maintain that their treatment in regard to the blocked gold and other assets is less favorable than that accorded other United Nations. They emphasize their contribution to the war effort, the problem of reconstruction in Yugoslavia, and refer to the fact that the peace treaties with Italy and the satellites require compensation for war damage, etc., amounting to only ⅔ the value of the property whereas we demand full compensation for expropriated property. They have also advanced arguments that our continued retention of their assets is contrary to Bretton Woods. They have released to the press the Yugoslav Ambassador’s note of January 2, 1948 which summarized most of the arguments which they have advanced in the course of the negotiations.

6. The Yugoslavs have placed the question of their frozen assets in the US on the agenda for the next meeting (February) of ECOSOC.

7. Various US legal firms have explored the possibilities of bringing proceedings in US courts against Yugoslav assets here with a view to satisfying American claims against Yugoslavia. US lawyers (Coudert) representing King Peter have also made inquiries concerning the possibility of his obtaining title to such funds. These firms have not, to the Department’s knowledge, instituted any actions in US courts as a result of their consideration of the matter.

[Page 1062]

discussion

It is manifestly in the interest of the US to obtain a settlement of the various matters at issue in these negotiations at the earliest possible moment. The Department is aware of the undesirability of endeavoring to maintain Yugoslav assets blocked indefinitely. At the same time, the nature of the present Yugoslav regime and its attitude towards foreign properties, as indicated in reports from our Embassy in Belgrade and reflected by the experience of other nations which have undertaken similar negotiations, clearly emphasize the importance of these blocked assets as a bargaining lever. The Embassy strongly recommends these assets be retained pending a satisfactory settlement. It may be noted that this is not the first instance where the US has maintained freezing controls to attain other objectives. We held Swedish and Swiss funds frozen until we obtained agreements with those countries concerning German assets and looted gold. The funds of Spain and Portugal are still frozen pending similar agreement with the former and agreement on looted gold with the latter.

The Yugoslav position that our attitude is contrary to the Bretton Woods Agreement is not supported by the Department’s interpretation of that agreement. The threat of the Yugoslavs that they will bring suit in an International Court in this connection is similarly not considered of serious consequence. It is pointed out that in the case of the Hague Court the US adherence to the Hague Convention specifically reserves our right to refuse to submit to the jurisdiction of the court in the absence of a special agreement between the US and Yugoslavia. A special agreement between Yugoslavia and the US would similarly be necessary if the Yugoslavs wished to resort to the 1929 arbitration procedure. In the case of the present International Court of Justice the Yugoslavs have not accepted the compulsory jurisdiction of that body. As regards the Yugoslav threat to bring an action in a US court, it is doubtful whether a US court could take jurisdiction and in any case a court judgment would apparently be inoperative in the absence of a specific Treasury license.

In regard to the possibility of US claimants against Yugoslavia bringing actions in US courts against Yugoslav assets here looking to the satisfaction of their claims through that means it is presumed that the Yugoslav Government, as titleholder of the assets would request the Department to certify their immunity and that it would be unwise for the Department to refuse to do so. It is the usual rule of the courts to decline jurisdiction in suits involving assets of foreign states. The Department has not in the past refused certification as to such foreign ownership and immunity and refusal might have political consequences.

[Page 1063]

It is believed that the Department is fully supported in the position it has taken so far by public and Congressional opinion in this country as it is known to be by some of the major American claimants.

recommendations

It is recommended

1)
that the Department continue to negotiate toward a general agreement covering all outstanding items,
2)
that pending the conclusion of such an agreement no steps be taken to release any of the Yugoslav assets,
3)
that we indicate to the Yugoslavs our desire to press for an early conclusion of these negotiations,
4)
that the Department reply to the Yugoslav Ambassador’s note of January 2 along the lines of the attached draft,4 such reply to be made public upon delivery,
5)
that the US argue its position in ECOSOC on the merits and history of the negotiations as set forth herein, and
6)
that, in the event the Yugoslavs endeavor to bring suit (a) in a US court or (b) under the Hague Convention or (c) invoke the 1929 Arbitration Agreement, we refuse to submit to such jurisdiction but, if they resort (d) to the International Court, we agree to consideration by that body of the whole question of our claims and Yugoslav assets, as above, provided the Yugoslavs submit to that Court’s compulsory jurisdiction.

[
Walworth W. Barbour
]
  1. This memorandum was concurred in by the Office of European Affairs, the Office of Financial and Developmental Policy, and Office of the Legal Adviser.
  2. For the text of the Yugoslav Ambassador’s note of January 2, 1948, see the Department of State Bulletin, January 25, 1948, p. 118.
  3. For the text of the conclusions contained in Policy Planning Staff Paper No. 16, see Foreign Relations, 1947, vol. iv, p. 854, footnote 5.
  4. For the text of note of the Secretary of State to the Yugoslav Ambassador, dated January 14, 1948, see Department of State Bulletin, January 25, 1948, p. 117.