863.10/7–2051
Memorandum of Conversation, by the Deputy Director of the Office of Western European Affairs ( Williamson)
Subject: Dollar Diversion Investigation in Austria.
Dr. Kleinwaechter informed me today that he had received instructions to inquire officially concerning the Department’s position with respect to the dollar diversion investigation in Austria. He stated that the Foreign Office was concerned whether acceptance of the U.S. request to turn over records of trade transactions to the accounting firm would result in a similar demand on the part of the Soviet element. He stated that the Austrian Government did not wish to be put in this position as it could not accede to such a request from the Soviet authorities.
I informed Dr. Kleinwaechter that such a possibility would have to be taken into account and be given serious consideration. I informed him that the Department took a serious view of the lack of any progress in the investigation and the obstacles which had been placed in the path of the accountants. I informed him of the substance of the joint State–ECA instructions which had been transmitted to Mr. Donnelly and Mr. Meyer this week. I stated that the Austrian aid program faced great difficulties in view of the demands now made on U.S. dollar resources by reason of Western European rearmament and the war in the Far East. The primary objective should be the full utilization of all resources open to the Austrian Government. Any cut in the level of aid resulting from the failure to complete the investigation or from any Congressional action in making a decreased amount of funds available would [Page 1052] have adverse consequences in Austria if substantial dollar resources are being diverted to unproductive uses.
Dr. Kleinwaechter stated that in the view of his Government there would be no objection to the investigation if it were confined to transactions with the ERP countries. Any investigation beyond that point would result in Soviet demands for full access to the records. He stated further that he would inform the Department of any development in the Austrian Government’s position, particularly after the meeting which Mr. Donnelly plans to have with the Chancellor and Vice Chancellor.