611.93231/2–2351: Circular airgram
The Secretary of State to Certain Diplomatic and Consular Offices 1
From State and Treasury. Reference is made to Department’s circular instructions of January 26 and February 9, 19512 relating to Foreign Assets Control.
If the Foreign Assets Control is to be effective, it is essential that the Treasury Department be able to identify and block the accounts of persons acting commercially or financially as intermediaries or cloaks for blocked nationals. There are three types of cloaks or intermediaries which the Foreign Assets Control desires to block as quickly as possible:
- Chinese and Korean enterprises in the United States. U.S. corporations and enterprises which are owned or controlled in substantial part by nationals of Communist China or North Korea are themselves [Page 1929] considered “nationals” for purposes of the Foreign Assets Control Regulations. This is similarly true of American branches of firms which have their principal office in Communist China or North Korea.
- At the time the Foreign Assets Control was established, it was confronted with the immediate policy problem whether it would be desirable from an administrative standpoint to halt the operations of all Chinese and Korean business enterprises in the U.S. falling under the classification of blocked nationals, including even small Chinese laundries and restaurants, pending such time as they could apply to the Treasury Department for a special business operating license. Based upon the experience of the Treasury Department in the past war, it was decided that this would not be a practical approach. It was decided, therefore, to grant all such enterprises a general business operating license permitting them to carry on their normal business operations in the U.S. on condition that they take no action to diminish their capital.
- This approach imposes a duty on the enforcement section of the Foreign Assets Control to cull out those enterprises which, on the basis of present available information, are truly likely to be operating for or on behalf of, or for the benefit of, Communist China or North Korea or nationals thereof. This would, of course, be largely based upon such factors as the Communist affiliations of the managerial staff in the United States, the degree of control from Communist China or North Korea, etc. At the present time the Foreign Assets Control does not have the factual background necessary for making such determinations and is dependent for such information on the data which other agencies may be able to supply.
- Where information furnished to the Treasury Department indicates that Chinese or North Korean business enterprises in the United States now enjoying the benefits of the general business enterprise license are sufficiently suspicious in character to warrant their being placed under closer supervision, the privileges of this general license can be withdrawn and the enterprise concerned can be placed under specific licenses as restrictive in their provisions as the circumstances may require. Since such enterprises are already defined as Chinese or North Korean “nationals” within the meaning of the basic regulations, and have merely been enjoying a privilege in receiving the benefits of the general business operating license, burden of proof necessary in order to justify withdrawal of the privileges of the general license is relatively light. For this reason, among others, it is administratively desirable to take action without delay against Chinese and Korean enterprises in the U.S. which are believed to be responsive to Communist control.
- Persons acting for or on behalf of Chinese or North Korean nationals. It is anticipated that a far greater burden of proof would have to be met before action is taken to block persons other than Chinese citizens on the ground that they are acting for or on behalf of Communist China or North Korea or nationals thereof. Thus, for example, before taking action with respect to American citizens believed to be acting for or on behalf of nationals of Communist China or North Korea, the Foreign Assets Control would wish to have specific evidence of actual transactions together with information regarding the Communist affiliations or loyalties of the persons or enterprises involved. Moreover, it may be anticipated in this category of cases that the persons or enterprises concerned will be more likely to demand administrative hearings or even court proceedings in which it will be necessary to set forth formally the evidence on the basis of which action was taken.
- Notwithstanding the fact that it will be necessary to have more specific evidence regarding this category of cases, it should be borne in mind that they are equally or more important than those discussed in the first category, and therefore it is highly desirable that any information regarding American and other non-Chinese cloaks be made available to the Control.
- Cloaked transactions. Through its financial and banking contacts, the Foreign Assets Control may learn of transfers of Chinese or Korean dollar assets from Chinese or Korean accounts to Swiss, Hong Kong, Swedish and similar accounts. Normally speaking, it is impossible to obtain full information in the U.S. regarding the purpose of such transfers. Thus, for example, they might represent a purchase of Swiss francs by Chinese principals, or, on the contrary, they might represent a dollar credit to a dollar account with a bank in Switzerland. In the latter type of case, it might well be asserted that there is a Chinese interest in the omnibus dollar account in the name of a Swiss bank on the books of a banking institution in the United States. Any information, therefore, regarding such transfers or regarding Chinese Communist or North Korean beneficial interests in omnibus dollar accounts would be of assistance to the Foreign Assets Control in carrying out its enforcement program.
- We would appreciate your assistance by forwarding any information coming to your attention which you deem pertinent in connection with the situations described above and other aspects of Foreign Assets Control.
- These instructions supplement those contained in circulars dated January 26 and February 9, and the reports submitted in reply should bear the same code and title, namely, “000315, Foreign Assets Control”.
U.S. PolAd Tokyo pass copy to Diehl and Embassy Manila pass copy to May. [State and Treasury.]
- Sent to Hong Kong, Taiwan, Singapore, Bangkok, Manila, and Tokyo.↩
- The Departments circular instruction of February 9, not printed, contained an amendment to the last paragraph of the circular instruction of January 26 requiring the submission of reports on violations in reproducible despatch form, under the code and title “000315, Foreign Assets Control.” (611.93231/2–951) For the instruction of January 26, see p. 1888.↩