Conference files, lot 59 D 95, CF 107

No. 801
Memorandum of Conversation, by Peter Rutter of the Office of Western European Affairs1

secret

Participants:

  • Austria
    • Chancellor Leopold Figl
    • Ambassador Max Loewenthal
    • Dr. Wilfred Platzer, Counselor, Austrian Embassy
    • Wilhelm Goertz, Austrian Embassy
    • Dr. Martin Fuchs, Counselor, Austrian Foreign Office
  • United States
    • George W. Perkins
    • James C. H. Bonbright
    • Francis T. Williamson
    • Homer M. Byington, Jr.
    • V. Lansing Collins, Jr.
    • Harris P. Dawson, Jr.
    • John M. Kennedy
    • Edgar P. Allen
    • Peter Rutter
    • Harold Linder

Mr. Perkins referred to the Secretary’s expressions of admiration and confidence both in the Chancellor personally and in the Austrian Government. If the Chancellor agreed he would proceed to a discussion [Page 1752]of two remaining matters not covered in the discussion between the Chancellor and the Secretary the previous day.2

Mr. Perkins stated that the U.S. was not satisfied with the policy of the Austrian Government in the field of restitution. He referred to the fact that certain social security benefits and pensions were not being paid to Austrians living in the U.S. and that certain claims of American citizens had not been accorded the same treatment by the Austrian Government as the claims of citizens of other countries.

The Chancellor replied that restitution had been a difficult problem for his Government since the end of the war. The Austrians have striven to maintain a balance between the claims against them and the funds available to settle these claims. From the start they had tried to ascertain how much money was involved and to set up an effective system for dealing with claims. While the validity of most claims was recognized, no foreign exchange had been available for transfer of funds abroad. In the interests of equality and justice further changes in the restitution laws were necessary. The Chancellor was hopeful that a solution might be reached in the near future which would take into account the avoidance of detrimental political effects and the slim Austrian resources. He wished to emphasize that the biggest claims were from the Soviet Zone where the German assets problem was not yet settled. He gave several examples of instances in which the Government had gone as far as the Soviets would permit them.

Mr. Perkins acknowledged these difficulties but expressed the view that they should not prevent some action with regard to pensions for Austrians living within the U.S. Mr. Linder added that the U.S. should receive the same treatment as Austria accorded the Swiss Government. On this point the Chancellor said that no Austrians in Switzerland had received funds but that reserves had been set up. He hoped that by the end of 1952, if the Austrian situation allowed, an equitable settlement in this field would be worked out.

Mr. Perkins regretted the necessity of taking up the unpleasant subject of the dollar diversion investigation. In view, however, of the Israelis’ broadcast about this matter on NBC this morning, it was necessary to deal with the question. He then distributed copies of Israels’ report and read the additional remarks made by the NBC New York announcer.

The Chancellor declared that the Israelis’ statement was not even close to the truth. His Government had no intention of hiding [Page 1753]anything in the investigation as it applied either to the Creditanstalt or to the other banks. The Oberate Rechnungshof, which was responsible only to Parliament, was in charge of the investigation and had hired the American accounting firm of Anderson and Company. The final report was not yet available but only an interim report. Limor remained the gravest point since it had not yet been possible to complete a survey of that firm’s records. This matter hinged on the Swiss criminal law. The Austrian Government had done everything, including giving a Swiss lawyer. Dr. Berger, power of attorney to negotiate with Meyer, the sole Limor Board member. When the Chancellor had learned that Meyer would not make the records available to Berger, he had cabled Vienna May 9 from London instructing Berger to put Limor into bankruptcy if necessary. He wished to assure the U.S. that no stone would be left unturned to complete the investigation. On the basis of available information, he assumed the total diversions in all banks amounted to only several hundred thousand dollars. (He had first said $500,000 and then on Dr. Fuchs’ advice, corrected the amount). He wished to uncover everything but could not consent to push the investigation to the point where it would bring on a political scandal which would endanger political stability. There was danger that additional publicity would bring the Soviets into the matter. The sums involved do not justify a threat to the coalition. If the coalition should break, the results achieved by all U.S. aid would be endangered. We considered that the country was at stake and not just individuals.

Mr. Perkins said that the U.S. was gratified with the Chancellor’s remarks to the Secretary on his determination to complete the investigation. In view of the publicity it was necessary to prepare a statement on the subject and he wished to inquire what the Austrian Government wished to say. He thought it necessary to remind the Chancellor that the matter would have political repercussions in the U.S. as well as Austria. Because the Israelis’ report had been received only 10 minutes before this meeting, no statement had been prepared.

Ambassador Loewenthal remarked that both Austrian parties were involved. The Chancellor added that the affair had become a political football because only one bank and its principal director had been singled out in the publicity. Public confidence in the bank would be shaken; capital flight induced and the schilling would be weakened. He proposed a statement to say that the Israels’ report was exaggerated, that a full statement could not be issued until the final report on the investigation was ready and that it should be denied that any ultimatum on aid had been given. In reply to Mr. Perkins’ question as to whether the bankruptcy proceedings [Page 1754]against Limor would be published now, he said the interested parties would be informed but not the public.

Ambassador Loewenthal described the publicity as “a unilateral bomb”. Before the People’s Party felt impelled to reciprocate (i.e., attack the Socialists), the Chancellor wished to quiet the present publicity. His idea of a draft press release was: that such investigations were routine in other ERP countries, that the investigation will be fully carried out and that an ultimatum on aid had not been issued.

Mr. Perkins asked if the Chancellor would mention any figure of funds diverted in the public statement. With respect to any ultimatum it should be borne in mind, he said, that Congress will want to know why strong action had not been taken in this case. Dr. Fuchs suggested that the press release touch on the fact that the irregularities took place in the early part of U.S. aid and that Austrian administration is now better able to prevent such practices.

At this point Mr. Perkins remarked that according to information received from our Embassy in Vienna, the Israelis’ story was based upon a report printed in the Socialist paper Weltpresse.3 Ambassador Loewenthal replied that this information substantiated his belief that one party had made an attempt to embarrass another party. If the names of persons involved were publicized, the issue would be much more dangerous. He would advise the Chancellor to issue a statement as follows: 1) This was a routine investigation; 2) The results were not yet available but would be given to the U.S. when established; 3) No ultimatum was under consideration; 4) Only small sums were involved. Mr. Perkins declared that we could not agree to the fourth point and that before a U.S. press release was prepared the Department would have to consult with the other U.S. agencies involved. It was then agreed that several persons on both the U.S. and the Austrian side would remain after the meeting to draft the two press releases. The Chancellor informed Mr. Perkins that he had no other matters of sufficient significance to warrant discussion at this time.

Mr. Perkins then asked if the Limor record would be available if the firm was put into bankruptcy. The Chancellor replied that they would be available to a Swiss court but not to the Anderson accountants. He thought the Swiss courts would take appropriate remedial action in accordance with their established procedure. He still hoped that the threat of bankruptcy would be sufficient to produce the records. The main concern of the Austrian Government was [that] the publication of the names of individuals should [Page 1755]not occur because this action would produce a political upheaval. His Government wished to clear up the situation but not at the price of political retrogression. He was apprehensive that the situation would deteriorate further after the press release had been made. He wished to thank Mr. Perkins and all those present for the frank discussion in the meeting. He would keep the Department posted on the latest developments and reiterated that the Austrian Government did not wish to gloss over any irregularities but only to avoid a scandal. Mr. Perkins stated he fully understood the Chancellor’s position and that he regretted the trouble which this incident had caused. The Chancellor said matters like this were all part of a politician’s life. In the words of an Austrian saying, “If bricks fall anywhere in the world, some of them must fall on Austria.”

A copy of the Austrian and U.S. press releases, to be used only if needed, is attached.4

  1. Drafted by Rutter on May 27.
  2. For a summary of this discussion on May 13, see telegram 2859 to Vienna, May 14, supra .
  3. The Weltpresse articles releasing the story of the ERP fund scandal appeared in the May 13 issue of the newspaper.
  4. Not printed.