The United States freezes Axis assets

On Saturday 14 June 1941 President Franklin Delano Roosevelt signed Executive Order No. 8785. With effect from that day all German and Italian assets in the United States were frozen: bank accounts, securities, gold, shareholdings in companies and claims, whether held by the states themselves or by their citizens and firms. Without a licence from the Treasury Department they could not be disposed of, transferred or taken out of the country. The order was not, however, confined to the Axis powers. It covered the whole of continental Europe whose assets had not yet been blocked, including the neutral states and the Soviet Union. Only Turkey remained outside it.

Two days later, on 16 June, the State Department demanded the closure by 10 July of all German consulates in the United States, as well as the German Library of Information in New York, the offices of the German State Railways and tourist bureau, and the Transocean news agency. On 20 June a similar demand, with a deadline of 15 July, was extended to Italian consulates and agencies. Some lists speak of the closure on 16 June of “all German and Italian consulates”, but the note of 16 June concerned only the German posts. The Italians received a separate note four days later, by which time Berlin and Rome had already struck back blow for blow.

Both decisions were taken in the week in which Americans learned the accounts of the survivors of the freighter Robin Moor, sunk by a U-boat. They were not, however, an improvised response to that incident. The Treasury had been preparing the freezing of assets for more than a year, and the removal of the German consuls, accused of espionage and propaganda, had been under consideration in Washington for months. The June measures were a further stage in a policy in which the United States, still formally neutral, was ever more openly taking Britain’s side.

The Treasury’s financial weapon

The legal basis for the freeze was section 5(b) of the Trading with the Enemy Act of 6 October 1917, amended in 1933 during the banking crisis. It gave the president the power to regulate, restrict and prohibit foreign exchange transactions, transfers of credit and exports of gold in time of war or of a declared national emergency. The idea of using it as an economic weapon arose in the Treasury as early as December 1937, after Japanese aircraft sank the American gunboat Panay in China. The department’s general counsel, Herman Oliphant, then proposed to the Secretary of the Treasury, Henry Morgenthau, exchange controls and a licensing system aimed at Japan. Tension with Tokyo subsided and the plan was shelved. It was revived in 1938 and 1939, when reports arrived that Germany was forcing citizens of occupied Czechoslovakia to surrender the assets they held in America.

The weapon was first used on 10 April 1940, the day after the German attack on Norway and Denmark. Executive Order No. 8389 froze the assets of both countries, with effect from 8 April, so that Germany could not seize their resources in the United States by forcing occupied governments, banks or private individuals to hand over money. To administer the order a new office, Foreign Funds Control, was set up within the Treasury. The list then grew with every German conquest: on 10 May 1940 it was extended to the Netherlands, Belgium and Luxembourg, on 17 June to France and Monaco, on 10 July to Latvia, Estonia and Lithuania, occupied by the USSR, in October to Romania, and in the spring of 1941 to Bulgaria, Hungary, Yugoslavia and Greece.

The freeze thus protected, above all, the victims of aggression. Morgenthau had long wanted to go further and apply it to the aggressors themselves, but he met resistance from the State Department. Its diplomats, under the Secretary of State, Cordell Hull, feared that such a step would be hard to reconcile with neutrality, would harm American interests and posts in Europe, and would provoke German reprisals against Americans and their property. Dean Acheson, Assistant Secretary of State for Economic Affairs from February 1941 and one of the few supporters of Morgenthau in the department, recalled years later that the State Department “from top to bottom”, except for his own corner of it, had opposed the Treasury Secretary’s campaign. The spring of 1941 changed the situation: the Lend-Lease Act of 11 March made the United States Britain’s open supplier, in April Washington took Greenland under its protection, and on 27 May Roosevelt proclaimed an unlimited national emergency.

The order of 14 June

Executive Order No. 8785 formally amended the decree of April 1940. It invoked the 1917 Act and the “period of unlimited national emergency”. Without the consent of the Secretary of the Treasury it prohibited all transfers and payments through banks in the United States, foreign exchange transactions, exports of gold, silver and currency, and dealings in securities, if any state named in the order, or any of its nationals or firms, took part in them or had any interest, direct or indirect, in the property concerned. Anyone who had lived in such a country on or after the date the order took effect counted as its national, as did any firm controlled from there, even if registered elsewhere. An annex with dates repeated all the earlier freezes and added new ones, effective from 14 June 1941: Albania, Andorra, Austria, Czechoslovakia, Danzig, Finland, Germany, Italy, Liechtenstein, Poland, Portugal, San Marino, Spain, Sweden, Switzerland and the Soviet Union.

In a statement the White House explained that the order was intended to prevent the use of the American financial system in ways harmful to national defence and other American interests, to prevent the liquidation in America of property seized by duress or conquest, and to curb subversive activities in the country. The last point was aimed at the German and Italian posts that paid for propaganda in the United States and, according to the American services, for intelligence work too. Bringing the neutral states under the ban had a different purpose. Swiss, Swedish or Spanish banks and companies could serve Germany as intermediaries through which the Reich might take money out of America or buy what it needed there.

There was, however, no intention of punishing the neutrals. As early as 15 June Hull explained to the ambassador in Moscow that the freeze would be lifted from neutral states, the USSR included, by means of general licences, provided that their governments and central banks undertook that the transactions would not serve Germany, Italy or the countries they occupied. Such licences were available from 19 June, but they obliged banks to give advance notice of every transaction over 25,000 dollars and to submit daily reports on the rest. The same day, 14 June, also brought new implementing regulations requiring all persons and firms in the United States to report any property belonging to foreigners, including the contents of safe-deposit boxes, patents and shareholdings in companies.

This general census of foreign property gave, for the first time, a reliable picture of what Europe held in America. According to a study by the US Presidential Advisory Commission on Holocaust Assets of 2000, the survey based on it covered 565,000 reports and showed that as of 14 June 1941 foreigners held property worth 12.7 billion dollars in the United States, of which 8.1 billion belonged to residents of Europe. The largest holdings were British, Swiss, French and Dutch. German assets amounted to only about 198 million dollars, less than a twelfth of the combined wealth of the Western European countries conquered in 1940. These figures showed that the Treasury’s fears had been justified. The Reich could reach money in America chiefly through the property of its victims and through intermediaries in neutral countries.

The closing of the German consulates

On 16 June the Under Secretary of State, Sumner Welles, summoned to the State Department the first secretary of the German embassy, Wilhelm Tannenberg – the chargé d’affaires, Hans Thomsen, being away from Washington – and handed him a note signed on behalf of the Secretary of State. In it the American government declared that German agencies in the United States, including the consulates, had been engaged in activities “wholly outside the scope of their legitimate duties”, of an “improper and unwarranted character”, which rendered their continued presence “inimical to the welfare of this country”. On the President’s instructions it demanded the removal of all German nationals connected with the German Library of Information in New York, the German State Railways and tourist offices and the Transocean agency, the closure of these institutions and their branches, and the departure of all German consular officials and employees and the closing of the consulates. All this was to happen before 10 July. According to a contemporary review in the Proceedings of the US Naval Institute, 24 German consulates were involved.

Welles stressed that the note did not concern the embassy in Washington and its staff, that the Germans would be neither interned nor restricted in their movements, and that the government would try to obtain safe-conducts for them from the British for the journey to Europe. The Library of Information and Transocean were in reality instruments of Reich propaganda. The best-known figure among the consuls was the consul general in San Francisco, Fritz Wiedemann, personal adjutant to Adolf Hitler in 1934–1938, whom the American press suspected of directing German intelligence activity on the West Coast. Thomsen replied with a note, delivered on 18 June, in which he rejected the accusations as “completely arbitrary and unfounded”, accused the United States of breaking the 1923 Treaty of Friendship, Commerce and Consular Rights and lodged “the most emphatic protest”.

Reprisals from Berlin and Rome

The answer came three days after the American note, and from two capitals at once. On 19 June at 6 p.m. the State Secretary at the German Foreign Office, Ernst von Weizsäcker, handed the American chargé d’affaires, Leland Morris, a note in which the Reich accused the American consuls of “machinations harmful to the state” and of illegal intelligence activity. It demanded the withdrawal by 15 July of all American consular officials from Germany, Norway, the Netherlands, Belgium, Luxembourg, occupied France, Serbia and the German-occupied part of Greece, as well as the closure of the American Express offices in those territories. That same day in Rome the Italian Foreign Ministry, headed by Galeazzo Ciano, delivered a note of similar content to the American embassy: United States consuls were alleged to have engaged in “entirely illegal” information-gathering and were to leave Italy and the lands under Italian rule or occupation by 15 July. Rome reserved the right to close the American Express offices as well.

Italy made this demand even though the note of 16 June had not concerned its own consulates. Washington replied at once. On 20 June Hull rejected the German and Italian charges but agreed to withdraw the consuls, and Welles, on behalf of the Secretary of State, handed the Italian ambassador, Prince Ascanio Colonna, a note demanding the closure of all Italian consulates and government agencies in the United States and the departure of their staff before 15 July. The note stated that the further operation of the Italian consular posts “would serve no desirable purpose”. The embassies in both capitals remained, but the consular network through which the two countries had maintained day-to-day contact, and which also looked after the fate of their citizens, ceased to exist.

On the same day, 20 June, Roosevelt sent Congress a message on the sinking of the Robin Moor, in which he called it the act of an “international outlaw”. A day later Hitler, who was to strike at the Soviet Union within a few dozen hours, ordered the Kriegsmarine to avoid any incident with the United States. In mid-July the German and Italian consuls sailed from New York to Lisbon aboard the American liner West Point, under a British guarantee of safe passage, and on the return voyage the ship brought back the American consuls from Germany, occupied Europe and Italy. The embassy in Berlin took over their duties, but for many occupied countries it could not even answer families’ questions about the fate of Americans living there.

Its place in the war

The freeze of 14 June was a political rather than an economic step. German and Italian assets in the United States were small, and trade with the Reich had almost ceased since 1939 in any case because of the British blockade. The order did, however, cut Germany off from the channels through which it could exploit the property of the conquered countries and the mediation of neutral states, and it gave the United States complete control over European capital in America. The closing of the consulates struck at German propaganda and intelligence, though it did not eliminate them altogether. At the end of June the FBI arrested the members of Fritz Duquesne’s spy ring, and their trial in the autumn revealed the scale of German activity in the United States.

Eight days after the order was issued Germany attacked the Soviet Union, and overnight the USSR changed from a suspect intermediary of the Reich into a potential ally. Its assets were quickly released by a general licence, and in the autumn Moscow was brought into Lend-Lease. Roosevelt used the same instrument that had been applied to Europe in June against Japan a month later: as Japan prepared to occupy southern Indochina, on 26 July 1941 he froze Japanese assets in the United States, which in practice cut Japan off from American oil and became one of the steps leading to the war in the Pacific. After Pearl Harbor and the declarations of war by Germany and Italy in December 1941, much of the frozen Axis property was taken over by the Office of Alien Property. Years later the census of foreign property of June 1941 became an important source for researchers tracing the property of the victims of Nazism, including the Jews murdered in the Holocaust.