Accessed 12 December 1999
Financial Relations between Switzerland and the Allies 1945-1952
The Washington Agreement (WA) of 25 May 1946,Historical Setting, Content, Partial Implementation and Final Settlement
Dr L. von Castelmur
The purpose of this Note is to recall, against the background of the current debate, some important historical facts concerning the historical setting, content, partial implementation and final settlement of the Washington Agreement of 25 May 1946.
1. The historical setting of the Washington Agreement
1.1 The objectives of the contracting parties
The Allied Powers pursued two main objectives:
Switzerland pursued the following main objectives:
1.2 Means of implementing these objectives
The Allied Powers had the following means at their disposal to implement their aims:
Switzerland had the following means at its disposal to implement its aims:
1.3 The legal basis for the Allies' claims
During the War itself and above all after the end of the War, the Allies strove, by means of declarations, decisions and international agreements, to draw up a legal basis on which to found their claims:
1.4 Preliminary measures taken by Switzerland
Principally because of pressure from the Allies, Switzerland had taken a series of measures concerning its financial relations with Germany at the beginning of 1945:
2. The Washington Agreement of 25.5.1946
2.1 The Contracting Parties
The Contracting Parties were Switzerland on the one hand, and the USA, Great Britain and France on the other. However the three Western Allies were also acting on behalf of 15 other IARA states: Albania, Australia, Belgium, Canada, Czechoslovakia, Denmark, Egypt, Greece, India, Luxembourg, Netherlands, New Zealand, Norway, South Africa and Yugoslavia.
The IARA states were to share in the proceeds of liquidation of the German assets and the gold payment of 250 million Swiss francs. In exchange, they relinquished their own claims against Switzerland and accepted the definitive settlement of the gold question.
2.2 The question of the gold transfers
The three Allied states prepared themselves thoroughly for these negotiations. Above all they wished to achieve factual clarification, from documents and the questioning of witnesses in Germany, concerning transfers of German looted gold, and to ascertain how much of this gold had flowed into Switzerland and other neutral states. Early in 1946 they reached the conclusion that Germany had appropriated looted gold worth US$ 410 million in total. Of this, US$ 130 million (ca. 560 million Swiss francs) of Belgian gold had definitely found its way into Switzerland, after the bars had been recast and given pre-war stamps and papers. American investigations suggested that even more looted gold could have found its way into Switzerland. They assumed amounts of between US$ 185 and 289 million. These estimates were regarded as plausible, but were thought to be extremely uncertain.
The Allies tried to persuade Switzerland to recognise, in law, their concept of looted gold and to demand the restitution of all looted gold by Switzerland in general. Faced with the Swiss refusal to recognise the facts of the matter concerning looted gold or an obligation to make restitution, the Allies agreed amongst themselves to submit a request for the return of US$ 130 million to Switzerland.
The representative of the Swiss National Bank (SNB), Mr A Hirs, conceded at an internal meeting in Washington that the SNB had been deceived by the German Reichsbank and, to all appearances, had accepted 551 million Swiss francs' worth of Belgian gold, but he stressed the good faith of his institution and the duty of care which had been respected. The SNB relied on the principle that, according to the Hague Land Warfare Convention of 1907, cash and valuables of an occupied state - but not of private individuals - were subject to the occupying state's right to the spoils of war. Thus Germany could have acquired gold from occupied areas legally, and sold it on. Moreover, it was significant that the SNB had acquired the gold in good faith.
The expropriation of Dutch gold, which had been sold from 1941 to 1944 by the German Reichsbank to the SNB and the Swiss commercial banks, was not raised in the Washington negotiations. At the beginning of 1947 documents had come to light in the Soviet occupied zone in terms of which 562 million Swiss francs' worth of Dutch gold had been sold by Germany to the SNB and the Swiss private banks. In a Note the USA, Great Britain and France asked Switzerland on 20.5.1948 to comment on these documents. In its reply Switzerland gave them to understand that in making the payment of 250 million Swiss francs in gold under the Washington Agreement, all the claims of the IARA states had been conclusively met. The governments of the USA, Great Britain and France left the matter at that.
2.3 The course of the negotiations
The negotiations in Washington lasted more than two months (from 18.3.1946 to 25.5.1946). They were conducted robustly by both sides. The legal views of the two sides were irreconcilably opposed. Switzerland could not recognise the Allied Control Commission Law No. 5 as the legal basis for the liquidation and handing-over of the German assets to the Allies. It also did not acknowledge, either in law or in fact, that it had received looted gold. Conversely, the Allies did not recognise Switzerland's legal view that German assets in Switzerland ought to be protected and that in cases of expropriation, suitable compensation should be paid to the rightful owners. Above all, the Allies could not recognise the legality of the Swiss acceptance of gold from Germany. The procedure suggested by Switzerland, that of judicial settlement of the matter, was not acceptable to the Allies either.
Under such circumstances it quickly became clear that only a political agreement with the necessary compromises on both sides could lead to a satisfactory solution. In Washington both sides very quickly abandoned a legalistic approach in their arguments in order to achieve, pragmatically, an advantageous solution for all parties. In doing so, moral scruples and principles were set aside. Put bluntly, Switzerland aimed to normalise relations with the Allies at the lowest possible political and financial price, while the Allies endeavoured to obtain as high a price as possible for the reparations fund in exchange for dropping their war economy measures against Switzerland.
The time factor was also significant: since the Allies were coming under pressure finally to abolish the controls and sanctions of the wartime economy one year after the end of the war, they had to act rapidly if they still wished to deploy the instruments of pressure in the negotiations with the neutral states. Postponing the negotiations until later - perhaps until the facts surrounding the acceptance of gold from Germany had been definitively clarified - was therefore out of the question for them. They were pressurised by the IARA and the other 15 IARA states to arrange for the payment of the proceeds from the neutral states into the reparations pool as soon as possible. The Allied governments wished to reach an acceptable settlement in a very short space of time. They did not consider it likely that they would achieve a better result at a later date.
2.4 Negotiations with other neutral governments
Besides Switzerland, the Allies intended to conduct negotiations with Sweden, Spain, Portugal and possibly also Romania and Turkey on the liquidation and surrender of German assets in these states and the restitution of German looted gold. The negotiations with Switzerland were treated as a precedent. They were determined to demonstrate a success, to show the above-mentioned states that Switzerland had at least partially yielded to their views. A breakdown in the negotiations with Switzerland would, in their view, have threatened the successful conclusion of the negotiations with these states. The Allies were therefore inclined to reduce their substantive claims as well, if necessary.
In August 1946 a similar agreement was concluded with Sweden, and later with Spain and Portugal also.
2.5 The content of the agreement
In the preamble to the agreement the Contracting Parties recalled that they had not renounced their legal views, but had reached this agreement for political reasons. The main points were:
3. From partial implementation to final settlement of the WA
The WA contained many loopholes. The Swiss and the Allies had approached the matter from diametrically opposed opinions and interests. In order nevertheless to produce a successful outcome in the prolonged negotiations, lack of clarity and ambiguities were accepted. The liquidation mechanism for German holdings had not been adequately settled. The compensation provisions were not clearly specified either. The Allied governments did not attach great significance to these provisions. They were principally interested in the liquidation and rapid payment of the Swiss franc sums to which they were entitled. Conversely, in Berne great importance was placed on the correct and legally irreproachable implementation of the agreement. Without a rate of exchange acceptable to both sides, or binding guarantees as to how such compensation could be paid to the dispossessed owners in Germany, Berne was not prepared to undertake the liquidation.
3.1 Partial implementation of the WA
The other provisions of the agreement were implemented fairly quickly and without difficulty:
3.2 Obstacles to implementation
Three obstacles hampered the rapid liquidation of German assets in Switzerland:
As long as these three questions could not be resolved satisfactorily, Switzerland was not prepared to commence the liquidation of German assets.
3.3 Change of circumstances in foreign policy
In addition to this, the general foreign policy climate corresponded less and less to the wording and spirit of the WA. The break with the USSR, the beginning of the Cold War and the new partnership with the democratic Federal Republic of Germany (FRG), founded in 1949, made an agreement to punish Germany seem increasingly anachronistic. The Safehaven interests had long since been satisfied: it was clear that the German assets in Switzerland to be liquidated (ca. 500 million Swiss francs) could not constitute a threat to peace. With the introduction of a hard currency in West Germany the problem of payment of compensation to dispossessed Germans also became technically more difficult. Apart from financial motives - their half share in the proceeds of liquidation - the Allies had lost interest in the implementation of the WA. The USA therefore took soundings as early as 1947 in London and Paris as to whether the Allies should not propose a final settlement agreement (“lump sum settlement”) in order to find a way out of the impasse. However such a solution was rejected by the British and the French at that time.
3.4 The negotiation of a final settlement package in 1951/52
After even greater difficulties materialised in 1951 as well, this idea was revived. In the meantime the FRG had expressed its views. It indicated that it would be prepared to make the necessary resources available to meet the Allies' claims if the plan to liquidate German assets in Switzerland was relinquished. At the same time the Federal Republic offered to repay part of the German clearing debts dating from the war to Switzerland. After extended negotiations, a final settlement package acceptable to all parties was achieved in August 1952:
3.5 Implementation of the final settlement package
Unlike the WA, the final settlement package was implemented without difficulty:
After the Swiss Compensation Office's work of releasing and liquidating assets had been virtually completed by the end of 1957, a final protocol was signed on 1.8.1958. From this date onwards the provisions of the final settlement agreement had expired. The resolution on the obligation to register German assets as well as the embargo resolution of 1945 were repealed. The Political Department and the German federal government established in an exchange of Notes dated 30.9.1960 that the agreement on German assets in Switzerland had now been implemented in full and was therefore no longer in force.
Dr L. von Castelmur
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