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  Touring Switzerland in June 1945, Orvis Schmidt had become incensed. Klaus’s warnings, derided only four weeks earlier, had been only too justified. The Swiss were ignoring their undertakings to Currie. Morton Bach, a Safehaven officer in Bern, had moaned to Schmidt about how polite and unhelpful the Swiss bankers were proving. Eberhard Reinhardt of Crédit Suisse, unfailingly courteous when asked for assistance in the search for loot, always replied, “I can’t quite recall”; while Edgar de Rahm, of the Banque de Paris in Geneva, consistently declared of his search for loot, “I’m afraid there’s no progress.” The best reply Bach could ever expect from any banker was “We’ll look into it.”

  Safehaven, Schmidt realized, was less effective than Washington believed. Switzerland’s measures, he reported to Morgenthau, were “so inadequate that German war criminals outside Germany or in Switzerland are free to utilize their funds held in Switzerland.” German property, especially where it was slightly cloaked, was untouched by Swiss controls. “The Swiss make it easy for the Nazi industrialists and other war criminals to conceal their assets held not only in Switzerland but in Swiss names throughout the world.” Unless the Treasury could “pierce this veil of secrecy,” warned Schmidt, U.S. policy would be sabotaged. His solution was to threaten Switzerland with sanctions, ban supplies of coal and other essential commodities and impose a complete freeze on all Swiss bank accounts in the United States. Fired with indignation, the crusaders took their battle to Europe’s first postwar summit of Allied leaders.

  Despite his uninspiring official title, the United States Commissioner of Labor Statistics, Isador Lubin, wielded considerable influence in Washington. Based in the east wing of the White House, Lubin was a member of Roosevelt’s brain trust and was recognized by all as a “civilized Jew from Harvard who knew how to hold his fork.” Passionately active during the war as the president’s link in the bid to rescue Hungarian Jews, Lubin in 1945 immersed himself with other crusaders in the efforts to save the Jewish survivors.

  In a memorandum to the president, Lubin wrote that at least 100,000 persons “are particularly unfortunate victims,” since either their possessions had been stolen or they had been forced to hand them over to their oppressors. Penniless, they were also stateless. Unprotected and unaided by any government, they were unable or unwilling to return to their homes. Securing money for relief would be difficult; but, Lubin speculated, one certain source was German assets in Switzerland. Their fate would be decided at the Allied summit conference to held in July at Potsdam, near Berlin. With Roosevelt’s agreement, Lubin was appointed the American representative to negotiate on reparations. But the president’s intervening death altered Lubin’s status. As a reward for faithful services, Ed Pauley, a senior Democrat official, was appointed by Harry S. Truman as Lubin’s superior. Since Pauley was more interested in photo opportunities to promote his political ambitions at home, however, Lubin retained his authority without the prestige.

  Lubin’s financial proposal seemed uncontroversial. Two percent of the reparations taken from the nonmonetary gold seized in Germany and the German assets seized in the neutral countries, he suggested, should be allocated to an international agency for the benefit of the 100,000 Jews. The only exception would be Jews living in Germany, who should be helped by the German government. But the crusade was not confined to securing mere money. It also concerned the fate of the Jews. “They stand,” Lubin told Truman, “in immediate need of relief, of resettlement in a more promising environment and of aid in rehabilitation.” His implication was unequivocal. The survivors should be allowed to rebuild their lives in Palestine, a British-mandated colony. Lubin understood the controversy his plan would generate.

  Ever since Britain had been granted formal control over Palestine in 1919, as part of the settlement at the end of World War I, successive ministers were caught by a dilemma. Palestine was properly deemed by the British to be a vital military position for the defense of the Suez Canal, the shipping routes to the empire in India and Britain’s considerable investments in the emerging Middle East oil fields. To have abandoned Palestine in 1919—in the midst of extraordinary turbulence—would have been military and political folly. Britain’s dilemma arose out of the natural conflict between maintaining good relations with all the Arab rulers and a promise made to Chaim Weizmann in 1917 by Arthur Balfour, the foreign secretary, that “His Majesty’s Government view with favor the establishment in Palestine of a national home for the Jewish people, and will use their best endeavors to facilitate the achievement of this object.” The Balfour Declaration, however, contained a critical proviso: Nothing was to be done by the Jews “which may prejudice the civil and religious rights of the existing non-Jewish communities.”

  From 1917 onward, a trickle of European Jews, committed Zionists, had settled in Palestine, provoking concern among the Arabs. Hitler’s appointment as chancellor of Germany in 1933 prompted increasing numbers of Jews, denied sanctuary in other European countries, to settle in Palestine, and their arrival had aroused Arab protests. Britain’s strategic interests were indisputable. After the outbreak of war, retaining the Arabs’ loyalty against Nazi Germany was vital, and the arrival of any Jewish settlers was deemed to endanger the Allies’ strategy against the Germans in the Middle East and North Africa.

  That consideration, as Isador Lubin knew, had cost the lives of thousands of persecuted Jews. During his own wartime bid to save the Hungarian Jews, the British had prevented persecuted Jews from entering Palestine, even though their alternative destination was Auschwitz. The anger among the United States’ Jews against Britain for that inhumanity was limited only by their ignorance of all the covert manipulations adopted by British diplomats to prevent the Jews from escaping from the Nazis and because State Department officials had similarly denied sanctuary to Jews. The past, Lubin believed, was best forgotten if he was to find allies for his new plan.

  Traveling via Moscow, Lubin arrived in Berlin with Abraham Bergson and Moses Abramovitz, a thirty-three-year-old economist employed by the OSS as a senior analyst of German industry. Abramovitz had previously clashed with Morgenthau, arguing that Germany was incapable of affording gigantic reparations, but he shared the desire to “do justice” to the Jews. Morgenthau would resign during July, but the Americans were able to welcome the appointment of Sir David Waley, an industrious and widely respected fifty-eight-year-old Oxford-educated Treasury official who had won the Military Cross in World War I. Jewish and a Zionist, Waley supported the creation of a homeland for Jews in Palestine but tactfully concealed his sympathies.

  Lubin’s memorandum, “Reparations and Restitution for Stateless Persons,” appalled most of Waley’s colleagues. Only one aspect was attractive. Lubin proposed to limit the Allies’ expenditures by financing the care of the survivors from German property in Switzerland. “By treating the problem of people who are robbed and made stateless by Hitler as a problem of reparations and restitution,” explained Lubin, “we will shift the burden to Germany.” Anything that saved money attracted British support, but Lubin’s general sentiment was less palatable. A new International Board of Trustees, he suggested, should pursue the claims of murdered Jews and use the heirless assets to “secure equipment to help the stateless Jews settle in Palestine.” That was unacceptable to the British. But, as an insignificant item in the vast agenda preoccupying the Allies at Potsdam, it was relegated for future discussion. Lubin’s success, with Waley’s help, was to include in the final agreement the stipulation that 2 percent of the reparations were to be used for refugee relief.

  On July 31, 1945, the Four Powers—the United States, Britain, France and the Soviet Union—formally ordered the neutral countries to transfer all property owned by the Axis powers to the Allies. To the euphoric victors, momentarily forgetting the legal problems, it seemed that every German asset in Switzerland was there for the taking. If the Swiss objected, warned Lubin, the Allies would blockade their country. Sanctions would shatter Swiss stubbornness. Joining
the enthusiasm, Foreign Office officials were unusually brazen: “Switzerland must recognize the complete authority of the three Western powers and deliver anything that the Allies took a fancy to.” Switzerland, said another official, should be offered “the smallest cut for their claims that we can negotiate.” The dissident who cautioned, “If we take a fancy to too much, the neutrals might kick,” was momentarily ignored.

  One week later, reality dawned. In scrawled memoranda, unemotional British lawyers cooled expectations. Simply waving resolutions would hardly persuade the Swiss to comply. They warned that, if Switzerland denied the validity of a foreign decree by asserting its sovereign rights, the Potsdam declaration would be worthless. The proposed solution was persuasion: “It will pay us to work by collaboration with the neutrals. If we try a bluff that does not work … there is not much that can be done.” Recent history did not encourage the British. Nor were they gratified to find that Lubin and the crusaders were censuring them for pessimism.

  In Bern, whose village atmosphere diffused any sense of reality, Leland Harrison was witnessing Swiss perfidy. Staff members from the British embassy, asserting their rights as representatives of the new government of Germany, had inhabited the vacant homes of Germany’s expelled diplomats and were encountering fierce Swiss demands for their departure. Swiss officials spoke about keeping German property in trust “for the eventual legal government of Germany” and refused to allow the Allies access to the files taken from the abandoned German embassy. The Swiss proclaimed it their duty to protect the interests of all Germans, including Nazis, and had established a German Interests Section, the Deutsche Interresenvertretung or DIV, to protect German property against the Allies’ claims. As if in the same breath, Robert Kohli, in the Political Department, told Harrison that Swiss investigators were plowing through police files, tax reports and other sources to seek German assets—he irritatingly refused to reveal any particulars—and also mentioned Switzerland’s demand for the recovery of the SF1 billion wartime loan to Germany. Perplexed, Harrison reported to Washington that while he could not understand the “actual reasons for [Swiss] slowness” he still trusted that the Swiss had the “greatest interest to remove the sources of suspicion.” Despite eight years’ service in Bern, the American diplomat was an easy victim of Swiss deception.

  Outwitting the Allies was an option Swiss ministers had instinctively embraced in the first days of peace. Apologies and resignations were not common in Switzerland’s political tradition, and some prominent figures whose dalliance with the Nazis had been exposed easily shrugged off any embarrassment. Like Walter Stucki, the nation’s leaders rallied to expressions of pride about Switzerland’s wartime record. Surviving as a neutral, Stucki believed, had been a victory akin to the Allies’ defeat of the Nazis. Like the Allies, Switzerland had been a victim of the Third Reich, but, thanks to guile and bravery, it had avoided occupation. Switzerland, Stucki proudly told the Allied ambassadors, had also suffered. No fewer than 376 Swiss nationals had been killed abroad, and 55 were still missing. Two Swiss had been executed in Germany and ten in France. To emphasize the inviolability of Swiss neutrality, Max Petitpierre remarked in a distinctly inflammatory tone that France, the most vulnerable of the Allies, would be required to pay “two million francs” in compensation for that enormity. Later, the Swiss conjured up the statistic that sixty-three Swiss nationals had died in France, and the new government in Paris was presented with a bill for FF82 million. The Swiss who had died were black marketeers, common criminals or collaborators who had served the German cause. Masquerading as neutrals, those Swiss had sought to profit from France’s discomfort, yet Phillipe Pérrier, the senior diplomat assigned to deal with the claim, believed that France had no option but to make a counteroffer of FF55 million. “It is galling,” he wrote, “to offer monetary compensation to the heirs of certain foreigners who had failed to observe total neutrality while in our country and who had freely and openly taken a position in favor of our enemies.” But France, burdened by the legacy of Vichy, preferred to bow to Swiss demands rather than risk embarrassment.

  Alberto Caflisch, the secretary of the Swiss Bankers Association, and his fellow members expected similar tactics—“the technicalities of business”—to sabotage the Allies. Born in 1898, the son of a long-established Swiss family, Caflisch had grown up in Naples, Italy (where his grandfather had established a business), before returning to Switzerland to tread a familiar path. After studying law at three Swiss universities, Caflisch was employed by a bank and then joined the association in 1946 as one of four secretaries. It was the association’s practice to bully ministers until the government lent support to their opinion. Even before the war ended, Caflisch goaded Petitpierre to shrug off the affidavit scandal. Switzerland’s “supreme interest,” he preached to the politician, was not to erode worldwide respect by undermining the banks’ credibility. The banks’ new affidavit system, he had assured the minister, was “foolproof.” Nevertheless, his campaign to protect the ownership of the stolen shares and securities accepted by its members had encountered a reluctance among politicians to alienate the Allies. Unused to unsympathetic reaction to the bankers’ requirements, Caflisch repeatedly appealed to Petitpierre to appreciate that any breach of the secrecy laws and any disclosure of clients’ names would “irreparably damage” the banks’ reputation. Petitpierre listened. Allowing the Allies to infringe Switzerland’s sovereignty and force unwelcome disclosures, he agreed, was unacceptable. But the agreement with Currie was a formal, legal document, and although it was being stealthily sabotaged, he said without regret, it could not be completely ignored. The minister’s feeble response encouraged Caflisch to wage war. Escalating a disagreement into a crisis suited the association’s tactics. In particular, it suited the bankers to launch a “battle of the names” against Max Schwab, the sixty-three-year-old director of the Swiss Compensation Office within the Political Department, who until recently had served as a commander of an artillery regiment.

  Recruited in 1934 from the National Bank to control the flow of foreign currency passing through Switzerland, Schwab was a lawyer sharing with Stucki, an old school friend with whom he had played soccer, a distrust of bankers and servility toward the sanctity of the law. If incompatibilities between his principles arose, Schwab was usually inclined to interpret the law narrowly to the bankers’ advantage. Humanity and flexibility were not qualities he displayed in the administration of his office, an approach that won him praise as “a man of integrity.” Currie’s belief that the Compensation Office could be trusted to implement the agreement was naive. During the war, the office’s personnel had worked closely with Nazi financial agencies, including the Reichsbank, and their inclination to join the Allies in punishing the Germans was questionable. Yet the fate of the crusaders’ plans to secure the German assets and help the Jews depended upon Schwab. Under the Currie agreement, Schwab was authorized to compile a census and supervise the freezing of all German property in Switzerland. Most important, he was also authorized to list the names of all German owners of bank accounts. That authority—to breach the bank secrecy laws—horrified Caflisch. The risk of leaks was appalling, and his members’ businesses would be irreparably damaged. His only consolation was Petitpierre’s sympathy when the bankers resisted Schwab’s entreaties to abide by the Currie agreement.

  Schwab approached his new task honestly, but within days he was stumbling. The obstacle, he confided to Stucki, was the decree ordering the freeze on German property. It was, he complained, “unsatisfactory.” The banks, said Schwab, insisted on secrecy, and yet, without revealing names, it would be impossible to complete the freeze and the census. How could the Compensation Office determine the ownership of property, he asked, if the banks denied possessing that knowledge, refused to cooperate and relied upon the law protecting bank secrecy? “The banks say that it’s not their duty,” he told Stucki in frustration, “to query an owner’s nationality.” Safehaven’s fate depended upon Max Schwab
’s securing a victory over Caflisch.

  Schwab expected the department’s support against the bankers when in mid-April he arrived in Robert Kohli’s office with Caflisch for what had been billed by the Political Department as a meeting to settle the dispute. Instead, Kohli’s response to Caflisch’s aggressive defense of bank secrecy was “shaky.” Stung by the banks’ vehement opposition and by Caflisch’s outlandish accusation that the Compensation Office was responsible for all the problems, Kohli became uncertain how Switzerland could ever feign compliance with the Currie agreement. By the end of the meeting, the intimidated official procrastinated: “We need to consider this further.”

  On April 28, 1945, Schwab approached Kohli privately. Relying upon the banks, said Schwab, was unsatisfactory. While most banks could be trusted, some of their employees, as shown by the false affidavits, were probably untrustworthy. “If we cannot obtain the names of the owners of assets,” he proposed, “we will have to rely upon denunciations or information from other sources.” Kohli did not react to Schwab’s idea. Confronting or investigating the bankers was distinctly unappealing.

  By July, on the eve of the Potsdam conference, Emil Puhl’s confidence that the Swiss bankers would protect the Germans appeared justified. Alberto Caflisch, having recognized the seriousness of the American campaign to recover the German loot, shifted his position. Adopting a pious approach, he told Petitpierre that Switzerland’s banks, unlike the lawyers and fiduciaries, were wholly innocent. No Swiss bank, soothed Caflisch, would ever have assumed “the role of a fence by unlawfully acquiring property.” Moreover, Petitpierre ought to be mindful of Switzerland’s interests. Even if Swiss lawyers and fiduciaries were custodians of loot, “it is hardly the responsibility of our country to establish the nature of the illegality, causing a foreigner to lose his valuables. That’s up to the foreign governments. Switzerland’s responsibility is only to decide what is the definition of loot and how to protect the innocent purchaser of stolen goods.” Finally, the minister should bear in mind Switzerland’s interests. Infringing banking secrecy would jeopardize the nation’s prosperity. To Caflisch’s satisfaction, Petitpierre nodded. Three months after Currie’s visit to Bern, the minister was bending. Switzerland’s interests, he murmured, were similar to those of the bankers. The plans to seize German property seemed to be stillborn.