Economic Warfare: First Step

Last week the President took a long step toward economic warfare. When he froze the U.S. assets (and future financial transactions) of the 16 remaining unfrozen European countries (see p. 13), he did not merely lock the stable door too late. Though the big horse was gone, several ponies still fed in the U.S. stall. Dividends and patent royalties due Germans have been piling up in the U.S., providing dollars that could easily be used to finance the Gestapo in this Hemisphere as well as at home. Some of the newly frozen neutrals, notably Switzerland, have been financial servants of the Axis. The President's order locked these ponies in for good.

By including neutral nations in his order, the President finessed the problem that most worried the State Department--slapping the Axis alone. But in an accompanying statement, he showed an inclination to be more lenient with the Governments (and citizens) of Finland, Portugal, Spain, Sweden, Switzerland and the U.S.S.R. than with Italy, Germany and the countries they have occupied. These nations, he indicated, might avoid freezing control through general licenses permitting financial transactions "upon the receipt of adequate assurances . . . that the general licenses will not be employed ... to evade the (anti-Axis) purposes of this order."

But there were more cogent reasons than pure diplomacy for including neutral nations in the order. This was clear from an SEC report to Congress earlier last week. After four years of study, SEC admitted it could not discover who controlled the American I. G. Chemical Corp. originally sponsored by I. G. Farbenindustrie, but since 1939 called General Aniline & Film (textiles, dyes, Agfa Ansco camera equipment). SEC revealed that the original U.S. directors of the firm, including Standard Oil of New Jersey's Walter Teagle, had no idea who controlled it either. The trail ended in Switzerland, where a number of long-named banking firms were holders "of record," but not "beneficially," of over 75% of the company's voting stock, for principals whom they refused to name.

The refusal may well have been due to the ancient banking principle (nowhere more grimly adhered to than in Switzerland) that bankers don't tell on their clients. The fact remains that many business transactions that look Nazi from the U.S. side, wind up in a dead end somewhere in Switzerland. It is a safe bet that Switzerland, willingly or not, has been acting as Germany's banker since the war began, as she did before the war.

The other chief U.S. source of German income is patents. Royalties due to German firms for patents licensed to U.S. companies (including Standard Oil's right to produce synthetic rubber by the buna process) have not all been sent out of the U.S., but they were a prime source of capital for Nazi propaganda and espionage here. Now, the best that is likely to happen to their legal claimants is that their royalties will be held for them until the war is over.

Another hole the order can plug: Nazi purchases of U.S.-held German securities, at prices as low as 15-c- on the dollar, which already have run into millions. Besides saving a lot of money for Germany, this repatriation had propagandized Germany as an honest nation, eager to pay its debts.

Whether or not the Presidential order will really plug all these loopholes depends on how it is administered. To be 100% effective, its administrator would need power to make drastic and speedy decisions in every question of international finance that arose, without any advice from timid souls in the State Department. State's point of view was represented in the current orders by the tender treatment of Spain and Russia as compared to Italy and Germany, and by the fact that Japan was not mentioned at all. If & when the President sets up a ministry of economic warfare, the freezing order would be such a ministry's first weapon--and job.

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