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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

Background Note

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:
  • Discovery and seizure of German assets in neutral states (Europe, South America, Asia), to prevent the re-arming of the German Reich (“Safehaven” Programme from 1943).
  • Confiscation of German assets abroad for purposes of reparation (from 1945).

Switzerland pursued the following main objectives:

  • Ending of international isolation.
  • Respect for Swiss sovereignty.
  • Normalisation of its relations with the Allied states.
  • Abolition of the blacklists against Swiss companies, and lifting of controls on Swiss private holdings in the USA (approx. 4.5 bn Swiss francs).
1.2 Means of implementing these objectives
The Allied Powers had the following means at their disposal to implement their aims:
  • Monopoly in the supply of raw materials worldwide.
  • War economy mechanisms to exert control and pressure (blacklists, blocking of Swiss assets in the USA).
  • Access to German archives and sources of information, which allowed them to obtain a clear picture of German financial transactions.
  • Prestige resulting from victory and conviction that they were morally in the right.
  • Monopoly over the formation of public opinion worldwide and opportunity to launch large-scale press campaigns against recalcitrant states.

Switzerland had the following means at its disposal to implement its aims:

  • Appeal to international law
  • Proof that neutrality had been respected
  • Description of the difficult situation between 1940-45, when Switzerland was completely surrounded by Axis Powers.
  • Opportunity to make a contribution to the reconstruction of Europe.
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:
  • Warnings about gold (5.1.1943, 22.2.1944, 19.8.1944): references to German confiscation of gold. The Allies warned all states against accepting German looted gold and did not recognise the legality of such transactions.
  • Bretton Woods Resolution VI (19.8.1944): discovery, removal and restitution of assets illegally expropriated by Germany. Non-recognition of such transactions in neutral states also.
  • Yalta Conference (1945): total amount of German reparations fixed at US$ 20 billion: principle that all German assets abroad should be impounded for the purposes of reparations.
  • Potsdam Conference (1945): division of reparations between the Western Allies (USA, GB, France) and the USSR. German assets in neutral west European states were to go to the three Western Allies (and 15 other Allied states); the USSR and Eastern European states were not involved in this.
  • Enactment of the Allied Control Commission Law No. 5 (30.10.1945): deprived German owners of the right of disposal over their assets abroad, and assigned this to the Control Commission.
  • Paris Conference on Reparations (November-December 1945): 18 signatory states created an Inter-Allied Reparation Agency (IARA) in Brussels. They laid down a percentage-based distribution scale for the total amount of reparations. They commissioned the USA, Great Britain and France to commence negotiations with the neutral states on the handing-over of the German assets.
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:
  • Freezing of German assets in Switzerland (16.2.1945).
  • Switzerland prohibited trade in foreign currency and bank notes in Switzerland (2.3.1945).
  • Switzerland undertook to carry out an official investigation of German assets in Switzerland and to advise the Allies of the findings (“Currie Agreement” with USA/GB/France, Berne 8.3.1945).
  • Switzerland undertook to make arrangements to identify and earmark German looted property (“Currie Agreement”, 8.3.1945).
  • Switzerland undertook to create a legal basis for the restitution of assets proved to have been stolen to their rightful owners (“Currie Agreement”, 8.3.1945).
  • Switzerland undertook not to buy any more gold from Germany (“Currie Agreement”, 8.3.1945).
  • Federal Council Decree concerning claims for the restitution of assets confiscated in occupied war zones (10.12.1945).
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:
  • Switzerland undertook to trace and liquidate assets belonging to Germans in Germany which were located in Switzerland.
  • Switzerland would pay 50% of the proceeds of liquidation to the Allies for purposes of reconstruction, with the Federal Council being free to dispose of the remaining 50%.
  • The owners of liquidated assets would receive compensation in German currency.
  • A joint commission (Switzerland, USA, GB, France) would be set up as an organ of information and consultation to implement the agreement.
  • In case disputes over the interpretation of the agreement might arise, a two-tier appeal procedure was created: Swiss appeal court, and in the event of disagreement further recourse to an ad-hoc court of arbitration.
  • To settle the gold question conclusively, Switzerland would pay the Allies gold to the value of 250 million Swiss francs. In exchange for this payment the Allies would renounce, on their own behalf and on behalf of their central banks, and also the states forming the IARA, further claims against the Swiss government or the SNB in connection with gold acquired by Germany during the War (“The Allied Governments declare on their part that, in accepting this amount [250 million Swiss francs in gold], they waive in their name and in the name of their banks of issue all claims against the Government of Switzerland and the Swiss National Bank in connection with gold acquired during the war from Germany by Switzerland. All questions relative to such gold will thus be regulated.” Art. II.2).
  • The USA undertook to release Swiss assets in the USA in accordance with a procedure to be negotiated jointly.
  • The Allies would abolish blacklists affecting Swiss companies.
  • Switzerland confirmed that it would take a favourable view of the Allied request to transfer holdings of Nazi victims who died without leaving heirs to the Allied governments for the benefit of refugee organisations.
  • Furthermore, in a confidential letter the Allies requested that Switzerland simplify the restitution procedure for looted property. The Swiss negotiator referred to the Federal Council Resolution of 10.12.1945, which had proved to be satisfactory, but was willing to submit the request to the Swiss government.
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:
  • The American government lifted the controls on the official assets of the Swiss government and the SNB (over 3 billion Swiss francs) in the USA as early as 27.5.1946.
  • The Allied governments cancelled the blacklists on 8.7.1946.
  • Switzerland concluded a certification agreement with the US government on 22.11.1946, on the basis of which assets to the value of almost 4.5 billion Swiss francs in the USA were released by the end of 1948. Holdings of over 400 million Swiss francs could not be certified as non-enemy assets, and passed to the US enemy assets administrator.
  • Switzerland transferred the 250 million Swiss francs in gold to the Allied governments on 6.6.1947.
  • Switzerland set up the necessary implementation authorities: the unit for the liquidation of German assets; the joint commission held numerous sessions from autumn 1946 to 1948; Switzerland paid the Allies an advance of 20 million Swiss francs on the liquidation sum due to them, for the benefit of refugee organisations, in July 1948.
3.2 Obstacles to implementation
Three obstacles hampered the rapid liquidation of German assets in Switzerland:
  • Disagreement over the question of the rate of exchange at which the German owners should be compensated in German currency.
  • Disagreement over the settlement of inter-custodial conflicts relating to German enemy assets (where should foreign shares in a German-owned enterprise in Switzerland be liquidated? In Switzerland, or abroad?).
  • Disagreement over the question of concrete procedures for payment of compensation to German owners.

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:
  • The Allied governments received a lump sum of 121.5 million Swiss francs from Switzerland. In exchange for this indemnity, they and the states forming the IARA renounced their rights to German assets in Switzerland.
  • The government of the FRG paid Switzerland 121.5 million Swiss francs for releasing German holdings in Switzerland.
  • Holdings worth up to 10,000 Swiss francs were released in their entirety. Owners with holdings over 10,000 Swiss francs were obliged to relinquish a third to cover the lump sum settlement. If they were not prepared to do so, their Swiss franc assets were liquidated and they received - after the deduction of taxes and fees - the equivalent in German marks.
  • The government of the FRG undertook to pay back 650 million Swiss francs to Switzerland in graduated tranches, in settlement of half of the proceeds of liquidation to which Switzerland was entitled and in compensation for the claims of the Swiss state against the former German Reich (ca. 1.2 billion Swiss francs in total).
3.5 Implementation of the final settlement package
Unlike the WA, the final settlement package was implemented without difficulty:
  • Following the ratification of the agreement by Switzerland and the FRG, the sum of 101.5 million Swiss francs to which the Allied governments were entitled (121.5 million Swiss francs minus the advance of 20 million Swiss francs granted by Switzerland in July 1948) was paid to them on 20.3.1953. Thus the Allied claims arising from the WA were finally met. The further implementation of the final settlement package had become a purely Swiss-German matter.
  • From March 1953 to December 1957, applications for the release of holdings were submitted by 20,830 German owners. 15,507 holdings worth almost 100 million Swiss francs in total were repaid in full. 4,834 owners received two-thirds of the value of their holdings, worth 588 million Swiss francs in all. 489 holdings worth 9.3 million Swiss francs were liquidated and the owners were repaid by the German government in German marks. German assets in Switzerland amounted to 697 million Swiss francs at that time.
  • The government of the FRG settled the final payment of 650 million Swiss francs in compensation for the German Reich’s debts to Switzerland.

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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