Chapter 9
GUARANTY TRUST GOES TO RUSSIA
Soviet Government desire Guarantee [sic] Trust Company to become fiscal agent in United States for all Soviet operations and contemplates American purchase Eestibank with a view to complete linking of Soviet fortunes with American financial interests.
William H.
Coombs, reporting to the U.S. embassy in London, June 1, 1920 (U.S. State Dept.
Decimal File, 861.51/752). ("Eestibank" was an Estonian bank)
In 1918 the Soviets faced a bewildering array of internal and external problems. They occupied a mere fraction of Russia. To subdue the remainder, they needed foreign arms, imported food, outside financial support, diplomatic recognition, and — above all — foreign trade. To gain diplomatic recognition and foreign trade, the Soviets first needed representation abroad, and representation in turn required financing through gold or foreign currencies. As we have already seen, the first step was to establish the Soviet Bureau in New York under Ludwig Martens. At the same time, efforts were made to transfer funds to the United States and Europe for purchases of needed goods. Then influence was exerted in the U.S. to gain recognition or to obtain the export licenses needed to ship goods to Russia.
New York
bankers and lawyers provided significant — in some cases, critical — assistance
for each of these tasks. When Professor George V. Lomonossoff, the Russian
technical expert in the Soviet Bureau, needed to transfer funds from the chief
Soviet agent in Scandinavia, a prominent Wall Street attorney came to his
assistance — using official State Department channels and the acting secretary
of state as an intermediary. When gold had to be transferred to the United
States, it was American International Corporation, Kuhn, Loeb & Co., and
Guaranty Trust that requested the facilities and used their influence in
Washington to smooth the way. And when it came to recognition, we find American
firms pleading .with Congress and with the public to endorse the Soviet regime.
Lest the reader
should deduce — too hastily — from these assertions that Wall Street was indeed
tinged with Red, or that Red flags were flying in the street (see
frontispiece), we also in a later chapter present evidence that the J.P. Morgan
firm financed Admiral Kolchak in Siberia. Aleksandr Kolchak was fighting the
Bolsheviks, to install his own brand of authoritarian rule. The firm also
contributed to the anti-Communist United Americans organization.
The case of
Professor Lomonossoff is a detailed case history of Wall Street assistance to
the early Soviet regime. In late 1918 George V. Lomonossoff, member of the
Soviet Bureau in New York and later first Soviet commissar of railroads, found
himself stranded in the United States without funds. At this time Bolshevik
funds were denied entry into the United States; indeed, there was no official
recognition of the regime at all. Lomonossoff was the subject of a letter of
October 24, 1918, from the U.S. Department of Justice to the Department of
State.1 The letter referred to Lomonossoff's
Bolshevik attributes and pro-Bolshevik speeches. The investigator concluded,
"Prof. Lomonossoff is not a Bolshevik although his speeches constitute
unequivocal support for the Bolshevik cause." Yet Lomonossoff was able to
pull strings at the highest levels of the administration to have $25,000
transferred from the Soviet Union through a Soviet espionage agent in Scandinavia
(who was himself later to become confidential assistant to Reeve Schley, a vice
president of Chase Bank). All this with the assistance of a member of a
prominent Wall Street firm of attorneys!2
The evidence is
presented in detail because the details themselves point up the close
relationship between certain interests that up to now have been thought of as
bitter enemies. The first indication of Lornonossoff's problem is a letter
dated January 7, 1919, from Thomas L. Chadbourne of Chadbourne, Babbitt 8e Wall
of 14 Wall Street (same Address as William Boyce Thompson's) to Frank Polk,
acting secretary of state. Note the friendly salutation and casual reference to
Michael Gruzenberg, alias Alexander Gumberg, chief Soviet agent in Scandinavia
and later Lomonossoff's assistant:
Dear Frank: You
were kind enough to say that if I could inform you of the status of the $25,000
item of personal funds belonging to Mr. & Mrs. Lomonossoff you would set in
motion the machinery necessary to obtain it here for them.
I have
communicated with Mr. Lomonossoff with respect to it, and he tells me that Mr.
Michael Gruzenberg, who went to Russia for Mr. Lomonossoff prior to the
difficulties between Ambassador Bakhmeteff and Mr. Lomonossoff, transmitted the
information to him respecting this money through three Russians who recently
arrived from Sweden, and Mr. Lomonossoff believes that the money is held at the
Russian embassy in Stockholm, Milmskilnad Gaten 37. If inquiry from the State
Department should develop this to be not the place where the money is on
deposit, then the Russian embassy in Stockholm can give the exact address of
Mr. Gruzenberg, who can give the proper information respecting it. Mr.
Lomonossoff does not receive letters from Mr. Gruzenberg, although he is
informed that they have been written: nor have any of his letters to Mr.
Gruzenberg been delivered, he is also informed. For this reason it is
impossible to be more definite than I have been, but I hope something can be
done to relieve his and his wife's embarrassment for lack of funds, and it only
needs a little help to secure this money which belongs to them to aid them on
this side of the water.
Thanking you in
advance for anything you can do, I beg to remain, as ever,
Yours sincerely,
Thomas L. Chadbourne.
Thomas L. Chadbourne.
In 1919, at the
time this letter was written, Chadbourne was a dollar-a-year man in Washington,
counsel and director of the U.S. War Trade Board, and a director of the U.S.
Russian Bureau Inc., an official front company of the U.S. government.
Previously, in 1915, Chadbourne organized Midvale Steel and Ordnance to take
advantage of war business. In 1916 he became chairman of the Democratic Finance
Committee and later a director of Wright Aeronautical and o[ Mack Trucks.
The reason
Lomonossoff was not receiving letters from Gruzenberg is that they were, in all
probability, being intercepted by one of several governments taking a keen
interest in the latter's activities.
On January 11,
1919, Frank Polk cabled the American legation in Stockholm:
Department is
in receipt of information that $25,000, personal funds of .... Kindly inquire
of the Russian Legation informally and personally if such funds are held thus.
Ascertain, if not, address of Mr. Michael Gruzenberg, reported to be in
possession of information on this subject. Department not concerned officially,
merely undertaking inquiries on behalf of a former Russian official in this
country.
Polk, Acting
Polk appears in
this letter to be unaware of Lomonossoff's Bolshevik connections, and refers to
him as "a former Russian
official in this country." Be that as it may, within three days Polk
received a reply from Morris at the U.S. Legation in Stockholm:
January 14, 3
p.m. 3492. Your January 12, 3 p.m., No. 1443.
Sum of $25,000
of former president of Russian commission of ways of communication in United
States not known to Russian legation; neither can address of Mr. Michael
Gruzenberg be obtained.
Morris
Apparently
Frank Polk then wrote to Chadbourne (the letter is not included in the source)
and indicated that State could find neither Lomonossoff nor Michael Gruzenberg.
Chadbourne replied on January 21, 1919:
Dear Frank:
Many thanks for your letter of January 17. I understand that there are two
Russian legations in Sweden, one being the soviet and the other the Kerensky,
and I presume your inquiry was directed to the soviet legation as that was the
address I gave you in my letter, namely, Milmskilnad Gaten 37, Stockholm.
Michael Gruzenberg's
address is, Holmenkollen Sanitarium, Christiania, Norway, and I think the
soviet legation could find out all about the funds through Gruzenberg if they
will communicate with him.
Thanking you
for taking this trouble and assuring you of my deep appreciation, I remain,
Sincerely yours,
Thomas L. Chadbourne
Thomas L. Chadbourne
We should note
that a Wall Street lawyer had the address of Gruzenberg, chief Bolshevik agent
in Scandinavia, at a time when the acting secretary of state and the U.S.
Stockholm legation had no record of the address; nor could the legation track
it down. Chadbourne also presumed that the Soviets were the official government
of Russia, although that government was not recognized by the United States,
and Chadbourne's official government position on the War Trade Board would
require him to know that.
Frank Polk then
cabled the American legation at Christiania, Norway, with the address of
Michael Gruzenberg. It is not known whether Polk knew he was passing on the
address of an espionage agent, but his message was as follows:
To American
Legation, Christiania. January 25, 1919. It is reported that Michael Gruzenberg
is at Holmenkollen Sanitarium. Is it possible for you to locate him and inquire
if he has any knowledge respecting disposition of $25,000 fund belonging to
former president of Russian mission of ways of communication in the United
States, Professor Lomonossoff.
Polk, Acting
The U.S.
representative (Schmedeman) at Christiania knew Gruzenberg well. Indeed, the
name had figured in reports from Schmedeman to Washington concerning
Gruzenberg's pro-Soviet activities in Norway. Schmedeman replied:
January 29, 8
p.m. 1543. Important. Your January 25, telegram No. 650.
Before
departing to-day for Russia, Michael Gruzenberg informed our naval attache that
when in Russia some few months ago he had received, at Lomonossoff's request,
$25,000 from the Russian Railway Experimental Institute, of which Prof.
Lomonossoff was president. Gruzenberg claims that to-day he cabled attorney for
Lomonossoff in New York, Morris Hillquitt [sic],
that he, Gruzenberg, is in possession of the money, and before forwarding
it is awaiting further instructions from the United States, requesting in the
cablegram that Lomonossoff be furnished with living expenses for himself and
family by Hillquitt pending the receipt of the money.3
As Minister
Morris was traveling to Stockholm on the same train as Gruzenberg, the latter
stated that he would advise further with Morris in reference to this subject.
Schmedeman
The U.S.
minister traveled with Gruzenberg to Stockholm where he received the following
cable from Polk:
It is reported
by legation at Christiania that Michael Gruzenberg, has for Prof. G.
Lomonossoff, the . . . sum of $25,000, received from Russian Railway
Experimental Institute. If you can do so without being involved with Bolshevik
authorities, department will be glad for you to facilitate transfer of this
money to Prof. Lomonossoff in this country. Kindly reply.
Polk, Acting
This cable
produced results, for on February 5, 1919, Frank Polk wrote to Chadbourne about
a "dangerous bolshevik agitator," Gruzenberg:
My Dear Tom: I
have a telegram from Christiania indicating that Michael Gruzenberg has the
$25,000 of Prof. Lomonossoff, and received it from the Russian Railway
Experimental Institute, and that he had cabled Morris Hillquitt [sic],
at New York, to furnish Prof. Lomonossoff money for living expenses until
the fund in question can be transmitted to him. As Gruzenberg has just been
deported from Norway as a dangerous bolshevik agitator, he may have had
difficulties in telegraphing from that country. I understand he has now gone to
Christiania, and while it is somewhat out of the department's line of action, I
shall be glad, if you wish, to see if I can have Mr. Gruzenberg remit the money
to Prof. Lomonossoff from Stockholm, and am telegraphing our minister there to
find out if that can be done.
Very sincerely, yours,
Frank L. Polk
Frank L. Polk
The telegram
from Christiania referred to in Polk's letter reads as follows:
February 3, 6
p.m., 3580. Important. Referring department's january 12, No. 1443, $10,000 has
now been deposited in Stockholm to my order to be forwarded to Prof.
Lomonossoff by Michael Gruzenberg, one of the former representatives of the
bolsheviks in Norway. I informed him before accepting this money that I would
communicate with you and inquire if it is your wish that this money be
forwarded to Lomonossoff. Therefore I request instructions as to my course of
action.
Morris
Subsequently
Morris, in Stockholm, requested disposal instructions for a $10,000 draft
deposited in a Stockholm bank. His phrase "[this] has been my only
connection with the affair" suggests that Morris was aware that the
Soviets could, and probably would, claim this as an officially expedited
monetary transfer, since this action implied
approval by the U.S. of such monetary transfers. Up to this time the
Soviets had been required to smuggle money into the U.S.
Four p.m.
February 12, 3610, Routine.
With reference
to my February 3, 6 p.m., No. 3580, and your February 8, 7 p.m., No. 1501. It
is not clear to me whether it is your wish for me to transfer through you the
$10,000 referred to Prof. Lomonossoff. Being advised by Gruzenberg that he had
deposited this money to the order of Lomonossoff in a Stockholm bank and has
advised the bank that this draft could be sent to America through me, provided
I so ordered, has been my only connection with the affair. Kindly wire
instructions.
Morris
Then follows a
series of letters on the transfer of the $10,000 from A/B Nordisk Resebureau to
Thomas L. Chadbourne at 520 Park Avenue, New York City, through the medium of
the State Department. The first letter contains instructions from Polk, on the
mechanics of the transfer; the second, from Morris to Polk, contains $10,000;
the third, from Morris to A/B Nordisk Resebureau, requesting a draft; the
fourth is a reply from the bank with a check; and the fifth is the
acknowledgment.
Your February
12, 4 p.m., No. 3610.
Money may be
transmitted direct to Thomas L. Chadbourne, 520 Park Avenue, New York City,
Polk, Acting
* * * * *
Dispatch, No.
1600, March 6, 1919:
The Honorable
the Secretary of State,
Washington
Washington
Sir: Referring
to my telegram, No. 3610 of February 12, and to the department's reply, No.
1524 of February 19 in regard to the sum of $10,000 for Professor Lomonossoff,
I have the honor herewith to enclose a copy of a letter which I addressed on
February 25 to A. B. Nordisk Resebureau, the bankers with whom this money was
deposited; a copy of the reply of A. B. Nordisk Resebureau, dated February 26;
and a copy of my letter to the A. B. Nordisk Resebureau, dated February 27.
It will be seen
from this correspondence that the bank was desirous of having this money
forwarded to Professor Lomonossoff. I explained to them, however, as will be
seen from my letter of February 27, that I had received authorization to
forward it directly to Mr. Thomas L. Chadbourne, 520 Park Avenue, New York
City. I also enclose herewith an envelope addressed to Mr. Chadbourne, in which
are enclosed a letter to him, together with a check on the National City Bank
of New York for $10,000.
I have the honor to be,
sir, Your obedient servant,
Ira N. Morris
sir, Your obedient servant,
Ira N. Morris
* * * * *
A. B. Nordisk
Reserbureau,
No. 4 Vestra
Tradgardsgatan, Stockholm.
Gentlemen: Upon
receipt of your letter of January 30, stating that you had received $10,000 to
be paid out to Prof. G. V. Lomonossoff, upon my request, I immediately
telegraphed to my Government asking whether they wished this money forwarded to
Prof. Lomonossoff. I am to-day in receipt of a reply authorizing me to forward
the money direct to Mr. Thomas L. Chadbourne, payable to Prof. Lomonossoff. I
shall be glad to forward it as instructed by my Government.
I am, gentlemen,
Very truly, yours,
Ira N. Morris
Ira N. Morris
* * * * *
Mr. I. N.
Morris,
American
Minister, Stockholm
Deal Sir: We
beg to acknowledge the receipt of your favor of yesterday regarding payment of
dollars 10,000 — to Professor G. V. Lomonossoff, and we hereby have the
pleasure to inclose a check for said amount to the order of Professor G. V.
Lomonossoff, which we understand that you are kindly forwarding to this
gentleman. We shall be glad to have your receipt for same, arid beg to remain,
Yours, respectfully,
A. B. Nordisk Reserbureau
E. Molin
A. B. Nordisk Reserbureau
E. Molin
* * * * *
A. B. Nordisk
Resebureau.
Stockholm
Gentlemen: I
beg to acknowledge receipt of your letter of February 26, inclosing a check for
$10,000 payable to Professor G. V. Lomonossoff. As I advised you in my letter
of February 25, I have been authorized to forward this check to Mr. Thomas L.
Chadbourne, 520 Park Avenue, New York City, and I shall forward it to this
gentleman within the next few days, unless you indicate a wish to the contrary.
Very truly, yours,
Ira N. Morris
Ira N. Morris
Then follow an
internal State Department memorandum and Chadbourne's acknowledgment:
Mr. Phillips to
Mr. Chadbourne, April 3, 1919.
Sir: Referring
to previous correspondence regarding a remittance of ten thousand dollars from
A. B. Norsdisk Resebureau to Professor G. V. Lomonossoff, which you requested
to be transmitted through the American Legation at Stockholm, the department
informs you that it is in receipt of a dispatch from the American minister at
Stockholm dated March 6, 1919, covering the enclosed letter addressed to you,
together with a check for the amount referred to, drawn to the order to
Professor Lomonossoff.
I am, sir, your obedient servant
William Phillips,
Acting Secretary of State.
William Phillips,
Acting Secretary of State.
Enclosure:
Sealed letter addressed Mr. Thomas L. Chadbourne, enclosed with 1,600 from
Sweden.
* * * * *
Reply of Mr.
Chadbourne, April 5, 1919.
Sir: I beg to
acknowledge receipt of your letter of April 3, enclosing letter addressed to
me, containing check for $10,000 drawn to the order of Professor Lomonossoff,
which check I have to-day delivered.
I beg to remain, with great respect,
Very truly, yours,
Thomas L. Chadbourne
Very truly, yours,
Thomas L. Chadbourne
Subsequently
the Stockholm legation enquired concerning Lomonossoff's address in the U.S.
and was informed by the State Department that "as far as the department is
aware Professor George V. Lomonossoff can be reached in care of Mr. Thomas L.
Chadbourne, 520 Park Avenue, New York City."
It is evident
that the State Department, for the reason either of personal friendship between
Polk and Chadbourne or of political influence, felt it had to go along and act
as bagman for a Bolshevik agent — just ejected from Norway. But why would a
prestigious establishment law firm be so intimately interested in the health
and welfare of a Bolshevik emissary? Perhaps a contemporary State Department
report gives the clue:
Martens, the
Bolshevik representative, and Professor Lomonossoff are banking on the fact
that Bullitt and his party will make a favorable report to the Mission and the
President regarding conditions in Soviet Russia and that on the basis of this
report the Government of the United States will favor dealing with the Soviet
Government as, proposed by Martens. March 29, 1919.4
It was
commercial exploitation of Russia that excited Wall Street, and Wall Street had
lost no time in preparing its program. On May 1, 1918 — an auspicious date for
Red revolutionaries — the American League to Aid and Cooperate with Russia was
established, and its program approved in a conference held in the Senate Office
Building, Washington, D.C. The officers and executive committee of the league
represented some superficially dissimilar factions. Its president was Dr. Frank
J. Goodnow, president of Johns Hopkins University. Vice presidents were the
ever active William Boyce Thompson, Oscar S. Straus, James Duncan, and
Frederick C. Howe, who wrote Confessions
of a Monopolist, the rule book by which monopolists could control society.
The Treasurer was George P. Whalen, vice president of Vacuum Oil Company.
Congress was represented by Senator William Edgar Borah and Senator John Sharp
Williams, of the Senate Foreign Relations Committee; Senator William N. Calder;
and Senator Robert L. Owen, chairman of the Banking and Currency Committee.
House members were Henry R. Cooper and Henry D. Flood, chairman of the House
Foreign Affairs Committee. American business was represented by Henry Ford;
Charles A. Coffin, chairman of the board of General Electric Company; and M. A.
Oudin, then foreign manager of General Electric. George P. Whalen represented
Vacuum Oil Company, and Daniel Willard was president of the Baltimore &
Ohio Railroad. The more overtly revolutionary element was represented by Mrs.
Raymond Robins, whose name was later found to be prominent in the Soviet Bureau
files and in the Lusk Committee hearings; Henry L. Slobodin, described as a
"prominent patriotic socialist"; and Lincoln Steffens, a domestic
Communist of note.
In other words,
this was a hybrid executive committee; it represented domestic revolutionary
elements, the Congress of the United States, and financial interests
prominently involved with Russian affairs.
Approved by the
executive committee was a program that emphasized the establishment of an
official Russian division in the U.S. government "directed by strong
men." This division would enlist the aid of universities, scientific
organizations, and other institutions to study the "Russian
question," would coordinate and unite organizations within the United
States "for the safeguarding of Russia," would arrange for a
"special intelligence committee for the investigation of the Russian
matter," and, generally, would itself study and investigate what was
deemed to be the "Russian question." The executive committee then
passed a resolution supporting President Woodrow Wilson's message to the Soviet
congress in Moscow and the league affirmed its own support for the new Soviet Russia.
A few weeks
later, on May 20, 1918, Frank J. Goodnow and Herbert A. Carpenter, representing
the league, called upon Assistant Secretary of State William Phillips and
impressed upon him the necessity for establishing an "official Russian
Division of the Government to coordinate all Russian matters. They asked me
[wrote Phillips] whether they should take this matter up with the
President."5
Phillips
reported this directly to the secretary of state and on the next day wrote
Charles R. Crane in New York City requesting his views on the American League
to Aid and Cooperate with Russia. Phillips besought Crane, "I really want
your advice as to how we should treat the league .... We do not want to stir up
trouble by refusing to cooperate with them. On the other hand it is a queer
committee and I don't quite 'get it.'"6
In early June
there arrived at the State Department a letter from William Franklin Sands of
American International Corporation for Secretary of State Robert Lansing. Sands
proposed that the United States appoint an administrator in Russia rather than
a commission, and opined that "the suggestion of an allied military force
in Russia at the present moment seems to me to be a very dangerous one."7 Sands emphasized the possibility of trade
with Russia and that this possibility could be advanced "by a well chosen
administrator enjoying the full confidence of the government"; he
indicated that "Mr. Hoover" might fit the role.8 The letter was passed to Phillips by
Basil Miles, a former associate of Sands, with the expression, "I think
the Secretary would find it worthwhile to look through."
In early June
the War Trade Board, subordinate to the State Department, passed a resolution,
and a committee of the board comprising Thomas L. Chadbourne (Professor
Lomonossoff's contact), Clarence M. Woolley, and John Foster Dulles submitted a
memorandum to the Department of State, urging consideration of ways and means
"to bring about closer and more friendly commercial relations between the
United States and Russia." The board recommended a mission to Russia and
reopened the question whether this should result from an invitation from the
Soviet government.
Then on June
10, M. A. Oudin, foreign manager of General Electric Company, expressed his
views on Russia and clearly favored a "constructive plan for the economic
assistance" of Russia.9 In August 1918 Cyrus M. McCormick of
International Harvester wrote to Basil Miles at the State Department and
praised the President's program for Russia, which McCormick thought would be
"a golden opportunity."10
Consequently,
we find in mid-1918 a concerted effort by a segment of American business —
obviously prepared to open up trade — to take advantage of its own preferred
position regarding the Soviets.
In 1918 such
assistance to the embryonic Bolshevik regime was justified on the grounds of
defeating Germany and inhibiting German exploitation of Russia. This was the
argument used by W. B. Thompson and Raymond Robins in sending Bolshevik
revolutionaries and propaganda teams into Germany in 1918. The argument was
also employed by Thompson in 1917 when conferring with Prime Minister Lloyd
George about obtaining British support for the emerging Bolshevik regime. In
June 1918 Ambassador Francis and his staff returned from Russia and urged
President Wilson "to recognize and aid the Soviet government of
Russia."11 These reports made by the embassy staff
to the State Department were leaked to the press and widely printed. Above all,
it was claimed that delay in recognizing the Soviet Union would aid Germany
"and helps the German plan to foster reaction and
counter-revolution."12 Exaggerated statistics were cited to
support the proposal — for example, that the Soviet government represented
ninety percent of the Russian people "and the other ten percent is the
former propertied and governing class .... Naturally they are displeased."13 A former American official was quoted as
saying, "If we do nothing — that is, if we just let things drift — we help
weaken the Russian Soviet Government. And that plays Germany's game."14 So, it was recommended that "a
commission armed with credit and good business advice could help much."
Meanwhile,
inside Russia the economic situation had become critical and the inevitability
of an embrace with capitalism dawned on the Communist Party and its planners.
Lenin crystallized this awareness before the Tenth Congress of the Russian
Communist Party:
Without the
assistance of capital it will be impossible for us to retain proletarian power
in an incredibly ruined country in which the peasantry, also ruined,
constitutes the overwhelming majority — and, of course, for this assistance
capital will squeeze hundreds per cent out of us. This is what we have to
understand. Hence, either this type of economic relations or nothing ....15
Then Leon
Trotsky was quoted as saying, "What we need here is an organizer like
Bernard M. Baruch."16
Soviet
awareness of its impending economic doom suggests that American and German
business was attracted by the opportunity of exploiting the Russian market for
needed goods; the Germans, in fact, made an early start in 1918. The first
deals made by the Soviet Bureau in New York indicate that earlier American
financial and moral support of the Bolsheviks was paying off in the form of
contracts.
The largest
order in 1919-20 was contracted to Morris & Co., Chicago meat packers, for
fifty million pounds of food products, valued at approximately $10 million. The
Morris meat packing family was related to the Swift family. Helen Swift, later
connected with the Abraham Lincoln Center "Unity," was married to
Edward Morris (of the meat packing firm) and was also the brother of Harold H.
Swift, a "major" in the 1917 Thompson Red Cross Mission to Russia.
Ludwig Martens
was formerly vice president of Weinberg & Posner, located at 120 Broadway,
New York City, and this firm was given a $3 million order.
Gold was the
only practical means by which the Soviet Union could pay for its foreign
purchases and the international bankers were quite willing to facilitate Soviet
gold shipments. Russian gold exports, primarily imperial gold coins, started in
early 1920, to Norway and Sweden. These were transshipped to Holland and
Germany for other world destinations, including the United States.
In August 1920,
a shipment of Russian gold coins was received at the Den Norske Handelsbank in
Norway as a guarantee for payment of 3,000 tons of coal by Niels Juul and
Company in the U.S. in behalf of the Soviet government. These coins were
transferred to the Norges Bank for safekeeping. The coins were examined and
weighed, were found to have been minted before the outbreak of war in 1914, and
were therefore genuine imperial Russian coins.17
Shortly after
this initial episode, the Robert Dollar Company of San Francisco received gold
bars, valued at thirty-nine million Swedish kroner, in its Stockholm account;
the gold "bore the stamp of the old Czar Government of Russia." The
Dollar Company agent in Stockholm applied to the American Express Company for
facilities to ship the gold to the United States. American Express refused to
handle the shipment. Robert Dollar, it should be noted, was a director of
American International Company; thus AIC was linked to the first attempt at
shipping gold direct to America.18
Simultaneously
it was reported that three ships had left Reval on the Baltic Sea with Soviet
gold destined for the U.S. The S.S. Gauthod
loaded 216 boxes of gold under the supervision of Professor Lomonossoff —
now returning to the United States. The S.S. Carl Line loaded 216 boxes of gold under the supervision of three
Russian agents. The S.S. Ruheleva was
laden with 108 boxes of gold. Each box contained three pounds of gold valued at
sixty thousand gold rubles each. This was followed by a shipment on the S.S.
Wheeling Mold.
Kuhn, Loeb
& Company, apparently acting in behalf of Guaranty Trust Company, then
inquired of the State Department concerning the official attitude towards the
receipt of Soviet gold. In a report the department expressed concern because if
acceptance was refused, then "the gold [would] probably come back on the
hands of the War Department, causing thereby direct governmental responsibility
and increased embarrassment."19 The report, written by Merle Smith in
conference with Kelley and Gilbert, argues that unless the possessor has
definite knowledge as to imperfect title, it would be impossible to refuse
acceptance. It was anticipated that the U.S. would be requested to melt the
gold in the assay office, and it was thereupon decided to telegraph Kuhn, Loeb
& Company that no restrictions would be imposed on the importation of
Soviet gold into the United States.
The gold
arrived at the New York Assay Office and was deposited not by Kuhn, Loeb &
Company — but by Guaranty Trust Company of New York City. Guaranty Trust then
inquired of the Federal Reserve Board, which in turn inquired of the U.S.
Treasury, concerning acceptance and payment. The superintendent of the New York
Assay Office informed the Treasury that the approximately seven million dollars
of gold had no identifying marks and that "the bars deposited have already
been melted in United States mint bars." The Treasury suggested that the
Federal Reserve Board determine whether Guaranty Trust Company had acted
"for its own account, or the account of another in presenting the
gold," and particularly "whether or not any transfer of credit or
exchange transaction has resulted from the importation or deposit of the
gold."20
On November 10,
1920, A. Breton, a vice president of the Guaranty Trust, wrote to Assistant
Secretary Gilbert of the Treasury Department complaining that Guaranty had not
received from the assay office the usual immediate advance against deposits of
"yellow metal left with them for reduction." The letter states that
Guaranty Trust had received satisfactory assurances that the bars were the product
of melting French and Belgium coins, although it had purchased the metal in
Holland. The letter requested that the Treasury expedite payment for the gold.
In reply the Treasury argued that it "does not purchase gold tendered to
the United States mint or assay offices which is known or suspected to be of
Soviet origin," and in view of known Soviet sales of gold in Holland, the
gold submitted by Guaranty Trust Company was held to be a "doubtful case,
with suggestions of Soviet origin." It suggested that the Guaranty Trust
Company could withdraw the gold from the assay office at any time it wished or
could "present such further evidence to the Treasury, the Federal Reserve
Bank of New York or the Department of State as may be necessary to clear the
gold of any suspicion of Soviet origin."21
There is no
file record concerning final disposition of this case but presumably the
Guaranty Trust Company was paid for the shipment. Obviously this gold deposit
was to implement the mid-1920 fiscal agreement between Guaranty Trust and the
Soviet government under which the company became the Soviet agent in the United
States (see epigraph to this chapter).
It was
determined at a later date that Soviet gold was also being sent to the Swedish
mint. The Swedish mint "melts Russian gold, assays it and affixes the
Swedish mint stamp at the request of Swedish banks or other Swedish subjects
owing the gold."22 And at the same time Olof Aschberg, head
of Svenska Ekonomie A/B (the Soviet intermediary and affiliate of Guaranty
Trust), was offering "unlimited quantities of Russian gold" through
Swedish banks.23
In brief, we
can tie American International Corporation, the influential Professor
Lomonossoff, Guaranty Trust, and Olof Aschberg (whom we've previously
identified) to the first attempts to import Soviet gold into the United States.
Guaranty
Trust's interest in Soviet Russia was renewed in 1920 in the form of a letter
from Henry C. Emery, assistant manager of the Foreign Department of Guaranty
Trust, to De Witt C. Poole in the State Department. The letter was dated
January 21, 1920, just a few weeks before Allen Walker, the manager of the
Foreign Department, became active in forming the virulent anti-Soviet
organization United Americans (see page 165). Emery posed numerous questions
about the legal basis of the Soviet government and banking in Russia and
inquired whether the Soviet government was the de facto government in Russia.24 "Revolt before 1922 planned by
Reds," claimed United Americans in 1920, but Guaranty Trust had started
negotiations with these same Reds and was acting as the Soviet agent in the
U.S. in mid-1920.
In January 1922
Secretary of Commerce Herbert Hoover, interceded with the State Department in
behalf of a Guaranty Trust scheme to set up exchange relations with the
"New State Bank at Moscow." This scheme, wrote Herbert Hoover,
"would not be objectionable if a stipulation were made that all monies
coming into their possession should be used for the purchase of civilian
commodities in the United States"; and after asserting that such relations
appeared to be in line with general policy, Hoover added, "It might be
advantageous to have these transactions organized in such a manner that we know
what the movement is instead of disintegrated operations now current."25 Of course, such "disintegrated
operations" are consistent with the operations of a free market, but this
approach Herbert Hoover rejected in favor of channeling the exchange through
specified and controllable sources in New York. Secretary of State Charles E.
Hughes expressed dislike of the Hoover-Guaranty Trust scheme, which he thought
could be regarded as de facto recognition of the Soviets while the foreign
credits acquired might be used to the disadvantage of the United States.26 A noncommittal reply was sent by State
to Guaranty Trust. However, Guaranty went ahead (with Herbert Hoover's
support),27 participated in formation of the first
Soviet international bank, and Max May of Guaranty Trust became head of the
foreign department of the new Ruskombank.28
Footnotes:
1U.S. State Dept.
Decimal File, 861.00/3094.
2This section is
from U.S., Senate, Russian Propaganda, hearings
before a subcommittee of the Committee on Foreign Relations, 66th Cong., 2d
sess., 1920.
3Morris Hillquit
was the intermediary between New York banker Eugene Boissevain and John Reed in
Petrograd.
4U.S. State Dept.
Decimal File, 861.00/4214a.
5Ibid.,
861.00/1938.
6Ibid.
7Ibid.,
861.00/2003.
8Ibid.
9Ibid.,
861.00/2002.
10Ibid.
11Ibid., M
316-18-1306.
12Ibid.
13Ibid.
14Ibid.
15V. 1. Lenin,
Report to the Tenth Congress of the Russian Communist Party, (Bolshevik), March
15, 1921.
16William Reswick,
I Dreamt Revolution (Chicago: Henry
Regnery, 1952), p. 78.
17U.S. State Dept.
Decimal File, 861.51/815.
18Ibid.,
861.51/836.
19Ibid.,
861.51,/837, October 4, 1920.
20Ibid.,
861.51/837, October 24, 1920.
21Ibid.,
861.51/853, November 11, 1920.
22Ibid., 316-119,
1132.
23Ibid.,
316-119-785. This report has more data on transfers of Russian gold through
other countries and intermediaries. See also 316-119-846.
24Ibid.,
861.516/86.
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