The Shadowy History of the Secret Bank of International Settlements

This article was written by Adam LeBor.

Thomas McKittrick

After Thomas McKittrick, the former president of the Bank for International Settlements, died in a New Jersey nursing home in 1970, at age 81, the New York Times eulogized him as a world financier. His brief obituary described him as a man sufficiently daring to attend a bank meeting in Switzerland in 1940 “within earshot of a French-German artillery duel,” while his peers voted by proxy instead. But like many obituaries, McKittrick’s death notice was more notable for what it omitted.

As head of the BIS, headquartered in Basel, from 1940 to 1946, McKittrick played a crucial role in abetting Hitler’s war—and, at the same time, in revealing details about his Nazi colleagues to his friends in Washington, D.C. On McKittrick’s watch, the BIS willingly accepted looted Nazi gold, carried out foreign exchange deals for the Reichsbank, and recognized the Nazi invasion and annexation of conquered countries. By doing so, it also legitimized the role of the national banks in the occupied countries in appropriating Jewish-owned assets. Indeed, the BIS was so indispensable to the overall Nazi 

Emil Puhl

project that the vice-president of the Reichsbank, Emil Puhl—who was later tried for war crimes—once referred to the BIS as the Reichsbank’s only “foreign branch.” In the closing months of the war, as American GIs fought their way across Europe, McKittrick was arranging deals with Nazi industrialists to guarantee their profits after the Allied victory.

But McKittrick was also a key contact between the Allies and the Nazis, passing information back and forth from Washington to Berlin. His relationship with the Third Reich was encouraged both by factions within the State Department and by the leadership of the Office for Strategic Services, the predecessor of the Central Intelligence Agency. He also served as a back-channel between anti-Nazi German business interests and the United States—and ultimately served to help preserve the power of German industry after the war, over the opposition of no less a figure than Treasury Secretary Henry Morgenthau.

Born in St. Louis in 1889, McKittrick graduated from Harvard in 1911. He joined the U.S. Army in 1918, at the end of WWI, and was sent to Liverpool, England. There he was seconded to British military intelligence, checking that no spies were using the docks to pass in and out of the country. After the armistice in November 1918, McKittrick was dispatched to France to work with the Allied occupation forces. The following year he returned to New York and started work at Lee, Higginson & Company, then a renowned Boston investment house.

In 1921, McKittrick was sent to London to work for the firm’s British wing, and he was made a partner. He quickly built up an impressive network of contacts with international connections. Much of his time was spent working on German loans and investments, many of which were arranged by John Foster Dulles, then a lawyer working at the immensely powerful law firm of Sullivan and Cromwell. McKittrick enjoyed his time in London and became a kind of honorary Englishman, complete with a butler who ironed his copy of theTimes of London each morning before he read it.

McKittrick’s involvement with the BIS began in 1931, when he joined the German Credits Arbitration Committee, which adjudicated disputes involving German commercial banks.

One of the other two members was Marcus Wallenberg, of Sweden’s Enskilda Bank, who taught McKittrick about the intricacies of international finance. Marcus and his brother Jacob were two of the most powerful bankers in the world. During the war, the Wallenberg brothers used Enskilda Bank to play both sides and harvest enormous profits. (Their nephew Raoul would later save tens of thousands of Hungarian Jews before disappearing into the Soviet gulag, abandoned by his uncles.) In May 1939 McKittrick was offered the position of president of the BIS, which he readily accepted. Once he was in office, Marcus Wallenberg remained his most important mentor, teaching the American banker how to negotiate the delicate path between the opposing European powers—just as the Wallenbergs themselves had so skillfully done.

At first glance, McKittrick seemed a curious choice to run the world’s most influential bank, especially during wartime. He was a lawyer by training with no direct experience of central banking. But that did not matter, for McKittrick was the ideal contact person between both sides: He was an American, and thus, when he was appointed in 1940, a citizen of a country that was still neutral in the growing war between the Axis and the Allies. He had excellent connections in Washington and on Wall Street, in London and Berlin.

The BIS was founded in Basel in 1930, where it is still headquartered today. Ostensibly set up as part of the Young Plan to administer German reparations payments for WWI, its real purpose was detailed in its statutes: to “promote the cooperation of central banks and to provide additional facilities for international financial operations.” The establishment of the BIS was the culmination of the central bankers’ decades-old dream to have their own bank—powerful, independent, and free from interfering politicians and nosy reporters. Under the terms of the founding treaty, the bank’s assets could never be seized, even in times of war. Most felicitous of all, the BIS was self-financing and would be in perpetuity. Its clients were its own founders and shareholders—the central banks. The BIS, boasted Gates McGarrah, an American banker who served as its first president, was “completely removed from any government or political control.”

Based in a former hotel near Basel’s central railway station, the BIS swiftly made itself into the principal pillar of the new international global financial system at a time of worldwide financial crisis. It organized bailouts for Austria, Spain, and Hungary. It provided banking services for central banks. Its annual reports on the state of the global economy were soon required reading in the world’s treasuries. Every month, the BIS brought together some of the most powerful central bankers in the world, in conditions of extreme secrecy, to discuss the world economy. Reporters were forbidden from even looking into the room where the directors met after they had left. The cabal of central bankers, aided by their numerous friends on Wall Street, including John Foster Dulles, the future American secretary of state, and his brother Allen Dulles, had been instrumental in rebuilding Germany after WWI—a project that continued after Hitler took power in 1933.

Ernst Hanfstaengl on the right with Hitler on the left 

Before he moved to Basel, McKittrick had established himself as a valuable go-between for the Americans. In October 1939, lawyers for Ernst Hanfstaengl, Hitler’s former propaganda chief, asked McKittrick to provide a character reference for their client. Hanfstaengl, a Harvard graduate, had lived in New York and was well connected in American high society. He returned to Germany to become one of Hitler’s earliest backers. Hanfstaengl was appointed foreign press chief in 1931, and his job was to present a moderate, sophisticated face to journalists. However, his eccentric mannerisms, dry sense of humor, and close connection to Hitler made him enemies, and he fled in 1937, eventually winding up in a British prison camp. McKittrick was ready to declare that the former Nazi spin doctor would not act against British interests if he were set free—although it is unclear how McKittrick could know this. Hanfstaengl was duly released and sent to the United States, where he compiled psychological profiles of Nazi leaders for American intelligence.

McKittrick was an admirer of the new Germany and, like many in his social and business circles at that time, had an ambivalent attitude toward Jews. After Kristallnacht, the German pogrom of November 1938, he used his contacts to help Rabbi Israel Mattuck, of the Liberal Jewish Synagogue in London, arrange the immigration of German Jews. Mattuck wrote a grateful note thanking McKittrick “most heartily.” Later on, in August 1942, Paul Dreyfus, a Basel banker, asked McKittrick to write a letter of introduction for him to Leland Harrison, the American ambassador to Switzerland. McKittrick obliged but made his feelings about Dreyfus clear in a separate letter to Harrison. “He is, as you will surmise, a Jew, but a good sort who is doing everything he can to help his unfortunate countrymen.”

McKittrick started work in Basel in January 1940. The outbreak of war in Europe posed existential choices for the BIS management. There were three options: liquidate the bank, downsize and become dormant until the end of hostilities, or remain as active as possible within the bounds of the declared policy of “neutrality.” The directors were unanimous—and already thinking ahead of the needs of transnational capital: The BIS must be kept going to assist with postwar financial reconstruction. (Watchman comment: yeah, sure these blood suckers smelled war time profit.) McKittrick assured the Swiss authorities that the bank would be neutral and the staff would not “undertake political activities of any sort whatsoever on behalf of any governments or national organizations.”

The bank was indeed a bizarre island of neutrality. Basel is perched on the northern Swiss border, overlooking both France and Germany. Just a few miles away, Allied and Nazi troops were fighting and dying. But at the BIS, nationals of opposing sides worked together in courteous harmony. Roger Auboin, the manager, was a Frenchman. Paul Hechler, the assistant manager, was a German, a Nazi party member who signed his correspondence ‘Heil Hitler,’ as German law required. Rafaele Pilotti, the bank’s secretary, was Italian. British nationals also worked at the bank. After the fall of France, the BIS and the staff were temporarily evacuated from Basel, in anticipation of a Nazi attack. But the German invasion of Switzerland never materialized. Switzerland was far more useful to the Nazis as a neutral launderer of Nazi gold, a supplier of hard currency, and a financial channel to the rest of the world than as another territory under Nazi rule.

In any case, McKittrick’s declarations of neutrality soon proved worthless. He and the rest of the bank’s management turned the BIS into a de facto arm of the Reichsbank. This was not a result of inertia, passivity, or bureaucratic sloth. It followed from a series of deliberate policy decisions. The BIS accepted Nazi gold looted from occupied countries such as Belgium until the final days of the war, when even neutral countries refused the plunder. The BIS recognized the forcible incorporation of 10 countries, including France, Belgium, Greece, and the Netherlands, into the Third Reich. The BIS allowed the Nazi occupation regimes to take ownership of those nations’ BIS shares, so that the Axis bloc held 64.7 percent of the bank’s voting stock. Board meetings were suspended, but Annual General Meetings continued, with member banks voting by proxy.

McKittrick was especially close to Emil Puhl, the Reichsbank vice-president, whom McKittrick described as his friend. Puhl, who was a director of the BIS, was a regular visitor to Basel. In autumn 1941 McKittrick gave Puhl a tutorial on the Lend-Lease program, under which the United States supplied the Allies with arms, ammunition, and other war materiel. The act, passed in March of that year, effectively marked the end of the United States’ policy of neutrality. But America’s entry into the war did not affect McKittrick’s cordial and productive relationship with the Reichsbank. Puhl wrote of McKittrick in September 1942, “Neither his personality nor his manner of conducting business have been any cause for any criticism whatsoever.”

The Reichsbank greatly valued its relationship with the BIS. Berlin continued to pay interest on the BIS’s prewar investments in Germany, even though that interest contributed to the bank’s dividends, which were paid to its shareholders, including the Bank of England. Thus, through the BIS, Nazi Germany was contributing to Britain’s wartime economy. It was a price worth paying, Puhl believed. Some of the BIS’s dividend payments to shareholders in Nazi-occupied countries went through the Reichsbank, thus giving Berlin access to the foreign exchange transactions and allowing it to charge a fee for its services.

Hermann Schmitz

Hermann Schmitz, the CEO of IG Farben, the giant Nazi chemicals conglomerate, and a BIS board member, sent his sincerest New Year wishes to McKittrick in January 1941. Schmitz wrote, “For their friendly wishes for Christmas and the New Year, and for their good wishes for my 60th birthday, I am sending my sincere thanks. In response, I am sending you my heartfelt wishes for a prosperous year for the Bank for International Settlements.” It would certainly be another prosperous year for IG Farben, one of whose subsidiaries manufactured Zyklon B, the gas used to murder millions of Jews.

In the winter of 1942 McKittrick traveled to the United States. His return to New York was the talk of Wall Street. On Dec. 17, 1942, Leon Fraser, an American banker and himself a former BIS president, hosted a dinner for McKittrick at the University Club. Thirty-seven of the United States’ most powerful financiers, industrialists, and businessmen gathered in his honor. They included the presidents of the New York Federal Reserve, the National City Bank, the Bankers’ Trust, and General Electric, as well as a former under-secretary of the treasury and a former U.S. ambassador to Germany. Standard Oil, General Motors, JP Morgan, Brown Brothers Harriman, several insurance companies, and Kuhn Loeb also sent executives. It was probably the greatest single gathering of America’s war profiteers. Many of these companies and banks had, like McKittrick, made fortunes from their connections with Germany, connections that carried on producing profits long after Hitler took power in 1933 and certainly after the outbreak of war in 1939.

But, despite McKittrick’s powerful connections on Wall Street, the BIS was coming under pressure from the Treasury Department, where Henry Morgenthau and his aide, Harry Dexter White, were the bank’s most powerful foes. White was scathing about McKittrick, describing him as “an American president doing business with the Germans while our American boys are fighting the Germans.” The BIS, like all Swiss banks, needed a license to operate in the United States, and it had been revoked in 1941. McKittrick hired John Foster Dulles to get the license unblocked. He also met Morgenthau. The encounter did not go well. Morgenthau walked out after 20 minutes and recommended that McKittrick consult Treasury experts.

McKittrick was then denied permission to return to Basel. He spent his time while waiting for his passport being debriefed by OSS agents about the intelligence he gleaned from his Nazi contacts. There was a rich haul. Hitler, McKittrick revealed, had become indecisive. “Instead of having a definite plan laid out, and pursuing it relentlessly, he switches from one plan to another,” the OSS report of McKittrick’s interview noted. There were even rumors that he had started drinking. Despite the soaring casualties on the Eastern Front, and the surrender at Stalingrad, most Germans, McKittrick explained, still believed state propaganda. He related how one friend of his in the Reichsbank said he had to get out of Germany every now and again or he would start to believe the propaganda himself.

Some of the most intriguing material the OSS obtained from McKittrick detailed his role as a back-channel between anti-Nazi Germans and the United States. McKittrick told the OSS that he received “peace feelers” from non- or anti-Nazi Germans twice a month. All of them, however, argued that, even if a deal was made, Germany would remain the dominant European power “with a free hand in the east and a large measure of economic control in western Europe.” McKittrick also strongly emphasized the BIS’s future use in planning the postwar order. “While it does not concern itself with political affairs, it does offer facilities for the discussion of postwar financial and economic questions,” wrote the author of the OSS memo, “and he thinks that a year or two can be saved in getting Europe back to work by informal international conversations under its auspices.”

McKittrick finally arrived back in Basel in April 1943. Despite his lobbying and John Foster Dulles’ legal advice, the BIS’s request for exemption was denied, and the bank’s funds in the United States remained frozen. There were many in Washington who asked why the State Department had renewed McKittrick’s passport and allowed him to return to Basel, when it was clear that the BIS was aiding the Nazi war effort. The answer was 60 miles south, in Berne, at Herrengasse, 23.

There, McKittrick’s old friend Allen Dulles ran the Swiss branch of the OSS. McKittrick, also known as OSS codename 644, regularly met with Dulles and American Ambassador Leland Harrison. The three men, McKittrick recalled, talked more freely “in those meetings than at any other time.” Dulles and Harrison wanted to know everything McKittrick knew, especially about Nazi money channels. McKittrick, they discovered, knew a lot. For example, the BIS held gold for the Reichsbank, so sometimes, when the interest was due on the bank’s investments, the BIS simply helped itself to the Nazi gold it held to make up the payments. At other times, the Germans borrowed BIS gold for their dealings with Swiss banks. This cozy arrangement caused no concern at the BIS, said McKittrick, as “we knew that they’d replace it.” McKittrick’s close relationship with Emil Puhl, the vice president of the Reichsbank, was especially valued by Dulles and the OSS.

OSS telegram 3589-90, sent on May 25, 1944—at a time when thousands of Jews were still being deported every day to Auschwitz, where most were immediately murdered—records Puhl’s fears, not that the war was lost, but that the Reichsbank might lose its privileged position during the reconstruction:

Not long ago our 644 [McKittrick] had two lengthy conversations with Puhl of the Reichsbank. The latter was extremely depressed, not so much by the idea of Nazi defeat, but by the situation, which Germany will have to contend with later. The Reichsbank has been engaged in work on plans for the reconstruction, and evidently they are unable to see where an effective beginning can be made.

Declassified OSS documents reveal that McKittrick played a central role in an American psychological-warfare operation known as the “Harvard Plan,” which aimed to undermine the morale of German businessmen—and their support for the Nazi regime. The Stockholm OSS office published a wartime newsletter called “Information for German Business,” the purpose of which was to suggest that cooperation now would pay handsome dividends after the Allied victory.

On Feb. 1, 1945, David Williamson, an official in the OSS Morale Operations department, wrote to codename 110—Allen Dulles. Williamson suggested to Dulles that he set up a similar psychological-warfare operation in Switzerland. He enclosed some draft material. Notably, all the material had been passed by the State Department before it was to be distributed. It revealed how McKittrick was arranging deals with Nazi industrialists to guarantee their profits after the war was over. “The new agreement will guarantee the German export interests during this second period an export income at least equal to their prewar revenues regardless of the expected break in the German cartel control,” read the document. A second paragraph outlined how, even as Allied airmen were bombing Germany, negotiations were under way to “preserve the industrial substance of the Reich.” Anyone who questioned this was merely a “leftist radical,” according to McKittrick:

Mr. Thomas H. McKittrick, the American president of the BIS, has announced his decision to continue his efforts for a close cooperation between the Allied and German business world, irrespective of the opposition of certain leftist radical groups; in these efforts he counts on the full assistance of the American State Department. “After the war such agreements will be invaluable,” said McKittrick.

For Morgenthau and White, such “agreements” were simply treasonous. They wanted the country to be deindustrialized and the power of the German cartels broken forever. For a brief moment, it seemed as though they might triumph. In July 1944 the Allies met at Bretton Woods to plan the postwar financial system. There would be a new International Monetary Fund and an International Bank for Reconstruction and Development. A resolution was passed calling for the dissolution of the BIS “at the earliest possible moment.”

But the Dulles brothers and their allies, who argued that Germany must be rebuilt as rapidly as possible as a bulwark against the Soviet Union, triumphed over Morgenthau and White. The BIS returned the looted Nazi gold, and the calls for its dissolution faded away. Today, the bank is richer and more inviolable than ever. Last year, the BIS made a tax-free profit of $1.36 billion—an impressive sum for a bank with just 140 customers. Ultimately, McKittrick was proved right: The agreements he brokered were indeed “invaluable.”

After he stepped down as BIS president in 1946, McKittrick was appointed a vice president of Chase National Bank in New York, in charge of foreign loans. He was even lauded by those whose stolen goods, in the form of looted Nazi gold, he had traded: That same year, McKittrick was invited to Brussels and decorated with the Royal Order of the Crown of Belgium. The honor, noted a press release, was “in recognition of his friendly attitude to Belgium and his services as President of the Bank for International Settlements during World War II.”