Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion (24 page)

The small states had received their independence thanks to Woodrow Wilson’s policy of promoting ethnic self-determination. As part of establishing their new nationhood, these four set out to establish or strengthen their central banks. The new Soviet government helped the Baltic states get started, and in early 1920 sent them 31.5 tons of the remaining Russian imperial gold. Estonia received just over eleven tons, and Latvia and Lithuania received slightly less. Finland’s Central Bank already existed, and dated back to 1812. With the European political situation growing worse in the 1930s, all four countries tried to protect their gold by moving it to France, Britain, Sweden, and the U.S. as well to the Bank for International Settlements.
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No sooner had Germany and the Soviet Union crushed Poland in September 1939 than the Germans and the Soviets quickly moved in to redraw the map of northern Europe and grab back land that had once been theirs. Article One of the secret protocol of the Ribbentrop-Molotov Treaty of August 1939 divided the area into Nazi and Soviet spheres of influence and allowed for future “territorial and political rearrangements.” Estonia, Latvia, and Finland plus eastern Poland basically went to the Soviet Union, while Germany took western Poland and Lithuania. Stalin and Ribbentrop sealed the deal on the new political boundaries of northern Europe by autographing a map that showed the new borders and their respective spheres of influence.
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The dismantling of Poland in September along the lines of the Molotov-Ribbentrop Treaty, though, did not go exactly according to plan. The Nazis had seized area around Lublin, Poland that was supposed to be in the Soviet zone, while the Soviets had captured Vilnius, Lithuania, which was to go to Germany. In late September, Stalin suggested that the two countries have another look at the zones of influence. The second secret accord put Lithuania into the Soviet sphere and gave the Germans more of Poland.
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The Soviets now quickly moved to consolidate their gains in the four nations in their sphere. Stalin was not enthusiastic about bringing the small countries into the ethnic hodgepodge that was already straining his country’s national unity, but he still wanted to make sure that his militarily weak neighbors were firmly under Moscow’s control. He may also already have been thinking about an ultimate conflict between Nazi Germany and the Soviet Union, and saw the small countries as a buffer zone for his young communist nation.

In late September and early October 1939, the Soviets demanded that all the Baltic States agree to mutual assistance pacts that gave Moscow the right to establish military bases in those countries. Estonia complied first on September 28; Latvia came next on October 5, and Lithuania agreed only after heavy pressure on October 10. The Soviet Union by then already had thousands of troops in each country.
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That, however, was not enough for Moscow. In June 1940, while the world was fixated on German victories over Holland, Luxembourg, Belgium, and France, Stalin brought the Baltic countries totally under his control. On June 15, Soviet forces invaded Lithuania, and the following day they entered Estonia and Latvia. Only the Estonians put up any defense against the overwhelming Soviet might. In mid-July elections were held for the People’s Parliaments in all three nations. Results were announced twenty-four hours before the polls even closed. The new legislative bodies met and voted on only one issue: to request becoming republics within the Soviet Union. They naturally passed the legislation, and the next month the Supreme Soviet accepted their applications.
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The Council of the People’s Commissar of the U.S.S.R. passed a resolution instructing the three central Baltic banks to liquidate on June 15 and to send all their precious metals and stones plus securities to Gosbank, the Soviet state bank.
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During three days in the middle of July, the central banks of the three Baltic States sent out to several central banks around the world and also to the Bank for International Settlements instructions to send all the gold that had been deposited in those institutions to Gosbank. The cable to the Federal Reserve Bank in New York from the Latvian Central Bank in Riga was dated Monday, July 14, and read in telegram style: “Close our account transfer balance account state bank U.S.S.R. Moscow with you. Under cable advise Moscow and us. Likewise transfer account State Bank U.S.S.R. Moscow with you any amounts received our account subsequently.”
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The Latvian bank at the time had only 4.4 tons of gold at the New York Fed. The central banks of Lithuania and Estonia sent similar cables with the same wording and instructions.

When the messages arrived, officials at the New York Fed Reserve were reluctant to make the transfers and quickly turned the highly sensitive issue over to the Treasury Department. Bernard Bernstein, the key staff person dealing with monetary and legal issues, took over the issue. He had been watching the situation in Europe closely because it hit him close to home. His parents were both Russian immigrants, and he was one of the many young men who had idealistically gone to work for Roosevelt’s New Deal. One admirer described him as looking like a football quarterback. His parents had escaped their native country’s virulent anti-Semitism, which he learned about at an early age and which left him with a deep respect for their religion. Accounts of
Kristallnacht
and other Nazi atrocities against Jews in Germany touched Bernstein personally and poignantly. Nevertheless, he was able to write dispassionately about what he called, in one memo, the
Götterdämmerung
, which he was witnessing as Allied armies marched across Europe.

Bernstein took the problem of the Baltic gold to Morgenthau, who bumped it over to the White House. On Monday, July 15, President Roosevelt used a presidential power dating back to 1917 to block the transfer of Latvian, Estonian, and Lithuanian gold to Moscow.
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The Federal Reserve two days later informed Moscow of that action.
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The amount of gold the Soviets seized in the Baltic States upon annexation was relatively small since by then the countries had sent most of their bullion abroad. They all had some in London and in Sweden. Lithuania had its mainly in France and the U.S, while Latvia had its largely in Britain, and Estonia had it spread out to Britain, Sweden, and the U.S. They all also had small amounts with the Bank for International Settlements. The stock remaining at the Latvian Central Bank, for example, was just 1.6 tons. The amount at the Lithuanian bank was equally small. Some of the countries used the gold stored in the U.S. during the war and even afterward to pay for their diplomatic offices there.

The French Central Bank soon received a message also asking that the gold be sent to the Soviet Central Bank. By that time, however, the gold from the two countries had already gone to Senegal along with the French, Belgian, and Polish bullion.
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The Bank for International Settlements also received cables from the three Baltic banks with virtually the same wording asking that their gold be sent to Moscow. President Thomas McKittrick was suspicious when he received the messages and asked a Swiss legal expert to provide him an opinion on whether he was obligated to follow Moscow’s instructions. The expert view was that he didn’t need to make the payments, and McKittrick informed his board members.
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In July 1940, the Bank of England sequestered the Baltic gold reserves deposited in the U.K., but Barclays Bank in Britain confirmed in a cable to the Latvian bank that it had transferred $190,864.38, minus 3.25% for expenses, to the State Bank of the U.S.S.R. The Swedish State Bank also sent Moscow small amounts that it was holding for the Baltic States.
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There was no way for the foreigners to know the situation that existed in those countries, but the similar wording indicated that the requests were done under duress. Under the treaties that made them part of the Soviet Union, the countries gave Moscow the right to buy their gold and whatever the three countries held abroad.
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The Nazis initially supported the Soviet claims for the Baltic gold, but after their invasion of the Soviet Union, Berlin sent a cable to the New York Federal Reserve requesting cancellation of the earlier order to ship the bullion to Moscow. By then, though, it was too late. The Soviet Union had successfully seized a small chunk of what the Baltic states had once hoped would protect their independence.
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Foreign central banks generally continued to keep the gold the Baltic states had put in their charge. Come the early 1990s and the breakup of the Soviet Union, France and Britain sent 5.1 tons of gold back to Lithuania, and the Bank for International Settlements sent bullion to the Bank of Lithuania account at the Bank of England. Latvia received eight tons, and Estonia also got a small amount. Russia, though, did not return any to the newly independent countries, arguing that they had assumed all their debts.
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The Soviet cruiser
Kirov
was due to pick up 3.1 tons from the Estonian Bank gold stocks between August 22-28, 1941, but by then the German invasion of the Soviet Union was well underway.
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Soviet troops retreated from the Estonian capital Tallinn on the morning of August 27, when the Nazis overran the city. A flotilla of 225 ships steamed out of the harbor. Nazi mines and torpedoes plus Luftwaffe attacks destroyed more than sixty ships. Luckily, the Estonian Soviet government and their gold left on the
Kirov
and reached the port of Kronstadt near Leningrad. The bullion was sent first to Moscow and then further east.

As a newly independent country following World War I, Finland tried to build up its gold stocks. About one-third of its international reserves was in bullion, while the rest was in foreign currencies. In the summer of 1939, the Bank of Finland held eighteen tons of bullion at the Bank of Finland in Helsinki and at one of its regional offices. After the German invasion of Poland, however, it began moving gold abroad, first to Sweden and then to more distant locations. At the start of the Winter War in November 1939, the bank had 4.5 tons at the Bank of England, 18.1 tons at the Swedish National Bank, 1.3 tons at the Federal Reserve in New York, and 0.7 tons at the Bank for International Settlements.
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Despite the German-Soviet alliance, Moscow was nervous about Nazi intentions and wanted to enlarge its buffer with Germany even beyond the Baltic states. Stalin first tried to convince Helsinki through negotiation to surrender to it the province of Karelia, which lies between the Gulf of Finland and Lake Ladoga. That was an important piece of territory for the defense of Leningrad, since artillery fire from Finland could hit that city. After talks failed, Stalin decided to invade, expecting that the war would be a walk in the park. Nikita Khrushchev, who then administered Ukraine, was involved in the war planning and shared the optimism. As he wrote in his memoir, “All we had to do was raise our voices a little bit, and the Finns would obey.”
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On November 30, 1939, the Soviet Union invaded Finland.

The war, however, quickly turned into a disaster for Moscow. The Finnish military was well led by Carl Mannerheim, a former czarist general, and his brave soldiers were better at winter warfare than the Soviets. A favorite Finnish tactic was to wear white uniforms that made soldiers all but invisible in the snowy countryside. Then they would shoot passing invaders at point-blank range. The Soviet army was also poorly led because the officer corps had not recovered from Stalin’s purges of military leaders only two years before and was lacking in combat experience.

The ragtag Finnish army initially pushed back the mighty invaders, which shocked the world. The Swedes and other Scandinavian countries supported the Finns, and donations to the Finnish cause came rushing in from around the world. Former American president Herbert Hoover and New York City Mayor Fiorello LaGuardia in December 1939 attended a rally in Madison Square Garden in New York City that both showed American public support and raised lots of money.

With everything going wrong, Stalin at one point tongue-lashed Marshal Nikolai Voronov, the People’s Commissioner of Defense, for the military’s failures. In an unheard of response, the military man blasted back at him screaming, “You have yourself to blame for all this! You’re the one who had our best generals killed.” He then picked up a platter with a roast suckling pig on it and smashed it on the table.
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Incredibly, and despite this confrontation, Voronov had a long and successful career in World War II.

In the end and despite international support, the Finns could not hold on. Helsinki sued for peace after 105 days of war and signed a peace accord with Moscow on March 12, 1940. In the settlement, Finland lost eleven percent of its land and one-third of its economic assets. Stalin essentially got everything he had wanted.

Historians believe that the poor Soviet showing in the Winter War strongly encouraged Hitler to invade the Soviet Union in June 1942. The Nazi leader figured that if a small country with limited resources such as Finland could hold the Red Army off for months, then his mighty Wehrmacht would crush it in no time. Military leaders around the world shared that view.

Finland spent almost half of its gold holdings on weapons to fight the war and had only 14 tons left at the end of the conflict. At the beginning of 1940 and with the war still being fought, the Bank of Finland rushed to get its remaining gold out of Europe. In January, it sold some bullion to Sweden and shipped 12.8 tons from Stockholm to the New York Federal Reserve. It already had 4.5 tons at the Bank of England in London, which was moved to the New York Fed. On March 7, only a week before the end of the Winter War, it sold 1.9 tons more.

In the spring of 1941 and after the Winter War, Finland had 11.8 tons of the bank’s total holdings of 12.5 tons at the New York Fed, while the rest remained at the Bank for International Settlements in Basel. With Finland still living dangerously between the Soviet Union and Germany, the country’s leaders soon sold most of the gold that it had built up in the U.S. Only three tons remained, and that was soon frozen due to Washington’s wartime regulations.
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