Foreign Relations of the United States Diplomatic Papers, 1940, General, Volume I

840.51 Frozen Credits/325½

Memorandum by the Assistant Chief of the Division of European Affairs (Henderson)⁷⁰

[Washington,] July 15, 1940.

As you are aware, on one pretext or another the Soviet Government, by demands backed up with threats of force, has during the last six weeks forced the three Baltic countries of Estonia, Latvia, and Lithuania to permit the entrance of Soviet troops aggregating about 500,000 men. Under Soviet pressure the Governments in all three countries have been replaced by governments which are mere Soviet puppets. The President of Lithuania was successful in escaping to Germany; the President of Latvia appears to be a virtual if not an actual prisoner; the President of Estonia is also apparently without any power whatsoever.

Under Soviet pressure elections were ordered in these three countries for yesterday and today. It is clear from reports which reach us that these elections are merely a mockery. Only persons approved by the Soviet Government or the Communist International⁷¹ are permitted to stand as candidates. It appears likely that following these so-called elections it will be arranged for these three republics to be merged into the Soviet Union. Whether these arrangements will be put into effect at once or whether the Soviet Government will be satisfied for some time to come with having the three countries under its actual control, although fictiously independent, remains to be seen.

On Saturday, July 13, shortly after noon, the Latvian Minister⁷² presented the attached note⁷³ to Mr. Atherton⁷⁴ after having endeavored unsuccessfully to obtain an appointment with the Secretary or Under Secretary. In this note he points out that in view of the circumstances surrounding the holding of the elections in Latvia he “reserves the right not to recognize the results of the coming elections and the acts emanating therefrom”. The Minister also states that in United States banks there are deposits of the Latvian State and of Latvian banks, corporations and private citizens, and that there are a number of Latvian ships in the waters of the western hemisphere. He asks that if attempts are made to alienate these deposits, vessels and other Latvian property and interests in the United States, the American Government safeguard and secure the said deposits and property. It is understood that the Lithuanian Minister⁷⁵ has also prepared a note which he plans to hand to the Department within the next few days, if he has not already done so, in which he will point out the illegality of the elections in Lithuania. There is no Estonian Minister in this country. The only representative of that government in the United States is the Estonian Consul General in New York.⁷⁶

The recent events in the Baltic States have raised a number of rather important questions. The note of the Latvian Minister merely serves to render these questions more active. Among these questions are the following:

1. Is the Government of the United States to apply certain standards of judgment and conduct to aggression by Germany and Japan which it will not apply to aggression by the Soviet Union. In other words, is the Government of the United States to follow one policy with respect to, say, Czechoslovakia, Denmark, and German-occupied Poland, and another policy with respect to Latvia, Estonia, Lithuania, and Finland, which before the end of the year is likely to suffer the same fate as the other three Baltic States. Is the United States to continue to refuse to recognize the fruits of aggression regardless of who the aggressor may be, or for reasons of expediency to close its eyes to the fact that certain nations are committing aggression upon their neighbors. If our Government at this juncture desires to take no step which might arouse the displeasure of the Soviet Union it would possibly be wise for it to overlook the present Soviet aggressive acts in the Baltic States, as well as similar acts which will probably take place in Finland. On the other hand, our failure to recognize Soviet conquests just now, although not pleasant to the Soviet Government, may possibly place another card in our hands when, if ever, a conference regarding the future of Europe takes place.

2. Does the Government of the United States desire to take steps to restrain the export of funds in this country belonging to the States of Latvia, Estonia and Lithuania, as it has done recently in the case of countries taken over by Germany. If no restriction on the export of these funds is laid down, it seems almost certain that they will pass into the Soviet Treasury. It is impossible at the present time to estimate the full amount. It seems likely that the assets of all three countries in the United States will not amount to much more than 12 or 13 million dollars. In this connection it will be observed that if the three countries in question are absorbed into the Soviet Union, the United States will probably not receive one cent of the several million dollars which the governments of these three countries owe us. Furthermore, American interests in those three countries will probably be a total loss. It is estimated that these interests will not approximate more than two or three hundred thousand dollars, although it is difficult to obtain figures. It will be recalled that the Soviet Government announced some time ago that since the acts of nationalization of that part of Poland which has been annexed to the Soviet Union took place prior to the entry of that territory into the Soviet Union, the Soviet Government could not be held responsible for losses incurred as a result of those acts.⁷⁷ It is possible that in the interim before the incorporation of the three Baltic States into the Soviet Union, the new puppet governments of those States might denounce all public indebtedness and nationalize property, and that the Soviet Government, after their entry into the Soviet Union, will take the attitude that it is not responsible for the acts of such puppet governments.

At the suggestion of Mr. Berle, which I conveyed to Mr. Livesey⁷⁸ last week, Mr. Livesey has informally asked the Treasury to investigate the holdings of Latvia, Estonia, and Lithuania in this country in American banks and to request the banks in which the holdings are extensive to inform the American Government, before any large withdrawals are permitted. It is probable that during the present week endeavors will be made by the Soviet Government to obtain possession of these funds. It is essential, therefore, that a decision with respect to them be made at once.⁷⁹

3. Are vessels of the Baltic States in American harbors to be permitted to depart freely or are they to be held up like the vessels of a number of countries which have been taken over by Germany. For some time the ability of the Soviet Union to handle its foreign trade has been suffering because of the lack of ships. For the last several months the Soviet Embassy has been endeavoring to arrange for the charter of Latvian bottoms in order to transport material to Vladivostok. Apparently the Soviet plan now is to force the Latvian Government and private owners to permit Soviet organizations to charter Latvian and other Baltic ships and to call these ships into Soviet ports where they are to be nationalized. Some of the Latvian ships are excellent and have a high rating in Lloyds, according to information received from our Legation at Riga. The Latvian Minister states that at the present time a Latvian vessel is in Baltimore taking on cargo for Vladivostok in pursuance of a recent Soviet charter. The Maritime Commission is undoubtedly in a much better position than this Department to decide whether it would be advantageous to the American Government to retain these vessels or to permit them to depart.⁸⁰

L[oy] W. H[enderson]

70. Addressed to the Assistant Secretary of State, Adolf A. Berle, Jr., and to the Adviser on Political Relations, James Clement Dunn. A note written by the latter, at the beginning of the memorandum, reads: “I feel funds of all 3 of these countries should be blocked on same basis as those of countries occupied by Germany.”
71. The Communist (Third, Red) International, founded by the Bolsheviks at Moscow in March 1919.
72. Alfred Bilmanis.
73. Not printed.
74. Ray Atherton, Acting Chief of the Division of European Affairs.
75. Povilas Zadeikis.
76. Johannes Kaiv, Acting Consul General, in charge of the Legation of Estonia.
77. For text of the Soviet note of April 26, 1940, see telegram No. 502, May 8, 5 p.m., from the Chargé in the Soviet Union, vol. iii, p. 197; the Department’s reply was sent in telegram No. 276, May 16, 6 p.m., ibid., p. 201.
78. Frederick Livesey, Assistant Adviser on International Economic Affairs.
79. In a note attached at this point, Mr. Henderson wrote: “Mr. Berle states that Treasury has decided to block the accounts of Latvia, Estonia, and Lithuania in this country today July 15, 1940.” For text of Executive Order No. 8484, by which this was accomplished, see 5 Federal Register 2586. The text of regulations of the Treasury Department, also issued on July 15, 1940, is printed ibid., p. 2593. Although the assets of the Baltic States were frozen, disbursements from them were subsequently permitted to the extent necessary to support the continued operation of the Baltic diplomatic missions in the United States and in the several other countries which had likewise not recognized the Soviet occupation of these countries. Title to the assets remained in the name of the free governments of Estonia, Latvia, and Lithuania, since the United States never recognized the legality of the Soviet occupation of the three states.
80. For additional consideration of the subject of the sequestration of the gold and ships of the Baltic States in accordance with the policy of the United States in conferences held with the Ambassador of the Soviet Union by various members of the Department of State, especially by Under Secretary of State Sumner Welles, see the following documents in vol. iii : Memorandum of July 27, p. 327; undated memorandum by Loy W. Henderson, p. 331; memorandum of August 1, p. 340; memorandum of August 7, p. 348; memorandum of August 12, p. 362; memorandum of August 15, p. 371; telegram No. 614, October 3, 2 p.m., to the Ambassador in the Soviet Union, p. 388; memorandum of October 31, p. 403; and memorandum of November 27, p. 413. See also telegram No. 1781, December 26, 8 p.m., from the Ambassador in the Soviet Union, ibid., p. 438.