Foreign Relations of the United States, 1964–1968, Volume XVII, Eastern Europe

58. Memorandum From the Ambassador to Czechoslovakia (Beam) to the Under Secretary of State for Political Affairs (Bohlen)¹

Washington, April 26, 1968.

SUBJECT

• Czechoslovak Claims/Gold—Information Memorandum

Discussion:

When I saw the Under Secretary last week he asked me to follow up with you a suggestion to have a new look at the above question. He thought that alternate possibilities should be explored in the light of recent events in Czechoslovakia.

Mr. Katzenbach suggested Governor Harriman be informed and consulted in view of his concern with our nationalization claims against Czechoslovakia in 1964. Accordingly, a copy of this paper is being sent to him, as well as to other interested parties in the Department.

The crux of the matter is that against the background of earlier negotiations with us, the Czech Government is mounting a major campaign for the return of some $22 million of monetary gold looted by the Nazis. This gold is now held in US, UK and French custody, but we have refused to agree to its release pending a settlement of our nationalization claims and other outstanding financial matters. The Czechs insist that we concluded an agreement in December 1961² (which, in principle, we did) whereby we would have accepted some $11–12 million in payment of our claims (this sum representing $9 million from our sale of the American steel mill purchased by but denied to the Czechs, plus $2 million in an additional Czech contribution, but at the cost of $8 million to the Czechs because of the loss suffered by them in our sale of the steel mill); that we have repudiated this agreement as well as the work accomplished in the earlier negotiations started in 1955; and that we have created a new and unacceptable situation in our latest proposal of November 7, 1967³ which increased our claims fourfold to a total of $44 million.

The above proposal does, however, offer the Czechs certain benefits in a seven-year stretch-out repayment period and in a possible windfall of some $5 million and a continuing half-million dollars annually due in dollar payments to US social security annuitants in Czechoslovakia. Our proposal nevertheless lacks an essential adjunct to make it negotiable, namely, our restoration of MFN which we are unable to provide because of the non-enactment of the East-West trade legislation.

In my view, we possess two guarantees, or bargaining levers, to secure satisfaction of our citizens’ legitimate claims, namely, non-release of the gold and the negotiating value of an eventual restoration of MFN. I seriously question whether it is necessary to hold both of these in our hands at the present time. I am firmly convinced that the second factor will be decisive and that we will not get a claims settlement of anywhere near the amount we are asking until we can exploit the prospect of restoring MFN.

By continuing our present course we put ourselves in the position of receiving nothing more for our claimants for the foreseeable future, while we bring down on ourselves the odium of blocking the return of gold looted from the Czechs by their Nazi invaders. Palliatives, such as trying to reach partial settlements through offsets on blocked accounts, may help a little but not very much, as long as the main issues remain at an impasse. Real heat is likely to build up against us later this year when Czechoslovakia observes the 50th anniversary of its founding (in Pittsburgh) as a nation. There are cogent political reasons for trying to do better, especially when our aim should be to differentiate in the new regime’s favor and to develop relations which could promote our influence and interests in the Communist world.

Recommendation:

That as and when new discussions become possible, we attempt to renegotiate the agreement of December 1961 whereby:

(1) We would accept as a partial settlement and as an installment on our claims an amount in the order of the $2 million in new money offered by the Czechs in December 1961. (Actually we should try for a higher figure in view of the easements included in our November 7, 1967 proposal which should be retained.)

(2) We would agree to the release of the monetary gold on condition it were recognized that a final claims settlement remained open for future negotiation. (Here we would make it bluntly clear that MFN would not be granted until such a settlement were reached.)

Final Justification:

A precedent for this approach exists in the UK agreement with the Czechs to consent to the release of the gold against payment of 1 million pounds on account on British nationalization claims. In our case, we would gain the benefits: (1) of receiving an immediate increment (which could satisfy most of the individual small claimants); and (2) of divesting ourselves of a political embarrassment while retaining at the same time the essential bargaining lever of MFN.

1. Source: Department of State, SIG Records: Lot 70 D 263, SIG Memo No. 70. Confidential. Drafted by Beam. Copies were sent to Harriman, Meeker, Solomon, Campbell, and Lisle. Beam was in Washington for consultations. A handwritten note on the source text by Bohlen reads: “I agree with this approach. CEB”
2. See footnote 3, Document 37.
3. See Document 52.