Seize & Squander: IG Farben, Interhandel and GAF Corp: Americanizing the German Chemical Industry in the USA, 1918 -1965.
What is the IG Farben-Interhandel GAF case? How did an apparently simple case of property rights become in international cause célèbre; one with a cast of thousands, ranging from Swiss bankers with Nazi connections to naive American officials adrift in the eddies of corrupt ‘old’ Europe? It includes detours to the International Court of Justice, the US Supreme Court and has Richard Nixon and Robert Kennedy along with a host of others thrown in for good measure. Over the last 60 years GAF has been the object of conspiracy theories of ever increasing implausibility. These have formed the basis of best selling books and at least one television series.[i] Seize & Squander seeks to redress the balance and give a clear account of this complex story; demystifying the conspiracy theories and offering answers to some important questions about capitalism, corruption and the international economy in the last half of the 20th century.
Seize & Squander argues that the US government’s double attempt, first in 1918 with seizure of German owned plants and patents, and again in 1942, when the US Treasury sequestered GAF, to nationalize the German chemical industry in America failed abysmally on both occasions. In both cases the United States justified seizure as an economic-strategic necessity. However, the US bungled sequestration in 1918, despite the sale of the seized factories and patents to American interests, because the German firms that became IG Farben recovered their property within a single decade. It failed again in 1942 because the United States Government misunderstood the nature of what was happening to the international chemical industry and America’s position within it.
The US worked on an analysis that breaking the link with the German industry would automatically free GAF to develop into the most important chemical company in the world. GAF grew significantly in the post 1945 long world boom. However, its growth was far less than its US competitors Dow, Du Pont, Monsanto and others, moreover it was also far less than Bayer, BASF or Hoechst, the successor firms to IG Farben. What the US did not grasp is that GAF was important precisely because of its link to IG Farben in Germany, without that link it could never become the super corporation the US government hoped it would.
In the wake of both World Wars, the United States ruthlessly sought to extend its economic dominion across the world, while disavowing any interest in imperial conquest. This vision of the ‘one world’ economy was contrasted with the Nazi ‘closed’ economic space, yet it was always intended that US interests would take precedence. Despite American claims, its main allies were not deceived; the British were always suspicious of US pronouncements about anti-imperialism and Stalin’s derisory term was ‘Dollar Diplomacy.’ In this context GAF can be seen as a microcosm for post-war US-European international relations, which pass through several phases, including fear, triumphalism, self-righteousness, intransigence, and finally pragmatism. In the end the American’s belief that they had a moral right to seize and keep GAF had more to do with political myth, what the American political scientist Richard Hoffstadter termed 'the paranoid style' than with rational calculation. GAF was inflated far beyond a simple question of property rights but instead became an economic test of America’s will to power.
There was no dispute that IG Farben, the inter-war German chemical giant, set up both IG Chemie and General Aniline & Film Corp (GAF.) as its Swiss and American affiliates. However when the US Government seized GAF in 1942 it argued that its nominal owner IG Chemie in Switzerland was a cloak for IG Farben’s ownership of key American assets. This conspiracy theory set the stage for a twenty-year legal battle with the US claiming that IG Chemie was German and the Swiss, with the support of their government, who had conducted a number of secret investigations into IG Chemie’s origins, repeatedly denying this in some of the most important courts in the world. Key US government agencies including the FBI, the OSS, the Justice Department and the CIA spent the next twenty years searching for the single document that would prove their assertion; despite access to IG Farben’s captured records and thousands of files disgorged from the Swiss banks, no such document was ever found. In 1963 the US agreed a settlement with IG Chemie’s owners the Union Bank of Switzerland that gave them more than $120 million. Money is never a frivolous reason for action, so why did the case last so long and have to be so expensively settled? The US government’s consistent invocation of a conspiracy theory as the only explanation for GAF prevented the Americans from dealing with the issue pragmatically. GAF should have been a simple question of money, a large sum to be sure but only money, that it was not says much about international politics and America's role in the post war world.
The German organic chemicals industry first penetrated the US market in the 1870s, where over the next 40 years it gained the dominating position in the international dye trade. In 1917, when it joined the First World War as a co-belligerent with the allies, the United States realized its economic vulnerability and seized all German chemical industry property in America, which was then sold to American interests. The newly created IG Farben rebuilt itself in the United States by offering these companies technical help and expertise to work these patents and processes, which soon resulted in the German industry regaining its strength in the US market. So sucessful ewas this strategy that by the late 1920s IG Farben and had acquired holdings worth many millions of dollars and developed alliances with big US corporations such as Standard Oil of New Jersey. In 1929 GAF was incorporated as a holding company to bring together IG Farben’s various holdings it but was also intended to facilitate IG Farben's extensive borrowing on the international markets. IG Farben needed large sums to finance expensive technological research in Germany, which included coal hydrogenation to manufacture synthetic oil and rubber. These commodities would later be of great strategic importance to the Nazis, and with rubber, the US.
When GAF was launched in America, IG Chemie (a Swiss holding company) was also formed to control title to GAF. The basic reasons behind this arrangement were twofold. First and most important to avoid the punitive German taxes, which followed from high social spending by the Weimar Republic. Second it was designed to insulate IG's foreign property from possible nationalisation either by the left or the radical right in Germany.
During the Kampfzeit or time of struggle in the 1920s the Nazis targeted IG Farben as a prime representative of 'International Jewish Finance'. At this time IG Farben had little reason to fear a second sequestration of is American property. However, with the arrival of the Hitler regime (and Farben's increasing involvement in its preparations for war) the US government began a close examination of GAF, in particular its relationships to IG Chemie in Switzerland, and IG Farben in Germany. The newly created Securities and Exchange Commission undertook the initial investigation. The SEC concluded that IG Farben was probably the real owner of GAF. It also thought that the nominal ownership of the US Company by IG Chemie was simply an elaborate cloaking device to prevent a recurrence of the 1918 experience. This conclusion dramatically informs official thinking about IG Farben and GAF: the US company is subsequently deemed to be a small but significant part of a wider conspiracy to help the Nazis gain world domination. This Manichaean view of IG Farben's role in the Nazi State blinded the US to the practical reality of IG Farben's financial and political needs when the companies were formed. GAF was sequestered as enemy property in 1942, after a number of attempts by GAF to 'Americanise' itself. Simultaneously IG Chemie in Switzerland had ostentatiously severed all links with IG Farben in Germany. This set the stage for a twenty year legal tussle between the US and Swiss interests (eventually these included the Swiss Government and the Union Bank of Switzerland, better known by its acronym UBS) who by the late 1950s had bought control of IG Chemie. Matters were complicated by rules drawn up under the trading-with-the-enemy act in 1917, which allowed claimants redress under section 9 of this act. This prevented the United States from disposing of seized assets while the case was under review. As the Swiss claimed formal ownership, the United States had to prove that IG Chemie was merely a 'cloak' for IG Farben interests. Despite seizure of IG Farben personnel and files at the end of the war the US Department of Justice was unable to prove this key contention.
Over the course of 20 years the case became something of a celebrated controversy, or perhaps a legal Flying Dutchman would be a better description. It came before the highest courts including the International Court of Justice, and the US Supreme Court. In the end the law could not resolve the issue, and it was left to Robert Kennedy to break the political deadlock and reach a settlement with the UBS. GAF was sold at what was then the largest private auction in Wall Street's history, and raised $329,000,000. The division of this money was extremely complex, and was tainted with suspicion of underhand dealings. Approximately one third of the proceeds went to Switzerland. The UBS then used this $100,000,000 windfall to make itself one of the largest banks in Europe.
For a time in the 1960s GAF was a contender in the race to be America's leading chemical corporation. This failed when it was taken over in the late 1970s and has since declined to the status of a specialty products company dealing with roofing materials.
In 1950 IG Farben was broken up into its constituent parts, Bayer, Hoescht and BASF each was to play a vital part in the West German economic miracle in the following 20 years. However IG Farben im Abwicklung (IG in Dissolution) was allowed to continue to exist, partly as a repository for property that could not be allocated to its successor companies, but also to provide a framework for compensation to Jewish slave labourers employed at Monowitz concentration camp in 1942-45.
IG Farben (in Dissolution) resurfaced in the early 1990s, when a group of banks bought the still existing legal entity and lodged compensation claims against the German government for seized assets in the former DDR. In recent years it has been emboldened to press claims against the UBS repeating it argument that the separation of IG and Interhandel in 1940 was not total; the UBS has rejected this claim out of hand.
IG Farben finally wound itself up in 2004 amid acrimonious claims that it should use its reaming assets, money that had been originally intended by the allies to finance IG’s successor companies, to pay more compensation to Jewish victims of Nazi terror.
Why is Seize & Squander a significant book?
This is the first work that tries to tell this story in it's entierity. The main archives I used were the IG Farben’s financial records at the former GDR State Archive in Berlin and the Justice Department files on GAF. These last are extensive and have hardly been used by researchers. I also trawled through some 30 separate archives in America, Germany, Switzerland and Britain. I was also fortunate enough to be able to interview a number of leading participants, particularly on the American side and these included former members of the Kennedy administration.
There will be considerable interest in the United States, Switzerland and Germany as there is a rich literature relating to the Nazi conspiracy thesis dating back to the 1920s. Current work on subjects relating to Nazi-US economic relations divides itself largely into the speculative or journalistic, neither of which advance our knowledge much but do throw up a dense fog of obfuscation and incoherent misinformation that makes getting at the truth extremely difficult. Examples of this kind of work are Charles Higham's bestselling books, Trading-With-The-Enemy (London, 1983) and The Nazi American Money Plot. (London, 1985) It is also worth mentioning Tom Bower's various works such as Blind Eye To Murder (London, 1981, 2nd ed., 1992), The Paperclip Conspiracy (London, 1985) about US employment of Nazi scientists (1985), Blood Money, (London, 1997) the role of the Swiss banks in concealing Jewish assets during the war. There have also been two other highly successful books on IG Farben and Swiss banking in the last 20 years. The first is Joseph Borkin's: The Crime and Punishment of IG Farben (New York, 1977) and the second is Nicholas Faith: Safety in Numbers (London, 1982) both of which argue a different version of the conspiracy theory.
Scholarly works include Dr. Ray Stokes excellent works on the German chemical industry and the break up of Farben Divide and Prosper (UCP 1986) and Opting for Oil (CUP 1996) which deals with US oil technology transfer to the former IG Farben companies after 1950. Finally the most important academic work in English on Farben, there is a large literature in German, is Prof. Peter Hayes' Industry and Ideology (Cambridge University Press, 1987, reprint 2001) Hayes is a careful scholar and this is by far the best study. My book is a companion work to that of Hayes and Stokes, if only because it deals with subjects unrelated to their main thesis. However, because I contradict the conspiracy theory, my work directly contrasts that of Borkin and Faith. Finally there is Interhandel a new work by Mario König, this is based exclusively on Swiss sources, particularly Swiss Banking archives made available under the auspices of the Swiss Historical Commission, and is a thorough examination of Interhandel from a purely Swiss perspective. It is an excellent and most scholarly work, but for obvious reasons, it was clearly outside Mario Koenig's remit, the book does not consider the wider political implications of the GAF-Interhandel affair. My own work, because it seeks to place the whole question within a framework of international economic and political relations in the 20th century, will still be the most important contribution to this lively debate
[i] Vater und Sohn (Fathers and Sons) Shown in Germany in 1981
What is the IG Farben-Interhandel GAF case? How did an apparently simple case of property rights become in international cause célèbre; one with a cast of thousands, ranging from Swiss bankers with Nazi connections to naive American officials adrift in the eddies of corrupt ‘old’ Europe? It includes detours to the International Court of Justice, the US Supreme Court and has Richard Nixon and Robert Kennedy along with a host of others thrown in for good measure. Over the last 60 years GAF has been the object of conspiracy theories of ever increasing implausibility. These have formed the basis of best selling books and at least one television series.[i] Seize & Squander seeks to redress the balance and give a clear account of this complex story; demystifying the conspiracy theories and offering answers to some important questions about capitalism, corruption and the international economy in the last half of the 20th century.
Seize & Squander argues that the US government’s double attempt, first in 1918 with seizure of German owned plants and patents, and again in 1942, when the US Treasury sequestered GAF, to nationalize the German chemical industry in America failed abysmally on both occasions. In both cases the United States justified seizure as an economic-strategic necessity. However, the US bungled sequestration in 1918, despite the sale of the seized factories and patents to American interests, because the German firms that became IG Farben recovered their property within a single decade. It failed again in 1942 because the United States Government misunderstood the nature of what was happening to the international chemical industry and America’s position within it.
The US worked on an analysis that breaking the link with the German industry would automatically free GAF to develop into the most important chemical company in the world. GAF grew significantly in the post 1945 long world boom. However, its growth was far less than its US competitors Dow, Du Pont, Monsanto and others, moreover it was also far less than Bayer, BASF or Hoechst, the successor firms to IG Farben. What the US did not grasp is that GAF was important precisely because of its link to IG Farben in Germany, without that link it could never become the super corporation the US government hoped it would.
In the wake of both World Wars, the United States ruthlessly sought to extend its economic dominion across the world, while disavowing any interest in imperial conquest. This vision of the ‘one world’ economy was contrasted with the Nazi ‘closed’ economic space, yet it was always intended that US interests would take precedence. Despite American claims, its main allies were not deceived; the British were always suspicious of US pronouncements about anti-imperialism and Stalin’s derisory term was ‘Dollar Diplomacy.’ In this context GAF can be seen as a microcosm for post-war US-European international relations, which pass through several phases, including fear, triumphalism, self-righteousness, intransigence, and finally pragmatism. In the end the American’s belief that they had a moral right to seize and keep GAF had more to do with political myth, what the American political scientist Richard Hoffstadter termed 'the paranoid style' than with rational calculation. GAF was inflated far beyond a simple question of property rights but instead became an economic test of America’s will to power.
There was no dispute that IG Farben, the inter-war German chemical giant, set up both IG Chemie and General Aniline & Film Corp (GAF.) as its Swiss and American affiliates. However when the US Government seized GAF in 1942 it argued that its nominal owner IG Chemie in Switzerland was a cloak for IG Farben’s ownership of key American assets. This conspiracy theory set the stage for a twenty-year legal battle with the US claiming that IG Chemie was German and the Swiss, with the support of their government, who had conducted a number of secret investigations into IG Chemie’s origins, repeatedly denying this in some of the most important courts in the world. Key US government agencies including the FBI, the OSS, the Justice Department and the CIA spent the next twenty years searching for the single document that would prove their assertion; despite access to IG Farben’s captured records and thousands of files disgorged from the Swiss banks, no such document was ever found. In 1963 the US agreed a settlement with IG Chemie’s owners the Union Bank of Switzerland that gave them more than $120 million. Money is never a frivolous reason for action, so why did the case last so long and have to be so expensively settled? The US government’s consistent invocation of a conspiracy theory as the only explanation for GAF prevented the Americans from dealing with the issue pragmatically. GAF should have been a simple question of money, a large sum to be sure but only money, that it was not says much about international politics and America's role in the post war world.
The German organic chemicals industry first penetrated the US market in the 1870s, where over the next 40 years it gained the dominating position in the international dye trade. In 1917, when it joined the First World War as a co-belligerent with the allies, the United States realized its economic vulnerability and seized all German chemical industry property in America, which was then sold to American interests. The newly created IG Farben rebuilt itself in the United States by offering these companies technical help and expertise to work these patents and processes, which soon resulted in the German industry regaining its strength in the US market. So sucessful ewas this strategy that by the late 1920s IG Farben and had acquired holdings worth many millions of dollars and developed alliances with big US corporations such as Standard Oil of New Jersey. In 1929 GAF was incorporated as a holding company to bring together IG Farben’s various holdings it but was also intended to facilitate IG Farben's extensive borrowing on the international markets. IG Farben needed large sums to finance expensive technological research in Germany, which included coal hydrogenation to manufacture synthetic oil and rubber. These commodities would later be of great strategic importance to the Nazis, and with rubber, the US.
When GAF was launched in America, IG Chemie (a Swiss holding company) was also formed to control title to GAF. The basic reasons behind this arrangement were twofold. First and most important to avoid the punitive German taxes, which followed from high social spending by the Weimar Republic. Second it was designed to insulate IG's foreign property from possible nationalisation either by the left or the radical right in Germany.
During the Kampfzeit or time of struggle in the 1920s the Nazis targeted IG Farben as a prime representative of 'International Jewish Finance'. At this time IG Farben had little reason to fear a second sequestration of is American property. However, with the arrival of the Hitler regime (and Farben's increasing involvement in its preparations for war) the US government began a close examination of GAF, in particular its relationships to IG Chemie in Switzerland, and IG Farben in Germany. The newly created Securities and Exchange Commission undertook the initial investigation. The SEC concluded that IG Farben was probably the real owner of GAF. It also thought that the nominal ownership of the US Company by IG Chemie was simply an elaborate cloaking device to prevent a recurrence of the 1918 experience. This conclusion dramatically informs official thinking about IG Farben and GAF: the US company is subsequently deemed to be a small but significant part of a wider conspiracy to help the Nazis gain world domination. This Manichaean view of IG Farben's role in the Nazi State blinded the US to the practical reality of IG Farben's financial and political needs when the companies were formed. GAF was sequestered as enemy property in 1942, after a number of attempts by GAF to 'Americanise' itself. Simultaneously IG Chemie in Switzerland had ostentatiously severed all links with IG Farben in Germany. This set the stage for a twenty year legal tussle between the US and Swiss interests (eventually these included the Swiss Government and the Union Bank of Switzerland, better known by its acronym UBS) who by the late 1950s had bought control of IG Chemie. Matters were complicated by rules drawn up under the trading-with-the-enemy act in 1917, which allowed claimants redress under section 9 of this act. This prevented the United States from disposing of seized assets while the case was under review. As the Swiss claimed formal ownership, the United States had to prove that IG Chemie was merely a 'cloak' for IG Farben interests. Despite seizure of IG Farben personnel and files at the end of the war the US Department of Justice was unable to prove this key contention.
Over the course of 20 years the case became something of a celebrated controversy, or perhaps a legal Flying Dutchman would be a better description. It came before the highest courts including the International Court of Justice, and the US Supreme Court. In the end the law could not resolve the issue, and it was left to Robert Kennedy to break the political deadlock and reach a settlement with the UBS. GAF was sold at what was then the largest private auction in Wall Street's history, and raised $329,000,000. The division of this money was extremely complex, and was tainted with suspicion of underhand dealings. Approximately one third of the proceeds went to Switzerland. The UBS then used this $100,000,000 windfall to make itself one of the largest banks in Europe.
For a time in the 1960s GAF was a contender in the race to be America's leading chemical corporation. This failed when it was taken over in the late 1970s and has since declined to the status of a specialty products company dealing with roofing materials.
In 1950 IG Farben was broken up into its constituent parts, Bayer, Hoescht and BASF each was to play a vital part in the West German economic miracle in the following 20 years. However IG Farben im Abwicklung (IG in Dissolution) was allowed to continue to exist, partly as a repository for property that could not be allocated to its successor companies, but also to provide a framework for compensation to Jewish slave labourers employed at Monowitz concentration camp in 1942-45.
IG Farben (in Dissolution) resurfaced in the early 1990s, when a group of banks bought the still existing legal entity and lodged compensation claims against the German government for seized assets in the former DDR. In recent years it has been emboldened to press claims against the UBS repeating it argument that the separation of IG and Interhandel in 1940 was not total; the UBS has rejected this claim out of hand.
IG Farben finally wound itself up in 2004 amid acrimonious claims that it should use its reaming assets, money that had been originally intended by the allies to finance IG’s successor companies, to pay more compensation to Jewish victims of Nazi terror.
Why is Seize & Squander a significant book?
This is the first work that tries to tell this story in it's entierity. The main archives I used were the IG Farben’s financial records at the former GDR State Archive in Berlin and the Justice Department files on GAF. These last are extensive and have hardly been used by researchers. I also trawled through some 30 separate archives in America, Germany, Switzerland and Britain. I was also fortunate enough to be able to interview a number of leading participants, particularly on the American side and these included former members of the Kennedy administration.
There will be considerable interest in the United States, Switzerland and Germany as there is a rich literature relating to the Nazi conspiracy thesis dating back to the 1920s. Current work on subjects relating to Nazi-US economic relations divides itself largely into the speculative or journalistic, neither of which advance our knowledge much but do throw up a dense fog of obfuscation and incoherent misinformation that makes getting at the truth extremely difficult. Examples of this kind of work are Charles Higham's bestselling books, Trading-With-The-Enemy (London, 1983) and The Nazi American Money Plot. (London, 1985) It is also worth mentioning Tom Bower's various works such as Blind Eye To Murder (London, 1981, 2nd ed., 1992), The Paperclip Conspiracy (London, 1985) about US employment of Nazi scientists (1985), Blood Money, (London, 1997) the role of the Swiss banks in concealing Jewish assets during the war. There have also been two other highly successful books on IG Farben and Swiss banking in the last 20 years. The first is Joseph Borkin's: The Crime and Punishment of IG Farben (New York, 1977) and the second is Nicholas Faith: Safety in Numbers (London, 1982) both of which argue a different version of the conspiracy theory.
Scholarly works include Dr. Ray Stokes excellent works on the German chemical industry and the break up of Farben Divide and Prosper (UCP 1986) and Opting for Oil (CUP 1996) which deals with US oil technology transfer to the former IG Farben companies after 1950. Finally the most important academic work in English on Farben, there is a large literature in German, is Prof. Peter Hayes' Industry and Ideology (Cambridge University Press, 1987, reprint 2001) Hayes is a careful scholar and this is by far the best study. My book is a companion work to that of Hayes and Stokes, if only because it deals with subjects unrelated to their main thesis. However, because I contradict the conspiracy theory, my work directly contrasts that of Borkin and Faith. Finally there is Interhandel a new work by Mario König, this is based exclusively on Swiss sources, particularly Swiss Banking archives made available under the auspices of the Swiss Historical Commission, and is a thorough examination of Interhandel from a purely Swiss perspective. It is an excellent and most scholarly work, but for obvious reasons, it was clearly outside Mario Koenig's remit, the book does not consider the wider political implications of the GAF-Interhandel affair. My own work, because it seeks to place the whole question within a framework of international economic and political relations in the 20th century, will still be the most important contribution to this lively debate
[i] Vater und Sohn (Fathers and Sons) Shown in Germany in 1981