The Strange Case of General Aniline and Film

As the war approached its last year, the problem of what action should be taken by I.G. Chemie with regard to the seized General Aniline and Film shares became a serious question. I.G. Chemie’s lawyer, John J. Wilson, counseled delay. He wisely reasoned that the chances for success increased as the passage of time dimmed the passions of war. Within a very short period the wisdom of Wilson’s advice was affirmed.

Standard Oil (New Jersey) felt it could not afford the luxury of waiting for a change of climate. It had good reason to believe that Crowley, under pressure from the Justice Department’s Antitrust Division, was about to issue licenses under the vested Jasco and Standard-I.G. Company’s patents. It decided “to take the bull by the horns.” On July 13, 1944, Standard and its affiliates, Standard Oil Development Co., Standard Catalytic Co., and Jasco, filed a complaint under section 9 (a) of the Trading with the Enemy Act against the alien property custodian in U.S. district court for the Southern District of New York.

The companies charged that the patents and stock of the Standard-I.G. Company and Jasco had been wrongfully seized and demanded their return. After all the preliminaries were out of the way, the trial began on May 21, 1945, two weeks after Germany surrendered unconditionally. There were some voices within Standard who urged delay until the emotional climate became more favorable. It was hardly the time to be defending relations with an “enemy” company. But those who argued that time would work against Standard prevailed.

Representing Standard was John W. Davis of the Davis, Polk firm. Davis, an eminent member of the American bar, had been the Democratic nominee for president of the United States in 1924. Heading the trial team that represented the Alien Property Custodian was Philip Amram, a trial lawyer from Philadelphia who had been drafted for the task by Attorney General Biddle.

Judge Charles E. Wyzanski, Jr., of the U.S. district court in Boston, had been specially designated by Chief Justice Harlan Stone to preside over the case. It would have been difficult to improve on the quality of either the defense and prosecution teams or the judge.

The chief contention of Standard’s lawyers during the trial was that at the time the Jasco and Standard-I.G. shares and patents were vested on March 25, 1942, Standard was their rightful and legal owner—that all vestiges of I.G.’s interest in the properties has disappeared in September 1939 with the Hague agreement. The government’s defense of the seizure was that the transfer of the stock and patents to Standard as provided by the Hague agreement was a camouflage to conceal the enemy ownership by I.G.

In the course of preparing for the trial, Amram received word from the War Department that  , chief legal counsel of I.G., had been captured by General Patton’s Third Army. Amram sensed that the approaching defeat of Hitler might make Knieriem a cooperative witness. He caught the first available military plane for Paris, where Knieriem was brought for the interrogation. The I.G. lawyer not only agreed to appear as a U.S. government witness but also promised to provide documents in support of Amram’s case.

These would include papers involving the Hague agreement as well as correspondence about the transaction between I.G. and the German High Command. All this material was intact because when the bombing of Frankfurt had begun, Knieriem had moved all his files to a farm outside of Heidelberg, which as a protected university city had not been bombed by Allied air forces. Amram arranged for Knieriem to bring these papers to New York for the trial.

When the trial was in its second week, Amram received word that Knieriem had arrived at Ellis Island with his documents. Amram went to meet him and Knieriem said he was ready to testify. He asked Amram to do something for him first, however—buy him a new white shirt and tie so he would not have to face his old Standard associates in a shabby prisoner of war uniform. Amram gladly complied. Amram was now ready to unveil his mystery witness. He called Knieriem to the witness stand. Wearing the new shirt and tie, Knieriem entered the courtroom under military guard. He clicked his heels and bowed to the judge and the attorneys on both sides. “The faces of the Standard Oil executives were something that I will never forget,” 1 Amram later recalled.

Judge Wyzanski asked Knieriem if he would like a translator, but the German lawyer proudly declined. Then in clipped and impeccable English, with only a trace of an accent, he proceeded to identify the documents he had brought from Germany. Amram was now ready to deal Standard a devastating blow. He offered in evidence Knieriem’s own copy of the Hague agreement, with the latter’s handwritten notes in the margin, some in English and some in German. 2

Beside the preamble stating that under the original 1930 agreement Jasco was the owner of certain patent rights including the Buna process, Knieriem had written “Nachkrieg Camouflage” (“Postwar camouflage”)!

Amram then introduced correspondence that Knieriem had supplied between I.G. and the High Command. In one document I.G. explained,

“By this transfer... the patents in German possession will be removed from enemy seizure... we consider it right to transfer the patents to an American holder who is on friendly terms with us and who will cooperate with us on a friendly basis in the future.” 3

After strong objections by the Standard lawyers, Judge Wyzanski finally admitted Knieriem’s documents. In Amram’s view, this evidence,

“exposed the falsity of the Hague Memorandum... and showed conclusively that the whole scheme was a transparent device to conceal the property from the Alien Property Custodian in the event of United States participation in World War II.” 4

Five months later, on November 7, 1945, Judge Wyzanski rendered his verdict. He held that all transfers of assets from I.G. to Standard after the Hague agreement were a sham designed to create the false appearance of Standard ownership of property interests that both parties continued to regard as owned by I.G.

“The court is satisfied,” Wyzanski wrote, that the overriding real agreement of the Jersey group [Standard] and I.G. was that. . . these transfers both of legal title and equitable interests were to be null and void at the pleasure of I.G., and the parties intended that after the close of World War II, the Jersey group and I.G. would make whatever deal then deemed to be appropriate. 5

Judge Wyzanski concluded:

In short, the Hague Agreement and the subsequent transactions in reality, though not always in form, left I.G. with unaltered legal and equitable rights.... And so the United States government and the Alien Property Custodian were entitled to seize those rights on March 25, 1942, as properties of an enemy. 6

The Jasco stock and patents, including the Buna patents, were therefore to be retained by the custodian. But the government did not win a complete victory. Wyzanski found that the transactions between I.G. and Standard that took place before the Hague conference had been in good faith and had not contemplated later substantial readjustments. The securities and patents involved must be returned to Standard since they were not to be construed as the property of an enemy.

On September 22, 1947, the circuit court upheld the decision and findings of Judge Wyzanski. 7 Judge Charles Clark, who wrote the opinion, sharpened the findings of the lower court. For example, in connection with the initial transfer of title of I.G.’s Jasco stock to Walter Duisberg, Clark wrote that “the inference is inescapable that Duisberg was just another dummy used to hide the real ownership of I.G. property.” 8

In a footnote in the opinion, Judge Clark volunteered a startling observation—that Standard Oil could have been considered an enemy national in view of its relationship with I.G. Farben after the United States and Germany had become active enemies:

“Though the defendant does not make the argument, it would seem possible to contend that, under this extensive definition, plaintiffs became enemy nationals after the outbreak of the war, since their concealment of I.G. assets continued thereafter.” 9

Clark’s decision became final on April 19, 1948, when the U.S. Supreme Court denied all writs of certiorari. This date marked the end of the disastrous I.G.-Standard marriage. As a result of the lawsuit, the Alien Property Custodian turned over to Standard Oil the prewar interests of I.G. in the Standard-I.G. Company but retained I.G.’s half interest in Jasco, along with almost all of the patents that presumably had been transferred to Jasco by I.G. after the beginning of the war, including the Buna patents.

However, Standard’s fears, expressed back in 1939, that I. G.’s interests would “fall into unfriendly hands” were not realized. In April 1953, the Alien Property Custodian offered the Jasco stock at auction to the highest bidder. After receiving six sealed bids, he announced that the Standard Oil Development Company was the high bidder at $1.2 million.

The decision in the Standard Oil case was hardly a source of comfort for I.G. Chemie or its American lawyer, John J. Wilson. Even more disquieting was the directive issued by the reparations conference held in Paris in December 1945 that each Allied member look to confiscated German assets in their respective countries as reparations for war damages.

Neutral nations likewise were required to liquidate known German assets found within their borders and transfer proceeds to the Inter-Allied Reparations Agency, which was to divide the assets among claimants in accordance with a fixed quota—the United States and Great Britain were each to receive twenty-eight percent with the remaining forty-four percent to be divided among the other Allies.

Of frightening significance to I.G. Chemie was the fact that German assets cloaked in neutral countries were included:

“The German enemy assets to be charged against reparation shares shall include assets which are, in reality, German assets despite the fact that the nominal owner of such assets is not a German enemy.” 10

No one doubted that I.G. Chemie and its alleged offspring, General Aniline and Film, were prime targets of this resolution. While the reparations conference was under way, a special meeting of I.G. Chemie stockholders was held in Basel to take protective measures against the decision of the Paris conference. The climate of German defeat pervaded the atmosphere of the meeting, whose purpose was to obliterate, as far as possible, any taint of I.G. Farben.

The famous I.G. initials were dropped as the corporation formally changed its name to Internationale Industrie und Handelsbeteiligungen A.G. From now on I.G. Chemie would be known as Inter-handel. The bylaws were amended to eliminate the use of bearer shares, one of the traditional mechanisms used by I.G. Farben to exercise hidden control. Finally Albert Gadow, managing director since 1935 and brother-in-law of Hermann Schmitz, resigned. Gadow was succeeded by Walter Germann, a Swiss citizen, and a nephew of the late Eduard Greutert.

While I.G. was involved in these attempts at de-Farbenization and de-Germanization, the Swiss Compensation Office undertook an investigation into the degree of German ownership of Interhandel. The agency examined every scrap of paper in Interhandel’s files that might be relevant to determining the ownership of Interhandel. It made an equally complete examination of the records of Sturzenegger, the successor to Greutert.

When the inquiry was completed, the Swiss Compensation Office concluded that I.G. Chemie (Interhandel) was not controlled or owned by I.G. Farben and was indeed a genuine Swiss company owned and operated by Swiss interests. In Allied circles the decision met with disbelief, and it was entirely unacceptable to the United States government.

Fortified by thousands of captured I.G. Farben documents, the United States stood its ground that Interhandel was a German controlled concern. There was a growing impression among U.S. officials concerned with the matter that the Swiss government was more and more dominated in this matter by internal pressures than by the need for a legally valid adjudication.

The tough United States position brought some results. In May 1946, at a conference in Washington, B.C., Switzerland entered into an agreement with the United States, France, and England to deal with the problem of Nazi involvement in camouflaged assets and looted gold in Switzerland. According to the terms of the agreement, the Swiss Compensation Office, in collaboration with a commission composed of representatives of the four parties to the Washington Accord, was to examine all questions of disputed ownership and liquidate all property determined to be German owned.

In the event of a disagreement between the Swiss Compensation Office and the Joint Commission, the dispute was to be submitted to the Swiss Authority of Review. Almost immediately Interhandel became the subject of a major disagreement. The Swiss Compensation Office continued to hold that Interhandel was truly a Swiss company and not a camouflaged holding of I.G. The Joint Commission vigorously disputed this finding and appealed to the Swiss Authority of Review, which supported the Swiss Compensation Office.

After the prescribed period of thirty days, the Swiss government declared the Swiss Authority of Review decision final, removed the freeze on Interhandel’s assets in Switzerland, and presented the United States government with a demand that the General Aniline and Film stock be released to Interhandel. Two could play this game, however, and the United States refused. The Americans replied that the Washington Accord dealt only with assets located in Switzerland and did not affect assets in the United States: non-enemies such as Swiss nationals seeking the release of property vested in the United States were to rely on the legal remedies provided for in the Trading with the Enemy Act.

For practical purposes United States law would govern the disposition of the General Aniline property. By July 1948, this proposition was strengthened by an amendment to the Trading with the Enemy Act providing that no enemy assets were to be returned to their former owners. Instead, they were to be deposited in a special fund for the payment of war claims.

This addition to the Trading with the Enemy Act seemed to settle the question of whether Congress would pass legislation, as it had in 1928 after World War I, returning seized assets to their former owners. With that option apparently gone, John J. Wilson, now confronted by the running of the statute of limitations, finally filed a section 9 suit on behalf of Interhandel for the recovery of the G.A.F. 11 shares that had been seized by the Alien Property Custodian.

Since the Office of the Alien Property Custodian had been transferred some two years earlier to the Department of Justice, the suit named Attorney General Tom C. Clark as the defendant. It is a matter of historical interest that the suit was filed not in Interhandel’s German name, under which it did business in German-speaking Basel, but in the rarely used French name, Société Internationale pour Participations Industrielles et Commerciales S.A.

The Interhandel complaint charged that the G.A.F. stock had been wrongfully seized by the alien property custodian because Interhandel had never been either an enemy or an ally of an enemy of the United States and because Interhandel was the real and beneficial owner of the vested shares. Significantly, Interhandel did not dispute the U.S. claim that I.G. Farben controlled and dominated I.G. Chemie before June 1940.

It contended, however, that after that date, changes had occurred that cut all ties to I.G. Farben. What Interhandel was alluding to were the de-Farbenization measures undertaken in 1940, just before G.A.F. informed the Securities and Exchange Commission that I.G. Chemie was its corporate parent. These included the cancellation of the dividend option agreement, the resignation of Hermann Schmitz from I.G. Chemie, and I.G. Chemie’s purchase of a large portion of its own stock held by German shareholders.

In its reply, the United States charged that all these changes were nothing more than further attempts at camouflage. It charged that Interhandel, from its incorporation in 1921 until Germany’s surrender in 1945, had participated in a conspiracy with I.G. Farben, Eduard Greutert, and the latter’s successor, Hans Sturzenegger,

“to conceal, camouflage and cloak the ownership, control and domination by I.G. Farben of properties and interests in many countries of the world, including the United States.” 12

Moreover, the government charged, the real and beneficial owner of the G.A.F. shares was I.G. Farben.
Thus began a legal contest that was to journey up and down the judicial ladder of the federal courts until it reached a surprise conclusion some fifteen years later. During those fifteen stormy years, there were innumerable efforts to reach a settlement. Frequently these attempts were complicated by the intrusion of political influence and the appearance of volunteer intermediaries and others of dubious credentials.

Nevertheless, several times a settlement appeared to be a real possibility. In 1950, for example, Interhandel offered to accept $14 million to compromise its G.A.F. claim. The assistant attorney general in charge of alien property recommended U.S. government acceptance. However, Attorney General Tom Clark rejected the $14 million figure and countered with an offer of $12 million. The Justice staff, which argued that principle rather than money should be the determining factor, heatedly objected to any settlement. Only a legal adjudication in court would satisfy them. Now in possession of captured Nazi and I.G. documents, they could prove in a court of law that G.A.F. and Interhandel were camouflaged I.G. Farben properties.

However, in the middle of the negotiations, two Jewish refugees, Interhandel stockholders, entered the scene of action. On May 11, 1950, Eric G. Kaufman and Aenni C. Kaufman, who owned eighty-six shares of Interhandel stock, filed a motion in district court on behalf of all non-enemy stockholders to intervene in the pending case. In their petition, the Kauf-mans alleged that Interhandel was presently dominated and controlled by officers, agents, and stockholders who had engaged in a conspiracy with German nationals and with the German government to operate Interhandel’s business in the interest of Germany during the war.

In fact, they contended that the present Interhandel suit was controlled by the very stockholders whose background and conduct had caused the U.S. alien property custodian to seize the G.A.F. assets in the first place. The Kaufmans charged that the management, fearing permanent confiscation of its enemy-tainted interests, was about to settle the claim for a great deal less than the true value of the non-enemy holdings. Finally, the Kaufmans alleged that this “enemy” group in control of Interhandel could not be expected to protect the interests of non-enemy shareholders.

Their intention to divide the proceeds of such a settlement equally among enemy and non-enemy stockholders would deprive the non-enemy stockholders of their rightful interest in the assets. Moreover, it would result in a substantial benefit to a former enemy. 13 Both the Interhandel management and the United States government opposed the Kaufman intervention, each insisting that the interest of all stockholders be treated alike.

The Interhandel management objected to the opprobrium implicit in dividing the stockholders into enemy and non-enemy classifications, which carried the even more odious connotation of Nazi and anti-Nazi. The United States, for its part, simply preferred a settlement of all the claims at once so that the G.A.F. stock could be sold in one package.

The Kaufmans’ petition to intervene was denied by the district court two weeks after it was filed, 14 and the denial was affirmed by the U.S. court of appeals. 15 However, the Kaufmans persisted and in October 1951 the Supreme Court granted them a writ of certiorari. 16 In the last week of 1951 the Interhandel shares rose sensationally on the Zurich stock exchange on rumors of a settlement with the U.S. government.

These rumors were soon given substance. 17 On January 2, 1952, the Supreme Court heard the argument on the Kaufmans’ right to intervene 18--the first time the Supreme Court had ever considered the complicated question of safeguarding the rights of minority stockholders in a company alleged to be enemy controlled. During the course of the proceeding, the Department of Justice lawyer was asked how high a sum had been named in the compromise settlement discussions between Interhandel and the United States. The Justice lawyer replied that no figure had yet been reached. 19

It was the first public intimation that the settlement was being negotiated seriously.

Shortly thereafter the Interhandel management increased its demand in the settlement negotiations from $14 to $35 million, the total estimated net worth of G.A.F. at the time of the vesting. The Department of Justice officials, who had not been willing to pay $14 million a few months earlier, were certainly not interested in the new figure. The $35 million demand wrecked the negotiations and for practical purposes ended the possibility of settlement at that time. 20

On April 7, 1952, the Supreme Court ruled in favor of the Kaufman petition to intervene 21 on behalf of the minority stockholders of Interhandel, almost burying any chance for a United States—Interhandel settlement. Continued litigation seemed the only solution in sight.

Early the next year Interhandel received an even more serious legal setback. The district court for the District of Columbia, where Interhandel had sued for recovery of the G.A.F. assets, dismissed the Interhandel suit because of Interhandel’s failure to produce the Sturzenegger & Company documents that the court had ordered to be submitted as evidence. 22 The American court would not accept the Swiss secrecy laws as a defense.

Interhandel’s attorney, John J. Wilson, appealed the decision and for the next five years he battled the Justice Department through the courts on the procedural question of whether the case could be tried without the Sturzenegger papers. In the meantime, another route was opened for Interhandel to recover G.A.F. In 1954 Senator Everett M. Dirksen introduced a bill in the United States Senate providing for the return of vested enemy property to its former owners. 23 The Department of Justice, under Attorney General Herbert Brownell, vigorously opposed the Dirksen bill. 24

But now John Foster Dulles, Eisenhower’s secretary of state, made his presence known.

To the surprise of the Justice Department and America’s wartime allies, he testified in support of the Dirksen bill before the Senate committee. 25 Dulles acknowledged that the bill contravened the 1945 reparation agreement to which the United States was a signatory, but he maintained that the agreement was a purely executive one that could not limit the power of Congress to deal with alien property as it saw fit. Dulles did not appear concerned that the word of the State Department was at stake.

The Dulles testimony sent shock waves through the Allied capitals. If the United States repudiated its obligations on reparations, Germany, it was feared, would demand similar concessions from the other Allied countries. The Dutch were particularly disturbed. They had acquired as reparation more than $100 million worth of German assets in Holland—actually a fraction of the value of what had been destroyed by the Germans.

One high Dutch official, in a New York Times interview, said, “We believe in honoring agreements” 26 and then added ruefully that in the future the Netherlands would have to be very careful in concluding agreements with the United States. Dulles’s support notwithstanding, the opposition of the Department of Justice prevailed and the legislation was killed.

In June 1958, the Interhandel suit was legally reinstated when the U.S. Supreme Court decided in favor of Interhandel and reversed the lower courts. 27 It held that Interhandel, even without the submission of the Swiss documents, was entitled to a hearing on the merits of the case. Another long journey through the courts was in prospect. A few days after the Supreme Court decision reinstating the suit, a dramatic change took place, in Interhandel. On June 25, at the Interhandel annual meeting, in a further attempt at de-Farbenization, Felix Iselin resigned, along with three other members of the board. 28

They were replaced by four prominent members of the Swiss banking community with impeccable reputations and no links to I.G. Farben. The new directors were the president of the Swiss Bankers Association and the general managers of the three most important Swiss deposit banks—Swiss Bank, Crédit Suisse, and Union Bank. Union Bank, the smallest of the three, was reported in the press to have made large-scale purchases of Interhandel stock during the preceding few months. 29

These purchases had an especial meaning. They were composed of the bulk of the shares owned by Hans Sturzenegger, which eliminated the last remaining important link to I.G. Farben. Sturzenegger, in fact, had resigned from the board earlier when the Swiss banks yielded to “pressure from conservative Swiss circles that insisted on the eradication of all vestiges of doubt about the real ownership of Interhandel.” 30

But until Sturzenegger sold his remaining stock, I.G. Farben influence in Interhandel was suspected.

The Union Bank thus became the controlling force in Interhandel. At the next stockholders meeting in June 1959, Union’s representative on the Interhandel board, Alfred Schaefer, was elected general manager and vice-chairman. He was now the dominant figure in the affairs of the company.

In the fall of 1959 Schaefer was approached by Robert A. Schmitz—son of D.A. and nephew of Hermann—with a written plan for settling the G.A.F. matter. Robert Schmitz had spent most of his adult years in the pursuit of a solution to the G.A.F. problem. His announced purpose was to clear the name of his father and to make some money.

At the end of World War II, immediately after his discharge from the U.S. Navy, Schmitz had gone to Switzerland with his father to confer with Sturzenegger as to the best way to try to recover the vested G.A.F. stock from the U.S. alien property custodian. The Schmitzes recommended that the only hope for Interhandel to recoup the value of General Aniline was to sell the company to an American purchaser acceptable to the United States government. Sturzenegger agreed that the proposal was worth pursuing. The Schmitzes thereupon began the search for a buyer.

After D. A. Schmitz died, Robert continued the project with the passion of a crusader. In the years that followed, Robert Schmitz became associated with a number of American companies interested in acquiring G.A.F. Among these were Remington Rand, Shields and Company, W. R. Grace and Company, Food Machinery, and Chemical Corporation. Remington Rand even succeeded in securing an option in 1947 from Interhandel to buy the G.A.F. stock for $25 million when and if Interhandel regained the stock from the United States government.

In the early 1950s, when Robert Schmitz was employed by W. R. Grace, he came to know Charles E. Wilson, who had retired as president of General Electric and had become chairman of the executive committee of W. R. Grace to help that company in its plans for diversification. Schmitz convinced Wilson that General Aniline would be a perfect acquisition. Although Schmitz left W. R. Grace in 1957 after a disagreement with Peter Grace, he maintained his friendship with Wilson, who recommended him to a number of companies also interested in acquiring G.A.F.

In late 1958 Schmitz was in Basel on behalf of one of these concerns and went to see his old friend Sturzenegger. He knew that the Swiss banks had moved into Interhandel that summer and Sturzenegger was no longer on the board. But he also knew that Sturzenegger still owned the largest block of Interhandel stock at that time and retained a strong voice in Interhandel affairs.

Sturzenegger told Schmitz that the new banking group in Interhandel had decided to abandon the effort to interest an American company in buying G.A.F. and instead to concentrate on recovering G.A.F. for Interhandel itself. In that case, Schmitz said, he had a suggestion. Interhandel had failed in its efforts so far because it had never been able “to command the interest of those who counted in the highest echelons of the American government.” 31

He counseled a new approach. Interhandel should convey full and irrevocable powers of negotiation and final settlement to an outstanding American who “would be above politics and yet would have entree to every door of the administration.” 32

Schmitz’s recommendation was Charles E. Wilson. Schmitz pointed out that Wilson had served two Democratic administrations in positions of the most vital importance to the country’s safety (high official of the War Production Board in World War II and defense mobilizer during the police action in Korea.) Wilson’s Republican connections were even more impressive: he was a close friend of both Vice-President Nixon and President Eisenhower.

Sturzenegger thought enough of Schmitz’s advice to begin discussions with Wilson. However, when Sturzenegger sold the bulk of his stock and bowed out of the Interhandel picture completely, the negotiations with Wilson collapsed. Schmitz had to start over again. In the fall of 1959, he was back in Basel to present his plan to Schaefer, the new power in Interhandel. Schaefer expressed immediate interest and authorized Schmitz to continue his efforts to persuade Wilson to accept the trusteeship.

In late April 1960, Wilson and Schaefer met in Paris. The conference was kept secret since Schaefer was afraid that the highly volatile G.A.F. stock would plummet if Wilson refused the trusteeship. Not even John J. Wilson, who was in charge of the litigation, knew about either the meeting or the Schmitz plan to obtain the services of Charles E. Wilson as a trustee. Shortly after the meeting Charles Wilson accepted the trusteeship.

Charles Wilson was given what appeared to be an irrevocable power of attorney with absolute discretion and control. However, Wilson and Schaefer entered into private side agreements modifying the basic understanding and rendering the trusteeship somewhat less than irrevocable and absolute. It was orally agreed that Wilson’s power of attorney could be terminated at the simple request of Interhandel.

It was also agreed in writing that Wilson would come to no settlement of the G.A.F. matter without first submitting the plan to Interhandel for approval. Wilson refused any compensation, asking only that his expenses be covered. His attorney, Charles Spofford, a senior partner in the prominent Davis, Polk law firm, however, was to receive compensation for legal services.

When Wilson’s acceptance of the trusteeship was made public on June 6, 1960, the value of Interhandel shares jumped more than $50 million on the stock exchange. 33 The first goal Wilson set for himself was to convince Attorney General William Rogers of the legitimacy of Interhandel’s cause. But the attorney general repeatedly refused to see Wilson after he assumed the Interhandel trusteeship. He was referred instead to Dallas Townsend, the assistant attorney general in charge of alien property. On his several visits Wilson received less than a hearty welcome from Townsend and his staff, who expressed the strongest reservations about the independence of Interhandel from German control.

Wilson and Schmitz, anticipating the election of Richard Nixon in November, were making plans to present their views to the new president, who they thought would be more receptive. When John Kennedy was elected, Wilson switched plans and made arrangements through Kennedy’s prospective secretary of the treasury, Douglas Dillon, to see representatives of the new president before he assumed office. Such a meeting took place in late 1960 in Palm Beach at the home of Joseph P. Kennedy, the father of the president-elect. The meeting ended on an inconclusive note.

Schaefer began to entertain doubts about Wilson’s influence with the new administration. Disappointed, he wrote Robert Schmitz on November 14, “It probably will be doubtful whether Mr. Charles Wilson will find the same friendly ear at the future highest instance of the administration as has been the case up till now.” 34

In early 1961, when Kennedy took office, William H. Orrick was appointed assistant attorney general in charge of alien property. Charles Spofford, Wilson’s attorney, promptly paid him a visit to discuss the G.A.F. case and the nature of Wilson’s trusteeship. Orrick asked Spofford for a written account of these matters and the latter agreed to supply one.
Spofford, while in Zurich to put the finishing touches on the memorandum for Orrick, was informed by Schaefer that he was concerned about the lack of progress and had decided to go to Washington to see for himself what was going on. Schaefer arrived in the United States in May 1961.

Spofford arranged for him to see a few senators and a number of government officials, none of higher rank than Orrick. Schaefer was appalled by the antagonistic reception he received from the government officials charged with resolution of the case. His meeting with Orrick was especially stormy. The assistant attorney general became so enraged by Schaefer’s attack on the U.S. government’s handling of the Interhandel case that he ordered Schaefer to leave his office immediately. According to Orrick’s testimony:

“I recall him pacing up and down in my office making uncomplimentary remarks about the United States government, which irritated me very much, and I recall asking him to leave my office.” 35

A month after Schaefer’s fruitless visit to the United States, a friend and lawyer, a Dr. Gutstein, made a suggestion to him. One of his clients was personally familiar with the new Democratic president. Why not ask this client to use his influence to arrange a meeting between Schaefer and the new attorney general, Robert F. Kennedy? Schaefer readily agreed.

Promptly after the meeting with Gutstein and his “influential client,” Schaefer wrote Spofford, cryptically informing him that something important was afoot.

I am pleased to tell you that we have been able to make a new contact with one of the highest authorities through the intermediary of a third party. I would ask you to treat this news very confidentially and hope I can report to you on further developments within a few days. My message will, however, probably again be private and personal. 36

Schaefer gave no indication as to the identity of the “third party” through whom contact with “one of the highest authorities” was to be made. A month later, on August 24, he wrote both John Wilson and Spofford asking them to suspend activities with the Department of Justice. He deliberately did not specify why he gave this order but said only that he was planning to be in Washington himself in connection with “a new proposal of ours.” At that time, he would discuss the matter with them. 37

It was obvious Schaefer had taken matters into his own hands. Spofford was in France on vacation, but Schaefer’s letter was forwarded to him.

Shortly thereafter, Spofford received a phone call from Orrick. Orrick asked whether Spofford was aware that a new figure had come to the Justice Department on behalf of Interhandel. Spofford admitted he was not. Orrick then dropped the bombshell:

Prince Radziwill, he reported, was representing Interhandel! 38

Spofford was jolted by the news. Radziwill was not even a lawyer. But he was the brother-in-law of President Kennedy.

The disturbing call sent Spofford to see Schaefer in Zurich. He demanded to know whether or not Orrick’s information was correct. Schaefer confirmed that Radziwill had indeed been retained. Spofford expressed his reservations about the president’s brother-in-law in the bluntest terms. He believed that all approaches should be “on a professional basis between the lawyers and not through stray intermediaries.” 39

However, he recognized that Radziwill’s special relationship to President Kennedy was a powerful element. Therefore, despite his misgivings, he reluctantly agreed that this new and extraordinary development probably had to be pursued. Schaefer then told Spofford about Interhandel’s new proposal: the Department of Justice would return G.A.F. to Interhandel, which would sell it and with the proceeds establish a European development bank to supply credit to underdeveloped countries. 40

It was Prince Radziwill’s assignment to feel out the attorney general’s reaction to such a plan. The essence of the proposal was to benefit the poor of the world first and Interhandel second, if such a notion could be believed by the attorney general or anybody else.

Upon Spofford’s return to the United States a few days later, he told Charles Wilson about these developments. Wilson and his counsel agreed that they should wait for the results of the “initiatives” that Schaefer had taken “through other channels.” They were clearly referring to Prince Radziwill’s efforts. 41

On September 13, Charles Wilson received a cable from the Union Bank asking that he arrange an early conference between Schaefer and Robert Kennedy. Spofford immediately went to Washington and met with Orrick, who informed him that the attorney general did not even want to discuss the project of the European development bank. In Kennedy’s view it did not represent an appropriate solution to the G.A.F. problem. 42

Spofford cabled the discouraging news to Switzerland: “Advised that Attorney General does not believe conference useful at this time and cannot fix future date.” 43 Schaefer wrote in reply, “I heard from my friend in London that the Justice Department felt they could not entertain our proposal.” He had therefore asked “the party in question to contact Washington in order to solicit an appointment there for the next or following week, if possible.” 44

In the extensive correspondence between Schaefer and Spofford, never once did either of the men write the name Radziwill. Instead, such vague terms as “intermediary,” “friend in London,” “party in question,” and “third party” were used.

In little over a week after Schaefer asked “the intermediary” to arrange an appointment, Orrick called Spofford with the information that Robert Kennedy would meet with Schaefer on October 30 or 31 “as a courtesy to the intermediary.” 45

Spofford reported this conversation to Schaefer. He wrote that he assumed that the primary purpose of the meeting would be to discuss the European development bank, a proposal that Spofford now thought should be pursued:

“I believe that despite what Orrick has told me of the Attorney General’s view of that plan you should, in view of the sponsorship you have given it and the advice you have gotten from this intermediary... present the plan.” 46

Schaefer replied that the purpose of his visit was to find out why his proposal was rejected and to learn on what basis the Department of Justice would be interested in an arrangement. 47

Schaefer made it a point not to include Spofford, John Wilson, Charles Wilson, or Radziwill in the meeting with Attorney General Kennedy. According to Schaefer, he was told by “our mutual friend” that the attorney general would only see the Swiss banker alone—“no intermediary, no counselor, no advisor, because this must be a talk from man to man.” 48

The meeting was set up by a letter from Prince Radziwill to Robert Kennedy requesting an appointment for Alfred Schaefer. It was the prince’s first formal appearance in the case. According to the Justice lawyer who was present when the letter arrived, it looked like a royal wedding invitation, enclosed in two richly appointed envelopes and embossed with the Radziwill crest.

When the men met, according to Schaefer, Kennedy said “he had heard so much about interferences, intermediaries, and all sorts of people trying to make transactions that he was glad that something could be talked about directly between him and myself.” 49

Kennedy immediately dismissed the idea of a European development bank. But he did not dismiss the idea of a settlement. He told Schaefer that a settlement would take a great deal of courage on his part because of the unanimous opposition of his staff. But if the General Aniline and Film matter was to be settled, it would have to be on at least a fifty-fifty basis. He gave his tentative approval, and the two men agreed that the details could be worked out by Interhandel and the Justice Staff. 50

A few days after the conference with Robert Kennedy, Schaefer met with Charles Wilson and Spofford in New York. It was a stormy meeting. Wilson complained that the injection of Prince Radziwill undermined his authority. Spofford agreed, complaining that the Radziwill action seemed “highly unusual, if not improper.” 51

Even if Schaefer used Prince Radziwill only as a Washington leg man, or to open doors,

“this was obviously very tricky politically, and unprofessional as far as we were concerned, and I thought if it got to the press or got to the floor of Congress, why there would be an uproar.” 52

The next week, after Schaefer returned to Zurich, he called Orrick to say that the Interhandel board had agreed to Kennedy’s offer. There followed an exchange of cables between the Department of Justice and Schaefer. In mid-December, Orrick was in Zurich and called Schaefer to discuss the settlement further. 53

In January Attorney General Kennedy and Schaefer talked about the terms of settlement by transatlantic telephone. Schaefer shortly thereafter received a cable from Kennedy confirming and clarifying their conversation:

Assume proposal mentioned in our telephone conversation contemplates United States will receive first eleven percent of proceeds of sale as compensation for shares to which Interhandel makes no claim and remainder will be divided fifty-fifty between Interhandel and United States. If this assumption is correct, we shall again be willing to discuss this and other aspects of the proposed agreement with you.

Robert F. Kennedy. 54

The cordial relations developing between the Kennedy administration and Interhandel convinced Schaefer that Wilson’s position had become politically and practically untenable and the time had arrived to relieve him of the trusteeship. He wrote to Wilson on February 12, 1962, in effect revoking the latter’s authority. In setting forth the reasons for this decision, Schaefer pointedly reminded Wilson that the meeting with the attorney general had been arranged “through the intermediary of a mutual friend.”

The meetings and subsequent “repeated telephone conversations” indicated “that our negotiations are approaching a medium line and we are therefore hopeful to reach an agreement by continuing along this road, which, as you know, was opened for us direct.” So that there would be no doubts “as to Interhandel’s right to conduct... direct negotiations with Washington,” Schaefer asked Wilson “to consider the trusteeship you so kindly agreed to accept two years ago as being no longer valid.” 55 Six weeks later Wilson replied that he had decided to surrender his power of attorney as soon as the necessary formalities could be completed. The Radziwill matter still rankled.

For my part, I am frank to say that you have dealt with me in a less open manner than a satisfactory relationship requires, and that your methods of proceeding are not what I understood they would be when I accepted the power of attorney. I am referring particularly to the extraordinary steps you took to reach the Attorney General without my knowledge.... 56

In April, Orrick and Schaefer met in Munich and reached a general understanding. According to the Munich agreement the settlement terms were more or less those outlined in the Kennedy cable, the details to be negotiated later by both parties’ lawyers. Schaefer’s high hopes for a prompt disposal of the conflict were, however, premature. It was almost a year before a settlement was reached. Nevertheless, for Schaefer the climate had changed considerably, and it now seemed a long time since Orrick threw him out of his office.

In mid-1962, Orrick left the Department of Justice to become a deputy undersecretary of state, and Deputy Attorney General Nicholas Katzenbach took over responsibility for the G.A.F. negotiations. Katzenbach’s first move was to find a relatively unassailable vehicle by which a fair price could be established. Apparently he recognized the dangers implicit in any settlement of the case. He decided that a competitive sale at a public auction would blunt at least some of the anticipated criticism.

To permit such a sale, however, required an amendment to the Trading with the Enemy Act. In fact, an amendment was then pending in Congress, introduced by Senator Kenneth Keating of New York, 57 against whom Robert Kennedy intended to run in the 1964 senatorial election in New York. For over a decade the Department of Justice had been trying to get this amendment passed by Congress but the Interhandel interests had always succeeded in blocking it.

Although the Justice-Interhandel deal was not yet firm in all details, Katzenbach asked John Wilson, as an act of good faith, to drop opposition to Keating’s amendment. Let the legislation pass, Katzenbach suggested to Wilson, because otherwise Keating’s opposition to a settlement would be formidable. With the reluctant acceptance of Katzenbach’s assurance that the gentlemen’s agreement reached in Munich would be adhered to in drafting the final settlement, Wilson dropped Interhandel’s opposition to congressional action and the bill that permitted the sale of G.A.F. without court action passed the Congress. President Kennedy signed the bill into law on October 22, 1962. 58

With that stroke of the pen, the sole remaining company in active operation under the supervision of the office of alien property was now ready for disposal by the United States government. The New York Times commented, “The General Aniline provision is expected to open still another chapter in the long and tangled legal history of that corporation.” 59

The New York Times was right. There was still another chapter. It had been John Wilson’s understanding that before the government and Interhandel shared the net proceeds of the proposed sale of G.A.F., $24 million in tax and other claims would be deducted “off the top.” Katzenbach now insisted that such a formula was not acceptable: instead, Interhandel would have to bear the entire burden of the $24 million. 60

This turn of events led Wilson to remark, “It was my worst Christmas.” Upon reflection, however, Interhandel decided to accept Katzenbach’s new condition. Its share of the proceeds was still expected to be substantial. Attorney General Kennedy was informed of Interhandel’s acquiescence.

Attorney General Robert Kennedy called a press conference on March 4 to announce the settlement of the Interhandel suit. Apparently anticipating criticism, he said, “Our fundamental aim throughout has been for the government to step out of its unnatural role as the owner of a private corporation and to end the extensive litigation in this case.” Kennedy argued that if the government were to go ahead and sell G.A.F. without first settling the suit—as the law now allowed—it would be faced with from one to three years of litigation over its right to do so. 61

Deputy Attorney General Katzenbach also felt compelled to explain the reasons for the settlement to the press. If there had been a sale without a prior settlement, Interhandel would have fought the constitutionality of the 1962 sales amendment in the courts; if it lost in the U.S. courts, Interhandel would have carried the case to the International Court of Justice at The Hague. 62

The uneasiness betrayed by Kennedy and Katzenbach was warranted. The Department of Justice announcement of the G.A.F. settlement brought the anticipated storm of criticism. President Kennedy was questioned about it at his next press conference two days later.

Mr. President, for twenty years the Justice Department has assured Congress that it had evidence showing that the Interhandel was a cover for the German firm of I.G. Farben, and therefore the seizure of General Aniline & Film in this country during World War II was justified. Now, in the past few days, there has been an agreement between Justice and Interhandel on the division of the proceeds from the sale of Aniline. Has the Justice Department discovered that its facts are wrong ... or is this the result of pressure from the Swiss government? 63

President Kennedy replied,

No, I would say that the agreement is an equitable agreement. It could have gone on ten years more in the courts, and it has been now fifteen or twenty years and lawyers have enjoyed it, but I don’t think that there is anything else. I don’t think we would get a better arrangement if we continued the litigation for another ten years. We feel that the arrangement which has been worked out will return the assets to those who have a claim to them, and I think the division of resources is fair. 64

The explanations of President Kennedy, Attorney General Kennedy, and Deputy Attorney General Katzenbach did little to stem the criticism in the Congress, particularly from several members of the House Interstate and Foreign Commerce Subcommittee dealing with enemy assets and war claims. Representative John Dingell, second-ranking member of the Democratic majority of the subcommittee, fairly exploded: “I don’t think Interhandel has a nickel coming.” 65

As a lawyer, he said, he was aware of the general rule that a bad settlement is often better than a good lawsuit, but in this case “Interhandel has behaved shamefully and shamelessly. I don’t think there is any question that Interhandel is a cloak or a front.” 66

Representative Willard S. Curtin, a Republican member of the same subcommittee, pointed out that if G.A.F. were truly a Swiss asset, then it should have been returned to Interhandel. On the other hand, “if it were a completely German asset, as we have always thought, then I think it was not a good settlement.” 67

Another Republican member of the subcommittee, Hastings Keith, joined in the criticism. The three congressmen expressed their disappointment that the attorney general had not seen fit to inform their subcommittee of the settlement. 68

Undeterred by opposition in the Congress, in the press, and among the working staff of the Department of Justice, the government and Interhandel proceeded to work out the details for approval by the court. On December 20, 1963, a stipulation of settlement was signed by the Department of Justice and Interhandel that provided for the sale of G.A.F. to the public and the division of the proceeds between the government and Interhandel in the agreed proportions. 69

The proposed compromise of the litigation was presented to the U.S. district court. In April 1964 the court approved the settlement and authorized the sale. 70 During the next year, while the Department of Justice was preparing for the public auction of General Aniline and Film, criticism of the settlement continued in the press.

In May 1964 revelations about the G.A.F. case appeared in the syndicated column of Drew Pearson. 71 He pointed out that a long succession of attorneys general, both Democratic and Republican—Clark, McGranery, McGrath, Brownell, and Rogers—had refused to settle with Interhandel:

“But last year Attorney General Robert F. Kennedy strangely took a contrary position... despite the unanimous opposition of the Justice Department staff. The big mystery, therefore, has been: Why the change?” 72

Pearson answered this question by suggesting two clues. The first had to do with the interest in General Aniline shown by Joseph P. Kennedy, father of the president and of the attorney general. Ever since the Justice officials who approved the settlement learned of the postelection visit of Charles Wilson to the Joseph Kennedy home in Palm Beach, they feared the active intrusion of America’s preeminent father.

In their view, the size of the financial stakes involved was far too great for Joseph Kennedy to leave the matter alone. This fear crystallized very early when Robert Kennedy appointed William Payton Marin vice-chairman of the board of G.A.F. Marin, Joseph Kennedy’s principal legal counsel, was acknowledged to be one of his closest advisers. Very swiftly Marin became the dominant figure on the General Aniline board.

The hand of the elder Kennedy was also seen in the appointment to the board of his public relations man, Harold E. Clancy, a former editor of the Boston Traveler. Pearson concluded his column with the second clue—a potential blockbuster that he indicated was leaked from the Department of Justice:

“Finally,” wrote Pearson, “a memo turned up in Justice Department files signed by Dr. Alfred Schaefer of Interhandel. The memo read, ‘We want to keep dealing through Radziwill.’”

This was the only known time in his pursuit of G.A.F. that Schaefer took the risk of naming Radziwill* on paper. 73

* So sensitive about the name Radziwill were the various parties to the settlement negotiations that even four years later, when the matter had become academic, it still remained a fact to be suppressed. In 1968, in a deposition in a suit about a finder’s fee, Spofford found it difficult to mention the name. During his deposition, he was asked about the time Orrick had informed him that a new representative was appearing on behalf of Interhandel at the Department of Justice.

Surprisingly, this revelation was not followed up by any newspaper or by political opponents of the Kennedys such as Senator Keating. However, it created a commotion within the Department of Justice, where there was an intensive investigation to determine the source of the leak. In any event, Pearson’s mention of Radziwill’s role was the first public identification of the “royal intermediary” by name.

John J. Wilson, the attorney for Interhandel, on cross-examination, asked Spofford,

“Who was he?”
SPOFFORD: “I am hesitating, Mr. Wilson, because it’s a well-known name and I don’t want— this is not to become public in any sense, is it?”
WILSON : “Yes, it is.”
SPOFFORD: “Well, I am under oath and I am testifying, trying to be helpful in this case. I will give you the name of the individual. It’s Prince Radziwill, the brother-in-law of Bob Kennedy.”

However, pointed questions about the settlement were being asked that could not be ignored—especially in view of Robert F. Kennedy’s plans to run for the Senate from New York. In July an official of the Jewish War Veterans asked the Justice Department if any of the proceeds from the sale of G.A.F. would find their way to former Nazis. Deputy Attorney General Katzenbach’s reply appeared in the July-August issue of the Jewish Veteran.

According to all the information available now, no money in the property sale [of G.A.F.] would revert to any former Nazis. The bulk of the proceeds of the sale will go to the Government and will be used to compensate Americans who suffered injury or loss in World War II. The remainder of the proceeds go to Interhandel, a holding company now controlled by Swiss interests. 74 Katzenbach said it would be “very difficult” to prove that Interhandel was a blind for German interests.

On March 9, 1965, the General Aniline and Film stock was sold by sealed bid at the largest competitive auction in Wall Street history. Representatives of the two contending syndicates—one headed by Kuhn Loeb, Lehman Brothers, Glore Forgan & Company, and Merrill Lynch, Pierce, Fenner and Smith, the other by Blyth & Company and the First Boston Corporation—awaited the results as the bids were opened in the office of Attorney General Katzenbach in the presence of Senator Robert F. Kennedy and other notables.

The Blyth & Company syndicate with a bid of $329,141,926.49-- almost a third of a billion dollars—was the winner! 75 The Blyth syndicate had no trouble selling the General Aniline and Film stock to the public. On the first day of trading, all of the 11,166,438 shares were sold for a total of $341 million. The stock opened at $30.60, traded as high as $36, and closed at $32, still five points over the issue price. Payment to Interhandel netted about $122 million—an impressive amount, especially in view of the fact that in 1950 Interhandel had been willing to settle for $14 million.

Nevertheless, the General Aniline and Film story was not quite over. In January 1967, Robert Schmitz filed suit against Interhandel in United States district court for the District of Columbia. In his complaint, after outlining his extensive efforts on behalf of Interhandel to settle its claim against the United States government, he demanded a judgment of $11,250,000, plus interest. From the complaint, as well as from public statements made by Schmitz, it was obvious that he felt the payment of $124 million to Interhandel by the U.S. government ultimately was the result of his initiatives and perseverance. These were worth at least as much as Prince Radziwill’s influence. Such was the basis of Schmitz’s not insignificant claim.

With the cost of litigation threatening to “bankrupt” him, Schmitz accepted a relatively nominal settlement from Interhandel. It was nothing, he said, compared to what was paid Radziwill for a simple introduction to Robert Kennedy. The strange case of General Aniline will not rest. After the payment of $124 million to Interhandel some eyebrows were raised when Alfred Schaefer was elected to the board of BASF.

A few years later, on December 13, 1974, the now American-owned GAF, together with BASF, Bayer, Du Pont, and five other companies, was indicted for a conspiracy to fix the price of dyestuffs in the United States. With the exception of one smaller concern all the defendants, including GAF and BASF, pleaded guilty and were punished with heavy fines.

And on April Fools’ Day 1978 it was revealed 76 that GAF sold to BASF its dyestuff plant at Rensselaer, New York, originally built by Carl Duisberg and seized as enemy property by the Alien Property Custodian in both World Wars I and II. Apparently the parties expect no interference by the U.S. government under the Trading with the Enemy Act. 77

Once again, the wartime confiscation and peacetime recapture of I.G. Farben property has completed its cycle. Herman Schmitz can now rest content in his grave—mission accomplished.

“Those who do not remember the past are condemned to repeat it.”
George Santayana

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