Corruption Overtakes Safehaven
With the capture of Merkers, the allies were fast closing in on Berlin. As the allies continued to advance, the Nazis made a last desperate attempt to save the remaining Reichsbank assets by moving them to southern Germany in the Alpine Redoubt area. Many top Nazi officials who were desperate to save themselves also fled to this region with their own looted fortunes.
Ernst Kaltenbrunner, chief of the Reich Security Head Office, amassed one such private fortune and transported it into the Bavarian Alps to save himself and his ill-gotten fortune. Only one document survives about the contents of the assets Kaltenbrunner moved to the south. The contents of this small hoard are listed below:
50 cases of gold coins and gold articles (each case weighing 100 pounds.)
2 million US dollars
2 million Swiss francs
5 cases of diamonds and gemstones
A stamp collection worth 5 million gold marks
110 pounds of gold bars
Göring also transported his private hoard to the region, including a large collection of vintage wines.
The Nazis did not ship all the gold and currency from Berlin to Merkers; they retained some funds in Berlin to pay the troops and other such expenses. The shipment of the remaining assets of the Reichsbank included 730 gold bars and millions in gold coins. The value of the gold was nearly $10 million. Additionally, the shipment included a prodigious quantity of paper money. This left $3,434,625 of gold remaining in Berlin.
The hoard was to be shipped south on two special trains, code named Adler (meaning eagle) and Dohle (meaning jackdaw). Due to the rapid Allied advance and air cover, the two trains were unable to go directly to Munich. On April 16, after three days, the trains were stranded about ten miles from Pilsen, Czechoslovakia. There, some of the treasure was loaded onto trucks for the remaining journey to Munich. On April 19, the trains were just inside the Bavarian border and an another portion of the treasure was again loaded onto trucks.
On April 19, the train reached Peissenberg, about fifty miles south of Munich. The plans were to hide the gold in a lead mine. However, the electrical power was out and the mine was filling with water. At this point, it is believed the fortune consisted of the following:
365 bags containing two gold bars 9 envelopes of records
4 boxes of bullion
2 bags of gold coins
6 cases of Danish coins
94 bags of foreign exchange
34 printing plates and a supply of banknote paper
Funk was called and he decided the treasure should move by truck to a small town called Mittenwald.
Even after the shipment left Berlin, a small quantity of treasure remained in the Berlin bank. Ernst Kaltenbrunner seized at gunpoint the remaining assets of the Reichsbank in Berlin and transported to the south. SS General Josef Spacil, head of Office II carried out the robbery. The best estimates of the gold and gems taken were a little over $9 million. Once again, the loot was taken south into the same general region as the previous shipment.
Spacil had amassed a huge private hoard for himself. In the closing days Spacil partially divided it among Gestapo officers. Spacil gave Otto Skorzeny: 50,000 gold francs, 10,000 Spanish crowns, 5,000 dollars, 5,000 Swiss francs and 5 million Reich marks. Skorzeny was hiding in the Austrian Tyrol. It is noteworthy the money given to Skorzeny was never recovered. After Skorzeny surfaced in Spain, he lived palatially and ran his part of Die Spinne (the spider) escape route from there. Additionally he became a dealer in the arms trade. During the 1950s, it was clear to American intelligence that Skorzeny had ample funds at his disposal.
American authorities later duped Spacil into leading them to a small cache containing 19 bags of gold coins and bullion worth $11,722 and paper money consisting of 160,179 dollars and 96,614 English pounds. There were many other private hoards that ended up in the same general area of southern Germany.
Starting on April 19, 1945, the Gold Rush teams were in full operation. Colonel Berstein and included Commander Joel Fisher and Lt. Herbert DuBois headed the teams. Albert Thoms, the chief of the Precious Metals Department of the Reichsbank and Emil Puhl, vice president of the Reichsbank, aided them. The gold rush teams found several treasure hoards. On April 26, at the Reichsbank branch in Halle, they found 65 bags of foreign currency, which included about one million dollars. At Plauen they found 35 bags of gold coins, including a million Swiss francs and a quarter million gold dollars. On April 27, they learned the location of 82 bars of gold bullion in Aue, which was still heavily defended. On April 28, they located over 600 silver bars and 500 cases of silver bars. This silver was the entire silver reserves of Hungary. On April 29, they found 82 gold bars at Eschwege. The following day they found 82 gold bars hidden under a manure pile at Coburg. On May 1, they found 34 cases and two bags of non-Reich gold in Nuremberg. All of these hoards were shipped back to Frankfurt.
Both combat troops and gold teams found caches of looted treasure, including the famed gold train containing the treasures looted from Hungary. The total value of all the treasure recovered was estimated at $500,000,000 and included $350,000,000 of gold.
The gold recovered from the various Reichsbank branches totaled $3,000,000. However, from interrogations and captured documents, the Gold Rush teams knew the Reichsbank branches had contained over 17 million dollars of gold. Approximately $3,000,000 had been captured by the Russians in Berlin. The remainder had been shipped to southern Germany. In early May, Bernstein had to return to Washington for discussions with President Truman on the decartelization program, which he was also responsible for. Lt. DuBois then took charge of the recovery efforts in southern Germany.
The Allies would not recover any gold in Southern Germany until June 7th. A detachment headed by Major William Geiler (later a New York Supreme Court justice) recovered 728 gold bars. Unlike the myth that surrounds this discovery, these bars were shipped to Frankfurt and properly inventoried. It is commonly confused with the gold recovered by Sargent Singleton. Singleton had recovered a stash of gold described to be about three feet high and about three feet wide. This gold was delivered to Munich properly, but never reached Frankfurt.
Robert Kempner, the chief prosecutor for the Nazi diplomats' trial expressed in a letter to Perry Lankhuff of the political division of the military government many of the problems that plagued the complete recovery of the Nazi gold. The letter appears below.
In the course of our trial against Nazi diplomats which has just been concluded, it was brought to light that the German Foreign Office had - besides other gold funds - a special Ribbentrop gold fund, in gold bullion, weighing approximately fifteen tons. Leads and newspaper accounts from various countries in the Western Hemisphere indicate that unrecovered Foreign Office gold, probably in the hands of former German Foreign Office officials, is still at work for anti-American purposes. Large numbers of former German diplomats who had to do with the Foreign Office gold are still in foreign countries, e.g., Spain, Italy, Ireland, Argentina, Sweden, and Switzerland, living well from unknown resources.
It should be noted that besides other former German diplomats, a brother-in-law of Ribbentrop is living in Switzerland and at least two other German Foreign Office officials who dealt with German gold matters.
Out of the fifteen tons, about eleven tons of Ribbentrop's Foreign Office gold was hurriedly removed from Berlin in 1945:
1. 6.5 tons to Ribbentrop's Casde Fuschl in Austria (now American Zone of Austria). The larger part of this consignment was allegedly turned over to American troops in the neighborhood of Fuschl. However German Foreign Office officials stated here in Niirenberg that the amount allegedly turned over was Less than the amount, which was shipped to Fuschl.
2. 2 tons to Schleswig-Holstein in the British Zone allegedly turned over to the British.
3. 3 tons to the South of Germany on the shores of Lake Konstanze, an area at that time in American hands. Out of the last amount, two-thirds of a ton were brought over to Berne, Switzerland, in the closing days of the war. This was done in the presence of the son of the former German Minister of Foreign Affars, von Neurath, who according to newspaper reports, arrived a short time ago in the Argentine.
About four tons were sent between 1943 and 1945 to German embassies, not- ably to Madrid, Spain (one ton), to Stockholm, Sweden (one-half ton), to Berne, Switzerland (three-fourths ton), to Ankara, Turkey (about one ton), to Lisbon, Portugal (an unknown quantity).
Since I interviewed several hundred German diplomats, including ambassadors, ministers, and fiscal and personnel administrators, I know that the summation which I made above is highly reliable.
But so far as I know there was never any check made whether gold of this amount was ever recovered or whether the amount of Foreign Office gold turned over by German foreign service people to Allied authorities at the end of the war was identical with sums indicated by my investigation.
In the course of-the trial, I have from time to time pointed out the danger and the problem of this missing gold, but nobody as yet tackled the problem, and with my heavy trial work in Niimberg, I could not devote much time to it, since no war crime was involved. I feel very strongly that this gold project should not be neglected further in these critical times, in which a large amount of uncontrolled gold constitutes a force for evil and mischief in the hands of unscrupulous opportunists working closely together and located in many countries all over the world.
The only certainty about Ribbentrop's gold is that a little more than four tons were recovered. The 6.5 tons allegedly recovered from Ribbentrop's castle appears to have vanished, as no records exist of it in the Federal Exchange Depository. According to the trial records of the Wilhelmstrasse trial, a large part of this gold was turned over to either the Third or Seventh Army on June 15, 1945. However, the books of the allied occupation show no trace of this gold, worth $108,000,000 today. Kempner continued to look for the missing gold. In 1950, he lobbied congress to look into the matter. Congress was unable to find any new information.
The disappearance of recovered various treasure hoards that had been recovered in Southern Germany was all too common of an outcome. A stash of paper currency was recovered from the garden of the von Bluechers. The only document of this recovery is a poorly typed receipt that Luder and Hubert von Blücher demanded before turning the money over to Captain Fred Neumann. The receipt acknowledges the von Blüchers turned over to the U.S. army $404,840 dollars and 405 English pounds. Both Captain Neumann and the von Blüchers were suspected of involvement in the missing money. However, with recently released documents from the government archives, it is now obvious this disappearance of recovered money was part of a much larger problem and cleared Neumann and the von Blüchers.
Part of the problem lied in rivalry between the Army and the Military Government agencies and the lack of coordination between them. The CID (Criminal Investigative Division) was chiefly responsible to the Army. However, the CIC (Counter Intelligence Corp) was mostly responsible to the military government. The recovery of Nazi gold involved both groups. Furthermore, the structure of both the Army and Military Government was vertical and the communication from the top down to the bottom levels was at best faltering. Many Military Government commanders considered themselves to be free agents and ignored directives from higher up. Complicating the problem was the high rotation of the personnel and the limited contracts the Military Government could offer. The Military Government was limited to issuing only one-year contracts and restricted the top pay to $10,000 a year.
Initially, the CID bore responsibility for investigating the Reichsbank treasure. At the end of the war the CID was full of men counting the days before they got shipped home. Most had been recruited from military police units. Background checks of new recruits were often lacking. Several were found to have criminal records while others were found to have been discredited police officers. The CID weeded these recruits out as soon as they were discovered.
Ultimately, all CID units were under the Command Provost Marshal, Brigadier General George H. (Pappy) Weems. Weems was a West Point officer and his basic branch of service was the horse cavalry. Apparently, Weems was unable to keep up and make the switch from the horse cavalry to armored divisions. Before his transfer to Germany, Weems had been head of the military mission to Hungary. Noticeably absent in his background was any past police work or investigative work. Also apparent was that Weems seems to have suffered some a mild stroke. He walked with a cane and had a faulty memory, which lacked the capacity to understand anything of a complex nature. The general was also afflicted with poor hearing and was known to issue outrageous orders and have temper tantrums. Weems had a strange obsession with typewriters. Any case involving a typewriter reported stolen or missing had to be brought to his personal attention. In short, Weems was senile, most likely the result of a mild stroke.
It wasn't until September 1947 that Lieutenant Colonel William Karp replaced Weems. Obviously, the CID was handicapped from the top down by the inappropriate assignment of Weems. Just as the 4Ds program was hampered by a shortage of manpower and quality training, the CID was hampered with the same problems. This does not apply to the initial gold rush teams of Bernstein which did an admiral job. However, those teams were dismantled soon after the war ended (most of the initial teams had been dismantled by June). How Weems came to be assigned his post and those responsible, should make for some interesting reading and is left for future researchers.
Problems also plagued the CIC. The CIC was riddled with internal feuding among agents. Many of the agents were Jewish and born in Germany. These agents divided themselves into two groups. One group considered Germany as their home and worked hard to root out Nazism and returning Germany to a democratic state. The other group mostly from Eastern Europe only considered Germany as a stepping-stone on their way to the state of Israel. Other agents of the CIC were first generation Poles, Czechs and others of eastern European origins. Such agents led to divided loyalties, internal stresses, and even to illegal alliances reaching outside the CIC. By far, the CID unit was the more professional with the CIC often described by CID agents as a group of thugs.
Starting in late June 1945, and lasting to 1947, this was the sad state of affairs hampering the Garmisch case, in which gold was recovered but then lost. The CID was overly compartmentalized with no clear objectives, no direction, no coordination, and most importantly, no centralized database. In short, the CID allowed various units to blunder off into the dark to follow their own individual goals. The case was complicated by the fact that no one knew exactly how much gold and currency had disappeared. It would take another year and a half before the Federal Exchange Depository would discover that its Reichsbank account was short by $2,000,000. It is only recently, with the release of previously classified documents, that one can begin to understand the disappearance of the recovered gold and currency. The records show the recovered funds were deposited in the Land Central Bank in Munich. There the gold and currency seems to have vanished.
What the records now show is that none of the recoveries in the area around Garmisch ever reached the Federal Exchange Depository. The various American authorities in the chain from Garmisch to Frankfurt were all familiar with the proper procedures for the transfer of funds. The funds would reach Munich and from there disappear. After an exhaustive search, authors Ian Sayer and Douglas Botting concluded that $432,985,013 from the Reichsbank was never accounted for. Notably, included was the diamonds, securities and currencies given to Otto Skorzeny by SS General Spacil totaling $9,131,000 of which only $492,401 was ever recovered. In one case, Major Roger Rawley recovered $8,000,000 of paper currency and turned it over to Major Kenneth McIntyre. From there, the funds disappeared.
Following the collapse of Germany to the allies, the economy decayed into a black market economy with cigarettes as the preferred medium of exchange. One Camel cigarette was worth more than double a day's pay for a German hired to clear rubble. At first General Clay, seemed unaware of the black market, but when a CID reported to him the black market was a security threat Clay took every avenue to cover it up. Americans willing to engage in the black market extended all the way to the top and included Clay's wife, who reportedly was very active in the black market. The US Customs, Florida District made it more difficult for General Clay to cover up the black market after they sent a complaint, listing landings of Clay's personal plane in the Miami area. In each case, the pilot reported the landing as a classified mission, thus bypassing customs. However, in Germany the flights were logged as training missions. Charges were filed against the pilot but it was clear he was just taking the fall for someone else.
Many Americans tried to strike it rich in the black market economy, most failed. However, the number of those that succeeded came predominately from the Office of Military Government in Bavaria. The head of the Financial Division in Munich was Colonel Lord and his aid Major McCarthy from Property Control. Both individuals figure prominently in the disappearing gold and currency once it reached Munich. Once the gold from Garmisch was turned over to the proper authorities in Munich, only McCarthy and Lord would have had access to it. An American investigator also accused McCarthy of having a hand in the drug trade in and around Garmisch and Munich.
The extent of the corruption of the Military Government is best revealed in the following passage by Lt. Kulka. Kulka was an aid to Colonel Smith and they were assigned to investigate the corruption in the Garmisch and Munich area. Kulka had been sent to a civilian house converted into an American Bachelor Officers Quarters on a report that a young officer was sharing his room with his girlfriend, a baroness, which was strictly forbidden. The Hausdame mistook Kulka as a courier and gave a brief case:
She looked at me and said, "Oh you must be the young man who came to pick up the briefcase with the papers for Switzerland." I said, I guess so." She said, "oh yes, Lieutenant told me that you were coming to pick it up and that you are a young pilot." So I said, "yes." The Dame came down and handed me a briefcase and a larger attaché case, which had been sealed with a diplomatic seal. Therefore, I took them and hastily left. I took them to my room in the house and opened up the diplomatic case and to my surprise found it filled with British pounds in rather large denominations and also some jewelry. The briefcase I found to be filled with about ten folders which contained very neatly written columns of names of people with dates and their rank, their location and sums of money---all the instructions and records of how the money had been transported across the border. I immediately went to Colonel Smith and he was extremely interested. We went through the paperwork and found a great number of important names, including a number of colonels from headquarters. The one thing they all had in common was that they all belonged to units that had one time or another controlled the border crossing to Switzerland---military police, military government agencies, and CIC.
By the middle of July 1947, Colonel Smith had completed his preliminary investigation and filed his report to General Clay. The report pointed out there was enough evidence to warrant a full-scale investigation. General Clay issued an order to that affect. Smith, fearing for his life, asked for an immediate transfer. Immediately afterwards, the military governor and post commander of Garmisch were shipped back to the states and several other officers transferred out of the area. The Inspector General Office suddenly closed the investigation. Kulka alleges the order to stop the investigation was given by Clay's office. Additionally, he claims half of the US command would have been in trouble if the investigation had continued. The files gathered by Smith and Kulka were destroyed. Kulka was ordered to keep his mouth shut and then accused of gunrunning and of harboring an alien in his quarters, who happened to be his 87-year-old grandmother. Additionally, his bride to be and currently his wife, was listed as a Sudeten German expellee from Czechoslovakia and not as a Jewish DP. When Kulka told his senator of the problem, so much pressure was brought on his bride to be and his grandmother that he had to keep his mouth shut. Only by an accident was his future bride allowed to get her exit permit. Colonel Smith was transferred from Berlin to Ecuador. In 1978, Kulka reported that friends of his still suffer from mysterious deaths and suicides that he believes are warnings from the Garmisch affair to keep his mouth shut.
The Garmisch affair did not end with the Smith and Kulka investigation. In September in Bad Tohr, Frank Gammache was charged with misappropriation of military property and disorderly and discreditable conduct. The charges were so trivial compared to the criminal activity in the area to be laughable. Gammache was going to be the small fall guy. Operation Garpeck opened a further investigation. Heading the operation were Victor Peccarelli and Philip von Pfluge Benzell. The case soon reached as far a field as San Francisco, where now civilian Captain Neumann lived. The case also reopened the investigation into Major McCarthy. McCarthy influence still lingered on in Munich as files on him disappeared before the investigators got to them. Shortly after the investigators began bugging his phone, McCarthy learned of the tap and moved.
The investigation soon crossed the path of journalist Günter Reinhardt. Reinhardt was a native of a Jewish Germany banking family. At the age of 21 he had immigrated to the United States. His first job in New York had been with a bank, but by 1933 he had became a freelance journalist. He wrote a syndicated column on foreign affairs for the McClure newspapers. His connections to various banking and civic groups commissioned him to conduct an investigation into Germany's likely future international relations. Reinhardt turned over to the House Committee on Immigration and Naturalization the information he uncovered about Nazi activities in the United States. This led Reinhardt into his involvement with American Intelligence. In 1934, he acted as a liaison between the McCormick Committee and the FBI. During 1942 and1943, Reinhardt infiltrated communist organizations for the FBI. In 1946, he joined the CIC in Germany.
By all reports, Reinhardt was an enthusiastic and dedicated agent in Europe. However, he soon began to show signs of stress and fatigue as he realized the whole system was corrupt. By the summer of 1947, he realized that his career with the CIC was in jeopardy. His superiors had arranged secretly to send Reinhardt home. He complained about the transfer. There was no appeal for him and he was forbidden to go to the Inspector General under the threat of immediate arrest. He was further warned that if he spoke with the press or attempted to get another job in Germany he would be arrested for violations of security regulations. Additionally, they threatened to drag his German girlfriend through the mud.
Outraged at the actions and threats, Reinhardt dictated the first of two memos, known as the Reinhardt memos. The first was a formal 48-page report revealing the irregularities and fake intelligence reports in the Munich region. The report accused the CIC of widespread corruption and incompetence. The report written in November caused an immediate shake up. The operations chief for Bavaria was dismissed immediately and the executive officer was transferred. However, there was also a cover up of two chains, one from Garmisch to Augsburg, and another from Munich to Nuremberg. After he arrived in New York in December, Reinhardt wrote his second memo, a 55-page document. This document was divided into nine sections. The opening section labeled "Loot and Smuggling Situation" described how US personnel were continuing to smuggle valuables into the states. The higher the rank the greater the problem. In the case of one general, Reinhardt detailed how the general's baggage contained 166 crates laden with silverware, china and other valuables looted from the castles around Hesse. Reinhardt dictated his memo to assistant Secretary of the Army, Gordon Gray, after Reinhardt's appointment as a special consultant. Gray would later rise to become Director of the CIA.
The heart of the memo laid in the charge that a group of Americans and Germans involved in widespread corruption in the Garmisch area wielded enough power to derail any investigations. The head of the group was John McCarthy. The memo was sent to General Clay in Germany and caused an immediate uproar. Clay hated any scandals within his command, and rather than clean up the mess, he launched a vast cover up. General Weems canceled the ongoing Operation Garpeck shortly after Reinhardt's memo arrived in Germany. The Army decided the charges were overblown.
McCarthy and his superior, Colonel Lord did not escape unscathed. While they survived charges from the Reinhardt memo, their boundless greed eventually caught up with them. The pair concocted a scheme to buy the various I.G. Fraben plants through a front they set up in Liechtenstein. An investigation ordered by General Clay unmasked their scheme and the army discharged both individuals. However, General Clay made no public announcement of the illegality of the scheme or its outcome.