RETURN OF ALIEN PROPERTY

THURSDAY, JANUARY 13, 1927

UNITED STATES SENATE,
COMMITTEE ON FINANCE,
Washington, D. C.

The committee met, pursuant to adjournment on yesterday, at 10 o'clock a. m., in room 312, Senate Office Building, Senator Reed Smoot presiding.

Present: Senators Smoot (chairman), McLean, Curtis, Shortridge, Edge, Jones of New Mexico, Gerry, Harrison, and George.

Present also: Hon. R. W. Bonynge, American agent before the Mixed Claims Commission; Hon. Howard Sutherland, Alien Property Custodian; Dr. J. W. Kiesselbach, German commissioner on the Mixed Claims Commission; and Dr. Karl von Lewinski, German agent before the Mixed Claims Commission.

The CHAIRMAN. If the committee will come to order we will proceed with the hearings. Mr. Bonynge.

STATEMENT OF HON. ROBERT W. BONYNGE, AMERICAN AGENT, MIXED CLAIMS COMMISSION, UNITED STATES AND GERMANY

Mr. BONYNGE. Robert W. Bonynge. I am the agent of the United States before the Mixed Claims Commission, United States and Germany. And also the agent of the United States before the Tripartite Claims Commission, United States, Austria, and Hungary. It has occurred to me, Senators, that perhaps if I should make a very general statement as to the character of claims that American nationals have under the Versailles treaty, and the method adopted under the treaty for the adjudication of those claims, that it might be helpful to the committee, and then explain the method adopted by the United States for the adjudication of those claims.

Senator JONES of New Mexico. I think it would.

Mr. BONYNGE, And in that connection I will, if you desire, explain how we arrived at the rate of 16 cents for the valorization of mark debts, and also make some statement in reference to the late claims, which I think are both matters which the committee desires some information on, and after I have completed the statement in reference to the German claims I will give you such information as I have relative to the Austrian claims.

Senator JONES of New Mexico. I think that is just what we want to hear from you.

The CHAIRMAN. Yes.

Mr. BONYNGE. Under the Versailles treaty and the provisions of that treaty that were incorporated into the Berlin treaty, and also into the treaty with Austria and the treaty with Hungary, there are,

war.

generally speaking, two great subdivisions of claims that American nationals have. One class comes under what is known as Part VIII of the Versailles treaty. Those are what are termed the reparation claims. Under that part of the treaty there is one section, section 231, in which Germany admitted its liability for the war, and that she was liable for the consequences and the losses occasioned by the That was followed by section 232, by which the allied and associated powers recognized that Germany's resources were insufficient to compensate for all of the losses arising as a consequence i of the war, and then under that section certain specific classes of claims are set forth for which Germany should be responsible. Those are stated in Annex I following article 244, and there are 10 different classes of claims, from 1 to 10. There are in those sections paragraphs 5, 6, and 7, which have been discussed here, being claims for pensions and for cost of assistance by the Governments of the allied and associated powers to prisoners of war and their families and dependents, and allowances by the Governments of the allied and associated powers to the families and dependents of . mobilized persons.

These reparation claims, so-called, are claims that arose during belligerency, of course, after we entered the war.

In addition to the claims for reparations there are also the claims under section 10 of the Versailles treaty, which are the economic clauses of the treaty, and in that class of claims there are perhaps ! two principal subdivisions of claims that might be mentioned.

One is for debts, and they are provided for under Section III of Part X of the treaty, article 296, which specifies the debts for which Germany would be liable. And there are four different classes of debts mentioned. The first four subdivisions of article 296. The CHAIRMAN. And what are they, briefly?

Mr. BONYNGE (reading):

(1) Debts payable before the war and due by a national of one of the contracting powers, residing within its territory, to a national of an opposing power, residing within its territory;

(2) Debts which became payable during the war to nationals of one contracting power residing within its territory and arose out of transactions or contracts with the nationals of an opposing power, resident within its territory. of which the total or partial execution was suspended on account of the declaration of war;

(3) Interest which has accrued, due before and during the war, to a national of one of the contracting powers in respect of securities issued by an opposing power, provided that the payment of interest on such securities to the nationals of that power or to neutrals has not been suspended during the war; (4) Capital sums which have become payable before and during the war to nationals of one of the contracting powers in respect of securities issued by one of the opposing powers, provided that the payment of such capital sums to nationals of that power or to neutrals has not been suspended during the war.

Mr. BONYNGE. The other class of claims mentioned in Article X are those provided for under section 297. Those are claims for damages to a national of an allied or associated power resulting from the application of an exceptional war measure by Germany to the property rights and interests of a national of the allied or associated powers.

Now, the method provided for by the treaty for the adjudication of hese different classes of claims is different in reference to the repa

rations and in reference to the claims arising under the economic clauses of the treaty. For the reparation claims it was provided that there should be a reparation commission established by the selection of delegates from the countries signing the Versailles treaty, who would compose the Reparation Commission, and each of the Governments was to present to that Reparation Commission a statement of the amount of damages that it claimed under the reparation clauses of the treaty.

Senator JONES of New Mexico. Well, now, Mr. Bonynge, would that include more than the claims mentioned in sections 5, 6, and 7? Mr. BONYNGE. Oh, it would include all the claims arising under Part VIII of the treaty. All the 10 different classes of claims mentioned under that section.

I should say, in reference to the reparation claims, that the allied and associated powers were to present to the Reparation Commission a statement of the amounts demanded for reparations under all those various 10 clauses specified in the section that I have referred to. Germany had an opportunity to examine the statements, but those statements of account were filed in a lump sum under the different classifications. There was no opportunity to Germany to examine individual cases; no hearing on individual cases.

The method provided for the adjudication and determination of the amount due under the economic clauses of the treaty was this: There it was provided in reference to the debts that there might be established clearing offices between Germany and the different allied and associated powers. Each country to have its own clearing office, and the debts to be reported by the nationals of each country to its own clearing office, and then at stated periods a balance struck and the payment made through the different clearing offices. And for the claims that arose for damages resulting from an application of exceptional war measures there was established by the treaty mixed arbitral tribunals, each country selecting a member of the tribunal, and then a provision for the selection of a president of the tribunal from a neutral power.

Those mixed arbitral tribunals determined the amount due to a national of an associated or an allied power for damages arising by reason of the application of an exceptional war measure to the property rights and interests of the national of one of the associated or allied powers. And that tribunal also had the authority in case the clearing offices disagreed as to whether a debt existed to settle that difference. There was, in fact, an appeal to the mixed arbitral tribunal.

Senator CURTIS. Was that the provision under which these people who purchased bonds before the war, that the payment of was stopped by Germany during the war, are to proceed to get their claims settled?

Mr. BONYNGE. They might come under the classification of debts or claims for damages due to an exceptional war measure. If the security matured during the war, or coupons upon the bonds matured during the war, then they became debts under article 296 and would be settled through the clearing office. If, on the other hand, they were claiming damages to their securities that were in Germany any subjected to an exceptional war measure, then they would

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come before the Mixed Arbitral Tribunal, because it would not be a debt; it would be a claim for damages that they were seeking to recover by reason of the application of an exceptional war measure to their property. And later, if you desire, I will explain what is the position of the commission relative to the recovery for damages to securities that were subjected to an exceptional war measure. The CHAIRMAN. I hope you will before you conclude. Mr. BONYNGE. Yes; I will be very glad to do that.

Now, in reference to the debts, it was also provided by paragraph (d) of subdivision (4) of the same article, article 296 of Section III of the treaty of Versailles, that

For the purpose of this provision the pre-war rate of exchange shall be de fined as the average cable transfer rate prevailing in the allied or associated country concerned during the month immediately preceding the outbreak of war between the said country concerned and Germany.

Now, in the case of the United States, we entered the war on April 6, 1917. The average cable transfer rate prevailing in the United States during the month immediately preceding April

The CHAIRMAN. The three months preceding?

Mr. BONYNGE. No, one month preceding; was 17.4 cents to the mark. Under this article 296 and the clearing office system both the associated or allied countries and Germany were to be responsible for the debts of their own nationals, and to valorize them at the rate as provided for in the treaty. The United States did not adopt the clearing-office system. There was a provision in the treaty by which within a certain time after the treaty was ratified each country was to elect whether it would adopt the clearing-office system or not. If it did not adopt the clearing-office system then the provisions are somewhat indefinite as to what was to be the rate of exchange that was to prevail. The United States did not adopt the clearingoffice system.

Senator JONES of New Mexico. Do you know why, Mr. Bonynge? Mr. BONYNGE. No; I have no way of knowing why. Excepting this, that my understanding has been that the United States at the time the treaty was under discussion at the peace conference declared that it did not desire to assume responsibility for the debts of its own nationals. It did not desire to valorize those debts. We had some Americans who owed debts to Germans payable in marks, and if we had adopted the clearing-office system we would have been obliged to valorize those debts the same as Germany was valorizing the debts

to us.

The CHAIRMAN. On what basis did England and France and Italy settle?

Mr. BONYNGE. They adopted the clearing-office system.

The CHAIRMAN. But at what rate?

Mr. BONYNGE. Their rate would have been practically the normal & rate, because one month preceding the time they entered the war the rate was practically normal.

The CHAIRMAN. Yes; 24 cents, in round figures.

Mr. BONYNGE. 23.8 cents. But in our case we did not enter the war until April, 1917, and by that time the mark had depreciated considerably, so that the best rate we could have possibly obtained would have been 17.4 cents to the mark.

The CHAIRMAN. And you finally decided on 16 cents?

Mr. BONYNGE. Yes; we did. And I will explain how that arose and why we made that compromise later.

Now, as we did not become parties to the Versailles treaty, of course we were not represented on the Reparation Commission. Neither did we have the clearing office. Neither did we have mixed arbitral tribunals. But our nationals had the right to recover for claims and damages of the character I have mentioned. And what I have said in reference to the Berlin treaty applies equally to the Austrian and to the Hungarian treaties. So that the executive departments, the State Department particularly, then negotiated an agreement with Germany setting up the Mixed Claims Commission in the case of Germany, to which was referred all of these various claims, the reparations claims and the claims arising under the economic clauses. There was no other machinery. The Mixed Claims Commission exercises all the jurisdiction over claims that either the Reparation Commission, the clearing office, or the mixed arbitral tribunals would have had.

And when the question came before our commission as to Germany's liability for debts, the issue immediately arose as to whether Germany was responsible for those debts. The contention of the German Government being, through its agent, that as we had not adopted the clearing-office system, and as that was a reciprocal arrangement by which each country was to be responsible for the debts of its own nationals, Germany was not responsible for those debts and not obliged to valorize them. Not directly responsible. Of course, there is a provision, which I will refer to a little later, that the property of its nationals in the United States was subject to a charge for such debts.

The American agent contended that under other sections of the treaty we were entitled to the same rate of exchange that was provided for in section 296, namely, the 17.4 cents, and briefs were prepared by both agents before the Mixed Claims Commission. The matter was pending before the commission for some time, and it looked rather dubious as to whether we would be able to maintain the position that I contended for, namely, that we were entitled to the 17.4 cents. And in any event, even though we should have been successful, it would have meant a very prolonged litigation before we got all of our claims settled, and great expense and trouble to our nationals.

The German agent then, on behalf of his Government and with the consent of his Government, proposed an amicable adjustment of this question of the rate of exchange in view of the contentions of the two parties and the difficulty in arriving at a solution, and one that would not only expedite the conclusions of the adjudication of these claims but save the American nationals a great deal of time and expense in establishing their claims. He proposed that a rate of exchange at the rate of 16 cents be adopted for the debts provided for in section 296, and that Germany would, notwithstanding the fact that we had not adopted the clearing-office system, assume direct liability for those debts."

The CHAIRMAN. Did they have any other reason why they did not make it 17.4 cents? Simply because we were not assuming the liability?