IBM and the Holocaust (56 page)

In the conversation with Woods, Watson told the attache he agreed in principle to the stock split, provided the Germans restricted their new stock as well. But IBM could not yet formally authorize it. Why? General Ruling 11 made it against the law.
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Complying with General Ruling 11 would take time. Time was something Watson did not have.

As America advanced toward the moment it would enter the war, the Roosevelt Administration had recently espoused General Ruling 11, an emergency regulation forbidding any financial transactions with Nazi Germany without a special Treasury Department license involving written justifications. Even certain corporate instructions of a financial nature were subject to the rule. This was something completely new to contend with in IBM's Nazi alliance. IBM would now be required to seek a complicated, bureaucratic approval for each financial instruction it ordered for its overseas subsidiaries under Nazi control. General Ruling 11 would not affect subsidiaries in neutral countries, such as Sweden or Switzerland. Even still, it would severely hamper all communications with Dehomag itself, and open a government window into many of IBM's complex transactions.
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How much time did IBM have?

The board meeting was scheduled in Berlin for late the next day.

New York immediately cabled Woods that it approved Albert's recommendation to double the investment to RM 15.4 million—an increased reinvestment of about $2 million extra. But there was a condition. The new stock issued to the three Germans must be restricted under the existing captive share agreements. That was imperative.
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Quickly, IBM people had to complete the two-page sworn affidavit application to authorize the doubling of stock. It needed to be signed by the corporation's secretary-treasurer, John G. Phillips. But he was not available. No time to waste. Someone signed Phillips' name to both lines where it was required, and then dutifully placed their cursive lowercase initials—
aer
—under the signature to show it was affixed by a person designated to sign.
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But Phillips' signature had to be executed and certified in the presence of a notary. No problem. Someone found a notary in Queens. He verified the signatures as genuine, stamped his name and commission number just beneath the Phillips signature, and then pressed his embossing seal onto the application. A short transcript of Woods' telephone conversation with Watson was attached to prove the urgency of the transaction. The carefully quoted dialogue fragment included Albert's well-structured explanation that what was really an optional profit-taking regulation "can practically be considered compulsory."
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The application clearly stated that it could only be presented at the Federal Reserve Bank in Manhattan. But by the time the application was signed and sealed, it was just too late. The Federal Reserve was closed. Dealing with the phlegmatic Fed would be too slow anyway. Chauncey headed to Washington D.C. He would go over the head of the Fed, right to Treasury itself.
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The next morning, September 19, Chauncey appeared at the Treasury Department. The Dehomag board meeting would soon get under way—and IBM would not be there to vote for reinvestment unless the license was issued at once. Clearly agitated and pressured, Chauncey demanded the review officer issue the license to authorize the stock split.
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When? Right now.

But Mr. Rueffer, the review officer at Treasury, was in no real hurry. He bureaucratically informed Chauncey that such an application would take some time and must first be submitted through proper channels—namely the Federal Reserve Bank in New York. An impatient Chauncey now became riled. This application was too important, it could not wait. He insisted that if the Treasury license was not rendered at once, IBM's German affiliate would take its own action in what was "probably a matter of compulsion."
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Rueffer was not fazed.
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The matter just could not be done quickly. Take it to New York.

Meanwhile, in Berlin, a Dehomag attorney, Hans Mahr, had been called to certify the proper form of the board meeting. The session would be held not at Dehomag's headquarters, where a last-minute cable from New York could be received, but at the Hotel Adlon—Watson's favorite. Kiep and Ziegler would be there to vote their proxies as instructed by Heidinger. The meeting would convene soon—at 5 p.m.
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Back in Washington, Chauncey could not wait. He demanded to see Assistant Secretary J. W. Pehle for faster action. That was not possible.
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Then could he meet with a senior member of the staff ?
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One of Mr. Rueffer's supervisors agreed to meet Chauncey. But the reality that the application would have to creep through the slow channels of the Federal Reserve Bank was sinking in. In frustration and futility, Chauncey laid out the financial transaction to the supervisor. Surplus money blocked in Germany, RM 7.7 million, would be reinvested in the company, doubling the capital of Dehomag. He stressed that even though IBM NY would be required to approve the recapitalization, no funds would be transferred from the U.S. In fact, the transaction would still leave an additional surplus of RM 10 million.
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Chauncey added that he had just been to Germany, and then his story began to wend into all sorts of permutations. The Treasury supervisor recalled that Chauncey "claims that unless the proposed change is made, the German authorities will make the change themselves . . . German interests will acquire control of the company."
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In truth, when the stock split was ratified, the proportion of ownership would remain identical. The three Germans would still own the same 15 percent. The government would not effectuate the split; that was strictly a business decision for Dehomag's board. The Treasury supervisor remained unconvinced. He noted, "His [Chauncey's] explanation of this was somewhat vague and had to do with present German laws about which he was very uncertain."
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Chauncey was again told by the supervisor that Rueffer was correct. Under the law, IBM needed to provide a proper detailed explanation of the stock split and file that with the license application at the Federal Reserve Bank. Knowing that time was running out for some sort of instruction to Berlin, Chauncey pressed the supervisor for at least an opinion. Might such a transaction be approved? It was all speculation. The supervisor just could not predict.
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But it was "extremely urgent," insisted Chauncey. It didn't matter. Nothing he said that day could make the license happen.
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Time was running out. The vote was about to proceed, and Albert needed to authorize the vote. But Watson could not authorize it. Chauncey could not authorize it. No one at IBM NY would authorize it without a Treasury license.

So Sam Woods authorized it. He called Albert and told him to proceed.
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Albert informed Dehomag officials that IBM NY was authorizing the stock split and would not challenge the reinvestment. In a brief corporate event, Kiep and Ziegler assembled at Berlin's Hotel Adlon at 5 P.M. Kiep officially opened the meeting and stated the sole agenda item. He and Ziegler verbally agreed in the presence of attorney Mahr, who certified every procedural step of the two men. The stock was split.
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Watson must have been furious. For decades, IBM had tiptoed through the serpentine regulations of seventy countries—whether at war, in peace, or anything in between. From Fascist states to revolutionary regimes, the company had always managed to avoid legal infractions of any kind. Now it appeared that General Ruling 11 had been violated. General Ruling 11 was essentially a precursor to Trading with the Enemy regulations. It was more than important. Moreover, Chauncey's name was on the proxy that effected the transaction. Everyone began explaining themselves in carefully worded memos and letters.

Albert wrote to Chauncey on October 9, "It is true that Mr. Watson stated he would send me a cable immediately authorizing such procedure and that I have not received such a cable; on the contrary, I have been informed that this cable . . . could not be sent due to the fact that IBM have not yet received license from Treasury Department. . . . I have not waited . . . but had informed the Dehomag . . . that they were authorized to go ahead." In so doing, Albert added, he was able to show IBM's willingness to cooperate in the German economy. In consequence, "everything had been amicably settled," he continued, which allowed more objectionable decisions by the board to be avoided. "I took the responsibility of approval upon myself."
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Understanding that Chauncey might have to answer to the Treasury Department, Albert's apologia went on, "I hope you do not get into difficulties with your [Treasury] Department. They will certainly understand. . . . For obvious reasons, I am not sending any more particulars than are already in IBM's hands."
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That same day, October 9, IBM's Werner Lier wrote a formal four-page letter to Watson explaining events. He had gone over the complete file in Albert's office. "I noted therefrom the decision taken by Dr. Albert, upon advice of Mr. Woods, to increase the capital by 100 percent. . . . [But] we wish to remind you in this connection of Mr. Woods' telephone call . . . and from which he deducted [
sic
] your agreement." Lier declared the urgent move was required "to avoid a precedent of Dehomag overstepping the prerogatives of the IBM."
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IBM couldn't be sure what to do. Its license application was slowly percolating through the Federal Reserve Bank and the Treasury Department. A series of formal letters and cables began papering the files reflecting official IBM non-authorization. On September 26, a week after the stock was split, IBM cabled Woods at the Embassy: "Regret we have not been able [to] cable you in response your telephone message due to [the] fact that we have not yet received license from Treasury."
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The Embassy was surely confused because shortly thereafter it sent back a message for clarification. A week later, Chauncey replied to the Embassy, "Re: your cable of September 29, representative may not act in absence of license . . . and permission requested therefore is denied."
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General Ruling 11 would make it impossible for IBM to continue doing business in the freewheeling cross-border fashion it was accustomed to. The company could not wait weeks for every instruction to be approved by the Treasury Department. Indeed, just after Dehomag doubled the capitalization, two of Watson's confidants were to meet with Lier from IBM Geneva, undoubtedly to discuss how to deploy the additional investment. That would only further the appearance of IBM ratification. On September 22, the Embassy cabled Chauncey one of many cryptic messages: "Your two friends wish Swiss representative to meet Dehomag people. Do you agree?"
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Chauncey tried to stop Lier from traveling from IBM Geneva to Germany. An immediate cable was sent to the Geneva office. But it was too late. The office replied, "Already en route. Left Saturday morning. Tried reach him border without success. . . . Only Bachofen [Lier's assistant] can reach him safe discreet way." Lier arrived in Berlin anyway and began working on vital Dehomag projects such as moving Dehomag machines from Poland into Romania where they were urgently needed for a census.
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On October 9, 1941, Milner in the New York office sent a memorandum to Chauncey regarding "Shipment of Dehomag Machines to Various Countries." Milner worried that it might have become too difficult to continue business as usual with the Hitler regime. "As you know, on June 15, 1941 we cabled the Geneva office regarding the President's [Franklin D. Roosevelt's] proclamation, and instructed them not to make any move involving IBM assets without securing advice from the American Consulate. This was to avoid their unintentionally violating any provision of the President's decree. I am wondering whether you would deem it advisable to definitely instruct Geneva that none of the European countries which can be controlled should order any goods from Dehomag. This, of course, is a serious step, as some of the countries are using Dehomag machines and currently require repair parts. It might be well for us to discuss this subject at your convenience."
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IBM would not place a stop on any of its Dehomag business, or any subsidiary's interaction with it. IBM filed another request with the Treasury Department, this time to send an instruction to all of its European subsidiaries and agencies, as well as its divisions in Japan. The instruction: "In view of world conditions we cannot participate in the affairs of our companies in various countries as we did in normal times. Therefore you are advised that you will have to make your own decisions and not call on us for any advice or assistance until further notice." It was sent to the State Department on October 10, 1941, with a request for comment.
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A State Department official replied some two weeks later, "While this Department is glad to be informed of your intentions in this matter, it has no specific comment to make at this time." To this perfunctory response, Chauncey very cautiously answered, "Thank you very much for your letter of October 23, 1941."
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