863.00R/7–2051
Memorandum by the Assistant Secretary of State for European Affairs ( Perkins) to the Secretary of State 1
Subject: Dollar Diversion Investigation in Austria.
1. As a result of the May 29, 1950 report on Austria of the Joint Congressional Committee on ECA (Watch Dog Committee) which severely criticized ECA and Austria for the dissipation of ECA aid and Austria’s own dollar resources, the Department and ECA on November 8, 1950 recommended that the Austrian Government investigate these allegations with the assistance of a reputable American firm of certified public accountants. Although the Austrian Government agreed to proceed with the so-called dollar diversion investigation, no significant progress has been achieved since November because the Austrians, under a variety of pretexts, have refused to allow the accountants to examine records essential for a proper investigation.
2. There is no reason to doubt that the weak and inefficient administration of Austria’s foreign exchange system has facilitated flight of capital by certain individuals and institutions, notably the Credit Anstalt bank which handles approximately 70 percent of Austria’s foreign trade.
3. Disclosure of these practices will probably discredit a number of influential Austrians and force a reorganization of financial institutions. The reaction will not, we believe, disturb essential political stability.
4. Refusal of the Austrian Government to push the investigation is apparently based upon political influence exercised over the Government by the Credit Anstalt as well as Austria’s conviction that in the light of our security objectives in Austria we cannot afford to insist upon a thorough investigation.
5. Although on July 6 the Austrian Government again informed Ambassador Donnelly that satisfactory arrangements for the accountants would be authorized, the Austrians subsequently persisted in their obstructive tactics.
6. Under these circumstances the Department prepared a very strong message to Vienna (Deptel 150, July 182) with which Mr. [Page 1051] Foster concurred instructing Ambassador Donnelly to inform the Austrian Government that a satisfactory investigation must be concluded.
Recommendations
In view of the discreditable Austrian behavior on this issue and the implications if they should be permitted to evade our request it is believed that this investigation must be pushed through with all the force we can muster up to the point that evidence is available that the use of this force clearly imperils our political interests in Austria.