RUTHFULLY YOURS

Few people—even diligent media followers—are likely to speak knowledgably about the Bank of International Settlements (BIS). Yet, hidden in plain sight in a 20-story tower (with four more stories below ground level) in Basel, the BIS influences the leaders of the world’s top central banks and controls the global economy. Moreover, it cannot be questioned or held accountable for any of its actions. In his 2013 book Tower of Basel, Adam LeBor, a former reporter for The Economist and author of thoroughly researched works like Hitler’s Secret Bankers, The Last Days of Budapest, and City of Oranges, analyzes the bank’s history to explain how it gained unlimited power.

He also exposes its complete amorality. Thomas McKittrick, the bank’s chief during the war, whom the author calls “Hitler’s American Banker,” kept passing critical information to the Nazi regime. The BIS financed the Holocaust by accepting gold stolen by the Nazis from Belgium and marking it as German, even though a Belgian central banker warned that the gold had probably been melted down and re-stamped with German markings.

Austrian and Czech gold was also accepted as German deposits and kept out of reach. It was common knowledge that, besides gold from the governments of occupied nations, the Nazis were depositing gold stolen by the Devisenschutzkommando (DSK), Hitler’s special squads of treasure-hunting torturers. But that did not matter to the BIS. Kapital über alles, as LeBor titles the first part of the book.

Hunger for profit and disregard for ethics—these seem to be ingrained in the very DNA of the BIS. As recently as 1991, when the Argentinian economy collapsed and the country was $81 billion in debt, the BIS accepted—and thus kept out of creditors’ reach—money that should have rightfully been returned to them. Besides two fund management firms, the creditors were mostly pensioners who had invested in Argentinian bonds. The firms have sued the BIS and brought some attention to its highhandedness.

Behind the unassuming name, LeBor concludes, “the BIS is an opaque, elitist, and anti-democratic institution,” and that many of those working there “believe themselves possessed of a near-celestial mandate.” The book title alludes to the Tower of Babel, an effort rooted in, and ultimately destroyed by, its builders’ arrogance. LeBor warns of a similar fate for the BIS unless it listens to the voices demanding transparency.

It’s not as if the BIS has gained legal inviolability as a non-profit that plays a globally important regulatory role. Its profits— from fees, commissions, gold, investment instruments, and providing short-term liquidity—are enormous. For example, even after the 2008 crisis, it earned $650 million in profit, with its equity valued at $20 billion. Four years later, profits increased to $1.17 billion, and its equity reached $28 billion. All of this comes from just one main office and two branches (in Mexico City and Hong Kong), serving 140 clients—mainly central banks that are members—and offering highly secretive services.  Shouldn’t such a “business”—and an amoral one at that—be subject to the scrutiny and legal accountability that all businesses, and even organizations like the U.N. and IMF, are subject to? That is the main question LeBor asks. But before addressing that, he provides a detailed history of the bank, explains why it was established initially, and describes the lives and characters of the men who founded it.

The bank was founded in 1930 as part of the Young Plan (named after Owen Young) to assist Germany in paying its World War I reparations. In some ways, it can be seen as the idea of Hjalmar Schacht, who became Germany’s currency commissioner in 1923, just a week after Hitler’s failed putsch. Since Germany had no gold, the currency—the short-lived Rentenmark—was unusually tied to land; redeeming its value might have been impossible in both theory and practice. However, Schacht understood that currencies and economies rely not on actual value or redeemability but on perceived value and stability. This perception is something the tall, commanding, and determined Schacht knew how to maintain.

He persuaded Montagu Norman, the governor of the Bank of England, to lend $25 million to Germany to establish a gold reserve. The loan was intended to boost confidence in the German economy and attract investments. However, settling reparations remained difficult, mainly because France and other countries refused to relax the terms. Schacht also refused to back down.

Finally, although reparations committee members viewed him as stubborn and difficult, he succeeded in persuading Young that instead of Germany borrowing money to pay reparations, it would be better to encourage underdeveloped countries to buy its industrial output. The way to do this, he argued, was to lend money to those countries rather than to Germany. How was this to be achieved? Schacht and Norman told Young it would be through a new bank, an idea that had been gradually gaining support since the 1920s. Ultimately, this was how the BIS was established. Its primary purpose: besides managing reparations, it would serve as a central bank and clearing house for central bankers.

In fact, Norman enthusiastically described it as an “elite club” of central bankers, while Schacht boasted in his autobiography that not a single member of the Young conference would refuse to claim the idea as his own. Young, on his part, promised to promote the idea worldwide. Committees worked out the details of the bank’s operations, while Norman was responsible for drafting a constitution.

A key challenge was to draft it in a way that would render the bank immune to government interference, and LeBor shares a story to illustrate how any reasonable person would recoil at the very idea of absolute legal immunity. To choose the right words, Norman consulted Walter Layton, the then editor of The Economist. After a lengthy struggle, Layton stated it simply couldn’t be done because “it’s the right of every democratic government to reserve its freedom of action.” Later, a committee drafted the constitution, and Norman and Schacht achieved exactly what they wanted.

From its first year, the bank, which was never mainly focused on profit, began making significant profits through investments. Meanwhile, Schacht grew closer to the Nazis, who were gaining power in the 1930s. He served as a minister to Hitler and was described by the New York Times as “the iron-willed pilot of Nazi finance.” However, he apparently became disillusioned with Nazi ideology. Work was taken from him, and Hitler imprisoned him, possibly because of contacts with people involved in a supposed coup attempt. After the war, he was tried at Nuremberg and by a German denazification committee, but he was acquitted.

Since its founding, many of BIS’s activities have been questionable. During World War II, American financiers like J.P. Morgan and companies such as General Motors, Ford, IBM, and others maintained connections to German industry through the BIS. The OSS, the precursor to the CIA, operated through the BIS, distributing snippets aimed at undermining German morale in a newsletter from McKittrick, the bank’s president. He, in turn, was passing crucial economic and financial information to the German central bank.

Postwar, the BIS’s ties to former Nazis who controlled German finance through the Bank Deutscher Länder (BdL) and its successor, the Bundesbank, persisted. Among them was Karl Blessing, who served as the Bundesbank president into the 1960s. Blessing could very well fit Simon Wiesenthal’s term “desk murderer”: he used slave labor from the SS at an oil company created to manage businesses in occupied territories.

LeBor’s research, interviews, and archival investigation analyze the dramatis personae and their actions, presenting them as honestly as their cynicism. Should the BIS, with such a dark past, be allowed freedom from oversight and immunity from the law? Reading LeBor’s work leads to only one conclusion: it cannot, and it must not.