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Fiscal Agent of the United States
•Circular No. 2 4 2 0 T
April 21, 1942 J

To all Banking Institutions, and Others Concerned,
in the Second Federal Reserve District:

For your information we quote below the text of a telegram received today from the
Treasury Department:
The following are the texts of General Ruling No. 12 and a press release explanatory
thereof issued by the Treasure Department.
Office of the Secretary
April 21, 1942

(1) Unless licensed or otherwise authorized by the Secretary of the Treasury, (a) any
transfer after the effective date of the Order is null and void to the extent that it is (or
was) a transfer of any property in a blocked account at the time of such transfer; and
(b) no transfer after the effective date of Order shall be the basis for the assertion or
recognition of any right, remedy, power, or privilege with respect to, or interest in, any
property while in a blocked account (irrespective of whether such property was in a
blocked account at the time of such transfer).
(2) Unless licensed or otherwise authorized by the Secretary of the Treasury, no
transfer before the effective date of Order shall be the basis for the assertion or recognition of any right, remedy, power, or privilege with respect to, or interest in, any property while in a blocked account unless the person with whom such blocked account is held
or maintained had written notice of the transfer or by any written evidence had recognized
such transfer prior to the effective date of the Order.
(3) Unless otherwise provided, an appropriate license or other authorization issued
by the Secretary of the Treasury before, during or after a transfer shall validate such
transfer or render it enforceable to the same extent as it would be valid or enforceable
but for the provisions of section 5(b) of the Trading- with the enemy Act, as amended,
and Order, regulations, instructions and rulings issued thereunder.


(4) Any transfer affected by the Order and/or this general ruling and involved in, or
arising out of, any action or proceeding in any court within the United States shall, so far
as affected by the Order and/or this general ruling, be valid and enforceable for the purpose of determining for the parties to the action or proceeding the rights and liabilities
therein litigated : provided, however, that no attachment, judgment, decree, lien, execution, garnishment, or other judicial process shall confer or create a greater right, power,
or privilege with respect to, or interest in, any property in a blocked account than the
owner of such property could create or confer by voluntary act prior to the issuance of an
appropriate license.

(5) For the purposes of this general ruling:
(a) The term "transfer" shall mean any actual or purported act or transaction,
whether or not evidenced by writing, and whether or not done or performed within
the United States, the purpose, intent, or effect of which is to create, surrender,
release, transfer, or alter, directly or indirectly, any right, remedy, power, privilege,
or interest with respect to any property and without limitation upon the foregoing
shall include the making, execution, or delivery of any assignment, power, conveyance, check, declaration, deed, deed of trust, power of attorney, power of appointment,
bill of sale, mortgage, receipt, agreement, contract, certificate, gift, sale, affidavit, or
statement; the appointment of any agent, trustee, or other fiduciary; the creation or
transfer of any lien; the issuance, docketing, filing, or the levy of or under any judgment, decree, attachment, execution, or other judicial or administrative process or
order, or the service of any garnishment; the acquisition of any interest of any nature
whatsoever by reason of a judgment or decree of any foreign country; the fulfillment
of any condition, or the exercise of any power of appointment, power of attorney, or
other power; provided, however, that the term "transfer" shall not be deemed to
include transfers by operation of law.
(b) The term "property" includes gold, silver, bullion, currency, coin, credit,
securities (as that term is defined in section 2(1) of the Securities Act of 1933, as
amended), bills of exchange, notes, drafts, acceptances, checks, letters of credit, book
credits, debts, claims, contracts, negotiable documents of title, mortgages, liens, annuities, insurance policies, options and futures in commodities, and evidences of any of
the foregoing. The term "property" shall not, except to the extent indicated, be deemed
to include chattels or real property.
(c) The term "blocked account" shall refer to a blocked account (including safe
deposit box) of a party to the transfer and shall have the meaning prescribed in General
Ruling No. 4 except that it shall not be deemed to include an account not treated as
a blocked account by the person with whom such account is held or maintained.
(d) The term "effective date of the Order" shall have the meaning prescribed in
General Ruling No. 4 except that "the effective date of the Order" as applied to any
person whose name appears on The Proclaimed List of Certain Blocked Nationals
shall be the date upon which the name of such person first appeared on such list.
(e) The term "transfer by operation of law" shall be deemed only to mean any
transfer of any dower, curtesy, community property, or other interest of any nature
whatsoever, provided that such transfer arises solely as a consequence of the existence
or change of marital status; any transfer to any person by intestate succession; any
transfer to any person as administrator, executor, or other fiduciary by reason of any
testamentary disposition; any transfer to any person as administrator, executor, or
fiduciary by reason of judicial appointment or approval in connection with any
testamentary disposition or intestate succession; and any transfer pursuant to (i)
Netherlands Royal Decree of May 24, 1940, and (ii) Norwegian Provisional Decree
of April 22, 1940, concerning the monetary system, etc.
(6) Nothing contained in this general ruling shall be deemed to affect in any way
criminal liability for violation of the Order, or the regulations, rulings, circulars or instructions issued thereunder, or in connection therewith, or to otherwise modify any provision
By direction of the President:


Secretary oj the Treasury.

April 21, 1942
No. 31-28
The Treasury Department in a formal statement issued today called attention to the fact
that all unlicensed tranfers of blocked assets in the United States are void and unenforceable.
General Ruling- No. 12, issued by the Secretary of the Treasury, makes clear that unlicensed
transfers of blocked assets in violation of the freezing Orders, and transfers designed or having
the effect of evading such Orders, always have been void and unenforceable.
Secretary Morgenthau, commenting on today's general ruling, pointed out that these unlicensed
transfers of blocked assets always have been void and unenforceable under the freezing Orders
and that today's ruling serves the purpose of emphasizing this fact for the benefit of any of the
public who may have overlooked this aspect of freezing control.
He also called attention to the provisions of the ruling, making it possible for persons who
have been parties to unlicensed tranfers of blocked assets to file applications for licenses to
validate these transfers. "The Treasury, of course, wants to be reasonable about this matter",
he stated, "we do not propose to allow our regulations, intended for the protection of our country,
and the United Nations, to become an instrumentality for defeating their interests or producing
unconscionable advantages or unreasonable hardships. These matters can be dealt with by licenses
without undue interference with the purposes of freezing control".
Treasury officials pointed out that there are more than seven billion dollars in blocked assets
in the United States. The Government's policy on this matter, as reflected in today's formal
ruling, has nullified attempts by the Axis to gain title to the billions of dollars in assets belonging
to nationals of the countries overrun by the Axis. It has defeated efforts of the Axis to wrest
control of such assets away from their lawful owners and hold them in the hopes that in the
post-war period it will be possible to realize on such assets if freezing restrictions are lifted. Of
equal significance is the fact that it has destroyed any possible black market in neutral countries
for blocked assets—one of the ways the Axis would like to be able to obtain the foreign credit
necessary to finance imports from neutral countries into Axis territory and also one of the ways
the Axis would like to be able to gain the funds necessary to subsidize espionage, sabotage and
fifth column activities in the United Nations, Latin America and elsewhere.
Treasury officials explained that based on the evidence of what the Axis was doing with assets
of the overrun countries within their physical control, Axis efforts in an operation of this character would follow no single pattern. Rather they would run the gamut from outright duress—
assignments at the point of a gun, or with the gestapo as "witnesses"—through to the more
subtle "legal" transfers—the purchase of such blocked assets against payment in local currency
obtained as occupation costs or by forced loan from banking institutions in the occupied areas.
In these latter cases the point of the gun would not be levelled at the individual but would be
levelled at the central bank and "Quisling" governments who would provide the credit for the
Axis to "buy" their country's birthright.
The net effect of such transfers would not vary however, they would be intended to mulct the
overrun countries of the very life-blood of any post-war reconstruction, namely, the foreign
exchange needed to obtain the goods and services necessary for rebuilding the economies of these
countries. Axis war psychology would be benefited also—by depriving the holders of their title
to these assets the Axis would encourage a spirit of defeatism and a willingness to succumb to
the German "new order".
Officials also explained that based on the operation of the neutral black market in looted assets
physically in the control of the Axis, it was easy to anticipate the type of black market the enemy
might try to foster for "blocked assets". This neutral black market operation would be designed
to give the Axis immediate returns on blocked assets even though the Axis could not get such
assets out from under our freezing regulations. In this case the assets would be assigned or
otherwise transferred to neutral speculators at heavy discount in order that the Axis could obtain
credit now to buy goods and services in neutral countries and thus assist the war effort. Of course
some of these black market operations would be for the obvious purpose of lining the pockets of
Axis officialdom as insurance against the day when the Axis is crushed. Neutral speculators would
either hold such assignments with the intent of salvaging on them after the war or in the hope
of being able to squeeze the blocked assets through the freezing control by one trick or another.
As was pointed out, since freezing control makes null and void or unenforceable all transfers
with respect to blocked assets unless licensed by the Secretary of the Treasury, Axis attempts to
gain title to these assets are frustrated and the true owner's interests are protected and he continues to have a valuable stake in a victory by the United Nations.
Commenting upon today's ruling, Secretary Morgenthau stated, "This Government served
notice on the world when we froze the assets of Norway and Denmark on April 10, 1940, that we
did not intend to permit the Axis to realize any use or benefit from Norwegian and Danish assets
in the United States. Since that time we have consistently pursued this policy with respect to
every country falling under the Axis yoke. The policy of this Government always has been
unequivocal. We will not allow the Axis, directly or indirectly, to gain any interest in the seven

billion dollars in blocked assets in this country. Neither those funds nor any interest in them will
be used against the United Nations by the Axis. Neither will they be used as a part of Germany's
economic 'new order' in Europe or Japan's 'co-prosperity sphere' in the Pacific".
It was emphasized that while freezing control attempted to interfere as little as possible with
normal legitimate commercial transactions, still the Government was combatting- a menace of
sweeping proportions and was compelled to block all corrosive efforts of infiltration through
loop-holes. Freezing control and the Government's policy is therefore comprehensive and the
licensing- technique must be freely used to prevent hardship in legitimate cases. Thus, under the
freezing Orders, more than eighty general licenses have been issued, permitting vast categories
of transactions under appropriate safe-guards without even filing an application. In addition, more
than 400,000 specific licenses also have been issued.
Paragraph (1) of today's general ruling deals with unlicensed transfers made after the effective date of the freezing Orders involving property in blocked accounts. If any such transfer
was made after the account was actually blocked then the transfer is null and void unless licensed.
Thus, if a bank blocked the account of a national of Denmark on April 10, 1940, and on June 10,
1940, the national attempted to assign title to the account to a German, the transfer would be
null and void unless the Treasury licensed it. On the other hand, if a transfer were made before
the account was actually blocked, but attempt was made to enforce it while the account was
in fact blocked, the transfer would be unenforceable. By way of example: on July 15, 1941, John
Doe, resident in Argentina, assigned his account with an American bank to Richard Roe in
the United States. On September 15, 1941, the Treasury instructed the bank to block the account
of John Doe as a national of Rumania. After September 15, 1941, the assignment would be
unenforceable against John Doe's blocked account unless the transfer were licensed by the Treasury Department.
Paragraph (2) of the general ruling deals with transfers alleged to have been made before
the effective date of the freezing Orders but involving accounts thereafter blocked. These transfers are unenforceable against blocked accounts unless the person with whom the blocked account
was held or maintained had written notice of the transfer or had recognized it in writing prior
to the effective date of the Order. Thus, if in the example above, the national of Denmark had
assigned the bank account to the German in 1937 and the bank was not notified of the assignment
until June 10, 1940, the assignment would be unenforceable against the blocked account unless
licensed. If, on the other hand, the bank was notified in writing of the assignment before April 10,
1940, then the assignment is enforceable against the blocked account (but, of course, payment
from the blocked account could only be made pursuant to Treasury license).
Treasury officials pointed out that the policy behind paragraph (2) of the general ruling was
understandable. If the general ruling had been merely prospective in operation, it would be easy
for Axis agents to validate transfers obtained under duress by the subterfuge of dating them prior
to the effective date of the Executive Order. This would, of course, defeat one of the major purposes of freezing control. Officials pointed out that in those cases where notice of the transfer
was given to the person maintaining the account in this country and where the transfer had been
accepted by that person as valid, the provisions of the general ruling are inapplicable since under
those circumstances the notice is an adequate precaution to guarantee that the transfer was made
prior to the effective date of freezing control.
Paragraph (3) of the ruling provides that a license issued by the Treasury Department, either
before or after a transfer, completely validates the transfer for the purposes of freezing control.
Of course, if an assignment would have been invalid without freezing control, (e.g., because not
properly executed) a Treasury license does not purport to remedy this type of invalidity..
Paragraph (4) is but a formal statement of the position which the Treasury Department has
always taken on litigation (including attachments) affecting blocked assets. The Treasury has no
desire to limit the bringing of suits in courts within the United States, provided that no greater
interest is created by virtue of the attachment, judgment, etc., than the owner of the blocked
account could have voluntarily conferred without a license. Thus, the Treasury does not want to
interfere with the orderly consideration of cases by the courts provided that the results of court
proceedings are subject to the same policy consideration from the point of view of freezing control as those arising through voluntary action of the parties.
Paragraph (5) defines various terms employed in the ruling. For example: the term "transfer"
is given a very comprehensive meaning, excepting only certain types of transfers by operation
of the law (e.g., transfer by intestate succession). The term "property" is broad but by and large
does not include mere chattels or real property. The term "blocked account" is in effect limited
to accounts actually treated as blocked accounts by the person with whom such account is held
or maintained.
Paragraph (6) is technical in character and reserves the full right of the Government to
prosecute for violations of the freezing Orders and emphasizes that General Ruling No. 12 is
not intended to modify outstanding freezing orders, regulations, etc.

Additional copies of this circular will be furnished upon request.



Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102