View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


Dallas, Texas, August 20, 1941

To All Banking Institutions
in the Eleventh Federal Reserve District:

We are in receipt of the following telegram, dated August 18, 1941, from E. H. Foley, Jr., Act­
ing Secretary of the Treasury:
“A completely efficient administration of Executive Order 8389, as amended, in every sec­
tion of the nation is of the greatest importance to the economic and financial side of national
defense. The fifteen thousand banks of this country are a vital link in the success of foreign
funds control. Most American banks have kept themselves fully informed of every step taken
under the Executive Order and have co-operated expertly with the Treasury and the Federal
Reserve Banks.
“ Foreign funds control significantly affects the country’s welfare. It places important
responsibilities on every bank throughout the nation, no matter how small and no matter how
few of its clients are foreign nationals or have financial transactions with foreign nationals.
I believe that each bank should designate a senior officer to be in charge of foreign funds control
problems affecting the bank, and to keep himself fully informed of all developments in this
field. Kindly ask every bank in your district to furnish you with the name of its officer so desig­
nated by the bank.
“ The banks can also perform a real service by keeping their customers fully informed with
respect to foreign funds control.
“ For the convenience of the banks and public generally, the Treasury has just issued in
the form of a pamphlet a revised compilation of documents relating to foreign funds control
and I would appreciate your sending a copy of this document to every bank in your district.”
Enclosed is a copy of the pamphlet referred to by the Acting Secretary of the Treasury and also
a copy of an article reprinted from the August issue of “ Banking” containing answers of Treasury
Officials to a number of important questions on foreign funds control. Additional copies of these
documents will be furnished upon request.
This bank will of course continue to mail to you all documents relating to foreign funds control
as they are published by the Treasury Department from time to time and will also continue gladly
to answer any inquiries you may have on this subject.
This bank would appreciate being promptly advised of the name of the officer designated by
you to be in charge of foreign funds control problems.
Yours very truly,

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

[.R e p r in te d f r o m p a g e s 2 4 - 2 5 o f th e A u g u s t , 1 9 4 1 is s u e o f B a n k i n g ]

The Control of Foreign Funds
Answers to Some Questions About “ Freezing”

T h e “ freezin g” o f certain foreign funds by the United
S tates G overnm ent presen ts a num ber of problem s vitally
im portant to banks. In this interview with two T reasury

drawals from a blocked account where the blocked
national is in the U nited States rather than in Europe.

officials the questions that are of first im portance in this

3. Is there any rule of thumb w hich might be em ­
ployed by hanks for their general guidance and
protection in determining whether transactions
require a license in order to be effected?

field are raised and answered.
T h e answ ers in the interview are by E dward H.
F oley, Jr., General Counsel o f the T reasury D ep a rt­
m ent, and John W . Pehle , A ssistant to the S ecretary
o f the T reasury. T he questions w ere asked fo r B anking
by H erbert M . B ratter.

1. W hat is the purpose o f “ freezing” con trol?

he tw o w ords m ost aptly answering that question are

“ econom ic defense” . B eyond that, reference might be
made to the press release issued by the W h ite H ou se on
June 14, 1941, relative to the extension of “ freezing”
control. In such release it was stated:
“ T he E xecutive O rder is designed, am ong other
things, to prevent the use o f the financial facilities o f the
U nited States in ways harmful to national defense and
other A m erican interests, to prevent the liquidation in
the U nited States o f assets looted by duress or con­
quest, and to curb subversive activities in the United

2. Does “ freezing” control affect anything other than
transactions in foreign exchange and similar trans­
actions in the field o f international finance and
trade ?

he answer to this question is very definitely “ yes” .
T h e “ freezing” control imposed by E xecutive O rd er N o.
8389, as amended, affects transactions o f a purely d o ­

mestic character as well as those o f international scope
if any blocked country or any national thereof has an
interest in the dom estic transaction. T hus a bank may
not, except under general or specific license, perm it with­
drawals from blocked accounts even though the with­
drawals are for purely domestic purposes or permit with­


bviously there is no substitute fo r

a thorough kn ow l­

edge o f the Order, regulations, rulings, general licenses
and public circulars relating to freezing control. That is
the only w ay for banks to protect themselves fully and
at the same time perform a necessary service fo r their
customers. Pending com plete familiarity with the freez­
ing regulations the follow in g rule of thumb may be used
as a general guide by b a n k s:
“ A n y transaction which in volves a banking institution
and in which any blocked country o r any national of a
blocked country has any interest o f any nature w h atsoever,
direct or indirect, is prohibited ex c e p t pursuant to license.”
In applying this rule o f thumb, banks should keep in
mind that the terms “ banking institution” and “ na­
tional” are defined in section 5 o f the E xecutive O rder
and are very com prehensive in scope. These definitions
should be studied at once.
It cannot be emphasized too strongly that the
freezing order affects the operation of every bank in
the U nited States, and a thorough understanding o f the
documentation furnished each bank by the several
Federal Reserve banks is imperative not only to protect
the bank and its customers against violations o f the
O rder but also to enable the banks to play the im portant
role assigned to them in this vital defense measure.
M any banks have a large staff engaged exclusively on
freezing control matters. Other banks not having the
need for a department of this character have found it
highly desirable to assign to one o f their senior officers
the responsibility for keeping fully abreast o f all develop­
ments in this increasingly im portant field and fo r gu id­
ing other members o f the bank’s staff, as well as the
public, regarding such matters.

4. W h a t is a “ b lo c k e d a ccou n t” ?
T h e term “ blocked account” has been defined in Gen­
eral R uling N o. 4 as follow s :
“ T he term ‘blocked account’ shall mean an account
in which
made or

any blocked country or national thereof has an
with respect to which account payments,
or withdrawals or other dealings may not be
effected except pursuant to a license authoriz­

ing such action. T he term ‘blocked account’ shall not be
deemed to include free dollar accounts of the type re­
ferred to in General License N o. 32, as amended, or the
accounts o f generally licensed nationals.”
T h e same general ruling defines the term “ blocked
cou n try” as any foreign country designated in the

o f definite inform ation to the contrary, it should ac­
cordin gly block the account pending further study o f
the case. Certainly the fact that one bank has blocked
the account o f an individual will be cause f o r other
banks to have reasonable cause to believe the party in
question is a national of a blocked country. H aving rea­
sonable cause to believe that a person is a national o f a
blocked country requires a bank to block an account un­
less there is an outstanding general or specific license
liftin g such obligation.

7. W h a t if a b a n k b lo ck s an a ccou n t and subse­
q u en tly discovers in fo rm a tio n lea d in g it t o c o n ­
clu d e that th e a ccou n t sh ou ld n ot b e b lo c k e d ?

E xecutive O rder, i.e., any country to which the freezing
control has been extended.

I n other than clear-cut cases the bank should advise the


priate Federal R eserve Bank and if the T reasu ry D e ­
partment agrees, it w ill authorize the account to be
freed. Banks m ay assume that the T reasu ry D epart­

W h at are th e ob lig a tio n s o f a b a n k in con n e ctio n
w ith th e b lo c k in g o f accou n ts?

T h e E xecutive O rd er imposes a definite obligation
upon banking institutions in the U nited States to block,
and thus to require licenses with respect to, every a c­
count in which any blocked country or any national
thereof has an interest o f any nature whatsoever, direct
or indirect. In certain specified cases this obligation has

T reasu ry Departm ent o f the facts through the a p p ro­

ment will em ploy fu lly its large pow ers to protect them
where they have blocked accounts in g ood faith.

8. Is it true that th e E xecu tive O rd e r and R e g u la ­
tions req u ire census rep orts, f o r instance w ith r e ­
sp ect to B ritish and L atin A m e rica n assets in th e

been lifted by general and specific licenses, as fo r e x ­

U n ited States, as w e ll as those o f a ll th e b lo c k e d
cou n tries lik e G erm an y, F ra n ce, S w itzerlan d, th e
N etherlan ds, etc.?

ample General Licenses N o. 42 and 51. In all other cases
banking institutions should utilize all the resources at
their disposal in determ ining which accounts should be
blocked. T his, o f course, w ould include not only the in ­
form ation in their files but also the know ledge o f the
officers o f the institution. A know ledge o f the definition
o f “ national” appearing in section 5 o f the O rder is a
prerequisite to k n ow in g which accounts are required to
be blocked. In this connection attention is invited to the
fa ct that such definition expressly provides that the
term “ national” includes:

Y es . T he R egulations require that census reports on
F orm T F R -3 0 0 be filed by banks and all other persons
with respect to property in which any foreign country, or
nationals thereof, have an interest. O f course General
License N o. 42 has specifically lifted this obligation in
certain cases but banks and other persons must be satis­
fied that the general license applies before relying upon
it to excuse them from filing a report in any given case.

“ A n y other person who there is reasonable cause to
believe is a ‘national’ as herein defined.”
T h e successful operation o f the E xecutive O rd er re­
quires the fullest cooperation, resourcefulness and
initiative on the part o f banks in blocking accounts.

9. W h a t sh ou ld banks d o in cases w h ere th ey are in
d o u b t as to w h at th ey are re q u ire d to d o u n d er
th e “ fre e z in g ” ord ers w ith respect to a p a rticu la r
tra n sa ction ?


W h at sh ou ld a b a n k h a vin g an a ccou n t fo r a cer­
tain p erson d o w h en it learns th at a n oth er hank
has b lo c k e d th e a ccou n t o f such p e rso n ?


t is suggested that they either get in touch with the
Federal R eserve bank in their district o r write directly
to the T reasury Departm ent fo r advice. In most cases

I f the first bank has not already blocked the account in
question it is immediately placed on notice that the

they probably will find it m ore convenient and expedi­
tious to comm unicate with the appropriate Federal

account should probably be blocked and, in the absence

R eserve bank.