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FEDERAL RESERVE BANK OF DALLAS 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, R. R. GILBERT President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) [.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? T 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 States.” 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 ? T 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 O 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 interest, transfers 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 5. 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 ? 6. 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 ? I 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.