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Section 5(b) . . . as amended by Section 2 of the Act of March 9, 1933, in which amendatory Act Congress declared that a serious emergency exists, I... do declare that said national emergency still continues to exist."

(3) Executive Order 6111 of April 20, 1933, authorized the Secretary of the Treasury to regulate transactions in foreign exchange and the export or withdrawal of currency from the United States. The emergency basis for E.O. 6111 was stated in the same language as the language of E.O. 6102, quoted immediately above.

(4) Executive Order 6260 of August 28, 1933, was issued to supplant Executive Orders 6102 and 6111. This order prohibited the holding or export of gold, except under license issued by the Secretary of the Treasury, and authorized the Secretary to regulate or prohibit transactions in foreign exchange. In E.O. 6260 the President stated "I . . . do declare that a period of national emergency exists." Executive Order 6260 was confirmed and amended by Presidents Eisenhower and Kennedy. 31 CFR Part 54. See 42 Op. A.G. No. 35, p. 9.

(5) Executive Order 6560 of January 15, 1934, authorized the Secretary of the Treasury to regulate transactions in foreign exchange, transfers of credit from American to foreign banks and export of currency or silver coin. This order is still on the books today. See 31 CFR Parts 127-128. In this Order, the President declared that "a period of national emergency continues to exist."

In January 1934 Congress ratified all acts which had been performed under the Emergency Banking Act. 48 Stat. 343 (1934): 12 U.S.C. 213 (1970).


Following the invasion of Norway and Denmark by Germany in April 1940 President Roosevelt acted to protect funds of residents of these countries in the United States from withdrawal under duress by issuing an order freezing those assets except as authorized by the Secretary of the Treasury. Executive Order No. 8389 (April 10, 1940). The order referred to authority under § 5(b) but did not specifically mention the existence of a national emergency. The President had proclaimed a national emergency only months before in September 1933; Proclamation No. 2352 noted the neutrality of the United States in the war and stated:

"Whereas measures required at this time call for the exercise of only a limited number of the powers granted in a national emergency :


"Now, therefore, I . . . do proclaim that a national emergency exists in connection with and to the extent necessary for the proper observance, safeguarding, and enforcing of the neutrality of the United States and the strengthening of our national defense within the limits of peacetime authorizations."

Subsequently on May 7, 1940, Congress passed a resolution "to remove any doubt" that § 5(b) authorized certain aspects of the freeze order. The Report of the Senate Banking Committee noted that when Congress passed the Emergency Banking Act, "it intended to grant to the President all of the powers conferred upon him by section 5(b) of the Act of October 6, 1917, and to authorize him to exercise all of such powers not only in time of war, but during any other period of national emergency." S. Rep. No. 1496, 76th Cong., 3d Sess. 1 (1949). By joint resolution. Congress thus approved and confirmed the order and amended § 5(b) to clarify the President's freeze power over alien property. 54 Stat. 179 (1940). See United States v. Von Clemm, 136 F. 2d 968, 970 (2d Cir. 1934), cert denied, 320 U.S. 769 (1943) upholding the retroactive validity of the 1940 joint resolution of Congress).

The original freeze order was an amendment to Executive Order No. 6560 of January 1934 regulating foreign exchange and the export of coin and currency and the controls were somewhat similar to those exercised during the First World War and during the banking crises of 1933. This order, covering Norway and Denmark, was followed by similar executive orders after other nations were invaded or subjected to Axis domination. Eventually Germany, Japan and Italy were themselves covered in June and July 1941. The purpose of the orders was to keep the Axis from using billions of dollars of assets in the United States. Roosevelt Papers (1940 vol.), p. 133-34. Regulations issued by the Secretary of the Treasury, pursuant to a general delegation of Presidential authority under § 5(b) made in 1942, continue to this date to serve as the basis for blocking trade and financial transactions with North Korea, Cuba and North Vietnam. See 31 C.F.R. part 500 et. seq.; Executive Order 9193, sec. 3, July 6, 1942, 7 Fed. Reg. 5205, and Executive Order 9989, Aug. 20, 1948, 13 Fed. Reg. 4891.


Four months before the United States entered World War II, President Roosevelt issued Executive Order No. 8843, which directed the Federal Reserve Board to impose consumer installment credit controls as a measure to fight inflation. 6 Fed. Reg. 4035 (1941). The order was issued on August 9, 1941, under § 5(b) "in order, in the national emergency declared by me on May 27, 1941 to promote the national defense and protect the national economy. . . .” 6 Fed. Reg. 4035 (1941). On May 27, 1941, the President had issued Proclamation No. 2487 which proclaimed that "an unlimited national emergency confronts this country, which requires that its military, naval, air and civilian defense be put on the basis of readiness to repel any and all acts or threats of agression directed toward any part of the Western Hemisphere."

In Executive Order 8843 the term "banking institution" as used in § 5(b), was defined to include any person engaged in the business of making extensions of credit whether as a vendor of consumer durable goods or otherwise. The Federal Reserve Board was authorized, in order to prevent evasion of the order, to regulate any other extension of installment credit, any credit for the purpose of purchasing or carrying any consumers' durable good or any other extension of credit in the form of a loan (other than loans to businesses or agricultural enterprises). 6 Fed. Reg. 4036.

There was some suggestion at the time that the definition of banking institution to include vendors of "consumer durable goods" was beyond the power conferred by 85(b). One writer noted that the President had "disclosed hitherto unsuspected potentialities" in § 5(b) by using this definition of banking institutions and that a clearer statutory basis would be desirable for such controls. Note, Federal Regulations of Consumer Credit by Executive Order, 41 Colum. L. Rev. 1287, 1289 (1941). See also Price Control Bill, Hearings on H.R. 5479 before the House Banking and Currency Committee, 77th Cong., 1st Sess. pp. 116-117 (1941). Nevertheless, the controls were accepted once the order was issued and never challenged in court. In December 1941 Congress passed the First War Powers Act (55 Stat. 839) which included a provision approving and ratifying actions which had been taken under § 5(b), thus apparently approving Executive Order No. 8843.

After World War II, Congress on four occasions took legislative action concerning imposition by the Federal Reserve Board of consumer credit controls pursuant to § 5(b). The four actions by Congress are as follows:

(1) The Congress passed a joint resolution in 1947 which provided that after November 1, 1947, the Federal Reserve Board was not to exercise consumercredit controls pursuant to Executive Order No. 8843. 61 Stat. 921, 12 U.S.C. 249. The joint resolution also provided that no "such consumer credit controls" could be exercised except during wartime or any national emergency thereafter declared by the President.

The legislation took this form because President Truman had decided to place the issue of the continuation of controls "in the laps of Congress" rather than rescind the controls himself by revoking the Executive order. 93 Cong. Rec. 9757. The legislative history of the 1947 resolution shows that Congress intended that the President have the power, if needed, to make such controls effective against the day after the resolution by declaring a new national emergency. See 98 Cong. Rec. 9753, 9758-59.

(2) On August 16, 1948, Congress changed its policy and authorized the Federal Reserve Board, "notwithstanding" the 1947 joint resolution, to exercise "consumer-credit controls in accordance with and to carry out the purposes of" Executive Order No. 8843. 62 Stat. 1291.

The legislative history of the 1948 act again affirms congressional intent that the President retain his authority under Executive Order No. 8843 to exercise consumer credit controls thereafter during time of war or national emergency. It also made clear that he could have reimposed them on his own without the 1948 resolution. The House report noted :

"When the Congress terminated the controls over consumer credit pursuant to the provision of [12 U.S.C. 249], it specifically provided that such termination did not affect the authority to reimpose such controls during the time of war or any national emergency declared by the President. The President has evidently not seen fit to use this authority to reinstate the regulation of consumer credit and henceforth the committee proposes in this joint resolution for congressional enactment of such powers for a temporary period with respect to con

sumer installment credit and at the same time reserve the authority to exercise consumer-credit controls thereafter during the time of war or declaration of any national emergency by the President. H.R. Rept. No. 2455, 80th Cong., 2d Sess. 5-6 (1948).

The 1948 authority expired June 30, 1949.

(3) In § 601 of the Defense Production Act of 1950, using language patterned closely on that of the 1948 enactment, Congress again gave the Federal Reserve Board authority to exercise consumer credit controls under Executive Order No. 8843 "notwithstanding" the 1947 joint resolution. 64 Stat. 812.

(4) In June 1952, while extending other parts of the act, including § 602, Congress repealed § 601. 66 Stat. 305. Repealing § 601 appeared to restore the provisions of the 1947 joint resolution (12 U.S.C. 249) authorizing the impositions of consumer credit controls again during a war or a period of national emergency.


Section 5(b) was also used as authority for the Foreign Direct Investment Program in 1968. Under E.O. 11387 of January 1, 1968, controls were imposed by President Johnson over transfers of capital to foreign countries by substantial investors in the United States. A formal opinion was issued by Attorney General Ramsey Clark upholding the program. The opinion reviews the history of § 5(b). It also discusses the continuation of the national emergency declared by President Truman in Proclamation 2914 of December 16, 1950, which referred to the hostilities in Korea and the world menace of the forces of communist aggression. 42 Op. A.G. No. 35. The order relies on the continuation of this emergency. In March 2, 1973, a federal district court judge ruled orally that § 5(b) did not authorize an indictment charging a violation of the foreign direct investment program. The existence of a national emergency was not raised, however. An appeal is now being prepared. United States v. Ryan, Crim. No. 2038-78 (D.D.C. 1973). E.O. 11387 continues in effect today.


Most recently, § 5(b) was used for a month in 1972 when it was invoked by President Nixon as authority for the regulations of exports. E.O. 11677 of August 1, 1972. Section 5(b) was used in this situation because the existing law authorizing export controls, the Export Administration Act of 1969, 83 Stat. 841, as amended by 86 Stat. 133, had expired. When export control legislation was re-enacted, E.O. 11677 was revoked by E.O. 11683 of August 29, 1972.

The executive order imposing controls recited the continued existence of the national emergencies declared by Proclamation No. 2914 of December 16, 1950, referred to above, and by Proclamation No. 4074 of August 15, 1971, which imposed a supplemental duty on imports for balance of payments purposes.





Washington, D.C., May 4, 1977.

Chairman, Committee on International Relations, House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: I am pleased to respond further to your letter of February 7 requesting the Board's comments on H.R. 1560, a bill to repeal section 5(b) of the Trading With the Enemy Act of 1917.

Section 5(b) appears to have considerably more applicability to the departments and agencies within the Executive branch than to the Board. We understand that repeal of this section would jeopardize certain programs, rules and regulations of the Departments of Commerce, Justice, State, and Treasury. Therefore, the Board defers to those departments and the Office of Management and Budget in assessing the general implications of H.R. 1560.

Insofar as the Board is concerned, there seems to have been only one use by a President of the emergency powers conferred by section 5(b) that directly affected our operations. That use was the promulgation of Exectuive Order 8843 in 1941, which authorized the Board to control consumer credit. The Executive Order was ratified by the Congress after World War II with the passage of a statute (12 U.S.C. 249) providing that the Board was not to exercise consumer credit controls except during wartime or national emergencies. The Congress repealed the statute in question last year (Public Law 94-412, 90 Stat. 1255).

Section 5(b) is relied upon as the primary authority of the Secretary of the Treasury to regulate the Nation's banks in the event of an attack upon the United States. This authority has been redelegated to the Board of Governors. The Board's contingency plans to carry out this responsibility were described by Governor Coldwell in testimony before the Joint Committee on Defense Production on June 28, 1976. I have enclosed a copy of his statement.

Section 5(b) also has applicability to the Federal Reserve in its role as fiscal agent for the Treasury. In this connection, it is important to the interests of the United States that the President be authorized to block transactions with foreigners under certain circumstances (such as those specified in section 5(b)). If and when such authority is exercised and the Federal Reserve Banks are asked to act as the Treasury's agents, it is important that the Banks be granted explicit immunity against suit. Section 5 (b) provides such immunity in the case of actions relying upon the Trading With the Enemy Act of 1917 or any implementing Executive Order or agency directive.

I hope that these comments will be helpful to you and your Committee in the further consideration of H.R. 1560.

Sincerely yours,




Madam Chairwoman, I am happy to have this opportunity to describe to the Joint Committee the responsibilities of the Federal Reserve System in the emergency preparedness area, and our plans to carry out those responsibilities if necessary.

Federal Reserve System involvement in contingency planning for an attack on the United States began in the early 1950's. It was formalized in 1956 when the Office of Defense Mobilization issued a Defense Mobilization Order to the

Board. That order was superseded by Presidential Executive Orders, the most recent of which is E. O. 11490 dated June 11, 1976.

The Federal Preparedness Agency has designated the Federal Reserve a Category A agency, which means that we have essential functions that must be continued during an attack and in an immediate postattack period. The Executive Order requires, among other things, that such agencies maintain alternate headquarters and sites for the storage of duplicate essential records.

More specifically, the Executive Order charges the heads of the Federal bank supervisory agencies, including the Federal Reserve Board, with responsibility for developing emergency plans, programs and regulations to cope with the potential economic effects of mobilization or an attack. Functions which the Order specifies must be carried on includes (1) provision and regulation of money and credit; (2) acquisition, decentralization, and distribution of currency; (3) collection of checks; (4) fiscal agency and foreign operations; (5) provision for the continued or resumed operations of financial institutions; and (6) provision of necessary liquidity to those institutions.

These policies and plans are not directed at the areas of the country that would be devastated by an exchange of high yield nuclear weapons. Rather, they are aimed at the undamaged or lightly damaged areas where national survival might depend upon maintaining economic momentum and organized economic activity. This is a point that is often overlooked by those who, quite understandably, are preoccupied by the terrible problems that would confront us in the damaged


I should point out also that these plans are based on a general war-an "all out" nuclear exchange. However, we have examined the problems that would be generated by a limited exchange such as the one being examined by this Committee. We have concluded that the same plans would apply, the difference being one of magnitude. The plans would be easier to implement, since presumably a larger number of our normal operating facilities would survive, and problems of communication and control would be less difficult.

The Board and the Reserve Banks have organized themselves to meet the responsibilities outlined briefly above by establishing alternate headquarters and duplicate record storage sites in nontarget areas. In the Board's case, we have been able to combine these functions at a facility which also operates our vital communications system on a day-to-day basis.

Lists of officials and staff who would relocate to these sites when instructed to do so have been established and are kept current. Succession lists are maintained on a current basis. Delegations of authority which would be triggered by an attack have been made to Reserve Banks that might be out of communication with the Board.

The problem of insuring a currency supply is made difficult by the facts that the only production source of Federal Reserve notes is the Bureau of Engraving and Printing, here in Washington, and that almost all of the Reserve Banks and branches are in potential target areas. We have established an inventory of the various denominations of Federal Reserve notes at our facility at Culpeper, Virginia, to provide a cushion until the Bureau could get back into production.

Since we must assume that high speed equipment at normal operating facilities would not be available, plans for maintaining the check collection and currency distribution systems involve a high degree of decentralization. Check agent and cash agent banks, each serving a small geographic area, have agreed to perform these functions in an emergency for the Federal Reserve. Each agent bank has been furnished instructions and the necessary forms.

Most importantly, we have informed the banks and other financial institutions about these plans in detail by distributing to each copies of emergency regulations, operating circulars, and operating letters.

These plans and policies have been tested, to the extent that they can be, during national tests and exercises he'd over the past 20 years. In 1974, an interagency committee of the Federal financial agencies re-evaluated the postattack financial policies and recommended no changes.

However, the basic assumptions underlying these plans, particularly those relating to national survival and continuity of government, have not been revised since 1966. In that period the political and military situations have changed materially. For that reason, as we informed the Joint Committee in our last Annual Report, Chairman Burns has asked that these assumptions be reexamined.

98-711 0-77- -16

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