over $10,000 made by corporations, but only to the extent that tax benefit had been received by the corporation.

We oppose the amendment proposed by the second section of the bill. Unlike the procedure in the War Claims Act which enabled the Commission to take tax benefit into account in determining awards, this bill would modify awards, made by the Commission eight or more years ago, on the basis of the tax status of the claimant alone. That, we believe, would be inappropriate application of the tax system. Moreover, the bill would make the modifications at the expense of all U.S. taxpayers. We cannot support such a post hoc destruction of the reasonable expectation of all claimants that their eventual compensation would be determined by the Commission in accordance with applicable law, and by the best efforts of the U.S. Government in reaching a settlement.

China Claims: Hearing before the Sen. Comm. on Foreign Relations on S. 2141, 96th Cong., 2d sess. (1980), pp. 11-13.

The Department of State concurred with the views of the Department of the Treasury. See, statement of Fabian A. Kwiatek, Assistant Legal Adviser for International Claims, at ibid., p. 13.

On Apr. 21, 1980, J. Brian Atwood, Assistant Secretary of State for Congressional Relations, had written to Senator Frank Church, Chairman of the Committee on Foreign Relations:

The Department of State further objects to the concept of reducing claims distributions by amounts allowed as tax deductions. We are concerned that the application of this principle in the distribution of claims settlements might encourage foreign governments with which we negotiate claims agreements to discount corporate claims by the amount of tax deductions attributed to compensable takings of property. It is in the interest of the United States to maintain the principle that a state that takes the property of an alien is responsible in international law for the payment of full compensation.

Ibid., p. 22; Dept. of State File No. P80 0058-0371.

The Agreement between the Government of the United States and the Government of the People's Republic of China, signed on May 11, 1979, at Beijing may be found at TIAS 9306; 30 UST 1957; entered into force, May 11, 1979. An amendment by an exchange of notes on Sept. 28, 1979, at Beijing is at TIAS 9675; 31 UST 5596; entered into force, Sept. 28, 1979. See, further, the 1979 Digest, pp. 1213-1215.

Czechoslovakia-Tripartite Gold Commission

Proposed U.S. Legislation

On August 19, 1980, the Subcommittees on Europe and the Middle East and on International Economic Policy and Trade of the House Committee on Foreign Affairs held hearings on H.R. 7338, a bill that would have provided for the payment, out of the proceeds of gold belonging to the Government of Czechoslovakia, of certified awards of United States nationals against the Government of Czechoslovakia and for the release of the proceeds to Czechoslovakia after all such awards had been paid.

Section 3 of the bill directed the Secretary of the Treasury to vest and sell all gold located in the United States which was allocable to Czechoslovakia under the terms of Part III of the Agreement on Reparation from Germany, on the Establishment of an Inter-Allied Reparation Agency and on the Restitution of Monetary Gold, concluded at Paris, January 14, 1946 (TIAS 1655; 61 Stat. 3157; 4 Bevans, Treaties, etc. (1970), p. 5), as well as any other gold belonging to Czechoslovakia located in the United States. The bill directed the Secretary, further, to invest the proceeds from the sale of the gold and cover into the Czechoslovakian Claims Fund all interest and other income earned, and periodically thereafter, to distribute monies in the Fund towards the satisfaction of certified awards against Czechoslovakia pursuant to title IV of the International Claims Settlement Act of 1949, plus interest thereon at six percent per annum from August 8, 1958 (see, post) until the date of enactment of H.R. 7338. Upon complete satisfaction of all certified awards including accrued interest, the remaining proceeds less expenses incurred by the Department of the Treasury were to be paid to the Government of Czechoslovakia.

The Department of State and the Department of the Treasury shared the basic objective behind the legislation-to resolve claims by United States citizens against Czechoslovakia that had been pending since 1948 and that had been settled only in part by the seizure and sale of steel mill equipment belonging to the Czechoslovak Government. Both Departments opposed enactment of H.R. 7338, however, on the grounds that it contravened the obligations undertaken by the United States in the 1946 Paris Reparations Agreement and in the (separate) Tripartite Gold Commission Agreement.

Russell L. Munk, Assistant General Counsel for International Affairs, Department of the Treasury, and Robert L. Barry, Deputy Assistant Secretary of State for European Affairs, testified on behalf of the Executive Branch in opposition to enactment of H.R. 7338. Mr. Munk summarized background information on the claims settlement agreement with Czechoslovakia which Congress had disapproved in 1974, and Mr. Barry discussed subsequent efforts to renegotiate the agreement, based upon an increase in the value of the gold.

A portion of Mr. Munk's prepared statement follows:

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American claims against Czechoslovakia are a result of the widespread nationalization and confiscation program instituted by the Czechoslovak Government in 1945. Czechoslovakia's nationalization program continued for three years until 1948, when virtually the entire economy passed into public ownership.

The American property which was the subject of these measures was varied and included real property, business enterprises, insurance policies, bank accounts, bonds, personal property, pension and other benefits. Although the Czechoslovak Government has agreed in principle to compensate US nationals for the loss of their property, repeated attempts by the United States to obtain adequate compensation have proved unsuccessful.

In 1948, lack of progress on the compensation issue prompted the Treasury Department to freeze the official assets of Czechoslovakia located in the United States. In 1952, the Secretary of the Treasury issued a blocking order, under the Trading with the Enemy Act, which prohibited unauthorized disposition of steel mill equipment which was owned by the Czechoslovak Government. Two years later, the Treasury Secretary ordered the sale of the steel mill equipment. The net proceeds from the sale (approximately $9 million) were placed in blocked accounts pending settlement of American property claims against Czechoslovakia.

In 1958, at the request of the Administration, Congress added Title IV to the International Claims Settlement Act. Title IV established a procedure for American citizens to file claims with the Foreign Claims Settlement Commission for the losses they sustained from the nationalization of their property. By the end of the adjudication period in 1962, the Commission had validated 2,630 claims against Czechoslovakia in the amount of $72.6 million principal and $41 million interest.

The proceeds obtained earlier from the sale of the steel mill equipment were used to satisfy approximately $8.5 million of these claims. Under the Act, each awardholder received an amount of $1,000 or the amount of the award, whichever was less. The result was the complete satisfaction of 1161 individual claims worth a total of $495,000, and payment of $1,000 on each of the remaining claims. Beyond this, pro rata payments of approximately 5.3% were also made on the unpaid balance of the remaining certified claims.

Twice before, the Executive has initialed ad referendum agreements with the Government of Czechoslovakia for the settlement of outstanding property claims. Those agreements, in 1963 and in 1974, never entered into force, primarily because they were viewed by Congress as providing insufficient compensation to the claimants. The 1974 agreement resulted in the enactment of section 408 of the Trade Act of 1974 which directs the Administration to renegotiate a claims settlement satisfactory to Congress. Section 408 also prohibits the United States from consenting to the release of the gold allocated to Czechoslovakia and in the custody of the Tripartite Commission for the Restitution of Monetary Gold.

Settlement of Claims Against Czechoslovakia: Hearing and Markup before the Subcomm. on Europe and the Middle East and on International Economic Policy and Trade of the House Comm. on For. Aff., 96th Cong., 2d sess. (1980), pp. 18-19.

Title IV of the International Claims Act, §§ 401-417, 22 U.S.C. 1642-1642p, was added by P.L. 85-604, approved Aug. 8, 1958, 72 Stat. 527-530.

At the hearing on Aug. 19, 1980, Congressman Lee H. Hamilton, Chairman of the

Subcommittee on Europe and the Middle East, requested a legal memorandum concerning the international legal issues raised by H.R. 7338. A memorandum prepared in the Office of the Legal Adviser under date of Sept. 5, 1980, that also incorporated the views of the Department of the Treasury, follows in part:

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I. Background-During the Second World War, Nazi forces looted or wrongfully removed substantial amounts of monetary gold from the Central Banks and financial institutions of countries under German occupation. Some of this gold was sold or transferred to third countries during the War. However, substantial quantities were located by Allied forces upon the collapse of the German Reich and the initiation of Allied occupation of Germany. Other quantities were recovered from third countries.

During the War, the United States adopted a policy of not recognizing the legality of Germany's acquisition of this gold. The United States, the United Kingdom and the U.S.S.R. also refused to recognize the transfer of its title to third countries. Secretary of Treasury Morgenthau's "Declaration on Gold Purchases", 9 Fed. Reg. 2096, February 23, 1944; U.S. Dept of State, Foreign Relations of the United States 1945, Vol. III, p. 1379, n. 15 (1968).

As hostilities in Europe ended, the United States and its Allies formulated a policy providing for the sharing of all monetary gold found in Germany as restitution of the claims of European countries which had lost such gold. In discussions with the United Kingdom and France, the United States advocated that such gold not be claimed as war booty or otherwise used to satisfy the victors' claims. Instead, all available monetary gold would be distributed pro rata among claimant countries as restitution for their established losses of monetary gold. See U.S. Dept. of State, supra at 1250-1251, 1257, 1259, 1403-1404, and 1421-22.

II. The Paris Reparation Agreement-The issue of restitution of monetary gold was considered at the Paris Conference on Reparation, which met November 9December 21, 1945. At the Conference, the United States, the U.K., and France, together with several other countries (including Czechoslovakia), reached agreement on measures to implement the Allied gold pooling and restitution policy. These are contained in Part III of the Agreement on Reparation from Germany, on the Establishment of an Inter-Allied Reparation Agency and on the Restitution of Monetary Gold, which was signed on January 14, 1946 (61 Stat. 3157, TIAS 1655, hereinafter the "Paris Reparation Agreement").?

Part III of the Paris Reparation Agreement directed that all the monetary gold found in Germany (including gold coins, except those of numismatic or historical value which could be directly identified) should be pooled. This pool of gold, together with any additional amounts of gold recovered from third countries, should then be divided and distributed as restitution among the countries participating in the pool in proportion to their respective losses of gold through looting or by wrongful removal to Germany after March 12, 1938. Acceptance of any allocated gold by the countries concerned would constitute final satisfaction of all claims against Germany for restitution of monetary gold. Hence, the gold involved in the Paris Reparation Agreement scheme was not identifiable gold to which countries could establish particular claims of title. Instead, the gold involved was an undifferentiated mass. Claimant countries could acquire legal title to particular gold only upon allocation and delivery of that gold by the competent authority pursuant to the Agreement. The pertinent provisions of Part III provide:

A. All the monetary gold found in Germany by the Allied Forces and that referred to in paragraph G below (including gold coins, except those of numismatic or historical value, which shall be restored directly if identifiable) shall be pooled for distribution as restitution among the countries participating in the pool in proportion to their respective losses of gold through looting or by wrongful removal to Germany.

B. Without prejudice to claims by way of reparation for unrestored gold, the portion of monetary gold thus accruing to each country participating in the pool shall be accepted by that country in full satisfaction of all claims against Germany for restitution of monetary gold.

C. A proportional share of the gold shall be allocated to each country which adheres to this arrangement for the restitution of monetary gold and which can establish that a definite amount of monetary gold belonging to it was looted by

Germany or, at any time after March 12th, 1938, was wrongfully removed into German territory.

E. The various countries participating in the pool shall apply to the Governments of the United States of America, France and the United Kingdom, as the occupying Powers concerned, detailed and verifiable data regarding the gold losses suffered through looting by, or removal to, Germany.

F. The Governments of the United States of America, France and the United Kingdom shall take appropriate steps within the Zones of Germany occupied by them respectively to implement distribution in accordance with the foregoing provisions.

G. Any monetary gold which may be recovered from a third country to which it was transferred from Germany shall be distributed in accordance with this arrangement for the restitution of monetary gold.

Part III of the Paris Agreement remains in force, and the United States remains legally bound by its provisions. These legal obligations are multilateral; that is, they bind the United States to all of the other parties to the Agreement. Several rights and obligations arising under Part III would be violated by unilateral U.S. seizure and sale of the gold under present circumstances.

First, paragraph A of Part III requires the U.S. to pool the gold found by its forces in Germany with that recovered by other parties for a single specified and limited purpose, distribution as restitution to countries with proven losses of gold. The legislation presently under consideration would compel a unilateral seizure of a substantial portion of the remaining gold pool for a quite different U.S. national purpose, the compensation of private claims against Czechoslovakia. Such action would clearly contravene both the language and the underlying purpose of paragraph A.

Such unilateral action would likewise thwart the purpose of paragraph B of Part III. That paragraph relates to the settlement of claimant countries' gold restitution claims against Germany. In the absence of the restitution of monetary gold to Czechoslovakia, Czechoslovakia's potential claims against Germany for gold remain unsettled.

Paragraph C of Part III elaborates upon the legal obligation created by Paragraph A. Paragraph C directs that a proportional share of the gold pool “shall be allocated" to each qualifying claimant. This allocation has not yet taken place, since the U.S. has prevented it under the governing principles of unanimity by withholding the necessary consent. However, Paragraph C clearly establishes an obligation on the part of the parties with responsibility over the gold pool eventually to allocate the gold, as well as a reciprocal right on the part of qualifying claimants to receive their appropriate distribution.

Paragraph F likewise imposes an obligation on the U.S., the U.K. and France to ensure that the distribution contemplated by Part III is eventually made.

These interrelated provisions create a network of legal obligations binding the United States to all of the other parties to Part III, and obliging the U.S. to carry out an agreed role in constituting the pool of gold for the purpose of restitution and in ensuring that that pool eventually is allocated to qualifying claimants. The Paris Reparation Agreement established an arrangement for gathering up, adjudicating, and distributing the gold; in seizing the gold, the United States would be acting in breach of a duty to give effect to this arrangement, a duty owed to the U.K., France, and to Czechoslovakia.

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Thus, Part III of the Paris Reparation Agreement established clear and continuing legal obligations. The parties to the Agreement with forces in Germany (the United States, the United Kingdom, and France) locating gold in Germany were obligated to pool it for distribution as restitution. The three Governments were thus precluded from asserting any lien or claim of title against the gold for their own purposes. Further, the Agreement guaranteed each participating country, including Czechoslovakia, the legal right to receive a share of the monetary gold as restitution upon proof that it had suffered qualifying losses at Nazi hands. In exchange for this right, those countries gave up the right to make further claims against Germany for restitution of monetary gold. Finally, the Agreement obliged the Governments of the United States, France, and the United Kingdom to take appropriate steps to implement the specified distribution. All of these obligations would be thwarted under present circumstances by unilateral U.S. legislative action disposing of the gold.