Formed to oversee German debt repayments after the First World War, the BIS soon became a central forum for central bank discussions and co-operation.
In 1939, however, the Nazis used the BIS to gain control of Czech national bank assets, while during the war itself, they sold the BIS over SFr428m (pounds 178m) worth of gold, much of which was looted from the countries under Nazi domination. This occurred despite the fact that the BIS's president was an American, Thomas McKitterick, and on its board sat the Bank of England's top brass, the Governor, Sir Montagu Norman, and senior official, Sir Otto Niemeyer.
The Bank displayed a naive belief in the BIS's neutrality and integrity. In December 1939, the BIS announced that it would not operate on behalf of one side or another. Apparently satisfied, the Bank stopped scrutinising its activities, and whenever evidence of possible misconduct arose, the Bank immediately dismissed it as mere hearsay.
The most glaring example occurred in early 1942, when the BIS was discovered dispatching gold to Portugal. Post-war investigations revealed that 20 tons of gold were shipped to Lisbon at this time, to facilitate German purchases of Portuguese tungsten, critical to the German war economy. At the time, however, the Bank blithely accepted the BIS's assurances that only 3.3 tons of gold was involved, and brushed aside criticism in Whitehall by claiming that it was in Britain's interests to have the gold moved to Europe's periphery and "out of harm's way".
Popular criticism of the BIS, both in the British financial press and later in official US circles, did nothing to deflect the Bank from its course.
Sir Montagu Norman summed up the Bank's view in a letter to McKitterick in June 1942, when he stated that he had no wish to "run the risk of rousing all the political controversies about the BIS which we had been anxious to damp down and hope to avoid".
Two years later, despite evidence of the BIS's complicity in Germany's trade in looted gold, the Bank continued to cling to its earlier opinions. "Nothing [has] occurred since 1942 to make us change our view," reads one report in June 1944. "It would be incredible if the [BIS] should risk taking tainted gold."
While the Bank's attitude towards the BIS found a resonance in the Treasury, elsewhere in Whitehall its views were generally out of favour. Senior Foreign Office official Orme Sargent confessed in June 1944 that he viewed "this hobnobbing of German and British bankers with considerable distaste and suspicion".
Dr Neville Wylie is research fellow in Modern History, New Hall, CambridgeReuse content