Battle for the treasure chest that changed the course of the Great War

The wreck of a liner torpedoed in 1917 has been discovered. But who owns its £3m cargo, asks Cahal Milmo

Britain is locked in a court battle with an American treasure-hunting company over ownership of the wreck of a cruise liner with its valuable cargo of bullion, torpedoed in the First World War by a German U-boat in the Atlantic. The 18,000-tonne Royal Mail Ship Laconia, which had been commandeered by the British government, was attacked with the loss of 13 passengers, including three Americans, en route from New York to Liverpool on 25 February 1917.

That changed the course of the war: a graphic account of the sinking by an American journalist aboard was credited with helping to push the United States into joining the conflict after it was read to both Houses of Congress.

But the discovery of the hull of the former Cunard liner 160 miles off Ireland by Odyssey Marine Exploration, a Florida-based company, has turned RMS Laconia into the source of a new transatlantic power struggle. The treasure-hunters have been appointed "custodian" of the wreck and its contents, including 852 bars of silver and 132 boxes of silver coins worth an estimated £3m.

Odyssey found the Laconia last November along with another First World War British merchant vessel, but kept secret the identity and precise location of the wrecks. The names of the ships were disclosed in a British government document obtained by The Independent.

Now the fate of the ships and their watery grave is in the hands of the US Court for the Middle District of Florida after the Department of Transport (DoT), which inherited responsibility for the vessels, filed a claim stating that the Laconia and the second wreck, the Glasgow-based SS Cairnhill, are the property of the British government.

Britain claims it is the legitimate owner of the wrecks because, under a wartime insurance scheme, it paid the owners of the vessels when they sank, in effect making the remains the property of the taxpayer. A spokesman for the DoT said: "We have made clear our position to the American courts that the ships are the property of Her Majesty's Government. They have not been abandoned and the matter is now the subject of legal proceedings." The court case represents a dramatic change of tone in relations between Odyssey and the British authorities. The company announced last month that it had discovered the remains of HMS Victory, the 18th-century predecessor to Admiral Horatio Nelson's flagship, in the English Channel and entered negotiations with the MoD to recover up to £700m of Portuguese gold in its hold. It has already signed a deal after the discovery in 2002 of another Royal Navy warship, the 80-gun HMS Sussex, which sank off Gibraltar in 1694 with £300m in gold on board.

Odyssey is the largest of a new breed of salvage company, which uses state-of-the-art scanning equipment and robotic submersibles to re-discover and retrieve the contents of lucrative wrecks pinpointed from historic documents. Founded by a former advertising company executive, Odyssey insists it follows strict archaeological guidelines, but its critics, who range from leading archaeologists to the Spanish government, claim the company is engaged in a form of modern piracy by harnessing technology to profit from sunken remains which should be protected by Unesco's Convention on the Protection of the Underwater Cultural Heritage.

The discovery of the Laconia, which was carrying silver from Mexico and South America, could complicate the debate still further. As it was a merchant rather than a military vessel, Britain cannot claim automatic sovereignty over the ship.

The grand cruise liner was among more than 140 Allied vessels sunk by the Germans in the first two months of 1917, but the attack had ramifications far beyond the loss of 13 lives and its valuable cargo. Floyd Gibbons, a journalist on The Chicago Tribune, wrote: "The women got weaker and weaker, then waves came and washed them out of the boat. There were lifebelts on their bodies and they floated away, but I believe they were dead before they were washed overboard. The question being asked of the Americans on all sides is, 'Is it the casus belli?'."

The article was used as evidence that Germany had committed an overt act of war against American citizens, and America joined the war five weeks after the sinking.

Odyssey last night insisted thatz it was prepared to accept a British "ownership interest" in the two wrecks if it was proved in court.

Survivor's story: 'What a lousy torpedo! It must have been a fizzer'

Floyd Gibbons wrote this account for the Chicago Tribune:

"What do you say are our chances of being torpedoed?" I asked.

"Well," drawled the deliberative Henry Chetham, a London solicitor. "I should say 4,000 to one." Lucien J Jerome, of the British diplomatic service, interjected. "Considering the zone and the class of this ship, I put it down at 250 to one that we don't meet a sub." At this moment, the ship gave a sudden lurch, sideways and forward. There was a muffled noise, like the slamming of a large door a good distance away. The slightness of the shock and the meekness of the report compared with my imagination were disappointing. Every man was on his feet in an instant. "What a lousy torpedo!" said Mr Kirby in typical New Yorkese. "It must have been a fizzer."

It was 10.30pm. The came the five blasts on the whistle. [Gibbons gets into one of 10 lifeboats.] The ship sank rapidly at the stern until at last its nose stood straight in the air. Then it slid silently down and out of sight. As the boat's crew steadied its head into the wind, a black hulk, glistening wet, approached slowly. "Vot ship was dot?" the words in throaty English with the German accent came from the dark.

"The Laconia, Cunard Line," said the steward. "Vell, you'll be all right. The patrol will pick you up soon", and the submarine moved off." [Gibbons and his fellow passengers were picked up by the Royal Navy six hours later.]