FOREIGN COMPENSATION BILL

HC Deb 07 November 1968 vol 772 cc1096-136

Order for Second Reading read.

4.7 p.m.

The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. William Whitlock)

I beg to move, That the Bill be now read a Second time.

The subject of the Baltic claims has been frequently referred to in this House. It is, accordingly, with satisfaction that I am able to move the Second Reading of this Bill. At last, there is the prospect of compensation being paid to the claimants.

As many hon. Members will recall, in 1940 Soviet influence was established over the Baltic states and sweeping measures of nationalisation of property took place. The Baltic States were incorporated into the Soviet Union early in August, 1940. These incorporations have been recognised de facto by Her Majesty's Government but have not been recognised de jure. That remains our position. There are no independent Baltic Governments in existence.

The property of a number of British nationals was seized without compensation and Soviet authorities did not accept responsibility for the external debts of the Baltic States, including three external loans—the Riga loan, the Estonian loan and the Vilna loan—which had been placed in London.

Shortly after the Soviet Government established their authority in the Baltic States, they attempted to secure the surrender of the gold reserves of the three Baltic central banks which were deposited in London. To safeguard British interests, these were frozen under wartime powers. In retaliation, the Soviet Government ceased payment on the Lena and Tetiuhe Notes—promissory notes which were issued in the 1930s to two English companies and which matured over a period of years up to 1954.

Other losses were incurred by United Kingdom nationals as a result of Soviet measures in certain other parts of Eastern Europe which were ceded to the Soviet Union by Finland, Poland, Czechoslovakia and Roumania between 1939 and 1951—the ceded territories, as they are called.

Between 1940 and 1959, the British and Soviet Governments discussed the question of outstanding claims in a lengthy diplomatic correspondence. In 1959, agreement was reached for the holding of negotiations covering the various categories of claims which had arisen after 1st January, 1939. To prepare for these negotiations, an Order in Council was made in 1959 under the Foreign Compensation Act, 1950, providing for the registration of claims on the British side by the Foreign Compensation Commission. We then submitted to the Soviet Government the registered claims, along with some others which did not require registration. The Soviet claims consisted of claims to the Baltic gold, claims in respect of some Baltic ships requisitioned by us during the war, and some miscelleanous property claims.

Negotiations began in earnest in 1965 in London and continued for two years. A detailed examination of individual claims was made on Soviet insistence and naturally took time. Neither side acepted liability as a matter of law, but some progress was made towards agreement on the existence and value of some of the assets claimed on either side.

As for the Soviet claims, there can be no argument about the value of the gold of the former Baltic central banks. The weight of the deposits was known to the Soviet athorities and, as the House knows, when the gold was sold in June, 1967, it realised £5.8 million. This was the principal asset in Her Majesty's Government's posession which was claimed by the Soviet Government.

On our side, there was similarly little room for argument about the value of the unredeemed Soviet State Notes issued to the Lena and Tetiuhe Companies which total £2.18 million, or about the value of the external bonds which had been issued in London by Estonia and by the cities of Riga and Vilna, the face value of which plus arrears of interest amounted to some £2.75 million. But the total amounts of the claims presented by either side were approximately £15 million on the United Kingdom side and £10 million on the Soviet side, and they included many disputed items.

At this point, I cannot emphasise too strongly that a figure of £15 million for the British claims represents simply the sum of the values put upon their claims by the individual claimants themselves. To be frank, perhaps some of the claims would not stand impartial scrutiny, or, as is quite natural, were somewhat inflated. The Soviet side certainly did not recognise the existence of liabilities of the amount of £15 million and nor does the figure of £10 million for claims on the Soviet side mean that there are assets of that amount in the control of Her Majesty's Government and available for distribution to the British claimants. When I come to the question of distribution, I shall try to give hon. Members an estimate which will give a more accurate indication of what claimants may expect from the distribution, though it will still be only an estimate.

As I have said, the negotiations concerning the validity and valuation of these claims were difficult, and no real progress could be made on the crucial question of legal liability. Weeks of meetings in Moscow in 1965 and in London in 1966 produced no prospect of agreement between the two sides which would have matched the legitimate claims of the United Kingdom with a Soviet recognition of liabilities of approximately equal value. By the end of 1966, the Government had become convinced that the only way to end the deadlock was to seek agreement on a basis which would mean that each side, without admitting liability, would undertake not to pursue its claim against the other. This the Soviet Government would not accept.

During the visit of the Soviet Prime Minister, Mr. Kosygin, to London, in February, 1967, the final stage of the discussion was reached. In monetary terms the respective positions of the two sides was still far apart, but agreement was reached as announced in the communiqué at the conclusion of Mr. Kosygin's visit. The settlement briefly was that neither side would pursue further the claims which it had presented and which had formed the subject of the negotiations.

The British Government agreed to pay out of the assets the sum of £500,000 in the form of consumer goods to the Soviet Government. The consumer goods were to be additional to Russian purchases under the current five-year trade agreement. The sum of £500,000 represented a small proportion of the assets which we held. In the Government's view, this was a necessary concession to achieve a negotiated agreement, and the settlement preserved the point of principle that we did not recognise Soviet title to any part of the assets.

Mr. Douglas Dodds-Parker (Cheltenham)

As our claim against the U.S.S.R. is much greater than its claim against us, why did the British Government pay £500,000?

Mr. Whitlock

If the hon. Gentleman will allow me to make my own speech in my own way, perhaps I will come to that point.

Perhaps I can say now why it is necessary to make any payment and tell the hon. Member and others why we do not simply distribute the assets which we held. I remind them that unilateral action of that kind had been open to successive Governments since 1940, all of whom had rightly shrunk from such a course. We needed to be absolutely sure of our rights and that assurance has been secured by this settlement. Legal considerations apart, it is as a rule much better to settle these matters by agreement than to proceed by unilateral action which may lead to repercussions which would outweigh the immediate benefits. We were quite satisfied that agreement would not be possible on any better terms.

In the statement on 12th February, 1967, upon the close of Mr. Kosygin's visit, it was provided that the terms of the settlement would be formulated after further discussion between the two sides. These discussions led to the signature on 5th January, 1968, of the agreement finally settling the matter between the two Governments. The agreement has been presented to Parliament as Cmnd. 3517.

Article 1 of the Agreement provides that the British Government will not pursue further the claims which were the subject of negotiations. In brief, these claims consisted of property claims put forward on behalf of British nationals, some of them former members of British communities in Eastern Europe, commercial and financial claims put forward by British firms which had not been paid for goods exported to the territories concerned or which had interests in local companies before the war, claims in respect of the three sterling loans and, finally, the British Government claims.

Colonel Sir Tufton Beamish (Lewes)

The Foreign Secretary told me in the House that this agreement will be subject in due course to Parliamentary approval".—[OFFICIAL REPORT, 23rd January, 1968; Vol. 757, c. 210.] Has that approval been sought and obtained? If not, why not?

Mr. Whitlock

The payment of the £500,000 was made initially from the Civil Contingency Fund in March and approved by a Supplementary Estimate in respect of it.

Sir T. Beamish

I meant the Agreement, not the £500,000.

Mr. Whitlock

The Agreement has been discussed by the House, and now forms part of the Bill.

Article 2 of the Agreement provides that the Soviet Union will not pursue the claims which it presented in relation to property in this country. The property had been reported to the Custodians of Enemy Property, in 1941, when the Baltic States were over-run by the German armies, and some of it had been vested in the Custodians under the Trading with the Enemy Act. By far the largest part of the Soviet claim related to the gold of the former central banks of the Baltic States.

Article 4 provides that the British Government will make a settlement, along with other claims, of the claims of the holders of unredeemed promissory notes issued to the Lena and Tetiuhe companies before the last war. It had been agreed in 1959 that these notes should be included within the scope of the negotiations. Some hon. Members may wish to ask why those two companies had to be brought into the settlement and singled out by a separate Article in the Agreement. Therefore, I shall give the facts, as briefly as possible, concerning those claims, which are in some ways exceptional.

The Lena Goldfields Company and the Tetiuhe Mining Corporation both invested large sums in the Soviet Union while operating concessions which they held between 1925 and 1934. The Tetiuhe concession was terminated in 1931. The Lena goldfields concession provided for arbitration, and resort was necessary to an arbitration tribunal, which, in 1930, awarded the company compensation of about £13 million. The award was not accepted by the Soviet authorities. Some years later the company received £3 million, for the most part in the form of promissory notes redeemable at intervals until 1954.

The outstanding notes thus represent deferred and inadequate compensation from the Soviet Government, which stopped redeeming them in 1940. In that year, as I have said, the Soviet Union occupied the Baltic States and attempted to secure their gold reserves, which were deposited in London and of which mention is made in Article 2 of the Agreement. On grounds of duress, Her Majesty's Government refused to release the gold. In retaliation, the Soviet Union ceased to redeem the Lena and Tetiuhe Notes.

It is only just that the noteholders should be compensated, irrespective of nationality, since they all alike suffered loss as a result of the Soviet retaliation for the British action in blocking the Baltic gold in defence of British interests. That is the justification for Article 4.

Article 5 make provision for the payment to the Soviet Government of the £500,000 in consumer goods to which I have referred.

Before I leave the Agreement and turn to the Bill, I will say a few words about the suggestion which has been made in the past by some hon. Members opposite, to the effect that this Agreement with the Soviet Union is morally questionable. It seems to be feared by some hon. Members, whose feelings I respect though I do not share them, that by disposing in this way of the Baltic assets in this country the Government are doing a deal with the Soviet Union at the expense of the three Baltic nations. With respect, I think that this attitude is mistaken.

British owners have been deprived of their properties in the Baltic States as a result of nationalisation laws and other measures, and after 28 years they have not yet received any compensation. In the absence of any independent Baltic Government with which a settlement could be negotiated, we have had recourse to the Soviet Government, which is the de facto Government of the former Baltic States. This is the best that could be done, and in the circumstances it is justifiable to take Baltic assets in this country.

If the previous Conservative or present Administrations had followed the logic of those who hold that the Baltic assets should remain inviolate, there could have been no negotiations with the Soviet Union, and no Agreement; but neither would the preservation of the assets have brought the least benefit to the people of those territories. As I have made clear, the Government could not agree to hand the assets over to the Soviet Union. But to leave them alone would do no good to anyone, whereas we had a duty towards the British claimants.

In the circumstances, the Government believe that a negotiated settlement with the Government exercising de facto authority in the Baltic States was the only sensible course. If independent Governments were to be set up in the Baltic States, and were recognised de jure by Her Majesty's Government, that would be a new situation which is certainly not in contemplation at the present time; and no one will seriously expect the Government to pledge themselves to a certain course of action in entirely hypothetical circumstances.

The conclusion of the Agreement cleared the way for the introduction of the Bill, which has two main purposes. First, the powers under the Trading with the Enemy Act, 1939 are extended by Clause 1 to give power to dispose of the assets still remaining in this country. The money raised from the disposal of the assets will be used in part to recoup the sum of £500,000 which was paid to the Soviet Government in accordance with the arrangements set out in Article 5 of the Agreement of 8th January, 1968.

For the most part, the money will be paid to the Foreign Compensation Commission for distribution to claimants. In the meantime, the Custodians have converted most of the assets into cash under their existing powers, and this money is earning interest for the benefit of the claimants.

The second main purpose of the Bill is to enable an Order in Council to be made authorising the Foreign Compensation Commission to distribute moneys which it will receive from the disposal of the Baltic assets. This purpose is achieved by Clause 2(2). The Foreign Compensation Commission has acquired considerable experience in distributing compensation to persons who lost their property as a result of measures of nationalisation in Eastern Europe. This experience will be useful in nationalisation claims arising in the Baltic States and the ceded territories.

The subsidiary purpose of the Bill is to make three small amendments to the Foreign Compensation Act, 1950. At present, the Act applies only to agreements with foreign Governments, and enables the Foreign Compensation Commission to be used for the registration of claims only when an agreement is contemplated. Sub-sections (1) and (3) of Clause 2 broaden the scope of Section 3 of the 1950 Act in two respects.

First, it will enable the Foreign Compensation Commission to be used where compensation by any other country, not merely any foreign country, is involved—that is to say, where a Commonwealth country is involved. I can assure the House that no compensation settlement with any Commonwealth Government is in prospect at present, but it is not inconceivable that a case of such payment might arise in the remoter future and it may then be convenient for the Foreign Compensation Commission to be used to distribute it.

Secondly, subsection (3) of Clause 2 would widen the existing provision so that such an Order can be made in anticipation of negotiations with any other Government and not merely when such negotiations are already in contemplation. I am sure that the House will agree that these are useful extensions of the existing power.

The third subsidiary purpose of the Bill, which will be found in subsection (4) of Clause 2, provides that Section 2(3) of the Foreign Compensation Act, 1950 shall cease to have effect. This subsection relates to the appointment by Commonwealth Governments of additional members of the Foreign Compensation Commission for the purpose of determining applications for compensation received by the United Kingdom Government on behalf of Commonwealth nationals.

It is defective in that it enumerates the Governments of the independent Commonwealth countries as they stood in 1950 and has not since been brought up to date. Use has been made of this subsection only once, many years ago, and it seems in modern circumstances highly improbable that the United Kingdom Government will negotiate again on behalf of the nationals of other Commonwealth countries. It seems best, therefore, to repeal the subsection.

The House will have noticed that there is nothing in the Bill to do with the subject of distribution. The terms of the distribution will be contained in an Order in Council to be made under Clause 2 subsection (2) of the Bill. The Order will be made at the first opportunity after the Bill is passed. It is, however, appropriate for me at this point to give the House details of the proposals with regard to distribution.

We intend to include all the claims arising after 1st January, 1939, in the various categories listed in paragraphs (a) and (b) of Article 1 and in Article 4 of the Agreement of 5th January, 1968; that is to say, that applications will not be restricted only to those who registered claims under the 1959 Order. We know that there exist a few claims which were not registered in time under the Order, and we think it right to include them since there will be no further opportunity for them to be pursued.

First, there are the claims for property and financial losses in the Baltic States and the "ceded territories"—nationalised property, bank balances, commercial debts—and the Government's own claims. United Kingdom nationals at the date of the coming into force of the distribution Order will be eligible to apply; the claimant will have to establish title to the property, and that it was owned by a United Kingdom national at the time of loss.

Then there are the bonds and the shares. As specified in the Registration Order of 1959, the bonds or shares must have been owned by United Kingdom nationals on 23rd November, 1959. Most of these claims are in respect of bearer documents, and even in the case of registered shareholdings the records of the companies concerned are no longer available. This means that there would be practical difficulties about establishing the past ownership of these documents.

The first date for establishing British interest was, therefore, fixed at 23rd November, 1959—shortly before the Registration Order was published. But, as with other categories of claims, only those persons who are United Kingdom nationals at the date when the distribution Order comes into force will be eligible to apply. In the case of the bonds the applicant must also be the beneficial owner at that date.

Finally, there are the promissory notes issued to the Lena and Tetiuhe Companies to which I have already referred.

The value of the assets is likely to be about £6 to £7 million from which the payment to the Soviet Union under Article 5 subsection 1 of the Agreement has to be deducted. The available sum will form a common pool from which every claimant will receive a uniform divident on the assessed value of his claim.

The capital value of the claims which were presented on our side in the negotiations amounted to £13.5 million. They included the external State and State guaranteed bonds of the Baltic States—with a capital value of £1.2 million-commercial debts and bank balances—£1.25 million—nationalised property and shareholdings—£7.5 million—the Lena and Tetiuhe Notes—£2.2 million—and Her Majesty's Government's claims—£1.3 million. As against these claims, the Russians accepted liabilities of less than £3 million. No doubt their capital value as assessed will lie somewhere between the two figures of £13.5 million and £3 million.

The Order in Council will provide that the Foreign Compensation Commission shall assess the external bonds and the Lena and Tetiuhe Notes at nominal value, the commercial debts and bank balances at the amounts which were outstanding at the time of loss in 1939–40, and the nationalised property and shareholdings at the value as determined by the Commission at the date of loss.

It is further proposed that arrears of simple interest at contractual rates should be allowed on the external bonds as from the date of default up to 12th February, 1967. Since other claimants have been deprived of their property or capital and have also lost opportunities of earning, the assessment of their claims will be increased by simple interest at 4 per cent. per annum from the date of loss.

The dividend which will be payable on the basis of these assessments to successful claimants will become clear only when every claim has been determined by the distributing authority. There will be a six months' period during which applications must be made, after which the Foreign Compensation Commission will proceed with the distribution as quickly as possible. It is hoped that it will be possible to declare an interim dividend soon after the closing date for applications.

The agreement with the Soviet Union, and the measures to give effect to it which are now submitted to the House, are to be judged by the criterion of what is practicable rather than by ideal standards of justice. The distribution proposals which I have outlined are, however, so devised as to do rough justice as between the various categories of claims, which to a certain extent compete with each other.

I ask the House to approve the Second Reading of this Bill, which provides principally for long overdue compensation for the former owners of property in the Baltic States and ceded territories, and will thereby remove a tiresome obstacle from the path of our relations with the Soviet Union.

4.38 p.m.

Mr. Richard Wood (Bridlington)

This is a difficult Bill; to me at least, if not to all hon. Members. I hope that the hon. Gentleman will correct me if he finds me erring in my interpretation of it.

The hon. Gentleman has explained that it is an enabling Bill to implement the agreement between this country and the Soviet Union. I understand the assets in this country of the nationals of the States of Lithuania, Latvia and Estonia, as well as parts of other countries which were ceded to the Soviet Union, were frozen when Germany invaded those countries in the war. Those assets included gold and other property and there were other assets in those territories frozen by the Soviet Union which belonged to British nationals. I also believe the Soviet Union had paid no compensation for certain concerns it had nationalised.

That, I understand, was the position in the years which followed the last war, and the following situation existed: the Soviet Union had claims on Britain; Britain had claims on the Soviet Union; and there were individuals both in Russia and in Britain who also had claims to be met.

Therefore, I go along, and I think that a number of my hon. Friends would go along, with the hon. Gentleman in so far as he suggests that the need was made out, in principle, after a very long period, for some agreement between Britain and the Soviet Union, which would enable these claims to be settled.

The hon. Gentleman has already explained that the negotiations between the two countries continued for a number of years. I understand that it was the wish of the Foreign Office that both sides should abandon their claims to the other's property, but after Mr. Kosygin visited London at the beginning of last year we had the announcement from the Prime Minister of what he described as the final settlement of mutual financial and property claims and counter claims. This Agreement, as the hon. Gentleman explained, has involved the dropping of all claims on both sides and our payment to the Russians of £500,000, which would be used by them for the purchase of British goods.

That is one of the first subjects on which I will ask the hon. Gentleman a question in a moment. Meanwhile, Britain would discharge the obligations to claimants in Britain from assets which had been frozen. It was nearly a year before the Agreement was actually signed, and hon. Members can be forgiven if they decide that, even by contemporary parliamentary standards, and even after the painstaking explanation of the hon. Gentleman, this Bill is very hard to understand.

I begin by asking the hon. Gentleman questions about the Article in the Agreement involving the payment to Soviet Russia of £500,000. As far as I know no justification has been offered in principle for this ex-gratia payment, other than that it was the price the Government felt they must pay if agreement were to be reached What is now the exact position with regard to it? Is it already available to the Soviet Government?

If so, what was the reason for the somewhat clandestine method of obtaining parliamentary approval by concealing, or at least effectively camouflaging, this payment among a great many other items in the Estimates? Similarly, what authority had the Government to sell the gold in June, 1967? At that time no agreement had been signed and the legal right of the Government to take the action they did seems, to put it very gently indeed, deeply obscure.

When the Bill becomes law, claims will be assessed and money paid to the British claimants, with the exception of the shareholders in the two companies which the hon. Gentleman has mentioned, where foreign nationals will also be paid.

I understand that this exception was agreed with the Russians on the strength of the Russians' claim that they had already paid out some foreign nationals.

Several of my hon. Friends, who have made a careful study of this very complicated matter, feel deeply disturbed by the action of Her Majesty's Government in using, for the purpose of settling these claims, money belonging to the Baltic States, whose permission to use it has never been, and cannot be at present, forthcoming.

We have never, and the hon. Gentleman has confirmed this, accorded de jure recognition to the claim of the Soviet Union to sovereignty over the Baltic States, but I find it difficult to read Article 2 of this Agreement without getting the impression that Her Majesty's Government, in that Article, appear to give such de jure recognition in accepting that the Soviet Union is able to give an undertaking not to support claims made by the Baltic States.

In this connection, it seems worth remembering that the Soviet Government was recognised de facto by Great Britain in 1921, but it was not until de jure recognition was granted in 1924 that the Soviet Government were able to claim, successfully, the archives and property which had belonged to their predecessors.

The hon. Gentleman mentioned that on several occasions my hon. Friends and I had expressed disquiet, and, in particular, had asked that the claim of the Baltic States to the assets which they formerly owned should be admitted in the event of their regaining their sovereignty. This undertaking the Government have so far been unwilling to give, and the hon. Gentleman seemed unwilling to give it this afternoon. I will return to that later. One of the obvious difficulties in this matter is the inevitable change in the relationship between Great Britain and the Soviet Union, caused by events in Czechoslovakia less than three months ago. In February, 1967, we had the Prime Minister speaking of "a future of greater co-operation and friendship". Now, in November, 1968, those words seem a little hollow.

We have, in the intervening period, had a lapse of more than 18 months, and most of a year since the Agreement was signed last January. I do not know what the reason was for this long delay—whether it is due to any cause other than the almost chronic overloading of the Government's legislative programme. Whatever the cause, the result is that we have to consider this Bill in an atmosphere quite different from that in which the Agreement was reached and signed.

Last week, the right hon. Gentleman the Foreign Secretary spoke of "the alarming element of unpredictability" which the events of last August had introduced into international affairs. A bargain that was reached 21 months ago as part of a general attempt to improve relations between East and West must inevitably appear very different today when one of the parties to the Agreement has severely shaken the basis of any confidence by its action in Central Europe this summer.

Last week, in our foreign affairs debate, it was quite clear that our desire remains to work for the removal of outstanding differences between Russia and Britain, but the Agreement we are discussing has, through the lapse of time, become as dust in the balance compared with the affront to liberty in Central Europe recently perpetrated by the Soviet Union.

Moreover, the effect of the Agreement in relation to the question of the recognition, de jure, of Russian sovereignty over the Baltic States must cause us, in present circumstances, even deeper concern. In February of this year, in answer to a question the then Under Secretary of State made clear that Her Majesty's Government did not recognise de jure the de facto absorption of these States into the Soviet Union. That is what the hon. Gentleman has confirmed this afternoon. It is very hard to see how Great Britain can recognise the power of the Soviet Union to speak for the Baltic States while refusing formally to accept her capacity for doing so. On this same occasion, last February, and on several others, questions have been asked about the intentions of the Government in the event of the three States regaining their sovereignty.

The hon. Gentleman dealt shortly with this matter, and called it a new situation which would arise. I want him to understand very clearly that a great many consciences in this House would be under serious strain if Great Britain, having willingly acted as banker for independent nations, having sold their gold and other assets and used the proceeds to meet the claims, not only of our own people but of others, were not then prepared, if the opportunity arose, to make full restitution to the appropriate owners of those assets.

The present unpredictability of Europe, in the Foreign Secretary's phrase, is not after all, all one-way. The Baltic States may have had, for the last quarter of a century, according to the cynicism of Mr. Molotov, to "join the glorious family of the Soviet Union". But few things in this world are immutable. Neither this Government nor anyone else can say with certainty that the most proper of all claims will not one day be made on the assets we are now discussing. My hon. Friends and I must, therefore, again press the Government, and we will continue to press them, for a clear declaration of intention that if that situation arose those proper claims would be met.

The hon. Gentleman has described the justification for the Bill. As with many other things that we do or say, he says that we have to deal with the world as it is and not with the world as we would have it be. I do not deny the case for an agreement in the circumstances which have arisen over the years and in the situation which now obtains in Eastern Europe. But this does not in any way discharge us from the responsibility of ensuring that any settlement is as sound and honest as we can possibly make it. If, to put it bluntly, as the hon. Gentleman put it, we are forced to abandon those who have lost their freedom, the very least that we can ask is that we should be prepared to stand by them and returns what is theirs if that freedom were regained.

We do not intend to oppose the Second Reading of the Bill, but our attitude to its later stages must inevitably be determined by the Government's willingness to accept the possible obligations of the future which we do not believe can be honourably refused. If we are asked to pass the Bill in spite of all the anxieties which I have expressed and to which I am sure my hon. Friends will add, I am convinced that we must send a clear message to all those people who find themselves unwillingly under Soviet rule.

Our message must be that, however small our capacity at present to give practical help, we certainly have not forgotten them and we shall never forget them. Such messages do not right wrongs, but at present this seems to me both the most and the least that we can do, and on this occasion we can give practical emphasis to our words by the commitment which I earnestly ask the Government to make.

4.52 p.m.

Colonel Sir Tufton Beamish (Lewes)

I am very strongly opposed to the Bill on three main grounds. I ask the House to be kind enough to bear with me while I make a somewhat longer speech than I make normally. I am not a believer in long speeches generally.

The three grounds on which I oppose the Bill are as follows. First, I believe it to be a clear breach of international law as it is accepted and applied by civilised countries, among which Britain claims, with right, to set a high example. Secondly, I believe it to be contrary to Britain's legal and moral responsibility towards the people of the Baltic States, whether they are in exile, as many of them are, or living at home under Soviet domination. Thirdly, I believe that in its present form the Bill must seriously damage the trust reposed in Britain by all formerly independent nations now living under foreign subjugation to whom we constantly give assurances of friendship and support. Those are the three grounds on which I say that this is a thoroughly bad Bill.

The Under-Secretary of State, in his speech, which I found totally unconvincing, in another context said that one aspect of the Bill was not based on ideal standards of justice. I thought that that summed up the whole thing admirably. I therefore ask the Government, in the strongest possible terms, to amend this shabby piece of legislation in order to bring it into line with international law and to make it morally defensible in the eyes of the Baltic people. They cannot speak for themselves and, therefore, it is all the more incumbent on us to do so today.

First, how does the Bill offend against international law? By the Anglo-Soviet Agreement of 5th January, 1968, the United Kingdom accepted responsibility for certain Soviet debts. This Bill provides that the United Kingdom shall use the assets of a third party—the Baltic States—for the purpose of partially clearing up these debts. There is no question whatever of the Soviet Union having any title to these Baltic assets, and the Under-Secretary of State made that absolutely clear.

It is consistently upheld in English courts of law that foreign expropriation measures do not affect property located in England. Thus, the decrees of 1940 by which the Soviet Union expropriated the assets of the Baltic States have no validity in respect of assets lodged in this country. Successive British Governments since 1940, the date of the first Soviet occupation of these three countries, have, in any case, flatly refused to accept that the Soviet Union had any title whatever to the Baltic gold assets.

In a letter to me dated 15th June, 1967, the Minister of State, Foreign Office, wrote as follows: Shortly before the Baltic States were formally incorporated into the Soviet Union, the Soviet State Bank represented that it had purchased the gold from the Baltic Central Banks. This claim is not one which we have recognised, and the transfer of gold was withheld. That is clear enough. Then there was the Soviet annexation of the Baltic States in 1940, and the nationalisation decrees issued by the Soviet Government had, and still have, no bearing on the title to the assets lodged in this country by the Baltic States—that, I think, must be and is agreed—and no more did the Soviet reoccupation of the Baltic States in 1944, which is I think also agreed. Therefore, the Soviet Union has no title to the Baltic gold assets lodged here in 1919. Is, then, this gold the rightful property of the Baltic States, which are at present disabled, or of the British Government? We should have the answer to this key question.

In 1940, when Nazi Germany overran the Baltic States, the assets of the Baltic States in Britain were lodged with the Custodian of Enemy Property. The Under-Secretary of State said, quite rightly, that this was to safeguard British interests, and that is exactly why this action was taken. This was a technical step. There was not the slightest inference that the Baltic countries were "enemy States" in any sense of the word; they were not at any time during the war. There was no change of relations between Britain and the Baltic States, with which we have always been on the friendliest terms since they became independent. They had declared their neutrality at the outbreak of war. What else could they do? Our enemy was not Estonia, Latvia or Lithuania, but Nazi Germany.

Similarly, when Finland became, willy-nilly, enemy territory, its assets in this country were lodged with the Custodian of Enemy Property. Section 7 of the Trading with the Enemy Act lays down that vesting orders are carried out with a view to preventing the payment of money to enemies and preserving enemy property in contemplation of arrangements to be made at the conclusion of peace". At the end of the war, Finnish property in Britain was, rightly and quickly, restored to Finland to whose Government Britain gave de jure recognition. On the other hand, the Baltic States were not, and still are not, in a position to exercise their title to their property. That is the sad thing which we must recognise. Therefore, Britain, through the Bank of England, remains trustee of Baltic property in this country. I believe that that is undeniable in law, but I should like the Under-Secretary of State to comment on that.

I should now like to say a few words about recognition. Britain has rightly refused to give de jure recognition to the Soviet annexation of the Baltic States. This has been confirmed over and over again. I had a letter from the Foreign Office in June of last year confirming it, in which it was said: …nothing in the joint statement issued on Mr. Kosygin's departure from London on 13th February in any way affects the Government's policy of continuing to withhold de jure recognition of the incorporation of the Baltic States into the Soviet Union". The Under-Secretary of State said today, and I am glad that he did, that that remains our position. Therefore, there is no doubt about that.

What are the legal consequences of giving de facto but withholding de jure recognition in the case of Soviet sovereignty over the Baltic States? I am not a lawyer, far from it. I see a famous international lawyer close to me, and I am nervous about making this speech, but if I make any gaffes no doubt my hon. and learned Friend the Member for Northwich (Sir J. Foster) will draw attention to them.

I understand that withholding de jure recognition to the Soviet Baltic republics has two important consequences in international law. First, the predecessor of the de facto Government retains its legal rights. In other words, the status of the Baltic banks, and the former independent Baltic Governments, is unchanged until such time as de jure recognition is given to their legally constituted successors. I think that that is a correct statement. Secondly, any treaties concluded with the former Baltic Governments, which we recognised de jure, remain valid. I understand that that, too, is a correct statement. If those statements are correct, it follows that the commercial treaties or agreements made between Britain and each of the Baltic States in their years of independence following the first Great War are still in force. I shall be grateful if the Under-Secretary will comment on that, too. Are they still in force?

Let me give one example from the Anglo-Latvian Treaty of Commerce of 1923. This stipulates that the subjects…of each of the Contracting Parties in the territory of the other shall be at full liberty to…possess every description of property… That is Article 3, and there were similar, though not identical, treaties with Estonia and Lithuania. It must be clear that the banks of the Baltic States remain the legal owners of the gold deposited with the Bank of England. If I am wrong, I hope that the Under-Secretary will say so. This is a frightfully complicated question. I have done my utmost to consult the most expert opinion, but I may be wrong, and if I am I hope that the Minister will say so.

I am trying to keep emotion out of our discussion, but I think I must say something which hon. Members may not know, that some of the gold deposited here was in the form of heirlooms and wedding rings willingly given by Baltic citizens to support their countries' economies in the difficult early years of independence. This is an emotional point, but it is none the less something to bear in mind when considering who is the rightful owner of the gold.

What is the position of the Bank of England in all this? The Bank accepted these gold deposits "for physical safe custody". The position was explained to me in a letter dated 24th November, 1967 from the Governor of the Bank of England. Sir Leslie O'Brien wrote: …each individual bar remained the property of the customer concerned until it was vested in the Custodian of Enemy Property in accordance with the relevant U.K. legislation…the gold was placed with us for safe custody in much the same way as a private individual might place jewellery or other valuables with his bank. Responsibility for the gold was technically taken away from the Bank of England during the Nazi occupation of the Baltic States to ensure that it was not put to purposes helpful to the enemy—that was the only reason why the action was taken—but in present circumstances the Bank of England can hardly shrug off its moral responsibility for the safe keeping of the gold.

Nor does the Bank's duty to its customers end because the customers are at present disabled. Would the Bank of England have washed its hands of its undoubted responsibility if any of its customers had been in a position to challenge this act in the courts? I very much doubt it. It is unfortunately true that no challenge has been made, and it may even be true that no challenge can be made. I shall not comment on that, but the likelihood of one is very remote.

It is possible—this has neither been confirmed nor denied—that the contracts between the Bank of England and the Baltic banks include a provision whereby if the Baltic banks were unable to claim legal title to their gold for a period of 50 years it should become the property of the Bank of England. I am told that such a provision is not unusual. Presumably no such provision applied to the assets of the former Czarist régime in Russia, known as Baring balances, and some in the Midland bank, which are apparently still held sterile and not applied for any legitimate purposes, though why I do not know. Certainly there cannot have been a 50-year clause in respect of them, otherwise something would have been done with these substantial balances. But if the 50-year clause applied to the Baltic gold, the time when such a provision would come into force would not be before 1990, so that ought to be borne in mind in considering the Bill.

What representations have been made to the Government by the Bank of England about the conversion of this gold? Have any representations been received, and does the Bank regard itself as having any continuing responsibility? Did the Bank raise strong objections when the gold was sold? It was sold in a surreptitious way—my right hon. Friend referred to this—and sneaked into an enormous vote for tens of millions of £s, and was not spotted by more than one very observant Member. I am sure that at the time the House had no idea to what this £500,000 related. How will the Bank answer any rightful claim for each individual bar of gold to which the Governor referred, and which was entrusted to him?

I want to consider, next, the argument that the proposal to convert these assets for certain specified purposes does not infringe the Baltic title to them. I do not think that this argument will hold water. To take property belonging to another, to sell it, and to spend the proceeds, amounts simply to theft. The fact that in this case the proceeds of robbery are to be applied to pay the debts of the enemies and oppressors of the owners of the property seems to add gratuitous insult to injury.

In particular, the gift of £500,000 out of these Baltic assets to the Soviet Union to which my right hon. Friend referred must be quite disgraceful, and quite unnecessary. I have had many letters from all over the world about this since I wrote an article in the Daily Telegraph on the subject. It must appear to the Baltic people as a calculated affront. It cannot be reconciled with our firm and just refusal to recognise de jure the Soviet annexation of these three charming countries. We cannot have it both ways. Britain cannot pretend to set an example among civilised countries as the upholder of the highest standards of justice, and at the same time use this shabby Measure to legalise a wrongful act.

It is only a few weeks since the people of Britain, individually and through their political leaders, expressed disgust and indignation at the Soviet invasion of Czechoslovakia. This Bill must raise the question whether they were genuine tears, or only crocodile tears, which Members of the Front Bench opposite shed during the debate on 26th August. For instance, the Foreign Secretary then said: …we should avoid contacts which have clear political overtones and are of such a nature that the very fact that one has such a contact could be quoted as evidence that Britain really did not mind what happened…It would be totally wrong for the Red Army Choir to come to this country and this has been made clear to the impressario concerned. "—[OFFICIAL REPORT, 26th August, 1968; Vol. 769, c. 1418.] To show the Soviet Government that we disapprove of their invasion of Czechoslovakia, we change our minds about the Red Army Choir singing at the Albert Hall. How do we show the Soviet Government that we cannot recognise as lawful their annexation of the Baltic States? By giving the £500,000 of Baltic money, to which we admit they have no legal title, and by using what is left to settle Soviet debts. I think that this is awful.

The Foreign Secretary also reminded us during the debate on the Queen's Speech on 31st October, that this is Human Rights Year. He said: One of the chances of getting a more peaceful world is bound up with trying to get more general respect for human rights. This is not something that the United Nations can impose, but it is something in which Britain can help by her example."—[OFFICIAL REPORT, 31st October, 1968; Vol. 772. c. 198.] Exactly one week later Britain is setting an example in respect for human rights by the fraudulent—there is no other word for it—conversion of property belonging to a helpless nation.

I turn lastly to the question of the legitimate demands of British citizens who have waited for so long for compensation for their assets seized by the Soviet Union. These investments were in some cases speculative, and in other cases they were not. Speculation may bring high rewards or heavy losses—sometimes total losses. In particular, war often results in financial casualties. But the argument of our present Socialist Government that because British subjects suffered heavy losses it is "just" to use Baltic assets to help them, and that Baltic gold, if blocked indefinitely, is "doing no good to anyone"—quoting from the Foreign Office letter to me—is quite insupportable.

Banks in this country, and no doubt all over the world, are holding blocked assets that are "doing no good to anyone". Where such assets can legitimately be freed and applied to just purposes, I am in favour of this being done, but this question seems to be a matter of law, which is not all that complicated. The fact that assets which are held on deposit are "doing no good to anyone" does not legalise their misappropriation.

Britain has been in a strong bargaining position on this question, vis-à-vis the Soviet union. First, Soviet debts to British claimants were admitted to be "considerably higher" than British debts to Soviet claimants. Furthermore, the Soviet ownership of Baltic assets overseas is not recognised by the British, the United States or other foreign Governments in which the independent Baltic States placed their trust. The British Government, having failed miserably to take advantage of the strong bargaining position in which they found themselves, are faced with two alternatives—either to hold the British taxpayer responsible for compensating British citizens for claims which the Soviet Government acknowledge but refuse to meet, or to tell British claimants that through a failure in negotiations their claims, however just, will not be met, and that nothing can be done to offset their losses.

The Government have done neither of these things. Instead, they have filched money which morally—in spite of what the Under-Secretary said—and legally—which I think I have proved in my speech—by all accepted standards of international law belongs to a third party, in order to satisfy, in part, British claimants who have had to wait so long for compensation. There is only one course of action that can give this squalid and unnecessary little Bill a thin veneer of respectability, and that is to adopt the course suggested by my right hon. Friend the Member for Bridlington (Mr. Wood) and to add a restitution Clause, or to give a clear and unequivocal promise of restitution. This would amount to saying that, come the happy day when any one of these countries regains its independence—and while it will not come tomorrow it may well come some day—without question asked the Government concerned will have an absolute right to restitution of its own property placed here with the Bank of England.

The law on this point, and Britain's adherence to it, is absolutely clear. I quote now a legal opinion by Lord McNair who said that …property belonging to foreign nationals can only be expropriated with compensation; it cannot be confiscated. Moreover, such compensation must be ' adequate, efficient and immediate compensation'". According to a legal opinion, the International Bar Association confirmed, in 1958, the principle that the expropriation of foreign private property could take place only on the basis of the public good and against adequate compensation. The United Kingdom confirmed this principle at the 1946 Peace Conference, when the British delegation referred to the United Kingdom's own principle of full compensation, to which she still aheres and to which she attaches the greatest importance. These three quotations show without a shadow of doubt that the legal title to this money remains with the Baltic countries and that they are entitled to full restitution if any one of them regains its independence. That is absolutely undeniable, and I urge the Government with all the force at my command to give such an assurence, either by amending the Bill—which may not be possible—or by a firm and unequivocal statement from the Dispatch Box.

This is a small and somewhat obscure Bill. Why it is called the Foreign Compensation Bill I have no idea. Mostly British subjects will benefit from the payout. Although there are probably some Hottentots and Eskimos who are shareholders in the gold, the great majority are not foreigners. The Bill is not easy to understand. It does not touch the lives of many citizens of this or any other country. It will not hit the headlines in this country or abroad, or make any dramatic difference to our relationships with the great world Powers. But it will certainly make our friends ashamed of us. The Baltic peoples, whether at home or in exile, will rightly feel that they have been betrayed. Only the Soviet leaders will rejoice, with Mr. Kosygin and Mr. Brezhnev sipping their double Scotches in the Kremlin and drinking a toast to "absent friends" as they pocket their £500,000 tip.

The pilfering of the Baltic assets cannot be compared to the Great Train Robery. It is more like a petty theft from a sub-post office. But if this House accepts this Bill in its present form, without a firm promise of full restitution, it will cost this country loss of respect out of all proportion to the number of people or the sum of money involved. Of that I am sure. We do not deserve and cannot expect to be trusted if we behave in this way towards people whom we call our friends, and who cannot stand up for their own rights.

In the context of the Bill we would do well to remember a simple Estonian proverb— Fortune gone—little lost, Strength gone—much lost, Honour gone—all lost.

5.20 p.m.

Mr. John Smith (Cities of London and Westminster)

The Russian and British peoples have in the past had strong affinities with each other, and I am wholly in favour of all contacts and trade between this country and Russia—indeed in matters of commerce the Russians are most punctilious—and I look forward to the day when both countries can freely share, in all fields, whatever each has to offer the other. We must not be deflected from this aim by recent dreadful events and setbacks. I shall be sorry therefore if this debate delays the arrival of that day, and, consequently, what I have to say is critical solely of our Government.

I would not presume to speak on the moral or legal aspects, but I have worked in a bank for 20 years and will therefore deal with the practical aspects of this matter. The Minister claimed that he is doing "what is practical". That is a poor thing to claim in such a matter as this, and an amazing thing for this Government to claim in any matter at all. But is what he is doing practical?

First, although our claims are "considerably greater", to use the Government's words, than the claims made on us, we are nevertheless giving away £500,000. The Russians will, quite rightly, not respect us for this. Danegeld has never worked; and to tie this to a purchase of British consumer goods in addition makes it a thoroughly second-rate transaction. Indeed, it is the sort of transaction which, in the not too recent past, we pitied other countries for having to make.

Second, this gold was deposited with us for safe keeping. It is a pity that it was not deposited in the form of currency, in which case during all these years it would have been working for its owners and for us. Nevertheless, it was deposited with us for safe keeping, and no commercial bank that wished to retain its customers would dream of parting company with objects so deposited without the clearest legal permission to do so The bank in which I work has rooms full of objects, many of them extremely interesting and many of them to which the title is almost perfect, but not quite. We would not dream of parting with any of them without a perfect title being shown to us. Why is that? It is because we wish to stay in business as bankers; and what applies to us in commerce applies, a fortiori, to this country.

These Baltic States are not the only people who have-placed assets in our hands for safe custody, nor are they the only small countries which may find them selves in danger. Are we to suppose that this Bill will encourage, for example, some Arab States, which keep a great deal of money with us, to leave their assets in our hands?

Furthermore, what is to be the position of the Baltic gold deposited by the Bank for International Settlements? Is that to be sequestrated and sold? Of course it is not. If it is not, why are we doing something with Baltic gold deposited by the countries themselves which we are not doing with gold deposited by an international organisation? The answer is all too clear.

Again, the Bill is retrospective. The Agreement has been implemented, the gold has been sold, and the money has gone without the approval of Parliament. I understood my hon. and gallant Friend the Member for Lewes (Sir T. Beamish) to say that he had had some form of undertaking that Parliament's approval of the Agreement would first be sought.

Finally, should there ever again be Baltic States, I hope—and the Minister dismissed this as a hypothetical matter but it is a hypothetical matter of some importance—that provision will be made for reconstituting these assets—and, of course, the obligations—so that this dishonourable and inexpedient transaction can, as I earnestly hope it will, at some future date be put right.

5.25 p.m.

Sir John Foster (Northwich)

I have an interest to disclose in that a company with which I am associated holds some promissory notes.

I want, first, to deal with the matter on the footing that the gold was to be sold, or is to be sold, and that the proceeds are to be distributed to the claimants in the categories to which the Government propose. It seems most extraordinary that when the gold is in the possession of Her Majesty's Government and when the claimants are all on this side of the Soviet line, the Government should give £500,000 to those who stole the Baltic States. There is no need for it.

The Under-Secretary of State said that we must not do a thing unilaterally. The word "unilateral" means one-sided and presupposes that two sides have an interest. The criminal does not have an interest. There are not two sides here but only one side. The hon. Gentleman said that there might be repercussions, though he did not care to specify what they might be. There cannot be any repercussions. We have the gold and we have the claimants. This £500,000 transaction was quite unnecessary.

"But", says the Under-Secretary—and this is a typical Parliamentary tu quoque argument—"Conservative Governments since 1940 have not bothered to do anything about it." He therefore seems to be arguing, "The Tory Governments were right, and we are right to follow them." I meet that argument head on by saying that the Conservative Governments were wrong. They should have distributed this money to the claimants in this country. The hon. Gentleman says that this action has been taken for good international order, but it is not good international order to come to an agreement with someone who has stolen something. The gold produced the assets, and the assets should have been distributed.

Another way of dealing with such matters is to do nothing, and that is what the former régime did with regard to the Czarist assets. The position was exactly the same as it is with regard to the Baltic State assets. The Czarist assets in this country were very considerable, and so were the number of claimants. Many of them were poor. Most of them have died since 1917, when the assets were taken, and it is very much to the dishonour of all this country's Governments since 1917 that they have not collected the Czarist assets and distributed them to the claimants. No other country has been foolish enough to say, "We will not touch the Czarist assets in our country and distribute them to the claimants." Many of the claimants in this country were destitute and in urgent need of the few pounds they would have got from those assets.

I was in the habit of writing every five years, whatever Government were in power, asking, "Why do you not appoint someone to collect the Czarist assets in this country and distribute them to the Czarist claimants?" The last answer I had—from my own Government, I am sorry to say—was that it would annoy the Russians. But the Russians have no right to those assets and will not have any right to claim. These assets have been here since 1917, and I urge the Government, if they consider distributing the assets in that case, not to seek agreement with the Russian Government, who are not concerned with the assets, before distributing them—

Mr. Ted Leadbitter (The Hartlepools)

Am I correct in suggesting to the hon. and learned Member that the balances arising out of the conditions in Article 2 of Command 3517—namely, £500,000— are to be deposited in the name of the Soviet Union? Does he agree that that was public knowledge in January of this year; and that he has, therefore, taken a very long time to show his complete disagreement, as did his hon. Friends? Is not this a belated argument?

Sir J. Foster

This is, again, a typical Parliamentary argument. All right, I am late—but I am still right. The hon. Gentleman uses just the sort of argument we get in this House, but it is a complete non sequitur. It is not logical. All right, I should have complained earlier—so what? That does not alter the fact that it is completely crazy of the Prime Minister, who has all the assets, to say to the Russians, "I will give you £500,000 in order to get an agreement." That is unnecessary. That does not seem to be progressive, or gritty, or whatever may be the word that is used.

Mr. Leadbitter

What I am trying to convey to the hon. and learned Gentleman is that this agreement was reached in January, signed, and made known to this House and to the public. All I am saying is that if the hon. and learned Gentleman and his hon. Friends were so really upset they could have tabled a Motion or had a debate long before now.

Sir J. Foster

I agree that I could have done so. But that still does not make me wrong. The hon. Gentleman must make intellectual arguments intellectually, not by tu quoque arguments, saying, "You are late". What does that mean? That I cannot speak, that I should not speak? The hon. Gentleman raises his hand in a gesture. Let him deal with the question why somebody who has assets belonging to a country which was overrun and illegally annexed by another should give a tip of £500,000 in order to get an agreement which is not worth anything. What is the point?

I agree with my hon. and gallant Friend the Member for Lewes (Sir T. Beamish) that the Government should say that if the Baltic States ever regain their independence we will pay them the money. But I do not approach the matter in quite the same way. I think that he and my hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) overlook the effect of the "line of war." English law is very harsh in its application of the line of war. If one had a contract with, say, a Frenchman or a Dutchman, who was anti-Nazi, when war came the contract was abrogated and if he had property in this country it was seized by the Custodian of Enemy Property, and presumably sold by him.

Thus, the Government can look on the gold of the Baltic States as undoubtedly belonging to those States and can regard the debt owed by the citizens of the Baltic as being attributable to the State. It is a case of one against the other. and therefore I agree that the assets of the Baltic States could have been distributed to the claimants.

But there is the moral point that the gold was deposited here for safe keeping and it was not the fault of the Baltic States: hat they were overrun. The Government should add to the Bill a rider that they will restore the amount of the gold if: he Baltic States become independent again. The States could regard it in a way as an aid to their independence. We would be called on to help them financially, and it would be helpful to them to know that on becoming independent they would automatically get the £5½ million or £6 million-worth of gold.

But I do not think that some of my hon. Friend's strictures that the gold has been filched from the Baltic States are altogether justified, if one regards the gold as belonging to the Baltic States and the claims against individual citizens as being transferred to claims against the Baltic States themselves.

However, I come to the same conclusion as my hon. and gallant Friend the Member for Lewes, and I ask the Minister to examine the case of the Czarist assets and not use the tu quoque argument that any number of Governments since 1917 should have dealt with the matter. I pressed them to do so, and it is disgraceful that they did not. That is no excuse for the present Government not doing it. It does not follow that because the other Governments did not do it the present Government are acting correctly.

In this case they have been very foolish as well. They have given away £500,000 unnecessarily. I am certain that any Government formed by my party which at last got round to distributing the proceeds of the Baltic gold to the claimants in this country would not have given the Russians a £500,000 tip.

5.34 p.m.

Mr. Gordon Campbell (Moray and Nairn)

I, too, am worried about the Baltic gold part of the Agreement and Bill. But in principle I favour attempts to settle outstanding claims across frontiers, particularly when they have been outstanding for many years, because otherwise individuals can suffer through being deprived of the use and benefit of their property for most of their lifetime.

I also agree that an element of barter must often enter into negotiations and agreements with Communist States or Governments which control everything within their States. But the British Government can only carry out such negotiations correctly if they clearly represent the owners and claimants, and act on their behalf. In the present case there is clearly doubt as to whether the ownership of the gold which was deposited in the Bank of England before 1939 by the central banks of the Baltic States has been properly determined. It is in doubt. The three countries were annexed by the Soviet Union, and although the United Kingdom recognised that annexation de facto, the Minister has confirmed today that there is no question of our recognising it de jure.

The banks were nationalised by the Soviet Union and the property expropriated by it, but the British courts have always held that such expropriation does not apply to property within this country. I understand that the United Kingdom has never recognised the Soviet Union's claim to ownership of the gold in the Bank of England, unless they have done so by virtue of the Agreement reached at the beginning of this year.

I understand the desire to try to clear up the matter. It is exactly 20 years ago that I was engaged in the Foreign Office in the negotiations with Yugoslavia on the three Agreements which were reached in December, 1948, and which are referred to indirectly in the Bill. Those were Agreements on trade compensation payments, money and property. The right hon. Member for Middlesbrough, East (Mr. Bottomley) will remember this, because he was the Minister responsible at the time. The British Government were then clearly representing British claimants, and there was no doubt that they were acting on behalf of persons in this country and in the Commonwealth whom they could represent.

Sir J. Foster

My hon. Friend would probably agree that the situation then was very different, because the Yugoslav Government had to pay money to us. He has not dealt with the question, "Why have an agreement with somebody when you do not have to pay anything?".

Mr. Campbell

Yes. My hon. and learned Friend intervened before I had completed making my point. I mentioned those Agreements to explain to the Government that I am sympathetic, having been involved in such negotiations in the past. But in that case the British Government clearly represented claimants and owners of property, and the Yugoslavs agreed to the payment of a sum as compensation. The Agreements, signed in December, 1948, led, with others, to the establishment in 1950 of the Foreign Compensation Commission referred to in Clause 2(4), which then had the job of dealing with the claims of mainly British and Commonwealth citizens, and then dividing up the money which the Yugoslav and Czech Governments had agreed to pay in compensation. That is why I recognise that this form of settlement is something for which one tries to aim.

But in the present case there is doubt as to whether the Government are within their rights to dispose of gold as if it belonged to the Soviet Union. That is exactly the point which I think my hon. and learned Friend said made the difference. I will not argue with him on points of law, on which he is an expert. He feels that in times of war English law is harsh, and he would have been prepared to dispose of the Baltic gold at a much earlier date. But he made it clear that if any Government did that, even in 1947 or 1948, they should give a clear assurance that if there were a valid claim in future from the owners of the Baltic gold they would be paid the money they were due. That is how I understand it. My hon. and learned Friend has a difference of opinion with some hon. Members on this side of the House about the timing when it would have been possible to dispose of the gold. For example, my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith), as a banker, said that he believed that it would have been wrong for the Bank of England, as a trustee, to have disposed of the gold.

The Government, having reached the decision, presumably in the light of events in Eastern Europe over the past 20 years, that it is proper for the Bank of England to dispose of this gold which it has been holding as a trustee, I entirely agree with my hon. and learned Friend that it is unnecessary at that stage to bring in the Soviet Union. The gold could have been disposed of as assets to be divided up by the Foreign Compensation Commission among the claimants. It is entirely unnecessary to have an agreement to pay £500,000 and to bring in other provisions for a consumer goods deal. The Under-Secretary of State mentioned some counter-claims by the Soviet Union against British citizens which would be waived, but although I do not know the details, I do not believe that these claims could be enough to cause a need for a deal with the Soviet Union at this time.

I presume that the Government have decided that claims by the original owners of the gold are unlikely to materialise. Presumably they do not believe that, in the foreseeable future, the central banks of the three independent Baltic States, who are the owners of the gold, will appear as valid claimants. The Under-Secretary of State spoke of that as hypothetical. Nonetheless, the Government surely ought to make a categorical statement that the legal interest of the owners of the gold is, and will be, protected. The Government should give an assurance, whether it is written into the Bill or not, that if a claimant were to appear in the future with a valid claim, Britain would pay the equivalent value of the gold which had been held on behalf of that owner.

If the Government argue—as the hon. Member has, I think, argued—that they consider such a claim now to be improbable, there is no difficulty in their giving a solemn undertaking of that kind. Although such a claim might be made years ahead, in the Government's view it is improbable. I cannot see why such an undertaking should not be given.

Several hon. and right hon. Members from this side of the House, including my right hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home), have corresponded with the Government on this subject and have put down Questions about it. That is because, while we should welcome an honest settlement of the outstanding matters and the outstanding claims, we are very much concerned that Britain's good name and reputation should be upheld in dealings involving gold of which the Bank of England has been a trustee and in respect of which it has had only limited powers of disposal.

5.45 p.m.

Mr. Whitlock

The right hon. Member for Bridlington (Mr. Wood) said that the Bill was in many ways difficult to understand. Unlike the hon. and learned Member for Northwich (Sir J. Foster), I am not a distinguished lawyer, and I sometimes find it difficult to understand the esoteric legal arguments which the hon. and learned Gentleman uses in the Chamber. Obviously, many points of international law are involved in the Bill.

The right hon. Member for Bridlington said that Article 2 of the Agreement suggests that we are giving de jure recognition to the occupation by the U.S.S.R. of the Baltic States. That is not so. If the right hon. Gentleman will look at Article 2, he will see that the Soviet Government merely undertook not to pursue its claims further. As I said earlier, we have never accepted the Soviet claims in law. In the circumstances, no implication of de jure recognition can flow from the Agreement.

The right hon. Member asked how we can say that we do not recognise de jure Russian sovereignty and nevertheless dispose of the gold. I ask him why he did not put that question to the Government of which he was a member when the decision was taken in 1959 that the Baltic gold would be part of the assets which would be the basis of a settlement. If the present Administration had followed the logic of those who argue that the Baltic assets should remain inviolable, there could not have been negotiations with the Soviet Union and there could have been no settlement. These assets, together with the assets of the ceded territories, constitute the only source of compensation available to post-1939 claimants against the Soviet Union.

In 1940 it was made clear by Britain that at the time of the blocking of the Baltic assets the action had been taken to protect United Kingdom interests and that we fully reserved all the rights to the assets within our jurisdiction. It is an illusion to think that any agreement about the claims which we are discussing could have been reached with the Soviet Government had Her Majesty's Government not agreed that those assets should be taken into account in assessing the compensation due. There could have been no agreement unless we had accepted that.

The hon. and gallant Member for Lewes (Sir T. Beamish) asked why, on 23rd January, my right hon. Friend the Foreign Secretary said that the Agreement would be subject, in due course, to Parliamentary approval. When my right hon. Friend spoke on the subject, the Agreement had already been signed—on 5th January—and it was laid before the House on 18th January. As the Preamble shows, the Bill is called for in order to make arrangements in consequence of the Agreement. That is, no doubt, why my right hon. Friend made that reference when he answered the hon. and gallant Member's Question.

The hon. and gallant Member argued at some length that, in taking over the Baltic assets for the benefit of British claimants, Her Majesty's Government would be committing a breach of faith towards the Baltic people, and he called on the Government at least to say that the assets or their value would be restored to the Baltic States in the event of their regaining independent sovereignty. I have great sympathy with the feelings which underlie that argument, but the Government have had to have regard to the realities of the situation, and I suggest to the House that hon. Members, too, should have regard to those realities.

The history of the assets is long and complicated, and I will summarise it as briefly as I can. In the summer of 1940, certain actions injurious to British interests were taken by the Governments of Estonia, Latvia and Lithuania, which were then under Soviet control but not yet incorporated, according to Soviet legislation, into the Soviet Union.

Sir T. Beamish

They were not free agents.

Mr. Whitlock

They were not completely free agents, but they were not at that time incorporated into the Soviet Union. Confiscatory decrees were promulgated in these States. The three British Missions protested to the Governments and reserved the rights of Her Majesty's Government to take any action open to them to protect United Kingdom interests.

On 24th July, 1940, the Treasury issued a directive which had the effect of blocking the Baltic States' assets in the United Kingdom, including the gold deposited in the Bank of England by the Baltic central banks. Similar action was taken by certain other Governments. We made it clear to the Governments of the Baltic States and, later, to the Soviet Union, which claimed to have bought the gold in mid-July, that the action was taken to protect United Kingdom interests and that we would reserve all our rights with respect to the assets within our jurisdiction.

In 1941, the Baltic States were occupied by the Germans and their assets in this country became subject to the Trading with the Enemy legislation. With most other occupied countries whose assets in the United Kingdom had been subject to the control of the Crown, we made agreements at the end of the war. These "money and property agreements" as they were called, were reciprocal, since the same conditions of war which made the assets of the occupied territories enemy property in the United Kingdom made the British assets in those territories subject to seizure.

It was, however, impossible to conclude such an agreement with the three Baltic States, since they had possessed no independent Governments since 1940. When the Conservative Government decided in 1959 to enter into negotiations with the Soviet Union on the claims and counter-claims which were outstanding between us, it can only have been on the assumption that the assets within the United Kingdom jurisdiction should form part of any settlement. These assets were the subject of claims by the Soviet Union against us. They were just as much a part of the matter under negotiation as were our claims against the Soviet Union.

As I have said, it is an illusion to think that any agreement on the claims we are discussing could have been reached unless Her Majesty's Government had agreed that these assets should be taken into account in assessing the compensation due to us. Neither this nor any other British Government could have handed the assets over to the Soviet Union. I am sure that both sides of the House would have rejected such a solution as completely intolerable.

We agreed to these assets being included in the reckoning, with the result which the House knows. To leave the assets alone would do no good, and I cannot believe that it is seriously suggested that this course should be adopted. We have a duty to British claimants and can exercise it by distributing these assets. We have a perfect right to do so under the agreement reached with the Government who exercise de facto authority over the territories concerned.

A somewhat more moderate argument was put by the right hon. Member for Bridlington and others, who accepted that the assets should be distributed but suggested that the Government should undertake to pay back a sum of equal value to the Baltic States in the event of the letter regaining independence. It would not be right for the Government to enter into pledges about a hypothetical situation of this kind which would purport to be binding on future Governments. We do not know in what circumstances any of the Baltic States might gain independence.

If an independent Government were restored at some future date in any of those territories, that Government could submit claims against the British Government of the day. But if that Government were in a position to make claims, they would also be in a position to accept obligations, so that we should have to respond by re-stating our claims.

Sir J. Foster

Why was it necessary to get the permission of the Soviet Government, who are only the de facto occupiers of the Baltic States? Why have an agreement at all?

Mr. Whitlock

Because it has been the policy of successive British Governments to do this by way of agreement and not by unilateral action. It would not be right for me to suggest answers for hypothetical situations. It would be wrong of me to offer a pledge about the restoration of the Baltic States' rights, as has been suggested by the hon. and learned Member.

Mr. Gordon Campbell

This is a complicated matter. If the hon. Gentleman is not prepared to go so far as to give an assurance in the event that the Baltic States regain their independence, can he not give an assurance—perhaps not here and now but later—that, if valid claims were put forward by the owners of this property, their legal rights would be protected?

Mr. Whitlock

As I have said, it is impossible for me to make commitments for future Governments in hypothetical circumstances—circumstances which at the moment we cannot possibly envisage.

The hon. and gallant Member for Lewes asked whether, since the Government only recognise the incorporation of the Baltic States into the Soviet Union de facto and not de jure there are not de jure Baltic States and Governments still in existence which have a claim to the Baltic States' assets and have a claim to compensation if those assets are taken by the British Government for the present purposes.

The position of successive Governments has been made clear on a number of occasions. Her Majesty's Government take the view that the Baltic States as constituted before 1940 have ceased de facto to have any effective existence. There is no de jure Government of the States recognised by the British Government and accordingly there are no Governments to claim the assets, apart from the Soviet Government, and the Soviet Government are the de facto Government with whom we have concluded an agreement. In any event, we consider that we are entitled to take the assets to meet unsatisfied demands on our side, and therefore no question of paying compensation to the Baltic States arises.

The hon. and learned Member for Northwich was critical of the agreement. He suggested that there was only one side to this situation. There are claimants and assets on either side. There was a point in the negotiations when my right hon. Friend the Member for Belper (Mr. George Brown) tried to achieve what he called a "nil-nil draw". Even that was unacceptable to the Soviet Union. Then the £500,000 which was made available to the Soviet Union came into the picture and clinched the deal. Without that £500,000, there would have been no settlement.

The hon. and learned Member went on to talk about the Czarist assets. I should be out of order if I pursued that question far, but he was critical of past Governments for not securing agreement on the Czarist assets. Now that this agreement has been achieved, we have told the Soviet Government that we hope that it may now be possible to initiate discussions with them on the Czarist claims. We are awaiting a response to our approach. Having achieved this agreement, although in a way which the hon. and learned Member and others disapproved of, we now have opened up the possibility of considering the Czarist claims which other Governments in the past have failed to do.

The claims which have given rise to the need for the Bill arose at a dark period in world history and they have remained outstanding for a long time. The question of the claims has been a problem facing successive Governments and a constant irritation in Anglo-Soviet relations which we are working to improve, despite setbacks. Recently, as the hon. Member for the Cities of London and Westminster (Mr. John Smith) pointed out, we have had further setbacks. But, in spite of those setbacks, we must work to improve relations with the Soviet Union, as much in the interests of those people in the world who have recently found it a much darker place as for ourselves.

It is the earnest hope of the Government that the Agreement of January, this year, will have finally resolved the questions between the two Governments. We are concerned in the Bill with the final stages of the operation, that of providing compensation for the claimants. What we have to do is to divide the proceeds of the Baltic assets among the claimants. As hon. Members will readily appreciate, the task is by no means easy, because the interests of the different claimants to some extent conflict. The Government's guiding principle is to achieve arrangements which will operate equitably as among different categories of claimants. It is my sincere hope that this long and sorry story will end with a distribution which is just and fair under the terms of the Bill.

Mr. Wood

My hon. Friend and I will clearly want to pursue this matter at a later stage and I should like the hon. Gentleman to give a perfectly clear answer to my question. Does he take the view—I do not think that he does, but I should like to be quite clear—that the use of the assets in the way outlined in the Bill precludes the honouring of the possible future claims which my hon. Friends and I have raised this afternoon? I appreciate the limitations by which he is restricted. None of us can be certain about these things, but, in the nature of probabilities, it seems unlikely that Her Majesty's present Government will still be in office when the Baltic States regain their sovereignty. Nevertheless, while I appreciate the difficulty about binding future Governments, can the hon. Gentleman give the undertaking that, if valid claims were put forward in future, in the words of my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell), the legal rights of the claimants would be protected and, in the view of the Government, the claims could and should and would be met?

Mr. Whitlock

As I have said several times, we cannot commit any future Government in circumstances which at the moment are entirely hypothetical. The right hon. Gentleman talks about legal rights and valid claims, but what those may mean in any future circumstances none of us can tell. I have said that we cannot give the pledge of this or any future Government that we can foresee circumstances in which it will be possible to reconstitute the Baltic claims. Beyond that I am unwilling to go.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).