Men of the Secret War Council: Bernhard Dernburg

Bernhard Dernburg had given up his illustrious banking career to become Secretary of State for Colonial Affairs in 1907. The heavyset, full-bearded figure, with clear blue eyes, attentive, with a friendly disposition, portrayed raw power, intelligence, and decisiveness. Wildly successful as an innovative and daring reorganizer, the German banker had risen to stardom in German political and financial circles, en par with “Albert Ballin, Walther Rathenau, Max Warburg, Carl Fürstenberg, and Maximilian Harden.” The German Emperor had chosen this powerful Jewish banker specifically for the colonial secretary assignment because “[…] his distinguishing characteristic [was] Rücksichtslosigkeit, cold-blooded, unrelenting disregard for anything but his objective.”

Former Imperials Secretary of the Colonies and the highest ranking German official in the United States in 1915, Dr. Bernhard Dernburg.

Dernburg was looking for a new job in the summer of 1914. His political enemies, the legions of kowtowing Prussian bureaucrats the secretary had steamrolled throughout his career, had finally succeeded in having him fired from his cabinet post in 1910. It took the Emperor four years to find a suitable mission for his old friend who had used the forced break for extensive travels to Asia and touring on the lecture circuit.

The beginning of the Great War provided the opportunity. The former imperial secretary, the “Captain without a ship,” was to arrange for a large loan to the tune of $150 million in the United States and organize the sale of German war bonds on the American market. The proceeds were projected to finance the expected cost of purchases of American goods Germany needed in the war years. Nominally, Dernburg represented the German Red Cross in the United States, a designation causing great consternation when the American public found out that their donations financed the war effort instead of helping battlefield casualties. As a banker, Dernburg had been overseas on numerous occasions, and even spent his banking apprenticeship at Ladenburg, Thalmann and Co. in New York. He had also cultivated important contacts on Wall Street in his years as a banker, Colonial Secretary, and financier. He spoke excellent English. The imperial German government considered Dernburg an expert regarding the United States with the chutzpah to get things done. Unfortunately, much to the chagrin of Ambassador Count Bernstorff, diplomacy turned out not to be one of Dernburg’s strong points.

His first task was to raise a war loan for Germany in the United States, which he could not achieve in the face of a failing war effort in the fall of 1914. Dernburg then took over propaganda for Germany in the United States. Somewhat more successful, he gave interviews, wrote editorials and bombarded editors with prepared editorials. One of the targeted editors commented: “Our mail is dernburged until the postman can scarcely stagger up the front stoop with it. They are systematic those Germans. If you doubt it, send them your postoffice [sic] address.”  The sinking of the Lusitania in May 1915 sank any chance of winning the hearts and minds of the American public. After a speech in Cleveland, defending the German atrocity which killed 129 Americans, Dernburg went back to Germany before the U.S. government would evict him.

The Road to Columbus: The Money Trail and Franklin Olin

Villa's inability to pay for the desperately needed munitions for the Division of the North created an opening for German agents to support both sides in Mexico's civil war and thus extend it. Sommerfeld, Pancho Villa's chief arms supplier in the U.S. and German naval intelligence agent, began shipping on a $420,000 contract on April 1, 1915 for 12 million 7mm cartridges. This contract was with the Western Cartridge Company in Alton, Illinois. Sommerfeld had made this deal on behalf of Villa in February 1915. The Mexican general had provided a down-payment of $50,000. For this order only the initial deposit appears in the accounts of Lázaro De La Garza, who had financial control of all New York funds of Villa’s supply chain. This leads to the unanswered question, who paid for the balance of this contract? The entire order was produced, paid for, and shipped to Villa between April and August 1915. The price per thousand cartridges was an astonishingly low $35, while Remington and Winchester charged $50 for the same product, and Peters Cartridge Company between $55 and $60.

The standard Mexican 7mm Mauser cartridge of 1915

Sommerfeld closed another arms contract on May 14, 1915, this time for 15 million cartridges at the same price as his earlier contract, $35 per thousand, valued at $525,000 ($11 Million in today’s value). There are several astonishing aspects to Sommerfeld’s deal. First, the price Sommerfeld got for the munitions was, again, at least thirty percent below market value. How did he get such an outstanding deal? Second, he managed to occupy the entire capacity of Franklin W. Olin’s Western Cartridge Company factory in East Alton for the year 1915 with this second order. Sommerfeld was now on the hook for $945,000 ($20 Million in today’s value), as Villa’s fortunes declined, and the Villista fiat money was rapidly losing value. The German agent expected to make 2% commissions, $18,900 if both contracts were fulfilled ($400,000 in today’s value). All the while he managed these huge contracts as a German in the middle of a huge spy scare that had gripped the United States as a result of the German sabotage campaign against U.S. targets. 

Sommerfeld’s account at the Mississippi Valley Trust Company shows a total $381,000 flowing through it from April to December 1915.

Only days after closing on the second contract for the fifteen million cartridges, on May 17, 1915, he signed the contract over to Lázaro De La Garza. De La Garza provided the down-payment of $65,000, which went to the Western Cartridge Company. The money came from Francisco Madero's uncles Alberto, Alfonso and Ernesto in New York, probably profits from sales of goods from the area Villa controlled in Northern Mexico, such as bullion, cattle, rubber, or cotton. De La Garza also logged a deposit “en B[an]co St. Louis” in May for $30,000. This amount does not show up on Sommerfeld’s account.

The head of the Secret War Council, Heinrich F. Albert, withdrew that exact amount in May from his account at the St. Louis Union Bank. Obviously, not just Albert, but also Sommerfeld maintained accounts St. Louis and specifically in the St. Louis Union Bank. This account was connected with Albert's. Assuming that Sommerfeld paid for both contracts, his St. Louis Union Bank account showed transactions of roughly $400,000, similar to another account he maintained at the Mississippi Valley Trust account. Only $145,000 of the total $945,000 appeared in the books of De La Garza. The French government ended up buying $265,000 worth later in 1915. The Carranza faction took $150,000 of the munitions in September. The Western Cartridge Company refunded $65,000. This leaves $385,000, almost the exact sum of Sommerfeld’s Mississippi Valley Trust transactions and what the U.S. government alleged to have come from Heinrich Albert ($381,000). The $385,000 also matches the funds believed to have remained on Albert’s various accounts in Milwaukee, Cleveland, St. Louis, and Chicago.

Another question looms large as well: Why would Franklin W. Olin sell munitions to Sommerfeld thirty percent or more below market value? Even if Olin would have sympathized with the German cause to the point that he refused to produce munitions for the Entente, he still could have commanded a higher price from the various Mexican factions, even Villa’s. Incidentally, De La Garza’s accounts show payments to Peters Cartridge Company for the same type of ammunition in May 1915 priced at $55 per thousand. The answer to this riddle may have revealed itself in the spring of 1916 when, out of the blue, and, without much fanfare, F. W. Olin opened a brass casing factory next to Western Cartridge Company in Alton, Illinois.

Olin was a businessman who believed in vertical integration. He started his business in 1892 when he founded the Equitable Powder Manufacturing Company. The company’s blasting caps served mostly the coal industry in the Midwest. He expanded the production to include small arms ammunition in 1898, changing the name to Western Cartridge Company. He also founded a company that manufactured targets in the same year to better serve his sporting and hunting rifle customers. The Western Cartridge Company had managed to carve out a nice slice of the U.S. munitions market dominated by the large arms manufacturers such as Winchester Rifle Company and Remington by the early teens. Since the outbreak of the Mexican Revolution in 1910 the company thrived. The success resulted from the fact that Western was willing to produce 7mm Mauser cartridges widely used in Mexico. The Western Cartridge Company had sold millions of cases of ammunition through Sommerfeld to Madero, Carranza, and Villa over the years.

President Franklin Olin and his son, John, liked doing business with Sommerfeld. His clout over the past years had made the transportation of shipments across the international border smooth. When the U.S. government instituted various embargos, Sommerfeld called on his friends in very high places, such as Lindley Garrison, Secretary of War, or William Jennings Bryan, Secretary of State, or Hugh Lenox Scott, the General in charge of border troops and later President Wilson’s Chief of Staff of the Army and received permission to export. Sommerfeld also stood by his word. He was very well organized, understood proper specification, had the customer contacts, and, most importantly, he always paid on time.

The savvy businessman chomped at the bit when Sommerfeld asked Olin to quote on the two largest munitions orders in the company’s history. An order of that size would allow Olin to install his own brass mill to produce the cartridge cups. However, where to get the all-important presses for such a production? Enter Carl Heynen and the Bridgeport Projectile Company. Heynen was a German naval intelligence agent and ran the sham munitions plant for his German superiors. Using the Bridgeport Projectile Company as a front, Heinrich Albert had signed contracts in the spring of 1915, locking up the entire capacity for smokeless powder and for hydraulic presses in the United States. Where did Olin get this equipment that allowed him to open a brass mill in the spring of 1916? The difference between the sales price and market price on twenty seven million cartridges that Sommerfeld contracted amounted to approximately $405,000 ($8.5 million in today’s value). Heynen accounted for the cost of hydraulic presses he had ordered and which were actually produced: “$417,550 for presses which had actually been produced.” A striking coincidence! If true, the German government supported Olin’s plans for a brass mill with the understanding that he would not produce for the Entente; hence, the contracts with Sommerfeld at a price far below market value. The new factory would prove to be a boon for Olin. He came out of the war with tremendous financial strength. In 1931 he bought Winchester. Olin Industries is one of the largest corporations in the United States to this day, partly thanks to Franklin Olin and the connections of his good friend, Felix A. Sommerfeld.

This blog series will trace the events that led to Villa's attack on Columbus, New Mexico on March 9, 1916 in weekly segments. On March 12, I will speak at Columbus for the Centennial Commemoration of the raid and reveal how Villa was made to believe that attacking the United States was a good idea. If you get impatient and do not want to wait for eight months to learn the facts behind Columbus, buy Felix A. Sommerfeld and the Mexican Front in the Great War now.

Robert Fay: A Terrorist Plot Foiled 100 Years Ago

The secret agent Lieutenant Robert Fay arrived in New York in April 1915 with a mission to sink freight ships on the East Coast of the U.S.  The twenty-four year-old infantry officer had caught the attention of his superiors in February 1915, while serving on the Western Front in France. Fay, who himself had suffered from the lethal rain of American-made artillery munitions, proposed a time bomb design that disabled rudders on munitions ships traveling from the United States to Europe. Fay showed his idea to the battalion commander. Impressed with the details, Fay’s superior alerted the army intelligence office in Berlin who invited and interviewed the young soldier. Not only did Fay have a design that seemed like a good idea, he had also worked at the Submarine Signal Company in Boston before the war and spoke English fluently. His brother-in-law, Walter E. Scholz, eight years older than Fay, still lived in New Jersey. The trained mechanic worked as a draftsman for railroad companies. Rudolf Nadolny of the Army Secret Service, Department IIIB, Political Section, gave Fay a fake Scottish passport under the name of H. A. Kearling and $4,000 ($84,000 in today’s value) for a sabotage mission in the U.S. He was to report directly to Military Attaché Franz von Papen in New York and proceed with his plans. 

Arrest Record of Robert Fay

Fay’s idea of a timed explosive sounded promising to von Papen, but it was a complicated design.

“A brief description of the contrivance reveals the mechanical ingenuity and practical efficiency of Fay’s bomb A rod attached to the rudder at every swing the rudder gave turned up by one notch the first of the beveled wheels within the bomb After a certain number of revolutions of that wheel it in turn gave one revolution to the next and so on through the series The last wheel was connected with the threaded cap around the upper end of the square bolt and made this cap slowly unscrew until at length the bolt dropped clear of it and yielded to the waiting pressure of the strong steel spring above This pressure drove it downward and brought the sharp points at its lower end down on the caps of the two rifle cartridges fixed below it like the blow of a rifle’s hammer The detonation from the explosion of these cartridges would set off a small charge of impregnated chlorate of potash which in turn would fire the small charge of the more sluggish but stronger dynamite and that in turn would explode the still more sluggish but tremendously more powerful trinitrotoluol.”

The resulting explosion, Fay argued, would be strong enough to blow the stern of a ship off and sink it. American investigators, who looked at Fay’s design after his arrest, agreed with the claim.

The German agent established his workshop in his brother-in-law’s garage in Weehawken, New Jersey. Initially, and with the help of Rintelen’s agent, Otto Wolpert, Fay bought one hundred pounds of potassium chlorate. However, he needed more. Through von Papen, Fay met the nephew of a wealthy financier by the name, Max Breitung. Fay asked Breitung for help. The young financier, anxious to prove his worth to the German government, had met the New York factory representative of a German cuckoo clock manufacturer on a transatlantic voyage. They had kept in contact through the German Club in New York. The acquaintance was Dr. Herbert O. Kienzle, a thirty year-old engineer from the town of Scheveningen in the Black Forest area of Germany. Kienzle had been a keen supporter of the Secret War Council’s propaganda efforts. He had written several articles on Dum Dum [hollow point] bullets for the German-owned paper, Fatherland, and New York’s German language daily, New Yorker Staats-Zeitung. His investigative journalism also appeared in large American dailies. The war had ground his clock business to a halt. He made several futile attempts to diversify the product line, getting into lamps, linens, and crafts, but the prospective American customers stayed away from his exclusive store on Park Place. Like Edward Rumely, the managing editor of the German-owned New York Evening Mail, and others that engaged with the Secret War Council’s projects, the engineering PhD had time on his hands and holes in his pocket.

Breitung and Kienzle secured 336 pounds of potassium chlorate for Fay, but it took until June to get it. The source, a German-American chemist, was compromised. The U.S. Secret Service had noticed the movement of these explosive chemicals and sent a mole to Breitung’s supplier. Through Breitung, Fay became acquainted with Kienzle and Daeche, who joined the team in the beginning of May 1915. The four, Fay, Scholz, Kienzle, and Daeche worked feverishly on the bomb design, all the while reporting back to Rintelen on the progress. Kienzle had a small motorboat, which he sold to Fay. Together, the saboteurs toured the New York harbor and checked out the large transatlantic steamers lined up to transport their deadly cargo to Europe. Security did not seem to be an issue, since guards were checking who was coming onto the ships, but not the little boats scurrying around in the harbor.

Back in the garage, the conspirators experimented with the two necessary explosives, potassium chlorate and TNT. Kienzle had a friend who worked in road construction. The clock maker’s friend worked on the grounds of a sanatorium in Butler, New Jersey, where Kienzle had spent some “quiet time” in the past. Builders in 1915 dynamited their way through the countryside in lieu of using heavy earth-moving equipment to prepare a roadbed. The contractor friend had lots of dynamite. When Fay went to Butler to “look that place over,” he met the contractor, a German-American named Englebert Bronckhurst, who supplied him with twenty sticks. Fay built a wooden replica of a ship’s rudder in the backyard of Scholz’ property. Fay and Scholz worked over the course of several weeks on the spring mechanism, the waterproof container for the explosives, the attachment to the rudder, and all other important details that would make the design viable. Kienzle likely did, but never admitted to having looked over the design from a technical standpoint. Since the winding spring mechanism came straight out of clock mechanics, it is hard to imagine that he did not have any input. Sometime in June, sabotage agent Franz Rintelen demanded to see a demonstration of the bomb. The team made four attempts, but the bomb did not work as designed. The container with the potassium chlorate kept getting wet, the firing mechanism still had quirks, and even the dynamite did not have the envisioned result. Rintelen left for Europe in August. The project came to a grinding halt. American investigators, meanwhile, had discovered German-made “cigar” bombs that had damaged dozens of freighters on the way to Europe, and were canvassing the waterfront for any hint as to who was behind it.

Fay’s next moves are not documented in detail. The four saboteurs kept working on the bombs. However, it seems that money was in short supply. According to Fay, von Papen sent him to Kentucky to bomb a manufacturing plant. Fay went to the Midwest in September 1915, and canvassed the factory in question. A female witness in Chicago reported to investigators that Fay “fleeced her out of eleven hundred and fifty dollars, representing himself to be employed by German Secret Service whose draft for salary and expenses had been delayed.” After Fay returned to New York, he asked Kienzle to get him one hundred pounds of TNT for the factory demolition. Kienzle went to his previous source in New York. However, the chemist was now under U.S. Secret Service surveillance and did not have access to TNT. The Secret Service shadow posed as a supplier in a classical sting operation, and offered to provide the dynamite. The agent found out about the other members of the German sabotage cell during the process, and after meeting Fay, had him, Paul Daeche, and Walter Scholz arrested. If you are interested in the entire story of the German sabotage campaign in 1915, check out The Secret War in the United States. Buy it right here or on Amazon, Barnes and Noble and many other fine booksellers.