Karl Pallo was an immigrant from Estonia who arrived in New Zealand in 1929 as a representative of a French company. When this company closed, Pallo remained here as their agent.
In 1933, Pallo married Maria (born in Latvia and considered to be a Baltic German).
In 1935, Pallo established his own engineering company and in that same year he became a naturalised citizen. His wife was also naturalised in November of that year. On the outbreak of the Second World War Pallo secured contracts with the New Zealand government for the manufacture of munitions. His work was considered to be of a very high standard and in some cases better than material made overseas.
After the outbreak of war, it seems as though the Pallo's were victims of a whispering campaign questioning his and his wife’s loyalty as “Baltic Germans”. There were stories circulating of Mrs Pallo refusing to make donations to the Red Cross, photos of Hitler being secreted in their home in Karori and allegations that she was a fervent Nazi because of her membership of the German club. When these rumours reached government, an investigation ensued that led to both Pallos appearing before the Alien tribunal. Adding grist to the mill, Mrs Pallo had family living in Nazi-occupied Poland. Her mother, judging by her letters to her daughter, was a fervent Nazi.
The Pallos denied being Nazi sympathisers, instead blaming the rumours circulating on business partners who wished to see Karl interned so they could gain control of his company. If that was the aim it very nearly succeeded. In the end neither Pallo was interned, and Pallo continued to run his company. Although not interned Mrs Pallo did have restrictions placed on her movements out of Wellington.