Part 4: The Crimes of Patriots...The Spooking of Australia...The Un-Bank

The Crimes of Patriots

A True Tale of Dope,

Dirty Money & The CIA

By Jonathan Kwitny

CHAPTER NINE 

The Spooking of Australia 

In almost the exact center of the vast Australian landmass, far from the population concentrations on the east and west coasts, near the town of Alice Springs, is an American base. Some say it is the most important foreign outpost we have. It is certainly among the most secret. 

You would need impressive security clearances to get near it and scientific degrees to understand it. Supplies and personnel are ferried in and out by U.S. military aircraft. It represents a taxpayer investment probably measured in the billions of dollars. 

At the base, known as Pine Gap, American personnel read and relay back to the United States data from spy satellites stationed over the Soviet Union, China, and Europe. Through Pine Gap and two related bases in Australia, the United States picks up coded messages from Soviet missile launchings, and intercepts radar, radio, and microwave communications. Greeks have accused the Americans at Pine Gap of listening in on their telephone calls in Greece. 

If an arms control agreement is to be reached, the base at Pine Gap, or one just like it, will be indispensable. 

Information flows the other way through Pine Gap, too. With its Buck Rogers-style communications gear, the base relays orders from the Pentagon to our nuclear submarine fleet as it moves about, silently threatening to level the Soviet Union whenever it is thought the Soviet fleet is doing the same to the United States. 

But as the CIA presence in Australia grew, so did the temptation to manipulate events, even in such a friendly country. In ways, what happened in Australia shows how the productive and the counterproductive sides of the CIA work everywhere. The vital operations at Pine Gap have been threatened by the political resentment of Australians, who, inevitably, learned their democracy was being manipulated. 

Australians were suspicious from the founding of the huge Pine Gap base in 1968. They were told the base was part of the United States's space study program, a plausible enough explanation with the lunar landing scheduled for 1969. The sales pitch presented Pine Gap as a means by which Australian scientists might share in the knowledge brought home from galactic frontiers. But the pitch smelled fishy to many people, one of whom, in 1972, was elected prime minister of Australia. 

His name was Gough Whitlam, and three years into his prime ministership he was suddenly ejected from office and replaced by the opposition without an election. This was done through an unprecedented, but constitutionally provided-for, maneuver. It would not be going too far to call it a constitutional coup d'etat, and it followed by three days a similarly unusual action by the CIA to halt some things Whitlam was doing. 

Whitlam's Labor Party had long doubted the wisdom and morality of America's interventionist foreign policy, not only in Vietnam—the focal point of world attention at the moment—but also in Indonesia (an Australian neighbor the United States had unsuccessfully invaded in 1958 and helped change the government of in 1965) and throughout Asia. In these matters, Whitlam actually stood closer to the United States than many of his Labor colleagues, who, in fact, had criticized his seeming approval of the takeover by Indonesia, with U.S. support, of nearby Timor. 

Whitlam was, however, in tune with other Laborites on many issues, including a belief that the Australian people had a right to know if the base operating at Pine Gap would make Australian territory a target in a nuclear war. 

Whitlam made the CIA nervous, to say the least. Just as nervous was the Australian Security Intelligence Organization, or ASIO, which had close associations with the CIA. ASIO's franchise to operate domestically as a security organization, which the CIA isn't supposed to do in the United States, gives ASIO more influence in domestic politics than the CIA has.* 

*ASIO has a franchise different from the CIA's. It is less concerned with the foreign intelligence and secret operations the CIA handles, and is more concerned with the counterintelligence function that in the United States is performed by the FBI. As a result, ASIO operates openly within Australia, as the CIA is not supposed to do in the United States (though the CIA has sometimes been caught at it). 

The assignment of the FBI rather than the CIA to domestic counterintelligence in the United States is important. Because the FBI is basically concerned with the impartial enforcement of laws, it is a much less politically oriented organization than the CIA or ASIO. If law enforcement is in some ways inclined toward the "tough" attitudes generally associated with the Republican Party, it is also very conscious that it directly benefits from the more open-purse attitudes of the Democrats—including not only social programs that tend to soothe law enforcement's underclass clientele, but also programs that directly funnel money to cops, such as the Law Enforcement Assistance Administration (which the Republicans killed).

The CIA, with its own political agenda, was all too ready to encourage and assist ASIO's tendency to oppose Labor, and to support the opposition coalition, which was made up of the Liberal Party, which most Americans would think of as conservative, and the Country Party, which is considered farthest to the right. 

A CIA document from all the way back in 1949, obtained by Australia's National Times, concerns "communist influence in Australia," and says that the "U.S. Naval attache in Melbourne has reported that the Labor Government is under communist domination, with two Cabinet members probable communists and the Speaker of the House a communist sympathizer." With some reason, the National Times calls this claim "wild." 

Over the years, CIA and ASIO men have forged links that bypassed the Labor Party, even when it was in power. In 1969, when the CIA's guru emeritus Allen Dulles was in the hospital, the director general of ASIO, C. Charles Spry, wrote him a gushing letter. After reporting his severe distress at having missed "the honour" of a meeting with Dulles on his last trip to the States, Spry says: 

I shall never cease to be grateful to you for the initiation and development of relations between your Service and mine. I consider, without any reservations, that this was the turning point which has enabled ASIO to reach the level of sophistication which it now enjoys. Jim Angleton [then head of counterintelligence for the CIA] and others have continued to assist us. I always consider you as the No. 1 Honorary Australian in our Organization, and Jim No. 2. 

Agents from sister branches of Australian intelligence that operate overseas worked with the CIA in Vietnam, Indonesia, China, and Timor, and according to some Australian press reports helped the CIA shuffle governments in Cambodia and Chile as well. A secret report prepared by a senior civil servant at the direction of the Australian Parliament in 1979, also obtained by the National Times, says, "Our intelligence partners, notably the U.S., are not very active in the South Pacific and look to Australia and New Zealand in this region." 

Meanwhile, the CIA developed close links to the Liberal-Country coalition, and by some knowledgeable accounts funneled cash to it. Through the CIA's long-standing secret cooperation agreement with the AFL-CIO, it had a part in bringing potential union leaders to the United States, training them, and later orchestrating their rise to power. Possibly most insidious, the CIA and ASIO swapped derogatory information they collected on Labor and other politicians in Australia. ASIO, at least, leaked the information to selected political opponents who could make the best use of it.* 

*This material summarizes an impressive array of documents uncovered and published over the past five years by the National Times, a mainstream weekly published by John Fairfax & Sons, one of Australia's three big publishing empires. Most of the documents are from secret official reports prepared for the Australian Government. Another source for a discussion of CIA-ASIO relations is the booklet The CIA's Australian Connection by Denis Freney, a reporter for the openly Communist Australian paper, Tribune; but while Freney has compiled a lot of good information, he tends to mix it at will with speculation and with occasional wrong historical facts, and his work needs to be read discerningly. 

So close was the CIA-ASIO connection that some operatives went into undercover work of the most literal kind. John Walker, a career cold warrior who had been entrusted with running the vital CIA station in Israel, was CIA station chief in Canberra during the Whitlam years, from 1972 to 1975, though he was replaced just before Whitlam was removed. During his time in Australia, he and his wife of thirty years got to know Colin Brown, the deputy director of ASIO, and his wife, so well that Mrs. Walker left him for Brown, who divorced his wife and married her. 

The original Mrs. Brown later complained** that she knew of her husband's affair early on and wanted to put a stop to it by telling the CIA man, Walker. But she said, "I was told that if I did, it would destroy ASIO's relationship with the CIA." She claimed her thirty-four-year marriage was broken up "in the name of the ASIO/CIA cause." 

**In a letter published in the National Times

Walker says*** his marriage broke up because of the long hours he was forced to devote to his job. Walker also recalls spending long hours at Bernie Houghton's Bourbon and Beefsteak, insisting, without the trace of a smile, that it was "a good place to eat." Walker, back home now, says Houghton still stops by Walker's New York apartment on trips to the United States and has remained good friends with Walker and his daughter. 

***interview with the author. 

The CIA's involvement in Australian politics, which had long been rumored in Australia, became official record in the United States in a startling spy case—the case of Christopher Boyce and Andrew Daulton Lee. Boyce and Lee are now best known as the Falcon and the Snowman, after the title of Robert Lindsey's wonderful book about them and the movie based on it. Childhood friends in southern California, they became a two-man Soviet spy network in the mid-1970s. 

Lee was addicted to heroin and other drugs. He needed money, and was mentally deteriorating. But there was no such desperate explanation for the treason of the cleancut Boyce, an FBI agent's son who began a career with TRW Corporation, a communications company doing contract work for U.S. intelligence.* 

*Characteristically of such arrangements, TRW says it won't comment on whether it works for the CIA, but if it doesn't, then it's hard to understand what the Russians were paying Boyce for, or why he went to jail.

So why did Boyce slip documents to Lee for sale to the Soviet embassy in Mexico on Lee's drug runs? The only available explanation is Boyce's own: his alarm, disillusionment, and disgust at what he learned the CIA was doing. And much of this involved Australia— for it was Boyce's job to sit in the communications room of TRW in Redondo Beach, California, and monitor the traffic coming in from Pine Gap. 

At their spy trial in 1977, Boyce told of a conversation he had with his old buddy Lee just before they formed their arrangement. They had been criticizing the CIA, among other things blaming it for overthrowing a democracy and installing a dictatorship in Chile in 1973. Relating that to his own drug problems, Lee lashed out at the U.S. Government. 

And Boyce responded: "If you think that's bad, you should hear what the Central Intelligence Agency is doing to the Australians." Then, said Boyce from the witness stand, "He asked me what, and I told him that—" 

At this point, on a motion from the government, the judge refused to allow the details onto the record. The government tried to keep the Australian secrets as secret as possible throughout the Boyce-Lee prosecution. But much of the story did get told, partly through the probing of author Lindsey (who is also the New York Times bureau chief in Los Angeles). 

Among the things Boyce discovered was that Australian labor unions were infiltrated by U.S. agents. The American operatives manipulated the unions on CIA orders to prevent strikes the CIA objected to. Boyce also learned that the United States wasn't disclosing all its Pine Gap activities to the Australians as called for in the treaty that permitted the base. 

In fact, he learned, the Australians were being deceived about a whole satellite system that could overhear telephone conversations and other communications in Europe and dump them down to Pine Gap for relay to Washington. All of this soured Boyce on his job and his loyalty to the United States. 

In his book, journalist Lindsey even conjectured that information about all this, sold by Boyce and Lee to the Soviet Union in Mexico City, may have been relayed by the Russians to the Labor Party in Australia, and that this information may have touched off the dispute about the CIA that immediately preceded the constitutional coup in Canberra in 1975. 

From the Labor Party's electoral victory in 1972, the CIA's allies in Australia were in high dudgeon, and not entirely without reason. Whitlam was no enthusiast for spook work. He quietly closed an Australian electronic spy post that had been operating in Singapore. 

By March, 1973, the Laborites had become worried that ASIO was a renegade agency, not informing the elected government of its activities. Attorney General Lionel Murphy led a team of deputies on a surprise raid of the ASIO office to investigate. It was as if the U.S. attorney general and senior FBI staff one day invaded the office of the CIA boss to examine the files and see what the agency was really up to. 

Thoughts turned to the critical Pine Gap post near Alice Springs. Whitlam never breathed a word about closing it, and apparently wanted only to restore the Australian government's authority as guaranteed by treaty. But that was no solace to Shackley. Frank Snepp, the operative who helped close CIA's station in Saigon in 1975, then wrote a book about it, has said that his boss, Shackley, was "paranoid" about the Laborites, and ordered the flow of information to them held to a minimum. Ray Cline, the CIA's former deputy director, has recalled "a period of turbulence to do with Alice Springs."* 

*Both men were originally quoted in interviews with the National Times, and have confirmed the quotes.

Shackley's boss, Colby, in his memoirs Honorable Men, listed "a left-wing and possibly antagonistic government in Australia" as among the "crises" of his tenure as director of Central Intelligence— right up with the Soviet threat to intervene in the 1973 Israeli-Egyptian war. The CIA seemed to react almost as if our Australian ally had actually fallen to communists. 

James Angleton, the CIA's longtime chief of counterintelligence who was pushed into early retirement in 1975 because of his paranoia about security, was quite spooked by Whitlam. It was Angleton whom ASIO Director General C. Charles Spry had labeled "the No. 2 Honorary Australian in our Organization" because of his assistance in running it. 

"He [Whitlam] was elected by Australians for better or worse," Angleton said in a 1977 interview with Australian radio and television. "In my own view for worse, but it did not affect our relationship until his Attorney General Murphy barged in and tried to destroy the delicate mechanism of internal security which had been built on patiently since the end of World War II... Some of the major secrets that deal with the world I was once in were given to the Australian security services. . . . 

"When we saw this Whitlam government come into power and this attorney general moving in, barging in, we were deeply concerned as to the sanctity of the information which could compromise sources and methods and would compromise human life," Angleton said. "This was one of the most extraordinary acts that one has ever seen. It was not done in a friendly manner. ... It was a raid." 

At this point, the interviewer protested, "It was done by the elected attorney general of the country . . . senior people." 

Replied Angleton, "I'm not disputing the fact that he was elected. I'm only speaking to the outrageous lack of confidence inherent in his act. When we and others in the Western world had entrusted the highest secrets of counterintelligence to the Australian services and we saw the sanctity of that information being jeopardized by a bull in a china shop who would not understand that the compromise of information, or its exposure, would result in a destruction of life, sources, and methods, and this does violence to the confidentiality that must exist on the counterintelligence level between services of sovereign countries. How could we stand aside without having a crisis, in terms of our responsibilities as to whether we would maintain relationships with the Australian intelligence services?" 

The interviewer again noted that Whitlam and Murphy were the men the Australian people had chosen to run their government. But Angleton just complained of "the jewels of counterintelligence being placed in jeopardy by a party that has extensive historical contacts in Eastern Europe, that was seeking a new way for Australia, seeking a matter of compromise, seeking roads to Peking when China used to be one of the major bases of the illegal NKVD [the NKVD is a Soviet security agency; Angleton didn't mention that President Nixon also sought 'roads to Peking']." 

Still, Angleton said, "we did not break off the relationship" with the Australian intelligence agencies. "And I believe our judgment was justified," Angleton continued, as after the 1975 removal "the Australian people simply did not put him back into office." 

Angleton was asked repeatedly on the program whether the CIA intervened to dump Whitlam. Each time, he replied at length, seemingly in the negative, but each time his answer was cryptically couched in phrases to the effect that the CIA wouldn't undertake such work without the knowledge of the heads of the Australian intelligence services. Despite the interviewer's efforts to eliminate the equivocation, Angleton never denied that the CIA might have engineered the anti-Whitlam coup with the knowledge of its Australian counterparts. 

At one point the interviewer said, "The picture you've just painted is one of a crisis. Was it serious enough, if the situation was as you described it, to warrant the removal of Gough Whitlam?" 

Replied Angleton, "Of course not, absolutely not. It would simply be inconceivable to meddle in the internal affairs of Australia. I could not go to a man such as Sir Charles Spry, Brigadier Spry [former head of ASIO], and deal with him in good faith and be party to any kind of activity without his knowledge." 

Pressed further, he said, "I will put it this way very bluntly. No one in the agency would ever believe that I would subscribe to any activity that was not coordinated with the chief of the Australian internal security." 

Ray Cline, the CIA's former deputy director, in an interview with William Pinwill of the National Times, went even further about just what might have happened. "The CIA would go so far as to provide information to people who would bring it to the surface in Australia. ... Say they stumbled onto a Whitlam error which they were willing to pump into the system so it might be to his damage. ... If we provided a particular piece of information to the Australian intelligence services, they would make use of it." 

To anyone familiar with the political events in Australia in 1975, it would not be hard to guess what particular pieces of information Cline might have been talking about.* 

*Cline verified the quotes in a telephone interview, but told my researcher Vicki Contavespi that he had really meant to refer to information against the common interest of the U.S. and Australia, such as a critical attack by the Chinese. "There was no, repeat no, CIA campaign to damage Whitlam within his own country," he told her, though he acknowledged open criticism of Whitlam's policies throughout the CIA and State Department. 

Twice during 1975 the Whitlam government was embarrassed by sensational scandals broken open by mysterious leaks to the press. Each time, a cabinet minister was forced to resign. One of these ministers was the head of the treasury, Jim Cairns, who had particularly angered Washington by his public denunciation of American bombing in Vietnam two years earlier. 

Cairns and some other Whitlam underlings had in some off moment agreed to a harebrained scheme to repatriate petrodollars from the Arabs. To help finance the Australian budget, they decided to borrow $4 billion in Arab cash, and allowed some indiscreet middlemen to go out in search of the loan. 

At some point Cairns signed an authorization letter, including the offer of a commission on the deal, to a businessman friend of his named George Harris, who Cairns thought had a connection to a deep-pocketed Arab. The letter wound up in print, and Cairns explained that he was unaware of the commission provision and wouldn't have agreed to it had he known about it. 

But then a British businessman announced he had a telex in which Cairns had agreed to give a commission on the deal to his stepson. The press staged a bidding war for the telex, the most surprising aspect of which was that Rupert Murdoch lost out to a competitor for a reported $7,000. 

The telex was later exposed as a fake, and the British businessman admitted as much, but it was too late. The press had uncovered some other government deal on which the stepson had turned a dollar, and Cairns was out in July 1975. 

Then in October, a Middle Eastern hustler with a long history of shady associations publicly claimed that he, too, was a broker for the sought-after $4 billion. His tales of dealing with Australian cabinet officers sent Rex Connor, the energy minister, packing. 

Connor's crime was stupidity, not theft, but the whole "loans affair," as it became known, was seized by the opposition Liberal Party as an excuse to hold up passage of the budget in Parliament, to try to force an election while Whitlam was weak. As embarrassing details dribbled out, Whitlam backpedaled and his popular support faded. 

While all this covered the front pages, a far more important struggle was being acted out, partly in private. It focused on Richard Stallings, a career CIA officer who had run the Pine Gap installation from its inception until—according to the best accounts one can find of a highly secret business—1969. He spent some time in the United States recuperating from injuries suffered in a bad car crash, then returned to Australia in another CIA capacity. 

Stallings had been operating all along under cover of a Defense Department job. Whitlam was outraged in 1975 to discover his true identity and publicly accused the Australian military-intelligence apparatus of having deceived him and his civilian government about Stallings and the nature of Pine Gap. 

Though Americans might think it makes little difference which branch of the government Stalling's checks came from, CIA is a dirty word in much of the world, including, apparently, Australia. Whitlam's complaint struck a responsive chord in the public. 

Stallings, who can't be located now, was himself "very upset" over the CIA's activities in Australia, according to Victor Marchetti, the former CIA officer, whose accounts have been consistently reliable. Marchetti says he was a close friend of Stallings. 

Marchetti says Stallings complained that his work at Pine Gap was being jeopardized because the CIA station in Canberra was infiltrating labor unions and funneling money to the Liberal and Country parties. "He was working on what I considered to be a very legitimate project," Marchetti says. "He was very annoyed at what the station chief was doing, getting involved in covert activities... . There were rumors going around that the station chief was involved in local politics, which he knew to be true." 

Stallings's case wasn't helped any by the discovery that he was renting his house from a friend who was none other than Doug Anthony, the head of the right-wing Country Party. Anthony had been a guest of Stallings' in the house, and Marchetti says Stallings was considering going to work for Anthony after his retirement from the CIA. 

In late October 1975, Whitlam further upset the intelligence community by sacking the head of the overseas intelligence agency,  whom he accused of deceiving him about its work in East Timor, where the military dictators in Indonesia were trying to put down an independence movement. The United States was backing the military dictators (having helped put them in power in the first place). 

Whitlam then asked his foreign affairs department for a list of all CIA officials who had served in Australia. Dissatisfied with the list he received—Stalling's name, for example, wasn't on it—he probed further. This turned up Stallings' identity, and also stirred a defense chief to let his pals in Washington know that the prime minister was probing into sensitive areas. 

Knowing of Stallings' relationship with Anthony, Whitlam said in a speech at Alice Springs November 2 that the CIA was helping the Country Party; he didn't disclose Stallings' name. Two days later Anthony offered his reply in Parliament, which introduced Stallings' identity to the record. 

Anthony said he hadn't known that his friend Stallings was connected to the CIA, adding, "I imagine it is not the sort of thing the CIA would go around telling people." 

The chronology of the next critical days before the downfall of Whitlam November 11 can best be relayed in the actual protest note the CIA issued. It was delivered to the Washington representative of ASIO by Deputy Director for Operations Theodore Shackley—Bernie Houghton and Mike Hand's eventual business associate. 

Shackley's biting and threatening message, delivered November 8, 1975—three days before the constitutional coup—was quickly cabled back to the director general of ASIO in Canberra. In fact, Shackley expressly asked that the message be relayed at once to "DG"—the director general. 

Exactly who was behind Shackley's move can only be speculated on. The looser Australian press has reported without documentation that Shackley made his strike on personal orders from Secretary of State Henry Kissinger. The tone and style do match Kissinger's, and the sentiments were no doubt present in whatever passes for Kissinger's heart. But in the absence of an American investigation in public, with the ability to compel sworn testimony and the production of documents, one can only assume that Shackley would not have taken so drastic a step without at least consulting higher authority

The message follows (the Australian press obtained and published copies a few years ago. The authenticity of the message was confirmed in Parliament and not denied by the U.S. Published versions have varied minutely—a word or punctuation difference here or there, never affecting meaning—and what follows is a consensus): 

On 2 November the PM of Australia [Prime Minister Whitlam ] made a statement at alice springs to the effect that the cia had been funding [doug] anthony's national country Party in Australia. 

On 4 November the U.S. Embassy in Australia approached the australian government at the highest level and categorically denied that cia had given money to the National Country Party or its leader nor any other U.S. Government agency had given or passed funds to any ORGANIZATION OR CANDIDATE FOR POLITICAL OFFICE IN AUSTRALIA AND TO THIS EFFECT WAS DELIVERED TO ROLAND AT DFA [Department of Foreign Affairs] Canberra on 5 November. 

On 6 November Asst. Sec. Edwards of U.S. State Department visiting DCM [Deputy Chief of Mission, number two to the ambassador] at Australian Embassy in Washington and PASSED THE SAME MESSAGE THAT THE CIA HAD NOT FUNDED AN Australian political party. [The State Department said in 1987 that it never had an assistant secretary named "Edwards. "] 

It WAS REQUESTED THAT THIS MESSAGE BE SENT TO CANBERRA. At this stage cia was dealing only with the stallings incident and was adopting a no comment attitude in the hope that the matter would be given little or no publicity. stallings is a retired cia employe. 

On 6 November the prime minister publicly repeated the allegation that he knew of two instances in which cia money had been used to influence domestic australian politics. Simultaneously press coverage in Australia was such that a number of cia members serving in australia have been identified -- walker under state department cover and fitzwater and bonin under defense cover. now that these four persons have been publicized it is not possible for cia to continue to deal with the matter on a no comment BASIS. 

They have now had to confer with the cover agencies which have been saying that the persons concerned are in fact what they say they are, e.g., defense department saying that stallings is a retired defense department EMPLOYE.

On 7 November, fifteen newspaper or wire service reps called the pentagon seeking information on the allegations made in Australia. CIA is perplexed at this point as to what all this means. 

Does this signify some change in our bilateral intelligence security related fields? cia cannot see how this dialogue with continued reference to cia can do other than blow the lid off those installations where the persons concerned have been working and which are vital to both our services and countries, particularly the installation at alice springs. 

On 7 November at a press conference, Colby was asked WHETHER THE ALLEGATIONS MADE IN AUSTRALIA WERE TRUE. He categorically denied them. 

Congressman Otis Pike, chairman of the Congressional committee enquiring into the cia, has begun to make enquiries on this issue and has asked whether cia has been funding Australian political parties. This has been denied by the cia rep in canberra in putting the cia position to relevant persons there. 

However CIA feels it necessary to speak also directly TO ASIO BECAUSE OF THE COMPLEXITY OF THE PROBLEM. 

Has ASIO HQ been contacted or involved? cia can understand a statement made in political debate but constant further unravelling worries them. is there a change in the prime minister's attitude in australian policy in this field? 

This message should be regarded as an official demarche ON A SERVICE TO SERVICE LINK. It IS A FRANK EXPLANATION OF A PROBLEM SEEKING COUNSEL ON THAT PROBLEM. CIA FEELS THAT EVERYTHING POSSIBLE HAS BEEN DONE ON A DIPLOMATIC BASIS AND NOW ON AN INTELLIGENCE LIAISON LINK. THEY FEEL THAT IF THIS PROBLEM CANNOT BE SOLVED THEY DO NOT SEE HOW OUR MUTUALLY BENEFICIAL RELATIONSHIPS ARE GOING TO CONTINUE. 

The CIA feels grave concern as to where this type of public discussion may lead. The DG [Director General] should be assured that cia does not lightly adopt this attitude. 

Your urgent advice would be appreciated as to the reply which should be made to cia. ambassador is fully informed of this message.

All year long, the CIA had been assessing Whitlam's popularity— which in itself is among the things the CIA is supposed to be doing all over the world. But the secret assessments the CIA came up with in its daily newsletter for the president and other top officials certainly show an atmosphere in which the CIA might have wanted to act. Copies of the relevant newsletters were obtained by Jack Anderson's reporter Dale Van Atta and published in Australia's National Times. 

During the year, as the Whitlam scandals mounted, the CIA noted Whitlam's falling popularity and noted that "an early national election—a distinct possibility— would almost certainly result in a sweeping victory for the Liberal-Country opposition." Then came the opposition's decision to block the passage of the budget in order to force an election. 

But on November 8—the very day Shackley called in the ASIO representative to convey his protest—the CIA reported to President Ford, "The determination of the Australian opposition to force a general election is weakening. Prime Minister Whitlam has managed to raise real alarm about the dire consequences of government bankruptcy, which he claims will result from the opposition's blocking of government appropriations. 

"Disenchanted Australians are swinging, at least temporarily, in support of Whitlam's Labor Party. They agree with the Prime Minister and blame the Liberal Country coalition for the mess. .. . Several Liberal senators ... are threatening to break ranks... [and] are talking of replacing opposition leader [Malcolm] Fraser." The CIA said Fraser's "ability to force an election has clearly been weakened." 

An important date was coming up. The treaty creating Pine Gap was signed December 9, 1966, and provided that after an initial nine years, either party could terminate the agreement on one year's notice. Whitlam to this day has never indicated other than support for the existence of the base, but he was questioning the way it was being run and on December 9, 1975, he would be empowered to act. 

Adding to the urgency, Anthony had challenged Whitlam in Parliament to supply proof that his friend Stallings was a spook. Whitlam promised to supply it when Parliament re-opened November 11. Thanks to John Kerr, he never got the chance. 

Kerr had been appointed—by Whitlam, of all people—to the largely ceremonial post of governor-general in February 1974. The governor-general was a throwback to the old days of the British viceroy, an official representative of the queen. Through him, Australia, which is entirely self-governing, continues tied to the British Crown so it can enjoy the benefits of such things as knighthoods and royal commissions. 

Kerr had been a lawyer, judge, and finally chief justice of the New South Wales Supreme Court, most important in the land. His closest political connections were through his industrialist friends to the Liberal Party, which appointed him to his chief justiceship. But he was a consummate diplomat, avoided partisan wrangling, and kept himself ideologically and socially open to the spectrum of Australian politics, including Whitlam. 

Whitlam apparently appointed Kerr as a gesture to those who were suspicious of his own ideological associations. He also used the governor-general's post for ceremonial diplomacy abroad, a function for which Kerr seemed well-suited. 

There is no indication he gave a second thought to one of the governor-general's powers: to appoint and dismiss the prime minister. Like the Crown's power in England, it consisted of nothing more than a formal, pompous ratification of decisions actually made by a democratically selected Parliament. Nothing more, that is, until 1975. 

Besides his Australian political connections, John Kerr also had long-standing ties to the CIA—a fact Gough Whitlam either was unaware of or ignored when appointing him. 

As early as 1944 Kerr had been sent by the Australian Government to Washington to work with the OSS, which in 1947 became the CIA. In the 1950s he became a member of an elite, invitation-only group called the Australian Association for Cultural Freedom, which in 1967 was exposed in Congress as being founded, funded, and generally run by the CIA. The group, like similar CIA-backed groups in other countries, held seminars and get-togethers on the general theme of anti-communism, and brought together promising young figures from various countries. 

In the 1960s Kerr helped organize and run (as founding president) the Law Association for Asia and the Western Pacific. He traveled to the United States to arrange financing for this body from a tax-free group known as the Asia Foundation; that, too, was exposed in Congress as a CIA-established conduit for money and influence. In fact, Victor Marchetti, the retired CIA officer, says in his book with former Foreign Service Officer John Marks,* that the Asia Foundation "often served as a cover for clandestine operations," though "its main purpose was to promote the spread of ideas which were anticommunist and pro-American."
*Marchetti and Marks, The CIA and the Cult of Intelligence. 

The CIA paid for Kerr's travel, built his prestige, and even published his writings, through a subsidized magazine. According to Kerr's biographer, Richard Hall,* at least one Australian colleague became nervous when the U.S. Congress exposed some of Kerr's sponsoring organizations as CIA fronts, but Kerr "brushed his worries aside." Kerr continued to go to the CIA for money. 
*Richard Hall, The Real John Kerr: His Brilliant Career (Sydney and London, 1978). 
There is, of course, no more evidence than the circumstances listed here that the CIA had anything to do with Kerr's decision on November 11, 1975, to remove Gough Whitlam as prime minister of Australia. But remove Whitlam he did, and appoint Liberal Party leader Malcolm Fraser to form a caretaker government pending elections by the end of the year. Kerr says he acted because of the budget crisis. He says he is "pretty sure" he was unaware of the CIA's concern, and at any rate it "absolutely" didn't affect his decision.** 
**Interview with the author. 
Whitlam isn't shedding any light on the matter, insisting that he is saving his theories of what happened for his own memoirs.*** He did later reveal in Parliament what it was he was going to say about the Stallings affair on November 11 if he hadn't been dismissed first. His message was short. It noted that Country Party leader Anthony was the one who first identified Stallings in public as a CIA man, but confirmed the information from official records. It disclosed no other names. 
***In a brief phone conversation I had with him, Whitlam angrily accused me of using unfair tactics in calling him during the lunch hour when his secretary was out, because otherwise, he said, he would not have returned my call. 
One Labor Party official who will speak up is Mike Costello, who held the job of "principal private secretary," a sort of chief aide and official spokesman, to Bill Hayden, the Labor Party opposition leader during Fraser's prime ministership. Asked if he thinks the United States had a role in dumping Whitlam, Costello replies, "I don't have any doubt about that. Fraser could not have held the line [on the budget] for another day or two."

Former CIA analyst Kevin Mulcahy, who blew the whistle on Edwin Wilson, said shortly before his death that he had been told of CIA complicity in the events of 1975, and that the effort was spearheaded by a CIA man named "Corley." It was later learned that the CIA man who replaced John Walker as station chief that year was 

Milton Corley Wonus, called Corley, and another devotee of the Bourbon and Beefsteak and Bernie Houghton. 

A CIA spokesman says Wonus "will not be available for comment." 

As for Nugan Hand, Michael Hand and Frank Nugan were no friends of the Whitlam government, and were mightily pleased at its downfall. Soon afterward—and after the collapse of the CIA's war in Angola in February 1976—Hand was headed back to Australia from Africa. At some point in his fifteen-month absence, he took time to make at least one trip to Panama, where one of his and Nugan's land companies had been based. 

There he opened the third international office (after Australia and Hong Kong, and not counting whatever he did in Africa) of the Nugan Hand Bank. 

CHAPTER TEN 

The Un-Bank 

The Nugan Hand Bank never did any banking. It never hired any bankers— until in its death throes it brought Donald Beazley in from the United States. And he stopped banking as soon as he got to Sydney. 

Nugan Hand hired people with contacts. And it hired aggressive professional salesmen—some of whom paid little heed to the worth of the product they were selling. 

Les Collings was a Britisher who came to Australia in 1960 at the age of twenty three with a grammar school education and career experience as a deck apprentice on an oil tanker.* He took up selling real estate and eventually moved into mutual fund shares. Mutual fund salesmen sometimes begin to think of themselves as being entitled to 8 percent of the life savings of anyone they meet. That is the commission they often take off the top. Then they turn over the remaining 92 percent of the savings to a fund manager at no risk to themselves, and move on to the next prospect. So did Les Collings make his living. 
*That's the version he gave me. The Stewart Royal Commission described him as a deck officer.
In July 1974, the fund Collings was working for—Dollar Fund of Australia—did the one thing that every investor is told his mutual fund will never, ever, do: it stopped redeeming its shares. What happened to the unlucky investors? "They would probably still be holding the securities," Collings says. In other words, the money those people worked for and saved, perhaps over the course of a lifetime, is gone forever. 

But, as would happen later with Nugan Hand, Collings doesn't like to talk so much about the investors. "That firm had an elite group of salesmen," he says of the Dollar Fund. There is wonder in his eyes as he speaks of this hustler's pantheon, and it becomes clear who are the true objects of his sympathy. "Peter Dunn and [Jerry] Gilder were with that firm. [Frank] Ward was the administrator. There were eighteen guys around the world and we were just suddenly told by cable that we had to pay our own way home." 

As one might expect, they somehow made it. One Dollar Fund salesman, Wilhelmus Hans, got a job with Nugan Hand, selling silver bullion investments (and, eventually, scouting out arms suppliers for Michael Hand's clients in Africa, whoever they were). When Collings had foraged his way back to Sydney, he ran into Hans, who said, "I think I can get you a job selling bullion." 

Dunn and Ward went to work at Nugan Hand for a year or so, and Gilder for the duration. A Dollar Fund veteran named Karl Schuller also joined. In one of the many ironies of the Nugan Hand story, the liquidator John O'Brien back in 1974 was called in to wrap up the affairs of the Dollar Fund, and for the first time heard mention of the company that would become his biggest case. Questioning Schuller about the Dollar Fund, O'Brien was told that Schuller was working for a company called Nugan Hand "and making lots of money on the gold and silver market." 

Apparently Nugan Hand decided to specialize in commodities at first. Advertising for salesmen, the company hired a Lebanese immigrant, George Shaw, who had been running a coin dealership. His commodity specialty was silver. Shaw brought in a friend, Andrew Lowe, who ran an illegal gambling den in Sydney's Chinatown. Lowe's commodity specialty was number four grade (pure) heroin. He imported as much as sixty pounds of it at a time, until he was caught and sent to prison for it in 1978. 

Shaw and Lowe, respectively, brought in banking customers from the large Lebanese and Chinese communities in Sydney. Many of these customers were involved in the dope trade, and wanted to get money across international boundaries without attracting the attention of authorities. Other customers, for reasons of their own, such as tax evasion, also sought ease and secrecy in international currency shipment. 

"The whole purpose," Shaw told the Stewart Royal Commission,  "was to attract people with 'black money' and to assure them that their anonymity would be preserved." 

Nugan Hand began a mutual fund called Ingold. As Collings remembers it, it was "80 percent bullion—gold, silver, platinum— and 20 percent money market." Schuller went to Germany seeking investors, and Nugan Hand eventually took over a small bank there, though Schuller dropped out of the company. Shaw went to Lebanon and tried to open a Nugan Hand branch, but found the civil war had ruined the business climate and came back to Sydney. 

In the move that was to have the biggest impact, Collings was sent to Hong Kong. Before Hand left for Africa, he went to Hong Kong to help Collings legally establish companies there to represent the Ingold fund. 

"They gave me $2,000 and an air ticket," Collings recalls over drinks in a Hong Kong bar. "I arrived here with a suitcase and I got the firm established. I was trying to get people to invest in Australia. A mutual fund with silver bullion seemed to me like a very worthwhile investment." 

But after a few months, he says, Nugan notified him that the bullion idea wasn't working out. "Nugan told me he had set up an investment bank in Panama called Nugan Hand, Inc. They were selling 10 or 12 percent certificates of deposit." Collings was instructed to offer Ingold investors their cash back, but to try to talk them into converting their investments into Nugan Hand certificates of deposit instead. Most, he says, converted. "I'm a damned good salesman," he explains. 

From the beginning, Nugan Hand offered essentially four services, which changed only in size and detail as the bank grew. It offered a way to move money overseas flouting Australia's and other countries' laws; it offered tax avoidance schemes based on Nugan's supposed expertise (though these schemes now seem to have been patently fraudulent); it offered extraordinarily high interest and yet great safety for savings; and it offered international trade connections. 

Because the United States has such a long, strong tradition of free trade and free commerce, it is sometimes difficult for Americans to understand the currency flow restrictions most countries have. But these are the laws Nugan Hand most flagrantly violated. 

America, the land of opportunity, has always attracted capital from abroad. So it has been in our interest to allow capital to flow freely. Of course, it could also be argued that our lack of restraint on capital is one important reason people want to invest it in the United States. At any rate, other countries have built all sorts of regulatory barriers to keep their citizens from exporting capital. It is thought that these laws foster development at home. 

One might assume that Australia, with its American-sized territory populated by only about fifteen million people, would offer such enormous development opportunities that it would attract capital the way the United States has. But for whatever reason, the Australian Government saw fit to join the majority of countries that have erected barriers to the free flow of money. 

No matter how much money you have in Australia, the Banking Act says that if you leave you can't take more than $250 with you, unless you can persuade the Reserve Bank to give you special permission because you are going to do something good for Australia. 

If, for example, you want to start a trading company and need to pay a staff stationed abroad, you may be able to persuade the Reserve Bank to allow you to do that on the ground that you will be helping Australian exports. But you will still be limited to, say, $4,000 per employe for the first two months and $1,500 a month thereafter, and will have to show air tickets or other evidence as proof of what you are doing. 

Nor can you invest money abroad without such permission. You can pay properly incurred debts abroad; for example, if you are an Australian book publisher and contract to publish a book by a foreign author, you may send the author his royalties. (Of course, if you are a book publisher, you will probably find some other excuse not to send the author his royalties.) If you are a non-resident who comes to work a while in Australia and then wants to go home, you will be allowed to take back only as much money as you brought in. 

As John Booth, a senior finance officer of the Australian Treasury Department explains it, "We do not wish Australian currency to be an international currency. Australia is a capital-importing country. We need capital here." 

Although in 1981 the Reserve Bank loosened its guidelines about giving permission for overseas investment (because of an especially favorable balance of trade), during the Nugan Hand years those guidelines were stringent. And then, as now, you can be sure of one thing: before the Reserve Bank will approve your sending or taking that first dime abroad, it will demand proof that you have paid taxes on it and all other income it can trace to you. 

A lot of Australians wanted to be able to put their money wherever they desired, without approval from anyone. So did a lot of  Malaysians, Thais, Indonesians, Filipinos, Hong Kong residents, and others burdened with similar currency restrictions. For them, there was Nugan Hand. 

Donald J. Daisley owned an engineering company in Sydney, but he did some business overseas and parked the profits in Hong Kong, where the taxes were lower and the regulations less stringent than if he had brought the money home to Australia. Through an encounter with George Shaw in mid-1975, Daisley met Frank Nugan, and talked about his financial situation. 

Before long, Daisley was putting some of his Hong Kong savings on account with the Nugan Hand Bank in Hong Kong. And at just about the same time, he took out a $15,000 loan from a Sydney company named Yorkville Nominees, which had been founded by Frank Nugan many years earlier to handle some of the land sales that he and Hand carried on in their salad days. 

Thus Donald Daisley put some money into one Nugan Hand entity, and took some money out of another Nugan Hand entity. If you wanted to subject this money to the Australian income tax, you could say that Daisley was repatriating to Australia some of his overseas profits. If you didn't want to subject it to the income tax, you could say the two transactions were a coincidence. It was $15,000, it was called a loan, and who would holler about it? 

That's the way Nugan Hand worked—on a simple level. 

Then, in 1976, Daisley spotted his dream house in the posh Hunter's Hill area of Sydney. The price was $260,000. It was a good buy, later valued at over $ 1 million. But Daisley's bank would cough up only $160,000 of financing. He had plenty of money in low-taxed Hong Kong. But how was he to get that money back to Australia to buy the house without paying Australian taxes on it? 

This was Frank Nugan's genius. At just about this time, Nugan was oiling up his relationship with the injured, disaster-stricken doctor, John K. Ogden. Nugan, who had settled Ogden's insurance case, was trying to persuade the physician that through his tax expertise, allegedly acquired at the University of California, Nugan could handle the Ogden family's finances better than the Ogdens themselves. 

Now, Nugan showed Ogden just what he meant. Nugan would arrange for Ogden to buy a house—the one Daisley wanted—for $260,000. Then Nugan would arrange for Ogden to sell the house to Daisley for $160,000, creating a $100,000 loss. The loss would be reported to Australian tax authorities for a considerable savings on the Ogdens' annual tax bill. But, then, nothing would really be lost, because the $100,000 would magically reappear in an account with Ogden's name on it in Hong Kong, where it would earn more interest anyway. The money would come from Daisley's account in Hong Kong. 

And that wasn't the end of the supposed benefits. Under Australian law, Ogden wasn't entitled to invest in Nugan Hand's higher-interest overseas bank. But since the money to open the account would already be in Hong Kong, the device of the house would solve both problems. It would produce a tax loss, and a high-interest Nugan Hand Bank account at the same time. And, Nugan assured Ogden, lying through his teeth, it was all perfectly legal.* 
*Nugan assured many people that what they were doing was all perfectly legal when it wasn't legal at all. I've talked to a lot of those people and believe that often Nugan was just creating a mutually convenient story so that the new and unpracticed criminal would have a rationalization to use in fighting off pangs of conscience. It also gave them something to tell the tax collector if eyebrows were ever raised. If they were caught, the phony story would never work to relieve the clients of the civil responsibility to pay their taxes. But it might keep them out of jail by calling their criminal intent into question. 

In at least a few cases, though, I think the people really believed it. After talking to the Ogdens, I tend to give them the benefit of the doubt. I think they were genuinely taken in. 
Still, a corporate veil was created. Yorkville Nominees, as agent for Ogden, bought the house high, and turned around and sold it low to Yorkville Nominees as agent for Daisley, who was handed the title. Meanwhile, Wilkinson Holdings, a company Daisley formed in Hong Kong, generously donated $100,000 to an account with Ogden's name on it at the Nugan Hand Bank in Hong Kong—all by coincidence, of course. (Daisley declines to discuss it.) 

By the time the liquidator, John O'Brien, took over Yorkville Nominees' books along with Nugan Hand's, they showed scores of client accounts through which millions of dollars disappeared in one country to magically reappear in another. Because these transactions were so informal and so secret, and the records ill-kept or destroyed, O'Brien found it impossible to estimate either the assets or the liabilities of Yorkville Nominees. 

Australian tax authorities investigated many of the cases. The outcome of any civil tax claims isn't public information, and no criminal charges are known to have been filed. 

At times, Nugan Hand didn't bother with such complicated book-work. Cash was physically, illegally, carried across boundaries in pockets and suitcases. George Shaw did it, according to fellow insiders. (Shaw himself stopped talking to the author before the question came up.) No doubt others did, too. 

But in mid-1976, a real pro came onto the payroll: a mysterious and secret Britisher named Ron Pulger-Frame. Pulger-Frame had worked for Deak & Company, probably the best-known U.S. international currency and coin exchanger until its bankruptcy filing in December 1984.

For years, it was whispered that Deak had a close working relationship with the Central Intelligence Agency. Certainly the CIA would have been derelict not to try to keep tabs on Deak. And there would have been a lot for Deak to gain by trading off with the world's biggest spy agency, because much of the company's business involved speculation about the relative future value of the world's currencies.

Pulger-Frame talks only sparsely about his work for Deak and Nugan Hand. "I was a courier," he says. "I carried things." 

Money? 

"Of course." 

Large amounts? 

"Fifty, a hundred thousand dollars." 

Neil Evans, whom Nugan Hand had hired to run its branch in the drug capital of Chiang Mai, Thailand, said that while with Nugan Hand, Pulger-Frame would carry a pencil behind one ear, or make some other sign under a pre-arrangement with customs personnel of various countries who would then let pass what Pulger-Frame wanted passed. Asked about this by a reporter,* Pulger-Frame indignantly denied ever crossing frontiers with cash. "I'm not that dumb," he said. 
*The author. 
But the Stewart Royal Commission learned of an interview Pulger-Frame gave to the official bankruptcy receiver's office in Hong Kong in 1981, during which he declared, "Deak's had a system which was devised by me to circumvent Australian exchange regulations." When the commission pressed him about what he meant, Pulger Frame explained the rather ingenious system:

He opened a foreign exchange account in Australia, telling banking authorities that Deak wanted to import Australian cash from Asia, sell it in Australia at profitable exchange rates, and export the proceeds—all perfectly legal, if registered. He would then carry suitcases of Australian currency into Australia from Hong Kong, notifying banking authorities of his arrival.

Once in the country, however, on his way to the bank where he had the account, he would rendezvous with Australians who wanted to illegally export money. He would add their saved-up cash to his imported bundle. He would then turn the combined amount over the bank, which would credit the entire sum as imported cash. It could then be put in international exchange accounts, where it could all be exported if desired. (Pulger Frame told the Stewart commission that he really didn't devise this system, he just implemented it.) 

The Hong Kong liquidator who took testimony from Pulger-Frame in the Nugan Hand case also recalls* his boast that while with Deak he played a role in the delivery of Lockheed Corporation cash to Japanese public officials, in a well-known bribery case that helped bring down a Japanese government. There have long been suspicions that such bribes to foreign leaders by American firms, especially defense contractors, are really payments from the U.S. Government in disguise. 
*Interview with the author, on the condition he would be identified only as official receiver, and not by name. 
"He [Pulger-Frame] took the view that the movement of money was every man's right," says the liquidator. "He said there was one time customs in Japan opened his suitcase and it was full of money. And the man [customs official] said, 'Hmmm, money,' and closed it up again." 

Les Collings, the Nugan Hand representative in Hong Kong, says Pulger-Frame dealt directly with the Sydney office, not with him. Collings says the mysterious courier "used to bring in depositors" from Indonesia and other places. 

John Owen, the Nugan Hand Bangkok representative, calls Pulger-Frame "a bag man," and recalls running into him in Sydney once "on one of his clandestine sort of deals." Owen says he asked Pulger-Frame about rumors then circulating that the Nugan family might be connected to narcotics trafficking. He says Pulger-Frame told him, "They are all involved in drugs. Nugan fruit group and Nugan Hand," whereupon Owen says he backed off.

Pulger-Frame testified before the Corporate Affairs Commission that he catered to clients mostly in Melbourne who presumably didn't trust the mails. Sometimes, though, even in Sydney there were clients who "wished to remain anonymous," and so used him as an intermediary, he said. According to his testimony, he merely carried cash to the Nugan Hand office in Sydney, then went back to Hong Kong with empty pockets so as not to violate the currency laws. (Apparently he never told the Corporate Affairs Commission that at Deak he had specialized in violating such laws.) Back in Hong Kong, Pulger-Frame said, he would report the transaction, and an international certificate of deposit would be issued to the client by the Nugan Hand Bank. 

For this seemingly modest service, Pulger-Frame testified that he extracted the impressive fee of 4 percent of the money he carried. He said he had received 5 percent from Deak. Why he was able to demand such high fees if all he did was carry money across town from one office to another can only be speculated on—especially since Nugan Hand regularly used an armored car service in Sydney to perform that task. 

The guard service was K & R Cash Transit, whose main business was providing payrolls for Sydney companies that paid their workers in cash (a much more common practice there than in the United States). Interviewed in his home, Eric Francis Lambkin, who ran K & R, recalls regular trips for Nugan Hand throughout 1977 and 1978, the same period Pulger-Frame was working for the firm. Lambkin would come to the Nugan Hand office, pick up a bundle of cash, and write a check to Nugan Hand (or Yorkville, or whoever) for however much money he was collecting in cash. 

"They'd call in the morning and ask us to pick up about noon," he says. "Maybe once a month, maybe twice a week. Very spasmodic." The largest single sum he recalls picking up at Nugan Hand was $350,000, the smallest, $12,000. "When you think about it, it's a bloody good way to wash money," he admits. 

Lambkin ought to know about money laundering. He spent eighteen months in prison for it after K & R was liquidated in bankruptcy in 1979. Nugan Hand's name wasn't sullied in that affair. 

To get the clients it wanted, Nugan Hand needed public trust. And to get that trust, it needed two things: it needed reputable banking and other official references. And it needed a certified public accountant to sign off that its books were true. It got both.

"If there was one thing that was most responsible for the rapid growth of the bank," says Les Collings, "it was the quality of banking references they got." In Sydney, Nugan persuaded officers at two of the biggest banks in Australia, the kind everybody goes to, with branches all over town, to write testimonial letters and even answer telephone inquiries from potential Nugan Hand clients. The men who signed the letters aren't answering inquiries about the bank anymore, at least not for an American reporter.

The first big endorser for Nugan Hand was Ron McKinnon, head of the New South Wales branch of the Australia and New Zealand Banking Group Ltd., popularly known as the ANZ Bank. McKinnon is now dead. The Joint Task Force on Drugs worked for a while on the theory that McKinnon had somehow been bribed by Nugan, but never came up with usable evidence. 

J. K. Nicholson, however, lives. And as late as July 1979, six months before the bank collapsed, Nicholson—senior manager of ANZ's international division—supplied Nugan a copy of the report that ANZ was putting out on Nugan Hand. 

Under the heading "Ability and Integrity of Management," the ANZ report said, "Directors have proven, in their dealings with the Bank [ANZ], capable and reliable and unlikely to commit the company beyond its means." Under the heading "Remarks on Financial Position," it said, "On information available to us, financial position is considered sound." Under "Conduct of Account," it said, "Good—arrangements have been observed at all times." There was not the least hint of anything derogatory. 

Nicholson attached the disclaimer that, "As is our standard practice the report is supplied without responsibility on the part of the bank [meaning ANZ Bank] or writer." But ANZ apparently made the report available for those who inquired about Nugan Hand; certainly Nugan Hand made it available to its clients, along with Nicholson's cover letter on ANZ stationery. (Nicholson, still an officer at ANZ, did not respond to telephone messages.) 

With only the same kind of perfunctory disclaimer, the Bank of New South Wales, whose letterhead boasts "First Bank in Australia," also backed up Nugan Hand. Ronald J. Regan, who signed himself "assistant representative" of the Bank of New South Wales, prepared a form report saying that Nugan Hand's account at his bank "opened 1973 and operates with substantial turnover. Directors are considered capable and reliable and we consider they would not enter into any commitment they could not expect to fulfill," the report added. 

Possibly the most important banking reference Nugan Hand picked up was that of Wing-On Bank, a major institution in Hong Kong controlled by the wealthy Kwok family, which also owns department stores and other enterprises. Besides kind words in response to inquiries, Wing-On offered a prestigious depository into which Nugan Hand customers could send their investment money, and out of which the investment could presumably be retrieved (through checks Nugan Hand wrote on its account there). 

But Wing-On did something much more important even than that. Wing-On actually guaranteed, with its own money, deposits that Nugan Hand took in from certain elite customers—like other banks. Thus, with the help of Wing-On, Nugan Hand acquired prestigious investors, like the Chase Manhattan Bank, the Fidelity Bank of Philadelphia (the third and forty-fifth largest banks in the United States, respectively), the Bank of Nova Scotia, and a dozen other banking behemoths from Europe and North America. 

In each case, the major bank would deposit hundreds of thousands of dollars—in Chase Manhattan's case, once $1 million—with Nugan Hand, which offered a high Australian interest rate for a short period of time. The banks were induced to do this because Wing-On Bank, a substantial entity, guaranteed repayment of the money and the interest. 

For its guarantee, Wing-On charged a slight fee, which Nugan Hand was more than happy to pay. And Wing-On took care to guarantee its own stake, by requiring Nugan Hand to open an escrow-like account at ANZ Bank in Sydney, containing enough highgrade money market securities to satisfy the debt that Wing-On was guaranteeing. ANZ certified the contents of the escrow account, from which Wing-On could draw if it was ever called upon to bail out Nugan Hand. 

In themselves, these deals lost money for Nugan Hand. The money-market securities required to fill the escrow account at ANZ normally paid Nugan Hand less in interest than Nugan Hand was offering to get the deposits. Yet Nugan Hand sought out big, prestigious depositors who required the Wing-On guarantee, because they created still more prestigious references. Potential clients from the general public could then be told that big banks like Chase Manhattan were depositing, which would quell their own doubts about the stability of Nugan Hand. 

In Fidelity Bank's case, for example, Les Collings arranged for deposits by getting to know Fidelity's Hong Kong representative. Later, Nugan traveled to the United States and visited senior executives in Fidelity's home office. According to David Carpenter, Fidelity's vice-president in charge of Asia and Latin America, Nugan impressed the bankers as "smart" and "personable." 

As for references, Carpenter says, "If anybody called us, our standard reference is that we have had a relationship that has been conducted X period of time and it's been satisfactory." But Nugan got Fidelity to go still farther. On June 30, 1978, William F. Morgan, an assistant vice-president at Fidelity, wrote a glowing "Dear Frank" letter to Nugan, signed "Bill," which Nugan made no effort to hide from those he wanted to impress. 

The letter was in response to one Nugan had written to Fidelity, explaining the scandal that was enveloping the family fruit and vegetable business. Wrote Morgan, on Fidelity letterhead, "We had read several newspaper reports on the matter, but knowing you and Nugan Hand Limited, did not feel it necessary to ask you to defend yourself to us. ... I should like to wish you and your family well as this situation resolves itself. You and Nugan Hand Ltd. will undoubtedly come out of this period stronger and better for it. With warm personal regards ..." 

Irving Trust Company, seventeenth largest bank in the United States, is where Nugan Hand did its own banking in the U.S., shuffling money in and out of a New York account. An Irving Trust spokesman says his bank was introduced to Nugan Hand through Wing-On, which has a correspondent banking relationship with Irving. The spokesman says that unnamed "sources and references indicated the quality of the organization met our standards." 

Irving says there is no record of whether or not Irving provided references to prospective Nugan Hand clients, and won't comment on the other business they did. But Nugan Hand staffers were advised that they could refer a potential client to David Fung, an Irving vice-president, and presumably they did so without ill result. (Fung says he did a lot of correspondence banking with Nugan Hand, which he says was a "sister bank" of Irving, but that he didn't refer any customers.) 

When John O'Brien, the liquidator, went for information, he reports, "The Irving Trust guy in Hong Kong was the most nervous person I ever saw in my life. He says he knows nothing about it. He had computer printouts of the monthly balances but no details of transactions. The balances are nominal, the low six figures, but he acknowledged there was a lot more going in and out." 

Albert Kwok, Wing-On Bank's chief manager, refuses to say who introduced Nugan Hand to its critical connection at Wing-On. But there is one person he says absolutely wasn't involved: Andrew Lowe. 

Lowe, it may be recalled, was a major international heroin trafficker who was hired by Nugan Hand to bring in clients from the Chinese and drug communities in Sydney, where he was well-connected with people who wanted to move money secretly. Strange as it may seem, Lowe had a brother, Stephen, who was married to the daughter of Alwyn Kwok, patriarch of the whole Kwok family. Alwyn ran the department stores and sat on the board of directors of Wing-On, the family bank. A coincidence? Absolutely, says Albert Kwok. He says Nugan Hand came to him on the recommendation of "a respectable, responsible financial institution in Australia." He just won't name it. 

You get a very different story, however, from Les Collings, Nugan Hand's Hong Kong manager. Collings explains the Wing-On relationship very simply: "I established the relationship with the Wing-On Bank," he says. "I was walking down Des Voeux Road [a main drag in the Hong Kong business district] and I saw this bank. I thought, 'I'll see if they'll invest.' " 

At the time, Collings was still selling shares in Ingold, the metals fund. He says Wing-On turned down his efforts to get it to invest. (The idea of a bank investing in a precious metals mutual fund seems strange to begin with.) But, Collings, says, he struck up an acquaintanceship with Albert Kwok—even arranged for Frank Nugan to give legal advice when Kwok was sued for fraud—and later, when Collings was selling certificates of deposit, the acquaintanceship paid off. 

At first, the certificates Collings was selling were issued by the Nugan Hand company in Panama. By the end of 1976 or early 1977, however, Nugan and Hand had moved their offshore haven to the Cayman Islands, where they set up a company called Swiss Pacific Asia Ltd. 

A lot of banks, even some legitimate ones, open subsidiary companies in places like Panama or the Caymans, because the governments of those countries don't pay much attention to what goes on. The "office" is often just a manila file of legal documents in the office of some lawyer, who also serves as a mail-forwarding service; real business is conducted from New York, Paris, or—in Nugan Hand's case—Sydney and Hong Kong. 

You'd think investors would know that banks located in such offshore havens aren't subject to normal scrutiny. But a lot of them apparently don't think about that—or else a lack of scrutiny is the very thing they're looking for, because they are trying to avoid paying taxes in the country where they live, or to evade some other law. 

The reason Nugan and Hand picked the name "Swiss Pacific Asia" should be obvious. It certainly was obvious to the Government of Switzerland, which protested to Hong Kong authorities in 1977 and forced a change. Inclusion of the word "Swiss" encouraged investors to overlook the Cayman Island address and falsely assume that the bank was connected to Switzerland, which cares very much about how its banks do business, and therefore has developed a great reputation for safety. 

So, on Switzerland's protest, the name was changed to the Nugan Hand Bank. And somewhere along the line, Les Collings says, he persuaded Albert Kwok to put in Wing-On's money—and name. 

By March 1977, Nugan Hand had picked up another impressive reference: the United States Government. The U.S. consular offices in Sydney and Hong Kong cabled reports on Nugan Hand to the Commerce Department, and the reports fairly glowed. How often the Commerce Department or the embassies gave the reports out in response to public inquiries isn't known, but Nugan Hand got hold of copies of the reports. And for potential customers, the clearly labeled words of the U.S. Government made impressive reading. 

The data in the reports conforms to false figures handed out by Nugan Hand itself. The Australian report, dated March 1977, says Nugan Hand, Sydney, was established in 1970 and had eighty employees. The Hong Kong report, dated April 1977, says the office there—identified as Swiss Pacific Asia Ltd.—was established in 1972, and had fifty employes. 

Both reports, prepared by the State Department for the Commerce Department, list the reputation of the company as "good." Both list the ANZ Bank as a banking reference, and the Hong Kong report also lists Wing-On and the Hong Kong office of Banque Nationale de Paris (a major French bank whose name hasn't turned up elsewhere in Nugan Hand literature). 

The report from the U.S. Embassy in Australia says Nugan Hand "acts as a holding company, investment banker and banking service company, providing services as money market operation, financial advice and assistance, economic analysis and information, investment and portfolio management, credit services, custodian and nominee facilities." At January 31, 1976, it says, Nugan Hand had $22.7 million in assets and $1.1 million in working capital. 

All this sounds as if it were pulled off one of the fancy advertising brochures Hand and Nugan were distributing. The report repeats the fiction that "Financing for operations is from money market borrowing." 

The State Department apparently had talked to ANZ Bank and the Bank of New South Wales, because the U.S. Government report is worded so similarly to the two bank reports. "Banker [unidentified] states directors are considered capable and reliable, unlikely to enter into commitments they could not fulfill," the U.S. Government report assures its readers. "Firm's above balance sheet indicates a good financial position," the State Department adds. "No adverse information is known about Nugan Hand's operations and banker considers directors are reliable." 

The report notes that Nugan Hand had incorporated itself in Hawaii, and even asserts that Nugan Hand, Inc. of Hawaii "owns Nugan Hand (Hong Kong) Ltd. and Nugan Hand Bank & Trust Co." It is, of course, illegal for a company operating from the United States to sell banking securities or even call itself a bank without  banking regulation, which Nugan Hand decidedly was not getting. But apparently the FBI, which is in charge of enforcing this regulation, was not among those receiving the State Department report. 

The Hong Kong report says Nugan Hand's (Swiss Pacific's) U.S. representative "is Rear Admiral Earl P. Yates, USN (Retired), who would be the appropriate person to contact for U.S. individuals wishing to do business with subject firm. 

The report also lists Yates as a "trade reference" for Swiss Pacific, and gives his address in Virginia Beach, Virginia. And it says Swiss Pacific was capitalized with $10 million Hong Kong, the equivalent of about $2 million U.S. or Australian. By all available evidence, of course, this capitalization appears to have been a complete hoax. 

Yates was brought on board by Bernie Houghton. Although Houghton had no official capacity with Nugan Hand at the time, he acted as an unofficial third partner. Yates has given Australian investigators* different versions of when he met Houghton, according to their reports. The Joint Task Force says, and at one point the Stewart Royal Commission says, that Yates told them that he met Houghton in 1972 or 1973 through a Colonel William Prim, who was serving on Yates's staff at the U.S. Pacific headquarters in Hawaii. According to this version, Prim had recommended that Yates look up Houghton, an old Vietnam buddy of Prim's, on a trip to Australia.** 
*He declined numerous attempts by the author to interview him. 

**The air force located Prim (who gives his formal name as "Billy") and agreed to forward a letter to him from the author, asking for comment. He did not reply. 

This account accords with the one Houghton gave. But it quite contradicts the recollection of the prominent businessman Sir Paul Strasser. Strasser has told official investigators and reporters alike that a glowing reference from Yates led him to hire Houghton as a real estate salesman in 1967. 

Strasser's account accords with the one the Stewart commission says Yates gave while testifying in Sydney in 1984. There, the commission reported, Yates said he "met Mr. Houghton during the late 1960s when he (Admiral Yates) was in Sydney overseeing the details of the establishment of rest and recreation leave pursuant to which scheme American servicemen serving in Vietnam would come to Sydney as part of such leave. Subsequently Mr. Houghton introduced him to Messrs. Nugan and Hand." 

Taking what is consistent in Yates's contradictory accounts, Yates got the standard invitation to the Bourbon and Beefsteak from Houghton, and they struck up a social friendship. When Yates returned to Australia with his boss, Admiral Noel Arthur Meredyth Gayler, Commander-in-Chief of the U.S. Pacific Command, Houghton threw a party for their entourage, and, in the words of the Stewart Royal Commission, "introduced Admirals Yates and Gayler to several political and financial figures in the Sydney area." 

Yates told investigators the friendship with Houghton lasted after he left the navy in 1974 and went to work with a U.S. engineering company. Then, early in 1977, Houghton invited him to come to Sydney, meet Nugan and Hand, and join their organization as its U.S. representative. 

We are told the initial impressions were splendid. "I thought Frank Nugan was very, very honest and straightforward, and a Christian gentleman," Yates said in an interview with U.S. journalist Jonathan Marshall* on September 29, 1980, long after the bank had stopped paying depositors and been exposed as a sham. 
*Then with Inquiry magazine, now editorial page editor of the Oakland (California) Tribune. 
Yates said he and his new associates even went to church together. "I never knew him [Nugan] to do anything illegal or dishonest," Yates told Marshall. "Michael Hand [who by the time Yates was speaking had fled Australia and vanished] also was highly decorated. ... I never heard him swear. He was a very religious and dedicated Christian."

Yates's employment agreement called for him to receive $50,000 a year in salary, and another $50,000 in expenses. He told the Stewart Royal Commission that he never received the salary, and that his real interest was an agreement that he would receive a 20 percent equity share in the enterprise, equal to that of Nugan and Hand, after the bank had achieved "a measure of success." (The commission doesn't explain who would have held the other 40 percent of the shares.) 

Yates also told Australian investigators that although he was given the title of president, he "was not given any authority to commit the bank nor direct any of its operations outside the U.S." Yet he was soon representing the bank in public, and also in private business deals in Asia and Europe. A 1977 feature in the business section of Hong Kong's respected South China Morning Post featured Yates's picture, and said: 

Hong Kong will rival London and New York as a financial center in a few years and will require the presence of more institutions for the large international financial arrangements that will undoubtedly be made here. This is the prediction of the visiting president of Nugan Hand Bank, Admiral Earl Yates, who is in Hong kong to lay the groundwork for the bank's activities here. The bank has a representative office and a deposit-taking company in Hong kong. 

There followed a long exposition of Yates's opinions on various banking and trade matters, with plenty of puffery about Nugan Hand's special ability to serve almost every kind of customer. 

Yates was joined by Brigadier General Edwin Black "early" in 1977—that's as specific as Black could be about the date. A former OSS man during and after World War II, former Green Beret commander, former commander of the covert Vietnam War support programs run out of Thailand, former executive director of the Freedoms Foundation at Valley Forge, Black said Yates recruited him to the job. Nugan and Hand were flown to Hawaii by Yates to meet him, Black said, after which Black became president of Nugan Hand Hawaii. 

As such, he carried on yet another important relationship, with the Hawaiian Trust Company, a large legitimate bank, and its vice-president, Douglas Philpotts. Philpotts will say nothing about the relationship. But millions of dollars flowed through Nugan Hand's account at Hawaiian Trust on its way to or from Europe, Latin America (particularly Panama), and Asia. 

What was the money used for? We can only guess. For example, Panama was and is a big center for drugs. It also was, for those years, the main base for U.S. covert military operations in Central and northern South America. General Black insisted in interviews until his death in 1984 that he himself didn't know what the money he shipped around was being used for; he said he was just following orders he got from Frank Nugan and Mike Hand. 

No amount of financial treachery by Hand, Nugan, Houghton, or any of the talented staff they employed would have succeeded without the signature of a trusted accountant. The role was filled, first, by George Brincat of Sydney, and, later, by the Price Water-house & Company office in the Bahamas (which covered the Cayman Islands). 

Price Waterhouse, one of the "Big Eight" international accounting firms, is rather larger and better known than Brincat. But its professional employes are, like George Brincat, certified public accountants. (In Australia, they're called chartered accountants). 

A CPA is much more than a bookkeeper. A CPA does not just organize numbers. He does whatever investigations he considers appropriate under standard professional guidelines in order to give his certification—his assurance to the public—that the numbers "fairly reflect" the status of the business. 

In certifying the books of a manufacturing company, for example, a CPA may actually go into the warehouse (or send someone) and open up some boxes to see whether they contain as many widgets as the company management says they contain. The CPA for a bank may check the vaults and see if the money is really there. He's not expected to count every dime, or widget, which would take forever, but to test according to standards the profession has set for itself— such as by sending mailings to a sampling of alleged depositors to see if they agree with the bank's records of their accounts. 

A CPA license requires a vigorous examination, overseen by state agencies, and continuing professional education. Because finance is so complicated, the public has come to regard the signature of a certified public accountant as something it can bank on. 

Brincat, of the firm of Heuschkel & Pollard (later Pollard & Brincat), became Nugan Hand's accountant in 1974, before its big growth. He was only twenty-three years old. The Corporate Affairs Commission concluded, "The more dominant character of Mr. F. J. Nugan and the comparative inexperience of Mr. Brincat, whilst perhaps rendering the behavior of Mr. Brincat more understandable, do not in the estimation of the delegates [commission members] in any way combine to excuse the active role played by Mr. Brincat in the financial deceptions . . . 

"Whilst it is accepted that by January, 1979, he had become uneasy at the contents of the accounts of Nugan Hand Ltd., and in the underlying transactions concealed by those accounts, his uneasiness could have been equally attributable to his own position as to the behavior of Mr. F. J. Nugan," the commission said. In other words, he may have been less worried over the welfare of the depositors than over his prospect of going to jail. 

Brincat's very first "audited" statement for Nugan Hand, covering the year ended June 30, 1974, accepted Nugan's and Hand's word that they had invested $1 million in capital in the company. A company's capital acts as a base, to assure clients that temporary operating losses won't leave the company short of funds to pay its debts. But the financial records Brincat relied on to show the $1 million paid-in capital in fact establish nothing of the sort. As noted earlier, they were merely the result of the kiting of checks among accounts with under $20,000 in them—which would have been evident from the very records Brincat cited. 

The Corporate Affairs Commission found that Brincat had "knowingly engaged in the preparation of false accounts for Nugan Hand Ltd." from that day forward. So did the Stewart Royal Commission. In fact, in his testimony before the Stewart commission, Brincat tacitly admitted it, though he argued that he always thought Nugan was so rich he could, if needed, pay from his own pocket the money Brincat knew the company didn't have. 

There is no way to say just why Brincat falsely certified these statements. Nugan is dead, Hand is gone, and Houghton, Yates, and the others are not being held accountable for what Nugan Hand did while they were associated with it. Brincat won't talk to journalists, and the only Australian officials he admitted anything to, the Stewart commission, had too little curiosity to ask the right questions. 

The Nugan Hand Bank was incorporated in the Cayman Islands July 6, 1976, and got its license to operate there on August 26, 1976. The legal papers were arranged by the Cayman lawyer for the Bank of Nova Scotia (Canada), a bank Nugan Hand had courted in Hong Kong. Nugan Hand's mail-drop office in the Caymans was in the Bank of Nova Scotia building there. 

How the association with Price Waterhouse came about isn't known. But the Bahamas branch of the big international auditing concern proved ready to sign the books Nugan concocted, just as Brincat had done. 

Nugan and Hand shuffled some checks back and forth among the accounts of the Nugan Hand offices in Hong Kong and Panama, and on this basis asserted that the Cayman-based Nugan Hand Bank had received $1 million in fresh capital. This made $2 million in all that they had supposedly invested in the various Nugan Hand entities, but neither the Corporate Affairs Commission nor the Stewart commission could find evidence that any real money was injected at all. (The Stewart commission put the total at $105.) 

Financial swindlers do this kind of thing all the time in order to make a worthless enterprise look like it's worth investing in. The difference in this case is that Price Waterhouse certified the financial statements. 

Price Waterhouse's New York headquarters says the Bahamas branch is an independent entity, and not a responsibility of the main organization. Investors, however, might be forgiven for not knowing that. 

In 1977 and 1978, some combination of Nugan, Brincat, Steve Hill (the in-house financial officer), and Admiral Yates flew to the Caribbean and delivered Nugan Hand's books to Price Waterhouse. Notwithstanding the fact that the books contained bald lies and gross deceptions, Price Waterhouse attested to them. Occasionally the firm would ask for some sort of certification from bank officials that this or that security actually existed. 

But then the formal financial statements would be drawn up. Price Waterhouse would sign. At least in 1977, maybe in 1978, Admiral Yates signed. And Nugan Hand's team of salesmen would go to work using these assurances to bilk the governments and citizens of many countries—including the citizens of the United States. 

Eventually, in 1979, new management was imposed on the Nugan Hand account at Price Waterhouse in the Bahamas. The resultant investigation may have been what triggered the collapse of Nugan Hand. 

In 1976 and early 1977, just as Nugan Hand was expanding into a global organization and hooking up with Price Waterhouse in the Bahamas, two other banks were collapsing. Both were based in the Bahamas, and both had ties to the Central Intelligence Agency. According to reports in the Wall Street Journal and elsewhere, both had for many years been used by the CIA to pay anti-Castro Cuban agents and others. At least one of them, Mercantile Bank and Trust Company, annually had its phony books certified by the Price Waterhouse Bahamas office. 

Mercantile and the other failed institution, Castle Bank & Trust (Bahamas) Ltd., shared some common officers and directors. Their affairs were intertwined. Each owned a large block of stock in the other, and each deposited substantial funds with the other. The central mover behind both banks was a man we encountered back in Chapter 3— Paul Helliwell, the former OSS chief in China during World War II, who then operated (for the CIA) the Sea Supply Corporation, which traded guns for drugs in Thailand. 

As the U.S. Army openly took over the fighting in Southeast Asia, Helliwell went to Miami and became paymaster for the Bay of Pigs operation and the subsequent anti-Castro terror campaign. He organized and ran Castle Bank. Jim Drinkhall reported in the Wall Street Journal* that a former federal official familiar with Castle said the bank "was one of the CIA's finance channels for operations against Cuba." 
*April 16, 1980. 
The same official said Helliwell was "deeply involved" in terror  operations run out of the Bahamas against the Cuban government. (Throughout the 1960s, Cuban exiles on the CIA payroll repeatedly invaded Cuba to blow up commercial installations, sabotage agriculture and the sugar harvest, sink ships, and try to murder Fidel Castro.)* 
*Details in Endless Enemies.
Helliwell's Florida law firm represented Castle in various dealings. The Journal reported that a former law partner of Helliwell's said it was common knowledge at the firm "that Castle was a CIA account." Former law partners would not return calls made by the author of this book, though other lawyers involved in litigation over both Castle and Mercantile said they were told by numerous sources that there was CIA involvement in both banks. 

Like Nugan Hand later, both Castle and Mercantile ran afoul of their illegal doings on matters apparently unrelated to intelligence. Castle was believed by the U.S. Internal Revenue Service to have opened its doors to people trying to cheat on their U.S. taxes, just as Nugan Hand later opened its doors to people trying to cheat on their Australian taxes. 

In 1973, the IRS—then unaware of the CIA connection— launched a big investigation of Castle. The IRS hired a woman of great charm to lure a Castle executive to dinner one evening, while an IRS informant entered her apartment and stole the banker's briefcase. The briefcase yielded a revenuer's bonanza, including a client list of 308 names. Of course, there was nothing necessarily illegal about having an account at Castle. But among those who suddenly drew IRS attention because their names were on the list were a host of celebrities and some organized crime characters. 

Suddenly, the IRS and Justice Department called off the prosecutions, saying that the surreptitiously obtained client list couldn't be used in evidence. This sounded suspicious to some people. Other evidence was available—including the same client list obtained legally in other court proceedings. Drinkhall and the Journal's editors were persuaded that the CIA connection was probably the real reason the investigation was ended. One "government official close to the investigation" was quoted as saying, "The CIA convinced Justice that exposure of Castle and, of necessity, other Helliwell dealings, would compromise very sensitive and very significant intelligence operations. It's as simple as that." 

The Journal even identified a CIA lawyer, John J. Greaney, as being responsible for closing the investigation. Greaney wouldn't comment one way or the other. 

One client company of Castle Bank was tied by the Journal to the laundering of $5 million for the CIA's use between 1970 and 1976. The client company was run by Wallace Groves, who had served two years in prison for one of the biggest stock frauds of the era, and then had gone into Caribbean casino operations with crime syndicate leader Meyer Lansky. 

The CIA knew all this when it hired Groves "as an adviser and possible officer for one of [the CIA's] Project entities," as a CIA document puts it. Groves's general counsel in the operation was a Helliwell law partner, who has declined to discuss it. (What a shame that crooks like Groves, when they go to work for the CIA, never manage to do to the Kremlin what they did to the U.S. public!) 

Mercantile folded after hapless depositors discovered in 1976 that most of its assets were worthless. According to the lawsuit the creditors filed, of $25.1 million in assets that Price Waterhouse certified to, $20.7 million didn't exist. The real money had been disseminated in the form of "loans" to unidentified figures. The "loans" weren't repaid. 

Not only were Mercantile's cooked books signed by Price Water-house, but a Price Waterhouse partner, on retirement, later went to work for Mercantile. The Wall Street Journal reported he continued to do work for the accounting firm, while it continued to certify the books of his new employer, Mercantile. 

The Journal, without being contradicted by any of the participants, reported that "the same group of directors and shareholders operated three other Caribbean banks, which the CIA reportedly used to launder money. A CIA spokesman says his agency never comments on such allegations." 

Was Nugan Hand expanded under an arrangement with the CIA to replace the failing Caribbean front banks? We can only speculate. What can be asserted is that if Nugan Hand was operating with CIA participation, and if it collapsed because its operators were engaged in fraud, there certainly was copious precedent for it.  

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