Part 5: The Crimes of Patriots...Laughing at the Law...The Asia Branches

The Crimes of Patriots

A True Tale of Dope,

Dirty Money & The CIA

By Jonathan Kwitny 
CHAPTER ELEVEN 

Laughing at the Law 

Nugan Hand told the world it made money in two ways: first, by arbitraging the customers' deposits on the commercial money market (paying the customers one interest rate to get their money, then obtaining a slightly higher rate by investing the money in corporate debt notes) and second, by collecting commissions for facilitating international trade deals. 

Yet records indicate that the interest rates Nugan Hand earned on the money market were consistently much lower than the rates it paid to depositors. For the most part, Nugan Hand offered certificates of deposit (fixed-term, lump-sum deposits) paying 10 to 15 percent interest, then turned around and invested in similar CDs issued by legitimate Australian banks and paying 9 or 10 percent.

This is not a surefire way to make money. It is, rather, a surefire way to lose money. And the Hong Kong liquidator's office calculated that from 1976 to its demise, Nugan Hand lost $7.9 million trading securities. The much-ballyhooed international trade business also was deeply in the red. 

But these banking operations were really just a polite front for the actual business of Nugan Hand. The kind of deal the company thrived on was the kind offered to L. P. Barnes and Arnold Waters, commercial farmers from near Wudinna in the state of South Australia (details as gathered by John O'Brien, the Sydney liquidator). 

Each year from 1976 through 1979 (possibly except 1977), the two farmers gave Nugan Hand (via its Yorkville Nominees affiliate) an amount of money they wanted sheltered from Australian income tax. And each year, Nugan Hand would keep 22 percent of the money and return the rest along with Frank Nugan's legal opinion that the farmers did not have to declare it as income. 

The legal smokescreen for the tax exemption was a phony sharecropper arrangement. Nugan, as a lawyer, formed corporations for the farmers, and had Yorkville make contracts with the corporations to engage in a joint farming venture. The money the farmers turned over to Yorkville was recorded not as deposits, but as profits to Yorkville from the farming venture. Thus it was alleged to be tax-deductible to the farmers as a business cost. The money that then flowed back to the farmers was recorded not as income, but as a loan, from the Nugan Hand International Holdings affiliate—and thus it, too, was tax-free. 

Nugan provided his clients with documents releasing them from any obligation to pay back their loans. And he also put on a show of keeping things straight inside Nugan Hand, by making book entries balancing the accounts between Yorkville and Nugan Hand International Holdings. 

The amounts of money thus "sheltered" by the two farmers rose from $110,000 in 1976 to $675,000 in 1979, according to O'Brien's figures. After the records washed up in bankruptcy court in 1980, the deal was challenged by Australian tax authorities. Not only that, but O'Brien set about to try to collect on the "loans" on behalf of Nugan Hand's gypped depositors. (The outcome of the tax case is private; O'Brien says most of his cases were thrown out of court, but a few are still in contention. Barnes says he has forgotten how his tax case came out except that he wasn't fined. Waters couldn't be reached.) 

The arrangement with the two farmers wasn't unique. In fact, it was prototypical. Nugan claimed he made $100,000 a year for the bank just in tax advice fees. But from the evidence, he was charging fees not for advice, but rather for laundering. And the "fees" usually came out to exactly 22 percent of the money being laundered, and appear to have amounted to far more than $100,000 a year. 

The owner of a furniture company washed money through Nugan Hand the same way the farmers did. O'Brien found outstanding loans to the furniture dealer from Nugan Hand of $322,847—78 percent of the total originally washed, or, in other words, the original amount less Nugan Hand's 22 percent laundering fee. The dealer claimed that he had been given a satisfaction-of-debt release in September 1977, asserting that the loans were permanently taken care of. 

Steve Hill, the internal accountant, testified as to just how the deal worked: "The procedure was to issue a loan agreement and a deed of release simultaneously," he said. But neither O'Brien nor the tax collectors accepted that procedure as legal, and the furniture dealer wound up in the same pickle the farmers did. 

So did a businessman for whom Nugan arranged the purchase of a commodities contract in Sydney—followed by the immediate sale of a similar contract in Hong Kong. The sale was made through a front company Nugan Hand set up there for just such contracts. Until the bank collapsed and the government caught on, the businessmen thought they were cleverly exporting cash to Hong Kong around exchange control laws. 

Any number of Australian pharmacists were lured into letting Nugan Hand set up phony import firms in Hong Kong and elsewhere. Pharmaceuticals being imported from Europe or the United States, instead of being shipped directly to the purchaser in Australia, would be shipped to the phony import firm. That firm would jack up the price to double or triple the true cost, then sell it to the Australian pharmacist who secretly owned the phony import firm. The result: the pharmacist was able to write off as a tax deduction a large amount of money that not only was still his, but which he had successfully moved offshore past duped Australian customs inspectors. 

If the pharmacist didn't want his money overseas, Nugan Hand could easily repatriate it for him, merely by adjusting its own books to keep accounts straight between its offices in Sydney and Hong Kong (or Singapore, Bangkok, Manila, or wherever else someone might want to do business). For one pharmacist, Peter Harding, Yorkville Nominees imported the drugs right into Sydney, marking them up for resale to Harding and putting the tax-deductible "markup" in his Nugan Hand account—less Nugan Hand's fee, of course.* 

*Detailed in the report of the Corporate Affairs Commission.

When Dr. Bronte Norman Douglas, a Sydney pathologist, needed a Sequential Multiple Analysis with Computer machine (known in the trade as a "SMAC") for his office, he found Nugan Hand most useful. Dr. Douglas arranged financing independently, and had a friend in the United States buy the machine for $239,086.75, including delivery to Australia. But the machine was billed in the name of Nugan Hand Trade Finance Ltd., Hong Kong. Nugan Hand Trade Finance then sent its own bill to Dr. Douglas for $317,000—one-third more than the actual cost of the machine. 

From the $317,000, Nugan Hand deducted the cost of the machine and the money transfers, and its commission (apparently about 22 percent again, based on the difference between $317,000 and the real price of $239,086.75), then put the rest of the money—about $56,000—in a corporate front account it set up for Dr. Douglas in Hong Kong. 

So Dr. Douglas wound up with a tax deduction on the inflated price of $317,000, and had an offshore nest egg in Hong Kong to boot. The transfer of this nest egg out of Australia had even been approved by the Australian Reserve Bank—though the approval was granted only because the bank had been lied to about what was happening. Records show that the paperwork for the transaction was handled by Les Collings under detailed instructions forwarded to him by Michael Hand in Sydney. 

Dr. Douglas also had a standing arrangement with Yorkville Nominees to provide "administrative services" for a fee of 5 percent of his laboratory's gross billings. This amounted to more than $100,000 a year. Although Dr. Douglas doubtless did get some advice from his friends at Nugan Hand—and it turned out to be pretty bad advice— the Corporate Affairs Commission concluded that "the underlying purpose behind the Administrative Services Agreement was to gain a substantial tax deduction." 

Dr. Douglas deducted his payments to Yorkville as a business expense, then got a loan back from Yorkville for about 78 percent of the amount he sent in. With the loan, of course, came a document forgiving repayment. And Yorkville eventually wrote the money off on its own books as a bad debt.* 

*Detailed in the Corporate Affairs Commission report.

For clients who lacked some ready-made excuse like SMAC machines or pharmaceutical imports to cheat on their taxes, Nugan Hand in 1978 created a phony franchise scheme called Distravite Proprietary Ltd. Distravite supposedly sold franchises to Nugan Hand clients to distribute brand-name vitamins, fruit juices, or other products in a certain region. 

The price of a franchise was whatever amount the client wanted to shelter from taxes in a given year. Some goods were actually distributed through a supermarket chain whose owners were big clients of Nugan Hand. But it didn't appear that a sincere effort was ever made to profit through the sale of health products. 

Something else was happening: when a "franchisee" bought his "franchise," Distravite transferred the money to Nugan Hand, under some excuse, such as a loan repayment. Nugan Hand then transferred the money to Yorkville Nominees—which was constantly shuttling money back and forth with Nugan Hand under so many business arrangements they could never be sorted out. 

Yorkville would then keep the standard 22 percent and return the remaining 78 percent to the "franchisee." To shield this last transaction from the tax collector, Yorkville would book the payment as a purchase of capital stock in the client's franchise business. But the "stock purchase" had no more effect than the "loans" Nugan Hand gave in other deals. The loans weren't repaid and no equity was transferred. Paying Nugan Hand 22 percent was simply cheaper than paying the tax collector as much as 50 percent. 

The difference between legitimate tax avoidance and laundering was well put by one of the liquidators assigned to Nugan Hand in Hong Kong: "A tax-avoidance scheme is one where you're able to tell everyone what happened and it still works." When the tax collectors found out what really happened at Nugan Hand, it didn't work—as Frank Nugan must have known it wouldn't all along. 

Whether the customers knew the score—or the admirals, generals, spies, and sales staff—is something one can only speculate about. Certainly the customers and staff were told by Frank Nugan and Michael Hand that the tax deals, and even the shipment of money overseas without government permission, were perfectly legal—even though they were blatant frauds. 

George Shaw insists, "We never thought about it when we were doing it. We never said, 'Now I'm going to break the law.' If Frank Nugan had come to us and said, 'Look, we're going to break the law, we probably won't get caught but there's a chance we will,' I wouldn't be in this." 

Exactly how some of the international money-shuffling took place was painstakingly worked out by the Corporate Affairs Commission. From the commission's work, it seems clear that the big international banks in Hong Kong that deposited funds in Nugan Hand were in fact providing an excellent facility for an illegal scheme. 

For example, on July 15, 1976, the Overseas Trust Bank of Hong Kong, after listening to Les Colling's sales pitch, bought an 8 1/2 percent certificate of deposit for $650,000* from Nugan Hand Ltd. in Australia. Principal and interest on the CD were fully guaranteed by the Wing-On Bank under its standing arrangement with Nugan Hand. 

*Actually $648,403.30, an odd figure because it is the converted equivalent of HK$4 million.

The certificate was due to be paid in Hong Kong on February 10, 1977. And, in one sense, OTB got its money as promised. But in another sense, it got someone else's money—because the payment wasn't made from Nugan Hand Australia, which got the original deposit; the payment to OTB came from Nugan Hand's overseas operations, whose only funds were the non-guaranteed deposits coming in from smaller depositors. 

This switch of obligations was hidden on the company books by the same system Frank Nugan and Mike Hand had been using to hide other shady deals. Generally, cash assets that came in to Nugan Hand—like the deposit of the Overseas Trust Bank, or the cash from the many tax-avoidance deals—would be spent as needed, or embezzled. The cash would be replaced on the books by IOUs from the affiliate companies Nugan would incorporate, like Yorkville Nominees, whose accounts outsiders would never think to examine. 

Periodically, the mounting IOUs from related companies grew to be an embarrassment on Nugan Hand's balance sheet. Holding too many of them as assets might—with reason—make Nugan Hand look as if it didn't have real resources to pay the depositors back. So a way was found to reduce these internal IOUs. 

One such reduction occurred on February 10, 1977, the day the Overseas Trust Bank was due to collect its CD—$700,000, including interest. On that day, Nugan Hand gave Yorkville back a $700,000 IOU that Yorkville had written, in exchange for which Yorkville simply agreed to assume the responsibility to pay the Overseas Trust Bank on its CD. 

The accounts appeared to even out. Nugan Hand's balance sheet was changed by the elimination of a $700,000 asset (the IOU from Yorkville), and the compensating elimination of a $700,000 debt (the debt to the OTB). But the reality was drastically altered, because the asset had been phony, and the debt had been real. The Corporate Affairs Commission said that the acceptance of the Nugan Hand bookkeeping devices by George Brincat, the young auditor, was "not merely careless, it was dishonest." 

Concluded the Corporate Affairs Commission, "The debt [to OTB] incurred by Yorkville Nominees was probably paid by Nugan Hand Bank [based overseas]. Nugan Hand Bank ... probably had no net earnings available to it from which to meet the debt and simply met it by dipping into depositors' funds."

The $700,000 CD of the Overseas Trust Bank was merely one item, used here for illustration. Similar shuffling was done with the money of other banks, and even of the individual investors in Hong Kong. Nugan Hand applied for, and got, permission from the Reserve Bank of Australia to bring deposit money in for money market operations, and then to send it out again. Nugan Hand Ltd. in Sydney even paid the withholding tax due on the interest that was supposedly being shipped back to Hong Kong. 

But this was all just another ruse. The money never left Australia. The money being paid out abroad was coming in from new depositors, and from other illegal transactions. Nugan Hand had obviously devised a brilliant stratagem for looting the proceeds of an international bank operating offshore, beyond the purview of Australian or American banking authorities. 

The president of the Nugan Hand Bank when the OTB deposit was paid, and when other such frauds were occurring, was Admiral Earl Yates, U.S.N. (ret.). Among the bank's depositors were citizens of the United States. 

Nugan Hand's Hong Kong office went after deposits with gusto, methodically working down lists of expatriate residents, offering high-interest Australian CDs, with no exchange control problems. So persuasive was the pitch that accountant Tony Robertson, who is now an official Hong Kong government liquidator working on the Nugan Hand case, says, "I almost put money into it myself. Somebody else in this [the liquidator's] office did." 

The main object, Robertson says, "was to get money offshore in Hong Kong dollars so there would be no tax. If the money stays here, tax is withheld." What deterred Robertson, however, was that "they said they couldn't produce a balance sheet because of the secrecy laws in Cayman." That, he says, "struck me as rather odd, so I didn't do it." (This was apparently before Price Waterhouse signed a purported "audit" of the bank at the end of 1977.) 

There were other warning signs. One American banker who was approached about putting in his personal money remembers, "Collings was a nice enough chap, but he was unable to explain how the company in Sydney made their profits." Still, the banker was intrigued enough to contact both Hand and Nugan personally. But, he says, they, too, failed to satisfy him. "The most disturbing thing to a banker was that they always left it for a dealer to explain how it was that they made their profits. They could not sit down and tell you." So the banker decided to leave his money where it was. 

And a good thing, too, because, as it turned out, individuals were treated very differently from banking institutions. When the big banks like Overseas Trust Bank and Fidelity Bank agreed to deposit money with Nugan Hand, their deposits were guaranteed by Wing-On Bank. 

In the case of the individual depositors, however, Wing-On wasn't involved. The individual depositors' money went into the Nugan Hand Bank, which was headquartered first in Panama, then in the Cayman Islands. The Nugan Hand Bank's money was tossed about among various accounts—and often just spent. Instead of being guarded by ANZ Bank, the individual depositors' money was overseen by nobody more reliable than Frank Nugan, Michael Hand, Admiral Yates, and the rest of the military-intelligence group that was coming on board. 

This distinction, important as it was, was concealed from the depositors. "In my instance," says the liquidator Tony Robertson, "there was no mention of the Nugan Hand Bank until I saw the actual blue form I was to sign. If I hadn't read it, I would have thought the money was going into Nugan Hand Hong Kong, which [deposits] were all guaranteed." 

Nugan Hand's deception was helped along by the depositors' own desire for secrecy. For many of them, the whole idea was to evade government regulation. Thus the very element that created risk also created protection. 

On the back of each certificate of deposit, for example, was this message: "If to further assure banking secrecy and confidentiality the depositor wishes to observe special instructions as to correspondence, delivery of certificates of deposit to a custodian ... or any other special services, kindly advise the bank of these special requirements by mail." 

Secrecy was a byword at Nugan Hand. There were all kinds of affiliate companies through which money was moved in and out of the bank. Nugan's Yorkville Nominees was the biggest, but he and the other Nugan Hand executives developed a web of fronts. Steve Hill alone was an officer or director of: Hidex Proprietary Ltd., Frapat Proprietary Ltd., Illarangi Investments Proprietary Ltd., Leasefast Proprietary Ltd., NHN Nominees Proprietary Ltd., Nugan Hand International Holdings Proprietary Ltd., Nugan Hand Ltd., Queen of Diamonds Proprietary Ltd., S. L. Notwist Proprietary Ltd., and Nugan Hand (Trade Services) Proprietary Ltd. These companies constantly lent to and borrowed from each other to create a bewildering chain of debt. 

In addition, elaborate codes were worked out, growing ever more complex as the Nugan Hand organization itself grew. This, for reasons one might guess at, was Michael Hand's department. He was rabid about adherence to the codes. Each employee was given a number, and was to refer to others in the organization only by number when using international communications. Nugan was 536, Hand 537, Houghton 538, Pat Swan (Nugan's executive assistant) 531, Admiral Yates 533, Collings 534, Shaw 541, Hill 535, General Black 532, and so on. 

Then came the code for currencies. Woe to the company if the Reserve Bank ever found out that Nugan Hand was running roughshod over exchange controls—or if the central banks found out in any of the growing list of countries where Nugan Hand operated. "We dealt in money, so that's what we'd want to hide," explains Wilf Gregory, who ran the Manila branch with General Manor. 

So Hand ordered that in all communications, currencies were to be referred to by a coded commodity. U.S. dollars were "grains," Dutch guilder were "wheat," Swiss francs were "oats," Australian dollars were "soybeans," Hong Kong dollars were "cookers," and Thai baht were "washers." There were code words for dozens of international currencies—even Portuguese escudos ("berries"). When Hand fled Australia, an even more complex code of symbols was found taped to his dresser; the cryptologist who can decipher it has not yet been found. 

The names of money-laundering clients—the so-called back-to-back deals where a customer's money would be "lent" back to him supposedly tax-free for a 22 percent fee—were kept strictly confidential. Steve Hill testified that the clients "would have to have been approached by or introduced to one of the employes of Nugan Hand Ltd. or its associated companies and then in turn introduced to Frank Nugan." 

Only on rare occasions would another executive or employe become involved. ... "By far the majority of clients would know only two people within the group of companies, Frank Nugan and the person who introduced them to the company. There was great importance placed on segregating knowledge of a client's affairs." 

Records were kept cryptically. Australian clients in the Sydney office sometimes appeared as no more than mere jottings on scraps of paper in Nugan's pocket. Although the bank was headquartered legally in the Cayman Islands, most of its money came and went through the Hong Kong office. Its records were kept in a new office in Singapore, supervised by Michael Hand—who began spending much more time in Singapore and Hong Kong than in Sydney. A local accountant Hand had met and trusted, Tan Choon Seng, was given substantial record-keeping authority in Singapore. (He has ducked all attempts at interviews.) 

Michael Moloney, Hand's and Houghton's Australian lawyer, describes the confusion that this system quite intentionally produced. "You could never balance the books," he says. "You can't tell what the deficiency is now, because most of the books are back-to-back deals. You can't tell what's a deposit and what's not, what's a real loan and what's not. They kept a million dollars in the safe," and there was no accounting for that money at all, Moloney says. Liquidator John O'Brien basically agrees. 

Mortgage loans were given to one party, paid back by another. Who was lending or paying what to whom? You can't tell from the records, O'Brien says. 

Former mutual fund salesmen like Les Collings were accustomed to not asking too many questions. "Our position was to get the money so they could use it to make more money," he says. "I was never in charge of investing the money.... I placed money wherever I was told to place it. And then the money market took over." He remembers that "all these banks asked why we wanted the money and what we were going to do with it. It was all sent to Australia." 

Both Collings and his colleague at Nugan Hand in Hong Kong, John MacArthur, say that for a brief period in 1975-1976, the system seemed logical. Interest rates were so much higher in Australia than in Hong Kong that it really did seem feasible for Nugan Hand to have paid premium rates in Asia and still made money—that is, if you just didn't ask how the bank got around exchange controls. But after that brief period, when interest rates again equalized, even Collings and McArthur admit that the bank's story seemed suspicious. 

Says McArthur, "I asked Hand and Hill when Australian notes went below world rates, it seemed strange that we could continue to pay out more money than we were able to get in interest. The answer was that we could do better with a larger book, that it was worthwhile to bring in marginal funds to keep the book big and that there was a large pool of low-interest deposits, a lot of which was Frank Nugan's own money. It was supposed to be a highly organized, very efficient banking operation. That's where the admirals and generals came in. You thought that if somebody like the admiral was involved, he surely had checked it out. 

"The truth of the matter," McArthur says now, "is that at the core of the operation were a small group of people who were misappropriating funds." 

Contrary to any normal banking practice, salesmen were paid not just salaries ($250 a week, Hill testified), but also commissions on the money they brought in. A list circulated in May 1977 told how the commissions were awarded. Commissions ranged from 1 percent for deposits of six months to 7 percent for deposits over ten years. 

For the money-losing institutional accounts such as those of Chase Manhattan or Overseas Trust banks, the commission scale ranged from only 1/4 of 1 percent to a high of 2 percent—drastically less than for the individual, unsecured, accounts. This distinction should have been a tip-off to anyone who saw it. If all of Nugan Hand's money was to be invested in the same high-level banking instruments, why would there be such a difference in the value of deposits between those to be overseen by an outside authority and those to be overseen only by the executives of Nugan Hand? The obvious conclusion was that the individual accounts were being played with, even looted. 

Yet the salesmen told customers that all investments were equal, as secure as the highest-class banking instruments. The Nugan Hand literature said so. 

Says John MacArthur, "I think now it was all bullshit." Says the Hong Kong liquidator, "What they were, were salesmen. They got themselves lots and lots of money. What they didn't do was invest any of it." 

If the commission incentives weren't enough, there was also the prod. Jerry Gilder, the former Dollar Fund of Australia sales manager, became the Sydney-based ringmaster for the team of salesmen. Gilder gave his typical pep talk in a March 24, 1977, letter to John Owen, who had just opened the Nugan Hand office in Bangkok. 

"Well, John, it really is happening," Gilder wrote. "You are in Bangkok, you are talking to locals and you have now [had] a number of productive interviews. All things considered, I think that is pretty good in the time, and I am quite certain if you keep up your rate of interviews that all-important first sale will soon appear. [It was very much against Thai law for Nugan Hand, a foreign bank, to export capital by taking deposits in Bangkok. That is why the word "deposit" was habitually avoided. But there was no mistaking Owen's mission.] It is essential simply to keep up numbers of interviews," Gilder wrote, "and to continue to discuss the Group's services with everybody and anybody and making no attempt to be selective. In this way you will quickly get a feel for where your time is best spent and what constitutes a good prospect as opposed to a poor prospect. 

The interesting thing is that you are having as expected no difficulty getting appointments," Gilder wrote. "That really is 90 percent of the battle because after a while, once your skills sharpen, any person that you sit down with will be vulnerable to your sales expertise and will be very likely to buy from you sooner or later. In other businesses, such as life insurance, it is a battle even to get an appointment, so you can see the advantage that you have in this regard. Be particularly careful to leave the door open as a result of every interview, as you may well find yourself going back to these prospects at a later point. 

"I am interested to note your own observation that you are not closing hard enough," Gilder continued. "You may recall that before you left... I predicted this would be the area with which you would have the most difficulty. It will not be too long before necessity forces you to be a little less British and a little more Jewish and to [come to] the realization that it is only on a rare occasion that a person asks you to buy something. Almost invariably he has to be coaxed into it, and 'forced' to take the first step." 

Then Gilder told Owen how to apply this "force": "Standard practice is to have an application form beside you while you are talking, and then instead of asking the man to give us a deposit, simply ask him a less direct question, which is far more easily answered, such as, 'When we correspond with you, where would you prefer we direct our mail?' Then write in the response he gives, under 'Correspondence' on the application form. Or, 'What period of deposit seems most appropriate for you?', and then write in beside 'Type of Account', LCD. [International Certificate of Deposit] 10 years, etc. Or, 'What is the currency of money you have available for investment?', and write in his response beside 'Currency of Account.' 

"In other words, you do not confront the prospect head-on with a demand for a deposit, but rather sneak in through the back door," Gilder wrote. "You then proceed to complete the form to the point where you finally ask him for his signature, and then close again with another question, such as, 'Do you have a checkbook for your Hong Kong Account which we can use to finalize this deposit, or would you prefer to give written instructions to your bank to transfer funds to us?' These 'closes', by the way, are purely off the top of my head and are without any real thought or practice. . . . 

"It is a shame that there is a back-wash from Mutual Funds and previous sales organizations," Gilder lamented. "However, such organizations have no connections whatever with Banking. Banking is an altogether different business and involves ultraconservative usage of funds for the achievement of earnings as opposed to property and share mutual funds, which primarily sought capital gains with their attendant risks. 

"As I indicated to you on the telephone, I should be up there within the month and look forward to going out on some calls with you. ... In the mean time . . . just keep moving. Soon enough sales will come, and you will find out what I already know—that John Owen is going to be extremely successful in Bangkok." 

For all its secrecy and deviousness, Nugan Hand was becoming a high-profile organization by 1977. The client list grew to include prominent people—the host of a popular Sydney radio show, the owner of an Australian major league football club, and some star players. Nugan Hand backed a booster organization for the team. Dennis Pittard, a well-known retired football hero, was hired onto the staff. 

Still, a lot of clients seemed to be hiding something. A frequent guest on the radio show and several members of the football team all got into legal trouble over their involvement in heroin deals. (One star of the team is now serving a twenty-year sentence in a Bangkok prison after being arrested with seventeen pounds of the drug— which he argued had been planted on him.) A prominent society doctor who used Nugan Hand (and eventually lost a lot of money in it) had a reputation as an illegal abortionist (though he was acquitted the only time he was ever charged and tried). 

Nugan Hand served as financial intermediary on the business deals of a Sydney insurance company and its president. In 1979, the company went into bankruptcy and the president fled the country, more than $ 1 million missing from the company's funds. Bankruptcy officials now say they think Nugan Hand moved the money overseas, but they can't prove it. 

Football team booster organizations, known as "leagues clubs," are popular in Australia, and Nugan Hand went after their bank deposits, often successfully. The "leagues club" clubhouses do a big business in booze and, frequently, slot machines, which they are legally able to offer for use by members. "Leagues club" deposits were mostly of the guaranteed type, like those of the big banks. 

Because of the high interest Nugan Hand paid to get the accounts, they were—like the accounts of the big banks—surefire money-losers, acquired for prestige. Any questioning staff members were told that once the bank obtained enough large, well known customers, it wouldn't need to pay so much interest to get deposits. 

A "strictly confidential" operating manual for the Nugan Hand  staff included a list of "people in banks who are friendly to us," who are "ready, willing and able to give references as required." These included not only Albert Kwok at WingOn and Ron McKinnon, the senior manager of the huge ANZ Bank, but also several other ANZ Bank officers and David Fung, an assistant vice-president of Irving Trust. 

Nugan Hand was written up regularly in newspapers and magazines. Reputable international publications like Asiaweek seemed willing to print almost any nonsense Nugan or Hand told their reporters. The news was widely published, without any verification, that Nugan Hand now had a gross annual turnover of more than $1 billion. Nugan's international legal training and Hand's war record (the Green Beret, not the CIA part) were displayed and exaggerated, and their early accomplishments in real estate were grossly puffed up. 

In June 1978, Rydges, a kind of Australian Forbes, gave Nugan Hand a real testimonial. "It is the concept of low-key conservative operations, and a commitment to permanence that has guided the group through to its present day growth," Rydges said. Almost all the publicity was in a tone indicating that Nugan Hand wasn't seeking out publicity, but was a quiet, conservative organization that was being discovered and talked about by people in the know. 

Nugan Hand also became involved in Australian politics. There was a mixture of commercial and ideological motives for this. As they did with the big banks and the football leagues clubs, Nugan and Hand persuaded some city councils in New South Wales to deposit the tax money they were holding. These accounts were worth as much as $5 million each. 

The accounts were all guaranteed, backed up by high-grade securities. Therefore, they were money-losers for Nugan Hand, though this fact was never admitted at the time. The city council accounts helped Nugan Hand acquire prestige, and thereby bring in more business. 

There can be no doubt, however, that all financial considerations aside, both Frank Nugan and Mike Hand were ideologically driven to promote anti-socialist and anti-communist political causes. Their fund-raising parties and financial contributions were modestly successful toward that end. While they made connections with the more right-wing parties, their biggest inroads were with the right-wing faction of the Labor Party. 

As in the United States during the Vietnam era, the biggest ideological gap was probably not between the two parties, but within the more liberal party. The Lyndon Johnson wing of the Democratic Party in the United States probably was closer ideologically to the Republicanism of Richard Nixon, Nelson Rockefeller, and Gerald Ford than it was to the Democratic wing led by Eugene McCarthy and George McGovern. So it often goes in Australia. 

By associating with the more hard-hat attitudes of the right wing of Labor, Nugan and Hand may have done more to help their cause than they could by sticking to the more right-wing parties. Certainly it is a standard ploy of the CIA to work less with the most openly anti-communist parties than with the anti-communist wing of the party on the borderline. 

Of course, there is also the point that many of the city councils dominated by right wing Labor were associated with the corruption Nugan Hand fed on. The council in blue-collar Leichhardt, for example, invested millions in Nugan Hand. An important official there was later caught up in a big financial scandal and a heroin ring involving other Nugan Hand clients. 

Nugan Hand also did business with Liberals, such as the deputy party leader in New South Wales, Bruce McDonald. Frank Nugan contributed to his campaigns, and Nugan Hand was involved in a deal for McDonald's business. 

Yolanda Lee, mayor of the white-collar suburb of Ku-Ring-Gai, and her husband, lawyer Alex Lee, both became close to Nugan Hand. Ku-Ring-Gai put taxpayer money in the bank. 

Another important political inroad was with Leon Carter, the town clerk (or chief administrator) for Lane Cove and later Sydney itself. Carter is a member of the prestigious Order of the British Empire, which ranks just below knighthood. Although elected on a "civic reform" ticket, he regularly welcomed Frank Nugan to his Sydney town office and lunched with him, according to liquidator John O'Brien. 

Back in 1976, according to O'Brien, Nugan Hand (through a separately formed holding company) paid Carter $225,000, about twice the market price, for a piece of land he owned. Meanwhile, Nugan Hand got the cash accounts of both the Lane Cove and Sydney councils when Carter was clerk. An internal Nugan Hand memo O'Brien obtained credits Carter with getting Nugan Hand the Lane Cove account, which it estimates at "$20mil per week." 

The 1976 land sale was accompanied by a flurry of loans and counterloans, involving Carter, Yorkville, and an outside bank, and left Carter with continuing financial ties to Nugan Hand. 

Another political figure who used Nugan Hand—it's never been learned exactly how—was Neil Scrimgeour, a resident of Osbourne Park, Western Australia, whose connections go beyond Australian politics. Dr. Scrimgeour, a surgeon by trade, ran an organization called the Australian Association for Freedom. 

The name is much like that of the global circuit of local organizations that were funded by the CIA over many years. But Dr. Scrimgeour says he'd "rather not comment" about whether his group has a CIA connection, or why his and the organization's names were listed as "sundry debtors" in the books of a Nugan Hand affiliate. 

Another interesting thing about Dr. Scrimgeour: he was a good friend and traveling companion of General Edwin Black. "His views were very right-wing and anticommunist, which I was very sympathetic to," General Black said. "He's got very extreme views that Western Australia ought to go it alone. I'm all for him." 

This is a reference to a movement, which Scrimgeour was part of, for Western Australia to secede and become a separate country. He was even a candidate for Parliament on a secessionist ticket. Black and Scrimgeour were often seen together at the preliminary hearings that resulted in criminal charges against Frank and Ken Nugan for their manipulation of the family fruit business.

CHAPTER TWELVE 

The Asia Branches 

Nugan Hand's Hong Kong office grew to comprise at least a dozen full-time professionals plus support staff. Collings, the top dog when Hand wasn't in town, acquired a $20,000 Chinese junk and a $125,000 yacht, as well as a company junk used to entertain prospective clients. Former colleagues estimate he drew down $250,000 a year. 

In selling the junk—named the Dolphin—as one of the few assets around, the Hong Kong liquidators say they discovered that the boat had previously been used to carry money out of Vietnam for South Vietnamese politicians before the fall of Saigon. But they say they couldn't find out who owned it then. 

Douglas Sapper, Hand's old Green Beret buddy who kept running into Hand in Southeast Asia in the 1970s, became a sort of casual aide to Nugan Hand in Hong Kong. Sapper, who doesn't want to talk about whether he worked for the CIA, says he spent some of the intervening years working with an airline supplying the U.S.-supported side in Cambodia until it fell to Pol Pot in 1975. Then, he says, he helped the Drug Enforcement Administration check out aircraft for drugs. 

Something—he doesn't say what—brought Sapper into the northern hills of Burma, the Shan States, where he says he got to know most of the local leaders. The Shan States were, and may still be, the world's leading source of opium and heroin. A sort of perpetual civil war waxes and wanes there among several drug-funded armies, including the old Kuomintang army of China. 

Sapper even spent some time in a Nepalese jail in 1978—the result, he says, of a dispute over customs duties on five thousand wristwatches he happened to have with him. Back in Hong Kong, Sapper worked out with Hand in a gym every morning when Hand was in town ("sometimes twice a day," he says). They would also cruise on the yacht Hand had bought with depositors' money. 

Into the bank's Hong Kong executive suite, Sapper brought an acquaintance, John MacArthur, still an honorary captain in the British Army—the rank he held when he left active service in 1947. He went into the shipping business, wound up in Australia running a unit for the American Machine and Foundry Company there, then began investing in real estate, mining, and construction. He also held several posts in the Liberal Party. 

Sapper brought McArthur into Nugan Hand in 1977, supposedly working on international trade deals, although McArthur in an interview can't cite any successful ones. Nor, by his account, did he lure any depositors. He says he spent much of his time in the People's Republic of China, "mainly negotiating on behalf of European and U.S. clients interested in supplying plant, equipment, and technology for major projects." None came about. McArthur won't identify any clients. 

He does say that arms were among the commodities he unsuccessfully tried to trade on behalf of Nugan Hand. Probed for examples, he mentions negotiations contemplating the sale of bayonets to a Britisher who ran a whorehouse in Bangkok.* McArthur also says, "If anybody had come into Nugan Hand Trade Asia and said, 'I want twenty widowmakers'—F-15s or F-16s—we'd have said you could have them." 

*Lloyd Thomas, of whom more later.

At one point, McArthur recalls, there was a lot of talk about a big shipment of gold belonging to Philippine President Ferdinand Marcos and his wife Imelda, from the Philippines into Hong Kong. "A woman set it up, a middle-aged woman, of Chinese origin, from Thailand," McArthur says. "But nothing happened. People went to the airport, but the plane never came." Still, rumors about movements of money for Marcos, the Shah of Iran, and others persisted within the Nugan Hand organization. 

Jill Lovatt now asserts that she was "only a secretary" in the Hong Kong office. Promotional literature the bank issued in the 1970s called her a "Monetary Specialist with a strong background gained from working with a Hong Kong finance house, a major tobacco company, a Commonwealth Trade Commission and a firm of solicitors in Hong Kong." By general account, she seems to have been the equivalent of office manager, handling the bustle of paperwork—and also moving great sums of money. 

"Sometimes telexes would come up from Sydney to pay So-and-so," she says. "Les Collings would say, 'Please make out a check to So-and-so, they'll be coming by to pick it up.' Sometimes we were advised by [Michael] Hand that money would be arriving in Irving Trust [the New York account], be on the lookout, make out a certificate [of deposit] when it arrived, $10,000, $100,000, or whatever. There would be telexes coming in two, three times a week, saying money was going on deposit. You were used to money going from A to B to C and back again. So there was nothing terribly unique in money going around the world all the time." 

Prosaic as it was to Jill Lovatt, the Hong Kong liquidator* was intrigued by the way money always seemed to be changing hands, with no real indication of source or destination. "There were lots of instances that A makes a deposit and B gets the check, all out of the same client account. Many checks were coming in in Sydney and going out here," the liquidator says. 

*The liquidator's office is a permanent government agency in Hong Kong; in the United States and Australia, courts appoint independent professional liquidators one case at a time. Two senior officials of the Hong Kong Liquidator's office were interviewed on condition that individual names wouldn't be disclosed.  

Since the accounts were all identified by coded numbers, they have proven impossible to trace except when a client has come forward, or a participant (like George Shaw) has agreed to cooperate with authorities. In short, almost any imaginable kind of transaction could easily have been hidden. 

In Singapore, Michael Hand opened a branch office in 1977 with Graham R. Steer, an Australian who studied at the University of California (Davis) and the University of Florida. He eventually worked as a management consultant in Malaysia and Singapore, and then with Nugan Hand. 

Pitches were made to people working for foreign firms there. Two Chinese, who lost $100,000 each, wrote to John O'Brien, the Sydney liquidator, that they had turned their money over to Hand, Steer, and Tan Choon Seng, the accountant Hand hired and apparently trusted implicitly to run the office when he and Steer were away. 

A third depositor, also Chinese, described himself as chief engineer for the Shell Refining Company in Negri Sembilan, Malaysia. He wrote O'Brien that he began investing in 1979 and turned over a final $10,000 to Steer's secretary as late as March 29, 1980, after the bank was as good as dead. He says he got a letter from Steer dated March 29, promising to pay 18.5 percent interest, but not enclosing a new certificate of deposit because, Steer wrote, "we are presently awaiting details from the bank regarding your account number." He got neither the certificate nor the money back. 

One common tactic the Singapore office used was promising to arrange Australian citizenship for Chinese families who wanted to emigrate there, according to John McArthur in Hong Kong and press reports. This played on a wave of racial laws that discriminated against the Chinese residents of Malaysia. 

Press reports also said that Frank Nugan and Admiral Yates campaigned for the business of a Malaysian government agency that dealt with small rubber-growers, and claimed to control half the rubber production in Malaysia, the world's rubber leader. Admiral Yates was reported to have squired the agency's executive director, Dr. Mohammed Nor Abdullah, on a trip to the United States; but Dr. Nor, it was reported, ended the relationship when he arrived home. 

The Stewart Royal Commission reported that a Malaysian government official had complained of Nugan Hand falsely claiming to act for the government on rubber sales. According to MacArthur, in Hong Kong, Nugan Hand's attempt to take over the business "fell apart" because the Malaysian politician they were relying on "lost power or got arrested." 

Michael Hand used the Singapore office to funnel Nugan Hand money and legal help to a company, called Medevac Shipping Proprietary Ltd., that announced plans to build a hospital ship. The company was run by an American who, according to the official Hong Kong liquidator, previously occupied himself running gold bullion out of Vietnam (where he was known as "Mr. Gold") and running a floating casino off the coast of Panama. 

The Hong Kong liquidator also says the planned "hospital" ship seemed especially adaptable to military intelligence-gathering, and it was written up as such in the local press. It was to cost $5 million to $6 million and would be capable of landing directly on shore. 

According to the Hong Kong liquidator, Medevac spent $300,-000 on plans and design, but the ship was never built.* 
*I was unable to locate the operator of Medevac, Arthur Morse, whose real name, the Hong Kong liquidator says, is Morselino.

Eventually independent offices were opened in Kuala Lumpur, Malaysia; Santiago, Chile; Buenos Aires, Argentina; Frankfurt and Hamburg, West Germany; London, England; and San Francisco. No major business has been reported to have occurred at any of those offices. 

A branch in Taipei, Taiwan, was more significant, not only because it garnered deposits but because of who was chosen to head it: Dale C. Holmgren, who fits the picture of a CIA careerist. A former U.S. Army officer stationed in Taiwan, he wound up manager of flight services there for Civil Air Transport, later Air America, the CIA's covertly owned airline throughout our long covert and overt wars against China and Indochina. The airline's job, according to The Pentagon Papers (the secret 1968 Pentagon war history later leaked to the New York Times), was to provide "air logistical support under commercial cover to most CIA and other U.S. Government agencies." 

After helping run the CIA airline, Holmgren went into what Nugan Hand called "trading, manufacturing and investment counseling." But even then, Admiral Yates described him* as working with the U.S. military on Taiwan to develop "within the social structure of the Chinese in Taipei a close relationship with the U.S. military forces and the business and government community." Admiral Yates also said that Holmgren had worked for Nugan Hand without pay, at least for a while, because he had independent income. 
*Remarks made at Nugan Hand's 1979 conference in Sydney, which will be described later. 
Holmgren told Australian investigators, the Stewart Royal Commission said, that "he was not aware of any deposits being taken in or paid out in Taiwan." Numerous Nugan Hand documents contradict that declaration, however, as the Stewart commission also said. 

One memo from Holmgren to McArthur, dated November 23, 1979, says his deposit-taking business "as the record shows has been increasing quite rapidly." The memo also says the work is done gingerly because it is illegal. "We must advise the client that we actually are only doing a service to them and the business will actually be processed through Hong Kong and Singapore," Holmgren wrote. 

The liquidator in Hong Kong says Holmgren brought in deposits from Taiwan. Holmgren himself didn't return telephone messages from a reporter. 

Wilfred Gregory, a Britisher, fiftyish, was picked to be the first Nugan Hand representative in the Philippines. For a year or two he commuted from Hong Kong, staying in the Philippines no more than sixty days at a time (the maximum allowed by a provision of Philippine law for certain foreign businessmen). In May 1978, Admiral Yates came to Manila ("for several days of business meetings," the press release said) and announced plans to open a permanent office. 

Philippine records show the office was opened in July 1978, though Gregory says it was April 1979, before he began full-time occupancy of it—a swank, richly paneled corner suite with heavy wooden furniture and a glorious view of Manila harbor. A few months later, General Manor joined him. 

Gregory declines to talk about his past, or how he was introduced to Nugan Hand, saying just that he was involved in "estate planning." The bank's literature describes him as having "a strong financial and engineering background," saying he "held several important positions in Hawker Siddeley Aircraft. . . including coordination of production at all United Kingdom factories," before moving to Perth, Australia, in 1966, where he "established his own financial and management business with offices in Australia and Kuala Lumpur." 

Gregory takes but few words to define his political outlook: he calls Philippine dictator Ferdinand Marcos "the best thing that ever happened to the Philippines since it was discovered by the Spanish." He adds (in a 1982 interview) that "the Marcoses are bringing simple things to the people that you and I take for granted." 

Gregory identified with the regime, and wanted Nugan Hand to work with it. "You know, I have pretty good contacts here—otherwise I would have been thrown out," he says. The public relations man he hired was well-connected enough to eventually become the newscaster on a government television station. Gregory frequently got stories about Nugan Hand into the controlled press, sometimes with himself pictured alongside some high Philippine government official. 

He befriended Marcos's brother-in-law, Ludwig Rocka, whose wife, Elizabeth Marcos, was the appointed governor of a large province. Rocka even moved into the Nugan Hand office with Gregory to conduct his own business. 

Records show that the Rockas deposited $3.5 million in Nugan Hand; the records were slipped to Mike Hand by personal courier from Gregory on March 17, 1980, in connection with a trip by Rocka to Sydney to retrieve the money before the impending collapse of the bank. 

It's been widely rumored that President and Mrs. Marcos, and others in the family, used Nugan Hand to ship out of the Philippines  some of the gold and cash they were stealing from the country's economy. But the Rocka records, which surfaced in connection with his visit to Sydney, are the only ones to have turned up. Gregory absolutely denies knowing about such deposits, and Elizabeth Marcos went to almost bizarre lengths to avoid an interview.* Australian authorities apparently never tried to talk to her. 
*At the time of my interview with Gregory, I was unaware of the Rocka records and so didn't ask about them. I got contradictory information about Ms. Marcos's whereabouts, calling her office many times and visiting her home, as she apparently moved about to avoid me. 

The records show the Rockas withdrew $1.3 million of their deposit, but odds are they got the other $2.2 million out, too, because the relationship remained friendly enough that Rocka continued to share office space with Gregory until Rocka died in 1982. 

Gregory also befriended Marcos's old friend Robert Benedicto, whom Marcos appointed to run the Philippine sugar industry, the biggest industry on the islands. Late in 1979, Benedicto attended Gregory's wedding to a prominent Filipino businesswoman. It was widely believed at Nugan Hand that the Marcoses themselves were at Gregory's wedding, but Gregory denies that, "though a lot of their close relatives were there," he says. 

As with several Nugan Hand offices, the one in Manila was in a building, the Ramon Magsaysay Centre, that was popularly associated with the U.S. Government. The adjacent suite was occupied by the U.S. Agency for International Development (AID) mission, and other nearby offices included the Drug Enforcement Administration. 

Gregory even thinks he has identified the CIA station chief in Manila, working undercover in another U.S. agency in the building. After a visit to the office by Walter McDonald, the CIA's chief economics and energy expert, who went to work for Nugan Hand right after his announced retirement from government, Gregory says another American in the building recognized McDonald as an old CIA colleague. 

The visit by McDonald was good for still more big newspaper publicity. Pictures in the Manila press showed him alongside Nugan, Gregory, and the Philippine trade minister. McDonald was identified correctly—though hardly completely—as a former U.S. Energy Department official. The report told of a "two-hour" meeting with the trade minister, and said Nugan Hand was engaged in joint ventures with Filipino businessmen involving waste oil recycling, waste water management, knitted garments, light engineering, electronics, cosmetics, furniture, and hardware. The idea was to "bring foreign capital into the country." 

Apparently none of the joint-venture talk was true. It could have been a cover story, it could have been a dream. 

Part of the fairy tale of justice told by the Marcos government was that foreign banking was tightly regulated. Gregory says his office was "set up under a special presidential decree, a stipulation. Deposit-taking and other cash banking wasn't permitted, he says. 

"We . . . were not allowed to earn income in this country. This office was financed by the bank from outside sources," he insists. 

At first, Gregory denies that cash ever changed hands in the office. He notes it was only four blocks from the Central Bank, which forbade such things. Then, he admits, "there was one guy, a big fat Australian," who drew cash. 

Then, he admits, there were more: "I used to get involved only with Australians who were stranded here. They used to have deposits in Australia and come up here and need money. After we verified that they really had an account, we used to keep a little cash in the office here. There was one guy who had his wallet stolen." 

On further probing, however, it turns out there was much more activity—and it's hard to believe that all of it took place while Marcos's brother-in-law and General Manor were out to lunch. Gregory reveals that telexes would come in from other Nugan Hand offices ordering payments to be made to this or that person who "could walk in here and show his passport and say, 'I'm here to pick something up.' Money came in from other places and was used to settle accounts." 

While admitting these payouts, Gregory at first denies up and down that his office also took deposits. "The law here doesn't permit you to do that," he notes. 

Nevertheless, according to the Hong Kong liquidator, many people were foolish enough to deposit money at the Philippine branch of Nugan Hand, and two of them lost over $ 1 million each when the bank went under. Another man, Bong H. Kay, lost $40,437.91, according to the statement he submitted to liquidator John O'Brien in Sydney. A receipt for a final investment of $12,000 by Kay is dated August 31, 1979, on the letterhead of the Asian Development Bank in Manila where he apparently worked. It is signed on behalf of the Nugan Hand Bank by "P. W. Gregory, regional representative for the Philippines." 

Confronted with this, Gregory replies, "All those things were confidential. I don't know who made sworn testimony about this, but I think it's in very poor taste to reveal confidential information." Apparently he believes that victims like Kay should have just swallowed their losses in order to protect the reputations of men like Gregory. 

According to depositor Kay's Sydney accountant, "Representatives of the Nugan Hand group in the Philippines assured him that the certificates of deposit were guaranteed by a counter deposit with the Bank of New South Wales, or other similar institutions." In other words, the depositors were told they were getting the same protection Chase Manhattan got; but they weren't. 

Gregory himself is indignant, though not for the same reason Kay is. "Nugan Hand ruined a lot of good people," he says—"the people like me, who were representatives in countries overseas. Admittedly, you have people like Bernie Houghton, who were naughty boys. But Singapore, Hong Kong, Malaysian offices—they're good people who set up offices in Asia and were let down." Gregory complains that the bank still owes him $30,000 in back salary and expenses. 

Ronald L. Donegan, a retired coconut farmer from Papua New Guinea, had settled in the Philippines and made the mistake of doing business with Nugan Hand. "In common with many others, I invested my life savings in this organization and am appalled at the present situation," he wrote liquidator O'Brien in August 1980. Donegan lost $166,782. 

But it wasn't coconut money. Donegan turns out to be one of four partners, or former partners, in something called the Kangaroo Travel Club, which has a storefront opening onto a busy street in the honky-tonk Ermita section of Manila. The store front seems at first to be a travel office. The real attraction, however, seems to be upstairs at the well-appointed bar, where each of the white, male customers seems to be having a good time in conversation with not one but several scantily clad Filipino girls. 

At one end of the room is a hotel desk, with a clerk, a rack of boxes, and keys. The Kangaroo Club looks like a bright, cheerful, first-class whorehouse. And all four of its partners lost large deposits with Nugan Hand. One, Stanley Whitelock, a retired aircraft engineer from Sydney, says the club also owns four "hotels" just outside Clark Air Force Base, the big U.S. installation that General Manor commanded. What goes on at the hotels? Well, says Whitelock, "We have to put a delicate approach in our advertising." But he adds, "We know what the fellows want." 

Whitelock is very open about why he and his colleagues invested with Nugan Hand. They wanted to move money out of the Philippines in apparent violation of the exchange control laws—ironic, in light of Frank Nugan's publicized assurances to the Philippine trade minister that he would "continue to bring foreign capital into the country." 

Two other Australian expatriates in the Philippines, both named Oslington, lost at least $285,500 that bankruptcy-claim records indicate they gave to George Shaw. Shaw made many trips to the Philippines to canvass for clients—which got on the nerves of Wilf Gregory, who complains that Shaw took too many chances. 

"George is a very foolish man," Gregory says. "Taking money home in his pockets. In his luggage. If he had been caught at the airport this office would have been closed." But the bank seemed to be operating under Marcos's protection, and Gregory from time to time almost admits as much. Shaw himself, asked if the bank had a special relationship with the Marcos government that allowed it to conduct its illegal business, tells a reporter, "It would be very dangerous to print that. Gregory is still there." 

One fellow at Nugan Hand's Manila office was certainly known to the Marcoses. He was three-star General LeRoy J. Manor, who had just spent seven months across a table from Marcos negotiating a new ten-year lease on the U.S. bases he had commanded at Clark and Subic Bay. In October 1979, at a gathering of Nugan Hand executives and sales staff in Sydney that was tape recorded, General Manor gave the following account of how he came to join the bank. 

Back in 1977, he said, "I was still on active duty sitting in my office in Hawaii when my good friend Buddy Yates stopped in to have a visit with me.... I've always had a very high regard for Buddy. I saw him operate in the military, and if you think he's a go-er now you should have seen him then. Very highly respected in the military, obviously. He told me about the firm he was with, Nugan Hand, which was the first time I'd ever heard of Nugan Hand, and he said that he thought that there would be a place for me in Nugan Hand upon my retirement. I said, 'Buddy, I don't know anything about banking. I've dedicated my whole life to the military.' . . . He said, 'You can learn, can't you? . . . 

"So this was a great opportunity," Manor told the group. But on his retirement from active duty in July 1978, "there was another job that had to be done that I felt that I ought to accept, and that was the negotiations in the Philippines. I was asked by my government to head the . . . negotiations for the bases. This delayed my accepting this offer. . . . However, it wasn't all lost, because during my stay in Manila, working on the negotiations, I made many more contacts, and I think that this is probably of special importance." 

He went on to say that the lease agreement he had negotiated provided $500 million in aid. In addition to $250 million in military hardware—the very thing the impoverished Filipino people needed—there would be $250 million in "security assistance funds," which could "allow the Philippines Government to divert some of the funds . . . from military support to some projects that will probably have a bearing— very definitely will have a bearing—on the economy of the Philippines." He mentioned power plants, or a port facility. 

Thus he noted with pride that some little part of the $500 million in U.S. aid might, indirectly, reach the Philippine economy, where it could benefit people and companies. Maybe it would even help Nugan Hand. And he went on to ask, "Now how can I contribute? ... Under the tutorship of Buddy Yates, Wilf Gregory, and I'm sure many others, I hope that I will learn to be productive. ... I feel very humble standing before you today, because I have been tremendously impressed with the knowledge, the professionalism, and the mission orientation that I see here in this organization. ... As the newest member of your firm, it's a tremendous opportunity for me to be here." 

Manor spoke of how much he and his wife liked living in the Philippines, and how valuable his contacts were there—all indicating that he intended to serve Nugan Hand from Manila. But Gregory insists that Manor was in Manila only temporarily, and was being groomed for a Nugan Hand management post in the United States as the bank expanded. 

Gregory also says Manor kept dual offices for a few months, both at Nugan Hand and at the U.S. Embassy a few blocks away. Manor denies that, and says he didn't join Nugan Hand until he thought his government work was concluded. 

Of all the people in Nugan Hand, Manor is the hardest to classify. If you had to be either a crook or a fool, it's hard to imagine what Manor was doing there. His case cries out for some other explanation. 

His military career was more than merely distinguished. He was a fighter pilot hero of two wars—World War II (Europe) and Vietnam. He spanned the eras of pistons and jets. The list of medals he's won as listed on his official air force biography (coming from Korea, Vietnam, and the Philippines as well as from the United States) is so long that if he wore them all he probably couldn't stand upright. 

His best-known mission, however, while honorable, was an embarrassing failure. Having been promoted to general and made commander of the U.S. Air Force special operations force in February 1970, he spent August to November of that year organizing and leading a daring commando raid to capture U.S. prisoners of war behind enemy lines in North Vietnam. At great risk, Manor and the task force reached the Son Tay prisoner of war camp. But they found nobody home. 

The raiders all managed to return safely, conceding that the camp had been empty for from three weeks to three months. Exactly what went wrong has never been established. Manor was quoted in the New York Times as calling the raid "a complete success with the exception that no prisoners were rescued." 

He went on to become commander of the Philippine air bases and eventually chief of staff of the entire Pacific Command. In that role, he coordinated air force, navy, army, and marine corps operations throughout 100 million square miles from the west coast of the Americas to the east coast of Africa, and from the Arctic to the Antarctic. That was his last job before his 1978 retirement, and his call back to negotiate the Philippine base leases and perform other work the air force says is so secret it can't be talked about. 

In December 1979, records show, an application was filed with the Philippine Government to change Manor's status from that of a foreign government official to that of an executive of a foreign multinational with a salary of no less than $12,000 a year. A month later, a red Ferrari arrived for him from Hong Kong and was exempted from customs duties. 

That same month, General Manor pitched Nugan Hand investments during a speech at the officers' club at Hickam Air Force Base, according to Colonel H. Kirby Smith, chief judge of the U.S. Air Force Seventh Judiciary Circuit at Clark Air Force Base. On January 22, 1980, five days before Frank Nugan was shot, Colonel Smith says* General Manor instructed him how to deposit money in Nugan Hand by wire, which he did—$20,000—two days later. General Manor says he "wasn't soliciting, I was merely answering questions." 
*In his claim filed with liquidator O'Brien and in correspondence with the author.
The next month Manor presented Smith with Nugan Hand certificate of deposit number 11531, promising 15.125 percent interest— without telling Smith of Nugan's death, which he says he didn't learn of until the bank collapsed in April. According to his claim, this was "somewhat of a shock! Twenty thousand dollars is a lot to a military man and his wife!" 

Colonel Jimmy Maturo, who has since retired, was stationed in Hawaii when he deposited $27,000 after hearing about the bank from his old boss, General Manor, they agree. Colonel Maturo deposited the last $16,000 on March 12, 1980, long after Nugan Hand insiders had rifled the files and were preparing for its demise. 

"There are plenty of others around town," Colonel Maturo tells a reporter. "If you can put it to these rats, more power to you." The reporter brings up Manor's name, and Colonel Maturo will say only, "I know Manor." Then, repeating himself for emphasis, he asserts, "If you can put it on these bastards, more power to you." 

Two months after Colonel Maturo unknowingly bid permanent good-bye to his last deposit—and a month after Nugan Hand entered formal liquidation proceedings— General Manor was assigned by the chairman of the Joint Chiefs of Staff to head the Pentagon's investigation into the failed attempt to rescue fifty Americans, mostly diplomats, being held hostage in Iran. 

The attempt had been aborted April 26, 1980, after three of eight helicopters failed mechanically en route to the staging area in Iran. A fourth helicopter and an Air Force C-l30 cargo plane crashed into each other at the staging area. Ironically, General Manor was chosen to head the inquiry, apparently because of his own previous experience leading a failed rescue mission. 

The investigation completed, General Manor was chosen to be executive director of the Retired Officers Association, headquarters in Alexandria, Virginia. His biography, as issued by that organization, omits reference to his banking career. It doesn't even mention Nugan Hand. The general then undertook to start a scholarship fund for the seventeen children of the eight American servicemen killed in the Iranian raid.* 
*The fund, the Arthur D. "Bull" Simons Scholarship Fund, is under management of Communities Foundation of Texas, Inc., Dallas. 

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