Part 10: The Crimes of Patriots....What the Tape Recorder Heard....The Wilson Connection

The Crimes of Patriots

A True Tale of Dope,

Dirty Money & The CIA

By Jonathan Kwitny

21

What the Tape Recorder Heard 

Beazley was introduced to the staff in grand style at a big conference for several dozen Nugan Hand executives from around the empire. At an estimated cost of $500,000, they were flown to Sydney, stashed at a good hotel, and wined and dined for several days, October 13-15, 1979. 

Beazley and Yates have used that conference to try to belittle their affiliation with Nugan Hand. In effect, they have put themselves on opposite sides of the same coin. Beazley says Yates persuaded him to come to the conference and look around. "I was just there on an interim basis," he says. "I said I'd go in there and see if I liked what I'd find. They were going to produce a consolidated financial statement. They never were able to produce one." So, he says, he walked out and isn't responsible for what happened later. 

Yates, on the other hand, says he resigned at the conference and that Beazley came on board to replace him. "I introduced my relief," Yates says, in admirals' lingo. So, by this explanation, he also isn't responsible for what happened later. 

Fortunately for the truth, the conference was secretly tape-recorded, and the tapes have been found. They make clear that Beazley had agreed to be president of the Nugan Hand holding company, in charge of daily operations. Mike Hand and Frank Nugan were going to be co-chairmen, in general oversight positions. 

And there was no indication that Yates intended to do anything other than stay on as president of the Nugan Hand Bank; certainly there were plenty of plans for his activities with Nugan Hand in the coming months. The Stewart Royal Commission said Yates was made vice-chairman of the group, and that his salary was soon increased to $100,000 a year. 

Frank Nugan began the conference by telling the group, "Admiral Earl P. Yates . . . who has been perhaps our most important counsellor for the last two years and ten months has gone to a great deal of difficulty and effort in guiding us and in himself assisting in recruiting a very fine new president." 

There followed a long, rambling discourse, in which Nugan jumped between past, present, and future, began anecdotes he didn't complete, and generally gave every indication of owning a mind three months away from suicide. But at the same time he promised "a new day and a new firm." He concluded, "We are handsome, we are lucky and we are winners, and we intend to be the most successful Asian banking firm there is." 

Hand, too, gave a long, rambling speech, not at all the kind that would lead one to believe he could run a large international bank. His speech seemed to have no beginning, middle, or end, and at times to contradict itself. A sample: 

"We have a reality to face today, and since you people are all in the seniority of this organization we must deal with trying to effectively develop a better system. We seriously need to take a very agonizing appraisal of this word called lack of communication. It does exist at all levels of this organization. At the top, the side, the middle, the bottom and everywhere else. I would like to wipe over the situation by saying, oh, heck, it's just a matter that there's not enough time for everybody to do it. But we've all got to set down guidelines in all of our areas, be it legal, trade, finance, administration, to deal with keeping the other people totally and unequivocally informed of developments which may affect them, and I underline which may affect them. We also because of the very nature of our business as private bankers cannot and will not and do not feel it's practical to expose every situation to every employee, to have what we would classify as secrets, which we deal with on a need to know basis. Compartmentation is important for our clients, be it a trade matter, a legal matter, a financial matter—so please exercise discretion upon receipt of information—passing information through to the next person— and also on a standardized basis informing other people who may somehow become affected by your situation as to what you're doing. . . . 

And so on. Eventually he turned to religion for some quotes, and ended with a plea to "please love one another." Then he introduced Yates, "the toughest guy we know." 

Yates introduced Beazley, who, he said, "has been courted consistently by this firm for almost three years now." He was lavish in his praise, even asserting that the U.S. Federal Reserve Board had described Beazley as "the finest banker in the United States under the age of thirty-five." 

Then Beazley—who now says he never really joined Nugan Hand at all—told how impressed he had been during his first visit to Nugan Hand early in 1977. "Watching the company grow, then I became even more impressed," he said. "Listening to Buddy and Frank and Mike over a period of two to two and a half years I was able to make the decision that I would want to be associated with this group. It was an opportunity and a challenge that I think is probably one of the best ones I've ever made, decision-wise. ... I am looking forward to a long and fruitful relationship. ... It is a privilege and an honor for me to be president of this company." 

He said that he and "people like Walt McDonald who are going to assist me will be meeting with you privately, and discussing and getting your honest opinions of where you think the company should be." Then Beazley shoveled out some really appalling misinformation about Nugan Hand's money-market operation—which existed only as a small, money-losing front for what the bank was really doing— and about the tax law background of Frank Nugan, whose tax advice was in fact little more than counsel to commit fraud. Beazley told the assemblage: 

"You're fortunate to have probably one of the best money-market operators that I've ever seen, and certainly one of the highest qualified desk tax departments or divisions of firms that I've ever seen. ... Having the size group which we have here, and having the expertise available is a rarity, and it gives us a competitive advantage." It is hard to believe that a major bank executive, or even a banker of modest skills, could be so fooled about things like that. Why he said it can only be speculated on. 

He announced plans for Nugan Hand to try to acquire commercial banks, particularly in Asia and Miami, and concluded by asking the group "to give me the same type of loyalty and dedication that you were able to give to Mike and Frank, and confide in me, call me and talk with me. . . . It's a privilege and an honor working with you and I hope to know each one of you better shortly."* 

*Beazley's prepared remarks were later printed and circulated to the entire Nugan Hand staff. They began: "As the newly installed President and Chief Executive officer of the Nugan Hand Group of Companies it is my privilege and pleasure to join with Frank and Mike in welcoming you to this management conference. ... In addition to the formal program, Walter McDonald and I plan to meet most of you privately to discuss both individual and company concerns." 

The assemblage was also treated to blunt admissions that Nugan Hand branches in Singapore, Malaysia, and Taiwan were operating illegally as banks. 

Tan Choon Seng, the administrator in Singapore, complained that other Nugan Hand offices were risking exposure by giving him "as little as two days to raise U.S. hundred thousand. And we have no choice but to raise it in small notes, and when—if you can just imagine what it comes to, ten dollar bills, hundred thousand dollars would come out in a big basket. So if all of you could help us, try to eliminate having pay-outs to clients in cash, because it's really risky business. And it's also not very good for us to do so in Singapore, since we don't have banking status. . . . 

"Now, in terms of deposits," Tan said, "that's even a more sensitive issue, because we literally . . . function like a bank, though we try to do as much by legal methods as possible." He urged his colleagues to strive to arrange for deposits to be made in local Singapore currency as much as possible. In all this, he seemed oblivious to the fact that the illegal part of the operation was what was attracting the clientele. 

As he continued to wash this laundry, Tan was interrupted by a strange bit of byplay. In response to something going on in the room, he broke off, saying, "That's got to be the signal for me to stop." There followed general laughter, and an unidentified voice saying, "That's ASIO telling you, not—." This, too, was followed by general laughter, indicating that everyone was familiar with the acronym of the Australian Security Intelligence Organization. Tan then continued his talk. 

Graham Steer, the Malaysian representative, referred to "our present, non-official banking activities. . . . We're only registered there as a trade service company. . . . We cannot have the term banker on our door, or our letterheads or business cards." In a question period, someone asked, "Do you feel, I mean, are you personally uncomfortable about it?" And he conceded that "naturally it does create a lot of uneasiness when you are presenting a case, particularly first up." It is hard to interpret such remarks, however euphemistic, as other than a frank admission that Steer was soliciting illegal deposits. 

Dale Holmgren, the CIA veteran running the office in Taiwan, bluntly noted that "it is illegal to take money from Taiwan," while also noting that he had just talked to his wife by telephone and learned that she had just sold a $15,000 certificate of deposit on the Nugan Hand Bank, whose headquarters, everyone knew, was in the Cayman Islands. Holmgren said Nugan Hand had just moved into a new, 3,000-square-foot office on Taiwan, and employed seven people. 

John Charody, the East European immigrant who was close to Sir Paul Strasser, also spoke. He was identified as a consultant to Nugan Hand, like Walt McDonald and Guy Pauker. (Only his innocuous opening and closing remarks were recorded; his substance, if any, was lost while someone changed the tape.) 

Then came General Manor—most of whose remarks have already been summarized (see Chapter 12). He urged the group to form a stricter organizational chart. He encouraged more planning, as opposed to the prevailing philosophy of "you know, if we throw enough mud against the wall some of it will stick." He cited his extensive contacts in the Philippines, said he hoped he would make more, and added, "I can assure you that I will contribute in any way that I can. You have an extremely challenging mission. You're dynamic. You're growing." 

His partner in the Manila office, Wilf Gregory, emphasized the need for secrecy. In the Philippines, he said, under his friends the Marcoses, "the telephone is monitored, the telex is monitored, the mail that leaves our office—90 percent of it is opened when it goes overseas. Practically every piece of paper that comes into my office from overseas is opened. ... I cannot put things down on paper because I'm afraid when that paper goes overseas that somebody is going to open it and read it." He recommended a better inhouse courier service. 

Frank Nugan, introducing Guy Pauker, minced no words about the fact that his work on Indonesia and Southeast Asia "has been supported by the United States Government," and that the Rand Corporation that employed him "advises only components of the U.S. Government or acts otherwise in the public interest. ... I introduce to you one of the major intellectual and data banks of the United States, that is at the present time a consultant to your firm, Dr. Guy Pauker." 

Pauker, who has since denied he was a consultant to Nugan Hand, didn't deny it then. Instead, he said, "I am really thrilled to be here, and I have first of all to express my gratitude to Buddy Yates who first introduced me to Frank and Mike. . . . Now, I really hope to be able to be useful to your group." 

In his mostly mundane discussion of Nugan Hand's possible future agenda, he repeatedly mentioned his links to the U.S. Government. Advocating Nugan Hand participation in an ethanol-from-sweet-potatoes project in Sumatra, he noted that he was executive director of the Asia Pacific Energy Studies Consultative Group, formed by about fifteen countries including the United States. The group, he said, had sponsored a series of workshops in which "my good friend Walt McDonald, at that time still a high U.S. Government official, participated." 

In advocating a Pacific Basin free-trade zone modeled on the European Economic Community, he noted, "The State Department is very much interested in this, and, off the record, having sent some quite senior officials throughout the area just a few weeks ago to explore this with the interested countries, wants a major conference to be held on this topic some time in late 1980. And I've been asked together with two or three other people to prepare this conference." 

As for Indonesia, his specialty, he said, it might be ready for a political transition. "One of the ways in which I could be useful to the group is to help you be more successful than the U.S. Government seems to be in dealing with the problems of transitions in the countries in which it has influence," Pauker said, adding, "They are not very good at that." 

On the subject of his dedication to Nugan Hand, Pauker concluded, "Nothing would give me more personal pleasure than to have the phone ring in the middle of the night, wherever I happen to be, in California or elsewhere, and somebody saying, you know, this is on my mind, do you have anything to say which will be of use. ... I may not have the answer right away if somebody cares to call me in the middle of the night, but I might be able to come back a couple of weeks later with something." 

Another day during the conference, Pauker was called back for a more detailed lecture on Indonesia. What transpired was a rambling, sometimes contradictory diatribe in which Pauker sounded more as if he should be advising the Politburo than the world's strongest democracy. Displaying the cynicism that all too often underlies U.S. policy in the Third World, he announced himself, foursquare for continued military dictatorship in Indonesia—a dictatorship he, after all, had helped establish. 

"I have very, very little respect for Indonesian politicians," he said. "I certainly believe that the United States of America and Australia should be democracies," Pauker assured everyone. "But we have a very different tradition, a very different history, a very different background. In Indonesia under the Dutch there was no opportunity to learn how to manage civilian party-controlled politics, and the politicians are really pretty worthless characters. They have no experience," Pauker said. 

"They"—the potential civilian leaders of Indonesia—"have not got much civic commitment," Pauker complained to this gathering of executives of a company engaged in heroin financing, tax fraud, investor fraud, and indirectly, by much evidence, contract murder—a company to which Pauker, despite his later protests, had now become a consultant of almost boundless zeal. 

Pauker, the trusted advisor to Kissinger and Brzezinski, even justified the system of bribery and corruption by which the military establishment has effectively controlled the Indonesian economy for two decades, enforcing their own monopoly on many industries, insisting on ownership shares in other businesses, suffocating free enterprise and keeping the Indonesian population impoverished.* 
*Once again, the author must refer readers who doubt such sweeping statements to Endless Enemies for documentation. 

"I have considerable respect for them," Pauker said of the ruling generals. Military pay was only a few hundred dollars a month. "I cannot expect a man who has served his country for thirty years and more, who has risen to the rank of general officer, or an admiral, or an air marshall, to live like a coolie." So Pauker evidently didn't begrudge the military men the chance to extort tribute from economically productive citizens. 

"What they have," Pauker said, apparently keeping a straight face as he said it, "is what they call a system of extra budgetary revenue [emphasis added]. This is not visible to the naked eye, but the pattern is a well-understood one, and a fairly orderly one. . .. They consider themselves very bluntly the guardians of the nationhood of Indonesia. And they have done an incredibly good job in my opinion." 

So much for bribery. 

Pauker then revealed an opinion of free enterprise that equalled his opinion of democracy. "Ninety percent of the Indonesian economy is really state-controlled," he commented enthusiastically. And more might be better, judging from his praise of the state-monopoly oil company and airline, and the state-run plantations. No objections were heard from the U.S. flag officers and CIA men. 

Pauker on racism: "Anybody who knows the country realizes that when a Chinese gets a credit from the state bank he will plow every penny ... into developing his business, and the Indonesian will consider that not as a credit, but as a gift from heaven and go out and buy himself a home, buy himself a Mercedes, and take his wife on a trip to Europe, or to Hong Kong at least. And he will assume that he will never have to pay this money back." 

Pauker on influence-peddling: "I first went to Indonesia not knowing where the heck that it was on the map in 1954-55. I was either lucky or had good taste in selecting my friends. My friends are running the country today, and this is true both on the military side and on the civilian side, especially the so-called Berkeley Mafia. ... I talked them into coming to Berkeley because I was the chairman of the Center for Southeast Asian Studies at Berkeley, and these were bright, young Indonesians and fun to have around. Now these are the people who are today the deputy prime minister, the minister for economic affairs, the minister for finance, the minister of trade, et cetera, et cetera." Apparently Pauker didn't mind having just a few "worthless politicians" as friends. 

"I have pretty good connections in Indonesia," he summed up, "and as I said before, anybody who needs anything specific about Indonesia is welcome to call me at any hour of the day or night and I'll be really pleased to be of service." 

Somehow Pauker sang a different tune when the Stewart Royal Commission asked him about whether he had helped Nugan Hand get involved in the Indonesian oil business as Frank Nugan requested. "Dr. Pauker told the Commission that as an employee of the Rand Corp. and as a matter of principle he regarded it as improper to use his friendship and influence with government officials in such a way," Stewart reported. 

Then, revealing as clearly as ever what his investigation was made of, Stewart wrote, "The Commission accepts Dr. Pauker's evidence in this regard." If the commission bothered to check the readily available transcripts of Pauker's remarks at the 1979 conference, it made no mention of that in its report. 

Furthermore, the Stewart report says, "Dr. Pauker . . . told the Commission that the Rand Corp. is not linked to the CIA. There is no evidence before the Commission which contradicts Dr. Pauker's evidence concerning these allegations and the Commission accepts Dr. Pauker's evidence." 

During the speech introducing Walt McDonald, apparently by Jerry Gilder* the CIA situation came up. "I hope Walt can help you in understanding how to deal with allegations about the connection with the CIA," Gilder said. "The CIA has got a damn sight better people, as he can tell you, to use for its purposes. . . . They hardly have any occasion where they could get some assistance from us. We would be honored to do anything for them, and I think that's the approach, but I hardly think they'll ever ask." 
*The Corporate Affairs Commission identified the speaker as Gilder. The author's copy of the transcript doesn't identify the person giving the introduction. 

McDonald did not deny his CIA connection. He did assure everyone that he and Pauker were friends of James Schlesinger, Henry Kissinger, and Zbigniew Brzezinski. "Guy [Pauker] could walk in the White House . .. any time he wanted and talk to those guys, and they wanted to hear what he had to say," McDonald added. 

Then he told how, of late, he had been spending most of his own time on Nugan Hand. Frank Nugan, he said, had gone into "his American period, where he decided to spend most of his time in America, so I had the pleasure of our boss every day—flying here and there, London, Connecticut, and what have you." 

McDonald spent most of his time discussing the world oil situation—expounding the scenario advertised by his old CIA branch, that Soviet oil production was decreasing, which would cause ever higher oil prices and maybe war in the Middle East. (The CIA later reversed its assessment of Soviet oil production, and oil prices have nosedived.) 

Speakers spent much time glorifying each other. Jerry Gilder introduced Admiral Yates as "a very remarkable human being. . . . His physical capability is that of Clark Kent." The admiral passed the favor on to Pauker, calling him his favored advisor while Yates was vice chief-of-staff of the U.S. Pacific forces. "The people in Washington, at the CIA and the State Department, shared those views," he said—thus admitting a knowledge of the CIA and State Department that he would later deny. 

"Guy, it is a real pleasure for me to be serving with you again," said one man to the other, each of whom would later deny he was serving at all. 

Of General Manor, Admiral Yates said, "He's recognized as a leading U.S. military authority on internal insurgency, and, I might add, insurgency and strike operations"— certainly unusual talents to bring to what is supposedly a banking group. 

Yates praised Walt McDonald's advancement through the ranks of the CIA, "one of the toughest bureaucracies in the world." He said that although many people weren't aware of the CIA's economic division, which McDonald headed, it was—in a curious phrase— "acknowledged in this world of grass politics, drug events and battles, and it starts generally in the area where Walt is going." 

Finally, Yates got around to his work. He disclosed that he had been working with the Overseas Private Investment Corporation, a $700 million U.S. Government agency designed to finance small and medium U.S. companies in foreign ventures. He said that with Nugan Hand paying his fare, he had traveled with OPIC leaders "to tour all of Southeast Asia . . . and make a report to the president on any type of business in Australia." 

He also talked of consulting with Robert McNamara, then head of the World Bank, and Mike Hand's idea of sponsoring a think tank on investment. To be known as Foreign Investment Development Research Program, or FINDER, it would have a blue ribbon board of representatives of big U.S. corporations who would "identify the opportunities, the products, and technologies in these Asian countries and develop these internationally." 

All Yates's grandiose efforts died with Nugan Hand. 

At one point, Yates checked to see if his time was up. A voice from the audience seemed to leave no doubt about whether Yates had surrendered command to Beazley: "You're president of Nugan Hand Bank," the voice said, and Yates continued. 

Frank Nugan's second speech was so disjointed it's difficult to imagine anyone in attendance taking him seriously. The Corporate Affairs Commission commented, "Based on the transcript only, Mr. F. J. Nugan did not appear to be coherent at this point." The session ended with Admiral Yates calling for all the papers left around to be locked up while everyone went to lunch. 

There were announcements about developments in the branches. In Manila, an unidentified woman had deposited $1 million. In Germany, Nugan Hand had acquired the small-but-licensed F. A. Neubauer Bank, which would issue a new kind of international certificates of deposits, for worldwide sale, backed by the Deposit Security Fund of the Federal Association of German Banks. 

One representative after another got up over the several days and told about the millions, or tens of millions, of dollars his branch had brought in. Then Bernie Houghton got up and told the assemblage about the gold mine in Saudi Arabia. "One of our clients approached us on a $70 million contract and was apologetic because it wasn't more," he said, as if serious. 

"It's a totally cash society," he added. "We get garbage bags full of money over there." Since the largest-denomination riyal note is worth only $30, he said, "they take these big, black garbage bags, the plastic ones, and they'll come in and dump these bags on you. Very common in Saudi for the people to draw a million dollars at a time in cash out of the banks. . . . Under the Islamic law ... if they catch anybody stealing, they'll cut their hands off.... There's not supposed to be any liquor over there, but I guarantee you in Nugan Hand's house over there, it's got a closet full." 

Houghton also gave his listeners a hint why he didn't feel any remorse for all the money he was stealing: "I don't think Saudi Arabia is going to last that long," he said. "It's totally surrounded by the Russians and the Russians are creating as much strife as they can in that area. You've lost Iran, which basically means that it's pro-Russian. If they are not with you, they are against you. Pakistan and Afghanistan have also gone. On the southern tip of Saudi Arabia in Yemen, well there's a big Russian Navy base there." Houghton continued to paint a bleak geopolitical picture. He said the Saudis were basically giving up and sending all their money out of the country anyway. 

Then he gave a lesson on how he became Nugan Hand's most successful representative so fast—a Houghton primer on theft, as it were: "You can't talk quickly to people when you're going to take their money," Houghton explained. "In every movie and play that you've seen, the city slicker comes in and begins talking rapidly and trying to thrust a pen in somebody's hand. So you need to take a little backward attitude I think . . . speak softly and slowly, repeat what you're saying maybe three or four times, so you're sure it's penetrating, because they don't listen all the time." 

"I always repeat the same pitch maybe from three or four different angles," Houghton said. "Each time I see them, and generally two or three times during approaching them, and telling them the advantages. And if they ask me can they lose their money, I say of course you can lose your money. I say I don't see how you can, because we basically deal in commercial bills. They are bank-endorsed. We take those commercial bills that are bank-endorsed, and they're guaranteed by the central banks in each of the three countries that we used the money market operations in. So basically, you've got a central bank that guarantees the bill, plus its member bank, and of course our bank, which is international. So the fact is, that you can't lose any money. We don't deal in the commodities exchange. We don't take any equity positions in anything. So basically we're not at risk. We state that we earn our fees from accounting services, from legal fees, and maybe one or two percent on certificates of deposit. So basically we do a lot of business, but make small funds, but we're readily liquidable. . . ." 

And on and on. 

Don Beazley, who later said he just came to investigate, explained to the group from a more technical standpoint how Nugan Hand made its money on the money market. "The money market situation is nothing more than the past ten years of experience that Frank [Nugan] and Steve [Hill] and Mike [Hand] have in taking advantage of different interest rate movements in the money market. And it's been very successful, extremely successful. That is a hidden asset. It doesn't show up on any balance sheet. It doesn't show up in anywhere else. You couldn't place a dollar figure for it. That, along with the volume of transactions that takes place in the money market, I think you do between a billion and two billion dollars worth, or three billion dollars worth of book transactions a year—it really gives you some kick. As the number of deposits increase, your importance in the money market increases also," so that Nugan Hand could make a profit from what Beazley called "volume discount." 

There had to be money somewhere, because Beazley was certainly planning on spending some of it, as he got the hang of the operation: "I'd like to go to Hong Kong at the end of this week," he said, "and then I have some obligations to my former employer [Great American Banks] that I have to go back to first, to the United States for a short period of time, then I would like to come out and in the first part of next month to visit your operation over in Germany and also London again, and then come back over and spend about a month going around—we'll be taking people with us— Walt and Buddy and some other people. . . ." 

Dale Holmgren then asked where the funds were coming from to pay the expense accounts. "We have, Dale, made a great deal of money out of tax avoidance," Mike Hand answered, adding that money market profits and legal fees were also important. Mike Hand certainly knew that the tooth fairy would be as reliable a source of income as Nugan Hand's profits from legitimate business. How many of the other people in the room shared his knowledge, and to what degree they shared it, can only be presumed.

22 

The Wilson Connection 

A month after the meeting in Sydney, according to the Joint Task Force report, Admiral Yates attended a meeting in a London hotel; with him was Frank Terpil, former CIA officer and the partner of Edwin Wilson in the sale of U.S. military equipment, including plastic explosives, to Libya. Also present, the task force says, were the source known as "J"—a Wilson employee named Douglas Schlachter—and another retired senior U.S. military officer, unnamed. 

"Discussions, at times between Yates and 'J,' centered around the possibility of Nugan Hand becoming involved in the financing and handling of finances for Libyan airport shelters and hangars," the task force said. "The contract potential for this construction work was three to four hundred million dollars. 'J' is not aware if there were other meetings between Yates, the unnamed officer and/or Terpil, or precisely how the above described meeting came about. He is aware, however, that the unnamed officer and Yates knew one another previously, and from the conversations that took place, [he] formed the view that Yates and Terpil had at least met one another before. It was not long after this meeting that Terpil was arrested when he attempted to import the machine guns to South America," the task force said. 

After reading the task force report, Yates exploded with denials. In reference to the November 1979 meeting "J" described, he wrote the task force, "I attended no such meeting, do not know Terpil, and discussed no involvement of Nugan Hand in financing such activity." His very next sentence, however, may indicate his state of truthfulness at the time of writing: "I resigned from Nugan Hand officially on October 12, 1979, and had no authority whatsoever to discuss such matters." 

At the time he wrote, the admiral was evidently unaware of the tape recordings of himself, and of others in his presence, at the Nugan Hand executive meetings, which took place October 13, 14 and 15, 1979. Obviously, neither Yates nor anyone else talked of his resigning. To the contrary, Yates and everyone else talked of the many tasks he would work on in the months ahead, including setting up a Nugan Hand sponsored think tank to encourage industry in the Pacific, and touring Don Beazley around the empire. 

In January, two months after the alleged meeting with Terpil, Yates flew to Sydney on Frank Nugan's death. Steve Hill has testified that Yates was still a director of the company when it went into bankruptcy. Even the accepting Stewart commission, which seemed to take on blind faith almost anything else Yates told it, found that he was vice chairman of the company into 1980. 

Yates's attempt to move up the date of his departure from Nugan Hand appears to parallel his attempt, already discussed, to say he didn't join Nugan Hand until June 1977, when there is abundant evidence he joined much earlier. One must remember these statements when evaluating his further denial to the task force: "I do not know Wilson nor Terpil, have never done business with them, and to my knowledge have never even met them." 

Schlachter, in a 1987 interview, says that for years he held onto the business card, which he vividly recalls Yates gave him at the meeting with Terpil. 

Whatever conclusion one may come to about whether Yates met Terpil that November, there were certainly many other meetings in Europe over the winter of 1979-80 between Nugan Hand's senior managers—including Bernie Houghton—and associates of Edwin Wilson. Among those associates was Ted Shackley, who the task force said was meeting occasionally with Michael Hand in Washington. Shackley had just retired as CIA deputy director of operations; and had stayed in regular contact with Wilson after Wilson left the CIA. 

Shackley had gone to work for a new company called A.P.I. Distributors, Inc., based in Houston, founded by Thomas Clines, a CIA official who had worked directly under Shackley (on the anti-Cuban campaign, among other things), and who had taken his CIA retirement a few months earlier. Clines founded A.P.I. with a large loan provided by Wilson, the task force said. (Reporters Edward T. Pound and Walter S. Mossberg had already reported in the Wall Street Journal that Wilson had arranged a $500,000 loan from a Swiss source to an intermediary company in Bermuda that funneled money to Clines.) 

Clines and Bernie Houghton knew each other independent of Shackley. They had been brought together by Major General Richard V. Secord, then still serving with the U.S. Air Force. 

SECORD: Operational head of the covert "private" arms network created from 1984 to 1986 under the aegis of CIA Director William Casey and National Security Council operative Oliver North. The object of the network was to try to keep Congress and the public from finding out about arms sales to Iran and the Nicaraguan Contras, since some sales were contrary to policy and others to law. 

Secord, a 1955 West Point graduate, has been involved in intelligence-type work since the war in Indochina. He commanded the U.S. military mission to Iran from 1975 to 1978, then directed all U.S. military sales worldwide, from the Pentagon. In the first few months of 1980— while his friends Clines, Shackley, Wilson, and Houghton were discussing various business deals to exploit what remained of Nugan Hand— Secord served as deputy commander of the mission to rescue U.S. hostages in Iran, which ended in disaster. His longtime friend and eventual business partner in the Iran-Contra deals, Albert Hakim, worked on the mission from inside Iran. Hakim later hired Wilson and Shackley in his private business. 

From 1981 to 1983, Secord served as deputy assistant secretary of defense for Africa, the Middle East, and Central Asia. He left that job in a scandal involving his relationships with Wilson and Clines in which he narrowly escaped indictment by a federal grand jury. Wilson, Clines, Secord, Shackley, and another Pentagon official had met over a deal to make substantial money hauling U.S. military material to Egypt. Secord and the other official directed the shipments as part of their Pentagon jobs; the goods were carried by a company Clines owned in partnership with an Egyptian, and which he founded with Wilson's money. The Pentagon paid $71 million. 

Correspondence between Wilson, his lawyer, and Clines's lawyer-first unearthed by Peter Maas for his book Manhunt—shows that Wilson expected a cut of the action. A January 18, 1979, memo from his lawyer says stock will be owned by a foreign corporation—apparently to be controlled by Wilson—and four "individual U.S. citizens." Wilson, his bookkeeper-girlfriend, and a woman friend of Mr. Clines offered testimony that the four citizens were Clines, Secord, Shackley, and the other Pentagon official, and that they planned to share in the profits. But prosecutors were uncertain that these witnesses had sufficient character to stand up to the denials of prominent officials. Since the scandal seemed to have terminally stained the remaining public careers of those involved—at least until the Iran-Contra affair—personal indictments weren't sought. 

In an agreement to end the investigation, Clines, on behalf of his company, pleaded guilty to filing $8 million in phony invoices to the Defense Department, paid a $10,000 fine, and repaid $3 million of the illegal profits. Some investigators in the case still think justice was subverted. 

In Congressional testimony in May 1987, Secord said that in 1984, soon after his Pentagon retirement, Colonel North asked him to start forming the covert arms network. Secord testified that he knew so little about the market for small weapons that he immediately brought Tom Clines in as his deputy; he knew Clines as an expert in the field and as "a very close associate of mine from CIA days," he testified. 

Secord testified that when the U.S. Congress forced the CIA to pull out of the Contra war in 1984, the Contras were left "in dire straits ... starting from scratch" without trained logistics or supply or maintenance officers—indicating that the operation had been more American than Nicaraguan from the start. He, his business partner Hakim, Clines, and some other recently retired military officers set up companies designed to earn a 20 to 30 percent profit, he testified, filling the Contras' needs. When the Iranian opening came, they were given that assignment, too. 

The arms were shipped from allied countries like Portugal, and even Communist countries like Poland and Romania. To persuade these foreign governments to allow the shipments, without disclosing that the weapons were going to the Contras in defiance of Congress, the Secord-Clines companies submitted forged documents making it look as if the arms were going elsewhere. (They may have relied on Clines's experience filing phony documents with the Pentagon for profit in the Egyptian arms case Secord was involved in.) 

The Secord-Clines operation bought airplanes. It hired pilots, mechanics, and cargo-handlers, mostly veterans of other U.S. clandestine operations, to move the weapons. Secord received a coded communications device by which he could talk securely to North at the White House or to the CIA station chief in Costa Rica, where part of the Contra effort was being organized. 

Clines helped North obtain a ship, the Erria, that not only ferried arms but also was used in a vain attempt to ransom the hostages in Lebanon with funds from data processing tycoon H. Ross Perot; according to the Los Angeles Times, Clines went along on board the Erria for the mission.

When Clines was due in court in Virginia in a civil matter in 1986, someone from the National Security Council called to excuse him by saying he was on assignment with the government. 

When the first planeload of U.S. weapons was delivered to Iran, Secord flew with it to the Middle East, though he remained behind in Israel to monitor the situation while National Security advisor Robert ("Bud") McFarlane, who came over with him, continued on to Tehran with the missiles, a cake, and a Bible inscribed by President Reagan. Secord was also put in charge of the Swiss bank accounts through which the money flowed. 

Secord told the Joint Task Force in Australia that he had met Houghton in 1972, at the home of Colonel William Prim. Prim, as has been noted, (a) was a former member of Yates's military staff, (b) was the air force officer whom Houghton contacted in Saudi Arabia, (c) is believed by some to be the officer Houghton flew to Tehran with in 1975 in connection with the sale of a spy ship to Iran, and (d) was listed on a Nugan Hand internal document as a staff member in January 1980. (He has not responded to a letter the air force agreed to forward to him.) 

The task force reported that Secord saw Houghton occasionally and socially in Washington, D.C., Saudi Arabia, and the Netherlands throughout the middle and late 1970s. Secord said Houghton had talked about Nugan Hand, and in 1979 brought him together with Clines. 

By that time, the general was close enough to Edwin Wilson to regularly use Wilson's twin-engined Beechcraft free of charge. Clines sold Secord an investment property in Washington, and when it flopped Wilson bailed the deal out with cash. (Secord's lawyer told the Wall Street journal, which exposed all this, that his client was totally innocent of any wrongdoing. Lawyers for Clines and Shackley told the Journal their clients hadn't done anything wrong, either, but wouldn't let them be interviewed.) 

General Secord having made the introduction, Clines and Houghton met repeatedly with Shackley in Washington, which eventually led to a deal with A.P.I. to sell Philippine-made jeeps to Egypt. 

Houghton was also meeting often with Edwin Wilson in Geneva during the fall and winter of 1979-80 to discuss some financial laundering work regarding military sales. Libya had given Wilson a $22 million letter of credit, but the document specifically identified certain military hardware that was forbidden to Libya under U.S. law. 

So it was proposed that Nugan Hand would issue small letters of credit, naming textiles and other goods as the items of purchase to mask the military purchases. But despite what the task force said was several days of discussions with Clines and others, there was no evidence the letter-of-credit matter was ever resolved. Houghton tried to minimize these dealings, and denied that Wilson was a Nugan Hand client. But the task force said Houghton was being "deliberately misleading" in saying that, and the Corporate Affairs Commission said it didn't believe Houghton, either. 

In the Stewart commission, however, Houghton finally found a mark. The commission simply said it "accepts the evidence [testimony] of Mr. Houghton that the negotiations were unsuccessful”—as it also accepted his testimony that he didn't keep any of the money he carried off in Saudi Arabia (except "expenses"). 

Houghton said he was introduced to Wilson by a lawyer representing Wilson in Geneva, whom he had been told to see by either Mike Hand or Frank Nugan. If the commission bothered to ask him who the lawyer was, or how Hand or Nugan found out about the deal, it did not record the question or answer in its report. 

In addressing the question of Nugan Hand's involvement in arms dealings, the Stewart commission again adopted the technique of meticulously shooting down some bizarre rumors, without doing any real research on the more likely leads. Sources of serious allegations were never called to account under oath. There is no mention, for example, of Prince Panya, or Doug Schlachter, or John Owen's detailed military reports. 

The Stewart report does note an "allegation" in the Wall Street Journal that "Nugan Hand files show that Nugan Hand worked on big international arms deals, although it is not clear what, if anything, was shipped." It dismisses the "allegation" as "vague and imprecise," and says it was "based at least in part on information given to that newspaper by Mr. J. D. Owen," who it earlier noted had left Nugan Hand in a nasty salary dispute. Actually, the Journal's evidence consisted mostly of documents found in Sydney, which Owen hadn't mentioned in an interview.* 
*The journal stories were researched and written by the author of this book. 
"The Commission has found no evidence to support allegations that the Nugan Hand Group had been involved in arms dealing," the Stewart report says, though it later acknowledges that Nugan Hand tried to be. 

Houghton was playing with large amounts of cash in the winter of 1979-80, as he flitted back and forth between Europe and Saudi Arabia. His explanations of how he got it were not very believable. There was, for example, a puzzling journal entry in the Nugan Hand records—"funds in Switzerland, $465,000,"* with a reference to Houghton. When the Joint Task Force asked Houghton about it, he explained, "A gentleman delivered it to me in the hotel.... The man gave me no documentation to sign and did not identify himself. He just says, 'Are you Bernie Houghton?' And I say, 'yes.' And he handed me the envelope"—which contained $465,000. 
*420,000 Australian, as roughly converted to U.S. dollars at then-current rates
An easy way to make a living, it sounds. 

Houghton testified that he assumed the man was a law client of Frank Nugan's. He said he took the money to a bank and telexed it to Singapore. 

There was another witness who reported seeing him take several hundred thousand dollars in U.S. $100 bills out of a safety deposit box, bundle it up in his coat, and walk casually to a nearby bank to deposit it and telex it. It isn't known whether it was the same money. 

Hand and Nugan also appeared in Switzerland at about this time. They rendezvoused with Houghton, who says their mission was to see the United Nations High Commissioner for Refugees in regard to the Caribbean project. But Hand, at least, also met with some of the Wilson men. Houghton recalls meeting both Nugan and Hand in Geneva within the week preceding Nugan's death. 

One other deal that brought all the Nugan Handers to Europe was the planned acquisition of a bank there, London Capital Securities Ltd., which became available for purchase after its former owner, a onetime British member of Parliament named John Stonehouse, defalcated. Perhaps lacking Frank Nugan's true grit, Stonehouse only faked his suicide; he was found alive and well in Australia, and was returned to England and jailed.

Ernest C. L. Wong, a former Nugan Hand executive who says he worked on the deal, claims Nugan Hand was to be reorganized around a legitimate international commercial bank like the one in London, then sold to another old CIA and Pentagon pal, ex-president Somoza of Nicaragua, who was in and out of Miami back then. Wong says the Somoza deal was set to go in June 1980; no one else has said anything about it. 

Beazley, Hand, and Nugan negotiated a tentative purchase agreement for the London bank, but the deal crumbled—because of Frank Nugan's death, Beazley said. Houghton, on the other hand, told the Corporate Affairs Commission that "Frank and the gentleman over there, whose name I forget, had a big argument and the fellow said he would not do business with Frank Nugan." 

Houghton also said that after Nugan died, "Mike says, well, he couldn't go ahead with it because they couldn't afford to lose the capital. So I says, 'Well, what if one of my clients withdraws his funds and buys the bank? . . . Then you could still manage the bank.'' 

According to Houghton, Hand replied that the idea of using a behind-the-scenes money man to make the purchase "was acceptable to him. ... It was to be purchased in the name of Don Beazley, who was going to be the head of it." 

But the client Houghton put forward as the behind-the-scenes man turned out to be another CIA operative, Ricardo Chavez. According to what Beazley told the task force, Houghton did not disclose Chavez's true identity. Beazley said Houghton told him that "Chavez was a wealthy Mexican who wanted to diversify his assets out of Mexico, largely because of an anticipated peso devaluation." 

Ricardo Chavez was no Mexican. He was Cuban. He had been a CIA contract agent off and on since 1961 when he worked on the Bay of Pigs invasion. His case officer on that operation: Thomas Clines, the CIA officer who ran the illegal Egyptian arms deal with Edwin Wilson's money. 

Another Chavez associate and CIA operative was Rafael ("Chi-Chi") Quintero. 

QUINTERO: A Cuban-American veteran of the Bay of Pigs who became a protege of Clines in the CIA's long, clandestine war against the Cuban Government, conducting sabotage and terror missions. In 1976 he signed on with Edwin Wilson to assassinate international terrorists, and in particular a political opponent of Libyan dictator Muammar Qaddafi, who, along with U.S. Navel Intelligence, was employing Wilson; Quintero later explained that he thought the missions were sanctioned by the CIA (and who, really, can be sure they weren't?), and that he ultimately didn't carry them out. 

When Clines was hired by General Richard Secord to be his deputy in the Iran-Contra covert arms network, which was being run under the aegis of the CIA and White House through National Security Council staffer Oliver North, Clines brought Quintero on as his deputy. Quintero was based in Coral Gables, Florida, but spent much of his time in Central America, hiring, paying, and directing pilots and flight crews for the Contras. 

About the time of Frank Nugan's death, Clines and Quintero happened to drop by Wilson's Geneva office. According to task force witnesses, they found a travel bag full of documents left by Bernie Houghton. Clines and Quintero rifled Houghton's bag, found a document concerning General Secord, and removed it, the task force reported. 

"We've got to keep Dick's [presumably General Secord's] name out of this," Clines said, according to the task force report. (Assistant U.S. Attorney Lawrence Barcella in Washington, who supervised the prosecution of Edwin Wilson, confirms the gist of this story.) 

About a year later, General Secord was appointed by President Reagan to be deputy assistant secretary of defense—chief weapons advisor for Caspar Weinberger for the Middle East and south Asia. About the time he was due to get his third star, though, the Wilson scandal caught up with him and forced his resignation. What his reputation had been doing several years earlier in Bernie Houghton's travel bag has never been explained. 

In early March 1980, Houghton delivered about $300,000 to the Britisher who was selling London Capital Securities after the Stone-house debacle. The money was to pay for a 50 percent interest. 

Most of the $300,000 was in the form of Thomas Cook traveler's checks, the kind Houghton learned to use in Saudi Arabia. Houghton told the Corporate Affairs Commission he just didn't remember where he had bought the traveler's checks. "The delegates do not accept Mr. Houghton's recollection," the commission report said. "One would envisage that a transaction of this magnitude soon after the death of Mr. F. J. Nugan would be indelibly imprinted on the mind of the participant." The commission determined that Nugan Hand's general funds were used to buy the London bank. 

The commission found records of a $100,000 advance to Beazley at about this time, which he has said was used for the bank deal. The commission reported that while it was "not able to state positively that the funds were applied in the acquisition of the London bank," it inferred from the ledger entry that the money was intended to be used that way. 

Dennis Mosselson, the British businessman who was selling the bank, told the London police that over the next few months Houghton cashed $57,000 in traveler's checks at the bank, all with the approval of Beazley, whom Mosselson said he called in Washington. 

Beazley told the task force he flew back and forth to London, talked occasionally with Chavez, and met him once at the Miami airport. But he said he resigned his position at London Capital Securities in October 1980. He said the bank wasn't profitable enough to justify the work and travel, and besides, he had just been offered another job—as president of Gulfstream Bank, Boca Raton, Florida, a bank big enough that its shares were traded on the New York Stock Exchange.* 
*The shares were traded through its one-bank holding company, of which Beazley was executive vice-president and chief administrative officer.
That was the job he held when the task force interviewed him—in the United States and not under oath—March 12, 1982. However big a banker Beazley was, the task force didn't think much of him as a witness. "Beazley appeared to be vague and distant from those matters which one would reasonably expect a person of his profession to be conversant and particularly familiar with," it said. "There appears to have been a distinct lack of formality and background knowledge which one tends to expect from conservative bank administrators. . . . Whether this is a deliberate attempt to minimise his own role in the matter or whether it is simply the nature of Beazley, the Task Force has not and need not determine.[sic]" 

The task force also didn't believe the story about Chavez's buying the bank with funds from his Saudi Arabian account. "Task Force inquiries in the U.S. reveal that Chavez had no known connections, commercial or otherwise, in Saudi Arabia and is most unlikely to have had sufficient funds of his own to purchase the bank," the task force reported. It noted that Clines, Quintero, and Chavez had "a close relationship . . . and generally the view is that many of the business partnerships and dealings so far as Quintero and Chavez were concerned were little more than nominee situations [fronts] for Clines. 

"It is thought that quite possibly this was the case in the London Capital Securities purchase. Obviously one of the reasons that Houghton misled authorities in respect of the London bank and in particular his connection with Chavez, was to hide his connections with Clines and Wilson." 

People very close to the intelligence apparatus of the United States were trying to hide something. Whether it was money Wilson was taking illegally out of Libya, or money Bernie Houghton was taking illegally out of Saudi Arabia, or both, was a mystery the task force wanted to solve. (Considering Clines's importance to U.S. policy in the 1980s, one would think American investigators might be interested, too.) 

The task force talked to two business associates of Wilson and Clines, whose names it didn't disclose, who said they had been told that Clines had put close to $1 million (several million, by one account) in Nugan Hand. But there was no way to find out. 

The Corporate Affairs Commission also expressed frustration at not knowing the source of Chavez's alleged $325,000 account with Nugan Hand, or the significance of the Chavez-Houghton-Hand-Wilson associations, or the truth of the contention that Nugan Hand was going to be turned over to Somoza. 

None of these items "has been sufficiently investigated to finally report," the commission said. "It is difficult to imagine that this could be done without enquiries in England and the U.S.A." 

That such inquiries haven't come about may well be the result, at least in part, of the incredible influence Bernie Houghton continued to wield. John Walker, the CIA station chief, remembers Houghton hosting a visiting contingent from the Army War College. In January 1980, just a couple of weeks before Frank Nugan's death, Houghton was opening his barroom doors to a five-man delegation (and their wives) from the U.S. House of Representatives Armed Services Committee, out on a tour of U.S. military installations. 

Representative Bob Wilson of California, then the ranking Republican on the committee, says he had met Houghton on a previous trip to Australia several years earlier. He says he had been urged to drop in and see the barkeep by a friend of his wife's, who owned a Sydney hairdressing salon. The Wilsons, along with another member of the Armed Services Committee, had lunch with Houghton at his Texas Tavern in the Sydney honky-tonk zone, he says. 

They evidently liked it, because they returned, Representative Wilson says. And when Houghton then invited the whole contingent of ten or twelve members of the committee, and their staffs, to dinner at the Bourbon and Beefsteak, well, how could they refuse? 

So, Wilson, Richard Ichord (a Missouri Democrat and then chairman of the Research and Development Subcommittee of the Armed Services Committee), and three other committee members flew into Sydney late on the afternoon of January 7, 1980. After they were greeted by officials from the American Embassy and whisked to the local Hilton, it was just natural for them to head on down to the Bourbon and Beefsteak—despite having to run the gauntlet of prostitutes and sex-show barkers. 

"It wasn't odd," Representative Wilson says. "It was our first night in Sydney and nothing had been scheduled. Also a lot of people were out of town due to holidays."

Wilson says he was on the House intelligence subcommittee for twenty-six years. "I usually tried to interview on my own any operatives" he found in the places he visited, he says. "But I didn't know any in Australia." So he settled for Houghton. 

"Bernie is a kind of typical Texas bullshitter," Representative Wilson confides. "All he talked about was his business. He didn't talk of military or defense." 

But he did talk of Michael Hand over dinner. "He said, 'If you stop off in Singapore, you should meet my associate,' " the congressman remembers.* 
*This quote, beginning with the words, "He said," and the "It wasn't odd" quote originally appeared in The Australian of August 16-17, 1980, and were confirmed by me in my own interview with Wilson, June 17, 1982, whence derived the other quotes. 
On January 11, the committee delegation's first day in Singapore, Representative Wilson was introduced to Mike Hand by a U.S. consul. The next night Wilson, one other congressman, and their wives dined with Mike and Helen Hand at a restaurant. Wilson says they talked of business, not public affairs, and that he invited Hand to visit him on his next trip to the United States. 

That trip turned out to be a quick one, on the occasion of Frank Nugan's death. And on the next trip, Hand had good reason to pass up the Wilsons' kind invitation. That trip was in June 1980, and Hand was by then a fugitive from justice, traveling under a false passport. 

Perhaps the final blow to Nugan Hand came in the fall of 1979, from Price Waterhouse & Company, the Big Eight accounting firm that had given Nugan Hand its cachet. Robert Moyle, the Price Waterhouse auditor who signed the Nugan Hand Bank's books for the year ended June 1977, had left.** His successor, Richard Harris, who had worked on the '77 books and then signed off on the June 1978 books himself, suddenly started balking. 
**Moyle, now working for another firm, declines to comment, citing "pending litigation." 
Although Nugan Hand advertised that the bank's books were audited by Price Waterhouse, the actual balance sheets and income statements were seldom shown. They might have looked suspicious. Considering the big sums of cash that were flowing in and out of Nugan Hand, the actual asset and liability figures certified by its auditors, including Pollard & Brincat in Sydney, were relatively small. 

For example, a balance sheet from Pollard and Brincat for the Sydney holding company, dated January 31, 1979, shows assets of $13.7 million and a net worth of $2.3 million. The assets shown consist almost entirely of top-grade securities: $9.2 million in commercial bills of exchange, $3.2 million in negotiable certificates of deposit, and some government bonds. Other balance sheets have been found showing assets of more than $27 million. 

There isn't any indication on any of the balance sheets of what had really happened—that the securities originally bought had been traded in, the money taken, and the securities replaced in the company's vaults by IOUs from the affiliated companies that Frank Nugan and Mike Hand and their associates had set up. 

Steve Hill has testified that he routinely rewrote his books before giving them to the auditors. Hill added or subtracted $4 or $5 million at a stroke, merely on Frank Nugan's word that certain accounts had been paid, or certain assets were on hand. To clean the bank's books at year's end, accounts were sometimes assigned to Nugan Hand, Inc. Panama, which Hill has testified was mostly a reservoir for phony accounts needed to balance the books. Phony assets—usually IOU notes from companies that were secretly affiliated with Nugan Hand—were supplied as needed, and sometimes altered, to even the numbers. Price Waterhouse apparently just took all this down and signed it. 

The Corporate Affairs Commission found documents showing, for example, that on August 5, 1978, Price Waterhouse requested confirmation from the Sydney office that $4.7 million in securities were really held by that office on behalf of the Hong Kong and Cayman-based Nugan Hand Bank. On August 9 and 11, 1978, Frank Nugan and Mike Hand telexed Price Waterhouse that the securities were indeed there, collateralizing a debt owed by Nugan Hand, Inc. Panama—and so the matter appeared on the audit that Price Water-house signed. 

On October 10, 1978, the commission reported, Price Water-house telexed Sydney for more details on the debts allegedly owned to Nugan Hand Bank by Nugan Hand, Inc. Panama. Hill replied by telex two days later that Nugan Hand Bank had a claim on securities held by Nugan Hand Ltd. for Nugan Hand Panama, Hill, the commission reported, "stated the matter had been discussed in full the previous year with Messrs. Harris and Moyle of Price Waterhouse. He stated the basis of the scheme was to ensure profitability and security for Nugan Hand Bank." 

That explained nothing. Commented the commission, "To the reader today, the reply appears not particularly helpful from the perspective of supplying an answer to the request for information from Price Waterhouse." Nevertheless, the commission reports, "Price Waterhouse accepted the explanation of Mr. Hill." A year earlier, the commission noted, Frank Nugan himself had given the assurances. 

Admiral Yates went to the Caymans to sign the 1977 and 1978 audits, according to Hill. Clive Jennings of Price Waterhouse (an associate who was assigned to help Harris on the 1979 audit)—who answers questions hesitantly, after long pauses—says the same. Yates told the Stewart Royal Commission, it said, that he "thought that he had only signed the 1977 accounts," leaving the 1978 situation uncertain. Hill told the Stewart commission that in his opinion the admiral would have been "totally unaware" the books were phony. 

The Corporate Affairs Commission also reported doing its own audit of the securities listed by Hill. The results, it said, showed that the securities held by Nugan Hand Ltd. weren't assets at all, but had already been pledged against debts owed to those corporate Nugan Hand depositors who demanded and got collateral for their accounts. 

The commission found other inaccuracies and obvious inconsistencies in the figures that Price Waterhouse had accepted. But the commission—rather shockingly— admitted it never interviewed the Price Waterhouse auditors. "They may well have been misled in circumstances of which the investigation is uninformed," the commission said. 

Trevor Gorman, senior partner at Price Waterhouse, says* no one from the firm is aware of any discrepancies in the 1977 or 1978 audits. "No one has ever questioned our audits of those years," he insists. 
*Interview with the author, who also talked to Harris (who referred queries to Clive Jennings), and to Jennings.
The Stewart Royal Commission did more than just question the audits—it flat-out state that "the accounts of Nugan Hand Ltd. in no way presented a true and fair view of the financial state of the company." 

The commission took expert testimony on "the duties of an auditor, with particular regard to the auditor's duty to detect fraud." And the commission reported finding "little or no consensus of opinion in relation to this aspect of an auditor's duty. . . . The distinction seems to be whether the auditor is under a duty to detect fraud, that is, to specifically search for fraud, or whether, on the other hand, it is enough for the auditor to plan his audit so that he has a reasonable  expectation of detecting material misstatements," the commission said. 

It found that "the latter view appears to be echoed in this country" by auditing professionals, while client companies and businessmen who wanted to rely on audited financial statements believed they were getting more protection. "In the view of the Commission there is a need for the legislature to define precisely the auditor's duty to detect fraud," the report said. 
(A similar dispute is raging in the United States, where, under pressure from the courts and Congress, the accounting profession is trying to strengthen standards to increase the auditor's role in detecting fraud.) 

The men at Price Waterhouse—Gorman, Harris, and Jennings— contend that they raised new questions in 1979 because there were wholly different circumstances from those surrounding the 1977 and 1978 audits. To an outsider, it is hard to understand what those different circumstances may have been, except possibly the introduction of a skeptical Clive Jennings. 

Hill has said that he thinks the auditors became more skeptical in 1979 because of the bad publicity Nugan Hand was receiving over the Nugan Fruit Group scandal in Australia, though he didn't account for how the news might have reached the Caribbean. 

Jennings, for his part, asserts, "There were significant gaps in the records" that Hill brought with him for the October 1979 auditing session—as if this were a stunning new development. "He said he'd been rushed when he came," Jennings says. So Jennings gave Hill a list of items that would be required to satisfy the auditors. "And that was the last I ever heard from him" except for telexes, Jennings says. 

Hill has testified that the queries dealt with the receipt and payment of funds from Nugan Hand Panama, and that he telexed Frank Nugan for information but got no satisfactory answers. Hill has also testified that Yates joined him and his wife at the October 1979 audit, too. "Mr. [sic] Yates was present during all the discussions with the auditors," he said, specifically referring to Clive Jennings. 

In January 1980, Frank Nugan himself showed up. He "said he would handle it personally," Jennings says. But on January 15, when the auditors appeared at Nugan's hotel room, they were told, "You'll never guess what's happened. I came all the way from Australia with the answers to your questions, but then I left the file back in Australia." 

Nugan made a show of phoning his secretary and telling her to send the file. Jennings and Gorman say Nugan stayed two nights, then left on a morning flight. Jennings and Harris talked hours with Nugan, had dinner with him. What was said? Jennings seems very reluctant to be specific. 

What information was being sought? 

"Routine questions that any auditor asks his client." 

For instance? 

"I don't think that's appropriate." 

But, Jennings says, "An inspector had told him it [the bank] would be decertified if he didn't produce the accounts. I think that's what prompted his visit here." 

Indeed there was evidence that Singapore banking authorities had been giving deadlines for certification of the books, and that Hong Kong authorities might be waking up to the problem, too. "He seemed worried about decertification," Jennings say. But when Nugan flew out, "his attitude was that all the information we needed to our satisfaction would be forthcoming." 

Two weeks later he was dead.

next
The Explosion

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