Part 3 Gold Warriors How America Secretly Recovered Yamashita's Gold... Down The Rabbit Hole ... Dirty Tricks ...

GOLD WARRIORS 

HOW AMERICA SECRETLY 

RECOVERED YAMASHITA’S GOLD 

By Sterling & Peggy Seagrave

CHAPTER SEVEN 

DOWN THE RABBIT HOLE 

On September 2, 1945, after receiving official notice of Japan’s formal capitulation, the tall bull-necked figure of General Yamashita Tomoyuki appeared along a mountain trail, his left hand holding his samurai sword, approaching American lines to surrender himself and his staff. During the last month, American forces had advanced only three miles. Under siege in the Kiangan Pocket, Yamashita had lost a lot of weight. He also had lost a lot of men. But he did not commit ritual suicide because, he said, “If I kill myself, someone else will have to take the blame.” Behind his staff officers came his driver and others. They were met by a U.S. Army reception committee, including Military Police Major A.S. ‘Jack’ Kenworthy, who would make the arrest and escort the men to New Bilibad Prison just outside Manila. Yamashita stopped and waited for his officers to take positions behind him. According to Lt. Col. Leslie M. Fry, who was present, a number of younger Japanese bringing up the rear came forward carrying gold bars, which were stacked neatly by one side — altogether about half a metric ton. Yamashita unbuckled his sword, bowed deeply, and presented it to Major Kenworthy. Five months later, on February 23, 1946, after what many described as a grotesque miscarriage of justice, Yamashita was hanged. 

No mention of plundered treasure, or of looting during the war, was made in the charges against Yamashita or during his trial. He was charged with war crimes because of the atrocities committed, against his explicit orders, by Admiral Iwabuchi’s sailors and marines in Manila. It was the first time in history that the United States as a sovereign power tried a general of a defeated enemy nation for alleged war crimes. The tribunal in Manila was not composed of men with legal degrees, and only hearsay evidence was offered to link Yamashita to the crimes. Nonetheless, the prosecution was “badgered by MacArthur’s headquarters to quicken its pace, to minimize court procedure and to allow hearsay evidence”. Yamashita’s defense team appealed to the U.S. Supreme Court. Two Supreme Court justices denounced the conduct of the trial. Justice Murphy said “The petitioner was rushed to trial under an improper charge, given insufficient time to prepare an adequate defense, [and there] was no serious attempt to …prove that he committed a recognized violation of the laws of war. He was not charged with personally participating in the acts of atrocity or with ordering or condoning their commission. Not even knowledge of these crimes was attributed to him.” Justice Rutledge, the other dissenter, concluded that the process had departed “from the whole British-American tradition of common law and the Constitution”. He concluded with Thomas Paine’s warning: “He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself.” 

Yamashita’s conviction was not overturned. After a failed appeal to President Truman (who did not respond at all) Yamashita was hanged. Many thought he was railroaded because MacArthur was a vainglorious man who wanted revenge for being made to look incompetent. 

But we now know there was a hidden agenda. Because it was not possible to torture General Yamashita physically without this becoming evident to his defense attorneys, members of his staff were tortured instead. In particular, his driver, Major Kojima Kashii, was given special attention. He had accompanied Yamashita everywhere since the general had arrived from Manchuria in October 1944 to take over the defense of the Philippines from General Kuroda Shigenori. In charge of the torture of Major Kojima was a Filipino-American intelligence officer named Severino Garcia Diaz Santa Romana, whose friends called him Santy. He was a big-boned man, tall, with a high, broad forehead, who looked like a judo black belt, or the Genie that popped out of an old green bottle. Because of the recent Japanese savagery in Manila, Santy was enjoying his work. Many Filipinos had been cruelly tortured and beheaded; women and girls were gang raped in the streets, many of them disemboweled and hacked to pieces. But Santy and his assistants were careful. They did not want to kill Major Kojima, or to damage his memory. 

What Santy wanted to know was where the gold was hidden. He wanted the major to reveal each place where he had taken General Yamashita during the past year, where bullion and other plundered treasure was placed for recovery later. He wanted the major to take him to each site, to point out the entrance, and to describe the booby traps in detail. 

This brutal interrogation of Major Kojima produced results that astounded everyone from General MacArthur all the way up to the White House, and became one of the biggest state secrets of the twentieth century. Even today it remains carefully obscured, by making all archival records on this topic inaccessible for ‘reasons of national security’. It is no exaggeration to say that Santy’s results greatly altered America’s leverage throughout the world during the Cold War. So astonishing are the consequences that we must take a step back now, and be meticulous in examining every detail closely. For example, who was Santy, and for whom was he really working? Who ordered him to torture Major Kojima? Today, Santa Romana remains a legendary but mysterious figure at the CIA, and in Manila, where it is not unusual for people to deny that he ever existed. When they speak of him at all, senior CIA officials always say that Santy was ‘an OSS agent’, implying that he was working for America’s wartime intelligence agency, the Office of Strategic Services headed by General William ‘Wild Bill’ Donovan. But that turns out to be a meaningless generality, for Santy never was an OSS agent, and when he tortured Major Kojima the OSS had officially ceased to exist. 

We also must ask how Santy knew about the hidden treasure of Golden Lily. That is easier to answer. 

America had realized for some time that Japan was hiding plundered treasure in the Philippines, although the details were not shared with Britain or other Allies. During the last year of the war, for example, Americans fighting alongside Filipino guerrillas observed a heavily laden Japanese hospital ship unloading bronze boxes at Subic Bay, near Manila. U.S. Navy Warrant Officer John C. Ballinger, disguised as a fisherman, secretly photographed the vessel from a brightly painted Filipino fishing pirogue. It was not a real hospital ship. After studying the ship’s profile and comparing it with naval intelligence records, we were able to identify it as the fast liner Huzi Maru, built in 1937, which had been disguised with false superstructures, and huge crosses painted on her sides. As a fake hospital ship, the Huzi Maru was carrying war loot from Singapore to Manila for Prince Chichibu and Golden Lily. Ballinger’s unit, led by the guerrilla hero Captain Medina, followed the convoy of army trucks carrying this odd cargo into the mountains. There they watched Japanese soldiers lug the very heavy boxes into a cave. Ballinger had no idea what was in them, but it was clearly something of great value. Four men were needed to move each box, using a sling harness. When the Japanese sealed and disguised the cave entrance and left, the guerrillas took several days to re-open the cave and found that the boxes inside contained 75-kilo gold bars. There were rows upon rows of boxes. Photographs of the ship, along with a report of the cave full of gold, were sent by submarine to MacArthur’s intelligence headquarters in Australia, adding to many similar reports. According to Ballinger’s son Gene, his father assumed that he was reporting to the OSS, but nothing was that simple. 

Some months later, when American troops had landed on Leyte, Ballinger witnessed another movement of treasure by the Japanese. This time, a convoy of trucks carried heavy boxes out of Japanese Army headquarters in Baguio to a tunnel near a hospital on the outskirts of town. Ballinger’s son Gene told us: “This was not nearly as big a secret at the time as the Japanese wanted it to be. They were in a big hurry and made the mistake of not paying attention. Medina’s company kicked their ass and blew the tunnel shut — Japs and all.” A report on this action also was passed up the line by John Ballinger to ‘the OSS’. 

Because of the intense secrecy surrounding this subject, trying today to trace any of those intelligence reports on war loot is like falling down a rabbit hole, entering a subterranean world full of lies, evasions, and Mad Hatters. 

America’s wartime effort to monitor movements of looted gold bullion was indeed a major responsibility of the OSS, a precursor of the CIA. There also were special intelligence units responsible for monitoring displaced and looted artworks: the Art Looting Investigative Unit, and the Monuments, Fine Arts and Archives Group. But these were much more effective in Europe than in Asia. Compared to Europe, Allied intelligence services in Asia and the Pacific were fragmented, and did not cooperate. In any case, efforts to keep track of looted art or shipments of precious metals in East Asia were unsatisfactory because of geographical, cultural and linguistic barriers. Nearly all those records kept by intelligence services of the United States have since been made to vanish. What has surfaced, did so accidentally. 

In Europe, the OSS at times worked closely with other intelligence services, but competition and rivalry were intense. One of the fiercest turf battles over the tracking of Nazi loot went on inside the U.S. Government, waged between Secretary of the Treasury Henry Morgenthau and Allen Dulles, the OSS chief in Switzerland, a romantic who had a much more cavalier attitude about such things. Axis loot was being moved under the noses of the Allies into neutral safe havens. In one instance, American agents in Switzerland watched 280 trucks of Nazi gold move from Germany across France and Spain to the safe haven of neutral Portugal. Owned by private Swiss firms, the trucks were painted with the Swiss cross, allowing the gold to be moved under ‘neutral’ cover. 

However, while the gathering of intelligence on war loot may have been disjointed, ultimately all such reports were passed up to the office of the Secretary of War, Henry L. Stimson. He had a special interest in the subject of looted bullion, and kept a group of financial experts thinking hard about it. Three of these men were Stimson’s special assistants John J. McCloy, Robert Lovett, and consultant Robert B. Anderson. 

The problem of how to deal with plundered treasure, and what to do with Axis gold after the war, was discussed in July 1944 when forty-four nations met at the resort of Bretton Woods, New Hampshire, to plan the post-war economy. These discussions, some of them extremely secret, revealed the flaws and loopholes that existed in the international financial system, making any clear-cut resolution unlikely. Among the delegates, trust was far from universal. Many of them believed that the Bank of International Settlements was secretly laundering Nazi loot. That distrust set the tone. Among other things, the Bretton Woods agreement (as it was made public) set a fixed price for gold of $35 an ounce, and banned the importation of gold to America for personal use. Neutral countries that signed the pact promised not to knowingly accept stolen gold and other looted assets, but Portugal forgot to include Macao in the list of its dependent territories. This was a convenient oversight, for during the rest of the war, as we saw in Chapter Four, Macao became a world center for trade in illicit gold and was heavily exploited by Japan. 

Unlike Europe where the OSS was tolerated by General Dwight Eisenhower, in the Southwest Pacific General MacArthur resisted all attempts by the OSS to get a foothold in his territory. MacArthur and his staff intended to conduct their own brand of special operations from their headquarters in Australia, without any interference. 

Intelligence-gathering in MacArthur’s domain was under the command of Charles Willoughby. Born in Heidelberg, Germany, in 1892, he was the love child of Baron TScheppe-Weidenbach and Emma Willoughby of Baltimore, Maryland. By 1910 her romance with the baron had soured and Emma returned to the United States with her 18-year-old son, who immediately enlisted as a private in the U.S. Army, rising gradually to sergeant. When he returned to civilian life in 1913, Willoughby enrolled at Gettysburg College where he was able to get a degree quickly. Re-joining the army as an officer, he served in France in 1917-1918, then taught machine gun tactics at Ft. Benning. The next few years he served as an army attache at U.S. embassies in Venezuela, Colombia and Ecuador, speaking Spanish with a heavy German accent. In 1940, after staff school at Ft. Leavenworth, he was sent to Manila to be MacArthur’s assistant chief of staff for logistics. At the time, Douglas MacArthur was America’s field marshal of the Philippine Army. Willoughby, who craved grandeur and authority, was awed by the patrician MacArthur. In mid 1941, when MacArthur became commander of the new U.S. Far Eastern Command, Willoughby stuck with his idol. This impressed MacArthur, who valued personal loyalty above all other qualities, and he made Willoughby his assistant chief of staff for intelligence, promoting him to colonel. When Japan attacked, Willoughby moved to Corregidor with MacArthur, and then accompanied him to Australia. 

MacArthur wanted absolute control of intelligence-gathering and special operations in his zone of command. Willoughby’s qualifications for such work have been seriously questioned. Repeatedly, he blundered in battlefield estimates, but was kept on because MacArthur liked to surround himself with admirers. According to military historian Kenneth Campbell, Willoughby was often given assignments “for which he was not remotely prepared”, and his “attempts to conceal his mistakes are a violation of honor…” For Willoughby, truth was flexible. 

In Australia, Willoughby set up the Allied Intelligence Bureau to run guerrilla operations in the Philippines. He also started the Allied Translator and Interpreter Section (ATIS), to monitor Japanese radio broadcasts, interrogate prisoners, and translate captured Japanese documents. Most men in ATIS were Nisei, second generation Japanese born in foreign countries, in this case born in America of Japanese parents. However, Willoughby’s approach to guerrilla warfare proved to be too cautious for MacArthur, who craved audacity. Leaving Willoughby in charge of intelligence gathering, MacArthur gave special operations to his intimate friend and personal attorney Courtney A. Whitney. Willoughby was furious, but MacArthur soothed him by promoting him to general. 

In this way, MacArthur’s intimate crony Courtney Whitney became the key man running secret agents in the islands and reading reports of war loot, including those from John Ballinger. The OSS had no part whatever in this. Whitney was effective in special operations because he was well connected in Manila, a clever rich man on first name basis with all the politically powerful families in the Philippines. In the late 1920s when he had been fresh out of law school in Washington, D.C., MacArthur had got Whitney a job with the top Manila law firm of Dewitt, Perkins & Enrile, who handled MacArthur’s financial affairs in the islands, and also handled Benguet, the biggest gold mining operation in the islands, in which MacArthur had investments. By Pearl Harbor, Whitney was intimately involved in all manner of political, legal, and financial intrigues, as played in the islands. He could call in favors from men like Santa Romana. 

According to various CIA sources including former deputy director Ray Cline, Santa Romana was born in Luzon in 1907, one of several children of Marcelo Diaz Santa Romana and Pelagia Garcia. As an adult, he used the names Garcia, Diaz, or Santa Romana interchangeably. Under the name Severino Diaz, he completed his university education in California where he married a wealthy young heiress, Evangeline Campton. Her family had owned a hotel on Stockton Street in San Francisco at the time of the great earthquake and fire of 1907. After the quake they rebuilt the hotel and sold it to new owners who called it the Drake-Wilshire. (Today the location still is called Campton Place; the hotel has been renamed the Campton Place Hotel.) In the 1930s, Santy took ‘Angelina’ back to the Philippines, where her inheritance got him started in business, and he became a fringe member of the social circle of MacArthur, Whitney and Andreas Soriano, owner of San Miguel Brewery and the wealthiest man in the islands. 

Santy and Angelina had three children, named Peter Diaz, Mary Ann Diaz, and Roy Diaz. Angelina is said to have died in the early weeks of World War II when she was killed by a Japanese bomb, leaving the children what was left of her money. Her marriage to Santy had chilled out earlier. In the Catholic Philippines, divorce was illegal. Back in 1936, dropping the name Diaz and using the name Severino Santa Romana, Santy married a pretty schoolteacher named Julieta Huerto on the island of Mindoro, by whom he later had a daughter called Diana. In his marriage application, Santy claimed to be a schoolteacher himself. These deceptions were necessary because he was committing bigamy. 

During the war, Santy stayed in the islands, becoming one of Whitney’s most effective agents. Therefore only Whitney, MacArthur’s attorney and intimate crony, could have authorized Santy’s torture of Major Kojima in September 1945. Whitney never acted without MacArthur’s approval, so there can be no question that it was done in the full knowledge of MacArthur and his inner circle. When Japan surrendered, the need for Whitney’s special operations officially ceased. Willoughby’s G-2 army intelligence unit continued to exist, pro forma, but both Willoughby and Whitney accompanied General MacArthur to Japan. The Philippines continued to be Whitney’s personal power base, and one leg of MacArthur’s power base. Whitney and MacArthur watched closely as the trial of General Yamashita got under way, and as we have seen they interfered often in the legal process. They also stayed informed of the interrogations of Yamashita’s staff. 

Another key figure in MacArthur’s Manila circle was Joseph McMicking, whose father was a law partner of Courtney Whitney before the war. When the Japanese invaded, Captain Joe McMicking was made assistant G-2 to Major Willoughby. He was among the ‘Bataan Boys’ who fled with MacArthur by PT boat from Corregidor to the Dole Pineapple estate in Mindanao, and onward by plane to Australia. During the torture of Major Kojima in 1945, Colonel McMicking was the immediate G-2 superior of Santa Romana and was the interface between Santy in Manila and Whitney and MacArthur in Tokyo. When Major Kojima broke and Santy began recovering billions in gold, McMicking became fantastically wealthy seemingly overnight and married Mercedes Zobel, an heiress of the Zobel-Ayala clan of Spanish grandees in the Philippines. In the explosion of wealth in Manila that followed Santy’s recoveries, Joe McMicking masterminded the Zobel-Ayala clan’s acquisition of global real estate, helping create what has become one of the world’s great fortunes. While the Zobel-Ayala clan certainly was not poor, their pockets were not as deep as McMicking’s. The Philippine Star called McMicking the ‘real moneybags’ behind today’s colossal Zobel-Ayala fortune. In the early 1960s, McMicking and his wife set up the Ayala Foundation to promote vocational education, arts and livelihood projects in the Philippines. It may be sheer coincidence, but in 1983 it was the Ayala Corporation that bought the rundown Campton Place Hotel in San Francisco, and turned it into an elegant and expensive boutique hotel. 

The OSS only became involved in Santy’s interrogation by sheer chance. Eight days after General Yamashita surrendered, Captain Edward G. Lansdale, formerly of the OSS, arrived in Manila by plane from San Francisco and began looking for something to do. 

Lansdale was a deceptively engaging and colorful character, the elusive Cheshire Cat in our rabbit hole. Later, he became an icon of gigantic mythology, as one of America’s most famous Cold Warriors (or infamous, depending on one’s point of view). Many novelists including Graham Greene used him as the model for obsessive or pathological characters pushing the American Way in Asia. Lansdale was always on stage, acting various characters. So evasive was he about his life that the myth he contrived has overwhelmed the facts. There are two schools of thought — Lansdale as the savior of Asia, or Lansdale as war criminal and far-right hatchetman. (Fletcher Prouty, a U.S. military intelligence officer and historian who shared office space with Lansdale for many years, positively identified Lansdale in photographs taken during the assassination of President Kennedy, identification confirmed by others. In the movie JFK Oliver Stone has a thinly-disguised Lansdale involved in the assassination of the president.) 

How an advertising agency wordsmith like Lansdale became such an influential player during the Cold War remained a mystery until now. The missing key is the torture of Major Kojima. 

When he landed in Manila in 1945, Lansdale was 37 and utterly insignificant. He had spent the entire war in San Francisco writing propaganda for the OSS, and having a good time. 

Lansdale was born in Detroit in 1908, in a strongly religious middle-class family, his mother a driven Christian Scientist, his father a devout Presbyterian. As a child, Lansdale was taught by his father all kinds of religious sayings and Sunday School homilies of the sort used in Burma Shave signs along America’s rural roads. “When the work has once begun/ Don’t leave it until it’s done/ Be the labor great or small/ Do it well or not at all.” In his forties he could spout these like a whale for half an hour. As a CIA field agent, he taught the same cute sayings to assassins who worked for him in the Philippines, Vietnam, and Japan, used them as code phrases during covert operations, and recited them to Asian secret police bosses as a benediction. Over the years, Santy picked up this habit of Lansdale’s and repeated the same signature homilies, even in his last will and testament. 

During the Depression, Lansdale had studied journalism at UCLA where he was in the army reserve program. Following graduation he worked as a copywriter for ad agencies in Los Angeles and San Francisco, where his quirky jingles served him well. When he heard about Pearl Harbor, he quit his job and enlisted in the army, getting a choice billet dreaming up psychological warfare gimmicks for the Military Intelligence Service and then for the OSS. Sitting behind a desk in San Francisco, he passed his days thinking about how to demoralize Japanese troops. A pamphlet he wrote called From The Serpent’s Mouth took old Japanese proverbs and used them to point out Japan’s wartime blunders: “‘The man who makes the first bad move always loses the game.’ (Remember Pearl Harbor!)” 

Chance entered Lansdale’s life in a big way when President Truman ordered the OSS closed down at the end of September 1945. In the weeks remaining to them, General Donovan and his deputy, Brigadier General John Magruder, looked for ways to preserve personnel and OSS overseas networks by shifting them to other intelligence services, to other government agencies, in some cases even to private American corporations like General Electric that could afford to sustain clusters of secret agents in various parts of the world, for commercial intelligence, and as a favor to Washington. Captain Lansdale was one of fifty OSS office staff who were given a chance to transfer to General Willoughby’s G-2 section in the Philippines, headed by Colonel McMicking. 

When Lansdale arrived in Manila he was shocked by his first sight of war close up. The city was in ruins following the rampage by Admiral Iwabuchi’s large force of marines and sailors. Lansdale heard grisly stories, and conceived a loathing for Japanese because of their excessive cruelty. In his journal entries from the 1940s, he told of this hatred. An entry dated November 10, 1946, says: “Many of the Filipinos were tortured …until they were just broken lumps of bleeding flesh.” In his office at G-2, Lansdale discovered files describing gold being hidden by Japanese soldiers, and heard of Santy’s interrogation of Major Kojima. Electrified, he seized the initiative, taking administrative control of Santy’s interrogation. Lansdale was able to do this because most of MacArthur’s team, including Willoughby’s senior staff officers, were in Japan. In Manila, Lansdale had the G-2 office more or less to himself. He galvanized his Filipino and American clerical staff to make a painstaking search of the files for all mentions of Japanese war loot. 

Later, all he was willing to say about it was: “The G-2’s office at our headquarters held a treasury of reports… whose contents I had to master for my daily work. …I gave my intelligence group the task of sorting through what we already knew and obtaining further facts.” 

Santy was extracting those ‘further facts’ from Major Kojima. 

Early in October, after many days of torture, Kojima broke and revealed everything he knew. Lansdale organized a convoy of cars and set out with Santy and Major Kojima to retrace the trips made by General Yamashita to ‘more than a dozen’ Golden Lily treasure vaults. These were all in the high valleys north of Manila, in a triangle from Baguio in the west to Bambang in the center, and Aparri at the northern tip of Luzon. 

When they returned to Manila in mid-October, Lansdale reported to Colonel McMicking, then flew to Tokyo where he briefed Willoughby, Whitney, and MacArthur. At their instruction, he then flew to Washington to brief General Magruder, who still headed the Strategic Services Unit, a last vestige of the OSS just before the new Central Intelligence Group (CIG) was created under General Hoyt Vandenberg. It was Magruder who had moved Lansdale to Manila two months earlier. Vandenberg or Magruder then sent Lansdale to the White House to brief President Truman’s national security aide, Navy Captain Clark Clifford, and members of the Cabinet. President Truman decided to keep the discovery secret, and to recover as much of the Japanese loot as possible. At this stage, it is impossible to say precisely how these briefings unfolded, or exactly what President Truman did. The secrecy surrounding Santy’s recoveries is nearly total. 

What we do know, from two separate high-level sources in the CIA, is that Robert B. Anderson flew back to Tokyo with Lansdale, for discussions with MacArthur. After some days of meetings, MacArthur and Anderson flew secretly to Manila, where they were taken by Lansdale and Santy to some of the sites in the mountains, and to six other sites around Aparri at the northern tip of Luzon. In the intervening weeks, Santy’s men, aided by hand-picked teams from the U.S. Army Corps of Engineers, had successfully opened several of these vaults, where MacArthur and Anderson were able to stroll down row after row of gold bars. Other sites were opened in subsequent months. In all, the recoveries took two years to complete, from late 1945 to early 1947. 

From what was seen in these vaults, and also discovered by U.S. Army investigators in Japan, it became evident that over a period of decades Japan had looted billions of dollars’ worth of gold, platinum, diamonds, and other treasure, from all over East and Southeast Asia. Much of this had reached Japan by sea, or overland from China through Korea, but a lot had been hidden in the Philippines. 

Washington’s ‘official’ (public) figure for recovered Nazi gold still is only 550 metric tons. But Anderson knew better. One of his business associates saw photos in Anderson’s office of an American soldier “sitting on top of stacks of bullion that Hitler had stolen from Poland, Austria, Belgium and France. It ended up with the Allied high command and no one was allowed to talk about it.” The same source said he was taken to the courtyard of a convent in Europe where 11,200 metric tons of Nazi looted bullion had been collected. 

After the Nazi defeat, the OSS and other Allied intelligence organizations searched Germany and Austria for art treasures and looted gold. Soviet troops and special units did the same in the Russian zone. More is known of what happened to the recovered art than to the recovered gold. When one hundred tons of Nazi gold were recovered from a salt mine near Merkers, Germany, the truck convoy carrying it to Frankfurt vanished; it was said to have been hijacked, but the more likely explanation is that this gold was among the bullion stacked in the convent courtyard. 

The reason for all this discretion was a top secret project sometimes called Black Eagle, a strategy first suggested to President Roosevelt by Secretary of War Henry L. Stimson and his wartime advisors, John J. McCloy (later head of the World Bank), Robert Lovett (later secretary of Defense), and Robert B. Anderson (later secretary of the Treasury). Stimson proposed using all recovered Axis war loot (Nazi, Fascist, and Japanese) to finance a global political action fund. Because it would be difficult if not impossible to determine who were the rightful owners of all the looted gold, better to keep its recovery quiet and set up a trust to help friendly governments stay in power after the war. This was informally called the Black Eagle Trust after the German black eagle, referring to Nazi bullion marked with an eagle and swastika, recovered from underground vaults of the Reichsbank. 

According to some sources, the Black Eagle Trust could only have been set up with the cooperation of the most powerful banking families in America and Europe, including the Rockefellers, Harrimans, Rothschilds, Oppenheimers, Warburgs, and others. 

A brilliant Wall Street attorney, Stimson was a man of immense experience who had served in various posts for five presidents — Taft, Coolidge, Hoover, Roosevelt, Truman — but he was nearing the end of his extraordinary career. He knew Manila intimately, having served as governor-general of the Philippines in the 1920s. President Herbert Hoover had then named him secretary of State. (Like Hoover, Stimson thought highly of MacArthur.) By Pearl Harbor, Stimson was already in his seventies. He managed his vast wartime responsibilities by delegating authority to four assistant secretaries of War: Robert Patterson, a lawyer and former federal judge; Harvey Bundy, Boston lawyer and Yale graduate; and two dynamos Stimson called his Heavenly Twins — John McCloy and Robert Lovett. What they all had in common was their close relationship to the Harrimans and Rockefellers. Lovett’s father had been the right-hand man of railway magnate E.H. Harriman, who once tried to buy the South Manchurian Railway from the Japanese. Following in his father’s footsteps, Robert Lovett worked with Averell Harriman at the Wall Street firm of Brown Brothers Harriman, handling international currency and lending operations. John J. McCloy, by contrast, was a poor boy from Philadelphia who graduated from Harvard Law School, joined the Cravath firm on Wall Street, and gained the admiration of Averell Harriman by helping get $77-million worth of bond issues for the Union Pacific railroad. (McCloy engineered such deals for everyone from the House of Morgan on down.) Working for Secretary of War Stimson, Lovett and McCloy became midwives at the birth of America’s postwar national security establishment, which was closely interwoven with the financial community. 

McCloy was a troubleshooter and expert fixer. He said his job was “to be at all points of the organizational chart where the lines did not quite intersect”. He made endless trips around the world during the war, solving problems, working with statesmen, bankers and generals. He was intensely involved in backstage strategy and understood, to borrow from Cicero, that “the sinew of war is unlimited money”. Money also was to be the sinew of the Cold War. A wheeler-dealer, McCloy knew all the ins and outs of international finance. After the war he became a partner in the law firm of Milbank Tweed, which handled the affairs of the Rockefeller family and its Chase Bank, became a leader of the Council on Foreign Relations, head of the World Bank, chairman of Chase, and head of the Ford Foundation. He may have been the key player in executing the Black Eagle Trust, the one who took Stimson’s idea and turned it into a working reality. 

By comparison, Robert B. Anderson got off to an inauspicious start. Born in Burleson, Texas, on June 4, 1910, he taught high school for a while before studying law at the University of Texas. He was elected to the state legislature and appointed assistant attorney general for Texas in 1933, and state tax commissioner the following year. Then something clicked, and Anderson left government to become an extraordinarily successful financial consultant to very rich people. By the early 1940s he was general manager of the enormously wealthy W.T. Waggoner estate, which owned ranch land and oil land all over Texas. Anderson was so deft at money management that President Roosevelt appointed him a special aide to Secretary of War Stimson with responsibility for keeping tabs on Axis looting. Navy Captain Clark Clifford, Truman’s aide for national security matters who was briefed by Captain Lansdale, was Anderson’s protégé and intimate friend. Together, Anderson and Clifford became major power brokers in postwar Washington. 

Although Stimson retired from public life in 1945, and McCloy also left government service at that time, they and Anderson continued to be involved in overseeing the Black Eagle Trust. According to former CIA deputy director Ray Cline, the gold bullion recovered by Santa Romana was put “in 176 bank accounts in 42 countries”. Anderson apparently traveled all over the world, setting up these black gold accounts, providing money for political action funds throughout the noncommunist world. Later we closely examine several. 

In 1953, to reward him, President Eisenhower nominated Anderson to a Cabinet post as secretary of the Navy. The following year he rose to deputy secretary of Defense. During the second Eisenhower Administration, he became secretary of the Treasury, serving from 1957 to 1961. After that, Anderson resumed private life, but remained intimately involved with the CIA’s worldwide network of banks, set up after the war by Paul Helliwell. Eventually, this led to Anderson becoming involved in BCCI, the Bank of Credit and Commerce International, an Arab-Pakistani bank with CIA ties that parlayed money-laundering and the discreet movement of black gold into ownership of the biggest bank in Washington, D.C. The collapse of BCCI in what the Wall Street Journal called “the world’s largest bank fraud” also snared Anderson’s protégé, Clark Clifford, who was indicted for fraud. Clifford and his associate Robert Altman headed First American Bankshares, the BCCI front in the nation’s capital, and were accused of using political patronage to shield BCCI from full investigation. 

Anderson’s reputation began to crumble when it was revealed by Bernard Nossiter in The Washington Post that he had sought and received $290,000 from a Texas oilman while serving as Eisenhower’s secretary of the Treasury. Anderson later pleaded guilty to federal charges of tax evasion and money laundering, and died in disgrace. 

It is beyond the scope of this book to examine how Anderson, McCloy and the others administered the Black Eagle Trust from the top down. Because so much of the documentation is still sealed, we must content ourselves with evidence that has surfaced so far, and the players we know were involved in the field. But by looking briefly at what is known about the public side of the arrangements made at Bretton Woods, we find a window into the secret side. 

Battered and bankrupt by their long war in Europe and Asia, America’s allies had no choice but to stand aside as the U.S. Government set about the ‘dollarization’ of the global economy. Economists see the end of World War II as ‘year zero’ for the current system of international finance. Because of widespread suspicion that the Bank of International Settlements (BIS) in Zurich had been laundering Axis loot, Bretton Woods set up a new central financial clearinghouse called the International Monetary Fund (IMF), to act as the world’s future financial clearinghouse and moneychanger. Gold was assigned a dollar value of $35 an ounce, and all other currencies were valued against the dollar. This removed any doubt about the relative position of the dollar and the British pound, for example. Although Britain was a partner in the plan, she was deep in debt to the United States. In 1941, in exchange for a $30-billion war loan, Britain had been obliged to take a backseat in postwar planning. 

Each IMF member country agreed on a value for its currency expressed in terms of the U.S. dollar. Each member country deposited with the IMF an amount of gold and currency as reserves to be used to sustain the value of that currency. The main function of the IMF was to maintain stable values for these currencies by shifting funds temporarily from one to another. While it was a global organization, its most important backer was the U.S. Government. Federal statistics show that at the end of the war the United States held 60 percent of the world’s official gold reserves, which put Washington in the position of being able to manipulate the other nations. 

By 1960, however, it was evident to European members of the IMF that they would soon hold dollars far in excess of the official U.S. gold reserves. One solution would have been to devalue the dollar, but Washington blocked this. Instead, in 1961 the U.S. joined with the central banks of Europe, Great Britain and Switzerland to form the London Gold Pool, managed by the Bank of England. The idea was that the collective official reserves of these countries would give them enough gold to intervene in the private market for gold, to keep the price at $35 an ounce. It worked for a while. But by 1968, France had left the Gold Pool, the British pound had been devalued, and private demand for gold skyrocketed. In a last-ditch attempt to sustain the London Gold Pool, the U.S. Air Force made emergency airlifts of gold from Fort Knox to London. So much gold bullion was moved onto the weighing room floor at the Bank of England that the floor collapsed. It was an omen, for the Gold Pool itself collapsed shortly thereafter. 

The invisible Black Eagle Trust set up by Stimson’s team, beefed up by bullion from the Santa Romana recoveries, created a separate pool of black gold that put an extra floor under the postwar economy, and gave Washington and its allies covert financial leverage. There are certain similarities between this trust and the Diamond Cartel identified with DeBeers, or the Gold Cartel identified with the Oppenheimer family of South Africa. According to informed sources, these similarities exist for good reason and on many different planes. The Diamond Cartel was able to amass huge quantities of stones, and yet keep prices artificially high by limiting to a trickle the number of diamonds reaching the market, maintaining the impression of extraordinary rarity. In a similar way, the black gold cartel could hold many thousands of metric tons of gold bullion — far more than the official gold supply — keeping gold prices artificially high while discreetly using derivatives of this gold as a clandestine slush fund. 

If the recovery of this huge mass of plundered gold was known only to a trusted few, those countries and individuals that had been robbed by the Nazis, the Fascists, or the Japanese, would not sue to recover it. Also, the argument was made that the existence of so much black gold, if it became public knowledge, would cause the fixed price of $35 an ounce to collapse. As so many countries now linked their currencies to the U.S. dollar, and the dollar was linked to gold, currency values throughout the world might then plummet, causing financial disaster. But so long as it was kept secret, gold prices could be kept at $35 an ounce, and currencies pegged to gold would be stable. Meanwhile, the black gold would serve as a reserve asset, bolstering the prime banks in each country, and strengthening the governments of those nations. 

As a safeguard, the black gold placed in those banks was ‘earmarked’ or strictly limited in the uses that could be made of it. This enabled Washington to bring pressure, from time to time, on those governments, central banks and prime banks. So long as a country and its leaders cooperated with Washington, and remained allied to it in the Cold War, the sleeping bullion would provide the asset base for patronage. Gold bearer certificates and other derivatives could be given as gifts or bribes, without actually giving away the bullion itself. Beneficial trusts could be set up in behalf of certain statesmen, military leaders, or political figures, or their families. In the hands of clever men like Anderson and McCloy, the possibilities were endless. From time to time, as more bullion was recovered from Golden Lily vaults in the Philippines, quantities of the bullion would be offered in strictest secrecy to central banks, or to consortiums of private buyers. 

In later chapters we will see numerous documented instances when these underground funds surfaced as huge bribes, or were used to buy elections, famously in Italy, Greece, and Japan, but probably in other countries as well. Some internationally famous banks appear to have become addicted to having billions of dollars of black gold in their vaults. So addicted that they refuse to surrender the bullion, and in some cases have stooped to swindling the original owners or their heirs, by denouncing their documents as counterfeit. Indeed, some owners claimed that not only were they told their documents were fake, but were given veiled threats of murder if they pressed their claims. In some cases the banks may have made such heavy use of these black gold reserves that they no longer are in a position to relinquish the bullion without going under. 

In a certain sense, no one made better use of the Santa Romana recoveries than Lansdale. His role at first was strictly as a facilitator in Manila, supervising the recovery of Golden Lily vaults, inventorying the bullion, having it trucked to warehouses at the U.S. Navy base in Subic Bay, or the U.S. Air Force base at Clark Field. The bullion had to be moved under tight security, by armed convoy, military aircraft, and navy vessel. Preference went to the U.S. Navy because of the weight of the bullion. One source even insists that this was one of the reasons President Eisenhower appointed Anderson secretary of the Navy. The transfer of these big quantities of bullion is confirmed by documents, bills of lading, insurance covers, and a multitude of other paper that over the years revealed the names of the individuals and famous brokerages involved, and the prime banks to which the bullion was shipped. In later chapters, some of these shipments will be described. The documents are reproduced in full on our CDs. 

General Willoughby, a man of limited imagination, detested Lansdale as a ‘smartass’, and blocked his promotion to major until 1947, when Lansdale also was made deputy director of G-2 in the Philippines. General Hoyt Vandenberg, chief of the new Central Intelligence Group, came to Lansdale’s rescue by transferring him to the Air Force. After a few months at its Strategic Intelligence School in Colorado, where he rose to lieutenant colonel, Lansdale was sent back to the Philippines as a full colonel, working for Frank Wisner, the Mad Hatter of the CIA and head of its new dirty tricks division, called the Office of Policy Coordination (OPC). Lansdale’s rise then became meteoric. This usually is attributed to his success in grooming Ramon Magsaysay to be ‘America’s Boy’ in the newly independent Philippines, and Lansdale’s much exaggerated success in suppressing the communist Huk ‘rebellion’ there. Because the Huks were only a rural protest movement of poor farmers, abused for generations by rich Spaniards and Overseas Chinese landowners, that scenario was never convincing to anyone who really knew the Philippines. Most of the Huks knew nothing about Marxism and would have joined any protest movement that helped them in their struggle against predatory landlords. Lansdale, always the huckster, had movie crews film phony attacks on villages staged by special units of the Filipino army, and the next day filmed the ‘liberation’ of the village led by a well-coached Magsaysay. It was pure Hollywood. 

What really made Lansdale a great Cold War celebrity was something known only to a few: The way he capitalized on his secret role in the torture of Yamashita’s driver, in the Santa Romana gold recoveries, and in the Black Eagle Trust. Having spent so much of his adult life as an ad agency man, Lansdale was easily able to con powerful men in Washington into believing that he had done this all by himself. His natural charm, his quaint Midwestern homilies, and his ‘visionary’ ideas about America’s great mission to reform Asia, were taken seriously by Allen Dulles and John Foster Dulles, who had great power but little direct experience of Asia, and others in Washington who should have known better. Lansdale became an instant hit at the Sunday evening drinking parties thrown by the Dulles brothers. Writing to the U.S. Ambassador in Manila, Admiral Raymond Spruance, Allen Dulles called Lansdale “our mutual friend”. When he sent Lansdale to Vietnam in 1954, Dulles told Eisenhower he was sending one of his “best men”. Eisenhower enjoyed hearing about Lansdale’s escapades in the Philippines, recounted with wry humor and heavy irony. Lansdale was also close to Richard Nixon, which led to a number of unsavory consequences. 

Others noticed that Lansdale had a curious gleam in his eye, not unlike that of Elmer Gantry, and concluded that he was nuts, and must be stopped at all cost. Douglas Valentine, author of The Phoenix Program, said: “Lansdale used Madison Avenue language to construct a squeaky-clean, Boy Scout image, behind which he masked his own perverse delight in atrocity.” Lansdale’s Asian adventures were costly failures, without exception. In the early 1950s, Allen Dulles gave Lansdale $5million to finance CIA operations in the Philippines, but after the money was spent Lansdale’s protégé, President Magsaysay, died prematurely in a plane crash. As recounted in detail in The Marcos Dynasty, his widely publicized suppression of the Huks was fraudulent. In Vietnam he initially spread $12-million in black money in a misguided attempt to reverse the floodtide of events, by backing the Diem family. Like many of the other characters in this book, Lansdale loved the power he gained from having access to limitless covert funds, and (like Willoughby) he was largely successful in keeping his failures secret – the very essence of ‘national security’ cover. In the late 1950s, he was in and out of Tokyo on secret missions with a handpicked team of Filipino assassins, including his favorite, a handsome cold-blooded killer named Napoleon Valeriano. The daughter of an American officer who knew Lansdale, told how he arrived in Japan with “characters who were known as his assassins — the ones he brought in from the Philippines. As a kid I was fascinated by him and his gun which everyone could see — unusual because no one in Japan had weapons… the whole idea of Lansdale and our government assassinating people struck me as shocking, weird.” 

In retrospect, recovering the Golden Lily treasure vaults and setting up the Black Eagle Trust were the easy part, because they only involved spending somebody else’s money. Making intelligent use of so much invisible wealth during the Cold War, its original strategic purpose, was not so easy. In Japan and elsewhere, because of their extreme secrecy, these enormous political action funds soon got into corrupt hands, where they remain to this day. Along the way, it was necessary to do a lot of lying, and even some killing. Especially lying about Japan, which had stolen most of that gold to start with. To keep people from knowing about the Santa Romana recoveries, and the Black Eagle Trust, Washington had to insist that Japan never stole anything, and was flat broke and bankrupt when the war ended. This was the beginning of many terrible secrets.

CHAPTER EIGHT 

DIRTY TRICKS 

Discovery of the Santa Romana recoveries suggests that anti-communist hysteria may not have been the only motivation behind the murders and collusion of the postwar years. Another factor may have been the great sums of money derived from this black gold, for which there was no need to account. Hard evidence now emerging shows that America set up secret political action funds in Japan that were used to influence the imperial family, the ruling elite, the underworld, and to support a right wing regime and keep it in power. Documents show that these funds, originally under the control of senior U.S. Army officers at MacArthur’s headquarters, were used to bribe witnesses at the Tokyo war crimes trials, and almost certainly were used to pay for the murder of liberal politicians and left-wing organizers. As we documented in The Yamato Dynasty, Japan’s right-wing leaders were fully aware of America’s anticommunist fears and cravings during that period, and responded to them with enthusiasm and cleverness. The democratization of Japan was reversed, its government given back to indicted war criminals – specifically the group surrounding Kishi Nobosuke. His political party, the Liberal Democratic Party or LDP, created and funded by underworld godfather Kodama from treasure he amassed during the war, was vigorously backed by Washington and kept supplied with virtually limitless unvouchered funds. 

Once millions of dollars derived from black gold were in this covert pipeline, hidden by ‘national security’, nobody had to keep track of the way it was spent. Whatever the original strategic purpose of Presidents Roosevelt and Truman, the funds fell into the hands of corrupt people who could use them any way they wished, with little concern about discovery. Raising fears of communism at every turn did keep citizens of both countries from questioning deals that were made by the two governments. Invoking national security did allow officials making these deals to hide the documents, forbidding anyone to look at them until deep into the twenty-first century. Anyone protesting this in America was ridiculed as a Japan Basher, or more recently as a ‘terrorist’. In Japan, anyone who might reveal too much became a victim of ‘assisted suicide’. 

Meanwhile, Japan and the rest of the world were flooded with news stories and other propaganda to create a false impression. Initially through the SCAP-controlled press, and through tame journalists beholden to MacArthur’s backers on Wall Street, Japan was portrayed as a poverty-stricken country unable to pay reparations or compensation to its victims. Had Washington acknowledged the existence of the great mass of treasure it knew Japan had stolen, much of it slumbering in vaults throughout the Home Islands, it would have been obvious that Japan had plenty of money. (Not to mention all the stolen art and cultural treasures that could have been converted into cash, or returned in place of cash.) It now seems inescapable that the 1951 Japan Peace Treaty was falsely contrived to buy Tokyo’s cooperation in the Cold War, by assuring Japan’s elite that they would not be obliged to part with their private hoards of plunder. This was done by adding Article 14 to the Treaty, which says: “It is recognized that Japan should pay reparations to the Allied Powers for the damage and suffering caused by it during the war. Nevertheless it is also recognized that the resources of Japan are not presently sufficient. …[Therefore] the Allied Powers waive all reparations claims of the Allied Powers and their nationals arising out of any actions taken by Japan.” [Our italics.] From this it became dogma that individual victims could not expect compensation for their years of torture and brutalization as POWs or as civilian slave laborers toiling for giant Japanese corporations like Mitsubishi, Mitsui, and Sumitomo. To this day the State Department and the Justice Department, shielding the government and zaibatsu of Japan, still invoke Article 14 of the 1951 Peace Treaty to block any attempt by victims to sue these immensely rich corporations. In fact, as the Santa Romana recoveries demonstrate, the Treaty is invalid because it is based on lies and deceptions. 

Japan is not the only example of how Washington used Axis war loot for political action during the first years of the Cold War. The Italian elections of 1948 are another. 

In postwar Italy, CIA agent James Jesus Angleton recovered Ethiopian treasure plundered by Mussolini’s forces. Instead of returning this loot to the desperately impoverished Ethiopian people, it was appropriated by the CIA and used to finance pro-American and anti-communist candidates in Italy’s 1948 elections. In addition, the Agency raised a great deal of money in Europe from the sale of surplus U.S. war materiel, and gave this money to the Vatican, earmarked explicitly for the war on communism in Italy. The Agency then arranged for the Pope to provide 100-million lira from this personal account to back the anti-communist ticket during the elections. This comes as no surprise because it is now known that the Vatican bank sheltered Hirohito’s assets and Nazi assets during the war. It also is one of the 42 countries to which Ray Cline said the recovered Golden Lily bullion was shipped during 1945-1947. And it is one of the banks named as having accounts in Santy’s various names. 

By the 1960s, Angleton was back in Washington running the counterintelligence staff of the CIA, often wryly referred to as The Gestapo, which had its own “very secret slush fund …that was never audited”. The CIA’s ‘historical intelligence budget information’ (how it actually spent covert funds) remains one of its biggest secrets to this day, apparently on the premise that it can never reveal who was bribed, coerced, or paid off, no matter how many decades pass, or what misjudgments, folly, and corruption, were involved. We may well wonder whether this really is intended to protect the recipients, or the American officials who fiddled the funds. 

Covert actions like manipulating the Italian elections of 1948 were the dark side of the so-called Truman Doctrine, the backbone of every U.S. administration’s foreign policy since 1948, when President Truman declared America’s commitment to global hegemony, and made it clear that the Cold War would set the tone of future U.S. foreign and military policy. 

Similar U.S. covert intervention occurred in Greece, when Britain gave notice that her empty treasury compelled her to end all financial and military aid to the eastern end of the Mediterranean, quitting her role in Greece and Turkey. Fearing the spread of communism, London appealed to Washington to step into the vacuum. Greece was in the throes of civil war, and Turkey might be next to fall, in what Secretary of State Dean Acheson called the ‘rotten apple in the barrel syndrome’ (later the ‘domino theory’). Truman called a joint session of Congress and asked for $400-million in aid for Greece and Turkey. “At the present moment…” he said, “nearly every nation must choose between alternative ways of life. …One way of life is based upon the will of the majority, and is distinguished by free institutions, representative government, free elections, guarantees of individual liberty, freedom of speech and religion, and freedom from political oppression. The second way of life is based upon the will of a minority forcibly imposed upon the majority. It relies upon terror and oppression, a controlled press and radio, fixed elections, and the suppression of personal freedoms.” [ So now ask yourself in 2022, which type of government has DC become? dc]

Secretly, Truman simultaneously authorized the use of Axis war loot and other unvouchered funds to do precisely that – to interfere in the political life of sovereign nations, to buy elections, to undercut the rule of law, to control the media, to carry out assassinations, and to impose America’s will on countries with whom it was not at war.[ have you figured it out yet America with whom they are currently at war with? dc] 

The man put in charge of these dirty tricks was Frank Wisner. He had an especially free hand in Asia. CIA director Allen Dulles knew little about Asia, so he gave that part of the world entirely to Wisner’s Office of Policy Coordination, which included a group of maverick OSS ‘China Cowboys’. Driven from China by the communist victory in 1949, the Cowboys regrouped in Japan, or Korea, or fled to Taiwan with Generalissimo Chiang. 

Wisner was a pivotal figure in giving postwar U.S. covert operations the especially dirty qualities that have since come to haunt many Americans. He had spent the war with the OSS in Cairo, Istanbul and Bucharest where he was less interested in fighting the Nazis than in fighting the Soviets. Stationed in Germany after the war, Wisner came up with the idea of America hiring ex-Nazis to create an anti-Soviet fifth column. His powerful friends the Dulles brothers, George Kennan, Averell Harriman, Joe and Stewart Alsop, were so excited by Wisner’s eccentric ideas for subversion, sabotage, and assassinations, they got him the job of running dirty tricks at the CIA. There Wisner hired all manner of unsavory characters who claimed to be anti-communist, which in those days was synonymous with pro-American. If they were far enough to the right, both Nazi and Japanese war criminals qualified for financial support. According to Evan Thomas, Wisner funded his covert teams in Europe by siphoning off funds from the Marshall Plan. He gave this ‘candy’ to his agents. “We couldn’t spend it all,” said one. “There were no limits and nobody had to account for it.” 

By 1952, after only four years in the job, Wisner had set up fortyseven overseas stations, was running a staff of nearly three thousand, plus another three thousand contract personnel, with an official annual budget of $84-million. How big his unofficial budget was, we can only guess, because this was a secret empire of dirty tricks. Wisner recruited another old OSS hand to help him, Desmond Fitzgerald, who knew more than Wisner about Asia. One of their favorite agents was Lansdale, who was sent to Japan, Korea, Taiwan, Indochina, Thailand, and Indonesia with his team of Filipino killers headed by Napoleon Valeriano, to carry out gangland-style assassinations. Despite the resources available to Wisner and Fitzgerald, these covert operations were not a success. Never acknowledging his chronic failures, Lansdale was forced to retire from the CIA in 1963, at the same time that Wisner, the Agency’s Mad Hatter, suffered what was called ‘a nervous breakdown’ and was hastily retired. Sources in the CIA said: “Wisner was showing increasing signs of insanity over previous months, and suddenly went nuts.” New CIA directors and deputy directors came and went, as America became mired deeper and deeper in the muck of black operations. 

Like Angleton’s meddling in Italy, the political action funds set up by SCAP and the CIA in postwar Japan were based on stolen gold and other treasure. Some was treasure recovered by Santa Romana. The rest was loot discovered and confiscated by the U.S. 8th Army in Japan, which was kept as bullion or – in the case of diamonds – converted into liquid assets. According to Takahashi Toshio, a postwar student leader at Tokyo University law school with close ties to the CIA, General MacArthur was the key figure in setting up the M-Fund: “MacArthur realized, as General Marshall did in Europe, that a substantial sum of money would be needed to restore the economy of Japan. But whereas General Marshall had to go to Congress to get the money, General MacArthur found that the Imperial Army of Japan had very large resources that were not on the books of the country. They had occupied Korea for nearly half a century. They had occupied a large area of China for many years, Southeast Asia, the Philippines, and those areas produced very large resources, which the Army brought back to Japan. MacArthur set aside a substantial fund to be used for rebuilding the economy of Japan… But MacArthur also saw that some money would be needed for purposes that would not stand public scrutiny very well, for example, helping politicians… MacArthur decided that they would keep this fund confidential so that they could use it, in part, to help the democratic process get going in Japan after the war, and that involved making contributions to political parties and to individual politicians.” 

According to investigative journalist Takano Hajime, whose study of the M-Fund was published by Nikei, Japan’s most respected financial journal, much of the cash derived from sale of confiscated stockpiles of diamonds, platinum, gold and silver, other strategic materials, and the blackmarket sale in Japan of U.S. foreign aid. Other sources were proceeds from the sale of several minor zaibatsu conglomerates that were broken up and sold to other entities, to set an example that was, in fact, the exception to the rule. The size of the M-Fund at its inception is not known precisely but some sources put it at $2-billion. It then grew quickly. 

Long time Tokyo correspondent Robert Whiting described “a secret billion-dollar slush fund… equivalent to nearly 10 percent of Japan’s 1950 GNP”. Whiting told us, “The Japanese government also sold [on the blackmarket] great stockpiles of gold, silver and copper …which they had concealed in early 1945 in anticipation of Japan’s defeat.” 

Most of Japan’s military supplies, stockpiled for the final bloodbath defense of the Home Islands, vanished. Articles about the M-Fund published in the reputable Japanese weekly magazine Shukan Bunshun in 1979, said a lot of the money raised by the covert sale of these materials went to high government officials and politicians. The magazine said 800,000 karats of diamonds stored in the Bank of Japan inexplicably shrank to only 160,000 karats. “Even after the occupation ended, there was movement by the American side to deposit black money behind the scenes… [which was] used for political conspiracy.” 

Another source of underground funds was Kodama, who was reported to have amassed some $13- billion in war loot for his personal use. This included two truckloads of diamonds, gold bars, platinum ingots, radium, copper, and other vital materials. In order to curry favor with MacArthur’s men, Skukan Bunshun said Kodama turned the radium over to SCAP. In Tokyo Journal, John Carroll states that at war’s end “Kodama had a good portion of [his] valuables transported to the vault of the Imperial Family in the Imperial Palace.” Despite his lifelong involvement in murder, kidnapping, drugs and extortion, Kodama is said to have been regarded by Emperor Hirohito as a true patriot, possibly because of the great sums he generated for Golden Lily. This may explain why Japan’s top gangster was permitted to hide some of his loot in palace vaults. But it goes deeper to include narcotics. 

In the spring of 1945, Kodama made a quick trip to Taiwan to see that its many heroin factories were dismantled for return to Japan, along with remaining stocks of heroin and morphine. On his return, Kodama was assigned to be a special advisor to the emperor’s uncle, Prince Higashikuni, who served as Japan’s prime minister briefly at the start of the U.S. occupation. According to Kodama’s own memoir, immediately after the surrender, Higashikuni had “two or three of us councilors arrange a meeting and secretly, unknown to his cabinet ministers, [Higashikuni] visited General MacArthur in Yokohama”. Kodama provides no details of what transpired at this meeting, or whether he accompanied the prince. 

Kodama then spent two years in Sugamo Prison as an indicted war criminal, but was magically released in mid-1948 when he made a deal with General Willoughby to give the CIA $100-million (equal to $1-billion in today’s values). This payment bought Kodama his freedom from prison and from any prosecution for war crimes. The money was placed in one of the secret slush funds controlled by the CIA station at the U.S. Embassy. Subsequently, Kodama was put directly on the CIA payroll, where he remained for many years, until his death in 1984. Tad Szulc of The New York Times wrote, “Kodama had a working relationship with the CIA.” Chalmers Johnson said Kodama was “probably the CIA’s chief asset in Japan”. 

While literally an employee of the U.S. Government, Kodama continued to oversee Japan’s postwar drug trade. Heroin labs were moved back not only from Taiwan, but from North China, Manchuria and Korea. Chinese who had collaborated with Japan in drug processing and distribution, were given sanctuary and began operating from Japanese soil. Two of the three major players in Asian narcotics soon died: Nationalist China’s General Tai Li was assassinated in a 1946 plane crash; Shanghai godfather Tu Yueh-sheng died in Hong Kong of natural causes in 1951. Kodama was left as Asia’s top druglord, while on the U.S. payroll. This could have been embarrassing, for Japan’s dominant role in narcotics was widely known and undisputed, but a Cold War hush descended over it like an Arctic whiteout. During the occupation, U.S. propaganda characterized Asia’s drug trade as exclusively the enterprise of leftists and communist agents. In truth it was dominated by Kodama in Japan, and by Generalissimo Chiang through the KMT opium armies based in the Golden Triangle, who were under the direct control of the generalissimo’s son, Chiang Ching-kuo, the KMT chief of military intelligence at that time. (The two top KMT opium warlords in the Golden Triangle, General Tuan and General Li, spoke to us openly of this.) 

As for Japan, Professor H. Richard Firman, writing in The Pacific Review in 1993, said: “Occupation forces, as well as Japanese criminal organizations …seized stockpiles of …drugs produced during the war by the Japanese government. …[These] soon found their way onto the black market either through direct diversion by American servicemen or through indirect diversion by the Chinese, Taiwanese, and Korean middlemen contracted by SCAP officials to disperse drugs along with other medical supplies to the Japanese population. …Drawing on linkages with the leadership of Korean yakuza based in Japan, the Yamaguchi-gumi and Inagawa-kai [yakuza] developed a transnational, vertically integrated network of production and distribution between South Korea and Japan… tapping old organized crime networks with Taiwan, Korea, China.” 

In this context of intense corruption and artful misrepresentation, it was inevitable that the political action funds America set up in Japan would be diverted. But the corruption, dishonesty, and moral turpitude cannot be blamed only on the Japanese. Americans were involved in diverting the funds, benefited from their abuse, and may still be benefiting today in a multitude of ways. 

Three underground funds were controlled by American officials during the occupation — the MFund, the Yotsuya Fund and the Keenan Fund. According to Takano Hajime, the M-Fund was named after General William Frederic Marquat, chief of SCAP’s Economic and Scientific Section. In theory, Marquat headed America’s program to punish and reform Japanese businesses that had gorged on war profiteering. In reality, Marquat’s biggest public relations headache was how to help them conceal these obscene profits, which by custom were shared with the imperial family. Historian John Dower explains that Marquat “assumed responsibility for nothing less than supervising all developments in finance, economics, labor, and science, including the dissolution of zaibatsu holding companies and the promotion of economic deconcentration. Every major government financial and economic institution reported to his section, including the Ministry of Finance, the Ministry of Commerce and Industry, and the Bank of Japan”. 

Little has been written about Marquat, who usually is portrayed as an amiable nincompoop, unfit for the job. This hardly comes as a surprise. Like Willoughby and Whitney, Marquat was one of MacArthur’s inner-circle ‘The Bataan Boys’, whose chief quality was undying loyalty. John Gunther said Marquat “pays little attention to the jargon of his present field; once he …turned to his first assistant during a heavy conference on economic affairs, saying ‘What is marginal economy, anyway?’” 

Marquat was supposed to dissolve the banks and conglomerates that financed Japan’s war and profited from it. Despite purely cosmetic changes and the break-up and sale of several small conglomerates, the biggest war profiteers were let off without even a slap on the wrist. General Marquat was also in charge of closing down and punishing Japan’s biological and chemical warfare service, Unit 731. Instead, the U.S. Government secretly absorbed Unit 731, moving most of its scientists, personnel, and documents to U.S. military research centers like Fort Dietrich in the Maryland countryside. All information about its activities, including biological warfare atrocities, and horrific experiments on fully conscious victims, was withheld by Washington from the American and Japanese public, and from the Tokyo War Crimes Tribunals. All Unit 731’s records held by the U.S. Government are still top secret. 

So while he was supposed to be making Japan more democratic, Marquat was doing the opposite. The M-Fund was created to buy elections for Japanese politicians so far to the right that they were solidly anti-communist. Japan was the most highly industrialized country in Asia; Washington wanted it to be a capitalist bastion against communism, for its economy to thrive so there would be no need for labor unions, leftist organizers, or revolution. This was the view of American conservatives who thought President Roosevelt was a communist, and believed that Britain should have allied itself with Germany and Japan, and gone to war against the USSR. As a consequence of this thinking, plans to reform Japan were truncated or aborted. (One major exception was land reform, successfully completed before it could be halted.) 

The first big application of the M-Fund was in the late 1940s when a Socialist government happened to win election in Japan – a development that astonished, panicked, and galvanized SCAP. Immediately, great sums were distributed by SCAP to discredit the Socialist cabinet, and to replace it with a regime more to Washington’s liking. Later, when Tokyo considered establishing relations with the People’s Republic of China, sums again were disbursed to get Japan back on the right track. When Yoshida Shigeru became prime minister, Washington relaxed because Yoshida was trusted, conservative, and personally very rich. During his period as prime minister, the M-Fund was called the Yoshida Fund. After he ceased to be prime minister, the name reverted to M-Fund. (In a conversation in 1987, White House national security advisor Richard Allen said: “All my life I’ve heard of a thing called the Yoshida Fund – I think that’s the same thing as the M-Fund.”) 

Very different from the M-Fund was the Yotsuya Fund. This was set up to manipulate and steer Japan’s underworld, and to finance ‘wet work’ – extortion, kidnapping, and murder. General Willoughby, MacArthur’s ‘lovable fascist’ and head of G-2 at SCAP, controlled the Yotsuya Fund and worked energetically with Kodama and his legions of yakuza to suppress any kind of leftist activity or public protest during the occupation. Because democracy tolerated dissent, the concept of democracy had long been regarded by Japan’s ruling elite as ‘a poisonous idea from the West’. In Japan, even the mildest kind of dissent was not tolerated. During the McCarthy era in America, the suppression of dissent became synonymous with anti-communism. But the witch hunt in Japan during that epoch was far more severe, and bloody.

Despite being head of G-2, at this late stage in his career Willoughby was involved in dirty tricks rather than intelligence-gathering or counter-espionage. 

Among other things, his Yotsuya Fund financed a Korean Liaison Office that sent spies into North Korea, Red China and the far eastern USSR. 

Yotsuya, the district for which Willoughby named his underground fund, was a seedy Tokyo tenderloin populated in the postwar years by gangsters, prostitutes, and bottom-feeders, a hub for the blackmarket, awake all night with illegal gambling casinos and attached brothels. (Today Yotsuya has changed, and is famous for bars frequented by university students and company executives.) Kickbacks from postwar dives like the Mandarin Club, a casino and brothel in Yotsuya run by American Ted Lewin, a pal of Kodama, funded the Cannon Agency, Willoughby’s dirtiest and wettest operation in Japan. Named for U.S. Army Colonel J. Y. Cannon, this was a military version of Murder Incorporated, a death squad. 

Jack Cannon arranged the beating and killings of student leaders, liberals, leftists, socialists, labor union organizers, scholars, journalists, and anyone else who got in the way. Cannon worked closely with Machii Hisayuki, Kodama’s Korean lieutenant who headed the ethnic Korean Tosei-kai gang of yakuza. Jack Cannon initially worked for the U.S. Army’s Counter-Intelligence Corps, or CIC. His job was to ferret out and to murder dissidents. A Nisei interpreter employed by Willoughby’s ATIS, who once had helped Cannon blow open a safe, recalled that the colonel always behaved like ‘a movie style gangster’. Once the Cannon Agency was set up, Jack Cannon became something that would have chilled the blood of most Americans. He is thought to have been behind the kidnapping of a prominent left-wing writer, Kaji Wataru. Also attributed to him was the torture, dismemberment, and murder of Shimoyama, the president of Japan’s national railroads whose body was found scattered along the railway tracks. Whenever he needed a hand, Cannon called on Machii’s Korean yakuza. He also was suspected of arranging plane crashes that took the lives of British and American diplomats and military officers who were investigating the links between Willoughby and indicted war criminals like Kodama and Colonel Tsuji Masanobu. 

When the job was so wet and dirty that it had to be completely divorced from Washington, Willoughby bypassed Cannon and brought in a murder squad called KATOH, the acronym of five Japanese Army officers who did surgical assassinations for money. 

To be sure, what makes this even more disturbing is that Willoughby was judged by U. S. Army contemporaries to be incompetent, paranoid, and congenitally driven to cover up his misjudgments. As most documents relating to Willoughby’s activities still are kept hidden by the U.S. Government half a century later, we may reasonably suppose that there is yet more disturbing information on his messianic activities. 

The Keenan Fund, by contrast, was controlled by a civilian: Joseph B. Keenan, another MacArthur intimate who was chief prosecutor in the Tokyo war crimes trials. Previously, Keenan had been chief of the U.S. Justice Department’s criminal division, where he acquired a reputation for ‘gang-busting’ and heavy boozing. His appointment as chief war crimes prosecutor in Tokyo was criticized because he was not considered a good enough lawyer, knew nothing of Asia, and was a shameless headline seeker. Many thought Keenan got the job because President Truman disliked him and wanted him out of Washington. 

In Japan, Keenan’s personal assistant was none less than General Tanaka Takayoshi, the bull-like tairiki ronin who was General Doihara’s alter-ego in Manchuria, the cold-blooded manipulator of Pu Yi’s young Empress Elizabeth. Tanaka spent the late 1930s and early 1940s in Shanghai with Doihara, running covert operations. Like Doihara, he personally carried out many individual murders. The idea that he was suited to babysit America’s chief war crimes prosecutor in postwar Tokyo is black humor at its best. 

It was common gossip among journalists in Tokyo (as it had been in Washington) that Keenan had a severe drinking problem, and ‘liked the ladies’ excessively. General Tanaka took charge of Keenan’s date book, accompanied him to inns and brothels to carry out these assignations and, when Keenan passed out, got him safely home. 

Unlike the broad mandates of the M-Fund and the Yotsuya Fund, the Keenan Fund had a narrow and specific function. Simply put, it was used to bribe witnesses at the war crimes trials, or to grease the intermediaries who persuaded the witnesses to falsify their testimony. Unlike the swift punishment meted out to Generals Yamashita and Homma in Manila, the War Crimes Tribunal in Tokyo dragged on for three years, while a lot of horse-trading took place. The Tribunal had been established to try General Tojo and other senior military and civilian leaders for complicity in Japan’s cruel aggression. Although the Tribunal was labeled an international commission, the whole operation was carried out exclusively by MacArthur’s inner circle. In the charter establishing the Tribunal, MacArthur invested himself with broad powers, and the Tribunal was kept under his sole and exclusive authority. As a final touch, the charter (written by MacArthur and Keenan) stated, “the Tribunal shall not be bound by technical rules of evidence”. 

Accordingly, MacArthur’s men were able to control access to the defendants, to suborn whoever they wished, and to arrange omissions of evidence. Money changed hands secretly to assure scapegoats that their families would be cared for. As we documented in The Yamato Dynasty, the private papers of MacArthur’s military secretary Brigadier General Bonner Fellers reveal that he personally suborned witnesses, got them to falsify their testimony, and made sure that Emperor Hirohito was not brought to trial. On January 25, 1946, MacArthur sent a secret telegram to Army Chief of Staff Dwight Eisenhower saying the ‘investigations’ conducted by SCAP could not support any criminal charges against Hirohito: “No specific and tangible evidence has been uncovered with regard to [the emperor’s] exact activities which might connect him in varying degree with the political decisions of the Japanese Empire during the last decade…” Documents we found in the MacArthur Memorial in Norfolk, Virginia, show that MacArthur and Bonner Fellers conspired with former president Herbert Hoover to guarantee that Hirohito would escape punishment of any kind, and that General Tojo would falsify his testimony to take all responsibility for the attack on Pearl Harbor. Intermediaries, including Admiral Yonai, were paid large sums from the Keenan Fund to negotiate with Tojo and guarantee his perjury. In his papers, General Fellers proudly describes his meetings with Yonai to set up the false testimony. (During the war, incidentally, Admiral Yonai was the immediate superior of Rear Admiral Kodama.) 

A number of key witnesses who resisted subornation died violently, or under suspicious circumstances. Fellers and MacArthur intensely disliked Hirohito’s close advisor and one-time prime minister, Prince Konoe, one of the few statesmen who had tried to talk Hirohito into seeking an early peace. Fellers denounced the prince as “a rat who’s quite prepared to sell anyone to save himself [and who had even called] his master the emperor ‘the major war criminal’”. Konoe was blackballed by MacArthur’s men and hounded to despair by a campaign of backbiting, disinformation, and innuendo. For example, he was falsely informed that his name had been added to the list of war criminals, and that he faced imminent arrest, imprisonment, and hanging. On December 16, 1945, Prince Konoe was found dead in his home under suspicious circumstances. Most sources say he would not submit to the indignity of trial, and the official ruling was suicide, but it appears to have been one of the first postwar episodes of ‘assisted suicide’. Scholars Meirion and Susie Harries, among others, believe that Prince Konoe was murdered because he represented a danger to the plans of MacArthur to exonerate Hirohito. Other crucial witnesses who died conveniently before the trials began were two of Prince Asaka’s staff who had firsthand knowledge of Asaka’s instructions for the Rape of Nanking. At the end of 1945, both these aides suddenly developed ‘heart trouble’ and died. 

Bribes from the Keenan Fund also were used to prevent testimony about Japan’s biological and chemical warfare program, and the vast scale of looting carried out by the imperial family’s Golden Lily operation. We now know that the U.S. Government and other Allied governments browbeat POWs when they were liberated from Japanese slave labor camps. They were bullied into signing secrecy oaths before they were allowed to go home, forced to swear that they would not reveal anything they knew about war looting or about the chemical and biological weapons testing of Unit 731. Even men who had been victims of Japanese medical experiments were forced to take this oath. At the time, they were told it was their patriotic duty to remain silent. Today they are realizing that they were victimized by their own governments, which were less interested in justice than in staying in power, and preparing for the coming Cold War. 

Willoughby also took on the job of falsifying the Japanese military history of the Pacific War, so that it would conform to the needs of America’s Cold Warriors. On the Japanese side, Willoughby’s ‘historians’ included those most notorious war criminals, Kodama and Tsuji (who masterminded the Sook Ching massacres in Singapore and Malaya). The historical monographs they prepared were first composed in Japanese, then translated with the help of Nisei in Willoughby’s ATIS. The monographs were then laundered of anything remotely sensitive. Once sanitized, they were published by the U.S. Government, collectively titled The Japanese Monographs and Japanese Studies in World War Two. Not surprisingly, the series contains big gaps. As the official introduction states: “The paucity of original orders, plans and unit journals … rendered the task of compilation most difficult… However, while many of the important orders, plans and estimates have been reconstructed from memory… they are believed to be generally accurate and reliable.” According to Louis Morton, author of the official military history of the Philippines campaign, the reports prepared by Willoughby’s office “constitute the most important single Japanese source on Japanese operations in the Pacific and Asia during World War II”. 

Willoughby persuaded Kodama to write a memoir guaranteed to please his new American clients. Disingenuously titled I Was Defeated in its English translation, it was published in 1951 by a CIA proprietary called Asian Publications. Listed as publishers were Harvey Fukuda, who did the editing, and Robert Booth, who did the bookkeeping. In 1952, the same publishers gave birth to the English-language translation of a memoir by Colonel Tsuji – a man who, readers will recall, also had been charged by British investigators with cannibalism. Tsuji’s Underground Escape presented a falsified story in which he claimed he spent years after the war hiding from the Allies in Thailand and China, when in fact he was, like Kodama, an employee of General Willoughby and the CIA in Tokyo. 

The purpose of these memoirs was to shift war blame away from certain politicians, so they could be groomed for political careers in postwar Japan. Kodama’s memoir put blame for the war exclusively upon senior officers of Japan’s army and navy, most of them dead, who he portrayed as fanatical war crazed monsters. Everyone else was a helpless pawn. 

Generously, Kodama provided funds from his own deep pockets to launch two postwar political parties headed by fanatical rightists, which eventually merged into the Liberal Democratic Party. The political views expressed in his memoir were designed for American audiences. “I feel supreme anxiety over the fact that the conservative forces in Japan – the strongest anti-Communist influence in the country – have been so thoroughly purged of so-called wartime collaborators. This was just what the Communist Party had hoped for. … The main purport of the purge directive of the Occupation forces should have been the elimination of those who positively collaborated in the prosecution of the war of aggression.” Kodama did not consider himself part of that group. 

According to Kodama, in Japan only leftists engaged in bribery. At that moment, Socialist Party leaders were demanding a Diet investigation of widespread payoffs. Huffily, Kodama remarked that the Socialist Party was rudely “peeking into an occupied bathroom through a key-hole”. It was wrong, he said, for the Socialist Party to “brazenly engage in underhand tactics to retain power”. 

For three decades, Kodama worked closely with Harvey Fukuda, the Nisei interpreter from ATIS who doubled as the publisher of Kodama and Tsuji. Born in Salt Lake City, Harvey Fukuda spent the war broadcasting anti-Japanese radio propaganda. In postwar Tokyo he was chosen by Willoughby to be Kodama’s full-time amanuensis, English-language secretary and public relations man. Their collaboration was so successful that Fukuda was rewarded with his own CIA proprietary, a public relations company called Japan-PR, with Fukuda as the proprietor, and Kodama as the source of supplemental funds. Because Kodama spoke no English, Fukuda was his personal interpreter in all dealings with Americans. When America ran short of tungsten, Kodama offered to sell some of the tungsten he had looted from China – a deal Harvey Fukuda discreetly negotiated with U.S. diplomat Eugene Dooman. In the late 1950s, it was Harvey Fukuda who set up the original meeting between Kodama and Lockheed Aircraft executives, where Kodama agreed to funnel bribes to induce Japanese government officials to buy Lockheed airplanes. This climaxed in a major scandal in the mid-1970s when Kodama’s role as bagman was revealed, and U.S. officials and business executives were charged with corruption. 

Why was Japan’s most powerful crime lord kept on the federal payroll by Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter and Reagan, a payroll also reviewed by George H.W. Bush while serving as director of the CIA? The short answer is that Kodama also was Japan’s most ardent anti-communist. And like an acupuncturist he knew all the points where pins of different types could be inserted, and pressure applied. His intimate knowledge of the Asian underworld made him an effective fixer at a time when Washington was alarmed by the perceived threat of the Soviet Union and Red China. 

In August 1949, Moscow tested its own first atomic bomb. In October 1949, the People’s Republic of China came into being. Eight months later in June 1950, the Korean War broke out. Just before that war began, Kodama accompanied John Foster Dulles to negotiations in Seoul. The Dulles party also included Kodama’s protégé, Machii Hisayuki, boss of the Korean yakuza in Japan. Efforts to discover under Freedom of Information what Kodama and Machii did during this trip with Dulles have run into a stone wall. In the MacArthur Memorial archive we discovered a personal letter from Kodama to General MacArthur offering to provide thousands of yakuza and former Japanese Army soldiers to fight alongside American soldiers in Korea. According to sources in Korea and Japan, the offer was accepted and these men joined the Allied force on the peninsula, posing as Korean soldiers. 

It was in this highly polarized atmosphere that peace treaty negotiations with Japan proceeded in absolute secrecy, and a severely abbreviated treaty was signed in San Francisco in April 1951. While this treaty was midwifed by Secretary of State Dean Acheson, the terms were worked out in secret by special Republican Party negotiator John Foster Dulles in private talks with three Japanese including Miyazawa Kiichi, a ranking member of the Ministry of Finance and special aid to Prime Minister Yoshida Shigeru. Kodama also held private talks with Dulles to discuss the terms. Many countries were making demands for reparations, but Acheson said he made it clear to other signatories that Japan “could not pay monetary reparations”. Although it pretends to be a treaty achieved jointly by the Allies, it was negotiated, written and executed exclusively by Dulles, based on agreements that remain secret to this day. 

Years later, Acheson admitted in his memoir that “To accomplish the treaty negotiations… required … a determination amounting at times to ruthlessness,” which clearly included lying. Acheson’s assertion that Japan was bankrupt and unable to pay reparations, we now know, was totally false. 

Despite propaganda to the contrary, Americans and Europeans who toured Japan immediately after the surrender were surprised that infrastructure, factories, utilities, and railways were largely intact, thanks to selective American bombing. Firebombing had destroyed tens of thousands of the tinderbox homes of ordinary Japanese, giving Tokyo the look of a devastated city, but most great estates, factories, and vital infrastructure seemed magically to have been spared. John Dower notes: “Vast areas of poor people’s residences, small shops and factories in the capital were gutted…but a good number of the homes of the wealthy in fashionable neighborhoods survived…Tokyo’s financial district [was] largely undamaged. Undamaged also was the building that housed much of the imperial military bureaucracy at war’s end… Railways still functioned more or less effectively throughout the country …U.S. bombing policy …had tended to reaffirm existing hierarchies of fortune.” 

This information was not made public. SCAP censors made sure that newspapers and newsreels showed only a flattened, desiccated landscape. 

Huge sums changed hands quickly just before the surrender. In the first two weeks following, before the Allies set foot in Japan, the government in Tokyo gushed money in all directions. Records discovered by Japanese journalists in the 1970s revealed that their government gave nearly 300-billion yen in war contracts, and stockpiled materials to the zaibatsu so these conglomerates realized 30 per cent of their entire war profits in the first four months after the surrender. All outstanding military contracts were paid. New contracts of all sorts were signed and paid in advance, many of them never to be carried out. For example, Tanaka Kakuei (later prime minister) was given a multi-million-dollar contract to move piston ring factories to Korea, and was paid in full, knowing the work would never be done. Still a small-fry at the time, Tanaka was allowed to participate in a feeding frenzy in which the government threw money at well-placed individuals to get it out of the banks and into hiding. Tanaka was paid in scrip, but he was told to fly immediately to Korea where a Japanese bank would swap the scrip for gold bullion; he did this, and brought the bullion back to Japan aboard a navy vessel. 

Once the Allies arrived, and it became evident that they were not really interested in what was going on under their noses, the gusher of government money continued. Dower says this represented something in the neighborhood of 300-million tons of goods – diamonds, gold, steel, rubber, chemicals, oil, salt, drugs and titanium, with a value of $20-billion 1945 U.S. dollars, or $200-billion in present values. The Allies themselves turned over ¥100-billion in stockpiles to the Japanese government: clothing, food and medicine for distribution to the civilian population. Instead these goods vanished into the blackmarket, where gangsters made fortunes. Stocks of opium, heroin and morphine were among the ‘medicines’ that disappeared. 

Dower notes that at war’s end there was another ¥264-billion in private bank accounts, much of which was hastily turned into goods through trade in the black-market. These figures do not include Golden Lily loot or profits derived from heroin trafficking, which had been $3-billion a year (in today’s dollar values). Dower adds, “in the immediate wake of defeat, a great many individuals at the highest levels displayed no concern at all for the good of society. They concentrated instead on enriching themselves by the wholesale plunder of military stockpiles and public resources.” During the occupation, many ordinary Japanese worked two jobs to earn enough to buy one potato each day. During the same period, Hirohito was earning $50-million a year in interest merely on his Swiss bank accounts. 

Washington told the world again and again that Japan was bankrupt and her industries destroyed, so Tokyo absolutely could not pay compensation to war victims. The Cold Warriors had worked themselves into such a passion that they were prepared to abandon any sense of obligation to those who had died during the Pacific War, whether civilian victims, or military casualties, and those who were brutalized and enslaved, but somehow survived. The most enthusiastic users of wartime slave labor were Japan’s zaibatsu, especially Mitsui, Mitsubishi and Sumitomo. More than 100,000 Allied prisoners and internees became slave laborers in wretched conditions at their mines, steel plants, construction sites, and factories, in Japan and elsewhere. Many died, others were crippled, few ever were paid any compensation. Despite what Japanese firms say today about having no connection to the wartime zaibatsu, there was no complete break after the war. Most of the capital amassed by the zaibatsu during Japan’s colonial expansion from 1895 to 1945 survived the American occupation intact. As Dower remarks, “the wartime elites followed the lead of their sovereign and devoted themselves to obscuring their wartime deeds.” 

Strangely, nowhere in the official record of the U.S. occupation so far declassified is there any tally of Japan’s national gold reserves, plundered art and cultural objects, looted religious artifacts, personal jewelry and heirlooms, no tally of what was stolen from safe deposit boxes in twelve countries, or from family burial vaults and imperial tombs. If all this hidden information were to be made public, it would make a public mockery of the 1951 Peace Treaty and of the secret negotiations conducted by John Foster Dulles. 

During those negotiations, Dulles brazenly manipulated the Allies. In Britain’s first draft proposal, Clause 39 read “Japan shall pay reparation in the amount of £60-million in monetary gold over a period of three years.” (This is gold kept in central banks for use by national governments to protect their currency, or to buy foreign goods.) Clause 53 of Britain’s draft, proposed that “Japan shall restore to Governments of the United Nations concerned all monetary gold looted or wrongfully removed.” This sum was not specified in the text, but the statement does affirm that Japan did loot large quantities of gold, and not just from Britain’s Far Eastern possessions. Neither clause 39 nor clause 53 mentioned anything about “non-monetary gold” – privately held gold stolen from museums, religious orders and private citizens of those countries, including jewelry, biscuit ingots, art and religious objects. 

The British Treasury was far from happy with Washington’s assertion that Japan’s cupboard was bare. It took the following position regarding gold: “We regard the payment of Japan’s ‘gold pot’ reparation as one of the points on which it is essential for us to be firm.” 

The following month, April 1951, however, after Dulles had a chance to react, the British Foreign Office asked for “authority to modify our attitude so that we can agree with the U.S. that the gold can remain in Japan. It is now quite clear that even if we could get the gold away from the Japanese (and agreement on this is by no means certain) there is for practical purposes no possibility of our obtaining a share of it.” Britain’s firm position was caving in, under American pressure. The official British record goes on to say that the view of the United States and SCAP was that the “gold should be left in Japan as an addition to foreign exchange resources in order to assist her general economic stabilization”. 

In the end, Britain capitulated: “We have agreed that gold should not be mentioned in the Treaty.” Other allies followed suit. 

Was Britain deceived about the true circumstance of Japan’s postwar economy? Not likely. Britain was far from ignorant of the looting that had taken place, nor was it ignorant of what was done with the treasure. We know from high-level CIA sources that Britain’s biggest financiers participated in setting up the Black Eagle Trust. Numerous documents in our CD archive accompanying this book show that large quantities of gold bullion recovered by Santa Romana ended up in the big gold trading houses of the City of London, and in the British Treasury. Bank documents and insurance cover documents from the gold movements carried out by Lansdale and Santa Romana also show bulk quantities of gold placed in accounts at various British commercial banks. Therefore, Britain did benefit in a multitude of ways from the Black Eagle Trust. 

In its final form, the 1951 Peace Treaty tried to prohibit any future efforts by private individuals to claim reparations. It bears repeating that Article 14 reads: “It is recognized that Japan should pay reparations to the Allied Powers for the damage and suffering caused by it during the war. Nevertheless it is also recognized that the resources of Japan are not presently sufficient.” (Our italics.) 

The Treaty did provide limited recourse for a tiny group of businessmen and diplomats such as U.S. Ambassador Joseph Grew. They could recover personal possessions and property forfeited when they were trapped in Japan after Pearl Harbor. If applicants failed to qualify within a tight deadline, Japan got to keep the property. Few people were informed of this clause, so many unclaimed properties remained in the hands of the Japanese government and were later sold for tremendous profits, and used by corrupt politicians to prop up Japan’s LDP. 

The Treaty stated that “Except as otherwise provided in the present Treaty, the Allied Powers waive all reparations claims of the Allied Powers, other claims of the Allied Powers and their nationals arising out of any actions taken by Japan and its nationals in the course of the prosecution of the war, and claims of the Allied Powers for direct military costs of occupation.” 

According to the British Foreign Office archives: “Canadian authorities had themselves felt that provision should have been made in the Treaty for compensation to civilian internees and indeed raised the question in Washington …but on meeting resistance did not press the point.” In conclusion, the Foreign Office noted: “If Article 16 was widened to include civilians, the amount of claimants would be so far increased (by the inclusion of Asiatic claimants) that the amount available to each would be derisory.” 

So, with the sweep of a pen, the United States unjustly shut the door on the claims of comfort women, Asian slave labor, and Allied prisoners of war. Today there still are some 700,000 people alive who were victimized first by the Japanese and then by the San Francisco Peace Treaty. 

Aside from the fact (often pointed out) that Washington improperly gave away the rights of individual citizens, there is a loophole in the Treaty’s Article 26, which provides that should Japan make better deals with any country in the future, the signatories in the Treaty are entitled to file new claims for similar compensation. Ultimately, Japan did separately make better deals with other countries, including Burma, Holland, and Switzerland. So, by extrapolation, all Japan’s victims are entitled to renegotiate, which should open the door to lawsuits currently being pressed in California. 

While it is plain that the 1951 Peace Treaty is invalid because it is based on lies and deceptions, every American and British government since 1945 has vigorously blocked all efforts to right the wrongs done to Japan’s victims. To this day the State Department, the Justice Department, and the Japanese Foreign Ministry invoke the 1951 Peace Treaty to block any attempt by victims to sue for the compensation so long denied them. 

In the year 2000, when Germany’s government and industry finally approved a $5-billion fund to compensate Nazi slave-labor victims, President Bill Clinton remarked: “It is an important day for those victims of Nazi-era wrongs who have waited 50 years for justice.” A few months earlier, Clinton’s ambassador to Japan, Thomas Foley, flatly rejected the claims of Japan’s victims: “The peace treaty,” Foley said, “put aside all claims against Japan.” A Japanese Foreign Ministry spokesman intoned: “One does wonder why all this is taking place some 50 years after the war. All claims from World War II, including claims by nationals of the United States arising from actions taken by Japan and its nationals, have already been settled.” 

It is interesting that during his time in Japan, Ambassador Foley’s wife was a well-paid consultant to Sumitomo, one of the main targets of slave-labor lawsuits. 

Foley’s denial of victims’ right to sue was reinforced over and over by his Deputy Chief of Mission, Christopher J. Lafleur. And why not? Lafleur was the son-in-law of Miyazawa Kiichi, one of the Japanese who took part in the secret negotiations with John Foster Dulles to work out terms of the Peace Treaty – terms designed to block any form of reparations to Japan’s victims. Since then, Miyazawa has remained a major figure in the LDP, its senior financial brain, closely identified with the M-Fund.

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HEART OF DARKNESS

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