Part 4 : Gold Warriors How America Secretly Recovered Yamashita's Gold ... Heart of Darkness ... The Umbrella

GOLD WARRIORS 

HOW AMERICA SECRETLY 

RECOVERED YAMASHITA’S GOLD 

By Sterling & Peggy Seagrave

Chapter Nine

Heart of Darkness

America lost control of the M-Fund in 1960 when it was given to Japan’s LDP by Vice President Nixon, in exchange for Tokyo’s secret financial support of his bid for the U.S. presidency. For more than forty years since then, the M-Fund has remained the illicit toy of seven LDP politicians who have used it to keep themselves in power. Nixon effectively gave them the ultimate secret weapon, a bottomless black bag.

President Eisenhower was going to Tokyo to conclude revisions to the Mutual Security Treaty, but his trip was canceled after violent protests in Japan. Instead, Prime Minister Kishi Nobosuke flew to Washington, where the Security Treaty negotiations were conducted by the vice president. Nixon was obsessed by his craving to become president, and was willing to turn over control of the M-Fund, and to promise the return of Okinawa, in return for kickbacks to his campaign fund. Kishi, an indicted war criminal, a key figure in the wartime regime and in hard drugs, munitions and slave labor, thereby gained personal control of the M-Fund. According to Takano Hajime and other well-informed sources, Nixon justified the deal with the dubious excuse that Tokyo needed an emergency covert source of money in the event that war broke out in Northeast Asia. In theory, Japan’s postwar constitution prevented it from creating a new army, so Tokyo could not allocate a huge defense budget – at least not publicly. 

Nixon argued that full LDP control of the M-Fund would accomplish the same thing covertly. In 1960, the MFund was said to have an asset base worth ¥12.3-trillion ($35-billion). How much of this Kishi agreed to kick back to Nixon is not known. It is important to note that Nixon did not turn the M-Fund over to the government of Japan, but to Prime Minister Kishi personally, putting the lie to his grandiose justifications. So a few months later, when Kishi ceased to be prime minister, he and his clique continued to control the M-Fund. It goes without saying that they never used it for the designated purpose, instead turning it into a private source of personal enrichment.

That Nixon made such Faustian bargains was widely rumored. Publication of The Arrogance of Power: The Secret World of Richard Nixon, by Anthony Summers, shows that to advance his political career, Nixon even made financial deals with Meyer Lansky and other underworld figures. This is further supported by evidence first presented by Christopher Hitchens in “The Case Against Henry Kissinger” in Harper’s Magazine, arguing that Nixon and Kissinger secretly manipulated American policy for their own personal ends in violation of the U.S. Constitution.

Nixon’s M-Fund giveaway was not the end of the story – far from it. Under LDP control, the M-Fund spawned a number of exotic financial instruments that propagated through global financial markets like Ebola virus. Investors or their attorneys have been snared in amazing international sting operations, charged with negotiating fraudulent instruments, ending in wrongful convictions and prison sentences. It is now painfully obvious that some of these victims were holding authentic paper, and only were stung to shield Japan’s government from its own folly – although more crafty political and financial motives also may be discerned. 

How did Nixon’s dirty deal lead to such a scandalous impasse decades later? To know that, we must see what happened when the M-Fund changed hands.

Until Nixon interfered, the M-Fund was controlled and administered by a small group of Americans in Tokyo close to MacArthur. In 1950, when the Korean War started, most U.S. forces in Japan were rushed to Korea, creating a security vacuum. Because the postwar constitution prohibited setting up a new army, the M-Fund secretly provided over $50-million to create what was characterized as a self-defense force. When the occupation ended in 1952 and Washington and Tokyo concluded their joint security treaty, administration of the M-Fund shifted to dual control, staffed by U.S. Embassy CIA personnel and their Japanese counterparts, weighted in favor of the Americans. The Yotsuya Fund and Keenan Fund were folded into it. The M-Fund’s asset base was being invested in Japanese industry and finance, and the returns were used for political inducements. The M-Fund council interfered vigorously to keep Japan’s government, industry, and society under the tight control of conservatives friendly toward America. This meant blocking or undermining Japanese individuals or groups who wished to liberalize Japanese politics, or unbuckle what Dr. Miyamato Masao called Japan’s ‘straitjacket society’. 

In 1956, for example, the Eisenhower Administration labored long and hard to install Kishi as head of the newly-merged Liberal-Democratic Party and as Japan’s new prime minister. This was the same Kishi who had been a member of the hard-core ruling clique in Manchuria with General Tojo Hideki and Hoshino Naoki, head of the narcotics monopoly. Kishi had also signed Japan’s Declaration of War against America in December 1941. During World War II, he was vice minister of munitions and minister of commerce and industry, actively involved in slave labor. Along the way, he made a personal fortune in side-deals with the zaibatsu. Following Japan’s surrender, he was one of the most prominent indicted war criminals at Sugamo, where he was a cellmate of Kodama. In 1948, when his release from prison was purchased by Kodama, Kishi began organizing the financial base of the LDP, using Kodama’s black gold and injections of M-Fund cash. For ten years, Kishi was groomed as America’s Boy by Harry Kern, Eugene Dooman, Compton Packenham and other members of Averell Harriman’s group at the American Council for Japan (ACJ). They worked tirelessly to improve Kishi’s mousy image, tutored him in English, and taught him to like Scotch. To them, Kishi was America’s ‘only bet left in Japan’. All this was done covertly, for if the Japanese public learned that Washington was using the M-Fund to replace one prime minister with another, the democracy fiction would collapse. 

Despite all this manipulation, when the 1956 election results were in, Kishi was trumped by rival LDP faction leader Ishibashi Tanzan, regarded as ‘the least pro-American among the major LDP leaders’. Ishibashi had won because Washington had paid off Kishi supporters, but had not given enough to his opponents. Annoyed, President Eisenhower personally authorized the CIA to destroy Ishibashi, and put Kishi at the head of the LDP. This meant paying very large bribes to all factions of the LDP, to shift their support to Kishi. In February 1957, after an extraordinary amount of grunting and snorting behind the folding screen, Kishi at last replaced Ishibashi as leader of the LDP, and was named prime minister. According to historian Michael Schaller, Kishi then took over from Kodama as ‘America’s favorite war criminal’. 

“Washington heaved an audible sigh of relief,” Schaller said. “Kishi reasserted his loyalty to America’s Cold War strategy, pledging to limit contact with [Communist] China and, instead, to focus Japanese economic attention on exports to the United States and mutual development of Southeast Asia.” 

During Kishi’s term as prime minister (1957-1960) the LDP received $10-million each year directly from the CIA, chiefly from the M-Fund. Alfred C. Ulmer, Jr., the CIA officer who controlled the M-Fund and many other operations in Japan from 1955 to 1958, said: “We financed them,” because the CIA “depended on the LDP for information.” When the party’s coffers were depleted by the monumental effort to get Kishi named prime minister, Finance Minister Sato Eisaku (Kishi’s brother) appealed to Ambassador Douglas MacArthur II (the general’s nephew) for additional secret funds. In July 1958, Ambassador MacArthur wrote to the Department of State, providing details of this request: “Sato asked if it would not be possible for the United States to supply financial funds to aid the conservative forces in this constant struggle against Communism. …This did not come as a surprise to us, since he suggested the same general idea last year.” 

The ball then was lobbed into Nixon’s court. 

A few months later, when Nixon renegotiated the Mutual Security Treaty in 1959-1960, he not only gave Kishi the M-Fund, he also promised that when he became president he would give Okinawa back to Japan, while retaining military base rights there. According to sources close to former Prime Minister Tanaka, “Nixon told Kishi that if Japan would assist him in becoming president, he would see to it that the U.S. withdrew from its role in managing the M-Fund, and upon his being elected Nixon would return Okinawa to Japan.” Accordingly, when Nixon and Kishi concluded the revision of the security treaty in 1960, the M-Fund was turned over to Kishi. And in 1973, when Nixon at last was elected president, he returned Okinawa to Japan. 

White House national security advisor Richard Allen later remarked that the Okinawa transfer had puzzled him. “In 1973, when Nixon gave Okinawa back to Japan, I was following very closely. I was in touch with the White House and I was always puzzled by that, not that it was really a strange thing to do, but there was no agitation for that. He just up and did it. I never quite understood why he did that. Now [in light of Nixon’s M-Fund deal] this makes sense to me.” 

In Japan, the revised Joint Security Treaty was so unpopular that Kishi immediately lost control of his cabinet and had to resign as prime minister. So, only a matter of months after giving him control of the M-Fund, America lost much of the leverage gained by the huge bribe. Nixon may not have got all the kickbacks he expected. Years later, when the chance came to take America off the gold standard, weakening the dollar and strengthening the yen, making Japanese exports more expensive, Nixon chortled that he was “sticking it to the Japanese”. 

Nevertheless, Kishi remained an LDP kingmaker behind the scenes. Virtually every prime minister of Japan since then was picked by the clique controlling the M-Fund, because they had the most inducements to pass around. Sarcastically called The Magnificent Seven, the clique included prime ministers Kishi, Tanaka Kakuei, Takeshita Noboru, Nakasone Yasuhiro, Miyazawa Kiichi, deputy prime minister Gotoda Masaharu, and LDP vice president Kanemaru Shin. Compared to Japan’s great dynastic families and financial shoguns, these were only politicians greasing the wheels. But as politicians go, they were in an unrivaled position to steer Japan’s economy, politics and government at every level, without being accountable to the Japanese people. War loot provided the asset base, generating huge profits hidden in creative ways, or offshore. They were all clever men, but Tanaka was the cleverest. How he acquired personal control of the M-Fund from Kishi provides a rare keyhole view of money-politics in Japan. 

One of Kishi’s first acts when Nixon gave him the M-Fund, was to help himself to ¥1-trillion ($3- billion). This was nearly 10 percent of the fund’s total assets in 1960. Although he was no longer prime minister, Kishi arranged the selection of Tanaka as minister of Finance in the new Ikeda administration, and in the next administration headed by Kishi’s brother, Prime Minister Sato Eisaku. 

As a high school drop-out, Tanaka hardly seemed qualified to head the Ministry of Finance. But he had other qualifications, including a superabundance of charm and an unparalleled instinct for financial scams. As a young draftsman for an architectural firm in the 1930s, he became the protégé of Viscount Okochi Masatoshi, a pal of Kishi and boss of a conglomerate called Riken Group, profiteering on military contracts. Riken was the center of Japan’s unsuccessful attempt to create an atom bomb. The viscount set up Tanaka for life, by arranging for him to marry a rich divorcee. As part of the deal, Tanaka inherited her father’s construction company. While most Japanese were losing everything to firebombing, Tanaka won vastly inflated military contracts, becoming one of Japan’s wartime arrivistes. Immediately before the surrender, he was paid $73-million to transfer a piston ring factory to Korea to put it out of the range of American bombers. He did not move the factory, but converted the money into gold bullion and never had to account for it. Some of this windfall he contributed to the new Liberal Party, buying himself a seat in the Diet. When Kishi became prime minister of the merged Liberal-Democratic Party in 1957 he appointed Tanaka minister of Posts. (Tanaka boasted that he bought this first cabinet position from Kishi for ¥3-million in cash.) 

Japan’s postal system was ripe for plucking, because it included a national bank with postal gyro accounts for millions of citizens. Tanaka showed real genius by finding ways to dip into the savings of ordinary people. This gift for picking pockets is what persuaded Kishi to turn the M-Fund over to Tanaka, and to put him in charge of the Finance Ministry. In that position, Tanaka took personal control of all central government subsidies for local governments, and all national and local expenditures for public works, which total about US$400-billion each year. Controlling the M-Fund, the Ministry of Finance, and the Bank of Japan, Tanaka was able to loot both private citizens and the national treasury, and to move billions into the M-Fund – and into private accounts in Japan and Switzerland. 

During the twenty-six years Tanaka ran the M-Fund personally, from mid-1960 to 1986, he described himself as ‘governor of the private Bank of Japan’. By distributing patronage, he persuaded senior civil servants to help him enlarge the M-Fund. According to journalist Takano Hajime, Tanaka bought off the entire Ministry of Finance “from top to bottom”. 

It costs about $4-million to get elected to Japan’s Diet, where a member’s annual salary is less than $200,000. A 1989 survey of one hundred MPs showed monthly duties to constituents included attending an average of 6.6 weddings and 26.5 funerals. At each occasion an MP was expected to make a traditional gift of congratulations or condolence, which cost roughly $6,000 a month. So an MP could not stay afloat without support. In an off-election year, the LDP had to spend $200million to assist MPs. By this reckoning, since the LDP was founded in the 1950s, it has had to spend around $10-trillion in bribes and patronage to remain in power. So Tanaka could not relax. He had to enlarge the M-Fund asset base to generate the interest needed to maintain continual injections of new cash. This made extraordinary demands upon his natural gifts. 

It was not enough to raid the national treasury. In addition to rigged bidding for the construction industry, and straightforward kickbacks, Tanaka created government construction bond issues, without approval from the Diet. These bonds were sold at a discount to wealthy cronies, or simply were given away in exchange for secret donations to the M-Fund. When the bonds matured, cronies agreed to return most of the proceeds to Tanaka, who then kept the money for his own use or added it to the M-Fund. 

Tanaka also came up with a scheme to sell real estate confiscated during the war from enemy aliens, who had failed to apply for postwar restitution. These ‘unclaimed’ properties were an outright gift to Japan under terms of Article 16 of the 1951 Peace Treaty, and when Tanaka discovered they still were unsold he recognized a pot of gold. Over ten years from 1960 to 1970, Tanaka sold 1,681 of these properties to cronies at absurdly low prices, depositing the proceeds to Ministry of Finance accounts. His cronies then re-sold the properties at Japan’s greatly inflated open-market value, at a total profit of ¥7.9- trillion ($22-billion). In return for a small slice for their trouble, they remitted the bulk to Tanaka, who put some in his offshore accounts and put the rest in the M-Fund, increasing its value from around $35-billion in 1960 to what was said to be nearly $60-billion in 1970. That year, questions were raised in the Diet, and Tanaka’s real-estate scam was closed down by Prime Minister Sato, to avoid public disclosure. 

The most important source for Tanaka’s ‘private Bank of Japan’ was the National Social Welfare Association he set up in 1964 (sometimes translated as the All Japan Welfare Council). The title is a private joke, since the club existed only for the welfare of Tanaka and his friends. It was really the Tanaka Club, and was in Tanaka’s private home. According to U.S. court testimony and copies of original Japanese documents we reproduce on our CDs with translations, the original membership of the club was seventeen cronies. Eventually it grew to over thirty. All of them were men who had made fortunes in banking, commerce, real estate development, speculation and construction, including Sushi Bar king Ishii Ryuji, industrialists Kobori Takashi and Kondo Masao, and Yamashita Shigeo of Ocean Dome resorts. 

Although these names may ring few bells outside Japan, two others are well-known worldwide. Tsutsumi Seiji’s family holdings include national and international hotels, railways, resorts, and department stores. Among global financial moguls, the Tsutsumis rank with the Rockefellers. 

The other was Osano Kenji, one of Japan’s richest men and chairman of Kokumin Bank, nicknamed ‘the Monster’ for his ruthless business tactics. A Japanese of Korean descent, during the war he made a fortune selling auto parts to the military. At the surrender, Osano was involved in hiding the Imperial Army’s huge stockpiles and profiteering by selling them off on the blackmarket. In the occupation, he was a big time dealer in blackmarket currency. In later decades, Japanese joked bitterly about the ‘TanakaOsano Trading House’. In the 1970s, having secured Tanaka’s approval to move gigantic sums overseas when most Japanese were forbidden to do so, Osano bought many Waikiki Beach hotels and made himself godfather of the Japanese-Korean mafia in Hawaii, which then extended its tentacles throughout the West Coast using tourism fronts. 

Tanaka’s biggest scam was specially contrived government bonds. Because he had them issued by the Ministry of Finance, they were technically legitimate with or without Diet approval. Each had a very big face amount, ranging from ¥10-billion to ¥50-billion ($50-million to $250-million at the time, but now worth almost double). In some cases, these bonds were purchased by core Tanaka club members using their own money, or black money from the M-Fund. While their names appear as the designated payees, most were serving only as straw men for Tanaka. This allowed him to park very large amounts of illicit funds in the secure form of government bonds. 

Interest paid on these bonds, and profits on their maturity, were to be kicked back directly to Tanaka, or split between Tanaka and the bondholders. These documents (some labeled ‘Top Secret’ or ‘Very Important’) bear the personal seals of Tanaka, Nakasone and Takeshita, and lesser lights, proving the arrangement was endorsed by the Ministry of Finance, by the leadership of the LDP, and by the top management of Dai-Ichi Kangyo Bank, responsible for some of the transactions, including interest payments. 

For a while, the scam worked flawlessly. 

In running the M-Fund, Tanaka was assisted by Kanemaru and Gotoda, two of the LDP’s backroom boys. All three became very rich. Before ill health caused him to relinquish control of the M-Fund in 1986, Tanaka is thought to have helped himself to ¥10-trillion ($30-billion then, double that now), which Japanese sources say he invested offshore through Union Banque Suisse, as a trust fund to safeguard his family in future generations. (In 2001, Tanaka’s daughter briefly served as Japan’s foreign minister.) 

According to Karl Van Wolferen, Gotoda was discovered by Tanaka, and became his brain. After graduating from Tokyo Imperial University in 1939, Gotoda entered the wartime secret service associated with Golden Lily, rising after the war to be chief of the National Police. When Tanaka became prime minister, he chose Gotoda as his deputy chief cabinet secretary, the most important bureaucratic post in the cabinet. As a former secret policeman and head of the national police, Gotoda was one of the most feared men in the country. His assignment from Tanaka was to keep bureaucrats nervous. 

Their specialist bagman was Kanemaru, son of a sake brewer, who kept LDP politicians in line by distributing bribes and kickbacks from the M-Fund and other sources. Kanemaru ranked as one of Japan’s top political fixers. Although elected to the Diet twelve times, he always contrived to remain invisible. 

That was not Tanaka’s style. A man of perpetual flash and vanity, Tanaka did not know where to stop. Once he became prime minister, in 1972, enemies began to leak information about his improprieties, and two years later a team of Japanese investigative journalists bravely published an exposé of his monumental corruption. The ensuing scandal forced Tanaka to claim ill-health and step down. He was not prosecuted, and continued backstage as a top LDP boss. In 1976, the U.S. Senate Foreign Relations Committee began hearings into the Lockheed bribery scandal, where it emerged that Tanaka was one of the government officials that Lockheed had bribed to win sales of its new plane to All Nippon Airways. Although the money came from Lockheed, it was conveyed by the CIA through godfather Kodama, still on the Agency’s payroll, who also arranged for Japan to buy 230 Lockheed F-104 Starfighters. Tanaka was said to have been paid as much as $14-million by Lockheed, although when he was arrested the indictment was only for accepting $2-million. A Tanaka aide testified that his boss probably was unaware of the Lockheed bribe because it was so paltry. The trial lasted seven years, and Tanaka spent over $8- million on his defense. Meanwhile, he retained control of the M-Fund, oversaw the appointment of three prime ministers, and was returned to the Diet for the fifteenth time. 

As the trial dragged on, there were the first signs of defection from the ranks. Prime Minister Nakasone (a leader of the LDP extreme right) begged Tanaka to resign from the party. Nakasone’s disloyalty alarmed Tanaka and he began to worry that other members of his club might defect, taking their billions of dollars in bonds with them. Aside from the hardcore club members, there was a second tier of rich men on the perimeter of the club, whose loyalty to Tanaka was not absolute. 

If several of them tried to redeem their bonds simultaneously, the Ministry of Finance would be caught with its pants down. Tanaka and his clique had so thoroughly plundered the national treasury that the Ministry of Finance was able to maintain its sinking fund for the outstanding bonds only by selling the government’s share of NTT (Nippon Telephone & Telegraph). A sinking fund is a special reserve account created by a government when it issues bonds; the government is obliged to put money into the sinking fund at regular intervals, in order to be able to redeem the bonds when they come due. If several of Tanaka’s disloyal bondholders insisted on redeeming their bonds, the Ministry of Finance did not have sufficient funds and would have no choice but to default, which could cause the whole LDP house of cards to collapse. 

Rather than cover this exposure by dipping into the M-Fund, or into his own ‘private Bank of Japan’, Tanaka and his clever associates at the Ministry of Finance came up with an ingenious dodge. They would roll over the original Japanese government bonds by exchanging them for new financial instruments called Certificates of Redemption. These were not the Ministry’s usual bonds but a form of debt instrument or IOU specially designed, printed and issued by the Ministry of Finance in the fifty seventh year of Hirohito’s reign, so they often are called “57s” to distinguish them from regular government bonds. We will use that label in this book. 

Bondholders who already were owed outstanding interest would be given specially designed and printed cashier’s checks from the Dai-Ichi Kangyo Bank, serving as the Ministry’s conduit for interest payments. Because many of the bondholders were considered politically untrustworthy, they were given no choice in the matter, and simply were told by the Ministry that the exchange of bonds for “57s” and cashier’s checks would take place. While this might seem unusual in Europe or America, intimidation has been developed to such a high art in Japan that to defy the exchange would mean social ostracism or even assisted suicide. 

Already the M-Fund appeared to have led to the death of Kishi’s brother, Prime Minister Sato. Many Japanese believe Sato was poisoned in 1975 at the height of a contest with Tanaka for control of the M-Fund. A number of others associated with Sato in M-Fund financing of Fuji Steel also died mysteriously in the early 1970s. A major scandal over Sato’s death was avoided when Tanaka paid Sato’s widow ¥300 billion from the M-Fund. In 1984, Harvey Fukuda, Kodama’s publisher and business partner, who knew where all the skeletons were hidden, died of ‘heart failure’ while in the hospital being dried out and treated for cirrhosis of the liver. He had expressed fear of being poisoned, and members of his family did not believe his death was from natural causes. In Japan, if you are afraid of being murdered, it is considered good advice to avoid hospitals, where the job can be done unobtrusively. The next assisted suicide was Prime Minister Takeshita’s personal assistant, Aoki Ihei, who knew too much about the “57s”. According to The Wall Street Journal, Aoki “slashed his wrists, legs, and neck and, when that failed, hanged himself with a necktie from a curtain rod.” 

Physically, the “57s” were unlike anything previously issued by the government of Japan. They were not offered to the public at large, nor were they to be traded on the international bond-market like normal government bonds, so only the holders actually saw them. The magic of this scheme is that by their very difference, it was possible for the Ministry of Finance later to declare all “57s” to be forgeries. Only certain ones were then selectively and very secretly renegotiated at a discount. Those who paid for their original government bonds, and then were forced to exchange them for “57s”, were thus swindled twice. 

Washington has backed Tokyo’s assertion that the “57s” are counterfeit. But, as we will see, there is evidence both are lying. Because they were jointly involved in setting up the M-Fund with Golden Lily war loot, they both have reason to deny its existence. 

According to American attorney Norbert Schlei, the “57s” were printed at the Ministry of Finance factory in Tokinogawa, on the order of Watanabe Michio, who was Minister of Finance under Prime Minister Suzuki. Watanabe told Schlei this privately. Schlei was unable to name his source because Watanabe would be murdered. Watanabe subsequently served as deputy prime minister, minister of foreign affairs, and minister of international trade and industry, dying in the late 1990s. Because he no longer is in danger, we are able to identify him here as the expert source of this confirmation. 

Undeniable evidence of the authenticity of the “57s” has been painstakingly assembled by Professor Edmond C. Lausier of the University of Southern California’s Marshall School of Business. For five years, Professor Lausier made it a hobby to study the M-Fund, and Tanaka’s bond-manipulations. He patiently collected copies of bonds and related documents going back many years, finding groups of them in collections at different universities. Part of his research was a methodical comparison of the original bonds with the “57s” that replaced them. In his affidavit concerning these documents, he refers collectively to the “57s” as Certificates of Redemption: 

“The Certificates,” Lausier said, “acknowledge that the payees are due the proceeds of the bonds they have surrendered and state that this obligation is to be satisfied with the proceeds at maturity of 15- year bonds. Seven such bond issues thereafter were in fact issued by the Japanese government over a three-year period beginning in 1983. These bonds are unique in that they were the first and only 15-year obligations ever issued by the Japanese government until the maturity of issue #7 in the third quarter of year 2000. These seven issues of 15-year obligations were subjected upon issuance by the Ministry of Finance to restrictions prohibiting their assignment, transfer or conveyance throughout their term. 

“The documents I have examined show that in 1982, a decision was made in the Ministry of Finance or at an even higher level in the Japanese government to call in the bonds held by certain holders, [our italics] together with the interest-passbook accounts at the Dai-Ichi Kangyo Bank held by them, and to issue Certificates [“57s”] in exchange for those items.” The documents Lausier assembled included hundreds from the Ministry of Finance, Dai-Ichi Kangyo Bank, and the Liberal Democratic Party, identifying specific valid outstanding Japanese government bonds to be refunded. These documents, he said, provide a detailed, undeniable connection between the holders of the bonds, the Ministry, the Bank, and the “57s”. 

“The documents I have examined are so precisely in agreement in innumerable respects with the official published records of the government of Japan… that, in my opinion, it is quite impossible for them, or the Certificates that resulted from them, to have been the work of any counterfeiter. No person outside the government could possibly have had the requisite knowledge to prepare these documents with the requisite degree of accuracy, and indeed, a rather large number of knowledgeable government officials was needed to prepare them. It is, accordingly, my unqualified opinion that the Certificates are not counterfeit.” 

Lausier said the only plausible explanation was that “the government of Japan grew concerned about the fact that huge sums in verifiably genuine government bonds were held by potentially unreliable nominees, and therefore decided to replace those bonds with Certificates — a type of instrument previously unknown — which could much more plausibly be repudiated.” 

Beginning in 1982, Lausier said, and continuing for six years, the Japanese government lacked the funds necessary to redeem its outstanding bonds. The problem was solved, at least temporarily, by retrieving the outstanding bonds and replacing them with the off-book “57s”. 

In 1985, Tanaka suffered an incapacitating stroke. At first his condition was hidden even from close colleagues, but as it became apparent that he would be a permanent invalid, rivals began to quarrel over who would inherit the M-Fund. Nakasone saw himself and the far right of the LDP as the natural heir. Gotoda and Kanemaru tried to elbow Nakasone aside, bringing Takeshita in to strengthen their hands by forming a troika. 

As this succession struggle got underway, a number of wealthy Japanese decided the moment had come when they had better cash in their “57s”. Informed by the Ministry of Finance that all “57s” were counterfeit, they became enraged, and decided to fight back. Some tried to unload their certificates in private deals with foreigners, while others tried to pressure the LDP and the Ministry of Finance to privately acknowledge their claim, and to pay at least a substantial percentage of the face value. 

Only those who were especially tight with the LDP leadership were successful. As the Ministry was unable to pay, members of the troika personally redeemed these privileged “57s” and related Dai-Ichi Bank checks, at what must have been a very deep discount. According to journalist Joseph Schlesinger, “starting in 1984, [Kanemaru] had regularly converted much of his assets into special bonds that allowed the purchaser to remain anonymous, and had never declared these holdings.” 

During the same period, Gotoda also apparently redeemed a number of “57s” and Dai-Ichi checks. According to Japanese sources, Gotoda held ¥60-billion worth ($600-million) of the Dai-Ichi checks. With so many on his hands, he decided to unload them back to Dai-Ichi. When he confronted bank officials, they tried to buy him off at a lower rate, but Gotoda stood firm and eventually was paid their full face value. The bank’s directors apparently decided it was unwise to annoy the former secret policeman. We know of this transaction because government investigators gathering evidence on an unrelated matter had a wiretap on Dai-Ichi Bank, and purely by chance Gotoda’s phone call came in on the tapped line. 

That two very senior LDP party leaders, Gotoda and Kanemaru, were buying and selling “57s” and Dai-Ichi checks, makes it obvious they were not counterfeit. 

Many of the Japanese holders of “57s” who were thwarted were working in America, Europe, or Southeast Asia. At such a distance, they could be stonewalled forever. Tanaka, paralyzed by his stroke, could not walk or speak, so they could not communicate directly with him. Some were afraid of what would happen if they returned to Japan to press their case. As a precaution, they made their approach through international bankers, attorneys, or other intermediaries, hoping this would embarrass the Ministry into redeeming their certificates. That was how Norbert Schlei became involved. 

Schlei was an exceptional man. Born in 1929 in Dayton, a graduate of Ohio State, he was a naval officer during the Korean War. Going on to Yale Law School, he became editor-in-chief of its Law Journal and graduated magna cum laude in 1956. After serving for a year as a clerk to U.S. Supreme Court Justice John Marshall Harlan, Schlei entered law practice in Los Angeles. In 1962, at the age of 33, he was appointed Assistant Attorney General of the United States by President Kennedy. He was deputy to Attorney General Robert Kennedy in 1962 when the U.S. Army was sent to enforce the racial integration of the University of Mississippi. During the Cuban Missile Crisis, Schlei developed the ‘quarantine’ concept relied on by President Kennedy. He found himself in opposition to men like the aging Dean Acheson, who was all in favor of bombing Havana back to the Stone Age. Later, Schlei was the principal draftsman of the Civil Rights Act of 1964, the Immigration Act of 1965, and the Anti-Poverty programs of the Johnson Administration. In 1972, he joined the Wall Street law firm of Hughes Hubbard & Reed, establishing an office for the firm in Los Angeles, where he was a prominent trial lawyer representing clients like Howard Hughes and Morgan Stanley, handling business and securities law for clients such as Carlsberg and Arco petroleum. 

Schlei became involved with the M-Fund and “57s” quite innocently, when he agreed to make inquiries for Asian clients of his California law firm. While acknowledging all along that the government of Japan claimed these Certificates of Redemption were counterfeit, his clients vigorously contended that these officials were lying in order to avoid redeeming them. They told Schlei how previously they had held normal government bonds, only to be forced to relinquish them for the “57s” and Dai-Ichi checks, deliberately printed to look unusual, which would allow them to be denounced as fraudulent. They asked Schlei to look into the possibility of persuading the Japanese government to redeem their certificates. Bringing in a law firm of the stature of Hughes Hubbard and Reed, they hoped, would put pressure on the Ministry of Finance and on Dai-Ichi Bank, who might agree to make an out-of-court settlement to avoid a public scandal. They told Schlei they did not seek to collect the huge face values, they only wanted the percentage promised them for acting as Tanaka’s straw men. 

As Schlei began his inquiries, he provoked an extraordinary reaction from an unexpected quarter, the U.S. Government, which ultimately set out to destroy him and his reputation. Schlei was convinced, as are many people on Wall Street and at various universities, that he became the victim of a sting operation, which went out of control when Washington had to cover up its involvement in the M-Fund and Japan’s black money politics. What happened to Schlei reveals a breath-taking depth of deceit, a measure of what is being kept hidden. 

What Schlei could not foresee were the extreme measures the governments of Japan and the United States would be prepared to take to keep secret the historical origins of these financial instruments. 

Schlei was surprised by his clients’ allegation that Tanaka’s M-Fund originally had been set up by General MacArthur with treasure looted from occupied countries by the Japanese. He was dismayed when he learned about the role played by Vice President Nixon. But as Schlei carried out his own due diligence he became convinced that it was true, at least in its broad outlines. His mistake was to assume this was all in the distant past, and he could discuss it with American diplomats and bureaucrats as a curious historical anomaly. Only much later did he realize he had intruded upon something still alive and very dangerous, in the heart of darkness. 

Takahashi Toshio, one of his clients, while a student leader, had been given ¥40 million from the MFund ($500,000 today), in checks laundered through a CIA front, the Committee for a Free Asia. So he was familiar with the history of the M-Fund from its earliest days. More recently, Takahashi had become a member of the Tanaka Club, and bought several Tanaka bonds, later swapped for “57s”. When he was then told he could not cash in the “57s” because they were counterfeit, he realized he had been swindled, and decided to fight back through Schlei. 

Schlei went to Japan to investigate the story personally, interviewed twenty witnesses with the aid of interpreters, and reviewed records going back to the 1960s. While the LDP leaders claimed that the “57s” were fraudulent and the M-Fund never existed, Schlei saw enough evidence to conclude that they were lying. 

“I formed the conclusion quite early that my clients’ claims were at least ‘honestly arguable’ — the standard that governs whether a lawyer may ethically argue a client’s case.” 

He said, “The whole thing was set up so that if anybody tried to do anything with these instruments the matter would be referred immediately to the Minister of Finance, and the Minister of Finance would be able to stop the transaction or authorize it, if it were one that the Ministry wanted to authorize.” 

Schlei talked to U.S. Government officials in a position to know, including Ambassador Mike Mansfield, CIA general counsel Stanley Sporkin, and President Reagan’s national security advisor Richard Allen. Mansfield’s embassy aides scoffed at any suggestion that Washington made covert payments to the LDP.

No one warned Schlei that he was on extremely thin ice with his own government. Schlei told Sporkin explicitly that he was going to try to negotiate these instruments in Japan and wanted to make sure the CIA had no objection. After looking into the matter overnight, Sporkin told Schlei he found the whole story ‘extraordinary’ but that the Agency had no interest in the proposed sale of the instruments because it was ‘a private matter’. This was a very strange thing for Sporkin to say, and it can only be understood in light of what followed. Although Sporkin may have had no immediate personal knowledge of the “57s” and the M Fund, he must have asked CIA officers who knew all about them, including the CIA station chief in Tokyo. These CIA officers naturally would be determined to keep it secret, but by responding as they did they set in motion a process of entrapment, whether deliberately or otherwise. 

As Chalmers Johnson points out, Washington’s “manipulation of the Japanese political process during the Allied occupation and its evolution over the more than [fifty] years since the occupation ended… has not merely historical significance”. As Schlei would learn the hard way. 

When Schlei returned to Japan to press his clients’ claims, the LDP bosses complained to the U.S. embassy. Without Schlei’s knowledge, several of his clients in America then were approached by U.S. Treasury agents, who urged them to offer their “57s” for sale in the United States, which was illegal; whoever offered to buy them would be arrested and their “57s” seized. (As their attorney, Schlei then could be drawn in as a co-conspirator and prosecuted.) 

Until Washington turned the full force of its ire on Schlei in 1992, the target of the U.S. Government sting was an elderly invalid named Barbara Jean Bravender Ah Loo, living in Los Angeles on Social Security benefits of less than $1,000 a month. A U.S. citizen of Caucasian origin, she had married a Hawaiian Chinese businessman named Ah Loo and spent long periods with him in Hong Kong, running a company called Transfield Investments. In 1987, Transfield was approached by Japanese clients, including Takahashi, looking for help in redeeming their “57s”. Initial efforts by Transfield failed when the Bank of Japan took the position that all “57s” were fraudulent. During this period, Mrs. Ah Loo met Craig Ivester, a bounty hunter employed by Bancorp International as a finder of commodity transactions. They discussed the “57s” and Ivester sent a photocopy of one to Union Banque Suisse, which replied automatically that it was fraudulent, without bothering to examine the original. 

Aging and seriously ill, Mrs. Ah Loo then returned by herself to Los Angeles, and was living in a single room borrowed from a terminally-ill friend, in a house facing foreclosure, when she again encountered the bounty hunter. At this point Craig Ivester was making his living as a U.S. Customs Service informer, looking for targets. Reminded of their previous discussions of the “57s” in Hong Kong, Ivester decided to persuade Mrs. Ah Loo to offer some “57s” for sale inside the United States, which he knew was illegal, earning him a finder’s fee from the Customs Service. 

Sick as she was, Mrs. Ah Loo still had gumption. She told Ivester she would never negotiate a “57” in the United States. Ivester approached the Customs Service, and offered to help entrap Mrs. Ah Loo by baiting her with the offer of a very large commission. 

According to Schlei’s investigators, the sting operation was mounted by U.S. Secret Service agent Jack Fox, and Customs Service agents Michael Sankey and Michael Noonan, acting on the tip from Ivester. Their plan was to offer Mrs. Ah Loo a big commission to coax her into obtaining a “57” to sell in America, and then to arrest her for ‘intent’, or merely contemplating a crime. Because she was so reluctant, Fox got credentials showing he was a vice president of First National Bank of Chicago. Sankey would pretend to be a rich businessman. They rented a room in Reno that they wired, and asked her to come for a meeting. If they could get her to cross a state line, it could be construed as a federal offense, rather than a state offense. Mrs. Ah Loo could not come because she could not afford the airline ticket. The Secret Service sent her a free round trip ticket, the first concrete step in their entrapment. When she got to Reno, Mrs. Ah Loo said she was sorry, but she could not obtain any “57s”. Anyway, she said, the Japanese government claimed they were fraudulent, and “People have gone to jail for selling these bonds…” 

Fox, Sankey and Noonan persisted, browbeating Mrs. Ah Loo until finally she said she would try again to get a “57”, but only if they could arrange a proper and legitimate transaction through a leading American securities firm — a firm that would make sure all laws were observed so nobody got in trouble. Secret Service agent Fox promised to bring Smith Barney into the deal. He faxed Mrs. Ah Loo a letter purporting to be from A. George Saks, Executive Vice President and General Council of Smith Barney, offering to purchase three “57s”. 

For the sting to work, it had to happen in a jurisdiction where there was a Smith Barney office, and a compliant judge. They decided to lure Mrs. Ah Loo to Tampa, Florida, where Smith Barney had an office, and where the U.S. attorney expected Federal district court judge Elizabeth Kovachevich to be cooperative, allowing him to go for the jugular. 

Eventually, Mrs. Ah Loo heard about Roger Hill, a broker who had some of Takahashi’s “57s” in his possession, hoping to find a potential buyer. But on the eve of the trip to Tampa, Mrs. Ah Loo suffered a heart attack, and asked her son — Bruce Hansberry — to go with Roger Hill in her place, to conclude the deal at Smith Barney. When they arrived in Tampa, on January 18, 1992, they were arrested. 

Because she was not present, they had to rope in Mrs. Ah Loo by getting her on the telephone to discuss the fictitious closing, so she could be arrested in Los Angeles. This was done, and she was taken into custody. On the pretext that her earlier residence in Hong Kong meant she might try to flee the country, she was put in prison to await trial, and ultimately was convicted of conspiracy, wire fraud, money laundering and securities fraud. Bewildered, Mrs. Ah Loo began to lose her mind, and was moved to a prison psychiatric ward. There she was found to have cancer of the throat, and died. 

By January 1992, sixteen offices of the Secret Service were said to be involved in the Ah Loo sting. Mrs. Ah Loo was too insignificant to justify such an expenditure of taxpayers’ money, so the vigilantes looked for someone else to lynch. One possibility was Takahashi, to whom the “57s” belonged, but when they broke into his Los Angeles apartment it was empty and he was out of the country in hiding. 

Trophy hunting has become a feature of the American criminal justice system. Takahashi was not famous, so he was not a proper trophy for an ambitious U.S. attorney. Norbert Schlei, on the other hand, was sticking his nose into Deep Black secrets, and alarming Tokyo. His high profile made him a perfect target. One year earlier, Schlei had written a memo about the M-Fund. It was not meant for general circulation but a copy was passed to U.S. Government officials, who became alarmed and angry. If they could snare Schlei, all branches of the U.S. Government would cooperate to stop his digging into the MFund, and the LDP leadership in Tokyo would be indebted. 

How to snare him was the problem. Schlei had never tried to negotiate a “57” in America, only in Japan, on behalf of clients legally entitled to have an attorney make inquiries. Furthermore, Schlei had never accepted a penny from these clients. But Takahashi was so impatient to sell one of his “57s” that he had taken several of them back from Schlei and, without telling him, turned them over to Roger Hill to market. It was quite a stretch to argue that Schlei had anything to do with the independent marketing of the “57s” by Roger Hill. The government could try to get Schlei indicted as a party to the conspiracy of Ah Loo, Hansberry, and Hill, because he happened to be Takahashi’s attorney and was admittedly trying to negotiate other “57s” in Japan. It would be absurd to assert that Schlei was involved in the Tampa transaction, but that could be covered by a little sleight of hand, misdirecting the jury so it did not notice. Finally, since Schlei freely acknowledged that the Japanese government regarded the “57s” as counterfeit, it could be argued that he was admittedly marketing certificates he knew to be false. This dodged the crucial point, which Schlei stated again and again, that he was convinced the Japanese government was lying to avoid payment. 

In sum, the case against Schlei would depend on a trophy-hunting prosecutor, a compliant judge, a misdirected jury, a coordinated effort by Washington to block all Schlei’s efforts at discovery, denial by the court of leave for Schlei to take depositions in Japan, intimidation of defense witnesses, and ‘expert’ prosecution witnesses brought in from Japan’s Ministry of Finance and Dai-Ichi Bank, who seemed to have been coached to be evasive and to give false testimony. 

Astonished to be named a party to the Ah Loo deal, of which he was not even aware, Schlei found himself the subject of Grand Jury proceedings in Tampa and was indicted. Immediately, clients holding “57s” scattered to avoid being drawn in, or – if cornered – became so frightened that they offered to testify against Schlei in return for immunity from prosecution. 

In court, the prosecution ‘proved’ the certificates were fakes by bringing in two minor officials of Japan’s Ministry of Finance and Dai-Ichi Bank, who had a vested interest in sticking to this story. Schlei’s defense countered, “Corrupt Japanese officials were now falsely claiming that these financial instruments were not genuine.” However, Professor Lausier insisted they were genuine (as quoted earlier): “The documents …are so precisely in agreement in innumerable respects with the official published records of the government of Japan …that, in my opinion, it is quite impossible for them, or the Certificates that resulted from them, to have been the work of any counterfeiter.” 

To demonstrate collusion between Tokyo and Washington, the defense attempted to locate any reports or documents showing covert payments by the U.S. Government to the government of Japan or any political party in Japan, from 1945 to the present. As we have seen, this has been confirmed by a number of sources including former CIA officials and U.S. diplomats. But, fighting for his life, Schlei needed all the documentary evidence available. As a former assistant attorney general of the United States, he was certain he would find these documents. 

It was Schlei’s legal right to make such discoveries, but federal agencies flatly refused to comply. News stories about the M-Fund and “57s” obliged the court to order the CIA, the Secret Service, National Archives, and State Department to conduct a search of their databases. Given the intense secrecy surrounding the Black Eagle Trust, the 1951 Peace Treaty, the M-Fund, and the disappearance of millions of documents concerning Japan, it would have been a great surprise if anything turned up. The jury was told that “search of the records of the CIA, the Secret Service, and the National Archives did not disclose any relevant or material documents or information that substantiated …that the CIA gave money to employees or officials of the Japanese government, or any political party in Japan”. The court record says, “The government searched hundreds of files of CIA paper records dating back to 1948 for any documents that might indicate that payments were made by the CIA to either the Japanese government, the Liberal Democratic Party, or individual party members. They also conducted computer searches for Marquat Fund… [and] the search …did not discover any relevant or material documents or information.” 

The jury was not told that Acting CIA Director Admiral William O. Studeman had informed The New York Times in March 1995, that CIA was not about to divulge information on the subject of payola to foreign governments and politicos. Studeman said the Agency had an obligation to “keep faith” with politicians who “received legally authorized covert support from the United States”. 

This statement actually confirms that such payments were made, and merely refuses to give details. Japanese politicians bribed with huge sums of money had to be protected, which was more important than justice in American courts. 

Schlei told the court, “I figured that if the Iran Contra case people like Ollie North and Admiral Poindexter and Mr. MacFarlane could be doing things and lying about it, then maybe people in the Japanese Government could be lying about some things, too.” 

Judge Kovachevich refused Schlei the right to take depositions in Japan, and brushed aside Schlei’s protests that a key defense witness had been intimidated by the U.S. attorney. His attorneys alleged that the prosecution tampered with the witness, S.M. Han, who had an immunity agreement with U.S. attorney Mark Krum. Han swore that Krum told him if he testified for the defense, his immunity agreement would be nullified. Han also said Krum told him he had “better not give him any basis to withdraw the immunity because he would not hesitate to do so”. Witness tampering is one of the most serious crimes in the U.S. judicial system and is grounds for disbarment. Judge Kovachevich denied a motion for a new trial based on the charge of witness tampering, and even refused to hold an evidentiary hearing to determine whether Han’s allegations were true. 

After six years of persecution, Schlei was convicted on one felony count of securities fraud, and one misdemeanor. Before the trial began, he had assets in the neighborhood of $10-million. During his trial, he was unable to practice law, and had enormous legal costs. He was professionally and financially ruined, left virtually bankrupt. He estimated that the U.S. Government spent over $45-million of taxpayers’ money on the sting and the lawsuit. 

Schlei appealed, and in September 1997 the Eleventh Circuit Court of Appeals reversed and vacated the conviction on the felony count and the misdemeanor, remanding the misdemeanor to the district court for a hearing on Schlei’s motion for a new trial, based on government intimidation of witnesses. The three appeals court judges paid special attention to the way Kovachevich had handled the witness-tampering issue. In their decision they wrote that the transactions leading to the Schlei indictment were ‘unusual, if not bizarre’. They found Kovachevich’s handling of the witness tampering ‘enigmatic’. They said, “We cannot determine whether Schlei was deprived of his right to due process …because the [Kovachevich] court did not conduct an evidentiary hearing. …Where defendants present evidence to the district court that the government intimidated a defense witness a trial court must grant a hearing to determine whether the allegations of intimidation are true.” (Our italics.) 

So a case that was contrived to start with and dragged on for six years, resulting in Schlei’s complete ruin, was overturned. Still insisting on his innocence, Schlei asked for a retrial, but the government knew he was broke. Nearly 70, and in no position to fight indefinitely to clear his name, he finally agreed not to press his charges of witness tampering, leaving the minor misdemeanor charge unresolved. 

In Washington to this day he is slandered. An eminent libel lawyer, who should know better, recently insisted that Schlei’s evidence was ‘untrustworthy’ because he was a ‘convicted felon’. Others declared Schlei’s unresolved misdemeanor conviction amounted to ‘moral turpitude’. 

It took further wrangling with the California bar to have this smear removed from the official record. In January 2001, the California Bar Journal announced that Schlei was once again ‘an attorney in good standing’. But the harm had been done. In the Spring of 2002, while jogging on a California beach, Schlei suffered a major heart attack, collapsed and hit his head. A homeless man nearby called for help, but Schlei remained in a coma for many months. The last time we saw Schlei, he told us, “I now know how and why the jury convicted me. Until I figured that out, I was a very troubled man.” 

Other events unfolding in January 1992 may have led directly to Schlei’s persecution. He was not the only target of M-Fund stings. Also arrested was James P. Sena, a 17-year veteran of the U.S. Secret Service, the agency that also investigates counterfeiting for the Treasury Department. Sena had examined M-Fund financial instruments in America and Japan, where he became convinced of the legitimacy of the “57s”. He decided to sell some himself. He and Ian Yorkshire of Great Britain and Francis Cheung of Hong Kong were all arrested for attempting to market “57s” with a total face value of $50-billion. Abruptly, and for no apparent reason, in November 1995 the case against them was suddenly dismissed ‘with prejudice’, meaning the charges cannot be re-filed. Nevertheless, prosecutors refused to return the “57s” they had confiscated as evidence, calling them ‘contraband’. If counterfeit, why were they contraband? We were told by a Wall Street source that Treasury is eager to get its hands on “57s” and other supposedly counterfeit derivatives, to negotiate them secretly. 

Another prominent American who reportedly became involved in negotiating “57s” during the same period was the former Secretary of State, General Alexander Haig. Unlike Schlei, Haig was not arrested or persecuted, demonstrating how selective Washington has been in choosing its sting targets. 

According to a detailed account we have from someone present at all the meetings, Haig was asked to intercede in behalf of Paraguay. The government of Paraguay had bought a single “57” with a face value of $500-million from First Hanover Securities in New York City on November 20, 1991, at the very moment the sting of Mrs. Ah Loo was going down. The same day, Paraguay asked MIC Debt Readjustment Company to arrange for the Japanese government to redeem this “57” – not for cash but for credit against ¥40-billion in foreign aid that Paraguay owed to Tokyo. This represented 80 percent of the face value of the “57”, and Tokyo could keep the other 20 percent as a discount. (MIC is an organization backed by the Israeli government, which negotiates adjustments of national debt for governments in Eastern Europe and South America.) If successful, MIC was to be given oil exploration and development rights on Paraguayan territory. After considering former Secretary of State Henry Kissinger and former Ambassador Mike Mansfield, MIC chose Haig as their negotiator. 

He was a good choice. Haig knew Japan because in 1947, fresh out of West Point, he had served as an aide to General MacArthur in Tokyo until the general’s recall in 1951. As a MacArthur aide, working in a tight circle with men like Whitney and Willoughby, Haig doubtless heard a lot about black operations and secret funds set up in Tokyo during the occupation. While in Japan, Haig married the daughter of General Alonzo Patrick Fox, MacArthur’s deputy chief of staff. Haig later served President Nixon on the national security staff, was White House chief of staff for both Nixon and Ford, and secretary of State for President Reagan. 

At a strategy meeting in Miami, attended by our source, MIC and the Paraguayans asked Haig to negotiate personally with former Japanese prime minister Takeshita, a key man in the M-Fund and one of the LDP kingmakers. After being embarrassed by bribery scandals, including the Recruit scandal involving M-Fund kickbacks and war loot, Takeshita had been forced to resign as prime minister two years earlier, in 1989, but he remained powerful. Haig agreed to meet with Takeshita in Tokyo in January 1992. He reportedly told the Miami roundtable that the “57” should be negotiated ‘underground’ as quickly as possible. 

To learn more about the background of the “57s” our source said Haig had discussions in Washington with the FBI and CIA, much as Schlei had done. One CIA official explained that Japan had a number of secret funds, including what he called ‘the MacArthur Fund’, apparently referring to the Sanwa Bank joint account in the names of MacArthur and Hirohito, which Japanese call the Showa Fund, referring to the reign title of Hirohito. He also explained how the Japanese government bonds had evolved into the “57s”. Our source said Haig also paid a visit to the White House, to tell President Bush of his forthcoming meeting with Takeshita to negotiate the “57” for Paraguay. Explaining the give-and-take involved, he asked Bush for his support. To ease the way, our source said, Bush gave Haig a personal letter to Takeshita. 

President Bush was on his way to Japan himself that January. He was in Tokyo a few days before Haig, a visit made famous when Bush vomited all over Prime Minister Miyazawa. 

On January 13, 1992, Haig was informed that two weeks later he was to be guest of honor at a lunch in Tokyo’s Imperial Hotel with the LDP Diet committee, after which he and Takeshita were to have a private talk in an adjoining room. MIC said Takeshita would probably start by saying all “57s” were counterfeit. Haig had to be prepared for this, and ready to say two or three things that would jolt Takeshita. He asked MIC to choose the three most impressive supporting documents to show Takeshita. One of these was an insurance policy issued by Yasuda Fire Insurance Company in Tokyo to cover transporting the certificate from the Ministry of Finance. This alone established the authenticity of the “57”. MIC briefed Haig in detail about the significance of these supporting documents, and reviewed the differences between “57s” and ordinary Japanese government bonds. 

Shortly before the meeting in Tokyo on the 27th, Haig was told that Takeshita had been acutely embarrassed by a recent series of major scandals, so what the LDP leader hoped to get from Haig was a promise to stop Japan-Bashing in America. If Takeshita could come out of their meeting with such an assurance, he might survive the scandals and resume power. 

When the two men sat down privately at 2:40 p.m., our source said Takeshita opened as predicted, asking Haig to get U.S. companies and politicians to stop Japan-Bashing. Haig replied positively, handing Takeshita the personal letter from President Bush. Takeshita then said that any agreement on settling Paraguay’s debt to Japan would have to include Japanese participation in developing oilfields in that country. With that on the table, Haig explained that one of the main reasons for his visit to Tokyo was to get Takeshita’s assurance that Paraguay’s “57” would be credited against its foreign aid debt. He showed Takeshita the “57” that Paraguay had purchased from Hanover. 

Takeshita glanced at the document and said, “Mr. Haig, this paper is a forgery printed in Hong Kong.” 

“Then,” Haig said, “please take a look at these documents.” He handed Takeshita the Yasuda insurance cover document, and the two others. Reading each document in turn, “Takeshita’s face turned pale and his voice faint.” 

“Mr. Haig,” he said, “it seems to include a very delicate problem for the settlement.” 

“Yes,” said Haig. “I agree. It’s delicate.” 

“I cannot give you an immediate reply…” 

The meeting ended, and minutes later, Haig reported all this to the MIC group in his suite. He said it was only when he saw Takeshita recoil in shock at sight of the insurance cover that he realized how serious was the secrecy surrounding the “57s”. Our source said Haig turned angrily to the Paraguayans and said, “You’re making me blackmail him!” Then he grinned and said, “That first missile hit the target!” He warned the Paraguayans and Israelis to be very careful about their personal safety while they were in Japan, because Takeshita was not happy, and he would certainly alert Japan’s secret service. 

Next day, our source said Takeshita’s personal secretary came to see Haig. Insisting on talking in the hallway where they could not be monitored, he said: “Mr. Haig, the certificate and documents are not formal. So our government cannot repurchase it.” 

Haig squinted at him and said, “So we can make it public?” 

Takeshita’s secretary turned pale. He said he would speak again to Takeshita. The second missile also hit home. 

The following morning, Takeshita’s secretary came again. “As for the problem of the certificate, many inquiries are coming to our Ministry of Finance locally and overseas, and the administration is greatly perplexed.” He paused. “We are ready to take certain measures on the certificate in question. You must treat this negotiation as strictly confidential. If a similar demand is made by another government, our administration would suffer because we are not prepared for it financially.” 

In short, Haig had succeeded, and the deal went down. But how could Haig negotiate a “57” in Miami, Washington, and Tokyo, with discussions at the FBI, CIA and with President Bush in the White House, without being arrested and prosecuted like Norbert Schlei? Federal agents always insisted it was illegal to negotiate one inside America, or even to contemplate it. 

If all “57s” are counterfeit, why did Haig succeed? If Haig’s “57” was genuine, did he still do something illegal? Does the legitimacy of a Japanese debt instrument depend on your connections to the current occupant of the White House? 

Norbert Schlei was drawn into the sting soon after Haig’s Tokyo negotiation concluded. One of Takeshita’s conditions about ending Japan-Bashing may have been that Schlei, who was asking so many embarrassing questions, must be silenced and removed from the field of play. If so, Haig certainly would have reported this to President Bush, which could explain why Schlei was then dragged into the Ah Loo case. 

There is a lesson here for investors. Financial instruments growing out of the Black Eagle Trust continue to float around the global market, like magnetic mines left over from World War II that can blow up and sink any institution or individual that comes in contact with them. If some certificates are counterfeit while others are legitimate, investors and their attorneys have a right to inquire, without fear of arrest or intimidation, whether the documents they hold are real or fake, and not to be brushed off with falsehoods. Especially when the issuing government has a history of evasiveness, and is strongly suspected of lying. When Washington demonstrates that it has a greater sense of responsibility to corrupt foreign politicians than it does to its own citizens, we may rightly ask whom it really is protecting. Washington’s main concern has been to protect and preserve a system of secret financial collusion with Japan, which has worked to its satisfaction for over half a century. And to protect the careers and reputations of U.S. Government officials involved in that collusion. In the end, how many billions went to Japanese politicians is less important than how much went into the pockets of American officials. As power corrupts, secret power corrupts secretly.

CHAPTER TEN 

THE UMBRELLA 

Today, the Philippine government denies that Santa Romana ever existed: “He’s just a legend.” Tell that to his family. We have interviewed his brother, his mistresses, and his children. We have visited his tombstone. We have amassed hundreds of documents, tapes, videos, eyewitness accounts, marriage licenses, confirmation from senior CIA officials, Marcos family members, Santy’s business associates, bank records, and lawsuits — indisputable evidence from more than 60 years that Santa Romana is real, and that his vast fortune of cash and gold bullion sleeps in banks all over the world. The gold recovered by Santy became the asset base for many secret funds like the M-Fund. He was the gatekeeper of America’s Golden Lily recoveries, until Ferdinand Marcos moved in, elbowed him aside, and took over as the new gatekeeper. 

After Santy completed his recoveries in 1947, there was a lull of twenty years before Marcos began making similar ones. During the late 1950s, small groups of Japanese returned quietly to the Philippines to recover gold under various pretexts. Some claimed to be seeking the remains of dead soldiers for Shinto reburial in Japan. Tokyo offered to help Filipinos repair war damage with ‘free’ infrastructure projects, including irrigation systems and roads that took unlikely routes through the mountains. Japanese salvage firms offered to remove the hulks cluttering up Manila Bay, and to dredge and restore the battered bay front; in the course of this work they salvaged ships that had been scuttled at the docks with bullion aboard. Japanese corporations built factories in odd locations throughout the Philippines, on foundations requiring deep excavations. When these factories were completed, Filipino workers on their assembly lines put together TVs and tape recorders, computers, refrigerators and air conditioners, which were then shipped to Japan in remarkably heavy crates. According to a CIA source, the Agency knew that gold bullion was being smuggled out of the Philippines this way, but did not interfere. 

The first time Marcos recovered gold was an accident, when he heard about two Japanese digging in Ilocos Norte, the home province of the Marcos family in the northwest corner of Luzon. Imperial Army veterans, they had hidden a small stash of their own. Marcos confiscated their gold biscuit bars. 

As a sharp young politician, Marcos heard about Santy’s recoveries and cultivated him aggressively. Being a lawyer, Marcos could make himself useful in many ways. Gradually, he began to take over parts of Santy’s operation, called The Umbrella. When he was elected president in 1965, Marcos was approached directly by Japanese underworld fixer Sasakawa Ryoichi, offering to do joint recoveries of war loot. A crony of Kodama, Sasakawa knew the location of a number of major vaults. For a substantial cut, Marcos could grant presidential authorizations. It was typical of Marcos to scavenge this way, rather than do treasure hunting himself. He did not hesitate to grant import permits for canned sardines long past their shelf life, knowing many Filipinos could die from eating them. He was equally happy to make deals with Japanese gangsters to enrich himself, and impoverish the Philippine people. 

In 1971, Marcos hijacked an extraordinary treasure that few people have ever seen, but is now world-famous. In January of that year, a Filipino locksmith and amateur treasure hunter named Rogelio ‘Roger’ Roxas crawled into a tunnel dug by the Japanese Army and found a magnificent solid gold Buddha weighing one ton. The seated Buddha, 28 inches tall and distinctly Burmese in style, had been confiscated from a Buddhist order in Mandalay, to whom it represented the accumulated wealth of centuries. 

What happened to Roxas after that is so bizarre that we took pains to base our narrative largely on the trial record of The Supreme Court of the State of Hawaii, Roger Roxas and the Golden Buddha  Corporation v. Marcos. This court case concluded with the award of $43-billion, the biggest civil award in judicial history. The court’s ‘findings of fact’ were assembled from thousands of pages of testimony, transcripts, original documents, photographs, and videotaped depositions. Neither the Marcos defense attorneys nor the Roxas legal team disputed the summary. 

Roger Roxas made a meager living at his trade in the mountain resort of Baguio, but in his spare time he was president of the Treasure Hunters Association of the Philippines. In that role, he was approached from time to time by visiting Japanese. One, Okubo Eusebio, told Roxas that as a young boy he had been an interpreter for General Yamashita. He said Yamashita had taken a large quantity of gold and silver bars from Manila to Baguio to pay and feed his troops during the last year of the war. Okubo said the ingots were in wooden boxes stacked in a tunnel near Baguio general hospital. He also told Roxas he saw a solid gold Buddha in the nearby convent that Yamashita used as his residence and headquarters. 

A mestizo named Albert Fuchigami told Roxas his Japanese father had left him treasure maps. Fuchigami’s family had a vegetable stand in the market. He said his father once took him into a tunnel behind Baguio Hospital, which had tracks for hand cars, and side tunnels full of boxes of gold. Just before his father died, he gave Albert maps. A few years later, Albert started searching but found nothing, and in a fit of anger burned the maps. When his sister found out, she scolded him because the maps were to be seen reversed in a mirror. 

Roxas was friends with the American John Ballinger, who had fought in Luzon during the war with Captain Medina’s guerrilla unit. It was Ballinger who had photographed the fake hospital ship Huzi Maru unloading bronze boxes at Subic Bay, and followed the truck convoy into the mountains where the Japanese had placed the boxes in a cave and sealed the entrance. Later, when Medina’s company infiltrated Baguio, Ballinger observed Japanese soldiers carrying heavy boxes into a tunnel near the hospital. The guerrillas attacked with grenades and machine guns, blowing the cave entrance shut and sealing some of the enemy inside. Ballinger had since gone back to live in New Mexico, where he and his son Gene started a newspaper for amateur treasure hunters. As often as they could, the Ballingers visited the Philippines. On one trip, John Ballinger told Roxas he remembered that the entrance to the tunnel they had blown shut was near a concrete pillbox. He could not pinpoint the location, because many years had passed and rainforest had grown over the pillbox. 

With the different reports from Fuchigami, Okubo, and Ballinger, Roxas was sure the tunnel existed, but it took him a long time to find the pillbox. Because it was on public land, he applied for the necessary government permit to dig for treasure. By terms of this agreement, the Philippine government was entitled to 30 percent of any treasure recovered. The permit was granted by Judge Pio Marcos, an uncle of President Marcos, whose court was in Baguio. 

In Spring of 1970, while Roxas and his team were digging near the pillbox, they found what they thought was the collapsed tunnel entrance. It took seven months of hard work to re-open, and they were sickened immediately by gas from dead bodies. They had to let the tunnel air out for a week before they could crawl inside. Near the entrance they found army radios, bayonets, rifles, and a human skeleton in Japanese uniform. After weeks of digging around a cave-in, they penetrated into a main shaft with tracks for handcars, and wiring for a crude lighting system, so they were sure it was the right tunnel. Off to the sides were branch tunnels. Beneath a layer of dirt in the floor of the main shaft, they discovered a ten foot-thick concrete slab, and began pounding on it. On January 24, 1971, they broke through and discovered the Gold Buddha. Although less than three feet tall, it was extremely heavy and ten men were needed to raise it to floor level, using a chain block hoist on a steel A-frame. Even with rolling logs, they had to struggle to drag it outside. Roxas borrowed a truck and one night he and his friends moved the Buddha to his home, where they put it in a corner of his back bedroom, covered with a bedspread. 

Resuming his exploration of the tunnels, he found a small wooden box on the tunnel floor. When he pried it open he found twenty-four small gold biscuit bars, one inch wide by two inches long, and half an inch thick. A 24-karat gold bar of this dimension would weigh about 30 troy ounces, and in 1971 would have been worth $1,050. So the whole box was worth over $25,000. Nearby, Roxas discovered a manmade chamber six feet wide by thirty feet long, filled with hundreds of neatly stacked wood boxes. Each box was the size of a case of beer cans, suitable for 75 kilo bars. He did not open any of these, because he knew what he would find – and he already had a small fortune in gold biscuits to deal with. Roxas took the twenty-four biscuits home, along with some samurai swords, bayonets and other artifacts. He left the big boxes where they were.Several days later, worried that somebody else might chance upon his discovery, Roxas blew the tunnel mouth shut. He needed to raise money before he could continue the excavation in safety, and recover the rest of the treasure. 

He sold seven of the biscuits and started hunting for a buyer for the Gold Buddha. This was his mistake. Word got around quickly. Two prospective buyers arrived and assayed the Buddha, drilling tiny holes in the body near the neck. Both determined that the Buddha was between 20 and 22 carats, typical of gold refined in Asia before 1940. 

On April Fool’s Day, 1971, a third buyer, Joe Oihara, came to inspect the Buddha. Oihara, who appeared to be Japanese, told Roxas that he was staying at the home of Ferdinand Marcos’s mother, Josefa Edralin Marcos, who had a reputation for being crafty and predatory. Oihara examined the Buddha closely and said he was interested in buying it. He promised to return in several days with a partial payment of 1-million pesos. Roxas noticed that Oihara was especially interested in the Buddha’s neck. When he left, Roxas and his brother Danilo tried to twist the head, placed a plank against it, and pounded with a hammer till it moved, unscrewing it. Inside was a cavity the size of a cookie jar, containing three handfuls of what turned out to be diamonds. Roxas removed the diamonds and stored them separately, screwing the head back on. 

Four days later, at 2:30 in the morning on April 5, eight uniformed men armed with machine guns banged on the front door of the Roxas house. Claiming to be agents from the Criminal Investigation Service of the National Bureau of Investigation, they demanded entry and said they had a search warrant. Roxas was afraid to open the door. Two of the men broke the front window of the house, pointed their machine guns inside and told Roxas he had three minutes to make up his mind: Open the door or die. 

He opened the door. Oihara was there, too. The men flashed a search warrant in front of Roxas. He saw something about “violation of Central Bank regulation and illegal possession of firearms”. Signed by Judge Pio Marcos, the warrant ordered that the Buddha and other seized property be delivered to the custody of the clerk of the court forthwith. 

Roxas was not alone in the house. His brother Danilo put up a struggle and was cruelly beaten with gun butts. Roxas, his family, and two friends who were his bodyguards were told to lie down on the floor while the armed men searched the house. When they left they took the Buddha, the diamonds, the remaining seventeen gold biscuits, the samurai swords, a coin collection, and a child’s piggy bank. They also confiscated a broken .22 caliber rifle, left at his house by a friend, and later charged him with possessing an illegal weapon. They did not deliver the Buddha or anything else to the clerk of the court. 

In the morning, Roxas reported the robbery to the local press, and police. Then he went to see Judge Pio, to ask why he had signed the search warrant. The judge said he had been ordered to do so by his nephew, President Marcos. He added that it was a shame Roxas had gone to the police and the media because now he probably was going to be killed. Undaunted, Roxas went back to the police station and signed an official complaint. 

He took his family to Cabanatuan City, northeast of Manila, to enlist the aid of the provincial governor, who assigned four bodyguards and gave him a place to hide. Meanwhile, another judge in Baguio ordered the military to turn the statue over to court custody, as specified in the search warrant. The army delayed a fortnight, while a Manila artisan quickly cast a Buddha made of brass. The brass statue, its head not detachable and bearing little resemblance to the original, was deposited at the Baguio court. 

A few days later, Roxas was tracked down in Cabanatuan by two agents of the president’s mother. They offered him 3-million pesos to declare in public that the brass Buddha was the one he recovered. At the end of April, his safety “personally guaranteed” by the Philippine Secretary of Justice, Roxas returned to Baguio to examine the Buddha, accompanied by four bodyguards, two prosecutors from the Justice Department, his personal attorney, and a number of reporters and cameramen. At the courthouse, he examined the Buddha, and bravely (or foolishly) announced that it was not his. He pointed out that the color was different, the facial features were different, the head was not detachable, and there was no sign of the tiny assay drill holes. 

The press was electrified by this simple man’s challenge to the famously predatory Marcos clan. Everybody had heard about the ruthlessness of the president, his thugs, his wife and his mother. Members of the opposition Liberal Party, excited by a chance to damage Marcos at the polls, persuaded Roxas to testify before the Senate, in an investigation of ‘The Gold Buddha Affair’. On May 4, 1971, Roxas gave a full account before the Senate. President Marcos immediately denounced the inquiry as a scurrilous, politically motivated attack, and threatened a ‘personal vendetta’. 

Fourteen days later, back in hiding in Cabanatuan City, Roxas was again tracked down and this time arrested. His captors were three Marcos agents in civilian clothing. They told him they were taking him to see the president. Instead he was taken to the home of a Philippine Constabulary (national police) officer, where he was beaten and kicked. Then they took him to Constabulary headquarters in San Fernando, Pampanga, north of Manila. In a dark, windowless cell, they showed him a picture of his wife and children. If he wanted to see them again, he must make a list of the senators who were encouraging him, and must reveal the location of the remaining treasure. Roxas refused. He was then subjected to electric shocks to all parts of his body, and burned with cigarettes. 

They moved him next to a hotel in Angeles City, near Clark Air Base, where the torture resumed. This time he was beaten about the face and head with a large rubber mallet, until he passed out. His right eye was permanently blinded, and so misshapen that from then on he looked like Quasimodo. For two weeks he was kept in the hotel room, and told repeatedly to sign an affidavit that the raid on his house had been peaceful, and the soldiers were unarmed. A lot of the questions seemed insignificant, as if they were told to torture him, but ran out of ideas. 

One day he was taken back to the Baguio court where he was photographed with the brass Buddha. That night, he picked the lock on his hotel window and escaped, seeking refuge at the home of his sister. He phoned a senator to tell him what had happened, and again was asked to testify before the Senate, which he did on June 30, 1971, reporting all that had befallen him since his last appearance, including the torture. When he returned to his home in Baguio, a man came with a letter summoning him to Malacanang Palace. At the palace, Roxas met Caesar Dumlao, a finance officer, who said President Marcos was now willing to pay him 5-million pesos for his Buddha (up from 3-million). Roxas was to come back to the palace that afternoon to get the money. By that point Roger was afraid for his life, and did not dare go back. 

In early July, he was arrested for failing to appear at a hearing on the illegal weapon charge, which had been pending since January 28, 1971. At the hearing, he was ordered jailed for failing to appear earlier. After a month in jail, he was bailed out by an attorney sent by Senator Sergio Osmena, Jr., leader of the opposition Liberal Party, whose father once had been president of the Philippines. Roxas was flown to Manila in a private plane and taken in a truck to Plaza Miranda, where Osmena had asked him to speak at a political rally that evening. Organized by opponents of Marcos, the rally drew a huge crowd, and many prominent opposition leaders were on the speakers’ platform. Roxas was asked to remain in the truck till he was called up to the platform. Minutes later, two grenades were thrown into the crowd. Ten people were killed and sixty-six wounded, including Osmena and seven other senatorial candidates. We were told by a member of the Marcos family that the grenades were thrown by men from the Presidential Security Command, on orders of Marcos, and that security chief General Fabian Ver threw one of them. Blaming the attack on communist terrorists, President Marcos suspended the writ of habeas corpus and jailed many of his opponents, calling them leftists. It was the first step toward martial law, which Marcos would declare a few months later in September 1972. 

Thoroughly frightened by the carnage, Roxas fled Manila and went into hiding for the next twelve months. When he finally went home in July 1972, he was arrested immediately by two national security agents watching his house. They took him to a naval base in Zambales province, where he was confined in the stockade. There he was questioned by the provincial commander about his original discovery of the Gold Buddha. He was still imprisoned three months later when Marcos declared martial law. General Ver came personally to see Roxas in his cell. Ver said he had been in the raiding party that had come to the Roxas house to kidnap the Buddha.

In January 1973, Roxas was again taken to Baguio courthouse, where he was tried on the charge of possession of the illegal firearm. Convicted, he was sent to Baguio prison camp, where on at least two occasions he was beaten and questioned again about the location of the tunnel of gold. After serving nearly two years there, he was released and returned home. The next month, he was visited by men who said they were from Task Force Restoration and wanted his help on treasure excavations near Baguio General Hospital. Roxas refused. 

Unable to get him to cooperate, Marcos relied on information his men obtained from torturing one of Roger’s digging team, Olimpio Magbanua. Using pliers, they pulled out Magbanua’s teeth one-by-one until he told them approximately where the tunnel entrance was. Army units were sent to probe the grounds behind the hospital, till they found the closed tunnel mouth. Nurses and patients in the hospital had ringside seats to watch the soldiers and their search. One day in 1974, hospital staff saw soldiers start carrying very heavy wooden boxes out of a hole in the ground, placing them in trucks. Each box required four to six men. In addition to men from the Presidential Security Command, there were cadets from the Philippine Military Academy. Several of the wood boxes were rotten, and when each crumbled three gold bars fell to the ground, the size of cigarette cartons – 75 kilo bars. A hospital employee estimated that ten boxes each day were loaded onto the trucks, over a period of one year, which would come to approximately 3,600 boxes, or 10,800 bars weighing 75 kilos each. During this time, armed guards were posted all around the site, keeping people away. 

Roxas knew the soldiers had found his tunnel, and were stealing the gold he had discovered, but against a well-armed military force there was nothing he could do. In 1976, resigned to his fate at least for the time being, he moved to a secret location with his family, where they remained for ten years without further incident. Roxas only surfaced again in 1986, after Ferdinand and Imelda Marcos were removed from power by the U.S. Government, and taken to exile in Hawaii. The moment had come when Roxas could strike back – a story we resume in Chapter 15. 

During the years when Roxas was being persecuted and tortured, President Marcos was pressing Santa Romana to turn over some of his big gold accounts. 

The relationship between them went back a long way. A family source told us that Marcos and Santy first teamed up in the early 1960s, before Marcos became president. The same source insists that Santy was an intimate friend of Imelda when she was a beauty queen in Leyte, implying that she had been Santy’s mistress, and that he was the first to introduce her to Ferdinand. 

In those days, Santy was a ladies’ man, handsome and vigorous. Tall, powerfully-built, with a shaved head, high cheekbones and Oriental features, he bore a strong resemblance to actor Yul Brynner. In one of the few photos we have, he wears a white Nehru suit and white shoes, towering over others in the picture, a big man with natural grace. A friend described him as “a good-natured gentleman …with a refined conduct and manner”. His charisma made him attractive to women and men alike. 

Santy had many identities, of which Severino Garcia Diaz Santa Romana was only the first. (A younger brother, Judge Miguel ‘Mike’ Santa Romana, now retired and living in Cabanatuan City not far from Santy’s grave, uses the same family name.) When Santy married Evangeline Campton, he used his father’s other name, Diaz. But in his 1938 marriage license to Julieta Huerto, he switched to Santa Romana. 

His business aliases, which he started using in the late 1940s, appear on bank documents all over the world. These include Ramon Poirrotte, Jose Antonio Diaz, Jose Antonio Severino Garcia Diaz, J. Antonio Diaz, Severino Pena Garcia de la Paz, Mateass Connea, Jose Almonte, Santy, and others. Using aliases is not illegal, or necessarily suspicious. The U.S. legal system does not regard an alias as illegal so long as it is not used for a fraudulent purpose. Pen names, stage-names, and other aliases have a legitimate place in life. As gatekeeper of the Japanese plunder recoveries, Santy used his aliases in behalf of the CIA and the Treasury Department, serving as controller and sole stockholder of a blizzard of front companies beginning with DNP Enterprises (Diaz-Nanette-Poirrotte), registered in Monaco. Because he was titleholder of bullion accounts in banks all over the world, one company was not adequate. Others included Nanette Enterprises, Collette Enterprises, Montizuma [sic], Diaz-Campton Enterprises, Poirrotte Enterprises, and Diaz-Poirrotte Enterprises. These were shell companies, set up to hide the movement of gold bullion from Manila to world banking centers. 

Santy also set up a trust in Liechtenstein originally called the Santa Romana Foundation, which later evolved into the Sandy Foundation, or (in German) Sandy Anstalt. The German variant appears as a cryptic reference in letters from Wall Street firms, including Sullivan & Cromwell, the law firm of John Foster Dulles – as if Sandy Anstalt is the name of a client everybody knows and loves. 

The corporate logo for Santy’s flagship DNP Enterprises was an open umbrella, signifying ‘umbrella organization’. But it was not just a logo. The Umbrella also was the codename for the group Santy relied on to move gold from the Philippines to foreign banks. On our CDs we reproduce a flowchart, hand-drawn and annotated by President Marcos, showing how The Umbrella grew by the late 1970s into a powerful network mingling CIA agents, Mafia godfathers, Filipino secret police, and Marcos hitmen. 

One part of The Umbrella organization was American millionaire ex-convict Wallace Groves, owner of Grand Bahama Island, whose casinos there and in Nassau were operated by mobster Meyer Lansky. One of Groves’ partners in the ownership of Grand Bahama was the Wall Street firm, Allen & Co., run by Herbert and Charlie Allen, who also had control of Paramount Pictures. The Allens owned a big chunk of Benguet Mines in the Philippines, and Herbert was a golfing crony of Marcos. (The Allens once said, “We trade every day with hustlers, deal makers, shysters, con men… That’s the way [America] was built.”) 

In a complex deal, Groves and the Allens swapped a piece of Grand Bahama to Marcos in return for nearly complete control of Benguet. This allowed The Umbrella to move war-gold out of the Philippines, masquerading as gold from Benguet Mines. Once the gold reached certain banks in Nassau, it served as part of an elaborate money-laundering scheme that included washing drug profits through the Groves casinos, then converting them into gold bars. 

Santy knew all about the deal and wrote in 1973 – during his month-long visit to the CIA and The Enterprise in Washington – that, “the Benguet-Bahamas deal, a good grade major co. swap, made instant millions for X, Y, Z groups”. 

The Umbrella served as a conduit of gold bullion for many banks identified with the CIA. Paul Helliwell, an OSS-officer who spent WW2 based in Kunming, became an intimate CIA associate of Bill Casey and Ray Cline, and was involved in moving the first generation recoveries of Yamashita’s Gold out of the Philippines. In 1950 Helliwell helped arrange the purchase of Chennault’s CAT cargo airline and turn it into Air America. In 1951, Helliwell set up Sea Supply Corp., a CIA front used to run supplies to the Nationalists in China, which also ran Nationalist opium and heroin out of the Golden Triangle for the KMT opium armies. Helliwell then ‘retired’ to Nassau where he set up Castle Bank, and Mercantile Bank & Trust, and became an intimate of Groves. Helliwell’s Castle Bank was one of a worldwide network of banks identified with the CIA, which allowed black money to move outside normal banking channels, providing offshore refuge for the ill-gotten gains of dictators, warlords, and dissident Asian military officers. Castle Bank was closely tied to the Cayman Island firm, ID Corp., whose sole owner was Japanese-American Shig Katayama, one of the key facilitators of Lockheed’s huge payoffs to Japanese politicians. When Castle Bank became notorious, it was folded and superseded by one in Australia called Nugan-Hand Bank, which had a board packed with retired U.S. intelligence officials and Pentagon brass, with CIA director William Colby as its legal counsel. When Nugan-Hand collapsed, following several murders, BCCI moved into the picture. And when BCCI finally collapsed in 1991, the CIA admitted it used BCCI for years to pay for covert operations. 

Because so much of the documentary record remains hidden, we must assume that Santy’s role was as a gatekeeper, facilitator and cutout. CIA needed deniability, so it subcontracted much of the financial routine to Santy, who happily played the role of the mysterious Filipino billionaire. When black gold had to be moved from the Philippines to a bank in Hong Kong, Zurich, Buenos Aires, or London, documents we have including cargo manifests, waybills and insurance covers show that gold was moved from Clark Air Base on U.S. aircraft, or from Subic Bay aboard U.S. Navy vessels, or from Manila International Airport aboard Cathay Pacific and other airlines, or from the bayfront on American President Lines passenger ships. The Umbrella took care of security, accompanying the bullion to its destination. The Mafia first became involved after the war when a lot of Santy’s gold was moved to banks in Italy, including the Vatican bank, as part of the CIA effort to keep the Italian Communist Party from coming to power, described earlier. 

Each time a new account was opened, Santy’s name or one of his aliases was entered as the account holder. Because he used so many aliases, he was referred to sometimes as ‘The Man With No Name’. To access any of these bank accounts required the proper bank codes, passwords, and sheaves of documents, including Santy’s own codes and jingles he learned from Lansdale. 

On the face of it, Santy remained the titleholder of these accounts, yet the assets – or their derivatives – appear to have been used by various governments, through secret earmarking arrangements with the Federal Reserve, Bank of England, Bank of Japan, and Swiss banks. 

In return for gatekeeping these accounts, Santy received a generous management fee that was never disclosed, probably a percentage of each account’s net assets. A management fee of 1 percent per year for a $1-billion account would yield $10-million; a smaller fee of .1 percent would yield an annual fee of $1- million – and there were dozens and dozens of these accounts. By the early 1970s, the accounts closely linked to Santy, and considered by some sources to belong to him, were modestly estimated to total well over $50-billion. If these accounts were his personal property, he would have been one of the world’s richest men. But he never became an international celebrity. We know that he visited Washington as a guest of a faction of the CIA in 1973, the year before he died, and continued to be employed by the CIA up to the time of his death. He had a good life with spacious homes in Manila and at Cabanatuan City, and kept a suite at the Manila Hilton. But he never bought Lear Jets, or Ferraris. He was unknown outside the Philippines, except to bankers and spooks, and was not prominent socially even in Manila. Nobody ever wrote an article about ‘Manila’s Mystery Billionaire’. His job was only one element in a very complex clandestine Cold War scenario. 

Without access to CIA or U.S. Treasury documents, spelling out their relationship more clearly, and the internal documents of the banks involved, it is impossible to deduce exactly how Santy was positioned as titleholder of these accounts. But he clearly was. 

What happened inside the Philippines is easier to grasp. Some of Santy’s money helped get Ferdinand Marcos elected president. Marcos spent twenty years grooming himself for the post, and finally succeeded in 1965. Along the way, as we recounted in The Marcos Dynasty, he did favors for the CIA and Pentagon during the expansion of the Indochina War. When Marcos got the presidential nomination, all members of his campaign team previously had worked for Lansdale. Marcos was pushed into the palace as a ‘new Magsaysay’ – America’s Boy. 

Marcos convinced the White House that he could help sell the Vietnam War to other Southeast Asian leaders by funneling bribes from Santy’s accounts at banks in Hong Kong, Tokyo, Taipei, Singapore and Sydney. These bribes were not in cash, which could be frittered away overnight, but in the form of derivatives including gold bearer certificates entitling the holder to interest on a large account. So long as the recipient behaved, he could continue to draw the interest. If he went sour, the certificate could be declared counterfeit, just as the LDP said the “57s” were counterfeit. 

Once he was president, Marcos did support the American war in Indochina, but not for free. He traded public support of U.S. policy for America keeping him in Malacanang Palace. He remained a darling of the White House till he fell out with the Reagan Administration in 1986. 

By the end of his first four-year term, he was getting terrible press. Imelda was mocked for blowing millions on weekend shopping sprees. In 1968, she spent $3.3million on a single weekend in New York City with her daughter Imee. At the same time she opened a big account at Citibank in Manhattan, where tax office documents show that Santy also had large cash and bullion accounts. There were rumors – later proved true – that the Marcoses were salting billions in foreign bank accounts, while the salary of a Philippine president was minimal. 

Despite the bad press, in 1969 Marcos won another four-year term by stuffing ballot boxes. According to the Philippine constitution, he could not run for a third term. Unable to get the constitution revised, in 1972 Marcos and his defense minister, Juan Ponce Enrile, launched a phony campaign of ‘communist’ insurrection to justify declaring martial law, so they could stay in office. One of its highlights was the grenade attack at the Plaza Miranda, terrorizing the opposition party and silencing Roger Roxas. 

Extraordinarily cunning, Marcos persuaded Santy to name him deputy director of The Umbrella. Fatigued by twenty-five years of doing the same thing over and over, Santy was beginning to drink heavily. He was losing control to Marcos, which depressed him. What tipped the scale in favor of Marcos was the fickle nature of new people rising to the top of the CIA hierarchy, men who did not share wartime experiences in the OSS, memories of the good old days as China Cowboys, or of the formative years of the postwar CIA when everybody was a Cold Warrior engaged in dirty tricks. The Old Guard knew Santy first-hand, and valued him. 

Marcos knew that some of Santy’s accounts had lain dormant for years, as new people in the CIA lost track. He leaned hard on Santy to transfer these dormant accounts to him. Marcos was particularly fixated on the Sandy Foundation. Physical violence always was implicit at Malacanang Palace. It was widely known that people had been tortured and murdered in a part of the palace called the Black Room. Anyone who crossed the president was murdered in grisly fashion, corpses left by the roadside with eyeballs plucked out, hanging on their stalks – the signature of General Ver. 

Worried, Santy began taking steps to protect himself, and to protect his personal accounts from seizure by presidential decree. Among the people he enlisted was a Filipina named Tarciana Rodriguez. He made her the official treasurer of all his shell companies, putting her in charge of billions in cash, bullion, gold certificates, stocks and other assets all over the world. In a deposition prepared for Philippine courts, Tarciana described how she first met Santy in August 1971. She was running a small accounting firm and secretarial service when she was introduced to him by her cousin, Luz Rambano, who was Santy’s mistress during the last three years of his life. (Some sources said Luz was legally married to him, but divorce does not exist in the Catholic Philippines, so he was still technically married to Julieta Huerto.) 

Luz brought him to Tarciana’s office, figuring that he needed an accountant and bookkeeper he could trust. Later, when Tarciana came to his suite in the Manila Hilton as his chief accountant, she realized he was a significant figure in the financial world. 

“It was in my mind then that he must be somebody because, to be billeted in a Five-star Hotel in the 70s was an indication of a symbol status of a person or VIP, especially he was only a Filipino. [sic] In my going to and fro to his Hotel accommodation, what amazed me so much, there were many people of different nationalities who often visited him …Bankers, Brokers, Business associates… he was a very famous personality especially to all the Banks concerned throughout the world.” 

From then on, Tarciana did all the bookkeeping and secretarial chores for Santy’s shell companies. Although she never asked indiscreet questions, she was puzzled by his eccentric habits. If he could afford a year-round suite at the Hilton, just across the street from the CIA station in the Magsaysay Building, why did he dress in patched clothing? Then she discovered the patches were not covering holes. He was disguising himself to fool Manila street toughs, who watched people come and go from the hotel. 

After Marcos stole the Gold Buddha and had Roxas beaten to a pulp, Santy took Luz Rambano with him to open an account at the Manila branch of First National City Bank (now Citibank). According to her deposition: “$43-million U.S. dollars in cash was deposited in the presence of bank officer James J. Collins. The transaction was unusual in that the cash was in small denominations and it took six (6) days for bank personnel to count it.” Not something a banker would forget. When Luz later hired San Francisco attorney Mel Belli to sue Citibank and recover this and other money, “Collins had his deposition taken in New York City and denied that he was ever involved in establishing this account. Collins denied that the transaction ever took place, and stated that he did remember Severino Santa Romana coming into the bank on one occasion in 1971 ‘talking about borrowing some money for some venture’.” 

What was Santy doing with $43-million in small bills? Being a rich eccentric, with fake patches, he may have kept money in wall safes in offices and homes all over the Philippines. It may also have been currency confiscated by the Japanese Army from Southeast Asian banks, which never got back to Tokyo. When Marcos scared him, he and Luz put it in laundry bags and took it to National City Bank. If they thought it was safe there, they had surprises in store. 

He also rented nine safety deposit boxes at the same bank, which Luz said he filled with cash and jewelry. According to a Marcos family source, just before martial law Santy transferred $800-million out of the Philippines, moving it from First National City Bank Manila to Citibank New York. 

He did this none too soon. On February 27, 1973, Santy was brought to Malacanang Palace where, in the president’s private office, Marcos made him sign a typewritten ‘Will and Testament’. This document said Santy had been using various names “for personal reasons, security and preservation of my properties, real, personal, cash/money in different currencies, treasures and other forms of bank deposits.” It goes on to say, “I had acquired various properties …presently on deposit” in Manila, Hong Kong, California, Switzerland, New York, Argentina, Singapore, Taiwan, Germany, Australia, and various Asian countries. 

This Will then named “my wife, Julieta Huerto, as my successor of all my properties as above mentioned, with full power and authority that upon my death, may appoint other persons to act as my Administrator subject to the approval of the Court on probate”. This Will was reluctantly signed by Santy and witnessed by his business partner Jose T. Velasquez, and two Marcos flunkeys, Gil de Guzman and presidential secretary Victor G. Nituda. Although technically it made Julieta Huerto his sole legal heir, on his death Marcos easily could oblige her to appoint him administrator of the estate, so he could gain control of all Santy’s accounts. 

A few months later, in March 1973, Santy had another attack of nerves and moved $500-million from Manila to the Hongkong & Shanghai Banking Corporation (HSBC) central branch in Hong Kong. This sum, plus the $800-million transferred to Citibank New York, meant he had now moved $1.3-billion in cash out of Manila. During the same period, records show that he also moved 1,640 metric tons of gold to a Hong Kong bank that was later taken over by Japan’s Sanwa Bank. Soon afterward, on a trip to Tacloban on the island of Leyte, Santy drank too much and spoke too loudly of his fears, for he and Luz were arrested. Martial law allowed Marcos to arrest anyone. 

Tarciana received a long-distance call from Santy saying they were being held prisoner at Camp Bampus, an army base on the island. He told Tarciana they had been arrested for ‘rumor-mongering’ (talking about Marcos behind his back). He asked Tarciana to come to Leyte as soon as possible. When she arrived, he told her to deliver a letter personally to the Citibank vice president, and gave her a safe deposit box key. The letter to Collins authorized Tarciana to open his nine safe-deposit boxes. Box One held keys to the other eight. Box Two contained cash, from which Tarciana was to pay the box rental fees. Box Three contained jewelry, which he wanted her to bring. When Tarciana got to Citibank with the letter and key, she was told Collins was out of the country, and to come back some other time. 

Over the years, Santy had been protected by the CIA, and by General Lansdale in particular. But in 1973 the Agency was in turmoil. A number of senior people were sacked, or resigned in disgust rather than be posted to remote backwaters. These men were now intent upon setting up their own private covert organization, or ‘shadow-CIA’. Where the CIA often was called The Company, the new shadow-CIA would be called The Enterprise. (In a later chapter, we will look more closely at the circumstances, and some of the curious consequences.) 

In the midst of this turmoil, Santy was invited to Washington as a private guest of the disaffected old guard, including Lansdale, Helliwell, Cline, and others. For over a month, they regaled him with stories about OSS days, about the fight against Mao and the escape to Taiwan, how they turned Claire Chennault’s Civil Air Transport (CAT) into Air America, and briefed Santy on CIA’s other black ops in Latin America, Africa, and behind the Iron Curtain. Each night he went back to the Mayflower Hotel and sat down with a tumbler and a bottle of Scotch, to make notes. His sloppy handwriting, and occasional mistakes in dates and spellings, were attributed by Tarciana to the whisky. In the notes, Santy describes in striking detail many of the CIA’s covert operations that did not become known to the American public until years later: How the CIA went about setting up proprietaries, like his own DNP Enterprises; how many of these companies were airlines and transport services, arms suppliers, or private mercenary forces, to support secret wars like the one in Angola. People, he said, were “paid pensions…to maintain silence”. He commented on the moral dilemma posed by many of the Agency’s operations: “While ethics of transaction are questionable, conflict of interest laws do not apply to CIA”; expenditures made “w/out regard to provisions of laws”; bankrolling agents “living up their cover”. He seemed nervous that: “Langley headquarters sometimes only has vaguest notions of what certain proprietaries are up to”. Near the end of his notes, Santy wrote that the CIA and the Nixon Administration were convinced that Asia as a whole was a mess, and this justified long-term interference by the United States: “…strongly implied continued open American intervention [in] internal affairs of Third World Asean Cartel members”. 

What the old guard wanted from Santy, now that they were setting up their own private CIA and private military forces, was access to some of the black bullion accounts that Washington had lost track of. They knew Santy also had a number of very large personal accounts that were dormant, and they wanted him to make these available. 

Pressed hard by Marcos, by the CIA, and by this new shadow-CIA, Santy decided to take further steps to protect himself and his assets.

When he got back to the Philippines and had time to think it over, he phoned Tarciana on August 1, 1974, and asked her to come see him in Cavite City. When she arrived he gave her a document officially and formally appointing her National Treasurer of DNP Enterprises, “to have custody of and be responsible for all the funds, securities and bonds of the corporation” and “to deposit in the name and to the credit of the corporation” as advised by DNP National Chairman Jose T. Velasquez, Jr., his old friend and business partner. He also gave her instructions about what to do with Santy’s accounts at Wells Fargo Bank and Hanover Bank. She asked why he had not chosen a more sophisticated person. He said, “You are the only person who can be trusted.”

Santy was having a moral crisis. It was thirty years since he took charge of torturing Major Kojima, in the anguished period immediately following the rape of Manila. By 1947, his recoveries of Golden Lily vaults were concluded, and he began to enjoy big income from his commissions. Because he preferred a simple life, his assets grew until he had far more money than could ever be spent. A good man at heart, he became mellower as the years passed. The treachery and cruelty of Marcos had taken him by surprise. Then in Washington he had been confronted by old men he hardly knew, who regaled him with stories of assassinations, atrocities, political kidnappings, and grand deception that made a mockery of humanity. For them World War II had never ended. For the first time, Santy began thinking of himself as a paymaster for scoundrels and death squads, and it depressed him.

As a safeguard, he had Tarciana, Luz, and Jose Velasquez sign specimen signature cards at HSBC’s Manila branch, forwarded to the Hong Kong central branch, to open an account that could be accessed by all three. He obliged Luz and Tarciana to memorize all his aliases, his many companies, where they were registered, and all the banks where he had accounts. He gave them lists of the account numbers at each bank, code words and phrases, and all the paperwork needed to gain access to the accounts. 

He was drinking more heavily, and his liver was in bad shape. By late August, Tarciana noticed “restlessness and uneasiness… he was very sick and short of [breath]”. On September 13, 1974, he collapsed and was admitted to the San Juan de Dios Hospital in Pasay City. At his bedside, he told Tarciana it was time to open the safe-deposit boxes. He gave her the insurance policies of all the trust certificates, and handed her a piece of paper about the color code, plus “many instructions, quotations and stories about his exploits and adventures of his life”. 

In the hospital on September 21, he wrote out in long-hand a new four-page will: “I’m pressed for Time, so no matter how incoherent this peace [sic] of note may seem Please Take it in the light it is given.” He makes reference to the terms of his Malacanang Palace will, which he was forced by Marcos to sign. In this new will he mentions a number of ‘live’ (active) bank accounts at HSBC’s Hong Kong main branch, and others at Citibank Manila. He names fourteen people as beneficiaries of sums from several bank accounts. From numbered accounts at Citibank Manila he authorized distribution of over $65-million. From HSBC’s Hong Kong branch, he authorized distributions in excess of $200-million, and another in excess of $80million. Another $120-million at HSBC was set aside for ‘the people of Leyte’ and for ‘all the people I’ve forgotten to mention’. There were also distributions to be made from his personal account in the Citibank branch in the Philippine city of San Juan, of over $50-million, plus another 10-million in pesos. The beneficiaries include his two sons by his first marriage, Peter and Roy Diaz, here called by their Spanish names Pedro and Rolando. (This holographic will has been probated before courts in the Philippines and the United States, and is reproduced in our CDs.) 

After twelve days in the hospital, his daughter Flordeliza Tantoco Santa Romana (often called just Liza Tan), discharged her father into her own care. Santy was afraid to leave the hospital but Liza wanted him to die at home. She took him to his house in Cabanatuan City, where he died in bed a few days later. The cause of death was cirrhosis of the liver. 

According to a knowledgeable source in the Marcos family, Major General Lansdale immediately arranged to move ‘all of Santy’s remaining gold bullion at Citibank Manila’ to Citibank’s main office in New York City. Exactly how he could do this is difficult to say, unless he was able to contrive a power of attorney in Santy’s name. One motive certainly was to get the gold out of Manila before it could be expropriated by Marcos. 

With another wave of the magic wand, some of Santy’s big accounts at other banks, notably one at UBS Geneva said to contain 20,000 metric tons of gold and listing Santy as the holder of record, were changed to list Major General Lansdale as the holder of record. (UBS documents spelled his name Landsdale, evidently as part of the agreed coding.) Did Lansdale have these accounts moved to bring them under greater CIA control, or under greater control by The Enterprise and its powerful conservative backers, including the John Birch Society and the World Anti-Communist League? The answer is surely the latter. 

If Marcos thought Santy’s death would give him control of all those accounts, he was disappointed. His relationship with the CIA and the White House was becoming turbulent. He thought he could manipulate them. The White House and CIA thought they could manipulate him. They were both right, so long as there was more gold to recover, and Santy’s dormant accounts were there to fight over.

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POINTING THE WAY

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