A tale of drugs, dirty money, the CIA and the ousting of the Whitlam government
In November 2015, a news item appeared in a weekday edition of The Australian about the reappearance of Michael Hand, now 73 years old and openly living in the US State of Idaho, who is running a business supplying combat weaponry and hunting knives. An appropriate choice considering his background. But few Australians will either know or remember much about his role in the notorious Nugan Hand Merchant Bank which, with its other two founders, Frank Nugan and Bernie Houghton, was set up in Sydney in 1973 with a paid-in capital of $1 million.
Nugan claimed the money had come from astute share dealings during the 1970s mining boom, although his colleagues were sceptical. For good reason. Frank Nugan had less than $20,000 in his bank account when he’d written a cheque for $980,000 and Nugan Hand Ltd had a mere $80.
But Nugan Hand was not a bank at all. It was an “unbank” that never did any banking nor hired any bankers, but became the centre-point in this country for a vast clandestine empire involved in drug-running, money-laundering, fraud, secret arms deals and covert intelligence operations, employing enough US Admirals and Generals to start a mini-war.
Its line-up included top brass in the persons of General Edwin Black who ran the Hawaii office, General LeRoy Manor who ran the Philippines office, General Erle Cocke Jnr who ran the Washington office and Rear Admiral Earl “Buddy” Yates, the bank’s president. Its “consultants” included former CIA deputy director Walt MacDonald and Guy Pauker, personal adviser to Kissinger and Brzezinski.
Nugan Hand’s lawyer, former CIA boss William Colby, had retired from the agency after a long and controversial career in clandestine services. Colby ran the notorious Operation Phoenix program, an assassination and terror group responsible for the torture and deaths of an estimated 40,000 Vietnamese suspected of having Viet Cong connections.
Sacked by President Ford in 1976 for malfeasance, two decades later Colby died in strange circumstances. He was not a popular man in the intelligence community. Many considered him a traitor for testifying before various congressional committees. In the event, officialdom claimed Colby had gone out in his canoe and drowned, but his body didn’t turn up for nine days, looking as if it had been immersed in water for only one or two days before being tossed in. Even more puzzling, divers had thoroughly searched the same area many times before.
Incredibly, since Nugan Hand’s collapse in 1979 and despite four investigations, we still only know a small part of the story and its impact on Australian society. Not surprisingly, a great deal of material was suppressed, shredded or “disappeared”, but in this article I have put together what is known, including some of my own material written at that time, trying to make sense of the workings of what was virtually a secret government that operated around the world unchecked for more than four decades.
The links between organised crime and intelligence agencies are not new, but Nugan Hand’s influence extended way beyond a bevy of crooks out to make a quick buck. In intelligence jargon, it was a “conduit” set up to influence Australian politicians, trade union officials and journalists, some of whom were probably unaware of the source of favours and of disinformation.
Slush fund for Opposition
A Nugan Hand principal, Karl Schuller, gave evidence that the CIA had transferred a slush fund of $2,400,000 to Australia’s opposition parties in March 1973, a mere four months after Gough Whitlam was voted in as Prime Minister of Australia.
Former CIA officer Victor Marchetti confirmed that the CIA had given funding to anti-Labor parties, but no documentation was ever found, probably because thousands of documents were destroyed, underpinning the reality that secret agencies are not an aberration, but are a fundamental part of society to maintain the existing power structure.
Nugan Hand has particular relevance for Australia because some of its people were directly implicated in the destruction of the Whitlam Labor government in November 1975. The day after the election at the end of 1972, Whitlam announced that he did not want his staff vetted by ASIO, bringing a furious response from the “security people” who passed the message on to the Americans.
The CIA man at Canberra’s US Embassy curtly told a local journalist: “Your Prime Minister has just cut off one of his options.” And apparently all the others. It soon became abundantly clear that the CIA was planning to deal with the upstart Labor government with the arrival of Marshall Green as the new US Ambassador, the only politically notable person ever appointed to the post.
According to the Pentagon Papers, Green was a high-ranking policy-maker in South-East Asia, had lectured at the CIA-sponsored Centre for Strategic and International Studies at Georgetown and been involved with at least four other countries that later sprouted coups. As Ambassador to Indonesia from 1965-69, Green played a crucial role in the events that led to the massacre of at least one million Indonesian “communists” in the violent overthrow of President Sukarno and was quite blatant in his dealings with ALP leaders.
One senior minister, Clyde Cameron, reported that a threat was made by Green in his own office to the effect that if Labor handed control and ownership of US multinational subsidiaries to the Australian people “we would move in”. And “move in” they did.
Destabilisation of a government
The task of destabilising the Whitlam government was given to Task Force 157, a mini-CIA set-up in the mid-1960s under the umbrella of US Naval Intelligence so that its real controller, Henry Kissinger, could deny any connection. Task Force 157 used several cover organisations incorporated in Sydney, including Australasian and Pacific Holdings, World Maritime, Aeromaritime and Pearce Morgan, but its most important front in this country was undoubtedly the Nugan Hand Bank. Its CIA contact man was Ted Shackley, who dealt directly with Hand and Houghton. A Cold War veteran, Shackley ran the agency’s activities throughout South-East Asia and later became number two in charge of its entire clandestine service.
In 1974, Watergate hit the headlines, a corruption scandal that swirled around the Nixon White House, exposing the President’s part in the brutal coup d’état that destroyed Chile’s Allende government a year earlier. On the first anniversary of the coup, Whitlam addressed the United Nations General Assembly warning against moves to bring about political and economic change by “unconstitutional, clandestine, corrupt methods, by assassination or terrorism”, suggesting he knew his government was also under attack, but apparently unaware that at least two ASIS agents were operating out of the Australian Embassy in Chile directly under the control of the CIA during the time of the coup.
A mere three months after Whitlam’s UN speech, Christopher Boyce, son of an FBI agent and cipher clerk at TRW Incorporated, a Californian aerospace company and important CIA contractor, was sent to work in the “black vault”, the code room where top secret messages were received and deciphered from US bases and satellites from around the world, including Pine Gap.
While discussing Watergate and Chile with his long-time friend Andrew Lee, Boyce said: “You think that’s bad? You should hear what the CIA is doing to the Australians.” The duo became an unlikely amateur spy network, but Lee was a drug addict, mentally unstable and desperately needed money. He flew to Mexico City, went to the Soviet Embassy and sold the document to the Russians for US$76,000, naming Christopher Boyce as the source, even though he’d promised not to do so.
Prosecuting lawyers did not refute Boyce’s allegations but agreed to a direct CIA request that their client would not mention the “Australian information” at his trial. Boyce and Lee were convicted.
“Our man Kerr”
Lee got life and after a “psychiatric assessment” Boyce was sentenced to 40 years jail in a federal penitentiary where he was kept in solitary confinement. It is claimed that his only hope of freedom rested on his continued silence about events in Australia. But in an interview he gave to Australian journalist Bill Pinwell, Boyce made specific mention of one name, Governor-General Kerr. The CIA referred to him as “our man Kerr”.
Boyce also mentioned that our unions were infiltrated by agents who manipulated them on CIA orders to prevent strikes and that the US was only disclosing a fraction of Pine Gap’s activities to us, ignoring the treaty that permitted the base. In Robert Lindsey’s book The Falcon and the Snowman, Lindsey surmised that the Soviet Union might have tipped off the Labor Party about the information it had received, leading to questioning by Whitlam.
By the end of 1974, almost every move by the Whitlam government or by individual parliamentarians, whether it was a departmental decision, a staff appointment, an international cable, telex, phone call or confidential letter, became the property of the media in an unparalleled campaign of personal vituperation, hinting at incompetence, dissension, corruption and scandal within government ranks. Hardly surprising that in this atmosphere of intolerable pressure mistakes were made.
Things were coming to a head. US Ambassador Marshall Green had left Australia, no doubt believing it was better to distance himself from events that were about to unfold. In late October 1975, Whitlam sacked the head of ASIS, our overseas secret agency, for failing to disclose its activities in East Timor.
He then asked his foreign affairs department for a list of all CIA officials who had served in Australia after it came out that a CIA officer, Richard Stallings, was a friend of conservative National Country Party leader Doug Anthony and had rented Anthony’s home, further infuriating our “pals” in Washington.
On November 8, 1975, Shackley called in ASIO to say: “that the CIA was gravely concerned about the actions of the Whitlam government”, apparently on the behest of Secretary of State Henry Kissinger, demanding that the “message” be relayed at once to ASIO’s Director-General. On that same day, the CIA reported to President Ford.
Two days later, on November 10, ASIO Acting Director-General Frank Mahoney received an extraordinary telex from his Washington office stating that the Australian Prime Minister was a security risk in his own country and openly threatened to cut US-Australian intelligence ties. A message with the express purpose of convincing Governor-General Kerr to dismiss Whitlam?
Pine Gap and the “Loans Affair”
A crucial date was coming up. The Pine Gap Treaty signed on December 9, 1966, stated that after an initial nine years, either party could terminate the agreement on one year’s notice, which would determine the fate of the CIA’s most valuable overseas base.
It was widely believed that Whitlam would have renewed the lease but that may not be the case. In response to a series of questions on foreign policy from the Socialist Party of Australia [now Communist Party of Australia – Ed], first published in The Socialist on October 22, 1975, Whitlam gave a detailed reply. He included a quote from Hansard given on April 3, 1974: “The Australian Government takes the attitude that there should not be foreign military bases, stations, installations in Australia. We honour agreements covering existing stations. We do not favour the extension or prolongation of any of those existing ones.”
On December 9 Whitlam would have been empowered to act but he didn’t get the chance. Parliament returned on November 11 when Whitlam was sacked by Governor-General John Kerr using archaic constitutional powers, dangerous powers still in place.
Whitlam’s “crimes”? He pulled us out of the Vietnam War, stopped conscription and released the young men jailed for non-compliance with the draconian National Service Act, abolished the White Australia Policy and assumed responsibility for Aboriginal health, education, welfare and land rights, initiated pay rises for workers, started MediBank [predecessor of Medicare – Ed], abolished university fees, established legal aid and relaxed censorship and divorce laws, among many other initiatives.
But it seems his biggest “crime” was the “Loans Affair” committed by Minister for Minerals and Energy Rex Connor who tried to “buy back the farm”, in other words, buy back our foreign-owned resources.
The facts? Ruling circles in OPEC countries had accumulated vast sums following the 1973 leap in oil prices and made loans to the governments of Britain, France, Denmark, Italy and Japan without causing a commotion.
An Australian Executive Council meeting in December 1974 had authorised Connor to seek loans of up to $4,000 million “… to deal with the international energy crisis, to strengthen Australia’s external financial position, to provide immediate protection for Australia in regard to supplies of minerals and energy …”
The authority was not given to Treasury because of the known treachery and hostility of departmental heads to the government. Although the decision was supposed to be secret, it didn’t take long before offers arrived from some strange quarters. The government was a sitting duck for a CIA pincer movement in the “Destroy Labor” stakes.
In Lane One, Tirath Khemlani, Pakistani con-man, arms-dealer, “commodities merchant” minus an office, who was ordered to approach Connor by a Hong Kong arms firm closely associated with Commerce International, a powerful Brussels-based armaments company linked to the CIA. Connor checked Khemlani’s credentials and was given a firm OK by a London bullion firm.
In Lane Two, Melbourne businessman George Harris, friend of the Liberal Establishment, who contacted Federal Treasurer Jim Cairns with an offer of overseas loan money. Harris’ overseas backers came from the New York office of Commerce International, the same firm lurking in Khemlani’s murky background. Both had track records that should have made them singularly unattractive to their Labor backers. Harris got the thumbs down, but didn’t give up.
At a later meeting in Cairns’ office in March 1975, Harris produced a letter from a New York company offering $4,000 million at 7.2 percent interest with an outrageous 2.5 percent brokerage with the money supplied by Commerce International, an offer flatly rejected by Cairns.
Harris was left in an outer office to dictate a draft letter of authorisation to one of Dr Cairns’ secretaries, a Miss Stegman, a friend of Harris. She handed over the signed letter and he swiftly exited. It was addressed to Alco International and endorsed a 2.5 percent commission, a condition that had been flatly rejected by Cairns only a few minutes earlier. A depressing saga that developed a life of its own and had more twists and turns than the Big Dipper.
Despite the howls of the media not a cent was paid to anyone by the government, nor did any member of the government profit from the affair. The anti-Labor forces, however, profited greatly. The media continued to hammer the “Loans Scandal” and continued to publish pages of leaked telexes and documents, most of which were of mind-numbing triviality.
This did not matter, as the technique was meant to convey the impression of scandal by flinging glaring headlines across the page assuming that the expanses of fine print underneath would be accepted as damning evidence by most readers who wouldn’t bother churning through it to discover its irrelevancy. Connor’s and Cairns’ crime was stupidity not theft.
For lack of anything more substantial, Opposition leader Malcolm Fraser seized on it as the “reprehensible circumstance” he had been waiting for and on October 15, 1975, the anti-Labor opposition used its single-vote majority in the Senate to block supply.
Five days before, eight leading Professors of Law had publicly declared that blocking the budget was “constitutionally improper” and “against all established convention”, but were largely ignored, like a number of vital questions that remained unanswered:
Who leaked the documents that were bandied about so freely? Why did so many of them surface overseas, particularly in the US? Who brought out Khemlani and introduced him to Labor ministers? Who turned the “loans affair” into a major negative issue?
If successful, it would have been a far better proposition than our involvement with transnationals. Before the coup, trade unions had threatened retaliatory action and with genuine leadership, the entire country could have been tied up in a national strike with more crowds out on the streets than during the Vietnam War.
A mass movement would have rocked the conspirators and forced the Governor-General to resign, but such leadership was lacking. Bob Hawke, president of the Australian Council of Trade Unions and member of the ALP Federal Executive flew to Canberra and issued an appeal to workers to “cool it”. And Whitlam’s rage was mainly directed at the Governor-General and not against the forces that stood behind him.
Whitlam and his colleagues were deprived of the normal prerogative of a retiring government, of choosing the date and issues for an election and the nature of the dismissal had made them look as if they were convicted criminals, lending credence to the continuing cries of scandal from anti-Labor forces. They were even denied access to information that would normally have been made available.
In any event, it appeared as if they were dazed by the coup and incapable of analysing how and why it had occurred. On December 13, the anti-Labor forces regained control of parliament, which they regarded as their birth-right. And on January 22, 1976, Fraser became Prime Minister and paid his dues to US imperialism and the CIA by giving them everything they asked for, offering them the Cockburn Sound Naval Base even before they had put in an official request. Aussie forelock-tugging at its finest.
The National Intelligence Daily reported that “the Fraser government had underscored the importance of Australia’s ties with traditional allies, correcting what it saw as the tendency of the Labor Government to ignore such ties in the pursuit of Australian nationalism … Canberra will push ahead with the construction of a new naval base on the Indian Ocean coast of Western Australia … On the matter of port calls by US nuclear-powered warships, Canberra is not expected to impose obstacles …”
Fraser was also seen as a plus for US business interests. “Direct government involvement in the mineral and energy field will be greatly reduced by the Fraser Government, a development which will tend to reassure potential foreign investors … The Fraser Government has promised incentives for oil exploration and production.”
Much has been written about the role of Kerr in the removal of the Labor Government, about his arrogance and pomposity and his close relationship with High Court Chief Justice, Sir Garfield Barwick, but almost nothing about his far-right views and long-standing ties to military intelligence.
During WW2 he was a member of the hush-hush “Directorate of Research and Civil Affairs” set up to counter “enemy elements” in Australia. Kerr was then sent to Washington where he had a brief stint with the Office of Strategic Services (OSS) which morphed into the CIA. In the 1950s, he became chief legal adviser to the “Industrial Groups” which was strongly linked to the virulent anti-communist Democratic Labor Party whose destructive behaviour had kept Labor out of office for 23 years.
Kerr became an enthusiastic member of the elite, invitation-only, Australian Association for Cultural Freedom, which in 1967 was exposed in Congress as being founded, funded and run by the CIA. The group, like other similar CIA-backed outfits, held seminars and gatherings with the over-arching theme of anti-communism.
In the 1960s as its founding president, Kerr helped organise and run the Law Association for Asia and the Western Pacific, travelling to the US to get funding from a tax-free group called the Asia Foundation, a mob also exposed in Congress as a CIA conduit for money and influence.
Victor Marchetti, a retired CIA officer, wrote in his book The CIA and the Cult of Intelligence that: “the Asia Foundation often served as a cover for clandestine operations … the CIA paid for Kerr’s travel, built his prestige and even published his writings through a subsidised magazine. He continued to go to the CIA for money.”
During Ambassador Green’s tenure, Kerr received personal briefings on “international affairs”, giving him special access to matters which were to dominate Australian political life during 1975.
When asked about his dodgy connections, Kerr said: “he was pretty sure he was unaware of the CIA’s concern”. What garbage! But why didn’t Whitlam do his homework before appointing this creep? And why do academics who write about the dismissal treat it as a home-grown plot when there is abundant evidence of CIA involvement?
And why do they play down the profound effect the ousting of the Labor government had on the Australian body politic, spelled out by Whitlam at the Australian National University on October 29, 1975, a mere 11 days before he was sacked: “the question is whether any duly elected reformist government will be allowed to govern in future. What is at stake is whether the people who seek change and reform are ever again to have confidence that it can be achieved through the normal parliamentary processes.” A question that can only be answered in the negative.
* Joan Coxsedge is a epolitical activist, artist and writer who authored Thank God for the Revolution (1984), Cold Tea for Brandy (2013), Old Cuba, World Heritage (2014), and co-authored Rooted in Secrecy (1982).
NB The above is the first part of a long article by Joan Coxsedge which will shortly be published in full as a pamphlet by the Guardian.