NARCO-POLITIK: The Opium Diaries, Successors of the Opium Smuggling Trade, Venture Capital and “Dirty Profits”

From Opium to Dirty Money

The starting point for the drug cash flow is the cash size of the opium and heroin traffic in the Far East itself, before the drugs obtain the stupendous price markups available in Western markets.

The price pyramid is known to be the following:

1. Raw opium, the gum of syrup extracted from opium poppies, is produced in the Golden Triangle, the conjunction of the southern border of the People’s Republic of China (Yunnan province), and the northern borders of Thailand, Burma, and Laos. The mountainous terrain, largely above 4,000 feet in elevation, provides ideal growing conditions. Mountain peoples, rather than ethnic Chinese (including those in Yunnan province), grow the opium and collect the gum. The merchant purchasing the gum pays roughly $100 a pound, (1) at collection points such as Lashio or Misai in Burma.

2. By the time the merchant, typically a Yunnanese, has brought the gum by mule train to the triborder area, e.g. Tachilek or Chiengrai in Thailand, the price has doubled, to $200 a pound. (2) At this point the opium is either refined into heroin at refineries located in the triborder area itself, or earmarked for the large Far Eastern market for smoking opium and related derivatives.

   Existing data permit the estimate that a division of an average 700-ton crop into 300 tons for heroin refining and 400 tons for opium shipment for Far Eastern smoking purposes is usual. (3)

   The $200 pound price at the triborder area is the price paid to the local agent by a wholesaler based either in Bangkok, Rangoon, or Hong Kong. Any distinction among these cities is meaningless. The business structure of the area is under the control of two principal groups that straddle the Far East. The first is the old British banks and trading companies, including the HongShang, Jardine Matheson, Charterhouse Japhet, Swire’s, and the Peninsular & Orient Lines. The second, their satellites, is the overseas Chinese networks, under the joint control of London and Peking.

   The wholesale value of the 700 tons of annual opium product in the Golden Triangle, prepaid in the triborder area, is roughly $280 million. The $280 million figure, compared with the Gross National Product of Thailand, is considerable; it is like $35 billion in terms of the American GNP.

    

3. But this wholesale figure is only a small portion of the cash flow of the Far East drug traffic. The next wholesaler, the Bangkok merchant who buys from the first wholesaler, pays about $1 billion for the equivalent of 700 tons of opium in the form of either raw opium or refined heroin. This is roughly four times what the opium was worth at the first wholesale round. The majority of production is retailed locally at large markups (although the markups are much smaller than in the case of heroin retailed in Western countries).

   While no hard estimates are possible, the cash flow in the Far East related to this first phase of opium production alone could not be less than $1 billion. That by itself is 15 percent of the estimated assets of foreign banks in Hong Kong, or 10 percent of estimated bank assets of foreign banks in Singapore, or precisely Thailand’s 1977 balance of trade deficit!

   Measured against the size of economic activity in the regions, there is no possible way to chalk these numbers up in the “Errors and Omissions” column. The cash must go through nominally legitimate channels, in such volume that the nominally legitimate channels — like the HongShang — cannot possibly be unwitting as to the origin.

   Even these numbers do not sufficiently reflect the scale of the cash flow derived from crude opium sales alone. It must be added that most of this cash flow is seasonal; virtually all wholesaling must be completed during the two months following the March poppy harvest. Correspondingly, the visible flow of drug-related funds is several times as large during those two months.

    

4. Finally, the wholesale and local retail cash figures presented above exclude what is possibly the largest component of Far Eastern narcotics money: the reflow of funds back to the Far East from sales made in the West. The narcotics wholesaler in Bangkok or Rangoon or Hong Kong with direct contacts with the growers and control of refineries has paid about $2,000 a pound for the refined heroin. Between him and the street corner, the same pound of heroin will undergo three markups of 1,000 percent. Its ultimate retail value (for pure heroin) will be close to $5,000,000 per kilogram, according to official DEA figures, or $2.27 million a pound, with a total of $25 billion for Western sales.

   What portion of this markup, and, in what quantity, accrues to the Far East wholesaler?

   There is no possible way to estimate this. According to the record of arrests of heroin smuggling, a substantial portion of such smuggling is conducted directly through expatriate Chinese channels, like the Hong Kong-to-Vancouver route, (4) and the notorious activities of the China Sailors’ Union of Hong Kong.

   However, it is this markup that pays the wholesaler’s out-of-pocket costs, including the original purchase from the highlands merchant, the refining, the huge quantity (perhaps 300 tons annually) of acetic anhydride used in heroin refining, security, bribes, transportation, warehousing, and so forth.

   
   GOLDEN
   TRIANGLE
   
   Figure 1
   

   If the annual profit of the Golden Triangle operators is in the range of $5 billion — or a mere one fifth of the annual retail sales of heroin in the West — then the total cash flow in the Far East related to drugs is not $1 billion, as above, but $6 billion. The actual reflow is probably several times that sum. Some of the $5 billion may be banked elsewhere than in the Far East.

   The comparisons to the size of the region’s economic activity become all the more grotesque: Thailand’s 1976 total exports were only $2 billion. Even the $6 billion figure does not include the huge Far Eastern market for opium and heroin consumption. Added in, the retail volume brings the total close to $10 billion — twice Hong Kong’s money supply.

   There is another way to arrive at the same $10 billion figure: the official estimate for bribes paid annually to Hong Kong police is an astonishing $1 billion, more than the annual police budget. From a hard business standpoint, that $1 billion in payoffs is a major part of the overhead cost of both wholesale and retail drug operations in Hong Kong, the area’s drug capital. Since the known profit margin in the drug trade is 500 to 1,000 percent, it is fair to state that the $1 billion bribe figure is no more than 10 percent of local drug revenues. If $1 billion is 10 percent of the total, the total is $10 billion.

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How the Drug Trade is Financed

The chain of financial control of world opium traffic begins in Hong Kong, with billions of dollars in Hong Kong dollar loans to expatriate Chinese operators in the drug-growing regions. These

expatriates include two of Bangkok’s best-known bankers, according to American law enforcement files. Hong Kong also provides essential logistical support, including:

1) Smuggler-sized gold bars, obtainable through Hong Kong and Shanghai Bank subsidiaries
2) Diamonds, available through Hong Kong’s Anglo-Israeli controlled diamond monopoly
3) Warehousing facilities, dominated by a subsidiary of the Hong Kong and Shanghai Bank

The Hong Shang

Hong Kong and Shanghai Bank is the semi-official central bank for the Crown Colony, regulating general market conditions, holding excess deposits of the myriad smaller banks, providing rediscount facilities, and so forth. Clearly, the Hong Kong and Shanghai Bank is also the financial hydra unifying the production, transportation, and distribution of Asia’s opium.

Not only does it dominate financial activity in Hong Kong, with 50 percent of total banking business on the island, but “bank and government often work closely together,” (1) the London Financial Times comments. The Colonial government in Hong Kong makes virtually no statistics on banking activity available.

Commenting on the $8.3 billion figure for Group of Ten bank operations in Hong Kong, the Financial Times notes that,

“The official figures are also just the tip of an almost certainly greater volume of business, which is conducted by international banks with finance company subsidiaries in Hong Kong, or organized from Hong Kong but routed through entirely offshore accounts in such places as Vila (New Hebrides).” (2)

To be precise, there are 213 deposit-taking finance companies in the Colony, as well as 34 local banks and 104 bank representative offices. Over these squats the Hong Shang.

The Chinese middleman

The essence of the bank’s drug control is its intimate relationship to scores of expatriate Chinese banking families scattered throughout the Far East. The British and Dutch connection to these families dates back to the first East India Company penetration of the region. The central banking role of the HongShang expresses an agreement that grew out of a century of official opium trade and continues through the present.

First, consider the financial and logistical requirements of the trade. Planning for the March opium harvest begins in September. The Bangkok or Hong Kong drug wholesaler must estimate the size of his market during the next summer, and, after market research is completed, inform his agents in the triborder area. (That market research must come from the United States and other retailers.)

They, in turn, will communicate to the Yunnanese and other merchants who operate in the poppy-growing high-lands to the north what the market will bear for the next harvest. The merchants then inform the Meo peasants what acreage they may plant.

At this point, the wholesaler must consider the following. First, the physical means of payment must be obtained, including American or Soviet armaments, gold in appropriate small-bar or jewelry form, or whatever, and this to the tune of $140 million worth. Golden Triangle peasants can’t use American dollars. Thousands of mules and muleteers must be made ready for the treks into the highlands. Bribes must be paid, routes monitored, border conditions observed, smuggling routes secured, contacts opened in the West, and other loose ends secured. The required seed money is in the range of the wholesaler’s $2,000 a pound price for refined heroin. (3)

What portion of the investment is made through “internal resources” of the drug wholesalers, and what portion borrowed, is a matter of guesswork. It is known that a very large amount is borrowed seasonally to finance drug wholesaling, largely from expatriate Ch’ao Chou Chinese banking networks. Since the Ch’ao Chou category includes Thailand’s most prestigious bankers, who are known to engage in financing drug traffic, very considerable financial resources are at the traffic’s disposal. It is a matter of a 200 percent annual rate of interest — agreed and no questions asked.

Known “angels” of the narcotics trade include Chen Pi Chen, a.k.a. Chin Sophonpanich, Chairman of the Board of the Bangkok Bank, with $5 billion in assets; and Udane Tejapaibul, former Chairman of the Board of the Bangkok Metropolitan Bank, with $2.4 billion in assets. Significantly, Sophonpanich, whose name is a Thai pseudonym, is a Ch’ao Chou Chinese expatriate. (4)

Such scandalous relationships are not much of a surprise in the region. At the time of the 1973 Thai coup, the premier’s son and chief of the narcotics bureau, Narong Kittikachorn, was found to be a prominent investor in drug wholesaling.

The annual credit line that must be extended to drug wholesalers, assuming they finance half their operations through credit, probably comes to about $150 million. Through pure chance, that is the average annual growth of the Bangkok Bank’s “Loans and Advances” during each of the last ten years. Of course, Chin Sophonpanich competes with many of his Ch’ao Chou colleagues for this lucrative business.

THE CH’AO CHOU

Wherever the Ch’ao Chou expatriate banking community has surfaced in leading positions of influence, Peking, British, and opium trade connections are evident. In 1958, the Thai authorities issued a fraud warrant against Bangkok Bank’s Sophonpanich. He fled to Peking and remained there until 1965, after which he returned, a deal with the Thai military in hand. According to area sources, Sophonpanich still maintains close contact with the Peking regime.

As one among several Bangkok financiers who finance the drug wholesalers in the volume of $100-200 million per year, Sophonpanich’s contacts include several names that have frequently appeared on the “Opium Watch List” of American law enforcement agencies: Ying Tsu-li, General Lo, and the brothers Hutien-Hsiang and Hutien-Fa, leading refiners of heroin in the triborder area.

In addition, area sources report that Sophonpanich has direct links to the so-called Triads, the expatriate Chinese secret societies that do most of the legwork in the opium traffic (see Part I). Yet, Sophonpanich is actually nothing more than a subcontractor of the Hong Kong and Shanghai Bank, as we now demonstrate.

The HongShang-Chinese deal

Bangkok Bank illustrates the way the chain of financing leads back to the HongShang. Its current asset volume is $5 billion, much larger than the savings capacity of the area could justify. Banking sources report that most of its credit-generating capacity comes from rediscounting of the trade paper of the Singapore and Hong Kong financial markets, and mostly with the HongShang itself. Since the HongShang controls 50 percent of Hong Kong deposits and acts as the ultimate rediscount agency for the entire colony and much of the rest of Southeast Asia, the dependency of the Bangkok Bank and other Thai banks on the HongShang is virtually total. Most of the Bangkok Bank’s lending volume is subcontracted business, controlled by the HongShang.

The British-Chinese expatriate link goes back as long as the British have been in the Far East. The British organized the systematic colonization of tens of thousands of Chinese expatriates throughout the area, and started them out in the lower levels of the business otherwise conducted by the East India companies and their successors. (5)

Even where Britain displaced early overseas Chinese financial interests from positions they had enjoyed in the precolonial period, they left them in local control or in a junior status in such ureas as opium trading, and often virtually restricted them to those areas. As W.J. Cator notes in his book The Economic Position of the Chinese in the Netherlands Indies (6) and Purcell notes in The Chinese in Malaya, (7) Chinese monopolies of opium and alcohol local distribution continued in many Southeast Asian colonies, under the aegis of the colonial authorities, into the first decades of the 20th century.

Colonial powers divested Chinese merchants of control of many trading monopolies granted by the precolonial local authorities, hut left them in control of gambling and local drug and alcohol distribution because Chinese secret societies were uniquely equipped to handle them. The secret societies, representing branches of societies operating in southern China, theoretically pursued the aim of their founding — the overthrow of the Manchu Ch’ing Dynasty in Peking.

But as time wore on and the regime remained in power, the societies abroad became less interested in the politics of their homeland and more the instruments of overseas economic interests. As anthropologist William Skinner notes in his book Chinese Society in Thailand, An Analytical History, (8) the immigrant societies were usually headed by influential monopoly owners — opium traders, keepers of gambling and prostitution houses — who generally used the societies to further the interests of their monopolies.

In other economic sectors besides opium, it is common knowledge that overseas Chinese business interests were often employed as compradors, middlemen in the service of colonial banking and trading operations, indispensable due to their knowledge of the local market and their language abilities. The close economic relationships that certain segments of the Chinese business community enjoy with particular British banking interests date from that experience. At every point in the postwar political history of the region, the Chinese expatriate financiers have acted as consistent allies of the British and Dutch.

According to standard estimates, Chinese expatriate financiers currently control 60 to 80 percent of the economies of Indonesia, Thailand, and Malaysia.

REGIONAL CONTROL

What the size of expatriate dependency on the Hong Kong market is can only be guessed. However, the existing financial data show that the Hong Kong financial market is enormously oriented to foreign lending, in roughly the same proportion as the American banking system. One-third of all Hong Kong-dollar denominated loans — excluding the so-called Asia-dollar market — are to foreign borrowers. Foreign lending stood at HK $18.47 billion in March 1978, against $39 billion in local loans. (There are about 4.6 Hong Kong dollars to one U.S. dollar.) (9)

Since the borrowers’ market for Hong Kong, rather than American, dollars is limited to the areas of the Far East still under British financial sway, the HK $18.47 billion figure of overseas loans reflects the immense financial dependency of Burma, Thailand, and Malaysia on Hong Kong. The business is largely conducted through Chinese expatriate family ties. Most of Hong Kong’s 250 locally registered finance companies, in fact, are owned by Chinese expatriates.

The scale of expatriate Chinese operations, centered in Hong Kong and dependent on the Hong Kong and Shanghai Bank, is gigantic; the overseas Chinese community controls 42 percent of the foreign trade of the Southeast Asian countries, compared to 32 percent of Western business, 18 percent of non-Chinese local firms, and only 8 percent of state-controlled trading companies. (10)

As of the most recent figures available, Chinese expatriate investments in the area totaled only slightly less than combined American, Western European, and Japanese investments (although recent Japanese expansion in the area may have shifted the proportion somewhat).

The Hong Kong and Shanghai Bank, self-described as “a monument to British finance in Asia,” is in full control of the Hong Kong money market (1), on which such Chinese expatriate institutions (2) as the Bank of Bangkok absolutely depend for rediscounting loans, etc. Opium smugglers and wholesalers (3) in turn depend on the expatriate banks to finance their barter-purchase, refining and transport of opium and heroin from the “Golden Triangle” peasants of Southeast Asia and China’s Yunnan Province (4).

From seed-money to dirty-money, the proceeds of the drug trade start and finish with the HongShang (a.k.a. Hong Kong & Shangai Bank).

The above figures only give a partial picture of overseas Chinese financier dominance of Southeast Asian economies, because the expatriate Chinese bourgeoisie is overwhelmingly in such strategic sectors as banking, insurance, shipping, warehousing, and other intermediary activities, rather than manufacturing or agriculture.

According to one of Stanford University’s classic China studies, Thompson and Adloff’s Minority Problems in Southeast Asia, “Foreign-exchange and other controls (imposed by national governments in the area — ed.) have transformed many of the Chinese into smugglers and black marketeers, and such operations have increased both their wealth and their unpopularity.

Attempts to control the Chinese have almost everywhere run into the bewildering maze of overlapping Chinese organizations which exists in every country of the area, and they have been frustrated by Chinese evasion, ability, and indispensability.” (11)

The activities of the corrupted section of the expatriate Chinese community in Southeast Asia have provoked a long series of clashes with national authorities — who have not generally been successful in limiting illegal traffic. The one exception is the British possession of Hong Kong, the center of illegal operations in the area, where the smugglers are members of Hong Kong’s high society, e.g., Macao gambling overlord Stanley Ho, who made his career smuggling strategic materials from Hong Kong to China via Macao during the Korean War.

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Britain’s Gold and Dirty Diamond Operations

One feature of the financing chain of the Far Eastern drug traffic—the Asian gold market—is a tipoff of the British (and especially Hong Kong and Shanghai Bank) control over the entire process. It might seem strange to the general reader, but the gold connection was one of a handful of critical clues that led investigators up the whole chain of evidence that will eventually put the management of the HongShang and a few other long-established institutions behind bars.

Vast quantities of gold are absorbed into the Asian drug trade—an inestimable percentage of the 400 to 600 tons of the metal that pass through the orient in a year, mainly through Hong Kong, and mainly through subsidiaries of the HongShang. The trade could not run without it and other precious, portable, untraceable substances—like diamonds.

First of all, peasants of the Golden Triangle poppy fields do not appreciate secret accounts in the Bahamas. Furthermore, since the end of the Vietnam War, and the end of the widespread traffic in contraband and American arms and American dollars, the U.S. dollar in the form of currency is no longer an acceptable medium of exchange. They must be paid in food—which they do not produce themselves—goods, and gold or the equivalent.

Secondly, the People’s Republic of China’s share of Golden Triangle production is paid almost entirely in gold, shipped in bulk across the Burmese border. (1) PRC gold income on opium production probably absorbs around one-seventh of all gold traded in the orient (judging from data analyzed more closely in Section 6, The Peking Connection). There could be some double counting here, since Peking also sells gold on the Hong Kong market.

Third, and possibly most important, gold cannot be traced, although any bank transfer ultimately can. One bar of gold looks like any other; changing a bank balance into gold or diamonds, and then changing it back into a bank balance, is like crossing a river to avoid bloodhounds.

Gold is so important to the entire business that the metal’s price is pegged to the price of raw opium in the Golden Triangle highlands. The dollar’s fall in terms of the gold price from $35 an ounce before 1971 to about $225 recently has also dramatically escalated opium wholesale prices. The escalation of the gold price over the past year has been so steady that all the numbers regarding the size of the opium trade may already be gross underestimates.

One indication of the closeness of the gold-opium relationship is the well-known story that the CIA fieldmen in northern Laos carried both gold and opium, to use as means of payment to the local Me’o population in case of need.

How illegal gold travels

The American public will be shocked at how openly the Hong Kong and Shanghai Bank uses its monopoly in the Far Eastern gold trade to feed smuggling operations. Prior to the official opening of the Hong Kong gold market in 1974, HongShang openly financed the gold markets of Macao, the flagrantly crime-ridden island that plays “offshore” to Hong Kong’s own “offshore” operations. Today the Hong Kong market is run topdown by Sharps Pixley Wardley, a 51-percent owned subsidiary of the HongShang. The Hong Kong market’s current daily trading volume is in the hundreds of millions of dollars, on a par with London and Zurich.

Apart from Hong Kong, the other route for smuggled gold to the Far East is through the Persian Gulf sheikdom of Dubai. The dominant commercial and gold market force in Dubai is the British Bank of the Middle East, a 100 percent subsidiary of the Hong Kong and Shanghai Bank. A 1972 description from one of Britain’s best-known experts, Timothy Green of Consolidated Gold Fields, Ltd., (2) is instructive on how the illegal flow of gold travels:

“It may indeed sound romantic, but it is a fact that both in 1970 and 1971 at least 500 tons of gold—that is to say half of all South Africa’s production, or 40 percent of total gold production in the non-communist world—passed through unofficial channels on the way to its ultimate destination.”

“Unofficial” channels, as the author proceeds to make clear, means illegal channels. Most of the world’s existing gold is held by central banks; prior to 1971, gold was the basis of central bank reserves. With the advent of the new European Monetary System, gold is again becoming an official monetary reserve. Gold dealings among banks, industrial users such as jewelers, and so forth, are also counted as “official” channels.

Apart from the drug traffic and related money-laundering uses, gold smuggling has played a major role in aggravating the payments deficits of Third World countries such as India, where large numbers of private citizens hold gold. However, the Indian government in 1977 opened up direct sales to the Indian population. This largely eliminated India as a haven for gold smuggling by making gold available through official channels. Despite this, judging from the activity of the Hong Kong market, the proportion of gold running into illegal channels has, if anything, increased, and the drug-related proportion of the illegal gold increased as well.

“UNOFFICIAL” MEANS ILLEGAL Green continues:

“… these unofficial channels usually start in gold markets such as Beirut (since defunct — ed.), Dubai, Vientiane, Hong Kong and Singapore which I am discussing today. Their chief role — their raison d’etre — is as distribution centers for the smuggling; they are entrepots convenient to nations, which for a variety of reasons, forbid the official import of gold for commercial or hoarding uses ….

“Dubai has become the largest gold market in the world, except for London and Zurich — no mean achievement for a shiekhdom with a population of around 60,000. Both in 1970 and 1971 Dubai had well over 200 tons of gold — indeed in 1970 the equivalent of a quarter of all South African production found its way along this golden pipeline to India and Pakistan (and further East. Since the beginning of official gold sales by the Indian government, and the reopening of the Hong Kong gold market, Dubai’s importance has attenuated somewhat — ed.) . . .

“By contrast to Dubai, a gold market that developed very quickly to meet a special short term need was Vientiane in Laos. The market there really grew with the escalation of the war in South Vietnam. And it grew because it was the nearest and cheapest source of gold. . . . This gold which was bought as a hedge against the constant devaluations of the Vietnamese currency and to hide the vast black market profits made from pilfered American arms and equipment, was paid for almost entirely in cash. (Throughout the 1960s and 1970s, pilfered American arms and equipment formed a major part of the barter goods exchanged for opium in the Golden Triangle highlands — ed.).

“Vientiane’s short success made some impact on the oldest gold market in the Far East — Hong Kong, or more correctly Hong Kong-Macao, for the two are held together as it were by a golden chain. Hong Kong, as a British Crown Colony, forbids the private holding of gold bullion; only commercial gold of less than 945 purity may be traded. To get around this regulation, gold bullion has for more than twenty-five years made a curious sideways shuffle from Hong Kong to Macao and back again. The gold bullion — in 995 good delivery bars — that comes into Hong Kong by air from Europe and Australia … is transferred in Macao, where it is melted down into Chinese 1.5 and 10 tael bars. It then returns, stealthily, to Hong Kong. This traffic has been presided over for may years by the Wong Hong Hon Company which negotiated a series of two-year contracts with the Portuguese authorities in Macao for exclusive rights for the gold traffic. The traffic was financed by the Hong Kong and Shanghai Bank,” (emphasis added)

That is, in the testimony of Britain’s leading gold expert, the HongShang financed illegal gold trade in Hong Kong itself, prior to the reopening of the Hong Kong gold market, after which the HongShang subsidiary Sharps Pixley Wardley took over the legal trade.

AN UNDERESTIMATION

Digging into the back archives, it is clear that Consolidated Gold Fields’ 40 percent figure for smuggled gold in 1972 represents, if anything, a moderation of past trends. Earlier figures are much higher. For example, British author Paul Ferris in The City (3) claimed that in 1951 only 17 percent of all world gold production went through official channels; Ferris’s report was based on interviews with the London gold pool. “What happens to the gold when it disappears into the economic undergrowth of the East is of no concern to the London bullion dealers,” Ferris claimed, but as we will demonstrate, the London bullion dealers know precisely what happens to the gold in the Far East. The London bullion market is merely a subsidiary of Dope, Incorporated.

In the July 22, 1952 issue of The Reporter, an article under the byline of H.R. Reinhart, the then Far East correspondent of the Neue Zuercher Zeitung, estimated Asian gold smuggling at $150 million in that year. At today’s gold prices, the figure would be $1 billion for the same quantity of gold. The account bears impressive credentials, since 1) the Reporter editor at the time was Harlan Cleveland, now a senior official of the Aspen Institute, and part of the present drug machine in the U.S.; and 2) the Neue Zuercher Zeitung, Switzerland’s top daily paper, is linked through European aristocratic ties directly to the British monarchy. (4)

Reinhart identified a “Golden Loop, the circuitous path that leads from North Africa to the coast of Red China and back again as far west as India.” The center of gold smuggling was the Portuguese-controlled island of Macao, where gold smuggling is legal, and “anyone who dares call a smuggler a smuggler can be sued for libel.” Then the gold is smuggled into Hong Kong, and thence to the rest of Asia.

A mere 3 percent of the smuggled gold is seized by Hong Kong authorities, Reinhart noted, even though customs officials receive a 20 percent commission on all seizures; presumably, bribes to customs officials are more substantial.

Standard Western and Soviet sources estimate the smugglers’ commission at 30-50 percent in such transactions. Soviet economist M.A. Andreyev reports:

“According to a Chinese businessman in Singapore, smuggling yields a profit of up to 100 percent on invested capital, which is several times higher than the profit received in the basic branches of the island’s economy. In Hong Kong the commission paid to smugglers amounts to from 30 to 50 percent of the cost of the smuggled commodities.” (5)

However, if the bribes paid to Hong Kong customs officials are substantial enough to overshadow the 20 percent kickback on seized contraband gold, the bribes must also be in the order of 30 to 50 percent. The point is that the gold trade itself would not be profitable, unless it were only a bridge transaction in a much more profitable operation — e.g., narcotics traffic! That is the case.

But as Reinhart reported,

“British justice, as dispensed by the magistrates’ court in Hong Kong, extends even the benefit of the doubt to a suspected smuggler caught with the goods.”

That should not be a surprise at this point; as noted before, it was a matter of public record for a quarter century that Britain’s Hong Kong and Shanghai Bank itself financed the gold smuggling!

PEKING’S GOLD

One further crucial point — whose full importance will only emerge in the following sections — is that the People’s Republic of China has been in on the illegal gold market since the 1949 Maoist takeover.

Gold flown into Macao, as noted above, was (before Hong Kong opened up its gold markets in 1949) resmelted into bars of less than 95 percent purity, whose trading the Hong Kong authorities hypocritically endorsed. The resmelting, Reinhart reported, was the business of the Kan Kuam Tsing Company in Macao. “On the Hong Kong exchange,” the Swiss journalist added, “the buyer is not unlikely from the People’s Republic of China.” Since the PRC buyer wants metal of monetary-reserve purity, above 95 percent, he takes the gold back to the Kan Kuam Tsing Company, and reconverts the gold back to a higher purity level. Reinhart identified the firm Pao San and Co. as a regular vehicle for Peking gold purchases during the early 1950s. (6)

According to Reinhart, the PRC entered the Hong Kong gold market in 1950. Last July’s announcement that 13 Communist-owned banks in Hong Kong would be permitted to trade directly in the Hong Kong gold market thus only extends an agreement that has been in force since the founding of the PRC.

One big gold pool

Apart from a relatively insignificant flow of gold into Hong Kong from mines in Australia and the Philippines — insignificant compared to the 300 tons of gold traded in Hong Kong during 1977 and the 600 tons traded during 1978 (projected) — Hong Kong depends entirely on the London gold pool for its supplies.

Figure 3

Above map is based on one appearing in the 1977 annual report of Consolidated Gold Fields, Ltd.

The world total of gold in metric tons was only approximately 1,500.

Of this, 390 metric tons was distributed from Europe through Dubai and 287mt through China, primarily by British-controlled agencies, most of it ending up in Hong Kong.

Another 18mt is directly exported to Hong Kong, for a total of 695mt.

The vast proportion of this flow is “unofficial,” and is put to use in drug-related dirty-money laundering. (Cf. Figure 5.)

Why do London’s gold pool operators tolerate this situation? Because the London gold pool is the same operation as the Hong Kong and Shanghai Bank, controlled by the same London families whose drug-running activities go back 150 years.

There are two major South African gold producers, Anglo-American and Consolidated Gold Fields (whose gold specialist was quoted above); there is one major South African diamond producer, De Beers, largely owned by Anglo-American; and five major London gold pool firms, who meet every day in the trading room of N.M. Rothschilds at New Court, St. Swithin Street, London, to set the world gold “fixing.” Examining these firms individually, we discover such a manifold of connections that it is meaningless to speak of the London and Hong Kong gold markets as anything but branch offices of the same operation.

Hong Kong and Shanghai’s own gold-trading outlet is Sharps Pixley Wardley, of which they own 51 percent. One of the five London gold pool firms, Sharps Pixley, owns the remaining 49 percent. But Sharps Pixley itself is a fully owned subsidiary of the London merchant bank Kleinwort Benson whose deputy chairman is Sir Mark Turner, the chairman of Rio Tinto Zinc.

Rio Tinto Zinc itself was founded a century ago with the opium-trading profits of Jardine Matheson, by a member of the Matheson family; the Mathesons are still large shareholders in the HongShang. The Matheson family’s heirs, the Keswick family, still have their traditional seat on the HongShang board. Sir Mark Turner spent World War II at Britain’s Ministry of Economic Warfare, which also employed Sir John Henry Keswick, and another HongShang board member, John Kidston Swire.

Hong Kong’s second largest bank, the Standard and Chartered Bank, owns a majority share of another member of the London gold pool, Mocatta Metals. Standard and Chartered’s predecessor, the Standard Bank, was founded a century ago by Cecil Rhodes, of whom we will have much to say later in Section 7.

Standard and Chartered is not only a close collaborator of the HongShang in such matters as the transfer of Red Chinese opium money (see Section 6 below) — but is heavily interlocked since the days of the official British opium trade.

Figure 4.

British Gold and Diamond Syndicate

One of Standard and Chartered’s directors is the current Lord Inchcape, of Inchcape and Co. and the Peninsular and Orient Steam Navigation, the latter dominating ocean freight in the Far East. Both companies are heavily represented on the HongShang board of directors. Inchcape’s father wrote the notorious 1923 Inchcape Report recommending continued British sponsorship of the opium traffic — despite the outrage of the rest of the League of Nations — in order to “protect the revenues” of then-British colonies in the Far East.

This example also indicates why the London gold pool’s dirty money operations are a worldwide, not merely a Far Eastern, problem. Mocatta Metals, a subsidiary of Standard and Chartered’s Mocatta and Goldsmid, operates one of New York’s biggest dirty money laundering operations.

Mocatta Metal’s current chairman, Dr. Henry Jarecki, has been under investigation for years for illegal activities, although no indictment has yet been handed down. According to European intelligence sources, Jarecki’s dirty money operation helps fund the activities of the Mossad, Israel’s foreign secret intelligence service, in New York City, including assassination teams.

Jarecki is no small fry: he is a frequent gold columnist for British financial publications such as Euromoney, and rated a lengthy profile in the September 1978 issue of Fortune magazine. Nonetheless, he is eminently suited for the role of bag-man for Israeli intelligence hit squads. Jarecki began running drugs as a small-time pusher on the University of Michigan campus in 1950-51. In 1952, he spent six months in jail for suspected espionage in East Berlin. According to published sources, approximately half of Jarecki’s present staff of 28 gold traders started out in the same Harvard Psychology Department that featured LSD-pushers Dr. Timothy Leary and “Baba Ram Dass” in the early 1960s. (7)

Midland Bank stands behind both Standard and Chartered and Mocatta and Goldsmid, with a 20 percent ownership of Standard and Chartered; it also wholly owns another London gold pool bank, Samuel Montagu. Sir Mark Turner is a director of both Midland Bank and Samuel Montagu. The Montagu family, heavily intermarried with the Rothschilds, Montefiores, and Samuels, is the cream of Britain’s Court Jews. One of their protégés is HongShang board member Philip de Zulueta.

N.M. Rothschild and Sons, which opened up operations in Hong Kong in 1975 to take advantage of the newly liberalized gold trading laws, and Johnson Matthey, the remaining members of the London gold pool, are also interlocked several times over with both the HongShang and the major South African gold producers, Consolidated Gold Fields and Anglo-American who control between them 90 percent of South Africa’s gold output. (For further details see Section 7 and 8.)

The diamond black market

Second in importance in the money-laundering process is the world diamonds market, worth $5 billion annually at wholesale value, whose single presiding manager is Sir Harry Oppenheimer of De Beers Corporation. Oppenheimer is also the chairman of the larger South African gold producers, Anglo-American. The Anglo-American and De Beers complex runs the Hong Kong side of the money-laundering diamonds operation on two levels — wholesale and retail. De Beers runs 85 percent of the wholesale diamonds market; through his intimate Israeli connections, Oppenheimer also runs the Hong Kong diamond market.

WHY DIAMONDS

There are two points of special relevance for diamonds to the international heroin traffic. The first is that, in value relative to size and weight, diamonds are the closest approximation to heroin as a store of value for furtive use. Secondly, the De Beers-controlled international diamond cartel operates according to a pyramidal structure identical to that of the world heroin trade.

The use of expatriate ethnic networks for the dirtier side of the operations is also homologous, except that in the case of diamonds, Jews take the place of Ch’ao Chou Chinese. Not coincidentally, there is almost as little publicly available information on international diamonds trade as on the heroin traffic.

South Africa’s largest producer, De Beers, was the 1888 creation of Rothschild legman Cecil Rhodes; in 1929, the company underwent reorganization by Sir Ernest Oppenheimer, of the Anglo-American family. De Beers controls the Central Selling Organization (CSO), which handles 85 percent of international diamond trade.

At ten “sights” each year, 300 clients purchase stones from the CSO. The list of these select clients is secret. Following their purchase by the secret list of clients, the diamonds are sent to cutting centers for further preparation. The two dominant cutting centers are Antwerp and Ashqelon, in Israel. Antwerp’s diamond cutting and related trade is financed by the Banque Bruxelles-Lambert, controlled by the Lambert family, the Belgian cousins of the Rothschilds. Israel’s (and also New York’s) diamond business is financed by Bank Leumi. (8)

Within the individual centers, dealers trade among themselves on such exchanges as the New York Diamond Dealers Club, the Ramat Gan in Tel Aviv, and the Antwerp Diamond Bourse. No written records are kept of any transactions on these exchanges; the agreements are sealed with a handshake. No aspects of this trade are available for scrutiny by law enforcement agencies, even under American law, before the diamonds reach the jewelry store level.

Hong Kong’s own substantial wholesale diamond market is the virtual monopoly of the Union Bank of Israel; this bank is wholly owned by Israel’s largest finance house, Bank Leumi. Bank Leumi, in turn, is under the control of Barclays Bank, on whose board sits Harry Oppenheimer and the Oppenheimer family itself. Bank Leumi’s own chairman is Ernst Israel Japhet, of the Charterhouse Japhet family whose fortune derived from the official British opium trade during the nineteenth century!

Ten times a year, representatives from the Ramat Gan, Tel Aviv’s diamond exchange, go with Union Bank financing to the De Beers Central Selling Organization “sights” in London, and purchase one-third of the world diamond output.

Like the Peking-British-controlled Ch’ao Chou Chinese networks in the Far East, Britain’s Zionist financiers are a cult unto themselves, with their own family networks, cults, and language. New York’s diamond market consists, at the lower levels, mainly of members of the extremist Hasidic sects resident in the area. This exotic feature of the diamond traffic achieved public notoriety after several unexplained thefts and murders occurred in the diamond trade during 1977.

Although there is an apparent division of labor between the Hofjuden precious metals and precious stones channels of the world dirty money operation, the various firms involved are so closely intermarried, interlocked, and interowned with the major dirty money banks, that the working of the dirty money apparatus is totally integrated.

A case in point is Canada, the dumping ground for all aspects of Dope, Incorporated that feed into the United States. The Bank of Nova Scotia, for example, is both the major gold dealer (and banker for the second largest gold dealer, Noranda Mines), and the major dirty money operator in the Caribbean.

The Nova Scotia is notorious for bribing its way into new branch offices in the Caribbean, violating local currency laws, running flight capital against currency restrictions, “investing” in local businesses known to be intelligence fronts, and so forth. Nova Scotia’s branch network in the Caribbean is the largest of any bank in the world, save Barclays which has a similar pedigree. Gold is a specially useful medium for the special case of the Caribbean, where official restrictions make some bank transfers difficult. Conveniently, Nova Scotia leads the Toronto gold market.

The other leading gold market operator in Toronto is Noranda Mines: its chairman Powis is a member of the board of directors of the Bank of Nova Scotia. Powis is also a member of the board of Sun Life Assurance, the Rothschilds’ insurance company

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