April 29, 2008

Vector Energy sold to Chinese spy?

ANY STORM IN A PORT

China's Trojan horse in NZ

[The following story initially ran in the April 06 edition of Investigate magazine, but is directly relevant to the purchase announced April 28, 2008 of Vector Energy's Wellington grid by the same businessman]

The Hong Kong business conglomerate trying to purchase a stake in some of New Zealand's biggest port companies [and now the purchaser of energy company Vector] has been named as a front for the People's Liberation Army of China, and some of its associates have been caught shipping weapons and alleged WMD technology. IAN WISHART has more

 

His name is Li Ka-shing, and if his name sounds like a cash register there's a very good reason: this 77 year old Chinese businessman has just been ranked by Forbes magazine as the tenth wealthiest person in the world, with a fortune estimated at nearly US$20 billion. His companies, including Hutchison Whampoa, account for 10% of the value of the Hong Kong stock exchange and have tentacles that reach across the globe – more than forty countries according to one estimate – and in industries as varied as mobile telephone networks, electricity grids, retailing, shipping and real estate.

Many New Zealanders may have become familiar with Li's work in the sixties and seventies, when his main business was making plastic toys with the infamous "Made in Hong Kong" imprimatur.

But there are two sides to the Li Ka-shing story. One is the traditional fodder of business magazines, lauding the rags to riches story of a billionaire whose father died after the Japanese invasion of China before World War 2, leaving a 12 year old boy with the task of earning enough money to feed his mother and siblings. It's a story of a man making wily business decisions, building an empire and showing aspiring MBA graduates how it's done.

And here's how one of those gushing business stories reads:

"The move by the richest man in Asia and one of the richest in the world to take a stake in the operation of the Port of Lyttelton is one that has potentially great benefits for Christchurch and Canterbury and ultimately the rest of the country," said the Christchurch Press in an editorial mid February.

"There is no need to be starry-eyed about the proposed venture. Li Ka-shing has risen from complete destitution as a refugee who fled the raping and pillaging of China by the Japanese in the 1930s to become a multi-billionaire.

"He did it by being an astute and hard-nosed businessman. He also did it, according to one account in a business journal, by 'remaining true to his internal moral compass' and operating with integrity."

Like we said, that's one side of the Li Ka-shing story.

The other side of Li Ka-shing is much darker, and less likely to be taught in graduate classes. It's the story of a man whose companies are regarded by Western intelligence agencies as nothing more than a money-making front for Chinese military intelligence as China prepares for what it sees as an "inevitable" conflict with the US.

As this 1996 diplomatic cable release by the US Government under a Freedom of Information request shows, Li Ka-shing's businesses didn't make money the hard way.

""Embassy Panama has received information to the effect that HIT (Hutchison International Terminals) is controlled by mainland Chinese, perhaps through a Macao front which allegedly recently invested $400 million in HIT," states the cable. "Such control would have security implications and might affect the Panamanian government's views on awarding the port concessions."

The "mainland Chinese" referred to in 1996 have turned out to be the Chinese Government itself, and more specifically its People's Liberation Army – more of which in a moment, but first some background.

Intelligence agencies have used what they call "arms length" front companies – genuine commercial operations whose owners are sympathetic to a particular cause. Back in the 1970s and 80s, for example, America's CIA set up a global freight airline, Air America, and a merchant banking operation, Nugan Hand Bank of Australia, to help launder money and assist with so-called "black operations" that the US government could not directly be involved in. Discretion, and plausible deniability, required "cut-outs" who could take the heat if discovered. One CIA front company, US accounting firm Bishop Baldwin Rewald Dillingham & Wong, even went so far as to open an office in Auckland in 1983.

But there's one difference between CIA front companies and Chinese ones. Ultimately, the US government takes a major PR-hit when dirty covert operations are uncovered. The Chinese government suffers no embarrassment when caught spying, because of its tight control of Chinese citizens and the lack of democratic accountability.

Investigate enjoyed a world exclusive in March 2000 when it reported that Chinese businessman James Riady, wanted for spying and illegal payments to the US president, Bill Clinton, had been in New Zealand as a guest of the National Government and introduced to Clinton at APEC.

Ever since Clinton was elected to the Whitehouse in 1992, China has bought influence in American politics by using businessmen like Riady and Li to donate to Presidential campaign funds, or the election campaigns of key senators and congress representatives. As a result, when America's lease fell due on the Panama canal in 1999, the Clinton administration let it slide, and Li Ka-shing's Hutchison Whampoa picked up control of the crucial ports at either end of the Panama canal. According to US reports, Hutchison also paid substantial bribes to Panamanian officials to secure the deal.

Amazingly, the deal also allows Hutchison to transfer its control of the Panama facilities to any other organization or country of its choosing, meaning it could – in the lead up to a conflict – effectively place the canal directly and officially in the control of China, allowing Chinese military and naval forces to legally occupy and defend their beachhead in the Americas. Because of the immense strategic importance of the Panama canal, any military attack on it could cause damage making the canal impassable regardless of who controls it, thus limiting US options.

Newssite WorldNetDaily reported a 1995 diplomatic cable from the US Embassy in the Bahamas revealing Hutchison had just been given the go ahead to build a US$88 million container port there. The embassy copied its cable to the Drug Enforcement Agency and US Customs, noting the possibility of a major increase in smuggling through the Hutchison facility.

They were right to be concerned. There are growing reports of a strong Chinese organized crime presence in Panama.

Some analysts fear the US is becoming more vulnerable to "Trojan horses", in the form of cargo or container ships that dock containing weapons of mass destruction and/or short to medium range ballistic missiles, leaving America vulnerable to a surprise attack with no possibility of missile intercept because of the short ranges involved. Indeed, this has been one of the security fears over the past month because of a bid by a Dubai-based company to take control of major US ports – the possibility that weapons of mass destruction could be smuggled in through civilian ports controlled by foreign interests.

Al Qa'ida has already been implicated in smuggling Islamic extremists into the US across the Mexican border, but China is equally active in shipping the ingredients of terror through commercial operators. Li Ka-shing, for example, sits on the board of CITIC, the China International Trust Investment Company, which has also been active in New Zealand business circles and still has a presence here. But US investigations have determined CITIC is also a People's Liberation Army front company, and during the Operation Sidewinder investigations in Canada recently authorities discovered quantities of weapons had been supplied by a CITIC company and stored on Mohawk Indian reservations.

CITIC was also in the news at Christmas after signing a US$900 million contract to build an aluminium smelter in Iran. Aluminium tubing is used in the production of missile technology and nuclear weapons.

China's state owned national shipping company COSCO, again a 50% joint venture partner in some of Li Ka-shing's operations, has been implicated in the sort of activities that would make the CIA blush.

"Both U.S. Senate and Canadian intelligence sources have described COSCO as "the merchant marine for China's military"," reported Canada Free Press last year.

"According to U.S. intelligence reports, COSCO vessels do not just transport Oriental bric-a-brac. COSCO vessels have been caught carrying [two thousand AK-47] assault rifles into California and biological-chemical weapons components into North Korea, Pakistan, Iraq and Iran. Add to these disturbing events that Canadian law enforcement agencies have kicked in with hard-line information that Chinese Triad criminal elements are active in and around Canadian ports."

But it isn't just smuggling items in, there is also the question of Chinese spies operating through front companies to smuggle information and technology out of countries like Canada, the US, Australia and New Zealand – all of which have been named internationally as prime targets for Chinese intelligence.

According to the Canada Free Press report:

"Conspiracy theories were tossed out the window when U.S. Congressman Dana Rohrabacher revealed that the U.S. Bureau of Export Affairs, the U.S. Embassy in Beijing and the Rand Corporation had identified Li Ka-Shing and Hutchison Whampoa (Li's primary business) as financing or serving as a conduit for Communist China's military in order for them to acquire sensitive technologies and other equipment."

But again, Chinese intelligence is one step ahead of the West. Just as Bill Clinton had been paid off in the US in order for China to gain access at the highest levels, so too was the-then Canadian Prime Minister Jean Chretien:

"Former Prime Minister Jean Chretien's connections to the burgeoning CITIC conglomerate served as his entrée into the private sector," says Canada Free Press. "While John Turner was leader of the federal Liberals, Chretien was working for Gordon Securities, one of the many Li-controlled companies on Canadian soil."

According to Canada Free Press, Operation Sidewinder was "sideswiped" after political pressure from Chretien.

With the Chinese military currently embarking on the most rapid rearmament in world history, the involvement of Chinese commercial entities should come as no surprise.

An American Defense Council report published two years ago paints an extremely disturbing picture for the West.

"Li Ka-Shing, the leader of Hutchison Port Holdings (China's primary shipping line), has close ties to the Chinese Communist Party and to the CITIC. The CITIC is believed to serve as a funding umbrella for the Chinese military, supporting the acquisition of military-related technologies. Hutchison Port Holdings manages, operates and is in possession of significant portions of three of the world's top five ports as measured by both the number of containers shipped and total tonnage shipped.

"China's other two huge shipping lines are directly controlled by the Communist Party. One, the China Ocean Shipping Co (COSCO) was described in the Cox Report issued by the US Congress as follows: 'Although presented as a commercial entity, COSCO is actually an arm of the Chinese military establishment'."

According to the Defense Council report, there are 10 strategic global shipping "choke points" that are crucial to US oil and trade lifelines.

"In the last decade, China has succeeded in building, managing or operating strategic ports adjacent to, or, as in the case of the Panama canal, at the entrance and exit of seven of these 10 global shipping choke points."

What has not been widely reported is another paragraph in the Congressional investigation into Chinese spying:

"The Clinton administration has determined that additional information concerning COSCO that appears in the Select Committee's classified final report cannot be made public," concluded the watered down version released by the House Task Force on Terrorism and Unconventional Warfare.

COSCO already has a strong presence in New Zealand, with offices in Auckland and Christchurch and a container line service that runs into Auckland, Tauranga, Napier, Wellington, Nelson, Lyttelton and Port Chalmers. Four of its vessels here, including the Aotea, are Panamanian registered.

While there is no doubt that COSCO routinely ships ordinary freight, every day, as any other commercial business does, there are also days when it ships the extraordinary, as this American news report notes.

"At least three arms shipments were traced from China to the Cuban port of Mariel during the past several months, according to an article Tuesday in the Washington Times. All the arms were aboard vessels belonging to the state-owned China Ocean Shipping Co., or Cosco, U.S. intelligence officials told the newspaper. The explosives were said to be "military-grade" material, the newspaper said.

"U.S. officials said Tuesday that the subject of arms trafficking between China and Cuba is a worrisome one, though they stopped short of confirming the Washington Times account. "We are very much concerned with this PLA [People's Liberation Army] cooperation and movement of military equipment in Cuba," said James Kelly, assistant secretary of state for East Asian affairs, when questioned during a hearing of the House International Relations subcommittee."

Questioning of Li Ka-shing is something Canadian government security advisor Scott Newark would like to do. He told the respected online journal NewsMax.com that a request by Li's Hutchison group to purchase ports in the US be given full congressional scrutiny.

"I'd like to suggest that the appropriate congressional committee hold hearings and that they call Li Ka-shing as the first witness. I volunteer to be second, but frankly there are people far more knowledgeable than me in this regard, including for example the International Association of Airport and Seaport Police, which just held their conference in NYC. As a speaker at that conference I urged ridding ports of such crime and rogue government-connected companies, not making them the local constabulary."

According to NewsMax, Newark identified five critical port security issues: "preventing smuggling of drugs, guns and people; preventing export of stolen products; providing site security as a result of 9/11; preventing terrorism related smuggling; and preventing attacks on ships leaving ports."

To that end, Newark sounds a warning that is relevant for New Zealand authorities as they consider whether to approve a buy-in by Hutchison into Lyttelton and possibly the Auckland or Tauranga ports.

"We need full scrutiny of the principals of Hutchison Whampoa and all of their business or government-related associations, and any history of any activity of them or their associates – including links to organized crime and terrorist groups, activities or states supporting the same – that would raise concerns to any of the above.

"We should give full scrutiny to any relationship of Hutchison Whampoa, its partners, directors or officers with any foreign government that would raise concerns to any or all of the above issues."

If that isn't ringing warning bells at the Christchurch City Council and in the Beehive, it should be, especially as the Li's business partner – the Chinese military's "merchant marine arm" COSCO - is already a big player in New Zealand ports.

Both COSCO and Hutchison have faced this negative publicity overseas. In COSCO's case, it hired one of America's leading public relations companies to spin the strong business and economic benefits of trade with China to the news media and key politicians, while playing down the "unfounded and negative" stories we've just highlighted. According to commentators the PR ploy has worked, with coverage of the company in the US largely restricted to positive business and trade stories in the media.

Nor is Li Ka-shing a stranger to New Zealand business. In Australia, he's the majority owner of Hutchison 3G Mobile, but you might be surprised to learn Theresa Gattung's Telecom New Zealand holds the remaining 19.9% in a joint venture.

Ironically, it was only a decision by US telecommunications regulators to threaten a veto that stopped Li Ka-shing's Hutchison from buying the giant international phone network Global Crossing three years ago. The purchase would have given Hutchison the possible option of eavesdropping on phone and data calls being made on Global Crossing's planet-wide network of undersea phone cables linking all the continents. Global was also bidding for US Defence contracts at the time.

Li's business ventures with the Chinese military include the Guangzhou Aircraft Maintenance Engineering Company, a Chinese air force company 25% owned by Li; and a one-third stake in AsiaSat, also part owned by the People's Liberation Army.

The move by Hutchison Port Holdings Ltd (HPHL) to purchase the Lyttelton Port Company in Christchurch raises some more questions for Helen Clark's Labour Government to answer. HPHL is registered in the British Virgin Islands, the same Caribbean tax haven at the centre of our February story about the New Zealand Labour Party's biggest campaign donor, Owen Glenn. Coincidentally, Glenn is also a shipping handler who's managed to get a rare Class A business licence in China and is said to have influence in Beijing, but whose operations don't appear to stack up based on what Investigate was able to discover. Glenn funneled $500,000 into Labour's election coffers last year.

Is the New Zealand Labour Party receiving money from the Chinese Government through a complex web of shady business figures and front companies? At this point Investigate doesn't have enough information to answer one way or the other, but the magazine's investigations are continuing.

In the meantime, we have discovered Li Ka-shing has reserved the name Hutchison Ports New Zealand Ltd with the Companies Office. The deal relies at this stage on Christchurch City Holdings Ltd acquiring the 31% of Lyttelton port shares that it doesn't already own, and that purchase offer closes on April 8. If CCHL gets the shares it needs, it plans to sell down 49.9% of the port to Hutchison. But Hutchison would get majority control of the company actually running the port on a daily basis, effectively putting the Chinese Government in command of imports and exports out of Christchurch.

The Christchurch Press reports the deal was driven initially by Lyttelton Port Company management, but picked up by Hutchison Port Holdings executive directors Mark Jack and Richard Pearson – both apparently ex-pat kiwis. A search of Companies Office records lists a Mark David Jack, resident in Hong Kong, as sole director of Ardmore Hangars Ltd – set up last year – and Ardmore Aviation Services Ltd, set up in 2003.

We have been unable to confirm any New Zealand directorships for Richard Pearson.

Christchurch mayor Gary Moore has dismissed reported links between Hutchison and the Chinese military as the work of "conspiracy theorists" who'd been listening to a sole US congressman, and Mark Jack has told critics to ignore the bad media and concentrate on the company's economic performance – a carbon copy of the PR stance Hutchison has taken in the US.

But Gary Moore – as provincial local body mayors often are – suffers from not being privy to intelligence. If it was only "conspiracy theory", why was Hutchison forced to back away from Global Crossing? And if Moore is correct about only one congressman raising concerns about Hutchison, why did the South China Morning Post report that Hutchison's paid lobbyists in the US were targeting three, including the then Senate Majority leader Trent Lott and former US Defence Secretary Caspar Weinberger who testified Hutchison's takeover of the Panama canal would pose a security threat to the US?

And if Gary Moore is correct, how does he explain the now-released 1999 intelligence briefing from the US military Southern Command which states: ""Hutchison's containerized shipping facilities in the Panama Canal, as well as the Bahamas, could provide a conduit for illegal shipments of technology or prohibited items from the west to the PRC, or facilitate the movement of arms and other prohibited items into the Americas."?

We put similar questions to a spokesman for Christchurch City Holdings Ltd, the current majority owner of Lyttelton Port Company, and ended up in a slanging match where the response to the allegations was "so what if he is?". The spokesman pointed out that national security issues were something for the Prime Minister to sort out, and Christchurch was only interested in the commercial deal.

The spokesman referred to a statement by a US Clinton administration official in 1999 to the senate hearing that Hutchison Whampoa's operation of the Panama ports would have no impact on shipping movements, and that the company had no known ties to the Chinese government.

However, those claims have already been tackled by the Washington Times' Insight magazine:

"Western policymakers and business leaders have little or no idea of China's grand strategy and how Beijing's leaders want to situate their country for the next century. When, in 1999, Sen. Trent Lott (R-Miss.) sent Insight's report, "China's Beachhead at Panama Canal," to then defense secretary William Cohen, he called for a full national-security appraisal of the problem. Lott told Cohen, "U.S. naval ships will be at the mercy of Chinese-controlled pilots and could even be denied passage. It appears we have given away the farm."

"At Lott's request, the Senate Armed Services Committee held a hearing in which four Clinton-administration witnesses testified that Hutchison Whampoa posed no security challenges to the United States [see "PC Answers on Panama Canal," Nov. 22, 1999]. But not one of the witnesses could answer the fundamental question, posed by Sen. Robert Smith (R-N.H.): "Do you believe the People's Republic of China uses commercial enterprises to advance their military interests?"

"Bill Clinton's assistant secretary of defense, Brian E. Sheridan, who had issued a defense of Hutchison Whampoa, confessed, "I don't know." Alberto Aleman Zubieta, whom Clinton had appointed to run the Panama Canal until 2005, didn't answer either. Neither did Joseph W. Cornelison, the deputy administrator of the Panama Canal Commission, nor Lino Gutierrez [the official referred to by Christchurch City Holdings Ltd's PR man], then principal deputy assistant secretary of state for Western Hemisphere Affairs. All had contradicted their testimony. Only Marine Gen. Charles E. Wilhelm, then chief of the U.S. Southern Command, answered affirmatively to whether Beijing uses commercial enterprises to advance its military interests, saying only: "I think so."

"That was it. And apparently the government has learned little since. "Many of those who are engaged in China policy or who invest there remain blithely ignorant of Chinese goals to replace the United States as the reigning world power," says Thomas Woodrow, a former senior China analyst at the Defense Intelligence Agency."

Lino Gutierrez is the Clinton official whose testimony was used to rubbish suggestions of Chinese government investment. He told the senate hearing:

"Through publicly available information, we have been able to ascertain that neither

Hutchison-Whampoa, nor its subsidiaries Hutchison Port Holdings (HPH) and the Panama Ports Company (PPC), have any significant investment from mainland China."

What isn't clear is how Gutierrez determined that, when many key companies in the group including Hutchison Port Holdings are registered in tax havens so their true ownership cannot be searched.

Investigate did finally get to put a series of questions to CCHL Chief Executive Bob Lineham. The questions, and his answers, are as follows:

  1. How is CCHL satisfied that, even if Hutchison is a front company for the People's Liberation Army of China, that its majority stake in the operating company for the Port of Lyttelton remains a good idea?

Answer from Bob Lineham:

"In the event that Christchurch City Holdings Limited's (CCHL) Takeover Offer for Lyttelton Port Company Ltd (LPC) succeeded, and Hutchison Port Holdings Ltd was introduced into the Port of Lyttelton, the Christchurch City Council would retain control of the Lyttelton Port Company with a 50.1% voting majority (through CCHL) of the shares in LPC.

"The purpose of the new port operating company in which HPH would have a 50.1% share is to operate the Port of Lyttelton. It does not and cannot control the Lyttelton Port Company. With HPH as a port partner, the Port of Lyttelton would be controlled, as it is today, by the people of Christchurch through CCHL and the Christchurch City Council.

  1. How is CCHL satisfied that Li Ka-shing is a legitimate businessman, in the face not only of his vast personal fortune in a socialist country, but also his well-documented ties to communist China and its ruling politburo long before the 1997 handover of Hong Kong? No answer received.
  2. Why is it not strange that a communist state can be home to the world's tenth richest man, without corruption being a factor? No answer received.
  3. In what way has CCHL consulted with the New Zealand government or its officials over the proposed buy in?

Answer from Bob Lineham:

"The introduction of Hutchison Port Holdings to the Port of Lyttelton would be subject to the usual regulatory consents that are required when an overseas company is involved."

  1. Li Ka Shing or companies and individuals associated with him have been implicated in smuggling 2,000 AK 47 fully automatic military rifles into California, and shipping componentry for nuclear weapons to Iran. CITIC, a Chinese Government company that Li helped found and sits on the board of directors of, is building an aluminium smelter in Iran the product of which can be used in missile technology and the production of nuclear weapons. Why are the reputational issues surrounding Li Ka Shing not a concern to CCHL? No answer received.
  2. Why is CCHL not concerned about the fact that Hutchison was prevented from purchasing telecommunications provider Global Crossing in 2003 because of concerns that he was a security threat to the US? No answer received.

And if the Christchurch port administrators are relying on assurances by Clinton administration officials that Li Ka-shing is not a security threat, they could be backing the wrong horse. Sadly, Investigate has reported before on how badly briefed New Zealand officials are on international intrigue. Former National Government Prime Minister Jenny Shipley was given a briefing by Foreign Affairs and Trade on visiting businessman James Riady in 1999 that read like this:

"The Lippo Group is one of Indonesia's largest conglomerates in terms of market capitalisation with estimates of value putting it at having US$11 billion in assets.

"The vision of its founder Mochtar Riady is to transcend the institutional limitations placed upon organisations run in the traditional overseas Chinese pattern and adopt a modern publicly owned and professionally managed pattern of business.

"Mochtar has formed alliances and joint venture partnerships with world class multinational corporations and has high calibre professional management staff working for him.

"The Lippo empire rose out of the success of the Lippo Bank. Unlike just about all other banks in Indonesia its founder Mochtar Riady tended to shun the Suharto connections that for other conglomerates in Indonesia were the keys to success.

"He avoided lending to politically connected groups or to state enterprises and instead built his business on legitimate retail and trade finance."

Yes, well. That's the New Zealand intelligence briefing, but while our diplomats were talking about how politically-neutral and non-crony like the Riadys were, the businessmen themselves were on the run from US justice for illegally laundering $4 million of illegal Chinese government donations to President Clinton's re-election fund.

The saddest part of that story was the information about the Riadys was in the public domain, just as the information on Li Ka-shing is, but New Zealand trade officials chose to ignore it or write it off as "conspiracy theory".

Interestingly, one report from a US Congressional team that visited Panama says "Li Ka-Shing is an investor in the Riady family's Hong Kong China Bank." It is this international game of join the dots that seems too hard for New Zealand officials to understand.

The Riadys were heavily involved with a company called China Resources Ltd, which is also a joint venture partner with Hutchison in the Panama canal. China Resources has long been known as a front for Chinese intelligence, but this too was completely missing from the intelligence briefing given to Shipley. Indeed, judging from their innocuous contents one would have to suspect the briefing was in fact prepared by Chinese intelligence!

"The Lippo Group has a strategic position in China and Hong Kong with substantial investments and relationships with powerful business and government people and organisations.

"It owns 49% of the Hong Kong Chinese Bank with the remaining 51% held by China Resources (Holdings) which is a wholly-owned enterprise of China's Ministry of Foreign Trade and Economic Cooperation."

So despite Christchurch's insistence that New Zealand authorities have it all in hand and that citizens can rest easy in their beds, Investigate is reminded of this news release about the previous Asian-investor golden boy James Riady, issued by the US Department of Justice in 2001:

JAMES RIADY PLEADS GUILTY WILL PAY LARGEST FINE IN CAMPAIGN FINANCE HISTORY FOR VIOLATING FEDERAL ELECTION LAW

WASHINGTON, D.C. - James Tjahaja Riady will pay a record $8.6 million in criminal fines and plead guilty to a felony charge of conspiring to defraud the United States by unlawfully reimbursing campaign donors with foreign corporate funds in violation of federal election law, the Justice Department's Campaign Financing Task Force and the United States Attorney in Los Angeles announced today.

In addition, LippoBank California, a California state-chartered bank affiliated with Lippo Group, will plead guilty to 86 misdemeanor counts charging its agents, Riady and John Huang, with making illegal foreign campaign contributions from 1988 through 1994.

As the world's largest port operator, there are sound economic reasons for Hutchison to operate New Zealand ports. But there appear to be equally sound political and strategic reasons as to why they should not. If the deals proceed, it could turn into yet another political bombshell for the Labour Government to work through, a government that is, itself, close to China.

Posted by Ian Wishart at 12:57 AM | Comments (0)

January 26, 2008

The Man Who Sold The World

The Man Who Sold The World

December 2007 issue

In this world exclusive, IAN WISHART has the inside story on the alleged $75 billion plot to bring down the Bank of England, after locating and interviewing the New Zealand 'mastermind' behind it – a man being hunted by Scotland Yard

 

It is a plot that could have been lifted directly from a Robert Ludlum thriller: deep in the throes of World War II, a British government desperate for bullion to pay for its war effort seeks to buy gold from wealthy Chinese families, offering as payment a series of bearer bonds, or promissory notes, worth billions of pounds in today's money. Throw in deep underground vaults in the Philippines full of gold bars, rumours of the lost treasure of the Japanese warlords, and a mighty typhoon that sucked four CIA aircraft – carrying billions of dollars in US bonds – out of the sky and into a Filipino jungle where locals ransacked the loot. If that's not enough intrigue, factor in six anonymous figures known collectively as "The Family", and dwell on the peculiarity that the members of "The Family" are aged between 100 and 116 and claim to be the direct witnesses to a historic event so secret it could shake the foundations of the modern world financial system. Then add in a British Police sting, the arrest of several people bearing £500,000 notes, and a New Zealand fugitive allegedly at the centre of a worldwide manhunt in a $75 billion plot to bring down the Bank of England.

 

Have I got your attention yet?

 

In late October, newspapers around the world carried the story of the Southwark Six, five Asians and an Australian, going on trial on a charge of conspiring to defraud the Bank of England between 1 Dec last year and March 27 this year.

"A New Zealander remains on the run after British police allegations that he is part of a counterfeiting gang that tried to con the Bank of England out of NZ$75 billion," noted the Dominion Post on 29 October. "Six people have been arrested. Their alleged Kiwi co-conspirator is believed to be in New Zealand…identified as Brian [sic] Archer."

Investigate knew where to find him, however, because the "fugitive", Bryan Archer, had been in touch with the magazine since September, offering to tell his side of the story. What follows, then, is a world exclusive, never-before-told. Make your own mind up as to the guilt or innocence of those involved:


IN THE BEGINNING:


With its rogue Buddhist monks, international intrigue and bizarre plot twists, this story could yet be a movie. Indiana Jones And The Temple Of Dumb springs to mind, although it might be a trifle unkind and a touch premature. You see, whilst prosecutors in a London courtroom have been keen to portray what follows as "quackery", nagging doubts remain.

It is an investigation that strikes deep into the heart of decades-old conspiracy theories about hordes of lost Nazi, Japanese and Chinese gold, missing US and British bank documents and a worldwide official "cover-up" of the evidence – or so some are claiming. Picture this: it is mid 1941, and your country, Britain, is at war. Locked in a death-struggle with Nazi Germany, which already has caused you heavy naval losses, and in the skies your airforce is so close to spent that if Hitler's Luftwaffe keep up their relentless bombardment for just a few weeks more, Britain will fall to the Third Reich. As the Governor of the Bank of England, you have the unenviable task of finding money to keep the war machine going. The gold bullion reserves you amassed before the war have plummeted from US$2.5 billion worth just two years earlier, to a piddling $115 million today. In short, not only are you running out of planes and warships, you are rapidly running out of gold to keep the "bang" in the whole shebang.

So you do what every desperate treasurer of a major power has done throughout history. You beg, borrow and steal money. Who do you turn to? Someone who already trusts you, like China.

In the mid 1930s, China was invaded by Japan. The Chinese government of Chiang Kai Shek fled inland, and the country's military and economy were propped up by the US, Britain and France – countries with substantial investments in China that they wanted to protect.

A lot of Chinese gold was sent to the US for safekeeping, but much remained in private hands. The currency problem suddenly turned into a Godsend for Britain at the end of 1935 however, when an assassination plus US manipulation of the silver market forced China to introduce its own paper currency, as Time magazine reported in November that year:

"Two days after three bullets put the Premier of China to bed, Acting Premier & Finance Minister Dr. H. H. Kung abruptly "Nationalized" the age-old basis of Chinese money, silver. Chinese could still hoard all the gold they pleased, but Dr. Kung made it treason for Chinese to hold silver which he ordered into the Government's banks. To a nation that has never had any great confidence in paper, the Chinese Government decreed that its paper is legal tender and not redeemable in either silver or gold.

"Significance: As Dr. Kung warned Washington last spring, President Roosevelt's jacking up of the world price of silver (TIME, April 22) could only disorganize the price structure of China and drive her off the silver standard. The question was last week whether Mr. Roosevelt had driven China into the fiscal arms of Britain."

This is a key point – an opportunity for Britain.

"Sir Frederick Leith-Ross of the British Exchequer has been in China for some weeks. He is rumored to have made available £10,000,000 as a "monetary re-organization loan" to Nanking, with Chinese currency to be linked with the pound sterling. This last week could not be confirmed, but British support was immediately obvious in an Order in Council legalizing Chinese paper notes in all transactions with British subjects."

This, then, set the scene for the events now spilling out in a London courtroom. But there's a little more you still need to know. In May, 1939, Time magazine reported that most Chinese investors had managed to move their gold out of harm's way prior to the Japanese invasion of mainland China:

"Wealthy Chinese as well as foreign traders in China have long realized that the safest haven for their transferable riches – jewels, antiques, gold and silver objects, foreign bonds, foreign money – was in the foreign-held concessions and International Settlements, where neither Chinese bandit nor Japanese invader could get at them. In their invasion of China the Japanese have found precious little loot with which to finance their war. Before they retreated the Chinese were careful to strip their cities of wealth, and what they could not take westward with them they hastily deposited in the foreign-controlled zones."

This aspect is important to the story that follows, because it shows the Chinese had clear motive to swap their bullion for Bank of England paper money, not just warm fuzzies.

"The fullest deposit vaults are in the big International Settlement and the French Concession at Shanghai. There are only guesses as to how much wealth (foreign and Chinese) is on deposit there, but if Japan, already forced to tighten her belt to carry on the Chinese "incident," could get her hands on these riches, they would help her in financing the rest of the war," reported Time.

Which brings us back to the early 1940s.

In his voluminous history of the second World War, British Prime Minister Winston Churchill sent a message to his Chancellor of the Exchequer:

"How much gold have we actually got left in this island?"

To give you an idea of how much gold was actually floating around in the world at the time, Time magazine recorded in 1935 the total monetary supply of gold was worth US$22 billion at the time (or nearly US$1 trillion at today's inflation-adjusted prices), of which one-third was stored in America. How much space would $22 billion worth of bullion take up?

"All the world's monetary gold could be stored in a room 15m long, 7.5m wide, 6m high," reported Time.


THE YEAR OF THE 'SKY DRAGON'


There is one man who has seen some of that gold, and photographed it. Enter Bryan Archer, the New Zealander allegedly on the run from Scotland Yard for masterminding what the media have called one of the world's biggest fraud attempts. Fifty-nine years old, silver-haired with calloused hands, Archer doesn't come across as your traditional fraudster. Nor do his actions. Far from fleeing into the mist when his colleagues were arrested en masse in London on March 27 this year, Archer instead went into bat for them, making approaches to Scotland Yard directly through his lawyer, and even writing to British Conservative Party leader David Cameron and Chancellor of the Exchequer Alistair Darling.

"I'm not hiding out," he scoffs when challenged. "I don't quite know what the police are playing at, it's not as if they don't know where I live. I was just with the police two weeks ago giving them information about what I knew about the Tuhoe camps up there – I took photos of what was up there 20 years ago and gave them to the police in Rotorua, but they didn't want to know about it back then."

Archer is referring to those terror raids in mid October, and says what he saw were "French, Belgian and US weaponry", including automatic weapons and grenade launchers.

In fact, so high-profile is he that on October 15 TV3 News interviewed Bryan Archer on camera about the training camps – although the network has apparently failed to subsequently make the link to the British fraud investigation.

So what is his link to the British case?

"Since 1983 I've been involved in charitable relief aid work, Operation Good Samaritan. I gathered up building materials and we built schools and hospitals in the Pacific Islands after natural disasters, and I've sought funding for that in different places."

That funding has included "some substantial wealthy families in the US" as well as the US Government. "It was through those that I met 'banking people'. One of them called me and said, 'there's this Chinese family that loaned gold to the British, when it was badly in need of gold to finance the war, and they were given notes as receipts which were redeemable'.

"So I started to help them and introduce them to my contacts."


It was in China's remote, northwestern frontier, beneath mist-covered mountains in July 2005, that Archer first met the patriarchs of 'The Family' – a group of six centenarians the oldest of whom is allegedly 116. Archer didn't speak Mandarin; The Family didn't speak English. The Family's other representative, Chin 'Daniel' Lim, a 50 year old Malaysian businessman, was able to translate, however. Lim explained to his elders that Archer's contacts could help realize their dream of cashing in the notes. It was then, in a traditional Buddhist ceremony at a nearby temple, that Bryan Archer was "adopted" as an honorary Chinese 'son' of the Family. He was given a new name, Lee Tian Long, meaning "Sky Dragon" and appointed a "Royal Voluntary Trustee" to transact the deal on The Family's behalf.

Daniel Lim's involvement follows an equally tortuous path. A millionaire businessman in his own right, with several companies in Malaysia including a joint venture with German conglomerate Schaefer Kalk, Lim was shoulder-tapped by The Family in 1996. Documents provided exclusively to Investigate detail what happened.

"The most senior person in The Family and the trusts, whose photo appears on the inheritance document, was a very close personal friend of my grandfather. This senior person had no living children or natural heirs," Lim writes.

"In 1996 I was approached to help The Family in redeeming the various wealth they held. They approached me because of my international connections with the heads of State, business corporations etc due to my business, which involves industrial minerals (resources of countries)."

Lim says that because of his own businesses, and his prominent reputation in Malaysia, he was "very cautious" about taking up the offer to get involved. It took three years of cross-checking, researching and verifying what The Family were telling him before he made his choice, "whereby I was made the heir to the most senior person, and adopted by The Family, thereby becoming the heir to this vast wealth."

But what "vast wealth" exactly?

As Archer tells it, The Family showed him special banknotes allegedly issued by the Bank of England during the war as receipts for gold borrowed from the Chinese. Specifically, he saw and handled 360 notes, each carrying a face value of £500,000. That's £180 million pounds in 1943 currency.


"I had all 360 of these ones in New Zealand at one stage. And I actually had one of them digitally examined to make sure it wasn't overprinted. It was enhanced to the point where you could see what was on the back coming through to the front, and he said 'There's nothing in between'."

He also had a hundred £1000 notes.

Investigate asked the obvious question, did they feel and look like banknotes?

"Absolutely. I couldn't tell it apart from other banknotes from the time."

Weelll, yes and no. There are some discrepancies, and Archer is the first to admit it. Firstly, the Bank of England denies ever printing half-million pound notes, and secondly it claims only 63 of the £1000 notes remain outstanding from the war years.

Archer suspects both of these objections may simply be the Bank of England's way of trying to make the problem go away.

"Now you've only got the bank's word that there are only 63 outstanding. And you've really only got the bank's word that they never issued these £500,000 documents and receipts."

As he points out, would a forger really go to the effort of forging a note that never existed? Then there's the issue of practicality. If you really were selling £180 million worth of gold bullion, you wouldn't really be wanting to transport 180,000 one-thousand pounds sterling banknotes. Far easier to have 360 notes. And as Time magazine again shows in a 1935 report, wealthy Asians were selling gold.

"Since the autumn of 1931, when Britain quit the gold standard, India has exported no less than 29,300,000 oz. – more than the rest of the world has mined in any single year to date. But Indian gold was not mined; it was disgorged from fabulous private hoards. When pound sterling was hitched to gold, the metal was worth about 85 shillings per oz. Indian princes and potentates today receive 140 shillings (£7).

"All India's gold, along with no inconsiderable portion of the recent output of newly-mined metal, went into hoarding in the Western World. It is estimated that nearly US$3,000,000,000 in coin and bullion is now hidden in countries other than India, China and Egypt, the three traditional sinkholes of precious metals. If world gold production had not increased, much of that hoarded gold would have been drained directly from monetary stocks, vastly aggravating the deflationary course of the Depression."

Applying these figures to the transaction at hand is a double-edged sword, however. While it shows that gold transfers were indeed taking place thanks to wealthy "potentates", the Chinese deal we are looking at would be almost equivalent to the total Indian gold sales for the four years from 1931 to 1935 – around 800 tonnes of gold. In today's dollars, that's equivalent to US$23 billion.

No ordinary family of Chinese peasants was ever going to have cash reserves like that. But then again, this was no ordinary family. It all has to do, apparently, with the events surrounding The Last Emperor.

When the Qing dynasty fell in 1911, Buddhist monks and temples stepped up to take control of local affairs in many areas until the new Republican government was fully operational.

"Unlike the old dynasties where you had one man in charge and his word was absolute law," writes Archer in his briefing document, "under the new order of the Kuomintang [republican party] it is a democracy and therefore the ownership of this wealth is entrusted to a body of people (a Family). The Family, by agreement…hand the vast majority of it over to the Monks who can be trusted to keep it safe and not be corrupted by such vast riches."

The Monks, as part of their agreement to hold the funds in trust, allegedly squirreled the gold away, especially when the Japanese invaded in 1937.

"Before Japan could get their hands on the majority of it these treasures were moved and hidden in caves and secret places known only to the monks themselves. Chiang Kai Shek was aware of the Japanese intentions and supported the monks by supplying trusted generals to assist them," writes Archer.

This might explain a Time magazine report from this period revealing one of Kai Shek's generals had managed to abscond to British Hong Kong with US$30 million in "small money".

After World War II, Chiang Kai Shek's problems worsened, with Mao Tse Tung's Communist troops rapidly taking over China.

As historians record, Kai Shek tried to round up all the riches he could and ship them to Taiwan.

"Under the penalty of death all Chinese holding gold or silver would be required to surrender their wealth to the central bank in exchange for the new gold yuan [a paper note]," reports author Stella Dong in her book about the fall of Shanghai.

By the time the fall of Shanghai came, however, Kai Shek's troops had managed to shift the final 14 tonnes of gold out of the Bank of China vaults and across to Taiwan.

As Archer tells the story, however, Kai Shek did not get away with as much as he had hoped for.

"The Most Senior Elder [of The Family] was Chiang Kai Shek's treasurer. Being forced to flee the country in 1949 Chiang Kai Shek begins to move the treasures offshore to Formosa (Taiwan). The Elders of the Family did not leave China.

"The Most Senior Elder, being the Treasurer, was involved in overseeing the move. He, along with the other Elders of The Family are Nationalist, and while having no time for the communists don't want to see the wealth of China go offshore and be lost forever. They move a vast portion of the treasures to protect them from Mao and the Chinese communist party, and from being taken offshore by Chiang Kai Shek.

"One hundred and eight people commit to move this treasure to secret locations and at the end of the task of moving it those 108 voluntarily give up their lives to protect the whereabouts of it."

In assessing the veracity of all this, argues Archer – who's tried to get to the bottom of it himself – you need to bear in mind that unlikely as it all seems, it remains possible. The leadership of the Kuomintang Party, for example, included many of the old warlords and nobles from Imperial times – extremely wealthy individuals in their own rights. As the Communist advance drew closer, some of these people for family or other reasons could not escape with Chiang Kai Shek to Taiwan. It is also doubtful that they would have complied with Kai Shek's last ditch order for all citizens to turn in their gold to his government.

So we are still left with the possibility, however remote, that some of old China's wealthiest individuals sold their gold to the Bank of England during one of the most turbulent periods in world history, and while England was begging for gold, in return for redeemable banknotes.

What about the contrary evidence? Well, that takes us back to the banknotes and those discrepancies we touched on earlier.

They contain spelling mistakes and strange, English-as-a-second-language sentence constructions. On the reverse of the £500,000 notes, for example is the phrase:

"This bank note only for the special use by the officers.The supply mustbe mortgaged with gold by the officers. The supply should be kept andnever altered. Not for circulation. Five hundred thousand pounds sterlingdraft payble to bearer." [Investigate's emphasis]

Several words are run together, one is misspelt.

According to The Family's documentation, the mistakes were "deliberate" on the part of the Bank of England, so as to throw counterfeiters off the scent and to stop any old Joe from simply stealing a note and trying to cash it; part of an elaborate three-step security plan. It worked like this:

Having printed a half million pound banknote promising to "pay the Bearer on demand", the BoE could not afford the risk of such notes being copied as is, especially after the Bernhard forgery scare during World War II when the Germans printed more than a hundred million pounds' worth of top class forged British banknotes, in order to destabilize Britain financially.

By building mistakes into the note, so the conspiracy theory goes, the Bank created a hurdle that anyone presenting such a note would first have to eliminate before they could cash it: is the note genuine? In this way, if half million quid notes started springing up all over the place, of course most people would believe they were forgeries because of the errors.

But to give the Chinese comfort that they were not being duped, says Archer, the BoE created accompanying documentation that would have to be presented alongside the notes as a three-tier security plan. The second tier was an "Explanation" document bearing the alleged signature of BoE Chief Cashier, Jasper Hollum. It reads:

"Explanation of Secret – The Bank had specially set up the English letters by mistake as the drawing evidence for 500,000 pounds, which were the inside code of the Bank, in order to keep secret definitely inside the bank, the bank can't open the code to the outside world. Hereby keeping secret proves."


Ah yes, Grasshopper. The third tier of security was a gold triangular plate, bearing account codes, and a stipulation that this had to be presented with the notes and the explanation.

To add to the confusion, the half million pound notes had apparently been originally issued in 1943, recalled and reprinted in 1953, and the same again in 1963 – the final incarnation. Nor were pounds sterling the only currency. The Family had US notes, French Francs and Deutsche Marks.

All this was explained to Bryan Archer during his "adoption" into The Family in July 2005. By October, 2005, however, he was not a happy camper. Having set up a possible deal with US banking and political contacts – including the US Federal Reserve and representatives from the US, UK and French governments – the rug was pulled out from under Archer by a Family refusal to cooperate.

Part of the problem was The Family's decision to drip-feed documentation to Archer and his contacts, rather than provide all the information necessary for verification.

"I am bitterly disappointed, disgusted and angry that The Family have used me and destroyed my credibility with Bob and the Trust," excoriated Archer in a letter to his "brother" Daniel Lim. "But then, it could be said, why should I expect anything different from a family that I see has bitter internal fighting and greed as the basis of their relationships.

"You and The Family asked me to help them get this 180 package to the right people so this could be dealt with. I have done that, and all I get in return is stubborn, blind ignorance of the world's political climate and a conceited arrogance from a bunch of old people that think they are in control of the world's finances. It's time they woke up and smelled the roses.

"For God's sake, tell The Family to use a bit of common sense and logic…the cash samples are to prove to the Governments that The Family has the real stuff and that it is not like other stuff that has come out of China in the past…

"All you are being asked to do is agree to the following – sign the letter I gave you, which stipulates that you agree to supply samples of the US, UK, FF [francs] and DM [Deutsche Marks]. That means a generous sampling of each currency and a generous sampling of each denomination within the currencies. That includes all the different types of currencies you have from those four nations."

There's an important point that emerges from this letter. Whatever the merits of the Chinese claim, Bryan Archer clearly had confidence the notes were real, and indeed his next paragraph reinforces his belief that the notes will survive "forensic testing" by the US Federal Reserve.

"The samples are for forensic testing to prove to the three nations that the currency The Family holds is real. I say that as I recall once you saying something along the lines of, 'The Family produced at least two sets of fake documents for every real set'. I may have got that wrong as I don't understand the reason for that other than to mislead the rogue members of The Family. The Governments want to make sure they are dealing with the right people before they strike any deals."


Again, this is an important paragraph. It shows there has been some kind of internal discussion within the organization about "fake documents", albeit with the implication that genuine ones exist that they were copied from. It also shows some kind of internal discord so serious that different sides are willing to cheat each other with false documents. If correct, this also implies that somewhere, in the middle of this, might exist a kernel of truth – even if it was only one £500,000 note that has then been copied by forgers.

Archer's next comment to Daniel Lim, however, shows The Family has had dealings with the Federal Reserve in the past:

"The US and the Fed's history with The Family of 12 years ago tell them that The Family doesn't honour their word – that while not being devious they tend to stall and play mind games which they somehow believe is part of the consultation and negotiation process. Nothing will change that image until The Family starts behaving in an honourable way. Whether The Family likes it or not, that rogue member of 12 years ago severely tarnished The Family's image."

In another letter, in December 2005, Archer again tells Daniel that The Family need to get their heads into the 21st century:

"To transact the Notes we have to deal with the four Governments of issue. It has already been established that the payout will be between 10-20 cents in the dollar.

"These four Governments are not waiting around for the family to bring this in. They are not sitting in their offices with open arms wishing it would all come in so the family can receive their inheritance.

"NO ONE is sitting out there losing a second's sleep or wasting a moment's thought on the fact that some Chinese families are being done out of their inheritance. THAT IS REALITY.

"The four Nations of issue don't want to know about it and they are actively seeking it to destroy it without having to pay out a cent.

"The world has changed over the last 60 plus years, it has turned and it will never go back to being what it was or what the family members remember it as. Those who struck the deals with the family are either dead or retired and those that are still alive are under gag orders about what they did.

"The leaders of the day when the Notes were issued did some very foolish things for reasons unknown to those in the money power positions today.

"The Financiers, Chief cashiers, Treasurers, etc of the Governments the four Nations today have never seen this stuff and they have never seen the original documentation. There is not some board in the banks of those 4 Nations where the copies of the Notes are pinned to it with a "what to do check list if one turns up".

"The world of finance today operates on who you know and what deals can be cut and "what in it for me"; it does not operate on the basis of right and fairness or any other nice feelings that the family may have about the bankers and banks and Head of State of the Nations who signed the agreements over 60 years ago."

Archer sounds a warning in his letters that hauntingly foretells the eventual fate of the man he was writing to:

"I have spoken to enough people now who have also seen this asset in the past who also know it is real. But, all have said that getting the banks and the Governments to acknowledge that is another story. For any bank or Government to acknowledge it, it immediately upsets their balance sheet; and often the easiest way to solve the problem is to deny it, destroy their own internal documentation on it and plead ignorance (which amounts to saying The Family are fraudsters), or take an exceptional heavy-handed approach in an effort to intimidate The Family into another 60 years plus of sitting on it until it gets totally lost in the mists of time."

Fast forward nearly a year, to September 2006. Another letter, and still a feeling from Bryan Archer that The Family were not being entirely straight with anyone they dealt with, this time over some of the US silver certificates.

"More recently there were the US silver certificates which, when I had them examined, raised serious questions about their validity. I forwarded you a sample of a real silver certificate that both Treasury and the Fed were willing to acknowledge, and was informed by you that The Family said the sample was one of their set!

"I have a direct link into the Fed…and asked for The Family to come forward with the real silver certificates or provide evidence that their silver certificates are real, and supply the supporting documentation to prove it. That was over six weeks ago and NOTHING has been said back to me – just silence, which makes me look bad in the eyes of those I am dealing with."

One of those Archer was dealing with was Phinias Sichoongue, a bullion trader and banker whose contracts included work for the Bank of England and Canada's Bank of Nova Scotia. He warned Archer of the perils of being wrong about the notes:

"I would propose that Mr Daniel Lim comes here to London, give an immunity that whatever he is carrying, fake or genuine, has nothing to do with me, and I will take him to the Bank of England to meet the Treasury Department.

"Please note, the production of such an instrument or instruments – and if the instrument/s are deemed fake – will land you in jail for the rest of your life, including all entities and individuals that are part and parcel of the said instruments, so be cautious."

Archer mused on it for a day, then passed the warning onto Daniel Lim. He advised Lim to accept the offer, saying the only way to sort the matter out once and for all was to ask the Bank of England whether they could verify the notes.

According to the correspondence, The Family claimed to have run some of their documentation past Professor Charles Goodheart, a banking expert and Emeritus Professor at the London School of Economics. Archer, through his own banking contacts, was dubious about the truth of this, but told Daniel Lim that if this was true and Goodheart had indeed given them cause for hope, then they should follow through and meet the Bank.

"What more can the family possibly want if they are genuine?" he asked at the end of his letter.


THE PITCH

Unfortunately for Archer, one of his "contacts", Ramona Forster, was about to enter the picture. Archer had met her through one of his charities, and she intimated she had contacts in the US Federal Reserve and the Bank of England. She referred in documentation to a member of the House of Lords she named as "Sir Christopher" who was assisting her on The Family's claim, and Archer later noted the name of the Lord was Sir Christopher Jones. It didn't occur to anyone to check and see whether such an individual actually existed (he doesn't).

"I am familiar with the historical currency for gold and other asset exchanges which took part in the early times of the last century between important Chinese families and the countries of USA, Great Britain, Germany and France. These situations are still unresolved and are significant," stated Forster boldly.

Forster made a pitch to handle the deal and on November 17 last year sent an email to Bryan Archer asking him to send key documents and a power of attorney to her.

"I will be travelling France, London, etc in a round robin while I put things together. Sir Christopher sends his regards. He is very old and not very well but he is very interested in your case as well as is the bank."

Over the next few weeks, documents were sent, meetings arranged, and according to Archer, Ramona Forster had already made contact with the Bank of England. In a diary note of their conversation on 17 December 2006, Forster is quoted as saying:

"The BoE has already authenticated the Notes, they were able to do it from the jpeg pictures we sent them. They could even read the magnetic lines in the Notes from the jpegs. The BoE is not interested in the [supporting] documents as they have already verified the Notes. It is a done deal. Tomorrow we will go to the bank."

It was a Sunday night in London, and Forster was at dinner with Bryan Archer and several delegates from The Family, including Chan Kwok Kwong – later arrested as a conspirator. Archer says Chan was the illegitimate son of the Most Senior Elder heading The Family. The dinner became heated, however, when Ramona Forster allegedly argued with members of The Family about how much control of the deal she wanted.

The following day, says Archer, "she commented that this £180 million package was in fact more than 180 million, it was £1.8 billion. When I questioned her on this she was adamant…in the end she conceded she had got it wrong. I was concerned at the lack of study she had done on the notes and I wondered if she had in fact read all the information carefully."

Forster also promised a visit to the Bank of England that day with an escrow officer – a commercial agent who specialises in the transporting of valuable documentation – Monday 18 December, but it didn't eventuate.

"When I saw her in the morning [Tuesday 19th] and asked about what happened to the escrow officer yesterday, she informed me that she had been up during the night talking to her team who were in Australia."

One of the "team" turned out to be Australian lawyer and escrow agent Ross Cowie – another one of those later arrested. Now Cowie is no slug. His business is so sensitive and security conscious that his company has contracts with the Australian Defence Force. In fact, the Defence website actually acknowledges this: http://www.defence.gov.au/dsba/CompanyDetails.asp?CompanyID=700

Additionally, Ross Cowie's company, APPS Escrow Australia, leases office space on the second floor of the Reserve Bank of Australia's note printing facility in Melbourne, Victoria. Explains Cowie: "NPA [the printing facility] carries out for Australia and 17 other countries, including New Zealand, the role undertaken for USA by both its Central Reserve and Fort Knox."

With a security clearance to work from the very factory that prints banknotes for Australasia, you'd again have to ask the question: do the British police really believe Cowie formed criminal intent?

Forster, says Archer, "went on to say that 'the escrow officer will be coming to the hotel to collect the Note and answer your questions'. I informed her that the Notes would not be handed over in a hotel room as The Family needed proof and identification of who was receiving the Notes and that the Bank of England was involved, 'as to date we have not seen one scrap of evidence concerning the BoE, The Bank of New York, Sir Christopher Jones etc'."

When Archer mentioned that someone from the Bank of England known to The Family might shake his hand when he entered the building, "she again raised her voice and said that if we went into the BoE and anyone came up to greet me they would be immediately arrested. That her team had checked and there was nobody in the BoE connected to The Family."

As Wednesday 20 December rolled around and there was still no sign of an escrow officer or a Bank of England visit, Bryan Archer pressed Forster for an explanation. She explained that Australian Ross Cowie was arranging for a security firm to collect a banknote for forensic testing.

"This was…an ageing test to see if the paper was in fact that of 1963," says Archer. "When I brought up the previous things she had said about the BoE having already authenticated and verified the Notes from the jpegs, she was unable to offer an explanation."

It wasn't the only porkie Ramona Forster allegedly told. The documents suggest she had not been upfront about her international travel movements in regard to the project, or about her financial status.

Ross Cowie, meanwhile, was spelling out a perfectly orthodox approach to the problem at hand, finding out whether the notes were genuine.

"We need to have the forensic people nominated by Bank of England to review one of the notes to establish authenticity. This is expected to take up to 14 days."

Hardly the actions of someone trying to pull a fast one on the Bank of England, one would have thought. Bryan Archer's concerns, however, were heightened by the possibility that Forster may have misled Cowie about the totality of the transactions.

"As far as I was ever concerned," says Archer, "the deal was only for £180 million – the 360 half million pound redeemable notes and about a hundred thousand pounds in the £1000 bills. That's it."

In Cowie's email traffic with Forster, however, it is clear Forster has raised the possibility of accrued "interest" on the old notes, which may have been the source of the mysterious reference to a £1.8 billion dollar deal with the BoE.

"Now," responds Cowie to one of Forster's offsiders, "on the matter of the outstanding interest owing to the consortium, I am happy to take that up with them, and an extra few days, considering the problem is over 40 years old, should not make any difference.

"I intend to come to London to settle all of the first stage, 180 and hopefully interest, in the first couple of weeks in January," writes Cowie. "This will be immediately after we get acceptance by BoE that the sample note is approved by their scientific and forensic people."

The documents given to Investigate suggest a sample £500,000 note was delivered to the Bank of England's forensic team on 2 January this year by Brambles Security. Or at least, that's what Forster said. In fact, the note remained in secure storage at Brambles and was not delivered to the Bank. Events moved relatively swiftly after that. Firstly, Ramona Forster was dumped by The Family. Ongoing doubts about her credibility and expertise led Archer and Daniel Lim to cancel her power of attorney in early January. Ross Cowie was invited to pick up the ball and run with it.

"For reasons she never explained to me, nor, I understand, to Mr Archer, Ms Forster instructed…me to present the £1000 notes along with the 180 package. At that stage, not having communicated with Mr Archer personally, I duly advised the Bank and forwarded them a jpeg scanned image of the 1000 note," writes Cowie in a briefing to The Family dated 19 January 2007.

"The result was that the 1000 pound note and the 180 package have both been presented to the Bank but to different departments, and I am happy to report that the 1000 note has received a favourable report, The Bank has issued me the forms to fill out for its collection and subsequent payout following a visual sighting of the 1000 notes and the subsequent forensic testing."


THE STING

In a further email on 24 January, Cowie advised that the Bank of England was happy to see him in early February, "certainly on 1K issues and, with a little bit less confidence, to negotiate further on the 180 redemption. The hesitation on the 180 is not that they doubt the authenticity, but that they are dealing in a matter which has a long history, some of it lost in the mists of time, and nobody wants to be the person making the wrong decision, so are reluctant to make any decision: typical corporate behaviour."

Cowie's contact at the Bank of England appears to have been one Jamie Higgins, who describes himself as a "project analyst" with the Bank on a social website.

Higgins, without having seen a copy of the £500,000 note at all, appears to have kicked for touch, arranging for Cowie and representatives of The Family, including Archer, to meet Bank officials in mid February.

"I had a very interesting discussion with Bank of England last night," writes Cowie to Archer on the morning of January 30 this year, "and they seem comfortable dealing with me, and with the transactions. They have agreed to meet with me, and, if you or Daniel wish it, with one or two members of The Family, on…13th and 14th February."

Cowie's email records that the first meeting would involve the Bank's "legal counsel" and Cowie to set up "the procedures to effect the Exchange and to table the authority documents authorising me to represent The Family. This will take place at the BoE on the first morning."

Following that, the second meeting would table "the 1K's and several of the 500ks. "All persons attending Meeting 2 will need to be carrying identification, at least two items," warns Cowie.

Curiously, he also records senior members of The Family expressing "their desire to be there, as the matter is reaching fruition, and naturally The Family wants to oversee the final steps in this half-century saga!!"

Regardless of whether Investigate or its readers suspects the notes are bogus, it would be strange for people who allegedly knew they were counterfeit to walk into the lion's den clutching the cash.

In a second email late in the evening of the same day, Cowie reports the group's first hiccup.

"I have had a further discussion with BoE, and the conversation was not too encouraging in relation to the 500K."

According to Cowie, the bank officers told him, "We have some serious concerns as to whether the 500Ks are, in fact, genuine. We have no record of the Bank of England ever having issued notes of £500,000 denomination."

Remember that statement, as it will shortly become crucial.

"While we understand your comment that these were a special issue," said the Bank, "and that the notes are supported with documentation, we are not in a position to further discuss these notes until you arrive."

Remarks Cowie: "They had no such reservations about the 1K notes."

Cowie didn't know it, but the men he was now scheduled to meet were not bank officials in the ordinary sense of the word. One of the two men claiming to be bank officials, "William Hickson", was, in fact, an undercover police officer. The second, John Nelson, was a security consultant, not a bank historian.

This, in itself, is strange. One would have thought that before the Bank of England called in police it would first want to touch the money, check it out for themselves, hear the story. It didn't. The Bank of England had no intention of discussing the notes with anyone.

Coincidentally, within minutes of the timing of Cowie's email, the Bank's Jamie Higgins fired through a request, "can I confirm that you will be bringing the appropriate ID on behalf of yourself (including the Power of Attorney) and of your clients visiting the Bank in two weeks' time? I would also be grateful of all names of attendees prior to your visit if possible."

Cowie responded with a confirmation, and added: "I am very concerned, too, that you have doubts as to their authenticity. However, the only way to check these notes is to present them, and we will proceed on that basis, if that's OK."

The ball was now in play, and it is at this point, notes still sight-unseen, that the police stepped in.

"Dear Mr Cowie. I am John Nelson, a Senior Security Officer at the Bank of England tasked with the role of dealing with customers wishing to redeem out of date or damaged currency. Mr Higgins has forwarded me all your correspondence.

"When you and your party arrive at our main entrance in Threadneedle Street, security will direct you to the counter area. The counter staff will then contact me and I will come and collect you. Please confirm your approximate arrival time."

When they did arrive on February 14, it was not exactly a friendly greeting.

"Neither of the two men [Hickson and Nelson] had business cards nor offered any form of identification when cards were being handed around the table at the start of the meeting," remembers Archer.

Attendees included Archer and Cowie, along with Melbourne-based New Zealander Euan Ansley (Cowie's 2IC) and London-based lawyer Kim Ming Teo. Teo had no connection with The Family or the fortune, except to the extent he'd been hired mid-December to act as legal counsel because 1) he lived in London, 2) he spoke fluent Mandarin and 3) he was Malaysian, like Daniel Lim.

Teo, the lawyer, stayed quiet, as did Ansley whose role was purely to take notes. According to Archer, however, bank "official" William Hickson claimed the spelling mistakes on the special-issue notes were not unusual: "We still do that today".

"When I asked what they meant by that," says Archer, Hickson replied, 'The Bank of England covers [underwrites] the Bank of Scotland and rather than cover each denomination they issue special one million pound notes and incorporate mistakes, security measures and codes'."

"This was a relief to me," says Archer, because the spelling problem "was my only real concern" about the veracity of the notes.

In some respects, it almost makes sense. If the Bank of England really did print huge denomination bills, it would not want them being accepted at face value as genuine money. By incorporating glaring errors, it would certainly make them harder to cash, as The Family were finding.

Cowie re-confirmed – although he had already done so in writing prior – that the men were there to offer the notes for forensic examination to see if they were real, under the Bank of England's stated policy on old banknotes, including possible forgeries:

"All old Bank of England bills remain exchangeable for current bills forever. Forgeries however will be retained and destroyed by the Bank (including Bernhard Bills), and it is not therefore advisable to send bills to the bank in order to confirm whether or not they are forgeries. Bills can either be taken in person to the Bank in London…or sent by post at the sender's risk…"

Hickson responded by saying that if the notes turned out not to be real, the Bank would let the men know and ask them to hand over all stock for destruction. Archer says they all agreed with this course of action.


A wad of the half-million pound notes were tabled, and John Nelson took just one note for testing. A hundred of the thousand pound notes were tabled but the Bank did not want to take any of those for testing, choosing instead only to scan one and hand it back. Nelson allegedly told the men there was no problem with the authenticity of the thousand pound notes.

So far, so good, but nine days later Cowie sent an email to bank "official" and undercover cop William Hickson to start arranging the follow-up meeting. At the end of it he wrote something that appears to be at the core of the current trial in London:

"At this meeting, we propose to initiate the second transaction, being a small number (say 500 or so 1000 pound notes) of the Stg28 Billion holdings. That will no doubt prove interesting!"

You can imagine how interesting City of London Police found that email. It is fairly likely that "William Hickson" fell off his chair when he read it.

Where did the figure of £28 billion suddenly come from? For his part, Bryan Archer says he has no idea.

"Look, the deal on the table when I was working on it was the 360 half-million pound notes. Nobody was talking wild figures like £28 billion."

Was this a result of Forster talking up the case, or had someone from The Family been in Cowie's ear? Who's to know? Either way, it was probably the clincher that set in stone the fates of those attending the next meeting, scheduled for March 27 this year, in London.

The Bank of England still had not reported back on the forensic testing of the one £500,000 note they had taken away, with Hickson telling Cowie, "This is a complex instrument, and there are many factors to the transaction. It is like a jigsaw puzzle. Until the whole puzzle is done, with every piece in place, we will not have achieved any success."

Cowie, by all accounts, was really enjoying himself.

"It is truly the most interesting project I have ever been involved with," he writes in an email near the end, ironically headed "Custody arrangements and the way forward".

And the end, when it came, came swiftly.

On the morning of March 27, six men had been selected to meet the Bank of England for the next step in transacting "the deal". They included 50 year old Daniel Lim; 55 year old Kwok Kwong Chan, an alleged son of the Senior Elder (codenamed 'The Dragon'); Chan's 53 year old interpreter Chi Kuen Chung – a Chinese businessman who'd been making enquiries about buying into a New Zealand biotechnology company called Aquaflow after seeing New Zealand's Energy Minister David Parker endorsing it; 56 year old Pin Shuen Mak, representing the Senior Lady Elder (codenamed 'The Phoenix'); 41 year old lawyer Kim Ming Teo; and of course 62 year old Australian Ross Cowie. It had been decided that New Zealander Bryan Archer and Australian-based Euan Ansley did not need to attend, although Archer did get himself placed on standby for an Air New Zealand flight to London just in case.

Archer's last-ever conversation with Cowie was the night before the meeting.

"He informed me that the Bank of England (Mr William Hickson) had made arrangements for a Bank vehicle to take one of them to the safe deposit vault at the Bank where they had kept the items of the package as he didn't want any chance of the Notes being stolen."

The sequence of events that followed has been pieced together from news reports and Archer's conversation with Cowie's wife in Melbourne after the arrests.

On arrival at the Bank of England, the men were greeted by officials. After a couple of minutes, probably just long enough for all the banknotes and supporting documentation retrieved from the vault to be handed over, the men suddenly found themselves under arrest. The six were taken to different police stations and interviewed separately by detectives. The following morning all six appeared in the local Magistrates Court, charged with "Conspiracy to defraud the Bank of England". Apart from Cowie, no one else was given bail.


THE WASH-UP

A criminal charge like conspiracy to defraud requires a key element to succeed at trial: mens rea, or criminal intent. This means that not only must an action be illegal, but the participants must have formed the necessary criminal intent to break that law. Assuming the banknotes are indeed forged, the question is how many, if any, of the arrested men intended to defraud the bank whilst knowing the bills to be false? The Family's lawyer, Teo, is unlikely to have met the mens rea threshold. He had been brought in late to handle any legal paperwork. Like any lawyer, he would only know as much as his clients told him. Then there's Australian Ross Cowie, a lawyer by trade, working in document security with contracts to the Australian military and office space in the banknote printing facility of the Reserve Bank of Australia. Did he know whether the notes were definitely false? Did he try to hide that possibility from the Bank of England or was he open about it?

What about Bryan Archer and Daniel Lim – both ring-ins to help represent The Family because of their banking and business links. Would Lim, a relatively high-profile millionaire Malaysian industrialist with a number of companies and international joint ventures, really have walked into the Bank of England if he'd genuinely believed the notes were a fraud? Admittedly both he and Archer had been let down by The Family on a number of occasions, and both were aware The Family's reputation had been sullied by a previous altercation with the US over redeemable bonds. Even so, the evidence suggests Archer was not knowingly trying to pass bad money but was relying on the Bank of England – the experts – to make the call one way or the other.

Sterling and Peggy Seagrave's 2004 book, Gold Warriors, recounts at one point:

"A journalist at the Financial Times told us: 'It has now reached a point where you can go into one of the big banks in New York, London or Zurich, give them half a metric ton of gold in return for a certificate of ownership, walk around the block for 10 minutes, re-enter the same bank, and they'll deny ever seeing you before and have you arrested for presenting them with a counterfeit certificate'."

What about the Bank of England. Its initial statements were that there had never been a £500,000 note, ever. Even prosecutor Martin Evans took this line in his opening address to the jury:

"It will not surprise you to know there never was a £500,000 note but that there was a £1,000 note – it was issued until 1943 when they were withdrawn," he said.

Suddenly, at the trial in early November, that story changed. The Bank of England's John Keyworth, giving evidence on oath, admitted for the first time that the half-million pound notes did indeed exist.

"Mr Keyworth said the £500,000 notes had never been produced for public circulation in the history of the Bank of England, and were used as a way of banking Scottish and Irish-issue notes to avoid having to print large quantities of bills," one newspaper has reported.

Look at that statement for a moment. They existed, and they were never produced for public circulation. Isn't that exactly what The Family and Bryan Archer have consistently argued?

"What these notes were used for was purely accounting purposes," Keyworth told the court. Asked if the huge denomination notes leave the bank under any circumstances, Keyworth replied: "No, they do not, they are carefully guarded."

So guarded, in fact, that despite being around for decades their existence has only just been publicly revealed.

Another aspect to this that puts some of the outrageous numbers into perspective is the simple arithmetic that lies at the heart of modern fractional reserve banking. Ever since the 1930s, western banks have been allowed to lend out around 20 times more money than they have assets. That means, if a bank has $1 billion in gold or other reserves, it can make loans to the value of $20 billion. Thus, whatever the Bank of England was paying the Chinese for gold, the gold was really worth 20 times more to the Bank of England under western banking rules.


Prosecutor Martin Evans ridiculed the accused by saying that if the counterfeit notes had been genuine, they would have been worth almost 75% of the £39 billion now in use worldwide. At first glance it does seem ridiculous (and he undoubtedly wanted the jury to think that), until you realize that the amount of cash in circulation is only a total fraction of the total amount of money circulating in an economy. In New Zealand, for example, there is generally $4 billion or so of cash in use, yet our total economy is more than $100 billion.

It didn't matter how much gold Britain and the US purchased, it was always going to generate vastly more income than it ever cost, under the rules of fractional reserve banking.

But what if Britain and the US simply used the turmoil of World War II and its aftermath to soak up as much foreign gold as possible, with no real intention of ever paying it back?

The mystery deepens when you join a few more dots together. Back in 1937, while Chinese leader Chiang Kai Shek was busy fighting the Japanese invasion and trying to move gold and treasure out of harm's way, assistance came from the Americans in the form of General Claire Chennault. One of Chennault's tasks was to set up an air transport service for Chiang Kai Shek. That airline eventually became Civil Air Transport (CAT), a front for the CIA and later renamed Air America. CAT would take on the risky missions that no other commercial airline would take, and its pilots and crew would be paid commensurately. This much is established, proven history.

As the Seagraves report in Gold Warriors, it became directly relevant in a British court case in 2003:

"Professor Richard Aldrich of Nottingham University, co-editor of the journal Intelligence and National Security, described the strategic situation in 1948 in testimony before a British court in 2003:

"As Chairman Mao's forces advanced through China in 1948, Dr. Aldrich said, Britain and the US dreaded the prospect that one of the world's largest stocks of gold – worth US$83-billion at current prices – would fall into communist hands. So it was decided to extract the gold reserves from China before the communists could seize them. The CIA provided the means for this bullion-rescue mission, flying in B-29 bombers disguised in the livery of its CAT [Civil Air Transport]... CAT flew numerous missions to bring huge shipments of gold out of Mainland China."

As part of this operation, it is believed the US used redeemable notes of its own, called Federal Reserve Notes and Federal Reserve Bonds, with which to buy the gold.

"Where did the FRNs and FRBs fit in?," ask the Seagraves. "Professor Aldrich said they may have been used "for persuading managers of major banks in the interior of China to part with their vast stocks of gold."

"Printing FRNs and FRBs with a face value much greater than that of the gold they were to replace, he said, served to encourage the banks or wealthy individuals to swap their gold for the bonds and notes, which would be easier to hide and later smuggle out of China to be cashed in the West. As Aldrich said, the US almost certainly had no intention of honouring them, anyway.

"Professor Aldrich explained that the CIA was only emulating Britain's Special Operations Executive (SOE), which printed and circulated massive quantities of counterfeit currency and bonds during the war.

"Foreign Office files also show that the CIA was involved in other currency issues, including the movement of printing plates for Chinese currency," Aldrich testified.

But why were such huge quantities of FRNs and FRBs flown out to China?

"Because of the possibility of operational loss," Aldrich told the court, "surplus amounts of FRNs were required. Regional banks [in China] receiving FRNs in return for their gold were aware that the FRNs were likely to be redeemable for only a proportion of their face value. Therefore a much larger value in FRNs would have been required than the total value of the gold that the Americans and Chinese Nationalists were trying to extract from China."

In other words, there's good evidence that both Britain and the US were donkey-deep in printing anything they could that would transfer Asian gold into the West, and not necessarily with any intention of paying it back. Furthermore, if the value of the notes given to the Chinese far exceeded the actual value of the gold delivered, then that would explain something else: Aldrich's figures – adjusted for gold pricing – suggest the total value of Chinese bullion in the mid 40s was around US$2 billion at the time. Under the banking system's rules, that would be worth 20 times more to the Bank of England or US Federal Reserve, so even if they printed funny money bonds to the face value of $10 or even $20 billion in total back then, they would still be making on the deal from day one. A $2 billion gold base allowed the banks to create a further $38 billion in interest-generating credit. Assuming, just for ease of calculation, an interest rate of 5%, that means the banks are earning $1.9 billion a year in interest. Over 60 years, that's a minimum of $120 billion worth of interest in 1940s dollars. Of course, gold prices have gone up massively since the 1940s when it was only $35 an ounce. It is now topping $800 an ounce, which is more than 20 times higher. As Professor Aldrich testified, the Chinese gold would be worth around US$83 billion today, and in the banking system that's the asset-backing for nearly $2 trillion worth of lending. Suddenly the Chinese redeemable note figures don't look as out of place as they did.

You need to remember the world had just lurched out of the Depression straight into World War II, and now desperately needed cash to rebuild shattered economies. Gold was crucial to that plan.

American airforce pilot Erik Shilling used to fly some of these gold missions for CAT, and told investigative journalists Sterling and Peggy Seagrave before he died in 2002 that he'd made numerous flights from Guam and the Philippines "ferrying FRNs and Nationalist secret agents as far into China as Chengtu in Sinkiang province, and flying boxes of gold out to Taiwan.

"The B-29 had a range suited to long round-trips, and Shilling was skilled at flying the aircraft at 30 or 40 feet [10 to 12 metres] above the ocean to enter and leave Chinese airspace without being picked up by radar."

The Seagraves believe they have evidence that several CAT aircraft involved in this gold-recovery mission crashed in the Philippines carrying precious cargo.

"According to reliable sources who visited the wrecked aircraft and recovered the dogtags of the crew, the truth is as follows: In May 1948, four US Air Force planes on their way from California to Malaysian Borneo, refuelled at Clark just north of Manila, then continued on their way toward Borneo. A typhoon that had been brewing in the western Pacific moved directly into their flight path, and all four planes crashed into the mountains of Mindanao. In the doomed flight were two B-29 Superfortresses of the type that had dropped atomic bombs on Hiroshima and Nagasaki, plus a new modified version of the same plane called a B-50, and a much smaller twin-engined B-26. The lead B-29 had the serial number 7695132. Among the dead aboard were General Frank Reagan, Colonel John Reagan, and crewmen named Colling, Dalton, Johnrey, and Withor. The two B-29s were carrying thousands of Federal Reserve notes and bonds, in boxes from Chase Manhattan and Wells Fargo banks. The B-29s were wearing the livery of General Clair Chennault's Civil Air Transport (CAT), partly owned by the CIA through a front in Delaware named Airdale Corporation.31 In 1948, the CIA was using CAT to fly four million tons of supplies each month to Generalissimo Chiang Kai-shek's forces, which were rapidly losing all of China to the communists.

"These two CAT B-29s loaded with billions of dollars worth of FRNs and FRBs, were on their way to Malaysia on a roundabout route to southwestern China by way of Thailand and Burma."

But it is the fate of the redeemable notes and bonds on board the plane that impacts this story. In 1948, when the planes crashed, they were not found. It was too dangerous for ground search parties because US forces were still fighting units from the Japanese Army in the area who did not believe World War 2 was over. According to Gold Warriors, the jungle quickly claimed the planes, and they didn't resurface until the early 1980s, when the FRNs and FRBs recovered from the wrecks started appearing on the black financial markets.

Faced with every man and his dog across Asia waving Federal Reserve Notes worth millions of dollars marked "payable to bearer", what would you do if you were the British or US banking institutions?

The US sent Secret Service agents down to Manila to assist in tracking the sources of the notes and help arrest anyone caught in possession of them. An Australian private investigator received a warning, quoted by the Seagraves: "If I persisted in pursuing these items, I would most likely receive a visit from some very unpleasant men whose job it is to secure the safety of the USA against any threats to the stability of its economy. I was informed that if I ever tried to redeem them, I would not see another birthday."

Bearing in mind the book Gold Warriors was published in 2004, long after The Family first revealed its notes to Daniel Lim but long before the Bank of England had Lim and the others arrested, the following paragraph from the book is a lightning bolt:

"A fraud that had been used many times by banks all over the world [is that] when a gold certificate was issued in exchange for bullion placed on deposit, embedded codes were used including misspelled words, to 'assure' that the owner's certificate matched the bank records exactly. These misspellings were later easily cited as 'evidence' of fraud."

The practice had been fine-tuned by Japan's Prime Minister Tanaka during the 1970s Lockheed bribery scandal, when he authorized the secret printing of promissory notes that looked completely different from ordinary Japanese bonds. These "57s" as he called them, were used to buy off support from key officials and politicians domestically and internationally, with the proviso being that the bonds were only worth anything if Tanaka remained in power, because their totally unusual design meant they could be cited as counterfeit otherwise.

According to the Seagraves, the Reagan administration responded to the FRN crisis unfolding in Asia as a result of the plane wrecks, by getting the CIA to print obviously fake Federal Reserve bonds and flood the market with them.

"A large number of Fed bonds and gold certificates were printed at the Bureau of Engraving and Printing, on the wrong type of paper, with a comic variety of deliberate errors. Many were engraved with the wrong faces, the wrong mottos, the wrong designs, the wrong signatures…this would be a hilarious disinformation campaign, flooding Asia with blatant forgeries, to make the whole idea ridiculous. It would cut the legal legs off anyone trying to redeem legitimate gold certificates or legitimate Fed bonds. They could be laughed out of court."

Which brings us back to the fate of Australian Ross Cowie, "fugitive" New Zealander Bryan Archer, and the five Asian men arrested and on trial in Britain's Southwark Criminal Court for conspiracy to defraud the Bank of England.

Are they the masterminds of an elaborate forgery? Victims of an elaborate forgery? Or are they perhaps the genuine representatives of a financial deal struck long ago when the whole world was at war and desperation was everywhere? Whatever the answer, it is doubtful the truth will emerge from the impending court verdict.


FOOTNOTE: Five days after this article was published in New Zealand, the case against the Southwark Six collapsed in the London courts. As a result, British police re-doubled their efforts to extradite Bryan Archer from New Zealand, to see if they could make charges stick against him in place of the others.







Posted by Ian Wishart at 12:58 PM | Comments (0)

March 09, 2007

ALL THE PRESIDENT'S MEN INVESTIGATE: MARCH 00

Riady1029.jpeg

A major weakness has been discovered in New Zealand’s foreign intelligence analysis: trade officials invited a rich Asian businessman to invest here and meet the Prime Minister and top business leaders - apparently unaware that he has been publicly named by US intelligence agencies as a Chinese spy with organised crime connections. Now a photo of him meeting President Clinton at the APEC conference in Auckland is causing uproar in the US. IAN WISHART reports on the so-called "Bamboo Network":

It is a postage-stamp sized photo – a moment in time
captured on videotape at the APEC conference in
Auckland, beamed via satellite to the Fox TV news centre in Los Angeles, broadcast on Fox News across America, recorded on someone’s VCR, photographed off the screen, scanned into a computer and uploaded onto the Internet. What’s so special about the photo? Well, for a start it features Bill Clinton pressing the flesh of someone in the crowd at the APEC conference in Auckland last September, only this time it isn’t a cigar-lovin’ intern. Instead, the other face in the photo belongs to someone much more interesting: an Indonesian businessman with links to New Zealand, organised crime and Chinese Intelligence.

What’s also special about the photo? Well, the same week that Investigate began making inquiries to locate the original APEC video footage taken in New Zealand, the raw footage disappeared from TVNZ’s tape library and has not been seen since.

But it’s the man in the photo that this story is about. His name is James Riady, and to those in the know he currently heads the list of America’s Most Wanted – an alleged criminal on the run from US Justice. And that’s why the photo is at the centre of a political furore in the United States: why is President Clinton exchanging pleasantries in Auckland with a wanted man?

Funnily enough, it’s the same question asked in New Zealand back in June 1999, when Riady first turned up for a special meeting with Prime Minister Jenny Shipley.

It should have been just another unnoticed thread in the rich tapestry of New Zealand politics, but the Indonesian’s fleeting appearance in our corridors of power had all the subtle discretion of a glow-in-the-dark cat collar.

Riady heads the Lippo Group, one of Indonesia’s largest companies - but a company with heavy organised crime connections.

The New Zealand Government agency Tradenz extended the invitation for the June visit with a little-publicised announcement that Riady would receive a "red carpet" welcome in New Zealand. That welcome included a special meeting with Prime Minister Shipley, and a series of meetings with leading New Zealand business executives.

What’s extremely significant is that Riady, and his company, are at the centre of a major spying and bribery scandal that’s blown up around US President Bill Clinton.

Amazingly, New Zealand’s intelligence agencies had failed to brief Prime Minister Shipley on this point, despite a claim by to the contrary in Parliament. The closest the intelligence briefings – released to Investigate under the Official Information Act - get to the real Riady is this:

"Most important of all to the Riady family in business are relationships and networks."

As you’re about see, that comment is a dramatic understatement, and we’ll examine shortly how Lippo Group’s incursions into New Zealand and Australia could have security implications.

The latest twist in the Riady scandal comes in a letter from US Congressional investigator Dan Burton to Beth Nolan, legal Counsel to the President.

"Upon President Clinton’s return from his trip to New Zealand for the annual meeting of the Asian Pacific Economic Cooperation (APEC)," writes Congressman Burton, "I was dismayed to read the following report from the Wall Street Journal on September 24, 1999:

" ‘TOGETHER AGAIN: James Riady, the Indonesian businessman central to Donorgate, used an economic summit in New Zealand last week to chat with Clinton. The White House won’t talk about it, but Indonesians say Riady didn’t discuss anything "sensitive" with the President.’

"If the report is true," continues Burton, "I am concerned that the President would meet with an individual who has continued to evade questioning by the Congress and the Department of Justice about his pivotal role in the campaign finance scandal that came to light just prior to the President’s re-election in 1996.

"As you are aware, Mr Riady was recently named by John Huang as the architect of a massive scheme of illegal conduit political contributions in the United States.

"I cannot understand what purpose would be served by the President meeting with Mr Riady except to urge him to cooperate with Federal investigators.

"From his home in Indonesia, Mr Riady appears to have orchestrated a complex scheme to launder over $4 million (NZ$8 million) in illegal political contributions to Clinton/Gore ’92, the Democratic National Committee (DNC), the Democratic Senatorial Campaign Committee, state Democratic parties, individual candidates, and non-profit groups in 1992 and 1996."

We’ll return to Burton’s letter shortly, but first a little background context. Here’s the story the New Zealand press gallery didn’t tell you about Riady, and the story the Government didn’t know either.

To put what follows in its proper context, it pays to
first examine James Riady, and his father Mochtar,
the way New Zealand officials see them.

"The Lippo Group is one of Indonesia’s largest conglomerates in terms of market capitalisation with estimates of value putting it at having US$11 billion in assets.

"The vision of its founder Mochtar Riady is to transcend the institutional limitations placed upon organisations run in the traditional overseas Chinese pattern and adopt a modern publicly owned and professionally managed pattern of business.

"Mochtar has formed alliances and joint venture partnerships with world class multinational corporations and has high calibre professional management staff working for him.

"The Lippo empire rose out of the success of the Lippo Bank. Unlike just about all other banks in Indonesia its founder Mochtar Riady tended to shun the Suharto connections that for other conglomerates in Indonesia were the keys to success.

"He avoided lending to politically connected groups or to state enterprises and instead built his business on legitimate retail and trade finance."

Yes. Well.

The real story, shorn of its diplomatic awe, begins 22 years ago with a 1978 move by the Bank of Credit and Commerce International, BCCI, to become established in the United States.

BCCI subsequently crashed in 1991 when a multi-territorial investigation revealed its connections to organised crime, arms smugglers and intelligence agencies. Investigators have since dubbed it "the Bank of Cocaine and Conmen International".

Formed by a Pakistani businessman and marketed as "an Arab bank", BCCI used a group of American investors as a front to purchase two US banking institutions - the National Bank of Georgia, and Financial General Bank in Washington DC. Because of foreign ownership restrictions, BCCI could not appear to be the real owner of the banks.

Assisting BCCI in this subterfuge was Jackson Stephens, an Arkansas stockbroker based in Little Rock. Stephens brought in three lawyers from Little Rock’s Rose Lawfirm: Hillary Rodham Clinton, Vince Foster and Joseph Giroir.

The Clinton connection - as you’ll see - continued to grow, but in the meantime Hillary Clinton and her two law partners helped Stephens, via his company Systematics Inc, to transfer control of Financial General to BCCI.

Financial General’s Washington location meant many politicians and civil servants on Capitol Hill were account holders. The intelligence benefit to BCCI and those associated with the crime bank was enormous.

In 1983, Lippo Group began its own US invasion, choosing to do so in the apparent backwater of Little Rock, Arkansas, where Bill Clinton was Governor. Lippo Finance & Investment in Little Rock brought in a former aide to President Jimmy Carter, Vernon Weaver, to chair the company and Governor Clinton acted as a character reference for Lippo boss Mochtar Riady.

In 1984, Jackson Stephens joined forces with Lippo Group to purchase stock in Arkansas’ Worthen Bank, based in Little Rock. Their buy-in coincided with the establishment of a major cocaine importation operation at nearby Mena, Arkansas, and the laundering of US$100 million a month in drug money through the local banking system and ultimately BCCI.

BCCI investor Abdullah Taha Bakhish joined Riady as a co-owner of Worthen.

By 1985, things began to get hot for Bill Clinton, but Worthen Bank came to the rescue. Clinton had authorised Arkansas state pension funds to be deposited with Worthen by a brokerage firm, but the funds lost 15% of their value as a result of bad short-term investment decisions. Although Jack Stephens wrote out a $52 million Worthen cheque and saved Clinton’s hide, it paved the way for Lippo Group to take a larger role in Worthen. Over the next few months, the Riadys increased their holding to 40% of the bank.

James Riady was appointed to the board of directors, and helped engineer a buyout of the First National Bank of Mena, a town of 5,000 people whose only claim to fame was a secret CIA supply base for the Nicaraguan Contra rebels and the aforementioned cocaine-smuggling operation.

Worthen Bank became politically close to the future US President, and Hillary Clinton’s Rose Lawfirm. Bill Clinton banked with Worthen and steered much of Arkansas’ state business its way. Much of Mena’s billion-dollar-a-year drug money went through Worthen accounts, then on to BCCI branches in Florida and Washington DC as part of the money laundering loop.

It is around this time that another character becomes integral to the plot: Lippo Group executive John Huang. Huang travelled to Arkansas to take up a role as James Riady’s right-hand man in Little Rock.

Mochtar Riady, meanwhile, also formed a joint venture operation with Jack Stephens in Asia. Together, they purchased the Seng Heng Bank in Macau – the former Portuguese island colony close to Hong Kong that’s controlled by Triad organised crime syndicates. Macau is effectively an Oriental Las Vegas, and gambling is a primary source of government revenue. Even the recent Chinese takeover of the territory seems unlikely to dent the criminal powerbase.

Systematics Inc, the Stephens-owned software company, supplied software to Macau’s Banco Nacional Ultramarino - the state bank of the colony.

Over the next five years, the Riadys consolidated their empire. Selling out of Worthen Bank in 1987 they moved from Little Rock to Los Angeles to establish Lippo Bank LA.

The Worthen experience bit them hard: the bank had lent $80 million to entities associated with either the Riadys or Stephens. In the end, an investment firm collapsed owing Worthen $100 million, and a subsequent investigation criticised Worthen for all the inside loans to its owners.

Lippo LA came unstuck as well, and investigators there launched a criminal investigation in 1990 after discovering that a 21 year old teller had made more than 900 suspicious wire transfers to the Lippo-owned Hong Kong Chinese Bank. Each transaction totalled just under the magic US$10,000 limit which had to be reported to money-laundering investigators.

Nearly all the transfers involved false names, and were initialled by a supervisor. Despite that, investigators could find no documents indicating Lippo Bank LA’s top management knew of the practice.

US banking regulators issued three "cease and desist" orders against Lippo LA up until 1997, on the basis of sloppy management and suspicious funds transfers.

In another joint venture with Jack Stephens, the Riadys purchased the Hong Kong branch of BCCI, with James Riady and Johnny Huang relocating to run Lippo Bank Hong Kong. When Senator Al Gore visited Asia in 1989, accompanied by Huang, the trip was paid for by a Buddhist organisation, Fo Kwang Shan.

In 1991, an entity known as China Resources Company Limited began purchasing shares in Lippo’s Hong Kong Chinese Bank. The price paid for the shares was fifteen percent below the market value. US intelligence agencies have since claimed China Resources Co is a front for Chinese military intelligence.

During his relationship with Worthen bank, Arkansas Governor Bill Clinton passed several pieces of legislation favourable to Lippo’s US interests. The payoff? In 1992, with the Clinton/Gore presidential campaign on the ropes over the Gennifer Flowers affair and donations drying up, Lippo Group organised for Worthen Bank to pay the Clinton campaign fund a massive US$3.5 million bailout.

But that wasn’t the worst of it.

In addition to the money channelled via the bank, James Riady and the Lippo Group were personally funding Clinton’s presidential campaign – a move that’s illegal under US laws restricting foreigners from making political donations.

In August, 1992, James Riady flew from Indonesia to Los Angeles to take part in a fundraiser for Clinton. Federal investigators piecing the jigsaw together allege Riady took a limousine ride with Governor Clinton, handing over US$100,000 and promising a further US$1 million.

So far, it appears Riady and Huang funnelled US$700,000 in illegal donations to the Clinton campaign, via Lippo Group employees and subsidiaries. Most did not live in the US.

One of the questions posed by US congressional investigators is "Why?". What did the Riadys hope to gain by funding Bill Clinton? They now believe James Riady and the Lippo Group were engineering a major espionage operation on behalf of the Chinese government, a deliberate attempt to bribe an American President, compromise US security and steal US secrets.

The operation, involving more than a hundred people, many of them Chinese, has been dubbed "the Bamboo Network" by investigators.

By January of 1993, with Clinton now President-elect, Huang and Riady arranged for another $100,000 to drop into the President’s coffers and, in February, Huang organised a meeting between Mochtar Riady and the President.

The elder Riady, whose business philosophy is quoted in New Zealand Government briefing papers as "Every network has to have its foundation laid on special, personal, human connections…what I am looking for is what my partners can offer in personal contacts and business connections", urged the new US President to reinstate China’s "most favoured nation" status. He also told Clinton to relax economic sanctions against China, imposed after the Tiananmen Square massacre.

Clinton, whose election campaign was significantly funded by the Riadys, obeyed. In June of 1993, China was given "most favoured nation" status. A week or two later, purely coincidentally, the Riadys make US$163 million in profit when China Resources Company Ltd increases its share price offer for Lippo’s Hong Kong Chinese Bank to a figure 50% above market value.

James Riady’s influence with Clinton was so great that on April 19, 1993, at the very moment the FBI was raiding the Branch Davidian religious complex at Waco Texas, killing scores of men, women and children in the process, Bill Clinton was chatting with James Riady in the Oval Office while a TV set in the background was carrying footage of the tragedy.

Clinton even had time during this national disaster to give Riady a tour of "the Situation Room" - a kind of "Bill fiddled while Waco burned" scene.

It is the beginning of a scandal that is seeing President Clinton dubbed "China’s first US President" by some commentators.

And despite the briefing papers from New Zealand trade officials who told Prime Minister Shipley that James Riady and the Lippo group shunned the cronyism surrounding Indonesia’s President Suharto, a US Congressional Investigation paints a very different picture.

"The Riady family was able to show off its close ties to President Clinton during the 1993 APEC summit in Seattle, Washington. Lippo organised a group of Indonesian businessmen to visit Little Rock, Arkansas, before the summit.

"A sister-state agreement between Arkansas and Indonesia was to be signed at a ceremony during the APEC summit, and James Riady planned to have President Clinton and President Suharto attend."

Despite reservations from White House staff, who told Riady that "the human rights controversy surrounding East Temor (sic) may be an impediment," the Congressional report notes that "Ultimately, during the 1993 APEC, President Clinton did meet with President Suharto, along with James Riady, over the objections of his staff."

Clinton met Suharto again during the G-7 summit in Tokyo in July 1993, and then sent a handwritten note to James Riady saying he’d enjoyed his visit with Suharto.

The briefing to New Zealand’s then-Prime Minister, Jenny Shipley, says "The [Lippo] group is seen as not having ties with President Suharto’s family, hence it is regarded as clean and fits in with the spirit of reform."

At the full APEC summit in 1994, hosted by Indonesia, Clinton spent more time with the Riadys, stopping only to pose in a batik shirt alongside the New Zealand Prime Minister at the time, Jim Bolger.

In 1994, US Secretary for Commerce Ron Brown visited China carrying an "unprecedented" US$5.5 billion dollars worth of trade deals. Included in the package is a $1 billion deal for an Arkansas firm, politically linked to Clinton, to expand and manage Lippo’s 725 megawatt coal-burning power plant in China’s Fujian province.

In April 1994, Clinton’s appointee to the US Justice Department, Associate Attorney-General Web Hubbell, resigned from his post amid allegations of fraud relating to his involvement with the Rose Lawfirm and the Whitewater scandal.

After meeting Hillary Clinton in mid-June, Hubbell held further discussions with Indonesian businessmen James Riady and John Huang. White House records show the two Lippo executives visited the White House every day from June 21 to June 25, 1994.

Hubbell spent much of June 23 with Riady, and four days later the disgraced politician was paid US$100,000 by the Hong Kong Chinese Bank, ostensibly to put him on the Lippo Group payroll. The bank, as investigators now know, is majority-owned by Chinese military intelligence.

The payoff didn’t save Hubbell, who was subsequently jailed.

Asked at a news conference if it wasn’t more than a little suspicious that Hubbell ended up working for Lippo, President Clinton told reporters "To the best of my recollection, I didn’t know anything about his having that job until I read about it in the press. And I can’t imagine who could have ever arranged to do something improper like that and no one around here know about it."

But less than two weeks after Lippo’s payoff to Hubbell, the Clinton administration decided to appoint John Huang as the new Assistant Secretary of the US Commerce Department. Huang’s resignation from the official payroll of the Lippo Group was marked with a US$800,000 golden parachute.

Under US law it is illegal to export high-technology material from the US. This was to enable America to maintain a military and/or commercial edge over possibly hostile nations.

But armed with an interim top-secret security clearance, courtesy of Commerce Secretary Ron Brown, Huang found himself suddenly in a position to authorise technology transfers to places like Indonesia and China. Incredibly, Huang’s security clearance was issued without the routine FBI and foreign security checks.

Investigators have discovered that, on 37 separate occasions, after attending CIA briefings on encryption technology, Johnny Huang left the building a short time later and went to Lippo’s offices, where he then made long distance phone and fax calls to overseas locations.

The New York Daily News has reported that US intelligence services subsequently determined that Huang was passing classified trade information to Lippo Group headquarters in Jakarta – his former bosses.

How did Huang end up as an Assistant Secretary with a top secret clearance in the US Commerce Department? The London Times quotes one source as saying it was Hillary Clinton’s idea.

"He was not Ron Brown’s guy, and his presence caused intense conflict. Huang was carrying water for the White House."

Huang made around 70 "water deliveries" to the White House. And all the time, China’s influence in Washington was growing too. During 1994 and 1995, the Clinton administration allowed AT&T to sell its secure communications system to the Chinese Army, in a deal known as "Hua Mei". In a dramatic backfire, the Chinese reconfigured the encryption technology and re-exported it to Iraq for use in air defence systems.

President Clinton also approved the sale of surveillance system technology to China, under the aegis of a cooperation agreement between Chinese police and the US Justice Department.

Which is where Congressman Dan Burton and his
letter come in. Burton heads the powerful Com
mittee on Government Reform in the US House of Representatives, and it’s his committee that’s investigating the Donorgate/Chinagate/Riady spying scandal.

Far bigger than Monica Lewinsky or other Clintonesque diversions, there is now real evidence that China, and subsequently Iraq, have gained access to US defence, industrial and commercial secrets as a result of Riady’s allegedly corrupting influence on Clinton.

"John Huang, Mr Riady’s political point-man in the US, kept in frequent contact with his former boss and his companies during his tenure at the Department of Commerce," writes Burton in his letter to the White House spelling out the evidence and demanding more answers.

"Mr Riady’s Oval Office meeting with President Clinton on September 13, 1995, led to Mr Huang’s hiring by the DNC where he promptly raised over US$3 million in illegal political contributions.

"After a week of meetings in the White House, James Riady paid former Justice Department official Webster Hubbell $100,000 at a time when Mr Hubbell’s cooperation in the Whitewater scandal was being sought by the Independent Counsel [Kenneth Starr]. Mr Hubbell has refused to reveal why Mr Riady paid him this money.

"Finally and most importantly, US intelligence agencies report that one of Mr Riady’s chief business partners, China Resources, is an intelligence gathering agency of the communist Chinese Government."

It is this revelation that poses a grave problem for the New Zealand Government. Intelligence briefings prepared for the then Prime Minister Jenny Shipley and released to Investigate do not reveal any link between China Resources and Chinese Intelligence. Indeed, the New Zealand briefing reads as though it could have been prepared by Chinese Intelligence, judging by its innocuous contents:

"The Lippo Group has a strategic position in China and Hong Kong with substantial investments and relationships with powerful business and government people and organisations.

"It owns 49% of the Hong Kong Chinese Bank with the remaining 51% held by China Resources (Holdings) which is a wholly-owned enterprise of China’s Ministry of Foreign Trade and Economic Cooperation."

Which raises the question: was the New Zealand Government sucked in to beginning a relationship with James Riady on the basis of flawed intelligence?

What is the ongoing implication of that if such flaws are not corrected?

And just how bad was the NZ intelligence?

While our Embassy in Jakarta waxed lyrical about
the sound business base of Lippo Group and
the Riadys, the Washington Post was more critical, pointing out that Lippo Group had to be bailed out of bankruptcy by Indonesia’s President Suharto in 1995 and there was a further $700 million restructuring in 1996.

The Post quotes an investment analyst at Deutsche Morgan Grenfell’s Jakarta branch, Lin Che Wei, as describing Lippo Group as a "carefully balanced house of cards, held up partly by the Riadys’ practice of gobbling up shares of Lippo stock to drive up the price."

"Riady is a master of this kind of game," says Lin, "He understands what investors want - a rising share price."

And what about the briefing given to Prime Minister Shipley which, if you missed it earlier, we’ll repeat:

"Mochtar has formed alliances and joint venture partnerships with world class multinational corporations and has high calibre professional management staff working for him.

"The Lippo empire rose out of the success of the Lippo Bank. Unlike just about all other banks in Indonesia its founder Mochtar Riady tended to shun the Suharto connections that for other conglomerates in Indonesia were the keys to success.

"He avoided lending to politically connected groups or to state enterprises and instead built his business on legitimate retail and trade finance."

Contrast that with these excerpts from the Washington Post investigation:

"Mochtar Riady sent the President a four page letter, urging him...to support Suharto..."

"Clinton recalls that James Riady also tried to persuade him to meet Suharto..."

"James Riady arranged for...a Little Rock lawyer and longtime friend of Clinton to spend one and a half hours with Suharto in Jakarta...An official with Indonesia’s Foreign Ministry said Riady insisted that [the lawyer] ‘had the ear of President Clinton. He said the meeting would give us special access to the White House’."

"The Riadys also promoted Hubbell at Suharto’s presidential palace as someone ‘influential with Bill Clinton’.

"After Hubbell resigned from the Justice Department amid allegations of fraud, James Riady arranged for him to tour Indonesia...Riady made sure that Hubbell, like [the lawyer] visited the former Portuguese colony of East Timor, where Indonesian security forces have been accused of widespread human rights abuses.

"Riady ‘said letting a friend of Clinton’s see Timor might help change US policy. So naturally we thought it was a good idea,’ the official said."

"In April 1993 James Riady escorted the Governor of Jakarta to the East Wing [of the White House] for a meeting on which the White House can provide no details..."

"And Riady accompanies...one of Suharto’s most influential advisers to the White House...joining them was John Huang...two months later the Indonesian Government arranged for a group of private companies to rescue Lippo during a financial crunch."

" ‘These trips helped Lippo improve their ties to the Suharto regime,’ said a former Lippo executive. ‘As a result, Suharto helped rescue them when they needed help’."

"In Jakarta, Lippo has approached the Suharto regime for almost everything from critical building permits to outright financial bailouts."

The Post reports that Riady is also involved in a string of joint ventures with Suharto’s half-brother.

We could go on, and on, about Riady’s close ties to the former Indonesian dictator, but you’ve probably absorbed the point that the message reaching our Government was a very different one from the reality.

Instead, Riady was welcomed to New Zealand with open arms by the National Government – a gesture in sharp contrast with the sentiments in the United States.

"From the above list of activities," writes Burton, " I find it inconceivable that the President of the United States would meet with James Riady for any reason. Mr Riady has thumbed his nose at the laws of the United States and Mr Clinton appears to have rewarded him.

"Doubtless, this meeting with the President will be used to personal advantage in Indonesia and China by Mr Riady. Therefore, I would like to request that the White House provide the following information and documents in regard to this matter:

A. Did President Clinton meet James Riady in New Zealand

B. Identify all individuals present during any contacts between President Clinton and James Riady in connection with the President’s travel to New Zealand.

C. Describe the substance of all contacts between President Clinton and James Riady in connection with the President’s travel to New Zealand.

D. Describe the substance of all contacts between White House officials and James Riady or his associates in connection with the President’s travel to New Zealand.

E. When did the White House first learn that James Riady would be in New Zealand during President Clinton’s trip for the APEC meeting?

1. How did the White House learn that James Riady would be in New Zealand during President Clinton’s travel there?

2. Identify all individuals involved in the request that President Clinton meet with James Riady during the President’s trip to New Zealand.

3. Was the fact that James Riady would be in New Zealand during President Clinton’s trip conveyed to the President? If so, when was this information conveyed to the President? Who conveyed this information to the President? Please describe the substance of all such communications.

4. Identify any White House officials who expressed concern over President Clinton meeting with James Riady. Please describe the substance of all such communications.

F. Provide all documents relating to James Riady, his companies, his employees, or his associates in connection with the President’s recent trip to New Zealand for the APEC meeting, including all documents relating to any meetings between President Clinton and James Riady.

G. Provide all recordings, either video or audio, of any contacts between President Clinton and James Riady, his associates, or his employees relating to the President’s trip to New Zealand for the APEC meeting.

"It is my sincere hope that if indeed President Clinton met with James Riady during his trip, that the President used the prestige of his office and his long term friendship with Mr Riady to convince Mr Riady to return to the United States and answer all of the questions posed by Congress and the Justice Department so the American public can finally learn the entire truth about Mr Riady’s role in tampering with our presidential elections.

"I am concerned, however, that the President would socialise with an individual who has mocked the laws of this country."

Intriguingly, the New Zealand media largely missed the unfolding scandal arising out of Clinton’s APEC visit. While local TV crews made much of Clinton’s meeting with the Chinese leader, Jiang Zemin, and the apparent thaw in the US/China relationship, few in the New Zealand press gallery had any idea of the real issues at the heart of the problem.

The scandal over China’s spying became so bad that some in the US publicly accused China of deliberately blowing up a rocket carrying two US commercial satellites, purely to get access to the technology.

And what of James Riady: what can he want in New
Zealand? For a start, he owns property in
Auckland, which TradeNZ identified as the Port Tower hotel. We can find no evidence of such a hotel, but there is a Park Tower Hotel which was owned by "Asian interests" up until December. But apart from his personal business interests, Riady is taking a regional political perspective as well. He was appointed as a "Roving Presidential Envoy for Australasia" by former Indonesian President Habibie, is a member of Parliament, and is a member of Indonesia’s APEC Business Advisory Council.

He also clearly knows of a number of influential New Zealand business leaders.

Government briefing documents obtained by Investigate paint a picture of what Riady wanted to achieve on his June 1999 NZ visit, prior to his later controversial appearance at APEC.

For a start, New Zealand trade officials were told to play down his connection to Lippo Group and boost his diplomatic status, despite the fact that most of his delegation were either Lippo staff or Lippo customers. Indeed, the briefing supplied by the New Zealand Embassy in Jakarta refers to Riady wanting to visit NZ "for private business purposes," and goes on to say:

"The headings to the [official] programme currently put at the forefront Riady’s position as Deputy Head of Lippo Group. We and Torry [Parantoro, Riady’s executive assistant] agreed that the emphasis should instead be given to his role as Special Envoy; this title should be transposed, upper-cased and put in bold to reflect that this is the primary hat under which he is visiting New Zealand.

"This is also the title that should be used in the first instance for formal introductions, except for his business meetings where he dons his Lippo Group hat.

"Parantoro showed us a fax he had received from the Indonesian Embassy in Wellington. This provided details of Sunday evening’s programme, including a list of journalists for the media interview and a guest list for the dinner hosted by the Indonesian Ambassador; we noted that [National MP] Pansy Wong was included, a pleasant surprise. Parantoro was pleased with the arrangements confirmed to date for the Monday [June 21], especially the call on the Prime Minister. We clarified that whereas Riady’s entourage would be able to participate in most of these calls, the meeting with the PM would be more restricted …Parantoro clearly expected this to be the case.

"We noted that we were waiting for confirmation for calls on Don McKinnon, Bill English, and Don Brash.

"Parantoro commented favourably on the agenda for Tuesday (we noted the likely addition of a call on Sir Selwyn Cushing, Brierley Investments.)

"We discussed with Parantoro opportunities to meet with the Business Roundtable and the ASEAN-NZ Business Council.

"Riady made a specific request that Doug Myers be informed of his visit and be included in his programme. However…Myers is currently in London and will not be returning to NZ until July."

The cost of Riady’s June visit was to have been met by New Zealand taxpayers, according to the documents.

"We suggested that it would be appropriate to fund all Riady’s expenses (including offering a first class airfare)."

Ultimately, however, the Indonesian businessman and alleged Chinese spy paid his own way.

The unanswered question remains open: are Riady’s activities in New Zealand and Australia purely commercial, or are they motivated also by espionage?

"In his role as the Special Presidential Envoy for Australasia," write NZ diplomats, "James Riady has been busy. On February 25 1999, Lippo Bank signed an MOU [Memorandum of Understanding] with the Australian Trade Commission to promote the economic development of eastern Indonesia.

"Under the MOU, cooperation programmes between Indonesian and Australian businessmen will be conducted using the Bank Lippo’s networks. Australia will provide training and guidance for Bank Lippo employees.

"In October 1998 James made a visit to Australia to promote relations and dialogue between the two nations. There he met with Victorian chief minister Jeff Kennett, New South Wales Premier Bob Carr and addressed an Austrade seminar. He was also scheduled to meet with the Prime Minister, John Howard."

Nowhere in the intelligence briefing for the New Zealand Prime Minister is James Riady’s relationship with Bill Clinton, or alleged activity as a Chinese spy, disclosed.

Nick Arathimos, the TradeNZ official who organised the June 1999 visit, told Investigate he was aware of Riady’s background. When questioned over his involvement with BCCI and with a bank that was laundering drug cartel money through Arkansas, however, Arathimos was clearly taken by surprise, saying he was not aware of these allegations.

Yet, in answer to a question in Parliament on July 21, Deputy Prime Minister Wyatt Creech said "The Ministry of Foreign Affairs and Trade was fully aware of the issues surrounding his relationship with President Clinton. Furthermore the Ministry did not, and does not, consider that a visit by the President of Indonesia’s special envoy raised any issues of a security nature."

The then Opposition leader, Helen Clark, asked a follow-up question:

"Before the Prime Minister met Mr Riady, was she also aware of a draft report submitted by Republicans on a Senate committee in America that alleges Mr Riady and his father both have "a long term relationship with a Chinese intelligence agency". If so, would that have made a difference?"

"Obviously I do not know the answer to the detail in the question," replied Creech, "but what I can say is that this person visited New Zealand as a special envoy of the President of Indonesia, and it was in that capacity that the special envoy visited the Prime Minister."

"How big was the cheque?" interjected one Labour MP, implying Riady’s political donation largesse may have rubbed off on National prior to the election.

Is it possible that Lippo Group may be trying to place itself in a position to steal New Zealand trade secrets or technology on behalf of the Chinese or Indonesia? There is no evidence one way or the other, but given the company’s involvement with Chinese intelligence it would be naïve to assume Lippo would not be interested if an opportunity arose.

After news of Lippo’s Chinese espionage first broke in a Los Angeles Times story three years ago, ongoing investigations have revealed Chinese interests associated with the Riadys have allegedly stolen not only trade, but also critical defence information including nuclear secrets.

Chinese spies have also been uncovered in Canada.

Arrested and questioned by federal and congressional investigators, Riady’s right-hand-man Johnny Huang has coughed to his boss’ involvement, but pleaded the 5th Amendment – the right not to self-incriminate – nearly two thousand times since interrogation began.

Riady has refused to return to the US for questioning or to clear his name. Instead, he remains based at his Jakarta estate where he lives in a southern-US style plantation manor, three stories tall with massive "Greco-Roman columns", sited amidst a Lippo golf course. The home also has a helipad and a lake, and the entire property is ringed by a moat.

Is James Riady an appropriate person for the New Zealand Government to be promoting as someone to do business with? Despite the revelations, TradeNZ official Nick Arathimos claims yes, effectively saying he’s the best of a bad bunch in Indonesia.

"You can come up with a lot worse. His companies in Indonesia are among the better organised, relying less on cronyism with Suharto. James Riady will continue to be a key player in Indonesia because of his existing interests.

"If he were to invest in New Zealand, he would have to abide by our laws and regulations."

Which is just as well, because as many critics of our investment regime have pointed out, New Zealand is the laughing stock of the Western world for having some of the most lax controls on money-laundering and inside trading on the planet.

At the end of the day, however, one could question why we bothered to invite someone of Riady’s background to New Zealand in the first place. The argument that ‘he’s the best of a bad bunch’ could equally apply to one of the less violent members of Colombia’s Cali drug cartel.

If the intelligence briefing provided to Shipley was drawn only from trade diplomats, then somebody should probably be caned for not calling in the External Assessment Bureau, and if our foreign spy agency was consulted then the Government could probably save a few million dollars by sacking the spooks and simply purchasing a subscription to the Washington Post or the Los Angeles Times.

As for the Riadys, Indonesians wouldn’t be surprised if it was a quest for world domination that they were really undertaking. The Lippo logo is everywhere in the troubled Asian powerhouse, with its interests in banks, factories and shops, hospitals and housing developments.

"In Jakarta," wrote the Washington Post, "locals joke that Lippo stands for Lama-Lama Indonesia Pun Punya Oe, meaning: In the long run, even Indonesia will be mine."

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ABOVE: BCCI frontman Jackson Stephens has close ties to both Clinton and US Presidential hopeful George W Bush


Posted by Ian Wishart at 12:32 AM | Comments (0)