CHAPTER 1. THE UNDERWORLD OF SPIES AND CROOKS
At 2:30 in the afternoon on February 9th, 1942, a fire broke out on-board the Normandie, a ship that was then in the process of being converted into a troop transporter in New York City’s harbor. As the flames roared, winter winds fanned the flames, spiraling the fire up, and then down onto the ship’s top decks. Within hours, the Normandie began to lean to her port side, weighed down by the water that was being dumped onto the boat by fire crews. Soon, the ship capsized and an expensive, unprecedented salvage operation was mounted. Despite these efforts, repairing the ship was soon found to be too complicated and too costly, and the Normandie was scrapped in 1946.
Investigations into the destruction of the Normandie quickly revealed that the cause of the disaster had been incompetence and carelessness. Yet, nevertheless, rumors grew that it had been the work of German saboteurs, who were intent on disrupting America’s early war efforts. Proponents of these theories argued that the alleged saboteurs sought to break down the country’s logistical capabilities through attacks in ports and harbors as well as factories and other strategic, industrial locations. William B. Herlands, the then-New York Commissioner of Investigation, summed up the spirit of the times when he said, “We are faced with a grave national emergency.… A blackout was imposed over the … waterfront area within the Third Naval district, which included New York and New Jersey. Many of our ships were being sunk by enemy submarines off the Atlantic Coast … and the outcome of the war hung in the balance.”1
Management and regulation of these critical harbors and coastlines was the responsibility of the Office of Naval Intelligence (ONI). An ONI inquiry was opened in May 1942 into potential saboteurs and Nazi agents operating in the ports and the possibility of U-boat movements off the east coast. The man tasked with overseeing this inquiry was C. Radcliff Haffendon.2 Several of the agents assigned to work under Haffendon had previously worked with Thomas E. Dewey, the US State Attorney who later served as governor of New York. Dewey was best known for his prosecution of organized crime, and through these contacts, Haffendon learned of the role played by gangsters and other criminal elements on the New York City waterfront. Dewey’s chief of staff, attorney Frank Hogan, suggested to Haffendon and the ONI that they speak with a man named Joseph “Joe Socks” Lanza.
Lanza was officially a “business agent for the United Seafood Workers Union.” He was also a mobster in his own right and was known as the “rackets boss of the Fulton Fish Market … in downtown New York City.”3 Yet, compared to the stature of other criminal figures in the city, Lanza was a small-fry, and he knew it. As a result, he ended up telling the ONI that they would have better luck higher up the food chain. He suggested either Meyer Lansky, who controlled the longshoreman’s union, or Frank Costello, a gambling figure with numerous interests throughout the waterfront. But to get to them, Lanza told Haffendon, he would need to first speak to Charles “Lucky” Luciano.
Luciano, at the time, was locked away in prison, having been put there by Thomas Dewey. A delicate series of negotiations were subsequently launched in what is now known as “Operation Underworld.” This operation, which the government was forced to reluctantly acknowledge after decades of public denials, involved the recruitment of high-level organized crime figures for work with American intelligence services, justified by war-time necessity. Not long after Operation Underworld had been given the go-ahead, Luciano agreed to the ONI’s requests, and his prison cell soon became a hub for meetings between him and his criminal associates, meetings in which they would coordinate counter-intelligence activities with the Navy.
Despite Operation Underworld’s initial and relatively narrow objectives, the scope of the operation organically expanded. Before long, Luciano and his colleagues – Meyer Lansky, chief among them – were helping the ONI cultivate intelligence for the Allied invasion of Sicily. Lower ranking mob figures and immigrants were frequently brought to Haffendon’s offices for questioning. Names and contact information for friendly Sicilians, many of whom were Mafia figures, were provided to ONI agents for use in the military campaign. While the resulting collaborations between the Mafia and the military on the beaches and in the villages of Sicily have slipped into legend, the legacy of Operation Underworld has endured and undeniably forever altered the United States of America, and beyond. Indeed, Operation Underworld was the beginning of the creation of a new underworld entirely, one built on the cooperation, if not outright symbiosis, between organized crime and American intelligence.
SHADOWY ALLIANCES
Lucky Luciano was born in Sicily in 1897 and arrived on American shores in 1906. At a young age, he formed his own gang, which offered protection to Jewish immigrants from Italian and Irish organized crime elements in exchange for small fees. This protection, unsurprisingly, was tantamount to extortion, and the money he accrued allowed him to begin expanding into other rackets – including, notably, prostitution. Early on, he met and formed an alliance with another young gangster named Frank Costello, an immigrant from Calabria, Italy. Together, the two consolidated their power by taking control of the numerous environs now considered typical of organized crime: prostitution, narcotics, and even organized labor in New York City’s docks.
As their business expanded, so too did their revenue. Soon, Luciano and his cohorts were being propelled to the heights of power in New York City. Thomas Dewey once commented that Luciano’s “business was far-flung and brought in a colossal revenue. This was estimated to be far, far in excess of $12 million a year.”4 Key to Luciano and Costello’s operation was the fact that it had overcome the traditional bifurcation of organized crime into ethnic enclaves. For the first time, in Luciano’s growing criminal empire, Italian, Jewish, and Irish criminal networks intermingled and cooperated with one another. However, this early cooperation lacked the cohesion and integration that the networks born out of Luciano’s and Costello’s enterprise would develop in the years to come.
Joining Luciano and Costello in their criminal enterprise was Meyer Lansky and his close friend, Benjamin “Bugsy” Siegel. Lansky was well-connected in Jewish mob circles, and he, along with Siegel, had amassed significant wealth during the Prohibition era. Lansky, whose long shadow is cast across the entire history of organized crime in the twentieth century, was something of a visionary. Various accounts paint him as the intellectual architect behind the multi-ethnic organized crime model that Luciano successfully pursued. Lansky was also instrumental in bringing mob groups into the world of gambling, helping set up casinos in the Caribbean that would be utilized to wash the money generated by their various vices and rackets. Perhaps most important of all was that Lansky had also helped develop the use of a complex banking network, which he adopted in an effort to avoid the fate of Al Capone. After all, Capone had not been taken down not for murder or extortion, but for tax evasion.
This Luciano-Costello-Lansky-Siegel alliance was the basis of what subsequently became known as the National Crime Syndicate. Far from the well-organized image of the Mafia often promoted by the media, the National Crime Syndicate operated loosely at best – and, according to some commentators, did not actually exist in any meaningful way. Such arguments might be going a step too far, although they are worth considering. The National Crime Syndicate might be best understood as a social network – a sprawling, faction-filled web of associations and organizations that either collaborated or competed, depending on the situation or the spoils.
In 1936, this emerging crime network took what, at first glance, appeared to be a major blow following the arrest and successful prosecution of Luciano by Thomas E. Dewey in a spectacular, if not sensational, trial. Luciano’s apparent downfall came via an assault on New York City’s prostitution rackets, which his organization firmly controlled. As Alfred McCoy summarizes, “Dewey’s investigators felt that the forced prostitution charge would be more likely to offend public sensibilities and secure a conviction.”5 A handful of prostitutes who worked in Luciano’s brothels testified against him, and a New York court quickly sentenced the gangster “to a thirty-to-fifty year jail term.”
Dewey’s role in this affair is quite interesting. Six years later, when he ran to secure the presidential nomination for the Republican Party, he joined forces with John Foster Dulles, the brother of Allen Dulles – best known for his role as the first civilian head of the CIA in the early years of the Cold War. Dulles, a member of the “internationalist” camp of American politics that typified the attitudes of the elite “Eastern Establishment,” impressed upon Dewey the importance overcoming the isolationist factions of the Republican Party.6,7 What Dulles got in exchange for his steering of Dewey in pursuit of political power was his own rise through the ranks of the party, ultimately culminating in his service as President Dwight D. Eisenhower’s Secretary of State.
Even more curious was an investment that Dewey made, during the 1950s, in an entity called the Mary Carter Paint Company, later renamed Resorts International. Mary Carter was controlled by the Crosby family, and its operations were overseen by the most practical-minded of the family’s sons, James Crosby. Mary Carter was deeply tied to organized crime networks.8,9 It worked closely in developing businesses in the Bahamas, hand-in-hand with a number of Meyer Lansky frontmen, while James’ brother, Peter Crosby, was a notorious confidence man with an impressive roster of criminal contacts. It had also been widely rumored that Mary Carter was a CIA front company.10
THE OSS
Lurking in the background of Operation Underworld, which had seen the ONI directly recruit Luciano, was the Office of Strategic Services (OSS), the wartime forerunner to the CIA and America’s first robust national intelligence organization. The precise role that the OSS played in the affair isn’t exactly clear. According to George White, a notorious agent of the Federal Bureau of Narcotics who had been recruited into the OSS, he had been propositioned by an organized crime associate to enlist Luciano in exchange for a pardon – but this was a bridge too far. An alliance between the OSS and “a person of Luciano’s reputation ‘would be a very naive way of doing business’ … White maintained that he felt it was outrageous to entertain … [the] proposition, ‘even for the OSS’ who were willing to do almost anything.”11
White would make these statements in the course of Federal testimony, and, in all likelihood, he was lying to protect the OSS. According to Richard Harris Smith, an historian of the OSS, Earl Brennan, an OSS officer in Italy, was kept in the loop regarding negotiations between Luciano and the ONI.12 Meanwhile, Assistant District Attorney Murray Gurfein, who handled the legal end of the Luciano negotiations, subsequently went to Europe to serve as a colonel in the OSS.13
OSS was many things, operating in many different theaters. In Europe, it ran a fairly unsuccessful paramilitary campaign. However, in the China-Burma-India theater, its military operations achieved remarkable results. When it came to spycraft, its supporters gushed with praise, while its detractors regarded the tales later woven by its veterans as worthy of skepticism. The OSS was frequently – and accurately – seen as a social club. While its ranks did boast a great many military officers and figures from other government agencies like the FBI and the FBN, its leadership and higher-ranking administrative posts tended to be secured by the sons of the country’s wealthiest elite. In London, Madrid, Geneva, Paris and elsewhere, posts were held by members of the Mellon family of Pittsburgh, the family behind the Gulf Oil fortune. Heirs of the Morgan family also secured positions within the agency, as did members of the DuPont and the Vanderbilt families.
“Only the Rockefellers were conspicuously absent” from the OSS, writes Richard Harris Smith, adding that “Nelson [Rockefeller] headed his own agency, the Coordinator of Inter-American Affairs.”13 David Rockefeller, Nelson’s brother, also reportedly ran his own intelligence apparatus during the war.14
The agency itself was something of brainchild – at least partially – of General William J. Donovan, a prominent New York City anti-trust lawyer and veteran of World War I. Along with figures like Dewey and Dulles, Donovan was the consummate “Eastern Establishment” insider. He maintained a deep preoccupation with organization and rationalization, which filtered into his work defending the trusts and combines that dotted the corporate landscape of his day. He was also a firm internationalist when it came to his political outlook. During the inter-war years, Donovan had acted as an agent for various corporate interests, and had even traveled to Russia on behalf of the Morgans to collect information on the developments of the Bolshevik Revolution.15
In the course of his wartime intelligence work, Donovan was first appointed by President Roosevelt to head the Office of the Coordinator of Information (COI), which was intended to help coordinate the scattered intelligence outfits and military organizations that communicated infrequently and cooperated even less. COI was the seed from which the OSS would later spring. Under Donovan’s direction, it became a clearinghouse for military and political propaganda. This was in no small part thanks to Donovan’s close friend, a British intelligence operative named William Stephenson.
Stephenson was the wartime head of a British intelligence unit in the United States, headquartered in New York City and known as the British Security Coordination (BSC). He reported to Stewart Menzies, who was then serving as the head of MI6. Menzies had tasked Stephenson with “establish[ing] relations on the highest possible level between the British SIS [the Secret Intelligence Service, another name for MI6] and the U.S. Federal Bureau of Investigation.”16 Stephenson and the BSC operated from an office located in Rockefeller Center’s International Building, which was also the home of numerous, other BSC front organizations. Stephenson also worked closely with other British intelligence agencies, including MI6 itself and the Special Operations Executive (SOE), which had begun its life as Section D of MI6.
In agreement with Menzies’ mandate, Stephenson developed a close working relationship with J. Edgar Hoover, who seemed to be enthusiastic about being a liaison to British intelligence on matters concerning the war in Europe (at this stage, the US had yet to enter the conflict). Reportedly, the BSC “provided the FBI with over 100,000 confidential reports,” while Hoover kept the British in the loop with American reports on German naval movements and the like.17 The relationship between Hoover and Stephenson would ultimately break down by 1941. Soon after, Stephenson began to cultivate William Donovan, who increasingly challenged Hoover’s position as the sole conduit between the Americans and the British. When Donovan was appointed by Roosevelt as the Coordinator of Information – and subsequently formed the OSS – an intense bureaucratic struggle erupted between Hoover and his rivals. As will be discussed in greater detail in the next chapter, this struggle allegedly led Donovan to coordinate with organized crime kingpins, namely Meyer Lansky, to blackmail Hoover in an effort to bring him to heel.
Stephenson did more than simply cultivate Donovan. In 1940, he reported back to his handlers in England that “Thre is no doubt we can achieve infinitely more through Donovan than through any other individual.… He is very receptive … and can be trusted to represent our needs in the right quarters and in the right way in the U.S.A.”18 Donovan’s COI and OSS were, in all actuality, the offspring of these British-led efforts, and a great deal of the decisions Donovan made were influenced by figures tied to Stephenson’s BSC. Before the COI was up and running, for example, Donovan conferred closely with Robert Sherwood, a playwright, ardent interventionist and close confidant of President Roosevelt. “On June 16th, 1941,” writes Thomas Mahl, “Sherwood sent to Donovan a list of people he thought he could trust, ‘for the work we discussed … yesterday evening at your home’.”19 At the time, Sherwood was working closely with the BSC – even sending them copies of speeches he had written for the president prior to Roosevelt receiving them.20
As efforts were undertaken to get the American intelligence apparatus up and running, the BSC undertook a propaganda campaign aimed at garnering support for such an institution. Mahl, in his book Desperate Deception, shows how BSC assets seeded the idea throughout the mass media, which in turn was circulated up to the heights of political power. One characteristic incident took place in May 1941, just a month prior to Donovan’s meeting with Sherwood. It was on 9The of that May that:
Vincent Astor, FDR’s friend and New York area coordinator of intelligence, sent the president a clipping from the New York Herald Tribune that was probably a plant to build the consensus for voices calling for the plan British intelligence wanted. The Herald Tribune … was BSC’s favorite outlet for planted articles. Moreover, the putative author, George Fieling Eliot, was a devoted British sympathizer, one of the most influential people in the BSC front Fight for Freedom, and a favorite vehicle for planted articles. Citing the threat from fifth columnists and enemy agents, Eliot pointed out with alarm at the lack of a coordinator for the FBI, ONI, and G-2 intelligence.21
The idea of a “fifth column” was a prime component of BSC propaganda, and would later be adopted by the OSS itself. It was used to attack isolationist holdouts against American entry into the war, and was also used to generate fear and create an atmosphere of distrust among the general public. The term originated during the course of the early phase of the Spanish Civil War of the 1930s, and was used to describe something like a domestic military-in-waiting. The fifth column was purported to be composed of enemy agents and their sympathizers, with a mandate towards sabotage and other violent activities. According to Mahl, one of the strongest promoters of the notion of a Nazi fifth column active in America was a Chicago journalist and close associate of Donovan named Edgar Ansel Mowrer – who was subsequently identified as an asset of British intelligence.22
The fifth column, however, was simply an exaggerated threat. Axis sabotage efforts within the United States did occur, but were limited and ultimately ineffectual. Yet, this reality didn’t matter to the BSC and its American allies, as the promotion of fifth column fears had a legitimizing function for their activities. It formed the very justification and popular base of support for the creation and expansion of the emerging, organized intelligence apparatus.
It also spawned events like Operation Underworld. after all, it was the specter of fifth column activity that had first prompted the collaboration between the ONI and organized crime elements. Even more incredibly, it seems that the legitimization gained by intelligence services through BSC propaganda ultimately benefited these criminal networks as well. At the war’s end, naval intelligence began a campaign to have Luciano released from prison – and at the beginning of 1946, the very man who had put Luciano away, Thomas Dewey, commuted the mobster’s sentence in exchange for his deportation to Italy. In the year or two that followed, numerous other gangsters – perhaps as many as a hundred – were deported and joined him.
Luciano’s deportation was the beginning of an effort to cement in place a powerful organized crime network that was transnational in scope and wedded to the American intelligence services. Indeed, even though Luciano was no longer physically in the United States, he and his ilk continued to guide organized criminal activities from abroad while also establishing new rackets during their exile in the “Old World.” Deported alongside Luciano, for instance, was Frank Coppola, the powerful Detroit mob boss who had been something of a mentor to Jimmy Hoffa, the mob-linked head of the Teamsters union (the use of the Teamsters’ pension fund for organized crime-linked financing recurs throughout this book). By the 1960s, Hoffa and the Teamsters were working closely alongside the CIA, particularly on efforts to assassinate Fidel Castro, who had seized many of the mob’s casinos during the course of the Cuban revolution. Coppola himself was linked to American intelligence: he “was said to have been behind a 1947 May Day massacre in Sicily, allegedly financed by former OSS chief William Donovan, in which eight people were killed and thirty-three wounded; 498 people, mostly left-wingers, were killed in 1948 alone.”23
Also deported was Silvestro “Silver Dollar Sam” Carolla, a Sicily-born mobster who had arrived in New Orleans, Louisiana, in the early 1900s and had become the city’s boss. He was particularly close to the interests of New York City organized crime. In the 1930s, Carolla had worked with Costello and Luciano to provide New Orleans with slot machines under the watchful eye of their ally, Huey Long. The gambling operation was so successful that it soon attracted the attention of Lansky, and plans were put in motion to establish “centers of communication and money laundering operations to be used by the underworld, on a national scale, in New Orleans.”24 This included the opening of “three big Las Vegas-style gambling casinos” across Louisiana, and the introduction of a new, rising star in the underworld into this partnership.
That rising star was Carlos Marcello. Soon, Marcello was managing the whole of the Louisiana casino operation. When Carolla was deported to Sicily, Marcello was tapped to take his place – and so began the reign of one of the most powerful crime bosses of the twentieth century. “…[I]t was said,” wrote John Davis in his book Mafia Kingfish, “Frank Costello sent his blessing from New York, and Sam Carolla sent word from Palermo that he approved Carlos’ selection as caretakerboss until he, Silver Dollar Sam, returned from exile.”25
In Italy, Carolla linked up with Luciano in developing what was reported by American law enforcement to be a large-scale drug network. As will be discussed in Chapter 3, this network spanned the Middle East, Europe, and the United States, and one particularly well-oiled pipeline of this network – one that connected Lebanon to Sicily to Marseilles – was infamously known as the “French Connection.” Curiously, Carolla and Luciano turned up in Mexico in 1948 to oversee the development of a drug smuggling operation in that country. While Mexico had its own domestic drug production, it was also a key transshipment point for the flow of heroin, refined from opium produced in the East. Here, we again find the fingerprints of cooperation between intelligence services and organized crime.
THE DRUG CONNECTION AND “OPERATION X”
The story of the China’s Green Gang is complicated, partially due to the mixing of fact with rumor and legend. Yet, it is undeniable that their rise was a consequence of the rapid transformations that shook Chinese society in the early twentieth century. However, the Green gang itself began long before the twentieth century dawned, originating as a secret society with roots stretching back to Luoism, a folk religion that followed the teachings of Buddhist mystic Luo Menghong. During the late 1700s, this particular branch of Luoism had become a powerful force among boatmen whose trade was the transport of grain and other foodstuffs. Fearful of their growing power, authorities stepped in to suppress this network, driving it underground. Once bitterly ensconced in the margins of society, these Luoists began engaging in smuggling and formed alliances with other smuggling groups. Soon, they consolidated their power and became a formidable force in the world of crime.
Under the leadership of Du Yuesheng, the Green Gang helped bring to power the Kuomintang (KMT), later known as the Nationalist Chinese, under the direction of Chiang Kai-Shek.26 Chiang himself was not a member of the Green Gang, but his political mentor and protector, General Ch’en Ch’i-mei, had been. Between the 1920s and 1930s, the Green Gang was fully integrated with the government of Shanghai, and became a primary source of power for the KMT. They “relied on the Green Gang to conduct counter-espionage activities and gather political intelligence,” and called upon the resources of the organization to suppress trade unionists and communists.27
The Green Gang financed its activities through the cultivation and sale of opium – an activity that was fully sanctioned by Chiang and the KMT. Prior to the KMT’s rise to power, Chinese opium production was unorganized, distributed among many different warring figures. Under Chiang, however, a “suppression” was carried out with the ostensible goal of wiping out the opium trade in the name of public health. Behind the scenes, however, the KMT was doing quite the opposite: the “suppression” of opium production was actually an integrated effort to centralize it, placing production, distribution and ultimately control of the substance in the hands of a joint KMT-Green Gang monopoly.28
Support for the KMT opium monopoly came from Western modernizers – including the Rockefeller Foundation, which had set up shop in China during the 1910s with the creation of the China Medical Board.29 Through this apparatus, the Rockefeller Foundation undertook efforts to promote “modern science,” develop medical education programs, and set up hospitals. It is likely that the foundation’s support for opium monopolization was intricately bound up with their health crusade, since opium had important, wide ranging medicinal applications.
At the same time, it was also part of a larger tendency among internationalists like the Rockefellers to seek the regulation and control of the global drug trade. after the First World War, the nascent League of Nations formed an Advisory Committee on the Traffic of Opium and Other Dangerous Drugs. It worked closely with the Rockefeller Foundation’s International health Board, the “parent” of the China Medical Board. The overarching imperative of the League’s efforts for global drug regulation was to rationalize the production of opium and other precursors and to consolidate drug refining and distribution within a series of select major pharmaceutical corporations.
Under Chiang’s leadership, China simultaneously kowtowed to the League’s initiatives while using the monopolization drive to cement itself at the center of drug production for both the criminal underworld and the “legitimate” overworld. A full-blown narco-state was in the process of being formed, as opium cultivation came to be the central focus of the government’s revenue-raising programs. As Jonathan Marshall noted:
“In the central provinces of China, especially in Hubei and Hunan, nearly every government organization has come to depend on opium revenue for maintenance,” observed one expert. “Even law courts, Tangpus (Kuomintang organizations), and schools are no exception.” Thus in one locality, authorities charged one picul of opium $320 for general taxes, $32 for Communist suppression, $3.20 for national revenue, $1.50 for the Chamber of Commerce, $2.50 for Special Goods (opium) Association fees, $2.50 for the Hsih-tsun Girl’s School, and $7.00 for protection fees. Later, highway maintenance and more school taxes were added. When the opium finally reached Hankou, monopoly authorities added another $920 tax. The original cost of the opium was only $400.30
It was in this context that American organized crime figures arrived on China’s shores and began to organize an intensely lucrative global narcotics trading network. Among the first was Arnold Rothstein, who acted as a mentor to Lansky, Luciano, and Costello. He dispatched a series of frontmen to China: Sidney Sta__er, Jacob Katzenberg, and George Uffner.31 Uffner would later be described by Federal investigators as a long-time friend of Costello, while Katzenberg was a high-level figure in New York City’s Jewish crime syndicates. These syndicates, according to Alfred McCoy, “controlled much of New York’s heroin distribution.” Katzenberg – himself a Lansky flunky as much as a Rothstein frontman – was involved with a secret heroin processing laboratory in the city, which was refining opium flowing from Asia.32
Hans Derks, in his encyclopedic History of the Opium Problem: The Assault on the East, 1600-1950, suggests that the connections between American organized crime and the KMT/Green Gang-dominated Chinese opium trade more than likely involved the complicity of Western – predominantly Anglo-American – economic interests in the region.33 He singles out in particular the powerful Sassoon family.
Nicknamed the “Rothschilds of the East,” the Sassoons had emerged as economic administrators in Iraq before organizing one of the dominant opium trading complexes in the East. It is said, writes Derks, “that ‘one fifth of all opium brought into China was shipped on the Sassoon fleet.’ Thanks to opium they became not only the wealthiest family in India, but also the largest real estate dealers in Shanghai.”34 The family also became integrated into the world of oil: they invested heavily, at various times, in Britain’s Burmah Oil and the Anglo- Iranian Oil Company (a subsidiary of Burmah that eventually became British Petroleum), among others.
During the 1800s, the Sassoons competed for dominance of the opium trade with Jardine-Matheson, one of the great Anglo-Hong Kong trading houses that has been firmly controlled by the prominent Keswick family. Over time, the interests of the Sassoons and the Keswicks intermingled and became part of a vast network winding its way through Hong Kong, Shanghai, and elsewhere. This is by no means ancient history: as late as 2013, the Financial Times reported that Lord James Sassoon, having just finished a stint serving as the Commercial Secretary to the Treasury in the government of UK Prime Minister David Cameron, became an executive director of the Jardine-Matheson board.35
These dynastic-corporate structures not only influenced the shape of the international drug trade during the twentieth century, but also the evolution of Western intelligence services during and after World War II. Take, for example, the offspring of Henry Keswick, who served as one of the most powerful heads of Jardine Matheson and the controller of numerous affiliated entities (such as the Hong Kong and Shanghai Banking Corporation, the Hong Kong & Whampoa Company, and the Shanghai Municipal Council). Two of Henry’s sons, John Henry Keswick and William Johnston “Tony” Keswick, served in the Chinese theater as part of the UK’s Special Operations Executive. In addition to the SOE, John Henry Keswick served as the personal aide to Lord Mountbatten, the Supreme Allied Commander of the Southern Asia theater.36
Tony Keswick, meanwhile, crossed paths with Federal Bureau of Narcotics (FBN) veteran and OSS operative Garland Williams. When the OSS was still being organized and efforts were underway to expand its paramilitary capacities, Williams was dispatched by Preston Goodfellow – “a former Hearst executive and publisher of Brooklyn Eagle” who had become William Donovan’s special assistant – to meet with the SOE officer. “After meeting the British spymaster Keswick,” writes Douglas Valentine, “Williams returned to Washington with the SOE’s training manuals and helped establish OSS training schools in Maryland and Virginia.”37
After the war came to an end, Tony Keswick returned to the world of corporate affairs, taking up a position running one of the family’s correspondent companies in London. He also served, for a time, as a governor of the Hudson’s Bay Company in Canada. As discussed in the next chapter, the Hudson’s Bay Company was central to the rise of the Bronfman family, who have long straddled the murky line between “legitimate” corporate enterprises and the criminal underworld. In turn, the Bronfmans, as will be illustrated at length in this book, would be important to the rise of the network that later enabled the illicit activities of Jeffrey Epstein.
Through his acquisition of the SOE manuals from Keswick, Garland Williams played an essential role that paralleled – and was almost certainly framed by – the higher level cooperation between William Donovan and William Stephenson. At the same time, Williams appears to have operated at the intersection of the American intelligence services, still in their infancy, and the networks of American organized crime.
In his book Deep Politics and the Death of JFK, Peter Dale Scott theorizes that there existed a formation that he provisionally dubs “Operation X.” Williams, and other veterans of the FBN that were brought into the OSS and the CIA, are identified as players in this apparatus:
…the intelligence-mob collaboration established with Operation Underworld did not end after World War II. On the contrary, post-war narcotics operations overseas were subordinated to anti-Communist activities; and they were used as a cover for ongoing use of mob assets, above all drug traffickers, around the world. In developing these post-war mob contacts, White and his FBN associates, notably his former supervisor Garland Williams, and his protégé Charles Siragusa, even while formally back in the FBN hierarchy, ‘functioned as a counterintelligence unit, attached to the CIA and, at times, the Army.’… In the 1950s and 1960s it would appear that the FBN systematically subordinated the prosecution of drug cases to a second, hidden agenda, the use of traffickers as agents against communism.38
One example that Scott cites is the “selective arrests made by George White in a 1959 heroin case involving the anti-Communist (and pro-Kuomintang) Hip Sing tong or gang.”39 White, an agent for the FBN and OSS who was a contractor for the CIA after the war, had busted a heroin ring operating out of San Francisco that tracked back to these pro-KMT gangster elements – and then subsequently identified the heroin as originating from Chinese Communists.40 Interestingly, White himself had a history with the Hip Sing tongs. “In 1936 he infiltrated the notorious Hip Sing Tong brotherhood of Seattle by masquerading as a drug dealer,” leading to a massive sting operation that nabbed some thirty drug smugglers and their associates.41
It is worth saying a bit more about George White, who was no stranger to courting the services of organized crime figures to bolster the early American intelligence apparatus. The research carried out by the late Hank Albarelli has shown that White cultivated a protege named Pierre Laffite, who he had recruited into the CIA as a “special employee” in June 1952.42 Twenty years prior, Lafitte worked in France for Jean Voyatzis, “the greatest importer of manufactured Chinese opium into Europe” and a figure of considerable interest to the FBN.43 Later, Lafitte turned up in Cuba in the company of Amleto Battisti y Lora, a Corsican expat who had partnered with Meyer Lansky in a Havana hotel. Battisti, according to a 1955 FBI memo, was “for many years … known unofficially as the numbers king of Havana.”44
When White brought Lafitte to the CIA, the FBN agent was himself being recruited by Sidney Gottlieb, a chemist who was working at the Agency’s Office of Technical Service. There, Gottlieb oversaw the CIA’s research into potential “truth drugs,” which in time expanded into a sweeping inquiry that dealt with the effects of drugs, shock therapy and sensory deprivation, hypnosis and even more esoteric currents on the human mind. The most famous of these programs, MK-ULTRA, saw the CIA become the largest consumer of LSD, which it used to experiment on witting and unwitting subjects. The subjects included soldiers, patients in psychiatric hospitals, prisoners (sometimes organized crime figures), and private citizens. Under Gottlieb’s directions, CIA-run “safehouses” were established in New York City and San Francisco, where unsuspecting people were dosed with hallucinogenic substances while being monitored from behind two-way mirrors.
Gottlieb was impressed by White’s street smarts and his inclinations towards the other side of the law – traits that were necessary for the covert drug program. As one of Gottlieb’s Agency employees later stated, “We were Ivy League, white middle class.… We were naive, totally naive about this, and he felt pretty expert. He knew the whores, the pimps, the people who brought in the drugs.… He was a pretty wild man.”45 Under the alias of “Morgan Hall,” White maintained a safehouse in Greenwich Village, New York City, where he supplied unsuspecting people with LSD and other substances. In order to lure people into his web, he deployed false life stories – “He posed alternatively as a merchant seaman or a bohemian artist, and consorted with a vast array of underworld characters, all of whom were involved in vice, including drugs, prostitution, gambling and pornography.”46
In 1955, Harry J. Anslinger, the commissioner of the FBN, transferred White to San Francisco to fill a vacant post as the FBN district supervisor for the city. This was by no means the end of his work with Gottlieb and the CIA. Instead, he was granted control of MK-ULTRA Subproject 42 – or, as White called it, “Operation Midnight Climax.” Midnight Climax involved a safehouse, much like the one set up in New York City, which was then decked out with electronic surveillance equipment. Prostitutes were then enlisted, who would lure unsuspecting clients back to the “pad,” where they would then be slipped LSD. John Gittinger, a Harvard psychologist who was on the CIA payroll – best known perhaps for developing the Personality Assessment System – later admitted in Congressional testimony that the Agency “was interested in the combination of certain drugs with sex acts. We looked at the various pleasure positions used by prostitutes and others.… Some of the women, the professionals, we used, were very adept at this practice.”47
White wasn’t alone in obscuring the role of the KMT in the drug trade. This was also the modus operandi of Harry Anslinger, the FBN commissioner who served as boss to both George White and Garland Williams. Although Anslinger – like Donovan – was a bitter enemy of J. Edgar Hoover, he rode the rising tide of McCarthyism in the US, and identified China as the number one threat to public order.48 The Chinese Communist Party, he claimed in the media and in official FBN reports, was over-seeing vast opium fields and had trained thousands of agents to distribute heroin within the West. Per Anslinger, Chinese opium production totaled “more than 4,000 tons … a year,” with the “profits from the smuggling [being] used to finance the activities of the Communist Party and the obtain strategic raw materials.”49
Importantly, Anslinger did not have any agents located in Asia in the post-war years, with FBN posting taking place at a fairly late date in 1962.
The claims made by Anslinger in the 1950s were sourced from intelligence provided by the KMT itself and, in the early years, by the intelligence apparatus of General Douglas MacArthur’s military command in post-war Japan. Overseeing this intelligence web was MacArthur’s protege, a fascist sympathizer named General Charles Willoughby. Willoughby, as will be discussed in Chapter 5, would later become a player in the so-called China Lobby, a domestic political pressure network that supported the KMT and hardline Cold War politics.
It is doubtful that the misdirection being deployed by Anslinger, White, and others in their milieu was for propagandistic purposes alone. Scott’s “Operation X” thesis suggests a dual function. First, it bolstered Cold War propaganda efforts, which roughly followed the same template as the “fifth column” propaganda of the OSS during World War II. Second, it helped hide the roles of certain individuals, organizations, and networks that worked in tandem with Western intelligence services, militaries, governments, and businesses in the global drug trade. During this period, investigations into organized crime in America were soft-pedaled, if they took place at all, in part thanks to coercion and blackmail, particularly the blackmailing of FBI director J. Edgar Hoover. This also worked to obscure the role of the KMT in the drug trade due to the historical unity of American organized crime with Asian drug traffickers, forged in the inter-war period.
There is the stark possibility that this unity was maintained, well into the postwar epoch, through the efforts of American intelligence services themselves. This would result from the long-term effects of the OSS apparatus that had been set up in the China-India-Burma theater during the war. That apparatus had been concentrated around a powerful unit called Detachment 101 (which, incidentally, had been set up with the aid of Garland Williams). Many of the most notorious intelligence operatives and soldiers who dotted the landscape of the late 20th century can trace their roots back to this OSS theater – and many of them will appear throughout this book. Those who served there included E. Howard Hunt, later a CIA coup-master who achieved infamy during Watergate. Another was John Singlaub, a major player in the Iran-Contra affair. There was also Paul Helliwell, soon to become one of the architects of convoluted shadow banking strategies and a primary node between the worlds of intelligence and organized crime.
In 1943, William R. Peers – who would later lead the CIA’s first training program – became the head of OSS Detachment 101 after his predecessor, Carl F. Ei__er, was injured. Peers subsequently became the head of all OSS operations in the China-Burma-India theater, and personally oversaw commando operations carried out by KMT troops against Chinese Communist forces. Peers later rejected on his OSS years in an autobiography and, while discussing payment issues needed to finance the OSS’ operations in Asia, made a startling disclosure:
Simply stated, paper currency and even silver were often useless, as there was nothing to buy with money; opium, however, was the form of payment everybody used. Not to use it as a means of barter would spell an end to our operations. Opium was available to agents who used it for a number of reasons, from obtaining information to buying their own escape. Any indignation felt was removed by the difficulty of the effort ahead. If opium could be useful in achieving victory, the pattern was clear. We would use opium.50
The OSS activities in Burma would lay the groundwork for the country to subsequently act as an essential node in early Cold War activities against Communist elements in Asia. Importantly, after Chinese Communists drove the KMT out of the mainland and into Taiwan, Burma became one of their main outposts. There, the CIA organized a secret army with prospective plans to stage an invasion of China. “Although the KMT was to fail in its military operations,” writes Alfred McCoy, “it succeeded in monopolizing and expanding … the opium trade.”51 He continues:
The KMT shipped the opium harvests to northern Thailand, where they were sold to General Phao Siyanan of the Thai police, a CIA client. The CIA had promoted the Phao-KMT partnership to secure a rear area for the KMT, but this alliance soon became a critical factor in the growth of Southeast Asia’s narcotics traffic. With CIA support, the KMT remained in Burma until 1961, when a Burmese army offensive drove them into Laos and Thailand. By this time, however, the Kuomintang had already used their control over the tribal populations to expand Shan state opium production by almost 500 percent – from less than 80 tons after World War II to an estimated 300-400 tons by 1962.52
The CIA’s Burma-Thailand support for the KMT was code-named “Operation Paper.”53 One of the architects of the operation was a close associate of Thailand’s General Phao named Willis Bird – later nicknamed Mr. Opium. Bird, during World War II, had served with OSS in the Burma-China-India theater. after the end of the conflict, he remained in the region as a supplier to the Thai military and police. Whether or not Bird was an on-the-books asset of the CIA isn’t clear, though he certainly was a middleman for moving supplies that had been obtained via Agency financing.
These supplies arrived in Thailand by way of a company called South East Asia Supply Corporation, most frequently referred to simply as SEA Supply.54 Willis Bird acted as SEA Supply’s Bangkok office manager under the direction of Sherman Joost – a veteran of OSS Detachment 101. SEA Supply was not set up in Thailand, however. The business was instead registered in Miami, Florida by OSS-veteran- turned lawyer and banker Paul Helliwell. At the same time that Helliwell was handling the legal end of SEA Supply’s activities, he was also acting as consul for the Thai government in the US. In this capacity, he was closely linked to General Phao and the network of politicians who supported him.55
SEA Supply worked closely with Civil Air Transport (CAT), the CIA’s first proprietary airline. The roots of CAT were planted during the Second World War, when Claire Chennault organized the Flying Tigers, a volunteer aviation unit set up to provide support for the KMT in China in their fight against Japan. With ranks drawn from the US military, the Flying Tigers trained at bases in Burma, which acted as a logistics hub for their airlift. Chennault had long standing ties to the KMT: since the late 1930s, Chennault had served as a military advisor to Chiang Kai-Shek and his brother-in-law, the powerful Nationalist Chinese banker and diplomat T.V. Soong.
Besides his links to the KMT leadership and to the US military, Chennault maintained an impressive array of contacts. His lawyer was Thomas Corcoran, a top advisor in President Roosevelt’s New Deal brain trust. Corcoran was close to Helliwell, and both worked together to promote Chennault’s aviation plans when the war ended. Back in America, Chennault fell in with the so-called China Lobby, the network of politicians, businessmen, and other players who lobbied for support for the KMT as the only viable group who could oppose the Chinese communists. He set up and managed an impressive airlift of “American relief supplies in China” – with the supply flight contracts going to Chennault, of course.56 Central to this effort was the 1946 creation of a new airline called Civil Air Transport that Chennault had co-founded with Whiting Willauer.57 Willauer would go on to be US ambassador to Costa Rica and was also later involved in the 1954 CIA-led coup in Guatemala. When the KMT retreated to the island of Formosa (now Taiwan), Chennault used CAT to run arms and medical supplies to National Chinese fighters.
CAT was brought into the world of special operations thanks to the efforts of Helliwell. He had brought Chennault and the aviation company to the attention of Frank Wisner, then the head of a covert body called the Office of Policy Coordination (OPC). Within several years, the OPC was incorporated into the CIA, cementing in place a militarized command structure governing the dark arts of the clandestine services. By 1950, CAT was a full-fledged CIA proprietary airline, operating under the auspices of a holding company set up by the Agency called Airdale Corp58 Later, Airdale Corp was renamed Pacific Corp, and CAT would become Air America.
Air America was the CIA’s premier airline, and remained active from the 1950s into the 1970s. It was finally dissolved in the wind-down of the Vietnam War, though many of its assets were sold off and absorbed into a CIA-linked firm called Evergreen International Aviation. Meanwhile, several Flying Tigers pilots went on to create the air freighter firm Flying Tiger Line, a major commercial cargo airline that also operated military contract services and engaged in covert operations. Flying Tiger Line would later have a major presence at the Rickenbacker airfield near Lockbourne, Ohio. CAT’s later incarnation, Southern Air Transport, would relocate there in the early 1990s, a few years after Flying Tiger Line was absorbed into Federal Express. The airline’s relocation was thanks, in part, to Jeffrey Epstein and had chiefly relocated to manage cargo for Leslie Wexner’s The Limited (see chapter 17).
Connections to organized crime appear in nearly every corner of this web. Take, for instance, Margaret Chung, an “attending physician” for Chennault’s Flying Tigers. A member of the Hip Sing tong, she made “frequent trips” to Mexico City in the 1940s in the company of Virginia Hill – an inside player in organized crime circles with close ties to the likes of Bugsy Siegel and Meyer Lanksy.59 During this period, Hill “became intimate with a number of Mexico’s top politicians, army officers, diplomats, and police officials,” which likely facilitated the activities of her friends in the underworld.60 Hill was also particularly close to the Chicago Outfit during this time, the significance of which will become clear shortly.
As mentioned above, Mexico had become an important base of operations for the drug smuggling network of Costello and Carolla. Given their ties to Meyer Lansky, it is certainly possible that Hill’s own appearance in Mexico was connected to these earlier activities. Importantly, Mexico had also become a vital transshipment point for the KMT’s own drug trafficking during this same period. Does the presence of Margaret Chung alongside Hill, then, suggest that the KMT’s drug operations in Mexico directly intersected with those of Lansky and his milieu? Given the history of Lansky associates working with the KMT and the Green Gang, it is certainly possible, if not likely.
The structure of this apparently intricate network can be developed further when considering that Civil Air Transport, one of the successors to the Flying Tigers, was, by 1960, flying in and out of Laotian territory controlled by the Hmong tribesmen. The tribesmen were a major supplier of opium destined for refinement into heroin (the CIA’s covert support for the Hmong is discussed in Chapter 5). Airstrips for CAT’s flights were built by Bird and Sons, a “private engineering firm” controlled by “the CAT representative in Bangkok,” William H. Bird.61 Bird was the cousin of Willis Bird of the OSS and of Helliwell’s SEA Supply.
There was also the case of Helliwell himself. By this point, he had become a prominent player in Republican politics. He was, for example, a delegate for Dwight Eisenhower as he strove to clinch the Republican Party presidential nomination. Helliwell had also been a leader in the Florida chapter of Citizens for Eisenhower. That chapter was subsequently accused of “being taken over by professionals who refuse[d] to work with the regular GOP leaders and who are accountable to no one for the finances they collect.”62 Members of this cadre of operators aside from Helliwell included Curt Landon and James Guilmartin. Together, these three men were tightly-connected co-conspirators amassing unaccountable power:
Landon is a substantial client of Helliwell’s law firm; Guilmartin is a partner of Helliwell’s and Guilmartin is married to Landon’s daughter. We find these men closely allied by business and marriage who, if their plan succeeds, will find themselves in a position of enormous power in Florida and responsible to no recognized Republican authority.63
While Helliwell was making waves in the world of politics and in the world of covert operations, he was also making a foray into the world of Florida insurance. He was the consul for, and later secretary, then chairman, of American Bankers Life Assurance, located in Miami. Importantly, Helliwell utilized the offices of American Bankers Life as the hub for many of his activities. The Florida Thai consulate, for instance, was located at the same address as the insurance company – as was SEA Supply.
In addition to this important CIA linkage, American Bankers Life also shared important connections – one of which was Helliwell himself – with Miami National Bank. Founded with a loan from the Teamster pension fund, Miami National “was identified in 1969 as having served between 1963 and 1967 as a conduit through which ‘hot’ syndicate money was exported by Meyer Lansky’s couriers and ‘laundered’ through the inter-locking Exchange and Investment Bank in Geneva.”64 The importance of Lansky’s Geneva bank will be discussed in Chapter 3.
Helliwell’s ventures, and specifically his banking endeavors, were probably related to the flow of heroin that originated as KMT opium and then passed through the hands of American organized crime figures. In his book Hot Money and the Politics of Debt, offshore banking expert R.T. Naylor writes that “South Florida is … a major refuge for Latin American flight money, which pours into the Florida banking system and local real estate. The flight capital-into-real estate business is an old one. In the 1950s and 1960s, Kuomintang money from Thailand and Burma came via Hong Kong to be washed in Lansky-related property firms.”65