State-Organized Crime Part 3
William J. Chambliss
State-Organized Crime Part 3
Sun Feb 20, 2005 00:10

To rationalize the fundamental contradiction between the law and the interests of the state, European nations created a legal fiction. Issued either directly from the monarch or the Admiralty, the letters of marque gave pirates a sort of license, but with specific limitations on the kinds of acts that were permissible. One restriction was that the pirates were not to (a) attack ships of the country issuing the letter, (b) plunder villages or towns, or (c) open the captured cargo until they returned to port.

The reality of piracy was quite at odds with all of these limitations. Much of the success of piracy depended on attacking towns and villages, during which raping, plundering, and razing the town were accepted practices. Pirates sometimes kept one or more officers from captured ships along with their letters of marque and identifying flags in order to show them in case of attack by a ship from another country. This also enabled a pirate ship from France, say, to raise an English flag and attack a French ship. For the pirates loyalty to the nation came second to the search for gold.

At one time or another virtually every European nation, and the United States as well, between 1500 and 1800 was complicitous in piracy. In the United States, Charleston, South Carolina, several New England towns, and New York were safe harbors for pirates. In return for sharing in the prize, these towns provided safety from capture by foreign authorities and a safe place for pirates to celebrate their victories.

John Paul Jones became an American hero through his success as a pirate and was even given a commission in the navy (de la Croix, 1962; MacIntyre, 1975). Jean and Pierre Lafitte were the toast of New Orleans society while they enriched themselves by organizing and aiding pirates and smugglers at the mouth of the Mississippi River. Their status was considerably enhanced when the federal government enlisted their aid in the war against England and made Jean an officer of the U.S. Navy in return for helping to defeat the British Navy that was gathering its forces for an attack on New Orleans (Verrill, 1924). In time of war, nations enlisted pirates to serve in their navy. In time of peace, they shared in the profits.

During the period from 1600 to 1900, capitalism was becoming firmly established as the dominant economic system of the world. The essential determinant of a nationís ability to industrialize and to protect its borders was the accumulation of capital. Not only was another nationís wealth a threat to the autonomy of neighboring states, one nationís gain was invariably anotherís loss. Piracy helped to equalize the balance and reduce the tendency toward the monopolization of capital accumulation. The need for capital accumulation does not end with the emergence of capitalism; it continues so long as the economy and a nationís military and economic strength depend on it. When piracy ceased to be a viable method for accumulating capital, other forms of illegality were employed. In todayís world, there is evidence that some small city-states in the Far East (especially in Indonesia) still pursue a policy of supporting pirates and sharing in their profits. But piracy no longer plays a major role in state-organized crime; today, the role is filled by smuggling.


Smuggling occurs when a government has successfully cornered the market on some commodity or when it seeks to keep a commodity of another nation from crossing its borders. In the annals of crime, everything from sheep to people, wool to wine, gold to drugs, and even ideas, has been prohibited for either export or import. Paradoxically, whatever is prohibited, it is at the expense of one group of people for the benefit of another. Thus, the laws that prohibit the import or export of a commodity inevitably face a built-in resistance. Some part of the population will always want to either possess or to distribute the prohibited goods. At times, the state finds itself in the position of having its own interests served by violating precisely the same laws passed to prohibit the export or import of the goods it has defined as illegal.

Narcotics and the Vietnam War

Sometime around the eighth century, Turkish traders discovered a market for opium in Southeast Asia (Chambliss 1977; McCoy, 1973). Portuguese traders several centuries later found a thriving business in opium trafficking conducted by small ships sailing between trading ports in the area. One of the prizes of Portuguese piracy was the opium that was taken from local traders and exchanged for tea, spices, and pottery. Several centuries later, when the French colonized Indochina, the traffic in opium was a thriving business. The French joined the drug traffickers and licensed opium dens throughout Indochina. With the profits from these licenses, the French supported 50% of the cost of their colonial government.

When the Communists began threatening French rule in Indochina, the French government used the opium profits to finance the war. It also used cooperation with the hill tribes who controlled opium production as a means of ensuring the allegiance of the hill tribes in the war against the Communists (McCoy, 1973).

The French were defeated in Vietnam and withdrew, only to be replaced by the United States. The United States inherited the dependence on opium profits and the cooperation of the hill tribes, who in turn depended on being allowed to continue growing and shipping opium. The CIA went a step further than the French and provided the opium-growing feudal lords in the mountains of Vietnam, Laos, Cambodia, and Thailand with transportation for their opium via Air America, the CIA airline in Vietnam.

Air America regularly transported bundles of opium from airstrips in Laos, Cambodia, and Burma to Saigon and Hong Kong (Chambliss, 1977: 56). An American stationed at Long Cheng, the secret CIA military base in northern Laos during the war, observed:

. . . so long as the Meo leadership could keep their wards in the boondocks fighting and dying in the name of, for those unfortunates anyway, some nebulous cause . . .the Meo leadership [was paid off] in the form of a carte-blanche to exploit U.S.-supplied airplanes and communication gear to the end of greatly strengthening the opium operations . . . . (Chambliss, 1977: 56)

This report was confirmed by Laotian Army General Ouane Rattikone, who told me in an interview in 1974 that he was the principal overseer of the shipment of opium out of the Golden Triangle via Air America. U.S. law did not permit the CIA or any of its agents to engage in the smuggling of opium.

After France withdrew from Vietnam and left the protection of democracy to the United States, the French intelligence service that preceded the CIA in managing the opium smuggling in Asia continued to support part of its clandestine operations through drug trafficking (Kruger, 1980). Although those operations are shrouded in secrecy, the evidence is very strong that the French intelligence agencies helped to organize the movement of opium through the Middle East (especially Morocco) after their revenue from opium from Southeast Asia was cut off.

In 1969 Michael Hand, a former Green Beret and one of the CIA agents stationed at Long Cheng when Air America was shipping opium, moved to Australia, ostensibly as a private citizen. On arriving in Australia, Hand entered into a business partnership with an Australian national, Frank Nugan. In 1976 they established the Nugan Hand Bank in Sydney (Commonwealth of New South Wales, 1982a, 1982b). The Nugan Hand Bank began as a storefront operation with minimal capital investment, but almost immediately it boasted deposits of over $25 million. The rapid growth of the bank resulted from large deposits of secret funds made by narcotics and arms smugglers and large deposits from the CIA (Nihill, 1982).

In addition to the records from the bank that suggest the CIA was using the bank as a conduit for its funds, the bankís connection to the CIA and other U.S. intelligence agencies is evidenced by the people who formed the directors and principal officers of the bank, including the following:

* Admiral Earl F. Yates, president of the Nugan Hand Bank was, during the Vietnam War, chief of staff for strategic planning of U.S. forces in Asia and the Pacific.
* General Edwin F. Black, president of Nugan Handís Hawaii branch, was commander of U.S. troops in Thailand during the Vietnam War and, after the war, assistant army chief of staff for the Pacific.
* General Erle Cocke, Jr., head of the Nugan Hand Washington, D.C. office.
* George Farris worked in the Nugan Hand Hong Kong and Washington, D.C. offices. Farris was a military intelligence specialist who worked in a special forces training base in the Pacific.
* Bernie Houghton, Nugan Handís representative in Saudi Arabia. Houghton was also a U.S. naval intelligence undercover agent.
* Thomas Clines, director of training in the CIAís clandestine service, was a London operative for Nugan Hand who helped in the takeover of a London-based bank and was stationed at Long Cheng with Michael Hand and Theodore S. Shackley during the Vietnam War.
* Dale Holmgreen, former flight service manager in Vietnam for Civil Air Transport, which became Air America. He was on the board of directors of Nugan Hand and ran the bankís Taiwan office.
* Walter McDonald, an economist and former deputy director of CIA for economic research, was a specialist in petroleum. He became a consultant to Nugan Hand and served as head of its Anapolis, Maryland branch.
* General Leroy Manor, who ran the Nugan Hand Philippine office, was a Vietnam veteran who helped coordinate the aborted attempt to rescue the Iranian hostages, chief of staff for the U.S. Pacific command, and the U.S. governmentís liaison officer to Philippine President Ferdinand Marcos.

On the board of directors of the parent company formed by Michael Hand that preceded the Nugan Hand Bank were Grant Walters, Robert Peterson, David M. Houton, and Spencer Smith, all of whom listed their address as c/o Air America, Army Post Office, San Francisco, California.

Also working through the Nugan Hand Bank was Edwin F. Wilson, a CIA agent involved in smuggling arms to the Middle East and later sentenced to prison by a U.S. court for smuggling illegal arms to Libya. Edwin Wilsonís associate in Mideast arms shipments was Theodore Shackley, head of the Miami, Florida, CIA station. In 1973, when William Colby was made director of Central Intelligence, Shackley replaced him as head of covert operations for the Far East; on his retirement from the CIA William Colby became Nugan Handís lawyer.

In the late 1970s the bank experienced financial difficulties, which led to the death of Frank Nugan. He was found dead of a shotgun blast in his Mercedes Benz on a remote road outside Sydney. The official explanation was suicide, but some investigators speculated that he might have been murdered. In any event, Nuganís death created a major banking scandal and culminated in a government investigation. The investigation revealed that millions of dollars were unaccounted for in the bankís records and that the bank was serving as a money-laundering operation for narcotics smugglers and as a conduit through which the CIA was financing gun smuggling and other illegal operations throughout the world. These operations included illegally smuggling arms to South Africa and the Middle East. There was also evidence that the CIA used the Nugan Hand Bank to pay for political campaigns that slandered politicians, including Australiaís Prime Minister Gough Whitlam (Kwitny, 1987).

Michael Hand tried desperately to cover up the operations of the bank. Hundreds of documents were destroyed before investigators could get into the bank. Despite Handís efforts, the scandal mushroomed and eventually Hand was forced to flee Australia. He managed this, while under indictment for a rash of felonies, with the aid of a CIA official who flew to Australia with a false passport and accompanied him out of the country. Handís father, who lives in New York, denies knowing anything about his sonís whereabouts.

Thus, the evidence uncovered by the government investigation in Australia linked high-level CIA officials to a bank in Sydney that was responsible for financing and laundering money for a significant part of the narcotics trafficking originating in Southeast Asia (Commonwealth of New South Wales, 1982b; 1983). It also linked the CIA to arms smuggling and illegal involvement in the democratic processes of a friendly nation. Other investigations reveal that the events in Australia were but part of a worldwide involvement in narcotics and arms smuggling by the CIA and French intelligence (Hougan, 1978; Kruger, 1980; Owen, 1983).

Arms Smuggling

One of the most important forms of state-organized crime today is arms smuggling. To a significant extent, U.S. involvement in narcotics smuggling after the Vietnam War can be understood as a means of funding the purchase of military weapons for nations and insurgent groups that could not be funded legally through Congressional allocations or for which U.S. law prohibited support (NARMIC, 1984).

In violation of U.S. law, members of the National Security Council (NSC), the Department of Defense, and the CIA carried out a plan to sell millions of dollars worth of arms to Iran and use profits from those sales to support the contras in Nicaragua (Senate Hearings, 1986). The Boland amendment, effective in 1985, prohibited any U.S. official from directly or indirectly assisting the Contras. To circumvent the law, a group of intelligence and military officials established a "secret team" of U.S. operatives, including Lt. Colonel Oliver North, Theodore Shackley, Thomas Clines, and Maj. General Richard Secord, among others (testimony before U.S. Senate, 1986). Shackley and Clines, as noted, were CIA agents in Long Cheng; along with Michael Hand they ran the secret war in Laos, which was financed in part from profits from opium smuggling. Shackley and Clines had also been involved in the 1961 invasion of Cuba and were instrumental in hiring organized-crime figures in an attempt to assassinate Fidel Castro.

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