In early February 1978, on the strength of a claimed turnover of $1 billion, the Australian Financial Review reported that “at this sort of growth rate Nugan Hand will soon be bigger than BHP.”
Two years later, on January 27, 1980, one of the two founders of the Nugan Hand Bank, Frank Nugan, was found dead near Lithgow in New South Wales from a gunshot wound to the head, apparently self-administered. While this was taking place, the other founder of the bank, Michael Hand, was busy shredding “sensitive” documents. By June 1980, Nugan Hand Ltd was in liquidation. It owed about $15 million to creditors. Hand had fled to the United States, never to be seen or heard from again.
As some of the activities of Nugan Hand came to light following the appointment of a Royal Commission of Inquiry, the print media in Australia and the US were running stories about the connection between the bank and the CIA, alongside allegations that the bank was involved in drugs and arms trafficking.
Nugan and Hand were not bankers, and they employed a number of prominent former US military and intelligence personnel who also lacked banking experience.
The bank’s president was Admiral Earl Preston Yates, who was deputy chief of staff at US Pacific Command during the final US withdrawal from Vietnam. General Edwin Fahey Black, the bank’s representative in Hawaii, commanded US troops in Thailand during the Vietnam War, having previously served with the National Security Council and the OSS, the predecessor to the CIA. Lieutenant-General Leroy Joseph Manor, who worked for the bank in the Philippines, was also a Vietnam veteran, and had previously been chief of staff of the Pacific Command. General Erle Cocke, a World War II veteran and former Brigadier-General of the Georgia National Guard, worked as a consultant for the bank in Washington.
Two other people employed by the bank were high-ranking CIA operatives. Walter Joseph McDonald worked for the CIA from 1952 to 1979, including a period as deputy director. He was a “special adviser” to Nugan Hand, opening an office for the bank in Annapolis, Maryland. William Egan Colby was US ambassador to Vietnam from 1968 to 1971, and executive director, then director of the CIA from 1973 to 1976. He was retained by the bank to provide legal advice on taxation matters. His business card, on which were written the dates when he would be available to meet Nugan in Hong Kong or Singapore in March 1980, was found in Nugan’s possession after his death.
The bank also had business dealings with a number of other high-ranking former CIA officers including Ted Shackley and Thomas Clines, chief and deputy chief respectively of the CIA station in Vientiane in the mid 1960s.
The Royal Commission into the activities of Nugan Hand seemed a little bemused that the CIA, such a “powerful agency of the United States Government” would have dealings with the “inept individuals” who ran Nugan Hand.
Those who ran Nugan Hand were not so much inept as just plain crooked, and the operation that they ran was a sham from the start. Shortly after the company was incorporated in July 1973, its accounts showed a paid-up capital of $1,000,005. The shares were held by Nugan and Hand, “paid” for with cheques drawn by Nugan totalling $1 million. The company then “repaid” Nugan $999,900. When these cheques were passed around the boardroom table there was no money to cover them in the relevant accounts. All this created the illusion that the company was worth $1 million, when in fact its paid-up share capital throughout its life amounted to just $105, and it was at all times insolvent.
The apparent success of the company was attributed by the Royal Commission to “sheer fortuity.” They were certainly fortunate in acquiring the services of a money market manager who was skilful enough to trade without any money. Using his market contacts he managed to trade on short-term extended credit each day, racking up sales of $2.4 million that resulted in a trading loss of $18,373, but nevertheless gave the impression of a company doing significant business in its early days. Nugan Hand was also said to be “purely fortuitous” in finding auditors who were willing to certify accounts without checking them, and later, in obtaining a banking licence.
Nugan Hand obtained a banking licence in the tax haven of the Cayman Islands in 1976 after it was refused a licence in Panama. The newly established bank was then able to collect deposits, which were used to pay for the inflated expenses and ostentatious lifestyle of its principals.
It also enabled the bank to establish offices around the world and go into the heroin trade. One of the offices it established was in Chiang Mai in the heart of the Golden Triangle. Its principal purpose, according to the employee who set it up on Hand’s instructions, was to attract deposits from those involved in the drug trade. It was apparently not too inconvenienced by its location next door to the US Drug Enforcement Agency.
The Chiang Mai office was set up on the helpful suggestion of Murray Stewart Riley, an ex-NSW detective who imported heroin into Australia from the location on at least six different occasions during 1976 and 1977. In 1978, Riley received a 10-year prison sentence for his part in the importation of 4.5 tonnes of Buddha sticks from Bangkok.
Nugan Hand was also fortunate in obtaining the services of Bernie Houghton, a Texan who worked in Saigon and Bangkok in the mid 1960s where he traded in anything that came along, including opium.
Houghton arrived in Sydney in 1967 and opened the Bourbon and Beefsteak bar in Kings Cross. The next year he bought shares in a company that owned a private hotel in the area that later became the Texas Tavern. After he acquired an interest in the Aquatic Club in the Cross he opened the restaurant Harpoon Harry’s. This was in another partnership that included Sir Paul Strasser, a lawyer from Hungary who migrated to Australia in 1948, became a property developer with his Parkes Development company and was knighted by the premier of NSW, Sir Robert Askin.
It was at Houghton’s Bourbon and Beefsteak and Texas Tavern that many associated with Nugan Hand first met. Hand, like many other US servicemen on leave in the late 60s and early 70s, was a frequent visitor to the Bourbon and Beefsteak. Houghton was good enough to find Hand his first job in Australia, with Strasser’s Parkes Development, and Hand later repaid the favour by lending Houghton significant amounts of money – interest free and without security.
Admiral Yates was a guest of Houghton’s at the Bourbon and Beefsteak on several occasions. Other guests included such luminaries as the Australian head of the CIA, John D Walker, premier Askin and crime boss Abe Saffron. Houghton introduced Yates to Nugan and Hand. After receiving the “attractive offer” to work for them, he testified to the Royal Commission that he inquired into the bona fides of Nugan Hand by checking with Askin and Strasser. It was rather a pity that he didn’t have the information that award-winning journalist Evan Whitton would later publish: