The Loans Affairs
…two big players wandered on to the national political stage, offering cheap loans to finance the plans for ‘buying back the farm’. It led to the media circus known as ‘The Loans Affairs’.
In Part Two of the ‘CIA in Australia and New Zealand’, Tony Douglas discusses the role the CIA played in bringing down the Whitlam Government with Joan Coxsedge, a sitting Labor Party politician in Victoria at the time of this interview, Clyde Cameron, a former minister in the Whitlam Government, Jerry Aaron, co-author of the book ‘Rooted in Secrecy’, and Former CIA agent Ralph McGeHee. The discussion focuses on the ‘Loans Affairs’ which caused an unremitting media attack on the Whitlam Government for most of 1975 until the Governor General (the Queen’s representative) dismissed the government on a technicality in November. Other CIA coups in Indonesia and Chile are also brought up in relation to the Australian one.
Ralph McGehee: The Shackley Cable, which was a virtual ultimatum to the head of ASIO to do something about the Whitlam government, is a sort of prima facie evidence of CIA interference in the Whitlam government. This was on November 10. On November 11, Governor-General John Kerr dismissed the Whitlam government on a parliamentary technicality.
Brian Toohey: I know as a hard fact that Task Force 157 was involved in covert activities against the Labour government. That much I have as a hard fact from an impeccable source here.
Part Two of the transcript of a 6-part radio documentary on the ‘CIA in Australia and New Zealand’ from Watching Brief on Public Radio News Services, Melbourne, Australia, during October and November 1986.
Jane Lanbrook: That was former CIA agent Ralph McGehee and journalist Brian Toohey talking on this program last week about CIA actions against the Whitlam government. The destabilisation campaign was run by the top secret Task Force 157 under the cover of the Nugan-Hand bank. Welcome to the second part of Watching Brief for this week. I’m Jane Lanbrook and now in the second part of our series, “The CIA in Australia”, Tony Douglas looks at the effects of that destabilisation campaign, the so-called “Loans Affairs”, the dismissal of the Whitlam government and the role of former US ambassador Marshall Green.
Tony Douglas: In early 1973 the United States appointed Marshall Green as ambassador to Australia. His appointment was a sign of US uneasiness over the election of the Labour government. By the time of Green’s departure, in September 1975, many in the Labour party felt similarly unease over the role played by the master diplomat in destabilising the Whitlam government. One who saw the early signs was Joan Coxsedge, now a Victorian Labour MP, who in 1973 formed the Committee for the Abolition of Political Police.
Joan Coxsedge: Well, I think it’s important for people to understand that Green wasn’t just any old ambassador. First of all, he was the first career diplomat that we had in this country unlike the sort of person we normally get who are rewarded for kicking in money to the Republican or Democratic parties. He was a very very senior man indeed. In fact, he was mentioned in the Pentagon papers as being a high-level policy maker for America in Southeast Asia and he had known CIA connections. So, quite obviously, the alarm bells rang back in Washington with the election of a Labour government. They were worried about policies that we had to close down the bases, to exert more independence generally on our economy and they wanted somebody to not only monitor, I suggest, to lead a destabilisation of the elected government. God knows he had plenty of experience, he had been involved in quite a few coups in Southeast Asia including the very bloody one in Indonesia.
Tony Douglas: Joan Coxsedge’s suspicions about Green were shared by Whitlam’s Cabinet Minister Clyde Cameron who had many face to face meetings with the American ambassador.
Clyde Cameron: Marshall Green was for many many years a top CIA operative who orchestrated the overthrow of the Sukarno government which led to the installation of President Suharto. He was involved in the CIA intrigue in Vietnam and in the overthrow of the government of Greece. He’s a very very skilled operative in the art of destabilisation of governments that the United States doesn’t approve of.
Tony Douglas: What was his method of operation?
…his method of operation was to make close contact with the military of a particular country, those who own and control the media, and to generally infiltrate the sections of governments where policy or decision-making takes place. And if he is unsuccessful in getting the right decisions there, well, the next step would always be to get the army to organise a coup. That’s what happened in Indonesia…
Clyde Cameron: Well, his method of operation was to make close contact with the military of a particular country, those who own and control the media, and to generally infiltrate the sections of governments where policy or decision-making takes place. And if he is unsuccessful in getting the right decisions there, well, the next step would always be to get the army to organise a coup. That’s what happened in Indonesia, a phony uprising was organised by the CIA in order to give justification for the military coup that followed. And the same happened with the assassination of Deben in South Korea. Where a ruler is unable to bring about the kind of decisions that suit the CIA or where a ruler doesn’t even try to do so, then, the next step is to organise some pretence for military action. The same sort of thing happened in Chile in 1973. And one of the first people he called on, after visiting the Prime Minister and having already put in his credentials to the Governor-General, was me. And as he was walking through the door of my office I saluted him in the normal way, ‘please to meet you your excellency, take a seat,’ and before he could take a seat I said ‘what would you do if our government decided to nationalise the Australian subsidiaries of the various American multinational corporations?’ and he’d been caught by surprise, he wasn’t accustomed to a minister asking that sort of question whilst he was in the process of taking his seat, and he blurted out: ‘oh, we’ll move in’. I said, ‘oh, move in? like bringing the marines in? He said, ‘oh…’ He looked a bit uncomfortable by now, although he’s a senior man he didn’t expect being caught off guard, he was very uncomfortable and he said, ‘oh, no, the days of sending the marines has passed but there are plenty of other things we could do’. I said, ‘for example?’ He said, ‘well, trade’. And I said, ‘do you realise that if you stop trading with Australia you would be the loser to the extent of 600 million dollars a year’, that was the balance of trade figures at that time. He said, ‘oh, well, there are other things’. And he didn’t elaborate but, of course, there are other things.
Tony Douglas: In 1974 the conservative coalition blocked supply to force an early election. The move backfired and Whitlam was comfortably re-elected. The prospect was now a Whitlam government until 1977 with prominent left-winger, Jim Cairns, elevated to the positions of Treasurer and Deputy Prime Minister. In that time the lease of Pine Gap would come up for renewal and Minerals and Energy Minister Rex Connor would have time to gain control over Australia’s vast and mostly foreign-owned basic commodities. It was at this stage that two big players wandered on to the national political stage, offering cheap loans to finance the plans for ‘buying back the farm’. It led to the media circus known as `The Loans Affairs’.
Joan Coxsedge: Well, this was the so-called ‘scandal’ if you like of 1975 and the scandal of the Loans Affairs filled countless pages of newspapers day in, day out, week in, week out, the whole year, and I think the Loans Affairs showed what a tremendous performance the CIA could actually turn on when they really put their minds to it and it started off in February 1975 when copies of telexes and other documents – some were genuine but some undoubtedly forged – came flooding in from all over the world, you know, like on cue, very highly orchestrated. And Australians were asked to believe that we were the victims of a monstrous conspiracy in that members of our Parliament were about to sell off our country to the Arabs. And, if you actually have a look at the facts – I think they are worth going back to – and that is that the ruling circles in OPEC countries had accumulated huge amounts of money following the great leap in oil prices in 1973 and they certainly invested thousands of millions of dollars privately in the United States and elsewhere and had made loans to British, French, Danish, Italian and Japanese governments without raising a commotion at all.
An Executive Council meeting of the Australian government met on the 13th of December 1974 and they authorised Rex Connor, who at that stage (he’s dead now) was the Minister for Minerals and Energy, to seek loans of up to 4,000 million dollars to deal with, this is a direct quote, `with exigencies arising out of the current situation and international energy crisis and to strengthen Australia’s external financial position to provide immediate protection for Australia in regard to supply of minerals and energy’. This was a very important concept for Australians to have. But the authority wasn’t given to Treasury because they were known to be treacherous and they were known to be very hostile to departmental heads of the government and, although this decision was supposed to be secret, it wasn’t very long before offers to assist in that search came from some very strange quarters: from a very odd gentleman called T. Khemlani and he was supposed to be a financier from Pakistan. He approached Rex Connor and eventually – and I think that Connor was caught as fool – he authorised Khemlani to run around all the OPEC countries to seek out funds for the government.
Now as it turned out, Khemlani was sent by a Hong Kong arms firm which had very close associations with a crowd called Commerce International and Commerce International is a very powerful Brussels-based armaments outfits with documented links to the CIA. And a short time after that, we had a Melbourne businessman by the name of George Harris. He contacted our Federal Treasurer, Dr Jim Cairns, with an offer of overseas loan money. Now Harris’s overseas principals were none other than the New York office of Commerce International and they were the same firm that were in Khemlani’s background. So there is a whole lot of controversy surrounding the negotiations between Cairns and Harris and you get different accounts but I think the most worthwhile account is the one that was taken from the statutory declaration made a lot later by a Sydney businessman by the name of Leslie Nagi, and that was tabled by Jim Cairns in the Federal Parliament, and Nagi was the senior partner of Alco International in which he held a sixty percent interest with George Harris, who joined on the 1st of March 1974 and he held a forty percent interest. Now, according to Hansard [the parliamentary record], Nagi received a call from an acquaintance insisting that Harris should be present at the meeting with another intermediary in Dr Cairns’ office. And at that time Harris was very prominent and influential as a member of the Carlton Football Club and he was on very friendly terms with many leading members of the establishment such as Sir Robert Menzies [and] Sir John Banting who had been the Australian High Commissioner in London in 1975 and who was a former head of the Prime Minister’s department and consultant to the Office of National Assessments [ONA]. And we had Philip Lynch coming in. Philip Lynch, who died a number of years go, was a Deputy Leader and Shadow Treasurer of the Federal anti-Labour opposition. But, as well as that, Harris also had a close association with a number of very important people in the Victorian Liberal government.
And so, Harris first approached Cairns in a letter dated 16th November 1974 and he sought approval for himself and Nagi to negotiate overseas loans for state government authorities. Now Cairns was told by Treasury, ‘No’, so Harris got the funds down but at a later meeting in Cairns’ office, and that was on the 7th of March 1975, Harris produced a telex from a New York company called Sunlight. But Sunlight was offering 4,000 million dollars at 7.2 percent interest with an outrageous 2.5 percent brokerage. Now people today may think that’s not very high, but back in 1975, you know, 2.5 percentage brokerage for a 4,000 million dollar loan [$100,000,000] was considered utterly outrageous. But he also produced a letter showing that the money would be supplied by Commerce International. We keep coming back to Commerce International. Now Cairns flatly refused to agree to these terms. And so Harris was left in and out of office to dictate a draft letter to one of Dr Cairns’ secretaries and, apparently, Harris knew her very well. So she came out of Dr Cairns office and handed the signed letter to Harris who, according to Nagi, lost no time in heading for the door.
Now the finished letter of authorisation was addressed to Alco International and endorsed a 2.5 percent commission, two conditions that Cairns had – according to Nagi – flatly rejected only a few minutes before. So subsequently Cairns gave Harris, whom he trusted implicitly, further letters of authorisation and Harris and Nagi went overseas to raise the money promised by Commerce International and, of course, you can imagine that during these trips Harris made full use of his friendship with Sir John Banting to show that these letters of authority were absolutely genuine but, not surprisingly, the search for the loans proved highly elusive. One or two tentative offers were made but they turned out to be totally false, but one in particular appeared to almost be complete, and ironically the intermediary was none other than the Narodni Bank of Moscow. But after Rex Connor’s first authority to Khemlani expired in January 1975, with no results, Connor was given a new authority on the 28th January 1975 to raise 2,000 million dollars. Once again, nothing was forthcoming from Khemlani, so the second authority was revoked on the 20th May 1975. Now, according to Nagi in his statement, he formed the opinion that no low interest money had ever been available. That’s a view that’s shared by many other people.
Tony Douglas: If the money for these loans was never there in the first place who was T. Khemlani, the mysterious Pakistani financier. Co-author of Rooted in Secrecy Jerry Aaron looks at his subsequent career.
Jerry Aaron: We do know that in 1981 he was actually employed as the Italian companies manager in Haiti which is run by the government and in 1981 he was found guilty of trying to move millions in stolen US dollars out of the US on behalf of the Mafia and he was given a light sentence for turning state’s evidence. So, perhaps he is available for further work now. One of the interesting features of this Khemlani affair is that just before Whitlam was dismissed from office he got a letter from Hawaii which contained a copy of the message which was allegedly sent to Fraser giving details of the role Khemlani was playing there and which was being paid for in order to destroy the Labour government. And the message contained instructions which should be decoded before transmission by calling a certain number, which turned out to be the Hawaiian headquarters of the CIA.
Tony Douglas: If the CIA set up the Whitlam government it got great assistance from two quarters. Firstly, the Labour ministers themselves who used go-betweens like Harris and Khemlani neither of whom had the necessary bona fides to conduct such negotiations and both of whom were dependent on the arms company Commerce International to supply the money, a company with documented CIA links. However, they also received crucial assistance from the Australian media who blew up the story. Was this done, as Clyde Cameron suggested, by Marshall Green cultivating three or four media owners in Australia or has the CIA penetrated the media itself? That’s the question I put to former CIA agent Ralph McGehee.
Ralph McGehee: Well, the first thing that the agency tries to build or create is penetration into the media of the world. They had a worldwide organisation. And this was penetration of media assets around the world and they called it “the world” because that brings a name of an organ and here is an organ which you can play any propaganda you want anywhere in the world. So, from the fact that the media took it up [in Australia] one can suspect heavy CIA involvement.
Tony Douglas: When Green left Australia in September 1975 all the pieces were in place. The Loans Affairs had discredited the government and given the Opposition leader Malcolm Fraser the reprehensible circumstances he needed to block supply. In addition, the complexion of the Senate had been altered by dubious constitutional devices to give the coalition parties the numbers to force the government to the polls. But what if the government refused to go. That pushed the Governor-General Sir John Kerr right to the centre of the political stage. Kerr had been appointed Governor-General in 1974 by Whitlam himself. The appointment was strongly opposed by many in the Labour party including the present Prime Minister Bob Hawke.
Jerry Aaron: Well, John Kerr came from a working class background and then he made his way through Law School. At the end of World War II we find him working in the Directorate of Research and Civil Affairs and by this time he was a Lieutenant Colonel and he made contact in this capacity with the intelligence agencies overseas on behalf of Australia. Then, when the war came to an end, Kerr joined the ALP [Australian Labour Party] and represented the ALP legally but the sort of flirting with the ALP didn’t last very long. He became increasingly conservative and ultimately became a darling of the establishment. He was a very … I’m not allowed to say people are right-wing judges because they are supposed to give impartial judgment, but he was certainly the person responsible for jailing Claire O’Shade and I suppose the sentence in this case was up to him and this created the greatest post-war industrial upheaval in Australia leading virtually to a general strike.
Joan Coxsedge: Well, of course, he had connections with two well-known CIA sponsor outfits. One was the Australian Association for Cultural Freedom. Kerr was very disappointed actually because although he had been a long-time member of the Australian Association for Cultural Freedom he failed to make the presidency of that organisation, but he did serve as the first president for two terms of Law Asia from 1966 and that’s another well-known CIA front.
Tony Douglas: So how did Kerr behave from the days leading up to the dismissal. One man near the centre of the action was Whitlam Cabinet Minister Clyde Cameron.
Clyde Cameron: What I do know is that as Commander-in-Chief of the Armed Forces Kerr had been in communication with chiefs of the Armed Forces. I know the Governor-General’s office had been in touch with the American embassy. They contemplated the possibility of a general strike in which there would be a revolt of the trade union movement resulting in a complete shutdown of all power or gas supplies or transport, all activity, even the waterworks, the sewage, everything would have been cut off. The country couldn’t have lasted any more than 24 hours. So, it was decided that the army would be put on red alert so [that] in the eventuality of that sort of thing happening they would be able to move in. And in the event of the army finding that the whole matter had gone beyond their control … because what could the army do? They couldn’t man the power stations and the water-works and the sewage plants and all the transport facilities with the kind of army we’ve got. And it was then decided that they would call on the Americans to send in the Pacific Fleet and would stand ready to take and bombard Sydney.
Tony Douglas: For most Australians the dismissal is an uncomfortable reminder of a turbulent period of Australian politics. If they reflect on the events of 1975 at all, the scenario of an Australian Governor-General using the authority of the English Crown to trigger a series of events that would lead to the American Fleet bombing an Australian city to bring about the downfall of a duly elected government is beyond belief. Surely these things only occur in banana republics. Whether or not that is the scenario of 1975 it’s evident that the CIA was deeply implicated and that leading conservative politicians knew in advance of Kerr’s actions.
Joan Coxsedge: There is a very fascinating document that we reproduced, because we thought it was so very interesting. It involves Andrew Peacock, now at that stage of course he was widely tipped to succeed Malcolm Fraser as leader of the conservative Liberal Party, which he did and subsequently lost. In 1975 it showed that during a parliamentary debate that was written up in Hansard it was revealed that towards the end of September 1975, almost two months before the coup toppled the Whitlam government, during a visit to Bali Andrew Peacock disclosed amazingly detailed knowledge of the scenario that was to take place on the 11th of November 1975. One of the crucial things, as far as Peacock is concerned, is that the conversation took place with Bahkin, which is the notorious Indonesian Secret Police. Bahkin’s report of the meeting, the part that is most interesting to us, is the bits on Australian domestic policies and, according to Mr Peacock, he said at that time the opposition parties were leading 20 percent in the opinion polls over the Labour party and in order to win a general election it was sufficient to have only 3 percent and the opposition wanted to force an early general election and he mentioned November 1975. And he said that he also really wanted to see this three-year term fulfilled by the Labour government, he didn’t really want to force a general election by rejecting the supply bill in the Senate but he felt his party would be forced to agree to bring on a general election because pressure was already strong enough, because he said that 9 out of 11 members of the Shadow Cabinet agreed with the bringing on of an election. He said, `there might be a bit of a problem with two Liberal senators who would not follow the command of the party’, which also proved to be true, but he said if the supply bill can really be rejected by the Senate the following scenario would develop: Prime Minister Whitlam is not prepared to dissolve the Parliament and the Senate, which would be a double dissolution, and he would therefore continue to govern without a budget and, as a result, he would not be able to pay the wages, you know, of public servants, and the situation will become chaotic. Another option was that Whitlam may appeal against the Senate to the High Court and that would mean a constitutional battle would result. And the third suggestion he made was that Whitlam would not agree to a double dissolution or to hold a general election and this, he said, the Governor-General Sir John Kerr would be forced to ask Malcolm Fraser to form a Cabinet but this Cabinet would not be able to get a mandate to govern because Parliament is controlled by the Labour party and what can happen is that Malcolm Fraser is appointed Prime Minister and a minute later he asks the Governor-General to dissolve Parliament and the Senate following which a general election is to be held. Now, as we know this was released by Bakhin in September 1975 and the scenario proved to be remarkably accurate.
ANNOUNCER: [People’s shouts of ‘We want Gough, We want Gough’ in the background] The Governor-General of Australia who by this proclamation dissolves the Senate and the House of Representatives. Given under my hand on the great seal of Australia on the 11th of November 1975, by His Excellency’s command, Malcolm Fraser as Prime Minister … God save the Queen.
End of Part 2