Yamashita’s Gold (Part 2 of a 5 Part Series)

Step 3 – The Recovery

       At sunrise, Yamashita withdrew up the Asin River into the Kiangan Pocket, for the last three months of the war. He later surrendered to the Americans. US Intelligence certainly knew that Yamashita had knowledge of where some of the looted gold was stored, and they wanted to “extract” this from General Yamashita.

      Because it was not possible to torture General Yamashita physically without this becoming evident to his defense attorneys, members of his staff were tortured instead. In particular, his driver, Major Kojima Kashii, was given special attention. He had accompanied Yamashita everywhere since the general had arrived from Manchuria in October 1944 to take over the defense of the Philippines from General Kuroda Shigenori.

      In charge of the torture of Major Kojima was a Filipino-American intelligence officer named Severino Santa Romana, whose friends called him Santy. He was a big-boned man, tall, with a high, broad forehead. Because of the recent Japanese savagery in Manila, Santy was enjoying his work. Many Filipinos had been cruelly tortured and beheaded; women and girls were gang raped in the streets, many of them disemboweled and hacked to pieces. But Santy and his assistants were careful. They did not want to kill Major Kojima, or to damage his memory.

   What Santy wanted to know was where the gold was hidden. He wanted the major to reveal each place where he had taken General Yamashita during the past year, where bullion and other plundered treasure was placed for recovery later. He wanted the major to take him to each site, to point out the entrance, and to describe the booby traps in detail.

    This brutal interrogation of Major Kojima produced results that astounded everyone from General MacArthur all the way up to the White House, and became one of the biggest state secrets of the twentieth century. Even today it remains carefully obscured, by making all archival records on this topic inaccessible for ‘reasons of national security’. It is no exaggeration to say that Santy’s results greatly altered America’s leverage throughout the world during the Cold War. So astonishing are the consequences that we must take a step back now, and be meticulous in examining every detail closely.

      America had realized for some time that Japan was hiding plundered treasure in the Philippines, although the details were not shared with Britain or other Allies. America’s wartime effort to monitor movements of looted gold bullion was indeed a major responsibility of the OSS, a precursor of the CIA. There also were special intelligence units responsible for monitoring displaced and looted artworks.  But these were much more effective in Europe than in Asia.

      Compared to Europe, Allied intelligence services in Asia and the Pacific were fragmented, and did not cooperate. In any case, efforts to keep track of looted art or shipments of precious metals in East Asia were unsatisfactory because of geographical, cultural and linguistic barriers. Nearly all those records kept by intelligence services of the United States have since been made to vanish. What has surfaced did so accidentally.

     In Europe, the OSS at times worked closely with other intelligence services, but competition and rivalry were intense. One of the fiercest turf battles over the tracking of Nazi loot went on inside the U.S. Government, waged between Secretary of the Treasury Henry Morgenthau and Allen Dulles, the OSS chief in Switzerland, a romantic who had a much more cavalier attitude about such things. Axis loot was being moved under the noses of the Allies into neutral safe havens. In one instance, American agents in Switzerland watched 280 trucks of Nazi gold move from Germany across France and Spain to the safe haven of neutral Portugal. Owned by private Swiss firms, the trucks were painted with the Swiss cross, allowing the gold to be moved under ‘neutral’ cover. However, while the gathering of intelligence on war loot may have been disjointed, ultimately all such reports were passed up to the office of the Secretary of War, Henry L. Stimson. He had a special interest in the subject of looted bullion, and kept a group of financial experts thinking hard about it. Three of these men were Stimson’s special assistants John J. McCloy, Robert Lovett, and consultant Robert B. Anderson.

     The problem of how to deal with plundered treasure, and what to do with Axis gold after the war, was discussed in July 1944 when forty-four nations met at the resort of Bretton Woods, New Hampshire, to plan the post-war economy. Among the delegates, trust was far from universal. Many of them believed that the Bank of International Settlements was secretly laundering Nazi loot. That distrust set the tone. Among other things, the Bretton Woods agreement (as it was made public) set a fixed price for gold of $35 an ounce, and banned the importation of gold to America for personal use.

     Unlike Europe where the OSS was tolerated by General Dwight Eisenhower, in the Southwest Pacific General MacArthur resisted all attempts by the OSS to get a foothold in his territory. MacArthur and his staff intended to conduct their own brand of special operations from their headquarters in Australia, without any interference. Intelligence-gathering in MacArthur’s domain was under the command of Charles Willoughby. In mid-1941, when MacArthur became commander of the new U.S. Far Eastern Command, Willoughby stuck with his idol. This impressed MacArthur, who valued personal loyalty above all other qualities, and he made Willoughby his assistant chief of staff for intelligence, promoting him to colonel. When Japan attacked, Willoughby moved to Corregidor with MacArthur, and then accompanied him to Australia.

MacArthur wanted absolute control of intelligence-gathering and special operations in his zone of command. MacArthur gave special operations to his intimate friend and personal attorney Courtney A. Whitney. Willoughby was furious, but MacArthur soothed him by promoting him to general. In this way, MacArthur’s intimate crony Courtney Whitney became the key man running secret agents in the islands and reading reports of war loot. The OSS had no part whatever in this. Whitney was effective in special operations because he was well connected in Manila, a clever rich man on first name basis with all the politically powerful families in the Philippines.

By Pearl Harbor, Whitney was intimately involved in all manner of political, legal, and financial intrigues, as played in the islands. He could call in favors from men like Santa Romana.  In the 1930s, Santy became a fringe member of the social circle of MacArthur, Whitney and Andreas Soriano, owner of San Miguel Brewery and the wealthiest man in the islands.

    During the war, Santy stayed in the islands, becoming one of Whitney’s most effective agents. Therefore only Whitney, MacArthur’s attorney and intimate crony, could have authorized Santy’s torture of Major Kojima in September 1945. Whitney never acted without MacArthur’s approval, so there can be no question that it was done in the full knowledge of MacArthur and his inner circle. When Japan surrendered, both Willoughby and Whitney accompanied General MacArthur to Japan. The Philippines continued to be Whitney’s personal power base, and one leg of MacArthur’s power base. Whitney and MacArthur watched closely as the trial of General Yamashita got under way, and as we have seen they interfered often in the legal process. They also stayed informed of the interrogations of Yamashita’s staff.

 Another key figure in MacArthur’s Manila circle was Joseph McMicking, whose father was a law partner of Courtney Whitney before the war. When the Japanese invaded, Captain Joe McMicking was made assistant G-2 to Major Willoughby. During the torture of Major Kojima in 1945, Colonel McMicking was the immediate G-2 superior of Santa Romana and was the interface between Santy in Manila and Whitney and MacArthur in Tokyo.

When Major Kojima broke and Santy began recovering billions in gold, McMicking became fantastically wealthy seemingly overnight and married Mercedes Zobel, an heiress of the Zobel-Ayala clan of Spanish grandees in the Philippines. In the explosion of wealth in Manila that followed Santy’s recoveries, Joe McMicking masterminded the Zobel-Ayala clan’s acquisition of global real estate, helping create what has become one of the world’s great fortunes. While the Zobel-Ayala clan certainly was not poor, their pockets were not as deep as McMicking’s, the ‘real moneybags’ behind today’s colossal Zobel-Ayala fortune.

     The OSS only became involved in Santy’s interrogation by sheer chance. Eight days after General Yamashita surrendered, Captain Edward G. Lansdale, formerly of the OSS, arrived in Manila by plane from San Francisco and began looking for something to do. The OSS was a creation of Nelson and his elder brother, John Junior. Lansdale was a deceptively engaging and colorful character (Fletcher Prouty, a U.S. military intelligence officer and historian who shared office space with Lansdale for many years, positively identified Lansdale in photographs taken during the assassination of President Kennedy, identification confirmed by others. In the movie JFK, Oliver Stone has a thinly-disguised Lansdale involved in the assassination of the president.) When he landed in Manila in 1945, Lansdale was 37 and utterly insignificant. He had spent the entire war in San Francisco writing propaganda for the OSS, and having a good time. As a CIA field agent, he taught the same cute sayings to assassins who worked for him in the Philippines, Vietnam, and Japan. President Truman ordered the OSS closed down at the end of September 1945. In the weeks remaining to them, General Donovan looked for ways to preserve personnel and OSS overseas networks by shifting them to other intelligence services, to other government agencies, in some cases even to private American corporations like General Electric and Exxon/Standard Oil, and the Rockefeller banks such as Chase and Citibank that could afford to sustain clusters of secret agents in various parts of the world, for commercial intelligence, and as a favor to Washington. Captain Lansdale was one of fifty OSS office staff who was given a chance to transfer to General Willoughby’s G-2 section in the Philippines, headed by Colonel McMicking.

      In his office at G-2, Lansdale discovered files describing gold being hidden by Japanese soldiers, and heard of Santy’s interrogation of Major Kojima. Electrified, he seized the initiative, taking administrative control of Santy’s interrogation. Lansdale was able to do this because most of MacArthur’s team, including Willoughby’s senior staff officers were in Japan. In Manila, Lansdale had the G-2 office more or less to himself. He galvanized his Filipino and American clerical staff to make a painstaking search of the files for all mentions of Japanese war loot.  Early in October, after many days of torture, Kojima broke and revealed everything he knew. Lansdale organized a convoy of cars and set out with Santy and Major Kojima to retrace the trips made by General Yamashita to ‘more than a dozen’ Golden Lily treasure vaults. These were all in the high valleys north of Manila, in a triangle from Baguio in the west to Bambang in the center, and Aparri at the northern tip of Luzon. When they returned to Manila in mid-October, Lansdale reported to Colonel McMicking, and then flew to Tokyo where he briefed Willoughby, Whitney, and MacArthur. At their instruction, he then flew to Washington to brief General Magruder, who still headed the Strategic Services Unit.  Magruder then sent Lansdale to the White House to brief President Truman’s national security aide, Navy Captain Clark Clifford, and members of the Cabinet. President Truman decided to keep the discovery secret, and to recover as much of the Japanese loot as possible. The secrecy surrounding Santy’s recoveries is nearly total.

Robert B. Anderson flew back to Tokyo with Lansdale, for discussions with MacArthur. After some days of meetings, MacArthur and Anderson flew secretly to Manila, where they were taken by Lansdale and Santy to some of the sites in the mountains, and to six other sites around Aparri at the northern tip of Luzon. In the intervening weeks, Santy’s men, aided by hand-picked teams from the U.S. Army Corps of Engineers, had successfully opened several of these vaults, where MacArthur and Anderson were able to stroll down row after row of gold bars. Other sites were opened in subsequent months. In all, the recoveries took two years to complete, from late 1945 to early 1947.

        From what was seen in these vaults, and also discovered by U.S. Army investigators in Japan, it became evident that over a period of decades Japan had looted tens of billions of dollars’ worth of gold, platinum, diamonds, and other treasure, from all over East and Southeast Asia. Much of this had reached Japan by sea, or overland from China through Korea, but a lot had been hidden in the Philippines.

  Washington’s ‘official’ (public) figure for recovered Nazi gold still is only 550 metric tons. But Anderson knew better. One of his business associates saw photos in Anderson’s office of an American soldier “sitting on top of stacks of bullion that Hitler had stolen from Poland, Austria, Belgium and France. It ended up with the Allied high command and no one was allowed to talk about it.” The same source said he was taken to the courtyard of a convent in Europe where 11,200 metric tons of Nazi looted bullion had been collected.

      After the Nazi defeat, the OSS and other Allied intelligence organizations searched Germany and Austria for art treasures and looted gold. Soviet troops and special units did the same in the Russian zone. More is known of what happened to the recovered art than to the recovered gold. When one hundred tons of Nazi gold were recovered from a salt mine near Merkers, Germany, the truck convoy carrying it to Frankfurt vanished; it was said to have been hijacked, but the more likely explanation is that this gold was among the bullion stacked in the convent courtyard.

     The reason for all this discretion was a top secret project sometimes called Black Eagle, a strategy first suggested to President Roosevelt by Secretary of War Henry L. Stimson and his wartime advisors, John J. McCloy (later head of the World Bank), Robert Lovett (later secretary of Defense), and Robert B. Anderson (later secretary of the Treasury). Stimson (under Rockefeller instructions) proposed using all recovered Axis war loot (Nazi, Fascist, and Japanese) to finance a global political action fund. Because it would be difficult if not impossible to determine who were the rightful owners of all the looted gold, better to keep its recovery quiet and set up a trust to help friendly governments stay in power after the war.  This was informally called the Black Eagle Trust after the German black eagle, referring to Nazi bullion marked with an eagle and swastika, recovered from underground vaults of the Reichsbank. According to some sources, the Black Eagle Trust could only have been set up with the co-operation of the most powerful banking families in America and Europe, including the Rockefellers, Rothschilds, Oppenheimers and others.

A brilliant Wall Street attorney, Stimson was a man of immense experience who had served in various posts for five presidents — Taft, Coolidge, Hoover, Roosevelt, Truman — but he was nearing the end of his extraordinary career. By Pearl Harbor, Stimson was already in his seventies. He managed his vast wartime responsibilities by delegating authority to four assistant secretaries of War: Robert Patterson, a lawyer and former federal judge; Harvey Bundy, Boston lawyer and Yale graduate; and the two dynamos Stimson called his Heavenly Twins — John McCloy and Robert Lovett.

     What they all had in common was their close relationship to the Harrimans (Harrimans ultimate boss was William Rockefeller – brother of John D, the founder) and Rockefellers. Lovett’s father had been the right-hand man of railway magnate E.H. Harriman, who once tried to buy the South Manchurian Railway from the Japanese. Following in his father’s footsteps, Robert Lovett worked with Averell Harriman at the Wall Street firm of Brown Brothers Harriman, handling international currency and lending operations. John J. McCloy, by contrast, was a poor boy from Philadelphia who graduated from Harvard Law School, joined the Cravath firm on Wall Street, and gained the admiration of Averell Harriman by helping get $77-million worth of bond issues for the Union Pacific railroad. (McCloy engineered such deals for everyone from the House of Morgan on down.) Working for Secretary of War Stimson, Lovett and McCloy became midwives at the birth of America’s postwar national security establishment, which was closely interwoven with the financial community.

        McCloy was a troubleshooter and expert fixer. He said his job was “to be at all points of the organizational chart where the lines did not quite intersect”. He made endless trips around the world during the war, solving problems, working with statesmen, bankers and generals. He was intensely involved in backstage strategy and understood, to borrow from Cicero, which “the sinew of war is unlimited money”. Money also was to be the sinew of the Cold War. A wheeler-dealer, McCloy knew all the ins and outs of international finance. After the war he became a partner in the law firm of Milbank Tweed, which handled the affairs of the Rockefeller family and it’s Chase Bank. He then became a leader of the Council on Foreign Relations, head of the World Bank, chairman of Chase, and head of the Ford Foundation.

     He was the key player in executing the Black Eagle Trust, the one who took Stimson’s idea and turned it into a working reality. By comparison, Robert Anderson elected to the state legislature and appointed assistant attorney general for Texas in 1933, and state tax commissioner the following year. Then something clicked, and Anderson left government to become an extraordinarily successful financial consultant to very rich people. By the early 1940s he was general manager of the enormously wealthy W.T. Waggoner estate, which owned ranch land and oil land all over Texas. Anderson was so deft at money management that President Roosevelt appointed him a special aide to Secretary of War Stimson with responsibility for keeping tabs on Axis looting.   

 Although Stimson retired from public life in 1945, and McCloy also left government service at that time, they and Anderson continued to be involved in overseeing the Black Eagle Trust. According to former CIA deputy director Ray Cline, the gold bullion recovered by Santa Romana was put “in 176 bank accounts in 42 countries”. Anderson apparently traveled all over the world, setting up these black gold accounts, providing money for political action funds throughout the noncommunist world.

   During the second Eisenhower Administration, he became secretary of the Treasury, serving from 1957 to 1961. After that, Anderson resumed private life, but remained intimately involved with the CIA’s worldwide network of banks, set up after the war by Paul Helliwell. Eventually, this led to Anderson becoming involved in BCCI, the Bank of Credit and Commerce International, a Rothschild bank with CIA ties that parlayed money-laundering and the discreet movement of black gold(among other dubious activities) into ownership of the biggest bank in Washington, D.C

     Battered and bankrupt by their long war in Europe and Asia, America’s allies had no choice but to stand aside as the U.S. Government set about the ‘dollarization’ of the global economy. Economists see the end of World War II as ‘year zero’ for the current system of international finance. Because of widespread suspicion that the Bank of International Settlements (BIS) in Zurich had been laundering Axis loot, Bretton Woods set up a new central financial clearinghouse called the International Monetary Fund (IMF), to act as the world’s future financial clearinghouse and moneychanger. Gold was assigned a dollar value of $35 an ounce, and all other currencies were valued against the dollar.

     This removed any doubt about the relative position of the dollar and the British pound, for example.

Although Britain was a partner in the plan, she was deep in debt to the United States. In 1941, in exchange for a $30-billion war loan, Britain had been obliged to take a backseat in postwar planning. Each IMF member country agreed on a value for its currency expressed in terms of the U.S. dollar. Each member country deposited with the IMF an amount of gold and currency as reserves to be used to sustain the value of that currency.

     The main function of the IMF was to maintain stable values for these currencies by shifting funds temporarily from one to another. While it was a global organization, its most important backer was the U.S. Government. Federal statistics show that at the end of the war the United States held 60 percent of the world’s official gold reserves, which put Washington in the position of being able to manipulate the other nations.

       By 1960, however, it was evident to European members of the IMF that they would soon hold dollars far in excess of the official U.S. gold reserves. One solution would have been to devalue the dollar, but Washington blocked this. Instead, in 1961 the U.S. joined with the central banks of Europe, Great Britain and Switzerland to form the London Gold Pool, managed by the Bank of England. The idea was that the collective official reserves of these countries would give them enough gold to intervene in the private market for gold, to keep the price at $35 an ounce. It worked for a while.

    But by 1968, France had left the Gold Pool, the British pound had been devalued, and private demand for gold skyrocketed. In a last-ditch attempt to sustain the London Gold Pool, the U.S. Air Force made emergency airlifts of gold from Fort Knox to London. So much gold bullion was moved onto the weighing room floor at the Bank of England that the floor collapsed. It was an omen, for the Gold Pool itself collapsed shortly thereafter.

      The invisible Black Eagle Trust set up by Stimson’s team, beefed up by bullion from the Santa Romana recoveries, created a separate pool of black gold that put an extra floor under the postwar economy, and gave Washington and its allies covert financial leverage. There are certain similarities between this trust and the Diamond Cartel identified with DeBeers, or the Gold Cartel identified with the Oppenheimer family of South Africa. According to informed sources, these similarities exist for good reason and on many different planes.

     The Diamond Cartel was able to amass huge quantities of stones, and yet keep prices artificially high by limiting to a trickle the number of diamonds reaching the market, maintaining the impression of extraordinary rarity. In a similar way, the black gold cartel could hold many thousands of metric tons of gold bullion — far more than the official gold supply — keeping gold prices artificially high while discreetly using derivatives of this gold as a clandestine slush fund. If the recovery of this huge mass of plundered gold was known only to a trusted few, those countries and individuals that had been robbed by the Nazis, the Fascists, or the Japanese, would not sue to recover it.  Also, the argument was made that the existence of so much black gold, if it became public knowledge, would cause the fixed price of $35 an ounce to collapse. As so many countries now linked their currencies to the U.S. dollar, and the dollar was linked to gold, currency values throughout the world might then plummet, causing financial disaster. But so long as it was kept secret, gold prices could be kept at $35 an ounce, and currencies pegged to gold would be stable. Meanwhile, the black gold would serve as a reserve asset, bolstering the prime banks in each country, and strengthening the governments of those nations. As a safeguard, the black gold placed in those banks was ‘earmarked’ or strictly limited in the uses that could be made of it. This enabled Washington to bring pressure, from time to time, on those governments, central banks and prime banks. So long as a country and its leaders cooperated with the Cold War, the sleeping bullion would provide the asset base for patronage. Gold bearer certificates and other derivatives could be given as gifts or bribes, without actually giving away the bullion itself. Beneficial trusts could be set up in behalf of certain statesmen, military leaders, or political figures, or their families. In the hands of clever men like Anderson and McCloy, the possibilities were endless.

     From time to time, as more bullion was recovered from Golden Lily vaults in the Philippines, quantities of the bullion would be offered in strictest secrecy to central banks, or to consortiums of private buyers. These underground funds surfaced as huge bribes, or were used to buy elections, famously in Italy, Greece, and Japan, but probably in other countries as well. Some internationally famous banks appear to have become addicted to having billions of dollars of black gold in their vaults. So addicted that they refuse to surrender the bullion, and in some cases have stooped to swindling the original owners or their heirs, by denouncing their documents as counterfeit. Indeed, some owners claimed that not only were they told their documents were fake, but were given veiled threats of murder if they pressed their claims. In some cases the banks may have made such heavy use of these black gold reserves that they no longer are in a position to relinquish the bullion without going under.

      In a certain sense, no one made better use of the Santa Romana recoveries than Lansdale. His role at first was strictly as a facilitator in Manila, supervising the recovery of Golden Lily vaults, inventorying the bullion, having it trucked to warehouses at the U.S. Navy base in Subic Bay, or the U.S. Air Force base at Clark Field. The bullion had to be moved under tight security, by armed convoy, military aircraft, and navy vessel. Preference went to the U.S. Navy because of the weight of the bullion.

    In retrospect, recovering the Golden Lily treasure vaults and setting up the Black Eagle Trust were the easy part, because they only involved spending somebody else’s money. Making intelligent use of so much invisible wealth during the Cold War, its original strategic purpose was not so easy.

    In Japan and elsewhere, because of their extreme secrecy, these enormous political action funds soon got into corrupt hands, where they remain to this day. Along the way, it was necessary to do a lot of lying, and even some killing – especially lying about Japan, which had stolen most of that gold to start with. To keep people from knowing about the Santa Romana recoveries, and the Black Eagle Trust, Washington had to insist that Japan never stole anything, and was flat broke and bankrupt when the war ended. This was the beginning of many terrible secrets.

Inside Japan

    Another great fortune discovered by U.S. intelligence services in 1946 was $13 billion in war loot amassed by underworld godfather Kodama Yoshio who, as a ‘rear admiral’ in the Imperial Navy working with Golden Lily in China and Southeast Asia, was in charge of plundering the Asian underworld and racketeers. He was also in charge of Japan’s wartime drug trade throughout Asia.

    After the war, to get out of Sugamo Prison and avoid prosecution for war crimes, Kodama gave $100- million to the CIA, which was added to the M-Fund’s coffers. Kodama then personally financed the creation of the two political parties that merged into Japan’s ruling Liberal Democratic Party (LDP), strongly backed to this day by Washington.

   Like Angleton’s meddling in Italy, the political action funds set up by SCAP and the CIA in postwar Japan were based on stolen gold and other treasure. Some was treasure recovered by Santa Romana. The rest was loot discovered and confiscated by the U.S. 8th Army in Japan, which was kept as bullion or – in the case of diamonds – converted into liquid assets. According to Takahashi Toshio, a postwar student leader at Tokyo University law school with close ties to the CIA, General MacArthur was the key figure in setting up the M-Fund. MacArthur realized, as General Marshall did in Europe, that a substantial sum of money would be needed to restore the economy of Japan.

      But whereas General Marshall had to go to Congress to get the money, General MacArthur found that the Imperial Army of Japan had very large resources that were not on the books of the country. MacArthur set aside a substantial fund to be used for rebuilding the economy of Japan. But MacArthur also saw that some money would be needed for purposes that would not stand public scrutiny very well, for example, helping politicians.

      According to investigative journalist Takano Hajime, whose study of the M-Fund was published by Nikei, Japan’s most respected financial journal, much of the cash derived from sale of confiscated stockpiles of diamonds, platinum, gold and silver, other strategic materials, and the black market sale in Japan of U.S. foreign aid. Other sources were proceeds from the sale of several minor zaibatsu conglomerates that were broken up and sold to other entities, to set an example that was, in fact, the exception to the rule. The size of the M-Fund at its inception is not known precisely but some sources put it at $2-billion. It then grew quickly.

    Another source of underground funds was Kodama, who was reported to have amassed some $13-billion in war loot for his personal use. This included two truckloads of diamonds, gold bars, platinum ingots, radium, copper, and other vital materials. In order to curry favor with MacArthur’s men, Kodama turned the radium over to SCAP.

    This may explain why Japan’s top gangster was permitted to hide some of his loot in palace vaults. But it goes deeper to include narcotics. In the spring of 1945, Kodama made a quick trip to Taiwan to see that its many heroin factories were dismantled for return to Japan, along with remaining stocks of heroin and morphine.

   Kodama then spent two years in Sugamo Prison as an indicted war criminal, but was magically released in mid-1948 when he made a deal with General Willoughby to give the CIA $100-million (equal to $1-billion in today’s values). This payment bought Kodama his freedom from prison and from any prosecution for war crimes. The money was placed in one of the secret slush funds controlled by the CIA station at the U.S. Embassy. Subsequently, Kodama was put directly on the CIA payroll, where he remained for many years, until his death in 1984. Chalmers Johnson said Kodama was “probably the CIA’s chief asset in Japan”.

    While literally an employee of the U.S. Government, Kodama continued to oversee Japan’s postwar drug trade. Heroin labs were moved back not only from Taiwan, but from North China, Manchuria and Korea. Chinese who had collaborated with Japan in drug processing and distribution were given sanctuary and began operating from Japanese soil. Two of the three major players in Asian narcotics soon died: Nationalist China’s General Tai Li was assassinated in a 1946 plane crash; Shanghai godfather Tu Yueh-sheng died in Hong Kong of natural causes in 1951. Kodama was left as Asia’s top drug lord, while on the U.S. payroll. The Asian drug trade was dominated by Kodama in Japan and by Generalissimo Chiang through the KMT opium armies based in the Golden Triangle, who were under the direct control of the generalissimo’s son, Chiang Ching-kuo, the KMT chief of military intelligence at that time.

     Three underground funds were controlled by American officials during the occupation — the M-Fund, the Yotsuya Fund and the Keenan Fund. According to Takano Hajime, the M-Fund was named after General William Frederic Marquat, chief of SCAP’s Economic and Scientific Section.

    Marquat was supposed to dissolve the banks and conglomerates that financed Japan’s war and profited from it. Despite purely cosmetic changes and the break-up and sale of several small conglomerates, the biggest war profiteers were let off without even a slap on the wrist. General Marquat was also in charge of closing down and punishing Japan’s biological and chemical warfare service, Unit 731. Instead, the U.S. Government secretly absorbed Unit 731, moving most of its scientists, personnel, and documents to U.S. military research centers like Fort Dietrich in the Maryland countryside.

    So while he was supposed to be making Japan more democratic, Marquat was doing the opposite.

The M-Fund was created to buy elections for Japanese politicians so far to the right that they were solidly anti-communist. Japan was the most highly industrialized country in Asia; Washington wanted it to be a capitalist bastion against communism, for its economy to thrive so there would be no need for labor unions, leftist organizers, or revolution.

     Very different from the M-Fund was the Yotsuya Fund. This was set up to manipulate and steer Japan’s underworld, and to finance ‘wet work’ – extortion, kidnapping, and murder. General Willoughby, controlled the Yotsuya Fund and worked energetically with Kodama and his legions of yakuza to suppress any kind of leftist activity or public protest during the occupation. Among other things, his Yotsuya Fund financed a Korean Liaison Office that sent spies into North Korea, Red China and the far eastern USSR.

The Keenan Fund, by contrast, was controlled by a civilian: Joseph B. Keenan, another  MacArthur intimate who was chief prosecutor in the Tokyo war crimes trials In Japan, Keenan’s personal assistant was none less than General Tanaka Takayoshi, the bull like i ronin who was General Doihara’s alter-ego in Manchuria. Tanaka spent the late 1930s and early 1940s in Shanghai with Doihara, running covert operations. Like Doihara, he personally carried out many individual murders.

   Unlike the broad mandates of the M-Fund and the Yotsuya Fund, the Keenan Fund had a narrow and specific function. Simply put, it was used to bribe witnesses at the war crimes trials, or to grease the intermediaries who persuaded the witnesses to falsify their testimony. Unlike the swift punishment meted out to Generals Yamashita and Homma in Manila, the War Crimes Tribunal in Tokyo dragged on for three years, while a lot of horse-trading took place. The Tribunal had been established to try General Tojo and other senior military and civilian leaders for complicity in Japan’s cruel aggression. Although the Tribunal was labeled an international commission, the whole operation was carried out exclusively by MacArthur’s inner circle. In the charter establishing the Tribunal, MacArthur invested himself with broad powers, and the Tribunal was kept under his sole and exclusive authority.

Hirohito was not brought to trial. Documents show that MacArthur conspired with former president Herbert Hoover to guarantee that Hirohito would escape punishment of any kind, and that General Tojo would falsify his testimony to take all responsibility for the attack on Pearl Harbor. Intermediaries, including Admiral Yonai, were paid large sums from the Keenan Fund to negotiate with Tojo and guarantee his perjury. A number of key witnesses who resisted subornation died violently, or under suspicious circumstances.

    Generously, Kodama provided funds from his own deep pockets to launch two postwar political parties headed by fanatical rightists, which eventually merged into the Liberal Democratic Party.

When America ran short of tungsten, Kodama offered to sell some of the tungsten he had looted from China – a deal Harvey Fukuda discreetly negotiated with U.S. diplomat Eugene Dooman. In the late 1950s, it was the original meeting between Kodama and Lockheed Aircraft executives, where Kodama agreed to funnel bribes to induce Japanese government officials to buy Lockheed airplanes. This climaxed in a major scandal in the mid-1970s when Kodama’s role as bagman was revealed, and U.S. officials and business executives were charged with corruption.

      Why was Japan’s most powerful crime lord kept on the federal payroll by Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter and Reagan, a payroll also reviewed by George H.W. Bush while serving as director of the CIA? The short answer is that Kodama also was Japan’s most ardent anti-communist. His intimate knowledge of the Asian underworld made him an effective fixer at a time when Washington was alarmed by the perceived threat of the Soviet Union and Red China. In August 1949, Moscow tested its own first atomic bomb. In October 1949, the People’s Republic of China came into being. Eight months later in June 1950, the Korean War broke out. Just before that war began, Kodama accompanied John Foster Dulles to negotiations in Seoul.

     It was in this highly polarized atmosphere that peace treaty negotiations with Japan proceeded in absolute secrecy, and a severely abbreviated treaty was signed in San Francisco in April 1951.

While this treaty was midwifed by Secretary of State Dean Acheson, the terms were worked out in secret by special Republican Party negotiator John Foster Dulles – under instructions from the new real boss of Japan – John D Rockefeller 3rd – David’s eldest brother.

     Americans and Europeans who toured Japan immediately after the surrender were surprised that infrastructure, factories, utilities, and railways were largely intact, thanks to selective American bombing. Firebombing had destroyed tens of thousands of the tinderbox homes of ordinary Japanese, giving Tokyo the look of a devastated city, but most great estates, factories, and vital infrastructure seemed magically to have been spared. This information was not made public. SCAP censors made sure that newspapers and newsreels showed only a flattened, desiccated landscape.

    Huge sums changed hands quickly just before the surrender. In the first two weeks following, before the Allies set foot in Japan, the government in Tokyo gushed money in all directions. Records discovered by Japanese journalists in the 1970s revealed that their government gave nearly 300 – billion yen in war contracts, and stockpiled materials to the zaibatsu so these conglomerates realized 30 per cent of their entire war profits in the first four months after the surrender. All outstanding military contracts were paid. New contracts of all sorts were signed and paid in advance, many of them never to be carried out.

    Once the Allies arrived, and it became evident that they were not really interested in what was going on under their noses, the gusher of government money continued. Dower says this represented something in the neighborhood of 300-million tons of goods – diamonds, gold, steel, rubber, chemicals, oil, salt, drugs and titanium, with a value of $20-billion 1945 U.S. dollars, or $200-billion in present values. The Allies themselves turned over ¥100-billion in stockpiles to the Japanese government: clothing, food and medicine for distribution to the civilian population. Instead these goods vanished into the black-market, where gangsters made fortunes. Stocks of opium, heroin and morphine were among the ‘medicines’ that disappeared.

     At war’s end there was another ¥264-billion in private bank accounts, much of which was hastily turned into goods through trade in the black-market. These figures do not include Golden Lily loot or profits derived from heroin trafficking, which had been $3-billion a year (in today’s dollar values). During the occupation, many ordinary Japanese worked two jobs to earn enough to buy one potato each day. During the same period, Hirohito was earning $50-million a year in interest merely on his Swiss bank accounts.

    Washington told the world again and again that Japan was bankrupt and her industries destroyed, so Tokyo absolutely could not pay compensation to war. Despite what Japanese firms say today about having no connection to the wartime zaibatsu, there was no complete break after the war. Most of the capital amassed by the zaibatsu during Japan’s colonial expansion from 1895 to 1945 survived the American occupation intact

   The British Treasury was far from happy with Washington’s assertion that Japan’s cupboard was bare.

In the end, Britain capitulated: “We have agreed that gold should not be mentioned in the Treaty.” Other allies followed suit.

   Was Britain deceived about the true circumstance of Japan’s postwar economy? Not likely. Britain was far from ignorant of the looting that had taken place, nor was it ignorant of what was done with the treasure. We know from high-level CIA sources that Britain’s biggest financiers participated in setting up the Black Eagle Trust. Numerous documents show that large quantities of gold bullion recovered by Santa Romana ended up in the big gold trading houses of the City of London, and in the British Treasury. Therefore, Britain did benefit in a multitude of ways from the Black Eagle Trust. In its final form, the 1951 Peace Treaty tried to prohibit any future efforts by private individuals to claim reparations.

   Hard evidence now emerging shows that America set up secret political action funds in Japan that were used to influence the imperial family, the ruling elite, the underworld, and to support a rightwing regime and keep it in power.  Japan’s right-wing leaders were fully aware of America’s anti-communist fears and cravings during that period, and responded to them with enthusiasm and cleverness.

    The democratization of Japan was reversed, its government given back to indicted war criminals – specifically the group surrounding Kishi Nobosuke. His political party, the Liberal Democratic Party or LDP, created and funded by underworld godfather Kodama from treasure he amassed during the war, was vigorously backed by Washington and kept supplied with virtually limitless unvouchered funds.

Once millions of dollars derived from black gold were in this covert pipeline, hidden by ‘national security’, nobody had to keep track of the way it was spent. 

   Whatever the original strategic purpose of Presidents Roosevelt and Truman, the funds fell into the hands of corrupt people who could use them any way they wished, with little concern about discovery. Raising fears of communism at every turn did keep citizens of both countries from questioning deals that were made by the two governments. Invoking national security did allow officials making these deals to hide the documents, forbidding anyone to look at them until deep into the twenty-first century. Anyone protesting this in America was ridiculed as a Japan Basher, or more recently as a ‘terrorist’. In Japan, anyone who might reveal too much became a victim of ‘assisted suicide’.

    Meanwhile, Japan and the rest of the world were flooded with news stories to create a false impression that Japan was portrayed as a poverty stricken country unable to pay reparations or compensation to its victims. It now seems inescapable that the 1951 Japan Peace Treaty was falsely contrived to buy Tokyo’s cooperation in the Cold War, by assuring Japan’s elite that they would not be obliged to part with their private hordes of plunder; giant Japanese corporations like Mitsubishi, Mitsui, and Sumitomo.

     To this day the State Department and the Justice Department, shielding the government and zaibatsu of Japan, still invoke Article 14 of the 1951 Peace Treaty to block any attempt by victims to sue these immensely rich corporations. In fact, as the Santa Romana recoveries demonstrate, the Treaty is invalid because it is based on lies and deceptions.

Darkness & the M- Fund

   America lost control of the M-Fund in 1960 when it was given to Japan’s LDP by Vice President Nixon, in exchange for Tokyo’s secret financial support of his bid for the U.S. presidency. For more than forty years since then, the M-Fund has remained the illicit toy of seven LDP politicians who have used it to keep themselves in power. Nixon effectively gave them the ultimate secret weapon, a bottomless black bag.

   Nixon was obsessed by his craving to become president, and was willing to turn over control of the M-Fund, and to promise the return of Okinawa, in return for kickbacks to his campaign fund. Kishi, an indicted war criminal, a key figure in the wartime regime and in hard drugs, munitions and slave labor, thereby gained personal control of the M-Fund. In 1960, the M-Fund was said to have an asset base worth ¥12.3-trillion ($35-billion).

    How much of this Kishi agreed to kick back to Nixon is not known. It is important to note that Nixon did not turn the M-Fund over to the government of Japan, but to Prime Minister Kishi personally, putting the lie to his grandiose justifications. So a few months later, when Kishi ceased to be prime minister, he and his clique continued to control the M-Fund. It goes without saying that they never used it for the designated purpose, instead turning it into a private source of personal enrichment.   

   Nixon’s M-Fund giveaway was not the end of the story – far from it. Under LDP control, the Fund spawned a number of exotic financial instruments that propagated through global financial markets like the Covid virus. Investors or their attorneys have been snared in amazing international sting operations, charged with negotiating fraudulent instruments, ending in wrongful convictions and prison sentences. It is now painfully obvious that some of these victims were holding authentic paper, and only were stung to shield Japan’s government from its own folly – although more crafty political and financial motives also may be discerned.

   How did Nixon’s dirty deal lead to such a scandalous impasse decades later? To know that, we must see what happened when the M-Fund changed hands.

    Until Nixon interfered, the M-Fund was controlled and administered by a small group of Americans in Tokyo close to MacArthur. In 1950, when the Korean War started, most U.S. forces in Japan were rushed to Korea, creating a security vacuum. Because the postwar constitution prohibited setting up a new army, the M-Fund secretly provided over $50-million to create what was characterized as a self-defense force. When the occupation ended in 1952 and Washington and Tokyo concluded their joint security treaty, administration of the M-Fund shifted to dual control, staffed by U.S. Embassy, CIA personnel and their Japanese counterparts, weighted in favor of the Americans.

   The Yotsuya Fund and Keenan Fund were folded into it. The M-Fund’s asset base was being invested in Japanese industry and finance, and the returns were used for political inducements. The M-Fund council interfered vigorously to keep Japan’s government, industry, and society under the tight control of conservatives friendly toward America. This meant blocking or undermining Japanese individuals or groups who wished to liberalize Japanese politics.

   During Kishi’s term as prime minister (1957-1960) the LDP received $10-million each year directly from the CIA, chiefly from the M-Fund. Alfred C. Ulmer, Jr., the CIA officer who controlled the M-Fund and many other operations in Japan from 1955 to 1958, said: “We financed them,” because the CIA “depended on the LDP for information.” The ball then was lobbed into Nixon’s court.

    A few months later, when Nixon renegotiated the Mutual Security Treaty in 1959-1960, he not only gave Kishi the M-Fund, he also promised that when he became president he would give Okinawa back to Japan, while retaining military base rights there. According to sources close to former Prime Minister Tanaka, “Nixon told Kishi that if Japan would assist him in becoming president, he would see to it that the U.S. withdrew from its role in managing the M-Fund, and upon his being elected Nixon would return Okinawa to Japan.” Accordingly, when Nixon and Kishi concluded the revision of the security treaty in 1960, the M-Fund was turned over to Kishi. And in 1973, when Nixon at last was elected president, he returned Okinawa to Japan.

    In Japan, the revised Joint Security Treaty was so unpopular that Kishi immediately lost control of his cabinet and had to resign as prime minister. So, only a matter of months after giving him control of the M-Fund, America lost much of the leverage gained by the huge bribe. Nixon may not have got all the kickbacks he expected. Years later, when the chance came to take America off the gold standard, weakening the dollar and strengthening the yen, making Japanese exports more expensive, Nixon chortled that he was “sticking it to the Japanese”.

    Nevertheless, Kishi remained an LDP kingmaker behind the scenes. Virtually every prime minister of Japan since then was picked by the clique controlling the M-Fund, because they had the most inducements to pass around. But as politicians go, they were in an unrivaled position to steer Japan’s economy, politics and government at every level, without being accountable to the Japanese people. War loot provided the asset base, generating huge profits hidden in creative ways, or offshore. They were all clever men, but Tanaka was the cleverest. How he acquired personal control of the M-Fund from Kishi provides a rare keyhole view of money-politics in Japan. One of Kishi’s first acts when Nixon gave him the M-Fund was to help himself to ¥1-trillion ($3-billion). This was nearly 10 percent of the fund’s total assets in 1960. Although he was no longer prime minister, Kishi arranged the selection of Tanaka as minister of Finance in the new Ikeda administration, and in the next administration headed by Kishi’s brother, Prime Minister Sato Eisaku.

    Japan’s postal system was ripe for plucking, because it included a national bank with postal gyro accounts for millions of citizens. Tanaka showed real genius by finding ways to dip into the savings of ordinary people. This gift for picking pockets is what persuaded Kishi to turn the M-Fund over to Tanaka, and to put him in charge of the Finance Ministry. In that position, Tanaka took personal control of all central government subsidies for local governments, and all national and local expenditures for public works, which total about US$400-billion each year. Controlling the M-Fund, the Ministry of Finance, and the Bank of Japan, Tanaka was able to loot both private citizens and the national treasury, and to move billions into the M-Fund – and into private accounts in Japan and Switzerland.

   During the twenty-six years Tanaka ran the M-Fund personally, from mid-1960 to 1986, he described himself as ‘governor of the private Bank of Japan’. By distributing patronage, he persuaded senior civil servants to help him enlarge the M-Fund. According to journalist Takano Hajime, Tanaka bought off the entire Ministry of Finance “from top to bottom”.

    It costs about $4-million to get elected to Japan’s Diet, where a member’s annual salary is less than $200,000. By this reckoning, since the LDP was founded in the 1950s, it has had to spend around $10-trillion in bribes and patronage to remain in power. So Tanaka could not relax. He had to enlarge the M-Fund asset base to generate the interest needed to maintain continual injections of new cash. This made extraordinary demands upon his natural gifts.

    It was not enough to raid the national treasury. In addition to rigged bidding for the construction industry, and straightforward kickbacks, Tanaka created government construction bond issues, without approval from the Diet. These bonds were sold at a discount to wealthy cronies, or simply were given away in exchange for secret donations to the M-Fund. When the bonds matured, cronies agreed to return most of the proceeds to Tanaka, who then kept the money for his own use or added it to the M-Fund.

    Tanaka also came up with a scheme to sell real estate confiscated during the war from enemy aliens, who had failed to apply for postwar restitution. These ‘unclaimed’ properties were an outright gift to Japan under terms of Article 16 of the 1951 Peace Treaty, and when Tanaka discovered they still were unsold he recognized a pot of gold. Over ten years from 1960 to 1970, Tanaka sold 1,681 of these properties to cronies at absurdly low prices, depositing the proceeds to Ministry of Finance accounts. His cronies then re-sold the properties at Japan’s greatly inflated open-market value, at a total profit of ¥7.9-trillion ($22-billion). In return for a small slice for their trouble, they remitted the bulk to Tanaka, who put some in his offshore accounts and put the rest in the M-Fund, increasing its value from around $35-billion in 1960 to what was said to be nearly $60-billion in 1970.

     The most important source for Tanaka’s ‘private Bank of Japan’ was the National Social Welfare Association he set up in 1964 (sometimes translated as the All Japan Welfare Council). The title is a private joke, since the club existed only for the welfare of Tanaka and his friends. All of them were men who had made fortunes in banking, commerce, real estate development, speculation and construction, including Sushi Bar king Ishii Ryuji, industrialists Kobori Takashi and Kondo Masao, and Yamashita Shigeo of Ocean Dome resorts. Although these names may ring few bells outside Japan, two others are well-known worldwide. Tsutsumi Seiji’s family holdings include national and international hotels, railways, resorts, and department stores.

     Among global financial moguls, the Tsutsumis rank with the Rockefellers. The other was Osano Kenji, one of Japan’s richest men and chairman of Kokumin Bank, nicknamed ‘the Monster’ for his ruthless business tactics. A Japanese of Korean descent, during the war he made a fortune selling auto parts to the military. At the surrender, Osano was involved in hiding the Imperial Army’s huge stockpiles and profiteering by selling them off on the black-market. In the occupation, he was a big time dealer in black-market currency. In later decades, Japanese joked bitterly about the ‘Tanaka-Osano Trading House’. In the 1970s, having secured Tanaka’s approval to move gigantic sums overseas when most Japanese were forbidden to do so, Osano bought many Waikiki Beach hotels and made himself godfather of the Japanese-Korean mafia in Hawaii, which then extended its tentacles throughout the West Coast using tourism fronts.

    In running the M-Fund, Tanaka was assisted by Kanemaru and Gotoda, two of the LDP’s backroom boys. All three became very rich. Before ill health caused him to relinquish control of the M-Fund in 1986, Tanaka is thought to have helped himself to ¥10-trillion ($30-billion then, double that now), which Japanese sources say he invested offshore through Union Banque Suisse, as a trust fund to safeguard his family in future. Their specialist bagman was Kanemaru, son of a sake brewer, who kept LDP politicians in line by distributing bribes and kickbacks from the M-Fund and other sources. Kanemaru ranked as one of Japan’s top political fixers. Although elected to the Diet twelve times, he always contrived to remain invisible.

       There is a lesson here for investors. Financial instruments growing out of the Black Eagle Trust continue to float around the global market, like magnetic mines left over from World War II that can blow up and sink any institution or individual that comes in contact with them.  As power corrupts, secret power corrupts secretly.

The story continues in Part 3,

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