THE JOURNAL'S KWITNY NEVER QUITS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00806R000100040001-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 23, 2010
• Sequence Number: 1
• Publication Date: November 1, 1982
• Content Type: OPEN SOURCE

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AIM REPORT
(ACCURACY IN MEDIA,
NOVEMBER 1982
THE JOURNAL'S KWITNY NEVER QUITS
Jonathan Kwitny, one of the Wall Street journal's star
reporters, is familiar to regular readers of the AIM
Report. In 1981, we pointed out that a major story he had
written about the State Department White Paper on El
Salvador was based largely on an analysis written by
CIA defector Philip Agee. The Agee critique of the State
Department's charge that communist-bloc countries
were supplying arms to the guerrillas in El Salvador had
been released in Washington by the editors of the Covert
Act ion Information Bulletin. This publication is devoted
to Agee's project of exposing the identities of CIA
agents, and Agee is on its advisory board.
Kwitny obtained a copy of the Agee article on the White'
Paper from these editors. He studied it and produced a
front-page story for the Wall Street journal which
contained 13 criticisms of the White Paper. Every one of
them had been made first by Agee. It is no wonder that
Agee himself told the Los Angeles Herald-Examiner
that Kwitny's story was based on his analysis, even
though Kwitny did not acknowledge his debt to Agee.
Frederick Taylor, executive editor of The journal, was
sufficiently stung by the letters of criticism of Agee that
he received from AIM members and others that he
published a 1400-word defense of Kwitny. He only
made matters worse, since he pointed out that another of
Kwitny's sources had been John Kelly, editor of.the
notorious megazine CounterSpy. CounterSpy is like
Covert Action Information Bulletin, only worse.
Kwitny Cuddles Up To Castro
Despite our devastating expose of Kwitny and his
reliance on extremist sources, The Wall Street journal
next dispatched him to Cuba to do a story for its readers
on how Castro was getting along. The result was a story
published on November 16, 1981, which no doubt
pleased Castro immensely, but which brought forth
stinging rebukes from readers familiar with the facts
about Cuba and even from one of the Journal's editorials.
The AIM Report for January-I 1982 covered Kwitny's
pro-Castro story in depth, but here is a reminder of how
far be was willing to go in his efforts to make Castro's
communist catastrophe look good. He wrote: "The
average Cuban lives very well these days by Third
World standards. He also suffers political repression,
STAT
but accepts it as a price for his economic gains. He
strongly supports his government's foreign and
domestic policies." Later he argued that Cubans believe
"that real restrictions on their lives are less now than
under previous right-wing dictatorships." These
statements are obviously contradicted by the behavior
of the Cuban people. Over one million Cubans have fled
their homeland to escape what Kwitny would have us
believe is an improvement in their economic condition
and their freedom.
Kwitny Goes Down Under
On August 24, 25,and 26, 1982, Kwitny again appeared
on the front page of The journal with three long articles
about a small merchant bank in Australia that had gone
bankrupt two years earlier. Bank failures are not such a
rarity these days that one in Australia merits front-page
treatment in this country. And though Australia is a
long way off, it should not take over two years for news
of any event of importance to reach New York City.
Why was The Wall Street journal giving such play to a
two-year-old story about the failure of an obscure
Australian bank? It was not as if the bank's collapse had
threatened the solvency of any American financial
institutions. Nugan Hand, Ltd. was a merchant banking
enterprise embracing some 40 related corporations
scattered around the globe. It has been described as "a
two-bit merchant banking firm."
Jonathan Kwitny's interest in Nugan Hand was
political, not financial. The Australian Communist
Party newspaper. The Tribune, had floated charges that
the bank was involved with the CIA and had been the
channel for CIA funds into Australia. The allegations
covered drug dealing, arms running and funding
opposition to Prime Minister Gough Whitlam back in
1975. These charges, which remain unsubstantiated
allegations to this day, were picked up by the
sensationalist press in Australia and they found their
way into CounterSpy in this country. As Frederick
Taylor, executive editor of The journal admitted in
print, CounterSpy is a source that Jonathan Kwitny has
relied upon in the past. It seems likely that this is what
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Kwitny's Cannonade
As in his discredited attack on the State Department
White Paper on E1 Salvador, Kwitny's tactic in this case
was to obscure the fact that his evidence was pitifully
weak behind a massive cannonade of words. Only one
who has been attacked or the professional critic is likely
to go over 209 column inches of newspaper type with
any care to see what. if any, substance there is to the
mass of verbiage. The average reader. not wishing to
take the time to analyze the evidence is likely to come
away convinced that the story must have some merit if
The Wall Street journal found it worthy of that much
space.
Since the allegation that Nugan Hand was a CIA conduit
or front is based mostly on the connection of a few
retired officers and CIA employees with the
organization, let's see who these people were and what
they did for Nugan Hand.
Rear Admiral Earl P. Yates is a former aircraft carrier
commander. He was chief of staff for plans and policy of
the U.S. Pacific Command until his retirement in July
1974. R. Adm. Yates was named president of Nugan
Hand bank (not Nugan Hand, Ltd., the holding
company) in 1977. He says that at first he was
essentially a goodwill ambassador for the bank. Later,
he says he was assigned as a "booster of company
morale and director in charge of U.S.-based operations,
which never really developed." The main reason for this
was that Nugan Hand could not meet the U.S. standards
to qualify to receive deposits. Yates says he had no
authority to commit Nugan Hand to any action, to hire
or fire without the approval of either Mr. Nugan or Mr.
Hand, to disburse or transfer funds either within or
outside the Nugan Hand group, or to learn the names of
confidential clients. Yates operated out of Virginia
Beach, Virginia, hardly at the center of Nugan Hand's
operations. In other words, Adm. Yates was essentially
hired by Nugan Hand for the prestige of his name and
his contacts.
Lt. Gen. LeRoy Manor, USAF, was chief of staff of the
Pacific Command when he retired in July 1978. He then
headed up the military section of the U.S. diplomatic
team that negotiated the military base rights treaty with
the Government of the Philippines. He joined Nugan
Hand in November 1979, only five months before the
collapse. He helped run an office in Manila that
represented all of Nugan Hand's operations, not just the
bank. He knew very little about the bank, according to
Adm. Yates, but he was widely known and had
excellent contacts in Asia, especially in the Philippines.
That's what Nugan wanted.
Brig. Gen. Edwin F. Black, USA (Ret.) is a West Point
graduate who, according to the journal, served in the
OSS during World War II. From 1950 on his military
career was as a troop commander, not in intelligence.
When he retired in 1970, he was chief of staff of the U.S.
Army Pacific. Upon his retirement he joined LTA'
Aerospace Corp. as director of business plans for
Southeast Asia with offices in Bangkok. He joined
Nugan Hand. having been introduced by Adm. Yates,
late in 1977. He was supposed to organize an office in
Hawaii that was to become the hub of Nugan Hand's
overseas activity, but the funds to accomplish this were
. ? ?~,r;:,uri r,f the strength of Kwitny's position at
St reel Journal that he could ride out the serious
directed at his articles on the El Salvador
f',rper and Cuba and promote another story that
ill! the earmarks of communist disinformation into a
front-page series in The Journal.
The Nugan Hand Story
Dugan Hand. Ltd. first made headlines in Australia in
January 1980. Its chairman. Frank Nugan, was found
shot to death in his car, an apparent suicide. Three
months later, the bank declared bankruptcy. Frank
Nugan, it appeared, had been embezzling the bank's
funds. Shortly after Nugan's death. the vice chairman,
an American and former Green Beret. Michael Hand,
fled Australia using a false passport. He has not been
located since.
The business side of the Nugan Hand story is fairly
prosaic. They were taking advantage of a large spread
between interest rates in Australia and rates available
to savers in the U.S. and Europe. Nugan Hand offered
certificates of deposit at attractive interest rates
through its offices located mainly in Asia and the
Middle East. It could not accept deposits in Australia or
the U.S. It put the funds into the Australian money
market at a profit. The development of money market
funds and low-denomination certificate of deposit in the
U.S. and other developed countries made it hard for
Dugan Hand to acquire funds cheaply. The whole house
of cards collapsed. There is nothing terribly unusual
about that.
What struck the Communist Party newspaper in
Australia as good anti-American propaganda was the
suggestion that the various Nugan Hand corporations
included as officers, employees or consultants a handful
of retired American officers and a couple of former CIA
employees. In addition, William Colby, who had retired
as director of the CIA in 1976 and had gone into private
law practice, had done some legal work for Nugan Hand
in the United States, and his business card was found in
Frank Nugan's pocket.
That was enough for the communists to develop the
theory that Nugan Hand was really a CIA front.
Jonathan Kwitny's friends at CounterSpy ran an article
in their Nov. 1980-Jan. 1981 issue titled, "CIA Banking in
Australia: Nugan Hand." It said: "The Nugan Hand
Bank has been used in covert CIA operations, and the
question has been raised whether the bank actually was
set up as a CIA proprietary." CounterSpy noted: "The
'Nugan-gate' affair was originally uncovered by the
Tribune. the newspaper of the Communist Party of
Australia and has since been widely covered by all the
Australian media."
But the fact that a retired American admiral, two retired
generals, and a retired career CIA officer were on the
Nugan Hand payroll in peripheral positions did not
convince the American press that this was a hot story
until Jonathan Kwitny decided that the Tribune-
Counterspy theory ought to get an airing in The Wall
Street journal. The editors cooperated beautifully,
giving him a total of 209 column inches spread over
three days.
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not provided, and in December 1978. Nugan ordered
Yates to terminate him. Then without Yates' knowledge
he rehired him. He was essentially another prestigious
name for Nugan. a man with good contacts, but not a key
figure in the management.
That is it as far as Nugan Hand's complement of
American flag officers is concerned. Not one of them had
any CIA connection, and none of them had any position
of real authority in Nugan Hand's central office.
Obviously sensing that the intelligence connection was
missing. The Journal tried to fake it. In speaking of Gen.
Manor, they said that after his retirement from the Air
Force he undertook "next, duties that the Air Force says
are so secret that it can't talk about them." Those duties,
as The journal acknowledges, were the negotiation of
the U.S. bases agreement in the Philippines and an
investigation of the failed hostage rescue mission in
Iran. The journal tried to make much of Gen. Black's
service in the OSS in World War II, saying that the OSS
later became the CIA. It said he was the chief
administrative aide to Allen Dulles, who later became
the head of the CIA, and that he was the boss of Richard
Helms, who also became head of the CIA, as if that had
some current relevance. It also described LTV
Aerospace Corp. as "an important CIA contractor," only
they left out "Aerospace," probably because that would
alert less knowledgeable readers to the fact that the CIA
is hardly LTV's most important customer.
Kwitny tried to drag in another general, Brig. Gen. Erie
Cocke of the Georgia National Guard, who permitted
Adm. Yates to use the office of his Washington
consulting firm as a temporary office. Erie Cocke, ti'ho
was formerly U.S. Alternate Director on the board of the
World Bank, has no ties to the CIA nor to Nugan Hand.
The CIA Retirees
Kwitny's effort to establish a tie between Nugan Hand
and the CIA through the retired military officers is
clearly a dud. The effort to establish a tie through former
CIA officials also fails. It is true that Walter McDonald,
a career CIA officer, took a job with Nugan Hand in July
1979, five months after retiring from the CIA. (The
Journal implies that it was "almost immediately").
McDonald was an expert in petroleum, and he met
Frank Nugan during a visit to Indonesia in July 1979,
having been introduced by a mutual friend, Guy Pauker.
Nugan was looking for someone who could advise him
on oil deals and he offered McDonald the job. McDonald
worked on several investment deals in the few months
that he was with the company before it collapsed. He
also introduced Michael Hand, the vice chairman of the
company, to William Colby, the former CIA director.
Hand was threatened with loss of his American
passport because he had taken Australian citizenship.
McDonald recommended Colby, who was then in
private law practice, as an attorney who could help him.
It turned out that Colby's firm also had some good tax
lawyers. and Nugan Hand was big on tax shelter deals.
They were spending substantial sums on tax lawyers,
and they decided to give some of that business to the
Colby firm. Colby's billings, according to The journal,
totaled 546.000, none of which was paid. That is how
Frank Nugan came to have Bill Colby's card.
Dr. Guy Pauker. a staff member of the Rand Corp., is
also placed under suspicion by The journal of being a
CIA plant in Nugan Hand. The Journal says that Pauker
"denies reports that he is a career of.'"icial of CIA." Whose
reports. one wonders. Those of Kwitny's friends at
CounterSpy? The journal says Dr. Pauker went to work
for Nugan Hand as a consultant after having been
introduced by Adm. Yates. Yates says he introduced
Pauker to Nugan in June 1979. and Nugan offered hire a
job. Pauker, he says, never accepted the offer.
Finally, The journal says that Robert Jansen, a former
CIA station chief in Bangkok, worked for Nugan Hand
in Bangkok in 1978. Adm. Yates says Jansen was offered
a job. but he turned it down for personal reasons. He
says that except for a tour Jansen made to look over the
firm's offices in the Pacific area, he had no other contact
with Nugan Hand.
Nasty Innuendo
Kwitny's articles are filled with nasty innuendo. He
writes that "evidence has turned up that Nugan Hand
bank was deeply involved in moving funds about the
world for big international heroin dealers and also
might have been involved in the shady world of
international arms traffic. To cap it off, the offices of
Nugan Hand and its affiliates were loaded with former
high-ranking U.S. military and intelligence officials."
Loaded? We have already exposed that exaggeration.
But what about the ethics of associating these officers
with "international. heroin dealers" and "the shady
world of international arms traffic?" Adm. Yates says
that there had been public charges that Nugan Hand
was laundering drug money before he joined the bank.
He says that he investigated those charges and could
find no evidence to support them. He found the bank to
have a good reputation. He does point out that it is not
always easy for a bank to know the source of funds that
are deposited with it. Many banks in this country accept
deposits from drug dealers, sometimes wittingly,
sometimes unwittingly.
Australian law enforcement authorities have told AIM
that they do not believe Nugan Hand was engaged in the
drug traffic, but it is possible that it may have taken in
drug money as deposits. Kwitny says that one convicted
drug dealer is suspected of using a Nugan Hand account
to transfer funds from Australia to Asia. implying some
culpability on the part of the bank and all those high
ranking U.S. former officers. The only question is. why
would anyone want to use the facilities of Nugan Hand
for transferring funds abroad when any large
commercial bank would do the job more efficiently.
Adm. Yates says that Nugan Hand tried to get into the
business of helping manufacturers of military
equipment sell their products, and he personally wrote
to several large manufacturers. None accepted the offer
of Nugan Hand's services. He adds,-To my knowledge.
no sale of any military equipment was ever concluded
by Nugan Hand." He notes that this is a perfectly
legitimate business, but he says you don't break into it
on a "Nugan Hand style penny ante basis."
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Of cnursc. it would be of little interest to Americans if a
small Australian bank that had gone belle up had been
involved in the drug trade. The Wall Street journal
hasn't devoted comparable space to banks much closer
to home that have laundered drug money, The message that
I< itny and his friends at CountcrSpy want to get
,ic russ is that the CIA was perhaps using Nugan Hand
for kinds of nefarious schemes. Kwitny says: "The
opposition Labor Party ... has openly questioned
x\ hether the CIA ... helped topple Australia's last Labor
government. led by Prime Minister Cough Whitlam. The
CIA has denied this. Now suspicions have been raised
that Nugan Hand. which handled enormous amounts of
money, may have been used to channel funds to favored
Australian political parties."
These anonymous charges have been denied by the CIA,
by Vice President Bush who was head of the CIA, and by
the Australian Prime Minister. A former CIA official
told AIM that during the W1hitlam period the CIA
"walked on eggs" to avoid causing problems in
Australia. They didn't want to do anything that might
endanger the then secret missile tracking station there.
We don't have enough space to tackle all of the many
inaccuracies and exaggerations in the Kwitny series,
but it is apparent that Jonathan Kwitny has again
succeeded in getting The Wall Street journal to serve as
a transmission belt for his disinformation.
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