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Part 1
PART 1.1 - THE
JOHNSTON SAGA UNFOLDS
Peter Johnston was 54 years old when, in August 1996, he was
convicted in England of fraud [i]. Sentenced to two years, he served
twelve months in Ford Open Prison before returning to his native
Australia to live. Prison was a desultory experience for Johnston,
and aggravated by his innocence. The City of London Fraud Squad,
acting in concert with two large gold banks, brought the charge of
fraud against him. The banks were the Union Bank of Switzerland,
Zurich, and the London branch of Australia's Westpac Banking
Corporation.[ii]
Johnston's crime had been to deposit a gold certificate in the City
branch of Westpac for "safe custody" on 15 February 1995. He did not
attempt to have Westpac negotiate or otherwise attest whether the
certificate -- apparently issued by the Union Bank of Switzerland,
Zurich – was genuine and even agreed to allow the bank to append a
disclaimer on the safe custody receipt as to the value of the
documents. It was a straightforward case of securing documents in
the vaults of the bank for a brief spell while travelling abroad. By
the official standards of the London Gold Market, the certificate
represented quite a large cache of gold at 740 metric tonnes.[iii]
At slightly more than $300 an ounce, this translated into a market
value of approximately US$8 billion, large enough to make eyes pop.
Westpac's Correspondent Banking Manager, David Blenkinsopp,
subsequently stated that he felt "uncomfortable" about the deposit
of documents and decided he "should record the incident in [the]
fraud manual and perhaps alert the authorities to a possible fraud.
"His alleged fears did not immediately materialise into action, and
would lay dormant for another seven days. However, despite what
Blenkinsopp described as his original “discomfort” with the
transaction, his later story to the police was that Johnston had
been "very cooperative." [iv]
At 2.00 a.m. on the morning following the deposit of the certificate
into safe keeping (16 February 1995), Blenkinsopp, unable to sleep
due to worry, decided to telephone his head office in Australia. He
requested that Bob Hinze, manager of Westpac's Burleigh Heads
branch, contact him as soon as possible. The reason for this call
was, he said, that Johnston had earlier told Blenkinsopp that both
he and his co-director, Alan Bristow, were valued customers of
Westpac and that Bristow, in particular, had banked with
Westpac/Burleigh Heads for many years.
Hinze returned the call within half an hour and listened as
Blenkinsopp outlined his fears, but remained stoic and relaxed.
Hinze was able to confirm that he knew Johnston and Bristow
personally and that the latter had been "a long-standing customer of
the bank." He also said that he had conducted similar lodgments of
gold certificates for them in the past and that they were "only
trying to earn a brokerage fee." He added that the certificates "had
typographical errors in them” and that “this was deliberate because
there was a special code that allowed them to be identified as
genuine." He continued: "we see little harm in holding the
certificates for safe keeping but we recommend that that be the
limit of our involvement." [v]
In fact, Johnston and Bristow had kept Bob Hinze fully informed of
the progress they were making in negotiating the certificate and had
earlier requested his guidance regarding which bank they should
deposit the certificate with during Johnston's forthcoming visit to
London. Hinze, believing the Westpac's London branch had closed,
suggested contacting its London correspondent, Midland Bank Plc.
Since Johnston had no account at Midland and was not a UK resident,
Midland Bank Plc demurred but suggested that Johnston's London law
firm, Linklaters and Paines, could hold the certificates in custody.
Linklaters, however, advised Johnston that Westpac did have a London
branch. Hence Johnston's arrival at Westpac's office on 15 February
1995.
Satisfied that he was dealing with pre-existing bank customers,
Blenkinsopp relaxed, he later said. This remained the case until 21
February 1995, when a message arrived from Bob Hinze advising that
Johnston's Australian lawyer, Morris Milder, would soon be
contacting Blenkinsopp to issue a standard "script" receipt
describing the contents of the envelope and, in particular,
detailing the certificate numbers held in custody. In the ordinary
course of a transaction such as this, the bank would sign the
receipt and deliver it to Johnston, and he would, upon his return,
present the receipt to redeem the certificate from safe keeping.
Blenkinsopp, in fact, was already aware what the safe custody
envelope contained, because he had insisted on inspecting it when
Johnston first brought it in. This was standard procedure to make
sure deposit items contained no drugs, explosives etc. The latest
request, for the receipt, however, aggravated Blenkinsopp's anxiety.
The reason for his concern, he later explained, was that he already
had issued a safe custody receipt on Westpac letterhead and believed
the newly requested script receipt could be construed "as an
endorsement of Westpac as to the value of the documents, despite
[his] handwritten disclaimer as to the value of it [my
italics]."[vi]
At the back of his mind, Blenkinsopp told police, he was concerned
that the certificates, together with Westpac's "endorsement," [i.e.,
the script receipt] could be used by Johnston to perpetrate an
"advance fee" fraud against another bank. Whether this concern was
Blenkinsopp's own creation, we do not know, but we do know the
implication that Johnston was attempting to perpetrate an advance
fee fraud was repeatedly raised by his police inquisitors during
questioning [vii]. However, there was not one shred of evidence to
support such an allegation.
Blenkinsopp told police that the fax letter from Milder requesting
the script receipt additionally requested that he confirm the letter
by key tested telex (KTT) to another bank. This is untrue. The
instruction merely indicated that he may be asked to do this at a
later date. [viii] Blenkinsopp was, he said, at this point
thoroughly alarmed, so he decided to telephone a contact at the UBS
in Switzerland. When he did so, according to his police statement,
he was told the certificates were forgeries. Then, he said, he had
faxed copies of the certificate to the Union Bank of Switzerland,
Head Office, Zurich. Both actions were strictly speaking unusual in
terms of banking protocol -- after all, these were confidential
client documents. Thereafter, on the afternoon of 22 February 1995,
Blenkinsopp contacted the City of London Fraud Squad.
A return UBS fax, transmitted at 13.54 on 22 February 1995, stated:
"We confirm that Union Bank of Switzerland (UBS) never issued such
documents. It is a forgery, that means complete fantasy. UBS has
nothing to do with these [sic] documents." It was unauthenticated
(i.e., it did not possess the usual key test signifying it was an
authorised statement of UBS) and it was signed by Rene Schicker, a
low level member of UBS Security Services. Schicker was not an
authorised officer of UBS.
Earlier, at 13.17, Schicker had sent another fax to Blenkinsopp at
Westpac. This stated:
"We confirm that the Union bank of Switzerland (UBS) never issued
such documents. It is a forgery, that means complete fantasy. UBS
has nothing to do with the documents.
We have knowledge about the arrestation [sic] of one person at
London Heathrow Airport on 3.11.1994 with similar papers. If you
have any questions please do not hesitate to contact me.
Are the 17 certificates originals or copies?"
Quite why Schicker, or others in the UBS, decided to truncate the
first message with the second remains unexplained, as does the
question asking if the certificates were originals or copies.
Meanwhile, who was the other person arrested? Was he/she charged by
police or later set free?
ENTRAPMENT?
In a telephone conversation with Morris Milder, Johnston's
Australian lawyer, Astrid Pankhurst, a barrister for Westpac, told
Milder that the police had looked at the certificates and were under
no doubt about their fraudulent nature. She then added
"…but the
police have advised that they are not interested in this case
because there is no attempted fraud on the UK mainland and you know
this matter is really outside their jurisdiction."
Pankhurst was
being disingenuous, as we shall see. She made this telephone call
after consulting with DC Howard of the City of London Police.
She continued the telephone conversation saying that Westpac no
longer cared to hold the certificates and that Milder should arrange
for them to be collected. Despite Milder's request to speak directly
to DC Howard, this did not occur. DC Howard states he was not aware
that Milder wished to speak with him. Unusually, Pankhurst refused
to confirm any of Westpac's actions or allegations to Milder in
writing despite a request to do so. Not least, Milder's phone
conversation with Pankhurst was recorded, but Milder was not made
privy to this fact. [ix]
In any event, Johnston, unaware of the entrapment in progress,
travelled from Australia to London to collect the certificates as
requested by Westpac. Arriving at Westpac offices at 3 p.m. on
Monday 6 March 1995, he was promptly arrested.
Eighteen months later, during the trial in August 1996, the
prosecution presented its expert witness, Claude Mifsud, formerly a
senior manager of Lloyds Bank Plc and latterly a consultant in trade
finance. Mifsud’s testimony, purportedly supported by his years of
experience in international banking transactions, was used by the
prosecution to support its contention that the certificate was
fraudulent on its face. Mifsud’s testimony did not support this
contention, however, because what he told the police was that he
was, in fact, unfamiliar with documents of the type in question. In
his pre-trial witness statement, he said, "in my experience I have
not encountered documentation of this nature and I must admit to
finding it difficult to speculate as to the significance of these
names and reference number [shown on the certificate]. "His
expertise in certificates of deposit did not extend to the
specialised world of bullion trading -- an extremely secretive
aspect of international finance.
It must be said here that the instruments used in international
banking are highly varied, according to the branch of banking a
transaction originates in. Asking an expert in one type of banking
transaction to give expert testimony on another branch of banking he
has no knowledge of is similar to asking a gynecologist to testify
as to a diagnosis of a brain tumour. In this regard, Mifsud was no
expert at all, a fact he was the first to point out.
Despite having its name associated with a major fraud, the UBS,
Zurich, refused to send a member of its Zurich Security or Bullion
Division (or for that matter anyone from Zurich) to give testimony
at the trial. This was in spite of considerable pressure from the
police to do so.
However, UBS eventually agreed to have a member of its London staff
make a statement to the police. Andrew Furlong, an authorised
officer of UBS, London (but not disciplined in bullion trading), in
his statement was – surprisingly, considering the gravity of the
charges -- unwilling to state the certificates were forgeries.
Instead, he merely commented that "UBS did not issue these documents
and has nothing to do with them." He added,
"I have consulted our
Head Office in Zurich and can categorically confirm that the
documents did not emanate from UBS in Zurich."
That was the full
extent of his statement. [x] For reasons I explain below, saying a
certificate is not “issued by” UBS and does not “emanate from” UBS
does not necessarily mean it is a forgery or otherwise fraudulent.
Compounding the insufficiency of this testimony is the fact that in
law, this type of evidence (that is, a statement of another
individual merely repeated by the individual under oath) is known as
hearsay and is not generally admitted into evidence. Since it was
UBS, Zurichs' allegation that set this ball rolling, it is hard to
understand why UBS did not send a gold expert from Zurich to attend
the trial. However, it was the only official statement the police
were able to obtain from UBS. [xi]
Furlong’s testimony is a far cry from Schicker's earlier charge that
the certificate was a "forgery and complete fantasy," -- almost a
repudiation, in fact. Johnston and Bristow and their attorney,
Morris Milder, believed all along (and did not once conceal the
fact) that the certificate was not issued by the UBS but understood
it had been issued through the UBS. UBS was not, therefore, the
principal, but rather an agent. The difference is a subtle but
important one, as we shall see, but goes a long way to explaining
UBS' subsequent actions. The fact is that to have stated in writing,
under colour of corporate authority, or in open court, that the
certificate was a forgery may have opened the UBS to both criminal
and civil charges.
Wolfgang Jentsch is the Managing Director of Commerce Capital
Limited, located in Dresha, Germany, with sub offices in Nassau and
Vancouver. Possessing a banking background, Jentsch worked for
Norddeutschelandesbank between 1970 and '73 and again between 1975
and '79, where he was authorized to make loans up to DM 2 million.
He is an expert on the less public side of banking and has
considerable knowledge of certain specialized types of certificates
of deposit. [xii]
Importantly, Jentsch is familiar with the Byzantine world of gold
and gold certificates, and this was the major reason he was asked,
and agreed, to act as an expert witness for the defense. His witness
statement shows his familiarity with some of the less well known
aspects of international banking: "I am aware that Governments in
most countries from time to time ask their banks to issue
certificates of deposit off balance sheet." This, as Jentsch
confirms, means the certificates are issued through, not by, the
banks, which, consequently, do not need to establish reserves to pay
for the certificates if, and when, they are presented for payment.
Instead of being bank obligations, such certificates of deposit are
in fact secret Government obligations.
Jentsch continues:
"[Certificates] … may take many forms and quite
possibly will not be in the banking form. They are by their very
nature private banking documents and will not be in the public
domain." He then shares an interesting insight:
"One finds that the larger the amount concerned, the closer the
circle of those who know becomes. Indeed, in respect of any bank
concerned it is rare that the main structure of the bank itself
would ever know of their existence and this information is very much
the domain of the few."
The former banker also adds an interesting insight to banking in
general in this regard. "Another area where such private documents
would come into being are in circumstances where, for example, the
deposit is made by a controversial depositor." These he explains
might be "an unpopular regime," or "a Government involved in a war
situation." He expands on this theme in some detail:
"… if it is a private Government transaction, it may not necessarily
be recorded. Legally the Government would not be allowed to. As
indicated above, this is more likely to happen when one starts
dealing with the less disciplined Governments of the world."
"The owner of the funds which are subject to the security of the
deposit would be given a number of other documents in order to
secure that certificate. He would be given a letter which will
provide the details of only those persons who would be able to
verify the existence of the certificates and he would be given coded
security numbers. It is not common but it is possible that as a
further security measure the certificate of deposit may include
other forms of coding. This may take the form of what would appear
to be severe spelling or grammatical errors…This also has the
advantage that anybody unauthorized dealing in that certificate
would go back to the bank and it would enable the bank to deny all
knowledge of it…"[xiii]
The deniability aspect that Jentsch raises was crucial to Johnston's
defence. Other experts in the unofficial bullion market have
confirmed it is not an uncommon procedure on sensitive transactions
to see spelling and grammatical errors. They, too, understand that
governments occasionally issue confidential certificates through
banks, which allows the named bank to deny them.
Evert van Vollenhoven of the Dutch firm of Van Vollenhoven & Schultz
Associates is a specialist bullion trader. In his letter dated 23
February 1995, he states that,
"The situation with UBS is as follows:
if a bank sends copies of certificates, they answer verbally that
they are false but do not dare commit themselves by KTT [Key Tested
Telex - in other words full corporate responsibility] to these
statements. They can not proof [sic] that these documents are
false."
Van Vollenhoven then added an intriguing fact that may well have a
bearing on the mystery of the disappearing paragraphs from the first
of the two UBS faxes:
"This has even gone so far that a bank in London called in the Fraud
Squad as to regulations and these investigators, after hearing the
bank officials walked out straight away telling them that there was
no fraud because UBS had not produced any evidence of such."
He was aware of this situation because it was a transaction he was
personally involved with, as he makes clear when he says the "result
is that the certificates were not confiscated and again are at our
free disposal. "He continued by adding that the "conclusion of all
this; these documents are real but the UBS does not want to
co-operate in whatever manner with third parties, who, however in
their full rights, want the benefit of their own belongings."
Neither does the German Banker, Wolfgang Jentsch, hold back in his
statement further on where he explained:
"Simply approaching the
bank on whose paper it has been issued will always result in the
bank denying all knowledge of it" [my italics]. He then reveals that
"the currency that the certificate of deposit is denominated in is
the key to knowing who to approach if one is authorised to do so."
"If the document is recorded in US Dollars then the US Federal
Reserve must have records in respect of this transaction under those
security numbers…."
Jentsch was handed the entire set of certificates (17 in all)
representing the 740 metric tons in the name of UBS. For the record,
he stated, categorically, that they are not "public domain
documents." The banker then offered his opinion that the potential
prejudice to Westpac by issuing the safe keeping receipt would be
immediately negated by adding to the receipt language an appropriate
comment to the effect that the receipt is "without involvement of
value." Westpac did add a paragraph to this effect on its safe
custody receipt, as we know.
Based on this evidence, before trial, the defence felt reasonably
confident that Johnston would be found innocent. However, during the
trial in August 1996, Jentsch -- who had carefully scrutinized the
gold documents during his deposition -- became a de facto
prosecution witness by stating the certificates were pure nonsense.
With this about-face testimony, Peter Johnston's fate was sealed.
What accounts for the turnaround?
Footnotes
[i] The actual charge was "using a false instrument with intent."
Johnston's defence was that he believed the instrument to be genuine
and that there was no "intent" involved. Having investigated this
matter for 2 1/2 years I am satisfied Johnston is telling the truth
-- I have read all his papers running into thousands.
[ii] The latter owns Mase Westpac, the banking arm that bought the
ill-fated Johnson Mathey Bank when it almost crashed in September
1984. One of five houses to have a "seat" at London's twice daily
gold fix, JM was reputed to be less than forthright in its bullion
dealings. In fact, its management was close to Philippines President
Ferdinand Marcos and according to rumours was laundering some of the
Japanese and Nazi gold he had recovered in the years following World
War II. More on this later in our story. Informed sources tell me JM
was advancing funds against these deposits of "tainted" gold and
this triggered a cash crisis in the bank. This led to questions in
Parliament where speakers from both the Labour and the Liberal party
bared their teeth and have the courage to suggest JM were engaged in
a VAT scam on gold. The deeper and far more sensitive story remained
unuttered by any spokesman of any party. During its final disgrace,
JM almost brought down the other four major London gold banks with
it, but with the timely intervention of the Bank of England was
rescued by Mase Westpac.
[iii] Compare this amount to the largest known central bank sale of
500 metric tonnes.
[iv] Blenkinsopp's witness statement to City of London police.
[v] Extracted from Hinze's note to Blenkinsopp.
[vi] Blenkinsopp's witness statement to City of London police.
[vii] Johnston's police interrogators were DC Howard and DC Ash of
the City of London police. DC Howard is now with the Serious Fraud
Office.
[viii] Placing the certificate in a bank's safe keeping was not even
Johnston's idea. In fact, the idea came from the gold trader he was
then negotiating with. This individual (Source "A" and Source "B"
below) required this be done in order that the certificates could
then be securely transferred into safe keeping at his own bank,
prior to concluding the transaction.
[ix] I have a copy of the transcription of the conversation provided
by City of London police.
[x] A copy of his witness statement to the police is in my files.
[xi] Furlong's statement is dated 6 April 1995. I understand from
Johnston's London lawyer that the police were sufficiently worried
about the UBS statement that a police officer travelled to UBS
Zurich in an attempt to obtain a more robust statement and/or have a
Zurich representative agree to attend the trial in London as a
witness for the prosecution. I note here that during questioning on
21 March 1995, D.C. Howard refers to a letter from UBS dated 8 March
1995, that he says states the documents "are false." This letter
does not appear in the trial exhibits (so far as I can see) and I
have not seen it. However, D.C. Howard continues by saying that the
UBS is providing an authorised bank officer to make a statement.
This was a reference to Andrew Furlong. I have repeatedly tried to
contact D.C. Howard (now at the SFO) to clarify this point, but my
attempts have been in vain.
[xii] His deposition is in my possession.
[xiii] The "holder" of the certificate in question, Indonesian
lawyer Dr. Edison Damanik, was in possession of two business cards
issued by the UBS. These named Mr. Shaker J. Otwold, UBS Kloten,
Switzerland and Mr. A. Stures Honeghen, UBS Basel, Switzerland.
Secreted beneath Kloten Airport is Switzerland's largest bullion
repository. These cards were mailed to Johnston by Damanik following
his arrest -- the implication being that these two individuals were
part of the "charmed circle" able to verify the certificates. This
location is extremely secretive and most Swiss, UBS employees
included, remain unaware of it, as I discovered in my efforts to
track down Mr. Otwold. As at this date of writing Otwold and
Honeghen remain "ghosts," despite their colourful business cards,
which are in my possession. However, for those with a taste for
mysteries, it is interesting to observe that the giant UBS transacts
all its bullion dealing through a subsidiary, the Anglo-German,
American, Warburg, Dillon Read, located at Glattbrugg, close to
Kloten.
PART 1.2
-
SWISS "GHOSTS"
Nine months after Johnston's arrest, but eight months before the
trial, an odd article appeared on the front page of the London
Times. [i] It stated that "City of London police have launched an
official investigation into the fraudulent use of certificates of
deposit and the Bank of England has warned the public not to fall
for the latest batch of certificates." The article continued, "The
Bank said yesterday that the latest batch of certificates, often
supported by 'official looking' documentation and using named
deposit holders such as international politicians, presidents and
royalty are 'fraudulent and extreme caution should be exercised in
dealing with any party seeking to transact business on the strength
of them.'"
In the view of Johnston's Australian lawyer, this article was
directed at Johnston and could have prejudiced his defence. The 740
MT certificate was in the name of Mr. Patrick Hillery, former
President of the Irish Republic. [ii] Moreover, a number of other
certificates Johnston was authorised to negotiate on behalf of "The
Last Legal Holder" all named well-known "politicians, presidents and
royalty."
It is appropriate to ask why the Bank of England was so concerned
for “members of the public.” I ask this question because the 740MT
certificate had a market value of US$8.5 billion. And this was one
of the smallest certificates that Johnston had access to. A larger
one bore a price tag close to a whopping US$100 billion. Members of
the public do not have pockets that deep.
Had the Bank of England entertained genuine concerns, it could
readily have issued a confidential circular to all the licensed
banks in the City and, via the London Bullion Market Association (LBMA),
to all licensed bullion dealers. Issuing a press release was
provocative, to say the least. It makes better sense to consider the
bank's action as a specific and subtle warning directed at somebody
who believed the certificates were genuine and who could afford to
pay this sort of money. In other words, a de facto cease and desist
notice to any potential buyer of the certificate. But, is this
likely?
The fact is that Johnston and his partners were in the process of
negotiating this and other certificates, and the Bank of England
knew it. I have spoken to a number of gold traders who, at the time
of the press release, were keen to buy several of Johnston's
certificates, including the disputed 740 MT. All were fully aware of
the circumstances of his earlier arrest and his forthcoming
trial. [iii] They were also aware of the "extremely sensitive "
background of the certificates.
One of these individuals was Bruce Mead, Managing Director of the
Millsmead Group. Mead told me quite openly that the reason he pulled
out of the deal was due to the negative publicity. Since the Bank of
England press release was the only article that had appeared at that
time (at least to my knowledge) the potential sources for his fear
are sharply narrowed.
Mead and his partner, Mary Mills, represent a number of major
European banks. Figuratively speaking, they act as fig-leafs to
eclipse the banks’ involvement in black market gold transactions. In
this instance, Mead was the mandate for Michael J. Summers, an
authorised bullion dealer on behalf of the giant French state- owned
bank, Credit Lyonnais. In this capacity, Mead -- nine months after
Johnston's arrest -- had issued a full corporate offer to purchase
the 740 MT certificate after Summers had scrutinised the various
documents.
Mead's letter of offer, a binding contract of intent (and financial
ability) to purchase the bullion on behalf of his principals
(Summers/Credit Lyonnais) was dated 13 December 1995. Intriguingly,
this was just two days before publication of the article in the
London Times to which reference is made above. [iv] Could this be
the real explanation of the extraordinary BoE press briefing?
Mead told me that he had conducted a "soft probe" on the certificate
and the results strongly indicated it was genuine. [v] The probe was
carried out by the Bank of England, I was told. [vi] Having pulled
out of the deal, Mead then made various attempts, on Johnston's
behalf, to get related papers back into Johnston's custody. He told
me he believed "Peter was innocent" and was subject to a political
intrigue and added, "Peter had good paperwork." Moreover, he
continued to express interest in purchasing other certificates in
Johnston's possession right through to February 1996 but for a
variety of unrelated reasons this wasn't possible. [vii]
In an article published in the Irish Times on Monday, 6 May 1996,
reporter Denis Staunton states that Dr. Patrick Hillery, the alleged
owner of the 740 MT certificate "expressed astonishment" that his
name was linked to the certificate. Hillery then added that the
signature on the certificate "wasn't anything like my signature."
The former Irish president added an unusual afterthought: "It wasn't
even an attempt to be my signature."
This statement was further enforced in Dr. Hillery's brief letter to
Johnston's solicitor dated 27 November 1995, which says: "I have
examined the documents which you enclosed with your letter and wish
to state that the signature on them is not my signature." This is
entirely correct. None of the signatures on this or other
certificates are -- or even contrive to be -- facsimiles of the
signature of the stated holder. However, in the mysterious world of
government secrets, there may be an explanation for this.
The 740 MT certificate actually constituted numerous documents: the
certificate itself plus supporting documents, heritage certificates,
supporting documents and government documents. One of these
“heritage” certificates refers to another party in the form of the
guarantee “holder” – whatever that means. Under the heading “B.L.D.
GUARANTEE HOLDER” is the name “Hassan King II,” undoubtedly a
reference to King Hassan of Morocco, who became King in 1962
following the death of his father. Hassan died in July 1999.
Johnston's instructions from "The Legal Last Holder" were that all
these documents would have to be forensically proven at the time of
sale. Just one missing page would void all the other papers.
Validating the certificates also meant validating the heritage
documents, and it was these that identify the actual holder --
albeit by various codes. This procedure, as Jentsch made clear in
his deposition (see Chapter 1.1), is designed to protect the
identity of an "unpopular regime" and also avoids embarrassment to
the bank and/or government for dealing with unsavoury characters.
In this regard, Johnston had earlier been in contact with another
gold trader, Tirath Ram, an Indian citizen resident and trading in
the North of England. Gold plays a large part in Indian life and, in
fact, the global jewelry fabrication business is centred in that
country. Ram had undertaken to "probe" the validity of the 740 MT
certificate [for the purpose of exploring a purchase] and on 14
February 1995, sent Johnston a copy of a fax he claimed had been
sent to him by a "contact" in the Bullion Department of the Bank of
England. I doubt that this fax -- which had the top and bottom
removed to avoid identifying the source, did originate with the Bank
of England. For one thing, it is customary in England to always date
a letter by day, month and year. In this instance, the fax was
dated in the American style with the month, day and year, in that
order, and, moreover, contains word usage common in America.
Ram was clearly protecting his source, which is understandable, but
appears to have made a critical error in his haste to impress
Johnston (a flaw common amongst gold brokers). Hoping to buy the
gold represented by the certificates and other associated documents,
Ram, it seems, had meanwhile offered it for sale through one of the
largest US bullion banks -- Citibank -- which evidently originated
the fax.
In any event, the author of the fax was clearly in possession of
highly confidential and sensitive information that no one else
associated with this transaction was aware of -- including Johnston
and his partners. The full text of the letter is as follows:
Mr. Tirath Ram February 14 1995
Friends Corporation
By fax
Dear Mr. Ram,
AU BULLION CERTIFICATE
Further to our discussion this evening I make the following comments
from our experience with UBS certificates which may or may not prove
to be relevant in this instance.
It is imperative that when the Government requests authentication
through Citibank it has all the correct data which may include but
may not be limited to:
#The original Heritage Document - this is a document declaring
non-beneficial ownership between the named party on the certificate
and the real owner.
#Any "code-words", "code-letters" & key bars that have to be
disclosed to demonstrate ownership.
#Any other special arrangements made between UBS and the owners.
You will understand that these arrangements in the main were
designed by UBS not so much to protect the holder from loss, but to
ensure that UBS never lost the AU BULLION from its control.
Please have the seller provide as much detail on the background of
the certificate etc.
Yours sincerely
Even a brief examination of Dr. Hillery's statement causes
admiration for the ingenuity of political wordplay. At no point
(either publicly or privately) did Dr. Hillery state the certificate
was fraudulent, only that it did not represent (or even attempt to)
his signature.
In fact Hillery's statements to the press and to Johnston's lawyer
are brief and possess the air of one entirely disinterested with the
affair. A strange reaction for a retired statesman whose name is
being bandied about in a fraud case. A measure of Dr. Hillery's
unusual disinterest is encapsulated in the following remark. Telling
Denis Staunton that he has "never heard of Dr. Damanik," and that
the only time he has visited Indonesia "was in 1985” when he
“stopped in Jakarta on his way to Australia for a state visit," he
added "I'm just retired now playing golf."
However, the holder of these certificates, Dr. Damanik, appeared to
know Patrick Hillery well enough when he referred to him as "that
crazy Irishman." Damanik also told Johnston that he (Hillery) would
require US$2 million to clear the transaction. Sadly, this can no
longer be confirmed, because Dr. Edison Damanik, the "Last Legal
Holder," died in America in 1997. His death was from illness, it is
said, and followed his sudden "disappearance" months earlier from
his residence in Jakarta. At all times, Damanik appeared to be kept
on a short leash. An American, Frederick Robinson, who resided in
Dr. Damanik's house, was clearly disliked by both Dr. and Mrs.
Damanik -- who referred to him in private as the "Black Sparrow."
Another American, Paul V. Morse, lived in a nearby hotel and was
Damanik's "signatory." Johnston, who had visited Damanik at home a
number of times, understood these two individuals to be CIA or
similar, but had no way of knowing this for certain. [viii]
Staunton in his article also mentions that "One British trader came
close to buying the gold earlier this year. He withdrew after the
UBS questioned the certificate's authenticity." A good and honest
reporter, Staunton had either made a critical factual mistake or had
been misled[?] [ix] The "trader" he mentions in his article is, in
fact, Bruce Mead, who (as I stated earlier) told me he withdrew due
to the negative publicity. [x] A former member of British Army
Intelligence, Mead was fully aware of Johnston's legal complications
with the UBS. Critically, Mead had issued his RWA letter months
before Staunton ever spoke with him and nine months after Johnston's
arrest. [xi] Moreover, during this telephone conversation, Mead
said he did not think well of the UBS. This came as no surprise to
me. In my previous incarnation in the City of London, the UBS in
Switzerland was often discussed for what some believed to be its
unethical conduct and deviousness.
Footnotes
[i] Dated 15 December 1996.
[ii] On the certificates, Hillery's name appeared as "Patrick J.
Hillery" and was also rendered as "Patric J. Hillery." The
typographical "error" is typical of other certificates in Johnston's
possession.
[iii] I have read (and have copies of) the correspondence between
Johnston and these other parties. There is no question that they
knew precisely and fully what had and was transpiring. All believed
the arrest and trial were politically motivated. All accepted the
certificates to be genuine but "extremely sensitive."
[iv] I am in possession of a copy of the Ready, Willing and Able to
purchase letter (known simply as RWA), dated, signed and sealed. It
was valid, curiously enough, until 23.00 hours on 15 December 1995.
[v] A soft probe is a mechanism where the certificates identifying
numbers and other codes are verified "on screen" by the issuing or
controlling government. In this case it was the Federal Reserve Bank
of America. The probe was conducted via a third party (the broker's
European bank) with the Bank of England.
[vi] I directly asked Mead, whom the probe was conducted by. He
refused to name the party. I then suggested that it might have been
"an authority in Threadneedle Street?" Mead's response was "I
wouldn't disagree with that." Telephone conversation with this
writer 5 December 1996.
[vii] During a telephone conversation almost a year later, Mead said
that "Damanik" did not have the authority to sell the gold, but
would not elaborate on this. However, see further on the story
regarding Sources "A" and "B" and the 1972 meeting.
[viii] Morse lived in the nearby Citraland Hotel. His room cost
$120.00 a day and he remained in residence for 8 months, leading
Johnston to question “who paid his expenses?”
[ix] There are reasons to suspect the latter.
[x] Unknown to Mead and numerous others, Johnston had given me his
entire files on these transactions, including copies of all
correspondence, telephone notes etc.
[xi] In his letter dated 6 November 1995, to a colleague, he states
(in part) "Mr. Johnston freely admitted that he had trouble when he
showed these documents to the UBS in London and that they tried to
call in the UK police saying he was carrying false documentation."
He continues "I think it is a balance between a crooked offer, but
they do not realise it is crooked, or the real thing but the UBS do
not want to admit it. You know our views on the UBS and we shall
therefore approach this subject very carefully. I always groan when
I see gold offers that involves that particular bank because we all
know that their appearance in the transaction materially reduced the
chance of there ever being a conclusion." Just over a month later
his caution had given way to some confidence when he issued his
letter confirming he was "ready, willing and able" to buy the gold.
PART 1.3
-
GOVERNMENT SHADOWS
Throughout the period between his arrest and conviction, Johnston
continued to also negotiate with another gold broker, this one in
Germany. This company, which I cannot identify for reasons of
confidentiality, acted as a cover to conceal the identity of a
"mandate" acting on behalf of the principal -- a powerful private
syndicate of banks, trusts and foundations.
The mandate operates out of the Northern Germany. He is extremely
well connected to the German establishment and has regular access to
diplomatic bags that he uses to transmit confidential
correspondence. He acts on behalf of "the most powerful and
influential private syndicate in the world," according to his letter
to Johnston dated 12 April 1995. All these parties were fully
informed of Johnston's legal "troubles" as they arose. [i]
Since we are dealing with two individuals who represented the same
ultimate buyers (the syndicate), and since I cannot name either, I
will, for convenience sake, call the first "Source A" and the second
"Source B." Source A was the initial point of contact and was
subordinate to Source B. After a few days of negotiation, Source A
sent a letter to Johnston. Headed STRICTLY PRIVATE & CONFIDENTIAL,
the letter stated:
"Further to our conversation earlier today, we would confirm to you
that we have been given the 'Green Light' to proceed with caution."
He then adds, by way of explanation, that they had conducted a "soft
probe through our people to ensure as far as possible that we had a
real situation."
If coincidence equates to sod's law of mishap and cock-up, then it
should come as no surprise that this letter was dated 21 February
1995. That very same day saw Westpac's David Blenkinsopp fax copies
of Johnston's documents to the UBS. This, in turn, triggered the
inevitable reaction if you believe what German banker, Wolfgang
Jentsch had to say. In any event, the City of London police were
notified and, together with Westpac staff, set out to entrap
Johnson.
The subsequent arrest and fraud charge directed at Johnston is, in
my opinion, utterly absurd. I have read and re-read thousands or
pages of private correspondence and witness transcripts provided by
Johnston about this matter. A child, unencumbered by bias, could
readily determine that Johnston and his partners observed strict
honesty and professional integrity at all times. They always,
without exception, made it totally clear to all potential buyers
that the latter must undertake their own due diligence and establish
the bona fides of the certificates.
In fact, it is the established market procedure when negotiating the
purchase of gold bullion certificates for the buyer to "prove up"
the paperwork -- unless specified to the contrary. This is no
different from any other business including retail purchasing where
the universal watchwords are "let the buyer beware."
This is especially the case, moreover, when dealing with sensitive
Secret or Private Treaty documents. All buyers involved in this and
related transactions were aware of the sensitivity involved and
openly committed themselves to their own professional obligation to
conduct validating enquiries. They all undertook these measures
without complaint or disfavour. These "probes" repeatedly showed
Johnston's documentation was solid and was of sufficient validity
for each to then issue Corporate "Ready Willing and Able" (RWA) to
purchase letters, signifying their agreement to move to the next
stage of negotiations.
This raises numerous important questions. If the potential buyers
(none of them members of the public), after conducting rigorous due
diligence investigations, were content to proceed to the next stage
in purchasing the certificates, where is the crime? The charge of
fraud implies deception, but in Johnston's case there was no
deception. On the contrary, Johnston told all concerned of his
arrest, of the UBS allegation and his upcoming trial and also
repeatedly stated that the buyer must validate the certificates in
line with market procedure. He was also quite open in saying he
believed the certificates to be genuine, but could not state
categorically that they were. What more could he do?
The events as outlined raise the possibility, at least in my cynical
mind, that someone somewhere was watching and listening to Johnston.
This is especially so when recalling that Bruce Mead issued his
purchase letter to Johnston just two days before the article
appeared in the London Times. At stake, when one includes all the
certificates under Johnston's control, was a staggering US$300
billion worth of gold. This does not include the large quantity of
gemstones, platinum, foreign currency and, in fact, three even
larger gold certificates in the possession of the Last Legal Holder.
A number of subsequent letters and telephone conversations from both
Source A and Source B have a considerable bearing on this story:
Source A phone call 27 June 1995:(3 months after arrest)
"The assets [certificates] are genuine and authentic."
"In 1972 forty-eight (48) countries signed off a convention as to
the assets under the Doctor's [Damanik] control."
"This is a political red hot potato…"
The Federal Reserve/IMF have given in principal proof for a
Government entity to lease/purchase the assets…"
Source B letter dated 12 April 1995: (1 month after arrest)
"… any prospective buyer… needs Federal approval. My principals have
that approval."
Source B letter dated 12 July 1995: (3 months after arrest)
"Firstly, the contract format enclosed is the ONLY means of
transacting this proposal successfully. It would not be possible to
'buy' this amount without destroying the existing market and with
it, the Western economy. I do not overstate the fact. The
transaction will be overseen by representatives of several
authorities including the Federal Reserve and the IMF…"
"It is our estimation that total integration of these transactions
into the world monetary system will be in excess of forty years…"
Source B letter dated 21 September 1995: (6 months after arrest)
"… I take this opportunity to re-affirm that the position of my
principals remains unchanged. We are ready to transact immediately
for any and all of the Metal and paper currently held under
signature of Dr. Damanik…"
The last is interesting in that the principals clearly understood
that Dr. Damanik (the Last Legal Holder) was not the owner of the
certificates and underlying gold metal, but rather a conduit. This
fact is repeated again and again, by both sources. In fact, they
appeared to know a great deal more about Damanik's past activities
than did Johnston:
Source A letter dated 7 July 1995: (4 months after arrest)
"The Dr. has issued in the last few years, no less than seven
mandates [Johnston being the latest]. Those mandates were withdrawn
three weeks ago."
"No mention of this transaction must be leaked in any way to any
one. If it is leaked, the whole matter will become very serious
indeed and I have been informed that we could face very serious
consequences."
Source A letter dated 28 June 1995: (3 months after arrest)
"We trust you fully understand and appreciate our verbal explanation
of why the assets under the signatory control of Dr. Damanik, have
not been given approval by the U.S. Federal Reserve and the I.M.F.,
since 1972, inclusive of our proposed transactions and same for any
transaction that would generate profits by hypothecating the assets
value into a Trading Programme."
"Simply, or politically, the West, Fed's and the I.M.F. will not and
can not allow the magnitude of the profits, the power and the worlds
financial foundation to be put at risk by the unknown and
uncontrolled utilisation of the proposed profits."
Source A letter dated 19 June 1995 (3 months after arrest)
"We have been warned and instructed that nothing of this transaction
should become common knowledge and any leakage would result in the
closing down of this project."
"We are given information only on a face to face basis by a
representative of GOVERNMENT. This Government has given explicit
instructions that nothing at all should be stated on open telephone
or fax, only by face to face contact. Our faxes and phones are being
constantly monitored as are yours, even if you do not know it."
Australians do not enjoy being ordered around, especially by Poms.
The content of some of these statements was sufficient to light a
blue touch paper and matters soon became acrimonious. In Source A's
letter dated 7 July 1995, wrangling and intransigence had appeared
to cause, according to the writer, a response from the US Feds:
‘The Feds 'have now instructed that all papers appertaining to this
transaction in the hands of the syndicating banks to be shredded
immediately." The writer added: 'The transaction has to be cleaned
and started again from scratch.'"
When I telephoned and spoke to Source A, on 28 November 1996, the
individual was audibly shaken and clearly scared. After some minutes
and my dropped comment that I had copies of all his correspondence,
he agreed to speak, providing I withheld his name. He had been
advised not to speak of this subject by "unofficial channels," he
said. He confided these channels were "US Intelligence." In a still
later conversation, he identified this as the FBI. Meanwhile, he
related he had been "instructed" to shred all documents related to
the gold certificates. Finally, he said that publication of the
story could wreck the western economy. So far, I have been unable to
speak directly with Source B.
Both Bruce Mead and Source A, at one time or another, stated that
the stories of Nazi and Japanese gold were true. Oddly, I had not
posed this question or even hinted at it, but it was to prove a
vitally important avenue of investigation. However, during my late
1998 telephone call with Source A, I specifically asked the origin
of Dr. Damanik's gold. "Marcos," was the one word reply.
PART 1.4
- THE MYSTERIOUS DR. DAMANIK
So who is this mysterious Dr. Edison Damanik who has access to so
much gold? Born 30 November 1930, in Pematang, Slantr City, Northern
Sumatra, he later lived in the USA where he studied for his Doctoral
degree. He later travelled widely in Europe and Asia before
returning to live in Indonesia. He was a former Indonesian policeman
holding the rank of Inspector.
Johnston understood he was an "adviser" to President Suharto and a
"consultant" to the Suharto Government. This has been confirmed by
his son, Petrus, who said his father had a "connection" with
President Suharto as well as the Central Bank of Indonesia.
Moreover, during a trip to Switzerland in 1995, Johnston had a
brief, chance meeting with the daughter of former President Sukarno,
who was accompanied by French-Canadian attorney, Guy Lassard. During
this meeting, Sukarno's daughter expressed her knowledge of the
certificates and proclaimed they were genuine.
Damanik, meanwhile, was the Chairman of a financial entity titled
P.T. Galaxy Trust with a registered address in Tomang, Jakarta.
Johnston told the Police what he knew of the background and history
of this trust during his interrogation. Originally, a trust had been
founded in the late 18th century, called the Molexi Trust and was
registered in Hong Kong. This was one of seven trusts in operation,
each with its own trustee/director, but Dr. Damanik was the last
surviving trustee for all of these. Johnston and Bristow, in piecing
this information together, concluded that the seven trusts had been
connected to the seven wills of Cecil Rhodes. In any event, Molexi
Trust appears to have been absorbed by a new entity, P.T. Galaxy
Trust, in the late 1920's or early 1930's. All the gold certificates
and other financial papers (platinum, gemstones, cash deposits etc)
were now nominally owned by P.T. Galaxy Trust.
There is no question that this trust exists and that Johnston was
legally empowered to negotiate various gold and platinum
certificates (and other valuables) on its behalf. I have in my files
hundreds of pages of documents, letters of authority and other
papers attesting to this fact. Nor do I doubt that these
certificates were of substance. Dozens of different companies and
banks around the world had issued corporate offers to buy them. This
included, as we have seen, a state-owned bank in France, Credit
Lyonnais, as well as a shadowy and hitherto unidentified
"syndicate." Others have included, Phillip Morris, the massive
American tobacco company and, in fact, the Government of France, in
the form of the Interior Ministry's own company SOFREMI (Societe
Francaise D'Exportation de Materials, Systems et Services du
Ministere de L'Interieur). Their letter dated 25 May 1996 was
addressed to: "last legal holder of International Guarantee
Certificate - Dr. Damanik," and bore the reference
"96/21-BP/MV/2945. It was headed "LETTER OF INTENT."
The text of the letter is straightforward and to the point: "We are
willing and able to work with certain international gold guarantee
certificates. We would like to present to your attention Mr.
Nicholas Marorslavac, Administrative and Financial Director of
SOFREMI." It was signed Bernard Poussier, Executive Vice President.
I felt this was of some significance and, therefore, asked a high
level financier I was acquainted with to verify the letter. He
confirmed that Mr. Poussier was the EVP of SOFREMI, and that the
signature purporting to be his was a good likeness. [ii]
Damanik told Johnston and Bristow some, but not all, of the
background to the origin of the certificates. He said they resulted
from a "Private Secret Treaty" that arose in 1954. He also said this
had to do with the Bandung meeting that was held in Bandung,
Indonesia, in 1955. This was the first ever meeting of the Non
Aligned Nations. Attending the meeting were numerous heads of state
and other senior government representatives. Included, was China's
Chou En Lai, who the CIA planned to assassinate during the meeting.
Not least, Damanik said the certificates were to do with "Rhodes
scholars, who are the keepers of the currency."
Other certificates Johnston was authorised to negotiate included, as
named holders:
Almost
without exception, these names have been misspelled, incorrectly
titled or possess other grammatical flaws, such as that for "Mrs.
Queen Elizabeth II," - also rendered on other documents as "Mrs.
Elizabeth Queen II."
Not only do the foregoing, in most cases, form an international
rogues gallery of some of the most gruesome and bloody dictators in
recent history, but most are known to have been eminently
corruptible. [iii] Meanwhile, if forgeries they are -- something
that I sincerely doubt -- then the master forger should be hung for
these slipshod errors.
This is not, however, reflected elsewhere on the certificates, which
are otherwise of an immaculate standard. Whoever it was that
prepared these documents, clearly was expert and went to a great
deal of time and effort. For example, the quality of the paper, the
ink, the various designs, artwork and presentation are first class.
In my earlier career in the City I have handled almost every form of
"bank paper" ever issued (from bearer bonds to stock certificates
and certificates of deposit and bills of exchange through to
promissory notes -- and many others besides) and I have rarely seen
such quality as these. [iv] Therefore, it strikes me as very odd
indeed, that a person (or persons) capable of producing such high
standards and intricacy of detail would fall foul of such elementary
mistakes as spelling errors and the misrepresentation of correct
titles. For this to occur once or twice is, in my view, extremely
unlikely but just about feasible. But, for it to happen in every
case defies belief.
Moreover, it is worth repeating that each certificate was in reality
a set of documents. For the 740 MT, this consisted of 17
certificates and 20 Heritage documents. Printed front and back in
fine detail, the entire "set," totalled 74 different pieces of
artwork. This alone demonstrates that these documents represented a
considerable investment in time and effort.
Earlier, I discussed the witness statement of German banker Wolfgang
Jentsch, in which he outlined a series of steps that required being
followed to validate secret Government documents of this type.
Johnston, in fact, received very detailed instructions from Dr. Damanik in this respect. These were as follows:
"Irrespective of the fact that the papers may bear the name of a
well known Prime bank, these papers are Government papers issued
under Private or Secret Treaty between the Government Ministry of
Finance and the Holder using the named Prime Bank [s] as a vehicle
only, and at a level of strictly limited access; i.e., at a minimum
level of Corporate/Government banking. These types of transaction
exist due to the fact that the value of the transactions were/are
beyond the capacity and/or resources that many Prime Banks can
commercially handle with full and diligent risk management;
therefore the Government would guarantee the transaction's security
and/or yield with the sanction of the IMF." [v]
These instructions consist of three A4 sized, single spaced
paragraphs of text that I do not intend to repeat verbatim here.
However, suffice it to say that this stipulated that validation
could only take place on a Government to Government basis through
"the United States Federal Reserve Bank." [vi] Damanik was even more
specific when he mentioned the name of Alan Greenspan, Chairman of
the Fed. He also added that the certificates were "… extremely
politically sensitive and are issued by various Governments using
the notated Prime Banks as a vehicle only." [vii] The clarity of
this last statement speaks for itself.
Each potential buyer was issued with these instructions and provided
with a diagram that showed the route they had to take. In a
simplified form this was: buyer contacts their domestic Government
MoF/Central Bank who contacts the US Federal Reserve. The Fed then
contact the issuing Government MoF/Central Bank who contacts the
issuing "vehicle" bank. Any response must move back along this chain
to the buyer. If the response is satisfactory, the buyer can then
proceed to purchase the certificate and underlying gold bullion. In
the event that the buyer chose to contact the IMF, a different
procedure was to be employed. [viii]
In the Spring of 1998, following Damanik's death, his wife Mrs. Etty
Purnama-Damanik, "in her personal and corporate capacity for and on
behalf of the legal beneficiary/owner," instructed Johnston and
Bristow to forward all original documents to Kontas Investments
Limited, a corporate entity with a registered address in Basel,
Switzerland. [ix] This was to facilitate a "reorganisation" of Dr.
Damanik's assets.
This brought to the end four years hard and gruelling work for
Johnston and Bristow. The cost of their efforts had been horrendous.
Both had lost their houses, their entire savings and in Johnston's
case, his liberty for twelve months, plus tarnishing his reputation.
Neither of them had earned a penny in the process and, in fact,
calculate that the venture cost them a total of A$1 million. [x]
Footnotes
[i] This, as you will see, did not even remotely inhibit their
enthusiasm to purchase a number of bullion certificates Johnston was
offering. In fact, none of those lining up to purchase gold from
Johnston took the slightest heed of his arrest (other than offering
commiserations for his bad luck). Without an exception, all were
convinced there was substance to the gold certificates and regarded
the intervention of the authorities as bothersome and politically
motivated.
[ii] .For personal reasons, however, he felt it unwise for him to
make direct contact with SOFREMI to verify further.
[iii] One notable name is obvious by its absence, in my view:
Suharto.
[iv] The closest match in quality in my experience are bearer
bonds.
[v] Drawn from notes provided to me by Johnston and Bristow.
Interestingly, each certificate had IMF codes printed on it.
[vi] These pages were prepared by Johnston and Bristow under the
specific direction of Dr. Damanik.
[vii] Another individual who was negotiating some of these
certificates was an authorised intermediary for an Eastern European
Government. This individual, operating through the Central Bank
contacted Alan Greenspan at the US Federal Reserve. I have a copy of
the preliminary faxed reply.
[viii] Using the "vehicle" banks as a guide the following
Governments appear to be those party to the Secret Treaty: Korea,
Switzerland, Hong Kong (i.e., United Kingdom), United States,
Sweden, Canada, Australia and France. All told there are 19 sets of
documents representing gold bullion (AU), Platinum (PT) and
substantial (tens of billions US dollar equivalent) cash deposits in
Canadian Dollars, US Dollars and Swiss Francs. Other documents
concerned large carat diamonds.
[ix] Mrs. Puranama-Damanik's letter dated 28 April 1998.
[x] Meanwhile, the Eastern European Government intermediary
referenced above has been in contact with Kontas Investments. During
a meeting in London in summer 1998, he told me he felt that the
certificates had become too well known and that restricting access
via Kontas was a wise decision.
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