ARTICLES

THE PORT OF BLOODSTAINED GOLD

WILLIAM COSTELLO August 15 1949
ARTICLES

THE PORT OF BLOODSTAINED GOLD

WILLIAM COSTELLO August 15 1949

THE PORT OF BLOODSTAINED GOLD

WILLIAM COSTELLO

HONG KONG—Gold is like opium or blood —it has no race, no nationality, no patriotism. It runs through the world’s arteries like a phantom, oblivious of laws, loyalties, danger and frontiers. In Asia where life is cheap gold is worth more than blood, for it never rusts, ages or decays.

Down on Mercer Street in Hong Kong—a narrow crowded lane where half-naked children play in the hot sun—there is a little grey tvvo-story building over whose doorway is the plain inscription: “Hong Kong Gold and Silver Exchange Society.” This is the centre of the international gold traffic, the magnet which draws the world’s smuggled and stolen gold.

it is the Wall Street of Asia, where stocks, bonds, debentures and mortgages stand palsied in the presence of gold. It is a place of wild hopes and deep despair—the last hope of the disillusioned, the timid, the avaricious and the embittered. Currenci '3 may dissolve, crops may fail, creditors may die, m rkets may shrivel, conquering armies may come and go—but gold bears a mesmeric lustre, an inalienable charm for Oriental fatalists. It can transform death into life, chance into certainty, hope into power.

Few have ever heard of the Hong Kong Gold Exchange, fewer still have seen it. In front stands a huge Sikh. As I approached with Eddie Ho-tung the Sikh raised his arm to bar the way. Instantly the crowd of unshirted idlers in the narrow lane billowed around us, shouting and gesticulating; in Hong Kong no Chinese door is barred to Eddie Ho-tung, whose multimillionaire father, Sir Robert Ho-tung. bears a reputation almost unique in Asia for openhanded philanthropy.

We entered a shallow foyer not much different from those in hundreds of Chinese restaurants. On either hand was a double door, and at one of these the manager came hurrying up with a bow for his distinguished guest.

Eddie murmured: “We’d better move . . . this place is a madhouse on a busy market . . . might get trampled in a rush.”

Price Flashes Around World

HE LED across the room, up a cramped stairway, and onto a balcony four feet wide which bordered the four sides of the room. We looked down on a space barely DO feet square—the gold pit. In one corner a shrieking mob of about 200 jammed together like rush-hour subwayites.

They were young men with hard, tense faces. Each carried in his left hand a tiny note pad and in his right a pencil: All were dressed in T-shirts,

cotton pants and rubber sneakers. Despite six overhead fans stirring the stale air sweat stood out on their faces in beads and plastered their cotton shirts to their backs.

The market was agitated. The Communists had just crossed the Yangtze. The Kuomintang’s hapless gold yuan currency was whirling to extinction. Foreign merchant ships were turning away from Shanghai. There were dollars to spend and nothing to buy—nothing, that is, except gold.

The exchange was a writhing mass of excitement. With their hot bodies tightly packed together, traders shrieked hoarsely. In the universal sign language of trading pits, fingers waved madly —a thumb, two fingers, three, a whole hand.

Suddenly a swaying eddy broke from the main stream of pandemonium, at its centre a single tightlipped youth and surrounding him a dozen frenzied pleaders. He shook his head again and again and tried to break away. One seized him by the hair, others by the shoulder. He shook his head angrily. A hand caught him by the throat and he jerked free. Two hands were cupped on his cheeks, but he tore himself from the mob and sprinted for the exit.

Into Hong Kong flows the world’s smuggled gold to fill Orient hoards. Crime and death mark its wake

In a matter of minutes telephones had relayed, the news that gold prices had jumped $9 Hong Kong (about $1.50 U. S.) an ounce. In a matter of hours the ripple which started on the floor of the Hong Kong Gold Exchange had spread throughout the world—by private short-wave radio to goldsmiths in Saigon, Bangkok, Singapore, Shanghai and Calcutta; by telephone and cable to brokers in Damascus, Istanbul, Karachi, Madrid, Paris, New York and Buenos Aires; to mining companies in Colombia, Saudi Arabia, Luzon, South Africa and Canada.

Scholarly economists shake their heads over the massive vaults at Fort Knox, Kentucky. They say the United States has invested $24 billions in worthless metal. They say the gold standard is an anachronism.

In the eyes of millions of others, however, that vast tonnage of precious metal at Fort Knox is the one stable thing in an uncertain world. The only comparable standard of value is the American greenback. Out in Asia when you ask prices people are apt to say: “Ten dollars—gold.” They mean American dollars—the only thing that will buy gold.

The battle for American dollars to buy gold is highlighted by stories usually found only in lurid adventure fiction.

One day in 1948 an amphibious transport plane left the Portuguese colony of Macao at the entrance of the Canton River for Hong Kong, 35 miles away, with 30 persons aboard. The craft had lifted to 800 feet when four armed pirates leaped from their seatstwo in the forward compartment, one each in the middle and rear compartments.

Brandishing their pistols they forced the co-pilot out of his place and one of the two pirates in the forward compartment, a pilot, prepared to take the controls.

No one knows quite what happened at that point. Apparently one of the passengers aboard decided to resist. There was a struggle and a shot. The pilot slumped over his controls, the weight of his body pushing the stick forward.

The plane screamed into a power dive at 200 miles an hour. It struck offshore in 20 feet of water and plowed straight to the bottom. A fisherman picked up the sole survivor—one of the pirates.

When he regained consciousness he found himself in a Macao hospital bed with a friendly, solicitous patient on either side of him. He had no way of knowing they had been put there by the boss of Macao’s biggest smuggling syndicate.

They told him both his arms and legs were broken—he was completely encased in plaster casts—and urged him to tell the story of the crash.

Gold Is Stained With Blood

THE pirate related how the four in the gang came from a village near Canton; like most such villages almost every resident belonged to the same clan. Their target was a brief case carried by one of the passengers containing $1 million in American bank drafts and negotiable cheques. With these funds they hoped to buy gold.

The Macao gang leaders were enraged that a puny gang of outsiders should have dared muscle into their territory on a kidnap mission. In his first rage the head of the syndicate, who had 5,000 armed men under his command, threatened to send an expediti jnary force to wipe out all tnj;e of both the village and its inhabitan ».

The M ao authorities were in a quandary ;e„ne colony’s laws do not provide for capital punishment, yet obviously the surviving pirate could not be allowed to live. He was completely uninjured (the casts being merely a device to immobilize him), and it was finally agreed the only solution would be to turn him loose some night after the affair had subsided and shoot him down in the act of “escaping.” '

This is the dark environment in which gold, and funds to buy it, finds its way into Asia. Though blackmarket gold exports are illegal in most countries, gold flows along a welldefined air lane—from Washington and Europe to the Middle East, thence across India to Bangkok, then by amphibious plane to the smelters of Macao. From there the smugglers take over openly. Hardly a junction along the golden spillway is free from the stain of blood and'crime.

Perhaps the most spectacular crime in the annals of the gold traffic was the great Bangkok gold robbery of May 12, 1948. On the evening of the 11th a Dutch KLM plane had landed 38 boxes of bullion weighing 43,000 troy ounces (1% tons). The gold had to be transshipped by amphibious plane to Macao as the Portuguese colony has no landing field.

Two Million in Gold—Gone!

When the flying boat failed to arrive the boxes were taken under guard from Don Muang field to the bank vaults in Bangkok, 16 miles away. The shipment was worth $2 millions—one of the biggest ever made by air.

At 5.30 on the moaning of the 12th a truck left Bangkok for the airfield, carrying the bullion. Guarding it were nine police with tommy guns and an escorting seda A which traveled 100 yards behind carrying the American insurance agent in charge of the treasure.

Suddenly, in the predawn mist, a truck sideways across the highway blocked passage from canal to canal. When the driver of the gold vehicle screeched to a halt 30 men in police and military uniforms appeared from the shadows.

“Inspecting for contraband,” barked a police lieutenant. In the time it took to say that the nine armed guards found guns in their faces. The oecu-

pants of the truck and the escort car were whisked to the roadside and handcuffed to trees. The holdup gang drove off.

Two million dollars worth of pure gold had vanished in the mists.

What happened later was equally fantastic.

An hour after the holdup a police sergeant on his way to work saw a group of men shifting boxes from one truck to another. When he approached the trucks roared off, and on the ground behind them lay three cases containing $150,000 in gold.

Siam’s efficient police went to work. In a goldsmith’s shop they found four bars in the melting pot, and after a 48hour search dug up another 30 bars in a drain behind the shop. They traced the holdup cars to a military barracks. Arrest followed arrest.

Gold Goes Back Underground

One Siamese RAF officer made a complete confession of his part in the affair. A second gold merchant was taken into custody and then a company commander of the Seventh Infantry Battalion, Capt. Kamol Chomsoognere.

Unbelievable as it may seem, the police and military uniforms in the robber band were genuine. Capt. Chomsoognere led police to an ice factory and showed them where he had hidden 17 cases of gold bullion in the condensing pipes.

Altogether the police recovered 22 boxes of gold— 60%, of the shipment.

There was evidence to burn against the conspirators, but rumors began that this was no ordinary highway robbery. There were references to a retired inspector of police, a high officer in the Siamese Army, and to others in the coup d'état clique which in 1947 put Premier Phibun Songgram in power. At any rate, in May, 1949, charges were still pending against 20 prisoners—and there had been no trials.

Until May, 1947, Hong Kong was legally the world capital of the free gold market. Virtually all bullion not sold through official channels to the United States Treasury went through Hong Kong. Then the colony prohibited gold imports and the traffic went underground.

Neighboring Macao (which, as one cynic observed, “lives on everyone’s misfortunes”) promptly legalized gold shipments under license. The treasurer of the colony sold licenses in units of 50,000 ounces of gold and permitted license holders to farm out permits to small operators. The Portuguese charged $9 Hong Kong an ounce for the license and in addition required licensees to deposit a bond which could be used by the colonial government without interest payments and refunded upon fulfillment of deliveries.

Macao became an important point in the Far Eastern traffic because newly refined gold from the western world usually arrives in the form of bars with unfamiliar markings. Most of it is “fine” gold—that is, 99 Yl°7c, pure. Before it will be accepted by Chinese purchasers it must be recast in bars hearing the “chop,” or seal, of a reputable goldsmith.

Each month thousands of ounces of fine gold go into the crucibles at Macao at 99 Y% purity and come out with an acceptable “chop” at 99%. In the jargon of the trade the “squeeze” of the Macao goldsmiths for their service reduces the bars from .995 to .990 in purity. The standard unit of measurement for Asiatic gold bars is the Chinese “tael” weighing 1.198 troy ounces.

In the Underworld’s Hands

Once the gold leaves Macao it belongs to the underworld. After Hong Kong prohibited importations, powerful, ruthless syndicates emerged to handle deliveries.

Last year it is estimated three million ounces of illicit gold moved through Hong Kong. It is transported in PT boats that can outrun anything in the water, in fishing junks and sampans, behind the planks of cargo and passenger ships, in hollowed-out books and shoes, in double-bottomed wicker hampers, and in the hollowed endpieces of mango cases.

An enterprising smuggler once conceived the idea of removing the rubber sacs from fountain pens and casting slender bars of gold to fit into the cases. A search of 22 men and women arriving at Hong Kong by plane turned up 102 gold bars, each bar weighing five taels and measuring a half inch in diameter by three inches in length. A customs inspector quipped: “It was the only

time they could ever honestly say they were worth their weight in gold.”

Only the small fry get caught. A woman arriving from Manila was found to have two taels hidden in the lining of her handbag; in tears she pleaded this represented her life savings. The court ordered it confiscated. A fugitive soldier arriving in the colony with three gold bars and a dozen rings had his hoard seized. Three women and two Chinese Army officers fleeing by ship from Shanghai were found in possession of 103 taels of gold -all of which was confiscated. The SS Changte on the eve of sailing for Japan was searched and 172 gold bars removed from the hold.

There are hundreds of these cases; but in 1948 seizures in Hong Kong totaled about 16,000 ounces—a drop in the ocean of bullion flowing through the port. Big operators lose nothing; on all cargoes smuggled out of Macao they merely add a percentage to cover losses and unlucky seizures.

Most of the gold found by customs authorities is turned up by an army of professional and volunteer informers who roam the airways and sea lanes of the Far East tracing the movement of contraband.

In the big syndicates, where every man watches every fellow gangster in a relentless gestapo system, there are no leaks; in these organizations disloyalty means sudden death.

Among the small fry, however, there is no honor and no protection. There have been cases where a dealer, after making a sale, tipped off customs authorities and claimed the 50% reward paid for information resulting in seizures. There are frequent instances of petty gangsters, dissatisfied with their share of the loot in a smuggling job, who find it more profitable to inform on their pals.

Now and then big quantities of gold appear on the market from mysterious sources. Early in 1947 a shipment

of five tons came in in a British freighter which had called at Japan; only a handful of persons know where it is now.

At the end of the Pacific war there were three large gold hoards stored at the Osaka arsenal. In the orgy of legalized looting which took place after the surrender a Japanese Army officer got away with one portion, buried it in Shizuoka prefecture, and killed the truck driver who transported the loot. Fearing discovery he negotiated in Yokohama with a Chinese syndicate which agreed to buy it from him for yen.

A hoard of Dutch coins valued at eight million guilders was melted down and went into hiding somewhere near Idabashi.

The Japanese Navy’s private gold hoard left the Osaka arsenal for Gifu prefecture and has never been found.

Dealers are waiting for these vanished treasures, certain they will find their way ultimately to Hong Kong.

Manchuria has become a source of new gold. American and British businessmen engaged in barter deals with Chinese Communists in Manchuria find the raw materials they receive are worth less than ffie manufactured goods they deli W. The Communists, eager to r\ pive their industry, are already pa^hg off the deficit in gold. Next year this supply promises to exceed 500,000 ounces. Channels for smuggling this bullion into Macao are being established, but it’s a risky business. The fear of highjacking and betrayal is growing.

In War, Gold Is Safer

A new hurdle was set up in April when the Hong Kong authorities clamped down on the possession of new gold and prohibited publication of all gold quotations. The alleged purpose was to conform to regulations of the International Monetary Fund. In reality it was a move to bolster British sterling against a flight of capital.

Sterling, by one means or other, was being transferred to Hong Kong and being converted first into Hong Kong dollars and then into American dollars available on tl ? free market. These dollars bought gold which could be concealed from the British Exchequer.

The reasoning behind these deals was simple: if the cold war should break into open hostilities gold would be safer than currency, bank accounts or real estate.

This hunger for gold is the measure of the world’s fear. There is a growing distrust of statesmen, diplomats and managed paper currencies.

“The ban on gold dealings is childish,” a Hong Kong merchant says. “It’s just another commodity, like tinned sardines. It will always move if there’s a profit iu it. These people out here know gold. They’ll ship it and they’ll buy it and they’ll hoard it!” ★