Empire of Crime

by Tim Newark

  Apparently, Wallace had been warned on several occasions for minor breaches of discipline, such as being late for duty, sub-standard turnout and general neglect of duty.

  ‘He continued to commit minor breaches of discipline,’ said Heath, ‘and to perform his duties unsatisfactorily after his letters to the Prime Minister and after he was made aware that his allegations (which he said had caused him so much worry) had become the subject of detailed investigation.’

  Since his transfer to the Frontier Division, Wallace’s performance had shown little improvement. Senior officers continued to reprimand him and reported back that his beliefs concerning the problems of narcotic addiction and corruption seemed to dominate his life. Clearly, Wallace was being subjected to the most subtle of punishments for having spoken out. Mindful, however, of the interest of the Prime Minister’s Office, Heath was careful to temper his criticism of the young man:

  Mr Wallace is a very complex person and his letter writing to the Prime Minister and actions in Hong Kong and his beliefs have to be viewed against his make up. It is at present, doubtful whether he will turn out to be an efficient inspector of police and his services may, in due course, have to be terminated on those grounds. Meanwhile, however, no legal or disciplinary action is being taken against him. He will also not be disciplined for writing directly to the Prime Minister.

  As to the general accusation of corruption within his police force, Heath believed it arose out of a culture clash, as young Britons arrived in Hong Kong and were confronted with Kowloon.

  ‘Some of the European inspectors coming for the first time face to face with “squatter” conditions and vice, including narcotic addiction,’ said Heath, ‘find it hard to believe that such conditions could continue to exist without official connivance and they tend to draw the wrong conclusions.’

  ‘I am satisfied that, although there is a long way to go,’ he concluded, ‘the climate of opinion and the attitude of mind of the junior officers of the Force is now moving steadily towards the rejection of corruption. Although there will be setbacks I consider much progress will be made during the coming years.’

  With this thorough report, Heath had successfully defused Wallace’s accusations and cast just enough doubt on the character of the young man to neutralise him as a figure of reform. The British government were satisfied with the police commissioner’s combination of colonial realism and good intentions. Indeed, it was a model of imperial governance: the desire to do the right thing modified by the reality of the situation on the ground. It would take another ten years before the general clamour against police corruption in Hong Kong would reap some practical result.

  A decade later, letters bearing allegations of corruption within the Hong Kong Police continued to command the attention of British politicians and civil servants. Winston Churchill MP, son of the great war leader, felt compelled to follow up the claims made by Pun Ting Chau in highly detailed accounts of police misconduct.

  ‘I am a victim,’ wrote Pun, ‘to what are commonly known in Chinese communities as “Lo Chun Kuk” or “Tin Sin Kuk”, swindles and collective corruption on the part of the Royal Hong Kong Police Force, who have failed to take action on my complaints and orders from the Crown and Hong Kong Government.’

  Pun recalled having a meeting in a Kowloon restaurant in June 1973 with a Chinese veteran police informer who spoke openly about Chinese police chiefs accepting kickbacks of 30 per cent of proceeds from gangsters who were happy to pay them ‘blind-eye’ money to ignore their rackets and swindles.

  ‘Some serving members of the Royal Hong Kong Police Force often associate themselves with Triad society elements in illegal activities,’ he alleged, ‘and are working together almost as groups.’

  Pun’s series of letters failed to stimulate any meaningful response from senior officers in the Hong Kong Police, but once they started landing on the desks of British parliamentarians it was a different matter.

  A similar series of allegations were made by Elsie Elliott, who had long lived in Kowloon. She wrote to the Foreign and Commonwealth Office in London and was furious at their tortuous response.

  ‘So what actually happens is that I write to you and complain that a policeman has taken part in framing a driver,’ she said. ‘You ask the Colonial Secretary here, who asks the Commissioner of Police, who asks the Traffic Chief, who asks the Constable accused in the case, who denies that he did anything wrong. The reply then goes back to you and you answer to me: “This case has been investigated thoroughly by Her Majesty’s Foreign & Commonwealth Office, and the Minister is satisfied that no framing took place and there is no justification for the allegation.” This is the system that has permitted Hong Kong to become the centre of a world-wide drug trade and probably the most corrupt colony that ever was.’

  Elliot went further, saying that if there were any future riots in Kowloon, it would be the fault of the British government for ignoring the concerns of its Hong Kong citizens.

  ‘It does not surprise me that Britain has lost an empire,’ she concluded. ‘The dictatorship of the bureaucracy here does what it likes, with full support from [the] Government.’

  This wave of complaints directed at senior figures in Britain finally had a satisfactory response in January 1974, with the launch of an Independent Commission Against Corruption (ICAC). Separate from the police, the commission reported directly to the governor of the colony. It superseded the anti-corruption branch of the police, which itself had been the target of many accusations, including those from Pun, who said they had forwarded his personal address to gangsters, who then visited him.

  The immediate cause for the setting up of the ICAC had been the outrageous behaviour of Police Superintendent Peter Godber the previous year. Accused of receiving bribes, he fainted when the suspected crimes were read out to him. A subsequent search of his apartment revealed a large number of documents detailing his complicated financial resources, amounting to over $HK1 million, a figure later revised upwards to $HK4 million. While the investigation continued, Godber fled Hong Kong and returned to his home town in Sussex, where he managed to avoid extradition back to the colony because he had escaped before being formally charged. It confirmed everything so many Hong Kong citizens had suspected.

  Spurred on by this incident, the ICAC were given the power to take a much tougher line against such suspects, including freezing their bank accounts and confiscating the travel documents of anyone accused of wrongdoing before they had been charged in a court of law. The very presence of the ICAC forced the Hong Kong Police into cracking down on the Triads and changing its relationship with them: an operation in July 1974 generated more than 3,000 racketrelated arrests – double that of the previous year.

  In the meantime, ICAC’s investigation resulted in several headlinegrabbing cases. In February 1975, a retired Chinese police officer told a court in Hong Kong how he had paid $HK25,000 to a chief superintendent to ensure he got the post of divisional superintendent.

  ‘He was flicking his fingers at the time,’ said the Chinese police officer. The corrupt chief superintendent raised two fingers, then five, indicating the sum of $HK25,000. He subsequently handed the wad of cash over and a few days later received his promotion.

  Peter Godber was eventually extradited back to Hong Kong and in February 1975 was sentenced to four years in prison for corruption. Later that year, the first female Chinese superintendent was accused of holding assets disproportionate to her official income. She had joined the Hong Kong Police as an inspector in 1959, just four years before Christopher Wallace.

  Finally, with the establishment of ICAC, the lonely crusade of the probationary police inspector had been vindicated.

  18

  THE GOLD-FINGERED MR KNOWLES

  ‘THE FAR EAST IS A truly amazing place,’ noted Eton-educated Roderic Knowles. ‘It seemed to me, from my brief experience, that everybody, in all walks of life, was involved in some kind of racket.’

  The revelat
ion had come to him in the Mandarin Hotel in Hong Kong, as he chatted to a beautiful Chinese girl, waiting for a friend to arrive from Macao. Over lunch, he guessed she was a smuggler, taking diamonds into Manila with the assistance of a Filipino minister. It hadn’t taken long for Knowles to recognise a fellow villain; he was, after all, engaged in his own racket: smuggling gold into Hong Kong.

  For some time, there had been an illicit trade in gold from Hong Kong to India. The demand for gold in India was insatiable, thanks to its cachet as a wedding gift. The bureaucratic government of India in the 1950s had set a high price for it, making it much more expensive in the subcontinent than in the rest of Asia. With a free market for gold in Macao, Chinese criminal syndicates could see a fortune to be made if they shipped the precious metal via Hong Kong to India. The Indian rupee was also highly valued as a currency, so the Asian gold trader would receive payment in rupees in Kuwait, where there was a lively black market in currencies.

  There were no export restrictions on gold leaving either Macao or Hong Kong, but there were tough import restrictions in India, where the authorities had to be told of every shipment, so smuggling was the only way to get the gold into India and make a vast profit. In June 1954, 560 bars of gold, valued at about £61,000, were found in the hold of the Eastern Queen by Calcutta customs inspectors. Three years later, another hoard of gold was uncovered aboard the Eastern Saga, hidden behind panelling in the crew’s quarters. The discovery resulted in a massive fine for the Indo-China Steam Navigation Company – they paid up, rather than have the ship confiscated, accepting there was little they could do about it.

  ‘The existence throughout their vessels of panelling,’ said a Ministry of Transport investigator, ‘made of some light and easily cut material, covering up the steel bulkheads but leaving cavities a few inches wide, provides any dishonest member of the crew with an ideal place for secreting contraband during the voyage. This panelling is erected in the crew’s quarters in order to make the vessels comply with the current standards of accommodation of first class ships.’

  It was a catch-22 for the ship owners. They had to enforce the international standards of accommodation set in the UK, but to investigate every nook and cranny on board for smuggled gold was an impossible task.

  ‘In order to discover whether or not in any place the panelling has been tampered with,’ explained the Ministry of Transport, ‘it would be necessary on each voyage virtually to strip the vessel of all the multifarious objects which, of necessity, have to be attached in one way or another to panelling, and to examine with the greatest care the paintwork of the panelling all over its surface in every place. Such a search [would] involve expense and delay, which would [negate] the commercial profitability of the voyage.’

  Gold-smuggling fines were thus accepted as another business cost by the shipping company. Besides, stashing the precious metal within the make-up of the ship itself was not the only method of smuggling it abroad:

  Gold has been discovered in the persons of crew members coming through the dock gates after leaving Owner’s vessels at Calcutta. The gold ingots which are only a few inches long are invariably concealed in the bodily cavities of the Chinese crew.

  A decade later, in 1968, 30-year-old Roderic Knowles decided that smuggling gold into India was too risky. He calculated that a profit could be made instead by buying gold in Belgium and selling it taxfree onto the Hong Kong black market. His margin of profit depended on the volume he could transport from Brussels to Hong Kong and the number of trips that could be achieved in a week.

  By reinvesting the profits made on early transfers into larger consignments of gold, Knowles reckoned that, on three flights a week into the colony, he and his public schoolboy couriers could make over a quarter of a million pounds a year. Rather than securing the gold ingots in their body cavities like the Calcutta sailors, they took a more elegant approach, packing the gold in specially designed corsets tightly strapped around their bodies beneath their Savile Row suits or Carnaby Street jackets.

  The stepson of Lord Swinfen, Knowles recruited his carriers through the personal column in The Times. Interviewing a succession of young men, he was struck by one dressed in the fashionable style of ‘swinging’ London in the late 1960s. Completely unfazed by the prospect of smuggling gold halfway round the world, the cool young gentleman added just one caveat – ‘I’ll have to be particularly careful there, as so many of my friends are members of the jet set.’

  ‘First-rate material,’ concluded Knowles, happy to employ a man about town similar to himself.

  One young man attracted to the personal ad turned out to be an undercover journalist, who exposed the racket in an article for the Sunday Times. But Knowles was too media savvy to let that stop him. He immediately put out his own story, saying the gold-smuggling interviews were a hoax, including a photograph of his girlfriend modelling the corsets, with a policeman in the background.

  With the Sunday Times made to look foolish, Knowles proceeded with the smuggling project, but soon a change in the value of gold meant its price fell and threw out all his calculations. With only a modest profit to be made from smuggling gold into Hong Kong, he turned to another part of the Far East – Korea – where the cost of gold was twice that of the standard world price.

  In order to pursue this new venture, Knowles was introduced to the Hong Kong-born manager of a branch of the Bank of America in Seoul, South Korea. The bank manager had contacts in the Korean black market, but it was with a different proposition that he attempted to recruit the young Etonian. The bank insider told Knowles he was willing to sell the secret code for bank money transfers in return for a piece of the action. It seemed too good to be true – vast sums of money shifted around the world with a simple telephone call and a number quoted. This beat all their smuggling missions.

  Used to international money deals, Knowles agreed to collaborate with the Bank of America manager. They decided on locations in Europe where the risks of banks double-checking the transactions would be minimal. They settled on a date in August 1968, a Hong Kong bank holiday. With everything in place, the corrupt manager sent two telegrams via Hong Kong, each authorising the transfer of $150,000, one to a bank in Geneva, the other in Amsterdam. As agreed, Knowles and his partners were waiting at the other end in Europe, ready to pick up the money. It worked well in Geneva, as the supervising Swiss bank manager was out at lunch, but in Amsterdam the bank officials became suspicious and decided to check the details with the intermediary Hong Kong bank. From that point on, it all quickly went wrong.

  ‘A white-haired middle-aged gentleman, who looked exceedingly like a cop, walked past,’ recalled Knowles of the day of the bank transfer in Amsterdam. He then noticed other men loitering around. ‘“Hey, Roderic!” one of them yelled, as if he had known me a very long time. Replying or not was of no consequence. The game was up.’

  Knowles was arrested and sentenced to a year in prison. One of his partners, based in Hong Kong, got a heavier sentence of four years. In the end, it turned out that the corrupt Bank of America employee was not who he appeared to be. He was, in fact, a CIA agent. According to information later passed on to Knowles, the CIA had set up the English gold-smuggling team, having trailed their activities for some time and found their illicit gold was ending up in communist North Vietnam – helping to finance the war against the Americans.

  The CIA agent had fed Knowles and his partners the Bank of America code because the sentence for gold smuggling in Hong Kong was relatively light; for bank fraud, the penalty was a substantial prison term, it being regarded as a much more serious offence in the colony. Thus, the American agents had crushed Knowles’s gold-smuggling antics. It was lucky for him that he was caught in Amsterdam; had he been extradited, he would have faced a far longer sentence.

  After his spell in a Dutch prison, Knowles returned to business in the Far East, but this time legitimately, as an investment banker. However, the lure of gold proved too much for him and he re-visite
d the idea of doing business with India, the world’s biggest gold market.

  Aside from being smuggled into India from Hong Kong, the precious metal was also supplied via the UK by merchant bankers who lawfully passed it from South African mines to Dubai, then handed it over to Arab fishing dhows equipped with high-powered Rolls-Royce engines, who smuggled it into the subcontinent. Latterly, Swiss banks had taken over the supply of gold but still used the Dubai route.

  Having set up a company called Gold Intelligence Services, providing information on gold markets to UK merchant banks, Knowles was flying from Singapore to Bangkok. At 40,000 feet in the air, he was struck by an idea.

  He recalled: ‘Sri Lanka is about 25 kilometres from the coast of India. If one could persuade the Government of Sri Lanka to allow the setting up and operating of an External Market for Gold in Sri Lanka, the Swiss/Dubai monopoly could be wiped out over night.’

  Knowles approached a London merchant bank and they agreed to back him, despite his background in gold smuggling.

  ‘I was quite open about it,’ he said. ‘I arrived blind in Sri Lanka with no contacts, but by the time I left I knew all the key political players personally, from the Prime Minister downwards. The Finance Minister, a cricket-loving capitalist parading as a Trotskyite, welcomed the project, so long as he could be assured of certain benefits to his party. The only problem was that the Sri Lankan Government was about to abolish its Free Rice to the People programme and it would be political suicide for him to approve my project with the certainty of headlines saying he was taking rice from the poor to give gold to the rich.’