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Nugan Hand Group - Royal Commission of Inquiry (Hon. Mr Justice D.G. Stewart) - Final report, dated 28 June 1985 - Report - Volume 2


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The Parliament of the Commonwealth of Australia

ROYAL COM MISSION OF INQUIRY INTO THE ACTIVITIES OF THE NUGAN HAND GROUP

Final Report

Volume 2

June 1985

Presented 27 November 1985 Ordered to be printed 28 November 1985

Parliamentary Paper No. 3#?/1985

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The Government of the Commonwealth of Australia and The Government of the State of New South Wales

ROYAL COMMISSION OF INQUIRY INTO THE ACTIVITIES OF THE NUGAN HAND GROUP

Commissioner: The Hon. Mr Justice D.G. Stewart

FINAL REPORT - VOLUME TWO June 1985

Australian Government Publishing Service Canberra 1985

© Commonwealth of Australia 1985

ISBN 0 644 01335 4 This Volume

ISBN 0 644 01336 2 Set

NOTE

This Report has been edited to remove material which may be prejudicial to prosecutions or fair trial. Blank spaces therefore appear in certain parts of the Report.

Printed by C. J. THOMPSON, Commonwealth Government Printer, Canberra

PART FOUR

DISCRETE TOPICS

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SECTION 1 : NUGAN HAND (HONG KONG) LTD

Introduction * 2

4.1.1 If it be correct to select the setting up of the Nugan Hand Bank

(Cayman Islands) [profile 2.106] as the single most significant

achievement on the part of the Nugan Hand Group [refer to Part 4 Section

2] on the basis that the Nugan Hand Group thereby gained international

recognition and was also provided with large sums of money flowing in to

the Bank, then the establishment of Nugan Hand (Hong Kong) Ltd (hereafter

referred to as 'Nugan Hand (Hong Kong)1) must, on the evidence, be seen

as a close second in terms of the Group's achievements. The

establishment of this operation in Hong Kong, given that the colony was

one of the most important commercial centres in the world, was regarded

generally as quite a feat.

4.1.2 Judged on the basis of the volume of deposits collected by the

company locally, Nugan Hand (Hong Kong) was a resounding success and

provided a lucrative source of funds to the Nugan Hand Group especially

from late 1975 until late 1977 when the Nugan Hand Bank began to overtake

Nugan Hand (Hong Kong) in terms of volume of moneys collected. During

this period, in particular, Nugan Hand (Hong Kong) was flaunted by the

Group as proof that it was financially sound and capable of competing

even in such a highly competitive market place as Hong Kong. The

company's luxurious offices together with its large staff were used as a

showpiece and clients and potential clients were invited, on occasions

when they happened to be in Hong Kong, to visit the company's premises to

see for themselves the apparent success of the operations.

4.1.3 In fact behind this impressive facade there was gross

mismanagement, and imprudent and incompetent investment policies. The

depositors' funds were used as and when the Group required funds to keep

any part of its international structure viable. However, except to the

eyes of a discerning few, Nugan Hand (Hong Kong) was perceived to tie

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irepressive proof that the Group's claims of financial soundness and

growth were indeed well founded. That this impression could have been

created is all the more remarkable when three further facts are taken

into account: first, the fact that Mr C.L. Collings [profile 2.15] who

was in charge had no experience whatsoever in banking or merchant banking

procedures or the like and had no understanding or knowledge of the money

market either in Hong Kong or elsewhere; secondly, there was only a

comparatively small amount of money available to establish and promote

the company in Hong Kong; thirdly, the Nugan Hand Group was a completely

unknown quantity in Hong Kong when the company was established there in

1975. In these circumstances the question plainly arises as to how Nugan

Hand (Hong Kong) could have achieved the apparent success that it did.

It is this question, among others, that is addressed in this section.

4.1.4 Although the audited accounts of Nugan Hand (Hong Kong) indicate

that the company earned a net profit after tax, the Commission has before

it evidence which shows that the accounts had been altered so as not to

reflect a true picture of the company's financial standing. In

particular, its overheads were transferred to an account in the Nugan

Hand Bank which paid them out of its depositors' funds.^ This was done

simply to avoid Nugan Hand (Hong Kong) being shown to be operating at a

loss, as was in fact the situation at all times. Many factors mitigated

against Nugan Hand (Hong Kong) operating as a profitable entity, in

particular, Mr F.J. Nugan's [profile 2.1] steadfast pursuit of an

investment policy which was contrary to its interests, the use of the

company as a trade advisory service by other companies in the Nugan Hand

Group (a costly and ineffective exercise), the high commission rates paid

to its salesmen and the use of its staff to pursue unrealistic trade and

business propositions none of which ever appear to have come to fruition.

Statutory Details

4.1.5 Nugan Hand (Hong Kong) Ltd was incorporated as a limited company

under the Companies Ordinance (Hong Kong) under the name Nugan Oil Ltd on

10 October 1972. Its name was changed to Nugan Hand (Hong Kong) Ltd on

22 November 1974. On 28 January 1977, its name was changed to Swiss

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Pacific Asia Ltd. The name was changed back to Nugan Hand (Hong Kong)

Ltd on 9 August 1977, pursuant to objections lodged by a number of Swiss

banks with the Hong Kong Banking Commissioner in relation to use of the

term 'Swiss'. [Note: The Nugan Hand Bank underwent a similar name

change and it too was subject to objection by the Swiss banks. See 4.2.18

for further details.]

4.1.6 Hillory Ltd and Leedony Ltd were appointed directors of Nugan

Hand (Hong Kong) on 10 October 1972 and resigned on 30 November 1974. On

26 November 1974 Nr M.J. Hand [profile 2.2] and Nr Nugan were appointed

directors of the company. Mr F.D. Ward [profile 2.73] was appointed a

director of the company on 29 November 1974 and resigned on 16 December

1975. Mr Col lings was appointed a director on 30 July 1975.

Mr S.K. Hill [profile 2.33] was appointed director of the company on

16 December 1975 and resigned on 30 May 1977. Mr F.M.B. Laloe was

appointed a director on 1 January 1976. Mr P.M. Dunn [profile 2.18] was

appointed a director on 9 August 1976 and resigned on 6 October 1977.

The ultimate shareholders of the company were Harbour Nominees Ltd, which

held one HK$10 share and Nugan Hand International Holdings Pty Ltd

[profile 2.96], which held 999 999 HK$10 shares. The company was placed

into liquidation on 3 May 1980.^

Establishment of Hong Kong office * 4

4.1.7 In February 1975, Mr Collings, having been despatched there by

Mr Nugan, opened a Nugan Hand Group office in Hong Kong which declared

itself to be a representative of the Sydney merchant bank, Nugan Hand 4

Ltd, and which operated under the name Nugan Hand (Hong Kong) Ltd.

Mr Collings had been sent to Hong Kong by Mr Nugan in December 1974 with

instructions to collect deposits on behalf of the 'Ingold Growth' fund

[see 3.3.6 and 3.3.8-3.3.10]. This was a mutual fund established by

Messrs Nugan and Hand which was set up to trade in precious metals.

Mr Collings sold a small number of units in the fund,"1 before receiving

instructions from Mr Nugan, about May 1975, to discontinue because the

gold market was not stable. From evidence before the Commission it is

apparent that this 'Ingold' project was abandoned after 16 months

- 632 -

because it was a complete failure. At the time of its demise in April

1976, the fund had only four investors.6

4.1.8 Mr Collings was instructed by Mr Nugan to return investors'

funds together with interest of ten per cent, and to offer them the

opportunity to reinvest in a merchant banking company, which he had

allegedly established in Panama called Nugan Hand Inc. Panama [profile

2.115]. This company was incorporated in Panama on 24 January 1975. Its

directors included Messrs Nugan and Hand. The company had no registered

office in Panama, but a firm of attorneys acted as its resident agent

there. The company did not have a licence to accept deposits from Hong

Kong. According to Mr Collings, some of the investors converted their

investments and were issued with a certificate of deposit on behalf of

Nugan Hand Inc. Panama.7 Documents before the Commission indicate that

deposits collected by Nugan Hand Inc. Panama from residents of Hong Kong

were disguised as capital subscriptions to the company, that is as

subscriptions for the purchase of shares. The entries in the stock

register of the company8 are more properly interpreted as deposits

accepted given that the register contains details of principal, value,

date, term, interest rate, calculated interest and calculated maturity

value. Entries in the stock register also indicate that the first

'subscription' was received on 15 May 1975 and the last on 6 November

1975.9 According to Mr Collings, he continued to collect deposits on

behalf of this company 'into 1976', but very little business was

transacted on its behalf."*·8

4.1.9 It appears that between July 1975 and February 1976 some of the

deposits collected by Nugan Hand Inc. Panama were transferred to Nugan

Hand (Hong Kong) . " * ■ ■ * ■ These deposits were classified in the books of the

company as subscriptions of capital, presumably because at that time

Nugan Hand (Hong Kong) was not licensed to accept deposits on its

own behalf. A letter from Messrs Nugan and Hand to the board of

directors of Nugan Hand (Hong Kong) dated 1 July 1975 informed the board

that Nugan Hand Inc. Panama (not Nugan Hand Ltd) was the company carrying

on business in Hong Kong, and was the company which maintained the

representative office in Hong Kong. The letter instructed the board that

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Nugan Hand (Hong Kong) was not to carry on business in any matter on its

own account, and that its books were to be written up so as to ensure

that it remained 'a non-active, non-operating1 company. The board was

further instructed that all expenses incurred in Hong Kong were to be

treated in the accounts of the company as incurred for and on behalf of 12 Nugan Hand Inc. Panama. " Instructions to similar effect were given to

the accountant employed by Nugan Hand (Hong Kong) in December 1975.^

The rationale for these instructions appears to have been to avoid Nugan

Hand (Hong Kong) being in breach of the Hong Kong Deposit Taking

Companies Ordinance, and to circumvent the Banking (Foreign Exchange)

Regulations whereby Nugan Hand Ltd was not permitted to conduct

transactions overseas without notifying the Reserve Bank of Australia; a 14

company incorporated in Panama was not so restricted.

Deposit Collection on behalf of Nugan Hand Ltd, the Nugan Hand Bank and

Nugan Hand (Hong Kong) Ltd

4.1.10 The principal activity of Nugan Hand (Hong Kong) from June 1975

until July 1976 was the collection of deposits in Hong Kong on behalf of 15

Nugan Hand Ltd, and the remission of those deposits to Sydney. The

first Hong Kong deposit to Nugan Hand Ltd was received on 26 June 1975.

In August 1975, Nugan Hand Ltd received its first substantial deposit

from outside Australia when Sun Kai Securities of Hong Kong made a

deposit of HK$1 million."*"^ Mr Collings enjoyed early success in

attracting Hong Kong depositors for Nugan Hand Ltd. During a four week

period ending 11 September 1975, the evidence indicates that Mr Collings

collected deposits of US$1 million on behalf of Nugan Hand L t d . ^ By

the end of 1975, Mr Collings had collected and remitted to Sydney

US$2 757 000 on behalf of Nugan Hand Ltd.·* 1 5 * * 18

4.1.11 The reasons for this early and subsequent willingness of the

Hong Kong depositors to entrust their money to the unknown Nugan Hand

(Hong Kong) for placement with the equally unknown Nugan Hand Ltd in

Sydney were threefold: first, the interest rates which could be obtained

at the time in Australia were significantly higher than the rates

obtainable in Hong Kong (which, of course, allowed the offering of a rate

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of interest above that otherwise obtainable in the Hong Kong market

place, clearly a strong selling point); secondly, Mr Collings was armed

with impressive bank endorsed opinions about the soundness of Nugan Hand

Ltd which were used to good effect; thirdly, and most importantly, the

well respected Wing On Bank in Hong Kong, because of an arrangement with

its Chairman Dr A. Kwok [profile 2.36] guaranteed to depositors who

placed moneys with Nugan Hand Ltd through Nugan Hand (Hong Kong) and the

Wing On Bank the repayment of their deposits in any event. Given these

factors it is, perhaps, not surprising that deposits began to pour into

Nugan Hand Ltd from Hong Kong.

4.1.12 In its first 12 months of operation Nugan Hand (Hong Kong)

caused the moneys which came in from the Hong Kong depositors to be

forwarded for placement with Nugan Hand Ltd in Sydney. Provided that it

could be said that Nugan Hand (Hong Kong) was not itself the deposit

taker it was argued by Mr Nugan that no licence of any kind was necessary

under Hong Kong law. In fact, on 12 July 1976 the company was granted a

licence under the Deposit Taking Companies Ordinance (Hong Kong) and was

thereby entitled to collect deposits in its own right. However, by that

time Mr Nugan had decided that it was preferrable that Nugan Hand (Hong

Kong) not collect deposits in its own right, even though licensed to do

so, because to do so meant that the company had to comply with the

provisions of the Ordinance, in particular the disclosure requirements of 19

the Ordinance, and this was unpalatable to Mr Nugan. In addition,

provided that the company refrained from collecting deposits in its own

right it was a non-taxable entity under the laws of Hong Kong.

Accordingly Mr Nugan instructed Mr Collings not to collect deposits on

behalf of Nugan Hand (Hong Kong) and this remained the position until

April 1977.

4.1.13 On 6 July 1976, the Nugan Hand Bank was incorporated in the

Grand Cayman under the name "The Nugan Hand Bank and Trust Company', and

on 16 August 1976 it obtained a banking licence [refer to Part 4

Section 2], Mr Collings then received instructions from Messrs Nugan and

Hand that, so far as possible, deposits collected by Nugan Hand (Hong 20

Kong) were to be collected on behalf of the Nugan Hand Bank.

- 635 -

4.1.14 The basis of this later instruction was that deposits to the

Nugan Hand Bank were considered to be more desirable than deposits to

Nugan Hand Ltd or Nugan Hand (Hong Kong) for the following reasons:

first, the interest on moneys deposited with Nugan Hand (Hong Kong) was

subject to a 15 per cent government withholding tax whereas interest on

deposits to offshore entities such as the Nugan Hand Bank was not;

secondly, a fee was payable by Nugan tend Ltd to the Wing On Bank in

respect of deposits to Nugan Hand Ltd which had been guaranteed by the

Wing On Bank whereas deposits to the Nugan Hand Bank were not subject to

such an arrangement and did not attract this fee [see 4.1.27 to 4.1.55

for further details in relation to the role played by the Wing On Bank ] ;

thirdly, Nugan Hand (Hong Kong) was required to file a monthly return

with the Hong Kong Banking Commissioner in relation to its deposits

whereas deposits to the Nugan Hand Bank could be kept confidential since

it was not subject to any such requirement; and fourthly, Nugan Hand

(Hong Kong) was subject to the local banking regulations which stipulated

that no more than 25 per cent of its net assets could be invested in an

associated company. This restricted the uses to which the deposits of

Nugan Hand (Hong Kong) could be put. Deposits to the Nugan Hand Bank

were not subject to any such limitation.

4.1.15 From August 1976 until April 1977 Nugan Hand (Hong Kong)

collected deposits on behalf of both Nugan Hand Ltd and the Nugan Hand 21

Bank and from April 1977 on its own behalf as well. However, the

evidence before the Commission indicates that after the establishment of

the Nugan Hand Bank, the staff of Nugan Hand (Hong Kong) directed their

main efforts to obtaining deposits on behalf of the Bank, rather than 22

deposits on behalf of Nugan Hand Ltd. The company continued to

accept deposits on its own behalf until its liquidation in April 1980.

The audited accounts of the company for the periods ending 31 December

1977 and 31 December 1978 state the deposits accepted during those

periods to be US$953 90323 and US$1 291 630 respectively.24 The

draft accounts of the company for the period ending 31 December 1979 25

state the deposits accepted for the period as US$2 330 783. On

29 May 1980, the date of the winding up of the company, there was

approximately US$4 470 020 on deposit with Nugan Hand (Hong Kong).

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4.1.16 An examination of the records of Nugan Hand (Hong Kong)

indicates that it had approximately 40 depositors, which included banks,

insurance and finance companies and individuals.27 The records also

indicate that the Nugan Hand Bank invested funds with the company on

23 occasions.

4.1.17 The company accepted fixed deposits in both Hong Kong and United

States dollars. Deposits were accepted in minimum amounts of HKS50 000

and thereafter in multiples of HK$25 000. The interest rate offered

varied with the term of the deposit and market conditions.2® The

records of Nugan Hand (Hong Kong) show that the interest rates offered

varied considerably from month to month, and even within the same 29 month. The records show that the following interest rates were

offered in Hong Kong on the dates specified:®®

Date Interest ]

26. 4.77 6.25%

18.11.77 . 7.75%

6. 6.78 8.0%

23.12.78 9.0%

1. 7.79 11.0%

30.12.79 14.3%

3. 4.80 16.1%

4.1.18 Interest rates for various amounts were published monthly.

Interest earned on moneys deposited in Hong Kong was subject to a 15 per

cent Hong Kong Government withholding tax, which Nugan Hand (Hong Kong)

was required to deduct at source. Corporate clients could, however,

elect not to have the tax deducted at source. Nugan Hand (Hong Kong)

opened bank accounts in United States dollars in Singapore and New York

for the purpose of receiving deposits outside Hong Kong. This was done

because deposits received outside Hong Kong were not subject to the Hong 31 Kong withholding tax.

4.1.19 From late 1977 onwards Mr Collings sent a record of the deposits

collected on behalf of Nugan Hand (Hong Kong) and the Nugan Hand Bank to

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Mr Hand in Singapore each week. This was apparently to enable Mr Hand to

monitor the liquidity and solvency of the Nugan Hand group of companies.

From early 1979 onwards Mr Collings sent daily telexes to Mr Hill in

Sydney in relation to the balances in the company's bank accounts.33

4.1.20 The Hong Kong office operated in a somewhat precarious fashion

with respect to the repayment of deposits when they fell due. There is

evidence before the Commission that there was often a hurried scramble to

get funds from Sydney when deposits fell due for repayment as there were

not sufficient moneys held in Hong Kong.33

4.1.21 Mr Collings said that he considered Nugan Hand (Hong Kong) to be

his 'very special company' and wanted it to develop into a strong

34

merchant bank. He thus strove to increase the number of its

depositors. Mr Collings said that his policy was at odds with that of

Messrs Hand and Nugan who 'pushed' the Nugan Hand Bank, rather than Nugan

Hand (Hong Kong).33

4.1.22 The Commission has been unable to obtain reliable figures for

the amount of deposits collected by Nugan Hand (Hong Kong) on behalf of

the Nugan Hand Bank. From such evidence as is available it would appear

that the company ultimately enjoyed its greatest success as a deposit

taker on behalf of Nugan Hand Ltd. The minutes of a meeting of the

directors of Nugan Hand Ltd indicate for example, that during 1978 Nugan

Hand (Hong Kong) collected US$5 million in deposits on behalf of Nugan

Hand Ltd and only US$2 million on behalf of the Nugan Hand Bank.33

4.1.23 The total deposits collected by Nugan Hand (Hong Kong) on behalf

of itself and Nugan Hand Ltd, and guaranteed by the Wing On Bank amounted

A$4 072 088 as at 2. 8.77

A$5 545 725 as at 26. 1.78

A$4 758 842 as at 27.12.78

A$2 668 029 as at 3. 8.79

A$2 407 641 as at 31.12.79

A$2 119 692 as at 8. 4.80

- 638 -

Reasons for Success as Deposit Taker

4.1.24 As has already been mentioned [4.1.11], the principal reasons

for the success of the company in collecting deposits on behalf of Nugan

Hand Ltd and on its own behalf were threefold, namely: the difference

between the interest rates available in Hong Kong and Sydney until

December 1978; the favourable bank references concerning Nugan Hand Ltd;

and the Wing On Bank guarantee of Nugan Hand Ltd, and later, Nugan Hand

(Hong Kong) deposits.

Interest Rate Differential

4.1.25 Evidence before the Commission establishes that the interest

rates available in Sydney in 1975-1976 were appreciably higher than the

rates available in Hong Kong at that tiine.^ It is apparent from the

evidence that the Hong Kong office of the Nugan Hand Group was

established for the specific purpose of capitalising on this difference

in the interest rates. The interest rates available for deposits in

Hong Kong at that time were between four and six per cent, whereas in

Sydney, funds could be invested at between eight and ten per cent. One

of the Nugan Hand Group's main sales representatives told the Commission

that during 1977, the interest rates available in Hong Kong were

typically four to five per cent, while Nugan Hand Ltd offered eight per

ce n t . ^ It appears that Nugan Hand Ltd initially offered a very high

interest rate in Hong Kong in order to attract clients, and that it

subsequently pegged its rates at a half to one per cent above that being

offered by major institutions in Hong Kong in order to retain their

c u s t o m . D o c u m e n t s in the possession of the Commission indicate the

decline in the interest rate offered by Nugan Hand Ltd to its Hong Kong

depositors for a fixed deposit of six months to be as follows:^

Date Interest Rate

26. 3.75

27. 8.75

9%

8.5%

10.12.75

26. 5.76

24.11.76

8.5%

9.75%

6.5%

- 639 -

Bank References

4.1.26 There is evidence before the Commission that bank references

provided to the Hong Kong office by the Bank of New South Wales (as it

then was) and the ANZ Bank, Sydney, as to the financial soundness of

Nugan Hand Ltd and the capacity of its directors, were an important

factor in the securing of deposits by Nugan Hand (Hong Kong)

in Hong Kong. ^ These references were available to the sales

representatives in the Hong Kong office and were shown by them to

potential depositors, as proof of the reliability of Nugan Hand Ltd.

[See Part 4 Section 6 for further details concerning these bank

references. ]

Wing On Bank Guarantee of Nugan Hand Ltd Deposits

4.1.27 In July 1975 the Wing On Bank entered into an agreement with

Nugan Hand Ltd whereby it guaranteed to Hong Kong depositors with Nugan

Hand Ltd that their deposits would be repaid, in accordance with the

terms of the deposit. This agreement was reached pursuant to discussions

which commenced in early April 1975 between Dr Kwok, on behalf of the

Wing On Bank, and Mr Ceilings, on behalf of Nugan Hand Ltd. The original

arrangement did not apply to Hong Kona depositors with the Nugan Hand ~ , 44

Bank or Nugan Hand (Hong Kong) [see 4.1.45 to 4.1.48],

4.1.28 The arrangement in writing included a stipulation by the Wing On

Bank that Nugan Hand Ltd would lodge, in an account held by the Wing On

Bank at an Australian bank and maintain therein, valuable securities

having a face value ten per cent greater than the total amount of

deposits and interest guaranteed by the Bank.^ When the Wing On Bank

was satisfied that Nugan Hand Ltd had complied with this stipulation, it

issued a document to the depositor which in effect guaranteed the

repayment of his deposit.

4.1.29 At the time this arrangement commenced in July 1975, Nugan Hand

Ltd had its bank account with the Bank of New South Wales, Bridge and

Young Streets branch, Sydney. On 28 July 1975, the Wing On Bank

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requested the Bank of New South Wales to open a safe custody account in

its name, and specified the following securities, inter alia, as

acceptable for placement in its account: bank issued certificates of

deposit, bank accepted commercial bills of exchange, and commercial bills

of exchange, including bills accepted or endorsed by Nugan Hand Ltd. The

Wing On Bank stipulated that authorised officers of Nugan Hand Ltd were

entitled to lodge, switch, replace or uplift the securities in its 46 account from time to time. The Bank of New South Wales agreed to

send a telex to the Wing On Bank each time that Nugan Hand Ltd lodged,

switched or removed securities from the account, and to indicate in the

telex the total amount of securities accepted or endorsed by Nugan Hand

Ltd which had been lodged to the account. Nugan Hand Ltd agreed to meet 47

all charges, including telex charges, associated with the account.

4.1.30 The Wing On Bank did not initially impose a formal limit on the

extent to which commercial bills accepted or endorsed by Nugan Hand Ltd

(hereafter referred to as 'internal bills of exchange1 [see paragraphs

5.34-5.55]) could be lodged in the safe custody account as security by

Nugan Hand Ltd. It is clear that from the outset Nugan Hand Ltd lodged 48

its own internal bills in the Wing On Bank safe custody account.

There is evidence before the Commission that there initially existed an

informal arrangement whereby Nugan Hand Ltd could lodge in the account

internal bills of exchange to a face value of 50 per cent of the deposits

guaranteed; the remaining 50 per cent was to be secured by other types of 49 securities.

4.1.31 In August 1976, the Wing On Bank imposed a restriction on the

extent to which Nugan Hand Ltd could lodge its own internal bills as

security for deposits guaranteed. The Bank specified that the amount of

Nugan Hand Ltd internal bills lodged in the account was not to exceed

Afl.l million. It also stipulated that the maximum amount of non-bank

securities which could be lodged as security at any one time was

A£2 478 519. In effect this meant that once the amount of deposits being

guaranteed exceeded Ai>2 478 519, the Wing On Bank required Nugan Hand Ltd

to lodge securities accepted or endorsed by banks, in the safe custody t 50

account.

- 641 -

4.1.32 The Wing On Bank subsequently eased its restriction on the

lodgement of commercial bills of exchange. In December 1976, the Bank

advised Nugan Hand Ltd that it could lodge commercial bills of exchange

to a maximum value of A$3 617 663 as security in the safe custody

account. However, the Bank required that the company not lodge more than

50 per cent of internal bills of exchange in each lodgement of securities

to the account.'’" * " By February 1977, the Wing On Bank permitted Nugan

Hand Ltd to lodge up to A$3 957 261 worth of commercial bills of exchange

in the account. At this stage, the extent to which company was permitted

to lodge its internal bills is not apparent, and Dr Kwok was unable to

assist the Commission in this regard.52 However, documents before the

Commission indicate that Nugan Hand Ltd at all times between July 1975

and January 1978 had lodged internal bills of exchange in the safe

custody account, the face value of which varied from A$600 000 to

A}?2 700 000.53

4.1.33 The Wing On Bank charged Nugan Hand Ltd a fee for its guarantee

of the company's deposits. This fee was calculated on the basis of the

quality of the securities lodged by Nugan Hand Ltd in the safe custody

account; for example in May 1976 the fees were: one per cent on Nugan

Hand Ltd internal bills, one-quarter per cent on non-bank bills, and 54 one-eighth per cent on bank bills.

4.1.34 A further facet of its agreement with Nugan Hand Ltd was that

the Wing On Bank agreed to accept an additional security for its

guarantee of the company's deposits, namely a lien over a quantity of

Asian Currency Unit (hereafter referred to as 'ACU') deposits. These

were investments purchased on the Singapore money market by Nugan Hand

Ltd, and later by Nugan Hand (Hong Kong) and the Nugan Hand Bank, using

funds which had been deposited with them in Hong Kong. Nugan Hand Ltd

agreed to lodge these ACU deposits with the Wing On Bank and to grant the

Bank a lien over them. In return, the Wing On Bank agreed to release

from the safe custody account to Nugan Hand Ltd securities of a face

value equivalent to the value of ACU deposits under lien to the Wing On

Bank. The grant of the lien to the Bank gave it the right to retain

possession of the ACU deposits until Nugan Hand Ltd paid out its debts to

- 642 -

the Wing On Bank. Whenever funds were deposited in the ACU account to be

held subject to the Wing On Bank's lien, Nugan Hand Ltd asked for the

release to it of an equivalent amount of securities from the safe custody

account in Australia. The Wing On Bank's guarantee to the company was

thus secured by securities lodged in its account in Sydney and by ACU 55 deposits over which it held a lien.

4.1.35 In January 1978, the Wing On Bank closed its safe custody

account at the Bank of New South Wales, and opened a similar account at

the Pitt and Hunter Streets branch of the ANZ Bank, Sydney. Nugan Hand

Ltd had, in March 1976, transferred its principal accounts to the ANZ

Bank. ^ On 31 January 1978 securities with a face value of

A$5.7 million were transferred from the Bank of New South Wales account 57

to the ANZ account. These securities comprised:

A$1 700 000 commercial bills of exchange accepted or

endorsed by Nugan Hand Ltd

A$2 000 000 commercial bills of exchange, including one

$500 000 bill accepted by Secured Income

Real Estate (Australia) Ltd ('SIRE') and one

$500 000 bill accepted by North Australian

Rubber Mills Ltd ('NARM')

A$2 000 000 negotiable certificates of deposit

A$5 700 000

[See 5.34 to 5.55 for further details in relation to the use of these

internal bills of exchange and their true value; see 5.56 to 5.62 for

further details in relation to the use of the SIRE bills.]

4.1.36 At the time of the transfer of the safe custody account to the

ANZ Bank, the Wing On Bank and Nugan Hand Ltd entered into a new

agreement in relation to the operation of the account. This agreement

was effective from 30 January 1978 and its terms so far as are relevant _ π 58

were as follows:

- 643 -

a. Nugan Hand Ltd was to lodge in the safe custody account security

in the form of bank issued certificates of deposit or better in

respect of the amount by which the Wing On Bank's guarantee of

the company's deposits exceeded A$3 839 508 (or HK$20 million).

(Exchange rate used: A$1 = HK$5.2441)

b. As to the first A$3 839 508 (or HK$20 million) worth of deposits

guaranteed, Nugan Hand Ltd was to lodge in the safe custody

account, securities in the form of commercial bills of exchange

or better. Where the amount of deposits guaranteed was less

than A$3 839 508 the face value of the securities lodged was to

equal the then outstanding amount of the guarantees.

c. Nugan Hand Ltd internal bills of exchange could be lodged in the

safe custody account in respect of (b) above to a total face

value of A$1 million, unless the 'within the day' facility was

in use. Where this facility was in use, internal bills to a

value of A$1 500 000 could be lodged.

Under the 'within the day' facility, Nugan Hand Ltd was at

liberty to lodge up to half a million dollars worth of internal

bills of exchange, that is, commercial bills of exchange

accepted or endorsed by Nugan Hand Ltd, each day, and to uplift

from the safe custody account, valuable securities of an equal

face value, without the necessity of any notification to the

Wing On Bank, provided that the original position was restored

by close of business on any day when this facility was used by

the company. (Dr Kwok advised the Commission that this facility

was requested by Nugan Hand Ltd. He understood its purpose to

be to allow the company to profit from intra-day interest rate

fluctuations by dealing in negotiable certificates of deposit

and bank issued or accepted bills of exchange uplifted from the

safe custody account, without actually affecting the value of

the security in the account. ) ^

- 644 -

d. Nugan Hand Ltd was not required to maintain securities in the

safe custody account in excess of the amount of the company's

deposits guaranteed by the Wing On Bank.

4.1.37 The documents and securities which the Wing On Bank specified

could be delivered to the safe custody account, remained the same. The

ANZ Bank agreed to advise the Wing On Bank by telex of each lodgement or

switch of securities, indicating the nature and face value of the

securities, and of each uplift of securities, other than uplifts pursuant

to the 'within the day' facility. All charges associated with the

account, including telex charges, were to be paid by Nugan Hand Ltd.

4.1.38 The overall result of this new arrangement was that Nugan Hand

Ltd gained two concessions. First, it was no longer required to maintain

securities to a face value of 110 per cent of the deposits guaranteed by

the Wing On Bank in the safe custody account. Second, and much more

important, the company was able at little cost to itself (namely the

interest on the overdraft for the day) to borrow A$500 000 per day and

utilise that money to purchase securities, which it used to secure its

own depositors.

4.1.39 This was achieved by uplifting negotiable certificates of

deposit (hereafter referred to as 'NCD's') from the safe custody account

and replacing them with commercial bills of exchange drawn and accepted

by Nugan Hand companies (that is internal bills of exchange). It then

lodged the NCD's with the ANZ Bank, as security for its withdrawal of

funds under its 'daylight overdraft facility' with the Bank. Nugan Hand

Ltd used the funds withdrawn to acquire new securities through

CitiNational Securities Corporation Ltd, and placed these securities with

its depositors, in exchange for cash deposits. These deposits were used,

within the same banking day, to repay the 'daylight overdraft facility'

and thus obtain the release of the NCD's lodged as security. These NCD's

were then returned to the Wing On Bank safe custody account, pursuant to

the 'within the day' arrangement with the Wing On Bank, and the internal

bills were returned to Nugan Hand Ltd.

- 645 -

4.1.40 The existence of the Wing On Bank guarantee thus benefited Nugan

Hand Ltd in two ways: it acted as an incentive to Hong Kong depositors to

deposit funds for remission to Sydney; and it provided a standby facility

for use by the company to secure the deposits of its clients.

4.1.41 The benefits to the Wing On Bank, though not as great, were

threefold, namely: the profit to be made on the difference in the

exchange rate between Australia and Hong Kong; the fees earned from the

commission charged by the Wing On Bank to Nugan Hand Ltd for provision of

the guarantee; and the potential introduction of new bank customers in

Hong Kong.^

4.1.42 Dr Kwok advised the Commission that in making the decision to

enter into the safe custody arrangement with Nugan Hand Ltd he relied

completely on favourable bank references concerning the company supplied

by the Bank of New South Wales and the ANZ Bank. He also relied from

time to time upon favourable credit ratings of Nugan Hand Ltd supplied to

him by other organisations. ^ It is noteworthy that the Wing On Bank

had no system established to determine whether or not the securities

lodged in the safe custody account were valid and relied entirely on

telexes from the relevant bank to establish the nature and value of the

securities lodged. Dr Kwok said himself in evidence to the Supreme Court

of New South Wales that the satisfactory operation of the arrangement

depended entirely on the honesty of the Nugan Hand Group. Dr Kwok also

said in evidence that he considered the internal bills lodged by Nugan

Hand Ltd in the safe custody account to be 'practically no security at

all'. Dr Kwok later confirmed to the Commission that he considered

that ' Nugan Hand paper merely constituted a promise to pay, not

security'. He conceded that the Wing On Bank 'was prepared to allow NHL

a reasonable amount of flexibility, and to allow itself to become

unsecured to a certain extent'.

4.1.43 It may be that the willingness of the Wing On Bank to grant

Nugan Hand Ltd the concessions referred to above can be explained in

terms of the good relationship enjoyed by both Mr Nugan and Mr Collings

with Dr Kwok. There is evidence before the Commission that Dr Kwok had a

- 646 -

high regard for Mr Nugan, probably due to the support offered to him by

Mr Nugan in late 1975. Dr Kwok was at that time charged with conspiracy

to defraud, and Mr Nugan flew to Hong Kong with two suitcases of legal

precedents for the assistance of Dr Kwok's legal advisers, and wrote a

lengthy submission on Dr Kwok's behalf.64 (Although the material

provided by Mr Nugan was not used, Dr Kwok was subsequently exonerated.)

According to the evidence of Mr Ceilings to the Commission he also had a

good relationship with Dr Kwok.6_J

4.1.44 This apparent trust placed by Dr Kwok in the Nugan Hand Group

was subsequently to cost the Wing On Bank dearly [see 4.1.49 to 4.1.55],

The Wing On Bank Guarantee of Nugan Hand (Hong Kong) Deposits

4.1.45 Nugan Hand (Hong Kong) became registered as a deposit taking

company in July 1976 and officially commenced to collect deposits in

April 1977.66 During this period, the Wing On Bank agreed to extend

its original guarantee of Nugan Hand Ltd deposits to a guarantee of

deposits collected on behalf of both Nugan Hand Ltd and Nugan Hand (Hong

Kong) in Hong Kong. The terms of the arrangement between the Wing On

Bank and Nugan Hand (Hong Kong) were the same as those specified in the

July 1975 agreement between the Bank and Nugan Hand Ltd. As in the case

of Nugan Hand Ltd, the Wing On Bank was prepared to accept as additional

security for the deposits of Nugan Hand (Hong Kong), a lien over Nugan

Hand (Hong Kong) deposits which were invested in Asian Currency Units on

the Singapore money market [see 4.1.57-4.1.59].67

4.1.46 The Wing On Bank allowed Nugan Hand Ltd to remove certain

securities from the safe custody account in Sydney on the basis that the

Bank be granted a lien over Nugan Hand (Hong Kong) ACU deposits of an

equivalent face value. The Wing On Bank was satisfied with this

extension of its original arrangement with Nugan Hand Ltd, provided that

the value of securities in the safe custody account and the value of the

ACU's on lien equalled the value of all deposits guaranteed to Nugan Hand

(Hong Kong) and Nugan Hand Ltd by the Wing On Bank. Thus, the securities

- 647 -

Ln the safe custody account in Sydney and the ACU's on lien in Bong Kong

each secured the deposits of both Nugan Hand (Hong Kong) and Nugan Hand

Ltd.

The Chase Manhattan Bank Line of Credit and the Wing On Bank Guarantee

4.1.47 On 23 November 1978, Nugan Hand (Hong Kong) entered into an

agreement with the Chase Manhattan Bank whereby the Bank agreed to supply

to the company a line of credit of HK$5 million (A$912 575) for a period

of six months. This HK£5 million was available to be borrowed by the

company in amounts determined by it at any time, provided that each loan

was of six months duration only. The loan was conditional on the Wing On

Bank's guarantee of the loan by provision to the Chase Manhattan Bank of

a standby letter of credit. The Wing On Bank agreed to supply this

letter of credit on the basis that sufficient security was maintained in

the Wing On Bank safe custody account, and/or that it was granted a lien

over a sufficient amount of ACU deposits, to cover the amount borrowed by

Nugan Hand (Hong Kong).6® According to the evidence of Mr Collings, he

suggested to Dr Kwok that the securities lodged by Nugan Hand (Hong Kong)

to support the Wing On Bank guarantee of its deposits be placed in a safe

custody account separate from that already established for securities

lodged pursuant to the agreement between the Wing On Bank and Nugan Hand

Ltd. However, Dr Kwok considered a separate account unnecessary.6^

4.1.48 Pursuant to the line of credit arrangement, Nugan Hand (Hong

Kong) borrowed HK$2.5 million (A$456 487.50) from the Chase Manhattan

Bank on 15 March 1979 and a further HK$2.5 million on 18 July 1979. Each

of these loans was renewed for a further period of six months on two

occasions. The company lodged negotiable certificates of deposit

purchased from the ANZ Bank, Sydney, as security for HKS2.5 million worth

of the loan. These securities were lodged in the Wing On Bank safe

custody account in Sydney and thus became intermingled with securities

lodged to secure Nugan Hand Ltd deposits [see 4.1.60-4.1.67).

- 648 -

Fate of Securities in the Wing On Bank Safe Custody Account

4.1.49 Nugan Hand Ltd blatantly failed to honour the terms of the

agreement with the Wing On Bank breaching the agreement in the following

ways:

a. Nugan Hand Ltd failed to ensure that the value of securities in

the safe custody account, together with the value of ACU

deposits under lien to the Wing On Bank, equalled the value of

the deposits of Nugan Hand Ltd and Nugan Hand (Hong Kong) being

guaranteed by the Wing On Bank. Between December 1979 and April

1980, Nugan Hand Ltd allowed the level of securities in the

account to fall to the extent that the Bank was A$99 411 under

secured in April 1980.^

b. Nugan Hand Ltd consistently exceeded the limit imposed by the

Wing On Bank on the amount of internal bills of exchange which

could be lodged in the safe custody account. The maximum agreed

upon was A$1 million where the 'within the day' facility was not

in use and A$l.5 million where the facility was in use.

Documents before the Commission indicate that from the outset,

namely from January 1978, until the liquidation of Nugan Hand

Ltd in April 1980, the company lodged internal bills of exchange

of a face value which far exceeded the limit stipulated. Nugan

Hand Ltd exceeded the A$1 million limit on internal bills by the

following amounts during this period: 71

23. 1.78

30. 6.78

31.12.78

31. 5.79

31. 1.80

A$l.7 million

A$l.7 million

A$2.1 million

A&2.1 million

A$1.4 million

(For the purposes of this analysis, the Commission has

classified bills of exchange accepted or endorsed by the SIRE

group of companies and NARM as internal bills of exchange.)

- 649 -

c. Nugan Hand Ltd failed to lodge valuable securities in the safe

custody account. All the commercial bills of exchange accepted

or endorsed by companies in the Nugan Hand Group (the internal

bills) lodged by Nugan Hand Ltd were worthless, since the

companies involved had insufficient assets with which to meet

their debts. From May 1976, Nugan Hand Ltd lodged in the

account commercial bills of exchange with a face value of

fcl million drawn by SIRE [profile 2.118] and NARM

[profile 2.113]. These bills were also of doubtful worth.

4.1.50 It would appear that the Wing On Bank was either unaware of, or

chose not to take any action in respect of, these breaches by Nugan Hand

Ltd. The Bank received telex advice from the Bank of New south Wales,

and later the ANZ Bank, each time that securities were lodged, switched

or uplifted from the safe custody account [see 4.1.29 and 4.1.37], These

telexes contained details of the type and face value of the securities

concerned. The Wing On Bank also received written confirmation from the

relevant bank as to the break up of securities lodged in the safe custody

account from time to time. Notwithstanding this regular flow of

information to the Wing On Bank, Dr Kwok gave evidence to the Supreme

Court of New South Wales that the Bank was not aware of the identity of

all Nugan Hand companies and was therefore unable to ascertain that Nugan

Hand Ltd had lodged internal bills in excess of the limit agreed

72

upon. Dr Kwok advised the Commission that the Wing On Bank 'at all

times emphasized to NHL and NHHK that the amount of Nugan Hand paper

which was to be accepted in the safe custody account was to be strictly

limited'. He said that it was the Bank's intention that Nugan Hand Ltd

would only place additional 'Nugan Hand paper' in the account when the

'within the day' facility was in use. He said that the Wing On Bank

closely monitored the switch of securities in the account and endeavoured

to ensure that the 'amount of Nugan Hand paper was kept to a minimum

...'. However, the Bank found it difficult and sometimes inpossible, to

determine whether an issuer of a bill lodged in the account was a Nugan

Hand associated company or an independent third party. Dr Kwok also

pointed out that, although the relevant banks provided regular

information as to the contents of the safe custody account, the banks did 73

not monitor the quality of the documents lodged.

- 650 -

4.1.51 As at 8 April 1980, the Wing On Bank had issued guarantees to

depositors of Nugan Hand Ltd and Nugan Hand (Hong Kong) amounting to

A$3 052 963. This amount consisted of:

Nugan Hand Ltd and Nugan Hand

(Hong Kong) 2 119 692

Line of credit to Nugan Hand

(Hong Kong) by

Chase Manhattan Bank 933 271

A$ 3 052 963

4.1.52 At this time, the Wing On Bank's guarantee was secured by ACU

deposits under lien to it, worth A$189 827, and by the contents of the

safe custody account at the ANZ Bank.^

4.1.53 When Nugan Hand Ltd went into liquidation on 17 April 1980, the

Wing On Bank safe custody account contained securities with a face value 75

of A$2.5 million. These securities comprised:

Commercial bills of exchange

accepted by Nugan Hand companies

(internal bills)

Commercial bills of exchange

accepted by SIRE

Commercial bills of exchange

accepted by ANZ Banking Group Ltd

A$ 2 500 000

1 800 000

600 000

100 000

4.1.54 It is evident that at liquidation the safe custody account

contained a high proportion of internal bills, and that the amount of

those bills exceeded the limit on such bills imposed by the Wing On Bank

- 651 -

by A$800 000. The internal bills with a face value of A$l.8 million

lodged in the account proved to be completely worthless. As the holder

of the bills drawn by SIRE, the Wing On Bank instituted proceedings

against SIRE for the recovery of the A$600 000 represented by the bills.

Although the Supreme Court of New South Wales gave judgment in favour of

the Wing On Bank, an appeal was subsequently lodged by SIRE.76 This

appeal has not been heard. The litigation has been settled on the basis

that SIRE (now known as Barrier Pacific Resources Ltd) has agreed to

issue to the Wing On Bank shares and options to purchase shares in SIRE

to such a value as would extinguish the indebtedness of SIRE to the

Wing On Bank. A third company has agreed to purchase the shares and the

options from the Wing On Bank within seven days of their issue for a

total purchase price of A$135 000. Completion of this agreement is

dependent upon the obtaining of requisite approvals from the shareholders 77

of SIRE and the Brisbane Stock Exchange.

4.1.55 The Wing On Bank subsequently honoured the guarantees given to

the Hong Kong depositors of Nugan Hand Ltd and Nugan Hand (Hong Kong),

and to the Chase Manhattan Bank. The Wing On Bank has lodged a proof of

debt in the amount of A$1 773 148 with the liquidator of Nugan Hand Ltd,

this being the amount paid by the Bank to Nugan Hand Ltd depositors for

which the security provided by that company proved worthless.7® The

Bank has also lodged a proof of debt with the liquidator of Nugan Hand

(Hong Kong) in respect of the HK$5 million paid to the Chase Manhattan

Bank and the amount of US$250 000 paid to Ayala Finance (HK) Ltd, a

depositor with Nugan Hand (Hong Kong), on the basis that the securities

lodged in respect of those amounts in the Wing On Bank safe custody

account also proved worthless.79

Investment of Deposits

4.1.56 Nugan Hand (Hong Kong) was restricted as to the manner in which

it could invest the deposits collected on its own behalf because it was

subject to compliance with the Hong Kong banking regulations. The

regulations stipulated that the company could not invest more than 25 per

cent of its net assets with an associated company. This limited the

- 652 -

extent to which the company could invest its deposits with either Nugan

Hand Ltd or the Nugan Hand Bank. Nugan Hand (Hong Kong) principally

invested in two types of securities, namely Asian Currency Units and bank

issued negotiable certificates of deposit. Evidence before the

Commission establishes that all major investments of the company’s funds

were made pursuant to instructions from Messrs Nugan and Hand.80

Investment in Asian Currency Units

4.1.57 Some of the funds of Nugan Hand (Hong Kong) were placed in an

account with the Wing On Bank and transmitted by the Wing On Bank to

Singapore for deposit on the ACU market. This is the Asian equivalent of

the Eurodollar market. It is predominantly used by banks and financial

institutions for the retention of short term funds, and pays 'fairly

nominal' interest rates.8" 1 The company purchased all its ACU's through

the Wing On Bank because Hong Kong regulations permitted only registered

or licensed banks to purchase ACU's on the Singapore market. All the

ACU's purchased were of 24 hours duration to ensure that the company had

a supply of liquid funds readily available to it. Although ACU's were a

very secure form of investment, they were not a profitable one, due to

the non-competitive rates of interest offered in respect of them. There

is evidence before the Commission that the interest obtained for deposits

invested in ACU's was not sufficient to cover the interest rate offered

by the company in order to attract the deposits initially.82

Mr J.C. Needham [profile 2.51] estimated that during 1977, 90 per cent of

the deposits collected by the company on its own account were invested in

ACU's bearing an interest rate of six and a half per cent, at a time when

the company was offering 14 to 15 per cent for deposits. He attributed a

shortfall of US$3 million in the accounts of the company, which he

claimed to have identified in mid 1977, as partly due to this investment .. 83

policy.

4.1.58 During 1976-77, agreement was reached between Nugan Hand (Hong

Kong) and the Wing On Bank, whereby the Wing On Bank guaranteed the

repayment to certain depositors of their deposits with Nugan Hand (Hong

Kong). The Bank stipulated as a condition of its guarantee that the

- 653 -

Nugan Hand (Hong Kong) deposits be invested in ACU deposits, and a lien

over these deposits be granted to the Wing On Bank [see 4.1.45-4.1.46].

4.1.59 Subsequently, Nugan Hand (Hong Kong) placed its ACU's under lien

to the Wing On Bank, to offset a decrease in the value of the securities

lodged in the Wing On Bank safe custody account in Sydney. [See 4.1.29

to 4.1.55 for further details in relation to the operation of the safe

custody account.] The securities lodged in the safe custody account were

pledged to the Wing On Bank in return for the Bank's guarantee of Nugan

Hand Ltd, and later, Nugan Hand (Hong Kong) deposits. The Wing On Bank

considered that its guarantee was properly secured provided that the

value of securities in the safe custody account together with the value

of ACU's on lien equalled the value of all deposits of Nugan Hand Ltd and

Nugan Hand (Hong Kong) guaranteed by the Bank.84 Dr Kwok advised the

Commission that the Bank was not aware that the securities lodged in the

account comprised for the most part worthless internal bills of exchange

[see 4.1.49-4.1.55].

Investment in Negotiable Certificates of Deposit

4.1.60 From September 1977, Nugan Hand (Hong Kong) sent many of the

deposits collected on its behalf in Hong Kong to Sydney for investment in

bank issued negotiable certificates of deposit. Between 16 September

1977 and 18 April 1980, the company sent deposits totalling

A$2 853 714.05 to Sydney for investment in NCD's.88 The majority of

these deposits were remitted by Nugan Hand (Hong Kong) by telegraphic

transfer to the Pitt and Hunter Streets branch of the ANZ Bank, Sydney,

for investment in ANZ Bank NCD's. One amount of A$190 954.51 was

remitted in November 1977 to the National Bank of Australasia (as it then

was) for investment in the NCD's of that Bank.

Arrangement between Nugan Hand (Hong Kong) and Nugan Hand Ltd

4.1.61 The first two amounts of deposits sent by Nugan Hand (Hong Kong)

to the ANZ Bank were received on 16 and 29 September 1977 respectively.

The ANZ Bank issued eight NCD's on behalf of the company and retained

- 654 -

custody of them until 14 October 1977, on which date the Bank delivered

the NCD's to the Sydney office of Nuqan Hand Ltd. From 14 October 1977,

all NCD's issued by the ANZ Bank on behalf of Nugan Hand (Hong Kong),

together with the NCD's issued by the National Bank of Australasia, were

delivered to Nugan Hand Ltd.®®

4.1.62 Ho document before the Commission contains the terms of the

arrangement between Nuqan Hand (Hong Kong) and Nugan Hand Ltd, whereby

Ntinan Hand Ltd held the NCD's in its custody on behalf of the company. A

letter dated 14 October 1977 from Nugan Hand Ltd, signed by Mr Hill as

Director, to Mr Co]lings of Nugan Hand (Hong Kong) states that, pursuant

to the instructions of Nugan Hand (Hong Kong), Nugan Hand Ltd has

received certain NCD's from the ANZ Bank, and 'In accordance with your

instructions, we will hold these certificates in our safe custody section

on vour behalf and await your instructions concerning your future

requirements.'

4.1.63 There is evidence before the Commission that the instruction

that Nugan Hand (Hong Kong) purchase NCD's emanated from Mr Nugan, and

that the funds were remitted by arrangement with Mr Collings. There is

further evidence that once the funds were in Sydney they were under the

control of Mr Nugan.®® According to Mr Collings, he understood the

arrangement was that the NCD's held by Nugan Hand Ltd on behalf of Nugan

Hand (Hong Kong) would be sold upon maturity, and the proceeds used to

purchase further NCD's on behalf of Nugan Hand (Hong Kong). The interest

earned on the matured NCD's was to remain in Sydney on deposit with Nugan

Hand Ltd until a sufficient sum had accumulated for the purchase of

further NCD's on behalf of Nugan Hand (Hong K o n g ) E a c h month

Mr Collings filed a return to the Banking Commissioner of Hong Kong which

indicated the amount of NCD's held on behalf of Nugan Hand (Hong Kong) by

Nugan Hand Ltd. Mr Collinqs filed these returns on the basis of telexes

received from Nuqan Hand Ltd in Sydney, usually signed by Mr Hill or 90

Mr Nugan, which stated the amount of NCD's so held. As will be seen,

these telexes contained information which was patently false, as Nugan

Hand Ltd ceased to hold the NCD's on behalf of Nugan Hand (Hong Kong),

and utilized them for its own purposes.

- 655 -

4.1.64 The reason for Mr Nugan's decision to have Nugan Hand (Hong

Kono) invest in the MCP's of Sydney banks is not entirely clear. The

company was subject to the restrictions imposed by the Banking

Commissioner of Bonn Kong, in that it was not permitted to invest more

than 25 per cent of its net assets in associated companies. This limited

the extent to which the company could invest with Nuqan Hand Ltd or Nugan

Hand Bank, although the company did invest in the NCD's of Nugan Hand

Bank from time to t i m e . M r Collings attributed Mr Nugan1s decision

to the interest rate differential for NCD's between Hong Kong and Sydney

in 1977. He said that the interest rate for NCD's in Hong Kong at that

tine was between six and seven per cent, whereas the interest rate 92

available in Sydney was around nine and a half to ten per cent.

Although the difference in interest rates may explain Mr Nugan's initial

decision, it does not explain his continued investment in NCD's beyond

late 1978, when the Sydney interest rate was no lonner favourable to

Nugan Hand (Hong Kong). His continued policy of investment in NCD's was

then clearly against the interests of the company as it cost more to

attract its deposits than it was able to earn in interest from its NCD's

in Sydney.

4.1.65 Mr Hill ascribed Mr Nugan's policy to his belief that 'the money 93

was more needed in Sydney than it was in Hong Kong.' The Commission

observes here that Mr Nugan would have been aware at the time he made the

decision to invest in NCD's that NCD's were bearer securities, that is

they were made payable to bearer, and could therefore be used by the

holder as if they were the property of the holder. The fact that

Mr Nugan sold the NCD's of Nugan Hand (Hong Kona) and used the proceeds

as a source of funds for the second capital injection [see 5.88-5.103]

into Nugan Hand ltd as early as October 1977, suggests that Mr Nugan had

that purpose in mind when he decided to invest the funds of the company

in Sydney NCD's. Mr Nugan's sale of securities belonging to the company

was only possible because that property was in the form of bearer

securities.

Misuse of NCD's by Nugan Hand Ltd

4.1.66 Irrespective of Mr Nugan1s initial motivation, his decision

resulted in Nugan Hand Ltd having control of a large amount of funds

- 656 -

belonging to Nugan Hand (Hong Kong) from mid October 1977 onwards. Of

the Af2 P53 714.05 remitted by the company to Sydney for investment in

n o d 's , Nugan Hand Ltd ultimately misappropriated approximately

A£ 2 .6 million worth of NCD's.^ The proceeds of most of the NCD's of

Nugan Hand (Hong Kong) on maturity were credited to the bank account of

Nugan Hand Ltd and treated by the company as its own funds.

4.1.67 There were a number of different uses to which Nugan Hand Ltd

put the securities of Nugan Hand (Hong Kong) which may briefly be

summarised as follows:

a. NCD's were lodged in the safe custody account of the Wing On

Bank as security for deposits with Nugan Hand Ltd which had been

guaranteed by the Wing On Hank. [The operation of the Wing On

Bank guarantee and safe custody account has been referred to at

4.1.27-4.1.55. ] Documents before the Commission indicate that

A$1.4 million worth of NCD's owned by Nugan Hand (Hong Kong)

were lodged in the safe custody account during the period

February 1978 to January 1 9 8 0 . ^

b. NCD's were lodged by Nugan Hand Ltd with the ANZ Bank, as

security for the overdraft of the company with the ANZ Bank.

This result was achieved as follows: Nugan Hand Ltd uplifted the

NCD's from the Wing On Bank safe custody account pursuant to the

'within the day' arrangement with the Wing On Bank. This

arrangement gave Nugan Hand Ltd access to A$l/2 million worth of

securities from the safe custody account, provided that the

securities were relodged in the account by the close of business

of the banking day. [See 4.1.36 to 4.1.39 for further details

of this arrangement.] Nugan Hand Ltd then lodged the Nugan Hand

(Hong Kong) NCD's with the ANZ Bank, as security for its

drawings from ANZ under the 'daylight overdraft facility'.

These drawings were used to purchase securities from

CitiNational Securities Corporation Ltd (hereafter referred to

as 'CitiNational'), which were given as security to intending

- 657 -

depositors with Nugan Hand Ltd. In effect Nugan Hand Ltd used

the securities of Nugan Hand (Hong Kong) to facilitate its own

collection of secured deposits.

c. NCD's were used to secure the deposits of local clients of Nugan

Hand Ltd. On 4 January 1980, two NCD's owned by Nugan Hand

(Hong Kong), each having a face value of AS 100 000 were given to

the Marrickville Municipal Council, as security for a deposit by

the Council with Nugan Hand Ltd. As Nugan Hand Ltd did not

refund the Council's deposit on maturity, the Council presented

the NCD's to the ANZ Bank for payment in September 1980. (For a

fuller description of the Nugan Hand Group's activities with

local government bodies see the Commission's Interim Report

No. 2 concerning this subject matter.)

Although the proceeds from the NCD's were credited to the bank accounts

of Nugan Hand Ltd, the company's records do not reflect any liability to

Nugan Hand (Hong Kong). Mr Nugan sold some of the Hong Kong NCD's and

used the proceeds to fund the so called second capital injection into

Nugan Hand Ltd [see 5.88-5.103]. For further information in relation to

this topic see paragraphs 5.63 to 5.65.

False Information supplied by Nugan Hand Ltd to Nugan Hand (Hong Kong)

and its Auditors

4.1.68 The ability of Nugan Hand Ltd to utilise the NCD's of Nugan Hand

(Hong Kong) in the manner referred to above, and its ultimate

misappropriation of approximately A$2.6 million worth of them, depended

on its deception of the auditors of Nugan Hand (Hong Kong), Speakman &

Company, as to the status of the NCD's in Sydney. This deception took

the form of written advice to the auditors in 1977, 1978 and 1979 to the

effect that the NCD's were held on behalf of Nugan Hand (Hong Kong) by

Nugan Hand Ltd free of any encumbrance. The auditors were never advised

of the pledging or sale of the securities by Nugan Hand Ltd. Mr Hill has

given evidence to the Commission that he was aware that the information

provided to the auditors in respect of the NCD's between 1977 and 1979

- 658 -

96

was false. There is also evidence [see 4.1.69, 4.1.71-4.1.73] before

the Commission that Mr Nugan provided false information to the auditors,

and was a party to their deliberate deception.

4.1.69 The initial false information sent to the auditors was a letter

dated 14 October ]977 from Mr Hill, on behalf of Nugan Hand Ltd, to

Mr Collings of Nugan Hand (Hong Kong), which advised that, acting upon

the instructions of Nugan Hand (Hong Kong), Nugan Hand Ltd had received

from the ANZ Bank eight NCD's. The letter specified the serial numbers

of the NCD's received. Mr Hill further advised that these NCD's would be

held in the safe custody section of Nugan Hand Ltd pending the further 97

instructions of Nugan Hand (Hong Kong). This information was

patently false. On 6 October 1977, Nugan Hand Ltd had sold all but one

of the mo d's to CitiNational. These NCD's remained in the custody of

CitiNational until subsequently repurchased by Nugan Hand Ltd on

31 October 1977 and 4 November 1977 respectively. Mr Hill said in

evidence to the Commission that he was aware that the information

provided by him was false, and that such information was probably

provided on instructions from Mr Nugan.

4.1.70 On 21 February 1978, Mr Hill on behalf of Nugan Hand Ltd wrote

to the auditors of Nugan Hand (Hong Kong), Speakman & Company, in

response to a request for information as to NCD's held by Nugan Hand Ltd

on behalf of Nugan Hand (Hong Kong). Mr Hill advised that as at

21 February ]978, Nugan Hand Ltd held 15 NCD's on behalf of Nugan Hand

(Hong Kong) 'free from any lien', and particularised the NCD's by 99 number. The information provided was false in that nine of the

15 securities referred to were, at some point during 21 February 1978,

pledged by Nugan Hand Ltd to the Wing On Bank safe custody account as

security for deposits of Nugan Hand Ltd. Five of the NCD's were uplifted

from the safe custody account on 21 February 1978, and four NCD's were

lodged to the account on that date. The letters from Nugan Hand Ltd to

the ANZ Bank in relation to the lodgement and uplift of Nugan Hand (Hong

Kong) securities were signed by Mr Hill."*^ Mr Hill said in evidence

that the securities of Nugan Hand (Hong Kong) were probably uplifted from

the account to enable a physical inspection of the NCD's by agents of the

- 659 -

Hong Kong auditors on 21 February 1978. He agreed that other Nugan Hand

(Hong Kong) securities were lodged in the safe custody account on

21 February 1978, after such physical inspection.*01

4.1.71 On 5 January 1979, Mr Nugan sent a telex to Speakman & Company,

in response to a request for particulars of NCD's held for the account of

Nugan Hand (Hong Kong), in which he stated that, as at 31 December 1978,

Nugan Hand Ltd held 14 NCD's issued by the ANZ Bank having a face value

of A$1.4 million. The telex implied that such securities were the 102

property of Nugan Hand (Hong Kong). The information was false in

that as at 31 December 1978, all of the securities owned by Nugan Hand

(Hong Kong) were either pledged to the Wing On Bank safe custody account

or pledged to clients of Nugan Hand Ltd to secure their deposits.

Furthermore, A$400 000 worth of the securities referred to in the telex

were owned by Nugan Hand Ltd, not by Nugan Hand (Hong Kong). Mr Hill

said in evidence to the Commission that he was aware that Mr Nugan had

sent the telex and that in fact all of the securities referred to were

pledged.10"*

4.1.72 On 6 February 1979, a representative of the Sydney agents of

Speakman & Company attended the office of Nugan Hand Ltd to make a

physical inspection of the NCD's held on behalf of Nugan Hand (Hong

Kong), for the purpose of the 1978 Nugan Hand (Hong Kong) audit. At the

outset of 6 February 1979, all of the NCD's referred to in Mr Nugan's

telex of 5 January 1979 as the property of Nugan Hand (Hong Kong) were

lodged, as security for deposits with Nugan Hand Ltd, in the safe custody 104

accounts of the Wing On Bank and of a Nugan Hand Ltd depositor. To

enable a physical inspection of the NCD's to occur, Mr Hill arranged the

uplift on 6 February 1979 of securities from the safe custody accounts,

and their delivery to the Nugan Hand Ltd offices in Macquarie Street. In

order to secure the release of six NCD's from the Wing On Bank safe

custody account, Mr Hill lodged a cheque drawn on Nugan Hand Ltd for

A$600 000 in the account, pursuant to the 'within the day' arrangement

with the Wing On Bank [see 4.1.36].105 The cheque was drawn on the

Nugan Hand Ltd No.2 Account at the ANZ Bank, and at the time of lodgement

there were insufficient funds in the account to cover the cheque.100

- 660 -

After their inspection by the representatives of the auditors, the NCD's

were relodaed in the safe custody accounts from which they had been 107 uplifted. (Although the representative of the auditors claims to

have inspected all 14 NCD's referred to in Mr Nugan's telex of 5 January

1979, the records of the ANZ Bank indicate that four of the NCD's said to

have been inspected, were not uplifted from the Wing On Bank safe custody

account on 6 February 1979. Mr Hill attributed this apparent discrepancy

to an error in the ANZ Bank's records.)^®

4.1.73 It is evident that both Mr Hill and Mr Nugan misled the auditors

of Nugan Hand (Hong Kong) in relation to the true status of the company's

NCD's . It is also evident that the monthly telexes sent by Nugan Hand

Ltd to Nuqan Hand (Hong Kong) most of which were signed by Mr Hill or

Mr Nugan, in respect of the NCD's held by Nugan Hand Ltd for Nugan Hand

(Hong Kong), contained false information. This false information was

incorporated in the monthly return of the company to the Banking

Commissioner of Hong Kong.

Position of Directors and Auditors * 1 0 9

4.1.74 From the evidence before it, the Commission is unable to

determine whether Mr Ceilings and other senior staff of Nugan Hand (Hong

Kong) in Hong Kong were aware of the pledging and misappropriation of the 109 securities of the company. On 18 May 1982, Nugan Hand (Hong Kong),

then in liquidation, filed a statement of claim in the High Court of Hong

Kong in which it alleged breaches of fiduciary duty and negligence on the

part of Messrs Collings, Hill, J. McArthur [profile 2.46],

G.A. Courtney-Smith [profile 2.17] and R.L. Attkisson [profile 2.4] in

relation to their management of the funds of Nugan Hand (Hong Kong). The

company has claimed damages of approximately US$2.6 million, being the

approximate amount of securities misappropriated by Nugan Hand Ltd."^

At the time of writing, each of the defendants has been served with

process regarding these matters, and Messrs Ceilings and McArthur have

filed defences. The proceedings may come on for hearing in late

- 661 -

4.1.75 On 28 April 1984, Nugan Hand (Hong Kong) (in liquidation) issued

a writ against Speakman & Company in relation to its preparation,

presentation and audit of the accounts of the company for the year ending

31 December 1978. The writ alleges that Speaknan & Company was negligent

and claims unspecified damaaes."*·"*·^ Mr Speaknan told the Commission

that he understood it was alleged against Speakman and Company that the

methods used, to confirm that the Men's of Nugan Hand (Hong Kong) were

held by Nugan Hand Ltd on its behalf, were inadequate. The

liquidator of the company advised the Commission on 1 April 1985 that he 114

expected the writ to be served shortly.

Breaches of Banking and Tax Ordinances 1 1 5

4.1.76 The Banking Commissioner of Hong Kong required that any company

in Hong Kong which carried on the business of taking deposits in Hong

Kong be registered as a Deposit Taking Company. Nugan Hand (Hong Kong)

was so registered on 12 July 1976, but did not, according to its records, 115

collect its first deposit in Hong Kong until 26 April 1977. Until

April 1977, the company advised the local banking and revenue authorities

that: it was operating only as a representative office of Nugan Hand Ltd,

Sidney, in Hong Kong; it carried out information exchange and liaison on

behalf of Nugan Hand Ltd; and did not pursue any business on its own

account in Hong Kong."^® This was an untrue statement of the position

in two respects.

4.1.77 First, it appears that Nugan Hand (Hong Kong) had in fact

received deposits from Nugan Hand Inc. Panama as early as July 1975,

although, as previously explained [see 4.1.8-4.1.9], these deposits were

disguised in the records of the company as subscriptions of

] 17 ,

capital. A letter dated 26 September 1976 from the accountant of

Nugan Hand (Hong Kong) to Mr G. F. Brincat [profile 2.9] discloses that

the company had collected deposits from Hong Kong clients, and seeks

guidance as to how these receipts should be recorded in the books, 'since

Les doesn't want HK to be a deposit taking Company yet'.'^ (The

reference to 'I.es' is a reference to Mr Ceilings.) The evidence before

the Commission indicates that Mr Brincat was requested by Mr Nugan to

- 662 -

rewrite the cash books of Nugan Hand (Hong Kong) so as to represent these

deposits as share capital received from Nugan Hand International Holdings

Pty Ltd [see 4.1.81 ].lj·9

4.1.78 Second, the staff of Nugan Hand (Hong Kong) had been actively

engaged in collecting deposits for Nugan Hand Ltd, since June 1975, and

for the Nugan Hand Bank, since mid 1976. The staff of the coirpany had

also transferred funds into and out of Hong Kong on behalf of Nugan Hand

Ltd, dispensed information and given advice in relation to Nugan Hand Ltd

and the Nugan Hand Bank, and negotiated with clients in relation to

deposits to external bank accounts. On one view, each of these

activities amounted to the carrying on of business by the company in Hong

Kong. Mr Collings received legal advice to this effect from a Hong Kong 120 Queen's Counsel in June 1977. Deposits collected on behalf of Nugan

Hand Ltd were delivered to the Wing On Bank with an instruction that they

be remitted to the account of Nugan Hand Ltd in Sydney. This was done to

avoid these deposits being banked in Hong Kong and in an attempt to

ensure that Nugan Hand (Hong Kong) and Nugan Hand Ltd were not,

technically at least, carrying on the business of taking deposits in Hong 121 Kong. However, deposits collected by the staff of the company on

behalf of the Nugan Hand Bank, were placed in Hong Kong dollar and United

States dollar bank accounts held in the Bank's name at the Wing On Bank

in Hong Kong. Upon clearance of the deposits, staff in Hong Kong issued

Hong Kong clients with an international certificate of deposit on behalf

of the Bank. This activity was recognised, even by the employees of the

company, as being a blatant breach of the Banking Ordinance, in that

Nugan Hand (Hong Kong) and the Nugan Hand Bank were carrying on a banking

business in Hong Kong.·^

4.1.79 It is evident that at least until March 1977 the staff of Nugan

Hand (Hong Kong) were involved in activities which were in breach of the

local Securities Ordinance, which required the registration of investment

advisers and representatives. Although none of the staff of the company

was so registered, the evidence indicates they were engaged in activities

for which registration was required, including investment advice,

portfolio management advice, trade services, money market operations and

- 663 -

offshore banking transactions. The only activities in which the staff of

the company could legitimately engage, when acting on its behalf, were

those connected with the taking of fixed term deposits for periods of l 100 days or longer.

Fecords and Administrative Procedures

4.1.80 Until March 1977 Nugan Hand (Hong Kong) possessed virtually no

accounting records and no system of office administration. Although a

local accountant, Mr W.H. Areson [profile 2.3], had been engaged by

Mr Collings in 1975 to compile the books of account of the company and

establish an accounting system, he had found his task a hopeless one. He

was provided with such scant information that he was able to produce only

a very rudimentary cash book. This was prepared on the basis of bank

statements and deposit slips only, and did not identify the source or

recipient of funds. The information provided to Mr Areson was

124

insufficient for him to compile a general ledger.

4.1.81 In September 1976, Mr Areson, at the request of Mr rollings,

sent the cash book of Nugan Hand (Hong Kong) to Mr Brincat in Sydney

together with a letter seeking Mr Brincat's guidance as to where certain 125 transactions should be recorded. The letter indicates that the

company had collected deposits from Hong Kong clients, and had purported

to issue paid up shares to Nugan Hand International Holdings Pty Ltd,

which would need to be reflected in the company's accounts. Mr Brincat

agreed in his evidence to the Commission that he was being asked to

construct the books of Nugan Hand (Hong Kong) so as to represent deposits

received by the company as share capital received from Nugan Hand

International Holdings Pty Ltd.* 1 2 4 1 2 5 126 1 2 7 * 1 2 9 Mr Brincat rewrote the cash book in 127

accordance with instructions received from Mr Nugan. There is also

evidence that Mr rollings sent information concerning deposits to the

company direct to Mr Nugan for the purpose of the rewriting.'*''^ The

cash book, when returned to Mr Areson, was in a very different form and

contained among other things much more information as to the names of

depositors and amounts of their deposits, and transfers of money between 129

Nugan Hand (Hong Kong) and other Nugan Hand Group companies.

- 664 -

4.1.82 In March 1977 Mr Nugan requested Mr Needham to act as a

consultant to the Hong Kong office. Mr Nugan told him that because the

operation in Hong Kong had expanded very quickly, there was no

administrative procedure and the accounting and office procedures were a

shambles. At the time of Mr Needham's arrival in Hong Kong in March

1977, the records of Nugan Hand (Hong Kong) comprised a petty cash book

and a cash book. Mr Needham said he employed two members of Mr Areson's

firm to prepare proper books of account and statutory records for the 130 company. He also established an internal accounts department to

attend to bookkeeping and accounts.131

4.1.83 Mr Needham told the Commission that it was at the completion of

this writing up of the accounts that he identified a US$3 million

shortfall in the accounts of the company, by a comparison of total funds

on deposit with the company and total funds on deposit in the ACU

market. When Mr Needham broached this matter with Messrs Nugan and Hand,

according to Mr Needham the latter appeared to have no understanding of

the accounts. Mr Nugan rejected the proposition that there was a

shortfall, explaining that many of the company's funds were involved in

inter-company loans, dealings in the Sydney money market and in funding 132

letters of credit for various clients. (Mr Collings said that he

does not agree with Mr Needham with regard to Mr Needham's assertion

about the shortfall.)133

4.1.84 From late 1977 the accounting records of Nugan Hand (Hong Kong)

were held in the Singapore office of the Nugan Hand Group. The staff of

Nugan Hand (Hong Kong) were instructed to advise Mr Hand in the Singapore

office of the balance of the Hong Kong accounts daily and to provide him

with a summary of the company's transactions at the end of each week.

There was a weekly transfer to Singapore of the paperwork related to

these transactions.·*··^

4.1.85 Shortly before 15 November 1977 Mr Brincat and Mr Hill travelled

to Hong Kong at the request of Mr Nugan for the purpose of devising an

internal accounting system for Nugan Hand (Hong Kong). On Mr Nugan's

instructions Mr Brincat established a set of cash books and a system of

- 665 -

allocating the expenses of the company to other companies in the Nugan

Hand Group. He instructed the Hong Kong staff on the method of recording

the expenses incurred by the company in its books. At a later date 135

Mr Brincat established a system of ledgers and journals.

4.1.86 In November 1977 Areson & Company was replaced by Speakman &

Company as accountants to Nugan Hand (Hong Kong). In the same month

Areson & Company wrote to the Hong Kong Commissioner of Inland Revenue

advising him that it would not accept any responsibility for documents

filed on behalf of the company because it had learned that the books

formerly maintained by it for the company were now being written up in a

different format.136 In February 1978 Speakman & Company were also

appointed auditors of Nugan Hand (Hong Kong). Although Speakman &

Company audited the accounts for the period ended 31 December 1978, the

audit of the accounts for the period ended 31 December 1979 was not

finalised as the auditors were unable to obtain all the information and

explanations required. The inspector appointed to investigate the

affairs of the company reported on 29 April 1980 that its books and

records were incomplete and not in accordance with the draft accounts of 137 that date presented to him.

Lack of Profitability

4.1.87 The audited accounts of Nugan Hand (Hong Kong) for the years

ended 31 December 1977 and 1978 show that the company made a net profit

after tax of US$114 914 and US$174 964 respectively.138 The draft 1 39

accounts for 31 December 1979 show a loss of US$216 686.

4.1.88 The Commission is of the view that little credence can be given

to the figures shown as net profit in the audited accounts. A

representative of Speakman & Company told the Commission that he is now

of the view that the books of the company for 1978 had been

1 cooked* 1.1 * * ^8 Mr Hill gave evidence to the Commission that in order to

make the company appear to be more profitable than it was, the expenses

of the company were transferred to the Yorkville contra account of the

Nugan Hand Bank. This was achieved in the following way. Nugan Hand

- 666 -

(Hong Kong) charged the Nugan Hand Bank management fees sufficient to

cover the operating expenses of Nugan Hand (Hong Kong). The company

would then show a credit in its books in respect of management fees, and

would debit its operating expenses to the Yorkville contra account of the

Nugan Hand Bank. This system operated from 1976."*"^ [See

4.1.96-4.1.101 and 8.36-8.55 for a more detailed description of the

Yorkville contra system.]

4.1.89 Nugan Hand Inc. Panama was also used in similar transactions

designed to improve the profitability and asset position of Nugan Hand

(Hong Kong). In December 1977, for example, expenses of US$132 574

incurred by the company for office salaries and disbursements which were

payable to the Nugan Hand Bank, were transferred to Nugan Hand Inc.

Panama. All that occurred was that in the records of the Bank, a journal

entry was effected which reduced the indebtedness of Nugan Hand (Hong

Kong) to the Nugan Hand Bank by US$132 574 and increased the indebtedness 142

of Nugan Hand Inc. Panama to the Bank by that amount.

4.1.90 There is evidence before the Commission that in 1978 the

Commissioner of Banking in Hong Kong was suspicious of the activities of

Nugan Hand (Hong Kong) and was watching its operations very closely.

Although the Commissioner at that stage could find nothing wrong with the

company, he could not understand how it made enough profit to pay for its 143

expensive offices and the salaries of its large staff. It is

apparent that Mr Collings was aware of the suspicions of the Banking

Commissioner as he noted in memoranda to Mr Hand and Mr Nugan that he was

quite sure the Commissioner would be taking special notice of the monthly 144

return of the company (under the Deposit Taking Ordinance).

4.1.91 A number of factors increased the operating expenses of Nugan

Hand (Hong Kong) and militated against its becoming a profitable company.

4.1.92 First, the fact that the company was evidently conceived by

Mr Nugan as operating mainly for the benefit of other companies in the

Nugan Hand Group. As has been already referred to in this section [see

4.1.10, 4.1.12-4.1.14], the company was responsible for the introduction

and servicing of the clients of Nugan Hand Ltd and the Nugan Hand Bank,

as well as of its own clients. The Hong Kong office premises were

- 667 -

impressive and the office was regarded as a showplace to which clients

and prospective clients were often directed. Several members of the Hong

Kong staff were employed full time in entertaining visiting clients. In

addition, Mr Collings was frequently expected to perform this

entertainment function. The company also owned a large Chinese junk,

'The Dolphin One', which was used for entertaining clients."1 ·45

4.1.93 Second, Mr Nugan pursued investment policies which were contrary

to the interests of the company. Mr Nugan permitted the investment of

the funds of Nugan Hand (Hong Kong) on the unprofitable Asian Currency

Unit market in Singapore. He arranged the investment of AS2.7 million

worth of the company's deposits in bank issued negotiable certificates of

deposit in Sydney, at a time when the interest rates available for these

securities in Sydney were much lower than the rates available on

investments in Hong Kong. As is apparent from the fate of the company's

securities, these policies were implemented in the interests of Nugan

Hand Ltd, and to the detriment of Nugan Hand (Hong Kong). In December

1979 a member of the Hong Kong staff urged the newly appointed Chief

Executive of the Nugan Hand Group, Mr D.E. Beazley [profile 2.7], to

review and renegotiate the placement of the company's funds. He noted

that, of the company's purported assets of HK$19 million, HK$14 million

were held by Nugan Hand Ltd, and queried, '... what's NHL Sydney paying

NHHK for all these?'445

4.1.94 Third, the rates of commission paid to the sales representatives 147

of the company were unrealistically high. For example, during 1977

one of the company's main salesmen Mr P.M. Dunn [profile 2.18] received

commission in respect'of deposits collected by him at the following rate:

10% 7 year deposit

9% 5 year deposit

8% 4 year deposit

7% 3 year deposit

5% 2 year deposit

3% 1 year deposit

2% 6 month deposit

1% 3 month deposit

- 668 -

In addition, this representative received a monthly retainer of US$1 500

and an overriding commission in respect of the deposits collected by

salesmen under his supervision.148

4.1.95 Fourth, the staff and resources of the company were used to

pursue unrealistic trading proposals and other schemes which rarely came 149 to fruition. One example of this use of the company's staff to

pursue 'pie in the sky' objectives was the participation by Admiral

E.P. Yates [profile 2.76] and Mr Oollings, on behalf of the Nugan Hand

Group, in negotiations to purchase the United Chinese Bank from General

Yee in April 1978. After lengthy and expensive negotiations, the

purchase did not proceed because the Group could not raise the necessary

US$30 million. It is clear that there was never any prospect from the

outset of the negotiations that Mr Nugan or Mr Hand would have access to

funds of that magnitude, yet both gave instructions that the matter be

pursued [see 3.5.40],

The Yorkville Contra

4.1.96 The operation of the account styled 'Yorkville contra1 and its

significance in relation to Hong Kong is dealt with in detail in Part 8.

The subject is therefore only briefly alluded to here.

4.1.97 The term 'Yorkville contra', in the context of the Nugan Hand

(Hong Kong) operations, refers to a facility whereby money was lodged by

a depositor at the Nugan Hand Group office in Sydney or in Hong Kong, and

the same amount of money was made available for that depositor by the

office in Hong Kong or Sydney respectively. There was no physical or

notional transmission of money across national borders.

4.1.98 There is evidence before the Commission that Mr Oollings carried

out what he termed 'isolated transactions' classified as Yorkville

contras at the request of Messrs Nugan, Hand, Hill and G.T. Shaw [profile

2.65].1^0 In particular Mr oollings made a number of such payments to

Mr Murray Stewart Riley and Mr Graham Besey in Hong Kong between April

and November 1976. These payments were made on instructions from the

- 669 -

Sydney office, as a result of deposits received by Nugan Hand Ltd in

Sydney. Except in the case of the April 1976 payment to Mr Riley, Nugan

Hand (Hong Kong) did not receive reimbursement from Nugan Hand Ltd for

these payments.151

4.1.99 That the Yorkville contra system was already in use in Hong Kong

by September 1976, is confirmed by a letter dated 22 September 1976 from

Areson & Conpany to Mr Brincat. The letter referred to payments made to

clients by the company on instructions from Sydney, in respect of which

funds had not been received, and sought guidance as to what should be

done (in the books of the company) about the 'hanging debit1 thereby . . 152

created.

4.1.100 There is evidence before the Commission [see 8.36-8.55] that

Nugan Hand Ltd used the Yorkville contra as a means of transferring funds

between Hong Kong and Australia without the approval of the Reserve Bank

of Australia. Such transfers were in breach of the Banking (Foreign

Exchange) Regulations.

4.i.lQl Mr Hill told the Commission that Nugan Hand Ltd juggled Reserve

Bank of Australia approvals to facilitate transfer of funds between

Australia and Hong Kong in both directions.^51 He said that it was

possible to obtain a Reserve Bank approval to borrow funds from corrpany A

in Hong Kong, and to transfer other funds, not being the funds of

154

conpany A, to Australia. Similarly, repayment approvals were used

to transfer funds other than the funds in respect of which the approval

had been granted. In effect, Nugan Hand Ltd would claim to the Reserve

Bank to be repaying a particular depositor, when in fact the funds were 155

being transferred to Hong Kong for some other purpose. One of the

objectives of these money transfers was to cover liquidity problems in

Nugan Hand Ltd and Nugan Hand (Hong Kong). Funds were also transferred

from Hong Kong for the 'capitalisation' of Nugan Hand Ltd.156

According to the evidence of Mr Hill, the scheme was used quite

extensively, but never so as to 'use up' all the Reserve Bank approvals.

Those privy to the scheme were said by Mr Hill to be inter alia, 'the

people in Hong Kong', himself and Mr Nugan.157

Into Liquidation

4.1.102 The company received its last deposit on 3 April 1980 and made

its final repayment of a deposit on 15 April 1980. By a notice dated

28 April 1980, an inspector was appointed to investigate the affairs of

the company, pursuant to the Companies Ordinance (Hong Kong). A

Statement of Affairs of Nugan Hand (Hong Kong) as at 8 April 1980

prepared by the inspector, indicated that at that date the company held

HK611 589 819 (A$2 147 853.70) in deposits from nine depositors. Of this

total, HK$5 million (A$926 612) was owed to the Chase Manhattan Bank and

HK$1.25 million (A$231 653) was owed to Ayala Finance (HK) Ltd. Both of

these deposits were secured by the guarantee of the Wing On Bank. The

unsecured deposits totalled HK£5 339 819 (A$989 588.39)

4.1.103 On 29 April 1980, an interim report was submitted by the

inspector which stated that the company was undertaking no business and

was unable to meet current routine operating expenses. In fact, the

company had been subject to heavy demands for cash from Nugan Hand Ltd,

Sydney since the date of Mr Nugan's death. As early as 31 January 1980,

a member of the Hong Kong staff reported to the manager of Nugan Hand

(Hong Kong) that, apart from US$350 000 on ACU lien to the Wing On Bank,

the company had no funds placed on 24 hour call and 'we are pretty near

the bottom of the barrel'. 160 The inspector observed that the

company's staff had received little or no response to requests for

information from Nugan Hand Ltd in recent weeks, and had been acting

without adequate Group directives. All staff had been dismissed, and

those persons present in the office of the company were there voluntarily

merely to assist in answering inquiries. The report concluded that the

company was unable to pay its debts as at 29 April 1980, the company

having already received claims for repayment which it was unable to

meet. The report stated that the company's ability to repay its

depositors in the long term depended on its ability to realise

HK$12 804 673 (A$2 372 993) worth of negotiable certificates of deposit

held in custody by Nugan Hand Ltd. The report noted that prospects of

recovery were doubtful since the securities were bearer securities held

by Nugan Hand Ltd and that company itself was at that date in

liquidation.160

- 671 -

4.1.104 On 3 May 1980 the Hong Kong Official Receiver was appointed

provisional liquidator of Nugan Hand (Hong Kong) and on 29 May 1980 the

Supreme Court of Hong Kong made an order winding up the company upon the

petition of the Attorney General. The Official Receiver continued as

provisional liquidator and was appointed liquidator by resolution of the

first meeting of creditors on 20 June 1980. To date, no report by

the liquidator has issued.

4.1.105 On 1 April 1985 the Official Receiver advised the Commission

that the liquidation of the company was still in progress and that it was

impossible to estimate the shortfall, if any, in the liquidation at that

date. He stated however, that as at April 1985, surplus cash of

A$285 219 was available to meet the liquidation expenses, and for

distribution to creditors. Proofs of debt lodged by creditors, but as

yet unaccepted by the liquidator, totalled in excess of A$2 167 490. The

liquidator highlighted three litigation actions instituted by him, which

if successful, would have a major bearing on the funds available for

distribution to creditors. The first of these actions is a claim for

damages of approximately US$2.6 million for negligence and breach of

fiduciary duty against Messrs Ceilings, McArthur, Courtney-Smith,

Attkisson and Hill. This claim relates to the misappropriation of the

NCD's of the company by Nugan Hand Ltd which has been previously referred

to in this section [see 4.1.66-4.1.67], The second action is a claim for

negligence and breach of contract against the company's auditors which

has also been previously referred to [see 4.1.68-4.1.69, 4.1.73,

4.1.75]. The third action is a claim against Mr Riley for moneys

received by him from the company [see 4.1.98], which resulted in the

making of a sequestration order against Mr Riley's estate on 7 May 1984.

The Official Receiver was not able to indicate when these three

proceedings would be concluded. There has been no further

information forthcoming from the Official Receiver. Thus, at the time of

writing this report, it is impossible to state the extent of the

deficiency in the funds of Nugan Hand (Hong Kong).

oo^j Ch

- 672 -

ENDNOTES : PART 4 - SECTION 1

(See explanatory note at front of report)

1 CT15726-27, Hill

2 CT22439, Needham

3 CD4537 folio 19, Statement of Claim Nugan Hand (Hong Kong) v

Collings and ors 4 CD4445 folio 62, Collings statement to JTF 10/12/81 5 CD4533 folio 30, Record of conversation - Collings and CAC

27/8/80 CT23165-66, CT23200, Ward CT22781-82, Collings; CT23157, Ward CD2022, Stock Register of NH Inc. Panama 9 CD2022 folios 4,7, Stock Register of NH Inc. Panama 10 CT22788-89, CT22805, Collings 11 CD10491 folios 26-27, Nugan Hand (Hong Kong) Stock Account 12 CD1557 folios 107-09, Letter Nugan Hand Ltd/Nugan Hand (Hong

Kong) 1/7/75

13 CD10877 folio 63, Letter Ward/Areson 14 CD4609 folios 1-50, Collings evidence to Hong Kong Official Receiver 15 CT22800, CT22804, Collings 16 CD9902, Nugan Hand (Hong Kong) correspondence 17 CD6509 folio 464, Memo Collings/Ward 11/9/75 18 CD4251 folio 170

19 CT22803-05, Collings; CD10499 folio 53, Nugan Hand (Hong Kong) deposit records 20 CD4533 folio 47

21 CD10499 folio 53, Nugan Hand (Hong Kong) deposit records 22 CT22826, Collings; CT22693, Pulger-Frame; CD10978 folio 15, Lovatt ROI Commission investigators 23 CD10867 folio 15

24 CD6119

25 CD10499 folio 16

26 A173 Letter from Nugan Hand (Hong Kong) liquidator 1/4/85 27 CD10499 folios 43-53

28 CD3115

29 CD10499 folios 43-53

30 CD10499 folios 43-53

31 CD995

32 CD4533 folios 8-12

33 CD6930 folio 32, Valdellon memo 10/12/79 34 CT22803, Collings

35 CD4533 folio 53; CD4609 part 2 folio 18; CD4609 part 2 folio 70 36 CD11181 folio 186

37 CD11011 folio 356

38 CT22799, Collings 39 CT24013, Ward

40 CT22465, Dunn

41 CT22779-800, Collings; CT22420, Needham 42 CD7082 folios 83,86; CD10476 folio 83; CD10646 43 CT22801, Collings; CT22938, McArthur; CT22694, Pulger-Frame; CT22110-111, Courtney-Smith

44 45 46 47 48

49 50 51 52

53

54 55 56

57 58 59 60

61 62

63 64 65 66 67 68 69 70 71

72

73 74 75 76 77 78 79

80 81 82 83 84

85 86

- 673 -

CD11529 folio 87, Kwok letter to Commission 9/4/85 CD5616 folio 161 CD5616 folios 202-03 CD5616 folios 198-99 CD5615 folios 410,413,415-17 CT22794, Collings; CD5615 folio 390; CD4761 folio 15 CD5615 folio 361; CD5616 folio 142 CD5615 folios 325-26 CD5615 folio 310; CD11529 folio 86 CD5615; CD3741; CD4761; CD3750; CD3739. Note: For the purpose of this analysis, bills of exchange accepted or endorsed by the

SIRE group of companies have been classified as internal bills of exchange. CD5615 folio 387

CD5616 folio 114; CD11529 CD11529 folio 83; Dr Kwok advised the Commission that he knew of no reason for the safe custody account remaining with the Bank of New South Wales for almost two years after Nugan Hand Ltd had

transferred its other accounts. It was not suggested to him prior to January 1978 that the account should be moved. CD3750 folio 148

CD5616 folios 83,89-90 CD11529 folio 85 CDS616 folio 160; CD11529 folio 86

CD11529 CD5715, Wing On Bank Ltd v Secured Income Real Estate

(Australia) & Ors; CD10940 folios 42-43 CD11529 folio 84 CT22813-14, Collings; CT21839, Hill CT22815, Collings; CT22460, Dunn CD10499 folio 53 CD11529 folio 86 CD11529 folios 87-88 CD4533 folio 53 CD11011 folio 356

CD3739 folios 19-20; CD3750 folio 1; CD3750 folio 156; CDS215 folios 7-8 CD5715, Wing On Bank Ltd v Secured Income Real Estate

(Australia) & Ors; CD5615 folio 64 CD11529 folios 84-85 CD11011 folio 356 CD5116 folio 8 CD10940 CD10776 CD11371 CD11529 folio 72 CT22785-86, Collings; CD4609 part 2 folio 73

CT22421-23, Needham CT22421, Needham; CT22700, Pulger-Frame CT22420-22, Needham CT22839-41, Collings; CD4609 part 3 folio 89, Collings evidence

to Official Receiver Hong Kong 23/2/82, CD10978 folio 3, Lovatt CD11011 folio 467 CT21844, Hill

87 88 89 90 91

92 93 94

95 96 97 98 99

100 101 102 103 104 105 106 107 108

109 no 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137

- 674 -

CD10043 folio 264 CT24812, Hill; CD4609 part 3 folio 7 CD4609 part 3 folios 10-11 CT22849, Collings; CD6491 folio 28

CD4533 folio 23, Collings evidence to CAC 27/8/80; CD4609 part 3 folios 8-9 CD4533 folio 3, Collings evidence to CAC 28/8/80 CT24812, Hill CD11475, CDJ1476, CD11477, Reconstruction Working Papers; CD3540, NHL Cash Receipts Book for ANZ No. 2 account CD11011 folios 477-84 CT24798, CT24802-04, CT24809-11, Hill

CD10043 folio 264 CT24798, Hill CD10043 folio 267 CD10043 folios 289-300 CT24802-04, Hill CD10043 folio 302 CT24809, Hill CT24810, Porter; CD10043 folio 357 CT24810-11, Hill; CD10043 folio 392 CD10043 folio 394 CD10043 folio 357 CT24811, Hill; CD10043 folio 413; CD10043 folio 357 Statement of Grant Jennings CT24813 Hill; CD4609 part 3 folios 10-11 CD7025 A173 Letter from Liquidator 1/4/85 CD10820 CT22981, Speakman A173 Letter from Liquidator 1/4/85 CD10499 folio 53 CD7082 folio 67 CD10491 folios 26-27 CD4604 folio 2 CT25248-49, Brincat CD6512 folios 13-14 CT22784, CT22792, Collings CD11153 folio 10, Attkisson memo CD6522 folio 164, Memo Needham/Hand 23/3/77 CT22955-59, Areson; CT23027, Lovatt; CT22704, Pulger-Frame CD4604 folio 2 CT25248-49, Brincat CT25251-52, Brincat CD6791 folio 15 CT25254, Brincat CT22415-20, Needham CD10978 folio 3, Lovatt CT22423, Needham CD4609 part 2 folio 43 CD11153 folio 80 CT25252-53, Brincat CD1557 CD11060 folio 6

138 139 140 141 142

143 144 145 146 147 148 149 150 151

152 153 154 155

156 157 158 159 160

161 162

- 675 -

CD6119; CD10499 CD10499 CT22995-96, Speakman CT15726-27, Hill CD11162; CD6690 folios 68,76; CDS371 folios 8-9 CD8628 folio 78

CD10473 folios 4-5 CD4609 part 2 folio 82 CD6930 folio 32, Memo from Valdellon 10/12/79

CT22422, Needham CD6523 folios 4-6,12,13 CT22915-16, McArthur CD4533 folio 41; CD4609 part 2 folio 54; CD6491 folio 30

CD4445 folio 64 CD4604 folio 2 CT15745, Hill CT15707-08, Hill

CT21936, Hill CT15745, Hill CT21938, Hill CD11060 CD7487 folio 32, Memo Lovatt/Attkisson 31/1/80 CD11060 folio 4 CD4354 folio 2 A173 Letter from Liquidator 1/4/85

- 677 -

SECTION 2 : THE NUGAN HAND BANK

Introduction

4.2.1 It is arguable that the single most remarkable achievement of

the Nugan Hand Group was the establishment of the Nugan Hand Bank

[profile 2.106] under the law of the Cayman Islands, in 1976. This

British Colony, in common with such places as Hong Kong, Panama etc,

attracts money and investors by reason of its 'tax haven' status and

because of the confidentiality accorded to entities (and their affairs)

which gain registration under Cayman Islands law. Generally speaking the

result is that the authorities in the Colony will not furnish any

information concerning persons or activities which have been accorded

protection under the Colony's laws relating to confidentiality. One

exception is where the Colony, or the United Kingdom on behalf of the

Colony, has entered into an express agreement with another country to

provide certain limited information in specified circumstances. One such

agreement is the one recently concluded with the United States [see

4.4.14]. The Commission's efforts to penetrate these confidential laws

of the Cayman Islands in respect of the activities of the Nugan Hand Bank

were unsuccessful [see 4.4.1-4.4.13]. The information available to the

Commission is therefore incomplete, and markedly so. While it is not

possible from the documents available to the Commission to provide a

total figure for deposits received in the three years during which the

Nugan Hand Bank operated, some indication of the size of the Bank's

operations can be gained from the fact that at the time of the death of

Mr F.J. Nugan [profile 2.1] the Bank had received over US$22 million in

deposits."*"

4.2.2 It is necessary when referring to the Nugan Hand Bank to

distinguish between the use of this term to denote the Bank as a

corporate entity, that is the Nugan Hand Bank, Cayman Islands, and its

use to denote the international arm of the Nugan Hand Group, that is

Nugan Hand International. The latter was a descriptive term adopted by

- 678 -

the Nugan Hand Group to refer to the many offices which were opened in

foreign countries without the approval of the relevant overseas banking

authorities. The NUgan Hand Group referred to these offices as

representative offices or trade service organisations and their role was

described as merely representative, or that of assisting existing clients

in their international operations. Clearly, however, their main concern

was that of collecting deposits for the Nugan Hand Bank.

4.2.3 This Section of the report deals with the Nugan Hand Bank both

in its corporate sense and its operational sense, meaning by the latter

term, the overseas representative offices known as Nugan Hand

International. The section provides a brief outline of the

establishment, development and on-going operations of the Bank. As far

as specific contraventions of Australian law are concerned, it should be

noted at the outset that as a foreign company operating outside

Australia, it was not subject to Federal or State law. This does not

mean, however, that breaches of Australian laws may not have occurred in

relation to certain of the Bank's activities which took place in Sydney.

Antecedents of the Bank * 3

4.2.4 The proposal to establish the Bank was made following the

unsuccessful performance of a Nugan Hand Group precious metals trust

called Ingold Growth Incorporated [see 3.3.6, 3.3.8-3.3.10], This trust

was incorporated in Panama and was designed to place investors' funds 3

in gold, silver, platinum and palladium bullion. An associated

company, Ingold Growth Ltd, was incorporated in Hong Kong.'* Mr F.D.

Ward [profile 2.73] who was the Secretary and Managing Director of Ingold

Growth Incorporated and a Director of Ingold Growth Ltd, perceived the

Ingold venture as a means of gaining credibility and as such a first step

in Mr Nugan's primary goal of establishing a merchant banking

operation.^

4.2.5 During the operation of the trust from December 1974 to March

1976 it became apparent in the opinion of Mr Nugan that conditions were

not favourable for investment in precious metals, particularly gold, and

- 679 -

in April 1976 shareholders were being advised to redeem their holdings in

the trust and to seek an alternative form of investment.®

4.2.6 In fact the concept of the trust proved unworkable and the

result was a complete failure resulting in a loss which was probably 7

borne substantively by Nugan Hand Ltd [profile 2.97]. As a result,

the directors of Ingold Growth Ltd, at a meeting on 1 July 1976, resolved

to change its name to Nugan Hand International Holdings Ltd [Appendix B]

and to cause the incorporation of a company called the Nugan Hand Bank

and Trust Company in the Cayman Islands, British West Indies.®

Preliminary Inquiries * 1 2 1 3

4.2.7 The decision to set up the Bank in the Cayman Islands followed a

preliminary examination of alternative locations. Nugan Hand Ltd had in

fact applied to the Panamanian authorities for a bank licence as early as

September 1975. The application encountered difficulties in terms of

Panama's Cabinet Decree No. 238 of 2 July 1970^ and the need to

establish that Nugan Hand Ltd was a qualified bank in Australia.

Mr Nugan in correspondence with the Banking Commission in Panama pointed

out that there was in Australia, a distinction between

merchant/investment banks on the one hand and trading/savings banks on

the other and the licence sought by Nugan Hand Ltd in Panama was

equivalent to a licence under the New South Wales Securities Industry Act

1970 for investment banking services.^®

4.2.8 Mr Nugan sought Counsel's opinion on the question of whether

Nugan Hand Ltd's business in Australia came within the definition of

'banking business' under Panamanian l a w . ^ Counsel's opinion was in

the affirmative but it was finally concluded that the Panamanian

authorities would not accept that Nugan Hand Ltd's application accorded 12

with the requirements of Panamanian law.

4.2.9 A number of other possible locations were considered including

Hong Kong, Singapore, Seychelles, Malta, Monaco, Costa Rica and of course 13 the Cayman Islands.

- 680 -

4.2.10 In various documents prepared by Nugan Hand Ltd at the time, not

attributed to any particular officer, the benefits of the Cayman Islands

were seen to include: the absence of any taxes on income, profits,

capital gains or dividend distribution; stable government as a British

Crown Colony with no threat of a move to independence; complete banking

secrecy based on detailed and effective legislation; no restrictions on

currency transfer or conversion; a wide range of legal and accountancy

expertise locally; flexible banking laws; local currency linked to the

United States dollar; and suitable communication and accessibility. The

Cayman Islands, as a location for the proposed bank, was considered to

compare favourably with every other major tax haven on all relevant

criteria and on the more important criteria of tax, secrecy and exchange 14

control it was considered to have significant advantages.

Formal Steps to Establish the Bank

A. Incorporation and Licence Approval

4.2.11 The Nugan Hand Bank and Trust Company was incorporated in the

Cayman Islands on 6 July 1976.15 The shareholders, Messrs B. Campbell,

H. Rutter [profile 2.61] and P. Kandiah were the solicitors at the

offices of Bruce Campbell & Co, Cayman Islands who arranged for

incorporation and thus were conveniently placed to finalise matters in

the absence of Nugan Hand Ltd personnel. Each was assigned one

15a

share. At the first meeting of the company on 8 July 1976 the three

subscribers to the memorandum of association were elected directors as an

interim arrangement."*"®

4.2.12 The capital of the company was stated in the memorandum to be

US$720 000 made up of 720 000 shares of US$1.00.17 At the company's

meeting on 9 August 1976, Messrs Rutter and Kandiah resigned as

directors, their shares and that of Mr Campbell were transferred to Nugan

Hand Ltd, Mr Nugan and Mr M.J. Hand [profile 2.2], and a further 249 997

shares were issued to Nugan Hand Ltd."*"®

4.2.13 On 25 August 1976 the company was granted an unrestricted

Category B Banking Licence which meant that the Bank could carry on the

- 681 -

business of banking provided it was outside the jurisdiction of the 19 Cayman Islands. Although the name of the company was deliberately 20 chosen to provide for the trust activities of the Bank there is no

evidence that the Bank actually applied for or obtained a Trust Licence

at that stage [see 4.2.18].

4.2.14 The only evidence put to the Commission concerning the

capitalisation of the Nugan Hand Bank was by Mr S.K. Hill [profile 2.33]

who said it involved round robins [see 5.73] and was primarily carried

out in Hong Kong. He said that Mr L.H. Collings [profile 2.15] had once

asked him in what property was the Bank's capital invested in Australia.

Mr Hill then realised that because there were no investments in

Australia, that NUgan Hand Bank's capitalisation was simply a matter of 21 book entries. On the same subject and inviting the same conclusion,

Mr G.F. Brincat [profile 2.9] gave evidence to the Corporate Affairs

Commission of New South Wales that the entry in the Nugan Hand Bank

journal in respect of the 250 000 shares on 25 August 1976 contained no 22 reference to the receipt of cash.

4.2.15 Other evidence suggests that in fact a cheque for US$250 000 was

sent and banked although the drawer of the cheque was not identified.

The Corporate Affairs Commission's Seventh Interim Report states that on

12 August 1976 a credit of US$250 000 was recorded in the Nugan Hand Bank 23

account number 00241816 with the City Bank in Hong Kong. Further,

Price Waterhouse & Co., Chartered Accountants, Cayman Islands, (auditors

of the Nugan Hand Bank) informed Messrs W. Pollard [profile 2.57] and

Brincat, (auditors of Nugan Hand Ltd) in a letter dated 15 May 1980, that

'Nugan Hand Ltd became a shareholder in the bank on August 9, 1976 and

although we confirmed receipt of their capital (ie US$250 000) at that 24

date we do not know where such funds actually came from.' Aside from

this evidence, it is clear from correspondence at that time between

Bruce Cairpbell & Co, the Nugan Hand Bank's solicitors in the Cayman

Islands, and Nugan Hand Ltd that in order for the Bank to qualify for an

unrestricted Category B Banking Licence it was necessary for the Bank to

have a minimum paid-up capital of US$250 000 and the solicitors required

this amount to be lodged through the solicitors' office prior to

application for the licence being made to the Governor of the Cayman , 25

Islands.

- 682 -

4.2.16 On balance the evidence suggests that as far as the initial

capital of US$250 000 was concerned the correct amount of money was

subscribed. It is unlikely however, that the money remained subscribed,

an eventuality foreshadowed by a comment in the solicitors'

correspondence that:^

'The money subscribed for the capital is working capital and does not have to remain here and may be ued [sic] for any

purpose in the course of the company's business as a bank and/or Trust Company.'

4.2.17

B. Subsequent Change of Name * 3 1 3 2 3 3 3 4

4.2.18 On 20 January 1977 the name of the company was changed from the

Nugan Hand Bank and Trust Company to the Swiss Pacific Bank and Trust

Company. Subsequently on 16 February 1977, licences for both banking 31

and trust business were granted to the newly named company. The

change proved to be short lived as objections were raised in banking

circles in Hong Kong to the use of the word 'Swiss' given the absence of

any relevant link with Switzerland. After discussions with the Banking 32

Commissioner in Hong Kong on this subject the name of the company 33

was, on 22 June 1977, changed yet again to the Nugan Hand Bank. The

Bank was subsequently granted licences for banking and trust business on 34 6 July 1977. Nugan Hand (Hong Kong) Ltd [profile 2.94, see also

Part 4 Section 1] also changed its name at the same time to include the

word 'Swiss' in its nomenclature but it too was compelled by the

- 683 -

objections raised to resume its original title and to drop any reference

to 'Swiss' [see 4.1.5].

C. Subsequent Share Issue

4.2.19 Minutes dated 10 February 1977 purport to record an

Extraordinary General Meeting of shareholders, who at that time were

Mr Nugan, Mr Hand and Nugan Hand Ltd. Further minutes dated the same day

purport to record a meeting of the Board of Directors, that is Mr Nugan

and Mr Hand, at which it was resolved to allot 750 000 shares to Nugan

Hand International Holdings Ltd. The two minutes record that the meeting

was attended by Mr Nugan and Mr Hand who resolved to increase the

authorised capital of the company to US$5 million by the creation of a

further 4.28 million shares of US$1.0 0 . Mr J.C. Needham [profile

2.51] advised Bruce Campbell & Co, Solicitors, Cayman Islands, on 4 May

1977 that payment in respect of the shares had been made.

4.2.20 There is, however, no evidence to support this claim. On the

contrary indications are that in fact no such payment was made.

Mr Brincat gave evidence to the Corporate Affairs Commission that the

entry in the Nugan Hand Bank journal in respect of 750 000 shares on

30 June 1977 contained no reference to the receipt of cash. It involved

debiting certain accounts and in the absence of credits in those accounts 37

the paid up capital amounted to nothing more than a debt. Moreover,

the debt was recorded in the journal as due from Nugan Hand Inc. Panama

[profile 2.115] and not from Nugan Hand International Holdings Ltd which

led the Corporate Affairs Commission to surmise that the shares concerned

were allotted to Nugan Hand International Holdings Ltd but charged to the

Nugan Hand Inc. Panama loan account.38

4.2.21 Years later, when liquidation proceedings were contemplated, the

Official Receiver and Liquidator of the Nugan Hand Bank, Hong Kong, wrote

to Pegler Ellis & Co., Chartered Accountants, Sydney on 3 December 1980

stating that he understood that the original share certificates of Nuhan

Ltd (formerly Nugan Hand Ltd) and of Messrs Nugan and Hand had been

endorsed to Nugan Hand International Holdings Ltd. As the transfer had

- 684 -

not been registered he considered that legally, Nugan Hand Ltd, Mr Hand

and Mr Nugan held those shares in trust for Nugan Hand international 39 Holdings Ltd.

D. Directors

4.2.22 The precise details concerning the directors of the Nugan Hand

Bank at any given time are elusive.

4.2.23 Following the appointment of Messrs Campbell, Rutter and Kandiah

as directors on 8 July 1976, Messrs Nugan, Hand, Ward, Ceilings and

P.M. Dunn [profile 2.18] were appointed on 21 July 1976. At the same

meeting on 21 July 1976 Messrs Kandiah and Rutter resigned as directors.

4.2.24 Apart from the initial period of establishment of the Bank,

subsequent changes to the directorship were somewhat confused. There is

no mention of Mr Campbell1s resignation although on 21 July 1976, the

date of resignation of his associates (Messrs Kandiah and Rutter),

Mr Campbell wrote to Nugan Hand (Hong Kong) Ltd advising that the

directorship of the Nugan Hand Bank and Trust Company comprised

Messrs Nugan, Hand, Ward, Ceilings and Dunn with no mention of

himself.40 Mr Campbell was subsequently recorded as having resigned on

9 August 1976 and also on 1 March 1978 with no evidence of reappointment 41 in the intervening period.

4.2.25 There were minutes appointing Admiral E.P. Yates [profile 2.76] 42 43

as a director on 10 February 1977 and again on 1 March 1977.

4.2.26 The first reference to Mr Hill in the minutes occurred on

11 October 1977 where he was recorded as being present as a director (and

was treated as such in subsequent minutes) although there was no evidence 44

of an appointment having been made. Mr Hill, in fact, gave evidence

to the Commission that he did not know he was a director until after the . 45

event.

4.2.27 In the case of Mr J.M. Gilder [profile 2.25] the minutes

recorded him as resigning on 11 February 1980 but they did not indicate a

- 685 -

date of appointment although the Cayman Islands authorities gave

approval to his appointment as a director by letter dated 9 July

1979.47 He was clearly under the impression, at the time, that he was

a director as evidenced by his subsequent letter of resignation48 and

other documents containing reference to his position as a director.49

Nevertheless he told the Conmission that he had subsequently obtained

legal advice to the effect that, as a matter of fact, he was not a

director. More specifically, he was advised that he did not act in the

capacity of a director in that he did not attend board meetings, he did

not formulate policy, he did not sign accounts and received no payment as

a director.

4.2.28 More straightforward entries in the minutes occurred in respect

of Mr Dunn who was recorded as resigning on 10 September 1977, Mr Rutter

who was recorded as being appointed (although technically it was a

re-appointment) on 1 March 1978 and Mr Collings who was recorded as

resigning on 22 October 1979. It is noted that the minutes contained no

record of Mr Ward's resignation though he left the company in 1977.

E. Little further involvement with the Cayman Islands

4.2.29 According to a document entitled the 'Cayman Islands Blue Print'

[see 4.2.33-4.2.34], it seems to have been a common practice for foreign

banks such as the Nugan Hand Bank, to retain the services of a local bank

in the Cayman Islands to carry out representative functions and normal

administration. The foreign banks were known as 'cubicle banks' and they

paid an annual fee to the retained banks to perform representative

functions on their behalf.8· * " There is some suggestion in this document

that the Nugan Hand Bank proposed to retain the services of the Bank of

Nova Scotia in this way but it is not clear whether such an arrangement

was in fact concluded. What is clear, however, is that following

incorporation and the granting of a bank licence, the Cayman Islands

played little part in the operations of the Bank save on the occasion of

the annual audit of accounts by its registered Cayman Islands auditors.

[See 4.2.117 to 4.2.177 for further details in relation to the accounts

and their audit. ]

46

- 686 -

Mr Nugan's plans for the Nugan Hand Bank

4.2.30 According to evidence given by Mr Hill to the Commission, the

rapid expansion of the Nugan Hand Bank was:

a. a consequence of Mr Nugan's long term strategy of forming an

extensive corporate carcass which could be sold as an attractive

asset to the right organisation; and

b. an attempt, from 1977-1978, to outgrow the bad publicity

emanating from the Corporate Affairs Commission investigation of

the Nugan Fruit Group and the subsequent charging of Mr Nugan

and his brother with criminal offences [see 3.1.32-3.1.36,

3.4.95 and 3.4.97],

4.2.31 As expressed by Mr Hill, Mr Nugan wanted to set up a network of

self supporting shells in major capital markets with a view to its sale 52

to a large organisation equipped to run it effectively. According to

Mr Hill, Mr Nugan1s model was the Schroder Darling group of companies for

whom he did work when employed by Freehill Hollingdale & Page,

Solicitors."^

4.2.32 Mr Hill and others told the Corrmission that Mr Nugan had

promised part of the proceeds of the sale to certain Nugan Hand Group 54 personnel. Mr G.T. Shaw [profile 2.65] gave evidence that Mr Nugan

had promised him ten per cent of the proceeds if the Bank were sold. He

thought that the same incentive had been offered to Mr Hill, Mr Collings 55 and perhaps also Mr Gilder.

Early Days and the Cayman Blue Print

4.2.33 A plan for the development of the Nugan Hand Bank was prepared

entitled 'Cayman Blue Print (by J. Gilder)'.^ This document contained

sections on: the Nugan Hand group of companies; the Cayman Islands and

why they were selected as a base for the Nugan Hand Bank; suggested

countries for representative offices; selection criteria and type of

- 687 -

operation; establishment of representative offices; services to be

offered to clients; administrative procedures in relation to those

services and in particular, international certificates of deposit,

savings and cheque accounts, and corporate management procedures; terms

and conditions for the engagement of representatives; and space for

sections on procedures for education trusts, retirement trusts and

nominee services (sections which had yet to be written). This material

was revised over the ensuing years and a series of manuals for the 57

guidance of the Nugan Hand Bank representatives was produced.

4.2.34 The evidence before the Commission suggests that Mr Gilder was

central to the development of the Bank although his own assessment of his

role was modest before the Commission in contrast to his claims at the

time. He told the Commission that the 'Blue Print' reflected the

thinking of Mr Nugan and Mr Hand while he himself only assisted in the . 58

presentation of those ideas. At the time in a letter to Mr Dunn

dated 20 October 1976 he had defined his role in relation to the Bank

To coordinate the establishment and early operations of the Cayman Islands Bank - The Nugan Hand Bank and Trust Company.

To recruit, train and manage men who will establish representative offices of the Bank in various countries

When referred to this letter, he told the Commission that claiming to be

the coordinator was presumptuous and his main role was the appointment of

representatives.6<^

Publications and Promotion

4.2.35 As well as playing a part in the production of the 'Cayman Blue

Print', Mr Gilder was also seen as the driving force in advertising the

Nugan Hand Bank. Admiral Yates and Messrs G.R. Steer [profile 2.68],

M. Healey [profile 2.29] and Collings all referred to Mr Gilder's role in

this respect.61 Mr Gilder at the time, in a letter to Mr Dunn dated

- 688 -

19 April 1977, referred to his (Mr Gilder's) dedication to the task of

getting the Bank operational and in the course of doing so, producing a

quality prospectus or booklet, a draft procedures manual and a world wide

marketing strategy. In evidence before the Commission, Mr Gilder

stated that his role had been limited to editorial functions and

arranging for printing and distribution.63 He told the Commission that

Mr Nugan had written various brochures entitled 'Nugan Hand International 64 Private Bankers' and the 'Nugan Hand International Group

Manual'.65 He did say, however, that the Nugan Hand Bank project had

been languishing when he arrived and he set to work to finalise the

brochure so that representatives would have something to hand out to

prospective depositors.6^

4.2.36 With regard to the advertisement in the Nugan Hand International

newsletter which pictured Mr Gilder with the caption, 'This nan put our

private bank on the map',6^ Mr Gilder's comment was that he found it

very embarrassing and only knew about it after it had been

finalised.68 He considered that the newsletter was poorly written and

made extravagant claims.6^ He agreed that not only did he not take

exception to the advertisement at the time but that he had circulated it

with other press clippings, newsletters and advertisements to all staff

in a memorandum dated 15 February 1979, as though it were his own

view.70 He preferred to interpret the advertisement as meaning that he

had been the person to influence a number of representatives to join the

Bank through whose efforts deposits were made and the Bank became

functional. He denied that it meant that he had been the mastermind

or original architect of the Bank and he specifically denied Mr Hill's 72 assertion that he was the 'main person involved' in the NUgan Hand „ , 73

Bank.

4.2.37 The brochures themselves were glossy but well presented

publications and in the Commission's view do not appear to be the work of

Mr Nugan or Mr Hand each of whom, from a study of various documents

written by them, appears to have had difficulty in producing a document

written in clear and grammatical English. Separate publications were

produced for Nugan Hand Ltd, Nugan Hand International and the Nugan Hand

- 689 -

Bank. Qie such brochure on the Bank had a silver cover. It contained

text on banking, corporate, trustee, and trade services with an

introductory section on the Cayman Islands, and showed a map joining the

cities of New York, Chicago, Dallas, Los Angeles, London, Frankfurt,

Rome, Hong Kong, Bangkok, Manila, Kuala Lumpur, Singapore and Sydney to

the Cayman Islands.^ There is no explanation given for this map nor

any reference to any of the Nugan Hand Bank offices [Appendix B] other

than the Cayman Islands base. This map has been reproduced as part of

the cover of this report. It was this booklet to which Mr Gilder

referred in his speech to the Nugan Hand International conference held in 75

Bangkok in January 1978. In his concluding remarks he said:

'To enter the Banking world on an international scale equipped as we were with little more than a silver booklet and a

wheelbarrow full of determination, yet to have captured a number of clients in different countries and achieve substantial deposits healthy trade profits, and consulting fees, is impressive.1

4.2.38 On other occasions maps had been used to indicate representative

offices. One brochure on NUgan Hand International featured a front cover

with a Nugan Hand International gold emblem and inside a map with

pictures of the representatives linked to their respective offices. These

were the United States (Admiral E.P. Yates), Hawaii (General E.F. Black),

Chile (Mr G.V. Galicek), Argentina (Mr G.A. Courtney-Smith), Saudi Arabia

(Mr M.B. Houghton), West Germany (Messrs M. Ebert, J. Bachmann, and

A.P. Hewitt), Taiwan (Mr D.O. Holmgren), Hong Kong (Messrs C.L. Collings

and J. McArthur, Miss E.L. Thomson and Mrs G. Lovatt), The Philippines

(Mr W.P. Gregory), Thailand (Mr J.D. (Wen), Singapore (Messrs Tan Choon

Seng, M.J. Hand, E.C. Louey and G.R. Steer) and Australia (Messrs F.J.

Nugan, J.M. Gilder and G.T. Shaw). [Profiles of each of these

persons appear in Part Two, see also Appendix B.]

4.2.39 When a similar map showing Nugan Hand International offices was

produced as an advertisement, the Commissioner of Financial Institutions,

State of Virginia, United States objected to the inclusion of Virginia

Beach on the grounds that the office was not known to the authorities and

appeared to contravene the Code of Virginia. ^ The Nugan Hand Bank

- 690 -

subsequently responded that Admiral Yates whose personal address was

Virginia Beach had been relocated to Singapore and accordingly there

would be no further reference to Virginia Beach in printed material.7®

4.2.40 A significant feature of the brochures on the Nugan Hand Bank

and Nugan Hand International was the complete absence of any reference to

financial statements or accounts. This accorded with evidence given to

the Commission. Mr Houghton told the Commission that Mr Hand had

instructed himself and other representatives that it was illegal,

according to Cayman Islands law, to issue or publish balance sheets and 79

persons inquiring for such statements should be advised accordingly.

Nevertheless some statistics as at 30 June 1979 were put together and

printed in card form headed 'Nugan Hand International Group Combined

Balance Sheet', but it is not clear for what purpose.80

4.2.41 Other publications issued by Nugan Hand International were a

newsletter which concerned the activities of the Bank0 and two types

of economic newsletters entitled 'Nugan Hand International Australia

Report' and 'Nugan Hand International Review'82 which reported the

economic conditions prevailing in Australia and overseas respectively.

According to Mr Gilder the newsletter which concerned the Nugan Hand

Group was produced on no more than half a dozen occasions by an

advertising agency in consultation with either Mr Nugan, Mr Hand or

Mr Collings.8" The economic newsletters were produced by Mr J.R. Rush

[profile 2.60], an economist who was specifically engaged to prepare

various economic reports as well as the newsletters.84

4.2.42 Aside from publications, there were other means available to the

Nugan Hand Bank to gain exposure including personal influence, use of

bank references and conference sponsorship. Admiral Yates who had held

the position of Deputy Chief of Staff of the United States Pacific

Command during the withdrawal of United States forces from Vietnam and

was subsequently Aide to the Commander in Chief of the Pacific Command

was a person of some prominence in the West Pacific Region.843 Because

of general interest in his activities, his association with the Nugan

Hand Bank generated a number of press articles for example, articles in

- 691 -

the China Post newspaper. He was also in a position to introduce other

members of the Nugan Hand Bank to potential clients and people of

influence in the region. He supported General L.J. Manor [profile 2.45]

and Mr Gregory in this way85 though he was of little use to General

Black who was much better acquainted with Thailand than Admiral Yates

himself.86

4.2.43 With respect to bank references the 'Nugan Hand International

Group Manual' (for example the one dated April 1979)87 instructed

representatives on the importance of independent or third party points of

reference in establishing credibility when negotiating for deposits. The

representatives were told to advise clients to request through their own

bank an opinion from nominated officers of nominated banks. Sample

letters for use in making the request of their own banks were provided.

Messrs R.A. Pulger-Frame [profile 2.59], McArthur, Houghton and

Courtney-Smith gave evidence of the widespread use of bank opinions in

attracting clients.88 While clients were able to seek reports

themselves copies could be provided by the representatives.89 [See

Part 4 Section 6 for further details in relation to the use of ANZ Bank

references by Nugan Hand Ltd.]

4.2.44 The Nugan Hand Group co-sponsored the International Congress on

New Enterprise (ICONE) in Manila in June 1979. This conference examined

the opportunities for small businesses in developing countries. As in

the case of most sponsorship, the opportunities for self promotion were

not overlooked.98 [See 3.5.43-3.5.46 and 3.6.12-3.6.15 for further

information relating to the topic of conferences.]

Representatives and their Recruitment

4.2.45 The recruitment of appropriate staff for the overseas

representative offices was the responsibility of Mr Gilder. Mr Collings

who introduced Mr Gilder to the Nugan Hand Group said that he was hired

to find the people'. Mr Gilder described his function to the

Commission as that of locating people, seeing them into the field and 92 providing support for them. He adverted to his role in recruiting,

- 692 -

training and managing people for the Bank's overseas representative 93

offices in a letter to Mr Dunn dated 20 October 1976. The greater

part of correspondence concerning the engagement of staff was in fact 94 signed by or addressed to him. Representatives were recruited by the

placing of advertisements in major publications including Time,

The Bulletin, The National Times, The Australian, The Sydney Morning

Herald, The Financial Review under the heading of 'Is this you? A

95

$60 000 a year man?' and 'Is this you? $100 000 a year man?'

[see Appendix D].

4.2.46 In addition, a large number of staff were introduced as a result

of a previous association with Nugan Hand Group personnel. Mr W. Hans 96

[profile 2.27] introduced Mr Collings, Mr Collings introduced 97 98

Messrs Gilder and Ward, Mr Gilder introduced Mr Courtney-Smith,

Mr Pulger-Frame introduced Mrs Lovatt," Mr Houghton introduced Mr R.M.

Murphy [profile 2.50]100 and Admiral Yates introduced Generals Black,

Cocke (a consultant) and Manor.101 Previous associations were made

through: the Australian Investment Management Corporation (known as the

Fund of Australia [profile 2.110]) in the case of Messrs Dunn, Gilder, 102

Collings, Ward and G.A.L. Edelsten [profile 2.20]; the United States

military in the case of Admiral Yates, Generals Black, Cocke and Manor;

and less commonly through the Legal and General Assurance Company

(Messrs Gilder and Cour tney-Smith); and Deak & Co. (Far East) Ltd in

Hong Kong (Mr Pulger-Frame and Mrs Lovatt).

4.2.47 The qualifications and experience of the representatives was

varied. Mr E.C. Louey held a Class IIA honours degree in Economics and

Commerce from the University of Melbourne, Mr Steer held a Diploma in

Food Technology from the Hawkesbury Agricultural College and Mr Galicek

held a degree in Economics and Accountancy from a University in

Czechoslovakia. Cto the other hand Mr N. Evans [profile 2.21] had no

formal qualifications as was the case with a number of other

representatives (Messrs Houghton, Collings, Gilder and Courtney-Smith).

4.2.48 Their past work experience was also varied. Many had limited

experience in business as owner, director or manager, for example

- 693 -

Messrs Louey (motel business), Steer (business consultancy), Galicek

(export and business consultancy) and Houghton (restaurant business).

There was of course the United States ex-military contingency [see

3.4.83-3.4.88] and there was also an element with more dubious

credentials. Mr Evans described himself as a tax avoidance broker and

Mr Pulger-Frame had worked for Deak & Co. (Far East) Ltd which, he

advised, was laundering money throughout the world including

. . .. 103

Australia.

4.2.49 A considerable number of the representatives had overseas

experience or associations: Mr Louey was Chinese; Mr Steer had experience

in Singapore and Malaysia; Mr Galicek had lived in South America;

Mr Pulger-Frame had lived in the United Kingdom, India and Hong Kong and

had travelled extensively throughout Australasia; Mr Courtney-Smith had

worked in Papua New Guinea; Mrs Lovatt lived in Hong Kong; Mr Evans had

lived in Thailand; and Admiral Yates had been based in the Pacific during

his military career.

4.2.50 Incredible though it may seem, until the recruitment of

Mr D.E. Beazley [profile 2.7] in 1979 there was no one on the staff with

experience as a banker. Admiral Yates told the Commission that in the

early days of his association with the Nugan Hand Group, that is in 1977,

Messrs Nugan and Hand had discussed the need for a qualified banker in

the organisation and requested him to find a United States banker. A

friend of Admiral Yates at the United States Federal Reserve Board had

recommended Mr Beazley as the 'finest banker under the age of 35 in the

United States'. Mr Beazley was at the time, according to Admiral Yates,

the Chairman of the Board of a prominent bank holding company in Florida

and was not interested in leaving the position. It was not until two

years later, in 1979 when the principal stockholder in Mr Beazley's

company took over as Chairman, that Mr Beazley decided to join the Nugan „ . „ 104

Hand Group.

4.2.51 As a general rule representatives were engaged as independent

contractors with: advance payments in respect of the initial expenses of

the representative office plus brokerage in relation to deposits

received; fees in relation to trade or professional business conducted;

- 694 -

and a series of allowances linked to the amount of brokerage earned. In

the case of Messrs Louey and Galicek, for example, the agreement provided

for advances amounting to a total of $5 500 over an initial three month 105 period. The Nugan Hand Bank also undertook to pay for the airline

ticket from Sydney to the proposed destination.

4.2.52 As far as training was concerned the only evidence on the

subject was from Mr Galicek who reported that in March 1977 he attended a

series of seminars on the subject of banking held, once or twice a week

over a period of two months, at the offices of Nugan Hand Ltd in Sydney.

These seminars were organised by Mr Gilder and were also attended by

Messrs Steer and Courtney-Smith.106 He said they were told about

office procedures and literature including the Nugan Hand Group . 107

manual.

4.2.53 Many representatives found that payment on the basis of

commission did not operate in their favour. Mr Courtney-Smith who was

sent to South America said that his contract provided for brokerage and

other fees but this did not operate as deposits were minimal and

accordingly, the Nugan Hand Bank paid his expenses as well as his return

fare. He said he ended up out of pocket and claimed, in vain, for

further expenses on his return.108 After returning from South America,

Mr Courtney-Smith went to Hong Kong where, because Mr Collings was not in

favour of brokerage, he was paid a salary and accommodation

109

allowance which was a significant benefit in view of the expensive

accommodation in Hong Kong.

4.2.54 Mr Evans, who was based for the most part in Chiang-Mai,

Thailand, said he fared somewhat better in terms of commission received.

He said he received a number of commissions, the largest being US$8 000

with smaller payments of US$1 000 or thereabouts which, through an

arrangement with Mr Hand, were paid in part in Bangkok and part in

Australia. Mr Evans said he received the US$8 000 in respect of a

single deposit of about US$0.5 million from a Chiang Mai client, Mr Som

Chai. Mr Som Chai had visited Mr Evans, counted the money from a

suitcase in front of Mr Evans and then departed with the money. Mr Evans

- 695 -

provided Mr Pulger-Frame with Mr Som Chai1s details and Mr Pulger-Frame

arranged for Mr Som Chai to take the money to Bangkok, where a courier

collected it and took it to Hong Kong. As arranged, his commission was

paid partly in Bangkok and partly to Australia.

4.2.55 Mr Evans1 position was less favourable in matters other than

commission. He told the Commission that his work visa was obtained only

at the time he was leaving Thailand and he had therefore worked illegally

for the whole time he was in the country. He was also distressed by a

number of arrests made for drug infringements and the fact that the Nugan

Hand Group was receiving a lot of attention from the Thai military. He

in fact left the country and the Nugan Hand Group on the false pretext of 112

a hepatitis infection which required treatment in Australia.

4.2.56 Payment of commission did operate in favour of certain

executives of the Nugan Hand Bank, who received an overrider in respect

of the commission received by representatives under their supervision.

Accordingly, Mr Gilder, who gave evidence of commissions paid to

representatives of 20 to 25 per cent in certain cases, received an

overriding commission to the extent of 25 per cent of the commission

received by each of the overseas representatives engaged by him for each

deposit they received or fee they earnt.

4.2.57 Mr Houghton's employment by the Nugan Hand Group was more in the

nature of an accommodation between friends, at least initially.

Mr Houghton told the Commission that in September/October 1978 he was

phoned by Mr Hand, whom he had known for many years, with a proposal that

he visit Europe to assess the work of the F.A. Neubauer Bank

[profile 2.109] for which his expenses would be paid. Mr Houghton

estimated that his services for the trip cost the Nugan Hand Group in the

order of $7 000 being first class return airfare and first class hotel 114

accommodation. No other remuneration was paid.

4.2.58 On his return trip via the United States, he approached a

company called Beck Arabia, at the prompting of either Admiral Yates or

Mr Nugan, and was told of the prospects for business in Saudi

- 696 -

Arabia.115 Mr Houghton told the Commission that he made an initial

feasibility trip to Saudi Arabia which proved promising and then a

further four or five trips before permanent premises were arranged in the

country. In respect of each of these trips he was paid first class

travel and accommodation expenses.11® This evidence conflicted with a

letter to him from Messrs Nugan and Hand setting out details of a

commission, varying from one to three per cent, that would be payable to

him.11^ Mr Houghton said that the letter had been given to him at the

time of his first trip to Saudi Arabia and that in fact no commission was

paid. He said that even if the commission had been paid, the deposits

were small, the terms of those deposits were short and the remuneration

would not have been high. Mr Houghton's comments in this regard were

supported by a memorandum he wrote, on or about 22 October 1979, in which

he complained about the difficulty of working only for expenses.11®

4.2.59 He came to understand that a debt of $35 000 which he owed to

the Nugan Hand Group would be offset by the commission payments. In

January 1980, following discussions, Messrs Nugan and Hand had agreed to

discharge the debt and pay him a salary of $100 000 per annum. In the 119 event no salary was ever paid. He estimated his expenses during the 120 18 month period he was with the Nugan Hand Group to be $364 000. He

considered that the expenses were high due partly to the cost of

accommodation and the need to periodically move staff out of the country 121 in compliance with visa requirements. Mr Hand paid these expenses by covering his debt with American Express or authorising Mr Houghton to 122 cash travellers cheques. Mr Houghton gave, as a very rough estimate

of the total deposits collected in Saudi Arabia, the figure of

US$5 million.

4.2.60 Admiral Yates performed the function of a representative in the

United States although he was in a different position to other Nugan Hand

Group personnel in that he was a director with the nominal title of

President of the Bank. His letter of appointment dated 24 January 1977

provided for a salary of US$50 000, initial expenses of US$10 000 for the 123

purposes of a car and continuing expenses of US$40 000 per annum.

Admiral Yates told the Commission that his real interest was in obtaining

- 697 -

equity in the Nugan Hand Group and although the terms of appointment

contemplated such an arrangement he was concerned that it was couched in 124 rather vague terms. The relevant clause provided for an equal

equity with Messrs Nugan and Hand of 20 per cent but only after 'a

measure of success' had been demonstrated by Admiral Yates. In the event

Admiral Yates was reimbursed for expenses except for the last six months

of his association with the Nugan Hand Bank. He told the Commission that

there were US$40 000 to US$50 000 expenses owing to third parties, that

he was personally owed US$25 000 to US$27 000 for out of pocket expenses 125

and that he received nothing by way of salary. The US$40 000 to

US$50 000 expenses included US$17 000 in fees for Harvard University in

respect of a course conducted by that University in Geneva. Admiral

Yates was required to attend this course following his replacement as

President of the Bank by Mr Beazley in October 1979 [see 3.6.37].

Overseas Offices

4.2.61 The Nugan Hand Group's promotional material advertised a Nugan

Hand International 'presence' in Hawaii, mainland United States, Chile,

Argentina, Germany, Saudi Arabia, Taiwan, Hong Kong, Thailand, Malaysia,

Singapore, The Philippines and Australia. There were, in addition, a

number of offices referred to in correspondence and other documentary

material whose existence, duration and nature of operations were more

uncertain.

4.2.62 The confusing state of the NUgan Hand Group's overseas affairs

was highlighted in Mr Hill's evidence to the Corporate Affairs

Commission. He said that following Mr Nugan's death, he and Mr Brincat

carried out inquiries to see if Nugan Hand Inc. Panama existed and to

what extent it was involved in the Nugan Hand Group. Mr Hill came to the

conclusion that Nugan Hand Inc. Panama did not e x i s t . T h e r e was

correspondence between Hong Kong and the resident agent in Panama which

indicated that the company was in fact incorporated on 24 January 1975

although the evidence indicates that there was no physical presence , 127

there.

- 698 -

4.2.63 Likewise, Nugan Hand (U.K.) Ltd [see Appendix B] was referred to

in many internal Group documents, in particular lists or schedules of

overseas offices, but there were few precise details concerning the

company available to the Commission. It was known that Mr Gilder was

present in London from October to December 1977 with a view to returning

to Australia in early 1978 and that, as at 22 December 1977, steps were

being taken to incorporate Nugan Hand (U.K.) Ltd.128 Accordingly on

28 December 1977 Mr Gilder wrote to the Chief of Exchange Control, Bank

of England seeking permission for 100 shares of £1.00 each in Nugan Hand

(U.K.) Ltd to be issued to Swiss Pacific Holdings Ltd [see Appendix B] of

the Cayman Islands to enable incorporation to proceed. This permission

was subsequently granted and on 28 February 1978 Mr Gilder informed the 129

Bank of England that Nugan Hand (U.K.) Ltd had been incorporated.

4.2.64 On the same level of uncertainty and the same limited scale of

operation, according to the Group's promotional and administrative

literature, representative offices were said to exist at one time or

another in Brazil, Mexico, Bahrain, Italy, Korea, South Africa and the

United States. In addition to the main office at Washington DC, offices

were said to exist at one time or another in Topanga and San Francisco in

California, Delaware, Florida, Maryland, New York and Virginia.

4.2.65 In most of the more established offices, the representatives of

the Nugan Hand Group operated from premises which were the registered

offices of companies incorporated under local law, for example, Nugan

Hand (Hong Kong) Ltd, Nugan Hand Singapore (Pte) Ltd, Nugan Hand Inc.

(Taiwan), Nugan Hand (Argentina) Inc., and Nugan Hand (Thailand) Ltd [see

Appendix B). Others, for example Korea and Chile, had no local corporate

structure and setting up an office was on a purely practical, as opposed

to legal basis.

4.2.66 The major overseas offices were Singapore and, particularly,

Hong Kong. Hong Kong was not only a representative office of the Nugan

Hand Bank but was also the head office of a number of other companies

including Nugan Hand (Hong Kong) Ltd. Singapore also was the head office

of a number of other companies but on a smaller scale.

- 699 -

4.2.67 Mr Courtney-Smith described the Hong Kong premises as being

comprised of Mr Ceilings' office as managing director, a number of other

offices and a general office in which Mr Courtney-Smith occupied a

desk.13' " 1 On his first trip to Hong Kong towards the end of 1978,

Mr Houghton described the office as busy, well organised and suave.333

The Nugan Hand Bank in Singapore on the other hand had two separate

premises which Mr Steer said was a consequence of Mr Hand's decision to 132

move for reasons of space and conflicting responsibilities.

4.2.68 Physically the offices ranged from the many roomed and

fashionable premises in Hong Kong to premises which were the

representative's living quarters. Mr Houghton said that in Saudi Arabia

he and his assistant Mr Murphy operated from combined residential and

office premises in Alkobar. Later he established a second office in 133

Jeddah on instructions from Mr Hand and employed three officers. In

Thailand, the office in Bangkok was comprised of a reception area and two 134 smaller offices. While in Chiang Mai Mr Evans initially conducted

business from a self contained unit of two storeys which was his living

accommodation, and later from an office building, which was also occupied 135

by the United States Drug Enforcement Agency [see 6.69].

4.2.69 While in Argentina, Mr Courtney-Smith shared the office of a

firm of attorneys and he contributed rent.336 Mr Galicek told the

Commission that he had no office of his own in South America and used the

phone, telex and typewriter of his friends.33^ In the United States,

the registered office of the NUgan Hand Bank was that of an old

acquaintance of Admiral Yates, General Erie Cocke [profile 2.13], who

offered him some space in his Washington DC office for use by the

4.2.70 A particularly unflattering description of one office was given

to the Commission by Mr Houghton. It referred to the office in Frankfurt

run, it would seem, fairly ineffectively by Mr K.F. Schuller

[profile 2.63]:139

'When I visited that office I found a small office, apparently conducted by Schuller, with a female assistant, who may have been his wife. In the waiting room of that office there were a

- 700 -

number of rather untidy persons who may have been Afghanis. I introduced myself to Schuller and told him that Mike Hand had asked me to call in. We arranged to have a drink at the hotel

later, however, Schuller was one hour late for that appointment and left after only a few minutes. I was therefore unable to obtain any information from Schuller personally which might assist Hand. However I reported to Hand subsequently that the office "looked like a third world enployment office."'

Overseas Operations other than Deposit Taking

4.2.71 The major concern of the representatives was the taking of

deposits although a number of other services were purportedly provided.

The Nugan Hand International Group Manual of April 1979 listed these

other facilities as nominee services, trade services, tax advice and 140 trustee services. The nominee services were essentially those of

corporate management involving the establishment and management for a

client of a corporation in any suitable country. Trade services meant

operating as the middleman in various transactions by providing letters

of credit or merely putting buyer and seller into contact in return for a

commission. Trustee services focussed on the setting up of trusts

including educational and retirement trusts. Tax advice was purportedly

provided in respect of local and international tax planning including the

use of back to back invoicing and tax havens. This advice was to tie

provided only in consultation with head office. Further information

relating to back to back transactions can be found at paragraphs 9.9-9.10.

4.2.72 Generally speaking, the alleged services played no part at all

or, at best, only a minor part in the Nugan Hand Bank's operations. Die

representatives were in any case unqualified to provide such services.

There is little or no evidence of advice given on tax or services

provided in the setting up of trusts. Nominee services appeared to be

restricted to the sale of companies with no element of management

involved while trade services took the form of endless discussions on

various proposals, a number of which are mentioned below, which foundered

almost immediately. The considerable time spent on these discussions

with little or no result meant that the Bank's venture into international

trade became a very expensive failure.

- 701 -

4.2.73 Mr Houghton described the nominee services to the Commission.

He said that Miss Thomson formed nominee conpanies in Hong Kong at the

rate of 100 on each occasion. Names were communicated to the

representatives who were required to check that a nominee company was

still available before it was sold and then advise when it had been

sold. As communications were poor in Saudi Arabia he would obtain the

necessary documents for particular nominee conpanies when he was in Hong

Kong so that he would not have to check availability. Relevant records

were provided including of course the memorandum and articles of

association. He said he sold them on a regular basis for fifteen months

and estimated the total sold as about 75. He said 'the initial price of

these conpanies was US$1 000 but subsequently management and accounting

services were included for the total price of US$2 500'. The companies

would either be registered in Hong Kong, Singapore, Panama or the Cayman

Islands.141

4.2.74 Among the many trade proposals misconceived or mishandled by the

Nugan Hand Bank was one termed the 1 ethanol project'. Mr Gilder said

this project was an idea brought to the company by General Black and the

principle was to utilise sugar cane in countries such as Thailand and The

Philippines to produce ethanol petrol. He said no processing plants were 142 ever built. Admiral Yates referred to other proposals, one for the

sale of small arms and bullet proof vests to Thailand and The Philippines

and another for the sale of C130's (military cargo aeroplanes).

Similarly these projects did not proceed.143

4.2.75 For all its activity it was, according to a number of

representatives, a policy of the Nugan Hand Bank not to directly finance

ventures (for the very good reason, no doubt, that the Bank did not have

the capital to do so). Mr Courtney-Smith commented to the Commission

that whenever he put up a proposal requiring finance the Bank was either

unable or unwilling to participate whereas the longer established banks 144

in Argentina were in a position to do so. Mr Galicek gave support

to this comment by stating that the Nugan Hand Bank's refusal to provide

finance was the reason for the failure of the South American venture.

Similarly Mr Oren the representative in Thailand, in a memorandum to 145

Mr Collings dated 30 October 1978, put his view as follows:

- 702 -

'NHI in banking circles is not really regarded at all as a

Banker or Merchant Banker. To achieve this, NHI has to develop an expertise in other banking activities. To be a successful Merchant Banker it must sooner or later be in a position to be able to take up positions in some of the deals it helps put

together. But if NHI was ever to break its rule "we do not lend money" it must either acquire staff with actuarial expertise or staff members experienced in risk assessment or, allow itself to be assisted by a partner experienced in this types [sic] of banking activity.1

4.2.76 One particular service provided by the Nugan Hand Bank which was

not advertised was the international management of money via what was

termed as the 'Yorkville contra1 [see 8.36-8.55], Under this system a

person could deposit funds, usually in Australia, and withdraw an

equivalent amount overseas, usually in Hong Kong or Singapore, there

being no actual transfer of the funds. Mr Hill commented in evidence to

the Commission that the funds withdrawn in Hong Kong were the funds of

Hong Kong depositors. He added that the system could operate in reverse

with funds being deposited overseas and withdrawn in Australia but it

operated largely out of Australia."*"'*'’3

4.2.77 Mr Houghton gave evidence which indicated that the system

operated out of Saudi Arabia as well. He said that sometimes clients

would just open an account in Saudi Arabia with the understanding that

they would operate on that account in Singapore, Hong Kong or the United

4.2.78 In Hong Kong, Mrs i/ovatt said that she would receive a

memorandum, telex or phone call from Sydney to pay out funds as

indicated. She would do so and on instruction would charge the payment 147

to an account styled 'Yorkville contra'. Mr Ceilings identified

such a telex from Mr Hand to himself as a direction to him to send off

the money and then to cause an entry to be made in the books of the Nugan

Hand Bank in respect of that money under the heading 'Yorkville

4.2.79 Mr Gilder said that he was not aware of the system but according

to a representative of Deak & Co. (Far East) Ltd whom he met in Bangkok,

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and other general comment, it would appear to be a common practice in the

banking w o r l d . T h i s practice was, of course, in breach of the then

current exchange control legislation [see 8.36-8.55].

4.2.80 Aside from the facilities provided to clients, the overseas

representatives became involved in a number of special projects on behalf

of the Nugan Hand Group management.

4.2.81 Admiral Yates told the Commission that during 1978 he was

required by Mr Hand or possibly Mr Nugan, to put together a team to

negotiate the purchase of the United Chinese Bank in Hong Kong from

General S.K. Yee who 'owned 96 per cent of the bank' and 'was very

pro-American and pro-American military'. The team he put together

comprised himself, General Black and Mr Hung Y. Ching. After satisfying

the conditions laid down by General Yee, Messrs Nugan and Hand told him

to discontinue the project because they could not find sufficient funds

to make the purchase."*^

4.2.82 Admiral Yates stated that the purchase price was $13 million,

presumably United States dollars, but this was an error according to a

letter dated 18 April 1978 from the Nugan Hand Bank to the Bank of

America. This letter requested a loan of US$20 million for the purchase

of 90 per cent of the shares of the United Chinese Bank and it advised

that the remaining US$10 million would be funded by the issue of

' subordinated debentures'.

4.2.83 This is a typical illustration of the ineffectiveness of the

Nugan Hand Bank and its lack of substantial capital. A good deal of time

and effort was spent in these abortive negotiations when it should have

been clear, at least to Messrs Nugan and Hand, that there was no prospect

of such a sum being raised.

4.2.84 There were also abortive negotiations to purchase a part share

in London Capital Securities Ltd [profile 2.111], a bank in London. Cn

this occasion the purchase price was low. The figure quoted during

negotiations was £22 500 but to this other costs needed to be added

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including the sum of £250 000 for an increase in capital for the purposes

of a general banking licence application. The bank at that stage had

only a limited licence. The total cost for the first year of

operation was estimated at '$1 million'. Discussions took place late in

1979 when the suggestion of further expansion was clearly inappropriate.

Instead the decision that the Nugan Hand Group could no longer afford to

acquire a part share in the Bank was made by Mr Hand only after

153

Mr Nugan's death.

4.2.85 The air of unreality extended not only to the cost of various

projects but also to their substance. Admiral Yates gave evidence to the

Commission concerning a project to move refugees from the squalor of

camps in Thailand and Malaysia to decent living conditions in the Central

and South American area. In October 1979 he travelled extensively to

meet with heads of government throughout the region to gain support for

the project. It was seriously considered that Mr Kissinger, Mr Habib or

Secretary Rosenthal might be persuaded to take the matter up with the 154 governments concerned.

Deposit Taking Procedure

155

4.2.86 According to procedural manuals there was an accepted

procedure for the taking of deposits which varied little over the years.

Essentially, the representative was required to record details of the

deposit and depositor and arrange with the client for the remission of

funds from his bank account to accounts maintained by the Nugan Hand

Bank. Depending on when the deposit was made and the currency of the

deposit these Nugan Hand Bank accounts might be in New York (Irving Trust

Bank), Hong Kong (Wing On Bank) or Singapore (Inter-Alpha Asia

(Singapore) Ltd). On receipt of advice that the deposits had been

received the relevant head office would assign client numbers, draw up

maturity cards and issue Nugan Hand Bank International Certificates of

Deposit ('ICD's').

4.2.87 Mrs Lovatt gave evidence that all Singapore client records were

kept by her in Hong Kong and she assigned Singapore account numbers and

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issued Singapore certificates of deposit. Relevant correspondence

concerning Singapore depositors was forwarded from Singapore to Hong

Kong. Maturity records were maintained in both Singapore and Hong Kong.

Oi the other hand the Singapore office issued client numbers in respect

of Middle East clients and ICD's in respect of all non-Singapore

. .. 156

depositors.

4.2.88 It is difficult to understand the reasons for these arrangements

but contributing factors may have been that: the accounting books for the

Nugan Hand Bank were kept in Singapore which made the issue of

international certificates of deposit from that office more appropriate;

deposit taking in Singapore from Singapore residents was illegal; and a

close association existed between Mr Houghton, the Middle East

representative, and Mr Hand who was based in Singapore.

4.2.89 In the case of Saudi Arabia special arrangements were made for

the transfer of deposits. The evidence indicates that they were made

either by transfer of cash to Hong Kong or Singapore, more particularly

the latter, by Mr Houghton or one of his staff or, later on, by

157

travellers cheques stamped to the order of the Nugan Hand Bank and

forwarded by courier.158

4.2.90 Where deposits were actually made in Hong Kong, the depositors

were given the opportunity of applying funds to Nugan Hand (Hong Kong)

Ltd or the Nugan Hand Bank. Mr Pulger-Frame told the Commission that in

80 per cent of cases deposits were made in respect of the Nugan Hand Bank

because those made in respect of the Hong Kong company were subject to 159 withholding tax. Mr Collings and Mrs Lovatt gave evidence that the

withholding tax was 15 per cent. Mrs Lovatt also confirmed that the

majority of depositors were with the Nugan Hand Bank.161

4.2.91 Mr Collings added that in the case of deposits made to Nugan

Hand Ltd which were guaranteed by the Wing On Bank, a commission was

payable to the Wing On Bank and accordingly, their main concern was to

channel deposits to the Nugan Hand Bank with its lower overheads.162

He stated that this commission was one per cent on each transaction.163

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4.2.92 It would seem from the evidence that in the case of all deposits

taken overseas, other than deposits specifically made in Hong Kong in

respect of Nugan Hand (Hong Kong) Ltd or in Germany in respect of the

F.A. Neubauer Bank [profile 2.109], the representatives were aware of

difficulties concerning the legality of their operations. Mr Steer told

the Commission that it was illegal to collect deposits in Singapore and

accordingly, funds made available in Singapore were sent to Hong Hong to 164 the Wing On Bank.

4.2.93 Mr Collings stated that before the incorporation of the Nugan

Hand Bank, he was collecting deposits on behalf of Nugan Hand Ltd and

claimed that, accordingly, the operation was not required to be licensed

under Hong Kong banking law [see 4.1.10, 4.1.12],165

4.2.94 Admiral Yates told the Commission that as far as the United

States operations were concerned neither Mr Nugan nor Mr Hand intended

him to work outside the legal limits for a bank representative of a

foreign country. His duties were to provide information and sample

letters and telexes to the major United States banks and it was up to

them to take up negotiations with the Nugan Hand Bank."*·®®

4.2.95 In a paper prepared by Mr Louey dated 29 January 1980 concerning

the Kuala Lumpur office in Malaysia, he noted that the Malaysian company

was categorised by the Ministry of Trade as a 'trading company1 which was

the only possible means of maintaining any presence at all in Malaysia.

He acknowledged that apart from a few brief trade initiatives, the

emphasis had been on discreet promotion of ICD facilities. While stating

that the office had generated US$3 million of ICD business, he went on to

say that it was: 6

'not permitted to indulge in any form of banking activities nor may we present ourselves in any way as bankers or bank

representatives. Such activities require prior approval of Bank Negara [the Central Bank], and ... we are unlikely to be

accorded such approval in the foreseeable future.'

4.2.96 In a minute from Mr R.L. Attkisson [profile 2.4] to Mr Beazley on

25 February 1980 on the subject of 'Legitimatizing our Activity in Hong

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Kong' Mr Attkisson described the Hong Kong operations as taking deposits

and placing them into a Nugan Hand Bank Hong Kong dollar or United States

dollar account maintained at the Wing On Bank and issuing ICD's out of

Hong Kong. He concluded, 'This activity seems to blatantly violate the

ordinance of the Banking Commissioner and is a matter of concern to me'.

He recommended that the Nugan Hand Bank cease taking Hong Kong dollar

deposits and that Hong Kong dollar deposit activity be handled through

Nugan Hand (Hong Kong) Ltd, the deposit taking company.^®

4.2.97 Similarly in a minute from Mr Holmgren, the Taiwan

representative, to Mr MacArthur dated 23 November 1979, he referred to the

basis on which the Taipei office had dealt with its clients

'In the past we have always used Hong Kong as our servicing base for our Taiwan clients ... Taiwan, as you know is a SENSITIVE

area. We have just got our registration for Taiwan as Nugan Hand Inc., a branch of the US company which deals in trade. We are not and cannot in any way classify ourselves as a bank or deposit takers etc. Therefore any ICD business which,

incidentally as the record shows, has been increasing quite rapidly, has to be done "at arm's length". In fact it is better for us to have the client go to one of the other offices such as Hong Kong to open an account because then it is an absolutely legal situation. If we open any I CDs ourselves we must advise the client that we actually are only doing a service to them and the business will actually be processed through Hong Kong and Singapore. We legally cannot take money, checks [sic] or

whatever. As you know we do not deal in the money exchange

business and I refuse to get into this business.'

The Bank was also prepared to receive deposits on the basis that the

money, less an appropriate fee, be paid back to the client as a purported

loan. A standard contract was printed for use between the Nugan Hand

Bank and its depositors to evidence the deposit received and the

particulars of the so called loan. Clause 2 of the contract stated that

the 'net and legal effect in regard to the Depositor shall be that the

Depositor shall have provided its own funds for an 'apparent' loan back

to itself'. The final clause of the contract concluded with the words:

'The Depositor shall for its part agree to keep absolutely confidential at all times the fact that the Bank provides such a service as a "back to back deposit and loan" and the

- 708 -

particulars, documentation, and other circumstances surrounding the back to back loan, except so far as declaration to any

government or taxation authority of the corresponding "loan" from or through the Bank shall be essential for the customer or Depositor to benefit from the transaction.1

The tax evasion purpose of the 'back to back loan and deposit' was

170

self-evident from this contract [see 9.9-9.10],

4.2.98 Many of the representatives giving evidence before the

Commission commented on the rate of interest offered by the Nugan Hand

Bank. Mr Courtney-Smith told the Commission that a staff member was

employed in Hong Kong to check competitive rates being offered by other

banking groups. He, in conjunction with Mr Collings, would decide

what rate the Nugan Hand Group would offer in the market.171

Representatives would be instructed from Hong Kong periodically as to the

prevailing rate of interest. The Group manual indicates that rates were 172 advised monthly. Representatives quoted different figures but

uniformly attested to the level of interest rate being higher than the

market level. Mr Dunn stated that the interest offered was one quarter 173

per cent higher than the market rate. Mr Needham stated that

Mr Hand had instructed that interest rates in Hong Kong were to be one

half per cent or one per cent higher than the rate offered by Deak & Co. 174 (Far East) Ltd.

4.2.99 Mr Houghton noted that in Saudi Arabia the recognised banks

offered only one per cent interest which was considerably less than the

rates offered by the Nugan Hand Bank. Mr Evans said that the

interest rate of 12.5 per cent being offered by the Nugan Hand Bank to

depositors was too high and that interest rates offered by Australian,

Thai and Hong Kong Banks was about eight per cent.176

4.2.100 Mr Needham told the Commission that he was concerned because the

Nugan Hand Bank was earning six per cent or six and a half per cent on

the Asian Currency Unit market [see 4.1.57] and was paying in the order

of 14 or 15 per cent for deposits.177

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4.2.101 This discrepancy was, in part, the subject of a note which

Mr Brincat said was dictated to him by Mr Nugan as background information

to the Nugan Hand Bank 1977 accounts as follows:"*·78

'(3.) The interest paid by the bank on the fixed term deposits ... was at a rate higher than the bank was yielding on the

placement of the funds in question, which is referable to the fact that the bank was in its initial year of

operation. This is particularly so since Asian Currency Units ... only yield between 4% and 6%.

Funds at bank yield no interest and the money market

securities yielded between 10% and 11%. The rates paid by the bank on fixed term deposits varied between 6% and 12%.

The directors of the bank either out of conservatism or for other reasons in their business judgment offered extremely competitive rates on deposits from clients in the initial year of operation but have clearly from the manner in which

the funds in question were placed made little effort to earn high yield on the funds and placed them very

conservatively at moderate rates.'

There is no evidence that the discrepancy between interest earned and

paid changed in the ensuing years to accord more with sound commercial

practice.

4.2.102 Aside from the very advantageous level of interest rates, the

Nugan Hand Bank offered a highly confidential service. The manuals . 179

detail steps which were to be taken to ensure the client's privacy.

Client applications were described as 'general' for open business or

'maximum security' for sensitive clients. Even in the case of the

former, clients were to be allotted code words and correspondence was to

be forwarded in envelopes having no company markings or return addresses

on the outside."1 ·80 In the case of the latter, clients' applications 181

could be signed using the code name signature.

4.2.103 Mrs Lovatt referred to the system whereby clients were allocated

a client number from a hard covered exercise book kept by Mr Hand. The

book contained details of the client's name and client numbers were

issued in consecutive order. She was subsequently given responsibility

for issuing client numbers. She found the book inefficient and started a

card system.·*·8^ She told the Commission that details of names and

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addresses of some clients were not known to her: ' These were

confidential clients of the representatives and the full details would

only be k n o w to the representative. These clients were only recorded by ,183 way of client number.'

4.2.104 Mrs Lovatt also commented on the system of codes whereby

messages were transmitted between offices. With respect to the codes,

she noted that, for example, a reference to Paris meant the fourth day of

the month based on a system whereby thirty one cities of the world had

been allotted to the days of the month.

4.2.105 The Nugan Hand Bank was aided in protecting information by the

statutory requirements of the Cayman Islands which enforced the

preservation of confidentiality. For this reason the Nugan Hand Bank was

also able to claim that financial statements could not be issued because

it was against Cayman Islands law [see 4.2.40].

4.2.106 The advantages of the deposit taking procedure to clients of the

Nugan Hand Bank were perhaps highlighted by evidence given by

Mr Houghton, the representative for the Middle East, where the attractive

characteristics of the Nugan Hand Bank were married with the particular

difficulties encountered in Saudi Arabia. Among the advantages listed by

Mr Houghton were that the client would have secrecy and could withdraw at

any of the Nugan Hand Bank representative offices. While merchant banks

from Austria, Britain and elsewhere were dominated by Arabs and as such

were inefficient and understaffed (it could take four hours to complete a

transaction), the Nugan Hand Bank representatives attended construction

sites and so offered convenience. In addition the Bank offered

flexibility enabling a client to open an account in Saudi Arabia on the

understanding that he could draw on it elsewhere, for example Singapore

or Hong Kong. Also the closure of offices on religious days did not

deter the Nugan Hand Bank from transferring deposits.185

Number of Depositors

4.2.107 The Commission prepared a list of Nugan Hand Bank clients based

on the Bank's client cards, which matched names with numbers,186 and

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other documentary evidence, for example cheque requisitions, receipt

vouchers and telexes, which indicated other client numbers and names.

It was also possible to gain some idea of the country of origin of the

deposit through the Bank's practice of using a letter of the alphabet as

a suffix to the client number to indicate the client's country of

residence or address. It should be noted, however, that this system of

suffixes was not followed without exception as the Commission learned

from Mrs Lovatt who gave evidence that on one occasion she used the

letter A (normally reserved for Australian addresses) for a Chinese

family resident in Singapore whose records she considered to be very ., . 187

sensitive.

4.2.108 Bearing in mind the limitations of the list, the figures

obtained were 1006 for overseas clients, 91 for Australian clients and

some 18 clients with both overseas and Australian suffixes. The figure

for Australian clients is similar to that of 88 obtained by Mr Willis of

the Corporate Affairs Commission extracted from material provided by the

Hong Kong Official Receiver and dated August 1980.

Few Deposits and Little Income according to Representatives

4.2.109 Individual representatives presented a highly fragmented picture

of the quantity of deposits received and the income which these deposits

generated but generally speaking their perception was that of few

deposits and little income.

4.2.110 Mr Courtney-Smith reported only a couple of very small deposits

in Argentina"*"®^ while Mr Galicek reported that the only deposit from

his area of operations (South America) was $7 000 from a Chilean in 190 January 1978. In the Pacific, Mr Steer reported that for two years

to July 1979, US$6.5 million was taken from Malaysia, The Philippines and 191 Singapore. Mr Evans told the Commission of seven depositors in

Bangkok and two in Chiang Mai with deposits including US$0.5 million,

US$2.5 million, US$360 000, US$1 million, US$120 000 and certain other 192

deposits he described as thousands of thousands. It is inpossible

to state the degree of accuracy of this evidence. It is the Commission's

- 712 -

view that Mr Evans' evidence cannot be accepted without independent

corroboration. There is no such corroboration. In fact the evidence was

contradicted [see 6.62-6.75].

4.2.111 Mr Hill told the Commission that neither deposit taking nor

corporate deals were revenue producing and as far as tax schemes were

concerned 1976-1977 was the highlight in terms of profit.193

4.2.112 Mr Pulger-Frame said that he became disenchanted with the Nugan

Hand Group in 1977. He considered that the Group kept afloat simply by

taking money from any part of the operation regardless of the propriety

of such a course of action. He learned that deposits were placed on the

ACIJ market which paid eight and a half per cent while the Nugan Hand Bank

was paying ten per cent. On top of that there was commission to pay

himself and in addition overriding commissions. Mr Pulger-Frame stated

that whenever the Nugan Hand Bank had funds they would be sent to

Singapore and placed on the ACU market although the only advantage of

such placement was the security obtained. It appeared to him that the 194

Nugan Hand Bank was 'going out backwards'.

4.2.113 Mr Ward told the Commission that 'Ingold Growth' was a total 195 failure. He also said that Mr Nugan had told him that he was

injecting money into the Nugan Hand Group at an ever increasing rate.

Mr Ward agreed in evidence that, given the cost of maintaining an

overseas presence, the cost of the organisation in Sydney (which did not

appear to be profitable), early ventures such as 'Ingold' which were a

disaster, and Hong Kong which was far from being financially

self-sufficient, the Nugan Hand Group was a pretty unhealthy group of

companies, financially speaking.196

4.2.114 Mr Courtney-Smith told the Commission that after conducting a

feasibility study of business prospects in Argentina he came to the

opinion that if the Nugan Hand Bank was not in the business of lending

money to finance trade, then it could not compete against the larger

established banks who could offer this service. He said that the period

in Argentina between 1977 and 1978 was totally unsuccessful as he

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generated no income as a middleman and attracted only a couple of very

small deposits.197

4.2.115 Mr Hill said in evidence that Thailand was the only place where

any real profit was made and referred to a commission of US$300 000

earned by the Nugan Hand Group on the sale of the Kaiser Cement & Gypsum

Corporation in Thailand.198 The Kaiser Cement transaction was a

highlight in Thai operations. In a memorandum from Mr Owen, the Nugan

Hand Bank's Thailand representative, to Mr Collings dated 30 October 1978 199 he noted that:

'Deposit gathering on its own is too shallow an objective on which to build a bank ... NHI is, apparently, regarded in

Thailand as a "money operator" and the banks look at us in a

wink wink - nod nod way and a [sic] generally regard NHI as a

rather upstart company engaged in trapping what flight capital we can. This is despite our other activities such as the Kaiser Cement & GYP3™ Company share sale in Thailand.'

200

Mr Oven went on to say:

'Despite great success in other countries, the deposit gathering activity has not achieved the success that was hoped for in Thailand. Our image here may be against us and like bad breath even your friends won't tell you1!1.'

4.2.116 Mr Owen considered Admiral Yates' promotional work in the United

States to be unproductive. Admiral Yates said that he visited over

90 banks in the United States without success. He noted that with regard

to trade activities or corporate services there were a number of meetings

but he did not believe they came to fruition.2C2

Accounts and their Audit

4.2.117 The deteriorating financial position of the Nugan Hand Bank was

reflected in the accounts prepared in the Bank's accounting office in

Singapore during the three years of operation of the Bank in 1977, 1978

and 1979. In each of the three years in question the accounts were

completely rewritten principally, if not exclusively, by Mr Brincat on

- 714 -

instructions from Mr Nugan. The result was that in 1977 and 1978, the

accounts that were passed by the Bank's auditors in the Cayman Islands,

portrayed a radically improved picture of the Bank's financial position

which in fact was false.

4.2.118 In 1979 the accounts were again rewritten but on this occasion

the auditors were alerted because of continuing adverse publicity and

declined to pass the accounts. This spelled the end of the Nugan Hand

Bank's carefully constructed but false image of a sound commercial

operation.

4.2.119 The preparation and auditing of the accounts involved the

Singapore office as the accounting office for the Bank, the Sydney

office, as the rewriting exercise was directed from and finalised by

Nugan Hand Ltd officers, and the Cayman Islands where the audits were

conducted by Price Waterhouse & Co., the Bank's auditors.

4.2.120 Those who were fully conversant with the rewriting exercise were

Messrs Nugan, Brincat, Hill and Hand. Those with more limited knowledge

of the exercise included Mr Tan Choon Seng, the accountant in the

Singapore office.

Knowledge of the Rewriting Exercise

4.2.121 Mr Brincat, in evidence to the Commission, confirmed his earlier

evidence to the Corporate Affairs Commission that those with knowledge of

the rewriting exercise were himself and Messrs Nugan, Hand, Hill and Tan

Choon Seng. In addition, he told the Commission that he informed his

partner, Mr Pollard, of the rewriting exercise in 1977, 1978 and 1979 and

the effect of reclassifying the cash records to eliminate loans and

reduce operating expenses. He did not, however, discuss with Mr Pollard

the use of Nugan Hand Inc. Panama [see 4.2.125-4.2.126]

Mr Pollard, on the other hand, agreed that he was aware that Mr Brincat

had gone overseas to Singapore to do accountancy work but he said that

they did not discuss in detail what Mr Brincat had done while he was

away. Mr Pollard denied that he was aware that the books had been

... 205

rewritten.

- 715 -

4.2.122 Mr Brincat's evidence also conflicted with evidence given to the

Corporate Affairs Commission by Mr Tan Choon Seng. According to Mr Tan

Choon Seng's evidence, Mr Brincat had assured him that the Bank was

solvent and had discussed why expenditure on behalf of the Nugan Hand

Bank was reclassified as expenditure on behalf of Nugan Hand Inc. Panama

[see 4.2.125-4.2.126]. Further, Mr Brincat had told him that Nugan Hand

Inc. Panama was an intermediary company of the Bank. Mr Brincat denied

that he had assured Mr Tan Choon Seng of the Bank's solvency and could

not recall the discussion concerning Nugan Hand Inc. Panama. He did

agree, however, that on occasions when visiting Singapore he had told

Mr Tan Choon Seng that various kinds of accounting records had to be

rewritten to reclassify expenditure.

4.2.123 The accounts were signed in 1977 by Mr Hill and Admiral

207

Yates. Mr Hill stated that Admiral Yates also signed the 1978

accounts although Admiral Yates said he thought that he had only signed

the 1977 a c c o u n t s . H e stated that on this occasion he completely

relied on Mr Hill who explained all the entries in the books to

h i m . M r Hill stated that Admiral Yates relied entirely on the

auditors Price Waterhouse & Co., and would have been totally unaware that 210 anything was wrong. As far as Mr Hand was concerned, Mr Hill was of

the opinion that Mr Hand was fully aware of the rewriting of the Nugan

Hand Bank records^ ^ and that Mr Hand was in fact present when the

212

Nugan Hand Bank records were restructured in Singapore.

A. Mr F.J. Nugan's Instructions

4.2.124 Both Mr Hill and Mr Brincat gave evidence to the Conmission that

they travelled to Singapore in 1977, 1978 and 1979 in connection with the

rewriting of the NUgan Hand Bank accounts on instructions from Mr Nugan.

They differed, however, in their recollection of Mr Nugan's

instructions. According to Mr Hill, Mr Nugan's instructions were to the

effect that the accounts were to show a certain level of deposits and a

particular level of profit, and the accounts were to be constructed to

achieve these aims. This required a reduction in the number of

depositors, which Mr Nugan nominated and also required certain expenses

- 716 -

213

to be written off. Mr Nugan's · explanation to Mr Hill was that some

depositors had actually been repaid overseas and so the accounts should 214

reflect this situation for the purposes of the audit.

4.2.125 Further, Mr Hill said that Mr Nugan had indicated that he had

arranged with the auditors that all the depositors who had been repaid 215

would be 'taken out' of the accounts. According to Mr Hill, the

system adopted for reducing deposits and writing off expenses was to use

Nugan Hand Inc. Panama as a clearing account so that the depositors who

were to be represented as having been repaid were to be shown as having

been repaid though Nugan Hand Inc. Panama. Likewise the expenses were

charged to Nugan Hand Inc. Panama.^®

4.2.126 Mr Brincat, on the other hand, denied that Mr Nugan had said

what level of deposits and profit he wanted reflected in the accounts or

that certain deposits had in fact been repaid. Rather Mr Nugan had said

that certain deposits had been received by the Nugan Hand Bank on behalf

of Nugan Hand Inc. Panama and other companies and the Bank accounts were 217

required to reflect this situation. Mr Brincat confirmed his

earlier evidence to the Corporate Affairs Commission that Mr Nugan also

required certain expenditure of the Nugan Hand Bank to be reclassified as

having been made on behalf of Nugan Hand Inc. Panama. Mr Nugan told

Mr Brincat that it was necessary to do so as the Nugan Hand Bank was

incurring expenses on behalf of all the Group's companies.^®

4.2.127 According to Mr Brincat, Mr Nugan had said it was necessary to

rewrite the cash books because all sections of them were incorrect and it 219 would save work in the long term. The approach adopted, as pointed

out in the Seventh Interim Report of the Corporate Affairs Commission,

was of course contrary to the approach which should have been used, had

Mr Nugan's instructions been correct, of using journal entries at balance

date to adjust the accounts in respect of the various payments and 220

receipts, rather than completely rewriting the cash books.

4.2.128 Mr Brincat said that Mr Nugan's instructions that the cash books

were to be rewritten were not directed to the elimination of inter­

company advances recorded in Singapore as assets but he agreed that this 221 was the effect.

- 717 -

B. The Nature of the R e w r i t i n g Exercise

4.2.129 A number of visits to Singapore were made by Mr Brincat and

Mr Hill in connection with the accounting arrangements for the Nugan Hand

Bank. According to Mr Brincat's diaries and to his evidence before the

Commission, he made a total of five visits to Singapore; two in 1977, in

June for five days and from 6 to 11 November; two in 1978 from 3 to

10 February and from 19 to 22 June (he specifically recalled he was not

accompanied by Mr Hill on this occasion); and one in 1979 from 11 to 222 18 May.

4.2.130 Mr Brincat said that the first conversation he had with Mr Nugan

about rewriting the accounts was about the middle of 1977 and Mr Hill may 223 have been present. He also said that on the first visit to

Singapore in 1977, he and Mr Hill hired a bookkeeper, and an accountant, 224

Mr Tan Choon Seng, and set up the main records.

4.2.131 Mr Brincat confirmed his earlier evidence to the Corporate

Affairs Commission that he and Mr Hill agreed that cash books, bank

statements and a depositors' ledger should be maintained in the Singapore

office. Mr Brincat did not establish a control register for ICD's in

order of serial number.225 If the details of the 1977 visits are

correct the rewriting exercise in respect of the 1977 accounts, which

were audited in September of that year, commenced during the visit in

June which was also the occasion of the hiring of the local accountancy

staff.

4.2.132 The purpose of each of the trips to Singapore in 1977, 1978 and

1979 according to Mr Br incat, was to get the work under way for the

writing up of the cash books, not necessarily for the work itself to be

done in Singapore. In 1979, he noted, no rewriting was done in Singapore

while in 1977 and 1978 some was done in Singapore and seme in Sydney.

Following the visits to Singapore a complete Kalamazoo set of records was

prepared in respect of each of the years 1977, 1978 and 1979 and was sent

to the Cayman Islands together with the financial statements based on

those records.226

- 718 -

4.2.133 Mr Hill g a v e e v i d e n c e to the Commi s s i o n that the r e w riting

e x e r c i s e w a s a c t u a l l y carried out b y Mr B r i n c a t a n d Mr T a n c h o o n Seng.

227

Mr Hill's role was to take the accounts to the auditors. Mr Br incat

initially claimed that the rewriting exercise was carried out by himself,

Mr Hill and some of the Sydney staff of Nugan Hand Ltd. He later said

Mr Hill helped in 1977 and 1979. Mr Br incat subsequently said that

Mr Hill probably did not take part in the 1979 rewrite. Finally, he did

not dispute that Mr Hill played little if any role in the rewriting of

the Nugan Hand Bank records.

4.2.134 T here w a s con f l i c t i n g e v i d e n c e concerning w hich a c c o u n t a n c y

records kept in the S i n gapore o f f i c e w e r e c o n sulted d u r i n g the rewriting

exercise. Mr H i l l ga v e evidence to the Commi s s i o n that he a n d Mr Brincat

t r a v e l l e d to Si n g a p o r e a n d Mr Tan Choon Sen g a n d M r Br i n c a t p r e p a r e d

journal entries while in Singapore. Mr Brincat denied that he made

e n t r i e s in the N ugan H a n d Bank journal in Singapore. H e sa i d he m a y have

m a d e such entries in the journal w h i c h was part o f the Kal a m a z o o system

230

w h i c h Mr B r incat r e w r o t e in Sydney. Further Mr Hill sa i d that the

ledger w a s sent d o w n to S y d n e y for Mr N ugan's appro v a l of the draft

231

b a l a n c e sheet. Mr B r i n c a t d e n i e d that the ledger was b rought down

f r o m Singapore to S y d n e y for Mr N u gan's approval. He said that the

ledger was n o t re w r i t t e n a n d that there w a s onl y o n e ledger for the Nugan

Hand Bank which was the one brought into existence by himself as part of 232 the Kal a m a z o o s y s t e m in Sydney. Later, h o w e v e r , Mr Brincat said the

set of b ooks kept b y Mr Tan C h o o n Se n g in Singapore included a set of

233

cash books, a ledger a n d a journal. N o t w i t h standing the e x i stence

of suc h records in Singapore, Mr B r i n c a t thought that the o n l y records he

consulted were cash sheets (and not the cash books), requisition forms

a n d ban k statements. T h e ca s h sheets w e r e copied a n d used in Syd n e y to

234

ena b l e Mr Nugan to d i s s e c t a l l the entries. Mr Brincat als o stated

235

that he used old cash books to write up the new ones.

4.2.135 In evidence to the Corporate Affairs Commission Mr Tan Choon

Seng said that during 1977, 1978 and 1979 the Singapore office sent the

Nugan Hand Bank trial balances, balance sheets and profit and loss

statements to Sydney. When referred to this evidence Mr Brincat told the

- 719 -

Commission that he could only recall bank reconciliations, that is,

balances of the various bank accounts of the Nugan Hand Bank coming from

S i n g a p o r e . H o w e v e r , Mr Brincat subsequently accepted that he had

seen a trial balance prepared in Singapore in respect of the 30 June 1978 237 accounts.

4.2.136 Both Mr Hill and Mr Brincat gave evidence to the Commission that

for the period 1977 to 1979 there existed two sets of records, the

original set in Singapore and the restructured s e t . M r Brincat

supposed that the Singapore office proceeded with its records for its

everyday recording as though his records did not exist.^ 9

4.2.137 In carrying out the rewriting exercise, Mr Brincat stated that

he played a mechanical role at the request of Mr Nugan. He confirmed his

earlier evidence to the Corporate Affairs Commission that he perceived

his function as that of a bookkeeper with no independent mind and that he

had no role to question his instructions or to inquire as to the

truthfulness of the reclassification of expenses and deposits in respect , 240

of Nugan Hand Inc. Panama.

C. Presentation of the Accounts to the Auditors

4.2.138 Mr Hill said that he took the rewritten Nugan Hand Bank

accounts - cash books, ledgers, journal, balance sheet and profit and

loss statement - to Price Waterhouse & Co., the auditors in the Cayman

Islands. The auditors kept them for several days during which they

raised queries which would be checked by Price Waterhouse & Co., in

Singapore. In 1977 and 1978 the auditors had signed the accounts and

given them to Mr Hill. However in 1979 they wanted undertakings from

Mr Hill that the accounts reflected the true level of deposits. This was

the first occasion on which the auditors requested such an undertaking.

Mr Hill said that he thought the request for an undertaking stemmed from

the adverse publicity concerning charges which had been preferred against

the Nugan brothers. He said they questioned him closely about the nature

of the charges. In the event Mr Hill declined to give the undertaking.

As he explained to the Commission he had been prepared to go along with

- 720 -

Mr N u g a n1 s wis h e s b u t his a p p r e c i a t i o n of the s i t uation was then such

that he d e termined not to d e l a y t h e r ectification p r ocess a n y further.

241

H e s a w no reason to go a l o n g w i t h the s h a m a n y more.

4.2.139 It was Mr Hill's impression that had he given the undertaking to 242

the auditors there w o u l d have b e e n no problem. As it was, he d i d

not giv e the undertaking, a n d s h o r t l y after, the audi t o r s a d vised the

B a n k i n g C o m missioner that the a c c o u n t s c o u l d not be p r e s e n t e d to the

Commis s i o n e r in a c c o r d a n c e w i t h the requirements of Caym a n Islands

n 243

law.

D. De t a i l s o f the A n n u a l Acco u n t s

1977 Accounts

4.2.140 The evidence before the Commission disclosed that three versions

of the 30 June 1977 accounts of the Nugan Hand Bank were prepared. One 244

v e r s i o n w a s p r e p a r e d b y s t a f f in the Singapore office, another

v e r s i o n w a s p r e p a r e d b y Mr B r i n c a t and was signed b y Mr Hill and Mr N ugan

245

on 2 September 1977 and a further version was signed by Mr Hill and

Admiral Yates a n d w a s p a s s e d b y the auditors, Price W a t e r h o u s e & Co., in

246

the Cay m a n Islands o n 16 September 1977.

4.2.141 Significant features of the S i n gapore version of the accounts

were: the inclusion in the assets o f inte r - c o m p a n y loans in the sum of

US$2 148 740.10 (which a c c o r d i n g to the trial b a lance included an amount

of US$750 000 owe d b y N Ugan Hand Inc. Panama a n d an amount of

US$322 648.17 owe d b y Yo r k v i l l e Nominees P t y L t d [profile 2.108]); the

inc l u s i o n in the l i a b ilities of client deposits in the s u m of

US$4 287 464.52; a n d a p r o f i t a n d loss statement s howing a net loss of

US$55 087.51.

4.2.142 Mr B r i n c a t at first told the Commi s s i o n that he had not seen the

Singapore trial b a lance before it w a s shown to h i m by the Corporate

A f f a i r s C o m m i s s i o n.* 2 4 4 2 4 5 2 4 6 247 He s u b s e q u e n t l y stated that he m a y hav e had

acc e s s to the docu m e n t tho u g h he had no r e collection of hav i n g done

- 721 -

so and then reverted to his original position by denying that the

Singapore figures were available to him when he was preparing his balance

sheet. His recollection was that copies of cash book sheets were

brought from or sent by the Singapore office together with cheque

requisitions and bank statements, that the cash book sheets had been

rewritten and that he had prepared the accounts based on the rewritten

cash sheets.

4.2.143 The major differences between Mr Brincat's version of the

accounts and the Singapore accounts were: the inclusion as assets, of

money market securities to the value of US$1 181 522 (which Mr Brincat

said represented debts between companies within the Group; no securities

were included in the Singapore accounts); the absence of an amount for

inter-company debts as part of the assets (as opposed to US$2 148 740.10

in the Singapore accounts); the inclusion as a liability of only

US$2 764 061 as fixed term deposits (as opposed to $4 287 464.52 as

clients' deposits); and a profit and loss statement showing a net profit

of US$103 566 (as opposed to a loss of US$55 087.51).

4.2.144 The securities were the subject of a note to the accounts which

described the secur i t i e s a n d s t a t e d that they w e r e held b y Nugan Hand Ltd

on behalf of the Bank. As Mr Br i n c a t a c k n o w l e d g e d to the Commission,

contrary to this note, Nugan Hand Ltd was not holding any securities on

behalf of the N u g a n H a n d Bank at this or a n y o ther time. He agreed that

when he prepared the balance sheet the particular securities were owned

b y N u g a n H a n d Ltd a n d p l e d g e d to a N u g a n Han d Ltd depositor. Mr Brincat

said that the not e had been d r a f t e d b y Mr Nugan and they had disagreed

about Mr Nugan's requirements that the securities be included in the 251

accounts because Mr Brincat knew that the information was false.

4.2.145 The complete absence of any mention of inter-company loans from

the accounts prepared by Mr Brincat was at variance with the work sheets

in Mr Brincat's handwriting which he agreed were written in connection

with the production of his accounts and which he described as relating to 252 s u m maries from bank accounts. T here were, for example, details

conce r n i n g loans p a i d out of the W i n g On Bank Hong Kong dollar account

- 722 -

253

totalling US$1 580 272.67 while Mr Brincat could only refer in his

work sheets to repayments in respect of the particular loans concerned of 254 2R5

US$79 372.29 and US$254 329.

4.2.146 The work she e t s d i d c o n t a i n reference to loans pai d to P eggy

Pracey, M a r g a r c o a n d Shue Sha w M i n u nder the h e a d i n g of 'Loan-Yorkville

N o m i n e e s - S y d n e y C l i e n t s.1 T h e evidence before the Commission

d i s closes that Mr Brincat m a d e e n t r i e s in the records of N u g a n Han d Ltd

a n d Yo r k v i l l e Nominees P t y Ltd in relat i o n to deposits fro m these clients

p u r p o r t i n g to treat them as n o n - r e p a y a b l e b y N ugan Hand Ltd on the basis

that Mr N u g a n h a d h i m s e l f repaid t h e m in H o n g Kong. In fact the deposits

w e r e repaid by the N ugan Hand Bank.

4.2.147 Mr B r i n c a t deni e d w h a t m i g h t ot h e r w i s e be as s u m e d f r o m his work

sheets, that he kn e w that the depo s i t s had been repaid b y the Bank. His

exp l a n a t i o n w a s that h e m a y h a v e recog n i s e d the n a m e s as clients of Nugan

Hand Ltd but thought it q u i t e p o s s i b l e that they wer e over s e a s depositors

w h o had sepa r a t e dealings w i t h the Nugan Hand Bank. It was p o i n t e d

out to h i m that these dealings co n c e r n e d not on l y the same depositors but

als o the same depo s i t s a n d that the Bank's cas h s u mmary sheets wer e

258

a v a ilable w h i c h reco r d e d these deposits. Mr Brincat said that he

did not k n o w w h ether he had acc e s s to the ca s h s u mmary sheets on his

259

visits to S i n gapore as o p p o s e d t o the cash book itself. He agr e e d

that it w a s impossible for h i m to recollect names and figures in two

compl e t e l y different sets of a c c o u n t s at different t i m e s . ^ He agreed

that there was no reference in either the N ugan Ha n d Bank or Nugan Hand

Ltd accounts to s uggest that the Bank had m a d e paym e n t s on behalf of

Nugan Hand Ltd.

4.2.148 Associated with the accounts prepared by Mr Brincat was a

memorandum to Mr Hill in Mr Brincat's writing entitled 'Background

Information to Accounts of the Nugan Hand Bank'. Mr Brincat said that

the memorandum had been dictated to him by Mr Nugan and it was his

understanding that the notes contained in the memorandum would either

form part of the accounts or would accompany the accounts to the auditors

as a separate document. He denied that the memorandum had been dictated

- 723 -

to himself because he was expected to contribute to the contents. The

memorandum stated a number of reasons for the minimal income or profit

earned by the Bank in its first year of operation. It stated, first,

that funds were left in the various bank accounts, not earning any

income. Secondly, no income had been calculated on the money market

securities because, it was claimed, income was not earned until maturity

which was after the balance date. Thirdly, the Bank had paid higher

rates of interest on fixed term deposits than it had earned on placement

of the funds in question particularly as Asian Currency Units yielded

only between four per cent and six per cent. Fourthly, certain expenses

paid by other companies within the Group had been incurred in respect of

the establishment and the operation of the Nugan Hand Bank and that the

position would have to be rectified in its first full year of operation.

In relation to the last point, the memorandum went on to state: 'Our

auditors in Australia have indicated that they would wear it in the

initial few months of operation but the auditors in Cayman should be told

that these are the facts.|2®2

4.2.149 With regard to the reference to expenses incurred on behalf of

the Bank by other companies within the Group, Mr Brincat gave evidence

that Messrs Nugan, Hill, Shaw, Ward and himself were, for example,

officers of Nugan Hand Ltd who would have worked 20 per cent of their

time on Nugan Hand Bank business. He added that the ultimate payer of

the Nugan Hand Bank expenses was Nugan Hand Ltd. In the absence of

any other evidence concerning this memorandum it can only be assumed that

it was in fact forwarded to the Cayman Islands as an explanation of the

1977 accounts prepared by Mr Brincat.

4.2.150 The version of the accounts which was finally passed by the

auditors on 16 September 1977 was similar to the accounts prepared by

Mr Brincat with the important difference that the audited version 264

contained no reference to money market securities. Instead the

asset of short term deposits was a sum of US$2 714 568 which represented

the total of both short term deposits and money market securities which

were contained as separate items on Mr Brincat's balance sheet. The only

notes to the audited accounts alleged that the Bank was a wholly owned

- 724 -

subsidiary of Rigan Hand International Holdings Ltd and that alternative

internal control procedures had been set up because of the confidential

nature of the accounts. Mr Brincat said that with regard to the former

point, it was contrary to evidence of which he was aware and in the case

of the control procedures he was not aware that there were alternative

internal control procedures.265

4.2.151 In summary, the basic changes brought about in the 1977 accounts

were that assets which were in fact inter-company debts as recorded in

the Singapore office were described as short term deposits and money

market securities by Mr Brincat and finally were described as short term

deposits without mention of money market securities in the audited

version of the accounts. At the same time, the liabilities which were

represented by client deposits were considerably reduced in the profit

and loss statement, and a loss was thus converted into a profit.

1978 Accounts

4.2.152 As in 1977, there were three versions of the 30 June 1978

accounts produced; one by the Singapore office,266 another by

Mr Brincat267 and a further one which was passed by the auditors.268

4.2.153 The significant features of the Singapore accounts were that

assets included a sum of US$7 403 524 as debts due from related companies

(which included US$2 946 140 due from Nugan Hand Inc. Panama and

US$1 600 889.16 in respect of Yorkville Nominees) while only US$1 575 000

constituted ACU investments; liabilities included the sum of US$9 430 112

as clients' deposits and US$172 643 as debts due to related companies,

mainly Nugan Hand Ltd; and a profit and loss statement showing a loss of

US$1 495 137.

4.2.154 The unprofitable nature of the Bank's operations as shown by

these accounts was highlighted by the fact that total income was

US$404 729 which was only slightly more than the sum of commissions and

brokerages of US$397 347, this being only one item of many in respect of

marketing and general administration expenses.

- 725 -

4.2.155 The Singapore accounting records also included a copy of an 9g9

account in respect of Nugan Hand Ltd" and a copy of an account termed

Yorkville Nominees. The former included entries for Nugan Hand Ltd

clients, for example, the Overseas Trust Bank and Peggy Pracey which

suggested that a payment to the Overseas Trust Bank had been made by the

Bank on behalf of Nugan Hand Ltd and that Nugan Hand Ltd had reimbursed

the Bank in respect of Peggy Pracey.271

4.2.156 Mr Brincat told the Commission that the account termed Yorkville

Nominees had nothing to do with Yorkville Nominees Pty Ltd.272 He said

that the correct description of this account could be Yorkville contra or

suspense account and it included transactions to do with both Sydney

based clients and others. He agreed that the year's transactions in

respect of this account had resulted in a debt to the Nugan Hand Bank

amounting to US$1 600 889. Mr Brincat stated that he had not seen either

the Nugan Hand Ltd or Yorkville Nominees accounts before giving evidence 273 to the Commission.

4.2.157 There was one other account included in the Singapore records 274

and this account related to Nugan Hand Inc. Panama. The account

recorded the sum of US$2 946 140 already referred to in the balance

sheet, which Mr Br incat agreed was owed by Nugan Hand Inc. Panama to the

Nugan Hand Bank as at 30 June 1978.27~*

4.2.158 According to the Singapore accounts noted above, the financial

position of the Nugan Hand Bank had deteriorated significantly from the

previous year [see 4.2.141], Mr Brincat's version of the accounts, on

the other hand, indicated that there had been only a slight reduction in

profit.

4.2.159 More specifically, Mr Brincat's accounts included only two items

as assets, that is, cash at bank US$481 956 and short term deposits of

US$5 584 408 (as compared to total Singapore assets of US$9 500 467, the

major item being US$7 403 524 for inter-company debts); liabilities

included the sum of US$4 876 904 as fixed term deposits (as corrpared to

0S$9 430 112 as clients' deposits in the Singapore accounts); general and

- 726 -

administrative expenses of US$104 929 (as opposed to general

administration and marketing expenses in the Singapore accounts of

US$964 261); and a profit of US$79 894 (as compared to a loss in the

275a

Singapore accounts of US$1 495 137).

4.2.160 Attached to the accounts prepared by Mr Brincat was a list in

his handwriting of depositors' balances which Mr Brincat identified as

the total list of fixed term deposits.278 This list comprised only 13 277

depositors as conpared to 108 in respect of the Singapore accounts.

This in dollars meant the difference between US$4 876 904 and

US$9 430 112.

4.2.161 In this connection, the Singapore accounts included two trial

balances each of which evidenced amendments to particular figures as the

accounts were being prepared in the Singapore office.278 More

specifically, the figure for deposits accepted was changed from

US$7 234 347 to US$8 723 766 to the final figure of US$9 430 112. The

trial balance which contained the figure of US$7 234 347 also

contained a pencil annotation associated with this figure stating

'Difference from actual balance of $9,430,112.37 yet to be settled. Adjn

entry to be made on Monday after discussions'. Mr Brincat identified

this pencil annotation as a note made in Mr Hill's handwriting. The

second page of this trial balance contained some writing which Mr Brincat .. ..... . . . 280

identified as his.

4.2.162 Mr Brincat had originally told the Commission that in preparing

his list of thirteen depositors in connection with the 1978 accounts, he

had consulted the cash books, the postings to the ledger contained in the

cash books and the ledger, all of which had been produced as a result of

his rewriting exercise.282 When he subsequently identified his writing

on the second page of the trial balance he told the Commission that it

was possible that he had seen the page at the time he prepared his

version of the 1978 accounts.282 Moreover, he agreed that he had

probably seen the first page of the trial balance but possibly not with

Mr Hill's note attached. He said he was not 100 per cent certain of

this.282 He told the Commission that the note was not directed to him,

- 727 -

that he did not recall discussions concerning the note and that he had no

recollection of what happened as a result of Mr Hill's note.2®'*

4.2.163 The audited version of the accounts was signed by the auditors 285 on 11 August 1978. This differed only marginally from Mr Brincat's

version with the important exception that the asset entitled 1 short term

deposits' was the subject of a note to the accounts to the effect that

the greater proportion of this item comprised money market securities

held by Nugan Hand Ltd. There was no such note contained in Mr Brincat's

version of the accounts although a reference to 'note 2' alongside the

liabilities and a reference at the base of the balance sheet to notes

being 'an integral part of the financial statements' indicated that notes

were intended to be attached.

4.2.164 Mr Brincat told the Commission that he was not sure that the

notes attached to the audited accounts were dictated to him by Mr Nugan

in the same manner as the notes for 1977 [see 4.2.101 and 4.2.144], He

said he did not remember whether he assisted Mr Nugan in formulating the

notes. He subsequently said that he did not deny that he had taken

down the notes and that it was possible that he had done so.2®^ He

later said that it was unlikely that he had a hand in the formulation of

the notes. While he was not sure that the notes were prepared by him, he

did not think they were.

4.2.165 As far as the content of the notes was concerned, Mr Brincat

agreed that Note 1 was incorrect in stating that the ultimate parent

company of the Bank was Nugan Hand Ltd, and that Note 2, which claimed

that internal control procedures were adequate, did not reflect his

view. Note 3 detailed the components of the asset entitled 'short term

deposits' as Asian Currency Units US$1 588 256 and money market

securities of US$4 009 408 making a total of US$5 597 664. The note

stated that the securities consisted 'of a share of a pool of Commercial

Bills and Negotiable Certificates of Deposits issued by Australian banks

and financial institutions and held by the ultimate parent company.'

Note 3 also stated that the face value of the securities representing the

company share of the pool was A$3 700 000.

- 728 -

4.2.166 These securities were the subject of an exchange of telexes

between the Cayman Islands and Sydney in August 1978. On 10 August 1978,

Mr Hill sent a telex from the Cayman Islands marked to the attention of

Mr Brincat in Sydney, noting certain depositors' balances which were

recorded in the audited version of the balance sheet as fixed term

deposits and requesting a client listing of securities amounting to

A$3 700 000.289 In the reply directed to Price Waterhouse & Co., on

11 August 1978, a list of securities was provided amounting to this

s u m . M r Brincat gave evidence to the Commission that the list of

securities forwarded to the Cayman Islands in connection with the audit

of the Nugan Hand Bank accounts, contained securities which were in fact

the p r o p e r t y of Nugan Hand Ltd p l e d g e d at that time to N u g a n Hand Ltd

291

depositors. He identified the same securities in a summary of

commercial bills on hand as at 30 June 1978 which was a document

contained in his working papers for that year in respect of Nugan Hand

Ltd.292

4.2.167 Mr Br i n c a t sa i d he c o u l d not remember the c i r c u mstances of the

telex r eply of 11 Augu s t 1978 a n d stat e d that he m a y hav e just bee n a sked

to o b t a i n d e tails of the securities. Later in evid e n c e Mr B r incat stated

that he had n o knowledge of the reply. He said he had not seen it before

g i v i n g evid e n c e to the C o m m i s s i o n a n d h a d no part in the exer c i s e w h i c h

resul t e d in the s ecurities of Nugan Hand L t d being listed as those of the

293

N u g a n H a n d Bank. Mr Br i n c a t a g r e e d that inclusion of these

securities in the accounts of 30 June 1978 was a misrepresentation in the

same manner as that of the previous year only the amount concerned had 294 more than doubled.

4.2.168 Although Mr Brincat saw a copy of the audited accounts for 1978

after they were certified he did nothing about this misrepresentation.

He said that he had no recollection of discussing the matter with

295

Mr Nugan. Note 3 also contained corresponding details of securities

held in respect of the 1977 accounts as a point of comparison with the

1978 figures. The 1977 figures were A$1 533 046 for Asian Currency Units

and A$1 181 522 for money market securities. It should be noted

therefore that the reference to money market securities which was

- 729 -

contained in Mr Brincat's version of the 1977 accounts and omitted in the

audited version of those accounts that year, was finally restored in a

note to the audited 1978 accounts.2953

1979 Accounts

4.2.169 There were no final or audited accounts in respect of 30 June

1979 and the few documents available to the Commission provide only the

most incomplete picture of the Bank's financial statements at this time.

4.2.170 A trial balance was prepared in the Singapore office as at

30 June 1979 which showed: a loss of US$4,586 million; an amount due to

related companies of US$516 815; an amount due from related companies of

US$12,233 million; and client deposits of US$16,970 million.295 * 2 9 7 * 2 9 9 This

reflected a considerable increase in the level of client deposits from

1978 which was acknowledged in a written communication from Mr Tan Choon 297

Seng to one of the Singapore officers.

4.2.171 It is clear that the high level of inter-company debts and the

considerable loss shown in the trial balance demonstrated the increasing

deterioration in the Bank's financial position. This deterioration

continued according to a trial balance prepared in the Singapore office

as at 30 November 1979, which showed deposits accepted of US$22 million

and a trading loss of almost US$5 million.

4.2.172 Apart from the trial balances prepared in the Singapore office,

there were available to the Commission, a number of work sheets which 299

Mr Brincat had written in preparation for the 1979 accounts.

Included in these work sheets under the heading 'NHIP Credits to

Accounts' was a list of client numbers and accounts comprising 20 entries

totalling A$3 098 707.10. Mr Brincat identified this list as one which

purported to be a list totalling all deposits received by the Bank from

deposits with Nugan Hand Inc. Panama.599

4.2.173 Mr Brincat confirmed his earlier evidence to the Corporate

Affairs Commission that he carried out similar adjustments to the 1979

- 730 -

a c c o u n t s as b e f o r e [see 4.2.129-4.2.137]. He said he last saw a

c o p y of these accounts in O c t o b e r or November 1979. He p r e p a r e d the

acco u n t s in draft fo r m a n d t hese together w i t h a set of records w r i t t e n

u p in S y d n e y w e r e se n t to the auditors. He sa i d he did not know, until

g i v i n g evid e n c e to the Commission, that the a u d i t o r s had refused to

c e r t i f y the a c c o u n t s.302

4.2.174 A letter sig n e d by Mr H i l l a n d Mr Nugan, indicates that the

Nugan Hand Bank accounts for 30 June 1979 perpetrated the same

m i s r e p r e s e n t a t i o n as in prev i o u s accounts, that is to s a y that N u g a n Hand

303

Ltd held securities on behalf of the Bank. The letter bears the

date 30 September 1979 and was addressed to Price Waterhouse & Co. in the

Cayman Islands. It confirmed that Nugan Hand Ltd held certain

securities, described in terms of drawer, acceptor, maturity and face

value, amounting to A$7 800 000. They included bills drawn by Secured

Income Real Estate (Australia) Ltd [profile 2.118] and accepted by Nugan

Hand Ltd, and other internal bills [see 5.34-5.55]. Mr Brincat

identified the majority of the securities with the exception of one, as

the same as those listed in his audit working papers for Nugan Hand Ltd

as securities held by Nugan Hand Ltd as at 30 June 1979.30^

4.2.175 Mr Brincat stated that he had not seen a copy of the letter

dated 30 September 1979 before it was shown to him while giving evidence

to the Commission, nor did he believe that the accounts prepared by him

for 1979 and sent to the Cayman Islands contained notes which referred to

securities being held by Nugan Hand Ltd on behalf of the Nugan Hand Bank.

4.2.176 Mr Brincat agreed, however, that the evidence disclosed a

p a t t e r n comme n c i n g in 1977 a n d conti n u i n g until 1979 of the N u g a n Hand

Ban k auditors b e i n g f a l s e l y to l d that N ugan Han d Ltd was holding

secur i t i e s on b e h a l f o f the Bank. He a g r e e d that this p a ttern was known

to h i m in 1977 b e c a u s e he took dow n the note w h i c h c o n tained this

information. He kne w t h e no t e w a s pa r t of the accounts to be sent to the

Cayman Islands and he kne w it w a s false. W i t h regard to 1978, h o w e v e r ,

he deni e d that he had a n y p a r t in the f o r mation of the note w h i c h was

included in that year ' s acco u n t s b u t agr e e d that he saw the 1978 accounts

301

- 731 -

after they were audited and did nothing about the false information in

the note. He was 'pretty certain' that the 1979 accounts did not include

a note referring to securities held by Nugan Hand Ltd on behalf of the

Nugan Hand Bank."

4.2.177 As far as the Nugan Hand Ltd accounts were concerned, Mr Brincat

stated that to his knowledge the records of Nugan Hand Ltd did not state

that it was holding securities on behalf of the Nugan Hand Bank.306

The Nugan Hand Bank (in liquidation)

4.2.178 P e t itions to place the N u g a n Han d Bank in liquidation wer e filed

in H o n g Kong in April 1980 a n d in the Cayman Islands in mid 1981. It

w o u l d s e e m that the Bank w a s subseq u e n t l y reinstated to the register in

order that liquidation not p r o c e e d v o l u n t a r i l y but rather under the

ausp i c e s of the C o u r t.303 Subseq u e n t l y Mr M.D.M. W o o l l a r d of the Hong

Kon g O f f i c i a l R e c e i v e r ' s O f f i c e w a s a p p ointed liquidator jointly with

Mr C.D. J o h n s o n o f the C a y m a n Islands in a liquidation ordered b y the

G rand Court of the Cayman Islands. This followed a similar appointment

by order of the H o n g K o n g C o u r t u nder the provisions relating to

u n r egistered c o m p a n i e s.300

4.2.179 In a letter to the Commission dated 2 April 1985 Mr Woollard

commented on the stage reached in the liquidators' investigation of the

Nugan Hand Bank's financial position. He stated that an unaudited

balance sheet and profit and loss account had been prepared from the

Bank's records then held in Singapore. He noted that the most

substantial part of the assets of the corrpany were represented by

inter-company loans which were largely irrecoverable by reason of the

insolvency of the other companies in the Group. Further, he noted that

the insolvency of the company clearly flowed from the extent of

inter-company lending and its management policy relating to the level of

interest on deposits and the level of expenses and commission incurred.

4.2.180 According to Mr woollard, at the time it ceased business the

Bank had received deposits from customers of US$22.79 million and had

- 732 -

suffered a trading loss of US$7.85 million. The level of inter-company

borrowing at the close of business was in the region of US$17 million.

The liquidator h a d rece i v e d cla i m s f r o m over four h u n d r e d creditors

309

totalling in the order of over US$15 million.

ENDNOTES : PART 4 - SECTION 2

(See explanatory note at front of report)

1 CD4968 folio 14 '

2 CD10490 folio 51

3 CD7620 folio 2; CD6348 folio 5

4 CD11304 folio 194

5 CT23155-56, CT23167, Shaw 6 CD7661 folios 39,181

7 CT23166, CT23200, Ward; CD761 folios 181-83; CD1731 folio 225 8 CD11304 folio 151

9 CD6905 folio 19

10 CD6905 folio 20

11 CD6905 folio 7

12 CD1908 folio 85; CD45 folio 8

13 CT23168, Ward; CD45 folio 8

14 CT22075, Steer; CD68 folios 17-21; CD1835 folios 4-11; CDS91 folios 33-40; CD45 folios 6-11 15 CDS215 folio 7; CD5239 folio 5; CD6938 15a CD8215 folio 5

16 CD10805 folio 532

17 CD8215 folio 4

18 CD4467 folio 132

19 CD10805 folio 598; CD8916 folio 173; CD5239 folio 75 20 CD5239 folios 31,76

21 CT15747-48, Hill

22 CD7467 folios 3-5, Brincat evidence to CAC 17/11/81 23 CAC 7th Interim Report p 402

24 CDS916 folio 49

25 CD5239 folio 27; CD68 folio 15

26 CDS239 folio 27

27 28 29 30 CD6941 folio 3

31 CD6940 folio 4

32 CT22439, Needham; CT18859, Evans; CD7616 folio 44 33 CD6942 folio 3

34 CD4467 folios 87,88,124,125 35 CD11322 folio 27

36 CD7006 folio 59

37 CD7467 folios 7-8, Brincat evidence to CAC 17/11/81 38 CAC 7th Interim Report p 403

39 CDS916 folio 42

40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55

56 57 58 59 60 61

62 63 6·' 65 66 67 68

69 7C 71 72

73 74 75 76 77 78

79 80 81 82 83 84 84a 85 86 87 88

89 90

- 733 -

CD4467 folio 130 CD4467 folios 92,132 CD11322 folio 27 CD4467 folio 122 CD4467 folio 100 CT21881, Hill CD4467 folio 20 CT20399, Gilder; CD4803 CD4803 CD8460 folio 9; CD3320 folios 2-8,29,66 CT20398-99, Gilder GDI0321 folio 23; CD7358 folio 23; CD5239 folio 100 CT21493-94, CT21496-97, Hill CT21927-28, Hill CT21503, Hill CT20798-800, Shaw

CD7358 CD5239 folios 84-178; CD68 CT22213, Gilder CD65 folio 7

CT22212-12a, Gilder CT22068, Steer; CT20859, George; CT22812, CT22818 CT24282-83, Yates CD65 folio 1 CT20388, CT20431, Gilder CT20388, Gilder; CD4006 CT20431 Gilder; CD8460 CT23093, Gilder CD917 folio 36 CT20408-09, Gilder CT23094, Gilder

CT23051, Gilder; CD917 folio 1 CT23092, Gilder CT21882, Gilder CT23049, Gilder CD4120 CD10252 folio 84 CD4006 CD6574 folio 72 CD6574 folio 68 CT22533, Houghton

CD4006 CD3713 folio 4 CD470

CT20397-98, CT23052, Gilder CT21132-33, Rus h CT24327, Hill; CT24238, Yates CT24217, CT24281, Y ates CT24267, Y ates CD7382 folios 43-46 CT22694, Pulger-Frame; CT22937-38, McArthur; Houghton; CT22110-11, Courtney-Smith

CT22533, Houghton; CT22110-11, Courtney-Smith CD11345 folio 31

Collings;

CT22533-34,

91 92 93

94 95 96 97 98 99

100 101 102 103

104 105

106 107 108 109 110

111 112 113 114 115

116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142

- 734 -

CT22811, Collings CT20388, Gilder CT23093, Gilder; CD65 folio 7 CD41; CD7142; CD7148 CT22016, Galicek; CT22060 Steer; CD41 file 4 folios 42,55 CT22779, Collings CT22781, CT22810, Collings CT22092, Courtney-Smith CD10978 folio 1 CT22530, Houghton CT24253, CT24256-57, Louis (Snr) CT22769, Collings CT22681, CT22683, CT22689, Pulger-Frame; CT18863, CT18865-68, Evans

CT24263-65, Yates CT22141, Louey; CT22017, Galicek; CD7142 folio 18; CD7148 folios 49-53, 65-67 CT22005, CT22019, Galicek CT22021, Galicek CT22018, Courtney-Smith CD22109, Courtney-Smith CT18800-01, CT18807, CT18811, CT18814-15, Evans; cf, 6.71-6.72 CT18792-96, CT18800-01, Evans CT18832, Evans; CD1308 folio 25; cf. 6.67, 6.71-6.72 CT20410-14, Gilder CT22523, CT22526, Houghton CT22527, Houghton

CT22528-29, Houghton CD10624 CD8611 folio 3 CT22530, Houghton CT22537, Houg h t o n CT22537, Houghton CT22577, Houghton CD7186 f olio 57 CD7186 folio 58 CT24255, CT24289, Yates CD3667 f olio 300 CD4449 f o l i o 6 CT23042, CT23090, Gilder; CD5847 folios 7-16 CD10262 folio 242-44 CT22109, Courtney-Smith CT22524, Houghton CT22062-64, Steer CT22530-31, Houghton CT22066, Steer CT18793, Evans CT22107-08, Courtney-Smith CT22022, CT22026, Galicek CT24244, Yates CT22524, Houghton CD7382 CT22575-76, Houghton CT22236-37, Gilder

143 144 145 145a 146 147 148 149 150 151 152 153 154 155

156 157 158 159 160

161 162 163

164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185

186 187 188 189

190 191 192 193 194

- 735 -

CT24270, Y ates CT22107, C o u rtney-Smith CD11323 f o l i o 154 CT15707-08, CT15733, Hill CT22534, Houghton CD10978 f olio 4 CT22881, Coll i n g s CT22237-40, Gilder CT24252-53, Yates CD7157 f olio 7 CD10262 folios 36-37 CT22551-55, Houg h t o n CT24270-71, CT24309-10, Yates

CD7382 folios 113-41; CD1896; CD5239 folios 51-72; CD10978 folio 1 CD10978 CT22536-38, Houghton CT22536-38, Houghton CT22693, Pulger-Frame CT22822, Collings; CD10978 folio 5

CD10978 folio 5 CT22819, CT22822, CT22825-26, Collings CT22791, CT22825, Collings CT22064, Steer; CT15746, Hill

CT22784, Collings CT24244, Yates CD11323 folios 60-64

CD11323 folios 233-34 CD11323 folio 272 CD6429 folios 12-14 CT22116-17, Courtney-Smith CD7382 folios 133-34 CT22446, Dunn CT22420-21, Needham CT22534, Houghton CT18878, Evans CT22421, CT22423, Needham CD3093 folios 26-28 CD7382 folios 113-30 CD7382 folio 116 CD7382 folio 118 CD10978 folio 1 CD10978 folio 3 CD10978 folio 4; CD7704 folio 105 CT22531, Houghton CD1950

CD10978 folio 4 CD5015 CT22108, C o u rtney-Smith CT22022, CT22023, CT22025, Galicek CT22076, Steer CT18791, CT18827, Evans CT21492, CT21501, Hill CT22700-02, Pulger-Frame

195 196 197 198 199 200 201 202 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249

- 736 -

CT23178, Ward CT23199-200, Ward CT22107, Courtney-Smith CT16253-55, Hill CD11323 folio 153 CD11323 folio 157 CT24243, Yates CT24268, Yates CT25371, CT25382, Brincat CT25597, CT25617-18, CT25624, Pollard CT25348-50, Brincat CT24272-73, Yates; CT21902, Hill; CD370 folio 4 CT24272-73, Yates CT24272, Yates CT21902, Hill CT21903-04, Hill CT24376, Hill CT21885, Hill CT21884, Hill CT21885, Hill CT21889, Hill CT25355-58, CT25365, Brincat CT25374, Brincat CT25355, B r incat CT25375, CT25369-70, B r incat CT25356-58, Brincat CT25368-69, Brincat CT25204, B r incat CT25205, CT25394, CT25348-49, CT25373, Brincat CT25371, CT25373, Brincat CT25354-55, Brincat CT21885-86, Hill CT25351-52, Hill CT15729, Hill CT25360-61, Brincat CT15731, Hill CT25362, Brincat CT25363-64, Brincat CT25365, Brincat CT25205, Brincat CT25366-67, Brincat CT25458, Brincat CT21895, Hill CT25365-66, Brincat CT25371, CT25375, Brincat CT21901, Hill CT21902, Hill CT21903-04, Hill CT25391, Brincat; CD3720 folios 85-88 CT25393-95, Brincat; CD3720 CT25407-08, CT25410, Brincat; CD11485 CT25370-71, Brincat CT25393, Brincat CT25397-98, Brincat

250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269

270 271 272 273 274 275 275a 276 277 278 279 280 281

282 283 284 285

286 287 288 288a

289 290 291 292 293 294 295 295a 296

297 298 299 300

- 737 -

CT25394-95, Brincat CT25399-400, Brincat CT25415, Brincat; CD11485 folios 1-12 CD11385 folio 4 CD11485 folio 8

CT25418-20, Brincat; CD11485 folio 10 CT25422, Brincat; CD11485 folio 9 CT25425, Brincat CT25424, Brincat CT25424, Brincat CT25427, Brincat CT25429-30, Brincat CD3093 folios 26-28 CT25406, Brincat CD11485 folios 2-4; CD11092 Part 11 folios 50-55 CT25371, CT25410, Brincat; CD11092 Part 11 folios 50-55

CD3720 folios 11-29 CD11486 folios 17-19 CD5050 folios 2-6 CD3720 folio 89

CD3720 folios 90-92 CT25442, Brincat CT25443, Brincat

CT25441, Brincat CD3720 folio 93 CT25446, Brincat CD3720 folios 11-12; CD11486 folios 15-16 CT25454, Brincat CD3720 folios 14-17 CD3720 folios 26-29; CD11486 folios 20-23 CD11486 folio 20 CT25455-56, Brincat; CD11092 Part 11, folio 139 CT25454, Brincat CT25457-58, Brincat CT25458, Brincat

CT25455-56, Brincat CD5050 folios 2-6 CT25461-63, Brincat CT25464, Brincat

CT25468-69, Brincat CD5050 folio 6 CD4538 folio 8 CD11092 folio 184

CT25466-67, Brincat CD4692 folio 20 CT25203, Brincat CT25466-67, Brincat CT25468-69, Brincat CD5050 folio 6; CD11486 folio 33 CT25480 Brincat; CD3552 folio 69 CT25480-82 Brincat; CD4517 folio 3

CT21888-90, Brincat; CD3552 folios 1-3 CD3313 folios 2-9 CT25473-74, Brincat; CD3313 folio 7

- 738 -

301 CT25369, CT25382, Brincat 302 CT25476, Brincat

303 CD4538 folios 1-2

304 CT25477, Brincat; CD4769 folio 10 305 CT25478, Brincat

306 CT25200, Brincat

307 CD8916 folio 30

308 A173

309 A173

- 739 -

SECTION 3 : THE ALLEGED INVOLVEMENT OF THE UNITED STATES CENTRAL INTELLIGENCE AGENCY

4.3.1 Since the death of Mr F.J. Nugan [profile 2.1] on Sunday,

27 January 1980, the list of allegations of wrong doing on the part of

himself and Mr M.J. Hand [profile 2.2] and various other persons said to

be associated with the Nugan Hand Group has reached almost unmanageable

proportions in terms of definition and source of origin. Attempts have

been made in other places in this report to identify allegations falling

into particular categories. A reference to the table of contents will

readily indicate those parts of the report dealing with specific breaches

of relevant laws.

4.3.2 However, the allegation that the United States Central

Intelligence Agency (hereafter referred to as the 'C.I.A.1) in some way

used the Nugan Hand Group and/or was used by the Nugan Hand Group falls

into a category of its own. This follows from the circumstance that

whereas all the other allegations are directed at the alleged activities

on the part of the Nugan Hand Group itself, the allegation which brings

into contention the alleged participation of the C.I.A. is directed as

well at this important and powerful intelligence agency. Obviously this

involves factors absent from the nature of the other allegations. This

allegation, perhaps, differs also in that it is a difficult charge to

prove or refute. Nevertheless, it is an allegation falling within the

Commission's terms of reference, subject to what is said below, and the

Commission also bears in mind that the allegation was raised on both

sides of the Australian House of Representatives in the early months of

1982.

4.3.3 Although it is true to say that the allegation (in its

multiplicity of forms) gained currency after the death of Mr Nugan, there

is evidence that the allegation had been raised in some places well

before that time [see 4.3.6-4.3.7] and that Messrs Nugan and Hand were

aware of such rumours.^

- 740 -

4.3.4 A sample of the various forms the allegation has taken may be

gleaned from a perusal of the material extracted from Australian and

overseas publications, in particular in the United States, which are

collected in Appendix C. From this sample it will be obvious immediately

that a great many of the assertions fall far outside the Commission's

terms of reference, which in this instance, require the Commission to

inquire whether the C.I.A. was used by or used the Nugan Hand Group in

circumstances where such activity was in contravention of relevant

Commonwealth or New South Wales criminal laws.

4.3.5 Thus, while the Commission's inquiries into the allegation have

been directed to those forms of it which fall within its terms, the

conclusions the Commission has reached are of such a kind that they are

also applicable to a consideration of whether even those forms which fall

outside the terms are likely or probable.

4.3.6 As was noted above the allegation that there was some use being

made of the Nugan Hand Group by the C.I.A. (or vice versa) had emerged

prior to Mr Nugan's death. The earliest such allegation identified by

the Commission was made in Hong Kong in February 1978 and preserved for

posterity in a notation made by the person to whom the allegation was

made. Before reproducing the relevant part of the note it is necessary

to digress in order to explain the setting in which the allegation was

made and duly recorded.

4.3.7 Among the events touched upon in the Compendium [see 3.5.40] is

an account of the abortive attempt on the part of the Nugan Hand Group to

acquire a Taiwanese bank known as the United Chinese Bank then controlled

by General S.K. Yee, who in another part of the document containing the

note referred to above is described as having been 'at one time [the]

Commander of the Armed Forces under General Chiang Kai-Shek'. The

document makes it plain that General Yee called to see a representative

of the ANZ Bank in Hong Kong a Sydney branch of which was at the time the

principal banker for Nugan Hand Ltd in Sydney. It appears from the

document that General Yee informed the bank representative of the

negotiations then current between himself and the Nugan Hand Group and

- 741 -

sought information concerning the soundness of the Group. T h e document 3 then continues:

'In discussing the Nugan Hand group generally, I commented that it was curious how many retired armed forces officers the g r o u p employs in overseas offices. Their man in Hawaii is a retired General and their man in the U S A is a retired Admiral. T h e r e

are others too - Michael Hand is a decorated Vietnam war

veteran. He agreed with me, and I then mentioned having had the opinion put to me by a member of the local business community that they might have CIA connections. The General said there is

no- might about itT1 [enphasis added J ......

4.3.8 Thus, in the Commission's view, this succinct contemporaneous

note provides the*best evidence of how the allegation emerged and gained

credence. The significant assumption inherent in the terse response

'there is no might about it' is simply left at that without any attempt

at justification.

4.3.9 The usefulness of this note does not end there. It illustrates

further the looseness of the assertion which is a characteristic to be

found in most of the variations of the allegation that have subsequently

surfaced. Thus the reference to 'C.I.A. connections'. No particular

meaning can be assigned to such a phrase. It is impossible to give a

more definite meaning to the expression other than to read it as

conveying the statement that the Nugan Hand Group 'had something to do

with' the C.I.A.

4.3.10 The content of the note was quite correct to the extent that it

made reference to retired armed forces officers being employed by the

Group. General E.F. Black [profile 2.8] was the Group's representative

in Hawaii and the other reference is to Admiral E.P Yates [profile 2.76]

who did represent the Group in the United States as well as other

places. In addition the Group also employed the services of General L.J.

Manor [profile 2.45] and General E. Cocke [profile 2.13]. However the

note when referring to 'retired armed forces officers' could not have

been implicitly referring to the latter two because their services were

not retained until very late in the piece, towards the end of 1979. The

- 742 -

reference to Mr Hand is also correct. The role that Admiral Yates and

General Black played as representatives of the Nugan Hand Bank is

explained at paragraphs 3.4,84 to 3.4.88. In the present context, it is

necessary to mention three more persons who at one stage worked with the

C.I.A., directly or indirectly, and who did come into contact with the

Nugan Hand Group, These are Mr W.E. Colby [profile 2.14], Mr W.J.

McDonald [profile 2.47] and Dr G.J. Pauker [profile 2.54]. As with

General Manor and General Cocke, these three men did not enter the

picture until mid to late 1979 and it is therefore difficult to see how

they could be said to have played any significant role in the Group's

activities.

4.3.11 The evidence of this group makes it plain that Admiral Yates was

the connecting link between the Nugan Hand Group and the other American

personnel, sometimes directly and sometimes indirectly. He was directly

responsible for the engagement of the services of Generals Black, Cocke

and Manor. He introduced Dr Pauker to Mr Nugan who in turn introduced Mr

Nugan to Mr McDonald and the latter introduced Mr Nugan to Mr Colby. It

appears that Mr Hand was primarily responsible for engaging the services

of Admiral Yates as the first President of the Nugan Hand Bank, a

decision which he was later to defend at a conference.4 Much was then

made of the fact that the Group had an Admiral as the head of the Bank.

Mr Hand then conceived the idea of enlisting the services of other United

States ex military personnel who had retired after having held high rank

and who had seen service in South East Asia. His reasons for this course

of action were twofold; first, the impression imparted as a result of the

presence of such men with distinguished careers behind them did much to

instil confidence in potential depositors with the Bank and, second,

their knowledge of particular areas of South East Asia was of practical

significance because it was in these areas that the Bank concentrated its

efforts.

4.3.12 It is, no doubt, common knowledge and it is also the evidence

before the Commission that as a result of the very senior positions held

by Admiral Yates, Generals Black, Manor and Cocke, inevitably they would

have had contact from time to time with intelligence provided by the

- 743 -

C.I.A. and, again, inevitably have met from time to time personnel

engaged in the production or dissemination of such intelligence. In

addition to this general contact, it should be mentioned that General

Black had served in the Office of Strategic Services, an organisation

which the evidence indicates, was the predecessor in certain ways of the

C.I.A. However, neither General Black nor any of the other three ever

served in any capacity in the C.I.A. To this information should be added

that during Mr Hand's military service in Vietnam in 1967 and 1968 he was

a member of the elite airborne corps known as the 'Green Berets' and

General Black told the Commission that it was 'entirely possible' and

common knowledge that this unit would have had C.I.A. support.

4.3.13 Before reviewing the evidence of these seven persons, each of

whom came forward voluntarily and gave evidence to the Commission in the

United States during January 1935, something should be said concerning

what other evidence has established about the Group generally. The

C.I.A. allegation should not be looked at in isolation. On the contrary,

it should be examined in the light of the Commission's general

conclusions concerning the activities of the Group and the principals who

controlled it. Such an exercise will provide a proper basis on which to

consider a question that must arise: why, for what conceivable reason,

would a powerful agency of the United States Government use or allow

itself to be used by the Nugan Hand Group or any of its principals?

4.3.14 The Commission has attempted to make clear in this report that

despite all the trumpeting on the part of Messrs Nugan and Hand, despite

the claims of massive turnover in securities trading by Mr Nugan, despite

the range of financial services offered in the glossy brochures, the

reality was always that of inept individuals, lacking in capital, devoid

of commercial skills and, in the case of Messrs Nugan and Hand persons

capable of the grossest forms of dishonesty. These individuals merely

created the appearance of carrying on the business of bankers and in fact

did little more than collect deposits and then use a good proportion of

the money so collected to meet personal expenses as well as to pay the

operating costs of the Group. The Group was at all times insolvent

because of these practices and neither Nugan Hand Ltd, Nugan Hand (Hong

- 744 -

Kong) Ltd nor the Nugan Hand Bank ever operated at a profit although the

accounts state otherwise. Mr Nugan for most of the period during 1973 to

1979 inclusive was a heavy drinker whose habit was to commence his

drinking mid morning. The evidence discloses that his claims to have

earned sufficient fees as a tax lawyer to keep the Group operating is a

claim entirely without foundation. Mr Hand was never more than a

salesman without any relevant professional qualifications. The evidence

about each indicates that they were neither men of learning nor

articulate. The Group was grossly mismanaged by them in all its

activities. Every opportunity was taken by them to create a totally

false picture with a consistent theme of: 'it is the appearance that

matters'. It is to this reality that the question posed above must be

addressed. While it is true that many were hoodwinked by this posturing

it is difficult to imagine that a professional group such as the C.I.A.

would use or even think of using such a Group without first making a

thorough check of its bona fides. Even a cursory check would have

revealed shortcomings which would undoubtedly make the C.I.A. shy away

from having anything at all to do with such a Group.

4.3.15 Next to be considered is the question of what, if any, objective

evidence exists to support the C.I.A. allegation in any of its forms

which fall within the terms of reference. The answer is that there is

simply no objective evidence that the C.I.A. used or was used by the

Nugan Hand Group in or in connection with any of the Group's activities

and, in particular, in circumstances where any criminal law of the

Commonwealth or the State of New South Wales was contravened.

4.3.16 The above comment does not overlook the fact that people such as

Mr N. Evans [profile 2.21] who gave evidence to this Commission have made

such claims. Mr Evans claimed in his evidence that Mr Hand had claimed

to him that he (Mr Hand) had entered into arrangements whereby the Nugan

Hand Bank would disseminate moneys for the C.I.A. and that Mr Hand had 5

told him that Mr M.B. Houghton [profile 2.35] was a C.I.A. agent.

Mr Houghton in his evidence to the Commission denied ever having had any

association with the C.I.A. He said his only military service had been

in the United States Air Force weather service from 1942 until 1946. He

- 745 -

told the Commission he knew Thomas Clines and Ed Wilson,® both of whom

are alleged to have been C.I.A. agents. There is no evidence, apart from

the statements by Mr Evans, that Mr Houghton was a C.I.A. agent and the

Commission accepts Mr Houghton's evidence in this regard. The Commission

has had the opportunity of assessing Mr Evans and finds that Mr Evans is

a person whose evidence should not be accepted unless corroborated by

other objective evidence. His evidence in this regard is not so

corroborated. On the contrary it is denied by those said by Mr Evans to

have taken part in relevant discussions (for example Messrs J.M. Gilder

[profile 2.25], J.D. Owen [profile 2.53] and C.L. Collings [profile

2.15]). Further, an examination of Mr Evans' transcript reveals

contradictions and inconsistencies and for these reasons the Commission

does not accept such evidence.

4.3.17 Apart from taking evidence in the United States, the Commission

took a number of other steps to ensure that no reasonable avenue of

inquiry was overlooked. For example, the Commission was aware that on

26 March 1982 the Public Affairs Division of the C.I.A. issued a

statement refuting any suggestion that the C.I.A. played any role in the

activities of the Nugan Hand Group and asserting that 'The CIA has not

engaged in operations against the Australian Government, has no ties with

Nugan-Hand, and does not involve itself in drug trafficking'.^ This

response was issued as a result of the allegations in the Australian

House of Representatives in the early part of 1982. Although the

response was clear and all embracing, for more abundant caution the

Commission by letter dated 16 February 1984 wrote to the Director of the

C.I.A. seeking an assurance to the Commission that the response was

accurate. The Commission received a reply dated 19 April 1984 signed by

the Principal Deputy Assistant Secretary for East Asian and Pacific

Affairs of the United States Department of State reaffirming the

'categorical denials of CIA involvement in the affairs of the Nugan Hand

Bank' and adding 'Indeed, the assurances of non-involvement already

provided by the Central Intelligence Agency and by other US Government

officials go far beyond the normal practice of not offering any comment

on allegations concerning intelligence operations'.8

- 746 -

4.3.18 The Commission was also briefed concerning an inquiry by the

United States Senate Select Committee on Intelligence as a result of

allegations appearing in The Wall Street Journal in August 1982

concerning the alleged role of the C.I.A. in the activities of the Nugan

Hand Group. As a result of that inquiry the Committee concluded that the

allegations were false and unfounded. The witnesses before that inquiry

which was in closed session included very senior officers of the

9

C.I.A.

4.3.19 The next step for the Commission was to hear the evidence of the

seven persons mentioned above so that an assessment could be made of

their credibility and so that they might be given an appropriate

opportunity to respond to any such allegation which concerned them

specifically and to respond generally to the allegation of C.I.A.

involvement. To this end, the Commission first invited Admiral Yates to

come to Sydney to give sworn evidence in confidential session. Admiral

Yates accepted the invitation and gave evidence in Sydney to the

Commission on 10 and 11 December 1984. He gave the Commission details of

his background in the United States armed services which appear in his

profile. He told the Commission that he had met Mr Houghton during the

late 1960's when he (Admiral Yates) was in Sydney overseeing the details

of the establishment of rest and recreation leave pursuant to which

scheme American servicemen serving in Vietnam would come to Sydney as

part of such leave. Subsequently Mr Houghton introduced him to Messrs

Nugan and Hand. It was the latter who persuaded him to become the first

President of the Nugan Hand Bank. He commenced to act in this capacity

about June 1977."*"^ He said that he, with Mr Hand's approval, then

approached General Black to act as a representative of the Bank in Hawaii

and later General Cocke and General Manor. He also introduced Dr Pauker

to Mr Nugan who in turn introduced Mr McDonald and the latter introduced

Mr Colby to Mr Nugan."*·"*·

4.3.20 Admiral Yates said that the first time he had ever heard the

suggestion that the C.I.A. was somehow using the Nugan Hand Group or had

some special connection with it, v/as 'certainly after Nugan Hand

failed'. He said that in his view the suggestion was ridiculous and

- 747 -

absurd. He said: 'It was too small, for one thing, it was too visible

for another; we were trying to get visibility ... He were trying to get

exposed internationally, and if the CIA had beer, involved in it they

certainly would not have let it fail, so it just does not make

12

sense'. He said he was not aware of any evidence that would support

the suggestion.

4.3.21 It was against this background of evidence that the Commission

journeyed to the United States in early January 1985 to hear the evidence

of the remaining six who have been identified above. Evidence was taken

from Dr Pauker in Los Angeles on 3 January 1985. Details of Dr Pauker's

background are included in his profile. Dr Pauker told the Commission

that he had no function whatever in the C.I.A."*"^3 He said he had known

Admiral Yates for some time and that they were still good friends. He

said that he could not be certain of the time except that it was ' before

1979' when Admiral Yates came to Los Angeles and told him that he was now

with the Nugan Hand Bank. Dr Pauker said he had never heard of the Bank

before that time. He said his next contact with Admiral Yates was in

1979 when he received a telephone call from him informing him that as

President of the Nugan Hand Bank he was involved in an important

conference to be held in Manila called the International Congress on New

Enterprise."^ He said it was a conference sponsored jointly by the

World Bank, the Asian Development Bank and a number of private

corporations for the purpose of exploring the means by which small and

medium sized investors from the western developed countries could be

brought together with local entrepreneurs of the same calibre. Admiral

Yates invited him to come to the conference as a member of a panel he was

organising and which would take part in the conference. Dr Pauker said

he accepted the invitation mainly because it was convenient in that he

was already scheduled to attend an Energy conference in Bali commencing

at the beginning of July 1979. Dr Pauker had himself invited Mr Walter

McDonald to the Bali conference."*"4 It was at the Manila conference

that Dr Pauker was introduced by Admiral Yates to Mr Nugan and to General

Manor whose name was known to him because of his senior rank in the Air 15 Force. Mr Nugan asked Dr Pauker whether he could himself attend the

Energy conference to be held in Bali the following month. At the

- 748 -

conclusion of the Manila conference Dr Pauker went to Jakarta where he

met Mr McDonald and together they finalised the paper Mr McDonald was to

deliver at the Bali conference. Mr Nugan did attend the Bali conference

and Dr Pauker introduced him to various persons attending that conference

including Mr McDonald.

4.3.22 In July 1979 Dr Pauker received a telephone call from

Mr M c D o n a l d w h o informed h i m that he had be e n o f f e r e d 'an i ncredibly

a t t r a c t i v e job' w i t h the N ugan H a n d G r o u p.16 S u b s e q u e n t l y Dr Pauker

rece i v e d a further t e l ephone call f r o m Mr M c D o n a l d invit i n g h i m t o come

to a c onference in S y d n e y to be h e l d b y the N u g a n Han d G r o u p in October

1979 and to address the conference concerning business opportunities or γη

the c l imate for b u s i n e s s investment in S o u t h East Asia. Mr McDo n a l d

infor m e d Dr Pauker that a m o n g the p e r s o n s att e n d i n g w o u l d b e General

Manor, A d miral Yates and G e neral B l a c k.16 Dr Pauker s a i d he w a s

imp r e s s e d b y this 'line up' a n d d i d a t t e n d the c onference in Sydney. B y

19

this time he had met Mr Hand as well as Mr Nugan. Mr D.E. Beazley

[profile 2.7] also attended the conference.

4.3.23 Dr Pauker told the Commission that some time after July 1979 he

h a d rece i v e d a t e l ephone call fr o m Mr McDo n a l d w h o informed h i m that he

h a d 'just' taken Mr N ugan s a i l i n g o n his boat w i t h Mr C o l b y and that

Mr C o l b y w a s v e r y p l e a s e d to m e e t Mr N u g a n b ecause the latter asked h i m

20

to d o some legal wor k for him.

4.3.24 In the course of g i v i n g h i s e v i d e n c e Dr Pauker referred to '...

the famous visit i n g card o f C o l b y that w a s found on Nugan at the time of

his death' [see 4.3.30]. He expressed the view that if, as seems to be

p a r t of the allegation, Mr Nugan had w o r k e d w i t h the C.I.A. 'the last

21

thing that he w o u l d hav e done' w o u l d be to c a r r y Mr C olby's card.

4.3.25 Dr Pauker sai d Mr N u g a n had n ever a sked h i m anyth i n g about his

22

knowledge of the C.I.A. He said that when Mr Nugan asked him in

October 1979 to work for the Group he, Dr Pauker, asked what type of work

Mr Nugan had in mind. He said Mr Nugan replied 'Well, you are an

authority on South East Asia. You could be our international relations

- 749 -

advisor [sic] the way McDonald would be our economic affairs advisor 23 [sic] and you could introduce us'.

4.3.26 The other witnesses each gave evidence to the Commission in the

Australian Embassy in Washington D.C. The first of these to give

evidence was General Black who informed the Commission of details of his

military career which are now set out in his profile [2.8]. General

Black told the Commission that he was asked by his 'old friend' Admiral

Yates in Honolulu 'in about late fall' of 1977 to assist the Nugan Hand

Bank in developing its operations in South East Asia and particularly in

Thailand where he (General Black) had served as Commander of the United 2d States forces for two years. General Black said that he accepted the

offer. Details of his role in the Bank's activities are set out in his

profile [2.8].

4.3.27 General Black told the Commission that he had never in his

dealings with Messrs Nugan and Hand detected any indication that they

were acting for the C.I.A. in any capacity and he said that in his

judgment the C.I.A. would not have used 'a little fly-by-night operation 25

like Nugan and Hand's bank for any transaction'.

4.3.28 General Cocke gave evidence to the Commission on 8 January

1985. His evidence as to his military background appears in his profile

[2.13] and his role on behalf of the Nugan Hand Bank is set out at

paragraph 3.4.85. He told the Commission that he had 'absolutely no

knowledge of any information that would link [the Nugan Hand Bank] to the

CIA'.26

4.3.29 Mr Colby also gave evidence to the Commission on 8 January

1985. Details of Mr Colby's C.I.A. background are contained in his

profile [2.14]. Mr Colby told the Commission that he had met Mr Nugan

through Mr McDonald towards the end of 1979. He said that he had seen

Mr Nugan about three or four times altogether in connection with

providing Mr Nugan, and later Mr Hand, with legal advice as to the

consequences of either or both of them taking up residence in the United 27 States and, in Mr Hand's case, in the event that Mr Hand should

- 750 -

resume American c i t i z e n s h i p . M r Colby identified a letter dated

22 October 1979 written by himself to Mr Nugan and setting out the terms

on which Mr Colby would accept a retainer to advise Messrs Nugan and 29 Hand.

4.3.30 Mr Colby said he last saw Mr Nugan about 15 January 1980 and on

that occasion Mr Colby informed Mr Nugan that he would be travelling to

South East Asia in March of 1980 and said that if, during that time,

Mr Nugan happened to be in Singapore or Hong Kong they could meet for

further discussion. He said he then took one of his business cards and

wrote the dates and the times on it in respect of his itinerary. This

was the card that was subsequently found on Mr Nugan' s body when he was

discovered dead by police, near Lithgow in New South Wales. He said this

was the full extent of his dealings with Messrs Nugan and Hand.

4.3.31 General Manor gave evidence to the Commission on 9 January

1985. Details of his military service have been collected in his profile

[2.45]. He told the Commission that Admiral Yates, whom he knew, had

approached him in Hawaii and told him about the Nugan Hand Bank and the 30

fact that he (Admiral Yates) was with the Bank. He said this was the

first he had ever heard of the Bank and that the meeting took place in 31 1979. He said that later the same year in The Philippines Admiral

Yates again spoke to him about working for the Bank and informed him that

there was a conference to take place in Manila which Messrs Nugan and

Hand would attend and that he (Admiral Yates) would like General Manor to

meet them. He said he went to the conference with Admiral Yates and

there met Messrs Nugan and Hand. (The conference referred to is the

International Congress on New Enterprise which was held in Manila in June

1979.) Subsequently Admiral Yates again contacted him and said that

Mr Nugan was offering him a job with the Bank if he was prepared to

return to The Philippines and live there but General Manor said he was

still undecided. Admiral Yates therefore suggested that he attend the

October conference of the Group in Sydney and General Manor accepted this

invitation. He said one of the pieces of information that interested him

at the conference was that the Group intended to expand to the United

States. He later said in evidence to the Commission that he wanted

- 751 -

to 'categorically state' he was not 'involved in any fashion whatsoever

with the CIA' and to his knowledge ' there was no involvement with the 33

CIA'. He also said 'I saw no evidence of any CIA involvement ...'.

4.3.32 Mr McDonald gave evidence to the Commission on 10 January 1985.

Details of his career so far as relevant appear in his profile [2.47].

He said that in 1979 he was asked to deliver a paper at a symposium in 34 Bali. (This is a reference to the Energy conference which was held

in Bali in July 1979.) Mr McDonald said that at this conference

Dr Pauker introduced him to Mr Nugan and Mr Nugan invited him to come to

Australia 'to see what kind of an operation' Mr Nugan had there and to 35

'see if you might want to be associated with us in some capacity'.

Mr McDonald said he was interested because he had not been to Australia

and accordingly he came to the conference at the Gazebo Hotel in Sydney

in October 1979. He said he eventually agreed to work part time for the

Group. Part of the agreement was that he would set up an office in

Annapolis, Maryland, which he could use for his other business as well.

He was to act as an adviser.

4.3.33 Mr McDonald said that from his observations he knew of no

evidence at all to support the C.I.A. allegation. He added: 'As a

matter of fact, the more I get into it on reflection, if the agency ever

picked someone like Nugan Hand to work with they'd be in terrible,

terrible shape. And I can't imagine them doing it, because there are so

many other ways to do it, believe me. That this is a silly way to do

it.'36

4.3.34 The Commission accepts the evidence of these witnesses. Indeed,

except for Admiral Yates and General Black, it is difficult to see how

any of the others could under any circumstances be seen to have played a

significant role in the activities of the Nugan Hand Group given the fact

that their employment on behalf of the Group did not commence until a

very late stage in the life of the Group. Furthermore, the evidence of

these witnesses is consistent with the objective evidence summarised by

the Commission above [see 4.3.15-4.3.18]. None of these witnesses is

contradicted by any credible evidence.

- 752 -

4.3.35 It has also been alleged in the media that Mr P.G. Loomis

[profile 2.39], who was employed by the C.I.A. between 1969 and 1977, had

arranged for huge sums of money to be transmitted through the Nugan Hand

Bank on behalf of the C.I.A.37 Mr Loomis gave evidence to the

Commission on 25 October 1984. He told the Commission that his only

knowledge of the Nugan Hand Bank came from his reading of newspaper t 38

reports over the years.

4.3.36 Although it was not anticipated that Mr Beazley would be

prepared to come before the Commission in the United States there were

negotiations with the latter's attorney which, in the end result, did not

prove fruitful. While the Commission regrets that Mr Beazley took this

course, it might be observed that due to the fact that his participation

in relevant activities did not begin until October 1979 his evidence

would probably have added only marginally to that already gathered. As

well, there appeared to be some chance that Mr Hand (Snr) would talk to

the Commission in New York and that perhaps through him contact could be

made with his son Mr Michael Hand. Attempts were made to this end but

proved unsuccessful.

4.3.37 The Commission was aware that the Federal Bureau of

Investigation (hereafter referred to as the 'F.B.I.1) in the United

States maintained files on the NUgan Hand Group and it was considered

that such material might assist the Commission in its investigation of

the allegations concerning the C.I.A. and the Group. Attempts by

Australian journalists to gain access to this material have in recent

years attracted considerable publicity due to the fact that the copies

provided to these journalists proved unintelligible because all but a few

pages had been blacked out. The liquidator of Nugan Hand Ltd had sought 39

access to these files without success. Accordingly, the Commission

approached the Director of the F.B.I. (Judge Webster) with a request for

access to the files. This request was readily granted and on 11 January

1985 at F.B.I. headquarters in Washington D.C., the Royal Commissioner

and Senior Counsel Assisting spent seme hours perusing the files in the

presence of an F.B.I. Special Agent. It would be a breach of the

conditions of access to the files for the Commission to report what the

- 753 -

files contained. It is more important to report what the files did not

contain and to do this is not, in the opinion of the Commission, a breach

of the confidence reposed in it. The Commission is therefore able to

report, unequivocally, that there was nothing in the files of any

significance concerning any subject matter within the terms of reference

and in particular nothing which could lend credence to the C.I.A.

allegation in any of its various forms. * 1 1 1

ENDNOTES : PART 4 SECTION 3

(See explanatory note at front of report)

1 CD2880 folios 24-25

2 CD2880 folios 24-25

3 CD2880 folios 24-25

4 CD10252 folio 20, Hand to NHG Bangkok conference 5 CT19048-50, Evans 6 CT22558, CT22572, Houghton 7 A151 folio 101

8 A151 folios 104-105

9 A141 folio 316

10 CT24245, Yates

11 CT24289, CT24299-300, Yates 12 CT24301, Yates

12a CT24529-30, Pauker 13 CT24486, Pauker

14 CT24487, Pauker

15 CT24488, Pauker

16 CT24499, Pauker

17 CT24502, Pauker

18 CT24504, Pauker

19 CT24508, Pauker

20 CT24526, Pauker

21 CT24526, Pauker

22 CT24527, Pauker

23 CT24528, Pauker

24 CT24542, Black

25 CT24585, Black

26 CT24592, Cocke

27 CT24616, Colby

28 CT24618-19, Colby 29 CT24616, Colby; CD1122 folio 74 30 CT24642, Manor

31 CT24643, Yates

32 CT24646, Manor

33 CT24661, Manor

- 754

34 CT24673, McDonald 35 CT24674, McDonald 36 CT24714, McDonald 37 CD1281 folios 3-5

38 CT23434, Loomis

39 CT25003, O'Brien

- 755 -

SECTION 4 : ACCESS TO RELEVANT RECORDS DENIED - THE EFFECT OF CAYMAN ISLANDS LAW

4.4.1 The establishment of the Nugan Hand Bank under the shelter of

the law of the Cayman Islands and the reasons why this was done have been

reported upon in Part 4 Section 2. This Section records the unsuccessful

attempts by the Commission to gain access to relevant records of the

Nugan Hand Bank, attempts thwarted by laws of the Cayman Islands relating

to confidentiality of particular information. This experience led the

Commission in January 1985, while in the United States to examine

witnesses, to confer with senior staff of the United States Justice

Department concerning this problem with the Cayman Islands legislation

and similar legislation which exists in other countries and, more

generally, the problems associated with transnational criminal litigation

and the need for the establishment of judicial assistance treaties to

overcome such problems.

4.4.2 The records of the Bank were maintained in Singapore and Hong

Kong although copies of some of these records, including the client

files, in so far as they related to Australian clients, were kept in the

Sydney office. However these were destroyed shortly after the death of

Mr F.J. Nugan [see 3.9.72]. The Singapore and Hong Kong records were

seized by the Hong Kong Official Receiver who was appointed joint

Official Liquidator of the Nugan Hand Bank by order of the Grand Court of

the Cayman Islands dated 24 March 1982, together with an accountant

resident in the Cayman Islands.

4.4.3 Obviously it was of importance for the Commission to make every

effort to obtain access to these records. Regrettably, however, access

to the records was not obtained despite the fact that they were stored in

the Office of the Hong Kong Official Receiver, in his capacity as joint

Liquidator of the Nugan Hand Bank.

4.4.4 As a result of a request in 1980 by the Corporate Affairs

Commission of New South Wales to the Official Receiver in Hong Kong an

- 756 -

application had been made in the Supreme Court of Hong Kong, for

authority to release on confidential terms, all records relating to a

group of companies collectively known as 'Nugan Hand International

Holdings1. Some only of these documents were released to the Corporate

Affairs Commission of New South Wales and the Commonwealth-New South

Wales Joint Task Force on Drug Trafficking in 1980 and 1981. These

documents are now in the Commission's possession.

4.4.5 Accordingly, by a letter dated 23 February 1984 the Commission

wrote to the Official Receiver in Hong Kong requesting access to the

relevant records and, in particular, seeking access to client cards which

would indicate details of the Nugan Hand Bank clients, their addresses

and account numbers. It was pointed out that these records were not

available from any other source. The view was expressed therein that

such records would contain information of significance to the

Commission's inquiry.

4.4.6 By letter dated 2 April 1984 the Official Liquidator for the

Nugan Hand Bank formally refused the Commission access to the records

relating to the Bank on the basis that to do so would breach Cayman

Islands law:1

'Vie have closely examined the Confidential Relationships (Preservation) Law, of the Cayman Islands (copy enclosed), and I am directed by the Registrar General to say that he would like to assist in any way possible, but that we are of the opinion that we cannot release copies of all the information you

require, unless a Disclosure Order is obtained for those documents concerning the Caymans to ensure that no offence will be committed, especially in regard to our joint liquidator.'

4.4.7 Upon receipt of this advice the Commission wrote to the

Attorney-General of the Cayman Islands, by letter dated 17 May 1984,

seeking a disclosure order in accordance with the Official Liquidator's

suggestion. The letter informed the Attorney-General that relevant

records had been destroyed in Sydney and that the Commission's

investigation would be assisted if access were to be granted to the

records in possession of the Official Receiver in Hong Kong. The

Attorney-General was further advised that it was the Commission's

- 757 -

understanding that the Hong Kong Official Receiver would act upon a

statement from the Attorney-General that the former was at liberty to

make the relevant disclosure and the Attorney-General was requested to

make such a statement to the Official Receiver. In the alternative, the

Attorney-General was asked to advise whether there was any other

procedure by which the Commission could gain access to such records.

4.4.8 The Cayman Islands Attorney-General, Mr Michael Bradley, replied

as follows by letter dated 15 June 1984:2

Ί refer to your letter of May 17th, 1984 in which you make

certain requests concerning the Nugan Hand Group, and my interim reply thereto. I have consulted with the Governor in Council and the Government of the Cayman Islands is of the view that the appropriate procedure would be for the joint liquidators of the Nugan Hand Bank (Woollard and Johnson) to make an application in camera to the Grand Court of the Cayman Islands to obtain

authority and directions concerning the release of confidential information. The application would be made under section 3A of the Confidential Relationships (Preservation) Law as amended.1

4.4.9 Despite the Attorney-General's suggestion the Commission had

serious doubts as to whether the recommended litigation could achieve the

Commission's objective of obtaining access to the Bank's records.

Constitutionally the Cayman Islands is still a Crown colony but it has

responsible government with distinct executive (Governor-in-Council),

legislative (Legislative Assembly), and judicial branches (Grand Court of

the Cayman Islands). In 1979 the Legislative Assembly enacted a scheme

for the establishment of confidential and tax exempt banking facilities

in the Cayman Islands in order to encourage new economic growth. An

essential component of this legislative scheme was the Confidential

Relationships (Preservation) Law 1979, the provisions of which the

Attorney-General suggested the Liquidator should use in an application

for permission to release the bank documents in question to the Royal

Commission.

4.4.10 The right to obtain a dispensation from the restrictions imposed

upon the disclosure of information by the Confidential Relationships

(Preservation) (Amendment) Law 1979 (Cayman Islands) is set out in

section 3A of the amending Act:

- 758 -

1 (1) Whenever a person intends or is required to give in

evidence in, or in connection with, any proceeding being tried, inquired into or determined by any court, tribunal or other authority (whether within or without the Islands) any

confidential information within the meaning of this Law, he shall before so doing apply for directions and any adjournment necessary for that purpose may be granted.1

Thus the dispensation procedure applied solely to a witness in 'any

proceeding' which term was defined as:

'any court proceeding, civil or criminal and includes a

preliminary or interlocutory matter leading to or arising out of a proceeding.' [emphasis added]

The term 'court' was defined in the same sub-section to bear 'the meaning

ascribed to it in section 2 of the Evidence Law' which in turn was

defined as follows:

's. 2 Court includes, in addition to the ordinary courts and juries of civil and criminal jurisdictions, every tribunal where civil proceedings are conducted and includes the judge or person presiding over or constituting such tribunal and including also

an arbitrator and an umpire.'

This statutory definition presented two issues:

a. Was the Royal Commission an 'ordinary court of civil or criminal

jurisdiction'; or

b. a 'tribunal where civil proceedings [were] conducted'?

There is clear authority to the effect that both of these questions 3 should be answered in the negative. It followed that a witness before

the Commission, a non-judicial tribunal, had no statutory entitlement to

a disclosure order under section 3A.

4.4.11 An alternative or complementary course could have been to

initiate proceedings seeking a declaration that the Cayman Islands

statute did not apply to the documents in question (that is the bank

- 759 -

client cards containing client names, addresses and account numbers)

which were in fact physically seized by the Liquidator in Hong Kong and

Singapore although they recorded bank transactions which occurred in the

Cayman Islands. However the wide terms of the Act appeared conclusive as

to its application both in respect of (a) the documents and (b) the

Liquidator:

'This law has application to all confidential information with respect to business of a professional nature which arises in or is brought into the Islands and to all persons coming into

possession of such information at any time thereafter whether they be within the jurisdiction or thereout.1 [emphasis added]

Accordingly, it seemed clear to the Commission that it could not obtain

access to these documents by means of judicial proceedings. Although

this appeared to the Commission to be beyond argument, because of the

potential importance of the bank documents, a further opinion was sought

from W.S.Walker & Company, a firm of barristers and solicitors resident

and practising in Georgetown, Cayman Islands. This independent opinion

confirmed the Commission's conclusions in all respects.

4.4.12 There was however one other course open to the Commission. This

was under section 3(2)(B)(iv) of the Confidential Relationships

(Preservation) (Amendment) Law 1979. Under this section the executive

branch of Government, the Governor acting upon the advice of the

Executive Council, was conferred with an unfettered power to exempt

documents containing 'confidential information' in respect of 'such other

person as the Governor may authorise'. Accordingly an application was

immediately made by the Commission to the Governor-in-Council for

exemption pursuant to section 3 (2)(B)(iv). The Governor's response

conveyed to the Commission by telex on 3 September 1984 by the Cayman 4

Islands Attorney-General Mr Bradley was as follows:

'The Governor in Council considered the matter very

sympathetically and understood that a section 3A application would not succeed as your Commission is an advisory body only ... However, it was felt that any authorisation by way of

executive action should be in accordance with current procedures of cooperation with United States and Canadian authorities,

- 760 -

namely that information will be authorised to be obtained if there has been established either a prima facie case of a

criminal offence or indictments have been laid ... The

information is in all cases submitted to the Governor in Council before authority is granted to release ... If you can satisfy the Cayman Islands Governor in Council by documentary or other evidence on the above bases, Council indicated that it would assist ... '

4.4.13 The Commission, as an investigatory and advisory body, rather

than a prosecution authority, was of course unable to comply with these

criteria. Indeed the very reason access to the Bank's records was sought

was in order to ascertain whether evidence of any offences against

Australian Commonwealth or New South Wales laws was disclosed. This does

not imply any criticism of the Government of the Cayman Islands. Indeed

the Attorney-General, Mr Michael Bradley, his Department, and the

Executive Council, offered all assistance possible within the existing

framework of the laws of the colony which in this instance have been

essentially designed to protect the interests of the international

depositors in the banks of the Cayman Islands. The fact remains,

however, that the Commission's inquiry was hindered by the lack of access

to relevant documentation.

4.4.14 As the Commission noted in paragraph 4.4.1 this experience

(which occupied valuable time) led to meetings with the United States

Justice Department. The Commission was aware prior to its departure for

the United States that that country had very recently entered into an

agreement with the United Kingdom which provided for access to Cayman

Islands records where there is alleged to be an offence falling within

the scope of the agreement [see Appendix F). Generally speaking a

relevant offence must relate to narcotics activity. In a relevant case

where the procedure laid down is followed the United States

Attorney-General is entitled to production of documents in possession of

the Cayman Islands, but such documents must be used strictly within the

limits set out in the agreement.

4.4.15 The discussions also revealed that the united States, with a

view to facilitating the procedure for obtaining evidence for use in

transnational criminal litigation has entered into a number of

- 761 -

international judicial assistance agreements which, in effect, provide

for the performance of judicial acts at the request of foreign

authorities including the obtaining of admissible evidence by the use of

subpoenas, orders, warrants etc. These judicial assistance treaties are

of relatively recent origin. Most of them post-date the 1959 European

Convention on Mutual Assistance which appears to the Commission to have

been the foundation of modern judicial assistance agreements. At the

time of the Commission's discussions with the Justice Department such

treaties had been entered into by the United States with Switzerland,

Turkey and The Netherlands and further treaties were in the course of

negotiation with Colombia, Italy and Morocco.

4.4.16 It seems clear that Australian criminal prosecutions in the next

ten years or so will increasingly face similar problems to those which

have been faced in United States prosecutions in recent years where the

prosecution case involves evidence from abroad. Indeed the Commonwealth

Director of Public Prosecutions has been reported recently as being

unable to prosecute some cases successfully because of problems in 4

obtaining evidence from abroad in an admissible form.

4.4.17 The Commission therefore recommends first that the Government of

the Commonwealth give consideration to requesting the Government of the

United Kingdom to enter into an agreement with the Government of the

Commonwealth in relation to access to Cayman Islands documentation

similar to the agreement mentioned above.

4.4.18 The Commission's second recommendation, which is also directed

to the Government of the Commonwealth, relates to the setting up of

modern judicial assistance agreements to which Australia is a party.

From inquiries made by Commission staff it appears that while it is true

some work is being done to set up such treaties, the fact is that as at

the date of this report no single such treaty is in place. The

Commission therefore recommends that consideration be given to upgrading

the priority accorded to the establishment of these judicial assistance

agreements.

- 762 -

ENDNOTES : PART 4 - SECTION 4

(See explanatory note at front of report)

1 A173 folios 76-77, Letter Official Liquidator/Commission 2/4/84 2 A177 folio 59, Letter Attorney-General/Commission 15/6/84 3 R v. Arrowsmith (1950) V.L.R. 78; Johns and Waygood Ltd v. Utah

Australia Limited (1963) V.R. 70; Hallett Royal Commissions and Board of Inquiry (1982) at p23 4 A177 folio 147, Telex Attorney-General/Commission 3/9/84 5 Report in The Financial Review 21/1/85

- 763 -

SECTION 5 : THE AUDITORS

4.5.1 As this report makes plain, the inception and subsequent

progress of the Nugan Hand Group was effected by the presentation of a

public image of financial strength and commercial expertise when the

converse was in fact true. The Commission has sought to make the point

that the key to an understanding of how it was that the Nugan Hand Group

was able to be spawned in Australia and rapidly expand overseas, is to be

found in the methods used to give the published accounts of Nugan Hand

Ltd [profile 2.97] a grossly false appearance. These methods have been

described in the Compendium and also in Part 5 in which the results of

the reconstruction of these fraudulent accounts have been reported [see

5.159 and 5.160]. The extent to which the imparting of this grossly

false appearance was contributed to by others outside the Group is the

subject of paragraphs 4.7.1 to 4.7.10. However, it was the appending of

the auditors' certificate to such accounts that thereafter gave them the

status which automatically follows from the fact that a duly qualified

auditor certified them. In the ordinary course of events the audited

accounts of a public company are accepted at face value and no attempt is

made to go behind them. Well aware of this Messrs F.J. Nugan

[profile 2.1] and M.J. Hand [profile 2.2] unscrupulously published and

proffered to the world at large the accounts of Nugan Hand Ltd to gain

commercial acceptance and credibility for the company, and for

themselves, not only in this country but overseas, and, in particular, in

Hong Kong.

4.5.2 It is intended in this Section to comment, briefly, on the

duties of an auditor, with particular regard to the auditor's duty to

detect fraud. The Commission called a number of experts to give oral

evidence concerning this subject matter and, as well, had the benefit of

written reports compiled by these expert witnesses.

4.5.3 The duty of the auditor is, of course, to audit the relevant

company accounts. The word 'audit' means an 'official examination of

- 764 -

accounts with verification by reference to witnesses and vouchers'.'1 '

Of particular importance is the fundamental obligation of an auditor to 2

properly consider whether debts owing to the company are collectable.

A public company, such as Nugan Hand Ltd was, is required by law to

publish annually balance sheets and profit and loss accounts. These

accounts are required in effect to give a true and fair view of the state

of the financial affairs of the company and of the profit and loss for

the period to which the accounts are stated to relate.3 The auditor is

bound to form specified opinions as to the correctness of the accounts

which he is auditing and his certification of those accounts, unless he

qualifies his certificate, is in effect his assurance that in his opinion

the accounts do disclose the requisite true and fair view of the state of

the company's financial affairs.4 Much has been written both in this

country and overseas concerning the difficulty of interpretation of the

words 'true and fair view'. However it is unnecessary for the Commission

to add any comment to this vast array of existing commentary because on

any construction of that expression the accounts of Nugan Hand Ltd in no

way presented a true and fair view of the financial state of the company.

4.5.4 The two professional accounting bodies in Australia, namely, the

Institute of Chartered Accountants in Australia and the Australian

Society of Accountants (the latter of which Mr G.F. Brincat [profile 2.9]

was a member during the period he was the Nugan Hand Ltd auditor) from

time to time issue to their members statements of auditing standards.

During February 1977 these two bodies jointly issued a document described

as 'Statement of Auditing Standards' which had as its object the setting

of standards applicable to audits undertaken in accordance with the

provisions of the Uniform Companies Acts.3 The introduction to that

document in describing the joint view as to the main objective of the

normal company audit expressed that duty in terms which included the

following:®

'the expression of an independent professional opinion on the truth and fairness of the accounts presented to shareholders. The auditor is particularly concerned with the adequacy of the underlying records, and the detection of major distortions in the accounts arising from improperly kept records, or from the inappropriate or biased use of accounting standards and

- 765 -

methods. To provide a sound basis for his opinion, the auditor examines the credibility of the representations made by the directors in the accounts, and this involves a skilful review of the available evidence underlying the accumulation and

processing of the data on which they are based.' [emphasis added]

The introduction mentioned another matter of great importance in the

following terms:7

'It is essential that there is a clear understanding between the auditor and his client as to the extent of his duties,

particularly when there is no specific statutory duty involved.

Such understanding should be evidenced in writing.' [emphasis added]

4.5.5 A fundamental element of the auditor's duty is to remain

independent vis a vis the company and its directors. This is recognised

in the Statement of Auditing Standards where the standard to be followed

is expressed in the following terms:®

'An auditor must maintain an independent outlook and allow nothing to impair his independence It is of utmost

importance to the profession that the confidence of the general public in the independence of auditors be maintained. Public confidence is likely to be impaired if there is evidence of an actual lack of independence; it might also be impaired by the

existence of circumstances which reasonable people might believe would influence independence. An auditor must be recognised as independent and be free of any obligation to or interest in the client or its directors. The auditor should not only be

independent, in fact; he should avoid situations that may lead others to doubt his independence.' [emphasis added]

4.5.6 The evidence before the Commission suggests that when an

examination is made of the views of these accounting bodies, as well as

their counterparts in the United Kingdom and the United States, as to

precisely what is the auditor's duty to detect fraud in planning his

audit procedures and carrying out his audit, there is some confusion and

difference of opinion. In short, the evidence points to there being

little or no consensus of opinion in relation to this aspect of the

auditor's duty, not only among auditors but also among those who rely on

published audited company accounts such as those proposing to deal with

the company on the strength of its audited accounts.

- 766 -

4.5.7 Essentially this perceived difference of opinion, on the

question of what is the extent of the auditor's duty to detect fraud,

stems from two distinct interpretations of the duty which seem to be

current. The distinction seems to be whether the auditor is under a duty

to detect fraud that is, to specifically search for fraud, or whether, on

the other hand, it is enough for the auditor to plan his audit so that he

has a reasonable expectation of detecting material misstatements in the 9

financial statements resulting from irregularities or fraud. The

latter view appears to be echoed in this country in the current Statement

of Auditing Practice in respect of Fraud and Error (ADP 16) issued by the

Auditing Standards Board in June 1983. ■ L0

4.5.8 This difference in emphasis as to the precise scope of the duty

to detect fraud, may be reflected in the recent deletion from the content

of one of the leading text books on the subject of a statement concerning

the auditor's duty to detect fraud. The case of Pacific Acceptance

Corporation Ltd v. Forsyth11 is regarded as the leading authority in

New South Wales on the extent of the auditor's duty so far as the civil

law is concerned. The Judge in that case adopted the objects of an audit

as being those annunciated in the second edition of Irish's 'Practical

Auditing' in which one of the objects laid down was 'the detection of

fraud'. Immediately after those words the following sentence appeared in

that edition and was quoted in the judgment in that case:

'The detection of fraud is generally regarded as being of primary importance'. [emphasis added]

However, in subsequent editions of that work the underlined sentence

quoted above has been omitted.

4.5.9 To the extent that there does seem to be some uncertainty as to

the scope of this duty it is obviously a matter for some concern. It is

clearly undesirable for there to be any significant difference between

the ambit of the duty as perceived by the auditor and the understanding

held by the client and those proposing to deal with the company on the

strength of the audited accounts. In the view of the Commission there is

a need for the legislature to define precisely the auditor's duty to

- 767 -

detect fraud and whether the duty extends to third parties who can be

expected to rely on the audited accounts and to provide for penalties for

the deliberate or reckless failure to carry out such duty.

4.5.10 Apart from these general observations, it is intended in this

section to touch upon some specific matters in relation to the audit of

the Hugan Hand Ltd accounts and the role of Mr W.M. Pollard [profile

2.57] and, more importantly, Mr Brincat in relation thereto.

Essentially, it was Mr Brincat's contention in his evidence to the

Commission that he was unaware that these accounts were false when he

signed the various audit certificates in relation to them. In Part 10

the Commission reviews relevant evidence as to Mr Brincat's state of

knowledge, and conclusions are expressed as to what that state of

knowledge was, from time to time, during the relevant period. It is not

intended to repeat any of that material in this section nor to say

anything more about Mr Brincat's state of knowledge of the accounts

except where Mr Brincat has conceded that he had some particular

knowledge that the Commission considers relevant.

4.5.11

- 768 -

4.5.12 From and including 1974, Mr Brincat also carried out a

significant portion of accounting work for Nugan Hand Ltd so that from

1975 onwards he occupied this dual role of accountant and auditor in

respect of Nugan Hand Ltd. Indeed, Mr Brincat occupied the same dual

role in relation to most of the Australian companies within the Group,

each of such companies being mere puppets in the hands of Mr Nugan or

Mr Hand or both. In particular, Mr Brincat occupied this dual role in

respect of Yorkville Nominees Pty Ltd [profile 2.108], Nugan Hand

International Holdings Pty Ltd [profile 2.96] and P.M. Shelley Pty Ltd

[profile 2.100] either from 1974 or, to the extent that any of the

- 769 -

companies were incorporated after that year, from the date of that

incorporation."''® The occupation of such a dual role in respect of a

public company seems to the Commission undesirable and a threat to the

independence of the auditor. Acting as the company's accountant he has

contractual obligations with the company which may conflict with his

statutory duties as auditor. In his role as accountant he is likely to

become too close to directors and others, making it difficult for him to

maintain his independence when he acts in the role of auditor. In the

Commission's view these functions should be kept separate, at least in

the case of a public company.

4.5.13 The Nugan Hand Group was the largest client of the firm of

Heuschkel and Pollard. In order to carry out his dual role in respect of

Nugan Hand Ltd, Mr Brincat spent a great deal of his time in the office

of the company at 55 Macquarie Street, Sydney. He usually occupied

Mr S.K. Hill's [profile 2.33] office on these occasions. He spent an

average of two or three days a week in the company's office and on some

occasions in excess of that. Mr Brincat conceded that he performed tasks

which fell outside the usual role of an accountant or an auditor. He

agreed that he should have been a watchdog when he was acting as auditor,

on the look out for irregularities, frauds and falsifications in the

accounts.''"^ Yet, during 1974, he wrote out a draft directors' report

which he says was dictated by Mr Nugan."*·® When asked why he should

have undertaken such a task he replied that there were many things that

he did at Mr Nugan's request that were not within his role. He agreed

that his independence might have been compromised by carrying out these

tasks. He said that on occasions he remained on the company's premises

simply to answer the telephone in case depositors rang wishing to

withdraw funds or to place deposits. He said Mr Nugan would telephone 19

him and ask him to come and 'mind the store' for a couple of hours.

4.5.14 There is in the Commission's view abundant evidence that

Mr Br incat indeed coirpromised his independence in his capacity as auditor

of Nugan Hand Ltd. A number of aspects of the evidence illustrate this

loss of independence. For example, by 1976, on Mr Brincat's own

admission, he had become aware that there was a serious false statement

- 770 -

in the 1974 accounts in which a claim had been made that a particular

loan was secured by real estate which was untrue [see 10.43-10.49], Yet

Mr Br incat on becoming aware of that did nothing about it. He did not

complain to Mr Nugan who, he said, had misled him about the claim in the

1974 accounts nor did he report the matter to the Corporate Affairs

Commission. It was put to Mr Brincat that by doing nothing about it he

put himself in the grip of Mr Nugan. Mr Brincat agreed that his

20

independence was thereby coirpromised.

4.5.15 However there is an even more significant illustration of

Mr Brincat's loss of independence in his capacity as auditor of Nugan

Hand Ltd. Any vestige of independence that might have remained

disappeared shortly after January 1976 when Mr Brincat brought into

existence certain so called internal bills of exchange. The purpose of

these bills has been explained in the Compendium at paragraphs 3.3.45 to

3.3.47 and in Part 5 at paragraphs 5.34 to 5.55. Initially these

internal bills were actually brought into being but thereafter for the

most part they existed only as entries by Mr Brincat in the records of

Nugan Hand Ltd. The companies within the Group purporting to issue these

bills to Nugan Hand Ltd were all two dollar companies controlled by

Mr Nugan each of which had minimal if any financial standing. The

primary function of the internal bills scheme was to disguise the

deficiency in Nugan Hand Ltd funds brought about by moneys being taken

out of the company by Messrs Nugan and Hand who simply used these two

dollar companies as conduits through which to channel funds from Nugan

Hand Ltd. Instead of disclosing that these moneys were owing to Nugan

Hand Ltd, the records of that company treated these bills as having been

received at a current value estimated by Mr Brincat. The bills were

taken into the company's accounts as though they were valuable bills of

exchange. In effect bad debts due from these two dollar companies

controlled by Mr Nugan were changed, in appearance only, into high

profile assets.

4.5.16 In January 1976 'or shortly thereafter' Mr Brincat carried out a

program as itemised in his own handwriting in his working papers^ and

thereby brought into existence a number of these so called internal bills

- 771 -

of exchange. Persons such as Messrs Hand, Hill and others signed these

bills on behalf of P.M. Shelley Pty Ltd, Yorkville Nominees Pty Ltd and

Nugan Hand International Holdings Pty Ltd thereby purporting to make

those companies liable to pay according to the terms of these bills.

Mr Brincat agreed that he followed the program in his working papers and

brought into existence these documents. He then back dated them

according to the written program thus giving the false impression that

the bills had come into existence on the dates mentioned in them and in

the records in which Mr Brincat recorded them whereas, the truth was that 22 they did not exist on those dates.

4.5.17 Mr Brincat agreed, on more than one occasion, that he knew that 23

these companies could not repay the moneys out of their own resources

and that he knew that as auditor he was the one who had to make an

assessment in respect of the collectability of the moneys said to be 24

owing to Nugan Hand Ltd by these companies. He said that he believed

that Mr Nugan would repay out of his own resources the moneys represented

by these internal bills. He said he believed Mr Nugan to be a wealthy

man.

25

4.5.18 In his statement to the Commission which was incorporated

into the Commission's transcript and which Mr Brincat swore to be true

and correct,^® Mr Brincat said he had sighted each of the bills he

brought into existence in early 1976 and that they were duly stamped.

However in the course of his examination before the Commission he

admitted that when he carried out the program of introducing these bills

into the January 1976 accounts he did so knowing at the time that they 27 were in fact unstamped. He said that he had made a grave error in

his statement to the Commission.^ He agreed that it was possible that

the reason some of these original internal bills had not been duly

stamped was simply that that was an indication that nobody thought they

were worth stamping.

4.5.19 There are other clear illustrations that Mr Brincat severely

compromised his independence as auditor of Nugan Hand Ltd. However, as

it is not disputed by Mr Brincat that this was so, it is unnecessary to

- 772 -

recount all the remaining examples. Nevertheless, there is one that

should be mentioned. According to Mr Brincat, in 1977, prior to 30 June,

Mr Nugan claimed that he had out of his own resources discharged a

liability of Nugan Hand Ltd's by repaying one of the company's overseas

depositors. Mr Brincat said he then made entries in the records of Nugan

Hand Ltd and one of the other companies reflecting the alleged discharge

of this liability. Shortly thereafter Mr Brincat claimed he found out

that this deposit had not been repaid as alleged, yet he did nothing to 29

correct it in the records of Nugan Hand Ltd. He agreed that on his

own evidence Mr Nugan had told him a 'monstrous lie' about this

. .. 30

deposit.

4.5.20 At one stage Messrs Heuschkel and Pollard, unbeknown to

Mr Brincat, sought legal advice concerning the use of the internal bills

and their inclusion in the accounts of Nugan Hand Ltd. Mr Heuschkel told

the Commission that he had first learned of the existence of the internal

bills in approximately August or September 1977. This was at the firm's

office which was then in Clarence Street, Sydney. Mr Heuschkel said on

this occasion Mr Brincat seemed to tie 'agitated and fed up'

Mr Pollard was also present. On that occasion Mr Brincat, when asked

what was disturbing him, said that there were bills drawn between Nugan

Hand Ltd and Yorkville Nominees Pty Ltd and from Yorkville Nominees Pty

Ltd there was a loan to Mr Nugan. Mr Heuschkel said he then expressed

the view that the transaction was to be treated as a loan to a director

and that either the accounts had to be qualified in relation to that loan

or the loan had to be secured or repaid. Mr Heuschkel said that

Mr Brincat had informed him on that occasion that the problem had

recently arisen.32

4.5.21 Later there was a meeting between Messrs Pollard, Brincat and

Heuschkel at which Mr Heuschkel said he was confused by what Mr Brincat 33 .

was saying about the internal bills. Later still, according to

Mr Heuschkel, he and Mr Pollard conferred and Mr Pollard said that he too

was confused. They decided to seek legal advice. Eventually they sought 34

advice from Mr John Aston then a solicitor practising in Sydney.

Mr Brincat was not informed of this decision to seek legal advice

- 773 -

because, according to Mr Heuschkel, both himself and Mr Pollard came to

the conclusion that Mr Brincat was deliberately endeavouring to confuse 35 them.

4.5.22 Unbeknown to either Mr Heuschkel or Mr Pollard, Mr Aston was in

fact retained by Mr Nugan and when this fact emerged during the

conference Mr Aston advised them to seek independent legal advice.

Accordingly Messrs Heuschkel and Pollard saw another solicitor on

19 September 1977,^® however, they had only a preliminary conference

with this solicitor and left on the basis that formal advice would be

provided in due course. Before that could happen Mr Pollard received a

telephone call from Mr Nugan requesting Messrs Pollard and Heuschkel to

attend Mr Nugan's office. They found Mr Nugan annoyed at the way they

had sought legal advice concerning the internal bills. According to

Mr Heuschkel, Mr Nugan was very heated and the conversation 'went round

in circles'. Mr Brincat was present and according to Mr Heuschkel he was

upset with Mr Heuschkel and Mr Pollard for seeking legal advice without 37 his knowledge.

4.5.23 Some time later, at Mr Nugan's suggestion, a further meeting was

arranged between Messrs Nugan, Pollard, Brincat and Aston. Mr Pollard

has said Mr Aston was informed at that meeting that internal bills were

being listed as current assets and that the concern was that they were

being drawn on associated companies. Mr Pollard said Mr Aston

recommended that a note to the accounts be included and that thereafter a

note appeared as a note to the accounts in the following form (so far as

relevant)

'... and also the Company entered into various transactions relating to the purchase and sale of money market securities with various Companies in which Directors have a substantial financial interest, in the course of carrying on its business.'

4.5.24 It is obvious that the note was inadequate to put the reader on

notice of the internal bills scheme. The reference to 'money market

securities' was most misleading because the internal bills were worthless

as such. It was quite misleading to suggest that genuine money market

- 774 -

securities were being purchased by Nugan Hand Ltd 'in the course of

carrying on its business.' Mr Aston told the Commission that he had not

drafted that note and that in his opinion it appeared to have been

39

drafted by Mr Nugan himself.

4.5.25 Mr Pollard said that subsequently he had been informed by

Mr Brincat that Mr Nugan had reduced the extent of the use of internal

bills and had 'repaid a considerable number of them as well' and that

there had been no default in regard to any of the internal bills that had

fallen due. He said his doubts were satisfied by this conversation and 40

by the advice received from Mr Aston.

4.5.26 Mr Heuschkel said that on one occasion after he and Mr Pollard

had attempted to receive independent legal advice on the question of

internal bills, he had received a telephone call from Mr Pollard who had

informed him that the amount of the outstanding debt was being repaid or

had been repaid and that a note would be inserted in the accounts making 41

it clear that there was a loan outstanding to a director.

4.5.27 On two occasions during the lengthy course of his evidence to

the Commission Mr Brincat said that he should have resigned as auditor of 42 Nugan Hand Ltd.

4.5.28 Apart from Mr Brincat's evidence mentioned above, Mr Brincat

claimed in evidence that while he 'now knows' the Nugan Hand Ltd accounts

were false he did not know at the time when he certified them as

auditor. He told the Commission that he was comparatively young and

inexperienced when he commenced to audit the accounts and that Mr Nugan

was reputed to be a successful solicitor and a man of considerable

wealth. He further said that he was considerably overborne by Mr Nugan.

4.5.29 In the Commission's view there are some gaps in existing

legislation relating to auditors. For example under neither the

Companies Code nor the New South Wales Crimes Act is there a penal

offence directed to the auditor as such, for certifying accounts which he

knows to be false. Instead it is necessary to prove in the particular

- 775 -

case that the auditor was an officer of the company. As the reported

cases show this is a somewhat unsatisfactory means by which to bring

criminal charges against an auditor. A somewhat belated recognition of

this difficulty may have been responsible for the amendment, in late

1979, of section 4 (the definition section) of the Crimes Act in the

following terms:

1 "Officer", in relation to a body corporate or public company, includes a person who has been appointed or acts, as an auditor of the body corporate or public company.'

However, in the Commission's view, the better course would appear to be

to have specific legislation referring to the auditor as such and

providing a penalty in a case where the auditor knowingly certifies false

accounts.

4.5.30 The matters adverted to in this section therefore raise the

following issues which the Commission believes should be the subject of

consideration by the commissioning Governments with a view to the

enactment of legislation to provide for:

. the codification of the scope of the duty of the auditor of a

public company to detect fraud in the company;

. a criminal offence constituted by such an auditor certifying

company accounts which he knows to contain false statements or

which create a false impression; and

. the separation of the roles of accountant and auditor in respect

of a public company and a prohibition against the company's

auditor also carrying out duties ordinarily performed by an

accountant.

lo vc r-

- 776 -

ENDNOTES : PART 4 SECTION 5

(See e x p l a n a t o r y no t e at front of report)

1 As defined in the Oxford English Dictionary and referred to by

Fullager J. in Shire of Frankston and Hastings v. Cohen (1960) 102 CLR 607 2 CD11027, Report to the Commission by Mr Meade, paragraph 6.2.4 3 Uniform Companies Act 1981 section 162(1)(iii); New South Wales Companies Code 4 Uniform Companies Act 1981 section 167; New South Wales

Companies Code CD11027, Report to the Commission by Mr Meade, paragraph 3.1 CD11027, Report to the Commission by Mr Meade, paragraph 3.4

ibid, paragraph 3.5 8 ibid, paragraph 3.9(1) 9 The latter is the view expressed in the standard adopted by the

auditors professional body in the United Kingdom in April 1980 10 CD10968, The Chartered Accountant in Australia, Vol. 55 No 11

June 1985 p44, The Auditor's Duty to Detect Fraud 11 (1970) 92 W.N. (NSW) 29, Supreme Court of New South Wales,

Moffitt J.

12 13 14 15 16 CT23776, Brincat

17 CT23812, Brincat

18 CT23810, Brincat; CD4768 folios 74,75 19 CT23813, Brincat

20 CT23857, Brincat

21 CD4703 folios 74,75

22 CT23945-46, Brincat 23 CT25303, Brincat

24 CT25304, Brincat

25 CD9009

26 CT23732, CT23736-63, Brincat 27 CT23942-43, Brincat 28 CT23942-43, Brincat 29 CT24899, B r incat

30 CT24900, Brincat

31 CT23560, Heuschkel 32 CT23562, Heuschkel 33 CT23562, Heuschkel 34 CT23551, Heuschkel 35 CT23564, Heuschkel 36 T h e s o l icitor was a pa r t n e r in the firm of R o s s e r and Co.

37 CT23575, Heuschkel 38 CT23288-89, Pollard 39 CT23883, Aston

40 CT23289, CT23341-42, Pollard 41 CT23582, Heuschkel 42 CT25404-05, Brincat

- I l l -

SECTION 6 : BANKERS' OPINIONS

4.6.1 T h e C o m m i s s i o n ' s interest in this matter and its justification

for focu s i n g o n this topic as a separate category, s tems from the crucial

p a r t p l a y e d b y bankers' opinions in launching the N ugan Hand G r o u p as an

international concern.

4.6.2 The evidence shows that the first step towards this launching

was the preparation of a set of accounts which misrepresented the true

financial position of Nugan Hand Ltd [profile 2.97]. The second step was

to obtain the auditors' cooperation in auditing the accounts and the

final step was the use of these audited accounts to obtain favourable

bank opinions which were then used to enhance the image of the Nugan Hand

Group abroad.

4.6.3 The following s e c t i o n d e t a i l s the available evidence on the form

of bank o p i n i o n s p r o v i d e d b y N u g a n Hand Ltd's bankers and the highly

e f f ective use of those opin i o n s b y the N ugan Hand Group. In addition

reference is m a d e to opin i o n s prepared b y other bodies, including one

h i g h l y crit i c a l of the Group, and to doubts expressed b y the Group's own

b anks c o n c e r n i n g their o p i n i o n s in the face of m o u n t i n g a d verse publicity.

F o r m of Bank Opinions

4.6.4 Until March 1976, Nugan Hand Ltd banked with the Bank of New

South Wales (as it then was), Bridge and Young Streets branch, Sydney.

As a result of that Bank's refusal to provide Nugan Hand Ltd with a

'daylight' overdraft facility [see 3.4.8-3.4.9], the company then

transferred its account to the ANZ Bank which was prepared to provide the

requisite facility."*· Thereafter the Pitt and Hunter Streets branch of

the ANZ Bank proceeded to provide, at the request of Mr F.J. Nugan

[profile 2.1], opinions on Nugan Hand Ltd. The Commission notes

incidentally, that the figures quoted in opinions provided by the ANZ

Bank in 1976 were erroneously ascribed to the June 1975 audited accounts,

whereas those figures were in fact taken from the unaudited accounts of

- 778 -

1976. This error had the effect that the value of assets and

liabilities as at the stated time of 30 June 1975 were considerably

overstated and also overstated their value when compared with the audited

accounts of 31 January 1976. Leaving that aside, the following example

which was sent to Citibank, Grand Cayman, on 19 July 1976 by Mr E.F.

Southwood (now deceased), the then manager of the Pitt and Hunter Streets

branch of the ANZ Bank, provides a sample of the form of opinion used at 3 this time:

2

'Nugan Hand Limited is a Company incorporated in New South Wales, Australia with its principal activities being the [sic] act as investment bankers, financial advisers, investment managers and custodians. Company has international division in Hong Kong, Panama and U.S.A. with several representative offices in other overseas commercial centres.

Directors are considered to be capable and reliable of good character, who would not commit the Company to engagements it could not fulfill [sic].

Present D i r ectors are: -

F rancis J o h n N U G A N - Chairman

Michael Jon H A N D - Dep u t y Chai r m a n

Francis Dennis W A R D - Director / S e c r e t a r y George Thomas S H A W -

Company's audited balance sheets and trading accounts as at 30/6/1975 reveals [sic] Effective Capital $1,134,409, Liabs. $21,588,643 and Assets $22,723,169. Subscribed capital of the Company is A$l,000,005. It is our opinion that Company would be considered safe for engagements generally.'

4.6.5 In March 1977 the manager of the Pitt and Hunter Streets branch

of the ANZ Bank was changed. On 25 March 1977 Mr R. McKinnon (who died

on 10 October 1980) wrote to Mr M.J. Hand [profile 2.2] stating that he

had recently assumed management of the branch and would appreciate a

meeting to discuss, in particular, the annual review of Nugan Hand Ltd's

'within the day' overdraft facility [see 3.4.8-3.4.91.^ Messrs Nugan 5 and H.R. Graham subsequently attended a meeting at the Bank on 1 April

1977.6

4.6.6 Following Mr McKinnon's appointment to the position of Manager,

Mr Nugan wrote to the Bank on more than one occasion seeking

- 779 -

Mr M cKinnon's agreement to the inclusion of certain information in the

Bank's opinion on Nugan Hand Ltd. On 20 May 1977 Mr Nugan requested the 7

inclusion of the following information:

'From the Audited Accounts to 31 January 1977 lodged with us, it is noted that total assets were $21,847,311, and total

liabilities were $20,659,201; Money market securities purchased during the year total $219,298,365, and gross turnover for the Group (including the securities purchases [sic]) is believed to

be substantial.

The C o m p a n y conducts an International Division operating through

Re p r e s e n t a t i v e O f fices a n d a f f i l i a t e d Merchant B a nking and

Ba n k i n g companies o v e r s e a s . '

4.6.7 This proposed additional material went beyond previous opinions

in that it quoted details of purported money market securities purchased,

claimed a substantial gross turnover and also claimed that there was an

international division. On 10 June 1977 Mr McKinnon communicated his

willingness to accede to Mr Nugan's request.®

4.6.8 More significantly, Mr Nugan wrote to Mr McKinnon on 7 September

1977 enclosing a document which was clearly intended by Mr Nugan to be g

adopted by the Bank as its reference on Nugan Hand Ltd. In his

covering letter, Mr Nugan referred to discussions with Mr McKinnon in

relation to the draft reference. He also claimed that the proposed

reference had been modelled along the lines of another bank reference on

the Group. There is no evidence to support this last contention. The

form of the proposed reference drafted by Mr Nugan was as follows:

'7 September 1977

D R A F T RE F E R E N C E

N U G A N HA N D LIMITED, A N D T H E NUGAN

H A N D GROUP

Investment Bankers, Bankers and T r a d e Services

N U G A N H A N D L I MITED W e are the Principal Bankers for Nugan Hand

SYDNEY, A U S T R A L I A L i mited Sydney, Australia, a n d have the benefit of

Investment B a nkers reported information on other Nugan Hand G r o u p

C o m panies o v e r s e a s .

- 780 -

Principal Bankers: ANZ Banking Group Limited, Pitt & Hunter Sts branch Sydney, Australia.

Nugan Hand Limited are Investment Bankers,

Financial Advisers, Trade and Commercial Advisers.

Directors: Francis John Nugan, Michael Jon Hand, Leslie

Hillary Collings, Stephen Kenneth Hill, George Thomas Shaw.

The Group originated in March 1970 as Yorkville Nominees Pty Limited, and Nugan Hand Limited has been the major operating Company in the Group since June 1973.

From audited accounts for the year to 31.1.77 lodged with us, it is noted that the total assets were $21,847,317, and total liabilities were

$20,659,201. Money market securities were

purchased by Nugan Hand Limited during the year totalling $219,298,365, and gross turnover for Nugan Hand Limited, including the securities above, is believed to be very substantial.

Directors are considered to be capable and

reliable, and well versed in their fields of

activity.

Several accounts are maintained with us and they are well conducted. We have extended to the

Group some Banking facilities on a secured basis, and this accommodation has been used in an

entirely satisfactory manner. It is considered the Directors would not commit the Company into engagements that it could not fulfil. We regard Nugan Hand Limited as a responsible organisation, good in all its normal business engagements.

G R O U P OVERS E A S COMPANIES * 1

NUGAN HAND (HONG KONG) Incorporated on 10 October 1972. Paid up capital LIMITED, Hong Kong $HK5,000,000. Referred to in Hong Kong as a

1 Finance Company'. The subject is reported to hold registration under the Deposit Taking Ordinance No. 3 of 1976 of the Colony of Hong

Kong. The Directors, being those of Nugan Hand Limited above, are considered to be capable and reliable and would not commit the Company into engagements that it could not fulfil.

THE NUGAN H A N D BANK

Cay m a n Islands

British We s t Indies

Nature of busi n e s s is Banking. The subject is

reported to hol d a Cate g o r y 'B' B a n k i n g Licence issued b y the Government of Cay m a n Islands-

B r itish Wes t Indies. The Directors, almost the

- 781 -

Other Overseas Companies

Other Bankers

same as Nugan Hand Limited, are considered to be capable and reliable and would not commit the Company into engagements that it could not fulfil.

The Nugan Hand Group maintains Trade Service Companies and Representation in USA, Thailand, Singapore, Kuala Lumpur, West Germany, United Kingdom, Panama, and Argentina.

The Trade Services Division provides a range of services in the field of Mangement Consulting, Market Surveys, Corporate Representation, Administrative Services, and similar areas.

The Group, to our knowledge, maintains

satisfactory customer relations and

satisfactorily maintained accounts with many other bankers in Australia and overseas. Amongst the primary bankers are, we are informed, Banque Nationale de Paris in Hong Kong, The Wing Cti Bank

Limited in Hong Kong, United Overseas Bank

Limited in Singapore, and many other

international Banks.1

4.6.9 The only change made to this reference was the deletion of the

words 'an entirely1 and substitution of the article 'a' in the sentence:

'We have extended to the Group some Banking facilities on a secured basis

and this accommodation has been used in an entirely satisfactory

m a n n e r . O n the basis of handwriting and other circumstances it is

clear that the alteration was Mr McKinnon's and subsequent references

reflected this change. Mr Nugan's suggested reference, with this minor

amendment became the ANZ Bank's standard form of reference on Nugan Hand

Ltd which the Bank issued in response to overseas and Australian

inquiries concerning the standing of the company.11

4.6.10 The ANZ Bank sometimes provided variations to this standard form

of reply including: an abbreviated form of reference provided by telex or

cable; those provided on forms made available by the inquiring bank

itself; and a partly printed form of reply which seems to have been used 12

by the International Division of the ANZ Bank from time to time.

4.6.11 Additional comments were provided when the ANZ Bank was asked to

comment on specific proposals in relation to which Nugan Hand Ltd was

attempting to negotiate. When those proposals involved large amounts of

- 782 -

capital it appears that the Bank felt constrained to temper its otherwise

favourable report. In a telex dated 22 May 1978 from Singer and

Friedlander Ltd, London, the Bank was asked whether it would 'consider

Nugan Hand Ltd Investment Bankers of Sydney good for a guarantee of U.S.

Dollars 11 million'. In response the ANZ commented favourably on the

directors' capability and reliability and the company's conduct of its 14 account and then added:

'However bearing in mind present capital of the company we do not see how they could enter into transaction in the multitude [sic] of 11 million US Dollars unless there are moves in train for a substantial increase in capital of which we are not aware even though close liaison is maintained with managing director Stop It would not of course be politic to approach them in the matter stop'

4.6.12 Similarly, a telex from the First Hawaiian Bank, Honolulu,

bearing date 30 December 1977 stated: 'Nugan-Hand have used your bank as

reference but we have conflicting reports about their reputation

credibility and ability to raise a purchase price of US30 million'.15

A full standard report was telexed in response on 4 January 1978 with the

following additional comment:16

'Several months ago the company received some adverse publicity in the press with the suggestion that it could be linked with marihuana growing in Australia as brought to light in a drug enquiry which is still continuing as the vehicle for investment of illicit funds but there has been no evidence given to

substantiate this at all. However this could be the reason of your having received conflicting reports as to their reputation and credibility. We can only say that the account is well

conducted and from our experience the directorate is honest and reliable. However bearing in mind the present capital of the company we do not see how they could enter into a contract of the size you mention unless there are moves in train for a

substantial increase in capital of which we are not aware even though our abovementioned branch maintains close liaison with the Managing Director, Mr Frank Nugan. It would not of course be politic to approach them in the matter'.

4.6.13 Other than the introduction of this additional information in

response to these particularly ambitious proposals, the ANZ Bank

- 783 -

references were uniformly favourable and its response at this time to

adverse publicity seems to have been to ignore it. This approach was

typified by a response to an inquiry dated 26 June 1978 on behalf of the

Fidelity Bank, Philadelphia which noted that the Bank was aware of recent

adverse publicity in the Australian press. The telexed response from the

International Division of the ANZ Bank, Sydney, stated: 'Manager Pitt and

Hunter Streets today confirms previous reports and states connection is

still regarded as most valued ... notwithstanding recent press reports 17

branch has nothing to add to previous reports'.

4.6.14 Yet another example of the ANZ Bank's willingness to adjust its

r eferences at the behest of Mr Nugan occurred in March 1979. Mr McKinnon

commented in an internal minute to the State Manager, ANZ, on 19 March

1979 that Mr Nugan had claimed that the wording in the standard ANZ Bank

reference [see 4.6.8] that the company enjoyed certain facilities on a

secured basis (paragraph 8 of the standard reference) could be

m i s i n t e r p r e t e d b y third p arties to me a n that the ANZ Bank w ould not, nor

should anyone else, lend on an unsecured basis. Accordingly, Mr McKinnon

suggested that this aspect 'could well be eliminated in future

r e p o r t s ' R e f e r e n c e to facilities on a secured basis was duly

19

omitted from subsequent opinions.

Comme n t s on the ANZ Bank Standard Reference

4.6.15 Mr McKinnon, w h o was the Manager of the ANZ Bank, Pitt and

Hunter S t reets branch at the time the Bank a d opted Mr Nugan's proposed

reference, d i e d on 10 O c tober 1980. The Commi s s i o n was therefore unable

to obt a i n evid e n c e fr o m h i m a s to the circumstances in w h i c h the Bank

ca m e to adopt the reference or, m o r e specifically, w h a t inquiries, if any

he ma d e bef o r e a c c epting (with the deletion m e n tioned in 4.6.9) the form

a n d s u b stance o f the reference d r a f t e d b y Mr Nugan himself.

4.6.16 L e aving a s i d e the u n usual practice of the managing director of

a n a l leged m e r c h a n t bank pr e p a r i n g his own bank reference, there are a

number of other aspects c oncerning the content of this reference w h i c h

call for co m m e n t :

- 784 -

The word 1 turnover1 is given an unorthodox meaning and, in fact,

accorded with the description of that term in clause (a) of the

Chairman's Report on Nugan Hand Ltd financial statements as at

30 June 1975. According to the Chairman's Report, instead of

equating the term 'turnover' with the sale price of securities

in accordance with normal usage, Mr Nugan, as Chairman, used the

term to mean 'the sum of all deposits into bank accounts of the

Group' together with 'all payments out of bank accounts of the 20 Group'. One consequence of ascribing this meaning to the

term was that Mr Nugan was able to claim, as in the suggested

reference, that 'gross turnover for Nugan Hand Limited,

including the securities above, is believed to be very

substantial'.

The reference omits any mention of the company's profit and

excludes any financial statistics which would enable the profit

to be calculated. The mention of liabilities being less than

assets is misleading in that it does not enable the reader to

distinguish between the company's capital and the company's

profit. Further, in order to calculate profit from statistics

concerning money market securities, the sales figure as well as

the purchase figure would be required, not to mention an

estimate of the operating expenses. In brief, the figures

quoted create the general impression of large turnover and

leave the comparatively small profit obscure.

General comments concerning the directors' ability and the

responsibility of Nugan Hand Ltd as an organisation are made at

large without limitation in terms of the Bank's dealings with

the individuals or companies concerned.

With regard to the material on the Nugan Hand Group overseas

companies, neither Nugan Hand (Hong Kong) Ltd nor the Nugan Hand

Bank operated accounts with the Bank and accordingly it was not

in a position to make any assessment of these companies, yet it

purported to do so. Further, the reference was incorrect in

- 785 -

stating that the directors of Nugan Hand (Hong Kong) Ltd were

the same as those of Nugan Hand Ltd although the two companies

had some directors in common, including Messrs Nugan and Hand.

4.6.17 In the light of the above comments, it is of interest to note

the, then current, ANZ Bank's internal guidelines concerning the content

of opinions in relation to requests by overseas banks. With regard to

the ability and integrity of management, the guidelines state that 'it is

important that this information be accurate. If there is necessity to

give different remarks for a particular director, the name and position

held are to be specified'. On the question of the company's financial

position the guidelines state that 'an accurate indication is required

and is to cover the working capital position and profitability'.^·

Use of Opinions

4.6.18 The evidence before the Commission discloses that the bank

references were used extensively and effectively to establish the Nugan

Hand Group's credibility in the market place. The most emphatic evidence

on this matter was given by Mr C.L. Ceilings [profile 2.15] who was

instrumental in establishing the Group's operations overseas. In his

speech to the Group's conference held in Bangkok in January 1978,

Mr Collings gave a brief history of events in the Hong Kong office from

its beginnings in 1975 to the time of the conference, and in the course 22 of his speech he said:

'Now one thing probably above all else I suppose made it happen quickly and I think because of that it is important that I

explain it to you. When you are in a country wherever you may be, and you have problems, and people won't give you money because they don't believe you or for whatever reason, I found that you have to be a bit inventive if you can. You have to try and analyse why people do not do what you want them to do and

then you have to find a way around the problem. ... and I like

things to be organised. So I used to drive Frank absolutely mad on the phone or with memos because at that time I did not even have a phone in the office because of the expense. I used to drive him mad trying to get these references from the Bank of New South Wales and the ANZ. I thought if we're so bloody good

- 786 -

T h e B a r k s a r e going to s a y a b s o l u t e l y m a r v e l l o u s things about

us. Now, the y did. But it w a s not q u i t e in the w o r d s that I

w a n t e d t h e m to use so I t h ought "well, t h e y a r e g o i n g to hav e to

c h a n g e 1 * a n d I us e d to p l a g u e F rank wi t h this . /. Anyway, I did

push the r eferences and th e y did g e t better.

Then, as the turnover got better I'd say, "well the turnover is going up you know?" I think the first year turnover was

$A11.5 million. As you know, last year it was over a billion dollars.

With references I went around to the credit offices of the main Banks, particularly Hong Kong and Shanghai Bank, Chartered Bank, Wing On Bank, of course, saw the reps, and made sure that they knew and had a copy of our references and asked them will you please write one for us. Because I wanted people to think

nicely of us, because we are nice people, and also I wanted to try and short-cut the time. At this stage, I was trying to work out a way in my own mind whereby if we're so good why can't a

local banker say we are good and even guarantee us.' [emphasis added]

4.6.19 Mr Collings reiterated his comments in evidence to this

23

Commission. H e told the Commission:

Ί should like to make it quite clear that in my view if there was a single reason why we got a lot of deposits in quite

quickly, other than the banking arrangement with Wing On, it was because of the quality of the bank references that came up from Sydney. The Bank of New South Wales wrote some incredibly good references - you couldn't get better ones I don't think - and the ANZ did the same, and they were very, very good.'

The Commission has been unable to obtain any such reference which may

have been issued by the then Bank of New South Wales at this ti m e . ^ a

The Commission had available to it only one reference from the Bank of

New South Wales which is referred to at paragraph 4.6.26.

4.6.20 In relation to Mr Collings' evidence, the Commission notes

that there is some correlation between the time of the establishment of

the Hong Kong office and the time of the first of four buy back

transactions between Nugan Hand Ltd and CitiNational and National

Discount Corporation whereby securities were purchased to inflate the

balance sheet fsee 5.25-5.33]. The first of these transactions occurred

in respect of the accounts for 30 June 1975 and resulted in an extra

- 787 -

anount of $9,858 million in assets, in the form of securities, being

included in the accounts which were then stripped away only four days

later on 4 July 1975. If in fact Mr Collings had 'driven Mr Nugan mad1

in order to obtain good bank opinions it is not unreasonable to assume

that Mr Nugan in response to Mr Collings' demands instituted this

particular buy back arrangement to artificially inflate the balance sheet

which would undoubtedly result in a more impressive Bank opinion.

4.6.21 Apart from Mr Collings' evidence, documentation before the

Commi s s i o n i n c l u d e d a man u a l e n t i t l e d 'Strictly Confidential NH

International Administrative Procedure between Offices' which included 24 the following instructions:

'* In the field, it is of a great deal of importance when

n e g o t i a t i n g for s u b s tantial funds or if one of our

r e p resentative [sic] is b r e a k i n g the ice in a new ar e a to

have an independent or t hird p a r t y p o i n t of reference.

* As of today, w e have f o u n d a most high l y utilised, met h o d

of reference is that of a Bank to Bank Reference.

* Please follow these points specifically.

(1) Your client must go to his own local Bank or

another Bank with which he deals, and he must in writing ask for a reference on, e.g. Nugan Hand Bank or Nugan Hand Limited ...

(2) You should prepare a sample letter. How to

have client instruct his Bank. A basic sample letter is laid out below.'

T h e samp l e letter requested the bank concerned to seek a bank reference

from Mr R. McKi n n o n of the ANZ Bank, Pitt and Hunter Streets branch,

Sydney. The instructions continued:

'(3) When active in South East Asia and a reference is required on Nugan Hand Bank, the following persons are the correct individuals to write to at each Bank.'

T hereafter follows a list o f individuals at particular banks comprising

Mr A. Kwok (Wing On Ban k Ltd Hong Kong), Mr R. Isherwood (ANZ Finance

- 788 -

(Far East) Ltd Fong Kong), Dato L.S. Pang (United Overseas Bank,

(Singapore), Mr M. Vincent (ANZ Banking Group, (Singapore)), Mr Fung

(Irving Trust Company New York) and Mr R.C. Thomas (ANZ Banking Group

(Los Angeles)). This list is followed by the words:

' * All of the aforementioned people at the appropriate Banks, are prepared, ready, willing and able to give references as required ...'

4.6.22 The representatives of the Nugan Hand Bank were well aware of

the procedures concerning bank references. Mr E.C. Louey [profile 2.40] 25 told the Commission:

'The procedure, first of all, was that before they were prepared to invest in the Nugan Hand Group companies, whether it be in the Australian company or any of the others, the problem was to establish credibility, and all we had at our disposal at that stage was to request that they check the group through their bank through to the ANZ Banking Group in Sydney, and this was always, this line of advice was always offered before anyone did any business, and virtually throughout the whole time of my association with the group this was always done by any clients, and always a favourable reply was received from the ANZ.'

4.6.23 When asked about the standard report on Nugan Hand Ltd from the

ANZ Bank, Mr R.A. Pulger-Frame [profile 2.59] told the Commission:26

'The effect of the report was quite widely known amongst the Nugan Hand offices. And it was used as, I suppose, a gauge of our respectability in that the A.N.Z. had said such nice things about it [sic].'

4.6.24 Mr J. McArthur [profile 2.46] told the Commission that while he

did not personally show bank reports to prospective clients, he may have

indicated to depositors that if they would like to see such reports from 27

the ANZ Bank then they were available. Mr G.A. Courtney-Smith

[profile 2.17] said that the reports from the ANZ Bank in Sydney included

comments on the Nugan Hand Bank, Nugan Hand (Hong Kong) Ltd, the

directors and whether the account was being satisfactorily conducted. He

added that the idea of the reports was that they were objective.28

- 789 -

Reference to the availability of ANZ Bank opinions was also made in

correspondence from Nugan Hand Ltd or Nugan Hand International

particularly in circumstances where members of the Group were concerned

about, and seeking to overcome, the effects of adverse publicity or other 29 unfavourable comment.

Opinions Prepared by Other Bodies * 2 7

4.6.25 The d o c uments bef o r e the Commi s s i o n include a number of opinions

p r e p a r e d b y b o d i e s other than the ANZ Bank, on l y one of w h i c h is a

b a n k e r ' s opinion. G e n e r a l l y speaking the opin i o n s wer e favourable.

4.6.26 On 24 January 1977, the Hong Kong representative of the Bank of

New South Wales gave a brief reference on Nugan Hand Ltd to the director,

IFPI, Hong Kong as follows:33

'The company conducts a merchant banking business and has an international division operating through representative offices overseas. Account opened 1973 and operates with substantial turnover. Directors are considered capable and reliable and we consider they would not enter into any commitment they could not expect to fulfil.'

4.6.27 T h e evide n c e indicates that the Bank of New South W ales provided

other references a l t h o u g h those p r o v i d e d b y that Bank at a later date

w e r e r eferences o b t a i n e d f r o m the ANZ Bank and relayed to the

. . 31

inquirer.

4.6.28 Other reports were prepared by Dun & Bradstreet on 22 November

1976,32 1 November 1977,33 30 November 1977,34 29 May 1979,35

27 August 1 9 79^ and 22 April 1980."^ All of the reports quote from

the Nugan Hand Ltd published accounts and both of the reports produced in

1979 comment that on 28 May 1978 the Corporate Affairs Commission had

brought charges against Messrs K.L. Nugan [profile 2.52] and F.J. Nugan

in connection with the Nugan Fruit Group [profile 2.114]. Each of the

reports concluded, however, that Nugan Hand Ltd was in a good financial

condition. Indeed with regard to the report dated 27 August 1979 Mr G.A.

Edelsten [profile 2.20] had cause to comment to Mr Hand that he thought

the report was 'pretty good despite the fruit business at the end'.33

- 790 -

4.6.29 Extremely brief and out of date reports were prepared by

overseas institutions and where these reports contained details they had

been obtained from the Pitt & Hunter Streets branch of the ANZ Bank in

Sydney. The Bank of Nova Scotia International Hong Kong Ltd prepared a

report on Nugan Hand Ltd on 6 July 1976 which described the functions of

Nugan Hand Ltd, stated its office to be in Sydney, noted the authorised 39

and paid up capital and the management of the company. The Banque

Nationale de Paris prepared a report on the Nugan Hand Bank dated

December 1978 which noted the establishment of the Bank, its principals,

its capital, stated its business to be specialist bank and trust

services, and noted that it maintained a routine account with the Banque

without credit facilities.^ The American Foreign Service prepared a

report on Nugan Hand Ltd under the heading World Traders Data Report

using information as at 1 January 1978. The financial statistics quoted

were for 31 January 1977, however, and all relevant information had been 41

obtained from the ANZ Bank, Pitt & Hunter Streets branch.

4.6.30 A marked exception to these generally favourable or, at least,

innocuous reports is contained in a telex which was sent to S.G. Warburg

& Co. Ltd. in London on 12 July 1979. This was originally mistakenly

attributed by Messrs Nugan and Hand to the Bank of New South Wales but

they subsequently found it had been sent by the Australian merchant bank,

AUC. Witheringly perceptive and succinct, the recommendation was as _ 42

follows:

'We would not recommend Nugan Hand Limited to you. Apparently the company was started and is owned by two individuals who made some money during the mining boom in the 1960’s. Last year it was involved in a battle between some institutions and the board of a company run by Nugan's brother, the NUgan Group Limited. Auditors of this company were replaced and a number of directors of both companies resigned. Leo Tutt, Chairman of Escor

(Bowater) and Phoenix Insurance was one of these resignations. The Corporate Affairs Commission is investigating the

proceedings. The Nugan Group was accused of involvement in drugs in a recent Royal Commission on Drugs. Nugan Hand is big in advertising and small in size (eg it publicises turnover in the hundreds of millions yet has profit in the tens of

thousandsTT This approach attracts tongue In cheek press comment. The company has no establishment shareholders, no establishment directors and little business as far as we are aware. It is not viewed favourably here.1 [emphasis added]

- 791 -

4.6.31 This reference was apparently obtained during the course of

negotiations for the acquisition of London Capital Securities Ltd

[profile 2.111] by the Nugan Hand Group. The negotiating parties in

England sought the reference through S.G. Warburg & Co. Ltd., London.

During the course of the negotiations it was revealed to Mr Nugan that an

adverse report had been received concerning the Group.^ It is clear

from correspondence at that time that Mr Nugan incorrectly attributed

this damaging reference to the Bank of New South Wales.44 Although the

telex was revealed to Mr Nugan on the condition that its contents were 45 not revealed to other persons, Mr Nugan ignored this condition and

carried out extensive inquiries as to the origin of the telex. In the

process he threatened the Bank of New South Wales with legal action. He

later discovered the correct source of the telex and wrote to the Bank of 46

N e w South W a l e s apo l o g i s i n g for his actions. The content o f

Mr Nugan1s letter apart from its relevance to the present topic, is

illustrative of Mr Nugan1s prose, containing as it does illogical and

ungrammatical expressions. Several witnesses also commented on this

appa r e n t i n a b i l i t y o n the p a r t of Mr Nugan to e x press himself

adequately. He als o w r o t e to the merc h a n t bank, AUC, in the terms set

47

out below:

Ί am not aware of any circumstances in the past twelve years where our firm has directly or indirectly been associated with, or come into contact with, your firm.

Thus, I cann o t conceive of c i r c u m stances w h e r e we could have so

g r e a t l y o f f e n d e d e x ecutives in your fir m as to cause such a

telex to be sent, w h ether the facts in it were correct or n o t .

In m y view, a n d I hop e it is accurate, almost e very fact stated

in the t elex is either t o tally f alse or at least misleading.

W h a t has stunned m y partner, Michael Hand, and m e about the

telex, is the intense q u a l i t y of c r i ticism levelled at our

Group. T h i s telex is o n l y o n e e x a m p l e . Over the past two

years, s ince Mr Joh n Do w d took it upon himself to make certain

s tatements under p a r l i a m e n t a r y privilege, it has occurred to us

man y t i m e s .

I would like you to understand that it is very hurtful to

Michael Hand and myself who are the owners of this Group, and extremely hurtful to the 130 or so executives who have worked very hard for the Group over the past ten years in its embryonic

stages.

- 792 -

It is not a matter which we propose to refer to our solicitors, since it is against our religious beliefs to commence actions other than for recovery of debt in the normal course of

business. On the other hand, we do sincerely request you to reconsider whether this approach to our firm is justified, based on our record of success. We own a number of commercial banks and have a number of achievements over the past ten years that

might, if you were fully informed on them, be sufficient to make you more curious about our firm, and to determine the true

facts. Should you or any of your staff, including the executive who sent that telex to Nic Millward at Warburgs on 12 July 1979, care to make enquiries of me as to our firm, we would be

extremely happy to make available to you confidential

information on our size, profitability, turnover, and similar information!

In any event, we would appreciate it if you could discuss with your senior executives whether there is any matter of which they are aware in respect of which your firm has a grievance against us. We would regret having offended you if this is the case, and would like to explain the circumstances should you tell us of the facts by which we have caused such a serious breach

between our two companies.' [emphasis added]

4.6.32 There were indications in evidence before the Commission of

other unfavourable references on Nugan Hand Ltd. In a telex dated

21 June 1978 from Mr Nugan to Mr Geisz, director, Volksbank, Oftascheim, 48

West Germany the penultimate paragraph states:

'We u nderstand a client o f y o u r ban k sought an o p inion on our

G r o u p a n d w e cannot u n d e r s t a n d the origin o f a n y o p inion that

m i g h t reflect o n our integrity. Our bankers in the man y

countries w h e r e w e hav e offices, m a i n t a i n their excellent

references on us and w e w o u l d ask y o u to seek a reference from

our ba n k here, the ANZ Ba n k (Pitt & Hunter Sts, Sydney, branch)

r e g arding our g o o d reput a t i o n a n d e x c ellent s ervice to

c u s t o m e r s . '

4.6.33 There is reference to further unfavourable reports in an

unsigned and undated statement which appears to have been prepared by

Nugan Hand Ltd to brief Counsel in respect of the unfavourable AUC

opinion w h i c h N ugan Hand Ltd had erroneously attributed to the Bank of

49

N e w South Wales. The relevant p a r t of the statement is:

Ί a l s o consider a n d heard reported, but not seen, that the NBA

and CBA ga v e rather h orrifying reports on Nugan Hand. As I say

I a m not a ware o f any wr i t t e n reports. W e know of one instance

some four years a g o the C o m monwealth Bank al s o gave a bad report

but it has not b e e n reported to us r e c e n t l y . '

- 793 -

G r o w i n g Co n c e r n about R e f e r e n c e s fro m ANZ Branches Over s e a s

4.6.34 There were signs of concern from the overseas branches of the

ANZ Bank in Hong Kong, Singapore and London from as early as October 1977

concerning the content of the Bank's reference on Nugan Hand Ltd and the

use made by the company of its association with the ANZ Bank. The Sydney

office of the ANZ Bank continued to provide favourable reports but made

some minor changes to the content of their opinions and the procedures

for their release towards the end of 1979. Correspondence between the

Sydney and London offices is of particular interest in revealing the

considerations which, in the view of the Sydney branch, obliged them to

provide a favourable report.

4.6.35 The following paragraphs set out in chronological order the

doubts expressed by the Hong Kong, Singapore and London offices (the

latter in some detail) and the amendments if any made to the opinions and

associated administrative procedures.

4.6.36 On 4 October 1977 the Singapore ANZ representative wrote to the

New South Wales ANZ State Manager in the following terms:50

'There is talk of them seeking to purchase a "Bank" in Hongkong [sic] and also here or in Kuala Lumpur, the figures mentioned being extremely large in relation to the company's published balance sheet. It is a little unclear as to how the group

operates elsewhere and the local market is becoming a little nervous as is the writer because ANZ Bank is being freely quoted as a source of reference.'

4.6.37 The Hong Kong ANZ representative expressed doubts in September

1978 concerning the Bank's reference in view of the Corporate Affairs

Commission investigation. In response, the International Division in

consultation with the New South Wales Acting State Manager noted the lack

of proof concerning adverse media reports and affirmed the company's

satis f a c t o r y dealings w i t h the Bank. In d oing so he advised that the

reference to the directors being capable and reliable should nevertheless

b e qu a l i f i e d to include the w o r d s 'in their dealings with the B a n k ' .

51 ----------------- ------------------

[emphasis added]

- 794 -

4.6.38 In a cable dated 14 A u g u s t 1979 f r o m ANZ London to ANZ Sydney

c o n c e r n i n g a m e e t i n g w i t h offic e r s o f the N Ugan Ha n d G r o u p and a request

by the Group for London to be a 'referral1 bank, the London office

indicated a reluctance to become involved but thought this might 52

embarrass the Sydney office. The cable stated:

'Until recently we had scarcely heard of Nugan Hand Ltd. and now we feel that we are being placed under undue pressure to play an active part in their international operations which we do not fully understand and we are concerned that the Group may be seeking to use the reputation of ANZ internationally to further its own interests.1

The branch's response denied that there would be any embarrassment,

provided a standard reference and reiterated satisfaction with

transactions to date.55

4.6.39 O n 7 N o v e m b e r 1979, the Assistant State Manager, Corporate

Banking, ANZ Syd n e y wrote to the Pitt & Hunter Streets branch noting that

the Ban k c ould not g i v e a n o p i n i o n on companies wit h w h o m the Bank h a d no

dealings a n d as a consequence, comment on overseas operations, other than

their legal status, was to be d e l e t e d.54 Following this direction the

Senior Manager International Division, ANZ directed that all future

opinions be forwarded to his Division with effect from 23 November 55 1979.

4.6.40 There was at this time also, extensive correspondence between

the London and Sydney offices concerning the Bank's opinions on the Nugan

Hand Group. On 29 November 1979 following the earlier exchange of cables

conce r n i n g use of London as a 'r e f e r r a l ' bank, the London ANZ office

w r o t e a p r i v a t e c o nfidential letter to the Assistant State Manager,

56

Corporate Banking, ANZ Sydney which is reproduced below:

Ί am sorry to pursue the Nugan Hand saga, which I know has its embarrassing aspects insofar as the Bank is concerned and the giving of opinions, but felt I must drop you a further note on a personal and private basis.

(Xir F/X dealing room tell me that they hear the name of Nugan Hand being mentioned increasingly frequently in the "market" and, in particular, their role as a deposit taker in Singapore

- 795 -

where, it is understood, their deposits are accumu l a t i n g

some w h a t rapidly. I f u l l y a ppreciate this is on l y "hearsay" but

I felt tha t I should acqu a i n t y o u of the gossip, in case you had

n o t a l r e a d y h eard it. Furthermore, there is the suggestion that

"someone l a r g e (unnamed) is a bit w o r r i e d about the position."

I a p p r e c i a t e that m a r k e t talk cannot be the subject of official

ser i e s le t t e r s be t w e e n o f f i c e s and, even mor e so, that it is not

our p l a c e t o ques t i o n reports g i v e n b y another bran c h o n one of

its c u s t o m e r s . In the circumstances, I have w r itten to Pitt &

H u n t e r St r e e t s bran c h en c l o s i n g copies of diary notes ma d e at

this office. A c o p y of our letter to the branch (with

enclosures) is enclosed, fro m w h i c h you wi l l see that we have

not informed t h e m that a copy is b e i n g sent to you.

As I sai d earlier, I regret troubling y o u again but felt that

y o u sho u l d b e aware of the talk in case y o u m i g h t consider it

a p p r o p r i a t e to buy into the matter in some discreet w a y .1

(Reference to F / X is taken to be a reference to Foreign

E x c h a n g e .)

4.6.41 This letter was referred for information to the New South Wales

State Manager on 7 December 1979 who then forwarded it to the Assistant

State Manager with the comment that it 'only makes me feel more uneasy

about this Group'. The Assistant State Manager subsequently advised the

State Manager on 10 December 1979 as follows:

Ί h a v e h a d reservations a bout N u g a n H a n d for some time. This

has b e e n b a s e d on fr e q u e n c y of requests for reports/information

m a d e of our peo p l e in N e w York, Ho n g K o n g and S i n g a p o r e . Also

the rapid growth and the number of non b a nkers employed.

T h e r e has b e e n m a r k e t g o s s i p in other centres as the g roup has

gone into business in each, so the Lond o n "gossip" is not

isolated. Indeed, I think o n l y to be expected - for e xample in

H o n g Ko n g there was m u c h innue n d o regarding drug trade links.

In summary, I have b e e n uneasy, a n d it is known to the branch.

However, the y have b e e n spot o n in dealings wi t h us a n d any

f acilities granted h a v e be e n s ecured - this will continue. ...

I a m c o n fident that S(P&H) doe s not issue any report wi t h o u t

reference to us. The p r esent report is couched in suitable

terms a n d it is of interest that N.H. recently a sked us again

for our current report. T h e incidence of requests for reports

has, I think, tended to s l o w over the last six mont h s or s o . '

(Reference to S(P&H) is taken t o be a reference to ANZ Pitt &

Hunter Streets branch, S y d n e y . )

- 796 -

4.6.42 Finally, the New South Wales Assistant State Manager replied to

the London office on 10 December 1979 as follows:58

'As I ha v e t o l d y o u b y t e l e p h o n e , the Bank r e l a t i o n s h i p here is

m a i n t a i n e d m o s t satisfactorily. This, o f course, is o n l y to be

e x p e c t e d as t h e y w o u l d n e e d to d o this as a favourable report is

essential to them.

As y o u know, the q u e s t i o n o f r eports n o w requires a deal of care

as customers can require us to p r o v i d e them wit h a cop y of a n y

rep o r t g i v e n o n them. Our f r i e n d s at N u g a n H a n d do this - on l y

rece n t l y t h e y a s k e d for a c o p y of a report w e have g i v e n on them.

T h o s e f a ctors aside, p e r s o n a l l y I have some reservations

a l t h o u g h h a v i n g n o t h i n g to p u t m y finger on. T h e y hav e expanded

r a p i d l y a n d it is di f f i c u l t to see h o w they o p erate and what

the y do. T h e y ha v e some p e o p l e w h o are not bankers b y

b a c k g r o u n d .

I can under s t a n d that F orex p e o p l e are h earing the name mor e

frequ e n t l y in the "market". Thi s has been the cas e in other

p l a c e s a l s o - N e w York, H o n g K o n g a n d Singapore, w here our

p e o p l e h a v e faced m a n y requ e s t s for opinions and/or other

i n f o rmation av a i l a b l e for adv i c e in confidence.

A s to report g iven b y S ( P & H ) , w e have had the text of their

report under review. However, t h e r e is n o thing in our dealings

wit h them that could justify a report in any other terms than

cu r r e n t l y issued. W e ha v e n o deal i n g s wi t h t h e m o u tside Sydney

and it w o u l d be dangerous indeed for us to include anyth i n g even

smack i n g of "hearsay" - e s p e c i a l l y as they do get copies.

I think y o u can onl y deal w i t h the m on your own terms a n d

conditions. A n y t h i n g w e extend he r e b y w a y of facilities are

secured.

I hop e this not e helps y o u u n d e r s t a n d our p o s i t i o n - we do w atch

a n d m o nitor reports, but t hese can b e based o n l y on our

e xperience u nder the banke r / c u s t o m e r relationship, avoiding

innuendo or c a ution b a s e d o n "hearsay" or "gossip" or even a

pers o n a l reservation a r i s i n g fro m such talk.' (Reference to

Forex is t aken to be a reference to Foreign E x c h a n g e )

4.6.43 Paragraph two of the above reply is taken to be a reference to

the New South Wales Privacy Committee announcement of 30 October 1978

that members of the Australian Bankers' Association, the Commonwealth

Trading Bank and the Rural Bank of New South Wales would in future on

written request, disclose to customers in New South Wales opinions given

on them to inquirers. The Privacy Committee had apparently been

- 797 -

receiving a small but increasing number of complaints that bankers would

not show customers any reports on their financial standing as provided to

others. The Committee had then suggested to the Association that

customers should be able to check reports for accuracy and completeness

to remove unjustified fears on the part of those customers that business 59

problems had been due to secret bankers' opinions. In support of

paragraph two of the above reply, the records before the Commission

disclose that Nugan Hand Ltd requested copies of bankers' opinions on a

number of occasions.®®

4.6.44 In a diary note dated 19 March 1980 the Singapore office

recorded that Mr G.R. Steer [profile 2.68] called to explain that

following Mr Nugan's death the company's reorganisation had proceeded

satisfactorily. There is the following handwritten note - 'this fellow

has never impressed me' and the final paragraph states:®"*"

Ά grey area exists in our thinking of this company - but having regard to the consistantly [sic] good reports emanating from the Sydney controlling branch, we shall continue a courteous relationship. This needs to be tempered at all times by the knowledge that other Singapore banks and the MAS view them with some degree of suspicion and we need therefore to ensure we are not linked closely with them.' [emphasis added] (Reference to MAS is taken to be a reference to the Singapore Monetary

Authority.)

4.6.45 The standard ANZ Bank report [see 4.6.8 - 4.6.9], subject to the

minor amendments previously described [see 4.6.37, 4.6.39], continued to

be issued as late as January 1980.®***

4.6.46 The Commission raised the question of opinions and other matters

in conference with officers of the ANZ Bank who made the justified

response that Mr McKinnon, the Manager of the Pitt and Hunter Streets

branch, Sydney at the time that the standard reference was adopted by the

Bank, was deceased and moreover, that there were no other officers

continuing in the employ of the Bank with personal knowledge of relevant

events at the time. Accordingly, the Commission's conclusions were

reached without the benefit of such evidence although discussion of these

matters in general conference was of assistance.®^

- 798 -

C o n c lusions a n d R e c o m m e n d a t i o n s

4.6.47 The difficulties faced by the ANZ Bank in providing opinions on

the Nugan Hand Group are well illustrated in the correspondence between

the Bank's London and Sydney offices set out in the above paragraphs.

4.6.48 The reported cases touching upon this subject matter would seem

to indi c a t e that the ANZ Bank in p r e p a r i n g such opini o n s was entitled to

consider o n l y the b o o k s and a c c o u n t s w h i c h form e d the B a n k ' s records in

relation to Nugan Hand Ltd and was not required to make inquiries of

o u t s i d e s ources.®^ Non e of t h e files indicate a n y e xpression of

c o ncern on the p a r t of Bank offi c e r s conce r n i n g the c o nduct of N u g a n Hand

Ltd's accounts. Indeed the only comments made indicate satisfaction with 65 the conduct of the accounts.

4.6.49 No doubt banks often find it difficult to decide precisely where

the line should be drawn when faced with the decision as to what

information should be supplied to third parties concerning the financial

standing and reliability of their customers, especially their major

customers. Should they err in the opinion published they might be liable

for damage caused to the customer's business or reputation as a result,

or alternatively liable to third parties who have relied on the opinion

to their detriment. The policy of the Privacy Committee added to the

problem as is evidenced by the contents of the second paragraph of the

Bank's letter set out at paragraph 4.6.42.

4.6.50 Notwithstanding these considerations, for the reasons stated at

paragraph 4.6.16 the Commission finds that the standard opinion prepared

by the ANZ Bank lacked the desired level of accuracy and appropriateness

of content and, in omitting relevant information such as the company's

profit while including details over and above the Bank's direct or

independent knowledge, went outside acceptable limits. The Commission

recommends that the commissioning Governments after consultation with the

Australian Bankers Association and such other appropriate bodies as the

Government might see fit to consult, by the introduction of legislation

or the implementation of policy, provide directions to be followed by

- 799 -

Banks in issuing opinions in respect of their clients' financial standing

a n d w o r t h w h i c h the y hav e reason to suspect w i l l be relied upo n in that

regard b y t h o s e requesting suc h opinions or those to w h o m such opinions

are to be, or a r e lik e l y to be, directed.

ENDNOTES : PART 4-SECTION 6

(See explanatory note at front of report)

1 CD230 folios 14-15; CD2882 folios 112-13; CD2881 folios 104-05; CD5297 folios 76-78; CD8512 folios 3, 7 2 CD2882 folios 197-98

3 CD2887 folio 102

4 CD2881 folio 100

5 Mr Henry Richmond Graham was a consultant to the Nugan Hand

Group from November 1975 to June 1977. He had been an officer of the ANZ Bank and in that capacity he had become acquainted with Mr K.L. Nugan and through him, his brother Mr F.J. Nugan. On retiring from the ANZ Bank Mr Graham became a director of the

Nugan Fruit Group companies and a consultant to the Nugan Hand Group. He resigned as a result of the Nugan Fruit Group

problems in 1977. 6 CD2882 folio 113

7 CD2881 folio 95

8 CD2881 folio 86

9 CD2875 folios 26-28

10 CD2875 folios 26-28

11 CD69 folios 43-44; CD2875 folios 39-43, 99-103; CD2879

folios 135-36, 140-41; CD2887 folios 5-6, 11-13, 38-39, 50-51, 58-59, 65-68, 75-78, 80-81, 85-87 12 CD69 folios 2-3; CD2879 folio 134; CD2887 folios 37-38 13 CD2887 folio 9

14 CD2887 folio 8

15 CD2887 folio 94

16 CD2887 folios 11-13

17 CD2879 folios 110-11 18 CD2875 folio 30

19 CD2887 folios 76-78, 80-81 20 CD10015 folio 129

21 CD11540

22 CD10252 folios 59-60

23 CT22801, Oollings 23a CD11544

24 CD11313 folios 4-6

25 CT22158, Louey

26 CT22694, Pulger-Frame 27 CT22938, McArthur 28 CT22111, Courtney-Smith 29 CD6277 folios 13-15; CD7798 folios 102-03

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

63 64

65

- 800 -

CD69 folio 56 CT22801, Collings; CD4322 folio 26; CD8623 folio 47 CD1512 folio 45 CD6277 folios 144-45 CD6277 folios 142-43 CD2879 folio 72 CD6702 folio 59 CD10949 CD6702 folio 57 CD69 folio 31 CD69 folio 35 CD69 folio 38 CD4322 folio 11 CD1290 folio 76 CD10262 folio 129 CD6382 folios 106-07 CD4322 folio 3 CD232 folios 1-2 CD7798 folio 103 CD230 folio 14 CD2881 folio 75 CD2879 folios 92-93, 102 CD2866 folios 127-29; CD2875 folio 44 CD2875 folios 39-43 CD2879 folio 45 CD2882 folio 76 CD2875 folios 49-50 CD2875 folios 45-46 CD2875 folios 47-48 CD4322 folio 54 CD2875 folios 31-32; CD2879 folios 47-50, 64-65, 80 CD2880 folio 9 CD2887 folio 15, 26 March 1980; CD2887 folio 20, 18 January 1980 CD11540 Hedley Byrne & Co. Ltd v Heller & Partners Ltd (1964) A.C. 465; The Mutual Life & Citizens' Assurance Company Limited v Evatt

(1970) 122 CLR 628 at p 635 per Lord Diplock CD2870 folio 42; See CD2882 folios 192-93 for the only note of dissatisfaction arising from an incident in May 1976 which seemed to be the result of a misunderstanding.

- 801 -

SECTION 7 : AN UNUSUAL RELATIONSHIP

4.7.1 The relationship between Nugan Hand Ltd (specifically, in this

case, Mr F.J. Nugan and Mr S.K. Hill) on the one hand and Mr L.

Scott-Kemnis [profile 2.64] acting in his capacity as a senior securities

trader for CitiNational Securities Corporation Ltd (as it then was) and

National Discount Corporation Ltd, two well known merchant banks, was a

most unusual one given the standing of these latter two companies. Many

arrangements were entered into by one or other of these merchant banks,

through the agency of Mr Scott-Kemmis, with Nugan Hand Ltd [profile 2.97]

which had no genuine commercial basis at all. In such instances the sole purpose from Nugan Hand Ltd's point of view was to enable claims to be

made as to turnover and volume of securities trading which were false

[see 5.18 to 5.33] and which when included in the published accounts of

that company gave an appearance of size and worth that was totally

misleading.

4.7.2 Without these artificial arrangements designed to create a false

appearance in respect of the size and worth of Nugan Hand Ltd,

Messrs Nugan and Hand [profiles at 2.1 and 2.2] could not have passed off

the company as a merchant bank. Had they not been able to do so then the

subsequent activities of the Nugan Hand Group could not have occurred.

Three essential factors which enabled this passing off to succeed were:

first, the creation of the false appearance in the accounts substantially

by claims based on these artificial arrangements; second, the

availability of an auditor who was prepared to certify such accounts

[see Part 4 Section 5]; and third, bankers' opinions which were obtained

based upon such audited accounts and which were used to such good effect

by Messrs Nugan and Hand [see Part 4 Section 6]. Without the

availability of each of these fundamental props the myth that Nugan Hand

Ltd carried on the functions of a merchant bank and that it was a strong

and growing organisation could never have been established [see 5.16].

4.7.3 The relationship between Nugan Hand Ltd and Mr Scott-Kemmis

started shortly after Nugan Hand Ltd was incorporated in 1973. At

- 802 -

paragraphs 3.2.10-3.2.15 of the Compendium the Commission has reported

how Mr G.R. Young [profile 2.78] who had previously been in charge of the

money market divisions at CitiNational Securities Corporation Ltd

(hereafter referred to as 'CitiNational') and National Discount

Corporation Ltd worked for a short period in the latter months of 1973

for Nugan Hand Ltd in a vain attempt to establish a money market trading

division. Mr S.K. Hill [profile 2,33] had also been an employee of

CitiNational working in a position junior to Mr Young and he followed the

latter to Nugan Hand Ltd about September 1973. One of Mr Young's

subordinates at CitiNational had been Mr Scott-Kemmis and he filled the

position left vacant when Mr Young left CitiNational in January 1973.^

During the short period in late 1973 when Mr Young was attempting to set

up a money market division of Nugan Hand Ltd (although he was not

supplied with any working capital) he dealt with Mr Scott-Kemmis in the 2

comparatively few transactions that he was able to effect.

4.7.4 When Mr Hill resumed his employment with Nugan Hand Ltd in April

1975, almost immediately he entered into arrangements with

Mr Scott-Kemmis which are described at 5.18-5.33, being merely adverted

to in this section, and he continued to enter into such arrangements with

Mr Scott-Kemmis until 1978 when it appears that Mr Scott-Kemmis'

superiors took action to prevent the further continuation of these

practices.^

4.7.5 As is explained at paragraphs 5.25-5.32, on four occasions in

particular Mr Hill and Mr Scott-Kemmis put into effect a plan which the

Commission has termed an artificial 'buy back straddle'. No money

changed hands (or, on some occasions a comparatively small amount) nor

did any securities change hands. The appearance thereby created was that

substantial amounts of money had been paid by the parties in respect of

the purchase or sale of securities. Portion of the plan was carried out

a day or so prior to the balancing date for the Nugan Hand Ltd accounts

while the remaining steps were effected a day or so after the balancing

date. Each followed the same pattern, was done for the same purpose and

achieved the same result (although the resultant appearance thereby

created varied in terms of amounts). Of these arrangements perhaps the

- 803 -

most important from Mr Nugan's point of view was that effected in

relation to the accounts as at 30 June 1975 [see 3.3.23-3.3.36].

4.7.6 Mr Scott-Kemmis agreed, in his evidence to the Commission, that

the sole purpose of these artificial buy back arrangements was to improve

the appearance of the Nugan Hand Ltd accounts. ^ He agreed that these

arrangements were shams.^

4.7.7 Equally important from Mr Nugan's point of view were a further

series of sham arrangements entered into between Mr Hill and

Mr Scott-Kemmis which, once again, involved neither the movement of money

(or, on some occasions, a comparatively small amount of money) nor the

transfer of securities but which were designed merely to give the

appearance that both had occurred and very substantial amounts were

involved. The desired appearance was created by Mr Hill handing

Mr Scott-Kemmis a cheque drawn on Nugan Hand Ltd in favour of either

CitiNational or National Discount Corporation Ltd and taking from

Mr Scott-Kemmis in return a cheque drawn on either of the companies just

mentioned in favour of Nugan Hand Ltd. In describing these transactions

Mr Hill agreed that in essence 'he [Mr Scott-Kemmis] would hand you

[Mr Hill] a cheque, you would hand him a cheque and they would cross each

other out'. ® These cheques were banked the same day so that one would

offset the other.

4.7.8 Three of these arrangements entered into by Mr Hill and

Mr Scott-Kemmis, after Mr Hill returned to Nugan Hand Ltd in April 1975

and before the end of that financial year (30 June 1975), are illustrated

in the following table. The artificial nature of these arrangements

appears clearly from the detail in the table:

Da te

C i t i N ational

c h e q u e to

Nugan H a n d Ltd

N u g a n H a n d L t d

c h e q u e to

C i t i N a t i o n a l

P r o f i t / L o s s

A m o u n t in N u g a n H a n d

L t d Bank A c c o u n t

w h e n its c h e q u e drawn

15.4.75 5 141 900 5 1 4 2 000 (100) 1 0 0 4 . 0 0

18.4.75 4 880 809 4 880 809 Nil 89 6 . 0 0

24.6.75 26 4 2 6 906 26 4 26 906 Nil 5.99

- 804 -

4.7.9 The accounts published on behalf of Nugan Hand Ltd as at 30 June

1975 claimed turnover in respect of securities trading in excess of

£58 million. That claim was based entirely on sham arrangements entered

into between April 1975 and 30 June 1975. Not one dollar of that claim

for that year was genuine. These arrangements continued until 1978. The

claims of massive turnover frequently made by Mr Nugan drew the attention

of financial writers [see 3.1.9-3.1.10] and no doubt achieved for him the

type of publicity that he had in mind when he instructed Mr Hill to enter

into such arrangements with Mr Scott-Kemmis.

4.7.10 Mr Scott-Kemmis agreed that the only reason for these

arrangements was to increase the 'turnover' of Nugan Hand Ltd. ^

Nothing is more conclusive that the arrangements were entirely a sham, as

may be seen from the table above, than the fact that the first

transaction illustrated resulted in a slight loss to Nugan Hand Ltd while

the remaining two contained no profit or loss to either party. It is

clear, of course, why Mr Nugan and Mr Hill were prepared to enter into

these arrangements. This however, leaves unanswered the question of why

Mr Scott-Kemmis should be prepared to enter into such arrangements

particularly where the profit to his employer was nil. Indeed, some of

these arrangements, for reasons not clear, instead of producing a nil or

near nil result as with the examples in the table, actually caused a loss

(albeit comparatively small) to CitiNational or National Discount

Corporation Ltd. Mr Hill, in his evidence to the Commission, said that

Mr Scott-Kemmis was paid for his services in taking part in these

arrangements by Mr Nugan. He described it as 'money under the counter1

and said that in all a sum of some $10 000 to $15 000 had been paid to

Mr Scott-Kemmis.® When this was put to Mr Scott-Kemmis he denied

i t A p a r t from the fact that such arrangements were entered into by

Mr Scott-Kemmis, there is no evidence to support Mr Hill's allegation.

CO - - 4 < T > C J 1 ^ ω ton

- 805 -

ENDNOTES : PART 4 - SECTION 7

(See explanatory note at front of report)

CT24837, Young CT24865, Young CD11497, File received from CitiNational Securities Corporation Ltd CT24396-97, Scott-Kemmis CT244407, Scott-Kemmis

CT25744, Hill CT24409, Scott-Kemmis CT24367, Hill 9 CT24413, Scott-Kemmis

<;

PART FIVE

RECONSTRUCTING THE PUBLISHED ACCOUNTS OF NUGAN HAND LTD : 1974-1979

. .

. - ·

- 809 -

RECONSTRUCTING THE PUBLISHED ACCOUNTS OF KOGAN HAND LTD : 1974-1979

5.1 The purpose of this Part of the Commission's report is to

analyse the published audited accounts of Nugan Hand Ltd [profile 2.97]

from 1974 to 1979 inclusive and to compare the picture painted in those

accounts with the situation that is revealed once the lies and deceptions

have been identified and excluded. It was the content of these published

audited accounts of Nugan Hand Ltd which presented the company as an

active growing merchant bank. It was these same accounts that bankers'

opinions concerning the company were based upon [see 4.6.1-4.6.17]. In

short, these accounts enabled Nugan Hand Ltd to gain acceptance and

credibility as a merchant bank which in turn led to the expansion (and,

indeed, made that expansion possible) of the Nugan Hand Group.

5.2 Messrs F.J. Nugan and M.J. Hand [profiles 2.1 and 2.2]

incorporated Nugan Hand Ltd for the stated purpose of carrying on the

business of a merchant bank. Within the first few months Mr Nugan set

about laying the basis, by making false records and creating the

appearance of capital being paid into the company, for the subsequent

production of false company accounts, certified by Mr G.F. Brincat

[profile 2.9] as auditor, which were published year after year.

5.3 In order to reveal the full extent, so far as this is possible,

of the degree to which the published accounts were false, the Commission

took the view that in addition to relying upon the oral and documentary

evidence concerning the accounts, a tool was required to prise open these

false constructions and, having done that, to then reconstruct a set of

accounts free from deceptions and falsehoods. Accordingly, with the

assistance of a computer program specifically adapted for the purpose,

that reconstruction of those accounts was accomplished and the results

are set out in this Part.

- 810 -

Definition of 'Sham'

5.4 Throughout this report and especially in this Part the

Commission has labelled many arrangements entered into by Messrs Nugan

and Hand and also Mr S.K. Hill [profile 2.33] as 'shams'. While this may

be considered in some contexts to be an overworked word, the Commission

is satisfied that no other word better describes the arrangements so

labelled. This report uses the word 'sham' in the sense that it has been

used in a number of reported cases in which the courts defined the term

as a matter of law.1

5.5 In this report the word is used to describe acts or omissions or

documents executed by the parties involved, which were intended by them

to give to third parties the appearance of creating between the parties

legal rights and obligations different from the actual legal rights and

obligations (if any) which the parties intended to create. An essential

element in arrangements which the Commission has described in the report

as shams was that in each and every case the parties who entered into

those arrangements had a common intention that the acts or documents were

not to create the legal rights and obligations which they gave the

appearance of creating. In other words, these parties entered into the

arrangements knowing them to be false with the intention of creating

facades which concealed their real arrangements.

5.6 The shams identified in this Part took several forms but they

had one factor in common: they were all meant to create a false

appearance on which Mr Nugan could then base specious claims as to

turnover, as to the amount of paid up share capital, as to the

acquisition of high profile assets and as to an impressive volume of

deposits held.

5.7 Where used in this Part, the term 'Nugan Hand Group' includes

the following:

. scheduled companies which are those companies contained in the

terms of reference;

- 811 -

• associated companies which are those companies considered not to

be at arm's length from Nugan Hand Ltd;

. directors of Nugan Hand Ltd;

. certain sundry debtors namely those persons from whom Nugan Hand

Ltd is allegedly entitled to funds because of a transaction that

does not appear to be genuine or at arm's length; and

. certain sundry creditors namely those persons to whom Nugan Hand

Ltd allegedly owes funds because of a transaction that does not

appear to be genuine or at arm's length.

Method of Reconstruction * 2

5.8 The Nugan Hand Ltd general ledger was reconstructed using

information drawn from the following sources;

. bank statements for the 18 Nugan Hand Ltd bank accounts

. bank deposit slips

. cheques

. cash receipts books

. cash payments books

. general ledgers

. audit/accounting work papers

. deposits accepted cards

. commercial bills control cards.

The general journal was not available as it was apparently one of the

casualties in the destruction of documents which took place shortly after

the death of Mr Nugan [described at Part 3 Section 9). Accordingly, it 2 was reconstructed from the actual Nugan Hand Ltd general ledgers.

From the reconstructed ledgers, financial accounts (that is, balance

sheets and profit and loss statements) were drawn up and compared with

those published by Nugan Hand Ltd for the years 1974 to 1979 inclusive.

The published accounts were those lodged annually with the New South

- 812 -

Wales Corporate Affairs Commission as required by the companies

legislation.

5.9 The reconstruction was impeded by:

Lack of documentation

a. Cash kitty system

Mr G. Shaw [profile 2.65] described a system used by Mr Nugan to

effect certain transactions in cash. The records relating to

this cash system (termed 'cash kitty') were not available to

identify those transactions directly relating to Nugan Hand

Ltd. The reconstruction has traced only such transactions as

passed through the company's 18 bank accounts.

b. Overseas bank accounts

Nugan Hand Ltd maintained four bank accounts overseas. The

Nugan Hand Ltd published accounts did not record transactions

appearing in those bank accounts. The reconstructed records do

not reflect these transactions because of lack of available

documentation.

c. Shares in the Nugan Hand Bank

Nugan Hand Ltd's 'shareholding' in the Nugan Hand Bank (Cayman 4

Islands) was not recorded in the Nugan Hand Ltd books. The

'shareholding' was not included in the reconstructed accounts

due to lack of information about the 'acquisition' of the shares

and due to the fact that the capitalisation of the Bank appears

to have been a sham.

Lack of assistance from company personnel

. The persons most directly involved with the daily activities of

Nugan Hand Ltd and the other Nugan Hand Group companies were

Messrs Nugan and Hill. The absence (through death) of Mr Nugan

hindered the reconstruction of the records.

- 813 -

5.10 The above, together with the facts that some relevant

documentation is missing and current information about transactions is

lacking, meant that inevitably, some subjective judgments had to be made

in the light of available evidence.

Subsidiaries

5.11 Nugan Hand Ltd in fact published consolidated accounts for the

period 1974 to 1979. The 30 June 1974 non-consolidated accounts

indicated ownership of three subsidiaries. However by the 30 June

1975 accounts this number had decreased to one subsidiary,® NHN

Nominees Pty Ltd [profile 2.93]. The activities of the three subsidiary

companies were insignificant; therefore in the reconstruction

consolidated accounts were not prepared.

Reconstruction Results

5.12 Restatement: the aim of the reconstruction is to present in this

Part a set of financial accounts free of deceptive schemes, and to

isolate genuine transactions from false ones. The deceptive schemes are

examined in this Part on an individual basis and their effects on the

published accounts quantified where possible.

5.13 Schedule A [5.159] is a comparison of the published profit and

loss accounts on the one hand and reconstructed profit and loss accounts

on the other, revealing that by 31 January 1979 the published 1 retained

earnings' of $224 662 have been recalculated as losses of $8.8 million.

5.14 Schedule B [5.160] is a comparison of the published balance

sheets on the one hand and the reconstructed balance sheets on the other,

revealing that the company was insolvent from its first year of

operations and at all times thereafter.

5.15 Schedule C [5.161] represents diagrammatically the sources and

applications of Nugan Hand Ltd funds for the period 1974 to 1979

inclusive. The major real source of funds to Nugan Hand Ltd was from

- 814 -

depositors ($12.4 million) of which only 53 per cent was ultimately used

to purchase income producing assets. The remainder of the funds were

applied to absorb trading losses of approximately $3.2 million, to

provide loans to the Nugan Hand Group of approximately $1.8 million, and

for the purchase of non-productive fixed assets, including Mr Nugan's

house at Vaucluse [see 5.130-5.131].

The creation of the 'Merchant Bank' myth

5.16 Mr Nugan presented the image of Nugan Hand Ltd as a merchant

bank engaged in bona fide money market operations and he purported to

offer on behalf of that company a wide range of financial and investment 7

advice, as well as financial services. In reality Nugan Hand Ltd was

nothing more than a deposit taking company offering secured and unsecured

facilities. The role of the 'money market division' as such, was solely

to purchase securities to secure deposits. Indeed, the use of the

expression 'money market division' was itself a deception which

contributed to the creation of the myth. However, the principal

deceptions used to create the image were the published accounts which

included sham money market transactions entered into by Mr Hill and Mr L.

Scott-Kemmis [profile 2.64] [see 4.7.1-4.7.10]. These were designed to

give the appearance of an increase in sales volume and turnover figures

and to distort the published balance sheet by inflating the company's

assets and the amount of deposits held.

5.17 These shams are described in this Part under the sub-headings

'same day trades' and 'buy back transactions'. Further shams are

described under the heading 'internal bills of exchange'.

'Sane day trades'

5.18 As the name suggests these transactions comprised the purchase

and sale of the same securities within a trading day and are part and

parcel of the day to day operations of a merchant bank. However, in the

case of Nugan Hand Ltd its alleged 'same day trades' with CitiNational

Securities Corporation Ltd (hereafter referred to as 'CitiNational') and N

- 815 -

National Discount Corporation Ltd (hereafter referred to as 'National

Discount Corporation') depended upon nothing more than arrangements

entered into by Mr Hill and Mr Scott-Kemmis which merely gave the

appearance that such transactions had occurred. The sole purpose was to

provide an apparent basis on which to claim sales volume and turnover

achievements. Turnover in the context of a merchant bank is normally

defined as the value of all money market securities sold during a

specified period, however Mr Nugan distorted this definition by

incorrectly including, inter alia, all bank account movements.8

5.19 The effects of the sham 'same day trades' on the Nugan Hand Ltd

published 'securities trading revenue' are detailed in Table 1.

5.20 Table 1

P E R I O D

E N D E D

R E V E N U E Z ( C O S T )

- S A M E D A Y TR A D E S

3 0 . 6 . 7 4 -

3 0 . 6 . 7 5 1 260

3 1 . 1 . 7 6 1 358

3 1 . 1 . 7 7 (14 100)

3 1 . 1 . 7 8 900

3 1 . 1 . 7 9

TO T A L $ (10 582)

5.21 As the table shows the cost to Nugan Hand Ltd of engaging in

sham 'same day trades' for the years 1975 to 1978 was $10 582. Usually

the result of these arrangements was nil cost to either Nugan Hand Ltd or

CitiNational which indicates the non-commercial nature of such

arrangements. However, on some occasions the cheques which were

exchanged under the arrangement differed, usually only in a small amount,

causing Nugan Hand Ltd to be out of pocket in the amount indicated in

Table 1. The total sales value claimed as a result of these sham 'same

day trades' for the period 1975 to 1978 was $203 195 458. The prime

example of the absurdity of these claims is to be found in the

- 816 -

arrangement relating to 29 June 1976 which resulted in a claim of an

increase in turnover in excess of $100 million. The following will

illustrate the artificial nature of this arrangement.

5.22 Table 2

DATE

C I T I N A T I O N A L

C H E Q U E TO

N U G A N H A N D LTD

N U G A N H A N D LTD

C H E Q U E TO

C I T I N A T I O N A L

P R O F I T / L O S S

B A L A N C E IN NHL BANK

A C C O U N T P R I O R T O

E X C H A N G E OF C H E Q U E S

1 1 * 1

2 9 . 6 . 7 6 100 0 1 0 000 100 0 1 0 000 N M 179 433

This resulted in a nil cost to both parties but accounted for 50 per cent

of Nugan Hand Ltd's published turnover claim for the year ended

31 January 1977.

5.23 All sham 'same day trades' were undertaken with CitiNational and

National Discount Corporation, the actors being Mr Hill and

Mr Scott-Kemmis, commencing from April 1975 when Mr Hill returned to

employment with Nugan Hand Ltd [see 3.3.36, 4.7.7-4.7.8],9 These

transactions continued until 1978 when it appears that CitiNational

refused to engage in any more transactions of this type.^9

5.24 In the reconstruction, these sham 'same day trades' were

eliminated from the turnover figure. The cost factor of $10 582 in

Table 1 was recorded separately in the profit and loss account.

'Buy hack' arrangements

5.25 As with the sham 'same day trades' Mr Hill and Mr Scott-Kemmis

entered into arrangements which merely gave the appearance of a

commercial 'buy back' transaction. Where these sham arrangements

straddled the date on which the Nugan Hand Ltd accounts balanced their

true purpose was obviously to create the false appearance of assets

- 817 -

acquired and deposits held as at the balancing date. Upon the creation

of this appearance were founded gross distortion of the accounts.

5.26 The effects of the 'buy back' transactions on Nugan Hand Ltd

piblished securities trading revenue are illustrated in Table 3.

5.27 Table 3

P E R I O D

E N D E D

R E V E N U E / f C O S T )

ON BUY BACK

30.6.75 12 930

31.1.76 -

31.1.77 (7 4 20)

T O T A L $ 5 510

5.28 Thus, the net revenue gained by Nugan Hand Ltd as a result of

engaging in these sham 'buy back' transactions was 85 510. It follows,

of course, that the cost to CitiNational and/or National Discount

Corporation was in the same amount. This raised the question as to why

either of these two merchant banks should have agreed to be a party to

such an arrangement.

5.29 The 'buy back' arrangement which straddled the 31 January 1976

balance date provides an example of how artificial these arrangements

were. The bare mechanics were as follows. On 29 January 1976

Mr Scott-Kemmis provided Mr Hill with a National Discount Corporation

cheque to Nugan Hand Ltd in the sum of $14 627 844. At the same time

Mr Hill provided Mr Scott-Kemmis with a Nugan Hand Ltd cheque in exactly

the same amount. The cheques were banked the same day. The relevant

Nugan Hand Ltd bank statement records a debit and a credit in the same

amount. The balance in the account was not altered and there was no

movement of money although such an appearance was created in the bank

statement by the debit and credit entries. On 9 February 1976 the same

cheque passing exercise took place except that each cheque on this

- 818 -

occasion was for $14 660 466. Again the cheques were banked the same

day. Again there was no movement of money. There was no profit or loss

to either party which shows the non-commercial nature of the

arrangement. Based upon this mere exchange of cheques, straddling the

balancing date of 31 January 1976, entries were made in the records of

Nugan Hand Ltd purporting to record a bill purchase from National

Discount Corporation on 29 January 1976 and the sale of the same

securities to National Discount Corporation on 9 February 1976. On the

same basis, the published accounts as at 31 January 1976 included among

the assets of the company securities in the sum of $14 627 844 which

increased the published total asset figure by 64 per cent. The same

amount was included in the balance sheet entry 'money market borrowings'

which, of course, increased the deposit base significantly. On this same

basis, in the year ended 31 January 1977 the amount of $14 660 466 was

included in turnover.

5.30 The complete artificiality of the arrangement is again

demonstrated by the nil cost result as illustrated by Table 4.

5.31 Table 4

Interest r e c e i v e d by

N u g a n H a n d L t d f r o m sale

o f s e c u r i t i e s to National

D i s c o u n t C o r p o r a t i o n 32 622

Less

Interest p a i d by N u g a n H a n d Ltd

to National D i s c o u n t C o r p o r a t i o n 32 622

Nil

5.32 In the reconstruction of the accounts these shams were

eliminated.

5.33 A further two money market trades were considered to be only

sham transactions designed to boost turnover. These were organised by

- 819 -

Mr Hill in conjunction with National Discount Corporation in May 1975 and

resulted in revenue to Nugan Hand Ltd and a cost to National Discount

Corporation of $13 Oil. In 1978 the 'buy back1 trades ceased apparently

because of the reluctance of CitiNational to engage in these schemes.^^

Internal bills of exchange

5.34 As has been explained elsewhere [3.3.46-3.3.48] the purported

drawing of such bills [see for example Appendix E] was one of the major

deceptions perpetrated. The bills were worthless because the companies

that were parties to them were unfinancial. They were included in the

balance sheets as genuine bills. Table 5 sets out a comparison between

actual income earned by Nugan Hand Ltd from the purchase and sale of

securities (and includes the cost/revenue factor resulting from the 'same

day trades' and 'buy backs') and the income claimed in the published

accounts. The total actual income of $2 051 392 amounts to only

51 per cent of the published income of $4 025 815. The difference mainly

comprises the 'revenue' claimed to have arisen from internal bills which

accounted for 46 per cent of the total of income claimed in the published

accounts. The actual income amount in column two of the table

($2 056 464) represents the revenue from the sale of those securities

used to secure deposits.

5.35 Table 5

R E C O N S T R U C T E D INC0NE PLUS

P U B L I S H E D

INCOME ENDED S E C U R I T I E S B U Y BACKS T R A D I N G

SAME DAY

T R A D E S

TOTAL INTERNAL INTEREST

B I L L S AD J U S T M E N T

30.6.74 (18 373) - - (18 373) - (18 372)

30.6.75 12 930 1 260 14 190 - 28 582 4 2 7 7 2

31.1.76 54 720 - 1 358 56 078 109 871 33 251 199 200

31.1.77 519 810 (7 420) (14 100) 498 290 468 957 39 239 1 006 486

31.1.78 755 365 - 900 756 265 6 2 3 296 10 110 1 389 671

31.1.79 744 942 - - 744 942 661 116 1 406 058

TOTAL 2 0 56 464 5 510 (10 582) 2 051 392 1 8 6 3 240 111 182 4 025 815

% 5 5 4< 100

- 820 -

5.36 In the Nugan Hand Ltd balance sheets the securities purchased by

Nugan Hand Ltd and lodged with secured depositors were classified as

'commercial bills discounted', 'government treasury notes', 'negotiable

certificates of deposit' and 'government bonds'. For comparative

purposes these classifications have been grouped under the general title

'money market securities'. However in the books of Nugan Hand Ltd these

classifications also included the sham 'buy back straddles' and the

amounts representing the alleged current 'value' of the worthless

internal bills which included notional interest accruing thereon.

5.37 Table 6, by eliminating inter alia these false claims, reveals

the actual value of securities on hand at each balancing date from 1974

to 1979 inclusive. The percentage column gives the percentage the actual

value bears to the published value.

5.38 Table 6

PER I O D

PUBLI S H E D

M O N E Y M A R K E T

S E C U R I T I E S

L E S S

R E C O N S T R U C T I O N %

ENDED INTERNAL

BILLS

B U Y BACKS

A C C R U E D

INTEREST

30. 6 . 7 4 - - - - - -

30. 6 . 7 5 9 8 5 8 455 - S 8 5 8 455 - - -

31.1.76 21 007 002 1 8 1 2 450 14 627 845 49 395 4 517 312 22

31. 1 . 7 7 20 301 416 5 8 1 2 0 0 6 6 9 3 0 300 47 468 7 511 642 37

31.1.78 13 054 411 5 8 4 4 169 - 42 911 7 167 331 55

31. 1 . 7 9 12 444 364 5 9 6 0 712 - 89 511 6 394 141 51

5.39 Table 7 compares the turnover claims in the published accounts

with the amount of turnover appearing from Nugan Hand Ltd records. The

actual turnover figures obtained from reconstruction of the accounts show

the falsity of the published claims. The initials PT refer to published

turnover.

- 821 -

5.40 Table 7

__________________________KiUGAN H A S P LTD____________________ RE.C0NSTRUCTI0N R E D U C T I O N S ____________ R E C O N S T R U C T I O N

P E R I O D

E N D E D

T U R N O V E R

P E R

P U B L I S H E D

A C C O U N T S

T U R N O V E R

PER

R E C O R D S

INTERNAL

BILLS

S A M E DAY

T R A D E S

BUY B A C K S T U R N O V E R

3 0 . 6 . 7 4 PT N O T P U B L I S H E D 2 436 771 - - - 2 436 771

3 0 . 6 . 7 5 PT 188 3 4 2 567 58 159 8 9 9 - 37 8 8 5 189 20 2 7 4 710 NIL

3 1 . 1 . 7 6 PT 136 606 065 2 6 180 521 1 5 0 0 0 0 0 1 916 815 21 183 750 1 579 956

31. 1 . 7 7 PT 2 0 0 0 0 0 000 2 2 5 125 250 6 549 197 152 181 124 21 633 367 44 761 562

3 1 . 1 . 7 8 PT N O T P U B L I S H E D 78 570 500 16 693 3 8 0 11 2 1 2 3 3 0 6 941 572 43 723 218

31.1 . 7 9 PT N O T P U B L I S H E D 53 268 111 10 616 907 - - 42 651 204

TOTAL 4 4 3 741 052 35 359 4 8 4 2 0 3 1 9 5 4 5 8 70 0 3 3 399 135 152 711

100% 8% 46% 16% 30%

5.41 The total 'turnover' for the period 1974 to 1979 extracted from

the Nugan Hand Ltd records was $443 741 052. This figure was obtained

using the standard turnover definition [see 5.18]. As Table 7 indicates,

the reconstructed turnover was 30 per cent of the Nugan Hand Ltd figures.

5.42 The Nugan Hand Ltd 'turnover' was boosted by internal bills

(8 per cent), 'same day trades' (46 per cent) and 'buy backs' (16 per

cent).

5.43 By interposing one or more of the Nugan Hand Group companies

between himself and Nugan Hand Ltd, Mr Nugan took money from Nugan Hand

Ltd to use for his own purposes.

5.44 To disguise this movement entries were made in the company

records purporting to record the drawing and acceptance of bills of

exchange by other Nugan Hand Group companies and the purchase of those

- 822 -

bills by Nugan Hand Ltd. To explain the recording and operation of the

internal bills scheme an example is detailed below using information

obtained from the Nugan Hand Ltd records.

5.45 In the example set out in Table 8 a Nugan Hand Ltd 'client

12

ledger card', dated 29 January 1976, showed that Nugan Hand

International Holdings Pty Ltd ('NHIH') [profile 2.96] had received

$430 140 from Nugan Hand Ltd. To hide this fact the card was rewritten

to include the sham 'purchase' and 'sale' of internal bills.13

5.46 Table 8

R e c o n c i l i a t i o n

$

430 140.00 B a l a n c e p e r original card

Less

Internal bills 'purchased' f r o m N H I H (847 741.80)

(417 601. 8 0 )

Plus

Internal bills 'sold' to N H I H 300 0 0 0 . 0 0

(117 601.80)

Less

P a y m e n t c h a r g e d t o N H I H on 3 0 . 1 . 7 6 2 0 0 0 . 0 0

B a l a n c e per r e w r i t t e n c a r d ($115 601.80)

5.47 As Table 8 indicates, the bogus bill purchases and sales

converted the original card balance of $430 140, which was an asset of

Nugan Hand Ltd, to a liability of $115 601.80.

5.48 The sham 'bill movements' are detailed in l&ble 9. Of five of

these bills 'purchased' by Nugan Hand Ltd from Nugan Hand International

Holdings Pty Ltd ('NHIH'), two were 'sold' resulting in 'revenue' of

- 823 -

$17 419.40. The other three bills were included in the 1 commercial bills

discounted1 figure in the published accounts.

5.49 Table 9

S H A M 'BILL M O V E M E N T S ' A C C O R D I N G T O N U G A N H A N D LTD R E C O R D S

DATE 'PURCHASE' 'SALE' 'REVENUE'

f r o m NHIH to NHIH

t * i

1. 7.75 1 8 8 38 7 . 0 7

25. 7.75 94 193.53

2 0 . 1 1 . 7 5 282 580.60

2 6 . 1 2 . 7 5 200 00 0 . 0 0 11 61 2 . 9 3

2 6 . 1 2 . 7 5 188 38 7 . 0 7

21. 1.76 100 0 0 0 . 0 0 5 80 6 . 4 7

21. 1.76 94 19 3 . 5 3

$847 7 4 1 . 8 0 $300 00 0 . 0 0 $17 41 9 . 4 0

5.50 The sham effects of this scheme from this example were as

follows:

a. The 'securities trading income1 claimed by Nugan Hand Ltd was

inflated by $17 419.40. The interest rates charged on these

bills averaged 12.5 per cent which was significantly higher than

the ruling market rate.

b. The money taken from Nugan Hand Ltd of $430 140 was disguised in

'commercial bills discounted'. In reality this money should

have been treated as a bad debt because Nugan Hand Ltd could not

recover the funds from Nugan Hand International Holdings Pty

Ltd, as that company's major source of funds was Nugan Hand Ltd.

c. Not only did Mr Nugan disguise the money taken from Nugan Hand

Ltd he also increased the value of the 'asset' by 31 per cent to

- 824 -

$565 161.20. This figure was obtained by adding the bill

'purchases' on 20 November 1975, 26 December 1975 and 21 January

1976.

d. The 'money market borrowings' figure was inflated by the amount

of $118 597.97 being the 'deposit' from Nugan Hand International

Holdings Pty Ltd of $115 601.69 plus 'accrued interest' of

$2 996.28.

e. 'Security' was created that could be lodged in the Wing On Bank

safe custody account [see 3.3.39-3.3.41, 4.1.27-4.1.55]. This

meant that Nugan Hand Ltd could release 'external' securities to

secure deposits.

f. 'Turnover1 was boosted by $300 000 being the 'sales' of the

bills.

5.51 During the financial year ending 31 January 1976 internal bills

were introduced to the Nugan Hand Ltd published accounts. There were two

reasons for the introduction of internal bills during this financial

year: first, the Wing On Bank safe custody arrangement [see

3.3.39-3.3.41, 4.1.27-4.1.55] was finalised in July 197514 permitting

Nugan Hand Ltd to lodge 'internal paper' in the account; secondly, there

was a need to disguise approximately $800 000 taken from Nugan Hand Ltd

by 31 January 1976.

5.52 Initially all bill 'movements' were recorded on the Commercial

Bills Control Card"*^ but from January 1976 Mr Brincat maintained

separate sets of cards to record internal bill 'movements' and external

bill movements.

5.53 In the reconstruction, the internal bills were eliminated. The

movement of funds from Nugan Hand Ltd to these companies was treated

simply as moneys owing to Nugan Hand Ltd. In the light of the evidence

that these companies were insolvent and could not repay the moneys owing,

a provision for bad or doubtful debts was created in the reconstruction

to cover all movement of money to the Nugan Hand Group.

- 825 -

5.54 The primary benefit to Mr Nugan of the internal bills scheme was

the concealment of the movement of $5.2 million from Nugan Hand Ltd to

the Nugan Hand Group over the period 1974 to 1979 [see 3.3.47],

5.55 The secondary benefits were as follows:

a. the artificial inflation of 'Securities Trading Income' by

46 per cent during the period 1976 to 1979 as a result of

treating the internal bills as valuable bills of exchange;

b. the inflation of assets shown in the balance sheet by the

inclusion of the internal bills as valuable bills of exchange.

Table 10 shows the percentage of bills of exchange shown in the

balance sheet represented by internal bills. The 1979

percentage would have been considerably higher but for the

events of 24 May 1978 [see 5.56].

Table 10

PERIOD

ENDED

P U B L I S H E D

C O M M E R C I A L BILLS

I N T E R N A L BILL

C O M P O N E N T t

31.1.76 7 353 676 1 81 2 450 25

31.1.77 1 3 396 353 5 8 1 2 006 4 3

31.1.78 10 7 38 351 5 844 169 54

31.1.79 9 1 8 5 205 5 9 6 0 712 65

c. by treating the internal bills as genuine in company records the

effect was to create the appearance of an increase in turnover.

The Events of 24 fey 1978

5.56 By 31 January 1978 internal bills of exchange comprised 54 per

cent of the published 'commercial bills discounted' figure [Table 10].

On or about 24 May 1978 Mr Nugan devised a plan which when put into

- 826 -

effect would cause an apparent reduction in the current 'value1 of the

internal bills of $3.2 million. (No doubt the timing was influenced by

the nearness of 30 June. The company continued to produce audited

accounts as at 30 June each year although the statutory accounts were

balanced as at 31 January each year from 1976 onwards.) On instructions

from Mr Nugan, Mr Brincat by a series of journal entries in the Nugan

Hand Ltd records, removed nine internal bills of exchange drawn on

Yorkville Nominees Pty Ltd [profile 2.108] (hereafter referred to as

'Yorkville Nominees') and substituted the following:

. SIRE Group bills of exchange with a face value of $1 million

[see 5.59],

. Negotiable certificates of deposits purchased v/ith funds from

Nugan Hand (Hong Kong) Ltd [profile 2.94; see 5.63].

5.57 In removing the bills and achieving the reduction of

$3.2 million certain other adjustments were made to various accounts

within the Nugan Hand Ltd records. These adjustments were 'book entries'

designed to help achieve the effects set out in paragraph 5.56. They

have been ignored in the reconstruction.

5.58 Notwithstanding the apparent reduction carried out as at 24 May

1978, by 31 January 1979 internal bills comprised 65 per cent of the

published 'commercial bills discounted' figure. Without the 'Events of

24 May 1978' this percentage would have been much higher.

The SIRE Bills

5.59 These bills of exchange were treated in the records of Nugan

Hand Ltd as internal bills. No attempt was made to negotiate them. For

most of the time they were lodged in the Wing On Bank safe custody

account [see 3.3.39-3.3.41, 4.1.27-4.1.55], When finally presented for

payment by the Wing On Bank they were dishonoured. Litigation by the

Wing On Bank resulted in a complicated settlement. These bills, as such,

may also be regarded as of no value. They arose from a finance facility

- 827 -

agreement between Yorkville Nominees and Secured Income Real Estate

(Australia) Ltd ('SIRE') [profile 2.118] bearing the date 15 January

1976.16a Oi 25 May 1976 Mr J.C. Needham [profile 2.51], the Chairman

of SIRE, sent to Mr Nugan SIRE Group bills with a face value of

$1 million. Mr Nugan made use of these bills in two ways; first as

security lodged in the Wing On Bank safe custody account, and secondly as

part of the plan relating to the events of 24 May 1978.

5.60 The effect of the entries in Nugan Hand Ltd records relating to

24 May 1978 was to treat the SIRE Group bills as having a current value

of $935 562 and as having become the property of Nugan Hand Ltd [see

5.56].

5.61 In the reconstruction the SIRE Group bills have been eliminated

from the accounts for the following reasons:

. The payment of money to the SIRE Group directly traceable from

Nugan Hand Ltd has been recorded as a loan from Nugan Hand Ltd

to SIRE. As with the internal bills of exchange, the

reconstructed accounts have gone behind the facade to establish

the true movement of funds.

. An examination of the available records of Yorkville Nominees

and Mr Nugan showed that there was not a movement of funds to

the SIRE Group sufficient to warrant security of $1 million.18

. On 5 November 1979 when these bills 'matured' Mr Nugan 'removed'

them from the Nugan Hand Ltd records, again by way of a journal

entry.

. There is no evidence of the bills being traded or used as

security other than in the Wing On Bank safe custody account.

5.62 Although the SIRE Group bills were 'removed' from the Nugan Hand

Ltd records on 5 November 1979, SIRE Group bills with a face value of

$600 000 remained in the Wing On Bank safe custody account until

- 828 -

presented for payment at which stage they were dishonoured. These bills

have been the subject of litigation between the Wing On Bank and the SIRE

Group.

Nugan Hand (Hong Kong) Ltd Negotiable Certificates of Deposit

5.63 The misappropriation by Mr Nugan of negotiable certificates of

deposit (hereafter referred to as 'NCDs') having a value of $1.3 million

owned by Nugan Hand (Hong Kong) Ltd is dealt with in detail at paragraphs

4.1.60 to 4.1.67. The subject is briefly alluded to here to record the

effects of that misuse in so far as those effects are significant to

Nugan Hand Ltd. They are as follows:

. the provision of $1.3 million by 31 January 1979 to Nugan Hand

Ltd for use in its activities;

. the 'removal1 of internal bills of exchange drawn on Yorkville

Nominees by the 'Events of 24 May 1978' [see 5.56];

. the 'increase' of paid up capital by the second capital

injection [see 5.98-5.102]; and

. the provision of security for use in the Wing On Bank safe

custody account, the ANZ Bank daylight overdraft facility and to

secure deposits accepted.

5.64 The Nugan Hand Ltd published accounts treated the receipt of the

$1.3 million as an increase in capital ($737 437) and as reducing the

internal (Yorkville Nominees) bills purporting to be held by Nugan Hand

Ltd by the same amount ($589 534).

5.65 The reconstructed accounts recognise Nugan Hand (Hong Kong) Ltd

as the beneficial owner of the NCDs by the raising of a loan account

between Nugan Hand Ltd and Nugan Hand (Hong Kong) Ltd to cover the

$1.3 million taken into Nugan Hand Ltd by Mr Nugan. The interest earned

on these NCDs from date of entry to Nugan Hand Ltd records has been

included as genuine securities trading revenue.

- 829 -

Use of the Short Term Money Market

5.66 From 1975 to 1978 Nugan Hand Ltd funds were placed on deposit

with various merchant banks for short periods to earn interest. In the

published accounts the amount of money on deposit at financial year end

was described as 1 Short Term Loans and Deposits'.

5.67 Table 11 compares the published and reconstructed 'Short Term

Loans and Deposits' figures. The percentage column indicates that

percentage of the Nugan Hand Ltd published figure considered to be a

genuine placement of funds.

5.68 Table 11

P E R I O D

E N D E D

N U G A N HAND L T D

P U B L I S H E D

ί

L O A N S T O

N U G A N H A N D GROUP

$

A C C R U E D

INTER E S T

*

R E C O N S T R U C T E D

$

%

.6.74 1 3 1 9 405 (1 3 1 9 405) - - -

0.6.75 910 514 (621 514) - 2 8 9 000 32

.1.76 1 156 764 (140 477) - 1 0 1 6 287 88

01.1.77 1 4 8 5 000 - 7446 1 492 446 100

3 1 . 1 . 7 8 1 5 2 3 725 100 0 0 0 9200 1 6 3 2 925 107

31. 1 . 7 9 263 725 - - 263 725 100

5.69 In the first two years after incorporation of Nugan Hand Ltd

there were little or no funds available for deposit on the short term

money market, so Mr Nugan, in pursuit of his merchant bank image,

resorted to the deceptive practice of including loans to the Nugan Hand

Group in the accounts classification 'Short Term Loans and Deposits'.

This accounted for the entire amount described in the 1974 published

accounts as 'Money Market Lendings'. The only funds on deposit by

31 January 1979 ($263 725) were those lodged with the Reserve Bank of

Australia in a non-interest bearing deposit.

- 630 -

5.70 The published accounts include interest allegedly receivable

from Nugan Hand companies in respect of Nugan Hand funds which had passed

through such companies. Table 12 compares the reconstructed interest

received figure with that published.

5.71 Table 12

PERIOD E N D E D

N U G A N H A N D LTD

P U B L I S H E D

LESS

NUGAN H A N D GROUP

INTEREST

C O M P O N E N T

P L U S

M I S C E L L A N E O U S

A D J U S T M E N T R E C O N S T R U C T E D

%

30.6.74 5 7 283 54 538 2 745 5

30.6.75 74 040 4 8 0 5 4 25 986 35

31.1.76 5 3 9 4 3 1 3 114 40 8 2 9 76

31.1.77 15 3 396 6 658 16 146 754 96

31.1.78 132 738 440 132 298 100

31.1.79 78 992 208 79 200 100

5.72 The percentage column indicates that percentage of the published

'interest received' amount considered to be genuine.

Use of Round Robins as a deceptive scheme

5.73 The term 'round robin' is commonly used to describe an exchange

of cash between two or more parties occurring almost contemporaneously

and resulting in the cash being returned to the original payer. The

usual aim of such an exercise is to create an appearance on paper

(especially in the relevant bank statements) of moneys having been paid

as though on a commercial basis. Entries are then made in records

consistent with the appearance so created.

5.74 Many round robins were organised by Mr Nugan but in all cases

they were entirely artificial as there were insufficient funds in the

relevant company bank account to cover the cheques drawn (usually the

shortfall was enormous) fsee 3.2.19, 3.2.26, 3.3.27-3.3.29]. The result

- 831 -

was that there was no movement or exchange of money, merely a cheque

passing exercise, the cheques being worthless.

5.75 Mr Nugan used the round robin technique to create certain

appearances in the published accounts. In the reconstruction the parties

to the round robins were identified and the effects eliminated from the

accounts.

Sham Capitalisation of Nugan Hand Ltd

5.76 Table 13 details the alleged shareholding of Nugan Hand Ltd

extracted from documents lodged with the New South Wales Corporate

Affairs Commission.'*'®9

5.77 Table 13

DATE F.J. N U G A N M . J . H A N D J . N E E D H A M B . C A L D E R P . S W A N C . L . N U G A N

S u b s c r i p t i o n

shares 1 1 1 1 1

9 . 7 . 7 3 20 000

1 7 . 8 . 7 3 490 0 0 0 4 9 0 000

25.11.74 (1) 1

10.10.77 4 8 9 997 509 9 9 8

999 998 999 9 9 9 - 1 1 1

On 23 July 1973 five dollars cash was deposited to Nugan

and treated as paid up capital. This money paid for

5.78

Ltd

subscription shares issued according to the details in Table 13.

the

5.79 On 24 July 1973 Mr Nugan 'paid' $20 000 to Nugan Hand Ltd as

capital.20 Nugan Hand Ltd 'repaid' $10 000 to Mr Nugan as a loan on

the same day.21 The source of the balance of the $20 000 is unknown.

- 832 -

A further $9 900 was returned by Nugan Hand Ltd to Mr Nugan on 27 July

1973 leaving $100 cash in the Nugan Hand Ltd bank account from

Mr Nugan.22

5.80 In the reconstruction this transaction was viewed as a scheme to

create the impression that Mr Nugan had 'paid' $20 000 for shares in

Nugan Hand Ltd when in reality only $100 remained in the bank accounts.

5.81 On 17 August 1973 Mr Nugan and Nugan Hand Ltd exchanged cheques

in the sum of $980 000 creating the impression in the Nugan Hand Ltd

records that the $980 000 was received as a capital subscription and that 2 3

the same amount was lent back to Mr Nugan by Nugan Hand Ltd.

5.82 Having thus created the appearance of a loan to Mr Nugan the

next step was to interpose one of the other companies as the 1 debtor1 and

thereby remove the appearance of the loan being to a director (Mr Nugan)

which would have required disclosure in the accounts. Accordingly, on

24 June 1974, P.M. Shelley Pty Ltd [profile 2.100], Mr Nugan and Nugan

Hand Ltd exchanged cheques in the sum of $1 002 000. (The cheque drawn

on the account of Mr Nugan was in the sum of $1 002 012.) There were

virtually no funds in the relevant bank accounts to support these cheques.

5.83 In the records of Nugan Hand Ltd the effect given to this cheque

exchange was to substitute P.M. Shelley Pty Ltd for Mr Nugan as the

debtor for the original loan of $980 000. This overcame the disclosure

problems in the accounts caused by the statutory requirement for separate

disclosure by a company of loans made to a director. In the 30 June 1974

published accounts this 1 debt1 was falsely stated as being secured by

mortgages over real estate.24 In later accounts this debt was

disguised by the use of internal bills.

5.84 On 30 June 1975 P.M. Shelley Pty Ltd 'paid' Nugan Hand Ltd

$700 000 to reduce this debt. The P.M. Shelley Ltd bank statement

indicated that the account was in debit in the amount of

$699 724.45.2^ The Nugan Hand Ltd published 30 June 1975 accounts

reflected the substitution of the P.M. Shelley Pty Ltd debt with

- 833 -

cash1. On 1 July 1975 the bank statement debit was ' repaid1 with a 27

cheque drawn on Yorkville Nominees. Nugan Hand Ltd purported to put

the Yorkville Nominees account in funds by a cheque presented on 1 July

1975 in the sum of $700 000.28

5.85 After the 'payment' by Nugan Hand Ltd to Yorkville Nominees of

$700 000 the indebtedness between these two companies was $841 582.2^

To reduce this balance the first internal bill drawn on Yorkville

Nominees in the sum of $941 935.34 was entered into the Nugan Hand Ltd

records.

5.86 In the reconstruction these round robins were considered to be

shams designed by Mr Nugan to create the appearance of capitalising Nugan

Hand Ltd. The cheque crossing exercises were eliminated from the

reconstruction leaving $105 paid up 'capital' in the company. Although

the $100 was sourced to Mr Nugan' s account, in this instance only it was

not treated as a loan account movement.

5.87 On 25 November 1974 Mr Needham's share was transferred to

Mrs C.L. Nugan to be held in trust for Mr Nugan. The share transfer bore 30 the date 28 June 1974. Mr Needham resigned as a director of Nugan

Hand Ltd on 28 June 1974.88

5.88 Using Nugan Hand Group funds Mr Nugan devised a further sham

arrangement in 1977 to create the appearance of the capital being

increased to $2 million. This was done in two stages involving two

amounts, first $257 700 injected in August and secondly $742 500 injected

in October 1977.

32

5.89 According to the Nugan Hand Ltd cash receipts book on

31 August 1977 Messrs Nugan and Hand contributed $128 850 and $128 650

respectively to Nugan Hand Ltd as capital. By a further entry dated

9 September 1977,88 Mr Hand's contribution was increased by $200 to

$128 850.

- 834 -

5.90 In the case of Mr Hand's contribution the $128 850 represents

funds advanced to him from Yorkville Nominees. Of Mr Nugan' s

contribution $128 650 can also be attributed to funds from Yorkville

Nominees. The balance of $200 represents funds taken from Mr Nugan1s

account.^

5.91 The amount of $257 500, being the $128 650 plus $128 850, was

drawn from a variety of funds in the Yorkville Nominees account, as

follows:37

Source of funds $

Balance in account 4 113

Funds ex Capel Court [see 5.92] 250 000 Funds ex Nugan Hand Ltd 10 000

Funds ex cash 7 800

271 913

Less cheques drawn to Nugan and Hand 257 500

$ 14 413

5.92 The funds ex Capel Court represent a mixture of the

c „ . 38

following:

Source of funds $

Funds ex Nugan Hand Bank 207 911

[see 2.93] Funds ex local external source 49 290

257 201

Less cheques to Capel Court 250 000

$ 7 201

5.93 The funds ex Nugan Hand Bank of $207 911 are payments made from

the Nugan Hand Bank United States dollar account in Hong Kong. From a

mixture of funds in this account two amounts were remitted to Sydney as

follows:

- 835 -

Date Amount

US$ A$

12.8.77 90 000 81 477.46

24.8.77 140 000 126 433.66

$ 230 000 $ 207 911.12

5.94 These amounts were remitted from the Nugan Hand Bank allegedly

on behalf of Baia Do Oriente Limitada. This company has been identified

as a Nugan Hand Group company incorporated in Macau.39 On the copy of

a letter of instruction dated 24 August 1977 to the Wing On Bank,

Mr Hand, a director of the Nugan Hand Bank, issued an instruction to

remit funds (US$50 000 in this instance) from the Nugan Hand Bank United

States dollar account on behalf of Baia Do Oriente Limitada but 'without

mentioning our name'.40 The remittance of $81 477.46 was initially

banked into Nugan Hand Ltd and later transferred to Yorkville Nominees.

5.95 On 3 March and 16 March 1978 Nugan Hand Ltd paid $125 000 and

$90 000 respectively to Yorkville Nominees. Using these funds Yorkville

Nominees remitted $209 485.13 to the Nugan Hand Bank. Ihe US$237 826.31

(A$209 485.13) was placed on deposit allegedly on behalf of Baia do

Oriente Limitada.43

5.96 The effect of these movements of funds was the receipt by Nugan

Hand Ltd of $257 700 from a variety of sources. Six months after this

deposit $209 485 of Nugan Hand Ltd funds were used to repay the Nugan

Hand Bank leaving a net movement of funds to Nugan Hand Ltd of $48 215.

5.97 In the reconstruction all movements of funds between the Nugan

Hand Group and Nugan Hand Ltd were recorded on inter-company loan

accounts. The funds were not considered to represent a capital injection

from Messrs Nugan and Hand.

5.98 The second stage of this so called second capitalisation

involved the deposit of $742 500 to Nugan Hand Ltd on 10 October 1977.

This amount represented $361 350 and $381 150 advanced by Messrs Nugan

- 836 -

42

and Hand respectively. Of the total deposit Nugan Hand Ltd treated

$742 295 as a capital injection and the balance as a loan.

5.99 The source of these funds

of the following

Source of funds

Sale of HK NCD's Cash Balance in account

Less other payments

Less cheques to NHL

was Mr Nugan who drew from a mixture

$

737 437.31 13 000.00 832.28

751 269.59 1 096.20

750 173.39 742 500.00

$ 7 673.39

5.100 The effect of this transaction was to provide $742 500 to Nugan

Hand Ltd for use in its operations. The source of the funds was Nugan

Hand (Hong Kong) Ltd and Mr Nugan.

5.101 The amount of $737 437.31 represents the proceeds of the sale of

NCDs purchased using Nugan Hand (Hong Kong) Ltd funds. This matter is

referred to in paragraph 5.63 of this Part. Less than a month later

Nugan Hand Ltd repurchased these NCDs from CitiNational and treated them

as the property of Nugan Hand L t d . ^

5.102 In the reconstruction this injection of funds was treated as

moneys owing to Nugan Hand (Hong Kong) Ltd and the remaining $5 063 as

moneys owing to Mr Nugan.

5.103 As a result of these movements of funds Mr Nugan was able to

transfer Nugan Hand Group funds to Nugan Hand Ltd for use in its

activities. This funding was not considered to be a genuine capital

injection because of the source of the funds used by Mr Nugan. The only

amount treated as capital deposited to this company was the initial $105

deposited on 23 July 1973.

- 837 -

5.104 Use of Nugan Hand Ltd as a source of funds

5.105 Mr Nugan transferred Nugan Hand Ltd funds to the Nugan Hand

Group [see definition 5.7] for a variety of purposes. These payments

were not disclosed in the accounts as they were disguised by using the

methods of concealment described in paragraphs 5.44 to 5.50 of this Part.

5.106 In the reconstruction this was exposed and the extent of

payments to the Nugan Hand Group established.

5.107 Similarly Mr Nugan transferred Nugan Hand Group funds to Nugan

Hand Ltd to achieve a variety of effects. This movement, the subject of

concealment in the published accounts, was also exposed in the

reconstructed accounts.

5.108 In Table 14 funds movements between Nugan Hand Ltd and the Nugan

Hand Group are tabulated using figures obtained from the reconstructed

accounts.

5.109 Table 14

P E R I O D

E N D E D

P A Y M E N T S TO

N U G A N H A N D GROUP

R E C E I P T S FROM

N U G A N H A N D GROUP

ANNUAL

M O V E M E N T

BALANCE

* $ $ ί

3 0 . 6 . 7 4 2 6 8 949 2 4 7 000 21 949 21 949

3 0 . 6 . 7 5 611 3 8 4 6 0 7 237 (17 802) 4 147

31. 1 . 7 6 8 7 9 598 6 9 9 935 175 516 17 9 663

3 1 . 1 . 7 7 2 982 617 1 1 1 0 896 1 6 9 2 058 1 871 721

3 1 . 1 . 7 8 3 4 6 0 892 2 5 1 2 940 (923 769) 94 7 952

3 1 . 1 . 7 9 5 211 2 9 0 3 3 4 6 357 916 981 1 8 6 4 933

5.110 As shown in Table 14 a net amount of approximately

$1,864 million had moved from Nugan Hand Ltd to the Nugan Hand Group by

- 838 -

31 January 1979. This amount represents the difference between the total

funds paid to the Nugan Hand Group by Nugan Hand Ltd of approximately

£5.211 million and the total funds received by Nugan Hand Ltd from the

Nugan Hand Group of approximately $3,346 million.

5.111 Messrs Nugan and Hand used their companies as conduits to

distance and disguise this movement of money. In the reconstruction the

funds from Nugan Hand Ltd were traced through the conduits to the

ultimate destination where possible. Similarly all funds paid to Nugan

Hand Ltd from the Nugan Hand Group companies were traced to the original

source of funds where possible.

5.112 The u.ses to which the $5,211 million was put included the

following:

A. Acquisition of The Orange Spot group of companies [see 3.5.14-3.5.19]

5.113 Nugan Hand Ltd contributed approximately $1 million to the

acquisition/operation of the Orange Spot Group [profile 2.116]. The bulk

of these funds were moved through Nugan Hand International Holdings Pty

Ltd during the financial year ending 31 January 1979.

B. Nugan Group Griffith [see 3.4.98-3.4.107]

5.114 By 31 January 1979 the traceable net movement of funds from

Nugan Hand Ltd to the Nugan Fruit Group [see profile 2.114] was

approximately $307 000. The funds were moved through various companies

in the Nugan Hand Group before reaching the ultimate recipient so as to

distance Mr Nugan from the misapplication of Nugan Hand Ltd money. In

removing these funds from Nugan Hand Ltd Mr Nugan often employed a

convoluted method of transferring funds. The trace of one such movement

of £50 000 from Nugan Hand Ltd to Nugan (Griffith) Pty Ltd is detailed

below.

- 839 -

Diagram of movement of funds to Nugan (Griffith) Pty Ltd

ILLARANGI

INV E S T M E N T S

P T Y LTD

L E A S E E A S T

PTY LTD

S.L. NOTW I S T

P T Y LTD

MR F.J. N U G A N

N U G A N

(GRIFF I T H )

P T Y L T D

P T Y L T D

5.115 The following is an explanation of the transactions represented

by the numbers used in the above diagram:

14 February 1979 Movements

1: Nugan Hand Ltd paid Nugan Hand International Holdings Pty Ltd 45 $30 000.

2: Nugan Hand International Holdings Pty Ltd paid Illarangi 46

Investments Pty Ltd [profile 2.85] $30 000.

3: Illarangi Investments Pty Ltd paid S.L. Notwist Pty Ltd [profile

2.103] $30 000.47

15 February 1979 Movements

4: S.L. No twist Pty Ltd paid Leasefast Pty Ltd [profile 2.87]

$30 000;48

- 840 -

49

5: Leasefast Pty Ltd paid S.L. Notwist Pty Ltd $30 000; (There

was no documentary evidence to prove the payment from Leasefast

Pty Ltd, but in the light of evidence it appears obvious

Leasefast Pty Ltd returned the funds to S.L. Notwist Pty Ltd.)

6: S.L. Notwist Pty Ltd paid Illarangi Investments Pty Ltd

$30 000;50 *

7: Illarangi Investments Pty Ltd paid Nugan Hand International

Holdings Pty Ltd $30 000;"’" * '

8: Nugan Hand Ltd paid Nugan Hand International Holdings Pty Ltd

$20 000;52

9: Nugan Hand International Holdings Pty Ltd paid $50 000, being 53

the $30 000 plus $20 000 to Mr Nugan;

10: Mr Nugan paid Nugan (Griffith) Pty Ltd $50 000.^

C. Nugan Hand, Inc. (Hawaii)

5.116 By 31 January 1979 Nugan Hand Ltd had paid $532 496 to Nugan

Hand, Inc. (Hawaii) [profile 2.95]. Due to the lack of documentation it

was not possible to fully examine the ultimate destination of these funds.

D. Nugan Hand International Holdings Pty Ltd

5.117 By 31 January 1979 Nugan Hand Ltd had advanced $2 289 015 to

Nugan Hand International Holdings Pty Ltd. Included in this amount was

$473 395 representing a payment in December 1976 through Nugan Hand

International Holdings Pty Ltd to an unidentified destination.

5.118 A further approximate $639 000 consisted predominently of

expense payments. It is not possible to say to which Nugan Hand Group

company the expenses relate.

- 841 -

5.119 By 31 January 1979 Nugan Hand Ltd had 1 received1 approximately

$3,346 million (Table 14) from the Nugan Hand Group. The word 'received1

is used here to cover the situation where Nugan Hand Ltd received cash

from the Nugan Hand Group and also where the Nugan Hand Group paid cash

on behalf of Nugan Hand Ltd.

5.120 Included in the approximate $3,346 million are the following:

A. Funds owed to Nugan Hand (Hong Kong) Ltd

5.121 By 31 January 1979 Nugan Hand Ltd owed Nugan Hand (Hong Kong)

Ltd approximately $1.3 million. This debt arose from the misuse by

Mr Nugan of NCDs purchased using Nugan Hand (Hong Kong) Ltd funds. When

these funds were injected into Nugan Hand Ltd Mr Nugan used them to

achieve two results; first to increase capital [see 5.101] and secondly

to reduce internal bill holdings [see 5.56].

B. Funds owed to the Nugan Hand Bank

5.122 Mr Nugan used funds from the Nugan Hand Bank to pay debts of

Nugan Hand Ltd and in doing so was enabled to achieve two benefits;

first, to keep funds in Australia for use in his activities, and secondly

to create the effect in the Nugan Hand Ltd records of an apparent

reduction in Yorkville Nominees indebtedness to Nugan Hand Ltd which was

then disguised by the internal bills scheme.

5.123 Table 15 shows the extent of Nugan Hand Ltd indebtedness to the

Nugan Hand Bank from 1977 to 1979.^

5.124 Table 15

PE R I O D A M O U N T O W E D TO NHB

ENDED t

31. 1 . 7 7 437 155

3 1 . 1 . 7 8 937 246

31.1.79 1 119 253

- 842 -

5.125 This indebtedness was caused first, by the Nugan Hand Bank

paying money overseas on behalf of Nugan Hand Ltd to certain Hong Kong

depositors of Nugan Hand Ltd, and secondly, by Nugan Hand Ltd collecting

funds in Australia on behalf of the Nugan Hand Bank from clients but

retaining the funds within the company, [see Yorkville contra described

at 8.36-8.38.]

5.126 Mr Nugan used these circumstances to his advantage by claiming

in the records of Nugan Hand Ltd first, that Yorkville Nominees had

'assumed liability' for the debts paid by the Nugan Hand Bank, and

secondly, that the funds deposited in Australia on behalf of the Nugan

Hand Bank were from Yorkville Nominees.

5.127 In the reconstructed accounts all funds paid on behalf of Nugan

Hand Ltd by the Nugan Hand Bank have been treated as moneys owing by

Nugan Hand Ltd to the Nugan Hand Bank.

5.128 In those cases where Mr Nugan had 'transferred' the liability

for certain deposit repayments to Yorkville Nominees and the debt had not

been repaid, the liability to the depositor remained in the Nugan Hand

Ltd reconstructed accounts.

Bad and Doubtful Debts

5.129 No provision at all was made in the Nugan Hand Ltd published

accounts in respect of bad or doubtful debts which were in any event

concealed in the accounts. For reconstruction purposes all funds

movements to the Nugan Hand Group were fully provided for as bad or

doubtful debts. As at 31 January 1979 the provision made totalled

65.2 million.

Acquisition of Mr Nugan's house

5.130 Using his companies as a conduit, Mr Nugan misappropriated a

traceable amount of 6340 958 from Nugan Hand Ltd to acquire a residence

at. Vaucluse.

- 843 -

5.131 In the reconstructed accounts the house was recorded as a fixed

asset of Nugan Hand Ltd and excluded from the Nugan Hand Group loans

classification.

Role of Nugan Hand Ltd as a deposit taker

5.132 Messrs Nugan and Hand used Nugan Hand Ltd as a vehicle to

attract deposits from local and overseas investors. This was achieved by

offering higher than market rates of interest and presenting a strong and 56

credible image through the Nugan Hand Ltd financial statements.

5.133 The only genuine buying and selling of securities occurred when

it was necessary to buy or roll over securities lodged with secured

depositors or for lodgement in the Wing On Bank safe custody account. In

the case of the overseas depositors the security was provided under the

Wing On Bank safe custody arrangements [see 3.3.39-3.3.41,

4.1.27-4.1.55].

5.134 Nugan Hand Ltd attracted deposits from a diverse range of

persons and companies. The composition of the annual reconstructed

'deposits accepted1 figure was analysed and the results detailed in

Table 16. Depositors have been divided into the following six categories

and their percentage contribution to deposits attracted tabulated:

Category Type

1: Australian companies and individuals

2: Overseas companies and individuals

3: Insurance industry

4: Clubs

5: Councils

6: Advertising industry.

- 844 -

5.135 Table 16

P E R I O D

E N D E D

1 2

C A T E G O R Y T Y P E

3 4 5 6

3 0 . 6 . 7 4 100.0

3 0 . 6 . 7 5 99.2 0.8

3 1 . 1 . 7 6 32.0 39.0 14.0 8.0 7.0

31. 1 . 7 7 19.6 31.4 21.0 11.0 12.0 5.0

3 1 . 1 . 7 8 29.0 4 6 . 9 0.1 17.0 6.0 1.0

3 1 . 1 . 7 9 3 6 . 0 4 0 . 8 0.2 17.0 6.0

5.136 In the published accounts, deposits accepted were described as

'money market borrowings'. Table 17 compares the reconstructed 'deposits

accepted' figures with the published 'money market borrowings' figures.

5.137 Table 17

PER I O D

EN D E D

P U B L I S H E D

LESS PLUS

%

L O A N S TO

NHG

BUY

BACKS

F O R E I G N

EXCH A N G E

LOSSES

M I S C E L L ­

A N E O U S

TRAN S F E R

OF

L I A B I L I T I E S

R E C O N ­

S T R U C T E D

ί $ $ ? ί

3 0 . 6 . 7 4 402 577 290 414 - - - - 112 163 28

3 0 . 6 . 7 5 10 395 524 3 4 4 8 7 9 8 5 8 000 - (8 587) - 511 624 5

3 1 . 1 . 7 6 21 4 7 3 432 220 600 14 6 3 3 775 - 3 6 342 - 6 582 715 31

31.1 . 7 7 20 564 0 4 6 286 090 6 900 000 784 009 53 750 - 12 5 4 0 197 61

3 1 . 1 . 7 8 12 401 243 3 9 5 052 - 214 113 54 792 678 800 12 416 086 100

3 1 . 1 . 7 9 11 237 043 549 142 - - 95 774 1 821 866 12 413 993 no

- 845 -

5.138 Table 17 highlights the effects of several deceptive practices

utilized by Mr Nugan to distort the figures in the published accounts.

5.139 Included in the published 'money market borrowings' figures were

loans to the Nugan Hand Group. In 1974 these loans comprised 72 per cent

of the published figure. As external deposits increased, the Nugan Hand

Group loans component decreased, that is those loans were no longer

included.

5.140 In his relentless pursuit of a merchant banking image Mr Nugan

used the services of CitiNational and National Discount Corporation to

engage in sham 'buy back straddles' [described at 5.25 to 5.31], In

using this technique Mr Nugan not only increased his money market

securities figure in the balance sheet, he also increased the money

market borrowings figure in the balance sheet by the amount of the loan

from CitiNational or National Discount Corporation. The effect of this

increase was to present a much stronger deposit base than really

existed. The 'buy back straddles' have been eliminated from the

reconstructed figures. This shows that in 1975, for example, only five

per cent of the published money market borrowings figure represented

genuine deposits.

5.141 The acceptance of overseas deposits carried with it the effects

of foreign exchange fluctuations. The exchange risk for all deposits

received from overseas was borne by Nugan Hand Ltd (and not by the

depositor) so that when the Australian dollar was devalued by 17.5 per

cent on 26 November 1976 Nugan Hand I.td was faced with a potential cost

of $1.1 million. To avoid disclosure of such a loss in the published

accounts Mr Nugan caused an 'agreement' to be drawn up between Nugan Hand

Ltd and Yorkville Nominees which purported to transfer all liability for

exchange losses to Yorkville Nominees. Ibis 'agreement' was ignored in

the reconstruction and all actual gains or losses on repayment of

overseas deposits were included in the reconstruction of the profit and

loss account of Nugan Hand Ltd. Provision was made in the reconstruction

to cover potential foreign exchange losses at the end of each financial

year.

5.142 In 1978 and 1979 Mr Nugan purported to 'transfer' liabilities to

repay certain Nugan Hand Ltd depositors, to Yorkville Nominees. In

- 846 -

reality these deposits had not been repaid so they have been retained in

the reconstructed deposits accepted figures [see 5.122].

5.143 According to Mr Nugan, Nugan Hand Ltd was to reinvest these

deposit funds to earn a higher rate of interest than that paid to the 57 depositors. The published accounts reinforce this claim by

indicating that from 1974 to 1979 Nugan Hand Ltd made a profit of

$807 802 from this activity.

5.144 The reconstructed accounts indicate that from 1974 to 1979 Nugan

Hand Ltd incurred a trading loss of $1.17 million. This meant that the

difference between the interest paid to depositors for the use of their

funds and the interest earned by Nugan Hand Ltd from investing the

deposits was $1.17 million.

5.145 Table 18 compares the published income of Nugan Hand Ltd from

investment of depositors funds and interest paid for use of these funds

with the reconstructed figures.

5.146 Table 18

P E R I O D

ENDED

NHL R E C O N S T R U C T I O N

INCOME INTEREST P R O F I T INCOME INTEREST LOSS

PAID PAID

f f $ $ $ $

3 0 . 6 . 7 4 38 910 29 342 9 568 (15 628) 8 709 (24 337)

3 0 . 6 . 7 5 116 810 101 258 15 552 40 176 4 2 424 (2 248)

31. 1 . 7 6 2 5 3 143 149 016 104 127 96 907 1 0 9 333 (12 426)

31. 1 . 7 7 1 159 882 1 0 6 7 775 92 107 645 044 1 041 957 (396 413)

3 1 . 1 . 7 8 1 522 409 1 2 4 0 8 6 9 281 540 8 8 8 563 1 196 863 (308 300)

3 1 . 1 . 7 9 1 4 8 5 050 1 180 142 3 0 4 908 8 2 4 142 1 2 5 8 204 (434 062)

T O T A L 4 576 204 3 768 4 0 2 807 8 0 2 2 4 7 9 204 3 657 490 (1 177 786)

- 847 -

5.147 The figures in the income column represent the interest received

by Nuaan Hand Ltd first, from their limited securities trading and

secondly, from the placement of funds at call.

5.148 The interest expense represents the interest paid to the

depositors for the use of their funds. The published interest paid

amount can be subdivided into the following categories:

a. interest paid to external depositors, that is arms length

'legitimate' depositors;

b. interest paid to CitiNational as part of a sham money market

transaction; and

3. interest 'paid' to Nugan Hand Group companies.

5.149 In the reconstruction the category (a) interest was entered as a

genuine cost of borrowing. For local depositors the interest payable

calculations shown on the deposits accepted cards were assumed to be

correct. The interest payable to overseas depositors was recalculated

for two reasons: first to record in the reconstructed records the correct

amount of interest payable and second, to calculate the foreign exchange

fluctuations on the interest payable. The category (b) interest was

included in the sham money market transactions. The category (c)

interest was eliminated from the reconstructed 'interest paid' figure

because the 'deposits' accepted from the Nugan Hand Group companies were

not genuine deposits.

5.150 Assuming Mr Nugan ever intended to make a genuine profit from

accepting deposits and reinvesting them, then several factors weighed

heavily against him. These included the following:

. the need to pay higher than market rates of interest to attract

and maintain deposits;

the cost of the Wing On Bank guarantee arrangements;

- 848 -

. the cost of meeting the foreign exchange fluctuations;

• the cost of the withholding tax paid by Nugan Hand Ltd;

. the cost of any secret commissions paid to secure deposits; and

. the cost of the Reserve Bank of Australia requirement to lodge a

proportion of overseas funds in a non-interest bearing deposit

[see 5.69],

5.151 Inflation of income schemes

5.152 The published accounts for the years 1974 to 1979 claimed as

revenue 'fees received1. An analysis of this figure showed that it

comprised three items: office expenses reimbursed, fees relating to

Yorkville Nominees; and fees relating to external parties.

5.153 The 'office expenses reimbursed' represented a claim by Nugan

Hand Ltd on other companies in the Nugan Hand Group for 'office expenses'

allegedly incurred by Nugan Hand Ltd on behalf of those companies.

Mr Hill said that the falsification of the accounts took a number of

forms including the creation of paper 'management expenses' which were

shown as income to Nugan Hand Ltd."’® The Nugan Hand Ltd records do not

provide full details as to which office expenses were the subject of

reimbursement. The auditors' working papers do not provide any evidence

of vouching work undertaken by Mr Brincat in respect of these expenses.

5.154 The item 'office expenses reimbursed' has been eliminated in the

reconstruction.

5.155 Nugan Hand Ltd claimed as revenue 'fees' due from Yorkville

Nominees. These 'fees' fall into the same category as 'office expenses

reimbursed', being a device utilised by Mr Nugan to boost Nugan Hand Ltd

revenue to present a more healthy picture of the company's activities.

The records do not indicate the nature of the 'service provided' by Nugan

Hand Ltd to Yorkville Nominees and the audit working papers do not

- 849 -

provide any evidence to suggest that Mr Brincat examined these 'fees' as

to content and nature. The absurdity of this claim is increased by the

fact that Mr Nugan controlled both companies. In the reconstruction this

item has been eliminated.

5.156 Included in the 'fees received' were funds received from parties

external to the Nugan Hand Group. These funds represented first, money

deposited in Australia for repayment overseas [see 8.36-8.40 for details

of the Yorkville contra] and secondly funds deposited to Nugan Hand Ltd

and repaid by another company in the Nugan Hand Group or by Mr Nugan. In

the reconstruction these items were eliminated from revenue.

5.157 For comparison purposes the published 'fees received' figures

have been classified as sundry income and compared with the reconstructed

sundry income in Table 19. The percentage column indicates that

proportion of the published figure considered to be genuine sundry income.

5.158 Table 19

P E R I O D

E N D E D

P U B L I S H E D

S U N D R Y INCOME

R E C O N S T R U C T E D

S U N D R Y INCOME

%

3 0 . 6 . 7 4 55 300 48 300 87

3 0 . 6 . 7 5 76 189 82 -

3 1 . 1 . 7 6 3 9 561 87 -

31.1.77 4 6 9 853 19 965 4

3 1 . 1 . 7 8 167 785 175 413 105

31.1.79 4 4 2 208 97 915 22

TO T A L $ 1 250 896 $ 341 762 27

- 850 -

5.159 SCHEDULE A

N U G A N H A N D L I M I T E D

P R O F I T - L O S S A C C O U N T S S U M M A R Y 1974 - 1979

C O M P A R I S O N OF P U B L I S H E D A N D R E C O N S T R U C T E D A C C O U N T S

P E R I O D ENDED: 3 0 J U N E 1 9 7 4 30 J U N E 1975

NHL RECON. NHL RECON.

INCOME

R e f e r e n c e

♦ t 1 $

S e c u r i t i e s T r a d i n g

S a m e Day Tr a d e s

Buy Back

Inte r e s t - F u n d s a t Call

S u n d r y Income

5.16

5.18

5.25

5.66

5.152

(18 373)

57 283

55 300

(18 373)

2 745

4 8 300

42 770

74 040

76 189

1 260

12 930

25 986

82

94 210 32 672 192 9 9 9 40 258

Less

- I n t e r e s t E x p e n s e 5.148 2 9 342 8 709 101 258 42 424

GROSS T R A D I N G P R O F I T / f L O S S ) : 64 868 23 963 91 741 (2 166)

Less

- Doubt f u l Debts

- F o r e i g n Exch a n g e Loss

- O p e r a t i n g Expe n s e s

5.129

5.141

44 634

2 6 8 949

40 963 51 301

342 435

168 932

N E T PROFIT/(LOSS): 20 234 (285 949) 40 440 (513 533)

Less

- C o m p a n y Tax 9 611 18 198 9 126

N E T P R O F I T / t L O S S ) A F T E R TAX: 10 623 (285 949) 22 242 (522 659)

Less

- P r i o r P e r i o d A d j u s t m e n t s

- A p p r o p r i a t i o n s 5 500

(385)

12 997

5 123 (285 949) 9 630 (522 659)

Plus

- R e t a i n e d E a r n i n g s b/fwd

(acc u m u l a t e d losses)

5 123 (285 949)

R E T A I N E D EARN I N G S C/FWD: 5 123 (285 949) 14 753 (808 608)

851

31 J A N U A R Y 1976 31 J A N U A R Y 1977 31 J A N U A R Y 1978 31 J A N U A R Y 1979

NHL RECON. NHL RECON. NHL RECON. NHL RECON.

$ ? ? ί ? ? $ t

99 200 54 720 1 0 0 6 4 8 6 519 810 1 3 8 9 671 755 365 1 4 0 6 058 744 942

1 358 (14 100) 900

(7 420)

5 3 943 40 8 2 9 153 3 9 6 146 754 132 738 1 3 2 298 78 992 79 200

39 561 87 4 6 9 8 5 3 19 965 167 785 175 413 442 208 97 915

292 704 96 994 1 629 7 3 5 665 0 0 9 1 690 194 1 0 6 3 976 1 927 258 922 057

149 016 109 333 1 067 775 1 041 957 1 240 8 6 9 1 1 9 6 863 1 180 142 1 2 5 8 204

143 688 (12 339) 561 9 6 0 (376 948) 4 4 9 325 (132 887) 747 116 (336 147)

268 214 2 103 019 478 275 1 750 398

46 712 861 356

6 2 343 8 5 1 8 2 476 576 4 6 0 400 342 005 3 6 4 165 623 702 623 304

81 3 4 5 (412 447) 85 3 8 4 (3 801 723) 1 0 7 320 (975 327) 123 414 (2 709 849)

34 572 4 660 36 2 8 8 12 625 44 0 9 0 2 2 036 56 770 51 274

46 773 (417 107) 49 0 9 6 (3 814 348) 63 230 (997 363) 6 6 644 (2 761 123)

561 (16 793) 5 757 (25 692)

12 000 32 473 8 650

47 334 (417 107) 53 8 8 9 (3 814 348) 25 000 (997 363) 83 686 (2 761 123)

14 753 (808 608) 62 0 8 7 (1 2 2 5 715) 115 976 (5 040 063) 140 976 (6 037 426)

62 0 8 7 (1 2 2 5 715) 115 976 (5 040 063) 140 976 (6 0 3 7 426) 2 2 4 662 (8 798 549)

- 852 -

5.160 SCHEDULE B

N IJ G A N H H P L I M I T E D

B A L A N C E S H E E T S 1 9 7 4 - 1979

C O M P A R I S O N OF P U B L I S H E D A N D R E C O N S T R U C T E D A C C O U N T S

B A L A N C E S H E E T DATE: 30 J U N E 1974 30 J U N E 1975

NHL RECON. NHL RECON.

$ $ $ $

R e f e r e n c e

SHAR E H O L D E R S ' F U N D S

Iss u e d & P a i d Up Capital 5.76 1 0 0 0 0 0 5 105 1 000 0 0 5 105

Capital Pro f i t s R e s e r v e 7 3 571

R e t a i n e d E a r n i n g s 5 1 2 3 (285 949) 14 7 5 3 (808 608)

1 0 0 5 128 (285 844) 1 088 329 (808 503)

R E P R E S E N T E D BY:

ASS E T S :

C a s h On H a n d 8 A t Rank 1 0 2 885 176 246 708 293 11 0 7 3

M o n e y M a r k e t S e c u r i t i e s

S u n d r y D e b t o r s

5.68 9 8 5 8 455

F u n d s on D e p o s i t 5.66 1 319 4 0 5 910 514 289 000

N H G - L o a n s 5.104 351 268 949 40 369 611 384

Less Doub t f u l Debts 5 . 1 2 9 (268 949) (611 384)

F i x e d A s s e t s ί I n v e s tments 5.131 3 145 4 024 2 818 13 590

1 4 2 5 786 180 270 11 520 449 313 6 6 3

L E S S L I A B I L I T I E S

Rank O v e r d r a f t 105 451 1 705

D e p o s i t s A c c e p t e d 5.137 4 0 2 577 1 1 2 1 6 3 10 395 524 511 624

N H G - L o a n s 5 . 1 1 9 1 470 247 000 5 598 607 237

S u n d r y C r e d i t o r s

P r o v i s i o n s

1 500 1 500 1 600 1 600

- T a x a t i o n 9 611 18 198

- D i v i d e n d s

- F o r e x F l u c t u a t i o n s 5.141

5 500 11 200

4 2 0 6 58 4 6 6 114 10 4 3 2 120 1 1 2 2 166

N E T A S S E T S 1 0 0 5 128 (285 844) 1 088 329 (808 503)

853

31 J A N U A R Y 1 9 7 6

NHL RECON.

$ ί

1 0 0 0 0 0 5 105

73 571

62 087 (1 2 2 5 715)

1 135 663 (1 2 2 5 610)

31 J A N U A R Y 1977

NHL________ RECON.

* $

1 O O O 0 0 5 105

73 571

115 976 (5 040 063)

1 189 552 (5 039 958)

31 J A N U A R Y 1978

NHL RECON.

ί $

2 0 0 0 O O O 105

85 044

1 4 0 976 (6 0 3 7 426)

2 226 0 2 0 (6 037 321)

31 J A N U A R Y 1979

NHL RECON.

$ $

2 OOO OOO 105

85 044

224 662 (8 798 550)

2 309 706 (8 798 445)

509 500 511 0 7 7 5 944 41 921 15 080 15 643 114 036 117 131

21 007 0 0 2 4 517 312 20 301 416 7 511 642 13 054 411 7 167 331 12 444 364 6 394 141

35 OOO 43 4 3 9 7 446 46 306 18 239 42 911 797 500 89 511

1 156 764 1 016 287 1 485 OOO 1 492 446 1 523 725 1 632 925 263 725 263 725

879 598 2 982 617 3 4 6 0 892 5 211 290

(879 598) (2 982 617) (3 460 892) (5 211 290)

6 468 17 237 39 107 391 116 152 522 404 468 17-1 200 426 028

22 714 734 6 105 352 21 8 3 8 913 9 483 431 14 763 977 9 263 278 13 793 825 7 290 536

2 679 284

21 473 432 6 582 715 20 564 046 12 540 197 12 401 243 12 4 1 6 086 11 237 043 12 413 993

45 192 699 935 17 398 1 n o 896 27 098 2 512 940 169 747 3 346 357

14 225 1 600 19 629 2 OOO 44 526 4 388 11 909 4 647

34 572 36 288 44 090 56 770

11 650

46 712

12 OOO

867 617

21 O O O

367 185

8 650

323 700

21 5 7 9 071 7 330* 962 20 6 4 9 361 14 523 389 12 537 957 15 3 0 0 599 11 484 119 16 088 981

1 135 663 (1 225 610) 1 189 552 (5 0 3 9 958) 2 226 020 (6 037 321) 2 309 706 (8 798 445)

- 854 -

5.161 SCHEDULE C

N U G A N H A N D L I M I T E D

S O U R C E S A N D A P P L I C A T I O N S O F F U N D S

P R E P A R E D F R O M THE R E C O N S T R U C T E D A C C O U N T S

F O R T H E P E R I O D 1974 T O 1979

S O U R C E S $ 1 2 4 1 8 745

P A I D UP

C A P I T A L

$105

D E P O S I T O R S

LO C A L & O V E R S E A S

$12 413 993

S U N D R Y

C R E D I T O R S

$4 647

NHL

BANK

A C C O U N T S

$ 4 2 6 028

F I X E D A S S E T S *

$6 483 652

M O N E Y MARKET

S E C U R I T I E S

$3 263 560

T R A D I N G LOSSES

s I--------------

$ 1 1 6 847

FUNDS W I T H A

BANK

$1 8 6 4 933

_________^

$263 725

F U N D S OUT T O

NHG

X

7 FUNDS ON

DEP O S I T

A P P L I C A T I O N S $ 1 2 418 745

- 855 -

ENDNOTES : PART 5

(See explanatory note at front of report)

1 See Northumberland Insurance Co. Ltd (in lig) v. Alexander

(1984) 2 ACLC 363 and the cases cited therein, in particular, Snook v. London West Ridinq Investments Ltd (1967) Q.B. 786 at p.8U2 2 CD11518

3 CT23301, Pollard; CD6509 folio 378 4 CT23303, Pollard

5 GDI0015 folio 113

6 CD10015 folio 143

7 GDI0015 folio 130

8 CD4701 folio 33

9 CT25740, CT25744, Hill; CD6147 10 CD11497

11 CD11947

12 CD4144

13 CD9018

14 CD7711 folio 38

15 CD3744 folios 1-2

16 CD3742; CD3545

16a CD34 Part 2 folio 313

17 CD3221 folio 21

18 CD11528

18a CD10015 folios 12,86,88,95,101 19 CD3794 folio 1

20 CD5545 folio 13

21 CD5545 folio 19; CD3802 folio 1

22 CD4055 folio 47

23 CD3794 folio 1; CD5545 folio 19

24 CD10015 folio 111

25 CDS610 folio 216

26 CD10015 folio 162

27 CD5509 folio 26

28 CD4160 folio 28

29 CD9018

30 CD3736 folio 21

31 CD10015 folio 89

32 CD4140 folio 28

33 CD4140 folio 31

34 CD11328 folios 48,51 35 CD11328 folio 41

36 CD11328 folio 44

37 CD3991 folio 90; CD3569 folio 18; CD3994 folio 19 38 CD11328 folio 26; CD3569 folio 18 39 CT22714, Pulger-Frame; CD10823 40 CD6767 folio 24, Correspondence file, emphasis as in the Nugan

Hand Bank letter 41 CD11328 folios 58-61 42 CD4140 folio 33

43 CD11328 folios 85,87-88

44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

- 856 -

CD11328 folios 101,105 CD3568 folio 32 CD3571 folio 46 CD3573 folio 13 CD5602 CD10184; CD4052 folio 16 CD3573 folio 35 CD3573 folio 13 CD3568 folio 32 CD3571 folio 46 CD3567 CD11476 CT16223, CT16229, Hill CT24240, Yates CT21848, Hill

PART SIX

ALLEGATIONS OF COMPLICITY IN DRUG DEALINGS

- J

j

·" ■ · ' : ·

-859-

ALLEGATIONS OF COMPLICITY IN DRUG DEALINGS

S c o p e o f R e f e r e n c e

6.1 Allegations that the Nugan Hand Group participated in the

illegal drug trade were rife in Australia from 1977 onwards. The

allegations seem to have started about the time the New South Wales

Corporate Affairs Commission commenced a Special Investigation under the

Companies Act 1961 (NSW) in 1977 into the Nugan Fruit Group

[profile 2.114] based in Griffith and controlled by Mr K.L. Nugan,

[profile 2.52] the brother of Mr F.J. Nugan, [profile 2.1]. This

investigation was probably the major cause of the allegations. More

bizarre allegations were made by persons such as Mr Andrew Wellington

Lowe, Mr Graham Beith, and Mr Neil Evans [profile 2.21]. As to these

allegations the Commission is satisfied that they have no foundation and

that the evidence of these three persons is not credible.

6.2 As to the a l l e g ations of d r u g tra f f i c k i n g in Australia, these

h a v e b e e n the s ubject o f i n q u i r y b y the W o o d w a r d R oyal Commission and by

a p o l i c e J o i n t Ta s k F o r c e set u p o n the recomme n d a t i o n of that Commission

to look into the allegations. The concl u s i o n of both, as will appear

f r o m the fo l l o w i n g paragraphs, w a s that the allegations were not correct

except to the extent that dru g funds w e r e b e i n g deposited w i t h Yorkville

N o m i n e e s P t y Ltd [profile 2.108] a n d Mars R o a d Investments P t y Ltd

[profile 2.88] from tim e to time. The C ommission agrees with this

conclusion. A part f r o m some evidence, largely from Mr G.T. Shaw

[profile 2.65], which is revi e w e d later in this Part [commencing 6.21],

there is no additional evid e n c e to be considered. The Commission is

s a t isfied that Mr Nugan a n d Mr M . J . H a n d [profile 2.2] were prepared to

acc e p t ca s h deposits t h rough t h e s e c o m panies regardless of their source

a n d that n o questions w o u l d b e a s k e d c oncerning the s o u r c e . The precise

e x t e n t of their k n o wledge a n d that of Mr Sha w is considered in the

following paragraphs. Apart f r o m a c o m p a ratively small number of

depo s i t s w h i c h ha v e b e e n i dentified as being drug moneys, the evidence

-860-

does not p e r m i t a n y a s s e s s m e n t to b e mad e as to w h a t propo r t i o n o f the

total c a s h m o n e y s dep o s i t e d w i t h Yo r k v i l l e Nomi n e e s and Mars R o a d

Investments w e r e drug funds.

6.3 The Hon. Mr Justice Woodward, then a Judge of the Supreme Court

of New South Wales (since retired), in his 'Further Report of the Royal

Commission into Drug Trafficking' dated May 1980 commented:'*'

'It is not m y function nor is it m y intention to investigate

her e the g e neral busi n e s s a c t i v i t i e s o f N u g a n Han d or of its

officers. N o doubt, the Co r p o r a t e A f fairs C o m m i s s i o n wil l in

d u e cour s e report on that. M y sole concern is to determine

w h e t h e r the co m p a n y or a n y of its officers we r e in a n y w a y

co n c e r n e d in drug t r a f f i c k i n g . '

In that inquiry his Honour heard evidence from a number of alleged drug 2 traffickers. He also heard the evidence of Mr S.K. Hill [profile

2.33] and Mr Hand. Having heard such evidence Mr Justice Woodward formed

the view that without a full scale investigation of the Group's affairs

he could not fairly conclude that the Nugan Hand Group or any of its

officers had actively participated in illegal or improper activities

connected with drug trafficking. However his Honour reported:^

Ί a m c e r t a i n l y of the v i e w that there has bee n sufficient

evidence put befo r e m e to r aise serious misgi v i n g s as to the

g roup's involvement w i t h cr i m i n a l s and to justify a full inquiry

into its af f a i r s a n d the p a r t s p l a y e d therein b y N u g a n a n d H a n d . '

6.4 In its report to governments relating to the activities of

Terrence John Clark and his associates, this Commission found there was

evidence that a number of institutions including NUgan Hand Ltd [profile

2.97] were used to transfer money on behalf of members of the Clark

organisation. The Commission reported that the purpose of transferring

the funds appeared always to have been to make money available in a 4

different s tate or c o u n t r y w h i l e conce a l i n g its illicit source. The

Commi s s i o n h o wever took the vie w that the terms of reference p r e cluded it

fr o m m a k i n g a detai l e d i nvestigation into the a ctivities and procedures

of the N ugan Han d G r o u p in Sydney, o ther parts of Australia and o v e r s e a s .

-861-

6.5- As previously stated, [1.1.1] on 28 March 1983 the Governments

of the Commonwealth of Australia and of New South Wales issued Letters

Patent to the Commission extending its terms of reference to include the

making of wide ranging inquiries into the Nugan Hand Group. The full

text of those terms of reference is reproduced at Appendix A. The

Commission's interpretation of the terms of reference and their scope are

explained in detail at paragraphs 1.2.1 to 1.2.36 of this report.

Amongst other things the Commission's terms of reference specifically

require it to inquire:

. whether the Nugan Hand Group engaged in activities involving

contravention of laws of the Commonwealth or New South Wales

relating to drugs;

. if so, the extent and nature of those activities; and

. whether in the course of such activities, the Nugan Hand Group

used, was used by, or cooperated with any person, organisation

or body.

6.6 In conducting its inquiry the Commission has observed the

direction contained in the terms of reference that it 'have regard to'

any reports made by the Commonwealth-New South Wales Joint Task Force on

Drug Trafficking ('Joint Task Force'), the Corporate Affairs Commission

of New South Wales ('Corporate Affairs Commission') and persons holding

office as liquidator of any of the companies nominated in the schedules

to the letters Patent under an appointment made by the Supreme Court of

New South Wales.

6.7 The investigation conducted by the the Joint Task Force included

an inquiry into the alleged drug-related activities of

Mr Harry Wainwright, Mr Murray Stewart Riley, Nugan Hand Ltd and its

associated companies. Its findings are contained in a four volume report

which was presented to the Governments of the Commonwealth and New South

Wales between January 1982 and March 1983. Volume One relates to the

activities of Messrs Riley and Wainwright and their dealings with the

-862-

Nugan Hand group of companies. Volume Two relates to the Nugan Hand

Group and its dealings with known or suspected drug trafficking groups.

Volume Three contains an assessment of information gathered on Mr Riley's

associates but not referred to in Volume One. Volume Four relates to the

alleged involvement of United States citizens in the international

expansion of the Nugan Hand Group. As to the association between the

Nugan Hand Group and certain known or reputed drug traffickers the Joint 5 Task Force reported:

'The first known transactions between the Nugan Hand group of companies and known or reputed drug traffickers occurred in Sydney in 1975 and appear to have developed from two distinctly separate sources within the companies. On the one hand, there was what for convenience will be called the "Michael Hand" drug clients who comprised of what might be loosely described as the

"Riley" group. Though it appears that the initial introductions were made to Frank Nugan, it was Hand who controlled the

transactions during the "drug" period. On the other hand, there were the George Shaw clients, who comprised of a number of

individuals and groups of largely unrelated traffickers. In addition to these, there was also found a connection with the "Mr. Asia" syndicate. This appears to have been a "one off" use of the facilities of Nugan Hand in March-April 1979 to transfer money overseas. It involved Shaw, Nugan, Hand, and the Sydney solicitor John Aston and his Managing Law Clerk, Brian

Alexander.'

6.8 The delegates of the Corporate Affairs Commission on the other

hand, in seeking not to duplicate the investigation then being conducted

by the Joint Task Force did not inquire into the alleged drug

associations of the Nugan Hand Group but merely reported 'material

thought to establish links between Nugan Hand and drug traffickers' which

came to notice during the course of their investigation. Nevertheless

they reported:6

'The delegates do not asse r t that Nugan Han d a c t i v e l y p u rsued

the d r u g t r a f ficking industry for business although in the case

o f Mr. Han d this is a possibility. However it seems unlikely

that the executives w e r e compl e t e l y unaware of the activities of

ce r t a i n c l ients assoc i a t e d w i t h d r u g t r a f f i c k i n g . '

6.9 The Commission has considered, in addition to the sworn evidence

of witnesses, statements, records of interviews and other documents

obtained by the Joint Task Force and the Corporate Affairs Commission

-863-

from a number of people not s u b j e c t e d to e x a m i nation b y this Commission.

In some instances such p e rsons h a v e since die d or dis a p p e a r e d but in

o t h e r c ases the d e c i s i o n not to call th e m b e f o r e the Commi s s i o n t o give

s w o r n e v i d e n c e , w a s t a k e n h a v i n g regard to time constraints and

a s s e ssments o f the s i gnificance of such information to the Commission's

inquiries.

N a t u r e a n d E x t e n t of the All e g a t i o n s

6.10 Apart f r o m the l i mited i n q u i r y into the drug related activities

of the N u g a n H a n d g roup of companies con d u c t e d b y Mr Justice Wood w a r d and

the inquiries c o n ducted b y the Cor p o r a t e A f f a i r s Commi s s i o n and the Joint

Task Force, there has b e e n a goo d deal o f investigative journalism

b r o u g h t to bear on the allegations wit h the result that the alleged

a c t i v i t i e s of the N u g a n Hand G r o u p ha v e e ngendered considerable public

inte r e s t a n d speculation.

6.11 T hese a l l e gations are numerous a n d frequ e n t l y repetitive but

the y all fall w i t h i n the following general c a t e g o r i e s :

a. Tha t the N ugan Ha n d G r o u p w a s involved in the importation and

d i s tribution o f narcotics.

b. Th a t the Nugan Han d G r o u p w a s a financier of drug smuggling

o p erations in Australia.^

c. Th a t the N u g a n H a n d G r o u p prov i d e d services to persons

a s s o c i a t e d w i t h the dru g t rade including:

. a c ceptance of depos i t s of m oney obtained fro m drug

trafficking;

. the p r o v i s i o n of an o n y m i t y a n d secrecy in relation to their

deposits; and

. funds de p o s i t e d w i t h the N u g a n Han d G r o u p in Australia

c ould be m a d e a v a ilable overseas.

-864-

6.12 In the pages that follow the Commission has reviewed the

evidence relevant to these allegations under the following headings:

- A n d r e w W e l l i n g t o n Lowe

- T h e R i l e y g r o u p

- George S h a w a n d his clients

- T h e 'Mr Asia' a n d other drug syndicates

- The Thail a n d Offi c e

R e v i e w o f the Evidence

A n d r e w W e l l i n g t o n Lowe

6.13 Mr Andrew Wellington Lowe was born in Sydney on

16 September 1943. He was interviewed by members of the Joint Task Force

and gave evidence to the delegates of the Corporate Affairs Commission in

their Special Investigation into the affairs of the Nugan Hand group of

companies. He also gave evidence to this Commission on 26 May 1983 and

3 June 1983.

6.14 In the Commission's Interim Report No. 1, presented to

Governments in October 1983, Mr Lowe was referred to as 'Mr B'. At that

time he was awaiting trial on serious drug offences and his name was not

published in order to avoid any possibility of thereby prejudicing his

trial. He has since been convicted and sentenced to 17 years hard labour

with a minimum term of 11 years.® In that report Mr Lowe was

identified by the Commission as the sole source of allegations that

certain politicians had interfered with the investigation of the Nugan

Hand Group by the then Federal Narcotics Bureau. Such allegations were g

found on the evidence to be completely without foundation.

6.15 Mr Lowe's evidence to the Commission covered matters not limited

to the terms of reference which were the subject of Interim Report

No. 1. It included allegations that Mr Hand and Mr Nugan were

trafficking in heroin on a grand scale. Mr Lowe agreed he had passed

information to a member of the then Federal Narcotics Bureau that Messrs

-865-

Ffugan and Hand were 'bigger than anything you have ever seen here in the

heroin game'. Mr Lowe said he told the Bureau Messrs Nugan and Hand did

not actually handle the heroin but were financiers. Mr Lowe also told

the Commission of a visit to Sydney of an alleged leading drug trafficker

from the 'Golden Triangle', one Khun Sa. He said Mr Hand and Khun Sa met

in the Botanical Gardens opposite 55 Macquarie Street, Sydney and

discussed a planned importation of 500 pounds of heroin into America via

Australia from Bangkok. Mr Lowe said it was at this meeting he heard

Mr Hand tell Khun Sa how '... in Vietnam, he [Hand] used to smuggle

heroin from [sic] the bodies of dead GI's.' " * ■ * ■ *

6.16 While there is independent evidence before the Commission which

suggests Mr Lowe did pass the above information to the Federal Narcotics

Bureau, there is no evidence supporting or tending to support the

veracity of the information so passed. In the Commission's first Interim

Report his evidence about these matters was shown to be totally

discredited and without foundation.1" * ' No reliance at all can be placed

on any evidence given by Mr Lowe unless that evidence is objectively

corroborated.

6.17 Mr Lowe also gave evidence relating to Mr Shaw and his clients

and such evidence is reviewed at 6.29 to 6.34.

The Riley Group * 1 2

6.18 Mr Justice Woodward's Royal Commission into Drug Trafficking

conducted a limited inve s t i g a t i o n of an alleged association between the

'Riley group' and the Nugan H a n d g r o u p o f companies. As a result of that

12

i n v e s t igation his Honour reported:

'Despite the suspicions w h i c h I entertain concerning Nugan

Hand ' s activities, a n d the nat u r e of its assistance to Parkin

and Wainwright, I think that w i t h o u t a full scale investigation

of the group's affairs I c o u l d not fairly conclude that it or

a n y of its officers had activ e l y partic i p a t e d in illegal and

improper a ctivities co n n e c t e d wi t h drug trafficking. I was not

in a p o s i t i o n to c a r r y o u t such an investigation in v i e w of the

then c u rrent Corporate Af f a i r s Commission investigation and the

pre s s u r e s of time in a limited C ommission such as mine. I am

-866-

certainly of the view that there has been sufficient evidence put before me to raise serious misgivings as to the group's involvement with criminals and to justify a full inquiry into its affairs and the parts played therein by Nugan and Hand.'

6.19 The Joint Task Force subsequently conducted extensive inquiries

and reported its findings."*"'* Of Mr Nugan1 s association with the 'Riley 14

group' the Joint Task Force reported:

'All the circumstances suggest that at the time of their [a reference to Wainwright and Riley] dealings with Nugan Hand, Nugan knew they had "black" money and were doing "something wrong", But ΓΕ cannot Be taken beyond that. There is no

evidence to suggest that he [Nugan] knew any of the details of their transactions with Nugan Hand .. Γ1 [emphasis added]

Of Mr Hand's association with the 'Riley group' the Joint Task Force

reported :"*""’

'Briefly, it seems highly probable that Hand knew Riley and Wainwright were involved in drug trafficking and that their requests for use of the Nugan Hand facilities for the movement of money were in furtherance of that activity. And knowing

this, Hand assisted them not only by freely offering the use of those facilities, but indeed encouraging that use. At the same time, it is unlikely that Hand was directly involved in the drug activities of the "Riley" group or even knew specific details of those activities.' [emphasis added]

6.20 No further inquiries are suggested or implied by these

findings. There is no evidence before the Commission which would warrant

any further inquiry into these particular allegations which have already

been the subject of such extensive examination by the Joint Task Force.

Most of the members of the 'Riley group' were gaoled following their

convictions on charges relating to the importation of buddha sticks

aboard the vessel 'Anoa'.

George Sha w and his Clients

6.21 The allegations relating to Mr G.T.

clients were investigated by the Joint Task

the Commission has made in this regard have

Shaw [profile 2.65] and his

Force. The inquiries which

generally confirmed much of

-867-

what has been reported. However the Commission has elicited additional

information from Mr Shaw. That evidence is reviewed in the paragraphs

that follow.

6.22 Mr Shaw gave evidence to the Commission on a number of

occasions. He told the Commission he was employed by the Nugan Hand

Group in April 1974 on a commission basis to buy and sell silver bullion

and in 1975 became a salaried employee of Nugan Hand Ltd. Towards the

end of that year the bullion business declined and on Mr Nugan1 s

instructions he attempted to gather deposits for Nugan Hand Ltd.

6.23 In e v i d e n c e to the C o m m i s s i o n Mr S h a w i dentified a list of

clients'*·*’ in his h a n d w r i t i n g b e i n g c lients w h o deposited cash with

eit h e r Y o r k v i l l e Nomin e e s or Mar s Ro a d Investments. These included

c l i e n t s w h o s e deposits Mr S h a w either knew or s u s pected wer e the proceeds

of d r u g trafficking.*"^

6.24 Mr Shaw said the deposits of these cash clients were

acknowledged by the issue of a deposit acceptance document on behalf of

Yorkville Nominees and a copy of that document was retained in the

company's records. The accounts for these clients were from 1978 onwards

recorded in a blue book described by Mr Shaw as ' off-ledger'. Prior to

that time, such records were maintained in a lever arch file by Mr S.K.

Hill [profile 2.33]. Mr Shaw caused this record to go each month to

Mr Nugan for checking. Mr Shaw said the transactions of all of his

clients were recorded in that book which was accessible to Mr Nugan,

Mr Hill and any other senior executive.*"® Mr Shaw placed the cash in

the safe at the Group's office at 55 Macquarie Street, Sydney within a

day or so of its receipt. If there was an accumulation of cash it would

be deposited to the account of Yorkville Nominees or Mars Road

Investments and a cheque issued to either Nugan Hand Ltd or Nugan Hand

International Holdings Pty Ltd [profile 2.96], as directed by Mr Nugan. 19 The clients w e r e not a w a r e o f this.

6.25 Mr Sha w de s c r i b e d the cas h deposits as 'black money' w h i c h he

u n d e r s t o o d t o refer to 'money th a t was not being declared' for taxation

-868-

purposes. He d i d not k n o w the sou r c e of the 'black money' but said it

c ould be 'obtained in m a n y dif f e r e n t w a y s ’ such as gamb l i n g and the

removal of cash fro m the till w i t h o u t d e c laring it as taxable i n c o m e .

Mr S h a w sai d he u nderstood he w a s a s s i s t i n g the ca s h clients to conceal

funds f r o m the Commissioner of Taxation. In addition Mr Sh a w offered

cash c l ients the advan t a g e s of anonymity, the receipt o f interest in cash

and the p a y m e n t of funds overseas. As to the latter Mr Sha w said h e told

his c l ients 'if ever the occa s i o n arises th e y ne e d assistance in that

regard w e w o u l d p r o b a b l y h e l p t h e m . ' This facil i t y w a s offered to

20

clients who deposited by cheque as well as cash clients.

21

6.26 One of the clients whose name appears on Mr Shaw's list of

22

cash clients was interviewed b y the Joint Task Force on 19 March 1981

23 ·

and on 5 July 1983 by the Commission's investigators. This client

said he met Mr Lowe in 1974 and by mid 1975 was selling heroin for him.

The association continued until January 1976 and in that period the

client had accumulated $24 500 from the sale of heroin. He was

introduced to Mr Shaw by Mr Lowe and subsequently deposited this amount

with Yorkville Nominees. He claimed that in January 1976 he deposited a

further $20 000 cash, the proceeds of heroin sales, through Mr Shaw.

Available records however indicate this may have been a smaller amount of

less than $12 000 deposited over three dates during January 1976. This

client maintained that Mr Shaw asked him to recruit other people 'in the

business' (which the Commission understands to be a reference to the drug

trade) for the Nugan Hand Group. He said he mentioned this to several

persons who were drug sellers and believed that at least two of these

persons24 made use of the company's facilities. The client became

addicted to heroin in 1976 and during that year withdrew almost all of

the money he had invested. He was a regular visitor to the Nugan Hand

Group offices. He made about twenty visits in all and dealt mainly with

Mr Shaw. He said on occasions when Mr Shaw was absent, Mr A.H. Wong

[profile 2.74] handled the transactions on Mr Shaw's instructions.

6.27 Mr Shaw told the Commission Mr Lowe took the client to his

(Shaw's) home at Coogee one evening and introduced him as a potential

depositor. Mr Shaw discussed with the client, the deposit arrangements

-869-

but said he could not recall if the client told him the nature of his

business on that occasion. He agreed the whole purpose of the exercise

was to attract people with 'black money' and to assure them that their

anonymity would be preserved. When a person with 'black money' made a

deposit Mr Shaw would not ask the source of such money. Ί suppose you

could say that I closed a blind eye'. According to Mr Shaw, the

client was a depositor for only a short time. He made one deposit of

$24 500 and withdrew it over a period of months. Mr Shaw said he only

saw the client at the office about half a dozen t i m e s . M r Shaw said

he became aware there was a strong possibility this client was involved

in drug trafficking but he may have been told this by other people. He

did not have any doubt at the time he gave evidence to the Commission

that the client's money was the proceeds of drug trafficking. Mr Shaw

was quite happy to take deposits from cash clients even though they were

drug traffickers. He was anxious to build up a deposit base and 'may not 27

have asked the questions' he should have asked.

6.28 A section of that client's record of interview''® with the

Commission's investigators was shown to Mr Shaw. In that interview the

client stated he had commented in conversation with Mr Shaw how easy it

was to make money by pushing drugs. Mr Shaw denied there was any truth

in this allegation. Mr Shaw was then directed to the following

question and answer from the same record of interview:

'Q. Do you consider that Shaw knew you we r e t r a f ficking in drugs and that the money you had deposited in the bank was the proceeds of such sales?

A. D e f i n i t e l y . '

Mr Shaw responded that he could not recall a conversation in which the

client told him the money had come from drugs. Mr Shaw said he became

aware of the client's background and that he was a drug addict after

their first or second meeting.®®

6.29 Mr L o w e gav e evidence to the C o m m i s s i o n relevant to Mr S h a w and

his clients. In his evidence Mr Lowe referred to the introduction of

over s e a s C h inese to the N u g a n H a n d Group. He said they were heroin

-870-

dealers who were receiving around $30 000-$40 000, which were the

proceeds of heroin sales. Mr Lowe said these people were in Australia

'on a visa, they had no visible means of support, and it would look

strange if they were to carry large sums of money back home on the

plane', It was Mr Lowe's function to seek a more secure way for them to

remit the money and accordingly he introduced them to the Nugan Hand

Group. He claimed Mr Shaw had told him the moneys could be remitted

overseas within 24 hours. On each occasion he took the overseas Chinese

to the Nugan Hand Group offices, he saw Mr Shaw and acted as

interpreter. Mr Lowe, said there were occasions when either Mr Nugan or 31 Mr Hand saw him with Mr Shaw.

6.30 Mr Lowe told the Commission he also introduced other drug

dealers to 'the bank' whom he described as 'Australians who used to deal

with me.' He expressed the view that Mr Shaw 'had a very good idea' he

was dealing in heroin and therefore he believed it would not have taken

lonq for Mr Nugan or Mr Hand to find out about it, either by Mr Shaw

32

telling them or as a result of their own observations.

6.31 Mr Shaw informed the Commission he met Mr Lowe in 1974. For a

short period Mr Lowe worked as an independent contractor to the Nugan ■ 33

Hand Group in connection with the marketing of silver bullion.

Mr Shaw told Mr Lowe, on Mr Nugan's instructions, that he would receive a

commission if he introduced clients to the Nugan Hand Group. The

commission varied from one quarter to one per cent of the deposit per 34

annum depending on the term of the deposit.

6.32 Mr Shaw said he vaguely recalled a meeting at his office in

Macquarie Street with Mr Lowe and some Chinese gentlemen. He thought

they wished to invest money in Australia and to transmit it through the

Nugan Hand Group office in Thailand or Hong Kong. He could not recall

whether the funds were coming into or going out of Australia. Nor could

he recall the source of the funds or the use to which they were to be

put."^ Mr Shaw was then referred to the following extract from an

interview between Mr Lowe and officers from the Joint Task Force

conducted and recorded on 14 April 1981:"^

-871-

'Q. Was Shaw aware of the source

transferred to Hong Kong? of the money to be

A. Yes ...

Q. Did you tell Shaw this money would

sale of drugs?

be the proceeds of the

A. Yes.'

37

Mr Shaw responded ' I do not recollect that conversation.1 He said he

first became aware Mr Lowe was a drug user and trafficker in 1976 or 1977

when Mr Lowe was arrested.^®

6.33 Mr Shaw was also referred to that part of Mr Lowe's record of

interview in which Mr Lowe alleged Mr Shaw had introduced Mr Lowe to one

of his cousins^ and that the reason for the introduction was to enable

Mr Lowe to transact business in relation to a shipment of hashish.

Mr Shaw agreed he had introduced Mr Lowe to that relative but said he was

not privy to their discussions. Asked if he recalled whether they

discussed any matters relating to drug trafficking Mr Shaw said Ί would

not know, I do not recall that.' Mr Shaw told the Commission he had

never discussed the importation of hashish concealed in heavy machinery

(which was an allegation made by Mr Lowe in the record of interview) with

Mr Lowe or anybody else. He did however suspect that his cousin may have

been involved in the area of 'soft drugs' as he thought he smoked

marijuana and mixed with friends who smoked marijuana.^ Asked whether

he knew his cousin was involved in drug trafficking, Mr Shaw said he had

his suspicions about his cousin's activities. Later when again asked 41

this question, Mr Shaw replied Ί must admit that.'

42

6.34 In his record of interview with the Joint Task Force Mr Lowe

also said:

'George Shaw told me if I knew anyone else involved in drugs who wanted their money handled and transferred to any part of the world to bring them in also.'

This allegation was put to Mr Shaw. He agreed he had asked Mr Lowe to

introduce clients to the Nugan Hand Group but otherwise denied the

allegation.^

-872-

44

6.35 Another client whose name appears in Mr Shaw's list as a

cash client [see 6.23] was interviewed by the Joint Task Force on

45

27 February 1981. This client admitted being involved in the

distribution of drugs from 1972 to 1980. He claimed he was a

professional photographer and was introduced to Mr Shaw who wanted some

family photographs taken. The client said he was advised by Mr Shaw that

depositors with the Nugan Hand Group were afforded secrecy and that

facilities were available for the transfer of funds overseas. The client

claimed he initially deposited $10 000 cash with the Nugan Hand Group in

early 1975 and continued to deal with the Group until its collapse in

1980. In all he claimed to have deposited a total of $20 000, $10 000 of

which he lost when Nugan Hand Ltd collapsed. However the evidence

suggests this client's initial deposit was $32 000 in May 1976 and in all

he deposited $96 150 between that date and February 1980.48 According

to this client at least half of the money he deposited was the proceeds

of drug sales. He claimed all his transactions were handled u Mr Shaw

except on a few occasions when Mr Shaw was absent. On those occasions he

was attended by Mr Wong.

6.36 Mr S h a w informed the Commi s s i o n h e was introduced to this client

47

b y his cousin. There a f t e r he said a close business relationship

d e v eloped b e t w e e n h i m (Mr Shaw) a n d this client. Mr Sha w said the client

w a n t e d to purchase a b u i l d i n g in Balmain. He had about $30 000-$32 000

in cash and was seeking advice as to how he might raise the balance of

the purchase price. This client also had 'taxation problems' and in that

regard Mr Shaw referred him to Mr A. Lee48 [profile 2.37]. Mr Shaw was

shown Commission Document 5984, a deposit acceptance slip dated 30 July

1976 bearing this client's name and showing Mr Shaw's residential address

as that of the client. Mr Shaw agreed the writing on the deposit slip

was his but he c o u l d not recall w r i t i n g it. He said he w a s surprised to

see the document and could give no reason as to why his address appeared 49 therein.

6.37 Following the arrest of this client on drug charges Mr Shaw said

he became aware of the client's involvement in drug trafficking.

Thereafter he had no doubt the money was coming from drug sources.

-873-

However Mr Shaw said he could not recall being aware of the client's

involvement with drugs at the time of their introduction and that from

what he had been told he formed the view this client used and was

trafficking in marijuana. Mr Shaw agreed this client had continued to

make cash deposits subsequent to the date of his arrest on drug

offences.50 Mr Shaw also agreed he had guaranteed a bank loan which

the client had obtained through the Bank of New South Wales. Mr Shaw

said the loan related to his client's photography business which had a

'cash flow' problem. The amount of the loan was between $2 000-$4 000.

Mr Shaw said the Nugan Hand Group was holding sufficient funds on the

client's behalf to cover the loan but he was unable to explain why the 51

client did not simply draw on these funds.

52 53

6.38 This client introduced yet another client whose name

also appears in Mr Shaw's list of cash clients [see 6.23]. The second

client Mr Shaw knew as a user of drugs but he said it was not until some

months after the client became a depositor that he became aware the

client was also a drug trafficker. Mr Shaw received deposits from this

client and made repayments to him on many occasions over a considerable

period. Mr Shaw recalled the initial deposit was $10 000 and said that

all moneys deposited and withdrawn by the client were cash transactions.

As to why this client deposited such moneys, Mr Shaw said 'the client

obviously did not want to declare his funds and I gave him the best means

of avoiding' his taxation liability.54

55

6.39 A deposit acceptance form in this client's name showed

Mr Shaw's private address as that of his client. Mr Shaw could give no

reason for this other than to say that the client came from Canberra and

had no permanent address at that time. Mr Shaw agreed however that in

other similar cases he had recorded addresses as care of Nugan Hand

Ltd.56

6.40 Mr Shaw gave evidence relating to another client57 whose name

appears in his list of cash clients [see 6.23]. This client was arrested

and charged with an offence relating to drug trafficking but was

subsequently acquitted. Mr Shaw said he first became aware of the

-874-

allegation that this client was involved in drug trafficking at the time

of his arrest. In March 1980 the client's wife contacted Mr Shaw seeking

the withdrawal of $50 000 for the purpose of obtaining her husband's

release on bail. Mr Shaw sought the approval of Mr Hand to withdraw the

money but was told there were no funds available in Yorkville Nominees.

According to Mr Shaw he then asked Mr M.J. Moloney [profile 2.48] to

release the funds but again to no avail. Mr Shaw recalled that the

client had originally deposited $80 000 and believed that, prior to his

arrest, he had withdrawn $20 000-$24 000.^®

59

6.41 Mr Lee said that on one occasion he had seen a person at the

premises at 55 Macquarie Street coming out of Mr Shaw's office and he had

recognised this person as one who had been gaoled previously in relation

to a drug offence. Only a few weeks prior to that Mr Nugan had sent a

memorandum to all staff stating he wanted nothing to do with anyone who

was involved with gambling or drugs. Mr Lee said he asked Mr Shaw what

that person was doing in the office and Mr Shaw replied he was a regular

customer depositing money. Mr Lee informed Mr Shaw that his client had

been in gaol on drug charges and that Mr Shaw should 'get him out' in

seven days or he (Mr Lee) would tell Mr Nugan. Seven days later Mr Lee

spoke to Mr Shaw and found the client was still a customer so he told

Mr Nugan. According to Mr Lee, Mr Nugan called Mr Shaw to his office and

'roasted the daylights out of him' in Mr Lee's presence. Mr Lee heard

Mr Nugan say Ί told you before we do not want any of these sorts of

people around here ...'.^

6.42 Mr Lee was asked what caused Mr Nugan to issue the memorandum to

the staff. He said that Mr Nugan had said the company had been accused

of being involved in the drug scene. According to Mr Lee this was the

only conversation he had with Mr Nugan in which the subject of drugs was

mentioned. The only conversations he had with Mr Shaw about drugs were

the two occasions referred to in paragraph 6.41. Mr Lee said he had no

reason to suspect that anyone employed by the Nugan Hand Group or

Mr Nugan was involved in any way with drugs.^ Mr Shaw gave evidence

relating to this incident. He told the Commission of an occasion when

Mr Nugan informed him that one of his clients had been arrested and

-875-

char ged with drug offences. According to Mr Shaw, Mr Nugan appeared to

be upset and said words to the effect:62

'We don't want to have any more clients like this in this

organisation. I want you to desist from soliciting funds from people with this background.'

Asked whether he had discussed with Mr Nugan that he had clients who were

involved in drug trafficking Mr Shaw responded:

'No.... i mean, I would not bring it up as blatantly as all

that, obviously he was aware we had clients who were involved in drugs and things of this nature, it was left unsaid but he was fully aware of this type of client __

Mr Shaw said he relied upon Mr Nugan to arrange for the identity of these

depositors to be lost in a maze of corporate manoeuvres and for the

interest to be paid in such a way that the Taxation Department would not

know about it. Mr Shaw said he did not care where the money came from

and Mr Nugan gave no indication that he cared.64

6.43 Mr Shaw said he could only draw a conclusion that Mr Hill knew

about his drug clients because if he (Mr Shaw) was not available when

these clients came to make deposits or withdrawals, they would

automatically see Mr Hill.68 Mr Hill told the Commission:66

' ... after Frank Nugan went to Canberra he had a discussion

with George Shaw and apparently a number of George Shaw's clients were known as drug dealers ...'

6.44 Mr Wong gave evidence to the Commission inconsistent with that

of Mr Shaw. He told the Commission that on three or four occasions he

attended to clients of Mr Shaw in Mr Shaw's absence and on each occasion

Mr Shaw left Mr Wong with instructions. Mr Wong said he recalled the

names of two of Mr Shaw's clients.6^ _

6.45 Mr Shaw told the Commission Mr Hand was also aware that deposits

were being received from drug traffickers. When asked whether he

personally advised Mr Hand this was the case, Mr Shaw responded:68

-876-

' ... I would not make a special effort to bring it to his

attention, but it is only a matter of time before all these

situations start to materialize and it is very easy to pick the situation up. I mean, he was aware that obviously there was a lot of cash coining in, and where was it coming from? He was not naive in that respect.1

In considering evidence of the state of Mr Hand's knowledge it is

important to bear in mind that Mr Hand was absent from Australia from

December 1974 until approximately March 1976 and that in October 1976 he

left Australia and thereafter, so far as is relevant, resided in either

Hong Kong or Singapore making only occasional visits to Australia after

his departure in October 1976.

6.46 Mr Moloney gave evidence to the Commission in relation to

Mr Shaw's clients. Mr Moloney said he first met Mr Shaw prior to

Mr Nugan's death and at that time knew nothing adverse about him. He

understood Mr Shaw to be a public relations man for the Nugan Hand

Group. During the first week after Mr Nugan's death, Mr Moloney recalled

there were discussions at board meetings about Mr Shaw's clients but it

was not suggested that those clients were involved in illegal activity or 69 drug trafficking. According to Mr Moloney investigators of the Joint

Task Force informed him of the allegations linking the Nugan Hand Group

and Mr Shaw with drug traffickers. He said he had asked Mr Shaw on

numerous occasions whether his clients were involved in drugs but Mr Shaw

always categorically denied such involvement. Mr Moloney said Mr Shaw

would claim to know the client personally and say there was no

possibility the client was involved with drugs. At the time he gave

evidence to the Commission on this subject, Mr Moloney said he 'now

believed' Mr Shaw took in money from people that he knew were involved in

drugs and that he took in money and was party to transactions knowing 7(i

that they were in some way drug related.

6.47 Following Mr Nugan's death, Mr Moloney advised Mr Hand that no • 71

repayments should be made on behalf of Yorkville Nominees.

Mr Moloney said Mr Shaw showed signs of being extremely upset apparently

because of this instruction. He was 'most agitated' that his clients 72

would not be repaid immediately if they called for their money.

-877-

Mr Moloney observed that while Mr Shaw paid lip service to the

instruction it seemed he could juggle funds to suit himself. He would

claim that a depositor in Yorkville Nominees was in fact a depositor in

Mars Road Investments. On 30 January 1980, Mr Shaw was requested by

Messrs Hand and Moloney to prepare a list of Yorkville Nominees and Mars 73

Road Investments depositors with the assistance of Mr Wong . This

list proved not to be comprehensive as over the next few weeks Mr Shaw

sought repayments of deposits for clients whose names did not appear on ,, ,. , 73a

the list.

6.48 Mr Moloney informed the Commission of an occasion when Mr Shaw

sought from him authorisation to withdraw $50 000 for a client who had

been arrested on charges relating to the importation of marijuana.

Mr Shaw had said to Mr Moloney he knew the client personally and somebody

was trying to set him up. According to Mr Moloney the client had

74

deposits of about $100 000. Mr Moloney identified the client by name

but there is no doubt on the evidence that he was mistaken and that the 75

client was in fact a person other than the one he identified.

6.49 Mr Hill gave evidence to the Commission on 16, 19 and

27 September 1983 relating to Mr Shaw's clients. Mr Hill said when

Mr Shaw commenced employment with the Nugan Hand Group, Mr Nugan

instructed him to find clients who had taxation or legal problems.

Mr Nugan had said he would help such people solve those problems at no

cost if they became depositors with the Nugan Hand Group. Mr Hill

recalled hearing Mr Nugan so instruct Mr Shaw on a number of occasions.

Mr Hill said up to about 1977 Mr Shaw's transactions were recorded in the

records of Yorkville Nominees and the majority of them would have been by

cheque. Those deposits went from Yorkville Nominees to Nugan Hand Ltd

and then into the money market. The money was returned to depositors by

way of cheque and Yorkville Nominees was reimbursed. After about 1977,

Mr Shaw's clients deposited in cash.^ According to Mr Hill, Mr Shaw

was very reluctant to divulge names or details of his clients, or to keep 77 any record of their transactions.

6.50 Mr Hill told the Commission of Mr Nugan's visit to Mr Harvey

Bates, the Director of the then Federal Narcotics Bureau in Canberra on

-878-

14 February 1978.78 Mr Nugan had been informed by Mr R.A. Pulger-Frame

[profile 2.59] in Hong Kong that the Group was suspected by the Bureau of

having dealings with drug traffickers. It was this information that

caused him to go to see the Bureau's head in Canberra. On instructions

from Mr Nugan, Mr Hill prepared a list of all the Nugan Hand Group

depositors. The list was a four or five page document containing some 79 150 to 200 names. Mr Hill said sometime before this, Mr Nugan told

him (Mr Hill) that he (Mr Nugan) was going to see Mr Bates to determine

whether any Nugan Hand Ltd clients were drug dealers. According to

Mr Hill, Mr Nugan was very concerned that he was getting a reputation of

being involved in drug trafficking. At the time there was much newspaper

speculation about marijuana growing in Griffith, New South Wales and the

association between the Griffith based Nugan Fruit Group and the Nugan

Hand Group. Mr Nugan told Mr Hill the Narcotics Bureau in Canberra 'had

a large blackboard with a diagram of all the drug dealers and slap bang

in the middle of it was Nugan Hand Ltd'.88 Cn his return Mr NUgan

asked Mr Hill to prepare a second list of Nugan Hand Group clients and to

make sure that Mr Shaw prepared a list of all his clients. Mr Hill said

he asked Mr Nugan words to the effect 'Haven't we been through all this

before.' In response Mr Nugan replied he had not been able to convince

the Narcotics Bureau that the NUgan Hand Group was not trafficking in

drugs.8-1 After a second visit to Canberra, Mr Nugan instructed Mr Shaw

to 'cease dealing with all the people on his list, to get rid of them and

stop doing any transactions with them'. He told Mr Shaw they were 'all

crooks and he did not want them in his company1. After the second visit

to Canberra Mr Hill 'got the impression that a lot of George's people

were involved in illegal activities'.83 He told the Commission he 'had

not formed the opinion that George's clients were involved in illegal

activities' until Mr Nugan's second visit to Canberra.83 Subsequently

he told the Commission this was his first indication that 'a lot of the

people he [Mr Shaw] was dealing with were actually involved in the drug 84 trade'. In addition to travelling to Canberra to see Mr Bates in

February 1978 Mr Nugan was in telephone contact with Mr Bates in April

and October 1979 seeking information concerning inquiries into the

Group. As a result of the October telephone call Mr Bates caused two

senior members of the Bureau to further interview Mr Nugan and a report

of that interview is among the Commission's holdings.88

-879-

6.51 Another of the persons86 whose name appears in Mr Shaw's list

[see 6.23] as a cash client was interviewed by the Joint Task Force on

27 February 1981.8^ In a record of that interview he admitted being

involved in drug trafficking and claimed he became a depositor with the

Nugan Hand Group in the mid 1970's following his introduction to Mr Shaw

by another client. He thought the total amount deposited with the

Nugan Hand Group was about $25 000 and estimated that about seventy per

cent of his deposits came from the sale of drugs. Records available

however, indicate deposits totalling in excess of $50 000. All this

client's dealings were with Mr Shaw except for a few occasions when

Mr Wong attended him in Mr Shaw's absence.

6.52 Another person88 whose name appears in Mr Shaw's list

[see 6.23] as a cash client, and his associate®® were examined by the 90

d e l egates of the Co r p o r a t e A f fairs Commi s s i o n and interviewed by the

91

Joint Task Force. They were close friends who, during the mid to

late 1970's, were involved in the sale of marijuana and hashish. This

client88 was introduced to Mr Shaw by letter in late 1977 or early 1978 92 from another client. Subsequently this client deposited $30 000 with

the Nugan Hand Group through Mr Shaw. The associate,89 although the

owner of half the money, did not meet Mr Shaw nor did he communicate with

him. The money deposited was subsequently withdrawn. Of this money,

$4 000 was made available to the client88 in Singapore.98

94

6.53 Another person whose name appears in Mr Shaw's list [see

6.23] as a cash client was interviewed by the Joint Task Force on

95

4 February 1981. Between 1975 and 1979, this client was involved in

drug trafficking in Sydney and Melbourne. According to available records

he made a series of cash deposits through Mr Shaw totalling $43 000 in

amounts ranging between $5 000-$10 000 over a six week period commencing

22 November 1977. He was introduced to Mr Shaw by another client.96

Of the $43 000 cash deposited with Mr Shaw, the client said that $35 000 97 came from the sale of heroin.

-880-

The 'Mr Asia1 and other drug syndicates

6.54 Two specific allegations suggest a connection between the Nugan

Hand Group and other groups which were brought into existence to import

heroin into Australia. One such group was the 'Mr Asia' drug syndicate

and another was the Sinclair, Fellows and Hayward heroin ring.

6.55 The first allegation refers to the attendance of persons

associated with each of the above groups at a farewell luncheon for

Mr Paul Hayward at the Basement restaurant in Sydney prior to his

departure for Bangkok. His journey to Bangkok with Mr Warren Fellows was

for the purpose of purchasing heroin for importation to Sydney. Both

were arrested and sentenced to lengthy prison terms in Thailand. The

allegation was first published in The Tribune newspaper on 9 December

1981. The article suggested that in excess of a dozen people met at

the Basement restaurant near Circular Quay to farewell Mr Hayward.

6.56 Mr Graham Beith told the Commission in February 1983 he lunched

at a restaurant behind Circular Qja y in Sydney w i t h Mr Nugan. Upon

entering the restaurant he saw a party of some eleven people seated

around several adjoining tables. He identified the following persons as

b e i n g present: Mr K.L. Nugan, Ms M o n i q u e V a n Putten, A d miral E.P. Yates,

Mr M.J. Hand, Mr M. Farquhar, Mr F. Krahe (now deceased), Mr D. Pittard,

99

Mr J. Laws, Mr J.D. S i n gleton a n d Mis s P.M. Swan.

6.57 The Joint Task Force investigators interviewed Messrs K.L.

Nugan,100 John Laws,101 John Singleton,102 Murray Farquhar,101

Denis Pittard104 [profile 2.56] and Dr Peter Solomon105. Each denied

his attendance at the luncheon. The owner of the restaurant was also

interviewed and denied any knowledge of the luncheon.105

6.58 The Commission formed the view that Mr Beith1 s evidence was

unreliable. Having regard to the denials of those who were alleged to

have attended the restaurant, the statement of the restaurant's owner and

the total absence of any corroborating evidence, the only reasonable

conclusion is that the luncheon never occurred. The journalist who

-881-

' broke1 the story in The Tribune newspaper in Sydney was seen in

conference by one of the Counsel Assisting the Commission and an

instructing solicitor. During the conference the journalist conceded he

had used what he termed 'poetic licence' in the construction he had

placed upon his notes recording remarks made to him by Mr Beith.

6.59 Further, the Commission has found no evidence to support the

allegation that the Nugan Hand Group passed $25 000 to Mr Hayward's

wife. The explanation for this allegation may lie in the fact that there

was a depositor with the Group known as 'P. Hayward', however this was a

reference to Ms Patricia Hayward who had nothing whatsoever to do with

the matters in question. Nor is there any evidence to support the

allegation that the Nugan Hand Group funded the defences of Messrs 107

Hayward, Fellows and Sinclair in Bangkok. In its report the Joint

Task Force suggests the basis of this claim might be found in a statement

which members of the force obtained from Mr Singleton108. In that

statement Mr Singleton said he arranged for his solicitor, Mr John

Tesoriero, to go to Bangkok to look after Mr Hayward's welfare and to

' ensure that he got local legal representation and to make sure that he

got a trial'. Mr Singleton paid Mr Tesoriero's expenses and costs but

denied that he financially assisted Mr Hayward with his defence.

6.60 The second allegation seeking to show a link between the Nugan

Hand Group and the 'Mr Asia' syndicate involved the collection by Mr Shaw

of $260 000 in cash from the offices of Mr John L. Aston, solicitor, on

26 March 1979. This money was dealt with in such a manner by the Nugan

Hand Group that the equivalent in Singapore dollars was paid in Singapore

on 12 April 1979 to a member of the 'Mr Asia' syndicate responsible for

conducting the Singapore part of Terrence Clark's heroin importing

business. There is evidence which suggests the money may have been

delivered to Mr Aston's office by a leading member of the 'Mr Asia'

group.110 Mr Aston's office diary indicates an appointment with this

person on 29 March 1979. The page for that day had been removed from the

diary, but scientific examination revealed an impression of the notation

on subsequent pages. Documents found in Mr Terrence Clark's briefcase in

Britain indicate that an amount of $250 000 was sent to Singapore by

Mr Brian Alexander (then employed as a law clerk by Mr Aston) in March

1979.

-882-

6.61 The link between the Nugan Hand Group and the 'Mr Asia'

syndicate was investigated at some length and reported upon by the

Commission during its inquiry into drug trafficking.111 1 1 2 1 1 3 1 1 4 1 1 5 The Commission

concluded that the Nugan Hand Group provided facilities for the transfer

of $260 000 from Sydney to Singapore for collection by a member of the

'Mr Asia' syndicate. However, there is no evidence which suggests that

any person associated with the Nugan Hand Group knew the moneys were to

be used to purchase narcotics.

The Thailand Office

6.62 In the Commission's view Mr N .Evans [profile 2.21] is not a

witness whose evidence the Commission can accept unless it is

corroborated by objective evidence. His evidence contains a number of

inconsistencies and is contradicted by the evidence of others accepted by

the Commission as being true. He was interviewed by the Joint Task Force 112 on 6 January 1981 and examined by the delegates of the Corporate

113

Affairs Commission on 20 February 1981. He gave evidence to this

Commission in December 1983.

6.63 According to Mr Evans Mr Hand had approached him about joining

the Nugan Hand Group. He said Mr Hand had told him he would do very well

in the northern Thailand region because there was a lot of 'loose' money 114 there which was 'all drug money'. This conflicted with evidence he

had previously given to the Joint Task Force when he nominated Mr J.M. 115

Gilder [profile 2.25] as the person who had told him this. He said

that Mr C.L. Collings [profile 2.15] told him the majority of his

deposits would come from the drug industry and he warned Mr Evans not to

be involved in the handling of drugs. He claimed Mr Collings said to him

'There is only one industry in Chiang Mai and I am sure you are aware of

it and that is drugs, so do not have any illusions about where your money

is coming from',11® Mr Evans claimed Chiang Mai had been chosen

because of Mr Hand's knowledge of the area through his associations

during the Vietnam conflict. Mr Evans said Mr Hand had told him he

(Mr Hand) knew several tobacco companies involved in marijuana

cultivation and export and it was suggested Mr Evans should make his

-883-

initial approach into these areas by attempting to attract business from

the tobacco companies, 'either by way of reinvoicing for them through

Hong Kong or just by way of taking deposits and getting their money out

o f the c o u n t r y ' . Mr E v a n s sai d he a pproached three Amer i c a n tobacco

companies about the reinvoicing proposition but no transactions

occurred. Mr Evans said he had been told these companies were growing

marijuana although he did not see the marijuana because it was in an area

where one could not go due to the activities of guerillas and private . 117

armies. Mr Evans claimed he obtained deposits from about seven

people in Bangkok and Chiang Mai the sum of which was in excess of

US$4 million. (He told the Joint Task Force he had collected 'a bit over

two and one half million' in deposits."*''*'™3 ) Mr Evans believed some of

the deposits were the proceeds of the drug trade.·*·"*·®

6.64 Mr E v a n s was refe r r e d to i nconsistencies b e t w e e n the evidence he

gave to the Corporate Affairs Commission on 20 February 1981 and his

evidence to this Commission relating to the procedure adopted by him upon

receipt of the deposits. He claimed the Corporate Affairs Commission 119 transcript was in error. This Commission does not accept this claim.

6.65 Mr Evans was in Thailand for five months in 1977. (He

erroneously referred to 1976 throughout his evidence.) He informed the

C o m m i s s i o n h e d e cided to leave Thailand because he was concerned m a n y

Europeans were being arrested for drug offences, the Nugan Hand Group was

receiving a lot of attention from the military, he was 'not hitting it

off' w i t h Mr Collings a n d he w i s h e d to be reunited wi t h his family. He

o b t a i n e d a c e r t ificate f r o m a doctor in Bangkok to the false effect that

120

he was su f f e r i n g from h e p a t i t i s a n d returned to Australia.

6.66 Mr E v a n s said as far as he was a w a r e , neither Nugan Han d Ltd or

a n y of its assoc i a t e d co m p a n i e s or o p eratives a c t u a l l y became involved in

b u y i n g and s e lling drugs. It w a s o n l y that they we r e prep a r e d to accept

deposits fro m people w h o we r e t hought to hav e been involved in the dru g

trade. He denied any suggestion that he had been involved in drug

121

tra f f i c k i n g himself.

-884-

6.67 This evidence is completely contradicted by the evidence of

Mr G i l d e r w h o gave evid e n c e to the C o m i s s i o n in respect o f Mr Evans'

allegations. He sai d that Mr Evans h a d come to see h i m at the s uggestion

of Mr Hand the latter having proposed three offices in Thailand, namely,

at Bangkok, Phuket a n d C h i a n g Mai. Mr Gilder said he visited Mr Evans'

office in Chiang Mai in early 1977 and was not impressed with what he

p e r c e i v e d to b e a lack of b u s i n e s s potential. For a start, he said,

hardly anybody spoke English. He said Mr Evans insisted upon carrying on

whereupon Mr Gilder submitted a written recommendation against continuing 122 with the Chiang Mai office.

6.68 Mr Gilder denied ever having discussed the recruitment of drug

deposits w i t h M r Evans w h o h e s a i d 'was firmly a n d c l e a r l y instructed to

123

se e k l e g i t i m a t e b a n k i n g a n d t r a d e business'. He sai d h e w a s

i nstructed specif i c a l l y not to involve h i mself in a n y currency

transactions. Further Mr Evans fai l e d to a t tract a n y deposits nor did he

compl e t e a n y significant trade transactions. The offi c e was eventually

closed dow n due to lack o f b u s i n e s s activity.

6.69 Mr Evans' claims are also rejected by Mr Collings. Mr Collings

gave evidence to the Commission in Hong Kong in August 1984 and a record

of interview dated 15 August 1984 between Mr Collings and a Commission

investigator was incorporated into the transcript."*·^ Mr Collings said

he did not agree with the establishment of Nugan Hand Group offices in

Chiang Mai or Phuket. He said he managed to 'stop Phuket from happening'

but Chiang Mai 'went ahead' on Mr Hand's instructions. Mr Evans went to

Chiang Mai and Mr Collings approved of an office being leased on the same

floor as the United States Drug Enforcement Agency (the 'D.E.A.').

Mr Collings visited the D.E.A. before the Nugan Hand Group office opened

and introduced himself, Mr Evans and the company. Mr Collings told the

D.E.A. personnel he had instructed Mr Evans to advise them of every

person he spoke to with a view to any kind of business. Mr Collings

said, to his knowledge, Mr Evans did no business which resulted in the

company receiving a deposit, or a fee for any service or a profit on any

trade transaction. Mr Collings informed the Commission an effort was

made to encourage some of the large tobacco companies in the area to sell

-885-

their tobacco through the Hong Kong office of Nugan Hand Trade Asia Ltd,

but nothing came of it. Mr Collings said he 'fired Mr Evans because he

was incompetent.1 Mr Collings presumed this embittered Mr Evans towards

him and the Nugan Hand Group which he claimed led to 'a lot' of the

allegations made by Mr Evans.124

6.70 Mr Pulger-Frame was interviewed by the Joint Task Force in Hong 125 Kong on 11 September 1981 and was examined by the Commission in

Hong Kong on 21 August 1984. In the interview with the Joint Task Force

Mr Pulger-Frame was asked about his knowledge of the Nugan Hand Group

operations in Thailand. Mr Pulger-Frame said he met Mr J.D. Owen

[profile 2.53] and Mr Evans as they passed through Hong Kong en route to

Thailand. Mr Collings told Mr Pulger-Frame he would be frequently

required in Bangkok to change money. This forecast of business in

Thailand proved to be inaccurate. Mr Pulger-Frame said he collected

funds from Mr Owen on a few occasions but never met Mr Evans at any time

in Thailand. His opinion was that the venture in Thailand was a failure.

6.71 Mr Cwen was interviewed by the Joint Task Force in Bangkok on

29 August and 6 September 1981. Although he gave evidence to the

Commission he was not examined on this subject matter. Mr Cwen told the

Joint Task Force he was aware of three persons from whom Mr Evans

collected deposits in Chiang Mai. These deposits were approximately

10 000 baht each making a total of about 30 000 baht (approximately

A$1 200). He was not aware of any other deposits attracted by Mr Evans.

Mr Owen said Mr Evans was so short of money when he left Thailand that he

borrowed the equivalent of A$75 from him (Mr Owen). Mr Evans gave

Mr Owen a cheque for this amount but the cheque was subsequently

dishonoured. When Mr Cwen was told of Mr Evans' claim of attracting

deposits of about US$2.6 million, his reaction was to say, 'It's

bullshit'.

6.72 Mr Owen was given the opportunity to read the transcript of

127

Mr Evans' statement to the Joint Task Force. His comment was, 'The

statement seems to have been made by someone who is in waiter Mi tty

land'. Mr Owen said Mr Evans' tale of the circumstances under which he

left Thailand 'is simply not true'.126

-886-

6.73 Mr P.M. Dunn [profile 2.18] gave evidence to the Commission on

13 August 1984 and 22 November 1984. He said he did not see anything

which suggested that either Mr Hand or Mr Nugan was involved with drugs.

Mr Dunn said he was quite active on behalf of the Nugan Hand Group in

South East Asia and his brief was always not to have anything to do with

money which might be associated with drugs. His instructions were quite

specific in this regard."*"2®

129

6.74 The Joint Task Force said of Mr Evans in its report:

1 ... an exaggerator and distorter of the truth and at times an outright liar .... He was found to be an unprincipled man and

in fact admitted as much in his interviews'.

6.75 In the circumstances the Commission finds there is no evidence

to support the allegation that the office in Chiang Mai was established

to attract deposits from drug producers of the so called 'Golden

Triangle'. Similarly there is no evidence which supports Mr Evans'

claims relating to the amount of deposits he secured. * 1 1 1

ENDN O T E S : P A R T 6

(See explanatory note at front of report)

1 RCIDT (Woodward) Further Report p238 2 for example M u r r a y Riley, Regi n a l d Parkin, H a r r y w ainwright

3 RCIDT (Woodward) Further Report p244 4 RCIDT (Stewart) Report p202 5 JTF Report Vol.2 pp303-04

6 CAC 7th Interim Report p605

7 CD1461 folios 337, 554

8 CD11343

9 Interim Report No.l paras 3.2(f),4.13, 5.34, 5.4(ii) and 5.49(ii) 10 CT14131-34, CT14139, Lowe; Interim Report No.l paras 4.16 - 4.24 11 Interim Report No.l para 5.34, Appendix J 12 RCIDT (Woodward) Further Report p244 13 JTF Report Vol.2 pp329-33 14 ibid Vol.2 p329

15 ibid Vol.2 pp332-33

16 CT23366, Shaw; CD3302 17 CT23366-67, CT25061-62, Shaw; C h arles Beveridge, M alcolm Ladd,

George Shamoun, Geo r g e Makary, B ruce Smithers, B a r r y C h i t t e m and Don a l d Mackenzie

CT23367-69, Shaw 18

19 20 21 22 23 24 25 26 27 28 29

30 31 32 33 34 35 36 37 38

39 40 41

42 43 44

45 46 47 48 49 50 51 52 53 54 55 56

57 58 59 60 61 62 63 64 65 66 67 68

69 70 71 72

-887-

CT23375, Shaw CT23378-80, CT25072-73, Shaw Dona l d W i l l i a m Ma c K e n z i e

CD1293 CD2191 James Blacker, Colin Courtney CT23381-83, CT23385, Shaw

CT23383, CT23391, Shaw CT23382-85, CT23388, Shaw CD2191 folio 6

CT23389-90, Shaw CT23393, Shaw CT14128, Shaw CT14128-29, Shaw CT14123, Lowe

CT23380-81, CT23394, Shaw CT23394-95, Shaw CD1250 folios 1906-07 CT23396, Shaw CT23398, Shaw George Chakiro (alias Makary)

CT23398, Shaw CT23418, Shaw CD1250 folios 1905-15 CT23400, Shaw M a l c o l m C raig Lad d CD1308 folio 104 CAC 7th Interim Report pp618-19 G e o r g e C h akiro (alias Makary)

CT23404-07, Shaw CT23408, Shaw CT23407, CT23409-10, Shaw CT23410-11, Shaw

Malcolm Craig Ladd Charles Robertson Beveridge CT23412-15, Shaw Charles Robertson Beveridge CT23416-17, Shaw George Shamoun CT23419-21, Shaw Malcolm Craig Ladd

CT18643, Lee CT18643-44, Lee CT23421-24, Shaw CT23422-23, Shaw CT23424-25, Shaw CT23425, Shaw

CT24780, Hill CT20565, WOng; M a l c o l m C r a i g Ladd and Charles Robertson Beveridge CT23426, Shaw CT19944, CT20006, Moloney

CT22273, M oloney CT22275, M o l o n e y CT20008, M o l o n e y

73 73a 74 75 76 77 78 79 80 81 82 83 84 85

86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109

110

111 112 113 114 115 116 117 117a 118 119 120

-888-

CT25129, Shaw CT22274-75, Moloney Mr Abrahams

CT22273, Moloney; George Shamoun, CD11508 CT16231-32, Hill CT15704, Hill Interim Report No.l para 2.14 CT15736, Hill CT15737, Hill

CT15637-38, Hill CT15735-36, Hill CT15735, CT15742, Hill Interim Report No.l para 4.96 CT16232, Hill Charles R o b e r t s o n B e v e r i d g e CD1250 folios 1458-73 B a r r y Graeme C h ittem

M u r r a y D o n New m a n CD3005; CD3054 CD1308 folios 30, 127 Charles Robertson Beveridge; CD6026 CD4644 folios 11-12 Bruce Alan Smithers

CD1250 folios 3331-47 C h arles Ro b e r t s o n B e v e r i d g e CD1250 folio 3335 RCIDT (Stewart) Report p692 CT13849-50, CT13858-59, Beith CD1393 folio 22 CD1393 folio 21 CD1393 folio 17 CD1393 folio 20 CD1393 folio 23 CD1393 folio 19 CD1393 folio 15 JTF Report Vol.4 p784 CD3553 folios 11-12

This person has been committed for trial in New South Wales on charges of conspiracy to import heroin. For this reason his name is not mentioned here. Efforts are presently being made to extradite this person from the United States in relation to charges involving heroin trafficking. R C I D T (Stewart) Report pp221-28 CD1250 folios 3191-259 CD5698 CT18843-44, Evans CD1250 folio 3193 CT18781-86, Evans CT18853-55, CT18861, Evans CD1308 folio 51 CT18791-27, Evans CT19053-59, Evans CT18828, CT18836, Evans

121 122 123 124 125 126

127 128 129 130 131 132

133

134 135 136

-889-

CT18906-08, Evans CT20396-97, Gilder CD1250 folios 864-72 CT22766, Collings; CD10823 CD1250 folios 3374-75 CD1250 folios 812-28

CD1308 folio 51 CT22474, Dunn JTF Report Vol.2 p323 CT23380-83, Shaw CT23386-88, Shaw

CT23389-90, Shaw; CD2191 folio 6, McKenzie ROI Commission Investigators 12/5/83; CD1250 folios 1906-07,Andrew Wellington Lowe JTF ROI; CT23389-90, Shaw; CD2191 folio 6, JTF ROI R v White (1859) 1 Foster and Finlason, 664; R v Quillerat [1962]

Tas S.R. 371 R v Havard (1914) 11 CAR 2 R v Parker (1863) 2 SCR (NSW) 217 Interim Report No.l, para 5.33

.

P A R T SEVEN

A L L E G A T I O N S OF PART I C I P A T I O N IN T H E ILLEGAL M O V E M E N T OF ARMAMENTS

:

- 893 -

ALLEGATIONS OF PARTICIPATION IN THE ILLEGAL MOVEMENT OF ARMAMENTS

Terns of Reference

7.1 There have been widespread allegations concerning the Nugan Hand

Group and its alleged dealings in armaments, the clear inference in these

allegations being that not only did such transactions take place but they

were illegal and done surreptitiously so as to avoid the attention of

relevant law enforcement authorities at the time. In this Part those

allegations, in so far as they fall within the Commission's terms of

reference, are considered in detail and the Commission's conclusions

regarding the truth of such allegations are stated.

7.2 The Commission has commented on the construction it has placed

on the terms of reference in Part 1 Section 2 of this report. Those

tern: of reference from the Governments of the Commonwealth of Australia

and - ,-ie state of New South Wales require the Commission to inquire into

wher ier the Nugan Hand Group engaged in activities involving

contraventions of certain criminal laws. The Commonwealth terms of

reference call for specific inquiry into whether the Nugan Hand Group

engaged in activities involving contraventions of laws relating to the

importation, exportation or possession of armaments. The Mew South Wales

terms of reference call for a similar inquiry in relation to any

contravention of the relevant laws of that State, in particular laws

relating to the possession of armaments. By each of the terms of

reference the Commission is required to determine the extent and nature

of any such activity and whether the Nugan Hand Group used, was used by,

or cooperated with any person, organisation or body.

7.3 With a view to determining precisely what meaning should be

given to the expression 'armaments' for the purposes of its inquiry, the

Commission consulted appropriate authorities.^ In the light of those

authorities the Commission has adopted a broad definition of the term.

That definition includes anything which is ordinarily used in conflict

- 894 -

among armed groups, especially in warfare, and whether taking place on

land, on sea or in the air.

7.4 The Commission has also considered what are the relevant

Commonwealth and New South Wales laws and these have been identified and

commented upon in a schedule located at the conclusion of this Part [see

7.147-7.154].

Allegations

7.5 The Commission was aware at the commencement of its inquiry of

the existence of allegations that 1Nugan Hand' had been involved in

armaments dealings. Some credence appeared to be accorded to some of

these allegations when the involvement of the Nugan Hand Group in

armaments dealing was mentioned in Parliament in the course of debate

concerning the establishment *of this Royal Commission. Apart from the

New south Wales Corporate Affairs Commission and Commonweal th/llew South

Wales Joint Task Force Reports there have been media allegations (both in

Australia and the United States) of armaments related transactions by the

Group. Upon investigation it became evident that many of the media

allegations were based on information contained in one or other of these

two Reports. However further allegations were made by various

newspapers, apparently as a result of investigations conducted by those

newspapers. Into this category fall some allegations appearing in Tine

National Times (Australia) and The Wall Street Journal (United States).

7.6 It should be noted at the outset that those making allegations

have often used the non-specific term 'Nugan Hand'. Where this is the

case it is of course, not possible to know what persons or companies are

included in this expression. Usually the allegations are vague as to

when and sometimes where the relevant activity is alleged to have taken

place.

7.7 It appears that in some cases the media may have confused the

alleged activities of Ward Knight & Dunn Ltd in this regard and

attributed them to Nugan Hand Ltd [profile 2.97]. Perhaps the

explanation for this is that both Mr F.D. Ward [profile 2.73] and Mr P.M.

- 895 -

Dunn [profile 2.18] were employees of Nugan Hand Ltd prior to the

establishment of Ward Knight & Dunn Ltd. This apparent confusion has

made it difficult to clarify and investigate certain allegations.

7.8 The Corporate Affairs Commission and the Joint Task Force in

their respective reports referred to attempts by 1Nugan Hand' to become

involved in arms dealing. Specific allegations were referred to and

dealt with in both reports. The reports enphasised that some of these

dealings were 'suspicious' and speculated as to the extent of 'Nugan

Hand' involvement. However the question of the extent and nature of that

involvement was not resolved and it was recommended by both bodies that

further inquiries be instigated.

7.9 In March 1983 the delegates of the Corporate Affairs Commission

reported that one matter which may warrant further investigation was 'The

involvement of the Nugan Hand organisation and/or its executives in arms

trafficking'. Section 30 of the report, headed 'Arms Dealing

Associations of Nugan Hand', sets out the material which the delegates

considered was 'sufficient to suggest that the Nugan Hand organisation

had at least explored the possibility of arms dealing as a commercial

activity'.^ The delegates stated that it was 'unknown whether any

transactions were actually consummated' [emphasis added]. Their

conclusion was that '... There is sufficient material to suggest an

association between Nugan Hand and arms trafficking although the area

will require considerable investigation and the assistance of Messrs.

Yates and Black. Unexplained is the relationship between Mr. Houghton

and Mr. Wilson, a reputed large scale arms supplier.' ^ [Details

pertaining to Mr M.B. Houghton, Admiral E.P. Yates and General E.F. Black

are given in their profiles in Part Two of this report. See 2.35, 2.76

and 2.8.]

7.10 Between January 1982 and March 1983 three of the four volumes of

the report by the Commonwealth/New South Wales Joint Task Force on Drug

Trafficking were tabled in the Federal Parliament."’ The emphasis of

the Joint Task Force investigation was on drug trafficking. However

throughout the report various matters are mentioned relating to armaments

dealing. After examining various activities and making comments such as

- 896 -

'Rigan Fane) itself had at least dabbled in [international illegal arms

deals] for some years'6 the Joint Task Force reported that:7

'There is evidence from a number of sources that Nugan Hand was involved, or attempted to become involved, in the international sale of military arms and other weaponry to government and non-government forces, though the evidence is insufficient to accurately define the extent or be certain of the success or otherwise of that activity.' [emphasis added]

7.11 Thus the Report made no finding in this regard. In many cases

the Joint Task Force did not have the opportunity to test such evidence

as it had before it. It made no specific recommendations regarding

suspected armaments dealing but recommended that its Report be referred

to this Commission.

7.12 The Royal Commission on the activities of the Federated Ship

Painters and Dockers Union dealt with the subject matter under

consideration in one of its reports. That Commission set out various

matters which suggest a connection between Nugan Hand Ltd and arms

dealing and stated that:6

'It would appear highly probable that the company [Nugan Hand Ltd] was engaged in fraud, the movement of drugs and armaments and many other forms of illegal activity.'

9

In the same Report it is stated:

'Although the Commission has now accumulated a considerable quantity of material relating to the armaments' industry centred upon ... [Mr A.] in Melbourne, and has assembled other material tending to show the involvement of Nugan Hand in those dealings, it would be distracting to set it out at length in this report. It is sufficient to say that until Mr Nugan's death there

appears to have been recognised in that part of the community concerned with such matters a facility at Nugan Hand to assist in the financial arrangements that needed to be made.'

[errphasis added]

This very imprecise language, again, does not amount to any specific

assertion or conclusion. [The evidence upon which the Royal Commission

on the activities of the Federated Ship Painters and Dockers Union based

- 897 -

its conclusions is examined below in relation to allegations (3) and (4)

at 7.35 to 7.46.]

7.13 In this Part emphasis has been placed upon specific allegations

which have been publicised in the media, repeated before this Commission,

and which went unanswered by the Corporate Affairs Commission or Joint

Task Force inquiries. Where the Corporate Affairs Commission or Joint

Task Force report is given as the source of an allegation this indicates

that the matter was referred to therein. Some such allegations were

dealt with; others were left unanswered. It is difficult to categorise

such matters satisfactorily. In any event the contents of those reports

will, if appropriate, be referred to in those paragraphs which set out

the evidence regarding each allegation. In addition to allegations found

in newspapers and in the reports of previous inquiries, there are a few

allegations which have been made for the first time before this

Commission or which have come to light during the Commission's

examination of documents.

7.14 Giving a wide rather than a narrow interpretation to its terms

of reference in this regard, the Commission has extracted from the

totality of relevant material in its possession the following specific

allegations as having been made. Included are assertions made in

Parliament which merely repeated various other allegations. Sources are

given. The allegations have been very roughly divided under subject

headings but it is unavoidable that some are related or overlap.

List of Allegations

7.15 General

Allegation (1); 'There is no doubt that some former officers,

directors and consultants to the Nugan Hand Group had military

backgrounds and links at a high level with American Intelligence

Organisations.' This allegation was made in the First Interim

Report to Creditors by Nr J.W. O'Brien of Pegler Ellis & Co.

(Official liquidator of seven companies within the Nugan Hand

Group). It was made at page 50 of his report under the heading

- 898 -

Other Activities of the Companies'. Allegations were also made

by Mr N. Evans [profile 2.21] that Nugan Hand was involved with

the C.I.A. and in arms dealing. An article in the Sydney

Sun-Herald of 15 February 1981 reported the allegations made by

Mr Evans.

(2) That Nugan Hand files show that Nugan Hand worked on big

international arms deals, although it is not clear what, if

anything was shipped."*"* [enphasis added]

(3) That the Royal Commission on the activities of the Federated

Ship Painters and Dockers Union and other inquiries have clearly

identified merchant banks such as Ward Knight & Dunn Ltd and 12

Nugan Hand as being involved in 'gun running'.

(4) That Mr Robert Pike, who in early 1976, was a representative of

Nugan Hand Ltd, 'later surfaced as a representative/associate of

the Ward Knight & Dunn organisation in a capacity suggestive of 13

arms trafficking related activities'.

7.16 Mr M.J. Hand: South African arms deals

(5) That Mr M.J. Hand's [profile 2.2] activities in South Africa

during his residence there (appear to have) included attempts to 14 arrange arms shipments.

(6) That Mr Hand corresponded with Mr Nugan from South Africa about

arms sales to be paid for with Rhodesian ivory."*®

7.17 Mr Edwin Wilson

(7) That in early 1978 Mr Edwin Wilson and Mr G.T. Shaw

[profile 2.65] were involved in the supply of small arms to

Panama."*"®

(8) That in 1979 Mr Houghton and Mr Wilson met in Geneva and

discussed the possibility of Nugan Hand breaking down and

- 899 -

re-issuing Libyan letters of credit to the value of

US$22 million for substantial quantities of military software

and hardware."^

(9) That Mr Wilson through Mr Houghton had approached Nugan Hand

about a $15 million loan. Probably Nugan Hand through

Mr Houghton, was involved with Mr Wilson in arms deals."1 "®

(10) That Mr Wilson visited Australia in an attempt to set up arms

sales to Libyan terrorists through Nugan Hand.·*·^

7.18 Sale of armaments to Thailand

(11) That Mr 'Suvit Djaisukul', one of two Thai directors of Nugan

Hand (Thailand) Ltd, was involved in arms and military hardware

negotiations on behalf of Nugan Hand and in 1977 attempted to

sell Swedish anti-aircraft guns and Australian gunboats to the 20 Thai Government.

7.19 General Black

(12) That General Black was actively involved in negotiations over

helicopters, fragmentation bombs and ammunition, and the sale of

shelters for combat aircraft to Thailand and South Korea and

that his interest in the sale of military equipment was known to 21 Messrs Nugan, Hand and Yates.

7.20 'Nugan Hand' as a financial intermediary

(13) That Nugan Hand acted as financial intermediary in multi-million 22

dollar international arms deals in Asia and South America.

(14) That there was in the United States (on 9 November 1982) prima

facie evidence that at least $30 million from an arms contract

with Argentina was laundered through 'the Nugan Hand Bank' in

Australia.* 2 0 2 1 2 2 23

- 900 -

7.21 Apart from the above the Commission identified many allegations

concerning armaments which are outside the terms of reference. These

allegations range from assertions that 'Nugan Hand executives' were

involved in weapons shipments to American aided forces in Africa24 to

allegations that Nugan Hand acted as a financial intermediary for

multi-million dollar arms deals in Asia, South America25 and

Libya.26 Major transactions involving spy ships, aircraft, howitzers,

patrol boats and various other military equipment have been suggested.

As mentioned, none of these allegations fell within the terms of

reference. However in the course of examining the material before it,

the Commission has found that there is not the slightest evidence to

support them.

7.22 In the Joint Task Force Report are mentioned allegations

regarding Admiral Yates and other allegations regarding Mr James Moulton

Hawes. Both Admiral Yates and Mr Hawes contacted the Commission to deny

expressly matters reported by the Joint Task Force, and subsequently by

the media. Although the matters fall outside its terms of reference the

Commission will deal with them briefly in order to do justice to these

denials.

7.23 Mr Hawes contacted the Australian High Commission in Singapore

and in Kuala Lumpur in order to 'officially correct' reports about him.

In particular he denied that he had attended a meeting between Mr Wilson,

a Mr Robert Moore, Mr Houghton and two unnamed Australians, in Washington

in either 1975 or 1976, at which Nugan Hand's involvement in an armaments 27

shipment to South Africa was discussed. Further Mr Hawes stated:

' [Mr Wilson] never once made any mention of the Nugan Hand Bank or any person who has subsequently been identified or connected with it. I had no idea he was in any sort of business or other relationship with that institution or those associated with it

... I have never had business, personal or other dealings

whatsoever, directly or indirectly, with Nugan Hand Bank or any of its subsidiaries, affiliates or associated companies or any persons connected with it. I do not know, nor have I ever met a Mr. Bernie Houghton and, specifically, I categorically deny having met this person in Wilson's office or anywhere else in connection with any Nugan Hand activity or any other activity

whatsoever.'

- 901 -

7.24 Mr Houghton told the Commission that he did not meet Mr Wilson

until 1979 and that the names 'James Hawes' and 'Robert Moore' meant

nothing to him. [See also the Commission's examination of

allegations (8) and (9) at 7.98 to 7.111. ] There is no evidence before

the Commission to support the allegation.

7.25 The Commission was advised that Admiral Yates wished to correct

three major errors in the Joint Task Force Report, Volume 4. Two of

those related to armaments. The first was that between August 1976 and

February 1977 Admiral Yates met Mr Edwin Wilson and an informant, ' J',

and discussed Nugan Hand involvement in Libyan port construction;^ the

second was that the same informant met Admiral Yates and Mr Frank Terpil,

a reputed arms dealer, in a London hotel about November 1979 to discuss 30

Nugan Hand involvement in financing Libyan airport shelters.

7.26 Admiral Yates stated that he did not work for Nugan Hand until

June 1977 and officially resigned on 12 October 1979. He said he did not

know Messrs Wilson or Terpil, had never done business with them and to

his knowledge had never even met them. These allegations were not

put to him by the Joint Task Force.

7.27 The Commission has been advised by the Joint Task Force that

'February 1977' was a typographical error and should have been ' February

1978'. Nevertheless, the Commission has found no evidence to support the

allegations and accepts the denial made by Admiral Yates.

The Evidence

7.28 As noted above [see 7.8-7.13] the Commission has had regard to

the contents and recommendations of reports made by the Corporate Affairs

Commission, Joint Task Force, relevant liquidators and the Royal

Commission on the activities of the Federated Ship Painters and Dockers

Union. Matters mentioned in those reports which fall within the terms of

reference have been the subject of assessment and/or further inquiry.

Documents and files in the Commission's possession relating to armaments

dealing have been examined and additional documentation has been obtained

- 902 -

where necessary. Witnesses have been examined concerning their knowledge

of any possible armaments dealing. Official inquiries were made with the

New South Wales, Commonwealth and United States Governments and with

United States agencies [see 1.1.15-1.1.31].

7.29 The evidence before the Commission in relation to each of the

allegations set out above will now be examined. For convenience, the

allegation and its source will be repeated prior to setting out the

relevant evidence.

7.30 Allegation (1): 'There is no doubt that some former officers,

directors and consultants to the Nugan Hand Group had military

backgrounds and links at a high level with American Intelligence

Organisations.' This allegation was made in the First Interim Report to

Creditors by Mr J.W. O'Brien of Pegler Ellis & Co. (Official liquidator

of seven companies within the Nugan Hand Group). It was made at page 50

of his report under the heading 'Other Activities of the Companies'.

Allegations were also made by Mr N. Evans [profile 2.21] that Nugan Hand

was involved with the C.I.A. and in arms dealing. An article in the

Sydney Sun-Herald of 15 February 1981 reported the allegations made by

Mr Evans.

7.31 The Hon. W.G. Hayden, M.P., who was then the Leader of the

Opposition referred to the above quotation from Mr O'Brien's report in

the Federal Parliament after a Ministerial statement had been made by the

then Minister for Ad m i n i s t r a t i v e Services, The Hon. K.E. Newman, M.P.,

w h e r e i n he said, inter alia, that the L a w Offi c e r s of the Crown had

formed the opinion that an extension of the terms of reference of the

R oyal Commission was wa r r a n t e d in certain respects. Mr Hayden also

32

quoted from the abovementionea article in the Sydney Sun-Herald.

7.32 The alleged association between the Nugan Hand Group and the

C.I.A. is dealt with in Part 4 Section 3 of this report. As will be

evident from that material and from the Commission's general findings at

7.140 to 7.146 the Commission has found no evidence to support

allegations that the Nugan Hand Group had been involved in arms dealing.

- 903 -

7.33 Allegation (2): That Nugan Hand files show that Nugan Hand

worked on big international arms deals, although it is not clear what, if

anything was shipped.33 [emphasis added]

7.34 The Commission's response to this allegation will also be

evident from its conclusions and general findings. It is noted here

however that the terms of the allegation are vague and imprecise. The

allegation was made in an article in The Wall Street Journal which was

based, at least in part, upon information given to that newspaper by

Mr J.D. Owen [profile 2.53].

7.35 Allegation (3): That the Royal Commission on the activities of

the Federated Ship Painters and Dockers Union and other inquiries have

clearly i dentified m e r c h a n t banks such as VZard K n i g h t & D u n n Ltd and

34

Nugan Hand as being involved in 'gun running'.

7.36 The Royal Commission on the activities of the Federated Ship

Pain t e r s and D o c k e r s U n i o n refers in o n e of its reports to 'material

tending to show the involvement of Nugan Hand in those [armaments] 35 dealings'. Although it is stated in the report that to set out this

material at length would be distracting it is implied that the conclusion

that Nugan Hand was involved in armaments dealing is based on a number of

facts and alleged associations. Many of these centre on a Mr Christopher

Sundt Brading, said to have been working with Air America in Vietnam in

the early 1970s and involved in 'ferrying illicit goods'.36

7.37 The matters relied on were:

. an allegation that 'in the early 1970s Brading contacted Michael-^ 37 Hand and Frank Nugan'. The maker of the allegation is not

named and the reasons for the alleged contact are not given;

. the fact that Mr Brading's bankruptcy papers included a letter

referring to the sale of ammunition for Russian tanks;36

. a connection said to exist between Mr Brading and a Mr A. who,

according to the report, is 'believed to be a major dealer in

armaments';3^

- 904 -

. an inspection of bankruptcy documents which revealed that

Mr Brading 'had a number of companies operating in Hong Kong,

Singapore and Thailand, including a connection with Nugan Hand 40 in Hong Kong in the mid 1970s'; and

. a 1978 police intelligence report that Mr Brading and another

had formed a company in Hong Kong for the purposes of supplying 41 military equipment to Thailand.

7.38 Secondly the report mentions an association between 'Nugan Hand'

and Mr Robert Pike. It was said that Mr Pike was an associate of Nugan

Hand in the Asian region during the 1970s and that he made proposals to

Nugan Hand for dealings which appeared to be 'in armaments.'4^ [See

also allegation (4) described at 7.41-7.46 below.]

7.39 The Royal Commission on the activities of the Federated Ship

Painters and Dockers Union produced or made available to this Commission

all files in its possession relating to the Nugan Hand Group. After a

careful analysis of the material upon which the above findings

were based, this Commission can find no substantive evidence to link

Mr Brading, Mr A. or Mr Pike with any armaments deal involving the Nugan

Hand Group. The alleged association between Nugan Hand Ltd and Mr Pike

will be examined at 7.41 to 7.46.

7.40 The Commission can find no evidence to support the suggestion

that the Nugan Hand Group engaged in any form of armaments dealing with

Mr Brading or that it was involved in 'gun running'.

7.41 Allegation (4); That Mr Robert Pike, who in early 1976, was a

representative of Nugan Hand Ltd, 'later surfaced as a representative/

associate of the Ward Knight & Dunn organisation in a capacity suggestive 43

of arms trafficking related activities'.

7.42 The basis upon which the New South Wales Corporate Affairs

Commission delegates reached this conclusion is not given. Among the

files obtained by the Royal Commission into the activities of the

- 905 -

Federated Ship Painters and Dockers Union from the Official Receiver of

the Nugan Band Bank are a number of telexes and documents referring to

Mr Pike. However, there are very few references to Mr Pike in the files

and documents obtained by the Corporate Affairs Commission.

7.43 The evidence before this Commission indicates that Mr Pike was

not at any time a representative of Nugan Hand Ltd although it appears

that he did at one stage propose to become one. In a letter written in

October 1975 Mr Pike held himself out as 'a consultant to merchant banks

in Australia'.44 According to Mr C.L. Collings [profile 2.15] Mr Pike

advised and assisted Nugan Hand in relation to proposed representative

offices in Jakarta, Singapore and Kuala Lumpur in mid 1975.45 He also

assisted Mr Collings to prepare a presentation to the Wing On Bank [see

4.1.24, 4.1.27 to 4.1.55] and was paid some fees for this. Mr Collings

told the Royal Commission into the activities of the Federated Ship

Painters and Dockers Union, that subsequently Mr Pike tried to introduce

to Nugan Hand a business transaction in Indonesia involving the purchase

of commercial bills but the proposal did not eventuate.4®

7.44 As mentioned above the Royal Commission into the activities of 47

the Federated Ship Painters and Dockers Union reported that:

'His [Mr Robert Pike's] files which have not yet been fully analysed, contain many proposals for dealings that appear to be in armaments. Some of these proposals were made to Mr Ward and Mr Knight, others to Nugan Hand.'

7.45 This Commission has examined the relevant files mentioned

above. Those files indicate that Mr Pike did make proposals to Ward

Knight & Dunn Ltd relating to armaments. However there is no evidence in

those files that the Nugan Hand Group engaged in armaments deals in

association with Mr Pike or otherwise.

7.46 On the evidence before it the Commission concludes that the

Nugan Hand Group did not engage in any armaments transactions involving

Mr Robert Pike.

- 906 -

Mr M.J. Hand: South African Arms Deals [7.47-7.91]

7.47 Allegation (5): That Mr Hand's activities in South Africa

during his residence there (appear to have) included attempts to arrange

arms shipments.^®

7.48 The Sydney Sun-Herald article of 3 April 1983 was based upon

information contained in the Joint Task Force report tabled in Federal

Parliament on 25 March 1983 and the New South Wales Parliament on

30 March 1983. The article quotes the Joint Task Force report as saying

Mr Hand 'was in South Africa arranging arms shipments but in a fashion

"which displayed little professionalism and a deal of amateurism"'. In

fact the relevant portion of the Joint Task Force report states that

'Nugan Hand itself, acting for Hand, went about the attempted purchase of

weapons in a fashion which displayed little professionalism and a deal of

amateurism'. However the Joint Task Force concluded that in some 49

respects Mr Hand's efforts were successful. [See also the

Commission's examination of allegation (6) at 7.88 to 7.91.]

7.49 The evidence before the Commission is that on 17 December 1974 50

Mr Hand and his wife left Sydney en route to San Francisco. Mr Ward

told the Commission that in January 1975 Mr F.J. Nugan [profile 2.1]

returned from a trip to Hawaii and called a staff meeting at which he

announced that Mr Hand had retired and was spending some time with his

wife in South Africa.^ Subsequently, Mr Nugan told Mr Collings 'that

he had bought him [Mr Hand] out for half a million dollars on the 16th of 52 December in Hawaii'. Mr Hand himself told the Corporate Affairs

Commission delegates that in January 1975 he and Mr Nugan 'separated

company.' He said that this had been settled in Hawaii in early January

and added Ί was paid out over a period of time for the shares which I

53

had'. The evidence in relation to the alleged 'retirement' of

Mr Hand from Nugan Hand Ltd and associated companies is dealt with

elsewhere in this report at paragraphs 2.2.23 to 2.2.28.

7.50 After visiting Panama, Arizona, London and Spain, Mr Hand

travelled to .South Africa on 15 March 1975. Apart from one visit to

Australia between 17 and 31 July 1975 he and his wife apparently remained

- 907 -

in South Africa until 16 March 1976, when they returned to Australia.533

Mr Hand immediately 'rejoined' Nugan Hand.5^

7.51 There has been considerable speculation by the Corporate Affairs

Commission, the Joint Task Force, the media and by witnesses before the

Commission, as to Mr Hand's activities while he was in South Africa. The

Corporate Affairs Commission delegates reported that Mr Hand told them he

was turkey farming in South Africa,55 although there is no mention of

that in the transcript of Mr Hand's evidence to the Corporate Affairs

Commission.56 However, both Mr Ward and Mr Dunn told the Commission

that in 1975 they believed Mr Hand was going to retire and set up a

turkey farm in the United States.53 Both the Corporate Affairs

Commission and the Joint Task Force Reports conclude that Mr Hand

continued to have some form of business relationship with Nugan Hand Ltd

during the time he was in South Africa.58

7.52 The evidence suggests that Mr Hand did have an interest in arms

dealing prior to his visit to South Africa in 1975 and possibly prior to

his a s s o c i a t i o n w i t h Mr Nugan. For example, Mr Houghton told the

C o r porate A f f a i r s C o m m i s s i o n d e l e g a t e s that he had considered buying war

surplus materials in Vietnam in the early 1970s and had asked Mr Hand to

be his partner in this venture. He said Mr Hand agreed to the proposal

but wanted to make the purchases through a very complicated arrangement

a n d after Mr Houghton v i s i t e d V i e t n a m two or three times (on his own)

59

the project was abandoned.

7.53 The evidence before the Commission also indicates that during

the time he was in South Africa, Mr Hand was interested in armaments

dealing and maintained contact with individuals and companies within the

Nugan Hand Group. For example, Mr Dunn gave the following evidence to

the Commission:6^

Ί know that there was communication between some members of the organization and Mike Hand during that time [the period Mr Hand was in South Africa] I know that there were one or two deals

put forward which he might have been able to negotiate down there and that sort of thing.'

- 908 -

7.54 When later asked to elaborate on this evidence, Mr Dunn said he

believed most of those communications 'were routed through Frank Ward at

this time who kept in touch with' Mr Hand, and that they related to a

variety of business and trading opportunities. He said that it seemed to

be Mr Ward's role to 'keep in touch' with Mr Hand during this time though

he (Mr Dunn) assumed that there were also many private communications

between Mr Nugan and Mr Hand.61

7.55 Mr Ward told the Commission that he could not recall being in

telephone contact with Mr Hand in South Africa during this time. He

informed the Commission that he thought Mr Hand dealt directly with

Mr Nugan.6^ However in the memo to Mr Hand referred to at 7.61 to

7.64, Mr Ward mentions information 'relayed to you through my regular

letters to Pretoria.'63

7.56 Mr Ward also told the Corporate Affairs Commission delegates

that he had no direct contact with Mr Hand during the period that Mr Hand

was absent in South Africa, but said that he recalled Mr W. Hans [profile

2.27] embarking on an information-gathering exercise concerning weapons

and munitions, as a result of some requests from Mr Hand. He said that

either Mr Hans or Mr Nugan asked him to speak to a Mr Loy, an arms

dealer, regarding the acquisition of some bullets which were Australian

Government surplus and which he understood were required in connection 64 with the South African Government.

7.57 Mr Hans gave to both Corporate Affairs Commission and Joint Task

Force investigators details of his inquiries. He told the Corporate

Affairs Commission delegates that Mr Band asked for guns and planes

without nominating the user and that he (Mr Hans) was a reluctant

participant in the canvassing of various arms dealers. He said he wrote

to various parts of the world seeking details, which he forwarded to

Mr Hand. He visited Mr Loy with Mr Shaw and then Mr Ward took over the

negotiations. He said that Mr Hand's intention was to sell weapons to

whites in South Africa and Rhodesia.65

7.58 Mr S.K. Hill [profile 2.33] told the Commission he was aware

that Mr Hand spent some time in South Africa. He said he understood that

- 909 -

Mr ward and Mr Hand investigated the possibility of shipping 1 sporting

rifles' to South Africa but to his knowledge nothing eventuated.®®

Loy Arms Corporation: proposed export of bullets and hand guns

7.59 Both the Corporate Affairs Commission and Joint Task Force

investigated the inquiries made in late 1975 by Nugan Hand personnel with

Mr K.J. Loy of Loy Arms Corporation, Surry Hills, Sydney. Those

investigative bodies found that initial inquiries regarding the

availability of pistols and firearms for export were carried out by

Mr Hans on behalf of Nugan Hand. Mr Loy gave Mr Hans details of weapons

and prices. Further discussions took place several weeks later and after

Mr Loy provided a written quotation, an order was placed for ten

second-hand pistols. However, Mr Loy did not receive any payment and

consequently the firearms were never exported.®^

7.60 Mr Loy produced to the Corporate Affairs Commission documents

relating to the proposed exportation. Included in those documents are

copies of a South African import permit dated 18 September 1975, a

Singaporean import permit dated 4 November 1975 and an Australian export

licence dated 11 November 1975. No company within the Nugan Hand Group

is named on any of the documents. The Australian export licence granted

by the Department of Customs and Excise was for Loy Arms Corporation (as

exporter) to send the revolvers to Chye Whatt Seng care of Trans Meridian

Moving Systems, Singapore. On that licence the final destination of the

goods was stated to be Singapore. However the Singaporean import permit

noted that the goods were for 1 re-export/transhipment'. The South

African import permit does not specify the country from which the

firearms were to be exported. Correspondence was addressed to 'Nugan

Hand Inc.,' and marked 'Attention Mr. Frank Ward'. Documents suggest

that it was planned to ship the arms to South Africa on behalf of

'Murdoch & Lewis Pty Ltd'.®® That company name has never been

registered with the New South Wales Corporate Affairs Commission.

7.61 Mr Ward was examined by the Commission in relation to a memo

written by him to Mr Hand with a copy to Mr Nugan.®^ Among other

- 910 -

things the memo, dated 31 August 1976, summarised Mr Ward's activities

for approximately two years prior to that date. Included was the

70

statement:

as you well know, I arranged contacts for the supply of commodities to S.A. for you, set up the network for movement, documentation and payment. Due to internal problems in S.A. the elaborate machinery we set-up never got tested1.

7.62 Mr Ward said the reference to 'S.A.1 was probably a reference to

South Africa. He was then asked 'What were these commodities you

referred to?' and he replied, 'As I recall there were a number of things

that he required. There was a supply of some bullets at one stage.'71

7.63 The questioning continued:7^

'Q. Bullets?

A. Bullets.

Q. Why did he require those?

A. I do not know. I never questioned it. I was given the

task of contacting a legitimate dealer here in Sydney.

Q. Who was that? Is that the man you told the Corporate

Affairs about?

A. I think his name was Ly or Loy.'

7.64 After telling the Commission of inquiries he made in relation to

other commodities not related to armaments, Mr Ward said he did not know

what he meant by the final sentence of that portion of the memo quoted at

7.61 but said Ί should imagine it was setting up the people in Sydney to 73 supply the various requirements.1 When pressed he said this may have

been a reference to shipping requirements or obtaining the necessary 74

government documentation and approvals.

7.65 Mr Ward informed the Commission that he spoke to Mr Loy in

relation to bullets and/or hand guns after Mr Nugan instructed him to

locate any available 'outdated bullets, surplus stocks, army surplus

stocks.' He said the original contract was for a buyer in Singapore but

that he may have learned 'some time later' that the goods were to go to

- 911 -

South Africa. Mr Ward said that he suggested Mr Hans take over the

arrangement with Mr Loy 1 because it was not something I knew anything

about, nor was I desirous of becoming involved in.' He said Mr Loy later

phoned and made threats about completing a contract but he told Mr Loy it 75 was just an inquiry, not a contract.

7.66 Mr Ward's evidence was that he did not recall being involved in

any other armaments purchases or sales while he was with the Nugan Hand

group of companies. He said it was certainly not his responsibility, nor

did he have any knowledge of any armaments being shipped out of Australia

bv the Group. He said he knew of no person, other than Mr Hans, who took

an interest in the sale or purchase of that type of equipment.

7.67 Mr Shaw made a statement to the Commission which included the

following:^

Ί recall that in about 1975 Michael Hand was seeking

information regarding the availability of handguns. I believe that these were intended for sale in Rhodesia either to the Government or to white farmers ... Bill Hans and I made

enquiries of Kevin Loy, an arms dealer in Foveaux Street,

Sydney, regarding handguns. As far as I recall no purchase was finalised with Loy because there were insufficient quantities of guns available.'

Bullets

7.68 Mr P.J. Clasen [profile 2.12] was examined by the Commission on

6 April 1984. He agreed that he had been employed as a representative by

1Nugan Hand' from at least February 1975 to February 1 9 7 6 . He

informed the Commission that while on a business trip to West Germany for

Nugan Hand in late December 1975 he received a telephone call from 79

Mr Hand who was in Johannesburg or Durban, South Africa. Later in

evidence Mr Clasen was unable to recall if Mr Ward had asked him to

contact Mr Hand in relation to this matter but admitted that it was a

possibility.®® In any event Mr Hand asked him to check whether he

could find anybody who was prepared to sell millions of .303 rifle

bullets.®"*· Mr Hand said he wanted to get the bullets to South Africa

but did not say why.®^

- 912 -

7.69 Mr Clasen said he told Mr Hand, in effect, that he had no

expertise in this field. However, as a result of the request he made a

number of telephone calls in West Germany. He was unsuccessful in

locating a supplier and about a day later received a telephone call from

Mr Hand telling him not to pursue the inquiry. Mr Clasen told the

Commission he understood the order had been filled by the Australian

Army.55 When questioned about information previously given to the

Commission, Mr Clasen agreed that he located someone who said they could

'organise something' and that the talk was about shipping the bullets

through a harbour, which he thought was Plotz, in Yugoslavia. However he

said the arrangement was 'loose' and when he was told by Mr Hand to

forget the matter he did not pursue it.84

2Π 000 handguns

7.70 Apart from documents relating to the proposed export of ten hand

guns, the documents produced by Mr Loy include a letter dated 14 November

1975 from Loy Arms Corporation to Nugan Hand Inc., marked 'Attention

Mr Frank Ward'. The letter submits prices for Smith & Wesson and Colt

revolvers and indicates that the supply of 20 000 revolvers per year over

an unspecified number of years had been discussed.85

7.71 Mr Loy told the Joint Task Force investigators that Nugan Hand

had made a general inquiry about the price for large quantities of

firearms and he did not know how the figure of 20 000 was arrived at. He

said that from previous discussions 'the bank' was made well aware of the

restrictions controlling the export of firearms from Australia and the

United States.85

7.72 Mr Hans told the Corporate Affairs Commission delegates that he

did not recall any inquiry by Mr Hand for 20 000 handguns but agreed

'that's what he would have had in mind. What he probably had in mind

was to sell it to whites in South Africa and Rhodesia so they could

defend themselves should it be necessary.

7.73 Mr Ward told the Joint Task Force investigators that he could

not remember the contents of the above letter and that he had no

knowledge of such an inquiry.®5

- 913 -

Notes made by Mr F.J. Nugan

7.74 A page of notes apparently handwritten by Mr Nugan,®®3 and

discovered after his death, begins: 'Military weapons Rhodesia, pay in

gold, recoiless rifles, mortars 60/80 mm, M79 Grenade launchers, quad 50

calibre machine guns'. A second note refers to ivory [see allegation (6)

at 7.88] and a third (which possibly relates to 'ivory' also) states 'Ex

factory shipment, expecting phone call ... Les Ceilings referred by Hand,

can send for inspection. Lee will take him around ...' These notes

have been frequently quoted as evidence of arms dealing engaged in by 89 'Nugan Hand'.

90

7.75 On the reverse of the page is the following:

'Les ( 1 ) HK importer of hand guns or sporting firearms Singapore (2) NHHK Ltd purchases hand guns direct from US for re

export (SE Asia) (3) Charter planes capable of flying one ton or less to S.A.

100 (indecipherable) Initial under 100 (indecipherable) Some ammunition for each (gun) 1,000 rounds per gun

3 brand names Smith & Wesson Colt Huger

All models .357 magnum .44 magnum in 4 and 6 inch barrells [sic] 50/50'

7.76 The date ' 7 August 75' appears on this document and the

Corporate Affairs Commission delegates and Joint Task Force investigators

were of the opinion that these notes were written about 1975, during the

period in which Mr Hand was a resident of South Africa [see 7.50]. On

the evidence available to this Commission this appears likely.

Armoured vehicles, guns, aircraft

7.77 As mentioned at 7.57 Mr Hans told the Corporate Affairs

Commission delegates that Mr Hand had asked for guns and aircraft while

- 914 -

in South Africa without nominating their ultimate destination. He also

told the delegates that Mr Hand had sent telephone requests and telexes 91

detailing long lists of arms required.

7.78 Mr Hans told the Corporate Affairs Commission delegates that he

made inquiries at Rex Aviation in Sydney on behalf of Mr Hand in relation

to the possibility of exporting light aircraft (non-military) from

Australia to South Africa. Mr Hans said that the proposal was found to 92

be uneconomic and nothing eventuated as a result of these inquiries.

Mr Hans also told the Corporate Affairs Commission delegates that in 1975

during a trip that he (Mr Hans) had made to Rhodesia, Mr Hand discussed

with him the establishment (by Mr Hand) of a helicopter squadron in 93 Rhodesia. Mr Hans told the Joint Task Force that the purpose of his

visit to Rhodesia was to 'set up the machinery to transfer funds out of 94 Rhodesia.' There is nothing to indicate that either of these matters

related to armaments dealing and therefore they have not been examined by

the Commission.

7.79 Mr Clasen told the Commission that there may have been a

discussion with Mr Hand about armoured vehicles and guns but 'nothing , 95

came of it'.

7.80 When asked about proposed armaments deals, Mr Oollings told the

Commission that he thought Messrs Hand and Nugan had some discussions in

Hong Kong with the then Consul-General of South Africa.

7.81 As mentioned elsewhere in this report [see 2.2.100] when the

Commission was in New York in January 1985, an endeavour was made to

contact Mr Hand. However, Mr Hand did not make himself available to

speak to the Commission. The Commission is satisfied that Mr Hand

continued to have some form of business relationship with the Nugan Hand

Group throughout 1975 while he was absent from Australia. It appears

that he remained on cordial terms with Mr Nugan during this time and that

Mr Nugan instructed his staff during this period to make various trade

inquiries on behalf of Mr Hand. Other inquiries were made as a result of

direct requests from Mr Hand to Nugan Hand Group staff.

- 915 -

7.82 The matter of the proposed export of handguns purchased from Loy

Arms Corporation was investigated fully by the Corporate Affairs

Commission and Joint Task Force and was reported in some detail in their . 97

respective reports. With the exception of minor conflicts of

evidence the basic facts in relation to that matter appear to be

undisputed. The Commission is satisfied that personnel connected with

the Nugan Hand Group arranged this proposed transaction for and on behalf

of Mr Hand.

7.83 The Commission is satisfied that representatives of the Nugan

Hand Group, including Messrs Ward, Shaw and Hans, made inquiries in

relation to the possible export of firearms to South Africa while Mr Hand

was a resident in South Africa. In particular the Commission is

satisfied that Messrs Shaw and Hans of the Nugan Hand Group approached a

Sydney arms supplier, Mr Loy of Loy Arms Corporation in 1975, inquiring

whether pistols and other firearms were available for export and

expressing interest in such transactions. The Commission accepts the

evidence that an export of ten second hand pistols was arranged and

export approval granted but that the export did not take place.

7.84 As to the contravention of relevant laws, officers of the

Department of Industry and Commerce have advised the Commission that in

1975 export of both sporting and military firearms to South Africa was

subject to restrictions. Pursuant to a delegation from the Minister of

Defence, Collectors of Customs were authorised to approve the export of

up to three personal firearms to all destinations except South Africa.

There was a total embargo on the export of sporting ammunition to South

Africa and an exporter of military ammunition was required to present to

the Collector of Customs permission in writing granted by the Minister of r 98

Defence.

7.85 The Commission finds that inquiries were conducted, at the

request of either Mr Nugan or Mr Hand or both, by Messrs Ward, Clasen and

Hans regarding the supply of bullets for export to South Africa.

Although the evidence of both Mr Ward and Mr Clasen suggests that army

surplus bullets were exported to South Africa their evidence was vague

- 916 -

and the Commission has found no supporting documentary evidence. The

Commission is satisfied on the evidence before it that this export did

not take place.

7.86 No evidence has been found to indicate that the Nugan Hand Group

became involved in the purchase, sale or export of the products described

in the notes referred to at 7.74 to 7.76. Neither is there any evidence

that aircraft, armoured vehicles or other armaments were exported or

imported by the Nugan Hand Group.

7.87 Apart from the possibility that arrangements for export of ten

handguns may have been designed to evade Customs provisions, there is no

evidence before the Commission to support the suggestion that these

activities were conducted by the Nugan Hand Group as anything other than

legitimate business activities. The Commission has found no evidence

that any individual or company within the Nugan Hand Group contravened

any of the laws of the Commonwealth of Australia or any laws of the State

of New South Wales in relation to the above matters.

7.88 Allegation (6): That Mr Hand corresponded with Mr Nugan from --------------- 99

S outh Afr i c a about arms sales to be pa i d for wi t h R h o d e s i a n ivory.

7.89 The source of this allegation is not given but it may be the

notes apparently handwritten by Mr Nugan sometime in 1975

[see 7.74-7.80], One section of those notes reads as follows:100

'Ivory..David Charles Lee Chief Admin Officer Department of National Park Wildlife Box 8365 Causeway SALISBURY Phone 707624 Auction info available

7 August 75 notice 4 categories (1) Sound (2) Weathered

(3) Damaged (4) Immature '

- 917 -

7.90 Mr Hans told the Corporate Affairs Commission delegates that he

and Mr Hand discussed the matter of trade in ivory while the latter was

in South Africa. He said ivory was available but trade was illegal and

nothing eventuated.101 Mr Hans told the Joint Task Force investigators

that when he visited Mr Hand in South Africa in 1975 [see 7.78] the

latter 'asked for helicopters and guns saying that we could be paid in

ivory and skins and asked me to get something going with the boys back in

Sydney'. z

7.91 The only evidence before the Commission in relation to this

matter is that which is described at paragraphs 7.77 to 7.80 and 7.89 to

7.90. The only connection between 'ivory' and 'arms sales' arises from

Mr Hans' interview with the Joint Task Force and from the fact that notes

on both subjects were made, apparently by Mr Nugan, on the same sheet of

paper. The Commission has not located any correspondence between

Mr Nugan and Mr Hand in relation to such matters. Accordingly the

Commission finds that the allegation is without substance.

Mr Edwin Wilson [7.92-7.111] * 1

7.92 Allegation (7): That in early 1978 Mr Edwin Wilson and

Mr George Shaw were involved in the supply of small arms to Panama.101

7.93 During his interview with investigators from the Joint Task 1 (14 Force on 6 January 1981 Mr N. Evans [profile 2.21] alleged that the

C.I.A. deposited moneys in an account in the name of Swiss Pacific Bank

and Trust Company [profile 2.106] at the New York Branch of the Irving

Trust Bank. The money was then transferred to 'the Nugan Branch in

Hong Kong' where it would be withdrawn in cash and disbursed by Mr Hand.

Mr Evans said that he was told by Mr Hand that some of this money went to

Panama 'for backing the insurgents'.106 Mr Evans said Mr Shaw and

Mr Edwin Wilson were involved in this. He said the guns supplied to

Panama were small arms, definitely came from the United States and Ί

have a feeling that it was Remington...'.106

7.94 On the television program '60 Minutes' shown on Channel 9,

Sydney on 15 February 1981 Mr Evans repeated his allegation that 'The

- 918 -

Nugan Hand Bank' was to be a conduit for C.I.A. moneys."1 "07 He did not

however mention the use of this money for arms deals.

7.95 In evidence to the Commission, Mr Evans said that during a

conversation in Hong Kong in May 1977, Mr Hand mentioned 'a deal that was

g oing on ... wi t h a L a t i n A m e r i c a n c o u n t r y ' , the n a m e of w h i c h Mr Evans

could not recall. According to Mr Evans, Mr Hand said that 'there was a

big arms deal coming on' and 'we will be financing it' on behalf of the 108 C.I.A. " Later, Mr Evans said the country involved 'could have been'

Panama but he w a s una b l e to remember. W h e n the relevant p o r t i o n of his

i n t erview with the Joint Task F o r c e was read to him, he said that he

could not recall anything about Panama or insurgents but Mr Hand 'may

have discussed something about arms for Panama' and 'it is probable that 109

it was Panama we were talking about, backing insurgents'.

7.96 Mr S h a w said he did not recall ever hav i n g m e t Mr Wilson. He

has denied b e i n g involved wi t h Mr W i l s o n or anyo n e els e in discussions or

a r r a n g e m e n t s t o sell ar m a m e n t s in the Middle E a s t . 0

7.97 The Commission finds (as did the Joint Task Force) that

Mr Evans' evidence cannot be relied upon unless corroborated by objective

evidence. In relation to this matter he was unable to recall it when

giving evidence to the Commission. The Commission has found no evidence

to corroborate Mr Evans' claim that Mr Shaw was involved, in association

with Mr Edwin Wilson, in the supply of armaments to Panama. The

Commission accepts Mr Shaw's denials.

7.98 Allegation (8): That in 1979 Mr Houghton and Mr Wilson met in

Geneva and discussed the possibility of Nugan Hand breaking down and

re-issuing Libyan letters of credit to the value of US$22 million for

substantial quantities of military software and hardware.^"*"0a

7.99 This allegation was originally made by Mr Peter Randolph

Goulding when he was interviewed by the Joint Task Force. He said that

the transaction involved weapons and textiles and that Mr Houghton

arrived in Geneva in either November or December 1979. It was his

- 919 -

understanding that Mr Houghton was there on behalf of Nugan Hand and to

provide a banking facility. The object was to break down the original

letter of credit so that weapons and textiles would be dealt with

separately. The 'gentleman handling the textile side of the contract'

would then have no trouble bringing his letter of credit into the United

States. Mr Goulding said that he believed Mr Wilson had not known

Mr Houghton previously.111

7.100 The Corporate Affairs Commission delegates in their Seventh 112 Interim Report, stated:

'Mr. Houghton was acquainted with Mr. Edwin Wilson, an American with one conviction on an arms trafficking related offence and awaiting trial on more serious charges related to the same subject matter.'

The same report later stated:111

'Unexplained is the relationship between Mr. Houghton and Mr. Wilson, a reputed large scale arms supplier.'

With regard to alleged meetings between Messrs Houghton and Wilson the

Joint Task Force reported that 'The meetings must give rise to the

gravest of suspicions'.114

7.101 Mr Wilson, who was the subject of lengthy investigations by

United States authorities, has now been tried and convicted in the United

States of two offences relating to armaments dealing.

7.102 In relation to the alleged association between himself and

Mr Wilson, Mr Houghton told the Commission that he was first introduced

to Mr Wilson by a lawyer in Geneva. This occurred when he had been

instructed to go to Geneva by either Mr Hand or Mr Nugan for the purpose

of dealing with a request to provide 'letter of credit' facilities for

Mr Wilson. Mr Wilson was a client of the lawyer's and Mr Houghton said 115

he had not met Mr Wilson before and knew nothing of him. He thought

the meeting must have taken place in 1979.11®

- 920 -

117

7.103 In his statement to the Commission Mr Houghton said:

The lawyer had already made an application for a letter of credit facility to a larger bank, I think it was the Bank of

America. He had not had a response. He_ indicated that they would not be making a formal application for a letter of credit to Nuaan Hand until they had a response from the other bank. I

had been told the rate to charge in relation to this service and I think that both Nuqan and Hand visited the lawyer in Geneva. The amount involved was several million dollars. The items to

be covered by the letter of credit were military uniforms

purchased from Korea or Taiwan for supply to Libya. The F.A. Neubauer Bank was to be the drawer of the letter of credit in conjunction with its own bank the Dresdner Bank. The commission or interest to be earned by the bank for providing the facility was 2% and in addition Wilson was to deposit $1 million with the Nugan Hand Bank. Accompanied by the lawyer I went to Wilson's office which was extremely elegent and situated in Gustav on Lake Geneva. I cannot remember any other details of the

conversation with Wilson apart from what I have already

mentioned. He did tell me that he was a former C.I.A. agent.'

7.104 Mr Houghton later stated:

Ί subsequently telephoned the lawyer and Wilson on several occasions in Geneva. It was sometimes difficult to contact Wilson as he spent a lot of time in Libya. The purpose of my

telephone calls was to follow up the proposed letter of credit as it represented a significant profit to Nugan Hand. However nothing came of this transaction and they ultimately got the letter of credit from the larger bank mentioned earlier.'

7.105 Mr Houghton informed the Commission he made 'in the order' of

five trips to Geneva and on each of those occasions he visited

Mr Wilson's office. He said that these visits were an attempt to

expedite the 'letter of credit' deal he was negotiating."*"*"^ He said

that during those trips to Switzerland he met Mr Goulding who 'appeared

to run Wilson's Geneva office'. They discussed the 'letters of credit',

one for $13 million and another for about $9 million, which Mr Wilson was 120

trying to obtain for the 'supply of Korean made uniforms to Libya'.

121

7.106 Mr Houghton's evidence was as follows:

'Q. In any event, the transaction that brought you in contact with Mr Wilson never came to fruition. Is that the

position?

- 921 -

A. I never did any business with him. I have no reason to

think any business was ever done with him.

Q. By the Nugan Hand organisation?

A. He —

Q. Is that right?

A. By the Nugan Hand organisation. I think that my

conversation was with him that he was trying to get two large letters of credit - seems to me like it was

Barclays or Bank of America, and they had waited for some time. Ultimately I was told that he got those letters of credit from whomever. There could have been a handsome fee had Nugan Hand been able to do that and, as I

understood it, they were trying to arrange it through the Neubauer bank in conjunction with their German banker over there but, to my knowledge, it did not come to

anything.

Q. Do you know whether Mr Wilson has been tried in the

United States?

A. Yes, I have read in the paper where he has had numerous

trials and has received many years.

Q. Many years in terms of prison sentence?

A. Yes, and is presently serving was the last newspaper clipping I read.

Q. From what you have said you did not give evidence at any

of those trials?

A. No, I was never called on to give any evidence.1

7.107 The Commission is satisfied on the available evidence that the

negotiations in relation to the 1 letters of credit' did take place but

that the transaction did not eventuate. None of the Nugan Hand Group

records held by the Commission refer to the proposed transaction and

there is no available evidence, documentary or otherwise, to suggest that

it proceeded beyond negotiation. This is not to say that there are or

were no such records in existence. The Commission has not had access to

all documents relating to overseas companies associated with the Nugan

Hand Group and many documents held in Sydney were destroyed or concealed

after the death of Mr Nugan in January 1980. [The subject of the

concealment and destruction of documents is dealt with in Part 3

- 922 -

Section 9 of this report.] However, the Commission accepts that this

allegation is true and accepts the evidence of Mr Houghton that the

negotiations were unsuccessful.

7.108 Allegation (9): That Mr Edwin Wilson through Mr Houghton had

approached Nugan Hand about a $15 million loan. Probably Nugan Hand 1 22

through Mr Houghton, was involved with Mr Wilson in arms deals.

7.109 Allegation (10): That Mr Edwin Wilson visited Australia in an ---------------- 123

attempt to set up arms sales to Libyan terrorists through Nugan Hand.

7.110 it is difficult to separate these allegations. [See also

allegation (8) which is examined at 7.98 to 7.107.] The relevance of

these matters to the Commission's inquiry is based upon the allegation

that 'Nugan Hand' presumably meaning Nugan Hand Ltd, was involved in

armaments dealings through Mr Wilson. However, apart from the matters

relating to the letters of credit [see 7.98-7.107] the Commission has

found no evidence to support the allegations.

7.111 It is a point of interest that if Mr Houghton and/or the Nugan

Hand Group were involved in any way with Mr Wilson or his companies in

any breaches of United States law, the Commission would have expected the

United States authorities to have at least interviewed Mr Houghton and

possibly personnel associated with the Nugan Hand Group. On the evidence

available to the Commission this has not been the case. Mr Houghton was

not asked by any person to give evidence at any of the Wilson trials.

Sale of armaments to Thailand [7.112-7.116]

7.112 Allegation (11): That Mr 'Suvit Djaisukul', one of two Thai

directors of Nugan Hand (Thailand) Ltd was involved in arms and military

hardware negotiations on behalf of Nugan Hand and in 1977 attempted to

sell Swedish anti-aircraft guns and Australian ounboats to the Thai „ . 124

Government.

7.113 This allegation was made by Mr J.D. Owen [profile 2.53] when

Joint Task Force investigators contacted him after receiving information

that he may have additional information to that which he supplied when he

- 923 -

was interviewed by them initially. According to the Joint Task Force

notes of that conversation, Mr Owen stated that the only arms dealing he

knew o£ in Thailand was an unsuccessful attempt to sell the Thai

government a Swedish Beaufors anti aircraft gun. In relation to the

gunboats, Mr Owen said that he believed 'Mr Djaisukul' visited Garden 125

Island, Sydney but 'nothing came of it'.

7.114 Mr 'Suvit Djaisukul' was shown as a director of Nugan Hand

(Thailand) Ltd in company records"*"*^ and was later listed as a Nugan 127

Hand Bank client by the Official Receiver, Hong Kong. However, the

documents held by the Commission contain a copy of an undated telex from

'Suvit' to Hong Kong advising that he and his partner would 'withdraw our

positions as director of next week and also call off every deal as we

have discussed previously.'"*"^ The same file contains a telex from

'Suvit' to Collings dated 9 April 1979 referring to negotiations

regarding the purchase of 'M60's' from the' American Government for

Thailand."^2®

7.115 Although Mr Owen alleged that it was proposed to sell Australian

gunboats to the Thai government, the Commission has found no evidence to

support that allegation. Neither is there any apparent connection

between the Nugan Hand Group as defined in the terms of reference, and

the alleged negotiations. The Commission has not therefore examined the

matter any further.

7.116 The telex regarding the purchase of M60's from the American

Government does not reveal any activity which would fall within the

Commission's terms of reference.

General Black [7.117-7.133]

7.117 Allegation (12): That General Black was actively involved in

negotiations over helicopters, fragmentation bombs and ammunition, and

the sale of shelters for combat aircraft to Thailand and South Korea and

that his interest in the sale of military equipment was known to Messrs

Nugan, Hand and Yates."*"^

- 924 -

7.118 This allegation has been formulated by the Commission from

documents quoted and comments made in the Seventh Interim Report of the

Corporate Affairs Commission. That report refers to a telex located

among the Hong Kong records of the Nugan Hand Group. The telex dated

7 November 1978, is from General E.F. Black [profile 2.8] to Messrs Hand 131 and Yates and is as follows:

Ί . Re choppers for S.A., Hung Wai checking to determine if

seller already has his own established contacts in that country. Will advise.

2. Because of embargo which I am told applies to U.S.

citizens as well as to U.S. corporations it might be

advisable for buyer and seller to work thru overseas, channel, namely N-H, rather than U.S. nationals.

3. HWC also has reliable contacts with European munitions manufacturers who offer such items as aircraft frag bombs and ammo at attractive prices. Sai Ching has full

details on this and plans to discuss with Mike in

Singapore around 20 November.

4. Sai will also discuss possibilities of N-H arranging

financial packages to accompany bids on Indonesian Government tenders. Frank worked with HWC and Sai on one such possibility while he was in Honolulu.'

7.119 In response to this telex Mr Nugan, on the same day, telexed 132 General Black as follows:

'Please be specifically advised that the entire contents of points 1, 2, and 3 of your telex are mistaken and

inappropriately sent to us. We have no interest, no facilities and no desire to assist in any situation like that outlined in your telex.

I suggest any informal enquiries generated by yourself and your associates be immediately nullified-------.

Our real business in trade and wholesale banking areas is

totally time encompassing and we have no time for nonsense activities like those.'

7.120 The delegates of the Corporate Affairs Commission commented in

their report:133

- 925 -

'Given the prev i o u s apparent involvement of Mr. Han d in attempts

to s u p p l y arms, it w o u l d appear that there m a y have b e e n a

d i v i s i o n of o p inion b e tween Messrs Bla c k , Y a t e s and Hand o n one

side and Mr. F.J. N u g a n on the other as to w h ether N u g a n Hand

ought to be involved in that p articular i n d u s t r y . '

7.121 General Black, a retired Brigadier General of the United States

Army, was interviewed by the Commission in Washington D.C. on 8 January

1985. General Black stated he was responsible for sending the above

telex dated 7 November 1978 [see 7.118]. He said Ί believe it is the

only time I ever got involved in armaments' General Black told the

Commission that the reference in the telex to Ή W C' related to Mr Hung

Wai Ching. He told the Commission he occupied an office in Honolulu

belonging to Mr Hung Wai Ching. Mr Ching's son, Mr Sai Ching, 'was

trying to get started under his father's auspices, and he shared the

office with me and Sai. They had an export-import business, and one of

the leads the young man came up with was these mentioned here'

7.122 G e n e r a l Black said he 'was just, ... p a s s i n g the information on

to Mik e [Mr Hand] in S i n g a p o r e ', that there was a pos s i b i l i t y of Nugan

Han d b eing able to assist. He said the telex me s s a g e he forwarded 'got

t h e m q u i t e upset be c a u s e I got a rocket back f r o m t h e m ... saying that I

shouldn't ever send messages dealing with anything involving armaments'. 137

He said he was not told why they were upset and added that:

'... This really b r ought the whole subject to an end as far as

they w e r e concerned, as far as I was concerned, and so as far as

I know, nothing ever developed in this r e g a r d . '

7.123 G e n e r a l B l a c k ' s response to the 1 r o c k e t ' was a t elex to Mr N u g a n

dated 8 November, apo l o g i s i n g for forwarding the information contained in

his telex of the p r e v i o u s day and advising that he had given a copy of

Mr Nugan's telex to Mr H u n g Wai C h i n g 'emphasising that Nugan Hand

activ i t i e s are confined e x c l usively to business in trade and wholesale

b a nking a r e a s '.

7.124 General Black was then shown a letter from himself to Mr Hand

dated 2 March 1978 which begins Ά personal friend of mine here has 139

access to the following used choppers, civilian configuration ...'.

- 926 -

General Black stated he was the author of the letter but was not sure

whether this was a follow-up inquiry or whether it preceded the above

telex message. He said it referred to the same subject matter and

pointed out that on the letter, was a note in his handwriting indicating 140 that there was no response to it. The Commission notes that this

letter did precede the above telexes.

7.125 General Black was then shown a copy of an earlier telex from

himself to Dr Prasert in Bangkok dated 27 February 1978. The telex

similarly advised that a 'personal friend here has access to following

used helicopters', qave details and invited contact if Dr Prasert was • ] 4i

interested. General Black said this telex was part of the same

effort to assist Mr Sai Ching in finding a buyer for helicopters. He

said Dr Prasert was head of a business called Bangkok United Mechanical

Company and had a number of contacts in Thailand. General Black said he

understood that Mr Ching was acting strictly as an agent between the 142

people who had access to the used helicopters and possible buyers.

7.126 A further telex addressed to General Black referred to 'your 143 letter on aircraft'. General Black informed the Commission that

this ' related to information he had received from Mr Sai Ching and

related to the same matter'.143a

7.127 General Black said that in relation to this matter he was acting

on behalf 'of the Nugan Hand Bank' and was trying to help his friend,

Mr Sai Ching. He said he was using the Bank's facilities to do this and

told the Commission that had they been successful in finding a buyer, he

was sure the Bank would have been entitled to a commission for assisting

Mr Sai Ching. He pointed out that in 1978 Mr Hung Wai Ching assisted in

Hong Kong when 'the Nugan Hand Bank' attempted to purchase the United 144 Chinese Bank.

7.128 General Black told the Commission that no transaction was ever

entered into and the Bank received no fee or money from this exercise. 145 He also said in evidence:

- 927 -

"Ihe Bank never discussed armament sales with me. It was

entirely my initiative here for which I got a rocket, and I was doing this to help this friend of mine in Honolulu who I knew very well and had confidence in, and felt that they were acting

as an agent, and I was trying to help them find — put together a deal.'

General Black stated that at no stage was he ever requested by

Messrs Nugan or Hand to buy or sell armaments or find markets for

them.146

7.129 General Black was asked whether the allegation formulated by the

Commission was accurate in whole or in part. He said that he was sure

the helicopters referred to must be the matter discussed above which

never came to fruition. He said Ί don't remember the frag, bombs,

actually. That doesn't ring a bell' but agreed that the reference to 147

'frag, bombs' may have emanated from his telex dated 7 November 1978.

7.130 General Black then volunteered that he had been involved in a

project to get the Thai Government to construct aircraft shelters for

their combat aircraft and gave details of this. General Black said he

was working as a consultant for 'Neuero', a German engineering company

which had developed a design for a bomb-proof aircraft shelter. General

Black said NATO had adopted the design and built shelters in England and

possibly the Continent. He said that he took an engineer from the

company to various meetings with the Thai Air Force where the shelter

designs were presented. He said 'Neuero' asked about making the same

presentation in South Korea, and later did so, however, he was not

personally involved.14®

7.131 General Black told the Commission that he was not acting for, or

on behalf of, the Nugan Hand Bank in relation to these aircraft

149

shelters. However, he went on to say:

'... although I intended, I am sure, to get the Bank involved in the business transaction in a banking way. In other words, if the Germans had succeeded in getting a Thai contract to build shelters, it was my intention to try and have the Nugan Hand Bank handle all of the money transactions involved in this business affair between the Germans and the Thai, as a bank, as

- 928 -

an international banking service, so since I was still working for Nugan Hand, I was looking out for getting them involved so they would get something out of this transaction.1

7.132 Various telexes relating to this matter have been summarised in

the Corporate Affairs Commission Report.155 According to that Report,

in one telex dated 22 June 1979, from General Black to Messrs Nugan,

Yates and Hand, a company named Neuero Industrieanlagen-Technik of West

Germany had agreed by letter on 18 May to pay 'Nugan Hand' three per cent

commission on sales of aircraft shelters to Thailand. The contact in

Neuero Industrieanlagen-Technik was said to have been Mr Jorgen Perwas.

This person was said to have been introduced to the Chief of Staff of the

Supreme Command, Thailand and to key air marshals in the Thai Air Force.

The telex stated that Mr Perwas had personally briefed the above Thai

officials on the advantages of these NATO-type shelters for combat

aircraft. The Thais were said to be studying how they could work such l si

shelters into their defence budget at a unit cost of US$500 000.

7.133 The Commission found General Black to be an honest and reliable

witness. His evidence and the documents available to the Commission,

indicate that the allegation is in substance true. His explanations in

relation to these matters are accepted. There is no evidence to suggest

that General Black's proposals in relation to dealing in aircraft and

armaments ever eventuated or would have contravened any relevant law if

they had.

'Nugan Hand' as a financial intermediary [7.134-7.138]

7.134 Allegation (13): That Nugan Hand acted as financial

intermediary in multi-million dollar international arms deals in Asia and

South America.152

7.135 This allegation appeared in an article in The Weekend Australian

written by Mr Patrick Lindsay and allegedly based on 'exclusive

information' provided by 'a former Nugan Hand associate' code named

'Mickey'. According to 'Mickey', Nugan Hand acted as a 'swing bank' in

the sale of armaments to Malaysian interests throughout Singapore, to the

- 929 -

Moslem movement in the Southern Philippines and to several South American

countries. As an example the informant gave details of the proposed

involvement of 'Nugan Hand' in a transaction which eventually 'fell

through'. In effect the role of Nugan Hand was to assist a party to

conceal half the gross proceeds of an armaments transaction. There is no

evidence before the Commission to support this allegation.

7.136 Allegation (14): That there was in the United States on

9 November 1982 prima facie evidence that at least $30 million from an

arms contract with Argentina was laundered through 'the Nugan Hand Bank'

in Australia.

7.137 This matter was referred to in the House of Representatives by

The Hon. L.F. Bowen, M.P., who was then a member of the Opposition, in

the course of debate concerning the presentation by the then Government

of a Joint Task Force report. On the question of whether the terms of

reference for a Royal Commission to investigate the Nugan Hand Group

should be extended, Mr Bowen noted that allegations had been made of

international arms dealing involving 'Nugan Hand', including the above

allegation. Mr Bowen said that the evidence was prima facie because it

was a verbal arrangement. He said that he wrote to the Prime Minister

(Mr Malcolm Fraser) about the matter and the Prime Minister quite fairly

replied that the Reserve Bank's records did not reveal whether any such 154 transaction had taken place.

7.138 There is no evidence before the Commission to support such an

allegation.

General evidence

7.139 On 23 June 1983 the Acting Secretary, Department of Defence

advised the Commission that thorough investigation of its records had

revealed no evidence that it had ever undertaken any investigation

concerning the involvement of the Nugan Hand Group in any activity

referred to in paragraph (a) of the Commission's terms of reference. In

addition the Department advised that there was no indication that it had

- 930 -

had referred to it any evidence that the Nugan Hand Group engaged in the 155

export from or the import into Australia of armaments.

General Findings

7.140 On the evidence before it the Commission is satisfied that the

activities of the Nugan Hand Group did not involve contravention of laws

of the Commonwealth or laws of the State of New South Wales in relation

to the importation, exportation or possession of armaments.

7.141 In so concluding, the Commission has had regard to the Corporate

Affairs Commission Seventh Interim Report, the reports of the Joint Task

Force on Drug Trafficking and the relevant report of the Royal Commission

on the activities of the Federated Ship Painters and Dockers Union. The

Commission also examined, collated and analysed the vast amount of

documentation provided by these bodies. The Commission obtained further

material relating to this subject during the course of its inguiry and

this material was treated in a similar manner. Relevant documents were

put to witnesses during Commission hearings.

7.142 The evidence before the Commission establishes that the Nugan

Hand Group attempted on numerous occasions in various countries

throughout the world to act as the 'middle man1 in arrangements between

traders covering many disparate commodities from hides to tin, and

including armaments. The real point to be made is that with one or two

exceptions these negotiations were simply an expensive waste of time and

money and came to nothing. This is not surprising. For a start the

Group had insufficient capital with which to fund their proposed

ventures. The Group was insolvent at all times, and, from 1976 onwards,

hopelessly insolvent. Add to this liability the fact that with only one

or two exceptions there was no-one within the Group who had the slightest

expertise in either banking skills, trade negotiations, or commerce. At

the very end of the life of the Group in late 1979 some people who could

be regarded as experts in their field did join the Group or agree to act

in a consultative capacity [see 3.6.13 and 3.6.15). But this has no

bearing on the subject matter under review in this Part.

- 931 -

7.143 In brief, the mere suggestion that the Nugan Hand Group could

have engineered, or been a party to, or found the necessary funds for,

the type of activities which are the subject of these allegations flies

in the face of the evidence that is overwhelmingly to the contrary. The

Commission has, of course, had the opportunity of hearing evidence from

witnesses relevant to these allegations and of assessing their

truthfulness. In particular, the Commission has had the advantage of

hearing evidence from Admiral Yates and General Black and of assessing

their truthfulness. Some of the allegations concern those two persons.

The Commission has no hesitation in reporting that it accepts the

evidence of these two witnesses which, in any event, is supported by

other objective evidence. Thus, while there is evidence that the Nugan

Hand Group attempted on occasions to become involved in armaments-related

trading, the Commission is satisfied that these attempts were

unsuccessful for the reasons stated above.

7.144 The Commission finds there was a general inability on the part

of Nugan Hand to bring about the finalisation of almost any proposal.

Many of the schemes put forward by the representatives were not feasible

or were found to be uneconomic. Such schemes have frequently been

described by witnesses as 'pie in the sky'. The Commission has heard

evidence that the trade division within the Group was often called the

'wild goose division'.

7.145 Many of the conclusions of earlier reports are based on alleged

associations or links between individuals and organisations. Many of

these links were extremely tenuous. The Commission has had the

opportunity of hearing witnesses and carefully examining the vast amount

of documentation placed before it. Those witnesses have either denied

the reported associations, or in other cases have given a satisfactory

explanation with respect to them.

7.146 There was no evidence of a credible nature to support the

allegations that 'Nugan Hand' had been involved in armament sales to any

intelligence body including the C.I.A. It is clear beyond doubt that the

Nugan Hand Group could not have offered this organisation the expertise

or service it would have required.

- 932 -

SCHEDULE A

1. Commonwealth Laws

Customs Act 1901

7.147 Since 1973 importation of goods has been dealt with in Parts III

and IV of the Customs Act and exportation of goods has been dealt with in

Part VI of that Act. Section 233(1) of the Act prohibits the smuggling

of any goods, the import of any prohibited imports, the export of any

prohibited exports, or the unlawful conveying or possession of any

smuggled goods (prohibited imports or prohibited exports).

7.148 Prohibited imports and exports fall into various categories

which are set out in the schedules to the Act. Certain items which fall

within the Commission's definition of 'armaments' have, for at least part

of the relevant period, been prohibited imports or exports under the

Customs Regulations made pursuant to Sections 50(1) and 112(1) of the

Customs Act. For the purpose of this schedule the Commission will not

list these items and the various changes made to the Act and regulations

during the period in question. It should be noted that a comprehensive

listing of 'armaments' which is now contained in schedule 13 of the

Customs (Prohibited Exports) Regulations did not come into force until

7 November 1979; only five months before Nugan Hand Ltd went into

provisional liquidation.

Control of Naval waters Act 1918

7.149 Section 30 of the Act prohibits entry by vessels with dangerous

cargoes into naval waters without permission. Regulations made pursuant

to section 4 sub-sections (c) and (d) of the Act relate to explosives and

ammunition in naval waters. However, the offences pertain to masters of

vessels carrying dangerous cargoes and are limited to 'naval waters'

which are defined as Australian naval establishments.

- 933 -

Australian National Railways Act 1917

7.150 This Act, which comprised the Commonwealth Railways Act 1917 as

amended, prohibits the sending or offering for conveyance on any railway

or Commission vehicle, without notice, any goods which in the judgement 156

of the Commission or its officers are of a dangerous nature.

Post and Telegraph Act 1901 and Postal Services Act 1975

7.151 The first of these Acts (now repealed) made it an offence to

knowingly send, or attempt to send by post, any postal article which

enclosed an explosive, dangerous, filthy, noxious, or deleterious

substance. Under the latter Act it is an offence to send by post a

postal article that encloses or contains an explosive, dangerous or

deleterious substance.

2. Hew South Males Laws

157

Dangerous Goods Act 1975

7.152 For the purposes of this Act 1 dangerous goods' are any article

or substance prescribed as such. The regulations do not refer to

armaments or arms; rather they contain lists and schedules of particular

substances, mainly chemical, which are prescribed as 1 dangerous'. The

Act provides for licensing of premises or conveyances in which dangerous

goods are to be kept or carried respectively.1 5 7 158 It is an offence to

keep dangerous goods without a licence,159 * * to carry them in an

unlicensed conveyance,1819 to sell them in a public place181 or to use

them negligently or carelessly.162

7.153 Part V of the Act provides that the Chief Inspector of Dangerous

Goods may issue licences authorising importation, manufacture or sale of

explosives. Unlicensed and unlawful possession are offences.162

- 934 -

Firearms and Dangerous Weapons Act 1973 164

7.154 This Act makes it an offence to use, carry, purchase or possess

a pistol without a pistol licence in respect of that pistol, or a firearm

without a shooter's l i c e n c e . T h e Act also prohibits the possession

of a prohibited weapon or prohibited article."*"®® A prohibited weapon

is defined as an article or device which is capable of being used to

cause serious bodily harm and of a class, type or description prescribed

for the purpose of the definition. A prohibited article is defined as an

article or device capable of being used to cause bodily harm or restrict

movement of persons, (or an imitation or replica of a firearm or

prohibited weapon) and of a class, type or description prescribed for the

purpose of the definition."*®^

ENDNOTES : PART 7

(See explanatory note at front of report)

1 Concise Oxford Dictionary (Oxford, 1982); Jowitts' Dictionary of English Law (London, 1977) 2 CAC 7th Interim Report p710

3 ibid pp649-62

4 ibid p662

5 JTF Report Volumes 2 and 4

6 JTF Report p426

7 ibid p490

8 Royal Commission on the activities of the Federated Ship

Painters and Dockers Union Interim Report No. 4 Volume 3 p59 9 ibid pi 41

10 House of Representatives Weekly Hansard 20/4/82 pp!566-71 11 The Wall Street Journal 24/8/82 12 H ouse of Repr e s e n t a t i v e s Week l y Hansard 9/11/82 p2859 13 CAC 7th Interim Report p3^5 14 JTF Report p702; The Sun-Herald, 3/4/83; CAC 7th Interim Report

pp650,656

15 The Asian Wall Street Journal 17/8/83 16 CD1250 folios 3217-20, 3226-27, JTF ROI Evans 17 JTF Report pp739,801-2,821; The Asian Wall Street Journal

18/8/83; The Wal l Street Journal 25/8/82 18 JTF Report pp423,426,450,491,494 19 The National Times 5/4/81; The National Times 21/1/82; CAC 7th Interim Report p585 20 JTF Report pp327,491

21 CAC 7th Interim Report pp661-62 22 The Weekend Australian 9/8/80; The Sunday Telegraph 10/8/80; The Hong Kong Standard 12/8/80

23

24 25

26 27 28 29 30 31 32 33 34 35

36 37 38 39 40

41 42 43 44

45 46

47 48

49 50

51 52 53

53a 54 55 56 57 58

59

60 61 62 63

64

65

- 935 -

House of Representatives Weekly Hansard 9/11/82 pp2851-55 (in particular 2853) Penthouse May 1984 The Weekend Australian 9/8/80; The Sunday Telegraph 10/8/80; The Hong Kong Standard 12/8/80 ... .............

The Wall Street Journal 25/8/82; The Sun 25/8/82 CD2809 folio 20 CT22633, CT22641, Houghton JTF Report p732

ibid p734 CP2077 Letter Yates/JTF 23/6/83 House of Representatives Weekly Hansard 20/4/82, ppl566-71 The Wall Street Journal 24/8/82

House of Representatives Weekly Hansard 9/11/82 p2859 Royal Commission on the activities of the Federated Ship Painters and Dockers Union Interim Report No. 4 Volume 3 pi41 ibid ppl40-41

ibid pi40 ibid pl40 ibid pl40 ibid pl40

ibid pi 4 4 ibid pi 42 C A C 7th Interim Report p369 CD1942 Letter Pike/H.K. Immigration 27/10/75 CD1942 Letter Collinqs/Peninsula Hotel 11/7/75 Royal Commission on the activities of the Federated Ship Painters and Dockers Union Interim Report No. 4 Volume 3 ibid pi42 JTF Report p 702; The Sun-Herald 3/4/83; CAC 7th Interim Report pp650,656 JTF Report p702 Royal Commission on the activities of the Federated ship Painters and Dockers Union Interim Report No. 4 Volume 3 p226 CT23126, Ward CT22806, Ceilings CD3037 folio 3, Hand evidence to CAC CD1250 folio 294, JTF running sheets, M.J. Hand travel movements CD3037 folio 25, Hand evidence to CAC CAC 7th Interim Report p652 CD3037 CT22456, Dunn; CT23189, Ward CAC 7th Interim Report pp650-52; JTF Report p298 CD3038 folios 15-16, Houghton evidence to CAC; see also CAC 7th Interim Report p533 CT22456, Dunn CT24301, Dunn CT23189, Ward CD6087 folio 26, NHL personnel file, memo Ward/Hand and Nugan 31/8/76 CD3082 folio 14, Ward evidence to CAC; see also CAC 7th Interim Report p656 CD3025 folios 14-17, Hans evidence to CAC; see also CAC 7th

Interim Report p658

66 67 68 69 70 71 72 73 74 75 76 77 78

79 80 81 82 83 84 85 86

87 88 88a 88b 89

90 91

92 93 94 95 96 97 98

99

100 101 102 103 104 105 106 107 108 109

110 110a

- 936 -

CT15705, Hill CAC 7th Interim Report pp652-58; JTF Report pp695-97 CD5768, Documents produced to CAC by Mr K.J. Loy; JTF Report p697 CD6087 folios 24-31, Memo Ward/Hand and Nugan 31/8/76 CD6087 folio 26 CT23188, Ward

CT23189, Ward CT23189, Ward CT23190, Ward CT23190-91, Ward CT23191, Ward CT25121, Shaw CT21161, Clasen; see also CD6112 folio 33, P. Dunn Private files on NH personnel CT21156, Clasen

CT21158, Clasen CT21156-57, Clasen CT21160, Clasen CT21157, Clasen CT21159-60, Clasen CD5768 folio 11, Documents produced to CAC by Mr K.J. Loy CD1250 folio 4178, JTF ROI Loy CD3025 folio 17, Hans evidence to CAC CD1250 folio 4195, JTF ROI Ward CD11543, Statement of P. Swan CD1250 folio 466, handwritten notes For example, The National Times 21/2/82; The Age, 10/11/82; The Sydney Morning Herald 31/3/83; The Canberra Times, 10/11/82; The Wall Street Journal 24/8/82 ..............

CD1250 folio 467 CD3025 folio 14, Hans evidence to CAC; CAC 7th Interim Report p657 CD3025 folio 14 CD3025 folio 18 CD1250 folio 4190, JTF ROI Hans

CT21158, Clasen CT22892-93, Collings CAC 7th Interim Report pp 652-55; JTF Report pp695-97 A21 material provided by Department of Industry and Commerce; See Customs Act, Schedule 13, Item 1, Customs (Prohibited Exports) Regulations Reg 13B

The Asian Wall Street Journal 17/8/83 CD1250 folios 465-67, handwritten notes CD3025 folio 15, Hans evidence to CAC CD3025 folio 19, Hans evidence to CAC CD1250 folios 3217-20, 3226-27, JTF ROI Evans CD1250 folios 3190-259, JTF ROI Evans CD1250 folios 3217-20 CD1250 folios 3226-27 CD9834 folio 7, Transcript of interview CT18845, Evans CT18847, Evans CT25121, Shaw JTF Report pp 821, 739, 801-2; The Asian Wall Street Journal, 18/8/83; The Wall Street Journal, 25/8/82 "

Ill 112 113 114 115 116 117 IIP 119 120 121 122 123

124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 143a 144 145 146 147 148 149 150 151 152

153

154 155 156 157

158 159

- 937 -

CD1308, JTF ROI Colliding 28/11/82 C A C 7th Interim Report p649 CAC 7th Interim Report p662 JTF Report p426

CT22572, Houghton CT22633, Houghton CT22572, Houghton CT22573, Houghton

CT22603, Houghton CT22602, Houghton CT22633-34, CT22602, Houghton JTF Report pp423,426,450,491,494

The National Times, 5/4/81; The National Times, 21/11/82; CAC 7th Interim Reportp585 JTF Report pp327,491 CD1250 folio 833, JTF notes of telephone conversation with Owen

CD1974 folio 6 CD7972 folio 35, Official Receiver H.K. client listing CD9912 folio 79, NHIH telexes Bangkok 78-80 CD9912 folio 381 CAC 7th Interim Report pp661-62 CD1955 folio 26, Telex Black/Hand and Yates 7/11/78 CAC 7th Interim Report p661 CAC 7th Interim Report p661

CT24557, Black CT24559, Black , CT24557, Black CT24557-58, Black CD1955 folio 30, Telex Black/Nugan 8/11/78 CD1955 folio 127, Letter Black/Hand 2/3/78

CT24558, Black CP1955 folio 129, Telex Black/Prasert 27/2/78 CT24562, Black CD8628 folio 87, Telex Hand/Black

CT24560-61, Black CT24563, Black CT24570-71, Black CT24573, Black CT24567-68, Black CT24567-68, CT24572-73, Black

CT24573, Black CAC 7th Interim Report p661 See CD8628 folio 11 The Weekend Australian 9/8/80; The Sunday Telegraph 10/8/80; The

Hong Kong Standard 12/8/80 House of Representatives Weekly Hansard 9/11/82 pp2851-55 (in particular p2853) CD1184 folio 33, Hansard in JTF Arms dossier A135 folio 136 sections 27 and 70 Date of commencement, 17 July 1978 except sections 1 and 2,

11 July 1978 Divisions 1 and 2 section 9

- 938 -

160 section 11

161 section 13

161 section 14

163 sections 18,20,23,26 164 Date of Commencement 1 August 1975 165 sections 25 and 40

166 sections 54 and 55

167 section 6

P A R T EIGHT

A L L E G A T I O N S OF B R E A C H E S O F EXCH A N G E CO N T R O L LAWS

- 941 -

A L L E G A T I O N S OF BREACHES OF EXCHANGE C O N T R O L LAWS

Scope of Reference

8.1 Prior to the inception of this Commission there were persistent

allegations that the Nugan Hand Group illegally moved large volumes of

currency into and out of Australia. The existence of these allegations

is no doubt the reason for the inclusion in the Commission's terms of

reference [Appendix A] of a direction to the Commission to inquire

specifically into whether the Group engaged in activities involving

contravention of laws relating to exchange control. In the period with

which the Commission's inquiries in this regard are concerned, namely,

the years 1976 to 1979, inclusive, Australian exchange control

legislation was primarily concerned with the regulation of capital

inflows and outflows. It is necessary to mention that since 12 December

1983 as a result of changes in Government policy exchange control has

been substantially de-regulated by means of exempting certain classes of

persons, transactions, securities and goods from the operation of the

regulations. Ironically, perhaps, this major change in policy, has

brought about a situation where participation in some of the transactions

identified in this Part which were in breach of the then foreign exchange

legislation and which entailed heavy penalties, including imprisonment,

may under the current state of the legislation be legitimately carried

on. Let it be said at the outset that the evidence clearly establishes

that during the years in question the Group simply flouted the provisions

of the legislation as it then stood in that large volumes of currency

were moved in and out of Australia either without the approval of the

Reserve Bank of Australia (hereafter referred to as 'the Reserve Bank')

which was required, or under the pretence of a particular movement being

covered by an approval which had been obtained as a result of false

information having been supplied to the Reserve Bank or under the guise

of an approval which had been granted in respect of a transaction other

than the one actually effected. The methods by which these movements of

currency were effected are identified in this Part

- 942 -

a n d m a n y examp l e s a r e b r i e f l y described. T h e ea s e w i t h w h i c h t h e G r o u p

w a s abl e to escape the provi s i o n s of the leg i s l a t i o n and, in particular,

to e s c a p e d e t e c t i o n b y the R e s e r v e B a n k sugg e s t s that o b s e r v a n c e of the

l e g i slation b y p r o f e s s i o n a l 'money movers' d e p e n d e d alm o s t e n t i r e l y on

v o l u n t a r y c o m p l i a n c e rather than e n f o r c e m e n t b y authority.

8.2 The illustrations of breaches provided in the following pages

will serve to indicate the large volume of currency that was involved

over the years. Further assistance in this regard may be obtained from a

reading of certain passages contained in a transcript"*" of a talk

Mr Nugan gave to the employees of his legal practice in Sydney in October

1979. The following extracts, which are reproduced verbatim, illustrate,

as well, the style of Mr Nugan's speech and written prose which were

verbose and difficult to follow, a curious feature that has been

commented upon by more than one witness before the Commission:^

'... I should tell you that it's a question of expertise to get permission to send money out of the country, but I have found in my experience that the way of persuading the central bank to let someone transmit funds is very similar to tax dodging. You lead with your left, but first of all you need a formula, you've got

to know their guide lines, you've got to know that you've got to design the facts so that your considerations of fact and law again are right so that they can grant you appoval. So of

course I generally have followed this procedure, I say "give me your history" and if you've got a good commercial history of profit and expertise, that will help you in this country, or whatever country it" is. Then tell me a legitimate purpose

overseas that this expertise and history is usable in to

generate profits. Right, so the guy says I'm in hardware, I've got a 40 year history in my company of success in hardware,

that's how come I've got so much that I want to ship it

off-shore - here's 40 years accounts. Mow I'd like to shift a million off-shore - $250,000 off-shore - so that's it's usable by me and I say fine. Is there any reason your hardware

expertise is not usable in Hong Kong or South East Asia and the guy says "No, in fact I buy a lot of P.C. items from Korea and

South East Asia here, already". You say fine, why not establish a hardware subsidiary in Hong Kong, with a similar name to yours, wholly owned. Apply to the Reserve Bank for permission to export your expertise as a hardware merchant and say by the way, can I take some capital, I need it, otherwise the banks won't deal with me ... Do you know what they are saying,

Dalgleish and these guys, Superintendent of Exchange Control, and they say - what does he need quarter of a million for, why can't he do it with $20,000 and you say to him, listen do you

know what his turnover was last year, it was $20,000,000

- 943 -

worth of hardware that was turning over his $1,000,000 worth of capital about 20 times, do you think you can do that with the money when you've got the money in inventory, you need

overdrafts and how is he going to get an overdraft for

$3,000,000 if he hasn't got a million there. You help him get the overdraft without the money and we won't take the money, we won't need to. You guarantee him with the Australian federal bank and he'll get the overdraft. If not he's going to need the money. And of course they will understand that and will grant

the approval. O.K., very easy to get in any country the export expertise legitimately and openly and take a little capital with you. Now if you do want to do open an tax minimisation thing in that other country then it's possible to do it particularly if

the funds are coming back to Australia, it is possible to do it in an open and not clandestine way as well. Sometimes they don't bother for a while doing that and I add in the missing links later when I've worked out how to add in missing links that are openly disclosable, or when I have time to do them.

1 3

8.3 In the course of its inquiries the Commission has noted evidence

that the Group also appears to have deliberately contravened the monetary

laws of overseas countries, in particular those of Singapore, Malaysia

and Hong Kong. These matters, of course, fall outside the Commission's

terms of reference and no further mention is made of them in this Part.

8.4 Apart from the actual movement of funds in and out of Australia

as mentioned above, the Group provided an additional facility to clients

which attracted a great deal of use and which also contravened the

legislation although there was no actual movement of funds into or out of

Australia. This facility was known within the Group as 'Yorkville

Contra' although it is clear that to various persons within the Group it

had somewhat different meanings. Leaving aside some of the variations

mentioned later in this Part, the purpose of the facility was to provide

to a depositor with the Group who deposited moneys in Australia the means

to obtain a credit in an equivalent sum in a country outside Australia,

usually Singapore or Pong Kong, without any remittance of the depositor's

funds to the overseas country and without any record being made of the

transaction in the books of the Australian company with which the money

was deposited. Alternatively, such a depositor could deposit moneys in

Singapore or Hong Kong and receive the credit in Australia.

- 944 -

D e f i n i t i o n and H i s t o r y of Exch a n g e Control

8.5 In Australia, exchange control is a term used to describe a

combination of legislation and Government policy directed to controlling

the country's foreign exchange resources. It was introduced under the

Commonwealth National Security Act 1939, as an emergency measure at the

outbreak of World War II. Then, the objective was to marshal receipts

and ration payments and, in the process, the major part of Australia's

international reserves were channelled into the central bank.

8.6 The national security legislation was superseded by the Banking

(Foreign Exchange) Regulations, made pursuant to section 39 of the

Commonwealth Banking Act 1959 (hereafter referred to as 'the Banking

Act'). This legislation, subject to continuing amendment, remains in

place today.

8.7 Since 1959 the most far reaching amendments to the exchange

control legislation occurred in 1973 and 1974. In December 1973

amendments to the Banking Act 1959 constituted the first attempt to use

the exchange control legislation to combat foreign transactions having

tax avoidance i m p l i c a t i o n s I n December 1974 the Banking Act and the

Banking (Foreign Exchange) Regulations were amended to overcome certain 5

deficiencies made evident by judicial decisions and to broaden the

scope of the controls. Together, these amendments, extended the base of

exchange control by taking advantage of all powers of Government in

relation to financial aspects of overseas transactions;® provided for

the Banking (Foreign Exchange) Regulations to apply to transactions

entered into outside Australia (extra-territorial application); ^

provided that for civil purposes, contracts and transactions entered into

or effected without any necessary exchange control authority would not,

for that reason, be deemed to be invalid or unenforceable;® provided a

firmer legal basis for tax screening by removing from the Reserve Bank to

the Commissioner of Taxation, the onus of deciding whether tax avoidance

or evasion was involved in any transaction;® defined the word

'resident' as meaning natural persons ordinarily resident in Australia

and corporations incorporated in Australia;"*"® and deemed the overseas

offices of Australian companies to be non-residents for the purposes of

their overseas operations and the Australian offices of overseas

- 945 -

companies to b e residents for the purposes of their Austr a l i a n

operations.

8.8 Since 1974 both the Banking Act and the Banking (Foreign

Exchange Regulations have been amended but such amendments have no

bearing on the Commission's inquiries into the activities of the Nugan

Hand Group.

8.9 T h e legal framework provided by the Ba n k i n g (Foreign Exchange)

R e g u l a t i o n s is, however, o n l y the f oundation upon which the

a d m i nistration of exch a n g e control is constructed. Built upon this

framework is a labyrinth of Government financial policy by which specific 12

transactions are controlled. In the words of one commentator:

'In no field of fiscal law - it m a y not unfa i r l y b e said in no

field or branch of A u s t r a l i a n law - is there such a mi x t u r e of

law a n d pol i c y as in the app l i c a b i l i t y of the ... Banking

(Foreign Exchange) Regulations'.

8.10 Both the Reserve Bank and the Department of the Treasury play an

active role in providing advice to the Treasurer on exchange control

policy and its implementation. In addition to domestic considerations,

policy formulation takes account of obligations assumed by Australia's

membership of international organisations such as the International

Monetary Fund and the Organisation for Economic Cooperation and

Development both of which encourage codes of liberalisation in

international trade and payments.·1 ·3

8.11 The overall thrust of exchange control policies has changed over

the years and brief reference has already been made to those changes. In

contrast to the days of 1939 when foreign exchange was marshalled and

channelled into the central bank, exchange control in the period of

concern to this inquiry, that is, 1976 to 1979 inclusive, was essentially

concerned with the regulation or supervision of the inflow and outflow of

capital.3:1

8.12 To give effect to this policy, the Regulations established the

Reserve Bank as the principal regulatory agency and prohibited certain

- 946 -

acts on the part of residents and non-residents without the Bank's

authority. The Bank was empowered to authorise otherwise prohibited

conduct either conditionally or unconditionally.'1 '5 In addition, the

Bank was empowered to approve agents and pursuant to this power trading

banks were appointed to process applications for most types of currency

payments within certain monetary limits."15 Applications outside those

limits were required to be submitted to the Reserve Bank as were most

applications involving capital transactions. These arrangements enabled

the trading banks to deal with a substantial proportion of the personal

and commercial transactions of a non-capital nature. Applications

relating to transactions involving securities also had to be submitted to

the Reserve Bank except to the extent that certain bodies were issued

with general authorities, for example, stock brokers and company share

registrars. Likewise a small number of companies engaged in travel

services held limited authorities from the Reserve Bank for travel

related transactions.

8.13 By this means, the Reserve Bank supervised the transfer of money

and other assets basically in three ways - into and out of Australia,

within Australia including transactions involving non-residents, and

outside Australia in so far as Australian residents were concerned. The

Bank sought to conserve Australia's foreign exchange resources such as

balances with overseas banks and other financial institutions; foreign

currency whether in notes, coins, bills of exchange, letters of credit,

traveller's cheques etc; and foreign securities such as shares, bonds,

deposit receipts or debts owing by overseas persons to Australian

residents.1^

8.14 Since the late 1970's, there have been a number of major

developments concerning exchange control. In September 1981 the Final

Report of the Committee of Inquiry into the Australian Financial System,

chaired by the late Sir Keith Campbell, recommended sweeping changes to

the then system of exchange control. Basically it was proposed that a

wide range of exchange control mechanisms be dismantled to permit freedom

in exchange transactions and that a monitoring and reporting system based

on the notification of transactions as they occurred be substituted.1®

- 947 -

8.15 On 9 December 1983 the Treasurer, the Hon. Mr P. Keating M.P.

announced the Government's decision to float the Australian dollar and to

abolish a major part of the exchange controls. These changes were

effected by means of exempting, pursuant to Regulation 38 of the Banking

(Foreign Exchange) Regulations, certain classes of people, transactions,

securities or goods from the operation of the Regulations. Thus the

legislation remains intact but those provisions relating to exchange

control are all but inoperative by reason of the exemptions made pursuant,

to Regulation 38. The first of such changes was published in the

Commonwealth of Australia Gazette on 12 December 1983.^ Further

changes were announced in February and June 1984 and notified in the

Commonwealth of Australia Gazettes on 6 February and 25 June 1984 20 respectively. Copies of the Gazetted notices appear in Schedule A

[see 8.115].

8.16 The nature and extent of the exemptions can be seen in

Schedule B [see 8.116] which compares relevant provisions prior to and

following the recent changes. In brief, Reserve Bank authority is only

required when Australian notes and coins are sent out of Australia; when

Australian notes and coins in excess of A$5 000 are taken out of

Australia for travel purposes; and when money is invested in Australia by

or on behalf of foreign governments.

8.17 As from 28 June 1984, banks no longer act as agents of the

Reserve Bank for the purposes of the Banking (Foreign Exchange)

Regulations. Instead, banks and a number of other organisations have

been authorised to deal in foreign exchange. A general authority has

been given permitting Australian residents to enter into foreign exchange

transactions with authorised foreign exchange dealers and to undertake

other transactions with non-residents subject to tax screening

requirements.

8.18 Brief mention has already been made of the 1974 amendments

concerning exchange control and income tax. More specifically, the

legislation was aimed at certain transactions involving residents of so

called 'tax havens'. Section 39B of the Banking Act 1959 (as in 1974) in

conjunction with section 40C of the Taxation Administration Act 1953

- 948 -

provided that where approval was required for a transaction under the

Banking (Foreign Exchange) Regulations, the Bank would not grant such

approval unless a tax clearance certificate from the Taxation Department,

was produced by the applicant. On 23 December 1974 the Treasurer

published a list of the places and a list of the transactions in respect

of which a tax clearance certificate was required. A copy of the

relevant Gazette notice appears at Schedule C of this Part [8.117].

8.19 Despite the recent de-regulation such screening has continued in

respect of transactions with residents of tax havens and certain other

transactions involving payments over A$50 000 to or on behalf of

non-residents.^ Prior to 1 January 1985 a dealer proposing to

undertake such transactions was required to lodge a declaration form with

the Reserve Bank. Upon receipt of the declaration form the Reserve Bank

indicated either that the transaction could proceed or that a tax

clearance certificate was required before the transaction could be

undertaken. The Reserve Bank did not however retain any documents, the

original being forwarded to the Australian Taxation Office and the 22

du p l i c a t e then returned to the dealer. O n 18 Decem b e r 1984 the

Reserve Bank announced new arrangements for the tax screening

procedures. Since 1 January 1985 all declaration forms completed for tax

screening purposes must be forwarded by the dealer directly to the

Australian Taxation Office, there being no requirement to obtain the 23 p r i o r clearance of the R e s e r v e Bank.

8.20 As a footnote to this summary of recent changes to exchange

control, one of the important and, perhaps, inevitable consequences of

the recent change in the operation of the Regulations should be noted.

Whereas formerly records were required to be made and kept which

sometimes proved to be of assistance to investigators inquiring into

suspected transactions involving money laundering, tax evasion and the

like, such records are no longer required.

Specific Regulations in the Period from 1976 to 1979

8.21 For the purposes of the Commission's inquiry, as already noted,

the relevant Regulations were those in force in the period from 1976 to

- 949 -

1979 inclusive. The more important of these Regulations were Regulations

5, 6, 8, 9, 33, 34, 39, 40, 41 and 42. The general thrust of these

Regulations is set out below.

Regulation 5

8.22 Regulation 5 prohibited the purchase of, or other dealing with,

foreign currency. Regulation 5(a) prohibited such foreign currency

purchases, or other dealings, by any person (whether a resident or not)

where the purchase, or other dealing, occurred in Australia. Regulation

5(b) prohibited similar foreign currency purchase, or other dealing, by a

resident, where that resident was outside Australia. In all cases, the

Reserve Bank could authorise the relevant purchase, or other dealing.

Regul a t i o n 6

8.23 Regulation 6 prohibited the taking or sending out of Australia

of any Australian currency or foreign currency. Again, the Bank could

grant approval. Accordingly, the combined effect of Regulations 5 and 6

was such that, except with the approval of the Bank, a person (whether a

resident or not) could not accumulate foreign currency in Australia and,

in addition, a resident could not accumulate currency outside Australia.

Regulation 8

8.24 This was the most discussed and perhaps the most operative of

the Regulations although it had certain limitations. The Regulation was

widely drawn and, on its face, had a very broad effect. Basically, it

provided that, except with the authority of the Reserve Bank, a person

could not:

. make payment in Australia to or on behalf of non-residents;

credit A ustralian acco u n t s of non-residents;

- 950 -

. draw, issue or negotiate bills of exchange or promissory notes

in favour of non-residents;

. enter into agreements (other than for the purchase of goods)

creating rights in favour of residents and non-residents to

receive payments or valuable consideration or the performance of

services;

. allot, transfer or register securities in the name of a

non-resident; and

. make compensating payments such as the payment within Australia

as quid pro quo for payments outside Australia.24

8.25 Regulation 8 purported to apply to most conceivable

transactions. The wide ambit of Regulation 8 was reinforced by

section 39A(1) of the Banking Act 1959 which stated that the Banking

(Foreign Exchange) Regulations applied both within and without

Australia. There was, however, serious doubt as to the constitutional

validity of parts of Regulation 8 and section 39A(1) of the Banking Act.

Legal commentators considered that, despite its width of language, 25

Regulation 8 was limited to acts done in Australia.^·

R e g u l a t i o n 9

8.26 Regulation 9 related to dealings between non-residents, or

persons acting on behalf of non-residents, otherwise than with Bank

authority. The Regulation prohibited the sale, loan, transfer,

mortgaging or charging of any security or land that was in Australia by

or on behalf of one non-resident to another.2®

Regulation 33

8.27 Regulation 33 prohibited the taking, sending or transferring to

any place outside Australia of any securities again, without the

authority of the Bank. The prohibition extended to both residents and

non-residents.

- 951 -

Regulation 34

8.28 Regulation 34 which complemented Regulation 33 dealt with

foreign securities. It prohibited transactions involving foreign

securities by both residents and non-residents in Australia and by

residents outside Australia. The term 1 foreign securities' was defined

in wide terms in Regulation 4(2). As well as securities proper it

included debts and money.

Regulation 39

8.29 This Regulation provided, amongst other things, that where the

Reserve Bank granted an authority subject to conditions a person must

comply with those conditions. Failure to do so invoked the criminal

sanction contained in Regulation 42.

Regulation 40

8.30 Regulation 40 prohibited the making of a statement in relation

to any matter involving the Regulations, knowing that statement to be

untrue or misleading. Again failure to comply with this Regulation

invoked the operation of Regulation 42.

Regulation 41

8.31 This Regulation prohibited a person from entering into an

arrangement the purpose of which was to evade, avoid or prevent the

operation of the Regulations.

Regulation 42

8.32 Regulation 42 provided that it was an offence to contravene,

attempt to contravene, or fail to comply with any of the provisions of

the Regulations. The penalty prescribed was a fine not exceeding Ail 000

or imprisonment for a term not exceeding six months - if the offence was

prosecuted summarily; or if the offence was prosecuted upon indictment -

- 952 -

a fine not exceeding A$100 000 or imprisonment for a period not exceeding

five years. In addition, Regulation 42(2) provided that, subject to

certain exceptions contained in Regulation 42(3) and (4), a conviction

pursuant to Regulation 42 entitled the court, if it thought fit, to order

the forfeiture of all or any of the articles in respect of which the

offence was committed.

Specific Transactions in Breach of the Regulations

8.33 The evidence disclosed a wide range of transactions which in

some measure contravened the relevant provisions of the Banking (Foreign

Exchange) Regulations. As previously mentioned, some involved the

movement of money across national borders and others involved no element

of movement and in these cases money was simply made available by a

particular company within the Group according to no other criterion than

the convenience of the client or, equally, the convenience of the Group.

The facility which was known as 'Yorkville Contra1 typifies those

transactions involving no transmission of money across borders [see 8.36

et seq].

8.34 The following paragraphs provide examples of the different

transactions and indicate the particular regulations which these

transactions have contravened. In the interests of clarity an attempt

has been made to categorise the examples in terms of whether Reserve Bank

approval was obtained or whether the approval was obtained on false

grounds or was misused. Because of the complexity of some of these

transactions, there is inevitably an overlap between the two groups.

8.35 Contraventions of exchange control were commonplace in the

Group's operations. In excess of 370 such contraventions involving a

total amount of A$16 308 938.81 have been identified by the

Commission.2®3 To avoid unnecessary detail a small number of examples

have been selected for inclusion in the text. All Yorkville contra

transactions identified by the Commission have been compiled in three

schedules, including details of the person or persons involved, which

have been provided, pursuant to section 6P of the Commonwealth Royal

- 953 -

Commissions Act, to relevant law enforcement authorities for further

investigation. Because of the particular interest in the transactions

styled 'Yorkville Contra1 the nature of this transaction and the

circumstances of its use by the Nugan Hand Group have been described

below in some detail [see 8.36-8.78].

Transactions for which no Reserve Bank Approval was Obtained

Yorkville Contras

8.36 The 'Yorkville Contra' can be described as a facility provided

by the Nugan Hand Group whereby a client could deposit money with a

particular Nugan Hand company in one country on the understanding that

the client had the right to receive an equivalent amount from a Nugan

Hand company in another country. In each case one of the countries

concerned would be Australia and there would be no transmission of money

across national borders.

8.37 The word 'Yorkville' was a reference to the fact that in the

early days of the Group the clients using this facility were treated as

clients of Yorkville Nominees Pty Ltd [profile 2.108] (hereafter referred

to as 'Yorkville Nominees') while 'contra' was, and is, a bookkeeping

term meaning 'against'. In bookkeeping terms, contra accounts arise

between two persons having mutual dealings where amounts are set off one

against the other so that only the balance is payable. Thus in a

Yorkville Contra transaction, payment to the client in one country is set

off against the client's deposit in another so extinguishing the original

liability.

8.38 The facility denoted by the term 'Yorkville Contra' has

something in common with another facility offered by the Nugan Hand Group

known as a 'back to back loan'. The common feature of the two was that

the client paid money to, and subsequently received money from, the Nugan

Hand Group. In the case of the back to back loan, however, the two parts

of the transaction occurred in the same country. It was a tax evasion

scheme which depended upon the money being received by the client as a

- 954 -

loan in respect of which the client would receive a deed of release. For

a more detailed description of back to back loans see paragraphs 9.9 to

9.10.

8.39 By way of illustration, a typical Yorkville Contra transaction

might commence with a client depositing cash with Nugan Hand Ltd [profile

2.97] in Sydney. The money would be kept in a safe in the company's

premises in Macquarie Street, Sydney and might be used to pay out a

client who required repayment in cash or, equally, to make other payments

which the company found convenient to pay in cash. The client concerned

would receive the equivalent amount, less a fee of between two and seven

per cent, from the Nugan Hand Bank [for further information on the role

of this Bank see Part 4 Section 2] in Hong Kong or Singapore, in any form

the client desired, that is, cash, cash cheque, telegraphic transfer to a

bank account anywhere in the world, demand draft, travellers cheques,

money order and the like. More specifically, the client might request

that the money be paid by cheque to the client in Australia. In this way

he could claim that the money was a loan or gift from relatives or

associates overseas (and thus not subject to income tax) and that the

relatives or associates had merely used the Bank as an intermediary.

Alternatively a client involved in the import/export business might

request payment by means of telegraphic transfer to a third party - in

another country to cover debts incurred in the course of business.

8.40 Generally speaking, Yorkville Contra transactions were conducted

between Australia and Hong Kong or Singapore, the client's deposit being

made in Australia and payment in Hong Kong or Singapore being usually

effected through the Nugan Hand Bank. Equally though, deposits could be

made in other countries for example Saudi Arabia as well as Hong Kong or

Singapore and payment, in the manner requested by the client, effected by

Nugan Hand Ltd in Sydney.

8.41 The Yorkville Contra was used to facilitate a variety of

transactions each of which was accorded the confidentiality and the

disrespect for proper accounting which were features of the Group's

operations. Ihis inevitably gave rise to confusion or over

- 955 -

simplification on the part of the representatives while the facility

itself gained a certain mystique.

8.42 Mr C.L. rollings [profile 2.15] called the Yorkville Contra a

slush fund established in Sydney and utilised from time to time for the

transfer of funds from Hong Kong or Singapore to Sydney or vice versa.

He said that it was treated as a suspense account.27 Mr M.B. Houghton

[profile 2.35] told the Commission that 'if you had money in Yorkville or

the Nugan Hand Bank you could co-mingle it.'28 Mr G.V. Galicek

[profile 2.22] observed that whoever deposited money in any Nugan Hand

office in the world could take the deposit back in any other office in

the world.29

8.43 Messrs G.T. Shaw and S.K. Hill [profiles 2.65 and 2.33] who were

closely associated with the administration of the Yorkville Contra, told

the Commission that while the transactions were recorded in the books of

the Nugan Hand Bank, records in Sydney were limited to the red cash book

and blue ledger [see 3.8.131, 3.8.132, 3.8.135 and 6.24] maintained by

Mr Shaw.30

8.44 Most of the senior executives of the Nugan Hand Group were

actively involved in Yorkville Contras in that they acted as the major

processors of the transactions either in Sydney as in the case of Messrs

Nugan, Shaw, and to a far lesser extent, Edelsten, or in Hong Kong as in

the case of Messrs Col lings and McArthur, or in Singapore as in the case

of Mr M.J. Hand. (Profiles of each of these persons are set out in

Part 2.) In Sydney Messrs Nugan and Shaw entered transactions in a blue

book (subsequently lost or destroyed), and made payments in cash or

authorised the drawing of cheques or the issuing of other forms of

payment. In Singapore, the Nugan Hand Bank accounting centre, Mr Hand

issued instructions to his staff, including Mr Tan Choon Seng [profile

2.71], the bookkeeper, as to how the Yorkville Contras should be treated

in the books and records. He also authorised the many cheques issued by

the Nugan Hand Bank to satisfy Yorkville Contra transactions. In Hong

Kong, Messrs Ceilings and McArthur instructed staff in recording the

transactions and in effecting individual payments. Also in Hong Kong,

Mrs G. Lovatt [profile 2.43] changed the relevant Nugan Hand Bank client

ledgers as instructed, to reflect payments made to depositors.

- 956 -

8.45 Mr Hill processed some Yorkville Contras but his more

significant role was that of examining and checking the accounting

records of the Nugan Hand Bank in Singapore together with Mr G.F. Brincat

[profile 2.9]. These records of course included entries made in respect

of the Yorkville Contras. Mr Brincat rewrote the Nugan Hand Bank records

each year for submission to the Bank's auditors but in his evidence to

the Commission he claimed limited knowledge of the meaning of that term

describing it as a suspense account used in Singapore for transactions

which they were uncertain how to treat.^ [See paragraphs 4.2.117 to

4.2.177 for further details concerning the rewriting of the Nugan Hand

Bank records.]

8.46 As far as the overseas representatives of the Nugan Hand Bank

were concerned, they promoted the Yorkville Contra as a facility offered

by the Group but in many cases their knowledge of the scheme was minimal

and they referred interested clients to Mr Shaw.

8.47 The Group generally charged fees for providing the Yorkville

Contra service. The fee was charged at a rate which varied from between

two per cent to seven per cent depending on the amount of money deposited 32 by the client. In practice, the client would receive 93 per cent to

98 per cent of the money originally deposited. In some circumstances,

for example where a client was already a sizeable depositor with the

Group, or where the depositor needed some form of inducement, the 33

Yorkville Contra facility was provided free of charge.

8.48 In return, the client would have money made available overseas

without attracting the attention of the Australian authorities. There

were no risks such as those associated with physically carrying money

from one country to another and there were no tell-tale records such as

bank statements. The service was also extremely efficient as far as the

client was concerned, requiring only a telex directive to obtain the

required payment.

8.49 The secrecy with which these transactions were accomplished was

of course essential to achieve the primary goal of most clients, that of

- 957 -

evading the relevant income tax laws. Not surprisingly, proper

accounting procedures were not observed. While the overseas companies

recorded receipts or payments as Yorkville Contras, they were disguised

at the end of the financial year to prevent them from being disclosed in

the financial statements of the company. In Australia, on the other

hand, the transactions were generally not recorded. In those cases where

they were recorded they were disguised, often as loans.

8.50 Inproper accounting, together with incomplete documentation

concerning the Nugan Hand Bank [see Part 4 Section 4] and other overseas

companies, and the concealment and destruction of Nugan Hand records in

Sydney [see Part 3 Section 9] have made the task of analysing and

collating the various Yorkville Contra transactions a difficult one.

Oral evidence before the Commission was of no more than limited

assistance in this task.

8.51 Nevertheless the Commission has prepared three schedules of

transactions, which satisfy the definition of a Yorkville Contra. Each

of the schedules is based on a different accounting source and should,

with one possible exception, represent different transactions. One such

schedule is a list of all Yorkville Contras which were recorded in an

account entitled 'Yorkville Contra' in the books of the Nugan Hand Bank.

It should be noted that some transactions recorded in this account do not

in fact come within the definition of Yorkville Contra and have not been

included in this schedule which has been provided, pursuant to section 6P

of the Commonwealth Royal Commissions Act, to relevant law enforcement 34

authorities for further investigation [see 8.35].

8.52 The second of these schedule prepared by the Commission

conprises a list of all Yorkville Contras included in the account

entitled 'Nugan Hand Ltd' in the books of the Nugan Hand Bank. The

majority of these transactions were of a particular type, that is,

deposits made from overseas to Nugan Hand Ltd in Sydney, the liability

for which was assumed by the Nugan Hand Bank which in due course repaid

the deposit overseas. Before July 1977 these were included in the

account styled 'Yorkville Contra'. Thereafter they were included in the

- 958 -

account entitled 'Nugan Hand Ltd'. These transactions have been included

as Yorkville Contras because they satisfy the basic definition of a

Yorkville Contra although it could be argued that in the case of some of

these transactions repayment by a different company in a different

country was not so much a facility for the client's purposes but rather

an arrangement which was convenient to the Nugan Hand Group.35 This

schedule has been provided, pursuant to section 6P of the Commonwealth

Royal Commissions Act, to relevant law enforcement authorities for

further investigation.

8.53 The third such schedule includes Yorkville Contra transactions

to or from Nugan Hand Bank which were not included in the books and

records styled 'Yorkville Contra' and 'Nugan Hand Ltd'. It also includes

transactions to or from Nugan Hand Inc. Panama (before the formation of

the Nugan Hand Bank) as well as those located amongst the records of

Nugan Hand (Hong Kong) Ltd (hereafter referred to as 'Nugan Hand (Hong

Kong)') and Nugan Hand Singapore (Pte) Ltd. This schedule also has been

provided, pursuant to section 6P of the Commonwealth Royal Commissions

Act, to relevant law enforcement authorities for further investigation.

Many of the transactions were deposits received in Australia for which

International Certificates of Deposit were issued by the Nugan Hand

Bank. It should be noted that a journal entry of 30 June 1979 in the

books of the Nugan Hand Bank charged the account entitled 'Yorkville

Contra' for adjustments made to deposits accepted from clients in the

amount of US$2.3 million.

8.54 In compiling the schedules it was noted that the Nugan Hand Bank

books and records showed inconsistencies in the exchange rates adopted

from time to time. When a credit was raised in the Nugan Hand Bank's

books, in respect of a Yorkville Contra transaction, the Nugan Hand Bank

applied the middle rate on that day. When the Nugan Hand Bank purchased

or sent a draft or telegraphic transfer overseas the buying rate on that

day was applied. When the books and records were written up, the rate

applicable at the end of the month, at the end of several months, or at

the end of the financial year was used to convert Australian, Hong Kong

and Singapore dollars to United States dollars which was the currency

- 959 -

used by the Nugan Hand Bank for recording purposes. Accordingly, the

Nugan Hand Bank records sometimes reflected different United States

dollar amounts for the same transaction. Where this occurred and where

the situation was otherwise unclear, the Commission has taken the rate

prevailing on the day of the transaction.

8.55 In addition to these three schedules which contained only the

essential facts concerning each transaction, namely, date, amount, client

etc, a further schedule has been prepared. The purpose of setting out

the detailed circumstances of each of these transactions in this fourth

schedule is to enable their complexity and diversity to be appreciated

without their detail overwhelming the rest of this Part. This schedule,

too, has been provided, pursuant to section 6P of the Commonwealth Royal

Commissions Act, to relevant law enforcement authorities for further

investigation. However in order to give a sample of these transactions

in this report, examples from this fourth schedule are set out in the

following paragraphs to illustrate particular categories of transactions

and to demonstrate the manner in which the Banking (Foreign Exchange)

Regulations have been contravened. The examples which follow immediately

are Yorkville Contra transactions.

Example No. 1

8.56 In this example cash was received and placed in the safe of

Nugan Hand Ltd in Sydney and, by means of a Yorkville Contra, a Nugan

Hand Bank international certificate of deposit was issued overseas.

Repayment was subsequently effected by the Nugan Hand Bank sending the

money plus interest earned to Hawaii in accordance with the client's

instructions.

8.57 In or about November 1977 Mr R.A. Pulger-Frame [profile 2.59]

travelled to Australia and collected a total of A$350 000 on behalf of

the Nugan Hand Group. This money was placed in the safe at Nugan Hand

Ltd's premises in Sydney. One of the clients that he received cash from

was 'K'. K was introduced to Mr Pulger-Frame, by a Queensland

accountant, who was present when K obtained AS100 000 in cash and handed 37 it to Mr Pulger-Frame in Melbourne.

- 960 -

8.58 The cash which had been received in Sydney gave the client

rights to an equivalent amount overseas. Thus, on 2 November 1977 the

Nugan Hand Bank issued an international certificate of deposit for

US$106 220. This deposit was for a period of one year with an interest

rate of 8.75 per cent. K was allocated the Nugan Hand Bank client number

77-3134-A.^ (Mr Pulger-Frame told Commission investigators that the

accountant had taken A$6 000 for himself but this conflicted with a

memorandum he sent to Mr Oollings stating that the accountant had 'peeled 39

off two of the six per cent I charged so he made A$2 000 out of it' ).

8.59 On 26 February 1979 K's accountant instructed the Nugan Hand

Bank that the principal plus interest was to be transferred to a bank

account at the First Hawaiian Bank, Hawaii. On 6 March 1979

US$118 967.65 was transferred by telegraphic transfer to Hawaii

for K.41" 1 K did not give evidence to the Commission although she was

interviewed by Commission investigators.4* K told Commission

investigators that the A$100 000 was an investment by her son who wrote a

cheque in the name of his company and gave it to the accountant. The

accountant travelled to Melbourne and with K banked this cheque to her

account. K drew cash against this cheque and handed it to

Mr Pulger-Frame at her home in Melbourne. No receipt for the money was

handed to K, however, an international certificate of deposit from the

Nugan Hand Bank was forwarded to her son by the accountant on 8 February

1978. After the deposit with the Nugan Hand Bank matured, the accountant

suggested that it be transferred to K's Hawaiian bank account. K told

Commission investigators that the funds were later transferred to her

son's bank account in Honolulu and brought back to Australia by him in

1982.42

Example No. 2

8.60 in this case money was collected in Australia by two Nugan Hand

Group companies - Yorkville Nominees Pty Ltd and Nugan Hand Trade

Services Pty Ltd [profile 2.98] (hereafter referred to as 'Nugan Hand

Trade Services') - and a taxation scheme was then implemented. By means

of a Yorkville Contra, the equivalent amount of money was made available

- 961 -

through the Nugan Hand Bank (either from Hong Kong or from Singapore) and

was subsequently transferred by the Bank to Switzerland.

8.61 'G' operated a company in South Australia which paid A$ll 000 to

Yorkville Nominees on 5 April 1978 and subsequently made 11 payments to

Nugan Hand Trade Services of A$8 983.33 each. The total money received

in Australia was A$109 816.63. Subsequently the Nugan Hand Bank paid out

overseas, by telegraphic transfer, one amount of A$29 600.66 on 20 April

1978 and from July 1978 to October 1979 eight payments of A$7 007 making

a total of A$85 656. The difference between the money raised in

Australia and that paid out by the Nugan Hand Bank was A$24 161 which was

22 per cent of the money deposited in Australia. This 22 per cent

probably represented the fee for the taxation scheme which essentially

involved the issue of false invoices by Yorkville Nominees and Nugan Hand

Trade Services to G's company ostensibly for services rendered.

8.62 G's company claimed expenses in their taxation returns based on

these invoices and received a corresponding tax deduction. In fact,

78 per cent of these payments to the Nugan Hand Group companies by G were

returned to him by the Nugan Hand Bank overseas. The first payment by

the Nugan Hand Bank on 20 April 1978 of A$29 600.99 was transferred to

G's account at the Swiss Credit Bank, Zurich. The subsequent instalments

of A$7 007 were paid to the same bank in Switzerland to an account in

another name.

8.63 G denied to Commission investigators that these transactions

were a taxation scheme and claimed that the payments related to increased

sales of office furniture as part of his business. However, the

Commission's inquiries found no evidence of any significant sales

assistance by the Nugan Hand Group. G denied any knowledge of the Swiss 43

bank accounts as well as the name of the second account.

Example No. 3

8.64 In this example money accumulated overseas by Έ ' was

transferred to the Nugan Hand Bank and, by means of a Yorkville Contra,

- 962 -

money was made available in Australia where a tax scheme was

implemented.

8.65 On 27 January 1976 a cheque for US$10 558 was deposited to Nugan

Hand Inc. Panama at the Union Bank of Switzerland in Zurich on behalf of

a holding company. This deposit matured on 27 April 1976 and together 44

with interest amounted to US$10 766.27. Further interest accrued on

1 December 1976 and a total amount of US$11 287.83 was transferred and

invested with the Nugan Hand Bank for one year under client number

76-3063-A. This deposit was broken early (on 27 May 1979) in order to

arrange a back to back loan in Australia. E also had money on deposit

with the Nugan Hand Bank under client number 77-3108-A. An amount of

US$20 989.84 from these two accounts was converted to A$18 972.55 and

after a 5 per cent fee of A$948.62 was deducted E received A$18 023.93 in 45 Australia from Yorkville Nominees. This so called loan was paid to a

firm of solicitors in order for E to purchase land at Port Macquarie.^®

8.66 E signed documents to falsely evidence that A $18 023.93 was

mortgage finance from Yorkville Nominees. However, a deed of termination

and release between the two parties was also prepared so that E did not

have any liability to repay the loan. In fact E did repay the loan on

4 May 1978 by depositing A$20 186.80 to Yorkville Nominees but received 47

this money back in cash on the same day.

Example No. 4

8.67 in this example money was placed on deposit with the Nugan Hand

Bank overseas, a Yorkville Contra was then arranged, and the equivalent

amount of money was made available in Australia. A tax scheme was then

arranged for the client in Australia.

8.68 'M' dealt with the Nugan Hand Bank and Nugan Hand (Hong Kong)

through three nominee companies. On 5 October 1977 M arranged for

US$88 112 to tie deposited with Nugan Hand (Hong Kong) in respect of one

of the nominee companies using client number 77-60420-C. This deposit

was then used as security for a back to back loan in Australia of

- 963 -

A$80 000 by Yorkville Nominees. Thus Yorkville Nominees paid A$80 000 to

the trust account of a firm of solicitors, as a purported loan to a

company controlled and operated by M in Australia.^® This company

later repaid the loan to Yorkville Nominees and the money held on deposit

with Nugan Hand (Hong Kong) on behalf of the overseas nominee company was

then released.

Summary of Examples 1 to 4

8.69 As far as the Banking (Foreign Exchange) Regulations are

concerned, examples 1 to 4 would appear, in the absence of Reserve Bank

approval, to involve breaches of the same regulations, that is

Regulations 8 and 34.

8.70 Regulation 8(3) prohibited payment to a resident in association

with a payment overseas and also a person was prohibited from, inter

alia, entering into an agreement so that a right to receive a payment in

Australia was created in favour of a resident as consideration for the

receipt by a person of a payment outside Australia.

8.71 Regulation 34(1)(b) prohibited a resident from buying or

otherwise dealing with foreign securities that were outside Australia.

By virtue of Regulation 4(2), foreign securities included a right to

receive payment of moneys in a country outside Australia.

8.72 The examples which now follow, have been termed Yorkville

Contras for the purposes of the schedules. They refer to transactions in

which the Nugan Hand Bank assumed the liabilities of Nugan Hand Ltd to

repay deposits. Although they satisfy the basic definition of a

Yorkville Contra, many of them can be distinguished from previous

examples in that they seem to have been for the convenience of the Nugan

Hand Group rather than for the client.

Example No. 5

8.73 On 16 October 1975 'M Ltd' sent HK$500 000 from overseas to

Nugan Hand Ltd in Sydney. The money was received in Australia the

- 964 -

49

following day as A$78 215. Interest of A$3 375.50 was paid on this

money which was treated as a loan by Nugan Hand Ltd on 13 April

50

1976. However, the money was not paid directly to M Ltd, instead it

was paid to Nugan Hand (Hong Kong).

8.74 Nugan Hand (Hong Kong) paid interest of HK$22 500 to M Ltd on

16 April 1976.51

8.75 A year later, the principal and interest, that is HK$550 000,

was paid to M Ltd (overseas) by the Nugan Hand Bank (not Nugan Hand Ltd) 52 on 16 April 1977. This payment was not approved by the Reserve

Bank.

Example No. 6

8.76 On 24 August 1976 'W Ltd' with Reserve Bank approval advanced

HK$2.5 million to Nugan Hand Ltd which received A$406 844.57 the

53

following day. The funds were advanced to Nugan Hand Ltd via Nugan

Hand (Hong Kong). The loan was rolled over by Nugan Hand Ltd without

obtaining approval from the Reserve Bank of Australia. The first

instalment of interest was paid out of an account in Hong Kong with the

Wing On Bank numbered 14260 in the name of Nugan Hand Ltd which was

funded by the Nugan Hand Bank. No approval was sought from the Reserve

Bank of Australia for this interest payment to be made offshore. On

31 August 1977 the next instalment was paid by Nugan Hand Ltd without

Reserve Bank approval. The amount involved was A$17 761.96. This was

paid directly to W Ltd.5^

Summary of Examples 5 and 6

8.77 In the absence of Reserve Bank approval, it would seem that a

breach of Regulation 8(1) (c) may have been involved in the case of both

examples 5 and 6.

8.78 Regulation 8(1)(c) prohibited a person from entering into an

agreement so that a right to receive a payment, whether in Australia or

elsewhere, was created in favour of a non-resident.

- 965 -

8.79 The examples also include transactions in respect of which (in

contrast to examples 5 and 6) Reserve Bank approval was obtained for

repayment to be made from Nugan Hand Ltd in Australia to the client in

Hong Kong but, contrary to that approval, payments were in fact made from

overseas companies within the Nugan Hand Group. They might more

appropriately be considered as examples of the misuse of approvals. For

convenience, however, this type has been kept in the one group and

relevant approvals noted.

8.80 The three categories which follow continue the examination of

transactions for which no Reserve Bank approval was obtained.

Movement of Money across national b o rders wi t h o u t the approval of the

R e serve Bank

55

8.81 Ac c o r d i n g to records of the R e s e r v e Bank of Australia no

approval was sought for two a m o u n t s of m o n e y w hich w e r e a d v a n c e d to Nugan

Hand Ltd b y the N u g a n Hand Bank in 1980.

8.82 First, on 17 January 1980 the Nugan Hand Bank sent US$250 000 to

Nugan Hand Management Services Ltd56 (hereafter referred to as 'Nugan

Hand Management Services'). This money was sent on to Nugan Hand Ltd on

22 January 1980.^ Nugan Hand Ltd received the money the following day

as A$225 024.75. Secondly, on 26 March 1980 US$55 480 (A$50 000) was

sent by the Nugan Hand Bank to Nugan Hand Ltd.^®

8.83 T hese moneys advanced to N ugan Hand Ltd b y the Nugan Hand Bank

or N u g a n Hand Management Services w i thout the approval o f the Re s e r v e

Bank w o u l d se e m to have been in breach of R e gulation 8(1)(c) in that they

appear to b e the subject of agree m e n t s w h e r e b y a right to repayment is

created in favour of the lender, a non-resident.

Payment of Overseas Bank Charges and Commissions

8.84 Nugan Hand Ltd operated a number of overseas bank accounts, for

example, with the Wing On Bank (account number 14260-3), with the Chase

- 966 -

Manhattan Bank (account number 68-72-161390-0) and with the First 69

National City Bank (account number 00193771).

8.85 There is little information available concerning the operation

of most of these accounts. In the case of the Wing On Bank account

however it is known that the account was funded by the Nugan Hand Bank

and was largely used for bank charges and commissions payable to the Wing

On Bank. These payments to the Wing On Bank were in respect of loans

made to Nugan Hand Ltd with Reserve Bank approval which were guaranteed

by the Wing On Bank [see 4.1.27-4.1.55],

8.86 There was no requirement to obtain Reserve Bank approval merely

to open an overseas bank account, although of course, approval would be

required to send money from Australia to that account. If money had been

sent overseas to these accounts then breaches of Regulations 6, 8(3)(b)

and 34 may have occurred. Payments by the Nugan Hand Bank in respect of

the liability of Nugan Hand Ltd to the Wing On Bank, are likely to have

involved a breach of Regulation 8(1)(c) where made pursuant to an

agreement and without Reserve Bank approval.

Extensions of Loans not Approved by the Reserve Bank

8.87 R e serve Bank approvals for overseas borro w i n g s contained

conditions, one of w h i c h w a s that if the loan was to b e exte n d e d for

further periods then a fresh approval f r o m the R e s e r v e Bank was

required. Nugan Hand Ltd often failed to a p p l y for this appr o v a l to

extend the ter m of the borrowing.

8.88 Ayala Finance (HK) Ltd (hereafter referred to as 'Ayala

Finance') advanced a sum of HK$3 million from overseas to Nugan Hand Ltd

in Sydney for a period which was subsequently extended for three months

on 23 March 1979 with the approval of the Reserve B a n k . A f t e r the

expiry of this term no further approvals were obtained or sought by Nugan

Hand Ltd in respect of this loan; however, the loan was still outstanding

at the time of the collapse of Nugan Hand Ltd in April 1980.^ The

principal and interest were repaid by the Wing On Bank after the collapse

- 967 -

of Nugan Hand Ltd under the guarantee arrangements that Nugan Hand Ltd

had with the Wing On Bank.

8.89 Similarly, Nugan Hand Ltd obtained approval on 12 July 1976 to

borrow HK$4 million from the Overseas Trust Bank Ltd (hereafter referred

to as Overseas Trust Bank'). The term of this loan was for

200 days.®^ The maturity date was 10 February 1977. In fact the loan

was not repaid by Nugan Hand Ltd but by the Nugan Hand Bank, two years

later, on 10 February 1979. No Reserve Bank approval had been sought for

the extension.

8.90 These and other examples suggest that the extension of loans

without Reserve Bank approval was of frequent occurrence, either due to

oversight as may be the case with late repayments of loans, or deliberate

disregard of the Regulations as would seem to be the case with rollover

transactions. In both cases the effect was that for various periods

there were agreements between Nugan Hand Ltd, or other Australian

companies within the Group, and overseas lenders in circumstances whereby

a right to receive a payment overseas was created in favour of a

non-resident lender without Reserve Bank approval. Such transactions

would appear to have been in contravention of Regulation 8(1)(c).

Transa c t i o n s in which R e s e r v e Ban k Approval was Misused

Lender Falsified

8.91 Reserve Bank approval was obtained for loans to be advanced to

Australia supposedly from Baia do Oriente Limitada, (hereafter referred

to as 'Baia do Oriente') a company incorporated in Macau, but contrary to

the approval, they were advanced by the Nugan Hand Bank. The first loan

was for US$90 000 to Nugan Hand Ltd and the remaining three were for

US$90 000, US$90 000 and US$50 000 respectively to Yorkville Nominees.

No money was ever advanced by Baia do Oriente.

8.92 The first loan was obtained by Nugan Hand Ltd on 18 July 1977

when A$80 056.93 was deposited with the company.®^ A journal entry was

- 968 -

made in the books of Nugan Hand Ltd to make it appear as though the loan

had been transferred to Yorkville Nominees. This had the purported

effect of reducing the indebtedness of Yorkville Nominees to Nugan Hand

Ltd. Reserve Bank approval for this purported loan was obtained on

14 July 1977 and approvals were subsequently obtained for the period of

the loan to be extended on 11 January 1978 and 19 July 1978.

8.93 Approvals were obtained for the three loans to Yorkville

Nominees on 3 August 1977, 12 August 1977 and 24 August 1977

respectively. The first loan (US$90 000) was received by Nugan Hand Ltd 6 4 on 15 August 1977 as A$81 477.46. On 17 August 1977 Nugan Hand Ltd

paid the money to Yorkville Nominees. On 16 March 1978 Nugan Hand

Ltd transferred money to Yorkville Nominees to allow Yorkville Nominees

to repay the loan plus interest. The amount repaid was A$88 105.73.66

This money was used in the second capital injection of Nugan Hand Ltd

[see 5.88-5.103).

8.94 The other two loans of US$90 000 and US$50 000 respectively

advanced to Yorkville Nominees by Baia do Oriente were received on

25 August 1977 by Yorkville Nominees as A$126 433.66.®^ This money was

also used in Australia for the second capital injection of Nugan Hand

Ltd. [see 5.88-5.103] Yorkville Nominees repaid these two loans on

3 March 1978 as A$121 379.40 to the Nugan Hand Bank.®® The money to

repay the loans was provided to Yorkville Nominees by Nugan Hand

Ltd.®^ The repayments of the three loans to the Nugan Hand Bank were

treated in the Nugan Hand Bank's records as though the money was on

deposit from Baia do Oriente. The money was still shown to be on deposit

at the time of the collapse of the Nugan Hand Bank together with interest

accrued but not paid.^®

8.95 These transactions which relate to the second capital injection,

disclose a number of possible breaches of the regulations. Payment by

the Nugan Hand Bank to Nugan Hand Ltd instead of, as approved, from Baia

Do Oriente to Nugan Hand Ltd would appear to involve a breach of

Regulation 8(1)(c). Alternatively, it could be argued that Regulation

39(2) had been breached in that a condition of the approval had been

- 969 -

contravened. In any case the application contained untrue or misleading

information in contravention of Regulation 40. With regard to repayment

of the loans by Yorkville Nominees to the Nugan Hand Bank, a

contravention of Regulation 6 would seem to have occurred in the absence

of Reserve Bank approval.

Recipient Falsified

8.96 The Reserve Bank granted Nugan Hand Ltd approval on 8 February

1979 to repay a loan to Inter-Alpha Asia (Hong Kong) Ltd (hereafter

referred to as 'Inter-Alpha Asia1) of US$1 million. In fact Nugan Hand

Ltd used this approval to provide funds to the Nugan Hand Bank to enable

the Bank to meet commitments of Nugan Hand Ltd, namely to repay principal

and interest to the Overseas Trust Bank and an interest payment to

Inter-Alpha Asia.^

8.97 On 15 July 1976 Nugan Hand Ltd received A$648 403.30 from the

Overseas Trust Bank. All payments of interest and repayment of principal

were made by the Nugan Hand Bank, using a sum of US$1 million sent by

Nugan Hand Ltd to the Nugan Hand Bank on 10 February 1978. Interest was

paid six monthly and the principal and final interest was repaid with an

amount of US$874 899.84 on 10 February 1979.

8.98 On 2 August 1977 US$500 000 was advanced to Nugan Hand Ltd by

Inter-Alpha Asia. This was increased the following year by a further

US$500 000. This loan was still outstanding with Nugan Hand Ltd at the 73 time of its collapse. Correspondence dated 1 February 1979 indicated

that the loan was to be extended for a further term. However, on 7

February 1979 Nugan Hand Ltd requested and on the following day obtained,

Reserve Bank approval to repay the loan. On 9 February 1979,

A$880 669.31 (US$1 million) was in fact sent by Nugan Hand Ltd to the

Nugan Hand Bank. Nugan Hand Ltd's records were adjusted to indicate that 74 the loan had been repaid.

8.99 Thus the Reserve Bank approval had been granted for the

repayment of the Inter-Alpha Asia loan and had been used by Nugan Hand

- 970 -

Ltd to provide funds to the Nugan Hand Bank principally to meet Nugan

Hand Ltd's commitment to the Overseas Trust Bank.

8.100 As there was either no authority or a failure to act in

accordance with such authority as was given, this complex series of

transactions would have involved breaches of Regulations 6, 8(3)(b) and

39(2). Nugan Hand Ltd had authority to repay a loan to Inter-Alpha

Asia. However, instead of repaying the loan, Nugan Hand Ltd forwarded

funds to the Nugan Hand Bank without the approval of the Reserve Bank

(and therefore in contravention of Regulations 6 and 39) in circumstances

which suggest that the transaction created a right in favour of Nugan

Hand Ltd to receive a payment of at least part of those funds in

Australia thus contravening Regulation 8(3)(b). As an alternative, it

could be argued that instead of a contravention of Regulation 6, there

was a failure to comply with a condition of the approval within the terms

of Regulation 39(2).

Interest Rates Falsified

8.101 The interest rates quoted in the requests to the Reserve Bank

were often less than the interest rates being paid to the overseas

party. In all cases where this occurred the extra interest was not paid

by Nugan Hand Ltd but was met by either Nugan Hand (Hong Kong) or the

Nugan Hand Bank.

8.102 One such example concerned the Sun Hung Kai Finance Company Ltd

which made an advance of HKfc2 million to Nugan Hand Ltd on 18 August

1977. The rate of interest quoted to the Reserve Bank was 8.25 per cent

which was increased to 9.5 per cent, with the Reserve Bank's approval a

year later, remaining at this level for a further extension the following

year, also with Reserve Bank approval.

8.103 Contrary to the approved rates of interest, the interest rate

was, in fact, tied to a 3.5 per cent margin above the Hong Kong and

Shanghai Bank's best lending rate which at that time was 4.75 pier cent

per annum. When this rate increased during the term of the loan, Nugan

- 971 -

Hand Ltd incurred a liability to repay a greater amount of interest than

had been approved by the Reserve Bank.

8.104 The Hong Kong and Shanghai Bank's prime rate increased to

5.5 per cent on 1 May 1978, 6 per cent on 17 July 1978, 7.25 per cent on

30 October 1978, 8.75 per cent on 9 November 1978, 9.5 per cent on

2 January 1979, 10.5 per cent on 19 February 1979, 11 per cent on

20 March 1979, 11.5 per cent on 10 April 1979, 13 per cent on 20 April

1979, 14.5 per cent on 21 August 1979 reaching 16 per cent on 11 March

1980. Nugan Hand Ltd was therefore ultimately incurring a liability of

19.5 per cent as at 11 March 1980 while the highest rate approved by the

Reserve Bank was 9.5 per cent, being 10 per cent less than that being 75 paid by Nugan Hand Ltd.

8.105 Regulation 40 is relevant to this example to the extent that the

application for approval would have contained untrue or misleading

information in respect of the interest rate. Regulation 6 would also

have been contravened to the extent of the interest differential.

Other Matters Affecting Overseas Borrowings by Nugan Hand Ltd

8.106 Aside from Nugan Hand Ltd's disregard for legal requirements

when they proved inconvenient, the company showed a similar disrespect

for relevant financial and procedural considerations when borrowing from

overseas.

8.107 For example, overseas borrowings were channelled through the

Wing On Bank to Nugan Hand Ltd and for this service, the Wing On Bank

would charge a fee of 4 per cent. These charges were either paid by

the Nugan Hand Bank or were paid out of a Wing On Bank account in the

name of Nugan Hand Ltd which was funded by the Nugan Hand Bank [see

paragraphs 8.84-8.85]. These costs were not taken up as expenses in

Australia by Nugan Hand Ltd.

8.108 Secondly, there were fees charged by the Wing On Bank for

providing guarantees to overseas lenders. These guarantees were secured

by Nugan Hand Ltd lodging securities in Australia in a safe custody

- 972 -

account with the Bank of New South Wales and later the ANZ Bank

[see 4.1.27-4.1.55]. The fees and charges in respect of these guarantees

granted by the Wing On Bank were either paid by the Nugan Hand Bank or

charged against a Wing On Bank account in the name of Nugan Hand Ltd

which was funded by the Nugan Hand Bank. These fees and expenses

associated with the guarantees were not taken up by Nugan Hand Ltd as

expenses, even though they were a cost of borrowing money from overseas.

8.109 Thirdly, there were costs brought about by requirements of the

Reserve Bank to lodge (on some occasions) a portion of the overseas money

received in an account with the Reserve Bank. This account did not earn

interest. A typical example of this was an overseas borrowing from W Ltd

for which Nugan Hand Ltd failed to obtain approval for the borrowing to

be rolled over for a further term. As part of the subsequent conditions

imposed by the Reserve Bank, 25 per cent of the borrowing had to be

lodged with the Reserve Bank in Australian currency on an interest free

non-assignable basis. The deposit was returnable when the repayment of

the borrowing was made with the authority of the Reserve Bank. The

effect of lodging 25 per cent of the loan in an interest free account was

that Nugan Hand Ltd only received the benefit of 75 per cent of the loan

for use in its money market activities.

8.110 Since Nugan Hand Ltd paid interest on 100 per cent of the loan

but only received three quarters of the loan, the effective interest rate 77 on that loan was much higher. The loan from W Ltd was not the only

loan from an overseas entity that was affected by this 25 per cent

variable deposit requirement.

8.111 a fourth matter affecting overseas borrowings was the

interpretation of the date that the borrowing commenced. The

arrangements between Nugan Hand Ltd and the overseas lender had the

result that the date that the lender sent the money was considered by the

lender to be the date that the loan commenced. However, Nugan Hand Ltd

found that the Reserve Bank insisted that the commencement date was the

date on which the funds were received in Australia. Officers of the

Nugan Hand Group were reluctant to approach the overseas party concerning

the discrepancy in the starting date of the loans.78 This may have

- 973 -

been an incentive for the G roup to repay loans out of funds held by the

Nugan H a n d Bank or N u g a n Hand (Hong Kong) w i t h a later reimbursement by

Nugan Hand Ltd. This p o l i c y e v e n t u a l l y led to a failure on the part of

Nugan Hand Ltd to reimburse these companies at all.

8.112 A fifth matter affecting the overseas borrowings by Nugan Hand

Ltd concerned withholding tax. In most cases Nugan Hand Ltd undertook to

pay any taxes such as withholding tax that might be incurred in respect

of the loans so that the overseas lender received the full amount of

interest without any deductions by Australian government authorities.

The obvious effect of this was to substantially increase the cost of

these overseas borrowings.

8.113 Finally, there were numerous costly inefficiencies often caused

b y a lack of c ommunication b e tween the m e mbers of the N ugan Hand G r o u p

which on some occasions led to double payments of interest to a client

and overpayment of wit h h o l d i n g tax, w hich then had to be rectified. An

example of this inefficiency occurred in the case of the first investment

b y Reterden Ltd, w h e n the use of the m o n e y was lost for the first nine

days after the loan had been made. When the loan was extended for a

further term, Nugan Hand Ltd n e g lected to include the interest component

in the approval and therefore received approval only to roll over the 79 principal of the loan. On another occasion N u g a n Han d Ltd lodged

$40 000 too muc h w i t h the R eserve Bank and had to request repayment.®^

8.114 There were also instances of approvals being granted for

overseas loans which were not utilised by Nugan Hand Ltd. One example

was an approval for US$3 million to be brought into Australia on 13 July

1979 from Nugan Hand Management Services. There is no evidence in the

Australian or overseas records of the Group to indicate that this

approval was utilised. Likewise, approval was obtained for US$3 million

on 22 September 1977 with the money supposedly coming from Baia do

Oriente. This authority was not utilised either and may have been an

attempt to have some sort of floating authority available overseas for

remission to Australia as and when the dwindling liquidity of Nugan Hand

Ltd required it.

. .

·’ . .'*■$··’ . - ·

975

8.115 SCHEDULE A

Commonwealth of AustraliaGazette No. S 318, Monday, 12 December 1983 Published by the Australian Governrrfent Publishing Service, Canberra SPECIAL

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTIONS Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby—

(1) Revokes the exemptions dated 27 September 1972 of payments to, by the order of, or on behalf of, persons resident out of Australia from the application of Regu­ lation 8 ( I ) of those Regulations.

(2) Revokes the exemption dated 21 October 1976 relat­ ing to the entering into of any contract of insurance (not being a policy as defined in sub-section 4 (1 ) of the L if e In s u r a n c e A c t , 1 9 4 5 ) and any contract of re­ insurance (not being a contract of re-insurance of a policy as defined in sub-section 4(1) of the L if e In ­ s u r a n c e A c t . 1 9 4 5 ), from the application of Regu­

lation 8(1) (c) of the Regulations.

(3) Exempts from the application of Regulation 8 ( I) (a) of the Regulations, the making of any payment in Australia to. by the order of, or on behalf of, a person who is not a resident, other than a person resident in a

country specified in a current notice issued by the Treasurer under section 39b of the B a n k i n g A c t , 1 9 5 9 , and the placing of any sum in Australia to the credit of any such person.

(4) Exempts from the application of Regulation 8 (1 ) (c), the entering into of any contract or agreement (not being a contract or agreement for the purchase of goods) and the acknowledgment of any debt, so that a

right (whether actual or contingent) — (i) to receive a payment, or any valuable consider­ ation; or (ii) to the performance of any service, whether in Australia or elsewhere, is created or trans­ ferred in favour of a person who is not a resident, other than a person resident in a country specified in a cur­

rent notice issued by the Treasurer under section 39b of the B a n k i n g A c t. 19 5 9 .

Dated at Sydney this twelfth day of December 1983.

For and on behalf of the Reserve Bank of Australia.

R. A. JOHNSTON Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTIONS Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby—

(1) Revokes the exemption dated 20 December 1978 relating to goods exported from Australia otherwise affected by Regulations 16, 17 and 19 of those Regulations.

(2) Exempts from the application of Part III of those Regulations goods exported from Australia.

Reserve Bank of Australia in pursuance of Regulation 16 also hereby revokes the approval dated 24 December 1979 in respect of goods exported from Australia, notified in the G a z e tt e on 2 January 1980.

Dated at Sydney this twelfth day of December 1983.

For and on behalf of the Reserve Bank of Australia.

R. A. JOHNSTON Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby exempts from the application of Regulation 7 of those Regulations any person taking or sending money out of Australia by means of a money order issued in Australia and payable out of Australia.

Dated at Sydney this twelfth day of December 1983.

For and on behalf of the Reserve Bank of Australia.

R. A. JOHNSTON Governor

Printed by C. J. T hompson, Commonwealth Government Printer, Canberra

15869/83 Cat. No. 83 6252 4 Recommended retail price 10c (plus postage)

- 976

Commonwealth of AustraliaGazette No. S 42, Monday, 6 February 1984 Published by the Australian Government Publishing Service, Canberra SPECIAL

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking ( Foreign Exchange) Regulations hereby—

(1) revoke the exemption dated 12 December 1983 relat­ ing to Regulation 8 ( I ) (a) of the Regulations, namely, the making of any payment in Australia to, by the order of, or on behalf of, a person who is not a resident, other than a person resident in a country specified in a current notice issued by the Treasurer under Section 39b of the B a n k i n g A c t 1 9 5 9 , and the placing of any sum in Australia to the credit of any such person; and (2) exempts from the application of Regulation 8 (I) (a)

of the Regulations— (a) a person making any payment in Australia to, by the order of, or on behalf of, a person who is not a resident, other than a person resident in a place

specified in a notice in force issued by the Treasurer under Section 39b of the B a n k i n g A c t 1 9 5 9 : and

(b) a person placing any sum in Australia to the credit of a person who is not a resident and who is

(i) a government, an agency of a government, ora bank;or (ii) a person resident in a place specified in a notice in force issued by the Treasurer under

Section 39b of the B a n k i n g A c t 1 9 5 9 .

This instrument shall come into operation on the date of pub­ lication in the C o m m o n w e a l t h o f A u s t r a l i a G a z e tte .

Dated at Sydney this third day of February 1984.

For and on behalf of the Reserve Bank of Australia R. A. JOHNSTON Governor

Printed by C. J. T h o m p s o n , Commonwealth Government Printer, Canberra

10587/84 Cat. No. 84 6388 5 Recommended retail price 10c (plus postage)

977

Commonwealth of AustraliaGazette No. S 235, Monday, 25 June 1984 Published by the Australian Government Publishing Service, Canberra SPECIAL

BANKING (FOREIGN EXCHANGE) REGULATIONS NOTICE OF AUTHORITIES GRANTED TO DEALERS IT is hereby notified for public information that the Reserve

Bank of Australia has granted to the persons set out in the appendix hereunder a general authority operative from 25 June 1984, to engage in foreign currency transactions, as follows:

BANKING (FOREIGN EXCHANGE) REGULATIONS AUTHORITY Reserve Bank of Australia in pursuance of Regulation 38λ of the Banking (Foreign Exchange) Regulations hereby grants authority to (the Dealer) to:

1. buy and sell foreign currency; 2. place to the credit in Australia of a person who is not a resident

(a) any amount of currency representing cover for Australian currency, (other than notes), sold by the Dealer for taking or sending from Australia;

(b) any amount of currency for any other purpose. This authority does not apply to the placing of any Aus­ tralian currency at interest to the credit of any non-resident who is a government, an agency of a government or a bank, but is otherwise given on condition that, in respect of the transactions authorised above, the Dealer will:

1.

2.

3.

4.

comply with the requirements relating to tax screening set out in the Schedule to this authority; comply with such limits on its foreign exchange pos­ itions as may be imposed by the Reserve Bank;

provide such returns and information as the Reserve Bank may require from time to time; and comply with any directives and guidelines issued by the Reserve Bank from time to time.

SCHEDULE PART I TAX SCREENING

For the purposes of tax screening, transactions have been div­ ided into three categories. A, B and C, which are detailed

• C a te g o r y A

Transactions for any of the purposes described in Part II of this Schedule.

• C a te g o r y B

Amounts in excess of the equivalent of $ A 50,000 in respect

- travel expenditure; - remittances relating to futures operations overseas; - payment of any interest, dividend, service fee or royalty.

THE CONDITIONS:

1. The Dealer must conform with tax screening requirements set out below, relating to the following transactions under­ taken by it:

(a) the sale of foreign currency; (b) the sale of Australian currency, (other than notes), for use outside Australia; (c) the placing of any amount of currency to the credit in

Australia of a person who is not a resident.

2. C a te g o r y A tr a n s a c tio n s :

Before the Dealer undertakes any transaction described in Part II of this Schedule, it must receive an original lax clearance certificate issued by the Australian Taxation Office in respect of that transaction.

3. C a te g o r y B a n d C tr a n s a c tio n s :

A completed and signed declaration form in duplicate (in the form prescribed by the Reserve Bank) must be received by the Dealer and:

(a) if it relates to a Category B transaction, the Dealer must refer the declaration form to the Reserve Bank and may not undertake the transaction until:

(i) a clearance for it to proceed has been received from the Reserve Bank; or (ii) if required by the Reserve Bank, until an original lax clearance certificate issued by the Australian

Taxation Office in relation to the transaction has been produced to it; (b) if it relates to a Category C transaction, the Dealer may complete the transaction, but must send the orig­

inal declaration form to the Australian Taxation Office in the Slate or Territory concerned no later than a week after the date of the transaction.

4. When Australian currency (other than notes and coin), is received from overseas for payment and does not bear any evidence that it was cleared for use outside Australia, full particulars of any item in excess of $A5,000 must be advised to the Australian Taxation Office within one

month of the dale of receipt by the Dealer.

PART II

- direct investment overseas;

- gifts (other than donations by charitable and religious bodies, the income of which is exempt from tax), susten­ ance and trust distributions; - loans to non-residents; - portfolio investment overseas; - repayments of borrowings from overseas.

1 C a te g o r y C

Amounts in excess of the equivalent of $ A 50,000 in respect

13445/84 Cat. No. 84 6098 I Recommended retail price 20c (plus postage)

An Act or thing for which a lax clearance certificate is required is either:

I. (a) the purchase in Australia of foreign currency by a

(b) the taking or sending out of Australia of Australian currency or foreign currency by a person; or (c) the placing of any currency in Australia to the credit of a person who is not a resident, where the currency is to be transferred to a place specified in the list of places set out at the conclusion of this Sched­ ule. or is to be applied for the benefit of a person who is in.

978

2 B a n k i n g (F o r e ig n E x c h a n g e ) R e g u l a t i o n s

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N o . S 2 3 5 . 2 5 J u n e 1 9 8 4

or who is a resident of, or a person on behalf of a person who is in, or who is a resident of, a place specified in that list and is either:

(i) a loan or repayment of a loan:

(ii) consideration for the acquisition of securities, land or other property or options thereto or of any interest in securities, land or other property or options thereto, whether situated in Australia or elsewhere, other than consideration for the purchase through a member of an Australian stock exchange of securities or options listed on an Australian slock exchange; (iii) payment of any royalty or licence fee; (iv) payment for the performance of any service;

(v) in relation to the creation or establishment of any trust in a place specified in the list at the conclusion of this Schedule; or

British Virgin Islands Cayman Islands Gibraltar Grenada

Hong Kong The Isle of Man Liberia Liechtenstein Luxembourg Nauru Netherlands Antilles Panama Switzerland

This instrument will come into operation on 25 June 1984. Dated at Sydney this 22nd day of June 1984.

For and on behalf of the Reserve Bank of Australia.

(vi) payment of moneys into a trust fund created, estab­ lished. held, managed or operated in a place specified in that list.

2. (a) the purchase in Australia of foreign currency by a person:

(h) the taking or sending out of Australia of Australian currency or foreign currency by a person; or (c) the placing of any currency in Australia to the credit of a person who is not a resident, where the currency is to be transferred to Vanuatu or is to he applied for the benefit of a person who is in. or who is a

resident of Vanuatu, or where the currency is for payment of moneys into a trust fund created, established, held, managed or operated in Vanuatu:

OTHER THAN (i) the purchase, taking or sending of currency for the purpose of travel outside Australia:

(ii) the making of a payment in relation to a policy of life assurance:

(iii) the making of donations or bequests to charitable organisations or religious bodies where such do­ nations or bequests would give rise to an allowable deduction in accordance with section 78 of the I n c o m e T a x A s s e s s m e n t A c t 1936:

(iv) payment of the consideration for the purchase of securities or options listed on an Australian stock exchange, purchased through a member of an Aus­ tralian stock exchange:

(v) the payment of any dividend or interest on securities listed on an Australian stock exchange that are regis­ tered in the name of a holder whose address on the register is a place outside Australia; or (vi) the making of a payment of $200 or less.

3. (a) the purchase in Australia of foreign currency; (b) the taking or sending out of Australia of Australian currency or foreign currency: or (c) the placing of any currency in Australia to the credit

of a person who is not a resident, by, or on behalf of. a person who has emigrated from Australia within the previous twelve months, or who in­ tends to emigrate from Australia, where the amount of currency, together with the amount of any other trans­ actions of the nature described in this paragraph under­

taken by or on behalf of that person within the preceding twelve-month period, is in excess of fifty thousand dollars in Australian currency or any equivalent in foreign cur­ rency of that sum.

The list of places referred to in this Schedule is as follows: Bahamas Bermuda British Channel Islands

M. J. PHILLIPS Chief Manager

International Department

APPENDIX Australia and New Zealand Banking Group Limited Australian Bank l.imiled

Bank of New Zealand Bank of Queensland Limited Banque Nationalc de Paris Commonwealth Trading Bank of Australia Launceston Bank for Savings National Commercial Banking Corporation of Australia

Limited The Rural & Industries Bank of Western Australia The Savings Bank of South Australia The Savings Bank of Tasmania State Bank of New South Wales The Stale Bank of South Australia State Bank of Victoria

West pa c Banking Corporation

AMP Acceptances Ltd Amro Australia Ltd Associated Midland Group Ltd AUC Holdings Limited

BA Australia Ltd Barclays Australia Ltd BT Australia Ltd Capel Court Corporation Ltd Chase-N.B.A. Group Ltd Chemical All-Stales Ltd Citicorp Australia Holdings Ltd

Elder’s Finance and Investment Co. Ltd European Asian of Australia Ltd Hill Samuel Australia Ltd Kleinwort Benson Australia Ltd Lloyds International Ltd Sociele Generale Australia Ltd

Wardley Australia Ltd Dated at Sydney this 22nd day of June 1984.

For and on behalf of the Reserve Bank of Australia. D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS AUTHORITY A. Reserve Rank of Australia in pursuance of Regulation 38λ of the Banking (Foreign Exchange) Regulations hereby grants a general authority to persons in Australia to:

( 1) sell foreign currency to an authorised dealer; (2) buy foreign currency from an authorised dealer;

979

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N o . S 2 3 5 . 2 5 J u n e 1 9 8 4

(3) place any amount of currency to the credit in Australia of a person who is not a resident; and (4) take or send from Australia:

(a) Australian currency purchased from an author­ ised dealer for use overseas; and (b) Australian currency (other than notes and coin) not purchased from an authorised dealer.

B. This authority is given subject to:

1. in respect of any transaction described in paragraphs A (2), (3) and (4) (a):

(a) where the account of the person who is not a resident referred to in paragraph A (3) is conducted in the books of an authorised dealer, an original tax clear­ ance certificate issued by the Australian Taxation Office must be produced to the authorised dealer by

the person carrying out a transaction pursuant to this authority:

(i) if the transaction is described in the Schedule to this authority; or (ii) if that person is requested by the authorised dealer to produce such certificate; (b) where the account of the person who is not a resident

referred to in paragraph A (3) is conducted in the books of a resident, other than an authorised dealer, an original tax clearance certificate issued by the Aus­ tralian Taxation Office must be obtained by the per­ son carrying out a transaction pursuant to this auth­ ority, if the transaction is described in the Schedule to

this authority; and (c) the person carrying out a transaction pursuant to this authority must produce to the authorised dealer a completed and signed declaration form in duplicate

(in the form prescribed by the Reserve Bank), if the transaction is not described in the Schedule, the amount of the transaction is in excess of $A50,000 or

its equivalent in foreign currency and the transaction is for any of the following purposes:

direct investment overseas; gifts (other than donations by charitable or re­ ligious bodies the income of which is exempt from tax), sustenance and trust distributions;

loans to non-residents; portfolio investment overseas; repayments of borrowings from overseas; travel expenditure; remittances relating to futures operations overseas;

payment of any interest, dividend, service fee or royalty.

2. in respect of any transaction described in paragraph A (4) (a), any person taking or sending Australian cur­ rency out of Australia may not use that currency except for the purpose for which it was obtained.

3. in respect of any transaction described in paragraph A (3), (but only where the account of the person who is not a resident is conducted in the books of a resident other than an authorised dealer) and in respect of any trans­ action described in paragraph A (4) (b), before undertak­

ing the transaction:

(a) the person carrying out the transaction pursuant to this authority must obtain a tax clearance certificate from the Australian Taxation Office, if the trans­ action is described in the Schedule to this authority.

(b) the person carrying out the transaction pursuant to this authority must produce to the Australian Tax­ ation Office for clearance, a completed and signed declaration form in duplicate (in the form prescribed

B a n k in g (F o r e ig n l : \ e h a n g e ) R e g u l a t i o n s 3

by the Reserve Bank), if the transaction is for an amount in excess of $ A 50,000 in respect of: direct investment overseas; gifts (other than donations by charitable or re­

ligious bodies the income of which is exempt from lax), sustenance and trust distributions; loans to non-residents;

portfolio investment overseas; repayments of borrowings from overseas; and (c) the person carrying out the transaction pursuant to this authority must provide to the Australian Tax­

ation Office within a week of the transaction's being completed, a completed and signed declaration form in duplicate (in the form prescribed by the Reserve Bank), if the transaction is for an amount in excess of

SA50,000 in respect of: travel expenditure; remittances relating to futures operations overseas; payment of any interest, dividend, service fee or

royalty.

C* In this authority, the term “authorised dealer" shall mean any person who is authorised by a general authority issued under Regulation 38a of the Banking (Foreign Exchange) Regulations, to buy and sell foreign currency.

SCHEDULE An Act or thing for which a lax clearance certificate is required is either:

1. (a) the purchase in Australia of foreign currency by a person; (b) the taking or sending out of Australia of Australian currency or foreign currency by a person; or (c) the placing of any currency in Australia to the credit

of a person who is not a resident, where the currency is to be transferred to a place specified in the list of places set out at the conclusion of this Sched­ ule, or is to he applied for the benefit of a person who is in. or who is a resident of, or a person on behalf of a person

who is in, or who is a resident of. a place specified in that list and is either: (i) a loan or repayment of a loan:

(ii) consideration for the acquisition of securities, land or other property or options thereto or of any interest in securities land or other properly or options thereto, whether situated in Australia or elsewhere, other

than consideration for the purchase through a member of an Australian stock cxchangc-of securities or options listed on an Australian stock exchange; (iii) payment of any royally or licence fee; (iv) payment for the performance of any service; (v) in relation to the creation or establishment of any trust in a place specified in the list at the conclusion of this Schedule; or (vi) payment of moneys into a trust fund created, estab­ lished, held, managed or operated in a place specified in that list.

2. (a) the purchase in Australia of foreign currency by a person; (b) the taking or sending out of Australia of Australian currency or foreign currency by a person; or

(c) the placing of any currency in Australia to the credit of a person who is not a resident, where the currency is to be transferred to Vanuatu or is to he applied for the benefit of a person who is in, or who is a

resident of Vanuatu, or where the currency is for payment

980

4 B a n k i n g (F o r e ig n E x c h a n g e ) R e g u l a t i o n s

of moneys into a trust fund created, established, held, managed or operated in Vanuatu; OTIIKR THAN

(i) the purchase, taking or sending of currency for the purpose of travel outside Australia; (ii) the making of a payment in relation to a policy of life assurance:

(iii) the making of donations or bequests to charitable or­ ganisations or religious bodies where such donations or bequests would give rise to an allowable deduction in accordance with section 78 of the Income Tax Assessment Act 1936; (iv) payment of the consideration for the purchase of se­

curities or options listed on an Australian slock exchange, purchased through a member of an Aus­ tralian stock exchange; (v) the payment of any dividend or interest on securities listed on an Australian stock exchange that are regis­ tered in the name of a holder whose address on the register is a place outside Australia: or (vi) the making of a payment of $200 or less.

3. (a) the purchase in Australia of foreign currency; (h) the taking or sending out of Australia of Australian currency or foreign currency: or (c) the placing of any currency in Australia to the credit

of a person who is not a resident, by. or on behalf of. a person who has emigrated from Australia within the previous twelve months, or who in­ tends to emigrate from Australia, where the amount of currency, together with the amount of any other trans­ actions of the nature described in this paragraph under­

taken by or on behiilf of that person within the preceding twelve-month period, is in excess of lifty thousand dollars in Australian currency or any equivalent in foreign cur­ rency of that sum.

The list of places referred to in this Schedule is as follows: Bahamas Bermuda British Channel Islands British Virgin Islands Cayman Islands Gibraltar Grenada

I long Kong The Isle of Man Liberia Liechtenstein

Luxembourg Nauru Netherlands Antilles Panama Switzerland

This instrument will come into operation on 25 June 1984.

Dated at Sydney this 22nd day of June 1984.

Lor and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking ( Foreign Exchange) Regulations hereby exempts from the application of sub-regulation 5 (1 ) of the

Regulations (a) any person who. either on his own behalf or on behalf of another person, borrows, lends or exchanges foreign

C o m m o n w e a l t h o f A u s t r a l i a G a z e tte

N o . S 2 3 5 . 2 5 J u n e 19X4

currency in Australia or who otherwise deals (except by way of buying or selling) with foreign currency in Australia; (b) any resident, or any person acting on behalf of a resi­

dent. who borrows, lends or exchanges foreign cur­ rency outside Australia or who otherwise deals (except by way of buying or selling) with foreign currency out­ side Australia; (c) any person who, either on his own behalf or on behalf

of another person, buys or sells foreign currency in the form of coin in Australia: and (d) any resident, or any person acting on behalf of a resi­ dent. who buys or sells foreign currency in the form of

coin outside Australia.

This instrument shall come into operation on 25 June 1984.

Dated at Sydney this 21st day of June 1984.

For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS VARIATION OF EXEMPTIONS Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby varies the Exemptions dated 15 January 1981 from Regulations

5 ( I ). 5 (2) and 5 (4) of the Regulations by removing the con­ cluding words, as follows:

“AND conditions of the exemptions in paragraphs ( I ) and ( 2 )are that (a) the resident of Australia buying foreign currency in terms of paragraph ( I ) or receiving payment of foreign

currency in terms of paragraph (2) shall as soon as practicable sell for Australian currency that foreign currency to a bank in Australia: (b) the exemptions may not be utilised in connection with

transactions of a capital nature.” This instrument shall come into operation on 25 June 1984. Dated at Sydney this 21st day of June 1984. For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking ( Foreign Exchange) Regulations hereby

1. revokes the exemption dated 3 February 1984 relating to sub-regulation 8 ( I ) (a) of the Regulations; 2. revokes the exemption dated 12 December 1983 relat­ ing to sub-regulation 8 (I) (c) of the Regulations; 3. exempts from the application of sub-regulation

8 ( I) (a) of the Regulations any person who makes any payment in Australia to. by the order of. or on behalf of a person who is not a resident: 4. exempts from the application of sub-regulation 8(1) (c) any person who draws, issues or negotiates any bill of exchange or promissory note, who enters into any contract or agreement (not being a contract or agree­ ment for the purchase of goods), who allots or transfers any security, or who acknowledges any debt, so that a right (whether actual or contingent)

(i) to receive a payment, or any valuable consider­ ation; or (ii) to the performance of any service, whether in Australia or elsewhere, is created or transferred in

favour of a person who is not a resident; and

981 -

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5. exempts from the application of sub-regulation 8 ( I) (d) any person who makes any entry in a register in Australia that recognises that a person who is not a resident is the holder of securities. This instrument shall come into operation on 25 June 1984. Dated at Sydney this 21st day of June 1984. For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby exempts from the application of sub-regulation 8 (3) of the Regulations:

(i) the receipt by any person of a payment, or the ac­ quisition by any person of any property, outside Australia: or (ii) the creation or transfer, in favour of any person,

of a right (whether actual or contingent) to re­ ceive a payment or acquire property outside Australia: and (b) any person who draws, issues, or negotiates any bill of exchange or promissory note, vyho enters into any con­ tract or agreement (not being a contract or agreement for the purchase of goods), who allots or transfers any security, or who acknowledge any debt, so that a right (whether actual or contingent) to receive a payment in Australia is created or transferred in favour of a resi­ dent as consideration for. or in association with, any matter referred to in sub-paragraph (i) or (ii) of the last preceding paragraph.

This instrument shall come into operation on 25 June 1984.

Dated at Sydney this 21st day of June 1984.

For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTION Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby exempts from the application of sub-regulation 9(1) of the Regu­ lations the sale, loan, transfer, mortgaging or charging of any security or land that is in Australia by. by the order of, or on behalf of, a person who is not a resident to another person who is not a resident, or to a person acting on behalf of such a

This instrument shall come into operation on 25 June 1984. Dated at Sydney this 21st day of June 1984. For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS EXEMPTIONS Reserve Bank of Australia in pursuance of Regulation 38 of the Banking (Foreign Exchange) Regulations hereby exempts from the application of sub-regulation 33(1) of the Regu­ lations any person who takes, sends or transfers any securities to any place outside Australia.

This instrument shall come into operation on 25 June 1984. Dated at Sydney this 21st day of June 1984.

B a n k i n g (F o r e ig n E x c h a n g e ) R e g u l a t i o n s 5

For and on behalf of the Reserve Bank of Australia. D. N. SANDERS Deputy Governor

BANKING (FOREIGN EXCHANGE) REGULATIONS

EXEMPTION Reserve Bank of Australia in pursuance of regulation 38 of the Banking (Foreign Exchange) Regulations hereby 1. revokes the exemption dated 30 August 1973 relating to

sub-regulation 34 ( I ) of the Regulations:

2. exempts from the application of sub-regulation 34 ( I) of the Regulations (a) any person who. either on his own behalf or on behalf of another person, buys, borrows, sells, lends or

exchanges foreign securities that are in Australia or who deals otherwise with such securities that are in Australia: and (b) any resident, or any person acting on behalf of a resi­

dent. who buys, borrows, sells, lends or exchanges foreign securities that are outside Australia or who deals otherwise with such securities that are outside Australia.

This instrument shall come into operation on 25 June 1984.

Dated at Sydney lhis 21 st day of June 1984.

For and on behalf of the Reserve Bank of Australia.

D. N. SANDERS Deputy Governor

COMMONWEALTH OF AUSTRALIA B a n k i n g A c t 1 9 5 9

REVOCATION OF NOTICES UNDER SECTION 39b I, PAUL KEATING, the Treasurer, in pursuance of sub­ section 39b (2) of the B a n k i n g A c t 1 9 5 9 , hereby revoke (a) the notice in writing dated, and published in the

G a z e tt e on, 23 December 1974 directing that the acts or things therein specified are acts or things to which section 39b of that Act applies; and (b) the notice in writing dated 5 February 1981, and

published in the G a z e tt e o n 10 February 1981, varying the first-mentioned notice. Dated 19th June 1984. PAUL KEATING

Treasurer

BANKING (FOREIGN EXCHANGE) REGULATIONS REVOCATION OF THE APPOINTMENT OF AGENTS OF RESERVE BANK OF AUSTRALIA IN pursuance of Regulation 44 of the Banking (Foreign

Exchange) Regulations, the Reserve Bank of Australia hereby revokes the appointment of the persons set out in the Sched­ ule as Agents of the Bank in respect of all the provisions of the

Regulations.

SCHEDULE Australia and New Zealand Banking Group Limited Australian Bank Limited Bank of New Zealand

Banque Nalionalc de Paris Commonwealth Trading Bank of Australia National Commercial Banking Corporation of Australia Limited

Wcstpac Banking Corporation Dated at Sydney this 25th day of June 1984. For and on behalf of the Reserve Bank of Australia. R A. JOHNSTON

Governor

Primed by C. J. T hom pso n. Commonwealth Government Printer. Canberra

982

8. H 6 SCHEDULE B co m pa r a tiv e chart dem o n stra tin g th e e f f e c t of

RECENT CHANGES IN THE GOVERNMENT’S FOREIGN EXCHANGE POLICIES

Summary o f Che m a jo r p r o h i b i t i o n s ( s u b j e c t to

R .B .A . a p p r o v a l ) c o n ta in e d

i n th e R e g u la tio n s

Summary o f e x e m p tio n s Sutnnary o f e x e m p tio n s

G a z e t t e d o n 12 D ecem ber 198 4 G a z e t t e d o n 6 F e b r u a r y 1984

(N o. S .3 1 8 ) (N o . S .4 2 )

Summary o f e x e m p tio n s G a z e c te d o n 25 J u n e 1984

(N o. S .2 3 5 )

R e g u l a t i o n 5 p r o h i b i t s -

( a ) a p e rs o n d e a l i n g in

A u s t r a l i a w i t h f o r e i g n

c u r r e n c y , and

( b ) a r e s i d e n t d e a l i n g o u t s i d e

A u s t r a l i a w i t h a f o r e i g n

c u r r e n c y .

E xem pted e x c e p t f o r th e b u y in g

o r s e l l i n g o f f o r e i g n n o t e s ( a s

o p p o s e d t o c o i n s ) .

R e g u l a t i o n 6 p r o h i b i t s a

p e r s o n from t a k i n g o r s e n d in g

o u t o f A u s t r a l i a e i t h e r

f o r e i g n o r A u s t r a l i a n c u r r e n c y .

( N o te i t i s t h e r e f o r e n e c e s s a r y

t o o b t a i n RBA a p p r o v a l t o ta k e

o r s e n d o u t o f A u s t r a l i a e i t h e r

f o r e i g n o r A u s t r a l i a n c u r r e n c y ) .

R e g u l a t i o n 7 p r o h i b i t s th e W h o lly e x e m p te d .

t r a n s f e r o f money o r d e r s

i s s u e d i n A u s t r a l i a an d

p a y a b le o u t o f A u s t r a l i a .

R e g u l a t i o n 8 ( 1 ) ( a ) p r o h i b i t s

a p e r s o n fro m m ak in g a p aym ent

i n A u s t r a l i a t o a n o n - r e s i d e n t

o r p l a c i n g a n y sum in

A u s t r a l i a t o t h e c r e d i t o f a

n o n - r e s i d e n t .

E xem pted e x c e p t f o r a p e r s o n

who i s r e s i d e n t i n a c o u n tr y

s p e c i f i e d i n a c u r r e n t n o t i c e

i s s u e d by t h e T r e a s u r e r u n d e r

s e c t i o n 39B o f th e B an k in g

A ct (REVOKED 6 F e b ru a ry 1 9 8 4 ).

E x em pted a p e r s o n m aking a

pay m en t i n A u s t r a l i a t o a no n ­

r e s i d e n t e x c e p t f o r a p e r s o n

who i s r e s i d e n t i n a p la c e

s p e c i f i e d i n a n o t i c e i n

f o r c e i s s u e d by t h e T r e a s u r e r

u n d e r s e c t i o n 39B o f th e

B a n k in g A c t . A ls o ex em pted

a p e r s o n p l a c i n g a n y sum in

A u s t r a l i a t o t h e c r e d i t o f a

n o n - r e s i d e n t e x c e p t f o r a

g o v e rn m e n t o r b a n k o r a p e r s o n

r e s i d e n t i n a p la c e s p e c i f i e d

i n a n o t i c e i s s u e d by th e

T r e a s u r e r u n d e r s e c t i o n 39B

o f th e B a n k in g A c t. (REVOKED

25 J u n e 1 9 8 4 .

E xem pts a n y p e r s o n who m akes a

p aym ent i n A u s t r a l i a t o a n o n ­

r e s i d e n t . - ( N o te i t i s t h e r e ­

f o r e n e c e s s a r y t o o b t a i n RBA

a p p r o v a l to p la c e a sum in

A u s t r a l i a t o th e c r e d i t o f a

n o n - r e s i d e n t ) .

R e g u l a t i o n 8 ( l ) ( c ) p r o h i b i t s

th e u s e o f b i l l s o f e x c h a n g e ,

p ro m is o ry n o t e s , t h e e n t e r i n g

i n t o an y a g re e m e n t ( o t h e r th a n

o n e r e l a t i n g to g o o d s ) , t r a n s ­

f e r r i n g an y s e c u r i t y o r

a c k n o w le d g in g a n y d e b t s o t h a t

a r i g h t t o r e c e i v e p aym ent o r

t o p e rfo rm s e r v i c e s , w h e th e r

in A u s t r a l i a o r e ls e w h e r e i s

c r e a t e d i n f a v o u r o f a

n o n - r e s i d e n t .

Exem pted o n l y th o s e t r a n s ­

a c t i o n s i n v o l v i n g th e e n t r y

i n t o a n y a g re e m e n t ( n o t

r e l a t i n g t o t h e p u r c h a s e o f

g o o d s) a n d t h e a c k n o w led g em en t

o f a n y d e b t . ( N o te a n y t r a n s ­

a c t i o n s i n v o l v i n g t h e u s e o f

b i l l s o f e x c h a n g e , p ro m is o ry

n o t e s o r t h e t r a n s f e r o f a n y

s e c u r i t y s o t h a t a r i g h t t o

r e c e i v e pay m en t o r t o p e rfo rm

s e r v i c e s , w h e th e r i n A u s t r a l i a

o r e l s e w h e r e i s c r e a t e d in

f a v o u r o f a n o n - r e s i d e n t

r e q u i r e s RBA a p p r o v a l ) .

(REVOKED 25 J u n e 1 9 8 4 ).

W holly e x e m p te d .

R e g u la tio n 8 ( l ) ( d ) p r o h i b i t s

th e m ak in g o f a n e n t r y in a

r e g i s t e r in A u s t r a l i a t h a t

r e c o g n i s e s a n o n - r e s i d e n t to

be th e h o l d e r o f s e c u r i t i e s .

W holly e x e m p te d .

R e g u la tio n 8 ( 3 ) p r o h i b i t s - - - W holly ex em p ted

( 1 ) paym ent t o a r e s i d e n t in

a s s o c i a t i o n w i t h th e

r e c e i p t o f an y p aym ent o r

th e a c q u i s i t i o n o f an y

p r o p e r t y b y a n y p e rs o n

o u t s i d e A u s t r a l i a .

- 983 -

COMPARATIVE CHART DEMONSTRATING THE EFFECT OF RECENT CHANGES IN THE GOVERNMENT'S FOREIGN EXCHANGE POLICIES

pr R.3

Summary o f Che m a jo r o h l b i t io n s ( s u b j e c t t o

.A . a p p r o v a l ) c o n ta in e d

I n th e R e g u la tio n s

S urasary o f e x e m p tio n s

G a z e t t e d on 12 D ecem ber 1984

(N o . S .3 1 8 )

S u n e a ry o f e x e m p tio n s

G a z e t t e d o n 6 F e b r u a r y 1984

(N o . S .4 2 )

(2 ) paym ent t o a r e s i d e n t In

a s s o c i a t i o n w ith th e

c r e a t i o n o r t r a n s f e r in

f a v o u r o f a n y p e r s o n o f a

r i g h t t o r e c e i v e a paym ent

o r a c q u i r e p r o p e r t y

o u t s i d e A u s t r a l i a .

( 3 ) t h e u s e o f b i l l s o f

e x c h a n g e , p r o m is o r y n o t e ,

th e e n t e r i n g i n t o a n y

a g re e m e n t ( o t h e r th a n one

r e l a t i n g t o g o o d s ) , t r a n s ­

f e r r i n g a n y s e c u r i t y o r

a c k n o w le d g in g a n y d e b t s o

t h a t a r i g h t t o r e c e i v e

paym ent i n A u s t r a l i a i s

c r e a t e d o r t r a n s f e r r e d in

f a v o u r o f a r e s i d e n t in

a s s o c i a t i o n w i t h a n y m a t t e r

r e f e r r e d t o i n ( 1 ) & ( 2 )

R e g u la tio n 9 ( 1 ) p r o h i b i t s

t r a n s a c t i o n s i n v o l v i n g a n y

s e c u r i t y o r la n d i n A u s t r a l i a

by a n o n - r e s i d e n t t o a n o t h e r

n o n - r e s i d e n t .

P a r t I I I o f th e r e g u l a t i o n s

p r o h i b i t s th e e x p o r t o f g o ods

from A u s t r a l i a u n l e s s paym ent

a p p ro v e d by th e R e s e rv e Bank

I s r e c e i v e d i n A u s t r a l i a .

W h o lly ex em p ted

R e g u la tio n 3 3 (1 ) p r o h i b i t s th e

s e n d in g o f s e c u r i t i e s t o a n y

p la c e o u t s i d e A u s t r a l i a .

R e g u la tio n 3 4 ( 1 ) p r o h i b i t s -

( a ) d e a l i n g s w i t h f o r e i g n

s e c u r i t i e s c h a t a r e in

A u s t r a l i a , an d

( b ) a r e s i d e n t d e a l i n g w ith

f o r e i g n s e c u r i t i e s o u t o f

A u s t r a l i a .

Summary o f e x e m p tio n s G a z e tte d o n 25 J u n e 1984

(N o . S .2 3 5 )

W h o lly e x e m p te d .

W h o lly e x e m p te d .

W holly e x e m p te d .

984

8.117 SCHEDULE C

A u s t r a l i a n G o v e r n m e n t G a z e t t e

N o . 1 0 3 E , 2 3 D e c e m b e r 1 9 7 4

B a n k i n g 5

B a n k i n g A c t 1959-1974

NOTICE UNDER SECTION 39b I, JAMES FORD CAIRNS, the Treasurer, in pur­ suance of sub-section 39b (2) of the B a n k i n g A c t

1959-1974, direct that the following acts or things are acts or things to which section 39b of the Act applies:

(1) the entry by a person into a contract, agree­

ment or arrangement to which a person who is in, or is a resident of, or a person on behalf

of a person who is in, or is a resident of, a

place specified in the Schedule is a party, being a contract, agreement or arrangement for or in relation to—

(a) the borrowing or lending of money or the assignment of a debt; (b) the sale, purchase (including the granting of an option to purchase), acquisition or

disposition of securities, land or other

property, or of any interest in securities, land or other property, other than the sale or purchase through a member of an

Australian stock exchange of securities listed on an Australian stock exchange; (c) the payment of any royalty or licence fee or the making of any similar payment; or (d) the performance of any service;

(2) the creation or establishment in a place speci­ fied in the Schedule of any trust;

(3) the payment of moneys into a trust fund

created or established in a place specified in the Schedule;

(4) the giving or issuing by a person of a

guarantee or indemnity in respect of the repay­ ment of a loan made to or by a person who

is in, or who is a resident of, a place specified in the Schedule; and

(5) the doing of any act or thing:

(a) by a person in relation to:

(i) moneys or other property situated in the New Hebrides; (ii) the sending or transfer of moneys or other property to or from the New

Hebrides;

(iii) a contract, agreement or arrangement to which a person who is in, or is a

resident of, or a person on behalf of

a person who is in, or is a resident

of, the New Hebrides is a party;

(iv) the creation or establishment in the

New Hebrides of any trust; (v) the payment of moneys into a trust

fund created or established in the

New Hebrides; or (vi) the giving or issuing by a person of

a guarantee or indemnity in respect of the repayment of a loan made to

or by a person who is in, or who is

a resident of, the New Hebrides; or (b) by a person who is in, or who is a resident of, the New Hebrides; OTHER THAN— (c) the making of a payment in relation to a

policy of life assurance;

985

(i l l a n k i n x

( d ) the doing of any act or thing in relation

to the provision of moneys for the purpose of travel outside Australia; (e) the receipt in Australia of moneys in

respect of payments other than capital

payments; ( f ) the making of donations or bequests to

charitable organizations or religious bodies; (g) the acquisition or disposition through a member of an Australian stock exchange of securities listed on an Australian stock

exchange, the consequential registration on a register in Australia of any such

acquisition or disposition of securities and the despatch from Australia of any

certificate in relation to those securities; (h) the payment of any dividend or interest

on securities listed on an Australian stock exchange that arc registered in the name of a holder whose address on the register

is a place outside Australia; (i) the settlement by a bank in Australia of

local exchanges effected in the New

Hebrides; or (j) the making of a payment of an amount

of $50 or less.

A u s t r a l i a n G o v e r n m e n t G a z e t t e

N o . 1 0 3 E , 2 3 D e c e m b e r 1 9 7 4

SCHEDULE

Bahamas Bermuda British Solomon Islands Protectorate

British Channel Islands British Virgin Islands Cayman Islands Gibraltar Grenada Hong Kong The Isle of Man

Liberia Liechtenstein Luxembourg Nauru

Netherlands Antilles Panama Switzerland

Dated this twenty-third day of December. 1974.

J . F. CAIRNS

Treasurer

F. D. A tkinson. Government Printer. Canberra

- 986 -

ENDNOTES : PART 8

(See explanatory note at front of report)

1 CD4259

2 CT23089, Gilder; CT24682-83, McDonald 3 4

5

CD4259 folios 16-18 Sections 39(3), (4) & (5) Banking Act 1959 as amended by Banking Act (No. 2) 1973 (No. 193 of 1973) Dusche & Sons (UK) Ltd v Walworth Industries (Aust.) Pty Ltd

6

(1962) 62 Sk (n s w ; io5; Sykes v Stratton (i9/2) iNSWLft i4b; Fazio v Spitz (1973) WAR 164 S39(l), (2) & (3) Banking Act 1959 as amended by Banking Act

7

(No. 2) 1973 (No. 193 of 19/3) S39A Banking Act 1959 as amended by Banking Act (No. 2) 1973

8

(No. 193 of 19/3) S39(6) Banking Act 1959 as amended by Banking Act (No. 2) 1973 (No. 193 ot 19/3) 9 S39B Banking Act 1959 as amended by Banking Act 1974 (No. 132 of

1974)

10 S39 (8) Banking Act 1959 as amended by the Banking Act 1974 (No. 132 of Ϊ97Τ) " .... .. .

11 S39(5) Banking Act 1959 as amended by the Banking Act 1974 (No. 132 of 19/4) .... .. ...... .

12 Article titled 'Foreign Exchange Controls and the Overseas

Outflow of Money.1 - ALJR Vol. 57 p256 13 CD8857C, Statement of Mr M.J. Sutherland-Harris (Reserve Bank) 25/1/84 14 CD2172, Reserve Bank of Australia 1 Exchange Control1 booklet

(1980)

15 Regulation 38 Banking (Foreign Exchange) Regulations. 16 Regulation 44 Banking (Foreign Exchange) Regulations. 17 'Banking Law and Practice in Australia' Weerasooria and Coops 1976 Edit. p420

18 Australian Financial System, Committee of inquiry, Final Report para 45.45 p766-67 19 Commonwealth of Australia Gazette No S318 20 Commonwealth of Australia Gazettes No S42 & S235 21 Commonwealth of Australia Gazette No.5235 25 June 1984 22 CD8857C, Statement of Mr M.J. Sutherland-Harris (Reserve Bank)

25/1/84

23 CD8861, Reserve Bank of Australia Foreign Exchange Arrangements 24 CD2172, Reserve Bank of Australia 'Exchange Control' booklet (1980) p9

25

26 26a 27 28 29 30

31 32 33 34

35 36 37

38 39 40 41 42 43 44 45 46 47 48

49 50 51 52

53 54 55 56 57 58 59 60

61 62 63 64

65 66

- 987 -

[1962] S.R. (N.S.W.) 165 'Australian Exchange Control - 26 Civil Consequences' - Gerard Horton (1973) 47th J. pi26 Letter to the Commission dated 1 February 1983 from Parry, Ware

and Carroll relating to 'Across Border Currency Transfers' Regulations 5 (1) & (2) vide Banking (Foreign Exchange) Regulations - Statutory Rule No. 265 of 1974 which became operative on 23 December 1974. A paper delivered in 1976 by Gerard Horton titled 'Regional

Exchange Control Problems'. Letter to editor of ALJ from F.H. Callaway (Melb) 49 ALJ 640-41. Regulation 9(5) Banking (Foreign Exchange) Regulations. CD11545, Yorkville contra schedules

CT22886, Collings CT22640, Houghton CT22041-02, Galicek

CT15725, CT15733-34, Hill; CT25095, Shaw CT25371, CT25453, Brincat CT25095, Shaw CT25095, Shaw

CD4588 folios 21-26; CD6690 folios 32-37, 78; CD8361 folios 14-16; CD8888 folios 9-11 CD6690 folios 22, 50; CD8888 folios 19-20 CD8372 folio 30 CD11241 folio 2 CD6454 folio 60,61; CD6982 folio 30 CD11241 folio 2 CD8358 folios 32-33 CD10065 CD10065 CD10212 CD5986 folios 9-14 CD5986 folios 30-31,24 CD5986 folios 32-34,615-26 CD5986 folio 324 CD5983 folios 25,26,28,30,31,33,37 CD4160 folio 14 CD3529 folio 12; CD4156 folio 78 CD1557 folio 39 CD8362 folio 42 CD3971 folio 16; CD4162 folio 2 CD2899; CD3821 folio 31; CD4142; CD7229 folio 84

CD2800 CD1981 folio 39; CD8311 folio 40; CD8362 folio 7 CD1981 folio 40; CD8083 folios 432-34

CD3797 folio 4; CD4172 folio 987; CD8354 folio 114 CD6509 folios 377-78 CD3966 folio 7

CD977 folios 3,5,6 CD2800 folio 855 CD2899; CD3540 folio 34; CD5440 folio 309 CD3985 folio 31; ; CD5164; CD5532 CD2899; CD3868; CD4142; CD5440 folio 230 CD3816; CD3868; CD5148; CD5442 folio 476

67 68

69 70 71 72 73 74 75 76

77 78 79 80

988 -

CD5164; CD5533 folio 1 CD5164; CD5360; CD5523; CD5533 folio 6; CD8263 folio 139; CD8351 folio 67 CD5164; CD5533 CD7823 folio 34 CD4130 folios 44,92 CD7520 folio 21; CD8304 folio 91 CD4130 folios 18-19 CD4130 folios 18-19,44,92; CD6834 folio 8 CD5121; CD3816; CD3852 folio 13; CD7244 folios 5,45 CD3931 folios 25-26 CD3821 folios 41-42 CD10653 folio 65 CD10305 CD3821 folio 43

PAR T NINE

A L L E G ATIONS OF M O N E Y L AUNDERING A N D TAX EVASION

' - · ' Λ.

' ' ; i :

ι , ι ..

• ' : · . ' I ·

■ ' · " ; · ■ - - " ·

' : ; · ; · . . · < : : :

: · · ;

- 991 -

M,LEGATIONS OF MONEY LAUNDERING AND TAX EVASION

9.1 Mr F.J. Nugan [profile 2.1] repeatedly boasted that he was a

very successful tax lawyer and that the fees earned by him in this regard

were of such volume that they were sufficient of themselves to pay the

operating expenses of the Nugan Hand Group.^ Witnesses before the

Commission expressed mixed views as to the alleged expertise of Mr Nugan , 2

in this field. The better view on the evidence seems to be that

Mr Nugan's schemes were, in the main, crude examples of arrangements to

avoid the payment of income tax and, to the extent that they were

successful, it was because of the misleading appearance they had when

they were presented to the Commissioner of Taxation. One of the

solicitors employed by Mr Nugan, when speaking of one such scheme said

that had the facts been laid before the Commissioner of Taxation 'there

would be no chance of the scheme working', that is, no chance of the 3 scheme being allowed. Mention has been made of the fact that Mr Nugan

carried on a legal practice on the same premises that housed Nugan Hand

Ltd [profile 2.97] (which premises was also the registered office of many

of the other Australian companies within the Group). The legal practice

employed a staff of three, and was almost exclusively devoted to the

creation and implementation of tax avoidance schemes using one or more of 4 the companies within the Group. Perhaps the most knowledgeable person

in this field employed in that practice was the late Mr E.P.Harland

[profile 2.28].

9.2 The evidence before the Commission does not permit an estimate

to be atterrpted as to the volume of income tax evaded by the use of these

schemes or the amount of fees earned by Mr Nugan as a result of putting

them into effect. However, the evidence certainly does not support

Mr Nugan's claim that he earned fees of the order claimed. On the other

hand there is evidence that he earned large fees from time to time in 5 respect of particular schemes.

9.3 In a speech which was recorded in October 1979 to the staff of

his legal practice, Mr Nugan made some candid statements about some of

- 992 -

the illegal activities he had been involved in over the previous years,

in particular, activities designed to bring about large scale evasion of

tax by persons dealing through Mr Nugan. The transcript of this speech

is lengthy and for the most part difficult to follow because it reflects

Mr Nugan' s garbled way of speaking, a fault also to be found in most

prose written by him. This lack of ability to communicate clearly was

commented upon by several witnesses before the Commission.®

Nevertheless as the following excerpts will demonstrate Mr Nugan said

enough to make it perfectly clear that he had involved himself in these

illegal schemes for some time past. In his speech there are references

to 'reform' on his part and on the part of his legal practice. In order

to understand these references to 1 reform1 it is necessary to mention (as

already appears from his profile in 2.1) that after many years of very

heavy drinking Mr Nugan about April 1979, apparently embraced religion

with a conspicuous intensity. (Curiously enough, Mr M.J.Hand [profile

2.2] appears to have undergone a similar experience a little earlier.)

The evidence before the Commission is that upon this religious conversion

Mr Nugan's heavy drinking ceased and his speech and writing became

peppered with allusions to God and biblical text. It is in this context

that the following extracts from the transcript should be viewed:

'We are reborn, those son of bitches who were passing under our name, prior to today, including me. We are different people ? ... Nugan Hand has been doing fringe banking for the past 3 or 4 years. I am just trying to think when we first - you ease

into these things slowly unfortunately - as you lose your way. You don't make a determined decision to lose your way, what happens is that it happens. So things that I view as fringe

banking, clandestine bank accounts, numbered accounts, secret documents, use of currency flow and so on, money movement: they have eased up on us and the main period they have eased up on us is when Michael Hand and I, ever since November 1977, when we were first attacked, perhaps because we are relatively weak

individuals and were very easily hurt - started to mismanage the firm. It's about two years of mismanagement as it stands at this moment; two years lack of supervision; :wo years lack of guidance or leadership; no training for anyone. The problems in the firm basically stem from the top, rather than the bottom. We've got people who at present get away with murder and never

give it a give a damn, because at one time or another you were either inside a bottle of Scotch or in a church or whatever in this period ... Unfortunately, it has been profitable to follow the wrong direction ® ... there are plenty of people who want

- 993 -

to do crook business in this world we do get plenty of takers and that's what we've been on. You know, numbered bank

accounts, and secrecy and money movements and God knows what 9 ... I have, been the main guilty party for some reason in years gone by 10 Pack to back letters of credit, intercompany

invoicing, misleading switches of invoices ... all sorts of breaches of customs and tariff and banking laws and so on, all done by misleading documents of one kind or another and usually by the active and vigorous assistance of the bank concerned. We have actively and vigorously assisted certain people in drop-off L.Cs, back to back letters of credit on occasions.'H

[emphasis added]

9.4 In another part of the transcript of this speech, Mr Nugan is

recorded as saying:"*·^

'... the quality of the Australian tax department is not very high so I can get away without doing this [in] a formal way most of the time ... it's getting so easy after 15 years but I can

always have a devine [sic] inspiration as to what the fact and law was ... remember back in the first years when you started

with me, we used to prepare the objection to the assumed

disallowance at the same time we'd prepare the documents ... And you could be an architect of fact and decide every question of fact that can be presented ... we can decide in advance every

fact, we can create facts.'

9.5 Finally, at the time that this report is being prepared in mid

1985, it is of historical interest to note, bearing in mind he was

speaking in 1979, references by Mr Nugan to tax evasion schemes commonly

known today as 'Bottom of the Harbour' schemes. Of these Mr Nugan had t 13

this to say:

'There's all that other stuff, there's all sorts of tax dodges of various kinds around, you know, Frank Ward who for 3/£ in the $1.00 will give them an aeroplane or else he'll give them the Sydney Harbour company, Sydney Harbour Bottoms Pty. Ltd, which means that he'll have the income earned in the company and he'll

take it over and throw the records and the books in the bottom of the company [sic], (ha ha) That's what they do ...' [enphasis added]

9.6 The following pages of this section give brief illustrations of

the type of schemes which Mr Nugan was putting into effect, in most cases

using one or more of the companies within the Group as an essential part

- 994 -

of the scheme. It appeared from the Commission's examination of the

books and records of Nugan Hand Ltd that there were many such schemes

involved. It will be obvious that the Commission itself could not pursue

to completion inquiries in relation to these schemes, a task which may

prove to be very time consuming indeed. Accordingly, the Commission has

passed the details of these schemes and the identity of the persons

involved to the Commissioner of Taxation on the basis that they appear to

involve the commission of an offence under the Income Tax Assessment Act

1936. The Commission has been advised in a letter from a Senior

Assistant Commissioner that the material provided has been useful to the

Department particularly in relation to confirmation of the identity of

relevant taxpayers and the gathering of documentation in relation to 14 relevant transactions. The Commission in passing on such details

acted pursuant to section 6P of the Commonwealth Royal Commissions Act

1902. This is a comparatively recent provision and the Commission's

views on its usefulness and an indication of the amount of information

that the Commission has provided to law enforcement authorities pursuant

to its terms, appears in Part 1 Section 3.

9.7 It is not proposed in this report to comment any further on the

tax evasion industry of the 1970s or that a great number of entirely

artificial schemes seem to have initially evaded official scrutiny. Nor

is it intended to comment on the fact that the penalties during this time

seem to have been entirely disproportionate in that they were so low that

they encouraged persons to 'chance their arms' and enter into such

schemes. These aspects of the matter have been fully covered in recent

reports by Special Prosecutors.-*·***

Examples of the Schemes

9.8 A number of the Australian companies within the Group were used

in the implementation of these schemes. These companies included, in

particular, Yorkville Nominees Pty Ltd, Mars Road Investments Pty Ltd,

the two Distravite companies and the Orange Spot Group. Profiles of

these companies are included in Part 2. Sometimes an overseas

transaction was inserted into these arrangements making the substance of

- 995 -

the arrangement even more difficult to unravel. As has been reported in

Part 8 the Group continually flouted the then current exchange control

legislation and this aspect of the matter is, of course, relevant to any

consideration of the Group's tax evasion activity. In particular, the

Group made use of a facility known as the 'Yorkville contra' which is

explained in detail in Part 8 where examples of its implementation are

also provided.

Back to back schemes

9.9 This device formed the basis of the majority of the schemes

identified by the Commission. Essentially, a back to back scheme was an

arrangement whereby a taxpayer was apparently in possession of funds in a

form which would not incur the imposition of income tax, for example,

where funds were said to be retained in the form of a loan. A typical

example was the instance where 'black1 money would be deposited with

Yorkville Nominees or Mars Road Investments by the client who would have

the money returned to him together with documentation to the effect that

the money was a loan from the particular company to the client. In fact

the money was the return of the client's own money less a fee charged by

the Group for this service. Among the documentation creating the

appearance that the returned funds were merely a loan was a deed

purporting to release the client from the payment of the 'loan'. If the

taxpayer were called upon to explain where the moneys came from he could

produce the 'loan' agreement as evidence of its source. There were

variations of these schemes. Sometimes the recipient of such a 'loan'

would purport to pay interest thereon and then claim a tax deduction for

the interest on the apparent basis that it was interest paid on moneys

borrowed as part of a business. The 'interest' paid would, of course,

ultimately be returned to the client.

9.10 A further variation will be apparent from the following

example. Consultants were owed money in an overseas country by the Group

for consulting work. The money was paid under the guise of a 'loan' in

Australia together with a deed of release. The arrangement was not

disclosed to the Commissioner for Taxation and the income which had been

received under the guise of a loan was not declared.

- 996 -

The Distravite Scheme

9.11 The basis of this scheme depended upon the appearance being

created by documentation emanating from Mr Nugan's legal office of the

Distravite companies being seen to carry on a legitimate business

distributing vitamins and other products. This was in fact not the

case. However the appearance was given that the companies were carrying

on such a business and further that they were entering into 'franchise'

agreements with various clients who, according to documents which were

brought into existence for the purpose, were entitled to distribute the

products provided by the Distravite companies in certain areas. The

clients then made false claims for deductions in respect of these

'franchises' in particular claiming deductions for the 'franchise' fees.

These 'fees' were ultimately returned to the client under the appearance

of a 'loan' accompanied by a deed of release. There is evidence that

Mr Nugan's fee for these schemes and other schemes which created false

deductions was 'about 22 per cent'."*"^ The schemes were a complete sham

and no distribution of the products occurred. Similar schemes were

operated using the Orange Spot Group."*"®

Artificial 'Management' Schemes

9.12 Details of one of these schemes identified in the evidence

before the Commission will serve to illustrate the nature of the scheme

which led to the claiming of false deductions. Yorkville Nominees

purported to enter into an agreement with the client whereby Yorkville

Nominees would provide services of a management nature in consideration 19 for an agreed amount of money. Few or no such services were provided

by Yorkville Nominees and on the evidence before the Commission,

Yorkville Nominees was in no position to provide such services. The

money paid by the client to Yorkville Nominees for these 'services' was

returned disguised in the form of a loan with a deed of release. The

client claimed the moneys as a deduction on the basis that it represented

fees payable to Yorkville Nominees for the services allegedly rendered.

Yorkville Nominees on its part wrote off the money as a bad debt.

- 997 -

'Re- I n v o i c i n g 1 Schemes

9.13 Such schemes involved the processing of a client's purchase, for

example, of a machine, through a Nugan Hand controlled company, for

example, Nugan Hand Trade Finance Ltd in Hong Kong at a considerably

inflated purchase price. The client would claim taxation benefits based

upon the false invoice and would ultimately receive back from the company

the moneys paid over and above the actual purchase price less a fee for

the service.

Other Examples

9.14 Other examples of schemes included schemes based on alleged

losses suffered in failed option schemes, artificial losses on purchase

and sale of real estate, schemes using nominee companies (particularly

emanating from Hong Kong), false deductions claimed in respect of share

trading and commodity trading, and deductions claimed for insurance

payments. It is unnecessary to do more than mention these schemes in

this report due to the fact that relevant details in the Commission's

holdings have been passed to the Commissioner of Taxation, from time to

time, pursuant to section 6P of the Royal Commissions Act 1902.

O v e r s e a s Transactions

9.15 Where these schemes were partly carried out overseas this

introduced formidable difficulties in the way of those authorities

charged with going behind the documents and establishing the substance.

This was particularly so where the country concerned was a so called 'tax

haven' country such as Hong Kong or the Cayman Islands. In these cases

the authorities in those countries are generally uncooperative with

respect to tax evasion investigations being carried out by authorities in

other countries. As well, in a prosecution involving the proof of

overseas transactions difficulty is incurred in producing proof that

satisfies the rules of evidence applied in such prosecutions. The

Commission's inquiries have suffered to some extent by this lack of

cooperation from tax haven countries and this aspect has been reported

upon in Part 4 Section 4.

C O —] O'*

- 998 -

ENDNOTES : PART 9

(See explanatory note at front of report)

1 CT19126, Healey; CT23228, Ward; CT25082, Shaw; CD45 folio 14, Nugan to NHG Jan 179 conference; CD1429 folios 462-63, Nugan to NHG Oct.'79 conference 2 CT22359-60, George; CT23228, Ward 3 CT22357, George speaking of the Orange Spot scheme, which is

referred to at paragraph 9.11 '4 CT18662-64, George 5 CT22356-57, George For example, CT23089, Gilder; CT24682-83, McDonald

CD4259 folio 3, Transcript of meeting -legal division CD4259 folio 6, ibid

9 CD4259 folio 7, ibid

10 CD4259 folio 14, ibid

11 CD4259 folio 18, ibid

12 CD4259 folios 49-50, ibid

13 CD4259 folios 54-55, ibid

14 CD11539

15 R.V. Gyles Q.C. 30 June 1983 and 30 June 1984; R. Redlich

7 September 1983 and 12 July 1984 16 CD6342, Yorkville - Loans & correspondence; CD10857, Record of Interview. 17 CT25083, Shaw

18 CT22351, CT22356, George; CD1308 JTF ROI George 13/7/81 19 CT18608, Lee; CD4688 folio 5

PART TEN

BREACHES OF CRIMINAL LAW IDENTIFIED

!

-

- 1001 -

BREACHES OF CRIMINAL L A W IDENTIFIED

10.1 In this Part, and in this Part only, it is intended to identify

certain persons who appear to the Commission to have committed relevant

criminal offences. Thus, while other Parts of the report may set out the

facts and circumstances on which the findings in this Part are based, no

mention is made in those places as to whether or not such facts and

circumstances amount to criminal offences on the part of any person. In

coning to these conclusions as to criminality on the part of the persons

named in this Part, the Commission has applied the civil standard of

proof for the reasons explained in paragraphs 1.2.27 to 1.2.28.

10.2 The Commission's reasons for confining findings of criminality

to one Part only of the report will be obvious. While the decision to

publish all or any of this report is not a matter for the Commission, the

Commission has nevertheless taken into account, in deciding upon the

format of the report, that the commissioning Governments may wish to

publish as much of the report as possible but excluding material such as

that which nominates particular persons as having been guilty of criminal

conduct. To the extent that proceedings are taken against any or all of

the persons identified in this Part then any publication of this type of

material may prejudice the right to a fair trial. To the extent that any

or all of such persons so identified are not to be prosecuted (because of

evidentiary problems, for example) then, perhaps, the view might be taken

that fairness demands that their names not be published in such context

because there is not a sufficient basis for publicly proclaiming that

they have committed crimes in respect of which they are not even to be

charged let alone convicted. The Commission has already commented upon

the significant differences between the procedures of a Royal Commission

and a criminal trial [see Part 1 Section 2], On the other hand these

comments perhaps apply much less in the case of Messrs F.J. Nugan

[profile 2.1] and M.J. Hand [profile 2.2] as they were clearly the

protagonists in the events the subject of this report. Mr Nugan, as the

Commission has observed at paragraphs 3.1.38 to 3.1.39, chose suicide

- 1002 -

rather than face the c o n s e q u e n c e s of h i s crimes. Mr Hand, as the

Commission has reported at p a r a g r a p h 3.1.4, w a s g i v e n the o p p o r t u n i t y of

coming forward to tell his si d e of the s t o r y but d i d not respond. For

these reasons Messrs N u g a n and Ha n d m i g h t be se e n as b e i n g o u t s i d e the

principles of fairness, in this context, w h i c h w o u l d u s u a l l y b e applied.

Paragraphs 10.3 to 10.208 h a v e b e e n deleted.

PART ELEVEN

SUMMARY O F CON C L U S I O N S AND R E C O M M ENDATIONS

- 1097 -

SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

Conclusions

11.1 In Part 10, the Commission has expressed its conclusions as to

which persons contravened Commonwealth and New South Wales criminal laws

which are relevant to the Commission's terms of reference (as construed

by the Commission [see Part 1 Section 2]). In Part 10 the criminal laws

contravened are specifically identified and the evidence relied upon

referred to. In addition, the Commission has reported, in that Part,

that a large body of information has been passed to relevant law

enforcement bodies (pursuant to section 6P of the Commonwealth Royal

Commissions Act) which may lead to further criminal offences being

identified by those bodies.

11.2 Specific allegations have been examined in Part 4 Section 3, and

Parts 6, 7, 8 and 9.

Recommendations

11.3 Set out hereunder, and shortly stated, are those matters which

have emerged out of the Commission's primary inquiry, which was to

identify contraventions of Commonwealth and New South Wales criminal law

by relevant persons, which seem to the Commission to call for legislative

intervention by one or other or both of the commissioning Governments, or

for implementation by other means. The Commission therefore recommends

that consideration be given to the following:

11.4 Royal Commissions Acts

a. Amend both the Commonwealth and New South wales Acts to provide

that in the case of Royal Commissions inquiring into allegations

of crimes triable in the courts, the rules of natural justice

apply to the proceedings of those Royal Commissions:

Part 1, section 2.

- 1098 -

b. Amend the New South Wales Act to include a provision enabling a

Royal Commission set up under the Act to inquire into

allegations of crimes triable in the courts to provide relevant

information to law enforcement agencies:

Part 1, Section 3 .

c. To provide, whether by way of legislation or in the terms of

reference, or both, in the case of a Commission inquiring into

crimes triable in the courts, for powers and procedures to

remain in force following the delivery of the Commission's

report to the commissioning government, to enable the provision

of advice and relevant material gathered in the course of the

Commission's inquiries to relevant authorities so as to

implement more effectively such of the Commission's

recommendations as have been adopted by that government:

Part 1, Section 3.

11.5 Tax Havens

That the Government of the Commonwealth request the Government

of the United Kingdom to enter into an agreement with the

Government of the Commonwealth relating to access in the

circumstances specified in the agreement to Cayman Islands

documentation, and that wherever possible similar agreements be

entered into with other tax haven countries:

Part 4, Section 4 .

11.6 Judicial Assistance Treaties

That the Government of the Commonwealth upgrades the priority

currently accorded to the establishment between Australia and

other appropriate countries of modern judicial assistance

treaties:

Part 4, Section 4.

- 1099 -

11.7 Auditors

Qiact legislation to provide for:

a. the codification of the scope of the duty of the auditor of a

public company to detect fraud in the company:

Part 4, Section 5 .

b. a criminal offence constituted by such an auditor certifying

company accounts which he knows to contain false statements or

which he knows create a false impression:

Part 4, Section 5.

c. the separation of the roles of accountant and auditor in respect

of a public company and a prohibition against the company's

auditor also carrying out duties ordinarily performed by an

accountant:

Part 4, Section 5 .

d. an appropriate amendment to the Companies Code to provide a

specific offence constituted by an auditor deliberately or as a

result of reckless indifference failing to comply with the

requirements of section 285 of the Code (relating to the duties

of auditors):

Part 10, Part 4 Section 5

11.8 Bankers' Opinions

That a committee be set up to liaise with appropriate

professional bodies, such as the Australian Bankers'

Association, with a view to establishing criteria to be followed

by banks in respect of the issuing of opinions concerning their

clients' financial standing and worth which they have reason to

suspect will be relied upon in that regard by those requesting

such opinions or those to whom such opinions are to be, or are

likely to be, directed:

Part 4, Section 6.

- 1 1 0 0 -

11.9 General

That Parts 3 and 5 and Part 4 Sections 5 and 7 be referred to

the National Companies and Securities Commission and/or other

appropriate bodies for the purpose of reviewing the provisions

of the Companies Code in the light of the evidence contained in

those p>arts of this report which detail the methods used to

falsify the accounts of Nugan Hand Ltd and the role of the

auditors in relation thereto, and to consider, in the light of

such evidence, whether there is a need for the Code to be

amended to prevent or make more difficult use of such methods,

or to prohibit any such practices.

APPENDICES

APPENDIX A (i)

Commonwealth Letters Patent, 28 March 1983

.

■

■

1105

E L I Z A B E T H THE S E C O N D , by the G r ace of God Q u e e n of

A u s t r a l i a and Her other Realms and T e r r i t o r i e s , Head

of the C o m m o n w e a l t h :

D O N A L D G E R A R D S T E W A R T

G R EETING:

W H E R E A S b y L e t t e r s Patent issued in Our n a m e by

Our A d m i n i s t r a t o r of the G o v e r n m e n t of the

C o m m o n w e a l t h of A u s t r a l i a on 25 June 1981 We a p p o i n t e d

you to be a C o m m i s s i o n e r to i n quire into and r e p o r t

upon c e r t a i n m a t t e r s r e l a t i n g to T e r r e n c e J o h n C l a r k

and p e r sons a s s o c i a t e d with him:

AN D W H E R E A S it is d e s i r a b l e that your i n q u i r y

i n clude c e r t a i n m a t t e r s that m a y not fall d i r e c t l y

w i t h i n the m a t t e r s to be inquired into under the

L e t t e r s Pa t e n t issued on 25 June 1981:

NOW T H E R E F O R E We Do, by these Our L e t t e r s P a t e n t

issued in Our name by Our G o v e r n o r - G e n e r a l of the

C o m m o n w e a l t h of A u s t r a l i a on the a d v i c e of the F e d e r a l

E x e c u t i v e C o u n c i l and in p u r s u a n c e of the .Constitution

TO

1106

of the C o m m o n w e a l t h of A u s t r a l i a , the Royal

C o m m i s s i o n s A c t 1902 and other enab l i n g p o w e r s , v a r y

the L e t t e r s P a t e n t issued on 25 June 1981 so as to

r e q u i r e that, to the e x t e n t that you are not r e q u i r e d

to do so by t h ose L e t t e r s Patent, you m a k e i n q u i r y

into the f o l l o w i n g m a t t e r s , n a m e l y -

(a) w h e t h e r the Nug a n Hand G r o u p e n g a g e d in

a c t i v i t i e s in v o l v i n g c o n t r a v e n t i o n of l a w s of

the C o m m o n w e a l t h (in p a r t i c u l a r , laws

r e l a t i n g to the i m p o r t a t i o n , e x p o r t a t i o n or

p o s s e s s i o n of d r u g s or a r m a m e n t s or laws

r e l a t i n g to e x c h a n g e control);

(b) w h e t h e r the N u gan Hand G r o u p d i r e c t l y or

i n d i r e c t l y e n g a g e d in a c t i v i t i e s w i t h local

g o v e r n m e n t a u t h o r i t i e s in the S t a t e of N e w

S o u t h W a l e s i n v o l v i n g c o n t r a v e n t i o n of a l a w

of the C o m m o n w e a l t h ;

(c) if the N u g a n Hand G r o u p e n g a g e d in a c t i v i t i e s

r e f e r r e d to in p a r a g r a p h (a) or ( b ) , w h a t

w e r e the e x t e n t and n a t u r e of those

a c t i v i t i e s ;

(d) w h e t h e r in the c o u r s e of, or in c o n n e c t i o n

with, any a c t i v i t y r e f e r r e d to in p a r a g r a p h

(a) or ( b ) , the Nugan Hand G r o u p u s e d , was

used by, or c o - o p e r a t e d with any p e r s o n ,

o r g a n i z a t i o n or body;

\

1107

(e) w h e t h e r any p e r s o n , o r g a n i z a t i o n or body

a s s o c i a t e d with the N u gan Hand Group d i r e c t l y

or i n d i r e c t l y m a d e or o f fered any p a y m e n t or

i n d u c e m e n t for, or in c o n n e c t i o n with, or

e n d e a v o u r e d by m e a n s of a th r e a t to procu r e ,

the d i s c l o s u r e by any C o m m o n w e a l t h o f f i c e r or

any p e r s o n who was f o r m e r l y a C o m m o n w e a l t h

o f f i c e r of i n f o r m a t i o n relating to an

i n v e s t i g a t i o n by an A u s t r a l i a n law

e n f o r c e m e n t b o d y into any a c t i v i t y referred

to in p a r a g r a p h (a) or (b) ;

(f) w h e t h e r any person, o r g a n i z a t i o n or b o d y

a s s o c i a t e d with the N u gan Hand G r oup p r o c u r e d

or r e c e i v e d , d i r e c t l y or indirectly, from any

C o m m o n w e a l t h o f ficer or any p e r s o n who was

f o r m e r l y a C o m m o n w e a l t h o f f i c e r i n f o r m a t i o n

r e l a t i n g to an i n v e s t i g a t i o n by an A u s t r a l i a n

law e n f o r c e m e n t body into any a c t i v i t y

r e f e r r e d to in p a r a g r a p h (a) or (b);

(g) w h e t h e r any person, o r g a n i z a t i o n or b o d y

i m p r o p e r l y i n t e rfered with, inhibited or

e n d e a v o u r e d to i n t e r f e r e w i t h or i n h i b i t any

i n v e s t i g a t i o n by an A u s t r a l i a n law

e n f o r c e m e n t b o d y into any a c t i v i t y r e f e r r e d

to in p a r a g r a p h (a) or (b) :

l .

1108

A N D W E D E C L A R E THAT, for the p u r p o s e s of these Our

L e t t e r s P a t e n t -

(h) a r e f e r e n c e to the Nug a n Hand G r o u p is a

r e f e r e n c e to any or all of the f o l l o w i n g :

(i ) F r a n k , J o h n N u g a n ;

(i i ) M i c h a e l Hand;

(iii) the c o r p o r a t i o n s s p e c i f i e d in the

S c h edule;

(iv) any other c o r p o r a t i o n w h i c h c u s t o m a r i l y

acted in a c c o r d a n c e w i t h the d i r e c t i o n s

of F r ank John N u g a n or M i c h a e l H a n d or

b o t h or of w h i c h Fra n k John N u g a n or

M i c h a e l Hand was a d i r e c t o r or

s h a r e h o l d e r or w h i c h was o t h e r w i s e

c o n t r o l l e d , d i r e c t l y or i n d i r e c t l y , by

F r a n k John N u g a n or M i c h a e l H a n d , or

b o t h ;

(j ) a r e f e r e n c e to an A u s t r a l i a n law e n f o r c e m e n t

b o d y is a r e f e r e n c e to any b o d y in A u s t r a l i a

w i t h an o b l i g a t i o n to i n quire w h e t h e r a law

of the C o m m o n w e a l t h or of a S t ate or

T e r r i t o r y has been c o n t r a v e n e d w i t h a v i e w to

laying, or r e c o m m e n d i n g the laying of, a

c h a r g e in r e s p e c t of that c o n t r a v e n t i o n :

1109

AND, w i t h o u t r e s t r i c t i n g the scope of your i n q u i r y

or the na t u r e of y o u r r e c o m m e n d a t i o n s , We d i r e c t that,

in c o n d u c t i n g your i n q u i r y and m a k i n g your

r e c o m m e n d a t i o n s , you h a v e regard to -

(k) any r e p o r t s m a d e by the C o m m o n w e a l t h / S t a t e

Joint Task F o r c e on Drug Trafficking;

(l) any r e p o r t s of the C o r p o r a t e A f f airs

C o m m i s s i o n of N e w South W a l e s a p pointed as

Ins p e c t o r under Part V I A of the C o m p a n i e s Ac t

1961 of the S t a t e of New South W a l e s to

i n v e s t i g a t e the a f f a i r s of the c o r p o r a t i o n s

s p e c i f i e d in the S c hedule; and

(m) any r e p o r t s m a d e by a p e r s o n h o l ding of f i c e

as l i q u i d a t o r of any of the companies

r e f e r r e d to in the S c h e d u l e under an

a p p o i n t m e n t m a d e by the S u p r e m e Cou r t of Ne w

South Wales:

AND WE F U R T H E R D E C L A R E that yo u are not requ i r e d

by these Our L e t t e r s P a t e n t to inquire, or to c o n t i n u e

to inquire, into a m a t t e r if yo u are s a tisfied that

the National C r i m e s C o m m i s s i o n or the C o m m i s s i o n e r

a p p o i n t e d by our G o v e r n o r - G e n e r a l on 10 S e p t e m b e r 1980

to inquire into c e r t a i n m a t t e r s relating to the

F e d e r a t e d Ship P a i n t e r s and D o c k e r s Union is

inquiring, or p r o p o s e s to inquire, into that m a t t e r :

1110

AN D WE F U R T H E R D E C L A R E that the L e t t e r s P a t e n t

issued on 25 June 1981 shall have e f f e c t as if for the

c o n c l u d i n g p a r a g r a p h there w e r e s u b s t i t u t e d the

f o l l o w i n g p a r a g r a p h s :

"AND We F u r t h e r D e c l a r e that the C o m m i s s i o n

e s t a b l i s h e d by these Our L e t t e r s Pat e n t is a

r e l e v a n t C o m m i s s i o n for the p u r p o s e s of s e c t i o n s 4

and 5 of the Roy a l C o m m i s s i o n s A c t 1902:

"AND We r e q u i r e y o u as e x p e d i t i o u s l y as p o s s i b l e

to m a k e your i n quiry a n d , not later than 31

D e c e m b e r 1983 , to f u r n i s h to Our G o v e r n o r - G e n e r a l

of the C o m m o n w e a l t h of A u s t r a l i a a r e p o r t of the

r e s u l t s of your i n q u i r y and your

r e c o m m e n d a t i o n s .".

K & R Cash T r a n s i t Ptv L i mited

(In L i q u idation)

D i s t r a v i t e A u s t r a l i a W i d e S e r v i c i n g C o m p a n y Pty L i m i t e d

D i s t r a v i t e Pty L i m i t e d

N u g a n Hand L i m i t e d (In Liqu i d a t i o n )

Nug a n Hand (Dealers) Pty L i m ited

N u gan Hand I n t e r n a t i o n a l H o l d i n g s Pty L i mited

(In L i q u idation)

S C H E D U L E

1111

Nugan Hand (Trade Services) Pty L i mited

Y o r k v i l l e N o m i n e e s Pty L i m i t e d (In Liquidation)

A u s t r a l a s i a n & P a c i f i c H o l d i n g s Pty Limited

(In Liquidation)

R B C o d y Pty Limited

G a r c i a Bros. H a r d w a r e Pty L i m i t e d

H i dex Pty L i m ited

Illarangi I n v e s t m e n t s Pty L i m i t e d (In Liquidation)

L e a s e f a s t Pty L i m i t e d (In L i q u i dation)

M e d e v a c S h i p p i n g P t y Limited

N a r e t h a Pty L i m i t e d (In Liquidation)

N e w c o u r t Fin a n c i a l S e r v i c e s Pty L i m i t e d

N Η N M a n a g e m e n t Pty Ltd

S L N o t w i s t Pty L i mited

P a c i f i c C o n t i n e n t a l L i m i t e d (In Liquidation)

P M S h e l l e y Pty Limited

Skah Pty L i mited

S o l i n g e n A u s t r a l i a Pty L i m ited

Swi s s P a c ific Pty L i m i t e d

W V T e n n y s o n Pty L i mited (In Liquidation)

M a r s Road I n v e s t m e n t s Pty L i m i t e d

(In Liquidation)

N u g a n Hand (Hong Kong) L i m i t e d

1112

N u gan Hand I n c . (Hawaii)

The N u g a n Hand B a n k (Cayman Islands)

W I T N E S S His E x c e l l e n c y the R i g h t

H o n o r a b l e Sir N i n i a n M a r t i n S t e p h e n ,

a m e m b e r of Her M a j e s t y ' s M o s t

H o n o u r a b l e P r i v y C o u n c i l , K n i g h t of

the Order of A u s t r a l i a , K n i g h t G r a n d

C r o s s of The M o s t D i s t i n g u i s h e d

Order of S a i n t M i c h a e l and S a i n t

George, K n i g h t G r and C r o s s of the

Royal V i c t o r i a n Order, Kni g h t

C o m m a n d e r of The M o s t E x c e l l e n t

Order of the B r i t i s h Empire, K n i g h t

of the M o s t V e n e r a b l e O r der of the

H o s p i t a l of S a i n t John of J e r u s a l e m ,

G o v e r n o r - G e n e r a l of the C o m m o n w e a l t h of A u s t r a l i a and C o m m a n d e r - i n - C h i e f of the D e f e n c e Force.

Dat e d this t w e n t y e i g h t h

d a y of " March 1983.

G o v e r n o r - G e n e r a l

By His E x c e l l e n c y ' s C o m m a n d

Pri m e M i n i s t e r

APPENDIX A (ii)

New South Wales Letters Patent, 28 March 1983

- 1115 -

NEW SOUTH WALES.

H

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P3C O rn

ELIZABETH THE SECOND, by the G race of God Queen of A ustralia and Her

o th er Realm s and T errito ries, Head of the Com m onw ealth.

To Our T rusty and Well-Beloved

The Honourable DONALD GERARD STEWART, A Judge of the

Supreme C ourt of New South Wales.

GREETING:

WHEREAS by Royal Com mission by L e tte rs P a te n t under the G reat Seal of

Our S ta te of New South Wales and the hand of Sir JAMES ANTHONY

ROWLAND, Our Governor of Our S ta te dated th e 24th day of June, 1981,

and recorded in the R eg ister of P a te n ts, No. 78, P. 175, you the abovenamed

the Honourable DONALD GERARD STEWART w ere authorised to inquire

into and re p o rt upon c e rta in m a tte rs relating to T errence John Clark and

persons associated with him:

AND WHEREAS it is desirable th a t your inquiry include c ertain

m a tte rs th a t may not fall d irectly w ithin the m a tte rs to be inquired into

under the L e tte rs P a ten t issued on 24th June, 1981:

NOW THEREFORE We Do, by these Our L e tte rs P a te n t issued in Our

Nam e under the G reat Seal of Our said S tate and the Hand of Sir JAMES

ANTHONY ROWLAND, Our G overnor of Our S ta te , w ith the advice of the

E xecutive Council of Our said S ta te , vary the L e tte rs P a te n t issued on 24th

June, 1981, so as to require th a t, to the e x ten t th a t you are not required to

do so by those L etters P a te n t, you m ake inquiry into the following m atters,

nam ely -

(a) w hether the Nugan Hand Group engaged in a ctiv ities involving

contravention of laws of the S tate of New South Wales (in

p a rticu la r laws re la tin g to possession of drugs or arm am ents);

(b) w hether the Nugan Hand Group directly or indirectly engaged in

a ctiv ities w ith local governm ent au th o ritie s in the S ta te of New

South Wales involving contravention of laws of the S tate;

(c) if the Nugan Hand Group engaged in a ctiv ities re fe rre d to in

paragraph (a) or (b), w hat w ere the e x te n t and n a tu re of those

a ctiv ities;

1116

(d) w hether in the course of, or in connection w ith, any a c tiv ity

re fe rre d to in p aragraph (a) or (b), the Nugan Hand Group used,

was used by, or c o -o p era te d with any person, organization or

body;

AND WE DECLARE THAT, for the purposes of th ese Our L e tte rs

P a te n t -

(e) a re fe re n c e to the Nugan Hand Group is a re fe re n c e to any or all

of the following -

(1) Frank John Nugan;

(ii) M ichael Hand;

(iii) the co rp o ratio n s specified in the Schedule;

Civ) any o th er corp o ratio n which custom arily a c te d in

accordance w ith the d irections of Frank John Nugan

or M ichael Hand or both or of which Frank John

Nugan or M ichael Hand was a d ire c to r or shareholder

or which was otherw ise controlled, directly or

in d irectly , by Frank John Nugan or M ichael Hand, or

both;

AND, w ithout re stric tin g the scope of your inquiry or the n a tu re of

your recom m endations, We d irec t th a t, in conducting your inquiry and

m aking your recom m endations, you have regard to -

(f) any rep o rts m ade by the C om m onw ealth/S tate Joint Task Force

on Drug T rafficking;

(g) any reports of the C o rp o ra te A ffairs Com m ission of New South

Wales appointed as Inspector under P a rt VIA of the C om panies

A ct, 1961, of the S ta te of New South Wales to in v estig a te the

a ffa irs of the c o rporations specified in the Schedule; and

(h) any reports m ade by a person holding office as liquidator of any

of the com panies re fe rre d to in the Schedule under an

appointm ent m ade by the Suprem e C ourt of New South Wales:

AND WE FURTHER DECLARE th a t you are not required by these Our

L e tte rs P a te n t to inquire, or to continue to inquire, into a m a tte r if you are

1117

sa tisfie d th a t the N ational C rim es Com m ission or the Com m issioner

appointed by Our G overnor-G eneral of the C om m onw ealth of A ustralia on

10th Septem ber, 1980, to inquire into c e rta in m a tte rs relating to the

F e d e rated Ship P a in te rs and D ockers Union is inquiring, or proposes to

inquire, into th a t m a tte r:

AND WE FURTHER DECLARE th a t, notw ithstanding anything

contained in the L e tte rs P a te n t issued on 24th June, 1981, or any L etters

P a te n t subsequently issued am ending them , We require you as expeditiously

as possible to m ake your inquiry and, not la te r than 31st D ecem ber, 1983, to

furnish to Our said G overnor of Our S ta te a re p o rt of th e results of your

inquiry and your recom m endations.

AND WE FURTHER DECLARE th a t th ese Our L e tte rs P a te n t shall be

read w ith Our said Com m ission:

AND WE DO FURTHER DECLARE th a t the Royal Com missions A ct,

1923, including Section 17 th e re o f, shall apply to and w ith re sp ec t to this

inquiry.

SCHEDULE.

K & R. Cash T ransit P ty. L im ited (In Liquidation)

D istra v ite A ustralia Wide Servicing Com pany P ty. L im ited

D istra v ite P ty. Lim ited

Nugan Hand L im ited (In Liquidation)

Nugan Hand (D ealers) Pty. L im ited

Nugan Hand In tern atio n al Holdings P ty . L im ited (In Liquidation)

Nugan Hand (Trade Services) P ty. L im ited

Yorkville Nom inees Pty. L im ited (In L iquidation)

A ustralasian & P acific Holdings Pty. L im ited (In Liquidation)

R B Cody P ty . L im ited

1118

G arcia Bros. H ardw are P ty. L im ited

Hidex P ty. Lim ited

Illarangi Investm ents Pty. L im ited (In L iquidation)

L easefast Pty. L im ited (In Liquidation)

M edevac Shipping P ty . L im ited

N aretha P ty. L im ited (In Liquidation)

N ew court Financial Services P ty . L im ited

N Η N M anagem ent Pty. L im ited

S L N otw ist P ty. L im ited

P a c ific C ontin en tal L im ited (In L iquidation)

P M Shelley P ty . L im ited

Skah P ty. L im ited

Solingen A ustralia P ty . Lim ited

Swiss P a c ific P ty. L im ited

W V Tennyson Pty. L im ited (In L iquidation)

Mars Road Investm ents Pty. L im ited (In L iquidation)

Nugan Hand (Hong Kong) Lim ited

Nugan Hand Inc. (Hawaii)

The Nugan Hand Bank (Caym an Islands)

IN TESTIMONY WHEREOF, We have caused these Our

L e tte rs to be m ade P a te n t, and the G reat Seal of Our S ta te

to be hereunto affixed.

1119

WITNESS O ur T rusty and W ell-beloved Sir JAMES

ANTHONY ROWLAND, K night C om m ander of Our

Most E xcellent O rder of th e B ritish Em pire, upon

whom have been conferred the D ecorations of the

D istinguished Flying Cross and the Air Force Cross,

K night of G race of the Most Venerable O rder of St.

John of Je ru sa lem , Our G overnor of Our S ta te of

New South W ales, in the C om m onw ealth of A ustralia,

a t Sydney, in Our said S ta te , this tw en ty -eig h th day

of M arch, in the year one thousand nine hundred and

e ig h ty -th re e and in the th irty -se co n d y ear of Our

R eign.

.,,

.

APPENDIX B

Nugan Sand Representative Offices

- 1123 -

NUGAN HAND REPRESENTATIVE OFFICES

The following information in relation to the representative offices of the Nugan Hand Group has been compiled from the documents in the possession of the Commission. The schedules are incomplete as a result of:

. the incomplete nature of the Commission's holdings

particularly in relation to personnel matters and company statutory information;

. the frequent movement of staff between offices;

. the Group's payment of staff via nominee companies;

. the existence of management agreements between companies within the Group; and

. the Group's practice of representing consultants or other interested parties as representatives or employees in promotional material.

The Nugan Hand Group incorporated companies in the following countries:

Argentina: Nugan Hand (Argentina) Inc.

Cayman Is: The Nugan Hand Bank

Swiss Pacific Holdings Ltd

Chile: Nugan Hand (Chile) Inc.

W.Germany:

Great Britain:

Hawaii:

F.A. Neubauer Bank Nugan Hand (Deutschland) GnbH

Nugan Hand (U.K.) Ltd

Nugan Hand, Inc. (Hawaii)

Hong Kong: F.A. Neubauer Management (Hong Kong) Ltd Nugan Hand (Hong Kong) Ltd Nugan Hand Insurance Brokers Ltd Nugan Hand International Holdings Ltd Nugan Hand Management Services Ltd Nugan Hand Nominees Ltd Nugan Hand Trade Asia Ltd Nugan Hand Travel Ltd

- 1124 -

Malaysia: Nugan Hand Holdings Sdn. Bhd.

Nugan Hand (Malaysia) Sdn. Bhd.

Panama: Nugan Hand Inc. Panama

Philippines: Nugan Hand International (Manila)

Singapore: Nugan Hand Singapore (Pte) Ltd

Nugan Hand Management Services (Pte) Ltd F.A. Neubauer Management (Pte) Ltd

Thailand: F.A. Neubauer Management Ltd

Nugan Hand (Thailand) Ltd

United States: NUgan Hand International Inc. (United States) Nugan Hand (N.Y.) Inc.

Representative offices were opened on behalf of the Nugan Hand Bank in Hong Kong and Saudi Arabia and these offices accepted deposits on behalf of The Nugan Hand Bank (Cayman Islands).

The Group also had representatives or commission agents working for 'Nugan Hand International' in the following countries:

Brazil Chile Italy Korea Mexico Taiwan

Key to abbreviations used in the following schedules.

CT = Confidential transcript CD = Commission document

Rep No = Representative number allocated by The Nugan Hand Group

- 1125 -

NAME:

DATE OF INCORPORATION:

DATE OFFICE OPENED:

TAKEOVER OF COMPANY:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Bachmann, Jurgen

Denzin, Gerta

Ebert, Manfred

F.A. NEUBAUER BANK

Established in 1841

Not known

31 January 1978 (CD1587 folio 163;CD5857 folio 112; CD6156 folio 40.-CD6476 folio 6)

Neuer Wall 25 D-2000 Hamburg 36 Germany Telephone: (040) 365-855/365-856 Telex: 2161750 FAN D

Cable: Fanbank

(CD4119 folio 1)

Not known

DM 6 000 000

(CD4119 folio 1)

Not known

DM 1 720 000 Shares held by Nugan Hand

International Holdings Ltd in trust for Swiss Pacific Holdings Ltd. (CD1587 folio 163)

Not known

Rep No Position

521 General

(CD4132) partner 523 (CD4119

(CD 1934) folio 4)

526 Secretary

(CD4132 (CD9975 folio 1) folio 7)

518 Director of

(CD1934) Accounting and Office Manager (CD5852

folio 4)

Known Period of Employ

1965 - 20.1.80 (CD510; CD4428 folio 12)

1.6.78 - 20.1.80 (CD1587 folio 67; CD9975 folio 7)

1.6.78 - 20.1.80 (CD10241 folio 12)

- 1126 -

PERSONNEL: (Continued)

Name Rep No Position Known Period of Employ

Haupt, Wolfgang 524

(CD4132 folio 1)

Consulting Accountant Peat Marwick Mitchell

(CD3022 folios 86-89)

1979 - 80

(CD4132 folio 1)

Hewitt, Anthony Peter 516

(CD1934)

NHI Group Represent­ ative

October 1978 - January 1980 (CT22124; CT22132)

Hewitt, Sue Elizabeth 516A

(CD1934)

Secretary October 1978 -

January 1980

Iwan, Peter 525

(CD4132 folio 1)

Consulting Accountant Peat Marwick Mitchell

(CD3022 folios 74-76)

1979 - 1980 (CD3022 folios 74-76; CD4132 folio 1)

Lindemann, Dieter 522

(CD8590 folio 25)

Responsible 1.2.78 - 31.12.78 for reorgan- (CD9975 folio 4) isation of FAN, employment of personnel, liaison between

NHIH and FAN (CD9975 folio 4)

Paegle, Ziedonis 522

(CD4132 folio 1)

Represent­ ative (CD3022 folios 86-89)

Oct 1979 (CD8467 folio 4)

Runne, Wilhelm 521

(CD8581 folio 3)

Represent­ ative (CD8590 folio 26)

June-Oct. 78 (CD9986 folio 9)

- 1127 -

NAME:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

DATE OF INCORPORATION:

SECRETARY:

PERSONNEL:

F.A. NEUBAUER MANAGEMENT (HONG KONG) LIMITED

16 October 1979 (CD6559 folio 26)

Not known

14th Floor, South China Bid 1-3 Wyndham St Hong Kong (CD6559 folio 26)

HK$10 000 (CD6559 folio 26)

HK$10 000 (CD6559 folio 26)

Dartman Limited Scotman Services Limited (CD6559 folio 26)

Harbour Nominees Ltd Macquarie Nominees Ltd (CD6559 folio 26)

Not known

Not known

- 1128 -

NAME: F.A. NEUBAUER MANAGEMENT LTD

DATE OF INCORPORATION: 21 June 1979

(CD6559 folio 65)

DATE OFFICE OPENED: Not known

REGISTERED OFFICE: 1010 Dusit Thani Bldg

Rama IV Road Bangkok (CD6559 folio 65)

AUTHORISED CAPITAL: 10 000 Baht (100 shares - 100 Baht each)

ISSUED CAPITAL: Not known

DIRECTORS: Intorn, Vischit

Tansuthanyalack, Suporn Hand, M.J. Galicek, G.V. (CD6559 folio 65)

SHAREHOLDERS: Name No.

Intorn, Vi chit 26

Lauhabhandu, Toi 5

Derjakaisaya, Suvit 20

Nugan, F.J. 10

Hand, M.J. 9

Galicek, G.V. 30

(CD6559 folio 65)

SECRETARY: Not known

PERSONNEL: Not known

- 1129 -

NAME:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name:

Morisset, Brian Keith

DATE OF INCORPORATION:

F.A. NEUBAUER MANAGEMENT

2 May 1979 (CD6559 folio 60)

Not known

806 Ocean Building Collyer Quay Singapore 0104 (CD6559 folio 60)

S$25 000 (CD6559 folio 60)

Not known

Hand, M.J. Steer, G.R. Tan, Choon Seng, Morisset, B.

(CD6536 folio 4)

Tan, Choon Seng Hand, M.J. (CD6536 folio 7)

Not known

Banking facilities

Rep No Position

572 Represent-

(CD1934 ative folio 71) (CD6536 folio 4)

(PTE) LTD

Known Period of Employ

20. 4.79 - 10. 1.80 (CD9943 folio 5)

- 1130 -

DATE OF INCORPORATION:

DATE OFFICE OPENED:

REGISTERED OFFICE:

NAME:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Andreason, J.E.

Courtney-Smith, George

Galicek, George Vaclav

Spalek, Jose

Not known

Opened by 6 March 1978 (CD3955 folio 3)

Lavelle 556 2' Piso "D" Buenos Aires

Telephone: 392-3583/392-7317 Telex: 122205/122781 TEXCO AR (CD4119 folio 1)

Not known

US$10 (CD5893 folio 7)

Not known

Hand, M.J. (CD6122 folio 10; CD10690)

Not known

NUGAN HAND (ARGENTINA) INC.

Rep No Position Known Period of Employ

547 (CD4132 folio 1)

Represent­ ative

1976 - 1980 (CD4132 folio 1)

507 (CD1934)

Sales Rep­ resentative June 1977 - Aug.1978 (CT22091)

508 (CD1934)

Trade Rep­ resentative Sept.1977 - mid 1979 (CD10544 folio B)

"

Represent­ ative (CD6559 folio 9)

5.11.79 - (CD6559 folio 9)

- 1131 -

NAME: NUGAN HAND (CHILE) INC.

REGISTRATION: Name registered 24 October 1978

Incorporation was to be 6-8 months later (CD7664 folio 4)

REGISTERED OFFICE: Moneda 856; 2° Piso

Santiago (CD7664 folio 4)

ADDRESS ON N.H. PUBLICITY SHEETS: Casilla 15051,

.......... . Correo 11, Santiago

Telephone: 42056//383130 Telex: 40607 SOLCI CL

Cable: goyco

This was Carlos Godoy's (CD510 folio 7; CD7664 : residence folio 3)

OTHER ADDRESS: Edificio Saratoga

San Antonio 60 Santiago - Chile (CD5019 folio 83)

AUTHORISED CAPITAL: Nil

(CD7664 folio 4)

ISSUED CAPITAL: Nil

(CD7664 folio 4)

DIRECTORS: Not known

SHAREHOLDERS: Hand, M.J.

(CD10690)

SECRETARY: Nil

(CD7664 folio 4)

PERSONNEL:

Name Rep No Position Known Period of Qnploy

Galicek, George Vaclav 508

(CD1934)

Trade Rep­ resentative October 1977 - mid 1979 (CD10554 folio B)

Godoy, Carlos Acting

Manager on commission basis (CD4112

folio 144; CD7664)

24.8.79 - Jan.1980 (CD174 folio 6; CD4112 folio 144)

- 1132 -

DATE OFFICE OPENED:

PERIOD OF OPERATION:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Schuller, Karl Fritz

Witthaus, Werner

NAME:

DATE OF INCORPORATION: 13 March 1978

(CD6559 folio 20)

Not known

November 1977 to 1 March 1979 (CD4153; CD4319 folio 35)

Mainzer Landstr. 49 D-6000 Frankfurt Am Main West Germany Telephone: 232-700 Telex: 416318 Nuhan D.l

(CD7137 folio 56)

DM20 000 (CD6559 folio 20)

DM20 000 (CD7178 folio 67)

Hand, M.J. Hewitt, A.P. (CD6559 folio 20)

NHIH Ltd - DM19 000

W.E. Verwaltungsgesellschaft mbH DM 1 000 (CD7178 folio 67)

Not known

NUGAN HAND (DEUTSCHLAND) QnbH

Rep No Position Known Period of Bnploy

511 (CD4132 folio 7)

Representative 7.11.77 -Feb. 1979 & Office (CD6932 folio 94;

Manager CD7130 folio 8;

CD7178 folio 67)

514 (CD1934 folio 17)

Office Jan 1978 - early 1979

Manager (CD1250 folios 2974-75) in the of absence Mr Schuller

(CD1250 folios 2974-75)

- 1133 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Prior, Anthony James

Yeap, Kee Aik

NAME:

DATE OF INCORPORATION: 8 August 1978 (CDS019 folio 85; CD7178 folio 71)

February 1975

5th Floor Ming Building Jalan Bukit Nanas Kuala Lumpur

On 10 August 1978 changed to: 6th floor Oriental Plaza Jalan Parry Kuala Lumpur

(CD6673 folio 6)

M$100 000 (CD5019 folio 85; CD6673 folio 6)

M$2 (CD6673 folio 6)

Yeap, Kee Aik Hand, M.J. Nugan, F.J.

(CD6673 folio 6; CD7178 folio 71)

Yeap, Kee Aik Hand, M.J. Nugan, F.J.

(CD5019 folio 85; CD6673 folio 6)

Christine Tang Siew Yin (CD6673 folio 6)

NUGAN HAND HOLDINGS SDN. BHD.

Rep No Position Known Period of Employ

515 Represent-

(CD4132 ative folio 7)

August-Sept.1978 (CD1016 folio 10)

505 Represent-

(CD4132 ative folio 1)

19.9.78-20.1.80 (CD1016 folio 10)

- 1134 -

DATE OFFICE OPENED:

NAME CHANGES:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

NAME:

DATE OF INCORPORATION:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

10 October 1972 (CDS019 folio 99)

Not known

10 October 1977 - Incorprated as Nugan Oil Limited 22 November 1974 - Changed name to Nugan Hand (Hong Kong) Ltd 28 January 1977 - Changed name to Swiss

Pacific Asia Ltd

9 August 1977 - Changed name to Nugan

Hand (Hong Kong) Ltd

(CD7178 folio 70)

1110 Connaught Centre, Hong Kong Telephone: 5-263221 Telex: 83499 Nugan H4

(CD510 folio 2)

HK$20 000 000 (CD1974 folio 5)

HK$5 000 000 (CD1974 folio 4)

NUGAN HAND (HONG KONG) LTD

Hillory Ltd Leedony Ltd Hand, M.J. Nugan, F.J. Ward, F.D.

Collings, C.L.H. Hill, S.K.A. Laloe, F.M.B.

Dunn, P.M. (CD6112 folio 3; CD7162 folio 3-6)

Harbour Nominees - 1 share Nugan Hand International Holdings Pty Ltd - 999,999 shares (CD1974 folio 4; CD7178 folio 69; CD10690)

Nugan Hand Nominees Ltd (CD5019 folio 99)

Deposit-taking company (CD1974 folio 8)

From To

10.10.72 - 30.11.74 10.10.72 - 30.11.74 26.11.74 26.11.74 29.11.74 - 16.12.75 30. 7.75 16.12.75 - 30. 5.77

1. 1.76 9. 8.76 - 6. 9.77

PERSONNEL:

Name Rep No Position Known Period of Employ

Arculli, Beryl 539

(CD8028 folio 26)

Represent­ ative (CD6588 folios 1-5)

17. 4.79 - 18. 7.79 (CD1984 folio 129; CD10523 folio 504)

Atkins, Leslie Kenneth Account

executive (CD6591 folio 7)

3. 1.78 - 31. 3.78 (CD6591 folios 7-8)

Bates, Arthur 545

(CD1934) 407 (CD8581 folio 3)

Account executive (CD510 folio 2)

1.11.78 - Feb. 1980 (CD10499 folios 14-15; CD10524 folio 227)

Chan, Connie Secretary to

Director of NHHK (CD10524 folio 34)

November 1979 (CD1984 folio 15; CD10524 folio 34)

Cheung, Ada (Mrs) Receptionist

Interpreter (CD4279 folio 67; CD7282

folio 14)

1. 6.77 - 30. 6.77 (CD7287 folio 15)

Cheung, Manlo 583

(CD1934 folio 66)

Account executive (CD510 folio 2)

18. 6.79 - 14. 1.80 (CD510; CD10524 folio 257)

Pulger-Frame, Ronald Adam 221 (CD8581 folio 3) 223

(CD4132 folio 7) 509 (CD1934)

Represent­ ative June 1976 - 1.12.1978 (CD4625 folio 13-14;

CD6959 folio 88)

Wong, Ernest Cheong Ling 557 (CD4132 folio 1)

Director of Corp Devel. (CD4279 folio 66)

March-30 November 1979 (CD4454 folio 16; CD7164 folio 6)

Wong, Christine Secretary

(CD4279 folio 69)

20.7.79 - 19.2.80 (CD7475 folio 6)

- 1136 -

DATE OFFICE INCORPORATED:

REGISTERED OFFICE:

ADDRESS ON NH PUBLICITY SHEETS:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name:

Black, Edwin Fahey

NAME;

2 August 1974 (CD6187 folio 24)

Financial Plaza of the Pacific 4th Floor - Bank Building 111 South King Street Honolulu Telephone: 546-5197 (CD4121 folio 2; CD5019 folio 98; CD6122 folio 9)

NUGAN HAND, INC. HAWAII

4910 Kahala Avenue Honolulu Telephone: (808) 732-6000 Telex: 8550 PANCO HR

(General Black's address) (CD4119 folio 1)

US$707 565 (CD5959 folio 59)

US$707 565 (CD1250 folio 187)

Harris, S.E. Nugan, F.J. Hand, M.J. Philpotts, D.

(CD1250 folios 200,205; CD5019 folio 98)

Nugan Hand International Holdings Pty Ltd - 707 565 shares.

(CD5959 folios 78-79; CD10690)

Nugan Hand Needham Ltd (CD5019 folio 98)

1 "To engage in the business of investment bankers." A general umbrella excluding deposit taking but including lending/

borrowing money, consulting, and general corporate commercial objects.1 (CD6559 folio 70)

Rep No Position: Known Period of Employ

532 Represent- Nov 1977-January 1980

(CD1934) ative (CD1250 folios 2577-79;

CD1955 folio 163)

- 1137 -

Name: Rep No Position: Known Period of Employ

Philpotts, Doug - Accountant August 1974 -

(CD1250 January 1980

folios 282-3) (CD1250 folios 282-3; CD5959 folio 139)

- 1138 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

NAME:

DATE OF INCORPORATION:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

24 January 1975 (CD4449 folio 6)

Not known

Did not have a registered office as it was not required under Panama law. Did have a resident agent, the legal firm Arias,

Fabrega & Fabrega which had the following address, which was used in NH brochures:

Via Espana 200 Apartado 6307 Panama 5 Republic de Panama (CD4449 folio 6; CD7727 folio 7)

US$10 000 (CD4449 folio 6)

US$10 (CD6122 folio 9) Letter from Arias, Fabrega & Fabrega 5.11.79 stating that they "did not know what the

issued capital might be as the shares are issued by the resolution of the Directors, the majority of which are not in Panama." (CD4449 folio 6)

Hand, M.J. Nugan, F.J. Bernal, Esteban (CD4449 folio 6)

Letter from Arias, Fabrega stated "we have no details of the shareholding." (CD4449 folio 6)

Not known

NUGAN HAND INC. PANAMA

Financial services (CD1974 folio 10)

- 1139 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

NAME:

DATE OF REGISTRATION:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Cheng, Jerry

Holmgren, Dale Oscar

Potter, Donald L

NH Inc. Taiwan office opened in May 1978 as authorised representative office of Nugan Hand Inc. Hawaii (CD4431 folio 12; CD6494 folio 16)

May 1978

1106 Shin Tai Building 106-2 Chung Shan N. Road Section 2 Taipei (CD7178 folio 80)

On September 1979 new address was: Suite 1107, New Taihong Building, 111 Nanking East Road (2) Taipei

Telephone: 5510450/5612642 Telex: 11079 DAMEX

Cable: Nuganhand taipei (CD510 folio 7; CD4319 folio 49)

Not known

Not known

Not known

Not known

Not known

NUGAN HAND INC. (TAIWAN)

Rep No Position Known Period of Qnploy

554 (CD1934 folio 66)

Represent­ ative

29.2.79-20.1.80 (CD510; CD4319 folio 80)

513 (CD1934)

Represent­ ative

1.6.78 - Jan. 1980 (CD1162 folios 3-4)

511 (CD60 folio 5)

Represent­ ative

27.4.78 (CD4153 folio 10)

- 1140 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

NAME:

DATE OF INCORPORATION:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

NUGAN HAND INSURANCE BROKERS LTD

17 April 1979 (CD5019 folio 96)

Not known

14th Floor South China Bid 1-3 Wyndham St Hong Kong

HK$500 000 (CD5019 folio 96)

HK$500 000 (CD5019 folio 96)

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Atkins, Leslie Kenneth

Cruz, Pedro

Harris, Mark

Humble, George

Hand, M.J. Humble, G. Collings, C.L.H. (CD5019 folio 96)

Harbour Nominees Ltd 2 500

Macquarie Nominees Ltd. 2 500 (CD5019 folio 96; CD6559 folio 30)

NUgan Hand Nominees Ltd (CD5019 folio 96)

Rep No Position

Account Executive (CD6951 folio 7)

574 Account

(CD1934 Exec. Life folio 64) Assurance Division (CD6614)

- Production

Officer (CD6708 folio B)

Known Period Of Employ

1. 7.79 - 3. 8.79

(CD6591 folio 5; CD6708 folio 15)

1. 4.79 - 14. 1.80

(CD510; CD6709 folio 5)

19. 2.79 - 15. 8.79 (CD6708 folio 7; CD7267 folio 4)

564 (CD1934 folio 80)

Man. Director 1. 3.79 - 11.12.79 (CD6491 (CD10524 folios 75,252) folios 22-3)

- 1141

Name

Lam, Moses

Leung, Catherine

Macklin, Jacqueline

Ralph, Patrick

Simpson, Morna K.

Tham, Albert

Tsang, Roger

Warde, Anthony

Wong, Alan

WU, Stella

Rep No Position

- Office Boy

(CD6614)

- Secretary

(CD4279 folio 69)

Anne - Secretary to

George Humble (CD7505 folio 5)

575 Admin-

(CD1934 istration folio 64)

- Exececutive

Secret. Financial Assistant

Documents Clerk General Insurance Division

(CD4279 folio 69)

Clerical (CD6614)

592 Account

(CD1934 Executive folio 79)

- Messenger

(CD8039 folio 3)

- Telex

Operator (CD6614)

Known Period Of Employ

14. 1.80 (CD6614)

approx March-Dec 1979 (CD7505 folio 11)

24. 7.79 - 7. 7.80

(CD6668 folio 59)

17. 4.79 - 11. 2.80 (CD10524 folios 139, 142)

May 77 - Sept 78

(CD7267 folio 4; CD10524 folio 572)

1. 8.79 - 15. 3.80 (CD1994 folios 3,7)

1. 6.77 - 25. 5.79 (CD7281 folio 7; CD7422 folio 3)

1. 9.79 - 29. 2.80 (CD7315 folio 6; CD8049 folio 22)

1. 9.79 (CD8039 folio 3)

1. 8. 19 - 14. 1.80

(CD510; CD6820 folio 4)

- 1142 -

DATE OF INCORPORATION:

NAME CHANGE:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Attkisson, Randall

NAME: NUGAN HAND INTERNATIONAL HOLDINGS LTD

19 May 1972 (CD1974 folio 5; CD5019 folio 93)

19. 5. 72 - Incorporated as New London (Distributing) Pty Ltd 31.12.74 - Changed to Ingold Growth Ltd 26.10.76 - Changed to Nugan Hand

International Holdings Ltd (CDS019 folio 93)

Not known

1110 Connaught Centre, Hong Kong

HK$25 000 000 (CD1974 folio 5; CD5019 folio 93)

US$5 000 000 (CD6122 folio 9)

Nugan, F.J. Hand, M.J. Collings, C.L.H. Hill, S.K.A. Gilder, J.M.

(CD1974 folio 5;

20.11.74 20.11.74 4.12.74 7. 2.77

1978 - 4.2.80 CD9915 folios 28-31) CD4803;

Hand, M.J. - 7 shares

Harbour Nominees - 1 share

(CD1974 folio 5; CD7178 folio 73; CD10690)

Rutter, H.M. 24.1.78

Nugan Hand Nominees Ltd (CD5019 folio 93; CD11319 folio 65)

Investment (CD7178 folio 73)

Rep No Position Known Period of Employ

550 Regional

(CD510 Director folio 103) of NH Asia

1. 1.80 - March 80 (CD7715; CD9934 folio 4)

- 1143 -

NUGAN HAND INTERNATIONAL - REPRESENTATIVE OFFICES

BRAZIL:

Representative: Rep No Position Known period of Bnploy

Johnson, Graham 504 Represent- 27.4.77 to at

(CD8487 ative least July 1977

folio 4) (CD6629 folio 4;

CD8487 folio 4)

ITALY:

Address:

Date Opened:

Personnel:

Gut, Pierre

Bleiker, Gary

Viale Brigate Partigiane 4/1 Genova, Italy Telephone: 010/587964 Telex: 211311 UMA I

(CD510 folios 7,24; CD4119 folio 1)

August 1979 (CDS2 folio 3)

Vice President of Primint Holding Int. (CD4119 folio 4; CD7191)

Director of Promital Spa, Italy (CDS2 folio 9; CD4119 folio 4)

KOREA:

Address: Ewkor Trading Company

GPO Box 1162 Seoul, Korea Telephone: 444 8500 Telex: 24671 Ewkor Tck

(CD510 folio 7)

Period of Operation: Mid 1979 - February 1980

(CD1721 folio 5; CD7137 folio 34)

Personnel:

Name Rep. No Position Known period of Bnploy

Stiles, Leonard Ross 576 Represent- April - December 1979

(CD4132 folio 1) ative (CD10578)

Kim, Major David (CD7355 folio 33)

- Not known Not known

- 1144 -

MEXICO:

Representative:

Lorenzino, Fred

SOUTH AFRICA:

Address:

Directors:

Rep No Position Known period of Employ

503 Represent- 21.4.77 - 24.8.77

(CD8474) ative (CDS7 folio 1; CD8474)

101/55 West Street Kempton Park 1620 Republic of South Africa P.O. Box 7955 Johannesburg 2000

(CD3174 folio 1)

Hand, M.J. Nugan, F.J. (CD3174 folio 1)

- 1145 -

DATE OF INCORPORATION:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

OFFICES:

LOS ANGELES:

REGISTERED OFFICE:

PERSONNEL:

Name

Pauker, Dr Guy Jean

SAN FRANCISCO:

REGISTERED OFFICE:

NAME:

1 May 1978 (CD6559 folio 71)

1300 Market Street, Wilmington DELAWARE 19801 (CD6559 folio 71)

US$100 000 .

(CD6559 folio 71)

Not known

Not known

Yates, E.P. - 1 share · _

NUGAN HAND INTERNATIONAL INC. (UNITED STATES)

21423 Colina Drive Topanga, California 90290

Rep No Position Known period of Assoc

509 Consultant

(CD4132 Expert folio 1) S.E. Asia

November 1979 (CD510)

From 4 July 1977: Room 315 760 Market Street San Francisco 9410

Telephone: 781939 (CD7131 folio 6)

From 16 August 1979: 5/F, 44 Montgomery Street San Francisco

California 94104 Telephone: (415) 9822962 Tfelex: 171041 #Q SFO

(CD6779 folio 17)

- 1146

PERSONNEL:

Name

Hill, Charles

Iorenzino, Fred

DELAWARE:

DATE OFFICE OPENED:

REGISTERED OFFICE:

Rep No Position

581 Represent-

(CD1934 ative folio 32)

503 Represent-

(CD7340 ative folio 36)

1 May 1979 (CDS688 folio 5)

Known Period of Employ or Association

16.8.79 - 10.1.80 (CD510)

Mid 1977 (CD6503 folio 8)

C/- The Company Corporation 300 Main Street Wilmington, Delaware (CD8688 folio 25)

FLORIDA:

REGISTERED OFFICE:

PERSONNEL:

Name

Beazley, Donald Elgin

6610 South West 20th Lane Miami Florida, 33143 Telephone: (305) 6670604

(CD510 folio 8)

Rep No Position Known Period of Employ

or Association

514 Chief October 1979

(CD4132 Executive of - February 1980 folio 1) NH Group (CD1176 folio 275;

CD1429 folio 26)

MARYLAND:

REGISTERED OFFICE: 2510 Riva Road

Annapolis Maryland, 21401 Telephone: (301) 2665018/2618671 Telex: 908226 McDonald ANPL

(CD510 folio 8)

- 1147 -

PERSONNEL:

Name Rep No Position Known Period of Employ

or Association

McDonald, Walter Joseph 511 (CD4132 folio 1)

Economic Consultant (CD1118 folio 10)

July 1979-January 1980 (CD1118 folios 4, 10-11)

NEW YORK:

NAME: Nugan Hand (N.Y.) Inc.

DATE OF INCORPORATION: Not known

DATE OFFICE OPENED: Not known

REGISTERED OFFICE: Not known

AUTHORISED CAPITAL: Not known

ISSUED CAPITAL: US$10

(CD6122 folio 9)

DIRECTORS: Not known

SHAREHOLDERS: Hand, M.J.

(CD6122 folio 9)

SECRETARY: Not known

STATED PURPOSE OF COMPANY: Financial Services

PERSONNEL: Name Rep No Position Known Period of Bnploy

or Association

Abrams, Charles 558

(CD4132 folio 7)

Represent­ ative March 1979 (CD8028 folio 26)

VIRGINIA:

REGISTERED OFFICE: 108 88th Street

Virginia Beach Virginia 23451 Telephone: (804) 4225559 (804) 4222392

(CD7727 folio 8)

(office) (home)

- 1148 -

PERIOD OF OPERATION: 1977 to 2.2.79

(Closed down when Admiral Yates moved to

Washington) (CD4135 folio 7; CD4319 folio 78)

PERSONNEL:

Name Rep No Position Known Period of Employ

or Association

Yates, Earl Preston (Buddy) 533 (CD1934) Represent­ ative

January 1977-March 1979 (CT24244-47; CD7186 folio 4)

WASHINGTON D.C.:

REGISTERED OFFICE: Suite 306

1629 K Street N.W. Washington D.C. 20006 Telephone: (202) 2931322 Telex: 89407 UNICOVER WSH

PERIOD OF OPERATION: Mid 1979-1980

(CD1933 folio 26; CD4319 folio 78)

STATED PURPOSE OF COMPANY: Financial Services

PERSONNEL: Name Rep No Position Known Period of Employ

or Association

Cocke, Erie 577

(CD4132 folio 1)

Consultant 29.5.79 (CD2026 folios 82-83; CD7137 folio 36)

Yates, Earl Preston (Buddy) 533 (CD1934) Represent­ ative

March 1979-January 1980 (CT24274; CD7186 folio 4)

Phillips, Eugene Staff

associate to E. Cocke (CD7137 folio 36)

29.5.79 (CD7137 folio 36)

- 1149 -

DATE OF INCORPORATION:

KNOWN PERIOD OF OPERATION:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Gregory, Wilfred Patrick

Manor, Leroy Joseph

Payne, Michael John

NAME:

13 July 1978 ('according to presidential Decree1 218) March 1979 (CD6559 folio 57; CD8857)

May 1978 - 1980 (CD6862 folio 5; CD9943 folio 4)

Not known

12/F Ramon Magsaysay Centre 1680 Roxas Boulevard, Manila Telephone: 502050/502059

Telex: 54193 NUHAND PN (CD510 folio 7)

Not known

Not known

Not known

Not known

'Regional Headquarters for NHL Limited to supervision, communications and

co-ordinative costs. No income to be

derived from Philippines. (CD6559 folio 57)

NUGAN HAND INTERNATIONAL (MANILA)

Rep No Position Known Period of Employ

540 Represent-

(CD1940) ative

15.1.78 to mid 1980 (CD510 folio 10; CD4153 folio 10; CD6933 folios 246-97;

CD10576)

523 Represent-

(CD4132 ative folio 1)

Oct.1979 - April 1980 (CT24661; CD510 folio 10; CD6862)

Represent­ ative

folio 33)

Aug.1979 - Feb.1980 (CD510 folio 10; CD4319 folio 38)

587 (CD1934

- 1150 -

NAME:

DATE OF INCORPORATION:

NAME CHANGE:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARIES:

NUGAN HAND (MALAYSIA) SDN. BHD.

5 December 1977 (CD6673 folio 5)

5 December 1977 - Incorporated as Nugan Hand Trade (Malaysia) Sdn. Bhd. 25 July 1978 - Changed to Nugan Hand (Malaysia) Sdn. Bhd. (CD4277 folio 8)

1 July 1978 (CD6559 folio 43)

10th Floor, Oriental Plaza Jalan Parry Kuala Lumpur 04-01 Telephone: 429826/425771 Telex: 30712 Nuhand Ma

(CD4119 folio 4)

M$25 000 (CD7178 folio 84)

M$2 (CD7178 folio 84)

Name: Date of Appointment

Ceilings, C.L.H. 16.11.77

Hand, M.J 16.11.77

Nugan, R.J. 16.11.77

Jamari, R. 16.11.77

Abraham, C. 16.11.77

Steer, G.R. 2. 5.78

Louey, E.C. 2. 5.78

(CD6673 folios 4-5)

Name: No. of Shares

Jamari, Rahmat to NHIHL 1

Abraham, Cecil to NHIHL 1

Nugan Hand International Holdings Ltd 24998

(CD6673 folios 4-5)

Name: Date of Appointment

Chew, Phiak Kham Louey, E.C. (CD6673 folios 4-5)

5.12.77 4.1.79

- 1151 -

STATED PURPOSE OF COMPANY: Financial services

(CD1974 folio 9) 'To carry on the business of general

merchants ... of all kinds of works,

enterprises or projects whatsoever1 (CD6559 folio 44)

PERSONNEL:

Name: Rep No Position Known Period of Employ

Auyeung, James 546

(CD1934)

Represent­ ative July 1979 - March 1980 (CD8388 folio 260;

CD9874 folio 114)

Lo, Kwok Trade Adviser

(CD4119 folio 4)

Unknown

Louey, Edward Craig 510

(CD1934)

Banking Represent­ ative

13.9.77 - 1.11.79 (CD4153 folio 7; CD7153 folio 8)

Nor, Dr Mohd 561

(CD8028 folio 26)

Not known from 13.3.79

(CD4132 folio 7)

Phenix, Patricia 568

(CD1934 folio 61)

Represent­ ative

from January 1980 (CD1854 folio 7)

Stiles, Leonard Ross 576

(CD4132 folio 1)

Trade Represent­ ative

December 1979 to January 1980 (CD1854 folio 7; CD10578)

- 1152 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Amizola, Vincente

Cheung, Monica

Courtney-Smith, George

NAME:

DATE OF INCORPORATION: 7 July 1978

(CDS019 folio 104)

Not known

1110 Connaught Centre, Hong Kong (CD5019 folio 104)

HK$10 000 (CDS019 folio 104)

Not known

Harbour Nominees Ltd Macquarie Nominees Ltd Nugan, F.J. Hand, M.J. Hill, S.K.A. Valdellon, V.

(CD5019 folio 104; CD6559 folio 32)

Harbour Nominees Ltd Macquarie Nominees Ltd (CD10690)

Nugan Hand Nominees Ltd (CD5019 folio 104)

NUGAN HAND MANAGEMENT SERVICES LTD

Not known

Rep No Position

- Corporate

Planning Executive (CD7306 folio 4)

553 Admin.

(CD4132 (CD4279 folio 1) folio 67)

Known Period of Bnploy * 1

12. 3.80 (CD7306 folio 4)

1. 2.79 - 29. 2.80 (CD6668 folio 99)

507 (CD1934)

Account 6. 4.79 - February 1980

Executive (CT22092-94) Director of Business Development

(CD6614)

Name Rep No Position Known Period of Employ

Farris, George 570

(CD7328 folio 13)

Account. Executive (CD7328 folio 13)

20. 4.79 - Aug. 1979 (CD7328 folio 13)

Ho, Danny Office Boy

(CD6614 folio 30)

2. 6.79 - 14. 1.80 (CD510; CD7318)

Kwan, Maria Secretary to

Mr Valdellon (CD7505 folio 5)

26. 2.79 - 14. 1.80 (CD7151)

Lam, Polyxena Clerical

(CD6614)

5. 3.79 - 14. 1.80 (CD6661 folio 96; CD7320 folio 4)

Lam, Rowena 565

(CD510)

Accounting 14. 1.80

(CD510)

Leung, Rowena Clerical

(CD4279 folio 67)

1. 1.80 - 29. 2.80 (CD6668 folio 116)

Morton, Mary 585

(CD4132 folio 1)

Management Accountant (CD6614)

9. 7.79 - 10. 1.80 (CD7278 folio 4)

Suen, Eliza 561

(CD10258 folio 545)

Secretary 18. 9.79

(CD7264 folio 4)

Valdellon, Vincente

528 (CD1934 folio 10)

Director Business Development (CD6614)

1. 4.78 - 14. 1.80 (CD1016 folio 9; CD10524 folio 154)

Wong, Laurence T. Administrator

(CD9941 folio 85)

1. 8.79 (CD7266 folio 3)

Yeung, Irene - Accounting,

Clerical (CD6614)

24. 7.79 (CD6668 folio 86)

- 1154 -

NAME: NUGAN HAND MANAGEMENT SERVICES (PTE) LTD

DATE OFFICE OPENED:

REGISTERED OFFICE:

DATE OF INCORPORATION:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY: "

PERSONNEL:

Name

Alfred, Mary

Byreddy, Cecilia

Chooi, Margaret

Possibly 24 October 1979 (CD6536 folio 4)

Not known

Suite 701-717 Straits Trading Building Battery Road, Singapore 0104 P.O. Box 799, Colombo Court (CD510 folio 7; CD4119 folio 4)

HK$100 000 (CD6536 folio 4)

HK$2 (CD6536 folio 4)

Tan, Choon Seng Hand, M.J. (CD6536 folio 4)

Tan, Choon Seng (held in trust for M. Hand) Hand, M.J. (CD4535 folios 10-11; CD6536 folio 4; CD10690)

Not known

Administrative duties between NH Singapore and NHIH Ltd (CD5021 folios 15-23)

Rep No Position Known Period of Employ

537(A) (CD4132 folio 1)

Secretary (CD11323 folio 6)

29.10.79 - 20.1.80 (CD510; CD6536 folio 4)

529C (CD4132 folio 1)

Client Liaison Officer responsible for Middle East Clients

(CD4536 folio 19)

23.8.79 - 29.10.79 (CD4536 folio 19; CD6536 folio 4)

529(A) (CD4132 folio 1)

Client Liaison Officer (CD11323

folio 6)

29.10.79 (CD6536 folio 4)

- 1155

Name Rep No Position Known Period of Employ

Gonzales, Bonita 529(B)

(CD4132 folio 7)

Client Liaison (CD9943 folio 5)

7.3.78 (CD4452 folio 17)

Huang, Lim Piay — Bookkeeper

(CD4452 folio 28)

7.3.78 - 29.10.79 (CD4452 folio 28; CD6536 folio 4)

Huff, Tom 567

(GDI934 folio 60)

Consultant (CD11323 folio 2)

3.10.79 - 20.1.80 (CD510; CDS610 folio 3)

Karuna, Karpagam 529

(CD1934 folio 62)

Bookkeeper/ Client Liaison Officer

(CD9943 folio 5)

27.11.77 (CD4536 folio 3; CD9943 folio 5)

Longpoetih, Khartini 527(A)

(CD4132 folio 1)

Secretary (CD11323 folio 6)

29.10.79 (CD6536 folio 4)

Phenix, Patricia 568

(CD1934 folio 61)

Represent­ ative (CD3076 folio 16) Consultant

(CD11323 folio 2)

not known

Tan, Audrey Junior

Secretary (CD4452 folio 32)

7.3.78 - 29.10.79 (CD4452 folio 32; CD6536 folio 4)

Tan, Choon Seng 527

(CD1934)

Manager Admin (CD4119 folio 4)

1977 - 19.4.80 (CD4535 folio 2-3)

Tan, George 515

(CD4132 folio 1)

Accountant (CD11323 folio 6)

10.1.80 (CD9943 folio 5)

- 1156 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Au, Betty

Donald, Bessie Hope

Ip, Michael

NAME:

DATE OF INCORPORATION: 1 October 1976 (CD1974 folio 5)

Not known

1110 Connaught Centre, Hong Kong

HK$10 000 (CD1974 folio 5; CD9915 folio 61)

HK$20.00 (CD1974 folio 5)

From

NUGAN HAND NOMINEES LTD

Nugan Hand Hong Kong, Nugan Hand Trade Asia Harbour Nominees

Macquarie Nominees 7.10.77 Thomson, E.L.

(CD1974 folio 5; CD6559 folio 33)

19.10.76 - 7.10.77 7.10.77 7.10.77

Harbour Nominees - 1 share Macquarie Nominees - 1 share (CD1974 folio 5; CD9915 folio 61)

Lucilla Kao (CD5019 folio 106)

Nominee Services (CD1974 folio 8)

Rep No Position

Legal Secretary (CD510 folio 2; CD7125

folio 7)

Known Period of Employ

14. 1.80 (CD510 folio 2)

570 Secretary

(CD10258 (CD6614) folio 545)

14. 1.80 12.12.78 (CD510; CD8065 folio 3)

539 Company

(CD1934 Secretary folio 77) (CD6614)

15. 8.79 - 14. 1.80 (CD510; CD8064 folio 10)

- 1157

Name Rep No Position Known Period of Employ

Kao, Lucilla 529(A)

549 (CD1934 folios 62,77)

Personal Assistant (CD6614)

15. 1.76 - 14. 1.80 (CD510; CD7155 folio 7)

Lewis, Cameron Maxwell 558

(CD7066 folio 13)

Legal Counsel (CD4279; folio 68

CD6614)

27.11.79 - 15. 8.79 (CD5309 folio 12; CD7066 folio 13)

Thomson, Elizabeth Louise 512 (CD1934) Director (CD6614

folio 9)

28.12.77 - 26.4.80 (CD4427 folio 34; CD7220 folio 22)

- 1158 -

NAME:

DATE OF INCORPORATION:

DATE OFFICE OPENED:

NAME CHANGE:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

NUGAN HAND SINGAPORE (PTE) LTD

24 August 1977 (CD1974 folio 6)

Not known

24 August 1977 - Incorporated as M.I.A. Services (Pte) Ltd 7 October 1977 - Changed to Nugan Hand Singapore (Pte) Ltd

(CD1974 folio 6; CD5019 folio 109)

High Street Centre 1505, 15th Floor Northbridge Road Singapore 6 Telephone: 32-20088

(CD6122 folio 9)

On 15 February 1978, moved to :-Suite 806, Ocean Building ColIyer Quay Singapore Telephone: 917255 Telex: 24157 NUHANDRS

(CD510 folio 7; CD1974 folio 6)

HK$100 000 (CD1974 folio 6; CD5019 folio 109)

HK$25 000 (CD1974 folio 6; CD5019 folio 109)

Nugan, F.J. Hand, M.J. Steer, G.R.

Louey, E.C. Gilder, J.M. resigned 4.2.80 Dyne, Henry M. (Solicitor) Pickford, D.L. resigned 20.10.77 Ceilings, C.L.H.

(CD1974 folio 6; CD6559 folio 62) CD7125 folio 27; CD7178 folio 85)

Nugan Hand International Holdings Ltd (CD1974 folio 6; CD7125 folio 27)

Tan, Choon Seng (CD5019 folio 109)

Financial services (CD1974 folio 9)

PERSONNEL:

Name Rep No Position Known Period of Employ

Auyeung, James 546

(CD1934)

Rep. (CD4119 folio 4)

20.1.80 (CD510)

Dillon, Theresa (Mrs) Secretary/

Client Liaison Officer (CD4452

folio 4)

1.8.78 (CD4452 folio 4)

Gan, Kim Hock 569

(CD510)

Internal Lawyer

not known

Heoh, Ooi Teng 50 6A

(CD510)

Secretary (CD11323 folio 2)

10.1.80 (CD9943 folio 5)

Luan, Chua Kim 584(A)

(CD4132 folio 1)

Secretary (CD11323 folio 6)

20.1.80 (CD510)

McDonald, Russell 584

(CD1934 folio 16)

Handled taxation and accounting services for the company clients

(CD4536 folio 29)

Aug.1979 - 20.1.80 (CD4536 folio 29)

Morisset, Brian Keith 572

(CD1934) folio 71)

Represent­ ative (CD4119 folio 4)

20.4.79 - 10.1.80 (CD4536 folio 50; CD9943 folio 5)

Steer, Graham Reginald 506

(CD4132 folio 1)

Represent­ ative Regional Director

(CD11323 folio 2)

27.4.77 - 20.1.80 (CD8487 folio 5)

Tapp, Warren 573

(CD1934 folio 72)

Represent­ ative (CD4119)

7.5.79 - 15.3.80 (CD576 folio 32; CD6984 folio 285)

Teo, Eleanor - Bookkeeper

(CD4452 folio 7)

7.3.78 (CD4452 folio 7)

- 1160 -

DATE OFFICE OPENED:

REGISTERED OFFICE:

NAME:

DATE OF INCORPORATION:

CHIANG MAI ADDRESS:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

22 February 1977 (CD7178 folio 82)

Not known

1010 Dusit Thani Bldg Rama IV Road Bangkok, Thailand Telephone: 2330407 Telex: 0862314

(CD1974 folio 6; CD4153 folio 7; CD7178 folio 82)

Suite "A" Rincome Centre Chiang Mai Telephone: 221044 Telex: 0864314 RINCOME TH

(CD4I53 folio 7)

1 000 000 Baht (CD6559 folio 66)

450 000 Baht (CD6559 folio 66)

Name Date of Appointment

NUGAN HAND (THAILAND) LTD

Nugan, f .J. 22.2.77

Hand, M.J. Ceilings, C.L.H.

22.2.77 22.2.77

Oven, J. Not known

Lauhabandhu, T. Not Known

Panthukamphol, V. Not Known

Sethikul, T. Not Known

Dejakaisaya, S. Not Known

Galicek, G.V.

(CD1974 folio 6; CD6559 folio 66; CD9915 folio 28)

Nugan Hand Int. Hold. Ltd 49% Thai Partners 51%

(CD7178 folio 82)

Not known

Trade Services (CD9915 folio 67)

PERSONNEL:

Name Rep No Position Known period of Employ

Ceilings, Clive Leslie Hillary 534 (CD1934)

Represent­ ative

Feb 1977 - Nov 1977 (CT22860; CD10775)

Evans, Neil 501

(CD7340 folio 36)

Represent­ ative February-July 1977 (CD1308 folios 3,25)

Galicek, George Vaclav 508

(CD9943 folio 5)

Represent­ ative August/Sept. 1979 to March 1980

(CT22008; CD8642 folio 52)

Owen, John Desmond 502

(CD1934)

Represent­ ative

24 Feb 1977 to August 1979 (CD9984 folio 63; CD10179 folio 32)

Prim, William 517

(CD4132 folio 1)

Represent­ ative

late 1979-early 1980 (CD7751 folio 62)

Thongves, Surapol (Otto) - Represent­

ative

3.10.77 (CD511; CD4153)

- 1162 -

DATE OF INCORPORATION: 9 January 1976

......... ......... (CD1974 folio 5)

NAME: NUGAN HAND TRADE ASIA LTD

NAME CHANGE: 9. 1.76 - Incorporated as Nugan

Trade Finance Limited

19.11.76 - Changed name to Nugan

Trade Asia Ltd

(CD7178 folio 81)

DATE OFFICE OPENED: Not known

REGISTERED OFFICE: 1110 Connaught Centre,

Hong Kong

AUTHORISED CAPITAL: HK$500 000

(CD1974 folio 5; CD9915 folio 61)

ISSUED CAPITAL: HK$250 000

(CD1974 folio 5)

DIRECTORS: Collings, C.L.H. 15. 1.76

Hand, M.J. 15. 1.76

Nugan, F.J. 15. 1.76

Laloe, F.M.B. 15. 1.76 - 30

Ward, F.D. McArthur, J.N.

15. 1.76

(CD1974 folio 5; CD9915 folio 28) CD6559 folio 34;

SHAREHOLDERS: Harbour Nominees - 24,999 shares

Macquarie Nominees - 1 share (CD1974 folio 5; CD9915 folio 61)

SECRETARY: Nugan Hand Nominees Limited

(CD7178 folio 81)

STATED PURPOSE OF COMPANY: Trade Services/Trade Consultancy

(CD1974 folio 8; CD9915 folio 66)

PERSONNEL:

Name

Brown, Cheryl

Rep No Position Known Period of

578 (CD1934 folio 62) 529

(CD510 folio 5)

Personal Assistant (CD6614)

14. 1.80 (CD510)

Hand

Hand

Employ

- 1163

Name Rep No Position Known Period of Employ

Chung, Karen Secretary to

John McArthur (CD6614)

7. 8.79 - 14. 1.80 (CD510; CD6656 folio 4)

Kan, Elvan - Office Boy

(CD6614)

14. 1.80 (CD510)

Laloe, F. Michael B. Trade

Services (CD3082 folio 4)

1975 - 30. 5.77 (CD1250 folios 838-89; CD3082 folio 4)

Leung, Paul Trade

Services (CD6614)

Sept. 1979 - 14. 1.80 (CD510; CD1984)

McArthur, John 504

(CD1934)

Managing Director (CD4279 folio 66)

Jan. 1978 - March 80 (CD7287 folio 15; CD10524 folio 73; CD10823)

Ng, T. G. (William) 552

(CD4132 folio 7)

China Trade Div. Ex. (CD4279 folio 66)

15. 1.79 - 30.11.79 (CD6668 folio 76)

Sanders, Robert Muir 571

(CD1934 folio 67)

Manager (CD6614)

1. 4.79 - 10. 1.80 (CD9943 folio 4; CD10524 folio 115)

Soong, S.Y. 580

(CD7315 folio 7)

Consultant (CD7315 folio 7; CD7380

folio 88)

1. 8.79 - 27. 2.80 (CD7315 folio 7; CD10524 folio 207)

Titmas, Susan Mary Secretary

(CD7505 folio 5)

17. 7.78 - Sept 1979 (CD1984; CD6668 folio 25)

Tsang, YU Ying (Sidney) 551 (CD4132 folio 7)

Supervisor Bills Trade Dept. (CD4279

folio 68)

1.12.78 - 14. 1.80 (CD510; CD7303 folio 9)

- 1164 -

DATE OF INCORPORATION:

NAME CHANGE:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Cheng, Man Cheung Joe

Cheung, Monica

NAME:

8 February 1977 (CD1974 folio 5)

8 February 1977 - Incorporated as Swiss Pacific Travel Ltd 19 August 1977 - Changed name to Nugan Hand Travel Ltd

(CDS019 folio 113)

Not known

NUGAN HAND TRAVEL LTD

1110 Connaught Centre, Hong Kong (CD5019 folio 104)

HK$1 000 (CD1974 folio 5; CD5019 folio 113)

HK$20.00 (CD1974 folio 5)

Collings, C.L.H. Hand, M.J. Nugan, F.J. Steer, G.R. Tan Choon Seng

(CD1974 folio 5; CD9915 folio 30)

appointed appointed appointed appointed appointed

CD7178 folio 83;

8. 2.77 8. 2.77 8. 2.77 10. 3.78

5.10.78

Harbour Nominees - 1 share Macquarie Nominees - 1 share (CD1975 folio 5; CD7178 folio 83)

Nugan Hand Nominees Ltd (CD5019 folio 104)

Travel services (CD1974 folio 8)

Rep No Position

- Accounts

Clerk (CD6668 folio 48)

553 Reception

(CD4132 (CD510 folio 1) folio 2)

Known Period of Employ

14. 4.80 (CD6668 folio 44)

17. 4.79 - 14. 1.80 (CD510; CD7150)

- 1165

Name Rep No Position Known Period of Employ

Ceilings, Clive Leslie Hillary 534 (CD1934)

Managing Director N.H.I. Group H.K.

(CD4279 folio 66)

1. 6.77 - 27. 4.78 (CD4153 folio 10; CD7287 folio 15)

Dunn, Peter Milton 123

(CD8590 folio 26)

Represent­ ative for NHL

1. 9.77 - 6.9.77 (CD10524 folio 393)

Keenan, Sally - Promotions 1. 3.78 - July 1979

(CD10524 folio 412)

Kit, Kan Wai - Not known 23. 7.79

(CD6668 folio 32)

Lee, Ip Kwan 544

(CD10258 folio 545)

Office Boy (CD7279 folio 68)

18. 4.79 - 14. 1.80 (CD510; CD6668)

Omar, Jora Receptionist

(CD510 folio 2)

Not known

Poon, Susan La Chun - Secretary 4.12.78 - 1. 3.79

(CD10524 folio 466)

Sakhrani, Kishore - Accountant 10.3.80

(CD6821 folio 3)

Thompson, Yvonne 552

(CD510 folio 3)

Personnel Officer (CD6668)

20. 1 80 - 13. 3.80

(CD510; CD7315 folio 4)

Wisnioski, John 544

(CD510 folio 3)

Vice President (CD6668 folio 118)

27. 1.80 - 13. 3.80 (CD6668 folio 119; CD7315 folio 4)

Yim, Ken 551

(CD510 folio 3)

Accounting/ Banking (CD6668 folio 122)

25. 2.80 - 13. 3.80 (CD6668 folio 119; CD7315 folio 4)

- 1166 -

Consultants:

Name Rep No Position Known Period of Employ

Chiu, Paul - - 18. 8.75 - 20. 2.78

(CD10524 folio 340)

Wickens, Roger Employed as

a consultant dealing with such organis­ ations as UTA

(CD6668 folio 13)

1977 - 78

(CD6668 folio 13)

- 1167 -

NAME:

DATE OF INCORPORATION:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

SWISS PACIFIC HOLDINGS LTD

17 November 1976 (CD1974 folio 6)

4th floor, Bank of Nova Scotia Building Grand Cayman, British West Indies (CD1974 folio 6)

US$100 000 (CD7178 folio 99)

Not known

Falconer, I.N. Campbell, B. Rutter, Η. M.

Kandiah, P. (CD1974 folio 6)

Campbell, B. Rutter, H.M. Kandiah, P. (CD11221 folios 4,67)

Rutter, H.M. (CD5019 folio 162)

- 1168 -

NOGAN HAND (U.K.) LTD

7 February 1978 granted permission to incorporate by Bank of England 28 February 1978 J.M. Gilder informed the Bank of England that Nugan Hand (U.K.) Ltd had been incorporated.

(CD10262 folios 242-4)

24 October 1977 (CD5847 folio 14)

6th Floor, Regent House, 54-56 Regent Street London WIR 5P J U.K. Telephone: 4394052/5 Telex: 25123 JRSHIP G

Cable: Line date W.l

(CD1974 folio 12)

Not known

£10 (CD6122 folio 9)

Not known

Hand, M.J. (CD6122 folio 9; CD10690)

NAME:

DATE OF INCORPORATION:

DATE OFFICE OPENED:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

SECRETARY:

STATED PURPOSE OF COMPANY:

PERSONNEL:

Name

Gilder, Jeremy Mackenzie

Harris, Neil

Not known

Financial Services (CD1974 folio 12)

Rep No. Position

543 Represent-

(CD1934) ative

505 Represent-

(CD8487 ative

folio 5)

Known period of Employ

Mid 1977 (CD8260 folio 60)

Mid 1977 (CD7340 folio 36; CD8487 folio 5)

- 1169 -

NAME: THE NUGAN HAND BANK

DATE OF INCORPORATION:

DATE OFFICE OPENED:

NAME CHANGES:

REGISTERED OFFICE:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

DIRECTORS:

SHAREHOLDERS:

6 July 1976 (CD1974 folio 5; CD5019 folio 87)

Not known

6. 7.76 - Incorporated as The Nugan Hand Bank and Trust Company 20. 1.77 - Name changed to Swiss Pacific Bank and Trust Company 22. 6.77 - Name changed to The Nugan Hand

Bank

(CDS931 folio 5; CD6942 folio 345)

4th Floor, Bank of Nova Scotia Building, Grand Cayman, British West Indies.

Telephone: 92997/92648 Telex: CP302

(CD1016 folio 6; CD1974 folio 5)

US$5 000 000 (CD1974 folio 5; CD5019 folio 87)

US$1 000 000 (CD1974 folio 5; CD5019 folio 87)

Name From To

Campbell, B. 8. 7.76 9. 8.76

not known 1. 3.78

Rutter, H.M. 8. 7.76

1. 3.78 21. 7.76

Kandiah, P. 8. 7.76 21. 7.76

Collings, C.L.H. 21. 7.76 22.10.79

Dunn, P.M. 21. 7.76 10. 9.77

Nugan, F.J. 21. 7.76

Hand, M.J. 21. 7.76

Ward, F.D. 21. 7.76 not known

Yates, E.P. 10. 2.77

or 1. 3.77

Hill, S.K.A. (approx) 11.10.77 Gilder, J.M. (approx) 9. 7.79 11. 2.80 (CD4667; CD11322 folio 2)

Nugan Hand Limited 249 998 Shares

Nugan, F.J. 1 Share

Hand, M.J. 1 Share

Nugan Hand International Holdings Ltd. 750, 000 Shares

(CD8916 folio 43; CD10690)

SECRETARY: Not known

STATED PURPOSE OF COMPANY: International Banking Service

(CD7178 folio 64)

- 1171 -

NAME:

PERSONNEL:

Name

Beach, Suzi

Ceilings, Clive Leslie Hillary

Lovatt, Gillian

McDougall, Allison

Pepper, Sheila

THE NUGAN HAND BANK Hong Kong Representative Office

Rep No Position Known Period Of Employ

559 Secretary 2.10.78 - 30. 7.79

(CD4132 NHI Group HK (CD9963) folio 7) (CD4279 folio 67)

534 Managing

(CD1934) Director (CD4278 folio 66)

1. 6.77 - 27. 4.78 (CD4153 folio 10; CD7287 folio 15)

503 Client 13.12.76 - 24. 4.80

(CD1934) Service Exec. NHB (CD6614)

(CD7287 folio 15; CD10524 folio 372; CD10978 folio 6)

- Banking 1.11.79 - 21. 2.80

(CD7314 folios 3,4)

586 Client 9. 7.79 - 14. 1.80

(CD4132 folio 1) Service Typist,

(CD510; CD7308)

Accounting Assistant (CD6614; CD7308)

- 1172 -

NAME:

DATE OF INCORPORATION:

DATE OFFICE OPENED:

PERIOD OF OPERATION:

ADDRESS:

AUTHORISED CAPITAL:

ISSUED CAPITAL:

SHAREHOLDERS:

SECRETARY:

PERSONNEL:

Name

Hatchell, Robert

Houqhton, Maurice Bernard

Murphy, Robert Michael

Shannon, Rex

Williams, Joseph

/

THE NUGAN HAND BANK

Saudi Arabia representative office

Not known

Not known

Early 1979 - mid 1980 (CD1250 folios 951-52,956)

Corner Prince Salman 24th Street P.O. Box 914 Al-Khobar Saudi Arabia Telephone: (031) 47865 Telex: 671218 DIHAN SJ

(CD510 folio 12)

New office for NHI opened: 24 January 1980 C/- New Assamer P.O. Box 778 Riyadah, Saudi Arabia Telephone: 01-4657246, 01-4650189

Not known

Not known

Not known

Not known

Rep No Position Known Period of Employ

579 (CD510)

Represent­ ative

Feb-June 1980 (CD10859 folio 14)

538 (CD1934)

Represent­ ative April/May 1979 - April 1980

(CD1308 folio 4)

591 (CD1934 folio 100)

Represent­ ative

26.8.1979-April 1980 (CD8615 folio 55; CD10859 folio 13)

- Represent­

ative

Dec. 1979 - April 1980 (CD10859 folio 14)

593 (CD1934

Represent­ ative

Dec.1979-1980

(CD510; CD10859

folio 106) folio 13)

APPENDIX C

Allegations as to the Connection Between the Nugan Hand Group and the

United States Central Intelligence Agency (C.I.A.)

- 1175 -

ALLEGATIONS AS TO THE CONNECTION

BETWEEN THE NUGAN HAND GROUP AND THE UNITED STATES

CENTRAL INTELLIGENCE AGENCY (C.I.A.)

1. That Nugan Hand funnelled money to C.I.A. contract operative and mercenary Mitchell Livingstone WerBell III. (The National Times, 12 September 1983)

2. That Mr M.J. Hand was a long-standing personal associate of

Mr Ted Shackley, C.I.A. covert operations boss. (The National Times, 25 March 1983)

3. That former C.I.A. officer Mr Thomas Clines lost nearly

$1 million which he had invested in Nugan Hand. (The Sydney Morning Herald, 4 April 1983)

4. That the C.I.A. used Nugan Hand to stir up domestic troubles for Gough Whitlam's Government. (Time, 13 December 1982)

5. That both the Treasury and Department of Foreign Affairs were

told of Nugan Hand's C.I.A. related dealings but took no action. (The National Times, 23 February 1981)

6. That Australian investigators link the activities of Nugan Hand with the fall of the Whitlam Government. (Foreign Policy, Winter 1982-83)

7. That Nugan Hand was a bursar for C.I.A. operations aimed at

Australia's unions and parties. The revelation of these operations may have prompted the C.I.A.'s concern over

Mr Whitlam. (Foreign Policy, Winter 1982-83)

8. That Mr F.J. Nugan served as the go-between for a $2.4 million

C.I.A. contribution to a Liberal Party slush fund to bring down the Whitlam Government. The money was allegedly laundered through one of Nugan's mining companies and passed on to a Liberal Party peer with documented links to Australian mobsters.

(Penthouse (USA), 16 January 1984, p 172)

9. That Nugan Hand financed C.I.A. bugging and forging operations that triggered a financial scandal, leading to the fall of the Whitlam Government. (Penthouse (USA), 16 January 1984, p 172)

- 1176 -

That Mr M.J. Hand arranged a contract with the C.I.A. whereby the Nugan Hand Bank was to become the 'paymaster' for the

dispersement of funds anywhere in the world on behalf of the C.I.A. Such funds included illegal funds from drugs. (The Sun-Herald, 15 February 1981; The Courier Mail, 10 November 1982; Penthouse, May 1984 p62)

That Nugan Hand registered in the Cayman Islands to replace the German 'Castle Bank', as a C.I.A. conduit for millions of

dollars earmarked for C.I.A. operations in Cuba and Latin America. (The Sydney Morning Herald, 29 September 1980)

That the Federal Narcotics Bureau tried to recruit a man working for Nugan Hand who was a C.I.A. operative. (The Australian, 17 March 1982)

That Mr M.B. Houghton of Nugan Hand had a close relationship with Mr Edwin P. Wilson, sometime operative of the C.I.A. and Task Force 157. Wilson was a supplier of arms to terrorists.

(The National Times, 4 January 1981; The National Times, 21 February 1982; The Sun-Herald, 3 April 1983; Foreign Policy, Winter 1982-83) ..........

That through association with ex-C.I.A. officer Mr Thomas Clines, Mr M.B. Houghton and Nugan Hand w’ ere linked with a subterranean business world run by former C.I.A. intelligence officers who dominated the C.I.A.'s world of dirty tricks from

the time of the Bay of Pigs until the late 70's. (The National Times, 12 September 1982)

That with Nugan Hand's help the former elite of the C.I.A.'s 'dirty tricks' division assisted international terrorism, arms dealing and possible bribery of foreign government officials. (The National Times, 8 April 1983)

That a Washington-based arms dealer had been using Nugan Hand on behalf of the C.I.A. (The National Times, 31 May 1981; The National Times,

2l February 1982)

That Nugan Hand was involved in a C.I.A. 'double deception' aimed at infiltrating the Libyan terrorist movement. (The Sun-Herald, 10 May 1981)

That Mr F.J. Nugan was a trusted member of the C.I.A. during the Vietnam War days. Mr M.J. Hand also worked for the C.I.A. in this period.

(The National Times, 23 February 1981; The National Times, 21 February 1982)

- 1177 -

19. That during the Vietnam War Mr F.J. Nugan shifted money for the C.I.A. to carry out secret military operations in Indochina. The money was partly black money, drug money or stolen. Mr M.B. Houghton was similarly engaged.

(The National Times, 23 February 1981; The National Times, 21 Feoruary iya/i)

20. That the C.I.A. used Nugan Hand to channel millions of dollars into Australia for political purposes. (The Sun-Herald, 27 April 1980)

21. That Nugan Hand was essentially a conduit for C.I.A. money. (Time, 13 December 1982)

,

- < ' Τ ■ '

■- ν’ · .

APPENDIX D

Examples of Advertisements Used by the Nugan Hand Group

to Recruit Overseas Representatives

J

1181 -

The Australian Financial Review, 17 April 1978

IS THIS YOU 7

A $60,000 A Y E A R M A N ?

• Result-oriented, with a long history of achievement? • Capable of negotiating successfully at all levels — from small businessman to Chairman of the Board? • Pioneering type who relishes the challenge of breaking new ground, can

win and hold clients? • Aware of what running a business is all about, well rounded, knowledgea­ ble, self-made man keen to accumulate? • Physically fit, healthy, hardworking, strong sense of integrity, hagh personal

standards, independent, aged 35-45? • Possessing larger vision of ability to succeed than is presently being realised? • Excited by the genuine prospect of earning upwards of $A60,000 a year?

(Substantial base salary plus fees and brokerage.) • We now seek several outstanding individuals to represent our Group inter­ nationally and in Australia.

ff you are interested in principle in this opportunity and if you feel you qualify for the position, please write, giving particulars of your background in the terms of the above, and enclose passport photo. Please post applications Express Mail.

Director International Operations Colombo Court P.O. Box 799 SINGAPORE 1

You m a y be assured all applications will be treated with complete confidentiality.

A Director will conduct all interviews in Sydney.

- 1182 -

The Sydney Morning Herald

is this

$ΘΘ?ΟΰΟΑ YEAR m a n ?e Strong dsiire or willingness to live ond work in on overseas country for 2 yeors or• Pioneering type who enjoys the chollenge of breaking new ground ond is not afraid to get out and sell.• Strong sense of integrity, high personal standards, reliable, single minded, in- depe dent.• History of achievement — result oriented.• Large vision of ability to succeeed than is presently being realised in Australia.• Capable of negotiating successfully at all levels — from the labourer to the Chairman of the board.• Able to work effectively without constant motivation.• Physically fit, healthy, aged between 25-40, well regarded in the community, e A keen awareness of w hat running a business is all about, an understanding ofcapitalism, a desire to accumlate.e Excited by the genuine proposal of earning upwards of $60.000 a year (from which would be deducted cost of living and taxes as applicable in the country of residence). this is us• We are a small though rapidly expanding Banking Group.• Our affiliates have recently formed a new Bank and have requested that werecruit and train personnel to operate Representative Offices for selected overseas countries. ,• The prime aim of the new bank is to attract substantial high earning medium term (5 year) deposits. The Bank will as well offer a full range of Banking and Trust Services.• The Representative will be required to render the above services in conjunction with local experts in the appointed country, commencing as a sole operator and expanding as progress dictates.If you feel you qualify for the above please write giving full particiulors of yourbackground in the terms of this ad TO:General Manager, International Division. Hong Kong, P.O. Box 8282 General Pest Office, HONG KONG.You may be assured your letter will be treated with complete confidentiality.

1183

The Sydney M orning H s rald , W ed , J a n 3 1 , 1 9 7 9 2 2

IS THIS YOU?

$ 1 0 0 ,0 0 0 A YEAR MAN?• Strong desire or w illingness to live and w ork in an overseas country for tw o years or more.e Pioneering type w ho enjoys the challenge o f breaking new ground, is not afraid to "g e t out and sell," can w in and develop new clients.• Strong sense o f integrity, high personal standards, reliable, single-minded, independent.• History ' tory of achievement - result-oriented.;he small businessman to the Chairman o f the• Larger vision of ability to succeed than is presently being realised in Australia. • Capable of negotiating successfully at all levels - from tl Board and Heads o f Government.• Able to work effectively w ithout constant m otivation.• Physically fit, healthy, dynamic, aged between 35-45, w ell regarded in the community.• Keen awareness o f w hat running business is all about, an understanding of capitalism, a desire to accumulate. A w ell-rounded businessman.• Excited by the genuine proposal o f earning upwards o f SUS100.0CC a year (from which would be deducted cost o f living and taxes as applicable in the country o f residence).THIS IS US!• W e are a small though rapidly expanding International Banking. Trade and Commercial Advisory Group w ith offices in a num ber o f countries and concentration in S.E. Asia.• Successful applicant w ill be required to offer banking, trade and commercial advisory services as appropriate, w ithin the scope and lim itations o f the appointed country.If you are interested in principle in this opportunity and feel you qualify fo r the position, please writegiving full particulars o f your background in the term s o f this advert and enclose recent passportphotograph.Director International Relations P.O. Box 7 99 Colombo Court SINGAPORE 1Interviews w ill take place in Sydney, Australia.

-

APPENDIX E

Examples of Internal Bills of Exchange

■ !

M aturity Date: 27.. 12,74

1 July

N? 015101

*$100,000*

ON THE 27th day of December 1974

NUGAN HAND NEEDHAM LIMITED

ONE HUNDRED THOUSAND DOLLARS ONLY

T O..NUGAN,, HAND,,NEEDHAM,, LIMITED

55 Macquarie Street, Sydney, NSW, 2000

For and on behalf of

NUGAN HAND NEEDHAM LIMITED

Face Value: $ 100,000.00

19 74

FIXED, PAY TO THE O R D E R OF

THE SUM OF

For and on behalf of P.M. Shelley Pty Limited

iP

Maturity Date: ....

Face Value: $...1OQ.,.9.Q0.,.QO. N? 015135

* 5100,000* λ ' M .............. 1 ,.J, ........ 1975. ..

ON THE... 2 6 th December 197.5..............................................................FIXED, PAY TO THE ORDER OF

NUGAN HAND LIMITED J H E S(JM Q p

ONE HUNDRED THOUSAND DOLLARS

T O NUGAN HAND LIMITED

55 Macquarie St, Sydney, 2000

For and on behalf of YORKVILLE NOMINEES

For and on behalf of NUGAN HAND LIMITED

APPENDIX F

Exchange of Letters Between the Government of

the United Kingdom of Great Britain and Northern Ireland

and the Government of the United States of America

concerning the Cayman Islands, 26 July 1984.

si

1 ' ; .

: - < ■ · ο . . .

1191 -

Foreign and C o m m o n w e a l t h Office

L o n d o n S W 1 A 2 A H

26 J u l y 1984

E X C H A N G E OF L E T T E R S B E T W E E N T H E G O V E R N M E N T O F T H E UN I T E D

K I N G D O M OF G R E A T B R I T A I N AND N O R T H E R N I R E L A N D A N D THE

G O V E R N M E N T O F TH E U N I T E D S T A T E S OF A M E R I C A C O N C E R N I N G T H E

C A Y M A N I S L A N D S AND M A T T E R S C O N N E C T E D WITH, A R I S I N G

FROM, R E L A T E D TO, OR R E S U L T I N G F R O M A N Y N A R C O T I C S A C T I V I T Y

R E F E R R E D TO IN THE S I N G L E C O N V E N T I O N ON N A R C O T I C DRUGS, 1961

AS A M E N D E D BY T H E P R O T O C O L A M E N D I N G T H E S I N G L E C O N V E N T I O N ON

N A R C O T I C DRUGS, 1961

Y o u r E x c e l l e n c y ,

I h a v e the ho n o u r to refer to the r e c e n t d i s c u s s i o n s b e t ween

the G o v e r n m e n t of the U n i t e d K i n g d o m of G r e a t B r i t a i n and

N o r t h e r n I r e l a n d and the G o v e r n m e n t of the U n i t e d States of

A m e r i c a r e g a r d i n g the deep c o n c e r n of ou r G o v e r n m e n t s and

that of the Ca y m a n Islands to p r o v i d e t h a t the Cayman laws

p r o t e c t i n g c o n f i d e n t i a l r e l a t i o n s h i p s s h o u l d not p r o t e c t n a r c o t i c s t r a f f i c k e r s and to p r o p o s e , c o n s i s t e n t with the

S i n g l e C o n v e n t i o n on N a r c o t i c D r u g s , 1961 as a m e n d e d by the

P r o t o c o l a m e n d i n g the said C o n v e n t i o n (h e r e i n a f t e r c o l l e c t i v e l y ca l l e d " the C o n v e n t i o n " ), in p a r t i c u l a r A r t i c l e s 35 an d 36 t h e r e o f , the f o l l o w i n g agreement:

1. Definitions.

For the p u r p o s e of this Agreement:

1.1 " Assistor" m e ans the p e r s o n from w h o m d o c u m e n t a r y

i n f o r m a t i o n is sought under the Cert i f i c a t e ;

1.2 "C a y m a n " means "the Cayman Islands".

" U n i t e d Kingdom" means "the U n i t e d K i n g d o m of G r e a t

B r i t a i n a n d N o r t h e r n Ireland" . " U n i t e d States" m e a n s "the U n i t e d S t a t e s of A m e r i c a " ;

1.3 "Certif i c a t e " m e a n s the d o c u m e n t u s e d by the U n i t e d

S t a t e s A t t o r n e y G e n e r a l to r e q u e s t d o c u m e n t a r y information, the p a r t i c u l a r s of and form for w h i c h are p r o v i d e d in the

A n n e x to this Agreement;

1.4 " d o c u m e n t a r y information" i n c l u d e s , but is not l i m i ­

ted to, any d o c u m e n t , m e m o r a n d u m , report, record, or d a t a

c o m p i l a t i o n in any form, and any plan, g r a p h , drawing, or

p h o t o g r a p h , and any disc, t a p e , or o t h e r d e v i c e for a u d i o

r e p r o d u c t i o n or c o m p u t e r u s e , and a n y film, n e g ative, tape

or o t her d e v i c e for visual image r e p r o d u c t i o n ;

1192 -

2

1.5 " f o u n d a t i o n testimony" m e a n s w i t n e s s t e s t i m o n y solely

for the p u r p o s e of s e c u r i n g the a c c e p t a n c e as a d m i s s a b l e

e v i d e n c e in p r o c e e d i n g s in the U n i t e d S t a t e s of

d o c u m e n t a r y i n f o r m a t i o n as s p e c i f i e d in p a r a g r a p h 3.1; and

1.6 " o f f i c i a l r e c o r d s ” m e a n s -

i. p u b l i c l y a v a i l a b l e r e c o r d s of the Ca y m a n

G o v e r n m e n t , its D e p a r t m e n t s and age n c i e s ; and

ii. any r e c o r d or i n f o r m a t i o n in the p o s s e s s i o n

of the Ca y m a n G o v e r n m e n t , its D e p a r t m e n t s and

a g e n c i e s not p u b l i c l y a v a i l a b l e but w h i c h the

C a y m a n G o v e r n m e n t m a y m a k e a v a i l a b l e subject to such terms and c o n d i t i o n s as it m a y specify.

2. M a t t e r s F a l l i n g W i t h i n the S c o p e of the

Agreement.

2.1 T h i s A g r e e m e n t applies to all o f f e n c e s or a n c i l l a r y

civil or a d m i n i s t r a t i v e p r o c e e d i n g s taken by the Un i t e d

S t a t e s G o v e r n m e n t or its a g e n c i e s c o n n e c t e d with, a r i s i n g

from, r e l a t e d to, or r e s u l t i n g from any n a r c o t i c s activ i t y

r e f e r r e d to in A r t i c l e 36 of the C o n v e n t i o n a n d f a l l i n g

w i t h i n the j u r i s d i c t i o n of the U n i t e d States.

3. P r o c e d u r e to S e c u r e D o c u m e n t a r y

Information.

3.1. When the A t t o r n e y G e n eral of the U n i t e d States

has re a s o n to b e l i e v e that -

i. i d e n t i f i e d p e r sons are i n v o l v e d in a m a t t e r

f a l l i n g w i t h i n the s c ope of this A g r e e m e n t ;

an d

ii. d o c u m e n t a r y i n f o r m a t i o n r e l e v a n t to the r e s o l u ­

tion of that m a t t e r is l o c a t e d w i t h i n Cayman,

he m a y issue a C e r t i f i c a t e to the A t t o r n e y - G e n e r a l of Cayman

r e q u e s t i n g that information.

1193 -

3

3 . 2 . a. Upon r e c e i p t of a C e r t i f i c a t e the C a y m a n A t t o r n e y -

G e n e r a l w i l l issue to the A s s i s t o r a n o t i c e r e q u i r i n g the

A s s i s t o r to p r o d u c e to the C a y m a n A t t o r n e y - G e n e r a l the

d o c u m e n t a r y i n f o r m a t i o n r e q u e s t e d p u r s u a n t to p a r a g r a p h 3.1 a b o v e in the A s s i s t o r 's p o s s e s s i o n , c u s t o d y or control

w i t h i n 14 d a y s of the date of the said n o t i c e unless that

p e r i o d is e x t e n d e d for good cau s e w i t h the c o n c u r r e n c e of

th e U n i t e d St a t e s A t t o r n e y G e n e r a l or is s h o r t e n e d with

the c o n c u r r e n c e of the C a y m a n A t t o r n e y - G e n e r a l .

3 . 2 . b. To e n s u r e p r o d u c t i o n of the d o c u m e n t a r y i n f ormation

C a y m a n w i l l p r o v i d e that, if the A s s i s t o r r e f u s e s to p r o d u c e

t h e d o c u m e n t a r y information, the A s s i s t o r w i l l be liable to

a s u b s t a n t i a l fine and i m p r i s o n m e n t , and that Ca y m a n will

s e i z e the d o c u m e n t a r y i n f o r m a t i o n .

3.3 T h e C a y m a n A t t o r n e y - G e n e r a l w i l l not n o t i f y the

A s s i s t o r of the issue of the C e r t i f i c a t e p r i o r to the issue

cf the n o t i c e r e f e r r e d to in p a r a g r a p h 3 . 2 . a unless the

U n i t e d S t a t e s A t t o r n e y G e n e r a l or his d e s i g n e e requests

or agr e e s in w r i t i n g to such n o t i f i c a t i o n .

3.4 Th e A s s i s t o r w i l l no t be p e r m i t t e d to n o t i f y oth e r

t h i r d p e r s o n s of the C e r t i f i c a t e , the said n o t i c e , the

d o c u m e n t a r y i n f o r m a t i o n or any c o m m u n i c a t i o n s in c o n n e c t i o n w i t h the e n q u i r y for a pe r i o d of 90 days f r o m the date of

the C e r t i f i c a t e or for a f u r t h e r p e r i o d of 90 days on

r e q u e s t of the U n i t e d States A t t o r n e y G e n e r a l or his

d e s i g n e e to the C a y m a n A t t o r n e y - G e n e r a l or for such a

f u r t h e r p e r i o d or p e r iods t h e r e a f t e r as m a y be m u t u a l l y

a g r e e d b e t w e e n the said A t t o r n e y s G e n e r a l and c o m m u n i c a t e d

to the A s s i s t o r .

3.5 The r e l e v a n t United Sta t e s G o v e r n m e n t p r o s e c u t o r may

if n e c e s s a r y liaise w i t h the A s s i s t o r to a s s i s t in the

i d e n t i f i c a t i o n of d o c u m e n t a r y i n f o r m a t i o n s u b j e c t to the p r i o r w r i t t e n c o n s e n t of the C a y m a n A t t o r n e y - G e n e r a l . The

p r o s e c u t o r m a y also liaise w i t h the C a y m a n C o m m i s s i o n e r of

P o l i c e if necessary.

3.6 P r o m p t l y upon r e ceipt of any d o c u m e n t a r y information

f r o m the Ass i s t o r , the C a y m a n A t t o r n e y - G e n e r a l will send the

same to the U n i t e d States A t t o r n e y G e n e r a l .

4. A u t h e n t i c a t i o n of D o c u m e n t a r y

I n f o r m a t i o n an d F o u n d a t i o n T e s t imony.

A. A u t h e n t i c a t i o n and A t t e s t a t i o n of

O f f i c i a l Records.

4.A.I. O f f i c i a l r e c o r d s p r o d u c e d in r e s p o n s e to the

C e r t i f i c a t e will be a u t h e n t i c a t e d in Cayman by the a t t e s ­

t a t i o n of an a u t h o r i s e d p e r s o n in the m a n n e r i n d i c a t e d in

F o r m A a t t a c h e d hereto. The a t t e s t a t i o n will be signed

by, and state the o f f i c i a l p o s i t i o n of, the a t t e s t i n g

p e r s o n , and the seal of the a u t h o r i t y e x e c u t i n g the r e quest

w i l l be a f f i x e d thereto. A u t h e n t i c a t i o n of o f f i c i a l records

w i l l be c a r r i e d o u t in C a y m a n u n d e r the p r o v i s i o n s of the

C o n v e n t i o n A b o l i s h i n g the R e q u i r e m e n t of L e g a l i s a t i o n for F o r e i g n P u b l i c D o c u m e n t s d a t e d 5 O c t o b e r 1961.

4 . B.1 D o c u m e n t a r y i n f o r m a t i o n o t h e r than o f f i c i a l records

p r o d u c e d by the A s s i s t o r in r e s p o n s e to the C e r t i f i c a t e

w i l l be a u t h e n t i c a t e d in C a y m a n by the a t t e s t a t i o n of a

p e r s o n c o m p e t e n t to do so in the m a n n e r i n d i c a t e d in Form B

a t t a c h e d hereto.

4.C.I. F o u n d a t i o n testimony, w i t h r e s p e c t to doc u m e n t s p r o v i d e d u n der this A g r e e m e n t , w i l l be by w a y of affidavit,

d e p o s i t i o n taken in Cayman, v o l u n t a r y a p p e a r a n c e by a

w i t n e s s at p r o c e e d i n g s s p e c i f i e d in p a r a g r a p h 2 a b ove in the

U n i t e d States, or such o t h e r p r o c e d u r e as m a y be m u t u a l l y

a g r e e d upon.

4.C.2. Upon the r e q u e s t of the U n i t e d States A t t o r n e y

G e n e r a l or his d e s ignee, the A s s i s t o r w i l l swear an

a f f i d a v i t in Ca y m a n c o n t a i n i n g such recitals as are

n e c e s s a r y for f o u n d a t i o n testimony.

B. A u t h e n t i c a t i o n and A t t e s t a t i o n of

D o c u m e n t a r y I n f o r m a t i o n o t h e r than O f f i c i a l Records.

C. F o u n d a t i o n Testimony.

1195

5

4.C.3. T h e U n i t e d S t a t e s A t t o r n e y G e n e r a l or his d e s i g n e e

m a y r e q u e s t , and the A s s i s t o r w i l l p r o v i d e , fo u n d a t i o n

t e s t i m o n y at a d e p o s i t i o n in C a y m a n u n der rule 15 of the

U n i t e d S t a t e s F e d e r a l R u les of C r i m i n a l P r o c e d u r e .

4.C.4. An A s s i s t o r p r o v i d i n g f o u n d a t i o n t e s t i m o n y u n d e r the p r o v i s i o n s of p a r a g r a p h 4.C.2 or 4.C.3, w i l l enj o y

the p r o t e c t i o n of C a y m a n law as r e gards immunity, s e l f ­

i n c r i m i n a t i o n , p r i v i l e g e and i n c apacity. C a y m a n will

p r o v i d e by w a y of l e g i s l a t i o n the p r o c e d u r e to be foll o w e d

w h e n such p r o t e c t i o n is i n v o k e d .

4.C.5. S h o u l d it be c o m e n e c e s s a r y for the s u c c e s s f u l c o nduct

of the p r o c e e d i n g s in the U n i t e d St a t e s that

f o u n d a t i o n t e s t i m o n y be o b t a i n e d the U n i t e d States A t t o r n e y

G e n e r a l or his d e s i g n e e m a y r e q u e s t the A s s i s t o r to attend

th e r e l e v a n t C o u r t in the U n i t e d St a t e s to p r o v i d e such

t e s t i m o n y .

4.C.6. An A s s i s t o r , wh o p r o v i d e s f o u n d a t i o n t e s t i m o n y under

a n y of p a r a g r a p h s 4.C.2, 4.C.3 or 4.C.5 w i l l enjoy,

in a c c o r d a n c e with and to the full ex t e n t a l l o w e d und e r

U n i t e d S t a t e s law, the p r o t e c t i o n of Un i t e d St a t e s law as

r e g a r d s i m munity, s e l f - i n c r i m i n a t i o n , p r i v i l e g e and i n c a p a c i t y . This p r o v i s i o n is in a d d i t i o n to and not in

d e r o g a t i o n of the p r o v i s i o n s of p a r a g r a p h 4.C.4.

4 . C . 7 T h e U n i t e d S t a t e s A t t o r n e y G e n e r a l or his

d e s i g n e e w i l l adv i s e the C a y m a n A t t o r n e y - G e n e r a l in w r i t i n g

p r i o r to any r e q u e s t being m a d e p u r s u a n t to p a r a g r a p h s

4.C.2, 4.C.3 and 4.C.5.

5. C o n s u l t a t i o n .

5.1 Th e U n i t e d States A t t o r n e y G e n e r a l or his d e s i g n e e

a n d the C a y m a n A t t o r n e y - G e n e r a l w i l l consult, as m u t u a l l y

d e t e r m i n e d by t h e m , to e n a b l e the m o s t e f f e c t i v e use to be

m a d e of this A g r e e m e n t . Such c o n s u l t a t i o n s w i l l include the

s t a t u s a n d d i s p o s i t i o n of p r o c e e d i n g s u t i l i s i n g d o c u m e n t a r y i n f o r m a t i o n s e c u r e d p u r s u a n t to this a g r e e m e n t as m a y be

l a w f u l l y d i s c l o s e d .

5 . 2 In an y case of d i f f i c u l t y e i t h e r the C a y m a n G o v e r n m e n t

or the U n i t e d States G o v e r n m e n t m a y r e q u e s t the a s s i s t a n c e

of the U n i t e d K i n g d o m G o v e r n m e n t to r e s o l v e the d i f f i c u l t y

b y w a y of co n s u l t a t i o n .

6

1196

6. E x c l u s i v i t y .

6.1 No F e d e r a l s u b p o e n a ( i n c l u d i n g a G r a n d J u r y subpoena)

r e l a t e d to d o c u m e n t a r y i n f o r m a t i o n l o c a t e d in Ca y m a n in any

m a t t e r f a l l i n g w i t h i n p a r a g r a p h 2.1 of this A g r e e m e n t will

be e n f o r c e d in the U n i t e d Sta t e s w i t h o u t the p r ior a g r e e m e n t

of e i t h e r the U n i t e d K i n g d o m G o v e r n m e n t or the C a y m a n

G o v e r n m e n t .

7.1 T h e G o v e r n m e n t s of the U n i t e d S t a t e s and U n i t e d

K i n g d o m , i n c l u d i n g Cayman, agr e e to e n t e r into n e g o t i a t i o n s

c o n c e r n i n g a L a w E n f o r c e m e n t T r e a t y b e tween the U n i t e d

S t a t e s and Ca y m a n c o n c e r n i n g c r i m i n a l matters.

7.2 If the G o v e r n m e n t s of the U n i t e d States and U n i t e d

K i n g d o m , i n c l u d i n g Cayman, are s a t i s f i e d that this Ag r e e m e n t

is w o r k i n g s a t i s f a c t o r i l y , r e p r e s e n t a t i v e s of the said G o v e r n m e n t s w i l l m e e t nine m o n t h s aft e r the d a t e this

A g r e e m e n t comes into o p e r a t i o n to n e g o t i a t e the said

T r e a t y .

7.3 The G o v e r n m e n t s of the U n i t e d States and United

K i n g d o m , i n c l u d i n g Cayman, w i l l use their best e n d e a v o u r s

to c o n c l u d e a Law E n f o r c e m e n t T r e a t y wi t h i n fifteen months

of the date this A g r e e m e n t comes into o p e r a t i o n w i t h the

i n t e n t i o n to b r i n g such a T r e a t y into force as soon t h e r e ­

aft e r as their c o n s t i t u t i o n a l p r o c e d u r e s w i l l allow.

8.1 This A g r e e m e n t will come into o p e r a t i o n on the date

the U n i t e d K i n g d o m G o v e r n m e n t n o t i f i e s the U n i t e d St a t e s

G o v e r n m e n t in w r i t i n g that the C a y m a n l e g i s l a t i o n

i m p l e m e n t i n g this A g r e e m e n t has come into effect.

7. N e g o t i a t i o n of a L a w E n f o r c e m e n t

Treaty.

8. Coming into Operation of the

Agreement.

1197

7

9. T e r m i n a t i o n of the Ag r e e m e n t .

9.1. Th e G o v e r n m e n t of e i t h e r the U n i t e d S t a t e s or the

U n i t e d K i n g d o m , i n c l u d i n g C a y man, m a y t e r m i n a t e this

A g r e e m e n t by g i v i n g one c a l e n d a r m o n t h ' s n o t i c e in w r i t i n g

to the o t h e r G o v e r n m e n t s at any time a f ter the e x p i r a t i o n of

two c a l e n d a r m o n t h s f r o m the d a t e of its c o m i n g into

o p e r a t i o n . P r i o r to i s s u i n g such n o t i c e of t e r m i n a t i o n , the

G o v e r n m e n t d o i n g so w i l l c o n s u l t w i t h the o t h e r Governments.

10.1 T h i s A g r e e m e n t w i l l e x p i r e f i f t e e n c a l e n d a r mo n t h s

f r o m the d a t e of its c o m i n g into o p e r a t i o n u n l e s s it is

e x t e n d e d by the m u t u a l a g r e e m e n t of the G o v e r n m e n t s of the

U n i t e d S t a t e s and the U n i t e d K i n g d o m , i n c l u d i n g Cayman.

I s h all be g r a t e f u l for your c o n f i r m a t i o n that the

G o v e r n m e n t of the U n i t e d States is in a g r e e m e n t with the

f o r e g o i n g and that this letter and your rep l y to that effect

w i l l c o n s t i t u t e an a g r e e m e n t b e t w e e n ou r two Gov e r n m e n t s .

10. E x p i r a t i o n of the A g r e e m e n t .

I h a v e the ho n o u r to c o n v e y to Your E x c e l l e n c y the

a s s u r a n c e s of m y h i g h e s t c o n s i d e r a t i o n ,

M a l c o l m R i f k i n d MP

M i n i s t e r of S t a t e for F o reign

and C o m m o n w e a l t h A f f airs

ANNEX

T H E C E R T I F I C A T E

1. Th e C e r t i f i c a t e w i l l -

i. be signed by the U n i t e d States A t t o r n e y General;

ii. in r e s p e c t of G r a n d J u r y p r o c e e d i n g s iden t i f y

t h ose p r o c e e d i n g s by G r a n d J u r y n u m b e r and in

r e s p e c t of an i n d i c t m e n t iden t i f y such i n d i c t ­

m e n t by c a p t i o n and d o c k e t n u m b e r ;

i i i . c e r t i f y that the U n i t e d States A t t o r n e y G e n e r a l

has reason to b e l ieve that a m a t t e r f a l l i n g wi t h i n the

s c o p e of this a g r e e m e n t has arisen;

iv. r e q u e s t that the C a y m a n A t t o r n e y - G e n e r a l secure

the d o c u m e n t s i d e n t i f i e d by the Uni t e d States Atto r n e y

General;

v. d e c l a r e that the i n f o r m a t i o n is r e l e v a n t to the

s u c c e s s f u l r e s o l u t i o n of the m a t t e r ; and

v i . u n d e r t a k e t h a t , save w i t h the c o n s e n t of the

C a y m a n G o v e r n m e n t , the i n f o r m a t i o n w i l l not be used for

any p u r p o s e s o t h e r than the re s o l u t i o n of m a t t e r s

e n c o m p a s s e d by this agreement.

2. O n l y one C e r t i f i c a t e w i l l be r e q u i r e d to e n a b l e the

p r o d u c t i o n of the d o c u m e n t a r y i n f o r m a t i o n r e l a t i n g to the m a t t e r w h i c h is the s u b j e c t of the C e r t i f i c a t e .

3. Th e C e r t i f i c a t e w i l l be d r a w n in the f o l l o w i n g manner;

C E R T I F I C A T E

G r a n d J u r y N u m b e r :/

I n d i c t m e n t C a p t i o n and D o c k e t N u m b e r :

H a v i n g re g a r d to the p r o v i s i o n s of the a g r e e m e n t

b e t w e e n the G o v e r n m e n t s of the U n i t e d States of

A m e r i c a and the U n i t e d K i n g d o m of G r e a t B r i t a i n and N o r t h e r n

I r e l a n d d a t e d .......... I, ............... . the A t t o r n e y

G e n e r a l of t h e U n i t e d St a t e s of A m e r i c a , h e r e b y c e r t i f y as

f o l l o w s :

1. I h a v e re a s o n to b e l i e v e that i n d i v i d u a l s and e n t i t i e s ,

i d e n t i f i e d by U n i t e d St a t e s l a w e n f o r c e m e n t o f ficers,

ar e i n v o l v e d in a m a t t e r f a l l i n g wi t h i n A r t i c l e 36 of the

S i n g l e C o n v e n t i o n on N a r c o t i c D r u g s , 1961, as m o r e fully

d e s c r i b e d in the ag r e e m e n t .

2. I r e q u e s t that you, the A t t o r n e y - G e n e r a l of the Cayman

I s l a n d s , s e c u r e to me, the A t t o r n e y G e n e r a l of the

U n i t e d S t a tes, that d o c u m e n t a r y i n f o r m a t i o n b e l i e v e d by m e to be h e l d by the f o l l o w i n g [Person] w h i c h is

d e s c r i b e d in the s c h e d u l e and b e l i e v e d by me to be rele v a n t

to the r e s o l u t i o n of the m a t t e r in h a n d , as w e l l as o t her

d o c u m e n t a r y i n f o r m a t i o n s u b s e q u e n t l y i d e n t i f i e d by the U n i t e d S t a t e s A t t o r n e y G e n e r a l or his d e s i g n e e as b e ing

r e l e v a n t to the r e s o l u t i o n of the m a t t e r in h a n d .

3. T h e s a i d d o c u m e n t a r y i n f o r m a t i o n w i l l not be used

or d i s c l o s e d by the U n i t e d S t a t e s G o v e r n m e n t or its

a g e n c i e s for any p u r p o s e s o t h e r than the r e s o l u t i o n of

m a t t e r s e n c o m p a s s e d by the said ag r e e m e n t w i t h o u t the

w r i t t e n c o n s e n t of the C a y m a n G o v e r n m e n t t h r o u g h the Cayman

A t t o r n e y - G e n e r a l .

S C H E D U L E

[Signed]

A t t o r n e y G e n e r a l of the

U n i t e d S t a t e s of A m e r i c a

1200

F O R M A

A T T E S T A T I O N O F A U T H E N T I C I T Y OF O F F I C I A L R E C O R D S

I, ...................... . a t t e s t that m y p o s i t i o n

w i t h the G o v e r n m e n t of the C a y m a n Islands is ...............

O f f i c i a l Title

an d that in that p o s i t i o n I am a u t h o r i z e d by the la w of

the Ca y m a n I s l a n d s / U n i t e d K i n g d o m to a t t e s t that the

d o c u m e n t s a t t a c h e d he r e t o and d e s c r i b e d below:

(1) Are true copies of o r i g i n a l o f f i c i a l records

w h i c h are a u t h o r i z e d by the l a w of the Cayman

I s l a n d s / U n i t e d K i n g d o m to be r e c o r d e d or filed

in .................................................... .

N a m e of P u b l i c O f f i c e or A g e n c y

w h i c h is a p u b l i c o f f i c e or a g e n c y .

(2) Set forth m a t t e r s w h i c h are r e q u i r e d by the law

of the Cayman I s l a n d s / U n i t e d K i n g d o m to be

r e c o r d e d or f i led and r e p o r t e d .

D e s c r i p t i o n of D o c u m e n t s :

S i g n a t u r e

Date

1201

F O R M B

A F F I D A V I T W I T H R E S P E C T T O D O C U M E N T S

O F A R E G U L A R L Y C O N D U C T E D B U S I N E S S A C T I V I T Y

NOTE: A F F I D A V I T M U S T BE E X E C U T E D BY C U S T O D I A N OF R E C O R D S OR

S U C H O T H E R P E R S O N W H O C A N E X P L A I N T H E R E C O R D K E E P I N G PROCEDURE.

I ............................................... (Swear) (Affirm) (On

P e n a l t y of P e r j u r y ) (On My O a t h ) as follows:

(1) I a m e m p l o y e d by ................................................

(Name of b u s i n e s s , a c tivity, or person

f r o m w h o m d o c u m e n t s are sought).

(2 ) ................................................

(Name of b u s i n e s s , activity, or p e r s o n f r o m w h o m

............................................ e n g a g e s in the r e g u l a r

d o c u m e n t s are s o u g h t ).

b u s i n e s s of ............................................................

(d e s c r i b e b u s i n e s s or a c t i v i t y ).

(3) My o f f i c i a l t i tle is ............................................

(4) My duties and r e s p o n s i b i l i t i e s i n c l u d e : (d e s c r i b e r e l a t i o n s h i p

to b o o k s an d r e c o r d s i e . c u s t o d i a n of b o o k s and r e c o r d s , or

s u p e r v i s i o n o v e r b o o k s and r e c o r d s , etc.).

(5) As a re s u l t of m y duties and r e s p o n s i b i l t i e s I h a v e k n o w l e d g e

of the m a n n e r in w h i c h the b o o k s and r e c o r d s are kept.

(6) Th e a t t a c h e d d o c u m e n t s are o r i g i n a l (or true co p i e s of

o r i g i n a l ) d o c u m e n t s w h i c h I o b t a i n e d f r o m the c u s t o d y and c o ntrol

of ............................................................................

(name of bu s i n e s s , activity, or person f r o m w h ich d o c uments

1202

(7) Th e a t t a c h e d d o c u m e n t s are ...............................

( d e s c r i p t i o n of d o c u m e n t s :

eg. " L e d g e r of the c h e c k i n g account of John D o e for the Month

of July, 1983")

(8) It is a r e g u l a r p r a c t i c e of this b u s i n e s s to m a k e and keep

....................................................... in the f o llowing

( d e s c r i p t i o n of do c u m e n t s ) >

m a n n e r ...................................................................

(de s c r i b e m a n n e r in whi c h d o c u m e n t s or categories of documents

are m a d e an d k e p t ).

(9) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to b a s e its

r e c o r d s u p o n i n f o r m a t i o n t r a n s m i t t e d by a p e r s o n w i t h kno w l e d g e

of the m a t t e r s recorded, wh o was a c t i n g in the c o u r s e of the

r e g u l a r l y c o n d u c t e d b u s i n e s s activity.

(10) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to check the

c o r r e c t n e s s of d o c u m e n t s of the k i n d a t t a c h e d h e r e t o .

(11) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to rely on

r e c o r d s of th e k i n d a t t a c h e d h e r e t o .

(12) Th e e n t r i e s on the d o c u m e n t s a t t a c h e d h e r e t o w e r e made by

p e r s o n s w i t h k n o w l e d g e of the m a t t e r s r e c o r d e d , or f r o m information

t r a n s m i t t e d by p e r s o n s with such k n o w l e d g e .

(13) The p e r s o n s m a k i n g the e n t r i e s on the d o c u m e n t s or t r a n s m i t t i n

the i n f o r m a t i o n for p u r p o s e s of r e c o r d i n g it were ac t i n g in the

c o u r s e of the r e g u l a r l y c o n d u c t e d b u s i n e s s or activity.

(14) Th e e n t r i e s on these d o c u m e n t s were m a d e at or near the time

of the m a t t e r s r e c o r d e d , purs u a n t to a s y s t e m a t i c and routine

p r o c e d u r e for the c o nduct of the business.

(15) Th e d o c u m e n t s a t t a c h e d h e r e t o w e r e kept in the course

of the r e g u l a r a c t i v i t y of this b u siness.

( D a t e ) ( S i g n a t u r e )

1202

(7) The a t t a c h e d d o c u m e n t s are ...............................

( d e s c r i p t i o n of d o c u m e n t s :

eg. " L e d g e r of the c h e c k i n g account of John D o e for the Month

of July, 1 9 8 3 ” )

(8) It is a r e g u l a r p r a c t i c e of this b u s i n e s s to m a k e and keep

• ...................................................... in the following

( d e s c r i p t i o n of docume n t s ) ·

m a n n e r ...................................................................

(d e s c r i b e m a n n e r in w h i c h d o c u m e n t s or categories of documents

are m a d e an d k e p t ).

(9) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to b a s e its

r e c o r d s u p o n i n f o r m a t i o n t r a n s m i t t e d by a pe r s o n w i t h k n owledge

of the m a t t e r s r e c o r d e d , wh o was a c t i n g in the c o u r s e of the

r e g u l a r l y c o n d u c t e d b u s i n e s s activity.

(10) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to check the

c o r r e c t n e s s of d o c u m e n t s of the k i n d a t t a c h e d h e r e t o .

(11) It is the r e g u l a r p r a c t i c e of the b u s i n e s s to rely on

r e c o r d s of the k i n d a t t a c h e d h e r e t o .

(12) T h e e n t r i e s on the d o c u m e n t s a t t a c h e d h e r e t o were made by

p e r s o n s w i t h k n o w l e d g e of the m a t t e r s recorded, or f r o m information

t r a n s m i t t e d by p e r s o n s with such k n o w l e d g e .

(13) The p e r s o n s m a k i n g the e n t r i e s on the d o c u m e n t s or transmitting

the i n f o r m a t i o n for p u r p o s e s of r e c o r d i n g it were ac t i n g in the

c o u r s e of the r e g u l a r l y c o n d u c t e d b u s i n e s s or activity.

(14) The e n t r i e s on these d o c u m e n t s were m a d e at or near the time

of the m a t t e r s recorded, purs u a n t to a s y s t e m a t i c and routine

p r o c e d u r e for the conduct of the b u s i n e s s .

(15) T h e d o c u m e n t s a t t a c h e d h e r e t o w e r e kept In the course

of the r e g u l a r a c t i v i t y of this b u s i n e s s .

( D a t e ) ( S i g n a t u r e )

INDEX

1207

INDEX

Notes: A Table of Cases follows this index.

MJH indicates Michael John Hand.

FJN indicates Francis John Nugan.

NHG indicates Nugan Hand Group.

Alexander, Brian, 881

Alnav Trade Asia, 215

Amish Keats Pty Ltd, 256

Amro Bank, 553

ANZ Bank

facilities offered, 446-7, 560

move to, 445-7

references, 777-89, 793-7, 798

relationship with, 506

Apollo Land and Development Pty Ltd, 304, 305, 404, 490

Areson, William Henry, 105-7, 230, 663, 664

Arias, Fabrega & Fabrega, 373

armaments, definition, 893-4

armaments dealing, 893-931

allegations of, 71, 96-7, 116, 127-8, 170, 262, 423, 894-901

evidence for, 901-30

results of inquiry, 930-1

Ashby, Christine, 607

Asien-Pazifik-Bank, 127

Aston, J.L., 120, 176-7, 198, 246, 250, 262, 485, 491, 492, 772, 773,

774, 881

Atlantic Financial Services Pty Ltd, 563

Attkinson, Randall L., 107-8, 113, 218, 36 2, 660, 671, 706, 707

auditors

duties of, 763-75

recommendations about, 1099

Australasian and Pacific Holdings Ltd, 65, 99, 121, 186, 260, 301-2, 404,

559

1208

Australian Customs Service, 8

Australian Federal Police, 32

Australian National Railways Act 1917, 933

Australian Royal Commission of Inquiry into Drugs, 4

Australian Taxation Office, 8, 32

Australia United Corporation (AUC), 53, 790-2

Auyeung, James, 162

Ayala Finance (Hong Kong) Ltd, 48, 552, 651, 671, 966

Bachmann, Jurgen, 60, 109-10, 178, 521, 689

Bacon, Norman James, 448

Baia Do Oriente Limitada, 250, 835, 967-8

bankers' opinions

about group, 777-85, 789-92

recommendations about, 798-9, 1099

Banking Act 1959, 986

Bank of New South Wales, 52-3, 445, 447, 777, 789, 790, 791, 792

Barrier Pacific Resources Ltd, 378

Bates, Arthur Edward, 111-12

B.C. Nahling Pty Ltd, 309

Beach Inquiry, 22

Beazley, Donald Elgin, 112-15, 189, 213, 239, 292

appointed, 79, 475, 507, 513, 516-17

and Commission, 752

events after FJN's death, 533, 543, 544, 546-7

and Hong Kong operations, 87, 140, 667

inquiries into NHG, 107-8, 218

and London Capital Securities Ltd, 193, 214, 290, 362-4, 509, 547

reputation, 240, 693

and Singapore operations, 268, 276

Beith, Graham, 859, 880-1

Bence, A.I., 377

Bernal, Esteban, 373

Besey, Graham, 668

Beverley Hill Pty Ltd, 375

bills, internal, 438, 448, 458, 486-8, 489, 504-5, 520, 551, 770-4,

819-28, 1187-8

1209

Black, General Edwin Fahey, 58, 98, 115-17, 399, 500, 501, 689, 691,

692, 701

arms trafficking allegations, 895, 899, 923-8, 931

and CIA, 741, 742, 743, 746, 748, 749, 751

and criticisms of NHG, 511

joins Nugan Hand Bank, 79, 464, 475, 494

and United Chinese Bank negotiations, 82, 293, 496, 500, 703

Boreland, Helene Mary, 65

Brading, Christopher Sundt, 903-4

Brincat, George Frederick, 117-22, 123, 175, 176, 243, 244 , 245 , 246

and accounts, 302, 304, 310, 316, 322, 324, 337, 339, 343, 345,

347, 355, 412, 415, 416, 417, 429, 430, 431, 432, 443, 470

refuses to certify, 59, 401, 520, 525

as auditor, 412, 764, 767, 768, 769-74, 809, 550-2

events after FJN's death, 88, 535-6, 538, 539, 540

and Hong Kong operations, 185, 471, 661-2, 663, 664-5

and 'internal bills' scheme, 438, 485, 486-8, 824, 826

Nugan Hand Bank accounts, 84, 274, 275, 276, 472-3, 492, 517, 518,

681, 683, 709, 713-31

and Orange Spot group, 489, 548

and Yorkville contra, 956

Bruce Campbell & Co, 681, 683

bullion trading, 45, 46-7, 67

Burton, Noreen Fay, 118, 123-4, 539, 551

'buy back straddle', 802-4, 816-19, 845

B.W. Atkinson and Associates, 136, 158

Byreddy, Cecilia, 276

Calder, Brian William, 42, 124-6, 366, 405-6, 497

and Distravite, 206, 284, 304, 490

and Nugan Hand Needham Ltd, 45, 67, 229

and SIRE, 43, 228

Campbell , Bruce D., 253, 254, 680, 684

capital injections, 68-9, 76, 409-11, 413, 477-8, 655, 831-6

Carlyle Investments Pty Ltd, 67, 245, 307, 404

Carter, L.P., 208, 447

Cayman Islands laws, 390-1, 677, 755-61

1210

1 Charlie', 93-4, 565, 567

Charody, John, 238

Chase Manhattan Bank, 647, 651, 671, 965

Chavez, Ricardo, 114, 193, 363, 364, 547

Cheung, Manlo, 290

Cheung, Monica, 255

Ching, Hung Y., 496, 703

Ching, Sai, 924-6

CIA involvement, allegations of, 302, 391-2, 497, 739-53, 1173-7

CitiNational Securities Corporation Ltd, 182-3, 258, 297, 298, 430-1, 432,

433, 451, 469, 786-7, 801, 802, 803, 804, 814, 815, 816, 817, 819

City of Sydney, council of the, 444-5

City Trust Ltd, 361

Clark, Terrence John, 860, 881

Clasen, Peter Jurgen, 127-8, 421, 911-12, 914, 915

Clines, Thomas, 745

Cocke, General Erie, 54, 79, 128-30, 292, 293, 475, 692, 699, 741, 742,

746, 749

Colby, W.E., 64, 75, 80, 81, 97, 98, 98, 130-2, 218, 742, 746, 748, 749-50

Ceilings, Clive Leslie Hillary, 70, 71, 77, 132-5, 164, 182, 188, 249,

251, 458, 511, 630

and armaments, 913, 914

and Fund of Australia, 160, 280, 359, 419

and Hong Kong operations, 47, 73 , 105, 106, 107, 112, 133-5, 140, 194,

195, 210, 215, 282, 289, 388 , 434-5, 454, 456, 508, 631, 633,

634, 636-7, 639, 645-6, 647, 654, 655, 661, 662, 663, 666 , 667 ,

668, 671, 689, 694, 699, 702, 705, 706, 708, 785, 786

and 'Ingold Growth', 46-7, 420-1, 631-2

on internal bills, 85

joins NHG, 418, 447

negligence alleged, 660, 671

and Nugan Hand Bank, 453, 684, 685, 686, 687, 690, 692

resignation, 515-16

and Thailand operations, 73, 235, 454, 461, 462, 882, 884-5

and Yorkville contras, 955

Commonwealth Attorney-General's Department, 32

Commonwealth/New South Wales Joint Prosecution Team, 32

1211

Commonwealth - New South Wales Joint Task Force on Drug Trafficking, 4, 8

32, 564, 565, 566, 570, 859, 861-2, 866, 895-6, 897, 900-1, 907,

930

Companies Act 1961 (NSW), 3, 398, 411, 488, 550, 571, 859Companies

Auditors Board, 212

Companies Code, revisions recommended, 1002-3, 1072-3, 1100

concealment of documents see documents

conferences, use of, 498-9, 506-7

Conrick, Edward Thomas, 136-7, 563

Conroy's Pineapple Crunch Pty Ltd, 375

Control of Naval Waters Act 1918, 932

Corporate Affairs Commission of Victoria, 32

corporations in terms of reference, 18-19

Courtney-Smith, George Anthony, 138-41, 253, 692, 693, 694

in Argentina, 153, 162, 463, 689, 691, 699, 701, 711, 712, 788

and FJN's drinking, 56

in Hong Kong, 215, 216, 660, 671, 699, 708

Crimes Act 1900 (NSW), 233, 571

currency, foreign see exchange controls

currency differential contract, 459, 845

Customs Act 1901, 932

Dangerous Goods Act 1975 (NSW), 933

Darling, John, 524

Dartman Ltd, 143

Department of Foreign Affairs, 8

Department of Immigration and Ethnic Affairs, 8, 32

Department of Industry and Commerce, 32

destruction of documents see documents

Distravite Australia Wide Servicing Company Pty Ltd, 121, 125-6, 157,

303-4, 397, 490, 994, 996

Distravite Pty ltd, 99, 119, 121, 125-6, 157, 172, 199, 284, 305-6, 397,

461, 490, 994, 996

Dixon, Sir Owen, 24

'Djaisukul, Suvit', 899, 922-3

documents

concealed, 383, 542, 547, 571-2

destroyed, 383

drug trafficking allegations, 3, 4, 95-6, 262, 491-2, 859-86

Dunn, Peter Milton, 70, 71, 73, 98, 134, 141-4, 164, 194, 667, 886

and armaments allegations, 895, 907-8

and Fund of Australia, 133, 160, 280, 359, 419

joins NHG, 418, 447

and Nugan Hand Bank, 453, 684, 685, 687, 692, 708

and Nugan Hand (Hong Kong), 135, 631

resignation, 476-7

Ebert, Manfred, 145-6, 689

Edelsten, Graham Arthur Leighton, 59, 146-8, 173, 174, 252, 262, 265, 270,

286, 337, 524-5

events after FJN's death, 532, 545, 546, 547, 558

and Fund of Australia, 133, 160, 359, 419

and London Capital securities Ltd, 361-2

and Yorkville contra, 955

Electronics Research (Australia) Pty Ltd, 348

- 1212 -

Evans, Neil, 98, 149-51, 162, 459, 461-2, 692, 693, 694-5, 699, 708, 711,

744, 859 r 882—6 r 898, 902, 917-18

Everest Pty Ltd, 375

exchange controls, 944-52, 975-85

breaches of, 51, 248-9, 941-3, 952-73

Falconer, Ian N., 253, 254

F.A. Neubauer Bank, 41, 48, 109-10, 146, 165, 178-9, 191, 279, 359, 494-6,

548, 1125

F.A. Neubauer Management (Hong Kong) Limited, 1127

F.A. Neubauer Management Ltd, 1128

F.A. Neubacher Management (Pte) Ltd, 223, 236, 277, 1129

Farquhar, Murray, 880

Far West Aircraft Spares, 215

Federal Bureau of investigation (FBI) see United States Federal Bureau of

Investigation

1213

Federal Narcotics Bureau, 13-14

Fellows, Warren, 880, 881

Firearms and Dangerous Weapons Act 1973 (NSW), 934

First National City Bank, 966

F.N. Spenser Pty, 170

Foley, John, 65

Freight Distribution Industries Ltd, 132, 182

Fund of Australia Group, 133, 142, 147, 159-60, 169, 280, 359-60

Galicek, George Vaclav, 152-4, 162, 463, 492, 689, 692, 693, 694, 699,

701, 711, 955

Garcia Bros Hardware Pty Ltd, 67, 99, 121, 307-8, 404

Garel Pty Ltd, 313

Gehring, Robert Wallace, 92-4, 155-6, 545, 564-6

George, Quentin Douglas, 157-8, 171, 172, 498, 512, 524-5

after FJN's death, 532, 566

in FJN's law firm, 46, 199, 270, 397, 459, 460

and Mars Road Investments, 126, 136, 287, 497, 562-3

Gilder, Jeremy Mackenzie, 56, 77, 83-4, 159-65, 174, 337, 523

events after FJN's death, 87, 529, 533, 534, 536, 537, 538, 542,

543, 544

and Fund of Australia, 133, 159-60, 280, 359, 419

marketing responsibilities, 455, 498

and Nugan Hand Bank, 72, 453, 454-55, 684-5, 686-7, 688, 689, 690,

692, 701, 702

and overseas operations, 110, 112, 270, 436, 464, 882, 884

recruitment of representatives, 135, 147, 152, 153, 203-4, 223, 234,

235, 236, 241, 264, 267, 269, 454, 461, 463, 691-2, 694, 695

resignation of, 545-6

Gillett, Stewart, 530, 531, 535

G.M. Gunhill Pty Ltd, 319

Goulding, Peter Randolph, 918-19, 920

Graham, Henry Richmond, 778

Gregory, Wilfred Patrick, 167-8, 213, 257, 293, 557, 689, 691

Grist, John Robert, 448

1214

Hand, Michael John, 63-100

and armaments, 71, 96-7, 127-8, 170, 423, 898, 906-16

Australian citizenship, 74-5

charges against, 570-1

and CIA, 64, 97-8

Commission attempts to contact, 94-5

in Commission's terms of reference, 18, 1001-2

company well-being, assurances of, 549-50, 556, 557

deceptions, aware of, 68-9, 72, 76, 84-6, 88-90, 509-11, 534

disappearance of, 92-5, 384, 564-7

documents concealed and destroyed, 91-2, 571

and drugs trafficking, 95-6, 862, 865, 866, 875-6, 882

evidence to tribunals, 574

and FJN, 42, 56, 65, 80-1, 82-4, 366, 403-4, 513, 521

and FJN1s death, 86-91

FJN1s death, events after, 531, 533-44 passim, 548-50, 562

and Nugan Fruit Group, 399

and Nugan Hand Bank funds, 100

personality, 81-2

'retirement', 69-71, 424-5, 906

secrecy, obsession with, 73

in South Africa, 69-71

in Vietnam, 64-5, 97, 741, 743

Hand, Oscar, 94-5, 566, 567, 752

Hand-Pacific Nominees Pty Ltd, 307

Hans, Wilhelmus, 133, 169-70, 359, 419, 420, 692, 908, 909, 911, 912, 913,

914, 915, 917

Harland, Edward Patrick, 54, 171-3, 179, 524, 529, 532

tax expertise, 181, 397, 460, 491, 991

Harris, Neil, 160

Hatchell, Robert, 226, 227

Hawaiian Trust company, 331

Hawes, James Moulton, 900-1

Hayward, Patricia, 881

Hayward, Paul, 880, 881

1215

Healey, Mark, 147, 162, 173-4, 455, 546, 687

Heller, Steven, 198, 201

Heuschkel, carl Louis, 118, 120, 175-7, 244, 245, 246, 485, 768, 772-3

Heuschkel & Pollard, 106, 118, 119, 123, 245, 339, 343, 355, 412, 767,

768, 769

Hewitt, Anthony Peter, 110, 146, 162, 177-9, 495, 521, 689

Hidex Pty Ltd, 99, 121, 186, 309-10, 448-9

Hill, Graeme Hunter, 179-82, 248

Hill, Stephen Kenneth Alexander, 182-6, 243, 337

and accounts, 123, 183-6, 400, 472, 517, 521, 525, 527

on armament allegations, 908

and attempts to sell group, 552-3

and drug allegations, 491, 860, 867, 875, 877-8

and Hong Kong operations, 134, 195-6, 266, 471, 631, 654, 657-60, 664,

665, 668, 669, 671, 702

events after FJN's death, 88, 90, 120-1, 529-45 passim, 549,

551, 552, 558, 563

fraud, awareness of, 509-10, 538-9

and Freight Distribution Industries Ltd, 132, 182

and internal bills, 85

joins NHG, 418, 447'

and Leasefast Pty Ltd, 316, 457

and local government investments, 169, 243, 445

and money market, 258-9, 297-8, 407, 408, 432-3, 469, 802, 803, 804,

815, 816, 817, 819

and NARM, 183, 298, 409

and NHG business methods, 49, 50, 86, 262

and Nugan Fruit Group problems, 83, 233, 399

and Nugan Hand Bank, 253, 453, 472-3, 681, 684, 686, 714-20, 723,

726-7, 728, 730

and Orange Spot purchase, 489

and overseas operations, 464, 697, 712, 713

and purposes of group, 47-8, 448

resignation, 60, 401

and Singapore operations, 275

and S.L. Notwist Pty Ltd, 346, 457

and Yorkville contras, 955, 956

and yorkville Nominees, 357

1216

Hillory Ltd, 631

Holmgren, Dale Oscar, 187-9, 293, 492, 689, 707

Hong Kong Registrar General's Department, 8

Houghton, Maurice Bernard, 129, 130, 155-6, 189, 190-4, 224 ,238, 253,

278, 291, 691, 692, 693, 695

and allegations of CIA involvement, 744-5, 746

and arms trafficking allegations, 895, 898-9, 900-1, 907, 918-22

and events after FJN’s death, 533, 534, 535, 536, 537, 538, 540, 541,

550, 562

and FJN, 50, 250, 523

and Germany, 78, 257, 494, 495, 695

and London Capital Securities Ltd, 114, 363, 547

and MJH, 65, 77-8, 79 , 85, 92, 94, 474, 564, 566-7

and Saudi Arabia, 78, 89, 90, 225, 226, 227, 494, 496, 533, 541

556-7, 689, 690, 696, 699, 701, 702, 705,, 708, 710

and Yorkville contra, 955

Huang Puay, 275, 276

Hughes, John, 46, 460

Illarangi Investments Pty Ltd, 119, 121, 141, 186, 233, 243, 260, 311-12,

560, 839-40

income inflation schemes, 848-9

Income Tax Assessment Act 1936, 460, 994

Ingold Growth Inc, 46-7, 133-4, 260, 280, 281, 419-22, 423, 631-2, 678-9

Ingold Growth Ltd, 105, 169, 280, 420, 678-9

Ingold Management Ltd, 105

International Congress on New Enterprises (ICONE), 55, 213, 238-9, 691

Jenkinson Board of Inquiry, 21

Jewel group, 243, 244, 530, 535, 560

Jones, Ken, 361, 363

judicial assistance treaties, recommendations on, 1098

Kandiah, Peter, 253, 254, 680, 684

K. & R. Cash Transit Pty Limited, 313-14, 405

Karuna, Karapagam, 274

Kaye Inquiry, 21-2

Kenzor Pty Limited, 336

Khun Sa, 95, 96, 865

1217

King, -, 95

Krahe, F., 880

Ku-ring-gal Municipal Council, 201, 444

Kwok, Dr Albert, 134, 194-7, 282, 397, 434-5, 552-3, 558, 634, 639, 641,

643, 645-6, 647, 653

L.A.D. Investments Pty Ltd, 205

Laloe, Michael, 215, 631

land dealings, 43, 65-8, 447

Langenfelder Pty Ltd, 66-7, 124

Laws, John, 880

Laycock, Peter, 243, 316, 457

Leasefast Pty Ltd, 99, 121, 186, 243, 315-16, 457, 559, 839-40

Lee, Alexander, 172, 197-200, 397, 459, 512, 524, 534-5, 872, 874

Lee, Yolanda, 198, 201

Leedony Ltd, 631

Lee Ming Tee, 90-1, 553

Leichhardt Municipal council, 243, 445

Leinbach, D., 240

Lighthouse international Ltd, 106

Lincoln-Smith, Paul R., 50, 523-4, 526, 527

loans

back to back, 953-4, 995

short term, 829-30

local government authorities investments, 14-15, 169, 243, 444-5

London Capital Securities Ltd, 53, 83, 114-15, 156, 193, 218, 290, 361-4,

508-9, 547, 703-4

Loomis, Patry Gene, 201-2, 752

Louey, Edward Craig, 162, 203-5, 229, 270, 463-4, 689, 692, 693, 694,

706, 788

Louis, Raymond Albert Sidney (Snr), 205-6, 548

Louis, Raymond Sidney Albert (Jnr), 207-9

Lovatt, Gillian, 209-10, 231, 276, 689, 692, 693, 702, 704, 705, 709-10,

955

Lowe, Andrew Wellington, 95-6, 859, 864-5, 868, 869-71

Lowe, Derrick, 211-12, 246, 551-2

Loy, K.T., 170, 908, 909, 910, 911, 912, 915

1218

Lucas, Clive, 65

Loy Arms Corporation Pty Ltd, 170, 909, 912, 915

Lynn, Robert, 211, 247, 551

Lynskey, Mr Justice, 20

Lysaught, Don, 259

McArthur, John, 90, 140, 153, 214-16, 255, 256, 499, 541, 543, 550,

555, 660, 671, 689, 691, 707, 788, 955

McDonald, Leslie, 265, 266

McDonald, Walter Joseph, 52-3, 58-9, 79, 83-4, 90, 131, 216-19, 239, 362,

508, 513-14, 515, 742, 746, 747-8, 749, 751

McKinnon, R.G., 447, 778-9, 781, 783, 787, 797

Macquarie Coin Dealers, 45, 46, 133, 260, 280, 349, 423

Malaysian allegations against NHG, 511

Manor, General Leroy, 79, 90, 169, 212-14, 239, 293, 557, 691, 692, 741,

742, 746, 748, 750-1

Manufacturers National Bank in Florida, 509

Marks, J.A., 105, 133, 359

Marrickville Municipal Council, 243, 445

Marrickville RSL Club Ltd, 243

Mars Road Investments Pty Ltd, 126, 261-2, 287, 317-18, 357, 497, 562-4

accounts of, 136-7, 158

and drug funds, 859-60, 867, 877

internal bills, 260

and tax schemes, 157, 182, 994, 995

Mason, Mr Justice, 22-3

Mastep Pty Ltd, 323

Medevac Shipping Pty Ltd, 99, 121, 319-20, 457-8

media and NHG, 4-5

Meekatharra Minerals Ltd, 42-3, 66, 308, 365-6, 403

M.J. Moloney & Associates, 157, 219

Modular Developments Sdn Bhd, 248

1219

Moloney, Michael John, 156, 158, 208, 237, 270

and concealment of documents, 571-2

and drug allegations, 876-7

and events after FJN's death, 87, 92, 206, 533, 534, 535, 536,

537, 539, 542, 543, 544, 546, 548, 551, 558, 562, 563, 565

charges against, 273, 570-2

retained by Houghton, 193

Moneylendlng Act 1941 (NSW), 324, 448

money market operations, 44-5, 183, 184, 258, 297-8, 407-9, 432-3, 469,

802-4, 815, 816, 817, 819

Moore, Robert, 900, 901

Morisset, Brian Keith, 162, 223-4

Morse, Captain Arthur, 320, 458

Mosselson, Dennis, 362, 363, 364, 508-9

'Mr Asia' drug syndicate, 880, 881-2

Murphy, Robert Michael, 193, 224-7, 533, 541, 556-7, 692, 699

Mutual Securities Ltd, 368

Naretha Pty Ltd, 121, 208, 321-2, 447

NARM Corporation Ltd see North Australian Rubber Mills Ltd

National Crime Authority, 7, 32

National Discount Corporation Ltd, 430, 441-2, 801, 802, 803, 804, 815,

816, 817, 818, 819

Needham, John Charles, 42, 207, 228-31, 366, 545, 833

and Hong Kong operations, 46, 106, 210, 471, 652, 664, 708

and NARM, 68, 228-9, 298, 377, 406

and Nugan Hand Bank, 73-4, 230, 682

and Nugan Hand Needham Ltd, 44, 45, 46, 67, 229, 405-6

and Nugan Needham, 46, 229, 459

and SIRE, 43-4, 228-9, 379, 406

Newcourt Financial Services Pty Ltd, 99, 121, 186, 323-4, 448

newsletters, use of, 252

New South Wales Corporate Affairs Commission, 3, 7, 8, 20, 32, 567-70,

895, 897, 901, 904, 907, 930

New South Wales Department of the Attorney-General and of Justice, 32

New South Wales Police, 32

1220

New South Wales Royal Commission into Drug Trafficking, 3

New South wales State Crown Solicitor's Office, 32

New Zealand authorities, 33

North Australian Rubber Mills Ltd (NARM), 44, 68, 125, 183, 228-9, 298,

367-8, 377, 379, 406, 409, 487

Nugan, Alfred, 530

Nugan, Francis John, 42-60

admits illegal activities, 51, 512, 991-3

and armaments, 96-7

behaviour, 57-60

business methods, 49-50, 991-3

character, 50-5

in Commission's terms of reference, 18, 1001-2

death, 3, 60, 400-2, 520-8

drinking habits, 45, 48, 56, 409, 515, 523-4

and drug trafficking allegations, 491-2, 874-5, 877-8

education, 42

final days, 59-60

inarticulate, 791, 992

lifestyle, 55-6, 57

loans from companies, 437-8, 530, 537, 541-2

meets President Carter, 508

and MJH, 42, 366, 403-4

and Nugan Fruit Group, 48, 372, 398, 478-9, 568

personality, 47-8

and religion, 515, 992

and success, 42

tax work, 54-5, 396-7, 423, 459-61, 991-7

Vaucluse home, 458, 559, 842-3

Nugan, Kenneth Leslie, 200, 232-3

alleged drug involvement, 859, 881

events after FJN's death, 86, 243, 528, 529-34 passim, 541-2

loans to, 537, 541-2, 548, 560

and Nugan Group Ltd, 48, 83, 257, 372, 397, 398, 478-9, 568

Nugan & Company, 41, 157, 171-2, 198, 199, 200, 397, 460

1221

Nugan Fruit Group Ltd, 369-72,

drug trafficking allegations, 491, 492, 859

investigation, 48, 397-8, 511, 568

investigation, effects of, 48, 232, 464-5, 478-9, 488

legal costs of, 86

Nugan (Griffith) Pty Ltd, 370-2, 478, 479, 560, 838-40

Nugan Group Ltd, 232-3, 334-5, 369-70

Nugan Hand (Argentina) Inc, 698, 1130

Nugan Hand Bank, 40, 99, 186, 352-3, 1169-70

accounts, 395-6, 709, 713-31

accounts rewritten, 472-3, 517, 518, 713-20

CIA involvement, 391-2

decline, 400, 500

disappearance of moneys, 100

established, 72-3, 135, 390, 452-3, 677-85

funds misused, 841-2

Hong Kong office, 47, 134-5, 635, 1171

liquidation, 91, 554, 555-7, 731-2

operations, 390-2, 453-5, 461-5, 480, 700-13

promotion, 686-91

records protected by Caymans Islands law, 755-61

representatives, 139-40, 689, 691-7

Saudi Arabia office, 1172

Nugan Hand Bank and Trust Company, 47, 72, 281, 352

see also Nugan Hand Bank

Nugan Hand (Chile) Inc., 492, 1131

Nugan Hand (Dealers) Pty Ltd, 99, 121, 125, 186, 229, 260, 281, 327-8

Nugan Hand (Deutschland) GmbH, 257, 493, 1132

Nugan Hand Group (NHG)

attempts to sell, 48, 552-3

auditors, 41

collapse, 552-61

composition of, 386, 404-5

drug allegations, 863

frauds, 392, 837-42

image, 385, 444, 506-8, 511-12, 514, 801, 814

offices, 697-700, 1123-4

1222

nature of, 743-4

and Nugan Fruit Group problems, 398-400, 478-9, 488, 499

operations, 387-92, 419, 422, 423, 448, 456-7

personnel, 41, 420, 421, 480

recruitment advertisements, 1181-3

Nugan Hand Holdings Sdn. Bhd. , 296, 1133

Nugan Hand (Hong Kong) Ltd, 41, 90, 99, 111, 112, 140, 142, 143, 168, 184

186, 215, 227, 230, 250, 329, 331, 1134-5

accounts, 105-6, 121, 265-6, 395, 518, 630, 657-60, 663-5

decline, 500

deficit, 73-4, 471, 652, 664

employees, 41, 289, 290

establishment, 630-3

liquidation, 555, 631, 670-1

mismanagement, 629, 630, 651-3, 655-7, 667, 828, 836, 841

operations, 47, 134-5, 140, 338-9, 391, 456, 480-1, 633-7, 651-4,

661-3, 666-9, 698

success of, 71, 418-19, 434-6, 629-30, 638

Nugan Hand Inc., 99, 330-1

Nugan Hand Inc. (Hawaii), 423-4, 840, 1136-7

Nugan Hand Inc. (Panama), 47, 134, 331, 373-4, 632-3, 661, 666, 683, 697,

714, 716, 719, 720, 724, 725, 729, 1138

Nugan Hand Inc. (Taiwan), 698, 1139

Nugan Hand Insurance Brokers Ltd, 1140-1

Nugan Hand International, 677-8, 1143-4

Nugan Hand International Holdings Pty Ltd, 332-3, 679, 683-4, 840

accounts, 121, 265-6

directors, 99, 135, 186, 260, 277, 281

and F.A. Neubauer Bank, 109-10

liquidation, 91, 559

Nugan Hand International Inc. (United States), 1145-8

Nugan Hand International Management Services, 267, 268, 274-5

Nugan Hand International (Manila), 1149

Nugan Hand Ltd

accounts, 118-21, 387, 392-5, 412-13, 809

June 1974, 414-17

June 1975, 425-33

1223

January 1976, 439-43

June 1976, 449-52

January 1977, 465-9

June 1977, 470, 473-4

January 1978, 482-5

June 1978, 486-8

January 1979, 502-6

June 1979, 517-18

1980, 550-2

reconstructed, 12, 809, 811-14, 819-54

bank accounts, overseas, 965-6

capital injections, 76, 409-11, 477-8, 655, 831-6

directors, 40, 99, 135, 186, 260, 281, 287, 405, 447

employees, 40

formation of, 43, 45, 67

investigations into, 568-9

liquidation, 91, 557-61

loans to FJN, 437-8

and money market, 408-9

operations of, 386-7, 405-18, 444-5, 843-8

shams, round robin cheque, 413, 428-9

Nugan Hand (Malaysia) Sdn. Bhd., 204, 229, 274, 1150-1

Nugan Hand Management Services Ltd, 140, 225, 277, 505, 1152-3

Nugan Hand (Management) Pty Ltd, 76

Nugan Hand Management Services (Pte) Ltd, 1154-5

Nugan Hand Needham Funding Pty Ltd, 170, 405

Nugan Hand Needham Ltd, 43, 44-5, 67, 68-9, 118, 125, 334

Nugan Hand Needham Management Pty Ltd, 99, 121, 125, 186, 229, 325-6, 405

Nugan Hand Needham Nominees Pty Ltd, 125, 229, 281, 327, 405

Nugan Hand Nominees Ltd, 278, 1156-7

Nugan Hand (S.A.) Pty Ltd, 69

Nugan Hand Singapore (Pte) Ltd, 76, 204, 224, 267-8, 274, 275, 276, 277,

698, 1158-9

Nugan Hand (Thailand) Ltd , 234 , 235, 236, 274, 698, 1160-1

Nugan Hand Trade Asia Ltd , 215 , 255, 256, 281, 1162-3

Nugan Hand Trade Finance Ltd, 127, 281

Nugan Hand Trade Malaysia Sdn. Bhd., 204, 464

1224

Nugan Hand Trade Services Pty Ltd, 99, 122, 162, 186, 281, 336-7, 456-7 ,

484, 960-1

Nugan Hand Travel Ltd, 277, 1164-6

Nugan Hand Trust Co., 331

Nugan Hand (U.K.) Ltd, 165, 361, 464, 698, 1168

Nugan Needham, 46, 157, 230, 396, 459

Nugan Oil Ltd, 329, 630

Nuhan International Holdings Pty Ltd, 332

Nuhan Ltd, 148, 212, 316, 334, 335, 547-8

O'Brien, John William, 8, 559, 897, 902

O ’Callaghan, Donald, 66, 271, 366

Ocean Shores Development, 65, 127, 403, 418, 421

Orange Spot Group, 41, 205-6, 262, 375, 488-90, 548, 559

purchase of, 86, 208, 489,. 838

and tax schemes, 126, 172, 994, 996

Orange Spot Holdings Pty Ltd, 375

Orange Spot Manufacturing Co. Pty Ltd, 375

Orange Spot Pty Ltd, 205-6, 375

Orange Spot Trading Co. Pty Ltd, 375

Orange Spot Wholesale Pty Ltd, 375, 548

overseas bank dealings, 965-73

Owen, John Desmond, 161, 162, 234-7, 289, 462, 689, 701, 713, 885, 903,

922-3

Pacific Continental Ltd, 122, 256, 260, 338-9, 404, 559

Pacific Silver Commodities, 45, 46, 68, 133, 169, 256, 259, 280, 349, 423

Paegle, Don, 162

Pajo Properties Pty Ltd, 350

P.M. Shelley Pty Ltd, 43, 122, 340-1, 413, 415, 428-9, 559, 768, 832

PNB Rubber and Plastic Industries Pty Ltd (PNB), 44, 68, 228, 298, 368,

376-7, 379, 406

Pauker, Dr Guy Jean, 59, 79, 217, 237-40, 293, 507, 508, 513, 515, 520,

742, 746, 747-9

Payne, Michael John, 241-2

Pennefather, A. J., 377

Pike, Robert, 898, 904,

Pinn, Phillip , 176,, 246

1225

Plttard, Denis John, 242-4, 530, 531, 532, 542, 880

Pollard, Warwick M., 90, 118, 120, 121, 123, 175, 176, 211, 244-7, 412,

414, 415, 416-17, 485, 539, 550-2, 681, 714, 767, 772-3, 774

Pollard & Brincat, 211, 212

Postal Services Act 1975, 933

Post and Telegraph Act 1901, 933

Price Waterhouse & Co., 226, 254, 276, 339, 681, 714, 715, 719, 720, 728

730

Princess Properties, 65

Prior, Anthony James, 247-8

Pulger-Frame, Ronald Adam, 50, 150, 191, 209, 248-51, 691, 692, 693, 695

705, 712, 788, 878, 885, 959-60

R. & K. Security Alarms Pty Ltd, 313

Randwick Labour Club Ltd, 243

R.B. Cody Pty Ltd, 99, 122, 342-3, 404

refugee resettlement scheme, 80, 218, 293, 704

Reserve Bank of Australia, 8, 33

Riley, Murray Stewart, 668-9, 671, 861, 862, 865-6

Riverstone investments Ltd, 253

Roper Securities Ltd, 362

Rosser, Michael, 177, 246

'round robin' schemes, 830-1

Royal Commission of Inquiry into the Activities of the Nugan Hand Group

evidence, 20-9

interim reports, 6, 12-15

letters patent, 3, 5-6, 26, 1105-9

methods, 7-12

reasons for, 3-5

and relevance, 17, 31-3

report format, 1001

terms of reference, 5, 16-29

Royal Commission of Inquiry into Drug Trafficking, 4, 7

Royal Commission on the activities of the Federated Ship Painters and

Dockers Union, 33, 896-7, 898, 901, 903-4, 905, 930

Royal Commissions Act 1902, 23, 24, 25, 31, 952, 958, 959, 994, 997 Royal Commissions Act 1923 (NSW), 31

Royal Commissions Acts , recommendations for, , 1097-8

1226

Rush, John Robert, 148, 173, 252, 532, 690

Rush Economic Research Pty Ltd, 252

Rutter, Haydn M., 139, 253-4, 680, 684, 685

St George Leagues Club, 535, 560

Salmon Royal Commission, 16, 23

same day trades, 814-16

Sapper, Douglas, 214

S.A. Swanton Pty Ltd, 332

Saunders, Robert Muir, 255-6

Schuller, Karl Fritz, 191, 256-7, 461, 493, 699-700

Scott, Douglas (pseudonym of MJH), 226

Scott-Kemmis, Leigh, 183, 184, 258-9, 298, 346, 407, 409, 433, 457, 469,

801-4, 815, 816, 817

secrecy, concern for, 493

Secret Commissions Prohibition Act 1919 (NSW), 15

Secured Income Real Estate (Australia) Ltd (SIRE), 43, 66, 125, 183,

228-9, 298, 368, 377, 378-9, 406, 409, 504, 518

bills, 196-7, 487, 560-1, 648, 649, 650-1, 826-8

Securities Industry Act 1970 (NSW), 229, 679

Securities Industry Act 1975 (N9V), 14

sham

defined, 810-11

types of, 814-19

Shannon, Rex, 226, 227

Shaw, George Thomas, 56, 57, 133, 179, 180, 213, 217, 259-63, 285,

286, 287, 418

and arms trafficking, 898, 911, 915, 917-18

and drug allegations, 491, 492, 859, 866-79

and events after FJN's death, 533, 535, 536, 538, 539, 540, 541, 542,

543, 544, 547, 558

and 'Ingold Growth1, 420, 421-2

and Mars Road Investments Pty Ltd, 126, 318, 497, 539, 540, 562-4

and Nugan Hand Bank, 453, 686, 689, 723

visits Lebanon, 422, 423

and Yorkville contras, 275, 668, 955, 956

and Yorkville Nominees, 539, 540, 562

1227

Sheslow, Richard Myron, 147, 162-3, 264-5, 270, 337, 533, 546

Shirlaw, K.R., 558

Sinclair,W.G., 880, 881

Singleton, John, 880, 881

SIRE see Secured Income Real Estate (Australia) Ltd

Skah Pty Ltd, 122, 344-5, 448

S.L. Notwist Pty Ltd, 119, 122, 186, 259, 346-7, 457, 839-40

Smiles, J.J., 158, 563

Smith, B.H., 558

Solingen Aust Pty Ltd, 99, 122, 126, 256, 260, 348-9, 404

Solomon, Dr Peter, 880

South Sydney Junior Rugby League Club Ltd, 243

South Sydney Municipal Council, 243, 445

Southwood, E.P., 778

Speakman, Neil William, 90, 265-6

Speakman & Co., 107, 265, 266, 548, 549, 657, 658, 659, 661, 665

Special Prosecutor's Office/DPP, Melbourne, 33

Spencer, James Oswald, 93-4, 567

Steer, Graham Reginald, 76, 108, 162, 172, 203, 223, 226, 236, 248, 266-8,

275, 276, 462-3, 554, 687, 689, 692, 693, 694, 699, 706, 711, 797

Stewart, Hon. Mr Justice, 5, 6-7

Stiles, Leonard Ross, 162, 269-71

Stocker, Paul, 64-5, 95

Strasser, Sir Paul, 238, 292

Swan, Patricia Mary

charges against, 570-2

and concealment of documents, 571-2

and events after FJN's death, 529, 532, 536, 537, 542, 547, 558

and FJN, 50, 366, 396, 523

and Nugan Hand Ltd , 405, 407

role in group, 118 , 404, 413, 448, 458

Swiss Pacific Asia Ltd , 329, 465, 630

Swiss Pacific Bank & Trust Company, 106, 139, 352, 465, 682

Swiss Pacific Holdings Ltd, 254, 1167

Swiss-Pacific Inc., 330

Swiss Pacific Pty Ltd, 122, 350-1

Swiss Pacific Trade Ltd, 143

- 12 28 -

Tan Choon Seng, 76, 108, 189, 226, 235, 274-7, 472, 554-5, 689, 714, 715

718-19, 955

Tapp, Warren, 162

tax

avoidance companies, 304, 306, 339, 355, 357, 396-7

evasion admitted, 51

havens, 1098

schemes, 46, 489, 490-1, 524, 953, 956-7, 960-2, 991-7

Terpil, Frank, 901

Tesoriero, John, 881

Thompson, -, 524

Thomson, Elizabeth Louise, 110, 146, 191, 253, 257, 266, 277-9, 512, 550,

689, 701

Toepfer, E., 109, 110

Tribunals of Inquiry (Evidence) Act 1921, 20

Truss, Dianne, 177, 246

United Chinese Bank, 82, 116, 293, 496-7, 703

United States Federal Bureau of Investigation, 8, 9-10, 752-3

United States Justice Department, 9-10

United States military personnel, role of, 79-80

Van Putten, Monique, 880

Victoria Police, 33

Wainwright, Harry, 861, 865, 866

Ward, Francis Dennis, 56, 70, 72, 134, 142, 169, 280-4

and armaments allegations, 894, 907-8, 909-11, 912, 915

and Fund of Australia, 133, 160, 359

and Hidex, 449

and Hong Kong operations, 195, 282, 631

and 'Ingold Growth1, 419-21, 678, 712

joins NHG, 418, 419, 692

and Nugan Hand Bank, 422, 453, 684, 685, 692, 723

resignation, 476

and trade services division, 422, 456-7

1229

Ward Knight & Dunn Ltd, 284, 477, 894-5, 898, 903, 904, 905

Ward Pierce International, 283, 284, 476, 477

Wee, Grace, 534-5

Wendell west Australia Pty Ltd, 65

Wheeler, James, 192

Wherry, K. , 558

Williams, Hon. Mr Justice E.S., 4

Williams, Joseph N., 226, 227

Wilson, Edwin P., 96, 98, 192, 202, 745, 895, 898-9, 900-1, 917-22

Wing On Bank, 251, 971-2, 965

guarantees, 134, 135, 195, 196, 282, 388, 397, 434-6, 634, 637,

639-48, 966-7

and Ingold, 133-4, 194

proposed purchase of NHG, 48, 552

securities, 196-7, 229, 316, 379, 487-8, 560-1, 648-51

Winneke Royal Commission, 22

Winter, Alan Glen, 93, 565

Witthaus, Werner, 257

Wong, Andrew Heck-ling, 214, 285-7, 290, 533, 544, 549, 553, 557, 868,

872, 875, 877, 879

Wong, Ernest, 288-90

Woodward Drug Trafficking inquiry, 3, 4, 27, 398, 859, 860, 865

W.V. Tennyson Pty Ltd, 122, 305, 354-5, 404, 559

Yates, Admiral Earl Preston, 58, 83, 230, 291-4

and arms trafficking allegations, 895, 900, 901, 923, 924, 925, 931

on CIA allegations, 746-7, 751

drug involvement alleged, 880

and events after FJN's death, 87, 121, 533, 535, 536, 538, 539, 540,

541, 542, 544

and MJH, 79, 81-2, 94-5, 294, 567

joins NHG, 79

in Manila, 293, 167, 168

and Nugan Hand Bank, 254, 453, 684, 687, 690-1, 692, 693, 695, 696-7,

699, 701, 706, 713, 715, 720, 741

recruiting activity, 58, 79, 116, 129, 130, 191, 213, 238-9, 494, 516,

742

1230

and refugee project, 80, 704

representative in U.S., 113, 293, 464, 689

role in group, 293, 391, 474-5, 508

in Taipei, 188, 293

and United Chinese Bank, 293, 496-7, 668, 703

Yeap, Kee Aik, 295-6

Yee, General S.K., 82, 496, 703, 740-1

Yorkville contras

definition of, 953-4

examples of, 200, 275, 286, 497, 544, 546, 562, 665, 668-9, 702,

943, 953-63, 995

schedules of, 957-9

Yorkville Management Scheme, 460

Yorkville Nominees Pty Ltd, 99, 122, 208, 228-9, 243, 261-2, 287, 314,

318, 356-7, 379, 404, 406, 497, 562-3, 848

accounts, 768

capital injection (Nugan Hand Limited), 833, 834, 835

drug funds, 262, 859-60, 867, 868, 874, 876-7

foreign exchange indemnity, 459, 845

formed, 43, 66

internal bills, 771, 772, 826, 827, 841

liquidation, 91, 559

'loans' to, 451, 458, 473, 485, 486, 504-6, 518, 967-9

round robin shams , 428-9

and tax schemes, 199, 396, 960-2, 994, 995, 996

Young, George Richard Paul, 44-5, 68, 183, 184, 258, 296-8, 377, 397

407-9, 802

1231

TABLE OF CASES CITED

The Attorney-General for the Commonwealth of

Australia v The Colonial Sugar Refining Company Ltd

(1913-14) 17 CLR 644 30

Briginshaw v Briginshaw and Anor (1938) 60 CLR 336 30

Dusche & Sons (OK) Ltd v Walworth industries (Aust) Pty

Ltd (1962) 62 SR (NSW) 165 986

Fazio v Spitz (1973) WAR 164 986

Hammond v Regina (1982) 42 ALR 327 622

Harper v Costigan 50 ALR 665 30

Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)

AC 465 800

Johns and Waygood Ltd v Utah Australia Limited (1963)

VR 70 762

Mahon v Air New Zealand [1984] AC 808 30

Moloney v Law Society of NSW - Court of Appeal Judgment 223

Moore v I. Bresler Ltd [1944] 2 All ER 515 30

Mutual Life & Citizens' Assurance Company Limited v Evatt

(1970) 122 CLR 628 800

National companies and Securities Commission v News

Corporation Ltd (1982) 52 ALR 417 30

Northumberland insurance Co. Ltd (in liq) v Alexander

(1984) 2 ACLC 363 855

Pacific Acceptance Corporation v Forsyth (1970) 92 W.N.

(NSW) 29 ' 766

Ross v Costigan (No. 2) (1982) 41 ALR 337 30

R v Arrowsmith (1950) V.L.R. 78 762

R v Baker 1087

R v Havard (1914) 11 CAR 2 889

R v Parker (1863) 2 SCR (NSW) 217 889

R v Quillerat [1962] Tas S.R. 371 889

R v White (1859) 1 Foster and Finlason, 664 889

1232

Shire of Frankston and Hastings v Cohen (1960) 102 CLR 607 776

Snook v London West Riding investments Ltd (1967) Q.B. 786 855

State of Victoria v Australian Building and Construction

Employees' and Builders Labourers' Federation (1982)

41 ALR 71 29, 30

Sykes v Stratton (1972) INSWLR 145 986

Testro Bros Pty Ltd v Tait (1963-64) 109 CLR 349 30

Wing On Bank v Secured Income Real Estate (Australia)

Ltd and Ors 195, 673