Interview with Alfred McCoy

November 9, 1991
by Paul DeRienzo

Alfred W. McCoy is professor of Southeast Asian History at the University of Wisconsin, Madison. Educated at Columbia and Yale, he has spent the past twenty years writing about Southeast Asian history and politics. Mr. McCoy participated in Causes and Cures: National Teleconference on the Narcotics Epidemic Saturday, November 9 1991, at Marble Collegiate Church in Manhattan.

PD: How did you come to write The Politics of Heroin; CIA Complicity In The Global Drug Trade?

AM: In 1971 I was a graduate student doing Southeast Asian History at Yale University. An editor at Harper & Row, Elisabeth Jakab, read some articles in a volume I had edited about Laos, which made some general references to the opium trade in Laos.

She decided this would be a great idea for a book and asked me to do a background book on the heroin plague that was sweeping the forces then fighting in South Vietnam. We later learned that about one third of the United States combat forces in Vietnam, conservatively estimated, were heroin addicts.

I went to Paris and interviewed retired general Maurice Belleux, the former head of the French equivalent of the CIA, an organization called SDECE [Service de Documentation Exterieure et du Contre-Espionage]. In an amazing interview he told me that French military intelligence had financed all their covert operations from the control of the Indochina drug trade. [The French protected opium trafficking in Laos and northern Vietnam during the colonial war that raged from 1946 to the French defeat in 1954 at Dien Bien Phu.]

The French paratroopers fighting with hill tribes collected the opium and French aircraft would fly the opium down to Saigon and the Sino-Vietnamese mafia that was the instrument of French intelligence would then distribute the opium. The central bank accounts, the sharing of the profits, was all controlled by French military intelligence.

He concluded the interview by telling me that it was his information that the CIA had taken over the French assets and were pursuing something of the same policy.

So I went to Southeast Asia to follow up on that lead and that's what took me into doing this whole book. It was basically pulling a thread and keep tucking at it and a veil masking the reality began to unravel.

PD: What was the CIA's role in heroin trafficking in Southeast Asia?

AM: During the 40 years of the cold war, from the late 1940's to this year, the CIA pursued a policy that I call radical pragmatism . Their mission was to stop communism and in pursuit of that mission they would ally with anyone and do anything to fight communism.

Since the 1920's the League of Nations, the forerunner of the United Nations, and the United States have prohibited opium and cocaine products from legal sale. These products had already emerged as vast global commodities with very substantial production zones and large markets, large demand for those commodities both in the third world and the first.

The historic Asia opium zone stretches across 5,000 miles of Asian mainland from Turkey to Laos along the southern borders of the Soviet Union and the southern border of communist China. It just so happened that one of the key war zones in the cold war happened to lay astride the Asian opium zone.

During the long years of the cold war the CIA mounted major covert guerilla operations along the Soviet-Chinese border. The CIA recruited as allies people we now call drug lords for their operation against communist China in northeastern Burma in 1950, then from 1965 to 1975 [during the Vietnam war] their operation in northern Laos and throughout the decade of the 1980's, the Afghan operation against Soviet forces in Afghanistan.

Powerful, upland political figures control the societies and economies in these regions and part of that panoply of power is the opium trade. The CIA extended the mantle of their alliance to these drug lords and in every case the drug lords used it to expand a small local trade in opium into a major source of supply for the world markets and the United States.

While they were allied with the United States these drug lords were absolutely immune to any kind of investigation. If you're involved in any kind of illicit commodity trade, organized crime activity like drug trafficking, there is only one requisite for success, immunity, and the CIA gave them that. As long as they were allied with the CIA, the local police and then the DEA stayed away from the drug lords.

Finally, if there were any allegations about the involvement of their allies in the drug trade, the CIA would use their good offices to quash those allegations.

This meant that these drug lords, connected with the CIA, and protected by the CIA, were able to release periodic heroin surges, and [in Latin America] periodic cocaine surges. You can trace very precisely during the 40 years of the cold war, the upsurge in narcotics supply in the United States with covert operations.

PD: How does the CIA's policies affect drug interdiction? I've spoken for example to former Drug Enforcement Administration officer Michael Levine, who has expressed anger that he was pulled off cases because he got too close to someone who, while being a big trafficker, was also an asset of the CIA.

AM: Mike Levine speaks from personal experience. In 1971 Mike Levine was in Southeast Asia operating in Thailand as an agent of the U.S. Drug Enforcement Administration [DEA]. At the same time I was conducting the investigation for the first edition of my book.

Mike Levine said that he wanted to go up country to Chiangmai, the heroin capital of Southeast Asia at that point, the finance and processing center and hub of an enterprise. He wanted to make some major seizures. Through a veiled series of cut outs in the U.S. embassy in Bangkok, instructions were passed to his superiors in the DEA, who told him he couldn't go up and make the bust. He was pulled off the case.

He said it wasn't until he read my book a number of years later that he understood the politics of what was going on and he realized why he had been pulled off. All of the upland drug lords that were producing the narcotic, the heroin, were in fact CIA assets. Now he understands it.

That is not just a single incident, so let's go back to basics. What is the institutional relationship between the DEA an the CIA? The Federal Bureau of Narcotics [FBN] was established in 1930 as an instrument of the prohibition of narcotics, the only United States agency that had a covert action capacity with agents working undercover before World War II. During the war when the OSS [Office of Strategic Services] was established, which is the forerunner of the CIA, key personnel were transferred from the Federal Bureau of Narcotics to train the OSS officers in the clandestine arts.

That close institutional relationship between the DEA [direct descendant of the FBN] and the CIA continues up to the present day. The long time head of the Federal Bureau of Narcotics, a man named Harry Anslinger, who headed that bureau from 1930 until his retirement in 1962, was a militant anti-communist who spent a lot of his time in counter-intelligence operations. There's a very close relationship between the two agencies.

During the cold war the main priority abroad for the United States government was anti-communism, and whenever theCIA mounted an operation, every other U.S. agency was subordinated to the CIA's covert operations.

That meant that when the CIA was running one of its covert action wars in the drug zones of Asia, the DEA would stay away. For example, during the 1950's the CIA had this ongoing alliance with the nationalist Chinese in northern Burma. Initially mounting invasions of China in 1950-51, later mounting surveillance along the border for a projected Chinese invasion of Southeast Asia. The DEA stayed out of Southeast Asia completely during that period and collected no intelligence about narcotics in deference to the CIA's operation.

Let's take two more examples that bring it right up to the present. [First] the Afghan operation: from 1979 to the present, the CIA's largest operation anywhere in the world, was to support the Afghan resistance forces fighting the Soviet occupation in their country. The CIA worked through Pakistan military intelligence and worked with the Afghan guerilla groups who were close to Pakistan military intelligence.

In 1979 Pakistan had a small localized opium trade and produced no heroin whatsoever. Yet by 1981, according to U.S. Attorney General William French Smith, Pakistan had emerged as the world's leading supplier of heroin. It became the supplier of 60% of U.S. heroin supply and it captured a comparable section of the European market. In Pakistan itself the results were even more disastrous.

In 1979 Pakistan had no heroin addicts, in 1980 Pakistan had 5,000 heroin addicts, and by 1985, according to official Pakistan government statistics, Pakistan had 1.2 million heroin addicts, the largest heroin addict population in the world.

Who were the manufacturers? They were all either military factions connected with Pakistan intelligence, CIA allies, or Afghan resistance groups connected with the CIA and Pakistan intelligence. In May of 1990, ten years after this began, the Washington Post finally ran a front page story saying high U.S. officials admit that Gulbuddin Hekmatyar [leader of the Hezbi-i Islami guerilla group], and other leaders of the Afghan resistance are leading heroin manufacturers.

This had been known for years, reported in the Pakistan press, indeed in 1980 reported in McClean's magazine. In fact in 1980 a White House narcotics advisor, Dr. David Musto of Yale University, went on the record demanding that we not ally with Afghan guerilla groups that were involved in narcotics. His advice was ignored and he went public in an op-ed in the New York Times.

Another example: Let's take the cocaine epidemic. In 1981 as cocaine began surging north into the United States, the DEA assigned an agent named Tomas Zepeda, in June 1981, to open up an office in Honduras. By 1983 Zepeda was collecting very good intelligence indicating that the Honduran military were taking bribes to let the aircraft through their country to come to the United States.

Zepeda was pulled out of Honduras and that office was closed by the DEA. They didn't open another office in Honduras until 1987 because Honduras was a frontline country in the contra war. If Zepeda's reports about involvement of the Honduran military had been acted upon, the DEA would have been forced to take action against the Honduran military officers who were working with the CIA to protect the contras.

In short, there was a conflict between the drug war and the cold war. Faced with the choice, the United States government chose the cold war over the drug war, sacrificing a key intelligence post for the DEA in Honduras.

The same thing happened in Afghanistan. During the 1980's from the time that heroin trade started, there were 17 DEA agents based in Pakistan. They neither made nor participated in any major seizures or arrests. At a time when other police forces, particularly Scandinavian forces, made some major seizures and brought down a very major syndicate connected with former president Zia ul-Haq of Pakistan.

PD: What is the role of banking in the heroin trade? What, if any, are the connections to the Bank of Credit and Commerce International (BCCI) scandal.

AM: There have been three times in the past 15 years in which the CIA's money transfer activities have surfaced. The first came in the late 1970's when the Internal Revenue Service, the IRS, investigated a Nassau bank called the Castle Bank. It's a very interesting bank. It was set up by a man named Paul Helliwell, a very senior CIA operative who had retired from the agency. He set up this bank and it grew into a Latin American network of banks. It was used by the CIA to launder money.

In essence, what appears to emerge from the investigation of the Castle Bank in the late 1970's, was that the CIA did not want to move operational funds for covert operations through normal banking channels, where they could be uncovered, either by the United States or abroad, where they could come to the knowledge of opponents of the agency.

They preferred to work through allied banks. Banks that were secure, that were a little bit loose in their accounting procedures. When the Castle Bank was uncovered, the IRS announced a major investigation of the bank's money laundering activities. Suddenly the IRS cancelled the investigation and the Wall Street Journal was told by informed sources in the IRS that the CIA had blocked the investigation.

As soon as Castle Bank collapsed, a small merchant bank based in Australia, operating offshore between Australia and southeast Asia, suddenly mushroomed into a global network of banks, acquiring Latin American and European structures that had belonged to Castle Bank. This bank in Australia called the Nugan-Hand Bank began very quickly in the late 1970's, to acquire a board of retired U.S. intelligence officials, either CIA or various military intelligence services.

The most prominent example, the former Director of Central Intelligence, William Colby, became the legal council of Nugan-Hand Bank. The bank was founded by Frank Nugan, an insecure and incompetent Australian lawyer, and by Michael John Hand, a man with a high school degree who had gone to Vietnam with the Green Berets. He had served in Laos in the 1960's as a contract CIA operative, fighting with three of the people who became very prominent in the CIA's privatized operations, Thomas Clines, Theodore Shackley and Richard Secord, all very big names in the Iran-Contra scandal.

Michael John Hand was the one who worked with William Colby as legal counsel. One of their big operations was to buy a former U.S. naval base in the Turks and Caicos islands in the Caribbean. Australian police investigators who examined that contract, drawn up by William Colby for Michael John Hand, concluded that the plausible explanation they could discover for that contract was to establish a way-station for cocaine smuggling between Colombia and the United States.

We do know the bank was pioneering in the smuggling of heroin between Southeast Asia and Australia. In the late 1970's Australia had very strict banking laws, and anytime you got foreign exchange you had to account for it. The Nugan-Hand Bank helped Australian organized crime figures get their money overseas so they could buy heroin and ship the heroin back to Australia.

The Australian police investigators documented that Michael John Hand worked very closely with Australia's top criminal drug traffickers to finance the first shipments, the pioneering shipments, of heroin to Australia from Southeast Asia.

In 1980 that bank went belly-up and it collapsed, Frank Nugan committed suicide, and then a really amazing event occurred. Thomas Clines, the former CIA chief of station from Laos, a man of great prominence in the Iran-Contra scandal, flew to Sydney, Australia and exfiltrated Michael John Hand, who disappeared in the United States and was never seen since.

Then we come to BCCI. Although we haven't gotten to the bottom of it by any means, we haven't even begun to ask the questions, much less get the answers. BCCI mushroomed in the 1980's and seemed to serve as a similar conduit as Castle Bank and Nugan-Hand Bank. The Manchester Guardian published an expose saying that the CIA paid its operations in the United Kingdom through BCCI, and it's known that the CIA paid the Afghan guerrillas, who were based in Pakistan, through BCCI.

There's one rather large question that nobody is asking about BCCI. It's a Pakistani bank, it booms during the 1980's, in exactly the same period that Pakistan emerges as the world's largest heroin center. We know the Pakistan military officers involved in the drug trade had their accounts with BCCI. There's a three way relationship that really cries out, screams, demands, a congressional investigation.

The relationship between BCCI and the CIA operations in Afghanistan and Pakistan; how much money was the CIA moving through those accounts? Secondly, the relationship between the Pakistan military connected with that operation and BCCI. Thirdly, the relationship between the booming heroin trade of Pakistan and BCCI. I think what we'll possibly discover is that the CIA was shipping its funds into Pakistan through BCCI, protecting BCCI thereby from serious investigations elsewhere in the world. That the Pakistan military were in fact banking their drug profits, moving their drug profits from the consuming country back to Pakistan though BCCI. In fact the boom in the Pakistan drug trade was financed by BCCI.The interrelationship between the Afghan resistance and the CIA and the Pakistan drug trade can all be seen through the medium of BCCI, the banker to both operations, the resistance and the drug trade.

PD: What are the alternatives to the drug war?

AM: In the 1980's, indeed over the last 20 years, society has been given two choices in the drug war. The escalating repression against the drug trade by Presidents Nixon, Reagan and Bush while the media gave airtime and space to only one sustained critique.That critique put forth by the Drug Policy Foundation argues that the drug war wasn't working and therefore we should pursue a policy of legalization. Simply turn the whole policy of repression on its head, instead of trying to wipe out the drug trade we legalize it.

Let me first of all review the drug war. Is it working? No it's not. The current drug war budget is $11 billion, a very large amount of money. Of that $11 billion, 86% is devoted to the suppression of cocaine trafficking between the United States and Colombia and cocaine trafficking in the U.S. as well. However, while we're devoting 86% of our drug war budget to cocaine, use of cocaine has gone up by 15 percent. Every single indicator shows cocaine addiction is rising at the same time we are fighting this drug war.

The White House is claiming victory in the drug war, William Bennet, the drug czar who retired several months ago, claimed a victory, President Bush has alluded to a victory in the drug war, and so has the current drug war czar, Mr. Bob Martinez. What they claim as a victory is a victory over casual drug use. Well let's face it casual drug use doesn't count, if some kid tries drugs and doesn't like it that's nice but that's not the problem.

The problem is repeated use, and every single indicator says repeated use is up. The drug war is not working. It's filling up our prisons. The prison population doubled under President Reagan, and we now have over 400 prisoners per 100,000 population versus 35 per 100,000 in Holland. We have the largest prison population per capita in the world and it's going up. At the same time our heroin use is going up and our cocaine use is going up.

The reason why is because our effort in the drug war has been concentrated in interdicting the supply of drugs in the United States and over the last 20 years we have fought this drug war on a bilateral basis. The United States in 1972 went into Turkey and said "wipe out your opium trade" and in the 1980's they went into Colombia and said "wipe out your cocaine processing industry". In the early 1980's the U.S. went into Bolivia and said "wipe out coca cultivation in the western part of your country". This is bilateral interdiction, where the U.S. as a sovereign power deals with another sovereign state and applies pressure on that sovereign state to get action on drugs.

There is a misperception about the nature of heroin and cocaine. These are not petty vices, these are complex global commodity trades involving vast areas of production and enormous consumption. It's a commodity comparable in every respect to coffee or tea.

When you bring down the baton of law enforcement on a complex global commodity trade something curious and something paradoxical, something almost magical happens. The genius of capitalism, its magic, its alchemy, transform the lead of repression into the gold of stimulus. Every time we apply repression upon narcotics production on this bilateral basis we stimulate production, and ultimately we stimulate consumption because of the law of supply and demand.

In 1972 President Richard Nixon wiped out the Turkish opium crop with his first drug war, the grandmother of drug wars. This grandmother of drug wars totally wiped out Turkish opium production, and for a while it disrupted the French connection between Turkey, which had supplied French labs in Marseille, which in turn supplied New York.

It looked like victory until you see what really happened. Turkey only grew 7% of the worlds opium. Across the 5,000 mile band of mountains from Turkey in the west to Laos in the east lay the rest of the worlds opium production, the other 93 percent.

Turkey had a shortfall of production, that meant there was a shortfall in supply of illicit opium. So the price went up as would always happen, short supply and the price goes up. That meant farmers elsewhere in the opium zone, from Iran, Afghanistan increased their production as happens every single time. The repression creates a shortfall in supply which raises price and then stimulates production everywhere around the world.

What then is the solution to the problem? Somewhere between the poles of repression and legalization there is an alternative strategy which I call regulation. I don't think we should really fool ourselves to consider legalization. It's politically impractical, it's never going to happen.

If we legalize the drug we are not going to legalize it for kids, this is a country that just raised the drinking age for the socially acceptable drug, alcohol from 18 to 21. You give me the name right now of one legislator who is going to stand up and say "I favor crack for kids, vote for my bill," nobody will ever introduce such a bill. Even if by some miracle you got a legalization bill it would exclude 21 year olds and it would mean that the big drug, crack cocaine would have 89% of its clientele excluded from legalization.

I favor regulation because if cocaine and heroin are commodities let's deal with them as such. You don't repress commodities, you regulate them. Accept the fact that there is no quick fix to this trade, it's been around for 200 years as a major global commodity, as an illegal commodity it's been around for 70 years and it's likely to be around for another 70, maybe 200 years.

Recognizing that you then cancel your bilateral interdiction efforts and transfer your funds to the multilateral effort being run by the United Nations. The multilateral effort by the United Nations actually does reduce production slowly, painfully over a period of decades.

Ultimately we're going to have to seek an amelioration, not a solution, on the streets. We're going to have to address the complex of causes as to why people use drugs. That is where we have to concentrate our money.

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