The Strength of the Wolf (4 page)

US Attorney Charles Tuttle had a partisan agenda too, and he and New York State's most powerful Republican power brokers, Jacob Livingstone and Kingsland Macy, took immense pleasure in discrediting Mayor Jimmy Walker, forcing his resignation in September 1932, and paving the way for the election of Republican Fiorello H. LaGuardia in 1934.

The lessons of the Rothstein case were undeniable: first and foremost, politicians had discovered that the war on drugs could be exploited for promotional purposes; and secondly, the immensity of America's drug habit had become a public issue that demanded immediate attention.

In the weeks following Rothstein's assassination, Treasury narcotic agents questioned material witnesses in the case, one of whom, Sidney Stajer, provided critical information about the organization's international
dimensions. Under arrest on another charge and unable to make bail, Stajer, in exchange for his freedom, told investigators that he had gone to Europe in 1927, as Rothstein's purchasing agent, to buy narcotics that had been diverted from pharmaceutical firms in Germany. Stajer also revealed that he had been in China, Formosa, and Hong Hong in 1925, establishing contacts and buying opium for Rothstein on the unregulated Far East market.

Treasury agents also questioned an uncooperative witness identified in the
New York Times
as Charles Luciano. A Sicilian immigrant (real name Salvatore Lucania), Luciano was being held in connection with an armed robbery.
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The federal agents knew that he had been a dope peddler since 1916, when he was arrested for possession of a small quantity of heroin, and that he and his partners – Frank Costello, Meyer Lansky, and Louis Buchalter – were the self-appointed heirs to Rothstein's drug-trafficking operation. They also knew that Luciano and associates had formed ties with America's major new sources of narcotics: the Ezra brothers in China, and the Eliopoulos ring in Paris. By 1929, these two gangs were the primary exploiters of the economic forces that drove illicit drug manufacturing deeper underground and opened up the Far East as the main source of narcotics in the wake of the Rothstein investigation.

A Greek national and cosmopolitan conman whose father had been a diplomat in Turkey, Elie Eliopoulos launched his drug-smuggling operation in 1927, when he visited China and contacted Greek nationals involved in the opium trade. He arranged to ship raw opium to two complicit manufacturers in France, purchased police protection in Paris, and by May 1928 was selling diverted pharmaceutical grade narcotics to America's major illegal drug distributors. In 1930 he financed a clandestine laboratory in Turkey, and thereafter narcotics from Turkey and China were routed to Paul Ventura (alias Paul Carbone), the Corsican crime boss in Marseilles, and then forwarded by American Express to Parisian restaurateur Louis Lyon for packaging and shipment to America. In 1930 and 1931, on behalf of the Eliopoulos syndicate, Peruvian diplomat Carlos Fernandez Bacula made six trips to New York, each time carrying 250 kilograms of narcotics under the protection of his diplomatic passport.
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The Ezra brothers, Judah and Isaac, had a different pedigree and modus operandi. Their father had dominated the legitimate opium business in Shanghai prior to the First World War, and according to scholar Terry Parssinen, “once headed the city's powerful Opium Combine.”
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Unlike the Eliopoulos brothers, the Ezras had a huge stockpile of opium and were making large profits in 1912, when the Hague Convention made it illegal to import opium from India into China.

Left to their own devices, the degenerate Ezra brothers squandered the family fortune and by the mid-1920s had decided to start trafficking in illicit drugs. Judah opened a silk-importing company as a front for smuggling narcotics from Europe to China. Then in 1931 he formed a wood oil-importing company in Shanghai and started shipping opium, cocaine, heroin, and morphine on Japanese freighters into San Francisco, where Isaac had rented a warehouse and had formed relations with Chinese and Italian distributors, including Mafioso “Black Tony” Parmiagni. An agent of Chiang Kai-shek's Kuomintang Party, Ye Ching Ho (alias Paul Yip), was Ezra's chief contact in China. With the blessings of Chiang's Nationalist government, which relied on opium profits for its survival, Yip ran a morphine factory in the wicked, wide-open city of Shanghai.
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The Ezras had established their contacts prior to the Hague Convention, at a time when the Astors and relatives of the Roosevelts (Russell and Company in Boston) had increased their family fortunes by shipping opium from Turkey, Iran, and India to China. However, while most American shippers complied with the Hague Convention, many of Europe's colonial powers felt no obligation to honor rules set by sanctimonious American moralists, and the Opium Bloc inserted loopholes in the agreement that allowed them to continue to legally trade opium in the Far East, alongside clandestine traffickers like the Ezras.

International drug control policy improved in 1928 with the creation of a Permanent Control Board at the League of Nations. The purpose was to prevent diversions by having licit manufacturers of narcotics report to the Control Board. Further controls were established in 1931 when, with the League's Limitation Agreement, European manufacturers agreed to stop overproducing narcotic drugs. But exceptions in the trade of opium remained. Great Britain in particular had relied on the opium trade to support its colonial empire since the eighteenth century. Under the aegis of preserving free trade, the British fought two Opium Wars in the nineteenth century, thus encouraging the spread of addiction throughout the Far East. So in the 1930s, Shanghai's British, French, and international concessions were still the easiest places in the world to make banking and shipping arrangements for the opium trade. As Professor Parssinen notes, “By 1933, China and Japan had become the major exporters of opiates
to the US illicit market, a position which they held throughout the decade.”
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The Treasury Department was aware of this fact, and in 1926 Narcotics Division agent Ralph H. Oyler, the man in charge of the Rothstein investigation, traveled to China to assess the situation. But in his attempts to deal with this problem, Oyler and his colleagues were thwarted by the War and State Departments, which had an overarching need to accommodate a strategically placed ally, Nationalist China, whose survival depended on profits from drug smuggling. As it was in the beginning, it is now and ever shall be: national security interests superseded those of the drug law enforcement agencies of the US government.
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The primacy of China as a source of narcotics had been known to the US government since the turn of the century, when the father of the Harrison Narcotic Act, Dr. Hamilton Wright, having tended to the benighted, opium-addicted masses of the Far East, convinced President Theodore Roosevelt that drug addiction was on the rise in America, thanks to China's opium surplus. The government did not sit idly by, and it eventually sent Foreign Service officer Walter Adams to Changsha, China, specifically to curtail opium smuggling by Chinese and American smugglers. On 8 August 1921, Vice Counsel Adams, with the help of sailors aboard the US Navy gunboat Villa Lobos, seized a ton of opium that was being stored on the premises of an American commercial concern, right next door to the consulate in Changsha.
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This initial victory, however, did not bring an end to the problem, and on 3 December 1925 a headline in the
New York Times
declared: “American Directs Far East Opium Ring.” The
Times
withheld the man's identity for national security reasons, but it did report that a huge consignment of narcotics had been shipped through Russia to Shanghai, and had resulted in a battle between Chinese warlords and the Chinese Navy at the island arsenal where the drugs were stored.

Another example of US government involvement in the Chinese opium trade was the so-called Opium Scandal of April 1927. At the center of the scandal was Leonard Husar, a former US Attorney in Shanghai. In 1924 Husar (and his lawyer) formed relations with Colonel Hsu, the intelligence officer for General Chang Tsung-chang, a Shangtung warlord contending with Chiang Kai-shek and the Kuomintang Party (KMT) for control of Shanghai. With the knowledge of the State and War Departments, Husar provided Colonel Hsu with 6,500 Mausers he acquired from an Italian arms merchant, in exchange for $500,000 worth of opium.
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The middleman in the transaction was State Department special employee A. M. “Tracey” Woodward. No stranger to shady drug deals, Woodward had been caught shipping opium from Iran to Shanghai in 1925. At his trial in a Consular Court in Bushire, Woodward claimed he was in the business in order to spy on foreign drug traffickers. Evidently this was true, and Woodward received only a slap on the wrist and was transferred to Shanghai, where Husar destroyed the transcripts of his trial for a cool $25,000.
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The government would never have revealed any of this, but the facts came tumbling out in 1927 when Husar's wife, in the course of suing him for divorce in San Francisco, revealed his dirty little secrets for all the world to see. (A public figure as well as a scoundrel, Husar was then contemplating running for governor of California.) As a result of Mrs. Husar's testimony, federal investigators also learned that Captain William Eisler of the American Chamber of Commerce had been with Husar when the payoffs were made. Eisler's presence suggested official sanction, and profits from the opium-for-arms trade were rumored to be filtering back to US congressmen.

The true extent of the involvement of government officials in the Opium Scandal was never made known, and the affair ended abruptly when Husar was sentenced to two years in federal prison. Soon thereafter, Chiang Kai-shek and his National Revolutionary Army drove Chang out of Shanghai and then turned their wrath on the communists. Armed with 5,000 rifles provided by Sterling Fessenden, the American in charge of Shanghai's International Settlement, members of Du Yue-sheng's Green Gang, headquartered in the French Concession, murdered hundreds of striking dockworkers. The so-called “White Terror” secured the city of Shanghai for the KMT and its capitalist American backers.
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Chiang's fascist Kuomintang Party then formed China's Nationalist government and created an opium monopoly that was supposed to end illicit trade in opium, but which in fact ensured that it would be entirely controlled by the Kuomintang Party through crime lord Du Yue-sheng. “In return for services rendered during the White Terror of 1927,” researcher John Marshall writes, the officials in charge of France's concession in Shanghai, “Police Captain Etienne Fiori and his superior, Consul General Koechlin, agreed to protect Du's organization and the opium trade.”
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After consolidating his power, Chiang would name Du Yue-sheng – an opium addict and respected member of Shanghai's Municipal Council – as Chief Communist Suppression Agent for Shanghai and chief of the
Shanghai Opium Suppression Bureau. Bribes paid by Du reached French officials in Paris. When word of the payoffs resulted in a minor scandal, a new contingent of French officials were assigned to Shanghai, but Du simply moved into the suburbs and continued his operations unabated, in league with the Chinese Navy and the Ezra brothers' connection in Shanghai, the aforementioned Mr. Paul Yip.

With Chiang Kai-shek's ascent, and consent, drug smuggling from China became official, albeit unstated policy, and in July 1929, while pursuing leads from the Rothstein case, federal agents arrested Mrs. Yang Kao in San Francisco. In her luggage was a large quantity of opium, heroin, and morphine base. What made the Kao case so unusual, however, was that Mrs. Kao's husband was a top official in the Chinese Consulate in San Francisco. The consulate's chancellor was indicted along with the Kaos, as was the Chinese minister in Washington.
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The Kaos and their colleagues claimed diplomatic immunity, and before the case could be brought to trial in the US, Treasury Secretary Andrew W. Mellon referred it to Secretary of State Henry L. Stimson. Placing national security interests above those of drug law enforcement, Stimson decided that the Kaos must be returned to China for trial. In December 1929 they set sail for Shanghai and freedom. And in the process American drug law enforcement suffered yet another irreversible setback.
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While Secretary Stimson was covering for the Kaos, a team of Narcotics Division agents under Ralph Oyler's command was wrapping up the Rothstein investigation. They had arrested fourteen drug dealers operating three major rings: one out of a Harlem nightclub; another from an East Coast mail order company that sent most of its product to Hollywood; and a third in Atlantic City. In Washington, the assistant secretary of the Treasury Department's Narcotic Control Board announced a series of related arrests, including one in distant Davenport, Iowa.
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Like Elie Eliopoulos in Paris, and Du Yue-sheng in Shanghai, the manager of the Harlem nightclub had paid for police protection – and the local magistrate was on his payroll too.

But there were more startling revelations to come, and the final twist in the precedent-setting Rothstein investigation was when a federal grand jury reported evidence of collusion between narcotic agents and drug dealers in New York. Agents were using and selling drugs, stealing government funds,
padding reports, and falsely reporting city investigations as federal cases. The investigation into Rothstein's drug-smuggling empire had led narcotic agents through a maze of corruption to their own doorstep, and on 13 January 1930, US Attorney Tuttle began interrogating federal narcotic agents named by the grand jury as having engaged in corrupt activities. Each agent was questioned about his or her role in the drug rings established by Rothstein, and after the interrogations, leaks to the press indicated that prominent attorneys, politicians, and private citizens were also involved.