Masters of Paradise

Organised Crime and the Internal Revenue Service in the Bahamas

Alan A. Block

• Editore: Routledge
• Anno: 2020
• ISBN:
  9781351309387
• Edizione: 1
• Argomento: Personal Development
• Categoria: Personal Finance

This is the story of organized crime's penetration of the islands and the corruption of its high officials during the time The Bahamas become politically independent of Great Britain. It describes secret U.S. Internal Revenue Service operations aimed at American criminals involved in Bahamian-based tax scams and similar crimes. Block paints a devastating picture of a symbiotic relationship among off-shore tax havens in The Bahamas, sophisticated American criminals, and complacent public officials in the United States.

During the 1960s and 1970s, the I.R.S. launched major investigations into American organized crime and the subterranean economy of The Bahamas. Block's access to the private papers of many of the key players in these affairs has given him a unique perspective. He has uncovered details of crime, corruption, and bureaucratic infighting within and among the U.S. Treasury and Justice Departments that have been largely unrecognized by previous researchers.

Block shows how important links in the international traffic in cocaine were forged in the Bahamas, in full view of American officials. Masters of Paradise raises major questions about American law enforcement officials' commitment to fighting complex international crime during the 1960s and the 1970s.

While there have been other studies of tax havens, money laundering, and offshore investigations, Block's access to information and his grasp of its meaning is unique. Professionals interested in the history and sociology of organized crime and the underground economy will find this book eye-opening. General readers interested in organized crime and political corruption will find it absorbing.

1
The Dream Town of Freeport

Grand Bahama Island’s future belonged to Wallace Groves, once considered one of Wall Street’s bright young men, until he took a fall for various frauds and embezzlement. Later, in attempting to fulfill his plans for the island’s development, Groves didn’t hesitate in mortgaging a portion of that future to organized crime.

Groves started out in Baltimore as a bond salesman, and then attended Georgetown University Law School. While still a student he acquired several small-loan companies in and around Washington, DC. In this he was helped by his brother, who had been in the loan business, and by his sister, who partially bank-rolled the enterprises. His method was to buy the companies, “puff” them up with some capital, merge them with a Chicago firm, and quickly sell out his interest. The method was repeated with the purchase of a fistfull of broken-down investment trusts, which he transformed into the Equity Corporation, and then sold at a profit of about $750,000. Next, he affiliated with the General Investment Corporation (an investment firm) in collaboration with the president of a shaky business called Phoenix Securities.¹

These were the Depression years, and Groves had done exceptionally well. Feeling “flush,” he sailed to The Bahamas and bought an island, Little Whale Cay, located approximately 35 miles from Nassau. He also started two Bahamian companies and became friendly with some of the local power brokers, especially attorney Stafford Sands.

But in the late fall of 1938, Groves’ modest financial empire crashed, and he was charged with defrauding the General Investment Corporation. Groves and several others had sold the company some of its own stock, and collected rather large fees and commissions for this dubious assistance. Also indicted were Groves’ other companies, including the Bahamian ones. Three years later, in February 1941, Groves was convicted and sent to prison. He was released in 1944.

When Groves emerged from prison, he returned to Little Whale Cay and tried to resume business. By this time he and his first wife, the former actress Monaei Lindley, had divorced. He subsequently married Canadian-born Georgette Cusson, who had been his first wife’s hairdresser.² She would become his business partner in Freeport’s development, and later in further development of Nassau’s Paradise Island. They made an interesting pair; Wallace was heavy and tall, resembling Sydney Greenstreet with a moustache; Georgette was a lovely, elegant-looking woman of striking taste. Despite Groves’ prison record and Georgette’s humble background, they both appeared urbane and sophisticated.

Just before the visionary Groves arrived on the scene, Grand Bahama Island barely supported 5,000 people, and some fishing and some farming.³ It was little more than a very large pine barren. But there was no denying Grand Bahama Island had potentially important features, which caught the eye of resort developers. Its proximity to Florida, fabulous weather, and shimmering beaches were obvious advantages, which attracted Englishman Billy Butlin in the latter 1940s. He was fast becoming the travel and vacation “czar” for the British working and lower middle classes. Butlin’s experience was in constructing modest vacation villages for retired pensioners; those with little money and a desire for the seaside. His Grand Bahama scheme to construct a “Vacation Village” at the west end of the island ended in failure by 1950. It was the victim of conflicting cross purposes—retired English workers didn’t fancy being so far from home, and couldn’t afford it anyway.

No two developers were further apart in styles and concerns than Butlin and Groves. Two years after his release from prison, Groves bought the unsuccessful Abaco Lumber Company, which had transferred part of its activities from Abaco Island to Grand Bahama. The island of Grand Bahama was heavily forested and logging operations started immediately. Groves turned the failing enterprise around, and with it as a base of financial security he enjoyed the luxury of the “big dream.” It took almost a decade before it matured. Meanwhile, as a consequence of heavy logging, the island was transformed to mostly scrub and brush. The most fertile soil leached out to sea during the summer rains without the pines to serve as its anchor. It was clear why old-timers called it the “Rock.”

Groves’ notion was to build a free port and an industrial complex in the vicinity of Hawksbill Creek, located on the southern shore of Grand Bahama about 20 miles from the western end of the island. The creek, named after a particular type of turtle once abundant in the area’s marshy water, almost bisected the island, running north to south, with its southern terminus ending in a shallow harbor. Inadequate for a deep water port, the harbor would have to be dredged.

It is expensive to build a working harbor and supporting facilities, let alone an industrial complex with factories. Without government backing, no one would have risked the Freeport venture. Government support was crucial, and by the time the plan took shape, it was evident that Groves and Stafford Sands, his political friend from the 1930s, had an intriguing deal. In the intervening years, Sands had become chairman of the Bahamas Development Board, roughly equivalent to a Ministry of Tourism. For his part, Groves would organize the Grand Bahamas Port Authority Limited (called by everyone the Port Authority) to do the initial dredging and construction work, while Sands would persuade the Bahamian government to provide over 50,000 acres of Crown land at $2.80 an acre. The entire area, including land thought eventually necessary for development, was officially designated “The Port Area.”

Most importantly, within the port area the government granted certain rights and privileges to the Port Authority, including the prerogative to license others wishing to conduct business within the port area. This was an extraordinary grant of power, putting what is often labeled the “new property” by political scientists (licenses which create semimonopolies in affected occupations) into the hands of private entrepreneurs. The government relinquished all custom duties, emergency taxes, and all other duties and taxes upon everything needed to construct the port, including all buildings and accommodations of every kind, all roads and bridges, and all utility undertakings. In fact, as the agreement put it, there would be no custom duty or tax upon “any other undertaking or thing within the port area constructed, erected, or operated by the Port Authority, or by any person or company licensed by the Port Authority.” The government agreed to neither charge nor collect any revenue on real property in the port area, on personal income, capital gains, capital appreciation on any individual or company within the port area, including companies incorporated outside The Bahamas, but having their registered office and principal place of business in Freeport. Additionally, there would be no excise, export, or stamp taxes imposed by the government on goods flowing in and out of the port area.

Wallace Groves and Stafford Sands negotiated the transfer of governmental power and authority to the company as the necessary condition for building Freeport. The Hawksbill Creek agreement stated it was a private port under the administrative control and authority of the firm known as the Port Authority. This company not only had the authority to license businesses, it had the right and power to levy, charge and collect harbour dues and other fees considered reasonable by the company, and the absolute right to exclude any person and vehicle from the port area. The Port Authority was also put in charge of immigration into its private zone, enjoying the right to bring in and employ anyone the company or its licensees thought necessary—“the Government will not withhold permission for the entry of such key, trained, and/or skilled personnel into the Colony,” and their families the agreement stated.

This initial transfer of public authority to private power set the process in motion by which organized criminals would inevitably increase their sway over Bahamian affairs. For as long as it lasted, this grant made the company a government, and soon gave Meyer Lansky, his associates and affiliates, an “open door.” It was reminiscent, although on a vastly smaller scale, of China’s territorial concessions to British opium merchants in the nineteenth century.

Stafford Sands had come a long way since his 1930s meeting with Groves. Then he was just another member of the local elite composed of wealthy merchants and attorneys. By the standards of The Bahamas, these men were wealthy and influential. They were called the “Bay Street Boys,” because they regularly met at a club on Bay and Charlotte Streets in downtown Nassau to discuss politics and business over pints of dark beer. The Bay Street Boys controlled The Bahamas until the rise of local black power in the mid-1960s. Their rule was so complete they never bothered to form a political party until the challenge of the black-led Progressive Liberal Party (P.L.P.) moved them to organize. They then formed the United Bahamian Party (U.B.P.), but its rule lasted just a few years.

Stafford Sands was always interested in Bahamian development, which meant for him resorts and casinos. Starting in the early 1930s, he was busy attempting to work out a way to legalize casinos. There had been several small private clubs and casinos in Nassau since around 1920, which catered to wealthy tourists during the short “season” (December, January, and February). Although illegal, the clubs had little to fear from local authorities. One of these was the Bahamian Club situated on West Bay Street, owned by an American named McKenzie from Rhode Island. Collaborating with him in this casino was Bahamian barrister Kenneth Solomon, a prominent Bay Street Boy (whose son, Norman Solomon, would become the leader of the political opposition in The Bahamas, especially concerned with drug corruption in the 1980s). A member of the Bahamian House of Assembly and a merchant, Solomon protected the former owner’s interests, which included entertaining Gloria Vanderbilt, the Duke of Kent, the Governor-General of Canada, and A1 Capone.

Toward the end of the 1930s Sands found the necessary procedure, and successfully sponsored a bill in the Assembly that allowed casinos to operate under certain circumstances. By securing a Certificate of Exemption (exempt from laws prohibiting gambling) from the local government, a gambling casino could legally operate under what was, in effect, a government license. The bill passed in 1939 and a certificate was quickly granted to the Bahamian Club.

Before the benefit of a government gambling license would bolster Freeport’s allegedly lagging development, Groves was busy with ideas for his port. The first and most basic move was to get the harbor constructed by dredging a 200 foot wide, 30 foot deep channel, and a turning basin with at least a 600 foot radius, and a long and wide wharf.⁴ For this, he turned to the mysterious Daniel Keith Ludwig, who was on his way to owning the largest private shipping fleet in the world.⁵ A quiet and self-effacing man, Ludwig hardly ever granted interviews, and during the 1960s employed a small and extremely loyal staff marked by its efficiency and silence on company matters. He had around 55 huge tankers and bulk carriers, a few sailing under the American flag, and operated by a Ludwig firm called National Bulk Carriers, Inc. The majority of his fleet was registered in Liberia, West Africa, and was managed through a complex chain of holding companies located in Liberia and Panama, and probably several other offshore havens as well.

From his modest headquarters in New York, Ludwig ran a diversified world-wide industrial and financial empire. His project with Groves metamorphosed into other major concerns in The Bahamas and elsewhere. Within just a few years Ludwig’s known holdings included coal mines, oil wells, shipyards, a harbor construction and dredging company that cleared the mire from Hawksbill Creek, and soon was working on an $80 million project to dredge the Hooghly River in India to permit iron ore exports. He had real estate interests embracing an estimated $40 million in Common Market countries, and some of the largest private holdings in the world, including an immense section of Amazonian Brazil. In addition, Ludwig owned over $100 million of Union Oil stock, two hotels in Bermuda, and plans for others in Freeport, Nassau, and Paradise Island in The Bahamas, and still others in Mexico and San Francisco, which became part of Ludwig’s Princess Hotel chain. He also had a deep water cargo transfer complex on an island near Japan, and about 33 percent of the Maruzen Oil Co., and a myriad of other enterprises involving almost everything under the sun. Eventually, Ludwig constructed a couple of hotels in Freeport and leased them to Morris Lansburgh, a Lansky confederate and Miami Beach hotel owner.⁶

Ludwig built the port facility because he needed an offshore oil bunkering (fuel depot) operation close to the east coast. This was necessary for his own fleet of oil tankers as well as others, which were already too large for most ports to handle. He also prudently desired to avoid steep harbor costs for fueling. Ludwig’s bill for constructing the harbor was $5,600,000. While this operation took place, Groves sought additional financing. Even though some potential developers were intrigued by the investment possibilities, especially the tax breaks, many were repelled by the barren, white limestone land and clouds of sand flies and mosquitos. They lacked the vision to match Groves’, and the particular need for an oil bunkering facility which prompted Ludwig. It wasn’t too long, however, before Groves found people with imperial ambitions and lots of capital. He secured funding from the exceptionally wealthy Charles Allen, the leader of a family-centered investment banking house (Allen & Co.) with major interests in Hollywood, and from Charles W. Hayward, an English entrepreneur who also commanded a substantial fortune.

There were several others besides Allen and Hayward who joined forces with Groves to bankroll the Port Authority in those first years. Some comprised a consortium with Allen, which owned 25 percent of the Port Authority, as did Hayward. Groves and his wife owned the res...