The US Opium Wars: China, Burma and the CIA

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You won’t find a star of remembrance for him on the wall of fallen “heroes” at CIA HQ in Langley, but one of the Agency’s first casualties in its covert war against Mao’s China was a man named Jack Killam. He was a pilot for the CIA’s proprietary airline, Civil Air Transport, forerunner to the notorious Air America which figured so largely in the Agency’s activities in Vietnam, Laos and Cambodia. Killam’s job was to fly weapons and supplies from the CIA’s base in Bangkok, Thailand, to the mountain camps of General Li Mi in the Shan States of Burma. Li Mi, Chinese in origin, was the leader of 10,000 Chinese troops still loyal to Generalissimo Chiang Kai-shek, who had been driven off the Chinese mainland by Mao’s forces and was now ensconced on Taiwan.

Under the direction of the CIA, Li Mi’s army was plotting a strike across Burma’s northern border into China’s Yunnan province. But Li Mi’s troops were not just warriors in Chiang’s cause: they had also taken control of the largest opium poppy fields in Asia. The CAT pilots working for the CIA carried loads of Li Mi’s opium on their return flights to Bangkok, where it was delivered to General Phao Siyanan, head of the Thai secret police and a long-time CIA asset.

Jack Killam was murdered in 1951 when one of these arms-and-drugs round trips went bad. His body was buried in an unmarked grave by Sherman Joost, the CIA’s station chief in Bangkok.

The exiled Kuomintang (KMT) army of Li Mi was as much a proprietary of the Central Intelligence Agency as Civil Air Transport. Installed in Burma, this army was armed by the CIA, fed by the CIA, and paid by the CIA. In later operations in Laos, Cambodia and Vietnam the CIA used it as a labor pool. Under this patronage and protection the KMT was able to build up its opium operations in the area of Southeast Asia known as the Golden Triangle.

As a result, the KMT became a pivotal force in the Asian opium trade. Using the infrastructure of remote airstrips and airplanes set in place by the CIA, the KMT was able to export its opium crop from the Shan States of Burma and the mountains of Laos to international wholesalers. For its part, the CIA was more than pleased to see the KMT forces sustained by a stable flow of opium revenue impervious to the whims of Congress Congress or new arrivals in the White House. By the mid-1970s the KMT controlled more than 80 percent of the Golden Triangle opium market. It was a situation that put the newly created Drug Enforcement Agency at odds with the CIA’s opium warlords. Invariably, the DEA emerged defeated from these conflicts.

In 1988, a newspaper reporter named Elaine Shannon interviewed dozens of DEA agents for a book, Desperados, on the international narcotics trade. The agents told her that the drug smugglers of Southeast Asia and the CIA were “natural allies.” Shannon wrote that “DEA agents who served in south east Asia in the late 1970s and 1980s said they frequently discovered that they were tracking heroin smugglers who were on the CIA payroll.”

By the 1970s Nixon was staking more political capital on his War on Drugs and the CIA had to adjust to the new situation. Rather than allow the KMT to use its planes to ship opium out, the Agency bought 26 tons of opium at a cost of $1 million and destroyed it. This was a mere fraction of the KMT’s total output, but the purchase had the advantage of deflecting criticism from other agencies and putting US taxpayers’ money into the pockets of its mercenaries. In the mid-1970s the DEA suggested that the US government could buy Burma’s entire opium crop for $12 million. This time the US State Department and the CIA intervened, claiming that such a buy-out program might put money into the hands of “Communist insurgencies against the friendly governments of Burma and Thailand” and successfully opposed the plan. Later the CIA and State Department used the War on Drugs as a rationale for funneling even more weapons into the hands of Burma’s military dictatorship. These weapons were used to quell internal opposition, and the herbicides supposedly destined for the poppy fields were instead employed by Burma’s dictatorship against rural opponents, along with their food crops. By 1997 Burma reigned supreme as the world’s top producer of raw opium and high-grade heroin.

The opium poppy was not native to Southeast Asia but was introduced by Arab traders in the seventh century AD. The habit of opium smoking didn’t take hold till the seventeenth century, when it was spread by the Spanish and Dutch, who used opium as a treatment for malaria. The Portuguese became the first to profit from the importing of opium into China from the poppy fields in its colonies in India. After the Battle of Plassey in 1757, the British East India Company took over the opium monopoly and soon found it to be an irresistible source of profit. By 1772 the new British governor, Warren Hastings, was auctioning off opium-trading concessions and encouraging opium exports to China. Such exports were already generating £500,000 a year despite the strenuous objections of the Chinese imperial government. As early as 1729 the Chinese emperor Yung Cheng had issued an edict outlawing opium smoking. The sanctions for repeat offenders were stern: many had their lips slit. In 1789 the Chinese outlawed both the import and domestic cultivation of opium, and invoked the death penalty for violators. It did little good.

Inside China these prohibitions merely drove the opium trade underground, making it a target of opportunity for Chinese secret societies such as the powerful Green Circles Gang, from whose ranks Chiang Kai-shek was later to emerge. These bans did not deter the British, who continued shipping opium by the ton into the ports of Canton and Shanghai, using what was to become a well-worn rationale: “It is evident that the Chinese could not exist without the use of opium, and if we do not supply their necessary wants, foreigners will.”

Between 1800 and 1840 British opium exports to China increased from 350 tons to more than 2,000 tons a year. In 1839 the Chinese Emperor Tao Kwang sent his trade commissioner Lin Tze-su to Canton to close the port to British opium ships. Lin took his assignment seriously, destroying tons of British opium on the docks in Canton, thus igniting the Opium Wars of 1839–42 and 1856. In these bloody campaigns the British forced China open to the opium trade, meanwhile slaughtering hundreds of thousands of Chinese, a slaughter assisted by the fact by 1840 there were 15 million opium addicts in China, 27 percent of the adult male population, including much of the Chinese military. After the first Opium War, as part of the treaty of Nanking China had to pay the British government £6 million in compensation for the opium destroyed by Lin in Canton. In all essential respects Shanghai thereafter became a western colony. In 1858 China officially legalized sales and consumption of opium. The British hiked their Indian opium exports to China, which by 1880 reached 6,500 tons, an immensely profitable business that established the fortunes of such famous Hong Kong trading houses as Jardine, Matheson.

Meanwhile, the Chinese gangs embarked on a program of import substitution, growing their poppy crops particularly in Szechwan and Hunan provinces. Labor was plentiful and the poppies were easy to grow and cheap to transport – and the flowers were also three times more valuable as a cash crop than rice or wheat. The British did not take kindly to this homegrown challenge to their Indian shipments, and after the crushing of the Boxer Rebellion in 1900 they forced the Chinese government to start a program to eradicate the domestic crop, a program that by 1906 had finished off opium cultivation in the whole of Hunan province.

It was at this point that the Chinese gangs shifted their opium cultivation southward into the Shan States of Burma and into Indochina, making the necessary arrangements with the French colonial administration, which held the monopoly on opium growing there. Hill tribes in Indochina and Burma were conscripted to the task of cultivation, with the gangs handling trafficking and distribution.

The suppression campaign run by the Chinese government had the effect of increasing the demand for processed opium products such as morphine and heroin. Morphine had recently been introduced to the Chinese mainland by Christian missionaries, who used the drug to win converts and gratefully referred to their morphine as Jesus opium. There was also a distinct economic advantage to be realized from the sale of heroin and morphine, which were cheap to produce and thus had much higher profit margins than opium.

Despite mounting international outrage, the British government continued to dump opium into China well into the first two decades of the twentieth century. Defenders of the traffic argued that opium smoking was “less deleterious” to the health of Chinese addicts than morphine, which was being pressed on China, the officials noted pointedly, by German and Japanese drug firms. The British opium magnates also recruited scientific studies to back up their claims. One paper, written by Dr. H. Moissan and Dr. F. Browne, purported to show that opium smoking produced “only a trifling amount of morphia” and was no more injurious than the inhalation of tobacco smoke.

After the opium wars reached their bloody conclusion and China was pried fully open to European trade, the coastal city of Shanghai rapidly became the import/export capital of China and its most westernized city. A municipal opium monopoly had been established in 1842, allowing the city’s dozens of opium-smoking dens to be leased out to British merchants. This situation prevailed until 1918, when the British finally bowed to pressure from the government of Sun Yat-sen and relinquished their leases.

This concession did little to quell the Shanghai drug market, which duly fell into the hands of Chinese secret societies such as the notorious Green Circles Gang, which, under the leadership of Tu Yueh-shing, came to dominate the narcotics trade in Shanghai for the next thirty years, earning the gang lord the title of King of Opium. Tu acquired a taste for the appurtenances of American gangsters, eventually purchasing Al Capone’s limousine, which he proudly drove around the streets of Nanking and Hong Kong.

Tu was extraordinarily skilled both as a muscle man and an entrepreneur. When the authorities made one of their periodic crackdowns on opium smoking in Shanghai, Tu responded by mass-marketing “anti-opium pills,” red tablets laced with heroin. When the government took action to restrict the import of heroin, Tu seized the opportunity to build his own heroin factories. By 1934, heroin use in Shanghai had outpaced opium smoking as the most popular form of narcotics use. Tu’s labs were so efficient and so productive that he began exporting his Green Circles Gang heroin to Chinese users in San Francisco and Seattle.

Tu’s climb to the top of the Chinese underworld was closely linked to the rise to political power of the Chinese nationalist warlord General Chiang Kai-shek. Indeed, both men were initiates into the so-called “21st Generation” of the Green Circles Gang. These ties proved useful in 1926, when Chiang’s northern expeditionary forces were attempting to sweep across central and northern China. As Chiang’s troops approached Shanghai, the city’s labor unions and Communist organizers rose up in a series of strikes and demonstrations designed to make it easier for Chiang to take control of the city. But Chiang stopped his march outside Shanghai, where he conferred with envoys from the city’s business leaders and from Tu’s gang. This coalition asked the Generalissimo to keep his forces stationed outside Shanghai until the city’s criminal gangs, acting in concert with the police force maintained by foreign businesses, could crush the left.

When Chiang finally entered Shanghai, he stepped over the bodies of Communist workers. He soon solemnized his alliance with Tu by making him a general in the KMT. As the Chinese historian Y. C. Wang concludes, Tu’s promotion to general was testimony to the gangsterism endemic to Chiang Kai-shek and his KMT: “Perhaps for the first time in Chinese history, the underworld gained formal recognition in national politics.” The Green Circles Gang became the KMT’s internal security force, known officially as the Statistical and Investigation Office. This unit was headed by one of Tu’s sidekicks, Tai Li.

Under the guidance of Tu and Tai Li, opium sales soon became a major source of revenue for the KMT. In that same year of 1926 Chiang Kai-shek legalized the opium trade for a period of twelve months; taxes on the trade netted the KMT enormous sums of money. After the year was over Chiang pretended to acknowledge the protests against legalization and set up the Opium Suppression Bureau, which duly went about the business of shutting down all competitors to the KMT in the drug trade.

In 1933 the Japanese invaded China’s northern provinces and soon forged an accord with the KMT, buying large amounts of opium from Generals Tu and Tai Li, refining it into heroin and dispensing it to the Chinese through 2,000 pharmacies across northern China, exercising imperial supervision by the addiction of the Chinese population. General Tu’s opium partnership with the occupying Japanese enjoyed the official sanction of Chiang Kai-shek, according to a contemporary report by US Army Intelligence, which also noted that it had the backing of five major Chinese banks “to the tune of $150 million Chinese dollars.” The leadership of the KMT justified this relationship as an excellent opportunity for espionage, since Tu’s men were able to move freely through the northern provinces on their opium runs.

In 1937 the Generalissimo’s wife, Madam Chiang, went to Washington, where she recruited a US Army Air Corps general named Claire Chennault to assume control of the KMT’s makeshift air force, then overseen by a group of Italian pilots on loan from Mussolini. Chennault was a Louisiana Cajun with unconventional ideas about air combat that had been soundly rejected by the top army brass, but his fanatic anti-Communism had won him friends among the far right in Congress and in US intelligence circles.

Chennault resigned his commission, went on the KMT payroll, and set up operations in Nanking, where he worked side by side with Chiang Kai-shek and Tai Li. For nearly four years Chennault’s tiny air force lurked discreetly, ceding the air space of China to the Japanese imperial air force. Then came Pearl Harbor, December 7, 1941. Chennault made haste to Washington and pushed the idea that wise use of air power in China against the Japanese would be an excellent contribution to the war effort. He was duly furnished with 100 P-40 fighters and was allowed to recruit army and navy pilots and ground troops. Chennault called his operation the American Volunteer Group, but they soon became hallowed as the Flying Tigers.

The recruits to Chennault’s force were told that theirs was a covert mission and that under no circumstances should they reveal that they were in China with the knowledge of the US government. When the Flying Tigers were allowed to engage the Japanese they quickly established a formidable combat record, knocking down nearly 500 Japanese fighters. But for most of the war, because of the unofficial detente between Chiang and the Japanese occupiers, the pilots found themselves shuttling personal contraband for the KMT leaders – opium, gold, and other valuable commodities.

Chiang’s reluctance to fight the Japanese infuriated General Joseph “Vinegar Joe” Stilwell. Stilwell had no respect for Chiang, calling him “a peanut dictator” and describing the KMT nationalist regime as being based “on fear and favor, in the hands of an ignorant, arbitrary stubborn man.” Stilwell was also highly critical of Chennault’s strategy. The latter had convinced US commanders in Washington that the battle in China could be won by the strength of air power and by covert action alone. Stilwell correctly deemed this absurd, but he lost the battle for influence in Washington and became increasingly sidelined as Chennault rallied support for his position.

In the fall of 1942 the OSS made US Navy Captain Milton “Mary” Miles the head of its intelligence operations in China. Miles lost no time in forming an alliance with Tai Li, referring to this career gangster and opium lord as a “kindly labor union leader.” In his services as head of Chiang’s internal security force Tai was notably brutal, running dozens of concentration camps in which were held hundreds of thousands of Chiang Kai-shek’s political opponents. Tai was notorious for his use of poison, having a stockpile of arsenic made up to look like Bayer aspirin and Carter’s Little Liver Pills. In 1941 Tai had been arrested by the British in Hong Kong, who accused him of running “an intelligence organization modeled on the German Gestapo.” He was released only after the personal intervention of Chiang Kai-shek.

Tai Li bragged about maintaining an army of undercover agents spread not only across China, but in every major city in the world that had Chinese residents who might be supporting Mao Tse-tung, China’s Communist leader. Stilwell urged Washington to end its association with Tai Li, calling him the “Heinrich Himmler of China,” but once again his advice was ignored and with the approval of the OSS the United States and Tai Li entered into an officially sanctioned relationship, which Tai Li called the “Friendship Plan,” though it was formally known as the Sino-American Cooperative Organization, or SACO. Tai Li was put in charge of the new network and Captain Miles served as his deputy, the overall mission being espionage and sabotage against the Japanese in China. The Chinese were to supply the manpower, with the US furnishing training, money and weapons. The OSS even established an FBI school in Nanking to train Tai’s secret police in the use of police dogs, lie detectors and truth serums. Among the more remarkable instructors was a law enforcement delegation from Mississippi in the form of district attorneys and eight state troopers to impart their own indigenous knowledge of the use of police dogs.

Stilwell always believed that Chiang had no interest in fighting the Japanese and that the SACO operation was being used to assist in the KMT’s criminal enterprises: “The Chinese had a great nose for money,” Stilwell wrote in his diary, adding that the OSS man Miles “looked like he had lots of it.” Stilwell favored a US alliance with Mao, for whose troops he had great admiration, describing them as being “battle-hardened, disciplined, well trained in guerrilla war and fired by a bitter hatred of the Japanese.”

In 1944 Stilwell, based at the time in Nanking, sent a delegation of his staff officers to meet the Communist leaders, Mao Tse-tung and Chou En-lai. The Americans were warmly received and the Chinese Communists shared intelligence with them, taking them on a tour of their redoubt in the Yenan caves and allowing them to interrogate 150 Japanese prisoners.

Stilwell’s view that China would be better off under the leadership of the Communists did not survive a furious counterattack by Tai Li and the OSS officer Miles. Tai Li had placed SACO agents in Stilwell’s house and was well-informed about the general’s views. In fairly short order Chiang demanded that FDR remove Stilwell from his command for “working with the Communists.” FDR complied and the general abruptly departed. The KMT criminals, with a US intelligence organization at their disposal, had prevailed, with fateful consequences.

As the war edged to a close the US delayed making assaults on the Japanese in northern China as part of a plan to damage the Communists. Harry Truman described this strategy in his memoirs: “It was perfectly clear to us that if we told the Japanese to lay down their arms immediately and march to seaboard, the entire country would be taken over by the Communists. We therefore had to take the unusual step of using the enemy as a garrison until we could airlift Chinese national troops to south China and send Marines to guard the sea ports.”

After the war, Chiang and Tai Li welcomed into their ranks dozens of warlords who had collaborated with the Japanese. These men now worked side by side with the OSS and the US Marines in the war against Mao. The US military didn’t leave China until 1947, after channeling $3 billion in weapons and military aid to Chiang. This aid now gave way to covert US support for Claire Chennault’s newly named Civil Air Transport, or CAT. Chennault’s partner in this enterprise was a man with long-standing ties to US spy agencies, William Willauer. (He later showed up in 1954 in Central America as US ambassador to Honduras, when the CIA, using CAT planes and pilots, was readying the coup against Jacobo Arbenz’s moderate left government in Guatemala.)

The US government gave Chennault and Willauer cut-rate prices on a fleet of surplus C-46 and C-47 transport planes, and as pilots Chennault hired many of the veterans of the Flying Tigers operation. In Nanking these pilots lived in a blue house known as the Opium Den. At this point CAT was at least nominally a private enterprise, though underpinned by US government subsidies in the form of cheap planes and US contracts to fly supplies to Chiang’s forces, who were still fighting Mao. But by the summer of 1949 the Communists were on victory’s threshold. Chennault went to Washington and met with Colonel Richard Stilwell, who was chief of covert operations in the CIA’s Far East division. Chennault said that his airline was in dire financial straits, but nonetheless could fulfill a vital role in covert operations against Mao. Stilwell and his deputy, Desmond FitzGerald, thereupon approved what was in practical terms a CIA buyout of Civil Air Transport. They gave Chennault $500,000 in cash and began using the airline as a front for CIA operations throughout the Far East.

One of the first of these CIA-controlled CAT operations in China was to aid the ill-fated campaign against Mao by General Ma Pu-fang, whose army of 250,000 Muslims in northwest China had been crushed by the People’s Liberation Army. The CAT planes rescued General Ma and his fortune, estimated at $1.5 million in gold bars, much of it garnered through his control of the region’s opium trade. In 1950 the CAT planes began dropping food and guns to KMT general Li Tsun-yen’s forces in southern China. The aid did not turn the tide, and the general’s forces began to flee south into Burma. Li himself was airlifted by CAT to Taiwan, where Chiang Kai-shek had now installed his government.

Voyaging to Washington, General Li began promoting the notion that his forces in Burma could – with suitable US backing – return to China, wage war on the Communists and recapture the province of Hunan. Truman soon signed orders authorizing the CIA, with a budget of $300 million, to undertake covert actions on the Chinese mainland. As Mao threw the People’s Liberation Army behind the North Koreans and hurled General MacArthur’s forces southward down the peninsula Truman became obsessed with the opening of a so-called southern front to harry southwest China from Burma. So, in February 1951 planning for Operation Paper began: the invasion of China by KMT troops from the Shan States, all supposedly taking place without the knowledge of the Burmese government, the US State Department, the US ambassador to Burma, and the CIA’s own deputy director of intelligence, Robert Armory, who was less than enthusiastic about any relationship with Chiang or the KMT.

Although General Li Tsun-yen had told Truman that there were as many as 175,000 KMT troops ready to be thrown into the fray, the actual KMT forces in Burma amounted to no more than about 5,000, and they were under the command of General Li Mi, whom we encountered at the start of this chapter. His forces had been chased out of China a year earlier, in January 1950, and had exerted themselves since then in waging war on the Karen hill tribes in the Shan States, soon obtaining the upper hand and using this victory to tax the opium farmers.

The makings of a classic CIA/drug paradigm were now in place. Starting on February 7, 1951, CIA planes began to shuttle arms and supplies from Bangkok to Li Mi’s forces in north Burma, at first in the form of air drops five times a week and then with landings at Mong Hsat, an airfield constructed by the CIA fifteen miles from the Thai border. For the return journey the CIA planes were often reloaded with raw opium, which was flown back to Bangkok or Chiang Mai in northern Thailand and sold to General Phao Siyanan, head of the Thai police. General Phao had been made director of Thailand’s national police after the CIA-backed coup in 1948 led by Major General Phin Choohannan. Phao’s 40,000-member police force, the Police Knights, immediately engaged in a campaign of assassinations of Phin and Phao’s political enemies. These troops also assumed control of Thailand’s lucrative opium trade. In Phao’s able hands the supply of cheap opium from the Shan States made Bangkok the hub of the Southeast Asia opium trade, according to the British Customs Office. Phao’s control of the opium trade was directly abetted by the CIA, which had funnelled him $35 million in aid. Thailand would thereafter become the CIA’s main base of operations in the region.

In the 1950s the CIA backed General Phao in a struggle with another Thai general for monopoly of control of Thailand’s opium and heroin trade. Using artillery and aircraft supplied by the CIA’s Overseas Supply Company, based in Bangkok, Phao easily outgunned his rival and duly imposed near total control over the government of Thailand and the country’s criminal enterprises. Backed by squads of CIA advisers, Phao set about the task of turning Thailand into a police state. The country’s leading dissidents and academics were jailed and CIA-trained police reconnaissance units patrolled the countryside, among other activities levying a protection fee on the opium caravans. In addition to controlling the opium and heroin trade, Phao also cornered the country’s gold market, played a leading role on the top twenty corporate boards in the country, charged leading executives and businessmen protection fees and ran prostitution houses and gambling dens. Phao became great friends with Bill Donovan, at that time US ambassador to Thailand. Donovan was so enamored of Phao that he put him up for a Legion of Merit award. This for a man described by one Thai diplomat as “the worst man in the whole history of modern Thailand.”

The military aspect of the venture was less efficiently executed. Li Mi’s troops managed three forays into China. The first, in June 1951, lasted only a week. The next, in July, ended in disaster within a month, with 900 dead, including several CIA advisers. The final bid came in August 1952 and went equally badly.

The weapons going to the KMT were supplied by a CIA front company called Overseas Supply, run by a CIA lawyer called Paul Helliwell, an old Asia hand who had worked in China and Burma with the OSS. Helliwell later bragged about paying his Asian informants with “sticky brown bars of opium.”

The CIA’s operation in Burma had been deliberately kept from the US ambassador in Rangoon, William Sebald, who had faced a barrage of complaints from the Burmese government. Sebald confronted Secretary of State John Foster Dulles over persistent accusations that the CIA had been assisting KMT troops in northern Burma, and was assured unequivocally that there was no

involvement. Armed with such reassurances Sebald relayed this to General Ne Win, the Burmese army’s chief of staff. Ne Win interrupted the diplomat, saying “Ambassador, I have it cold. If I were you, I’d just keep quiet.”

Burma took its grievance to the UN, bringing along captured caches of CIA-supplied weaponry. The American response to these charges was that the KMT had been buying its weapons on the open market with money generated from the opium trade. Finally, under mounting international pressure, the US agreed in 1953 to evacuate the KMT. The operation was supervised by Bill Donovan and Thailand’s General Phao. General Phao would not allow any representatives of the Burmese government to witness the evacuation, and in fact the majority of those who departed were women, children and injured soldiers, leaving behind more than 5,000 well-armed KMT troops who continued to assert control over poppy cultivation and the opium trade. They also joined forces with rebel hill tribes in a war against the Burmese army.

One of the CIA’s strategic objectives had been to provoke an attack by China across the Burmese border in retaliation for forays by the KMT. This plan misfired, however. In 1961 the Chinese did indeed launch a drive into the Shan States, but at the request of the Burmese government to deal, once and for all, with the KMT. The People’s Liberation Army drove the KMT remnant into Thailand, where it settled outside Chiang Mai. After this operation, the Burmese army discovered a fresh cache of weapons and supplies at the former KMT base, still in boxes with US markings, and containing more than five tons of ammunition and hundreds of rifles and machine guns. They also discovered more than a dozen opium-processing labs.

The CIA’s liaison to the KMT at its new quarters in Thailand was William Young, the son of a Baptist missionary. Young had joined the CIA in 1958 and quickly proved himself to be one of the Agency’s most capable hands, and one of the few CIA men respected by the tribal leaders. Young had been born in the Shan States and used his intimate knowledge of the culture and his fluency in the difficult languages of the hill country to recruit the local tribesmen as surrogate warriors in the CIA’s operations across Southeast Asia. Young was more than willing to indulge his hill tribe mercenaries in the opium trade with the excuse that “[a]s long as there is opium in Burma somebody will market it.”

In 1963 Young recruited KMT soldiers into a raiding force that led attacks on villages in northern Laos believed to be sympathetic to the Communist Pathet Lao. From 1962 to 1971 Young’s mercenaries carried out more than fifty cross-border ventures into China, where they monitored truck traffic and tapped phone lines. These expeditions were propelled by the CIA’s fear that China might intervene in Laos and Vietnam. His recruits were trained by the Thai secret police, taken to Mong Hkan, a CIA base near the Burma–China border, then from Mong Hkan into China using the Shan opium caravans as cover. The mules that carried bags of opium also packed radios and surveillance equipment.

One of the CIA-backed guerrilla groups was called the Sixteen Musketeers. This force was run by U Ba Thein, a leading Shan States revolutionary who for many years had funded his war against the Burmese government with opium sales. He had worked for British intelligence during World War II. In 1958 he joined forces with Gnar Kham to form the Shan Nationalist Army. To fund their operations U Ba Thein struck an opium deal with General Ouane Rattikone, the CIA asset who headed the Laotian army. Ouane also had another line of business. He oversaw the Laotian government’s secret Opium Administration, which was generating millions of dollars a year for the Laotian junta. Ouane had an enormous stockpile of weapons generously supplied by the CIA, which he traded for U Ba Thein’s opium shipments.

The Shan bought automatic weapons, machine guns, rockets and radios and within a year or two had amassed enough supplies to equip a 5,000-man army and gain control over more than 120 square miles of territory. U Ba Thein told historian Al McCoy in the early 1970s that the CIA’s William Young “knew about the arrangement, saw the arms and opium being exchanged and never made any move to stop it.” In a familiar pattern the CIA was to use General Ouane as the intermediary in the project of arming the Shan nationalists, thus slightly minimizing the risk of being directly denounced by the Burmese government.

In 1964 the Shan nationalist army and the CIA were dealt a serious blow when Gnar Kham, the popular leader of the Shan army who had managed by force of personality to weld together the fractious coalition, got in a dispute over an opium deal and was shot in the head and killed at Huei Krai, a small outpost on the opium trail connecting the poppy fields of Burma to General Ouane’s heroin labs in Laos.

The CIA’s covert activities in Burma also fueled the operations of one of the world’s most notorious heroin lords, Khun Sa, born in a small mountain hamlet in the Shan States near the Chinese border. His father was a KMT soldier and his mother a Shan. He had received military training by the KMT and in 1963 was tapped by the Burmese government to head up a local defense force, the KYYY, against the Shan rebels. Instead of paying Khun Sa in money or provisions, the Burmese government granted him a concession to use state roads and facilities for drug trafficking. With the backing of the Burmese government Khun Sa’s opium trading soon posed a threat to the KMT’s monopoly, giving rise to an opium war of 1967. Khun Sa had sent 500 men and 300 mules carrying 16 tons of raw opium across 200 miles of mountain trails for delivery to General Ouane Rattikone’s heroin factory in the small lumber town of Ban Khwan on the Mekong River. Khun Sa’s caravan was shadowed most of the way by KMT forces, who launched an ambush about fifty miles outside Ban Khwan. The Shan traders fended off the attack, escaped across the Mekong and set up a defensive position in the town. The KMT forces regrouped and launched another attack. At this point General Ouane relayed word that both the Shan and the KMT should leave Laos or face attack by his men. The KMT forces demanded a payment of $250,000 to retreat. Khun Sa told his forces to remain in place till they received a $500,000 payment for the opium shipment. The next morning six bombers from the Laotian air force, then under the control of the CIA, flew over the village and dropped 500-pound bombs on both the KMT and Khun Sa’s troops. The bombing continued for two days. The KMT forces eventually fled north, deeper into Laos, while the Shan headed across the river, leaving behind most of the opium – which General Ouane promptly dispatched his men to retrieve.

The drug war left Ouane richer than ever, Khun Sa in a weakened state from which it took him a decade to recover, and the KMT in control of 80 percent of the opium market in Burma, according to a survey of opium trading the CIA requested William Young to prepare in 1968. As General Tuan Shi-wen told a reporter for the London Weekend Telegraph, “Necessity knows no law. We have to continue to fight the evil of communism, and to fight you must have an army and an army must have guns and to buy guns you must have money. In these mountains the only money is opium.” In late 1960 Burmese opium was selling for $60 a kilo in Chiang Mai, where the going price for an M-16 was $250.

Khun Sa made his comeback in the early 1980s after he forged an alliance with the Shan rebels whom he had once been paid in drugs by the Burmese government to put down. He ran his new opium empire from the small mountain village of Wan Ho Mong, ten miles from the Thai border. By the late 1980s he had built a 20,000-man rebel force called the Mong Tai Army, and had amassed a prodigious amount of money from his control of almost 300,000 acres of land in the Shan States given over to the opium poppy. There were twenty heroin factories under his control, and his gross revenues were reckoned by Newsweek to amount to $1.5 billion a year, which – even at the $500,000 a month he claimed it cost to supply and feed his army – left him with plenty in savings.

In 1988 the Burmese government was taken over by the State Law and Order Restoration Council, or SLORC. To fund its new regime the SLORC set a goal of doubling opium exports, and by 1990 Burma was producing more than 60 percent of the world’s heroin supply, valued at more than $40 billion a year. The SLORC used the proceeds of this trade to bought $1.2 billion worth of military hardware, according to the International Monetary Fund. The US Embassy in Rangoon noted flatly that “exports of opium appear to be worth about as much as all legal exports.” Banks in Rangoon were, and at the time of writing still are, offering money laundering services at a 40 percent commission. The profits of Khun Sa and other opium lords were cleansed by comingling them with the huge revenue stream from the SLORC’s favored oil companies, UNOCAL (from the US) and Total (from France).

In 1992 U Saw Lu, a leader of a Wa tribe in the Shan States, began a campaign to try to shift his region’s agriculture out of opium production. He told agents from the US Drug Enforcement Agency about the opium-running practices of Major Than Aye, an intelligence officer with the SLORC. News of this exchange soon made its way to SLORC agents, who arrested U Saw Lu, and began fifty-six days of appalling tortures, during which he was hung upside down, beaten with chains, and had electric wires attached to his genitals while buckets of urine were dashed in his face. Lu’s torture was overseen by Major Than Aye, the very man he had informed on to the DEA. Than had every intention of killing the Wa leader, whose life was spared only after other Wa leaders threatened to take up arms against the SLORC regime.

When U Saw Lu recovered, he didn’t back down. Instead, he prepared a detailed plan to substitute other crops for opium in the Wa region. The report was titled “The Bondage of Opium – The Agony of the Wa People, a Proposal and Plan.”

In 1993 Wa gave his plan to the new DEA agent in Rangoon, Richard Horn. Horn was a 23-year veteran of the DEA who saw his appointment as head of the Agency’s bureau in Rangoon as his “dream job.” He seized on U Saw Lu’s ideas as an exciting opportunity and began to support him and his Wa comrades. But the CIA station chief in Rangoon, Arthur Brown, got a copy of Lu’s report and leaked it to his friends in SLORC intelligence. The SLORC tried to arrest Lu again, and were only dissuaded after Horn’s intervention. Horn himself now paid the price for sticking his nose into such affairs of state. According to a suit he later filed against the CIA, the first intimation he had of the Agency’s hostility was what he construed as an attempt to set him up for assassination. He also discovered that his phone lines were being tapped and that his own conversations with his superiors at DEA HQ back in Washington were being quoted verbatim by Franklin Huddle, the number two at the US Embassy in the latter’s communications to the State Department. Horn was angered not only by this personal harassment but by the fact that the CIA was continuing to provide intelligence and training to SLORC’s internal security force, even as the Agency sabotaged his attempts to back U Saw Lu’s anti-opium plans. Finally, the DEA recalled Horn and he was reassigned to New Orleans. He filed suit against the CIA in 1994 as an individual and again in 1996 as part of a class action suit by a number of DEA agents, charging that they had been harassed, intimidated and secretly spied on by the CIA. The court documents related to this lawsuit are sealed.

In 1996 the SLORC made a deal with Khun Sa. The warlord had been indicted by the US Justice Department in 1990, but the SLORC announced that he would neither be sent to the US nor brought up on any charges in his own country. Instead, he was given the Burma-to-Thailand taxi concession and a 44-acre site outside Rangoon where his son has plans to build a gambling and shopping complex. Khun Sa predicted that his deal with the SLORC wouldn’t end the opium trade in the Shan States. “On the contrary, there will be more. My people need to grow opium to make a living. If Americans and Europeans didn’t come here there would be no drug trade.”


Our description of the British opium trade is based largely on three less than satisfactory books, Michael Greenberg’s British Trade and the Opening of China, David Owen’s 65-year-old British Opium Policy in China and India and Arthur Waley’s The Opium War Through Chinese Eyes. Joseph Stilwell’s own writings provide the best guide to his frustrating experience in China. Harris Smith’s book on the OSS is excellent on the disastrous decision-making by American anti-Communists in the waning days of the war in Asia. Smith’s history of the OSS far surpasses any similar work on the CIA.

Our profile of Tu Yueh-sheng draws heavily on essays by Y. C. Wang and Jonathan Marshall. William Corson and David Wise give useful accounts of the CIA’s much overlooked early misadventures in Burma. Al McCoy’s Politics of Heroin, as always, was an indispensable map to the confusing terrain of Southeast Asia’s narcotics trade. Dennis Bernstein and Leslie Kean have also written fine articles on the horrors of contemporary Burma. Equally informative was the Frontline series on the Burma opium trade written by Adrian Cowell. Bertel Lintner has reported on Burma and the Shan States with consistent brilliance in the Far Eastern Economic Review.

This article is adapted from Whiteout: the CIA, Drugs and the Press.

Everybody’s Leaving Town

Booked Up

What I’m reading this week…

The Face of the Buddha by William Empson

To be a Machine: Adventures Among Cyborgs, Utopians, Hackers and the Futurists Solving the Modest Problem of Death by Mark O’Connell

Earthly Signs: Moscow Diaries, 1917 – 1922 by Marina Tsvetaeva

Sound Grammar

What I’m listening to this week…

The Luckiest Man by Ronnie Earl and the Broadcasters

Trio Crescent: Celebrating Coltrane by Marcus Roberts Trio

Live by Casey Hensley

Rock N Roll Consciousness by Thurston Moore

Rubicon by Parallel Activity

Land of Unhappy Opportunity

James M. Cain: “You know, Frank, this country. There are no ideas here. Opportunity, sure. But there’s no happiness.” (Postman Always Rings Twice)


Jeffrey St. Clair is editor of CounterPunch. His new book is The Big Heat: Earth on the Brink co-written with Joshua Frank. He can be reached at: Alexander Cockburn’s Guillotined! and A Colossal Wreck are available from CounterPunch.