Do You Sincerely Want To Be Rich? (18 page)

    'Listen', asked Cowett, 'who's the opposition down there?'

    'The Department of War', said Coughlin.

    'We seem to have trouble on the fine, Ed,' said Cowett. 'For a minute I thought you said the Department of War.'

    'That's right', said Coughlin. But it was still a little while before the boys in Geneva accepted that the government's determination to run IOS out of Brazil was absolutely not negotiable.

    George Tregea had in fact been quietly picked up by the police and grilled earlier in the year. It was after this that the police began to open IOS’s mail, with the result that they had accumulated all the detail they needed: names, code-numbers and addresses of salesmen and managers; names, code-numbers and the size of their accounts for some two thousand clients. Some managers succeeded in hiding their records from the police, and it is probable that the total number of clients was considerably higher than that. The police also made some slightly comic mistakes. They got excited over a photograph of an IOS party which showed a placard saying 'One Hundred Million Dollars'. It was an old picture, and this figure referred to the total amount under IOS management at the time it was taken, not to the amount that had been spirited out of Brazil.

    Nevertheless, the Brazilian police learned and subsequently made public enough detail to give a sharp-focus picture of how the whole massive clandestine operation actually worked in Brazil.

    Before we look closer at this picture, it is worth understanding why the Brazilian government was so passionately hostile to what IOS was doing. Under the presidencies of Juscelino Kubitschek, Janio Quadros, and Jango Goulart, the rich in Brazil sent as much of their money abroad as they could for fear of the twin perils of Communism and inflation. In the last years of the Goulart administration, inflation reached 75-80%
per annum,
and not only threatened to dislocate the entire economy in the future, but was already wiping away great slices of everyone's capital so long as it stayed in cruzeiros.

    The military government which overthrew Goulart in a coup in 1964 was ferociously anti-Communist; but it was also puritan, nationalist, and unsympathetic to those in the wealthier classes who were suspected of being 'bad Brazilians' - which specifically included those who were dodging taxes or sending their money abroad.

    There was also (there still is) a strong streak of anti-American feeling in the Brazilian officer corps, for all its noisy anti-Communism. One non-American IOS manager remembers being interrogated by an officer who used a cutting phrase about 'those Yanquis with their ridiculous little flat briefcases.'

    You could not expect these officers and officials, struggling to five off their modest salaries, to have much sympathy for foreigners who seemed to be getting rich out of Brazil's difficulties. 'He pays more in rent every month than I earn in salary,' said a colonel in the army secret service when he heard 5 about Fred Berlin's apartment, his yacht, his Jaguar and his Chevrolet; 'and he pays less income tax than I do.'

    No wonder, too, that the officials' nationalism was offended when they came upon a passage like the one in the training manual used in Brazil to teach IOS salesmen how to deal with possible objections.

    The manual explains what you must say if the prospect says that as a Brazilian, he would prefer to invest his money in his own country.

    'There's no doubt about it,' the salesmen were trained to answer, 'as a Brazilian you should naturally prefer to invest your money here. But you must see that the political situation is unstable, and the cruzeiro is constantly being devalued. Think first of your children and your wife. Invest your dollars in protection for the future.'

    Very early in its life, in 1964, the military government moved against capital flight and tax evasion by passing a whole series of new laws. The most important of those that IOS was accused of breaking were an exchange-control law of June 14, 1965, and a tax fraud law of one month later. The first prohibited changing money out of cruzeiros into foreign currency without informing the Central Bank. The second dealt with those who failed to declare for taxes income arising from investments abroad. (In each case the maximum penalty was two years' imprisonment.)

    It has been suggested that these laws were introduced specifically to give the government power to act against IOS. But these laws only amplified earlier legislation introduced as soon as the new government came into power. And it was precisely at the time when the government did begin to toughen up its exchange control and tax law - in 1964 - that IOS began to do a big volume of business with Brazilians.

    It looks as though the sequence of cause and effect was the same in Brazil as elsewhere - in the Philippines, for example. As long as restrictions on capital flight were ineffective, people sent their money abroad in traditional ways. It was only when the old holes were stopped that they needed an organization like IOS to show them how to beat the controls. And of course the IOS sales force, some two hundred strong in Brazil at the peak, could preach the gospel of capital flight to people who would never have thought of sending their money abroad through the existing network of money-changers and banks.

    Long before the Brazilian operation got under way, IOS had contracted an extremely important relationship with one particular bank in Geneva. It was Gladis Solomon who, in 1960, in Monrovia, Liberia, happened to try to sell a Dreyfus programme to Dr Tibor Rosenbaum, who, only two years before, had started the International Credit Bank in Geneva.

    Rosenbaum immediately
could not be expected to ask where the clients got their dollars, and that as far as IOS was concerned, its associates only accepted money in foreign exchange. There is good reason to think that this attitude is disingenuous.

    John Jessen, the senior man in Brazil after Tregea left, had a written opinion from a lawyer warning him that IOS was breaking the law unless all remittances of money abroad were reported. 'The omission of this formality,' wrote the lawyer, Luis Claudio Albuquerque Campos, 'constitutes a transgression of the law. Such a procedure must be considered by IOS as a calculated risk.'

    In December, a few weeks after the IOS arrests, the Brazilian detectives found what they said was one of the routes used for getting money converted and taken out of the country. They uncovered two clandestine banking offices, one in a Copacabana apartment in Rio, the other in a private home in Sao Paulo. According to the police, these 'bankers' took in the money in cruzeiros from IOS clients and remitted it, converted into dollars, to the Foreign Trade Bank in Montevideo, which is the Swiss-Israel Trade Bank's correspondent in Uruguay. It was then sent to Switzerland and deposited in odb, and finally invested in IOS funds when confirmation arrived from the salesman in Brazil. The 'bankers' represented themselves falsely as agents of the Swiss-Israel Bank.

    The first IOS clients in Brazil were American and other foreign businessmen. Expansion began soon after George Tregea arrived from Venezuela at the end of 1962. By the end of 1964 Brazil had become IOS’s biggest single market in the whole world. Not long after that, business had settled down to a steady face value volume of $5-6 million a month, with about 30-40% of that in cash.

    At the end, though 5 % of sales were still to Americans, and some salesmen were still doing well with the foreign communities in Sao Paulo, the overwhelming majority of the clients whose names were eventually published in lists of hundreds in the newspapers, were Brazilians. They included landowners, lawyers, industrialists, civil servants, and doctors. They also included a 'fiscal judge' whose duties presumably included trying cases like his own; and Gilberto Freyre, the well-known sociologist.

    According to one of the managers, they also included more than one police official. Fred Borlin told us a story about an IOS salesman who left his briefcase at Borlin's flat, saying, 'If I don't come back in three hours, inquire at the police station'. The associate has a date with a local police chief, and has just succeeded in selling him a $1oo-a-month plan, when a neighbouring police chief stops in for coffee - where upon the IOS man sells him too. The first cop is about to pay, when he suddenly stuffs his cheque-book away, refusing to sign till his friend departs. Afterwards, the IOS man asks the cop what was troubling him. 'You crazy?' asks the police chief. 'You think I want him to see my account number?'

    The list of customers included a stevedore, Alberto Nascimento, with a modest monthly investment programme totalling $12,000; and a big cattle-baron called Luis Esteves Pinheiro de Lacerda, from the wilds of the Mato Grosso, who put in $200,000 in cash. The biggest single client in Brazil that the police found was Byron C. Photios Tambaoglou, from Sao Paulo, who was in for $560,000. The average investment of 157 clients whose holdings were published comes to $31,761.

    The enormously complicated operation of keeping track of all these clients was unmistakably clandestine. At first salesmen used their own ingenuity to set up mail circuits to communicate securely with Geneva. One Sao Paulo manager, for example, sent and presumably also received mail via an address in Tel Aviv.

    Later, according to Venturini, George Tregea set up a regular secret 'mail run'. An IOS agent toured the managers in, for example, Sao Paulo, and then handed the 'mailbag' of new business, reports, and so on to a Brazilian internal airline pilot, who flew it to Rio. There it was picked up from a hiding place in a staff lavatory at the airport and taken to an apartment which Borlin had arranged as a 'safe house'. Then it was taken back out to the airport and handed to another Brazilian pilot who took it to Geneva on a scheduled flight.

    Such precautions, elaborate as they were, did not save IOS in Brazil, and the debacle was total. The official position was an unyielding one: essentially, any Brazilian who had made surreptitious investments in IOS funds must liquidate the investment and bring the money back to Brazil, or face prosecution under the currency laws. At the end of 1966, the redemption figures for IOS programmes doubled from six to twelve million dollars a month, largely because of what happened in Brazil.

    The Brazilian customers had mainly been buying the Fund of Funds. Those of them who did not quite understand the mechanism of the front-end load must have understood it very clearly when they had hurriedly to cash in programmes which they had only bought within the last year. And at the end of 1966, the Wall Street market happened to be suffering a nasty break.