A CUTE LITTLE BANKHAUS IN BISHO


In the 80s, at the time of the international banking freeze on South Africa, were tons of drug dollars laundered through Ciskei to pay for apartheid South Africa’s “hot” trade in arms, oil and other international sensitive commodities? Perhaps even flown in plane loads to Ciskei’s “International” airport, to be banked at a mysterious small bank with mafia and spy connections?

Or was the mere threat of such competition from Ciskei-based operators enough to persuade the South African conventional banking sector to “wash” the dirty money themselves - leaving buccaneer hopefuls from Pretoria  like Albert Vermaas and Eugene Berg with no role, except as scapegoats for a show of law enforcement?

Might the Geheime Kamer, a soundproof room in Volkskas Headquarters in Pretoria (where, according to Bob Aldworth’s description, billion rand currency transactions were done, unrecorded) have had something to do with it?

The search for the answers to these questions, and the fate of two of the characters, who featured in the Ciskei story, Albert Vermaas and Vito Palazzolo, prompts us to take a closer look at the history of a cute little bankhaus in Bisho, which started out as The Bank of Bisho and ended grandly as Eurobank Ltd.

Vermaas and Palazzolo appear to have little in common. Vermaas has been on trial, on and off, for the past two years for fraud and other commercial offences. Palazzolo, the Sicilian-born money launderer and banker to the Mafia who came to Ciskei in 1985, continues to find safe haven in South Africa and now travels on a bought Paraguayan passport which describes him as a “farmer from Asuncion”.

But they did once have at least one thing in common: an ambition to set up a bank in Ciskei.

Documents exist showing that, in the mid-1970s, the circle of senior officials and conmen surrounding the Minister of Information, Dr Connie Mulder (Dr Eschel Rhoodie’s political boss), considered setting up an “independent” bank in the homelands as a channel for covert funds.

At about that time David Kimche, described as Mossad’s leading force in Africa, and Israel’s real-life equivalent of Le Carre’s spy character, Smiley, appeared on the scene.

Kimche became a close friend of South Africa’s Secretary of Information. Dr Rhoodie, when Rhoodie headed one of South Africa’s most important secret projects: code-named Operation David, it encapsulated the secret collaboration between the Apartheid State and Israel. The pebble in this David’s sling was, of course, The Bomb.

Also involved in Operation David was Johannesburg businessman David Abrahamson who, besides being founder of the ill-fated National Growth Fund, was both an undercover intelligence agent and an expert in foreign currency matters. His trail would take us to Thesaurus, a small, shady bank in Switzerland with a big secret mission, but that's another story.

Many believe that the assassination, by professional hitmen, of Dr. Robert Smit in October 1977, had something to do with it. Smit had been treasury adviser to the Minister of Finance, Dr. N. Diederichs, for many years and was also SA’s representative at the IMF in Washington. Only weeks before his death he believed he was under surveillance and feared assassination by a foreign intelligence agency - he thought either American or Israeli. He told friends he had discovered something which the Minister of Finance had done which profoundly disturbed him.

In the ‘80s it appeared that Ciskei was being run as a joint operation by South African and Israeli Intelligence. The more so since most of the operatives appeared determined to prove spy novelist John LeCarre’s thesis that the perfect spy is also a perfect conman and thief. As the years pass, the evidence mounts, with some of the most recent contributions coming from former Israeli intelligence officer Ari Ben-Menashe, and the Goniwe and Sebe inquests.

Back then, the talk was of a Ciskei clearing house for hot money from Europe and America – money too hot even for Switzerland to handle - to provide South Africa (and indirectly, Israel) with the foreign currency desperately needed to finance their arms and nuclear programmes.

But first, a brief recap on the life of Vito Palazzolo, sometimes also known as Roberto [For more detail, see nose8]:

In 1962 Vito Palazzolo, just 14 years old, left his birthplace, Palermo, Sicily, to become a waiter in a restaurant in Switzerland. Within three years he learned not only to speak English, German and French, but also how to anticipate his customers’ needs. For a further three years he did stints in the casino business, the travel agency business, and in the foreign exchange department of the Deutsche Bank. In the seventies he went into the international gem trade, airport duty-free shops, and shipping.

In short he had accumulated the qualifications required to be a dealer in Hot Money and a banker for the Sicilian Mafia.

In 1976 he paid a flying visit to Bangkok and Hong Kong, the drug and financial clearing houses of the East, before spending a final short stint at the Deutsche Bank. He was ready to launch into “fringe” banking in Switzerland – doing the sort of currency deals that official bankers would rather not do for fear of landing in jail.

Typical customers of such “banks” are arms and drug dealers, spies, businessmen evading tax; politicians hiding undercover commissions or bribes; also radical organisations and nations funding civil wars, revolutions or The Bomb.

Palazzolo claims friends from a wide circle – German intelligence, customs, the diplomatic corps; the KGB; as well as in the arms black market and the international gem trade.

In 1981 he was employed  in Lugano at Finagest (Swiss acronym for “Financial Management”), a business specialising in money laundering.

The Italian Mafia was one of Finagest’s more important customers.

Also employed at Finagest were two currency runners who would later be identified in the New York “Pizza Connection” trial, in which Palazzolo and a score of Mafiosi were charged with running the biggest heroin smuggling operation in history.

One of the more senior clients for whom Palazzolo laundered drug profits while employed at Finagest was Oliviero Tognoli, whom, Palazzolo would later claim, he thought was an Italian industrialist laundering the proceeds of under-invoiced steel exports. But, in the same period, Palazzolo is recorded as having had contact with well-known Mafia figures in Germany, the USA and Sicily itself. Tognoli was one of his co-accused in New York's famous Pizza-connection trial.

1981 also found Palazzolo shopping around the banks of Switzerland looking for R300 000 in South African rand notes - to pay for an undeclared consignment of diamonds. As Judge Louis Harms would later remark in his Commission report: “One can only guess what the origin of the diamonds was, and what the destination of the rands.”

Palazzolo did have diamond connections in South Africa: his brother Pietro was operating as a buyer in Lesotho, while Pietro’s former employer in Europe, Antwerp diamond dealer Meir Grunfeld, an Israeli citizen, was resident in Cape Town.

Palazzolo’s career as a money launderer in Switzerland ended when, in April 1984, he was arrested by the Swiss police on an Interpol warrant. He was wanted in Rome as one of the accused in the biggest Mafia trial in Italian history. In a desperate bid to avoid extradition to Italy, Palazzolo admitted to his involvement in Finagest’s money-laundering transactions with the Mafia. As a result he was tried, found guilty and jailed in Switzerland on a lesser charge than those facing him in Italy.
 

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In September 1984 – while Palazzolo was still awaiting trial in Switzerland – President Lennox Sebe of Ciskei was persuaded by his corrupt Minister of Health, Dr Hennie Beukes (formerly an officer in the SA Defence Force), to grant the sole concession to start a Ciskei bank to his friends from Pretoria, W A J “Willie” Coetzer and G C “Gerrie” Botma. Both had been connected to the Security Police and National Intelligence.

Dr Beukes also arranged other Ciskei concessions for an interesting collection of Israeli citizens, most of them recently retired military officers.

Coetzer and Botma, apparently still with modest ambitions, decided to call their bank The Bank of Bisho, after Ciskei's capital "city" then still being built by the South African government. But the bank was not quite ready to open its doors for business - it had no capital and the pair were not, after all, bankers. (Botma used to run a little shop in Pretoria selling surveillance equipment). But business prospects looked up , when, on 23 January 1985, Max Hilpert, a director of Finagest, Palazzolo’s old money-laundering company in Lugano, arrived in Bisho, capital of Ciskei, as a member of a top-secret Swiss-Israeli delegation.

The leader of the delegation was Dr Josef Bollag, director in Switzerland of the United Mizrahi Bank – a bank which has strong financial and intelligence links to both Israel and South Africa. (Misrahi directors are an interesting bunch, and include our old friend, Spymaster David Kimche).

In that week in January 1985, the banking delegation headed by Dr Bollag secretly consulted with Ciskei officials (many of them presumed to be South African intelligence operatives) on whether and how to turn Ciskei into a tax and banking haven – with bank secrecy laws more impenetrable than those of Switzerland itself.

The names of those who attended the week of talks in Bisho in January 1985 appear in a top-secret Ciskei Government memorandum which has never before been made public.

The memorandum names the foreign delegation as: Prof Achtnicht, Mr Amman, Mr E. Bernhardt, Dr Josef Bollag (who, besides being a director of the United Misrahi Bank, was also Ciskei’s representative in Zurich), Mr Goldblatt, Mr Max Hilpert, Mr Lundstrom, Mr Merz, Mr Peled, Mr Porchet, Mr Reuben Sghan-Cohen, Mr Urs Walter, Mr Weber, and Mr Zonderegger.

David Spitzer, representing the diamond dealing families of Antwerp was accompanied by Messrs Panzer, Smith and Trobl.
The delegation met with Ciskei’s Law Reform Committee; with officials responsible for the Swart Report on Taxation; with senior officials of the Ciskei Treasury; with the directors of the Ciskei People’s Bank; and, finally, with members of the Ciskei cabinet.

It is not known what was decided at these meetings, but a Ciskei spokesman did claim in a press interview not long afterwards that an agreement had been signed with “a Swiss consortium” which, he said, would inspire confidence and give the proposed new financial dispensation in Ciskei “international credibility”.

At The Bank of Bisho, things seemed to be on the move; its board was expanded to include Finance Minister Barend du Plessis’ former business partner, Hercules J Both (as chairman) and Ciskei’s Minister of Finance, Ray Mali. Other new board members included L.P.S. “Hoppie” Roets (who, ten years earlier, had fronted for secret projects run by Eschel Rhoodie’s Department of Information and would later become a preferred supplier of provisions for Unita) and Omri van Zyl, member of a firm of attorneys that had previously acted for Pretoria architect and Info frontman, Oscar Hurwitz.

Tantalisingly, not long afterwards, a contract was awarded to US citizen Gary Morgan to build a Ciskei international airport at Bisho with a runway suitable for intercontinental airliners. It was such an obviously absurd idea - if considered in terms of conventional cargo and passengers – that it was easily dismissed as just another bit of African insanity. (And of course, Morgan was persuaded to use his dollar profits, converted to finrands, to save the Minister of Manpower, Pietie du Plessis, and the Deputy Governor of the Reserve Bank, Jan Lombard, from imminent bankruptcy by investing in their ill-fated property company, Natprops – more African insanity.)

The Ciskei government’s next step was logical enough: it did a deal with another US citizen, John Robinson, to set up Ciskei International Airways (CIA). When Morgan’s runway was completed, Robinson flew in two out-of-date Convairs that had already earned their weight in gold on the Iran-Contra arms run. They never took off again. And nobody has bothered even to collect the rent. Just another big of insanity? Or had they fulfilled their purpose?

But back to banking. A year passed after the bankers’ secret meetings in Bisho and then, in June 1986, attorney Peet de Pontes, Nat MP for East London, was summoned to Switzerland to consult with a new client, Vito Palazzolo, in his cell in La Stampa prison in Lugano. This would not be the first visitor from South Africa Palazzolo had welcomed in his prison cell. Twelve days earlier he’d had a visit from his old friend, Antwerp diamond dealer Meir Grunveld, who had recently emigrated to South Africa.

Palazzolo instructed his new attorney to investigate the possibility of his officially emigrating to Ciskei, giving him unlimited access to South Africa.

In October Palazzolo was informed that President Sebe had personally agreed to grant him temporary residence rights in Ciskei. Sebe was keen that Palazzolo should help establish a national bank in Ciskei. The Sicilian declared it "a privilege and an honour to be asked to help in this way."

At the same time, however, Palazzolo asked De Pontes to discuss problems concerning his possible extradition from South Africa, housing and other matters with his “Jewish friend in Cape Town” - Meir Grunveld.

On Christmas Eve, 1986, Palazzolo absconded from his Swiss prison and, assisted by an unnamed foreign diplomat, crossed the border to Germany, from where he flew to South Africa using a false passport.

Within a month he was trying to organise the shipment of arms supplies, embargoed in France, to South Africa. There was a delay, however, when he found that his contact in France was away – on a secret mission to Iran.

Palazzolo would later explain that he knew about the arms trade “only from a financial point of view”, and that it was as a banker that he had got to know various people involved in these transactions.

He invited a friend and business partner in Spain to visit Ciskei to help set up a bank, to be called Europa Bank, and to help with arms for South Africa. His Spanish friend was also an agent for French arms manufacturer, Thompsons.

In mid-1987 Palazzolo assumed the name Robert Von Palace Kolbachenko – an extravagant invention – to hide his true identity and, more importantly, his criminal past. Curiously, he also suggested this name related somehow to a distant Jewish Russian aristocratic ancestor. He took to wearing a gold star of David pendant. (He is, in fact, of ordinary, Catholic Sicilian descent.)

On 22 September 1987 Palazzolo’s new Ciskei company, Papillon, made formal proposals to the Ciskei Government to set up a Ciskei National Bank which would take over the functions then still performed by the South African Reserve Bank in Ciskei. It was also proposed to draw up a Ciskei Banking Act and to set up a banking authority. Papillon was to control the bank, provide the necessary expertise and draft the necessary legislation.

On instructions from Palazzolo and his Hong Kong business partner, Mr Yeng Ping Kok – also named in the records of the New York Pizza Connection trial – a Singapore attorney drafted a Monetary Authority of Ciskei Act, based on Singapore’s banking laws. It was passed into law by Ciskei’s parliament.

But all appeared to have been for naught when, on 31 January 1988, Palazzolo was arrested by the SA Police and returned to prison in Switzerland.

Five months later, First Ciskei Bank changed its name to Eurobank Ltd. All the other old directors resigned, to be replaced by Gerald Joseph Grieveson – a British citizen and an accountant based in Pretoria, Anthony St John – a young, South African-born member of the British House of Lords, and various Pretoria businessmen that did not signify much. (They would in any case later say they knew nothing about the business.)

Eurobank Ltd was, however, itself controlled by another company, Eurobank Controlling Corporation, where, more significantly, Pretoria advocate – and founder of Allied Bank – Dr Eugene Berg headed the list of directors. Berg’s closest friend at the time was Theo van Wyk, who was soon to be appointed South Africa’s new Registrar of Banks.

Most significant, however, was the majority shareholder of the Controlling Corporation: an entity curiously named Whales Offshore Holdings (Ciskei). It had been incorporated by attorney Omri van Zyl on 21 September 1987, with a share capital of four thousand R1 shares. Omri held one share; the rest were controlled, through various trusts, by Pretoria attorney Albert Vermaas. Vermaas’s connections in cabinet and senior military circles were legendary. His attorney partner, Alwyn Marx, had been seconded to become full-time organiser and fundraiser for Minister of Foreign Affairs, Pik Botha’s parliamentary constituency. Vermaas, too, had an airline which undertook covert international missions for the government.

But again, only six months later, disaster struck: the illegal cash pyramid with which Vermaas and Berg had funded their banking operation collapsed. Vermaas claimed to have been relying on backing from top military and government circles. If so, they had obviously let him down badly. In any case, these claims were now vigorously denied. But that, of course, is another tale.

Footnote: Since those heady days, Israeli master spy David Kimche has not entirely departed from the South African scene, even if his role as one of the masterminds of Iran-Contra did keep him very busy. On 21 November 1989, after a visit to Israel by Johannesburg businessman Gerry Simon, Kimche – now as MD of the United Mizrahi Bank – agreed to act as “fiduciary & intermediary” for a US$600 million secret foreign loan for South Africa. The loan was being raised by Alwyn Lombard, corrupt brother of former Deputy Governor of the South African Reserve Bank, Dr Jan Lombard. The loan did not materialise and resulted in Alwyn Lombard being convicted for fraud. n

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