Covert operations funded by Chinese black market

Thursday 21 October 1993 23:02 BST

ONE OF the most unlikely successes of the Special Operations Executive's secret war was a Far East black market smuggling and currency racket which grew to massive proportions under the benevolent gaze of the British government.

A letter in the files from Oliver Lyttelton, the Minister of Production, reads: 'This is to introduce my special representative Mr Walter Fletcher, who will explain to you the nature of his business.'

Mr Fletcher's business was to run an operation codenamed 'Remorse'. He was half Austrian, large enough to be counted as two persons on an aircraft in the interests of safety, and described by Hugh Dalton, Secretary of State for War, as a 'thug with good commercial contacts'.

In 1945 he became a Conservative MP, and was later knighted. An international authority on rubber, he was appointed on 15 September 1942 and given pounds 100,000 from the Bank of England to set up a company to buy rubber on the Chinese black market.

In two years, however, he had produced no rubber, and the Ministry of Supply ordered the winding up of his organisation.

But with his network of contacts, Fletcher proposed making money from currency exchanges in China. He imported Swiss watches, diamonds, pearls and cigarette papers. He even dealt in army motorbikes. By taking advantage of the exchange rates, Operation Remorse gave the Allies pounds 77m (nearly pounds 100m at today's values) to spend.

The files record how the money was used to finance covert operations. In one, 5,000 French soldiers fighting a rearguard action in Indo- China were supplied with more than 100 tons of food and camps - 'no other Department was permitted to handle this'.

It propped up the Hong Kong dollar and funded miscellaneous field activities: 'Supplies of Gold, Gold Bars, silver coins, various currencies were secured for other British organisations for operational requirements.'

At one stage Remorse helped break a stalemate between India and China, in which China had restricted the export of silkworm eggs, threatening the Allies' supply of parachute silk. 'Through the established black market channels . . . sufficient eggs were purchased and delivered in India to reinstate the industry,' the files record.

(Photograph omitted)

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