France’s Dirty Indochina War & Whistleblower Jacques Despuech

Last week I wrote about a financial scandal that bilked the French people out of massive sums of money and slowed France’s economic recovery after World War II. Through a series of government-approved transactions, moving money from Saigon to mainland France, the French people inadvertently funded the weaponization of the Việt Min—Vietnamese forces that were fighting against France. Despite the efforts of journalists to expose the affair, the corrupt system of currency exchange remained in place until a courageous French civil servant, Jacques Despuech, sounded the alarm.

Historical Background

In the aftermath of World War II, French politicians and powerful business and military leaders were keen on restoring France’s widespread empire, including the country’s foothold in Indochina. However, weeks after Japanese occupiers left the area, communist insurgents, led by Ho Chi Minh, quickly gained control over northern regions of the territory and openly threatened to expand into the south. If Ho Chi Minh’s forces succeeded, France’s Southeast Asian colony would fail to exist.

Defeating the Việt Min was only one of the problems facing France in 1945. The French economy was in a shambles and resources were stretched paper thin. The biggest priority of the French people was rebuilding the mainland. Few were interested in reviving a tropical colony if doing so meant delaying their own return to prosperity. Yet, Charles De Gaulle, head of France’s provisional government sent 80,000 French troops to secure the southern regions of Indochina. De Gaulle expected the display of military might to act as a powerful negotiating chip that would convince Ho Chi Minh to share the territory.

The question of how to finance an overseas operation that required sizeable investments of blood and treasure was handled by creating a funding source that few French citizens knew about or understood. The solution involved setting the value of 1 piastre (the currency of French Indochina) at 17 French francs. In actuality, the piastre was trading between 7 and 8 francs on the world’s currency exchanges. This meant that for 8 million French francs, a savvy investor could buy 1 million piastres. If those piastres were then transferred from a bank in Indochina to France, their worth would suddenly jump to 17 million francs.

The French government justified this disparity by claiming that the advantageous exchange rate boosted trade between mainland France, la métropole, and its Asian colony. The decision also created a lucrative incentive for French soldiers and government employees to serve in Indochina. However, unbeknownst to most of France’s population, the difference between the value of a French franc in Indochina and a French franc in France was covered by the French Treasury and by extension, French taxpayers.

To limit the drain on government coffers, France set up the Office indochinois des changes, OIC, a bureaucratic office to oversee and regulate the transfer of funds. However, as I wrote last week, widespread corruption soon plagued the system as scoundrels and opportunists invented myriad schemes to exploit the artificially inflated currency swap.

An Open Secret

The number of methods devised to game the subsidized currency exchange in favor of unsanctioned transactions is a testament to mankind’s inventiveness. One of the most lucrative schemes involved using U.S. dollars to purchase Hong Kong dollars and then using Hong Kong dollars to buy Indochinese piastres. After these steps were accomplished, the trafficker would clandestinely move the piastres into Indochina and lastly exchange them for French francs. The profit from such an operation, restrained by the number of piastres a smuggler could carry, reached as high as 200%.

Meanwhile, the OIC, deluged with an onslaught of fraudulent transfer requests, lacked the personnel and expertise needed to verify the legitimacy of every application. The French government’s complicity, coupled with an OIC staff that personally benefitted from the inflated currency valuation, served to dissuade civil servants from blowing the whistle. Compared to the millions being made from gambling revenue and the sale of opium, one might convince themselves that the trade in piastres was relatively harmless.

Indochinese officials also had little reason to halt the illicit commerce. In 1949 alone, Vietnamese emperor, Bảo Đại laundered enough piastres to line his pockets with 176.5 million francs. France encouraged other Vietnamese business and political leaders to participate. In an area of the world where luxury goods were scarce and war threatened people’s safety, lavish lifestyles financed by the dubious trade in piastres delivered a strong incentive to remain in the region and support the generous colonizers.

An Irate Public

Periodic reports from journalists and even an investigation by France’s Minister of Finance, René Pleven, led nowhere. In 1950, Pleven’s findings stated that the OIC was a woefully weak dike for holding back a tsunami of fraudulent transfers. However, when the French Minister of Associated States, Jean Letourneau, threatened to resign if the piastre was devalued, Pleven backed off but not before sanctimoniously asking a newly-appointed commissioner to investigate. Pleven later testified that he felt he’d done all that he could.

Finally, in 1952, the popular daily newspaper Le Monde published a lengthy article claiming that the French Treasury was costing taxpayers between 300 and 500 million francs per day. The article’s author was a former employee at the OIC, named Jacques Despuech. The honest and patriotic Despuech had served in the Saigon office for 3 years. After his initial attempts to raise a red flag were ignored, he began taking meticulous notes, which formed the basis of the Le Monde article. Within a year, Despuech also released a bestselling book, Le Trafic de Piastres, further exposing France’s scandal of the century.

For the first time, an outraged French public learned of Bảo Đại’s profiteering and that of his cronies. Despuech also implicated the Corsican mob boss, Mathieu Franchini, who I wrote about last week. Another damning accusation revealed that André Diethelm, Vice President of the National Assembly and former Finance Director of Indochina, had used the exchange to raise 17 million francs for the RFP, the political party of Charles De Gaulle. The list of scurrilous beneficiaries seemed limitless, including the Bank of Indochina, which transferred the equivalent of 6.9 billion francs, realizing a profit of 3 billion.

Perhaps the most egregious denouncement, however, was Despuech’s claim that the Việt Min, France’s communist enemy led by Ho Chi Minh, was also taking advantage of the illicit traffic. When the French population learned that their tax dollars were financing the purchase of armaments used against the French fighting force in Indochina, support for a war that many already saw as unwinnable collapsed.

The Party’s Over

After Despuech’s story appeared in Le Monde, other French journals launched their own investigations. In May of 1953, France Observateur claimed that members of the French administration were fully aware of the Việt Min’s financing scheme. They’d turned a blind eye, however, since the only way to end it would be to revalue the piastre at its actual worth. Doing so would put “an end to prosperity”.

Given the magnitude of the scandal, France was forced to take action. On May 8th, the French Treasury unilaterally re-adjusted the value of 1 piastre to 10 francs without consulting the Associated States of Indochina. Overnight the tables turned, with powerful players in Indochina condemning the Treasury’s meddlesome overstepping. Unchecked greed makes strange bedfellows. French administrators in Saigon, wealthy investors, Vietnam’s president, and representatives of the Việt Min were suddenly all on the same page, united in opposing the new market price of the piastre.

Throughout the war, the French government tried to limit press access to the region. Photojournalists, for example, needed approval to publish their work. As a result, the country’s news sources often relied on propaganda provided by the French Army. In 1952, however, the Italian fashion photographer Willie Rizzo began capturing conditions that had largely gone undocumented, including Vietnamese prisoners of war and military preparations for battle. His images, while far from exposing atrocities, dramatized the war and made it clear that French soldiers were not simply in Indochina to maintain the peace.

Despite financial assistance and pressure from the United States, France could no longer justify its struggle to retain a Southeast Asian Colony. In May 1954, after a four-month siege led by the Việt Min at Dien Bien Phu, the French capitulated. More than 2,200 French soldiers were killed during the conflict and nearly 11,000 were captured. Three months later French leaders ended the country’s participation in the Indochina War by signing the Geneva Accords on July 21, 1954.

And Justice for All?

In July 1953, France set up an investigative commission to look into the Piastres Affair. Over the course of 18 months, more than 75 high-ranking functionaries were called upon to testify. The verdict— revealed in 1955, after the war had ended—ruled out all administrative and political complicity or wrongdoing.

Paradoxically, Jacques Despuech was perhaps the scandal’s biggest victim. In the years that followed, he was obliged to defend himself in 17 anti-defamation trials. Thankfully, he managed to prevail in every case. However, the battle depleted his financial resources and Despuech lived under perpetual threat of harm for many years. One day on his way to a meeting with a politician, three men accosted him in the street. He described the incident in his book Le Trafic de Piastres.

At the time of publication, Despuech’s book showed that fraudulent transfers cost French taxpayers a staggering 100 billion francs annually. If my calculations are right, that’s roughly $11 billion in today’s dollars. (Please correct me in the comments if I’m wrong.) While Despuech made many powerful enemies, he remained faithful to his homeland, serving in Algeria until it too broke free of France’s colonial grasp.

In 1954, the United States took over from France, inheriting the same challenges and repeating many of the same mistakes, including backing over-valued currency exchanges in an effort to garner support. But that’s a different story. Sort of.

Endnote

I was unable to find a license-free image of Jacques Despuech for this post. But if you’re interested in seeing what the man looked like, here’s a photo of him standing trial for one of the anti-defamation cases.