The Surprising Bilking of a Nation, The Piastres Affair

In the novel, Le Grande Monde, by Pierre Lemaître, part of the story anchors on a true 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. The debacle was exposed by a courageous French civil servant, named Jacques Despuech. One would expect such a whistleblower to be universally hailed by his countrymen. Instead, Despuech was made a pariah by greedy profiteers who had long stuffed their silk-lined pockets using the same financial slights of hand.

This week’s post looks at one of the biggest yet lesser-known scandals in French history, L’Affaire des piastres.

A Preponderance of Occupiers

The French began their involvement in Southeast Asia as early as the 1600s when Jesuit missionaries arrived in the region. It wasn’t until 1887 that France established the colony of Indochina, comprising today’s Vietnam, Laos, Cambodia, and a small portion of China. For five years during World War II, the Japanese occupied this crown jewel of the French colonies. But in August 1945, after surrendering to the United States, the Japanese fled back to their homeland. Before France could reestablish its dominance, communist insurgents in the north took advantage of the disarray to launch a series of attacks, hoping to send the French packing on the heels of the Japanese.

The League for Independence of Vietnam, founded by Ho Chi Minh, was a national coalition seeking to establish complete independence from France. Known as the Việt Minh, the anti-colonial resistance group quickly took control of Hanoi and the region of Tonkin in northern Vietnam. On September 2, 1945, Ho Chi Minh delivered a speech from Hanoi’s Ba Dinh Square, where he proclaimed Vietnam’s independence from France, famously using the phrase “All men are created equal” from the US Declaration of Independence.

News of Ho Chi Minh’s announcement was not well-received in France. With the war over, Charles De Gaulle, then chairman of France’s provisional government, was eager to restore the French Empire. Ceding the country’s most populated and richest colony, La perle de l’Empire, to communist nationalists was unthinkable. In October, De Gaulle sent 80,000 French troops to secure the southern regions of Indochina, expecting Ho Chi Minh to accept a compromise. Negotiations, however, soon broke down. By October 1946, the two sides had entered a full-blown war that would last another 8 years.

Reviving an Economy

Defeating the Việt Minh was only one of the many problems facing France. In the aftermath of World War II, the French economy was shot and resources were stretched paper thin. The biggest priority of the French people was rebuilding the mainland. Reviving a tropical colony thousands of miles away fell to the bottom of a long, long list of priorities. Simultaneously, however, a powerful conglomeration of overseas bankers, investors, civil servants, and military officers, who had seen their colonial fortunes wiped out, were looking to restore their former livelihoods. Joining their ranks were French political leaders, who equated an extensive empire with national superiority. These influential factions viewed an independent Indochina as utterly unacceptable.

The question facing the French government was how to gain people’s support for an overseas operation that required sizeable investments of blood and treasure. The solution to this burning conundrum, while creative, would lead to massive corruption.

On December 25, 1945, four months after France’s return to Indochina, De Gaulle’s provisional government set the value of 1 piastre (the currency of French Indochina) at 17 French francs. The new exchange rate was completely artificial. 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 would boost 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.

The difference between the value of a French franc in Indochina and a French franc in France would be covered by the French Treasury—by extension, French taxpayers. To keep transactions on the up and up, France set up the Office indochinois des changes, OIC, a bureaucratic office to oversee and regulate the transfer of funds.

A Wicked Web

In Lemaitre’s novel, Le Grand Monde, my favorite character, Étienne, is a young French functionary working at the OIC in Saigon where applications for currency transfers were habitually approved. A successful applicant could import goods from France at a fraction of the cost, affording luxury items that would normally lie beyond their reach. By converting their French paychecks into piastres, then repatriating them at a premium in France, anyone with connections could boost their earnings, transferring the excess directly into their mainland bank accounts or the accounts of family members.

These types of operations, however, were chicken feed. Soon a monumental trade in piastres would overwhelm the OIC. The biggest traffickers relied on a technique that employed fake commercial transactions. A reputable businessman would present all necessary documents to justify a large purchase of French merchandise to be shipped to Indochina. But all of the paperwork would be phony. The piastres required to secure the purchase would then be transferred from Indochina to France but the merchandise would never arrive.

Even worse, the merchandise attached to the fictive transaction would be shipped to Indochina but its worth would be next to zero. As a result, South Vietnamese ports received untold numbers of worthless and unsellable goods: out-of-date textbooks, spoiled wines, rusted motors, thousands of chamber pots, defective umbrellas—you get the idea. Most of the time, the purchaser failed to come and collect them, giving rise to colossal trash heaps at the edge of the city.

In his book on the French Indochina War, war correspondent Lucien Bodard wrote:

As one observer put it, money was flowing in the streets of Saigon like the champagne of its nightclubs.

Cream Floats to the Top

One might naively assume that French government officials knew little of the widespread corruption that was taking place beneath their refined olfactory glands. Au contraire, most French politicians knew exactly what was going on and felt compelled to turn a blind eye.

While France controlled all of Indochina prior to World War II, they retained the Vietnamese Emperor Bảo Đại (educated in France) as a symbolic figurehead. Shortly after Ho Chi Minh delivered his famous speech in Hanoi, however, Bảo Đại decided the gig was up and installed himself in Hong Kong. Two years later, as the French struggled to re-establish control and appease the growing trend toward nationalism, they invited Bảo Đại to return as Chief of State of the newly formed Vietnam.

The 35-year-old Bảo Đại was less than enthusiastic about returning to his homeland. Ho Chi Minh was determined to expand his dominion southward and would never be willing to share power. Even if the communists were kept at bay, Bảo Đại’s influence over the French was dubious. As the hamstrung head of a puppet regime, he’d have little or no autonomy. To sweeten the pot, the OIC agreed to turn a blind eye to any and all transfers that Bảo Đại and his cronies might wish to effect. Long live the reinstated marionette!

An Audacious Reporter

In the days, weeks, and months surrounding the Liberation of Paris, Jean-François Armorin became one of France’s most celebrated journalists. A regular contributor to the underground newspaper Le Franc-Tireur, Armorin’s popularity soared as the author of many sensational scoops. In 1950, he decided to focus his attention on the traffic of piastres. During his investigation, Armorin claimed that a Corsican mob boss named Mathieu Franchini lay at the heart of the most egregious trafficking.

Franchini, who owned one of Saigon’s luxury accommodations, the Hotel Continental, had many high-placed friends. Days after Armorin’s story broke, a Franchini devotee and fellow Corsican approached the reporter and slapped him across the face. During the rest of his stay in Saigon, Armorin sent many telegrams to his editors stating that members of the Corsican gang were out for his skin.

Tragically, on his return trip to la métropole, Armorin’s Air France flight collided with another aircraft, sending both planes into the sea. While proof of malfeasance was never uncovered, Le Franc-Tireur accused Franchini of being behind the disaster.

For the first time, people in France were learning something about the dubious financial trade that their tax money was supporting. However, it would take another three years and a tenacious whistleblower before the scandal fully erupted.

Continued here…