2. The Nazi Connection

Where large British and American firms became the pinnacle of the formal trade in arms, a small German company run by an affable, rotund former Nazi represented the murkiest depths of the shadow world, the borderland between the legal and illegal trade in weapons.

Merex had its genesis in early June 1945, just over a month after Adolf Hitler had committed suicide, as two men sat on a verandah in Wiesbaden in western Germany. One, General Reinhard Gehlen, was a German prisoner of war, who had turned himself over to the Allies a month previously. The other was John R. Boker Jr, an American officer in military intelligence whose task it was to interrogate senior German operatives captured by the Allies. Together they discussed an arrangement that would have deep ramifications for both Germany and the world’s future: to secure the survivors of Nazi Germany’s wartime intelligence in service of the West.1

For Gehlen, and the wide network of operatives he directed, the Second World War had been but a prefiguring of the great global conflict to come. In May 1942, Gehlen was appointed as the Chief of the Fremde Heere Ost (Foreign Armies East), the intelligence branch of the German General Staff on the Eastern Front.2 His experience there was eye-opening; a committed Nazi, Gehlen was nevertheless forced to admit that Germany’s chances of winning the war were slim. Directly appraised of the methods and might of the Soviets, Gehlen confided in his Fremde Heere Ost colleague Lt Col. Gerhard Wessel that the end of the conflict would bring into sharp relief what the exigencies of war had hidden: that the next decades would witness a severing of the world in two, the West on one side and the East on the other. More importantly, the East–West conflict would spare none, demanding allegiances without option: ‘It would be essential to ally with one side or other; no neutral position was possible,’ Wessel recalled in a later statement given to US authorities.3 Caught between two global forces, Gehlen and Wessel chose the West.

Coming to this realization, Gehlen and his organization made plans. Large dossiers of German intelligence on Soviet activities, which included surveillance photos of Russian industrial complexes and detailed intelligence on the capacity of the Soviet air force, were consolidated and hidden, often in makeshift holes beneath the floorboards of foresters’ cottages. When the time came Gehlen and his colleagues would present themselves to the Allies, offering up their cache in return for lenient treatment.

It was a deal that John R. Boker Jr felt was good value. Convinced of the quality of German intelligence, Boker oversaw the reconstitution of the hidden files and scoured POW camps to reunite Gehlen with his former colleagues. Fearful that US authorities with a less sympathetic approach to Nazi officers would scupper his plans, Boker did what he could to hide his activities and protect Gehlen’s organization.4 In August, Gehlen and a number of high-ranking colleagues were transported under Boker’s watch to Washington in the private plane of a US General and from there to the Pentagon.

After initially being placed in solitary confinement,5 within a year, having impressed US Intelligence, who trained him intensively, Gehlen was returned to Germany to head a massive US-backed German spy-ring to monitor Russian activities. Over the next decade, the US poured an estimated $200m into the ring, known colloquially as Gehlen Org.

In 1955, now staffed by thousands of undercover agents, Gehlen Org was formally handed over to the German government and integrated into the newly created West German intelligence agency, the Bundesnachrichtendienst (BND).6 Gehlen, the star of German Intelligence, would head the BND until his retirement in 1968. For his part, John R. Boker, who would become a world-renowned stamp-collector in his private life, was given belated recognition for his foresight when he was inducted into the ‘Hall of Fame of Military Intelligence Service’ in 1990.

Gehlen’s soft landing following the war was matched by other prominent Nazis, many of whom formed a post-war nexus of contacts that frequently fed into the activities of Gehlen Org and the BND. In what was probably not an uncommon discovery, a BND employee was found to have been a prominent member of an SS unit responsible for the liquidation of 24,000 civilians in Russia, mostly Jews.7 Befitting these sordid origins, this network traded in the depraved: torture training, mercenary services and, most notably, arms dealing.

Gerhard Mertins was one such character who emerged from the rubble of the war unscathed and would make hay from his contacts within the Gehlen group. Mertins had excelled during the war, rising to the rank of Major in the Wehrmacht. In 1944, he was awarded the Knight’s Cross – one of only 7,000 German soldiers to receive the honour – for acts of bravery during the unsuccessful attempts to repel the Allies’ D-Day invasion.8

Despite appearing a happy, easy-going man, always ready to help, Mertins was also shrewd and ‘cheated everybody’, according to a close associate.9 Soon after the war he took up a position at Volkswagen, a company with an impeccable Nazi pedigree. Little is known of his activities until the early 1950s, although it is almost certain that he kept curious company. According to US Army Intelligence documents, Mertins was the leader of the Bremen branch of the Green Devils, a group of Second World War parachutists agitating for a rearmed Germany.10 The branch included a number of suspected war criminals as well as General Kurt Student, the man responsible for masterminding the German invasions of Holland, Belgium and Luxembourg.

Closely connected to neo-Nazis of all stripes and unrepentant about his right-wing views, Mertins was more than comfortable with the considerable neo-Nazi sentiment evident in Germany after the war. For instance, he invited Otto Ernst Remer, founder of the Socialist Reich Party (SRP) in 1950, to address members of his veterans’ group in Bremen. The SRP’s platform was almost indistinguishable from Hitler’s and included denial of the Holocaust. Despite disagreeing with some of Remer’s points on rearmament,11 Mertins was ‘considered to be an important SRP sympathizer’ who US Intelligence believed ‘will aid the party financially’.12

Mertins’s connections to the world of veterans and ex-Nazis was to stand him in good stead when he decided to leave the employ of Volkswagen. In September 1952, he travelled to Egypt to participate in a bizarre project that was to provide an entrée to the world of arms dealing.

In 1948, the Egyptian army had been humiliated in a war with the newly created state of Israel. The response of the then Egyptian ruler, King Farouk, was to hire a number of ex-military Germans to assist in training his troops, allegedly with the tacit support of both the CIA and Gehlen Org. When Mertins arrived in Egypt in September 1951 he became a top aide to one of the group’s leaders, the former Wehrmacht General Wilhelm Fahrmbacher, like Mertins a recipient of the Knight’s Cross.13

When the young General Gamal Abdel Nasser led a coup against King Farouk in July 1952, he turned to the Germans who had been training his erstwhile enemy’s forces to create his own intelligence and security network in order to consolidate power. Seamlessly shifting their allegiance from King Farouk, the German detachment set about their new task, still with the backing of the CIA and Gehlen Org. The training was led by Otto Skorzeny, a notorious ex-Nazi who had been part of an elite unit that helped Mussolini escape from Allied jails during the war. Skorzeny himself escaped from a US prison camp in 1948 – possibly with a wink from US intelligence services – and joined the like-minded Spanish dictator, General Francisco Franco. Skorzeny set himself up as an agent for various Spanish arms companies, most notably ALFA. Mertins was in contact with him in 1954 to discuss a potential arms deal that Skorzeny was negotiating with Nasser.

While it is unlikely that Mertins was ‘at the right hand’ of King Farouk, as he boasted in a rare 1968 interview,14 he was certainly less ideologically disposed towards Nasser, especially when the Egyptian Prime Minister moved towards the Soviets for support. Mertins left his Egyptian posting but remained active in the Middle East during the mid-1950s. He trained parachute regiments in Syria and worked as a sales agent for a number of German firms throughout the region. His most notorious employer was a company run by one Herbert Quandt, for whom Mertins sold Mercedes-Benz vehicles in the Middle East, most notably 500 ‘wine-red’ cars to the officer corps of Saudi Arabia.15 Quandt, who had served in the same parachute regiment as Mertins, also had impeccable Nazi credentials: his mother, Magda, had married Joseph Goebbels, Hitler’s Minister of Propaganda, and committed suicide in the presence of Hitler in the Führer’s bunker as the war came to an end.16

As a result of his activities in the region, Mertins was considered a potentially useful intelligence asset. He was approached by US Army Intelligence during the mid-1950s and immediately put on the payroll. His job was to provide his new friends with information about the Middle East gleaned from his work as a salesman.17 It was the first time, but certainly not the last, that Mertins made money from his relationship with intelligence services.

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Mertins returned to Germany in the late 1950s, and attempted unsuccessfully to rejoin the German army. However, his disappointment was soon forgotten in the excitement of a lucrative offer: Reinhard Gehlen asked Mertins to act as the middleman for German arms sales to the Third World. Gehlen would assist Mertins with intelligence about potential clients and help him to arrange the necessary papers – end-user certificates and export licences which are essential to any arms deal.18

Germany at the time was hoping to remilitarize. The thinking was that in addition to using arms to peddle influence, selling its old surplus stock would raise much-needed money for new arms purchases. For this purpose, in 1963 Mertins established a new company, Merex, which was jointly based in Bonn and Vevey in Switzerland.19 He suggested that the name had been intended as a contraction of Mercedes-Export, despite the fact that it was ‘not connected with the car company’.20 Humility might have prevented him admitting that it could as easily be a syncopation of Mertins-Export.

The company boss soon forged a crucial new contact to add to his large intelligence network. In 1965, Merex was hired as the German sales agent for Interarms, the International Armament Corporation run by the infamous Sam Cummings, who was sometimes referred to as the ‘new Zaharoff’ and delighted in pointing out that his house in Monte Carlo was close to the former Zaharoff home.21 Cummings had served as a Lieutenant with US Army Secret Services during the Second World War, after which he was recruited as an undercover agent for the CIA with responsibility to buy up surplus German weapons on the black market.22 He had formed Interarms in 1953 at the tender age of twenty-six and proceeded to make a fortune with help from the CIA. In 1954, he undertook his first major CIA-sponsored mission, to supply arms to a right-wing coup in Guatemala. Three years later Interarms supplied weapons to the forces of Fidel Castro in Cuba – a transaction sanctioned by the CIA.23 It was believed that by supplying Castro with arms, the US may have been able to keep the bearded revolutionary onside: a spectacular, if not uncommon, case of misplaced strategic thinking and blowback.

Together, Mertins and Cummings were a formidable arms-dealing force. In 1965 they worked together to sell seventy-four US-made F-86 fighter planes to Venezuela, fifty-four of which were surplus German stock and a further twenty procured from active Luftwaffe service.24 It was a hugely profitable deal. The planes from German surplus stock were bought at a price of $46,400 each and sold to the Venezuelan air force for $141,000 per plane, netting a total profit of $6.926m, which Cummings claimed was transferred in its entirety to Mertins.25 The deal was riven with corruption.26

The following year, Merex sealed a series of controversial deals that would almost spell an end to Mertins’s nascent career as an arms dealer. Zaharoff-like, he sold fighter planes to both sides in South Asia, one of the world’s less stable regions at the time. The first involved the sale of ninety F-86 aircraft to Pakistan, once again raised from surplus German stock. At the time Pakistan was a no-sale zone, embargoed by NATO because of its simmering conflict with India. The required subterfuge was undertaken with the help of the Shah of Iran, who allowed the planes to be delivered to Tehran by Luftwaffe officers and then flown to Pakistan by Iranian pilots dressed up as Pakistani officers.27

Mertins sold the weapons to Pakistan even though Merex had a standing order with India. In August 1965, India had placed an order with the company for twenty-eight Seahawk MK100s and 101s, old sub-sonic jets that had been used by the Luftwaffe and were now considered surplus. When the India–Pakistan war erupted that year both countries were embargoed. But in June 1966 Mertins was given the go-ahead by German authorities to sell the planes to a company in Italy. He leased a ship, the Billetal, to transport his cargo. It set sail from the tiny German port of Nordenham, and once in the Mediterranean passed straight through Italian territorial waters, and wound its way down the Suez Canal and landed in India.28 Purchased for a reported $625,000 by Merex, the jets were sold for $875,000, raising a profit of around DM5m.29

At precisely the same time that the Billetal was carrying cargo for Merex to India, its sister ship, the Werretal, was on its way to Pakistan, traversing much the same route in order to deliver Cobra anti-tank rockets sold to Pakistan by Merex.30 The Werretal made a second delivery on the same trip, docking in Iran, where the ship disgorged its cargo of missiles, cannons, machine guns and other matériel. An Iranian end-user certificate, signed by the country’s envoy to Germany, gave the deal legitimacy. But, as with the Pakistan deal, the cargo was instead rerouted to Saudi Arabia – a country with whom Germany had severed diplomatic ties a year previously.31 This time the cargo was valued at DM12.58m.32

Mertins’s duplicitous adventures were leaked to the media. An intensive campaign in Swiss newspapers persuaded Mertins that he was no longer welcome in the country.33 The news was also met with outrage in the US, as the planes sold to Pakistan were ex-US stock given to Germany after the war. As often happens in such deals, the providing country retains the right to veto any deal to sell the weaponry on. Selling to Pakistan during a period of conflict was a violation of US and international law. Congressional hearings were held under the chairmanship of Senator Stuart Symington. Mertins was not called, but instead met Symington privately. But Sam Cummings was forced to appear before the assembled politicians, where he confirmed Symington’s astonishing finding that ‘our own intelligence services knew exactly at that time that these F-86s were meant for Pakistan’.34

As Congress was holding hearings into the Pakistan deal, the FBI was investigating whether Merex should be registered as an agent of the West German government. After considerable paperwork had been collected indicating that Merex was in constant contact with the US Departments of State and Defense, Army Intelligence intervened to ensure that the company was not registered as an agent, lest it lose its secrecy and anonymity: ‘The Army has opposed registration of Merex or Mertins (as a former agent) on any basis which could jeopardize [their] continued use.’35

With US Army Intelligence in his corner, Mertins decided to establish an American branch. Merex Corporation was set up in a home in Bethesda, Maryland, just north of Washington DC. In an interview granted as the hearings into his South Asian activities were taking place, Mertins indicated his closeness to the US establishment, by referring openly to Henry J. Kuss – the man who approved or rejected the sale of surplus weapons gifted by the US – by his first name.36 Unfazed by possibly negative press, Mertins distributed Merex memorial calendars, replete with stirring pictures of heavily armed soldiers entering combat, reflecting the experiences of both the ‘new’ and the ‘old’ Germany.37

The opening of the US branch was the final nail in the coffin of the brief but profitable relationship between Mertins and Sam Cummings, which had begun to sour after the Pakistan deal became public. Previously, Interarms had acted as Mertins’s agent in the US, but this was no longer necessary. They relinquished their agency commitments to each other and engaged in some less than flattering portrayals to the press. Mertins was often quoted belittling Cummings’s legendary self-aggrandizement: ‘I know him. He’s Cassius Clay – the greatest! I’ve heard it all. He’s a scrap dealer! He keeps files the way he learned as a corporal. Merex is not on the level of scrap!’38 Ironically, when Mertins lost his sympathetic contacts with the German establishment, Cummings was the one to take advantage, signing a joint agency deal with Mertins’s replacement, a company led by a former Nazi Lieutenant General, Gerhard Engel, who had served as Hitler’s adjutant.39

Mertins installed a close friend, Gerard Bausch, as the CEO and president of the company, although Merex Corp remained entirely owned by the European business. Bausch, who had initially run the company from his basement, came with his own very useful connections. Much like Mertins he had carved a useful niche for himself in the operations of German Intelligence. In 1962, on Reinhard Gehlen’s instructions, he was named station chief in Mertins’s old stomping ground, Cairo. He was briefly arrested in 1965, suspected of involvement in a plot with Wolfgang Lotz, a joint German–Israeli agent, who was discovered forwarding information to Mossad from Egyptian generals unhappy with Nasser, while also sending letter bombs to German scientists who were working with the Egyptian ruler. Bausch was eventually freed after three trips to Egypt by Hans-Heinrich Worgitzky, the Vice-President of German Intelligence.40

Even with Bausch’s connections, Mertins’s relationship with German Intelligence cooled after the Pakistan deal, for which he eventually faced criminal charges. It hardly helped that at around the same time Mertins also completed the sale of 6 million rounds of ammunition to the Nigerian government, soon after West Germany had officially stopped supplying the country after a military takeover.41 Nigeria was increasingly moving towards the Soviets, who would supply arms without fuss,42 so Mertins was providing ammunition to a Soviet-linked state in defiance of his own government.

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With his German government links in a fragile state, Mertins began to pursue other avenues and continents in search of new sales. In some cases he was helped by connections to US Intelligence. In 1972, for example, just over a decade after leaving Egypt because of political differences, Mertins was called in by General Sadiq, a trusted lieutenant of the new Egyptian leader, Anwar Sadat. The Egyptians were frustrated by the slow pace with which Soviet supplies had been delivered. At a meeting with Mertins in Egypt, General Sadiq asked the weapons dealer to sound out US officials as to whether they would be willing to step into the breach if the Soviets were expelled. Also on the table was a potential deal for bridging equipment supplied by Merex.43

But it was in South America where Mertins was able to secure most of his new deals, using, once again, his enduring Nazi connections. In Peru Mertins appointed Commercial Agricola as Merex’s local representative in the country.44 The company was run by Fritz Schwend, who, during the Second World War, had been part of Operation Bernhard, a madcap scheme to undermine the British economy by flooding the UK market with masses of counterfeit pounds.45 Schwend had, like many Nazis, escaped post-war justice and settled in Peru. He and Mertins were assisted by Otto Skorzeny. Skorzeny struck up a close relationship with Peruvian Intelligence, which led to a request for M14 tanks.46

Mertins’s South American network included other, even more extreme, Nazis, such as Hans Rudel and Klaus Barbie.47 A fanatical right-winger, Rudel frequently travelled to Germany in the early 1950s to speak at the behest of the Freikorps, of which he was ‘patron’.48 The Freikorps was ‘the most flagrantly nationalistic right-wing organization in Western Germany since the Nazi Party … adher[ing] closely to the policies of the Nazi regime, even to advocating return to a dictatorship’.49

But the most notorious of Mertins’s South American cabal was Klaus Barbie, nicknamed the ‘Butcher of Lyon’, and a close friend of Fritz Schwend. Barbie personally oversaw the torture and killing of 4,000 residents of occupied Lyons during the war, including a group of Jewish orphans he had ferried to concentration camps. After the war Barbie worked for US Intelligence before settling in Bolivia. In fact, the US aided his move to South America after French authorities had discovered his whereabouts. Barbie’s depraved skills proved useful to Bolivia’s military dictators. During the reign of Hugo Panzer, Barbie was hired to set up internment camps for political opponents, where torture and executions were common. Usefully for Mertins, Barbie also became the dictatorship’s official weapons-purchasing agent. In February 1968, Schwend wrote to Mertins to inform him that Barbie’s company, Transmaritima, was looking to buy used ships for the Bolivian navy. Although it is unclear whether the deal took place, Mertins certainly intended to help; the request to speak to Barbie was forwarded to Merex’s ‘Naval Department’.50

Mertins’s deepest and most profitable connection in South America was with Chile. Merex first entered the Chilean market in 1971 when Gerard Bausch travelled to the country to sell $800,000 of bridles and saddles to the Chilean cavalry, as well as 20,000 rounds of ammunition.51* Their point-man was an influential and ambitious General, Augusto Pinochet, who took power in an infamous coup two years later, supported by the US and in which the democratically elected President, Salvador Allende, was either murdered or compelled to commit suicide. Mertins was delighted that the country was in the hands of a virulently anti-communist strongman and frequently travelled to Chile, where he witnessed Pinochet’s propensity for violence and torture. During these visits Mertins often stayed at Colonia Dignidad, a German community camp based in the southern Andes. He was so impressed with the colony that he formed the Circle of Friends in Germany to raise funds for it.52

Colonia Dignidad was no ordinary community. It was formed in 1961 by yet another ex-Nazi, Paul Schäfer, a German priest who had fled his home country after being accused of child molestation. The camp was heavily fortified, watched over by guard towers and protected by barbed wire, as much to keep residents in as visitors out. The community mixed bizarre social values – autarky and a German agrarian lifestyle from the 1930s – with the fervour of a self-styled militia. When Colonia Dignidad was eventually closed down at gunpoint after Pinochet’s overthrow, a massive weapons cache was discovered which included private handguns, grenade launchers and a buried tank. A secret warren of tunnels had been constructed under the colony, featuring torture rooms allegedly designed by Michael Townley, a CIA operative who worked closely with the Chilean Secret Police (DINA).53 DINA, which maintained regular radio contact with Colonia Dignidad, used the rooms to torture political opponents, often ‘to the strains of Wagner and Mozart’.54 The well-stocked facility was also alleged to be a laboratory for the development and testing of biological weapons, which may have been used on those tortured. When the colony was finally raided, it was clear that Schäfer also engaged in the ritual molestation of young boys forced to stay at Colonia Dignidad, a charge on which he was found guilty in absentia by Chilean courts in 2004.55

During the late 1960s and early 1970s, Mertins also pursued deals in East Asia. US Senate hearings in 1978 heard that the company provided price lists to a notorious South Korean businessman, Tongsun Park, who was accused of inappropriately buying influence in the US Congress in the 1970s.56 In 2005, Park was alleged to have been involved in the Iraq Oil-for-Food scandal. Two years later he was sentenced to five years in prison for his role in attempting to bribe UN officials at the behest of Saddam Hussein.57 In 1972, Mertins entered into a long-lasting relationship with the Chinese military parastatal NORINCO, a relationship that also involved Saddam.

With deals stretching from South America to Asia, the late 1960s and early 1970s were the ‘salad days’ of Merex and Gerhard Mertins.58

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The good times didn’t last. Mertins’s cachet stemmed from his Intelligence connections in Germany and then the US. In the early 1970s, he worked as an agent for the Field Activities Command (USAFAC), an Army-run espionage unit whose brief was to collect human intelligence – what people are doing, and why – from around the world. Mertins frequently upset his handlers, often selling to countries that were considered, at the very least, anti-American. His relationship with US Intelligence ended in 1972 during the Vietnam War, after he had barged his way into US military headquarters in Saigon, announced he was with American Intelligence and demanded to see the officer in charge.59 His bombast and indiscretion had gone too far. Mertins was dismissed as a USAFAC operative. Refusing to accept his dismissal, Mertins took the unprecedented step of taking USAFAC to court. The proceedings were declared classified, but because of the scare with Mertins it was decided to disband the unit altogether.

Mertins’s star was also waning in Germany. The media, still outraged at his involvement in sales to Pakistan, intensified their coverage of the arms dealer after the District Attorney decided to prosecute Merex for breaking German export laws and falsifying documents. Also accused with Mertins were his business partners, Gunter Laurisch, a former Nazi parachutist who had served under Mertins, Karl von Brackel, a Luftwaffe member, and Heinz Hambrusch, an Austrian gun-maker who also served as a Merex sales agent. The legal proceedings marked a slump in the company’s profitability until the early 1980s. Indeed, after the trial concluded, ‘Mertins [was] a broken man, [claiming] he only contravened a few laws because his government had told him to.’ The once brash arms dealer appeared ‘tired and tousled’.60

His defence team claimed that his dealings in Pakistan were at the explicit behest of the German government. Mertins explained his relationship to the German Intelligence network, BND, and the judge found little to discredit his evidence, especially after a BND operative testified that the government was almost always aware of what Mertins had done in Pakistan,61 as part of a project codenamed Uranus.62 At the end of 1975, Mertins was eventually cleared of any technical wrongdoing in the Pakistan deals, even though he had provided weapons to both sides of the conflict in contravention of the law. But Mertins was nothing if not combative: feeling that his name had been ruined by the trial, he took the German government to court, requesting financial relief. He did so partly out of pride but primarily out of financial necessity. By 1977, Mertins was so strapped for cash that his estate in the Rhine was seized.63 Merex financial statements from the time read like a disaster story: by 1980, the company had costs of DM8.2m, but only DM1m in holdings and a paltry DM500,000 in turnover.64 This second trial provided some relief for Mertins, who received DM5m in compensation, although he had requested DM12m.

The latter part of the 1970s was a fight for survival for Mertins, who became even less discriminating in his selection of customers. He was an example of blowback writ large, working for both sides in the Cold War battle of ideologies. By the early 1980s, he had, remarkably, again ingratiated himself with US Intelligence structures, this time working with the CIA. He befriended James Atwood, an American with strong CIA links who was regarded as an oddball small-arms dealer. Atwood was a minor celebrity in neo-Nazi circles as a result of his book The Daggers and Edged Swords of Hitler’s Germany. By the mid-1980s, Atwood and Mertins shared office space in the US and worked together on a deal, in September 1986, that supplied weapons to the Nicaraguan Contras as part of the Iran–Contra affair.

Iran–Contra was the highly controversial and illegal arrangement whereby the Americans sold weapons to Iran – then run by the Islamic regime of Ayatollah Khomeini and subject to a US arms embargo – and used the proceeds to fund right-wing Nicaraguan rebels who were fighting to overthrow the left-wing Sandinista government. It was a disastrous operation undertaken by Colonel Oliver North and conceived at the highest levels of the Reagan administration. Vice President George H. W. Bush played a leading role, along with his Saudi Arabian friend, Prince Bandar, the Israelis, and a host of unscrupulous arms dealers, in the debacle that ultimately armed the same Iran that is today regarded as the US and Israel’s most implacable foe.

Merex’s role in Iran–Contra was to sort out one of the many potentially embarrassing foul-ups in the affair. Oliver North’s front company, Enterprise, had purchased $2.2m of illicit arms from Monzer Al-Kassar, a prominent and controversial arms dealer known as the Prince of Marbella, using money raised from selling arms to Iran. While the weapons were en route from communist Poland, where they had been purchased, to Portugal, US authorities lifted the arms embargo on the Nicaraguan Contras, leaving Enterprise with a huge cache of overpriced weapons. To save face, Mertins and Atwood interceded on behalf of Enterprise and convinced the CIA to purchase the weapons. Helmut Mertins, the son of Gerhard, was duly sent to Portugal to clean up the mess. He contracted another ship and oversaw the transfer of the weapons to a CIA depot in the US from where they were reportedly transferred on to the Contras.65

At much the same time as Mertins was working with the CIA to assist the Contras, he was also developing a relationship with China. As noted earlier, Merex had had contact with the Chinese military parastatal NORINCO as early as 1972, providing it with invaluable access to Western arms and intelligence networks.66 As a consequence, Mertins was on good terms with the head of NORINCO, Zhao Fei. Chinese authorities coveted a powerful and accurate 120mm cannon produced by the huge German conglomerate Rheinmetall. Mertins acquired the plans of the cannon and provided them to NORINCO.67 Such are the morals of the arms dealer: developed and nurtured by German Intelligence as the arms dealer of choice for shadowy transactions, Mertins was willing, only a decade later, to undermine the military capacity of his fatherland so as to support communist China.

Mertins’s correspondence with Zhao Fei made clear that Merex had engaged in arms deals with China that flew in the face of US policy, despite his connections to American Intelligence. The correspondence also revealed that Saddam Hussein was a potential Merex customer only two years before the Iran–Contra scandal, in the middle of the Iran–Iraq War. In one throwaway line in a letter from Mertins to Fei, the German reported that ‘we have contacted Saddam Hussein and pointed out again the quality of Chinese military production’.68

Mertins’s relationship with Zhao Fei had become public as a result of another questionable transaction. In 1982, the US company Fairchild Weston retained the services of Merex to help sell its products in China. One item in particular caught the attention of the Chinese: a long-range spy camera known as the LORAP. NORINCO decided to buy two of the cameras at a price of $20m. The US Department of Defense was concerned that the cameras would greatly enhance Chinese intelligence capacity. They suggested that ‘due to technology involved, advance in intelligence-gathering capability and resultant threat to US allies, we would recommend denial’.69 Reagan administration officials disagreed. The Pentagon was overruled and the NORINCO deal given the green light. Mertins was nevertheless angry, believing that he had been sold short on his commission on the deal. Fairchild Weston objected, claiming that Mertins had been more of a hindrance than a help in the transaction. Mertins sued the company, with the German’s claims overturned on appeal. The arms dealer would never see any money from the project.

His double-dealing, constant deception and lack of loyalty not only to a country or ideology, but even to his closest partners, were proving the undoing of Gerhard Mertins. But Merex would continue to prosper in the depths of the shadow world.