The Mole and the Letter

Since 1975 there have been suggestions that there was a “mole” in the Whitlam cabinet leaking information about the Loans Affair to the Opposition. There are also reports of a letter linking the Prime Minister to the loan-raising activities of Rex Connor, conducted after his Executive Council authority to do so was revoked. Sir David Smith, in his book Head of State, argues that Gough Whitlam’s involvement in the Loans Affair, and especially in his sacking of Connor, has never been properly examined. He asked the question: “Did Connor deceive Whitlam or did Whitlam deceive his party and Parliament, and sacrifice Connor?”

In early 1975 the Opposition learnt that the Government was set to borrow vast amounts of money, and they struggled to learn the details. Parliamentary questions seldom brought informative answers. On May 20, an important date in the Affair, Malcolm Fraser, Leader of the Opposition, asked Whitlam:

whether the proposed $2 billion borrowing by the Minister for Minerals and Energy [Connor] has the approval of the Australian Loan Council? If not, when will the Government seek approval of the Loan Council? What is the purpose of the loan?

Whitlam replied: “The answer to the first question is no; to the second, if and when the loan is made; to the third, for matters relating to energy.”

Hours later Connor’s authority to borrow was revoked. Rex Connor later told Clyde Cameron that before it was “suspended” Whitlam talked with him and said, “By the way, we want to get that US loan fixed. Then we will renew your authority. In the meantime you can continue your enquiries.”[1]

What would turn out to be another controversial Executive Council meeting was presided over by the Vice President of the Council, and Whitlam minister, Frank Stewart. The Governor-General, Sir John Kerr, was absent in New Zealand. Stewart was the Minister for Tourism and Recreation and Minister Assisting the Treasurer. The only other people present were Whitlam and Connor.

Journalist historian Alan Reid portrayed this meeting as a deliberately misleading farce. His account supports Connor’s claim that in contrast to what was officially recorded, Whitlam made it clear that the search for money was to continue.[2] In the presence of Stewart, Connor asked: “Is that the end of it [Connor’s attempts to raise overseas loan funds]?” To which Whitlam replied: “No, it is not the end of it. If the money turns up we take it.”[3] 

The next day in Parliament, Malcolm Fraser asked Whitlam what the money was being borrowed for, and Whitlam replied, “The authority has been revoked.”

Several days later Tirath Khemlani, Connor’s intermediary in loan raising, telexed the minister. Connor should already have advised him that the search for loans was ended. Instead, at 2.25 p.m., a reply was sent from Canberra over Connor’s name:

Attention Mr T.H. Khemlani. Response your telex of 0310 of today I await further specific communication from your principals for consideration. From R.F. CONNOR. Over.[4] 

In early October Whitlam replied to a question by Phillip Lynch saying, “I am assured by the Minister for Minerals and Energy that all communications of substance between him and Mr Khemlani were tabled by him on 9 July 1975.” [5]When supplied with a statutory declaration from Khemlani and copies of telexes in his possession proving that this was not so, Whitlam advised the Governor-General to accept Connor’s resignation. Explaining the reasons for Connor’s departure, Whitlam’s staff chose his words with care: “It is not the contents of those telex messages which constitutes any breach of propriety. It was his failure to tell me about them.”

Connor’s immediate reaction, according to Laurie Oakes, was to threaten to go into the parliament that night and make a statement claiming “that Whitlam had known of his continued contact with Khemlani”. A single breath of words would have destroyed Whitlam. Connor remained silent, persuaded into silence by a young parliamentarian, Paul Keating.[6] It was an unsatisfactory end to the Affair because it left the question of the Prime Minister’s knowledge of his Minister’s actions unanswered.

Certainly Connor misled Whitlam about the existence of correspondence between Khemlani and himself, and he paid the price for his behaviour. But the documents which caused Connor’s downfall would never have come into being if Whitlam had not encouraged him to continue his negotiations.

After the debacle of the Whitlam government was ended and the election had taken place, Connor talked of documentary proof, a letter from Whitlam, which showed that the Prime Minister had known about his ongoing negotiations and had approved them. Clyde Cameron asked Connor about the letter on March 30, 1976 (they had talked about it earlier in the month) and noted in his diary that “Whitlam had added a handwritten note to a letter [in June 1975] asking him what progress he was making with the Middle East loan.”[7] If this letter had been made public before November 11, 1975, it would have brought an end to the Whitlam government, with the resignation of its Prime Minister. As it happened, Whitlam hung on to contest as Opposition Leader both the 1975 and 1977 elections.

Frank Stewart, a person of little relevance in published accounts of the Loans Affair, was concerned over what had taken place at the Executive Council meeting at which he had theoretically presided. Days after the Connor dismissal, just before midday on October 20, Stewart, in his capacity as Vice-President of the Executive Council, telephoned the Governor-General. Sir John Kerr listened to what he had to say, “but concluded there was nothing I could do to help him resolve his problem”.[8]

In parliament on November 5, Malcolm Fraser asked Stewart if he had “any information that would exonerate the former Minister for Minerals and Energy from full blame for what has occurred over the overseas loans affair”.

Stewart denied having any information:

As the Vice-President of the Executive Council, I have no information that would put the blame on anybody who was associated with the loans affair; nor do I have information that would completely exonerate anybody, if there is any blame to anybody.

But at the beginning of December, and in the middle of the election campaign, Alan Reid published details of Stewart’s private conversation with Kerr in the Bulletin. This made a mockery of the answer Stewart had given Fraser. Reid had no documentary evidence for his claim.[9] Had Stewart misled parliament, or was Reid wrong?

Reid’s article suggested Kerr knew a lot more of what was going on behind the scenes because of what Stewart had told him, and that this may have played a part in his deliberations before he dismissed the Whitlam government.[10] He claimed that Stewart contacted the Governor-General about—and the words were printed as direct speech—“a matter of conscience”:

Stewart reported that from discussions following the crucial Executive Council meeting of May 20 (the meeting at which Connor’s authority to secure a $2000 million petro-dollar loan was formally revoked) he thought that Connor was entitled to believe that he (Connor) had Prime Minister Gough Whitlam’s approval to continue his search for petro-dollars, despite the withdrawal of his formal authority.

In Head of State Sir David Smith discussed a copy of this article, annotated by Frank Stewart, in Stewart’s papers in the National Library. Against Reid’s “approval to continue”, Stewart wrote, “To keep contact”. Sir David noted that Stewart was not denying the report but “being pedantic over Reid’s choice of words”.

In the same archive Sir David also found a document dated December 5, just after the publication of Reid’s article, and suggests it was written by Stewart for dealing with the media. In it, Stewart denies the accuracy of Reid’s account.[11] He admits contacting Kerr, states that he did not keep a record of the conversation and claims, “I have not repeated them to anyone, nor do I intend to do so.”

Bill Hayden’s memoirs reveal that Stewart had, at some time, talked to others of his concerns and that he was believed:

Another minister of that time, the late Frank Stewart, also knew what Connor knew. He had been present as the third person [at the Executive Council meeting], at a discussion from which Connor confidently departed believing that he had support at the highest level to persist with his relentless pursuit of large loans—despite solemn undertakings to Parliament to do nothing of the kind.[12]

Stewart wrote:

I deny I told the Governor-General or anyone else that Mr Connor was given the authority, tacit or otherwise, to continue negotiations for the loan. I firmly believe that Mr Connor, after 20 May 1975, did not initiate any action to continue negotiations.

Stewart was under pressure from colleagues to deny Reid’s revelations. A report in the Australian, also cited by Sir David, makes this point:

It is the timing of this disclosure of this conversation [during the election campaign] which has so upset Labor Party members. They are critical of Mr Stewart for not stepping in to deny the report or at least try to put it in a different perspective.[13]

If concerned with the truth of Reid’s article, rather than being embarrassed by the timing of its publication, Stewart did not clear up the matter with Reid, a person he continually came into contact with in parliament, because the story, enhanced with direct quotes (cited above), was published in Reid’s 1976 book.

Philip Ayres, Malcolm Fraser’s 1987 biographer, remarked, “Neither Fraser nor Kerr ever used this against Whitlam, perhaps out of respect for Frank Stewart.” Or perhaps Fraser was afraid of revealing one of the other secrets of that glorious year, that someone on Whitlam’s own front bench had been feeding them information about the Loans Affair.

Brian Buckley, Phillip Lynch’s press secretary, wrote a biography of Lynch in 1991 and commented, “For six months the Deputy Opposition Leader and his office [knew] more about The Loan [sic] than most of the Whitlam Ministry.”[14]

Public discussion of a possible informant on the Labor side during the Loans Affair was stimulated by an article by Peter Bowers in the Sydney Morning Herald just before the tenth anniversary of the Dismissal.[15]

Insiders immediately began guessing. Former Whitlam minister Jim McClelland hinted at Stewart and suggested the informer had acted as he did because “the man would have had genuine worries about the loans affair, wanted it ended, and did not realise that the Opposition would use any material to bring down the Whitlam Government”.[16]

Bowers’s article drew heavily on interviews with Lynch staffers Andrew Hay and Buckley. Although the two men did not identify the person, they did drop certain clues. Hay claimed that the person had contacted Lynch through an intermediary in late May or June and after the first contact had kept in touch with Lynch directly.[17]

In his later book Buckley refrained from naming the individual but offered hints that pointed to Stewart:

In fact Phillip Lynch had discussions over a six-month period with three senior ALP figures about the Loans Affair. That is, amongst other things, a testament to his relationships with many of his political opponents. Three [sic] Labor Ministers trusted him enough to hold background briefings.

One was quite clear on his motivation. He wanted the issue over and out, dead and buried before it buried Labor … He told Lynch that negotiations were still continuing about the loans affair after they were officially revoked on 20 May 1975.[18]

Immediately after this, Buckley reprinted Alan Reid’s account of Stewart’s conversation with the Governor-General. Buckley offered a pen portrait of the minister which is surely that of the anonymous informant:

[19]As well as being a man who would not tolerate illegalities, Stewart was also Minister Assisting the Treasurer from 1973 to 1975, and known to be concerned about the economics of injecting a huge overseas loan into an already inflationary economic situation.

If the informer was Stewart, the reasons for his behaviour would probably involve his Catholic religion and his principles. There is also a more human element in the story. His Labor colleague Arthur Gietzelt described Stewart as “a prickly sort of customer” and Paul Keating was reported saying he had to be treated “gingerly because he gets pretty prickly, especially in the afternoons”.

Among the comments collected to run with the Bowers feature was this statement which also seems to point at Stewart:

[22]Another former minister [not named] who would not reject the possibility of “a rat” said enigmatically: “A stricken conscience and an alcohol-clouded head can be a dangerous combination.”

After the Bowers story made headlines, Gough Whitlam was furious, or performing a colourful cover-up: “I believe that the whole thing is a monstrous slur of men who are dead.”

Rex Connor, through the Loans Affair, brought on the end of the Whitlam government. He also saved Gough Whitlam from a disgraceful end by not making public the letter he had in his possession—though he dreamed of doing so. Asked by Cameron if he would produce it he replied:

[25]Yes, I will, but, Clyde, there is a time and place for everything. I like keeping a bit of powder and shot in my arsenal for the right time. It’s no good shooting a duck while he is sitting on the water. You have to wait until he starts flying. Let’s wring everything out of this first, and then I’ll come in with the letter.

The “duck” never flew any more, and Connor died. The letter, with its damning postscript, passed into the keeping of his mistress, and Labor politician, Joan Taggart. For a time, as recounted in the Cameron Diaries, she fought off unsubtle attempts by Whitlam and his staff to get their hands on it, but what happened to it, what copies were made and where they are now, is unknown. The mole too remains a mystery, and will probably remain so unless those he talked to decide to tell the full story. In the meantime the answer to Sir David’s question is pretty clear—yes, all of the above.


[1] Clyde Cameron, The Cameron Diaries, North Sydney, 1990, p 428

[2] Reid, “How much can Sir John tell us?”, The Bulletin, December 6, 1975

[3] Alan Reid, The Whitlam Venture, Melbourne, 1976, p 356

[4] Reid, The Whitlam Venture, p 357

[5] Prime Minister, Press Statement No. 574, 14 October 1975

[6] Laurie Oakes, Crash Through or Crash: The unmaking of a Prime Minister, Richmond, 1976, p 138

[7] 30 March 1976, Cameron, The Cameron Diaries, p 105

[8] John Kerr, Matters for Judgment: An Autobiography, South Melbourne, 1978, p 238; Reid, “How much can Sir John tell us?”

[9] Cameron, The Cameron Diaries, p452.

[10] Reid, “How much can Sir John tell us?”

[11] Smith, Head of State, pp 311 – 312

[12] Hayden, Hayden, p 266

[13] Smith, Head of State, p 313

[14] Brian Buckley, Lynched: The life of Sir Phillip Lynch, mastermind of the ambush that ended Gough’s run, Toorak, 1991, p 6

[15] Peter Bowers, “The conspiracy theory takes a Labor twist”, Sydney Morning Herald, 9 November 1985

[16] The Age, 11 November 1985

[17] Bowers, “The conspiracy theory”

[18] Buckley, Lynched, p 26

[19] Buckley, Lynched, p 26

[20] Cameron, The Cameron Diaries, pp 664, 669

[21] Cameron, The Cameron Diaries, p 669

[22] Sydney Morning Herald, 9 November 1985

[23] Sydney Morning Herald, 11 November 1985

[24] The Age, 11 November 1985

[25] 13 March 1976, Cameron, The Cameron Diaries, p 75

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