Epi­taph for a Spy

The elu­sive leg­end of Lau­rie Matheson

The Monthly (Australia) - - FRONT PAGE - by Thorn­ton McCamish

For most of the re­porters cov­er­ing the Royal Com­mis­sion on Aus­tralia’s Se­cu­rity and In­tel­li­gence Agen­cies, the af­ter­noon of July 25, 1983 was their first chance to get a good look at Lau­rie Matheson. The Aus­tralian Se­cu­rity In­tel­li­gence Or­gan­i­sa­tion’s key wit­ness, an enig­matic fig­ure whom news­pa­pers had dubbed the “third man” in the Combe–Ivanov af­fair, did not pause to speak to the press. Jour­nal­ists were left to note the up­right bear­ing of the now no­to­ri­ous busi­ness­man, his mag­nif­i­cent over­coat, the in­scrutable set of his fine, if se­vere, fea­tures, and the Prae­to­rian Guard of le­gal ad­vis­ers who ush­ered him into Can­berra’s Hin­kler Build­ing to give his ev­i­dence. Matheson was, in the words of one of those jour­nal­ists, David Marr, “the un­cer­tain sum of a few fas­ci­nat­ing de­tails”. An adept – some said bril­liant – lin­guist, Matheson was a for­mer navy diver who had gone into trade and made a for­tune ne­go­ti­at­ing sales of Aus­tralian mut­ton, but­ter and wheat to the Soviet Union. Now the se­cre­tive “Krem­lin-made mil­lion­aire” had be­come the key to Aus­tralia’s big­gest spy­ing scan­dal since the Petrov af­fair 30 years be­fore. In the early 1980s, the USSR was still the West’s ex­is­ten­tial en­emy. Even far­away Can­berra was caught up in the clan­des­tine es­pi­onage bat­tles of the Cold War. In late 1982, ASIO had iden­ti­fied Valery Ivanov, first sec­re­tary at the Soviet em­bassy, as a Rus­sian spy; soon af­ter, ASIO’s an­a­lysts also con­cluded that for­mer ALP fed­eral sec­re­tary David Combe, who at the time was work­ing as a po­lit­i­cal con­sul­tant and in reg­u­lar con­tact with Ivanov, was, if not a spy, then an “agent of in­flu­ence” who, un­wit­tingly or other­wise, was be­ing groomed to ad­vance Soviet in­ter­ests in Aus­tralia. How did ASIO know that Combe may have been hav­ing com­pro­mis­ing deal­ings with Ivanov? Be­cause Combe talked about Ivanov to Matheson, who had re­tained Combe, an en­thu­si­as­tic pro­po­nent of closer cul­tural and trade ties to the USSR, to help him with some busi­ness prob­lems in Moscow. And Matheson told ASIO. Af­ter sev­eral months of hear­ings, the royal com­mis­sion con­cluded that Ivanov was in­deed an of­fi­cer in the KGB, the Soviet se­cret in­tel­li­gence agency. Combe had “al­lowed him­self to be led into a po­si­tion where his loy­alty could be­come sus­pect”, but he cer­tainly wasn’t a spy, nor an agent of in­flu­ence. His rep­u­ta­tion was nonethe­less in tat­ters. The royal com­mis­sion fi­nal re­port vol­un­teered no con­clu­sions about Matheson. The busi­ness­man’s tes­ti­mony had been given in closed ses­sions af­ter his lawyers ar­gued his life might be at risk if his ASIO links were made known. They be­came known any­way. Un­der par­lia­men­tary priv­i­lege, a La­bor MP de­nounced Matheson as a “scaramouche and a nark … [who] is pro­tected from any scru­tiny of his rot­ten deal­ings and those things which he has told to his ASIO masters be­cause of what is laugh­ingly re­ferred to as his ‘cover’”. It was widely as­sumed that the mys­te­ri­ous trade czar was an in­tel­li­gence agent of some sort. But for whom? ASIO? Or maybe the Aus­tralian Se­cret In­tel­li­gence Ser­vice? Surely not Rus­sia? The Aus­tralian pub­lic never found out. Matheson main­tained his si­lence. Af­ter his death from cancer in 1987, Matheson, who was re­peat­edly de­scribed to me by his old friends as a bril­liant au­to­di­dact, and a re­mark­able and charis­matic man, drifted into the dim re­cesses of na­tional me­mory as the shifty mogul who shopped a mate to ASIO for rea­sons that have never been clear. “Now that is an in­cred­i­ble story,” said a for­mer Matheson as­so­ci­ate al­most be­fore I had fin­ished ex­plain­ing why I was call­ing, 30 years later. “Matheson! … The Aus­tralian James Bond, I call him.” If Matheson’s part in Aus­tralian his­tory was hazy at the time of the Ivanov af­fair, it hasn’t be­come much clearer since. The Of­fi­cial His­tory of ASIO: 1975–1989, for in­stance, cov­ers the Ivanov af­fair at length, but makes only fleet­ing men­tion of ASIO’s cru­cial source as a “Rus­sian-speak­ing, ex-Navy busi­ness­man who ran a Mel­bourne-based firm, Com­mer­cial Bureau of Aus­tralia”. When I con­tacted one of the his­tory’s au­thors about this la­conic ac­count, he po­litely ad­vised that he had noth­ing to add about Matheson, nor about the fact that, 50 years af­ter he left the navy, Matheson’s ser­vice records are still partly clas­si­fied on na­tional se­cu­rity grounds. His ASIO file is an ob­ject that ex­er­cises a Holy Grail–like fas­ci­na­tion for stu­dents of the Matheson leg­end, but any­one who has seen it risks prose­cu­tion merely by saying so, much less de­scrib­ing its con­tents. Of course, the ap­pear­ance of of­fi­cial se­cre­tive­ness is cat­nip to con­nois­seurs of shoe-phone es­pi­onage and con­spir­acy the­o­ries. It’s all the ev­i­dence we need that Matheson must have been, as David Combe pub­licly claimed in 1984, “much, much more than a mere ASIO in­for­mant of long stand­ing”. In the ab­sence of hard facts, Matheson’s story has only grown stranger. In the last years of his life he lived at Duneira, the his­toric man­sion at Mount Mace­don, 60 kilo­me­tres north-west of Mel­bourne. In 1992, five years af­ter Matheson’s death, Duneira was sold to Stu­art Stone­man; from 2002 the S.R. Stone­man Foun­da­tion reg­u­larly opened the es­tate for cul­tural events. Jac­que­line Ogeil, who worked as di­rec­tor there un­til early this year, had long been fas­ci­nated by the leg­end of the house’s no­to­ri­ous for­mer owner. In 2004, she told me, builders re­pair­ing Duneira’s roof found bug­ging wires hid­den in the ceil­ings. It was the Matheson leg­end that drew many visi­tors to the tours she con­ducted of the house – or kept them away. Ogeil once in­vited a writer who’d cov­ered the Ivanov af­fair to stay at Duneira dur­ing the Wood­end lit­er­ary fes­ti­val; he em­phat­i­cally re­fused. “He said there’s no way he was go­ing to stay in the ‘devil’s lair’.” There’s noth­ing spooky about the beau­ti­ful memo­rial sculp­ture that adorns Matheson’s fi­nal rest­ing place at Mace­don Ceme­tery. Carved from the finest Car­rara mar­ble, it’s a life-size fig­ure of a naked, slim-waisted sleep­ing woman, her hip pol­ished to a dull shine over the years by handsy passers-by. But it does seem odd that what must be one of the most sen­su­ous and eye-catch­ing

fu­ner­ary mon­u­ments in the coun­try should com­mem­o­rate an ob­ses­sively pri­vate man whose life is shrouded in myth and of­fi­cial se­crecy. So does the fact that Matheson is not even buried be­neath the sor­row­ing nymph. He’s buried in his other grave. Next one along. That a man in­fa­mous for lead­ing a hid­den dou­ble life should have two graves seems too per­fect, a su­per­flu­ous ex­tra joker in a pack al­ready stacked with them. If Aus­tralian his­tory reads as the most beau­ti­ful lies, in Mark Twain’s fa­mous phrase, then Matheson’s leg­end – a “mas­ter­piece of con­fab­u­la­tion”, as David Marr de­scribed it to me – seems to have been un­justly ne­glected. Per­haps the man who cre­ated it has been too. When he came to live in Mount Mace­don in 1981, Matheson was a fine-look­ing man of 51 with a charm­ing young fam­ily and a taste for lux­ury cars, in­clud­ing a bur­gundy Sil­ver Shadow with per­son­alised num­ber­plates. No one had ever heard of him. “Ex­cept that he was enor­mously wealthy, no one knew any­thing at all about Lau­rie,” says Cliff Pan­nam QC, who lived nearby at the time. Matheson made an im­me­di­ate im­pact on the her­metic social world of the Mount, as one does when one comes out of nowhere and buys the grand­est house in a small com­mu­nity. There’s a touch of Gatsby about the Matheson peo­ple re­mem­ber from that pe­riod. He had a mil­i­tary back­ground, gra­cious old-fash­ioned man­ners, and an im­mac­u­late wardrobe re­put­edly tai­lored by Gieves & Hawkes of Lon­don’s Sav­ile Row, out­fit­ters to debonair mil­i­tary gents since Lord Nel­son’s day. Per­son­able but watch­ful, Matheson was a gen­er­ous host yet grat­i­fy­ingly hard to get close to. “Lau­rie lived in a world of shad­ows,” says Philip Dunn QC, an­other neigh­bour. It was said that Matheson spoke a dozen lan­guages and owned homes around the world. He reg­u­larly en­ter­tained rowdy groups of Rus­sian busi­ness­men at Duneira. Peo­ple no­ticed. They no­ticed the money, too. Matheson had staff. He had an art col­lec­tion worth an es­ti­mated $2 mil­lion. Eric Walsh, who had been Prime Min­is­ter Gough Whit­lam’s press sec­re­tary, and later worked as a lob­by­ist for Matheson, re­mem­bers his South Yarra res­i­dence as “a bloody great cas­tle”. His fam­ily skied ev­ery Jan­uary at Gs­taad, stay­ing in Ye­hudi Menuhin’s chalet. His wine cel­lar was an Aladdin’s cave of riches peo­ple still grow misty-eyed try­ing to de­scribe. Visi­tors drop­ping by Duneira on a Satur­day af­ter­noon might be treated to a fine red col­lected from an old wine­mak­ing pal in Soviet Ge­or­gia, or to a vin­tage Fon­seca port worth thou­sands. It wasn’t clear where the money was com­ing from, just that Lau­rie didn’t mind spend­ing it, not least on his guests. “You have to un­der­stand,” says Pan­nam, “he was prof­li­gate in his gen­eros­ity. He was al­ways thrust­ing things on you. You know, ‘You must take this home with you’ – and it would be some rare bot­tle of Château Lafite or some­thing.” The young artist Peter Schip­per­heyn came to know the se­cre­tive ty­coon sev­eral years be­fore he sculpted the nymph for Matheson’s grave. Matheson was a pa­tron, but much more too. To Schip­per­heyn, Matheson was a fas­ci­nat­ing friend, an in­trigu­ing man of the world and “just one of the most re­mark­able peo­ple I’ve ever met”. He had no airs. He was pas­sion­ately in­ter­ested in art – in 1979 his com­pany spon­sored a tour­ing ex­hi­bi­tion of trea­sures from St Peters­burg’s Her­mitage mu­seum – and fas­ci­nated by artists. “Lau­rie’s gen­eros­ity and faith in an un­proven young artist com­pletely changed my life.” Of course, lots of very rich peo­ple are in all other re­spects en­tirely un­in­ter­est­ing, but Matheson was no or­di­nary sil­ver­tail. “Ev­ery time I met him, some­thing new emerged about his back­ground,” Pan­nam says. How many just-add-wa­ter mil­lion­aires of the 1980s had worked in naval in­tel­li­gence – and could quote Pushkin in the orig­i­nal Rus­sian? It turned out that Matheson had also led the search for Prime Min­is­ter Harold Holt when he dis­ap­peared while swim­ming off Che­viot Beach near Port­sea, Vic­to­ria, in 1967. Over time, other tan­ta­lis­ing glimpses of Matheson’s mil­i­tary past emerged. “He was an ‘at­tack diver’ in the Mekong Delta dur­ing the Viet­nam War,” Pan­nam tells me. “Or so the story goes. He used to swim un­der­wa­ter, and as the en­emy were ap­proach­ing with limpet mines, breath­ing through bam­boo sticks, he would cut their throats.” Brian Travers*, a diplo­mat who knew Matheson in Moscow in the mid 1970s, also has a dis­tinct rec­ol­lec­tion of be­ing told about “of­fen­sive op­er­a­tions in Haiphong har­bour dur­ing the war. Limpet mines were men­tioned, I be­lieve.” Over the years, oth­ers have pub­licly claimed that Matheson’s Rus­sian and spe­cial­ist com­bat skills were some­times put to use over­seas by ASIS and even Bri­tain’s MI6. Still, if of­fi­cial se­crecy ac­counts for part of the lurid spec­u­la­tion that came to sur­round him, Matheson’s own ten­dency to dis­sim­u­late might have some­thing to do with it, too. “Lau­rie liked to play games,” Dunn told me. He’d tell one per­son he taught him­self Rus­sian when he was serv­ing in Korea and wanted to be able to com­mu­ni­cate if he was cap­tured. He’d tell an­other he’d picked it up while serv­ing on Bri­tish Royal Navy sub­marines in the 1960s. Nei­ther was ex­actly true, as it hap­pens, but the

Oth­ers have pub­licly claimed that Matheson’s Rus­sian and spe­cial­ist com­bat skills were some­times put to use over­seas by ASIS and even Bri­tain’s MI6.

sto­ries were part of Matheson’s charm, espe­cially af­ter a cou­ple of drinks. He once bragged that he con­trolled half of the world’s re­frig­er­ated ship­ping fleet. He knew Soviet leader Leonid Brezh­nev, he said; in Moscow he was oc­ca­sion­ally called on to sup­ply – dis­creetly – hard-toob­tain Amer­i­can cig­a­rettes and dis­pos­able ra­zors to se­nior Krem­lin fig­ures. What’s clear is that, with his care­fully shaded back­ground and af­fa­ble eva­sions, Matheson was a per­fect cipher for le Carré–style fan­tasies. Even if you didn’t be­lieve the ru­mours about MI6, Matheson clearly had some un­usual skills. He had a pho­to­graphic me­mory, for in­stance, or so he told Peter Schip­per­heyn. “Very use­ful for learn­ing lan­guages, he said.” There were other things. He could hold his vodka in the heroic quan­ti­ties de­manded by Rus­sian busi­ness pro­to­col. He could re­peat en­tire con­ver­sa­tions al­most word for word. Once, un­prompted, he ex­plained to an ad­mir­ing col­league the best tech­nique for evad­ing pur­suers in a chase sit­u­a­tion. And Matheson was an im­pres­sive spec­i­men: strong, prac­ti­cal and ca­pa­ble. When bush­fires threat­ened Duneira in early 1983 he was called to Mount Mace­don from his St Kilda Road of­fice. Ac­cord­ing to a news­pa­per re­port, he leapt into his Fer­rari and ham­mered along the Calder Free­way at 230 kilo­me­tres an hour. With the help of his care­taker, he beat off em­bers with a wet hes­sian sack, sav­ing the his­toric house from de­struc­tion. A news­pa­per pho­to­graph from that day shows him stand­ing un­de­feated on his smoul­der­ing lawn, smudged with soot, gaz­ing evenly at the cam­era like a man who’d dealt with plenty worse. Plenty worse was com­ing. A few weeks later the Ash Wed­nes­day fires dev­as­tated Mount Mace­don. By sheer chance Duneira was spared, but Pan­nam’s home nearby was in­cin­er­ated. “I lost ev­ery­thing. And Lau­rie said to me, ‘Look, you’ve got to get out of here. I’ve got a house in Greece, and you’ve got to take your wife and kids and go have a rest.’” It was a mag­nan­i­mous of­fer, typ­i­cal of Lau­rie. Pan­nam grate­fully ac­cepted. With his young fam­ily he spent a cou­ple of weeks at Matheson’s su­perb light­house at Galaxidi, on the Gulf of Corinth. Lit­tle ex­pense had been spared in the ren­o­va­tion. The drinks bar, an­other guest re­mem­bers be­ing told, was mod­elled on the main bar of the Ho­tel Grande Bre­tagne in Athens. There was just one odd thing about the visit. Matheson wanted Pan­nam to do him a favour when he got to the house. “He said, ‘When you go there, go up to the main bed­room. There’s a wall of wardrobes, and up on the left-hand side, if you put your hand down the back you’ll find there a gun wrapped up in cloth. I want you to take it and go down to the tav­erna near the pier; I’ve made an ar­range­ment that the woman there will let you have a Zo­diac [in­flat­able boat]. And I want you to go out to the mid­dle of the gulf, and I want you to throw the gun into the wa­ter.’”

When he got to Greece, Pan­nam played along and made a cur­sory search for the gun. He found it pre­cisely where Matheson had said it would be. “It was a hand­gun, a Beretta. There were bul­lets too. And yes, at the end of the pier – there was the woman, and there was this Zo­diac. So I went out and I dropped the gun in the wa­ter.” Pan­nam seemed faintly in­cred­u­lous even as he de­scribed the in­ci­dent 35 years later. “I’ve got to tell you, this re­ally hap­pened. I had that gun in my own hands. I know! It’s ex­tra­or­di­nary stuff.” One thing jour­nal­ists found in 1983 as they be­gan to look into Matheson’s back­ground was that the man who would end up with two graves also had two names. Born Lawrence Phe­lan on An­zac Day, 1930 in Bondi, Matheson grew up in Western Syd­ney. When he was eight his par­ents di­vorced and his mother placed him with the Burn­side Pres­by­te­rian Or­phan Homes, Par­ra­matta. He lived there for five years, and then at­tended agri­cul­tural high schools in Rich­mond and Yanco. At 17, he joined the navy. Around this time he for­mally re­nounced the name Phe­lan, and took his mother’s maiden name. Of­fi­cially, Matheson’s 20-year ca­reer in the navy is an un­event­ful tale of steady pro­mo­tion. The Depart­ment of Vet­er­ans’ Af­fairs has him on ac­tive duty in a conflict zone only for a few weeks of the Viet­nam War, but he al­most cer­tainly saw more ac­tion than that, in Vũng Tàu in Viet­nam, and pos­si­bly in Korea too. At some point he be­gan teach­ing him­self Rus­sian us­ing Lin­gua­phone tapes, but only be­came flu­ent dur­ing an in­ten­sive course he took in 1955 at the RAAF lan­guages school at Point Cook out­side Mel­bourne. The one hint of in­tel­li­gence work in Matheson’s navy record is a year spent on spe­cial du­ties at the “Joint In­tel­li­gence Bureau In­ter­ro­ga­tion Cen­tre” in Syd­ney in the late 1950s. Then, in 1968 came a dra­matic turn­around. Matheson left the navy and, af­ter a year’s train­ing in Can­berra, was, with the back­ing of Deputy Prime Min­is­ter John McEwan, ap­pointed deputy trade com­mis­sioner in Vi­enna, with re­spon­si­bil­i­ties for the USSR. Matheson vis­ited Moscow fre­quently to de­velop con­tacts and re­search trade prospects, and in 1972 he es­tab­lished a per­ma­nent trade com­mis­sioner post in the Soviet cap­i­tal. Af­ter his first mar­riage ended, he re­signed and re­turned to Aus­tralia. A year later he was back in Moscow as the rep­re­sen­ta­tive of the Mel­bourne trad­ing house Heine Broth­ers. When that com­pany gave up its Rus­sian op­er­a­tions, Matheson took them over, open­ing his own busi­ness, Com­mer­cial Bureau (Aus­tralia) Pty Ltd, in early 1976. Old Rus­sia hands guessed it might take years for Com­mer­cial Bureau to win ac­cred­i­ta­tion. It only took months. In early 1976 Matheson signed a $140 mil­lion con­tract for frozen mut­ton that may have earned him as much as $4 mil­lion in one go. Within a year, he had an ex­clu­sive li­cence that made Com­mer­cial Bureau the con­duit for most Aus­tralian ex­ports to the USSR. Even more profit was to be made from the ship­ping that Com­mer­cial Bureau sub­sidiaries char­tered to land it all in Soviet ports. When Matheson be­gan vis­it­ing Moscow in 1969, bi­lat­eral trade stood at a mea­gre $42 mil­lion; by 1979 the USSR was buy­ing nearly $1 bil­lion of Aus­tralian goods and ser­vices a year. This may have been the fruits of bril­liant deal-mak­ing, murky pa­tron­age or plain luck; it was cer­tainly an ex­cel­lent busi­ness model. Aus­tralian farm­ers were sell­ing more mut­ton, beef, grain and but­ter than they could ever have dreamed, largely thanks to one lit­tle-known ex-navy diver who em­ployed 30 peo­ple in sev­eral of­fices around the world. “Is it the case that you be­came very wealthy in a short pe­riod af­ter the com­mence­ment of the com­pany, you per­son­ally?” David Combe’s coun­sel asked Matheson at the royal com­mis­sion. Matheson: “In the sense that I am the owner of the com­pany, that is true.” In 1978 Com­mer­cial Bureau ac­quired a sub­sidiary to dis­trib­ute Stolich­naya vodka in Aus­tralia. Ac­tor Omar Sharif flew in for the glit­ter­ing launch at the Wind­sor Ho­tel. Af­ter­wards Matheson met young fi­nan­cial jour­nal­ist Ian Rei­necke at the bo­hemian Balzac restau­rant in East Mel­bourne for a rare in­ter­view. Rei­necke recorded Matheson’s fi­nal RAN rank as lieu­tenant commander; he noted that Matheson had headed the search for Holt and had been “a top Aus­tralian Navy ex­pert on Soviet af­fairs”. Matheson com­plained that it was hard to “con­vince Aus­tralians that the USSR is in­ter­ested in trade rather than pol­i­tics”, and gen­er­ally styled him­self as a man of im­pres­sive con­nec­tions. “Mr Matheson in­vites the de­scrip­tion ‘em­i­nence grise’ as if the phrase was in­vented for him,” Rei­necke wrote. “Chronic dis­sem­bler” is an­other phrase that comes to mind. Matheson seems to have been ir­re­sistibly drawn to mis­di­rec­tion, as though the sim­ple truth, with­out em­bel­lish­ments or era­sures, was al­ways in­suf­fi­cient to his pur­pose, what­ever that was. The story that Matheson had “led” the search for Holt in 1967 fell apart un­der gen­tle media prob­ing: navy sources con­firmed that 32 spe­cial­ist divers had par­tic­i­pated in the search, and Matheson wasn’t one of them. He cer­tainly wasn’t in charge. And while he may have had a pho­to­graphic me­mory, there is

When Matheson be­gan vis­it­ing Moscow in 1969, bi­lat­eral trade stood at a mea­gre $42 mil­lion; by 1979 the USSR was buy­ing nearly $1 bil­lion of Aus­tralian goods and ser­vices.

no ev­i­dence he had other lan­guages apart from Rus­sian, and enough Greek to get by. A claim that he was “close” to Tony Eg­gle­ton, a Lib­eral Party fed­eral di­rec­tor, was later dis­missed by Eg­gle­ton him­self as “po­etic li­cence”. In the mem­o­ries of many peo­ple I spoke to, Matheson gives off a thrilling, slightly volatile glow of charisma. Not in Rei­necke’s. “He was ob­vi­ously a pretty so­phis­ti­cated op­er­a­tor, but he was try­ing a bit hard,” Rei­necke told me. “Look­ing back, my one real im­pres­sion of him was that there were el­e­ments of le Carré: you know, the care­ful recita­tion of his back­ground, and his anx­i­ety to po­si­tion him­self as a neu­tral player between the USSR and Aus­tralia.” The mild busi­ness­man’s mug shot pub­lished with Rei­necke’s story is cer­tainly hard to rec­on­cile with the phan­tom who had done jobs for MI6 and hunted en­emy in­fil­tra­tors in the rivers of South Viet­nam. But then the mild, noth­ing-to-hide busi­ness­man was an­other one of Matheson’s per­sonas. By 1980 he had deputised most of his work in Moscow, and his am­bi­tions in Aus­tralia had grown well beyond frozen mut­ton. He wanted to sell Soviet power plants to state gov­ern­ments. His con­sul­tants were lob­by­ing to get ap­proval for a gi­ant Aus­tralian–Soviet cok­ing coal co-ven­ture in Queens­land, and a scheme to launch a joint fish­ing fleet out of Tas­ma­nia. These were deals worth bil­lions. Matheson would turn up to Can­berra busi­ness din­ners in a Lam­borgh­ini. He en­ter­tained the Soviet am­bas­sador at a sheep-graz­ing prop­erty he’d bought in Wee Jasper. He de­cided he would like to join the Mel­bourne Club, and re­tained a con­sul­tant glad to help him work out how to get in. He also wanted a knight­hood, in recog­ni­tion of all he’d con­trib­uted to trade and the arts. He dis­patched a con­sul­tant, Derek Amos, to talk to Na­tional Party of­fi­cials in Can­berra and see what could be done. This ar­riv­iste grandee is un­recog­nis­able to some who thought they knew him well. Pan­nam re­mem­bers be­ing as­tounded when he heard that his friend had ap­plied to join the Mel­bourne Club. “I can’t be­lieve he even wanted to be a mem­ber,” Pan­nam says. “He was too soli­tary for that. He wasn’t a joiner. He was the op­po­site.”

Per­haps the most re­mark­able Matheson

is the one hid­ing in plain sight in the na­tional bal­ance-of-trade fig­ures of the 1970s. For a soli­tary for­mer navy diver and in­tel­li­gence of­fi­cer, Matheson made an in­spired trade ne­go­tia­tor. In the early days, mak­ing fre­quent trips from Vi­enna, he lived a “suit­case life” in grim Moscow ho­tel rooms un­der op­pres­sive sur­veil­lance. But as time went on, with one visa ex­ten­sion af­ter an­other, he door­knocked his way through byzan­tine trade and for­eign af­fairs bu­reau­cra­cies, grad­u­ally build­ing up con­nec­tions and con­tacts. It took pa­tience, per­sis­tence and charm. Tony Kevin was a young diplo­mat when he met Matheson in the early 1970s. “Lau­rie was one of the most charis­matic peo­ple I’ve ever had the for­tune to meet,” he says. “He had this lovely nat­u­ral way of con­nect­ing with Rus­sian peo­ple at all lev­els. He re­ally had a phe­nom­e­nal abil­ity to cre­ate trust­ing re­la­tion­ships, at a time and place where trust was in short sup­ply.” He needed it. Many of the trade bu­reau­crats Matheson dealt with at the State Com­mit­tee of Ex­ter­nal Eco­nomic Re­la­tions were un­der the in­flu­ence of the KGB, and some were KGB of­fi­cers them­selves. Matheson sus­pected his Moscow flat was bugged; he knew Rus­sian in­tel­li­gence of­fi­cers se­cretly in­ter­viewed his lo­cal staff about their work. An Aus­tralian se­cu­rity of­fi­cial who worked in Moscow in the 1970s, Peter Gray*, says the city was “a very hos­tile en­vi­ron­ment” for some­one like Matheson. “The Rus­sians would have ex­pected some­one work­ing out on his own like that to be an in­tel­li­gence gath­erer, and they would have known for sure about his naval back­ground. If they have their sus­pi­cions and de­cide they want to tar­get you, they set you up and you get booted.” As the royal com­mis­sion re­vealed, Matheson was oc­ca­sion­ally brief­ing Aus­tralian se­cu­rity ser­vices on the things he saw in the USSR. This wasn’t nec­es­sar­ily un­usual. Diplo­mats were reg­u­larly de­briefed by Aus­tralian in­tel­li­gence when they re­turned from the USSR, and ASIO was nat­u­rally in­ter­ested in any in­for­ma­tion some­one like Matheson could pro­vide. But that only makes his high­wire act in Moscow more re­mark­able. Matheson did ev­ery­thing he could to show there was noth­ing to hide. He de­lib­er­ately es­chewed em­bassy fa­cil­i­ties, pre­fer­ring tele­grams and un­se­cure phones. He lived in the open. A lot of for­eign­ers found Moscow post­ings gloomy and op­pres­sive, and kept to them­selves; Matheson mixed with Rus­sians. “Lau­rie was a pa­triot,” Gray told me. “But who­ever he was talk­ing to, he was di­rect, and sin­cere. He lis­tened very care­fully, and peo­ple could tell he was truly in­ter­ested in them and was gen­uinely cu­ri­ous about Rus­sia.” He loved the opera and bal­let. He in­tro­duced younger col­leagues to some of the city’s plea­sures: the parks, sail­ing on nearby lakes, and the raff­ish river­boat night­clubs that more cir­cum­spect diplo­mats avoided as po­ten­tial honey traps. “He helped me un­der­stand the place a lot more and meet a few peo­ple,” says Brian Travers, Matheson’s young diplo­mat friend. “He was good like that. There was a lot of drink­ing and a lot

He had the right per­son­al­ity to be a spy. But he also had the right per­son­al­ity to be a trade diplo­mat.

of par­ties, and long Sun­day lunches in win­ter. He was very charm­ing.” This Matheson, the bridge-build­ing Rus­sophile and driven deal-maker, is still a com­pli­cated guy. He was not a team player. He was fu­ri­ous when he thought the Aus­tralian am­bas­sador was leak­ing gos­sip about Matheson’s work to other Western diplo­mats in the early 1970s. Later, he didn’t bother hid­ing his con­tempt for what he saw as the shel­tered, gos­sipy life of the Aus­tralian em­bassy, which he re­ferred to as “the comic opera”. Not sur­pris­ingly, he man­aged to an­tag­o­nise two suc­ces­sive am­bas­sadors with this at­ti­tude; one for­bade his staff from hav­ing any­thing to do with him. Travers re­mem­bers Matheson be­ing very stressed at one point in the mid 1970s. “Deals were go­ing sour and he had be­come quite un­pleas­ant, very much on edge, and drink­ing far too much.” When he drank, he could be­come abu­sive. At any time he could be plain mys­te­ri­ous. Travers re­calls Matheson telling him, on one lan­guid Sun­day af­ter­noon, that he was a com­mu­nist. “Why was he telling me that? Was he act­ing as a provo­ca­teur? Was he work­ing for ASIO, try­ing to squeeze out from peo­ple like me that we were fel­low trav­ellers?” Travers still has no idea. “He was a con­sum­mate ac­tor,” Tony Kevin says. “Lau­rie had a chameleon-like abil­ity to fit into any sur­round­ings. So he had the right per­son­al­ity to be a spy. But he also had the right per­son­al­ity to be a trade diplo­mat. “I guess the con­clu­sion is that there’s not much dif­fer­ence in the skill sets.”

Matheson’s link

to Aus­tralian in­tel­li­gence ser­vices was an un­wel­come rev­e­la­tion for David Combe, of course – and for con­sul­tant Eric Walsh, who also be­came en­tan­gled in the royal com­mis­sion thanks to in­for­ma­tion Matheson sup­plied to ASIO. (“He said to me on more than one oc­ca­sion: ‘Mate, I swear to you I’ve got noth­ing to do with ASIO. Ask the at­tor­ney-gen­eral! Eric, I swear to you.’”) But the most telling fact to emerge from the pub­lic­ity sur­round­ing the af­fair was that Matheson’s busi­ness had been strug­gling since the early 1980s and was now in se­ri­ous trou­ble. In Moscow, Com­mer­cial Bureau was bleed­ing funds in de­mur­rage charges over a dis­puted mut­ton ship­ment; in other no­table flops, the com­pany had been un­able to fill an am­bi­tious but­ter con­tract, and had sup­plied a mix of old and new cheese for an­other or­der spec­i­fy­ing new only. The Tas­ma­nian fish­ing ven­ture was mired in po­lit­i­cal dif­fi­cul­ties. Most se­ri­ously, a se­nior em­ployee, Bruce Fasham, had bro­ken away to set up a ri­val com­pany. Matheson thought Fasham was white-anting his prospects both in Moscow and Can­berra, and their re­spec­tive lawyers had been slug­ging it out in the Vic­to­rian courts. The at­tempt to sup­press in­for­ma­tion about Matheson’s busi­ness af­fairs at the royal com­mis­sion only strength­ened the im­pres­sion that ASIO was pro­tect­ing a key source. Care­ful anal­y­sis of Matheson’s cen­sored tes­ti­mony showed that he had re­sumed brief­ing ASIO in Novem­ber 1982, around the time that Valery Ivanov was iden­ti­fied as a spy. Some won­dered whether ASIO had used Matheson to set up Combe. Matheson won­dered whether they’d used Combe to set him up. Still oth­ers noted that, de­spite the stale cheese fi­asco, the Rus­sians had thrown Com­mer­cial Bureau a life­line with two timely meat con­tracts at the end of 1982. What ex­actly did the Sovi­ets get in re­turn for Matheson’s ex­clu­sive ac­cred­i­ta­tion, apart from Amer­i­can cig­a­rettes on the sly and a friendly voice in a hos­tile coun­try? “I’m not try­ing to say that ev­ery­thing Rus­sia does is beau­ti­ful,” Matheson said in a 1979 TV in­ter­view. “Ob­vi­ously it is not … [But] I think they need our friend­ship and un­der­stand­ing, and I think we could use theirs.” A volatile mix of se­crecy and mis­in­for­ma­tion fed spec­u­la­tion ev­ery­where, even in cabi­net. Combe tes­ti­fied that when he saw Deputy Prime Min­is­ter Lionel Bowen at Par­lia­ment House in March 1983, Bowen told him he wouldn’t see Matheson, Combe’s client. Why? “Be­cause he works for ASIO.” Ac­cord­ing to Spe­cial Min­is­ter of State Mick Young, Bowen was “enor­mously an­tag­o­nis­tic to Mr Matheson” when the Na­tional and In­ter­na­tional Se­cu­rity Com­mit­tee met in April to con­sider ex­pelling Ivanov. Combe later wrote that Bowen grilled the di­rec­tor-gen­eral of ASIO about Matheson’s Rus­sian links and naval in­tel­li­gence back­ground, even ask­ing if ASIO was sure “Matheson wasn’t a KGB con­tact him­self”.

Matheson re­fused to speak,

even as he watched ev­ery­thing he’d done as a trade diplo­mat and busi­ness­man to civilise re­la­tions between Aus­tralia and Rus­sia turn into a tabloid night­mare. Peter Schip­per­heyn re­mem­bers sit­ting with Matheson in the gar­den at Duneira one af­ter­noon when a he­li­copter ar­rived over­head, bristling with tele­photo lenses. “A cou­ple of times I asked him, ‘What’s all this about you be­ing a spy?’ He’d just say, ‘It’s all bull­shit. I just want to make money.’” But Matheson was con­scious of be­ing closely watched. “I was quite sure my phone was be­ing tapped,” Schip­per­heyn says. “I’d hear these click-clicks when I spoke to him.” Con­sul­tant Derek Amos vis­ited Matheson’s South Yarra home one day and no­ticed two men sit­ting in a large black car. When he came out later the car was still there, but parked in a dif­fer­ent po­si­tion. Amos drove to a pay­phone and called Matheson. “He just said, ‘Oh, thanks for let­ting me know.’ He never men­tioned it again, and when I brought it up later, he just said, ‘That’s okay, don’t worry about that.’” Matheson was not as san­guine as he seemed. His ASIO han­dlers found him in­creas­ingly ag­i­tated dur­ing their meet­ings. He had be­come ob­sessed with what he per­ceived as for­mer as­so­ci­ate Bruce Fasham’s treach­ery. And he felt aban­doned by the gov­ern­ment. The strain was show­ing. Cliff Pan­nam got a phone call late one night at Mount Mace­don. “Lau­rie said, ‘You’ve got to come up here im­me­di­ately.’ I said, ‘What’s up?’ He said, ‘I’ll tell you when you get here.’” Pan­nam col­lected Phil Dunn on the way and drove to Duneira. Matheson was stand­ing on the lawn out­side. “He’s got night vi­sion gog­gles on and he’s got a pis­tol in each hand and he’s go­ing, ‘Those fuck­ing Paks are here to kill me! Now, boys, we’ve got to be very care­ful be­cause these bas­tards, they’re very good.’” No Pak­ista­nis were found. It makes a cu­ri­ous pic­ture, though: two ner­vous lawyers and one mut­ton mag­nate look­ing for Pak­istani hit men in a labyrinth of moon shad­ows and rhodo­den­drons. Dunn re­mem­bers that night, too. He told me he hadn’t men­tioned it be­cause he feared it would sound a bit … “Un­be­liev­able?” I sug­gested. “I was go­ing to say, florid.”

Matheson’s role

in the Ivanov af­fair slowly drifted out of the pa­pers. But his trou­bles weren’t over. In late 1983, po­lice raided Com­mer­cial Bureau’s of­fices in Mel­bourne, seiz­ing 20 boxes of doc­u­ments. Faced with debt, tax trou­ble and a steady stream of sala­cious pub­lic­ity, Matheson sold Com­mer­cial Bureau to Elders (IXL), who held a fire sale of old Rus­sian stock – or “Matheson mem­o­ra­bilia”, as one news­pa­per called it – at an auc­tion in Port Mel­bourne. Lots in­cluded Ural and Vos­tok mo­tor­cy­cles, Jupiter side­cars, a small pas­sen­ger boat, and a corn loader. Bulked out by rub­ber­neck­ers, the crowd was large and the bid­ding brisk. For Matheson there would be no knight­hood. He didn’t get into the Mel­bourne Club ei­ther. A ru­mour went around Mount Mace­don that he’d been black­balled. By June 1984 the Aus­tralian Fed­eral Po­lice was in­ves­ti­gat­ing Com­mer­cial Bureau’s tax af­fairs in earnest. In­ves­ti­ga­tors set out on an in­ter­na­tional paper­chase, vis­it­ing the of­fices of ship­ping com­pa­nies as­so­ci­ated with Com­mer­cial Bureau in New York, Ham­burg, Sin­ga­pore and Hong Kong. Ahead of them at ev­ery point were Matheson’s lawyers. For six weeks they hur­ried between fil­ing cab­i­nets in three con­ti­nents, trav­el­ling first class the whole way. On the transat­lantic leg they flew Con­corde. Nonethe­less, in Oc­to­ber 1985, Matheson ap­peared in court to face charges re­lated to al­leged tax fraud. Then – abruptly – the case was sus­pended. An al­le­ga­tion had been made within the AFP that an in­ves­ti­ga­tor had fab­ri­cated in­crim­i­nat­ing ev­i­dence us­ing seized Com­mer­cial Bureau let­ter­heads and an AFP type­writer. He was charged with crim­i­nal fraud. The trial ran for one week in June 1986 in the ACT Supreme Court. A jury found him not guilty. The orig­i­nal tax charges against Matheson were also dropped. No one was guilty of any­thing. Four years of trial by media and par­lia­men­tary priv­i­lege, a royal com­mis­sion and four court cases had proven noth­ing against Matheson, ex­posed lit­tle about his com­mer­cial deal­ings, and re­vealed al­most noth­ing about his past. At the heart of the babushka doll of the Matheson leg­end, it seemed, was only a man’s un­canny abil­ity to make peo­ple see things that were never there. Was it just a tragic per­son­al­ity flaw? Or was it the in­grained habit of some­one who for 40 years had sur­vived in a world where shad­ows pro­vide vi­tal cover? For what­ever rea­son – pa­tri­o­tism, a code of hon­our, le­gal ad­vice or fear – Matheson chose not to ex­plain him­self to his­tory. Phil Dunn told me he was once asked to do Matheson a favour. He too was en­joy­ing Matheson’s hos­pi­tal­ity at the house in Greece. “This would have been 1984. There was a me­tal box that Lau­rie wanted me to lo­cate and then dis­pose of. He asked me not to open it. He just said, ‘I’d like you to punch some holes in it and throw it into the ocean.’” The box was hid­den in a stair­case. Af­ter much tap­ping and fid­dling, Dunn even­tu­ally lo­cated a loose riser, and dis­cov­ered a space be­hind. “And there it was, this lit­tle me­tal doc­u­ments box with a han­dle.” Dunn fetched a ham­mer and a chisel from the gar­den shed. Even though Matheson had asked him not to open it, he did any­way. He looked in­side. Then he closed the box, punched some holes in the lid, and tossed it into the sea. It took a sur­pris­ingly long time to sink, he re­mem­bers. “When I told Lau­rie later, he just said ‘good’ and never men­tioned it again. “And you know what was in that box? Noth­ing. It was empty. I mean – what are you sup­posed to make of that? What does it mean?” Some names have been changed.

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