The Secretary of State to the Consul at Geneva ( Bucknell )
About middle of April 428 cases Iranian opium arrived Tangku port of Tientsin. Three hundred of these arrived Shanghai April 22 from Dairen and are now stored in Hongkew. Additional 1,000 cases Macao awaiting transportation. Negotiations being conducted between Satomi, assistant to Colonel Kusumoto, head of Japanese Army Special Service in Shanghai area, and Chao Shih Chuin, Chief of Consolidated Tax Bureau of Tatao Shanghai provisional government, for establishment of large heroin factory Shanghai. Efforts are being made to sell under the control of Colonel Kusumoto 460,000 pounds Iranian opium, which was consigned in care of Mitsui Bussan Kaisha, Limited, Shanghai, at 6 local dollars per liang without tax. In addition stamp tax of $2 will have to be paid but no stamps have yet been printed. Under Japanese military supervision delivery against cash is to be made to any part of Central China area now occupied by Japanese Army, including Shanghai. Satomi has already registered 34 Chinese and Korean retail dealers and 11 Chinese wholesale dealers who will start functioning in various parts of Shanghai shortly.
Large stocks Iranian opium now en route will be converted into base. Site not yet selected. Negotiations in preliminary stage.
Nicholson states above data was received about May 2 through foreign undercover and was verified by two Chinese directors of the local opium merchants’ union through an indirect source.