[1]157-10014-10144
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[136]- ITEM IS RESTRICTED
[142]TABLE OF CONTENTS
[144]PROPRIETARIES
[146]-I. Introduction and Philosophy of Use ...... 2... 0... eee eee , 1
[147]A. Operating Proprietaries 2... eee ee ee tes 3
[148]B. Non-Operating Proprietaries ...... 0... 0c eee eee eee -_ 7
[149]II. Statutory Authority for Proprietaries ..............0005- 9
[150]III. Specific Controls See eee ee eee eee ee eee 10
[151]A. Agency Regulations and Policies ........0... cece eee 10
[152]B. Project Reviews and Control ............ eben e eens 11
[153]C. Financial Controls/Operating Companies and Non-
[154]Operating Companies Keeping Books of Accounts ...... 11
[155]D. Financial Controls/Non-Operating Companies Except
[156]Those Keeping Books of Accounts ................-+-- 13
[157]E. Treatment of Profits 2.0... . cece te teen enes 14
[158]F. Disposition of Funds Returned from Proprietaries ... 16
[159]G. Disposal of Proprietaries 2... 0... eee eee 16
[160]H. Relations with Tax, Regulatory, and Other Agencies . 18
[161]Iv. A Description of the Various Proprietaries ...... bees eee 21
[162]Proprietary List ...........5. Lee ee eee eee eee 24
[163]Employees of Proprietaries as of October 1975 ......... 41
[164]Funding and Payroll Mechanisms .............-- ee eeeeees 42
[165]Description of Major Headquarters-Controlled
[166]Proprietaries as of September 1975 ........ 0... cee ueee a. 43
[167]Listing of Proprietaries During the Period 1952 through
[169]1974 (Total 399) 22. cc ee eee ete 46
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[173](ii)
[175]V. The Disposal of Agency Proprietaries
[177]Lee ne eens Beene eee 5D
[178]a. An Overview 20.00... cece cee ence eee eee lasses 59
[179]Entities Dissolved ae eee eee etna nates vbeeb beeen 63
[180]Entities Sold 2... cece eee ene 68
[181]Entities "Otherwise Disposed Of" ................... 71
[182]Description of Disposition of Entities Sold or
[184]Otherwise Disposed Of .......... eee tees twee 74
[186]b. The Sale of SouthernAir Transport, Inc.: A Case
[187]Study In Disposal of a CIA Proprietary ............. 89-1
[191]Declassification of Relationship With CIA ...89-14
[193]Conflict Of Interest ....... ccc ccc cece eeeees 89-15
[197]VII. Beyond "Doing Business":. Peak Non-Government Security
[198]Investments by Proprietaries Active as of December
[200]31, 1974 .........- eee Oe eee eae Lee eee ees 95
[202]VII. MHMUTUAL: The Insurance-Investment Complex ............. 99
[203]a. A Brief History 22.0... cee eee eee eee es 99
[207]Stock Portfolio Performance Chart ............0.. 108
[209]IX. The Air Proprietarles 2.0... eee 113
[210]KX. issues Posed, Conclusions, and Recommendations ............ 129
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[214]. 3 qin?
[215]me CORE, PROPRIETARIES - ane
[217]I. INTRODUCTION AND PHILOSOPHY OF USE ”
[219]Questions have arisen as to CIA's use of proprietary mechanisms
[221]to help carry out the Agency's missions. In particular, concerns
[223]have been expressed about the Agency's financial and management control
[224]over these entities and about the treatment of funds related to such
[225]entities. A careful review of these entities has revealed that CIA's
[226]proprietaries are appropriately limited and controlled with careful
[227]consideration given to their use within the spirit and letter of the
[228]law.
[230]Proprietaries fall into two main categories:
[232]1. Operating companies that actually do business as
[233]would any private firm; and
[235]2. Non-operating companies or entities that appear to
[236]do business under commercial guise.
[238]These entities may be legally constituted as corporations, partner-
[239]ships, or sole proprietorships; or they may have no such legal standing,
[240]i.e., they may be "notional" entities which have bank accounts and
[241]backstopped addresses controlled by the Agency. Corporate proprietaries
[242]are incorporated in accordance with the statutory provisions of the
[243]jurisdiction of incorporation, are subject to the same review as any
[244]corporate entity within that jurisdiction, file applicable state and/or
[245]federal tax returns, and obtain the necessary licenses to conduct their
[246]normal business. The purposes served by them are two-fold: they provide
[247]cover, attribution for funding, and administrative assistance to agents
[249]Net oan are
[251]. - ne:
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[255]and covert activities; and they provide services not securely available
[256]through normal commercial facilities. Because these instrumentalities
[257]are established as private organizations, they must be established
[259]and managed, to the extent possible, in accordance with practice and
[260]requirements that are normal for the types of enterprises they give
[262]the appearance of being.
[264]Of the legally constituted entities, the Agency uses the corporate
[265]form in most cases because of the advantages and flexibility of corporate
[266]Management control. These corporations are legally organized under the
[267]laws of a state, country, or other jurisdiction and are either wholly
[268]owned by CIA or controlled through majority stock ownership. Services
[269]of bona fide businessmen are enlisted as nominee officers, directors,
[270]and stockholders.
[272]The Agency generally has employed proprietaries when it was the
[273]only way, or clearly the best way, to achieve an approved objective.
[274]Under Agency rules proprietaries are established or allowed to continue
[275]in existence only so long as they contribute to accomplishment of the
[276]Agency's mission and remain the most advantageous operational means of
[277]achieving certain particular and necessary objectives. Current policy
[278]calls for limited use of operating proprietary mechanisms. The capa-
[279]bility to use the mechanism is to be retained (this the Agency terms
[280]its “capability in being"), and smaller entities used.
[282]A teview of Agency files shows that the number of operating
[283]proprietaries has been consciously pared by about 50 percent since the
[284]mid 1960's. These reductions began as a result both of the Katzenbach
[285]guidelines associated with the National Student Association affair in
[287]1967 and the CIA's own IG survey in that same year. In addition, the
[289]HY 50955 Docld:324234532 Page 7?
[291]need for proprietaries has declined as a result of a general shift in
[292]emphasis away from covert action; transfer of Radio Free Europe and
[293]Radio Liberty to the Board of International Broadcasting with funding
[294]through State Department; continuing liquidation of the assets of the
[295]Air America complex as requirements for CIA support in Southeast Asia
[296]have diminished; the sale of Southern Air Transport and the continuing
[297]liquidation of assets of Intermountain Aviation with their exposure
[298]in the press and the decreased need for contingency air capabilities.
[300]The evidence establishes that activities of all proprietaries,
[301]directly or indirectly, support the Agency's foreign intelligence collectio:
[302]or covert action missions. Some of these proprietaries are located
[303]within the United States for reasons of operational or administrative
[304]necessity, but their ultimate impact is overseas. Some of the question-
[305]able domestic uses of these entities is dealt with in the sections of
[306]the Report on "Chaos" and related programs. And in one area, MHMUTUAL,
[307]serious questions remain as to the propriety of using such a mechanism
[308]to provide insurance and retirement benefits. This problem is detailed
[309]later. (See Section VIII).
[311]A, Operating Proprietaries
[313]As discussed in greater detail later, operating proprietaries
[314]conduct business in the commercial sphere, but they are not in direct
[315]competititon with privately owned corporations to such a degree as to
[316]deprive the private companies of lepitimate income. There is no doubt,
[317]however, that they were and are in competition. The Agency has been
[318]careful to limit the amount of commercial business engaged in by these
[319]proprietaries to only that necessary to support the viability of the
[321]commercial cover and keep it alive in the commercial world. Revenues
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[325]have been used as partial offsets to operating costs, Aggregate
[326]profits over the years have been relatively small. Oniy two proprie-
[327]taries have shown significant profits: the Air America complex in
[328]fulfilling mostly Government contracts in Southeast Asia, and the
[329]insurance company handling trust funds and insurance (MHMUTUAL).
[331]The air proprietary overview, infra Section IX., details the dilemmas
[332]posed by size. Moreover, it sheds light on questions concerning
[333]whether commercial viability became more of a bronze goed-than was
[334]necessary to maintain adequate cover.
[336]Operating proprietaries may be large or small in terms of capital-
[337]ization and total assets, depending upon the functions they perform.
[338]When the commercial purpose of an operating proprietary is incidental
[339]to its CIA mission -- such as an export-import firm which engages in
[340]commercial operations only to the extent necessary to provide cover
[341]for a CIA officer in a foreign country -- a minimum capitalization,
[342]usually in the neighborhood of $25,000 or less, is all that is required.
[343]Examples of an operating proprietary in which commercial operations
[344]are incidental to the Agency mission are:
[346]A United States frozen seafood importing company which
[347]operates in the Far East and provides cover for an Agency
[348]employee engaged in intelligence activities. The Agency
[349]provided $25,000 in capital to purchase and activate a
[350]dormant but long-established privately-owned United States
[351]seafood distributing company. The former owner and his
[352]partner, who are cleared and witting, provide training,
[353]business management, and product distribution in the
[354]United States for one-half the profits on seafood imports
[355]financed by the proprietary. The Agency subsequently
[356]provided $10,000 annually for fiscal years 1972, 1973, and
[358]- 1974 as working capital. The proprietary since 1971 has
[360]provided excellent cover with a minimum amount of business.
[361]As of 20 June 1974, the proprietary had assets of $104,222.67
[362]and a net worth (assets minus Liabilities) of 874,051.15.
[364]The company's financial accounts are handled by an Agency
[365]proprietary management firm.
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[369]A foreign travel service company which operates in a Southeast
[370]Asia country and provides cover for an agent tarpeted against
[371]the local Communist Party. The company was established in 1973
[372]with an initial investment of $5,900.
[374]Operating proprietaries whose commercial purposes are in themselves
[375]essential to the CIA mission require much Larger capitalization and
[376]investment, They are staffed by Agency personnel plus cleared commer-
[377]cial employees as required. Among the Agency's operating proprietaries
[378]of this type are four management companies which provide commercial
[379]assistance to other proprietaries and an audit firm which conducts
[380]commercial audits of operating companies and those non-operating
[381]proprietaries with substantial assets, The Agency's largest operating
[382]proprietaries are Air America, an insurance complex, and the aviation
[383]facility, Intermountain Aviation, Inc. The assets of Intermountain
[384]have been sold, with operations ceasing. on 28. February 1975; and:the.
[385]corporation is in the process of being dissolved.
[387]Air America, the Agency's largest proprietary, which is in the
[388]process of liquidation, provided aircraft in support of Agency operations
[390]in Southeast Asia. This support has been under cover of a commercial
[391]flying service in fulfillment of U.S. Government contracts. Corporate
[392]Headquarters has been in Washington, D. C., with field Headquarters ©
[393]in Taipei, Taiwan.
[395]The insurance complex provides a mechanism for the payment of
[396]annuities and other benefits to sensitive agents and for self-insurance
[397]of risks involved in covert operations which, for security reasons,
[398]cannot be attributed to the U.S. Government or handled through private
[399]firms. The complex was formed in 1962 as a clandestine commercial
[400]support mechanism to provide death and disability benefits to agents
[402]or their beneficiaries when security considerations precluded payments
[404]HY 50955 Bocld:32423532 Page 10
[406]attributable ro the U.S. Government. This function was broadened
[408]to include self-insurance for many risks involved in covert operations,
[409]including property risks incurred by operational activities of Agency-
[410]owned air and marine companies. From an early date, the complex has
[411]administered agents' escrow accounts and life insurance, and provided
[412]annuity and pension programs for selected agent personnel employed by
[413]the Agency. These programs are solely for the purpose of meeting the
[414]Agency's obligations to agent-type personnel who have rendered services
[415]over a substantial period of time and cannot be handled under normal
[416]U.S. Government retirement programs. Individuals who qualify for the
[417]CIA Retirement System or the Civil Service System are not handled
[418]through the proprietary system. In addition, the complex has been
[419]used to provide a limited amount of support to covert operations --
[420]specifically, for the acquisition of operational real estate and as
[422]a conduit for the funding of selected covert activities.
[424]Intermountain Aviation, Inc., has the purpose of providing a
[425]variety of nonattributable air support capabilities available for
[426]quick deployment overseas to support Agency activities. The Agency
[427]is in the process of disposing of its assets and terminating this
[428]activity...
[430]As of 1 July 1974 there were 71 operating proprietary companies,
[431]of which 21 are part of the Apency's proprietary insurance complex.
[432]The combined net worth (assets minus liabilities) of these companies
[433]is approximately $57.3 million. Although some, such.as those in the
[434]insurance complex, are commercially self-supporting, most operating
[436]proprietaries usually require budgetary support.
[438]HY 50955 Bocld:32423532 Page il
[440]B. Nonoperating Proprietaries
[441]Nonoperating proprietaries vary in complexity according to their
[443]Agency task, are, for the most part, either corporate shells or less
[444]that facilitate foreign operations, and clearly pose no competitive
[445]threat to bona fide businesses. The most elaborate are legally
[446]Licensed and established to conduct bona fide business. They have
[447]nominee stockholders, directors, and officers and are generally
[448]directed by one of four Agency proprietary management companies.
[449]The company address may be a Post Office Box, a legitimate address
[450]provided by a cleared and witting company official or attorney, or in
[451]a few cases the address of a proprietary management company. They
[452]maintain bank accounts, generate business correspondence, keep books
[453]of account which can withstand commercial and tax audit, file State
[454]and Federal tax returns, and perform normal business reporting to
[455]regulatory authorities in order to backstop fully their Agency tasks.
[456]They are moderately capitalized, generally around $5,000, and their
[457]net worth at any one time varies according to the Agency task they
[458]are performing. As of 31 December 1973, 38 of these companies had
[459]a combined net worth of approximately $325,000. Of this amount,
[460]almost $200,000 was operating capital for three companies which
[461]provide cover for several Agency personnel. Examples of two non-
[462]operating companies which are commercially managed, keep books of
[463]account, and can withstand commercial and tax audit are:
[465]A Florida corporation capitalized at $7,000 and whose legal
[467]address is the office of a cleared and witting attorney.
[469]Under the auspices of the Florida corporation, an Agency
[471]officer established a branch office in a Central American
[473]country and conduets a sporting goods business which provides
[475]him cover. Administration of the corporation, including
[477]purchase of inventory for the branch office, is handled by
[478]a proprietary management company.
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[482]A Liechtenstein Anstalt which an Agency nominee established
[483]using a reliable but nonwitting Liechtenstein lawyer as a
[484]resident agent. The Anstalt was used to purchase a property
[485]in a European country from which an audio operation was
[486]mounted against an installation of a Communist country.
[488]Upon conclusion of the operation, the property will be sold
[489]by the Anstalt and the proceeds returned to CIA via its
[490]nominee.
[492]Requiring less elaborate commercial administration because of
[493]the nature of Agency tasks performed are 31 legally incorporated
[494]companies which are directly managed by Agency Headquarters specialists
[495]operating in alias as signatories to the company bank accounts. Each
[496]of these companies generally have a capitalization of $5,000 or less
[497]and are domiciled in the offices of cleared and witting attorneys.
[499]No commercial books of account are kept, and in the event of a tax
[500]audit the Agency has to brief the auditing authority. Depending on
[501]use, administration may be as simple as maintaining bank accounts and
[502]filing annual franchise taxes or more extensive as required when
[503]obtaining Employee Identification numbers, paying personnel, with-
[504]holding taxes and Social Security, and filing tax returns. Examples
[505]- of this type of Headquarters-managed proprietary corporation are:
[506]A Nevada proprietary corporation domiciled at the offices of
[507]a California law form. Three members of the firm serve as
[508]Agency nominee stockholders, directors, and officers for
[509]the proprietary which hélds title to two aircraft used by
[510]the Agency for flight training and testing avionics equipment.
[511]In this case, only administration is required to maintain a
[512]bank account, file a franchise tax, and coordinate with the
[513]law firm. ;
[515]Although not proprietary corporations, but proprietaries in the
[516]sense of being Agency-owned and administered, are 64 ostensible sole-
[517]proprietorships. The Agency establishes and registers these sole-
[519]proprietorships in the name of fictitious persons and opens a bank
[521]HW 50955 Dockd:324234532 Page 13
[523]account on which Agency officers in alias have signatory power.
[524]Arrangements are made with cleared and witting businessmen to
[525]provide a domiciliary address for these entities at a law office
[526]or telephone answering service. These entities, like the proprietary
[527]corporation administered by Agency Headquarters specialists, provide
[528]cover, payrolling, and tax attribution for Agency personnel and are
[529]similarly administered. .
[531]Another type of entity used by the Agency and a proprietary
[532]only in the sense of being Agency-owned and administered is exempli-
[533]fied by some 215 notional companies which are not legally registered
[534]but have names and bank accounts controlled by the Agency. The Agency
[535]arranges with cleared and witting attorneys or proprietors of telephone
[536]answering services to provide a domiciliary address and to refer any
[537]queries to the Agency specialists concerned. These notional entities
[538]are used to provide status and operational cover for Agency personnel
[539]involved in all types of high-risk intelligence operations. They are
[540]also used as ostensible clients for purposes of funding Agency pro-
[541]prietaries or bona fide American companies which provide
[543]cover and payrolling of Agency personnel.
[544]II. STATUTORY AUTHORITY FOR PROPRIETARIES
[546]The Agency's statutory authority to spend money for proprietary
[547]corporations in support of Agency operations derives from Section 8(b)
[548]of the CIA Act of 1949, This Act states:
[550]"The sums made available to the Agency may be expended without
[551]regard to the provisions of law and regulations relating to
[552]the expenditure of Government funds; and for objects of a
[553]confidential, extraordinary, or emergency nature, such
[554]expenditures to be accounted for solely on the certificate
[556]of the Director and every such certificate shall be deemed
[558]a sufficient voucher for the amount therein certified."
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[562]- 10 -
[564]The language contained in Section 8(b) is adequate authority to
[565]exclude the operation of these proprietary corporations from the
[567]law governing Government corporations in 31 U.S8.C.A. 841 et. seq.
[568]However, the CIA General Counsel ruled in 1958 that the CIA should
[569]comply with the principles in that Act to the extent possible, and
[570]this has been done. Attached as Appendix A is a classified Memorandum
[571]of Law by the Agency's Office of General Counsel on CIA's authority to
[572]acquire and dispose of a proprietary without regard to provisions of
[573]the Federal Property and Administrative Services Act, which position
[574]was upheld by the U.S, District Court in the Southern District of
[575]Florida in dismissing the suit Farmer vs. Southern Air Transport on
[577]17 July 1974.
[578]III. SPECIFIC CONTROLS
[580]The formation and activities of proprietaries are controlled
[581]through various mechanisms to assure their proper use, as discussed
[582]_ below, .
[584]A. Agency Regulations and Policies
[586]Headquarters Regulation 230-8 and Headquarters Handbook 230-1
[587]prescribe the administrative procedures to be followed in the estab-
[588]lishment, operation, and liquidation of proprietaries (see Appendix B).
[589]An Administrative Plan (specifying the operational purpose, admini-
[590]strative and management procedures, and cost) and a Liquidation Plan
[591](specifying details of liquidation and disposition of funds when
[592]liquidation is contemplated) must both be coordinated among components
[593]concerned and approved at appropriate management levels. This regu-
[595]latory control along with policy memoranda are intended to assure
[597]HW 50955 Bocld:32423532 Page 15
[599]- LL -
[601]proper conduct by entities. Each Agency component involved is
[602]responsible for compliance, and the Chief of the Cover and Commercial
[603]Staff, the Director of Finance, and the Comptroller are particularly
[604]watchful in their areas of concern.
[606]B. Project Reviews and Control
[608]The controls and procedures applicable to each operating proprie-
[609]tary are specified in a project outline and administrative plan
[610]approved at the Deputy Director level. Normal control and administra-
[611]tion is carried out by a project officer at Headquarters. Semi-annual
[612]reviews are conducted to determine whether or not the operational
[613]need still exists, and regular audits are performed to assure proper
[614]management and financial accountability. Proprietaries are liquidated
[615]as their usefulness ends; new ones are formed as needed.
[617]C. Einancial Controls/Operating Companies and Non-Operating
[619]Companies Keeping Books o ecounts
[621]Under Agency regulations, these proprietaries are established
[622]and managed to appear to be consistent with normal commercial practices
[623]and requirements of the type of enterprise concerned. Specific require-~
[624]ments for the general management and financial controls of each such
[625]proprietary are provided in the administrative plan described above
[626]which specifies the basic framework within which the instrumentality
[627]is to operate. All facets of an administrative plan relating to
[628]funding the proprietary and its financial management are subject to
[629]the concurrence of designated representatives of the Director of
[630]Finance and the Comptroller. A primary purpose of this. coordination
[632]is to assure that the financial controls and procedures prescribed
[634]HW 50955 Doeckd:324234532 Page 16
[636]~ 12 -
[638]for the proprietary are compatible and consistent with normal practices
[639]and requirements for the type of instrumentality being established.
[640]The Director of Finance representative is the Chief of the Commercial
[641]Systems and Audit Division, a position normally occupied by a certi-
[642]fied public accountant.
[643]The initial and all subsequent passages of funds to such proprie-
[644]‘taries are from the current year Agency operating budget. Receipts
[645]of funds by the proprietary are documented as appropriate ostensibly
[646]to appear to be from a source usual to a commercial enterprise of
[647]similar type, e.g., capital stock, paid in capital, income from
[648]ostensible sales, ete. .
[649]The Agency treats all disbursements to such proprietaries as
[650]current year budgetary expenditures and concurrently establishes as
[651]a control mechanism a fully reserved investment account which is
[652]reconciled periodically to reported net worth of the proprietary as
[653]reflected in required financial statements received from each proprie-
[654]tary. Each such statement is reviewed to reconcile the approved
[655]financial activity of the proprietary to reported changes in net
[656]worth before adjusting the Agency investment account to conform with
[657]the reported net worth. |
[658]All control documents evidencing Agency equity or interest in
[659]the proprietary, e.g., executed stock certificates, irrevocable stock
[660]‘powers, declaration of trust, etc., are held in safekeeping by the
[661]Commercial Systems and Audit Division/OF provided that when such
[662]documents need to be retained by the proprietary, a report will be
[663]made to identify the documents retained, location, name of custodian and
[665]reason for the retention, and copies of the documents, if appropriate.
[667]HW 50955 Docld:32423532 Page 17
[669]- 13 -
[671]The Chief of the Agency Audit Staff is responsible for the audit
[672]of Agency proprietaries, utilizing Audit Staff personnel under a .
[673]suitable cover arrangement or witting or unwitting public accounting
[675]firms as is most appropriate to the requirements of a particular
[677]proprietary. An example of the type of audit conducted appears at p. 105
[679]Seetion VIiTIand concerns MHMUTUAL, the proprietary insurance-investment
[681]complex.
[683]D. Financial Controls/Non-Operating Companies Except Those
[684]Keeping Books of Account j
[686]Entities in this category are financed if financing is required
[688]through the establishment of bank checking accounts on which Agency
[690]officers have signatory power in alias. All such accounts are maintained
[692]-in the accounting records of the Agency as current asset accounts
[693]subject to monthly reconciliation with statements of accounts issued
[694]by the depository banks.
[696]All passages of funds to these accounts add te the accountable
[697]balance of the accounts. .No income is produced by these activities.
[698]All disbursements from these accounts are charged as current expendi-
[699]tures in liquidation of obligations of the operational activity on
[700]behalf of which the entity was established.
[701]| Signatories are Agency officials who in each case execute a
[702]declaration of trust acknowledging Government ownership of the account.
[703]Payments are initiated only in response to request of an authorized
[704]official responsible for the operational activity for which the
[705]entity was established.
[707]The Chief of the Agency's Audit Staff is responsible for the
[709]audit of all accounts maintained for these entities.
[711]HW 50955 DoclTd:324275532 Page 16
[713]~ 14 -
[715]Balances of each of these accounts are monitored periodically
[716]to assure that balances do not exceed a level warranted by the activity
[717]for which the respective account was established. Balances excess
[718]to current requirements and balances for entities which are dissolved
[719]are returned to the Agency and in turn remitted to the U.S. Treasury
[720]as Miscellaneous Receipts. (See discussion of Disposition of Funds
[721]Returned from Proprietaries on p. 16.)
[723]E. Treatment of Profits
[725]The CIA General Counsel, in a 6 January 1958 memorandum, ruled
[726]that “income of proprietaries, including profits, need not be considered
[728]' miscellaneous receipts to be covered into the Treasury but may be
[730]used for proper corporate or company purposes." This subject was
[731]reviewed and the opinion reaffirmed by the General Counsel in July
[732]1965. The policy of retaining profits has continued, although as
[733]already noted only a very few of Agency proprietaries have ever been
[734]profitable. The CIA's legal basis for retaining profits for the use
[735]of the operating corporate entities is discussed below.
[737]. Section 104 of the Government Corporations Control Act, 31 U.S.C.
[738]849, provides that Congress shall enact necessary legislation to make
[739]available for expenditure such corporate funds or other financial
[740]resources or limiting the use thereof as the Congress may determine.
[742]It is further provided that "this section shall not be construed as
[744]preventing the Government corporations from carrying out and financing
[746]their activities as authorized by existing law . ." The legislative
[747]history explaining this section of the act states that "in cases where
[749]no other law required a congressional authorization of expenditures,
[751]HW 50955 Bocld:32423532 Page 19
[753]- 15 -
[755]the corporation, if it had means of financing other than annual appro-
[756]priations, could continue to operate in the absence of any action by
[757]Congress on its budget program.” The statute creating a particular
[758]Government corporation may provide specifically that the corporation
[759]may use its profits in the conduct of its business. .
[761]The Government Corporations Control Act certainly did not conten-
[762]plate Government corporations in the sense that the Agency must have
[763]them. Neither is it feasible for Agency proprietaries to be created
[764]by act of Congress or overseen precisely as provided for in the normal
[765]Government corporation in the Act, Nevertheless, the Agency has felt
[766]that the appropriate and reasonable policy would be to treat and control
[767]them insofar as possible in accordance with the terms of that law,
[768]Such being the case, the Agency believes there is no need to have more
[769]restrictive rules applied to its corporations in the use of funds,
[770]including profits, than are applied to Government Corporations under
[771]the other Act or statutes. Thus, the use by a proprietary of its
[773]_ earnings to carry on its corporate affairs without an offset against
[774]Agency appropriations is considered a legitimate practice and does not
[775]constitute an illegal augmentation of appropriations.
[777]With rare exception, principally the Large air and insurance
[779]_proprietaries, operating proprietaries have not been self-sustaining
[780]from bona fide income. Such income, including profits, as is received
[781]is retained by the proprietaries consistent with the usual operating
[782]practices of business enterprises.
[784]The use of proprietaries' profits, however, is controlled. by
[786]annual reviews and audits within the Agency of the total capital,
[788]HY 50955 Bocld:32423532 Page 20
[790]- 16 -
[792]investment, and profits situations of the corporations in the context
[793]of the operational objectives and the cover needs of the corporations.
[794]In effect the annual project review is based upon an’ audit as searching
[795]as that required for statutory Government corporations.
[797]F. Disposition of Funds Returned from Proprietaries
[799]Any proprietary with funds excess to its current or foreseeable
[800]needs is required to return such funds to the Agency. Also, all funds
[801]realized from the Liquidation or termination of a proprietary are
[802]returned to the Agency except in a limited number of situations when
[803]transferred to another proprietary for "similar use." On the basis
[804]of an opinion of 3 February 1975 by the CIA General Counsel, the Agency
[805]has revised its policy for the treatment of all returns of funds from
[806]proprietaries; all such returns are to be remitted to the U.S. Treasury
[807]as Miscellaneous Receipts. Prior to this change in policy, returns
[808]had been treated as refunds of the previously recorded expenses up to
[809]the amount of such expense for a particular proprietary with any excess
[810]amounts returned to the Treasury as Miscellaneous Receipts (Appendix Cc):
[812]_G. Disposal of Proprietaries
[814]Air America, the Agency's largest proprietary, at its peak had
[815]total assets of some $50 million and more than 8,000 employees (who
[816]accounted for more than 90 percent of the people employed directly
[817]by all proprietaries). It is in the process of being liquidated
[818]because it is no longer required. The Air America complex included
[819]a number of other companies with the Pacific Corporation as the holding
[820]company. The general plan for liquidation of Air America is for the
[821]Pacific Corporation to sell off Air America, Inc. and Air Asia, Ltd.
[823]( the Taipei maintenance operation). A private New York firm (R. Dixon
[825]HW 50955 Bocld:32423532 Page 21
[827]- 17 -
[829]Speas Company) was engaged to estimate a fair market value for the
[830]complex. Although an intensive search for competitive bidders was
[832]made, the Agency was unable te find buyers for any of the affiliated
[833]companies except the Taipei maintenance facility. The sale of this
[834]company as a going concern to the successful bidder was closed on
[836]31 January 1975. The remaining parts of Air America are being
[837]liquidated by sale of individual assets upon completion of existing
[838]contracts. Funds realized from the sales could be as much as $25 million
[839]and will be returned to the Treasury.
[841]Agency financial support for Radio Liberty and Radio Free Europe,
[842]both sizeable proprietaries, was terminated in FY 1971 and responsi-
[843]bilicy for their funding and cperation was assumed by the Department
[844]of State.
[846]Southern Air Transport was sold on 31 December 1973 because its
[847]contingency capability was no longer needed. The Agency realized
[848]$6,470,000 from this sale. Cash received was $3,345,000 which included
[849]a $1.2 million award in arbitration of a dispute over the proceeds of
[850]the sale of an aircraft by Southern Air Transport after the sale of
[851]the company by the Agency. The balance was paid by the purchaser to
[852]Air America to retire a debt owed by Southern Air Transport. A group
[853]of employees of Southern Air Transport filed a civil action disputing
[854]the propriety of the sale of the company by the Agency, but the case was
[855]dismissed with prejudice on 17 July 1974.
[857]A more detailed list of various disposals of smaller proprietaries
[858]and what, if any, relationships remained thereafter between the Agency
[860]and any subsequent entity appears infra page 39, Section V.
[862]HW 50955 Bocld:32423532 Page 22
[864]~ 18 -
[866]H. Relations with Tax, Regulator
[868]and Other Agencies
[870]i
[872]Management and control of proprietaries often requires "cooperative
[873]interface" with outside agencies to gain beneficial working relation-
[874]ships and, as necessary, any appropriate authorizations. These
[875]relationships are described below.
[877]For those proprietaries which maintain commercial books and other
[878]financial records. U.S. and State tax returns are prepared annually by
[879]commercial managers based on the corporationts financial records. For
[880]other entities where only internal Agency records are maintained, tax
[881]returns are prepared by Agency specialists in a manner to reflect the
[882]normal operations of a bona fide commercial business. Close coordination
[883]is maintained with the Internal Revenue Service, which is aware of the
[884]Agency's use of proprietary commercial entities. In the event an Agency
[885]entity is singled out for IRS audit, it has been agreed that the Agency,
[886]through the Office of General Counsel, will notify IRS of Agency
[887]ownership. The IRS then cancels the audit in order to conserve auditor
[888]manpower. .
[890]The Air proprietaries necessitated contact with the Civil Aeronautics
[891]Board, the Federal Aviation Agency and the National Transportation
[892]Safety Board. Specific problems were discussed, usually with the
[893]Office of General Counsel of the agency concerned by the CIA General
[894]Counsel.
[896]The Air Proprietaries dealt with State Department and the Agency
[897]for International Development, generally on a contractor/customer basis,
[898]although senior personnel of those agencies were advised by the Agency
[900]of its ownership of the companies.
[902]HW 50955 DoecFd: 32423532 Page 24
[904]- 19 -
[906]These proprietaries which engaged in the shipment of weapons
[907]or other items on the Munitions Control list required Agency assistance
[908]in obtaining the necessary export licenses. The ownership of the
[909]companies was discussed with State Department Office of Munitions
[910]Control and the Bureau of Alcohol, Tax and Firearms.
[912]The radio proprietaries, while funded by CIA, did receive policy
[913]guidance from the Department of State to ensure that their broadcasts
[914]were in conformance with U.S. foreign policy.
[916]The Agency has intervened with the Department of Labor on behalf
[917]of survivors of employees of the proprietaries in order to assist
[918]them in receiving the available benefits under the applicable Workmen's
[919]Compensation Acts.
[921]The Agency, on behalf of the proprietaries, interceded with the
[922]Defense Department to have the proprietaries’ contracts exempt from the
[923]Renegotiation Board, There was a normal exemption based on the rules
[924]of the Board which was given for contracts performed entirely outside
[925]the United States.
[927]CIA requested the Air Force to consider the interest of the Agency
[928]in connection with the awarding of commercial contracts to its proprie-
[929]taries. Initially this was done in the mid-1950's on the basis of a
[930]policy decision by the Operations Coordination Beard that the air
[931]proprietary in the Far East, then operating at a deficit, was an
[932]instrument of value to national security. The Agency was able to
[933]maintain a standby capability without budget subsidies if awarded
[934]enough business to support large commercial aircraft. This applied to |
[936]the passenger and cargo aircraft.
[938]HW 50955 Bocld: 32423532 Page 24
[940]- 20 -
[942]The U.S. Forest Service was advised of the ownership of a pro-
[943]prietary and asked to award contracts to the’ proprietary in order to
[944]help it develop a commercial posture and permit its aircraft to be
[946]associated with that type of flying.
[948]HW 50955 Bocld: 32423532 Page 25
[950]~ 21 -
[952]TV. A DESCRIPTION OF THE VARIOUS PROPRIETARIES
[954]The operational needs of the Agency have required it to venture
[955]forth into many areas where proprietaries were a perceived necessary
[956]vehicle. These areas have included air support, media publications,
[957]proprietary management (accounting and management) , insurance (personal
[958]insurance coverage, annuity coverages, and escrow account maintenance
[959]for agent personnel), covert procurement (general merchandise, arms,
[960]ammunition and police related equipment), cover support (commercial
[961]cover, such as management consultant firms, importing companies, travel
[962]agencies, energy research organizations, behavior psychology companies),
[963]personnel services (tape transcription, personnel investigations for
[964]security clearances and approvals, public accounting firms, electoral
[965]and political analysis firm keyed into foreign elections), operational
[966]support (purchase of condominiums in foreign countries, sporting goods
[967]business in United States with sales in Latin America, various overseas
[968]foundations to provide grants, export/import firms, a company which .
[969]holds a note for certain U.S. Government funds borrowed by a consortium
[970]of aluminum companies for the extraction of bauxite in Guinea to insure
[971]U.S. contrel of bauxite extraction aétivicles in Guinea), and various
[972]other miscellaneous categories.
[974]The number of employees of proprietaries as of Oetober 30, 1975
[975]was 321. O€ this number 78 were U.S. Agency employees, 178 were U.S.
[976]proprietary hires, and 65 were foreign proprietary hires. The various
[977]types of funding and payrolling mechanisms used by the Agency (Devised
[979]Facilities incorporated in the U.S.; Devised Facilities-Notionals which
[981]HW §0855 Doecld: 324273532 Page 26
[983]~ 22 -
[985]are not incorporated but are sole proprietorships; and Notionals,
[986]which are merely business names, are not formally constituted or
[987]registered which do business at the address of an answering service
[988]or witting attorney) totaled 326 as of October 31, 1975. There were
[989]31 Devised Facilities, 67 Devised Facilities-Notionals, and 228
[990]Notionals.
[992]There follows a list of some of these proprietaries with brief
[993]descriptions of their functions. There are 97 in number. Following
[994]that list is a description of the major headquarters-controlled proprie-
[995]taries provided as of September 24, 1975. In addition, there is
[996]included a listing of all proprietaries during the period 1952 through
[997]1974 (total 399) with the highest net equity balance on agency records
[998]and the net worth balance as of December 31, 1974. The smallest net
[999]worth balance is $400 and the largest is $31,778,000.
[1001]The year 1967 was selected to demonstrate the number of employees
[1002]in use by Agency proprietaries. In that year, the Agency owned approxi-
[1003]mately 158 proprietaries. These proprietaries employed approximately
[1004]14,416 persons. Ninety-two percent of the employees were accounted
[1006]for by three proprietary complexes as follows:
[1008]JBGREED 10,218
[1012]13,318 |
[1013]TPTONIC and QRACTIVE (Radio Free Europe and Radio Liberty) were turned
[1014]over to the Department of State and are now being managed by the Board
[1015]of International Broadcasters. The JBGREED complex (air support
[1017]capability in the Far East) is in the process of liquidation and
[1019]HW 50955 Bocld:32423532 Page 27
[1022]- 23 -
[1024]currently has 63 employees. In addition to the proprietaries mentioned
[1025]above, the Agency managed 243 funding and payrolling mechanisms which
[1026]provided payrolling services for 149 employees.
[1028]HW 50955 Docld:32423532 Page 26
[1030]_ 7 24 ~
[1032]PROPRIETARY LIST
[1033]ATR SUPPORT
[1035]IUBETON Complex
[1037]The below four companies comprise an air support capabil-
[1038]ity for worldwide contingency use. The complex is based
[1039]in the Southeastern portion of the United States with cer-
[1040]tain commercial business operations overseas. -
[1042]1. TUCONTROL
[1044]A Florida corporation which acts as the holding company for
[1045]-the principal operating company in the complex (immediately below);
[1046]assets consist solely of stock in the principal operating company;
[1047]no employees.
[1049]2. IUBERYL
[1051]A Florida corporation’ hased in South Florida; a small air
[1052]service company which can be quickly expanded to meet Agency air:
[1053]Support requirements.
[1055]3. IUEPOCH
[1057]A Florida corporation which operates from.an airport in the
[1058]Southeastern United States; a wholly owned subsidiary of IUBERYL
[1059](immediately above) which operates a fixed base aviation facility;
[1060]provides an alternative air support capability.
[1062]4, ITUPIECES
[1064]A Florida corporation based in Miami which acts as a purchas-
[1065]ing agent for aviation supplies for the activities of the complex;
[1066]can provide the same service for prospective Agency air support
[1067]activities; is a wholly-owned subsidiary of IUBERYL (above).
[1070]7 25 -
[1072]JBGREED Complex
[1074]The below five companies comprised an air support capabil-
[1075]ity in the Far East. All entities are in process of being
[1076]liquidated or sold. :
[1078]5. JBCRYING oo ee oo 4
[1080]A Delaware corporation with corporate offices in Washington,
[1081]D.C., which acts as the holding company for JBCHOKE, JBHEEDFUL,
[1082]and PROPRIETARY C (see below). |
[1084]6. JBCHOKE
[1086]A Delaware corporation whte® corporate offices in Washington,
[1087]0.C., which has terminated all flying services contracts. The com-
[1088]pany wil] be liquidated by sale or disposal of assets.
[1090]7. JBHEEDFUL
[1092]A Taiwan corporation with corporate offices in Taipei which
[1093]ceased flying operations in 1968 but has continued to provide
[1094]ticketing and other services on behalf of other affiliated com-
[1095]‘panies.
[1097]8. PROPRIETARY B
[1099]A Hong Kong corporation located in Hong Kong which provides
[1100]’ computerized accounting services for JBCHOKE.
[1102]9. PROPRIETARY C
[1103]A Thailand corporation located in Bangkok, Thailand which is
[1104]the custodian for JBCHOKE files pertaining to Thai employees and
[1106]contractual services in Thailand; will be dissolved when Thai law
[1107]no longer requires retention of these records.
[1109]- Cpnaa |
[1110]* FROM ° Single Entity
[1112]10. HBSANDTRAP
[1114]A Delaware corporation located at Washington National Airport
[1115]which has provided secure air support for Agency employees and clas-
[1116]sified pouches between Headquarters and other Agency facilities in
[1119]the United States; the company has accepted commercial charter
[1120]flights from non-Agency customers for income and cover purposes.
[1122]a
[1124]Media Publications
[1126]2 nr
[1129]The below six companies comprise a worldwide book dis-
[1130]tribution and manuscript publishing activity,
[1134]A Liberian corporation with a representative (banker) in
[1135]Brussels which pays book distribution costs; funds are controlled
[1136]by members of the New York corporation (POPORTAL/300 - below) and
[1137]paid through this corporation to avoid some of the problems of
[1138]funding a domestic company in the total amount required to effect
[1139]project operations; no employees except for the Brussels repre-
[1140]sentative, who is paid on a fee basis.
[1143]f
[1144]a
[1146]12. QRBLUFF
[1148]‘A Liberian corporation which is used as attribution for
[1149]Agency funding to the above two proprietaries; no employees.
[1151]13. PDPORTAL/200
[1152]A German non-profit organization, located in Munich, which
[1153]acts as the home office of its Rome Branch and is also used as
[1154]. the ostensible source of all the Agency funding to other project
[1156]entities; no employees; maintains a branch, PDPORTAL/500, in.
[1157]Rome, Italy. |
[1159]14, PDPORTAL/100
[1161]A limited partnership located in London, England.
[1163]15. POPORTAL/400
[1165]A corporation located in Paris, France.
[1167]en)
[1169]1H
[1171]16. POPORTAL/300
[1173]A New York corporation Tocated in New York City.
[1175]RECTE FROM
[1178]“= 27 -
[1180]Single Entities
[1181]“17. TOMOSAIC
[1183]; A Delaware corporation based in London which provided an in-
[1184]ternational news feature service; the project also supported the
[1185]publication of books of propaganda value; the news feature service
[1186]has been discontinued and the corporation will soon be dissolved, —
[1188]18. AELEDGER
[1190]A French corporate entity located in Europe which publishes
[1191]a foreign-language weekly periodical, which is disseminated to
[1192]recipients in and out of Russia and contains articles on Soviet
[1193]and Bloc matters including a large amount of material prepared
[1194]covertly in the USSR by Soviet dissidents; the periodical
[1195]attempts to encourage and assist activities of moderate segments
[1196]of Soviet society. .
[1198]19, AEDYNAMIC
[1200]A New York corporation located in New York City which pub-
[1201]lishes periodicals and selected books for infiltration into the
[1202]Soviet Union and distribution to travelers and Soviets residing
[1203]outside the USSR; fosters regional nationalism within the USSR;
[1204]Supports a private organization of regional nationalities; supports
[1205]the AEDYNAMIC branch office in Munich, Germany. ;
[1207]20. QRMYSTIC
[1209]A sole proprietorship located in the Washington metropolitan
[1210]area owned ostensibly by an Agency employee whose journalistic
[1211]services are utilized in support of foreign operations.
[1213]Proprietary Management
[1214]LPPANDA Complex
[1216]The below three companies support a one man accounting
[1217]and management company in Europe which provides services
[1218]to other proprietary operations.
[1220]“faa
[1222]Dave
[1224]NOV 6 1975 ey
[1226]CIA
[1229]oyesp28 -
[1231]Bae
[1233]21. LPREMEDY
[1235]A one man accounting and management company located in
[1236]Europe. ,
[1238]22, LPCLOUD
[1240]A dormant company at one time associated with the cover
[1241]of the individual now covered by LPREMEDY,
[1243]23. LPCHAIR/A
[1245]A New York company with no employees which serves as a
[1246]communication channel from Headquarters to LPREMEDY. ;
[1248]Single Entities |
[1250]24. LPHOCUS
[1252]A New York management and accounting company (three em-
[1253]Ployees)} which provides accounting and related financial man-
[1254]agement assistance to other proprietary organizations.
[1256]25. LPSUGAR
[1258]A Maryland management and accounting company (three employees)
[1259]which provides accounting and related services to other proprie-
[1260]tary organizations.
[1262]26. LPBERRY/B
[1264]A New York legal and accounting firm (three employees}
[1265]which provides Tegal and accounting services to other proprie-
[1266]tary organizations.
[1268]Insurance
[1270]MHMUTUAL Complex
[1272]The below 25 proprietaries comprise a clandestine support
[1274]mechanism which provides personal insurance coverages,
[1276]annuity coverages, and escrow account maintenance for agent .
[1277]: «> Pargonnel in a manner to preclude attribution to the United
[1279]a W
[1281]4
[1283]YO & 1915
[1285]TR a
[1286]a fe N
[1288]Ping re a Pgh pan Scie ;
[1289]Spe Sea ee aS
[1292]+ 29 -
[1296]States Government. The complex also underwrites. insurance
[1298]_risks of certain proprietary organizations and administers
[1299]the pension plans of these organizations. In addition, the
[1300]complex has been used to provide a limited amount of
[1301]support to other Agency operations -- specifically, the
[1302]acquisition of operational real estate and as a conduit for
[1303]the funding of selected foreign covert activities. Twelve
[1304]full-time employees are involved in the management of the
[1305]complex, with the assistance of three proprietary manage-
[1306]ment firms. All expenses except for the salaries of Govern-
[1307]ment employees assigned to the complex are paid from earned
[1308]income. The companies involved are:
[1310]cs
[1314]27. MHANVIL/A
[1316]An attorney at law operating as a sole proprietor in Washing-
[1317]ton, D.C.; he is the Agency manager of the insurance complex.
[1319]28. MHGRET
[1321]A Panamanian company which nrovides ownership for MHCROZE,
[1322]an investment proprietary, (see below) and owns an apartment in
[1323]Buenos Aires; no employees.
[1325]29. MHCROZE
[1327]A Panamanian company which serves as an investment vehicle
[1328]and a primary mechanism for the management of funds, no employees.
[1330]30. MHSLACK
[1332]A Delaware corporation which provides payroll cover for project
[1333]personnel and serves as an investment vehicle for funds; seven em-
[1334]ployees.
[1336]31. MHVOQDKA
[1337]A Bermuda company which is a reinsurance vehicle for all types
[1338]of casualty and property insurance for other Agency proprietaries
[1340]and directly issues death and disability, term life, annuity and -
[1341]other coverages for Agency non-staff.personnel; no employees,
[1343]32. MHORYAD-
[1345]A Panamanian company which serves as owner of MHLUMEN and
[1346]MHSPRAY, (see below}; no employees.
[1349]NOV 6 19
[1352]33. MHLUMEN
[1354]_ A Liberian company which serves as owner of MHFETCH (see
[1355]below) and as the source of an operational Toan; no employees.
[1357]34. MHFETCH |
[1359]A Bahamian company which serves as owner of MHKOALA and
[1360]MHWHIFF (see below); an investment vehicle and manager of non-
[1361]staff pension plan; no employees. 4
[1363]35. MHKOALA .
[1365]. ° A Liberian company currently inactive and slated for dis-
[1366]solution; no employees.
[1368]36, MHWHIFF
[1370]A Bermuda company which is a reinsurance vehicle for all
[1371]types of casualty and property insurance for Agency proprietaries
[1372]and for life and annuity coverages for non-staff personnel; no
[1373]employees.
[1375]37. MHMOLAR
[1377]Liechtenstein anstalt which serves as the beneficial owner
[1378]of MHBOMBE (see below); no employees.
[1380]38. MHBOMBE
[1382]A Bahamian company which serves as a holding company for
[1383]MHTWANG and MHONSET (see. below) and as an investment vehicle;
[1384]no employees. Lo
[1386]39. MHONSET
[1387]A Delaware corporation which serves as an investment vehicle
[1388]and quarantor of a mortgage on a former Agency activity; no em-
[1389]_ ployees. .
[1390]40. MHTWANG
[1391]A Cayman Island corporation which handles certain annuities,
[1393]escrow, term life insurance, a pension plan and funding of MHPIQUE
[1394]{see below); no employees.
[1396]RECEH ane
[1398]ea
[1400]NOV 6 1gI5- ORE;
[1403]41. MHPIQUE
[1405]A Florida company which provides payroll cover for three
[1406]non-staff personnel who handle the Cuban dependents program
[1407]payments and correspondence; three employees. :
[1409]42,  MHDELFT
[1411]A Swiss company which serves as a holding company for MHHAWSE
[1412](see below) and as a standby asset; no employees.
[1414]43. MHHAWSE
[1416]A-channel Island company that serves as a direct underwriter
[1417]of term life insurance and annuity contracts for non-staff Agency
[1418]personnel; no employees.
[1420]44, MHSEPOY
[1422]A Panamanian company that serves as beneficial owner of MHUNOER
[1423](see below) and for direct underwriting of term life and annuities
[1424]for non-staff personnel; no employees.
[1426]45. MHUNDER
[1428]A Panamanian company which is slated for dissolution; no employees.
[1430]46. MHALATE
[1432]A Liechtenstein company which owns property in Lusaka; no
[1434]employees .
[1436]47. MHJORUM
[1438]A Panamanian company which directly underwrites death and
[1439]disability, term life and annuities for non-staff personnel, no
[1440]employees. ,
[1442]48. MHBLARE
[1444]A Florida company now in dissolution resulting from | abandon-
[1445]ment of Agency project; no employees.
[1448]NOV & 1975
[1450]49. MHRUCHE
[1452]A Liechtenstein anstalt which is a general use standby
[1453]asset; no employees.
[1455]50. MHCLUMP
[1457]A Liechtenstein anstalt which serves as a standby asset
[1458]for general reinsurance use; no employees.
[1460]51. BGJASMINE
[1462]A European insurance and reinsurance company which issued
[1463]direct death and disability coverage to contractor personnel en-
[1464]gaged for a DDS&T project, and reinsured other risks arising out
[1465]of the project; no employees. ;
[1467]Logistics Support
[1469]The below three entities operated by the Office of.
[1470]Logistics provide a covert procurement mechanism
[1471]for the Agency.
[1473]52. KMJAGGERY
[1475]A Delaware corporation located in Washington, D.C., which
[1476]purchases general merchandise in a manner which cannot be traced
[1477]to the United States Government; total purchases from. January to
[1478]September 1974 were $437,500; no outside commercial business; five
[1479]employees.
[1481]53. TPLENTIC
[1483]A Delaware corporation with an address in New York which
[1484]arranges research and development and production contracts in
[1485]a manner which cannot be traced to the United States Government;
[1486]the company has no employees and is managed by Headquarters
[1487]officials in alias. ;
[1489]20M -
[1491](A OEE
[1493]ry Sey
[1494]“,
[1496]rae ager
[1497]IS Net FE tas
[1499]ar
[1500]; en eae ,
[1502]al
[1505]54. Stock Account #3
[1507]A Delaware corporation with an address in Baltimore which
[1508]purchases arms, ammunition, and police related equipment in a
[1509]manner which cannot be traced to the United States Government;
[1510]the company has no employees and is managed by Headquarters
[1511]officials in alias.
[1513]Cover Support
[1514]WUDIRK Complex .
[1516]The below five entities located in New York comprise a
[1517]Foreign Resources Division activity which provides com-
[1518]mercial cover for certain personne] assigned to the
[1520]New York Base of FR Division; no commercial activities
[1521]are undertaken by the companies in the complex, and all-
[1522]revenue comes from Agency sources; two of the entities
[1523]are in the process of dissolution, and two recently
[1524]established entities will replace the ones in dis-
[1525]solution.
[1527]55. WUBGDKIN
[1529]A New York corporation with offices in midtown Manhattan
[1530]which is styled as a management consulting firm; the entity
[1531]will be dissolved in the near future as soon as other cover
[1532]facilities are available for the individuals presently cover-.
[1533]ed by the entity; used by New York Base personnel for employ-
[1534]ment attribution and office space.
[1536]56. WUCURULE
[1538]A New York corporation with offices in mid-town Manhattan
[1539]which is styled as a management consulting firm; the entity wii]
[1540]be dissolved in the near future as soon as other coyer facil-
[1541]ities are ayailable for the individuals presently covered by
[1543]. the entity; used by New York Base personnel for employment
[1544]attribution and office space.
[1546]57, WUXIPHOID
[1548]A New York corporation with offices in mid-town. Manhattan
[1549]which is styled as a management consulting firm; the entity will
[1550]continue to provide cover support to the New York Base; used
[1551]by New Yark Base personnel for employment attribution and office
[1553]spacey
[1555]NOW 1975
[1557]oud. as
[1558]Passes te ae
[1561]“RECT?
[1563]58. WUBACH
[1565]A newly established New York corporation with offices in
[1566]mid~town Manhattan which is styled-as a management consulting
[1567]firm; was created to replace WUBODKIN and WUCURULE (above);
[1568]used by New York Base personnel for employment attribution
[1569]and office space,
[1571]59. WUKNOX
[1573]A newly established New York corporation with offices in
[1574]mid-town Manhattan which is styled as a management consulting
[1575]firm; was created to replace WUBODKIN and WUCURULE (above);
[1576]used by New York Base personnel for employment attribution
[1578]_and office space.
[1580]Single Entities
[1582]60. LPPIKE
[1584]A New York importing company with a branch office in a
[1585]Far East country; the branch office provides cover for -one
[1586]Agency employee; no employees in New York.
[1588]61. MOKITH
[1590]A Thai company located in Bangkok, Thailand, which functions
[1591]as a travel agency and provides cover for one Agency employee in
[1592]Bangkok.
[1594]62. LKBASE
[1596]A Virginia corporation located in Washington, 0.C., which,
[1597]in the past, has provided cover and funding for nonofficial cover
[1598]officers in the middle east; it is styled as a research organiza-
[1599]tion on energy matters and is now in the process of liquidation.
[1601]63. MKDILLY —
[1603]A Virginia corporation operating out of the residence of
[1604]its president in Northern Virginia; the company provides cover
[1605]for one Agency officer: who provides behavior psychology assistance
[1606]to the 500.
[1608]Lar aa) -EROM
[1609]. NOV 6 1975
[1611]UIA
[1614]= 35 -
[1616]Personnel Services
[1618]Single Entities
[1620]64. SLAVE
[1622]A Delaware corporation having its principal office in Falls
[1623]. Church, Virginia, which provided a centralized facility in the
[1625]Headquarters area with the capability of fulfilling field and
[1626]Headquarters requirements for tape transcription and document
[1627]translation; three employees; steps are now underway to convert
[1628]two of the employees who were proprietary hires to contract
[1629]employee status and move the function ta Agency controlled
[1630]buildings.
[1632]65. MHBOUND/3
[1634]A California corporation, with its headquarters in Los -
[1635]Angeles, which conducts personnel investigations for security
[1636]clearances/approvals. in those cases where no United States
[1637]Government interest can be disclosed. It also renders security
[1638]assistance, 1. @., badging, counter-audio inspections, etc., ta
[1639]Agency projects in those cases where United States Government
[1640]involvement cannot be revealed; the company will be dissolved
[1641]by 30 June 1976.
[1643]66. MHCLIMB
[1645]Represented as the Washington, D.C. branch office oF
[1646]affiliate of a legitimate New York based public accounting firm,
[1647]. but actually under sole control and administration of the Agency
[1648]Audit Staff, this facility enables site audits of Agency cavert
[1649]projects by experienced Agency auditors.
[1651]67. VWCADENZA
[1653]A Maryland company located in Bethesda, which its used. as
[1654]cover for an Agency employee who provides electoral and political
[1655]analysis on South American andEuropean elections; he also trains
[1657]Agency personnel in polling techniques and electoral analysis;
[1658]no outside business..
[1660]FROM
[1662]iv 6 STS
[1667]-~ 36 -
[1669]Operational Support
[1670]WUTACTIC Complex
[1672]The below 27 companies are managed by the Cover and
[1673]Commercial Staff to provide operational support mechan-
[1674]isms for DDO foreign operations. Some companies are in-.
[1675]active and held for future use. , .
[1677]68. LPCEMENT
[1679]A Liechtenstein company used to purchase a condominum apart-
[1680]ment in France for use as a listening post; net assets $84,226;
[1681]no employees, being terminated in the near future.
[1683]69. LPKILT
[1685]. A Latin American company established to provide cover and
[1686]funds to an East Asian agent; agent exports goods to Latin America
[1687]for resale; gross sales last year of $1,000; assets $12,870; one
[1688]field agent. , uo
[1690]70. LPKNIT
[1692]A Florida corporation formed to provide cover and source of
[1693]livelihood to an Agency employee in Latin America; employee open-
[1694]ed branch office of this parent company and sells sporting goods;
[1695]‘gross sales last year (first year of operation) $3,367;. assets
[1696]$14,125; one employee and wife.
[1698]71. LPPURSUIT
[1700]A Liberian corporation used to backstop a field agent in the
[1701]renewal of his visa; assets of $375; no employees.
[1703]72. LPCAMEO
[1705]A Liberian corporation used as the ostensible employer of
[1706]two Agency employees in the recruitment of a foreign agent; no
[1707]assets no real employees.
[1709]73, LPMISSIVE
[1711]dP Y;JA Liechtenstein anstalt which holds a mortgage on property
[1713]my
[1714]‘Yn’ Austria used by a field agent; assets of $788; the mortgage
[1716]” Noy 6 1975 °S not recorded on the books of the corporation; no employees.
[1719]-~ 37 -
[1721]74, 1.PBANGO
[1723]A Liechtenstein foundation used to give ostensible grants-
[1724]in-aid to field agents as a source of their livelihood; asséts
[1725]of $165; no employees. -
[1727]75. LPABBEY
[1729]A Liechtenstein foundation presently inactive; assets
[1730]$3,202; no employees.
[1732]76. LPRITTY
[1734]A Liechtenstein foundation presently inactive; assets
[1735]$3,205; no employees.
[1737]77, LPALONE
[1739]A Liechtenstein foundation presently inactive; assets
[1740]$633; no employees.
[1742]78. LPOOUBLE
[1744]- A Liechtenstein company used as a funding channel for a cover
[1745]placement, assets $2,853; no employees. . ;
[1747]79. LPRAISIN
[1748]A Liechtenstein anstalt export/import firm formed to provide
[1749]_additional status and prestige to an employee operating in alias;
[1750]assets $7,942; no employees.
[1751]80. LPBRAID
[1753]A Panamanian company used as a note holder in- the sale of
[1754]_an Agency proprietary entity; assets $1, 818; no employees.
[1756]81. LPADYANCE
[1758]A Panamanian company currently inactive; assets $3,589; no
[1759]employees.
[1762]~ 38 -
[1764]oe
[1766]ECOL
[1767]Agha
[1769]82. LPGLITTER
[1771]- A Panamanian company which was used as an investment vehicle
[1772]for funds reserved for new commercial operations requiring Agency
[1773]investments; The investment project was terminated and all funds
[1774]returned to the Agency; the company. has no employees.
[1776]83. LPLOTUS
[1778]A Panamanian company currently inactive; assets of $2,831;
[1779]no employees.
[1781]84. LPVISION
[1783]A Panamanian company currently inactive; assets of $2,831;
[1784]no employees. .
[1786]85. LPRANGE
[1788]A Panamanian company which holds a note for certain United
[1789]States Government funds borrowed by a consortium of aluminum
[1790]companies for the extraction of bauxite. in Guinea; purpose of
[1791]United States Govenment involvement was to insure U.S. control
[1792]of bauxite extraction activities in Guinea; the note, issued .
[1793]in 1961, was in the principal amount of $2,855,000, balance
[1794]of $1,752,000 has remained uncollected since 1962, when payments
[1795]stopped, (at the time the Government of Guinea nationalized
[1796]the extraction effort); aside from the note, the company has no
[1797]other assets and has no employees.
[1799]' 86. LPSHADE
[1800]A Delaware company previously used as a holder of a note on
[1801]a loan to a field agent; company now inactive; assets of $2,829;
[1802]no employees. .
[1804]87. LPMANTLE
[1806]A Delaware corporation which is used to collect the proceeds
[1807]from the sale of Agency proprietary entities and to refund such
[1808]proceeds to the Agency; at 31 December 1973, total assets $650,220,
[1809]total liabilities $633,897, total stockholders equity $16,323; no
[1810]employees. i
[1813]- 39 - i
[1815]88. LPEPIC
[1816]A Delaware corporation based.in New York City with a branch
[1817]affice in the Far East which provides commercial cover to a con-
[1819]tract employee in the Far East targeted against foreign intelligence;
[1820]net assets $27,265; one employee.
[1822]89. LPSHORE
[1824]A Delaware corporation currently inactive but retained for
[1825]future use; net assets of $2,023; no employees.
[1827]90. LPRERUN
[1829]A Delaware company used to provide compensation and tax
[1830]attribution to an independent contractor, assets of $7,094; no
[1831]employees. -
[1833]91. LPGRASS
[1835]A Delaware company used as the ostensible investors of
[1836]funds in LPKILT; assets of $1,826; no employees.
[1838]92. LPSHUFFLE
[1840]A New York company incorporated but never opened for business;
[1841]being held in reserve for possible future use; no assets; no
[1842]employees.
[1844]93. LPDAIS
[1846]A New York corporation based in New York with a branch office
[1847]in Europe. Used as the ostensible employer of an Agency employee
[1848]during his tour in Europe targeted against foreign intelligence;
[1849]net assets $6,845; one employee.
[1851]94. LPDUPE -
[1852]A Massachusetts company incorporated to pravide cover and
[1854]source of livelihood to an Agency employee on a tour in the Near
[1855]East; assets of $9,647; one employee.
[1857]NOV & 1975
[1860]Miscellaneous
[1862]single Entities
[1864]95. CATAR
[1866]A. Liechtenstein corporation operated by a lawyer in
[1867]Europe which has been used as the lessee of apartments of
[1868]operational interest in two European cities; also used as the
[1869]ostensible employer of certain Agency employees in the Far
[1870]East_when they operate in alias; no real employees; funds
[1871]have been passed through the company bank account in. amounts
[1872]necessary to meet lease payments and maintain commercial
[1873]image; net worth of about $5,000 (represents minimum bank
[1874]balance); company now in the process of dissolution.
[1876]96. LPBYZAS/B
[1878]A Swiss entity which holds a current equity interest (30 °
[1879]percent) in a European trucking company; al] other owners of the
[1880]trucking company are unwitting of Agency interest and the Agency
[1881]has been trying to sell its equity since 1973; both entities
[1882]provided cover fora career associate for four years; when
[1883]sale is completed, LPBYZAS/B will. be dissolved and proceeds
[1884]returned to the Agency for credit to Miscellaneous Receipts.
[1888]97. LPESTATE ©
[1890]A Liechtenstein anstalt with no employees which owned a
[1891]house of operational interest in a European city; the house
[1892]was recently sold and the entity will be dissolved as soon as
[1893]the proceeds from the sale are received and the company can be
[1894]liquidated in accordance with the laws of Liechtenstein;
[1895]liquidating dividends will be returned to the Agency for credit
[1896]to Miscellaneous Receipts.
[1898]Po EROM
[1900]ClA SECRET | 4
[1903]SECRET
[1905]-~ 41 -
[1907]Employees* of Proprietaries as of October 30, 1975
[1909]TUBETON Complex
[1911]JBGREED Complex
[1912]HBSANDTRAP
[1913]PDPORTAL Complex
[1914]TOMOSAIC
[1915]AELEDGER
[1916]AEDYNAMIC
[1918]_ QRMYSTIC
[1920]LPPANDA Complex.
[1921]LPHOCUS
[1923]LPSUGAR
[1924]LPBERRY/B
[1926]“MHMUTUAL Complex
[1928]Logistic Support
[1929]Complex
[1931]WUDIRK Complex
[1933]LPPIKE
[1935]MOKITH
[1937]LKBASE
[1939]MKDILLY
[1941]SLAVE
[1943]MHBOUND/3
[1945]MHCLIMB
[1947]VWCADENZA
[1949]LPTACTIC Complex
[1951]CATAR
[1953]LPBYZAS/B
[1955]LPESTATE
[1957]Totals
[1959]* No Foreign National Agency employees are presently employed by
[1961]U.S.
[1962]Agency
[1964]Employees
[1966]OD mt GN et et Ot OOD OT
[1968]. Mm
[1969]OOD w— WN OO — Win
[1971]|
[1973]“dl
[1974]ce
[1976]Agency proprietaries.
[1978]AA
[1980]NOV 0 1975.
[1982]U.S.
[1984]Prop. Hire
[1986]116
[1990]_ |
[1992]oocoe --RMococTaced WMO COON OOO eG
[1994]3]
[1995]1
[1997]Foreign
[1999]Prop. Hires —
[2001]ire]
[2003]+ NG
[2004]~AOmDoTOaowoovouo~,
[2006]poo-cecescccss
[2008][235
[2009]ro)
[2011]TAB B
[2013]Totals
[2015]120
[2016]63
[2017]6
[2018]19
[2019]0
[2020]21
[2021]10
[2023]ro _
[2024]OOO SPN PWS Ome wo POO OO OO at
[2028]32]
[2031]TAB C
[2032]FUNDING AND PAYROLLING MECHANISMS
[2034]1. The various types of Funding and Payrolling Mechanisms used by
[2036]the Agency are described below:
[2038]a. Devised Facilities--Those Agency-owned and managed mechanisms
[2039]which are incorporated in U.S. jurisdictions (various States) with
[2040]nominee stockholders and are used to provide nonofficial cover pay-
[2042]‘roll support to Agency assets who do not have to show highly visible
[2043]cover employment. They are also used for other nonofficial cover
[2044]support tasks such as funding of proprietary organizations. No
[2045]books of account are maintained but annual tax returns are prepared
[2046]by Headquarters specialists in a manner to make it appear that the
[2047]mechanism is conducting normal commercial business. Since the tax
[2048]return cannot be substantiated from commercial records, the Internal
[2049]Revenue Service (IRS) must be notified of Agency interest in the
[2050]entity tn the event of a proposed IRS audit. Management, including
[2051]direct control of the corporate bank accounts, is effected by
[2052]‘specialists at Headquarters. Funds are transferred from Headquarters
[2053]to the bank account of each.entity in amounts and at times necessary
[2054]to meet funding obligations; otherwise, minimum balances are main-
[2055]tained in the accounts to keep them open.
[2057]b. Devised Facilities-Nctionals--Those Agency-owned and managed
[2058]mechanisms similar to Devised Facilities except that the mechanisms
[2059]are not incorporated; they are sole proprietorships. The same
[2060]administrative procedures are used as for Devised Facilities.
[2062]c. Notionals--Those Agency-owned and managed mechanisms which
[2063]are merely business names (not formally constituted or registered)
[2064]which ostensibly do business at the address of an answering service
[2065]or witting attorney. Operating officials are usually fictitious
[2066]and management is effected by specialists at Headquarters. These
[2067]entities are generally used as funding attribution for monies paid
[2068]to bona fide corporations in reimbursement of cover costs for Agency
[2069]assets, and they are also used to fund proprietary organizations.
[2071]The same administrative procedures are used as for Devised Facilities.
[2073]2. As of 31 October 1975, the number of mechanisms in each category
[2075]is as follows:
[2077]a. Devised Facilities ns
[2078]b. Devised Facilities- Notionals 67
[2080]A - Total 326
[2082]2 Ma
[2084]Sbunel
[2085]KK . /
[2087]SFE eT
[2089]Saas
[2091][
[2092]tee
[2099]|
[2101]{ .
[2102]7
[2104]|
[2106]|
[2108]2 Y
[2110]mT
[2113]is
[2114]at
[2117]MAJOR HEADQUARTERS-CONFROLLED
[2119]7 ~ - 43 - ~ AIT ;
[2121]* ‘ DESCRiIYTIONS GF “
[2122]’ so PROPRIETAREES FOUND ON THE SCHEDULE ATTACHE i i
[2123]TO A 28 SEPTENZER 1975 MEMORANDUM TO THE Jl.
[2124]COMPTROLLER FROM THE OFFICE OF FINANCE i
[2125]LPBERRY/B - A one man, one secretary accounting and
[2127]egal firm in New York City which pro-
[2128]vides services to Agency proprietary
[2129]clients as well as commercial customers,
[2130]The majority of the costs of this sro-
[2131]prietary are usually subsidized by the
[2132]Agency, however, during the past 12-
[2133]month period the oroorietary did earn
[2134]. ; suostantial fees from legal clients in-
[2135]cluding a $20,000 fee which was cangingent
[2136]_ upon the favorable settlement of a civil
[2137]case, .
[2142]oi
[2145]LPPIKE - A small importing firm in New York City
[2146]which pravides cover for ona Agency of-
[2147]Yicer in the Far East. In the past, the
[2148]company nas earned substantial revenue,
[2149]however, in recent months and for the
[2150]next year it is expected that the company
[2151]will be subsidized completely by the
[2152]Agancy.
[2156]cd
[2158]PDPORTAL - A complex of companias bath in the U.S.
[2159]‘ and abroad which comorise a worldwide
[2160]book distribution and manuscript pub-
[2161]lisning activity. Except for 34,000 to
[2162]$5,000 a year from outside sources, all
[2163]_ proprietaries in this complex are sub-
[2164]sidized completely by the Agency.
[2168]small company in Europa which publishes
[2170]PDLEDCER - 1
[2171]weekly oariodical and disseminates this
[2173][i
[2175]and other material te recipients in and. :
[2176]aut OF Russia; the various written materials
[2177]produced for dissemination by the company
[2178]contain Soviet dissident literature and
[2179]ther articles to encourese-and assist
[2180]acvivittes of wederate segmants of Soviet
[2181]sociaty. This company receives outside
[2182]revenua from tne sale of its publications
[2183]and over tne past 12 montns this revenue -
[2184]contriouted to approximately One-half of
[2185]the costs. The balance ifs, provided (by) MA
[2186]tne Agency. . PIUTVE
[2187]NOV 4 1975
[2188]i
[2191]no
[2193]PDDYNAHIC
[2195]VWCADENZA
[2197]MHBOUND
[2199]KMJAGGERY _
[2203]WUDIRK
[2205]L?HOCUS
[2207]ot te as
[2209]- 44 -
[2211]A domestic based corporation with a German
[2212]branch which fosters the aims of a nation-
[2213]alistic group within the USSR and publishes
[2214]Selected books and periodicals for distri-
[2215]bution to members of this nationalistic
[2216]group. The New York and German offices
[2217]under this project are largely subsidized:
[2218]by the Agency with some revanue to the .
[2219]German office from the sale of publica-
[2220]tions. os
[2222]A one man, one secretary, consulting
[2223]company which provides Agency officers
[2225]with training and advice on polling tech-
[2226]niques as applicable to foreign Operations. |
[2227]This company is wholly subsidized by the
[2228]Agency. , : os
[2230]-MHBQUND/3, a security services company: ~~
[2231]which supports Agency, programs involving
[2232]contractor personnel and offers limited
[2233]Services ta commercial customers for
[2234]cover purposes. This company is almost
[2235]completely subsidized by the Agency.
[2237]A small purchasing company operated by
[2238]the Agency, Office of Logistics, which
[2239]provides covert procurement for that
[2240]office, This company is wholly subsi-
[2241]dized by. the Agency.
[2243]A sole proprietorship in the Washington
[2245]- area ostensibly owned by an Agency employee ©
[2247]wnose writing and rasearch talents are
[2248]utilized exclusively by the Agency in
[2249]support of overseas oparations. This
[2250]company is wholly subsidized by the Agency:
[2252]A grous of three comcanies in New Yurk
[2253]wnich provide cover for personnel assigned
[2254]to FR Oivision's New York Base. The
[2256]three companies involved are supported
[2257]wholly by the Agancy.
[2259]& two accountant, one secretary firm in
[2260]wen York City which provides accounting
[2261]services for Agency Proprietary organiza--.
[2262]tions. This company is supported almost
[2263]exclusively by the Agency.
[2265]Ke ROM
[2267]NOV 4 1915
[2270]A teropean company with no employees Ha
[2272]Which holds the Agancy’s interest in
[2274], another European company which was used
[2275]in the past tg Provida covar for one :
[2276]Agency employee. This company is being
[2277]retained solely for the Purpose of halding
[2278]an Agency investment. Until this invest-
[2279]ment 78 sold, the expenses incident to
[2280]the operation of the, company will be
[2281]wholly subsidized by the Agency.
[2283]i
[2285]LPBYZAS/
[2287]iva)
[2288]i
[2290]oO)
[2292]LPPANDA ~ One company in New York without employees -
[2293]and a ona accountant, part-time secretary
[2294]firm in Europe which provides ‘accounting
[2295]Support to Agency proprietary organizations.
[2296]Ss This company is almost exclusively sub-
[2297]. Sidized by the Agency. oe
[2299]MHMUTUAL - This is the Agency insurance complex which,
[2300]through interest and dividends earned on
[2301]its investment. portfol ia, pays for al]
[2302]Project expenses except for funds provided
[2303]by the Agency to meet the salary costs
[2304]of staff and contract employees in the
[2305]complex. ;
[2307]LPSUGAR - A two accountant, one Secretary firm in
[2308]; the Washington area which provides ac-
[2309]counting services to other Agency pro-
[2310]prietary organizations. This company is
[2311]almost completely subsidized by the Agency.
[2314]PROJECT /
[2315]ENTITY
[2317]ABUNA (Same as JBCASHBOX)
[2319]AEEGGHEAD
[2320]AcMARSH
[2321]AEMIRROR
[2322]AEDOKER
[2326]AESILVER/D
[2327]AKAROA
[2328]AMIDEA .
[2330]BEDEVIL
[2331]BEHOVE
[2332]BEUTFUL
[2333]Bey, £0
[2334]SGUAGUAR
[2335]BGMARQUE
[2336]BGSPEED
[2337]SGTENTS
[2338]BGTHANKS
[2340]CABANA
[2341]CALANCET
[2342]CAPOX
[2344]De TNDEED
[2345]DQEMARA
[2346]DTCRAZE
[2347]DTLAMPREY
[2348]BYLIQUOR
[2349]OTPRENYL
[2350]OTPIGGLE
[2351]DTPILLAR
[2352]DITEEPEE
[2353]DUPLICITY/1
[2355]1952-1974
[2357]LISTING GF PROPRIETARIES
[2358]DURING THE PERIOD
[2359]1952 THROUGH 1974
[2361](fotal 399)
[2363]HIGHEST NET
[2365]" EQUITY BALANCE
[2367]ON “NET WORTH
[2368]AGENCY RECORDS BALANCE
[2371]65,000
[2374]147 ,Q00
[2375]275,000
[2377]214,000
[2378]141 ,000
[2380]291,000
[2381]59,400 84,400
[2382]3,500,000
[2384]13,500.
[2385]88,200
[2387]17,000
[2388]29,000
[2389]64,800
[2391]2,829,000
[2392]333,009
[2393]85,000
[2394]264,500
[2396]189,500
[2397]38 ,500
[2398]7,123,609
[2399]117,400
[2400]39,030
[2402]31 DEC 74
[2404]RE 3 PROM
[2405]NOV 4 1975
[2407]CIA
[2409]HIGHEST NET
[2410]EQUITY BALANCE
[2411]i
[2413]0
[2414]PROJECT/ AGENCY RECORDS ©
[2415]ENTITY 1952-1974
[2417]ENDOMORPH $
[2419]ENGAGE 202,080
[2420]FELIX 6,200
[2421]FICITIES 33,000
[2422]FJREFLECT 7,959,900
[2423]FJHOLIDAY - 77 684
[2424]FUSTRICT 304,600
[2426]FURTOSO/H - ; 22,080
[2427]FUSEE 25,000
[2428]_GINSENG/G (was GIMMICK): 31,000
[2429]HACKMORE - 600
[2431]HBDERRICK (was WU) (same as
[2433]HBCLUBHOUSE GILSTOHE) 917,543
[2435]HBSANDTRAP 7,163,099
[2436]HREDITOME 546,200
[2437]He .CKORY 142,559
[2439]Housing Fund ISOLaTion] 16,620
[2440]HTB ALARD 14,200 |
[2441]HTGARLIC 203 ,300
[2442]HTNAMASLE 2,066,000
[2444]ICIRON. 2,609
[2445]TUATREDALE 89, Cag
[2446]IUQUEST .
[2448]TUABATE 3,484,059
[2450]TUPAGAN 3,332,060
[2452]IUPROTON (*} 1,230,600
[2453]JBFOLDAGE Te _ 43,600
[2454]JBGREED 34,110,000
[2456]LPCRYING
[2458]JBCHOKE
[2460]-JBARGON
[2462](*) See attached schedule. f3r non-government investments.
[2464]'(4) fa process of liquidation
[2466]NET WORTH
[2467]BALANCE
[2468]31 DEC 74
[2470]— §,300(a) .
[2472]3,484,000(a)
[2474]889, 000(a)
[2475]7 ,220(a)
[2477]31,778 ,000(a)
[2479]ode
[2482]OPT ry r
[2483]Ree FROM
[2484]NOV a 1975
[2486]CIA
[2489]” ~~ 48 -
[2490]MPMS PTLD
[2491]SEMSTTVE
[2492]HIGHEST NET
[2493]EQUITY BALANCE
[2494]ON NET WORTH,
[2495]PROJECT / AGENCY RECORDS BALANCE
[2496]ENTITY 1952-1974 31 DEC 74 |
[2497]JBGREED (continued) $ $
[2498]JBHEEOFUL
[2499]PROP B.
[2500]PROP C
[2502]JBWHIST 205,000
[2503]OMATE |
[2504]JMBUST 512,000
[2505]IMHOPE 45,000
[2506]JMPOPLAR 61,400
[2507]KMHELMSMAN. 19,400
[2509]KMCARDUEL 20,000
[2510]KMCASADE 49,600
[2511]KNJAGUARO 1,688,000
[2513]KMJAGGERY - 294,700 ©
[2514]MHOLENT 17,C00
[2515]Ss” STOCK ACCT. #2 4,105,090
[2516]Se. STOCK ACCT. #3 50,060
[2517]TPLENITIC 153,560
[2518]KMOCHRIOD 50,500
[2519]KMPRICE - 147,000-
[2520]“MSMORCH 8,300
[2521]LAGYCHAPEL 223,000
[2522]LCFURTHER 34,800
[2523]LOKNIFE 335,300
[2524]LCPEDANT 59,800
[2525]LCROPES 317,000
[2526]LFUPRISE .
[2527]MIASTOR 29,060
[2528]LILISP/G 121,700
[2530]LPBERRY (vas BGLEADYWAY) © 41,600
[2531]LPBERRY/A 65,090
[2532]LEBERRY/B 52,000 53,200 REC: co
[2533]LPBYZAS/A 87 08 340(a) Eoie  f ag
[2534]LEBYZAS/B 357 ,000 357,000 OY
[2535]. . NOV 4 1975
[2536]: ces Liquidation. ,
[2537]fa) In precess of liquidat CLA
[2539]REESE en
[2543]HIGHEST NET
[2544]EQUITY BALANCE
[2545]ON NET WORTH
[2546]PROJECT/ - AGENCY RECORDS BALANCE
[2547]ENTITY 1952-1974 DEC 74
[2549]LPCANAL 34,800 2,000{a)
[2550]LPDICTUM(was ZRSALTY,{same as 500,000
[2551]WUBRINY) ZRSALTY)
[2553]LPESTATE 87,c00 ~ 84,400
[2554]LPSPICE (*) 206,000 - "10,500(a)
[2555]LPDICTUM/P 75,600
[2556]* LPSALINE (*) 1,597,000
[2557]LPETHNIC (Same as WUAMICE)
[2558]LPCYHAMMER B00
[2559]LPHALTER 67,000
[2560]_MODAISY . 5,400
[2561]LPTOTEM — 242,000 81,200{a)
[2563]LPGAMP 27 000
[2564]LPGLOBE 29,000
[2565]LPHOCUS(same as WUHOCUS) 88,000 35,700
[2566]LPUJACK {*) 49,c00 . 54,400(a) _
[2567]LPMINERAL
[2568]1 CAEL 52,000
[2569]Lr UHICKEN 13,6C0
[2570]LPMINOR * L 7
[2571]-LPMINOR/1 523,020 |
[2572]“LPMINOR/G 91,690
[2573]LPMETAL - 166,600 47 ,800(a)}
[2574]PULSE 9,000
[2575]“WUAALTBUT 311,100
[2576]LpBANDA(same as ZRBADGE)
[2577]CHAIR A(same as WUPSYCH! 1. 77,500 1,900
[2578]CHAL® B WUCHAIB/A & MUCHAIR/3B)- 7,50! ;
[2579]LPCLOUD{same as WUCLOUD} 5,960
[2580]LPMET (*) 16,290 16,200
[2581]LPREMEDY 34 G08 27 400
[2582]LPRECLAIM
[2583]LPPITCH 58,000
[2584]LPROE/
[2585]LPPIKE - 73,765 56,200
[2586]LPSIPHON 12,560
[2587]LPSUGAR 55,600 35,600
[2588]LPTACTIC
[2589]LPABBEY 5509 4,300
[2592](*) See attached schedule
[2594](a) In process of liquidation
[2597]PROJECT/
[2598]ENTITY
[2600]LPTACITC (continued) ©
[2602]LPABOUT.
[2603]LPACTION
[2604]t, LPADVANCE
[2605]LPALONE
[2606]LPASSIST
[2608]LPBAIL
[2609]LPBANJO
[2610]LPBEAVER
[2611]LPBRAIO
[2612]LPBRICK
[2613]LPCAMEO
[2616]LPCHANNEL
[2617]_ LPCHAGS
[2618]LPDAIS
[2619]LPDARE
[2620]LPDECOR
[2621]| SDOLLOP
[2622]JOUBLE
[2623]LPDRAGUN
[2624]LPDUPE
[2625]LPELECT
[2626]LPEPIC
[2627]LPF INAL
[2628]LPFLASH
[2629]- LPGAMP
[2630]LPGRASS
[2631]LPGLITTER (*)
[2632]LP IMPORT
[2633]LPKAYO
[2634]LPRILT
[2635]LPXITTY
[2636]LPKIVA
[2637]LPKHIT
[2638]LPLAZY
[2639]LPLOTUS
[2640]LPMANTLE (*)
[2641]LPMASSIVE
[2642]- LPORDER
[2643]_ WUOUTDONE
[2644] LPOXAZOLE
[2646]HIGHEST NET
[2647]EQUITY BALANCE
[2648]on _ NET WORTH
[2650]AGENCY RECORDS BALANCE
[2651]1952-1972.
[2656]6,000 400
[2658]17,400
[2664]16,090 _
[2665]64,000 86,200
[2668]31,000 20,500
[2669]21,000
[2670]98,706
[2677]107,800
[2678]15,400 _
[2679]2,600 |. 2,400
[2682]760
[2684]40,600 : 7 800.
[2687].6,690
[2688]12,200 14,800
[2689]55,090. - ' .
[2691]591,090 37 ,800
[2695]68,590
[2696]15,090
[2699](*) See attached schedule,
[2701]31 DEC 74
[2703]FROM
[2704]au 4 15 .
[2706]GLA.
[2709]PROJECT/
[2710]~ ENTITY
[2712]LPTACTIC (continued)
[2714]- OF
[2715]ere)
[2716]aa ta)
[2717]HIGHEST NET
[2718]EQUITY BALANCE
[2720]ON
[2722]AGENCY RECORDS
[2723]1952-1974
[2725]LPPITCH 28,200
[2728]LPRANGE 750,000
[2731]LPROCKY - 1,700
[2735]LPSHOFFLE 60
[2737]LPSOLO 398 ,000
[2740]LPWAMPUM 40,000
[2741]- LPWEARY - 4,460
[2742]LPWHISPER(ame a LPCAPTAINAP! NHISFERQ? 900
[2743]LPL TY/] 500
[2744]LPWANDER 5,0C0
[2745]LUMINANT 12,800
[2746]MENNONITE 1,200
[2747]MHAMISH 38,000
[2748]PHANVIL/A 28,009
[2753]MHBQUND/1 (same as ZRLINEN) 135,990
[2754]MHBOUND/2 28,000
[2755]“HBOUND/3 351,600
[2756]MHCLIMB 46,000
[2757]MHMUTUAL
[2758]MHALATE (*) 165,900
[2759]MHBOMBE (*) 2,251,000
[2760]WUCAREFUL (*) 29,900
[2761]WUCHILI (*) £9 ,0590
[2762]HHCLUMP (*) 75,590
[2763]MHCROZE (*) 2,026,850
[2764]. MOET (*) 9,250
[2765]MADRYAD (*) 62,030
[2767](*) See attached schedule
[2769]NET WORTH
[2770]BALANCE
[2772]31 DEC 74
[2776]14,000
[2786]£94,400
[2787]20,000
[2789]- 103,600
[2790]873,335
[2793]1100 200
[2796]&6 , 300
[2800]NOV 4 1975
[2802]CIA
[2805]HIGHEST NET
[2807]EQUITY BALANCE
[2809]PROJECT/
[2810]ENTITY
[2812]MHMUTUAL (continued)
[2813]MHEGRET (*)
[2814]WUFACET (*)
[2815]MHFETCH (*)
[2816]MHHAWSE: (+)
[2818]MHKEVEL (3
[2819]MHKOALA (*)
[2820]MHLIBERTY (*)
[2821]MHLITRE (*)
[2822]MHLUMEN (*
[2824](MHMATTE (*
[2825]MHMOLAR .(*
[2826]MHNAVAL (*
[2827]MHONSET (*
[2828]MHPIQUE (*
[2829]WUPRUDENT
[2832]MHSEPOY (
[2833]MHSLACK (*
[2834]THANG {
[2835]roUNDER (
[2837]MHVODKA
[2839])
[2840])
[2841])
[2842])
[2843])
[2844])
[2846]*)
[2847](*)
[2849]s
[2850])
[2851])
[2852])
[2853])
[2854])
[2856]MHWALFF
[2857]HINERVE
[2858]MHEUGUE
[2859]HHSHANK
[2860]MIASTOR
[2861]MICLINIC
[2862]MIPACT
[2863]MEHOLOUNG
[2864]MIPUSHER
[2865]NKCOTTON
[2866]MCRUSH
[2867]MAKILLY
[2868]HKPENNY (same a as IKPENNY)
[2869]BMOKITH
[2870]HOMARRON
[2871]MONITION
[2873](*) See attached schedule.
[2875]ON
[2876]NCY RECORDS
[2878]“oe 1974
[2880]'$ 35,000
[2881]1,123,000
[2882]1,261,600
[2884]48 ,600
[2885]475,000
[2886]357,000
[2887]250,000
[2890]59,000
[2892]850
[2893]26,800
[2894]126,900
[2895]28 500
[2896]1,025,690
[2897]412,799
[2898]18,000
[2899]691,500
[2900]638 ,900
[2901]33,500
[2902]7,053,500
[2903]8,385 ,G00
[2905]325,500
[2907]244,000
[2908]34,700
[2911]37,000
[2913]459,000
[2915]35,500
[2916]356 ,020
[2917]20,200
[2918]51,700
[2919]52,600 .
[2923]NET WORTH
[2925]BALANCE
[2927]31 DEC 74
[2929]33,800
[2931](363,500)
[2933]8
[2935]54,600
[2936]141,500
[2938]211,200
[2940]35,560 .
[2941]550
[2943]199,000
[2944]15,900
[2946](6,100)
[2947]574 ,800
[2948]648 ,500
[2950]"(590)
[2956]-17,600(a)7 (8)
[2959]82 ,000(a)
[2960]20,300
[2962](a) in process of liquidation.
[2963](bo) Liquidation completed in March 1975,
[2967]Py
[2968]NOV « 1975
[2970]CLA
[2972]M
[2975]ORGLAD
[2977]HIGHEST NET
[2978]EQUITY BALANCE
[2979]ON
[2981]PROJECT/ AGENCY RECORDS
[2982]ENTITY. 1952-1974
[2984]NOVEL $ 51,200
[2985]NTEICACER 80,763
[2986]OBLIVIOUS . 14,606
[2987]OKMAJOR 471,000
[2988]OKSALE 46,600
[2989]OQKADIAK 92 ,800
[2990]OQKAIL 170,150
[2991]PAFANFARE(sama as FANFARE) 30,300
[2992]PARABASIS : 39,000
[2993]PAWALRUS (was WU) 92 ,800
[2995]PBTEMPLE °§,000
[2996]POBASIC 7,053,500
[2998]PDBASIC/200
[3002]POBASIC/400
[3004]PDBASIC/300
[3005]PEt CTO 13,0C0
[3006]POLS 25,900
[3007]PODEARLY 32,890
[3008]POVARSITY
[3010]POSPOKE(same as POVARSITY} 31,900
[3011]PBPOUTER 7 36,/00
[3012]PSLAWFUL 17,060
[3013]QKACTIVE —§,500,000
[3015]CRFEARFUL 235,550
[3016]_OKHUMME 5 50
[3018]QKSHOGUN 2i ,G00
[3019]QRBASTE 533,000
[3021]QRBLAZE
[3023]QRBLOND
[3025]_ORBLUFF
[3026]QRBEND 229,559
[3027]QRBIBB - 102,590
[3028]ORBUZZ 12,990
[3029]ORDYNAMIC{same as AEDYNAMIC) 151,550
[3030]_ QRTENURE . 89,200
[3032]QRTERRACE 49,700
[3034]16,790
[3036](*) See attached schedule,
[3038]HET WORTH
[3039]BALANCE
[3041]465,800
[3043]18,000(a)
[3047]REC’ FROM
[3048]yoy a 1
[3050]Chk
[3053]i
[3054]H
[3055]t
[3056]1
[3057]H
[3059]i
[3060]i
[3062]HIGHEST NET
[3064]EQUITY BALANCE
[3066]N
[3068]PROJECT/ AGENCY RECORDS
[3069]_ ENTITY . 1952-1374
[3072]QRMASTER 538 ,600
[3073]QRMOSAIC
[3075]QRHAWKBIT 106,000
[3076]QRMYSTIC
[3079]QRTRIG 100
[3080]QRTROW (*) 775,706
[3081]RIPCORD 200 ,Ca0
[3082]RIPSNOTER 457,390
[3083]ROCKOIL 3,879,000
[3084]RONDURE - 29,500
[3085]SEASONAL 39,990
[3086]SERING 70,500
[3087]SGSUMMON 62,100
[3089]STPUZZLE 32,009
[3090]SL. 35,000
[3091]SOPRANO 16,020
[3092]SORTIE 16,606
[3093]STFANWEED 28 ,000
[3094]STSKI 11,600
[3095]TENACIOUS 21,690
[3096]TETARCH 243 ,800
[3097]TGVIVID 23,700
[3098]THAOMERE 42,000
[3100]TPFOCUS 1,764,000
[3102]TPGLARE 525,050
[3103]TPGULLET 79,050
[3104]TPHERSEY 326,790
[3105]TPMANJACK 62,690
[3106]JPPELLENT 635,000
[3107]TPSAUCER 216,000
[3108]TETONIC(same as FJINOULGS) 34,260,000
[3109]TURBINE _ 17,830
[3110]TUXEDO . 26,090
[3112](a) in process of liquidation.
[3114]LSepnde maieas dba re
[3120]MET WORTH
[3121]BALANCE
[3123]3) DEC 74
[3125]91,400
[3127]94 ,500(a)
[3132]NOV 4 1975
[3134]CIA
[3136]HIGHEST NET
[3137]EQUITY BALANCE |
[3139]. ON NeT WORTH
[3140]PROJECT/ AGENCY RECORDS ’ BALANCE i
[3141]EQUITY 1952-1974 31 DEC 74
[3143]UNTWIG : : . 1,200.
[3144]UT-00-67-61 69,600
[3145]VWCADENZA . . 12,200 2,600
[3147]WSPELICAN 34,900
[3148]WSREVOLT 14,900
[3151]WUADIOS . ‘
[3152]WUTABOO 243 ,400
[3155]WUATLAS-
[3156]' WUPESKY 192,000
[3157]WUAYVON 546,600
[3158]WUE JN
[3161]TUEPOCH |. 72,290 72,200
[3162]UTUPECES _ 28 ,000 ; 28 000
[3163]LOBSTER 53,000
[3164]WUSETTLE 11,200
[3165]WUBEVY (same as ZRGUIDE) 262 ,800
[3166]WUCLOAK (same as ZRCLOAK)
[3167]WUABOUT 8,000 |
[3169]hUnARoy 100,000
[3171]WUEUTD(was WUSHINE) ; 815,700 (same as _HUSHENE/NUHUMID)
[3172]WUMANTLE 687 ,000
[3174]HUSEAS IDE (ane asHUSHINEMUSEA DEMO, 090°
[3175]WUSNAPPY . -7,100
[3176]WUWAMPLUM (sma as WUEMBARK/ 1,315,000
[3178]WUBODKIN 02,500 50,100{a} a _
[3179]-WUCRULE(are & WUDIRK/* USTILETTOBT. 000 112,500{a) : a M
[3181](a) In process of liquidation, -_ RoW Rye
[3183]7
[3187]SEGRE
[3188]Arye ai .
[3189]SENSE 56 -
[3190]HIGHEST BET .
[3191]EQuiTy BALANCE
[3192]a 0} NET WORTH
[3193]pposect/ AGENCY RECORDS BALANCE |
[3194]equity 1952-1914 31 pec 24
[3195]A uenBAnt
[3196]| WOHALFLIN 5 250,000 S
[3197]4 WUENTREE g 509 .
[3198]WUMOREL 25,500 r
[3199]UF ILET (sam° as pBLANGUIO) 1,537 000 :
[3202]YUSWAMP 62 ,600
[3203]WUGAZELLE
[3204]yUBLONGUN 365,708
[3205]WUGLRAFFE 439 700
[3206]WUZERU 952 ,900
[3207]WUHELPFUL 16,600
[3209]WUPADOY
[3210]WYACROSS 42,000
[3211]WUORDER 450
[3212]1. WUTROUBLE 396 ,000
[3213]iUPANEL
[3214]yuCORAL 556,900
[3215]WUPEACE 351,700
[3217]yUSNaPry 375 ,000
[3219]WUTWINE 450,400
[3220]uURABBIT
[3221](UDOLPRIN 44,000
[3222]. WUSAUTE 77,000
[3223]2 WUSARA 983 ,008
[3224]WUACUTE 45 500
[3225]» yg ine sare as TASK) a
[3226]yOCONET ; Lo, 1 200,000
[3227]USHINE 7,284 0
[3228]. WU TWVEST 325 40
[3230]wUPUMA . (91,00 etre
[3231] _ wuREMEL 261,09 Reo a EROM
[3232]wusolt (seme as 1RSOLLD) 972 200
[3233]: Wu S 1G °
[3234]_UTRADE 460,00 xov 4 1875
[3235]| yUSTAGE a
[3236]ai WUSUNTAN U | A
[3237]UF LANE
[3242]Senne
[3245]“HIGHEST NET
[3246]EQUITY BALANCE
[3247]ON _ NET WORTH
[3249]ST
[3251]-PROJECT/ AGENCY RECORDS . BALANCE
[3252]- ENTITY 1952-1974 31 DEC: 74
[3254]LPARCH (same as LPARCH) § 69,000 g
[3255]WUABLE *- 209,000
[3257]YUPASTIES 2,300 2,300(a}
[3258]YOBLADE 636,000
[3259]yoboor 285,000
[3260]YOENTITY 82,000
[3261]YOTART 755,000
[3263]YOQFLUENT 356,000
[3264]YQFLUX 33,000 -
[3266]ZRCREST
[3267]ZRAVAST 72,000
[3268]: LIFF 4,277,006
[3269]ZRDAMSEL 100,000
[3270]ZRORTVE 57,500
[3271]ZRDROVE 217,000
[3272]ZRMORBID.
[3273]MORGLAY 12,000
[3274]ZROCCUR 59,000
[3276]ARCORCNA 845,000
[3277]THE FOLLOWING ARE GN CCS NON OP LIST
[3278](NOT INCLUDED [N ABOVE “OFYLISTING)
[3279]CATAR
[3280]LYBASE - These proprietaries are not on Headquarters,
[3281]MUMUTUAL Office of Finance records; hence no net worth
[3282]MHBLARE fiqure was pr2zsented. CCS estimates that no
[3283]MHRUCHE one of these companies had a net worth of over
[3284]UHSPRAY $50,000 during their existance.
[3286]PROPRIETARY D
[3288]SLOGAN
[3290](a) In process of liquidation,
[3292]R
[3294]ia
[3296]WWOV 4 Ws
[3298]CLA
[3301]~ 59 .
[3303]V. THE DISPOSAL OF AGENCY PROPRIETARIES -
[3305]a) An Overview
[3307]The Agency has emphasized the degree to which the extensive
[3308]proprietary system it has maintained in the past has been disposed
[3309]ef in recent years. Indeed, according to the current Chief of the
[3310]Cover and Commercial Staff, at least in so far as large proprietaries
[3311]are concerned, “because of multitudinous reasons they will be viewed
[3312]as the solution of last resort."* Size was a problem and made it
[3313]"inevitable that cover would not last.'"" Moreover, there simply is
[3314]not a need, according to the Agency, for the kind of capabilities
[3315]supplied by an Air America either now or in the foreseeable future.
[3316]In this regard, the Agency has indicated that no "real proprietaries"
[3317]are in planning because there are no such operational requirements
[3318]before the Cover and Commercial Staff (hereafter "CCS™) But the
[3320]Committee has learned from its study that the Agency retains the
[3322]* As William E. Nelson, Deputy Director of Operations, noted recently
[3323]to the Rockefeller Commission:
[3325]I think by and large that the day of the big proprietary
[3326]is over. We have attempted over the past few years to
[3327]try to squeeze down on those kinds of proprietaries and
[3328]I think we have really gone now to a fairly small mumber,
[3329]and a fairly tightly controlled group of proprietaries
[3330]who are doing legitimate operational jobs, particularly
[3331]in the media field.
[3333]Our experience with proprietaries in the past has been
[3334]Lf left by themselves, they tend to absorb larger and
[3335]larger amounts of government money and are not particu-
[3336]larly for a business. They. are not very viable in the
[3337]business sense and quickly become suspect as not having
[3338]any commercial validity. And we have, I think in the
[3339]past ten years, we have in this past ten years gotten
[3340]rid of an enormous number of proprietaries in this field.
[3341]I don't foresee us getting in the immediate future into
[3342]any expansion of that proprietary record. I think we
[3343]are about right in terms of where we are now.
[3345]HW 50955 Dockd:324234532 Page 63
[3347]- 60 -
[3349]capability “in being" to create even large proprietaries.* More-
[3350]over, numerous "shelf" corporations are kept available to provide
[3351]cover. These latter entities are generally only of the notional
[3352]variety and pose no threat either competitively or in terms of
[3353]domestic activity beyond the Agency's charter. Nonetheless, the
[3354]Agency has emphasized the need to retain this general vehicle for
[3355]at least one purpose: to retain assets. The CCS has indicated
[3356]that a method is needed to keep “good men" who are loyal, but who
[3357]need continuing work in both their ordinary and also somewhat
[3358]byzantine fields. Consequently, proprietaries offer a viable alter-
[3359]native to solve this dilemma of maintaining assets. _
[3361]As a result of this, the Committee studied which proprietaries
[3362]had been sold or otherwise disposed of during the period from 1965
[3363]to 1975.. It sought to find out which of those proprietaries so dis-
[3364]posed of in the last ten years maintained a significant relationship
[3365]with the Agency by contract or informal understanding for any purpose.
[3366]More specifically, the Committee sought answers to the following
[3367]questions: .
[3369](1) How many proprietaries, by type or function, have been
[3371]dissolved or sold as a going enterprise or otherwise
[3372]disposed of by the Agency?
[3374]* Mr. Nelson closed his recent testimony with a caveat:
[3376]I can visualize, however, depending on what happens to
[3377]the Agency in the future, the possibility that we might
[3378]want to use more proprietaries, particularly in the
[3379]field of cover if this gets terribly tight or terribly
[3380]difficult. But the average operational purpose, except
[3381]for some of these media operations, all we need is cover
[3382]and I think that most of the proprietaries that we have
[3383]fall into that category.
[3385]BW 50955 DBocld: 32423532 Page 64
[3387]-~ 61 -
[3389]na
[3391](2) How many proprietaries have been sold, or their assets
[3392]sold, to persons, or a group including persons, who
[3393]had previously served as directors, officers or
[3394]employees of the proprietaries?
[3396](3) In how many instances were proprietaries sold pursuant
[3397]to -a written agreement, or an unwritten agreement or
[3399]understanding, that the purchased proprietary, any
[3400]successor entity or the parties purchasing the proprie-
[3401]tary's assets would provide the Agency with goods, ‘
[3402]services or other assistance? In each case, indicate
[3403]the nature of the business involved, whether the agree-
[3404]ment was written or, if unwritten, the way it is
[3405]reflected in Agency files, and the amounts of any
[3406]specific business volume, retainers or financial support
[3407]agreed to in connection with the proprietary's transfer.
[3408]This request covers both firm contracts for the provision
[3409]of goods and services and general agreements that the
[3410]parties acquiring the proprietary or its assets would
[3411]provide them, at the Agency's option, if requested to
[3412]do so. .
[3414](4) In how many instances did the parties acquiring the
[3415]proprietary in fact subsequently provide goods, services
[3416]or other assistance to the Agency, whether or not there
[3417]was a written or informal agreement of such a relation-
[3418]ship at the time the proprietary or its assets were
[3419]acquired from the Agency? Indicate for each instance
[3420]the nature of the business, the dollar amounts of the
[3421]transactions involved and the period of years during
[3422]which they occurred.
[3424]Our study revealed that during the indicated period 209 proprie-—
[3425]taries were dissolved, sold or otherwise disposed of, thus substan-
[3426]tiating the Agency's claim that it had moved decisively to extricate
[3427]itself from this area of activity.* But in a very real sense it is
[3428]nearly impossible to evaluate whether a "link" still exists between
[3430]the Agency and a former asset related to a proprietary because
[3432]* The Agency's Office of Finance originally compiled a list of 305
[3433]eryptonyms of "entities" which were dropped from Office of Finance
[3434]records at Headquarters during the period 1965-1975. Nineteen (19)
[3435]other entities were added from other Agency divisions. Later this
[3436]list was reconciled with other Agency records to eliminate cryptonym
[3437]changes and other administrative actions not related to the actual
[3438]disposal of a proprietary organization. Ultimately, these admini-
[3439]strative “eliminations” totaled 115.
[3440]HY 50955 DBocld:32423532 Page 65
[3442]- 62 -
[3444]circumstances can be conceived of whereby even though formal and
[3445]informal Agency ties are discontinued, social and other ties remain.
[3446]The impact of such liaisons is difficult to assess. The following
[3448]entities were dissolved during the referenced period:
[3450]BW 50955 Bocld: 32423532 Page 66
[3452]f
[3454]ENTITIES DISSOLVED
[3455]we LEQ ULVED
[3457]AIR SUPPORT
[3459]WUSOL ID/WUTRADE
[3460]WUSOLID/WUTOPSY
[3461]WUDERRICK/WUCLUBHOUSE
[3462]WUCLOAK/WUOCEAN
[3463]WUCLOAK/WUSEAS IDE
[3464]WUCLOAK/WUSNAPPY
[3465]IUQUEST/IUPROTON
[3466]WUBETON/WUGLOBAL
[3467]WUBETON/WUAISLE
[3468]AUSHINE/WUINVEST
[3469]WUSHINE /WUREBEL
[3470]WUGAZELLE/WUEASEL
[3471]WUGAZELLE/WUGIRAFFE
[3472]WUPADDY /WUTROUBLE
[3474]MARITIME SUPPORT
[3475]weet UT
[3477]YOENTITY/YODGOR
[3478]YOENTITY/YOMONEY
[3479]YOTART
[3481]TUMUG
[3482]TUHISTEP/TULAPEL
[3483]TUHISTEP/IULATCH
[3485]OPERATIONAL SUPPORT
[3486]wee YNAL SUPPORT.
[3488]LPTACTIC/LPDECOR
[3489]WUTACTIC/WUDARE
[3490]LPTACTIC/LPDRAGON
[3491]LPTACTIC/WUELECT
[3492]LPTACTIC/LPFINAL
[3493]WUTACTIC/WUFLOOD
[3494]WUTACTIC/WUGAMP
[3495]LPTACTIC/LPHUMID
[3496]WUTACTIC/WUIMPORT
[3497]WUTACTIC/WUKIWA
[3498]WUTACTIC/NERVE
[3499]LPTACTIC/LPPITCH
[3500]WUTACTIC/HWUROCKY
[3501]WUTACTIC/WUSUMMIT
[3502]_ WUTACTIC/LPWAMPUM
[3504]LPTACTIC/LPWHISPER
[3505]LPTACTIC/LPORHED
[3507]ma
[3508]SUE
[3510]Moa eae
[3511]wie Li
[3512]b
[3514]AN ie ina See mate ee
[3516]a a5-— hn et ee
[3517]HY 90955__Docld:32423532" Pager MAREN RO
[3518]MMT Hey ey EE
[3520]TAB A
[3522]pee
[3524]es ete Te
[3526]TAB A
[3527]Page 2
[3529](OPERATIONAL SUPPORT - Cont'd) Ji.
[3533]LPTACTIC/LPACROSS .
[3534]WUTACTIC/WUBAIL
[3536]LPTACTIC/LPCAREFREE
[3538]WUTACTIC/WUCKAQS
[3540]COVER SUPPORT
[3542]STLARGO
[3544]STLAD ~~
[3545]STUPLIFT/STKNAP
[3546]STUPLIFT/STPACER
[3547]MIPACT/MIHOLDING
[3548]HALARC
[3549]MIPACT/MOPUSHER
[3551]WUDTRK/WUCURULE
[3553]WUENTREE/WUMOREL _
[3554]WUPANEL/WUCORAL
[3555]WUPTLOT/WUTWINE
[3556]LPBYZAS/A
[3558]WUBRINY /WUTROCHUS
[3559]LPDICTUM/F
[3560]LPDICTUIM/P
[3561]LPHINERAL/LPCHICKEN
[3562]LPARCH/LPOUCAT
[3565]we
[3567]ACCOUNTING & MANAGEMENT
[3569]QUBUZZ
[3571]MHAMI SH
[3572]LPPANDA/LPCHAIR/8
[3573]LPBERRY/A
[3574]WUSUNTAN/WOFLAME
[3575]WUSUGAR/B
[3577]INSURANCE
[3579]MHANVIL/B feareas
[3581]MHANVIL/D rs
[3582]pe ~ MHANVIL/F - fe
[3583]Ri Pe Pare MHSPRAY mt
[3585]vee _ MHKEVEL . —
[3586]. MHNAVAL :
[3589]Bila eed
[3593]Ps et a
[3594]Pony Paces eee
[3595]gt ey Sue a ree Sot
[3596]- neal ae af * sy a
[3599]TAB A
[3600]Page 3
[3602]COVERT PROCUREMENT . moat
[3604]WUMINOR/ I main,
[3605]WUMINOR/WUHAL IBUT “
[3606]LPMINOR/LPMETAL
[3607]WUMINOR/PULSE
[3608]IUALREDALE/IUOASIS
[3610]FOUNDATION OR INSTITUTE
[3612]AEWILDFIRE
[3613]LPUNITY/1
[3615]MEDIA
[3617]UOACORN/VOACTOR
[3618]FUSEE
[3620]YOYARD
[3621]TOMOSAIC/TOHAWKBIT
[3623]COMMUNITY DEVELOPMENT
[3624]WUETHNIC/MODAISY
[3625]WUETHNIC/LPHALTER
[3626]WUETHNIC/LPCYHAMMER
[3627]WUETHNIC/LPTOTEM
[3629]PERSONAL SERVICES
[3631]a
[3632]Bex:
[3633]e
[3635]MKCRUSH/MKPENNY Pac
[3636]MKCRUSH/SKCOTTON “
[3638]BGJAGUAR
[3640]ENDOMORPH/ENGAGE
[3643]INVESTMENT - Keenan
[3644]LPDICTUM/K
[3646]LPDICTUM/LPSPICE
[3647]LPDICTUM/WUSALTNE
[3649]RESEARCH & DEVELOPMENT
[3654]Adi
[3656]Aee tu 175 a
[3658]Aer 6
[3662]= 66 - ~
[3663]SEGAET
[3664]rae A
[3666]ENTITIES DISSOLVED ©
[3668]AIR SUPPORT
[3670]JBGREED/JBCRYING (In Liquidation) . , : 8
[3671]JBGREED/QKHEAVERLY (In Liquidation) - i
[3672]JBGREED/QKHEEDFUL (In Liquidation) hoot
[3673]JBGREED/JBCHOKE (In Liquidation)
[3674]ZRBENCH
[3676]WUBETON/ WULOBSTER
[3678]MARITIME SUPPORT
[3680]YOBLADE
[3681]AMCRAFT
[3682]AMSALLY
[3684]MEDIA AND/OR PUBLICATIONS
[3686]ESMIDWAY
[3687]AMIDEA
[3689]AMWIDE (SLOGAN)
[3690]AMRAPT
[3691]WURABBIT
[3693]INSTITUTE OR FOUNDATION
[3695]LPWANDER/1
[3697]LPWANDER/2
[3699]LPWANDER/3
[3701]LPWANDER/ 4
[3703]JMCLIPPER -
[3707]QRBIBB . a
[3708]PBGREGALE -
[3710]QRTRIG RECENT FROM
[3714]COVER SUPPORT Ren
[3716]JMDUSK LY
[3720]KGHELMSMAN .
[3721]ECIRON 2
[3722]GINSENG/G
[3724]SECRET
[3727]- 67 -—
[3729]vEGRET
[3731]ENTITIES DISSOLVED (Continued)
[3733]OPERATIONAL SUPPORT
[3734]LPGLOBE/WASH
[3735]SLIGO
[3736]SLAPJACK
[3737]LOGISTICS SUPPORT
[3738]STOCK ACCOUNT #2
[3739]KMFERRY
[3740]KMKANGANI
[3741]MHOLENT
[3742]OPSOMIC
[3743]MANAGEMENT & ACCOUNTING
[3745]LPPANDA/LPCLOUD
[3747]INVESTMENT
[3748]WUVENTURE/WUABLE
[3749]WUVENTURE/WUBAKER
[3751]COMMUNITY. DEVELOPMENT .
[3752]—WUAMICE
[3754]SECURITY SERVICES —
[3756]MHBOUND/1
[3757]- MHBOUND/2Z
[3759]SECRET =.
[3761]TAB A
[3764]~ 68 -»
[3766]The following entities were sold during the referenced period:
[3768]HW 50955 Bocld:32423532 Page 72
[3770]oe
[3772]Pee
[3774]ay
[3776]CPC rp
[3778]~ 69 =)
[3780]Lok
[3782]ENTITIES sSoLp
[3783]se ULD
[3785]AIR SUPPORT
[3787]WUSHINE/WUCOMET
[3788]WUSHINE/WUELBOW
[3789]WUSHINE/WUNOTICE
[3790]WUSHINE /WUPUMA
[3791]WUGAZELLE/WUBLOWGUN
[3792]HUGAZELLE/WUZEBY
[3793]ZRCREST/ZRAVAST
[3794]ZREREST/ZRCLIFE
[3795]NUCLOAK/WUDUSTER
[3796]WUCLOAK/WUKARPY
[3797]HUCLOAK/WUVI TAL
[3798]TUQUEST/ IUABATE
[3799]TUQUEST/TUPAGAN
[3800]WUSAXA/NUACUTE
[3802]TRAVEL BUSINESS
[3803]RYO TESS.
[3804]WUBEVY
[3806]COVER SUPPORT
[3808]Se QEEFURT
[3810]POEARLY
[3811]CALANCET
[3812]STFANWEED/STDOLLAR
[3813]STMYSTIC
[3815]MIHELEN
[3816]MIPACT/MICOUNCIL
[3818]INSURANCE
[3819]MHTHROW
[3820]MHMATTE
[3821]MHTRONY
[3823]* Substantial] Assets Sold; Entities Dissolved
[3825]MU
[3828]70 -
[3830]cnr i
[3831]SEG.ET |
[3832]i
[3833]TAB B Oe
[3834]_ 8 oe
[3835]ENTITIES SOLD . SS
[3836]AIR SUPPORT 7 ——
[3838]JBGREED/JBARGON
[3840]FOUNDATION OR INSTITUTE
[3841]DETNDEED/ TU INHAUL
[3843]_ TRAVEL SERVICE
[3844]LPJACK
[3846]LOW COST HOUSING
[3847]WUFLOWER/WUSWAMP .
[3849]RESEARCH & DEVELOPMENT
[3850]HTNAMABLE
[3852]RECER POSS
[3856]i ot 4
[3858]SERET a
[3861]- 71-
[3863]The following entities were “otherwise disposed of" during the
[3865]referenced period: ,
[3867]HW 50955 DoclTd:32425532 Page 75
[3872]EN
[3874]tak . 1
[3876]ENTITIES OTHERWISE DISPOSED OF
[3878]AIR SUPPORT
[3879]WUEMBARK/WUHALFLIN
[3880]WUSTAKE/WUHOBBY
[3881]WUSAXA/WUBLUSEE
[3882]MOMARRON
[3883]WULAZY
[3885]COVER SUPPORT
[3887]YIPASTIS
[3889]FOUNDATIONS OR INSTITUTES
[3890]ORBEND
[3891]ZROCCUR/ZRIMI DDY
[3892]ORSENSE/KMOCHRIOD
[3893]AESILVER
[3895]MEDIA
[3896]PAWALRUS
[3897]POVARSITY
[3898]GRGLAD
[3899]AE EGGHEAD
[3900]ACCOUNTING & MANAGEMENT
[3902]LPCAPTAIN/LPCANAL
[3904]OPERATIONAL SUPPORT
[3906]LADYCHAPEL
[3907]WUTACTIC/WUDOLLOP
[3909]HY Baas peer a CNcenrtE Singer 4 a race
[3912]Ale ative aye See
[3914]TAB C
[3916]Re
[3918]er
[3920]~ 73 -
[3922]SECHET
[3924]ENTITIES OTHERWISE DISPOSED OF
[3926]MEDIA AND/OR PUBLICATION
[3928]LILISP/G
[3929]AMHIM
[3931]QKACTIVE
[3933]QRMASTER
[3935]TPTONIC .
[3936]TPTONIC/Fd INDULGE
[3937]TPTONIC/ZRNACARAT
[3939]FOUNDATION OR INSTITUTE
[3941]ZRCANNY
[3942]DTHABEAS
[3943]DTEMBARGO
[3944]ZRTINDER
[3945]QRT ROW
[3946]PAFANFARE
[3947]QKFEARFUL
[3948]WSFLUFFER
[3949]DTPILLER
[3950]DTLAMPREY
[3952]QKOPERA/DTGODONN
[3954]COVER SUPPORT
[3955]QRMUGWUMP
[3957]TRAVEL SERVICE
[3958]TGVIVID
[3960]OPERATIONAL SUPPORT
[3961]AMOT
[3963]SECRET
[3965]wt kt
[3966]Reape
[3970]o
[3972]- 7} -
[3974]There follows a description of the disposition of entities
[3975]sold or otherwise disposed of during the referenced period. Twenty-
[3976]nine (29) of the entities were sold or given to witting individuals
[3977](former officers, employees, managers, contractors, etc.) Five (5)
[3978]were sold or given to witting individuals who had no formal rela-..
[3979]tionship with the proprietary. Ten (10): proprietaries continued to
[3980]provide goods or services to the Agency after the disposal. Thirty-—
[3981]four (34) proprietaries did not continue to provide goods or services
[3982]to the Agency after disposal. In nine (9) instances the provision
[3983]or offer to provide goods or services were formal er informal condi-
[3984]tions of the sale or gift. In thirty-seven (37) instances this was
[3985]not the case. Six (6) proprietaries were sold to unwitting individuals
[3986]or organizations and thus no provision for services or goods was indi--
[3987]cated: Several miscellaneous dispositions developed which did not
[3988]fit neatly into any of the above categories, For example, there
[3989]was one merger of an Agency proprietary. with another Agency proprie- —
[3990]tary. In two instances the Agency retained a non-proprietary rela-
[3991]tionship with a former employee. On two occasions the Agency turned
[3993]over proprietaries to other government departments and on one occasion
[3995]it sold a proprietary to another government department. There were.
[3997]several instances where the Agency gave the assets of a proprietary
[3998]after liquidation (books, materials, etc.) to previously uncompensated
[3999]participants in the various ventures. On occasion, the corporate
[4000]shells were given to attorneys in lieu of fees for dissolution. Some
[4002]participants were permitted to retain proceeds of sales in order to
[4004]‘continue the original effort of the particular proprietary. And
[4006]HW 50955 Bocld:32423532 Page 78
[4009]-B-
[4011]wl) finally, assets were sometimes given to other proprietaries but
[4013]without the benefit of a merger.
[4015]HW 50955 Docld:32423532 Paye 79
[4017]Gave ak
[4018]TAB D
[4019]DISPOSITION OF ENTITIES SOLD OR OTHERWISE DISPOSED OF “
[4020]” WUSHINE/WUGAZELLE - ° The six air proprietaries in the WUSHINE and =
[4022]WUGAZELLE complexes were sold as a package in 1969
[4023]to a group of witting U.S. businessmen who had
[4024]acted as nominee officers, directors, and stock-
[4025]holders for the companies in the WUSHINE complex.
[4026]Although the group offered to provide cover and/
[4027]or air support to the Agency after the sale, this
[4028]offer was not made a condition of the sale, and
[4030]no understanding or contract was negotiated for :
[4031]prospective purchase of goods or services or =o
[4032]cover support. To date, the proprietaries sold ,
[4033]have not been used by the Agency.
[4035]ry
[4037]ZRCREST - These two air proprietary entities were sold in
[4038]1974 to the businessman who managed both entities
[4039]during the period of Agency ownership. No agree-
[4040]ments for the continued use of the entities sold
[4041]were negotiated or implied at the time of sale,
[4042]and, to date, no subsequent use has been made
[4043]of the entities by the Agency.
[4045]WUCLOAK/WUDUSTER ~ This air proprietary was sold in 1968 to the
[4046]_witting businessman who managed the entity
[4047]during the period of Agency ownership. No
[4048]agreement for the continued use of the entity
[4049]sold was negotiated or implied at the time of
[4050]sale, and, to date, no subsequent use has been
[4051]made of the entity by the Agency.
[4053]WUHARPY - This air proprietary (parts procurement) was
[4054]sold in 1965 after all assets had been removed
[4055](a corporate shell) to the witting group of
[4056]businessmen from which the entity was originally
[4057]purchased. No agreement for the continued use
[4058]of the entity sold was negotiated or implied
[4059]at the time of sale, and, to date, no subsequent
[4060]use has been made of the entity by the Agency.
[4062]WUCLOAK/WUVITAL - This air proprietary entity was sold in 1972 to
[4063]an unwitting, bona fide airline company. Neo
[4064]agreement for the continued use of the entity {
[4065]Spm ey me was negotiated or implied at the time of sale, by gives
[4066][ef ‘ FROM and, to date, no subsequent use has been made eyes
[4067]: oN. of the entity by the Agency. —— ee
[4068]Pe he a]
[4072]MW TSESTS DSCTHIS2ERASS2 Page BO se Fo Sat WE
[4076]WUSAXA/WUACUTE
[4078]STFANWEED/STDOLLAR
[4081]“so
[4083]+32423
[4085]$0955 —Deeckd 5392-—Page-81- ~~~
[4087]gyeye 77 -
[4088]a
[4090]re) 4
[4091]facta we ate
[4093]TAB D
[4094]Page 2
[4096]Substantial assets of these two IUQUEST air
[4097]proprietary entities were sold in 1975 to a
[4099]bona fide aviation company which was made witting
[4100]for purposes of the sale. No agreement was nego-
[4101]tiated or implied at the time of sale for Agency
[4102]use or purchase of goods or services from the
[4103]company which purchased the assets. To date, no
[4104]goods or services have been purchased from the
[4105]buyer. The entities were subsequently liquidated.
[4107]This air proprietary entity was scld in 1971 to
[4109]an unwitting businessman. No agreement for con-
[4110]tinued use of the entity by the Agency was negoti-
[4111]ated or implied at the time of sale, and, to date,
[4112]no such use has been made of the entity. :
[4114]This proprietary, which published travel guides
[4115]and was used as cover for Agency officers world-
[4116]wide, was sold in 1968 to the editor of the
[4117]travel guides. The editor was an Agency employee i
[4118]and retired at the time of the sale. No agree- eames
[4119]ment was negotiated or implied for the continuing ;
[4120]use of the entity after sale. To date, no goods
[4121]or services have been purchased from the entity
[4122]by the Agency. :
[4124]This proprietary entity, which provided status i
[4125]and access cover for several case officers in
[4126]the Far East, was sold in 1975 to unwitting
[4127]purchasers... There have been no Agency contacts ;
[4128]with the purchaser since then. All sale pro- Bylaws
[4129]ceeds were returned to the Agency. pte
[4131]wee oe
[4133]eeerenihalll
[4134]This proprietary, which provided cover support -
[4135]in Europe, was sold in 1965 to a witting, bona canal
[4136]fide company which provided technical assistance :
[4138]and marketing support to the proprietary during
[4140]the period of Agency ownership. No agreement _ nea
[4141]was negotiated or implied for prospective use
[4142]of the entity by the Agency, and no such use le
[4143]was made by the Agency, The bona fide company, oa
[4145]did, however, continue to provide cover for Pe
[4146]Agency officers in other areas and under offices me
[4147]not related to the former proprietary's business aa
[4148]activities. ; pet
[4149]be
[4150]Senedd
[4152]This proprietary was an import-export firm which
[4153]provided cover for one Agency employee in the
[4154]Far East. The entity was sold to the Agency
[4155]employee in 1966 at the time of his retirement
[4156]from the Agency. No agreement was negotiated
[4158]4
[4161]TAB D
[4162]Page 3
[4164]STFANWEED/STDOLLAR =~ or implied at the time of sale for the Agency's
[4165](continued) purchase of goods or services, and, to date,
[4166]no such use has been made of the entity.
[4168]STYMYSTIC - This small proprietary, which provided cover for
[4169]one -Agency employee in the Far East, was liqui-
[4170]dated in 1974. A covert relationship has con-
[4171]tinued with the owner of the parent company of
[4172]which the Agency proprietary was a subsidiary.
[4173]The owner provides cover in the parent company
[4174]for another Agency employee, and the parent
[4175]company moved into the premises vacated by the ac
[4176]subsidiary and was allowed to take over fixtures ee
[4177]and a rental deposit at no cost.
[4179]MIHELEN - This proprietary, which provided cover for ane
[4180]Agency case officer in the Far East, was sold
[4181]in 1974 to two local-hire employees of the firm.
[4182]All Agency connections with the firm were severed
[4183]at the time of sale.
[4185]MIPACT/MICOUNCIL - This proprietary, which provided cover for one
[4186]Agency employee, was sold in 1970 to the un-
[4187]witting members of its Board of Directors.
[4189]At the time of sale all Agency connections
[4190]with the entity were severed.
[4192]MHTHROW - This proprietary (part of the insurance complex)
[4193]was formed for the purpose of purchasing an
[4194]apartment overseas which was used for operational
[4195]purposes. When the apartment was no longer of
[4196]operational use in 1970, the company (and the
[4197]apartment) was sold to a non-Agency connected
[4198]party. No agreement for the continued use of
[4199]the corporation or the apartment was made with
[4200]the purchaser, and, to date, no such use has
[4201]been -made of the entity or the apartment.
[4203]MHMATTE - This proprietary (part of the insurance complex)
[4204]was established to purchase an apartment overseas
[4205]of operational interest to the Agency. When the
[4206]apartment was no longer needed for operational
[4207]purposes in 1970, the corporation (and the
[4208]apartment) was sold to a non-Agency connected
[4209]party. No agreement for the continued use of
[4210]REC Pty ny the apartment or the entity was made with the
[4211]Fog ROM purchaser, and, to date, no such use has been made
[4212]: - of the apartment or the entity.
[4215]MHIRONY
[4217]WUEMBARK/WUHALFIN
[4219]WUSTAKE/WUHOBBY
[4220]_ WUSAXA/WUBLUSEE
[4222]MOMARRON
[4224]WULAZY
[4226]RECET ® EROM
[4228]toe age
[4232]TAB D
[4233]Page 4
[4235]This proprietary was established for the use of
[4237]the insurance complex, but it was never activated.
[4238]The corporate shell was sold in 1974 to the un-
[4239]witting attornies who served as resident agents.
[4240]No agreement was made with the purchaser for
[4242]the continued use of the entity, and, to date,
[4244]no such use has been made of the entity.
[4246]This air proprietary was merged with another
[4247]air proprietary (ZRCLIFF) in 1968.
[4249]This air proprietary was sold to the businessman
[4250]who managed the proprietary during the period
[4251]of Agency ownership on the condition that the
[4252]Agency would buy back the proprietary if the
[4253]contract which sustained the proprietary was
[4255]not renewed by USAID. The USAID contract was
[4256]not renewed, and the businessman dissolved the
[4257]entity on behalf of the Agency in 1968.
[4259]This air proprietary was disposed of by trans-
[4260]ferring all assets to another air proprietary
[4262]and turning over the corporate shell to two
[4263]unwitting foreign. national nominees. No agreement
[4264]with the nominees for the purchase of goods or
[4265]services subsequent to the turn over was negotiated
[4266]or implied, and, to date, no use has been made of’
[4267]the entity by the Agency.
[4269]This proprietary was established in the Far East
[4270]by two foreign agents of the Agency to provide
[4271]support services for Agency-sponsored air opera-
[4272]tions. The company failed, at least partly due
[4273]to embezzlement by the two agents, and was
[4274]liquidated apparently in late 1962 or early 1963.
[4275]The Agency station in the country involved
[4277]continued to maintain a covert relationship with
[4279]the two agents who were politically significant
[4280]for some time after the liquidation. The re-
[4281]lationship was non-proprietary.
[4283]This proprietary was involved in support of air
[4284]activities for a.large Agency paramilitary
[4285]program in Africa. At such time as the program
[4286]was concluded, all assets were removed from
[4287]the company, and the corporate shell was given
[4288]to the attorney who established the entity in
[4289]lieu of paying his prospective fee for dissolv-
[4290]ing the corporation.
[4292]wee,
[4294]i BOERS Pegs FTIOE “BaGe BaF
[4295]- " % “ . : i Ty. By
[4296]ee cs Se IED OF PARSE
[4298]5 eT
[4299]Ce ae
[4301]amermendl aa oar
[4304]YIPASTIS
[4306]QRBEND
[4308]ZROCCUR/ ZRMIDDY
[4310]QRSENSE/ KMOCHRIOD
[4312]AESILVER,
[4314]PAWALRUS |
[4316]TAB D
[4317]Page 5
[4319]This proprietary, which provided cover support
[4320]for one Agency officer in the Far East, was
[4321]abandoned when the country was overrun by
[4322]Communist forces. The assets left behind will
[4323]be written off.
[4325]This proprietary, non-profit organization was
[4326]turned over to its management in 1967 when the
[4327]Agency withdrew its support to the entity. No
[4328]further Agency support has been given to the
[4329]entity, and the management intended to continue
[4330]the program with private and USAID support.
[4332]This proprietary non-profit, medical organiza-
[4333]tion was disposed of..in 1967 by transfer of
[4334]all of its assets to the witting Board of
[4335]Directors for continuation without Agency
[4336]support. No further Agency support was given
[4337]to the entity. ,
[4339]This proprietary, non-profit entity was dis-
[4340]posed of in 1968 when all assets were turned
[4341]over to the witting trustees who intended to
[4342]continue the operation with private support.
[4343]No further support was given to the entity
[4344]by the Agency.
[4346]This foreign proprietary research institute
[4347]was disposed of in'1967, at which time the
[4348]Institute was surge funded to permit it to
[4349]continue operations for approximately two years
[4350]while a search was made for private funds to
[4351]enable continuation of the Institute or permit
[4352]its orderly liquidation. in mid-1969, the
[4353]Institute ceased its activity since sufficient
[4354]private funds could not be located to fund
[4355]Institute programs. No Agency support was
[4356]provided after 1967.
[4358]This proprietary entity published an English
[4359]language periodical in the Near East. The
[4360]publishing rights plus certain assets were
[4361]sold to indigenous purchasers and the proceeds
[4362]of sale were used to pay off corporate liabilities
[4363]prior to dissolution of the entity. Since the
[4364]periodical continued to publish articles which
[4365]coincided with U.S. abjectives for the area
[4366]concerned, the Agency provided limited support
[4367]to the new owners to enable them to continue
[4368]the publication,
[4370]Lon aren
[4371]CRUG
[4373]Lb
[4376]- LPCAPTAIN/LPCANAL
[4378]TAB D
[4380]- Page 6
[4381]This proprietary publishing firm in the Far
[4382]East provided cover support for one Agency
[4383]employee who introduced foreign books and articles_
[4384]to Far Eastern media sources. In 1975 the firm
[4385]was de-registered and certain assets were sold
[4386]to a former employee of the firm who re-registered
[4387]the firm under a different name. The Agency
[4388]employee who was provided cover by the entity is
[4389]still active in the Far East under a new cover
[4390]and the only contact with the purchaser is in
[4391]the interest of maintaining the cover story of
[4392]the active Agency employee. No support is
[4393]being extended to the re-registered entity.
[4395]This activity provides support to a foreign
[4397]based asset to permit him to publish a foreign
[4398]language journal, The activity was inaccurately
[4399]and inappropriately categorized as a proprietary
[4400]when an Administrative Plan was prepared in 1971.
[4401]The error was corrected in 1975 when the activity
[4402]was accurately categorized as a controlled sub- ~
[4403]sidy. The operation continues with Agency
[4404]subsidy support.
[4406]The U.S. proprietary portion of this book pub-
[4407]lishing activity was legally liquidated in -
[4408]1968, Funds remaining after settlement of all
[4409]liabilities were transferred overseas to other
[4410]parts of the operation and were used to meet
[4411]approved operational expenses. Some of the
[4412]remaining stock of foreign language books was
[4413]given to a cleared and witting contact who had
[4414]served without compensation as an officer of
[4415]the proprietary mechanism. The remainder was
[4416]shipped overseas to be distributed by the
[4417]overseas mechanisms of the operation which are
[4418]not proprietaries.. They continue to distribute
[4419]’ books with Agency subsidy support.
[4421]This proprietary, which provided management and
[4422]accounting services for Agency activities in
[4423]Europe, was disposed of in 1974 by removal of
[4424]all assets from the entity and transfer of the
[4425]corporate shel] to the U.S. businessman who had
[4426]backstopped the company without compensation.
[4428]No support has been given to the entity or use
[4429]made thereof by the Agency.
[4432]LADYCHAPEL
[4434]WUTACTIC/WUDOLLOP
[4436]seaweed, TAB D
[4437]. Page 7
[4439]This proprietary was established to purchase an
[4440]apartment building in Europe for Agency office
[4441]and residential use. In 1968, then the build-
[4442]ing was of no further use to the Agency, the
[4443]entity with the apartment building was ostensibly
[4444]given to the Department of State as a gift.
[4446]The Department actually reimbursed the Agency
[4447]for the building in Washington. The Agency,
[4449]on behalf of the Department, is attempting to
[4450]liquidate tha company. This ts complicated
[4452]by a disputed foreign tax claim.
[4454]This operational support mechanism had no assets
[4455]at the time of its disposal in 1971, and the
[4456]corporate shell was turned over to the attorney
[4457]who established the company in lieu of payment
[4458]of his prospective fee for dissolving the
[4459]entity.
[4461]By oR
[4463]be
[4464]es
[4465]F
[4468]JBARGON
[4470]DEINHAUL
[4472]re
[4473]G
[4474]* oS
[4475]Ned
[4476]i
[4478]ch
[4482]TAB OD
[4484]Disposition of Entities. Sold or Otherwise Disposed Of *
[4486]This air support proprietary (maintenance facility) —
[4488]was sold in January 1975 to a bona fide aviation
[4490]‘concern which was made witting of the Agency's
[4492]ownership of the firm for purposes of the sale.
[4494]At the time of sale, it was agreed that JBARGON
[4495]would continue to provide aircraft maintenance,
[4496]supply, and bookkeeping services te JBCHOKE, the
[4497]former parent company of JBARGON. Since the date
[4498]of sale, JBARGON has provided $612,000 worth of.
[4499]aircraft maintenance, supply, and bookkeeping
[4500]services to JBCHOKE; JBCHOKE is now in the process
[4501]of liquidation.
[4503]This proprietary lending institution (bank) was
[4504]established in a European country in 1955 to
[4505]provide loans and outright grants to non-communist
[4506]cooperatives. The proprietary was ostensibly owned
[4507]{backstopped) by a bona fide U.S. foundation which
[4508]was subsidized by the Agency, and the bank was
[4509]managed by a bona fide management company cn behalf
[4510]of the Agency. By 1962 when it was determined
[4512]that the bank had accomplished its purposes, the
[4513]Special Group (predecessor to the 40 Committee)
[4514]instructed that the bank be phased out in an orderly
[4515]manner over the next five years. Various disposal
[4516]plans were considered over the next few years,
[4518]and in 1965 the Agency sold the bank (through its
[4519]ostensible owner--the foundation) to the firm
[4521]which managed the bank during the period of Agency
[4522]ownership. In payment, the foundation accepted
[4523]notes from the management firm, payable over a
[4525]four year period. It was expected that the payments
[4526]of the purchase price would come from the proceeds
[4527]derived from the repayment of various types of
[4528]Joans made by the bank, and it was recognized that
[4530]‘ certain unsecured bank loans were of questionable
[4532]collectibility. Accordingly, that portion of
[4534]the purchase price which was tied to the repayment
[4535]of these loans was subject to adjustment for litiga-
[4536]tion expenses associated with collection and a 20%
[4538]“collection fee.. Also, this portion of the purchase
[4540]price was not subject to interest on the unpaid
[4541]balance. It was also agreed that the bank would
[4542]administer a fund of $100,000 set aside by the
[4543]Agency for continuing grants in less than $25,000
[4544]amounts for Agency approved activities which were
[4549]a CRDEST 2 ga
[4550]Sebald, - 84 -
[4552]DEINHAUL (Cont'd) = - in concert with the original objectives of the pro-
[4553]ject.. In 1967 under the terms of the Katzenbach
[4554]Report, it was necessary for the Agency to discon-
[4555]tinue its support to the bona fide U.S.: foundation
[4556]{ostensible former owner of the bank as mentioned
[4557]above) which had acted as a collection agent for |
[4558]the sale proceeds. Incident to the Agency's dis-
[4559]‘engagement from support of the foundation, the
[4560]foundation was allowed to keep all proceeds from
[4561]Subsequent payments on the purchase price for the
[4562]bank. ;
[4564]LPJACK oo This travel service proprietary was sold in 1975
[4565]‘ to an Agency employee at the time of his retirement.
[4567]This individual had ostensibly owned the firm but
[4568].in fact only managed it for the Agency. No agree-
[4569]ment was negotiated for the continued use of the
[4570]travel service by the Agency, however, the Agency
[4571]was using the travel service at the time of sale
[4572]largely for the purchase of airline tickets for
[4573]travel in support of sensitive projects. This
[4574]practice still continues, and it is estimated
[4575]that Agency business represents about 30% of the
[4576]gross airline ticket sales of the entity on an
[4577]annual basis.
[4579]i
[4581]eben Sade ane ie lae
[4584]Atl - ,
[4586]WUSWAMP - The Agency owned 50% of the equity in this foreign
[4588]. entity which constructed low-cost housing in one
[4589]of the less developed countries of the world.
[4590]The Agency's equity was sold to. WUPESKY, a private.
[4591]company which. provided cover for an Agency employee
[4592]who managed the Agency's foreign low cost housing
[4594]_ program, No agreement was made with WUPESKY for
[4596]the subsequent purchase of services or products
[4597]of WUSWAMP, and no such purchases were made.
[4598]Nevertheless, WUPESKY continued to provide cover
[4599]for the Agency Employee until 1973.
[4601]HTNAMABLE - This proprietary was a non-profit organization
[4602]a which undertook high risk scientific research
[4603]programs in support of Government sponsored
[4604]reconnaissance programs. In 1966, the Agency
[4605]decided to terminate its proprietary relationship
[4606]with the entity and it was determined that,
[4607]because of the charter of non-profit organizations,
[4608]any proceeds from the liquidation would have to
[4609]be given to other non-profit organizations or
[4610]; tt foundations. Accordingly, the plant and equipment
[4611]ce _ were sold to a profit making corporation which
[4612]K aan yal created a subsidiary around the assets purchased.
[4613]The proceeds of the sale were distributed among
[4616]LILISP/G
[4618]AMHIM
[4620]_ QKACTIVE
[4622]ORMASTER
[4624]mane - 65 --
[4625]SEEN
[4627]several non-profit organizations. under Agency
[4628]control. An unwritten condition of the sale was
[4630]that the Agency would contract with the,new organizi-
[4631]ation for scientific research of interest to the
[4632]Agency in the amount of about $900,000 over an
[4633]eighteen month period. Only about $770,000 was so
[4634]committed, and all Agency relations with the
[4635]successor organization were terminated in 1968.
[4637]This media type proprietary provided cover for
[4639]an Agency employee who arranged for a foreign
[4640]motion picture firm run by an American to produce
[4641]and distribute foreign language films throughout
[4642]Latin America. For funding purposes, the proprie-
[4643]tary borrowed working capital from another prop-.
[4644]rietary, LPBERRY/A, and paid production and -
[4646]-distribution costs in anticipation of a return
[4648]on the proceeds of film distribution. The prop~
[4649]rietary was dissolved in 1961, and all rights to
[4650]the net profits of distribution were assigned
[4652]to LPBERRY/A in return for cancellation of the
[4653]note it held from the proprietary. After much
[4654]wrangling with the American awner of the film
[4655]production and distribution company, it became
[4656]evident that appropriate reports were not being
[4657]submitted covering recoupments or net profits
[4659]and the Agency negotiated a settlement which pro-
[4660]vided that LPBERRY/A and the distribution company
[4661]would render no further claims against each other:
[4662]Relations eased at that point. . .
[4664]This media proprietary compiled, published, and
[4665]distributed a newsletter overseas. In 1975,
[4666]when the Agency withdrew its support, it was
[4667]decided to discontinue the publication activity,
[4668]and the assets of the company were turned over
[4669]to AMHIM/1, the editor and manager, to enable
[4670]him to maintain a status independent of the
[4671]Agency as a commercial print shop.
[4673]This proprietary radio broadcasting activity was
[4674]turned over to the Department of State for support
[4675]and subsequently placed under the control of the
[4676]Board of International Broadcasters for continued _
[4677]operation with Congressional support. |
[4679]es
[4681]’ ‘This media type proprietary which was involved in radio
[4683]and TV projects was established in 1963 and continued
[4685]under Agency ownership until 1969 when it was sold
[4689]a
[4690]an
[4691]eres os
[4692]i
[4694]pan
[4695]i>
[4696]-
[4697]boo
[4699]OTT
[4701]fe
[4704]Pp
[4705]+.
[4706]7
[4710]‘a
[4711]q
[4716]joni
[4719]QRMASTER (Cont'd) = -
[4721]TPTONIC
[4722]TPTONIC/FUINDULGE
[4724]ZRCANNY -
[4725]ant
[4726]OTHABEAS eo A
[4727]as, va :
[4729]rng of
[4730]Shh ob - 86 ~-
[4732]to its manager with full expectation of continued
[4733]operation with heavy Agency subsidy. At the time
[4734]of sale, substantial funds were removed, from the.
[4735]entity leaving it without sufficient working
[4736]capital. Consequently, the Agency arranged for
[4738].a@ line of credit through. a bank guaranteed by the
[4740]funds removed from the entity. Subsequently, -
[4742]the manager, with Agency permission, sold the
[4743]entity to a group of foreign nationals. The
[4744]manager formed his own corporation which contracted |
[4745]with the Agency for services including the continued
[4746]management of the company sold of which he was still
[4747]president. A management dispute resulted in the
[4748]removal of the manager from the first corporation
[4749]and the bank seized the guarantee for the Tine
[4751]of credit which had been drawn down and used as
[4753]. working capital for the first entity. The manager,
[4755]no longer supported by the Agency, is the channel
[4756]through which the Agency is to receive repayment
[4758]of loans which arose out of the line of credit.
[4760]So far, the Agency has received. no payments.
[4762]' These three proprietary. entities were part of a
[4764]substantial radio broadcasting activity which
[4765]was turned over to the Department of State for
[4766]support and subsequently placed under the control
[4767]of the Board of International Broadcasters for
[4768]continued operation with Congressional support.
[4770]This U.S. foundation type proprietary served as
[4771]a funding. mechanism for a labor organization
[4772]supported by the Agency. In 1968 ali assets
[4773]plus a termination grant were turned over to the
[4775]group of U.S. businessmen who backstopped the -
[4777]Agency entity. All Agency funds destined for the
[4778]labor union were transferred to that organization,
[4779]and the Agency created a foreign funding company
[4780](ORSPIDER} utilizing the same businessmen to
[4781]continue support to the union. The foreign entity.
[4782]is still in being, although inactive, and will
[4784]be dissolved after all tag end negotiations are
[4785]concluded with the former management of the labor
[4786]organization which continues in revised form
[4787]without Agency support.
[4789]This proprietary non-profit entity was supported
[4790]by the Agency until. December 1974 when all Agency
[4792]funds were withdrawn and the furniture and.fixtures —
[4795]DTHABEAS (Cont'd)
[4797]DTEMBARGO
[4799]ZRTINDER
[4801]ORTROW
[4803]PAFANFARE
[4807]- 87 -
[4809]29
[4811]were given as a gift to the witting directors who
[4812]proposed to continue the entity as a private
[4814]organization. No further. contact has been main- |
[4816]tained with the entity. . :
[4818]This foundation was established in 1938 without
[4820]Agency support. After a long period of inactivity,
[4821]the Agency took over the entity. in 1953 and used
[4823]it to support a publication produced at a U.S.
[4824]University and aimed at Latin America. In 1967,
[4826]the Agency withdrew its support to the publication,
[4827]withdrew Agency funds from the foundation, and
[4829]gave the office furnishings to the witting directors
[4830]of the foundation with the stipulation that the
[4831]furnishings would be turned over to the university.’
[4833]This proprietary institute was supported by the
[4834]Agency until 1968 when all assets and liabilities
[4835]plus a termination grant was turned over to the
[4836]management and ostensible owners of the entity
[4838]to enable the organization to continue without
[4839]Agency control or support. No further contact
[4840]was maintained with the organization.
[4842]This former proprietary is an institute located
[4843]in Europe which seeks to influence and encourage
[4844]moderate and pro-democratic youth leaders and
[4845]government officials concerned with youth and
[4846]higher education. The Agency withdrew its
[4847]support from the. institute in 1974 and turned
[4849]over all assets to the management of the organiza~ ~
[4851]tion. In addition, the Agency provided surge:
[4852]funding in the amount necessary to enable the
[4853]entity to exist in reduced form for about one year
[4854]during which time the management would attempt to,
[4855]arrange private support. All Agency employees
[4856]involved in the project terminated their employment
[4857]relationship with the Agency or were reassigned,
[4858]and the Agency has not rendered further assistance
[4859]to the operation. . .
[4861]This foundation type proprietary provided grants
[4862]and other support to individuals and organizations
[4864]of interest to the Agency. in the Near East. At
[4866]the project's termination residual funds were
[4867]turned over to one of the witting trustees to
[4868]permit the continuation of the activity for a.
[4869]period of time without Agency support. No further.
[4871]"Agency support has been given to the organization.
[4873]eEOrel
[4875]t
[4878]QKFEARFUL
[4880]WSFLUFFER
[4882]DTPILLAR
[4884]DTLAMPREY
[4886]This foundation type proprietary provided support
[4888]to a bona fide international organizatitn interested
[4889]in international legal matters. At the time the
[4890]Agency withdrew its support for the activity in
[4892]1969 the assets of the proprietary plus termination
[4893]funding were turned over to the witting Board of
[4894]Directors. The organization, now under a new
[4896]name, continues to exist without Agency support.
[4898]This foundation type proprietary provided funds
[4899]to a bona fide foundation involved with the
[4900]development of international cooperatives. At
[4902]. the time the Agency withdrew its support from the
[4904]cooperative program, the entity was dissolved,
[4905]however, it had been anticipated that the entity
[4906]would be the recipient of funds resulting from
[4907]the sale of a proprietary lending institution
[4909]in Europe. The bona fide foundation: which was
[4910]part of the funding channel for the European
[4912]bank was allowed to retain the proceeds of the
[4914]sale when WSFLUFFER was dissolved. See the
[4915]write-up under DEINHAUL for more details of the
[4916]sale of the European bank.
[4918]This foundation type proprietary supported indivi-
[4919]duals and organizations of interest to the Agency
[4920]in the Far East. At the time the Agency withdrew
[4921]its support for the activity in 1967, the assets
[4922]of the organization with a substantial termination
[4923]payment were turned over to the witting Board
[4925]of Directors of the entity. The entity has
[4926]continued its work without Agency support.
[4928]This foundation type proprietary supported an
[4929]international organization concerned with indivi-
[4930]duals in the teaching profession. At the time
[4931]the Agency withdrew its support from the inter-
[4932]national organization, the proprietary was
[4933]dissolved after making one last termination grant
[4934]to the international organization. The inter-
[4935]national entity has continued without Agency
[4936]support.
[4938]This foundation type proprietary supported
[4939]individuals and international organizations
[4940]involved with cultural matters. To give the
[4941]entity substance and provide funds for day-to-day
[4942]administration, the Agency started the organization
[4943]with a substantial grant which was invested in
[4945]6 .
[4948]SEEEET
[4951]QKOPERA/DTGODOWN
[4952](Cont'd)
[4954]QRMUGWUMP
[4956]TEVIVID
[4958]AMOT
[4962]GET,
[4964]income producing securities. At the time the Agency
[4965]withdrew its support, the assets of the entity
[4967]were given to its witting Board of Directors with
[4968]the understanding that approximately 60% of the
[4969]portfolio of investments would be retained by the
[4970]organization to sustain its continued operation
[4971]without Agency support, and 40% of the proceeds
[4973]of the portfolio would be immediately granted to
[4974]other organizations and activities which fostered
[4975]the objectives of the QKOPERA project.
[4977]This small proprietary provided cover for one
[4978]individual overseas. In 1972, the employee
[4979]resigned and expressed a ‘desire to continue the
[4980]business without Agency support. Accordingly,
[4982]the meager assets of the entity were sold to
[4984]the resigned employee. Payment for the entity
[4985]took the form of offset against funds due the
[4986]employee on separation, lump sum leave payment,
[4987]return travel, etc. The Agency has had no further
[4988]interest in the entity.
[4990]This proprietary travel Agency provided cover for
[4991]an Agency employee overseas. When the employee
[4992]was reassigned in 1966, all assets ‘were converted
[4993]to cash and turned back to the Agency. Neverthe-
[4994]less, an indigenous employee of the entity, and
[4996]a contact of the Agency Station in the country
[4997]involved, was allowed to take over the name and
[4998]clientele and continue the business. No commit-
[4999]ments or agreements were made for continued
[5001]use of the business, and no support was sub-
[5002]sequently provided or sought from the business.
[5004]This proprietary, which produced economic and
[5005]sociological reports in support of Cuban opera-
[5006]tions, was dissolved in 1973 and its assets
[5007]turned over to another proprietary, SLIGO. SLIGO
[5008]was subsequently dissolved in 1975 (see list of
[5009]dissolved entities.)
[5011]cad
[5013]faa te roi oe tte ne:
[5015]h
[5017]1Fi
[5018]a 3
[5020]al
[5022]ap ome gees asaya cope
[5023]ed .
[5024]a ree)
[5027]b) THE SALE OF SOUTHERN AIR TRANSPORT, INC.: A CASE
[5029]STUD DIS CIA PROPRIETAR
[5030]BACKGROUND
[5032]Southern Air Transport Incorporated (SAT) is a U.S. Air Carrier,
[5033]incorporated in the State of Florida on October 31, 1949. From its
[5034]inception until its purchase in 1960 by the Central Intelligence
[5035]Agency (CIA), it was privately owned by Messrs. Fredrick C. Moor
[5036]and Stanley G. Williams. It was purchased by the CIA on August 5,
[5037]1960, and owned by the CIA through December 31, 1973. CIA sold the
[5039]. firm back to Mr. Williams on December 31, 1973.
[5041]‘The decision to acquire Southern Air Transport was triggered by
[5042]a change in the regulations governing the award of Military Air Trans-.
[5043]port Service (MATS) contracts. On April 1, 1960, Air America (AAM).  -
[5044]had begun flying a seven-month MATS contract operating out of Tachikawa.
[5045]AFB in Japan, to other Pacific locations. In June of 1960, the De-
[5046]partment of Defense (DOD) and the Civil Aeronautics Board (CAB) changed
[5047]the regulations governing the awarding of MATS contracts to require .
[5048]that bidders hold at least a Supplemental Certificate of Convenience
[5049]and Necessity for an Air Carrier and that they participate in the
[5050]Civil Reserve Air Fleet Program (CRAF). Air America did not meet
[5051]either of these new criteria and could not obtain appropriate waivers
[5052]to them, The Air. America heavy airlift capability represented an
[5053]asset for use by the U.S. Government in future operational contin-
[5054]gencies throughout the Far East area. Loss of the MATS contract |
[5056]would result in under utilization of aircraft and air crews and the
[5058]H¥ 50955 Docld:32423532 Page 94
[5063]MATS contract revenues were needed to sustain these assets. Therefore,
[5064]it was proposed that either AAM should obtain the necessary certi-
[5065]fication.or that the Agency should buy another commercial firm that
[5066]already held these certifications. The October 1, 1960, contract
[5067]date and the need for public hearings and lengthy proceedings mili-
[5068]tated against AAM applying for the certificate themselves. Also,
[5069]again in order to avoid lengthy public hearings, which would be time-
[5070]consuming and generate public exposure, it was decided that the
[5071]ownership of the company to be acquired must be kept completely
[5072]separate from AAM. This solution was concurred in by the CAB, the
[5073]pop, the CIA, and AAM management. |
[5075]It was anticipated that if the new company were awarded the
[5076]ongoing MATS contract, it would actually perform the flying service |
[5078]but would use equipment under conditional sale from AAM and would
[5080]employ personnel transferred from AAM. Under inter-company agree-
[5082]ments Air America would provide all maintenance work, ground handling,
[5083]and other services for which it would be reimbursed by the new
[5084]company. “In this way, Air America would share in the revenues
[5085]generated by the MATS contracts.
[5087]The proposal to purchase a supplemental carrier and operate
[5088]it under the above arrangement was approved by Allen Dulles as
[5089]Director of Central Intelligence (DCI) on July 15, 1960. Funds
[5091]from the Clandestine Services budget for FY 61 were made available
[5093]for the purchase.
[5095]wert -
[5096]After World War II there had—been over 200 supplemental carriers
[5098]in-existence. By 1960 there were only 18 still operating. Air
[5100]HY 50955 Bocld:32423532 Page 95
[5102]s America management made a survey of the 18 and determined that
[5103]Southern Air Transport in Miami, Florida was the most attractive
[5104]as a purchase possibility. Tt operated two C-46s. -- one owned, one
[5106]" leased -- between Miami and points in the Caribbean and South
[5107]America. Its associated company owned the four-acre property on
[5108]which SAT was located. Moreover, it operated at a modest profit
[5109]and had no long-term debts. |
[5111]Negotiations for the purchase of SAT were successful and on
[5112]August 5, 1960, the CIA exchanged $307,506.10 for all outstanding
[5113]shares of capital stock of SAT and its real property owning affil-
[5114]iate. The Agency owned these shares in the name of Roger c. Hyatt,
[5115]a former board member of Air America. Mr. Hyatt together with -
[5116]Percival Brundage and Perkins McGuire were added to the SAT board
[5118]‘ of directors. |
[5120]Under CIA management Southern Air Transport operated with two
[5122], semi-autonomous divisions: the Pacific Division and the Atlantic
[5123]Division. The Pacific Division performed the MATS contract and
[5124]supported Agency heavylift requirements in East Asia. The Atlantic
[5125]Division continued to operate in the Caribbean and South America;
[5126]doing the same sort of flying SAT had done prior to Agency acquisi-
[5127]tion. The Atlantic Division was also able to furnish certain support
[5128]for the Cuban and Congo operations. At the peak of its activities,
[5129]the SAT fleet, comprised of both owned and leased aircraft, included
[5131]Douglas DC-6, Boeing 727, and Lockheed L-100 Hercules aircraft.
[5133]EW 50955 Docld: 32425532 Paye 96
[5135]THE SALE
[5136]5 In 1972 it became apparent that the Agency's air capabilities”
[5137]were becoming excess to its needs, and that political realities .
[5138]and future operational requirements in the post-war era of Southeast.
[5139]Asia would not require large air proprietary assets. On April 21,
[5140]1972, the Director of Central Intelligence approved in principle
[5141]the divestiture of CIA ownership and control of the Air America
[5142]complex and Southern Air Transport. He approved recommendations
[5143]calling for Air America to be retained until the end of the war in
[5144]Southeast Asia, the immediate elimination of the Pacific Division
[5145]of SAT, the sale of the two 727 aircraft leased to SAT by Air America,
[5146]and subsequent divestiture of Agency ownership and control of the
[5147]remainder of SAT.* Specific note was made that conflict of interest
[5148]should be avoided and that no employee should receive a windfall
[5149]‘ benefit as a result of these transactions, ** | .
[5151]In May 1972, Agency officials (Charles Kane and Lawrence Houston)
[5152]met with the Chairman of the Civil Aeronautics Board, Secor D. Browne,
[5153]and his Administrative Assistant, Edwin Rector, to seek informal |
[5154]advice as to the best way to disengage from SAT. Three alternatives
[5155]were discussed: (1) dissolve the company and sell the assets;
[5157](2) sell ‘the assets to the current operators of the company; (3) sell
[5159]SAT to, or merge SAT into, one of the other supplemental carriers.
[5161]* The Director determined that'we no longer should retain air proprie- |
[5162]taries purely for contingent requirements and that on the record, there-
[5163]fore, the Agency should divest itself of the Southern Air Transport
[5164]complex entirely. He stated the opinion that the desirable course of
[5165]action would be dissolution, although he realized that the problems
[5167]were many and complex. Also, he did not rule out other solutions
[5169]which might achieve the end and yet better satisfy the interests of
[5171]all concerned.’ .
[5173]**k A condition imposed by the DCI was thac"in the disposition of any
[5174]of the assets involved nothing inure to the benefit of Agency employees.
[5175]or former employees or persons whose relationship with the Agency has
[5176]been or is of such a nature as might raise a question of conflict of |
[5179]HW 50955" Docld:32423532 Page 97
[5181]The CAB chairman discouraged option (3) because it would involve
[5183]> public hearings and would be subject to criticism by the other supple-
[5184]mentals. Option (1), although least troublesome from the legal and ©
[5185]exposure standpoints, would further reduce the shrinking number of |
[5186]U.S. supplementals (by 1972, there were only eleven supplemental
[5187]carriers left) and would be unfair to SAT employees. The CAB
[5188]officials had no problem with option (2). On 5\ Ha 1972, the DCT
[5189]was presented with the results of the meeting with the CAB chairman.
[5191]’ He approved the recommendation to explore the sale of the equity in
[5192]SAT to the current management. It was noted that SAT had been operat-
[5193]ing as a supplemental carrier for 25 years, none of the employees of
[5194]SAT had ever been an employee of the Agency and that both the Depart-_
[5195]ment of Defense and the, chairman of ‘the CAB considered it in their .
[5196]best interests to keep SAT as a viable carrier rather than dissolving -
[5198]» ‘the company and selling the assets. The rationale behind selling .
[5199]SAT intact to its management was:
[5200]a. Liquidation would deprive the U.S. of a useful air carrier
[5201]and would be unfair to the employees.
[5202]b. Sale of SAT as a going concern on the open market would gene-
[5203]rate an unacceptable level of public interest and serutiny. A
[5204]publicly advertised disposition would run contrary to the Director! 3
[5205]statutory mandate to protect intelligence sources and methods.
[5206]c. Although a potential for conflict of interest and windfall
[5207]profit existed, sale of SAT to its management would best
[5208]satisfy the requirements of everyone involved. .
[5209]The DCI was, apparently, allowed this flexibility in method of
[5210]~ disposal by statute. 40 U.S.C. § 474 (17) provides that nothing in
[5212]‘the regulations relating to disposal of surplus government property
[5214]HW 50955 DoecFd: 32423532 Page 98
[5216]> shall affect any authority of the CIA, In addition, 50 u.s.c. §
[5217]403(d)(5) provides that the Director of Central Intelligence is
[5218]responsible for protecting intelligence sources and methods from
[5219]unauthorized disclosure. It was determined that sale of SAT stock
[5221]to Mr. Williams in a confidential manner would best prevent damage
[5223]to national security and foreign relations of the United States which |
[5224]could result from disclosure of ‘CIA ownership.
[5226]Agency officials began exploring ways in which SAT could be sold
[5227]to its management without permitting a windfall to accrue to the
[5228]buyer and in a way that could not be construed as a conflict of
[5229]interest. To establish a reasonable selling price, the Agency asked —
[5230]the Certified Public Accounting firm of Lybrand, Ross Brothers and |
[5232]Montgomery (now doing business as Coopers & Lybrand) to perform a
[5234]’ valuation study. They in turn engaged R. Dixon Speas Associates,
[5235]Inc., aviation consultants, to establish an evaluation for the
[5236]aireraft. The following values were developed:
[5238]| a. Book Value of SAT. 7 $39 million
[5239]b. Estimated Total Value of SAT
[5240]Capital Stock on Open Market $2.645 million
[5241]c. Disposal as going concern $2.1 million
[5242]d, Liquidation Value $1.25 million
[5243]e. Agency Investment $1.5 million
[5244]Based on these figures, the Executive Director-Comptroller on
[5245]August 17, 1972, approved an asking price of $2.7 million. Sale
[5246]at thig price to the management would require simultaneous payment
[5247]~ in full of the $3.2 million note payable to Air America through
[5249]HW $0955 Docld:32423532 Paye 99
[5251]ky
[5253]Actus Technology (as the associated land holding company had been
[5255]oD.
[5257]renamed) and would not include any equity in the leasy/purchase
[5258]agreement between SAT and Air America for a Lockheed L 100-30
[5259]Hercules aircraft. Although this $2.7 million price was less than
[5260]the $3.9 million book value, it did exceed the fair market value of
[5261]the company as calculated by professional appraisers. The appraisals —
[5262]were based not on depreciated purchase prices for assets, as reflected
[5263]in book values, but rather on either the earning power of the- assets
[5264]adjusted to “present value” or the current resale value for all
[5265]assets. |
[5267]On August 23, 1972, Mr. Williams was advised of the asking price _
[5268]for SAT of $2.7 million for the acquisition of stock and $3.2 million
[5269]for payment of debt to Air America or a total of $5.9 million. A .
[5270]deadline date of October 1, 1972, was established; otherwise Mr.
[5271]Williams was advised that the firm would be dissolved and the assets
[5272]liquidated. Although Mr. Williams contended the asking figure should
[5274]be reduced since the outstanding loan to Air America had been reduced
[5276]since the date of the study by Coopers & Lybrands, Mr. Williams stated
[5278]he would attempt to work out financing within the deadline date of
[5279]October 1, 1972. This deadline was extended by the Agency to
[5281]December 4, 1972.
[5282]On December 5, 1972, Mr. Williams submitted an offer for SAT of
[5284]$5 million which comprised $1. 875 million for the acquisition of
[5285]SAT and $3,125 million to pay off the debt to AAM. On December 26,
[5286]1972, the Executive Director-Comptroller approved the recommendation
[5288]that Mr. Williams' offer be rejected and that if Mr. Williams was
[5290]HW50955 Daold:32423532 Page 100
[5293]y,
[5295]unable to raise by January 20, 1973, the additional funds required
[5297]for the
[5298]America
[5300]original purchase price of $5.9 million, including the Air
[5302]debt, that. the Agency proceed with Liquidation plans and
[5304]dismissal of SAT employees not later than February 1, 1973.
[5306]“On
[5308]purchase SAT for a total price of $5,605,000.
[5310]January 11, 1973, Mr. Williams submitted a new proposal te
[5312]tentative commitment for a loan of $4.0 million and his offer was
[5314]contingent upon an ‘additional loan. The offer called for a total
[5316]payment of $5,605,000 broken down as follows:
[5318]Acquisition of stock for Actus and SAT $2.145 million .
[5319]Payment of debt to Air America 3.125 million
[5320]Credit for payments to AAM since
[5322]10,\June) 1972, in liquidation | of —_
[5323]long term debt .335 million
[5325]Total payment $5. 605 million
[5327]Prior to accepting Mr. Williams’ offer, CIA representatives
[5329]again discussed the sale of SAT to Mr. Williams, Mr. R. Tenney
[5331]Johnson of CAB indicated that the board would be interested in —
[5333]seeing SAT continued.
[5335]to surface the Agency's name as the true owner of SAT in the CAB
[5337]proceedings, and that he did not anticipate any problems with
[5339]Mr. Williams cited a
[5341]Mr. Johnson stated it would not be necessary
[5343]other supplemental carriers as a resule of the sale to Mr. Williams.
[5345]On January 19, 1973, the Del approved the sale of SAT to Mr.
[5347]Williams.
[5349]a
[5351]of the original asking price, was above the independent evaluation
[5355]Tt was noted. that Mr. Williams' offer was within’ 5 percent.
[5357]for sale as a going concern and was at a figure which would not seem
[5359]te give the buyer windfall profit. Such sale would constitute a
[5361]HY 50955 Docld:32423532 Page 101
[5363]i)
[5365]clean break-away of SAT from the Agency with the exception of a one
[5366]year extension on the lease/purchase agreement for an L.100-30 air-
[5367]craft from SAT. This agreement for sale between Mr. Williams and
[5368]the Agency included a provision that any profit derived from the
[5369]sale of assets within one year would constitute a windfall and
[5370]would be added to the total sale price. |
[5372]On February 28, 1973, the Board of Directors of SAT executed
[5373]corporate action on the Agreement for Sale of SAT to Mr. Williams.
[5374]Closing date was established at not later than 30 days after CAB
[5376]approval. On March 1, 1973 application for approval of acquisition
[5378]‘of control of SAT by Mr. Williams was filed with the CAB under
[5380]Docket No. 252-64. It was anticipated that CAB approval would be
[5381]forthcoming within 60 days. oo
[5382]Subsequent to the agreement for sale and application to CAB,
[5383]several supplemental carriers generated a great deal of pressure to
[5384]prevent SAT from being sold to Mr. Williams and to prevent SAT from
[5386]operating as a supplemental carrier. qathis pressure was-applied
[5388]through their Congressional representatives, the General Accounting
[5390]Office, the General Services Administration, and other ways. The
[5391]various supplemental carriers objected to the sale of SAT for a
[5392]variety of reasons. Basically each objected to the portions of
[5393]SAT's operating authority which would allow SAT to compete with it.
[5394]Specifically, representatives of Overseas National Airways (ONA)
[5395]indicated that ONA would not oppose the-sale if Mr. Williams would
[5397]voluntarily renounce his rights to Trans-Pacific routes. World
[5399]BW 50955 DBocld: 32423532 Page 102
[5401]Airways and Trans International Airways (TIA) objected to SAT
[5403]operating any aircraft as large or larger than.a 727 in the Far
[5405]East. Saturn Airways objected to SAT bidding on any domestic MAC.
[5407]contracts. To restrict SAT to satisfy all potential competition
[5409]could make SAT sufficiently unattractive as a profitable investment
[5411]that financing could become unobtainable. With this in mind the
[5413]Agency took the position that agreement for sale of SAT had been
[5414]executed, subject to CAB approval. If the CAB ruled against the -
[5415]sale and ownership reverted to the Agency, the Agency would cease
[5416]any bids or service under MAC contracts and dissolve SAT.
[5418]Two of the other supplementals, Saturn and ONA, expressed
[5419]interest in buying SAT. ONA did not make a cash offer. On June 29,
[5420]1973, Saturn Airways, however, made a cash offer of about $2 million -
[5422]in excess of what Mr. Williams had offered. There were, however,
[5424]according to the Agency, compelling reasons not to pursue these
[5426]offers. Agency officers had reason to believe that ONA was not as
[5427]interested in actually buying SAT as they were in getting a commit-
[5428]ment from the Agency which could be used to compromise the. Agency’s
[5430]position in future CAB hearings. Three reasons for not accepting
[5432]’ either offer were:
[5434]HW 50955 _
[5436]a. Any merger with another supplemental carrier would
[5437]necessitate a very difficult series of CAB hearings during
[5438]which all other major supplementals would certainly voice
[5440]loud and strenuous objections.
[5442]Docld:32423532 Page 103
[5445]b. To sell the firm on a sole-source basis to either
[5447]outside buyer without soliciting public bids would be
[5449]contrary to sound business practice and would attract
[5451]even more adverse publicity.
[5453]c. Both offers were made directly to officials of the ©
[5455]CIA and not to the stockholders of record. Although the
[5457]relationship between the CIA and SAT was the subject of
[5459]much public speculation, such relationship was still .
[5461]classified and an acceptance of either offer would be a
[5463]violation of security and cover. | .
[5464]These procedures were unaeceptable to the Agency and dissolution of
[5465]the firm or sale to Mr. Williams continued as the most acceptable
[5466]method of divestiture, subject to CAB approval. .
[5468]In view of the objections by other supplemental carriers to
[5469]the sale of SAT to Mr. Williams and the award by the Air Force of a
[5470]Logistics Air contract (LOGAIR) to SAT, the DCI directed on guly 31,
[5471]1973, that SAT be dissolved, that SAT withdraw from the LOGAIR con-
[5472]tract and withdraw its application for renewal of supplemental
[5473]certificate. Mr. Williams was advised of this decision, but made
[5474]a counter’ offer to purchase the company under the previous financial
[5475]offer but turn in his supplemental certificate, withdraw application
[5476]for acquisition for sale from CAB, and operate SAT as a commercial
[5477]carrier under Federal Aviation Regulation Part 121 authority. Such
[5478]action would remove SAT from direct competition with the supplementals,
[5479]but leave it with a worthwhile market in which to operate. : Addi- |
[5481]tionally, no CAB hearing would be necessary to obtain this type of
[5483]HW 50955 Docld:32423532 Page 104.
[5486]operating authority.
[5488]CJ
[5490]On October 1, 1973, the DCI agreed to entertain the proposal
[5491]to continue the sale of SAT to Mr. Williams as a Part 121 operator,
[5492]but on the condition that Mr. Williams must obtain prompt financing.
[5493]Otherwise, the firm would be dissolved. .
[5494]On October 5, 1973, the SAT Board of Directors approved and
[5495]executed a new.agreement for sale including the following provisions:
[5496]a. Mr. Williams to acquire stock of SAT Actus for
[5497]$2,145,000. oe
[5498]b. Mr. Williams to pay off $3,125,000 owed to Air America.
[5499]ce. Agreement subject to Mr. Williams obtaining $4 million
[5500]loan. |
[5501]d. Agreement to. be subject to SAT withdrawing application
[5502]NO for renewal of its Certificate of Necessity and Convenience
[5503]for an Air Carrier (Supplemental Certificate).
[5504]e. ‘Lease/purchase agreement for L-100 between AAM and SAT
[5505]to be extended one year. . |
[5506]f. Anti-windfall provision to be effective for one year from
[5507]date of sale. :
[5508]On November 29, 1973, Mr. Williams received a commitment from
[5509]The First National Bank of Chicago for a. loan of $4.5 million thereby
[5510]making the October 5, 1973, agreement operative. On November 30,
[5511]1973, the DCI approved the sale of SAT in accordance with the
[5512]October 5 agreement for sale. On the same day, the application to
[5514]the CAB for acquisition of SAT under Docket No. 252-64 was withdrawn.
[5516]HW 50955 Docld:32423532 Page 105
[5519]and petition. for cancellation of certificate and termination of
[5521]7)
[5523]exemption authority was filed with an effective date of December 30,
[5524]1973. On December 31, 1973, the sale was closed, the note to Air
[5525]America was paid off, and Stanley G. Williams became the sole
[5526]owner of SAT. |
[5528]. In early January 1974, CIA officials learned from Air America
[5529]management that SAT had exercised the purchase option of the lease/_
[5530]purchase agreement between SAT and Air America for the Lockheed .
[5531]L 100-30 Hercules aircraft. The option sale price from Air America
[5532]was $3,150,000. SAT immediately resold the aircraft to Saturn .
[5533]Airways for $4,350,000 turning a quick $1.2 million profit. The
[5534]Agency interpreted this sale as a violation of the anti-windfall
[5535]provisions of the agreement for sale. On January 25, 1974, Air
[5537]’ America executed an Escrow and Arbitration Agreement on behalf of
[5539]the CIA with SAT on the disputed $1.2 million profit. The agreement
[5540]called for $750,000 to be placed in escrow with the American Security
[5541]and Trust Company of Washington, D.C. The escrow funds were to be
[5542]held as a Certificate of Deposit purchased at the prevailing market.
[5543]rate. It was further agreed that SAT would also place in escrow
[5544]a Promissory Note to Air America for the remaining $450, 000 of the
[5545]disputed amount. The note was to bear interest at the same rate
[5546]currently being earned on the Certificate of Deposit in escrow.
[5547]It was arranged that the escrow deposits plus accrued interest would
[5548]be paid to the party deemed in favor by an arbitrator with each
[5550]party to pay one-half of the costs of arbitration. On September 5,
[5552]HW 50955 DBocld:32493932 Page 106
[5554]'
[5556]1974, the arbitrator ruled in favor of Air America. This decision
[5557]caused an additional $1, 304,243 to accrue to the Agency: from the
[5558]SAT sale, This was the sum of the $1. 2 million under arbitration
[5560]plus accrued interest, less the Agency's share of arbitration. costs.
[5562]DECLASSTIFICATION OF RELATIONSHIP WITH CIA
[5564]In March 1974 the employees of SAT retained an attorney and
[5565]brought a élass action suit in U.S. District Court for Southern
[5566]Florida against Southern Air Transport, Ine., and the Central Intel-
[5567]ligence Agency. The employees as plaintiffs sued for injunctive
[5568]relief and damages. In this suit the employees alleged: .
[5570]a. That the CIA sold the stock of SAT to Mr. Williams —
[5571]illegally, |
[5573]b. That SAT had embarked on a program to sell off its
[5574]assets, depriving the plaintiffs of employment,
[5576]ce. That the plaintiffs were entitled to the benefits of
[5577]the CIA Retirement and Disability System, and
[5579]d. That their civil rights had been violated.
[5581]In view of the publicity arising from the allegations made by
[5582]the other supplemental carriers during the CAB proceedings and the
[5583]publicity arising from. this suit, it was determined that no useful
[5584]purpose would be served by continuing to deny the true ownership
[5585]relationship of SAT by CIA, It is noted, however, that the opera-
[5586]tional activities performed by. SAT on behalf of CIA were and remain.
[5587]classified. As a part of the Agency's defense in this suit, an
[5589]affidavit of Mr. Harold L. Brownman, Deputy Director for Management
[5591]HW 50955 Docld:32423532 Page 107
[5593]“ and Services of the CIA, was presented in court. In the affidavit
[5595]Mr. Brownman delineated the relationship between CIA and SAT and the
[5596]authorities for purchasing and later selling the capital stock of
[5597]SAT. He also defined the employment status of the plaintiffs as
[5598]not being government employees and not being CIA employees and —
[5599]therefore not being eligible for participation in the CIA Retire-
[5600]ment and Disability System. |
[5602]in the Order Granting Motion for Summary Judgment, the court
[5603]found that the sale of SAT capital stock to Mr. Williams was not in.
[5604]violation of law; the plaintiffs claim to be U.S. Government employees
[5605]and entitled to cIA retirement benefits invalid; and that the SAT
[5606]employees were not deprived of any civil right under any state law.: 7
[5607]As a result, the action was dismissed with prejudice as to the —
[5609]a plaintiff. Although this suit did cause the relationship between
[5611]the 4zency and SAT to be officially made public, it did establish,
[5612]in a court of law, two points favorable to the Agency: |
[5614]a. The sale of SAT to Stanley Williams violated no laws
[5616]and was within the authority of the DCI; and
[5618]b. The directly hired employees of ClA-owned proprietary
[5620]firms such as SAT do not necessarily enjoy the status of
[5622]U.S. Government employees.
[5624]CONFLICT OF INTEREST
[5625]In the SAT divestiture, the Agency took precautions to avoid
[5626]conflict of interest. Mr. George A. Doole, Jr., retired Staff
[5628]Agent and retired Managing Director of Air America, Inc., made.
[5630]-,
[5632]HW 50855 Doacld: 324233532 Page 108
[5634]t}
[5636]several offers to acquire SAT. In early 1972 he and some other
[5637]members of AAM management made. an informal offer to buy SAT, Then
[5638]on August 7, 1972, Mr. Doole told Mr. Charles W.. Kane, Agency
[5640]‘official responsible for the management of SAT and AAM, that he,
[5642]_in association with World Airways and TIA, wanted to offer "book
[5643]value" for SAT. He stated that they were not interested in SAT's
[5644]certificate, but rather in the equipment and that if allowed to
[5645]make an offer, it would be one that would not require CAB hearings.
[5647]In both these cases, the Agency's General Counsel determined that -
[5648]because of Mr. Doole's close association with the Agency, the offer
[5649]would be unacceptable. In later discussions, Mr. Doole asked to be -
[5650]allowed to bid on SAT in open bidding. The General Counsel's posi-
[5651]tion on this request was that open bids would be begging the question
[5652]in terms of conflict of interest. In any transaction this complex,
[5653]selecting the bid is only a préliminary to the negotiated final.
[5655]sale. 7 7
[5657]_ Another potential conflict of interest involved Overseas
[5659]National Airways. From the time the Agency first decided to divest,
[5661]until the sale to Mr. Williams was consummated, ONA expressed con-
[5663]tinuing interest in an ONA/SAT merger. Their representative making
[5664]these continuing overtures to the Agency was retired Admiral William
[5666]F.. Raborn, former Director of Central Intelligence. Admiral Raborn
[5668]made literally. dozens-of phone calls to Agency officials and arranged
[5670]many meetings, all for the purpose of pressing ONA’s case to purchase
[5672]SAT. ONA also proposed. to arrange “shadow financing" for Mr, Williams
[5674]a) if he would agree to merge with ONA at some later time. These offers
[5676]HW 50955 Doold:32423532 Page 109
[5678]were all rejected because merger with another supplemental was
[5679]not an acceptable solution and the apparent conflict of interest
[5680]was too great.
[5682]The sale of SAT to the President of the firm, Mr, Stanley
[5683]Williams, was another area of possible conflict of interest.
[5684]However, Mr. Williams was not an employee of the U.S, Government
[5685]during any period of association with SAT.or CIA. He had been
[5686]the owner prior to CIA acquisition and his role as nominal President
[5687]of SAT during CIA ownership was at the direction o CIA, which made
[5688]or approved all decisions in regard to acquisition of aircraft and
[5689]other major policy. determinations. Additionally, this potential
[5690]area of conflict had been recognized at the outset of sale pro-
[5691]ceedings, which was the basis for obtaining third-party professional .
[5692]evaluation and appraisals and the provision in the sale agreement
[5693]against windfall profit from disposition of assets. An underlying
[5694]philosophy for sale back to Mr. Williams was to restore the corpo-
[5695]vation to the status of private ownership once the need for it as
[5696]a Government~controlled entity had terminated. Such action was
[5697]considered in the best interests of the SAT employees as well as
[5699]in the interest of the U.S. Government to maintain another viable
[5701]commercial air carrier.
[5703]CONCLUSION
[5705]The CIA acquired ownership of SAT and its veal property owning
[5707]affiliate, by purchase of all outstanding shares of capital stock
[5709]on August 5, 1960. Such acquisition was accomplished under the
[5711]BW 50955 Docld:32423532 Fage i110
[5714]authority of the Central Intelligence Act of 1949 in order to
[5715]acquire a certificated air carrier to support its foreign intel-
[5716]_ligence operations. The purchase was accomplished after consul -
[5717]tation and approval by the CAB and the DOD, and was not in violation
[5718]of Section 410 of the Federal Aviation Act.
[5720]Following determination by CIA in 1972 that ownership of SAT
[5721]was no longer required to support its foreign intelligence opera-
[5722]tions, the CIA undertook to dispose of SAT under the authority of the
[5723]CIA Act of 1949 and the specific provision in the Federal Property
[5724]and Administrative Services Act of 1949 (FPAS Act) that nothing in
[5726]' the act shall impair or affect any authority of the Central Intel-
[5727]ligence Agency. ‘In the case of Robert Farmer, et al., vs. Southern
[5728]Air Transport, Inc., et al., the U.S. District Court, Southern
[5729]District of Florida, Case No. 74-467-CIV-WM, upheld the authority
[5730]of CIA to dispose of Southern Air Transport, Inc. |
[5732]In disposing of SAT, the CIA determined after discussions with
[5733]CAB that SAT should not be sold as a going concern in an open
[5734]competitive market nor should merger with another air carrier be
[5735]considered. Such action would involve lengthy procedures, hearings,
[5736]and publicity which posed a threat to CIA's ability to protect
[5737]intelligence sources and methods. While CIA initially was inclined
[5738]to dissolve SAT and sell the assets, CAB and pop both indicated
[5739]their desire to maintain SAT as a supplemental commercial air
[5740]carrier, Since this solution also would be in the best interest
[5742]_of the SAT employees and there were indications this could be
[5744]BW 50955 Bocld: 32423532 Page ili
[5746]- 89-19 -
[5748]accomplished without revealing ownership by CIA, CIA approved
[5749]exploring the sale of SAT to its previous owner and current
[5750]-nominal President, Mr. Stanley Williams.
[5752]The CIA took reasonable precautions to assure that a fair
[5753]market price was received for the sale of SAT, and that no short
[5754]term windfall profit would ensue, The CIA was mindful of conflict
[5755]of interest problems, and obtained independent professional advice
[5756]and guidance prior to executing an agreement for sale. The sale
[5757]price finally received by the CIA exceeded the parameters estab-
[5758]lished by this independent study.
[5760]In retrospect, it is possible that open competitive bidding
[5761]for sale of SAT as a going concern could have achieved as much or
[5762]more return to the U.S. Government for the assets of SAT. However,
[5763]such assessment is only conjecture since this market was not fully
[5764]tested. Also this method of disposal had the potential for greater
[5765]publicity and revelation of intelligence sources and methods. In
[5766]retrospect, the alternate solution of dissolution of the corporation
[5767]and sale of assets probably would have created less publicity but
[5768]again this is only conjecture, since the SAT employee law suit may
[5769]well have been forthcoming in any event.
[5771]| In conclusion, the CIA obtained a fair market value for the
[5772]sale of SAT as evaluated by an independent professional appraisal.
[5773]The legality of the disposal of Southern Air Transport by the CIA
[5774]has been tested in court and has been shown to be fully within
[5776]the statutory authorities and responsibilities of the DCI. The
[5778]HY 50955 Docld: 324234532 Page 112
[5780]~ 89-20 - .
[5782]precautions taken and the procedures established by the CIA consi-~
[5783]dered the varying factors of responsibility for public funds, con-
[5784]flicts of interest, U.S. Government interests for the aviation
[5786]‘industry and its employees, and national security. The CIA actions
[5788]in the disposal of SAT, accordingly, were reasonable and proper.
[5790]HW 50955 Docld:32423532 Page 113
[5792]~ 90 -
[5794]VI. Project MHBOUND
[5796]In 1958, at the time construction of the new CTA headquarters
[5797]building in Langley was begun, a small counterintelligence opera-
[5798]tion was established to maintain surveillance of activities to
[5799]prevent hostile penetration and sabotage. It was successful in
[5800]its objectives and, therefore, upon occupancy of the building
[5801]in 1962 the Project, now known as MHBOUND, was established as an
[5802]outgrowth of the initial effort.
[5804]From a single office in Arlington, Virginia, the project ex-
[5805]panded to four field offices (Arlington, Falls Church, Los Angeles
[5806]and St. Louis). Also, it grew from a single corporate entity into
[5807]three separate corporations. The parent organization in 1962 was
[5808]Anderson Enterprises, Inc., which operated in the greater Washing -
[5809]ton area and was set up to create a bona fide commercial corpor-
[5810]ation which would perform security services on a competitive basis
[5811]for any and all individuals and companies which might require
[5813]‘them, as well as Federal and local governmental units. In addi-
[5814]tion, it would conduct operations for the Office of Security of
[5815]the CIA. This activity proved most successful, with customers
[5816]utilizing it for document destruction, Hr consultation, for
[5817]guard work, and for investigations.
[5819]Anderson Enterprises, Inc. developed legitimate business
[5820]contracts with agencies of the Federal government and with commer- .
[5821]cial firms. The provisions of the so-called Pinkerton Act 'pro-
[5823]a work
[5824]hibit a company engaged in investigative /from contracting with
[5826]HW 50955 Docld: 32423532 - Page iid
[5828]- 91 -
[5830]the Federal government. In order to protect the commercial
[5831]cover, it became necessary to form a separate company to handle
[5832]investigations in response to the requirements of commercial
[5833]firms. Further, it became necessary to set up notional conmmer-
[5834]cial firms through which to fund MHBOUND. for investigative work
[5835]levied upon it by the Office of Security. At the time this
[5836]split was accomplished, Anderson Enterprises, Inc. changed its
[5837]name to Anderson Security Consultants, Ine., with its head-
[5838]quarters remaining in Arlington. The new company was called
[5839]Anderson Security Services, Inc. and made Los Angeles its home
[5840]office. As activity expanded and work increased, a third corp-
[5841]oration called General Personnel Investigations, Inc. was organ-
[5842]ized and also headquartered in Los Angeles.
[5844]On January 23, 1966, for legal, cover and operational rea-
[5845]sons and increased administrative efficiency, Anderson Security
[5846]Services, Inc. (ASST) merged into General Personnel Investigations,
[5847]Inc. (GPII) and remained incorporated in the state of California..
[5848]Upon the merger, ASSI ceased and GPII succeeded it. The corpor-
[5849]ate officers and the board of directors of all three companies
[5850]consisted of the same persons. Subsequently, GPII was sold and
[5851]new legal straw men were introduced as officers, directors and
[5852]shareholders. The home office of General Personnel Investigations,
[5853]Inc. was subsequently established in Falls Church, Virginia in
[5854]March 1966 for greater administrative efficiency and firmer mone-
[5856]tary controls on the projects as a whole, and to greatly enhance
[5858]HW 50955 Doocld:32423532 Page 115
[5861]~ oF .
[5863]cover viability. Also of particular note, the "home office",
[5864]-with its investigative charter, has been used in the conduct of
[5866]covert investigations.
[5868]In addition to the conduct of investigations, MHBOUND was
[5869]used in the following activities:
[5871](a) TPOCTONAL - covert monitoring of construction of CIA
[5872]Headquarters building;
[5874](b) Monitoring of construction of West Gate Research Park
[5875]buildings, which were to be occupied by Agency components;
[5877](c) TAPIR - covert monitoring of construction of CIA print-
[5878]ing services building;
[5880](d) ZULU - surveillance of DOD civilian employees suspected
[5881]to be potential defectors ta Soviets;
[5883](e) STPROBE - testing security effectiveness at domestic
[5884]DDS&T sites and contractor facilities;
[5886](£) MERRIMAC ~- monitoring of dissident groups in D.C.;*
[5888](g) AEDONOR - the proprietary hired and paid contract guards
[5889]for one phase of this activity;
[5891]fh) ISOTROPIC - the proprietary was a civilian contractor for
[5892]the guard force at this installation;
[5894](i} TWOFOLD - was an Office of Security cryptonym for an oper-
[5895]ation to recruit, process and train undercover internal security
[5897]agents for the Bureau of Narcotics and Dangerous Drugs;
[5899]* This particular project and other aspects of MHBOUND's domestic
[5900]activities are treated in greater detail in the Committee's Staff
[5901]Report dealing with the operations of MHBOUND.
[5903]HW 50955 Doeld:32423532 Page 116
[5905]- 93 -
[5907](j) DELICATE - security support for DDS&T project, consisting
[5908]mainly of badging and entry controls, background investigations,
[5910]. and escort of sensitive material; this is the only such activity
[5911]currently being serviced by MHBOUND;
[5913](k) PINEAPPLE - physical surveillance of an Agency courier
[5914]suspected of living beyond his means; also involved a surreptitious
[5915]entry into his apartment ;
[5917](1) BOOTS - physical surveillance of an Agency employee ‘who
[5918]maintained contact with people of questionable loyalty"; also in-
[5920]volved an audio penetration of the employee's apartment and a mail cover.
[5922]Funding for the proprietary is accomplished through a cut-out
[5923]mechanism whereby the Agency sends U. S. Treasury checks to ten
[5924]contractors. The proprietary then bills the contractors for
[5925]“services rendered" in the same amount as received by the contractor
[5926]via Treasury check. Funding’ for the other corporations was done
[5927]through use of notional firms. The ISOTROPIC guard force contract
[5928]was handled by intra-Agency transfer of funds. BNDD reimbursed the
[5929]Agency for all TWOFOLD expenses, except for salary of the one staff
[5930]agent. DOD reimbursed the Agency for all ZULU expenses.
[5932]Los Angeles is the only MHBOUND office currently in operation.
[5933]During Fiseal Year 1975, 2,226 investigations were conducted, 6,125
[5934]man-hours were rendered in support of DELICATE, and a total of .
[5935]$551,000 was expended. Purely commercial income averages between
[5937]$20,000 to $25,000. Much of this comes from walk-in business, which,
[5939]HWW50955) Deold:32423532 Page i117
[5941]- 94 -
[5943]for cover reasons, cannot be refused. Over the past few years,
[5944]this has involved badging operations for private companies, i.e.
[5945]airlines, schools, etc. The company has never made a true profit.
[5946]To maintain its image among its competitors, however, its books
[5947]teflect a small profit on which Federal and state taxes are paid.
[5948]The office presently employes four staff agents, five contract
[5949]agents and fourteen proprietary employees. During Fiscal Year
[5950]1974, the project expended 2.9% of the OS budget ($551,000 vs.
[5951]$19,026,530).
[5952]MHEOUND, as noted, has provided support to the Office of
[5953]Security and Agency operators on sensitive covert operations
[5954]and investigative matters, CI/CE support for components of the
[5955]Agency, custodial support, courier support on truly covert activ-
[5956]ity, guard support, special non-government and sensitive inquiries
[5957]. (CI/CE probes through STPROBE), technical and physical support
[5958]in surveillances and Agency proprietary support. Its commercial
[5959]capabilities have included: confidential consultants, internal
[5960]security management, security surveys, counter-audio measures and
[5961]inspections, development, installation and maintenance of security
[5962]protective equipment and devices, classified material storage equip-
[5963]ment, secure destruction of classified waste, incinerator equipment
[5964]sales, polygraph examination, investigations (personnel), and
[5965]industrial undercover activities.
[5966]_ A unique example of its Agency security function was project
[5968]STPROBE, which utilized both security probes and security pene-
[5970]HY S0855 Dackd:32423532 Page i186
[5972]- 94-1 -
[5974]trations. A security probe is a testing of the current effec-
[5975]tiveness of all or part of a security system within an Agency
[5977]or Agency contractor's installation. A security penetration is
[5979]an internal covert investigation and search targeted at possi-
[5981]ble subversive elements within a facility who may be engaged in
[5982]foreipn intelligence or acts of sabotage or who by lack of security
[5983]discipline or gross malfeasance may be weakening the security
[5984]structure of the project or facility. It is, in essence, counter-
[5985]intelligence against a domestic installation. Eastman Kodak, for
[5986]example, was the target of a probe. An agent was sent under the
[5987]natural™ cover of a union construction man to Eastman to gain
[5988]employment as a pipefitter. He succeeded in gaining access to
[5990]the target, and developed information on the installation and
[5992]its personnel in surrounding areas of the union hall, bars, cafes,
[5993]and in other appropriate places around the target area. Similar
[5994]probes were conducted against Pratt and Whitney in West Palm Beach,
[5995]Florida, Lockheed Aircraft Corporation in Burbank, California, and
[5996]other targets in New York, Nevada, and Arizona.
[5998]These entities serve a useful function within the scheme of
[5999]necessary security required by sensitive Agency operations. Their
[6000]utility, however, as in the case of nearly all proprietaries is
[6001]relative to policy and "flap" demands. As one Agency commentator
[6002]phrased it. when Newsweek revealed the relationship of L. Lee
[6004]Bean and Paul Hellmuth of the Boston law firm of Hale and Dorr
[6006]* He was in fact a legitimate tradesman.
[6008]NW 50955 Docld:32423532 Page 119
[6010]- 94-2 -
[6012]with the CIA in setting up proprietaries:
[6014]Proprietaries have been and will continue to be an
[6016]important tool to achieve selected operational
[6018]objectives. Their use, however, has been drasti-
[6020]cally cut back, more because of changes in the
[6022]international scene and in operational priorities
[6024]than as a result of embarrassing exposures.
[6025]Of course, as has been the case with nearly all other proprietaries,
[6026]not everyone within the Agency has been satisfied with the mechanism.
[6027]Indeed, there has been constant review, criticism and internal
[6028]restraint due to a certain fear and suspicion of entities such as
[6029]Anderson which are "out there’ and not readily accessible to the
[6030]leash. For example, in June of 1964, the Chief of the Operation
[6031]Support Division wrote to the Deputy Director of Security (Investi-
[6032]gations and Operational Support) concerning MHBOUND's policy and
[6033]procedures. In terms of operational objectives he noted that they
[6034]thhad “created an operational support entity of dubious capability
[6035]and with ill-defined objectives or purpose.'’ He suggested that
[6036]they “look this ugly duckling in the face" and see if it could be
[6037]terminated gracefully or “see if we can nurture it into a productive
[6038]and responsive bird of acceptable countenance."*
[6040]He "received the definite impression that there may be some
[6042]grey area with regard to the internal channels of command and admini-
[6044]strative direction.” He noted that there was confusion resulting
[6046]-* In many cases these concerns dealt with the inability of the
[6047]entity to provide adequate cover. for itself in order to more
[6048]adequately fulfill its role. In one instance, the physical
[6049]backstopping of MHBOUND was inadequate. After this was rectified,
[6050]one official noted: .
[6052]It is felt that this step has strengthened the
[6053]Anderson Enterprises' cover, both in Boston and
[6054]Washington so that now the company could withstand
[6055]any inquiries, except that of an official govern-
[6056]ment investigation.
[6058]HW 50955 Docld: 32423532 Page 120
[6060]~ J4u2eg -
[6062]from lack of a clear-cut distinction "at just what level policy
[6063]matters may be decided . . .'' Management procedures for the
[6064]project were such that “under the current status everyone may take
[6065]credit but no one could be blamed."" As far as operational capa-
[6066]bility was concerned he remarked:
[6068]Quite candidly, I am somewhat concerned about the
[6069]operational capability of Project MHBOUND. It seems,
[6070]as a result of its Topsy-like growth, to be oriented
[6071]toward the military and the building trades. Quite
[6072]candidly, it is felt that the base must be broadened.
[6073]Further, I am far from convinced that we have yet
[6074]developed anywhere near the professional status neces-
[6075]sary to “sell” this Project as one having unique opera-
[6076]tional capabilities sufficient to justify its existence.
[6077]In other words, I am not impressed with the capability
[6078]as it now exists nor am I sure that we can sell this
[6079]product and then be assured that it can perform in a
[6080]satisfactory manner.
[6082]His comments concerning the attitude of Agency personnel were not
[6083]unique to this proprietary, but they are set out here as illustra-
[6084]tive of the singular problems these entities pose. His remarks
[6085]also show the dangers inherent in some areas of this activity.
[6087]It would seem that this Agency, particularly operating
[6088]components, are insistent upon pursuing an "ostrich
[6089]policy" when it comes to their operational security
[6091]‘ procedures. I have personally witnessed almost hyster-
[6092]ical reactions to criticisms as well as total rejections
[6093]of practical suggestions with regard to operational
[6094]security procedures. Now it seems to me that we are
[6095]going about this in a very awkward and embarrassing
[6096]manner. WE ARE, IN EFFECT, ALLOWING. THE WRITERS OF
[6097]SENSATIONAL BOOKS SUCH AS THE "INVISIBLE GOVERNMENT"
[6098]TO PROVIDE THE NECESSARY INFORMATION AND PRESSURE ON
[6099]TOP AGENCY MANAGEMENT TO CORRECT GLARING AND STUPID
[6100]COURSES OF ACTION BEING PURSUED AT THE WORKING LEVEL.
[6102]-Y have been the object of considerable personal ridicule
[6103]due to my stand in opposition to the unrealistic cover
[6104]and operational security procedures as they relate to
[6105]certain aspects of (CIA Operational Base) for example.
[6107]HW 50955 Docld:32423532 Page i231
[6109]~ 94-2-b -
[6111]IF we had the authority and capability to have made
[6113]an objective probe of this sensitive activity we may
[6114]have been able to have surfaced these obviously ridi-
[6115]culous procedures in such a manner that corrective
[6116]action would have been taken. Now is the time to
[6117]present the case in light of the abiding fear of publi-
[6118]eity currently permeating the Agency. I recommend that
[6119]we go after the authority to make independent (uni-
[6120]lateral) probes and/or probes requested and known only
[6121]at the very highest levels of the Agency with the results
[6122]discreetly channeled where they will do the most good.
[6123]There necessarily follows the unpleasant subject of
[6124]money. As distasteful as it may be, it is no good to
[6125]have the authority without a sufficiently large confi-
[6126]dential fund set aside and earmarked for independently
[6127]iniated activities.
[6129]He emphasized that if the Agency did not take the above kind of
[6130]action to monitor its “image"' at the operational level, "we will
[6131]continue to be plagued with the unsolicited and uncontrolled
[6132]eritique through the newspapers, periodicals and books." He
[6133]eritically concluded:
[6135]Further, I challenge anyone to deny that such exposes
[6137]to date are largely true and usually the result of our
[6139]own “ostrich policy" and refusal to face the fact that
[6141]we have operated in some relatively amateurish manners
[6142]over the years.
[6144]HW S0855 Dackd: 32423532 Page 122
[6148]Such concerns have extended beyond these operational levels
[6149]to general issues of propriety and legality. For example, as
[6150]noted earlier (supra, p. 90) the so-called "anti-Pinkerton Act"
[6151]prohibits a company engaged in investigative work from contracting
[6153]with the Federal government. But. .
[6155]the Agency and its predecessor organizations began
[6156]contracting as early as November 1942 with certain
[6157]commercial, investigating companies to perform in-
[6158]vestigations and to provide commercial credentials
[6159]to, and cover backstopping for, Agency investigators.
[6161]As of March 1975, the Office of Security had a relationship with
[6162]three such companies which issue their credentials to Agency inves-
[6163]tigators and backstop the cover of same. Two of the three have
[6164]previously “conducted limited personnel investigations” on behalf
[6165]of the Agency. During that same period the Director of Security
[6166]asked the General Counsel of the CIA whether the "Anti-Pinkerton
[6167]Act" prohibited the Office's continued contractual relationship
[6168]with these three private companies or their employees for pur-
[6169]poses of conducting investigations or providing cover, or both.
[6170]The General Counsel responded as follows:
[6172]I am aware that in fulfilling the responsibilities
[6174]placed upon your office in support of the Agency's
[6176]mission, many investigations must be conducted with-
[6178]out revealing Agency interest and in some, without
[6180]even revealing Government interest. Absent the
[6182]relationships you question, you could not discharge
[6184]your responsibilities. It is this inability to
[6186]accomplish your tasks which causes recourse to the
[6188]Agency's rather broad statutory authority to expend
[6190]funds as contained in Section 8 of the. CIA Act of
[6191]1949, as amended. This authority provides
[6193]HW 50855 Docld: 32423532 Page 123
[6195]- 94-4 -
[6199](a) Notwithstanding any other provision of law,
[6200]sums made available to the Agency by appropria-
[6201]tion or otherwise may be expended for purposes
[6202]necessary to carry out its functions, including --
[6204](L) personal services, including personal
[6205]services without regard to limitations on
[6206]types of persons to be employed,
[6210](b) The sums made available to the Agency may be
[6211]expended without regard to the provisions of law
[6212]and regulations relating to the expenditure of
[6213]Government funds; and for objects of a confiden-
[6214]tial, extraordinary, or emergency nature, such
[6215]expenditures to be accounted for solely on the
[6216]certificate of the Director and every such certi-
[6217]ficate shall be deemed a sufficient voucher for
[6218]the amount therein certified.
[6220]Ie is my opinion that this authority permits the Agency
[6221]to continue the two practices as set out above without
[6222]fear of violation of the Anti-Pinkerton Statute.
[6224]He closed, however, with the following admonitions:
[6226]There are, of course, other dimensions to the question
[6227]you raise. As a matter of policy I believe the prac-
[6228]tices should be reviewed at the highest levels within
[6229]the Agency and, perhaps, cleared with the Agency's
[6230]oversight committees. In addition, if one of these
[6231]relationships became public, it must be recognized
[6233]that there will be allegations that the law has been
[6234]viclated. On balance, it is my view that these consi-
[6235]derations are not so significant as to warrant a termi-
[6236]nation of the two practices with the three companies.
[6237]It is suggested, however, that any subsequent, projected
[6238]association with a detective company or private investi-
[6239]gative company beyond the three present companies be
[6240]reviewed with this Office prior to its initiation.
[6242]HW 50955 Doocld:32423532 Page 124
[6244]- 95
[6246]VIT. BEYOND "DOING BUSINESS": PEAK HoN- COERMENT SECURETY
[6247]BY PRIETARIES ACTIVE EMBER 31
[6249]1974
[6251]-As described infra, MHMUTUAL (the insurance and pension complex)
[6252]has invested heavily in both domestic and foreign securities markets.
[6253]Its portfolio runs the gamut of notes, bonds, debentures, etc. But
[6254]other proprietaries have also used this investment route as a method
[6256]of increasing capital and insuring adequate cover.
[6258]For example, KMJAGGERY is a Delaware corporation located in
[6259]Washington, D.C., which purchases general merchandise in a manner
[6260]which cannot be traced to the United States Government. It provides
[6261]covert procurement for the Office of Logistics (CIA). Its total
[6262]purchases from January to September 1974 were $437,500. It has no
[6263]outside commercial business and has five employees. Yet, as of
[6264]December 31, 1974, that entity had invested $149,000 in time deposits.
[6265]Another covert procurement mechanism under this same Office is
[6266]SPECIAL STOCK ACCOUNT #3. “This is also a Delaware corporation with
[6267]an address in Baltimore which purchases arms, ammunition, and police
[6268]related equipment in a manner which cannot be traced to the United
[6269]States Government. The company has no employees and is managed by
[6270]Headquarters officials in alias. As of December 31, 1974, that
[6272]entity had invested $37,500 in a certificate of deposit.
[6274]LPJACK was a travel service which was sold recently to an Agency
[6275]employee at the time of his reitrement, who had ostensibly owned the
[6276]firm before but in fact only managed it for the Agency. As of |
[6278]December 3L, 1974, that entity had invested $35,000 in a certificate
[6280]HY 50855 DBocld:324293532 Page 125
[6282]- 96 -—
[6284]of deposit.*
[6286]LPDICTUM/LPSPICE was an investment company which was dissolved.
[6287]As of March 31, 1973, it had invested $100,080 in Petrolcos Mexicanos,
[6288]S.A. Mexico.
[6290]. HBSANDSTRAP is a Delaware corporation located at Washington
[6291]National Airport which has provided secure air support for Agency
[6292]employees and classified pouches between Headquarters and other
[6293]“Agency facilities in the United States. The company has accepted
[6294]commercial charter flights from non-Agency customers for income and
[6295]cover purposes, As of December 31, 1974, it had invested $144,000
[6296]ina certificate of deposit.
[6298]QRTROW was a former proprietary and is now an institute located
[6299]in Europe which "seeks to influence and encourage moderate and pro-
[6300]democratic youth leaders and government officials concerned with
[6301]youth and higher education.'' According to the Agency
[6303]. The Agency withdrew its support from the institute in
[6304]1974 and turned over all assets to the management of
[6305]the organization. In addition, the Agency provided
[6306]surge funding in the amount necessary to enable the
[6307]entity to exist in reduced form for about one year
[6308]during which time the management would attempt to
[6309]arrange private support.
[6311]As of March 31, 1972, that proprietary had invested $50,000 in time
[6312]deposits.
[6314]LPMANTLE is part of the WUTACTIC complex managed by the Cover
[6316]and Commercial Staff to provide operational support mechanisms for
[6318]DDO foreign operations. It is a Delaware corporation which is used
[6320]* The Agency today uses this firm for the purchase of airline tickets
[6321]for travel in support of sensitive projects. It is estimated by the
[6322]Agency that CIA business represents about 30% of the gross airline
[6323]ticket sales of the entity on an annual basis.
[6325]HW 50955 Doold:32423532 Page 126
[6327]-~ 97 -
[6329]to collect the proceeds from the sale of Agency proprietary entities
[6331]and to refund such proceeds to the Agency. At December 31, 1973, its
[6333]total assets were $650,220 and its total liabilities were $633,897.
[6335]Total stockholders equity was $16,323. It has no employees. As
[6337]of December 31, 1974, it had invested $400,000 in a convertible subor-
[6339]dinated debenture from the sale of a company and $45,440 in notes
[6341]receivable. Another company in this TACTIC complex is LPGLITTER.
[6343]It is a Panamanian company which was used as an investment vehicle
[6345]for funds reserved for new commercial operations requiring Agency
[6347]investments. The investment project was terminated and all funds were
[6349]returned to the Agency. The company has no employees. As of December
[6350]. 31, 1973, it had invested $246,757 in a Security Note of Pepsico
[6352]Corporation, N.V. ,
[6354]LTUQUEST was part of the air support complex of the Agency proprie-
[6355]taries, Substantial assets of it were sold and the entity dissolved.
[6356]As of December 31, 1974, it had invested $215,000 in a certificate of
[6357]deposit.
[6359]LPPANDA/LPMET is part of the management and accounting complex.
[6360]As of December 31, 1974, it had $470;000 invested in time deposits.
[6362]BY 50955 DBocld:32423532 Page 127
[6364]- 98 .
[6366]SCHEDULE 1
[6367]PEAK NON-GOVERNMENT SECURITY INVESTMENTS BY PROPRIETARIES
[6368]ACTIVE AS OF 31 DECEMBER 1974
[6370]PROJECT /ENTITY TYPE INVESTMENT DATE AMOUNT
[6371]MHMUTUAL See Portfolio
[6372]LPPANDA/ LPMET Time Deposits . 12/31/74 $470,000
[6373]TUQUEST Certificate of Deposit 12/31/74 215,000
[6374]LPTACTIC/LPCLITTER ; Security Note - Pepsico
[6375]Corp. N.V. _ 12/31/73 246,757
[6376]LPTACTIC/LPMANTLE - Convertible Subordinated
[6377]Debenture from Sale of
[6378]Company 12/31/74 400, 000
[6379]Notes Receivable 12/31/74 45,440
[6380]QRTROW Time Deposits 3/31/72 50,000
[6381]ABDERRICK/HBSANDTRAP Certificate of Deposit 12/31/74 144,000
[6382]LPDICTUM/ LPSPICE Petrolcos Mexicanos,
[6383]S.A. Mexico 3/31/73 100,080
[6384]LPJACK Certificate of Deposit 12/31/74 35,000
[6385]KMJAGUARO/ KMJAGGERY Time Deposit ©  : 12/31/74 149,000
[6386]KMJAGUARO/ SPECIAL
[6387]STOCK ACCT. #3 Certificate of Deposit 12/31/74 37,500
[6389]HW 50955 Docld:32423532 Page i238
[6391]- 99 -
[6392]VIII: MHMUTUAL: THE INSURANCE-INVESTMENT COMPLEX
[6394]a) A BRIEF HISTORY
[6396]MHMUTUAL is a complex of insurance companies, most of which
[6397]are located abroad, operated by the Agency to provide the following
[6398]services: ,
[6399]a) veinsurance of aircraft damage or liability risks
[6400]ostensibly insured under commercially issued policies
[6401](for cover);
[6403]b) extending term Life insurance, annuities, trusts and
[6404]workmen's compensation for independent contractors
[6405]and agents working for the Agency who are not entitled
[6406]to U.S. Government benefits;
[6408]c) handling escrow accounts* for agents;
[6410]d) limited operational support activities, L.e., holding
[6412]real estate formerly used in Agency operations abroad; **
[6413]and
[6415]e) investing in domestic and foreign markets to obtain
[6416]earnings to fund the above.
[6418]MHMUTUAL was created in 1962 to provide death and disability bene-
[6419]fits to agents and beneficiaries when security considerations pre-
[6420]clude attribution to the U.S. Government. The losses during the
[6421]Bay of Pigs prompted its establishment. From sixty-seven (67) to
[6422]seventy-three (73) companies operated originally under the Domestic
[6423]Operations Division and later a board of directors controlled by the
[6424]Office of General Counsel. This internal board of the project made
[6426]investment decisions.
[6428]* Escrow accounts are established when an agent cannot receive his
[6429]full payment from the CIA without attracting suspicion. The funds
[6430]not paid to the agent go into escrow accounts and are invested under
[6431]MHMUTUAL. .
[6433]_** The CIA's domestic real property holdings appear as Appendix E.
[6435]HW 50955 Docld:32423532 Page 128
[6437]- 100 -
[6439]Lawrence Houston, retired General Counsel of the Agency, testi-
[6440]fied that his office instigated the establishment of MHMUTUAL. This
[6441]was because his staff would be the repository of all problems related
[6442]to the death or disability of a person during the course of his
[6443]Agency work. These problems were all handled in what Houston called
[6444]a very "sketchy way" and this was simply undesirable from all
[6445]points of view. Moreover, when the Agency went into air proprie-
[6446]taries on a large scale there were certain risks which simply
[6448]could not be underwritten: commertéially.
[6450]So somewhere in the late 1950s or around 1960,
[6451]I think I was the one that posed that we might
[6452]organize our own insurance entities. I had a
[6453]couple of lawyer friends deep in the insurance
[6454]business, and I suggest I talk to one of them,
[6455]and he promptly said, well, it so happens that
[6456]I have a couple of offshore insurance entities
[6457]that I can make available to you. And we took
[6458]a look at them. It looked like they were or-
[6459]ganized properly for the purpose. They cost
[6460]practically nothing. They were just shells.
[6461]But they could be filled out. So if my recol-
[6462]lection is correct, we acquired these two as the
[6463]first step in what became the MUTUAL project.
[6465]Simultaneously, the decision was made that if the Agency was going
[6466]to maintain such a capability,
[6468]they had to have enough body and backstopping so
[6469]that if a suspicious foreign intelligence outfit
[6470]tried to investigate, they would stand up under
[6471]investigation as would any normal insurance outfit.
[6472]In other words, they had to appear'to have finan-
[6473]cial stability, they had to have names that could
[6474]stand up and answer questions, and in other words
[6475]appear to be in the normal business of writing the
[6476]type of annuities (and) insurance, death. and dis-
[6477]ability.
[6479]This concept was totally organized originally then under the Domestic
[6481]Operations Division. DOD eventually recommended that the complex
[6483]HW 50955 Doold:32423532 Page 130:
[6485]- 101 -
[6487]be transferred to the Office of General Counsel. This occurred,
[6488]and it remained there until Director Colby decided in conjunction
[6489]with Mr, Houston to transfer for operational reasons to the Cover
[6490]and Commercial Staff. ‘This was done because CSS had the expertise
[6491]and manpower. Moreover, Mr. Colby took exception to the Board
[6492]concept because he felt that it diluted the Line responsibility by
[6493]which all other projects were administered.
[6495]As the number of insurance companies grew to cover increasing
[6496]demands placed upon the Agency by more agents, the general fund
[6497]which was retained to backstop all the needs of these companies
[6498]grew, and "the question was what to do with your money." Houston
[6500]explained
[6501]_ Now, insurance companies are normally in the business
[6503]of investing their funds, and so this being the normal
[6505]thing, it appeared to us necessary to preserve the nor-
[6507]mal appearance of these insurance companies to carry
[6509]on investment programs for the funds involved, and
[6511]there were a variety of investments to be considered.
[6513]You could go into U.S. Treasury Bonds, notes and bills,
[6515]but actually, from the point of view of insurance bus-
[6517]iness practice, this was very unusual. It would be
[6519]very, very unusual in the insurance field. Usually
[6521]some of them would have some investment in bills, notes
[6523]or bonds, but it was a very small part of their portfolio,
[6525]and to put it in nothing that that we thought would be
[6527]a dead giveaway. So we first went in the direction of
[6529]having a general portfolio somewhat similar to the nor-
[6531]mal insurance company's investment practices, and I
[6533]originally recommended that we have the board of direc-
[6535]tors so that we could have available and demonstrate that
[6537]we had available the best competence the Agency had in-
[6539]ternally to pass judgment on what to do with their money.
[6541]Because of shifts in the stock market which made it not look as
[6542]promising as it had been during the 1960s, MHMUTUAL went into
[6544]certificates of deposit, the Eurodollar market and the bond market.
[6546]HW 50955 Docld: 32423532 Page i131
[6548]~ 102 -
[6550]It was decided to invest, however, only in Eurodeollar bonds that
[6552]were ‘guaranteed by the American parent company.” It was thought
[6553]that “they were a pretty secure investment." On occasion, “when
[6555]we got the advice of our economists on the DDI side, we took some
[6556]government paper that they considered -- foreign government paper
[6557]that they considered really a good security." Houston became the
[6558]central figure in this investment scenario: |
[6560]More and more I continued on this Board of Direc-
[6562]ters as giving basic policy advice. We had long
[6563]discussions on the areas of discussion, what to stay
[6564]away from, what to go into, what it looked like as
[6566]far ahead as they might think they could see. . And
[6568]more and more I would make the individual decisions
[6570]on my own in light of their policy guidance and with
[6571]the information which my staff in MUTUAL could get from
[6572]the many friends they now had in various underwriting
[6573]and investment places on an unwitting basis, who just
[6574]thought they were customers. For instance, on the
[6575]Eurodollar bonds, they were dealing with several houses
[6576]who just thought the fellow was another investor coming
[6577]into them and would get very detailed and on the whole
[6578]pretty good advice, which often we could check from
[6579]inside through some other of our sources. . . .Profits
[6580]from primarily the interest operations were very pro-
[6581]fitable, and these built up over the years quite rapidly
[6582]and were brought into the insurance funding identified
[6583]as profits for future possible use,
[6585]It was always recognized that a policy decision might
[6586]be made at any time that we had funds excess to the
[6587]valid backing up of our underwriting, which would be
[6588]brought back into the government for such disposition
[6589]as might be appropriate at that time.
[6591]In terms of actually providing insurance in the aviation and
[6592]maritime field, a study would be conducted in each case where in-
[6593]surance was required. If it looked as though normal commercial in-
[6594]surance would handle it, as was the case with most of Air America's
[6595]needs, then the particular entity would go ahead and procure the nor-
[6597]mal commercial insurance. If there was something peculiar in the
[6599]operational setup that preclud d commercial. companies from accepting
[6601]HW 50955 Docld:32493532 Page 132
[6605]the risk or if there were security problems, then it would be
[6607]handled through MHMUTUAL.
[6608]What we would do when it came to aviation and
[6609]marine, we would go to one of the cooperating
[6610]companies and see if they wanted the insurance
[6611]for their own accounts, because we had made
[6612]arrangements that if there were operations
[6613]security problems in any one claim, that they
[6614]could handle the investigation so it wouldn't
[6615]be a problem if they wanted to take for their
[6616]own account. If they didn't want to take it
[6617]for their own account or they didn’t want to
[6618]take it all for their own account, they might
[6619]then seed back to us what they didn't want.
[6620]And it would be then underwritten technically
[6621]out of MUTUAL's account, although they would be
[6622]the ostensible insurers. ,
[6624]Several of the aviation entities, other than Air America which
[6625]dealt almost exclusively with regular commercial insurance com-
[6626]panies, did nto feel quite secure with regular insurance. They
[6627]turned to MUTUAL. MUTUAL would in turn offer the risk to one of
[6628]the cooperating insurance companies. If they would take the risk,
[6629]they would then negotiate the premium with the. proprietary. tf
[6630]they did not want the risk, "then they would seed back to us and
[6631]we would take the portion of the premium that should come back.
[6632]Usually it if went through a company, they would take a small
[6633]underwriting premium to pay their costs, 3 percent or something
[6634]like that. And the rest of the premium would go back in MUTUAL,
[6635]if they were actually taking the risk."
[6637]In 1970 the Inspector General conducted a survey of the secur-
[6638]ities held by MHMUTUAL. He concluded that the project seemed to
[6640]be secure in its operations in the fields of insurance and invest-
[6642]HW 50955 Dacldi3242354532 Page 133
[6646]ment. The IG locked at the investments from a security (i.e.
[6647]cover) point of view in terms of MHMUTUAL’s operational support
[6648]function. His concern was that each time MHMUTUAL bought a
[6649]safehouse, for example, there was the possibility that audio
[6650]surveillance of the house by the Soviets would lead to a dis-
[6651]covery of the purchase mechanism used by the Agency. He rea-
[6652]soned that, therefore, the purchase of such items by the com-
[6653]plex was operationally unsound because it exposed the entire
[6654]complex to compromise if a foreign intelligence agency tracked
[6655]back the transactions through various corporations. According
[6657]to the Inspector General, no funds of MHMUTUAL were used for
[6658]specific projects. What would occur, however, was that a project
[6659]would transfer funds to the complex which would then disburse
[6660]them as needed through an appropriate entity. This method left
[6661]him with major reservations about MHMUTUAL security when it sup-
[6662]ported sensitive clandestine operations. Thus, MHMUTUAL's pro-
[6663]vision of cover, funding for active operations, and record owner-
[6664]ship acquired for sensitive operations was deemed inappropriate
[6665]and, accordingly, the IG proposed separating operational sup-
[6666]port activities of MHANVIL from the instrumentalities of MHMUTUAL.
[6667]It was to be restrained to the purposes for which it had been
[6669]established in 1962*
[6671]* During the course of the IG inquiry no instances were discovered
[6672]where MHMUTUAL or its funds were used to influence foreign stock
[6673]markets or currencies. The Committee has also found no such
[6674]instances.
[6676]HW 50955 Docld: 324234532 Page i34
[6680]At the time of this 1970 review by the IG, MHMUTUAL held a
[6681]surplus of $9 million. It also earned income from sources sup-
[6682]ported by public taxation. It appears from the questions that
[6683]were raised at the time about briefing congressional committees
[6684]on MHMUTUAL that this was not done, providing a situation where
[6685]an organization with assets of $30 million has been created and
[6686]was operating without oversight knowledge or approval. Moreover,
[6687]because MHMUTUAL was no longer a project after its removal from
[6688]the Domestic Operations Division, there was no annual allotment
[6689]and no annual operational review.
[6691]Houston indicated that MHMUTUAL had been operating "before
[6692]we told our committees any detail. I think it was mentioned as
[6693]a problem that we had to make arrangements to cope with insurance
[6694]problems fairly early on. But the fact that it was a business
[6695]and a business of this substance was not done for some time, My
[6697]recollection is there was not deliberate avoidance; we just didn’t
[6699]get to it." On the question of lack of annual project. review,
[6700]Houston commented that this was "technically correct." But, he
[6701]added,
[6703]As a matter of practice I would say that MUTUAL was
[6704]more carefully reviewed in some respects than almost
[6705]any other project in the Agency in the sense that we
[6706]had the bookkeeper inside the project who was a finance
[6707]officer and bookkeeper. The project published at least
[6708]monthly reports in detail which went not only to me but
[6709]to Colonel (L.K.) White (the Comptroller) and the
[6710]Director. These were very detailed reports which often
[6711]raised questions which went back for answers.
[6713]HW 50955 Docld:32423532 Page 135
[6715]-~106-
[6717]The Inspector General was invited in, according to Houston. In
[6718]addition, the Finance Office kept its own books. in the proprietary
[6719]accounts branch on MUTUAL. Such reviews were done, he said, “on a
[6720]constant basis.”
[6721]“We were very conscious of the amount of money in-
[6722]volved and the possibilities of someone trying to,
[6724]someone yielding to temptation and trying to do
[6725]something with all of this money.
[6727]b) THE CURRENT STATUS
[6729]The project currently consists of twenty-six (26) companies
[6730]of which five (5) are domestic. All of the clients of MHMUTUAL
[6731]are under non-official cover.** The Office of Finance has indi-
[6732]eated that the current net worth of the project is $18 million
[6733]which is the resule of retaining earnings. It was originally
[6734]capitalized in 1962 with $4 million. A Washington, D. C. lawyer
[6735](MHANVIL) is currently the investment manager and he provides day-
[6736]to-day direction. MHANVIL is a sole proprietorship proprietary
[6738]of the Office of General Counsel. Total assets are currently
[6740]*k MHMUTUAL itself is only for covert non-staff officers of the CIA.
[6741]In essence, it only works for what would broadly be described as
[6742]“agents, those not entitled to participate in the CIA retirement
[6743]plan or in the Civil Service Reitrement Plan. They are primarily
[6744]foreigners, and usually DDO employees. Those individuals who were
[6745]formerly known as contract agents and who are now known as independ-
[6746]ent contractors also participate in MHMUTUAL. In the case of most
[6747]agents, the CIA contributes 7 percent and the agent contributes
[6748]7 percent, in keeping with CIA practice for regular employees. In
[6749]cases where the agent is well along in years and contributions from
[6750]‘the Agency and the agent would not provide enough funds to capital-
[6751]ize an annuity, the Ageney provides the initial capitalization; how-
[6752]ever, approval of this must come from the DDO.
[6754]HW 50955 Docld: 324234532 Page i136
[6756]$31 million, most of which are held outside the U.S. The companies
[6757]do not write insurance in the United States, but rather reinsure
[6758]with cooperating companies who then sell the risk to the CIA for
[6759]a percentage -of the premium. The policies are written directly
[6760]abroad. Each of the U. S. companies pays little tax and a pro-
[6762]prietary auditing firm audits the books of MHMUTUAL. This method
[6763]of self-insurance enables the Agency to funnel money where needed
[6764]in any of its project. categories. currently, 60 percent of the
[6765]investments are in Eurobonds, 20 percent in off-shore time deposits
[6766]in U.S. banks, and the balance is in common stocks, debentures .
[6767]and commercial paper of various types. For example, the current
[6768]breakdown is: | _
[6770]$7 million in time deposits abroad;
[6772]$2.4 million in Common Stock (at cost); ~ =
[6774]$20.8 million in Eurobonds:
[6776]$1 million Eurodollar convertible debentures;
[6778]$.5 million in short-term commercial paper overseas; and
[6780]$.2 million in domestic debentures.
[6782]The performance: of the MHMUTUAL stock portfolio is noted at
[6783]this’ juncture. ‘Comparisons of cost against market value for the
[6784]years 1970 through 1975 are given first. Following that are the
[6785]gains or losses on the sales of stock for the years 1963 through
[6787]1975.
[6789]HW 50955 Decld:32493532 Page 137 —
[6792]_ _ : Shel 7 AIPTF
[6794]- 2°3,
[6795]- Bae ~
[6796]2 :
[6797]STOCK PORTFOLIO PERFORMANCE
[6798]Comparison of Cost Against Market Value
[6799]Year Cost Market Value aE
[6801]1971 1,123,651 1,069,301
[6802]1972 2,969,403 2,872,557
[6803]1973 . 2,650,904 1,242,915 7
[6804]1974 2,440,686 . 699,422 |
[6805]1975 2,440,686 ; 876,507 ;
[6807]bee:
[6808]. te
[6809]Gain or (loss) on Sales of Stocks poo
[6810]. _ I
[6811]i
[6812]5 Year Gain or (loss |
[6814]1970 (79,910.64) cr
[6815]1971 118,943.90 Paanioe
[6816]1972 . 310,346.37 hereon
[6817]1973 150,447.03
[6818]1974 (172,796.04}
[6819]4975 -9-
[6820]Total Gain . $ 584,378.77
[6821]RECEIVES FROM
[6823]Lil
[6828]ere eigen
[6830]bea el
[6831]-
[6833]Teeny Se, >
[6834]oe Yate! wees shoves Se
[6836]“109 ~
[6838]Included as Appendix D is an in-depth list of common stock
[6839]purchases from 1971 through September 30, 1975. In addition, there
[6840]are schedules of portfolio sales from 1964 through 1974.
[6842]A look at the Project MHMUTUAL Conselidated Balance Sheet for
[6843]December 31, 1974 will give some idea of the scale as of that late
[6844]date. Current assets (cash in banks, premiums receivable, advances
[6845]receivable, accounts receivable, client notes receivable, rent
[6846]receivable, interest receivable, and investments maturing.in one
[6847]year) totaled $6,910,891.00. Investments (time deposits, bonds
[6848]and commercial paper, and stocks at market value) totaled
[6849]$25,342,772.53. Fixed assets (real estate and furniture and fix-
[6850]tures) totaled $73,084.12. Other Assets (prepaid insurance, recoverable
[6851]deposits, and other prepaid expenses) totaled $32,682.00. These
[6852]combined for Total Assets of $32,359,430.45.
[6854]As usual, the Project was subjected to an extensive audit for
[6855]that year. .
[6857]The audit included site examination of books and financial
[6858]records of 12 of the instrumentalities administered by
[6860]Agency-owned management firms as well as review and evalu-
[6862]ation of related records, controls, and procedures at
[6863]Headquarters. Five instrumentalities administered by
[6865]Agency-owned management firms are located abroad and
[6867]will be audited later. Audit of the other. six instru-
[6869]mentalities administered abroad by foreign accounting
[6871]companies was limited to examination of financial reports
[6872]and such other documentation as was available at Head-
[6873]quarters. These latter examinations provided us reason-
[6874]able assurance that Agency resources, totaling about one
[6875]percent of project accountability, are adequately pro-
[6876]tected.
[6878]That audit concluded that MHMUTUAL "continue(d) to be admin-
[6880]istered in an efficient and effective manner and in compliance
[6882]HW 50955 Docld:32423532 Page 139
[6884]-=110-
[6886]with applicable Agency regulations and directives." Prior audit
[6887]reports had commented on the need for a revised administrative
[6888]plan and in accordance with these reports, the audit noted, a
[6889]“new plan was approved in March 1975." In addition, "(m)inor
[6890]administrative and financial problems surfaced during the audit
[6891]were discussed with MHMUTUAL officials and resolved." The audit
[6892]noted that total income for that year {from interest, premiums,
[6893]gain or loss on sale of securities, dividends, rentals, profes-
[6894]sional fees, gain on foreign exchange, gain on sale of property
[6895]and from miscellaneous transactions) was $4,113,590.00. The
[6896]total expenses for that year (allocation of premium income to
[6897]reserve for claims, interest, salaries, rent, accounting fees,
[6898]taxes, loss on property write-off, legal and other fees, communi-
[6899]cations, depreciation and amortization, travel, equipment rent,
[6900]real estate expenses, pensions, dues and subscriptions, directors
[6901]fees, entertainment, and miscellaneous) were $2,459,260.00. These
[6902]combined for a net income of $1,654,330.00.
[6904]The current Chief/Central Cover Staff has focused on MHMUTUAL
[6905]in a number of interviews with both the Rockefeller Commission |
[6906]staff and our own. He has suggested that the real question for
[6907]MHMUTUAL is what should its role and shape be after the termina-
[6908]tion of the large air proprietaries. One of MHMUTUAL's original
[6909]purposes was to provide reinsurance for Air America, CAT, Southern
[6910]Air Transport, Inter-Mountain Air, and the other air proprietaries.
[6912]With their passage, a reorganization and redefinition is needed.
[6914]HW 50855 Doacld: 32423532 Page 140
[6916]- ee -
[6918]‘ As to the issue of safeguards against misuse of project funds °
[6919]or insider information by the Agency, the Chief CCS has told the
[6920]Committee that compartmentation, the honesty of the Chief of. CCS,-
[6921]and display of the portfolios to appropriate congressional commit-
[6922]‘tees are what have prevented or will prevent such abuse.
[6924]Houston agreed jwith the three safeguards outlined by the CSS
[6926]Chief. However, he ladded a fourth:
[6928]When we were investing in stock, I would have the
[6930]list of stock, the portfolio, reviewed by our con-
[6932]tract people, and if I found we had any contract
[6934]relationship with any of the companies involved, we'd
[6936]either refuse to -- Well, a couple of times our invest-
[6938]ment ‘advisor recommended a stock which I knew we had
[6940]big contracts with, and I told the board no, this in-
[6942]volves a conflict of interest. We won't touch it.
[6944]And if we had anything from the Agency contract office
[6946]that indicated a relationship, we would either sell
[6948]the stock or wouldn't buy it.
[6950]‘ . . .
[6952]: Houston believes that the wmpley should continue in some form.
[6953]One reason is that "assets are few and far between." The acquisi-
[6954]tion of a board of directors, the establishing of accounts, basic
[6955]credibility and relations with the jurisdiction in which the entity
[6956]is located are not easy things to do according to Houston. This
[6957]creates the "tendency, once you've got something that looks good,
[6958]to hang on to it."" He would recommend in this regard that the
[6959]‘Agency be constantly. forming new companies and phasing out old ones
[6960]on a rotational basis so that the same complex would not remain
[6961]for security reasons.
[6963]me ee
[6964]a“
[6966]HW 50955 Docld:32423532 Page 141
[6968]37
[6971]So it's not easy but I still think that they
[6972]should make the effort. [The Chief ccs] knows
[6973]my views on this pretty well, and we're all
[6974]worried about the security of the damn thing.
[6975]But we don't know another way to do it.
[6977]He believes that the current method while not perfect is the best
[6978]that can be devised. The problem, of course, is that the genera-
[6979]tion of funds for these companies must. literally be shown to be
[6980]legitimate and non-governmental if the beneficiaries are to be
[6981]protected. Consequently, if the government were to create an
[6982]office that would funnel money to these companies without the
[6983]‘benefit of investment, this would create the risk that a trace~-
[6984]back investigation by a foreign power could discover that the
[6985]entity is being funded by the U.S. government. Houston closed by
[6987]> saying that he would invite any controls that Congress would choose
[6989]to put on the mechanism in terms of insuring propriety.
[6991]Ce Chief of CCS hin ech chara Heny he
[6992]AP AUAIMN ER, “side pirat ble. ” ande zo an atta
[6993]afer sunhch sn rurale elena. (1-20.76) Tres
[6995]HY 50855 Docld: 32423532 Page 142
[6997]- FRB -
[6999]F,
[7000]ee THE AIR PROPRIETARIES
[7002]Lawrence R. Houston, the former General Counsel of the Agency,
[7003]was involved in the establishment of the first set of proprietaries
[7004].of the Agency back in the late 1940's and early 1950's. As noted
[7005]later on in section 10, page , Houston has concluded that .
[7006]proprietaries should be a mechanism of last resort. He asserts
[7007]that the Agency learned this in part "the hard way and almost all
[7008]of the lessons involved probably came out one way or the other in
[7009]connection with a major aviation proprietary in the Far East.
[7011]Others ‘had there own special problems, but I think the Air America
[7012]complex had pretty near everything."
[7014]The theory of the acquisition of Air America in 1949 was denial
[7015]of the assets to the Red Chinese. The CIA first arranged advances
[7016]to the company to keep them going when they were running short of
[7017]cash in 1949. These advances were used up and were actually credited
[7018]to the purchase price eventually. The airline at that time had
[7019]been organized by General Claire Chennault and Whiting Willauer.
[7020]“It was a joint venture with the Chinese Minister of Transport and
[7021]was called Civil Air Transport. Houston described it as follows:
[7023]This normal aviation organization, this would have no
[7024]meaning at all, was completely at all, it would have
[7025]not standing in international law, aviation rights, or
[7026]any of that. But it worked for what .they wanted, which
[7027]was to take supplies up-country into inland China and
[7028]then to bring back whatever cargo they could get commer-
[7029]cially: tallow, hides, bristles, all that sort of trade,
[7030]and then they traded that off for their own account. And
[7031]for awhile the operations was fairly successful, the C-47's
[7032]and C-46's.
[7034]To finance this activity and to facilitate the trading of produce,
[7036]their lawyer, Thomas Corcoran, had organized a company. That company
[7038]was known as C.A.T. Inc. In addition there was a Panamanian
[7040]HW 50955 Docld:32423532 Page 143
[7042]far
[7043]-
[7045]corporation which was involved that did most of the funding.
[7046]There was also an envy known as the Civil Air Transport "to further
[7047]complicaté the picture, at this time Chennault and Willauer were
[7048]also negotiating with the Chinese CNAC, for the takeover of their
[7049]_planes and equipment." Chennault and Willauer came to the Agency
[7050]in connection with that operation in the Spring of 1949. At that
[7051]point the Nationalist Chinese were being "squeezed down south by
[7052]the Communists and they were really backing down toward Shanghi,
[7053]restricting their area of operation and consequently the produc~-
[7054]tivity of their commercial venture." Chennault and Willauer indi-
[7055]cated to the Agency that unless they got .help they would have to
[7056]go out of business. -_
[7057]The agency held a series of meetings in which it was determined
[7058]that it had a need for some air transport for some of its operations
[7059]o) particularly involving arms and ammunition and consequently the |
[7060]Agency needed a contract with someone.
[7061]And so we entered into an arrangement, I think in
[7062]about September of 1949 whereby we would advance
[7063]them, the figure of $750,000 sticks in my mind,
[7064]against which we could draw for actual use of the
[7065]planes at an agreed on rate. . . . And we did draw
[7066]down, I think, all the flying time and expended the
[7067]$750,000 between September and about January, at which
[7068]time we suspended any further payments or draw-downs.
[7069]I think the money was exhausted.
[7070]Chennault and Willauer came to Washington about January or
[7071]February of 1950 and through a series of negotiations, the Agency
[7072]agreed to advance them more funds, taking at the same time an option
[7073]to purchase the assets of Civil Air Transport, with the liabilities
[7075]left to their account. Any unused portion of the advances were to
[7077]be credited to the purchase price. They then operated through the
[7081]HW 50955 Docld:32423532 Page 144
[7085], =
[7086]Spring of 1950 under this arrangement and Chennault and Willauer
[7087]“oame in in the Summer of 1950 and said again they were in desperate
[7088]straits for funds." Once again a series of meetings was held at.
[7089]which the prognosis was that the operations in the Far East would
[7090]have a continuing need for secure airlift and also, there was a
[7091]general estimate that the loss of this airlift to the Chinese
[7092]Communists would give them a considerably greater advantage than
[7093]then possessed because they had almost no airlift of their own at
[7094]that time. “The Agency then made the decision that they would
[7095]‘exercise the option given there was no objection otherwise."
[7097]The Agency felt that it was necessary to get the concurrence
[7098]of the Department of State. Frank G. Wisner, at that time the
[7099]Head of the Office of Policy Coordination (OPC) which was respon-
[7100]gible for conduct of covert actions as opposed to clandestine in-
[7101]cy telligence, and Mr. Houston visited Mr. Livingston Merchant, who
[7103]was Assistant Secretary of State for the Far East.
[7104]He and I went to see Mr. Merchant and explained the
[7105]situation. And Mr. Merchant reminded us. that it was
[7106]basic U.S. policy not to get the government in compe-
[7107]tition with U.S. private industry. But under the parti-.
[7108]cular circumstances, in particular as there was really
[7109]-no.U.S. private industry involved in the area, and they
[7110]agreed it was important to divide the assets to the
[7111]Red Chinese. State would go along on the understanding
[7112]that we would divest ourselves of the private enterprise
[7113]as soon as such a divestment was feasible, and all of
[7114]the circumstances that might obtain.
[7115]Of course, the divestiture of these entities did not actually
[7117]occur until 1975. And, indeed, some of the entities still as yet
[7119]have not been divested. Mr. Houston noted, however, that:
[7121]es
[7123]HY 50955 Doelad:324233832 Page 145 —
[7127]We did not disregard that guidance because after
[7128]very considerable use of this asset during the
[7129]early ‘50's, there was a question of whether to
[7130]continue it, and the matter was taken up in the
[7131]National Security Counsel. And Allan Dulles, as
[7132]Director, opposed that we continue the ownership
[7133]and control of the assets of Air America, as it
[7134]then was known including the subsidy as needed.
[7135]And there was a subsidy at that time. It was
[7136]about $1,200,000 per year.*
[7138]This consideration by the National Security Counsel as to whether
[7139]or not to continue to retain this asset and Mr. Dulles' recommenda-
[7140]tion that it be retained occurred in 1956.
[7142]During this period of time the business of the air proprietary
[7143]consisted almost entirely of Agency cargo carriage under contracts
[7144]which were usually using a military designation. The company was
[7145]not organized, according to Houston, to fly common carriage and ~
[7146]had no status in the international air business.
[7148]a) The evidence indicates that during this period of time, there
[7149]were two struggles going on. One was where control should lie in
[7150]the Agency and the other was the policies to be applied to the
[7151]operation of the company itself.
[7153]The struggle within the Agency ranged all the way from
[7154]sort of quiet management discussions as to what was good
[7155]management, to sometimes rather vociferous auguments of
[7156]whose in charge here. And the operators always said,
[7157]‘well, we need to call the shots because it's our operation.
[7158]; And this is what we were running into all the time,
[7160]of red hot operators opposed to what we would consider good
[7161]management. ,
[7163]¥AYfouston indicated that there had been a subsidy running to the
[7164]entities since 1949. "$1.2 million represented about the maximum -
[7165]subsidy given until, I believe, about 1958 was the turning point,
[7166]and from 1958 0n, there was no subsidy as such that went into it."
[7167]The reason for that, of course, was that. the air complex had become
[7172]HY 30955 Docld:32423532 Page 146.
[7174]om
[7177]- 2
[7179]The management of the air proprietary at this time was in the
[7180]OPC structure and was therefore responsive to operations. An
[7182]example of some of the problems which were created as a result
[7184]of this is the acquisition in August of 1950 of the entity.
[7186]Houston was participating in the negotiations. He had been in-
[7188]vited ta do so by Frank Wisner.
[7190]OPC was a curious organization. Determined as being
[7191]attached to the Agency for quarters and rationing
[7192]with policy guidance from State, which was an impossible
[7193]situation. Very nice fellows were doing the negotiating
[7194]with Wisner -- Frank Lindsay and Chad Breckinridge, who
[7195]is now dead. Frank Lindsay has been head of ITEK and
[7196]quite unknown to me, when they made the agreement to
[7197]purchase carrying out the option, they gave the vendors
[7198]the right to repurchase at any time within two years.
[7199]And I thought this was-really inconsistent with our whole
[7200]position. And during the next two years they negotiated
[7201]out that repurchase agreement and in its place substituted
[7202]an agreement to give them a first refusal, if we were to
[7203]dispose of the airline, That first refusal plagued us for
[7204]years. They use to make all sorts of extraordinary claims
[7205]under it and it was never exercised and eventually it was
[7206]sort of forgotten when Chennault and Willauer died. It
[7208]- ran to them personally, whether it ran to them and two
[7209]others personally, and they all are dead now. But this.
[7210]shows a part of the learning curve, which was. thing we
[7211]were going through. It also became clear that the organi-
[7212]zation of the airline was really impossible, it's sort've
[7213]semi~formal partnership with the Ministry of Transportation
[7214]or the Ministry of Communications (of the Nationalist Chinese
[7215]Government) .* ; ;
[7217]That basically describes the preliminary situation from the period
[7218]1950 through 1954. [It was in 1954 that George Doole first came
[7219]onboard as a consultant. Doole and Houston went to the Far East in
[7221]the summer of 1954 to observe the operation. "George went out there -
[7223]"The Nationalist Chinese had by this time retreated to Taiwan, they
[7224]maintained a maintenance base tied to Hainan "Fhe maintenance base -
[7226]at that time was on a LST and a great big steel barge. And we brought
[7228]the LST and the steel barge up to Kiaoshung, and it was really extra-
[7230]ordinary what a maintenance job they did on what was almost impossible
[7231]facilities. I went down and was enormously impressed by the difficul-
[7233]‘ties and how well they had overcome them, ml Jilaysti'.
[7235]HY 50955 Doecld:32423532 Page 147
[7237]rs
[7239]YG |
[7240]. -
[7242]specifically to look at the organization of the Airline.” In this
[7244]regard, it is noted that at the time the Agency purchased the Air-
[7246]‘line it had formed a Delaware corporation to buy it which was first
[7248]called the Airdale Corporation, counsel for which was Brackley
[7249]Shaw. Shaw and Boole were both very concerned about the technical
[7250]organization or lack of it, of the operation. Doole demonstrated .
[7252]to Houston
[7254]to my satisfaction that it was an absolute situa-
[7256]tion and that no-one out there had the slightest
[7258]understanding of the problem or what they were up
[7260]against, or wanted to do anything about it (in terms
[7262]of airline management).
[7263]As a result of this Shaw and Doole planned the organization which
[7264]they thought was necessary for the future of the operation. Hugh
[7265]Grundi was installed as-President of the corporation by the end of
[7266]1954.. Management responsibility internally was given to Lyle Shan-
[7267]non "who was a management type, although he was assigned to the
[7268]DDO, ‘or by that time it might have been the DDP." .
[7270]The upshot of this review by the Agency was that the theory
[7271]of running the airline was that it would be managed by manage-
[7272]ment to be responsive to Operations. "but not managed by Opera-
[7273]tions.” . |
[7275]In order to improve its cover "the Chinese not only were wil-
[7276]ling, but at that time wanted it to be the airline that showed the
[7278]flag of China." . This was done on overt records through Civil Air
[7280]Transport Company, Ltd., which was thé subsidiary of Pacific Corp-
[7282]‘oration. Pacific Corporation held title to 40 percent of the
[7284]HY 0855 Docld: 32423532 Fage 146
[7286]A equity in the corporation and. 60 percent of the equity was osten-
[7287]sibly owned by the Chinese, who gave deeds of trust to the Agency
[7288]'.for their shares. This overt arrangement demonstrated for purposes
[7289]of international law that the company was majority-owned and con-
[7290]trolled by Chinese. The Chinese continued to press the company
[7291]to get into the international common carriage field. The company
[7292]had several DC-4's and began modest operations between Hong Kong,
[7293]Taipei and Tokyo. They graduated to DC-6's, and it was at this time
[7294]that the Agency first got into the question of competition with U.S.
[7295]industry. Northwest was then flying to Tokyo and Seoul and to
[7296]Manila, and was trying to obtain rights into Hong Kong. Don Nyrop
[7297]had noted the Agency's interest ‘in this area when he had been
[7298]Chairman of the Civil Aeronautics Board in the late 1940's and the
[7299]c
[7300]eo; early 1950's. Houston told the Committee:
[7301]He (Nyrop) became head of.Northwest, a very tight
[7302]manager, a very capable fellow, and he used to.
[7303]complain that we were interfering, we were taking
[7304]passengers off his airline, and we would go to him
[7305]and say, we have to keep the airline in this busi-
[7306]ness because the Chinese say they need an international
[7307]airline. They're not ready to start their own yet.
[7308]And it is necessary to its overall cover status as a
[7309]going commercial concern.
[7310]By 1959 Mr. Nyrop was complaining that the Agency was doing too much.
[7311]Finally Nyrop decided: to complain to the Civil Aeronautics Board and _
[7312]the Agency agreed to place it before that Agency for a decision.
[7313]A meeting was held with the entire Board, at which time Nyrop was
[7315]able to make his case "for the fact that he was a private industry,
[7317]he. should not be interfered with by government competition.”
[7319]-
[7321]HW 50955 Doold:32423532 Page 149.
[7323]43
[7324]Ed
[7326]a The Agency explained its situation, the cover need, the Chinese
[7327]pressures, and the fact that they were keeping the carriage to
[7328]what they thought was a minimum that appearances could stand.
[7330]And it ended up by one of the members of the Board
[7332]turning to Nyrop and saying, Don, you ought to be
[7334]glad that you don't have a really good, reliable
[7336]‘competitor in there. He said, If you were being
[7338]competed with by private business, you'd have real
[7340]headaches. You ought to be real glad that it's not
[7342]worse than it is. And that's the end of that.
[7343]Houston conceded that some passengers were going on basically CIA
[7344]planes instead of Nyrop's Northwest planes. The impact, however,
[7345]was minimal. Moreover, the CAB in this proceeding was advised of
[7346]the.dilemma. They did participate in discussions with both the
[7347]Agency and the particular business entity that was making the com-
[7349]4 plaint, and the CAB, after hearing both sides, "came down on the
[7351]4 .
[7353]side of the Agency after making a reasoned qudgment.''
[7355]By this time the airline's commercial international business
[7356]was not making money. A maintenance contract work, which was being
[7357]done at Taiwan, however, was “normally a money~maker , and this was
[7358]primarily, although not exclusively, with the U. S. Air Force."™*
[7359]There were management problems in terms of the maintenance
[7361]aspects of this operation. This originally stemmed from the fact
[7363]* The LST and barge which ‘had previously been used for maintenance
[7364]purposes became inadequate. Therefore the Agency built a plant
[7366]in Taiwan "that is now there but has been recently disposed of to
[7368]E Systems, and a very good plant it was."' E Systems’ role in the
[7369]acquisition of proprietary assets is detailed later.
[7371]oO
[7373]BW 50955 Docld:32423532 Page i560
[7375]that individuals out in the field are not particularly astute at
[7376]costing their contracts. Doole gave excellent advice in this area.
[7377]Moreover, Doole was quick to advise when an operation is bordering —
[7378]on not being responsive to the demands of good management. Houston.
[7379]cited one instance when Doole replaced a controller in the corpor-
[7380]ation who was very able but "had his own ideas of bookkeeping and
[7381]controls." Doole insisted that the corporation put in bookkeeping
[7382]and controls completely consistent with U. s. CAB and FAA prac-
[7384]tices. And of course the maintenance contracts with the military
[7386]i
[7388]|
[7390]were audited constantly by the military audit teams that were
[7391]right in the plant. .
[7392]By this time the Agency had organized an exemption from the
[7393]Contract Renegotiation Board.on the grounds that if the renegotia-.
[7394]tion personnel became too involved in the business, they might
[7395]recognize that this was not 4 straight commercial operation and
[7396]discover ‘the fact that the CIA was involved. The Agency went to
[7397]the head of the Contract Renegotiation Board and got a letter from
[7398]the Department of Defense asking for an exemption on what the
[7399]Agency and the Department considered “perfectly legitimate grounds."
[7400]Indeed, there was a basis for exemption in the Renegotiation Act
[7401]if the business was entirely overseas, which was the case with this
[7402]eirvline. And so, the exemption was granted on! that basis. The .
[7403]Agency was concerned, however, by the fact that it had in principle
[7404]made a type of profit, over 40 percent on these Air Force mainten-
[7406]ance contracts, that might have well have been the subject of re-
[7408]HW S0855 Dackd: 32423532 Page i451
[7410]rN
[7412]go.
[7413]-B-
[7415]negotiation, had it not’ been subject to the exemption. "So the
[7416]question was what to do about it. And.finally, we made a volun-_
[7417]tary repayment against part of the profit on that contract to the
[7418]Air Force."
[7420]As noted previously, the commercial airline aspect of the
[7421]operation was not making a profit and in fact operated mostly at
[7422]a loss. Indeed, there were periods of time when the C-46's
[7423]and C-47's cargo carriers were very busy on either CIA contracts,
[7424]the Korean War, Diem Bien Phu, and other paramilitary aspects.
[7425]There would be periods in between these activities when there was.
[7426]nothing for the airlines to do. Nonetheless, the airline was still .
[7427]saddled with expenses such as crews' salaries and maintenance of
[7428]the aircraft which sat on the ground.
[7430]So George posed, and we finally organized, the stand-
[7431]by contract, which was an apparent military entity on
[7432]Okinawa. It was our entity, but it had a military
[7433]designation. I can't remember the name for it. And
[7434]that entity contracted with Air America for so many
[7435]hours of cargo stand-by to be available any time on
[7436]call, and that they would pay so much for that capa~-
[7437]bility being maintained. . . so that is. how we kept
[7438]the subsidy going to maintain them during periods
[7439]when there was not profitable flying.
[7441]Another area of concern was the question of the relationship
[7442]with the Internal Revenue Service. From the very start, the company
[7443]management was informed that they would be required to pay the
[7444]appropriate U. S. taxes, and while there were the usual business
[7446]arguments about whether certain items were appropriate for taxation
[7448]and whether certain deductions should have been granted, the rela-
[7450]HW 50955 Doocld:32423532 Page 152
[7452]S/
[7455]cs tionship maintained with the IRS was basically a normal one.
[7456]Houston recalled that in the mid-50‘'s the company, Air America,
[7457]‘received a notice that they were going to be audited by the IRS.
[7458]Company officials came to the Agency and indicated that this might
[7459]pose a problem in terms of security. The Agency went to the Com-
[7460]missioner of the Internal Revenue Service and indicated that
[7461]they would like to have the Commission conduct the audit and have
[7462]the audit done by a team on an unwitting basis to see what they
[7463]could find out. “We thought it would be a good test of the secur-
[7464]ity of our arrangements."
[7465]They put a very bright young fellow on and he went in-
[7466]to it. They came up with discrepancies and things that
[7467]would be settled in the normal tax argument, corporate-
[7468]IRS argument, and all of these were worked eventually,
[7469]and then we went to this fellow and said, Now, this
[7470]- was owned and backed by the CIA, the U. S. Government.
[7471]ry
[7472]- What was your guess as to what was happening?
[7473]And he said, Well, I knew there was something there,
[7474]and I thought, what a wonderful asset it would be for
[7475]the Russians to have, but:I came to the conclusion that
[7476]it was Rockefeller money.
[7477]Thereafter, the IRS would be notified if it began to conduct an audit
[7478]on an Agency proprietary, and the audit would be discontinued.
[7479]As the operations of Air America developed the problem of large
[7480]cargo carriers arose. In the. early days of its operation the airline
[7481]was using C-54's, which had an extremely limited range but were able.
[7482]to perform notwithstanding under demanding circumstances. Discussions
[7483]proceeded during that period about modernizing the equipment and
[7484]the Agency, through the proprietary, bought DC-6AB's, a conversion
[7485]of the DC-6, which had large cargo doors installed in it. They,
[7487]2)
[7489]NW 50955 Docld:32423532 Page 153 x
[7491]Gar,
[7492]a
[7494]a) however, did not maintain any jet equipment at that point. This
[7495]cargo system which they developed was getting heavily into a mil-
[7496]itary air transport contract system. The system was first known
[7497]as MATS, and then it became MAC.
[7499]They got MATS contracts, and Air America got these,
[7500]and these were very good to keep a constant utiliza-
[7501]tion at a good rate, the MATS rates were usually good,
[7502]because the policy was not to do competitive bidding
[7503]for the lowest bidder because then you got the poorest
[7504]service, but give good rates to the carriers, and then
[7506]require the carrier belong to the Civil Reserve Air
[7507]Fleet.
[7509]In 1956 MATS changed its policy and required that bidders on
[7510]the contracts to be certificated. Of course, there was no. real way. .
[7511]that Air America could become certificated and so the Agency decid-
[7512]ed to purchase Southern Air Transport. While it was technically
[7513]4. a separate entity, not involved in the Air America complex, it was
[7514]actually an integral part from the management point of view, in that
[7515]all management decisions were centered again in George Doole and.
[7516]the advisory team in the Agency. MAC eventually also decided to
[7517]require that bidders not only have to be certificated, but had
[7518]to have equipment qualified for the Civil Reserve Air Fleet.and
[7519]this. meant jet equipment. . As a result. the Agency went into the
[7520]acquisition of Boeing 727's. Mr. Doole eventually convinced Boeing
[7521]that they should modify the 727 to enlarge the ventral exist, which
[7522]was already in the plane, so that the plane would then have a large
[7523]airdrop capability. Boeing did so modify the plane and it proved
[7525]entirely useful for these purposes. "So the theory was that the
[7527]_
[7529]HW 50855 Docld: 32423532 Page 154
[7531]A
[7537]53
[7538]- ae -
[7540]727's would be used on MAC contracts to be available on an over-
[7541]riding basis if needed for some major national security operation.’
[7542]They were used, usually when they had spare time. |
[7543]To my recollection, they were only called off once,
[7545]off the actual contract time, and this was for a
[7546]possible use which didn't go through. But the White
[7547]House asked if we had the capability to move some-
[7548]thing from here to there, I think from the Philippines
[7549]to somewhere in Southeast Asia, I don't recall, and so
[7550]they sent word to management that they wanted a plane
[7551]available at the earliest opportunity at Clark Field.
[7552]. They pulled one of them off the MAC contract and had
[7553]it available, I think ready to go, in twelve hours,
[7554]all set for the operation. And the operation was
[7555]never called. But it showed what the capability was...
[7556]And what they had to do was get substitute service
[7557]for the MAC contract. ,
[7559]During the late 1960's several Chinese airline enterprises started,
[7560]both of them on quite a small basis, but one of them which became
[7561]CAL had official backing. This occurred while the CIA's proprie-
[7562]tary was still flying under the flag of China. With the establish-
[7563]ment of these indigenous Chinese nationalist airlines which would
[7564]fly these routes, the Agency began to plan ‘reducing its inter-
[7565]national carriage work. It decided it would keep the MAC contracts
[7566]because this did not bother the Chinese. There was in fact no com-
[7567]petition in this area. But plans were started to reduce the inter-
[7568]national common carriage. This Agency proprietary, Civil Air Trans-
[7569]port Company, Ltd., which had been organized in 1954, had the right
[7570]in international air auditing’ to negotiate for air routes. That
[7571]was the entity that therefore did the common carriage. Thereafter,
[7573]Air America did the American contracting, followed on then by
[7575]Southern Air Transport, due to its certification. Southern was
[7577]HW 50955 Docld: 32423532 Page 155
[7579]Et
[7581]a brought on to perform the MAC and MATS contracts with planes
[7582]leased from Air America, which included 727's. Southern Air
[7583]Transport actually owned one 727 and leased two from Air America.
[7585]Houston noted that it was at this time that an internal de-
[7586]cision was made "we probably couldn't justify this major airlift
[7587]with the big jets, and so we started giving rid of them. See, they —
[7588]had no utilization to speak of down in Southeast Asia. A couple of
[7589]supply flights went into India, and I think we used prop planes for
[7590]that, to my recollection.” So the Agency began to phase out. the
[7591]727's. This, of course, led to the decision to divest the Agency
[7592]of Southern Air Transport and eventually of Air America.
[7594]Internal management problems were assisted in 1963 by the
[7595]establishment of an executive committee of the board of directors
[7596]of the Pacific Company, Air America and Air Asia. The overt board
[7597]of directors in New York City passed a resolution organizing an
[7598]executive committee, which included Mr. Doole and two’ other directors.
[7599]Covertly, the Agency put with that executive committee some of its
[7600]representatives. This. resulted in management and the Agency being
[7601]represented on the executive committee of the Board, and permitted
[7602]the viewpoints of management, Agency and the operators to meet in
[7603]this executive committee to consider policies and make actual deter-~
[7604]minations and give guidance to the company. Houston indicated that
[7606]this mechanism was extremely effective in controlling the company.
[7608]HW ROS55 Docld: 324273532 Page i156
[7610]<a
[7612]_
[7614]So I think for the last, oh, fifteen, eighteen
[7616]years, the proprietary management system was on
[7618]the whole pretty effective fromthe Agency point
[7620]of view. I think we knew what was going on. I
[7622]think we were able to get things up for decisions,
[7624]and if we couldn't resolve them at the staff level,
[7626]we would take them up to the Director for decisions; .
[7628]quite different fromthe early days in the early 50's
[7630]that I described, and the operators at least made the
[7632]claim that they had the right to call the tune.
[7634]During this period of time Operations people
[7636]were getting themselves involved in the acquisition
[7638]of aircraft and which were getting awfully damned
[7640]expensive at this time, and separate projects were
[7641]going after some of this expensive equipment without
[7643]consideration of what might. be available elsewhere
[7645]to the Agency by contract or old aircraft. And so
[7646]_the Director of Central Intelligence set up EXCOMAIR,
[7648]of which I was Chairman, and had representation from
[7650]both the operation and management and finance out of .
[7652]the Agency, to try and coordinate the overall control
[7654]and acquisition and disposition of aircraft.
[7656]Indeed, a February 5, 1963 memorandum entitled "Establishment of
[7657]Executive Committee for Air Proprietary Operations," noted that
[7658]the Committee was "to provide general policy guidance for the man-".
[7660]agement of air proprietary projects, and review and final recommenda-
[7662]tions for approval of air proprietary project actions." Houston
[7664]indicated that EXCOMAIR “was sort of an amorphous group" which tried
[7665]to focus on the question of whether it reviewed the needs first and
[7666]then came up with recommendations on the operational solutions, or
[7667]whether the operators came up with a solution and put it through .
[7668]EXCOMAIR. Houston noted that EXCOMAIR ‘worked on a very informal
[7669]basis because "I knew all these people well, and I said. "Let's get
[7671]together and sort these out.''' He indicated that EXCOMAIR was
[7673]BY 50955 DBocld:32423532 Page 157
[7675]SG
[7678]reasonably effective in getting overall coordination. It was re-
[7680]sponsible for making a thorough inventory of all the equipment
[7681]‘that the Agency had in the aviation field, and by and large was
[7682]able to keep track of who needed what and whether an asset was
[7683]available that could take care of a problem without the necessity
[7684]of acquiring a new asset.
[7686]According to Houston, a general shift in thinking at the
[7687]Agency occurred between 1968 and 1972 on the desirability of their
[7688]holding substantial contingent capacity of airlift. The records |
[7689]seem to indicate that Mr. Houston apparently convinced the Director
[7690]in the early 1970's that the capacity should no longer should be
[7691]retained. Houston commented on this assessment as follows: .
[7693]Through what knowledge I had of the utilization
[7695]1% of the various assets, it seemed to me that util-
[7696]igation, particularly of large assets, that is,
[7697]heavy flight equipment, was going down to the point
[7698]where there was very little of it. Consequently, we
[7699]couldn't forecast a specific requirement. Such re-
[7700]quirements as you could forecast were highly con--
[7701]tingent. But I also remember a couple of times ,
[7702]putting the caveat into the Director that with a
[7703]changing world and with the complications in the
[7704]aviation field, once you liquidate it, you could
[7705]not tebuild, and so you ought to think very, very
[7706]carefully before getting rid of an asset that did
[7707]have a contingent capability.
[7709]BY 50955 Docld:32423532 Page 158
[7713]X:_ISSUES POSED, CONCLUSIONS, AND RECOMMENDATIONS
[7715]-eeaenenennenenetentetnte tonto ansunnitanrannennnnpsanpttotetenttattrtr eet rete? TP eCePee Tene eNPRCeRCRe
[7717]The preceding sections provide a general picture of the nature,
[7718]extent, purpose, function and problems of proprietaries. Not unlike
[7719]other areas of our inquiry, the issues raised were not simply black
[7720]and white. They were, rather, grey in nature. During recent years,
[7721]particularly at the time of the Vietnam War, serious questions were
[7722]raised about this proprietary capability. Much of the accompanying
[7723]criticism stemmed from a lack of understanding of their role in the
[7724]scheme of both United States foreign policy and intelligence. Some of
[7725]the criticism stemmed from the suspected entrance of some proprietaries
[7726]into areas where they were in apparent comfétition with legitimate
[7727]business interests, such as the airline industry. It is not unusual
[7728]that there would be misunderstanding since much of what would have
[7729]explained the proper role of these entities had to remain secret for
[7730]innumerable reasons. “But the Committee has not been stymied by that
[7731]same embargo and has had a broad look into these operations.
[7733]In general, these mechanism have been operated with the utmost .
[7734]concern for legality, propriety and ethical standards. What slippages
[7735]have occurred were in the field and generally in the area of air opera-
[7736]tors, not management. Moreover, their use and past expansion was a
[7737]direct result of the demands placed upon the Agency by Presidents,
[7738]Secretaries of State and the policy mechanisms of government. This is
[7739]particularly true of the large air proprietary complex which was used
[7740]to support paramilitary operations in Southeast Asia. The only
[7741]exception to this is the investment-insurance complex which was
[7743]established on Agency initiative to fill a pressing need.
[7745]HW 50955 Docld:32423532 Page 159
[7749]A. An Overview
[7751]Using broad authority under the National Security Act of
[7752]1949, the Directors of Central Intelligence have established
[7753]Government~-owned business enterprises, foundations and quasi-busi-
[7754]ness enterprises ("notionals") to serve a variety of intelligence
[7756]and covert action purposes. Chief among those purposes have been:
[7758]1) Cover for intelligence collection and action projects.
[7759]Commercial firms established in foreign countries have
[7760]in the past and continue to provide plausible reasons for the
[7761]presence of CIA case officers. “Agency- funded foundations (e.g.,
[7762]the Asia Foundation) served as conduits of funds to scholars and
[7763]groups doing research supporting U.S. foreign policy positions.
[7765]2) Extension of Agency influence and. information network in
[7766]-- e.g., an air or shipping firm -- requires banking, insurance,
[7767]and other services that entail support, communications, and inti-
[7768]mate business relationships with the bonafide American and foreign
[7769]commercial world. In turn, this entails at a minimum the clearance
[7770]-and access of outside top management into Agency business; the
[7771]relationship on occasion can entail using the Agency's commercial
[7772]contacts for information or assistance.
[7773]3) Provide supporting services for covert operations.
[7774]In paramilitary operations, airlife and sealift by Agency-owned
[7775]carriers has many advantages -- flexibility, ability to implant
[7776]photographic equipment and other sensors, etc. CIA agents, engaged
[7777]in hazardous business ordinarily uninsurable, can obtain commercial
[7779]insurance at standard or subsidized rates via MHMUTUAL, a conglomerate
[7781]HW 50955 Docld:32423532 Page 160
[7785]of some 26 CIA-owned companies. In country locations where
[7786]physical contact with the nearest CIA’ station is not operationally
[7787]discreet, proprietaries can provide pay outlets and other adminis-
[7788]trative services for CIA personnel and agents. On occasion, firms
[7789]based in locations with permissive corporate laws and regulations
[7790]~~ Liechtenstein, Panama, Delaware -- can engage in many activities
[7791]unrelated to their charters. For example, insurance firms can
[7792]acquire real estate surrounding targeted embassies on a non-attri-
[7793]buted basis.
[7795]4) Actual conduct of covert action. In establishing the
[7796]"radios" (Radio Free Europe and Radio Liberty) in the 1950's,
[7797]CIA acquired a means of directly influencing populations behind
[7798]the Iron Curtain. These, of course, were eventually disposed of
[7799]and placed under the aegis of the Department of State, but related
[7800]enterprises, such as the book distribution program, which had
[7801]operated under radio sponsorship, continued within the Agency frame-
[7803]work.
[7805]5) Outlets for private investment. The Agency would deny
[7806]that this is a purpose of proprietaries. Agency officials state
[7808]that the standing policy is to prohibit the investment of operational
[7809]funds of the CIA into private fields without explicit DCI authoriza-
[7810]tion. Actually, the existence of proprietary enterprises which,
[7812]on occasion, return sizable profits, affirms that private investment
[7813]has indeed been a widespread Agency policy. Moreover, the Agency
[7814]specifically has authorized MHMUTUAL to act as an institutional in- |
[7815]vestor for its own and any other Agency proprietary. So the question
[7817]| really is one of definition and shading.
[7819]HW 50955 Docld:32423532 Page 161
[7823]B. Size of U.S. Financial Stakes
[7825]The size and variety of U.S. Government financial stakes in
[7826]CIA proprietaries has already been described in great detail.
[7827]The attached Table I gives an overview of proprietary income and
[7828]expenditures over the years. Some 450 proprietaries have been
[7829]ereated over the years with 20 presently active (See Table II.)
[7830]The largest sixteen proprietaries received about 80% of U.S. in-
[7831]vestment (i.e., subsidies). Accordingly, most proprietaries are
[7832]shown to be small-scale operations. In many cases -- the so-called
[7833]"notionals" -- the overseas proprietary actually conducts no business
[7834]at all; it simply has a commercial charter, staff, and cover arrange-
[7835]ments for Agency collection and action projects.
[7837]Table I also shows that proprietary income consists of a mixture
[7838]of CIA subsidy and income. In some cases, the outside income is
[7839]from sources outside the U.S. Government income -- e.g., Air America
[7840]has received income for aircraft maintenance of KLM airliners in
[7841]Southeast Asia. But for the most part, proprietary income is in the
[7842]form of "cross-orders," from CIA and other Government Agencies.
[7843]For example, the CIA paramilitary project in the Congo placed orders
[7844]for aireraft engines and pilot services with Intermountain Aviation,
[7845]Inc. As an example of order placed by other U.S. Government Agencies,
[7846]AID contracted with Air America to carry rice shipments in Laos.
[7847]In this sense, many proprietaries are analagous to what are called
[7848]“intragovernmental funds" or "industrial funds" in traditional U.S.
[7849]Government budget and accounting terms.
[7851]Table I shows, and as we remarked previously, that compared
[7852]with earlier years, the size of proprietary expenditures has markedly
[7854]declined. The potential for future expansion is nevertheless present.
[7856]HW 50955 Dacld: 324934532 Page i623
[7860]Indeed, new proprietaries have. been formed within the last
[7861]several years.
[7863]In terms of U.S.. budgetary impact, Table I indicates that
[7864]proprietaries do not add much new capital to CIA available resources
[7865]-- i.e., while they have a very large expenditure level and momentum
[7866]over the years, the “cross-order" phenomenon means that most of
[7867]these expenditures originated in CIA and other U.S. Government
[7868]appropriations and that net profits generated by outside business
[7869]or investment have been relatively small. On the other hand, another
[7870]way of interpreting the figures is to observe that nearly half the
[7871]$1.6 billion gross income of CIA proprietaries has been supplied
[7872]by sources outside CIA.
[7874]. Table II shows the pattern of incéme, expense, and net U.S.
[7875]investment for the twenty largest proprietaries now active, review-
[7876]ing their financial experience in the twelve months preceding
[7878]June 30, 1975, or the indicated reference date. The two biggest
[7879]proprietaries, Air America and MHMUTUAL, are seen to dwarf the
[7880]others, Air America will be phased out by June 30, 1976, ending
[7881]CIA's owned airlift and returning an estimated $20 million to the_
[7882]U.S. Treasury. MHMUTUAL will continue.
[7884]Today, the CIA operates 45 major proprietaries, of which 25
[7885]are in the process of liquidation. The 16 biggest proprietaries
[7886]did a gross total of $4 million business in 1975, compared with an
[7887]average volume of $75 million annually in the heyday period of
[7888]proprietaries, 1967-1973, exclusive of CIA subsidies. On the subsidy
[7889]front, the contrast is equally striking: no net subsidy in_1975 vs!
[7890]$26 million annual subsidy in the 1967-73 period, Put differently,
[7891]if these sixteen biggest proprietaries had operated throughout
[7893]HW 50955 Derlte: 3a9530 lfage pexiod at the level of gross income of all
[7897]kinds realized in 1975 ($4 million), the total gross income would
[7898]have aggregated $116 million. Actually, the CIA reports that
[7899]for this for this period gross income aggregated art $1,606 million.
[7900]| By this measure, CIA's biggest proprietaries are shadows of their
[7901]former selves; their annual gross income of $4 million is about
[7902]one-fourteenth of the average gross annual income of $55 million
[7903]during the 29-year span. Shrinkage would be even greater if these
[7904]figures were adjusted for the effect of inflation.
[7905]The chief impact is decline of the bigger air proprietaries.
[7906]The Agency estimates that of some $761 million of outside income,
[7907]at least $658 million was generated by Air America ($559 million)
[7908]and Southern Air Transport ($99 million), in the period from incep-
[7909]to 1975. As late as 1974, these two airlines were garnering some
[7910]$50 million in outside contracts. With their disposal, total CIA
[7911]proprietary annual outside income in 1975 therefore shrinks to ~
[7912]the cited $4 million level. Most of this residual is represented -
[7913]by MHMUTUAL, the insurance investment complex, where Agency invest -
[7914]ment are generating an outside income of about $3.5 million annually.
[7915]In programmatic terms, this contrast of today and yesterday
[7916]reflects the decline of paramilitary operations in Southeast Asia.
[7917]Large volumes of outside orders by Defense and ALD, along with
[7918]sizable levies by CIA components and some maintenance and passenger
[7919]income from commercial operations, had been generated by a covert
[7920]war. In turn, thése operations had their echoes in Agency air
[7921]support for the Congo, Cuba, and other areas. Looking toward the
[7923]future, will new air proprietaries be established? The CIA thinks
[7925]HY 50855 DBocld:324293532 Page 164
[7929]not -- but the matter is not resolved as discussion below indi-
[7931]cates. Ultimately the program question is whether there will
[7933]be future U.S. involvement in covert wars -- and whether, if so,
[7935]some substitute for ClA-owned air support can meet the operational
[7937]requirements of secure, well-maintained local aircraft in place,
[7939]with responsive schedules and capacity to gather a Limited amount
[7941]of signals and imagery intelligence. The Chief of CSS ventured
[7943]the possibility that third-country assets could be used. Another
[7945]possibility is use of U.S. military aircraft, overtly or "sanitized".
[7946]One thing became clear: CIA sees itself as entering a different
[7948]era of proprietaries. It has rejected the long-held doctrine of
[7950]"stand-by" capability -- i.e., the notion that it is worth investing
[7952]considerable capital and operating resources in airlift, sealift,
[7954]and other assets primarily targeted toward contingency requirements.
[7956]Instead, assert the Agency representatives, CIA is keeping today's
[7958]and tomorrow's proprietaries strictly centered on current operational
[7960]tasks. The test of retention is the utility of a proprietary in
[7962]carrying out assigned roles instrumental in approved Agency projects.
[7963]This concept can be examined by listing the twenty major proprie-
[7965]taries which the Agency says will survive into the post-1976 time
[7967]frame:
[7968]: Latest l2-mo.
[7970]Code Name ’ Earned Income “($000)
[7971]LPBERRY $43
[7972]LPROE/PIKE 139
[7973]PDPORTAL 5
[7975]BASTE ($1,250 subsidy)
[7977]BASIC ( 1,126 subsidy)
[7978]PDLEDGER 102
[7979]PDDYNAMIC 35
[7981]TENURE ($199 subsidy)
[7983]TERRACE € 76 subsidy)
[7985]HW 50955 DBocld: 324234532 Page i654
[7987]7 -136-
[7989]VWCADENZA {( 36 subsidy)
[7990]MHBOUND | € 432 subsidy)
[7991]KMJAGUARO/ JAGGERY 809
[7992]QRMYSTIC/CYNIC ( $10 subsidy)
[7993]WUDIRK : 0
[7994]XIPHOID ($ 191 subisdy)
[7995]BACH ( 50 subsidy)
[7996]KNOX { 50 subsidy)
[7997]LPROCUS 22
[7998]LPBYZAS/8B 2
[7999]LPPANDA 21
[8000]CHAIR/A ( 4 subsidy)
[8001]REMEDY 21
[8002]MHMUTUAL (consolidation of 21 firms) $3,560
[8003]LPSUGAR 34 (plus $35 subsidy)
[8005]The above listing covers only the 20 biggest proprietaries
[8007]which currently operate and which will survive liquidation.
[8009]excludes 25 major proprietaries currently operational but being
[8011]phased out -- such as Air America and other airlift.
[8013]What does the whole picture of currently operated proprietaries
[8015]look like? How many and by what major types?
[8017]The Numbers of CIA Proprietaries, by type,
[8018]as of July, 1974 are:
[8020]a 71
[8021]Operating proprietaries
[8022](includes 21 props. in MUTUAL insurance complex)
[8024]Non-operating proprietaries 38
[8025]Devised facilities 31
[8026]Devised facilities/Notionals ("DFN"'s) 61
[8027]Subtotal, externally registered 201
[8028]Notionals --~ no external registration;
[8029]Identity and financing wholly
[8030]within CIA control 215
[8031]Grand total, current proprietaries 416
[8033]HW 50855 Doeckd: 3243354532 Page 166
[8035]~137-—
[8037]Generally, the notionals have increased in number by about
[8039]30% since the current CCS chief's takeover of Cover operations
[8041]in 1967. This reflects a policy of increasing the number of .
[8042]cutout arrangements to increase security -- i.e., reduce likali- .
[8043]hood of outside discovery of the identity of agents or case
[8044]officers working under cover of the end-point notional by intro-
[8045]ducing intermediate pepeonats for payments or identity backstops.
[8047]What does this ouimi tell us about basic distinctions of
[8048]one type of proprietary from another? First, it indicates that
[8049]external registration divides the pot in half. Those which have
[8050]some form of legal standing with U.S. (State, local) and foreign |
[8051]corporate regulatory and tax authorities are subject to external
[8052]governmental scrutiny. This occasions additonal expense and man-
[8053]power to assure that in all respects this group of proprietaries
[8054]behaves in accordance with local law and commercial expectations.
[8055]The second group -- the notionals -- exist only as names on doors
[8056]and phone directories and stationery, with backstopping for identi-
[8057]fication provided by Agency switchboards, mailstops, and check |
[8058]issuance. . . —
[8060]The next level of distinction is within the class of Legally .
[8061]registered proprietaries: those which carry on a4 commercial in-
[8062]come~ producing operation and those whieh are simply cover arrange~
[8063]ments, with at ‘most a bank account and an attorney backstopping
[8064]calls and mail. The latter are shown in the table above as
[8065]"devised faciltiies" and “DEN''s
[8067]Within the class of commercial, “income--productive proprietaries,
[8069]there is a distinction between those which are wholly dependent upon
[8071]HW 50955 DBocldi324234532 Paye i67
[8073]a“
[8077]CIA income in the form of orders placed and/or subsidies; and
[8078]those which have mixed outside and inside income.
[8080]Even for those with mixed income, it is possible over the
[8081]years to distinguish those which have outside income wholly within -
[8082]the U.S. Government (i.e., a mix of CIA-derived income and income
[8083]from other Government agencies) and those which have both U.S.
[8085]Government income and income from private contracts.
[8087]C. Visibility in the Budget
[8089]Accountability to the President and Congress depends in budget
[8090]review upon the extent to which the Federal agencies’ budget
[8091]review upon the extent to which the Federal agencies' budget re-
[8092]quests provide enough information to make possible well-formed
[8093]judgments. Therefore, Circular A-11, issued by the ‘Office of Manage-
[8094]ment and Budget, prescribes the financial schedules and analytical
[8095]and explanatory supporting data which all Federal agencies must
[8096]provide in their budget submissions, consistent with the Budget and
[8097]Accounting Acts of 1920 and 1950 as amended.
[8099]The Central Intelligence Agency regards itself as subject to
[8100]these prescriptions. The Agency limits its application of this
[8101]principle, however to provision of such A-11 materials as OMB and
[8102]the Congress ask for.
[8104]With regard to proprietaries, this policy has resulted in
[8105]near invisibility of proprietaries in the CIA budget submission.
[8106]Circular A-1l requires agencies to provide schedules and narrative
[8108]' for each public enterprise or intragovernmental fund. The utility
[8110]of such data is to reveal all sources of funding, purposes and
[8112]HW 50955 Docld:32423532 Page 168
[8116]levels of expenditure, and at least approximate indications
[8117]of performance through comparisons of past and proposed funding
[8118]by activity. As applied to proprietaries, the CIA, perhaps,
[8119]should have been providing a whole family of schedules for the
[8120]proprietaries which actually do business (i.e., excluding
[8121]“notionals.")
[8122]Then, there is the question of the program impact of propri-
[8124]etaries. Table I indicates that proprietaries in fact have been
[8125]. heavily involved in CIA intelligence collection and covert action.
[8126]None of this is shown in the CIA budget submission. Yet a bona~
[8127]fide policy review of the budget requires programmatic judgments
[8128]of the necessity and appropriate use of proprietaries in overseas
[8129]areas. °
[8131]The Angolan question has brought into sharp focus the role
[8133]of the CIA's Contingency Reserve. All U.S. aid to forces in
[8134]Angola came from this fund. The only place in the budgets of CIA
[8135]where proprietaries have taken on even a limited visibility is in
[8136]those years when supplemental financing was needed to establish or
[8137]' strengthen a proprietary. The budget then shows, tersely, that
[8138]for a past year or for completed portions of the current years
[8139]that Contingency Reserve drawdowns had been made for such purposes.
[8140]For example, one past budget showed a certain’ amount for "RFE,"
[8141]meaning a subsidy for Radio Free Europe, but providing no justifica-
[8142]tion materials. In turn, this practice reflects the unwritten,
[8143]post-hoc nature of the Contingency Reserve financing process -- in
[8144]effect, an Executive Branch supplemental in which Congress is in-
[8146]formed after the OMB has acted. The budget does not normally indi- ~
[8148]cate Agency intentions to create or establish a proprietary in the
[8150]BW 50955 DBocld: 32423532 Page 169
[8155]budget year ahead. For any other Federal agency, the notion
[8156]of establishing a new publicly owned enterprise without advance
[8157]notice to the Appropriations and substantive committees of
[8158]Congress would be proscribed.
[8160]For the small-scale proprietaries, those which require small
[8161]subsidies to get underway, CIA is able to launch them without
[8162]supplemental financing -- i.e., within its regular budget --
[8164]and, therefore, these remain completely invisible in the Agency
[8166]budget submission.
[8168]D. Some General Considerations
[8170]-a.. The relationship of utility to size: The evidence estab-
[8172]lished a dilemma faced by CIAplanners who recognize that propri-
[8173]etaries can sometimes be most effective operationally when they
[8174]are large; indeed, as in Laos, there can be a thrust toward enormity
[8175]imposed by the very nature of the operation. The dilemma is that
[8176]large size conflicts with deniability: In areas of the world or
[8177]types of activity where there is little commercial appeal or few
[8178]operating commercial firms, where would large-scale enterprises
[8179]get financing but from the U.S. Government? Laotion operations
[8180]actually could not be covered in the end. The experience suggests
[8181]that proprietaries may have limited utility for paramilitary opera-
[8182]tions in the future.
[8184]b. The-factor of competition with private enterprises. Do
[8185]CIA proprietaries of the income-producing. class unfairly compete
[8186]with private U.S. businesses, both with regard to their Government
[8188]financing and their secrecy? Is the utility to the Government of
[8190]HW 50955 Docld:32423532 Page i170
[8192]~1l41-
[8194]such a kind and of such magnitude that CIA proprietaries should
[8195]be retained regardless of their competitive impact? Generally,
[8196]the CIA believes that CIA operating proprietaries do not compete
[8197]with U.S. private enterprise because they tend to do things which
[8198]the latter are not equipped, motivated, or staffed to perform.
[8199]For example, CIA proprietaries purchase weapons and foreign arma-
[8200]ments and technical devices; conduct security clearances; purchase
[8201]real estate; insure uninsurable risks; train foreign policy forces,
[8202]run airlines in remote areas or on commercially unattractive
[8203]routes. Would private enterprise do any or all of these things;
[8204]It is true that private enterprise does a lot of ‘similar activity
[8205]under contract to the Government, including highly sensitive con-
[8206]tracts for CIA in technical intelligence collection and research
[8207]and development. If CIA scrapped its proprietaries and coopted
[8208]private firms, suitably cleared, would this be more desirable in
[8209]“policy terms? In economy? In operational flexibility?
[8211]¢. Relative scarcity of commercial and official cover. The
[8212]continuing push of CIA for notionals reflects the scarcity of U.S.
[8213]Government official cover in many areas of the world, the develop-
[8214]ing desire of U.S. companies not to cooperate. .
[8216]Some question concerning profits have been raised. Does pro-
[8217]prietary profit constitute a significant add-on to the resources
[8218]available to CIA? How is such profit treated in the budget? How
[8219]is it controlled? How can the Congress.(or the President, for that
[8220]matter) be sure that proprietary profits are not siphoned off to)
[8222]accomplish projects not countenanced by the regular CIA budget?
[8224]BW 50955 Docld:32423532 Fage i7i
[8228]First, profits (defined as net income to a proprietary after
[8230]coverage of operating expenses) are relatively small. Even in
[8231]the days when the most profitable air proprietaries were at full
[8232]swing, the most that any single firm netted was $3.9 million (Air
[8233]America in 1967). Over the entire period 1947-1975, total pro-
[8234]fits have been $50 million, an average of about $1.6 million
[8235]annually, for the 16 biggest CIA proprietaries. And in these
[8236]years, a net loss was sustained three times -- $2.5 million
[8237]in 1971, $0.5 million in 1973, and $0.3 million in
[8238]1975. Looking to the future, after liquidation of the air pro-
[8239]prietaries has been completed, there is forecast to be only one
[8240]profitable proprietary: MHMUTUAL a complex of insurance, reinsurance
[8241]and, and escrow-holding companies which derives most of its pro-
[8242]o fit from investment portfolios. MUTUAL's net income in 1974 was
[8243]$1.8 million and this general magnitude of profit is expected in
[8244]the foreseeable future.
[8246]As for treatment in the budget , there is both a policy and
[8247]‘procedural aspect. The policy of CIA has changed; in February,
[8248]1975 the General Counsel of CIA ruled that profits of proprietaries —
[8249]and proceeds of liquidation must be returned to the Treasury as
[8250]miscellaneous receipts and cannot be used to augment the Contingency
[8251]Reserve or otherwise be applied to CIA operations. This ruling
[8252]overturned the practice of the past which, on the few occasions
[8253]where profits were not applied to augment net worth of proprietaries
[8254]--i.e., plowed back into the enterprise or investment portfolios--,
[8256]was to apply proprietary net proceeds to the Contingency Reserve -
[8258]for later release to operations.
[8260]WW 50955 Docld:39493532 Page 179
[8264]The budgetary presentation and review procedures only par-
[8265]tially focus upon proprietary profits. MUTUAL's profits are
[8266]invisible in the Agency budget; they are taken into account and
[8267]. subject to scrutiny only within CIA; operationally, the DDO annual
[8268]operational review has the most detailed grasp of MUTUAL at the
[8269]Agency review levels. A stadard set of public enterprise fund
[8270]schedules, as prescribed by OMB Circular A-11, would he appropri-
[8271]ate for making MUTUAL visible in the Agency budget. Other commer-
[8272]cial proprietaries should show these schedules as well. The
[8273]Agency has indicated that the Comptroller is working with DDO and
[8274]BDA to develop a new style and content of budgetary presentation
[8275]and review procedures for CIA proprietaries in future budgets.
[8277]To what extent can these new procedures prevent abuses of
[8278]proprietary profits? To what extent do they preclude the need
[8279]for legislation in this area? What form of Congressional oversight
[8280]is needed here-- at what point should Congress exert control?
[8281]Improvement of visibility in the budget of proprietary resources
[8282]and provision for review of the major proprietaries as a regular
[8283]part of budget review by CIA, OMB, and Congressional Committees
[8284]would seem to preclude most of the dangers of abuse. On the other
[8285]hand, there is one type of abuse for which additional Congressional
[8286]scrutiny and safeguards may be needed: the possibility of a small-
[8287]scale, high-risk covert project directed by the President or DCI
[8288]which is not covered by the regular appropriation but financed by
[8289]proprietary profits. No foolproof preventives can be designed by
[8290]law: or regulation; nevertheless, the possibility of such abuse or
[8292]avoidance of Congressional review can be minimized by requiring
[8294]HW 50955 Docld:32423532 Page 173
[8297]~L44~
[8299]that all CIA proprietaries have an operational charter approved
[8301]by Congress which forbids launcing activities by proprietaries
[8303]or using their funds which are contrary te the charter. This
[8304]internal CIA standard would probably strengthen the existing
[8305]requirement that covert action projects be certified by the
[8306]President and flagged to Congressional Committees. At present,
[8307]MHMUTUAL has such a charter (not reviewed or set by Congress) which
[8308]restricts MUTUAL to insurance operations. This charter was
[8309]established in 1974 (called an "Administrative Plan") and must
[8311]be formally amended before the Chief of Cover Staff will authorize
[8313]use of MUTUAL resources for other missions.
[8315]D. Private Investment by CIA.
[8317]The authority of the Agency to engage in private investments
[8318]and its general policy ambivalence on this matter already have been
[8319]noted. Two types of general as well as budget issues are presented,
[8320]one the inverse of the other: 1) Could or should CIA engage in
[8321]investments which could accumulate funds outside the budget process
[8322]and hence be available for operations that have not public scrutiny
[8323]outside CIA? 2) Is CIA investment policy too restrictive in regard
[8324]to bank deposits? Specifically, should CIA place large amounts of
[8325]money in private banks without charging interest? Some 20% of its
[8326]annual $1.2 billion of appropriated and advanced funds goes into
[8327]private deposit here and abroad, with year-end balances of about
[8328]$150 million and average deposits considerably greater. The banks
[8329]selected get an interest or investment bonus. Their selection is
[8330]non-competitive, rooted in historic circumstance, albeit in insti-—
[8332]tutions that have shown themselves flexible and responsive in
[8334]WY 50955 DocTd:329493532 Page i74
[8338]providing the Agency services. Much more investigation is
[8340]needed here. and. we encourage the new oversight committee to
[8342]study this issue in greater detail than we have been able.
[8343]Probably this is one area where exclusion of the General Account-
[8344]ing Office from CIA audits has had an unfortunate effect: Whether
[8345]or not there has been abuse, there is no outside reviewer of a
[8346]complex set of financial records and relationships and conse~-
[8347]quently the question of confidence in the Agency's role in this
[8348]area may have been eroded.
[8350]What is the future for proprietaries?
[8352]Discussion on these questions already has been covered in part.
[8353]No new proprietaries are in formation or planned. This past fis-
[8354]cal year, 1975, one new proprietary was created to purchase a site
[8355]for the new Location of the New York CIA base; it serves as a
[8356]real estate holding company or lessor for land and building.
[8358]The main provison for new growth is the plan of some years
[8359]standing for establishment in MHMUTUAL of several corporate "shells"
[8360]-~ legally constituted and registered companies that do very little
[8361]commercial business but which can be adapted to various new CIA
[8362]missions. To adapt to these new missions, as noted, would require
[8363]CIA to amend the MUTUAL Administrative Plan. But this could be
[8364]done quickly; the existence of the shells avoids the leadtime of
[8365]creating new corporate entities, with all the complications of
[8366]local laws and risk of exposure.
[8368]While CIA proprietaries are small today compared with yesterday,
[8370]they are so largely for administrative reasons-~- i.e., responsive
[8372]HY 50855 DBocld: 324293532 Page i175
[8376]to Executive Branch direction. In this sense, there is no
[8378]reason in law, although there may well not be another era or
[8380]set of occasions when CIA will find proprietary expansion to
[8382]be operationally desirable. The Congress should be a partner
[8384]in the process of reviewing such expansion, if it should occur,
[8386]by providing for changes in the charter process. Another approach
[8387]is the setting of substantive guidelines for proprietary operation.
[8388]This approach is typified by the post~Katzenbach guidelines that
[8389]prohibit CIA operation of tax-exempt foundations.
[8391]Lawrence R. Houston, the former General Counsel of the Agency,
[8392]was intimately involved with all of the proprietaries for his
[8393]entire tenure with CIA. Consequently, his views have been invalu-
[8394]able to the Committee in reviewing and evaluating the history
[8395]and the role of these mechanisms. In the course of a far-ranging
[8396]interview with the Committee Houston concluded that proprietaries
[8397]“should be the last resort for use to backstop Agency activities."
[8398]He grounded this opinion on the fact that:
[8400]they are cumbersome. To be properly run they take’
[8401]many, many man-hours of many, many different parts of
[8402]the Agency, so they are expensive in man-hours. There
[8403]are built-in difficulties in running what appears to be
[8404]a normal business for operational purposes. There's
[8405]really a built-indichotomy there that leads to a contin-
[8406]ual conflict with policies. And due to the number of
[8407]people involved, there is a security problem on the
[8408]old grounds that security doesn't go by the mathematical
[8409]increase in the number of people. It goes geometrically
[8410]as to the number of people, the security risk.
[8411]This assessment seems correct based on all the evidence.
[8412]The current Director of Central Intelligence has insisted on
[8414]the streamlining of such operations, and is keenly aware of the
[8416]potential for abuse. (See appendix F). It is, for example,
[8418]MW 50955 Docld:32423532 Page 176
[8422]the current written policy of the Agency that "to the degree that
[8423]domestic proprietary or cover companies are required, a clear
[8424]justification will be developed as to the relationship of their
[8425]support of our overseas operations."
[8426]In the one area of continuing large-scale activity, the
[8427]investinent complex, the Director has moved to insure propriety
[8428]even in an area where there is no evidence that any illegal con-
[8429]duct has occurred. The current policy, established as of
[8430]June 1975 is:
[8431]Project MHMUTUAL will be operated in conformance with
[8432]appropriate legal restrictions, Arrangements are being
[8433]made for the briefing of the appropriate Congressional
[8434]committees. Particular attention will be given to
[8435]avoiding any possible conflict of interest situations
[8436]with firms with which the Agency has contracts. Parti-
[8437]cular concern will also be exhibited over possible
[8438]improper influence on the stock market or stock dealings
[8439]through the investments involved in MHMUTUAL.
[8441]The Committee is mindful of the potential danger inherent in. such
[8443]operations. Therefore, it recommends that the review of this
[8445]and other similar projects by the appropriate oversight Committees
[8447]be stringent in the extreme.
[8449]The disposal of proprietaries has also generally proceeded
[8450]along legal and ethical lines with more than due concern for con-
[8451]flicts of interest. Most notable in this spectrum of actions was
[8452]the degree to which the Agency tried and did in fact avoid any
[8453]conflicts of interest when it sold off Southern Air Transport.
[8454]Such internal vigilance no doubt should and will continue. More-
[8455]over, with the establishment of . permanent oversight committee,
[8456]the CIA's job in this regard will be made easier because it will
[8458]be able to report on its dealings on a regular basis and avoid
[8460]criticism.
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[8678]Me morandum of. Law
[8680]Legal Authority to Dispose of a Proprietary
[8682]January 1974
[8684]Annex A_
[8687]DOES HE CIA POSSESS THE LEGAT AUTHORITY
[8688]- TO SELL A WHOLLY-OWNED GOVERN-
[8689]MENT AIRLINE WITHOUT RE COURS ETO
[8690]THE PEDERAL PROPERTY AND ADMINISTRATIVE.
[8692]RECE
[8694]many sensitive Support activities
[8698]the de ‘facto c owner of the corporations.
[8700]still a classified fact.
[8701]in support of
[8703]impossible if United State
[8705].
[8707]admitt
[8709]i : corporation i
[8711]i
[8712]ay
[8714]mW 50955 DocId:32423532 Page 18 “3 “
[8715]ge 132 — CNB T +
[8717]ERO M SERVICES ACT OF 1949, AS AMENDISD ?
[8718]Mer 90.1505 o gy | PACTS
[8719]~ There ex sist two airline corporations wholly ovned by the a
[8721]United St ates Government, which corporations were purchased by, and
[8723]tles in the furtherance of the national security
[8725]the Central Intelligence Agency on behalf of the United States Government
[8726]* Notwithatanding, that ownership
[8727]The activities and missions of these corporations
[8728]£ the national securt ty of the Uni ted States would have been
[8730]Ss Goverament ownership had been offic ially
[8732]ted. Within this context it is the statutory responsibility of
[8734]are undex the dixect c control of, the Gentral Intelligence Agency. Owners
[8735]“of the corporations was acquired by means of appropriated fonds Expendea
[8736]“by the Agency under its confidential funds authority, the procurements ‘thus
[8738]being made outside Of the Federal Property and Administrative Sexvices
[8740]Act. Both corporations were created by the Agency to assist st in fulfilling
[8742]its statutory responsibilities and, ever the years, both have engaged in .
[8744]Sa.
[8746]of the United: States. Jt has been widely weported ip wnclassiticd media ‘that
[8750]is.
[8752]of Central Intelligence to protect the overt commercial posture of these
[8754]and the classified nature of certain of their activities.’ Now -
[8756]the Director has detecmined that the corp poration s axe no longer weauired .
[8758]* . . . :
[8760]by the Agency in the discharge of its responsibilities; that they axe excess
[8762]to Agency requirements, and he has directed that they be disposed of
[8766]either by sale or liquidation.
[8768]co To UL, STATUTES oe
[8769]‘The F Federal Property and Administ rative Services Act of 1949,.
[8773]vas amended, (20. U. S. C. A. 47L et seQ-> her zeinafter referred to as the
[8775]Bet) is in general the controlling statute insofar as ‘Government’ property
[8777]“as s procured, used and disposed oft. 3 - oo ve
[8779]It is the intent of the Congress in enacting this — 7
[8780]legislation to provide for the Government an economical |
[8781]and efficient system for (a) the procurement and supply
[8782]_of personal property and nonpersonal services, jncluding
[8783]: . *° yxelated functions such as contracting inspection, storage, ©
[8784]; 3ssue, specifications, property identification and classifi-
[8785]“+ gation, transportation and traffic management, ‘esteblish-
[8786]ment of pools or systeras for transportation of Government
[8787]personnel and property by motor vehicle within specific
[8788]areas, management of public utility services, repairing
[8789]-and converting, establishment o£ inventory levels, establish-
[8790]ment of forms and procedures, and representation before -
[8791]. Federal and State regulatory bodies; (b) the utilization of ,
[8792]available property; {c) the disposal of surplus property; and
[8793](d) records management. 40 U.S.C.A. 471. |
[8795]As an executive agency, tue Central Intelligence Agency is within the purv
[8797]of the Act (40 U.S.C.A. 472; 481), but along with 4 number of other agenc’
[8799]and activities, it wad cxomnpted trom | the” Act:
[8801]Re FRO Congress, departments, agencies, corporations
[8802]i beet :
[8803]po Moa. persons exempted from provisions
[8805]| CCE go ists | 4
[8807]“EW sopss Docld: i Ag425532 Page 183
[8809]Bap mee
[8811]H
[8812]1
[8814]HW 5095:
[8816]; Nothing in this Act shall impair or affect any *
[8817]- authority of a,
[8819]- he
[8820]we: . one
[8822]_ (17) the Central Intelligence Agency; - +.
[8823]40 U.S.C. A. 414(17). |
[8825].
[8826]a
[8828]The Act's legislative history provides an insight into the breadt
[8830]of the exemption and, to a limited dégree, Congress’ intent for giving it.
[8831]; Special exemptions from the act.-—-This subd- >
[8833]‘ "section exempts from opexvations under the acta
[8834]number of ectivities requiring special treatment.
[8835]Chief among. these are programs for price support,
[8836]stabilization, grants té.farmers, endforeignaid; | a
[8837]procurement procedures under the Armed Services oe
[8838]Procurement Act of 1947...3; the stock-piling of ©
[8839]critical materials; the national school lunch program;
[8840]the Housing and Home Finance Agency ‘With respect
[8842]‘to the disposal of residential property; the Atomic
[8844]Energy Commission; and the Gentral Intelligence
[8846]Agency. a
[8848] ‘Ttis not intended by these exemptions that those oe
[8849]. administering the agencies or programs listed shall
[8850]be free from all obligation to comply with the pro- | °
[8851]visions of the act or from all jurisdiction of the rn
[8852]Administrator. On the contrary, it is expected that ——-
[8853]they will as far es practicable procure, utilize, and
[8854]dispose of property in accordance with th
[8855]of the act end the regulations issued thereunder,
[8856]so far as common-use items and adminis~
[8858]particularly
[8859]_- trative supplies are concerned, Likewise, it is intended
[8860]that the Administrator shall have full authority, with
[8862]agencies ox programs mentioned, .to
[8864]@ provisions
[8866]. respect to the
[8867]sy FROA ake surveys of, and obtain reports on, property and
[8868]PY xoperty-management practices, to cooperate in tee
[8870]establishment of inventozy levels, and to repoxt
[8872]REG:
[8874]OCF an I ae “th the otovist
[8875]excessive stocking, in accordance with the provisions
[8876]OA cof section 206 (a) (i) and (2).
[8878]JG . and
[8881]DoclTd: 32423532 Page 164 : On Pact : . 7
[8882]wbates ie i)
[8884]i
[8886]t
[8887]i
[8888]A
[8889]i
[8891]a . oo
[8892]One axthority o
[8894]of the two airline corpora
[8896]or ES SS ieee oc itn
[8897]ear
[8899]En other words, to the extent that complia once with
[8900]the act and submission to the Jurisdiction of the .
[8901]‘Administrator will not so ‘impair or affect the authority!
[8903]TT... Sar Salar NA ARINSOIE: TAENESN PUSAN S
[8904]of the several agencies to which the subsection applies
[8906]as to interfere with the operation of their programs, the
[8907]act will govern. Any disputes that arise can be scttled
[8909]by the President under the authority to prescribe policies
[8910]and directives vested in him by section 205 (a). U.S. Code
[8911]Gongressional Service, 1949, Vol. 2, Ps 1504, (emphasis
[8912]added) - ; Doe red _
[8914]7 as = +
[8915]y bs Central Intel ices e As ency which complete’
[8917]Ay
[8918]eh
[8920]application of the Act would "impair or affect" is clearly, the, Agency’ S. °
[8922]“authority to expend confidential funds.
[8924]The sums made available | to the Agency may
[8925]be expended without regard to the provisions of law a
[8926]and regulations relating to the expenditure of Gov ern-
[8927]ment funds; and for. objects of a confidential, extra-
[8928].. ordinary, or emergency nature, such expenditures to ”
[8930]2 - be accounted for solely on the certificate of the Director
[8931]and every such certificate shall be deemed a sufficient, —,
[8932]voucher for the amount therein certified. Sec, 8(b),
[8934]- CIA Act of 1949, as amended; 50.U. Ss. C.A.. (4033 {0)~
[8936]The CIA Act of 1949 (63 Stat. 208, &- Le 81- 110) became cttective June 20,
[8937]19495 the Act (63 Stat. 378, P. ome 81- 152), Suty 2° 1949. . - ae
[8938]whe question of law thus presented ist in selling anda dis spOs sing
[8940]ations, must the Ag ency adhere! to the Act and
[8942]submit to the jurisdiction of the Administrator, General Services
[8944]“Administra! ion? oy re
[8946]ol £90 18 oe 4 7 :
[8948]50855 Docld:32423532 Page. 185 /\ | f\ . oO eroney
[8950]it. ARGUMENT —
[8952]“(he braad authority afforded the Agency by Section 8(b), supra)
[8954]-is conclusive—'(iyhe sums made available to the Agency may be expended
[8955]- without. regard to the provisions of law and regulations relating to the ©
[8957]expenditure of Government funds; ...." . That authority is enhanced, not.
[8958]fe limited, by the Act—"{N)ot shall impair ox affect the authority of—...
[8960]ne Central Intellig gence Agency" and by the Act! ts legislative history. Te
[8962]. follaws naturally that the Agency's authority to procure ona confidential,
[8964]i basis without recourse to the Act inherently carries with it the authority :
[8965]t Loe
[8969]_to dispose on a confidential basis without recour se.ta ‘the Act. _By way of ©
[8971]or
[8973]an extreme hypothetical, suppase the Agency had procured a -Saviet
[8974]weapons system, without Soviet knowledge. ; Using Section 8(b) authority,
[8976]. it had expended funds through a secure facility for the procurement and”
[8978].
[8980]brought the system to this country where it was studied andtested. By
[8982]virtue of the testing the Government was able to develop electronic counter
[8983]. : : “- . . :
[8984]measures which would effectively puny t the system. Upona  determinatio:
[8986]that the system is of no fart ner use, can it t be seriously argued that its
[8987]disposition by the Agency should be anything other than confidential? The
[8988]purchase was confidential; possession of it by the United States Government
[8990]‘wag confidential; and, the knowledge gained and the countermeasures
[8992]developed are confidential, To hold ose siige ¥ would. rendex't the intended
[8994]purpose of Section 8(b) a nullity. Re ) FROM
[8995]‘ | 7
[8996]OG} s!
[8997]ecnnep SS
[8998]955 Docld:32423532 Page 186 Smee
[9000]PLA
[9002]_
[9003]we
[9005]4
[9007]ne _ The short expression of Congressional intent found in the Act!:
[9009]legislative history suppoxts the view that the Agency's activities in the
[9011]confidential funds area are not within the purview of the Act. "As far’as
[9012]pr racticable. 3 Procaxements ‘useand disposition should be '...in accord:
[9014]“with the provisions of the Act... -parbiculaxly so far as common-use items
[9016]‘and administrative supplies are coné vemned.' vt is suggested that. ‘a Gover:
[9018]ment-owned, but overtly commercial, ‘Sirline used in support ‘of foreign
[9020]Sntelligence activities does not fall within a lgommon-use items and .
[9022]1
[9024]‘administrative supplies categorization. Similarly, Gf the last paragzeph.
[9025]of legislative history (emphasized 1 portion quoted above is xead in the
[9026], nekative, the proposition becomes clear. 7 m oe rye act wi will, _ fnot) . 7
[9028]7 govern. - “Gh. . - “compliance with ere “ and msbigaton to the jurtediesto
[9030]of the ‘Administrator will...
[9032]hampair or affect the authority! of the several
[9034]agencies to which the subsection applies : as to interfere with the operat tio
[9036]of their programs. weet! Were the Agency required ¢ to  corhply with the .
[9037]Act and submit to the jurisdiction ¢ of the Administrator in the exercise —
[9039]not only would that author rity be impairxe
[9041]of its confidential funds authority,
[9045]aa _ : _ : a 7 : . Oe ses ae -
[9046]ox affected, but many of the Agéncy's most significant statutory authori tie
[9048]=e .
[9050]ané responsibilities would be frustrated.
[9052]LO 7 , .
[9053]_ Uh ani — SENDET oo
[9054]i , -
[9056]Ay)
[9058].
[9059]HY sobs5 Docla: 32423542 { Hhge 187
[9062]1
[9063]i
[9065]Lf.
[9067]“In looking at CIA's express authority to procure on a confidenti.
[9069]basis and examining the nature of its implied authority to dispose, genera
[9070]— . . .
[9072]statements on the rules of statutory construction are helpful. For’
[9074]example: | :
[9076]Where a statute confers powers or duties in
[9077]general terms, all powers and duties incidental and
[9078]necessary to make such legislation effective are
[9079]included by implication, Thus it has been Stated, tAn |,
[9081]+ express statutory grant of power or the imposition of.)
[9082]a definite duty carries with it by implication, inthe ~~
[9083]absence of a limitation, authority to employ all the -
[9084]means that are usually employed and that are necessary |
[9085]to the exercise of the power or the performance of the =, ..« --
[9086]duty... . That which is clearly implied is as mucha 9 J
[9087]7 paxt of 2 lan 2 as that which is ex pressed. ! ae
[9089]The xule x whereby : a stahite is, by necessary a
[9090]implication, extended has been most frequently :
[9091]_.. .. . applied in the construction of laws delegating powers
[9092]‘7 to public officers and administrative agencies....
[9093]Thus where the power to create an office is granted,
[9094]the power to abolish it will be implied, and where an
[9095]administrative body is given power to enact xegula tions
[9096]or exercise quasi-judicial power, the power to provide
[9097]for internal rules of procedure will be implied. -.. The 7
[9098]power of a municipahty to sue and be sued was held to
[9099]imply the power to employ special counsel f for those pur
[9100]poses. although the city hada regular salaried attorney.
[9101]A municipality, empowered by statute to construct sewers
[9102]for the preservation of the public health, interest and
[9103]convenience, was permitted to construct a a protecting wall
[9104]and pumping plant which were unnecessaty for the proper
[9105]_ working of the sewer, but were ‘essential to > public health.
[9106]Sutherland Statutory Construction § 5402. ;
[9108]ah
[9110]pp Ry FE ); ee re
[9111]d 20M 4 oo -
[9112]ULI 80 1975 | Srppry .
[9114]HW 54955 DocId: 32423532 Page fiep . — oo .
[9115]? at . oe
[9117]Similarly,. — : a so oo,
[9118].-. (I)t has been held that an express statutory a 7
[9119]‘grant of a right, power or privilege, carvies with it 7
[9120]by implication, in the absence of a limitation, alk ee :
[9121]‘the means that are usually employed.and that are _
[9122]necessary and proper to the exercise or enjoy maent
[9123]of the right, power or privilege granted. In such le
[9124]case, the power necessarily implied isa par xtof cots
[9125]the legislative act. There is even authority in . ot
[9126]support of the rule that powér in a statutory g erent
[9127]may be implied although it is not indispensible. to : Joe.
[9128]the exercise of the powers granted...._ 50 Am. Jur., a : 7
[9130]Statutes $428.00 A
[9132]: Cases which speek to the subject of implied statutoz xy powers,
[9134]‘are abundant. ‘Tn Schmiedigen Vv. Gelebrezze, Judge Holt zoft held that: . .
[9136]Mijtis a . well established principle of statutory construction that every
[9138]legislative enactment must receive a ‘sensible and reasonable ; constructior
[9140]Ifa strict, Literal iitenpeetatioa v woul
[9142]that would ef fectuate its purposes.
[9144]frustrate the objective of the legislative body and vould lead to an absurd
[9146]or futile result, it must “be avoided." 245 Fe Supp-, 825, “827 7 (1965). Th
[9148]. U. S. v. Jones, where a statute gave federal officers the power, to enforce
[9150].
[9152]compliance with the law but was . silent on the power to arrest the court
[9154]stated:
[9156]So, though the texra arrest is not ‘used in the’ a
[9157]statute, the lenguege employed necess axily impties .
[9158]oye that such power was included, o
[9160]wa soit Oo 8
[9162]oa mo, A:
[9163]HY 50955 DoclId:3 thd Page 1869
[9165]. Necessary implication refers to a logical Se
[9167]necessity; ic means that no other interpretation - 7
[9168]is permitted 1 py the words of the Acts construed; -
[9170]‘and so has been defined as an implication which
[9172]results from so strong a probability of intention.
[9174]that an intention contrary to that imputed cannot be
[9175]supported. The term is used where the intention
[9177]with regard to the subject matter may not be mani- .
[9178]fested by explicit and direct words, but is- ‘gathered . —_
[9179]by implication or necessary deduction from. the. . Jes
[9180]cizcumstences aud the general language. SB tt
[9182]. ° . . a
[9183]. '
[9185]Consequently # that which 4 is implied in a statute is.
[9186]as much.a part of it as that which is expres ed,
[9187]for a stal utory grant of a power carries with it, :
[9188]by itaplication, everything necessary tocarry ==. ce
[9189]‘out the power and make it et ffectual and complete. Se
[9190]204 F.2d 745, 754 (1953 3); certiorari denied, a
[9191]98 L. Ed. 368; rehearing denied, 98 L. Ed. 404,
[9193]we CONCLUSION
[9195]i ; Adherence to > the Federal Px opexty and Administrative Services
[9197]“
[9199]Act in disposing of the two airline corporations svould do far more than
[9201]impair ox ‘affect Agency programs. it would endanger t the national security
[9203]which the statutory uthorities available to the Agency were designed to"
[9205]_ protect. The Central Intelligence Agency, ‘pecause of the unique stetutory
[9207]ae “UC an Hany ig
[9209]GHA | ! : |
[9211]HY so! 55 DoclId: 32423532 Page 190
[9213]cee ee leer te ne eee EEE ge tg
[9215]HG 0943 Bocld:324273532 Page 191
[9217]8 sepRer —
[9219]jrplied power to o dispose of £ property confidentially without 2 recourse to tr
[9221]a
[9223]grant provided it in Section 8(b) of the CIA Act, and because of the unique
[9227]mature of its statutory responsibilities, possesses both the express powe:
[9229]we, . Loe -
[9231]“to! y procure property confidentially without recourse to the Act and the
[9233]Gary M. Breneman_
[9234]- Assistant General Counsel
[9235] Centrabintelligence Agency
[9237]Qeb ae 1935
[9239]HR 230-8 and HHB 230-1
[9241]- Concerning Regulation and Administration
[9243]of
[9244]. Agency's Proprietaries
[9245].
[9246]|
[9248]i
[9249]i
[9250]4
[9253]; ny 4 mM . .
[9254]4 Gah ; .,
[9255]HW 509b5 ‘Docld:32423532 Page 192
[9257]7
[9262]ee PLANS, PROGRAMS, AND PROJECTS HR 230-8 |
[9263]8. ADMINISTRATIVE PLANS, LIQUIDATION PLANS, AND FISCAL
[9264]ANNEXES
[9265]. GENERAL |
[9267]“ay In the ‘furtherance of some Agency objectives it is necessary to establish,
[9269]affiliation with the U.S. Government. These ostensibly private organiza-
[9270]tions which may be susceptible to scrutiny by a variety of tax and regula-
[9272]managed in accordance with normal practices and requirements of the
[9273]type of enterprise concerned, and that they are staffed with qualified
[9274]personnel whose cover histories are compatible with such employment.
[9275]“It is also essential that there are adequate general management, financial
[9276]and security controls consistent with both operational effectiveness and
[9277]the requirements ot nonattribution, for the protection of the Agency's
[9278]interests.
[9279]- (2) The controls and procedures which -are applicable to an instrumentality
[9280]ie will be specified in a project outline and administrative plan or fiscal
[9281]annex. Standards and format for administrative plans and fiscal annexes,
[9282]“as well as for liquidation plans to be followed when an instrumentality is
[9283]to be discontinued, are prescribed in HEB 230-1, ,
[9285]b. “POLICY : : . .
[9287]. when it contributes to the accomplishment of the Agency’s mission and
[9288]js operationally determined to be the most advantageous means of gaining
[9290]‘shall be to conduct secret operations or support such operations under
[9291]ce cover of its overt function.
[9292]_(2) No binding commitment with respect to the establishment of any in-
[9293]’.  strumentality shall be made before the approval required by this regu-
[9294]lation has been obtained. - .
[9296]¢. DEFINITIONS .,
[9298](1) PROJECT. “A project is a management device through which specific
[9299]operational activities are undertaken to meet programmed objectives.
[9300]Budgeting and financial accountability are maintained against ‘the project
[9301]for funds and resources authorized for it.
[9303](2) INSTRUMENTALITY. An instrumentality isa corporation, a foundation,
[9304]partnership, sole proprietorship, or other legal entity (within the private
[9306]have been authorized under a formally approved. Project. Within a Project
[9308]there may be one or more instrumentalities.
[9310]e= (3) Proprietary. A proprietary is an instrumentality In which ‘the Agency
[9311]-acquirés ownership of a controlling Interest, through appropriate
[9312]nominee or legal entity arrangements. The Agency exercises, through
[9313]stockholder or other equity arrangements, control of the instru-
[9314]‘mentality in terms of the policy, administration, formulation of
[9315]budgets, and the application of funds. -
[9317](b) Operational Investment. An aperational investment Is the acquisition
[9318]by the Agency of an equity in an instrumentality, through appropriate
[9320]ment. Any influence the Agency may exert over budget formulation and
[9324]“Revised: 1 August 1969 (464)
[9326]i GiOUP 3
[9327]: Eadluded from automatic
[9330]SECRET declauiScation
[9331]UUI-g0 1875 Se ; Sg
[9333],
[9335]4
[9336]HW “sobs poor sdapiass2 Page 193° : - oo
[9338]opetate and support overt Instrumentalities which do not have ostensible -
[9340]tory authorities, the press, hostile elements and others, require operational
[9341]security of a high order. It is essential that they are established end
[9343](1) The establishment or “continuance of an instrumentality is justified only _
[9345]a particular and necessary objective. The purpose of an instrumentality -. .
[9347]sector, domestic or forcign) for which specific; funds or other assets _
[9349]nominee or Jegal entity arrangements, of less than a controlling
[9350]interest, with.the expectation of recovering some or all of its invest-.
[9352]errr an er eee .
[9353]+ rater -
[9356]ws SECRET | ot
[9358]the application of funds ls a matter of negotiation. (NOTE: Operational
[9360]and chapter IX of HHB 30-1.)
[9362]in the asscts nor right of participation in either the income or
[9364]_ excluded from this definition.) There are two types of subsidy:
[9365](2) Controlled. A controlled subsidy involyes suppart of an instru-
[9367]and which fs therefore largely dependent upon such support. To
[9368]through the formulation of budgets, the requirement for financial
[9369]talities, proprietary regulations will be applied to the proprietary
[9370]instrumentality. . :
[9372]i
[9374]instrumentality. to which negotiated fixed-sum incentive. pay-
[9376]the exercise of discretion over expenditures are at a point es-
[9377]sentially beyond Agency control Evaluation of performance is
[9379]i
[9381]amount of the fixed-sum payments. :
[9383]instrumentality is used to fund or payroll Agency activities when, for
[9384]: “through an overt mechanism. The Agency has legal or beneficial owner-
[9386]’ nominee or Jegal entity arrangements. Although these instrumentalities
[9387]are proprietaries, they operate under special authorizations that may
[9389]" HEHB 230-1.
[9391]programmed operational objectives, Upon approval by appropriate au-
[9392]thority it becomes the framework within which the project is implemented
[9393]” - and its effectiveness initially evaluated. 7 . To, .
[9394]' (4) PROJECT RENEWAL. A project renewal is the approval after evaluation
[9396]" by appropriate authority for continuation of a project beyond the period
[9398]aes update or supersede certain provisions of the project outlines ~ .
[9399]-(5) ADMINISTRATIVE PLAN. An administrative plan is a supplement to
[9400]- .the project outline which upon approval by aporopriate authority consti-
[9402]_ tutes the administrative framework within which the instrumentality is
[9404]-- yegulation and HR 230-9,.in the management of project instrumentalities,
[9406]controlled subsidies. ~ ; . ;
[9408]TERMINATION. Termination is the discontinuance of a project or an
[9410]- §nstrumentality, upon written approval of the Deputy Director or Head
[9412]- - of Independent Office concerned. a .
[9414]' (7) LIQUIDATION. Liquidation is the settlement of accounts of an instru-
[9415]_ rnentality, the final disposition of its remaining assets, and dissolution of
[9417]the instrumentality.
[9419]“Revised: 1 August 1959 (454)
[9421]WW “secret
[9425]pe HR’ 230-8c(3) a "PLANS, PROCRAMS, ANL_2ROJECTS.
[9427]loans shall be handi!ed in accordance with provisions of HR 30-9 .
[9429](c) Subsidy. A subsidy is the contribution of funds or materiel to -an-
[9430]instrumentality by the Agency, with the Agency acquiring no equity
[9432]the profits of the entity. (Payments to foreign Halson services are _
[9434]mentality whose income is primarily derived -from Agency funds .
[9435]the extent that the Agency is able to exercise control it does so.
[9436]accountings, and the application of funds. Where a project consists _
[9437]of a combination of separate subsidy and proprietary instrumen- ¢
[9438](2) Noncontrolled. A noncontrolled subsidy involves Support of an.
[9440]ments of Agency funds are made, but budget formulation and -
[9442]a matter of operational judgment, not-necessarily related to the
[9443]= (a) Funding and Payrolling Instrumentalities. A funding or payrolling —
[9444]". yeasons of security or cover, funding or payrolling must, be accornpushed
[9446]ship of a funding or payrolling instrumentality through appropriate ©
[9448], 7 a vary substantially from the requirements of this regulation and .
[9450]. - (3) PROJECT OUTLINE. A project outline is a written plan for accomplishing -_
[9452]- = ="covered by its initial approval or previous renewal, -The renewal may ane
[9454]- to operate. To that extent it replaces all Agency regulations, except this -
[9455]a. their internal activities and non-Agency employees..An administrative | ~
[9457]<< plan is required for all projects establishing and utilizing proprietaries, —
[9458]- operational investments, funding and payrolling instrumentalities, and
[9460]chem WI
[9463]7 prans, PROGRAMS, AND PROJECTS “AR 230-8d_
[9465]“@) DEACTIVATION: Deactivation Js the ‘discontinuance of. the. functioning
[9467]. Of an instrumentality, with the charter or franchise retained bub in an
[9469]-" inactive status, pertding determination as to Mauida von or reactivation of
[9470]the instrumentality,
[9472]e”. (9) LIQUIDATION PLAN. A liquidation plan prescribes the: procedures for
[9474]: implementing ‘a properly authorized operational decision to terminate
[9476]_the Agency's active use of a specific instrumentality and to dispose. of
[9477]the. Agency's portion of the assets. An approved, plan is required for
[9478]liquidation of all proprietaries, operational investments, and’ controlled
[9479]subsidies with proprietary aspects. No liquidating action will begin until
[9480]the liquidation plan has been approved.
[9482](10) FISCAL ANNEX, A fiscal annex is a supplement to the project outline |
[9483]that sets forth funding arrangements, specific accounting control, ‘tle:
[9484]nancial reporting requirements, and writeoff provisions. A fiscal annex -
[9485]‘is required for all noncontrolled subsidies. ; -
[9487]‘ad. AUTHORITIES: AND RESPONSIBILITIES
[9489]a ‘Q) AUTHENTICATION OP ADMINISTRATIVE PLANS, LIQUIDATION PLANS, -
[9490]mo, » AND FISCAL ANNEXES, (HEREAFTER CALLED SUPPORT SUPPLE--
[9492]MENTS) .
[9493]7 fe (a) The joint approval ‘of the Deputy Director having 2 jurisdiction over
[9494]. . the project and the- ‘Deputy Director for Administration is required for
[9495](2) establishment, deactivation, or reactivation of an instrumentality;
[9497](2) all support supplements and amendments thereto, including spe-
[9498]4 cific deviations because of unforeseen or emergency conditions;
[9500]oe (3) transfer between projects of any instrumentality and remaining
[9502]8 om assets.
[9503], r , €») Advances of funds to an n instrumentelity before approval of the related :
[9504]. --administrative plan or fiscal annex require the approval of the
[9506]“Deputy Director concerned, the Deputy Director for Administration,
[9507]“and the Comptroller. .
[9509]_(c) All Liquidation plans require the approval of the Deputy Director con-
[9510]Lu . " gerned and the Deputy Director for Administration.
[9512](2) ‘PREPARATION :
[9514]_ (a) The Cperating Official having jurisdiction over the ‘project is re=
[9515]sponsible for the preparation and coordination of the administrative
[9516]plan or fiscal annex, and, when required in connection with termina-
[9517]tion of the instrumentality, the liquidation plan.
[9519]r- (b) Administrative plans require the concurrences of designated repre-
[9520]-" sentatives of the General Counsel; ‘the Director of Finance; the
[9521]Comptroller; the Director of Security; and the Chief, Cover 2 and
[9522]Commercial Staff. Liquidation plans require the concurrences of the
[9523]designated representatives of the General Counsel, the Director of
[9525]Finance; the Chief, Cover and Commercial Staff; and in addition,
[9527]the Comptroller for those liquidation plans involving the disposition
[9529]of assets with an estimated market value in excess of $50,600. The
[9530]assistance and counsel of other offices will be obtained when their
[9531]‘functional responsibility is involved. _
[9533]a (c) Fiscal annexes require concurrence of the Director of Finance and the
[9534]Le _ . Chicsf, Cover and Commercia 1 Statf. .
[9536]- “Revisen: 29 ‘October 1974. (820) ‘- - fe go aupper - 16.1
[9537]ce pe Lo. + ' SECRET Cl By: 059537 .
[9538]REC FROM ae
[9540]ne ae
[9542]HW 50955 Docld:32423532, \Page 195
[9545]HR 230-8d(3). PLANS, PROGRAMS, ‘AND PROJECTS
[9547]_ @) PERIODIC REVIEW AND “'REAFFIRMATION. The Operating Oftictal -
[9548]_responsible for the project will review each approved administrative.
[9549]plan or fiscal annex at least once each year, coincident with considera-
[9550]tion of renewal of the project and will either
[9551](a) affirm in writing to the responsible Deputy Director that the previously
[9552]. approved provisions remain adequate and valid; or.
[9553]- (b) Initiate appropriate revision when changing circumstances aletate the
[9554]need. .
[9556]—— ro re Revised: 29 October 1974 (340) le
[9557]ak aM SECRET a oo -
[9559]| ©. UU 2” 1975 7 - ; - -
[9561]ea $0955 DocId: 32423532 . Page 196 I oe
[9563]Fa lad wed Ws
[9565]fe, . | PLANS) “PROGRAMS, AND PROJECTS . 250-1
[9566]nae | ed a a od _ - FOREWORD
[9568]. FOREWORD |
[9570]‘Rescission: HHB 230-1 dated 1 August 1969, 10 January 1973, and
[9573]This handbook incorporates the Agency procedures pertai
[9575]to the administration of project instrumentalities that will be
[9576]followed in carrying out policies prescribed in HR 230-8. en
[9577]- FOR THE? DIRECTOR OF CENTRAL INTELLIGENCE:
[9578]_ JOHN F. BLAKE
[9579]‘Deputy Director
[9580]for
[9581]' Administration
[9582]DISTRIBUTION: SPECIAL .
[9583]Ai DVN
[9584]ki ao ROM
[9585]ui on STS
[9586]a
[9587]i. \ A
[9588]Revised: 29 October 1974 a , - i
[9589]_ -_ E2 IMPDET
[9590]i . : S-E-C-R-E-T CL BY: 059687
[9592]HW 50955 Docld:324293532 Page 197
[9594]3. . ADMINISTRATIVE PLAN * PRESENTATION. cet ee ee
[9596]- 4. STANDARD PROVISIONS AND REQUIREMENTS OF .
[9598]vo ADMINISTRATIVE PLANS . 6 202 s 8 es eee eee .
[9599]a. BUDGETING. .....-- aan ce ee ee oe
[9601]ob. FINDING. see tees ee
[9602]c. REFUNDS. .. . ee ye ew ew ee we
[9604]dad. AGENCY CERTIFICATION AND APPROVAL. we
[9605]“e. ACCOUNTING. IN AGENCY RECORDS .. 2. + «© »
[9606].. £, PROTECTION OF U.S. GOVERNMENT INTEREST .
[9607]_. ges PERSONNEL POLICY... = - we ee
[9609]- hh. INSURANCE COVERAGE . 2. 2 2 ee = cee
[9610]i. CASUALTY PROVISION wee eee se ee
[9611]j- LEGAL SERVICES . 6 ee eee eee .
[9612]kK, SECURITY POLICY. rs ee ee ee
[9613]1.” Not used ce oot
[9614]‘m. AUDIT. 2 222 es 2 ee wee ee
[9615]mn. FINANCIAL ACCOUNTING AND REPORTING Le ee
[9616]Oe: BORROWING, LENDING, AND -PLEDGING OF ASSETS . » -L0
[9617]- p. INVESTMENT POLICY. . . - + + + re a
[9618]-q. REAL PROPERTY AND OFFICE FURNISHINGS . ....-. 11
[9619]x. LIMITATION ON INDIVIDUAL DISBURSEMENTS AND
[9620]CONTRACTUAL ARRANGEMENTS . 6. 0 ee eee ee edd
[9621]s. SPECIAL ADMINISTRATIVE EXPENSE POLICY... .. - ~~ 612
[9622]_ t. TERMINATION AND LIQUIDATION. - - 2 + es + e+ = 2/2
[9623]5. . CONTINGENCY CASUALTY.PLAN. «06.20 esse cece wee ee 1S
[9624]6. LIQUIDATION PLAN «2. 6 ee we ee ee es wee ol
[9625]7. | FISCAL ANNEXES . 22 6 2 Se ee es rs Co
[9626]a. GENERAL. . . - 5 2:2 2 2 = iiiitpiiii cag.
[9627]-b. ACCOUNTING PRINCIPLES re rrr o)
[9628]c. FINANCIAL STATEMENTS . - ee ee 8 2 8 eee 8 eee 15
[9629]d. USE OF CERTIFICATION AS EVIDENCE OF FULFILLMENT
[9630]OF THE PURPOSES FOR WHICH FUNDS WERE ADVANCED ..
[9631]-e@. USE OF CERTIFICATION FOR OPERATIONAL REVIEW. . . .16
[9632]+ €. FINANCIAL DATA FOR OPERATIONAL PURPOSES. . .. . -16
[9633]° ROM 'g. REIMBURSEMENT FOR OPERATIONAL DEFICITS tee eee 16
[9634]a h. FORMAT OF FISCAL ANNEXES... - 2 - ee ole
[9635]- uli 26 1875. ,
[9636]| | F IA
[9637]| . ( a Revised: 29 October 1974 iii
[9638]HW 50955 Docld:32423432 Page 198 oe £2: IMPDET
[9640]mee oe WN arara=~
[9642]PLANS PROGRAMS, AND PROJECTS - HAB 230-1
[9643]‘ Ce CONTENTS
[9644]re CONTENTS
[9645]Paragraph Page ,
[9646]Le. PURPOSE. 2. eb ee ee ee a
[9647]2. GENERAL. 2. 2s eee ee ee eee ee ee ew ee el dl
[9650]ra
[9652]Cor aq 1975
[9654]~ Cha
[9656]A Gee |S oo a es eee & . : dist
[9657]porn cnn aracfliee aid mugs beet eee tg: tine ea rate ee anentntsaenne mgt ance balk tere ae em hee ee ge ne ee
[9659](
[9663]HW sole Docld: 32423539 Page
[9665]FROM.
[9667]( 'S-E-C-R-E-T
[9668]PLANS, PROGRAMS, AND PROJECTS i HE 230-1
[9671]- SUPPORT SUPPLEMENTS FOR AGENCY INSTRUMENTALITIES
[9673]1. PURPOSE
[9675]_This handbook sets forth guidance for developing support supplements -
[9677](administrative plans, fiscal annexes, and liquidation plans) governing
[9678]Agency instrumentalities, as required by, HR 230-8. Sey 7
[9680]2. GENERAL: ee
[9682]Properly approved support supplements modify or waive specific provisions
[9683]of Agency regulations except HR 230-9 and, in lieu thereof, set forth
[9684]the provisions for special authorizations and management control of -
[9685]instrumentalities in the conduct of their affairs. They are designed’ to
[9687]promote oo . Cote mn, apo.
[9689]a, the most éffective management, to include staffing of eachfi :
[9690]mentality with personnel qualified to manage it in accordagce with:
[9691]Agency objectives, under sound personnel policies and practices; ' °
[9693]b.- ‘the estabhLishment of an effective budgeting, accounting, and re-
[9695], porting system that will produce accurate, timely, and useful re-
[9696]ports of financial status and financial results of the operations |
[9697]of each instrumentality; Peto
[9699]-¢.. the establishment of an accounting system for the instrumentalities
[9701]_ that is compatible and reconcilable with Agency financial records;
[9703]d.: the highest degree of cover and security compatible with the overt .
[9704]. character of each instrumentality and its operation or support
[9705]_ objectives; ~ , ot
[9707]the effective Agency control of funding to, and assets held by, the.
[9710]the orderly deactivation or jiquidation of any instrumentality that
[9711]has ceased to be of operational value to the Agency.
[9713]3. ° ADMINISTRATIVE PLAN PRESENTATION
[9715]The administrative plan presentation should consist of (a) a memorandum
[9716]requesting approval of the administrative plan by the Deputy Director
[9717]having jurisdiction over the project and the Deputy Director for Admini-
[9718]stration; (b) the administrative plan (usually drafted by the support. |
[9719]element in the operating component concerned); and (c) a concurrence
[9720]sheet evidencing concurrence in applicable. provisions of the administra-
[9721]tive plan by the designated representatives of the General Counsel; the
[9723]“Comptroller; the Director of Finance; the Director of Security; the .
[9725]of
[9727]gviged: ,29 October 1974 | | a” | , _ |
[9729]no? TAA?
[9731]HHB 230-2 ' :
[9732]ae i.
[9734]S-E-C-R-E-T a
[9735]oo fo i? oy
[9736]PLANS PRLLRAMS, AND PROJECTS"
[9738]Chief, Cover and Commercial Staff; and such other Agency components
[9740]whose functional responsibilities are involved. The memorandum should
[9741]state the project's operational objectives, the reason why it is believed
[9742]that an instrumentality is the most advantageous means for attaining the
[9743]objective, the type of instrumentality to be used, funds approved for
[9745]the current year, funds programmed for the ensuing fiscal year, and, in
[9746]the case of a revised plan, a statement as, to the need for the revision
[9747]and funds expended for the past two years. ce Lo
[9749]4. STANDARD PROVISIONS AND REQUIREMENTS OF ADMINISTRATIVE PLANS *
[9751]«Standard provisions and requirements of administrative plans are listed ~~
[9752]below. A single reference may be made in each administrative plan that
[9754]the provisions of HHB 230-
[9756]1 are applicable. Substitute or additional
[9758]provisions may be included in each plan to the extent necessary wherever
[9760]| ‘the standard provisions and requirements are not applicable.
[9762]ay BUDGETING [00 208 be
[9764]“Ss @). Purpose 6) 0
[9765]wy - ‘The approved annual operating budget’ for a project provides |”
[9767]‘the means to integrate it into the planning and budgeting
[9769]-. system of the Agency. .The process for the annual renewal of a
[9770]project permits the appropriate Deputy Director, through his
[9772]we
[9774]review, evaluation,. and formal approval of the project and its
[9776].. operating budget
[9778]accounted for, w
[9780], to authorize the continuation of the activity,
[9782]under which funds may be advanced, controlled, expended, and
[9784]ithin the terms of the approved operating
[9786]budget of the project. The approved operating budget of the
[9788]- project provides
[9790]real (total) cost of the activity, to. include: -
[9792]cep 4 (a) “‘Yunds Available 7 as
[9794]a basis for an objective evaluation of the
[9796], Clear identification of funds either available or presumed
[9797]--to be available to the project (or instrumentality) from
[9799]all sources
[9801]- ".. budget, which will include =
[9803]during the period of the proposed operating
[9805])- any prior-year funds (beginning cash balance, in-
[9807]- cluding
[9809]g liquid assets); -
[9811](2) other U.S. Government (non-CIA) funds;
[9813]Ae,
[9815]Qed 2n WS
[9817]HF F0985 Bocld: 32423532 Page 200
[9819]other CIA funds;
[9820](4) all, other income;
[9822]; me 5). the new funds re uirement of the projes* (from
[9823]ce quit p
[9824]G Via . curren
[9826]t appropriation). a
[9827]“Revised: 29. .cobe 1974
[9829]+ PLANS, Pras, AND PROJECTS ow | 7 HEB 2500
[9831]\ (b) _Proposed Expenditures
[9833]. Clear identification of all proposed expenditures. re-
[9834]quiring cash, broken down in sufficient detail to separate
[9836]med) fixed expenses (overhead) ; and
[9837]“@ “opexating expense. .
[9839]“() Estimated cash Balance at the End of the Fiscal Year
[9841]2) _ Preparation
[9843]pee (a) Operating budgets are : to be prepared antwally for. each
[9844]“i... approved project; with a detailed breakdown for each
[9846]"< Gnstrumentality. The budget will cover the past year
[9847]‘(estimated obligations), the current year (propos
[9849], a forecast for at least the next year's operations fin’: -°
[9851]“(4% UL" agreement with the limitations contained in the re@evant,.
[9853]Z operational program. The categories of expense widl be
[9855]consistent forall years and;will follow. the general .° =
[9857]svélassification of accomts in.its prescribed accounting
[9859]reports, to facilitate ‘comparison. and justify increases’ —
[9861]or decreases (overhead vs, operational; stateside vs.
[9863]tan overseas; salaries, travel, ete. + as pplicable).
[9865]a ee SE Ob): Scheduling of approvals of operating budgets will conform
[9866]7 corn. ty with the schedules established by the appropriate Deputy
[9867]‘Director for annual project renewals. ;
[9869].(c) ‘The Office of. the Comptroller is to be provided a copy Of
[9870]the approved operating budget for the project immediately
[9871]- following formal approval by the appropriate Deputy |
[9872]vos : Director. .. This requirement also ‘pertains to any subse-
[9873]an . quently approved revision of the project operating budget.
[9875]ob. FUNDING ; . cp a . . os ee dass eres
[9877]a Instrumentalities generally should be provided with cash not
[9878]in excess of three months' normal operating cash requirements.
[9879]ah Further funding of any instrumentality should be deferred 7
[9880]OR ul whenever available funds exceed this limitation... If substan- -
[9881]- tial amounts above this limitation are on hand, the instrmen-
[9882]al a8 1975 _ tality should be @ required to return the excess to the Agency.
[9886]| ( Revised: 29 October 1974 Due | 3
[9887]. ~ E2 IMPDET -
[9888]oe | -S-E-G-R-E-T. CL BY: 059687
[9890]Hy y 955 Docld:32423532 Page 201. . : .
[9892]“¥ FO Pag 2
[9894]7 re "  §-B-C-R-E-T
[9896]HB 230-2. (( | PLAN. PROGRAMS, AND. PROJECTS = -
[9897]b(2) | —
[9899](2) Funds in any instrumentality that are in excess of normal
[9900]operating requirements may be held for operational purposes 7
[9901]when justified by the appropriate Operating Official and when’
[9902]approved by the Deputy Director concerned and the Deputy ,
[9903]Director for Administration in the following circumstances:
[9904](a) In order that the instrumentality may present periodic
[9905]; financial statements reflecting substantial cash balances
[9906]and: investments for the purpose of ‘strengthening cover
[9907].. and providing the appropriate stature in the commmity of
[9908]its operations © SO , ce
[9910]or reste
[9912]ete oe
[9914]yt ou #1: purpose of providing income in such amounts that will
[9915]or _s.lend the appearance for cover purposes of not having to
[9916]- rely solely on periodic contributions throughout’ the year
[9917](Agency funding) © -- 0). ou. untae as
[9919](b) -To permit the instrmentality to make inves ents for the
[9921]-(€) To provide the instrumentality with funds for any ad
[9922]wewryrusually large.anticipated disbursement(s) in order to 7
[9923]“preclude undue attention which might be created by in-
[9924]jectioh of a large amount of: funds and their immediate
[9925]withdrawal Joss. fan. feces oo Foo cyet
[9929]Funds, as needed, will be made available to an instrumentality | -”
[9930]. through various appropriate funding mechanisms in coordination .—
[9931]_° awith the Cover. and Commercial Staff and the Office of Finance. — ...
[9932]- All funds received by the instrumentality will be deposited in :
[9933]- Sts bank account(s) whose use and authorized signatories have
[9934]_ been approved by the Operating Official responsible for the .
[9935]project. Dual Signatories are preferred on all bank accounts.
[9937](4) “All bank accounts established by instrumentalities will be.
[9938]-..” . reported to the Office of Finance when opened, or notice”
[9940]-’ thereof will be included as a part of the first financial .
[9941]report submitted by the instrumentality covering the period in
[9942]which the bank account is established. Data reported will
[9943]include the name and address of the bank: names’ and titles of ©
[9944]signatory authorities; the reason why an account is operable
[9946].only by a single signatory, i£ such is the case; and whether
[9947]the signatories will be covered by a fidelity bond. Bank
[9948]accounts normally will be in the name of the instrumentality
[9949]aumless deemed operationally inadvisable by the responsible —
[9950]Operating Official, reported and explained concurrently to the
[9952]’ ; Director of Finance for review. Lf the bank account is to be
[9954]mo + "**4n some other nane, appropriate protective control documents
[9956]“'swill be executed. oo. os
[9958]UGE on 175
[9959]4
[9961]of
[9962]‘.
[9964]“Revised: 29 October 1974
[9966]oe
[9968]HW 50p55 Docla: L Beso Page 202 | Fee
[9969]i . 4a : a , a { R - ,
[9970]S -E- yo bak I
[9972]i ee  f SB AC-R-E-T a
[9974]PLANS, PROGRAMS, AND PROJECTS = Ss, HB 230-1,
[9976](5) Requests for advances of funds to instrumentalities must -indi-
[9977]cate (a) the specific purpose of the advance; (b) the identity
[9978]. 1. Of any intermediate instrumentalities used to introduce the
[9979]' +. funds; and (c) the accounting treatment to be given the funds
[9980]in each receiving instrumentality,. as well as any other infor-
[9981]mation that will assist in the clear identification of Agency
[9982]funding on overt Tecords and statements. ee Ty
[9984]“1(6) The concurrence of the Director of Finance and the Comptroller
[9985].: ‘and the approval of the Deputy Director concerned are required
[9986]veo: for a transfer of funds to be made between instrumentalities
[9987]2 0 wo “ref different projects. Excepted from this requirement are
[9988]. ws) .-transfers involving payment for actual services rendered,
[9989]woita’ < reimbursement of expenditures made in behalf of the trans-.
[9990]_mitting instrumentality, | or accomodation funding. |
[9992]“Qe AlL, ‘refunds ‘from ‘instrumentalities: to “the ‘Agency’; het ro
[9993]va permanent or temporary, must be explained by a memorandum
[9994]vy golristating ‘the purpose of the refund.and the effect of the refund
[9995]on the overt records and statements of the instrumentality.
[9997]Jette *
[9999]-,:(2)- In the event funds are to be returned to the Agency under |
[10000]Le woos paragraph 4b(I) above, the Operating Official having juris-
[10001]>. diction over the project will.devise the methed of repayment
[10002]:i in coordination with the Director of Finance and the Cover and
[10003]at Commercial Staff. Co ne ets
[10005]d. AGENCY CERTIFICATION AND APPROVAL
[10007]as .- The project: case . officer will review financial statements Submitted
[10008]- by the instrumentality (see paragraph 4n(3) below) and attach his’
[10009]_. <.eertification that "to the best of my knowledge and belief the —
[10010]«statements are true and correct and the reported expenditures are
[10011]_ within’ the scope of the project authorization."':.In addition, the
[10012]financial statements will be approved by an appropriate Agency
[10013]approving officer and forwarded to the Proprietary Systems Branch, .
[10014]Office of Finance, at the earliest possible date and not later than ~-
[10015]sixty days after the close of the accounting period; extensions of
[10016]time will be granted by the Director of Finance upon appropriate
[10017]‘and reasonable request. Approval procedures for the writeoff of .
[10018]. assets are outlined in HHB 30-1 chapter VIII for casn and receivables
[10019]PCD arid HR 45-6 for inventory or property items.: A copy of the financial
[10020]raMS statements will. be forwarded to the Office of the Comptroller.
[10022]eC Qn 1975 - When the instrumentality is funded by more than one Agency component ,
[10023]‘the case officer certification and approving officer approval of
[10024]co such components also will be obtained. ; ;
[10025]( UG Gin - Bs
[10027]Ww 50955 pocta:sea2Peatis@dye ayLctober 1974 - “2 JMPDET —_ 7
[10029]“S-E-C-R-E-T -_
[10030]HHB 230-1
[10033]ec. ACCOUNTING IN “AGENCY RECORDS
[10035]The Office of Finance is authorized to accept the. financial state-
[10036]“ments referred to in paragraph d above, for appropriate recording
[10037]in the Agency's system of accounts. co,
[10039]£.  PROVECTION OF U.S. GOVERNMENT INTEREST
[10041]'.'I“(1). In the case of a stock-issuing instrumentality, all purely
[10042]yet’ ess «nominal stockholders (as specifically differentiated from
[10043]sii. Agency-controlled holding companies or non-Agency connected ..
[10044]ae -« beneficial shareholders) either will endorse in.blank at time —
[10045] .,*¥o£ issue the stock certificates.issued in their names or
[10046]© execute an-irrevocable stock power covering the stock issued. .
[10048]documents protecting the equity or other interests of the
[10049]>.) Agency will be executed. Those documents may be overt or
[10050]-r: classified,.and will be-prepared by the Office of the Genet
[10052]~ Counsel. . The classified documents will be executed on behdlf.
[10054]of the Agency by.the Special Contr.
[10056]$ od
[10060](3) | The, executed stock certificates, irrevocable stock powers,
[10061]-.!? ° ‘declarations of trust, memoranda of understanding or other .
[10062]--.' control documents evidencing Agency equity or interest in
[10063]nstrumentalities will be forwarded promptly to the Propri-.
[10064]etary Systems Branch, Office of Finance’, for recording and
[10065]custody. . When such documents need to be retained by an in-
[10066]strumentality, the reasons that necessitate such retention
[10067]will be reported to the Proprietary Systems Branch, Office of
[10068]Finance, by the Operating Official responsible for the project.
[10069]_ This report will detail the documentation retained and the lo-
[10070]; coe cation and type of safekeeping facility in which it is held,
[10071]~ -e0.. + and- include a signed statement of the custodian acknowledging
[10072]' - +: yesponsibility. for the documents. When possible, copies of
[10073]1 the documents will accompany. this report. 925 0. F
[10075]eo ee om ee wee
[10077]g. PERSONNEL POLICY
[10078]. a Co fey) Unless covered in the project outline, certain personnel data —
[10079]. must be included in the Administrative Plan. This should set
[10080]| ree forth a-table of organization, salary scales, benefits and
[10081]| ..+ ." allowances to be provided, and a statement of key personnel
[10082]i : a selection procedures. Such data will be reviewed and approved
[10083]oo F TES o£ byythe Director of Personnel.
[10084]ot ULL 94 1975
[10087]HY 50955 pocra:adushdto Page 204
[10089]Revised: 29 October 1974
[10091]PLR -B-TE
[10093]PLANS; PROGRAMS, AND PROJECTS
[10095](2). In the case of a nonstock-issuing ‘instrumentality, control Lo
[10097]acting Officer, Office of |.
[10100]rs ( 0. S-E-C-R-E-T
[10101]PLANS, PROGRAMS, AND PROJECTS |. —
[10103]- cerned and the Director of Personnel.
[10105]: . Staff on an individual basis.
[10108]Wong
[10110]below.
[10112]HR 20-49.
[10114](b) Retirement pension and annuity be
[10115]the Director of Personnel.
[10117]HHB 230-1
[10119](2)' Neither salaried employees of instrumentalities nor persons
[10120]"engaged by instrumentalities in other than an employee status
[10121]will receive pay in excéss of the maximm rate of a GS-15
[10122]unless approved by the Director of Central Intelligence. ©
[10124](3) No commitment regarding benefits or insurance coverages will .
[10125]" ‘be made to personnel of an instrumentality’ until such proposals -
[10126]have been reviewed and approved by the Deputy Director con-
[10128](4) If cover employment is to be provided Agency personnel, such
[10130]- action requires prior coordination with the Cover and Commercial
[10132](5). The employment of an individual who will be responsible for
[10133]. the maintenance of the instrumentality, accounting records will
[10134]"+. be subject ‘to approval by the Director of Finance, .— me
[10136]; "~ (1). The insurance program required by ‘proprietary instrumentalities
[10137]“Woe will be coordinated with the Cover and Comaercial Staff for
[10138]..°" Gmplementation through MIMUTUAL facilities or through an -
[10140]‘alternate method agreed upon by the respons
[10141]and the Cover and Commercial Staff, Insurance coverages
[10142]_ provided through NHMUTUAL include, but are not limited to,
[10144]° workmen's compensation, aviation, marine and other equipment -.
[10145]‘coverages, property damage, liability, fire and extended :
[10146]coverages aS well as those personnel coverages referred to |
[10148]ible directorate
[10150](2) All staff and contract, employees as well as detailed civilian =
[10151]and military personnel assigned to a proprietary instrumentality.
[10152]are entitled to the statutory or contractual insurance bene- -
[10153]_ fits applicable to them by reason of their Government employ-
[10154]ment status. All personel directly hired by a proprietary . -
[10155]instrumentality are entitled to the following: , oe
[10157](a) Life insurance and commitments for death and disability —-
[10158]- benefits in the performance of duty in accordance with
[10160]nefits if approved by
[10162](c) ° Medical end hospital insurance benefits if approved by 7
[10164]"the Director of Personnel... MHMUTUAL does not normally
[10165]got 20 1S either directly uiderwrite or reinsure these coverages,
[10166]But the Cover and Commercial Staff will provide advice’
[10169]( oe Gi iN : and assistance upon. request.
[10171]HW 50955 Pocvld:32423532 Page 205
[10173]. S'S .
[10174]5 . : _ : ‘ °
[10175]HY 50955 Docld: 32423532 daak /A06
[10177]k SEOURITY POLICY , |, oe ES nS oe
[10179]-]. Not used
[10181]| §-E-C-R-E-T
[10183]PLANS PROGRAMS, AND PROJECTS
[10185]i. . CASUALTY PROVISION
[10186]See paragraph 5 below. . - a _
[10187]js. LEGAL SERVICES ee
[10188]“The Office of General Counsel at all times will: be kept advised of
[10189]‘the current status of the legal requirements of the instrumentality |
[10190]and will be responsible for accommodating its legal problems and .
[10191]., for approving the use and the fee of. outside counsel. Any attorney
[10192]“used by an. instrumentality will be selected or approved hy the _
[10193]"*“ Office of General Counsel. | ee ee ae
[10195]re ant ae
[10197]“(1) Unless covered in the project outline, there should be a
[10199]7 statement in the Administrative Plan outlining the security? |.
[10200]requirements. This should include the types of operationaljgse-
[10201]curity approvals; physical and document security controls; :
[10202]‘contact and commmications procedures between the instrumentality.
[10204]and ‘the Agency; security indoctrination of personnel; procedures -
[10206]"for periodic review of operational ‘security and related matters
[10208]* by CI Operations; emergency procedures, if applicable; and
[10210]requirements for storage of classified or sensitive material.
[10212]~. (2) An instrumentality will be managed in a manner consistent with
[10213]‘" = -dts overt purpose to avoid disclosure of its true nature and
[10214]~~ the Agency's connection with it. No non-Agency person will be
[10215]made witting of the true nature of an instrumentality without
[10216]prior approval by both. the Operating Official concerned and ~
[10217]the Director of Security. All persons considered for em-
[10218]. approval, with appropriate biographic: information. The respon-
[10219]“sible directorate may ‘establish additional requirements and :
[10220]‘procedures ‘as required. oo sr
[10222]_..* "+ ployment, in an unwitting capacity also will be reported for
[10226]. An audit program will be developed and implemented in accordance » -
[10228]_. with the requirements of HR 31-1. The prior approval of the Chief,
[10230]-" Audit Staff is required for the employment of either witting or un-
[10231]‘witting public accountants for audit: pu vposes.
[10233]rai ty ; Lo oe ; Lt : a . . .
[10234]bl aaa 95 _ oe Revised: 29 October 1974
[10236]st
[10239]@)
[10241]0)
[10242](a)
[10244]©)
[10246]Gel a0 1815. .
[10248]C CIA
[10250]© s
[10252]be PLANS, PROC) AS, Aw PROJECTS . a HHB 230-1.
[10254]New . a 4n
[10256]n. " BINANCTAL ACCOUNTING AND REPORTING
[10257]me)) The instrumentality will maintain an accounting ‘and a financial
[10258]"reporting system consistent with the dictates of cover and
[10259]security and approved. by the Director of Finance. —
[10261]@ The accounting system will provide
[10263]full. recording of the financial. ‘operation of each instrumen-
[10265]. tality; _
[10267]Zou
[10269]‘control over and accountability for all funds, “property,
[10270]. and other assets for which each, instrumentality is re-
[10272]sponsible;. . os ie senen:
[10274]information required for integration “of instumentality
[10276]accountings into the accounting records of the Agency}
[10278]any other. financial or cost information required Sr wate
[10279]effective management of the instrumentality by. the re ao
[10281]sponsible Operating Official.
[10283]May
[10285]©), The instrumentality will submit ‘the following financial “State
[10286]“ments. and related cata on. at least a quarterly basis:
[10290]Balance Sheet.
[10294]Statement of Income and Expense. -
[10296]‘Summary Statement of Cash Receipts.
[10298]Summary statements of each transaction in 1 Certificates
[10299]of Deposit and interest- bearing accounts.
[10301]‘Schedule of salaries paid to Agency staff and contract
[10302]personnel. . ; hoes toe
[10304]“6.
[10306]Schedule of salaries ‘and expenses, classified by general
[10307]categories, paid to directors and principal executives of
[10309]- the instrumentality.
[10311]Schedule of cash in bank. accounts with certification that
[10312]reconciliation with instrumentality accounts has bes
[10313]made and reviewe ed.
[10315]“LE an asset has been written: off during the reporting
[10316]period, a schedule also will be included with the fi-
[10318]nancial report describing the item(s) written off and the.
[10319]circumstances that support the writeof£ action. Write-
[10320]off action is subject to the approval procedures in
[10322]HHB 30-1 chapter VITI and HR 45-6.
[10324]MW 50955 _Docla:3242Revd Sacdye 29, Pctober L974 : _ 9.
[10326]B2 IMPORT
[10328]ate Me
[10330]PLANS PROGRAMS, AND PROJECTS
[10332](i) Any other financial reports required by the Office of
[10333]’ Finance and concurred in by the Agency component re- » .
[10334]sponsible for the project. en ee
[10336](4) The statements will be certified as true and correct by the -
[10337]principal agent of the instrumentality. The statements will
[10338]clearly reflect Agency funding for the period covered, or such
[10339]funds will be identified in a covering memorandum signed by -
[10341]the appropriate Agency approving officer transmitting the
[10342]statements to the Office of Finance, including specific identi-
[10343]fication of the manner in which the fimding. is recorded on the
[10344]:. books of the instrumentality. In addition, the covering memo-
[10345]—yandum will identify all fictitious accounts and-amounts in--
[10346]an ‘ cluded in asset, liability, capital, income, or expense accounts,
[10347](fs: the balances of which are distorted to cover present or antici-
[10348]e+) pated Agency funding or interproject transfers of funds or ..
[10349]. equipment. If overt records must be deceptive for cover 3
[10350]wey purposes, supplemental reporting should give complete and 9.
[10351]Sora? is accurate information for internal. Agency records. }-
[10353]oo e. PASSETS 1
[10355]coeds
[10357]Pa
[10361]BORROWING, LENDING, AND. PLEDGING 0
[10363]TEATS le teats beatae Cag pl.dricn 2)
[10365]yt. The prior: concurrence of the Director o Finance: and approval of
[10366]_ the Deputy Director having jurisdiction over the instrumentality |
[10367]"= are required for borrowing or lending funds or pledging any asset
[10368]by an instrumentality, “Bank overdraft: privileges will be con-
[10370]’ sidered as borrowings and require the same concurrence and ap-
[10371]proval as stated above. Notional borrowing or lending in order to
[10372]pass Agency funds between instrumentalities for approved funding
[10374]"purposes does not require the above concurrence and approval.
[10376]op. INVESIMENT POLICY
[10378]- (1) When an Operating Official wishes to invest funds that, have
[10379]been approved for retention in accordance with paragraph 4b(?)
[10380]above or funds that are a portion of the three months normal
[10382]“operating cash requirements, he will forward to the Director
[10384]~.\..9f€ Finance for-his approval a memorandum recommending the
[10385]investment of funds. -The memorandum recommending the in-
[10386]vestment of funds will provide the following data:
[10388](a) Reason for the investment.
[10389]tg ® Types of investment recommended, restricted. to the following:
[10390]OR ok So .
[10392]| , oS 1) U.S. Government securities. —
[10393]Fut 20 1975. () | Mes .
[10394]re : _ (2) Interest-hearing accounts or Certificates of Neposit
[10395]|. U LA '~" in member banks of the Federal Reserve System only.
[10399]ww 50945 Docld: 32403532 Page..208 Se Revised: 29 October 1974
[10401]“HEB 230-1
[10402]ad OO — 4q
[10404]CO |
[10405]’ PLANS, PROM MS, “aND PROJECTS
[10407](3) Non-U.S. Government securities; list specific issues
[10408]- recommended for purchase. - oo . .
[10410].
[10412](c) Maximum amount recommended for’ investment, in each ‘type.
[10413]_(d) Length of time investment of funds is anticipated.
[10415]_{e) “In the event of. investménts in ‘securities, state the name .
[10416]_ ain which they will be registered and the type and location
[10417]of safekeeping facilities to be used for the securities.
[10419](2) After initial approval of the Director of Finance, the instru-
[10420]2 mentality may, at its discretion, make continuing investments .
[10422]. . .:.-in U.S. Government securities or ‘in interest- -bearing accounts
[10424]we 24 Or Certificates of Deposit of approved bank(s) having maturities
[10426]of one year or less. Each purchase of Certificates of Deposit
[10427]having maturities of greater than one year and each investment -
[10429]a: In non-U.S. Government securities must have prior approyal of
[10431]aS the Director of. Finance and the Comptroller. 2 sa.
[10433]eet actabtins alba
[10435]q- “REAL PROPERTY AND OFFICE: FURNISHINGS
[10437]@- ‘The lease of real property requires “approval of the. ‘designated
[10438]. Agency approving officer for the project concerned. Purchase,’
[10439]- construction, improvements, or alterations of real property
[10440](except improvements or alterations included in approved
[10441]. operating budgets) require approval of the designated approving
[10442]officer for the project concerned and, in appropriate cases,
[10443]the technical authorization of the Director of Logistics. ~
[10444](The component responsible for the project will maintain a
[10445]‘record of real property held by the instrumentality, including |
[10446]‘the following information as applicable: country or state of
[10447]location; type, i.e., purchased or leased; Size, i. e., square
[10448]footage of building and acreage of land; purchase price;
[10449]_ permanent iunprovements or alterations totaling $1,000 or more;
[10450]“+ annual rental and term of lease, unless the property is acquired
[10451]_. for less .than 12 months and the rent doés not exceed $250 per.
[10452]‘month. This information will be made available to the Director ;
[10453]of Logistics upon. request.) . a an
[10455](2) The ‘procurement of office fmnishings not included in approved
[10456]‘operating budgets requires the prior written approval of the.
[10457]Operating Official responsible for the project.
[10459]a
[10461]199M aaa ON INDIVIDUAL DISBURSEMENTS AND CONTRACTUAL ARRANGEVEN TS |
[10463]og on 185 Except. for funding transactions, any disbursement in excess of |
[10464]; ~ . $5,000 or contractual arrangement of more than 12 months’ duration
[10465]; ul ah requires the prior approval “of the designated Agency approving
[10466]| ( - . officer for the project concerned. : a
[10467]1 . . .
[10468]Revised: 29 October 1974 : oo 7. ul
[10469]-% E2  IMPDET .
[10471]HW 50955 DocTd:32423532 Paye 209 - eReeR-ReT Choy: ncagey.-
[10473]HB 230-2 - PEAK: AOGRAMS,. AND PROJECTS -
[10474]4s oe Se mo
[10476]s. SPECIAL ADMINISTRATIVE EXPENSE - POLICY
[10477](1) Travel and.subsistence expenses incurred in behalf of the
[10478]po 7 instrumentality by authorized representatives will be paid on
[10479]/ the basis of actual and necessary expenses. When actual and
[10480]‘necessary expenses excced the maximum allowable rate established -
[10481]for reimbursement for actual expenses under HR 22-7, the
[10482]claimant will provide detailed justification. Authorized —.
[10483]. representatives may include stockholders, officers, directors, ..
[10484]employees, any individual retained in a professional or inde-
[10485]. .. pendent contractor capacity on a fee basis, and staff agent or
[10486]seca > contract personnel wholly integrated into the project. Air
[10487]4° transportation less costly than first-class will be used to-
[10488]the extent practicable. When first-class fares are paid, such ~
[10489]“payment will be justified in writing in the files of the ;
[10490]: ’ dnstrumentality. a
[10491]|
[10493]: cots . Ce a,
[10494]Operational ‘entertaimnent expenses incurred by any of the # 2.
[10495]_above personnel will be reimbursed on an-actual cost basis} in ©, ./.
[10496]accordance with HMB 30-1 chapter IX, to the extent that sudh
[10497]expenses are reasonable and necessary to the accomplishment of
[10498]“+ operational objectives. — os
[10502]pe : Uvpe Croan Upp abd fad pk es 2?
[10504]Directors of instrumentalities may be paid up to $50 per day,
[10506]poe, 4 .- and travel and subsistence expenses for their attendance at
[10508]| J. 9." directors’ meetings, except that the payment of $50 per day
[10509]: : .» “will not be allowed to directors having an employment. re-
[10511]’" Jationship with the Agency or with the instrumentality..
[10513]. (4) Expenditures authorized in paragraphs s(1), (2), and (3) above ©
[10514]- - will be reviewed at periodic intervals by the responsible case -
[10515]_ officer to evaluate the necessity for such expenditures and -
[10516]- their reasonableness..---- - - 7 5 * are
[10518]“ t.TERMINATION AND. LIQUIDATION re eee a
[10520]- °° -(]) The Administrative Plan will provide that when a proprietary -
[10522]vg Wo sist. project or part thereof ceases to have operational value or .
[10523]a Se - will cease to have such value in the immediate future, the
[10524]responsible Operating Official will prepare and submit to the” -
[10525]Deputy Director concerned for his approval a proposal to oS
[10527]i
[10528]: mo ae “ROW the projector a part thereof.
[10529]| Se GaN oe oe Se :
[10530]"| (2) >: The proposal will set forth any conditions or considerations
[10531]Vo, NEL 2g 1875 that have a bearing on the decision to discontinue the project
[10532]BO or a part thereof and jnclude the date that it is recommended
[10533]ul ie _ operations cease. | :
[10535](3) The. liquidation plan will be. prepared in accordance with the
[10536]' provisions of paragraph 6 below. © gy
[10538]1
[10539]|
[10540]ood.
[10541]HW 50955 Docld:32433532 Page 210 a Revised: 29 October 1974
[10543]» 2 PLANS, PROC. 1S, AND PROJECTS HEB 230-1
[10544]. . . . ae 5
[10546](4) ‘If the proposal includes deactivation of any project instru-
[10547]"mentality, together with a disposition of a portion of its
[10548]assets, the memorandum will set forth, in an attachment, in-
[10549]formation concerning planned disposition, after settlement of -
[10550]obligations, of cas h and noncash assets of the instrumentality.
[10551]The plan for partial disposition of assets requires the same
[10552]approvals as a liquidation plan.
[10554]Se CONTINGENCY CASUALTY PLAN
[10556]A contingency. casualty plan should be prepared for instrunentalities if.
[10557]‘required by HR 20-49. - oo,
[10559]6. LIQUIDATION PLAN a Woe ok nor tas
[10561]wae Logie fest Elyaty was
[10563]“wee
[10565]_ When the Deputy Director concemed has approved liquidation ‘and dis-. a
[10566]solution of a project instrumentality, a liquidation plan will be developed
[10568]’ by the responsible Operating Official to cover liquidation of the assets -
[10569]and liabilities of the instrumentality as required by HR 230-8 and in.
[10571]_ accordance with the format and substance set forth below. It will be +
[10573]_ forwarded for approval. as provided in HR 230-8d. 2 pee hey:
[10574]ae?“ Pdentification of instrumentality(s) to be Liquidated
[10576]_b. _ Approval for termination (cite approved proposal as required in
[10577]; ‘paragraph 4) above) es re
[10579]Cc. A concurrence sheet showing concurrences in ‘the applicable pro-
[10581]'. visions of the liquidation plan by the designated representatives
[10582]of the General Counsel; the Director of Finance; the Chief, Cover
[10583]and Commercial Staff; the Director of Logistics, when real ‘and
[10584]personal property holdings are involved; other Agency components
[10585]when their functional responsibilities are involved; and the _Comp- :
[10586]troller when assets of an estimated market value. in excess of ©
[10587]$50,000 are involved | . .
[10589]_d.- Financial Statements
[10591]Furnish a current statement of assets and liabilities, and a pro-
[10592]jected statement of assets and liabilities ¢ at date of termination
[10593]- to include terminating expenses. -
[10595]omer py Method of Liquidation
[10597]veil Party responsible for actual liquidation. Explain how liquida-
[10599]OCI an 1875 tion of the instrumentality will be handled, such as by princi-
[10600]a _ pal agent, cleared and witting attorney, etc.
[10601]S iA ,
[10603]tts 29 October 1974 ; SO 13 -
[10604]. . £2) IMPDET
[10605]SB-CCRE-T “cr By: 059687
[10607]|
[10608]|
[10610]HW $0955 DocId: 32423532 “Page 211
[10612]ane HEB 230-1 “PLANS, PROGRAMS, ANU PROJECTS .
[10613]i a 7 _ a : A a ; ; - . 7 . . .
[10617](2). How will the instrumentality be disposed of?
[10619]‘(a) Will it be disposed of intact? If so, by bid, negotiation,
[10620]pift, etc.; or. . Be i
[10622](b) Will the instrumentality shell be transferred to another -
[10623]Agency project; or : eg
[10625](c) .Will the charter be terminated; or .
[10627]“ (d) Will the instrumentality continue to operate. without
[10628]- “Agency participation; or es a
[10629](ec). Will the instrumentality be deactivated but retained ina
[10630]dormant state for future possible use? | pt a
[10631]fe. Requirement, if any, for additional funds to cover liquidation and | :
[10632]“> estimated date of financial liquidation ee nn
[10634]2 Disposition of ASsets and Liquidation |.”
[10635](1) If the instrumentality is not to be sold intact, how will 7° |
[10636]noncash assets be disposed of? By bid, ‘negotiation, transfer
[10638]to another Agency project, gift, etc.?-_ _ Fees ee
[10640](2) Include a positive recommendation to be developed in consulta-
[10641]tion with the Director of Finance for the disposition of all
[10642]_ cash assets including funds recovered or realized through the
[10643]‘Jiquidation process. an Teen eee
[10644]hh... Final Audit -
[10645]The plan should provide for a final audit before ‘the instrumentality
[10646]is liquidated or sold. : oe -
[10647]i. Authorization for adjustment of Agency financial records for profit
[10648]-or loss . © - oo Coyle Me
[10649]j. <A positive statement that the Office of Finance is authorized to
[10650]make necessary adjustments to the instrumentality's investment
[10651]account based on the final liquidation financial statement "~
[10653]7. FISCAL ANNEXES
[10655]a. GENERAL
[10657]Use of the fiscal annex is based on the principle that accounting
[10658]requirements should be detersined by the nature of the relationship |
[10659]7 between the instrumentality and the Agency, the degree of control
[10660]REGED 2 ROM re
[10661]DASA ouaN Jn Revised: 29 October 1974
[10662]NW 50955 pooraratthste Be 212 SECRET
[10665]raters £6 aT SON TIEN eae
[10670]b.
[10672]Cee a
[10674]de:
[10676]ua an 1975
[10678]' Revised: 29 Octobe r 197
[10679]HW 50955 Docld: 32423532
[10681]a ad
[10683]12 PLUS, 5 nO 30 PROJECTS : BAB 230-10
[10685]Nd | ~ . _ Tbe
[10687], exercised by the Agency and, finally, the availability of meaningful
[10689]-accounting data within the instrumentality: In this light, Fixed
[10690]pro forma a¢écounting requirements are not sought; rather, each cas
[10692]- will be approached. individually through the fiscal annex with, a
[10694]‘view to establishing accounting requirements that wil] assure that
[10696]‘use of Agency funds is controlled and adequately documented to a
[10698]degree consistent with the nature of the instrumentality. and its
[10699]relationship with the Agency: “A fiscal annex is required for all
[10700]noncontrolled ‘subsidies.. ; oe, bes
[10702]ACCOUNTING PRINCIPLES _ .
[10703]The purpose of the fiscal annex is to ‘document the particular Fiscal :
[10704]. realities of an individual noncontrolled subsidy (HR°230-8c(2)(c)(2))-
[10705]' The‘fiscal annex may authorize appropriate deviation from normal
[10707]Agency accounting requirements...“ Tt: ‘should establish. funding arrange- _
[10708]iments, specific accounting‘controls, financial reporting ‘requirements,
[10710]“-and writeof£. provisions. consistent. ‘both with the fiscal realities
[10711]“and with the. Agency’s responsibilities for proper use of. funds’.
[10713]” ccount ing control should be established through the use of Agency ~
[10714]advance accounts, intransit accounts, and inemorandum accounts to
[10715]follow the, flow of: funds from the case officer t to » the ultimate
[10716]recipient.’ - ' RDS: ple UAE “3
[10718]_ FINANCIAL, STATINENTS ae 7 rosy. woes — i
[10720]"provision should be made. in the ‘Siscal annex for’ ‘financial state-
[10721]‘ments to be‘used as the final element of accounting control through | a
[10722]use of Agency memorandum accounts ° Moet . ..
[10724]qa) when: financial statements are ‘the normal practice ‘of an instru-
[10725]mentality; .
[10729]. (2) ‘when they are available “to “the ‘agency within ‘the operational
[10731]relationship; and we
[10732]oO, when. the Agency contribution | is s identifiable therein. i -
[10733]“USE OF CERTIFICATION AS EVIDENCE OF FULFILLMENT OF THE. PURPOSES
[10734]FOR WHICH FUNDS WERE ADVANCED - ant
[10735]When meaningful financial. statements are not ‘available and ‘the
[10736]nature of the operation is such that insistence upon financial
[10738]are FROME": js inadvisable, it is considered appropriate and con-
[10739]i
[10741]stent with Agency practice to provide for documentation of
[10742]“services rendered" in the form of a certification signed by an
[10743]appropriate case officer and approved by the designated Agency
[10744]approving officer for the project concerned. . Such certification.
[10745]executed on requests for advance subsequent to the initial advance
[10746]should read substantially as follows:
[10748]t, ; 1S —
[10750]Page 213 - _ EZ ; IMPDE’
[10753]HEB 230-10 -PLAtrey PROGRAMS, AND PROJECTS --
[10755]J certify that to the best. of my “Knowledge and belic£. funds
[10757]advanced to this project have been or are being used for the
[10759]purposes for which they were drawn and further advances are
[10760]warranted. ;
[10762]- In these instances appropriate évidence of receipt of funds by the
[10764].. instrumentality or its representatives normally will constitute
[10766].. full accounting for use of the funds and no memorandum " accounting
[10767]procedure need “be used. .
[10771]ee USE OF CERTIFICATION FOR OPERATIONAL REVIEW
[10773]mee,
[10775]ot Th addition to the. use of ‘certifications to “support use of funds,
[10777]::/ Operating Officials occasionally desire to use. this procedure to
[10778]-ensure. that appropriate periodic review of the financial aspects of
[10780]‘the instrumentality is accomplished by responsible officers... In
[10782]. the basis. for recording and clearing the memorandum account even’
[10783]oCl.ce though accounting requirements are. Satisfied prior to such: re-
[10784]tee cording and. clearing.: : a eLbO I Gyula!
[10786]Sie lag Gris ovr ‘ie cep tig Saat
[10788]Bog. BINANCTAL 1 DATA FOR OPERATIONAL PURPOSES.
[10790]Occasionally operational interest in projects yequires that certain
[10792]financial information be obtained from the instrumentality. This
[10793]- .* information ordinarily consists of data regarding the use of funds
[10794]“'. that Indicates that such use is, in general, consistent with the
[10795]- purpose of the project. Although these data are of accounting
[10796]Significance, the format, arrangement, and objective of the reports
[10798]may be in a form that is not susceptible to technical treatment and.
[10800]recording in the accounts of the Agency. Im such cases the fiscal
[10801]“annex should indicate that the financial report is required for
[10802]“. operational but not accountability purposes. ° ;
[10804]g. _ REIMBURSEMENT FOR OPERATIONAL DEFICITS
[10806]. If ‘the amount of : Agency support - is determined by the operating
[10807]- deficit of an instrumentality, payments must be supported by finan-
[10808]‘clal statements or other satisfactory evidence establishing the
[10810]+, amount of the deficit.
[10812], h. FORMAT oF FISCAL ANNEXES
[10814]‘Although the format is not rigid, the sections described below are
[10816]_ the minimum requirements of a fiscal annex. Other sections may be
[10817]added as necessary. a,
[10819]ag he “Revised: 29 October 1974
[10820]wy 00 5 7 Oo
[10822]" pocla: 32423532 Page 2440-0 S-E-C-R-E-T |
[10824]‘such cases ‘the fiscal annex may provide that certifications will be, |
[10828]HHB 230-1
[10829]Se 7h(1)
[10831]JS, AND PROJECTS
[10833](1) Purpose and Instrumentality 7 a So
[10835]‘Furnish a brief, sterile statement of the nature and purpose
[10836]of the project and instrumentality to be used. Include a
[10837]’ brief description of the Agency's relationship with the in-
[10838]strumentality, showing the degree of control that the Agency
[10839]can exercise over the facility: in its use of and accounting
[10840]for funds.
[10842](2) Funding
[10844]Describe the basis for advances to the instrumentality, and
[10845]the mechanisms to be used in introducing funds into the activi-
[10846]ty; state whether it will be funded by headquarters or specified
[10847]field stations. Any special or unusual requirements should be
[10848]_ Set forth in this section. Lhe
[10850](3) Accounting and WriteofE co ee ae
[10852]. Define the accounting requirements applicable to the instru-
[10853]mentality and prescribe the documentation required to permit |
[10854]’ certification and writeoff by the authorized certifying officer.
[10855]The use of memorandum accounts should | also be described in
[10857]. this section.
[10859]DISTRIBUTION: SPECTAL
[10861]7 A a Revised: 29 October 1974 _ _ - 17
[10862]io . . _ . .  E2 IMPDET .
[10863]to So, S-E-C-R-E-T. CL BY: 059687
[10865]HY 50955 Docld: 32423532 Page 215 vs : . . .
[10869]4
[10871]HY - Docld:32423532 Page 216 oa ren Lae
[10873]- transactions which would have placed returns from proprietaries in the:
[10875]| M66
[10876]Orjgji w Wibddressee
[10878]Po, | OGC K&)-0331 |
[10880]3 February 1975
[10882]MEMORANDUM FOR: Director of Central Intelligence
[10884]SUBJECT: Proprietary Withdrawals and the Contingency Reserve
[10886]‘1, Iam attaching a memorandum of law entitled "Proprietary
[10887]Withdrawals and the Contingency Reserve. " This was discussed with you
[10888]last week.. oe ,
[10890]2. It is obvious that a number of policy decisions and actions will |
[10891]flow. from this decision. Our congressional committees need to be appro~
[10892]_ priately informed, the Comptroller will need to work out certain adjustments:
[10893]with OMB, and I also believe there are certain policy decisions that the
[10894]Comptroller will have to work out with Finance with respect to pending
[10896]Reserve. I shall send copies of this memorandum of law to all interested
[10897]components and will assist them in any way they wish.
[10899]JOHN S. AL
[10900]f General Counsel
[10902]Attachment
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[10906]DDO .-.—it*” : a So
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[10909]OO Comptroller — i a SO ; Se
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[10935]4
[10937]HW 50955 ‘Docld:32423532 Page 217
[10939]re
[10943]3 February 1975
[10945]MEMORANDUM OF LAW
[10947]Proprietary Withdrawals and the Contingency Reserve
[10949]SUBJECT:
[10950]"REFERENCES: A. Memo to DCI fr C/CCS, dtd 8 Jan 74, subj:
[10951]Project MHMUTUAL Policy ; : ,
[10952]’ B. Memo for the Record fr Comptroller, dtd 19 Aug 74,
[10954]same subject
[10956]_. 1. Reference A recommended that there be returned tothe Agency
[10957]Reserve starting with calendar year 1973 that portion of MHMUTUAL annual
[10958]profits not required for Project needs. ‘The Director approved the basic _
[10959]‘paper on 8 February, but noted "surplus funds from MHMUTUAL earnings _.
[10961]will be returned to the Treasury rather than the Agency Reserve.”
[10962]Reference B recorded a telephone decision by the Director that " [w]hen -
[10963]‘funds are withdrawn from proprietaries, they will be transferred to the
[10964]Contingency Reserve...."
[10966]- 2, The purpose of this paper is to examine the legal aspects of these
[10967]policy decisions. The concept of the Reserve was established in 1952 as a
[10969]_ means by which the Agency would have flexibility to fund projects or. .
[10971]activities which had not been contemplated in the normal appropriation
[10972]_request. Its purpose was to create a mechanism to provide funds for:
[10973]unforeseeable requirements which would be-more rapid and secure than
[10975]the supplemental appropriation procedure employed by other Government
[10977]agencies. The Reserve has been funded by direct.appropriation and by
[10978]transfer of unobligated appropriations at appropriate times after the close
[10980]' of the fiscal year. Funds were and are released from the Reserve only with oS
[10982]the approval of OMB with subsequent notice of each Reserve withdrawal
[10983]furnished in writing to the two appropriations committees. - ,
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[11004]BW 50955 *Docld: 324235532
[11006]3. In lieu of a specific annual appropriation act for the Agency,
[11007]OMB by letter notifies the chairmen of the two appropriations committees |"
[11008]that the Agency budget of a specific number of dollars is contained in the
[11009]DOD appropriation request. The letter also specifies the accounts in which
[11011]‘these funds are located. Inthe past where there were appropriations to the
[11013]Reserve, that letter would specify the amount of the operating budget and
[11014]the amount to be applied to the Reserve. After committee action, appropriate
[11015]letters, sometimes separately. and sometimes jointly signed by the chairmen _
[11016]of the two committees, are sent to OMB specifying what has been approved
[11017]for the Agency budget and confirming the accounts in which they are located.
[11019]Thereafter, the necessary transfers to the Agency are accomplished pursuant
[11020]to the. authority of Section 5 of the CIA Act of 1949, which was specifically
[11022]_ worded so as to permit appropriations for the Agency to be placed in the .
[11024]- accounts of other agencies and then transferred to the Agency free of all
[11026]’ limitations and restrictions on the appropriation from which transferred.
[11028]The effect of this was to. permit those funds to be expended under the authori~
[11029]ties of the CIA Act of 1949, ra ther than the authorities of the appropriation
[11030]acts from which transferred. A transfer under other authority such as the
[11031]Economy Act would require that the funds be spent in accordance with .
[11033].. limitations of the appropriation fiom which transferred, both as to purpose
[11034]and annuality. Unlike any other agency, our “appropriation act" is the
[11036]- ECE
[11038]process described above and consists of the following principal elements:
[11040]Be
[11041]b.
[11042]oe:
[11044]d.
[11046]the OMB letter;
[11048]the chairmen letters;
[11050]the DOD appropriations act approved by the whole
[11051]Congress and signed by the President; and
[11053]‘the transfers to the Agency appreved by OMB and
[11054]authorized by Section’ 5 of the CIA Act of 1949. |
[11056]4. The question then arises whether a return of money from a
[11058]previously established proprietary can be placed in the Reserve and
[11059]later expended by the Agency under the law. There are several provisions
[11060]of law based on Article I, Section 9 of the Constitution, which states that "no
[11062]‘money may be drawn from the Treasury, but in. consequence of appropriations
[11064]made by law," Twenty years after the Constitutiom was ratified, the act.
[11065]from which present law derives was enacted. That law | is section 628 of
[11067]‘Title 3l of the U.S, Code which states:
[11069]Except as otherwise provided by law, sums appropriated
[11070]for the various branches of expenditure im the public service shall
[11072]guy 30 1815:
[11074]ph te
[11075]GEA
[11077]. Page 216 ~
[11079]wen be: applied solely to the objects for which they are respectively made,
[11080]‘and -for no others. _ ;
[11082]5, Illustrative of the uniformly strict interpretation given to 31 U.S.C.
[11084]- 628 is a decision rendered by the Comptroller General to the Secretary of
[11085]the Treasury and. reported at 37 Comp. Gen. 732 (1958). In this case ©
[11086]Congress had authorized an appropriation for payment of inequitable losses’
[11087]in pay sustained by military officers under emergency economy legislation,
[11088]but did not thereafter include funds for this purpose when it enacted appro-
[11089]priations for the Treasury. The Commandant of the Coast Guard had advised .
[11090]a subcommittee of the House Committee on Appropriations during appropriation
[11092]"hearings that, unless the Committee had an objection, it was intended to pay .
[11093]such claims for losses in pay from the Coast Guard appropriation for "Operating -
[11094]Expenses." Thereafter, the General Accounting Office Claims Division deter-
[11095]mined that over $30,000 in such claims were allowable, but the Comptroller
[11096]General was forced to conclude that no claims could be certified for payment
[11098]’ because there was no available appropriation earmarked for their payment.
[11099]Citing 31 U.S.C. 628 and stating the rule that "the appropriations provided
[11100]by Congress to the Federal agencies may be used only for the objects for
[11102]’ which they are made and no others," the Comptroller General decided that
[11104]. the statement made by the Commandant before the House subcommittee did not
[11105]have the effect of making funds appropriated as "Operating Expenses" available
[11106]for payment of the special claims. ‘The Comptroller General held that the
[11107]appropriate recourse was to submit a request for appropriation to the Congress. a
[11109]6. In 1849 the Congress sought to buttress the appropriation principle.
[11110]set forth in the Constitution by passing a law from which is derived 31 U.S.C.
[11111]484, which provides in part: . ;
[11113]The gross amount of all moneys received from whatever
[11114]source for. the use of the United States,... shall be paid by the
[11115]officer or agent receiving the same into the Treasury, at as
[11117]early a day as practicable, without any abatement or deduction
[11118]on account of salary, fees, costs, charges, expenses, or claim
[11119]of any description whatever.
[11121]'. Also, Section 487 of 31U.S.C., (originally passed in 1877) provides specifically _
[11122]' that all proceeds of sales of public property of any kind, (with certain excep-
[11123]tions not relevant here) shall be deposited and covered into the Treasury as
[11124]’ Miscellaneous Receipts and shall not be withdrawn or applied, except in
[11126]consequence of a subsequent appropriation. , ;
[11128]76 Where the Agency makes funds available to establish a proprietary
[11129]or to add additional investments, the funds are recorded on Agency books
[11130]‘as having been expended + and the Director certiBes t to the expenditure
[11132]pe Fay) FROM |
[11133]: -—Aw30 08 os
[11135]7
[11136]|.
[11137]HY 50955. Bocla: 32423532 Page 219
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[11151]under.section 8(b) of the CIA Act of 1949. I am informed that when an
[11152]expenditure of this type is recorded on Agency books, nevertheless, a
[11153]memorandum account is maintained so that the Agency has a record of the
[11154]precise amount of Government funds invested in the proprietary. I am also
[11155]informed that, if a proprietary were to be fully liquidated with the proceeds
[11156]scheduled to go to the Reserve, but the funds returned are in excess of the
[11157]investment, the excess would not be placed in the Reserve, but would be |
[11158]credited to Miscellaneous Receipts. Where funds are returned to the Agency
[11159]from a proprietary, the current procedure is for the Agency to "reverse"
[11160]the original expenditure entry and, for those funds which are to go into the
[11161]- Reserve, the Reserve account on the Agency books is credited, with notifi- ~
[11162]cation to OMB. : ; ;
[11164]8. Let us take-a hypothetical situation where 20 years ago the s Agency _
[11165]expended $1 million to establish a proprietary. At that time the $1 million |
[11166]would have been recorded as expended, ‘certified under the Director's
[11167]authority for purposes contemplated by the appropriation of 20 years ago. .
[11168]In the meantime, that $1 million would have been spent by the proprietary >, .
[11169]for salaries, purchase of equipment, or for other purposes. The Agency :
[11170]either supplemented its original expenditure with additional monies or the
[11172]- proprietary might have made a profit during these years. This proprietary,
[11173]at Agency direction, now liquidates its activities, including the selling of
[11174]assets. Under. the Constitution and the laws cited above, it is my opinion |
[11176]' that the law requires all such return of funds to the Agency to be covered
[11177]‘into the Treasury as Miscellaneous Receipts.
[11179]9. The Agency may not legally expend these funds once again without
[11180]the approval of the Congress, and by that I mean the full appropriations
[11181]process and not merely the approval of OMB and notification to our two
[11183]_ appropriations committees. The essential element missing in this latter
[11184]procedure is that there has not been an appropriation bill approved by the -
[11185]Congress as a whole and signed by the President. In effect, the Agency
[11187]' would have had its appropriation supplemented without the full appropriation
[11188]process.
[11190]G wa £L Uw —
[11192]/ youn s. WARNER,
[11193], General Counsel =} i
[11195]. , =)
[11197]A0555 Docld: 42493532 Page 220 — : / ee . : i a
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[12612]“NOTES ON THE SCHEDULES OF GAIN OR LOSS
[12613]ON THE SALE OF MHMUTUAL INVESTMENTS
[12615]Note #l
[12617]The MHMUTUAL. portfolio, from which the attached schedules of gain or loss
[12618]on the’sale of investments were taken, is not an accounting document in the
[12619]sense that it is used to account for funds handled by the Activity. The purpose
[12620]of the portfolio is to provide management with a picture of the investments held
[12621]by the complex at any point in time. The portfolio is nat audited per se, and in
[12622]past years no attempt was made to insure that each presentation tied directly ~
[12623]back to the previous portfolio; that has been done in recent years. Due to the .
[12624]lack of audit, certain errors were not discovered, and they were carried forward
[12625]to the present. One example is on the 1970 presentation of the sales of stocks”
[12626]to date. The total sale price of $2,226,883.29 when subtracted from the total
[12627]purchase price of $2,246,793.93 results in a loss of $19,910.64 instead of the |
[12628]loss of $27,802.99 as shown under the column marked gain or (loss) on sales.
[12630]The total gain.on sales to date should therefore be $177,437.51. For some un-
[12631]known reason, the balance carried forward to the 1971 schedule of gain on the
[12633]sale of equity is stated as $206,314.47 which involves an overstatement in the
[12634]cumulative gain on the sale of equity in the amount of $28,876.96. This error
[12635]has been carried forward to the present. :
[12637]Note #2
[12639]The portfolio figures cannot be directly tied in with the financial state-
[12640]ments for MHMUTUAL in the case of bonds since the statements reflect an average |
[12641]cost for all the bonds of a particular. issuer, and the appreciation ona dis= —
[12642]counted bond is recorded as income each year with a commensurate increase in the
[12643]book value of the bond.
[12645]Note #3
[12647]The only bond transaction during 1970 was ‘the sale of $50, 000 of ULS.
[12648]Treasury bonds. fhis transaction is found on the schedule titled "Debenture
[12649]Investments." Oo a ;
[12651]‘HW 50955 Docld:32423532. Page 236
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[13542]CIA Domestic Real Property Holdings*
[13544]CIA has a variety of real property holdings in the United
[13545]States ranging from the major, overt Headquarters complex in McLean,
[13547]Virginia, to small leased "safehouse apartments in many cities.
[13548]Real property holdings also include seven CIA-controlled installations
[13549]used as training sites, supply depots, research and development .
[13550]centers, and communications transmitting and receiving facilities.
[13551]‘The 237 domestic real property holdings are summarized for. this
[13552]report as. follows:
[13553]a. Overt or nominal properties (overt properties are
[13554]identified as CIA; nominal properties as Executive
[13556]Office of the President, but CIA control is admitted
[13558]upon request) of which there are sixty-two (62);
[13560]b. Official cover properties (identified as under the
[13561]control of other U.S. ‘Government agencies and CIA rela-
[13562]tionship is classified from. CONFIDENTIAL through TOP
[13563]SECRET) of which there are fifty- -three (53);
[13565]c. Safehouses (properties, generally apartments or resi-
[13566]dences and generally leased, acquired for covert meetings)
[13568]‘of which there are eighty-one (81); and
[13570]* The information contained in this section has extreme sensitivity
[13571]as a grouped data package. It lists the entirety of CIA real property
[13572]holdings and personnel assets in the United States as of 13 January
[13573]1975; accordingly, release, unauthorized disclosure, or loss of this
[13574]- information would have severe operational impact on the activities
[13576]of CIA. ; ;
[13578]HW 50955 Docld:32423532 Page 245
[13580]d: Non-official properties (identified as private firms
[13582]which may be wholly or partially controlled by CIA and
[13584]housing CIA employees) of which there are forty-one (41).
[13586]Attachment 1 lists CIA domestic real property and provides
[13588]specific addresses for all overt and nominal CIA real property
[13589]holdings. Official cover properties, safehouses, and non-official
[13590]properties are listed by general location. Numbers of personnel
[13591]and utilization purpose are shown for each category of real property.
[13592]This report is developed as a real property summary; therefore, .
[13593]personnel data supplied are predominantly based on CIA space utili-. —
[13594]zation reports, and slight variation may exist. in some instances.
[13596]A limited number of CIA personnel are located in non-CIA-controlled
[13597]space -- for example, in the Pentagon, in private residences, or in
[13598]commercial companies -- and these properties are not listed in this
[13599]real property summary. Non-official properties not occupied by CIA
[13600]staff or contract employees are not listed. Attachment 2 is a sum-
[13602]mary sheet of all the previous figures.
[13604]HY 50955 Docld:32473532 Page 246
[13606]Washington, D. C. § Suburbs”
[13607]AL
[13609]' Washington, D,
[13611]Location
[13613]SECRET:
[13615]DOMESTIC REAL PROPERTY LISTING
[13617]Street Address
[13619]Overt §& Nominal Properties
[13621]Langley, Va
[13622]Washington, D.
[13624]Washington, D..
[13625]Oxon Hill, Md
[13627]Washington, D.
[13628]Washington, -
[13629]Washington, D.
[13630]Rosslyn, Va
[13631]Rosslyn, Va
[13632]Rosslyn, Va
[13633]Franconia, Va
[13634]McLean, Va
[13635]Arlington, Va
[13636]Alexandria, Va
[13638]Washington, D. C.
[13640]Arlington, Va
[13644]ape
[13646]Route 123 (CIA) :
[13647]Central Bidg. 2430 E St. N.W. (CIA)
[13648]East Bldg. 2430 E St. N.W. (CIA):
[13650]‘South Bldg. 2430 E St. N.W. (CIA)
[13652]10530 Riverview Rd. (FBIS)
[13654]Navy Yard, Bldg. 213, 1st & M, S.E. (EOP)
[13655]Navy Yard, Bldg. 159E, 1st §& M, S.E. (EOP).
[13656]Navy Yard, Bldg. 202, 1st § M, S.E. (EOP)
[13657]Ames Bldg., 1820 N. Ft. Myer Dr. (EOP)
[13659]Key Bldg., 1200 Wilson Blvd. (EOP)
[13661]- Magazine Bldg., 1815°N. Lynn St. (EOP)
[13663](EOP)
[13664]Tyler Bldg., 1759 Old Meadows Rd. (EOP)
[13665]Chamber Conmerce Bldg, 4600 N. Fairfax (EOP)
[13666]901 Columbus Rd. (EOP)
[13667]AJAX Bldg., 1901 Penna Ave., N.W. (For)
[13668]1000 Glebe Road (EOP)
[13670]Official Cover Properties
[13672]3 Locations
[13673]4 Locations
[13674]1 Location
[13675]1 Location
[13676]1 Location
[13677]1 Location
[13678]1 Location
[13680]-1 Location
[13682]SECRET
[13684]‘Personnel
[13687]88
[13688]28
[13689]307
[13692]"45
[13694]510
[13695]668
[13696]340
[13697]213
[13698]274
[13699]364
[13701]18
[13702]84
[13703]22
[13705]48
[13707]15
[13708]62
[13710]Attachment 1
[13712]Pur pose
[13714]Hgs. admin. offices § printing bldg. :
[13716]Technical labs § offices
[13717]Technical labs § offices
[13719]‘Technical labs § offices
[13721]Counter-audio training & FBIS
[13723]antenna field :
[13724]Photo development §& analysis
[13725]Map storage
[13727]- Storage
[13729]Hqs. admin. offices
[13731]‘Hqs. admin. offices
[13733]Has. admin. offices
[13734]Supply depot §& R&D shops
[13736]_Elint § tech. admin. offices
[13738]Hgs. trng. offices
[13739]Technical training area
[13740]U.S. resident contact
[13742]FBIS photo § printing
[13744]Research § operational support
[13745]Translation § operational support
[13746]Foreign intell. collection
[13748]Supply depot § ELINT training
[13749]Counter audio lab’§ office
[13750]Document research analysis
[13751]Training lab & office
[13753]Field investigation office
[13755]Ez CL By 029557
[13758]SECRET
[13760]| DOMESTIC REAL PROPERTY LISTING —
[13762]_ Location Street Address
[13764]-C. Safehouses
[13766]37 Locations
[13768]D. Non-Official Properties ©
[13769]1 Location
[13771]Location
[13772]Location
[13773]Locations
[13774]Location : .
[13775]Location |
[13776]Location
[13777]Location
[13778]Location
[13779]Location
[13780]Location
[13781]Location
[13782]Location
[13783]Location
[13784]Location
[13786]Ped bet ped fed bead bed ped peal fd feb pd A) fmt ed
[13788]Arizona
[13790]1 Non-Official Installation
[13791]California ;
[13793]_ A. Overt _§ Nominal Properties
[13795]312 North Spring Street (EOP)
[13797]Customs Hse, 555 Battery St. (EOP)
[13798]Gross Ctr. Bldg, 3045 Rosecrans St. (EOP)
[13799]Fed. Bldg., 15000 Creation Road (EOP)
[13801]Los Angeles, Ca
[13802]San Francisco, Ca
[13803]San Diego; Ca
[13804]Hawthorne, Ca
[13806]SECRET
[13808]Da am
[13810]—I7 03 We)
[13812]‘Personnel Purpose
[13814]N.A.
[13816]i]
[13819]iw)
[13821]wo
[13822]Bm OL GA LAR OD et et
[13824]_
[13825]_
[13827]13
[13828]14
[13830]Covert meetings —
[13832]Manages agent accounts 4 cover
[13833]backstop - .
[13835]Operational support (dormant)
[13837]Foreign intelligence collection
[13839]:Human source assessment
[13841]Debriefing site
[13843]Mgt. services for proprietaries
[13844]Research §& operational support
[13845]Public opinion analysis
[13847]Research admin. office
[13849]Travel support
[13851]Translation
[13853]Airline,‘ foreign operational supp.
[13855]‘Airline, covert admin. travel
[13857]Covert procurement, general
[13858]Covert commercial audit ©
[13860]Aviation equip. R&D and procure. °
[13864]U.S, resident contact
[13866]U.S. resident contact
[13867]U.S. resident contact
[13868]Personnel § recruiting office
[13870]E2 CL By 029557
[13872]Dovid: 32423532 Page 248
[13874]HW 50955:
[13876]SE c RE T-
[13877]"DOMESTIC REAL “PROPERTY LISTING
[13879]Location ‘ Street Address . : Personnel Purpose
[13881]California
[13883]B. Official Cover Properties
[13885]2 Locations ; . a 38 Field investigation office
[13886]2 Locations . : 14 | Foreign intelligence collection
[13887]1 Location . : ; ’ 414 Paper plant
[13888]1 Location . 8 Field procurement office
[13889]. 1 Location - . ; , ‘1 Field supply office
[13890]1 Location , . : , 22 Gen. admin. support to sensitive
[13891]projects
[13892]1 Location 3 Air logistics support
[13893]1 Location 1
[13895]Audit of covert operations
[13896]C. Safehouses
[13897]12 ‘Locations : , 7 : , , N.A. Covert meetings
[13899]D. Non-Official Cover
[13901]- 1 Location 9 Covert Commercial investigation
[13902]4 Locations ; : 4 Foreign. intelligence collection
[13903]1 Location : , 19 “Management § admin. of sensitive
[13904], . projects
[13905]3 Locations... 13 Contractor liaison, sensitive
[13906]: : . » projects
[13907]Colorado’
[13908]A. Overt & Nominal Properties
[13909]Denver, Co Bankers Bldg. , 24401 E and St. (EOP) os 7 U.S. resident contact
[13910]Denver, Co Bldg. 56 DFC, 6th & Kipling Sts. (EOP) — : “1 Field recuriting office
[13911]Connecticut . e.
[13912]A. Overt § Nominal Properties ~ 7
[13913]: . . eer
[13914]Hartford, Ct. Fed. Bldg., 450 Main St. (EOP) © . 3 U.S: resident contact zen
[13915]SECRET _ ee E2 CL By 029557 A
[13916]t&
[13918]Ho s5
[13920]Location
[13922]Florida
[13924]A. Overt_& Nominal Properties
[13926]Key West, Fl
[13927]Coral Gables, Fl
[13929]_B. Official Cover Properties
[13931]2 Locations
[13932]1 Location
[13933]1 Location
[13934]C. Safehouses
[13935]2 Locations
[13937]D. Non-Offical Cover
[13939]1 Location
[13940]2 Locations
[13942]1 Location
[13944]Georgia
[13945]A. Overt _& Nominal Properties
[13947]Atlanta, Ga
[13949]B. Official Cover Properties
[13950]1 Location
[13952]Hawail
[13953]A. Overt & Nominal Properties
[13955]Honolulu, Hi
[13957]‘SECRET
[13959]7 DOMESTIC REAL PROPERTY LISTING
[13961]Street Address
[13963]U.S. Naval Base (FBIS) .
[13964]R&N Bldg., 299 Alambra Cir. (EOP)
[13966]_3 Dunwoody Park (EOP)
[13968]Dellingham Bldg., 735 Bishop St. (EOP)
[13970]SECRET
[13972]Personnel
[13974]an
[13976]25
[13977]33
[13980]NA. -
[13982]a
[13984]|
[13986]Purpose
[13988]Foreign broadcast station
[13990]U.S. resident contact
[13992]Foreign intelligence station
[13993]Foreign commo. center
[13995]Field investigation office
[13996]Covert meetings
[13998]Administers survivers' benefits -
[13999]R&D and procurement, aviation
[14001]_ equipment ‘
[14002]Cuban propaganda operations
[14003]U.S. resident contact
[14005]Foreign intelligence ‘collection
[14006]U.S. resident contact
[14008]E2 CL By 029557
[14012]a
[14014]DocId: 32423532 Page 250
[14016]HW 50955
[14018]SECRET
[14020]DOMESTIC REAL PROPERTY LISTING
[14022]Location Street Address
[14024]Hawaii
[14025]B. Official Cover Properties
[14027]1 Location
[14028]1 Installation
[14030]Illinois
[14031]A. Overt & Nominal Properties
[14033]Chicago, I11 Derksen Bldg., 219 S Dearborn St. (EOP)
[14034]Chicago, I11 Derksen Bldg., 219.& Dearborn St. (EOP)
[14036]B. Official Cover Properties
[14038]1 Location
[14039]1 Location
[14041]C. Safehouses
[14042]2 Locations
[14043]Indiana
[14044]. “A. Overt _§ Nominal Properties
[14045]Indianapolis, In . Fed. Bldg:, 46 E. Ohio St. (EOP)
[14046]Louisiana . ——
[14047]A. Overt & Nominal Properties -
[14048]New Orleans, La’ Masonic Bldg., 333 St. Chatles St. (EOP)
[14050]SECRET
[14052]Personnel Purpose
[14056]Field liaison CINCPAC
[14057]“9 Commo’ relay station
[14059]1 Field recruiting office
[14060]10.—sO«UUS.S. resident contact
[14062].22.. Field Investigation office
[14063]11 Foreign intelligence collection
[14065]N.A. . Covert meetings
[14066]2 U.S. resident contact
[14068]- 2 U.S. resident contact
[14070]E2 CL By 029587
[14072]|
[14075]Da as senses 8
[14079]S
[14081]"SECRET
[14083]DOMESTIC REAL PROPERTY LISTING
[14085]Location , Street Address —
[14086]Massachusetts
[14088]A. Overt §& Nominal Properties
[14090]Cambridge, Ma Beta Bidg., 545 Technology (EOP)
[14091]Boston, Ma Fed. Bldg., Government Cénter (EOP)
[14093]B. Official Cover Properties
[14095]1 Location
[14096]1 Location
[14098]C. Safehouses .
[14099]2 Locations
[14101]Maryland
[14103]A. Overt §& Nominal Properties
[14105]Highland Pk, Md 14048 Woodward St. (EOP)
[14106]- Baltimore, Md’ 103 S. Gay Street (EOP)
[14108]B. Official Cover Properties .
[14110]_ 1 Location
[14112]1 Location
[14114]1 Location
[14116]C. Safehouses
[14118]1 Location
[14120]SECRET
[14122]NLA.
[14124]NAL
[14126]Personnel Purpose
[14128]U.S. resident: contact
[14129]Field recruiting office
[14131]‘Field investigation office
[14133]Foreign intelligence collection
[14135]" Covert meetings
[14137]U.S. resident contact
[14138]U.S. resident contact
[14140]Maritime research §& training
[14141]Security liaison
[14143]Training facility
[14145]Covert meetings
[14147]E2 CL By 029557
[14149]ar
[14151]te .
[14153]HW 50955 Docld:32423532 Page 252
[14155]SECRET
[14157]DOMESTIC REAL PROPERTY LISTING
[14159]Location — Street Address
[14160]Minnesota
[14162]A. Overt §& Nominal Properties
[14164]Fed. Bldg., Ft. Snelling (EOP)
[14166]Minneapolis, Mn
[14167]Fed. Bldg., 316 Robert St. (EOP)
[14169]‘St. Paul, Mn.
[14170]Missouri
[14172]A. Overt § Nominal Properties
[14174]St. Louis, Mo. Fed. Bldg., 1520 Market..St. (EOP)
[14175]Overland, Mo. - | MPRC Bldg:, 9700 Page Blvd. (EOP)
[14176]Kansas City, Mo Fed. Bidg. , 601 East 12th Str “(BOP)”
[14178]Nevada
[14180]A. Overt § Nominal Properties
[14182]None :
[14183]B. Official Cover Properties
[14184]1 Location
[14185]New York
[14187]A. Overt & Nominal Properties
[14189]; New York, NY- 575 Lexington Avenue (EOP)
[14190]New York, .NY Fed. Bldg., 26 Federal Plaza (EOP) :
[14191]_ Niagara, NY United Office Bldg., 220-222 First St. (EOP)
[14193]650 Franklin St. (EOP)
[14195]Schenectady, NY
[14196]: Loew Bldg., 108 W. _Jefferson St. (e0P)
[14198]Syracuse, NY
[14200]SECRET
[14202]Personnel Purpose:
[14206]35
[14208]Una oO
[14210]U.S. resident contact
[14211]Field recruiting office’
[14213]U.S. resident contact
[14214]Field investigation office
[14215]Field recruiting office
[14217]Training §& R&D installation
[14219]U.S. resident contact
[14220]Field recruiting office
[14221]U.S. resident contact
[14222]U.S. resident contact
[14223]U.S. resident contact
[14225]E2 CL By 029557
[14227]WW 30955 Docld:324793532 Page 253
[14230]SECRET.
[14231]DOMESTIC REAL PROPERTY LISTING
[14233]Location Street Address
[14234]New York
[14235]B.
[14237]Official Cover Properties
[14239]1 Location
[14240]1 Location
[14241]1 Location’
[14242]Safehouses
[14244]23 Locations
[14246]’ Non-Official Properties
[14248]1 Location
[14249]2 Locations
[14250]2 Locations
[14251]3 Locations
[14252]1 Location
[14254]North Carolina
[14256]Ohio
[14258]OAL
[14262]a ete SH
[14266]We Tage
[14272]B,
[14274]‘1 Offical Cover Installation
[14276]Overt § Nominal Properties
[14278]Cleveland, Oh Fed. Bldg., 1240 E 9th St. (EOP)
[14279]Cincinnati, Oh Fed. Bldg., 553 Main St. (EOP)
[14281]Official Cover Properties
[14283]1 Location
[14285]Personnel
[14287]30
[14288]22
[14290]N.A.
[14294]Purpose
[14296]‘Foreign intelligence collection
[14298]Field investigation office
[14300]Photo procurement, foreign persons -
[14302]Covert meetings
[14304]Foreign newspaper service’
[14305]Foreign intelligence collection
[14306]Proprietary management services
[14307]Overseas book distribution
[14308]Contractor's Liaison
[14310]Field training facility
[14312]U.S. resident contact
[14313]U.S. resident contact
[14315]Foreign intelligence collection
[14317]E2 CL By 029557
[14319]—) OT) Ra
[14321]|
[14323]X
[14327]Page 254
[14329]Docld: 32423532
[14331]|
[14332]HW. yo9ss:
[14335]Co i = Of IC (2) Re te
[14337]SECRET
[14338]DOMESTIC REAL PROPERTY LISTING
[14340]Location Street Address , : : ‘Personnel Purpose
[14341]Oklahoma ,
[14343]A. Qvert_§ Nominal Properties ;
[14344]Tulsa, Ok ~ : Center Office Bldg., 630 W. .7th (EOP) 2 U.S. resident contact
[14346]Oregon
[14348]A. Overt & Nominal Properties
[14350]Portland, Or Courthouse, Broadway § Main Sts. (EOP) . 1 Field recruiting office
[14352]Pennsylvania
[14354]A. Overt § Nominal Properties — (eee EEE So et oS = ete tye
[14356]Philadelphia, Pa Fed. Bldg., 600 Arch Street (EOP) 7. U.S. resident contact
[14358]Philadelphia, Pa Fed. Bldg., 600 Arch Street (EOP) 1 Field recruiting office |
[14359]Pittsburgh, Pa Fed, Bldg., 1000 Liberty Ave. (EOP) 8 U.S. resident contact |
[14361]Pittsburgh, Pa Fed. Bldg., 1000 Liberty Ave. (EOP) 1 Field recruiting office |
[14362]SF : i
[14363]_— |
[14365]Tennessee -
[14367]“1 Non-Official Installation , : ‘(47 Company) Aviation equipment procurement & .
[14368]: : _ R&D . as!
[14369]in
[14370]Texas “
[14372]A. Overt §& Nominal Properties ; 2
[14373], Austin, Tx Fed, Bldg., 300 E. 8th St. (EOP} 1 Field recruiting office nl
[14374]Austin, Tx Fed. Bldg., 300 E. 8th St. (EOP) 1 U.S. resident contact i
[14375]Dallas, Tx _ Courthouse, 1100 Commerce St. (EOP) 7 U.S. resident contact 8
[14376]Houston, Tx — _ . Courthouse, 515 Rusk Ave. (EOP) 4 U.S. resident contact - 5
[14377]. : : . / : Sw
[14378]B. Official Cover Properties ; os . : ; , ne
[14379], : . . d, na
[14380]: . . - eH
[14381]1 Installation . 2 Ordnance depot : 5
[14382]SECRET - 7 B2 CL By 029557 al
[14383]. ; al.
[14384]iT]
[14385]th
[14386]|
[14390]oN getey
[14392]oe
[14398]ne 8 85; ay
[14400]SECRET
[14402]DOMESTIC REAL PROPERTY LISTING
[14404]Location. - Street Address
[14406]Texas |
[14407]C. Safehouses
[14408]1 Location
[14410]Utah
[14412]A. Overt & Nominal Properties
[14413]Sait Lake, Ut Fed. Bldg., 125 S. State St. (EOP)
[14414]Virginia
[14415]A. Overt & Nominal Properties”
[14416]. Richmond, Va Fed, Bidg., 400 N. 8th St. CEUP)
[14418]B. Official Cover Properties : :
[14419]q Installation (4 Stations)
[14421]1 Installation . -
[14422]‘1 Location
[14424]1 Installation
[14426]1 Location
[14428]Washington -
[14430]; A. Overt §& Nominal Properties
[14432]Seattle, Wa "Courthouse, 1010 Fifth Ave. (EOP) —
[14434]B, Official Cover Properties
[14436]1 Location
[14438]SECRET
[14440]mos,
[14442]Personnel Purpose
[14444]NLA;
[14446]Covert meetings .
[14448]2 U.S. resident contact |
[14450]286
[14452]76
[14453]72
[14455]24
[14457].
[14459]U.S. resident contact
[14461]Records Center, Training, R&D,
[14462]Commo Facilities
[14464]Field Training Site
[14466]Technical R&D
[14468]R&D project ——
[14470]Minor ordnance storage
[14472]U.S. resident. contact
[14474]Foreign equipment analysis
[14476]E2 CL. By 029557 |
[14478]Docld: 32423532 Page 256
[14480]HW 50955
[14484]SECRET.
[14485]DOMESTIC REAL PROPERTY LISTING
[14487]Location Street Address . “Personnel Purpose ©
[14489]Washington
[14490]C. Safehouses
[14491]1 Location . N.A. Covert meetings ©
[14492]Dd. Non-Of ficial Properties .
[14493]1 Location . . . 3. Contractor liaison ©
[14494]Wisconsin °
[14495]A, Overt & Nominal Properties
[14497]Milwaukee, Wi Courthouse, 517 E.’ Wisconsin Ave. (EOP) : 2 U.S. resident contact
[14499]Attachment 2
[14502]4
[14504]SECRET
[14506]CIA Domestic Real Property Summary Sheet
[14509]Location Nominal Official Safehouses Non-Official
[14511]Washington, D. C. and.
[14512]Suburbs
[14513]Arizona
[14514]Califormia
[14515]_ Colorado
[14516]. Connecticut
[14517]Florida
[14518]Georgia
[14519]Hawaii
[14520]Illinois
[14521]Indiana
[14522]Louisiana
[14523]Mary Land
[14524]‘Massachusetts
[14525]Minnesota -
[14526]issouri
[14527]Nevada
[14528]New York ;
[14529]North Carolina
[14530]Ohio.
[14531]Oklahoma
[14532]Oregon
[14533]Pennsylvania . :
[14535]Texas , : ,
[14536]Utah:
[14537]Virginia
[14538]Washington
[14539]Wisconsin
[14544]13 37 16
[14545]10° 422 9
[14547]“tn URW m ne a
[14548]Nw sea
[14549]Nr N
[14550]-
[14551]i
[14553]23 , 9
[14555]tb ON ee
[14557]Bh bn
[14559]ped pet fet bet
[14560]k= 00
[14563]ine)
[14568]TOTALS 53 as aL
[14571]eC I en
[14573]ane
[14574]HW 50955 Doclds@2423532- Page 259
[14576]29 AUG 1973
[14577]|
[14578]MEMORANDUM FOR: Deputy Director for Science and Technology
[14579], _. Deputy Director for Intelligence
[14581]Deputy Director. for Management and Services. *
[14582]Deputy Director for Operations a
[14584]INFO : : Inspector General
[14585]SUBJECT. : Questionable Activities:
[14587]a
[14589]1. As an aspect of the allegations of improper CIA activity
[14593]in connection with the Watergate and associated matters, the
[14595]Inspector General was directed’ to assemble all information avail-—
[14596]able in the Agency on any such| activities, Certain specific matters.
[14597]were provided to him, and the Director by memorandum of 9 May 1973. >
[14598]directed all employees to report any activities, current or past, |
[14599]"which might be construed to be outside the legislative. charter of
[14600]this Agency." This information was assembled and consolidated by 9
[14601]the Inspector General in a-memorandum of 21 May 1973 and certain
[14602]individual memoranda thereafter supplementing it. This material
[14604]was used in a detailed, page-by-page review of all such information
[14605]with Senator Symington and Congressman Nedzi, as Chairmen of the
[14606]Senate and the House Armed Services Intelligence Subcozmittees,
[14607]respectively. In addition, I undertook very specific commitments
[14609]dn my confirmation hearings to ensure that the Agency will remain
[14611]_ within its legislative charter.’ I am arrenging for the published.
[14613]transcripts of those hearings to be circulated throughout the
[14615]Agency for compliance, and at that time will reaffirm the specific | -
[14617]direction made by_Dr. Schlesinger in his memorandum of 9 May 1973. -
[14619]This will also be incorporated into appropriate regulations.
[14621]2. With respect to the specific questionable activities which
[14623]| were reported as a result of the search made throughout the Agency,
[14625]however, I believe it essential to take specific action in order
[14627]- that these not seem to be condoned or overlooked. I have therefore |
[14628]- » developed specific instructions on each reported activity. These
[14629]are included in the attachments to this memorandum, and have -the
[14631]force of specific direction to you to pass on to appropriate
[14632]fubordinates. the instructions outlined. Separate packages of such
[14634]| dnstructions are being developed for each Directorate in order to .
[14635]} Tespect the sensitivity of some of the activities discussed, includ- f713/ MI
[14636]sing those which are deemed quite appropriate within CIA's charter. ris
[14638]JUN 25 1975
[14640]Peay
[14642]Veen ten 6 ee 2 ae eae or tt
[14644]— SECRET-EvES ONLY ~ 7
[14646]Zio '
[14649]HW 50955 poctd:32423532 Page 2600S UG
[14651]. General Counsel. |
[14653]“Attachments
[14655]Cryde
[14657]1
[14659]od
[14660]1
[14662]Similarly, each activity is placed on a separate page so that the . a
[14663]Deputy Director concerned may most easily forward it to the office
[14664]or offices directly concerned without distributing it more broadly.
[14666]3. In the event that these instructions raise substantial
[14667]difficulties of implementation or compliance, I would appreciate
[14668]your raising such cases with me directly, with whatever recommendaq
[14669]tions you may have for modification to carry out the spirit of the
[14670]action undertaken here but to avoid undue disruption of legitimate |
[14671]activities. In the absence of such notice, I will expect full
[14673]compliance with the instructions outlined herein.
[14675]h, Each: addressee Deputy. Director is instructed to recommend
[14676]to the DDM&S modification or addition to Agency regulations of °
[14677]appropriate language to reflect the. direction included in this
[14679].memorandum and attachments addressed to him: DDM&S will be
[14681]responsible for consolidating such recommendations and making an
[14682]overall report to the Director through the IG, coordinating with
[14684]pei”
[14686]cr
[14689](27 August 1973)
[14692]{Original - 1¢
[14694]~.Mr. Colby
[14696]DDI
[14698]FRO
[14699]JUN 25, 1975
[14701]ae viA
[14703]SIONET-EVES MY
[14705]MEMORANDUM
[14707]_ SUBJECT: Domestic Proprietary Companies
[14711]the Cover and Commercial Staff
[14713]Corporate cover, as managed by :
[14715]45 an appropriate support for pur overseas operations. To the
[14717]degree that domestie proprietary or cover companies are required,
[14719]a clear justification will be developed as to the relationship of
[14721]_their support of our overseas operations.
[14723]_ JUN 25 1315
[14725]I
[14729]“MEMORANDUM ce | —
[14731]“SUBJECT: Project MEMUTUAL 95, a
[14735]'
[14737]. |
[14738]1
[14739]i
[14741]Project MHMUTUAL will be operated in ‘conformance with appro-
[14743]1
[14745]priate legal restrictions. Arrongenents are being made for the
[14747]briefing of the appropriate Congressional comittees.
[14749], attention will be given to avoiding any possible conflict of in-
[14751]‘Particular
[14753]- terest situations with firms with which the Agency has leontractss
[14755]° Particular concern will also be exhibited over possible. inbroper
[14757]» Influence on ‘the stock market or Stock dealings throug
[14759]"vestments involved in MHMUTUAL.
[14761]1
[14762]i
[14764]'
[14765]i
[14766]1
[14768]i
[14769]t
[14773]Sebi HEE
[14775]i
[14777]Y
[14779]an
[14782]HW. 50955 [Docld:32423532 Page 262
[14784]1
[14785]|
[14787]'
[14788]'
[14790]UNS
[14792]GIA
[14794]the in-
[14796]oe
[14798]5 POM.
[14800]5 1975,
[14802]SN ES tee
[14803]AEE
[14805]yo , weiss
[14806]EVES CY
[14808]t
[14809]a
[14811]MEMORANDUM
[14813]SUBJECT: Domestic Proprietary Companies 7
[14815]Corporate cover, as managed by the Cover and Commercia ,
[14817]Staff, is an appropriate support for our. overseas operations,’ To the
[14819]' Suggested addition: . re AL
[14821]Corporate cover, including notional companies, as managed
[14823]by the Cover and Commercial Staff, is, an appropriate support for
[14825]‘our overseas operations. “To the degree that domestic prop ietary
[14827]or cover companies are. required, a clear justification will
[14831]developed as to the relationship of their support of our overseas
[14833]a tes . : ‘ 4
[14834]operations, me, co, . a "]
[14836]v oo RRA
[14837]; FT peeeyy i |
[14838]Dowld: 32493532 Page 263. Pye in| oo , ae
[14841]fay 3 G2 :
[14842]44% sis
[14844]Project ‘MHMUTUAL
[14846]Project MHMUTUAL will be operated in conformance wi
[14848](appropriate legal restrictions. Arrangements are being made for