Transcript of 157-10014-10144.pdf
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157-10014-10144 2025 RELEASE UNDER THE PRESIDENT JOHN F_ KENNEDY ASSASSINATION RECORDS ACT OF 1992
JFK ssinaton System Date: 7T2015
Identification Form
Agency Information
AGENCY : SSCIA
RECORD NUMBER : 157-10014-10144
RECORD SERIES MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE
AGENCY FILE NUMBER 07-M-49
Document Information
ORIGINA TOR SSCIA
FROM
TO
TITLE :
DATE : 00/00/1976
PAGES : 263
SUBJECTS
SSCSGO; REPORT
DOCUMENT TYPE : REPORT
CLA SSIFICATION Secret
RESTRICTIONS Consulied
CURRENT STATUS Withhold
DATE OF LA ST REVIEW 01/05/1999
OPENNNG CRITERIA
COMMENTS
v9.[
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Assas
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Date 08 /07/95
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JFK ASSASSINATION SYSTEM
IDENTIFICATION FORM
AGBNCY INFORMATION
AGENCY SSCIA
RECORD NUMBER 157-10014-10144
RECORDS SERIES MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE
AGENCY FILE NUMBER 07-M-49
DOCUMENT INFORMATION
ORIGINATOR SSCIA
FROM
TO
TITLE
DATE 00/00/76
PAGES 263
SUBJECTS SSCSGO , REPORT
DOCUMENT TYPE REPORT
CLASSIFICATION SECRET
RESTRICTIONS REFERRED
CURRENT STATUS POSTPONED IN FULL
DATE OF LAST REVIEW 01/05/99
OPENING CRITERIA
COMMENTS
[R] ITEM IS RESTRICTED
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M-
SECRET SENSITIVE
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TABLE OF CONTENTS
PROPRIETARIES
I_ Introduction and Philosophy of Use
A Operating Proprietaries 3
B . Non-Operating Proprietaries 7
II_ Statutory Authority for Proprietaries 9
III_ Specific Controls 10
A_ Agency Regulations and Policies 10
B , Project Reviews and Control 11
C Financial Controls/ Operating Companies and Non -
Operating Companies Keeping Books of Accounts 11
D Financial Controls / Non-Operating Companies Except
Those Keeping Books of Accounts 13
E_ Treatment of Profits 14
F Disposition of Funds Returned from Proprietaries 16
G Disposal of Proprietaries 16
H. Relations with Tax , Regulatory , and Other Agencies 18
IV . A Description of the Various Proprietaries 21
Proprietary List 24
Employees of Proprietaries a8 of October 1975 41
Funding and Payroll Mechanisms 42
Description of Major Headquarters-Controlled
Proprietaries a8 of September 1975 43
Listing of Proprietaries During the Period 1952 through
1974 (Total 399) 46
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(11)
V The Disposal of Agency Proprietaries 59
a An Overview 59
Entities Dissolved 63
Entities Sold 68
Entities "Otherwise Disposed Of" 71
Description of Disposition of Entitie8 Sold or
Otherwise Disposed Of 74
b The Sale of SouthernAir Transport Inc . A Cage
Study In Disposal of a CIA Proprietary 89-1
Background 89-1
The Sale 89-4
Declassification of Relationship With CIA 89-14
Conflict Of Interest 89-15
Conclusion 89-17
VI Project MBOUND 90
VII. Beyond "Doing Business" : Peak Non-Government Security
Investments by Proprietaries Active 38 of December
31 1974 95
VII MHMUTUAL : The Insurance-Invescnent Complex 99
a.
A Brief History 99
b Current Status 106
Stock Portfolio Performance Chart 108
IX_ The Air Proprietaries 113
X Issues Posed_ Conclusions
2
and Recommendations 129
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7C?TT
SLCRET
PROPRIETARIES
Dof;
ZJVc-4Jd
I INTRODUCTION AND PHILOSOPHY OF USE
Questions have arisen a8 to CIA 9 use of proprietary mechanisms
to carry out the Agency 8 missions In particular concerns
have been expresged abouc the Agency 8 financial and management control
over these entities and about the creatment of funds related to such
entitieg. A careful review of chese entitieg hag revealed that CIA 3
proprietaries are appropriately limited and controlled wich careful
congideration given
to their ube wIthin the spiric and letter of the
law .
Proprietaries fall into' cwo main categories:
1 Operating companies that actually do business a3
would any private firm; and
Non-operating companieg or enticies that appear to
do business under comercial guise
These entities may be legally consticuted a8 corporations partner- 0
ships , or sole proprietorships ; Or they may heve no
such legal standing ,
1.e. may be "notional 01 entities which have bank accounts and
backstopped addresses controlled by the Agency . Corporate proprietaries
are incorporated in accordance wich che statutory provisions of the
jurisdiction of incorporation_ are subject to the same review as any
corporate entity within that jurisdiction, file applicable state and/or
federal tax returns and obtain the necessary licenses to conduct their
normal buginess _ The purposes served by them are cwo-fold: they provide
cover attribution for funding and adminigtrative asgistance to agents
T 377 r?
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and covert activities; and provide services not securely available
through normal commercial facilities Because these ingtrumentalities
are established as Private organizations , they must be established
and managed , to the extent possible , in accordance with practice and
requirements that are normal for the types of enterprises they give
the appearance of being_
Of the legally constftuted entities , the Agency uses che corporate
form in most cages because of the advantages and flexibility of corporate
management control These corporations are
legally organized under the
laws of 8 state, country , or
other jurisdiction and are
either wholly
owned by CIA or controlled through majority stock ownership _ Services
of bona fide buginessmen are enlisted a9 nominee officers, directors ,
and stockholders _
The Agency generally has employed proprietaries when it wa8 the
way , or clearly che best way , to achieve an approved objective_
Under Agency rules proprietaries are established or allowed co continue
in existence So long as they contribute co accomplishment of the
Agency' $ mission and remain the most advantageous operational means of
achieving certain particular and necessary objectives . Current policy
calls for limited uge of operating proprietary mechanisms_ The capa-
bility to u8e the mechanism 13 to be retained (chis the Agency cerms
its "capability in belng") , and smaller entities used _
A review of Agency files shows that the number of operating
proprietaries ha8 been consciously pared by about 50 percent since the
mid 1960' $ . These reduccions began a8 a result boch of the Katzenbach
guidelines associated with the National Student Association affair in_
1967 and the CIA $ Own IG survey in that same year In addition the
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need for proprietaries ha8 declined as a resulc of a general shift in
emphasis away fron covert action; transfer of Radio Free Europe and
Radio Liberty co the Board of International Broadcasting with funding
through State Department ; continuing liquidacion of the assets of the
Air America complex a3
requirements for CIA support in Southeast Asia
have diminished; the sale of Southern Air Transport and the continuing
liquidation of a88et8 of Intermountain Aviation with their exposure
in the press and the decreased need for contingency air capabilities_
The evidence establishes that activities of all proprietaries ,
directly
or
indirectly , support the Agency 8
Eoreign intelligence collectio:
Or covert action missions _ Some of these proprietaries are located
within the United States for reasons of operational or administrative
necessity , but their ultimate impact is overseas _ Some of the question-
able domestic uses of these entities 18 dealt wich in the sections of
the Report on "'Chaos 80 and related Prograns And in one area, MHMUTUAL
serious questions remain as to the propriety of using such a mechanism
to provide insurance and retirement benefits . This problem is detailed
later_ (See Section VIII) .
A Operating Propriecaries
As discussed in greater detail later @perating proprietaries
conduct business in the commercial sphere . but they are not in direct
competititon with privately owned corporations to such a degree a8 to
deprive the private companies of legitimate income . There is no doube ,
however chat they were and are in competition. The Agency has been
careful co limit the amount of commercial business engaged in by these
proprietaries to only that necessary to support the viability of the
commercial cover and keep it alive in che commercial world Revenues
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have been used 88
partial offsets to operating costs Aggregace
profits over the years have been relatively small Only two proprie-
taries have shown significant profits : the Air Anerica complex in
fulfilling mostly Government contracts in Southeast Asia , and the
insurance company handling trust funds and insurance (MMUTOAL)
The air proprietary overview infra Section IX. details the dilemag
posed size Moreover it sheds light on questions concerning
whether conercial viability becane more of a bronze than was
necessary to maintain adequate cover
Operating proprietaries may be large or small in terms of capical
ization and total assets_
$
depending upon the functions 'they perform
When the conmercial Purpose of an operating proprietary i3 incidental
to its CIA mission R 2
such 28 an export # import firm which engages in
commercial operations only to the extent necessary to provide cover
for 8 CIA officer in a
foreign country
4 2 mininum capitalization
usually in the neighborhood of $25,000 or less, i8 al1 that is required_
Examples of an operating proprietary in which commercial operations
are incidental to the Agency misgion are:
4 United States frozen seafood importing company which
operates in che Far East and provides cover for an Agency
employee 823a868 in intelligence activities The Agency
Provided in to purchase and activate 2
dormant but
'ioog-eacagliShed"
privately-owned United States
seefood distributing company The former Owner and his
Partner who are cleared and witting provide training ,
business management and Producc distribution in the
United States for one-half the profits on seafood imports
financed by the proprietary_ The Agency 84b9924e15]3
provided Sio 000 annually for fiscal years 1973 and
1974 a8
working capital The proprietary since 1971 has
provided excellent cover with 8 minimum amount of business
As of 20 June 1974 the proprietary had as8ets of S104 222.67
and 8 net worth (assets minus liabilities)
of 874,051.i5
The company 3 financial accounts are handled by an Agency
proprietary management firm_
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A Eoreign travel service Company which operates in a Southeast
Asia country and provides cover for an agent targeted against
the local Comunist Party . The company wa8 established in 1973
with an initial investment of S5,900
Operating proprietaries whose commercial purposes are in themselves
essential to the CIA mission require much larger capitalization and
investment _ They are staffed by Agency personnel Plus cleared comer
cial employees 38
required_ Among the Agency' 8 operating proprietaries
of this cype are four managenent companies which provide comercial
assistance to other proprietaries and an audit firm which conducts
commercial audits of operating companies and those non ~operating
proprietaries with substantial a88ets _ The Agency 8 largest operating
proprietaries
are Air America_
9 an insurance complex , and the aviation
facility, Intermountain Aviation Inc The assets of Intermountain
have been sold = with operations ceasing onr 28. February 1975 ; and the'
corporation is in the process of beLng dissolved ,
Air America_ the Agency S largest proprietary , which is in the
process Of liquidacion
2
provided aircraft in support of Agency operations
in Southeas t Asia This support has been under cover of a commercial
flying service in fulfillment of U.S_ Government contraccs Corporate
Headquarters has been in Washington , D. with field Headquarters
in Taipei Taiwan
The ingurance complex provides
a mechanism for the payment of
annuities and other benefits to sensitive agents and for self-insurance
of risks involved in covert operations which_
1
for security reasons
cannot be attributed to the U.S . Government or handled chrough private
firms The complex was formed in 1962 as a clandestine commercial
support mechanism to provide death and disability benefits to agents
or their beneficiaries when security considerations precluded payments
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attributable to the U.S . Government_ This function was broadened
to include self-insurance for many risks involved in covert operations
0
including property risks incurred by operational activities of Agency-
owned air and marine companies . From an
early date_ the complex has
administered agents escrow accounts and life insurance, and provided
annuicy and pension programs for selected agent personnel employed by
the Agency. These Programs are
solely for the purpose of meeting the
Agency S obligations to agent-type personnel who have rendered services
over a
substantial period of time and cannot be handled under normal
U.S . Government retirement programs Individuals who qualify for the
CIA Retirement System or the Civil Service System are not handled
through the proprietary system_ In addition the complex has been
used to provide a limited amount of support to covert operations
specifically, for the acquisition of operational real estate and a3
a conduit for the funding of selected covert activities .
Intermountain Aviation
}
Inc has the purpose of providing a
variety of nonattributable air support capabilities available for
quick deployment overseas to support Agency activities . The Agency
1s in the process of disposing of its assets and terminating this
activity:_
As of 1 July 1974 there were 71 operating proprietary companies ,
of which 21 are part of the Agency $ proprietary insurance complex _
The combined het worth (assets minus liabilities) of these companies
i8 approximately $57.3 million _ Alchough some such. as those in the
insurance complex, are commercially self-supporting, most operating
proprietaries usually require budgetary support .
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B Nonoperating_Propzietariee
Nonoperating proprietaries
vary in complexity according to their
Agency task , are, for the most Part, either corporate shells Or le8g
that facilitate foreign operations
0
and clearly pose no competitive
threat to bona fide busines ses _ The most elaborate are legally
licensed and established to conduct bona fide business _ They have
nominee stockholders , directors and officers and are generally
directed by one of four Agency proprietary management companies _
The company address may be 2 Post Office Box, a
legitimate address
provided by 2 cleared and witting company official or attorney , or in
a few case8 the addresg of 4 proprietary management company . They
maintain bank accounts , generate bugines8 correspondence , keep books
of account which can withstand comerclal and tax audit
}
file Stace
and Federal tax returns, and perform normal business reporting co
regulatory authoritfes in order to backstop fully their Agency tasks
are
moderately capitalized , generally around $5 , 000 , and their
net worth at any one eime varies according to the Agency task they
are perforning . As of 31 December 1973 , 38 of these companies had
a combined net worth of approximately 5325,000 _ Of tchis amount ,
almogt S200,000 wa8 operating capital for three companies which
provide cover for several Agency personnel Examples of two non -
operating companies which are
comercially managed _ keep books of
account_ and can withstand commercial and tax audit are:
A
Florida corporation capitalized at $7 0o0 and whose legal
address is the office of a cleared and Witting attorney _
Under the of the Florida corporation an Agency
officer
'eszufiGeed-
a branch office in a Central Amnerican
country and conducts a
sporting goods business which provides
hin cover Administration of the corporation including
purchase of inventory for the branch office, 18 handled by
a proprietary management company .
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A Llechtenstein Anstalt which an Agency nominee established
u8ing 2 reliable but nonwiccing Liechtensteln lawyer 89 a
residenc agent The Anscalt wa8 used to purchase a property
in a European country from which an audto operation 5a8
mounted against an installacion of a Comnunlst country _
Upon conclusion of the operation _ the property will be gold
by the Angtalt and the Proceeds returned to CIA via its
nominee _
Requfring less elaborate commercial administration because o€
the nature of Agency tasks Performed
are 31 legally incorporated
companies which are directly managed by Agency Headquarters specialists
operating in aliag a8 signatories to the company bank accounts . Each
of these companies generally have a
capitalization of $5,000 or le88
and are doniclled in the offices of cleared and witting attorneys _
No comercial books of accounc are kept , and in the event of 2 tax
audfc the Agency has to brief the auditing authority. Depending on
use administration may be 28 simple 49
maintaining bank accounts and
filing annual franchise tares or more extensive a8
requlred when
obtaining Employee Identification numbers , paying pergonnel , mich-
holding taxes and Social Security, and filing tax returno . Examples
of this type of Headquarters-managed proprietary corporation are:
A Nevada proprietary corporation domiciled at the offices of
a California law fort_ Three members of the firm serve as
Agency nominee stockholders , directors and officers for
the Proprietary which holds cicle co two aircraft used by
the Agency for flight training and testing avionlcs equipnent
In chis case, only adminigtration 18 required to maintain 4
bank account file a franchise tax , and coordinate wich the
law flrm.
Alchough not proprletary corporations but proprietaries in the
sense of being Agency-owned and administered
}
are 64 ostensible sole-
proprietorships _ The Agency establisheg and regiscers these sole-
proprietorships in the name of fictitious persona and opens 2 bank
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accounc on which Agency officers in alia8 have signatory power
Arrangements are made with cleared and witting businessmen to
provide
a
domLciliary address for these entities at a law office
or celephone answering service _ These entities , 1tke the proprietary
corporation administered Agency Headquarters speciallsts, provLde
cover payrolling , and tax attribution for Agency personnel and are
similarly administered_
Another type of encity uged by the Agency and a proprietary
only in the sense of being Agency-owned and administered is exempli-
fied by some 215 notional companies which are not legally registered
but have names and bank accounts controlled by the Agency . The Agency
arrange8 with cleared and witting attorneys
or proprietors of celephone
answer services co provide
2
domiciliary addresg and to refer any
queries to the Agency specialists concerned _ Thege notional entities
are used to provide status and operational cover for Agency personnel
involved In al1 cypes of high-risk intelligence operations_ They are
al80 used as ostensible clients for purposes of funding Agency pro-
prietaries
or bona fide American companies which provide
cover and payrolling of Agency personnel _
II STATUTORY AUTHORITY FOR PROPRIETARIES
The Agency 8
statutory authority to spend money for proprietary
corporations In support of Agency operations derives from Section 8 (1)
of che CIA Act of 1949. This Act states :
"The gums made available to che Agency may be ` expended without
regard to the provisions of law and regulations relating to
the expenditure of Government funds ; and for objects of a
confidential extraordinary or emergency nature such
expenditures to be
accounted for solely on the certificate
of the Director and every such certificate shall be deemed
00 a sufficlent voucher for the amount therein certified .
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The language contained in Section 8 (b) 1s adequate authority to
exclude the operation of these proprietary corporations from the
law governing Government corporations in 31 U.S,.C.A_ 841 ec seq .
However the CIA General Coungel ruled in 1958 that the CIA should
comply with the principles in that Act to the extent possible, and
this has 'been done Attached a8 Appendix A i9 a claggified Memorandum
of Law by the Agency' 9 Office of General Counsel on CIA $
authoricy
co
acquire and dispoge of a proprietary wichout regard to provisions of
the Federal Property and Adninistrative Serviceg Act, which position
wa3 upheld by the U.S . District Court Ln the Southern District of
Florida in dismissing the guit Farmer V3 . Southern Air Transport on
17 July 1976 ,
III SPECIFIC _CONTROLS
The formation and activities of proprietaries are controlled
through various mechanisms to assure their proper use, as discusged
below_
A AgencyRegulationg_ and_Policies
Headquarters Regulation 230-8 and Headquarters Handbook 230-1
prescribe the adninistrative procedures to be followed in the estab-
lishment , operation , and liquidation of proprietaries (see Appendix B)
An Adminfstrattve Plan (specifying the operational purpose_ admini-
gtrative and management procedures and coac) and 8 Liquidation Plan
(specifying details of liquidation and disposition of funds when
liquidation is contemplated) must both be coordinated among components
concerned and approved at appropriate management levels . This regu-
latory control along with policy memoranda are intended to assure
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Proper conduct by encities . Each Agency component involved 18
responsible for compliance , and the Chief of the Cover and Comerclal
Staff che Director of Finance, and the Comptroller are
Particularly
watchful in their areas of concern
B Prolect_Reviews and Control
The controle and procedures applicable
to each operating proprie
2
tary are
specified in a project outline and adinistrative plan
approved ac the Deputy Director level Normal control and adminstra-
tion 18 carried out by 4 project officer at Headquarters_ Semi-annual
reviews are conducted co deteraine whether or not the operational
need still exists , and regular audits are performed to assure proper
management and financial eccountabilicy. Proprletaries are liquidated
a8 thefr usefulness end8 ; new oneb are formed 49 needed _
C Financial Controlg/ Operating_Companieg and_Non-Operating
Compantes Keeping Books of Accounte
Under Agency regulations , these proprietaries are established
and managed to appear co be consistent wich normal cqmercial practices
and requirements of the type of enterprise concerned _ Specific require-
ments for the general management and financial controls of each such
proprietary are
provided in the administrative plan described above
which specifies the bagic framework within which che instrumentality
18 to operate_ A11 facets of an
administrative Plan relating to
funding the proprietary and its financial management are subject to
the concurrence of degignated representatives of the Director of
Finance and the Comptroller_ A primary purpoge of thig coordination
is to as8ure chat the financial controls and procedures prescribed
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for the proprietary are
compatible and consistent with normal practices
and requirements for the cype of instrumentality being established.
The Director of Finance representative is che Chief of the Commercial
Systems and Audit Division a
position normally occupied by
a certi-
fied public accountant
The inftial and all subsequent passage8 of funda to such proprie-
taries are from the current year Agency operating budget _ Receipts
of funds by the proprietary are documented a3
appropriate ostensibly
to appear to be from a source usual to a comercial enterprige of
similar type , e.g. ,
capital stock, paid in capital income from
ostengible sales , etc.
The Agency treats all disbursements to such proprietaries
23
current year budgetary expendicures and concurrently establishes 23
a control mechanism a
fully reserved invegtment account which i8
reconciled periodically to reported net worth of the proprietary as
reflected in required financial statements received from each proprie-
tary. Each such statement is reviewed to reconcile the approved"
financial activity of the proprietary to reported changes in net
worth before adjusting the Agency investment account to conform with
the reported net worth_
Al1 control documents evidencing Agency equity or interest in
the proprietary , e.g. , executed stock certificaces irrevocable stock
powerg declaration of trust , etc. , are held in safekeeping by the
Comercial Systems and Audit Division/OF provided that when such
documents need to be retained by the proprietary, a report will be
made to
identify the documents retained , location
0
name of custodian and
reason for the retention, and copies of the documents , if appropriate _
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The Chief of the Agency Audit Staff 18 responsible for the audic
of Agency proprLetaries , ucilizing Audit Staff personnel under a
suitable cover arrangement or witting or
unwitting public account
firmg 49 19 mosc appropriate to the requirements of a particular
proprlecary . An example of the type of audit conducted appears at P. 105
Seetion VIFIand
concerng MHMUTUAL
0
the proprietary ingurance-investment
complex.
D Financial Controlg/Non-Operating_Compantes Except_Thoge
Keepzng Books or Account
Entities in this category are financed 1f financing i9 required
through the establishment of bank checking accounts on which Agency
officers have signatory Power in alia8 All such accounts are maintained
in the accounting records of the Agency 88 current asget accounts
subject to monthly reconciliation wich scatements of accounts issued
by the depository banks
All passages of funds to these accounts add to the accountable
balance of the accounts No income is produced by these activities
All disbursements from these accounts are charged ag current expendi-
tures in liquidation of obligationg of the operational activity on
behalf of which the entity wa8 egcabltshed_
SignacorLes are Agency officials who in each case execute a
declaration of trust acknomledging Government owner ship of the accourc
Payment? are
initiated only in responge to request of an authorized
official responsible for the operational activicy for which the
enticy was established ,
The Chief of the Agency 8 Audit Staff 18 regponsible for the
audit of all accounts maintained for these entitles .
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Balances of each of these accounts are monitored periodically
to assure that balances do not exceed 2 level warranted by the activity
for which the respective account was established_ Balances excess
to current requirements and balances for entities which are dissolved
are returned to the Agency and in turn remitted to the U.S. Treasury
a8 Miscellaneous Receipts. (See discussion of Dispogition of Funds
Returned from Proprietaries on P. 16 .)
E, Treatment of Profits
The CIA General Counsel in a 6 January 1958 memorandum ruled
# that incone of proprietaries _ including profics , need not be considered
mlscellaneous receipts
to be covered into the Treasury but may be
J6 used for proper corporate or company purposes This subject wag
reviewed and the opinion reaffirmed by the General Counsel in July
1965_ The policy of retaining profics ha8 continued_
1
alchough 28
already noted only
4 very few of Agency proprietaries have ever been
profitable_ The CIA 8 legal bagi8 for retaining profits for the use
of the operating corporate entities is discussed below
Section 104 of the Gorernment Corporations Control Act, 31 U.S.C.
849 , provides that Congress 'shall enact necessary legislation to make
available for expenditure such corporate fundg or other financial
resources or
liniting the u8e chereof 48 the Congress may determine
It i8 further provided that "this section shall not be construed a8
preventing the Government corporations fro carrying out and financing
their activities a8
authorized by existing law The legislative
history explaining this section of the act states that "in cases where
no other law requlred a congressional authorization of expenditures ,
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the corporation, if ic had means of financing other than annual aPpro-
priacion8 , could continue to operate In the abgence of any action by
Congress On its budget program_ The statute creating
a
particular
Government corporation may provide 8pecifically that the corporation
may use
its profics in the conduct of ics businesg
The Government Corporations Control Act certainly did not contem-
plate Government corporations in the sense chat the Agency Musc have
chem _ Neither 19 it feagible for Agency proprietaries co be created
by act of Congress or overseen precisely 23 provided for in che normal
Government corporation in the Act_ Nevertheless the Agency hag felt
thac the appropriace and reasonable policy would be to treat and control
them insofar as Poggible in accordance with che terms of that law .
Such being the case the Agency believes there 13 no need to have more
restrictive rules applied to its corporations In the u3e of fundg
09
including profits , than are applied
co Government Corporations under
che other Act or statutes Thug the use by a proprietary of it9
earnings to carry on its corporate affairg withouc an offset against
Agency appropriationg is considered 2 legitimate practice and does not
constitute an illegal augmentation of appropriations _
With rare exception, principally the large air and insurance
proprietaries , operating proprietaries have not been self-sustaining
fron bona fide Income _ Such income including profits , 48 i8 received
ig retained by the proprietaries consistent with the usual operating
practices of buginesg enterprises _
The use Qf proprietaries profits , however 18 controlled, by
annual reviews and audits within the Agency of the total capital
0
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investment and profits situations of the corporations in the context
of the operational objectiveg and the cover needg of the corporations
In effect the annual project review is based upon an audit as searching
a8 that required for statutory Government corporations
F Digposttion of Fundg Recurned from_Propriecaries
Any proprietary with funds exce88 to its current or foreseeable
needs 1s required co return such funds to the Agency _ Also , all fundg
realized from che liquidation or termination of a proprietary are
returned to the Agency except in 2 linited number of situations when
18 transferred co another proprietary for "gimilar use On the ba8i8
of an opinion of 3 February 1975 by the CIA General Counsel the Agency
has revised it8 policy for the treacment of al1 returns of funds from
proprietaries ; all such returns are co be remitted to che U,S . Treasury
a3 Miscellaneous Receipts _ Prior to thig change in policy, returns
had been treated a8 refunds of the previously recorded expenses up to
the amount of such expenge for a particular proprietary wich any exces8
amounts returned to the Treagury 2s Miscellaneous Receipts (Appendix C)
G Digpogal of Proprtetarteg
Air America , the Agency 8 largest proprietary, 2c its peak had
total assets of some $50 million and more than 8 , 000 employees (who
accounted for More than 90 percent of the people employed directly
by all proprietaries) _ It i8 in the proces8 of being liquidated
because it 18 no
longer required_ The Air AmerIca complex included
2 number of other companies with the Pacific Corporation 2s
the holding
company .
The general plan for liquidation of Air Anerica 18 for the
Pacific Corporation to sell off Air America, Inc and Air Asia , Ltd_
the Taipei maintenance operation) A Private New York firm (R_ Dixon
H 50955 DocId:32423532 Page 21
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Page 22
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17
Spea8 Company) was engaged to estimate 8 fair market value for the
complex _ Alchough an intensive search for competitive bidders was
made the Agency was unable to find buyers for any of the affiliated
companies except the Taipei maintenance facilicy . The sale of this
conpany a8 2 going concern co the successful bidder was closed on
31 January 1975 . The remaining parts of Air Anerica are being
liquidated by sale of individual assets uon completion of existing
contracts Funds realized from the sales could be a3 much a8 525 million
and will be returned co the Treasury.
Agency financial support for Radio Liberty and Radio Free Europe ,
both sizeable proprietaries
0
was terminaced in FY 1971 and responsi-
bility for their funding and operation wa8 a8sumed by the Department
of State_
Southern Air Transport wa8 Bold on 31 December 1973 because ics
contingency capability wa8 no longer needed _ The Agency realized
$6,470,000 from this sale Cash received wa3 83,345,000 which included
a S1.2 million award in arbitration of a dispute over the proceedg of
the sale of an aircraft by Southern Air Transport after the sale of
the company by the Agency . The balance was paid by the purchager to
Air America to retire 8 debt owed by Southern Atr Transport . A group
of employees of Southern Air Transport filed a civil action 'disputing
the propriety of the sale of the company the Agency , but che case was
dismissed with prejudice on 17 July 1976 .
A more detailed list of various dispogal9 'of smaller proprietarieg
and what, if any, relationships remained thereafter between the Agency
and any subsequent entity appears infra page 39_ Section V
H 50955 DocId:32423532 Page 22
by
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18
H Relatlong wich Tax Regulatory and Other_Egencteg
Management and control of proprletaries often requires "cooperative
interface" with outside agencies to beneficial working reletlon-
ships and, 28 necessary , any
appropriate authorizations _ These
relationships are described below_
For those proprietaries which maintain coumercial books and other
financial records U.S_ and State tar returng are prepared annually by
commercial manager? baged on the corporatlonse financial records . For
other entities where only internal Agency records are
maintained , cax
returns are
prepared by Agency specialists in 2 manner to reflect the
normal operations of a bona fide comerctal busines8 . Close coordination
13 maintained with the Internal Revenue Service, which 18 aware of the
Agency 8 use of proprietary comerclal entfcfes In the event an Agency
entity 18 gingled out for IRS audit Lt has been agreed that the Agency ,
through the Office of General Counsel , will nocify IRS of Agency
ownership, The IRS then cancels the audlt in order to conserve auditor
manpower
The Air proprietaries necessitated contact with the Civil Aeronautics
Board che Federal AvLation Agency and the Natfonal Transportation
Safety Board. Specffic problems were discusged , usually with the
Office of General Counsel of the agency concerned by the CIA General
Counsel _
The Air Propriecaries dealt with State Department and the Agency
for International Development_ generally on 2 contractor/customer basis ,
although senior Personnel of those agencies were advised by che Agency
of its ownership of the companies _
HW 50955 DocId:32423532 Page 23
gain
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19
Those proprietaries which engaged in the shipment of weapons
or other icema on the Munitions Control list required Agency agsistance
in obtaining the necessary exporc licenses_ The ownership of the
companies was discussed with State Department Office of Munttions
Control and the Bureau of Alcohol _ Tax and Firears
The radio proprietaries
0
while funded ' by CIA, did receive policy
guidance from the Department of State to ensure that their broadcasts
mere In conformance with U.5 . foreign policy_
The Agency hag intervened with the Department of Labor on behalf
of gurvivors of employees of the proprietaries in order to asgigt
them In recefving the available benefits under the applicable Workmen
9
Compensation Acts
The Agency , on behalf of the proprietaries, interceded with che
Defense Department to have the proprietaries contracts exempt from the
Renegotiation Board There wa$ a normal exemption based on the rules
of the Board which wag given for contracts Performed entirely outside
the United Scates
CIA requested the Air Force to consider the interest of the Agency
in connection with the awarding of comercial contracts to its Proprie-
taries_ Initially ths wa$ done in che mid-1950' g on che basis of a
policy decision by che Operations Coordination Board that the air
proprietary in the Far East , then operacing at a deficit, was an
instruent of value to national securcy. The Agency wa8 able to
maintain 2
standby capability Without budget subgidies if awarded
enough business to support large commercial afrcraft_ This applied
to
the passenger and cargo aircrafc.
H 50955 DocId:32423532 Page 24
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Page 25
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20
The V.S . Forest Service was advised of the owership of a pro-
prLetary and asked to award contracts to the proprietary in order to
help it develop a comercial poscure and permit its aircraft to be
asgociated with that cype of flying_
NW 50955 DocId:32423532 Page 25
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21
IV . A DESCRIPTION OF THE VARIOUS PROPRIETARIES
The operational needs of che Agency have required it co venture
forth into many areas where proprietaries were 8 perceived necessary
vehicle These areas have included air support , media publicationg
proprietary management (accounting and management) ingurance (peraonal
insurance coverage , annulcy coverage:
9
and escrow account maintenance
for agent personnel) covert procurement (general merchandise , arm8
amunition and police related equipment) cover support (commercial
cover such a8 management consultant firmg importing companies
2
travel
agencies , energy research organizationa behavior psychology companies) ,
personnel services (tape transcription, pergonnel Investigations Eor
gecuricy clearances and approvals , public accouncing firms
8
electoral
and political analysis firm keyed into foreign elections) operational
support (purchage of condonlnlung in foreign countries , sporting goods
business In Unfted States with gales in Latin Anerica , various overseas
foundationg to provlde grants export/import firms , 4, company which
holds a note for certain U.S. Government funds borrowed by 8 consortium
of aluminum companies for the extraction of bauxite in Guinea to ingure
U.S, control of bauxite extraction aetivicies In Guinea) and varioug
other miacellaneous categories .
The number of employees of proprietaries 88 of October 30, 1975
Wag 321. OE chls number 78 were U.S . Agency employees , 178 were U.$_
proprietary hires , and 65 were
foreign proprietary hireg . The varioug
type8 of funding and payrolling mechanisms used by the Agency (Devised
Facilitieg incorporated: in the U,S, ; Devised Facilities-Notionals which
H 50955 DocId:32423532 Page 26
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Page 27
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22
are not incorporated but are sole proprlecorship8 ; and Notionale
which are
merely busines 8 nanes , are not
formally congtituted
Or
registered which do buainess at the address of an angwering service
or
witting attorney) totaled 326 89 of Occober 31 , 1975 There were
31 Devised Facilities , 67 Devised Facilitieg-Notionalg , and 228
Notionals_
There follows a list of some of thege proprietaries with brief
descriptiong of .their functions _ There are 97 in number Following
that list L8 a deacription of the major headquarters-controlled proprie-
taries provided a8 of September 24_ 1975 _ In addition , there is
included a listing of all proprietaries during the period 1952 through
1974 (total 399) with the highest net equity balance on agency records
and the net worth balance 43 of December 31 , 1974 . The smallest net
worth balance 18 S4oo and the ' largest is $31,778, 000_
The year 1967 was selected to demonstrate the nuber of employees
in uge
by Agency proprietaries In that year
)
the Agency owned approxt-
mately 158 proprietaries _ These proprietaries employed approximately
14,416 persons _ Ninety-two percent of the employees were accounted
for by three proprfetary complexes a8 follows
8
JBGREED 10,218
TPTONIC 1,800
QRACTIVE 1 300
I3,3T8
TPTONIC and QRACTIVE (Radio Free Europe and Radlo Liberty) Were turned
over to the Departnent of State and are Dow
being managed by the Board
of International Broadcasters _ The JBGREED complex (air support
capabflity in the Far East) is in the process of liquidation and
H 50955 DocId:32423532 Page 27
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Page 28
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23
currently hag 63 employees _ In addition to the proprietaries mentioned
above
1
the Agency managed 243 funding and payrolling mechanismg which
provided payrolling services for 149 employees
MW 50955 DocId:32423532 Page 28
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24
PROPRIETARY LIST
AIR SUPPORT
IUBETON Complex
The below four companies comprise an_air support capabil-
for worldwide contingency use_ The comp lex is based
in the Southeastern portion of the United States with cer-
tain commercial business operations overseas
1 IUCONTROL
A Florida corporation which acts as the holding company
the princi operating company in the complex (immediately below) ;
assets consist solely of stock in the principal operating company;
no employees _
2 IUBERYL;
A Florida corporation based in South Florida; a sma ] 1 air
service company which can be quickly expanded to meet Agency air
support requirements_
3_ IUEPOCH
A Florida corporation which operates from an airport in the
Southeastern United States; a wholly owned subsidiary of IUBERYL
(immediately above) which operates a fixed base aviation facility;
provides an alternative air support capabi]-
IUPIECES
A Florida corporation based in Miami which acts as a purchas -
ing agent for aviation supplies for the activities of the complex;
can provide the same service for prospective Agency air support
activities; is a who] Iy-owned subsidiary of" [UBERYL (above)
TXRET
ity
for
pa ]
ity-
==================================================
Page 30
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25
JBGREED_Complex
The below five companies comprised an air support capabil-
ity in the Far East. AI} entities are in process of being
Tiquidated or sold.
5 JBCRYING
De laware corporation with corporate offices in Washington,
D.C _ which acts as the holding company for JBCHOKE_ JBHEEDFUL ,
and PROPRIETARY C (see below)
6 JBCHOKE
4++h
A Delaware corporation #hieh corporate offices in Washington _
}
D.C. , which has terminated al} flying services contracts The com-
pany wi]l be . ]iquidated by sale or disposal of assets
7 . JBHEEDFUL
A Taiwan corporation with corporate offices in Taipei which
ceased flying operations in 1968 but has continued to provide
ticketing and other services on behalf of other affiliated com-
panies_
8 PROPRIETARY B
Hong corporation located in Hong Kong which provides
computerized accounting services for JBCHOKE _
9 PROPRIETARY €C
Thailand corporation located in Bangkok Thailand which is
the custodian for JBCHOKE files pertaj to Thai employees and
contractua] services in Thailand; Will be dissolved when Thai
no Tonger requires retention of these records_
FROM
Single_Entity
NOV 6 1T
10_ HBSANDTRAP
IA
Delaware corporation located at Washington Nationa] Airport
which 'has provided secure air support for Agency employees and clas-
sified pouches between Headquarters and other Agency facilities in
~5 [:
a0
Kong
ning
Iaw
==================================================
Page 31
==================================================
26
JRE
the United States; the company has accepted comercial charter
flights from non-Agency customers for income and cover purposes
Media_Publications
The be six companies comprise a worldwide book 'dis-
tribution and manuscript publishing activity.
11 QRBL OND
A Liberian corporation with
a representative (banker) in
Brussels which pays book distribution cos funds are control led
by members of the New York corporation (POPORTAL/ 300 below) and
through this corporation to avoid
Some of the prob]ems of
funding a domestic company in the total amount required to effect
project operations; no employees except for the Brussels repre-
sentative, who is paid on a fee basis_
12 _ QRBLUFF
'A Liberian Co rporation which is used as attribution for
Agency funding to the above two proprietaries; no employees
13_ PDPORTAL/ZQQ
A German non-Profit organization located in Munich, which
acts as the home Office of its Rome Branch and is also used as
the ostensible source of a11 the Agency funding to other project
entities; no employees; maintains a branch
9
PDPORTAL/SOO , in
Rome, Italy.
14, PDPORTALLIOQ
A Timited partnership located in London, England_
15. PDPORTAL/400
A corporation located in Paris , France .
16 PDPORTAL/300
New York corporation located in New York City.
r}! REC 72 FROM
NO 6 2975
C|a
slacT
Iow
ts;
paid
==================================================
Page 32
==================================================
27
Single_Entities
17_ TOMOSAIC
Delaware corporation based in London which provided an in-
ternational news feature service; the,project also supported the
publication of books of propaganda
value; the news feature service
has been discontinued and the corporation Wj1] Soon be dissolved _
18_ AELEDGER
A French corporate entity located in Europe which pub]ishes
a foreign-language weekly periodica] which is disseminated to
recipients in and out of Russia and contains articles on Soviet
and Bloc matters inc a arge amount of ma terial prepared
covertly in the USSR by` Soviet dissidents; the periodica]
attempts to encourage and assist activities of mderate segments
of Soviet society_
19 AEDYNAMIC
New . York corporation located in New York City which
Tishes periodicals and selected books for infiltration into the
Soviet Union and distribution to travelers and Soviets residing
outside the USSR; fosters regiona] national ism within the USSR;
supports a vate-organization %f regiona] nationa]ities; supports
the AEDYNAMIC branch office in Munich, Germany .
20 QRMYSTIC
A sole proprietorship located in the Washington metropolitan
area owned Os tensibly by
an Agency employee whose journalistic
services are utilized in support of foreign operations_
Proprietary_Management
LPPANDACouplex
The below three companies support
a one man accounting
and management. company in Europe which provides services
to other proprietary operations.
FROM
NOv 6 1915
CLA
luding
pub-
pri
~4ET
==================================================
Page 33
==================================================
21_ LPREMEDY
A one man accounting and management company located in
Europe.
22 _ LPCLOUD
A dormant company at one time associated with the cover
of the individua] now covered by LPREMEDY
23 LPCHAIRZA
New York company with no employees which serves as a
communication channel from Headquarters to LPREMEDY
Single_Entities
24. LphocUS
New York management and accoun company (three em-
ployees) which provides accounting and related financia] man-
agement assistance to other proprietary organizations_
25 , LPSUGAR
A Maryland management and accounting company three employees)
which provides accounting and related services to other proprie-
tary organizations_-
26. LPBERRY/B
A New York Jegal and accounting firm three employees
which provides Iega] and accounting services to other proprie-
tary organizations
Insurance
MHNUIUAL_Complex
The below 25 proprietaries comprise
a clandestine support
mechanism which provides persona] insurance coverages,
annuity coverages and escrow account maintenance for agent
{@PATonnei 1 in a manner to preclude attribution to the United
'Li
VCV
t 1975
CET
Cia
'RZT28
ting
==================================================
Page 34
==================================================
29
States Government_ The complex also underwrites insurance
risks of certain proprietary Organizations and administers
the pension plans of these organizations- In addition, the
complex has been to provide a Timited amount 0f
support to other Agency operations specifically, the
sition of operationa] rea] estate 'and as a conduit for
the funding of selected foreign covert activities_ Twelve
full-time employees are involved in the management of the
complex, with the assistance of three proprietary manage-
ment firms AJ1 expenses except for the salaries 0f Govern-
ment employees assi to the complex are from earned
incomie _ The companies involved are:
27_ MHANVILLA
An attorney at Iaw operating as 3
sole proprietor in Washing-
ton, D.C. ; he is the Agency manager of the insurance comp]ex.
28. MHGRET
Panamanian company Which provides ownership MHCROZE_
9
an investment proprietary , (see below) and Owns an apartment in
Buenos Aires; no employees_
29_ MHCROZE
Panamanian company which serves as an investment vehicle
and a primary mechanism for the management of funds
0
no employees
30. MSLACK
A Delaware corporation which provides payro]l cover for project
personne] and serves as an investment vehicle for ` funds; seven ema
ployees _
31_ MHVODKA
A Bermuda company which is a
reinsurance vehicle for al1 . types
of casualty and property insurance for other Agency proprietaries
and directly issues death and disability term Tife annuity and
other coverages for Agency non-staff .personnel; no employees _
32 . MHDRYAD
A Panamanian company which serves as Qwner of MHLUMEN and
MHSPRAY_ below) ; no
employees_ 'rA)Azee
NCV 6 1915
LVBET;
Gia
used
acqui
paid gned
for
==================================================
Page 35
==================================================
30
33 MHLUMEN
Liberian company which serves as owner of MHFETCH (see
below_ and as the source Of an operationa1 no employees_
34 . MHFETCH
Bahamian company which serves as owner of MHKOALA and
MHWHIFF (see below); an investment vehicle and manager of non-
staff pension plan; no employees _
35 . MHKOALA
A Liberian company currently inactive and slated for dis-
solution; no employees_
36 . MHWHIFF
A Bermuda company which is a nsurance vehicle for all
types of casualty and property insurance for Agency proprietaries
and for ife and annuity coverages for non-staff personnel ; no
employees .
37 MHMOLAR
Liechtenstein anstalt which serves as the beneficial owner
of MHBOMBE ` (see below); no employees_
38_ MHBOMBE
Bahamian company which serves as a
holding company for
MHTWANG and MHONSET (see below) and as an investment vehicle;
no' employees_
39 MHONSET
A Delaware corporation which serves as an investment vehicle
and quarantor of a mortgage on a former Agency activity; no em-
ployees_
40_ MHTWANG
Cayman_ Island corporation which handles certain annuities
escrow term Tife insurance, a pension plan and funding of MHPIQUE
(see below); no employees
RECCH'
SoM
NOv 6 1975 ~CRET
CTa
iAmtn9se
Ioan;
reije
==================================================
Page 36
==================================================
31
-u
41 MHPIQUE
A Florida company which provides payro]] cover three
non-staff personne] who handle the Cuban dependents program
payments and correspondence; three emp loyees
42_ MHDELFT
A Swiss company which serves as a
holding company for MHHAHSE
(see below) and as a standby asset; no employees
43_ MHHAWSE
A: channel IsTand company that serves as a direct underwriter
of term ife insurance and annuity contracts for non-staff Agency
personnel
> no employees _
44. MHSEPOY
A Panamanian company that serves as beneficia] owner of MHUNDER
(see below and for direct underwri of term Tife and annuities
for non-staff personnel; no employees _
45 . MHUNDER
A Panamanian company which is slated for dissolution; no employees
46 . MHALATE
A Liechtenstein company which owns property in Lusaka; no
employees _
47 _ MHJORUM
Panamanian company which directly underwrites death and
disabi term ife and annuities for non-staff personnel no
employees
48 _ MHBLARE
4 Florida company now in dissolution resulting from abandon-
ment of Agency project; no employees
Nv { J9/s
Cl ECgFT
for
ting
ity,
==================================================
Page 37
==================================================
32
VLHi
49_ MHRUCHE
Liechtenstein anstalt which is a genera] use standby
asset; no employees _
50 . MHCLUMP
A Liechtenstein anstalt which serves as a standby asset
for genera] reinsurance use; no employees _
51_ BGJASMINE
A European insurance and reinsurance company which issued
direct death and disability coverage to contractor personne] en-
for a DDS&T project; and reinsured other risks arising out
of" the project; no 'employees _
Logistics_Support
The below three entities operated by the Office 0f
Logistics provide a covert procurement mechanism
for the Agency .
52 KMJAGGERK
Delaware corporation located in Washington, D.C:
9
which
purchases general merchandise in a manner' which cannot be traced
to the United States Government; total purchases from January to
September 1974 were $437,500; no outside commercia] business; five
employees _
53 TPLENTIC
Delaware corporation with an address in New York which
arranges research and development and production contracts in
a manner which cannot be traced to the United States Government;
the company has no emp oyees and is managed by Headquarters
officials in alias_
Rom
MOV 6 1915
CHA
~G9FET,
gaged
==================================================
Page 38
==================================================
33 SW?
54_ Stock Account #3
A Delaware corporation with an address in Ba ]timore which
purchases arms , ammunition
9
and police related equipment in a
manner which cannot be traced to the United States Government;
the company has no employees and is managed by Headquarters
officials in alias_
Cover_Support
WUDIRK_Complex
The below five entities located in New York comprise a
Foreign Resources Division activity which provides com-
mercia] cover for certain personne] assigned to the
New York Base of FR Division; no commercial activities
are undertaken by the companies in the complex, and &71
revenue comes from' Agency sources; two 0f the entities
are in the process of dissolution
9
and two recently
established entities Will replace' the ones in dis-
solution.
55 WUBODKIN
A New York corporation with offices in midtown Manhattan
which is styled as a management consul firm; the entity
will be dissolved in the near future as soon as other cover
facilities are available for the individuals presently cover-
ed by the entity; used by New York Base personne] for employ-
ment attribution and office space.
56 , WUCURULE
New York corporation with offices in mid-town Manhattan
which is styled as a management consu] firm; the entity wil]
be dissolved in the near future as soon as other cover faci]-
ities are available for the individuals presently covered by
the entity; used by New York Base personnel for employment
attribution and office space .
57 WUXIPHOID
New York corporation with offices in mid-town. Manhattan
which is styled as a management consu] firm; the entity wil]
continue to provide cover support to the New York Base; used
by New York Base personnel for employment attribution and office
space)M
Nov 8 1975
3
10- Cla
ting
ting
ting
==================================================
Page 39
==================================================
34
58 . WUBACH
A newly estab]ished New York corporation with offices in
mid-town Manhattan which is styled as a management consu]
fi was created to replace WUBODKIN and WUCURULE' (above) ;
used by New York Base personnel for employment attribution
and office space.
59. WUKNOX
A newly established New York corporation with offices in
mid-town Manhattan which is styled as a management consu]
fir; was created to replace WUBODKIN and WUCURULE (above) ;
used by New York Base personne] for employment attribution
and office space_
Single Entities
60 LPPIKE
A New York importing company with a branch office in a
Far East country; the branch office provides cover .one
Agency employee; no employees in New York.
61_ MOKITH
A Tha j company located in Bangkok Thailand which functions
as a trave] agency and provides cover for one Agency employee in
Bangkok
62 LKBASE
A Virginia corporation located in Washington, DAC:
9
which,
in the past_ has provided cover and funding for nonofficial
cover
officers in the middle east; it is styled as a research organiza-
tion on energy matters and is now in the process of ]iquidation.
63 MKDILLY
Virginia corporation operating out of the residence of
its president in Northern Virginia; the company provides cover
for one Agency officer:who provides behavior psychology assistance
to the DDO_
REcT?"'=D) . FROM
NOv 6 1975
CLa
'LCNEi
ting
rm;
ting
for
==================================================
Page 40
==================================================
35
Personnel Services
Single_Entities
64_ SLAVE
Delaware corporation having its principa] office in Falls
Church, Virginia which provided a centralized facil in the
Headquarters area with the ~capability of fulfilling field and
Headquarters requirements for tape transcription and document
translation; three oyees; steps are now underway to convert
two 0f the employees who were proprietary hires to contract
employee status and move the function to Agency control ed
buildings _
65. MHBOUND3
California corporation, with its headquarters in Los
Angeles
}
which conducts personnel investigations for security
clearances/approvals in those cases where no United States
Government interest can `be disclosed_ It also renders security
assistance
2
i.e. badging, counter-audio inspections, etc. to
Agency projects in those cases where United: States Government
invo]vement cannot be reveaTed; the company Will be dissolved
by 30 June 1976_
66 . MHCLIMB
Represented as the Washington
9
D.C. branch Office or
affiliate of a Tegit imate New York based ic accounting firm,
but actua under sole control and administration of the Agency
Audit Staff this facility enables site audits 0f Agency covert
projects by experienced Agency auditors_
67 _ VWCADENZA
A Maryland company located in Bethesda which is used as
cover for an Agency employee who provides electora] and political
analysis on South American amEuropean elections ; he also trains
Agency personne] in pol ling techniques and electoral analysis;
no outside business_
FROM
W)V 6 2865
1RET
cia
-12-
'0
ity
empOe
pub "
Ily
==================================================
Page 41
==================================================
36
OperationalSupport
WUTACTIC_Complex
The below 27 companies are managed by the Cover and
Commercial Staff to provide operationa] support mechan-
isms for DDO foreign operations _ Some companies are in-
active and held for future use
68_ LPCEMENT
A Liechtenstein company used to purchase a condominum apart-
ment in France for use as a
Tistening post; net assets $84,226;
no employees
>
being terminated in the near future.
69_ LPKILT
A Latin American company established to provide cover and'
funds to an East Asian agent; agent exports goods to Latin America
for resale; gross sales Tast year of $1,000; assets $12,870; one
field agent.
70_ LPKNIT
A_ Florida corporation formed to provide cover and source of
Tivelihood to an Agency employee in Latin America; employee open-
ed branch office of this parent company and selIs sporting goods;
gross sales Iast year (first of operation) $3,367; assets
314,125; one employee and wife.
71 . LPPURSUIT
A Liberian corporation used to backs- a field agent in the
renewa] of his visa; assets of $375; no emp loyees
72_ LPCAMEO
A Liberian corporation used as the ostensible employer of
two Agency employees in the recruitment 0f a foreign agent; no
assets no rea] employees _
73 . LPMISSIVE
FRR Rist Liechtenstein anstalt which holds a mortgage on property
tria used by a field agent; assets of $788; the mortgage
6
1915 is not recorded on the books 0f the corporation; no employees
NOV
~IA
-13-
year
top
==================================================
Page 42
==================================================
37
74 LPBANGQ
A Liechtenstein foundation used to give ostensible grants-
in-aid to field agents as 3 source 0f their livelihood; assets
of $165; no employees_
75 . LPABBEY
Liechtenstein foundation presently inactive; assets
53,202; no employees _
76 . LPKITTY
A Liechtenstein foundation presently inactive; assets
53,205; no employees
77 LPALONE
A Liechtenstein foundation presently inactive; assets
5633; no employees _
78 . LPDOUBLE
A Liechtenstein company used as a fund- channel for a cover
placement, assets $2,853; no employees_
79 . LPRAISIN
A Liechtenstein anstalt export/ import firm formed to provide
additiona] status and prestige to an employee operating in alias;
assets $7,942; no employees
80 . LPBRAID
4 Panamanian company used as a note holder in the sale of
an Agency proprietary entjty; assets $1,818; no employees
81 LPADVANCE
Panamanian company currently inactive; assets $3,589; no
employees_
RFCFTVED) FROM
NOv 6 1975 SECRET
-14-
ling
Cla
==================================================
Page 43
==================================================
38
'FCRET
82 _ LPGLITTER
Panamanian company which was used as an investment vehicle
funds reserved for new commercia] operations requi- Agency
investments; The investment project was terminated and al1 funds
returned to the Agency; the company: has no employees'
83. LPLOTUS
Panamanian company currently inactive; assets of 52,831;
no employees_
84 . LPVISION
A Panamanian company currently inactive; assets 0f $2,831;
no employees _
85 , LPRANGE
Panamanian company which holds a note for certain United:
States Government funds borrowed by 3 consortium 0f aluminum
companies for the extraction 0f bauxite. in Guie purpose of
United States Govenment involvement was to insure U.S. contro]
of bauxite extraction activities in Guinea; the note, issued
in 1961 wa5 in the princi amount of $2,855,000 , ba lance
of $1,752,000 has remained unco] lected since 1962 when payments
stopped, (at the time the Government of Guinea nationalized
the extraction effort); aside from the note, the company has no
other assets and has no employees _
86 LPSHADE
Delaware company previously used as a holder of a note on
a Ioan to a field agent; company now inactive; assets of $2,829;
no employees_
87 _ LPMANTLE
A Delaware corporation which is used to co] lect the proceeds
from the sale of Agency proprietary entities and to refund such
proceeds to the Agency ; at 31 December 1973 _ tota] assets $650,220,
total ]iabilities $633,897 , total stockho]ders equity $16,323;
no
employees .
RECFWV: .)
'XJM
Mv 6 19T5
C|a
-15-
for ring
nea;
pa /
==================================================
Page 44
==================================================
39
88_ LPEPIC
Delaware corporation based in New York with a branch
office the Far East which provides commercia] cover to a con-
tract employee in the Far East targeted against foreign intel igence;
net assets $27,265; one employee .
89_ LPSHORE
A Delaware corporation currently inactive but retained for
future use; net assets of $2,023; no employees _
90_ LPRERUN
Delaware company used to provide compensation and tax
attribution to an independent contractor, assets of $7,094; no
employees _
91 LPGRASS
A Delaware company used as the ostensible investors of
funds in LPKILT; assets of $1,826; no employees _
92 LPSHUFFLE
A New York company incorporated but never opened for business;
held in reserve for possible future use; no assets; no
employees _
93 LPDAIS
A New York corporation based in New York with a branch office
in Europe: Used as the ostensible employer of an Agency employee
during his tour in Europe targeted against foreign intelligence;
net assets $6,845; one employee_
94 _ LPOUPe
A Massachusetts company incorporated to provide cover and
source of Tivelihood to an Agency employee on a taur in the Near
East; assets of $9,647; one employee-
3OM
NOv 6 J915
CLa
16= SECRET'
city
in
being
==================================================
Page 45
==================================================
40
2
Miscellaneous
Single_Entities
95 , CATAR
A Liechtenstein corporation operated by a Jawyer in
Europe which has been used as the Tessee of apartments of
operationa] interest in two European citi also used as the
ostensible employer of certain Agency employees in the Far
East when they operate in alias; no rea] employees funds
have been passed through the company bank account in amounts
necessary to meet Iease payments and maintain commercia]
image; net worth of about $5,000 represents minimum bank
balance) ; company now in the process of dissolution.
96 _ LPBYZASLB
A Swiss entity which holds a current ty interest (30
percent) in a
European trucking company; a11 other owners f the
trucking company are unwitting of Agency interest and the Agency
has been trying to se11 its ty Since 1973; both entities
provided cover for 3 career associate for four years; when
sale is completed LPBYZAS/B Will be dissolved and proceeds
returned to the Agency for credit to Miscel laneous Receipts
97 LPESTATE
A Liechtenstein anstalt with no employees which owned a
house 0f operational interest in a European the house
was recently.sold and the entity will be dissolved as Soon as
the proceeds from the sale are received and the company can be
Tiquidated in accordance with the Iaws 0f Liechtenstein;
Tiquidating dividends will be returned to the Agency for credit
to Miscel laneous Receipts
ROM
NOV 6 1b
CLa SFCRET
-17 -
es;
equj
equi-
city;
==================================================
Page 46
==================================================
SEc RET
41
TAB B
Employees* of Proprietaries as of October 30 , 1975
U.S.
Agency U.S _ Foreign
Employees Prop. Hire Prop__Hires Totals
IUBETON Complex 3 116 1 120
JBGREED Complex 2 31
HBSANDTRAP 6
POPoSiac CompTex 6
j1
1 1
1
AELEDGER
AEDYNAMIC 3 1
EPPASDRC Complex
{
8
1
LPHOCUS
LPSErRr /8
3
1
1
8
12
MHMUTUAL Complex 8
Logistic Support
WUBIRR eomp hex 25 8 25
HDRIKE 8 8
1
LKBASE 0
MKDILLY 1 0 0
1
SLAVE
MHBOUND/ 3
5 6 8
1
MHCL IMB 3
VWCADENZA
8
EEERS/ Complex
1
1
8
1
LPESTATE
Totals 78 178 65 321
No Foreign Mationa] Agency employees are presently employed by
Agency proprietaries
IJV
NOv 0 1975
GA SEcRET
==================================================
Page 47
==================================================
SECRE[
42
TAB C
FUNdING_AND PAYROLLING MECHANISMS
1 The various types of Funding and Payroll Mechanisms used by
the Agency are described below:
3
Devised_Facilities--Those Agency-owned and managed mechani sms
which are incorporated Tn U.$. jurisdictions (various States) with
nominee stockho ders and are used to provide nonofficia] cover pay-
ro]] support to Agency assets who do not have to show highly visible
cover employment _ are also used for other nonofficial cover
support tasks such as funding of proprietary organizations_ No
books of account are ma intained but annua ] tax returns are prepared
by Headquarters special ists in a manner to make it appear that the
mechanism is conducting norma | commerc ia] business Since the tax
return cannot be substantiated from commercia] records the Interna/
Revenue Service (IRS) must be notified of Agency interest in the
entity in the event of a proposed IRS audit- Management includ
direct contro] of the corporate bank accounts is effected by
specialists at Headquarters Funds are transferred from Headquarters
to the bank account of each.entity in amounts and at times necessary
to meet funding obl igations; otherwi minimum balances are ma
tained in the accounts to keep them open
Devised_Facilities-Notionals--Those Agency-owned and managed
mechanisms simiar to Devised Facilities except that the mechanisms
are not incorporated; are sole proprietorships The same
administrative procedures are used as for Devi Facilities.
C Notionals--Those Agency-owned and managed mechanisms which
are merelybus ness names not forma]ly constituted or registered)
which ostensibly do business at the address of an answering service
or witting attorney _ Opera officials are usually fictitious
and management js effected by specialists at Headquarters_ These
entities are genera]ly used as fund attribution for monies
to bona fide corporations in reimbursement of cover costs for Agency
assets, and are" also to fund proprietary organizations_
The same administrative procedures are used as for Devised Facilities_
2 As of 31 October 1975, the number of mechanisms in each category
is as follows:
a Devised Facilities 31
b Devised Facilities-Notionals 67
C Motionals 228
Total 326
Jb
Ni "!
SECNET
1
ing
They
ing
in- se,
they
sed
ting
ing paid
used they
4973
==================================================
Page 48
==================================================
43
DESCP!ptisiS OF *AJJR HEADQUARTERS-CO"FROLLED
R/n19
PROPR[ETARIES FQiD ON THE SCHEDULE ATTACHED
To A 24 SEPTEXZER 1975 MExORANDUM TQ TxE Ii
CONPTROLLER FPom THE CFFICE OF FIMANCE
LPBERRY /8 A one man one secretary accounting and
Tega/ firm in New York City Which pro-
vides services to Agency proprietary
clients as Iel 1 as commercial customers.
The majority of tne costs 0f this pro-
prietary are usually subsidized by the
Agency however, during the past 12-
Fonth period the proprietary did earn
substentia] fees from Iega] c]ients in-
cluding 3 S20,000 Which was congingent
upon the favorable settlenent of a civil
case.
LPPIKE A Sia ] 1 importing firm in New York
which provides cover for one Agency of-
ficer in the Far East In the past_ the"
company nas earned substantial revenue,
towever, in recent months and for the
next year it is expected that the conpany
will be subsidized completely by the
Agency .
PDPORTAL A comp] ex of companies both in the U.S.
2nd abroad Ivn ich comprise 3 wor]dwide_
took distribution and manuscript
Tishing activity _ Except for 54,000 to
S5,Q00 3 year from outside sources a]1
proprietaries in this comp]ex are sub-
sidized completely by the Agency _
PDLEDZER sta 1 1 company in Europe which publjshes
2 weekly periodica] and dissemirates this
ind other Faterja) tc recipients in and
jt 0f Russia; the verious written [a terials
projuced for dissemination by the company
contain Soviet dissident ]iterature and
otner erticlas to encourage and assist
ac:ivities 0f rcderate segnents of Soviet
society This coipany receives outside
revenua from tke sale 0f its publications
and over the past 12 Tontns this revenla
contributed to approxizately one-ha]f 0f _
tha costs _ Te balancREs provided bxOM
+n2 Agency.
Muy 4 2915
Cia
JECaET
39
fee
City
pub -
==================================================
Page 49
==================================================
4 t {x
44
PDDYNAMIC A domestic based corporation with
a German
branch which fosters the a ims of 3 nation-
al istic group within the USSR and publishes
selected books and perjadicals for distri-
bution to members of this nationa] istic
group_ The New York and German Offices
under this project are Targely subsidized
by the Agency with
some revenue to the
Germn office from tne sale of pub]ica-
tions_
VWCADENZA A one man, one secretary, consul
company Which provides Agency officers
with training and advice on
tech-
niques as app] icable to foreign operations.
This company is wholly subsidized by the
Agency.
MHBOUND MHBOUND/ 3 ,
a security services company
which supports Agency programs involving
contractor personnel and Offers Timited
services to commercia] customers for
cover purposes _ This company is almost
comp]etely subsidized by the Agency.
KMJAGGERY
A sta]] purchasing company operated by
the Agency, Office of Logistics, which
provides covert procurzment for that
office_ This company is wholly subsi-
dized by. the Agency _
QRMYSTIC A sole proprietorship_ in the Washington
area ostens owned by an Agency employee
whose writing and research talents are
utilized exclusively by the Agency in
support of overseas Operations_ This
company is wholly subsidized by the Agency:
WUDIRk group of threz conpanies in Teiy Yuck
nich provide cover for perscnnel assi igned
to FR Division' s Mew York Base. The
three companies involved are supported
wholly by the Agency .
L?hOCUS A two accountant one secretary firm in
Rex York which provides accounting
services for Agency proprietary organiza-
tions Tnis company is supported almost
exclusively by the Agency _
Hom
NOv 4 jyi5
2 Cia
SECRET
ting
poTI ing
ibly
City
==================================================
Page 50
==================================================
LPBYZAS/3
A
t3ropean
company With no employees
which holds the Agency ' $ interest in arother European company whiehe
was used in tne past to provide cover for Agency employee_ This companyorsObe
aetageedy so]eeytfor the Purpose %f hoTding
an Agency investment.
Until this invest-
ment is sold, the expenses incident to the operation of the, company Wifi be wholy subsidized by
tha
LPPANDA
One company
in New York without employees
and 3 One accountant, part-time firm in Europe which provides secre
support to
rSjenxhich grividey orgonizicions__
This company js a ]most exclusively sub-
sidized by the Agency.
MHMUTUAL
This is the insurance through {ntergst andrsuvadendsoea eedbich,
investment portfoliq pays fearaed on
Project expenses except for funds provided
by the to meet the sal costs of staff and contract employees
in the
complex.
LPSUGAR
A two accountant_
2 one secretary firm in
the #ashington area which provides
ac- counting services
to other
Prietary organizations_
This
pro-
almost compietely subsidized
company js
by the Agency-
fROM
InOv '4 'ith5
SeCRet Gha
being
Agency -
tary
Agercy
its
Agency
ary
Agency
==================================================
Page 51
==================================================
46
SEXSITWE
LISTING GF PROPRIETARIES
DURING THE PERIOO
1952 ThROUGH 1974
(Total 399)
HIGHEST NET
EQUItY BALANCE
ON MET' WORTH
PROJECT/ AGENCY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74
ABUNA (Same as JBCASHBOX) 98,000
AEEGGHEAD 65,000
AZMARSH 1
AEMIRROR 42,000
AEPOKER 135
>
900
AEWILDFIRE 37,000
AESILVERYD 60,000
AKAROA 747,000
AMI DEA 275,000
BEDEVIL 214,000
EEHOVE 141
7
000
BEl'~~FUL 9,200
BEWr _ [D 291 O8O
SGJAGUAR 59,400 84
>
400
BGMARQUE 3,500,000
BGSPEED 2,200
BGTENTS 13,500
BGTHANKS 88,200
CABANA 17
CALANCET 29,000
cAPOX 64,800
DzNOEED 2,829,000
DEWARK 333,000
DTCRAZE 85,000
DTLAMPREY 254,500
DTLIQUOR 4,600
DTPFENYL 189,500
DTPIGGLE 38,500
DTPILLAR 7,123,C00
REC? FRoN
OTTEEPEE 117,400
DUPLICITY/I 39,030
NOv 4 1975
CVa
SEC?ET.
SEASILE
,414
,000
==================================================
Page 52
==================================================
Jcu:LI
47 SEnSHTWE
hIGHEST RET
EQUitY BALANCE
ONi MET WORTH
PROJECT/ AGE:ICY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74
ENDOMORPH 5
ENGAGE 202,000 5,300 (a)
FELIX 6,200
FJCITIES 33,C0o
FJREFLECT 7,959,000
FJHOLIDAY 77,464
FJSTRICT 304 ,C00
FUARROW 29,000
FURIOSO/H 22,000
FUSEE 25,230
GINSENG/G (was GIMMICK) 31 ,000
HACKMORE 600
HALARC 9,60j
HBDERRICK (was WU) ( same as
HBCLUBHOUSE OILSTONE) 917,543
HBSANDTRAP 1,103,000,
HREPITOME 546,200
Hc CKORY 142,EC]
HBQUAIL 2,1C3
Housing Fund ISOLAT ION| 16,600
HTB ALARD 14,230
HTGARLIC 203,300
HTMAMABLE 2,056,000
HTPENULT 7,c0
ICIRON 2 , CC]
IUAIREDALE 39,C;0
IUQUEST
IUABATE 3,484,030 3,484,00(a)
IUPAGAN 3,332,000 830, 020(a
IUPROTON ` (* ) H ,230,CCO 7,220(a)
JBFOLDAGE 43
9
CQo
JBGREED 34,110,0o0 31 ,778 ,000(a)
LPCRY ING
JBCHOKE
REC-
FROM
JBARGON
NOv 4
"1975
(*) See attached sctecule fcr nor-gove r nment invest ents
(4 ) [n process of [iquidation
C|a
-2-
3
SSECRET
Sc4nzWE
==================================================
Page 53
==================================================
SECREI;
48
Sehshtive
HIGHEST NET
EQUITY BALANCE
ON MET WORTH
PROJECT/ AgENCY RECORDS BALANCE
ENTIty 1952-1974 31 DEC 74
JBGREED (cortinued)
JBHEEOFUL
PROP B:
PROP C
JBOPOSOMIC 3,500
JBWHIST 205,000
JMATE
JMDUST 512,000
JMHOPE 345,000
JMPOPLAR 61 400
KMHELMSMAN 19,400
KMARDISH 8,200
KMCPRDUEL 20,000
KMCASADE 49,000
KMJAGUARO 1,628,000
KMFERRY 4 ,Q00
KMJAGGERY 294 700
MHOLENT 11 Coo
STOCK ACCT_ #2 4,105,000
Sr STOck AcCT #3 50,030
TPLENITIC 153,500
KMOCHRIOD 50,500
KMPRICE 141 OO0-
KMSMORCH 8,300
LAGYCHAPEL 223,000
LCFURTHER 31,800
LCKNIFE 335,300
LCPEDANT 59,800
LCROPES 311 CCO
LFUPRISE
MIAstoR 22,0C0
LILISP/G 121 7C0
LIMERRY 129
>
0Jo
LPBERRY was BGLEADAAY) 41 600
LPBERRY/A 65,000
LPBERRY/8 52,000 53 , 200
LPBYZAS/A 67 0B0 340(a)
LFBYZAS/B 357,000 357 00o
AM
NOv 4 1975
(a) [n process of liquidition. Cia
3- SECREL
fELuc
REGZ
==================================================
Page 54
==================================================
SENSITWE-
49
HIGHEST `ET
EQWITY BALANCE
ON NET WORTH
PROJECT/ AGericY' RecORds- BALAMCE
ENTITY 1952-1374 31 DEC 74
LPCAPTAIN 20,000
LPCANAL 34,830 2,000(a)
LPDICTUM(was ZRSALTY (same as 500,000
WUBRINY ) ZRSALTY)
LPDICTUMF 931,900
LPESTATE 87 , CCO 84,400
LPSPICE (*) 206,000 10,500(a)
LPDICTUMP 75,CJ0
LPSALINE (*) 1,597
2
CoO
LPETHNIC same as WUAMICE)
LPCYHAMMER 800
LPHALTER 67 COo
MODAISY 5,400
LPTOTEM 242,000 81,200(a)
LPFUNNEL 1 500
LPGAMP 27 OO0
LPGLOBE 29,000
LPHOCUS same as WuHOCUS) 88,000 35,700
LPJACK (*) 49,000 54,400(a)
LPMINERAL
MAIL 52,QQ0
Lr&HICKEN 13,OCO
LPMINOR
LPMINOR/T 523,CcJ
LPMINORIG 91,C00
LPMETAL 166,000 47,800(a)
PULSE 9,000
"WUHALIBUT 311 100
LPPANDA same as ZRBADGE)
CHAIR A( same as WUPSYCHEI 77,500 1 900
CAIR 8 WiCXAIPAA 2 Ucuiin/3) 7,630
LPCLOUD ( same as WUCLOUD) 5,C00
LPMET (*) 16,280 16,200
LPREMEDY 34,G20 27
7
400
LPRECLAIM
LPPITCH 58,CoJ
LPROE/
LPPIKE 73 7Co 56,200
LPSIPHOM 12,50Q
LPSUGAR 55,0CJ 35,600
LPTACTIC Xw
LPABBEY 3,500 4,300
LPACROSS 1,7C0
(+) See attached schedule
(a) [n process of liqjuidation
SECRET
SNSWWe
RFCc"
"n
FROM
1975
==================================================
Page 55
==================================================
L
SEHSITIVE -
50
HIGXEST MET
EQUITY BALANCE
ON NET WORTH
PROJECT/ AGENCY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74
LPTACITC (continued)
LPABOUT 1 ,OOQ
LPACTION 4,300
LPADVANCE 20,000 600
LPALONE Coo 400
LPASSIST 2,500
LPBAIL 11 400
LPBANJO 7 900 1,200
LPBEAVER 2,200
LPBRAID 2,200 1,800
LPBRICK 4 200
LPCAMEO 2,CQo
LPCAREFREE 16,000
LPCEMENT 64,000 86,200
LPCHANNEL 500
LPCHAOS 2,500
LPDAIS 31 OO0 20_
9
500
LPDARE 21 000
LPDECOR 98 700
DQOLLOP 3,000
JOUBLE 4,780 2,800
LPDRAGUN 7
9
CQO
LPDWPE 19,C00 3,600
LPELECT ,300
LPEPIC 49,000 6,600
LPF INAL 1,100
LPFLASH 101,900
LPGAMP 15,400
LPGRASS 2,000 2,400
LPGL ITTER (*) 1,413,5c0 132
9
000
LPINPORT 1,100
LPKAYO 700
LPKILT 10,600 7 800
LPKITTY 7 030 2
9
500
LPKIVA 6,000
LPKNIT 12,203 14,800
LPLAZY 55,030.
LPLOTUS 3 700 2,400
LFMANTLE (*) 591 CJo 37,800
LPMASSIVE 2,400 1 80Q_
FROM
LPORDER 68,500
WUOUTDONE 15,020
4
1975
LPOXAzOLE 5,100
(*) See attached sckecule .
SEGRET
Zlalwc
3 ,
NUV
Ca
==================================================
Page 56
==================================================
Jtuhci
51 SEXSITIVE
HIGrEST NET
EQUITY BALANCE
ON NET WORTH
PROJECT / AGEnicV RECORDS BALANCE
ENTITY 1952~1974 31 DEC 74
LPTACTIC (continued)
LPPITCH 28,200
LPPURSUIT 2,100 2,500
LPRAISON 8,000 5,900
LPRANGE 750,000 14,000
LPRERUN 5,000 5,900
LPRIVER 4,000
LPROCKY 1 100
WUSEMOR 2
3
700
LPSERVICE 4,4oo
LPSHADE 42,000 2,400
LPSHOFFLE" 60
LPSHORE 6,700 ,900
LPSOLO 393,000 7 800
LPSUMMIT 5,500
LPVISION 3,800 2,800
LPWAMPUM 40,000
LPWEARY 4 ,.400
LPHHISPER(ame .& LPCAPTAINAPWHEFR9,900
Lpl TY/1 500
LPHAMDER 5,Cc0
LUMINANT 12,800
MEMNONITE 1 3
200
MHAMISH 38 ,0C0
#HANVILIA 28,000
NHANVILIB 2,700
NHANVIL/B 3 300
MHANVILIF 2 4C0
MHANVIL/G 2 OCO
NHBOUND/ 1 (same as ZRLINEN) 135,930
MHBOUND/2 28,0C0
MHBOUND/3 351,600 494,400
MCLIMB 45,000 20,000
MHMUTUAL
MHALATE 155,900 103, 600
MHBONBE 2,251,000 873,335
WUCAREFUL *) 39,900 RECC;
wJM
WUCHILI (* 20,030
MHCLUMP 75,500 81
2
400
MHCROZE
{
2,026,600 1,605,200 Rv 4 1975
MHDELFT ,400 9 300
MHDRYAD * 52,C30 46,300
Cia
(*) See attached schecule
Page Vo
==================================================
Page 57
==================================================
JLClici
SEHSITWVE
52
HIGXEST MIET
EQUITY BALANCE
ON NET HORTH
PROJECT/ AGEricY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74
MHMUTUAL (continued)
MHEGRET * 35,000 33,800
WUFACET
I 128,000
MHFETCH * 1,261 Co0 (363
3
500)
MHHAWSE + 48,600 54,600
MHJORUM (* 115,000 141 500
MHKEVEL * 357,0Q0
MHKOALA # 250,000 211,200
MHLIBERTY + 4,400
MHLITRE (* 7 600
MHLUMEN $ 59,000 35,500
2 MHMATTE * 49,000
MHMOLAR * 850 550
MHNAVAL # 26,800
MHONSET # 126,000 199,000
MKPIQUE + 28,500 15,900
HUPRUDENT $ 1,025,020
HUSAFETY (# 412,799
MHSEPOY # 18,000 (6,100)
MSLACK 691,500 574,800
TWANG (
;
638 , 9C0 648,500
raUNDER 33,500 (590)
MHVODKA 7,053,580 8 ,230,000
MHWAIFF 8,385 ,000 6,361 000
MHNERVE
MhFuGUE 325,500
MHSHANK 244,000 17 , 600(a)z (b)
MIASTOR 34,700
NICLINIC 2,500
MIPACT
NTHOLDING 21 400
MIPUSHER 37,000
Mkcotton 459,000
REccWT? FIROM
MKCRUSH
MKKILLY 35,500 6,000 hiov
4
MKPEMNY ( same as MKPENNY ) 366,030 82 , Q0O(a)
MOKITH 20,.232 20,300
Cta
NONARRON 51 ,700
MON iTION 52,0o0
(*) See attached schedule (a) In process of liquidation.
(b) Liquidation conpleted in March 1975 .
-7_
SECRET
30 SeNSTVE
1975
==================================================
Page 58
==================================================
JCUMli!_
53
HiGHEST NIET
Equity BALANCE
O MET WORTH
PROJECT/ AgencY PECORDS BALANCE
ENTIty 1952-1974 31 DEC 74
MOVEL 51,200
NTEICACER 80,763
OBLIVIOUS 14,600
OKMAJOR 411,000
OKSALE 46,600
OQKADIAK 92 ,800
OQKAIL 170,150
PAFANFARE Sama as FANFARE) 30,300
PARABASIS 39,000
PAWALRUS (was WU) 92,800
PBGREGALE 47,800
PBTEMPLE 5,000
PDBASIC 1,053,500 465,800
PDBASIC/2OO
PDBASIC/100
PDBASIC/4OO
PDBASIC/300
PEI 'ICID 13,Cc0
POl;
'4 S 25,00
PODEARLY 32,3'0
POVARSITY
POSPOKE( same as POVARSITY) 31,900 18 , 000(a)
PBPOUTER 36,700
PSLAWFUL 11,000
QKACTIVE 5,500,000
QKBOTTOM 4,179
QKFEARFUL 236,300
QKHUNMER 5,530
QKOPERA 1,605,400
QKSHOGUN 21 OJo
QRBASTE 533,000 389,400
QRBLAZE
QRBLOND
QRBLUFF
QRBEND 220,'02
QRBI8B 102,300
RECT"wrn TROM
Qrbuzz 12,910
QRDYNAMI C( same as AEDYMANIC) 151,530 NOv 4 1975
QRTENURE 89,200
QRTERRACE 40,700 Gk
QRGLAD 16,700
(+) See attached scredule _ 22
SEhSTW
==================================================
Page 59
==================================================
SECRET
54
SENSITIVE -
hicHEST "iET
EQUItY BALANCE
ON NET WORTH
PROJECT/ AGEnCY RECORDS BALANCE
ENTITY 1952-1974 31 DEC 74
QRLEDGER 5 165,500 91 ,400
QRMA STER 538,600
QRMOSAIC
QRHAWKBIT 106,000 94,500(a)
QRMYSTIC
QRCYNIC 9,200 2,700
QRTRIG 108
QRTROW (*) 775,700
RIPCORD 200 ,000
RIPSNOTER 457,300
ROCKOIL 3,879,000
RONDURE 29,500
SEASONAL 39,900
SERING 10,500
SGSUMMON 62,100
SILVERVA 1 250
SIPHIZZLE 32,0j0
SL 35,000
9
900
SOPRANO 15,CJ0
SORTIE 16,020
STFANHEED 28,000
STSKI 11 600
TENACIOUS 21 C2O
TETARCH 243,800
TGVIVId 23 ,700
THADMIRE 42,200
THOPiJS 25,,C0
TPFOCUS 1,764,800
TPFOUMART 97 500
TPGLARE 525,CC0
TPGULLET 70,C30
TPHERSEY 326,700
TPMANJACK 62,630
TPPELLENT 635,J0
TPSAUCER 210,030
RECT":
FROM
TFTONIc(same as FJINDULGE ) 34,260,00
TURBINE 17,C30 NOv
4 1975
TUXEDO 25,C20
(a) [n process of liquidation.
C|a
-9- 2-
SECRET
3iQ1
==================================================
Page 60
==================================================
SECRET
55
4 SENSHTHE
HIGHEST NET
EQUITY BALANCE
ON NeT WORTH
PROJECT/ AGENCY RECORDS BALANCE
EQUITY 1952-1974 31 DEC 74
UNAU 6,000
UNTWiG 1,200_
UT-00-67-61 69,600
VWCADENZA 12,200 2,600
WSFLUFFER 291,000
WSPELICAN 34,900
WSREVOLT 14,900
WSWATERSOAK 6,000
WSWIDDER 32,700
HUADIOS
WUTABOO 243,400
WUAMPLE'
wucotton 27,000
WUATLAS:
HUPESKY 192,000
Huaion 546
3
600
HUE JN
IUBERYL 723 700
IUCONTROL 70,000 700
IUEPOCH 72,200 72,200
IUPICES 28 ,000 28,000
LOBSTER 53,000
WUSETTLE 11,200
WUBEVY same as ZRGUIDE) 262,800
WUCLOAK (same as ZRCLOAK)
HUABOUT 8,000
MuACROSS 1,437
WUDUSTER 1oo,000
HUHARPY 210,Oc0
HUHUMID(Ivas WUSH INE) 815,700 (same as WUSHINE /WUKUMID)
WUMANTLE 687,000
HUOCEAN 8,200
WUSEASIDE(se THUSHINEIAUER;TEJ80,000
HUSNA?PY 1 100
WUWAMPU(s2 & HUENBARK/ 1,315,000
YUDIRK WUWAMPUN)
MUBODKIn 102,500 50,100(a)
WUCRULEzre & HUDIRK/WUST ILETTO}g] 112,500(a)
'wuxiphoid 41,300 41,300
(a) In process of liquidation. A:W 4 19z5
'1
10-
Cla
SFCRFL
,000 FROM
==================================================
Page 61
==================================================
56
NET
NET
ON
74
31
5
(same as
43
62
WU
252 =
WUGIE
53
2
12
450
iUPANEL
44,"
77
15
as
1,400
1
325= JJJTO
FROM
149,[
(81
#v 4
1915
WU
ID (same as
460
44
26
Jls
MutId:32423532 Pavb-61
SECKE /
SENSLTNE -
HIGHEST
WORTH BALANCE
EQUITY BALANCE
RECORDS DEC
AGEMCY
1952-1974
PROJECT /
EQUITY
250,000
8,500 WUEMBARK
WUHALFLIN 25,500
,000 REE 1,537 HUENT
PBLANGUID) HUMOREL
,000 ILET WUF
,600 WUFLOWER
PROOF
,700 WUSHANP 365
,700 WUGAZELLE 380
WUBLOWGUN ,900
RAFFE 16,600
400' WUZEBU
WUHELPFUL
,000
WUMUG
HUPADDY
WUACROSS 395,000
WUORDER
HUTROUBLE 900 556,
,700 351
HUCORAL
375,000 HUPEACE
HUPIGNI
150,400 WUSNAPPY
WUPILOT
O00 HUTWINE
,000 WURABBIT
HUDOLPHIN Ooo 983_
,500
WUSAUTE
NUSAXA ,000
ZRSHINE) WUACUTE
,Q0q sate WUSHINE ,254
,000 WUCOMET
000 HUShiNE
0oo) WIINVEST
,000 KUNOTICE 261
PUMA Cia
1,972,000 ZRSOLID) WUREVEL
000
WUSoL
800 Wutopsy 387
WUTRADE
Gjo
HUSTAKE
WuSuNTAN
HUFLANE
vcJd
==================================================
Page 62
==================================================
SECRET
SfnshTiVE
57
HIGHEST NET
EQUITY BALANCE
ON NET WORTK
PROJECT/ AGENCY RECORDS BALANCE
ENTITY 1952-1974 31 DEC. 74
WUVENTURE
LPARCH same as LPARCH) 69,000
HUABLE 209,000
WUBAKER 3,000
YJPASTIES 2,300 2,300(a}
YOBLADE 636,000
YodooR 285,000
YOENTITY 82,000
YOTART 755,000
YOYARD 285,700
YQFLUENT 356,000
YQFLUX 33,000
ZRBENCH 118,000
ZRCREST
ZRAVAST 72,000
LIFF 4,277,000
ZRDAMSEI 100,000
ZRDRIVE 57,500
ZRDROVE 211 000
ZRMORBID
MORGLAY 12,000
ZROCCUR 59,000
ZRTINDER
ARCORCNA 845,000
THE FOLLOWING ARE ON CCS Non OP LIST
(NOT INCLUOED IABOE OFUSTTIO)
CATAR
LXBASE These proprietaries are not on Headquarters,
MHMUTUAL OEfice of Ficance records hence no net worth
NHBLARE Eiqure was presented _ CCS estimates that no
RE: M4
MHRUCHE one of these companies had a net worth of over
NHSPRAY s50,000 during their existance iRoV 4 1975
PROPRIETARY D
SLOGAN
Chh
(a ) [n process of liquidation.
23
-12-
CECDET
==================================================
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59
THE DISPOSAL OF AGENCY PROPRIETARIES
2) An Overview
The Agency has emphasized the degree to which the ertensive
proprietary system ic has maintained in the Past has been disposed
of in recent yearb _ Indeed eccording co the current Chief of the
Cover and Commercial Staff at least in 90 far a8 large proprietaries
are concerned , "because of multitudinous reasona they will be viewed
48 the solution of la9€ resort "4 Size wa8 a problem and made It
10 "inevitable that cover would not last Moreover , there simply i8
not a
need , according to the Agency , for the kind of capabilities
supplied by
an Air Anerica either now or In the foreseeable future _
In this regard, the Agency has indicated that no "real proprietaries"
are in planning because there are no such operational requirements
before the Cover and Comercial Staff (hereafter "CCS") But the
Comittee hag learned from 1tg study that che Agency retains the
Ag William E Nelson Deputy Director of Operations
2
noted recently
to the Rockefeller Comission :
1 think by and large that the of the big proprietary
is over We have attempted over the past few years to
try to squeeze down on thoge kinds of" proprietarfes and
I chink we have really gone
now co 8
fairly small number
and 2
fairly tightly controlled group of proprietaries
who are doing legitimate operational jobs , particularly
in che media field
Our experience with proprietaries In the past hag been
if left by thengelves they cend to absorb larger and
larger amounts of government money and are not particu-
lariy for
a businegg They are not very viable in the
buginess 8ense and quickly become suspect 239 not having
any
comercial validicy_ And we have I think in the
past ten years we have in this past ten years gotten
rid of an enorwoua number of proprietaries in this field.
I don t Eoresee 49 getting in che imediate future into
any expanaion of that proprietary record_ I think we
are about right in terms of where we are non _
H# 50955 DocId:32423532 Page 63
day
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60
capability "in being" to create even large proprietaries _ * More-
over nuerous "shelf" corporacions are kept avaflable co provide
cover These latter entities are generally only of the notional
variety and pose no threat either competitively or in cerms of
domestic activity beyond the Agency 8 charter Nonetheless
8
che
Agency hag emphasLzed the need to retain this general vehicle for
at least one purpose : to retain asset8 . The CCS has indlcated
that a method is needed to keep "good men" who are loyal
}
but who
need continuing work in both their ordinary and al80 somewhat
byzantine fields Consequently, proprietaries offer a viable alter-
native co golve this dilemma of maintaining as8ets
As a result of thig , the Comittee studied which proprietaries
had been sold or otherwise disposed of during the period Erom 1965
to 1975_ Ic sought co find out which of chose proprietaries 80 dig-
posed of in the lagt ten yearg maintained 8
significant relationship
with the Agency by contract or informal understanding for any purpose _
More specifically, che Comittee sought answers to the following
questions:
(1) How many proprietaries _ by cype or function have been
dissolved OI sold a8 a going enterprise or otherwise
dispoged of by the Agency?
Mr - Nelson closed his recent testimony with a caveat:
I can visualize however depending on what happens to
che Agency In the future the possibilicy that we might
want to use more proprietaries particularly in the
field of cover if this terribly tight or
terribly
difficult But the average operational purpose except
for some of these media operations all we need is cover
and I think that most of the proprietaries that we have
fall into that category_
NW 50955 DocId;32423532 Page 64
gets
==================================================
Page 65
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61
(2) How many proprietaries have been sold , or thelr assets
sold to persons or a
group including Persons who
had prevlouely served as directors , officers or
employees of the proprietaries?
(3) In how many instances were proprietaries sold pursuant
to a writcen agreement or an unwritten agreement or
unders tanding that the purchased proprietary , any
guccessor entity or the Parties purchasing the Proprie-
tary 89 asget8 would provide the_Agency with goods
gervices or other a88i8tance? In each cage indicate
the nature of the businesg involved whether the agree -
ment was written or if unwritten the way it is
reflected In, Agency fles_ and the amounts of any
specific business volume retainers or financial support
agreed co In connection wich che proprietary 8 transfer
This request covers both firm contracts for the provision
of goods and services and general agreements that the
parties acquiring the proprletary or it9 assets would
Provide them at the Agency 8 option, if requested to
do 80
(4) In how many ingtanceg did the parties acquiring the
proprietary i0 fact gubsequently provide good8 services
or other assistance to the Agency whether or not there
was a written or informal agreement of such relation-
ship at the time the proprietary or itg asgets were
acquired from the Agency? Indicate for each instance
the nature of the busine8s the dollar amounts of the
transactions involved and the period of years during
which they occurred
Our study revealed that during the indicated period 209 proprie-
taries were dissolved , sold Or ocherwise dispoged of _ thug substan-
tiating the Agency 8 claim chac it had moved decisively to extricate
itself from this area of activity_ * But in a very real senge it i8
nearly impossible to evaluate whether a "link" still exists between
the Agency and a former asget related to a proprietary because
The Agency 9
Office %f Finance originally compiled 2 list of 305
cryptonyms of "entities te which were dropped" from Office of Finance
records at Headquarters during the period 1965-1975 _ Nineteen (19)
other entitieg were added from other Agency divisions Later this
list wa8 reconciled with other Agency recorda to elininate crypconym
changes and other administrative actions not relaced to the actual
disposal of a Proprietary organization Ultimately, tbese admini L
strative "elininations totaled 115_
H 50955 DocId:32423532 Page 65
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Page 66
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62
circustances can be conceived of whereby
even though formal and
informal Agency ties are discontinued , gocial and other tieg remain.
The Lmpact of guch liaisons 18 difficult to asse3s . The following
entities were disgolved during the referenced period:
NW 50955 DocId:32423532 Page 66
==================================================
Page 67
==================================================
63
SLSEZI
TAB A
ENTITIES_DISSOLVED
AIR_SUPPORT
WUSOL ID/WUTRADE
WUSOLID/WUTOPSY
WUDERRICK/WUCLUBHOUSE
WUCLOAK/WUOCEAN
WUCLOAK/WUSEASIDE
WUCLOAK/WUSNAPPY
IUQUEST / Iuproton
WUBETON/WUGLOBAL
WUBETON/WUAISLE
WUSHINE/WuINVEST
WUSHINE /WUREBEL
WUGAZELLE/ UEASEL
WUGAZELLE /WUGIRAFFE
MUPAdDy /WUTROUBLE
MARITIME_SUPPORT
YOENTITY/YOdOOR
YOENTITY/YOMONEY
YOTART
IUMUG
IUHISTEP/ IULAPEL
IUHISTEP/ IULATCH
OPERATIONAL_SUPPORT
LPTACTIC/LPDECOR
WUTAcTIC/WUDARE
LPTACTIC/LPORAGON
LPTACTIC/WUELECT
LPTACTIC/LPFINAL
WUTACTIC/WUFLOOD
WUTACTIC /WUGAMP
LPTACTIC/LPHUMID
WUTACTIC/WUIMPORT
WUTACTIC/WUKIWA
WUTACTIC/NERVE
LPTACTIC/LPPITCH
WUTACTIC/WUROCKY
WUTACTIc/WUSUMMIT
WutAcTIC/LPWAMPUM
FRCX
LPTACT_
EPfaetieaPorbegeR
n-c :6W5
SZREET
HW 50955 DocId:32423532 Paza
==================================================
Page 68
==================================================
_64 Src;
TAB A
Page 2
(OPERATIONAL SUPPORT Cont'd
HUTACTIC/WUABOUT
LPTACTIC/LPACROSS
WUTACTIC/WUBAIL
LPTACTIC/LPCAREFREE
HUTACT IC/WUCHAOS
COVER SUPPORT
STLARGO
STMOD
STLAD
STUPLIFT /STKNAP
STUPLIFT /STPACER
MIPACT /MIHOLDING
HALARC
MIPACT /MOPUSHER
CYTABARD
WUDIRK/WUCURULE
WUDIRK/WUBODKIN
WUENTREE/WUMOREL
WUPANEL/WUCORAL
WUPILOT/WUTwINE
LPBYZAS/A
WUBRINY /WUTROCHUS
LPDICTUMF
LPDICTUM/P
LPMINERAL/LPCHICKEN
LPARCH/LPDUCAT
WUATLAS/GIBLUFFF
AccountinG MANAGEMENT
QUBUZZ
MHAMISH
LPPAMDA/LPCHAIR/B
LPBERRY/A
WUSUNTAN/ WUFLAME
WUSUGAR/B
INSURANCE
MHANVILZB
MHANVILID
MHANVILIF
ReC MHSPRAY
MHKEVEL
MHNAVAL
SZ5
MA -50555 DocId:32423532 68 _
ARtir_
page
Fir
==================================================
Page 69
==================================================
65
TAB A
Page 3
COVERT PROCUREMENT
WUMI NOR/ [
WUMINOR/WUHALIBUT
LPMINOR/ LPMETAL
WUMINOR/PULSE
IUAIREDALE/ IUOASIS
FouNDATION OR INSTITUTE
0i44na AEWILDFIRE
LPUNITY/I
MEDIA
UQACORN/ VOACTOR
FUSEE
YOYARD
TOMOSAIC/TOHAWKBIT
COMMUNITY_DEVELOPMENI
WUETHNI C/MODAISY
WUETHNIC/LPHALTER
WUETHNIC/LPCYHAMMER
WUETHNIC/LPTOTEM
PERSONAL SERVICES
MKCRUSH/MKPENNY
MKCRUSH/MKCOTTON
BEUSEFUL
BGJAGUAR
ENDOMORPH/ ENGAGE
INVESTMENT
LPDICTUMK
LPDICTUM/LPSPICE
LPDICTUM/WUSALINE
RESEARCH & DEVELOPMENT
MHSHANK
REcIzD FROM
Occ: i6 1975
SG_T
W# "70929 DocTd:32423532 Fage 65
0
==================================================
Page 70
==================================================
66
SELAET
TAB A
ENTITIES DISSOLVED
AIR SUPPORT
JBGREED/JBCRYING (In Liquidation)
JBGREED/QKHEAVERLY (In Liquidation)
JBGREED/ QKHEEDFUL (In Liquidation)
JBGREED/JBCHOKE (In Liquidation)
ZRBENCH
WUBETON/ WULOBSTER
MARITIME SUPPORT
YOBLADE
AMCRAFT
AMSALLY
MEDIA ANDOR PUBLICATIONS
ESMI DWAY
AMIDEA
AMWIDE (SLOGAN)
AMRAPT
WURABBIT
INSTITUTE OR FOUNDATION
LPWANDER/ 1
LPWANDER/2
LPWANDER/3
LPWANDER/4
JMCLIPPER
QKBOTTOM
QRBIBB
PBGREGALE
QRTRIG
RECFW'"n FROM
U": i;
COVER SUPPORT
JMDUSK Wi
FUARROW
YQFLUX
KGHELMSMAN
ECIRON
GINSENG/G
SECRET 14
D4E5l32424547_gave
==================================================
Page 71
==================================================
62
SECRET
TAB
ENT ITIES DISSOLVED (Continued)
OPERATIONAL SUPPORT
LPGLOBE/WASH
SLIGO
SLAPJACK
LOGISTICS SUPPORT
Stock AccOUnT #2
KMFERRY
KMKANGANI
MHOLENT
OPSOMIC
MANAGEMENT 8 ACCOUNT Ing
LPPANDA/LPCLOUD
INVESTMENT
WUVENTURE/WUABLE
WUVENTURE/ WUBAKER
COMMUNITY_DEVELOPMENT
WUAMICE
SECURITY SERVICES
MHBOUND/ 1
MHBOUND/ 2
REL : :
Ukc 1 (
SECRET
DeKIa Pai
%.
==================================================
Page 72
==================================================
68
The following entities
were sold during the referenced period:
H 50955 DocId:32423532 Page 72
==================================================
Page 73
==================================================
69
Jacl
TAB B ENTITIES
AIR_SUPPORT
WUSHINE/WUCOMET
WUSHINE /WUELBOW
WUSHINE/= 'WUnOTIcE
WUSHINE /WUPUMA
WUGAZELLE NUBLOwGun
WUGAZELLEZWUZEBU
ZRCREST/ZRAVAST
ZRCREST/ZRCLIFF
WUCLQAK/WUDUSTER
WUCLOAK/WUHARPY
t
WUCLOAK/WUVITAL
IUQUEST / IUABATE
IUQUEST / IUPAGAN
WUSAXAYWUACUTE
TRAVEL_BUSINESS
WUBEVY
CQVER_SUPPORT
4 POEARLY
CALANCET
STFANWEED/STDOLLAR
STMYSTIC
MIHELEN
MIPACT/MICOUNCIL
INSURANCE
MHTHROW
MHMATTE
MHIRONY
mecf"
FRons
DFC : >
1,: .
Substantia] Assets Sold; Entities
Dissolved
Sruizz[
~509577 1kon 23
SOLD
Tcn
Pate
==================================================
Page 74
==================================================
70
SECET
TAB B
ENTITIES SOLD
AIR SUPPORT
JBGREED/ JBARGON
FOUNDATION OR INSTITUE
DE INDEED/ IUINHAUL
TRAVEL SERVICE
LPJACK
LOw coST HOusInG
WUFLOWERY/WUSWAMP
RESEARCH & DEVELOPMENT
HTNAMABLE
RECEW'
IHfc; < €
SECRET
bouriaz : Page-
20
==================================================
Page 75
==================================================
71
The following entities were "otherwise disposed Sf" during che
referenced period
>
MW 50955 DocId:32423532 Page 75
==================================================
Page 76
==================================================
72
TAB C
ENTITIES OTHERWISE DISPOSED OF
AIR SUPPORT
WUEMBARK/WUHALFLIN
WUSTAKE/WUHOBBY
WUSAXA/WUBLUSEE
MOMARRON
WULAZY
COVER SUPPORT
YJPASTIS
FQUNDATIONS_OR_INSTITUTES_
QRBEND
ZROCCUR/ZRMIDDY
QRSENSE/ KMOCHRIOD
AESILVER
MEDIA
PAWALRUS
POVARSITY
QRGLAD
AEEGGHEAD
ACCOUNT inG & MANAGEMENT
LPCAPTAIN/LPCANAL
OPERATIONA SUPPORT
LADYCHAPEL
WUTACTIC/WUDOLLOP
RECFWro "Zfm
{Fi .
ZEZT
M-50955 Decld732023532 Paqe
==================================================
Page 77
==================================================
73
SECHET
TAB C
EntiTIES OTHERWISE DISPOSED OF
MEDIA ANDLOR PUBLICATION
LILISP/G
AMHIM
QKACTIVE
QRMASTER
TPTONIC
TPTONIC/FJINDULGE
TPTONIC/ZRNACARAT
FOUNDAT ION OR INSTITUTE
ZRCANNY
DTHABEAS
DTEMBARGO
ZRTINDER
QRTROW
PAFANFARE
QKFEARFUL
WSFLUFFER
DTPILLER
DTLAMPREY
QKOPERAVDTGODOWN
COVER SUPPORT
QRMUGWUMP
TRAVEL SERVICE
TGVIVID
OPERATIONAL SUPPORT
AMOT
REC:VFD
DCC !^
614
SECRET
wb
FROM
125
==================================================
Page 78
==================================================
There follows a description of the disposicion of entities
sold or otherwise disposed of during the referenced period Twency-
nine (29) of the entities were sold or given to witting individuals
(former officers , employees , managers contractors , ecc.) Five (5)
were sold or
given
to
witting individuals who had ro fornmal rela-
tionship with the proprietary. Ten (10)' proprietaries continued to
provide goods or services co the Agency after the disposal Thirty-
four (34) proprietaries did not continue to provide goods or services
to the Agency after disposal In nine (9) inscances the provision
or offer to provide goods or services were formal or informal condi-
tions of the sale or
gift. In thirty-seven (37) instances this wag
not the case. Six (6) proprietaries
were sold to unwitting individuals
or organizations and chus no
provision for services or goods was indi-
cated : Several miscellaneous dispositions developed which did not
fit neatly into any of the above ' categories _ For ` example , there
was one merger of an Agency proprietary with another Agency proprie-
tary. In cwo instances che Agency retained a non-proprietary rela-
tionship wich a former employee. On two occasions che Agency turned
over proprietaries to other government department8 and on one occasion
it sold a proprietary to another government department _ There were
several instances where the Agency gave the assets of a proprietary
after liquidation (books materials , etc.) to previously uncompensated
participants in the various ventures On occasion che corporate
shells were
given
co attorneys in lieu 0f fees for dissolution_ Some
participants were permicted to retain proceeds of sales in order co
continue the original effort of the particular proprietary. And
H 50955 DocId:32423532 Paye 78
==================================================
Page 79
==================================================
13
finally, assets were sometimes given to other proprietaries but
without the benefit of a merger
HW 50955 DOcId:32423532 Page 79
==================================================
Page 80
==================================================
8276 0
TAB D
DISPOSITION QF_ENTITIES_SOLD_OR_QTHERWISE_DISPOSED_QR
WUSKINE/WUGAZELLE The six air proprietaries in the WUSHINE and
WUGAZELLE complexes were sold as a package in 1969
to a
group of witting U.S_ businessmen who had
acted as nominee officers directors
9
and stock-
holders for the companies in the WUSHINE complex_
Although the group offered to provide cover and/
or ajr support to the Agency after the sale, this
offer was not made a condition of the sale and
no understanding Or contract was
negotiated for
prospective purchase of goods Or services or
cover support. To date the proprietaries sold
have not been used by the Agency .
ZRCREST These two air proprietary entities were sold jn
1974 to the businessman who managed both entities
during the period of Agency ownership_ No agree-
ments for the continued use Of the entities sold
were negotiated or impl ied at the time of sale,
and_
9
to date no subsequent use has been made
of the entities by the Agency .
WUCLOAK/WUDUSTER This air proprietary was sold in 1968 to the
witting businessman who managed the entity
during the od of Agency ownership. No
agreement for the continued use Of the entity
sold was
negotiated or imp] ied at the time of
sale and _ to date, no subsequent use has been
made of the entity by the Agency .
WUHARPY This air proprietary parts procurement) was
sold in 1965 after a11 assets had been removed
(a corporate shelI ) to the witting group 0f
businessmen from which the entity was originally
purchased No agreement for the continued use
of the entity sold was
negotiated or imp]ied
at the time of sale and to date, no subsequent
use has been made 0f the entity by the Agency .
WUCLOAK/WUVITAL Thjs air proprietary entity was sold in 1972 to
an unwitting, bona fide air]ine company No
agreement for the continued use of the entity
was negotiated or implied at the time of sale,
RFS Fv' ~3 and= to date, no subsequent use has been made FROM
of the entity by the Agency .
DEo: !i:s
Szei
E 30065 Docn*32*4522, Raye 80
7: 48'
peri
==================================================
Page 81
==================================================
77 Ei4
TAB D
Page 2
IUQUEST / IUABATE/ IUPAGAN Substantial assets 0f these two IUQUEST air
proprietary entities were sold in 1975 to a
bona fide aviation company which was made witting
for purposes of the sale No agreement was nego -
tiated or implied at the time of sale for Agency
use or purchase of goods or services from the
company which purchased the assets_ To date no
goods or services have been purchased from the
buyer_ The entities were subsequently Tiquidated_
WUSAXAVWUACUTE This air proprietary entity was sold in 1971
to
an
unwitting businessman _ No agreement for con-
tinued use of the entity by the Agency was negoti-
ated or imp] ied at the time of sa and to date,
no such use has been made of the entity_
WUBEVY This proprietary which pub] ished trave] guides
and waS used as cover for Agency officers world-
wide
2 was sold in 1968 to the editor of the
trave] guides_ The editor was an Agency employee
and retired at the time of the sale No agree-
ment was
negotiated or implied for the continuing
use of the entity after sale_ To date, no goods
Or services have been purchased from the entity
by the Agency _
POEARLY This proprietary entity which provided status
and access cover for severa] case officers in
the Far East_
1 wa $ sold in 1975 to unwitting
purchasers There have been no Agency contacts
with the purchaser since then. A11 sale pro-
ceeds were returned to the Agency _
CALANCET
This proprietary, Which provided cover support
in Europe, was sold in 1965 to a
witting_ bona
fide company which ded technica] assistance
and marketing support to the proprietary during
the period 0f Agency ownership_ No agreement
wa 5 negotiated or imp]ied for prospective use
of the entity by the Agency =
}
and no such use
was made by the Agency . The bona fide company ,
did.
>
however continue to provide cover for
Agency officers in other areas and under offices
not related to the former proprietary' $ business
activities.
STFANWEED/ STDOLLAR This proprietary Was an import-export firm which
provided cover for one Agency employee in the
REC: "
Far East_ The entity was sold to the Agency FOM
employee in 1966 at the time 0f his retirement
from the Agency . No agreement was
negotiated
DFc;
BW_50955_ Doel4+32443532 Paye-#r
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provi
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SZE.T; 78
TAB D
Page 3
STFANWEED/ STDOLLAR or imp]ied at the time 0f sale for the Agency' $
(continued) purchase of Or services and , to date,
no such use has been made of the entity.
STYMYSTIC This sma]] proprietary, which provided cover for
one- Agency employee in the Far East, wa $ Tiqui-
dated in 1974 A covert relationship has con-
tinued with the Owner of the parent company of
which the Agency proprietary wa 5 a subsidiary_
The owner provides cover in the parent company
for another Agency employee and the parent
company moved into the premises vacated by the
subsidjary and was a/lowed to take over fixtures
and a renta] deposit at no cost_
MIHELEN This proprietary, which provided cover one
Agency case officer in the Far East, was sold
in 1974 to two Iocal-hire employees of the firm.
A1] Agency connections with the firm were severed
at the time of sale.
MIPACT/MICOUNCIL This proprietary, which_provided cover for one
Agency employee, was sold in 1970 to the un-
witting members of its Board of Directors.
At the time of sale a/1 Agency connections
with the entity were severed
MHTHROW This etary (part of the insurance complex)
was formed for the purpose of purchasing an
apartment overseas which wa $ for operationa]
purposes When the apartment wa $ no longer of
operational use in 1970, the company (and the
apartment) was sold to a non-Agency connected
party_ No agreement for the continued use Of
the corporation or the apartment was made with
the purchaser and _ to date no such use has
been made of the entity Or the apartment_
MHMATTE This proprietary (part of the insurance complex)
was establ ished to purchase an apartment overseas
of operationa] interest to the Agency _ When the
apartment wa S no Jonger needed for operationa]
purposes in 1970, the corporation (and the
apartment) was sold to 3 non-Agency connected
party_ No agreement for the continued use of
the apartment or the entity was made with the Recf"'n FROM
purchaser and, to date, no such use has been made
of the apartment or the entity.
Dc
1XX
j01
SEGEET
HW 50955 DorEeX42,423532.-Rage
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propri
used
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Page 83
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79 S4Z0
TAB D
4
MHIRONY This proprietary was established for the use 0f
the insurance complex
)
but it was never activated _
The corporate she]] was sold in 1974 to the un-
wi attornies who served as resident agents.
No agreement was made with the purchaser for
the continued use of the entity and to date,
no such use has been Made of the entity.
WUEMBARK/WUHALFIN This air proprietary was merged with another
air proprietary (ZRCLIFF) in 1968
WUSTAKE/NUKOBBY This air proprietary was sold to the businessman
who managed the proprietary during the period
of Agency ownership on the condition that the
Agency would back the proprietary if the
contract which sustained the proprietary was
not renewed by USAID _ The USAID contract was
not renewed and the businessman dissolved the
entity on behaI f of the Agency in 1968 .
WUSAXA/WUBLUSEE This air proprietary was disposed of by trans-
ferring all assets to another air proprietary
and turning over the corporate shel 1 to two
unwi foreign: nationa] nominees No agreement
with the nominees for the purchase of goods or
services subsequent to the turn over was negotiated
or implied and to date, a use has been made of
the entity by the Agency.
MOMARRON This proprietary was estab] ished in the Far East
by two foreign agents of the Agency to provide
support services for Agency-sponsored air opera-
tions The company failed- at Ieast partly due
to embezz lement by the two agents_ and wa s
Tiquidated apparently in late
1962
or early 1963 _
The Agency station in the country involved
continued to ma intain a covert relationship with
the two agents who were po] itically significant
for some time after the Tiquidation. The re-
ationship
was non 4 proprietary.
HULAzY This proprietary was involved in support of air
activities for a large Agency paramilitary
program in Africa At such time as the program
was concluded
9
a]l assets were removed from
the company , and the corporate shel ] wa s given Rect""n FROM
to the attorney who established the entity in
Tieu of paying his prospective fee for dissolv-
the corporation_
Eue
Page
tting
buy
tting
ing
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Page 84
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80
~EBRET
TAB D
Page 5
YJPASTIS This proprietary which provided cover support
for one Agency officer in the Far East was
abandoned when the country was overrun by
Communist forces _ The assets Teft behind will
be written 0ff.
QRBEND This proprietary
J
non-profit organization wa $
turned over to its management in 1967 when the
Agency withdrew its support to the entity_ No
further Agency support has been given to the
entity and the management intended to continue
the program with private and USAID support_
ZROCCUR/ZRMIDDY This proprietary non-profit medical organiza -
tion wa $ disposed of in 1967 by transfer of
al1 0f assets to the witting Board of
Directors for continuation without Agency
support. No further Agency support was given
to the entity ,
QRSENSE/ KMOCHRIOD This proprietary non-profit entity was dis-
posed' of in 1968 when al] assets Were turned
over to the witting trustees who intended to
continue the operation with vate support.
No further support was given to the entity
by the Agency _
AESILVER This foreign proprietary research institute
Ivas disposed of in 1967 at which time the
Institute wa s surge funded to permit it to
continue operations for approximately two years
while a search was made for vate funds to
enable continuation of the Institute or permit
its orderly Tiquidation_ In mid-]969, the
Institute ceased its activity since sufficient
vate funds could not be ocated to fund
Institute programs No Agency support was
provided after 1967
PAWALRUS This proprietary entity publ ished an English
Tanguage periodical in the Near East_ The
ishing rights plus certain assets were
sold to indigenous purchasers and the proceeds
of sale were used to pay off corporate Tiabilities
prior to dissolution of the entity_ Since the RECF"
periodica] continued to ish articles which
coincided with U.S_ objectives for the area
concerned the Agency provided ]imited support
to the new owners to enable them to continue
the ication
SECHET
Ni
its
pri
pri
pri
pubi
pub]
pub]
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Page 85
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81
Ki
TAB 0
Page 6
POVARSITY This proprietary ishing firm in the Far
East provided cover support for one Agency
employee who introduced foreign books and articles
to Far Eastern media sources In 1975 the firm
wa s de-registered and certain assets were sold
to a former employee of the firm who re-registered
the firm under a different name The Agency
employee who was provided cover by the entity is
still active in the Far East under a new cover
and the only contact with the purchaser is in
the interest of ma intaining the cover story of
the active Agency employee No support is
being extended to the re-registered entity.
QRGLAD This activity provides support to a
foreign
based asset to permit him to publish 3 foreign
Tanguage journa] The activity was inaccurately
and" inappropriately categorized as a proprietary
when an Administrative Plan was prepared in 1971 _
The, error was corrected in 1975 when the activity
was accurately categorized as a contro] Ted sub-
sidy The operation continues with Agency
subsidy support
AEEGGHEAD The U.S. proprietary portion of this book
Tishing activity wa $ Jegally Tiquidated in
1968 Funds remaining after settlement of a/1
iabilities were transferred overseas to other
parts of the operation and were used to meet
approved operationa] expenses _ Some of the
rema stock of foreign language books was
given to a cleared and wi itting contact who had
=
served without compensation as an officer 0f
the proprietary mechanism_ The rema inder wa s
shipped overseas to be distributed by the
overseas mechanisms of the operation which are
not proprietaries continue to distribute
boks with Agency subsidy support.
LPCAPTAIN/LPCANAL This proprietary, Which provided management and
accounting services for Agency activities_ in
Europe, was disposed of in 1974 by remova] of
a11 assets from the entity and transfer of the
corporate she] ] to the U.S _ businessman who had
backstopped the company without compensation
RES: TIROM No support has been given to the entity or use
made thereof by the Agency .
Dac : .
MI 50855 DprTt724-
pub]
pub-
ining
They
==================================================
Page 86
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82
TAB D
Page 7
LADYCHAPEL This proprietary was established to purchase an
apartment building in Europe for Agency office
and residential use In 1968 then the build-
ing_ was 0f no further use to the Agency the
entity with the apartment bui was ostensibly
to the Department of State as a gift
The Department actually reimbursed the Agency
for the bui in Washington_ The Agency
on behalf of the Department is attempting to
Tiquidate the company. This is comp] icated
by a disputed foreign tax claim.
WUTACTIC/WUDOLLOP This operational support mechanism had no assets
at the time of its disposa] in 1971 and the
corporate_shel] wa $ turned Over to the attorney
who established the company in Tjeu 0f payment
of his prospective fee for dissolving the
entity.
REC
w
DFS;
ST
FA 5095 D66177327 Pago 86
Iding
given
Iding
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Page 87
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sEciEr
TAB D
Disposition 0f Entities Sold or Otherwise Disposed Of
JBARGON This air support proprietary (maintenance facility)
was sold in January 1975 to a bona fide aviation
concern which was made witting of the Agency S
ownership of the firm for purposes of the sale_
At the time of sale, t was agreed that JBARGON
wou Id continue to provide aircraft maintenance;
supply
>
and bookkeeping services to JBCHOKE the
former parent company of JBARGON Since the date
of sale_ JBARGON has provided 5612,000 worth of
aircraft ma intenance, supply , and bookkeeping
services to JBCHOKE; JBCHOKE is now in the process
of Tiquidation
DEINHAUL This proprietary Jending institution (bank) was
established in a European country in 1955 to
provide loans and outright grants to non-communist
cooperatives The proprietary was ostensibly owned
(backstopped ) by a bona fide U.S_ foundation which
was subsidized by the Agency , and the bank wa $
managed by a bona fide management company on beha] f
of the Agency _ By 1962 when it wa$ determined
that the bank had accomp] ished its purposes the
Special Group predecessor to the 40 Committee)
instructed that the bank be phased out in an orderly
manner over the next five years Various disposa]
plans were considered over the next few years
and in 1965 the Agency sold the bank (through its
ostensible owner-~-the foundation) to the firm
which managed the bank during the period of Agency
ownership. In payment
)
the foundation accepted
notes from the management firm payable over a
four year perjod_ It was expected that the payents
of the purchase price would come from the proceeds
derived from the repayment of various types of
Ioans' made by the bank , and it was recognized that
certain unsecured bank Ioans were of questionable
collectibility_ Accordingly, that portion of
the purchase price Which was tied to the repayment
of these Toans was subject to adjustment for Titiga -
tion expenses associated with co]lection and a 20%
co] lection fee. Also , this portion of the purchase
price was not subject to interest on the unpaid
balance _ It was also agreed that the bank would
administer a fund of $100,000 set aside by the
Agency for continuing grants in Tess than $25,000
Oeg amounts for Agency approved activities which were
SELEET
00ol,32423532 Paje
[Cn
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"i) 1"
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SEH: :T,
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DEINHAUL (Cont'd) in concert with the origina ] objectives of the Pro-
ject In 1967 under the terms 0f the Katzenbach
Report_ it was necessary for the Agency to discon-
tinue its support to the bona fide U.S. foundation
(ostensible former owner 0f the bank as mentioned
above) which had acted as a collection agent for
the sale proceeds . Incident to the Agency S dis-
engagement from support of the foundation the
foundation wa 5 a]lowed to keep a11 proceeds from
subsequent payments on the purchase price for the
bank
LPJACK This travel service proprietary was sold in 1975
to an Agency employee at the time of his retirement.
This individual had ostensibly owned the firm but
in fact only Managed it for the Agency No agree-
ment wa $ negotiated for the continued use 0f the
travel ce by the Agency , however the Agency
wa $ using the travel service at the time of sale
argely for the purchase of airline tickets for
travel in support of sensitive projects This
practice sti1 continues, and it is estimated
that Agency business represents about 30% of the
gross airline ticket sales of the entity on an
annua] basis
WUSWAMP The Agency owned 507 of the equity in this foreign
entity which constructed Iow.cost housing in one
0f the less devel oped countries of the wor]d,
The Agency 5 equity was sold to: WUPESKY a private
company which: provided cover for an Agency employee
who managed the Agency s foreign Iow cost hous
program_ No agreement was made with WUPESKY for
the subsequent purchase Of 'services or products
of WUSHAMP and no such purchases were made _
Nevertheless, WUPESKY continued to provide cover
for the Agency Employee until 1973_
HTNAMABLE This proprietary was a non-profit organization
which undertook high risk scientific research
programs in support of Government sponsored
reconnaissance programs In 1966, the Agency
decided to terminate its proprietary relationship
with the entity and it was determined that
because of the charter of non-profit organizations,
any proceeds from the Iiquidation would have to
be given to other non-profit organizations or
foundations _ Accordingly, the plant and equipment
were sold to a
profit making corporation which
created a
subsidiary around the assets purchased_
O2c ! 0 The proceeds of the sa le were distributed among
2
SECRET
32423534 Fage 83
servj-
ing
REc?'
[/$
CTa
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Page 89
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85 SEEEE.
severa] non-profit organizations under Agency
control An unwritten condition of the sale wa s
that the Agency wouId contract with the new organizi-
ation scientific research of interest to the
Agency in the amount of about $900,000 over an
eighteen month od Only about 5770,000 was So
commi tted and a/1 Agency relations with the
successor organization were terminated in 1968 .
LILISP/G This media type proprietary provided
cover for
an Agency emp]oyee who arranged for a foreign
motion picture firm run by an American to produce
and distribute foreign language fi throughout
Latin America For funding purposes
9
the proprie-
borrowed working capital from another prop-
rietary, LPBERRY/A, and paid production and
distribution costs in anticipation of a return
on the proceeds of film distribution_ The prop-
rietary was dissolved in 1961 and all rights to
the net profits of distribution were assigned
to LPBERRY/A in return for cancellation of the
note it held from the proprietary _ After much
wrang] with the American Owner of the film
production and distribution company , it became
evident that appropriate reports were not being
submitted covering recoupments or net profits
and the Agency_negotiated a settlement which pro-
vided that LPBERRY/A and the distribution company
would render no further claims against each other
Relations eased at that point_
AMHIM This media proprietary compiled ished and
distributed a newsletter overseas In 1975 ,
when the Agency withdrew its support, :it was
decided to discontinue the publication activity,
and the assets of the company were turned over
to AMHIM/1 the editor and manager to enable
him to maintain a status independent 0f the
Agency as a commercial print shop.
QKACTIVE This proprietary radio broadcasting activity was
turned over to the Department of State for support
and subsequently placed under the control of the
Board of Internationa] Broadcasters for continued
operation with Congressiona/, support_
QRMASTER This media type proprietary which was - involved in radio
and TV projects was established in 1963 and continued
under Agency ownership until 1969 when it was' sold
SEGZZT
for
peri
Ims
tary
ing
pub]
RES
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SECR* [ _
86
QRMASTER (Cont'd) to its manager with ful] expectation of continued
operation with heavy Agency subsidy _ At the time
0f sale substantial funds were removed from the
entity_ieaving it without sufficient working
capita] Consequently the Agency arranged for
a 1 of credit through: & bank guaranteed by the
funds removed from the entity Subsequently;
the manager
2
with Agency permission
9
sold the
entity to a group Of foreign nationals _ The
manager formed his Own corporation Which contracted
with the Agency for services including the continued
management of the company sold of which he was sti1
president_ A management dispute resulted in the
remova] of the manager from the first corporation
and the bank seized the guarantee for the Tine
0f credit which had been drawn down and used as
working capita]- for the first entity The manager =
no longer supported by the Agency
0
is the channe)
through which the Agency is to receive repayment
of Ioans which arose out of the Tine 0f credit.
So far, the Agency has received no payments _
TPTONIC
TPTONIC/FJINDULGE
LPTONIC/ZRNACARAT These three proprietary entities were of a
substantia] radio broadcasting activity which
wa $ turned over to the Department 0f State for
support and subsequently placed under the control
of the Board of Internationa7 Broadcasters for
continued operation with Congressiona] support_
ZRCANNY This U,S, foundation type proprietary served as
a fund mechanism for a Jabor organization
supported by the Agency_ In 1968' a1] assets
plus a termination grant were turned over to the
group of U.$, businessmen who backstopped the
Agency entity. A11 Agency funds destined for the
abor union were transferred to that organization,
and the created a foreign funding company {QRSPhGERgency
util the same businessmen to
continue support to the union: The foreign entity:
is still in being a]though inactive and wilI
be dissolved after a]] tag end negotiations are
concluded with the former management of the Tabor
organization which continues in revised form
without Agency support_
DTHABEAS This proprietary non-profit entity was supported
by the Agency until December 1974 ,when al]' Agency
funds were withdrawn and the furniture and. fixtures
SEGIET,
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ing;
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RECF;''n
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87
SECRET
DTHABEAS (Cont'd) were given as a gift to the witting directors who
proposed to continue the entity as a
private
organization No further contact has been ma in-
tained with the entity.
DTEMBARGO This foundation was establ ished in 1938 without
Agency support_ After a long period %f inactivity,
the Agency took over the entity in 1953 and used
it to support a
ication produced at a U.S
University and aimed at Latin America In 1967
the Agency withdrew its support to the publ ication,
withdrew Agency funds from the foundation
9
and
the office furnishings to the witting directors
of the foundation with the sti ation that the
furnishings would be turned over to the university.
ZRTINDER This proprietary institute was supported by,the
Agency until 1968 when al1 assets and liabilities
us a
termination grant was turned over to the
management and ostensible owners of the entity
to enable the organization to continue without
Agency control or support No further contact
was ma intained with the organization_
QRTROW This former proprietary is an institute located
in Europe which seeks to influence and encourage
moderate and pro-democratic youth leaders and
government officials concerned with youth and
higher education_ The Agency 'withdrew its
support_ from the, institute in 1974 and turned
over al1 assets to the management of the organiza -
tion In addition the Agency provided surge
funding jn the amount necessary to enable the
entity to exist in reduced form for about one
during which time the management would attempt to
arrange vate support- A1] Agency employees
involved in the project terminated their employment
relationship with the Agency or were reassigned
and the Agency has not rendered further assistance
to the operation_
PAFANFARE
This foundation type proprietary provided grants
and other support to individuals and organizations
of interest to the Agency. in the Near East. At
the project" S termination residua] funds were
turned over to one of the witting trustees to
permit the continuation of the activity for a
period of time without Agency support No further
Agency support has been to the organization_
1 0
SECRET
2
Fage 91,
pub]
gave
pu]_
P]
year
pri
FROM
RECEIVED given
1975
fEC
({
==================================================
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88
SESET
QKFEARFUL This foundation type proprietary provided support
to a bona fide international organization interested
in internationa] Iega1 matters_ At the time the
Agency withdrew its support for the activity in
1969 the assets of the propri plus termination
funding were turned over to the wi Board 0f
Directors The organization now under a new
name, continues to exist without Agency support.
WSFLUFFER This foundation type proprietary provided funds
to a bona fide foundation involved with the
development of internationa] cooperatives_ At
the time the Agency withdrew its support from the
cooperative program the entity was dissolved
however, it had been anticipated that the entity
would be the recipient of funds resul- from
the sale of a
proprietary lending institution
in Europe- The bona fide foundation which was
part of the funding channel for the European
bank wa $ a/lowed to retain the proceeds of the
sale when WSFLUFFER was dissolved See the
write-up under DEINHAUL for more details 0f the
sale of the European bank_
DTPILLAR This foundation type proprietary supported indivi-
duals and organizations of interest to the Agency
in the Far East At the time.the Agency withdrew
its support for the activity in 1967 the assets
of the organization with a substantial termination
payent were turned over to the 'witting Board
of Directors of the entity_ The entity has
continued its work without Agency support.
DTLAMPREY This foundation type proprietary supported an
international organization concerned with indivi-
duals in the teaching profession_ At the time
the Agency withdrew 1 ts support from the inter-
nationa] organization
0
the proprietary was
dissolved after making one Iast termination grant
to the internationa] Organization The inter-
nationa] entity has continued without Agency
support
QKOPERAV DTGODOWN This foundation type proprietary supported
individua]s and internationa] organizations
~ involved with tura] matters To give the
entity substance and provide funds for day-to-day
administration the Agency started the organization
with 4 substantial grant which was invested in
SEEEET
DocT43z723532 RPage
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tting
ting
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89
SECRET
QKOPERA/DTGODOWN
(Cont'd) income producing securities_ At the time the Agency
withdrew its support=
9
the assets of the entity
were given to its wi tting Board of Directors with
the understand that approximately 60% of the
portfolio of investments would be retained *y the
oiganization to sustain its continued operation
without Agency support
9
and 40% of the proceeds
of the portfoiio would be immediately granted to
other organizations and activities which fostered
the objectives of the QKOPERA project _
QRMUGWUMP This sma] ] proprietary provided cover for one
individual overseas In 1972
}
the employee
resigned and expressed a desire to continue the
business without Agency support_ Accordingly ,
the meager assets of the entity were sold to
the resi employee _ Payment for the entity
took the form 0f offset against funds due the
employee on separation lump sum Teave payment ,
return trave] etc The Agency has had no further
interest in the entity.
TGVIVID This proprietary travel Agency provided cover for
an Agency employee overseas When the employee
was reassigned in 1966 a)] assets were converted
to cash and turned back to the Agency. Meverthe-
Iess an indigenous employee of: the entity, and
a contact 0f the Agency Station in the country
involved , was &]lowed to take over the name and
clientele and continue the business_ No commit-
ments or agreements were made for continued
use of the business and no support wa $ sub-
sequently provided or sought from the business _
AMOT This proprietary , which produced economic and
iological reports in support of Cuban opera -
tions was dissolved in 1973 and its assets
turned over to another proprietary , SLIGO SLIGO
was subsequently dissolved in 1975 (see Tist of
dissolved entities. )
{
SEGRET
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gned
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b) THE SALE OF SOUTHERN AIR TRANSPORT INC. : A CASE
STUY IN DTSPOSAL OF 4 CTA PROPRIETARY
BACKGROUND
Souchern Air Transport Incorporaced (SAT) 18 a U.S_ Air Carrier,
incorporated in the State of Florida on October 31 1949_ From its
inception until its Purchase in 1960 by the Central Intelligence
Agency (CIA)
}
it was privately owned by Messrs . Fredrick C . Moor
and Stanley G . Willians It was purchased by the CIA on August 5 ,
1960 , and owned by the CIA through December 31 , 1973_ CIA sold che
firm back to Mr _ Willians on December 31 , 1973
The decision to acquire Southern Air Transport wJs triggered by
a change in the regulations governing the award of Military Air Trans -
port Service (MATS) contracts _ On April 1960 , Air America (AAM).
had begun flying a
seven-month MATS contract operating out of Tachikawa
AFB in Japan co other Pacific locations In June of 1960 , the De-
partment of Defense (DOD) and the Civil Aeronautics Board (CAB) changed
the regulations governing the awarding of MATS contracts co require
that bidders hold ac least a Supplemental Certificate of Convenience
and Necessity for an Air Carrier and that they Participate in che
Civil Reserve Air Fleet Progran (CRAF) Air America did not meet
either of these new criteria and could not obtain appropriate waivers
co them. The Air. America heavy airlift capability represented an
asset for use by the U,S _ Government in future operational contin-
gencies throughout the Far East area_ Loss of the MATS contract
would result in under utilization of aircraft and air crews and: the
H 50955 DocId:32423532 Page 94
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Page 95
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MATS contract revenues were needed to sustain these assets. Therefore;
ic was proposed that either AAM should obtain the necessary certi-
fication or that the Agency should buy another comercial firm that
already held these certifications _ The October 1, 1960, contract
date and the need for public hearings and lengthy proceedings mili-
tated against AAM applying for the certificate thenselves Also ,
in order to
avoid lengthy public hearings , which would be time-
consuming and generate public exposure , it was decided chat the
ownership of the company to
be acquired must be kept completely
separate from AAM. This solution was concurred in by the CAB , the
DOD , the CIA and AAM management
It was
anticipated that if che new conpany were awarded the
ongoing MATS contract, it would actually perform the ` flying service
but would use equipment under conditional sale from AAM and would
employ personnel transferred from AAM_ Under inter-company agree-
ments Air America would provide al1 maintenance work ground handling ,
and other services for which it would be reimbursed by the new
company . In this way , Air America would share in the revenues
generated by che MATS contracts
The proposal to purchase a
supplemental carrier and operate
it under the above arrangement was
approved by Allen Dulles as
Director of Central Intelligence (DCI) on
July 15 , 1960_ Funds
from the Clandestine Services budget for FY 61 were made available
for the purchase _
wer
Afcer World War II there hadbeen over 200 supplemental carriers
in existence_ By 1960 there were
only 18 still operating _ Air
HH 50955 DocId:32423532 Page 95
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Anerica managenent made a survey of the 18 and determined that
Southern 'Air Transport in Miani Florida was the most attractive
a8 a
purchase possibilicy. It operated two C-46s_ one owned _
1
one
leased between Miami and points in che Caribbean and South
America. Ics associated company owed che four-acre property on
which SAT was located Moreover ic operated at 2
modest profit
and had no
long-term debts_
Negociations for the Purchase of SAT were successful and on
August 5 ; 1960, the CIA exchanged 8307 ,506.10 for all oucscanding
shares of capital stock of SAT and its real Property owning affil-
iate. The Agency owned these shares in the name of Roger C . Hyact ,
a former board member of Air America _ Mr Hyatt together wich
Percival Brundage and Perkins McGuire were added to the SAT board
of directors _
Under CIA management Southern Air Transport operated with two
semi-autonomous divisions: the Pacific Division and the Atlantic
Division The Pacific Division performed the MATS contract and
supported Agency heavylift requirements in East Asia_ The Atlantic
Division continued to operate in the Caribbean and South America;
doing the same sort of flying SAT had done Prior co Agency acquisi-
tion The Atlantic Division was also able to furnish certain support
for che Cuban and Congo operations _ At the peak of ics activities,
the
SAT fleet, comprised of both owned and leased aircraft, included
Douglas DC-6 , Boeing 727
8
and Lockheed L-loo Hercules aircraft.
HA 50955 DocId.32423532 Page 96
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THE SALE
In 1972 it becane apparent that the Agency 8 air
capabilities
were
beconing excess to its needs and that political realities
and future operational requirements in the Post-war era of Southeast
Asia would not require large air proprietary assets. On April 21,
1972 _ the Director of Central Intelligence approved in principle
the divestiture of CIA ownership and ' control of the Air America
complex and Southern Air Transport _ He approved recomendations
calling for Air America to be retained until the end of the war in
Southeast Asia, the immediate elimination of the Pacific Division
of SAT the sale of the two
727 aircraft leased to SAT by Air America,
and subsequent divestiture of Agency ownership and control of the
remainder of SAT * Specific note was made that conflict of interest
should be avoided and that no employee should receive a windfall
benefit as a result of these transactions *
In 1972 , Agency officials (Charles Kane and Lawrence Houston)
met with the Chairman of the Civil Aeronautics Board
1
Secor D Browne ,
and his Administrative Assistant , Edwin Rector to seek informal
advice as to che besc way to disengage from SAT Three alternatives
were discussed: (1) dissolve the company and sell the assets ;
(2) sell the assets to the current operators of the company ; (3) sell
SAT to, or merge SAT into_
2
one of the other supplemental carriers .
t The Director determined that 1 we no
longer should retain air proprie-
taries purely for contingent requirements and that on the record there-
fore the Agency should divest itself of the Southern Air Transport
compiex entirely_
He stated the opinion that the desirable course of
action would be dissolution although he realized that the problems
were many
and complex Also he did not rule out other solutions
which might achieve the end and yet better satisfy the interests of
all concerned"
** A
condition imposed by the DCI was thac"in the disposition of any
of the assets
involved nothing inure to the benefit of" Agency employees
or former employees or Persons whose relationship with the Agency has
been
or i8 of such a nature as might raise a question of conflict of
MW
50955infe39?tzk23532
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The CAB chairman discouraged option (3) because ic would involve
Public hearings and would be subject to criticism by the other supple-
mentals . Opcion (1) although least troublesome from the legal and
exposure standpoincs would further reduce the shrinking number of
U.S . supplementals (by 1972 , there were only eleven supplemental
carriers left) and would be unfair co SAT employees _ The CAB:
officials had no problem with option (2) On May 1972, the DCI
Waa presented with the results of the meeting with the CAB chairman.
He approved the recommendation to explore the sale of the equity in
SAT co che currenc management . It was noted that SAT had been operat-
35 a supplemental carrier for 25 years , none of the employees of
SAT had ever been an employee of che Agency and that both the Depart-
ment of Defense and the chairman of che CAB considered ic in their
best interests to keep SAT a8 a viable carrier racher than dissolving
the company and selling the assets The rationale behind selling
SAT intact to its management was ;
3. Liquidation would deprive the U.S . of a useful air carrier
and would be unfafr co che employees .
b. Sale of SAT 2s a going concern on the open market would gene-
rate an unacceptable level of Public interest and scrutiny. A
Publicly advertised disposition would run contrary to che Director 8'
stacutory mandate to protect intelligence Source3 and mechods
4
Although a potencial for conflict of interese and windfall
Profit eristed sale of SAT to its management would best
satisfy the requirements of everyone involved
The DCI was , apparently, allowed this flexibility in method of
disposal by statute. 40 W.S.C. 5 474(17) provides that nothing in
the regulations relating to disposal of surplus government Property
Nw 50955 DocId:32423532 Page 98
ing
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shall affect any authoricy of the CIA In addition, 50 U.S.C. 5
403 (d) (5) provides that che Director of Central Intelligence is
responsible for protecting intelligence sources and methods from
unauthorized disclosure_ Ic was determined chat sale of SAT stock
to Mr _ Williams in a confidential manner would best prevent damage
to national security and foreign relations of the United States which
could result from disclosure of CIA ownership .
Agency officials began exploring ways in which SAT could be sold
co
its management without permitting a windfall to accrue co the
buyer and in a way that could not be conscrued as a
conflict of
interest . To establish 8
reasonable selling price, the Agency asked
the Certified Public Accounting firm of Lybrand , Ross Brothers and
Montgomery (now doing business as Coopers & Lybrand) to perform a
valuation study. in turn engaged R. Dixon Speas Associates
8
Inc _ aviation consultants , to establish an evaluation for che
aircraft_ The following values were developed :
a Book Value of SAT. S3 . 9 million
b_ Estimated Total Value of SAT
Capital Stock on Open Market S2.645 million
Disposal 2s going concern 82.1 million
d. Liquidation Value S1.25 million
Agency Investment S1.5 million
Based on these figures , the Executive Director-Comptroller on
August 17 1972 , approved an
asking price of 52.7 million_ Sale
at
thig price to the management would require simulcaneous payment
in full of the $3.2 million note payable to Air America through
NW 50955 DOcId:32423532 Page 99
They
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Actus Technology (as che agsociated land holding company had been
renaned) and would not include any equity in the leasF/Purchase
agreement between SAT and Air Anerica for a Lockheed L 100-30
Hercules aircraft_ Although this 2.7 million price was less than
the 53 . 9 million book value , ic did exceed the fair market value of
the company a8 calculated Professional appraigers . The appraisals
were based not on
depreciated Purchase prices for assets , as reflected
in book values , but rather on either the earning Power of the: assets
adjusted to "present value 0 Or the current resale value Eor all
assets
On August 23 1972 _ Mr _ Williams was
advised of the asking price
for SAT of S2.7 million for the acquisition of scock and $3.2 million
for payment of debt to Air America Or a total of S5.9 million.
deadline date of October 1, 1972, was established; otherwise Mr _
Williams was advised that the firm would be dissolved and the assets
liquidaced. Although: Mr_ Williams contended the asking figure should
be reduced since the outstanding loan co Air America had been reduced
since the date of the study by Coopers & Lybrands Mr Williams stated
he would attempt co work out financing wichin the deadline date of
October 1 , 1972 _ This deadline was extended by the Agency to
December 4 , 1972 .
On Decenber 5 , 1972 , Mr Williams submitted an offer for SAT of
S5 million which comprised Sl. 875 million for the acquisition of
SAT and S3.125 million to pay off the debt to AAM On December 26 ,
1972 the Executive Director-Comptroller approved the recommendation
that Mr _ Williams offer be rejected and that if Mr _ Willians was
MW 50955 DocId:32423532 Page 100
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unable co raise by January 20, 1973, the addicional funds required
for che original Purchase price of $5.9 million, including the Air
America debt, that the Agency proceed with liquidation plans and
dismissal of SAT employees not later than February 1 , 1973_
On January 11, 1973 , Mr Williams submitced 2' new proposal co
purchase SAT for a
total price of $5,605,000 Mr Williams cited a
tentative comnitment for a loan of S4.0 million and his offer wa8
contingent upon an additional loan _ The offer called for 8 total
payment of $5,605 ,000 broken down as follows :
Acquisition of stock for Actus and SAT 82.145 million
Payment of debt to Air America 3.125 million
Credit for Payments to AAM since
IOUune) 1972, in liquidation of
long Eerm debt 335 million
Total paynent s5. 605 million
Prior co accepting Mr _ Williams offer CIA regfgsentatives
Kn tLa
discussed the sale of SAT to Mr WilliamsA Mr _ R. Tenney
Johnson of CAB indicated that the board would be interested in
seeing SAT continued _ Mr Johnson scated it would not be necessary
to surface che Agency 8 name 4s the true owner of SAT in the CAB
proceedings and chac he did not anticipate any
problems with
other supplenental carriers as a result of the sale to Mr Williams
On January 19_ 1973
0
the DCI approved che sale of SAT to Mr
Williams _ Ic was noted. that Mr Williams offer W23 within 5 percent
of the original asking price, was above che independent evaluation
for sale a8 a going concern and was at 4
figure which would not seem
to
the buyer windfall profit. Such sale would constitute a
NW 50955 DocId:32423532 Page 101
again
give
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clean break-away of SAT from the Agency with the exception of a one
year extension on the lease/purchase agreement for an L.100-30 air-
craft from SAT This agreement for sale between Mr_ Williams and
the Agency included a
provision that any profit derived from che
sale of assets within one year would constitute a windfall and
would be added to the total sale price _
On February 28 , 1973 , the Board of Directors of SAT executed
corporate action on the Agreement for Sale of SAT co Mr . Williams
Closing dace was established at not later than 30 after CAB
approval _ On March 1, 1973 application for approval of acquisition
of concrol of SAT by Mr Willias was filed with che CAB under
Docket No 252-64 . Ic was anticipated chat CAB approval would be
forthcoming within 60 days:
Subsequent to the agreement for sale and application
co CAB ,
several supplemental carriers generated a great deal of pressure to
prevent SAT from being sold to Mr _ Willians and to prevent SAT from
Teda ~foUaJ
operating a8 a
supplemental carrier_ This pressure wag applied
through their Congressional representatives_
9
the General Accounting
Office the General Services Administration _ and other ways The
various supplemental carriers objected to the sale of SAT for a
variety of reasons Bagically each objected co the portions of
SAT 8
operating authority which would allow SAT co compete with it:
Specifically, representatives of, Overseas National Airways (ONA)
indicated that ONA would not oppose che sale if Mr Willians would
voluntarily renounce his righcs co Trans-Pacific routes. World
NW 50955 DocId:32423532 Page 102
days
==================================================
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==================================================
Airways and Trans Internacional Airways (TIA) objected to SAT
operating any aircraft as large OI larger chan a 727 in the Far
East . Saturn Airways objected to
SAT bidding on any domestic MAC
contracts, To restrict SAT co
satisfy all potential competition
could make SAT sufficiently unattractive as a
profitable investment
that financing could become unobtainable . With chis in mind the
Agency took the position that agreement for sale of SAT had been
executed subject to CAB approval_ If the CAB ruled against the
sale and ownership reverted co the Agency , the Agency would cease
any bids or service under MAC contracts and dissolve SAT
Two of the other supplementals , Saturn and ONA , expressed
interest in buying SAT ONA did not, make 2 cash offer. On June 29
1973 , Saturn Airways however made a cash offer of abouc S2 million_
in excess of what Mr Willians had offered , There were, however
according to che Agency , compelling reasons noc to Pursue these
offers _ Agency officers had reason to believe that ONA was not- as
interested in actually buying SAT as they were in getting a comit-
ment from the Agency which could be used to compromise the: Agency' $
position in future CAB hearings _ Three reasons for not accepting
either offer were:
3.
merger with another supplemental carrier would
necessitate 8 very difficult series of CAB hearings during
which al1 other
major supplementals would certainly voice
loud and strenuous objections .
MW 50955 DocId:32423532 Page 103
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==================================================
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b To sell the firm on a sole-source basis to either
outside buyer without soliciting public bids would be
contrary to sound business practice and would attract
even more adverse publicity _
Both offers were made directly to officials of the
CIA and not to the stockholders of record_ Although the
relationship between the CIA and SAT was the subject of
much public speculation such relationship was still
classified and an acceptance of either offer would be a
violation of security and cover
These procedures were unaeceptable to the Agency and dissolution of
the firm or sale to Mr Williams continued 28 the most acceptable
me thod of divestiture , subject to CAB approval
In view of the objections by other supplemental carriers to
the sale of SAT to Mr _ Williams and the award by the Air Force of a
Logistics Air contract (LOGAIR) to SAT the DCI directed on July 31 ,
1973,that SAT be dissolved that SAT withdraw from the LOGAIR con-
tract and withdraw its application for renewal of supplemental
certificate. Mr . Willians was advised of this decision _ but made
a
counter offer to purchase the company under the previous financial
offer but turn in his supplemental certificate, withdraw application
for acquisition for sale from CAB
2
and operate SAT as 3 commercial
carrier under Federal Aviation Regulation Part 121 authority. Such
action would remove
SAT from direct competition with the supplementals ,
but leave it with a worthwhile market in which to operate_ Addi-
tionally ,
no
CAB hearing would be necessary to obtain this type of
H 50955 DocId:32423532 Page 104
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operating authoricy_
On October 1 , 1973 the DCI agreed to entertain the proposal
to continue the sale of SAT to Mr _ Williams as a
Part 121 operator,
but on the condition that Mr Williams must Obtain prompt financing.
Otherwise, the firm would be dissolved
On October 5 , 1973 the SAT Board of Directors approved and
executed a new agreement for sale including the following provisions
;
a Mr _ Williams co
acquire stock of SAT Actus for
s2,145,000 _
b_ Mr _ Williams to Pay off $3,125,000 owed to Air America
c
Agreement subject :o Mr_ Williams obtaining $4 million
loan
d_ Agreenent to be subject to
SAT withdrawing application
for renewal of its Certificate of Necessity and Convenience
for an Air Carrier (Supplemental Certificace)
Lease/purchase agreement for L-1OO between AAM and SAT
to be excended one
f_ Anti-windfall provision to be effective for one year from
date of sale_
On November 29 , 1973 , Mr _ Williams received a comitment from
The First National Bank of Chicago for a loan of S4.5 million thereby
making the October 5 , 1973, agreement operacive_ On November 30 ,
1973 , the DCI approved the sale of SAT in accordance with the
October 5 agreement for sale_ On the same the application
to
the CAB for acquisition of SAT under Docket No 252-64 was withdraw
MW 50955 DocId:32423532 Page 105
year
day,
==================================================
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==================================================
and petition for cancellation of certificate and termination of
exemption authoricy was filed with a1
effective date of December 30 ,
1973 On
December 31, 1973, the sale was closed= che noe to Air
Anerica was
off_
2
and Stanley G . Williang becane the sole
owner of SAT
In early January 1974 , CIA officials learned from Air America
management chat SAT had exercised the purchase option of che lease/
purchase agreement between SAT and Air America for che Lockheed
L 100-30 Hercules aircraft. The option sale price from Air America
was 83,150,000. SAT immediately resold the aircraft to Saturn
Airways for 84,350,000 turning 2
quick S1.2 million Profit. The
Agency interpreted this sale 28 2 violation of che anti-windfall
provisions of the agreement for sale . On January 25 _ 1974 F Air
America executed an
Escrow and Arbitration Agreement on
behalf of
the CIA wich SAT on the disputed S1 _ 2 million profic. The agreement
called for 8750 000 to
be placed in escrow with the American Security
and Trust Company of Washington D.C . The escrow funds were co be
held as 2
Certificate of Deposic purchased at the prevailing market
rate. Ic wzs further agreed thac SAT would also place in escrow
a Promissory Note to Air America for the remaining $450,000 of the:
disputed amount _ The note was to bear interest at the same rate
currencly being earned on
the Certificate of Deposit in escrow_
It was arranged chat the escrow deposits plus accrued interest would
be to the party deemed in Eavor by an arbitrator with each
Party
to pay one-half of the costs of arbitration. On September 5 ,
MW 50955 DocId:32423532 Page 106
Paid
Paid
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==================================================
1974, the arbitracor ruled in favor of Air America. This decision
caused an additional 81,304,243 co accrue to the Agency from che
SAT sale _ This was the sum of che S1.2 million under arbitration
Plus accrued interest, less the Agency S share of arbitration: costs .
DECLASSIFICATION OF RELATIONSHIP WITH CIA
In March 1974 the employees of SAT retained an attorney and
brought a class action suit in U.S . District Courc for Souchern
Florida against Southern Air Transport , Inc.) and the Cencral Intel-
ligence' Agency The employees as
Plaintiffs sued for injunctive
relief and damages _ In this suic che employees alleged :
a . That the CIA sold the stock of SAT to Mr _ Williams
illegally
b . That SAT had embarked on a Program to sel1 off its
assets , depriving the plaintiffs of employment,
That the plaintiffs were entitled to the benefits of
the CIA Retirement and Disabilicy 'System_ and
d That their civil rights had been `violated _
In view 0f the Publicity arising from the allegations made by
the other supplenental carriers during the CAB proceedings and the
publicity arising from: this suit, it was deteruined that no useful
purpose would be served by continuing to deny the true ownership
#
relationship of SAT by CIA _ Ic is noted however that the opera-
tional activities performed by SAT on behalf of CIA were and remain
classified. As a Part of the Agency 8 defense in chis suic
9 an
affidavit of Mr - Harold L_ Brownman Deputy Director for Management
H 50955 DocId:32423532 Page 107
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and Services of the CIA was presented in court In the affidavit
Mr _ Brownman delineated the relationship between CIA and SAT and the
authorities for purchasing and later selling the capital stock of
SAT He also defined che employuent status of the plaintiffs
a3
not
being government employees and not being CIA employees and
therefore not
being eligible for participation in the CIA Retire-
ment and Disability System.
In the Order Granting Motion for Summary Judgment _
2
the court
found that the sale of SAT capital stock to Mr_ Willians w28 not in,
violation of law; the plaintiffs claim to be U.S. Government employees
and encitled to CIA retirement benefits invalid; and chat the SAT
employees were not deprived of any civil right under any state law.
As a result, the accion was dismissed wich prejudice
as to the
Plaintiff. Although this suit did cause the reletionship between
che Agvency and SAT to
be officially made public, it did establish,
in a court of law, two points favorable to the Agency:
3. The sale of SAT to Stanley Willians violated no laws
and was within the authority of the DCL; and
b . The directly hired employees of CIA-owned proprietary
firms such 28 SAT do not necesserily enjoy the status of
U.$ Government' employees
CONFLICT OF INTEREST
In the SAT divestiture
0
the Agency took precautionis to avoid
conflict of interest. Mr _ George A Doole_
}
Jr retired Staff
Agent and retired Managing Director of Air America, Inc
0
made
H 50955 DocId:32423532 Page 108
te
==================================================
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==================================================
several offers to acquire SAT In early 1972 he and some other
nembers of AAM management made_ an informal offer to SAT_ Then
on August 7 1972 , Mr _ Doole told Mr _ Charles W_ Kane Agency
official responsible for the management of SAT and AAM , that he
in association with World Airways and TIA wanted to offer "book
value" for SAT_ He stated that they were not interested in SAT 8
certificate but rather in the equipment and that if allowed co
make an offer , it would be one that would not require CAB hearings_
In both these cases the Agency 8 General Counsel determined that
because of Mr _ Doole' s close asgociation with the Agency the offer
would be unacceptable. In later discussions Mr Doole asked co be
allowed to bid on SAT in open bidding. The General Counsel ' $ posi-
tion on this request was that open bids would be begging the question
in terms of conflict of interest . In any transaccion this complex,
selecting the bid is only a preliminary to the negotiated final
sale.
Another potential conflict of interest involved Overseas
National Airways _ From the time the Agency first decided to divest,
uncil the sale co Mr Willians was consumated ONA expressed con -
tinuing interest in an ONA/ SAT merger Their representative making
these continuing overtures to the Agency was retired Admiral William
F Raborn
8
former Director of Central Intelligence _ Admiral Raborn
made literally: dozens of phone calls to Agency officials and arranged
many
meetings) all for the purpose of pressing ONA 9 case to purchase
SAT ONA also proposed: to arrange "shadow financing" for Mr Williams
if he would agree to merge with ONA at some later time These offers
M 50955 DocId:32423532 Page 109
buy
==================================================
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==================================================
were all rejected because merger with another supplemental was
not an acceptable solution and the apparent conflict of interest
was too greac .
The sale of SAT to the Pregident of the firm
1
Mr Stanley
Willians was another area of possible conflict of interest .
However Mr _ Williamns was not an employee ` of the U.S, Governnent
during any period of association with SAT or CIA. He had been
the Owner prior to CIA acquisition and his role a8 nominal President
of SAT during CIA ownership
was at.the direction of CIA which made
Or epproved all decisions in regard to acquisition of aircraft and
other major policy determinations _ Additionally , chis potential
area of conflict had been recognized at che outset of sale Pro -
ceedings, which
was the basis for obtaining third-party professional
evaluation and appraisals and the provision in the sale agreement
against windfall profit from disposition of assets . An underlying
philosophy for sale back to Mr Williams was to restore the corpo-
ration to the status of private ownership
once the need for it a8
3
fovernment-controlled entity had
terminated_ Such action was
considered in che best interests of the SAT employees 2s well as
in the interest of the U.S. Government to maintain another viable
commercial air carrier_
CONCLUSION
The CIA
acquired ownership of SAT and it? real property owning
affiliate, by purchase of all outstanding sharea of stock
on August 5 , 1960_ Such
acquisition was
accomplished under the
MW 50955 DocId:32423532 Page 110
capital
==================================================
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==================================================
authoricy of the Central Intelligence Act of 1949 in order co
acquire a certificated air carrier co support its foreign intel-
l1gence operations . The purchase was accomplished after consul
0
tation and approval by che CAB and the DOD , and was not in violation
of Section 410 of the Federal Aviation Act
Following deternination by CIA in 1972 that ownership of SAT
wa8 no longer required to support its foreign .intelligence opera-
tiong
0
the CIA undertook to dispose of SAT under the authority of the
CIA Act of 1949 and the specific provigion in che Federal Property
and Administrative Services Act of 1949 (FPAS Act) that nothing in
the act shall Lmpair Or affect any authority of the Central Intel-
ligence Agency . In the case of Robert Farmer , et al VS Southern
Air Transport Inc, , et al., the U.S. District Court
8
Southern
District of Florida , Case No _ 74-467-CIV-WM, upheld tche authority
of CIA to dispose of Southern Air Transport, Inc _
In disposing of SAT tbe CIA deteruined after discussions with
CAB that SAT should not be sola 38 a going concern in an open
competitive market nor should merger with another air carrier be
considered. Such action would involve lengthy procedures
$
hearings ,
and publicity which posed a threat to CIA 8
ability to protect
intelligence gources and methods . While CIA initially was inclined
to dissolve SAT and sell the assets CAB and DOD both indicated
their desire to maintain SAT 48 a
supplemental comercial air
carrler Since this solution al80 would be in the best interest
of the SAT employees and there were indications this could be'
NW 50955 DocId:32423532 Page 111
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89-19
accomplished without reveal ownership by CIA CIA approved
exploring the sale of SAT co its previous ower and current
nominal President
2
Mr Stanley Williams .
The CIA took reasonable precautions to essure that 8 feir
market price was received for the sale of SAT and that no short
term windfall profit would enaue The CIA wa8 mindful of conflict
of interest problems and obtained independent professional advice
and guidance prior to executing an agreement for sale. The sale
Price finally received by the CIA exceeded the parameters estab-
lished this independent study .
In retrospect , it 18 possible that open competitive bidding
for sele of SAT 88 a going concern could have achieved 28 much Or
more return to the U.S . Governent for the assets of SAT_ However
such aggegsment 18 only conjecture since this market W23 not fully
tested_ Also this method of disposal had the potential for greater
publicity and revelation of intelligence sources and methods
06
In
retrospect, the alternate solution of dissolution Of the corporation
and gale of asset8 probably would have created less publicity but
thia 18 only conjecture, since the SAT employee law guit may
well have been forthcoming in any event
In conclusion , the CIA obtained a fair market value for the
sale of SAT 28 evaluated by an
independent profesgional appraisal_
The legality of the disposal of Southern Air Trensport by the CIA
has been tested in court and has been shown to be fully within
the statutory authorities and responsibilities of the DCI The
H# 50955 DocId:32423532 Page 112
ing
by
again
==================================================
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==================================================
89-20
#
precautions taken and the procedures escablished by the CIA consi-
dered the varying factors of responsibilicy for public funds con -
flicts of interest, U.S . Government Interests for the aviation
industry and its employees , and national security. The CIA actions
in the disposal of SAT, accordingly , were reagonable and proper
H 50955 DocId:32423532 Page 113
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90
VI Project. MBOUND
O
In 1958 , at the time construction of the new CIA headquarters
building in Langley was begun
2 a
small counterintelligence Opera-
tion was established to maintain surveillance of activities to
prevent hostile penetration and sabotage _ It was successful in
it8 objectives and therefore upon occupancy of the building
in 1962 the Project , now known a8 MHBOUND was established a9 an
outgrowth of the initial effort
From a
single office in Arlington Virginia the project ex-
Panded to four field offices (Arlington , Fallg Church, Los Angeles
and St
~
Louis) Al80 , it from a
8ingle corporate entity into
three separate corporations The parent organization in 1962 wab
Anderson Enterprises , Inc which operated in the greater Washing -
ton area and was set up to create 4 bona fide comercial corpor-
ation which would perform security services on a
competitive basis
for any and all individuals and companies which might require
them, a8 well a8 Federal and local governmental units In addi-
tion
9
it would conduct operatlons for the Office of Security of
the CIA_ This activity proved most successful
}
with customers
utilizing it for document destruction pr consultation for
guard work, and for investigations _
Anderson Enterprise8 , Inc developed legitinate business
contracts with agencies of the Federal governnent and with comer -
0} Anti-
cial firms The provisions of the so-called Pinkerton Act 'pro-
work
hibit 4 company engaged in investigative /from contracting with
Nw 50955 DocId:32423532 Page 114
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==================================================
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91
the Federal government . In order to protect the comercial
cover it became necessary to form a separate company to handle
investigations in response to the requirements of couercial
firmg Further it became necessary to set up notional comer
cial firms through which to fund MHBOUND for investigative work
levied upon it the Office of Security. Ac the time this
split
was
accomplished ,
2
Anderson Enterprises , Inc changed its
name to Anderson Security Consultants Inc with its head -
quarters remaining in Arlington The new company was called
Anderson Security Services, Inc and made Los Angeles its home
office_ As activity expanded and work increased , a third corp -
oration called General Personnel Investigations , Inc . was organ-
ized and also headquartered in Los Angeles _
On January 23 , 1966 for legal
)
cover and operational rea-
sons and increased administrative efficiency, Anderson Security
Services Inc (ASSI) merged into General Personnel Investigations
Inc (GPII) and- remained incorporated in the state of California _
Upon the merger ASSI ceased and GPII succeeded ic The corpor-
ate officers and the board of directors of al1 three companies
consisted of the sane persons Subsequently , GPII was sold and
new legal straw Men were introduced a9 officers directors and
shareholders_ The home office of General Personnel Investigations
9
Inc was subsequently established in Falls Church , Virginia in
March 1966 for greater administrative efficiency and firmer mone-
tary controls on the projects 4s a whole , and to greatly enhance
MW 50955 DocId:32423532 Page 115
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==================================================
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92
cover
viability. Also of particular note the "home office"
with ics investigative charter
2
has been used in the conduct of
covert investigations
In addition to the conduct of investigations MHBOUND wag
used in the following activities:
(a) TPOCTONAL covert monitoring of construction of CIA
Headquarters building;
(b) Monitoring of construction of West Gate Research Park
buildings , which were to be occupied by Agency components ;
(c) TAPIR
43 covert monitoring of construction of CIA print-
2
ing gervices buil
(d) ZULU surveillance of DOD civilian employees suspected
co be potential defectors to Soviets ;
(e) STPROBE testing security effectiveness at domestic
DDSET sites and contractor facilities;
(f) MRRIMAC
4
monitoring of dissident groups in D,C.; *
(g) AEDONOR the proprietary hired and contract guards
for one phase of this activity;
(h) ISOTROPIC the proprietary Was a civilian contractor for
che guard force at this installation;
(1) THOFOLD was an Office of Security cryptonym for an oper e
ation to recruit process and train undercover internal security
agents for the Bureau of Narcotics and Dangerous Drugs;
This. particular project and other aspects of MBOUND 8 domestic
activities are treated in greater detail in che Committee 8 Staff
Report dealing with the operations of MHBOUND
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(j) DELICATE security support for DDSET project, consisting
mainly of badging and entry controls background investigations ,
and escort of sensitive material; this is the only such activity
currently being serviced by MHBOUND ;
(k) PINEAPPLE physical surveillance of an Agency courier
suspected of living beyond his means ; algo involved a
surreptitious
entry into his apartment ;
(1) BOOTS physical surveillance of 2n Agency employee 'who
maintained contact with people of questionable loyalty" also in-
volved an audio penetration of the employee 8 apartment and a mail cover _
Funding for the proprietary 18 accomplished through
a cut-out
mechanism whereby the Agency sends U . S . Treasury checks to ten
contractors The proprietary then bills the contractors for
01 services rendered" in the same amount 48 received by the contractor
via Treasury check. Funding for the other corporations was done
through use of notional firms The ISOTROPIC guard force contract
was handled by intra-Agency transfer of funds BNDD reimbursed the
Agency for all TWOFOLD expenses except for salary of the one staff
agent _ DOD reimbursed the Agency for all ZULU expenses
Los Angeles is the only MHBOUND office currently in operation _
During Fiscal Year 1975 , 2 226 investigations were conducted, 6 ,125
man-hours were rendered in support of DELICATE
2
and a total of
8551,000 was expended . Purely commercial income averages between
$20, 000 to S25 000 . Much of this comes from walk-in business , which,
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for cover reasons cannot be refused Over the past few years
this has involved badging operations for private companies , 1.e,
airlines _
}
schools , ecc The company has never made a true profit.
To maintain its image among its competitors_
2
however its books
reflect 3
small profit on which Federal and state taxes are paid,
The office presently employes four staff agents five contract
agente and fourteen proprietary employees _ During Fiscal Year
1974 , the project expended 2.97 of the OS budget (S551,000 VS .
819,026,530)
MBOUND ,
29 noted , has provided support to the Office of
Security and Agency operators on bensitive covert operations
and investigative matters , CI/CE bupport for components of the
Agency , custodial support, courier buppott on
truly covert activ-
guard support, special non-government and sensitive inquiries
(CI/CE probes through STPROBE) technical and physical
support
in surveillances and Agency proprietary bupport _ Its commerciel
capabilittes have included : confidenttal consultants, internal
security management security surveys
}
counter-audio measures and
inspections development , installation and maIntenance of security
protective equipment and devices clasgified material storage equip-
ment Secure destruction of classified wagte, Incinerator equipment
sales polygraph examination investigations (personnel) and
industrial undercover activities_
unique example of its Agency security function was Project
STPROBE
2
which utilized both security probes and security Pene-
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trations security probe is 2 testing of the current effec-
tivenesg of al1 or part of a security system within an Agency
or Agency contractor 8 installation A gecurity penetration is
an internal covert investigation and search targeted at possi-
ble subversive elements within a
facility who may be engaged in
foreign intelligence
or acts of sabotage or who by lack of security
discipline or gro8g malfeasance may
be weakening the security
structure of the project or
facility. Ic in essence, counter-
intelligence against
a domestic installation . Eastman Kodak, for
example , was the target of a probe _ An agent wa8 sent under the
+ natural cover of a union construction man to Eastman to gain
employment 4s 2
pipefitter_ He succeeded in gaining access to
the carget and developed information on the installation and
its personnel in surrounding areas of the union hall, bars , cafes ,
and in other appropriate places around the target area . Similar
probes were conducted against Pratt and Whitney in West Palm Beach,
Florida, Lockheed Aircraft Corporation in Burbank, California
2
and
other targeta in New York Nevada , and Arizona
These entities serve a useful function within the scheme of
necessary security required by sensitive Agency operations Their
utility, however 28 in the case of nearly all proprietaries 18
01 relative to policy and "flap" demands As one Agency comentator
phrased it. when Newsweek revealed the relationship of LS Lee
Bean and Paul Hellmuth of the Boston law firm of Hale and Dorr
He was in fact a legitimate tradesman
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with the CIA in setting up proprietaries :
Proprietaries_ have been and will continue to be an
important tool to achieve selected operational
objectives Their use however ha8 been drasti-
caily cut back more because of changes in the
international 8cene and in operational priorities
than a3 a result of embarrass exposures
Of course , a3 has been the case with nearly all other proprietaries _
not everyone within the Agency has been satisfied with the mechanism,
Indeed _ there has been constant review, criticism and internal
restraint due to a certain fear and suspicion of entities such a8
Anderson which are "out there" and noc readily accegsible to the
leash For example = in June of 1964 , che Chief 0f the Operation
Support Division wrote to the Deputy Director of Security (Investi-
gations and Operational Support) concerning MHBOUND 8 policy and
procedures . In termg of operational objectives he noted that they
had "created an operational support entity of dubiou8 capability
and with ill-defined objectives or purpose He suggested that
they "look this ugly duckling in the face" 08 and see if it could be
terminated gracefully Or "see if we can nurture it into a productive
and respongive bird of acceptable countenance "+
Ke "received the definite impression that there may be some
grey area with regard to the internal channels of commmand and admini-
strative direction 95 He noted that there wa3
confugion resulting
# In many caseg these concerns dealt with the inability of the
entity to Provide adequate cover_ for itself in order to more
adequately fulfill its role _ In one instance , the physical
backstopping of MHBOUND was inadequate_ After this was
rectified,
one official noted :
It is felt that this step has strengthened the
Anderson Enterprises cover boch in Boston and
Washington 80 that now the company could withstand
any inquiries except that of an official govern-
ment investigation;
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from lack of a clear-cut distinction "ac just what level policy
matters may be decided Management procedures for the
project were Buch that "under the current Stacus everyone may take
credit but no one could be blamed _ As far 88 operational capa -
bility
was concerned he remarked :
Quite candidly , I am somewhat concerned about the
operational capability of Project MHBOUND It seems
as a regult of its Topsy-like growch to be oriented
toward the milicary and the building trades Quite
candidly, it 18 felt that the base must be broadened
Further I am far from convinced that we have yet
developed anywhere near che professional status neces -
07 sary to 'seli this Project as one
having unique opera -
tional capabilities sufficient co justify its existence .
In other words I am not impressed with the capability
a8 it now exists nor am I sure that we can sel1 this
product and then be asgured thac it can perform in a
satisfactory manner
His coments concerning the atticude of Agency personnel were not
unique co this proprietary , but they are set out here 28 illustra-
tive of the gingular problems these entities pose His remarks
alg0 show the dengers inherent in some areas of this activity_
It would seem thac this Agency particularly operating
components are insistent upon pursuing an "oscrich
01 pollcy when it comes to their operational security
procedures I have Personally witnessed almost hyster-
ical reactiong to criticisms as well 49 total rejections
of practical suggestions with regard to operational
8ecurity procedures Now it seems to me that we are
going about this in 8 very awkward and embarrassing
manner WE ARE IN EFFECT ALLOWING. THE WRITERS OF
SENSATIONAL BOOKS SUCH As THE INVISIBLE GOVERNMENT'
TO PROVIDE THE NECESSARY INFORMATION AND PRESSURE ON
TOP AGENCY MANAGEMENT TO CORRECT GLARING AND STUPID
COURSES OF ACTION BEING PURSUED AT THE WORKING LEVEL .
I have been the object of considerable Personal ridicule
due co my stand in opposition to the unrealistic cover
and operational security procedures a8 chey relate co
certain aspects of (CIA Operational Base) for example.'
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IF we had the authority and capabilLty to have made
2n objective probe of this sensitive activicy we may
have been able to have surfaced these obviously ridi-
culous procedures in such 8 wanner that corrective
ection would have been taken Now 18 the time to
present che case in light of the fear of Publi-
city currently permeating the Agency _ recomend that
we g0 after the authority to make independent (uni
0
lateral) probes and/or Probeg requested and known only
at the very highest levels of the, Agency with the results
discreetly channeled where they wili do the most
There necegsarily follows the unpleasant subject of
money As distasteful 88 it may be it i8 no good to
have the authority without a
aufficiently largeoconfi-
dential fund set aside and earmarked for independently
iniated activicies
He emphasized that if the Agency did not take the above kind of
action to monitor its "image= 00 at the operational level "we will
continue to be plagued with the unsolicited and uncontrolled
08 critique through the newspapers periodicals and books _ He
critically concluded :
Further I challenge anyone to deny that such exposes
co date are largely true and ugually the result of our
Own "ostrich policy" and refusal co face the fact chat
we have operated in 3one
relatively amateurish manners
over the years _
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Such concern? have extended beyond these operational levels
to general lsgue3 of propriety and legality. For example , 29
noted earlier (gupra P. 90) the so-called "Anti-Pinkerton Acc"
prohibits
a company engaged in investigative work from contracting
with the Federal government _ But
the Agency and its_predecessor organizations began
contracting a3 early 2s November 1942 with certain
commercial investigating companies to perform in-
vestigations and to provide comercial credentials
co and cover backstopping for Agency investigators_
As of March 1975 , the Office of Security had a relationship with
three such companies which issue their credentials to Agency inves -
tigatorg and backstop the cover of same Two of che three have
7 previously "conducted limited personnel investigations On behalf
of che Agency. During chac same period the Director of Security
80 asked the General Counsel of the CIA whether the Anti-Pinkerton
Act" prohibited the Office 0 8 continued contraccual relationship
with these three private companies or thefr employees for Pur-
poses of conducting investigationg Or providing cover, Or boch.
The General Coungel responded a9 follows :
I am aware thac in fulfilling the regponsibilities
Placed upon your office in support of the Agency= 3
mlaglon many investigations Musc be conducted with-
out revealing Agency interest and in Some without
even revealing Covernment interest Absent the
relationships you queation you could not discharge
your responsibilities It is this inabilicy to
accomplish your tasks which cause8 recourse to the
Agency 8 rather broad statutory authority to expend
funds 29 contained in Section 8 of the.CIA Act of
1949
9
a3 amended This authority provides
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94-4
(a) Notwithstanding any other provigion of law
sus made available co the Agency by appropria-
tion or otherwise may be expended for purposes
necessary to carry out its functions inc luding
(1) Personal services including personal
services without regard co limitations on
types of persons to be employed
(b) The sums made available to the Agency may be
expended without regard to the provisions of law
and regulations relating to the expenditure of
Government funds ; and for objects of a confiden-
tial extraordinary or emergency nacure such
expendicures to be accounted for solely on the
certificate of the Director and every such certi-
ficate shall be deemed 2 sufficient voucher for
the amount therein certified
It i8 my opinion that this authority permits the Agency
to continue the cwo practices as set out above without
fear of violation of the Anti-Pinkerton Statute
He closed however with the following admonitions :
There are , of course other dimensions to the question
you raise As a matter of policy I believe the prac -
tices should be reviewed at the highest_ levels within
che Agency and perhaps cleared with the Agency 8
oversight comittees _ In addition if one of these
relationships became public it must be recognized
that there will be allegations thac the law has been
violated. On balance it i8 my view that these consi-
derations are not 80
8ignificant 28 to warrant a termi-
nation of the two practices with the three copanies
It 1s suggested however chac any subsequent projected
association with a
detective company or private investi-
gative company beyond the three present companies be
reviewed with this Office prior to its 'initiation
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VII BEYOND "DOING BUSINESS" PEAK _NON-GOVERNNENT SECURITY
INVESTTEENTS BY PROPRIETARTES ACTIVE TS Or DECENER 31 1974
As described infra, MHMUTUAL (the insurance and pension complex)
has invested heavily in both domestic and foreign securities markets .
Its portfolio runs the gamut of notes bonds _
2
debentures , etc Buc
other proprietaries have al30 used thig investment route as 2 method
of increasing capital and insuring adequate
cover
For example , KMJAGGERY is a Delaware corporation located in
Washington, D.C. which purchases general merchandise in a Manner
which cannot be traced to che United States Government _ It provides
covert procurement for the Office of Logistics (CIA) Its total
purchases from January to September 1974 were 8437 500 . It has no
outside comercial business and has five employees . Yet, 23 of
December 31 1974 that entity had invesced S149,000 in time deposits .
Another covert procurement mechanism under this same Office 18
SPECIAL STOCK ACCOUNT 43 This i8 also a Delaware corporation with
an addres8 in Baltimore which purchases arm8 ammunicion,
9
and police
related equipment in 2 manner which cannot be traced co the United
States Government The company has no employees and is managed by
Headquarters officials in alias A8 of December 31 , 1974 that
entity had invested $37 500 in a certificate of deposit.
LPJACK wa9 2 travel service which wa8 sold recently co an Agency
employee at the time of his reitrement , who had ostensibly owned the
firm before but in fact only managed it for the Agency . As of
December 31, 1974 , that entity had invested S35,000 in a certificate
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96
of deposit_ #
LPDICTUM/LPSPICE was an investment company which wa3 dissolved
As of March 31_ 1973 , it had invested S100,080 in Petrolcog Mexicanos ,
S.A_ Mexico_
HBSANDSTRAP 18 a Delaware corporation located at Washington
National Airport which has provided secure air support for Agency
employees and clagaified pouches between Headquarters and other
Agency facilities in the United States _ The company has accepted
comercial charter flights from non -Agency customer for income and
cover Purposes_ As of December 31 , 1974 , ic had invested $144,000
in a certificate of deposit_
QRTROW was 2 former proprietary and 13 now an Institute located
in Europe which "geeks to influence and encourage moderate and Pro-
democratic youth leaders and government officials concerned with
youth and higher education 18 According to the Agency
The Agency withdrew its_ support Erom the insticute in
1974 and turned over al1 assets to the manageuent of
the organization_ In addition the Agency Provided
surge funding in the amount necessary to enable the
entity to exist in reduced form for about one year
during which time the management would attempt to
arrange private support_
As of March 31, 1972 , that proprietary had invested $50,000 in tine
deposits _
LPMANTLE is part of the WUTACTIC complex managed by the Cover
and Comercial Staff to provide operational support mechanisms for
DDO foreign operations Ic i8 a Delaware corporation which 18 used
The Agency today uses this firm for the purchase of airline tickets
for travel in support of sensitive projects It is estimated by the
Agency that CIA business represents about 307 of the gross airline
ticket sales of the entity on an annual basis
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97
co collecc the proceeds from the sale of Agency proprietary entitieg
and to refund such proceeds to the Agency At December 31 , 1973 , Lts
total assets were 8650,220 and its tocal liabilities were 8633 ,897
Total stockholders equity was S16,323 _ Ic has no employees . As
of December 31, 1974 , it had invested S400,000 in a convertible subor
0
dinated debenture from the sale of 2 company and S45,440 in notes
receivable Another company in this TACTIC complex i8 LPGLITTER _
It i8 a Panamanian company which was used a8 an investment vehicle
for funds reserved for new comercial operationg requiring Agency
investments The investment project was terminated and all funds were
returned to the Agency . The company has no employees _ As of December
1973 it had invested $246,757 in a Security Note of Pepsico
Corporation
0
N.V_
IUQUEST was part of the air support complex of the Agency proprie-
taries _ Substanctial assets of it were sold and the entity dissolved .
As of December 31 , 1974 , it had invested $215,000 in 3_ certificate of
deposit_
LPPANDA/ LPMET 18 part of the management and accounting complex _
As of December 31 1974 , it had 8L70,000 invegted in time deposits
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98
SCHEDULE I
PEAK NON-COVERNMEENT SECURITY INVESTMENTS BY PROPRIETARIES
ACTIVE As OF 31 DECEMBER 1974
PRQJECTLENTITY TYPE INVESTMENT DATE AMOUNT
MHMUTUAL See Portfolio
LPPANDA/ LPMET Time Deposits 12/31/74 S470,000
IUQUEST Certificate of Deposit 12/31/74 215,000
LPTACTIC/LPGLITTER Security Noce Pepsico
Corp . N.V . 12/31/73 246 ,757
LPTACTIC / LPMANTLE Convertible Subordinated
Debenture from Sale of
Company 12/31/74 400 , 000
Notes Receivable 12/31/74 45,440
QRTROW Time Deposics 3/31/72 50,000
HBDERRICK / HBSANDTRAP Certificate of Deposit 12/31/74 144,000
LPDICTUM/ LPSPICE Petrolcos Mexicanos ,
S,A_ Mexico 3/31/73 100 , 080
LPJACK Certificate of Deposit 12/31/74 35 ,000
KMJAGUARO/ KMJAGGERY Time Deposit 12/31/74 149,000
KMJAGUARO/ SPECIAL
STOCK AccT 13 Certificate of Deposit 12/31/74 37 500
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VIII: MUTUAL : THE INSURANCE 3
INVESTMENT_COMLEX
a) BRIEF HISTORY
MMUTUAL is a
complex of insurance companies , most of which
are locaced abroad operated by the Agency to provide the following
services :
a) reinsurance of aircraft damage or liabilicy risks
ostensibly insured under commercially issued policies
(for cover) ;
b) extending term life insurance annuities trusts and
workmen 8 compensation for independent contractors
and agents working for the Agency who are not entitled
to U.S_ Government benefits ;
handling
escrow accounts* for agents ;
d) limited operational support activities 1.e.
9
holding
real estate formerly used in Agency operatlons abroad; **
and
investing in domestic and foreign markecs to obtain
earnings. to fund the above
MMUTUAL was created in 1962 to provide deach and disability bene-
fits co agents and beneficiaries when security considerations pre-
clude attribution to the U.S . Government The losses during che
Bay of prompted ics establishment From gixty-seven (67) co
seventy-three (73) companies operated originally under the Donestic
Operacions Division and later a board of directors controlled by che
Office of General Counsel This internal board of the project made
investment decisions
Escrow accounts are egtablished when an agent cannot receive his
full payment from the CIA without attracting suspicion The funds
not paid to the agent g0 into escrow accounts and are invested under
MMUTUAL _
** The CIA' s domestic real property holdings appear a8 Appendix E.
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100
Lawrence Hous ton retired General Counsel of the Agency , testi-
fied that his office instigated the establishment of MMUTUAL . This
was because his staff would be the repository of all problems related
to the death or
disability of 2
person during the course of his
Agency work . These problems were all handled in what Houston called
a
very "sketchy way and this was simply undesirable from all
points of view_ Moreover when the 'Agency went into air proprie-
taries on a large scale there were certain risks which simply
could not be underwritten: commereially_
So somewhere in che late 1950s or around 1960
I think I was the one that poged that we
organize Our own insurance entities I had a
coup le 0f lawyer friends deep in the insurance
bus iness_ and I suggest I talk co one of them
and he promtly said well ic s0 happens that
I have a couple of offshore insurance entities
that I can make available to you. And we took
a look ac then It looked like they were or-
ganized Properly for the purpose They cost
Practically nothing: They were just shells
But they could be filled out So if my recol-
lection is correct, we acquired these two a8 the
first scep in what became the MUTUAL project_
Simultaneous the decision was made that if the Agency was going
to maintain such a
capability
they had to have , enough body and backstopping 80
that if a
suspicious foreign intelligence outfit
cried to investigate they would stand uP under
investigation a3
wouid
any normal insurance outfit_
In other words they had to appear to have finan -
cial stability they had to have names that could
scand wp and answer questions and in other words
appear co be in the normal business of writing the
cype of annuities (and) insurance death and dis N
ability_
This concept was
totally organized originally chen under the Domestic
Operations Di Vis ion DOD eventually recomended that the complex
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101
be transferred to the Office of General Counsel This occurred
$
and it remained there until Director Colby decided in conjunction
with Mr _ Houston to transfer for operational reasons to the Cover
and Comercial Staff _ This was done because CSS had the expertise
and manpower Moreover , Mr Colby took exception to the Board
concept because he felt that it diluted che line responsibility by
which all other projects were administered.
As the number of insurance companies grew to cover increasing
demands Placed
upon the Agency by more agents the general fund
which was retained to backstop al1 the needs of these companies
Ji grew and the question was what to do with your money Houston
explained
Now insurance companies are normally in the bus ines s
of inve8 their funds and So
this being the normal
thing it appeared to uS necessary to preserve the nor-
mal appearance of these insurance companies co carry
on investment programs for the funds involved and
there were a variety of inves tments co be considered
You could g0 into U,S Treasury Bonds notes
and bills ,
but actua from the point of view of insurance bus
iness practice this was very unusual It would be
very very unusual in the insurance field Ugually
Some of them would have some investment in bills notes
or bonds but it was a very small part of their portfolio ,
and to put it in nothing that that we thought would be
a dead giveaway So we first went in the direction of
having a
general portfolio somewhat similar to the nor-
mal insurance company 3 inves tmenc practices and I
originally recomended that we have the board of direc-
cors 90 that we could have available and demonstrate that
we had available the best competence the Agency had in-
te rally to pass judgment on what to do with their money _
Because of shifts in the stock market which made it not look as
promis as it had been during the 1960s MMUTUAL went into
certificates of deposit, the Eurodollar market and the bond market,
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102
It was decided to invest however only in Eurodollar bonds that
19 0 were guaranteed by che Anerican parent compp any Ic was thought
chat 10 'they were a pretty secure inves tment On occasion "when
we the advice of our economists On the DDI side we took some
government paper thac they considered foreign government paper
that they considered really
3 security. Houston became the
central figure in this investment scenario :
More and More I continued on this Board of Direc-
tors as giving basic policy advice We had long
discussions on the areas of discussion whac to stay
away from what to g0 into what it looked like 43
far ahead 2s they might think they could See And
more and More I would make the individual decisions
On MY Own in light of their policy dance and with
the information which my staff in MUTUAL could get from
the many friends they now had in various underwriting
and inves tment Places on an unwit bas is who just
thought they Mere customers For instance on the
Eurodollar bonds they were dealing with several houses
who just thought the fellow was another investor coming
into them and would get very detailed and on the whole
Pretty advice which often we could check from
inside through 8 Ome other of our sources Profits
from primarily the interest operations were very pro-
fitable , and chese built up over the years quite rapidly
and were brought into the insurance funding identifled
as
profits for future possible u8e
Ic wa3 always recognized that a Policy decision might
be made at any time that we had funds excess to the
valid backing uP of our underwri ting, which would be
brought back into the government for such disposition
38 mlght be appropriate at that time
In terms
of actually providing insurance in the aviation and
maritime field, a
study would be conducted in each case where in
T
surance was required. If 'it looked as though normal commercial in
surance would handle 2s was the case with most of Air America 9
needs then the particular entity would g0 ahead and procure the nor-
mal comercial insurance If there was something Peculiar in che
operational se cup that preclud d conme rcial companies from accepting
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the risk or if there were security ems then it would be
handled through MHMUTUAL
What we would do when it came to aviation and
marine we would go co one of the cooperating
companies and see if they wanted the insurance
for their own accounts because we had made
arrangements that if there were operations
security lens in any one claim that they
could handle the investigation S0 it wouldn t
be a
problem if they wanted to cake for their
own account _ If they didn t want to take it
for their Own account or they didn t want to
take it al1 for their own account they might
then seed back to uS what they didn t want
And it would be then underwritten technically
out of MUTUAL 8 account although they would be
the ostensible insurers
Several of the aviation entities , other than Air America which
dealt almost exclusively with regular commercial insurance com-
panies , did nto feel quite secure with regular insurance They
turned to MUTUAL - MUTUAL would in turn offer the risk to one of
the cooperating insurance companies _ If they would take the risk,
would then negotiate the premiu with the: proprietary . If
they did not wanc the risk , "then they would seed back to uS and
we would take the portion of the premiu that should come back
Usually it if went through a company they would cake a small
underwriting premium Eo Pay their costs 3 percent or some thing
like that_ And the rest of the prenium would g0 back in MUTUAL
10 if they were actually taking the risk_
In 1970 the Inspector General conducted a survey of the secur-
ities held by MUTUAL He concluded that the project seemed to
be secure in its operations in the fields of insurance and invest-
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~104 I
ment The IG looked at the investments from a
securicy (i.e_
cover) point of view in terms of MHMUTUAL $ operational support
function His concern was that each time MHMUTUAL bought a
safehouse for example , there was the possibility that audio
surveillance of the house by the Soviets would lead to a dis-
covery of the purchase mechanism used by the Agency. He rea-
soned that , therefore the purchase of such items by the COm -
plex was operationally unsound because it exposed the entire
complex to compromise if a.
foreign inte lligence agency tracked
back the transactions through various corporations _ According
to the Inspector General no funds of MUTUAL were used for
specific projects _ What would occur however was that a project
would transfer funds to the complex which would then disburge
them a8 needed through an
appropriate entity. This method left
hin with major reservations about MHMUTUAL security when it sup
ported sensitive clandestine operations Thus MMUTUAL 8 Pro -
vision of cover
funding for active operations and record owner -
ship acquired for sensitive operations was deemed inappropriate
and accordingly , the IG proposed separating operational sup
port activities of MHANVIL from the instrumentalities of MHMUTUAL
It was co be restreined to the purposes for which it had been
established in 1962*
During the course of the IG inquiry no instances were discovered
where MMUTUAL or its funds were used to influence foreign stock
markets or currencies _ The Comittee has also found no such
instances
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At the time of this 1970 review by the IG MMUTUAL held 2
surplus of 89 million _ It als0 earned income from sources sup 4
ported by public taxation It appears fron the questions that
were raised at the time about briefing congressional committees
on MHMUTUAL that this was not done
>
providing a situation where
an
organization with assets of 830 million has been created and
was operating without oversight knowledge or approval Moreover
because MHMUTUAL was no longer 3 project after its removal from
the Domestic Operations Division there was no annual allotment
and no
annual operational review
Houston indicated that MHMUTUAL had been operating "before
we told our comittees any detail I think it was mentioned as
a
problem that we had to make arrangements to cope with insurance
problems fairly early
on But the fact that it was 4 business
and a business of this substance was not done for some time My
recollection is there was not deliberate avoidance; we just didn t
get to it. 01" On the question of lack of annual project review ,
m1 Houston commented that this was
"technically correct_ But , he
added
9
As 2 matter of practice I would say that MUTUAL was
more
carefully reviewed in some respects than almost
any other project in the Agency in the sense that we
had the bookkeeper inside the project who was a finance
officer and bookkeeper The
project published at least
monthly reports in detail which went not only to me but
to Colonel (L.K.) White (the ller) and the
Director These were very
'deConpezolepcrta
which often
raised questions which went back for answers
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-106 I
The Inspector General was invited in according to Houston In
addition the Finance Office kept its own books: in the proprietary
accounts branch on MUTUAL Such reviews were done he said "on a
M constant basis_
We were very conscious of the amount of money in-
volved &nd the possibilities of someone trying to
someone yielding to temptation and trying to do
some thing with 2l1 of this money .
b) THE CURRENT STATUS
The project currently consists of twenty-six (26) companies
of which five (5) are donestic . 411 of the clients of MHMUTUAL
are under non-official cover #* The Office of Finance has indi
2
cated that the current net worth of the project is S18 million
which is the resulc of retaining earnings _ It was originally
capitalized in 1962 with 84 million A Washington D C , lawyer
(MANVIL) i8 currently the investment manager and he provides
to-day direction MANVIL i8 a sole proprietorship proprietary
of the Office of General Coungel Total assets are currently
*+ MAMMUTUAL itgelf 18 only for covert non-staff officers of the CIA
In essence it works for what would broadly be described 48
"agents 01 those not entitled to participate in the CIA retirement
Plan or in the Civil Service Reitrenent Plan They are primarily
foreigners and ugually DDO employees _ Those individuals who were
formerly known 38 contract agents and who are now known as independ-
ent contractors also participate in MHMUTUAL In the case of most
agents the CIA contributes 7 percent and the agent contributes
7 percent
0
in keeping with CIA practice for regular employees_ In
cases where the agent is well along in years and contributions from
the Agency and the agent ' would not
provide , enough funds to
capital
4
ize an annuity, the Agency provides the initial capitalization; how 4
ever approval of this must come from che DDO .
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831 million; most of which are held outside the U.S_ The' companies
do not write insurance in the United States , but rather reinsure
with cooperating companies who then sell the risk to the CIA for
a percentage of the premium The policies
are
written directly
abroad. Each of the U. S _ companies. pays little tax and a pro -
prietary auditing firm audits the books of MHMUTUAL This method
of self-insurance enables the Agency to funnel money where needed
in any of it8 project categories_ Currently, 60 percent of the
investments are in Eurobonds 20 percent in off-shore time deposits
in U 'S . banks and the balance is in common stocks debentures
and commercial paper of various types . For example the current
breakdown is :
87 million in time deposits abroad;
$2.4 million in Common Stock (at cost) ;
$20.8 million in Eurobonds ;
S1 million Eurodollar convertible debentures ;
$.5 million in short-term commercial paper overseas ; and
$.2 million in domestic debentures _
The performance of the MMUTUAL stock portfolio 18 noted at
this juncture Comparisons of cost against market value for the
years 1970 through 1975 are given first Following that are the
gaing or losses on the sales of stock for the years 1963 through
1975
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SLCzT
Rip/;
83
Stock PORTFOLIO PERFORMANCE
Comparison_Qf_ Cost Against Market Va lue
Year Cost Market Value
1970 3,792,804 $ 3,689,294
1971 1,123,651 1 ,069,301
1972 2,969,403 2,872,557
1973 2,650,904 1 ,242,915
1974 2,440,686 699,422
1975 2,440,686 876,507
Gain or (loss on Sales of Stocks
Year Gain or (loss)
1963-1969 197,348.15
1970 (19,910.64)
1971 118,943.90
1972 310,346.37
1973 150,447 . 03
1974 (172,796.04)
1975 ~O-
Tota] Ga in 584,378.77
RECEIVF9 FROM
1015 NOv
L i ,i
SEGRET
D740oj 2ue5u6a2403542 E%
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109
Included a3 Appendix D is an In-depth list of common stock
purchages from 1971 through September 30 , 1975 _ In addition there
are schedules of portfolio sales from 1964 through 1974_
look at the Project MHMUTUAL Consolidated Balance Sheet for
December 31 , 1974 will some idea of the scale a3 of that late
date Current asgets (cash in banks premiumg receivable
2
advances
receivable, accounts receivable client notes receivable, rent
receivable , interest receivable and investments maturing in one
year) totaled_S6,910,891,00- Investments (time deposits
>
bonds
and commercial paper
2
and stock8 at market value) totaled
525 342 172.53. Fixed a3sets (real estace and furniture and fix-
tures) cotaled S73,084.12 _ Other_Assets (prepaid ingurance . recoverable
deposics and other prepaid expenses) totaled 832 682_ 00 These
combined for Total Assets of S32,359,430.45 .
As usual the Project was subjected to an extensive audit for
that year _
The audit included site examination of books and financial
records of 12 of the instrumentalities administered by
Agency-owned management firmg a8 well 29 review and evalu-
ation of related records controls and ` procedures at
Headquarters _ Five
instruentaiities
administered by
Agency-owned managenent firmg are located abroad and
w1ll be audited later Audic of the other six instru-
mentalfties adninistered abroad by foreign accounting
companles was limited to examination of financial reports
and such other documentation as wa8 available at Head -
quarters These latter examinations provided 48 reagon-
able asgurance that Agency resources
totaling about one
percent of project accountability , are adequately pro-
tected
That audit concluded that MHMUTUAL "continue(d) to be admin-
istered in an efficient and effective manner and in compliance
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-l10-
01 with applicable Agency regulations and directives _ Prior audic
reports had comented On the need for a revised adutniatrative
and In accordance with thege reports , che audic noted
} 2
"new plan
wa8 approved in March 1975 _ 00 In addltion 10 (m) Inor
administrative and financial problems surfaced during the audlt
00 were
dLscussed with MHMUTUAL offfcfals and resolved _ The audic
noted that total income for that year (from Interest , premiums
or 1oss on gale of securitles, dividenda rentalg, profes -
sional fees on
foreign exchange
9
galn on sale of property
and from mfscellaneoua trangections) wa9 84 113,590.00, The
total expengeg for that year (allocatlon of premiun incone co
reserve for claimg interest
2
salaries , rent accoun fee8 ,
taxes , 1os8 on property write-off, legel and other fees , comuni-
cations, depreclation and amortization
$
travel, equipment rent,
real egtate expenses
0
Pensiona dues and subscriptions directors
fees , entertainmenc
2
and miscellaneous) were 52,659.260_00. These
combined for 8 nec income of 81i654.330_00_
The current Chief/Central Cover Staff has focused on MHMUTUAL
in 2 number of interviews wich both the Rockefeller ComLesion
staff and our Own He has suggested that the real question for
MMUTUAL 18 what should ics role and shape be after the ternina -
tion of che large afr proprietaries . One of MHUTUAL 8 original
Purposes W28
to provide reinsurance for Afr Americe, CAT Southern
Air Transport
9
Inter-Mountain Air
0
and che other 2ir proprietaries _
With thefr Paabage , 8 reorganization and redefinition 18 needed .
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gain
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As co the issue of gafeguards against misuse of Projec € fundg
or
insider informatibon by che' Agency , the Chief CCS has told the
Comittee that compartmentation , the honesty of the Chief of, CCS_
0
and display of the Portfolios to
appropriate congressional comit-
tees are what have .Prevented or will prevent such abuse _
Houston agreed lwith the three safeguards outlined by the CSS
Chief However he added a fourth;
When we were investing in stock I would have the
list of stock, the portfolio reviewed by our con-
tract people and if I found we had any contract
relationship with any of the companies involved we ' d
either refuse co #
Well a_ couple of times our invest-
ment 'advisor recommended a stock which I knew we had
big contracts wich and I told the board no this in-
volves a conflict of interest We won t touch it
And if we had anything from the Agency contract office
that indicated 4 relationship, we would either sell
the stock or wouldn t it
Houston believes that the cnplex should continue in some form_
One reason i8 that 19 assets are few and far between The acquisi_
4
tion of a 'board of directors ; the establishing of accounts basic
credibility and relations with the jurisdiction in which the enticy
is located are not easy things to do according to Houston This
creates the "tendency, once you ve got some thing that looks good _
to hang on to it. He would recommend in this regard that the
Agency be cons
tantly forming new companies and phasing out old ones
on a rotational basis So that the same complex would not remain
for security reasons
#4FEe
MW 50955 DocId:32423532 Page 141
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Iphm
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So ic' s not easy but I still think that they
should make the effort [The Chief CCS] knows
my views on this Pretty well and we re all
worried about the security of the damn thing_
But we don t know another way o do it
He believes that the current method while not perfect is the best
that can be devised . The problem _ of course is chat the genera -
tion of funds for these companies must literally be shown to be
legitimate and non-governmental if the beneficiaries are to be
protected. Consequently , if the government were co create an
office that would funnel money to these companies without the
benefit of investment , this would create the risk that a trace-
back investigation by 2
foreign power could discover that the
entity is being funded by.the U.S_ government _ Houston closed by
saying that he would invite any controls that Congress would choose
to put on
the mechanism in terms
of insuring propriety
Cl CCs
L &xkul clataeYeuyk *h
Malltetcl
1
62
"hlupetatle 1) an&
0
anbm
infie
7
M m Mahd
aQxertaYuu. LI-47-76) Tr.Ia-}
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7
THE AIR PROPRIETARIES
Lawrence Ra Houston the former General Counsel of the Agency ,
was
involved in the establishment of the first set of proprietaries
of the Agency back in the late 1940' s and early 1950 S . As noted
later on in section 10 , page Houston has concluded that
proprietaries should be 3 mechanism of last resort He asserts
that the Agency learned this in part "the hard way and almost al1
of the lessons involved probably came out one' way or the other in
connection with a major aviation proprietary in the Far East.
Others had there own
special problems but I think che Air America
complex had pretty near everything -
The theory of the acquisition of Air America in 1949 was denial
of the assets to the Red Chinese_ The CIA first arranged advances
to the company to keep them going when they
were' running short' of
cash in 1949_ These advances were used uP and were
actually credited
to
the purchase price even tually. The airline at that time had
been organized by General Claire Chennault and Whiting Willauer
It was a joint venture with the Chinese Minister of Transport and
was called Civil Air Transport _ Houston described it as follows
This normal aviation organization , this would have no
meaning at al1 was
completely at all it would have
not sEanding in international law aviation rights or
any of that But it worked for what. they wanted which
was to take supplies up-country into inland China and
then to bring back whatever cargo they could get comer -
cially: tallow hides bristles al1 that sort of trade
and then they traded that off for their own account And
for awhile the operations was
fairly successful the C-47' s
and C-46 ' s .
To finance this activity and to facilitate the trading of produce
}
their lawyer_ Thomas Corcoran had organized a company That company
was known as C.A.T_ Inc . In addition there was a Panamanian
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corporation which was involved that did most of the funding
There was also an envy known as the Civil Air Transport "to further
complicate the picture . at this time Chennault and Willauer were
also negotiating with the Chinese CNAC _ for the takeover of their
planes and equipment _ 01 Chennault and Willauer came to the Agency
in connection with that operation in the Spring of 1949 At that
point the Nationalist Chinese were
being "squeezed down south by
the Communists and they were
really backing down toward Shanghi
restricting their area of operation and consequently the produc-
tivity of their commercial venture nt Chennault and Willauer indi-
4
cated to the Agency that unless they got .help they would have to
g0 out of business ,
The agency held a series of meetings in which it was determined
that it had a need for some air transport for some of its operations
particularly involving arms and amunition end consequently the
Agency needed a contract with someone
And S0 we entered into an arrangement , I think in
about September of 1949 whereby we: would advance
them_ the figure of $750,000 sticks in my mind
against which we could draw for actual uSe of the
planes at an agreed on rate And we did draw
down , I think all the Elying time and expended the
S750,000 between September_ and about January at which
time we suspended any further Payments or draw-downs
I think the money was exhausted
Chennault and Willauer came to Washington about January or
February of 1950 and through a series of negotiations , the Agency
agreed to advance them more funds taking at che same time an option
to purchase the assets of Civil Air Transport , With the' liabilities
left to their account
unused portion of the advances were to
be credited to
the purchase price_ They then operated through the
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Spring of 1950 under this arrangement and Chennault and Willauer
"came in in che Summer of 1950 and said they were in desperate
straits for funds 00 Once again a geries of meetings was held at
which the prognosis was that the operations in the Far East would
have a
continuing need for secure airlift and &lso , there was a
general estimate thac the loss of this airlift to che Chinese
Communists would them a
considerably greater advantage than
then possessed because they had almost no airlift of their own at
that time "The Agency then made the decision that they would
0i exercise the option given there was no objection otherwise_
The Agency felt that it was necessary to get the concurrence
of the Department of State Frank G . Wisner , at that time the
Head of the Office of Policy Coordination (OPC) which was respon
sible for conduct of covert actions as opposed co clandestine in-
telligence , and Mr Houston visited Mr Livingston Merchant
8
who
was Assistant Secretary of Scate for the Far East_
He and .I went to see Mr Merchant and explained the
situation And Mr Merchant reminded uS that it was
basic U.S . policy not to get the government in compe-
tition with U.S _ private industry _ But under the Parti
#
cular circumstances in particular as there was really
no U.S private industry involved in the area and they
agreed it wa8 important co divide the assets to the
Red Chinese State would g0 along on the understanding
that we would divest ourselves of the Private enterprise
43 soon a3 such a divestment was feasible , and all of
che circumstances that might obtain
Of course; the divestiture of these entities did not actually
occur until 1975 . And , indeed _ some of the entities still as yet
have not been divested. Mr Houston noted , however , that:
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give
page
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We did not disregard chac guidance because after
very considerable use of this asset during the
early 50 ' s there was a question of whether co
continue it and the matter was taken up in the
National Security Counsel And Allan Dulles as
Director epposed that we continue the ownership
and control of the assets of Air America_ as it
then was
known including the subsidy as needed.
And there was 3
subsidy at that time It was
about S1,200,000 per year_ X
This consideration by the National Security Counsel as to whether
or not to continue to retain this asset and Mr Dulles recomenda -
tion that ic be recained occurred in 1956 .
During this period of time the business of the air proprietary
consisted almost entirely of Agency cargo carriage under contracts
which were usually using 3
military designation _ The company was
not organized, according to Houston to comon carriage and
had no status in the international air busines 8
The evidence indicates that during this period of time there
were two S
truggles going on One was where control should lie in
the Agency and the other was
the policies to be applied
to the
operation of the company itself .
The struggle within the Agency ranged all the way from
sort of quiet management discussions as to what was good
management to sometimes rather vociferous auguents of
whose in charge here And the operators always said
well we need to call the shots because it S our operation
And this is what we were running into all the time
of red hot operators opposed to what we would consider
management .
FZHouston indicated that there had been 3
subsidy running to the
entities since 1949 Ii S1.2 million represented about the maximu
subsidy given until I believe about 1958 was the turning point
and from 1958 on there was no
subsidy as such that went into ic
The reason for that, of course was that the air complex had become
11 "money-making_
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Y5
The management of the air proprietary at this time was in the
OPC structure and was therefore responsive to operations An
example of some of the lems which were created as a result
of this is the acquisition in August of 1950 of the enticy.
Houston wa8 participating in the negotiations _ He had been in-
vited to do S0 by Frank Wisner _
OPC was 3
curious organization_ Determined as
being
attached to the Agency for quarters and rationing
with policy guidance from State
}
which was an impossible
situation Very nice fellows were doing the negotiating
with Wisner Frank Lindsay and Chad Breckinridge who:
is now dead . Frank Lindsay has been head of ITEK and
te unknown to me when made the agreement to
purchase carrying out the opcion they gave the vendors
the right to repurchase at any time within two years
And I thought this was really inconsistent with our whole
position_ And during the next two years they negotiated
out that repurchase agreement and in its Place substituted"
an agreement to them 2 first refusal if we were to
dispose of the airline That first refusal Plagued 48 for
years They use to make all sorts of extraordinary claims
under it and it was never exercised and even tually it was
sort of forgotten when Chennault and Willauer died. It
ran to them personally_ whether it ran to them and two
others personally and they all are dead now . But this
shows a part of the learning curve which was.
thing we
were going through It als0 became clear that the organi-
zation of the airline was
really impossible it S sort ve
semi formal partnership with the Ministry of Transportation
or the Ministry of Communications (of the Nationalist Chinese
Government) *
That bagicelly describes che preliminary sicuation from the period
1950 through 1954 _ It was in 1954 that George Doole first came
onboard as a consultant . Doole and Houston went to the Far East in
the suner of 1954 to observe the operation_ "George went out there
The NationaTist Chinese had by this time retreated to Taiwan they
maintained 3 maintenance base tied to Hainan "he maintenance base
at that time was on a LST and 4 great big steel barge . And we brought
the LST and the steel barge up to Kiaoshung , and it was really extra-
ordinary what 3
maintenance job they did on what was
almost impossible
facilities I went down and was eno rmously impressed by the difficul
At
ties and how well they had overcome
mha Jvous}an.
MI 50965 DocId:32423532 Page 147
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they qui
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them,
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01 specifically to look at the organization of che Airline_ In this
regard, it 18 noted that ac the time the Agency purchased the Air-
line ic had formed a Delaware corporation co it which was first
called che Airdale Corporation counsel for which was
Brackley
Shaw _ Shaw and Doole were both very concerned abouc the technical
organization Or lack of of the operation _ Doole demonstrated
to Houston
co my satisfaction that ic was an absolute situa-
tion and that no one out there had the slightest
understanding of the problem or what they were uP
or wanted to do anything about it (in terms
airline management)
As a resulc of this Shaw and Doole planned the organization which
they thought was necessary for the future of the operation _ Hugh
Grundi was
installed
a3
President of the corporation by the end of
1954.` Management responsibility incernally wa8 given to Lyle Shan -
non "who Was 2 management type although he was assigned to the;
M DDO , or by that time it might have been che DDP
The upshot of this review by the Agency was that the theory
of running the airline was that it would be managed by manage -
ment to be responsive to Operations "but not managed by Opera-
01 tions
In order to improve ics cover "the Chinese not only were wil
4
but at thac time wanted it to be che airline that showed the
Elag of China_ This was done on overt
records through Civil Air
Transport Company, Ltd_ which was
the subgidiary of Pacific Corp-
oration Pacific 'Corporation held ticle to 40 percent of the
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Slaiisf
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equity in the corporation and . 60 percent of the equity was osten-
sibly owned by the Chinese , who gave deeds of trust co the Agericy
for their shares _ This overt arrangement demonstrated for purposes
of international law that the company was majority-owned and con-
trolled by Chinese_ The Chinese continued to press the company
to get into the international comon carriage field_ The company
had several DC-4 ' s and began modest operations between Hong Kong
Taipei and They graduated to DC-6 ' $ , and it was at this time
that the' Agency first got into the question of competition with U.S _
industry_ Northwest was then flying to Tokyo and Seoul and to
Manila_ and was trying to obtain rights into Hong Kong _ Don Nyrop
had noted the Agency S interest in this area when he had been
Chairman of the Civil Aeronautics Board in the late 1940' & and the
early 1950 S . Houston told the Comittee :
He (Nyrop) became head of Northwest 2 very tight
manager a very capable fellow and he used to
complain that we were
interfering=
we were taking
passengers off his .airline and we would g0 to him
and say , we have to keep the: airline in this busi-
ness because the Chinese say they need an international
airline They re not ready to start their own
And it is necessary co its overall cover status as a
going commercial concern
By 1959 Mr Nyrop was complaining that the Agency was doing too much_
Finally Nyrop decided to complain to the Civil Aeronautics Board and
che Agency agreed to
place it before that Agency for 2 decision
A meeting was held with the entire Board at which time Nyrop was
able co make his case "for the fact that he was a
private industry,
0 he . should not be interfered with by government competition
M 50955 DocId:32423532 Page 149,
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The Agency explained its situation che cover need, the Chinese
pressures and the fact that they were keeping the carriage to
what chey thought was a minimum that appearances could stand;
And it ended up by one of the members of the Board
turning to Nyrop and saying Don you ought to be
glad that you don t have a
really good _ reliable
competitor in there He said If were being
competed wich private business you d have real
headaches You ought to be real glad that it' $ not
worse than it i8 And that S the end of that -
Houston conceded that some passengers were going On
basically CIA
planes instead of Nyrop S
Northwest planes The impact however
was minimal_ Moreover the CAB in this proceeding was advised of
the dilemma . They did participate in discussions with both the
Agency and che particular business enticy that was
making the com-
plaint, and the CAB , after hearing both sides, "cane down on the
side of the Agency after making 2 reagoned judgment
By this time the airline 8 commercial international business
was not making money . A maintenance contracc work
0
which was being
done at Taiwan however Was
"normally a money-maker and this was
primarily, although not exclusively , with the U_ S _ Air Force #t
There were
management problens in terms of the maintenance
aspects of this operation_ This originally stemmed from the fact
The LST and barge which 'had previously been used for maintenance
Purposes became inadequate Therefore the Agency built 3
Plant
in Taiwan 01 that is now there but has been recently disposed of co
E Systems and 2 very plant it was 0i E Systems role in the
acquisition of proprietary assets is detailed later
MW 50955 DocId:32423532 Page 150
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that individuals out in the field are not Particularly astute at
costing their contracts
Doole gave excellent advice in chis area.
Moreover Doole was
quick to advise when an operation is bordering
on
not being responsive to the demands of good {management _ Houston
cited one instance when Doole replaced
a controller in the corpor-
ation who was very able but "had his own ideas of bookkeeping and
controls _ 96 Doole insisted that the corporatior put in bookkeeping
and controls completely consistent with U, S . 'CAB and FAA prac-
tices_ And of course che maintenance contracts with the military
were audited constantly by the military audic teams that were
right in the plant .
By this time the Agency had organized an exemption from the
Contract Renegotiation Board_ on the grounds that if the renegotia-
cion personnel became too involved in the business they might
recognize that this was not a straight commercial operacion and
discover the fact that the CIA was involved . The Agency Wenc to
the head of the Contract Renegotiation Board and got a letter from
the
Department of Defense asking for an exemption on what the
II
Agency and the Department
considered "perfectly legitimate grounds -
Indeed = there was 2 basis for exemption in the Renegotiation Act
}
if the business was entirely overseas which was the case with this
cirline And 50 , the exemption was granted on that basis The
Agency was concerned , however by the fact that it had in principle
made a
type of profit_
9
over 40 percent on these Air Force mainten-
ance contracts , that might have well have been the subject of re-
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5o
negotiation had it not' been subject to the exemption "So the
question was what to do about it_ And . finally, we made a volun-
tary repayment against part of the profit on that contract to the
M Air Force
As noted previously , the commercial airline aspect of the
operation was not making a
profit and in fact operated mostly at
a loss _ Indeed , there were periods of time when the C-46' 8
and C-47 ' s cargo carriers were very busy on either CIA contracts ,
the Korean War Diem Bien Phu_ and other paramilitary aspects _
There would be periods in between these activities when there was
nothing for the airlines to do Nonetheless
0
the airline was still
saddled with expenses such as crews salaries and maintenance of
the aircraft which sat on the ground,
So George posed and we
finally organized_ the stand-
by contract , which was an
apparent military entity on
Okinawa Ic was our en tity but it had a military
designation _ I can t remember the name for it And
that entity contracted with Air America for so many
hours of cargo stand-by to be available any time on
call and that they would pay so much for that capa-
bility being maintained So that is how we kept
the subsidy going to maintain them during periods
when there was not profitable flying_
Another area of concern was
the question of the relationship
with the Internal Revenue Service_ From the very start, the company
management was informed
that they would.be required
to Pay the
appropriate U_ S _ taxes and while there were the usual business
arguments about whether certain items were
appropriate for taxation
and whether certain deductions should have been granted, the rela -
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5
tionship maintained with the IRS was
basically a normal one
Houston recalled chat in the mid-50 ' s the company , Air America,
received a notice that they were going to
be audited by the IRS _
Company officials came to the Agency and indicated that this might
pose a
problem in terms of security. The Agency went to the Com -
missioner of the Internal Revenue Service and indicated that
they would like to have the Comission conduct the audit and have
the audit done by 3 team on an unwitting basis to See what
could find out "We thought it would be 2 test of the secur-
1 ity of our arrangements
They put a very bright young fellow on and he went in-
to it_ They came up with discrepancies and things that
would be settled in the normal tax arguent corporate-
IRS argument and al1 of these were worked eventually ,
and then we went to this fellow and said Now_ this
was owned and backed by the CIA the U. S Government .
What was your guess as to what wa3 happening?
And he said Well_ I knew there was something chere
and I thought what a wonderful asset it would be for
the Russians to have , but I came to the conclusion that
it was Rockefeller money _
Thereafter the IRS would be notified if it began to conduct an audit
on an Agency proprietary , and the audit would be discontinued.
As the operations of Air America developed the problem of large
cargo carriers arose: In the early of its operation the airline
was using C-54' $ , which had an extremely limited range but were able
to perform notwithstanding under demanding circumstances _ Discussions
proceeded during that period about modernizing the equipment and
the Agency , through the proprietary , bought: DC-6AB S , a conversion
of the DC-6 which had large cargo doors installed in it. They ,
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good
days
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however , did not maintain any jet equipment at that point _ This
cargo system which they developed was
getting heavily into a mil-
itary air transport contract system_ The system was first known
as MATS and then it became MAC .
They got MATS contracts and Air America got these ,
and these were very to keep 3 constant utiliza-
tion at a rate
2
the MATS rates were usually good,
because the policy was not to
do competitive bidding
for the lowest bidder because then you got the poorest
service but rates to the carriers and then
require the carrier belong to the Civil Reserve Air
Fleet_
In 1956 MATS changed its Policy and required chac bidders on
the contracts to be certificated = Of course, there Wa; no real way
chat Air America could become certificated and So the Agency decid-
ed to purchase Southern Air Transport. While it was technically
3
separate entity , not involved in the Air America complex , it wa8
actually an integral part from tke management point of view in that
all management decisions were
centered in George Doole and
the advisory team in che Agency . MAC even
cually also decided co
require that bidders not only have to be certificated , but had
to
have 'equipment qualified for the Civil Reserve Air Fleet and
this meant jet equipment _ As a result the Agency went into the
acquisition of Boeing 727' 8 . Mr Doole eventually convinced Boeing
that they should modify the 727 to enlarge the ventral exisy_ which
was
already in the plane_ S0 chat the plane would then have 2 large
airdrop capability. Boeing did 80
modify the plane and it proved
entirely useful for these purposes _ "So the theory was that the
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good
good
good give
again
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53
727' 8 would be used on MAC contracts to be available on an over-
riding basis if needed for some major national security operation
They were used usually when they had spare time
To my recollection they were only called off once
off che actual contract time and this was for a
possible use which didn t g0 through_ But the White
House asked if we had the capability to move some
thing from here to there I think from the Philippines
co somewhere in Southeast Asia I don t recall and S0
they sent word to management that they wanted 3 plane
available at the earliest opportunity at Clark Field _
They pulled one of them off the MAC contract and had
it available I think ready to g0 in twelve hours
all set for the operation And the operation was
never called _ But it showed what the capability was
And what they had to do was get substitute service
for the MAC contract
During the late 1960' s several Chinese airline enterprises started
both of them on quite a small basis but one of them which became
CAL had official backing _ This occurred while the CIA S
proprie-
tary was still flying under the flag of China. With the establish-
ment of these indigenous Chinese nationalist airlines which would
these routes , the Agency began to
Plan reducing its inter-
national carriage work_ It decided it would keep the MAC contracts
because this did not bother the Chinese There was in fact no com-
Petition in this area
But plans
were started to reduce the inter-
national common carriage _ This Agency proprietary , Civil Air Trans -
port Company , Ltd_ which had been organized in 1954
9
had the right
in international air ,auditing' co negotiate for air routes That
was
the entity that therefore did the common carriage Thereafter,
Air America did the American con tracting followed on then
Southern Air Transport , due to its certification Southern was
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by
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brought On co perform the MAC and MATS contracts with planes
leased fron Air America
0
which included 727's . Southern Air
Transport actually owned one 727 and leased Cwo from Air America_
Houston noted that it was at this time that an internal de -
cision was made 'we probably couldn t justify this major airlift
with the big jets
2
and So we started giving rid of them . See =
had no utilization to of down in Southeast Asia_ A couple of
supply flights went into India_ and I think we uged prop planes for
that, to my recollection So the Agency began to Phase out the
727' $ . This , of course, led to the decision to divest the Agency
of Southern Air Transport and eventually of Air Anerica_
Incernal management problems were assisted in 1963 by the
establishment of an executive committee of the board of directors
of the Pacific Company , Air America and Air Asia_ The overt board
of directors in New York City passed a resolution organizing an
executive committee which included Mr Doole and two other directors
Covertly, the Agency with thac executive comittee some of its
representatives _ This resulted in management and the Agency being
represented on the executive committee of the Board , and permitted
the viewpoints 'of management Agency and the operators to meet in
this executive committee to consider policies and make actual deter-
Tinations and give guidance to the company Houscon indicated that
this mechanism was
extremely effective in controlling the company
H# 50955 DocId:32423532 Page 156
they
speak
Put
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55
So I think for the last oh fifteen eighteen
years the Proprietary management system was on
the whole pretty effective fromthe Agency point
of view _ I think we knew what was going on I
think we were able to get things uP for decisions
and if we couldn t resolve them at the staff level=
we would take them uP to the Director for decisions
quite different from tne early days in the early 50 ' s
that I described and the operators at least made the
claim that they had the right to call the tune
During this period of time Operations people
were getting chemselves involved in the acquisition
of aircraft and which were getting awfully damned
expensive at this time and separate projects were
going after some of this expensive equipment without
consideration of what might be available elsewhere
to the Agency by contract or old aircraft And So
the Director of Central Intelligence set up EXCOMAIR,
of which I was Chairman and had representation from
both the operation and management and finance out of
the Agency to cry and coordinate the overall control
and acquisition and disposition of aircraft.
Indeed , a February 5 , 1963 memorandum entitled "Establishment of
Executive Committee for Air Proprietary Operations M noted that
the Comittee was
provide general policy guidance for the man
agement of air proprietary projects , and review and final recommenda -
I tions for approval of air proprietary project actions Houston
indicated that EXCOMAIR "was sort of an amorphous group" which tried
to focus on the question of whether it reviewed the needs first and
then came up with recommendations on the operational solutions , or
whether the operators came up with 4 solution and put it through
EXCOMAIR _ Houston noted that EXCOMAIR ' worked on a very informal
basis because "I knew al1 these people well_
}
and I said. Let' s get
together and sort these out_ 1M He indicated that EXCOMAIR was
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56
reasonably effective in getting overall coordination It was re_
sponsible for making a thorough inventory of all the equipment
that che Agency had ini the aviation field, and by and large wa3
able co keep track of who needed what and whether an asset was
available that could take care of & problem without the necessity
of acquiring 3 new asset
According to Houston, a general shift in thinking at the
Agency occurred between 1968 and 1972 on
the desirability of their
holding substantial concingent capacity of airlift_ The records
seem to indicate that Mr Houston apparently convinced the Director
in the early 1970' $ chat the capacity should no longer should be
retained _ Houston comented on this assessmenc 38 follows:
Through what knowledge I had of the utilization
of the various assets , it seemed Eo me that util-
ization parcicularly of large assets , that is
heavy
fiight equipment
was going down to the point
where there was very little of it Consequently , we
couldn t forecast a
speciEic requirement Such re-
quirements as you could forecast were
haghlin con
cingent But I als0 remember a
couple cimes
putting the caveat into the Director that with 3
changing world and wich the complications in the
aviation field once you liquidate it you could
not rebuild and S0 you ought to think very, very
carefully before getting rid of an asset that did
have a contingent capability.
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4 129-
X: ISSUES POSED CONCLUSIONS AND RECOMENDATIONS
The preceding sectiong provide a
general Piccure of the -nature ,
extent purpose function and problems of proprietarfes _ Not unlike
other areas of Our inquiry, the issues raiged were not simply black
and white_ were, rather grey in nature During recent year8 ,
particularly at the time of the Vietnam War serious questions were
raised about this proprietary capability_ Much of che accompanying
criticism stemed from a lack of understanding of their role in the
scheme .0f both United States foreign policy and intelligence_ Sone of
the cricicism scemed from the suspected entrance of 3ome proprietaries
into areas where they were in apparent comfetition with legitimaee
business interests , such 48 che airline industry . Ic is not unusual
that there would be misunderstanding 8ince much of what would have
explained che proper role of chese entities had to remain secret for
innumerable reasons But che Comittee has not been stymied by that
same embargo and has had a broad look into these operations _
In general thege mechanisu have been operated with the utmost
concern for legality, propriety and ethical standards What slippages
have 'occurred were in the field and generally in the area of ai opera-
cors , not management - Moreover
2
their use and past expansion was a
direct result of the demands placed upon the Agency by Presidents,
Secretaries of State and the policy mechanisms of government = This 18
particularly crue of the large air proprietary complex which was used
to support peramilitary operations in Southeast Asfa . The only
exception
to this 19 the investment-ingurance complex which was
established on Agency inftiative to fill a pressing need
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A An Overview
Us broad authority under the National Security Act of
1949 , the Directors of Central Intelligence have established
Government 2 owned busines s enterprises foundations and quasi-busi
2
ness enterprises ("notionals") to serve a
variety of intelligence
and covert action purposes Chief among those purposes have been :
1) Cover for intelligence_collection and action_projecte_
Commercial firms established in foreign countries have
in the past and continue to provide plausible reasons for the
presence of CIA case officers _ Agency-funded foundations (e.g .
4
the Asia Foundation) served as conduits of funds to scholars and
groups
doing research supporting U.S . foreign policy positions_
2) Extension_of_Agency_influence_ and information network in
overseas buginegs_comunity The very act of establishing
2 firm
e.g. an air or shipping firm * #
requires banking insurance
and other services that entail support . comunications and inti-
mate
buginess relationships with the bonafide American and foreign
commercial world. In turn this entails at a mininun the clearance
and access of outside top management into Agency business ; the
relationship
on occasion can entail uS ing the Agency 8 commercial
contacts for information or assistance
3) Provide_Supporting services for covert operations _
In paramilitary operations airlife and sealift by Agency-owed
carriers has many advantages flexibility, ability to implant
photographic equipment and other sensors etc. CIA agents _ engaged
in hazardous buginess ordinarily uninsurable , can obtain comercial
insurance at standard or subsidized rates via MHMUTUAL a
conglomerate
MH 50955 Docld:32423532 Page 160
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-131-
of some 26 CIA-owned companies In country locations where
physical contact with the nearest CIA station is not operationally
discreet _ proprietaries can provide pay outlets and other adminis
2
trative services for CIA personnel and agents On occasion , firms
based in locations with permissive corporate laws and regulations
J5
Liechtenstein Panama Delaware
4 can engage in many activities
unrelated to their charters For example , insurance firms can
acquire real estate surroun targeted embassies on a non-attri-
buted basis _
4) Actual 'conduct of 'covert action In establishing the
"radios " (Radio Free Europe and Radio Liberty) in the 1950 ' s ,
CIA acquired 2 means
of directly influencing populations behind
the Iron Curtain These , of course, were eventually disposed of
and placed under the aegis of the Departuent of State but related
enterprises
}
such as the book distribution program which had
operated under radio sponsorship , continued within the Agency frame
work
5) Outlets for private investwent The Agency would deny
that this 18 a purpoge of proprietaries Agency officials state
that the standing policy is to
prohibit the investment of operationel
funds of the CIA into private fields without explicit DCI authoriza-
tion_ Actually , the existence of proprietary enterprises which
on occasion return sizable profits , affirmg that private investment
has indeed been a widespread Agency policy. Moreover the Agency
specifically has authorized MHMUTUAL to act as an institutional in-
vestor for its own and any other Agency proprietary So the question
really is one of definition and shading-
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B Size of U.S . Financial Stakeg
The size and variety of U.S . Government financial stakes in
CIA proprietaries hag already been described in great detail
The attached Table I gives an overview of proprietary income and
expenditures over the years _ Some 450 proprietaries have been
created over the years with 20 presently active (See Table II.)
The largest sixteen proprietaries received about 807 of U.S . in-
vestment (i.e_ subsidies) Accordingly , most proprietaries are
shown to be small-scale operations In many cases Au
the so-called
"notionals" 11 2
the overseas proprietary actually conducts no businesg
at all; it $ imply has a comercial charter , staff and cover arrange"
ments for Agency collection and action projects .
Table I al80 shows that proprietary income consists of a mixture
of CIA subsidy and income In some cases , the outside income is
from sources outside the U,S . Government income I e.g. , Air America
has received income for aircraft maintenance of KLM airliners in
Southeast Asia_ But for the most Part
2
proprietary income is in the
1f form of "cross-orders , from CIA and other Government Agencies_
For example , the CIA Paramilitary project in the Congo placed orders
for aircraft engines and pilot services with Intermountain Aviation ,
Inc. As an example of order Placed by other U.5 . Government Agencies ,
AID contracted with Air America to carry rice shipments in Laos _
In this sense,
many proprietaries
are analagous to what are called
"intragovernmental funds" or "industrial funds" in traditional U.S .
Government budget and accounting termg
Table I shows and as we remarked previously , that compared
with earlier years_ the size of proprietary expenditures has markedly
declined. The potential for future expansion is nevertheless present =
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Indeed _ new proprietaries have been formed within the last
several years
In terms of U.$ . budgetary impact , Table I indicates that
proprietaries do not add much new
capital to CIA available resources
Ta U 1.e_
2
while they have a very large expenditure level and momentum
10 over the years the cross-order" phenomenon means thac most of
these expenditures originated in CIA and other U.S . Government
appropriations and that net profits generated by outside business
or investment have been relatively small On the other hand , another
way of interpreting the figures 18 to obgerve that nearly half the
S1. 6 billion gross incone of CIA proprietaries has been supplied
by sources outside CIA
Table II shows the pattern of income expense, and net U.S
investment for the twenty largest proprietaries
now active review-
ing their financial experience in the twelve months preceding
June 30 1975_ or the indicated reference date. The two biggest
proprietaries Air America and MMMUTUAL are seen to dwarf the
others . Air America will be: phased out by June 30 , 1976 , ending
CIA 8 owned airlift and returning an estimated $20 million to che
U,$ . Treasury_ MMUTUAL will continue
Today , the CIA operates 45 major proprietaries , of which 25
are in the process of liquidation The 16 biggest proprietaries
did 8 gross total of 84 million business in 1975 , compared with an
average volume of $75 million annually in the heyday period of
proprietaries
9
1967-1973 , exclusive of CIA subsidies On the subsidy
front the contrast 18 equally striking: no net subsidy in 1975 vS
S26 million annual subsidy in the 1967-73 period, Put differently ,
if these sixteen biggest proprietaries had operated throughout
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-134-
kinds realized in 1975 (84 million) the total gross income would
have aggregaced S116 million Accually , the CIA reports thac
for this for this period gross income aggregated ac $1,606 million
By this measure CIA S biggest proprietaries are shadows of their
former selves ; their annual gross income of $4 million i8 about
one-fourteenth of the average gross annual incone of S55 million
during the 29-year
span
Shrinkage would be even greater if these
figures were adjusted for the effect of inflation
The chief impact is decline of the bigger air proprietaries_
The Agency estimates that of some 8761 million of outside income
at least $658 million wa8 generated by Air Anerica (8559 million)
and Southern Air Transport (899 million) in the period from incep-
to 1975_ As late as 1974 , these two airlines were garnering some
S50 million in outside contracts . Wich their disposal , total CIA
proprietary annual outside incone in 1975 therefore shrinks to
the ciced 84 million level_ Most of this residual is represented
by MHMUTUAL the insurance investmert complex , where Agency invest-
ment are generating an outside income of about 83.5 million annually .
In programatic terms chis contrast of today and yesterday
reflects the decline of peramilitary operations in Southeast Asia-
Large volume8 of outside orders by Defense and AID , along with
sizable levies by CIA conponents and some maintenance and passenger
incone from commercial operations , had been generated by a covert
war In turn, these operations had their echoes in Agency air
support for the Congo , Cuba , and other areas
Looking toward the
future will new
air proprietaries be established? The CIA thinks
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not but the matter 1s not resolved a8 discussion below indi-
cates Ultimately the Program question 18 whether there will
be fucure U.S. involvement in covert wars and whether
2
if
some substitute for CIA-owned air support can meet the operational
requirements of secure well-maintained local eircraft in place =
with responsive schedules and capacity to gather a limited amount
of signals and imagery intelligence _ The Chief of CSS ventured
the possibility that third-country a8sets could be used, Another
possibility 18 use of U.S_ military aircraft overtly or "sanicized"
One thing became clear: CIA sees itself 28 entering a different
era of proprietaries . It has rejected the long-held doctrine of
"stand-by" capability
2 4 1.e. the notion that ic i8 worth investing
considerable capital and operating resources in airlift, sealift
8
and other assets primarily targeted toward contingency requirements .
Instead, assert the Agency representatives CIA is keeping today 5
and tomorrow 9
proprietaries strictly centered
on current operational
tasks_ The test of retention 18 the utility of a proprietary in
carrying out assigned roles instrumental in approved Agency projects _
This concept can be examined by listing the twenty major proprie-
taries which the Agency 8ay8 will survive into the post-1976 time
frane
Latest 12
2 mo
Code Name Earned Income '(Sooo)
LPBERRY 843
LPROE/PIKE 139
PDPORTAL 5
BASTE (S1,250 subsidy
BASIC ("1,126 subsidy)
PDLEDGER 102
PDDYNAMIC 35
TENURE (S199 subsidy)
TERRACE 76 subsidy)
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VWCADENZA 36 subsidy
MBOUND 432 subsidy)
KMJAGUARO/ JAGGERY 809
QRMYSTIC / CYNIC 810 subsidy)
WUDIRK
XIPHOID $ 191 gubigdy
BACH 50 subsidy
KNOX 50 subsidy
LPHOCUS 22
LPBYZAS / B 2
LPPANDA 21
CHAIR/A 4 subsidy)
REMEDY 21
MAMUTUAL (consolidation of 21 firms) 83,560
LPSUGAR 34 (plus 835 subsidy)
The above listing covers
only the 20 biggest proprietaries
which currently operate and which will survive liquidation It
excludes 25 major proprietaries currently operational but being
phased out 15
such as Air America and other airlift
What does the whole picture of currently operated proprietaries
look like? How many and by what major types?
The Numbers of CIA Proprietaries , by cype
as
of July, 1974 are:
71
Operating proprietaries
(includes 21 prope in MTUAL insurance complex)
Non-operating proprietaries 38
Devised facilities 31
Devised facilities/Notionals ("DFN" ' s)
Subtotal externally registered 20
Notionals no
external registretion
Identity and financing wholly
within CIA control 215
Grand total
}
current
proprietaries 416
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Generally , the notionals have increased in number by about
307 since the current CCS chief' s takeover of Cover operations
in 1967 _ This reflects a policy of increas the number of
cutout arrangemenbs to increase security
4 # 1.e. , reduce likeli-
hood of outside discovery of the identity of agente or case
officers working under cover of the' end-point notional by intro-
ducing intermediate noFionals for payments Or identity' backstops .
tble
What does this cell WS about basic distinctions of
one type of proprietary from another? First, it indicates that
external registration divides the Pot in half. Those which have
some
form of legal standing with U,S . (State local) and foreign
corporate regulatory and tax authorities are subject to external
governmental scrutiny. This occasions addiconal expense and man-
power to assure that in all respects this group of proprietaries
behaves in accordance with local law and commercial expectations _
The second group the notionals exist only
a9 names on doors
and phone directories and scationery , with backstopping for identi- 4
Eication provided by Agency switchboards mailstops and check
issuance
The next level of distinction is wichin che class of legally
registered propriecaries those which carry on a commercial in -
come-producing operation and those which are simply cover arrange -
ments with at most a' bank account and an attorney backstopping
calls and mail_ The latter are' shown in the table above a8
"devised faciltiies" and "DFN" ' 8 .
Within the clas8 of commercial income 4
productive proprietaries_
?
there 18 a distinction between those which are
wholly dependent upon
HI# 50955 DocId:32423532 Page 167
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CIA income in the form of orders placed and/or subsidies ; and
those which have mixed outside and inside income _
Even for those with mixed income it is possible over the
years to distinguish those which have outside income wholly within
the U.S , Government (i,e. , 3 mix of CIA-derived income and income
from other Government agencies) and those which have both U.S .
Government income and income from private contracts
C Visibility in the Budget
Accountability co the President and Congress depends in budget
review upon the extent to which the Federal agencies budget
review upon the extent to which the Federal agencies budget re-
quests provide enough information to make possible well-formed
judgments_ Therefore Circular A-l1 issued by the 'Office of Manage
ment and Budget = prescribes the financial schedules and analytical
and explanatory supporting data which all Federal agencies must
provide in their budget submissions; consistent with the Budget and
Accounting Acts of 1920 and 1950 as amended .
The Central Intelligence Agency regards itself as subject to
these prescriptions _ The Agency limits its application of this
principle, however to provision of such A-ll materials as OMB and
the Congres8 2sk_for_
With regard to proprietaries this policy has resulted in
near
invisibility of proprietaries in the CIA budget submission
Circular A-ll requires agencies to
provide schedules and narrative
for each lic enterprise or intragovernmental fund. The utility
of such data is to reveal all sources
of funding ,
purposes and
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levels of expenditure and at least approximate indications
of performance through comparisons of Past and proposed funding
by accivity. As applied
to proprietaries the CIA perhapg
should have been providing a
whole family of schedules for the
proprietaries which actually do busines8 (i.e.
0
excluding
"notionals_ )
Then , there is the question of the Program impact of propri-
etaries Table I indicates that proprietaries in fact have been
heavily involved in CIA incelligence collection and covert action
None of this is shown in che 'CIA budget submission Yet a bona-
fide policy review of the budget requires programmatic judgments
of the necessity and appropriate use of proprietaries in' overseas
areas
The Angolan question has brought into sharp focus che role
of the CIA 9
Contingency Reserve_ All U.S . aid co forces in
Angola came from this fund. The Place in the budgets of CIA
where proprietaries have taken on even a
limited visibility is in
those years when supplemental financing
wa8 needed co establish or
strengthen a proprietary _ The budget then shows cersely , that
for a Past year or for completed portions of the current years
that Contingency Reserve drawdowns had been made for such Purposes
0 For example, one past budget showed a certain amount for "RFE
meaning
a
subgidy for Radio Free Europe , but praviding no justifica-
tion materials _ In turn this practice reflects the unwritten
post-hoc nature of the Contingency Reserve financing process in
effect _ an Executive Branch supplemental in which Congres8 i8 in-
formed after the OMB has acted_ The budget does not normally indi
cate Agency intentions to create or establish a proprietary in the
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budget year ahead _ For any other Federal agency , the notion
of establishing
a new
licly owned enterprise withouc advance
notice to the Appropriations and substantive comittees of
Congress mould be proscribed.
For the small-scale proprietaries , those which require small
subsidies to get underway , CIA i8 able to launch them without
supplemental financing
3 i.e.
}
within its regular budget
and_ therefore chese remain completely invisible in the Agency
budget submisgion
D Some General Considerations
a
The_relationship of utility to size: The evidence estab-
lished a dilema faced by CIA planners who recognize that propri-
etaries can sometimes be most effective operationally when they
are large; indeed , as in Laos there can be a thrust toward enormity
imposed by the very nature of the operation The dilema i8 that
large size conflicts with deniability: In areas of the world or
types of activity where there is little comercial appeal or few
operating commercial firms where would large-scale enterprises
get financing but from the U.S , Government? Laotion operations
actually could not be covered in the end _ The experience suggests
that proprietaries may have limited utility for paramilitary opera-
tions in the future_
b The factor of _competition with private_enterpriges Do
CIA proprietaries of the income-producing: class unfairly compete
with private U.S . businesses both with regard to their Government
financing ad their secrecy? Is the utility to the Government of
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such a kind and of such magnitude that CIA proprietaries should
be retained regardless of their competitcive impact? Generally ,
the CIA believes thac CIA operating proprietaries do not compete
with U.S . private enterprise because chey tend to do things which
the latter are not equipped , motivated, or staffed to Perform.
For example , CIA proprietaries purchase weapons and foreign
arma -
ments and technical devices ; conduct security clearances ; purchase
real estate; insure uninsurable risks ; train foreign policy forces ;
run airlines in remote areas or on commercially unattractive
routes Would private enterprise do any or al1 of these things ;
It is true that private enterprise does a lot of 8imilar activity
under contracc to
the Government , including highly sensitive con -
tracts for CIA in technical intelligence collection and research
and development . If CIA scrapped its propriecaries and coopted
private firms suitably cleared, would this be more desirable in
policy terns ? In economy? In operational flexibility?
Relative scarcity of 'comercial_and official cover The
cont inuing of CIA for notionals reflects the scarcity of U.S _
Governnent official cover in many areas of the world, the 'develop-
ing desire of W.$. companies not to cooperate.
Some question concerning profits have been raised. Does Pro-
prietary profit constitute a
significant add-on to the resources
available to CIA? How is such profit treated in che budget? How
1s it controlled? How can the Congress (or the President for that
matter) be sure
that proprietary profits are not siphoned off to .
accomplish projects not countenanced by the regular CIA budget?
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First, profits (defined a8 net income to a proprietary after
coverage of operating expenses) are relatively small Even in
the days when the most
profitable air proprietaries were at full
swing, the most that any single firm netted wa3 83. 9 million (Air
America in 1967) Over the entire period 1947-1975 , total pro-
fits have been $50 million an average of about $1.6 million
annually, for the 16 biggest CIA proprietaries And in these
year? , a net l0ss wa3 sustained three .times 4 #
82.5 million
in 1971, S0.5 million in 1973, and $0.3 million in
1975_ Looking to the future after liquidation of the air pro-
priecaries has been completed , there i8 forecast to be only one
profitable proprietary: MHUTUAL a complex of insurance
2
reinsurance
and and escrow-holding companies which derives most of its pro-
fit fron investment
portfolios_ MUTUAL 8 net income in 1974 was
S1.8 million and this general magnicude of profit 18 expected in
the foreseeable future_
As for treatment in the budget = there i8 both 3 policy and
procedural aspect. The policy' of CIA has changed; in February,
1975 the General Counsel of CIA ruled that profits of proprietaries
and proceeds of liquidation must be returned to the Treasury 43
miscellaneous receipts and cannot be used to augment the Contingency
Reserve or otherwise be applied to CIA operations _ This ruling
overturned the practice of the past which, on the few occasions
where profits were not to augment net worth of proprietaries
~~i.e. plowed back into the enterprise or
investment portfolios
m
was to
apply proprietary net proceeds to
the Contingency Reserve
for later release to operations
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The budgetary presentation and review procedures only Par -
tially focus
upon proprietary profits MUTUAL 8 profits are
invisible in the Agency budget ; they are taken into account and
subject to scrutiny only within CIA; operationally , the DDO annual
operational review has the most detailed grasp of MUTUAL at the
Agency review levels A stadard set of public enterprise fund
schedules as prescribed by OMB Circular A-11 would be appropri-
ate for making MUTUAL vis ible in the Agency budget . Other comer-
cial proprietaries should show these schedules as well. The
Agency has indicated that the Comptroller i8 working with DDO and
DDA to develop
a new style and content of budgetary presentation
and review procedures for CIA proprietaries in future budgets
To what extent can these new procedures prevent abuses of
proprietary profits? To whac extent do they preclude the need
for legislation in this area? What form of Congressional oversight
is needed here-- at what point should Congress exert control?
Improvement of visibility in che budget of proprietary resources
and provision for review of the major proprietaries 25 a regular
Part of budget review CIA OMB and Congressional Comittees
would seem to preclude most of the dangers of abuse On the other
hand_ there is one type of abuse for which additional Congressional
scrutiny and safeguards may be needed: the possibility of a small 2
scale, high-risk covert project directed by the President or DCI
which is not covered by the regular appropriation but financed by
proprietary profits _ No foolproof preventives can be designed by
law - or
regulation nevertheless the possibility of such abuse or
avoidance of Congress ional review can be minimized by requiring
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that al1 CIA proprietaries have an operational charter approved
by Congress which forbids laun activities by proprietaries
or using their funds which are con trary to the charter This
internal CIA standard would probably strengthen the existing
requirement that covert action Projects be certified by the
President and flagged to Congressional Comittees At present
MMUTUAL has such a charter (not reviewed or set by Congress) which
restricts MUTUAL to insurance operations _ This charter was
established in 1974 (called an 10 Administrative Plan") and must
be formally amended before the Chief of Cover Staff will authorize
use of MUTUAL resources for other missions
D Private Invescment CIA
The authority of the Agency to engage in private investments
and its general policy ambivalence on this matter already have been
noted. Two types of general as well 38 budget isues are presented ,
one the inverse of the other: 1) Could or should CIA engage in
investments which could accumulate funds outside the budget Process
and hence be available for operations that have not public scrutiny
outside CIA? 2) Is CIA investment policy coo restrictive in regard
to bank deposits? Specifically , should CIA plece large amounts of
money in private banks without charging interest? Some 207 of its
annual 81.2 billion of appropriated and advanced funds goes into
private deposit here and abroad ; with year-end balances of about
8150 million and average deposits considerably greater The banks
selected get an interest or investment bonus Their selection is
non- competitive rooted in historic circunstance albeit in insti-
tutions thac have shown themselves flexible and responsive in
H# 50955 DocId:32423532 Page 174
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providing the Agency services Much more investigation is
needed here and. we encourage the new oversight comittee to
study this issue in greater detail than we have been able_
Probably this i8 one area where exclusion of the General Account-
Office from CIA audits has had an unfortunate effect: Whether
or not there has been abuse there is no outside reviewer of 8
complex sec of financial records and relationships and conse-
quently the question of confidence in the Agency' $ role in this
area may have been eroded.
What is the future Eor proprietaries ?
Discussion on these questions already ha8 been covered in Part .
No new
propriecaries
are in formation or planned . This past fis_
cal year 1975_ one new proprietary was created to purchase a site
for the new location of the New York CIA base ; it serves as a
real estate holding company
or lessor for land and building_
The main provison for new growth i8 the plan of some years
standing for establishment in MUTUAL of several corporate "ghells"
legally constituted and registered companies that do very little
comercial business but which can be adapted to various new CIA
missiong To adapt to chese new missions 38 noted, would require
CIA to amend the MUTUAL Adninistrative Plan _ But this could be
done quickly; the existence of the shells avoide the leadtine of
creating new corporate entities with al1 che complications of
local laws and risk of exposure
While CIA proprietaries
are small today compared with yesterday ,
they are S0 largely for administrative reasons-_ i.e.
2
responsive
HN 50955 DocId:32423532 Page 175
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to Executive Branch direction In this sense , there 18 no
reason in law although there may well not be another era or
set of occasions when CIA will find proprietary expans ion to
be operationally desirable _ The Congress should be a partner
in the process of reviewing such expansion if it should occur
by providing for changes in the charter process Another approach
i8 the setting of substantive guidelines for proprietary operation _
This approach 18 typified the post-Katzenbach guidelines that
prohibit CIA operation of tax-exempt foundations
Lawrence R Houston the former General Counsel of the Agency
was
intimately involved with all of the propriecaries for his
entire tenure with CIA Consequently , his views have been invalu-
able co the Comittee in reviewing and evaluating the history
and the role of these mechanismg In the course of a far-ranging
interview with the Comittee Houston concluded that proprietaries
0i "should be the last resort for use to backstop Agency activities
He grounded this opinion
on the fact that:
they are cumbergome To be properly run they take
many many man-hours of many many different parts of
the Agency S0 they are expensive in man-hours There
are built-in difficulties in running what appears to be
2 normal business for operational Purposes There 8
really a built-in dichotomy there that leads to a contin-
ual conflict with policies And due to the number of
People involved there is a security problem on the
old grounds that security doesn t go by the mathematical
increase in the number of PecRZez It goes geometrically
as to the number of people, security risk_
This assessment seems correct based on all the evidence
The current Director of Central Intelligence has insisted on
the streamlining of such operations, and i8 keenly aware of the
potential for abuse_ (See appendix F) . It for example
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che current written policy of the Agency that "to the degree that
domestic proprietary or cover companies are required_
)
a clear
justification will be developed as to che relationship of their
support of our oversezs operations I6
In the one area of con
tinuing large-scale activity , the
investient complex, the Director has moved to insure propriety
even in an area where there 18 no evidence that ay illegal con-
duct has occurred. The current policy , established a3 of
June 1975 18 :
Project MMUTUAL will be operated in conformance with
appropriate legal restrictions Arrangenents are being
made for the bfiefing Of the appropriate Congressional
comittees _ Particular attention will be given to
avoiding any possible conflict of initerest situations
with firmg with which the has contracts Parti-
cular concern will als0 be
Agehilited
over possible
improper influence on the stock market or
stock dealings
through the investments involved in MHMUTUAL
The Committee is mindful of the potential danger inherent in such
operations _ Therefore , it recommendg that the review of this
and other similar projects by the appropriate oversight Coumittees
be stringent in the extreme
The disposal of proprietaries has als0 generally proceeded
along legal and ethical lines wich more than due concern for con-
flicts of interest. Most notable in' this spectrum of actions was
the degree to which the Agency tried and did in fact avoid any
conflicts of interest when it sold off. Southern Air Transport _
Such internal vigilance
no doubt should and will continue More-
over with the establishment of .& permanent oversight committee ,
the CIA $ job in this regard Will be made easier because it will
be able to report on ics dealings on a regular basis and avoid
criticism.
H# 50955 Docl4:32423632 Page 177
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nnex A
Memorandum of Law
Legal A uthority to Dispose of a Proprietary
January 1974
REC: "XOM
OcT %0 1975
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SECREI
MEMORANDUM OF
DOES TFIE CIA POSSESS TFIE LEGAL AUTHORITY
TO SELL A WHOLLY-OWVNED GOVERN
~
MENT AIRLINE WYITHOUT RECOURSE TO
THE FEDERAL PROPERTY AND ADMINISTRATIVE
SERVICES ACr OF 1949, AS AMENDED ? RECEVe:?) FROM
Uct 30.1965
I FACTS
CLa
There exist two airline corporations wholly owmned by the
United States Government, Which corporations were purchased by, aad
are under the direct control of, tne Central Intelligence Agency- Ownersh:
of the
corporations was 2cquired by means Of appropriated funds ependcd
by the Agency under its confidential funds authority, the procurerents thus
being made outside of the Federal Property and Administrative Sezvices
Act-
Both corporations Were created by the Agency to assist it in fulfillirg
its statutory responsibilities and,_ovez the years, both have engaged in
many sensitive support activities in the furtherznce of thc nztional security
of the United States: It has been widely reported in unclassified mediz thzt
the Central Intelligence Agency on behalf of the United States Goverrment i:
the de facto owner of the corporations. Notwrithstanding, thzt ovnership is
still & classified fact- The activities and rissions of these corporations
in support of the national security of the Urited States wvould hzve been
impossible if United States Government ownership had been officially
admitted.
Within this context it is the statutory responsibility of thc Direc;
of Central Intelligence to protect the overt commercial posture of these
corporztions
the clzssified natu5e of certain of thcir activitics: Nov
HM sd9p5 DocId:32423532 Page 182 CrOCIT
and
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SEGRET
thc Director has deiermined that tkz corporatio;s aie no longez "equired
by the Agency in the discharge of its responsibilitics; that are excess
requirements, ard hc has directed that they be disposed of
to Agency
either by sale or
liquidation:
II. STATUTES
The Federal Property &nd Administrztive Services Act of 1949,
amended, (40 U.S.C.A.
471 et seg-, hereinafter referred to as "'the
as
Act"), is in
general the controlling statute insofar &s Governrent'propert;
is procured, used 2nd disposed of:
It is the intent of the Congress in enzcting this_
legislation to provide for tne Government an economiczl
and efficient system for (a) the procurement and supply
of
personal property and nonpersonal services incliding
related iunctions such as
contracting; inspection, storzge,
issue, Specifications, property identification and classifi-
cation, transportation and traffic mznagement; establish-
ment of or
systers for transportation of Government
personnel and property by motor vehicle within spccitic
areas,
managerent of public utility services, repairing
and converting, establishment of inventory levels, establish-
ment of forrs and procedures, and representztion before
Federzl and State regulatory bodics; (b) the utilization o
2vailable property; (~) the disposal of surplus property; 2nd
(a) records ranagement. 40.U.S.C.Ax 47.
the Central Intelligence Agency is within the purv
As an
executive 2gency,
Act (40 U.S.C.A. 472; 481), but along with 2 nurber of other 2genc:
of the
and activities, it wzs exempted ror tlie Act:
Congress__
departments_2gencies,_corporztiong
RE TROH:
Rersons exerpted Fror pfovisions
OCt 30 125
2
HW 50p55 DocId: 32424532 Page 183 1i~07r"
they
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SEBAET
Nothing in this
Act shall impair or aftect any
authority of
(17) thc Central Intelligcncc Agency;
40 U.S. C-A. 4 042(17) _
The Act' s
legislative history provides &n insight into tne brezdt
and, to 2 limited degree, Congress 1 intent ior giving it-
of the exemption
Special exemptions from the 2ct.
Aut
This sub_
section exempts from operztions under the act a
number of 2ctivities requiring treatnent.
Chief 2mong these 2re progrzms for _ support,
stabilization, grants to farmers, 2nd foreign aid;
procurcment procedures under the Armed Services
Procurement Act of 1947._ ~; the stock-piling of
critical materials; the national school lunch program;
the Housing and Home Finance Agency with respect
to the disposal o residential property; the Atomic
Energy Commission; and the Gentrel_Intelligence
Agency:
It is not intended by these exemptions that those
administering the agencies Or
programs listed shall
be free from all obligation to comply with the pro-
visions of the 2ct or frorn all jurisdiction of the
Administrator. On *he contrary; it is expected that
they wvill as_far 25
practicable procure, utilize, and
dispose of property in accordence with the provisions
of the act 2nd the regulations issued thereunder;
perticulerly so far
as comron-use items 2nd adminis
trotive supplies are concerned Likewise, it is
intended
that the Administrator shall have iull authority; wizh
respect to the 2gencies Or
programs mentioned, to
surveys of, and obtain rcports on, property and
RECEv ,
FROM ezt-rags Genaed
practices, to cooperate in the
establishment of inventory levels, and to report
U6 20 1975
exccssivc stocking, in accordance Wvith the provisions
of section 206 (2) (L) and (2) . CIa
3
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U SECRET
Ll other Ivords, to the extent that compliance_Wvith
the act 2nd subrission to tha jurisdiction 0fthe
Administrator will not S0 'impair or effect the zuthority'
of the severzl agenciestoWhich the_subsection @Pplies
as %o intcrfere with the_Operztion_Of their_Pregrars the
act will govern disputes that arise can be scttled
by the Presidezt under the authority to prescribe policies
and directives vested in him by section 205 (2)_ U.S. Code
Congressionzl Service 1949, Vol. 2, P; 1504_ (erphasis
added)
Onc i~thority cf th3 Centrel Intelligezce Agczcy tiich ccrmplcec
tion of the 'Act would "impair or 2ffect" is clearly the Agency's_
authority to expend confidentizl funds_
The
surs made available to the Agency Inzy
be
expended without to the provisions of law
end regulations relating to the expenditure of Govcrn-
mcnt iunds; and for objects of & confidential; extra-
ordinary, or erergency nature,
such expenditures to
be accounted for solely on the certificate of the Director
2nd every such certificate shall be Zeered 2 sufficient
voucher for the amount therein certified. Sec 8 (6) ,
CIA Act of 1949, a5 amended; 50.U.S.C.A 403j (6) -
The CIA Act of 1949 (63 Stat. 208, P_ L. 81-1l0) becare effective June 20,
1949; the Act (63 Stat_ 378, PLa 81-152), July 1, 1949.
The
question of lzw thus preserted is: In selling and diszosing
airline corporations, must the Agency adhere to the Act 2nd
Of the two
subrit to the
jurisdiction of the Administrator, Generzl Services
Administration?
FROM
U: $0 1915
HW 50p55 DocId:32423532 Page 185 0|^
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Ary
applical
regard
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SFGRET
II. ARGUMENT
The braad authority afforded the Agency by Section 8 (b), supra;
is conclusive__"(t)he surs made available to the Agency nay be expenced
Wvithout regard to thc provisions of law and reguletions relating to the
expenditure of Government funds; M That authozity is enhanced,
not
lirited,
by the Act_"(N)othing shall impair or affect the autkority of
the Central Intelligence Agency"= and the Act's legislative history- Iz
follows naturally that the Agency's authority to procure on 2 confidentizl
basis wvithout recourse to the Act inherently carries with it the authority
to dispose
on a confidentizl basis Tithout recourse to the Act: Ivay of
an cxtrcrie hypotnetical, suppose the Agency had procured a Soriet
weapons syster, Ivithout Soviet kcnowledge- Using Sectioz 8(b) authority
it had expended funds thzouga
2
secure facility for the procurement &nd
brought the system to this country Where it wzs studied and tested.
virtue of the testing the Governrent Ivas able to develop electronic counter
measures
Ivhich would effectively nullity the system Upon & determinatioz
that the systern is of no further use, can it be seriously argued that its
disposition the Agency slould be anything other than confidential? The
purchase was confidentizl; possession of it the United States Governmez:
Ias confidential; &nd, the knowledge gained &nd the countermeasures
developed are confidential. To hold otherwise would render the intended
purpose of Section 8 (b) 2 nullity-
F vn FROM
5 Uci S0 J975 :
HWW 60955 DocId:32423532 Page 186
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0| ^
by
By
By
by
by
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SECHET
The short
expression ' of Congressional intent found in the Act':
legislative history supports the view that the Agency'5 activitics in the
confidcntial funds arcz 2re not within the purview of the Act: "As far 2s
W procurerent, use and osition should be in 2ccord: prcticable-
wvith the provisions of the Acz
5
particularly s0 'far as common-use iters
administrative supplies are concerned " It is suggested that 3 Goverr
and
ment-Olvned, but overtly commercial, airline used in support 0f foreign
2
activities does not fall vithin & "common-use items and
intelligenc
administrative supplics" categorization: Sin ilarly, if the last paragrzph
history (emphasized portion) quoted above is read in the
of legislative
becores 'clear: M (T)he 2ct will. (not)
negative, the
proposition
'(if)=
compliance With the act and submission to the jurisdictioz
govern:
Administrator will. 'impair or affect the authority' of the: several
of the
Ivhich the subsection
a5 to interfere Tvith the operatior
agencies to
WVere the Agency
required to comply Iith the
of thcir progrars-
to the
jurisdiction of tle Administrator in tbe exercise
Act and submit
funds authority,
not only would that authority be iripaire
of its confidential
affectcd,
but many of the Agency's most significant statutozy authoritie
0r"
responsibilities woula be frustrated.
FROM
UCi 30 1915 SEBRET
HY sopss DocId:324235f8 Hage
187
" ; ' disp
applies
2na
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SFCRET
In looking at CIA s express authority to procure 0n a confidenti
basis and exzmining the nature of its implied 2uthority to dispose,
genera
staterents on the rules 0f statutory construction are helzful; Foz
exarple:
Where a stztute confers powers or duties in
general terrs, al powers 2nd duties incidental and
necessary to make such legislation effective are
included by irplication; Thus it has been Stated, An
express Statutory grant Of power or the imposition of:
a definite duty carries with it implication, in the
absence of 2 limitation, authority to employ all the
mezns that 2re usually employed and that are necessary
to the exercise of the power or the performance of the
duty - That Ivhich is clearly implied is 2s much 2
of & law &s that which is expressed. 1
The ule whereby & statute by necessary
implication, extended has been most frequently
applied in the_construction of laws delegating powers
to public officers and administrative agencies_
Thus wvhere the powrer to create an office is granted,
the pover to abolish it will be implied, and where an
administrative body is power to enact regulations
or exercise quasi-judicial powez, the power to provide
for internal rules of procedure will be implied. The
power of & municipality to sue and be sued wzs held to
imply the power to employ special counsel for those pur-
poses although the had a regular salaried 2ttorney.
A municipality, erpowered by stztute to construct sevrers
for the
preservztion of the public hezlth, interest 2n
convenience,
w2s permitted to construct & protecting wvall
and purpirig Thich Tvere unnecessafy for the proper
working of the sewer, but were essential to public kealth_
Sutherland Statutory Construction $. 5402_
FRROM
Uci 30 1975 SEGRET
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part
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given
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SFCYET
Sitnilarly,
(I)t has been held that an express scatutory
of a
right, power or privilcge carrics Ivith it
by implication, in the absence of & limitation, all
tile means that are usuzlly employed:and that 2re
neccssary and proper to the exercise Or enjoyment
of thc right, powr or
privilege granted. In such
case,
the power necessarily implied is 3 part of
the legislative 2ct. There is even authority in
support of the zulc that power in & statutory grant
may be
implied 2lthough it is not indispensible to'
the exercise of tne powers granted 50 Amn. Jur._
Statutes € 428-
Cases Ihich spezk to the subject of implied stztutozy powers
are abundznt. In Schmiedigen V: Celebrezze_ Judge Holtzoff held that:
0 (I}t is
a well estzblished principle of statutory construction thzt every
legislative enactment must receive 2
sensible 2nd reasonable constructior
that ould effectuzte its purposes. If a strict, literal interpretation woul
frustrate the objective of the legislative body and vould lead to an absurd
or iutile result, it must be avoided: " 245 F 825, 827 (1985)- In
U.S: V . Jones,
wvhere & Statute gave federal officers the power:to enforce
writh the law but wvas silent On 'the power to arrest the court compliance
stated:
So, though the terri arrest is notused in the
statute,
the language employed necesszrily irzplies
{lthat such power vas included.
CCe 30 8
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grant
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Necessary implication rgfers to & logical
nccessity; it mezns that no other intezpretation
is
permizted by the words of the Acts construed;
2nd so has been defined 25 20
inplication wvhich
results from so strong a
probability of intention
that an intention cortrary to that imputed cannot be
supported. The term is used where the intention
with
regard to the subject ratter may not be mani-
'fested by and direct wvords, but isgathered
by implication or necessary Geduction from the
circumstznces and the general language.
Consequently that which is implicd in & statuia is
1s nuch 2 of it &s that which is exprcssed,
for 2
stnlutory grant of & carries with it,
by imnplication, ` everything necessary to carry
out thc powver and make it effectuzl and complete
204 F.zd 745, 754 (1953); certiorari denied,
98 La Ei; 368; rehearing denied, 98 L: Edl_ 404.
IV CONCLUSION
Adherence to the Federal Property Adrinistrative Services
Act in disposing of the two airline corporations wvould do far more than
impair or affect Agency programs_ It would enZanger the national security
wvhich the statutory authorities available to the Agency wvere desigued to
protect-
The Central Intelligence Agency, because of the unique stztutory
RO)M
pC 80 19ns
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pari
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grant provided it in Section 8(b) of the CIA Act, 2nd because of the unique
nature of its statutory responsibilities, possesses both the express powe:
to procure property confidentially without recourse to the Act and the
implicd power to dispose of property confidentially ivithout recourse to tk
Act.
RESPECTFULLY SUBMITTED
lalu
Gary M_ Breneman
Assistant General Counsel
Centrzl Tatelligence Agency
RE JM
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Annex B
HR 230-8 and HHB 230-1
Concerning Regulation and Administration
of
Agency's Proprietaries
REa )ML
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SCCEET
PLANS, PROGRAMS, AND PROJECTS HR 230-8
8. ADMINISTRATIVE PLANS, LIQUIDATION PLANS, AND FISCAL
ANNEXES
2, GENERAL
(1) In the furtherance of some Agcncy objectives it is necessary to establish,
operate and support overt Instrumentalities which do not have ostensible
afliliation wvith the US. Government: These ostensibly private organlza -
tions Ihich may be susceptible to scrutiny by & variety of tax &nd rcgula-
tory authorities, the press, hostile elements and others, require operational
security of 2 high ordler: It is essential that they are cstablished end
managed in accordance wvith normal practices and requirements of the
type of enterprise concerned, and that they are staffed with qualified
personnel whose cover histories are compatible with such employment;
It is also essential that there arc adequate general management, financial
and security controls consistent with both operational . efectiveness and
the requirements of nonattribution, for the protection of the Agency'$
Interests.
(2) Tbe controls and procedures whlch are applicable to in instrumentality
wil be specified in a project outline and administrative plan Or fiscal
annex Standirds and format for administrative plans and fiscal annexes,
a5 well as for liquidation plans to be followed when an instrumentality is
to be discontinued, are prescribed in IHB 230-l.
b POLICY
(1) The establishment or continuance of 'an Instrumentality is justified only
when it contributes to the accomplishment of the Agency's mission and
Js operationally determined to be themost 2dvartageous means of gaining
a particuler and necessary objective. The purpose of an instrumentality
shall be to conduct secret operations or support such operations under
cover Of its overt function.
(2) No binding commitment with respect to the establishment of apy In-
strumentality shall be made before the approval' required by this regu-
Jation has been Obtained
C. DZFINTTIONS
(1) PROJECT: A project is 2 management device through whlch specifc
operational activities are undertaken to meet programmed objectives.
Budgeting and finarciel accountability are maintzined against the project
for furds and resources authorized for it.
(2) INSTRUMENTALITY . An instrumentality Is 3 corporation, a foundation;
partnership, sole proprietorship, or other Jegal entity (within the private
sector; domestic Or foreign) for which specific funds or other assets
have been authorized under & Iormally approved project Within & project
there may be one or more instrumentalities:
(a) Proprietary. A proprietary is an instrumentality In mhich the Agency
acquires ownership of 2 con trolling interest, through eppropriate
nominee or Jegal entity arrangements. Tne Agency exercises, through
stockholder or other equity arrargements, control of the instru -
mentality in terms of the policy, administration, formulatlon of
budgcts, and the application of funds.
(b) Operational Investment An operational investment Is the acquisition
by lhe Agency 0f an eguity in an instrinentality, through appropriate
nominee or Jegal entity arrangements, of less than 2 controlling
intcrcst, with the expectation 0f gecovering somz Or a] of its invest
ment. influence the Agency may exert over budget formulation and
Revised: 1
Saujl
1969 (464)
[Eadud-3 Trou, aytomalis} 15
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HR: 230-8c(3) PLANS, PROGRAMS, ANL_FROJECTS
the application of iunds Is a matter of negotiation. (NOTE: Operational
loans shal ba handled in eccordance with provisions of HR 30-9
and chipter IX of HFB 30-1.)
(c) Subsidy. A subsidy is the contribution of' funds or miteriel to an
instrumentality by the Agency, With the Agency acquiring no equity
in the asscis nor right of participation in either the income or
the profits of tbe entity: (Payments to foreign liaison services are
excluded Irom this definition.) There are two types o subsidy:
(1) Controlled: A controlled subsidy involyes support of {n instru-
mentality whose income is primarily derived from Agency funds
and whlch Is therefore' largely ldependent upon such support To
the extent that the Agency Is able to exercise control it does So
through the formulation of budgets, the requirement for financial
accountings, and the application Of funds Where & project consists
Of & combination of seperate sUbsldy and proprietary instrumen-
talitles, proprietary regulations Wil be applied to tbe proprletary
instrumentality.
(2) Noncortrolled. A noncontrolled subsidy Involves support O2 an
instrumentality to whlch negotiated fixed-Sum incentive. pay-
ments of Agency funds are made, blt budget forulation and
the exerclse of discretion over: expenditures are at 2 point es_
sentially beyond Agency control Evaluatlon of performance 1s
8
matter 0f operational judgment, not necessarily related to the
amount of thbe fied-sum peyments-
(d) Fnding and Payrolling Instrumentalities n funding or payrolling
instrumientalty is used to fund or payroll Agency activities when; for
reasons of security or cover, funding Or payrolling must be accoraplshed
through an overt mechanism; 7ha Agency has Jegal or beneficial omer-
ship of 1 funding or
payrolling instrumentality through appropriate
bominee or Jegal entity arrangements: Although these instrunentalities
are
proprielaries, they operate under special authorizatlons tbat may
vary substantially from tbe requirements of this regulation
HFB 230-1.
"(3) PROJECT OUTLINE 4 project outline is & vrritten plan for accomplishing
programmed operational objectives; Upon approval by ppropriate au-
tbority it becomes the Iramewori: within Fhich the project is implemented
and its effectiveness initially evaluated:
(4} PROJECT RENEWAL: A project fenewval is the approval after evaluation
by appropriate authority for continuation o & project beyond the period
covered by its initial approval or previous renewal: The renewal may
update o supersede certain provisions of the project outline:
(5) ADMINISTRATTVE PLAN. An administrative plan is a supplement to_
the project outline which upon approval by appropriate authority consti-
tutes the administrative framework within Which the instrumertality is
to operate To that extent it replaces all Agency regulations, except this
regulation and HR 230-9,in the management of project instrumentalities,
their interna] activities and non-Agency erployees: An administrative
plan is required for.all projects establishing and u tilizing , proprietaries,
operational investments, funding and payrolling instrumentalities, and
controlled subsidies.
(6) TZRMINATION. Termination is the discontiruance of 8 project or an
instrumentality, upon written approval o the Deputy Director or Fead
of Independent Office concerned:
(7) LIQUIDATION: Liquidation is the settlement Of accounts of an instru-
mentality; the final disposition of its remaining assets, and dissolution of
the instrumentality.
16 Fevised: 1 August 1959 (454) AJM
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PLANS, PROGRAMS, AND PROJECTS
HR 230-8d
:."(8)' DEACTIVATION: Deactivation Js the dlscontinuance 0f the functionung
0f an instrumentality, with the charter or franchise retalned but In an
Inactlve status, pending determination 25 to liquidatlon Or reactivation ot
the instrumentality.
(9} LIQUIDATTON PLAN. A liquidation plan prescribes the' procedures for
implementlng 2 properly authorized operational decision to terminate
the Agency's active use Of 3 specific instrumentality and to dispose 0f
the. Agency's portion of tke assets_ An approved ' plan is required for
liqudation of a2l proprietaries, operational investments, and' controlled
subsldies with proprietary aspects: No liquidating action will begin untv
the ligudation plan has been approved.
(10) FISCAL ANNEZ A fiscal annex is 2 supplement to the project outlne
that sets forth funding arrangements, speciflc accounting control, fl-
nancial reporting requirements, and Friteoff provisions, A fiscal annex
is required for al noncontrolled subsldies
a_ AUTHORITIES: AND RCSPONSIBILITTES
(1) AUTHENTTCATIO: OF ADMINTSTRATTVE PLANS, LIQUIDATION PLANS_
AND FISCLL ANNEZZS (HEREAFTER CALLED SUPPORT SUPPLE-
MENTS)
(a) The joint approval of the Deputy Director having furisdiction over
the project 2nd the-Deputy Dlrector for Administration is required for
(1) establishment, deactivation, 0r reactivation of an instrumentality;
(2) a] support supplements and amendments thereto, Including spe-
cific deviatlons because of unforeseen Or emergency conditions;
(3) transfer between projects 0f any instrumentallty and remalnlng
assets.
(b) Advances of funds to an instrumentality before approval 0f the related
administratlve plan or fiscal annex require the approval of the
Deputy Director concerned, the Deputy Director for Administratlon,
and the Comptroller:
(c) All ligudation plans require the approval of the Deputy Director con-
cerned and the Deputy Director Ior Administration
(2) PREPARATION
(a) The Cperating Official having jurisdiction over tbe.` project is re-
sponsible fcr the preparation and coordination of the administrative
plan or fiscal annex; and, when required in connection wvith termina-
tion of tlle instrumentality, the liqudation plan.
(b) Administrative plans require the concurrences of desi; ignated repre-
sentatives ol the Gereral Counsel; the Director Of Finance; the
Comptroller; the Dircctor of Security; and the Chiet, Cover and
Commerciel Staff: Liquidation plans require the concurrences 02 the
designated representatives of the General Counsel; the Director 0
Finance; the Chief, Cover and Conmercial Staff; and in addition,
the Comptroller for those liquidation plans Involving the disposition
of issets Frith 2n estimated market value in exczss of S5O,C00. Tne
assistanca and counsel 0f other offices will be obtaired when their
functional responsibility is involved.
(c) Fiscal annexes rcquire concurrence of the Director 0f Finance and tne
Chief, Cover andl. Commercial Staff:
#Revigell: 29, October 1974. (340) E2 impdet 16.1
SECIZT Cl By: 052537
REC: FPPOM
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HR 230-84(3) PLANS, PROGRAMS, AND PROJECTS
(3) PERIODIC REVIEW AND REAFFIRMATION. The Operating 'Ofblclal
responsible for tbe project wil revle;v cach epproved adminlstratlve_
plan
or fiscal annex at icast once each year, coincldent with consldera-
tion f renewal of the project and Fill either
(a) afflrm In writing to tbe rcsponslble Deputy Director tbat the prevlously
approved provlsions remaln adequate and vald; or
(b) Intiate approprlate revlslon rhen changlng circumstances dlctate the
need.
2
F
8
6
2
2
Revised: 29 October 1974 (840)
18.2
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PLANS PROGRAVS , AND PROJECTS HHB 230-1
FOREIORD
FORETIORD
Rescission: HB 230-1 dated 1 August 1969
}
10 January 1973 , and
16 March 1973
This handbook incorporates the Agency procedures pertai ing
to the administration of project instrumentalities that Iill pe
folloyed in carrying out policies prescribed in HR 230-8.
FOR TH 'DIRECTOR OF CENTRAL INTELLIGENCE:
C
JOFN Fa BLAKE
Deputy Director
for
Administration
DISTRIBUTIOV: SPECIAL
FROM
Wi 90 }J75
CA
Revised: 29 October 1974
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S-E-C-R-E-T
PLANS PROGRAMS , AND PROJECTS HHB 230-1
COVTENTS
COVTENTS
Paragraph Page
1 PURPOSE _
2 GENERAL _
i
3
ADMINISTRATTVE PLAN PRESENTATIOV
4
STANDARD PROVISIONS AND REQUIREMENTS OF
AD INISTRATIVE PLANS
a _ BUDGETING .
}
b FUNDING _
REFWNDS _
d
AGENCY CERTIFICATIOV AND APPROVAL
ACCOUNTING IN AGENCY RECORDS
PROTECTIOV OF U.S.
GOVERNMENT INTEREST'
PERSOWNEL POLICY
h
INSURANCE COVERAGE
CASUALTY PRCVISION
LEGAL SERITICES 8
SECURITY ' POLICY _ 8
1 Not used
JI < AUDIT. 8
n_
FINANCLAL ACCOUNTING AND REPORTING 9
BORROIING LENDING , AND PLEDGING OF ASSETS 10
P INVESTMENT POLICY 10
q
REAL PROPERTY AND" OFFICE FURNTSHINGS_ 11
r
LMITATIOV OV INDIVIDUAL DISBURSEVENTS AND
CONTRACTUAL ARRANGEMENTS 11
5
SPECIAL ADMINISTRATTVE EXPENSE POLICY 12
te
TERMINATIOV AND LIQUIDATIOV_ 12
5
CONTTNGENCY CASUALTY . PLAV. 13
6 LIQUIDATIOV PLAN 15
7 FISCAL ANNEXES 14
2 _ GENERAL _ 14
b
ACCOUNTING PRINCIPLES _ 15
C
FINANCLAL STATEMENTS 15
d
USE OF CERTIFICATIOV AS EVIDENCE_OF_FULFILLNENT
OF THE PURPOSES FOR IHICI FUNDS TERE ADVAVCED 15
e
USE OF CERTIFICATIOV FOR OPERATIOVAL REVIEW. +16
f.
FINANCIAL DATA FOR OPERATIOVAL PURPOSES_ 16
REINBURSENENT FOR OPERATIOVAL DEFICITS +16 Rom
&:
FORMAT OF FISCAL ANNEXES 16
Uci 90 1975
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'S-E-C-R-E-T
PLANS , PROGRAVS _
9
AND: PROJECTS HB 230-1
SUPPORT SUPPLEMENTS FOR AGENCY INSTRUENTALITIES
1 PURPOSE
This handbook sets forth guidance for developing support supplements_
(administrative plans fiscal annexes'= and liquidation plans) governing
Agency instruentalities, as required by. HR 230-8.
2. GENERAL
Properly approved. support supplements modify or waive specific provisions
of Agency regulations except HRR 230-9 and , in lieu thereof set forth
the provisions_ for special authorizations and management control of
instruentalities in the conduct of their affairs_ They are designed to
promote
a
the most effective management to include staffing of each instru
mentality With personnel qualified to manage it in accorda ce with
Agency objectives , under sound personnel policies_ and pracices;
the establishment of an effective budgeting_ accounting, and re"
porting system that Will produce accurate, timely and useful re:
ports of financial status and financial results of the operations
of each instruentality;
the establishment of an accoun system for the instruentalities
that is compatible and reconcilable with Agency financial records;
d
the highest degree oE cover ad security comatible With the overt
character of each instruentality and its operation or support
objectives; C
the effective Agency control of funding to, and assets held bY , the
instruentalities;
Tn FRQM
the orderly deactivation or liquidation Qf any instrumentality that
has ceased to be of operational value to the Agency
Jci" 30 1975
3. ADVNISTRATTVE PLAN PRESEVTATIOV Cha
The administrative plan presentation should consist of (a) 2 menorandu
reques approval of the administrative plan by the Deputy Director
having jurisdiction over the project and the Deputy Director for Aclmini
stration; (b) the administrative (usually drafted by the support
elcment in the operating component concerned) ; and (c) 3 concurrence
sheet evidencing concurrence in applicable provisions Of the administra-
tive plan by the dcsigated representatives of the General Counsel; the
Comptroller; the Director of Finance; the Director of Security; the
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HHB 230-1 PLANS ?KyJRAMS =
9
AND PRQJECTS
4
Chief= Cover and Commercial Staff; and such other Agency components
whose 9 functional responsibilitics are involved . The memorandu should
state the project 5 operational objectives the reason why it is believed"
that an instruentality is the most advantageous means for attaining the
objective, the type of instrumentality to be Used funds approved for
the current year_
funds programmed for the ensuing fiscal Year_
2
and in
the case of a revised plan, a statement as to the need for the Tevision
and
funds cxpended for the past two years_
4
STANDARD PROVISIONS AND REQUIREVENTS OF ADMINISTRATIVE PLANS
Standard provisions and requirements of adinistrative plans are listed
belo
A" single reference may be Made in each administrative that
the provisions of HBB 230-1 are
applicable_ Substitute or additional
provisions may be included in each plan to the extent necessary wherever
the standard provisions &nd requirements are not
applicable.
a.
BUDGETING
(1) Purpose
The
'approved annual operating budget' for
2
project provides
the means to integrate:it into the planning &d budgeting
system of the Agency
The process for the annual renewal of a
project pemits the appropriate Deputy_Director
9
through his
reviel evaluation_
9
and formal approval.of the project &nd its
} operating budget
0
to authorize the continuation of the activity,
under which funds may be advanced controlled, expended_ and
accouted for
>
within the ters
OE the approved operating
budget of the project The approved operating budget %f the
project provides a basis for an
objective evaluation of the
real (total} cost of the activity, to: include:
(a) Fuds Available
Clear identification of fuds either available or presued
to be available to the project (or instruentality) fron
all
sources during the period of the proposed operating
budget, Ihich wili include
any
prior-year funds (beginning cash balance, in-
cluding liquid assets);
(2 other U.S. Government (non-CIA) funds;
(3) other CIA funds;
RE
(4) all other income;
Oci <a 7975
(5) the new funds requirement of the project (from
C[a current appropriation)
Revised: 22 ~ : 1974
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S
PLANS , PF RAMS , AND PROJECTS HB 230-1
4b
(b) Proposed Expenditures
Clear identification of all proposed expenditures
re-
quiring cash, broken down in sufficient detail to separate
(1) fixed expenses (overhead) ; and"
(2) operating expense=
(c) Estimated: Cash Balance at the End f the Fiscal Year
(2) Preparation
(a) Operating budgets are to be prepared anriually for each
approved project; with a detailed breakdoln for each
instruentality. The budget will cover the past year
(estimated obligations) the current year (proposed) , and
a forecast for at least the next year 5 operations in
0 agreement with' the limitations contained in the relevant
operational program The categories of expense Ivi#l be
consistent for: all years and; ivill follow the . general
~irClassification of accounts in.its prescribed accounting
reports
2
to facilitate 'comparison justify increases
or decreases (overhead: vs_ operational; stateside VS
overseas; salaries, travel
2
etc:, as applicable)
(b) Scheduling Of approvals of operating budgets Will confor
with the schedules established by the appropriate Deputy
Director for annual project renewals_
(c) The Office .of the Comptroller is to be provided a copy of
the approved operating budget for the project imediately
following fomal approval by the appropriate Deputy_
Director _ This requirement also pertains to any 'subse-
quently approved Tevision of the project operating budget
b FUNDING
(1) Instruentalities generally should be provided wvith cash not
in excess of three months nornal operating cash Tequirerents_
Further fuding 0f any instruentality should be deferred Nom
Whenever available funds exceed this limitation If substan-
tial anounts above this limitation are on hand, the instncnen-
3 #
1975 tality should be required to return the excess to the Agency _
Cth
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PLAN ncGRAMS , AND PROJECTS
#B 230-1
4b(2)
(2) Funds in jy instruentality that are in excess of noral
operating requircients may be held for operational purposes
when
justified by the appropriate Operating QEficial and when
approved by the Deputy Director concerned and the Deputy
Director
for Administration in the followving circumstances=
(a)
In order that the instrentality may present periodic
financial statements reflecting substantial cash balances
and: investments for the purpose of strengthening cover
and providing the appropriate stature in the community of
its operations
() To
the instruentality to make investments for the
purpose of providing income in such amounts that Will
lend the appearance for cover purposes of not having to
rely solely on
periodic contributions throughout the year
1
(Agency funding)
(c) To
provide' the instruentality with fmds for any u -
uSually large anticipated disbursement(s) in order to
0
preclude undue attention which might betcreated by in-
'jectioh of a
large amount of fuds and:their iediate
withdrawal
(3) Funds as needed, will be made available to an
instruentality
through various appropriate funding mechanisnsfin coordination
with the Cover_
and Commercial Staff and the Office.f Finance_
Al1
funds received by the instrumentality will be deposited in
its bank account(s) Ivhose
use and 2uthorized signatories have
been
approved by the Operating Official responsibaa] for the
Dual signatories are
preferred on all bank accouts_
project
(4) Al1
bank accounts established'by instruentalities Vill be
to.the Office 6f Finance when opened, OT. notice
thezetedvili
be included a5 a
part of the first financial
submitted bf the instrunentality covering the period in
Tenchtthebbint
accout is established_ Data reported Till
include the name
and address of the bank; names and titles of
authorities; the reason Tvhy a accant is operable
signatory
signatory, if such is the case; and whether
only by a single
a
fidelity bond. Bank the signatories will be covered by
normally will be in the name of the instruentality
uncougtdeemedaopyrutionally inadvisable by the responsible
unless
Official
reported and € @lained concurrently to the
Operating
2 for review_ If the bank account is to bz
Director of Financc
in soile other nzne ,
"ppropriate protective control docutents
Will be cxecuted
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PLANS
9
PROURANS
}
AND PRQJECTS HB 230-1
4c .
(5) Requests for advances of fuds to instrumentalitics must jindi-
cate (a) the specific purpose of the advance; (b) the identity
of any intcrediate instruentalities used to introduce the
funds; and (c) the accounting treatent to be given the funds
in each receiving instruentality, 2s Tell as any other infor-
mation that Ivill assist in the clear identification of Agency
funding on overt records and stateinents_
(6) The concurrence of the Director of Finance and the Comptroller
and the approval of the Deputy Director concerned are required
for a transfer of funds to be. made betieen instrunentalities
Of different projects. Excepted fron this requirement
are
transfers involving payment for actual setvices rendered
rcimbursement of expenditures made in,behalf of the trans-
mitting instruentality, or accomodation funding:
REFUNDS
(1) All refinds from instruentalities to.the Agency ; Ivheth
6 peranent or temporary; must be explained by a memorandum
#rStating;the purpose of thle refund and the effect of the refud
on the overt records and statements oE the instrumentality.
(2) In` the event funds are to be returned to the Agency under
paragraph 4b(1) above the Operating Official having juris-
diction over
the project wili devise the method of repayment
in coordination with the Director of Finance and the Cover and
Comercial Staff_
AGENCY CERTIFICATIOV AND APPROVAL
The project' case officer tvill reviel financial statements submitted
by the instruentality (see paragraph 4n(3) belowv) and attach his
certification that 'to the best of my knowledge and belief the
statements are true and correct and the reported expenditures are
within the scope Of the project authorization_ 1 In addition, the
financial statements will be approved by an appropriate Agency
approving officer and forvarded to the Proprietary Systems Branch,_
Office of Finance_ at the earliest possible date and not later than
sixty days after the close of the accouting period; extensions of
tie will be granted by the Director of Finance upon appropriate
and reasonable recuest_ Approval procedures for the Iriteoff 0f
assets are outlined in HB 30-1 chapter VIII for cash and receivables
FROandtHR-45-6 foz inventorrdod pcopecto itens A copy of the financial
statements will be forwarded to the Office 0f the Coptroller _
UcI Then the instnentality is funded by more thzn one Agency component,
30 1975
the case officer certification and approving officer approval of
such components also' will be obtained. Cln
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S-E-C-R-E-T
PLANS PROGRAVS AND PRQJECTS
HB 230-1
4e
ACCOUNTING IN `AGENCY RECORDS
The OEfice of Finance is authorized to accept
the financial state-
ments referred to in paragraph d above, for appropriate recording
in the Agency' s systen of accots_
f.
PROTECTIOV' OF U.S. GOVERAVENT INTEREST
(1) In the case of
a stock-issuing instruentality
9
all purely
nominal stockholders (as Specifically differentiated from
Agency-controlled holding companies or
non-Agency connected
beneficial shareholders) either Will endorse in, blank at time
Of issue
the stock ccrtificates issued in their naes or
execute
all irtevocable Stock power covering the stock issued_
(2) In the case of a nons
tock-issuing instruentality
}
control
documents protecting the ty or other interests of the
Agency will be executed_ Those docuents may be overt or
classified and Ivill be prepared by the Office of the Geneial
Counsel-
'The classified' documents will be executed on behalf
of
the Agency by-the Special Contracting Officer
9'
Office of
i. Personnel
(3)
The executed stock certificates_
}
irrevocable stock polers.
declarations of trust
memoranda of understanding or other:
control docunents evidencing Agency equity or interest in
instruentalities Will be forwarded promptly to the Propri-
etary Systens Branch; Office o€ Finance
>
for recording and
custody_ Wvhen such docuents need to be retained by an in-
struentality_ the reasons that necessitate such retention
will be reported } to: the
Proprietary Systems Branch,_Office of
Finance, by the Operating Official responsible for the project.
This report will detail the documentation retained and the lo -
cation and' type of safekeeping facility in Which it is held;
and: include 2
Signed Statement of the custodian ackowledging
responsibility for the docuents: When possible
)
copies of
the docuents will accompany this report_
g
PERSOWNVEL POLICY
(1) Unless covered in the
project outline , certain personnel data
must
be included in the Administrative Plan: This should set
forth 2
table of organization; salary scales_
)
benefits and
allowances to be provided and a
statement of personnel
sclection procedures Such data will be revieled and approved
the Director of `Personnel FRobyi
uci 94 1975
Revised: 29 October 1974
H 50956 DOcId:38428332
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S-E-C-R-E-T
PLANS , PROGRAMVS , AND PRQJECTS HB 230-2
4h
(2)
Neither salaried employees o€ instrimentalities nor persons
engaged by instrumentalitiesin other than an employee status
will receive pay in excess Of the maximm rate oE a GS-15
unless approved by the Director oE Central Intclligence_
(3) No comitment regarding benefits or insurance coverages Iill
be made to personnel of an instruentality' until such proposals
have been reviewed and approved by the Deputy Director con-
cerned and the Director of Personnel_
(4) If cover
employment is to be
provided Agency personnel such
action requites prior COOrdination with the Cover and Comercial
Staff_ on an
individual basis_
(5) The employment of an individual who Will be responsible for
the maintenance of the instruentality accounting records Will
be subject to
approval by the Director of Finance:
h.
INSURANCE COVERAGE
(1)
The insurance program required by proprietary instruetalities
will
be coordinated with the Cover and Comercial Staff for
iplementation through MMIUAL facilities or through an
alternate method agreed upon by the responsible directorate
and the Cover and Coimmercial Staff. Insurance coverages
provided through MHMUTUAL include_
9
but are nlot limited_ to,
workmen` S
compensation, aviation marine and other equipment
coverages, property damage, liability; fire and , extended
coverages as well as those personnel coverages referred to
below_
(2) All staff and contract employees as well as detailed civilian
military personnel assigned to a
proprietary instrumentality.
are entitled to the statutory or contractual insurance bene-
fits applicable to them by reason 0f their Government employ-
ment status
All personnel directly hired by 2
proprietary
instruentality are entitled to the following:
(a) Life insurance and comi tents for death and disability
benefits in the perfomancc 0f duty in accordence with
RR 20-49_
(b)
Retirement pension ad annuity benefits if approved by
the Director of Personnel_
Icn FROMce)
Medical
and hospital insurance benefits if approved by
the Director of Personnel_ MHUTUAL does not normally
80 1975 either directly uderwrite or rcinsure these coverages
but the Cover
and Connercial Staff will provide ndvice
CIA and assistance upon. request_
MM 5p955 DocId:32423532 Page 205
and
RFCEV
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S-E-C-R-E-T
FIB 230-1 PLANS _ PROGRAMS = AND PRQJECTS
4i
i
CASUALTY PROVISIOV
See paragraph 5 beloly_
LEGAL SERVICES
The OEfice 0f General . Counsel at al1 times Ivill be kept advised 'of
the current status
of the legal requircments of the instrumentality
and will be responsible for accommodating its legal problems and
for approving the use and the fee of outside counsel_ attorney
used by an instrumentality will be selected or approved hy the
Office of General Counscl
k.
SECURITY POLICY
(1) Unless covered in the project outline there should .be a
statement in the
Administrative Plan outlining the security
requirements_ This should include the types of operational se-
curity approvals; physical and document security controls;
contact
and commicatios procedures between the instruentality
and ,the Agency; security indoctrination of personnel; procedures
for
periodic reviel of operational security and related matters
by CI Operations; emergency procedures if applicable; and
requirements for storage of classified or sensitive material
(2) An instruentality will be managed in a manner consistent with
its overt purpose to avoid disclosure of its true nature and
the Agency s connection Ivith it_ No non-Agency person Will be
made Witting of the true nature of an
instruentality without
prior.approval by both the Operating OEficial concemed and
the Director of Security. All persons considered for em-
ployment in an
unwvitting capacity also Ivill be reported For
approval with
approprizte biographic; information The respon-
sible
directorate may establish additional requirements and
procedures as
required.
1 Not used
M . AUDIT
An audit program will be developed and
implemented in accordance
Iith the requirements of HR 31-1_ The prior approval of the Chief,
Audit Staff is required for the employment 'of ther Ivitting or un -
witting public accoutants for 2udit puposes
SOM
UCi X0
1975
Revised: 29 October 1974
H# 50955 DocId:32423532
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PLANS , PROG_AS , HunD PROJECTS HB 230-1
4n
n_
FINANCIAL ACCOUNTING AND REPORTING
(1) The instrumentality Will maintain an accoimting and
2 finaincial
repor
system consistent with the dictates of cover and
security and approved by the Director of Finance-_
(2) The accounting system will provide
(a) full recording of the financial operation of each instrumen-
tality;
(b) control over and accountability for all funds property ,
and other assets for Ivhich each instruentality is re-
sponsible;
(c) information required for integration of instruentality
accountings into the accounting records of the Agency;
[Je (4) any other. financial or cost information required fpr
effective management of the instruentality by: thek re-
sponsible Operating Official
(3)
The instrumentality Will submit" the following financial state-
ments and related data on at least a quarterly basis
(a) Balance Sheet:
@) Statement of Income and Expense
(c) Suary Statement of Cash Receipts_
(d) Summary' statements of each transaction in Certificates
of Deposit and interest-bearing accounts
(e) Schedule of salaries to Agency staff and contract
personnel_
(f. Schedule of salaries and expenses
9
classified by general
categories
}
to directors and principal executives of
the instrumentality.
(g) Schedule of cash in bank.accounts with certification that
reconciliation Ivith instruentality accounts has been
made and reviewed_
FROM
(h) If an asset: has been written 'Off during the reporting
period 2 scheclule also Will be included with the fi-
QCt 30 14ts. nancial report describing the iten(s) Jritten 0EE and the
circust ccs that support the IriteoEE action_ Mrite-
CIA off actioil is subjcct to the approval procecures in
FHB 30-1 chwter VIII and HR 45-6 .
MI 50955
DocId; 3242Reviselye 28-October 1974
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S-E-C-R-F-T
PIANS, PROGRAMS A PROJECTS
HIHB 230-1
40
'(i)
Any other financial reports equired by the Office of
Finance and concurred in by the Agency component re-
sponsible for the project_
The statements will be certified as tre and correct by the
(4)
of the instrumentality. The statements will PIinciyafefiect Agetce iusding
for the covered or such
Eundslyill
be identified in a
covering merorandum Signed by
the
appropriate Agercy_approving officcr tdansmitecnz 'the
statements to the Office
Of Finance, including specific identi-
ficzeion of the manner in Which the' funding i5 recorded on the
books of the instruentality In addition, the; covering memo-
randum Will identify all fictitious accounts and anounts in-
cluded in asset liability capital
9
income
9
or expense accounts,
the balances of" Ivhich are distorted to cover present or antici-
pated Agency_funding or
interproject transfers of funds or
equipment If overt records must be deceptive for cover
purposes_
supplemental reporting,should complete &nd
eccurate' information for interal Agency records_
BORROWING LENDING_ AVD PLEDGTNG OF_ ASSETS
LT
concurrence QE the Director of Finance' ad approval of
The Director having jurisdiction over the instruentality
the Deputy
for borrowing or lending fuds or pledging any asset
are
required
Bank overdraft privileges will be con-
by an
instruentality.
the same concurrence and ap
sidered as borrowings and
borrowing or lending in order to
proval as
stated above - Notional
for approved funding pass Agency funds betveen instruentalities
does not
require the above concurrence and approval-
purposes
P
INVESTMENT POLICY
Operating Official wishes to invest funds that have
(1) When an
for retention in accordance Ivith paragraph 4b(2)
bboveaD2roveds
that are 3
portion of the thzee months normal
cash requirements he will forard to the Jirector opeFitince
for
his approval' & memorandun Tecommending the
investment of funds The memorandu recomending the in-
vestment %E funds Will provide the following data:
(a) Reason, for the investment.
of
investment recommended, restricted to the folloving;
RuKh Types
(1) U.S. Goveinnent securities.
cLl 30 1975 -
(2) Interest-hearing accouts or
Certificatcs o€ Teposit
GlA in meinber banks of the Federal Reserve Systcn only _
Revised: 29 October 1974
H# 509t5 DocId:3203532' Page 308
period
give
prior:
require
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S-E-C-R-E-T"
PLANS
2
PROC MS
}
rWD PROJECTS FFIB 230-1
4q
(3) Non-U.S. Covernment securities; list specific issues
reconmendedl for purchase_
(c) Maximum aount recommended for investnent in each type.
(d) Length of time investment of funds is anticipated.
(e) In the event of . investments in securities= state the nae
in Which they Ivill be registered and the type and location
of safekeeping facilities to be used for the securities.
(2) After initial approval of the Director of Finance, the instru-
mentality may_ at its discretion make continuing investnents
in U.S Goverment securities or in 'interest-bearing accouints
Or Certificates of Deposit of approved bank(s) having maturities
of one year or less _ Each purchase of Certificates of Deposit
having maturities of greater than one yYear and each investnent
in non-U.S_ Government securities must have prior apprqval of
the Director Of Finance and the Comptroller
q
REAL PROPERTY AND OFFICE : FURNISHINGS_
(1) The lease oF Teal property requires approval of the designated
Agency approving officer for the project concerned. Purchase ,
construction_
9
improvenents_
9
or alterations 0f real property
(except improvements or alterations included in approved
operating budgets) require approval of the designated approving
Officer for the project concerned and
2
in appropriete cases
9
the technical authorization of the Director of Logistics_
(The component responsible for the project Ivill maintain a
record of real property held by the instrumen tality, including
the followving information as
applicable: country or state of
location; type i.e: purchased or leased; size, i.e. square
footage of building and acreage of land; purchase price;
permanent iprovements or alterations totaling Sl;00U or more;
annual rental and term of lease, unless the property is acquired
for less than 12 months and the rent does not exceed S250 per
month_ This information will be made available to the Director
of Logistics upon request.)
(2) The procurement of office furnishings not included in approved
operating budgets requires the prior Writtcn approval of the
Operating Official responsible for 'the project.
SaoM;
IMITATIOV OV INDIVIDUAL DISBURSEVENTS AVD COVTRACTUAL ARRANGEVENTS
OCT 22 1*5
Except for funding transactions, ay disbursement in excess of
55,000 or contractual ar rangeinent of more than.12 months duration
CiA
requires the approval of the designated Agency approving
officer for the project concerned_
Revised: 29 October 1974 11
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S-E-C-R-E-T
PLAN} ROGRAMS AND PRQJECTS
HB; 230-1
4s
S.
SPECIAL ADMINISTRATIVE EXPENSE. POLICY
(1) Travel and
subsistencc expenses incurrcd in behalE of the
instrunentality by authorized representatives will be on
the basis of actual and necessary expenses_ Jhen actual and
necessary expenses excced the maximm allowable rate established
for reimbursement for actual expenses under HR 22-7_ the
claimant Will provide detailed justification Authorized
representatives may include stockholders 0 Eficers, directors,
erployees_ any individual retained in a
professional or inde-
pendent contractor capacity_ on 3 fee basis_
9
and staff agent or
contract personnel wlolly integrated_into_ the project_ Air
less costiy than first-class will be used to te Spcendticactecabfo
Wvhen first-class fares are paid,
2
such
payment will be
justified in Writing in the files of the
instruentality_
(2)
'Operational entertainnent expenses incurred by,any of the_
above personnel will_be_reimbursed on an actual cost basis_ in
accordance With HHBB 30-1 chapter IX, to the extent that such
are reasonable and necessary to the accomplishment of
expenses
operational objectives_
(3)
Directors of instrumentalities may be up' to $50 per
and travel ad subsistence expenses for `their attendance at
directors meetings_ except thzt the payment of SSO per
will not be allowed to directors having an employment. Te-
lationship with the Agency or with the instruentality _
(4)
Expenditures authorized in, paragraphs _ S (1) (2) and (3) above
will be revielved at
periodic intervals by the responsible case
0fficer to evaluate the necessity for such tures and
their reasonableness_
TERMINATION AND LIQUIDATION
The Administrative Plan Will provide that when 3
proprietary
(1)
thereof ceases to have operational value or project Se torhavee
such value in the imediate future the
will cease to
OEficial will prepare and submit: to the Deduoys blectoe ccicerOediforlhis]pprovaie
3 proposal to
Deputy
the project or a
thereof.
(2) The proposal will set
forth any conditions or considerations
Jci 30 1975' that have a bearing on the decision to discontinue the project
thereof &nd include the date that it is recomrended
or a part
X operations cease
The liquidation Will be prepared in accordance with the
(3)
provisions 0€ paragraph 6 bcla.
WW 50955 DocId: 32433532 Page 210 Revised: 29 October 1974
paid
day , paid
day
expendi-
part FROlerninatc
il_
plan
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PLANS
}
PROC S , #WD PRQJECTS HFBB 230-1
5
(4) If the proposal includes deactivation 0E any project instru-
mentality together Wvith a disposition of 2 portion of its
assets the memorandun Ivill set forth, in an attachment_
9
in-
formation concerning planned disposition, after settlenent: of
obligations
2
of cash and noncash assets of the instruentality.
The plan for partial disposition 0f assets requires the Saue
approvals as a liquidation plan.
5. CONTINGENCY CASUALTY PLAN
contingency_casualty plan should be prepared for instruentalities if
required by HR 20-49
6 . LIQUIDATION PLAN
Jen the Deputy Director concerned has approved liquidation and dis-
solution of a project instrumentality, a liquidation plan .Ivill be developed
by the responsible Operating Official to cover liquidation of theassets
and liabilities of the instrumentality as required by HR 230-8 and in
accordance' Ivith the format and substance set forth belol . It Wvill be
forwarded for approval as
provided in HR 230-8d
a_ Identification of instruentalityls) to be liquidated
b Approval for termination (cite approved proposal a5 required in
paragraph 4+(1) above)
A concurrence sheet showing concurrences in the applicable
visions of the liquidation plan by the designated representatives
of the General Counsel; the Director of Finance; the Chief Cover
and Commercial Staff; the Director of Logistics when real and
personal property holdings are involved; other Agency components
Ivhen theit functional responsibilities are involved; 2nd the Comp-
troller when assets of an estiated market value in excess Of
S50,000 are involved
d_ Financial Statements
Furnish a current statement of asSets and liabilities
2
and a pro -
jected statement of assets and liabilities at date of terination
to include terina- expenses_
Method of Liquidation RECZSDS
HH
(1) Party responsible for actual liquidation Explain how liquida-
O( 80 1975 tion of the instruentality will be handled, such 25
by princi-
agent , cleared and wi tting attorney , etc:
Cla
Revised: 29 October' 1974 13
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F 230-1 PLANS = PROGRAMS AND PRQTECTS
(2) How will the instruentality be disposed of?
(a) Jill it be disposed of intact? If s0, by bid, negotiation,
gift, etc. ; or
(b) Will the instrunentality shell be ' transferred to another
Agency project; or
(c)
Will the charter be terminated; or
(d) Will
the instrumentality continue to operate.without
Agency participation; or
(e) Will
the instrumentality be deactivated but retained in a
dornant state for future possible
Requirement if any for additional fuds to cover
liquidation and
estiated date oE financial liquidation
g
Disposition of ASsets and Liquidation
(1) If the instruentality is not to be sold intact_
>
how Wvill
noncash assets be disposed of? By bid, 'negotiation, transfer
to another Agency project; gift, etc 2
(2) Include
a
positive recomendation to be developed in consulta-
tion Ivith the Director of Finance for the disposition of all
cash assets including funds recovered or realized through the
liquidation process
Final Audit
The should provide for a
final audit before the instrentality
iS liquidated or sold_
1 Authorization for adjustment of Agency financial records for profit
or loss
A
positive statement that the Office of Finance is authorized to
ja
make necessary adjustments to the instrumentality' s investirent
account based 0 the final liquidation financial statement
FISCAL ANNEXES
a GENERAL
Use of the fiscal' annex is hased on the principle that accounting
requirements should be dctemnined by the nature of the Telationsnip
betiveen the instrurentality and the Agency , the clegree 0f control
REC54 TROM
Revised: 29 October 1974
uci R0 JN7S S-E-C-R-E-T
MY 50965 DocId:32423532 Page 212
use?
plan
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PLANS _ PROGRI #-VD PROJECTS HHB 230-1
7b
exercised by the Agency and finally_ the availability.o€ meaningful
accounting data within the instruentality: In this light, fixed,
pro forma accoun! requirements are not sought; rather
2
each case
Will be approached individually through the fiscal anner With a
vicly to establishing account requircments that will assure that
use oE Agency funds is controlled and adequately documented to 3
degree consistent with the: nature' 0F the instrumentality and its
relationship with the Agency: A fiscal annex is tequired for all
noncontrolled subsidies
C
b ACCOUNTING PRINCIPLES
The purpose Of the fiscal annex is to document the particular fiscal
realities Of an individual noncontrolled subsidy (IRR 230-8c(2) (c) (2))
The ' fiscal annex may authorize appropriate deviation from normal
Agency accounting requirements_ It should establish: funding arrange-
ments specific accounting controls financial reporting requirements_
2 and Iriteoff provisions: consistent both with the fiscal realities
and Ivith the Agency 5
tesponsibilities for proper use 'OF. funds
Account- control should be established through the use . of Agency
advance accounts
9
intransit accounts and memorandu accounts to
folloly the flow of funds from the case' officer to the ultimate
recipient_
FINANCIAL STATENENTS
Provision should be made in the fiscal annex for financial state-
ments to be used as the final element of accounting control through
uSe of Agency memorandum accounts
(1) when' financial statements are the normal practice of an instru-
mentality;
(2) Tvhen ` they are avaiiable to" the Agency within the operacional
relationship; and
(3) Ivhen. the Agency contribution is identifiable therein
USF OF CERTIFICATIOV AS EVIDENCE OF FULFILLNENT OF THE.PURPOSES
FOR JHICH FWNDS IERE ADVANCED
When meaningFul financial statenents are not available ard the
nature of the operation is such that insistence upon financial
is inadvisable it is considered appropriate ind con-
FROlEtenenti
with Agency practice to provide for docuentation Of
0 services rendered' in the form of 2 certificatior signed an Wt 30 1915
appropriate case officcr and approved by the designated Agency
approving oEficcr for the project concerned_ Such certification_
04
executed On recuests for advancc suhsequent to the initizl advance
should rcad substantially as follows:
15 Revised: 29 October 1974
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S-E-C-R-E-T
HB 230-1 PLAN S ,/ PROGRANS ,
AND PRQUECTS
I certify that to the best of my knowledge and belicf funds
advanced to this project have been or are being used for the
purposes for Which Tere drawn and further advances
are
Ivarranted_
In these instances appropriate evidence 0f receipt of funds by the
instrumentality or its representatives normally Ivill constitute
full accounting for use of the funds and no memorandun accoun
proccclure need be used:
USE OF CERTIFICATIOV FOR OPERATIOVAL REVIElV
In addition to the use of certifications to support use of funds ,
Operating Officials occasionally desire
to use this procedure to
ensure that appropriate periodic Teviel of the financial aspects of
the instruentality is accomplished by responsible officers.
In
such cases the fiscal annex may provide that certifications will be
the basis: for recording &nd clearing the memorandun account even
though accouting requirements are satisfied prior to such re-
cording ad.clearing_
Wr
f FINANCIAL DATA FOR OPERATIOVAL PURPOSES
Occasionally operational interest in projects requires that certain
financial infomation be obtained from the instruentality. This
information ordinarily consists of data regarding the use of' funds
that indicates that such use in general, consistent Ivith the
purpose of the project Although these data are of accounting
Sigificance_ the format_
}
arrangement and objective of the reports
may be in a fom that is not susceptible to technical treatnent and
recording in the accounts of the Agency _ In such cases the fiscal
annex should indicate that the financial report is required for
operational but not accoutability purposes_
&
REIMURSEMENT FOR OPERATIOVAL DEFICITS
If the amount %f Agency support is determined by the operating
deficit of an instruentality payments must be supported: by finan-
cial statements or other satisfactory evidence establishing the
amount of the deficit
ha FORMAT OF FISCAL ANNEXES
Although the format is not rigid, the sections described below are
the minimum requirerents of a fiscal annex _ Other sections may be
added as necessary .
"OM:
16 Revised: 29 October 1974
Uli
R0 1975.
H# 50455 DocId:32423532 Page; %+4 S-E-C-R-E-T
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PLANS
}
PROC S , NND PROJECTS HB 230-1
7h(1)
(1) Purpose_and_Instrumentality
Furish 2 brief_ sterile statenent of the nature and purpose
of the project and instruentality to be used Include 2
bricf description of the Agency S
telationship with the in-
strumentality sholving the degree of control that the Agency
can exercise over the facility in its uSC of: and accounting
for fuds _
(2) Funding
Describe the basis for advances to the instruentality, &d
the mechanisms to be used in introducing funds into the activi-
ty; state Whether it Ivill be funded by headquarters or specified
field stations_ special" or unusual requirements should be
set forth in this section_
(3) Accounting_and Writeoff
Define the accouting Tequirements applicable to the instru-
mentality and prescribe the docuentation required to permit
certification and Ivriteoff by the authorized certifying officer_
The use of memorandu accounts should also be described in
this section.
DISTRIBUTION: SPECIAL
RESEW' D FROM
OCt 20 135
Revised: 29 October 1974 17
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OGc 6-0331
3 February 1975
MEMORANDUM FOR: Director of Central Intelligence
SUBJECT: Proprietary Withdrawals and the Contingency Reserve
1. Ian attaching a memorandum of lawv entitled "Proprietary
Withdrawals and the Contingency Reserve 01 This was discussed Ivith'you
last week _
2_ It is obvious that a number of policy decisions and actions wvill
flow from this decision Our congressional committeas need to be appro-
priately informed _ the Comptroller will need to work certain adjustments
with OMB and I also believe there are certain policy decisions that the
Comptroller will have to work out with Finance with respect to pending
transactions which would have placed returns from proprietaries in the
Reserve. I shall send copies of this memorandum of law to all interested
components and will assist them in any way wish
Lli
JOHN $. WARNER
General Counisel
Attachnent
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T5Z530
3 February 1975
MEMORANDUM OF LAW
SUBJECT:
Proprietary Withdrawals and the Contingency Reserve
REFERENCES: A
Memo to DCI fr CICCs dtd 8 Jan 74, subj:
Project MHMUTUAL Policy
B .
Memo for the Record fr Comptroller , dtd 19 74 ,,
same subject
1. Reference A
recommended that there be returned to the Agency
Reserve starting with calendar year 1973 that portion of MHMUTUAL annual
profits not required for Project needs The Director approved the basic
paper on 8 February, but noted 00
surplus funds from MHMUTUAL earnings
m1 will be returned to the Treasury rather than the Agency Reserve
Reference B recorded 3
telephone decision by the Director that 01 Lwlhen
funds are withdrawn from proprietaries_ will be transferred to the
m} Contingency Reserve
2
The purpose of this paper is to examine the legal aspects of these
policy decisions The concept of the Reserve was established in 1952 as 2
means by which the Agency would have flexibility to fund projects or
activities which had not been
contemplated in the normal appropriation
request_ Its purpose was to create 3
mechanism to provide furds for-
unforeseeable requirements which would be more and secure than
the
supplemental appropriation procedure employed by other Governnent
agencies The Reserve has been funded by direct appropriation and by
transfer of unobligated appropriations at appropriate times after the close
of the fiscal year_ Funds were and are
released from the Reserve with
the approval of OMB with subsequent notice of each Reserve withdraival
furnished in writing to the tivo appropriations committees
REGEIVED FROM
Jun 30
E-2 IMPDET
64A
CL BX 000276
SEWRET
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SEEERET
3 & In lieu of a specific annual appropriation act for the Agency ,
OMB by letter notifies the chairmen of the twvo appropriations committees
that the Agency budget of a specific number of dollars is contained in the
DOD appropriation request: The letter also specifies the accounts in which
these funds are located In the past where there were appropriations to the
Reserve =
that letter would specify the amount of the operating budget and
the amount to be applied to the Reserve_ After committee action appropriate
letters sometimes separately and sometimes jointly signed by the chairmen
of the two committees are sent to OMB specifying what has been approved
for the Agency budget and confirming the accounts in which they are located_
Thereafter
9
the necessary transfers to the Agency are accomplished pursuant
to the authority of Section 5 of the CIA Act of 1949, which was specifically
worded as to
permit appropriations for the Agency to be placed in the
accounts of other agencies 2nd then transferred to the Agency free of 2l1
limitations and restrictions on the appropriation from which transferred_
The effect of this was to permitthose funds to be expended under the authori-
ties of the CIA Act of 1949 rz
ther than the authorities of the appropriation
acts from wvhich transferred_ A transfer under other authority such as the
Economy Act would require that the funds be spent in accordance with
limitations of the appropriation from which transferred both as to purpose
and annuality _ Unlike any other agency our " appropriation is the
process described above and consists of the followving Principal elements:
2 the OMB letter;
b the chairmen letters;
Ca the DOD appropriations act approved the whole
Congress and signed by the President; and
d the transfers to the Agency approved by OMB and
authorized by Section '5 of the CIA Act of 1949
4 _ The question then arises whether a return of money from 3
previously established proprietary can be placed in the Reserve and
Jater expended by the Agency under the There are several provisions
of law based on Article I Section 9 of the Constitution which states that "no
money may be drawn from the Treasury = but in consequence of appropriations
made by law hi Twenty years after the Constitution was ratified, the act
from which present law derives was enacted _ That is secton 628 of
Title 3] of the U_ S, Code which states:
Except as otherwise provided by law_
"# sums appropriated
for the Various branches of etpenditure in the public service shall
be: applied solely to the objects for which are respectively made, RECE'VEN
and no others
JUn 30 1975
1a
SEGZET
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SEERET
5 . Illustrative of the uniformly strict interpretation given to 31 U.S.C:
628 is a decision rendered by the Comptroller General to the Secretary of
the Treasury and reported at 37 Comp - Gen 732 (1958) In this case
Congress had authorized an appropriation for Payment of inequitable losses
in pay sustained by military officers under emergency economy legislation_
but did not thereafter include funds for this purpose when it enacted appro-
priations for the Treasury _ The Commandant of the Coast Guard had advised
3
subcommittee of the House Conmittee on Appropriations during appropriation
hearings that unless the Committee had an objection it was intended to pay
such claims for losses in pay from the Coast Guard appropriation for "Operating
Expenses n1 Thereafter the General Accounting Office Clzims Division deter-
mined that over S30,000 in such clairs were allowable , but the Comptroller
General was forced to conclude that no claims could be certified for payment
because there was no available appropriation earmarked for their payment_
Citing 31 U.S.C . 628 and stating the rule that "the appropriations provided
by Congress to the Federal agencies may be used for the objects for
which are made and no others 11 the Comptroller General decided that
the statement made by the Commandant before the House subcommittee did not
have the effect of making funds appropriated as "Operating Expenses" available
for payment of the special claims The Comptroller General held that the
appropriate recourse was to submit a request for appropriation to the Congress .
6 _ In 1849 the Congress 'sought to buttress the appropriation principle
set forth in the Constitution by passing a law from which is derived 31 U.S.C.
484 , which provides in part:
The gross amount of all moneys received from whatever
source for the use of the United States shall be paid by the
officer or agent receiving the same into the Treasury _ at as
early
a a5 practicable_ without any abatement or deduction
on account of salary _ fees costs charges, expenses or claim
of any description whatever
Also . Section 487 of 31 U.S.C, (originally passed in 1877) provides specifically
that all proceeds of sales of public property of any kind_ (tvith certain excep-
tions not relevant here) shall be deposited and covered into the Treasury as
Miscellaneous Receipts and shall not be withdrzwn or applied, except in
consequence of a subsequent appropriation _
Where the Agency makes funds available to establish a proprietary
or to add additional investments the funds arc recorded on Agency books
as having been expended and the Director certiEes to the expenditure
2hX
FROM
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under-section 8(b) of.the CIA Act of 1949 I am informed that when an
expenditure of this type is recorded on Agency books nevertheless , 3
memorandum account is maintained so that the Agency has a record of the
precise amount of Government funds invested in the proprietary _ I am also
informed that_ if a proprietary were to be fully liquidated with the proceeds
scheduled to go,to the Reserve but the funds returned are in excess of the
investment ; the excess would not be placed in the Reserve but would be
credited to Miscellaneous Receipts Where furds are returned to the Agency
from a proprietary the current procedure is for the Agency to "reverse"
the original expenditure entry and_ for those funds which are to go into the
Reserve, the Reserve account on the Agency books is credited _ with notifi -
cation to OMB
8 _ Let us take a hypothetical situation where 20 years ago the Agency
expended Sl million to establish & proprietary _ At that time the Sl million
would have been recorded 3s expenided , certified under the Director 1 5
authority for purposes contemplated by the appropriation of 20 years ago_
In the meantime _ that Sl million would have been spent by the proprietary
for salaries purchase of equipment _ or for other purposes The Agency
either supplemented its original expenditure with additional monies or the
proprietary might have made
a profit during these years _ This proprietary ,
at Agency direction now liquidates its activities including the selling of
assets Under: the Constitution and the laws cited above, it is my opinion
that the law requires all such return of funds to the Agency to be covered
into the Treasury as Miscellaneous Receipts
9 . The Agency may not legally expend these funds once again without
the approval of the Congress _ and Ky that [ mean the full appropriations
process and not merely the approva] of OMB and notification to our two
appropriations committees _ The essential element missing in this latter
procedure is that there has not beer an appropriation bill approved by the
Congress as 3 whole and signed by the President- In effect the Agency
would have had its appropriation supplemented without the full appropriation
process
8 lU~w~
IJOHN S, WARNER
General Counsel
RECE es) FROM
Jun 80 1975
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XOTES ON THE SCHEDULES OF GAIN OR LOSS
On THE SALE OF MHMUTUAL INVESTMENTS
Note #1
The MHMUTUAL. portfo] from Which the attached schedules 0f or loss
on the sale of investments were taken, is not an accounting document in the
sense that it is used to account for funds handled by the Activity. The purpose
of the portfol io is to provide management with a picture of the investments held
by the comp]ex at any point in time_ The portfolio is not audited per se, and in
past years no attempt was made to insure that each presentation tied directly
back to the previous portfol io; that has been done in recent years_ Due to the
Iack 0f audit, certain errors were not discovered; and were carried forward
to the present_ One example is on the 1970 presentation of the sales of stocks
to date_ The total sale price 0f S2,226,883.29 when subtracted from the total
purchase price of S2,246,793.93 results in a Toss of $19,910.64 instead 0f the
oss of ' $27,802.99 as shown under the co}um marked or (Toss) on sales_
The total on sales to date should therefore be S177,437. 51 _ For some un-
known reason, the baTance carried forward to the 1971 schedule of on the
sale of ty is stated as 5206,314.47 which involves an overstatement in the
cumulative on the sale of equity in the amount of S28,876.96. This error
has been carried forward to the present.
Note #2
The portfolio figures cannot be directly tied in with the financial state-
ments for MHMUTWAL in the case of bonds Since the statements reflect an average
cost for a]1 the bonds of 3 particular issuer, and the appreciation on 3 dis-
counted, bond is recorded as income each year with a comensurate increase in the
book value of tha bond.
Note #3
The only bond transaction during 1970 was the sale of S50,000 of U.S.
Treasury bonds = 'This transaction is found on the schedule titled 1t Debenture
11 Investments_
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Page 245
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CIA Domestic Real Property_Holdings*
CIA has a variety of real property holdings in the United
States ranging from the major overt Headquarters complex in McLean _
0| Virginia, to small leased 'gafehouse apartments in many cities
Real Property holdings also include seven
CIA-controlled installations
used as
training sites supply depots , research and development
centers
9
and communications transmitting and receiving facilities.
The 237 domestic real property holdings
are suarized for. this
report 48. follows :
a Overt or nominal properties (overt properties are
identified as CIA; nominal properties a8 Executive
Office of the President but CIA control is adnitted
request) of which there are sixty-two (62)
b Official cover
properties (identified as under the
control of other U.S Government agencies and CIA rela-
tionship is clasgified from . CONFIDENTIAL through TOP
SECRET) of which there are
fifty-three (53) ;
C Safehouses (properties generally apartments or resi-
dences and generally leased . acquired for covert meetings)
of which there are eighty-one .(81) ; and
* The information contained in this section has extreme sensitivity
as a grouped data package It lists the entirety of CIA real property
holdings and personnel assets in the United States as of 13 January
1975; accordingly, release unauthorized disclosure , or loss of this
information would have severe operational impact on the activities
of CIA
F 50955 DocId:32423532 Page 245
upon
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Page 246
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d Non-official properties (identified as private firms
which may be `wholly
or partially controlled CIA and
housing CIA employees) of which there are forty-one (41)
Attachment 1 lists CIA domestic real property and provides
specific addresses for all overt and nominal CIA real property
holdings _ Official cover properties , safehouses and non-official
properties are listed by general location Numbers of personnel
and utilization purpose are shown for each category of real property.
This report is developed 83 a real Property summary ; therefore,
personnel data supplied
are predominantly based on CIA space utili-_
zation reports , and' slight variation may exist: in some instances _
A linited number of CIA personnel are located in non-CIA-controlled
space for example , in the Pentagon = in private residences or in
comercial companies and these properties are not listed in this
real property sumary _ Non-official properties
not occupied by CIA
staff or contract employees are not listed. Attachment 2 1s a sum 4
mary sheet of all the previous figures _
HW 50955 DocId:32423532 Page 246
by
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Page 247
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"eL
cja 6I 0 C 1B ILT M723
S E C R E T Attachment 1
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Washington, D. C. & Suburbs
A Overt & Nominal_Properties
Langley Va Route 123 (CIA) 7,469 Hqs _ admin_ offices 8 printing bldg Washington, D. C_ Central Bldg 2430 E St. N.Wv . (CIA) 88 Technical labs 6 offices
Washington = D C. East Bldg. 2430 E St . N.W . (CIA) ' 28 Technical labs & offices Washington = D C. South Bldg. 2430 E St . N.W _ (CIA) 307 Technical labs & offices
Oxon Hill_ Md 10530 Riverview Rd_ (FBIS) 4 Counter-audio training & FBIS
antenna field Washington, D C. Yard, Bldg 213_ lst & M, S.E. (EOP) 1,265 Photo development & analysis Washington D. C- Yard, Bldg 159E_ lst & M, S.E. (EOP) 45 storage Washington, D C. Yard, Bldg 202 lst & M, S.E. (EOP) 0 Storage
Rosslyn , Va Ames Bldg . 1820 N. Ft _ Ayer "Dr _ (EOP) 510 Hqs _ admin. offices
Rosslyn, Va Bldg- 1200 Wilson Blvd. (EOP) 668 Hqs _ admin - offices
Rosslyn_ Va Magazine Bldg . 1815' N. Lynn St. (EOP) 340 Hqs = admin. offices
Franconia, Va (EOP) 213 Supply depot & RGD shops
McLean _ Va Tyler Bldg. 1759 Old Meadows Rd_ (EOP) 274 Elint 8 tech. adin. offices
Arlington, Va Chamber Comerce Bldg, 4600 N. Fairfax (EOP) 364 trng. offices
Alexandria, Va 901 Columbus Rd_ (EOP) 4 Technical training area Washington, D C. AJAX Bldg . 1901 Penna N. Wv . (EOP) 9 U.S_ resident contact
Arlington, Va 1000 Glebe Road (EOP) 9 FBIS photo & printing
B Official_Cover_Properties 8
3 Locations 18 Research & operational support
4 Locations 84 Translation & operational" support
1
1 Location 22 Foreign intell collection
1 Location 5 Supply . depot & ELINT training
Location 48 Counter audio lab & office
Location 8 Docuent research analysis
3
Location 15 Training lab 8 office
1 Location 62 Field investigation office
S E C R E T EZ CL By 029557
3
E
Cz:
Nawy
Navy Map
Navy
Key
Hqs _
Ave .
==================================================
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==================================================
S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
C Safehouses
37 Locations N.A. Covert meetings
D. Non-Qfficial Properties
1 Location 13 Manages agent accounts & cover
backstop
1 Location 1 Operational support (dormant)
Location L Foreign intelligence collection
2 Locations 13 Huan source assessment
L Location 3 Debriefing site
1 Location 3 Mgt. services For proprietaries
1 Location 2 Research & operational support
1 Location 2 Public opinion analysis
1 Location 16 Research admin_ office
1 Location 1 Travel support
1 Location 3 Translation
1 L,cation 3 Airline foreign operational supp,
1 Location 9 Airline covert admin. travel
1 Location 3 Covert procurement . general
1 Location 4 Covert comcrcial audit
Arizona 1 Non-Otficial Installation: 11 Aviation equip. RGD and procure
California
A Overt & Nominal_Properties
Los Angeles Ca 312 North Spring Street (EOP) 13 U.S. resident contact
8
San Francisco_ Ca Custons Hse 555 Battery St_ (EOP) 14 U.S. resident contact
San Diego , Ca Gross Ctr_ Bldg 3045 Rosecrans St_ (EOP) 2 U.S. resident contact
1
Hawthorne , Ca Fed = Bldg . 15000 Creation Road (EOP) 1 Personnel 6 recruiting ffice
5 E C R E T EZ CL By 029557
1
n 3 9 a W
3219
E] I7 3
6
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Je
EI L_ [R 5 [LI LE
S E C R E .T
DOMESTIC REAL PROPERTY LISTING
Location Street Address Personnel Purpose
Califoria
B Official_Cover_Properties
38 Field investigation office
2 Locations
14 Foreig intelligence collection
2 Locations
Location 14 Papef plant
8 Field procurement office
Location Field supply office
1 Location
22
Gen. admin. support to sensitive
1 Location projects
3 Air logistics' support
1 Location
1
Audit of covert operations
1 Location
C Safehouses
N.A_ Covert meetings
12 Locations
D_ Non-Official_Cover
9
Covert Commercial investigation
I Location
4 Foreign intelligence collection
1 Locations
19 Management 8 admin. f sensitive
1 Location projects
13 Contractor liaison, sensitive
3 Locations projects 8
Colorado"
A. Overt 8 Nominal _Properties
0
Denver , Co Bankers Bldg 2401 E Znd St. (EOP) U.S. resident contact
Denver , Co Bldg. 56 DFC , 6th & Kipling Sts. (EOP) Field recuriting office
Connecticut
A Overt & Nominal_Properties
7
Hartford, Ct Fed. Bldg . 450 Main St_ (EOP) 3 U.S: resident contact
6
S E C R E T E2 CL By 029552
1
(Tw
==================================================
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S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Florida
A_ Overt 6 Nominal_Properties
West_ Fl U.S. Naval Base (FBIS) 5 Foreign broadcast station
Coral Gables_ Fl RGN Bldg. 299 Alambra Cir_ (EOP) 6 U.S. resident contact
B QEficial_Cover_Properties
2 Locations 25 Foreign intelligence station
1 Location 33 Foreign COMIO center
L Location 16 Field investigation office
C Safehouses
2 Locations N.A. Covert meetings
D Non-Offical Cover
1 Location 3 Administers survivers benefits
2 Locations RGD and procurement = aviation
equipment
1 Location 9' Cuban propaganda operations
Georgia
A Overt 6 Nominal Properties
Atlanta, Ga 3 Dunwoody Park (EOP) 3 U.S. resident contact: 8
B_ Official_Cover_Properties
1 Location 6 Foreign intelligence collection
!
Hawaii
A_ Overt '& Nominal_Properties
1
Honolulu, Hi Dellingham Bldg. 735 Bishop St. (EOP) 3 U.S. resident contact
0 $ S E C R E T EZ CL By 029552 1
J T [ 3 2] Z} #I}
1
6
Key
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Page 251
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C C EE C CM LC [2 ( . D CI
S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street Address Personnel Purpose
Hawaii
B_ Official Cover Properties
1 Location 5 Field liaison CINCPAC
1 Installation 9 Commo' relay station
Illinois
A Qvert & Nominal _Properties
Chicago_ Ill Derksen Bldg. 219 $ Dearbor St. (EOP) 1 Field recruiting office
Chicago, Ill Derksen Bldg . 219. S Dearbor St. (EOP) 10 U.S_ resident contact
B_ Official_Cover_Properties
1 Location 22 Field Investigation office
1 Location 11 Foreign intelligence collection
C Safehouses
2 Locations N.A. Covert meetings
Indiana
A_ Overt 8 Nominal Properties
Indianapolis_ In Fed . Bldg. 46 E. Ohio St. (EOP) 2 U.S- resident contact 2
Louisiana
As Overt & Nominal_Properties
New Orleans , La Masonic Bldg. 333 St. Charles St. (EOP) 2 U.S. resident contact
S E C R E T E2' CL By 029552
1e?
==================================================
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'S E C R E T
DOMSTIC REAL' PROPERTY LISTING
Location Street_Address Personnel Purpose
Massachusetts
A Overt 8 Nominal_Properties
Cambridge, Ma Beta Bldg. 545 Technology (EOP) 12 U.S. resident: contact
Boston , Ma Fed _ Bldg . Goverment Center (EOP) L Field recruiting office
B Official Cover_Properties
1 Location 13 Field investigation office
Location 7 Foreign intelligence collection
C. Safehouses
2 Locations N.A. Covert meetings
Maryland
A_ Overt & Nominal_Properties
Highland Pk, Md 14048 Woodward St_ (EOP) 7 U.S, resident contact
Baltimore= Md 103 S. Street (EOP) 2 U.S. resident contact
B Official Cover Properties
1 Location 11 Maritime research & training
1 Location 6 Security liaison
L Location Training facility 3
Safehouses
1 Location N.A. Covert meetings
1
S E C R E T EZ CL By 029552 0 0 1
JJ M} D} 13 @# .40 0 1
6
Gay
)J)
==================================================
Page 253
==================================================
Im ( LZ Ez LI CI . @0 0r ET
S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Minnesota
A Overt 8 Nominal_Properties
Minneapolis . Mn Fed. Bldg Ft. Snelling (EOP) 7 U.S. resident contact
St. Paul _ Mn Fed. Bldg. 316 Robert St_ (EOP) 1 Field recruiting office
Missouri
As Overt 6 Nominal Properties
St. Louis Mo Fed. Bldg. 1520 Market .St (EOP) 6 U.S = resident contact
Overland Vo_ MPRC Bldg: 9700 Page Blvd. (EOP) 2 Field investigation office
Kansas City _ Mo Fed. Bldg . 601 East 12th St: (EOP) 1 Field recruiting office
Nevada
A Overt & Nominal Properties
None
B Official Cover_Properties
35 Training 6 RED installation
1 Location
New York
3
A Overt 6 Nominal Properties
1
New York, NY: 575 Lexington Avenue (EOP) 28 U.Sa resident contact
New York, .NY Fed. Bldg_ 26 ` Federal Plaza (EOP) 2 Field recruiting office
Niagara, NY
United Office Bldg; 220-222 First St. (EOP) U.S_ resident contact
Schenectady , NY 650 Franklin St _ (EOP) 3 U.S. resident contact
Syracuse , NY Loew Bldg. 108 W. Jefferson St_ (EOP) 5 U.S: resident contact
S E C R E T EZ CL By 029557
7
77
6
==================================================
Page 254
==================================================
S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
New York
B_ @fficial_Cover_Properties
1 Location
1 Location
30 Foreign intelligence collection
1 Location
22 Field investigation office
2 Photo procurement , foreign persons
C Safehouses
23 Locations
N.A- Covert meetings
D. Non-Official_Properties
1 Location
2 Locations 9 Foreign newspaper service
2 Locations
11 Foreign intelligence collection
3 Locations 7 Proprietary management services
1 Location
28 Overseas book distribution
2 Contractor" 5 Liaison North Carolina
1 Offical Cover Installation
24 Field training facility
Ohio
As Qvert & Nominal_Properties
Cleveland Oh Fed_ Bldg- 1240 E 9th St (EOP) 3 U.S: resident contact Cincinnati . Oh Fed. Bldg- 553 Main St. (EOP) 3 U.S. resident contact 3
B Qfficial_Cover_Properties
1 Location
5 Foreign intelligence collection
1
S E C R E T EZ CL By 029557
1
08 1
LI} X% 3 FIJ
1
6
==================================================
Page 255
==================================================
DD) C OM (C: (Z3m (B FC
S E C R E T
DOMSTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Oklahoma
A_ Overt & Nominal_Properties
Tulsa, Ok Center Office Bldg. 630 W. .7th (EOP) 2 U.S. resident contact
Oregon
A Overt 8 Nominal Properties
Portland, Or Courthouse Broadway 6 Main Sts. (EOP) L Field recrui- office
Pennsylvania
A Overt & Nominal_Properties
Philadelphia_ Pa Fed . Bldg 600 Arch Street (EOP) 7 U.S_ dent contact
Philadelphia Pa Fed . Bldg 600 Arch Street (EOP) 1 Field recruiting office
Pittsburgh, Pa Fed_ Bldg - 1000 Liberty Ave (EOP) 8 U.S_ resident contact
Pittsburgh, Pa Fed . Bldg 1000 Liberty Ave. (EOP) 1 Field recruiting office
Tennessee
1 Non-Official Installation (47 Company) Aviation equipment procurement 8
RGD 5i
Texas
A. Overt & Nominal_Properties
1
Austin, Tx Fed _ Bldg . 300 E_ 8th St _ (EOP) Field recrui office
Austin, Tx Fed: Bldg. 300 E_ 8th St. (EOP) U.S_ resident contact
Dallas Tx Courthouse, 1100 Comerce St. (EOP) U.S. resident contact
Houston_ Tx Courthouse, 515 Rusk Ave _ (EOP) U.S. resident contact
1
B. Official Cover_Properties
1 Installation 2 Ordnance depot
1
S E C R E T E2 CL By 029557
1
El
ting
resi
ting
==================================================
Page 256
==================================================
S E C R E T
DOMESTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Texas
C Safehouses
1 Location N.A: Covert meetings
Utah
A Overt & Nominal_Properties
Sait Lake, Ut Fed_ Bldg . 125 S. State St_ (EOP) 2 U.S. resident contact
Virginia
A Overt & _Nominal _Properties
Richmond , Va Fed. Bldg 400 N. 8th St. (EOP) 3 U.S. resident contact
B Official Cover_Properties
1 Installation (4 Stations) 286 Records Center Training, RGD,
Commo Facilities
1 Installation 76 Field Training Site
1 Location 72 Technical RED
1 Installation 3 RED project_
Location 0 Minor ordnance storage
Washington
A Overt & Nominal_Properties
3
Seattle, Wa Courthouse, 1010 Fifth Ave_ (EOP) 5 U.S. resident: contact
1
B Official_Cover_Properties
1 Location 24 Foreign' equipment analysis
S E C R E T Ez CL By 029557
00 1
JJ_ C ED} C1
1
6
==================================================
Page 257
==================================================
EC . C M Et LD
S E C R E T
DOMSTIC REAL PROPERTY LISTING
Location Street_Address Personnel Purpose
Washington
C Safehouses
1 Location N.A. Covert meetings
D Non-Official_Properties
1 Location 3 Contractor liaison
Wisconsin
A Overt 8 Nominal Properties
Milwaukee , Wi Courthouse, 517 E:' Wisconsin Ave. (EOP) 2 U.S. resident contact
9
1
==================================================
Page 258
==================================================
Attachment 2_
SECRET
CIA Domestic Real Property Sumary Sheet
Overt' &
Location Nominal Official Safehouses Non-Qfficial TOTAL
Washington _
9
D. C. and
Suburbs 17 13 37 16 83
Arizona 1
Califoria 10 12
9
35
Colorado 2
Connecticut
Georgda
1
2
12
Hawaii
1
3
Illinois 2
Indiana
Louisiana
1
Masgachdsetts
1
3 2
6
Minnesota
issouri 3 _
Nevadork
5 23
48
3
North Carolina
1
3
Ohio
Oklahoma
3
Oregon
1
Pennsylvania
Tennessee
Jcans 1
1
Viskington
1
8
Wisconsin
TOTALS 62 53 81 41 237
SECRET
6195 Dotl {32423532 Page 258
==================================================
Page 259
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2 9 Aug 1973
MENORANDUM FOR: Deputy Director for Science and Technology
Deputy Director for Intelligence
Deputy Director. for Managerent end Services
Deputy Director for Operations
IRO Inspector General
SUBJECT Questionable Activities
1 As an aspect of the allegations of improper CIA activity
I0 connection with the Watergate 2nd associated matters the'
Inspector General was directed' to assemble all information avail-
able in the Agency on any such activities_ Certain specific matters
were provided to him, and the Director by menorandum of 9 May' 1973
drected all employees to report any activities
$
current or past _
9 "hich might be construed to be outside the legislative charter of
thig Agency _ 0 This information was assenbled and consolidated by
tbe Inspector General in a memorandun: of 21 1973 and certain
Individual menoranda thereafter supplementing it_ This naterial
Vas used in 8 detailed
9
page-by-page review of all such infornation
tb Senator Symington and Congressman Nedzi
9 as Chairuen of the
Senate and the House Arzed Services Intelligence Subcoznittees
respectively In addition, I undertook very Specific comitments
Jo my confirmation heerings to 'ensure that the Agency will remain
Hthin its legislative charter_ I am errenging for the published
transcripts of those hearings to be circulated throughout the
Agency for compliance
9
and at that time vill reaffirm the specific
drection made by Dr _ Schlesinger in his nenorandun of 9 1973.
Is will also be incorporated into appropriate regulations _
2. With respect to the specific questionable activities vhich
vere reported as 8 result of the search made throughout the Agency ,
hovever I believe it essential to take specific action in order
tbat these not seem to be condoned or overlooked_ I beve therefore
developed specific instructions
on each reported activity. These
are' Included in the 'attachnents to this memorandum
9
and have the
{orce of specific direction to you to pass on to appropriate
sWbordinates the instructions outlined. Separate packages of such
Instructions are being developed for each Directorate in order to
respect the sensitivity of sone of the activities discussed,
thbose which are deemed quite appropriete within CIA's cherter
FROM
JuN 25 1975
impdet Cc Bv_
dsecJj
SECRET-EYES CXLY
MY 50955 DocId42422632_ Patte 252
220
May
May
includj
Ing
==================================================
Page 260
==================================================
Sinllarly , each activity is placed on 8 separate page So that the
Deputy Director concerned may most easily forvard it the office
or offices directly concerned vithout distributing it nore broadly.
3. Io the event that these instructions raise substantial
difficulties of implenentation or compliance I vould eppreciate
your raising such cases vith me directly with vhatever recormenda-
tions you may have for nodification to carry out the spirit of the
ection undertaken here but to avoid undue disruption of legitioate
activities In the absence of such notice I will expect full
compliance with the instructions_ outlined herein_
Each addressee Deputy. Director is instructed reconjend
to tbe DDMES modification or addition to Agency regulations of
appropriate language to reflect the direction included in this
memorandum and attachnents addressed to hin. DDM&S vill be
responsible for consolidating such recomendations and making an
overall report to the Director through the IG_
9
coordinating with
General Counsel_
UFC22_
H. E. Colby .
Attechnents
(27 1973)
{ortgtnal
IG
1 Mr _
1
#~ DDSGT
1 DDI
1 DDMES
1
0 DDO
1
0 Ogc w/o
1 2 OLC
atts
0 w/o atts 1 ER (w/o atts
4 held in IG file)
FROM
JUN ?5 1975
2 # ca
SECRET-EYES ONLY
HM 50955 Doctdi32422522 Page
#a
260
to
to
ec:ydc
August
berIbution:
Colby
belng
==================================================
Page 261
==================================================
MEMORANDUM
SUBJECT: Donestic Proprietary Coupanies
Corporate cover, 8S managed by the Cover and Comnercial Staff ,
18 an appropriate support for pur oversees operations To the
degree thet donestic proprietary or cover companies are required,
8 cleer Justification will be developed as to the relationship of
their support of our overseas operations _
RECEK?) FROM
JUn 25 1975
GIa_
SECRET-Ex33 Oxly
HW 50655 DocId:32423532 Page 261 0 1
==================================================
Page 262
==================================================
MEMORANDUM
SUBJECT: Project MUTUAL
Project MMUTUAL will be operated in conformance 'with appro-
priete Jegal restrictions _ Arrangenents are being made for the
briefing of the appropriate Congressional cornittees Particular
attention vill be given to avoiding any possible conflict of In-
terest situations vith firs with which the Agency has contracts:
Particular concern vill &ls0 be exhibited over possible inproper
Influence On tbe stock market Or stock dealings througk the in_
vestments involved in MMUTUAL .
REOT: /755 FKOM
Jun 25 1975,
GIA
HW 50955 ocId:32423532 Page 262
SEGET-EiES GLY
72 3
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Page 263
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EZF
Ezs CLV
MEMORANDUM
SUBJECT: Domestic Proprietary Companies
Corporate cover, a5
managed by the Cover and Commercial
Staff, i3 an appropriate support for our; oversea S operations: To the
degree that domestic proprietary or cover companies are
reduired,
8 clear
justification will be developed as to the relationship their
eupport of our oversea8 operations:
Suggested addition:
Corporate cover including notional companies, 38 managed
by the Cover and Commercial Staff=
#
is an appropriate support for
Out oversea: operations. To the degree that domestic propfietary
Or cover
companies are required, a clear justification will pe
developed a9 to the relationship of their support of our overseas
operations.
25
SEX7
71955 DooId:32423532 Page 263
EVES Fz
RECEV
1975
Yur
Cla
==================================================
Page 264
==================================================
SEE1
EzS @LV
MEMORANDUM
SUBJECT: Project MHMUTUAL
Project MHMUTUAL will be operated in conformance witl
Ppropriate legal restrictions. Arrangements are being madelfd
the briefing of the appropriate Congressional committees.
Particular attention will be given to avoiding any possible confiid of
Dterest situations with firms with which the Agency has contracts.
Particular
concern will also be exhibited over possible impropler]
(luence on the stock market or stock dealings through the invest-
Gepts involved in MHMUTUAL:
The DDO has no
em with this a8 writtena
#5
8327
44955 DocId:32423532 Page
2EVES @LV
proble
RL;:
49975
JUN